Case Law Details
Prakashbhai Ishwarbhai Changela Vs PCIT (ITAT Rajkot)
The Income Tax Appellate Tribunal (ITAT) heard two appeals filed by Prakashbhai Ishwarbhai Changela against separate orders passed by the Principal Commissioner of Income Tax (PCIT), Rajkot. The PCIT had exercised his revisionary powers under Section 263 of the Income Tax Act, 1961 and set aside the assessment orders for Assessment Years (AYs) 2012-13 and 2013-14, finding them to be erroneous and prejudicial to the revenue.
The ITAT considered the facts leading to the exercise of power under Section 263 by the PCIT as identical in both years. The key issue was whether the cash deposits found in Changela’s bank account were related to his business or not, and if so, how much should be taxed.
The ITAT examined the assessment orders passed by the Assessing Officer (AO) for each year and concluded that the AO had made no inquiries while treating the cash deposits as relating to Changela’s business turnover and taxing only 3% of them as net profits. The ITAT agreed with the PCIT’s finding that the entire amount should be subjected to tax, given the lack of any plausible explanation from Changela for treating these cash deposits as business receipts.
Changela argued before the ITAT that adequate inquiries had been made by the AO and that his assessment order could not be held erroneous or prejudicial to the revenue. He also contended that since an appeal against the PCIT’s orders was pending with the Commissioner of Income Tax (CIT), the revisionary powers under Section 263 should not have been exercised by the PCIT on the same issue.
The ITAT rejected both arguments and upheld the PCIT’s order, finding that the AO had indeed made inadequate inquiries into the nature of Changela’s cash deposits before treating them as business receipts. The tribunal also held that the pendency of an appeal with the CIT did not preclude the exercise of revisionary powers by the PCIT under Section 263.
In conclusion, both appeals filed by Changela were dismissed, and the ITAT upheld the orders passed by the PCIT holding the assessment orders as erroneous and prejudicial to the revenue due to inadequate inquiries made by the AO regarding the nature of cash deposits found in Changela’s bank account.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
These two appeals by the assessee are directed against separate orders passed by the learned Principal Commissioner of Income-Tax, PCIT, Rajkot-1 [hereinafter referred to as “PCIT”], both dated 31.01.2022, in exercise of his revisionary powers under Section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Years (AYs) 2012-13 & 2013-14. It was common ground that the facts and circumstances in which the order u/s 263 of the Act was passed by the ld. PCIT was identical in both the years; therefore, both the appeals are being heard together and are being disposed of by way of this common consolidated order.
2. The facts leading to exercise of power of revision by the ld. PCIT u/s 263 of the Act being identical, the same are being enumerated in general manner mentioning the figures involved in both the years. In effect, both the appeals are being dealt with together.
3. A perusal of the order of the ld. PCIT reveals that the assessment order, which was revised by the ld. PCIT, was passed u/s 143(3) r.w.s. 147 of the Act. That the case of the assessee was reopened u/s 147 of the Act for both the years noting huge cash deposits in his bank accounts amounting to Rs.24,35,15,372/- in AY 2012-13 and Rs.18,78,90,358/- in AY 2013-14. That the assessment ultimately was finalized treating the cash deposits as pertaining to that of the business of the assessee and taxing only the net profit earned thereon estimating it @ 3% of the total cash deposits. The addition, therefore, made in AY 2012-13 by the Assessing Officer amounted to Rs.74,72,960/- and in AY 2013-14 the same tantamounted to Rs.58,33,151/-.
4. The ld. PCIT found both the assessment orders to be erroneous for the reason that he noted that the Assessing Officer had made no inquiries while treating the huge cash deposits as relating to the business turnover of the assessee and taxing only 3% of the same as net profits. As per the ld. PCIT, the entire amount needed to be subjected to tax in the absence of any plausible explanation given by the assessee for treating them as business receipts and the provisions of Section 115BBE of the Act also needed to be invoked taxing the impugned cash credits at the special rate of tax prescribed under the said section. Accordingly, a show-cause notice was issued to the assessee. Due reply was filed by the assessee; after considering which, the ld. PCIT held the assessment order passed in both the years as erroneous causing prejudice to the Revenue on account of lack of inquiry relating to the issue of cash deposits in the bank account of the assessee. Accordingly he set aside the assessment orders to the Assessing Officer for framing fresh assessment, directing him to complete the assessment after due inquiry and verification to the extent of the issues discussed by him.
