TMI Blog2023 (11) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... of Pr. CIT passed u/s 263 is invalid for want of jurisdiction. CIT justification passing the impugned order and remanding the matter back to the AO for fresh order to establish the identity and creditworthiness of the creditor as well as genuineness of the transaction - From the balance sheet of M/s Nikita Multi Trade Pvt. Ltd. it is manifest that the said company was having sufficient funds in the reserves and surplus of more than Rs. 50 crore to lend the money of Rs. 3.8 crores to the assessee. The transactions of the 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B.M. Biyani, Accountant Member For the Appellant : Shri Sumit Nema, Sr. Adv. Gagan Tiwari, AR For the Revenue : Shri Ashish Porwal, Sr. DR ORDER PER VIJAY PAL RAO, JM: This appeal by the Assessee is directed against the order dated 30.03.2021 of Pr. Commissioner of Income Tax, passed u/s 263 of the Income Tax Act for A.Y. 2015-16. The assessee has raised following grounds of appeal: 1. That the order of the Ld. Pr. Commissioner of Income Tax, Indore w's 263 of the Act is illegal, void and without jurisdiction. 2. That the Ld. Pr. Commissioner of Income Tax, Indore has wrongly invoked provision of Section 263 of the Act without looking into factum that The assessment order was framed w's 143(3) after making due enquiry and was not erroneous or prejudicial to the interest of revenue. 3. That The Ld. PCIT has erred in law and on facts in holding that the sufficient inquiries were not made to ascertain the genuineness and credit worthiness 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iries in the manner preferred by the CIT, thus prejudicing the mind of the AO as has been done in the present case. Thus the entire order w/s 263 is vitiated and bad in law on account of the failure of the Pr. CIT to himself first make an inquiry and only then to arrive at any fault in the assessment order. 9. That for the purposes of exercising jurisdiction u/s 263, the conclusion of the CIT that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. If the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. The second option available u's 263 (1) of sending the entire matter back to the AO for a fresh assessment can be exercised by the PCIT only after he undertakes an inquiry himself and not otherwise. Thus the present order w/s 263 is vitiated on this ground alone. 2. The assessee has also raised additional grounds vide application dated 10.10.2023 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted scrutiny through CASS on two issues namely: i. mismatch in amount paid to related persons u/s 40A(2)(b) reported in Audit Report ITR ii. High interest expenditure against new capital 4.1 Thus, the Ld. Sr. counsel has submitted that when the case was selected for limited scrutiny on those two issues then the Pr. CIT has no jurisdiction to invoke the provisions of section 263 on the ground that AO has not properly examined the disallowance of interest expenditure on account of interest free advances given by the assessee and secondly on the issue of verification of identity and genuineness of the unsecured loans taken by the assessee. He has further submitted that though in the show cause notice u/s 263 the Pr. CIT has taken up two issues regarding disallowance of interest and questioning the unsecured loans shown by the assessee however, the issue of disallowance of interest was dropped by the Pr. CIT and the impugned order was passed only on the issue of failure on the part of the AO to examine and verified the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising suo motu revisional power under section 263 of the Act to find fault with the assessment order of the AO on the ground of its being erroneous on an issue which was not subject matter of limited scrutiny. Thus, the Ld. Sr. Counsel has submitted that the impugned order passed by the Pr. CIT is invalid without jurisdiction. In support of his contention he has relied upon following decisions: i. Agrawal Promoters vs. PCIT (ITANo.1708/Chd/2017 (ITAT, Chandigarh) ii. Mrs. Sonali Bhavsar vs. PCIT (ITANo.742/Mum/2019 (ITAT, Mumbai) iii. Rakesh Kumar vs. CIT (ITANo.6187/Ind/2015 ITAT, Delhi) 4.3 On the other hand, Ld. DR has submitted that the assessment order passed by the AO u/s 143(3) in case of the assessee is completely silent about any enquiry conducted on the issue of verification and examination of the identity, creditworthiness of the loan creditors and genuineness of the transactions of unsecured loan shown by the assessee. Therefore, on the face of the assessment order it is clear that the AO has passed the impugned order without conducting proper inquiry on the issues which were prominent and apparent on record. The primiary onus is on the assessee to establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt as mentioned by the Pr. CIT was advanced in the assessment years 2007-08 to 2013-14. Further the assessee has also explained the source of the said advance given to M/s. Vidhya Niketan Samiti during the assessment years 2007-08 to 2013-14 as partners capital was sufficient to advance the said amount. The Pr. CIT dropped the first issue of disallowance of interest on account of interest free advance after considering the reply of the assessee and then proceeded to pass the impugned order only on