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TMI Blog2025 (2) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... ad arrived at a plausible view whereas the PCIT had different view from that of the AO. We are of the considered view that the instant case is one where the AO has not conducted any effective enquiry and has not applied his mind at all which is discernible from the fact that the AO never confronted the assessee with the whatsapp chat and was simply satisfied with the ledger account of Kamal Kapoor in the assessee's book as explaining the genuineness of the rental payment made. The routine questionnaire issued by the AO cannot be considered as an inquiry required to be conducted by the AO. We therefore, hold that it is writ large on the facts and circumstances of the case that there is absence of any effective inquiry and there is a total non-application of mind by the AO on the incriminating documents available with him. The order passed by the AO would therefore, clearly fall within the meaning of an "erroneous order". The order is also, undisputedly, prejudicial to the interests of the Revenue inasmuch as it results in loss of the Revenue in the form of tax. We therefore, hold that the assumption of jurisdiction by the PCIT under Section 263 of the Act is valid - Decided again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y considered in light of Rule 18(6) of the ITAT Rules. 4. Briefly stated, the facts of the case are that the assessee filed its original return of Income for AY 2015-16 on 29.09.2015 declaring loss of Rs. 6,43,95,386/-. Search and seizure action was conducted on 16.05.2017 in the case of Shri Amit Katyal at his residence. Amit Katyal is the Director and major shareholder (90%) of the assessee company. During the course of search operation, certain incriminating evidence pertaining to the assessee company was found and seized from the premise of Sh Amit Katyal. An incriminating evidence in the form of WhatsApp chat between Amit Katyal and Sh. Kamal Kapoor was found where Sh Kamal Kapoor is found messaging to Sh Amit Katyal as follows: And bhaiya with due respect - I want to express 1 thing that I paid u around 47 lacs in cash for rental cheques around 2 years back for which I haven't got cheque till this date. I always feel that I can ask for money from you in difficult times and u will support. Kindly Bhaiya reciprocate as elder brother. 5. Subsequently, proceedings were initiated against the assessee u/s 153C of the Act and assessment was completed at a loss of Rs. 6,14,76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able with him regarding return of rent in cash, yet he merely called for the details of various expenses debited to Profit & Loss A/c which included rental expenses also. 10. The ld DR stated that in response, the assessee vehemently pointed out that no detailed submission was made by the assessee on the issue of rent. The ld DR stated that only a ledger account of Kamal Kapoor in the books of the assessee showing rent paid during the period was furnished, that too without any supporting documents for the transactions. The ld DR pointed out that the ledger account showed erratic behaviour of rent payments like rent billed for April 2014 till August 2014 were paid on 29.08.2014 and there was no bills raised month-wise or payment received month-wise which should been enquired further. It is the say of the ld DR that the AO never asked the relevant questions nor asked the nature of the business activity carried out on that premise, rent agreement and bills/invoices in support of the rental expenses claimed. 11. The ld DR further referred to the assessment order passed for AY 2016-17 passed on the same day i.e., 05.09.2021 where the AO has taken cognizance of the information and adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an not but reach a conclusion that the AO did not make any enquiry at all with regard to the rent payment especially in the light of information available with him. The AO never asked for any supporting documents like rent agreement, bills/invoices or any query on the whatsapp chat showing Sh. Kamal Kapoor receiving rental payments in cheque from the assessee and Sh. Amit Katyal receiving cash from Sh Kamal Kapoor against those cheques of rental payment made. We therefore hold that the AO neither examined the issue of rental expenses for the AY 2015-16 nor applied his mind on the issue in light of information available with him. 14. We also note that the PCIT has specifically compared the assessment made for AY 2015-16 with the assessment made for AY 2016-17. The PCIT has noted that the AO issued notice u/s 142(1) of the Income-tax Act, 1961 for both AY 2015-16 and AY 2016-17 on 11.04.2021 and asked to furnish details of rent expenses claimed in the P&L Account. The AO however, for the AY 2016-17, issued a further show cause notice to the assessee on 13.06.2021 on the issue of rental expenses in light of information found & seized during the search proceedings on Sh. Amit Katyal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 263 was brought into the statute on 01.06.2015, hence an order that is in the opinion of the PCIT, been passed without making inquiries or verification which should have been made, can be considered as erroneous in so far as prejudicial to the interest of the revenue. In the instant case the PCIT has clearly demonstrated that the AO did not conduct inquiries or verification which should have been done. 18. The issue of proper enquiry and inadequate enquiry, was deliberated at length by the hon'ble Delhi High Court recently in the case of Pr. Commissioner of Income Tax Delhi -11 vs Ms. Sangeeta Jain [2024] 168 taxmann.com 276 (Delhi) on 8 November, 2024, referring to several decisions on the subject, it elaborated the issue as follows: "37. The above-mentioned facts make it clear that no inquiry, in fact, was conducted by the AO before passing the assessment order under Section 143(3) of the Act. 38. During the course of arguments, the learned counsel for the assessee contended that even if this Court arrives at an opinion that the AO did not conduct a proper inquiry, it can at best be a case of insufficient inquiry, but it cannot be termed as a case of absence or lack of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under the said section. *** Explanation 2.-- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be, shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,-- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the 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." (Emphasis added) 41. As far as the above-noted contention of the assessee is concerned, the same appears merited. The AY qua which the notice was issued by the AO is 2013-14. The said notice was issued under Section 143(2) on 10.09.2014. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant in the absence of any supporting material and without making any inquiry. 46. This Court, in Gee Vee Enterprise (supra), held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the officer should have made further inquiries before accepting the statements made by the assessee in the return. The relevant portion of the decision is reproduced hereunder: "....These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income- tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Such a situation is clearly impermissible. 11. It is also necessary for the parties to know the reasons that have weighed with the Adjudicating Authority in coming to a conclusion. The order passed by the Assessing Officer should be a self-contained order giving the relevant facts and reasons for coming to the conclusion based on those facts and law. 12. We find that the order passed by the Assessing Officer is cryptic to say the least, and it cannot be sustained. The Tribunal cannot substitute its own reasoning to justify the order passed by the Assessing Officer when the Assessing Officer himself did not give any reason in the order passed by him." 48. The aforesaid decision was affirmed by the Hon‟ble Supreme Court in Toyota Motor Corporation v. Commissioner of Incometax:( 2008) 306 ITR 52. 49. Therefore, it is clear that the Hon'ble Supreme Court and the Coordinate Benches of this Court had also dealt with the scope of "erroneous orders‟ for the purpose of Section 263 of the Act, even when Explanation 2 had not been inserted in the said provision, and had held that an erroneous order would include an order which is passed without conducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to pass an order under Section 263 if he finds that the assessment order is erroneous and prejudicial to the interest of the revenue. In Rampyari Devi Saraogi v. Commissioner of Income-Tax, West Bengal & Ors: (1968) 67 ITR 84, the Commissioner found that the assessee had given an incorrect residential address and had also given her name in reverse order so as to fall within the jurisdiction of a particular Income Tax Officer (ITO). Accordingly, the CIT concluded that the ITO did not have the jurisdiction to pass the assessment order. The CIT held that it was apparent that the assessee had given a fictitious address and revered the order of her name, as a camouflage to fall within the jurisdiction of a particular ITO. Accordingly, the CIT passed an order under Section 263 of the Act. The High Court upheld the said decision. In the appeal preferred by the assessee, the Hon‟ble Supreme Court observed that "there was ample material to show that the Income Tax Officer has made the assessments in undue hurry". The assessment was made without any enquiry or evidence whatsoever and the order of assessment was erroneous and prejudicial to the interest of the revenue. 54. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2015. The assessee responded to the said questionnaire by claiming that she had earned long term capital gains of ₹10,72,76,180/-, which was not chargeable to tax as the agricultural land was beyond the prescribed distance from the municipal limits of Sohna district. She also enclosed therewith a document described as a certificate issued by Tehsildar, Sohna to the aforesaid effect. However, a plain reading of the said document indicates that it did not certify that the land in question was beyond the prescribed distance from the municipal limits as claimed by the assessee. Notwithstanding the same, the AO passed the assessment order on the same date. It is thus apparent that the AO had not applied his mind to the relevant point whether the asset sold by the assessee was the agricultural land situated 5 kms / 8 kms beyond the boundary limits of the municipal corporation. The noting made by the Tehsildar on 24.04.2012, which the assessee claims to be a certificate, merely stated that the land in question was "outside the border of Sohna Municipal Corporation". The question is not whether the land in question was outside the municipal limits but whether it was an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undational requirement of exercising jurisdiction under Section 263 of the Act. Consequently, the jurisdiction exercised by the PCIT cannot be found fault with. 61. Accordingly, the appeal is disposed of in the above terms. 19. In the light of the above judicial pronouncements, we are of the view that this is not a case where the AO has applied his mind and had arrived at a plausible view whereas the PCIT had different view from that of the AO. We are of the considered view that the instant case is one where the AO has not conducted any effective enquiry and has not applied his mind at all which is discernible from the fact that the AO never confronted the assessee with the whatsapp chat and was simply satisfied with the ledger account of Kamal Kapoor in the assessee's book as explaining the genuineness of the rental payment made. The routine questionnaire issued by the AO cannot be considered as an inquiry required to be conducted by the AO. We therefore, hold that it is writ large on the facts and circumstances of the case that there is absence of any effective inquiry and there is a total non-application of mind by the AO on the incriminating documents available with him. The ..... 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