2021 (12) TMI 1176 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - scope of section 147 - unsecured creditors - no enquiry or inadequate enquiry - HELD THAT - The opening part of section 147 categorically provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. Thus, it is evident that section 147 duly empowers the AO to make addition on any other income chargeable to tax which escaped the assessment and comes to his notice during the reassessment proceedings, in addition to the point(s) on which the re-assessment was initiated. Turning to the facts of the instant case, we find that though the AO initiated reassessment for denial of deduction u/s.80G, but he did initiate enquiry on receipt of unsecured loans for which the assessee also furnished certain details as discussed above. In that view of the matter, it cannot be said that the ld. PCIT travelled outside the assessment order passed u/s 147 of the Act, which vitiated the revisionary order. The assessee, situated in Aurangabad, received loans running into crores from certain companies based in Kolkata or Mumbai, that were neither in the financing business nor had any past business dealings with the assessee. No question was asked by the AO as to how the assessee came into contact with them, the answer to which was neither given to the ld. PCIT nor has it come up before the Tribunal. AO issued notice u/s 133(6) to such parties. Most of them did not respond and the AO chose to accept the genuineness of the loan creditors without proceeding further as per law, rather, by recording to the contrary in the assessment order.Most of the companies which replied and filed their Balance sheets etc. had shown to have received huge share premium on issue of share capital without any justifiable valuation. Such companies had declared nominal profit running into thousands or a few lakhs, but the share premium was in crores. These companies were prima facie shell or penny stock companies. AO kept the information received on record without blinking. Four Kolkata based companies who allegedly advanced identical loans of ₹ 25.00 lac each had same address and the AO did not consider it expedient to inquire further.No interest was paid to some of the unsecured loans despite no prior business. We are fully satisfied that there was utter failure on the part of the AO to conduct enquiry in respect of huge loans received by the assessee from various parties thereby rendering the assessment order erroneous and prejudicial to the interest of the Revenue justifying the exercise of revisionary power u/s 263 of the Act. Once it is held that the AO failed to apply his mind to the issue of unsecured loans which ought to have been done in the facts and circumstances of the case thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue, the sequitur is that the exercise of revisionary power gets justified. As can be seen, that the ld. PCIT did not enhance the assessment on any issue but simply restored the matter to the file of the AO with a direction that the assessment order should be reframed as per the provisions of law after considering proper facts and submissions of the assessee and also for necessary verification in the light of the observations made above, after affording proper opportunity to the assessee . If the assessee has an explainable case on the issues taken note of by the ld. PCIT, it can put forth the same before him in the course of proceedings giving effect to the order passed u/s 263. - Decided against assessee.

Summary

Issues Involved:
1. Acceptance of unsecured loans from various parties.
2. Assessment order's validity under Section 263 of the Income-tax Act, 1961.
3. Genuineness of loan transactions.
4. Failure of the Assessing Officer (AO) to conduct proper enquiries.
5. Application of Section 68 regarding unexplained cash credits.
6. The scope of reassessment under Section 147.

Issue-wise Detailed Analysis:

1. Acceptance of Unsecured Loans from Various Parties:
The assessee received substantial loans from several Kolkata and Mumbai-based parties, while operating from Aurangabad. The Principal Commissioner of Income Tax (PCIT) observed that the AO did not properly verify the capacity of these parties or the genuineness of the transactions. The AO issued notices under Section 133(6) to these parties, but many did not respond. Despite this, the AO accepted the loans as genuine without further investigation or confronting the assessee with the non-responses.

2. Assessment Order's Validity under Section 263:
Section 263 allows the PCIT to revise an assessment order if it is erroneous and prejudicial to the interests of the revenue. The PCIT set aside the assessment order, directing the AO to reframe the assessment after proper verification. The Tribunal upheld the PCIT's decision, noting that the AO's failure to conduct a thorough enquiry rendered the assessment order erroneous and prejudicial to the revenue.

3. Genuineness of Loan Transactions:
The Tribunal found that the AO failed to investigate the genuineness of loan transactions adequately. Many creditors did not respond to the AO's notices, and those who did had suspicious financial details, such as receiving huge share premiums without justifiable valuation. The AO's acceptance of these transactions without proper verification was deemed a failure to apply due diligence.

4. Failure of the AO to Conduct Proper Enquiries:
The AO's assessment was criticized for not conducting a thorough investigation into the loan transactions. The AO did not follow up on non-responses to notices or questionable financial details provided by some creditors. The Tribunal emphasized that an AO must conduct a reasonable enquiry and apply their mind to the facts, which was not done in this case.

5. Application of Section 68 Regarding Unexplained Cash Credits:
The Tribunal rejected the assessee's contention that furnishing confirmations from loan creditors was sufficient to avoid invoking Section 68. The Tribunal noted that mere confirmations do not establish the genuineness of transactions, especially when the creditors' financial details are dubious. The AO's failure to investigate further warranted the PCIT's revision under Section 263.

6. The Scope of Reassessment under Section 147:
The Tribunal addressed the assessee's argument that the reassessment should be limited to the issue of denial of deduction under Section 80G. It clarified that Section 147 empowers the AO to assess any other income that escapes assessment and comes to notice during reassessment proceedings. Therefore, the PCIT was justified in considering other issues, such as the genuineness of unsecured loans, during the revision.

Conclusion:
The Tribunal upheld the PCIT's decision to revise the assessment orders for the assessment years 2007-08 and 2010-11. It concluded that the AO's failure to conduct proper enquiries into the genuineness of unsecured loans rendered the assessment orders erroneous and prejudicial to the interests of the revenue. The appeals were dismissed, and the AO was directed to reframe the assessments after proper verification and considering the assessee's submissions.