the second issue regarding the non-examination and verification of the identity, creditworthiness of the creditor and genuineness of the transactions by the AO. The Pr. CIT itself has reproduced the reasons for selection of the case for limited scrutiny under CASS and therefore, there is no dispute that this issue of verification and examination of the transactions of unsecured loan shown by the assessee was not subject matter of the limited scrutiny undertaken by the AO through CASS. The Hon ble Calcutta High Court in case of Pr. CIT vs. Naga Dhunseri Group Ltd. (supra) while considering an identical issue has held in para 5 to 9 as under: 5. If that is the undisputed factual po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited scrutiny then the Pr. CIT cannot make a roving inquiry in guise of a limited scrutiny and as such instruction issued by the CBDT is binding on the department. Similarly the Hon ble Orissa High Court in case of Pr. CIT vs. Shark Mines Minerals (P. ) Ltd. (supra) has held in para 8 to 11 as under: 8. In the impugned order, the ITAT distinguished its own decision in Sri Sushanta Kumar Choudhury (supra) as under: 12. Coming to the issue of the decision of Co-ordinate Bench of this Tribunal in the case of Sri Sushant Kumar Choudhury (supra) the facts in the said case were that the Pr. CIT mentioned that the order of the AO is erroneous insofar as he did not ask for permission for complete scrutiny and to that extent, the assessment order was erroneous and prejudicial to the interest of the Revenue. In the present case, there is no such averment by the Pr. CIT. Even assuming such averment is there, the order of revision would be unsustainable insofar as the issue raised by Pr. CIT is in no way connected to the issues that have been raised in the limited scrutiny assessment. Thus, the decision in the case of Sri Sushanta Kumar Choudhury (supra) is clearly distinguisha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. The coordinate Bench of this Tribunal in case of M/s. Sahita Construction Company vs. Pr. CIT(supra) has considered an identical issue in para 8 to 11 as under: 8. Now first we need to examine that whether the ld. AO was required to examine the issue for payment to contractors and tax deducted thereon Perusal of records shows that assessee s case was selected for limited scrutiny through CASS for verification of contract receipts/fees mismatch, sales turnover mismatch and tax credit mismatch . The issue of payment to contractors and tax deducted thereon was never a part of reasons for the limited scrutiny. Therefore, there was no occasion for the Ld. AO to examine this issue for payment to contractors. It is well settled that in case of limited scrutiny matter Ld. AO has to work within the parameters observed by the Central Board of Direct Taxes; instruction dated 29.12.2015 and various other circular issued in this behalf. Since the assessee s case was selected for limited scrutiny on certain issues and Ld. AO has examined these issues and framed the assessments and the issue of examination of payment to contractors was not a part of the limited scrutiny reasons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Even though the learned assessing officer has raised the specific questions on that aspect and verified the requisite detail. Therefore, it cannot be said that the order of the learned assessing officer is erroneous and prejudicial to the interest of the revenue on this ground also. 10. In view of this, according to us the order of the learned CIT in assuming jurisdiction under section 263 of the income tax act holding that the order of the learned assessing officer passed under section 143 (3) of the act is erroneous and prejudicial to the interest of the revenue is not correct. Accordingly, the order passed by the learned CIT is unsustainable. 10. In the above referred decision Tribunal has held that when the assessment is taken up for limited scrutiny, Ld. Pr. CIT/CIT cannot hold the assessment order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny. Similar view also taken in the following decision: (i) The Deccan Paper Mills Co. Ltd. v. CIT [1013 1035/Pun/2014 - order dated 10.10.2017], ITAT Pune Benches. (ii) M/s.Aggarwal Promoters v. Pr.CIT [1708/Chd/2017 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the issue(s) involved in 'Limited Scrutiny'. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting Complete Scrutiny' in such cases. 16. Thus, the scope of limited scrutiny has been explained by the CBDT and it was advised to the assessing officers not to travel beyond the jurisdiction while making assessment of limited scrutiny cases. The CBDT again expressed its concern on the point of exceeding the jurisdiction and scopes of limited scrutiny by AO s vide instruction dated 30.11.2017 in para 3 4 as under : 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assess the income of the assessee on the basis of such method of accounting On perusal of the provision of section 145 shows that it nowhere empowers the authorities to assess the income on the basis of method of accounting followed by another assessee nor does it empower the authorities to thre upon the assessee to adopt the method of accounting followed by mother assessee. In the instant appeal both the lower authorities have rejected the books of account of assessee and applied the percentage completion method adopted by the developer JSM DPL and computed the income accordingly. Whether soch action of the revenue authorities is justified or not needs to be examined in light of the jurisdictional pronouncements. 