No addition for investment in hundis which were made out from business receipts

Bhandari Hospital and Research Centre (ITAT Indore)

Conclusion: When it was presumed that investment in hundi was bogus in such a situation there was no money available for the investment made by the assessee as such amount surrendered was not available, therefore, this proved that donation was made out of business receipts, which was an allowable expenditure.

Held: During the course of survey undisclosed income was surrendered by assessee through its partners under different heads. Out of the surrendered amount of Rs.31,24,41,685/-, the amount of Rs.23,61,18,930/- was surrendered in the hands of the assessee firm. Subsequently, assessee realized the mistake committed while making statement during the course of survey. Assessee stated that in respect of unaccounted receipts as per LP-02 totaling to Rs. 6,21,25,115/ – (i.e. Rs.6,45,02,010/- -Rs.23,69,425/ ) due to mental stress and lack of rest he forgot to bring to the notice of the authorized officer that unaccounted receipts as per LP-02 were utilized in making the hundi loans and therefore to the extent of unaccounted receipts the hundi loans were explained to be given out of this fund as per flow of undisclosed receipt and hundi loans given and only balance amount of Rs.104374885/ – (166500000-62125115) should be considered as unexplained. With regard to revised unaccounted receipts of Rs. 6,21,25,115/ – assessee claimed in affidavit that there were entries regarding discount allowed of Rs.23,69,425/- and petty cash expenses of Rs.7470/ – and therefore correct amount of unaccounted receipts was stated to be Rs.6,21,25,115/ – rather than Rs.6,45,02,010/- as surrendered during the course of survey as per documents placed on records which were found at the time of survey. Assessee firm had thus revised the total disclosure of surrendered income to Rs.17,16,16,920/ – as against the surrendered undisclosed income of Rs.23,69,425/- made during the course of survey proceedings in respective head. Since, the assessment order passed u/s 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of the revenue on account of failure on the part of AO in making necessary enquiries, the order of AO u/s 143(3) was set-aside and held to be erroneous and prejudicial to the interest of the revenue and AO was directed to pass the fresh assessment order after making proper enquiries on the relevant issue discussed in order u/s 263 after affording sufficient opportunity to assessee. It could be concluded that the maturity amount was available with assessee for making further investment. It was noteworthy that root of addition was the recovery of hundis. In case it was presumed that all the hundis so made were bogus and reflected imaginary figure as assessee failed to furnish confirmation from hundi holders, their identity and PAN etc, in such event only amount would be taxable what the assessee deposited in its bank account. It was held that when there was a maturity of hundi as well as investment in hundis normal corollary would be that the amount invested was out of the money received from maturity of hundis, unless adverse material was brought on record. AO had made necessary enquiry and issue was also scrutinized by the JCIT while passing order u/s 144A thus  when two officers at different stage examined the issue before setting aside these finding  CIT ought to have made some enquiry. If it was presumed that the hundis as recovered during the survey proceedings were not genuine in that situation the amount that was reflected on such hundis could not to be taken as income of the assessee. Therefore, the incidence of tax would be on the unexplained cash deposited in the bank account of the assessee. In this case the amount surrendered by assessee was higher than what it was found to be unexplained cash deposits in its bank account. Therefore there was no infirmity in the order giving set off of the maturity amount. PCIT had not brought any material suggesting that the amounts so surrendered by the partner of the firm was related to proceed of crime. CIT had also observed that AO  failed to make enquiry in respect of year wise investment. No material was placed by assessee  regarding this issue. Thus, when there was claim of investment being made out of unrecorded hospital receipts he ought to have made investigation regarding year wise investment. This observation of the Ld. Pr. CIT was  sustained.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal by the assessee is directed against order of the Pr.CIT-I, Indore dated 30.03.2017 for the A.Y. 2012-13. The assessee has raised following grounds of appeal:

1. THE ORDER U/ S 263 DATED 30.03.2017 IS ILLEGAL, VOID AND WITHOUT JURISDICTION:

1.1 That on the facts and circumstances of the case and in law the order dated 30.3.2017 passed by the Commissioner of Income-tax (CIT), u/s 263 of the Income-tax Act, 1961 (‘the Act’) setting aside the assessment framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio.

1.2 That the AO having allowed the claims of the assessee after making due and specific enquiries and finding a reasonable view on the issues, the order of assessment dated 24.3.2015 cannot be regarded as erroneous in as much as prejudicial to the interest of revenue merely because ld. CIT held a different opinion on the scope of such enquiries.

1.3 That ld. CIT also failed to appreciate that, u/s 263 of the Act, an order of assessment Cannot be set-aside to AO to simply to make further enquiries and thereafter pass fresh order of assessment. Therefore, and as such, impugned order and directions issued u/s 263 are untenable, contrary to law unsustainable.

1.4 On the facts and in the circumstances of the case, the Ld. Commissioner has erred in treating the assessment order as erroneous and prejudicial to the interest of the Revenue on an issue which has been considered, examined and investigated upon during the assessment both by the assessing officer and also by the JCIT while giving his directions u/s 144A

2. NO JUSTIFICATION EITHER IN LAW OR ON FACTS AND THE GROSS ILLGALITY DONE BY THE Ld. CIT IN SETTING ASIDE THE ORDER DATED 24/ 3/ 2015 PASSED BY THE JCIT U/ S 144A. 2.1 That the Ld. CIT has simply set-aside the order dated 24/ 3/ 2015 passed u/s 144A by the JCIT without even pointing out any error in the said order. Since there was no error pointed out in the order u/s 144A therefore the same could not have been set-aside u/s263.

2.2 That the order passed u/s 144A was based on longstanding judicial matrix and the legal principle derived from an order of supreme court and thus without pointing out how the said order u/s 144A is erroneous the same could not have been revised u/s263.

3. NO ERROR IN THE ORDER OF THE AO IN ALLOWING TELESCOPING OF UNDISCLOSED CASH RECEIPTS OF RS. 6,21,25,115 FROM UNDISCLOSED HUNDI LOANS AND HENCE NO JUSTIFICATION EITHER IN LAW OR ON FACTS IN PASSING ORDER U/ S 263 ON THIS ISSUE:

3.1 The AO and JCIT have merely followed accepted principles of taxation in not making addition of both income and investment and thus no error could be attributed to such an approach. Merely because more revenue can be fetched by adding both income as well as investment cannot be a ground to term the order as erroneous.

4. NO ERROR IN THE ORDER OF THE AO IN ALLOWING DEDUCTION U/S 35AC OF RS. 8 CRORE AND HENCE NO JUSTIFICATION EITHER IN LAW OR ON FACTS IN PASSING ORDER U/S 263 ON THIS ISSUE:

4.1 The deduction u/s 35AC was allowed by the AO after calling a commission u/s 131(1)(d) from DDIT(inv)- Jaipur and after obtaining all the information and documents pertaining to the Donee trust and after verifying the genuineness of the said donation and such an order cannot be termed as erroneous and thus this issue could not have been revised u/s 263.

5. NO JUSTIFICATION EITHER IN LAW OR IN FACTS IN EXERCISING JURISIDCTION U/S 263 IN RESPECT OF THE FOLLOWING ITEMS SINCE THERE WAS NO ERROR IN THE ORDER OF THE ASSESSING OFFICER AND THE ORDER IN RESPECT OF THESE ITEMS WAS PASSED AFTER DUE AND SUFFICIENT ENQUIRY :-

(i) Reduction of Rs. 223,76,985 & Rs. 7470 allowed by the AO from surrendered cash receipts.

(ii) Hundi loans of Rs. 10,43,41,885 received back by the assessee during the relevant financial year.

(iii) Year wise investment made by the assessee.

(iv) The angiography receipts of Rs. 1,96,900/ –

(v) To draw profit and loss for the survey period and that for the balance period separately.

(vi) Depreciation claimed @40% on PET CT Scan machine (vii) The TDS on salaries paid to the doctors.

2. The effective ground in this appeal is against the legality and justification of the order dated 30.03.2017 of invoking the provisions of u/s 263 of the Income Tax Act, 1961 hereinafter refer to as the Act, thereby revising the assessment order.

3. By way of this present appeal assessee has challenged correctness and legality of the impugned order passed u/s 263 of the Act.

4. The facts giving rise to present appeal are that a survey operation u/s 133A of the Act was carried out at the business premises of M/s Bhandari Hospital 85 Research Centre on 23.09.2011. During the course of survey undisclosed income amounting to Rs.31,24,41,685/- was surrendered by the assessee through its partners under different heads. Out of the surrendered amount of Rs.31,24,41,685/-, the amount of Rs.23,61,18,930/- was surrendered in the hands of the assessee firm under various heads as details below:

Sr. No.	Name of the assessee	Surrendered Amount (In Rs.)	Heads
1	M/s Bhandari Hospital & Research Centre ( As per statement dated 24.09.11   of partner Shri Vinod      Bhandari  –  on account of Hundites	16,65,00,000/ –	On account of Hundies
2	M/s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	6,45,02,010/ –	On account of suppressed hospital receipts
3	M/s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	51,16,920/ –	On account of bogus  unsecured loans

2.2 Subsequently, the assessee vide affidavit dated 23.01.2012 realized the mistake committed while making statement during the course of survey. The assessee stated that in respect of unaccounted receipts as per LP-02 totaling to Rs. 6,21,25,115/ – (i.e. Rs.6,45,02,010/- -Rs.23,69,425/ ) due to mental stress and lack of rest he forgot to bring to the notice of the authorized officer that unaccounted receipts as per LP-02 were utilized in making the hundi loans and therefore to the extent of unaccounted receipts the hundi loans are explained to be given out of this fund as per flow of undisclosed receipt and hundi loans given and only balance amount of Rs.104374885/ – (166500000-62125115) should be considered as unexplained. It is stated that these documents were found at the time of survey & are part of impounded documents.

2.3 With regard to revised unaccounted receipts of Rs. 6,21,25,115/ – the assessee claimed in affidavit dated 23.01.2012 that there are entries regarding discount allowed of Rs.23,69,425/- and petty cash expenses of Rs.7470/ – and therefore correct amount of unaccounted receipts is stated to be Rs.6,21,25,115/ – rather than Rs.6,45,02,010/- as surrendered during the course of survey as per documents placed on records which were found at the time of survey.

2.4 The assessee firm has thus revised the total disclosure of surrendered income to Rs.17,16,16,920/ – as against the surrendered undisclosed income of Rs.23,69,425/- made during the course of survey proceedings in respective head as under:

Sr. No.	Name of Assessee	Surrendered made during the survey	Revised disclosure as per affidavit (Rs.)
1	M/ s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	16,65,00,000/ –	10,43,74,885/-
2	M/ s Bhandari Hospital & Research   Centre   (As per statement dated 24.09.11 of  partner shri  Vinod Bhandari-   on   account of suppressed receipts)	6,45,02,010/ –	6,21,25,115/‑
3	M/ s Bhandari Hospital & Research   Centre   (As per statement dated 24.09.11 of partner shri Vinod Bhandari-    on   account of bogus unsecured loans)	51,16,920/ –	51,16,920/-

5. Thereafter the case was selected for scrutiny and assessment u/s 143(3) was completed on 24.03.2015 thereby the assessing officer assessed income at Rs. 1,02,63,070/- for the year under appeal. Subsequently, Ld. Pr. CIT after examining of records issued a show cause notice dated 15.01.2015 u/s 263 of the Act calling upon assessee as to why the assessment so framed should not be revised. The relevant contents of the notice dated 15.03.2017 which is reproduced by the Ld. Pr. CIT in his order are as under:

3. The relevant portion of the show cause notice u/s 263 is reproduced as under :-

A. During the survey on 24.09.201 surrender of income was made as under :-

(a) Cash reception per LP-02	6,45,02,010/-·
(b) Unsecured Credit u/s 41(1)	51,16,920/-
(c) Loans against Hundi	16,65,00,000/-
Total	23,61,18,930/-

Then by filing an affidavit on 19.01.2012, the assessee has revised cash receipts to Rs. 6,21,25,1151- and claimed telescoping of this amount against Hundi Loans. So the amount offered was

(a) Cash receipts Rs. 6,21,25,115/ –

(b) Survey credits uls 41(1) Rs. 51,16,9201-

(c) Unexplained Hundi Loans Rs. 10,43,21,885/-

“B. From the record, it is seen that while passing the order u/s 144A, the JCIT has allowed the telescoping of funds of Rs. 6,21,25,1151- against for investment in Hundi loans based on affidavit filed after 4 months. Further the letter of the then A.O. dated 23.02.2012, which is a rebuttal of contentions made in the affidavit has not been taken in to consideration. The telescoping of unaccounted income to Hundi loans has not been examined properly. Moreover, no enquiry has been made in respect of receipt of funds from repayment of Hundi loans.

C. No independent verification of items due to which amount surrendered Rs. 6,45,02,0101- was reduced to Rs. 6,21,25,115 was carried out.

D. The assessee has claimed to have realized the Hundi loans of Rs. 10,43,41,885/- in September to November 2011 and then given the funds to Geetanjali Hospital of Rs 8 Crores in February/ March 2012 and claimed deduction u/s 35 AC of IT Act. The A,O. has. not examined as to whether the Hundi loans was really received back by the assessee during the current year and no enquiry and investigation in this was carried out regarding identity and source of the sais funds from these parties.

E. Further, the A.O. has not examined whether the unaccounted funds generated by the assessee can be utilized to claim deduction u/s 35 AC of LT. Act. The source of unaccounted funds also need examination as one of the partners, Shri Vinod Bhandari was involved in Vyapam case.

F. The A.O. has not examined year wise investment made by the assessee.

G. On perusal of impounded material, it is found that transaction recorded in page no. 8 of LP-02 relating to angiography receipts amounting to Rs 1,96,9001- has not been considered in unaccounted receipts offered for taxation. This issue needs further examination.

H. On perusal of assessment records, it seen that the returned income is for A.Y. 2012- 13 is 94,31,692/ – whereas profit before tax before partners remuneration is as per P& L account is Rs. 3,64,88,334/ -. It may be noted that the above profit includes undisclosed income surrendered during the survey at Rs. 17,17,49,505/ – & deduction of Rs. 8 Cr. claimed u/s 35AC . The assessee included the undisclosed income surrendered under various heads totaling to Rs. 17,17,49,505 1- in the P& L Account itself thereby creating misleading picture of increase in the net profit as compared to the last years. If the surrendered income as well as the deduction claimed u/s 35 AC are excluded the book results would show a net loss of Rs 5,52,61,171 I- on the total receipts of 20,39,86,311/- .

The picture for last 3 nears emeraina there from is as under :-

A.Y.	2010-11		2011-12	2012-13 including income surrendered in survey	2012-13 excluding income surrendered in survey
Total re (A)	7,26,93,557/-		10,58,25,873/-	37,57,35,816/	203986311/-
Other In  (B)	13,94,454/-		26,15,512/-	1,72,96,872/-	1,72,96,872/-
Total expenses	5,16,21,278/-		10,08,49,216/-	31,24,58,762/	23,24,58,762/ – (excluding Rs. 8Cr.)
Depreciation	1,15,1 1,494/-		2,11,23,096/-	4,40,85,592/-	4,40,85,592/-
Profit before remuneration an intere to the partners		1,09,55,23	(1,35,30,926/- )	3,64,88,3341-	(5,52,61,171/-)
Profit after excluding other income & depreciation (O)={A-B+C}		2,10,72,27 49,76,658/-		6,32,77,054/-	(2,84,72,451/-
Profit ratio (D/A)	28.99 %	4.70%	16.84 %	(13.95 %)

It can thus be seen that after excluding the surrendered income there is net loss in the year under question and the profitability declared is not commensurate with what has been in the earlier years. Accordingly a distorted picture of accounts has been presented. To unearth the manipulation in the book results, the AO should have asked the assessee to prepare balance sheet and P&L a/c as on date of survey and then remaining part of the year separately.

I. The hundi loan standing as on date of survey amounting to Rs. 16,66,32,585/ – (revised figure after telescoping) are in fact item of Balance Sheet and the same represents assets of the assessee as on the date of survey and clearly reflects undisclosed income of the assessee in the form of unexplained investments. The same could not be part of P&L account and no income based deductions under chapter IV ‘D’ can be claimed against it.

The AO should have asked the assessee how these hundis were realized and formed part of Income and expenditure account as business receipts against which many expenses have been claimed. By including the same in the P& L a/c the assessee has created a distorted picture..

J. If surrendered income is excluded which is unexplained investment and credits u/s 69 and 68 respectively, there is net business loss amounting to Rs 5,52,61,171/ — and hence, the assessee did not have any positive business income so as to claim deduction u/s 35AC at Rs 8 Crores. The very transaction of giving Rs 8 Crores uls 35AC to some Private Medical University which is the same line of business i.e. running a medical and dental college is highly doubtful transaction more so when the entire amount has been given after the date of survey. At the one hand assessee is incurring interest expenses running in to crores of rupees on various loans and running the hospital on loans taken from banks and various other persons including family members, giving away Rs. 8 crores on charity is beyond all human probabilities. It clearly seems to be ploy to reduce taxability on surrendered income. The issue needs examination from above angle.

K. The Depreciation on PET CT SCAN at Rs. 1,61,00,262/ – has been claimed at higher rate of 40% instead of 15% which has been allowed by the AO without any enquiry.

L. the AO has allowed salary paid amounting to Rs.4,75,90,791/ – without verifying whether TDS as per provisions of the Income Tax was made or not.”

7. In response thereto, the assessee filed its objections against invoking the provisions in the form of written submissions the Ld. Authorised Representative had also made oral arguments against invoking the provisions of Section 263 of the Act Ld. Pr. CIT. However, Ld. Pr. CIT was not satisfied with the submissions and proceeded to revise the assessment order. Hence, the Ld. Pr. CIT set aside the original order passed by the Assessing Officer by observing as under:

20. On perusal of record, it is clear that the enquiry and investigation which were required had not examined properly by the Assessing Officer. In this regard, Explanation-2 of the section 263 is produced as under :

“For the purpose of this section, it is hereby declared 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 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 inquiries into the claim.

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

The above explanation is cl arificatory in nature. Even before it, the orders made without proper enquiry was liable to be revised u/s 263 of LT. Act. Further this explanation exists as on date on which proceedings u/s 263 have been undertaken and is existing law as on date. So it is applicable to present proceedings. It is immaterial that order was passed
u/s 143(3) earlier to 01-04-2015.

As discussed, the proper enquiry has not been made which ought to have been made by AO and AD did not apply mind to relevant issues making the assessment order erroneous and prejudicial to the interest of revenue. In fact similar circumstances regarding repayment of hundi loans addition made in similar case of Dr. Vinod Bhandari has already been confirmed by CIT(A). The order passed u/s 143(3) by AO and order of JCIT u/s 144A dated 24.03.2015 are held to be erroneous and prejudicial to interest of revenue u/s 263 of the I.T. Act and are set aside accordingly.

8. Now the assessee has challenged the order of the Ld. Pr. CIT before this tribunal. Both the parties have filed respective written submissions. Ld. AR of the parties has argued at length.

Submissions of the assessee

I. In para 1 of CIT’s 263 order dated 30.3.2017 it has been stated :

” It is seen that the order passed by the Assessing officer is erroneous and prejudicial to the interest of revenue on account of failure of the assessing officer in making necessary enquiries and it being not as per provisions of the Act.”

Thus the twin reasons ascribed are :

a) failure of the assessing officer in making necessary enquiries

b) it being not as per provisions of the Act.

