Gujarat High Court
Dayaram Brijbhukhandas vs The Principal Commissioner Of Income ... on 20 June, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025
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Reserved On : 18/03/2025
Pronounced On : 20/06/2025
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6332 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 6334 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 6335 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 6377 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 6376 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
✓
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DAYARAM BRIJBHUKHANDAS
Versus
THE PRINCIPAL COMMISSIONER OF INCOME TAX, VALSAD
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Appearance:
MR SN SOPARKAR, SENIOR ADVOCATE WITH MR B S SOPARKAR(6851)
for the Petitioner(s) No. 1 (SCA NOS.6332/2022, 6334/2022, 6335/2022)
MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K
PARIKH for the Petitioner(s) No. 1 (SCA NOS.6377/2022,6376/2022)
MR NIKUNT RAVAL for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
CAV JUDGMENT
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1. Heard learned Senior Advocate Mr. S.N. Soparkar with learned advocate Mr. B.S. Soparkar for the petitioner in Special Civil Application No.6332/2022 and Special Civil Application No.6334/2022 and Special Civil Application No.6335/2022, learned Senior Advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner in Special Civil Application No.6376/2022 and Special Civil Application No.6377/2022 and learned Senior Standing Counsel Mr. Nikunt Raval for the respondent.
2. These petitions were heard together as common issue challenging the notice under section 263 of the Income Tax Act, 1961 Page 2 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined (For short "the Act") on the issue of cash deposited in the bank accounts of the petitioners after demonetization relevant to Assessment Year 2017-2018 were raised.
3. For the sake of convenience Special Civil Application No. 6332/2022 is treated as the lead matter.
4. Facts of Special Civil Application No.6332/2022 are that the petitioner, a partnership firm, is engaged in the business of manufacturing and trading of gold and silver ornaments and gold bullion.
5. The petitioner filed the return of income declaring total income at Rs. 20,42,019/- on 30.10.2017 for Assessment Page 3 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined Year 2017-2018.
6. Case of the petitioner was taken up for scrutiny under Compulsory Manual Selection on the issue of cash deposit during demonetization period. Notices under section 142(1) of the Act were issued to examine the various issues including the issue of nature and income treatment of cash deposited during the demonetization period which were replied by the petitioner from time to time providing all the information called for by the Assessing Officer.
7. The assessment order under section 143(3) of the Act was passed on 31.12.2019 rejecting the books of accounts of the petitioner by making addition of Page 4 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined Rs.13,21,500/- and total income of the petitioner was assessed at Rs.33,63,520/-.
8. The respondent Principal Commissioner of Income Tax, Valsad (PCIT) thereafter issued the impugned notice dated 19.03.2022 under section 263 of the Act.
9. Being aggrieved, the petitioner has preferred this petition with a prayer to quash and set aside the impugned notice dated 19.03.2022.
10. So far as Special Civil Application No. 6334/2022 and Special Civil Application No.6335/2022 are concerned, notice under section 263 of the Act pertains to alleged abnormal deposit of cash during the demonetization period Page 5 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined after the assessment orders are passed under section 143(3) of the Act conducting complete scrutiny. Similarly in facts of Special Civil Application No.6376/2022 and Special Civil Application No. 6377/2022 are concerned, notice under section 263 of the Act is issued, after proper inquiry made by the Assessing Officer who passed order under section 143(3) of the Act.
11. This Court while issuing the notice has granted interim stay qua implementation and operation of the impugned notice.
12. Learned Senior Advocate Mr. S.N. Soparkar for the petitioner submitted that the impugned notice under section 263 of the Act is without jurisdiction and is in Page 6 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined gross violation of the fundamental rights guaranteed Articles 14 and 19(1)(g) of the Constitution of India.
13. It was submitted that the impugned notice was issued on the ground that the Assessing Officer completed the assessment under section 143(3) of the Act without carrying out proper verification on various issues namely,
1) difference in value of assets shown in the balance sheet and the value of assets shown in the computation of income.