5. Aggrieved by the order of the ld. PCIT, the assessee has come up in appeal before us for both assessment years under consideration. Since identical issues have been raised in both the assessment years, we reproduce the grounds raised by the assessee in its appeal for AY 2012-13 in ITA No.46/Rjt/22, which reads as under:-
“1.0 That on the facts and circumstances of the case and in law, the order passed by the Principal Commissioner of Income-tax (PCIT) Rajkot-1, u/s 263 of the Income-tax Act, 1961 (‘the Act’) setting aside the assessment framed u/s 143(3) r.w.s 147 of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio.
1.1 That on the facts and circumstances of the case and in law, the order passed u/s 263 of the Act by the Principal Commissioner of Income-tax (PCIT) Rajkot-1 is void ab-initio and without jurisdiction because the same issue as raised in assessment framed u/s 143(3) r.w.s 147 of the Act is pending with the CIT(Appeals).
2.0 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in exercising jurisdiction u/s 263 by setting aside the issue of total deposits of Rs. 24,35,15,372/- even though the same had been discussed and scrutinized by the Assessing Officer in detail while framing the assessment u/s 143(3) r.w.s. 147 of the Act.
2.1 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in setting aside the order by stating that the assessing officer has not conducted any inquiries or applied his mind correctly on finalizing the order by estimating the profit @3% on the total deposits through cash & RTGS of Rs. 24,35,15,372/-.
2.2 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in holding that the assessment order is erroneous and prejudicial to interest of revenue on the issue of applicability of section 68 by considering total deposit as cash of Rs. 24,35,15,372/- in bank accounts.”
6. The arguments of ld. Counsel for the assessee before us challenging the order passed u/s 263 of the Act, briefly stated, were to the effect that:-
(i) It was not a case of no inquiry or lack of inquiry by the Assessing Officer; that the Assessing Officer had made all the inquiries and taken a plausible view treating the cash deposits as business receipts of the assessee and treating 3% thereof as a net profit of the assessee. Therefore assessment order could not be held to be erroneous causing prejudice to the Revenue. Reliance was placed on the following case laws in support…
(ii) When the matter was taken up for revision by the ld. PCIT, the assessee had already gone in appeal before the ld. CIT(A) – meaning thereby that the issue on which revisionary jurisdiction was exercised by the ld. PCIT was pending in appeal before the ld. CIT(A) and the ld. PCIT, therefore, could not have exercised his powers of revision u/s 263 of the Act. Reference was made to various case laws in this regard as under:-
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- Lexico Ceramics Vs. Pr. CIT-1, Rajkot ITAT, in ITA No. 1/Rjt/2023, Order dated 12.05.2023;
- Manishbhai Laljibhai Vekaria Vs. Pr. CIT-1, Rajkot, in ITA No. 107/Rjt/2022, Order dated 31.08.2022
- Parin Furniture Ltd. Vs. Pr. CIT, Rajkot, in ITA Nos. 86-89/Rjt/2022, Order dated 20.07.2022
(iii) The ld. PCIT had invoked Explanation 2 to Section 263 for holding the assessment order passed as erroneous, but no show-cause notice was issued to the assessee while doing so. That, therefore, the order passed u/s 263 of the Act was bad in law .Reliance was placed on the decision of the Hon’ble Gujarat High Court in the case of Pr.CIT Vs. Shreeji Prints (P) Ltd., (2021) 130 taxmann.com 293 (Guj.)(HC), which, the ld. Counsel for the assessee pointed out, was confirmed by the Hon’ble Apex Court.
