2021 (5) TMI 831 - AT - Income Tax

Revision u/s 263 - requirement to issue show cause notice u/s 263 - denial of natural justice - contention of the assessee to the effect that ld PCIT can give direction to the assessing officer in respect of those issues which are part of his show cause notice under section 263 - HELD THAT - PCIT can give direction to the assessing officer in respect of only those issues which were part of his show cause notice under section 263 of the Act and he cannot give direction to the assessing officer in respect of those issues which are not part of his show cause notice under section 263 of the Act. We do not agree with the contention of the ld Counsel to the effect that ld PCIT can give direction to the assessing officer in respect of those issues which are part of his show cause notice under section 263 - there is no requirement to issue notice under section 263 of the Act. The requirement under section 263 of the Act, is to give an opportunity of hearing only Thus there is no requirement to issue show cause notice under section 263 of the Act, the requirement is to give an opportunity of being heard. Also gone through the order ld PCIT passed by him under section 263 and noted that assessee has been given enough opportunity of being heard on the issues raised by ld PCIT. All notices issued by the ld PCIT covered all the issues raised by the ld PCIT under section 263 of the Act and AR of the assessee was aware about all these issues and in fact submitted reply to the ld PCIT during 263 proceedings in respect of these impugned issues. Hence, the contention of the ld Counsel for the assessee that these issues were not part of the show cause notice under section 263 of the Act, is not acceptable, in the light of the bare facts narrated above. The contention of the ld Counsel that Ld PCIT has issued notice only for Loans and not for Advances , is not tenable. We note that ld PCIT has found out specific mistakes in the assessment order framed by the assessing officer. The ld PCIT has used the terminology advance received which is nothing but unsecured loans , vide para 4(i) of PCIT order. Therefore, to use the different terminology to address an issue in the order, (which gives the same meaning), does not vitiate the order of ld. PCIT. Unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed. Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Since the order of the Assessing Officer has been held by us to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, therefore, the exercising of revisional jurisdiction by the ld Principal CIT is vaild in the eyes of law and, therefore, we are inclined to uphold the order of ld PCIT to invoke revisional jurisdiction u/s 263 - Decided against assessee.

Issues Involved:
1. Initiation of proceedings under Section 263 of the Income Tax Act, 1961.
2. Treatment of booking advances from Shamco.
3. Treatment of loan from Shri Pratapchandra Naik.
4. Treatment of all unsecured loans.
5. Treatment of expenses and sundry creditors.
6. Treatment of agricultural income.

Detailed Analysis:

1. Initiation of Proceedings under Section 263:
The assessee challenged the initiation of proceedings under Section 263, claiming that the Principal Commissioner of Income Tax (PCIT) lacked jurisdiction and that the assessment order was not erroneous or prejudicial to the revenue. The tribunal found that the Assessing Officer (AO) did not make the necessary inquiries, thus making the order erroneous and prejudicial to the interest of the revenue. The tribunal upheld the PCIT's jurisdiction under Section 263.

2. Treatment of Booking Advances from Shamco:
The PCIT observed that the AO did not verify the veracity of the ?10 lakh advance from Shamco Plastics Pvt. Ltd. The AO failed to inquire into the source of the advance and did not apply Section 68. The tribunal noted that the AO's lack of inquiry into the excess advance of ?7.5 lakh made the assessment order erroneous and prejudicial to the revenue.

3. Treatment of Loan from Shri Pratapchandra Naik:
The PCIT found that the loan confirmation from Shri Pratapchandra Naik lacked PAN details, failing the identity requirement under Section 68. The tribunal agreed with the PCIT that the AO's failure to verify the identity, creditworthiness, and genuineness of the transaction rendered the assessment order erroneous and prejudicial to the revenue.

4. Treatment of All Unsecured Loans:
The PCIT identified deficiencies in loan confirmations, such as the absence of cheque numbers, bank account numbers, and branch addresses, which made them unverifiable. The tribunal upheld the PCIT's view that the AO's failure to obtain complete details and verify the genuineness of the transactions made the assessment order erroneous and prejudicial to the revenue.

5. Treatment of Expenses and Sundry Creditors:
The PCIT noted that the AO did not verify the correctness of expenses and sundry creditors. The tribunal found that the AO's failure to make necessary inquiries into these significant items rendered the assessment order erroneous and prejudicial to the revenue.

6. Treatment of Agricultural Income:
The PCIT observed that the AO did not verify the details of landholding, cultivation, sale of agricultural produce, and related expenses. The tribunal agreed that the AO's lack of inquiry into the agricultural income claim made the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The tribunal concluded that the AO did not make necessary inquiries on multiple issues, making the assessment order erroneous and prejudicial to the interest of the revenue. The PCIT's invocation of Section 263 was upheld, and the order directing the AO to frame a fresh assessment was validated. The appeal of the assessee was dismissed.

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