A. Whether there is failure on the part of the AO in making necessary enquiries :

i. AO issued summons u/s 131 dated 23/ 12/2013 (pg 82 & 83 of paper book) wherein categorically the AO has sought books of accounts, accounting of tax effect of survey operations in the books, any significant change in expenditure, affidavit in retraction of admission made during survey is an attempt of avoid incidence of taxation.

ii. Reply in response to summons u/s 131 was filed by the assessee on 3.1.2014 (page 84-106 of paper book) and it was submitted that out of surrendered amount of Rs. 23,37,49,505 only an amount of Rs. 6,20,00,000 has not been offered for tax as the same has been claimed as telescoping against Hundi loans. It was submitted that the income from Hospital receipts has been used to make Hundis’ and since income of Rs. 6,21,32,585 is already offered for tax as undisclosed receipts and since the same income which has been used to make Hundis therefore Hundis’ of Rs. 6,21,32,585 cannot be taxed again and thus the surrendered Hundi’s have been reduced by Rs. 6,21,32,585. The ledger accounts of all the Hundis’ and their realisation were filed with the letter dated 3.1.2014.

iii. The assessee further submitted a comparison chart of expenses for three years (pg 86 to 90 of paper book) explaining all expenses as % of gross receipts and giving detailed notes in cases of variations.

iv. The assessee also filed the details of donation given to Gitanjali University Trust which was claimed u/s 35AC. The relevant Forms no. 58A prescribed under rule 11-0 were duly filed (pages 101- 106 of paper book)

v. It was also informed that the factum of recovery of Hundi loans and their consequent deposit in the Bank account was duly informed to the AO vide letter dated 9th April 2012 (page 107 of paper book). The undisclosed receipts of Hospital which was used to advance loan against Hundis’ along with names of the Hundi debtors was duly filed (page 93 to 96 of paper book)

vi. Following order sheet query was given by the AO on 3/1/2014

vii. On 8/ 1/2014 the case was thereafter transferred to another AO u/s 127 who then issued notice u/s 142(1) on 29/ 7/ 2014. (copy of this notice is on pages 108-109 of the paper book). This was a comprehensive notice requiring compliance of various issues.

viii. Reply was filed by the assessee on 12.8.2014 (placed on page 110- 116 of the apper book) with all relevant information running into annexure of 938 pages.

ix. On 15/ 1/ 2015 another notice u/s 142(1) was issued by the AO (pg 117 of the paper book) requiring the assessee to produce the books of accounts and other related documents, registers vouchers etc.

x. In reply filed on 22/ I/ 2015 (page 118 of the paper book) the assessee filed books of accounts in CD. All other compliances except vouchers and registers were also filed- 36 pages in total . For vouchers and registers 1 weeks’ time was sought.

xi. The assessee filed reply date 29/ I/ 2015 in continuation to the earlier reply ( page 154- 155 of paper book) wherein hard copies of books of accounts and confirmations of loans and reconciliation of 26AS was filed. Total 109 pages were filed alongwith this reply.

xii. On 29/ I/ 2015 following order sheet query was raised by the AO :

………

xiii) Reply was filed by the assessee on 3/ 2/ 2015 (pg 261- 264 of the paper book) wherein all the details were duly filed.

The annexure to this reply (pg 265-266 of the paper book) showed hundi loans of Rrs. 6,20,00,000 were made utilizing the unaccounted hospital receipts.

Forms no. 58A issued under Rule 11-0 of Income tax Rules issued by M/s Gitanjali University were placed on record (page 267- 272 of the paper book). These forms showed the manner of utilization of the Cumulative donations received by the university as well as the donation received from the assessee and the utilization as per the approval of National Committee u/s 35AC.

The IT Return of M/s Gitanjali University for AY 2011-12 was placed (on page no. 273-282 of the paper book) with the audited final accounts. The PAN card of the said university (on page 282 of the paper book)was placed on record. The certificate of receipt of donation issued by the said University (on page 284 of the paper book) was also placed. The bank statement of the said university (on page 285-286 of the paper book) was also placed on record. A letter dated 12.1.2012 issued by the said university requesting for donation and acknowledgement thereof (on page 287-288 of the paper book) was also placed on record. The IT certificate issued by Government of India Ministry of Finance on 16.6.2011 in favour of Gitanjali University authorizing receipt of donations u/s 35AC (on page 290-293 of paper book) was also filed. Notification dated 14.6.2011 issued by GOI Ministry of finance u/s 35AC (page 297 of the paper book) was also placed on record.

xiv. On 18/ 2/ 2015 reply was filed (page 551-552 of the paper book) by the assessee explaining the reasons for paying donation to Gitanjai University trust.

xv. Copies of ledger accounts of Doctors visiting fee paid, operation theatre expenses, open heart expenses, drug and medicine expenses were duly filed (pages 300-536 of paper book) with vouchers thereof . The doctors visit fee account shows the fee and the TDS deducted thereon. The details of TDS deposited was duly filed (page 115-116 of the paper book). It was categorically informed to the AO that details are enclosed at pg no. 750-764 of the said reply and copy of form 26AS is enclosed. ( bottom of page 115 reverse side of paper book).

xvi. Details of all additions to fixed assets was given to the AO (pg. 112-113 reverse side of paper boot) and vouchers were filed.

xvii. A commission u/s 131(1)(d) was issued by the AO to DDIT (Inv)-1, Udaipur to investigate the done M/ s Geetangaji Trust. The said information was received by the AO from DDIT(Inv)-Jaipur on II/ 2/ 2015 with the necessary documents and no adverse report was given by the DDIT(Inv)-Jaipur (page 21 of the assessment order ). This was then verified by the AO.

xviii. Subsequently on 17/ 3/ 2015 the assessee filed an application (page 538 to 540 of paper book) before the JCIT u/s 144A regarding the set-off of undisclosed receipts from hundi loans and the donation of 35AC. With this application cash book showing the receipts of Rs. 6.20 crores and evidences of payment of expenditure u/s 35AC were also filed.

xix. On 19/ 3/ 2015 during the course of hearing before the JCIT detailed submissions were filed showing justification for set-off of receipts of Rs. 6,21,32,585 against Hundi loans. Copies of ledger of 41 Hundi persons, interest earned ledger and copies of hundies were duly filed (page 573 to 660 of paper book).

xx. During the course of filing reply on 19/ 3/ 2015 the details of FIR (page 553 reverse side) filed against Dr. Bhandari were duly explained to the AO. Copies of FIR filed against Dr. Bhandari was also filed (page 556-557 of paper book) .

xxi. The JCIT vide its order dated 24/3/2015 directed the AO to grant set-off of undisclosed receipts from hundli loans as the same is mandated by Supreme Court in 123 ITR 457(SC) and other decisions. In respect of deduction u/s 35AC the JCIT directed the AO to allow the deduction if the assessee follows the conditions as provided in the Income-tax Act. (page 17 to 20 of the Assessment Order)

xxii. The AO passed the order u/s 143(3) following the directions of JCIT and the documents on record and allowed set-off of Rs. 62125115 from the hundi loans and also allowed deduction u/s 35AC of Rs 8 crore.

xxiii. In these circumstances the order passed u/s 143(3) was after due enquiry, verification and based on applicable decisions and direction of JCIT u/s 144A. The reason for reducing the addition from 6,45,02,010 to Rs. 6,21,25,115 was also considered by the JCIT( page 91 of the paper book is the seized paper showing the undisclosed receipts and expenses therefrom)Such an order cannot be said to be erroneous or prejudicial to the interest of revenue merely because the CIT was enquiry to be further conducted as per his wises and his satisfaction.

B. Whether the order of the AO and JCIT was not in accordance with law. ?

1. Due verification was done as is evident from the sequence extracted in point A above.

2. The reduction of 6,45,02,010 by 23,76,985 was evident from the seized page (placed on page 93 of paper book) itself which contained both debit and credit entries and thus the debit of rs. 23,76,985 on that page was reduced from the credit of 6,45,02,010 and the net figure of Rs. 6,21, 25,115 was offered for taxation. This aspect was duly considered by the JCIT in his order.

3. The reduction of Hundi amount from Rs. 16,65,00,000 to 10,43,21,885 was allowed by the AO and JCIT after considering that unaccounted receipts of Rs 6,21,25,115 separately offered for tax was allowable as set-off as both income and investment could not be added. This was done by the JCIT after considering the judicial pronouncements.

4. Deduction u/s 35AC by way of donation to Gitanjali Trust was evidenced by certificate/ Form/ Notification/IT Return/ Confirmation and independent enquiry u/s 131(1)(d) by the AO.

5. JCIT and the AO were made aware of FIR against Dr. Bhandari and the factum of Vyapam case involving Rs. 50 lacs alleged on-money. This did not in any manner covers the case of the present company and Dr. Bhandari’s case was being assessed separately. The CIT did not mention or enquire as to how this Vyapam case prejudices the interest of revenue in case of assessment of pvt. Ltd. Company which is quite distinct and separate from an individual.

6. The income surrendered during the survey of Rs.17.17 crores was separately disclosed as ” Income disclosed during Survey proceedings u/ s133(A) under Sub-head “B” of the schedule H to the audited profit and loss account (pg. 78 of paper book), distinguished and separated from Income from Hospitalisation under sub-head “A”. The AO had on his record the entire copy of balance sheet and profit and loss account with schedules and notes thereon. The AO had made detailed examination of books of accounts and had done a comparative analysis of three years. Further in response to the AO’s summons u/ s 131 the Assessee had submitted on 3/ I/ 2014 , (copy enclosed as page no 86-90 of paper book) comparative figures of A.Y. 2012-13 of each expense head forming part of Direct expenses and finance /interest expense and other expenses as compared to expenses under the same heads in previous 2 years. Detailed notes on variations were explained. The AO after such a detailed examination found the matter of variation of business profit as percentage of business receipts for the A. Y.2012-13 as satisfactorily explained.

There is one more element to this. The CIT while computing the ratios taken out the total receipts the surrendered Hospital receipts of Rs.6.2 1 crores surrendered as current year income during survey. This Income was acknowledged on the basis of documents seized as business Income / receipts for the current year and should have been added to the Hospital receipts for computing the ratios. If this Income is considered as part of the total Hospital receipts then the position would be as under:-

A.Y.	2010-11	2011-12	2012-13  including  Income surrendered in survey	2012- 13, After excluding surrendered Income other than surrendered Hospital receipts  in the total receipts)
Total    receipts (A)	7,26,93,557	1,05,82,587	37,57,35,816	26,61,18,896
Other Income (B)	13,94,454	26,15,512	1,72,96,872	1,72,96,872
Total Expenses	5,16,21,278	10,08,49,216	31,24,58,762	23,24,58,762
Depreciation (C)	1,15,11,494	2,11,23,096	4,40,85,592	4,40,85,592
Profit before  remuneration                      and interest to  the partners	1,09,55,238	-1,35,30,926	3,64,88,334	68,71,414
Profit  after  excluding other income& depreciation (D)={A-B+C}	2, 10,72,278	49,76,658	6,32, 77,054	3, 36,60,134
Profit ratio (D/ A)	28.99%	4.70%	16.84%	12.65%

Consequently the profit ratio is positive and is better than the immediately preceding year.

7. The deprecation on PET CTSCAN at Rs. 1,61,00,262/ – has been rightly claimed at higher rate of 40% instead of 15% PET C.T. Scan is a diagonastic equipment used for diagonasis of cancer in bodies of patients by using non -invasive scanning techniques.

The Claim is justified in view of following.

I. The PET CT Scan Machine is nothing but an advance type of “SPECT Gamma Camera” specified in Sub Clause (f) of clause 3(xia) of New Appendix -I to Rule 5 of the Income Tax Act 1961. Please refer to the definition of SPECT Gamma Camera and PET Scanner as per Wikipedia extracted below.

Imaging techniques[edit/

SPECT (single photon emission computed tomography) imaging, as used in nuclear cardiac stress testing, is performed using gamma cameras. Usually one, two or three detectors or heads, are slowly rotated around the patient’s torso.

Multi-headed gamma cameras can also be used for Positron emission tomography (PET) scanning, provided that their hardware and software can be configured to detect “coincidences” (near simultaneous events on 2 different heads). Gamma camera PET is markedly inferior to PET imaging with a purpose designed PET scanner, as the scintillator crystal has poor sensitivity for the high-energy annihilation photons, and the detector area is significantly smaller. However, given the low cost of a gamma camera and its additional flexibility compared to a dedicated PET scanner, this technique is useful where the expense and resource implications of a PET scanner cannot be justified.

Reference	Held
ACTT vs. Bharat Scans P Ltd. (2014) 39 CCH 0272 ChenTrib  (2014) 31 ITR (Trib) 0103  (Chennai), (2014)  65 SOT 0138  (Chennai) ((URO)	Held, nature and use of PET/ CT scan shows that it not only helps in detecting cancer but also in treating cancer by making   a proper assessment of condition of patient and thus  a  very  medical equipment—PET/CT  scan  was entitled for higher rate of depreciation at 40 percent—Order of CIT(A) was upheld

The AO had duly taken and examined the fixed asset chart as well depreciation thereon as is evident from the query letter dated 29/ 7/ 2014 (pg 108) and details filed by the assessee. Moreover the CIT did not record any categorical finding the the depreciation is 15% and not 40% which is a prerequisite to send the matter back to the AO.

Judicial precedents relied upon by the assessee to show that the order u/ s 263 deserves to be quashed.:
Reliance is placed on the following decisions (copies being filed):-

a. Cadila Pharmacuticals ltd. v. PCIT (ITA no. 1190/ Ahd/ 2015 (placed on pg 1 to 10 of paper book of decisions)

b. Madhusudhan Industries Ltd. v. CIT Ahd-II (ITA no. 853/ Ahd/ 2013 placed on pg 13 to 22 of paper book of decisions)

c. (2017) 30 ITJ 335 (MP) PCIT v. Narayan Balmukund Dubey (placed at page no. 23 to 35 of paper book of decisions)

d. (2013) 357 ITR 388( Delhi) DIT v. Jyoti Foundation (placed at page no. 36 to 43 of paper book of decisions)

e. (2004) 270 ITR 157 (MP) CIT v. Mahrotra Bros (placed at page no. 43 to 44 of paper book of decisions)

f. (2010) 344 ITR 554 (Delhi) CIT v. International Travel House (placed at page no. 45 to 51 of paper book of decisions)

g. (2012) 343 ITR 329 (Delhi) ITO v. DG Housing Projects ltd. (placed at page no. 52 to 59 of paper book of decisions)

h. M/ s Amira Pure Foods Pvt. Ltd. v. PCIT [ITA No.355/Ind/2017] [Bhandari Hospital & Research Centre] (ITA no. 451/ del/ 2017 placed at pg 60-96 )

i. Narayan Tatu Rane v. ITO (ITA no. 2690/Mum/ 2016 placed at pg 97-117) Other decisions relied upon- copies not being filed

a. CIT v/s. Software Consultants 341 ITR 240 (Del.)

b. CIT v/s. Anil Corporation 213 Taxmann 19

c. CIT v/s. Sunbeam Auto Ltd. 332 ITR 167 (Del.)

d. CIT v/s. Makal Suta Cotton Co. P. Ltd. 275 ITR 54(M.P)

e. CIT v/s R.K. Construction Co., 313 ITR 65 (Guj.)

f. CIT v/s Max India, 295 ITR 282 (SC)

g. CIT v/s Ratlam Coal Ash Co., 171 ITR 141 (M.P)

h. CIT v/s Arvind Jewellers, 259 ITR 502 (Guj.)

i. CIT v/s Vodafone Essar South Ltd, 212 Taxmann 184 (Del.)

j. CIT v/s Shri Govindram Seksariya Cahrity Trust, 166 ITR 580 (M.P)

k. Hari Iron Trading Co. v/s CIT, 263 ITR 437 (P&H)

1. CIT v/s HARI Singh & Associates, 267 CTR 442 (Raj.)

m. 335 ITR 83, CIT vs. Anil Kumar Sharma (Delhi),

m. 341 ITR 537 (Delhi), CIT vs. Vikas Polymers

o. 343 ITR 342, CIT vs. Hero Auto Ltd. (Delhi H. C.),

p. 111 ITR 326, J.P. Srivastava & Sons Vs. CIT, (Allhd. H.C)

q. 320 ITR 674, CIT vs. Ashish Rajpal (Delhi H. C.). At

r. 323 ITR 632, CIT vs. Design and Automation Engineers (Bombay) P. Ltd. (Bombay H.C.), of

s. 323 ITR 206, CIT vs. Development Credit Bank Ltd.

t. 243 ITR 83, Malabar Industrial Co. Ltd. Vs. CIT, (Supreme Court)

u. 203 ITR 108 CIT Vs. Gabriel India Ltd., (Bombay H.C.)

Elaborating on the aforesaid decisions :

4.1 On the question regarding examination of validity of issuance of notice, assumption of jurisdiction and passing of impugned order u/ s 263 of the Act, the appellant is placing reliance on the decision of Hon’ble Supreme Court in the case of Malabar Industries Co. Vs. CIT (243 ITR 83) and submits that as per 263 of the Act it is clear that the pre requisite to exercise of jurisdiction by the Commissioner is that the order of the AO, in question, is erroneous in so far as it is prejudicial to the interest of the Revenue and the commissioner has to be satisfied with twin conditions, namely, (i) the order sought to be revised is erroneous; and (ii) prejudicial to the interest of the Revenue. The appellant further submits that when the 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 AO has taken one view with which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue unless the view taken by the AO is unsustainable in law and the same is found to be passed without application of mind.

4.2 Further, placing reliance on the decision of the Hon’ble Gujrat High Court in the case of CIT Vs. Arvind Jewellers (259 ITR 502) the appellant submits that where the relevant material was on record which was duly considered by the AO and a reasonable and sustainable view was taken then merely because different view can be taken, should not have been the basis for invoking the revisionary powers under the section 263 of the Act. The appellant further contends that when a regular assessment is made u/s 143(3) of the Act, a presumption must be drawn that the order has been passed upon an application of mind and the Commissioner has to rebut such presumption with the support of some cogent material to show that the AO had not applied his mind while passing the assessment order. That where the AO adopts one of the courses permissible in law or where two views are possible and the AO has taken one of the possible views then the commissioner cannot exercise his powers under section 263 of the Act to differ with the view taken by the AO, even if there has been a loss of Revenue.

4.3 The appellant contends that all the facts were submitted before the AO replying to the queries of the AO during assessment proceeding and the AO adjudicated his queries after considering the explanation, replies and documents. Hence, the AO had made a detailed inquiry about the issues which the CIT now wants to re-examine. Further the AO also sought guidance from the Additional Commissioner u/s 144A before allowing the claim of set-off to the assessee. That in the light of above exercise and detailed enquiry conducted by the AO prior to allowing the set-off and deduction to the assessee, the Ld. CIT was not correct in holding that the AO passed assessment order without making proper enquiry and without application of mind and the same was erroneous and prejudicial to the interest of the Revenue.

4.4. Placing reliance on the decision of Hon’ble Gauhati High Court in the case of Bongaigaon Refinery and Petro Chemicals Ltd. vs. Union of India (287 ITR 120), the appellant submits that the error in the order of the Assessing Officer and resultant prejudice to the interest of Revenue are twin factors to coexist for conferring authority on the commissioner to invoke powers u/s 263 of the Act.

