# Pr. CIT, Bareilly, U.P v. Dharam Singh

- **Citation:** (2024) 11 ILRA 96
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-11-21
- **Case number:** Income Tax Appeal No. 85 of 2024
- **Bench:** Shekhar B. Saraf, Vipin Chandra Dixit
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/pr-cit-bareilly-u-p-v-dharam-singh-51152
- **Pages:** 7

## Headnote

Tax Law - Income Tax Act, 1961 - Sections
143(3) & 263 - Assessment Years 2017-
18 - Appeal against order of Appellate
Tribunal by Commissioner - Assessment
order completed by Assessing Officer -
Subsequently, PCIT by exercising his
jurisdiction revised order on ground that
assessment was prejudicial to interest of
revenue, set aside assessment order,
directed for de novo assessment - Order
was challenged before Tribunal and held
that inquiries by Assessing Officer in
respect of cash deposit of Rs.91 lakhs was
proper and thereafter assessment order
was passed. (Para 3)

Held, Tribunal has gone into details of
questionnaire issued by Assessing Officer,
examined inquiry carried out by Assessing
Officer in detail and thereafter, held in
favour of assessee, examined replies given
by assessee - Tribunal concluded that it
was
not
possible
under
any
circumstances to conclude that Assessing
Officer misstated fact or recorded false
order sheet entries and further held that
only conclusion was that allegation made
by PCIT that
Assessing
Officer
not
recorded any finding with regard to cash
deposit during demonetization period,
was not based on material on record -
Twin conditions of assessment order
being
erroneous
and
prejudicial
to
interest of revenue in order to invoke
power by PCIT u/s 263 of Act was not
fulfilled as Assessing Officer made all
inquiries and verifications as per law.
(Para 7)

Thus, no perversity in impugned order as
no substantial question of law involved,
accordingly appeal dismissed. (Para 16)

Appeal Dismissed. (E-13)

List of Cases cited:

## Text

96 INDIAN LAW REPORTS ALLAHABAD SERIES
application filed under Section 151 C.P.C.
is wholly without jurisdiction and is liable
to be set aside.

21. The otherwise argument advanced
by learned counsel for the respondent has
no force of law, therefore, it is hereby
rejected.

22. In view of the above, in the
considered opinion of the Court, the order
impugned
being
wholly
without
jurisdiction, suffers from vices of resjudicata, therefore, is not sustainable in law
and is hereby set aside. The writ petition
succeeds and is allowed.

23. No order as to cost.

24. Connected writ petition(s) may be
de-linked.
----------
(2024) 11 ILRA 96
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 21.11.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.
THE HON'BLE VIPIN CHANDRA DIXIT, J.

Income Tax Appeal No. 85 of 2024

Pr. CIT, Bareilly, U.P. ...Appellant
Versus
Dharam Singh ...Respondent

Counsel for the Appellant:
Sri Manu Ghildyal, Advocate

Counsel for the Respondent:
Sri Ambleshwar Pandey & Sri Ramesh
Kumar, Advocates

Tax Law - Income Tax Act, 1961 - Sections
143(3) & 263 - Assessment Years 2017-
18 - Appeal against order of Appellate
Tribunal by Commissioner - Assessment
order completed by Assessing Officer -
Subsequently, PCIT by exercising his
jurisdiction revised order on ground that
assessment was prejudicial to interest of
revenue, set aside assessment order,
directed for de novo assessment - Order
was challenged before Tribunal and held
that inquiries by Assessing Officer in
respect of cash deposit of Rs.91 lakhs was
proper and thereafter assessment order
was passed. (Para 3)