29. We find that Hon'ble Supreme Court in case of Investment Ltd. (supra), where their Lordships have heldy that assessee is free to employ for the purpose of his trade, his own method of keeping accounts, and for they purpose to value his stock-in- trade either at cost or at market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by departmental authorities on the view that he should have adopted a different metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries are posted in the books of account on the date of transaction is on the date on which rights accrue or liabilities are incurred irrespective of the date of payment. 31. Further in the decision of the coordinate Bench, ITAT Allahabad Bench in the case of Mahabir Jute Mille (upra) as also on the decision in the case of Advance Construction Company (P) Ltd. (upra), where their Lordships have reiterated position that choice of accounting method lies with that of assesses, the only caveat being that it has to show that the chosen method has been regularly followed. The section is couched in mandatory terms and the department is bound to accept the assessee's choice of method regularly employede except for the situation wherein the AO is permitted to intervene, in case it is found that true income profits and gains cannot be arrived at by the method employed by assessee. Their Lordship's further held that the position of law is further well settled that regular method adopted by assessee cannot be rejected merely because it gives benefit to assessee in certain years. 32. Examining the facts of instant appeal we in light of above judgments we find that the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was followed consistently by the assessee and instead applying work-in-progress method and taxing 80 per cent. Thereon as net profit held that as assessee has followed the method which is consistent considering the decision in the case of CIT v Shivalik Buildwell (P) Ltd. [2013] 40 laxmann.com 219/12014] 220 Taxman 3 (Mag) (Guj.) and CIT v. Umang Hiralal Thakkar [2014] 42 Laxmann.com 194/226 Taxman 28 (Mag.) (Guj) and therefore this court is are of the opinion that the view taken by the Tribunal and the Commissioner of Income Tax is not correct. Issue decided in favour of assessee. 34. Further the Hon ble High Court of Gujarat in the case of CIT v Shivalik Buildwell P Ltd (2013) 40 taxmann.com 219 (Guj.) dealing with the similar issue observed as follows; On the Revenue's appeal, the Tribunal confirmed the view of the Commissioner of Income Tax (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration. The Tribunal further noted that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and should be done with caution. In the present case, the appellant has declared substantial profits on the basis of project completion method in the subsequent years. In construction, the project completion method and percentage completion methods, both have also been recognized by the Central Board of Direct Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 686/Ind/2016 Taxes in the instruction No.4 of 2009 dated June 30, 2009. Therefore, the Assessing Officer is not considered justified in bringing to tax the profit of Rs. 1,66,70,811 in the year under consideration, particularly when such profits have already been offered to tax by the appellant in the assessment year 2007-08. The addition of Rs. 1,66,70,811 are directed to be deleted . 36. Further the co-ordinate Bench of Ahmedabad Tribunal in the case of Vraj Developers passed in ITA No.19/AHD/2008 which attained finality as it is not challenged by the department before the high forum observed as follows; The learned Departmental representative supported the order of the learned Assessing Officer and the learned authorized representative of the assessee supported the order of the learned Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative could not point out any error in the above finding of the learned Commissioner of Income-tax (Appeals). In view of the above discussion, we do not find any error in the order of the learned Commissioner of Income-tax (Appeals) and therefore, the same is upheld and the appeal of the Revenue is dismissed. It is reported that the decision of Appellate Tribunal in the case of Vraj Developers (supra) has attained the finality as the said decision is not challenged by the Department before higher forum. In view of the above and more particularly, when it has been found that the assessee is consistently following the accounting system of percentage completion method, which is permissible and accepted by ICAI and the Central Board of Direct Taxes with respect to construction work, it cannot be said that the learned Appellate Tribunal has committed any error/ or Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 686/Ind/2016 illegality, which call for the interference of this court. We see no reason to see to interfere with the impugned judgment and order passed by the learned Commissioner of Income tax (Appeals) deleting the addition of Rs. 1,66,70,881 which was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular accounting standard under the /act and it depends upon facts and circumstances of each case. In other words, the assessee was entitled to adopt Project Completion method for determining its income which was being regularly followed by it. Though the Assessing Officer had rejected the plea of the assessee, but the CIT(A) while accepting the appeal of the assessee made the following observations:- It is however not the AO's case that the profits have been distorted by following the project completion method. The impugned order is also silent as regards the position of the books of account. In other words the books have not been rejected, nor any defects pointed out. In the case of CIT vs. Bilahari Investment (P) Ltd (2008) 299 ITR 1 SC, the Apex Court held that the completion contract method adopted by the assessee for chit discount consistently over the years, is not required to be substituted by percentage completion method. In CIT v Manish Buildwell (P) Ltd (2011) 245 CTR 397 (Del), it was enunciated that project completion method is one of the recognized methods of accounting. That Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 686/Ind/2016 it cannot be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h method. It was further held that Every assessee is entitled to arrange its affairs and follow the method of accounting which the Department has earlier accepted. It is only on those cases where the department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method . Applying the above said principles to the facts of the present case we find that the assessee before us has been following the systematic method of accounting from year to year which has been accepted by the department and no defects have been pointed out by the department in the method of accounting adopted by the assessee and thus, there is no reason to reject the same. The Hon'ble Delhi High Court in CIT v Manish Buildwell (P) Ltd (supra) had held that It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the projection completion method followed y the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act. AS-7 issued by the ICAI also recognizes the position that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which is called the concept of contract accounts. Under that concept, two methods exist for ascertaining profit for contracts, namely, completed contract method and percentage of completion method . To know the results of his operations, the contractor prepares what is called a contract account which is debited with various costs and which is credited with revenue associated with a particular contract. However, the rules of recognition of cost and revenue depend on the method of accounting. Two methods are prescribed in Accounting Standard No.7. They are completed contract method and percentage of completion method . 39. This view was reiterated by the Supreme Court in CIT v. Bilahari Investment (P) Ltd. (2008) 299 ITR 1/168 Taxman 95 with the following observations: Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the proceedings of completion method is another such method. Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 686/Ind/2016 Under the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case was imposing of percentage completion method on the assessee even when it has been consistently maintaining the regular books of accounts on mercantile basis u/s 145 of the Act adopting project completion method to account for the revenue and the revenue authorities have failed to bring forth any inconsistency in the books of accounts. The Assessing Officer in the instant case has merely applied the method of percentage completion adopted by the Developer JSM DPL and calculated the income of the assessee completely ignoring the fact that the assessee was merely the owner of land and he was entitled to 32% of saleable area only on completion of construction and the deadline of which was 60 Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 686/Ind/2016 months from the date of agreement i.e. from 1.4.2009. The Ld.A.O also ignored the fact that right to sale its share of constructed area with the assessee was only from April, 2014 onwards and the assessee has offered the revenue for taxation from F.Y 2014-15 onwards as and when the sale deed has been registered. As held by various courts as discussed above that the method of adopting project completion method is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions. He has referred the reply dated 27.11.2017 along with confirmation from the lenders and copy of bank statements of the lender M/s Nikita Multi Trade Pvt. Ltd. Ld. Sr. Counsel then referred to the block assessment in case of lender for A.Y.2008-09 to 2013-14 passed on 16.03.2014 against which the assessee preferred an appeal before the Ld. CIT(A) which was allowed by the CIT(A) vide order dated 27.06.2019. The Ld. Sr. Counsel has submitted that the AO disallowed the claim of depreciation which was allowed by the CIT(A) and addition made by the AO was deleted. Further for the assessment year 2014-15 the assessment of the lender company was completed u/s 143(3) by DCIT, Central Circle, Bhopal. Thus, the Ld. Sr. Counsel has submitted that M/s Nikita Multi Trade Pvt. Ltd. is being assessed by the same AO who has passed the order in case of the assessee. He has thus submitted that identity and creditworthiness of the creditors cannot be doubted when the creditor was also subjected to scrutiny assessment for A.Y.2008-09 to 2014-15 by the same AO and there was no question raised by the AO regarding the loan given by the M/s Nikita Multi Trade Pvt. Ltd. to the assessee. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R has submitted that since the order of the AO is completely silent about any inquiry conducted on this issue therefore, the Pr. CIT is justified in invoking the provisions of section 263 of the Act and passing the impugned order. He has relied upon the impugned order of Pr. CIT. 8. We have considered the rival submissions as well as relevant material on record. The Pr. CIT has invoked the provisions of section 263 for lack of inquiry on the part of the AO on two issues out of which one was dropped by the Pr. CIT after considering reply of the assessee and consequently only one issue was the subject matter of the impugned order passed u/s 263 of the Act. The Pr. CIT has given the reasons for invoking the provisions of section 263 in respect of the said issue as under: Further it was also noticed from the Audit report of the assessee that the assessee had claimed to have taken unsecured loan of Rs. 3,86,98,893/- from M/s Nikita Multi Trade Pvt. Ltd. It is settled legal position that to verify the unsecured loan one has to establish the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor, the onus of which is on the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bal. As on 01/04/14 was Rs. 178.71 Lacs No loan accepted during the year. Entire Amount along with interest repaid during the year. 11% 4. Rajendra Singh Nayak ADDPM9696F Op. Bal. as on 01/04/14 was Rs. 348.73 Lacs No loan accepted during the year. Rs. 89.74 Lacs repaid, Closing Balance as on 31/03/2015 was Rs 258.99 lacs NIL 5. J K Singh ANBPS2770H Op. Bal as on 01/04/14 was Rs. 370.22 Lacs No loan accepted during the year. Entire amount repaid during the year. NIL 6. Nilesh Upadhyay AAPPU4496H Op. Bal as on 01/04/14 was Rs 49.73 Lacs No loan accepted during the year Rs. 59.73 Lacs repaid, Closing Balance as on 31/03/2015 was Rs. 10/- Lacs NIL. 8.2 The assessee has further submitted the confirmation of the loan creditor apart from these relevant records. It is also matter of fact and rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pr. CIT is not permitted to exercise the revisionary powers u/s 263 of the Act just to set aside the order of the AO for re-adjudication of the same. It is settled proposition of law that if the AO is satisfied with the supporting evidences produced by the assessee in response to the show cause notice issued u/s 142(1) then it is not necessary for the AO to give elaborate finding on the issue. Though the issue of verification of unsecured loan was not subject matter of limited scrutiny however, it is evident from the show cause notice issued u/s 142(1) that the AO has raised queries about this issue which was duly replied by the assessee with supporting evidence and therefore, it is not a case of complete lack of inquiry on the part of the AO. In fact the AO has conducted an inquiry and verified the relevant details and material produced by the assessee in support of the transactions of unsecured loan. Thus the Pr. CIT while passing the order u/s 263 cannot remand the matter back to the AO for passing the fresh order as it will lead to the conclusion that the Pr. CIT himself was not sure about the correctness of the claim of the assessee which was accepted by the AO. Even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rror committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy Co. v. S.P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/ 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue. 8. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co. v. CIT [1987] 163 ITR 129 interpreting 'prejudicial to the interests of the revenue'. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified. 15. In the present case, the CIT himself while relying upon the reply submitted by the assessee had partially accepted the claim as far as investment in share capital was concerned but it did not accept the documentary evidence and reply submitted by the assessee before the Assessing Officer as far as unsecured loans and creditors are concerned. The reliance placed by the counsel for the Department on the aforesaid judgment is of no help to him as he has failed to point out how the order of the Assessing Officer was erroneous insofar as it is prejudicial to the interest of the revenue. While the counsel for the assessee relying upon Para No. 10 of the said judgment submitted that the order passed by the assessing authority was not without application of mind, as the same was passed after the replying upon the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/ [2010] 194 Taxman 57 and CIT v. Vodafone Essar South Ltd. [2012] 28 taxmann.com 273/ [2013] 212 Taxman 184 (Delhi), it held that once inquiry was made, a mere non discussion or non- mention thereof in assessment order cannot lead to assumption that Assessing Officer did not apply his mind or that he has not made inquiry on the subject and this would not justify interference by Commissioner by issuing notice under Section 263 of the Act. 10. In Vikash Polymers (supra) relevant part of the observations in this regard read as under (page 548 of 341 ITR): This is for the reason that if a query was raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order, that would not, by itself, lead to the conclusion that the order of the Assessing Officer called for interference and revision. 