2018 (10) TMI 851 - AT - Income Tax

Revision u/s 263 BY CIT-A - addition u/s 68 - disallowance on account of cessation & remission of liability u/s 41(1) - Held that - In the present case, the AO had made the additions of 10% of the creditors for the reason that the assessee could not produce the creditors although a request was made by the assessee to issue the commission to the respective AO s having the jurisdiction over those creditors or issue the summons u/s 131(1) of the Act. As we have already pointed out that the disallowance made by the AO out of the sundry creditors was more than the increase in the sundry creditors during the year under consideration vis- -vis the preceding year, therefore, it can be said that in the present case, the AO had taken one of the possible views, after making the intensive enquiries relating to the sundry creditors, so it was not a case of lack of enquiry or non-enquiry, at the most it may be categorized as a case of inadequate enquiry but that is not sufficient to discard the possible decision taken by the AO. For Unsecured loans it is noticed that the AO on the basis of the tax audit report asked the assessee to explain as to why the loans amounting to ₹ 33,60,500/- were accepted other than the account payee cheques or draft as has been mentioned in clause 24(a) of the tax audit report. The explanation of the assessee was that no loans exceeding to ₹ 20,000/- was received in cash and that the tax auditor wrongly mentioned the names of 12 persons only through whom the loans from different persons who had given cash loans of value less than ₹ 20,000/-, were received, therefore, there was no violation of the provisions of Section 269SS. AO was not satisfied with the above said explanation of the assessee and levied the penalty u/s 271D which was equivalent to ₹ 33,60,500/- that the amount received by the assessee. Therefore, it cannot be said that the AO had not made the enquiries relating to the unsecured loans and after making the proper enquiries, he considered that the loans were received by the assessee in violation of provisions of Section 269SS of the Act and levied the penalty of equivalent amount i.e. ₹ 33,60,500/- u/s 271D of the Act. In other words, he has taken one of the possible views. As regards to the other issues, on which the additions were made by the AO, CIT has not made any comment while exercising the powers u/s 263 of the Act. She did not mention anything about those issues in the show-cause notice dated 22.01.2018 and had not discussed in the impugned order as to how and in what manner, the order passed by the AO on those issues was erroneous in so far as it was prejudicial to the interest of the revenue and nothing is brought on record to substantiate that the ld. Pr. CIT had given any opportunity of being heard on the issues other than the two issues mentioned in the show-cause notice to the assessee. Therefore, without conducting necessary inquiry and without giving/recording a finding that the assessment order framed by the AO on those issues was erroneous in so far as it was prejudicial to the interest of the revenue, the remanding of the matter to the AO on those other issues alongwith the two issues mentioned in the show-cause notice issued u/s 263 of the Act, is vitiated in law. AO made the detailed enquiries relating to the sundry creditors as well as the unsecured loans and after making such enquiries he had taken a possible view. He also made the various additions apart from the addition on account of the sundry creditors and levied the penalty u/s 271D of the Act by invoking the provisions of Section 269SS of the Act on the unsecured loans. CIT was not justified in holding the assessment order dated 29.03.2016 passed by the AO as erroneous and prejudicial to the interest of the revenue. In that view of the matter, the impugned order passed by the ld. Pr. CIT u/s 263 is quashed. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Erroneous and prejudicial assessment order.
3. Addition under Section 41(1) of the Act.
4. Penalty proceedings under Section 271D of the Act.
5. Principles of natural justice and opportunity of hearing.
6. Remand of the case to the Assessing Officer (AO).

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee appealed against the order of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, which allows the CIT to revise an assessment order if it is erroneous and prejudicial to the interest of the revenue. The Pr. CIT initiated proceedings under Section 263, questioning the AO's decision on two primary issues: the addition under Section 41(1) and the penalty under Section 271D.

2. Erroneous and Prejudicial Assessment Order:
The Pr. CIT held that the AO's order was erroneous and prejudicial to the revenue's interest. The AO had added 10% of the total amount outstanding against sundry creditors under Section 41(1) and initiated penalty proceedings under Section 271D for loans accepted in violation of Section 269SS. The Pr. CIT argued that the AO should have added the entire amount of sundry creditors and examined the identity and creditworthiness of the persons from whom loans were taken.

3. Addition under Section 41(1) of the Act:
The AO made an addition of ?3,88,79,832/- under Section 41(1) of the Act, representing 10% of the total sundry creditors. The Pr. CIT contended that the AO should have added the entire amount of ?38,87,98,316/- as no confirmation was received from the creditors, and many notices issued under Section 133(6) were unserved or unresponded. However, the tribunal found that the AO had made extensive inquiries, issued notices, and received some confirmations. The AO's decision to add only 10% was based on a permissible view, considering the practical difficulties faced by the assessee due to the factory closure.

4. Penalty Proceedings under Section 271D of the Act:
The AO initiated penalty proceedings under Section 271D for loans aggregating ?33,60,500/- accepted in violation of Section 269SS. The assessee argued that the loans were received in small amounts from 177 persons, each below ?20,000/-, and the AO had already levied a penalty equal to the amount of credits. The tribunal noted that the AO had examined the issue, and the penalty levied was more beneficial to the revenue than treating it as unexplained credit under Section 68.

5. Principles of Natural Justice and Opportunity of Hearing:
The assessee claimed that the Pr. CIT did not provide a reasonable opportunity of hearing and ignored the fact that appeals against the AO's additions were pending before the CIT(A). The tribunal observed that the Pr. CIT should have considered the assessee's submissions and the pending appeals before invoking Section 263.

6. Remand of the Case to the Assessing Officer (AO):
The Pr. CIT remanded the matter to the AO for fresh examination of the issues. The tribunal emphasized that the Pr. CIT must record a finding that the AO's order is erroneous and prejudicial to the revenue before remanding the case. The tribunal found that the AO had made adequate inquiries and taken a permissible view. Therefore, the Pr. CIT's order to remand the case was not justified.

Conclusion:
The tribunal quashed the Pr. CIT's order under Section 263, holding that the AO had conducted adequate inquiries and taken a permissible view. The appeal of the assessee was allowed, and the assessment order dated 29.03.2016 was upheld.

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