The Principal CIT cannot substitute his opinion for that of the Assessing Officer unless the latter's view is legally unsustainable, reaffirming the principle that only real income is taxable.

ORDER :

D.N. RAY, J.

1. Heard learned Senior Standing Counsel Mr. Karan Sanghani for the Appellant.

2. The present Tax Appeal is filed under section 260A of the Income Tax Act, 1961, by the Appellant, arising from the order dated 10.11.2023 passed by the Income Tax Appellate Tribunal ITAT (for short “the”) Rajkot, in ITA No. 67/Rjt/2022 for the Assessment Year 2012-2013, proposing the following substantial questions of law:

A) Whether on the facts of the case as well as in law, the Appellate Tribunal was justified in quashing the order under Section 263 of the Income Tax Act particularly when Explanation 2 of Section 263 of the Act was expressly invoked by the Ld. PCIT to deem an order prejudicial and erroneous to the interest of revenue?

(B) Whether on the facts of the case as well as law, the Appellate Tribunal was justified in quashing the order under Section 263 of the Income Tax Act of Ld. PCIT especially when the Assessment Order passed by the AO is unsustainable in law?

(C) Whether on the facts of the case as well as law, the Income Tax Appellate Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act of Ld. PCIT observing that the A.O. not erred in applying the GP rate of 19.40% of total case transaction of Rs. 1,21,81,000/- made by the assessee with National Shroff, especially when Ld. PCIT has correctly observed that the A.O. did not properly examine the issue?

(D) Whether on the facts of the case as well as law, the Income Tax Appellate Tribunal was justified in quashing the order u/s. 263 of the Income Tax Act of Ld. PCIT especially when the order passed by A.O. was erroneous and prejudicial to the interest of revenue?

(E) Whether on the facts of the case as well as law, the Income Tax Appellate Tribunal was justified in allowing the appeal of the assessee against the order u/s. 263 of the Income Tax Act of Ld. PCIT when there was gross inadequacy in inquiry conducted as per order of Apex Court in case of the Commissioner of Income Tax Vs. M/s. Paville Projects Pvt. Ltd. [CA No. 6126 of 2021 (SC)]?

3. The brief facts of the case are as follows:-

3.1 The Assessee is a partnership firm, which had filed its return of income for the Assessment Year 2012-13 on 07.09.2012, declaring the income as Rs.570/-. Subsequently, the case of the Assessee was reopened on the basis of the information/documents found during the course of a search at the premises of M/s. National Shroff (Angadia Group), Rajkot.

3.2 As per the information/documents found during the course of search, the Assessee had entered into a financial transaction amounting to Rs.1,21,81,000/- with M/s. National Shroff. The assessment under Section 143(3) read with Section 147 of the Act was completed on 09.12.2019, declaring the total income of Rs.23,60,690/- by making addition of Rs.23,63,115/- on applying the G.P. rate of 19.40% on unexplained cash transaction of Rs.1,21,81,000/- made by the assessee with the National Shroff.

3.3 Subsequently, the Ld. PCIT, on examination of the assessment records, found that the Assessing Officer had made an addition of Rs.23,63,115/- by taking G.P. @ 19.40% of the total cash transactions of Rs.1,21,81,000/- made with National Shroff. Thus, the Ld. PCIT concluded that the Assessing Officer had not verified the cash transactions amounting to Rs.1,21,81,000/-.

3.4 Accordingly, the Ld. PCIT passed an order dated 02.02.2022, under Section 263 of the Act, cancelling the assessment under Section 143(3) read with Section 147 of the Act, with a direction to make a fresh assessment by making an inquiry and verification.

3.5 Aggrieved by the aforesaid order, the assessee preferred an appeal before the Appellate Tribunal. The Appellate Tribunal has quashed the order under Section 263, holding that the issue under consideration had been examined by the Assessing Officer during the course of assessment proceedings.

4. Mr. Karan Sanghani, learned Senior Standing Counsel submitted that the decision of the ITAT is erroneous and perverse