7. DR, on the other hand, vehemently opposed all the contentions made by the ld. Counsel for the assessee. He stated that the assessment order itself clearly revealed that the Assessing Officer had made inadequate inquiries and, more particularly, he had failed to make inquiries to determine the true nature of the cash deposits before treating them as business receipts. He contended that the Assessing Officer had simply accepted the contentions of the ld. Counsel for the assessee before him for making any inquiries. Ld. DR referred to the decision of the ITAT, Ahmedabad Bench in the case of Babulal S. Solanki Vs. ITO, ITA No. 3493/Ahd/2016, Order dated 04.03.2019, for his contention that insufficient inquiries would also lead to the assessment order being erroneous causing prejudice to the Revenue.
8. He also opposed the contention of the ld. Counsel for the assessee that since the issue was pending before the ld. CIT(A), the revisionary powers could not be invoked, citing the decision of Hon’ble Apex Court holding otherwise in the case of CIT vs Amritlal Bhogilal & Co., 34 ITR 130 (SC).
9. As for the invocation of Explanation 2 to Section 263 of the Act, without giving any show-cause notice to the assessee, ld. DR opposed the same stating that a bare reading of the Section would reveal that there was no such requirement.
10. We have heard the contentions of both the parties.
11. We shall first deal with the contention that the revisionary order was bad in law, finding the assessment order passed to be erroneous on account of no inquiry/lack of adequate inquiry on the issue of cash deposits in the bank account of the assessee. The contention of the ld. Counsel for the assessee is that adequate inquiry had been done and the Assessing Officer had taken a plausible view treating the cash deposits as related to the business turnover of the assessee and taxing net profit earned thereon estimating the same @ 3% of the turnover/cash deposits. The Department, on the other hand, states that the Assessing Officer did not make any inquiries whatsoever and accepted the reply of the assessee stating that the cash deposits represented its turnover from business.
12. We have perused the documents filed by the ld. Counsel for the assessee before us disclosing the inquiries conducted during assessment proceedings by the Assessing Officer and have also gone through the assessment order. Paragraph No.5 of the assessment order summarizes the facts noted by the Assessing Officer from the reply of the assessee and paragraph No.6 contains his findings to the effect that 3% of the cash deposits be subjected to tax treating it as turnover. The contents of the said paragraphs are very relevant to adjudicate whether the Assessing Officer had accepted the assessee’s submissions as such without conducting any inquiry while arriving at this finding or otherwise. The same are, therefore, being reproduced hereunder:-
“5. In view of the above discussed facts assessee was issued notice u/s 142(1) of the Act on 9/12 / 2019 & requested to show cause as to why cash/ cheque transactions amounting to Rs. 24, 35 ,15,372/- should not be treated as unexplained and should not be treated as income for the year. In reply to show cause notice of this office, the assessee has filed reply electronically. After due consideration of the reply and submissions of the following facts is emerged:
A) The income of the assessee is far below maximum amount chargeable to tax during the F.Y. 2011-12. However, in response to notice u/s. 148 of the Act, the assessee has field return of income showing the income as per provision of section 44AD of the Act. since the income is disclosed u/s 44AD of the Act assessee is not obliged to maintain any books of accounts.
B) The assessee has referred to statement on oath previously recorded before ADIT (Inv.), Rajkot and again before undersigned on 04.12.2019, wherein the assessee has contended that the bank accounts were operated by Shri Bharat Pranlal Popat and Shri Dipak Shivial Tanna only and KYC documents of the assessee was misutilised to open the bank accounts.
C) Further the assessee has also contended that the transactions carried out in Social Co Op Bank Ltd, Ahmedabad is carried out by Sh Bharat Popat by furnishing an affidavit given by Shri Bharat Pranial Popat which states that the bank transactions in the Social Co-operative Bank Itd. was carried out by Shri Bharat Pranlal Popat. Further Shri Dipak Shivial Tanna is expired on 17.11.2014 (Death certificate has been filed), therefore, it is not possible to furnish any other details related to bank transactions carried out in these banks viz. The Social Credit Co Op. Bank Ltd as the assessee has no knowledge about such transactions. Further assesssee has contended that the said transactions are carried out by above persons.
