| SooperKanoon Citation | sooperkanoon.com/71223 |
| Court | Income Tax Appellate Tribunal ITAT Chandigarh |
| Decided On | Aug-28-2000 |
| Judge | N Karhail, J Pall |
| Appellant | Biru Mal Pyare Lal |
| Respondent | Assistant Commissioner of |
2. That the ld. CIT(C) has wrongly not appreciated the facts of the case.
Thus, the only effective issue raised in this appeal is that the CIT(C) was not justified in setting aside the assessment order under section 263 of the Income-tax Act.
3. The relevant facts of the case are that the assessee is a partnership firm. The Income-tax Department had carried out search operations under section 132 of the Act at the premises of this group on 16-12-1986. Such action resulted in seizure of books of account and documents which indicated that the assessee was carrying on parallel business outside the regular books of account. Thereafter, a notice under section 139(2) of the Act was issued. The assessee filed return declaring therein loss of Rs. 43,810. On the basis of entries in the duplicate sets of accounts, the Assessing Officer completed the assessment under section 143(3) on 27-2-1990 determining total income of Rs. 4,77,472.
4. Subsequent to the completion of assessment under section 143(3), CIT noted that the assessment order passed by the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue for the reasons that while making the assessment, the Assessing Officer accepted a large number of cash credits appearing in the books of account seized as genuine in the absence of any evidence. On examination of records, the CIT also observed that further inquiries made revealed that some of the parties had denied having advanced any amounts to the assessee. Accordingly, the CIT issued a show cause notice to the assessee why the assessment order should not be set aside/modified to be made afresh in accordance with law. In reply to the show cause notice, the assessee objected to the proposed action on the ground that CIT had no authority to pass such order under section 263. It was contended that as per provisions of section 68, it is not necessary that in each and every case, where the explanation offered by the assessee was unsatisfactory, addition must be made. It is a matter within the discretion of the Assessing Officer. It was also contended that as per provisions of section 132(4A), the contents of books of account found in possession of any person in the course of search are to be accepted as true. Therefore, it could not be said that cash credits recorded in the books of account seized were not correct and case warranted further inquiry. It was also submitted that the Assessing Officer after due application of mind and keeping in view the provisions of section 132(4A) had correctly accepted the cash credits while completing the assessment under section 143(3). It was also submitted that the judgment of Allahabad High Court in the case of Pushkar Narian Sarraf v. CIR [1990] 183 ITR 388 was not applicable to the facts of the case. The assessee had also relied on the decision of CIT(A) in the cased of a sister concern, namely, Biru Mal Gauri Shankar Jain, where on identical facts the CIT(A) deleted the addition of Rs. 25,000 made on account of cash credits introduced in the duplicate books of account. By deleting the addition in that case, the CIT(A) had relied on the provisions of section 132(4A) of the Act.
5. After considering the various submissions of the assessee, the CIT came to the conclusion that the Assessing Officer had completed the assessment without making any inquiry into the genuineness of the cash credits found in the duplicate books of account. He also observed that the decision of the Kerala High Court in the case of CIT v. Smt P.K.Noorjehan [1980] 123 ITR 3 relied on by the assessee, was not applicable to the facts of the case because in this case some of the creditors denied having advanced the amounts shown in their names in the duplicate books of account. The CIT also noted that the contention of the assessee that the contents of entries found in the duplicate sets of books of account were liable to be accepted in view of the provisions of section 132(4A) was without any merits. For this purpose, he relied on the judgment of Allahabad High Court in the case of Pushkar Narain Sarraf (supra) where Hon'ble Allahabad High Court has held that provisions of section 132(4A) are applicable only to summary proceedings under section 132(5) and do not override provisions of section 68 in the regular assessment proceedings. The CIT also noted that the decision of CIT(A) in the case of sister concern, where addition of Rs. 25,000 has been deleted, was not applicable to the present case because the CIT(A) did not have the benefit of Allahabad High Court judgment cited, (supra). Having regard to these facts, the CIT noted that the Assessing Officer made the assessment under section 143 without making any inquiry in regard to the genuineness of cash credits. He had also not examined the creditworthiness of the creditors and the genuineness of the transactions. More so, some parties denied having given loans to the assessee. Therefore, the CIT held that the order of the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue. Accordingly, he set aside the assessment and directed the Assessing Officer to make fresh assessment according to law and after making proper inquiries and affording reasonable opportunity to the assessee. The assessee is aggrieved by the order of CIT and hence this appeal before the Tribunal.
