2021 (7) TMI 1133 - AT - Income Tax

Revision u/s 263 - lack of enquiry v/s lack of investigation - as per PCIT discrepancy in the revised and original audit report,no enquiry in case of unsecured loans and no enquiry in case of sundry creditors and debtors - HELD THAT - In the first issue of discrepancies in the revised and original audit report, assessee has referred to various pages of the paper-book and shown to us that revision was done due to change in the depreciation and some figures in original balance-sheet, mentioned erroneously under wrong heads, which were later on observed and rectified. Once the assessee has revised his return within the permissible period, then said return substitute the original return of income for all purposes and the original return is to be ignored. The assessee has already filed revised audit report, which in itself is self-explanatory as how the loss claimed by the assessee has been reduced due to the reduction in claim of the depreciation. We also find that the revised return the assessee has reduced the loss as compared to the original return and hence there was no occasion of any suspicion of excess claim, which warrant comparison of the figures with the original return. Before the PCIT, the assessee has produced all the details of the original return and revised return along with enclosures, but PCIT has not pointed out any error in the said explanation of the assessee. He has merely directed the Assessing Officer to obtain all the details and take necessary action. This action of the Learned PCIT is not justified in view of the precedents discussed above. Unsecured loans - Assessee filed all the confirmations of unsecured loans before the Learned PCIT and detailed in respect of addition to loan during the year under consideration. Though PCIT has mentioned that no bank statement or Copy of IT return has been filed in respect of the lenders and therefore directed the Assessing Officer to verify and take appropriate action. PCIT has not pointed out as which loans have been accepted erroneously by the Assessing Officer. Similarly, on the issue of sundry creditors, it was submitted by the assessee before the Learned PCIT that once trading results are accepted by the Assessing Officer, no addition can be made for sundry creditors under section 68 of the Act. It has been submitted by assessee that entire audited books of accounts were produced before the Assessing Officer. The Learned PCIT, though mentioned in his order that no address or PAN of sundry creditors were provided to him, however, he himself did not verify as to which creditor was prime facie not genuine. We also note from the submission of the assessee before the Learned PCIT that the information in respect of claim of the depreciation, unsecured loans and sundry creditors in prescribed perform were duly filed by the assessee. The copy of query letter issued by the Assessing Officer on 17.10.2017. In the said query letter, he has inquired about confirmation of unsecured loans and also inquired as why there was increase in interest on unsecured loans. The reply of assessee in respect of the above query raised by the AO - In said reply, the assessee has complied the direction of the AO and even justified reasons for increase in interest on unsecured loan. Moreover, in the year under consideration, loan was added in case of Sh. B.K. Gupta, Sh. K.L. Gupta, Sh. N.K. Gupta and Sh. Tanuj Datta. All these persons are either director or relative of director and assessed under the same Assessing Officer, and thus all information in respect of these parties were already available with the AO and he was not required to call for such information from the Assessing Officer. We find that the Assessing Officer has accepted the trading results of the assessee and ld. PCIT has also not pointed out any error. When the ld. AO has accepted the trading results, it is deemed that he has verified the sundry creditors/debtors. Thus, to alleged that no enquiry was done by the AO as regard to sundry creditor is not correct. Moreover, the addition cannot be made for sundry creditor, without disallowing purchase as held in the case of Ritu Anurag Agarwal (supra). In the case of assessee, trading results are accepted and no purchase are disallowed. In the circumstances, it cannot be said that no inquiry has been done by the AO, which should have been done in the case. PCIT has failed to point out any specific error in the order of the Learned Assessing Officer and in absence of which twin conditions of section 263 of the Act are not satisfied and therefore we quash the finding of the Ld. PCIT and set aside the said order of the PCIT. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction and statutory preconditions under section 263 of the Income-tax Act, 1961.
2. Discrepancy between the original and revised audit reports.
3. Inquiry into unsecured loans.
4. Inquiry into sundry creditors and debtors.

Issue-wise Detailed Analysis:

1. Jurisdiction and Statutory Preconditions under Section 263:
The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263, asserting that the statutory preconditions were not satisfied, rendering the order without jurisdiction. The assessee argued that the assessment order could not be regarded as erroneous and prejudicial merely because the PCIT had a different opinion. The Tribunal emphasized that for section 263 to be invoked, the order must be both erroneous and prejudicial to the interest of the Revenue. The Tribunal cited various judicial precedents, including the Delhi High Court in ETT Ltd. Vs CIT and the Madras High Court in Vijay Kumar Koganti, emphasizing that the PCIT must conduct prima facie inquiries and demonstrate specific errors in the assessment order.

2. Discrepancy Between the Original and Revised Audit Reports:
The PCIT identified discrepancies in the figures under various heads between the original and revised audit reports. The assessee argued that the revised return was filed within the permissible period, substituting the original return, and the discrepancy was due to changes in depreciation and rectification of errors in the original balance sheet. The Tribunal agreed with the assessee, noting that the revised return, which reduced the loss, was self-explanatory and the PCIT did not point out any specific error in the revised figures. The Tribunal held that the PCIT's direction to the Assessing Officer (AO) to obtain all details and take necessary action was unjustified.

3. Inquiry into Unsecured Loans:
The PCIT alleged that the AO did not call for complete confirmations to prove the identity, creditworthiness, and genuineness of the lenders. The assessee countered that confirmations were provided, and the loans were from directors or their relatives, assessed by the same AO. The Tribunal found that the PCIT did not specify which loans were erroneously accepted and noted that the AO had raised queries and received satisfactory replies from the assessee. The Tribunal held that the PCIT failed to demonstrate any specific error in the AO's acceptance of the unsecured loans.

4. Inquiry into Sundry Creditors and Debtors:
The PCIT claimed that the AO did not verify the genuineness of sundry creditors and debtors as no addresses or PANs were provided. The assessee contended that the entire trading results were based on audited books of accounts, which were accepted by the AO, and no addition could be made under section 68 of the Act without disallowing purchases. The Tribunal noted that the AO had accepted the trading results and verified the books of accounts, including sundry creditors and debtors. The Tribunal held that the PCIT's observation that no inquiry was done was incorrect and reliance on Explanation-2 below section 263 was misplaced.

Conclusion:
The Tribunal concluded that the PCIT failed to point out specific errors in the AO's order and did not satisfy the twin conditions of section 263. The Tribunal quashed the PCIT's order and allowed the appeal of the assessee. The Tribunal emphasized that mere differences in opinion or lack of detailed inquiry by the AO, without demonstrating specific errors, do not justify invoking section 263. The Tribunal's decision reinforced the necessity for the PCIT to conduct minimal inquiries and provide clear findings of error and prejudice to the Revenue before setting aside an assessment order.