11. Further, the relevant observation made in Vodafone Essar South Ltd. (supra) in this regard reads as under (page 531 of 1 ITR-OL): The lack of any discussion on this cannot lead to the assumption that the Assessing Officer did not apply h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous and prejudicial to the interests of the Revenue without bringing on record specific instances, which in the present case, the Commissioner of Income Tax has failed to do. 21. It is clear that after the notice was issued by the Assessing Officer raising 28 queries from the assessee, which was also replied by him along with the documentary evidence in regard to each of the query, thus the assessment order passed under Section 143(3) of the Act would not render the same as erroneous and prejudicial to the interest of Revenue, unless the Commissioner exercising power under Section 263 brings on record to show that the order of the Assessing Officer is erroneous, as the same was passed without application of mind or the Assessing Officer had made an incorrect assessment of fact or incorrect application of law, but the same not being the case, and the CIT relying upon the reply and the documentary evidence submitted by the assessee granted partial relief, as such the order dated 09.02.2012 passed under Section 263 relegating back the matter to the Assessing Officer as regards unsecured loans and creditors is unsustainable. 22. Having examined the matter at length on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'prejudicial to the interest of Revenue' has to be read in conjunction with19 erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence 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. 19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that order passed by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structures Ltd. (supra) has considered an identical issue in para 9 to 13 as under: 9. We have considered the rival submissions as well as relevant material on record. The Pr. CIT issued show cause notice u/s 263 on 25.02.2022 and passed the impugned order on 15.03.2022. The assessee was given only seven days to file the reply to the show cause notice. In compliance to the show cause notice the assessee filed reply and also requested the Pr. CIT to allow the assessee to produce the voluminous record in the physical form but due to paucity of time as the limitation was gone to expire on 31.03.2022 the Pr. CIT passed the impugned order without considering the explanation and replied filed by the assessee whereby the assessment order was set aside and matter was remanded for de novo assessment. Therefore, at the outset it appears to be a case of violation of principal of natural justice. The issue taken up by the Pr. CIT in the show cause notice are reproduced in the impugned order in para 2 as under: 2. Subsequent to the assessment, assessment records were examined and certain discrepancies were noticed. Accordingly a detailed show cause notice was issued by the undersign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not verified these expenditures during the course of assessment proceedings neither the assessee had furnished supporting documents in support of his claim. Similarly, Rs. 33,92,359/- was claimed as site expenses which almost three times from the amount which was claimed in previous year, Rs. 50,17,438/- was claimed under the head electricity expenses however no such expense was claimed during the previous year, Rs. 10,32,070/- was claimed as freight expenses which is almost five times of the amount which was claimed during the preceding year, Rs. 2,63,53,247/- was claimed as Food Refreshment expenses which is four times of amount which was claimed during the previous year. During the assessment proceedings the assessing officer has not examined that whether exorbitant increase in these expenses are justified and genuine or not. 03.4 On further perusal of the P L account of the assessee company, it was noticed that the assessee had debited Rs. 5,94,59,303/- under the head Changes in inventories of finished goods, work-in-progress and Stock-in- trade During the course of assessment proceedings neither the assessee has furnished explanation nor the assessing officer has s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the annexures to show cause notice issued by the AO u/s 142(1) that the AO issued a detailed questionnaire to the assessee for providing the necessary details, record and evidence. The AO even given a specific format in respect of each details to be provided by assessee which covered all these issues as raised by the Pr. CIT in the show cause notice issued u/s 263 of the Act. The assessee duly complied with the show cause notice issued by the AO by filing to detail reply along with relevant details and documents which runs into 100 of the pages, therefore, for the sake of brevity we are not reproduced the reply and documents filed by the assessee before the AO. However, on-going through the reply filed by the assessee it is manifest that the assessee has given all these details