6. Shri G.C. Sharma, ld. counsel for the assessee, submitted that assessee was maintaining duplicate sets of accounts which were seized during the course of search. The duplicate sets of account contained names of a large number of persons from whom assessee had borrowed money. The Assessing Officer completed the assessment under section 143(3) after examining the books of account including duplicate sets of accounts. The CIT has not found fault with the assessment on any other points except one that while completing the assessment, the Assessing Officer had not made inquiries in regard to the genuineness of cash credits. He referred to the provisions of section 132(4A) of the Act which provide that where any books of account, other documents etc. are found in possession or control of any person in course of search, it may be presumed that such books of account, other documents, etc.
belonged to such person and the contents of such books of account and other documents are true. He submitted that obviously, the duplicate sets of accounts were not intended to be produced before the Assessing Officer and, therefore, the assessee had not recorded wrong entries therein. He submitted that in view of section 132(4A), the Assessing Officer was duty-bound to accept the entries recorded in the duplicate books of account as correct. He also submitted that it is not correct to say that provisions of section 132(4A) would apply only to orders under section 132(5) and not to regular assessment. He drew our attention to provisions of section 278D(1), which provide that provisions of section 132(4A) would also be applicable in the case of prosecution under section 278D(1). He submitted that such statutory presumption which is applicable to prosecution should equally be applicable to regular assessment. He further submitted that statutory presumption is in conformity with the common sense view. The entries recorded in the duplicate sets of accounts, which are obviously not intended to be produced before the Assessing Officer must be accepted as true. Having regard to these facts, the Assessing Officer had correctly accepted the cash credits recorded in the duplicate sets of books of account. There was no error of law. Relying on the judgment of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108, he submitted that power conferred on the CIT under section 263 can be exercised only if the assessment order is erroneous. The condition of error of law is must for the purpose of exercising jurisdiction under section 263. He submitted that the assessee cannot be confronted the postmortem of the assessment completed by the Assessing Officer in accordance with the provisions of law merely because the CIT feels that Assessing Officer had not completed the assessment after making due inquiries. He submitted that in such a case, provisions of section 147 could be invoked. He submitted that there was no error of law in the assessment order and, therefore, the CIT had no jurisdiction to pass order under section 263. He also relied on the order of Delhi High Court in the case of Addl. CIT v. J.K.D'Costa [l982] 133 ITR 7 to contend that assessment order cannot be revised by the CIT under section 263 on the basis of minor omission or mistake in the assessment order. He also submitted that cancellation of assessment and a direction to the Assessing Officer for making fresh assessment is called for only in cases where there is something totally or basically wrong with the assessment which is not capable of being remedied by amendment to the assessment order itself. He, therefore, submitted that setting aside the assessment by the CIT was not proper and in accordance with the provisions of law. In response to a specific query from the Bench as to what inquiries were made by the Assessing Officer at the time of completing the assessment, Shri Sharma filed a copy of the assessment order for the assessment year 1987-88 and drew our attention to the office note recorded by the Assessing Officer as under :-- "There are a large number of credits in the books of the assessee in No. 2. Details have been taken and placed on record. Some of them have declared the income under the Amnesty Scheme. Intimation may be sent in respect of credits to the respective Assessing Officers to take necessary action." He submitted that this fact clearly shows that Assessing. Officer had looked into this aspect while completing the assessment. He also filed a copy of Assessing Officer's letter dated 18-1-1990 addressed to the assessee wherein he had, inter alia, called for information on several points during the course of assessment proceedings. Shri Sharma specifically drew our attention to Item No. VI, where the Assessing Officer had mentioned that as per seized books of account, there were several cash credits aggregating to Rs. 77,40,146. The assessee was called upon to furnish complete details of the creditors, addresses of the persons, confirmations of the loans along with copies of accounts etc. He also filed a copy of assessee's handwritten reply enclosing therewith confirmations from the depositors. Thus, he submitted that Assessing Officer had looked into this aspect while completing the assessment and had accepted cash credits as genuine by referring to the provisions of section 132(4A) and after satisfying himself that no addition was warranted in the case of the assessee. He also drew our attention to the decision of the CIT(A) in the case of Bint Mal Gauri Shankar Jain & Co. for the assessment year 1986-8(tm), the sister concern of the assessee, where on identical facts the Assessing Officer had made addition of Rs. 25,000. The CIT(A) had deleted the addition relying on the provisions of section 132(4A) of the Act. He submitted that likewise no addition could be made in the case of the assessee.
