C/TAXAP/761/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 761 of 2019 PRINCIPAL COMMISSIONER OF INCOME TAX Versus KALPESHKUMAR B VERMA Appearance: MRS MAUNA M BHATT(174) 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 : 10/02/2020 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This tax appeal under Section 260A of Income Tax Act, 1961 [for short 'The Act, 1961'] is at instance of Revenue and is directed against order passed by Income Tax Appellate Tribunal, Ahmedabad 'C' Bench, Ahmedabad dated 18th February, 2019 in ITA No.1244/AHD/2018 for A.Y. 2009 10. 2. Revenue has proposed following two questions of law for consideration of this Court: [A] Whether Appellate Tribunal has erred in law and on facts in reversing order passed under Section 263 of Act by holding that assessment order cannot be branded as erroneous as there has been enquiry with regard to claims made and mere inadequacy cannot be ground for taking action under Section 263 of Act? [B] Whether Appellate Tribunal has erred in law and on facts in not appreciating fact that interest expenditure amounting to Page 1 of 6 Downloaded on : Tue Apr 21 09:27:09 IST 2020 C/TAXAP/761/2019 ORDER Rs.57,37,042/ was not incurred by assessee wholly and exclusively for purpose of earning interest income but was in fact utilized for making investment in shares/securities? 3. It appears from materials on record that assessee had filed his return of income for A.Y.2009 2010 declaring total income at Rs.7,01,555/ . return of income was filed on 24th September, 2009. assessment was finalized on 21st September, 2011 under Section 143(3) of Act determining assessed income at Rs.8,30,030/ . It appears that thereafter, search under Section 132 of Act was undertaken on 26th April, 2013 in connection with Anand Group of Builders. case of assessee was also included. case was centralized and thereafter, notice under Section 153A was issued on 21st October, 2013. In meantime, details of revenue audit objection were communicated by then Assessing Officer to Assessing Officer of Central Circle on 31st July, 2014. assessment was finalized and order under Section 153A read with Section 143(3) of Act was passed dated 29th February, 2016 determining assessed income at Rs.8,30,030/ . 4. CIT thought fit to invoke its revisional powers under Section 263 of Act. CIT took notice of fact that assessee had shown to have received Rs.42,11,011/ as interest income in year under consideration. CIT also took note of fact that assessee had claimed interest expenditure of Rs.57,37,042/ resulting into declaration of loss of Rs.15,26,031/ under head Income from Other Sources . CIT also took note of fact that borrowed funds had been utilized for making investment in shares/securities. In such circumstances, CIT in its order observed as under: 5. reply of assessee has been carefully considered. Assessment records of A.O. have also been perused. arguments Page 2 of 6 Downloaded on : Tue Apr 21 09:27:09 IST 2020 C/TAXAP/761/2019 ORDER put forth by assessee are not found tenable. Further, judicial pronouncements relied upon by assessee are also not squarely applicable in instance case. On verification of records, it is noticed that claim of assessee has been allowed by A.O. without verifying its allowability as per Income tax Act, thereby AO has made inadequate enquiries before allowing above claim of assessee. assessing officer, upon receipt of return of income u/s.153A of Act, gave opportunity to assessee. Thereafter, assessee was required to give details of interest etc. In response thereto, only details/ evidences filed by assessee are merely copy of his ledger accounts. assessing officer, without carrying out any exercise of acting/ verification on ledgers, has concluded assessment by determining amounts as given by assessee. phrase prejudicial to interests of Revenue should be understood in ordinary meaning; it is of wide import and it is not confined to laws of tax. Since while passing order, AO has just accepted what assessee wanted him to accept without discussing allowability or disallowance, provisions of section 263 of I.t. Act are found applicable to assessee's case. AO has not at all examined eligibility of assessee to claim deduction of this interest and has merely allowed that on basis of, copy of ledger accounts only. AO has not made any enquiry and has accepted facts on its face value. This is to be termed as case of only half hearted enquiry as no definite conclusion can be arrived at merely on filing of ledgers before AO. Accordingly, it is held that there has been complete non application of mind by AO while examining expenditure. Thus, view taken by AO is prima facie incorrect and therefore, there is reason to hold that such order is erroneous and prejudicial to interest of revenue. 6. Further, during course of assessment as well as proceedings u/s.263 of Act, assessee has also contended that AO had no power u/s.153 r.w.s.143(3) of Act to examine issue of allowability of expenditure on ground that assessment for year under consideration had already abated on date of search. And assessment under consideration, being made u/s.153A in consequence of search, is required to be restricted to documents/ incriminating material found in course of search for assessing undisclosed income. As per assessee, subject matter of revision u/s.263 of Act does not fall within its preview. 