2023 (10) TMI 23 - AT - Income Tax

Revision u/s 263 - As per CIT AO did not verify/examine the loan creditors as there is a lack of supporting evidences and no appropriate inquiry was made - HELD THAT - AO was not obliged to ask the Assessee to provide source of source under the pretense of proper examination of the creditworthiness of the creditor and absence of further evidence showing the source of source was not an error. In the present case, the material show that the AO has made all possible enquires acting u/s 68 with reference to all the creditors. There is nothing in record to show that discretion conferred u/s 68 was not properly exercised. Therefore, the finding of the ld. PCIT that appropriate enquires/verifications of loans have not been made by the AO w.r.t cash Creditors is legally factually incorrect. We find that it was not the case of ld. PCIT that there was a complete/total lack of inquiry. He himself admits in the impugned order that the AO did make enquiry on the issues involved. The law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry, unless there is an established case of total lack of enquiry. In this regard, we draw strength from the decisions in the cases of Sunbeam Auto Ltd. 2009 (9) TMI 633 - DELHI HIGH COURT and Narain Singla 2015 (10) TMI 2371 - ITAT CHANDIGARH and Chemsworth P Ltd. 2020 (9) TMI 875 - KARNATAKA HIGH COURT all followed in Annu Agrotech. 2021 (9) TMI 856 - ITAT JAIPUR by this bench. Assessee appeal allowed.

Issues Involved:
1. Invocation of Section 263 by the Principal Commissioner of Income Tax (PCIT).
2. Jurisdiction under Section 263.
3. Examination and verification of loans and creditors by the Assessing Officer (AO).
4. Adequacy of inquiries conducted by the AO.
5. Compliance with Standard Operating Procedures (SOP) issued by CBDT.

Summary:

1. Invocation of Section 263 by the PCIT:
The assessee challenged the invocation of Section 263 by the PCIT, arguing that the order dated 21-10-2022 was erroneous and prejudicial to the interests of the revenue. The PCIT had issued a show cause notice proposing to invoke revisional proceedings under Section 263 on the grounds that the AO did not verify/examine certain issues, making the assessment order erroneous and prejudicial to the revenue.

2. Jurisdiction under Section 263:
The PCIT assumed jurisdiction under Section 263, claiming the assessment order was prejudicial to the interests of the revenue because the AO did not verify/examine the issues adequately. The assessee argued that the PCIT's assumption of jurisdiction was contrary to the provisions of law and facts on record.

3. Examination and Verification of Loans and Creditors:
The PCIT's allegations included:
- Liability of Rs. 9,81,205/- under Sundry Creditors without corresponding purchases or transactions.
- Non-maintenance of books by the assessee, not satisfactorily examined in assessment proceedings.
- Inadequate documentary evidence for unsecured loans.
- Confirmations of loans from creditors lacking necessary details and not matching with Schedule "E".
The assessee provided detailed submissions, including confirmations, affidavits, bank statements, and other documents to support the identity, creditworthiness, and genuineness of the transactions. The AO had raised specific queries and received detailed replies from the assessee.

4. Adequacy of Inquiries Conducted by the AO:
The assessee argued that the AO made detailed inquiries and examinations as required by law. The AO's queries and the assessee's responses were documented, and the AO was satisfied with the explanations provided. The AO's acceptance of the assessee's submissions was based on a reasonable and judicious view, and the PCIT's allegations of inadequate inquiry were unfounded.

5. Compliance with SOP Issued by CBDT:
The PCIT alleged non-compliance with the SOP issued by CBDT. However, the assessee argued that the SOP was not binding and that the AO had fulfilled all the requirements. The SOP required examination of credits found during the year, which the AO had done. The PCIT's reliance on SOP was not a valid ground for invoking Section 263.

Conclusion:
The ITAT found that the AO had made necessary inquiries and examinations, and the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The AO's acceptance of the assessee's submissions was based on a reasonable and judicious view. The ITAT quashed the impugned order passed under Section 263 by the PCIT and sustained the AO's assessment order. The appeal of the assessee was allowed.

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