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2024 (8) TMI 118 - HC - Income TaxRevision u/s 263 - Addition of unsecured loans - as per CIT AO had not carried the verification and inquiry as to the creditworthiness of the two depositors in particular - HELD THAT - In the instant case, it is not a case of change of opinion; rather it is a case where the assessment order is erroneous and is prejudicial to the interest of revenue due to lack of inquiries/verification by the original AO with regard to the claim of the Assessee regarding the source and details of introduction of capital. The law is also well settled as has been held by the Hon ble Apex Court in the case of Rampyari Devi Sarawagi 1967 (5) TMI 10 - SUPREME COURT and Tara Devi Agarwal 1972 (11) TMI 2 - SUPREME COURT where a sum not earned by a person is assessed as income in his hand on his so offering the order passed by the Assessee officer accepting the same as such will be erroneous and prejudicial to the interest of revenue. Thus the instant appeal is allowed and the substantial questions of law formulated by this Court goes in favour of Revenue.
Issues Involved:
1. Justification of ITAT in setting aside the order under Section 263 of the Income Tax Act. 2. Verification of the genuineness of unsecured loans by the Assessing Officer (AO). 3. Perversity of ITAT's observations regarding the AO's opinion on the creditworthiness and genuineness of transactions. Detailed Analysis: 1. Justification of ITAT in Setting Aside the Order under Section 263: The appeal was directed against the ITAT's order which set aside the Principal Commissioner of Income Tax's (CIT) order under Section 263. The CIT had initiated a suo motu revision proceeding against the Assessee, highlighting that there was a significant rotation of money among relatives without interest payments, and loans aggregating to Rs. 6,75,08,220/- were raised from relatives. The CIT found that the AO had not independently verified these transactions, rendering the assessment order erroneous and prejudicial to the revenue's interest. The ITAT, however, held that the AO had duly verified the genuineness of unsecured loans and that the assessment order was not erroneous or prejudicial to the revenue. 2. Verification of the Genuineness of Unsecured Loans by the AO: The ITAT's judgment was based on the AO having issued notices under Sections 142(1) and 143(2) of the Act, and the Assessee having complied with these notices by furnishing the required documents. The ITAT presumed that the AO had applied his mind to verify the loans obtained from relatives. However, the High Court noted that the AO's assessment order did not discuss the source and details of the introduction of capital. The CIT had pointed out that one of the depositors, Rajesh Chourasia, had declared an income of only Rs. 4,25,598/-, raising doubts about his creditworthiness to advance such a large loan. The High Court found that the AO had failed to make proper inquiries or verification, which should have been made under Section 68 of the Act. 3. Perversity of ITAT's Observations: The High Court found the ITAT's observations to be perverse, as the AO had not mentioned any verification or inquiries regarding the source and details of the introduction of capital in the assessment order. The High Court emphasized that the amendment to Section 263, which introduced Explanation-2, clarified that an order passed without necessary inquiries or verification would be deemed erroneous and prejudicial to the revenue's interest. The High Court stated that the ITAT failed to consider this amendment, which applied even to assessments made prior to its introduction. Conclusion: The High Court allowed the appeal, ruling in favor of the revenue. It quashed the ITAT's order and restored the CIT's order under Section 263, along with the subsequent assessment order dated 13.12.2018. The High Court underscored that the AO's failure to make necessary inquiries or verification rendered the original assessment order erroneous and prejudicial to the revenue's interest. The court reiterated that the CIT's exercise of revisional jurisdiction was justified, as the AO had not formed any opinion on the critical issue of the creditworthiness and genuineness of the unsecured loans.
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