2024 (4) TMI 349 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - unexplained credit - as per CIT no documentary evidence and confirmation of lender was submitted by the assessee - HELD THAT - In order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous insofar as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. In the present case, the audit objection was raised. It seems that on the basis of audit objection with regard to unsecured loan, the revision was proposed. In fact there is no audit objection with regard to trade payables. We find that in the case of Pr.CIT Vs Shreeji Prints (Pvt.) Ltd. 2021 (9) TMI 108 - SUPREME COURT held that when AO made enquiries in detail and accepted the genuineness of loan received by assessee, such view of AOwas a plausible view and cannot be considered to be erroneous or prejudicial to the interest of revenue. We also find force in the submission of assesse that language of Section 68 itself give discretion to the Assessing Officer about nature and source of explanation to the satisfaction of AO. We find that the AO on unsecured loan as well as on trade payables has taken a reasonable, plausible and legally sustainable view. Hon'ble Jurisdictional High Court in Aryan Arcade Ltd. 2018 (9) TMI 427 - GUJARAT HIGH COURT held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. By following the aforesaid decisions of Superior Courts, the combination of this bench also took similar view in S.U. Enterprises 2022 (11) TMI 670 - ITAT SURAT in our view, a mere observation of the PCIT that no proper details, with regards to the issues identified by him, were obtained by the assessing officer and has not made inquiries which ought to have made in the present case cannot be a sufficient basis for exercising his jurisdiction. Thus, order of ld PCIT is quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Initiation of proceedings u/s 263.
2. Assumption of jurisdiction u/s 263.
3. Violation of principles of natural justice.
4. Alleged change in opinion.
5. Verification of Unsecured Loan and genuineness of creditors.
6. Validity of assessment proceedings.
7. Erroneous and prejudicial to interest of revenue.

Summary:

1. Initiation of proceedings u/s 263:
The assessee contended that the learned Pr. Commissioner of Income Tax (Pr.CIT) erred in initiating proceedings u/s 263 of the Income Tax Act, 1961, without valid grounds. The Tribunal noted that the Pr.CIT had issued a show cause notice based on audit objections without independent application of mind.

2. Assumption of jurisdiction u/s 263:
The assessee argued that the Pr.CIT wrongly assumed jurisdiction u/s 263. The Tribunal found that the assessment order was neither erroneous nor prejudicial to the interest of revenue, as the Assessing Officer (AO) had conducted a thorough investigation during the scrutiny assessment.

3. Violation of principles of natural justice:
The assessee claimed that the Pr.CIT violated the principles of natural justice by not specifying the grounds for initiating action u/s 263 in the show cause notice. The Tribunal observed that the show cause notice was based on audit objections and lacked independent evaluation by the Pr.CIT.

4. Alleged change in opinion:
The assessee asserted that the order u/s 263 was merely a change in opinion. The Tribunal agreed, noting that the AO had already investigated the issues of unsecured loans and trade payables during the assessment proceedings.

5. Verification of Unsecured Loan and genuineness of creditors:
The Pr.CIT alleged that the AO did not verify the unsecured loan of Rs. 3.11 crores and the genuineness of creditors. The Tribunal found that the assessee had furnished confirmations, bank statements, and income tax returns of the lenders, and the AO had accepted these details after due verification.

6. Validity of assessment proceedings:
The assessee argued that the entire proceedings were invalid as the assessment order u/s 143(3) was framed after due inquiry. The Tribunal found that the AO had conducted a comprehensive investigation and accepted the details provided by the assessee.

7. Erroneous and prejudicial to interest of revenue:
The Pr.CIT set aside the assessment order, claiming it was erroneous and prejudicial to the interest of revenue. The Tribunal held that the AO's order was based on a plausible view after proper verification, and the Pr.CIT's action was not justified.

Conclusion:
The Tribunal quashed the order of the Pr.CIT dated 25/03/2022, allowing the appeal of the assessee. The Tribunal emphasized that the AO had conducted a thorough investigation, and the Pr.CIT's revision based on audit objections without independent application of mind was not valid. The appeal was allowed, and the order announced in open court on 05th April, 2024.