AO’s order cannot be deemed erroneous Solely Due to PCIT Disagreement: ITAT Jaipur

Mujmmeel Vs ACIT (ITAT Jaipur)

Income Tax Appellate Tribunal (ITAT) Jaipur, in the case of Mujmmeel vs. ACIT, quashed the Principal Commissioner of Income Tax’s (PCIT) order issued under Section 263 of the Income Tax Act. The case arose from a survey under Section 133A conducted on the assessee on March 2, 2020, where incriminating documents were discovered, involving transactions totaling ₹1.44 crore. During scrutiny, the Assessing Officer (AO) verified the transactions and made an addition based on commission income. However, the PCIT subsequently invoked Section 263, claiming the AO’s order was erroneous and prejudicial to the interests of revenue.

The ITAT examined the twin conditions necessary for invoking Section 263: that the AO’s order must be erroneous and prejudicial to the revenue. Referring to the Supreme Court judgment in Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), the ITAT emphasized that an AO’s order cannot be deemed erroneous merely because the PCIT disagrees with it. If the AO adopts one of the permissible legal views or if there are two plausible interpretations, the PCIT cannot substitute their opinion for that of the AO.

The tribunal noted that the AO had conducted a thorough inquiry into the transactions flagged during the survey, examined the evidence, and applied their judgment. The PCIT’s order failed to demonstrate any specific error or lack of inquiry in the AO’s assessment. Consequently, the ITAT found no justification for the PCIT to invoke Section 263.

The tribunal’s decision underscores that the supervisory powers under Section 263 are not a tool for reviewing or overriding the AO’s legally valid conclusions. It further clarified that every revenue loss does not equate to an erroneous or prejudicial assessment unless legal unsustainability is evident. Based on these findings, the ITAT allowed the assessee’s appeal and quashed the PCIT’s order.

Petitioner was represented by Miss. Swatika Jha, Adv.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

The present appeal has been filed because the assessee is dissatisfied with the order of learned Principle Commissioner of Income Tax, Central, Jaipur [ for short PCIT ], which was passed on 26-03-2024 as per provision of section 263 of the Income Tax Act [ for short Act]. That order relates to the assessment year 2020-21. Ld. PCIT passed that order while exercising the power vested upon her while examining the assessment records of the assessee which was passed by the ACIT, Central Circle-Kota on 30.03.2022 as provision of section 143(3) of the Act.

2. The assessee marched the present appeal on the following grounds:-

“1. That on the facts and in the circumstances of the case and in law, the Id. Principal Commissioner of Income-tax (Central), Jaipur grossly erred in Invoking provisions of 263 of the Act and in holding in the impugned assessment order dated 26.03.2024 passed by the Id. ACIT, Central Circle, Kota is found to be erroneous in so far as it is prejudicial to the interest of the revenue.

1.1 That the Id. Principal Commissioner of Income-tax (Central), Jaipur failed to appreciate and consider that the Id. ACIT, Central Circle, Kota has passed the assessment order after appreciating all the documents, evidences, statutory provisions of law and after thorough examination of facts and the same was just and proper and the assessment order is neither erroneous nor it is prejudicial to the interest of the revenue.

1.2 That the Id. Principal Commissioner of Income-tax (Central), Jaipur has not appreciated the correct facts of the matter and has erroneously erred in holding that in the impugned assessment order the Id. Assessing officer has failed to add the sum of Rs 1,44,35,000/- as unexplained investment of assessee u/s 69 consequently liable to be taxed u/s 115BBE.

1.3 That the impugned order dated 26.03.2024 passed by the learned Id. Principal Commissioner of Income-tax (Central), Jaipur is based upon assumptions, presumptions, conjecture and surmises which is bad in law and deserves to be set-aside and quashed.

2. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”

3. The fact as culled out from the records are that a survey u/s 133A of the IT Act 1961 was conducted in the case of assessee on 02.03.2020. Assessee is a individual and derives commission income from sale and purchase of immovable properties. The assessee filed his ITR u/s 139 for the A.Y. 2020-21 on 20.11.2020 declaring total income of Rs. 4,61,600/- and agricultural income of Rs. 45,500/-. The case of the assessee was selected for compulsory scrutiny in accordance with the guidelines issued by the Central Board of Direct Taxes (CBDT). Notice u/s 143(2) was issued to the assessee on 29.06.2021 and served to assessee through ITBA.

3.1 During the survey proceeding, inventory of cash found at the premises of the assessee was prepared by the survey team and the cash of Rs. 9,00,000/- were found. As the source of cash found remained unexplained the amount was considered as not established the source of said cash was considered as unexplained money as per provision of section 69A of the Act.

3.2 The survey team impounded certain incriminating material which were annexed as Annexure-B, Exhibit 01 to 06. Ld. AO from that material noted that the assessee made transaction to the tune of Rs. 1,44,35,000/-. The assessee was asked to submit details / explanation of that transaction consisting with Shri Uchab Lal of Rs. 14,20,000/-, Shri Mukut Bihari Meena of Rs. 90,00,000/- and Shri Babulal Khan of Rs. 60,15,000/- vide show cause notice dated 24.03.2022. The assessee filed the reply which was considered by the ld. AO. It was stated in that reply that the assessee has sold the plots on a commission basis on behalf of the above persons. The assessee submitted list of buyers to whom assessee sold plots on commission basis. But as the assessee has offered the commission income of Rs. 6,62,150/- only from the buyers of various plots. In view of that facts as the assessee not shown commission income from the transaction of Rs. 1,44,35,000/-mentioned on impounded documents, it was estimated @ 2 5 % of such transaction which was added for an amount of Rs. 2,88,700/-.

Accordingly, assessment was completed on 30.03.2022.

4. On culmination of the assessment the ld. PCIT (Central), Jaipur called for the assessment records for examination as per provision of section 263 of the Act. Upon examination of the record the ld. PCIT noted that the assessee was not able to explain the transactions mentioned in diaries, which were impounded during survey proceedings vide annexure “B” exhibit 1- 6. Ld. PCIT further noted that various financial transactions were recorded on these documents. On analysis it was found that the assessee had made transaction to the tune of Rs 1,44,35,000/- during the year under consideration. Ld. AO made an addition of Rs 2,88,700/- under the head commission on the transactions of Rs 1,44,35,000/-. On that aspect of the matter she observed that there was по confirmation / ownership of the money said to have been given by various persons to assessee for purchase of property & no confirmation on record to show that the seller has received the sum for the transaction recorded on that material. In absence of supporting evidence as regard to the ownership of the transactions, the AO failed to add the sum of Rs 1,44,35,000/- as unexplained investment of assessee u/s 69 consequently, liable to be taxed u/s 115BBE of the Act. In the light of that observation ld. PCIT issued a Show Cause Notice on 09/03/2024. In response to the Show cause notice the assessee provided a detailed reply.

Ld. PCIT perused the reply filed and found that the assessee has tried to explain the transactions with the documents but the assessee has not shown that the sum under consideration actually do not belong to him and he has not submitted any confirmation of the Kastkaar, on whose land the scheme has been developed, he has also not shown that the capital gain tax has been paid by Babukhan, Sabir Khan, Mukut Bihari and others. Therefore, she hold that the order of the assessing officer liable for revision under the clause (a), (b) & (c) of Explanation (2) to section 263 of the Act. The relevant finding of the ld. PCIT is reiterated here in below :

“5. The assessee’s reply has been carefully perused and found that the assessee has tried to explain the transactions by submitting the documents like jamabandhi, patta of the plots in name of babu khan & Sabir Khan, registered sale deed of sale of one plot of Ganpatinagar etc. But the assessee has not shown that the sum under consideration actually do not belong to him. In support of his claim he has not submitted confirmation of the kastkaar, on whose land the scheme has been developer, he has not shown that the capital gain tax has been paid by Babukhan, Sabir Khan, Mukut Bihari & others. No documentary evidence in the form of confirmation, bank account statement etc have been submitted to show the source of cash noted in the impounded diaries, & to show the identity of the person who has supposed to have given cash to the assessee.