D) The assessee has also contended that since the transactions carried out in bank account were business transactions the addition of total amount of the transactions should not be done as well as provisions of section 44AD of the Act is not attracted. However in absence of details assessee has requested that the addition should be restricted to 2-3% of the transactions carried out in bank accounts. The contention of assessee is duly considered.
E) Further assessee has filed a letter of the M/s. Archar Metal Limited confirming the transactions with assessee as business transactions. After considering details like affidavit, death certificate of Sh. dipak Tanna, affidavit filed by Sh. Bharat Popat after considering the contentions raised by assessee in statement on oath by the assessee, the addition on the cash / cheque deposit transactions made in bank accounts of the assessee during the F.Y. 2011-12 is considered as business transactions of assessee and the income is derived at net profit of 3% on the total cash/cheque transactions of Rs. 24,35,15,372/-. The said income is derived at net of all expenditure.
6. In view of the above discussion, the income is derived at Rs. 73,05,462/(3.00% of turnover of Rs. 24,35,15,372/-) and the same is added to total income of assessee.”
13. Paragraph No. 5 of the assessment order, containing the facts noted by the Assessing Officer from the submissions filed by the assessee, reveals that he noted the assessee’s contention to the effect that the cash deposits did not pertain to him, though it was in the bank account opened in his name. The Assessing Officer noted the contention of the assessee as that this bank account was operated by some other persons mis-utilizing his name for the said purpose. The Assessing Officer also notes that one of the said persons Shri Bharat P. Popat had also given an affidavit to this effect stating that the bank transactions in the assessee’s bank account related to him. The Assessing Officer also notes the fact that the other person named by the assessee to have misutlized his KYC i.e. Shri Dipak Tanna had since expired and his death certificate was also filed.
14. The Assessing Officer thereafter notes a totally contradictory contention made by the assessee that the cash deposits were in relation to his business transactions and in the absence of any details addition should be restricted to 2-3% of the transactions carried out in bank accounts .The AO also notes the fact that a letter of one M/s. Archar Metal Limited confirming the transactions with assessee as business transactions was also filed.
15. Having noted two contrary contentions of the assessee as above, the Assessing Officer states that, considering all the above, the income of the assessee is to be taxed @ 3% of the total cash deposits treating it as turnover of the assessee.
16. It is clearly evident from the assessment order that after taking both the contrary contentions of the assessee on record – one stating that the transactions did not relate to him and the other stating that the transactions were his own business transactions, the Assessing Officer accepts the other contention of the assessee, but gives no reason for the same. It is obvious and patent from the assessment order that the Assessing Officer made no inquiries vis-à-vis any of the contrary contentions made by the assessee though both admittedly were supported with evidence. In the case of the contention of the assessee that the transactions in the bank account did not relate to him, the Assessing Officer notes the assessee to have filed an affidavit given by the person whom he alleged to have operated the bank account i.e. Shri Bharat Pranlal Popat, admitting the transactions in the said bank account belong to him. With respect to his contention that the transactions were his business transactions, a letter of one M/s. Archar Metal Limited was filed confirming the transactions with the assessee as business transactions. The assessment order finds no mention any inquiry made by the Assessing Officer either with regard to Shri Bharat Popat who owned the transactions to relate to him in his affidavit or with M/s. Archar Metal Limited who contrarily stated the transactions to pertain to the business of the assessee. Even the Ld. Counsel for the assessee was unable to demonstrate any inquiry /investigation carried out by the AO with respect to the contentions made by the assessee before him. There is no doubt, therefore, that the assessment order passed in the present case is without making any necessary inquiries, more particularly when the assessee had given two contrary submissions for the cash transactions in his bank account. The Assessing Officer in his order passed, so much so, gives no reason for accepting one of the contentions of the assessee and rejecting the other. In the face of two patently contrary explanation of the cash deposits in the bank account of the assessee, it was but logical for the AO to have made further inquiries to find out which explanation was true and then arrive at his findings accordingly.
17. We have no hesitation, therefore, in holding that the assessment order passed in the present case is without any application of mind by the Assessing Officer to the submissions made before him and without conducting necessary inquiries before arriving at his findings.