Held, Tribunal has gone into details of
questionnaire issued by Assessing Officer,
examined inquiry carried out by Assessing
Officer in detail and thereafter, held in
favour of assessee, examined replies given
by assessee - Tribunal concluded that it
was
not
possible
under
any
circumstances to conclude that Assessing
Officer misstated fact or recorded false
order sheet entries and further held that
only conclusion was that allegation made
by PCIT that
Assessing
Officer
not
recorded any finding with regard to cash
deposit during demonetization period,
was not based on material on record -
Twin conditions of assessment order
being
erroneous
and
prejudicial
to
interest of revenue in order to invoke
power by PCIT u/s 263 of Act was not
fulfilled as Assessing Officer made all
inquiries and verifications as per law.
(Para 7)

Thus, no perversity in impugned order as
no substantial question of law involved,
accordingly appeal dismissed. (Para 16)

Appeal Dismissed. (E-13)

List of Cases cited:

1. Chunilal Vs Mehta and Sons Ltd. Vs Century
Spg. & Mfg. Co. Ltd. reported in 1962 SCC
OnLine SC 57, (Para 6)

2. Pr. CIT Vs Bhadani Financiers Pvt. Ltd.
reported in (2022) 447 ITR 305, (Para 7)

3. Arulvelu Vs St.reported in (2009) 10 SCC 206,
(Para 24 to 27)
11 All. Pr. CIT, Bareilly, U.P. Vs. Dharam Singh
97
4. S.R. Tewari Vs U.O.I.reported in (2013) 6 SCC
602, (Para 30)

5. CIT Vs Ajay Kapoor reported in 2013 SCC
OnLine Del 2779, (Para 14 to 16)
(Delivered by Hon'ble Shekhar B. Saraf, J.)

1. Heard learned counsel appearing on
behalf of the parties.

2. This is an appeal under Section
260A of the Income Tax Act, 1961
(hereinafter referred to as "the Act")
wherein the revenue is challenging an order
dated June 18, 2024 passed by the Income
Tax
Appellate
Tribunal
(hereinafter
referred to as 'Tribunal'), Delhi Benches
"B", New Delhi in ITA No.821/Del/2022
(Assessment Years 2017- 18).

3. The factual matrix of the present
case is that the assessment order was
completed by the Assessing Officer under
Section 143(3) of the Act. Subsequently,
the Principal Commissioner of Income Tax
exercised his jurisdiction under Section 263
of the Act and revised the order passed by
the Assessing Officer on the ground that
the assessment carried out was prejudicial
to the interest of revenue and thereby set
aside the assessment order and directed for
de novo assessment. The said order passed
by the Principal Commissioner of Income
Tax was challenged before the Tribunal,
which upon examination in great detail of
the inquiries carried out by the Assessing
Officer especially in respect of the cash
deposit of Rs.91 lakhs, has came to the
conclusion that proper inquiry was carried
out by the Assessing Officer and only
thereafter assessment order was passed.

4. In the present appeal the Appellant-
Department has proposed the following
substantial questions of law from the
impugned order dated June 18, 2024 passed
by Tribunal, which need to be determined
by this court:-

i. Whether on the facts and
circumstances of the case and in law, the
Tribunal has erred in holding that the
Assessing
Officer
while
passing
the
assessment
order
u/s
143(3)
dated
21.06.2019 has verified the details asked
for by him and has conducted enquiries
before making assessment whereas the
Principal Commissioner of Income Tax in
his order u/s 263 of the Act has found that
no proper enquiry has been conducted by
the AO on issue of cash deposited during
demonetization period, scrap sale and nonsubmission of audit report while making
the assessment of the case?

ii. Whether on the facts and
circumstances of the case and in law, the
Tribunal is justified in holding that the
exercise of jurisdiction u/s 263 of the Act
by the Principal Commissioner of Income
Tax in the present case is invalid,
unsustainable and the assessment order
cannot be held to be erroneous and
prejudicial to the interest of the Revenue
while the Principal Commissioner of
Income Tax has initiated proceedings of
263 after thorough observation of the
assessment record?

