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TMI Blog2023 (11) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... hiness of the loan creditor (M/s Nikita Multitrade Pvt. Ltd) in respect of unsecured loan undertaken by the Assessee in the Assessment Year 2015-16. 4. The Ld. PCIT has erred in ignoring the records of the assessment proceedings while passing the impugned order. It is submitted that in case the authority had perused the records of the assessment proceeding, it would have considered the merit in Appellant's submission that detailed enquiry and investigation was made by the LD AO qua unsecured loan taken from M/s Nikita Multitrade Pvt. Ltd. 5. The Learned PCIT has erred in concluding that the assessment order passed by the AO is prejudicial to the interest of the revenue and is erroneous in the nature. 6. That the impugned order is contrary to the extant judicial position wherein it has been settled that the revisionary power by the LD PCIT/ CIT can be held to be correct only if the LD CIT examines and verifies the transactions under question by himself and arrives at a finding on merits that the concerned order erroneous and prejudicial to the interest of revenue. However, in the instant case, the LD PCIT has at the foremost, failed to even examine and verify whether the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed under Rule, 11 of ITAT, Rules 1963 as under: "1.A. Whether on the facts and circumstances of the case the Ld. PCIT in justified in holding that the Assessment order passed by the Ld. AO is erroneous or prejudicial to the interest of revenue in respect to issue i.e. Verification of unsecured loan which was not a reason for selection of the case for limited scrutiny under CASS"? B. Whether PCIT was justified in passing the Order u/s 263 of the Act on the issue which was not covered under limited scrutiny under CASS?" 3. We have heard the Ld. Sr. Counsel of the assessee as well as Ld. DR on the admission of addition grounds. It was contended by the Ld. Sr. counsel that the additional grounds raised by the assessee are arising from the impugned order and the issue is purely legal and therefore, the same may be admitted for adjudication on merits. He has relied upon the judgment of Hon'ble Supreme Court in case of NTPC vs. CIT 229 ITR 383 SC. He has further pointed out that these additional grounds are only in support of ground no.1 already raised by the assessee and therefore, there is no legal impediment for raising the additional grounds by the assessee challenging the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identity and genuineness of the unsecured loans. Since this issue was not part of the limited scrutiny therefore, the Pr. CIT had no jurisdiction to invoke the provisions of section 263 to hold the order of the AO is erroneous for want of proper inquiry on this issue. He has relied upon the decision of this tribunal dated 28.07.2023 in case of Parth Developers Manawar Dist. Dhar vs. Pr. CIT in ITANo.419/Ind/2022 and submitted that this tribunal has decided an identical issue by holding that when an issue was not subject matter of limited scrutiny taken up through CASS then the AO is not supposed to go beyond the subject matter of scrutiny while passing assessment order without converting the limited scrutiny into complete scrutiny. Ld. Sr. Counsel has thus submitted that by considering this fact the Tribunal has held that in case the AO proceeded within the scope of limited scrutiny the same cannot be held to be erroneous for lack of enquiry. The Tribunal has referred the CBDT, instruction no.5 of 2016 dated 14.07.2016 wherein it has been clarified that the scope of limited scrutiny cannot be expended without conversion of the same into complete scrutiny and that too after followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without conducting proper inquiry on the issues which were prominent and apparent on record. The primiary onus is on the assessee to establish the identity and creditworthiness of the creditors and genuineness of the transactions. The AO ought to have called supporting documents and details for verification and examination of the identity, creditworthiness of the creditors and genuineness of the transactions. The assessee has shown a huge amount of unsecured loan and Pr. CIT has prima facie noted that the loan creditor M/s Nikita Multi Trade Pvt. Ltd. is not engaged in any substantial business activity. Therefore, it was incumbent upon the AO to conduct the necessary inquiry as required u/s 68 of the Act. Failure of the AO to conduct necessary and proper inquiry renders the order passed by the AO as erroneous so far as prejudicial to the interest of the revenue. He has relied upon the explanation (2) to section 263(1) of the Act. He has relied upon the impugned order of the Pr. CIT. 5. We have considered the rival submissions as well as relevant material on record. The assessment was completed in the case of the assessee u/s 143(3) on 14.12.2017 after the case was selected under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up Ltd. (supra) while considering an identical issue has held in para 5 to 9 as under: "5. If that is the undisputed factual position, we find the reasoning given by the learned Tribunal is fully justified. That apart, the learned Tribunal has rightly pointed out that the CBDT has issued instructions as to the manner in which the limited scrutiny should be carried out. In CBDT Instruction No. 7 of 2014, dated 26th September, 2014, the relevant portion of the said Instruction reads as follows:- "3. The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark "Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalised by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verify only the specific aspects requiring examination/verification. In such cases, all effort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. Thus, the decision in the case of Sri Sushanta Kumar Choudhury (supra) is clearly distinguishable. Therefore, the prayer of the ld. CIT DR that the matter be referred to Larger Bench also does not survive insofar as the facts of the present case and in the said decision in the case of Sri Sushanta Kumar Choudhury (supra) is fully distinguishable." 9. Indeed, the Court finds that the Madras High Court has while affirming the decision of the ITAT in Smt. Padmavathi (supra) taken the view that while exercising suo motu revisional power under section 263 of the Act, the CIT cannot travel beyond the scope of the issues which form part of the 'limited scrutiny' in the original Assessment Order. This Court concurs with the above view. 10. What persuades this Court to reach this conclusion is the requirement in law that if the AO has to go beyond the scope of the issues for which 'limited scrutiny' has to be undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No. 7/14 dated 26th September, 2014 and Instruction No. 20/15 dated 19th December, 2015. Consequently, it was not open to the Pr. CIT while exercisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f examination of payment to contractors was not a part of the limited scrutiny reasons, in our considered view, Ld. Pr. CIT erred in assuming jurisdiction u/s 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of revenue. 9. We find that our view is supported by the decision of Coordinate Bench Delhi in the case of Rakesh Kumar vs. CIT ITANo.6187/Del/2015 dated 20.12.2018 which has adjudicated the similar issue observing as follows: On the 2nd Issue the learned CIT has held that the AO has failed to verify the cash payment made for purchase of goods which are not in conformity with the provisions of section 40A (3) of the income tax act. It is apparent from the audit objection filed before us at page number 30 of the paper book that the case of the assessee was selected for the scrutiny to verify only the cash deposit in the bank account of the assessee. The issue before us is whether assessing officer has made any enquiry with respect to the above purchases. Though, learned assessing officer has obtained the explanation of the assessee with respect to the purchases made by the assessee in cash, whether the learned assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pune Benches. (ii) M/s.Aggarwal Promoters v. Pr.CIT [1708/Chd/2017 - order dated 16.04.2019] ITA Chandigarh Benches. (iii) Sanjeev Kr. Khemka v. Pr.CIT [1361/Kol/2016 - order dated 02.06.2017] ITAT Kolkata Benches. (iv) M/s. R & H Property Developer Pvt.Ltd. v. Pr.CIT [1906/Mum/2019 - order dated 30.07.2019] ITAT Mumbai Benches. (v) Mrs.Sonali Hemant Bhavsar v. Pr.CIT [742/Mum/2019 - order dated 17.05.2019] ITAT Mumbai Benches. 11. We, therefore, respectfully following the judicial precedents and the finding of Coordinate Bench Delhi in the case of Rakesh Kumar (supra) hold that Ld. Pr. CIT erred in assuming revisionary powers u/s 263 of the Act. The impugned order of Ld. Pr. CIT is quashed. Thus in our considered view assessment order dated 11.09.2017 u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue and the same is restored. All the grounds raised by the assessee are allowed." 5.4 In the above case the Tribunal has held that the Pr. CIT erred in assuming jurisdiction u/s 263 of the Act and also erred in holding that the assessment order is erroneous and prejudicial to the interest of the revenue on an issue which was not subject matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. 4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT white completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders." 17. Thus, it is not open to the AO take up any issue which is not subject matter of the limited scrutiny until and unless the limited scrutiny is controverted into complete scrutiny. Hence not conducting an inquiry on the issue beyond subject matter of limited scrutiny would not be considered as lack of inquiry on the part of the AO so as to render the order of the AO erroneous so far as prejudicial to the interest of revenue. Even otherwise the Project Completion Method of accounting is well recognized and accepted method and if the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have adopted a different method of keeping accounts or of valuation. The method of accounting regularly employed may be discarded only, if, in the opinion of taxing authorities, income of the trade cannot be property deduced there from (as per provisions of 1922 Act in force at that time, presently only if case falls in sub section (3) of section 145). 