It is a common practice in the real estate that the land of the farmers is taken up for development by the real estate brokers for a lumpsum amount and, then converted land use u/s 90A and the Patta of the plots are issued on name of farmers. The plots of land are being sold by the brokers and the huge profits are being earned by the real estate broker in the name of the farmers as there is no name of brokers/real estate developers in any of the documents. It appears that the assessee has been following similar pattern of business, therefore only he has not been able to submit any documentary evidence in the form of confirmation by the buyers of land in cahs, confirmation of the farmers/ mukutbihari/ babu khan /sabir khan and others for receipt of cash. The copy of ITR of these persons to prove that these people have paid capital gain tax has also not been submitted. Hence the submission of the assessee is not acceptable.

6. Accordingly, in exercise of powers conferred upon me as per provisions of section 263 of the Income Tax Act 1961, I direct the assessing officer to initiate that clarification/explanation of the transactions recorded on the impounded documents is ascertained and examined by the Assessing Officer. The tax implication of the same has also not been examined or considered while making the assessment by the AO. Accordingly, the error relating to addition made on account of unexplained money u/s 69 of the Act and taxed as per provision u/s 115BBE of the Act by the Assessing Officer has caused prejudice to the interests of Revenue

I wish to make it clear that I am not disturbing the assessment that has already been made. I am only passing an order for initiation /to adding on account of unexplained money u/s 69 of the Act and taxed as per provision u/s 115BBE of the Act as detailed above based upon independent satisfaction of the assessing officer, who will duly consider the replies of the taxpayer.”

5. Feeling dissatisfied, the assessee filed the present appeal on the various grounds as reproduced here in above. To support grounds raised by the assessee the ld. AR of the assessee filed a detailed written submission, which reads as under:

1. That the assessee-appellant filed the return of income for Assessment Year 2020-21 on 20.11.2020, declaring income of Rs. 45,500/-. This return was in line with the declared earnings and business activities of the assessee-appellant.

2. That a survey under section 133A was conducted at the business premises of the assessee-appellant on 02.03.2020. During this survey, diaries and other documents were impounded to scrutinize financial transactions and assess compliance with income tax regulations. Relevant copies of the statement recorded under section 133A are attached as [Annexure 3, pages 11-19].

3. That the ld. Assessing Officer subsequently initiated a detailed examination of the impounded records for the year under consideration. Diaries and documents impounded during the survey revealed financial transactions amounting to Rs. 1,44,35,000/-. These transactions were recorded in a manner consistent with the brokerage activities of the assessee-appellant. These transactions are detailed in the ledger accounts enclosed as [Annexure 7, pages 36-39].

4. That the ld. AO issued show-cause notices to the assessee-appellant during the assessment proceedings. In response, the assessee-appellant provided detailed explanations and supporting evidence, clarifying that these transactions pertained to sums received and disbursed as part of the assessee-appellant’s role as a broker in real estate dealings. Supporting evidence included copies of the Jamabandi/Nakal and power of attorney documents, attached as [Annexure 8, pages 40-43].

5. That the ld. AO had thoroughly examined all the documents, evidences, and facts during the assessment proceedings. Adequate inquiries were made into each transaction noted in the impounded documents, ensuring compliance with the procedural norms outlined in the Income Tax Act. Specifically, the ld. AO issued detailed show cause notices addressing the discrepancies found in the survey and sought extensive explanations from the assessee. These notices highlighted specific transactions, and the assessee provided supporting documentation, including ledger entries, agreements of sale, and receipt books. Furthermore, the ld. AO evaluated the evidence with due diligence, identifying and accounting for brokerage income that arose from these transactions. The addition of ₹2,88,700 as commission income was a logical conclusion based on substantiated findings and careful examination.

6. That based on these submissions, the ld. AO passed assessment order u/s. 143(3) dated 30.03.2022. The ld. AO determined the total income at Rs. 16,50,300/-, which included specific additions, such as Rs. 9,00,000/- under section 69A for unexplained cash found during the survey and Rs. 2,88,700/- under the head of commission income. The ld. AO concluded that the transaction amount reflected brokerage business dealings. Accordingly, the ld. AO determined a commission income of Rs. 2,88,700/- (calculated @ 2% of the transaction value) and made an addition under this head. The ld. AO did not treat the entire transaction value as unexplained investment, as the assessee-appellant’s evidence sufficiently clarified the source and nature of the funds. Relevant ledger entries and receipt books substantiating these findings are attached as [Annexure 10, pages 46­47].

7. That the ld. Principal Commissioner of Income Tax (“PCIT”) issued a show-cause notice under section 263, alleging that the ld. AO failed to tax Rs. 1,44,35,000/- as unexplained investment under section 69. The ld. PCIT further proposed invoking Section 115BBE to levy a higher tax rate on the alleged unexplained income.

8. That the ld. PCIT’s assertion was that the AO did not adequately verify the ownership and source of the transaction amounts. However, this overlooks the ld. AO’s thorough inquiry and reliance on the evidence submitted by the assessee-appellant during the assessment proceedings.

9. That contrary to the ld. PCIT’s assertions, there is no procedural lapse or failure to apply mind in the ld. AO’s actions. The ld. AO’s approach demonstrates adherence to established guidelines for scrutiny assessments, including making necessary inquiries and considering all material facts before finalizing the assessment order.

10. That the ld. PCIT’s action appears to stem from a perceived procedural inadequacy rather than any substantive error or omission in the ld. AO’s findings. Aggrieved by the action taken by the ld. PCIT, the humble assessee-appellant is in appeal before this Hon’ble Bench, seeking justice and fairplay and a deletion of the impugned addition.

Grounds of Appeal

1. That the assessee-appellant operates as a dynamic real estate broker, expertly bridging the gap between buyers and sellers in the housing market. As a professional intermediary, the broker earns a commission for facilitating successful transactions. During a thorough survey, the assessee-appellant provided comprehensive statements that clearly outlined the nature of each transaction and the pivotal role played in connecting the parties, i.e., the buyers & sellers. These statements were bolstered by meticulous ledger records, receipt books, and formal agreements, all of which further clarified the arrangements made between buyers and sellers. Copies of agreements to sale supporting this assertion are enclosed as [Annexure 11, pages 48-50].

2. That the figures documented in the impounded diaries reflect the actual sums received and disbursed on behalf of third parties, emphasizing the broker’s role in managing these financial flows. Importantly, as a broker, the assessee-appellant neither holds ownership of the funds nor claims any rights to them. Copies of sale deeds related to these transactions are attached as [Annexure 14, pages 75-89].

3. That for instance, consider a hypothetical scenario where the assessee-appellant arranges the sale of agricultural land. The buyer pays Rs. 10,00,000/- to the assessee-appellant, which is then transferred to the seller. The broker retains a commission of 2% (Rs. 20,000/-). Such transactions were recorded in the impounded diaries, illustrating the flow of funds through the assessee-appellant rather than ownership. Consequently, these transactions do not meet the criteria of investments as defined under section 69 of the Act.

