2019 (1) TMI 996 - AT - Income Tax

Revision u/s 263 - setting aside the assessment order framed u/s 147/ 143(3) - receipt of accommodation entries - order erroneous and prejudicial to the interest of revenue - scope of amendment made to the provision of section 263 - Held that - There is a startling fact that seized material found during the course of search on the premises of the accommodation entry provider which shows that the credit in the books of account of the assessee are accommodation entries and such an important piece of evidence was the main reason of the opening of the assessment by issuing notice u/s 148 of the Act was not at all considered by the AO while making assessment u/s 147 of the Act. It was not at all confronted to the assessee as well as to the Directors of the depositor companies u/s 131 of the Act. It is further noted that all these decisions are not concerned with the amendment made to the provision of section 263 of the Act w.e.f. 01.06.2015 by the Finance Act 2015 wherein, the explanation 2 is inserted which even otherwise makes the order passed without making enquiries or verification which should have been made by the Assessing Officer are deemed to be erroneous insofar as it is prejudicial to the interest of the revenue. The impugned order passed by the ld CIT u/s 263 of the Act on 17.03.2017 also gets a statutory support from the above amendment. No infirmity in the order of the ld Pr. CIT in passing order u/s 263 of the Act - decided against assessee

Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act.
2. Adequacy of enquiries conducted by the Assessing Officer (AO) during the assessment proceedings.
3. Validity of the reassessment proceedings under Section 147 of the Income Tax Act.
4. Consideration of seized material during assessment.
5. Borrowed satisfaction as a basis for reopening assessment.

Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act:
The primary issue in all four appeals was whether the CIT had the jurisdiction to invoke Section 263 of the Income Tax Act, 1961. The CIT invoked Section 263, holding that the assessment orders were erroneous and prejudicial to the interests of the revenue. The Tribunal upheld the CIT's jurisdiction, stating that the AO had failed to examine the relevant seized material and make necessary enquiries. The Tribunal referenced the amendment to Section 263 effective from 01.06.2015, which deems an order erroneous and prejudicial if it is passed without making necessary enquiries or verification.

2. Adequacy of enquiries conducted by the Assessing Officer (AO) during the assessment proceedings:
The Tribunal found that the AO did not conduct adequate enquiries during the assessment proceedings. Despite being in possession of seized materials indicating accommodation entries, the AO did not confront the assessee with these materials nor made any notations in the order sheet or questionnaires. The Tribunal emphasized that the AO should have verified the genuineness of the transactions and the nexus between cash deposits and cheques issued by the group companies. The Tribunal cited multiple precedents where similar failures by the AO warranted the invocation of Section 263.

3. Validity of the reassessment proceedings under Section 147 of the Income Tax Act:
The Tribunal addressed the validity of reassessment proceedings under Section 147. The assessee argued that the reassessment was based on borrowed satisfaction and thus invalid. However, the Tribunal held that the reassessment was valid as it was based on specific information and tangible material indicating that the assessee was a beneficiary of accommodation entries. The Tribunal distinguished the facts of the present case from those in the cited case of Meenakshi Overseas Ltd., where the reassessment was merely based on intimation without specific seized material.

4. Consideration of seized material during assessment:
A significant issue was whether the AO considered the seized material during the assessment. The Tribunal noted that the AO neither confronted the assessee with the seized material nor made any reference to it in the assessment order. The Tribunal held that the failure to consider the seized material, which was the basis for reopening the assessment, rendered the assessment order erroneous and prejudicial to the interests of the revenue. The Tribunal upheld the CIT's order directing the AO to re-examine the seized material and confront the assessee.

5. Borrowed satisfaction as a basis for reopening assessment:
The assessee contended that the reopening of the assessment was based on borrowed satisfaction, making it invalid. The Tribunal rejected this argument, stating that the reopening was based on specific information and seized materials indicating accommodation entries. The Tribunal clarified that the information and seized materials provided a tangible basis for the AO's belief that income had escaped assessment, thus justifying the reopening under Section 147.

Conclusion:
The Tribunal dismissed all the appeals, upholding the CIT's invocation of Section 263 in each case. The Tribunal found that the AO had failed to make necessary enquiries and consider relevant seized materials, rendering the assessment orders erroneous and prejudicial to the interests of the revenue. The Tribunal also upheld the validity of the reassessment proceedings under Section 147, rejecting the argument of borrowed satisfaction.

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