Merely entertaining a different view from the one adopted by the AO, which is plausible and reasonable, would not clothe the Commissioner with power to revise or interfere u/s 263 of the Act. Further, placing reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs. Gabriel India Ltd. (203 ITR 108), the appellant submits that if the AO, while framing assessment in accordance with law, makes certain assessment, then the same cannot be branded as erroneous unless it is not in accordance with law, by the Commissioner simply because, according to him, i.e. the Commissioner, the order should have been written more elaborately, as the section 263 of the Act does not allow substitution of the order of the AO for that of the commissioner. Reliance is also placed on the ratio of the decision of the Hon’ble Supreme Court in the case of CIT vs. Max India Ltd. (295 ITR 282) wherein it was held that since different views existed on the day when the Commissioner passed the order and the mechanics of that section had become so complicated over the years, the subsequent amendment of section 80 HHC of the Act, even though retrospective, would not be attracted. In this case Hon’ble Apex Court, referring and reiterating the ratio laid down in its earlier order in the case of Malabar Industries Ltd. (243 ITR 83), has held that where two views are possible and the AO has taken one view in the assessment order with which the commissioner does not agree, then the same cannot be termed as an erroneous order prejudicial to the interest of revenue unless the view taken by the AO is “unsustainable” in law.

4.5 The appellant further relies on the judgment of Hon’ble Delhi High Court in the case of CIT vs. DLF Ltd. (2013) 350 ITR 555 (Delhi), decision of Hon’ble Andhra Pradesh High Court in the case of Spectra shares and Scrips Put. Ltd. (2013) 354 ITR 35(AP) and decision of Hon’ble Calcutta High Court in the case of CIT vs. J.L. Morrison (India) Ltd. (2014) 366 ITR 593 (cal.) and submitted that there should be an essential element of “unsustainability” in the order of the AO, and not mere prejudicial to the interest of the Revenue or a mere erroneous view, which can be revised u/s 263 of the Act. 92.

4.6 The appellant relies on the decision of Hon’ble High Court of Delhi in the case of Globus Infocum Ltd. vs. CIT 369 ITR 14 (Delhi) and submitted that under section 263 of the Act, the Commissioner should take a final decision and not merely set aside the assessment order to be made afresh de novo and remanding the matter for fresh examination is not permissible as the commissioner must reach to a conclusion and finding that final finding in assessment order was erroneous and incorrect.

4.7 The appellant submits that perusal of the assessment order, paper book and the note-sheet of the assessment proceedings would show that the AO has raised several queries by way of note sheet entries and notices. The assessee submitted various relevant documents. It is also pertinent to mention that the AO adjudicated the issue of queries and replies in regard to said claim by passing a detailed order. Further the note sheet entries clearly shows the deliberations between the AO and the assessee company on all the issues and adjudication by the AO which was further guided by order u/s 144A. Thus by no stretch of imagination this can be termed as a case of lack of inquiry or even inadequate inquiry.

4.8 In the case of CIT vs. Gabriel India Ltd. (203 ITR 108), the Hon’ble Bombay High Court has held that the power u/s 263 (1) of the Act is in the nature of supervisory jurisdiction and can be exercised only if the circumstances must exist to enable the Commissioner to exercise power of revision subsection (1) of section 263 of the Act viz. (i) the order should be erroneous; and (ii) by virtue of the order being erroneous and prejudicial to the interest of the revenue. Speaking for Hon’ble Bombay High Court, their Lordships held that an order cannot be termed as erroneous unless it is not in accordance with law and if the AO, acting in accordance with law makes certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to CIT, the order should have been written more elaborately. Their Lordships further went on to hold that there must be some prima facie material on record to show that the tax which was lawfully eligible has not been imposed.

4.9. In the present case, the AO has raised a number of queries regarding the issues now sought to be revised by the CIT which were replied by the assessee through detailed submissions supported by relevant documents and other evidence coupled with legal propositions and decisions. It is also pertinent to note that the AO has passed a detailed order / note sheet entry while dealing and adjudication the issues. There must be some prima facie material on the record to show that the order is unsustainable in law and the tax which was legally eligible has not been imposed. The present case is neither a case of “no enquiry” nor is a case where the AO, failed to make necessary enquiry and the assessment order was passed after making detailed inquiry and application of mind.

4.10 The appellant also relies on the ratio of the decision of Hon’ble High Court of Delhi in the case of CIT vs. DLF Ltd. (2013) 350 ITR 555 (Delhi) and submits that it is not mere prejudice to the Revenue or a mere erroneous view which can be revised u/s 263 of the Act
but also there should be the element of “unsustainability” in the order of the assessing officer, which empowers the commissioner to issue notice and to proceed to pass an appropriate order. That Hon’ble High Court has held as under (at page 562) :

“In this case, the record reveals that the Assessing Officer had issued notice, and held proceedings on several dates (of hearing) before proceeding to frame the assessment. He added nearly Rs. 2 crores to the income at that time. The Commissioner took the view that the assessment order disclosed an error, in that the deduction under sectionl4 A had not been made. Now, while the statutory direction to the Assessing Officer to calculate, proportionately, the expenditure which an assessee may incur to obtain the dividend income, for purposes of disallowance, cannot be lost sight of, equally, such a requirement has to be viewed in the context and circumstances of each given case. In the present case, it was repeatedly emphasized that the assessee’s dividend income was confined to what it received from investment made in a sister concern, and that only one dividend warrant was received. These facts, in the opinion of this court, were material, and had been given weightage by the Tribunal in its impugned order. There is no dispute that the investment to the sister concern, was not questioned; even the Commissioner has not sought to undermine this aspect. Equally, there is no material to say that apart from that single dividend warrant, any other dividend income was received. Furthermore, there is nothing on record to say that the assessee had to expend effort, or specially allocate resources to keep track of its investments, especially dividend yielding ones. In these circumstances, it can be said that whether the deduction under section 14A was warranted, was a debatable fact. In any event, even if it were not debatable, the error by the Assessing Officer is not “unsustainable”. Possibly he could have taken another view; yet, that he did not do so, would not render his opinion an unsustainable one, warranting exercise of section 263.”

4.11. The appellant is also placing reliance on the decision of Hon’ble Gujarat High Court in the case of Arvind Jewellers (259 ITR 502) wherein it was held thus :

“Held, that the finding of fact by the Tribunal was that the assessee had produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the act and after considering the material and explanations, the Income-tax Officer had come to a definite conclusion. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that different view can be taken
should not be the basis for an action under section 263. The order of revision was not justified.”

Hence, as per the preposition and ratio laid down by Hon’ble Gujarat High Court is that when the assessee had produced relevant material and offered explanation in pursuance of notices u/s 143(2) and 142(1) of the Act and after considering the material and explanations, the AO had come to a definite conclusion. Their Lordship further held that in this situation, since the material was there on record and the said material was considered by the AO and a particular view was taken, the mere fact that a different view can be taken should not be the basis for a valid action u/s 263 of the Act and therefore, dismissing the appeal of the revenue the Hon’ble High Court held that the order u/s 263 of the Act was not justified and valid.

4.12. The appellant also relies on the preposition laid by High Court of Allahabad in the judgment passed in the case of CIT vs. Shiv Prasad (2011) 12 Taxmann. com 118 (All.) and submits that the proceedings u/s 263 of the act can only be taken in case if the assessment order is found to be erroneous and prejudicial to the interest of the Revenue and if one condition does not exist the revisional powers u/s 263 can not be exercised. The appellant further submits that as per ratio of the judgment of Hon’ble High Court of Allahabad in the case of CIT vs. Goyal Private Family specific Trust (1988) 171 ITR 698 (All.) in absence of specific findings that the assessment order was erroneous the cancellation of assessment was not justified.

4.13. It is further contended that there was no finding or adjudication by the Commissioner and his observations were based on mere suspicion and uncertain. The appellant relies on the decision of Hon’ble High Court Delhi in the case of Globus Infocom Ltd. vs. CIT (369 ITR 14) wherein it was held thus :

” Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/ inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order

unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/ issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/ question.

17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/ inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/ additional material/ evidence to show and state that the order of the Assessing Officer is erroneous.

18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase “prejudicial to the interest of 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.”

4.14 The appellant also relies on the judgment of Rajasthan High Court in the case of CIT Vs. Deepak Real State Developers (I) P. Ltd. (2014) 367 ITR 377 (Raj.) and submits that where the Commissioner did neither reject the documents or records to be irrelevant, nor lacking in their probative worth and he simply remanded the matter to the Assessing Officer observing that these ought out to have been laid before the AO and should be examined at the time of assessment then it was held that the order of revision u/ s 263 of the Act was not valid.

4.15. The appellant further relies on the decision of High Court of Delhi in the case of CIT vs. Hotz Industries Ltd. (2014) 49 Taxmann. Com.267 (Delhi) and contends that once inquiries were conducted and a decision was recorded by the AO, it cannot be said that it was a case of “no inquiry” and the commissioner must reach to a finding that the finding recorded by the AO was erroneous, not because no inquiries were conducted, but because final conclusion in the assessment order was wrong and untenable or unsustainable in law. The relevant operative para of this order is reads as follows :

“Commissioner in the order under Section 263 did not go into the said question on merits, but observed that the “Assessing Officer it appears” ad not caused any inquiries or investigation, but accepted the contention of the assessee. Commissioner observed, “therefore, meaningful inquiry should be conducted”. This does not meet the requirement that the decision of the Assessing Officer should be erroneous. Once inquiries were conducted and a decision was reached by the Assessing Officer, it cannot be said that it was a case of no inquiry. In such cases, the Commissioner must reach a finding that the finding of the Assessing Officer was erroneous, not because no inquiries were conducted, but because the final finding was wrong and untenable.”

1. Conclusion/ Prayer :

In view of the aforesaid submissions on facts and in law, it is submitted the view taken by the AO, while granting passing the assessment order took a reasonable and plausible view which cannot be held as legally unsustainable and not in accordance with law and also being passed without application of mind.

It is thus prayed that the impugned notice and order of Ld. CIT is not valid and void ab initio.

It is prayed that on threadbare analysis of operative part of the impugned order, as discussed herein above, this Hon’ble Tribunal be pleased to hold that the Ld. CIT has not conclusively decided the issue with a conclusion in one way or the other and has left it midway, which covers this case in favour of the assessee by the judgment of Hon’ble Delhi High Court in the case of Globus Infocum Ltd. vs. CIT (369 ITR 14).

In view of the facts of the case and the relevant provisions of the Act, this Hon’ble Tribunal be pleased to hold that the assumption of Jurisdiction to issue notice to the assessee u/s 263 of the Act (supra) and to set aside the assessment order and in setting aside the order u/s 144A, by passing the impugned order u/s 263 of the Act was not valid and the same was void ab initio. Hence, the notice issued by the Ld. CIT u/s 263 of the Act, impugned order without any conclusive findings, setting aside and revising the assessment order to be reframed de novo and setting aside the order u/s 144A and all subsequent proceedings conducted and orders, if any, passed in pursuance thereto deserve to be quashed.

Case Laws:

In the Case of Cadila Pharmaceuticals Ltd v Pr CIT. Ahmedabad Hon’ble Tribunal Ahemedabad Bench held that:

Para 4.1. In the light of aforementioned judicial pronouncement, it can be inferred that the assessment order is not erroneous. Moreover, it is undisputed fact that the Assessing Officer raised a specific query and reached to a conclusion that method adopted by the assessee has not caused any prejudicial to the Revenue since there is no understatement of closing stock This conclusion of A.0 is not absurd or erroneous. Therefore, the exercise of Jurisdiction uls.263 of the Act by Id. Pro CIT fails. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT reported at (2000) 243 ITR 83 (SC) has held that the CIT has to be satisfied of twin conditions, namely, (i) the order of the A a sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, if the order of the TTO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to s.263(1).

Para 4.2. It is not pointed out by the Id. Pr. CIT as to what prejudice has caused to the Revenue. In the absence of specific finding by the ITA No.11901Ahd12015 Cadila Pharmaceuticals Ltd. vs. Pr. CIT Asst. Year- 2009-10 – 10 -ld.Pr. CIT, we cannot confirm his order revising the assessment order. Therefore, in our considered view twin conditions as laid down in Section 263 of the Act, i. e. order being erroneous so far it is prejudicial to the interest of Revenue are not satisfied. Under these facts, we are unable to sustain the findings of Id. Pro CIT, same are hereby quashed. Therefore, the impugned order is set aside and quashed. Thus, grounds raised in the appeal are allowed.

In the case of Madhusudan Industries Ltd. v. CIT Ahmedabad-II Hon’ble Tribunal Ahmedabad Bench has held that

6.1. We find that ld.CIT has not considered these submissions of the assessee and has not adverted to the same. It is a settled proposition of law that provisions of section 263 of the Act can be invoked by the Commissioner if he found from the records that the assessment order is erroneous and prejudicial ITA No.853/Ahd/2013 Madhusudan Industries Ltd. vs. CIT-II Asst. Year – 2008-09 to the interest of the Revenue. In the present case, the assessee has explained to the ld. CIT that the assessee-company has been continuously treating the interest income as ‘income from business’. It was also submitted on this aspect that the AO has made enquiry and in response to the query of the AO, a detailed reply was submitted and the AO on the basis of reply treated as the ‘interest income’ as ‘business income’ as has been done in earlier years. This fact is borne out of the records that the reply was submitted by the assessee- company submitting therein the details of loans and advances and interest income received from such loans and advances treated as business income of the company. The CIT has not applied his mind on the submissions made by the assessee-company. The Hon’ble Apex Court in the case of CIT vs. M/s.Excel Industries Ltd. has followed the decision of the Privy Counsel reported at 1926 AC 155 (PC in the case of Hoystead vs. Commissioner of Taxation, wherein it was held as under:-

“Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.”

6.2. In the present case, the Revenue has been accepting the claim of the assessee, the income earned by way of interest income as a business income. It is not stated by the ld. CIT as to how the stand taken by the Revenue for earlier years was not correct and the AO taking a consistent view and order so passed was erroneous. We find that ld.CIT has not exercised his jurisdiction u/s.263 of the Act in accordance with the settled principle of law. Ld.CIT has failed to ITA No.853/Ahd/2013 Madhusudan Industries Ltd. vs. CIT-II Asst. Year – 2008-09 consider the submissions of the assessee on both the aspects and has merely based its order on the basis that the AO has not made any enquiry. However, it is transpired from the records that the AO has, in fact, made enquiry and issued questionnaire to the assessee and in response to the questionnaire, the assessee has submitted that the interest income has been treated as “business income” through out which was accepted by the AO. The Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd.(supra) examined the entire law on this issue, wherein the Hon’ble High Court has held “a distinction must be drawn in the cases where the AO does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not”. Similar view has been expressed by the Hon’ble Delhi High Court in a recent decision rendered in the case of Director of Income-tax vs. Jyoti Foundation reported at (2013) 357 ITR 388 (Delhi). The Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT (200) 243 ITR 83 (SC) has held that the CIT 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 one of them is absent, if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to s. 263(1). In the present case, the Revenue has failed to demonstrate that these two conditions are ITA No.853/Ahd/2013 Madhusudan Industries Ltd. vs. CIT-II Asst. Year – 2008-09 satisfied. Therefore, in our considered view, there was no occasion to invoke the provisions of section 263 of the Act. The Ld.CIT is not justified in exercising revisonary jurisdiction under the facts and circumstances of the present case. The case laws relied upon by the Revenue would not apply on the facts of the present case. As in this case, the assessee has been consistently claiming the income earned by way of interest as business income, the AO has made enquiry by way of questionnaire and assessee has given reply thereof. The AO has applied his mind under the facts and circumstances, therefore the assessment order is not vitiated on the ground that the order is erroneous and prejudicial to the interests of the Revenue, because no enquiry has been done. Therefore, the impugned order is hereby quashed being unjustified.

In the case of Pr. CIT vs. Narayan Balmukund Dubey (2017) 30 ITJ 335(MP) Hon’ble jurisdictional High Court held that

Para 7. The aforesaid finding of facts arrived at bye’ establishes that there is a proper enquiry conducted assessing officer and it is not a case where no enquiry a conducted by the assessing officer. Not only this, the assessee has furnished all the requisite information to the Income Tax Officer and considering all the facts, the assessment was completed.

i) Para 8. This Court in the case of Commissioner, Income Tax Vs. Ratlam Coal Ash Co., reported in 171 ITR 141 of Madhya Pradesh in paragraph Nos.2 and 3 has held as under:- 2. The material facts giving rise to this reference, briefly, are as follows: a On examination of the income-tax record of the assessee, the Commissioner of Income-tax found that in the return filed by the assessee for the assessment year 1976-77, the assessee had shown a total income of Rs. 26,324. The Commissioner of Income-tax noted that as against the income shown in the return, the Income tax Officer framed an assessment on a total income of Rs. 35,000 just two days after the return was filed, without ascertaining as to how the amount of total income was arrived at. The Commissioner of Income-tax considered that as the Income-tax Officer failed to make proper enquiry both as regards the receipt of Rs. 73,500 and the expenses of Rs. 44,873 shown by the assessee, the order passed by the Income-tax Officer was prejudicial to the interests of the Revenue. The Commissioner of Income-tax accordingly issued a notice to the assessee under Sec ‘on 263 0 (hereinafter referred to assessee appeared before the Commissioner a —e ed tha the order of the Inco e- – • e eld o be erroneous and reju . . – e teres s of the Revenue as to confer ” tisaic “on on he Commissioner of Income-tax to pass an order under Section 263 of the Act. It was contended that all the details were furnished and the relevant documents were produced by the assessee at the time of assessment, that the books of account were also produced and that the Income tax Officer had passed the order of assessment after proper enquiry and after application of his mind. The Commissioner of Income tax, after taking into consideration the explanation of the assessee, held that the Income-tax Officer had framed the assessment in a hurry, without any proper enquiry and as such it was prejudicial to the interests of the Revenue. The Commissioner of Income-tax, therefore, set aside the order passed by the Income-tax Officer and directed the Income-tax Officer to make a fresh assessment according to law. Aggrieved by the order passed by the Commissioner of Income-tax, the assessee preferred an appeal before the Tribunal. The Tribunal held that the Commissioner of Income-tax, in his order, had failed to specify as to how the order passed by the Income-tax Officer could be held to be prejudicial to the interests of the Revenue. The Tribunal further held that the proceedings under Section 263 of the Act could not be held to have been rightly initiated. The Tribunal, therefore, allowed the appeal preferred by the assessee. Aggrieved by the order passed by the Tribunal, the Revenue submitted an application for making a reference but that application was rejected. The Revenue thereupon submitted an application under Section 256(2) of the Act before this court which was allowed. That is how the aforesaid question of law has been referred to this court for its opinion.

3. Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and in favour of the assessee. It is well settled that where the Income-tax Officer made the assessment in undue hurry, accepting what the assessee stated in the return without making any enquiries, in the circumstances of the case, the Commissioner would be justified in holding the order of the Income-tax Officer to be erroneous. In the instant case, however, Tribunal has found that the assessee had furnished all the requisite information and that the income tax officer considering all the facts had completed the assessment. The tribunal further held that in the circumstances of the case, it could not be held that the income tax officer had made the assessment without making proper enquiries. In view of these finding findings, the Tribunal, in our opinion, was justified in law in reversing the order passed by the Commissioner

In the case of Director of Income tax v Jyoti Foundation 1(2013) 357 ITR 355 (Delhi)] Hon’ble Court held that

Para 5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Limited (supra), the inquiry should have been conducted by the Commissioner or Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order an directed the Assessing Officer to conduct the said inquiry.

ii) In the case of Commissioner of Income Tax v Ratlam Coal Ash Co J(1988) 171 ITR 141 (M.P)7 Honible Jurisdictional High Court held that

Para3. Having heard the learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and in favour of the assessee. It is well settled that where the ITO made the assessment in under hurry, accepting what the assessee stated in the return without making any enquiries in the circumstances of the case, the Commissioner would be justified in holding the order of the ITO to the erroneous. In the instant case, however, the Tribunal has found that the assessee had furnished all the requisite information and that the ITO considering all the facts and completed the assessment. The Tribunal further held that in the circumstances of the case, it could not be held that the ITO had made assessment without making proper enquiries. In view of these finding, the Tribunal in our opinion, was justified in law in reversing the order passed by the Commissioner.

