2022 (7) TMI 1008 - AT - Income Tax

Revision u/s 263 by CIT - addition u/s 68 - AO has not made any detailed enquiry at the time of assessment before accepting the accommodation entry as genuine transactions - AO in re-assessment proceedings had issued notices under section 133(6) of the Act to four parties and only on the basis of replies filed by those parties through a tapal/post, the AO accepted the purchases from the parties as genuine - HELD THAT - A perusal of the bank statement shows that substantial amounts have been deposited and that too not on a regular basis. However, the Ld. Assessing Officer without making any further enquiries accepted the same at their face value as representing business income of the assessee. It is further observed that the Ld. Assessing Officer called for the statements of four parties and accepted the statements of parties on the basis of confirmation given through post / tapal. However, no effort was made to call them or personally examine them, especially in light of the fact when case has been set aside u/s 263 of the Act on the basis of specific allegations of the assessee being engaged in providing accommodation entries. The confirmation letters furnished by the parties, sent through post, were accepted as genuine by the ld. Assessing officer on their face value, without carrying out any further examination regarding the genuineness of parties, especially when the matter was set aside on the basis of specific allegations of the assessee being an accommodation entry provider. No further enquiry was made regarding the genuineness of the parties or their capacity to advance such huge amounts of money to the assessee. As during the assessment proceedings, the Ld. Assessing Officer did not make any enquiry regarding why such a miniscule net profit rate of 0.0025% has been offered to tax on the huge turnover. Further, AO during the course of assessment proceedings made no enquiries as to the mode of delivery of such substantial amount of bullion and jewellery. Thus, there seems to be an evident lack of enquiry / investigation into the facts of the case during the course of assessment proceedings and all contentions made by the assessee have been accepted, without detailed examination / analysis. As we are of the considered view that there was a lack of enquiry by the ld. Assessing officer during the course of assessment proceedings, and therefore the Principal Commissioner of Income Tax has not erred in facts and in law in concluding that the assessment order passed was erroneous and prejudicial to the interests of the Revenue. - Decided against assessee.

Issues Involved:
1. Violation of the principle of natural justice.
2. Erroneous and prejudicial assessment order under Section 263.
3. Adequacy of inquiries conducted by the Assessing Officer (AO) during reassessment.
4. Genuineness of transactions and accommodation entries.

Detailed Analysis:

1. Violation of the Principle of Natural Justice:
The assessee contended that the order under Section 263 was passed without providing adequate opportunity of being heard, constituting a violation of the principle of natural justice. However, it was noted that the assessee's Authorized Representative had inspected the "Office Note" and other records, indicating that the assessee was given a fair opportunity to present their case.

2. Erroneous and Prejudicial Assessment Order under Section 263:
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263, observing that the AO had not conducted a detailed inquiry before accepting the accommodation entries as genuine transactions. The PCIT noted that the AO's assessment was based on replies from four parties received through post, without further verification or field inquiries. The assessment order was deemed "erroneous and prejudicial to the interests of the revenue" due to the lack of thorough investigation, especially given the significant amounts involved.

3. Adequacy of Inquiries Conducted by the AO During Reassessment:
The assessee argued that the AO had conducted due inquiries during reassessment, submitting various documents such as purchase bills, sales bills, bank statements, and VAT returns. However, the tribunal found that the AO did not make further inquiries into the substantial cash deposits or the genuineness of the transactions, despite specific allegations of the assessee providing accommodation entries. The AO accepted the confirmation letters from the parties without personal examination or field verification.

4. Genuineness of Transactions and Accommodation Entries:
The tribunal noted that the AO failed to verify the authenticity of the transactions, including the mode of delivery of bullion and jewellery. The net profit rate on the substantial turnover was suspiciously low, yet the AO did not investigate further. The tribunal cited various judicial precedents emphasizing the necessity for the AO to conduct thorough inquiries and not merely accept the documents submitted by the assessee at face value.

Conclusion:
The tribunal concluded that there was a lack of adequate inquiry by the AO during the assessment proceedings. The PCIT's decision to invoke Section 263 was upheld, as the assessment order was found to be erroneous and prejudicial to the interests of the revenue. The appeal of the assessee was dismissed.

Order Pronounced:
The order was pronounced in the open court on 20-07-2022.

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