Thus, Shri Sharma concluded that there was no error of law in the assessment order and, therefore, the CIT had no authority to set aside the order under section 263 of the Income-tax Act.
7. On the other hand, Shri Ravi Shankar, the ld. D.R. heavily relied on the order of CIT. He drew our attention to the provisions of section 68 of the Income-tax Act which provide that where any sum is found credited in the books of account of the assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not found satisfactory, the sum so credited is liable to be treated as income of the assessee. He submitted that failure on the part of the Assessing Officer to make inquiries into the genuineness of the cash credits has caused prejudice to the interest of the revenue. Relying on the order of Allahabad High Court in the case of Pushkar Narain Sarraf (supra), Shri Ravi Shankar submitted that presumption raised in section 132(4A) is applicable only to summary orders and presumption raised in this section is rebuttable.
He submitted that provisions of section 132(4A) do not override the provisions of section 68, where the assessee is still required to establish the genuineness of the cash credits found in the books of account. If the contention of the assessee that the contents of the books of account seized during the course of search should be accepted as true, the ld. D.R. contended that it would lead to complete chaos and anarchy in the administration of direct tax laws. He submitted that there was a clear error on the part of the Assessing Officer in not examining the cash credits as per provisions of section 68. Therefore, the CIT has correctly invoked the provisions of section 263 and set aside the assessment.
8. Shri G.C. Sharma, the ld. counsel for the assessee, stated in rebuttal that powers conferred under sections 68 and 69 of the Income-tax Act are discretionary in nature. He submitted that it is not necessary that each and every case where the explanation submitted by the assessee is not found satisfactory must result in addition by way of unexplained cash credit or unexplained investment. He submitted that the power vested with the Assessing Officer is discretionary. For this propositions Shri Sharma relied on the judgment of Hon'ble Supreme Court in the case of CIT v. Smt P.K. Noor Jahan [1999] 237 ITR 570. He, therefore, submitted that the fact that Assessing Officer had not made addition on account of cash credits shows that the Assessing Officer had accepted these cash credits as genuine.
9. We have carefully considered the rival submissions, examined the facts, evidence and material on record. We have also perused the orders of the authorities below and referred to the various documents to which our attention was drawn. We have also referred to the various judgments relied on by the ld. counsel for the assessee and the ld. D.R. Now the main issue that needs to be addressed is whether the CIT was justified in law to exercise his powers vested under section 263 of the Act in setting aside the assessment completed by the Assessing Officer. Before dealing with the merits of the case, it would be relevant to produce herein the main provision of section 263 of the Income-tax Act, which reads as under :-- "Section 263(1) The Commissioner may call for and examine the record of any proceedings 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--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-- (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 Commissioner." A plain reading of the section shows that the CIT is vested with the power to call for and examine the record of any proceedings under the Act and consider if the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Thus there are two prerequisites for the CIT to assume jurisdiction under section 263. The first pre-requisite is that the order passed by the Assessing Officer must be erroneous. The error may be an error of law or an error of fact, but it does not mean that the CIT can assume jurisdiction if the order is merely erroneous. The second prerequisite is that the order must be prejudicial to the interest of revenue.
10. Now, in this case the uncontroverted facts which have emerged are that the assessee was maintaining duplicate sets of accounts. The duplicate books of account contained cash credits amounting to Rs. 77 lakhs and odd. During the course of assessment proceedings, the Assessing Officer called upon the assessee to file confirmation letters and details of the creditors. It appears that the assessee filed such details. The office note recorded below the assessment order referred to by the ld. counsel clearly shows that Assessing Officer did not make any further inquiry except ordering that necessary intimations about the credits may be passed on to the concerned Assessing Officer. He also mentioned that in some of the cases, creditors have disclosed the income under the Amnesty Scheme. In the case of cash credits, it is trite law that the onus squarely lies on the assessee to establish the identity of the creditors, creditworthiness of the creditors and genuineness of the transactions. Failure to do so results in addition under section 68 of the Act. Now, in this case the Assessing Officer has merely accepted the credits on the basis of confirmations filed without making any further inquiry to ascertain the creditworthiness of the creditors and the genuineness of the transactions. The very fact that the office note refers to income disclosed by some of the creditors under the Amnesty Scheme should have provoked the Assessing Officer to make further inquiries to find out the creditworthiness of the creditors and genuineness of the transactions. Their Lordships of the Hon'ble Supreme Court in the case of Jamnaprashad Kanhiyalal v. CIT [1981] 130 ITR 244, have held that the immunity under the Voluntary Disclosure Scheme is conferred on the declarant only and it does not get extended to the person who actually utilises these amounts in his books of account. If this amount is ultimately found credited in the books of account of some other persons, he is duty bound to prove the true nature and source of the credits and the Assessing Officer is within his rights to cause further inquiries made. The same view also finds support from the recent judgment of Hon'ble Madras High Court in the case of CIT v. K. Palaniappan [2000] 242 ITR 719, where the High Court has held that mere declaration of amount under the Voluntary Disclosure Scheme does not mean that the assessee has discharged the onus to prove the source and genuineness of cash credits. The assessee must support such disclosure with some independent material and evidence failing which the Assessing Officer would be justified in adding unexplained credits under section 68 of the Act. Thus, it is clear from the facts of the case that the Assessing Officer has accepted the cash credits without making inquiry into the creditworthiness of the creditors and genuineness of the transactions.