30. Further in another judgment of Hon'ble Supreme Court in the case of Krishnaswami Mudaliar (supra), their Lordship's of Apex court while dealing provisions of section 13 of 1922 Act (the provisions of which are in parimateria of section 145 of 1961 Act) have held as under "Section 13 of 1922 Act merely prescribes that the computation of taxable profits shall be made according to the method of accounting regularly employed. Where in the opinion of the ITO the income, profits and gains cannot be properly deduced from the method of accounting, it is open to ITO to compute the income upon such basis and in such manner as he may determine". Comparing the provisions with the English provisions, it is held: "the only departure made by section 13 of 1922 Act from tax legislation in England is that whereas under English le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the method of accounting along with following project completion method for treatment of advances received from proposed buyers the assessee has been consistently followed this method and appellant's assessment has been completed by the Ld AO for first two years Viz, AYS, 2010-11 & 2011-12, In both these years also the appellant has credited the advance received against proposed sales of flats to a separate account and shown as a liability in balance sheet At this stage it may be relevant to mention that in those years also the appellant has credited the advance Freceived against proposed sale of flats to the Advance against sale of Flat Aler and not treated the same a income for said years on the basis that revenue in respect of sale of said flats would be recognized only execution and registration of sale deeds of flats. The assessment of the said years have been completed by AD by the same common order, accepting the method of accounting and method of recognition of revenue. Thus the method followed by appellant is a consistent method which has been accepted by AO for two years Le AYS. 2010- 11 & 2011-12 Since the said method has been consistently followed by appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such method of accounting followed by the assessee had been accepted by the Revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer's decision to reject the book results during the year under consideration was not justified. We are of the opinion that the Tribunal committed no error. If as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the Revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different sand and that too, without hearing the assessee". Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 35. Further in another judgment by CIT Vs. Umang Hiralal Thakur (2014) 42 taxmann.com 194 (Guj) is placed on the following paragraphs of its judgment. "In the present case, it is not the Assessing Officer's case that the appellant is not reporting or under reporting its income. In fact, I find in the subsequent assessment year, i.e. the assessment year 2007- 08, the appellant has disclosed substantial income from the projects undertaken in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) and also placed reliance on the Bangalore Bench of the Tribunal in the case of Nandi Housing P. Ltd v. Deputy CIT (2003) 80 TTJ (Bang) 750, wherein the Tribunal followed the decision of the Karnataka High Curt in the case of Khoday Distillers Ltd, in ITRC Nos. 19mto 21 of 1993. This, it is observed that the issue which requires our adjudication is that the income in the instant case is to be computed as per system of accounting followed by the assessee or as per accounting followed by the assessee or as per accounting standard AS7 for the purpose of charging of income tax. We find that the issue is to be decided in accordance with the provisions of section 145 of the Act shows that the business income which is assessable under the Income tax Act is to be computed in accordance with the consistent system of accounting followed by the assessee unless such system, of accounting is defective and/or from such system of accounting, profit cannot be deduced. Thus, in our considered opinion, the option for choosing the system of account is with the assessee and not with the learned Assessing Officer provided the Ashoka Hi- Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer on rejecting the accounting system on percentage completion method followed by the assessee. No question of law much less any substantial question of law arise in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed." 37. We further find the co-ordinate bench of Mumbai in the case of Prem Enterprises V Income Tax Officer (2012) 25 taxmann.com 179 (Mum.) deal with the similar issue wherein the assessee was constructing a project and was consistently following project completion method and the assessing officer rejected the method of project completion adopted by the assessee on observing that 8% of the total project has been incurred up to the relevant assessment year the income