In the case of Commissioner of Income Tax vs. Mehrotra Brothers (2004) 270 ITR 157 (MP) Honible Jurisdictional High Court held that

Para We have considered the citations relied on by both the parties and concluded that when the assessee has furnished requisite information and the Income-tax Officer has .considered the records before him and completed the assessment after considering the evidence filed and after his satisfaction about the genuineness of cash credits, the order of revision under Section 263 on vague ground that the Assessing Officer did not make proper enquiry is not valid (CIT v. Ratlam Coal Ash Co. [1988] 171 ITR 141 (MP)). The assessee furnished GIR/PAN number, address, confirmation from the creditors, the assessee has discharged the burden to prove the genuineness of parties and transaction in addition to the capacity satisfactorily as such there is no ground for addition (Addl. CIT v. Hanuman Agarwal [1985] 151 ITR 150 (Patna)). In this regard the Department also has not brought any material to disprove the genuineness of the parties, capacity of the lenders and transactions on the basis of cogent facts on record. The hon’ble Supreme Court in the case of CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (headnote) : ‘Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit worthy. There was no effort made to pursue the so called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence.’

In the case of Commissioner of Income Tax , Delhi vs. International Travel House Ltd. Honible Court held that

Para 19. If the obtaining factual matrix is fested on the anvil of the aforesaid pronouncement of law. It is quite clear that the Commissioner has really made an effort to cause a routine inquiry with regard to the matter that had already been concluded. The Commissioner, as it appears, has thought that he has the authority to begin a fresh litigation because of the view entertained by him. The aforesaid inexhaustible approach is not permissible. He as required to arrive at a definite conclusion but he had not done so.

In the case of Income Tax Officer v. D.G. Housing Projects ltd. (2012) 343 ITR 329 (Delhi) Honible Court held that

In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the

Assessing Officer was erroneous. The finding recorded by the CIT is that “order passed by the Assessing Officer may be erroneous”. The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondents computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is “erroneous”. The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.

M/s Amira Pure Foods Pvt. ltd. v Pr. CIT central Gurgaon Hon’ble Tribunal held that

The Id PCIT has not referred to Explanation 2 of section 263 of the Act which has been inserted with effect from 01.06.2015 however we agree with the finding of the coordinate bench in the case of Narayan Tatu Rane (supra), wherein it has been held that Explanation cannot said to have overridden the law as interpreted by the various High Courts, where the High Courts have held that before reaching a conclusion that the order of the AO is erroneous and prejudicial to the interest of revenue, the Commissioner himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of revenue. In the case of Narayan Rane a doubt is also expressed regarding the applicability of Explanation 2, which was inserted by Finance Act 2015 w.e.f. 01.06.2015, the bench also observed that if the Explanation is interpreted to have overridden the law as laid down by various High Courts, then the same would empower the Pr. CIT to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the Pr. CIT, thus prejudicing ITA No. 3205/DEL/2017 the mind of the AO, however, the intention of the legislature behind the explanation could not have been so as the same would lead to unending litigation and no finality in the legal proceedings.

In the case of M/s Narayan Tatu Rane vs. ITO Ward 27 (1)(1) Mumbai Hon’ble Tribunal held that

The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon’ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon’ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd Vs. ITO (1977)(106 ITR 1) that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-cl-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is

the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquiries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.

Submissions of the Revenue

The assessment, in this case was completed U/S 143(3) of LT. Act 1961, on 24/03/2015 and the direction of JCIT U/S 144A of IT Act are also dated 24.03.2015. The CIT-I, Indore, on perusal of record had considered the assessment so passed by A.O. as erroneous and prejudicial to the interest of revenue as the A.O. has failed to carry out necessary and required inquiries.
The basis on which the assessment has been found erroneous and prejudicial to the interest of revenue.

(1) In a survey conducted by the department under section 133 A of IT Act, 1961, the appellant had made disclosure of Rs. 23.61 which was reduced to 17.40 crores as per affidavit filed on 19.01.2012 which is filed after 4 months of survey date. This revision was allowed without conducting proper inquires and without application of mind.

(2) The deduction claimed u/s 35AC of IT Act was accepted without conducting required inquiries as can be seen from the assessment order.

(3) The A.O. has failed to appreciate and examine the fact that one of the partner, Sh. Vinod Bhandari, has been main accused in Vyapam scam and there are allegation of earning of crores of rupees in the scam. Therefore, it was imperative and mandated on the part of A.O. to examine the source of unaccounted founds utilized to claim deduction u/s 35 AC of IT Act 1961.

(4) The A.O. had failed even to consider and examine the documents impounded during survey u/s 133A of IT Act which is evident from the fact that an amount of Rs. 1,96,900/ – on account of angiography was not at all taken in to account while passing the order.

(5) The A.O. has failed to make analysis of year wise investment. Further the A.O. has failed to note and bring on record that after the surrendered income and deduction u/s 35AC are excluded, there will be net loss of 5.52 crores as analyzed b CIT at page 2 of order U/S 263 of IT Act. The gross manipulation in the profits after and before survey was lost sight by A.O. which necessitated CIT -1 to invoke section 263 of IT Act.

(6) I request Hon’ble members to take note of queries raised at 1 to K of show cause which mandated the A.O. to conduct proper inquiries before completing the assessment order.

(7) It is also borne out of record that the A.O. has simply accepted the reply of appellant dated 23.02.2012 without verifying and further examining the contentions raised therein.

(8) The rebuttal of A.O. of the contents of affidavits dated 19.01.2012 retracting the part of surrendered income needs attention of Hon’ble members which is duly reproduced by CIT-1 at page No 12 (para 7.2) of order u/s 263 of IT Act, which makes the assessment order as self contradictory.

(9) The A.O. has logically and through cogent reasons rebutted the plea for retraction. But in assessment order, no such findings place. (9) The A.O. and JCIT have failed to examine whether the Hundi loans of Rs. 10.43 crores was really received by the appellant during current year. I request Hon’ble bench to kindly take note of CIT’s finding at para 9 (page 15) of the order u/s 263 of IT Act, besides detailed discussion at page 16 to 21 of the order.

In view of above facts brought out in the order u/s 263 of CIT and further detailed analysis and rebuttal of replies of appellant, it is more than evident that assessment order dated 24.03.2015 and directions of JCIT u/s 144A dated 24.03.2015 were based on no inquiries, inadequate inquiries and non application of mind on the part of both JCIT and A.O. The required inquiries are mandated upon the A.O. before the assessment is finalized and claims of appellants are admitted. The assessment order has to contain clearly the findings of inquiries.

A number of decisions of Hon’ble Apex Court, High Court, and Tribunals have been relied upon and the copies of decisions have been filed with the Hon’ble bench, which support the view of the department that lack of inquiry, inadequate inquiry, admission of claim without supporting material and no discussion in the assessment order are sufficient and good reasons for invoking section 263 of IT Act 1961 by the CIT. The list of cases

along with the gist of decisions replied upon are herebu filed.

S. No.	CASE LAW	Reported
1	Malabar Industrial Co. Ltd. Vis Commissioner of Income Tax	243 ITR 83 (SC)
2.	Smt. Taradevi Aggrawal Vis Commissioner of Income Tax	88 ITR 323 (SC)
3	Rampyaridevi Saraogi Vis Commissioner of Income Tax	67 ITR 84 (SC)
4	Commissioner of Income Tax Vis Nagesh Knitwears Pvt. Ltd	345 ITR 135 (Delhi HC)
5	Gee Vee Enterprises Vis Addl. Commissioner of Income Tax	99 ITR 375 (Delhi HC)
6	Bhushan Steel Ltd. Vis Asstt. Commissioner of Income Tax	IT AT A –ench Delhi
7	Commissioner of Income-tax v.Deepak Kumar Garg	299 ITR 435 (Madhya Pradesh)
8	Commissioner of Income-tax v. Mahavar Traders	220 ITR 167 (Madhya Pradesh)
9.	Smt. Renu Gupta v. Commissioner of Income-tax	301            R 45 (Rajasthan)
10	PT. Lashkari Ram v. Commissioner of Income-tax	272 ITR 309 (Allahabad)
11	Commissioner of Income-tax,  Patiala v. Himachal Pradesh  Financial Corpn.	186 Taxman 105 (Himachal Pradesh)
12	Commissioner of income tax V/s Prafulla C.Pant And Dharam Veer JJ	176 Taxman 184 (Uttrakhand)
11	Mofussil Warehouse & Trading Co. Ltd.V/s Commissioner Of Income tax	238 ITR 867 (Madras)
14	Durgalal & Co. Vis Commissioner Of Income tax	220 ITR 456 (Delhi)
15	Commissioner of Income tax Vis Active Traders (P) Ltd.	214 TTR583 (Calcutta)
16	Addl.Commissioner Of Income tax Vis Mukur Corporation	III ITR 312 (Gujarat)

2. Further reliance is here by placed or following decisions of Supreme Court, High Courts and Tribunal, the list and gist of decisions are submitted now.

1	CIT V/s Amitabh Bachan	Civil Appeal No. 5009 of 2016
2	CIT V/s Bhagwan Das	272 ITR 367 (Allahabad)
3	Shubhlakshmi Vanijya (P) Ltd. V/s CIT-1	172 TTJ 721 (Kalkata)
4	Jublee Commotrade
5	Novapan       India Ltd.         vs Collector of Central Excise	3556 of 1984 (SC)
6	Rajmandir Estates Pvt. Ltd. vs PCIT -III	GA No 509 of2016 (HC) Kalkata
7	(1)P.G. Infrastructure & Service Pvt. Ltd. (2)  S.N. Vijaywargiya (3) People’s International Service P. Ltd. Bhopal	ITA No 607 to 609 (Indore)
8	M/s Crompton Greaves Vis CIT -6 Mumbai	IT AT C Bench Mumbai

Note: The case laws at serial no. 5 and 8 have been relied upon for invoking exception/ exemption and retrospective application of Explanation 2 to section 263 of IT Act 1961.

3. In the case of Malabar Industrial Co. Ltd., Hon’ble Supreme Court (243 ITR 83- SC) held that where A.O. had accepted the entry in the statement of account in the absence of supporting material, without making any inquiry, the exercise of jurisdiction by CIT under section 263(1) was justified. In this case the damages received by the appellate in lieu of agriculture income was wrongly allowed by the A.O. as agricultural income when the same was finally treated as income from other source. The operative part of decision is as under.

In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appeared that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous was irresistible. Therefore, the High Court had rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified.

It was shown at any stage of the proceedings that the amount in question was fixed or quantified as loss of agricultural income and, admittedly, it was not so found by the Tribunal. The further question whether it would be agricultural income within the meaning of section 2 (IA) did not arise for consideration. It was evident from the order of the High Court that the findings recorded by the Tribunal that the appellant stopped agricultural operation in November 1982 and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before it Thought the High Court was not correct in holding that the amount was paid for breach of contract as indeed it was paid in modification/ relaxation of the terms of the contract, it was to be held that the High Court was justified in concluding that the said amount was a taxable receipt under the head ‘Income from other sources’.

4. In a recent decision of Hon ‘We Apex court in the case Shri Amitabh Bachan, (CIVIL APPEAL NO.5009 OF 2016 [Arising out of S.L.P.(C) No.11621 of 2009]) while dealing with issue of requirement of issuing specific notice u/ s 263 of LT. Act, has comprehensively dealt with this issue of “lack of inquiry” and “inadequate inquiry” by the A.O. and held that CIT was perfectly justified in invoking section 263 of Income Tax Act when A.O. had dropped the inquiries once the additional expenses claimed in the revised ROI were withdrawn despite issue of notice U/ S 69C of Income Tax Act. It was contended on behalf of Mr. Bachan that the A.O. had taken the possible view and CIT was not supposed to substitute his view particularly in view of the facts that the additional expenses claimed through revised ROI were withdrawn. It was held by the Hon’ble/ Apex Court that making claim and subsequently withdrawing the same gives rise to necessity of further inquiry. In the instant case under consideration, the A.O. has omitted to take note of vital facts like abnormal increase in sell price of land, agriculture activity, agricultural Income, nature of business and legality of maintaining two portfolios and allowed the exemption claimed by the appellant without application of mind. The gist of decision of Hon’ble Supreme court in the case of Shri Amitabh Bachan is as under:-

There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned CIT on the 3 (2000) 243 ITR 83 (SC) 4 (2007) 295 ITR 282 (SC) 22 basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/ withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned CIT was perfectly justified in coming to his conclusions insofar as the issue No. (iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion.

In the light of the discussions that have preceded and for the reasons alluded we are of the opinion that the present is a fit case for exercise of the suo mote revisional powers of the learned CLT under Section 263 of the Act. The order of the learned CLT., therefore, is restored and those of the learned Tribunal dated 28th August, 2007 and the High 23 Court dated 7th August, 2008 are set aside. The appeal of the Revenue is allowed.

5.In the case of Rampyari Devi Saraogi, Hon’ble Supreme court, (67 ITR 84 SC) held that CIT was justified in invoking section 263 of LT. Act 1961 as the ITO had accepted the initial capital. Ornaments and presents received at the time of marriage and other gifts from father-in-law without making any inquiry. Further it was held that it was not necessary to further detail the reasons given by the CIT because on the facts of record, the orders were prejudicial to the interest of revenue. The decision of Hon’ble High Court dismissing the WP filed by the assessee against the order of CIT was dismissed. The relevant part of decision is as under.-
The High Court was right in overruling the contention of the assessee. The order of the Commissioner was a detailed order. There was no doubt that he did mention some facts which were not indicated or communicated to the assessee and which the assessee had had no opportunity of meeting.

The High Court was right in holding that all this material was supporting material and did not constitute the basis grounds on which the orders under section 33B were passed by the Commissioner. There was ample material to show that the ITO made the assessments in undue hurry. The assessee was a new assessee and filed voluntary returns in respect of a number of years, i.e. .from assessment years 1952-53 to 1960-61. The return for the assessment year 1953-54 was undated. The returns for the assessment years 1952-53 and 1957-58 was dated 21.03.1961 , and those for the assessment years 1958-59 to 1960-61, were dated 26.04.1961. On 21.03.1961, the assessee made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in-law, etc., which should have any ITO on his guard. But the ITO without making any enquiries to satisfy himself passed the assessment order on30.03.1961, for assessment years 1952-53 to 1957-58, and on 26.04.1961, for the assessment years 1958-59 to 1960- 61. No bank account or any proper books of account were maintained by the assessee or produced before the ITO. A short stereotyped assessment order was made for each assessment year. Profit from speculation was shown as Rs. 3,085 and interest Rs. 600, and Rs. 500 was added for want of books of account and evidence. No evidence whatsoever was produced in respect of the money-tending business done and interest income shown to have been received by the assessee. No names were given as to the parties to whom the loans were advanced, with amounts and rate of interest and as to when the interest income was received.

It was not necessary to further detail the reasons given by the Commissioner because on the face of the record the orders were prejudicial to interest of the revenue, and even if the facts which the Commissioner introduced regarding the enquiries made by him had been indicated to the assessee, the result would have been the same. The assessee, had not in any way suffered from the failure of the Commissioner to indicate the results of the enquiries. Moreover, the assessee would have full opportunity of showing to the ITO whether he had jurisdiction or not and whether the income assessed in the assessment orders which were originally passed was correct or not. The appeal was liable to be dismissed and decision of High Court was to be affirmed.

6. The jurisdictional MP High Court, in the case of Mahaver Trader, (220 ITR 167 Madhya Pradesh) while setting aside the order of IT AT held that ITO had not examined the issue of allowability of deduction us 80HH and 80J in the light of conditions laid down for grant of relief under said sections. Further, it was observed by the Hon’ble court that the Tribunal instead of approaching the matter in the proper perspective had on their own started making enquiries and found that order passed by A.a. was correct which was not warranted at all. The operative part of decision is reproduced here under:-

Tribunal, instead of approaching the matter in the proper perspective, have on their own started making enquiries and found that the order passed by the Income-tax Officer is correct This approach of the Tribunal was not warranted at all, After going through the order of the Income-tax Officer, it appears that the Income-tax Officer has not examined the matter in the light of the conditions laid down for grant of relief under sections 80HH and 8 01 Certain conditions have been laid down in both the sections and the Income-tax Officer should have examined the assessee on-the basis of the conditions and thereafter recorded the finding whether they are entitled to the benefit of section 80HH or 80J. But, instead of this, the Income-tax Officer only proceeded to assess the liability of the assessee and that was not the correct approach. The Income-tax Officer should have examined the matter in the light of the conditions mentioned in both the sections before granting relief We are of the opinion that the Commissioner of Income-tax has not given any finding, but only remanded the case back to the Income-tax Officer for reassessment after complying with the conditions laid down for grant of benefit under sections 80HH and 80J. Therefore, the finding recorded by the Tribunal appears to be not correct because all the materials which ought to have been utilised by the Income tax Officer were not there and it is not understandable that how the Tribunal have on . their own, assessed the situation. Therefore, we are of the opinion that the view taken by the Tribunal is not correct and we answer the aforesaid question in favour of the Revenue and against the assessee. The Income-tax Officer may examine the matter afresh in the light of the decision of the Commissioner of Income-tax without taking notice of any adverse observations, if any, made by the Commissioner of Income-tax.

Similarly, Hon’ble jurisdictional MP High Court in the case of Deepak Kuma Garg (299 ITR 435 Madhya Pradesh) upheld the order of CIT passed under section 263 of Income Tax Act, 1961, for the reasons that the A.O. had done semblance of inquiry that too in snap shod manner and accepted the version of assessee without proper inquiry causing loss of substantial taxable income. The gist of decision is reproduced as under:-

In the case in hand, after hearing the authorised representative, the Commissioner has recorded a clear finding that the order of the Assessing Officer was erroneous as well as prejudicial to the interests of the Revenue. From the order of the Assessing Officer, it is clear that for want of time, the Assessing Officer had done only a semblance of enquiry and that too, in a very slipshod manner, as is clear from the post script in the order of the Assessing Officer. The Assessing Officer accepted the version of the assessee without proper enquiry and as a result a substantial amount of taxable income was not brought to tax. In such a case the assessment order would be erroneous and prejudicial to the interests of the Revenue because law enjoins upon the Assessing Officer to make the assessment order bringing all taxable income to tax. The enquiry held in a perfunctory manner could not be said to be a proper enquiry before passing the assessment order. This cannot be a ground to shut out the jurisdiction of the Commissioner of Income-tax that an adequate enquiry was conducted by the Assessing Officer. We may clarify that the order of the Commissioner of In come-tax is in two parts. Part one consists of reasons for issuing the show-cause notice, and the later part deals with findings recorded by the Commissioner after affording opportunity of hearing to the assessee. As stated above, the Commissioner of Income-tax has recorded a categorical finding that the order of the Assessing Officer for want of adequate enquiry, was erroneous and prejudicial to the interests of the Revenue and after setting aside the assessment order, remanded the matter to the Assessing Officer for fresh assessment on the merits. The Commissioner of Income-tax also directed the Assessing Officer to observe rules of natural justice and to provide opportunity of hearing to the assessee before making fresh assessment order on the merits. This adequately safeguards the interest of the assessee and would cause no prejudice. It seems that the Income-tax Appellate Tribunal was carried away by the first part of the order of the Commissioner of Income-tax as a result the later part of the order escaped from the notice of the Tribunal and the Income-tax Appellate Tribunal branded the order of the Commissioner of Income-tax as based upon probabilities, surmises and conjectures.