In other words, this aspect of the case was not examined by the Assessing Officer at all.
11. The ld. Counsel for the assessee, Shri G.C. Sharma, has laid emphasis on the provisions of section 132(4A) to canvass the viewpoint that once the entries were found in the duplicate books of account, which were not intended to be produced before the Assessing Officer, the contents of the books of account found and seized during the course of search should be accepted as true. He has emphasised that provisions of section 132(4A) are applicable even to regular assessment. We have given utmost consideration to these submissions but we are unable to accept the same. No doubt, section 132(4A) raises a statutory presumption. But such presumption is rebuttable. The assessee can lead evidence to show that books of account found from his premises either do not belong to him or entries recorded therein do not relate to assessee's business. This point can be illustrated by giving an example. Let us assume that during the course of search at the premises of "A", books of account containing unaccounted income are found. When confronted the assessee explains that these books of account do not belong to him; rather these belong to some other assessee, say "Y" and these were found from his premises because the assessee was working as an accountant with "Y". There is adequate evidence to suggest that the transaction recorded in duplicate books of account actually belongs to "Y" and the assessee was really working as an accountant with "Y". In such a case, it could be said that the assessee has rebutted the presumption raised under section 132(4A) to establish that the books of account and entries recorded therein actually relate to "Y" and not to the assessee. It would cause a grave injustice in the case of the assessee, if merely by relying on the presumption raised under section 132(4A), the Assessing Officer holds that the books of account actually belonged to the assessee and makes huge additions by relying on the entries in such books of account. Therefore, the provisions of section 132(4A) are only correct to the extent the ownership of the books and the correctness of the entries recorded in the books of account, but nevertheless it does not override the requirement of proving the genuineness of the transactions recorded in the books of account at the time of regular assessment. After all, income tax is a levy on income determined at the time of regular assessment. In the case of cash credits, the provisions of section 68 required that assessee must establish the identity of the creditors, creditworthiness and genuineness of the transactions. Failure to do so results in addition under section 68. The mere fact that such credits were found in the duplicate books of account does not mean that these do not warrant any further inquiry to find out the genuineness thereof. Reliance in this regard is placed on the judgment of Hon'ble Allahabad High Court in the case of Pushkar Narain Sarraf (supra), where the Hon'ble High Court has observed as under :-- ".....the Legislature has provided under section 132(4A) that the books of account, other documents, money, bullion, jewellery or other valuable articles seized from the possession of the assessee shall be presumed to belong to the assessee if they arc found in the possession or control of the assessee in the course of the search. A similar presumption may also be made as to the correctness of the contents of the books of account so seized. So also the signature and every other part of the books of account may be assumed to be in the handwriting of the person by whom it is purported to have been written. This presumption cannot, however, have the effect of excluding section 68 when regular assessment is made in regard to the income of the person from whose possession those books of account were seized under section 132. It does not obviate the necessity to establish by independent evidence the genuineness of cash credits." The view expressed by the Hon'ble Allahabad High Court is also logical and reasonable view. Now, there could be a case where at the time of completing the assessment the assessee can explain that the receipts recorded in the duplicate books of account are either exempt from tax or not in the nature of income liable to tax. It does not mean that the Assessing Officer would just make the addition by merely relying on the entries in the seized books of account without critically examining the explanation of the assessee that these entries were not in the nature of income liable to tax. Therefore, we hold that provisions of section 132(4A) do not override the provisions of section 68 of the Income-tax Act. The assessee is still required to prove the genuineness of the cash credits in the books of account. We also do not accept the ld.Counsel's submission that merely because these books were not intended to be produced before the Assessing Officer, the genuineness of the cash credits should be accepted as such without making any inquiry. It should always be borne in mind that assessee is conscious of the powers vested with the income-tax authorities to carry out search and seizure operations. Therefore, in order to disguise its income, the assessee may still show bogus cash credits in the duplicate books of account for which the Assessing Officer is duty bound to make further inquiries.
