2016 (1) TMI 1255 - AT - Income Tax

Revision u/s 263 - unexplained unsecured loans - Held that - CIT in the instant case was not having limited powers only to scrutinize the material which was available before the A.O. rather he was entitled to examine any other material available at the time of examination by him to protect the interest of the Revenue. This is not a case of estimation made by the Assessing Officer on lower side rather it is a case where the Assessing Officer has erroneously lost sight of the unsecured loans raised by the assessee during the year under consideration which is prejudicial to the interest of Revenue. As has been discussed in the preceding para Assessing Officer has only examined unsecured loan 12, 00, 000/- stated to have been taken from Sunita Garg New Delhi and has failed to make any scrutiny regarding remaining unsecured loan of 37, 14, 820/- which the assessee has otherwise failed to prove. Thus when error on the part of Assessing Officer in losing sight of substantial part of unsecured loan proved to have been taken by the assessee from different lenders is apparent on the record having been prejudicial to the interests of the Revenue the question of making proper inquiry by him (Assessing Officer) does not arise - Decided against assessee

Summary

Issues Involved:
1. Validity of the CIT's jurisdiction to invoke Section 263 of the Income Tax Act, 1961.
2. Examination of the Assessing Officer's (AO) order for being erroneous and prejudicial to the interest of revenue.
3. Evaluation of the unexplained unsecured loans and share capital introduction.
4. Adequacy of the inquiry conducted by the AO.

Detailed Analysis:

1. Validity of the CIT's Jurisdiction to Invoke Section 263:
The appellant challenged the CIT's jurisdiction to invoke Section 263, arguing that the AO's order was neither erroneous nor prejudicial to the revenue. The CIT invoked Section 263 on the grounds that the AO's order was prejudicial to the revenue due to inadequate scrutiny of unsecured loans and fresh share capital introduction. The Tribunal upheld the CIT's jurisdiction, noting that the CIT has the power to examine any material available at the time of examination to protect the revenue's interest.

2. Examination of the AO's Order for Being Erroneous and Prejudicial:
The Tribunal examined whether the AO's order dated 28.12.2010 was erroneous and prejudicial to the revenue. The CIT found that the AO failed to scrutinize unsecured loans amounting to Rs. 46,14,820/- and fresh share capital of Rs. 50,00,000/-. The Tribunal agreed with the CIT's findings, emphasizing that the AO's failure to examine these amounts rendered the order erroneous and prejudicial to the revenue.

3. Evaluation of Unexplained Unsecured Loans and Share Capital Introduction:
The CIT concluded that the parties from whom the loans were allegedly raised lacked the capacity or creditworthiness to advance such loans. The Tribunal noted several instances where the lenders had meager incomes and recent deposits matching the loan amounts, indicating the transactions were not genuine. The Tribunal upheld the CIT's addition of Rs. 37,14,820/- under Section 68 of the Act for unexplained unsecured loans.

Similarly, for the fresh share capital of Rs. 50,00,000/-, the CIT found that the assessee failed to prove the creditworthiness of the shareholders. The Tribunal supported the CIT's findings, noting that the assessee could not establish the genuineness of the transactions or the creditworthiness of the parties involved.

4. Adequacy of the Inquiry Conducted by the AO:
The appellant argued that the AO had conducted a proper inquiry and reached a definite conclusion. However, the Tribunal found that the AO had only examined the unsecured loan of Rs. 12,00,000/- from Sunita Garg and failed to scrutinize the remaining unsecured loans of Rs. 37,14,820/-. The Tribunal stated that the AO's lack of inquiry into substantial parts of the unsecured loans was apparent and prejudicial to the revenue.

Conclusion:
The Tribunal dismissed the appeal, determining that the CIT rightly invoked Section 263 of the Act. The AO's order was found to be erroneous and prejudicial to the interest of the revenue due to inadequate scrutiny of unsecured loans and fresh share capital introduction. The Tribunal upheld the CIT's additions under Section 68 for unexplained unsecured loans and share capital, emphasizing the necessity of proving the creditworthiness and genuineness of transactions. The order was pronounced in the open court on 13th January 2016.