4. That the ld. Assessing Officer’s thorough examination of the transactions documented in the seized diaries was in-depth and well-supported by robust evidentiary materials:

• Ledger Records: Notable entries such as “Rs. 5,00,000/- received from Party A for Property X” distinctly articulate the transactional nature of the funds, positioning them within the context of legitimate business operations. These records effectively corroborate the assertions made by the assessee-appellant.
• Receipt Books: Functioning similarly to invoices utilized across various sectors, these books meticulously track receipts from buyers and disbursements to sellers. The entries in the assessee-appellant’s receipt books corresponded directly with the diary annotations, thus clarifying any ambiguity regarding the ownership of the funds.
• Real Estate Agreements: The inclusion of sale agreements and power of attorney documents further substantiated the assessee-appellant’s role as an intermediary. These agreements explicitly indicated that the assessee-appellant was authorized to represent property owners, thereby confirming that the funds in question were not retained as personal investments.

5. That for ready reference, s.69 and s.155BBE of the Act are being reproduced hereunder:

Unexplained investments.

69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D.

115BBE. (1) Where the total income of an assessee,-

(a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or

(b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of-

(i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

(2) Notwithstanding anything contained in this Act, no deduction in respect
of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) and clause (b) of sub-section (1).

6. That section 69 tackles the issue of unexplained investments, focusing on scenarios where ownership or possession by an assessee comes into play. For example where a courier drops off a parcel filled with cash—just because the courier temporarily holds it doesn’t mean they own it. Similarly, the funds handled by the assessee-appellant shouldn’t be viewed as unexplained investments either. Since Section 69 is not applicable here, referencing Section 115BBE to impose higher tax rates loses its footing. The essential criterion—ownership of unexplained investments—is missing. The ld. Assessing Officer after verification of data & documents and after being satisfied, correctly did not invoke the same as the same is inapplicable in the instant case.

7. That for Section 69 to apply, the so-called investments in question must be owned or possessed by the assessee-appellant. However, in this case, the funds simply do not count as investments because the assessee-appellant acted merely as an intermediary, lacking any legitimate claim to the money. Thus, Section 115BBE, which applies a higher tax rate on income treated under Section 69, cannot be invoked, as the foundational elements of Section 69 are not met. The evidence clearly shows that the assessee-appellant has consistently functioned as a broker, supported by statements, documentation, and independent verification throughout the survey and assessment process. The ld. Assessing Officer after verification of data & documents and after being satisfied, correctly did not invoke the same as the same is inapplicable in the instant case.

8. That section 69 pertains to unexplained investments that are owned or possessed by the assessee-appellant. In this particular case, we must clarify that the amounts in question should not be classified as investments. This is because the assessee-appellant acted solely as an intermediary in financial transactions, meaning they did not have any actual ownership or claim to the funds involved. Furthermore, the application of Section 115BBE, which stipulates a higher tax rate on income generated from unexplained investments under Section 69, is not relevant in this context. The ld. Assessing Officer after verification of data & documents and after being satisfied, correctly did not invoke the same as the same is inapplicable in the instant case.

9. That the foundational conditions that would warrant the application of Section 69 are not fulfilled in the case of the assessee-appellant. Moreover, the assessee-appellant’s role has been firmly established as that of a broker. This has been supported by a multitude of evidence, including various statements, relevant documentation, and independent verification conducted during both the survey and the assessment processes. All these factors collectively reinforce the position that the assessee-appellant merely facilitated transactions without having any vested interest in the underlying funds

10. That the assessee-appellant operates in the realm of real estate brokerage, functioning as an intermediary that facilitates property transactions between buyers and sellers. Crucially, the assessee does not engage in the direct purchase, holding, or sale of real estate for personal profit; rather, he is compensated via commission for his role in connecting the two parties and aiding in the completion of transactions. It is imperative to note that the income generated by the assessee is exclusively derived from brokerage. In the capacity of a real estate broker, the operations encompass negotiating deals, coordinating the fulfillment of contractual obligations, and ensuring compliance from both parties involved in the transaction. Notably, the broker does not take ownership of the subject property and is therefore insulated from the financial risks typically associated with real estate investments. The revenue model for the broker is strictly fee-based, reflecting the professional services rendered without assuming the risks inherent to property ownership.

11. That the assumption made by the ld. PCIT that the transaction amounts represent unexplained investments of the assessee fundamentally misinterprets the genuine intermediary role of the assessee-appellant. Moreover, the ld. PCIT’s insistence on obtaining third-party confirmations places an unreasonable burden on the assessee-appellant. The role of the assessee-appellant doesn’t require them to seek confirmations from buyers and sellers for tax compliance. Additionally, relying on general practices observed in the real estate industry is merely speculative. It’s crucial to focus on the specifics of each case rather than making sweeping generalizations.

12. That it appears the ld. PCIT’s decisions are based more on assumptions than on concrete facts. Imposing tax liability should never rely on conjectures & surmises; there must be a clear and direct connection between the assessee-appellant and the purported unexplained funds. Fairness in taxation demands a solid foundation of evidence, not mere speculation.

13. That the conclusion drawn by the ld. PCIT—that the amount in question represents an unexplained investment—falls short, overlooking the unique nature of the assessee-appellant’s business and also ignoring the compelling evidence available on record. Furthermore, the ld. PCIT’s insistence on obtaining confirmations from third parties, like buyers and sellers, places an undue burden on the assessee-appellant. It’s crucial to remember that brokers operate on behalf of others, and the ownership of funds typically does not rest with them. Additionally, the ld. PCIT’s reliance on broad generalizations within the real estate sector to justify their findings is not only speculative but also neglects the specific circumstances of this case.

14. That as submitted that the assessee-appellant is a commission-based intermediary and is not involved in any personal investments or ownership of property that would attract ingredients of Section 69. Therefore, Section 69 cannot be applied to the assessee-appellant’s transactions, and as a result, Section 115BBE, which penalizes unexplained income, is not applicable.

15. That Section 69 of the Income Tax Act deals with unexplained investments and mandates the assessee-appellant to explain the nature and source of investments made in assets that are not recorded in the books of account. It provides for the inclusion of the value of such assets as income, if the assessee-appellant fails to offer a satisfactory explanation regarding the nature and source of the investment. The section is specifically meant for individuals who invest in assets for personal purposes, not for intermediaries who facilitate transactions on behalf of others.

16. That in the instant case of the assessee-appellant, Section 69 cannot be invoked because:

• No Personal Investments: The assessee-appellant does not make any personal investments in the property market. His role is restricted to that of a broker, and he does not own or hold any real estate for personal or investment purposes. Ledger Records, Receipt Books, and Agreements of Sale confirm that the sums recorded in the impounded diaries pertain to brokerage activities, not personal investments. These are supported by [Annexure 7 (pages 36-39)] and [Annexure 10 (pages 46-47)].
• No Ownership of Assets: The properties involved in the transactions that the assessee-appellant facilitates are owned by third parties (the buyers and sellers), not by the assessee-appellant. The real estate broker’s role is purely intermediary, and there is no question of the broker owning or investing in the properties being transacted. The assessee-appellant’s role as an intermediary is corroborated by agreements authorizing the facilitation of transactions. These agreements are available in [Annexure 8 (pages 40-43)] and [Annexure 11 (pages 48-50)].
• No Investment by the Assessee-appellant: Since Section 69 targets unexplained investments made by the assessee-appellant in assets, it does not apply to the scenario where the assessee-appellant is merely facilitating transactions for others. The assets involved belong to the respective buyers and sellers, and there is no financial outlay or ownership on the part of the broker.