12. Now, in this case the Assessing Officer has completed the assessment by overlooking the provisions of section 68 of the Income-tax Act and without making any inquiry. The question, therefore, is whether failure on the part of the Assessing Officer to conduct inquiry would lead to the conclusion that the order of the Assessing Officer was erroneous insofar as the same was prejudicial to the interest of revenue. The Hon'ble Calcutta High Court in the case of CIT v. Active Traders (P.) Ltd, [1995] 214 1TR 583, has held that CIT can regard an assessment order to be erroneous, where on the circumstances of the case, he finds that it has been made in undue haste and without proper inquiry. It is incumbent on the Assessing Officer to investigate the facts stated in the return, particularly when circumstances of the case suggest that the inquiry would be necessary or prudent. Hence the word "erroneous" would also include a failure to make such inquiry.
Thus, assessment of a private company without inquiring into the genuineness and credit worthiness of share- holders would attract revision by the CIT. Reliance in this regard is also placed on the judgment of Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl CIT [1975] 99 ITR 375, where the High Court has held as under:-- "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer.
The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 13. The order may be held to be prejudicial to the interest of revenue in case the Assessing Officer fails to make any inquiry. In the case of Tara Devi Aggarwal v. CIT [1973] 88 ITR 323, the facts before the Hon'ble Supreme Court were that the Assessing Officer had accepted the return filed voluntarily without making any inquiry as to whether income shown in the return actually belonged to the assessee. The Hon'ble Supreme Court observed that where an income has not been earned, it is not assessable merely because the assessee wants it to be assessed in his/her hands in order to assess someone else who would have been assessed to a larger amount and rate of tax and the assessment so made will be erroneous and prejudicial to the interest of the revenue and the CIT has jurisdiction to cancel the assessment and direct the Assessing Officer to make the assessment afresh according to law after making proper inquiries.
14. Thus, in view of the legal position explained above, it is obvious that the assessment order passed by the Assessing Officer without making any inquiry into the cash credits running into huge amounts of Rs. 77 lakhs and odd was erroneous and prejudicial to the interest of revenue. It was erroneous because the Assessing Officer completely overlooked the provisions of section 68. It was prejudicial to the interest of revenue because failure on the part of the Assessing Officer to examine the genuineness of the cash credits has resulted in prejudice to the revenue.
15. The action of CIT should also be viewed in the light of the facts that came on record subsequent to the completion of assessment. The CIT has mentioned in his order that subsequently some of the creditors appearing in the duplicate books of account denied having advanced loans shown in their names. As per Explanation (b) of section 263, reference to "records" mean records that were available before the CIT at the time when he considered action under section 263 and not at the lime when the Assessing Officer completed the assessment. Once the creditors deny having given any loans to the assessee, there is a prima facie case for addition to the total income under section 68 of the Act. The Hon'ble Calcutta High Court in the case of CIT v. Oil Extraction (P.) Ltd. [1991] 190 ITR 404, has held that an assessment order which on the face of it was a good order at the time when it was passed may, in the light of information received subsequent to the completion of assessment appear to be erroneous. The Commissioner has the jurisdiction to rectify the order in such a case so as to eliminate the error. In view of this fact, we find that CIT was justified in considering the assessment order as erroneous and prejudicial to the interest of revenue.
16. The ld. Counsel has referred to the decision of Hon'ble Delhi High Court in the case of J.K. D'Costa (supra), where the High Court has quashed the order under section 263 on the ground that an assessment order was not erroneous or prejudicial to the interest of revenue. But it is relevant to note the facts of that case. In that case, the Assessing Officer did not charge interest under sections 139 and 217 at the time of completing the assessment. Besides, the Assessing Officer also failed to initiate penalty proceedings under sections 271(1)(a) and 273(b) at the time of completing the assessment. The CIT passed the order under sections 263 for Assessing Officer's failure to lake aforesaid actions. Hon'ble Delhi High Court upheld the order of CIT so far it related to charging of interest under sections 139 and 217.
