TMI Blog2023 (4) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... er investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in the section 263 includes the failure to make such an inquiry becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We note that object of section 263 of the Act is to ensure that leakage of Revenue is plugged and tax due to the state not reaching the coffers of the state is prevented by exercise of revisional jurisdiction by the Principal Commissioner/Commissioner. Besides just obtaining the information by AO/and just having documents in assessment file, in respect of the issue raised by the PCIT cannot be taken as akin to enquiring about the information in respect of the issue raised by the PCIT. In appropriate cases, AO should conduct further enquiry also. In the assessee's case under consideration, what the talk about further enquiry, the AO has not made any enquiry and accepted the return of income filed by the assessee, as it is, without enquiring about the issue raised by the PCIT. AO did not issue any notice u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 failed to make proper enquiry into the facts of the case and on that ground in further holding that the assessment order dated 29/10/2019, passed by the AO u/s. 143(3), is erroneous as well as prejudicial to the interest of Revenue and in cancelling the assessment with the direction to the AO to reframe the assessment. 8. 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 assessment order dated 29/10/2019, as had been passed by the AO in accordance with the law and the learned CIT could not have held the said order to be erroneous and prejudicial to the interest of Revenue within the meaning of Section 263. 9. On the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing 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 of M/s. Hotel Royal Garden (PAN: AAEFH2587H) A.Y. 2017-18 - Show Cause notice - Regarding **************** Please refer to the above. 2. The assessee firm is running a hotel and restaurant in the name of Hotel Royal and Garden in Daman and has earned income from business profession during the year under consideration. The assessee firm filed its e-return of income for A.Y. 2017-18 on 30.10.2017 declaring total income of Rs.89,07,362/-. The return was selected for complete scrutiny through CASS. The assessment order u/s 143(3) was passed on 29/10/2019 accepting the returned income of Rs.89,07,362/-. 3. On perusal of the case records, it is noticed that a survey actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 intention that losses shall not be allowed to be set-off against income referred to in section 115BBE of the Act and hence, the amendment was made vide the Finance Act, 2016. 5. As per norms of accountancy income declared during survey cannot be a revenue head. It has to be explained in terms of unaccounted purchases, unaccounted sales, unaccounted expenses, unaccounted investment in any kind of asset which are not recorded in the books of accounts or source of any credit entry made in the books of accounts. However, the Assessing Officer in spite of case selected for complete scrutiny failed to do so and no further enquiry investigation or clarificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 transactions /verified viz- a- viz the following: (1) The assessee is in the business of hotel and restaurant business and chances of having such sundry receivables is very low because it is a cash business. No client would be allowed to leave the hotel or restaurant without paying the bill until and unless it is a known client and where the assessee is having a system of receiving the due amount at a later date. Moreover, the assessee declared such sundry receivables for two consecutive financial years i.e. 2015-16 and 2016-17 without pointing out even the name, complete addresses and amount outstanding against each such persons. The fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which have been disclosed and whether such disclosure is proper or not. In paragraph (3a) of the letter dated 25.03.2022 the assessee seems to be confused whether there was a diary found at the time of survey conducted by the Income Tax Department, in which such sundry receivable were recorded or not because it is a stated that: Nothings in the form of a diary in which these receivables were recorded was impounded during the course of survey action. The receivables listed in the diary aggregated to Rs. 50,04,100 relating to F.Y. 2015-16 and Rs.50,26,300 relating to F.Y.2016-17 Relevant paragraph (3 a) of letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 verification or enquiry was to be conducted whether such action has been taken or not? And finally in absence of any such action taken by the assessing officer whether the assessment framed is erroneous and therefore pre-judicial to the interest of Revenue. The assessee has also cited before Ld. PCIT the decision of hon'ble Rajasthan High Court in the case of CIT vs Bajargan Traders without even going through the facts of the case. In that case the excess stock was found for which bills were not readily available but assessee could established its bona fides that the stock available at the time of income tax pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings 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 does not have any source of income other than his business income and the amount disclosed during the survey pertains to business income, therefore it should be assessable under the head business income and not under the head income from other source under sections 68/69 of the Act. 15. The Ld. Counsel admitted that although the Assessing Officer has not raised the query regarding the issue raised by the Ld. PCIT in his order. However, the Assessing Officer might have examined the issue from survey documents available with him. That is, all the survey material was with the file of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whatever he is disclosing to the survey team was never recorded in the books of accounts. Therefore, it was unaccounted income in the hands of the assessee, therefore such unaccounted income should be assessable under section 68/69 of the Act. The Ld. DR also submitted that since the Assessing Officer has not raised any question during the assessment proceedings about the issue raised by the Ld. PCIT, however the assessee has demonstrated that he had filed reply before the Assessing Officer, which is incorrect and assessee has mislead and distorted the facts. Since, such question was never asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 details on 04.10.2019, 19.10.2019 29.10.2019. 3. The assessee firm is running a hotel and restaurant in the name of Hotel Royal Garden in Daman and has earned income from business profession, during the year. 4. Subject to the above remarks, the total income of the assessee as per returned income filed is accepted. Total income as per return : Rs.89,07,362/- Assessed Income : Rs.89,07,362/- 5. Assessed u/s 143(3) of the I.T. Act, 1961. Given credit to pre-paid taxes after due verification. Charged interest u/s. 234A, 234B, 234C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, (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 'erroneous' in section 263 emerges out of this context. It is because it is incumbent on the AO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in the section 263 includes the failure to make such an inquiry becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 27. We note that object of section 263 of the Act is to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 jurisdiction nor directed the Assessing Officer to pass the assessment order in any particular way thus not interfering in the judicial function of the Assessing Officer. 29. Hence, going by the facts narrated above, the language of the Provisions of Section 263 and the interpretation placed on these provisions by the various Courts, the order of the AO falls within the category of being an order which is erroneous as well as prejudicial to the interest of the revenue. In this interpretation of the provisions of the section 263, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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