The issue under consideration is whether CIT is correct in invoking revisional jurisdiction u/s 263 on the ground of alleged inadequate enquiry by AO into loan transactions of assessee?
ITAT states that the CIT invoked the revisionary jurisdiction on the broad allegation that the AO failed to make adequate enquiries with regard to the creditworthiness of the four loan creditors, from whom the assessee had received huge loan during the year, when the information gathered u/s 133(6) showed that they had reported ‘NIL’ or low income and claimed huge TDS refund or they had accepted huge unsecured loans. It is noted that the impugned loan is the subject matter of SCN issued u/s 263 of the Act, which the assessee received from two bodies corporate i.e. Anadya Technologies Pvt Ltd & Hotahoti Wood Products Ltd. Although in the SCN, the ld PCIT while proposing to usurp the revisional jurisdiction found fault with the Assessment order on the ground of non-enquiry by AO into the loan transaction by the assessee, which ITAT find that enquiry under Section 133(6) was in fact carried out by the AO from the said party and evidence in support of compliance made by the said party was also furnished before the ld. Pr. CIT. ITAT therefore note that since the evidence led by the assessee in this regard was found to be factually true, the ld. Pr. CIT did not pursue this ground any further while passing the impugned order. Therefore ITAT have no hesitation in observing that on this ground of non-enquiry, the order u/s 263 holding the assessment order to be erroneous and prejudicial to the interests of the Revenue per-se erroneous.
Further, ITAT states that AO had made specific enquiry into loan transactions of assessee based on the CASS parameter. In response to enquiries made under section 133(6), loan creditors had filed their documents/details to substantiate/prove their identity(ies), creditworthiness and genuineness of the loan transactions. AO having examined all the details had not drawn any adverse inference against any loan creditors and did not follow a view ‘unsustainable in law’ and assessment order was not the result of non-application of mind or any inadequate enquiry, accordingly, invocation of jurisdiction under section 263 was untenable.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is preferred by the assessee against the order of Ld. Pr. CIT-9, Kolkata dated 28-03-2019 for the assessment year 2014-15 passed u/s. 263 of the Income-tax Act, 1961 (hereinafter in short ‘the Act’).
2. The main grievance of the assessee is against the action of the ld. PCIT in assuming his jurisdiction u/s. 263 of the Act without satisfying the condition precedent prescribed by the statute.
3. The brief facts of the case are that the assessee has filed its R.O.I (Return of Income) for the A.Y under consideration on 29-09-2014 declaring total income of Rs. 8,75,470/-. Thereafter, the case was selected for scrutiny under CASS. The AO noted during the assessment proceedings that the assessee was engaged in construction business under the name and style of ‘M/s. City Star Ganguly Projects’ and disclosed the total turnover of Rs.90,25,099/- along with income from other source amounting to Rs. 21,768/-. Since the assessee’s case was selected for scrutiny through CASS with the reasoning ‘unsecured loans were taken from persons who have not filed their ITR’, the AO therefore asked the assessee to file loan confirmation of every loan creditors. Pursuant to which, the assessee filed the list of loan creditors along with their PAN details etc, which has been acknowledged by the AO. It was also brought to our attention that prior to completion of assessment, the AO had also made enquiries from the loan creditors u/s 133(6) of the Act, who all had advanced fresh loans/advances to the assessee during the year, which were also duly complied by each of them. Thereafter, the AO records specific finding that there was no adverse inference needs to be drawn on CASS point. The AO accordingly concluded the assessment after making additions of Rs.1,90,792/- at total income of Rs.10,66,260/- by an order dated 22-08-2016.
Thereafter, the ld. PCIT has issued show cause notice dt. 13-03-2019 to the assessee by stating as under:-
“2. It is seen that your return for the assessment year 2014-15 was selected for complete scrutiny through CASS and assessment under section is u/ s. 143(3) of the I.T. Act, 1961 was completed on 22-08-2016 at an assessed income of Rs. 10,66,260/-.
3. On perusal of the assessment records it is evident that that the case was taken up for complete scrutiny for the reason that unsecured loans were taken from persons who have not filed their ITR. Records reveal that unsecured loans of Rs. 1,27,47,000/- were taken from the following companies :-
(a) North Eastern Publishing & Advertising Ltd.