should have declared on the percentage completion method. The Co-ordinate Bench decided in favour of the assessee holding that the results declared by the assessee on the basis of method of accounting consistently followed and the entire profit of the project has been offered in subsequent assessment year therefore there is no justification in rejecting the method of accounting followed by the assessee and substituting the same by adopting accounting AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion method followed by the assessee would result in deferment of payment of taxes. Therefore, considering the discussion above, I do not find any merit on the part of the AO to have worked out the income by applying the percentage completion method". The Tribunal affirmed the order of the CIT(A). It was concluded that project completion method and percentage completion method are accepted standards of accounting and the assessee has option to adopt any one of them. The relevant findings recorded by the Tribunal read thus:- "We have heard the rival contentions and perused the record. The issue arising in the present appeal before us is in relation to the method to be applied for recognizing the revenue generated by the assessee in the course of carrying on the business of real estate developers. The case of the assessee is that it is following one of the accepted accounting standards approved by ICAI for recognizing the revenue generated by it. The assessee had followed project completion method which had been consistently followed by the assessee for the preceding years also. The Assessing Officer on the other hand, had applied percentage completion method to compute the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can follow either the project completion method or the percentage completion method." Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 Where the assessee was following a particular method of accounting consistently, which has been accepted by the department from year to year and in the absence of any defect being pointed out by the Assessing Officer that by following such method, income had escaped assessment, we find no merit in the order of the Assessing Officer in holding that percentage completion method should be applied to the assessee for the year under consideration. It is the prerogative of the assessee to arrange its affairs in such a manner and follow any recognized method of accounting to compute its profits. In view thereof, we find no merit in the order of the Assessing Officer in recomputing the income in the hands of the assessee. Upholding the order of Commissioner of Income Tax (Appeals), we dismiss ground of appeal raised by the revenue". The Delhi High Court in CIT v Manish Build Well (P) Ltd (2011) 16 taxmann.com 27(2002) 204 Taxman 106 noted that project completion method is one of the recognized methods of accounting. It was held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. The On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. The above indicates the difference between the completed contract method and the percentage of completion method." (underlining ours) 40. After the above judgments of the Supreme Court it cannot be said that the project completion method followed by the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the Income Tax Act. Accounting Standar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod or project completion method with the only rider that it should be consistently adopted and in case of any deviation the effect of profit or loss should be offered to tax as the case may be. Revenue has not disputed this fact that assessee has offered the impugned advances to tax in the subsequent years i.e. from financial year 2014-15 based on sale deed registered which proves that there has been no loss to the revenue. Mere postponement of tax as a result of method employed by assessee has not been viewed adversely by courts so long as the method is regularly and consistently employed as held by Hon'ble Apex Court in the case of Excel Industries Ltd (2013) 358 ITR 295." 5.5 Therefore, when the issue of examination of the identity, creditworthiness of the creditors and genuineness of the transactions was not subject matter of the limited scrutiny then the order of the AO cannot be held as erroneous so far as prejudicial to the interest of revenue on the ground that lack of inquiry. Accordingly by following various judgments cited above of Hon'ble High Courts as well as of this tribunal we hold that the impugned order of Pr. CIT passed u/s 263 is invalid for want of jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an creditors, assessments orders passed u/s 143(3) as well as block assessments, bank account statements to prove the creditworthiness and genuineness of the transactions. Even in the reply to show cause notice u/s 263 the assessee explained all these facts and also produced relevant records before the Pr. CIT. However, the Pr. CIT without conducting any inquiry or verifying the record has set aside the order of the AO for fresh assessment on this issue which is contrary to the law and the jurisdiction of the