2015 (2) TMI 276 - AT - Income Tax

Revision u/s 263 - CIT of the view that, rectification cannot be carried out by the AO u/s 154 as it amounts to review has cancelled the order u/s 154 - Additions u/s 68 - Held that - Even if the order of the AO u/s 154 was bad in law then also the Ld.CIT was required to give concrete finding on facts as to how the order is prejudicial to the interest of the revenue. Under the latter later condition, the Ld. CIT is required to examine the merits and the material on record and give his finding. In the impugned order the Ld.CIT has closed all the doors of justice to the assessee and upheld the original assessment order which was patently erroneous and was in violation of natural justice as the AO has omitted to consider the material placed before him. Thus, the impugned order of the Ld.CIT cannot be upheld at all. Under the facts and circumstances of the cases, we are of the opinion that, firstly, the impugned order of Ld. CIT is set aside and secondly, the entire matter should be restored back to the file of the AO to examine all the material and evidences on record relating to the genuineness of the loan and then decide the issue in accordance with law after giving due and effective proper opportunity of hearing to the assessee. - Decided partly in favour of assessee for the statistical purposes.

Issues:
1. Revision of assessment order u/s 154 by Ld. Commissioner of Income Tax.
2. Addition of amount under unsecured loans u/s 68 of the ITA.
3. Rectification application u/s 154 filed by the assessee.
4. Show cause notice issued u/s 263 by Ld. CIT.
5. Review of order passed u/s 154 by Ld. CIT.
6. Assessment of genuineness of the loan taken by the assessee.
7. Scope of rectification u/s 154 and revision u/s 263.
8. Decision on the appeal filed by the Assessee.

1. Revision of assessment order u/s 154 by Ld. Commissioner of Income Tax:
The appeal was against the order passed by the Ld. Commissioner of Income Tax-8, Mumbai, u/s 263, canceling the order passed by the AO u/s 154. The grounds of appeal included errors in revising the order, failure to appreciate rectifiability of mistakes, and misinterpretation of the appellant's income under u/s 68 of the ITA.

2. Addition of amount under unsecured loans u/s 68 of the ITA:
The assessee company received an unsecured loan of Rs. 39,00,000 from a Director, Mr. K.N. Rana. Despite providing documentary evidence, the assessing officer added this amount as a cash credit u/s 68. The rectification application u/s 154 highlighted the submission of loan confirmation and other evidence during the assessment proceedings, leading to the AO accepting the genuineness of the loan.

3. Rectification application u/s 154 filed by the assessee:
The assessee filed a rectification application u/s 154, emphasizing the submission of loan confirmation and source of funds details during the assessment. The AO, after realizing the mistake, reduced the addition from the assessee's income.

4. Show cause notice issued u/s 263 by Ld. CIT:
Ld. CIT issued a show cause notice u/s 263, stating that all information was known to the AO before the original assessment order u/s 143(3). The Ld. CIT considered the order passed u/s 154 as a review, leading to its cancellation and restoration of the original assessment order.

5. Review of order passed u/s 154 by Ld. CIT:
Ld. CIT held that the order passed u/s 154 amounted to a review, which was beyond the scope of rectification. The original assessment order was restored due to the AO's alleged error in deleting the addition based on the same confirmation letter.

6. Assessment of genuineness of the loan taken by the assessee:
The genuineness of the loan from Mr. K.N. Rana was established through documentary evidence, including confirmation letters and bank statements. Despite this, the AO initially added the amount as a cash credit, later rectified after considering the evidence.

7. Scope of rectification u/s 154 and revision u/s 263:
The AO rectified the assessment order u/s 154 based on the evidence provided by the assessee. However, Ld. CIT considered this rectification as a review, leading to the restoration of the original assessment order. The Tribunal highlighted the need for a concrete finding on facts and material on record before concluding an order as erroneous and prejudicial to revenue.

8. Decision on the appeal filed by the Assessee:
The Tribunal partly allowed the appeal for statistical purposes, setting aside the Ld. CIT's order and directing the matter to be restored back to the AO for examination of all material and evidence regarding the genuineness of the loan. The Tribunal emphasized providing the assessee with a proper opportunity of hearing and deciding the issue in accordance with the law.

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