8. In a recent decision, in the case of Rajmandir Estate Pvt. Ltd., Hon’ble Kolkata High Court, (GA No. 509 of 2016 with ITAT No. 113 of 2016) had upheld the order of CIT passed u/s 263 of Income tax Act. In this case, the AO had passed the assessment order u/s 143(3) read with section 148 of income tax Act 1961. There was a huge increase in share capital by way of share premium. The AO had called for various details pertaining to increase in share capital and reserve and surpluses on account of issue of 7,92,737 shares of Rs. 10 each at a premium of Rs. 390-. The AO had also conducted the enquiries from share subscribers u/s 133(6) of Income tax Act 1961 and most of the 39 applicants responded and the appellant had even filed complete details and sources of these companies for making share subscription. However the CIT had invoked the section 263 of Income Tax Act 1961 for the reasons that the AO had not conducted the requisite enquiry and had not applied mind. Therefore the order of AO was considered as erroneous and prejudicial to the interest of revenue. The Hon’ble Tribunal confirmed the view of CIT in setting aside the order of AO. The appellant preferred in appeal before. Hon’ble Kolkata High Court wherein the following question were found arising in the appeal.

(a) Whether in the light of the views expressed in the case of Lovely Exports (supra) & Steller Investment (supra) the order under section 263 directing further investigation is legal?

(b) Whether the order passed by the assessing officer under section 143(3) / 147 of the Income Tax Act is erroneous and also prejudicial to the interest of the revenue?

Both the above mentioned question were answered in affirmative by Hon’ble Court and held as under:

“The assessee with an authorised share capital of &. 1.36 crores raised nearly a sum of Rs.32 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under Section 68of the Income Tax Act if the source of the receipt is not satisfactorily established by the assessee. Reference in this regard may be made to the judgment in the case of Sumati Dayal -Vs- CIT (supra) wherein Their Lordships held that any sum ‘found credited in the books of the assessee for any previous year, the same may be charged to income tax …. “. We are unable to accept the submission that any further investigation is futile ‘because the money was received on capital account: The Special Bench in the case of Sophia Finance Ltd. (supra) opined that “the use of the words “any sum found credited in the books” in Section 68indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of CIT -Vs- Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of CIT -Vs- Precision Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that “the ITO may even be justified in trying to ascertain the source of depositor”. Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct.. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgment in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy.

ii. The judgment in the case of Omar Salary Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspicion held that this was or could be a case of money laundering. We as a matter of fact have discussed this issue in great detail and need not reiterate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the assessing officer. It is true that the assessing officer had requisitioned the necessary details by his notice u/ s. 142(1) but he thereafter did not apply his mind thereto. The judgment in the case of J. L. Morrison (India) Ltd. has no manner of application because in that case the question essentially was whether the receipt was of a capital or revenue nature. The facts and circumstances were not in dispute. Moreover the view taken by the assessing officer was not shown nor was held by the Court to be an erroneous view. Whereas in this case we have demonstrated in some detail as to why is the order of the assessing officer erroneous and prejudicial to the revenue. “

9. The High Court of Allahabad, in the case of Bhagwan Das (272 ITR 367- Allahabad) has held that where the A.O. has not examined the agricultural income and its exemption, the order has been passed without application of mind and when there was no discussion of relevant issue in the assessment order, the CIT was held justified in setting aside the order of A.O. for granting exemption to the assessee without application of mind. It was held as under:

Having heard the learned counsel for the revenue, we find that in the assessment order, there is no discussion regarding the question as to whether the amount of income shown by the assessee which is being claimed to be exempt has actually been earned by him or not and, further, whether the entire amount of income from Agriculture and Poultry farming is exempt from tax. The Commissioner of Income-tax has rightly initiated proceedings under section 263 of the Act as exemption has been granted without any application of mind. The Apex Court in the case of Malabar Indus trial Co. Ltd. (supra) while interpreting section 263 of the Act held as follows “A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or fit is not erroneous but is prejudicial to the revenue recourse cannot be had to section 263(1) of the Act.

There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.” {Emphasis supplied] (p. 87)  Thus an order, which has been passed without application of mind, will also fall under the expression erroneous and prejudicial to the interest of Revenue. Since the Income tax Officer has granted exemption to the assessee in respect of income from agriculture and poultry farming without any discussion and without any application of mind, respectfully following the aforesaid decision, we are of the opinion that the Tribunal had committed error in holding that the assessment ordering so far as it grant ed exemption to income from Agriculture and Poultry farming was not erroneous or prejudicial to the interest of Revenue. We, therefore, answer the question referred to us in the negative, i.e., in favour of the Revenue and against the assessee. Since nobody has put in appearance on behalf of the assessee, there shall be no order as to costs.

10. In case of Bhushan Steel, Hon’ble ITAT A Bench Delhi, (ITA No 1641 to 1646IDe1J2014) observed that CIT was within hi powers to set aside the order of A.O. where, the A.O. had allowed the expenses debited to P 85 L account without proper inquiries although during the course of search in Bhushan group and survey in other cases, it was noticed that Bhushan group has been inflating expenses and various parties were used for the said purpose. It has been held as under:-

In view of foregoing discussions, we are inclined to hold that the present case is squarely covered in favour of the revenue by the decisions of Hon ‘We Jurisdictional High Court of Delhi in the case of Gee Vee Enterprises vs ACIT (supra) and CIT vs Nagesh Knitwears P. Ltd. (supra) as in the present case, the AO did not raise any query or make any inquiry pertaining to the claim of expenses submitted by the assessee in its books and statements of accounts submitted along with return and this is a clear case of “lack of inquiry”. We may also point out that if the AO fails to conduct the said investigation, he commits the error and the word “erroneous” includes failure to make inquiry. In such cases, the order becomes erroneous because necessary inquiry or verification has not been made and not because a wrong order has been passed on merits. We further hold that if from the detailed investigation conducted by ITA No. 1641 to 1646IDell2014 AY: 2006-07 to 2010-11 the Investigation Wing of the department, it is revealed that the bogus expenses have been claimed by the assessee with the intention to reduce its tax liability, then the order is also prejudicial to the interest of revenue. The argument of the ld. Counsel of the assessee about revenue neutrality is not applicable to the facts an circumstances of the present case.

In the case of ITO vs Ch. Atchaiah (1996) 218ITR 239(SC), speaking for Hon’ble Apex Court their lordships held as followst- “In our opinion, the contention urged by Dr. Gauri Shankar merits acceptance. We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By “right person”, we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression “wrong person” is obviously used as the opposite of the expression “right person”. Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This Bhushan Steel Ltd., New Delhi vs Assessee on 30 March, 2015 Indian Kanoon – http:// indiankanoon.org/ docl164679238/ 11 is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Section 183 shows that where Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law, but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer (Income Tax Officer) has taxed the said income in the hands of another person contrary to law.” ITA No. 1641 to 16461Del12014 AY: 2006-07 to 2010-11.

Therefore, it is well-settled principle that the Revenue authorities are duty bound to tax right person and right person alone. By “right person” is meant the person who is liable to be taxed, according to law, with respect to a particular income. The meaning of “wrong person” is obviously used as the opposite of the expression “right person”. In our humble understanding, the ratio of this decision clarifies that merely because of a wrong person is taxed with respect to a particular income, the AO is not precluded from taxing the right person with respect to that income. Same is the case here when assessee company made a bogus claim of expenditure then the assessee cannot avail immunity from tax liability by stating that the impugned amount of expenditure claim has been taxed in the hands of respective payee companies 11. In a landmark decision in the case of Subhlakshmi Vanijya (P) Ltd. B Bench of Kalkata ITAT. (60 taxmann.com 60 (Kolkata – Trib.), the decision of CIT in setting aside the order of A.O. was upheld. In this case, the appellant issued fresh share capital of 14.72 Lakhs at a premium of7.21 crores. The A.O. obtained all the required documents and issued notices to 8 subscribes out of 21 u/ s 133(6) of IT Act 1961 and on the basis of details filed and confirmations received from subscribers, the A.O. proceeded to accept the explanation of assessee and completed the assessment with nominal addition of Rs. 28,049/- . The CIT invoked the section 263 of IT Act 1961 and set aside the order for the reasons that proper enquiry was not carried out by the A.O. and directed the A.O. to make fresh assessment after conducting independent, detailed and complete inquiries of subscription and share premium. The Hon’ble IT AT confirmed the decision of CIT with the observation that “inadequate inquiry” falls in the category of “No inquiry” which results in to making the order us erroneous and prejudicial to the interest of revenue. The

relevant part of decision is as under:

“Whether the enquiry conducted by the Assessing Officer in such cases can be as a proper enquiry? “

Though the Assessing Officer issued notices under section133(6) but it failed to comprehend the rationale or logic behind issuing shares at such a high premium, nor to examine any of the directors of the companies which were subscribers to share capital It is highly improbable for any person having sound mind to purchase at arm’s length the shares of a private limited company, hardly having any worth, with face value of Rs. 10 at a premium of Rs. 190. This mere fact should have been cornerstone for the Assessing Officer to embark upon further enquiry to unearth the truth. The genuineness of transactions of issue of share at such hefty premium in this background of the matter was under dark cloud and it skipped the attention of the Assessing Officer. [Para I 7.c.J Upon analysis of the business model of the assessee it was noted that shareholder companies of one company become invested companies of other companies and in turn, such later company, whose shares are purchased, further invest in the shares of other companies, so on and so forth. This is a striking example of circulation of capital from one company to another and the rotation is continuing in all the companies under consideration. It cannot be a sheer coincidence that hundreds of companies brought into existence, having link with each other and none of them doing any worthwhile business activity, come together to issue shares at such a huge premium. At best, this argument could have been taken into consideration if these companies had issued shares to its related companies at premium and invested the proceeds in some other business activity and not purchasing the shares of other related companies through such a circular route. This shows that the transactions of issuing shares at a premium to related companies and then purchasing the shares of other related companies at a huge market price and none of the companies has any worthwhile business activity, when considered on an overall basis, is nothing but a smokescreen. [Para 17.]

There remains no doubt whatsoever that in the given circumstances, the Assessing Officer conducted half-baked enquiry ignoring vital aspects which were required to be examined. If a company recently incorporated without carrying out any worthwhile business activity issues shares with face value of Rs.10 at a premium of Rs.190, the immediate concern of the Assessing Officer ought to have been to find out as to whether the receipt of such a premium was justified and whether the parameters of section 68 stood complied with. In the instant case, the Assessing Officer merely issued notices under section 133(6) to some of the shareholders whose replies, indicating that they overtly purchased the shares at Rs.200 each, were kept on record. Putting a lid at the matter at that stage only, “the Assessing Officer did not consider it prudent to examine such shareholders as to their capacity and genuineness of the transactions. Confronted with such peculiar and hair-raising circumstances, the Assessing Officer should have got alerted and dug the matter deep for unearthing the reality of the transaction. Unfortunately, nothing of this sort was done by him. It is a perfect citation for a complete non-application of mind by the Assessing Officer and of passing the assessment order in undue haste. [Para 1 7.h.J

Thus, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the Assessing Officer’s is exceedingly inadequate and hence fall in the category of ‘no enquiry’ conducted by the Assessing Officer, what to talk of charactering it as an ‘inadequate enquiry’. The highly inadequate enquiry conducted by the Assessing Officer resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. [Para 1 7 . i.J

Whether Commissioner can set aside the assessment order and direct the Assessing Officer to conduct a thorough enquiry, thereby interfering with the jurisdiction of the Assessing Officer conferred on him in terms of sections 142(1) and 143(2) of the Act?

A careful perusal of the provisions of section 142(1)/143(2) unveils that it is the prerogative of the Assessing Officer to require the information ‘on such points or matters’ as he may require. Ordinarily it is not possible for the Assessing Officer to inquire into each and every entry recorded in the books of account of the assessee. He has to exercise his acumen in extracting out the relevant points or matters on which he wants to concentrate. But, what is important in this regard is that the operation of section 142(1)/143(2) comes to an end when an assessment is completed after examining such point or matters which the Assessing Officer feels to inquire before finalizing the assessment It is only thereafter that the revisional powers of the Commissioner under section 263 can come into play for ascertaining if the Assessing Officer examined all the relevant points, which ought to have been examined. If the Commissioner, on examination of records of assessment, comes to the conclusion that the Assessing Officer failed to enquire into certain other relevant aspects which, in fact, necessitated thorough investigation, then he has all the power to revise the assessment order. In the instant case, the assessment already stands finalized and now the Commissioner is examining whether the Assessing Officer properly examined the facts of the case. In such circumstances, it is impermissible to have a recourse to the provisions of sections 142(1) and 143(2) for demolishing the order under section 263. [Para 18.b.J

Whether inadequate inquiry conducted by the Assessing Officer empowers the Commissioner to revise the assessment order?

It is imperative for the Assessing Officer to conduct enquiry to satisfy himself about the genuineness of transactions. Scope of the term ‘enquiry’ can be diverse in different circumstances. There cannot be straitjacket formula to positively conclude as to conducting or non-conducting of ‘enquiry’ by the Assessing Officer. It depends on the facts and circumstances of each case. Where the facts are just ordinary and prima facie there is nothing untoward the recorded transaction, in such circumstances, the obtaining of the documents and the application of ‘kind thereon, without a further outside enquiry, may mean that the Assessing Officer did conduct enquiry, leaving the question open as to whether it was a proper or an improper enquiry. But, where the factual scenario of a case prima facie indicates abnormalities and cry for looking deep into it, then a mere collection of documents cannot be held as conducting enquiry, leave aside, adequate or inadequate. In such later cases, only when the Assessing Officer, after collection of the initial documents, embarks upon further investigation, that it can be said that he initiated enquiry. Where the facts of a particular transaction cry hoarse about its non-genuineness and even a casual look at such facts, prima facie, divulges foul play, then the alarm bell must ring in the mind of the Assessing Officer for making further examination. Collection of papers on record in such circumstances cannot be construed as conducting a proper enquiry. If in such circumstances, the Assessing Officer simply gathers documents and keeps them on record, then such nominal enquiry falls within the overall category of no enquiry’ because of the inaction on the part of the Assessing Officer to read a writing on the wall [Para 19.a.}

Thus, the instant case is a glaring example of not making relevant enquiry, which amounts to ‘no enquiry’ and hence it becomes a case of non-application of mind by the Assessing Officer. [Para 19.e.}

If the Assessing Officer has taken a possible view, can still the revision be ordered?

Where the Assessing Officer fails to conduct an enquiry or proper enquiry, which is called for in the given circumstances, the Commissioner is empowered to set aside the assessment order by treating it as erroneous and prejudicial to the interests of the revenue. In such circumstances, the Assessing Officer can’t be said to have taken a possible view and it is not further required on the part of the Commissioner to expressly show where the assessment order went wrong. The very fact that no enquiry was conducted or no proper enquiry was conducted in the required circumstances, is sufficient in itself to invoke the provisions of sect ion 263. [Para 21.g. 1

From an overview of the above discussed judgments, it is crystal clear that where the AO fails to conduct an enquiry or proper enquiry, which is called for in the given circumstances, the CIT is empowered to set aside the assessment order by treating it as erroneous and prejudicial to the interests of the revenue. In such circumstances, it is not further required on the part of the CIT to expressly show where the assessment order went wrong. The very fact that no enquiry was conducted or no proper enquiry was conducted in the required circumstances, is sufficient in itself to invoke the provisions of section 263.

We, therefore, answer all the five aspects discussed above by holding that : i) the enquiry conducted by the AO in such cases can’t be construed as a proper enquiry; ii) CIT u/ s 263 can set aside the assessment order and direct the AO to conduct a thorough enquiry, notwithstanding the jurisdiction of the AO in making enquiries on the issues or matters as he considers fit in terms of section 142(1) and 143(2) of the Act, which is relevant only up to the completion of assessment; iii) Inadequate inquiry conducted by
the AO in the given circumstances is’ as good as no enquiry and as such the CIT was empowered to revise the assessment order; ivy The order of the CIT is not based on irrelevant considerations and further in the present circumstances, he was not obliged to positively indicate the deficiencies in the assessment order on merits on the question of issue of share capital at a huge premium; v) the AO in the given circumstances can’t be said to have taken a possible view as the revision is sought to be done on the premise that the AO did not make enquiry thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue on that score itself.

12. In a recent decision of D. Bench of Kalkata IT AT in the case of Jubilee Commitrade (P) Ltd. Kalkata (ITA TO 1179fKaU2016), The Hon’ble bench has confirmed the order of CIT setting aside the order of A.O. In this case, the Hon’ble Bench has relied upon the order of B- Bench of Kalkata IT AT in the case of Subhlakshmi Vanijya (P) Ltd. The CIT had invoked the section 263 of IT Act-1961 for the reasons that the A. 0. had failed to examine the capacity of subscribes of shares capital although most of the details and confirmations were duly called for and filed. It was held by the bench:-

We have considered his submissions and are of the view that as was done in the similar group of cases which was considered by this Tribunal and in which the lead order was passed in the case of Subhlakshimi Vanijay Put. Ltd. (supra), the CIT ought to have set aside the order of AO and direct the AO to make fresh enquiry with regard to the receipt of share capital and share premium by the assessee during the previous year. As rightly pointed out by the Ld. Counsel for the assessee, since the proceedings u/s 263 of the Act were concluded ex-parte, the Assessee had no occasion to place material to satisfactorily explain the receipt of share capital and share premium by the Assessee. There was however no material on the basis of which the CIT could have come to the conclusion that the receipt of share capital and share premium was not satisfactorily explained by the assessee. As rightly contended by the Ld. Counsel for the assessee, the CIT ought to have set aside the order of the AO and directed the AO to conduct fresh enquiry on the lines indicated in the order of this Tribunal in the case of Subhlakshmi Vanijya Put Ltd. (supra). We therefore modify the order of CIT and direct the AD to make fresh enquiry with regard to the receipt of share capital and share premium during the previous year after affording Assessee opportunity of being heard. With these observations the appeal of the assessee is treated as partly allowed.

