2021 (11) TMI 498 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - verification of loan transactions - HELD THAT - An independent and new proceeding sets in motion on receipt of new material coming on record post assessment in terms of Explanation 1 to S. 263 of the Act and hence the responsibility of revisional authority towards observance of principles of natural justice, in such situation, would be akin to that of AO. PCIT can not merrily set aside the assessment on the basis of new material coming on record without exerting himself and confronting such material to the Assessee. PCIT is under bounden duty to take into account the perspective of the Assessee on such fresh material and is required to pass a speaking order thereon. PCIT thus could not merely sit solely in the capacity of a revisional authority qua the new material but was required to perform the task of AO in tandem and discharge quasi-judicial function independently. PCIT has failed to do so. Neither the purported evidence collected from SEBI were confronted nor the cross examination of adversarial statement was provided. The opportunity contemplated under S. 263 is thus rendered illusory and merely an empty formality resulting in miscarriage of justice in contravention of expresses intendment of law. Looking from any angle, the directions towards verification of loan transactions are unsustainable in law and deserve to be quashed. The directions no. 1-4 are thus set aside. Applicability of Section 43CA in respect of sale deed alleged to be executed below stamp duty value - We are unable to see any error in the action of the AO to accept the transactions outside the ambit of Section 43CA where the variations in actual consideration qua assessable value for the purposes of stamp duty does not exceed 10%. Consequently, the directions of the PCIT to this extent are thus nullified. However, the difference up to 10% only is saved by the amendments carried out in the Finance Act and therefore, the enquiry directed by the PCIT in respect of transactions covered under Section 43CA where the difference exceeds 10% appear justified. Thus, to this limited extent, the directions of the PCIT to direct enquiries for applicability of S. 43CA for transactions showing breach of safe harbour limit of 10% require to be upheld. It is thus open to the AO to enquire into applicability of S. 43CA where the difference between the stamp duty value and actual consideration exceeds 10% in accordance with the directions of PCIT and in accordance with law. The issue is thus allowed in part. Applicability of Section 40(a)(ia) wrongly mentioned as Section 40A(3) through inadvertence in respect of commission payment on purchase of land - It is the case of the Assessee that ledger account of parties namely Leeladhar Sharma and Bajrang Lal Karnany and TDS challan towards commission payments would show that the satisfaction of the PCIT is contrary to the facts on record. It was contended that both Tax audit report and as well as verification of AO vouches the stand of the Assessee. We find that the assessee has adequately demonstrated on facts that the TDS was properly deducted from the commission and other payments pointed out in the order of the PCIT and, therefore, the action of the Assessing Officer cannot be held to be erroneous or in contravention of law. In the absence any default as wrongly perceived by the PCIT, the action of the PCIT, being unjustified, is set aside on this score. Appeal of assessee is partly allowed.

Issues Involved:
1. Assumption of jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263.
2. Directions concerning transactions with M/s. Gangotritracon P. Ltd (GTPL).
3. Applicability of Section 43CA in respect of sale deeds executed below stamp duty value.
4. Applicability of Section 40A(3) (wrongly mentioned as Section 40(a)(ia)) in respect of commission payment on the purchase of land.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction by the PCIT under Section 263:
The assessee challenged the PCIT's assumption of jurisdiction under Section 263 of the Income Tax Act, 1961, on the grounds that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal examined the PCIT's directions and found that the directions were vague and lacked legal basis. The Tribunal emphasized that Section 68 cannot be invoked for credits unconnected to the assessment year in question, and the PCIT's directions for verification of transactions from earlier years were beyond the scope of Section 263.

2. Directions Concerning Transactions with M/s. Gangotritracon P. Ltd (GTPL):
The PCIT directed the AO to verify the identity, genuineness, and creditworthiness of GTPL in respect of a sum of ?18.12 crores, the genuineness of stamp papers, the doctrine of substance over form, and the repayment of loans and interest. The Tribunal found that the amount of ?18.12 crores was received in earlier financial years and not in the assessment year in question. Hence, the directions for verification under Section 68 were without legal basis. The Tribunal also noted that the PCIT's directions were based on untested and un-confronted information from SEBI and a third-party statement, which were not made available to the assessee. The Tribunal held that the PCIT's directions lacked application of mind and were outside the authority of Section 263.

3. Applicability of Section 43CA in Respect of Sale Deeds Executed Below Stamp Duty Value:
The PCIT directed the AO to verify the applicability of Section 43CA. The assessee contended that the transactions were properly examined by the AO and reported in the Tax Audit Report. The Tribunal noted that amendments to Section 43CA by the Finance Acts of 2018 and 2020 provided relief by allowing a buffer of up to 10% in the value adopted by the stamp duty authority. The Tribunal held that the AO's acceptance of transactions outside the ambit of Section 43CA, where variations did not exceed 10%, was not erroneous. However, the Tribunal upheld the PCIT's directions for enquiries where the difference exceeded 10%.

4. Applicability of Section 40A(3) (Wrongly Mentioned as Section 40(a)(ia)) in Respect of Commission Payment on Purchase of Land:
The PCIT's direction concerned the applicability of Section 40(a)(ia) for commission payments. The assessee demonstrated that TDS was properly deducted from the commission payments, and both the Tax Audit Report and AO's verification supported this. The Tribunal found that the PCIT's satisfaction was contrary to the facts on record and set aside the PCIT's action on this score.

Conclusion:
The Tribunal partly allowed the appeal of the assessee, setting aside the PCIT's directions concerning transactions with GTPL and commission payments, while upholding the directions for enquiries under Section 43CA where the difference exceeded 10%. The judgment emphasized the importance of proper application of mind, adherence to principles of natural justice, and the limitations of Section 263 in revisional proceedings.

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