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TMI Blog2022 (12) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 2 of the said notice. In response to the same the assessee had filed reply dated 20-12-2017 in which assessee filed an explanation in response to the same - balance sheet of the assessee as on 31st March, 2015 shows that the assessee has own capital of 5.26 crores at its disposal i.e. the assessee has substantial interest-free funds available with it. Further, we also observe that in the assessment order the AO has discussed the aspect of addition under section 14A and has also made disallowance in respect of the same. We observe that this is not a case where there was an omission on part of the AO to examine this aspect of disallowance of 14A/ 36(1)(iii) of the Act at all. The AO had put a specific question before the assessee during the course of assessment and taken his reply on record. Further the assessing Officer had also discussed this aspect as part of assessment order. This is not a case where no enquiry has been made by the assessee officer during the course of assessment proceedings. It is also not the case of the Pr. CIT that the AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s Instruction dated 19.06.2015. 3. The Ld CIT erred in law and on facts in directing the Ld. AO to make disallowance u\s. 14A in spite of the fact that no claim of interest expenses was made by the appellant, which was received and given @ 9%, in spite of all details, including that of HDFC OD account were filed before the Ld. AO vide reply dated 20.12.2017. 4. The Ld CIT erred in law and on facts in considering that the Ld. AO has completed the assessment casually without making inquires or verification that should have been made. 5. The Ld. CIT passed order u/s. 263 almost 9 months after the last hearing and leveled allegations of non compliance when none was ever called for. The order being in gross violation of principle of natural justice is liable to be set aside. 6. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of appeal." 3. The brief facts of the case are that the Principal CIT observed that the assessee has invested cash of ₹ 3 lakhs on 15-11-2014 and of ₹ 605,000/- on 01-12-2014 in M/s D Jewel, where the assessee is also a partner. The Princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect to hold that the assessment order was erroneous and prejudicial to interest of revenue. He drew our attention to various pages of the paper book to submit that AO had made enquiries during the course of assessment proceedings and hence it is not a case where there was non-application of mind by the AO during the course of assessment proceedings. In response, DR submitted that perusal of the assessment order reveals that there was no application of mind on part of the AO and hence the Ld. DR placed reliance on the observations made by the Principal CIT in the 263 order. 6. We have heard the rival contentions and perused the material on record. We observe that perusal of the show cause notice shows that the Principal CIT has initiated 263 proceedings primarily on two grounds: firstly, increase in share capital of the assessee in the partnership firm M/s D Jewel by ₹ 76,79,126/- during financial year 2014-15 and secondly, non-disallowance of interest expenditure for earning exempt income. Regarding the first issue, in the 263 proceedings itself, the principal CIT accepted the assessee's contention and held that so far as the issue related to increase in investment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open. --- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 6.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words: "20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of unsecured loans shown by the respondent assessee. The Hon'ble Supreme Court made the following observation while deciding in favour of the assessee: "Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue." 6.7 The Supreme Court in another recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revisional order making addition to assessee's income under section 69A in respect of onmoney receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax--8 Mumbai v. Sumatichand Tolamal Gouti [2019] 111 taxmann.com 287 (SC) held that where High Court upheld Tribunal's order holding that AO had made detailed enquiries while allowing assessee's claim for deduction of business expenditure and, thus, revisional order passed by Commissioner was not sustainable, SLP filed against High Court's order was liable to be dismissed. The facts of this case were that in course of assessment, Assessing Officer allowed assessee's claim for deduction of certain expenditure on purchase of CDs on Jain Religion by expending an amount of Rs. 10.4 crores, after due examination. The Commissioner passed revisional order holding that Assessing Officer had not carried out any enquiries as to nature of expenditure being capital or not. The Tribunal, however, allowed assessee's appeal holding that Assessing Officer had carried out detailed enquiries and taken a view which was a plausible view. Accordingly, Tribunal set aside revisional order passed by Commissioner. The High Court upheld order passed by Tribunal. The Supreme Court on consideration of above facts held that SLP filed against High Court's order was to liable to be dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been made by the assessee officer during the course of assessment proceedings. It is also not the case of the Pr. CIT that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts, Principal CIT cannot in 263 proceedings set aside an assessment order merely because he has different opinion in the matter. In our view, s 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the Assessing Officer who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above, the Principal CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-visit the entire assessment and determine the income himself at a higher figure. Now on the issue that the Ld. AO passed a cryptic order and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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