18. We have no hesitation therefore in confirming the order of the Ld. PCIT holding the assessment orders passed in the present case to be erroneous causing prejudice to the Revenue.
19. As for the argument of the ld. Counsel for the assessee that the pendency of appeal before the ld. CIT(A) on the identical issue would debar the exercise of revisionary powers u/s 263 of the Act on the same issue, we find the same is grossly misplaced. The Hon’ble Apex Court in the case of Amritlal Bhogilal & Co. (supra) has held that, during the pendency of appeal before the First Appellate Authority, the theory of merger of the order in appeal with the appellate order passed does not apply. That during pendency of the appeal, the assessment order subsists and is, therefore, amenable to revision. The question before the Hon’ble Apex Court was as under:-
“Whether the order of the Commissioner acting under s. 33B(1) setting aside the order of the Income-tax Officer where an appeal against that order was pending before the Appellate Assistant Commissioner was valid?”
And, the same was answered in favour of the Revenue as under:-
“The case in regard to the subsequent year 1949-50 presents no difficulty. The appeal preferred by the respondent against the Income-tax Officer’s assessment order in respect of this year was pending at the material time before the Appellate Assistant Commissioner; and so no question of merger arose in respect of the order granting renewal of registration for this period. There can be no doubt that even on the theory of merger the pendency of an appeal may put the order under appeal in jeopardy but until the appeal is finally disposed of the said order subsists and is effective in law. It cannot be urged that the mere pendency of an appeal has the effect of suspending the operation of the order under appeal. The High Court, however, appears to have taken the view that the revisional power is an extraordinary power and can be exercised only for unusual and extraordinary reasons. It was also assumed by the High Court that, in the pending appeal, the department would have an alternative remedy because, according to the High Court, the department could have challenged the validity or the propriety of the respondent’s registration and could have asked the Appellate Assistant Commissioner to cancel it. As we have already pointed out, the department could not challenge the validity of the registration order in the assessee’s appeal before the appellate authority and so the argument that the Department had an alternative remedy is not correct. It is clear from the judgment of the High Court that it is the assumption that the department had an alternative remedy which weighed with the learned judges in reaching their final conclusion. Then the argument that the extraordinary revisional power must be exercised only for extraordinary reasons is really not very material. Whether or not the revisional power can be exercised in a given case must be determined solely by reference to the terms of s. 33B itself. Courts would not be justified in imposing additional limitations on the exercise of the said power on hypothetical considerations of policy or the extraordinary nature of the power. We must, therefore, hold that the High Court was also in error in holding that the Commissioner was not authorised in cancelling the order of the respondent’s registration for the year 1949-50. The result is that the view taken by the High Court must be reversed and the first question framed by the tribunal as well as the additional question framed by the High Court must be answered in favour of the appellant.”
20. As for the argument of the ld. Counsel for the assessee that no show-cause notice was given before invoking Explanation 2 to Section 263 of the Act and the reference to the decision of the Hon’ble Apex Court in the case of Shreeji Prints (P) Ltd. (supra), this identical argument has been dealt with by the ITAT, Ahmedabad Bench in the case of Nilay Kumar Bros Jewellers in ITA No.146/Ahd/2022 order dated 11/01/2023 has rejected this contention dealing with the same as under:
“31. Taking up the next argument of the ld.counsel for the assessee that the ld.Pr.CIT had invoked Explanation 2 to section 263 without first confronting the assessee with the same. In this regard, he has drawn our attention to the decision of Hon’ble jurisdictional High Court in the case of Pr.CIT Vs. Shreeji Prints P.Ltd. in Tax Appeal No.828 of 2019 dated 3.2.2020,placed before us in PB Page No.57 to 60 and further decision of Hon’ble Apex Court in the said case upholding the order of jurisdictional High Court reported in 130 taxamnn.com 294.
32. We have gone through the said decisions and are not in agreement with the contentions of the ld.counsel for the assessee. The reason for the same is elaborated below.