5. This Court dealt with the first
substantial question of law by examining
the relevant portion of the impugned order
of Tribunal. The relevant portion of the
decision of Tribunal is extracted below:

"14. As could be seen from the
materials placed on record, beginning from
11.08.2018 to 07.06.2019, a period of
almost one year, the Assessing Officer has
conducted thorough inquiry by issuing a
notice under section 143(2) as well as
98 INDIAN LAW REPORTS ALLAHABAD SERIES
notices under section 142(1) of the Act with
questionnaire calling upon the assessee not
only to furnish the details of cash deposits
in the bank account, but also explain the
source thereof. The Assessing Officer has
also called upon the assessee to explain the
reason for low profit compared to the
turnover. It is a matter of record that the
assessee has responded to each of the
queries raised by the Assessing Officer in
the questionnaire by explaining the source
of cash deposits as well as various other
details called for. Not only the Assessing
Officer has conducted threadbare inquiry
on various issues by issuing number of
notices to the assessee, but he has also
conducted discreet inquiries from third
parties, including the banks, wherein, the
assessee has held account by issuing
notices under section 133(6) of the Act. The
result
of
such
inquiries
has
been
meticulously noted down by the Assessing
Officer in the order-sheet maintained in the
assessment record."

6. Furthermore, this Court perused the
order of the Tribunal with regard to the
second substantial question of law. The
relevant portion of the decision of the
Tribunal is extracted below:

"17. The primary conditions for
invoking section 263 are, the order sought to
be revised must be erroneous and at the same
time prejudicial to the interest of Revenue.
Unless, these twin conditions are satisfied,
section 263 of the Act cannot be invoked. In
the facts of the present case, learned PCIT
has put much emphasis on Explanation 2 to
section 263 of the Act. In our view,
Explanation 2 to section 263 of the Act does
not invest unbridled power with the
revisionary authority so as to empower him
to invoke revisionary jurisdiction arbitrarily.
The words appearing in Explanation 2(a) to
the effect that "the order is passed without
making inquiries or verification which could
have been made", certainly do not mean that
on mere allegation that in the opinion of the
revisionary authority the Assessing Officer
has not made inquiries or verifications which
should have been made, revisionary power
can be invoked. Allegation of lack of enquiry
by the Assessing Officer has to be
substantiated based on record and cannot be
conjured out of thin air."

7. Upon a perusal of the impugned
order, we find that the Tribunal has gone into
the details of the questionnaire issued by the
Assessing Officer, examined the inquiry
carried out by the Assessing Officer in detail
and also examined the replies given by the
assessee. It is only after having carried out the
said examination, the Tribunal has came to
the finding that it was not possible under any
circumstances to conclude that the Assessing
Officer has misstated the fact or had recorded
false order sheet entries. The Tribunal further
held that the only conclusion one can reach is
that the allegation made by the Principal
Commissioner of Income Tax that the
Assessing Officer has not recorded any
finding with regard to cash deposit during
demonetization period, is not based on the
material on record or rather contrary to the
material on record. The Tribunal further went
ahead and held that the twin conditions of the
assessment order being erroneous and at the
same time prejudicial to the interest of the
revenue in order to invoke the power of
Principal Commissioner of Income Tax under
Section 263 of the Act was not fulfilled as the
Assessing Officer had made all inquiries and
verifications as required under the law.

8. Before delving into the present
controversy, it would be expedient to
examine the scope of jurisdiction of this
Court under section 260A of the Act. It is a
11 All. Pr. CIT, Bareilly, U.P. Vs. Dharam Singh
99
settled proposition that the Tribunal is the
final authority to decide on the issue of
facts. The High court can only interfere in
the order of Tribunal if there exists a
substantial question of law.

9. A Constitution Bench of the
Supreme Court headed by Hon'ble B.P.
Sinha, the Chief Justice of India in case of
Chunilal V. Mehta and Sons Ltd. v.
Century Spg. and Mfg. Co. Ltd. reported
in 1962 SCC OnLine SC 57 has laid down
the following tests to determine whether a
substantial question of law is involved or
not. The tests are:

(a) whether directly or indirectly
it affects substantial rights of the parties, or

(b) the question is of general
public importance, or

(c) whether it is an open question
in the sense that the issue is not settled by
pronouncement of this Court or Privy
Council or by the Federal Court, or

(d) the issue is not free from
difficulty, and

(e) it calls for a discussion for
alternative view.