(b) Hotahoti Wood Products Ltd.
(c) Purbanchal Prestressed Ltd., and V
(d) Anadya Technologies Pvt. Ltd.
4. The A.O. had issued notice u/s.133(6) to the entities mentioned at (a), (b) & (d) but no information was called for from M/ s. Purbanchal Prestressed Ltd. Copy of ITR of M/ s. Purbanchal Prestressed Ltd. is also not found on record. Thus, the reasons for selection remained unverified to that extent.
5. Information gathered through issuance of notice u/s.133(6) reveal that all the above entities have shown very low and even ‘Nil’ income for the year and claimed huge TDS refunds. Copy of their annual accounts reflect huge unsecured loans that are invested in a battery of apparently shell companies. The onus lies on the assessee to establish the credit worthiness of the loan creditors which is not discharged through mere filing of all primary evidence. The Assessing Officer in his turn had failed to take note of the dings on record and thereby did not cause any field enquiry regarding the genuineness and credit-worthiness of the loan creditors through field enquiry and even summon them to furnish their explanation as to how they had provided such high loans.
6. In this regard, reference may be made to the Hon’ble Supreme Court’s decision in the case of CIT vs. N. Tarika Properties Investment (2014) reported in 51 taxmann 387 (SC) where it has been held that – ‘ PAN cannot be treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of application without actual de facto clarification of identity or ascertainment of activities, nature of business activity and are just as to facilitate the Revenue to keep track of transactions and thus PAN cannot be blindly and without consideration of surrounding circumstances treated as sufficient disclosing the identity … ‘
7. In view of the above, the order passed u/s.143(3) dated 22-08-2016 appears to be erroneous in so far as it is prejudicial to the interest of Revenue and accordingly, proceedings u/s. 263 of the I.T Act, 1961 is being initiated in your case”.
4. In its reply dated 18-03-2019, the assessee furnished its objections to the SCN. The assessee brought to the notice of the ld. PCIT that on the issue of loan creditors, specific queries were raised by the AO and in pursuance of it, the assessee had filed before him (the AO) all details along with documents, PAN, etc about loan creditors, who after conducting enquiries with the loan creditors and thereafter being satisfied with the result of his enquiry, has not drawn any adverse view against the loan creditors or assessee, which is clear from para-2 of the assessment order itself. The assessee further brought to the notice of the Ld. Pr. CIT, that out of the four bodies corporate named in the SCN, the impugned loan amount of Rs.1,27,47,000/- was received from two of them, namely M/s Anadya Technologies Pvt Ltd & M/s Hotahoti Wood Products Ltd during the relevant FY 2013-14. However, the ld. PCIT did not agree with the contention, he was pleased to set aside the assessment order for framing de-novo assessment on the reason that the documents submitted by the assessee in support of the claim of genuineness and creditworthiness of the loan creditors were not subjected to verification by the AO during the assessment proceedings. Aggrieved by the aforesaid action of the ld. PCIT, the assessee is before us.
5. We have heard both the parties and perused the records. We note that Shri Damle, FCA, ld.AR of the assessee assailing the impugned order of the ld. PCIT submitted that the condition precedent for invoking/ assuming revisional jurisdiction u/s. 263 is absent in this case. According to him, the AO is not only an adjudicator, but he is also an investigator/investigating authority. According to the ld. AR, the AO has carried out both the roles given by the statute. According to him, as an investigating authority he has called upon the assessee to file the details of loan creditors. Pursuant to which, the assessee had filed full details before the AO, who after satisfying with the same has not drawn any adverse inference against the assessee on this count. Elaborating this fact the ld. AR drew our attention to pages- 11 & 12 of the Paper book, wherein the AO had issued 133(6) notices to M/s.Anadya Technologies Pvt Ltd and M/s. Hotahoti Wood Products Ltd, wherein following query(ies) was raised against both the loan creditors:
“Record that you have given loan ‘UNSECURED LOAN’ to Smt of ‘CITYSTAR GANGULY PROJECTS LTD’92/1B Mualana Abul Kalam Azad Sarani, Kolkata-54, PAN AADCA7382F so that you are directed to request to provide relevant documents viz. highlighting the Bank Transaction Statement, B/Sheet as at 31.03.2014 highlighting the Asset vide specific transaction with name and amount including a submission duly fill up with following format accordingly within three days from the receipt of this letter providing the copy of the undersigned. Notice u/s 133(6) with postal stamp received date.
