2024 (1) TMI 753 - HC - Income Tax

Validity of Revision u/s 263 - Revision of Orders prejudicial to revenue - suo-motu revision under sub-section (1) of section 263 - addition of cash credit u/s 68 - HELD THAT - A reading of Section 68 of the Act which has been invoked by the PCIT would show that the sum credited in the books of an assessee maintained for any previous year can be accounted for income-tax as the income of the assessee of that previous year . According to Section 68 of the I.T. Act which operates in the limited field , any sum found credited in the books of assessee maintained for that previous year may be charged to income tax as income of the assessee of that previous year, if - (i) the assessee offers no explanation about the nature of source of such sum or (ii) the explanation offered by him in the opinion of AO is not satisfactory. Very genesis to invoke the provisions of Section 68 of the Act apparently appears beyond the scope of PCIT as the amount was received from the Company in the financial years 2013-2014 and 2014-2015 which were pertaining to the assessment years 2014-2015 and 2015-2016 respectively. According to the findings recorded by the learned Tribunal, the credit entries appearing in the accounts of the assessee were taken into account and section 68 could not have been invoked for the past credits which were carried forward. The order passed by the PCIT also suffers from lack of due opportunity of hearing as the PCIT while making such observation that the lender Company was classified as shell company and relied on some statement recorded but before such finding was recorded which was prejudicial to the right of the assessee, no opportunity of hearing was given to the assessee. The reliance of credit worthiness of lender Company which dominated the track for PCIT to arrive at a finding to invoke Section 263 was defective. Thereby the PCIT has not followed the rules of natural justice and admissibility of such document or the statement becomes doubtful as the rules of natural justice were given a go-bye. The finding of fact that the amount of unsecured loan got by the assessee from the lender Company was not received in assessment year in question on the basis of a finding which was never before the assessee to counter it. As such, section 68 cannot be invoked in the garb of Section 263 as fiscal statute is to be given a strict interpretation. Addition u/s 69C - Genuineness of stamp paper of receipt of advance from GTPL etc., being relatable to receipt of loans in other assessment year are apparently farfetched and have no relevance for assessment of income of this year, appears to be reasonable as no prejudice is caused to the interest of Revenue. A reading of the order would further would show that the Tribunal held that the repayment of loan and payment of interest expenditure was recorded in the books of transaction, which do not fall within the purview of section 69C - The valuation report can be taken into consideration when the books of account are not reliable or are not supported by proper vouchers. The assessment year in this case has not doubted such entry and it has not been stated that the books of account maintained by the assessee are defective or not reliable. It may have marginal difference with the valuation but that may be for various reasons but primarily aforesaid two conditions are required to be satisfied, which having not been present, the appellate Tribunal has rightly held the issue in favour of the assessee. The Tribunal also recorded the fact that the so called incriminating information that the lender company being classified by the SEBI as shell Company coupled with some adversarial statement of one Amit Kumar Kedia which has been relied by the PCIT post assessment, were not supplied to the assessee despite requests made by him that those information and statement would enable him to place its defence. Therefore, a serious flaw was committed by the PCIT. The assessment order also records the fact that GTPL is a NBFC registered with RBI and is a Company of sound financial standing and a regular tax payer of huge amounts year after year, therefore, withholding certain documents which is used against the assessee by the PCIT defeats the rules of natural justice of doctrine of audi alteram partem. Applicability of Section 43CA - A perusal of the order of Tribunal would further reflect that after assessment of the factual aspect of applicability of Section 43CA it records that the transaction was duly reported in tax audit report and the appellate authority was unable to find any error in action of the Assessing Officer to accept the transaction outside the ambit of Section 43CA where the variations in actual consideration qua assessable value for the purposes of stamp duty does not exceed 10%. The Tribunal has upheld the direction of PCIT to the extent that the difference upto 10% is only saved by the amendment made in the Finance Act and the enquiry directed by PCIT in respect of transaction covered u/s 43CA where the difference exceeds 10% appears to be justified and the direction of the PCIT to the limited extent was upheld. Therefore considering the totality of the aforesaid averments, we are of the view that the order of Tribunal does not give rise to a substantial question of law warranting interference of this Court in the order of Tribunal. Decided against revenue.

Summary

Issues Involved:

1. Legitimacy of ITAT's nullification of PCIT's directions concerning Section 43CA.
2. Examination of ITAT's stance on AO's inaction in verifying cash credits under Section 68.
3. Interpretation of Section 263 regarding the jurisdiction of PCIT.
4. Procedural fairness in PCIT's revision order.

Summary:

1. Legitimacy of ITAT's Nullification of PCIT's Directions Concerning Section 43CA:
The court examined whether the ITAT was justified in nullifying the direction of the PCIT regarding transactions under Section 43CA of the Income Tax Act, 1961. The ITAT held that the stamp duty value and actual consideration amount did not exceed 10%, thus not warranting the application of Section 43CA. The court noted that the amendment increasing the safe harbor limit to 10% was effective from 01.04.2021 and upheld the ITAT's decision, finding no substantial question of law.

2. Examination of ITAT's Stance on AO's Inaction in Verifying Cash Credits Under Section 68:
The court assessed whether the ITAT was justified in holding that the AO's failure to examine the genuineness of cash credits under Section 68 did not render the assessment order erroneous and prejudicial to the interest of the Revenue. The ITAT found that the sum of Rs. 18.12 crores was received in earlier assessment years and was part of the opening balance, thereby not falling under the purview of Section 68 for the current assessment year. The court agreed with the ITAT, noting that Section 68 applies to sums credited in the books for "that previous year," and thus, the PCIT's invocation of Section 68 was beyond scope.

3. Interpretation of Section 263 Regarding the Jurisdiction of PCIT:
The court evaluated whether the ITAT's interpretation of Section 263 was contrary to law. It noted that the power of revision under Section 263 is supervisory and can be exercised if the order is erroneous and prejudicial to the interests of the Revenue. The court found that the PCIT's order lacked due opportunity of hearing and was based on information not disclosed to the assessee, violating principles of natural justice. The ITAT's decision to quash the PCIT's order was upheld.

4. Procedural Fairness in PCIT's Revision Order:
The court addressed the procedural fairness of the PCIT's revision order. The PCIT had relied on statements and classified the lender company as a shell company without providing the assessee an opportunity to counter these findings. The court held that this violated the rules of natural justice, and the ITAT rightly quashed the PCIT's order on these grounds.

Conclusion:
The court dismissed the appeals, affirming the ITAT's orders and concluding that no substantial question of law warranted interference. The ITAT's decisions were found to be justified, and the PCIT's orders were deemed procedurally flawed and beyond the scope of statutory mandate.