2023 (1) TMI 129 - AT - Income Tax

Revision u/s 263 - As per CIT, AO did not make disallowance of consultancy fees paid to Shri Deepak Kochar - consultancy fees paid to Shri Deepak Kochhar was only accommodation entries - HELD THAT - A careful perusal of the notice issued by Ld PCIT would show that the Ld PCIT has relied upon the report given by DDIT (Inv.) and has observed that the DDIT (Inv.) has conclusively established the fact of provision of accommodation entries. The Ld PCIT also expressed the view that the AO has also reached such a conclusion. A reading of assessment order would show that the AO has observed that there are no supporting evidences for the providing/receipt of service; Shri Deepak Kochhar has not met clients; he has not given any written reports with regard to the consultancy given. Even though the assessees have furnished the agreement entered between it and Shri Kochhar, the AO was reluctant to accept the same, as Shri Gaurang Gandhi had stated in the statement that there was no agreement. The AO has further stated that the consultancy fees paid was different in respect of different clients and it ranged from 24.23% to 71.09% of the fees received by the assessees herein and hence there is no scientific basis for computing the fees payable to Shri Deepak Kochhar. Accordingly, the AO has expressed the view that the payments made to Shri Deepak Kochhar were not explained. However, the AO did not specifically say that the consultancy fee payments are bogus. Hence, it appears that the AO did not make disallowance. With regard to the transfer of funds from Deepak Kochhar to M/s Aarem Management and from Aarem Management to the assessee, the AO has taken the view that Shri Deepak Kochhar has used the accounts of the assessees herein to get the unaccounted funds converted, i.e., there is circular movement of undisclosed fund through Pioneer group of companies. The AO has further held that the funds transferred to Shri Deepak Kochhar are also proved to be not genuine. All these observations of the AO are related to his comments upon transfer of funds. Since there was circular movement of funds, he chose to estimate commission income. Hence, we are of the view that it is not clear from the assessment order that the AO has come to definite conclusion that the consultancy fees paid to Shri Deepak Kochhar was only accommodation entries, as presumed by Ld PCIT. Whether impugned revision orders can be sustained ? - A perusal of the assessment orders would show that the AO has made complete enquiry on this issue. On the contrary, the Ld PCIT did not make any enquiry or verification in order to show that the finding reached by the AO is erroneous. While the AO has taken the view not to disallow the consultancy fees paid, the Ld PCIT has taken the view that the AO should have disallowed it. Thus, the AO has taken a possible view of the matter on the basis of his examination and merely because, PCIT has got different view, he cannot initiate revision proceedings. PCIT on the issue of examination of loans u/s 68 we have noticed that the Ld PCIT did not mention this issue in the notice issued by him for initiation of revision proceedings - A.R submitted that the assessees have made submissions on the issue of consultancy fee paid and submitted that no query was asked about sec.68 - At the time of hearing, it was not shown to us that the Ld PCIT has given opportunity to the assessee on the issue of examination of loans u/s 68 of the Act. Accordingly, we are of the view that the Ld PCIT could not have discussed this new issue in the impugned revision orders. We are of the view that the impugned revision orders passed by Ld PCIT in the hands of both the assessees herein are not sustainable in law. Accordingly we quash the impugned revision orders passed by Ld PCIT. Appeals filed by the assessee are allowed.

Issues Involved:
1. Validity of the revision orders passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.
2. Examination of the payments made to Shri Deepak Kochhar as consultancy fees.
3. Applicability of Section 68 of the Income Tax Act regarding loans received by the assessees.
4. Impact of the Vivad Se Vishwas Act, 2020 on the revision proceedings.

Issue-Wise Detailed Analysis:

1. Validity of the Revision Orders Passed by PCIT under Section 263 of the Income Tax Act:
The primary issue in these appeals is the validity of the revision orders passed by the PCIT under Section 263 of the Income Tax Act. The assessees challenged the revision orders on the grounds that the PCIT's actions were based on the report of the Deputy Director of Income Tax (DDIT) (Investigation), which alleged that the payments made to Shri Deepak Kochhar were accommodation entries. The PCIT initiated revision proceedings on the basis that the Assessing Officer (AO) did not disallow the consultancy fees paid to Shri Deepak Kochhar, which resulted in under-assessment. The Tribunal emphasized that the PCIT must conduct necessary inquiries or verification to show that the AO's findings were erroneous and unsustainable in law. The Tribunal found that the PCIT did not conduct any independent inquiry and merely relied on the DDIT's report, making the revision orders unsustainable.

2. Examination of the Payments Made to Shri Deepak Kochhar as Consultancy Fees:
The AO had reopened the assessments based on the DDIT's report, which suggested that the consultancy fees paid to Shri Deepak Kochhar were accommodation entries. During the assessment proceedings, the AO raised various queries regarding the payments and found that there were no supporting evidences for the services rendered by Shri Deepak Kochhar. Despite these findings, the AO did not disallow the consultancy fees but estimated commission income from the circular movement of funds. The PCIT, however, believed that the AO should have disallowed the entire consultancy fees. The Tribunal noted that the AO had conducted an inquiry and taken a possible view, and the PCIT could not substitute his judgment for that of the AO without conducting his own inquiries.

3. Applicability of Section 68 of the Income Tax Act Regarding Loans Received by the Assessees:
The PCIT also observed that the AO did not examine the applicability of Section 68 of the Income Tax Act concerning the loans received by the assessees from a sister concern. However, this issue was not mentioned in the notice issued for the initiation of revision proceedings, nor was it put to the assessees during the hearing. The Tribunal held that the PCIT could not introduce a new issue in the revision orders without giving the assessees an opportunity to respond.

4. Impact of the Vivad Se Vishwas Act, 2020 on the Revision Proceedings:
The assessees argued that the issues related to the payments made to Shri Deepak Kochhar had attained finality after settling the dispute under the Vivad Se Vishwas Act, 2020. The PCIT rejected this contention, stating that the settlement under the Vivad Se Vishwas Act did not bar the initiation of revision proceedings. The Tribunal, however, found that the PCIT did not provide any definite finding that the consultancy fees were not genuine and merely relied on the DDIT's report. The Tribunal concluded that the PCIT's revision orders were not sustainable as they were based on inadequate inquiry and unsupported by independent verification.

Conclusion:
The Tribunal quashed the revision orders passed by the PCIT, holding that the PCIT did not conduct necessary inquiries or verification to establish that the AO's findings were erroneous. The Tribunal emphasized that the AO had taken a possible view based on the inquiries conducted, and the PCIT could not substitute his judgment without proper inquiry. The appeals filed by the assessees were allowed.

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