|Sl. No.||Opening as on 01.04.2013||Date of Un secured Loan given during the Fin ancial 2013-14 And to whom unsecured loan given specifying name and Address||Payment Made by Cheuqe or Cash, pl. mention in case of cheque pl. put check no. date, Bank name and Branch name, copy of Bank Statement high lighting the loan amount and cheque no.||Amount of Payment date wise (Rs.) and||Balance amount of loan is to be paid as on 31.03. 2014||Remarks as High lighting in the Bank Statement submitting Bank Statement of the Tra nsaction Loan was given to ‘CITY STAR GANGULY PROJECTS LTD’, Duly signed by you||Highl ighting the amount in Balance Sheet as at 31.03.2014 producing copy of the Balance sheet as at 31.03.2014 duly signed by you.
Producing signed copy of Balance Sheet as at 31.03.2013 is must.
|Loan given Rate of interest, pl. produce the relevant documents providing documents showing P & L accounts as at 31.03.2014|
Thereafter, ld.AR pointed out that the ld. Pr. CIT had wrongly alleged that the company had taken unsecured loan of Rs.1,27,47,000/- during the year from four bodies corporate which were not verified by the AO whereas the facts on record showed that the impugned loan amount of Rs.1,27,47,000/- was obtained as loan from only two bodies corporate. He further pointed out that the ld. Pr. CIT was factually wrong in alleging that the AO did not make any enquiries u/s 133(6) from M/s Purbanchal Prestressed Ltd from whom the assessee had taken loan during the year. Referring to the facts on record, he submitted that the AO had indeed made enquiries u/s 133(6) on 26.05.2016 from M/s Purbanchal Prestressed Ltd, who in response had submitted the details as requisitioned in the AO’s office on 22.06.2016 and requisite evidence was placed before the ld. Pr. CIT. The ld. AR pointed out that on submission of these documentary evidences, the ld. Pr. CIT in his order neither dealt with this ground nor could point out any factual infirmity in the aforesaid submission and yet the AO’s order was revised. He further contented that the ld. Pr. CIT proceeded on entirely wrong assumption that the two bodies corporate from whom the assessee had obtained loans had filed low and/or ‘NIL’ return of income and claimed huge TDS refunds and had accepted huge unsecured loans and invested in battery of shell companies. Inviting our attention to Page 13 of the paper-book containing the reply furnished by M/s Anadya Technologies Pvt Ltd, which had advanced loan of Rs.1,00,00,000/- to the assessee during the year, the ld. AR pointed out that this loan creditor had its own capital & reserves in excess of Rs.205.67 lacs.
He thereafter took us through its audited financial statements, available at Pages 21 to 32 of paper book, to show that M/s Anadya Technologies Pvt Ltd had carried on substantial business activities during the year which generated revenue of Rs.709.56 lacs and it had reported net profit of Rs.53,77,880/-. The AR also pointed out that during the relevant year M/s Anadya Technologies Pvt Ltd had disclosed interest income of Rs. 31,60,575/- whereas interest of Rs.8,35,890/- only was received from the assessee. Referring to copy of 26AS statement which is placed at Pages 33 to 34 of the paper-book, he pointed out that M/s Anadya Technologies Pvt Ltd had received interest on loans granted to several other bodies corporate. The Ld. AR thereafter also took us through the audited financials and income-tax return of M/s Hotahoti Wood Products Ltd, which was placed at Pages 38 to 54 of paper-book, to show that even this body corporate had substantial own funds out of which it had advanced loan of Rs.27,47,000/-. He further pointed out that M/s Hotahoti Wood Products Ltd was a Non-Banking Financial Company and an associate of the assessee in as much as the Designated Partner, Mr. C.R. Modi of the assessee was also the Director of M/s Hotahoti Wood Products Ltd which further proved the genuineness of the transaction. In this factual backdrop, the ld. AR submitted that all these material facts and evidences were available before the AO, who upon considering the same had accepted the creditworthiness of the loan creditors and genuineness of the transactions. He thus argued that not only the factual averments made by the ld. Pr. CIT in the SCN as also in impugned order were erroneous and unjustified but even his finding that the AO did not enquire into the creditworthiness and genuineness of loan creditors was unsustainable on the facts and also in law.
