2022 (4) TMI 1078 - AT - Income Tax

Revision u/s 263 by CIT - genuineness of the loan accepted / taken - Reliance on audit objection report - violation of principle of natural justice -validity of assumption of revisionary jurisdiction directing the assessing officer for fresh adjudication - HELD THAT - It is trite law that, while exercising revisional jurisdiction u/s 263 of the Act, it must bear in mind that the principles of natural justice do not permit the decision of a revisionary authority to be influenced by any other authority or agency, which indeed unfortunately the case squarely is, therefore, we are of the view that, this revisionary proceedings initiated on the thin ice of audit objection report and concluded in absence of deprecative material, is untenable in law. It was a change of opinion on the basis of audit objection on the issue duly inquired and addressed by the Ld. AO while framing assessment u/s 143(3) of the Act. In this count we shall necessarily refer the ratio drawn by Hon'ble Guwahati High Court while adjudicating on similar issue in B A Plantation Industries Ltd Vs CIT 2006 (12) TMI 101 - GAUHATI HIGH COURT where Hon ble Lordship have emphasised the ratio decidendi laid in Sirpur Paper Mill Ltd. 1970 (4) TMI 4 - SUPREME COURT that while exercising power, the Commissioner must have an unbiased mind and decide the dispute according to the procedure which is consistent with the principles of natural justice and cannot permit his mind to be influenced by the dictation of another authority. On the other hand, in no case, mere audit information form a sole basis material and renders the order of assessment erroneous, and the very absence of tangible material before the revisionary authority itself sufficient to hold the action as unsustainable in law and this view has been invigorated in Jeewanlal limited 1975 (12) TMI 34 - CALCUTTA HIGH COURT Also in CIT Vs Gabriel India Ltd 1993 (4) TMI 55 - BOMBAY HIGH COURT has also taken similar view that, unless the revisionary authority forms a conclusion on the basis of concrete, tangible evidential material, it cannot reach to the conclusion rendering the order of assessment erroneous and prejudicial to the interests of the Revenue. In the light of aforestated reasoning, we neither find any infirmity with the order of assessment nor any merits in the revisionary order, ergo we quash the revisionary order, thus the legal ground of the appellant is allowed.

Summary

Issues Involved:
1. Violation of the principle of natural justice.
2. Validity of the assumption of revisionary jurisdiction directing the assessing officer for fresh adjudication.
3. Error and prejudice to the interest of revenue in the assessment order.
4. Adequacy of enquiries conducted by the Assessing Officer regarding unsecured loan creditors.
5. General and residuary grounds.

Detailed Analysis:

1. Violation of the Principle of Natural Justice:
The appellant argued that the revision order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, was unjustified and bad in law because the mandatory show cause notice was not served on the appellant, violating the principles of natural justice. The Tribunal noted that the principles of natural justice require that the assessee be given an opportunity to be heard. In this case, the revisionary proceedings were initiated based on an audit objection without any independent findings by the PCIT. The Tribunal concluded that the revisionary proceedings were untenable in law due to the lack of compliance with the principles of natural justice.

2. Validity of the Assumption of Revisionary Jurisdiction:
The appellant challenged the validity of the PCIT's assumption of revisionary jurisdiction, arguing that the PCIT erred in concluding that the Assessing Officer (AO) failed to carry out necessary enquiries and investigations. The Tribunal emphasized that the exercise of revisionary jurisdiction under section 263 requires satisfaction of two conditions: the order of the AO must be erroneous and prejudicial to the interests of the revenue. The Tribunal found that the PCIT's action was based solely on an audit objection without tangible material, making the revisionary proceedings unsustainable in law.

3. Error and Prejudice to the Interest of Revenue in the Assessment Order:
The PCIT held that the AO's assessment order was erroneous and prejudicial to the interest of the revenue because the AO failed to conduct proper enquiries regarding an unsecured loan from a shell company. The Tribunal noted that during the assessment proceedings, the AO had conducted enquiries and verified the genuineness of the unsecured loan based on the documentary evidence provided by the appellant. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the revenue, and the PCIT's revisionary action was unwarranted.

4. Adequacy of Enquiries Conducted by the Assessing Officer:
The appellant argued that the AO had conducted necessary and diligent enquiries regarding the unsecured loan creditor, and the PCIT's direction for fresh adjudication was unjustified. The Tribunal reviewed the assessment proceedings and found that the AO had indeed conducted adequate enquiries into the existence, genuineness, and creditworthiness of the loan creditor. The Tribunal held that the PCIT's revisionary action, based on an audit objection without independent findings, was not justified.

5. General and Residuary Grounds:
The Tribunal noted that the general and residuary grounds raised by the appellant were not adjudicated as they were rendered infructuous by the decision on the legal ground.

Conclusion:
The Tribunal quashed the revisionary order passed by the PCIT under section 263 of the Income Tax Act, 1961, and allowed the appeal of the appellant assessee. The Tribunal emphasized that the principles of natural justice were not followed, and the PCIT's revisionary action was based on an audit objection without tangible material, making it unsustainable in law. The Tribunal concluded that the AO's assessment order was neither erroneous nor prejudicial to the interest of the revenue.