However, it did not approve of the order of CIT under section 263 in regard to failure of the Assessing Officer to record his satisfaction about the leviability of penalty in the assessment order on the ground that it did not vitiate the assessment order in that respect. Now, the observations made by Hon'ble Delhi High Court are in the context of questions raised before it. Their Lordships of the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 have held that it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, courts must carefully try to ascertain the true principle laid down by the decision. Now, in this case the facts are entirely different from the facts before the Delhi High Court. In this case action under section 263 has been taken by the CIT on account of Assessing Officer's failure to make inquiries as required under section 68 of the Income-tax Act. It is not a case of Assessing Officer's failure to charge interest or to initiate penalty proceedings in the assessment order. Therefore, the judgment of Hon'ble Delhi High Court, cited supra, is not applicable to the facts of the present case.
17. The next objection of the ld. counsel for the assessee was that CIT was not justified in setting aside the complete assessment. For this purpose, he has relied on the decision of Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra). The facts of that case clearly distinguishable from the facts of the present case. In that case, the Assessing Officer had allowed assessee's claims under section 37 treating expenditure as revenue in nature after making proper inquiries and after examining the explanation of the assessee. Later, the CIT sought to revise the order under section 263 on the ground that the expenditure was capital in nature. The order passed under section 263 was quashed by the Bombay High Court on the ground that the order of the Assessing Officer could not be considered as erroneous or prejudicial to the interest of revenue. But the material difference between the facts of this case and that case are that Assessing Officer has accepted the cash credits by overlooking the provisions of section 68 and without making any inquiry warranted by the facts of this case.
Therefore, the judgment of Hon'ble Bombay High Court, cited supra, is not applicable to the facts of the present case. Moreover, the requirement of law is that the assessment order must be considered erroneous and prejudicial to the interest of revenue in order to enable the CIT to exercise the powers vested under section 263. It is not necessary that CIT should himself make such inquiries. He can direct the Assessing Officer to make such inquiries by setting aside the assessment. All one has to see is whether exercise of powers by the CIT could be considered objective and reasonable having regards to the material available before him. Order under section 263 would become bad only if exercise of powers by the CIT is considered arbitrary or subjective. But on the basis of material and facts on record, we cannot say that the CIT has exercised the power in an arbitrary manner.
Besides, while setting aside the assessment, the CIT has given direction to the Assessing Officer to complete the set-aside assessment in accordance with the provisions of law and after allowing the assessee an opportunity of being heard. Thus, no prejudice is caused to the assessee by recording such a finding. We, therefore, do not find any infirmity in the order of CIT.18. The last submission of the ld. counsel for the assessee that it is not necessary that in each and every case, where explanation of the assessee about the source of investment is not explained to the satisfaction of the Assessing Officer, addition must be made under section 69 of the Income-tax Act. For this proposition, he has relied on the judgment of Hon'ble Supreme Court in the case of Smt. P.K.Noorjahan 237 ITR 570 (supra). We have considered this submission. Even the Hon'ble Apex Court has observed on page 571 of 237 ITR that the question whether the source of investment should be treated as income or not under section 69 has to be considered in the light of the facts of each case. Moreover, the facts of that case are clearly distinguishable from the facts of the present case inasmuch as the finding of Assessing Officer and the appellate authorities were based on the inquiries made by the Assessing Officer. No further inquiry was considered necessary. But in the present case, the Assessing Officer has not made any inquiry in regard to the genuineness of cash credits except calling for the details and placing on record. Further, the decision of CIT is to be viewed in the light of the subsequent information received from some of the creditors denying advancing of loans to the assessee. Mere denial by the creditors may not by itself lead to addition under section 68. But this fact certainly causes serious doubts about the genuineness of the cash credits for which inquiries were warranted. Therefore, these submissions of the ld.counsel for the assessee is also devoid of any merit.
19. Having regard to the facts and circumstances of the case and the material on record, we hold that CIT was justified in holding the assessment order of the Assessing Officer as erroneous insofar as it is prejudicial to the interest of revenue and, therefore, setting aside the same and directing the Assessing Officer to reframe the assessment in accordance with the provisions of law and after allowing the assessee an opportunity of being heard. We do not find any infirmity in the order of CIT passed under section 263. Accordingly, we confirm the order of CIT and dismiss all the grounds of appeal of the assessee.