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Dharmendra Kumar Bansal v. Commissioner of Income-tax
Concise Analytical Summary of the Opinion
Factual and Procedural Background
This is an appeal by the assessee against the order dated 5th March, 2013 of the learned CIT, Kota, passed under section 263 of the Income-tax Act, 1961. The assessee had filed his return of income on 28th September, 2008 declaring an income of Rs. 2,75,550. The return was processed under section 143(1) on 20th May, 2009 and the case was subsequently selected for scrutiny. The Assessing Officer (AO) framed assessment under section 143(3) at an income of Rs. 3,33,150 (assessment order dated 29th October, 2010).
The ITO, Ward-3, Sawai Madhopur proposed revisionary action under section 263 by letter dated 2nd September, 2011 on the ground that the AO had regarded as genuine certain fresh cash creditors (five persons with specified amounts) without adequately verifying their creditworthiness. A notice under section 263 dated 9th January, 2013 was issued to the assessee. The assessee submitted written replies and relied on several judicial decisions in support of the contention that the AO had applied his mind.
The learned CIT, however, held that the AO had completed the assessment in a routine manner, with lack of verification and a mistaken view of law, and found the assessment order to be erroneous and prejudicial to the interest of the Revenue. The CIT set aside the assessment and directed the AO to re‑frame it after proper verification. The assessee challenged that order before the Tribunal.
Legal Issues Presented
- Whether the learned CIT validly exercised revisionary jurisdiction under section 263 of the Income-tax Act by issuing a notice and setting aside the AO's assessment where the proceedings under section 263 were initiated on the basis of a proposal from the AO (ITO) rather than after the CIT himself called for and examined the record and formed his own satisfaction.
- Whether the AO's assessment under section 143(3) was erroneous and prejudicial to the interest of the Revenue because the AO allegedly failed to make proper enquiries to ascertain the creditworthiness of the cash creditors shown by the assessee.
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The AO had in fact examined the creditworthiness of all fresh cash creditors: confirmations, bank account copies, PANs, affidavits, returns and statements were obtained and placed on record during assessment proceedings.
- Since the AO had satisfied himself during assessment proceedings, the assessment order was not erroneous or prejudicial to the interest of the Revenue and did not warrant revision under section 263.
- The learned CIT initiated proceedings under section 263 merely on the basis of a proposal from the ITO without calling and examining the records himself or forming his own satisfaction; this is contrary to the plain language and requirements of section 263 (i.e., the CIT's own satisfaction after calling records is a precondition to exercise revisionary power).
- Revision under section 263 cannot be initiated simply to cause further enquiries or re-open matters that the AO has already examined and decided; reliance was placed on several judicial decisions (including Commissioner of Income‑Tax v. Ganpat Ram Bishnoi, Cit v. M/s. Vikas Polymers, Commissioner of Income‑Tax v. Sunbeam Auto Ltd., Antala Sanjaykumar Ravjibhai v. CIT, among others).
