2021 (10) TMI 910 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 or assessment u/s 153C - Appeal raised by the assessee is that the Assessing Officer should have initiated proceedings under Section 153C of the Act instead of Section 148 - HELD THAT - On careful consideration of the above argument, we find that on the search on Mr. S.K. Jain, no material pertaining to or belonging to this assessee was found. From the material an information was available that assessee is beneficiary of accommodation entries taken from Mr. S.K. Jain. We also found that all the material belonging to and pertaining to Mr. S.K. Jain was used as information in case of assessee. In view of this, according to us, the ld. Assessing Officer has correctly assumed jurisdiction under Section 148 of the Act. Therefore, ground No. 1 is dismissed. Eligibility of reasons to believe - On perusal of the reasons recorded by the ld. Assessing Officer, we find that there is no infirmity in the reasons recorded by the ld. Assessing Officer. He has given the complete details including the name of the middleman and mediator, who arranged these accommodation entries. Therefore, there is no infirmity in the reasons recorded, hence ground No. 2 of the appeal is dismissed. AO has not applied his mind and, therefore, 148 issued by the ld. Assessing Officer is invalid - We find that the ld. Assessing Officer has written detailed reasons after perusal of the return of income filed by the assessee. The reasons recorded, according to us, prima facie shows reason to believe with the Assessing Officer. Accordingly ground No. 3 is dismissed. Non-granting of opportunity and not considering the explanation furnished by the assessee - We find that the ld. CIT has granted more than 5 opportunities of hearing and considered the explanation of the assessee at page No. 20 of his order. Therefore, ground No. 4 is dismissed. Not a case of no enquiry, but of inadvertent enquiry - We find that the ld. CIT has himself verified the records and after verification of the records took out the relevant pages of the information. He further looked at the return of income filed by the assessee and perused the information supplied by the assessee during the course of assessment proceedings. Based on this the ld. CIT has passed the order under Section 263 of the Act. Even otherwise the documents are so glaring and clear-cut that the CIT (Appeals) after applying his mind and verifying return of income as well as the assessment records has come to the conclusion that no enquiry is made by the ld. Assessing Officer. In view of this, we dismiss ground of the appeal. - Assessee appeal dismissed.

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act.
2. Validity of proceedings initiated under Section 148 instead of Section 153C.
3. Infirmity in the reasons recorded for reopening the assessment.
4. Application of mind by the Assessing Officer (AO) in issuing notice under Section 148.
5. Opportunity granted to the assessee for explanation and cross-examination.
6. Adequacy of the enquiry conducted by the AO.
7. Applicability of precedents set by the Supreme Court and High Courts.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act for the assessment year 2010-11. The PCIT noted that the AO had detailed information about accommodation entries obtained by the assessee but did not make any enquiry, passing a cryptic assessment order. Consequently, the PCIT issued a notice under Section 263, deeming the AO's order as erroneous and prejudicial to the interest of Revenue. The PCIT directed the AO to re-examine the issue in light of the seized papers.

2. Validity of Proceedings under Section 148 instead of Section 153C:
The assessee argued that the proceedings should have been initiated under Section 153C instead of Section 148. However, the Tribunal found that no material pertaining to the assessee was found during the search on Mr. S.K. Jain. The information that the assessee was a beneficiary of accommodation entries was used correctly under Section 148. Hence, the Tribunal dismissed this ground.

3. Infirmity in the Reasons Recorded:
The assessee contended that there were infirmities in the reasons recorded for reopening the assessment. The Tribunal reviewed the reasons recorded by the AO and found them to be complete, including details of the middleman and mediator. Therefore, this ground was dismissed.

4. Application of Mind by the AO:
The assessee claimed that the AO did not apply his mind in issuing the notice under Section 148. The Tribunal found that the AO had written detailed reasons after reviewing the return of income filed by the assessee, showing a prima facie reason to believe. Accordingly, this ground was dismissed.

5. Opportunity Granted to the Assessee:
The assessee argued that they were not granted an adequate opportunity to explain and cross-examine Mr. S.K. Jain. The Tribunal noted that the PCIT had granted more than five opportunities for hearing and considered the assessee's explanation. Therefore, this ground was dismissed.

6. Adequacy of the Enquiry by the AO:
The assessee challenged that the case was one of inadvertent enquiry rather than no enquiry. The Tribunal found that the PCIT had verified the records and concluded that no enquiry was made by the AO. The Tribunal upheld the PCIT's order under Section 263, noting that the documents were clear and the AO failed to conduct a proper enquiry. Hence, grounds related to the adequacy of the enquiry were dismissed.

7. Applicability of Judicial Precedents:
The Tribunal referenced decisions from the Supreme Court, namely Deniel Merchants P. Ltd. Vs. ITO and PCIT Vs. Paramount Communications (P) Ltd., which supported the PCIT's action under Section 263. The Tribunal also cited the Calcutta High Court's decision in Rajmandir Estate Pvt. Ltd. Vs. PCIT, which upheld similar actions under Section 263. These precedents emphasized that the AO's failure to conduct a proper enquiry renders the assessment order erroneous and prejudicial to the Revenue.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the PCIT's order under Section 263. The Tribunal found no merit in the assessee's arguments and concluded that the AO's assessment order was indeed erroneous and prejudicial to the interest of Revenue due to the lack of proper enquiry. The Tribunal's decision was pronounced in the open court on 12/10/2021.

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