2019 (11) TMI 149 - AT - Income Tax

Revision u/s 263 - case was selected for scrutiny under CASS - addition u/s 68 - AO failed to make adequate enquiries with regard to the creditworthiness of the four loan creditors from whom the assessee had received huge loan - HELD THAT - The impugned loan is the subject matter of SCN issued u/s 263 of the Act which the assessee received from two bodies corporate i.e. Anadya Technologies Pvt Ltd Hotahoti Wood Products Ltd. Although in the SCN the ld PCIT while proposing to usurp the revisional jurisdiction found fault with the Assessment order on the ground of non-enquiry by AO into the loan transaction by the assessee with M/s Purbanchal Prestressed Ltd which we find that enquiry under Section 133(6) was in fact carried out by the AO from the said party and evidence in support of compliance made by the said party was also furnished before the ld. Pr. CIT. We therefore note that since the evidence led by the assessee in this regard was found to be factually true the ld. Pr. CIT did not pursue this ground any further while passing the impugned order. We therefore have no hesitation in observing that on this ground of non-enquiry the order u/s 263 holding the assessment order to be erroneous and prejudicial to the interests of the Revenue per-se erroneous. Transactions involving receipt of loan from M/s Anadya Technologies Pvt Ltd M/s Hotahoti Wood Products Ltd during the year the information gathered by the AO through the enquiries conducted u/s 133(6) of the Act from the loan creditors sufficiently established the creditworthiness of the loan creditor and the genuineness of the transactions and therefore the allegation on which the ld. Pr. CIT proceeded to issue the show cause notice u/s 263 is found to be untenable on facts and in law. From the order of the Ld. Pr. CIT we note that he found fault with the AO s role of an investigator because in his subjective opinion the AO did not properly investigate into the facts of the case. Keeping the foregoing fault in mind and taking into account the facts as discussed in earlier paragraphs we note that in the given facts of the present case the AO had made specific enquiry into the loan transactions of the assessee with its loan creditors based on the CASS parameter. In response to the enquiries made u/s 133(6) the loan creditors have filed their documents/details to substantiate/prove their identity(ies) creditworthiness and genuineness of the loan transactions. AO had examined all the details and called for financial statements of the loan creditors for verification of the loan transactions. Having done so the AO has not drawn any adverse inference against any loan creditors. AO bore the capacity to draw satisfaction with the explanations furnished by the assessee as well as the loan creditors regarding the loan of Rs. 1, 27, 47, 000/- received during the year and that the AO exercised due care by conducting requisite enquiries in respect of these loan transactions as the circumstances demanded before drawing plausible inference in favour of the assessee. When confronted with the reasons set out in the SCN the assessee had led before the ld. Pr. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts which were not borne out from the assessment records. It was also established before the ld. Pr. CIT that before completion of assessment the AO had indeed made enquiries from all the loan creditors u/s 133(6) and only after objective consideration of the evidences furnished order u/s 143(3) of the Act was passed. On receipt of these objections the ld. Pr. CIT himself did not make any effort to prove any factual or legal infirmity in the documents or explanations furnished nor he was able to prove that any of the documents or evidences were false so as to establish that the AO s order was erroneous as well as prejudicial to the Revenue s interests because the view taken by him was unsustainable in law. On the contrary the ld. Pr. CIT merely set aside the assessment order directing AO to pass the order afresh in accordance with law which in our opinion was nothing but giving the AO second innings without establishing that the AO s order was erroneous as well as prejudicial to the interests of the Revenue Assessment order is not the result of non-application of mind or any inadequate enquiry. We are also of the considered opinion that while passing the assessment order the AO did not follow a view which can be said to be unsustainable in law . In the circumstances therefore the jurisdictional facts for usurping the jurisdiction being absent we hold that the action of Pr. CIT was without jurisdiction and all subsequent actions are null in the eyes of law. We therefore quash the order impugned before us. Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Adequacy of the Assessing Officer's (AO) inquiry into unsecured loans.
3. Creditworthiness and genuineness of loan creditors.
4. Application of judicial precedents and legal principles in revisional jurisdiction.

Detailed Analysis:

Jurisdiction under Section 263 of the Income-tax Act, 1961
The primary grievance of the assessee was against the action of the Principal Commissioner of Income Tax (PCIT) in assuming jurisdiction under Section 263 of the Income-tax Act, 1961 without satisfying the condition precedent prescribed by the statute. The PCIT issued a show-cause notice stating that the assessment order dated 22-08-2016 was erroneous and prejudicial to the interest of the Revenue. The PCIT's contention was that the AO failed to verify the creditworthiness of loan creditors and the genuineness of transactions involving unsecured loans amounting to Rs. 1,27,47,000/-.

Adequacy of the Assessing Officer's (AO) Inquiry into Unsecured Loans
The AO had selected the case for scrutiny under CASS due to unsecured loans taken from persons who had not filed their Income Tax Returns (ITR). The AO made inquiries under Section 133(6) from the loan creditors and concluded that no adverse inference was needed. The PCIT, however, argued that the AO did not make adequate inquiries, specifically pointing out that no information was called from M/s Purbanchal Prestressed Ltd and that the AO did not summon the loan creditors to verify their creditworthiness.

Creditworthiness and Genuineness of Loan Creditors
The assessee provided detailed information about the loan creditors, including PAN details and responses to notices under Section 133(6). The AO had accepted the creditworthiness and genuineness of the loan transactions based on these inquiries. The PCIT, however, found fault with the AO's assessment, stating that the loan creditors had shown very low or 'Nil' income and claimed huge TDS refunds, and that the AO failed to conduct field inquiries or summon the loan creditors.

Application of Judicial Precedents and Legal Principles in Revisional Jurisdiction
The assessee argued that the PCIT's action was based on inadequate inquiry rather than a lack of inquiry, citing several judicial precedents. The Bombay High Court in CIT Vs Nirav Modi (390 ITR 292) and other cases have held that an assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue for 'inadequate inquiry.' The Tribunal found that the AO had made specific and detailed inquiries, and the information gathered under Section 133(6) sufficiently established the creditworthiness of the loan creditors and the genuineness of the transactions.

Conclusion:
The Tribunal concluded that the AO had conducted adequate inquiries and that the PCIT's assumption of jurisdiction under Section 263 was not justified. The Tribunal quashed the order of the PCIT, holding that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal of the assessee was allowed.