Respondent's (Revenue / Departmental Representative) Arguments
- The Departmental Representative supported the impugned order of the CIT and submitted that the AO did not make proper enquiries while passing the assessment order; accordingly, the assessment was erroneous and prejudicial to the interest of the Revenue.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income‑Tax v. Ganpat Ram Bishnoi | Jurisdiction under section 263 cannot be invoked merely because the AO could have made further enquiries; no presumption that the AO had not applied his mind; s.263 cannot be used to re‑open matters solely on the ground that more enquiry ought to have been conducted. | The Tribunal relied on this precedent (as cited by the assessee) to support the proposition that s.263 cannot be invoked merely to cause further enquiries and to show that the CIT must have independent satisfaction before initiating revision. |
| Cit v. M/S. Vikas Polymers | If a query raised during scrutiny is answered to the satisfaction of the AO but the query/answer is not reflected in the assessment order, that fact by itself does not automatically justify interference under s.263. | The Tribunal noted this authority (relied upon by the assessee) to indicate that absence of reflection of queries or answers in the assessment order does not, by itself, warrant revision under s.263. |
| Commissioner Of Income‑Tax v. Sunbeam Auto Ltd. | Even if an enquiry was inadequate, mere existence of an enquiry would not by itself give occasion to the CIT to pass an order under section 263. | Used by the Tribunal (as cited by the assessee) to show that the presence of enquiries—even if imperfect—does not automatically render the assessment order amenable to revision under s.263. |
| Antala Sanjaykumar Ravjibhai v. CIT | Section 263 does not envisage substitution of the judgment of the CIT for that of the ITO where the ITO, in the exercise of quasi‑judicial powers, examines the accounts, makes enquiries, applies his mind and determines income. | The Tribunal referred to this principle to support the proposition that orders where the AO has applied his mind cannot be treated as erroneous merely because the CIT disagrees. |
| Malabar Industrial Co. Ltd. v. CIT | This information was not available in the provided opinion. | The opinion listed this precedent among those relied upon by the assessee/counsel, but did not state the rule or how the Tribunal applied it in this decision. |
| CIT v. Max India Ltd. | This information was not available in the provided opinion. | Referenced by counsel in submissions; the opinion did not explicate the principle relied upon or its application in the present order. |
| Commissioner Of Income‑Tax v. Padam Singh Chouhan | This information was not available in the provided opinion. | Listed in submissions; no specific rule or court application described in the text. |
| Aravali Trading Co. v. ITO | This information was not available in the provided opinion. | Listed in the array of authorities cited by the assessee; the opinion did not set out its principle or use. |
| Labh Chand Bohra v. ITO | This information was not available in the provided opinion. | Included in counsel's list; no further exposition in the Tribunal's reasoning. |
| Kanhaialal Jangid v. Asstt. CIT | This information was not available in the provided opinion. | Referenced but not explicated in the Tribunal's order. |
| CIT v. Honda Siel Power Products Ltd. | This information was not available in the provided opinion. | Appears in counsel's list; the opinion did not state the precise rule relied upon. |
| Pawan Kumar v. Assessing Officer | This information was not available in the provided opinion. | Mentioned in submissions; no direct application described in the text. |
| Kulbir Singh v. Asstt CIT | This information was not available in the provided opinion. | Listed among authorities but not otherwise discussed in the reasons recorded. |
| Ganesh Builders v. CIT | This information was not available in the provided opinion. | Referred to in the list of authorities; the Tribunal's reasoning does not detail its application. |
| Cit v. Bihar State Financial Corpn. | This information was not available in the provided opinion. | Included in the authorities cited; no specific role explained in the written order. |
| Balwant Singh v. ITO | This information was not available in the provided opinion. | Cited in submissions; not detailed in the Tribunal's analysis. |
| Kamal Kumar Gupta v. CIT | This information was not available in the provided opinion. | Listed by counsel; the opinion does not summarize its principle or use. |
| Commissioner Of Income‑Tax v. Hindustan Marketing & Advertising Co. Ltd. | This information was not available in the provided opinion. | Part of the authorities listed; the Tribunal did not separately analyze or recite its rule in the order. |
| CIT v. Trustees Anupam Charitable Trust | This information was not available in the provided opinion. | Mentioned among cases; no explicit application recorded in the Tribunal's reasoning. |
| Commissioner Of Income‑Tax v. Leisure Veer Exports Ltd. / Gee Vee Enterprise…Petitioner v. Additional Commissioner of Income Tax… | This information was not available in the provided opinion. | Referenced in the list of authorities; the opinion does not set out how it was applied. |
| CIT v. Emery Stone Mfg. Co. | This information was not available in the provided opinion. | Included in the authorities cited by counsel; no further use or principle is described in the order. |
Court's Reasoning and Analysis
The Tribunal examined the sequence of events and the material on record. It noted that:
- Action under section 263 was proposed by the ITO (Ward‑3, Sawai Madhopur) by letter dated 2nd September, 2011; the learned CIT did not himself call for and examine the record prior to initiating the revisionary proceedings.
