IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 828 of 2019 PRINCIPAL COMMISSIONER INCOME TAX, SURAT-2 Versus M/S SHREEJI PRINTS PVT. LTD. Appearance: MRS KALPANAK RAVAL(1046) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 03/02/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1 This Tax Appeal is filed at instance of Revenue under Section 260 of Income Tax Act, 1961 [for short, 'the Act, 1961'] and is directed against order dated 31st May 2019 passed by Income Tax Appellate Tribunal, Surat Bench, Surat in ITA No.406/SRT/2018 for assessment year 2013 14. 2 Revenue has proposed following questions as substantial questions of law: (a) Whether on facts and in circumstances of case and in law, Hon'ble ITAT is correct in holding that PCIT was not empowered and entitled to revise assessment order u/s. 263 of Act r/w Explanation 2 thereto by ignoring that order passed by AO is erroneous in so far as it is prejudicial to interest of revenue in as much as Assessing Officer has passed assessment order without making inquires / verification in light of unsecured loans of Rs. 2.49 Crores received from M/s. Georgette Tradecom Pvt. Ltd (GTPL) and M/s. Purba Agro Food Pvt. Ltd (PAFPL)? Page 1 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 C/TAXAP/828/2019 ORDER (b) Whether on facts and in circumstances of case and in law, Hon'ble ITAT is correct in cancelling impugned order u/s. 263 of I.T. Act and allowing all grounds of Assessee? 3 facts giving rise to this appeal may be summarised as under: 3.1 respondent assessee has filed its return of income showing total income of Rs.62,55,900/ which was assessed under Section 143(3) of Act, 1961 by assessment order dated 14th March 2016. 3.2 respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt Ltd amounting to Rs.2.49 Crore and Assessing Officer allowed these unsecured loans. 3.3 Principal Commissioner of Income Tax [for short, 'the PCIT'] invoked Section 263 of Act, 1961 for revising assessed income of respondent assessee. It was noticed by PCIT that unsecured loans obtained by respondent assessee are shown as investment in name of assessee in share application as well as in balancesheet of respective companies. PCIT passed order under Section 263 of Act, 1961 dated 28th March 2018 directing Assessing Officer to pass fresh assessment order under Section 143(3) of Act, 1961 on aspect of unsecured loans shown by respondent assessee. 4 Being aggrieved by order passed by PCIT under Section 263 of Act, 1961, assessee went before Tribunal. Tribunal, after considering submissions made by assessee and after considering scope of power to be exercised by PCIT under Section 263 of Act, 1961 came to be conclusion that Assessing Officer has made inquiries in detail about two unsecured loans taken by respondent assessee and observed as under: Page 2 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 C/TAXAP/828/2019 ORDER 13 In light of aforesaid judicial precedents in present case what has to be seen is whether AO has made enquiries about two loans taken from GTPL and PAFPL. If answer is affirmative, then second question arises whether acceptance of claim by AO was plausible view or on facts of finding on facts that said funding of AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13.10.2015 placed at Page No. 1 of Paper Book shows AO vide item no.(iii) has asked information regarding details of unsecured loan outstanding as on 31.03.2013 and loans were squared up amounts in format prescribed therein. In compliance to thereof, assessee has furnished complete details of unsecured loans outstanding / squared up vide para 3 of his letter dated 02.11.2015 placed as Annexure 2 at page 4 of paper book. assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 2012 13 and 2013 14 and copy of bank statement reflecting payment received was paid during financial year 2012 13 relevant to assessment year 2013 14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that assessee has furnished account confirmation of depositor, acknowledgment of income of parties, audited balanced sheet and proflt and loss account of parties and bank pass book and bank statement of parties. During course of assessee proceedings, form these facts it is clear that assessee has not only proved from these facts it is clear that assessee has not only proved identity of lenders but also genuineness of transactions and credit worthiness of lenders. Accordingly, Ld. AO after verifying details of unsecured loans being satisfied, accepted submissions of assessee which leads to infer that Assessing Officer had made full enquiries of unsecured loans by raising queries and calling for all information in respect of loan taken along with details evidences in support thereof and same were also duly replied by assessee and on receipt of all details of evidences, unsecured loans received by assessee were accepted by Assessing Officer