6. He further submitted that the ld. Pr. CIT never disputed the fact that the AO had indeed enquired into the transaction involving receipt of unsecured loans and therefore it was not a case of ‘lack of enquiry’. He pointed out that the AO treated the impugned order as erroneous and prejudicial to the interest of the Revenue because according to him further inquiry/investigation was required or deeper or further scrutiny should have been undertaken. Relying on the decisions of the Hon’ble Bombay High Court in the case of CIT Vs Nirav Modi (390 ITR 292), Hon’ble Delhi High Court in the case of CIT Vs Leisure Wear Exports Ltd (341 ITR 166) and Hon’ble Calcutta High Court in the case of CIT Vs J.L. Morrison (P) Ltd (366 ITR 593), the Ld. AR claimed that an assessment order cannot be held to be erroneous prejudicial to the interest of the Revenue for ‘inadequate enquiry’ as alleged by the ld. Pr. CIT. He further submitted that in such cases where the allegation is of inadequate enquiry but not lack of enquiry, then the judicial forums have held that the CIT cannot remand the matter back to the AO to decide whether the order is erroneous. Instead it is the duty of the ld. Pr. CIT to conduct enquiry and verification and show himself that the assessment order suffered from error or mistake making it unsustainable in law. The ld. AR pointed out that after the assessee had furnished evidences to disprove the allegations levelled in the SCN, no enquiry or verification was conducted by the ld. Pr. CIT himself into the documents and evidences furnished before him, but he had simply set aside the issue back to the AO for passing the assessment order afresh. He thus submitted that the impugned order passed by the ld. Pr. CIT was bad in law and urged that it ought to be quashed.
7. Per contra the ld. DR supported the observation made by the ld. Pr.CIT, and he submitted that since no summons were issued by the AO in respect of loan creditors the ld. PCIT in his wisdom held that without issuing summons against the loan creditors how the AO could verify veracity of the loan creditors. According to him since the assessment records did not have the documents of other two creditors he wondered as to how the AO could verify. Therefore, according to ld CIT DR, the ld. PCIT has rightly invoked his jurisdiction and he does not want us to interfere with the order of the ld PCIT.
8. Having heard both the parties, and on a careful consideration of the facts and circumstances of the case, we find that the ld. Pr. CIT invoked the revisionary jurisdiction on the broad allegation that the AO failed to make adequate enquiries with regard to the creditworthiness of the four loan creditors, from whom the assessee had received huge loan of Rs.1,27,47,000/- during the year, when the information gathered u/s 133(6) showed that they had reported ‘NIL’ or low income and claimed huge TDS refund or they had accepted huge unsecured loans. In this background, it is first relevant to examine the facts on record before adjudicating the validity of the usurpation of jurisdiction by the ld. Pr. CIT u/s 263 of the Act on the grounds set out in the SCN. It is noted that the impugned loan of Rs.1,27,47,000/- is the subject matter of SCN issued u/s 263 of the Act, which the assessee received from two bodies corporate i.e. Anadya Technologies Pvt Ltd & Hotahoti Wood Products Ltd. Although in the SCN, the ld PCIT while proposing to usurp the revisional jurisdiction found fault with the Assessment order on the ground of non-enquiry by AO into the loan transaction by the assessee with M/s Purbanchal Prestressed Ltd, which we find that enquiry under Section 133(6) was in fact carried out by the AO from the said party and evidence in support of compliance made by the said party was also furnished before the ld. Pr. CIT. We therefore note that since the evidence led by the assessee in this regard was found to be factually true, the ld. Pr. CIT did not pursue this ground any further while passing the impugned order. We therefore have no hesitation in observing that on this ground of non-enquiry, the order u/s 263 holding the assessment order to be erroneous and prejudicial to the interests of the Revenue per-se erroneous.
