2021 (7) TMI 1169 - AT - Income Tax

Revision u/s 263 - A.O has not carried out the independent enquiries or verification and examination of the loan creditors and also fail to verify the fact of repayment of loans were made through account payee cheques - HELD THAT - We found that the assessee firm has fought a long litigation before the Honorable Tribunal up to the year 2016 being the three rounds of litigation On perusal of the Pr.CIT order we found that the Pr. CIT has only verified the facts of loan and the assessee firm is in the litigation before the Hon ble Tribunal for the third time and the Pr.CIT has not pointed out any specific error in the A.O. order and emphasized only on the status of repayment of loan by account payee cheques and has relied on the observations of the A.O. duly endorsed by the Range Head CIT should specifically point out the error in the order passed by the A.O. which is erroneous and prejudicial to the interest of the revenue. We find that there is no enquiry which was conducted by the Pr.CIT except relying on the A.O. submissions endorsed by the range head. We also observe that the assessee has fought the litigation for the fourth time in the present case before this Hon ble Tribunal. We find the A.O as per the directions of the Honorable Tribunal in order 2016 (7) TMI 1618 - ITAT MUMBAI has taken a possible view considering the litigation for a period of more than 20 years. We are convinced that the order passed by the A.O are on facts, circumstances, possible and reasonable views. We find the action of the Pr. CIT revising the A.O. order with out conducting of enquiry is not tenable. Accordingly we set aside the order of the Pr. CIT and allow the grounds of appeal in favour of the assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 263 of the Income Tax Act, 1961.
2. Cancellation of the assessment order by the CIT with directions for a fresh assessment.
3. Verification of loan transactions and the repayment method.

Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 263:
The assessee challenged the initiation of proceedings under Section 263 by the Principal Commissioner of Income Tax (Pr.CIT), arguing that the CIT erred in law and on facts. The Pr.CIT issued a show cause notice under Section 263, observing that the Assessing Officer (A.O.) did not carry out independent inquiries or verification of the loan creditors and failed to verify if the loan repayments were made through account payee cheques. The Pr.CIT deemed the A.O.'s order erroneous and prejudicial to the interests of the revenue. However, the Tribunal found that the Pr.CIT did not point out any specific error in the A.O.'s order and relied solely on the A.O.'s report endorsed by the Range Head. The Tribunal concluded that the Pr.CIT's action of revising the A.O.'s order without conducting an enquiry was not tenable and set aside the Pr.CIT's order.

2. Cancellation of the Assessment Order by the CIT with Directions for a Fresh Assessment:
The CIT canceled the assessment order passed by the A.O. and directed a fresh assessment after providing the assessee an opportunity of being heard. The Tribunal noted that the A.O. had already made efforts to verify the loan transactions and had issued summons under Section 131 to Mr. Surendra Khandhar for cross-examination, but there was no response. The A.O. relied on the findings of the CIT(A) and concluded that there was no change in circumstances or new material information. The Tribunal observed that the A.O. had taken a possible and reasonable view considering the long-drawn litigation and the mutual understanding between the assessee and the loan creditors to convert the loans into investments. Therefore, the Tribunal found no specific error in the A.O.'s order and allowed the assessee's appeal.

3. Verification of Loan Transactions and the Repayment Method:
The Tribunal examined whether the loans obtained by the assessee were genuine and whether the repayments were made through account payee cheques. The assessee argued that the loans were squared off towards investments in an under-production film, "Maseeha," and produced promissory notes as evidence. The Tribunal noted that in similar circumstances involving the assessee's sister concern, the Tribunal had directed the A.O. to verify the repayment of loans. The A.O. confirmed that the loans were squared off by transferring shares in the film and assessed the total income as Nil. The Tribunal found that the A.O. had taken a possible view based on the facts and circumstances and that the Pr.CIT did not conduct any enquiry to prove otherwise. Consequently, the Tribunal set aside the Pr.CIT's order and allowed the grounds of appeal in favor of the assessee.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, setting aside the orders passed under Section 263 by the Pr.CIT. The Tribunal concluded that the A.O.'s order was based on a possible and reasonable view, considering the long litigation history and the mutual understanding between the assessee and the loan creditors. The Tribunal found no specific error in the A.O.'s order and emphasized that the Pr.CIT's action of revising the order without conducting an enquiry was not justified.