13. The jurisdictional Indore Bench of ITAT, in a recent decision dated 21.11.2016, in the cases of (1) P. G. Infrastructure & Service Pvt. Ltd. Bhopal, (2) S.N. Vijaywargiya, Bhopal, (3) People’s International Services P. Ltd., Bhopal, (ITA No. 607 to 609/ Ind/ 2016) has confirmed the order of PCIT, Bhopal passed under section 263 of Income Tax Act. 1961 on the ground that the A.O. has not been in a position to conduct proper inquiry. Although in these cases, the jurisdiction of the cases were transferred to the Assessing Officer at the fag end of the year due to unpleasant event of CBI raid on the earlier Assessing Officer. However the basic principal which has been confirmed by the bench was lack of inquiry and inadequate inquiry conducted by the Assessing Officer. Therefore, These decision are applicable on the present case also. This Hon’ble bench has also placed reliance on almost all the case laws relied upon by us in this case. The operative part of order of this Hon’ble bench is reproduced here under:-

We have carefully heard the rival contentions of the parties. We find that in similar type of cases in ITA Nos. 467/ Ind12016, 27/ Ind12016, 341/ Indl2016 etc. etc. this Bench of the Tribunal vide its order dated 14th July, 2016 has held as under :

“5. After hearing both the parties and perusing the material available on record and keeping in view the peculiar facts and circumstances of these cases, we are of the considered view that in short time from 29.03.2014 to 30.03.2014, it was practically impossible for the Assessing Officer to have examined the returns of the assessee vis-a-vis the details and particulars filed in support of the returns and form an opinion and frame a detailed assessment order on the issues in the returns of income. Therefore, we have no hesitation in accepting the arguments of the ld. Departmental Representative and upholding the present orders passed u/s 263 of the Income-tax Act, 1961, by the Commissioner of Income-tax. Thus grounds of appeal in all the appeals under consideration are dismissed.” Respectfully following the above decisions, we are of the view that there was no occasion for the Assessing Officer to make any inquiry and the Assessing Officer accepted the return without proper inquiry as a result of which substantial amount of taxable income was not brought to tax. We also hold that no rule of universal application can be laid down or exercise of revisional orders u/s 263 0 the act. It will depend on the facts of each and every case but the Commissioner of Income Tax must be satisfied of existence of twin conditions that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. We also get support from the following judgments :-

(i) Ram Pyari devi Saraogi vs. CIT; 67ITR 84(SC)

(ii) CIT vs. Seshasayee Paper & Boards Ltd.; 242ITR 490 (Mad.)

(iii) CIT vs. Bhagwandas; 272 ITR 367 (All) PG Infrastructure ITA Nos. 607,608 & 60911nd1201615

(iv) Pratap Footwear vs. ACIT; (2003) SOT 638 (Jabalpur)(Tri)

(v) CIT vs. Amitabh Bachan (supra); Civil Appeal No.5009 0/2016 (SC)

We further find that the Hon ‘ble jurisdictional High Court in the case of CIT vs. CIT vs. Deepak Kumar Garg; 299 ITR 435 has categorically held as under :

“Held, that from the order of the Assessing Officer, it was clear that for want of time, the Assessing Officer had done only a semblance of enquiry and that too, in a very slip-shod manner. The Assessing Officer accepted the version of the assessee without proper enquiry and as a result a substantial amount of taxable income was not brought to tax. The Commissioner of Income tax had recorded a categorical finding that the order of the Assessing Officer for want of adequate enquiry was erroneous and prejudicial to the interests of the revenue and after setting aside the assessment order, remanded the matter to the Assessing Officer for fresh assessment on the merits. The learned CIT also directed the Assessing Officer to observe the rules of natural justice and to provide opportunity of hearing to the assessee before making a fresh assessment order on the merits. This would adequately safeguard the interest of the assessee and would cause no prejudice. The order of revision was valid. “

Thus, respectfully following the above judgment of the Hon’ble jurisdictional High Court, these appeals of the assessee are dismissed.”

14. Reliance if also placed hereby on Explanation-2 to section 263 of IT Act 1961 inserted by finance Act 2015 we .f. 01.06.2015 considering the same as having retrospective effect. It is a settled rule of construction that every statue is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the court are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given prospective effect, the judicial or quasi judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the finance bill, Memorandum explaining the provision of the finance bill etc. Reliance is placed on the decision of “B” bench of Hon’ble ITAT Kolkata in the case of Shubhlakshmi Vanijya Put. Ltd. 60 taxmann.com 60 wherein Hon’ble ITAT, while examining the retrospective applicability of proviso to section 68 of IT Act 1961 has beautifully analyzed the issue of applicability of amendments and laid down the above principles while examining the issue. Therefore it is imperative to examine the applicability of Explanation 2 to section 263 of IT Act 1961 in the light of principal laid down in the decision as discussed supra. The existing provisions of the Act after the insertion of explanation 2 stands as under:

“Es+-Revision by the [Principal Commissioner or] Commissioner

(1) The [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 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 an order enhancing or modifying the

assessment, or cancelling the assessment and directing a fresh assessment
[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 shall include

(i) an order of assessment made by the Assistant Commissioner 2 [or Deputy Commissioner] or the Income-tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A;

(U) an order made by the [Joint) Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer 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;

(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 Commissioner or] Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988J, 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 sue appeal.]
[Explanation 2.-For the purposes of this section, it is hereby declared 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 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 or-der, 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.

[(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.]

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal.] the High Court or the Supreme Court.

Explanation.-In com

The explanation 2 has been inserted in section 263 w.e.f. from 1st June, 2015 by Finance Bill 2015 to declare the law which reads as under:-“[Explanation 2.-For the purposes of this section, it is hereby declared 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 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. It is profitable at this stage to refer to the Memorandum to Finance Bill 2015 and notes to clauses to Finance Bill, 2015 which are as under: Further, it is essential to refer to the memorandum to finance bill 2015 and notes to clause so as to understand the real intention of the legislature in inserting Explanation 2 to section 263 of IT Act 1961 which is reproduced here under for ready reference:

“MEMORANDUM TO FINANCE BILL 2015

“The existing provisions contained in sub-section (1) of section 263 of the Income tax Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer 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 an enquiry pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment.

The interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one. In order to provide clarity on the issue it is proposed to provide 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 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, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. ” This amendment will take effect from 1st day of June, 2015.”

“NOTES ON CLAUSES FINANCE BILL 2015-

Clause 65 of the Bill seeks to amend section 263 of the Income-tax Act relating to revision of orders prejudicial to revenue. The existing provisions contained in sub-section (1) of section 263.provide that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made an enquiry, as he deems necessary, pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment.

It is proposed to amend sub-section (1) of the aforesaid section to insert an Explanation so as to provide 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 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. This amendment will take effect from 1st June, 2015.”

The plain reading of existing provisions of section 263 of IT Act 1961, the memorandum to finance bill 2015 and notes on clauses of finance bill 2015 as reproduced above makes it evident beyond doubt that said Explanation 2 to section 263 of IT Act 1961 was brought in just as clarificatory or explanatory to the original intent of section 263 of IT Act 1961. The intention of legislature has been to explain and clarify the originally enacted statue so as to declare the position as was originally intended. The language of the Explanation 2 starts as ‘for the purpose of this section, it is here by declared that the order by which goes to prove that the relevant insertion of explanation has been declaratory. Therefore, taking support from decision of Hon’ble B bench of IT AT Kolkata on the principles of applicability of amendments in the case of Shubhlakshi Vanijya Put. Ltd., as discussed supra, the insertion of Explanation 2 to section 263 of IT Act 1961 has to be considered as having retrospective effect. Therefore, it was mandated on the part of Assessing Officer not to pass the assessment order without making inquiries or verification which should have been made and allow the relief without inquiring into the claim which in the instant case, the AO has omitted to follow the express provisions of the Act. Further reliance can be placed on the decision of Hon’ble C Bench of ITAT Mumbai in the case of M/ s Crompton and Greaves Ltd. in ITA No. 1994/ Mum/ 2013 and ITA No. 2836/ Mum/ 2014 dated 01.02.2016 wherein after examining the issue of applicability of insertion of Explanation 2 to section 263 of IT Act 1961 in detail, it has been held that such insertion of Explanation 2 has been declaratory and clarificatory in nature to provide clarity to the existing provision. Therefore, held that the order passed by AO shall be liable to be revised by the Pr. CIT/ CIT if the AO has not followed the terms of Explanation 2 (a) and (b) of section 263(1) of IT Act 1961. The relevant part of decision of Hon’ble Bench is reproduced here under:

Now, as can be seen above, the amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 of the Act is declaratory & clarificatory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue ,it is , inter-alia, provided that if the order is passed without making inquiries or verifications by AO which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue. The Hon’ble Supreme Court in the case of Malabar Industrial Company Limited v. CIT (2000)109 Taxman 66 (SC) held that if the AO has accepted the entry in the statement of account filed by the taxpayer without making enquiry, the said order of the AO shall be deemed to be erroneous in so jar as it is prejudicial to the interest of the Revenue. In our considered opinion, the facts of the case of the assessee company are similar to the facts in the case of Malabar Industrial Co. Limited(supra) whereby no enquiry/ verification is made by the AD whatsoever with respect to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duty, sales tax and liquidated damages. Moreover, now Explanation 2 to Section 263 of the Act is inserted in the statute which is declaratory and claraficatory in nature to declare the law and provide clarity on the issue whereby if the A.D. failed to make any enquiry or necessary _ verification which should have been made, the order becomes erroneous in so far as it is prejudicial to the interest of revenue. A proviso added from 01-04-1988 to Section 43B of the Act from 01-04-1984 came up for consideration in Allied Motors Private Limited v. CIT (1997) 91 taxman 205(SC) before Hon’ble Supreme Court and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy http:/ / www.itatonline.org 18 ITA 1994Mum/ 13 & ITA 28361Mum/ 14 unintended consequences and supply an obvious omission so that the section may be given a reasonable interpretation and that in fact the amendment to insert the proviso would not serve its object unless it is construed as retrospective. In CIT v. Podar Cement Pvt. Limited (1997) 92 Taxman 541(SC) , the Hon’ble Supreme Court held that amendment introduced by the Finance Act,1987 in so far the related to Section 27(iii), (iiia) and (iiib) which redefined the expression ‘owner of house property, in respect of which there was a sharp divergence of opinion amongst the High Courts, was clarificatory and declaratory in nature and consequently retrospective. Similarly, in Brij Mohan Das Laxman Das v. CIT (1997) 90 Taxman 41(SC), explanation 2 added to section 40 of the Act was held to be declaratory in nature and , therefore , retrospective. (Reference Page 569-570,Principles of Statutory Interpretation by Justice G.P.Singh ,13th Ed.). In our considered view, the CIT has rightly invoked the provisions of section 263 of the Act as the A.D. failed to make proper enquiry, examination and verifications as warranted for the proper completion of the assessment, with respect to claim of deduction of Rs.17. 72 crores with respect to the provisions for warranty, excise duty, sales tax and liquidated damages. Regarding the contentions of the assessee company that the CIT should have set aside the orders passed by the AD after giving appeal effect to the orders of the tribunal in the first round has to be rejected as the basic facts remains that the AD has not made any enquiry, examination or verification of the claim of the assessee company with respect to claim of deduction of provision of Rs 17.72 crores with respect to provisions for warranty, sales tax, excise duty and liquidated damages, the order of the Tribunal would have adjudicated issues arising out of the orders of the authorities below whereby the facts still remains that the AD has not made any enquiry, examination or verification of the claim of the assessee company with respect to claim of deduction of provision of Rs 17.72 crores with respect to provisions for warranty, sales tax, excise duty and liquidated damages. The order of the Tribunal in the first round of litigation has not been incidentally enclosed by the assessee company in the documents/ paper book filed with the Tribunal. It is an established principle under the Act that provisions and contingent expenses are not allowed as deduction while computing the income of the assessee. It is only an ascertained liability which has crystallized during the year and which is wholly and exclusively incurred for the purpose of business of the assessee company, is allowed as deduction while computing income under the Act The A. D. was under duty to make necessary and proper enquiry, examination and verification’s with respect to Provisions of Rs. 17.72 crores with respect to the claim of deduction of the assessee company for provisions for liquidity damages, warranty, sales tax and excise duty, while on perusal of the assessment orders u/s 143(3) of the Act dated 28.12.2010 and other documents filed before us, we have observed that the AD has not made any enquiry whatsoever with respect to the claim of deduction of expenses of Rs.17.72 crores towards Provision for Warranty, Sales tax and excise duty and liquidated damages claimed by the assessee company while computing the income of the assessee company and the claim of the assessee company was accepted without any inquiry, examination or verification whatsoever by the AD and In the absence thereof of enquiry, examination and verification of the claim of the asssesee company for deduction of provisions for Warranty, Sales tax and excise duty and liquidated damages amounting to Rs.17.72 crores, we find no infirmity in the order dated 06.02.2013 of the CIT passed u/s 263 of the Act setting aside the assessment order dated 28.12.10 passed u/s 143(3) of the Act as erroneous in so far as prejudicial to the interest of the Revenue and directing the AD to assess the income of the assessee company after making necessary enquiries, examination and verifications, which order of the CIT dated 06.02.2013 , we uphold. We order accordingly. “

7. The revenue has also filed report dated 12.04.2018 which is reproduced as under :

Sub: – Appellate proceedings in the Case of M/s Bhandari Hospital and Research Centre, Vijay Nagar, Indore, ITA No. 355IInd/ 2017 for A. Y. 2012-13 against the order u/s 263 of the Income tax act, 1961 – Reg-Vide letter dated 09.03.2018 from the % PCIT-1, Indore, a report was called for in the case of M/s Bhandari Hospital and Research centre for AY 2012-13. As directed the report in the case of M/s Bhandari Hospital and research centre (AADFB8151A) for
A Y2012-13 is submitted as under:

2. The assessee is firm running hospital and research centre filed the return of income for AY 2012-13 on 13/09/2012 declaring total income at Rs. 94,31,692/ -. The case was selected for scrutiny assessment through CASS and assessment was completed on 24/ 03/ 2015 by making the following additions to the returned income:

1. Disallowance of open heart and operation theater expenses:- 5,10,543/ –

2 . Disallowance in pathology expenses: Rs. 3,20,835/

It is to be stated that a survey operation u/s 133A of the Income Tax Act, 1961 was conducted at the business premise of the assessee on 23/09/2011 and as a result an amount of Rs. 23,61,18,930/- was surrendered in the hand of the assessee asfollows:-

Sr. No.	Name of the assessee	Surrendered Amount (In Rs.)	Heads
1	M/s Bhandari Hospital & Research Centre ( As per statement dated 24.09.11   of partner Shri Vinod      Bhandari    – on account of Hundites	16,65,00,000/ –	On account of Hundies
2	M/s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	6,45,02,010/ –	On account of suppressed hospital receipts
3	M/s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	51,16,920/ –	On account of bogus  unsecured  loans

3. Subsequently as per affidavit dated 23/0112012 the assessee has explained that the unaccounted receipts amounting to Rs. 6,21,25,115/ – as per LPI 02 where utilized in making the hundi loans and remaining amount of hundi loans Rs. 10,43,74,8851- should be considered as unexplained. Assessee also stated that these are entries regarding discount allowed of Rs. 23,69,425/- and petty cash expenses of Rs. 7,470/- and therefore correct amount of unaccounted receipt is Rs. 6,21,25,115/- . Thus the surrendered income was revised to Rs 17,16,16,920/ -. It was also observed during assessment proceedings that the assessee has claimed deduction u/s 35AC amounting to Rs. 8 crore. The assessee . on 17.03.2015, has made request before the JCIT, Range-3, Indore to issue directions u/s 144A. The Joint Commissioner Income Tax, Range-3, Indore has issued directions u/s 144A vide order dated 24.03.2015. In the light of directions given u/s 144A, set off of Rs. 6,21,25,115/- against the unaccounted hundi loans amounting to Rs. 16,65,00,000/ – was allowed. The donation to Geetanjali Hospital made by the assessee amounting to Rs. 8 crore allowed to the assessee and the income was assessed at Rs. 1,02,63,070/ -.

4. Since, the assessment order passed u/s 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of the revenue on account of failure on the part of assessing officer in making necessary enquiries, the order of assessing officer u/s 143(3)
dated 24.03.2015 was set-aside and held to be erroneous and prejudicial to the interest of the revenue and the AO was directed to pass the fresh assessment order after making proper enquiries on the relevant issue discussed in order u/s 263 after affording sufficient opportunity to the assessee.

5. Vide order dated 30.03.2017 the Ld. Pro CIT-I, Indore has directed to make proper
investigation 83 enquiry in the following issue.

1.Telescoping of undisclosed hospital receipt of Rs. 6,21,25,115/- against hundi loans given of Rs. 16,65,00,000/ -.

2. Reduction of surrendered amount by Rs. 23,76,985/- on account of discount and Rs. 7,470/- being petty cash expense.

3. Enquiry related to recovering of hundi loans amounting to Rs. 16.65 crores.

4. Utilization of unaccounted funds to claim deduction U/ S 35AC amounting to Rs. 8 crore.

5. Year wise investment made by the assessee.

6. Angiography receipts of Rs. 1,96,900/ – not considered in unaccounted receipts,

7. Examination of profit ratio for three years and drawing of profit & Loss account and balance sheet as on date of survey and for the later period.

8. Genuineness of the transaction of donation of Rs. 8 crore to Geetanjali Medical University.

9. Depreciation claimed for PET Scan in higher rate @ 40%.

10. TDS deduction on salary payments amounting to Rs. 4, 75,90, 7911-. 6. Telescoping of undisclosed hospital receipts:

The undisclosed hospital receipt of Rs. 6,21,25,115/- was allowed to be telescoped against the hundi loans given by the assessee amounting to Rs. 16,65,00,000/ -. This set off was allowed to the assessee without proper verification and examination and how the hospital receipts surrendered during the course of survey was used for onward lending for loans given on hundi with date-wise receipts and payments. The assessee has simply stated that the unaccounted receipt of Rs. 6.45 crore was utilized in making the hundi loans without any basis or without any proper supporting documents and it is only an after thought of the assessee to reduce the tax burden and avoid paying taxes. These factors were not taken into consideration during assessment and further enquiries were not made which render the assessment order erroneous and prejudicial to the interest of the revenue.

7. Reduction of surrendered undisclosed hospital receipts to Rs. 6,21,25,115/-:

The assessee claimed reduction from the surrendered undisclosed hospital receipts under two heads namely:

1. Discount allowed- Rs. 23,76,9851-

2. Petty cash expenses- Rs. 7,4701

The credits & debits entries are recorded in trial balance impounded during survey proceedings in Page No. 96 of LPI-2 of the seized documents. The independent verification of the above two entries were not made during the assessment proceedings for the discount allowed and petty cash entry which render the order erroneous and prejudicial to the interest of revenue.

8. Enquiry related to recovering of hundi loans amounting to Rs. 16.65 crores:

The assessee has surrendered an amount of Rs. 16.65 crores on account of hundi loans but during the assessment proceedings, the details of receiving back of hundi loans by the assessee during the current year was not examined with party wise details, name, address and PAN, date of receiving back of the loan, identity, genuineness and sources of the parties from whom funds were received were not verified.

The assessee has simply explained that it had recovered the entire hundi loans amounting to Rs. 16.65 crore during the year. No verification was made regarding cash receipts in the cash book from various hundi loan parties and the assessee’s claim of depositing the cash in the bank accounts from the cash balance in the cash book which was also not verified with date of deposit and due date of maturity of the hundi loans. It is to be mentioned here that in the case of Shri Vinod Bhandari for AY 2012-13, the Ld. CIT(A) has confirmed the addition made uls 68 amounting to Rs. 7,34,79,097/ – as unexplained cash receipt on account of cash deposits made in the bank account which the assessee claimed that these are the amounts recovered from hundi loan parties deposited in the bank accounts out of cash balance available in the cash book.

