2023 (2) TMI 1070 - AT - Income Tax

Revision u/s 263 - repayment of unsecured loans to the alleged shell companies considering the provisions of Section 69C r.w.s. 115BBE - HELD THAT - The issue under consideration was duly examined by the AO in the assessment proceedings and conscious decision was taken after due application of mind. Accordingly, it is not a case of lack of inquiry by the Assessing Officer. Secondly, as regards applicability of section 69C of the Act, we observe that section 69C applies in case of unexplained expenditure, source of which remains unexplained. In the assessee s case, repayment of loan does not constitute any expenditure and further, the source of such repayment was also explained by the assessee both before the Assessing Officer as well as PCIT. Accordingly, in our view section 69C of the Act cannot be invoked in the instant facts. In the instant facts even if one were to invoke section 68 of the Act since repayment of loan is not credit in the books of accounts, the same is outside purview of section 68 of the Act. On the issue that the ld. Assessing Officer should have enquired into the transaction on the ground that the assessee had made repayment to bogus/shell companies, the assessee before us submitted that at the time when the aforesaid unsecured loans were received by the assessee from the above three parties, the receipts have already been taxed in the hands of the assessee u/s. 68 of the Act in the assessment for A.Y. 2013-14. The assessee had filed appeal against the aforesaid order and the appeal was finally closed under the Vivad Se Vishwas Scheme. Accordingly, once the unsecured loans have been taxed in the hands of the assessee at the time when they were received by the assessee in A.Y. 2013-14, the same cannot be again taxed in the hands of the assessee at the time when such loans are repaid back by the assessee to such alleged bogus companies, since the same would amount to double taxation. Further, on perusal of the order passed by ld. PCIT, it is seen that the ld. PCIT has not established as to how the repayment of loans falls u/s. 69C of the Act when the assessee has not claimed the same as expenditure and also when the source of such repayment has not been disputed by the PCIT. Scope of proceedings u/s 263 - An inquiry made by the Assessing Officer is considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous.The order can be erroneous if the Assessing Officer fails to apply the law correctly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the AO. Assessing Officer s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers u/s 63 cannot impose his own understanding of the extent of inquiry. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the order under Section 263 of the Income Tax Act.
2. Consideration of submissions by the appellant regarding the assessment order.
3. Legality of the de-novo assessment directed by the Principal Commissioner of Income Tax (PCIT).
4. Potential for double taxation due to the taxing of repayment of unsecured loans.

Detailed Analysis:

1. Legality of the Order under Section 263 of the Income Tax Act:
The assessee challenged the order under Section 263, asserting it was "bad in law." The PCIT initiated proceedings under Section 263, observing that the assessee made repayments of unsecured loans to bogus shell companies without producing verifiable evidence. Consequently, the PCIT deemed the expenditure as income under Section 69C and taxed it under Section 115BBE, resulting in under-assessment of income.

2. Consideration of Submissions by the Appellant:
The assessee contended that the Assessing Officer (AO) had already examined the issue during the assessment proceedings and issued a show cause notice. The AO queried the repayment of unsecured loans to bogus companies, to which the assessee responded that the repayments were not claimed as expenditure and were sourced from sales realization, supported by bank statements. The PCIT, however, rejected these submissions, emphasizing that the AO did not conduct proper inquiries or verification.

3. Legality of the De-novo Assessment Directed by the PCIT:
The PCIT set aside the assessment order and directed a de-novo assessment, citing inadequate inquiries by the AO. The Tribunal observed that the AO had indeed examined the issue, issued a show cause notice, and received a satisfactory explanation from the assessee. The Tribunal held that the AO's decision was a conscious one made after due application of mind, and thus, it was not a case of lack of inquiry.

4. Potential for Double Taxation:
The assessee argued that taxing the repayment of unsecured loans would result in double taxation, as the loans were already taxed under Section 68 in the assessment for A.Y. 2013-14. The Tribunal noted that since the unsecured loans were taxed when received, they could not be taxed again upon repayment. The Tribunal also highlighted that the PCIT did not establish how the repayment of loans fell under Section 69C when the repayment was not claimed as expenditure and the source was explained.

Conclusion:
The Tribunal concluded that the AO had made adequate inquiries and taken a plausible view, thus the order could not be deemed erroneous or prejudicial to the interest of revenue. The Tribunal cited various judgments to support its stance that an inquiry, even if deemed inadequate, does not justify revision under Section 263 if the AO applied the law correctly. Consequently, the appeal of the assessee was allowed, and the order under Section 263 was set aside.