9. We shall now turn to the transactions involving receipt of loan of Rs.1,27,47,000/-from M/s Anadya Technologies Pvt Ltd & M/s Hotahoti Wood Products Ltd during the year. It is noted that upon examining the loan confirmations furnished by the assessee in response to the notice issued u/s 142(1), the AO had proceeded to make independent enquiries from both these loan creditors u/s 133(6) of the Act. On perusal of the copy of notice issued u/s 133(6) placed at Pages 11 & 12 of the paper book, it is noted that the AO had made specific and detailed enquiries from both the loan creditors regarding the transaction involving payment of loan to the assessee. The relevant questions posed by the AO in his notice u/s 133(6) have been reproduced at Para 5 above. In response both the loan creditors had furnished the relevant details along with documentary evidences as sought by the AO and copies of these replies were also furnished before the ld. Pr. CIT in the proceedings u/s 263 of the Act. As regards M/s Anadya Technologies Pvt Ltd, which had advanced the majority portion of total loan i.e. Rs.1,00,00,000/-, it is noted that this company is regularly assessed to tax and is holding PAN – AADCA7382F. On perusal of the financial statements furnished in response to notice u/s 133(6) of the Act, we find that the loan creditor had own funds to the tune of Rs.256.07 lacs out of which it had advanced the loan of Rs.100 lacs. We also note that the loan creditor did not have any long term borrowings as alleged by the ld. Pr. CIT in the SCN. We further note that this loan creditor had earned gross revenue of Rs.709.59 lacs during the year and reported net profit of Rs.53,77,880/-. Against such profit, the company had also made provision for current tax of Rs.10,28,091/-. The IT Acknowledgment of the loan creditor substantiated that it had disclosed net tax payable of Rs.10,28,091/- towards which it had paid taxes by way of TDS of Rs.6,17,510/- and self-assessment tax of Rs.4,55,940/- at the time of filing of return of income. We thus find that no tax refund whatsoever was claimed by this loan creditor. In view of the foregoing facts, we thus note that the ld. Pr. CIT’s primary premise which formed the basis of the impugned SCN dated 13.03.2019, that the information gathered u/s 133(6) revealed that the loan creditor had reported ‘NIL’ income, claimed TDS refund and had obtained huge unsecured loans is factually incorrect and unfounded. The loan confirmation furnished by M/s Anadya Technologies Pvt Ltd further revealed that the assessee had also paid interest at the rate of 9% on the loan which worked out to Rs.8,35,890/- on which tax of Rs.83,589/- was withheld (TDS) and deposited in the PAN of the loan creditor u/s 194A of the Act. Note No. 17 of the financial statements read with the details of accounts enclosed at Page 32 of the paper book further reveals that the payee had duly recognized the interest income in its Profit & Loss Account and offered the same to tax. The bank statement of M/s Anadya Technologies Pvt Ltd which is available at Page 33 of the paper book further shows that the transaction involving payment of loan was done through banking channel and the source of funds is also self-evident from the bank statement. It is noted that there was no cash deposit prior to advancement of loan by M/s Anadya Technologies Pvt Ltd. It also seen that besides the interest of Rs.8,35,890/-, the loan creditor had reported overall interest income of Rs.31,60,575/- which proved that the loan creditor was regularly earning interest income on loans granted to other bodies corporate as well.
10. We also note that similar enquiries u/s 133(6) were made by the AO from M/s Hotahoti Wood Products Ltd which had advanced loan of Rs.27,47,000/- to the assessee. From the details furnished by M/s Hotahoti Wood Products Ltd, we note that, (a) the company was regularly assessed under the PAN – AAACH5090E with ITO, Ward 4(1), Guwahati, (b) it derived interest income of Rs.59,60,929/- from the money lending business during FY 2013-14and had filed return of income on 26.09.2014, (c) it held registration certificate dated 09.11.1998 issued by Reserve Bank of India permitting the company to carry on NBFC activities, (d) it had own funds of Rs.1983.13 lacs and had borrowed of Rs.219.15 lacs in the course of money lending business, out of which it advanced loan of Rs.27,47,000/- to the assessee, (e) the loan was given through banking channel and the immediate source of fund was also explained, and (f) the loan carried interest of 9% on which the assessee deducted tax u/s 194A of Rs.46,407/-. On these facts we note that the information gathered u/s 133(6) substantiated the creditworthiness of the loan creditor. It is further observed that M/s Hotahoti Wood Products Ltd is an associate company of the assessee because its Designated Partner, Shri C R Modi is also the Director on the Board of the loan creditor. In that view of the matter the genuineness of the transaction could not be doubted. It is also observed that the assessee had furnished the copy of the assessment order dated 29.06.2016 passed u/s 143(3) in the case of M/s Hotahoti Wood Products Ltd before the ld. Pr. CIT, to substantiate that no adverse inference was drawn against the business of money lending carried on by the lender company, M/s Hotahoti Wood Products Ltd.