In the case of present assessee M/ s Bhandari Hospital & Research centre, the details of recovery of hundi loans was not properly verified with cash book and their identity & genuineness of the transaction was not established. The assessee was not asked to produce the parties for verification. The sources of cash deposits in the bank accounts were not enquired and hence it remains unexplained. Mere stating that the hundi loans of Rs. 16.65 crores recovered during the year cannot be conclusive evidence. The hundi loan parties, due date of maturity of hundis (as per hundies impounded) and date of deposit along with interest from parties is given in table below:

S.NO.	NAME	AMOUNT	INTEREST INRS.	DUE DATE	DATE OF DEPOSIT
1	SURENDRA SINGH	4500000	201945	17-10-11	17-03-12
2	MAHENDRA KUMAR NARENDRA KUMAR	4500000	236342	03-09-11	03-03-12
3	VUA Y CHANDRA CHOUHAN	5000000	262600	30-09-11	30-03-12
4	JITENDRA PATEL	2500000	112190	24-10-11	24-03-12
5	KISHAN	5000000	224384	08-10-11	08-03-12
6	VIRENDRA KUMAR	5000000	300822	22-08-11	28-03-12
7	KAILASH CHOUDHARY	5000000	224384	05-10-11	05-03-12
8	PRAKASH SINGHAL	3000000	22932	28-09-11	28-09-11
9	AMIT AGRAWAL	5000000	224384	03-10-11	03-03-12
10	KISHAN LAL MAL VIY A	4500000	201945	05-10-11	05-03-12
11	PRAKASH MAL V ANI	4500000	201945	10-10-11	10-03-12
12	ROHIT JAIN	4000000	240658	16-08-11	16-03-12
13	PRABHA GANDHI	3500000	64726	17-08-11	30-09-11
14	PINK1 CHABRA	4000000	179506	06-10-11	06-03-12
15	RAM CHAND SHARMA	4000000	60164	01-08-11	30-09-11
16	VIKASJAIN	6000000	269260	05-10-11	05-03-12
17	SHEKHAR SHARMA	2500000	112190	15-10-11	15-03-12
18	PRAMILA CHOUDHARY	3000000	33288	16-09-11	30-09-11
19	SOMCHANDJI	2000000	89753	01-10-11	01-03-12
20	ABHISHEK SONI	5000000	224384	05-10-11	05-03-12
21	NIRAJ PRAJAPA TI	5000000	113425	25-07-11	25-09-11
22	JAYANTBAIS	5000000	38219	27-09-11	27-09-11
23	RITESH MANGW ANI	5000000	224384	04-10-11	04-03-12
24	SHY AM RAJPOOT	4500000	201945	08-10-11	08-03-12
25	MAHENDRA KUMAR	4000000	90740	28-07-11	28-09-11
26	JAG MOHAN MALVIY A	2000000	89753	04-10-11	04-03-12
27	RAMNARAYAN GUPTA	2000000	89753	02-10-11	02-03-12
28	SUSHILA PARMAR	2500000	131300	02-09-11	02-03-12
29	RISHABH JAIN	4500000	236342	13-09-11	13-03-12
30	NEMICHAND JAIN	5000000	75205	18-09-11	18-10-11
31	RAMDA Y AL BANERIY A	4000000	90740	19-08-11	19-10-11
32	VINOD RAMNANI	2500000	37603	23-09-11	23-10-11
33	RAM MANOHAR MORYA	6000000	269260	03-10-11	03-03-12
34	MOHAN GUPTA	5000000	36986	01-10-11	01-10-11
35	SUNIL SHARMA	4500000	33288	01-10-11	01-10-11
36	RAMPRASAD BANV ARILAL	3000000	45863	30-08-11	30-09-11
37	SURESH CHAND NEMI CHAND	2500000	38219	27-08-11	27-09-11
38	ANAND KUMAR	4000000	60165	23-09-11	23-10-11
39	AJA Y MANOHAR DAS	4000000	121315	29-08-11	29-11-11
40	SATISH SHAH	2500000	168904	11-07-11	11-03-12
41	RAMESH KHANDEL WAL	6500000	341384	30-09-11	30-03-12
	Total	166500000	6022594

From the above table, it is very clear that the many of the hundies have matured before the date of deposit and the assessee has shown inflow of cash in cash book as loan repayment from various parties and further deposit in the bank account. Most of the deposit in the cash book are reflecting in the month of February to March however as per the impounded hundi copies, the due dates are two to three months from the date of survey. The above analysis and verification were not done during the assessment proceedings which render the order erroneous and prejudicial to the interest of the revenue since the identity 83 genuineness of the transaction of recovered hundi loans were not proved and verified.

9. Utilization of unaccounted funds to claim deduction u/ s 35AC amounting to Rs. 8 crore:

The assessee during the year has claimed a deduction amounting to Rs. 8 crore U/S 35AC owing to donation made to M/ s Geetanjali University Trust. The aspect that whether the unaccounted funds generated by the assessee can be utilised for claiming deduction U/S 35AC was not examined during the assessment proceedings. The issue of deduction u/s 35AC was allowed without proper verification of the source of the funds by simply accepting the assessee’s reply since the recovery of Hundi Loans is itself under question and the source is not verifiable and the reply was accepted without proper investigation and external enquires. It is also to be noted that one of the partners was under probe in Vyapam case and the co-ordination with other investigation agencies was not done and whether the said amount represents unaccounted funds were not examined which render the order erroneous and prejudicial to the interests of the revenue.

10. Year-wise investments- The verification related to year wise accretion of the investment was not made in the assessment proceedings and detailed enquiries were not made regarding this issue and the investments made by the assessee were accepted without further verification

11. A. ngiography receipts of Rs.1, 96, 900/ –

An amount of Rs.1,96,900/ – recorded III page no. 8 of LP-02 relating to angiography receipts was not considered in unaccounted receipts offered for taxation which was not verified individual entry wise during the assessment proceedings.

12. Examination of profit ratio

In the return of income for A. Y. 2012-13 the assessee has shown income of Rs.94,31,692/ – and profit before tax and remuneration to partners is Rs.3,64,88,334/ . which includes surrendered income of Rs.1 7, 17,49,505f and deduction u/s 35AC of Rs.8 Cr. claimed. When both are excluded, the result would show a net loss of Rs. 5,52,61,1 71/ – and hence the assessee has shown a distorted picture of profit. The manipulation in the books of accounts were not examined during the assessment proceedings by verifying the genuineness of expenses claimed against the income and preparing the profit & loss account and balance sheet on the date of survey and for the later period. The hundi loans of Rs.16.65 Cr. on the date of survey are part of balance sheet item and it is clearly reflecting the unexplained investments and the aspect of how the same could form part of P&L A/c and against which many expenses were claimed were not verified during the assessment proceedings and the assessee has cheated a distorted picture of the P&L account and the order is erroneous and prejudicial to the interest of revenue since the consolidated P&L account and balance sheet will not give real state of affairs of the assessee and investigation in to this issue was not made.

13. Genuineness of donation made of Rs. 8 Cr.

In the above para, detailed discussion about the distorted picture of the P&L Account of the assessee was given and claiming of expenses were discussed in detail. Hence, there is a net loss of Rs. 5,62,61,1 71/ – after excluding surrendered income. Hence, without profit, claim of deduction u/s 35AC is inadmissible and this aspect of enquiry was not conducted during the assessment proceedings. The hundi loans was shown as income from business by the assessee however they are unexplained investments. The issue was not in detail verified and to determine correct income of the assessee,’ the credits in the bank account and sources thereof should be verified. The transaction ofRs.8 Cr. given as donation is doubtful since the amounts were transferred after the date of survey and the assessee is incurring interest expenditure and having loan liabilities but donating a huge amount on charity ofRs.8Cr. is nothing but a way of the assessee to avoid tax liability on surrendered income and hence the transaction of Rs.8 Cr. needs deep verification to ascertain the genuineness and hence the order is erroneous and prejudicial to the interest of the revenue.

14. Depreciation on PET CT Scan

The assessee during the year has claimed depreciation on PET CT Scan amounting to Rs.l,61,00,262/ – for A. Y. 2012-13 at the rate of 40% but the allowable rate is 15% which is not verified during assessment regarding the nature of machine, uses and its eligible rate of depreciation.

15. TDS deduction on salary of Rs. 4,75,90,791/ –

The specific enquiry related to details of TDS deduction made by the assessee for salary payment of Rs. 4,75,90,791/ – was not made by calling for employee list, salary paid month wise and the related TDS deductions which render the assessment order erroneous and prejudicial to the interest of the revenue.

Hence, in view of the above, the order u/s 143(3) passed by the assessing officer is erroneous since the enquiries required in the above discussed issues were not made and as per provisions of section 263, the Ld. Pro CIT can direct for fresh assessment if the order was passed without making inquiries or verification, Since the order under consideration was passed without enquiry and investigation which were required to be made, the Ld. Pro CIT is right in setting aside the assessment order and directing for fresh assessment.

8. The revenue has filed reports on 27.12.2018

Sub: _ Appellate proceedings in the Case of MIs Bhandari Hospital and Research Centre, ija ‘agar, Indore, ITA o. 355IInd/2017 for A.Y. 2012-13 against the order s 263 of the Income tax act, 1961 – Reg

Vide letter dated 09.03.2018 from the 0/0 PCIT-1, Indore, a report was called for in the case of M/s Bhandari Hospital and Research centre for A Y 2012-13. As directed the report in the case of M/s Bhandari Hospital and research centre (AADFB8151A) for AY 2012-13 is submitted as under.-2. The assessee is firm running hospital and research centre filed the return of income for A Y 2012-13 on 13/09/2012 declaring total income at Rs. 94,31,692/-. The case was selected for scrutiny assessment through CASS and assessment was completed on 24/0312015 by making the following additions to the returned income>

1. Disallowance of open heart and operation theater expenses:- 5,10,543/

2. Disallowance in pathology expenses: Rs. 3,20,835/-

It is to be stated that a survey operation u/s 133A of the Income Tax Act, 1961 was conducted at the business premise of the assessee on 23/09/2011 and as a result an amount of Rs. 23,61,18,9301- was surrendered in the hand of the assessee as follows:

Sr. No.	Name of the assessee	Surrendered Amount (In Rs.)	Heads
1	M/s Bhandari Hospital & Research Centre  ( As per statement dated 24.09.11   of partner Shri Vinod      Bhandari    –     on account of Hundites	16,65,00,000/ –	On account of Hundies
2	M/s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	6,45,02,010/ –	On account of suppressed hospital receipts
3	M/s Bhandari Hospital & Research Centre (As per statement dated 24.09.11 of partner shri Vinod Bhandari)	51,16,920/ –	On account of bogus unsecured  loans

3. Subsequently as per affidavit dated 23/0112012 the assessee has explained that the unaccounted receipts amounting to Rs. 6,21,25,115/- as per LPI 02 where utilized in making the hundi loans and remaining amount of hundi loans Rs. 10,43,74,8851- should be considered as unexplained. Assessee also stated that these are entries regarding discount allowed of Rs. 23,69,425/- and petty cash expenses of Rs. 7,470/- and therefore correct amount of unaccounted receipt is Rs. 6,21,25,115/- . Thus the surrendered income was revised to Rs 17,16,16,920/ -. It was also observed during assessment proceedings that the assessee has claimed deduction u/s 35AC amounting to Rs. 8 crore. The assessee . on 17.03.2015, has made request before the JCIT, Range-3, Indore to issue directions u/s 144A. The Joint Commissioner Income Tax, Range-3, Indore has issued directions u/s 144A vide order dated 24.03.2015. In the light of directions given u/s 144A, set off of Rs. 6,21,25,115/- against the unaccounted hundi loans amounting to Rs. 16,65,00,000/ – was allowed. The donation to Geetanjali Hospital made by the assessee amounting to Rs. 8 crore allowed to the assessee and the income was assessed at Rs. 1,02,63,070/ -.

4. Since, the assessment order passed u/s 143(3) of the Income Tax Act, 1961 was erroneous and prejudicial to the interest of the revenue on account of failure on the part of assessing officer in making necessary enquiries, the order of assessing officer u/s 143(3) dated 24.03.2015 was set-aside and held to be erroneous and prejudicial to the interest of the revenue and the AO was directed to pass the fresh assessment order after making proper enquiries on the relevant issue discussed in order u/s 263 after affording sufficient opportunity to the assessee.

5. Vide order dated 30.03.2017 the Ld. Pro CIT-I, Indore has directed to make proper investigation 83 enquiry in the following issue.
Telescoping of undisclosed hospital receipt of Rs. 6,21,25,115/- against hundi loans given of Rs. 16,65,00,000/ -.

5. Reduction of surrendered amount by Rs. 23,76,985/- on account of discount and Rs. 7,470/- being petty cash expense.

6.Enquiry related to recovering of hundi loans amounting to Rs. 16.65 crores.

7. Utilization of unaccounted funds to claim deduction U/ S 35AC amounting to Rs. 8 crore.

10. Year wise investment made by the assessee.

11. Angiography receipts of Rs. 1,96,900/ – not considered in unaccounted receipts,

12.Examination of profit ratio for three years and drawing of profit & Loss account and balance sheet as on date of survey and for the later period.

13. Genuineness of the transaction of donation of Rs. 8 crore to Geetanjali Medical University.

14.Depreciation claimed for PET Scan in higher rate @ 40%.

10. TDS deduction on salary payments amounting to Rs.4,75,90,791/-.

6. Telescoping of undisclosed hospital receipts:

The undisclosed hospital receipt of Rs. 6,21,25,115/- was allowed to be telescoped against the hundi loans given by the assessee amounting to Rs. 16,65,00,000/ -. This set off was allowed to the assessee without proper verification and examination and how the hospital receipts surrendered during the course of survey was used for onward lending for loans given on hundi with date-wise receipts and payments. The assessee has simply stated that the unaccounted receipt of Rs. 6.45 crore was utilized in making the hundi loans without any basis or without any proper supporting documents and it is only an after thought of the assessee to reduce the tax burden and avoid paying taxes. These factors were not taken into consideration during assessment and further enquiries were not made which render the assessment order erroneous and prejudicial to the interest of the revenue.

7. Reduction of surrendered undisclosed hospital receipts to Rs. 6,21,25,115/-:

The assessee claimed reduction from the surrendered undisclosed hospital receipts under two heads namely:

1.  Discount allowed- Rs. 23,76,985/ –

2. Petty cash expenses- Rs. 7,470/

The credits & debits entries are recorded in trial balance impounded during survey proceedings in Page No. 96 of LPI-2 of the seized documents. The independent verification of the above two entries were not made during the assessment proceedings for the discount allowed and petty cash entry which render the order erroneous and prejudicial to the interest of revenue.

8. Enquiry related to recovering of hundi loans amounting to Rs. 16.65 crores:

The assessee has surrendered an amount of Rs. 16.65 crores on account of hundi loans but during the assessment proceedings, the details of receiving back of hundi loans by the assessee during the current year was not examined with party wise details, name, address and PAN, date of receiving back of the loan, identity, genuineness and sources of the parties from whom funds were received were not verified.

The assessee has simply explained that it had recovered the entire hundi loans amounting to Rs. 16.65 crore during the year. No verification was made regarding cash receipts in the cash book from various hundi loan parties and the assessee’s claim of depositing the cash in the bank accounts from the cash balance in the cash book which was also not verified with date of deposit and due date of maturity of the hundi loans. It is to be mentioned here that in the case of Shri Vinod Bhandari for AY 2012-13, the Ld. CIT(A) has confirmed the addition made u/ s 68 amounting to Rs. 7,34,79,097/ – as unexplained cash receipt on account of cash deposits made in the bank account which the assessee claimed that these are the amounts recovered from hundi loan parties deposited in the bank accounts out of cash balance available in the cash book.

In the case of present assessee M/ s Bhandari Hospital & Research centre, the details of recovery of hundi loans was not properly verified with cash book and their identity & genuineness of the transaction was not established. The assessee was not asked to produce the parties for verification. The sources of cash deposits in the bank accounts were not enquired and hence it remains unexplained. Mere stating that the hundi loans of Rs. 16.65 crores recovered during the year cannot be conclusive evidence. The hundi loan parties, due date of maturity of hundis (as per hundies impounded) and date of deposit along with interest from parties is given in table below:

S.NO.	NAME	AMOUNT	INTEREST INRS.	DUE DATE	DATE OF DEPOSIT
1	SURENDRA SINGH	4500000	201945	17-10-11	17-03-12
2	MAHENDRA KUMAR NARENDRA KUMAR	4500000	236342	03-09-11	03-03-12
3	VUA Y CHANDRA CHOUHAN	5000000	262600	30-09-11	30-03-12
4	JITENDRA PATEL	2500000	112190	24-10-11	24-03-12
5	KISHAN	5000000	224384	08-10-11	08-03-12
6	VIRENDRA KUMAR	5000000	300822	22-08-11	28-03-12
7	KAILASH CHOUDHARY	5000000	224384	05-10-11	05-03-12
8	PRAKASH SINGHAL	3000000	22932	28-09-11	28-09-11
9	AMIT AGRAWAL	5000000	224384	03-10-11	03-03-12
10	KISHAN LAL MAL VIY A	4500000	201945	05-10-11	05-03-12
11	PRAKASH MAL V ANI	4500000	201945	10-10-11	10-03-12
12	ROHIT JAIN	4000000	240658	16-08-11	16-03-12
13	PRABHA GANDHI	3500000	64726	17-08-11	30-09-11
14	PINK1 CHABRA	4000000	179506	06-10-11	06-03-12
15	RAM CHAND SHARMA	4000000	60164	01-08-11	30-09-11
16	VIKASJAIN	6000000	269260	05-10-11	05-03-12
17	SHEKHAR SHARMA	2500000	112190	15-10-11	15-03-12
18	PRAMILA CHOUDHARY	3000000	33288	16-09-11	30-09-11
19	SOMCHANDJI	2000000	89753	01-10-11	01-03-12
20	ABHISHEK SONI	5000000	224384	05-10-11	05-03-12
21	NIRAJ PRAJAPA TI	5000000	113425	25-07-11	25-09-11
22	JAYANTBAIS	5000000	38219	27-09-11	27-09-11
23	RITESH MANGW ANI	5000000	224384	04-10-11	04-03-12
24	SHY AM RAJPOOT	4500000	201945	08-10-11	08-03-12
25	MAHENDRA KUMAR	4000000	90740	28-07-11	28-09-11
26	JAG MOHAN MALVIY A	2000000	89753	04-10-11	04-03-12
27	RAMNARAYAN GUPTA	2000000	89753	02-10-11	02-03-12
28	SUSHILA PARMAR	2500000	131300	02-09-11	02-03-12
29	RISHABH JAIN	4500000	236342	13-09-11	13-03-12
30	NEMICHAND JAIN	5000000	75205	18-09-11	18-10-11
31	RAMDA Y AL BANERIY A	4000000	90740	19-08-11	19-10-11
32	VINOD RAMNANI	2500000	37603	23-09-11	23-10-11
33	RAM MANOHAR MORYA	6000000	269260	03-10-11	03-03-12
34	MOHAN GUPTA	5000000	36986	01-10-11	01-10-11
35	SUNIL SHARMA	4500000	33288	01-10-11	01-10-11
36	RAMPRASAD BANV ARILAL	3000000	45863	30-08-11	30-09-11
37	SURESH CHAND NEMI CHAND	2500000	38219	27-08-11	27-09-11
38	ANAND KUMAR	4000000	60165	23-09-11	23-10-11
39	AJA Y MANOHAR DAS	4000000	121315	29-08-11	29-11-11
40	SATISH SHAH	2500000	168904	11-07-11	11-03-12
41	RAMESH KHANDEL WAL	6500000	341384	30-09-11	30-03-12
	Total	166500000	6022594

From the above table, it is very clear that the many of the hundies have matured before the date of deposit and the assessee has shown inflow of cash in cash book as loan repayment from various parties and further deposit in the bank account. Most of the deposit in the cash book are reflecting in the month of February to March however as per the impounded hundi copies, the due dates are two to three months from the date of survey. The above analysis and verification were not done during the assessment proceedings which render the order erroneous and prejudicial to the interest of the revenue since the identity 83 genuineness of the transaction of recovered hundi loans were not proved and verified.