17. That Section 69 and its associated provisions operate under the assumption that the taxpayer, or assessee, has engaged in personal investments and therefore possesses an understanding of the origins of those investments. In this context, the responsibility falls on the taxpayer to clarify the nature and sources of any investments or income that remain unexplained. However, it is critical to note that in the case of a broker acting as the assessee, the situation differs significantly due to the nature of their role.

18. That as a broker, the individual typically facilitates transactions between buyers and sellers within the real estate or financial markets. This intermediary position inherently means that the broker often does not have direct access to the financial details or personal financial records pertaining to the transactions conducted by the parties they represent. Consequently, it would be both unreasonable and impractical to expect the broker to possess or produce comprehensive documentation regarding any capital gains tax obligations that the sellers of properties may have incurred.

19. That the responsibility for the payment of capital gains tax, along with any associated documentation, resides solely with the seller and is a matter strictly between the seller and tax authorities. The broker is neither involved in the financial decisions of the seller nor privy to their unique financial situations or tax returns. Thus, there can be no expectation that the broker would maintain detailed or accurate records of taxes that sellers may have paid concerning their property sales.

20. That Section 115BBE of the Act addresses the taxation of income categorized as “unexplained,” which is ascribed to the assessee-appellant under specific provisions, notably Section 69. This means that if Section 69 is applicable, the income in question is liable for taxation at an elevated rate under Section 115BBE. However, in the present case, since Section 69 itself is not applicable, it negates the grounds for invoking S.115BBE.

21. That the assessee-appellant, operating as a broker, does not possess any unexplained investments or income arising from property transactions. Consequently, the application of Section 115BBE is unwarranted, as the income derived by the assessee-appellant solely stems from commissions earned while facilitating transactions, rather than from unidentified sources.

22. That in this case, the department has not provided any compelling evidence to substantiate claims of unexplained investments or income related to the assessee-appellant. Consequently, the application of S.69, along with S.115BBE, lacks a firm foundation.

23. That the following judicial precedents are being relied upon to substantiate the proposition that the invocation of the provisions of sections 69 and 115BBE by the Ld. PCIT (Central) are untenable in law:

• In Gupta Prime Resorts Pvt. Ltd. v. DCIT 2024 (1) TMI 843 – ITAT JAIPUR it was held: After analyzing the facts of the present case and documentary evidences, we also noticed that the addition in the present case was made by the AO under section 69 of the Act which relates to unexplained investment not recorded in the books of accounts and taxed the same as Income under section 115BBE. However, the ld. CIT (A) admitted that the applicability of provisions of section 69 by the AO is wrong but upheld the addition of Rs. 13,00,000/-. In this regard we stand fortified with specific argument raised by the ld. A/R that when the applicability of provision of section 69 was not accepted by the ld. CIT (A), then in that eventuality the normal business income cannot be taxed by the revenue without bringing on record the independent corroborative evidences in support of the addition. In this regard our attention was drawn to the decision of Hon’ble Delhi High Court in the case of CIT vs. Naresh Khatter HUF reported in 261 ITR 664 (Delhi) wherein it was categorically held that burden to establish that an investment has been made, onus is on the revenue. While applying the principles laid down by Hon’ble Delhi High Court in the case of CIT vs. Naresh Khatter HUF (supra), we find that in the facts of the present case the revenue has not brought anything on record either direct, indirect or indirect corroborative evidence in support of the additions made by them. Thus, we are of the view that when no evidence has been brought on record to substantiate the allegation that the investment is from unexplained sources and rather as per the assessment order passed by the AO, the same has been considered as an expenditure. Therefore, no addition could have been made in the absence of an independent, corroborative evidence. Even otherwise, as held by Hon’ble Delhi High Court (supra) that section 292B of the Act cannot save an order not passed in accordance with the provisions of the Act. We, therefore, find no force in the order of the ld. CIT (A) and the same is quashed. The addition is deleted.

• In Mukesh Kumar Saini v. PCIT (Central) [ITA Nos. 477 to 479/JP/2024] it was held: In this case, the assessment was framed u/s 143(3) of the Act on 22.09.2021. It has been held to be erroneous in so far prejudicial to the interest of revenue for the reason that the income surrendered during survey operation and the addition made thereupon in the assessment order was not verified as regards the provisions of section 68, 69 & 69Aw.s. 115BBE of the Act.

The controversy arises whether there was any inquiry conducted by the ld. AO during the assessment proceeding qua the income offered by the assessee during the survey operation. On this aspect, we find that the Assessing Officer had asked the assessee to give details of the disclosure made by the assessee and get the same verified from the income tax return filed by the assessee.

The Assessing Officer not only verified the details of that amount disclosed by the assessee, but has also went on examining the correctness of the disclosure. There were three disclosure statements made by the assessee.

One is business receipt, regarding which the ld. AO made addition of Rs. 1,62,000/- in addition to the disclosure of Rs. 15 lac made by the assessee.

The assessee made disclosure of construction expenses which were also enhanced by a sum of Rs. 7 lac by the ld. AO.

So far as the excess stock found to the tune of Rs. 7,87,459/-, ld. AO converted it to Rs. 2,36,628/-.

So, exchange of information by the assessee and verified by the Assessing Officer clearly appear in the body of the assessment order. Thus, it transpires that there was application of mind by the AO during the assessment proceedings. Accordingly, it cannot be said that the assessment has been framed by the AO without conducting inquiries.

As such, we hold that the AO framed the assessment after necessary inquiries with respect to the income surrendered by the assessee during the survey operation conducted u/s 133A of the Act.

13. Besides the above, we also note that the assessee in the statement recorded during the survey operation also accepted to have offered additional income for the year under consideration and that he would offer the amount as his income of the year. The survey statement is available at page 11 to 27 of the paper book.

Likewise, ld. AO in the assessment framed u/s 143(3) of the Act, also examined all the aspects of the disclosure, made variations and after examination referred to provisions of section 68, 69 & 69A of the Act, but at the same time, did not levy higher tax as per provision of section 115BBE of the Act.

Since a conjoint reading reveals that there was due application of mind by the AO during the assessment proceedings, the assessment cannot be held as erroneous in so far prejudicial to the interest of revenue on account of levy of higher tax as per provision of section 115BBE of the Act.

14. In the order, Learned PCIT has referred to Explanation 2 to section 263 of the Act, in holding that the necessary inquiries were not carried out by the AO during the assessment proceedings.

However, we find that the Ld. PCIT in the notice issued u/s 263 of the Act [ page 28-30 of paper book ] did not make any reference to the Explanation 2 to section 263 of the Act. Therefore, we hold that the Ld. PCIT erred in holding assessment order as erroneous and prejudicial to the interest of Revenue after referring to Explanation 2 of section 263 of the Act.