and assessment was finalised u/s.143(3) of Act on 15.03.2016. We also note that there was audit objection in case of assessee. language of audit objection and show cause notice under section 263 is same meaning thereby that show cause notice u/s.263 has been issued by PCIT Without going through assessment records and without exercising his own application of his mind. assessee has not only filed complete details of Income Tax Return, audited balance sheet, profit and loss account and bank statement. assessee further explained that both these unsecured loans stands fully repaid as on date and there is no capital creation by assessee on this count. In view of these facts and circumstances, we are of considered opinion that order of Assessing Officer is not erroneous nor it is prejudicial to interest of revenue. It was also brought to notice of PCIT that entire share capital of GTPL being already tax, all investment made by said Page 3 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 C/TAXAP/828/2019 ORDER company recorded in its balance sheet stands explained tax in its hands itself and hence, there is no question of adding same amount in hands of assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs.1.5 crore under IDS 2016 in September 2016 and said loan was repaid before making declaration. In view of these facts and circumstances, we find that AO has made due enquiries. Since we find that AO had made enquiries regarding unsecured loans and accepted claim of assessee after detailed enquiries. 15 Pr.CIT had observed that Explanation 2 of Section 263 of Act is clearly applicable and it is clear that Assessing Officer has passed assessment order after making enquiries for verification which ought to have been made in this case. However, we find that Pr. CIT has not mentioned in show cause notice issued under section 263 that he is going to invoke Explanation 2 to 263 hence, invocation of Explanation in order without confronting assessee is not appropriate and sustainable in law in support of this contention, ld. Counsel has placed reliance on following decision: CIT v/s Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem 270 ITR 0157 (MP,CIT v/s. Ganpet Ram Bishnoi 296 ITR 0292 (Raj.), Cadila healthcare Ltd. Vs. Cl 7, Ahmedabadh 1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Sa Contractors Vs. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal Vs. CIT, Vamnesi [(201 4) 41 texmann.com 27&(AII Trib.)]. It was contended by Learned Counsel that Clause (a) & (b) of Explanation 2 of Section 263 are not applicable as Assessing Officer has made enquiry and verification which should have been made. Further, in show cause notice, Explanation 2 of section 263 was not invoked by PCIT and it was referred in order u/s.263 of Act. Therefore, in light of decision of Co ordinate Bench of Mumbai ga in case of Narayan Tatu Rane 70 taxmann.com 227 (Mum. Trt.) [PB 153 1561 wherein held that explanation cannot laid to have over ridden law as interpreted / various High Courts where High Courts have held that before reaching conclusion that order of Assessing Officer is erroneous prejudicial to interest of Revenue. CIT himself has to undertake some enquiry to establish that assessment order is erroneous and prejudicial to interest of Revenue. ld. Counsel relied on decision of M/s. Amira Pure Foods Pvt. Ltd., Vs. PCIT in ITA No.3205/Del/2017 and Ahmedabad Tribunal in case of Torrent Pharmaceuticals Ltd. Vs. DCIT [2018] 97 TAXMANNCOM 671 (Ahmedabad Tribunal). it is clear from enquiries made by Assessing Officer and submissions made by assessee that Assessing Officer has taken plausible view which is valid in eyes of law. Assessing Officer was satisfied consequent to making enquiry and after examining evidences produced by assessee, he accepted Page 4 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 C/TAXAP/828/2019 ORDER assessee s claim of loan similar view were also expressed by Hon ble Delhi High Court in case of CIT Vs. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe Pr.CIT has drawn support from newly inserted Explanation 2 below Section 263(1) of Act introduced by Finance Act, 2015 w.e.f. 01.06.2015 for his action. Explanation 2 inter alia provides that order passed without making inquiries or verification which should have been made will be deemed to be erroneous insofar as it is prejudicial to interest of Revenue. It is on this basis, assessment order passed by AO under section 143(3) of Act has been set aside with direction to AO to pass fresh assessment order. It will be therefore imperative to dwell upon impact of Explanation 2 for purposes of Section 263 of Act. aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27 11 2015 which is reproduced hereunder: 53. Revision of order that is erroneous in so far as it is prejudicial to interests of revenue. 