- The section 263 notice dated 9th January, 2013 was issued on receipt of the ITO's proposal rather than following independent examination of records by the learned CIT.
- The assessee had furnished written submissions (reproduced in the order) explaining that the AO had obtained confirmations, bank statements, returns and other documents and had recorded statements of the creditors during the assessment proceedings; the AO had, after those enquiries, treated the cash creditors as genuine.
- The Tribunal relied on the statutory requirement and settled law that the learned CIT, when exercising powers under section 263, must call for and examine the records and must himself form the satisfaction that an order is erroneous in so far as it is prejudicial to the interests of the Revenue. The CIT's own satisfaction is a precondition to valid issuance of a notice or exercise of revisionary power.
- Because the satisfaction recorded was that of the ITO (i.e., the proposal was made by the AO) and there is no evidence that the learned CIT independently called and examined the records and formed his own satisfaction before issuing the notice and passing the revisionary order, the Tribunal concluded that the initiation of proceedings and the notice under section 263 on that basis was void ab initio.
- The Tribunal observed that it was fortified in this conclusion by the various judicial pronouncements cited by the assessee, which (as cited in the order) support the proposition that section 263 cannot be employed merely for short or additional enquiries and that the CIT must not substitute his judgment for that of the AO where the AO has applied his mind.
Holding and Implications
HOLDING: The appeal is allowed. The Tribunal held that the issuance of the notice under section 263 and the consequent action based solely on the proposal of the AO (ITO) without the learned CIT calling and examining the records and forming his own satisfaction was void ab initio, and accordingly set aside the same.
Implications:
- Direct effect: The Tribunal set aside the initiation of proceedings under section 263 and allowed the assessee's appeal—thereby nullifying the CIT's revisionary action in the present case.
- Scope: The opinion emphasises that a learned CIT must call for and examine the record and form his own satisfaction before invoking section 263. The Tribunal stated that it was fortified by judicial pronouncements relied upon by the assessee, but the order does not state that it is laying down any new broader legal principle beyond applying existing law to the facts at hand.
End of summary (based exclusively on the provided opinion).
ORDER
N.K. Saini, Accountant Member - This is an appeal by the assessee against the order dated 5th March, 2013 of learned CIT, Kota. The following grounds have been raised in this appeal :
2. The only grievance of the assessee in this appeal relates to the action of the learned CIT under s. 263 of the IT Act, 1961 (hereinafter referred to as 'the Act' in short) in quashing the assessment order dt. 29th Oct., 2010 passed by the AO under s. 143(3) of the Act considering the same as erroneous and prejudicial to the interest of the Revenue.
3. Facts of the case in brief are that the assessee filed his return of income on 28th Sept., 2008 declaring an income of Rs. 2,75,550, which was processed under s. 143(1) of the Act, on 20th May, 2009. Later on case was selected for scrutiny. The AO framed the assessment under s. 143(3) of the Act at an income of Rs. 3,33,150. Thereafter, ITO, Ward-3. Sawai Madhopur vide letter No. 3737, dt. 2nd Sept., 2011 proposed the action under s. 263 of the Act on the following points decided by the AO considering the same as erroneous and prejudicial to the interest of the Revenue :
"During the year under consideration, the assessee has shown following cash creditors :
| 1. | Shri Ghanshyam Lal Gupta | Rs. 90,000 | |
| 2. | Shri Rupesh Mittal | Rs. 50,000 | |
| 3. | Shri Yogesh Bansal | Rs. 1,00,000 | |
| 4. | Shri Sunil Kumar Gupta | Rs. 90,000 | |
| 5. | Shri Ashok Kumar Agarwal | Rs. 1,00,000 |
Though the statements of the above-mentioned creditors were recorded by the AO and copies of bank accounts have been obtained but it was found that before transferring the amount in assessee's bank account, similar amount has been deposited in cash within 2-3 days before by these creditors, therefore, creditworthiness of these creditors not proved. The AO was expected to make concrete inquiries about source of cash deposit before finalizing the case keeping in view the fact which is vital to determine the creditworthiness of these creditors."