11. In view of the foregoing facts we find that the information gathered by the AO through the enquiries conducted u/s 133(6) of the Act from the loan creditors, sufficiently established the creditworthiness of the loan creditor and the genuineness of the transactions and therefore the allegation on which the ld. Pr. CIT proceeded to issue the show cause notice u/s 263 is found to be untenable on facts and in law.
12. Having set out the facts above, we now turn to examine the assessee’s challenge to the usurpation of jurisdiction by ld. Pr.CIT to invoke his revisional powers enjoyed u/s 263 of the Act. To adjudicate this issue we have to first see whether the requisite jurisdiction necessary to assume revisional jurisdiction existed before the Pr. CIT exercised his powers. For that, we have to examine whether in the first place the order of the Assessing Officer found fault by the Principal CIT, was erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT  243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer’s order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer’s order is in violation of the principles of natural justice; (iii) if the AO’s order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO’s erroneous order can be revised by the CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue” has to be read in conjunction with an “erroneous” order passed by the Assessing Officer. For invoking powers conferred by S.263; the CIT should not only show that the AO’s order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order some real and tangible loss is caused to the interest of the revenue. Their Lordship in the said judgment therefore held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was further observed that when the Assessing Officer adopts one of the course permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
13. In the given facts of the present case, we find that the only fault found by the ld. Pr. CIT to interfere with the order of AO was the alleged inadequate enquiry into the loan creditors and alleged non-application of mind to the information gathered u/s 133(6) of the Act from the loan creditors. We are aware of the fact that the Assessing Officer’s role while framing an assessment is not only as that of an adjudicator but he is also an investigator. The AO has a dual role to perform i.e. he is an investigator as well as an adjudicator and therefore, if he fails in any one of the two roles as afore-stated, his order can be termed as erroneous. From the order of the Ld. Pr. CIT, we note that he found fault with the AO’s role of an investigator because in his subjective opinion the AO did not properly investigate into the facts of the case. Keeping the foregoing fault in mind and taking into account the facts as discussed in earlier paragraphs, we note that in the given facts of the present case the AO had made specific enquiry into the loan transactions of the assessee with its loan creditors based on the CASS parameter. In response to the enquiries made u/s 133(6) (as discussed supra), the loan creditors have filed their documents/details to substantiate/prove their identity(ies), creditworthiness and genuineness of the loan transactions. Thus, we find that the AO had examined all the details and called for financial statements of the loan creditors for verification of the loan transactions. Having done so, the AO has not drawn any adverse inference against any loan creditors, which has been recorded in para 2 of his assessment order, which is as under:-
“2. During the year under assessment the assesse was engaged in construction business under the name and style of ‘M/s CITY STAR GANGULY PROJECTS’ and disclosed the total turnover of Rs.90,2S,099/- along with income from other source amounting to Rs. 21,768/- . The ‘CASS’ point was brought to the Notice of the assesse and the A/R of the assesse has filed the loan confirmation of every loan creditors and it is seen that all the loan creditors have their own PAN. Therefore, there was no adverse Inference is shown on such ‘CASS’ point. However, it is seen that the assesse has debited a sum of Rs. 576/- under the head ‘Interest on Service Tax’ and Rs.3,466/· under the head ‘ interest on TDS’. Since, the both expenditures are Penal in nature. Therefore, the both amounts Rs. 4,342/- (Rs.576/- + Rs. 3466/- ) are disallowed and added to the total income of the assesse.