33. To understand the import of the argument that the invocation of Explanation 2 to section 263 was to be confronted before being applied, it is necessary to see what Explantion-2 tosection263 is all about. For this purpose, provision of section 263(1) of the Act along with the Explanation2 to the same are reproduced hereunder:
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 [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, [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,–
…. ….. ….. ….
Explanation 2.–For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [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.”
34. As is evident from the above, section 263 empowers Commissioners/ Pr.Commissioners to exercise revisionary power where they find any order passed by the AO to be erroneous so as to cause prejudice to the interest of the Revenue. Explanation 2 to the section lists circumstances in which the assessment order passed will be deemed to be erroneous, which amongst other, includes an order passed without making inquiries or verification which should have been made as per clause (a) of the Explanation, which clause has been invoked by the ld.Pr.CIT in the present case.
35. Having said so, it is but obvious that what Explanation 2 does is only clarify and enlist the circumstances specifically where an assessment order will be deemed to be erroneous. It only explains the scope of the section and clearly by no stretch expands its scope. The import or object of an Explanation was explained by the Hon’ble apex court in the case of Sundaram Pillai v Pattabiraman AIR 1985 SC 582,593 as :
The object of an Explanation has been explained in an earlier case as follows:–
(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,
(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful,
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and
(e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.
Explanations are not substantive provisions and are inserted to clear up any ambiguity in the section. They only clarify an existing law. Normally Explanations do not enlarge the scope of the section but only explain the scope.
Explanation 2 to section 263, clearly provides additional support to the dominant object of section 263, specifically pointing out situations where assessment orders will be deemed to be erroneous. The main provision of the section and its import has not been altered by the explanation. Therefore where section 263 itself has been invoked and the reason for finding the assessment order erroneous clearly pointed out to the assessee during revisionary proceedings to the effect that adequate inquiries were not conducted by the AO on the issue in question , Explanation 2 to section 263 (a) also being to the same effect of assessment orders being deemed to be erroneous on account of lack of adequate inquiry, we see no reason why pointedly the Explanation also needs to be brought to the notice of the assessee while applying it to the case.
36 Once the ld.Pr.CIT brings to the notice of the assessee the reason why he finds the assessment order to be erroneous, which in the present case was inadequate inquiries conducted by the AO on the nature of disclosure made by the assessee during the survey in excess stock found, he need not specifically point out that he has invoked Explanation-2 to sub-clause (a) to the section which is to the same effect of inadequate inquiries conducted qualifying as error in assessment order. The fact that he clearly brings out the reason why he found assessment order erroneous, is sufficient in itself and self-explanatory. It need not to be technically qualified by pointing out the specific clause in respect to which the reason pertained. The entire objectives of confronting anything to the assessee in the process of rendering justice is to offer an opportunity to other party to come up with his/her arguments or contentions in defense. In the present case, it is not disputed that the assessee had been specifically pointed out the error in the order of the AO of non- conducting inquiry relating to the particular issue. The assessee was required to respond to the same, which he did by pointing out that due inquiry was conducted. The fact of mentioning Explanation 2 sub-clause (a) in the notice by the ld.Pr.CIT which dealt with this specific reason or error in the order of the AO of non-conducting of inquiry, therefore, is of no consequence or relevance, since the assessee in very simple words has been confronted with the error. Mentioning of Explanation 2 to sub-clause (a) is therefore only technical addendum to the same. As we mentioned above, the Explanation did not expand the scope of section but only explained the scope of section, and therefore, once the specific section has been invoked, it is not necessary to mention any specific Explanation thereto which has been invoked. Therefore, this contention of the ld.counsel for the assessee is rejected outrightly that the order needs to be set aside for the reason that ld.Pr.CIT did not confront the assessee before invoking Explanation 2 to sub-clause (a) to section 263 of the Act.
37. As for the decision of the jurisdictional High Court in the case of Shreeji Prints (supra), relied upon by the ld.counsel for the assessee in support of this contention, the assessee, we hold, cannot derive any benefit from the same.