2) difference in value of purchases shown in reply dated 07.09.2019 and the value shown in the profit and loss account. Page 7 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025
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3) nature of cash deposit made after demonetization.
14. It was submitted that on all the three issues, the respondent could not have assumed jurisdiction as the assessment order is neither erroneous nor prejudicial to the interest of Revenue.
15. It was submitted that the value of assets in the books of accounts and under the Income Tax Act are bound to be different due to difference in the rate of depreciation under the Companies Act and the Income Tax Act and so far as second issue is concerned, the petitioner has correctly disclosed the purchases in the profit and loss account and break-up of the purchases of gold bar and gold Page 8 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined ornaments were also provided and there is no discrepancy in view of break-up given by the petitioner.
16. So far as cash deposit after demonetization is concerned, it was submitted that the return of income of the petitioner was selected for manual scrutiny specifically to examine the issue of cash deposit during the demonetization period and the Assessing Officer during the course of regular assessment made thorough inquiry on every aspects of the cash deposited by the petitioner and its nature and its impact on the income. It was pointed out that the Assessing Officer being dissatisfied by the replies of the petitioner has rejected the books of accounts and has made addition to the Page 9 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined income on the basis of gross profit rate of earlier years.
17. It was therefore, submitted that on the very same issue of cash deposit, the respondent could not have assumed jurisdiction under section 263 of the Act as the assessment order cannot be said to erroneous and prejudicial to the interest of the Revenue.
18. Learned Senior Advocate Mr. Soparkar invited the attention of the Court to the computation of total income in Form of return of income to show the quantity details reflected therein and reply filed by the petitioner to the notices issued under section 142(1) and 143(2) of the Act wherein the petitioner has provided Page 10 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined complete details regarding the bank accounts and the cash deposited during the year which was taken note of by the Assessing Officer in the assessment order dated 31.12.2019.
19. In support of his submissions, reliance was placed on the decision of this Court in case of JMC Projects (India) Limited v. Principal Commissioner of Income Tax (Central) reported in (2016) 67 taxmann.com 258 (Gujarat) wherein it is held that powers under section 263 of the Act cannot be exercised when no addition has been made on the footing of the premises which are not to the satisfaction of the Commissioner and therefore, additions cannot be made on better premises with better reasoning or on Page 11 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined different application of legal principles, hence, it is held that Commissioner lacked jurisdiction to issue notice under section 263 of the Act.
20. It was pointed out that this Court entertained the writ petition against the show cause notice issued under section 263 as the very foundation of the notice and jurisdiction of the Commissioner to exercise such powers was under challenge and it was held that question of relegating the petitioner to alternative remedy or to permit the Commissioner to complete the proceedings and thereafter to direct the petitioner to take appeal route would not arise. It was therefore submitted that in the facts of the present case, this petition may be entertained, and the petitioner should not be relegated Page 12 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined to alternative remedy by permitting the Commissioner to complete the proceedings and thereafter to direct the petitioner to take appeal route.
21. Reliance was placed on the decision of this Court in case of Aryan Arcade Ltd. v. Commissioner of Income Tax reported in (2017) 84 taxmann.com 293 (Gujarat) to submit that provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous and prejudicial to the interest of Revenue, the Commissioner could have assumed the revisional jurisdiction.
22. Reliance was placed on the decision of Page 13 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined this Court in case of Commissioner of Income Tax v. Kamal Galani reported in (2018) 95 taxmann.com 261 wherein it is held that once the Assessing Officer carried out detailed inquiries, it was not open for the Commissioner to reopen the issues on mere apprehension and surmises and therefore, Tribunal was justified in setting aside the revision order in facts of the said case. It was submitted that the Hon'ble Supreme Court dismissed the SLP arising out of said decision in case of Commissioner of Income Tax v. Kamal Galani reported in (2019) 110 taxmann.com 213 (SC).