Pr. CIT. When the transaction of the loan given by M/s. Nikita Multi Trade was not doubted by the AO while passing block assessment as well as assessee u/s 143(3) then the said transactions in the case of the assessee cannot be doubted. The AO was satisfied with the reply and record furnished by the assessee to establish the identity and creditworthiness of the creditor as well as genuineness of the transactions. Therefore, once the AO was satisfied with the reply and record furnished by the assessee to establish the identity and creditworthiness of the creditors as well as genuineness of the transactions then the Pr. CIT cannot be asked the AO to again conduct an enquiry and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the transactions involved. In view of the aforesaid, proceedings u/s 263 of the Income Tax Act, 1961 were initiated. Accordingly, the assessee was given an opportunity of being heard vide this office letter bearing DIN ITBA/COME/17/2020-21/1031564309(1) dated 17/03/2021 sent via speed post and sent on registered e-mail." 8.1 Thus, the Pr. CIT has observed that the AO could have called for supporting documents for verification of the lender and his creditworthiness and the genuineness of the transaction involved while passing assessment order. At the outset, we note that the AO has issued notice u/s 142(1) dated 21st September 2017 whereby 22nd quarries were raised by the AO. The query no.11 was raised in respect of loan transactions and assessee was asked to furnish the details of the loan received by it during the year under consideration in the proforma given by the AO. The AO asked the assessee to furnish the copy of ITR and balance sheet of lender, bank account of the lenders in support of the unsecured loans. The assessee was also asked to furnish any other information to establish the identity and creditworthiness of the lender and genuineness of the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loan is duly reflected in the bank account of the assessee as well as bank account of M/s. Nikita Multi Trade Pvt. Ltd. which shows that there was no prior deposit of any cash in the bank account of the said lender company. Therefore, there is nothing on record to doubt the genuineness of the transactions. All these records were before the Pr. CIT as it is clear from the impugned order that the Pr. CIT has referred to the trading account of the lender company wherein the said company has claimed depreciation which was disallowed by the AO. It is pertinent to note that the disallowance of depreciation by the AO in the scrutiny assessment of the lender company would not epso facto lead to the conclusion that the transactions of loan between the lender company and assessee is not genuine. The Pr. CIT has not even verified the balance sheet and bank account statement of the lender company to come to prima facie conclusion that the transactions are not genuine. Once the relevant evidences produced by the assessee discharge its onus to prove the identity and creditworthiness of the creditor as well as genuineness of the transactions then in absence of any contrary fact or material brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 263 of the Act, partially accepted the reply submitted by the assessee as regards the investment in share capital holding that the outstanding unsecured loans of six persons to be adjusted against the share application money account, but as regards the unsecured loans and creditors, it directed the Assessing Officer to examine, call for requisite details, confirmations and examine them properly and relegated the matter back to him. While passing the said order the CIT relied upon the decision of the Apex Court in case of Malabar Industrial Company Ltd. (supra). Paragraph Nos. 6, 7, 8, 9 and 10 of the said judgment are extracted here in as under:- "6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, (i). the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue- Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT, [1973] 88 ITR 323 (SC). 10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a writ petition claiming the said amount and as such, this amount should not be included in his taxable income. This claim was accepted by the ITO. However, when the matter came to the notice of Commissioner, he exercising power under Section 263 held that the ITO had not made proper inquiries before accepting the claim of assessee, and the assessment order was set aside and fresh assessment was directed. This Court refused to interfere in the findings of the Commissioner as the order of the ITO was prejudicial to the revenue. 18. Similarly, the case relied upon by the Department in case of Bhagwan Das (supra) also is not applicable in the present case, as in the case in hand the Assessing Officer after duly putting the assessee under notice and requiring him to produce all the relevant documents had passed the assessment order. 