2017 (8) TMI 1188 - AT - Income Tax

Revision u/s 263 - taking loan on interest and giving interest free loans - CIT observed that, AO made inadequate inquiries - assessment order passed by the AO is brief and cryptic - Held that - On verification of the details filed by the assessee, we find that the AO has posed a specific question for loans and advances and also purchases made by the assessee and outstanding sundry creditors shown as at the end of the financial year. The assessee has filed all the details explaining the loan given to others as per which the loans given in the normal course of business without any condition as to charging interest. Insofar as the purchases and sundry creditors, the assessee has filed a list of sundry creditors having outstanding balance of more than ₹ 1 lakh with names and addresses and also PAN. The assessee also filed confirmation letters from the sundry creditors. The AO, after satisfying with the details filed by the assessee has accepted the explanation with regard to those two issues. Therefore, we are of the view that the CIT was incorrect in observing that the AO has not conducted necessary enquiries on the issues on which he wants further verification. No doubt, the assessment order passed by the AO is brief and cryptic which does not show any light on the verification of two issues, but the facts remain that the AO has cast necessary enquiries and the assessee has furnished necessary details which fact is not disputed by the CIT. The CIT s only point is that enquiries conducted by the AO are inadequate. No doubt, in the opinion of the CIT, the AO ought to have conducted further enquiries. But that itself is not a ground for revision of assessment order u/s 263 because once the issues on which the CIT wants further verification was already examined by the AO, then there is no scope for the CIT to conduct further enquiries by holding that the enquiries conducted by the AO are inadequate. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessment order passed by the AO under section 143(3) of the Income Tax Act is erroneous and prejudicial to the interest of the revenue.
2. Whether the CIT has the jurisdiction to revise the assessment order under section 263 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Whether the assessment order passed by the AO under section 143(3) of the Income Tax Act is erroneous and prejudicial to the interest of the revenue:

The CIT issued a show cause notice proposing to revise the assessment order on grounds that the AO failed to verify unsecured loans borrowed by the assessee, interest paid on such loans, and the interest not charged on loans and advances given to others. Additionally, the CIT noted that the AO did not examine the purchases made by the assessee from certain parties listed as suspicious hawala dealers by the Maharashtra Sales-tax department, and the corresponding sundry creditors. The CIT argued that the AO's failure to verify these issues rendered the assessment order erroneous and prejudicial to the interest of the revenue.

The assessee responded by stating that the AO had conducted necessary inquiries regarding the loans and advances, as well as the purchases and sundry creditors, by issuing specific questionnaires and receiving detailed responses. The assessee provided various documents, including books of account and stock statements, to justify the transactions. The AO, satisfied with the explanations, completed the assessment.

The CIT, however, maintained that the AO's order was brief and cryptic, lacking detailed verification of the issues. The CIT emphasized that the AO, as a quasi-judicial authority, is expected to conduct thorough inquiries. The CIT referenced the Supreme Court decision in Malabar Industrial Co Ltd 243 ITR 83 (SC), asserting that the AO's failure to make necessary inquiries justified the revision of the assessment order.

2. Whether the CIT has the jurisdiction to revise the assessment order under section 263 of the Income Tax Act:

The assessee argued that the CIT cannot assume jurisdiction under section 263 merely due to perceived inadequacy of the AO's inquiries, especially when the AO had already examined the issues. The assessee cited several judgments, including CIT vs Fine Jewellery (India) Ltd (2015) 372 ITR 303 (Bom) and CIT vs Gera Development P Ltd (2016) 387 ITR 691 (Bom), which support the view that an assessment order cannot be revised under section 263 if the AO has conducted inquiries and applied his mind to the issues, even if the order does not explicitly discuss the details.

The tribunal observed that the AO had indeed conducted necessary inquiries, as evidenced by the detailed responses and documents provided by the assessee. The tribunal noted that the AO's brief and cryptic order did not imply non-application of mind, especially when specific questions were posed and answered during the assessment proceedings.

The tribunal emphasized that for the CIT to invoke section 263, two conditions must be met: the order must be erroneous and prejudicial to the interest of the revenue. In this case, the tribunal found that the AO had made necessary inquiries and the CIT's dissatisfaction with the extent of the inquiries did not justify revision under section 263.

Conclusion:

The tribunal concluded that the assessment order passed by the AO under section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. Consequently, the tribunal quashed the CIT's order under section 263 and restored the original assessment order. The appeal filed by the assessee was allowed.