The relevant paragraph of the
aforesaid judgment is extracted below:

"6. We are in general agreement
with the view taken by the Madras High
Court and we think that while the view
taken by the Bombay High Court is rather
narrow the one taken by the former High
Court of Nagpur is too wide. The proper
test for determining whether a question of
law raised in the case is substantial would,
in our opinion, be whether it is of general
public importance or whether if directly
and substantially affects the rights of the
parties and if so whether it is either an
open question in the sense that it is not
finally settled by this Court or by the Privy
Council or by the Federal Court or is not
free from difficulty or calls for discussion
of alternative views. If the question is
settled by the highest court or the general
principles to be applied in determining the
question are well settled and there is a
mere question of applying those principles
or that the plea raised is palpably absurd
the question would not be a substantial
question of law."

10. The Delhi High Court in Pr. CIT
v. Bhadani Financiers Pvt. Ltd. reported
in (2022) 447 ITR 305 has observed what
would amount to substantial question of
law for filing an appeal under Section 260A
of the Act. The relevant paragraph of the
judgment is extracted below:

"7. 'Substantial' means 'having
substance, essential, real, of sound worth,
important
or
considerable.'
To
be
'substantial', a question of law must be
debatable, not previously settled. The
Supreme Court and several High Courts
have held that a substantial question of law
is involved if it directly or indirectly affects
substantial rights of the parties or it is of
general public importance, it is an open
question in the sense that the issue has not
been settled by a pronouncement of the
court or it is not free from difficulty or it
calls for a discussion for alternate views. A
High Court under section 260A of the Act
has limited jurisdiction to interfere with
findings of fact recorded by the Tribunal.
If findings of Tribunal are irrational,
perverse or unreasonable, then only
interference of court would be justified. It
would also be justified if a finding of fact
is arrived at by the Tribunal without any
evidence. Section 260A is akin to section
100 of the Code of Civil Procedure, 1908.
(see Sampath Iyengar's Law of Income
Tax)."

(Emphasis added)
100 INDIAN LAW REPORTS ALLAHABAD SERIES

11.
In
the
instant
appeal
the
department has only challenged the fact
finding of the Tribunal. A catena of
Supreme Court judgments have concluded
that in relation to facts, no substantial
question of law would arise unless the
finding of fact is perverse. A factual
decision is perverse when it is without any
evidence or when it cannot be reasonably
arrived at by a prudent man. Finding based
upon surmises, conjectures or suspicion or
when they are not rationally possible, have
to be struck down. One may therefore
examine the interpretation of 'perversity'
by various Courts including the Supreme
Court.

12. The Supreme Court in the case of
Arulvelu v. State reported in (2009) 10
SCC 206 has defined 'perversity' by
following various judgments. The relevant
paragraphs of the judgment are extracted
below:

"24. The expression "perverse"
has been dealt with in a number of cases.
In Gaya Din v. Hanuman Prasad ((2001) 1
SCC 501] this Court observed that the
expression "perverse" means that the
findings of the subordinate authority are
not supported by the evidence brought on
record or they are against the law or suffer
from the vice of procedural irregularity.

25.
In
Parry's
(Calcutta)
Employees' Union v. Parry & Co. Ltd. [AIR
1966 Cal 31] the Court observed that
"perverse finding" means a finding which is
not only against the weight of evidence but
is altogether against the evidence itself. In
Triveni Rubber & Plastics v. CCE [1994
Supp (3) SCC 665: AIR 1994 SC 1341] the
Court observed that this is not a case
where it can be said that the findings of the
authorities are based on no evidence or
that they are so perverse that no
reasonable person would have arrived at
those findings.