23. Learned Senior Advocate Mr. Tushar Hemani adopted the submissions of learned Senior Advocate Mr. S.N. Soparkar and Page 14 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined further submitted that in case of Siddhi Infrabuild(P) Ltd. v. Principal Commissioner of Income-tax reported in (2025) 172 taxmann.com 232 (Gujarat) this Court has held that the Principal Commissioner could not have assumed the jurisdiction when the Assessing Officer has made inquiry with regard to an issue.
24. Learned Senior Standing Counsel Mr. Nikunt Raval for the respondent submitted that the impugned notices under section 263 of the Act are issued after income tax department identified more than 60,000 persons/entities, some of them described as "high-risk" under "Operation Clean Money" and such entities were subjected to scrutiny of their tax returns. Page 15 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025
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25. It was submitted that such cases include businesses claiming cash sales as the source of cash deposits, such as petrol pumps, jewelers and other essential services like hospitals which were found to be excessive compared with their past profile or industry norms after the note- swap was announced on November 8, 2016. It was further submitted that various persons including government or public sector employees and others having huge black money made fictitious high-value purchases and thus layered or laundered funds using petrol pumps, jewelers and other essential services like hospitals.
26. It was therefore, submitted that under such circumstances, cases of the petitioners were selected for complete scrutiny for verifying the business of the Page 16 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined assessee and to see whether the huge cash deposited in the bank represent genuine business transactions or not as demonetization was aimed at the elimination of black money that casts a long shadow of parallel economy on real economy of the country and "operation clean money" was one of the major steps aimed at achieving this goal and also to widen the tax base.
27. It was submitted that in some cases, the Assessing Officer even after it was observed that cash transactions shown by the assessee are one time transactions and non-genuine, accepted the income disclosed by the assessee and taxed only a fraction of such transactions and thereby the very purpose of such scrutiny to unearth the generation and conversion of black money Page 17 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined was vitiated thwarting the efforts of the Government in such direction.
28. It was submitted that in view of such facts, the respondent PCIT has invoked the revisional powers under section 263 of the Act by issuing the impugned show cause notices to the petitioners.
29. It was further submitted that considering the facts of each case, notices under section 263 of the Act was issued, more particularly, relying upon Explanation 2 to section 263 which stipulates that for the purpose of section 263 of the Act, an order passed by the Assessing Officer shall be deemed to be erroneous insofar as it is prejudicial to the interests of the Revenue, if in the opinion of the Principal Commissioner of Page 18 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined Income Tax, the order is passed without making inquiries or verification which should have been made.
30. It was therefore, submitted that in view of facts of each petition, these petitions are premature as the petitioners are required to file reply to the show cause notices which will be considered by the respondent PCIT on merits and thereby decide under the provisions of section 263 of the Act.
31. It was therefore, submitted that the petitions are required to be dismissed as the petitioners have alternative efficacious remedy to challenge the order passed under section 263 of the Act before the Income Tax Appellate Tribunal as the Page 19 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined impugned show cause notices clearly demonstrates that on perusal of the assessment record, the assessment orders have been passed without making inquiries and verification which ought to have been made by the Assessing Officer prior to allowing the reliefs and accepting the cash deposits made by the petitioners after demonetization.
32. Learned Senior Standing Counsel Mr. Raval also referred to and relied upon SOP issued by Central Board of Direct Taxes being Instruction No.03/2017 dated 21.02.2017 to be followed by the Assessing Officer for verification of cash transactions relating to demonetization. It was submitted that the Assessing Officer has not followed such SOP while Page 20 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined framing the assessment orders under section 143(3) of the Act. Reference was also made to Instruction No.04/2017 dated 03.03.2017 issued by CBDT prescribing Template to be used for issue of notices under section 133(6) of the Act in appropriate cases for Online verification of cash deposits.
33. It was submitted that the Assessing Officer has failed to carry out the verification as per the instructions issued by CBDT and therefore, the impugned notices are valid, and the Commissioner has rightly invoked revisional powers under section 263 of the Act.
