TaxTMI 
TaxTMI 
2026 (9) TMI 1691
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....through a proprietorship concern, Design Studio and Architect (DSA). The assessee is also a partner in the firm M/s Shri Balaji Saravara and M/s DSC Constructions & Developers. For the captioned AY, the assessee filed its ROI under section 139(1) of the Act on 29-09-2023, offering an income to taxation to the tune of Rs. 46,97,800/- only. 3.1 Subsequently, the assessee was subject to search proceedings under section 132 of the Act as on 14th October 2023. During the search, in addition to cash of Rs. 41,21,52,000/-, jewellery worth Rs. 10.43 Cr, and luxury watches worth Rs. 1.7557 Cr, the search team found and impounded various documents in the form of diaries/scribbling pads/loose sheets. In relation to the materials found during the search, the statement of the assessee under section 132(4) & 131(1) of the Act was recorded on various occasions during the search proceedings as well as during the post-search proceedings. The statements of other persons such as employees & associates of the assessee and certain persons to whom the assessee has provided services were also recorded in relation to the search materials. 3.2 As a result of the search proceedings, the return of the ....
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....during the search and post-search, his statement was recorded u/s 132(4) of the Act, wherein he explained that the cash found and seized as well as the entries appearing in the seized material represented business transactions. According to the assessee, the Investigation Wing never disproved these statements. 3.7 The assessee further submitted that the Investigation Wing had examined three persons whose names appeared in the seized materials. These persons confirmed on oath that they had availed architectural services from the assessee. After the case was handed over to the AO in September 2024, the AO also carried out detailed enquiries and cross-verification. As many as 53 persons were examined, and they confirmed that they had availed architectural services from the assessee. Further, 24 persons also confirmed the same in response to the notices issued u/s 133(6) of the Act. 3.8 It was also submitted that the AO and the Joint Commissioner had carried out detailed enquiries over several months. The AO obtained confirmations from about 250 to 300 customers relating to the relevant six assessment years. Therefore, the observation of the Ld. PCIT that only 10% to 12% of the b....
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....Rs. 33.34 crores and unexplained expenditure of Rs. 11.60 lakhs. The seized material was handed over to the AO only in September 2024. Though the AO issued notices calling for the names, addresses and other details of the persons appearing in the seized material, sufficient time was not available to conduct enquiries from all such persons. 3.15 The Ld. PCIT further observed that although the AO conducted certain enquiries, the verification was based only on the list furnished by the assessee and not on the specific entries appearing in the seized material. The identities of the concerned persons, the nature of the transactions, and the correlation of the seized entries with actual receipts and payments were not properly examined. 3.16 The Ld. PCIT also observed that the assessee's plea regarding inadequate enquiry was without merit since the AO had failed to make the necessary enquiries required on the basis of the seized materials itself. The contention regarding "dumb documents", absence of corroborative evidence, change of opinion, and borrowed satisfaction was also rejected. It was further noticed that in the assessments of the other assessment years, the Ld. AO condu....
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....notice u/s 263 of the Act observing that the materials recording the transactions about Rs. 71 crores relating to AY 2023-24 had been seized, whereas the AO had verified only about 10 to 12% of 2,000 plus bills and vouchers produced by the assessee. The learned AR contended that the notice issued by Ld. PCIT itself confirmed that the AO conducted the enquiry. The dispute of the Ld. PCIT was only that the sample selected by the AO was not large enough. It is not a case of "lack of enquiry". At the highest, the objection of the Ld. PCIT is regarding the extent or adequacy of the enquiry made by the AO. 5.3 In this regard, the Ld. AR relied upon the decision of the Hon'ble Delhi High Court in the case of ITO v. DG Housing Projects Ltd. reported in (2012) 343 ITR 329 (Delhi), particularly paragraphs 16 to 18. It was submitted that where an AO has conducted an enquiry, but the ld. Commissioner considers that enquiry inadequate, the ld. Commissioner cannot invoke revision merely because he wants a further or deeper enquiry. In such a case, the ld. Commissioner must examine the records himself, conduct the necessary enquiry and record a positive finding showing how the assessment order....
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..../s 131 of the Act and notices u/s 133(6) of the Act were issued. Those persons confirmed receipt of consultancy services from the assessee. Across the relevant search years, approximately 600 enquiries were initiated and more than 500 were completed. 5.7 The Ld. AR submitted that paragraphs 14(v) and 15 of the assessment order also showed that the AO considered client confirmations, depositions and responses received pursuant to notices issued u/s 131 and 133(6) of the Act. On this basis, the AO examined the assessee's business model as well as the cash system of accounting followed by him. Vide para 17 of the assessment order, the AO examined the location of the bills, vouchers and receipts and also made enquiries regarding the persons with whom such documents were kept. Therefore, it was incorrect to suggest that the AO had not examined the documents or the persons connected with them. Furthermore, the AO also made detailed enquiries regarding the digital Excel files seized from the assessee's mobile phone. Through the statements recorded during the assessment, the assessee explained the figures in these sheets. The AO did not blindly accept this explanation. As record....
