2022 (11) TMI 1109 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - HELD THAT - We find that the transactions referred to by the CIT in the impugned order has never been examined by the assessing officer. No enquiry has been conducted relating to the alleged sum. It is also surprising to note that even when the tax audit report was available with the assessing officer and it was specifically mentioned that loans or advances have been taken by the assessee from M/s. DGIAPL, AO failed to take any action. It could have been a situation that the assessing officer after examining the transactions, ledger account and other relevant details have come to a conclusion that they are not in the nature of loans or advances. But this action of carrying out necessary exercise is completely missing at the end of the assessing officer and in the given scenario where only few cases are selected for scrutiny such type of scrutiny proceedings as has been carried out by the assessing officer are erroneous so far as they are prejudicial to the interest of the revenue wherein the important aspects and the crucial financial transactions having sufficient volume in terms of value remained to be examined by the AO. We fail to find any infirmity in the finding of the CIT holding the assessment order as erroneous and prejudicial to the interest of the revenue. Thus, the finding of the CIT in the order passed u/s 263 of the Act, is confirmed and grounds of appeal raised by the assessee are dismissed.

Summary

Issues Involved:

1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
2. Determination of whether the sum received by the assessee from another company constitutes a loan or a business transaction.
3. Examination of the Assessing Officer's actions during the assessment proceedings.

Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:

The main contention is whether the Principal Commissioner of Income Tax (Pr. CIT) was justified in invoking Section 263 of the Income Tax Act, 1961. Section 263 allows the Pr. CIT to call for and examine the record of any proceeding under the Act and pass an order if the assessment is found to be erroneous and prejudicial to the interests of the revenue. The Tribunal confirmed that the Pr. CIT was justified in invoking Section 263, as the Assessing Officer (AO) had not examined the transactions in question. The Tribunal noted that the AO's failure to scrutinize the transactions, despite having the tax audit report indicating loans or advances, rendered the assessment order erroneous and prejudicial to the revenue's interest.

2. Determination of Whether the Sum Received by the Assessee Constitutes a Loan or a Business Transaction:

The assessee argued that the sum of Rs. 12,39,56,758 received from Dewars Garage Insurance Agencies Pvt. Ltd. (DGIAPL) was not a loan but a business transaction related to insurance renewals for cars sold by the assessee. The assessee maintained a running account with DGIAPL for facilitating these business transactions. However, the Pr. CIT referred to the tax audit report, which classified the amount as loans or deposits. The Tribunal found that the AO had not examined whether the transactions were indeed business transactions or loans/advances. The Tribunal emphasized that the AO's lack of inquiry into the nature of these transactions justified the Pr. CIT's invocation of Section 263.

3. Examination of the Assessing Officer's Actions During the Assessment Proceedings:

The Tribunal scrutinized whether the AO had conducted any investigation into the transactions between the assessee and DGIAPL. It was found that the AO had not examined these transactions during the assessment proceedings. The Tribunal noted that the AO's failure to investigate, despite the tax audit report indicating loans or advances, was a significant oversight. This lack of inquiry was deemed erroneous and prejudicial to the revenue's interest, thereby justifying the Pr. CIT's revisionary action under Section 263.

Conclusion:

The Tribunal upheld the Pr. CIT's order under Section 263, confirming that the assessment order dated 29/12/2019 was erroneous and prejudicial to the revenue's interest due to the AO's failure to examine significant financial transactions. The appeal of the assessee was dismissed, and the findings of the Pr. CIT were confirmed. The Tribunal's decision emphasized the importance of thorough scrutiny by the AO, especially when significant financial transactions are involved.