19. The argument of the counsel for the assessee that mere non-discussion and non-mentioning about the reply in the order of the assessing authority would not lead to an assumption that there was no application of mind and the order is erroneous. In Krishna Capbox (P.) Ltd. (supra), this Court held as under:- 9. The Tribunal further considered the que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 143(3) of the Act is erroneous and prejudicial to the intrest of the revenue. Relevant Para Nos. 11,12 and 14 are extracted hereinasunder:- "11. In the case of Goyal Private Family Specific Trust [1988] 171 ITR 698, this court has held that the order of the Income-tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment order as erroneous and prejudicial to the interests of the Revenue and it was for the Commissioner to point out as to what error was committed by the Income-tax Officer in having reached to its conclusion and in the absence of which proceedings under Section 263 of the Act is not warranted. 12. In the case of Belal Nisa [1988] 171 ITR 643 the Patna High Court has held that where the Income-tax Officer had not carried out the necessary enquiry enjoined by section 143(1) of the Act the Commissioner is within his power in taking action in terms of Section 263(1) of the Act. Similar view has been taken in by the Patna High Court in the case of Smt. Kaushalya Devi [1988] 171 ITR 686. 14. As held by this Court in the case of Goyal Private Family Specific Trust [1988] 171 ITR 698, we are of the considered opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the PCTT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law. 6 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 7 In view of such finding of facts arrived by the Tribunal, no questions of law much less of any substantial questions of law arise out of the impugned order passed by the Tribunal." 8.4 The Hon'ble High Court of Delhi in case of ITO vs. Hon'ble D.G. Housing Project Ltd. (supra) has thoroughly examined the provision of section 263 and particularly lack of inquiry on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998/ 231 ITR 53/98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. 20. The CIT is patently wrong in mentioning and stating that Schedule III to the Wealth Tax Act, 1957 was not applicable but, the Assessing Officer should have adopted the said formula/method. The aforesaid reasoning cannot be accepted and does not show or establish that the assessment order was erroneous." 8.5 The Hon'ble High Court has held that in case where the AO has conducted an enquiry then the Pr. CIT in the proceeding u/s 263 has to examine the order of the AO on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Therefore, the Pr. CIT cannot direct the AO to conduct further inq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,852/- only. Thus, the assessee had suppressed his receipts to the tune of Rs. 1,97,97,627/- during the year under consideration and the assessing officer while passing assessment order has overlooked this suppression of receipts. 03.2 Further on the perusal of the balance sheet as on 31.03.2017, it was noticed that the assessee company has shown trade payable and trade receivable at Rs. 5,26,24,158/- and Rs. 6,65,46,869/- respectively. During the course of assessment proceedings neither the assessee company filed the details regarding trade payables and trade receivables nor the assessing officer conducted any enquiry/investigation regarding t trade payables and trade receivables. 03.3 On perusal of the P&L account of the assessee company for the period under consideration, it was found that the assessee had claimed Rs: 11.85,50,529/- under the head Material Consumed expenses as against total turnover of Rs. 22,08,86,850/- during the year under consideration whereas during the previous year turnover of the company was Rs. 10,35,02,751/- and the assessee company has claimed Rs. 2,08,15,446/- under the same head. thus, it is clear that turnover of the company just doubled but su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions are received on or before the scheduled date of hearing. the same shall be duly considered for the purpose of the proceedings u/s 263 of the Act. 6. Kindly note that you may also file your reply through mail along with all relevant records and documents. It is not necessary to attend the office for this purpose and the reply/details may be filed by email. In case of non compliance, the matter will be decided on merits of the case and information available on record." 10. Therefore, various points were raised by the Pr. CIT in the show cause notice but the show cause notice was issued at the fage end of the limitation period to pass the revision order u/s 263 of the Act. The sole ground for setting aside the order passed by the AO is lack of inquiry on the part of the AO in respect of these issues. However, we find that the AO issued show cause notice u/s 142(1) and specifically asked the assessee to furnish details and evidence in respect of these issues as taken up by the Pr. CIT while invoking provision of section 263 of the Act. For ready reference we reproduced the notice issued by the AO u/s 142(1) dated 06.12.2019 along with annexures as well as notice dated 24.12.