38. On going through the decision of the Hon’ble High Court ,we find that the decision is not on the question framed before it whether Explanation to section 263 of the Act can be said to be validly invoked without first confronting it to the assessee. In the case before Hon’ble High Court in the decision relied upon by the Ld.AR, the Revenue had proposed the following questions as substantial question of law before the Hon’ble High Court:
“(a) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is correct in holding that the PCIT was not empowered and entitled to revise assessment order u/s. 263 of the Act r/w Explanation 2 thereto by ignoring that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in as much as the Assessing Officer has passed the assessment order without making inquires/verification in the light of the unsecured loans of Rs. 2.49 Crores received from M/s. Georgette Tradecom Pvt. Ltd (GTPL) and M/s. PurbaAgro Food Pvt. Ltd (PAFPL)?
(b) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is correct in cancelling the impugned order u/s. 263 of the I.T. Act and allowing all the grounds of the Assessee?”
40. The Revenue had challenged the order of the ITAT setting aside the order passed by the ld.Pr.CIT under section 263 of the Act on account of inadequate inquiry made by the AO on unsecured loans received by it from two parties. The question framed before the Hon’ble High Court was therefore whether the ITAT order was correct when adequate inquiries were not made by the AO. The Hon’ble High Court answered the question against the Revenue, noting that the ITAT had given a finding of fact that the AO had made full inquiries in detail and accepted the genuineness of the loans received by the assessee, and such view of the AO was plausible view, and therefore the assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue. Hon’ble High Court held that in view of such finding of the fact arrived at by the Tribunal, no question of law arose and the appeal of the Revenue was accordingly dismissed.
41. At para-5 of the judgment, Hon’ble Court has noted that the Tribunal observed that the ld.Pr.CIT had not mentioned in the show cause notice the invocation of Explanation 2 to section 263 of the Act, though it passed the order invoking the said section and the Tribunal found the order to be not appropriate and sustainable in law.
Para-5, as above, is just a noting by the Hon’ble High Court of the findings of the ITAT while allowing the assesses appeal. We find that it is only on the facts of the case as found by the ITAT that the issues were all duly examined by the AO and the AO had taken plausible view, that Hon’ble Court had upheld order of the Tribunal dismissing the appeal of the Revenue.
42. Thus it is apparent from the above that the decision of the Hon’ble High Court was not to the effect that Expl 2 to section 263 not being confronted to the assessee its invocation was invalid. Neither was the decision rendered in the backdrop of this question before the Hon’ble High Court, nor does the Hon’ble High Court hold so in its order. What is noted in the order to this effect is only its noting of the findings of the ITAT while setting aside the order passed u/s 263 of the Act. Therefore the decision of the Hon’ble jurisdictional High Court cannot be read as holding that order passed u/s 263 of the Act is invalid when Expl to section 263 is invoked without confronting it to the assessee.
43. It is settled law that a precedent is an authority only for what it actually decides and a decision on a question that has not been argued cannot be treated as a precedent. Judgments must be read as a whole and observations in judgements should be considered in the context in which they are made and in the light of the questions that were before the court. The Hon’ble apex court has held so in the case of CIT vs Sun Engineering Works Pvt. Ltd.198 ITR 297 (SC). In the case of Padma Sundra Rao v State of TN 255 ITR 147(SC) the Hon’ble Apex Court had laid down that a ratio laid down by the Court have to be read in the context of the entire facts leading to the said ratio.
44. In view of our elaborate discussion as above, we hold that the assessee cannot derive any benefit from the judgment of Hon’ble High Court in the case of Shreeji Prints P. Ld. (supra), to the effect that non-mentioning of Explanation 2 to section 263 in the show cause notice will render entire revisionary order as non-est in the eyes of law. This contention raised by the ld.counsel for the assessee, is therefore, rejected.”
In view of the same, the other arguments of the ld. Counsel for the assessee are rejected.
21. In effect therefore the order of the ld. PCIT passed u/s 263 of the Act holding the assessment order passed in both the cases before us as erroneous causing prejudice to the Revenue is upheld.
22. In the result, both the appeals of the assessee are dismissed.
Order pronounced in the open Court on 10th April, 2024 at Ahmedabad.