and explanation as sought by the AO in the show cause notice issued u/s 142(1) of the Act. The AO even issued a second show cause notice dated 22.12.2019 asking the details regarding unsecured loans along with explanation in respect of disallowance u/s 14A r.w. Rule 8D. Finally the AO has made disallowance only u/s 14A and no disallowance or addition was made in respect of the other issues as raised in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding assessment years. The AO did not feel any need to give an elaborate finding on this issue. The assessee has produced copies of the assessment order passed u/s 143(3) for A.Ys.2014-15 2015-16 wherein an identical issue was considered by the AO and after examining of the record and explanation of the assessee the AO accepted the claim of the assessee. Once it is a recurring issue and already examined in the preceding years and AO has duly conducted an inquiry by issuing show cause notice u/s 142(1) which was duly replied by the assessee with relevant record then the AO was not expected to give an elaborate finding on this issue. Similarly on the other issues when the AO has issued show cause notice and the assessee produced relevant details and supporting evidence in respect of the expenses incurred which were subjected to TDS wherever applicable and the extra expenditure was incurred for the year was specifically explained by the assessee giving the specific reasons of consumption of electricity in development of site in the remote rural area as well as the expenditure incurred on acquiring equipment of machinery require for carrying out construction work. All these details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the A.O. will be erroneous because the order passed is not sustainable in law and the said finding must be recorded CIT cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the A.O. making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the A.O. had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the A.O. who conduct further enquiries without a finding that the order is erroneous finding that order is erroneous the condition or requirement which mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reover, the issue of examination of source of gift was not subject matter of the scrutiny. Therefore, the decision of the Ld. CIT invoking provisions of section 263 of the Act is not justified and cannot be sustained under the facts and circumstances of the present case. We therefore, set aside the impugned order and allow the grounds raised by the assessee. 12. Once AO has conducted an inquiry which may be inadequate inquiry but in that case it cannot be said that the order passed by the AO is erroneous due to complete lack of inquiry. Once the AO has conducted an inquiry and taken a view which is not found to be impermissible view then the Pr. CIT is not permitted to invoke the provision of section 263 of the Act merely because he does not agree with the view of the AO. Similar view has been taken by the Jaipur Bench of the Tribunal in case of Smt. Lata Phulwani vs. Pr. CIT (supra) as under: 5. We have considered the rival submissions as well as the relevant material on record. We have carefully perused the assessment order passed by the AO under section 143(3), show cause notice issued by the ld. PCIT under section 263 of the Act as well as the impugned order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so furnished the required details/documents as well as books of account which were examined by the AO. There is no dispute that the AO has conducted the enquiry on the issue for which the case was selected for scrutiny and after satisfying himself the AO finally concluded that the assessee earned the income from capital gain and interest. The details and records produced before him were examined and thereafter the returned income is accepted. Thus it is not a case of lack of enquiry on the part of the AO. Though the AO has not discussed the issue in elaborate manner, but once he was satisfied with the supporting evidences produced by the assessee he has accepted the claim. The ld. PCIT has invoked the provisions of section 263 by issuing the show cause notice dated 4th February, 2019 at pages 16 17 of the paper book as under :- Xxxxxxxxxxxxx Thus it is clear from the show cause notice issued under section 263 that the ld. PCIT has invoked the provisions of section 263 only on the issue of allowability of deduction under section 54F in respect of the investment made by the assessee towards cost of agricultural land and construction of house. The sole ground for initiatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the AO, the ld. PCIT can give a concluding finding while passing the revision order after considering the complete record as well as conducting a necessary enquiry. In this case the assessee has contended before the ld. PCIT that the claim of deduction under section 54F is eligible even if the residential house is constructed on the agricultural land. The crux of the argument of the assessee has been reproduced by the ld. PCIT in para 5 of the impugned order. Thus the assessee has cited various decisions in support of her claim. The ld. PCIT has turned down the contentions of the assessee and has gone further to verify the facts by conducting an enquiry. This exercise of the ld. PCIT in conducting