9. Utilization of unaccounted funds to claim deduction u/s 35AC amounting to Rs. 8 crore:

The assessee during the year has claimed a deduction amounting to Rs. 8 crore U/S 35AC owing to donation made to M/ s Geetanjali University Trust. The aspect that whether the unaccounted funds generated by the assessee can be utilised for claiming deduction U/S 35AC was not examined during the assessment proceedings. The issue of deduction u/s 35AC was allowed without proper verification of the source of the funds by simply accepting the assessee’s reply since the recovery of Hundi Loans is itself under question and the source is not verifiable and the reply was accepted without proper investigation and external enquires. It is also to be noted that one of the partners was under probe in Vyapam case and the co-ordination with other investigation agencies was not done and whether the said amount represents unaccounted funds were not examined which render the order erroneous and prejudicial to the interests of the revenue.

10. Year-wise investments– The verification related to year wise accretion of the investment was not made in the assessment proceedings and detailed enquiries were not made regarding this issue and the investments made by the assesssee were accepted without further verification

11. A. ngiography receipts of Rs .1, 96, 900/ –

An amount of Rs.1,96,900/ – recorded III page no. 8 of LP-02 relating to angiography receipts was not considered in unaccounted receipts offered for taxation which was not verified individual entry wise during the assessment proceedings.

12. Examination of profit ratio

In the return of income for A. Y. 2012-13 the assessee has shown income of Rs.94,31,692/ – and profit before tax and remuneration to partners is Rs.3,64,88,334/ . which includes surrendered income of Rs.1 7, 17,49,505/- and deduction u/s 35 AC of Rs.8 Cr. claimed. When both are excluded, the result would show a net loss of Rs. 5,52,61,1 71/ – and hence the assessee has shown a distorted picture of profit. The manipulation in the books of accounts were not examined during the assessment proceedings by verifying the genuineness of expenses claimed against the income and preparing the profit & loss account and balance sheet on the date of survey and for the later period. The hundi loans of Rs.16.65 Cr. on the date of survey are part of balance sheet item and it is clearly reflecting the unexplained investments and the aspect of how the same could form part of P&L A/c and against which many expenses were claimed were not verified during the assessment proceedings and the assessee has cheated a distorted picture of the P&L account and the order is erroneous and prejudicial to the interest of revenue since the consolidated P&L account and balance sheet will not give real state of affairs of the assessee and investigation in to this issue was not made.

13. Genuineness of donation made of Rs. 8 Cr.

In the above para, detailed discussion about the distorted picture of the P&L Account of the assessee was given and claiming of expenses were discussed in detail. Hence, there is a net loss ofRs. 5,62,61,1 71/ – after excluding surrendered income. Hence, without profit, claim of deduction u/s 35AC is inadmissible and this aspect of enquiry was not conducted during the assessment proceedings. The hundi loans was shown as income from business by the assessee however they are unexplained investments. The issue was not in detail verified and to determine correct income of the assessee,’ the credits in the bank account and sources thereof should be verified. The transaction of Rs.8 Cr. given as donation is doubtful since the amounts were transferred after the date of survey and the assessee is incurring interest expenditure and having loan liabilities but donating a huge amount on charity ofRs.8 Cr. is nothing but a way of the assessee to avoid tax liability on surrendered income and hence the transaction of Rs.8 Cr. needs deep verification to ascertain the genuineness and hence the order is erroneous and prejudicial to the interest of the revenue.

14. Depreciation on PET CT Scan

The assessee during the year has claimed depreciation on PET CT Scan amounting to Rs.l,61,00,262/ – for A. Y. 2012-13 at the rate of 40% but the allowable rate is 15% which is not verified during assessment regarding the nature of machine, uses and its eligible rate of depreciation.

L5. TDS deduction on salary of Rs4,75,90,791/ –

The specific enquiry related to details of TDS deduction made by the assessee for salary payment of Rs.4,75,90,791/ – was not made by calling for employee list, salary paid month wise and the related TDS deductions which render the assessment order erroneous and prejudicial to the interest of the revenue.

Hence, in view of the above, the order u/s 143(3) passed by the assessing officer is erroneous since the enquiries required in the above discussed issues were not made and as per provisions of section 263, the Ld. Pro CIT can direct for fresh assessment if the order was passed without making inquiries or verification, Since the order under consideration was passed without enquiry and investigation which were required to be made, the Ld. Pro CIT is right in setting aside the assessment order and directing for fresh assessment.

9. We have heard the rival submissions and perused the materials available on record. The grounds of the Pr. CIT revised the assessment order as transpired from the records are as under:

10. During the survey on 24.09.2011 surrendered income was made of Rs.23,61,18,930/- under cash received of Rs.6,45,02,010/-, unsecured credit u/s 41(1) of Rs. 51,16,920/-, loans against Hundi of Rs.16,65,00,000/.- Thereafter by filing an affidavit on 19.01.2012, the assessee has revised cash receipts to Rs.6,21,25,115/- thereby the amount offer was cash receipt of Rs.6,21,25,115/-, survey credits u/s 41(1) Rs.51,16,920/- and unexplained credit hundi loans Rs.10,43,21,885/-. Ld. Pr. CIT was of the view that the JCIT allowed the telescoping of funds of Rs.6,21,25,115/- against investment in hundi loans based on affidavit filed after 4 months. No independent verification of items due to which amount surrendered Rs. 6,45,02,010/– was reduced to Rs. 6,21,25,115/- was carried out. The assessee had claimed to have realized the Hundi loans of Rs. 10,43,41,8851- in September to November 2011 and then given the funds to Geetanjali Hospital of Rs 8 Crores in February March 2012 and claimed deduction u/s 35 AC of IT Act. The A,O. has. not examined as to whether the Hundi loans was really received back by the assessee during the current year and no enquiry and investigation in this regard was carried out regarding identity and source of the sais funds.

11. Further, the A.O. did not examine whether the unaccounted funds generated by the assessee can be utilized to claim deduction u/s 35 AC of Act. The assessing officer has not examined unaccounted receipts offered for taxation in respect of receipts of Rs. Rs 1,96,900/-. Ld. Pr. CIT observed that the returned income of the assessment year 2012-13 is Rs. 94,31,692/- whereas profit before tax
before partners remuneration is as per P 85 L account is Rs. 3,64,88,334/-. It may be noted that the above profit included undisclosed income surrendered during thesurvey at Rs. 17,17,49,505/- 85 deduction of Rs. 8 Cr. claimed u/s 35AC. The assessee included the undisclosed income surrendered under various heads totaling to Rs. 17,17,49,505/- in the P85 L Account itself thereby creating misleading picture of increase in the net profit as comparative to the last years. If the surrendered income as well as the deduction claimed u/s 35 AC was excluded the book results would show a net loss of Rs.5,52,61,171/- on the total receipts of Rs.20,39,86,311/-. The Hundi loans standing as on the date of survey amounting to Rs. 16,66,32,585/- are in fact item of Balance sheet and the same represents assets of the assessee as on the date of survey and clearly reflects undisclosed income of the assessee in the form of unexplained investments. The assessing officer should have asked the assessee how these hundis were realized and formed part of income and expenditure account as business receipts against which many expenses have been claimed by including the same in
the P 85 L. A/c the assessee has created a distorted picture. If surrendered income is excluded which is unexplained investment and credits u/s 69 and 68 respectively. There is net business loss amounting to Rs.5,52,61,171/- hence, the assessee did not have any
positive business income so as to claim deduction u/s  35AC at Rs.8 crores. The donation that was given to Private Medical University of Rs.8 crores is highly suspected. Ld. Pr. CIT has also observed that higher rate of depreciation is allowed without any enquiry on PET CT SCAN. The AO also allowed salary paid amounting to Rs.4,75,90,791/- without verifying whether TDS as per provisions of the Income Tax  was made or not.

12. Now in this background we need to examine correctness of the action taken by the Ld. Pr. CIT u/s 263 of the Act. Section 263 empowers the Ld. Pr. CIT if on the examination of the records of any proceeding under the Income Tax Act and if he considers that any order passed therein by the assessing officer is erroneous in so far as it is prejudicial to the interest of the revenue. He may after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. We find that explanation 2 has been inserted to section 263 of the Act that reads as under:

Explanation 2.—For the purposes of this section, it is hereby declared 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 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

13. The aforesaid explanation came on the statute book w.e.f. 01.06.2015 the issue before us pertains to assessment year 2012-13 hence this explanation have no application on the facts of the present case. So far the question of giving donation to the Gitanjali Hospital and Research Centre is concerned Ld. CIT-DR candidly conceded to fact that the conclusion drawn by the assessing officer is based upon inquiry conducted through commission. Hence on this issue, we are of the view, that it cannot be inferred that no inquiry was made by the assessing officer and he accepted the contention without making due inquiries on this issue. Further the objection of Ld. Pr. CIT is that the income disclosed by the assessee  cannot be treated to be business income as same would fall under the category deemed income and deduction of expenditure under Chapter-IV of the Act would not be available. However, we find that the Ld. JCIT was conscious of this fact while passing the order u/s 144A of the Act. It is pertinent to note that assessee has been claiming that he had certain unrecorded hospital receipts which he offered for taxation. There is no dispute with regard to the fact that inquiries were made regarding genuineness of transactions of donation to Gitanjali  Hospital, Udaipur. Now the question whether deduction of such expenditure would be available to the assessee.

Hon’ble Bombay High Court in the case of CIT Vs Shah Developers Pvt. Ltd allowed claim of the assessee for deduction u/s 80 1B(10) in respect of undisclosed income earned in the form of own money. Ld. Pr. CIT proceeded on the basis that at one hand the asseessee requires to make interest payment on loan from banks on the other it is giving donation to other assessee, it is highly improbable that in such a situation any one would give donation. This reasoning may be correct in a given situation but what is supporting evidence that by doing so the assessee firm obtained benefit from the Gitanjali Hospital. The Assessing Officer made efforts through commission. In our considered view there is no lack of enquiry on the part of Ld. A.O. Ld. CIT DR during the course of hearing conceded the fact that the eligibility and other issues related to availability of deduction was examined by the Ld. A.O Under these facts in the light of the judgment dated 27.7.2012 of Hon’ble Bombay High Court in the case of CIT V/s Shah Builders Pvt. Ltd, IT Appeal No. 3724 of 2010 deduction expenditure as made in the form donation to institution approved by National Committee.

14. If it is presumed that investment in hundi was bogus in such a situation there was no money available for investment made by the assessee as such amount surrendered was not available. This goes to prove that donation is made out of business receipts, which is
allowable expenditure. Even otherwise also in the light of judgment of Hon’ble Supreme Court rendered in the case of A.V. Singhai 85 Co V/s CIT 126 ITR 457 (AO) we do not find any infirmity in the assessment order. Hence decision of Ld. Pr. AO for revising the assessment order on this ground is not in accordance with mandate of law.Therefore, same is hereby set aside.

15. Another issue on which the Ld. Pr. CIT exercised power under Section 263 is regarding giving telescoping benefit of Rs. 6,21,25,115/- The Ld. Pr. AO was of the view  that the telescoping of unaccounted income to Hundi loans has not been examined properly. Moreover, no enquiry has been made in respect of receipt of funds from repayment of Hundi loans. No independent verification of items due to which amount surrendered AO. 6,45,02,010/- was reduced to Rs. 6,21,25,115/-. Further the AO has not examined year wise investment made by the assessee.

16. Genesis of this issue is in the recovery of hundis at the premises of the assessee and statements of Dr. Vinod Bhandari one of the partners of the assessee firm recorded during the course of survey action. The relevant contents are reproduced herein for the sake of clarity:

………………………………………………

17. The aforesaid statement was retracted vide letter dated 19.01.2012 by way of affidavit duly notarized the relevant contents as reproduced herein below.

“11. In reply to Q.11 of the said statement, I had offered  a sum of Rs.6,45,02,010/ – as unaccounted receipt of the firm on the basis of computer records whose copies were taken by Income Tax Officials and whose photocopies have been provided to us as serial numbered 96 of LP-2. In this regard I clarify that the same computer record shows that actual receipt is less by Rs.23,76,895/- being discount allowed Rs.23,69,425/ – and Rs.7,470/ – being petty cash expenses (recorded in the trial balance as advance to  employee) therefore the correct amount of unaccounted receipts is Rs.6,21,25,115/- and not Rs.6,45,02,010/-.

11.1 That during the course of survey hundis were found and impounded and the same were offered as income by me in my individual capacity as well as in the hands of the partnership firm. At the time of survey, it remained to be brought to notice of the authorized office that unaccounted receipt referred to in earlier para was utilized in making the hundi loans and therefore to the extent of unaccounted receipts as in 11 above the hundi loans are explained and only balance amount is unexplained and is offered as income.

18. There is no dispute with regard to the fact that the assessee stated in his statement that he was unable to explain the source of cash loan given through hundis and offered a sum of Rs.16,65,00,000/- as additional income for the A.Y. 2012-13. Revenue had no objection for such offer when this amount is treated to be income of the year under appeal, it can safely infer that this amount was available with the assessee for making further investments. Undisputed the basis of unexplained income is recovery of hundis being annexure as LP-06 and LP-07 of survey proceddings. The hundis are having different dates and maturity period. As per Ld. Pr. CIT the assessing officer has failed to make necessary enquiry on this issue and wrongly gave set off the maturity amount. It is not in dispute that transaction relates to F.Y. 2011-12 relevant to the assessment year 2012-13. In view of the Ld. Pr. CIT the enquiries conducted by AO were not sufficient on this issue, we find that it is not the case where no enquiry was made by the AO during the assessment proceedings he raised specific enquiry related to hundis. In response thereto the assessee filed written explanation, as per Ld. Pr. CIT, the AO ought to have made further enquiry, when certain transactions related to admission of students in medical course by the assessee firm was subject matter of criminal investigation by the Police.

19. We are of the considered view that the criminal investigation and assessment proceedings are two different and distinct proceedings operate in entirely different sphere of law. No tax liability can be fastened merely on the basis that the tax payer is arrayed as an accused in some criminal investigation. There must be live nexus with taxable income and recovery made in criminal investigation. The revenue has filed a copy of charge sheet where the partners of the assessee firm is arrayed as an accused. There is no material suggesting the quantum of receipts was transferred by the partners of the firm out ofthe alleged proceeds of crime. There ought to be some receipt which the assessee could be subjected to tax. There are three limbs of this issue firstly claim of the assessee is
that it used to advance hundi loans out of undisclosed/out of books hospital receipts, this is precise explanation offered by the assessee in respect of hundi found during the course of search, secondly the assessee has disclosed the amount of hundi loan as undisclosed hospital receipts, thirdly out of the maturity amount the assessee made other hundis amounting to Rs.6,21,25,115/- which is the subject matter of the issue. The assessee has contended that the issue is squarely covered by the judgment of Hon’ble Supreme Court rendered in the case of Ananthram Veera Singhaiah 85 Co Vs. CIT 126 ITR 457 (SC) wherein the Hon’ble Court has held as under :-

“There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the revenue to rely on all the circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and indeed, from the nature of the enquiry, it is almost impossible to do so.”

20. Therefore, in the light of the above judgment it can be concluded that the maturity amount was available with the assessee for making further investment. It is noteworthy that root of addition is the recovery of hundis. In case it is presumed that all the hundis so made are bogus and reflects imaginary figure as the assessee failed to furnish confirmation from hundi holders, their identity and PAN
etc, in such event only amount would be taxable what the assessee deposited in its bank account. When there is a maturity of hundi as well as investment in hundis normal corollary would be that the amount invested is out of the money received from maturity of hundis, unless adverse material is brought on record. No such material is available on record the Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects in ITA No. 179/2011 vide order dated 1st March 2012 has held as under:

17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/ inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/ prohibits the CIT from collecting and relying upon new/ additional material/ evidence to show and state that the order of the Assessing Officer is erroneous.

18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase „prejudicial to the interest of 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.

19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that “order passed by the Assessing Officer may be erroneous”. The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondents computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is “erroneous”. The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.

21. From the above, it is clear that Hon’ble High Court has categorically held where the assessing officer has made enquiry and if the Ld. Pr. CIT is not satisfied with such enquiry he should make himself enquiry and bring clearly on record as the finding of the assessing officer being erroneous and prejudicial to the interest of revenue. This is not the case in the present case. The Assessing Officer has made necessary enquiry and issue was also scrutinized by the JCIT while passing order u/s 144A of the Act. In our considered view when two officers at different stage examined the issue before setting aside these finding Ld. Pr. CIT ought to have made some enquiry. But Ld. Pr. CIT in the present case set aside the issue to the Assessing Officer which in our considered view is contrary to ratio laid by the judgment of Hon’ble Delhi High Court rendered in the case of ITO Vs D.G. Housing Projects (supra) is not
mandate of law. Hence the direction of Ld. Pr. CIT cannot be affirmed. If it is presumed that the hundis as recovered during the survey proceedings were not genuine in that situation the amount that was reflected on such hundis cannot to be taken as income of the assessee. Therefore the incidence of tax would be on the unexplained cash deposited in the bank account of the assessee. In this case the amount surrendered by the assessee is higher than what it was found to be unexplained cash deposits in its bank account. Therefore there is no infirmity in the order giving set off of the maturity amount. It is however further clarified that we have not expressed our view regarding genuineness of hospital receipts being invested in hundis as surrendered by one of the partner of the assessee firm. Our finding is purely based on the material placed before us. Ld. PCIT has not brought any material suggesting that [ITA No.355/Ind/2017] [Bhandari Hospital & Research Centre] the amounts so surrendered by the partner of the firm is related to proceed of crime.

22. Ld. Pr. CIT has also observed that the Assessing Officer failed to make enquiry in respect of year wise investment. No material is placed by the assessee  regarding this issue. In our considered view when there is claim of investment being made out of unrecorded hospital receipts he ought to have made investigation regarding year wise investment. This observation of the Ld. Pr. CIT is  sustained.

23. Further, another ground for revising the order of Ld. Pr. CIT allowing higher depreciation claim of the assessee.

24. We have perused rules and case laws as relied on by the Ld. counsel for the assessee. We do not find any infirmity into the action of the assessing officer for granting depreciation @ 40%. Therefore, this ground of the Ld. Pr. CIT is also not sustainable for affirming the action u/s 263 of the Act.

25. Lastly, Ld. Pr. CIT revised the order on the ground that the assessing officer has allowed expenditure of salary amount to Rs.4,75,90,791/- without verifying whether TDS as per provisions of the Income Tax was made or not. It is stated that the details of TDS was duly filed in support of this contention. The assessee drew our attention to paper book pages 115-116 of the paper book and also pages no. 750-764, therefore, it cannot be inferred that the assessing officer was simply allowed as not verified the tax deducted at source. This ground of Ld. Pr. CIT is also not sustainable on the facts and material on records.

25. In the result, appeal of the assessee is partly allowed.

Order was pronounced in the open court on 20 .03.2020.