34. In support of such submission, reliance was placed on the decision of Page 21 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined Hon'ble Madras High Court in case of Hemalatha Rajan v. Deputy Commissioner of Income-tax reported in (2024) 168 taxmann.com 669 (Madras) wherein it is held that the submission of the assessee about the verification and scrutiny of the facts by the Assessing Officer during the scrutiny assessment order cannot be accepted, as nothing has been stated as to what inputs and documents have been sought for under the scrutiny assessment order from the assessee and what documents have been filed by the assessee and whether such documents have been perused and verified to come to the conclusion to confirm the income as admitted as per the return. As the Assessing Officer in facts of the said case failed to consider such issues and the issues which were found out Page 22 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined by revisional authority on the basis of records of the petitioner which have not been verified or scrutinised properly by the Assessing Officer, that would be prejudicial to the Revenue and therefore, revisional powers under section 263(3) of the Act have been rightly invoked.
35. Reliance was also placed on the decision in case of Piyara Lal v. Principal Commissioner of Income tax and another (order dated December 01, 2017 in Civil Writ Petition No. 27324 of 2017), wherein the Hon'ble Supreme Court dismissed the writ petition against the show cause notice issued under section 263 of the Act and petitioner was advised to submit objection against the show cause notice and if any adverse order is passed, Page 23 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined petitioner would have remedy against the same in accordance with law.
36. Having heard the learned advocates for the respective parties, it would be germane to refer to section 263 of the Act. Relevant extract of section 263 of the Act reads as under:
"263. Revision of orders prejudicial to revenue.
(1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case Page 24 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined justify, [including,--
(i) an order enhancing or
modifying the assessment or
cancelling the assessment and directing a fresh assessment; or
(ii) an order modifying the order under section 92CA; or
(iii) an order cancelling the order under section 92CA and directing a fresh order under the said section].
xxxx Explanation 2.--For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,--
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing Page 25 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined 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."
37. On perusal of the impugned show cause notices issued under section 263 of the Act, it is revealed that the respondent PCIT has invoked revisional powers under section 263 of the Act after considering that the assessment orders have been passed without making inquiry and verification or without going through return of income filed by the assessee in each case. It is also observed by the respondent PCIT that no inquiries have Page 26 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined been made as per Instruction No.3/2017 and Instruction No.04/2017 issued by CBDT by the Assessing Officer regarding cash deposit made by the petitioners which ought to have been charged to tax by applying tax rate under section 115BBE of the Act but the same was wrongly considered as unexplained amount as inflated sales shown by the assessee resulting into loss of revenue. It was therefore, observed by PCIT that assessment orders are erroneous and prejudicial to the interest of Revenue.
38. The Hon'ble Apex Court in case of Malabar Industrial Co. Ltd. v. CIT reported in 243 ITR 83(SC) has held in detail regarding powers and jurisdiction of the PCIT to revise the order of Page 27 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined Assessing Officer where the assessment has already been made scrutinising the record during the original assessment.
39. This Court in case of JMC Projects (India) Limited (supra), rendered on 21.12.2015, in the facts of the said cases has held that writ petition under Articles 226/227 of the Constitution is maintainable when the question is the very foundation of the notice and jurisdiction of the Commissioner to exercise such revisional powers by observing as under:
"9. The Commissioner does not dispute this aspect of the matter. Though in the impugned notice there is no such clear-cut admission to detailed assertion made by the petitioner in the petition backed by materials on record, there is no denial in the reply filed by the Commissioner. We would, therefore, proceed on Page 28 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined the basis that against the proposed addition of Rs.105.36 crore suggested by the Commissioner in the impugned notice, the assessing officer under the same heads for the assessment years in question had made addition of Rs.123 crore to the income of the assessee. The crucial question, therefore, arises whether revisional powers under section 263 of the Act can be exercised. As held by the Supreme Court in the case of Malabar Industrial Co. Ltd. (supra), powers under section 263 of the Act would be available when an order of assessment is shown to be erroneous and prejudicial to the interests of the revenue. In other words, both the conditions, namely, that the order of assessment is erroneous and that is also prejudicial to the interests of the revenue must exist to give jurisdiction to the Commissioner to take an order of assessment in revision.
