2024 (8) TMI 1114 - AT - Income Tax

Revision u/s 263 - Receipts of accommodation entries - reopening of assessment concluded - lack of inquiry v/s inadequate inquiry - HELD THAT - AO had made detailed inquiries on the issue of accommodation entry which was denied by the assessee and no further evidence was brought on record to establish the said alleged transaction. It was held in the case of CIT Vs. Sunbeam Auto Ltd. 2009 (9) TMI 633 - DELHI HIGH COURT that one has to see from the records as to whether there was application of mind before allowing the expenditure and one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any enquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass order under Section 263 of the Act merely because he has a different opinion in the matter. It is only in cases of lack of inquiry that such a course of action would be open. The present case cannot be treated as a case of lack of inquiry as the AO had examined the issue in the course of assessment proceeding. The scope of Commissioner s power u/s 263 of the Act would be available when the AO conducts no enquiry or no proper enquiry or doesn t apply his mind to the legal issues arising out of the material on record; only then the revisional power is available. In the present case, the AO did conduct proper inquiries based on which the case was reopened and had accepted the explanation of the assessee - PCIT was not justified in invoking the revisional jurisdiction u/s 263 - Decided in favour of assessee.

Issues:
1. Jurisdiction of Principal Commissioner under Section 263 of the Income-tax Act, 1961.
2. Proper examination of issues by Assessing Officer in the assessment proceedings.
3. Reopening of assessment based on accommodation entries.
4. Correctness of order passed by Assessing Officer and Principal Commissioner.

Analysis:

1. Jurisdiction of Principal Commissioner under Section 263:
The appeal was filed against the order passed by the Principal Commissioner of Income Tax, Ahmedabad-1 under Section 263 of the Income-tax Act, 1961 for the Assessment Year 2013-14. The appellant contended that the order was passed without appropriate jurisdiction and powers available under the Act. The appellant challenged the invocation of Section 263 by the Principal Commissioner, arguing that the Assessing Officer's order was not erroneous or prejudicial to the interest of revenue. The appellant raised various grounds challenging the jurisdiction and validity of the order under Section 263.

2. Examination of Issues by Assessing Officer:
The case was reopened under Section 147 of the Act to examine accommodation entries of Rs. 35,04,500 taken by the assessee. The Principal Commissioner found that the Assessing Officer did not properly examine the issue, leading to the order being treated as erroneous and prejudicial to the Revenue's interest. The appellant argued that the Assessing Officer had indeed examined the issue during assessment proceedings, and the order was not erroneous. The appellant provided details of the reply filed, stating that no addition was made after due consideration. The appellant also highlighted similar instances in other assessment years where no addition was made on the same issue.

3. Reopening of Assessment based on Accommodation Entries:
The case was reopened to investigate accommodation entries taken by the assessee from a paper/dummy company controlled by an entry operator. The Principal Commissioner directed the Assessing Officer to complete the assessment de novo after proper examination of the issues. The appellant contested the reopening, stating that the Assessing Officer had examined the issue and accepted the appellant's contentions. The appellant argued that the order under Section 263 was based on different facts than those mentioned in the notice, rendering it illegal and unjustifiable.

4. Correctness of Orders Passed:
The Assessing Officer had examined the issue of accommodation entries during assessment proceedings, and the appellant denied any transaction with the concerned parties. The Assessing Officer accepted the appellant's explanation and dropped the proceedings under Section 147, accepting the returned income. The Principal Commissioner's order under Section 263 was challenged on the grounds that it imposed a different view without new evidence and was not supported by facts. The Tribunal held that the Principal Commissioner's order lacked foundation to exercise revisionary jurisdiction under Section 263, quashing and setting it aside.

In conclusion, the Tribunal allowed the appeal of the assessee, finding that the Principal Commissioner's order under Section 263 was not tenable in law due to the lack of basis for revisionary jurisdiction.

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