The determination of true nature and character of income is highly contextual and law has not devised any straight jacket formula in this regard. The classification of income under a particular head of income may significantly vary having regard to the nuanced facts of each case. When seen contextually, the additional income in instant case was conceded by the assessee in the course of survey operations at her business premises. The income surrendered is sort of lumpsum figures offered in the form of excess stock, unaccounted advance to staff, excess cash generated etc. from business operations. Such additional income confessed in survey at business premises gives a facial impression of business attributes. In the light of assertions made in statement in survey and post survey proceedings placed in the paper book, the assessee appears to have made out an arguable case that such income is concomitant of business activities and thus impressed with the character of business income as correctly disclosed in the ROI. The action of AO is not open to attack as erroneous where a view taken is in the realm of a possible view and not found to be wholly incongruous to facts or law. On the face of available facts, one can not say without any reservation that no plurality of opinion can exist on the point and such additional income cannot be treated as business income at all as adjudged by AO. This makes the action of the AO is the league of being plausible. The power of review cannot be exercised to collect more taxes merely owing to the reason that the law now provides for penal and steep rate of taxation by bringing such income within the ambit of S.  68/ 69 etc. 13.1 Significantly, the PCIT, while seeking to set aside the action of AO and remitting the matter back for further enquiries, did not bring any definite material to show any incorrect assumption of such facts on this score. Besides, no observations are found in the impugned revisional order suggesting a course to be adopted towards manner of determining true character of additional income or the nature of enquiries expected from AO.

13.2 In the similar factual circumstances and in the context of section 263, the Hon’ble Andhra Pradesh High Court in the case of PCIT vs. Deccan Jewellera (P) Ltd. ( 2021) 132 taxmann.com 73(AP) held the action of AO cannot be said be marred by any perversity and the revisional order was set aside. 13.2 Taking into account the entire conspectus of the matter, we thus find merit in this plea. The pre­requisites of S. 263 are clearly not found to be fulfilled.

14. We shall now also turn to other argument propelled on behalf of the Assessee that substituted enactment of section 115BBE came into force with assent of President of India w.e.f 15.12.2016 by Taxation Laws (second amendment) Act, 2016 [applicable w.e.f 01.04.2017] and thus income arising to assessee prior to its substitution from 15th Dec. 2016 shall be governed by erstwhile provision of S. 115BBE.

17. In conclusion, in the light of discussion in para 13 supra, the approach adopted by the Assessing Officer being plausible, the action of the Assessing Officer cannot be labeled as ‘erroneous’ although it may be prejudicial to the interest of the revenue. Thus, twin conditions of Section 263 are not simultaneously satisfied in the instant case. The jurisdiction usurped by the Pr.CIT under Section 263 thus fails on this parameter and hence the revisional order cannot be sustained in law. Consequently, the revisional order passed under Section 263 is quashed.

18. So, we are of the considered view that ld. PCIT could not substitute the view taken by ld. AO as per his understanding of facts of the case. In view of the above, and after considering the facts in totality, we hold that the order passed u/s 263 of the Act is not sustainable. Accordingly, we quash the same. Hence, the solitary ground of appeal of the assessee is hereby allowed.

19. In the result, the appeal of the assessee is in ITA no. 477/JP/2024 stands allowed.

20. The facts of the case in ITA Nos. 478 & 479/JP/2024 are similar to the case in ITA No. 477/JP/2024.

We have heard both the parties and perused the materials available on record. The issue raised by the assessee in these appeals No. 478 & 479/JP/2024 is equally similar, on same set of facts and grounds. Therefore, it is not imperative to repeat the facts and various grounds raised by both the parties. Hence, the Bench feels that the decision taken ITA Nos. 477 to 479/JP/2024 Mukesh Kumar Saini vs. PCIT by us in ITA No. 477/JP/2024 for the Assessment Year 2019-20 shall apply mutatis mutandis in the cases of Laxmi Narayan Saini & Prakash Chand Saini i.e. ITA Nos. 478 & 479/JP/2024 for the Assessment Year 2019-20. In terms of these observations, three appeals of the assessee are allowed.

• In Kamlesh Singhal v. PCIT (Central) [ITA No. 664/JPR/2024] it was held: We have heard the rival contentions and perused the material placed on record. As there is not dispute about the facts of the case the same are not repeated and are already reiterated herein above. The bench noted that in the case a Survey action u/s 133A Kamlesh Singhal vs. PCIT of the Act was carried out on 31.01.2019 at the business premise of the assessee firm M/s Singhal Timber & Hardware Store, Prop. Sh. Kirodi Mal Singhal, situated at Alwar Road, Kishangarh Bass, Alwar. In the survey proceeding so conducted by the revenue the stock of Rs. 58,72,780/- was found in physical verification, whereas as per books of accounts the available stock was Rs. 40,39,833/-. Thus, the stock of Rs. 18,32,947/- was found in excess. In this regard, the assessee was asked vide question no. 14 of his statements recorded during survey proceedings to give justification of excess stock of Rs. 18,32,947/- found at business premises. In response to the question, he surrendered the amount of Rs. 18,32,947/- as his income of the year under consideration. Further, on perusal of the return and reply of the assessee, ld. AO noticed that the assessee has declared the amount of Rs. 18,32,947/- in the return of income filed for the year under consideration and paid due taxes thereon.

In that survey proceeding cash of Rs. 5,91,900/- was found in physical verification, whereas as per books of accounts the available cash was Rs. 84,695/-. Thus, the cash of Rs. 5,07,205/- was found excess. In this regard, the assessee was asked vide Sh. Kamlesh Singhal vs.  PCIT question no. 13 of his statements recorded during survey proceedings to give justification of excess cash of Rs. 5,07,205/- found at business premises. In response to the question, he surrendered the excess cash amounting to Rs. 5,07,205/- as his income of the year under consideration. The ld. AO did not find that disclosure in the return of filed so he raised the issue to the assessee and the assessee submitted that income on account of excess remained to be offered and the software does not permit to revise the return the assessee offered that income by way of letter dated 26.03.2021. Accordingly, the ld. AO made the addition of Rs. 5,07,205/- in the return of income filed for the year under consideration.

The bench also noted that on both the additional income so disclosed by the assessee the ld. AO has called for the explanation of the assessee about the applicability of the section 115BBE of the Act and the assessee has replied to that aspect of the matter vide letter dated13.09.2021 and therefore, the ld. AO has considered the explanation of the assessee about the chargeability of the income offered by the assessee and has taken a plausible view on the matter. Thus, based on these set of facts when the assessment Sh. Kamlesh Singhal vs. PCIT has been completed after conducting all the enquiries and verification and ld. AO has taken the plausible view on the matter the ld. PCIT cannot quashed that assessment order u/s. 263 of the Act. As it is transpired from the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied his mind to the aspects for verification of income so disclosed by the assessee. Be that as it may, when the issue of applicability is examined by the ld. AO and the assessee has given a detailed reply about the applicability of the provision section 115BBE of the Act, the ld. PCIT cannot impose her view on the view taken by the ld. AO. We get support of our view from the decision of apex court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 where in the Court has taken the view that the phrase “prejudicial to the interests of the revenue ” under Section 263 has to be read in conjunction with the expression “erroneous” order passed by the assessing officer.

Every loss of revenue because of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue and where two views are possible and the Income Tax Officer has taken one view with respect to which the Commissioner does not Sh. Kamlesh Singhal vs. PCIT agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue , unless the view taken by the Income Tax Officer is unsustainable in law.

In terms of these observations, the appeal of the assessee in ITA no. 644/JP/2024 is allowed.

12. The fact of the case in ITA No. 663-JP-2024 is similar to the case in ITA No. 644-JP-2024 and we have heard both the parties and persuaded the materials available on record. The bench has noticed that the issues raised by the assessee in this appeal No. 663-JP-2024 is equally similar on set of facts and grounds. Therefore, it is not imperative to repeat the facts and various grounds raised by both the parties. Hence, the bench feels that the decision taken by us in ITA No. 664-JP-2024 in the case of Sh. Kirodi Mal Singhal for the Assessment Year 2019-20 shall apply mutatis mutandis in the case of Sh. Kamlesh Singhal in ITA No. 663-JP-2024 for the Assessment Year 2019-20.