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in comparison to the receipts appearing in form 26AS and explained the reasons with supporting evidence that the said difference is due to the time difference in recognizing the revenue by the assessee and booking of expenditure by the contractee. It is matter of record that the assessee filed the reconciliation before the AO as well as before the Pr. CIT. Therefore, it was incumbent upon the Pr. CIT to verify the details produced by the assessee as well as reconciliation of difference in the receipts and to give a finding about the correctness of the claim of the assessee. The assessee has given the relevant details and explained difference of Rs. 1.97 cr being the income already declared by the assessee in the preceding year with the supporting bills and TDS which was deducted by the payee in the preceding year as well as for the year under consideration. Therefore, if the TDS details for two years are taken into consideration it goes to prove that only because of the difference of time in deducting the TDS by contractee the discrepancies appears in respect of the receipts as shown in the form 26AS and turnover declared by the assessee. All these details were produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out enquiring into the claim (c) the order has not been made in accordance with the order, direction or instruction issued by the Board u/s 119 or (d) order has not been passed in accordance with any decision, which is prejudicial to the assessee rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the present case, Principal CIT has revised the order on the ground that the A.O. has failed to make enquiries or verification, which should have been made. Ld. Principal CIT has not specified that what enquiries the A.O. has not made. There is no material suggesting that the Principal CIT has expressed his view about insufficiency of enquiry on the material placed on record. The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgement of ITO Vs. DG Housing Projects Ltd. (2012) 20 Taxmann.com 587, which has been followed by this Tribunal in various cases. Hon'ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held and records reason why it is erroneous. An order will become erroneous because on remit, the A.O. may decide that order is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous the jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed that the material, which the CIT can rely includes not only the records as it stands at the time when the order in question was passed by the A.O. but also record as it stands at the time of the examination by the CIT. Nothing appears/prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the A.O. is erroneous. We find that Ld. CIT in the present case has not carried out any enquiry of his own has merely set aside the assessment to the file of the A.O. to reexamine issue of source of cash deposited by the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd. (supra) coupled with the fact that the assessee during the assessment proceedings had submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of residential house on the said land. The AO, thereafter issued notice under section 142(1) dated 14.07.2017 along with a questionnaire. These facts are also evident from the assessment order in para 1 and 2 as under :- " Thereafter, the case was transferred to the office of the undersigned from the ITO Ward 4(1) Jaipur on 26.05.2017 and due to change of incumbent of charges, notice u/s 142(1) along with questionnaire issued on 14.07.2017 fixing the case of hearing on 20.07.2017 which was duly served upon the assessee on 15.07.2017. In response thereto, the CA/AR of the assessee Sh. Ajay Jain attended the proceedings from time to time and furnished required details/documents and also produced books of accounts, which were examined on test check basis. The case was discussed with him. 2. The assessee earned income from capital gain and interest. During the course of assessment proceedings written submissions were filed placed on file and other details were produced which were examined on test check basis. After discussion with the A/R of the assessee, the returned income is accepted." Thus in response to the notice issued under section 142(1), the assessee attended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase documents for acquiring the agricultural land as well as the valuation report towards the cost of construction. The ld. PCIT has also not doubted the facts as brought on record by the assessee and considered by the AO while passing the assessment order. The provisions of section 263 were invoked by the ld. PCIT due to the reason that he has a different view regarding the allowability of deduction under section 54F in respect of the investment made for purchase of agricultural land and construction of house. There is no quarrel on the point that lack of enquiry renders the order of the AO as erroneous so far as prejudicial to the interests of the revenue. However, when there is no allegation and even otherwise it is manifest from the record that this is not a case of lack of enquiry on the part of the AO but the AO after satisfying himself about the claim of deduction under section 54F consequent upon the examination