2024 (12) TMI 906 - AT - Income Tax

Revision u/s 263 - As per CIT AO omitted to consider the incriminating search material evidencing the assessee's money-lending business that had outstanding debtors balance on the date of search and failed to make necessary inquiries or verification to suitably assess the sources for investment made in the money-lending business HELD THAT - The assessee furnished various replies against the same. In reply dated 02-03-2021, it was explained that out of total amount in circulation in money lending, almost 98% represent borrowed funds. The quantification of debits / credits as shown in the notices was not a true reflection of either the gross amount lent or borrowed. Therefore, these amounts could not be considered as income as proposed by Ld. AO. Assessee also explained that the amount outstanding as debtors on the date of search was Rs. 35 Crores and the source for this could only be out of the income generated from money-lending business over the period. The Ld. AO failed to take into consideration the corresponding amount outstanding on the same date in the loan creditors account. The source of investment in money lending business was duly enquired into by Ld. AO during the course of assessment proceeding. The assessee had furnished the replies to the satisfaction of Ld.AO. It was duly explained that out of total amount in circulation in money lending, almost 98% represent borrowed funds. It was also explained that the quantification of debits / credits as shown in the notices was not a true reflection of either the gross amount lent or borrowed and therefore, these amounts could not be considered as income of the assessee. The assessee also explained that the amount outstanding as debtors on the date of search was Rs. 35 Crores and the source for this could only be out of the income generated from money-lending business over the period. Thus, the issue of investment in money lending business was duly examined and verified by Ld. AO. The assessee furnished plausible explanation for the same. Having satisfied with assessee s replies, AO framed assessment for this year as well as for preceding years. AO accepted the claim of the assessee with due application of mind. The view of Ld. AO, in our considered opinion, was one of the plausible views and the same is not opposed to facts to record. This being the case, Ld. Pr. CIT, in our considered opinion, could not have substituted the opinion of Ld. AO with that of his own view unless the view of Ld. AO was shown to be perverse. We find that the view of Ld. AO was a plausible view. Where two views are possible and AO has preferred one view against another view, order could not be said to be erroneous or prejudicial to the interest of the revenue. See MALABAR INDUSTRIAL CO. LTD 2000 (2) TMI 10 - SUPREME COURT and MAX INDIA LTD. 2007 (11) TMI 12 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Invocation of revisionary jurisdiction under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT).
2. Alleged erroneous and prejudicial assessment order by the Assessing Officer (AO).
3. Consideration of incriminating materials and debtor balances in the assessment.
4. Validity of the Pr. CIT's revisionary order in light of judicial precedents.

Detailed Analysis:

1. Invocation of Revisionary Jurisdiction under Section 263:
The assessee challenged the invocation of revisionary jurisdiction under Section 263 by the Pr. CIT, arguing that the assessment order dated 29-09-2021 was not erroneous or prejudicial to the interests of the revenue. The Pr. CIT issued a show-cause notice alleging that the AO failed to consider incriminating search material indicating the assessee's money-lending business with an outstanding debtor balance of Rs. 34.61 Crores, which was not properly verified or assessed by the AO. The Pr. CIT contended that this omission rendered the assessment order erroneous and prejudicial to the interest of revenue, warranting revision under Section 263.

2. Alleged Erroneous and Prejudicial Assessment Order:
The assessee argued that the AO had duly considered all facts and seized materials during the assessment proceedings. The AO had added cash found during the search to the assessee's income, attributing it to unaccounted finance mediation business. The assessee contended that the AO's assessment was not prejudicial to the revenue's interests, as the income from the unaccounted business was already accounted for as unexplained money. The Pr. CIT's assertion that the AO's assessment lacked application of mind was disputed by the assessee, who claimed that the AO had taken one of the possible views permissible in law.

3. Consideration of Incriminating Materials and Debtor Balances:
The Pr. CIT noted that the AO failed to consider the incriminating material evidencing the assessee's money-lending business and the outstanding debtor balance of Rs. 34.61 Crores. The Pr. CIT argued that the AO did not make necessary inquiries or verification regarding the sources of investment in the money-lending business. The assessee defended that the debtor balance was already considered in the assessment of the firm M/s. Sri Ram Studio, and the cash addition was due to unaccounted commission income. The Pr. CIT rejected this defense, stating that the debtor balance issue was not part of the assessee's appeal and that the AO's failure to assess it in the assessee's hands indicated non-application of mind.

4. Validity of Pr. CIT's Revisionary Order in Light of Judicial Precedents:
The tribunal evaluated whether the Pr. CIT's revisionary order was justified. It was noted that the AO had issued notices and considered explanations regarding the seized documents and outstanding debtor balances during the assessment proceedings. The assessee had explained that the debtor balance was primarily borrowed funds, and the AO had accepted this explanation. The tribunal referred to judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, which held that an order is not erroneous or prejudicial if the AO adopts one of the permissible views in law. The tribunal found that the AO's view was plausible and not opposed to the facts on record. Consequently, the Pr. CIT could not substitute the AO's opinion with his own without proving it was perverse.

Conclusion:
The tribunal concluded that the AO had made necessary inquiries and the Pr. CIT's invocation of revisionary jurisdiction under Section 263 was not justified. The tribunal allowed the appeal, restoring the assessment order framed by the AO. The tribunal emphasized that the AO's view was a plausible one, and the Pr. CIT's revisionary order could not be upheld under the given circumstances.