In the result, both appeals of the assessee are allowed.

• In Sh. Parmod Singla v. ACIT 154 taxmann.com 347 [ITAT CHANDIGARH] it was held: In the instant case, for the deeming provisions of section 69 to be attracted, there has to be a finding that the assessee has made investments during the financial year in the stock and by way of advances, such investments are not recorded in the books of account so maintained by the assessee, and the assessee offers no explanation about the nature and source of the investments or the explanation so offered is not found satisfactory in the opinion of the AO.

Similarly, for the deeming provisions of section 69A to be attracted, there has to be a finding that the assessee was found to be owner of cash so found at the time survey, such cash has not been recorded in the books of account so maintained by the assessee, and the assessee offers no explanation about the nature and source of the cash or the explanation so offered is not found satisfactory in the opinion of the AO.

16. From the above, it transpires that to tax any item of income/ expenditure, unaccounted investment at the specific rate r.w.s. 115BBE of the Act, it is necessary to classify the income under the relevant head provision under section 69, 68, 69B as they are penal in nature.

In present case, the income surrendered was to be classified u/s 68, 69 & 69A of the Act. As per the direction of the Ld. PCIT, however, we find that the Ld. PCIT has nowhere pointed out that the income surrendered by the assessee falls within the provision of section 68, 69 & 69A of the Act. As such, the assessee was able to justify the source of income surrendered during survey operation. Therefore we are of the view that the same cannot be treated as deemed income. Once, the income goes out of the preview of the deeming provision, the provision of section 115BBE of the Act cannot be applied.

17. Thus, we note that the AO has taken one of the plausible view by treating the income offered during survey operation as income under the head of business and profession.”

24. That in conclusion, it is most respectfully submitted that the amount of Rs. 1,44,35,000/- does not constitute unexplained investment of the assessee so as bring it within the ambit of taxability under Section 69. The original assessment order is neither erroneous nor prejudicial to revenue, and the invocation of Section 115BBE is unjustified. Therefore, it is respectfully submitted that the proceedings under Section 263 should be dropped, and the original assessment order should be upheld.

25. That the critique by the ld. PCIT is based on speculative assumptions rather than identifying specific procedural deviations. The ld. AO’s adherence to procedural norms ensures that the assessment order cannot be deemed erroneous merely because the ld. PCIT holds a different subjective opinion. The ld. AO had thoroughly examined all the documents, evidences, and facts during the assessment proceedings. Adequate inquiries were made, and reasoned conclusions were drawn. The Ld. PCIT failed to appreciate that the AO, after conducting a detailed examination of the impounded diaries and related documents, made an addition of LI12,88,700 under the head “Commission Income” based on logical estimation and substantiated facts.

26. That the provision of Section 263 requires both conditions to be satisfied: the order must be erroneous and cause prejudice to the Revenue. In this case, the AO’s order is based on detailed analysis and logical conclusions. Therefore, the assumption that the order is erroneous is misplaced.

27. That the Ld. PCIT’s order is primarily based on conjectures and presumptions, stating that the ld. AO should have added the entire amount of LI11,44,35,000 as unexplained investment under Section 69. For instance, the ld. AO made inquiries into the nature of the transactions and determined that they pertained to the assessee’s brokerage business. Adding the entire transaction value without substantiating ownership would have resulted in an unwarranted tax burden on the assessee, contrary to the principle of fairness in tax assessment. Additionally, the ld. AO’s approach of taxing only the commission income ensured that legitimate business income was accounted for without overstepping the boundaries of evidence and legality. This demonstrates a balanced application of tax principles that safeguards the Revenue while avoiding undue prejudice to the assessee.

28. That further, the ld. AO’s decision aligns with the Act’s emphasis on evidence-based assessment, as the impounded diaries clearly identified the transactions as intermediary dealings rather than personal investments. Thus, the Revenue’s interests were adequately protected by the assessed addition. The Ld. PCIT’s order is primarily based on conjectures and presumptions, stating that the ld. AO should have added the entire amount of LI11,44,35,000 as unexplained investment under Section 69. It is submitted that the ld. AO’s decision to only add commission income was after due verification of facts and is neither erroneous nor it is prejudicial to the interest of Revenue. It is settled law that loss of revenue is not equivalent to prejudicial to the interest of revenue.

29. That during the course of assessment proceedings, the ld. AO issued specific show cause notice to the assessee-appellant to explain the transactions noted in the impounded documents. The ld. AO analyzed the details recorded in the impounded diaries and other materials to identify the nature of transactions and their relevance to the assessee-appellant’s brokerage activities. The assessee-appellant responded to all inquiries, providing a range of supporting documents. These included ledger books, which recorded transactions with buyers and sellers, receipt books that detailed payments received, and agreements of sale that provided evidence of brokerage activities. All these documents were scrutinized by the ld. AO to ensure accuracy and consistency.

30. That the ld. AO concluded that the transactions recorded in the diaries were related to the assessee-appellant’s brokerage activities and not indicative of personal investments. Supporting materials, such as agreements granting the assessee-appellant authority to mediate sales and receipts of commission payments, substantiated this conclusion. Based on these findings, the ld. AO made an addition for commission income rather than treating the amounts as unexplained investments. This approach aligned with the nature of the business and the documented evidence.

31. That the ld. AO’s approach was in complete alignment with judicial principles and administrative guidelines governing tax assessments. By ensuring that all relevant documents, including ledger entries, agreements, and receipt books, were thoroughly analyzed, the ld. AO adhered to the principles of natural justice and evidence-based decision-making. Judicial principles emphasize the importance of basing tax assessments on factual records rather than presumptions. In this case, the ld. AO’s determination to add commission income, rather than treating the entire transaction amount as unexplained investments, reflects a fair and rational application of law, consistent with established jurisprudence. Administrative guidelines direct assessing officers to conduct comprehensive inquiries and avoid overreach by taxing amounts without substantiated evidence of ownership or personal gain. The ld. AO’s actions complied with these directives by focusing on the nature of the transactions and attributing income correctly to the assessee-appellant’s role as a broker. Moreover, the ld. AO’s order demonstrates due diligence in balancing the interests of the Revenue and the taxpayer, ensuring that legitimate income is taxed while avoiding unjustified burdens on the assessee-appellant. This balanced approach underscores the validity and fairness of the assessment order.

32. That the ld. AO’s order was passed after a thorough application of mind, ensuring compliance with statutory provisions and taking into account all relevant facts and legal requirements. The detailed analysis of the impounded materials, coupled with the logical conclusions drawn from the supporting documents, establishes that the ld. AO’s approach was meticulous and not erroneous. The Ld. PCIT’s contention that the ld. AO failed to add the amount under Section 69 is speculative and overlooks the documentary evidence provided by the assessee-appellant. The ld. AO’s actions adhered strictly to procedural norms, ensuring that the assessment order was both fair and lawful.

33. That the Ld. PCIT’s assumptions conflict with established precedents and the evidence presented during the assessment process. Established jurisprudence holds that tax authorities must base their conclusions on factual evidence rather than speculative or hypothetical interpretations. In this case, the ld. PCIT presumed that the entire transaction value of ₹1,44,35,000 was unexplained investments by the assessee-appellant without adequately considering the brokerage role documented in the impounded materials. This assumption overlooks the detailed ledger and receipt books submitted, which clearly delineate the assessee-appellant’s role as an intermediary in these transactions.