4. On receipt of proposal under s. 263 of the Act from the ITO, Ward 3, Sawai Madhopur, a notice under s. 263 of the Act dt. 9th Jan., 2013 was issued to the assessee, who vide written submission submitted on 22nd Jan., 2013 as under :
"The creditworthiness and genuineness of all transactions relating to all the fresh credits narrated in your show-cause notice was duly examined by the learned AO during the course of assessment proceedings as is evident from the details of unsecured loans (mentioning complete names, addresses and PAN), confirmations, copies of bank accounts, copies of IT returns, affidavits etc. of the depositors required by the learned AO from time to time and filed by the assessee accordingly. Statements of all the creditors mentioned in the show-cause notice were duly recorded by the learned AO during the course of assessment proceedings as has been stated in the show-cause notice itself. Shri Ashok Kumar Agrawal and Shri Sunil Kumar Gupta arc regularly assessed with ITO, Ward-3 and copies of IT returns of them were filed during assessment proceedings. With regard to Shri Yogesh Bansal, the learned AO required to file copy of his balance sheet for financial year 2008-09 along with copy of cash book for the period from 1st April, 2007 to 7th April, 2007 (showing available cash balance which was deposited into bank on different dates) which was duly furnished by the assessee. For all other creditors necessary details were furnished as required by the learned AO. After satisfying himself the learned AO treated the cash creditors as genuine. Since the matter was duly examined by the learned AO, the revision of the order on this account should not be called for.
Further, since the matter narrated by your Honour was duly examined by the learned AO during assessment proceeding the order passed by the learned AO is not erroneous and prejudicial to the interest of the Revenue. The proceedings under s. 263 cannot be initiated simply to cause enquiries. The contention of the assessee may be substantiated from the following decisions :
Commissioner Of Income-Tax v. Ganpat Ram Bishnoi [2005] 198 CTR (Raj) 546 -From the record of the proceedings, in the present case, no presumption can be drawn that the AO had not applied its mind to the various aspects of the matter. In such circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the AO was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction under s. 263. Jurisdiction under s. 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.
Cit v. M/S. Vikas Polymers [2010] 236 CTR (Del) 476 : [2010] 47 DTR (Del) 348 : [2010] 194 Taxman 57 (Del) -If a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer was reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision.
Commissioner Of Income-Tax v. Sunbeam Auto Ltd. [2009] 227 CTR (Del) 133 : [2009] 31 DTR (Del) 1-If there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass order under s. 263.
Antala Sanjaykumar Ravjibhai v. CIT [2012] 148 TTJ (Rajkot) 121 : [2012] 74 DTR (Rajkot)(Trib) 228 : [2012] 135 ITD 506 (Rajkot) -The provisions of the s. 263 does not visualize a case of substitution of the judgment of CIT for that of ITO where ITO in exercise of its quasi-judicial powers while making an assessment examines the accounts, makes enquiry, applies his mind to the facts and circumstances of the case and determines the income by either accepting or making changes in accounts. Such order cannot be called as erroneous.
Looking to the above facts and circumstances of the case it is requested your Honour to please drop the proceedings initiated under s. 263 and oblige."