14. In the above factual background a presumption can be safely drawn that the AO bore the capacity to draw satisfaction with the explanations furnished by the assessee as well as the loan creditors regarding the loan of Rs.1,27,47,000/- received during the year and that the AO exercised due care by conducting requisite enquiries in respect of these loan transactions as the circumstances demanded, before drawing plausible inference in favour of the assessee. In this regard we find that somewhat similar issue was considered by the Hon’ble Bombay High Court in the case of CIT Vs Nirav Modi (supra). In the decided case the assessee had claimed to have received gifts from non-resident and these were claimed to be non-taxable by the assessee. In the course of assessment the AO had accepted the assessee’s claim of the gifts being non-taxable after conducting enquiries from the donors. Later on the CIT revised the AO’s order holding it to be erroneous and prejudicial to the interests of the Revenue on the ground of inadequate enquiry with regard to source of the source of the gifts received by the assessee. On appeal the coordinate Bench of this Tribunal set aside the revision order passed u/s 263 On further appeal the Hon’ble High Court upheld the order of the Tribunal, by observing as under:
“8. It is next submitted that the donor had not been examined by the Assessing Officer. It is not in every case that every evidence produced has to be tested by cross examination of the person giving the evidence. It is only in cases where the evidence produced gives rise to suspicion about its veracity that further scrutiny is called for. If there is nothing on record to indicate that the evidence produced is not reliable and the Assessing Officer was satisfied with the same, then it is not open to the CIT to exercise his powers of Revision without the CIT recording how and why the order is erroneous due to not examining the donors. Thus, this objection to the impugned order by the Revenue is also not sustainable.
9. It was next submitted that no enquiry was done by the Assessing Officer to find out whether the donor Mr Deepak Modi (father) had received money from M/s. Chang Jiang as claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of Foreign Exchange Transactions as claimed by her. We find that this enquiry of a source of source is not the requirement of law. Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of “no enquiry.” It is well settled that the jurisdiction under Section 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry.
This view has been taken by this Court in the matter of CIT v. Shreepati Holdings & Finance (P.) Ltd. [ITA 1879 of 2013 dated 5th October, 2013], by the Delhi High Court in CIT v. Vikas Polymers  341 ITR 537/194 Taxman 57 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable.
10. The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order of Assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In the present facts, the CIT in exercise of its powers under Section 263 of the Act has merely restored the Assessment to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the order passed by the Assessing Officer is not per se erroneous and further the CIT has not given any reasons to conclude that the order is erroneous. In fact, he directs the Assessing Officer to find out whether the order is erroneous by making further enquiry. This the decision of the Delhi High Court in D.G. Housing Projects Ltd. (supra), clearly negates. In the above view, the decision of Delhi High Curt in D.G. Housing Projects Ltd. (supra) would not assist the Revenue in the present facts.
11. Further, reliance is placed upon by the Revenue upon the decision of the Apex Court in Amitabh Bachchan (supra) to impugn the order of the Tribunal. In the facts of the Supreme Court decision, the Respondent-Assessee had filed a revised return, claiming additional expenses. During the Assessment Proceedings, the Assessing Officer called upon the Assessee to furnish the details with regard to the expenses claimed to be incurred. The Assessee therein pointed out that the payments for expenses had come out of cash balance available with him. When the Assessing Officer commenced enquiry in respect of the claim of expenditure out of cash balance available, seeking to invoke Section 69(C) of the Act and treat the expenditure claimed as unexplained expenditure, the Assessee therein withdrew his revised return of income. Once this was done, the Assessing Officer accepted the same and did not make any further enquiry. The CIT in exercise of its powers under Section 263 of the Act noticed that the Assessee had after having pressed his claim for expenditure in cash, withdrew the claim by withdrawing the revised return of income. This was done only after the enquiry had commenced. This withdrawal of revised income and consequent claim for cash expenditure was contrary to the stand of the Assessee himself. This change on the part of the Assessee on commencement of enquiry, made further enquiry into his claim for cash expenditure necessary. In the above facts, the CIT while exercising his powers under Section 263 of the Act found that the facts on record per se mandated an enquiry to be made into the claim of the Assessee and not doing the same resulted in the order being erroneous. Thus, the Bachchan’s case was a case where once the claim was withdrawn, then enquiry which was to be conducted, was aborted by the Assessing Officer. Therefore, a case of non-enquiry. It may have been different, if the Assessing Officer had enquired into the cash expenditure and its source as claimed, to come to his own conclusion and even accepted the stand of the Assessee. In such a case, even if the CIT would have taken a view that the satisfaction of the Assessing Officer is not correct, he would not have been able to exercise his powers of Revision under Section 263 of the Act.