34. That precedents emphasize the necessity of direct and conclusive evidence to substantiate claims of unexplained investments. However, the ld. PCIT ignored agreements of sale, power of attorney documents, and recorded payments, all of which demonstrated the absence of ownership or personal gain by the assessee-appellant. Additionally, the ld. PCIT failed to account for the disbursement of funds to sellers, as evidenced by transaction records. The lack of analysis on how these funds could qualify as unexplained investments further highlights the speculative nature of the ld. PCIT’s assumptions. In contrast, the ld. AO’s findings adhered to principles of fairness and evidentiary consistency. The ld. AO assessed commission income based on documented evidence, aligning with both statutory provisions and judicially established standards for determining taxable income. The ld. AO’s approach demonstrates adherence to procedural norms and a detailed examination of evidence, as reflected in the response to the show-cause notice (attached as Annexure 6, pages 34-35). The PCIT’s assumptions, therefore, deviate from these principles, undermining the credibility and validity of the revision order.

35. That the Ld. PCIT’s revision order under Section 263 is founded on multiple unsupported assumptions. For example, it presumes that the entire transaction value of Rs. 1,44,35,000 represents unexplained investments by the assessee-appellant, without acknowledging the evidence provided by the assessee-appellant demonstrating that these were brokerage transactions. One assumption was that the assessee-appellant personally owned the funds recorded in the impounded documents, despite ledger books and receipt books explicitly showing these funds were handled as part of intermediary brokerage services. The ld. AO verified these documents during the assessment.

36. That another assumption made by the Ld. PCIT is the absence of ownership confirmations invalidates the assessee-appellant’s explanation. However, the assessee-appellant submitted agreements of sale and power of attorney documents clearly attributing the transactions to third parties. These documents were examined and accepted by the ld. AO as consistent with the nature of the business. Even otherwise absence of confirmation from actual owners does not make the assessee the owner of the property. If they have transacted in unaccounted income, will they give confirmation to the assessee?

37. That the Ld. PCIT also failed to consider that the amounts received by the assessee-appellant were subsequently disbursed to the sellers, a fact supported by documentary evidence such as receipt books and bank account records. This effectively refutes the claim that the amounts represented unexplained investments.

38. That in contrast, the AO’s findings were grounded in factual evidence, corroborating the assessee-appellant’s role as an intermediary and justifying the addition of commission income. The ld. PCIT’s reliance on unsubstantiated assumptions undermines the credibility of the revision order and is inconsistent with the evidentiary record.

39. That the Ld. PCIT’s revision order under Section 263 is founded on hypothetical interpretations of the impounded documents, ignoring the substantiated explanations provided by the assessee-appellant. The assessee-appellant had demonstrated, with supporting evidence, that the transactions recorded in the diaries pertained to brokerage services and not unexplained investments.

40. That the Ld. PCIT ignored the fact that the amounts received were subsequently paid to sellers, as evidenced by ledger and receipt books. The absence of ownership over the recorded amounts invalidates the assumption of unexplained investments. The ld. AO’s view that these were commission-based transactions is consistent with the nature of the assessee-appellant’s business. The Ld. PCIT has failed to discharge the burden of proof to substantiate the claim that the transactions represented unexplained investments by the assessee-appellant. On the contrary, the ld. AO’s findings are supported by evidences, such as agreements of sale and power of attorney documents.

41. That the term ‘prejudicial to Revenue’ cannot be invoked arbitrarily or without substantiated evidence. The arbitrary use of this term not only undermines the integrity of tax proceedings but also creates an atmosphere of uncertainty and undue hardship for taxpayers. Broader implications of such arbitrary claims include the potential to discourage honest taxpayers, thereby eroding the trust between the Revenue authorities and the taxpayer community. Such actions may result in unwarranted litigation, leading to increased costs and delays for both the taxpayer and the tax administration.

42. That it is crucial to ensure fairness and consistency in tax proceedings. Any invocation of ‘prejudicial to Revenue’ must be supported by concrete evidence and a clear demonstration of how the order in question deviates from established norms or causes actual harm to Revenue collections. In this case, the ld. AO’s actions were consistent with the principle of evidence-based assessment, and the Revenue was safeguarded through the addition of legitimate commission income. Arbitrarily labelling the order as prejudicial to Revenue disrupts this balance and unjustly shifts the burden onto the assessee-appellant. The Ld. PCIT’s assertion that the ld. AO’s order is prejudicial to the Revenue is without merit, as the ld. AO’s addition of commission income aligns with the facts and circumstances of the case. Arbitrary assumptions about unexplained investments lead to unwarranted litigation and harassment of the assessee-appellant.

43. That it is trite that the exercise of power u/s. 263 of the Act is ousted in case of a debatable issue. An assessment order can be termed as erroneous and prejudicial to the interest of the Revenue, if the Assessing Officer has taken a view which is not legally tenable. Per contra, if two views are available on a particular issue and the ld. Assessing Officer adopts one of such views, the case goes outside the purview of revisional power exercisable by the ld. Principal Commissioner of Income-tax u/s. 263 of the Act. Proceedings u/s. 263 cannot be sustained where the ld. Principal Commissioner of Income-tax holds a view which was different from that of the ld. Assessing Officer. Section 263 of the Act does not visualize a case of substitution of the judgment of the Revisional Commissioner for that of ld. Assessing Officer unless the decision of the ld. Assessing Officer is found to be erroneous.

44. That the language used by the legislature in section 263 is to the effect that the Principal Commissioner of Income-tax may interfere in revision, if he considers that the order passed by the ld. Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. It is quite clear that two conditions must coexist in order to give jurisdiction to the Principal Commissioner of Income-tax to interfere in revision. The order of the Assessing Officer in question must not only be erroneous but also it must be prejudicial to the interest of the revenue. In other words, merely because the assessment order is erroneous, the Principal Commissioner of Income-tax cannot interfere. Again, merely because the order of the ld. Assessing Officer is prejudicial to the interest of the revenue, then that is not enough to confer jurisdiction on the Principal Commissioner of Income-tax to interfere in revision. The Principal Commissioner of Income-tax cannot assume jurisdiction u/s 263, if the two conditions prescribed under the provisions of Act, viz. (i) the order is erroneous; and (ii) the same is also prejudicial to the interest of the revenue is not satisfied. Each and every erroneous order cannot be the subject matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed.

45. That the phrase “prejudicial to the interest of the revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue has a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when an Assessing Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Assessing Officer has taken one view with which the CIT did not agree with, it cannot be treated as an erroneous order prejudicial to the interest of the revenue because the view taken by the Assessing Officer is unsustainable in law.

46. That the ld. Assessing Officer while framing the assessment has taken a possible view, and the show cause notice u/s. 263 does not demonstrate the error remained on the part of the ld. Assessing Officer. In fact, when the ld. Assessing Officer has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the ld. Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue.