and verification of the concerned details, evidences and books of account produced by the assessee, allowed the claim of the assessee. Further, though the ld. PCIT has not alleged that there is inadequate enquiry on the part of the AO, however, even in case ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prejudicial to the interests of revenue. The order dated 18.12.2017 passed u/s 143(3) of the Act deserves to be set-aside. AO will pass the order after taking into account all necessary facts and details connected with the claim of deduction u/s 54F of the Act and the claim of indexed cost of construction/improvements on the land sold by the assessee amounting to Rs. 18,18,483/- (pertaining to F.Y. 2007-08) and of Rs. 13,46,834/- (pertaining to F.Y. 2010-11)." Thus while passing the revision order, the ld. PCIT himself was not sure about the correctness of the claim and has remanded the matter to the record of the AO for passing a fresh order. Hence he has not given a concluding finding whether the order of the AO allowing the claim of deduction under section 54F after conducting an enquiry is absolutely against the provisions of law. Once it is not a case of lack of enquiry on the part of the AO, the said order cannot be held to be erroneous unless the ld. PCIT holds and records the reason why it is erroneous. The pre-condition for invoking the jurisdiction under section 263 is that the ld. PCIT must come to the conclusion that the order of the AO is erroneous and is unsustain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T opined that the has passed the order of "nil" assessment without application of mind. The High Court accepted this part of the assertion made by the CIT in his order that the ITO has failed to apply his mind to the case in all perspectives and the order passed by him was erroneous. The High Court has also found that the assessment order was passed without application of mind. The High Court rightly held that the exercise of jurisdiction by the CIT under section 263(1) was justified. 10. From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the Assessing Officer was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction under section 263 of the Income- tax Act. 11. Undoubtedly, the jurisdiction under section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue." The Hon'ble High Court has laid out a fine distinction between the orders where no enquiry has been made by the AO from the order based on inadequate enquiry. Therefore, where the AO has made an enquiry and taken a possible/permissible view, then the said order cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law. The Hon'ble Supreme Court in case of Malabar In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed by assessee. The Ld. A.O. in assessment order gave scanned photographs stated to have been taken by Inpsector on site visit. The A.O. thus concluded that investment was purely in land and not a residential house as required u/s 54F of I. T. Act, 1961 and so assessee is not entitled to claimed deduction u/s 54F. As per our considered view, benefit of Section 54F cannot be denied on the ground that land on which construction done was agriculture in nature. Reliance is placed on the judgements in case of Vishnu Trading Co. 259 ITR 724 (Raj.), Narendra Mohan Uniyal 34 SOT 152 (Del.), Shyam Sunder Mukhija Vs. ITO 38 ITD 125 (JPR) and ACIT Vs. Om Prakash Goyal (2012) 53 SOT 158 (JPR). In the case of Narendra Mohan Uniyal (Supra) it is held that "It is crystal clear from the plain reading of ss. 54 and 54F that exemption is allowable in respect of amount invested in the construction of a residential house. There is no any rider under s. 54F that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which building is being constructed. When the land is purchased and building is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. A.O. is wrong and has erred in law in disallowing the claimed deduction of Rs. 83,54,434/- u/s 54F the Act, which deserves to be allowed. 5. We found that in the previous year relevant to the above said assessment year the assessee invested a sum of Rs. 1,15,00,000/- in purchase of land for construction of a residential house. The deduction u/s 54F amounting to Rs. 83,54,434/- has been claimed on account of said investment in the land; copy of the agreement to purchase and registered purchase deed were verified before the A.O.. The assessee got constructed a residential house in the F.Y. 2012-13 i.e. within the statutory time limit allowed by the Act i.e. before the due date of February, 2014. Copy of bills for construction of house alongwith Map of the house was filed before the A.O.. The total area of land is about 4090 sq.mtr. and the constructed area is about 1504 sq.ft. No approval is required for construction of the above said residential house. Copy of registered sale deed is also file d before the A.O. We found that it was a residential unit, therefore, the assessee is entitled for claim of deduction U/s 54F of the Act amounting to Rs. 83,54,434/-." Thus it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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