2012 (6) TMI 472 - AT - Income Tax

Revision u/s 263 initiated on two grounds - (i) the A.O. had not verified the applicability of sec. 92 of the Act before allowing export turnover of the assessee; and (ii) sufficient enquiry had not been carried out in respect of the lenders while allowing receipt of unsecured loans by the assessee-company to the tune of ₹ 1.63 crores. - held that - when on the facts and circumstances of the case and evidence on record there was no requirement of taking into consideration the list of associated enterprises, more so when there was no international transaction with them, the A.O. did not commit any mistake in not asking for such list. - Revision on first ground is not valid. C.I.T. observed that the A.O. did not make proper enquiries about the creditworthiness of the lenders before accepting the loans to the assessee. - held that - In the case of the assessee, the ld. C.I.T. could not point out as to what was the error committed by the A.O. in not having considered the applicability of Sec. 92 of the Act and in accepting the unsecured loan taken by the assessee. The ld. C.I.T. having failed to point out such error, no error can be inferred from the order of A.O. for the simple reason that the same is bereft of details. - Revision u/s 263 on second ground is also not valid. - Decided in favor of assessee.

Issues Involved:
1. Legitimacy of the order passed under section 263 of the Income Tax Act, 1961 based on suspicion and conjecture.
2. Applicability of section 92 of the Income Tax Act, 1961 concerning international transactions and associated enterprises.
3. Adequacy of the Assessing Officer's (A.O.) enquiry into the genuineness and creditworthiness of unsecured loans.

Issue-wise Detailed Analysis:

1. Legitimacy of the Order Passed Under Section 263:
The appeal challenges the order dated 31.12.2009 by the Commissioner of Income Tax (C.I.T.), Central Circle-VI, Kolkata, passed under section 263 of the Income Tax Act, 1961, for the assessment year 2004-05. The assessee contended that the C.I.T. erred in passing the order based on suspicion, conjecture, and surmises. The C.I.T. observed that the A.O. framed the assessment without proper enquiries, making the order erroneous and prejudicial to the interest of revenue. The C.I.T.'s decision was based on two primary defects: the A.O.'s failure to make a reference to the Transfer Pricing Officer (T.P.O.) for determining the arm's length price under section 92, and the A.O.'s insufficient enquiry into the genuineness and creditworthiness of the loan creditors.

2. Applicability of Section 92:
The C.I.T. noted that the export turnover of the assessee-company was Rs. 11.97 crores, accepted without any reference to the T.P.O. as required under section 92 of the Income Tax Act. The assessee argued that no part of the export turnover related to sales made to any associated concern, as defined under section 92A. The A.O. had not required the list of associated enterprises because the Tax Audit Report did not reference any international transactions with associated concerns. The Tribunal found that the C.I.T. failed to demonstrate any international transaction involving associated enterprises, and the assessee had certified that no such transactions occurred during the relevant financial year. Thus, the Tribunal concluded that the A.O. did not err in not seeking the list of associated enterprises, as there was no necessity under the circumstances.

3. Adequacy of Enquiry into Unsecured Loans:
The C.I.T. found that the A.O. did not conduct proper enquiries regarding the creditworthiness of six private parties who provided unsecured loans totaling Rs. 1.60 crores. The C.I.T. observed that the loan creditors had negligible or nil income and that identical amounts were deposited in their bank accounts shortly before advancing the loans, suggesting accommodation entries. The A.O. had relied on the Inspector's report, which verified the bank passbook, profit and loss account, and balance sheet but did not comment on the creditworthiness of the creditors. The Tribunal noted that the A.O. had conducted multiple hearings, collected confirmations from the lenders, and reviewed their financial documents. The Tribunal emphasized that the C.I.T. could not invoke section 263 merely because of a difference in opinion or to allow the A.O. to re-examine the issues. The Tribunal concluded that the A.O.'s enquiries were sufficient and that the assessment order was neither erroneous nor prejudicial to the interest of revenue.

Conclusion:
The Tribunal found that the C.I.T.'s invocation of section 263 was beyond the scope of the law, as the A.O. had conducted adequate enquiries and applied his mind to the issues at hand. The assessment order passed under section 143(3) was neither erroneous nor prejudicial to the interest of revenue. Consequently, the appeal of the assessee was allowed.

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