47. That the assessee also wishes to refer and rely upon:

• Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 has held: The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).
• Hon’ble Jurisdictional Rajasthan High Court in PCIT v. Manna Trust (2022) 1 TMI 693 has held: We are broadly in agreement with the view of the Tribunal. It is well settled through a series of judgments that power under Section 263 of the Act can be exercised only when twin conditions of the order of assessing officer being erroneous and prejudicial to the interest of revenue are satisfied. The Jurisdiction of the Commissioner under Section 263 of the Act is restricted and cannot be equated with the appellate jurisdiction. The Commissioner does not sit in appeal.
• Hon’ble Jurisdictional ITAT Jaipur Bench in Gayatri Devi v. PCIT (2023) 10 TMI 23 has held: It is well settled that the prerequisites to exercise of jurisdiction by the ld PCIT under s. 263 of the Act is that to establish order of the AO is to be erroneous insofar as it is prejudicial to the interest of the Revenue, the PCIT has to satisfy of twin conditions simultaneously, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent, s. 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. However, every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. We draw strength from case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) and also from the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC).

48. In view of the aforementioned grounds, it is evident that the revision order passed under Section 263 is invalid, as it does not satisfy the dual requirements of being both erroneous and prejudicial to the Revenue. The AO conducted a diligent and reasoned assessment, making appropriate additions where warranted. Therefore, the order of the Ld. PCIT, Central, Jaipur deserves to be quashed & set aside.

6. To support the contentions so raised in the written submission ld. AR of the assessee also submitted a paper book containing the following documents:-

S. No.	Particulars	Page No.
		From	To
1.	Copy of notice dated 09.03.2024 issued by the respondent u/s 263 of the Act	01	02
2.	Copy of Written Submission Filed Before the Principal Commissioner of Income-Tax (Central), Jaipur	03	10
3.	Copy of statement recorded on 02.03.2020 u/s 133A of the Act	11	19
4.	Copy of statement recorded on 12.03.2020 u/s 131 of the Act	20	31
5.	Copy of Show Cause Notice dated 24.03.2022 issued u/s 142(1) of the Act	32	33
6.	Copy of reply dated 24.03.2022 filed by the assessee appellant	34	35
7.	Copy of ledger account of Mukut Bihari Meena at pg. no. 34,49,56 and 58 of Exhibit-3	36	39
8.	Copy of Jamabandi/Nakal and Power of Attorney dated 29.01.2019 in favour of Assessee	40	43
9.	Copy of ledger account of Babu Khan at pg. no. 43,59 and 60 of Exhibit-3	44	45
10.	Copy of ledger account of Ucchav lal at page no. 13 of Exhibit-3	46	47
11.	Copy of Jamabandi/Nakal and agreement to sale between Shri Ucchav Lal and Naresh Meghwal	48	50
12.	Summary of amounts paid to Mukut Bihari against the Plots	51	57
13.	Copy of receipt against Ganpati Nagar, B-block scheme as per Exhibit-5	58	74
14.	Copy of Sale deed dated 06.01.2021 executed between Shri Sajid Khan and Babu Khan	75	89

7. The ld. AR of the assessee in addition to the written submission invited our attention to the notice issued u/s. 142(1) of the Act dated 24.03.2022 wherein the ld. AO raised a specific question on the issue which the ld. PCIT again by way of review intend to get it verified. The assessee submitted the reply to the above query raised by the ld. AO. Thus, when specific transaction as referred by the ld. PCIT has already been examined by the ld. AO and has applied his mind ld. PCIT in the proceeding u/s. 263 of the Act cannot direct the AO to examine the issue the way she wanted to get it. The assessee has furnished all the details related to the transaction. The assessing officer has reviewed those papers and made an addition on the issue as well.

8. Per contra, ld. DR representing the revenue has relied upon the finding recorded in the order of the ld. PCIT and prayed to uphold the order of the PCIT.

9. We have heard both the parties and perused the materials available on record. The bench noted that the assessee has challenged the order of the ld. PCIT on three count, (a) the order of the ld. AO is neither erroneous nor prejudicial to the interest of the revenue, (b) the issue which the ld. PCIT raising has already been examined and therefore, there cannot be review of the order u/s. 263 of the Act and (c) The ld. PCIT cannot direct the ld. AO to add whole amount when he has after making due enquiry decided to add the commission income.

The brief facts of the case are that there was a survey u/s 133A of the Act conducted in the case of assessee on 02.03.2020. During the year, the assessee earned commission income from real estate transactions and reported agricultural income. The case of the assessee was selected for compulsory scrutiny in accordance with the guidelines issued by the Central Board of Direct Taxes (CBDT) on account of the survey. In the assessment proceeding the ld. AO vide point no. 3 of the notice issued on 24.03.2022 called for the following details from the assessee:

“3. During the survey proceedings, various incriminating documents were found and impounded. On perusal of these incriminating documents, it is noticed that the assessee has made transactions with Shri Uchab Lal of Rs. 14,20,000/-, Shri Mukut Bihari Meena (Rajnagar) of Rs. 90,00,000/- and Shri Babu Khan of Rs. 60,15,000/-. The totaling amount of Rs. 1,44,35,000/- was involved in these transactions. The assessee has claimed these transactions are not belongs to him. But, in support of his claim, the assessee has not submitted completed details and relevant documents. Kindly submit your explanation in this regard. Kindly note that failure to comply with the same may entail an ex-parte assessment u/s 144 of the Act besides initiation of penalty proceedings u/s 272A(1)(d) of IT Act, 1961.

As is evident from the issue of notice by ld. AO he called for all the details considering those documents having incriminating in nature. He has dealt with all the three transactions with Shri Uchab Lal, Shri Mukut Bihari and Shri Babu Khan. Since the order relates the proceeding u/s. 263 of the Act it would appropriate to go through the provision of that section which reads as under :

Revision of orders prejudicial to revenue.

263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer ^81a[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests 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, ^81b[including,—

(i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or

(ii) an order modifying the order under section 92CA; or

(iii) an order cancelling the order under section 92CA and directing a fresh order under the said section.]

Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,—

(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer ⁸²[or the Transfer Pricing Officer, as the case may be,] shall include—

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer ⁸²[or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;

⁸²[(iii) an order under section 92CA by the Transfer Pricing Officer;]

(b) “record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer ⁸²[or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer ⁸²[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,—

(a) the order is passed without making inquiries or verification which should have been made;

(b) the order is passed allowing any relief without inquiring into the claim;

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

As is evident from the above provision of the Act ld. PCIT has to demonstrate as per explanation of 2 of the provision of the Act that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the PCIT;

(a) the order is passed without making inquiries or verification which should have been made;

(b) the order is passed allowing any relief without inquiring into the claim;

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

While going through the order or that of the show cause he has not invoked as to which of the action of the ld. AO is prejudicial or erroneous to the interest of the revenue. Here in this case we note that the ld. AO made inquiries and done verification of the facts and conscious applied his made and made an evidence after hearing the case. Therefore, there is no case of the ld. PCIT that in this case any scope of invoking the provision of section 263 of the Act exists.

Thus, the prerequisite for exercising the jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The ld. PCIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each, and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue’s interest, then the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the Revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue because of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to review his own order. In this regard, we draw strength from the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) wherein it was held that:

• “The phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).”

10. Thus, based on this decision it is also noteworthy to mention that one of the pre-requisite before invoking S. 263 and the allegation of the Ld. PCIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record and the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by ld. AO. Thus, considering the discussion recorded here in above we are of the considered view that the ld. PCIT cannot substitute the view taken by the ld. AO as per her understanding of facts of the case. In view of the above, and after considering the facts in totality, we hold that the order passed u/s 263 of the Act is not sustainable.

Ergo, we quash the order passed by PCIT, Central, Jaipur.

In the result, appeal of the assessee is allowed.

Order pronounced in the open Court on 14/02/2025