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TMI Blog2025 (2) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... acy in inquiry or where inquiry required on the basis of record available before the AO was not conducted, the revisionary power so conferred can be exercised to invalidate the action of AO.
AO in the present case has not accepted the submissions of the assessee on various issues summarily but has duly scrutinize the whole issue of excess stock as apparent from various queries made during the assessment proceedings. He passed after making due enquiries after due application of mind.
Twin conditions are not satisfied for invoking the jurisdiction under section 263. Here, in our view, it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done.
Thus, CIT was not justified and not correct in law in holding that the impugned assessment order was erroneous. Accordingly, we find merit in the contentions of the assessee that the revision order passed by ld. PCIT for the year under consideration is beyond the scope of section 263 of the Act and hence not valid. Accordingly, we set aside the revision order passed by him. Assessee appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... mend any of the above grounds. 2. Facts of the case as culled from the records reveal that the assessee filed return declaring income at Rs. 95,16,150/-. The assessment u/s. 143(3) of the Act,1961 was completed assessing the income at Rs. 4,02,01,020/-based on a survey report. However, the order was found to be prejudicial and erroneous in terms of section 263 of the Act by the ld. PCIT. He noted that a survey u/s. 133A of the Act was conducted in the case of the assessee on 16.02.2018. It was seen from the survey findings that valuation of the diamonds and rate of diamond per carat was quite different from that is taken while framing assessment order. The valuation of the rough diamonds admitted during the survey proceedings had not been considered in totality during the assessment proceedings. The records did not contain details of the inventory valuation for the year under consideration for ascertaining the correct value of the diamond held as stock. Further, the rate of diamonds per carat shown in the financials for the year varies with the survey findings. Accordingly, he observed that it was evident that valuation and the quantification of the diamonds that had been sold and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed properly by the Assessee in its books of accounts as there are two valuations are maintained in the said book in front of closing stock (7277.52 cts). Thereafter, on 16.03.2018, a statement of Shri Dinesh Kalathiya, a Partner of the Assessee was recorded under section 131 of the Act. In this statement, while answering the question no.16 & 17 pertaining to the above discrepancies, Shri Dinesh Kalathiya stated that there are two valuations pertaining to the closing stock out of which, a rate of Rs. 35,395/- is the valuation rate as per books whereas a rate of Rs. 40,919/- is the actual rate per carat. Further, while answering to question no.18, Shri Dinesh Kalathiya offered an amount of Rs. 4,02,01,020/- [i.e. 7277.52 cts x Rs. 5,524/- (being difference of 40,919/--35,395/-) to buy peace of mind and the same was added to the valuation of closing stock which resulted in increased gross profit during the year. 2. The Assessee filed its return of income for the year under consideration i.e. A.Y. 2018-19 on 14.08.2018 declaring total income at Rs. 95,16,150/-. The said return was selected for scrutiny assessment in pursuance to the survey action conducted under section 133A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and included the same for the purpose of declaring profit. In such scenario, the said disclosure would be at maximum in the nature of business profit and it cannot be in the nature of unexplained expenditure to be taxed u/s 115BBE of the Act. The invoking of the said section by the Assessing Officer is without substantiating that any purchase of the assessee was in the nature of unexplained purchases. The sources of the purchases by the assessee are duly explained and only assessee has offered the difference in valuation of the stock and said valuation was recorded by the assessee in the note found during the course of survey. In the facts and circumstances discussed above, we set aside the order of the Ld. CIT(A) on the Officer to cancel the action of taxing the undisclosed profit declared by the assessee appeal of the assessee are accordingly allowed." 6. With regard to the show cause notice issued by the ld. PCIT, as per detailed submission made, it was further submitted the issues raised in the show cause notice under section 263 of the Act with respect to the valuation and rates of diamond per carat and the valuation of rough diamonds admitted during the survey had duly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9. In view of the above, the Assessee submits that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, your honours are not justified to invoke the provisions of section 263 of the Act. The Assessee to support its contentions relied on the decision of Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. Vs. CIT [2000] 243 ITR 83(SC) also relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. [1993] 203 ITR 108 (Bom). 4. We have carefully considered all the relevant facts of the case as also rival submissions and the legal position in the matter. It appears that the ld. PCIT proposed action u/s 263 mainly on the ground of valuation of the diamonds and rate of diamond per carat which according to him was quite different from that is taken while framing assessment order. The ld.AR has explained that there is no discrepancy found with respect to the stock of rough and polished diamond during the course of survey proceedings. The only discrepancy in the course of survey action was pertaining to two different rates for which the assessee voluntarily offered a sum of Rs. 4,02,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. Thus, it is incorrect to mention that the valuation of the rough diamonds admitted during the survey proceedings had not been considered in totality during the assessment proceedings. Rough diamonds purchased by the assessee is duly reflected in the books of accounts and has been accepted. 4.2 All the above stated facts clearly demonstrate that the issue of excess diamond has been deeply scrutined by the AO during assessment proceedings and it is not a case where no enquiry has been conducted into the issue as alleged by the ld.PCIT. Even, the hon'ble ITAT allowed the appeal of the assessee vide ITA 1618/Mum/2023 for the year vide order dated 28.08.2023 w.r.t. the excess stock. 4.3 We observe the Pr.CIT has drawn support from Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6- 2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w was already taken after inquiry. If such course of action in the light of the Explanation 2 is permitted, he can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to section 263 of the Act is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorize or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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