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TMI Blog2023 (4) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has erred in invoking his powers/ authority under section 263 of the Income Tax Act, 1961, and the order passed by him u/s.263 is without jurisdiction. 5. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has failed to appreciate that the assessment order passed by the ACIT, Vapi Circle, Vapi (hereinafter referred to as the AO) was neither "erroneous" nor "prejudicial to the interest of the revenue" and thus the very invocation of power under section 263 is wholly illegal and beyond jurisdiction. 6. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has erred in invoking powers under section 263 and passing order holding the assessment order to be "erroneous" and "prejudicial" without even justifying, which of the two phraseology used in section 263 is applicable and as to how the order of assessment is "erroneous" causing "loss to the revenue". 7. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has erred in holding that the AO has fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order u/s 143(3) was passed on 29/10/2019 accepting the returned income of Rs.89,07,362/-. 5. Later, Learned Principal Commissioner of Income Tax, Valsad [in short 'ld. PCIT'], exercised his jurisdiction under section 263 of the Income Tax Act, 1961. The ld PCIT noted that there was a survey at the business premises of the assessee on 10.09.2016 in which assessee had declared more than one crore rupees as its undisclosed income for the financial year 2015-16 and 2016-17, however this important fact has neither been mentioned in the assessment order nor any further enquiry or verification was done by the assessing officer, as far as, disclosure of the income by the assessee is concerned. The assessing officer failed to verify the nature of disclosure and the particular head under which it should actually be taxed. In view of the above factual position, a show cause notice vide DIN No. ITBA/REV/F/REV1/2021-22/1040967706(1) 17.03.2022 was issued by Ld. PCIT to the assessee. The show cause notice dated 17.03.2022 is as reproduced below: "To, M/s. Hotel Royal Garden Main Road, Dabhel, Nani Daman-396210 Sir, Sub: Action u/s. 263 of the Income Tax Act, 1961 in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff of losses against the additions made by them under Section(s) 68/69/69A/69B/69C/69D, in some cases, set off of losses against the additions made under Section 115BBE(1) of the Act have not been allowed. As the amendment inserting the words 'or set off of any loss' is applicable, with, effect from month of April, 2017 and applies from assessment year 2017-18 onwards, conflicting views have been taken by the Assessing Officers in assessments for years prior to assessment year 2017-18. The matter has been referred to the Board so that a consistent approach is adopted by the Assessing Officers while applying provision of section 115BBE -assessments for period prior to the assessment year 2017-18. 3. The Board has examined the matter. The Circular No. 3/2017 of the Board dates 20th January, 2017 which contains Explanatory notes to the provisions of the Finance Act, 2016, at para 46.2, regarding amendment made in section 115BBE(2) of the Act mentions that currently there is uncertainty on the issue of set-off of losses against income referred to in section 115BBE. It also further mentions that the pre-amended provision of section 115BBE of the Act did not convey the intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that the assessee firm had duly credited the same to the income declared during the survey and debited the same to the cash account. It is further submitted that the copy of cash book for financial year 2016-17 was also submitted during the assessment vide letter dated 27/10/2019. In this connection it was observed by Ld. PCIT that a person who receives goods or services from a business in credit or does not make the payment immediately and is liable to pay the business in the future is called a Sundry Debtor and businesses use an account to track these transactions and they are called as Sundry Debtor account or Accounts Receivable. 7. The Ld. PCIT noted that if the assessee has disclosed income on account of sundry receivables it was the duty of the assessee to show the complete transaction of sale and how much amount has been received and how much amount is pending. As accepted by the assessee these sundry receivables were not accounted for in the books of accounts at the time of survey and therefore a declaration that they are not accounted for in the books of accounts was made and some income was disclosed/declared. However, the AO was required to examine these transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him (ld PCIT) under section 263 of the Act. During the course of assessment the assessing officer is required to assess the correct income of the assessee. The assessing officer is required to go through the documentary evidences and books of accounts of the assessee and come to a conclusion that the income shown by the assessee in the return of income is correct. In this case the assessing officer has not even mentioned the most important fact that during the year under consideration a survey was conducted on the premises of the assessee and substantial income was disclosed. It is pertinent to note that from 1/4/2019 till the date of survey (six months), the assessee has disclosed an income of Rupees 50,26,300 and for remaining (six months) it is only Rupees 38,81,062 even though this part of the year the sales of the assessee remains to be maximum. The AO has not examined the profit and loss account for the period 1/4/2016 to 10/9/2016 and from 11/9/2016 to 31/3/2017 and verify the gross profit and by the assessee commensurate with the earlier period. Clearly the assessing officer has accepted the disclosure on its face value without going through the nature of transactions whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f enquiry or verification as to verify whether the income has to be taxed as per the provisions of section 115BBE or not. In the present case the AO has failed to do so. Further it has been submitted by the assessee that partners' capital account has been credited with the amount of Rs.50,26,300/-. The assessee has failed to appreciate that it was income of the firm which needed to be considered in the hands of the firm and only after that it has to be apportioned among the partners after being taxed. It is not that simple that even if the income belongs to the partnership firm simply by crediting the partners account an asset can be created in the partnership firm without routing it through profit and loss accounts. 