the enquiry to find the facts is beyond the scope of the proceedings initiated under section 263 by issuing the show cause notice dated 4th February, 2019. In the said show cause notice, the ld. PCIT has raised only one issue i.e. purely a view regarding the allowability of the deduction under section 54F in respect of the investment made for construction of house on agricultural land. Whereas in the proceedings under section 263 the ld. PCIT has travelled beyond the scope of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the AO is not erroneous for want of an enquiry, then it is incumbent upon the ld. PCIT to give a concluding finding and reasons that the order is not sustainable in law. An identical issue was considered by the Hon'ble Jurisdictional High Court in case of CIT vs. Ganpat Ram Vishnoi, 296 ITR 292 (Raj.) in para 7 to 12 as under :- 7. In this connection, it would be relevant to refer to the material which was relied by the Tribunal to set aside the order of the CIT. The Tribunal noticed that as per the record of the proceedings; on 16-10- 1995, the Assessing Officer required the assessee to produce documents or material in relation to 10 different items, which included the details of capital contributed by partners, details of purchases made in excess of Rs. 20,000 with evidence, confirmation of unsecured loans, amongst other matters, which the Assessing Officer desired to enquire into. The assessee has produced desired information by 15-11-1995. There-after, the case was adjourned to 22-11-1996 and 1-12-1995. On 5-12-1995, the Assessing Officer studied the sundry creditors, unsecured loans and desired to furnish affidavits of unsecured loans and detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot reach on account of some mistake of law or fact committed by the Assessing Officer, the CIT can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. 12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) has held that an order of ITO cannot be treated as prejudicial to the interests of the revenue if the ITO adopted one of the course permissible in law and it has resulted in loss of revenue or two views are possible and the ITO has taken one view with which the ld. CIT 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. As it is clear from the impugned order that the assessee has relied upon various decisions and further the assessee has also relied upon the recent decision of the Coordinate Bench of this Tribunal in case of Shri Rajendra Kumar Sharma vs. JCIT in ITA No. 358/JP/2015 wherein the Tribunal has held in paras 4 5 as under :- 4. We have heard and considered the rival contentions and perused the material placed on record. From the record, we found that the assessee claimed deduction of Rs. 83,54,434/- u/s 54F from the LTCG declared by it. The assessee made investment of Rs. 1,15,00,000/- in purchase of land and constructed residential house thereon. The area of land was 4090 Sq.mt. and construction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which is appurtenant to the building and on which no construction is made, there is no denial of exemption on such investment. In this connection reference may be made to Cir. No. 667 dated 18- 10-1993 (204 ITR (ST) 103) issued by CBDT which has clarified that for the purpose of computing exemption u/s 54 or 54F, the cost of the plot together with cost of the building will be considered as cost of new asset, provided the acquisition of the plot and also the construction thereon are completed within the period specified in these sections. There is no need of approval of plan from competent authorities if construction is within limits on agricultural land and it is not a condition laid down in Section 54F for construction of residential house. The construction on land is meant for residential house. The assessee could complete the construction of the residential house within three years and if any facility lacking in the constructed residential house the same could be completed within in that period. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Rs. 83,54,434/-. Thus it is clear that the Tribunal has referred and relied upon various decisions on the point of allowability of deduction under section 54/54F of the Act in respect of the investment made in construction of house on agricultural land. Therefore, the view taken by the AO is a possible view though may not be the only view. Further once the issue of allowability of deduction under section 54F is a debatable issue and the AO has taken a possible view, then the ld. PCIT is not permitted to invoke the provisions of section 263 merely because he does not agree with the view of the AO. Hence in the facts and circumstances of the case as well as the foregoing discussion about the settled principles of law laid down in various decisions, we hold that the impugned order passed by the ld. PCIT is not sustainable and the same is liable to be set aside. 13. Therefore, once the AO was satisfied with the supporting evidence produced by the assessee in response to the show cause notice u/s 142(1) then it is not necessary for the AO to give an elaborate finding on the issue. Accordingly, in the facts and circumstances of the case when the AO has conducted an inq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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