10. In the case of Commissioner of Income-tax v. Jawahar Bhattacharjee reported in (2012) 341 ITR 434, Full Bench of Gauhati High Court held that not holding such inquiry as is normal and not applying the mind to relevant material in making an assessment would be an erroneous assessment.Page 29 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025
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11. In the case of Income-Tax Officer vs. DG Housing Projects Ltd. reported in 343 ITR 329, Division Bench of Delhi High Court held that, a 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. The matter cannot be remanded for a fresh decision to the assessing officer to conduct further inquiries without a finding that the order is erroneous.
12. As noted, Division Bench of this Court in case of Smt.Minalben S. Parikh (supra) held and observed that, if income in question has been taxed and legitimate revenue due in respect of that income had been realized, though as a result of order having been made in that respect, the Commissioner cannot exercise powers for revising the order under section 263 of the Act merely on the basis that the order under consideration is erroneous.
13. In view of such legal position, we are afraid, the Commissioner could not have issued the impugned notice seeking to revise the order of assessment on the premise that the assessing officer did not apply the correct Page 30 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined parameters and though taxed the same income, by applying wrong methodology. We may recall, in the impugned order the Commissioner expressed prima facie opinion that the entire expenditure of Rs.105.36 crore was liable to be disallowed and added to the total income of the assessee. The assessing officer, instead of making specific addition, rejected the books of accounts by invoking section 145 (3) of the Act and estimated the G.P. for different years.
14. As noted, when tax additions were made which resulted into orders of assessment being framed levying tax on the same income, the orders of assessment cannot be stated to be prejudicial to the interests of the revenue. To the factual aspect, even the Revenue is unable to raise any contest. The apprehension of the revenue appears to be that if the logic adopted by the assessing officer is not accepted in appeal, the entire additions would be deleted. Under the circumstances, if the correct methodology, as suggested by the Commissioner in the impugned notice, is adopted, the additions would stand the test of law. In other words, the Commissioner desires that the order of assessment should be Page 31 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined better written and flaws, if any, be ironed out. In our opinion, powers under section 263 of the Act are not meant for improving an order of assessment. As long as the income is assessed and tax as per the law levied, the order cannot be stated to be prejudicial to the interests of the revenue and, therefore, not revisable.
15. There is one more reason why we cannot share the apprehension of the revenue. When an order of assessment is framed and certain additions made resulting to levying of tax, two situations may arise. The assessee may accept such assessment and so far as the tax levied is concerned it would achieve finality. If the assessee is aggrieved by the order of assessment, he has a right to appeal to the appellate Commissioner under section 246 of the Act. Section 251 of the Act lays down the powers of appellate Commissioner. Sub-section (1) thereof provides, inter alia, that the Commissioner, while disposing of an appeal against the order of assessment, shall have the power to confirm, reduce and enhance or annul the assessment. Thus, once an appeal is filed by the assessee against an order of assessment, the appellate Commissioner while disposing of such appeal would Page 32 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined have wide powers not only to annul the assessment or to reduce the assessment made by the assessing officer, but also to confirm or even enhance the assessment. In that view of the matter, we do not see any limitation on the power of the appellate Commissioner in the appeals filed by the present assessee in examining the real essence of the expenditure claimed by the assessee towards the payments made to the said controversial vendors. Merely because the assessing officer has made additions in a particular manner would not mean that the Commissioner (Appeals) would be confined to scrutiny of the methodology adopted by the assessing officer and to proceed either to confirm or to delete the additions, if such methodology is not found entirely satisfactory. Even without the aid of these wide powers, the appellate authority would have inherent power to uphold the additions on correct application of law and facts if sustainable even if on the reasoning of the assessing officer is not found correct. In other words, the appellate authority is not bound by the reasoning of the assessing officer and can through different route reach the same conclusion.
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16. Under the circumstances, we do not think that the powers under section 263 of the Act can be exercised when, though addition has been made, on the footing of the premises which are not to the satisfaction of the Commissioner and, therefore, to make additions on better premises with better reasoning or on different application of legal principles.
