2024 (8) TMI 1017 - AT - Income Tax

Revision u/s 263 - assessment order passed u/s 147 r.w.s. 144B - reasons for reopening the assessment was that assessee was a beneficiary of accommodation entry - HELD THAT - The case of the assessee was reopened because of transaction with Shri Chiragkumar B Patel (Proprietor of Mahariv Sales Corporation), who was an entity provider and assessee was beneficiary from transaction with the above party. Hence, the question for decision against the above factual background before us is whether the AO passed an erroneous and prejudicial order in respect of the alleged transaction within the meaning of Section 263 of the Act. We find that the AO had issued notice u/s 143(2) and had supplied reasons for re-opening to the assessee, which was duly replied by the assessee vide replies dated 03.09.2021 and 22.10.2021. The assessee had given explanation regarding transaction with Shri Chirakumar B Patel and Shri Sailashbhai P Patel. Being satisfied with the reply of the assessee, the AO passed order u/s 147 r.w.s 144B of the Act accepting the returned income. Thus, it can be said that the AO has examined the issue and taken a considered view on the subject issue. AO cannot be said to have not applied his mind because in the assessment order itself he has observed that he had considered the details and documents and reply of assessee. PCIT has invoked jurisdiction u/s 263 by issuing notice u/s 263 of the Act and passed an order directing the AO to pass fresh assessment order after giving opportunities of being heard to assessee. There is a distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that could not, by itself, give occasion to the Ld.PCIT to pass order u/s 263 of the Act merely because he has different opinion in the matter. It is only in cases of lack of inquiry that such a course of action could be opened. In the present case, the Assessing Officer has duly examined the facts and formed an opinion that no addition is necessary in view of the reply of the assessee on the subject-issue. Therefore, the decision of PCIT that the order passed by AO was erroneous and prejudicial to the interest of revenue is not correct. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the Income-tax Act, 1961.
2. Whether the assessment order under Section 147 r.w.s. 144B was erroneous and prejudicial to the interest of the revenue.
3. Adequacy of the inquiry conducted by the Assessing Officer (AO).
4. Scope of the AO's jurisdiction in reassessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed Under Section 263:
The assessee challenged the correctness of the orders passed by the Principal Commissioner of Income-tax (PCIT) under Section 263 of the Income-tax Act, 1961 for the assessment years 2015-16 and 2016-17. The PCIT had set aside the assessment orders passed under Section 147 r.w.s. 144B, directing the AO to make fresh assessments considering the issues discussed in the revision order. The Tribunal found that the PCIT's invocation of Section 263 was not justified as the AO had conducted inquiries and formed a considered view, thus the original assessment order was neither erroneous nor prejudicial to the interest of the revenue.

2. Whether the Assessment Order Under Section 147 r.w.s. 144B was Erroneous and Prejudicial to the Interest of the Revenue:
The PCIT argued that the AO's failure to add Rs. 93,11,587/- as unexplained income made the assessment order erroneous and prejudicial to the revenue. However, the Tribunal noted that the AO had examined the transactions with Shri Chiragkumar B. Patel and found no irregularities. The AO concluded that the assessee had no transactions with Shri Chiragkumar B. Patel but had business dealings with M/s Maruti Enterprises, whose proprietor was Shri Saileshbhai P. Patel. The Tribunal held that the AO's order was based on proper inquiries and was not erroneous.

3. Adequacy of the Inquiry Conducted by the Assessing Officer (AO):
The Tribunal emphasized that the AO had issued notices under Section 143(2) and considered the assessee's replies and documents. The AO concluded that the transactions with Shri Chiragkumar B. Patel were not substantiated, but the transactions with M/s Maruti Enterprises were genuine. The Tribunal held that the AO had conducted adequate inquiries and applied his mind before passing the assessment order. The Tribunal distinguished between "lack of inquiry" and "inadequate inquiry," stating that the latter does not justify revision under Section 263.

4. Scope of the AO's Jurisdiction in Reassessment Proceedings:
The Tribunal referred to the legal principle that the AO must assess or reassess income based on the issues that led to the reopening of the assessment. The Tribunal cited the case of CIT vs. Jet Airways (I) Ltd., where it was held that if no addition is made on the issue for which the case was reopened, the AO cannot make additions on other issues. Since the AO did not make any addition regarding the transactions with Shri Chiragkumar B. Patel, he could not have made additions regarding transactions with Shri Saileshbhai P. Patel. The Tribunal concluded that the AO's jurisdiction was limited to the issues specified in the reasons for reopening.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for both assessment years 2015-16 and 2016-17, setting aside the orders passed by the PCIT under Section 263. The Tribunal held that the original assessment orders were neither erroneous nor prejudicial to the interest of the revenue, and the AO had conducted adequate inquiries and applied his mind before passing the assessment orders.