12. In the present facts, the Assessing Officer was satisfied, consequent to making an enquiry and examining the evidence produced by the Assessing Officer, establishing the identity and creditworthiness of the donor as also the genuineness of the gift. The CIT in his order of Revision, does not indicate any doubts in respect of the genuineness of the evidence produced by the Assessee. The satisfaction of the Assessing Officer on the basis of the documents produced is not shown to be erroneous in the absence of making a further enquiry. It is made clear that our above observations should not be inferred to mean that it is open to the Assessing Officer to enquire into the source of source for the purpose of the present facts. This is a case where a view has been taken by the Assessing Officer on enquiry. Even if this view, in the opinion of the CIT is not correct, it would not permit him to exercise power under Section 263 of the Act. In fact, the Apex Court in Amitabh Bachchan (supra) has observed that there can be no doubt that where the view taken by the Assessing Officer is a possible view, interference under Section 263 of the Act, is not permissible.
13. In view of the above, the questions as framed stands concluded by the decision of this Court in Gabriel (India) Ltd. (supra). Thus no substantial questions of law arises for our consideration.”
15. We are also alive to clause (a) of Explanation (2) to Section 263 of the Act inserted by Finance Act, 2015 w.e.f. 01.06.2015 which seeks to clarify that the order passed by the lower authorities to be erroneous in so far as prejudicial to the interest of the Revenue in the event of absence of inquiry which should have been made. The aforesaid clause only provides for situation where inquiries or verifications should be made by reasonable and prudent officer in the context of the case. Such clause cannot be read to authorize or give unfettered powers to the Commissioner to revise each and every assessment order. The applicability of the clause is thus essentially contextual. As observed in the preceding paras, the AO had made specific and detailed cross verifications from the loan creditors and the information gathered from them, satisfied the three ingredients embedded in Section 68 of the Act. Apart from making sweeping statements, which have been found to be factually erroneous, no objective material has been brought on record by the ld. Pr. CIT to implicate the assessee or the AO per se of being guilty of non-enquiry. We further find that when confronted with the reasons set out in the SCN, the assessee had led before the ld. Pr. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts which were not borne out from the assessment records. It was also established before the ld. Pr. CIT that before completion of assessment, the AO had indeed made enquiries from all the loan creditors u/s 133(6) and only after objective consideration of the evidences furnished, order u/s 143(3) of the Act was passed. On receipt of these objections, the ld. Pr. CIT himself did not make any effort to prove any factual or legal infirmity in the documents or explanations furnished nor he was able to prove that any of the documents or evidences were false so as to establish that the AO’s order was erroneous as well as prejudicial to the Revenue’s interests because the view taken by him was unsustainable in law. On the contrary, the ld. Pr. CIT merely set aside the assessment order directing AO to pass the order afresh in accordance with law which in our opinion was nothing but giving the AO second innings without establishing that the AO’s order was erroneous as well as prejudicial to the interests of the Revenue. Our findings in this regard find support in the following judgments:
– DIT vs Jyoti Foundation reported in 357 ITR 388 (Del)
– ITO vs DG Housing Projects Ltd reported in 343 ITR 329
– CIT vs Ashish Rajpal reported in 320 ITR 674 (Del)
– CIT vs Sunbeam Auto Ltd reported in 332 ITR 167 (Del)
– CIT vs R.K.Construction Co. reported in 313 ITR 65 (Guj)
16. For these reasons, we are of the considered view that the assessment order is not the result of non-application of mind or any inadequate enquiry. We are also of the considered opinion that while passing the assessment order the AO did not follow a view which can be said to be ‘unsustainable in law’. In the circumstances therefore, the jurisdictional facts for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and all subsequent actions are ‘null’ in the eyes of law. We therefore quash the order impugned before us.
17. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 31 October, 2019