5. Learned CIT did not find merit in the abovesaid submission of the assessee and observed that the AO completed the assessment in a routine manner and there was not only lack of verification but also mistaken view of law which had made the order erroneous and rireiudieial to the interest of the Revenue. Learned CIT reiterated the observation of the ITO, Ward (3), Sawai Madhopur in his letter dt. 2nd Sept., 2011 vide which action under s. 263 was proposed that the assessce had shown the following cash creditors :
| Shri Ghanshyam Lal Gupta | Rs. 90,000 |
| Shri Rupcsh Mittal | Rs. 50,000 |
| Shri Yogesh Bansal | Rs. 1,00,000 |
| Shri Sunil Kumar Gupta | Rs. 90,000 |
| Shri Ashok Kumar Agarwal | Rs. 1,00,000 |
6. He also pointed out that though statements of the above-mentioned creditors were recorded by the AO and the copies of bank accounts had been obtained, but it was found that before transferring the amount in assessee's bank account, similar amount had been deposited in cash within 2-3 days by these creditors. Therefore, creditworthiness of these creditors was not proved. Learned CIT was of the view that the assessment order passed under s. 143(3) of the Act was without due and proper enquiry and calls for further enquiry. He, accordingly set aside the assessment order with a direction to the AO to frame it de novo after making proper verification and enquiry. Now the assessee is in appeal.
7. Learned counsel for the assessee submitted that in the present case assessment was framed under s. 143(3) of the Act. Thereafter, AO moved a proposal under s. 263 of the Act dt. 2nd Sept., 2011 to the learned CIT for revision of the assessment order and a show-cause notice dt. 9th Jan., 2013 was then issued by the ITO (Tech.) to the assessee reference was made to 2nd and 3rd paras of the impugned order. It was further stated that consequently, the learned CIT passed the order under s. 263 of the Act holding that the assessment order passed by the AO under s. 143(3) of the Act was without due and proper enquiry and was mistaken view of law which had made the order erroneous and prejudicial to the interest of the Revenue. It was emphasized that the condition precedent for issuance of notice under s. 263 of the Act is that the CIT is to call record for examination of any proceedings under this Act before forming his opinion that the assessment order passed by the AO was erroneous so far as it was prejudicial to the interest of the Revenue. However, in the present case, as evident from paras 2 and 3 of the impugned order, the learned CIT initiated the proceedings under s. 263 of the Act by not calling and examining the records and on the proposal moved by the AO to revise the assessment order dt. 29th Oct., 2010 passed under s. 143(3) of the Act, which was against the plain language of s. 263 of the Act because the suggestion of the AO cannot be a basis for revision of the assessment order. Reliance was placed on the following case laws :
8. In his rival submissions, learned Departmental Representative strongly supported the impugned order passed by the learned CIT and further submitted that the AO did not make proper enquiries while passing the assessment order. Therefore, the assessment order was not only erroneous but also prejudieial to the interest of the Revenue.
9. We have considered the submissions of both the parties and carefully ; gone through the material available on record. In the present case, it is abundantly clear from para-2-of the impugned order that the 1TO, Ward-3, Sawai Madhopur vide letter No. 3737, dt. 2nd Sept., 2001 proposed action under s. 263 of the Act and it was not the learned CIT, who himself called record and examined the same for any proceeding under s. 263 of the Act. Therefore, it can be said that the learned CIT had not applied his mind but the matter was referred by the AO for initiating the proceeding under s. 263 of the Act. In the present case, from para 3 of the impugned order, it is noticed that the notice dt. 9th Jan., 2013 under s. 263 of the Act was issued only on receipt of the proposal under s. 263 of the Act from the ITO, Ward-1(2), Kota and the assessee explained, vide written submission which has been reproduced in para 4 of the impugned order, each and every objection raised by the ITO, Ward-2, Sawai Madhopur. It is well-settled that the learned CIT while exercising the revisionary powers under s. 263 of the Act may call for and examine the records of any proceedings and thereafter if he considers that any order passed therein is erroneous insofar as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. Therefore, before taking any action, learned CIT himself shall apply his mind after examining the record of any proceedings and his satisfaction is must. However, in the present case, the satisfaction was of the ITO (Tech.) who proposed action under s. 263 of the Act, but not of the learned CIT. Therefore, issuance of notice under s. 263 of the Act on the basis of the proposal made by the ITO was void ab initio; We, therefore, set aside the same. For the aforesaid view, we are fortified by the various judicial pronouncements relied by the learned counsel for the assessee.
10. In the result, appeal of the assessee is allowed.
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