2018 (4) TMI 1743 - AT - Income Tax

Revision u/s 263 - allegation of accommodation entry taken from S K Jain Group of concerns case was reopened u/s 148 with the prior approval of the CIT - AO has not taken into consideration the material seized during the search in the case of Sh. S. K. Jain. - HELD THAT - When we asked the specific query about whether the present directors of those companies were called for and given a statement, the Ld. AR submitted that most of the companies whom shares have been given the current directors were not given statements but the past directors have given statements. The case laws cited by the Ld. AR will not be applicable in the present case as the facts in the present case are different. Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer though reopened the assessment proceedings did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which should have been made by the Assessing Officer. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceedings u/s 263 of the Act. See DENIEL MERCHANTS P. LTD. ANOTHER VERSUS INCOME TAX OFFICER ANOTHER 2017 (12) TMI 476 - SUPREME COURT In the present case the Assessing Officer has though rightly re-opened the Assessment Proceedings has not properly adjudicated the issue for reopening therefore, the Pr. CIT has rightly invoked Section 263 of the Act and passed the order. Therefore, the Order under Section 263 of the Income Tax Act, 1961 passed by the Principal Commissioner of Income Tax is just and proper. - Decided against assessee

Issues Involved:

1. Invocation of Section 263 of the Income Tax Act.
2. Examination of seized material by the Assessing Officer (AO).
3. Adequacy of inquiry conducted by the AO.
4. Nexus between cash deposits and cheques issued.
5. Opportunity for personal hearing.
6. Admissibility of diary entries as evidence.
7. Application of Supreme Court judgment in Sahara India case.
8. Procedural fairness in the order passed by Pr. CIT.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act:
The appellant contested the Principal Commissioner of Income Tax (Pr. CIT)'s invocation of Section 263, asserting that the reassessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal upheld the Pr. CIT's invocation, stating that the AO failed to examine the seized material, making the order erroneous and prejudicial.

2. Examination of Seized Material by the AO:
The Pr. CIT noted that the AO did not examine the seized material related to the S K Jain Group, which was essential for the reassessment. The Tribunal agreed with the Pr. CIT, emphasizing that the AO's failure to consider the seized material rendered the reassessment order erroneous.

3. Adequacy of Inquiry Conducted by the AO:
The appellant argued that the AO conducted extensive inquiries, including issuing notices under Section 133(6) and summoning representatives of the share applicant companies. However, the Tribunal found that the AO's inquiries were inadequate as they did not include a thorough examination of the seized material, leading to an erroneous order.

4. Nexus Between Cash Deposits and Cheques Issued:
The Pr. CIT directed the AO to examine the nexus between cash deposits and cheques issued by the S K Jain Group. The Tribunal supported this direction, stating that the AO should have investigated the reasons for transferring shares at nominal rates and the potential accommodation entries.

5. Opportunity for Personal Hearing:
The appellant claimed that they were not given sufficient opportunity for a personal hearing. The Tribunal noted that the Pr. CIT issued a show-cause notice and considered the appellant's submissions before passing the order, thereby providing adequate opportunity.

6. Admissibility of Diary Entries as Evidence:
The appellant contended that the diary entries found from S K Jain's possession were inadmissible as evidence, citing the Supreme Court's decision in CBI vs V C Shukla. The Tribunal did not specifically address this contention, focusing instead on the AO's failure to examine the seized material.

7. Application of Supreme Court Judgment in Sahara India Case:
The appellant argued that the Supreme Court's judgment in the Sahara India case was applicable. The Tribunal upheld the Pr. CIT's view that the Sahara India judgment was not relevant to the present case, as the facts differed.

8. Procedural Fairness in the Order Passed by Pr. CIT:
The Tribunal found that the Pr. CIT followed due process by issuing a show-cause notice, considering the appellant's submissions, and providing directions for further inquiry. The Tribunal concluded that the Pr. CIT's order was procedurally fair and justified.

Conclusion:
The Tribunal dismissed the appellant's appeal, affirming the Pr. CIT's invocation of Section 263 and the directions for further inquiry. The Tribunal emphasized the importance of examining seized material and conducting thorough inquiries to ensure the correctness of reassessment orders.

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