26. In M.S. Narayanagouda v.
Girijamma [AIR 1977 Kant 58] the Court
observed that any order made in conscious
violation of pleading and law is a perverse
order. In Moffett v. Gough [(1878) 1 LR Ir
331] the Court observed that a "perverse
verdict" may probably be defined as one
that is not only against the weight of
evidence but is altogether against the
evidence. In Godfrey v. Godfrey [106 NW
814] the Court defined "perverse" as
turned the wrong way, not right; distorted
from the right; turned away or deviating
from what is right, proper, correct, etc.

27. The expression "perverse"
has been defined by various dictionaries in
the following manner:

1. Oxford Advanced Learner's
Dictionary of Current English, 6th Edn.

"Perverse. Showing deliberate
determination to behave in a way that most
people think is wrong, unacceptable or
unreasonable."

2.
Longman
Dictionary
of
Contemporary English, International Edn.

Perverse. Deliberately departing
from what is normal and reasonable.

3. The New Oxford Dictionary of
English, 1998 Edn.

Perverse. Law (of a verdict)
against the weight of evidence or the
direction of the judge on a point of law.

4. The New Lexicon Webster's
Dictionary
of
the
English
Language
(Deluxe Encyclopedic Edn.)

Perverse.
Purposely
deviating
from accepted or expected behavior or
opinion; wicked or wayward; stubborn;
cross or petulant.

5. Stroud's Judicial Dictionary of
Words & Phrases, 4th Edn.

"Perverse. A perverse verdict
may probably be defined as one that is not
11 All. Pr. CIT, Bareilly, U.P. Vs. Dharam Singh
101
only against the weight of evidence but is
altogether against the evidence."

13. The Supreme Court in the case of
S.R. Tewari v. Union of India reported
in (2013) 6 SCC 602 has laid down the
attributes of perversity. The relevant
paragraph is extracted below:

"30. The findings of fact recorded
by a court can be held to be perverse if the
findings have been arrived at by ignoring or
excluding relevant material or by taking into
consideration
irrelevant/inadmissible
material. The finding may also be said to be
perverse if it is "against the weight of
evidence", or if the finding so outrageously
defies logic as to suffer from the vice of
irrationality. If a decision is arrived at on the
basis of no evidence or thoroughly unreliable
evidence and no reasonable person would act
upon it, the order would be perverse. But if
there is some evidence on record which is
acceptable and which could be relied upon, the
conclusions would not be treated as perverse
and the findings would not be interfered with.
(Vide Rajinder Kumar Kindra v. Delhi Admn.
[(1984) 4 SCC 635: 1985 SCC (L&S) 131: AIR
1984 SC 1805], Kuldeep Singh v. Commr. of
Police [(1999) 2 SCC 10: 1999 SCC (L&S)
429: AIR 1999 SC 677], Gamini Bala
Koteswara Rao v. State of A.P. [(2009) 10 SCC
636: (2010) 1 SCC (Cri) 372: AIR 2010 SC
589] and Babu v. State of Kerala [(2010) 9
SCC 189: (2010) 3 SCC (Cri) 1179].)"

14. The Delhi High Court in case of CIT
v. Ajay Kapoor reported in 2013 SCC
OnLine Del 2779 has further elaborated as to
what constitutes 'perversity'. The relevant
paragraphs of the judgment are extracted
below:

"14. Perversity, in the present case,
is occasioned due to two reasons: firstly, by
wrongly placing onus on the revenue though
the facts were in personal knowledge of the
assessee, and secondly, by ignoring the
admission of the respondent that they had
indulged in unaccounted sales of Rs. 9.7
crores. In spite of admission and the seized
document, it has been observed that there
was no material with the revenue to prima
facie justify any addition towards unrecorded
investment in stock. Allegations, in the
present case, are not based upon weighing of
evidence but for altogether a wrong decision.
The decision suffers from vice of irrationality,
rendering it infirm in law. In Municipal
Committee, Hoshiarpur v. Punjab SEB
(2010) 13 SCC 216 it has been held that:

"28. If a finding of fact is arrived at
by ignoring or excluding relevant material or
by taking into consideration irrelevant
material or if the finding so outrageously
defies logic as to suffer from the vice of
irrationality incurring the blame of being
perverse, then the finding is rendered infirm
in the eye of the law. If the findings of the
Court are based on no evidence or evidence
which is thoroughly unreliable or evidence
that suffers from the vice of procedural
irregularity or the findings are such that no
reasonable person would have arrived at
those findings, then the findings may be said
to be perverse. Further if the findings are
either ipse dixit of the Court or based on
conjecture and surmises, the judgment suffers
from the additional infirmity of nonapplication of mind and thus, stands vitiated.
(Vide
Bharatha
Matha
v.
R.
Vijaya
Renganathan [(2010) 11 SCC 483: AIR 2010
SC 2685].)"

15.
Earlier
in
Dhirajlal
Girdharilal v. CIT (1954) 26 ITR 736 (SC)
it was observed:-

"....if the court of fact, whose
decision on a question of fact is final,
arrives at this decision by considering
material which is irrelevant to the enquiry,
102 INDIAN LAW REPORTS ALLAHABAD SERIES
or by considering material which is partly
relevant and partly irrelevant, or bases its
decision partly on conjectures, surmises
and suspicions, and partly on evidence,
then in such a situation clearly an issue of
law arise....

.....It is well established that when
a court of fact acts on material, partly
relevant and partly irrelevant, it is
impossible to say to what extent the mind of
the court was affected by the irrelevant
material used by it in arriving at its finding.
Such a finding is vitiated because of the use
of inadmissible material and thereby an
issue of law arises,"

16. In CIT v. Daulat Ram Rawat
Mull (1973) 87 ITR 349 it has been held
that onus of proving what is apparent is not
real is on the party who claims it to be so.
There should be direct nexus between the
conclusions of fact arrived at, or inferred,
and the primary facts upon which the
conclusion is based. When irrelevant
consideration and extraneous materials
form the substratum of an order, or the
authority has proceeded in a wrong
presumption which is erroneous in law, as
in the present case, question of law arises
and when the said contention is found to be
correct, then the order is perverse. A
factual decision is perverse when it is
without any evidence or when the factual
decision, in view of the fact on record,
cannot be reasonably entertained. Finding
based upon surmises, conjectures or
suspicion or when they are not rationally
possible have to be struck down. In CIT v.
S.P. Jain (1973) 87 ITR 370 (SC) it has
been observed that a factual conclusion is
regarded as perverse when no person duly
instructed or acting judicially could upon
the record before him, have reached the
conclusion
arrived
at
by
the
tribunal/authority."

15. In light of the judgments of the
Supreme Court and High Courts cited above,
we are of the view that unless there is any
perversity in finding of facts, no substantial
question of law would arise. Furthermore, for
the Tribunal's fact finding to be perverse, it
would have be established that the finding of
fact by the Tribunal directly or indirectly
affects substantial rights of the assessee in the
sense that it is such as could not have been
reasonably arrived at on the material placed
on record before the Tribunal. In the present
factual matrix, it is crystal clear that the
Tribunal has examined the facts in great
detail, and only thereafter, held in favour of
the assessee.

16. Therefore, we do not find any
perversity in the impugned order and there
exists no reason to admit this appeal as there
is no substantial question of law involved.
The appeal filed under Section 260A of the
Act can only be sustained if there was
perversity in the findings of the Tribunal
which would have amounted to a substantial
question of law. In the present case, we do
not find anything perverse in the order passed
by the Tribunal and accordingly, dismiss the
appeal on the ground that no substantial
question of law is present in the instant
appeal.
----------
(2024) 11 ILRA 102
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: LUCKNOW 12.11.2024

BEFORE

THE HON'BLE RAJAN ROY, J.
THE HON'BLE MANISH KUMAR, J.

Writ Tax No. 264 of 2024

M/s A.V. Pharma ...Petitioner
Versus
State of U.P. & Ors. ...Respondents