17. In the result, in our opinion, the Commissioner lacked jurisdiction to issue the impugned notice. When the question is the very foundation of the notice and jurisdiction of the Commissioner to exercise such powers, the question of relegating the petitioner to alternative remedy or to permit the Commissioner to complete the proceedings and thereafter to direct the petitioner to take appeal route does not arise."
40. The Hon'ble Apex Court thereafter, recently while considering the challenge to the show cause notice under section 263 of the Act in case of Piyara Lal (supra), has held as under:
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NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined "The petitioner has been served with a show-cause notice under Section 263(1) of the Income Tax Act, 1961 for re-assessment of his income in respect of the Assessment Year 2010-11. The show- cause notice dated 17/20.11.2017 (P-10) is self-speaking and self- explanatory. It requires the petitioner to show-cause as to why the order suggested therein be not passed for which objections have already been invited from the petitioner on or before 01.12.2017.
In our considered view, no writ petition is maintainable against a show-cause notice. The petitioner, if so advised, may submit objections against the show-cause notice and if any adverse order is passed, he shall have his remedy against the same in accordance with law.
The writ petition is dismissed as not maintainable. However, with a view to enable the petitioner to submit objections, it is directed that if the petitioner submits his objections by 05.12.2017, the same shall be considered on merits and in accordance with law."
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NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined
41. In the above decision of the Hon'ble Apex Court, it is categorically held that no writ petition is maintainable against the show cause notice under section 263(1) of the Act when notice is self-speaking and self-explanatory and it is for the petitioner to show cause as to why order suggested therein be not passed by raising the objection.
42. The Hon'ble Madras High Court also in case of Hemalatha Rajan (supra) has held that whether the documents filed by the petitioner during the original assessment have been perused and verified by the Assessing Officer or not is required to be considered by the PCIT during the course of proceedings under section 263 of the Act.
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NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined
43. In the facts of the present cases, it is not in dispute that the petitioners have made deposit of cash in their respective bank accounts after the demonetization and the details were submitted by the petitioners before the Assessing Officer for such deposits during the year under consideration as sales made during the period between October, 2016 to 8th November, 2016.
44. On perusal of the assessment record, it is prima facie observed that verification of cash sales/purchases as per the instructions mentioned in CBDT Instruction No.04/2017 dated 03.03.2017 has not been done by the Assessing Officer. Instruction No.04/2017 refers to the template to be used for issuance of notices under section 133(6) of the Act Page 37 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined which provides for submitting details of transactions relating to cash deposit during 9th November to 30.12.2016 as per the SOP contained in Instruction No.03/2017. Para No.5 of Instruction No.03/2017 provides for conducting verification which reads as under:
"5. CONDUCTING VERIFICATION At the outset, it should be clearly understood that this exercise relates to preliminary verification of information only and the same should not be construed as conducting scrutiny or in-depth authentication. The entire process envisages end-to- end e-verification in which the concerned person would be required to electronically file his response on e- filing portal which shall be examined and monitored electronically by the tax department through Online Verification platform (ITBA). The two systems are harmonized in a manner so that the person under verification is not required to attend the Income-tax office personally under any circumstance and at any stage during the verification exercise. It has been endeavour of CBDT to identify and target the potential cases through e-Page 38 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025
NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined verification so that possible instances of grievances arising from the process of verification are minimized.
5.1 The online verification should be focussed and limited to the issue under verification the outcome of which is either 'Acceptable' or 'Non- Acceptable'. The queries raised should be relevant and limited in number since this is a preliminary verification process only.
5.2 The Assessing Officer is required to verify each information record individually and take a decision about each record being 'Acceptable' (where the nature and source of cash deposit for that particular record is explained by the person under verification to the prima-facie satisfaction of the Assessing Officer) or 'Non-Acceptable' (where the Assessing Officer is not satisfied with the explanations offered by the person under verification based on the information available). For each 'Non- Acceptable' information record, the undisclosed income will have to be ascertained and recorded along with verification remarks on the portal (the format has been reproduced in the Verification Guide].