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....e of s. 263 of the Act refers to the materials available for examination by the Ld. PCIT. Revision cannot be justified on the basis of hindsight or evidence subsequently gathered during proceedings for other assessment years. Therefore, assessments subsequently completed for other years could not form the basis for revising the assessment for AY 2023-24. In any event, the assessment orders for AYs 2019-20 to 2022-23 and AY 2024-25 were themselves pending in appeal before the Ld. CIT(A) and had not attained finality. 5.11 The Ld. AR also challenged the observation of the Ld. PCIT that the assessment proceedings were completed without sufficient enquiries because of the statutory time limit. It was submitted that a time constraint by itself cannot justify revision u/s 263 of the Act. Otherwise, every assessment completed close to the statutory limitation date would become liable to revision. 5.12 The Ld. AR also rebutted the Revenue's contention that the assessee supplied the customers' names rather than the AO directly identifying them from the seized materials. It was submitted that the loose entries did not contain complete addresses. Therefore, the AO required the a....
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....nted income of earlier years. However, no exercise was made to determine how much of such income related to the year under consideration. 6.3 The Ld. DR submitted that this was not a case of merely inadequate enquiry or a change of opinion. According to him, necessary enquiries on the seized entries themselves were not made. The assessment was completed on 31.03.2025 when several matters were still pending for verification. The assessee had also sought further time for obtaining confirmations from clients, but the assessment was completed without waiting for the same. 6.4 The Ld. DR further opposed the assessee's contention that the seized papers were merely dumb documents. He submitted that the assessee had himself claimed ownership of the seized annexures and had explained most of the pages during his statements. He had also stated that several transactions were outside his regular books. Therefore, the nature and effect of these entries required proper examination by the AO. 6.5 Accordingly, the Ld. DR submitted that Explanation 2(a) to section 263 of the Act was clearly attracted, since the assessment order was passed without making enquiries and verification which....
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....rned on the projects. Therefore, the AO also considered the assessee's subsequent explanation and retraction while taking a possible view. 7.4 The extent of enquiry becomes still clearer from para 14 of the assessment order. The assessee had produced more than 2,000 bills, vouchers and payment receipts relating to his customers. The AO did not simply accept these documents. Notices u/s 133(6) of the Act were issued for independent verification. Summons u/s 131(1) of the Act were also issued. Persons were examined and their statements were recorded. Responses received to the notices u/s 133(6) of the Act were also examined. The AO thereafter recorded the result of such verification. Thus, there was independent enquiry by the AO. The assessee had also specifically pointed out before the Ld. PCIT that several persons had confirmed having availed architectural services from him. 7.5 Paras 15 to 18 of the assessment order are also important. The AO considered the assessee's explanation regarding the cash seized and the income offered as a result of the search. The AO did not accept the assessee's explanation in full. The AO thereafter summoned the assessee and recorded....
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....insufficient cannot convert the present case into one of "no enquiry". In the light of the above observation of the assessment order, we are of the considered opinion that the AO has made inquiry and, based on such inquiry, drawn an inference. However, the learned PCIT found the inquiry made by the AO to be insufficient. 7.11 We note that the main objection of the Ld. PCIT is regarding the extent of verification carried out by the AO. According to the Ld. PCIT, more persons and more transactions ought to have been verified. However, the show-cause notice itself records that the AO had verified about 10% to 12% of more than 2,000 bills, vouchers and payment receipts produced by the assessee. Thus, the case of the Ld. PCIT itself proceeds on the basis that enquiry was made by the AO. The dispute is essentially regarding the extent of such enquiry. Once the AO conducted enquiries, made thirdparty verification and thereafter took a view on the basis of the materials before him, the assessment order, in our considered view, cannot be treated as one passed without enquiry merely because the Ld. PCIT considered that the verification should have been wider or deeper. 7.12 In this reg....
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....to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CI....
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....ible view. The Hon'ble Gujarat High Court held that the revisional power u/s 263 of the Act cannot be exercised merely to direct a fuller enquiry when the AO has already made enquiries and applied his mind. It was further held that Explanation 2(a) to section 263 of the Act does not permit the Ld. PCIT to set aside an assessment merely because, in his opinion, further or more detailed enquiry was required. The Hon'ble Supreme Court found no reason to interfere with the said decision and dismissed the SLP filed by the Revenue. The relevant observation of the Hon'ble High Court reads as under: 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." "17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of th....
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....of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter that, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interests of the revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal. 15. In the light of the foregoing discussion, we answer the question referred to us in the affirmative, that is, in favour of the assessee....
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....ddition further shows that he had independently examined the materials before him. 7.18 We also find substance in the contention of the Ld. AR regarding the reliance placed by the Ld. PCIT on assessments for AYs 2019-20 to 2022-23 and AY 2024-25. The assessment order for the year under consideration was passed on 31.03.2025 and the notice u/s 263 of the Act was issued on 15.04.2025. However, the assessment orders for the other years referred to by the Ld. PCIT were passed only on 31.03.2026. Thus, these assessment orders did not exist when the Ld. PCIT initiated proceedings u/s 263 of the Act. They could not, therefore, have formed the basis for the Ld. PCIT's satisfaction at the time of initiation that the assessment order for the year under consideration was erroneous and prejudicial to the interests of the Revenue. Further, the assessments for the other years were stated to be pending in appeal before the Ld. CIT(A) and had not attained finality. Each assessment year has also to be examined on its own facts. Therefore, the subsequent assessments cannot, by themselves, establish that the view taken by the AO for the present year was erroneous. 7.19 We further note that ....