10. Therefore, the Ld. PCIT further noted that the question involved in these proceedings is not that the disclosed amount during the course of survey has been reflected in the computation of income. The question involved is whether AO considered the disclosure of income properly and determined the income of the assessee for the year under consideration on the basis of documentary evidences available at the time of records and if any further clarification or verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessee(Hotel Royal Garden) for AY.2017-18 passed on 29.10.2019 by the Assessing Officer is erroneous in so far it is prejudicial to the interest of revenue. Therefore, the assessment order u/s. 143(3) of the Income tax Act, 1961 dated 29.10.2019 for A.Y. 2017-18 in the instant case was set-aside by Ld. PCIT with the direction to frame the assessment De novo after making proper enquiries on aforesaid issues. 12. Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us. 13. Learned Counsel for the assessee submitted before us that assessee made a declaration during the survey proceedings for two assessment years, namely AY.2016-17 and 2017-18 and at the time of survey proceedings, the statement recorded by the Income Tax Authority clearly shows that the amount was pertaining to financial year 2015-16 and financial year 2016-17 which were not recorded in the regular books of accounts. However, the assessee has disclosed the same during the survey and it was stated by assessee that such undisclosed income had not shown in books of accounts and it was also stated by the assessee that it pertains to his business. 14. The Ld. Counsel submitted that assessee do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication of mind by the Assessing Officer. Apart from this, had the Assessing Officer applied his mind, based on survey records, he would have brought these issues in his assessment order. There is no whisper in the assessment order about the issue raised by the Ld. PCIT, therefore the issue raised by the Ld. PCIT remain unattended on the part of the Assessing Officer. Neither the Assessing Officer has referred survey material in his assessment order nor the Assessing Officer issued the notice to the assessee to ask question. The assessee should reply to the Assessing Officer and this process has not been completed, therefore it is completely a non-application of mind and it is a case of complete "no inquiry". Therefore, Assessing Officer has not made any inquiry during the assessment proceedings, hence the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. 18. The Ld. DR for the Revenue took us through the question and answer vide page no.115 of the paper book and have gone through the question no.14 asked by the survey team during the survey. The Ld. DR submitted that in answer to question no.14, the assessee has himself admitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the (undisclosed income in survey) issue raised by the Ld. PCIT, therefore it is quite clear that Assessing Officer has not applied his mind nor examined the issue raised by the Ld. PCIT. 23. Now, we have to examine whether Assessing Officer has brought the material on his assessment order about the issue raised by the Ld. PCIT. To understand this, we have to go through the assessment order of the Assessing Officer, passed by him under section 143 (3), dated 29.10.2019, which read as follows: "1. In this case the assessee filed its return of income for the AY.2017-18 on 30.10.2017, declaring total income of Rs.89,07,362/- vide e-filling acknowledgement no. 274021491301017. Thereafter, the case was selected for complete scrutiny through CASS. Notice U/s. 143(2) of the I. Tax Act was issued on 17.08.2018, which was duly served on the assessee through e-mail. Thereafter, a notice u/s. 142(1) of the I. Tax Act, along with a detailed questionnaire, calling for details and explanations was issued on 28.08.2019 & 01.01.2019 and served on the assessee through e-mail. 2. The assessee has e-filed its submission in response to various notices issued to them and furnished the required det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of issue of notice under section 142(1) of the Act nor AO has discussed this issue raised by the Ld. PCIT in his assessment order passed by him. Therefore, we note that Assessing Officer has blindly allowed the claim of the assessee without making enquiry, which is not acceptable. Whether the Assessing Officer made sufficient enquiry or not, the said fact would come to know from his notice under section 142(1) of the Act and reply submitted by the assessee in response to such notice of AO, or at least, the AO should mention this fact, (that he has examined the survey material) in his assessment order passed by him. Therefore, it is a case of complete non-inquiry (no enquiry). Hence, we note that order passed by the assessing officer is erroneous and prejudicial to the interest of Revenue. 26. It is important to mention here that the AO is not only an adjudicator but also an investigator. He cannot "remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined absolutely anything regarding the genuinity of the transactions. The Ld. PCIT had enough material in his custody to prima facie to show that the tax which was lawfully exigible has not been imposed. Similarly in the case of Sunbeam Auto the courts have held that in the case of lack of enquiry course of action under section 263 is valid. In this case on the facts of the record it can be observed that the Assessing Officer has not applied his mind regarding the allowability of the exemption of the Long Term Capital Gain. This is not the case of inadequate enquiry but is a clear case of lack of enquiry which makes it different from the case of Nirav Modi (supra). Obtaining of the information about the transaction cannot be taken as akin to enquiring about the information. This is a clear case of no enquiry for which the Ld. PCIT has rightly invoked the provisions of Section 263. We also find that the Ld. PCIT has clearly brought about the error in the assessment order and has also directed the Assessing Officer to take remedial action to take action as per the law after providing due opportunity to the assessee. Thus, it can be said that the Ld. PCIT has not exceeded his jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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