5.3 The information relating to cash transactions and response submitted by the person under verification will be Page 39 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined visible to the Assessing Officer and his supervisory officers.
5.4 The Assessing Officer will also be able to send a request for additional information, if required. The information request would be communicated to the PAN holder with a Hyperlink for uploading the information. The uploaded information can also be downloaded by the Assessing Officer.
5.5 It is reiterated that no independent enquiry or third party verifications are required to be made by the Assessing Officer outside the online portal. Whatever information is necessary during verification, the same has to be collected through the person under verification using online platform only. Even telephonic queries are to be avoided.
5.6 While conducting verification, seeking additional information and drawing inference regarding source of deposits in bank or other accounts, for general and broad guidance of the AOs, the source specific verification guidelines has been given in the Annexure with a view to maintain consistent approach during verification. If the sources informed by the person under verification are other than those indicated in the Annexure, suitable parameters should be decided by the AO in consultation Page 40 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined with the range head and Pr. CIT concerned.
5.7 It should be ensured that the communications made online with the persons under verification should be in very polite language without containing any element of threat or warning. No show cause of any kind should be given.
5.8 The verification of a particular case shall be complete only when:
(a) each information record reflected in that case gets verified and has been marked either as 'Acceptable' or 'Non-Acceptable' (with mentioning of undisclosed income in the latter category); and
(b) Approval has been given by the supervisory authority as prescribed at Para 7 of this instruction.
5.9 If no satisfactory explanation is provided, the undisclosed income may be quantified considering the facts of the case. Brief summary of verification may be mentioned under verification remarks.
5.10 The cases under the 'Non Acceptable' category would get escalated back to the Directorate of Systems and may lead to advance processing of such cases for further handling as cases involving possible Page 41 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined tax- evasion.
5.11 In case the person under verification does not respond within the time frame prescribed, it might lead to a possible inference that the cash deposit under verification is prima-facie undisclosed and consequently the AO may treat these cases under the 'Non Acceptable' category with relevant remarks. 5.12 A holistic view should be adopted looking into the various aspects of the circumstances leading to deposit of cash (e.g. family-size, financial status and background of person) and uniformity in approach must be adopted while forming a view about quantum of undisclosed income."
45. On perusal of the above SOP, the Assessing Officer was required to verify the cash deposit made by the petitioners in the bank account during the demonetization period as per the Annexure to the SOP which contains the details as per the cash deposited out of earlier income or savings, cash out of receipts exempt from tax, cash withdrawn out of Page 42 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined bank account, cash received from identifiable persons with PAN and without PAN, cash received from un-identifiable persons and cash disclosed or to be disclosed under PMGKY.
46. The respondent PCIT has prima facie observed that the Assessing Officer has passed the assessment order without verification which ought to have been made.
47. In view of foregoing reasons, we are not inclined to examine the case on merits as these petitions are not required to be entertained in view of the order passed by Hon'ble Apex Court in case of Piyara Lal (supra) considering the facts of the case and the petitioners if so advised, may submit objections against the show cause Page 43 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025 NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined notices and if any adverse order is passed, the petitioners shall have alternate remedy to prefer an appeal before the Tribunal in accordance with law.
48. Petitions are accordingly dismissed as not entertainable. However, with a view to enable the petitioners to submit objections, the respondents shall consider such objections on merits if submitted within a period four weeks from today and decide the impugned notices in accordance with law.
49. We make it clear that we have not expressed any opinion on merits of each case and the petitioners are entitled to raise all the contentions on merits which are raised in these petitions before PCIT. Page 44 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025
NEUTRAL CITATION C/SCA/6332/2022 CAV JUDGMENT DATED: 20/06/2025 undefined Interim relief granted earlier stands vacated forthwith. Notices are discharged accordingly.
(BHARGAV D. KARIA, J) (D.N.RAY,J) RAGHUNATH R NAIR Page 45 of 45 Uploaded by RAGHUNATH R NAIR(HC00196) on Sat Jun 21 2025 Downloaded on : Mon Jun 23 22:57:38 IST 2025