6.2 In case in hand, AO has, upon receipt of return in response to notice u/s.153A of Act, given opportunity to assessee and required him to give certain details and in response to which assessee has filed merely copy of his ledger accounts. All that followed thereafter is AO, without carrying out any exercise of acting/ verifying accounts and admissibility of accounts Page 3 of 6 Downloaded on : Tue Apr 21 09:27:09 IST 2020 C/TAXAP/761/2019 ORDER involved, has concluded assessment by determining amounts as given by assessee in respect of these claims. 7. In light of above facts, assessment order u/s.153A r.w.s.143(3) of Income tax Act, 1961 for A.Y.2009 10 passed by aO on 29.02.2016 is erroneous and prejudicial to interests of Revenue to this extent. Accordingly, order is set aside and AO is directed to make assessment in this regard after concluding enquiry and verification of facts of case and after giving sufficient opportunity of being heard to assessee before finalizing set aside assessment order. 5. sum and substance of what has been conveyed in order passed by CIT is that there was no proper inquiry at end of Assessing Officer. 6. assessee being dissatisfied with order passed by CIT preferred appeal before Tribunal and Tribunal vide impugned order allowed appeal and thereby, quashed and set aside order passed by Commissioner. Tribunal while allowing appeal preferred by assessee observed thus: 2. On verification of case records of assessee for A.Y.2009 10, it is noticed that assessee has shown to have received Rs.42,11,011/ as interest income in year under consideration. He has also claimed interest expenditure of Rs.57,37,042/ resulting into declaration of loss of Rs.15,26,031/ under head Income from Other Sources . Further, perusal of records reveal that borrowed funds have been utilized for making investment in shares/securities. Thus, interest payment/expenditure has not been utilized wholly and exclusively for purpose of earning interest income. On perusal of his reply dated 23.12.2015submitted on 29.12.2015 during course of assessment proceedings, it is noticed that assessee has . submitted ledgers of interest received and interest payment, but not furnished proof establishing nexus between source of funds and its utilization. His submission made during assessment proceedings by simply: filing copy of ledger accounts has been accepted by A.O. without conducting verification of nexus and without verifying their admissibility under I.T. Act. Accordingly, said interest expenditure has been allowed erroneously and is prejudicial to interest of revenue. Page 4 of 6 Downloaded on : Tue Apr 21 09:27:09 IST 2020 C/TAXAP/761/2019 ORDER 3. Thus, impugned assessment for A.Y. 2009 10 passed on 29.02.2016 by Assessing Officer i.e. DCIT, Central Circle 3, Baroda u/s.153A r.w.s.143(3) of Act order is erroneous and prejudicial to interest of Revenue within meaning of section 263 of Income Tax Act. 4. Now assessee has come before us with grievance for order passed by ld. Pr. CIT is wrong and already had adequate enquiry have been made by Assessing Officer. 5. In this case, assessee has shown has to received Rs.42,11,011/ as interest income in year under consideration, and has also claimed interest expenditure of Rs.57,37,042/ resulting into declaration of loss of Rs.15,26,031/ under head Income from Other Sources . 6. We can see in this case, during search no incriminating material was found and ld. A.O. made adequate enquiry in this case. 7. In support of its contention, ld. A.R. cited order in matter of CIT Vs. Amit Corporation (2012) 81 CCH 0069 (Guj.) High Court wherein it is held that during course of framing of assessment, Assessing Officer had access to all records of assessee, after pursuing such record Assessing Officer framed assessment, such assessment could not have been re opened in exercise of revision power u/s.263 for making further inquiries. 8. In this case, assessee cannot be branded as erroneous as there has been inquiry with regard to claims made and mere inadequacy cannot be ground for taking action u/s.263 of Income Tax Act. 9. Ld. A.R. also cited case of Pr. CIT Vs. Saumya Construction Pvt. Ltd. 81 taxmann.com 292 (Guj.) wherein has been held that assessment u/s.153A, relation to material disclosed during search or requisition; if no incriminating material is found during search, no addition can be made on basis of material collected after search. 7. Thus, Tribunal while allowing appeal preferred by assessee relied upon two decisions of this Court; (i) CIT Vs. Amit Corporation, (2012) 81 CCH 0069 (Guj.) And (ii) Principal CIT Vs. Saumya Construction Pvt. Ltd., 81 taxmann.com 292 (Guj.). 8. Having heard learned counsel appearing for Revenue and Page 5 of 6 Downloaded on : Tue Apr 21 09:27:09 IST 2020 C/TAXAP/761/2019 ORDER having gone through materials on record, we are of view that none of two questions as proposed by Revenue could be termed as substantial questions of law involved in this appeal. Tribunal has recorded specific finding that during search, nothing incriminating was recovered and Assessing Office made adequate inquiry in case. It is not in dispute that during course of framing of assessment, Assessing Officer had access to all records of assessee and after perusal of such records ultimately Assessing Officer framed assessment. Tribunal is right in its final conclusion that such assessment order could not have been taken into revision in exercise of revisional power under Section 263 of Act as assessment order cannot be said to be erroneous and prejudicial to interests of revenue. 9. We are convinced with impugned order passed by Tribunal. No interference is warranted. 10. In result, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) aruna Page 6 of 6 Downloaded on : Tue Apr 21 09:27:09 IST 2020 Principal Commissioner of Income-tax v. Kalpeshkumar B Verma