53.1 provisions contained in sub section (1) of section 263 of Income tax Act, before amendment by Act, provided that if Principal Commissioner or Commissioner considers that any order passed by Assessing Officer is erroneous in so far as it /s prejudicial to interests of Revenue, he may, after giving assessee opportunity of being heard and after making enquiry pass order modifying assessment made by Assessing Officer or cancelling assessment and directing fresh assessment. 53.2 interpretation of expression erroneous in so far as it /3 prejudicial to interests of revenue has been contentious one. In order to provide clarity on issue, section 263 of Income tax Act has been amended to provide that order passed by Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to interests of revenue, if, in opinion of Principal Commissioner or Commissioner. (a) order is passed without making inquiries or verification which, should have been made; (b) order is passed allowing any relief without inquiring into claim; (c) order has not been made in accordance with any order, direction or instruction issued by Board under section 119; or (d) order has not been passed in accordance with any decision, prejudicial to assessee, rendered by jurisdictional High Court or Supreme Court in case of assessee or any other person. Page 5 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 C/TAXAP/828/2019 ORDER 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015. 17 We thus find merit in plea of assessee that Revisional Commissioner is expected show that view taken by AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. revisional powers cannot be exercised for directing fuller inquiry to merely find out if earlier view taken is erroneous particularly when view was already taken after inquiry. If such course of action as interpreted by Revisional Commissioner in light of Explanation 2 is permitted, Revisional Commissioner 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. This would inevitably mean that every order of lower authority would thus become susceptible to Section 263 of Act and, in turn, will cause serious unintended hardship to tax payer concerned for no fault on his part. Apparently, this is not intended by Explanation. Howsoever wide scope of Explanation 2(a) may be, its limits are implicit in it. It is only in very gross case of inadequacy in inquiry or where inquiry is per se mandated on basis of record available before AO and such inquiry was not conducted, revisional power so conferred can be exercised to invalidate action of AO. AO in present case has not accepted submissions of assessee on various issues summarily but has shown appetite for inquiry and verifications. AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore,the Explanation 2 to Section 263 of Act do not, in our view, thwart assessment process in facts and context of case. Consequently, we find that foundation for exercise of revisional jurisdiction is sorely missing in present case. 18 In light of above facts and legal position, we are of considered view that AO had made detailed enquiries and after applying his mind and accepted genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking jurisdiction under section 263 of Act. case laws relied by ld. CIT(D.R.) are distinguishable on facts and in law hence, by ld. Counsel as well and we concur same hence not applicable to present facts of case. Therefore, in absence of same, ld. CIT ought to have not exercised his jurisdiction under section 263 of Act. Therefore, we cancel impugned order under section 263 of Act, allowing all grounds of appeal of Assessee. Page 6 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 C/TAXAP/828/2019 ORDER 5 Tribunal has found that in order passed by PCIT, Explanation 2 of Section 263 of Act, 1961 is made applicable. Tribunal observed that PCIT has not mentioned in show cause notice to invoke Explanation 2 of Section 263 of Act 1961. Therefore, by invocation of Explanation in order without confronting assessee and giving opportunity of being heard to assessee is not appropriate and sustainable in law. 6 Thus, Tribunal has considered in detail aspect of revisional power to be exercised by PCIT in facts of case and has given finding of facts that Assessing Officer has made inquiries in detail and after applying mind, accepted genuineness of loans received by respondent assessee from aforesaid two companies and such view of Assessing Officer is plausible view, and therefore, same cannot be said to be erroneous or prejudicial to interest of Revenue. 7 In view of such finding of facts arrived by Tribunal, no questions of law much less of any substantial questions of law arise out of impugned order passed by Tribunal. appeal, therefore, fails and is dismissed. No order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) CHANDRESH Page 7 of 7 Downloaded on : Tue Mar 17 12:15:11 IST 2020 Principal Commissioner Income-tax, Surat-2 v. Shreeji Prints Pvt. Ltd