2020 (3) TMI 1167 - AT - Income Tax

Revision u/s 263 - addition u/s 68 - reopening of assessment u/s 147 - HELD THAT - We find the AO in the instant case has reopened the assessment on the basis of the information received from the Investigation Wing that assessee has received accommodation entry of ₹ 40 lacs from M/s. Sri Amarnath Finance Pvt. Ltd., a company controlled by Sh. Surinder Kumar Jain and Sh. Virender Kumar Jain who are known entry operators. AO during the course of assessment proceedings has called for information from the assessee who filed the requisite documents such as the ITR, bank statement, PAN number, confirmation etc. of the lender company. We find the AO had issued notice u/s. 133 (6) to M/s. Sri Amarnath Finance Pvt. Ltd. who responded to such notice and filed the requisite documents as called for by the AO. Force in the arguments advanced by the Ld. Counsel for the assessee that the AO has examined the documents / confirmation in detail and adopted a possible view that the assessee has established the identity and creditworthiness of the lender and the genuineness of the transaction. It has been held in various decisions that action u/s. 263 can be taken only when there is lack of enquiry or no enquiry. However, in the instant case necessary enquiry was conducted. Therefore, merely because CIT does not agree with the manner of enquiry conducted by the AO he cannot substitute his own reasons and held the order to be erroneous and prejudicial to the interest of the revenue. See DWARKADHIS BUILDWELL PVT. LTD C/O N.K. JAIN, ADVOCATE NAYA BAZAR, BHIWANI VERSUS CIT HISAR 2019 (9) TMI 91 - ITAT DELHI - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of the order passed under Section 263 of the IT Act.
2. Examination of accommodation entry of ?40,00,000/-.
3. Assessment of the AO's verification and enquiry process.
4. Applicability of legal precedents and twin conditions for invoking Section 263.

Issue-wise Detailed Analysis:

1. Justification of the order passed under Section 263 of the IT Act:
The appeal was filed against the order dated 22.03.2019 passed under Section 263 of the IT Act for the A.Y.2009-10. The Pr.CIT set aside the AO's order, claiming it was erroneous and prejudicial to the interest of the revenue due to inadequate verification of the accommodation entry of ?40 lacs received by the assessee. The Tribunal found that the AO had conducted necessary enquiries and adopted a possible view, thus the Pr.CIT's invocation of Section 263 was unjustified.

2. Examination of accommodation entry of ?40,00,000/-:
The case was reopened based on information that the assessee received an accommodation entry from companies floated by Sh. Surinder Kumar Jain and Sh. V. K. Jain. The AO accepted the returned loss after considering the details provided by the assessee and the lender company, including ITR, bank statements, and confirmation letters. The Pr.CIT, however, argued that the AO failed to verify the identity, creditworthiness, and genuineness of the transaction adequately.

3. Assessment of the AO's verification and enquiry process:
The AO issued a notice under Section 133 (6) to M/s. Sri Amarnath Finance Pvt. Ltd., which responded with the required documents. The Tribunal found that the AO had conducted necessary enquiries and adopted a possible view. It was held that action under Section 263 can only be taken when there is a lack of enquiry or no enquiry, which was not the case here.

4. Applicability of legal precedents and twin conditions for invoking Section 263:
The Tribunal referred to several legal precedents, including CIT Vs. Software Consultants, CIT Vs. Monarch Educational Society, and CIT Vs. DLF Limited, which established that Section 263 can be invoked only when the order is both erroneous and prejudicial to the interest of the revenue. The Tribunal concluded that the AO's order was not erroneous as the AO had taken a possible view after conducting necessary enquiries. Therefore, the twin conditions for invoking Section 263 were not satisfied.

Conclusion:
The Tribunal quashed the proceedings initiated by the Pr.CIT under Section 263, allowing the appeal filed by the assessee. The order of the AO was upheld, and the grounds raised by the assessee were accepted. The Tribunal emphasized that merely because the Pr.CIT disagreed with the AO's conclusion, it did not justify invoking Section 263. The Tribunal's decision was pronounced in the open court on 03.03.2020.