2023 (1) TMI 912 - AT - Income Tax

Revision u/s 263 by CIT - unsecured loan transactions of the assessee - Unexplained cash deposits - HELD THAT - Anomalies noted by the ld.Pr.CIT with respect to the unsecured transactions being demonstrated by the ld.counsel for the assessee to be non-existent, whatever verification the ld.Pr.CIT wanted to carry out, should have been done at his end only, and only thereafter, he could have arrived at a finding, whether the order of the AO was erroneous or not. In case, verification of the bank statements revealed that these transactions were not actually reflected in the bank account of these two parties, the contentions of the ld.Pr.CIT of error in the order of the AO, would then have been correct. But, if found otherwise, then there couldn t be said tobe any error in the order of AO. Without carrying out the verification exercise itself, the ld.Pr.CIT clearly had no case for holding the assessment order to be erroneous on account of non-verification of the genuineness of these two unsecured loans. We hold that as far as anomaly noted by the ld.Pr.CIT, with regard to these two unsecured loans taken by the assessee from Kalpana Shah and Monali Shah on certain transactions relating to the said loans, not being reflected in their bank accounts, CIT has not arrived a conclusive finding of the error and has only restored the issue to the AO for verification that too when the assessee had clearly demonstrated the anomalies to be non existent. Therefore, with respect to these anomalies noted in the said transactions, there is no error in the order of the AO. Credit-worthiness of the Kalpana Shah not being established - The ledger account of the Kalpana Shah whichwas part of the books of accounts, and part of the record of the assessment also, clearly revealed that entire transaction with her related to amounts transferred to her by the assessee, and subsequently paid back by her to the assessee. Therefore, out of total amount of Rs.31,18,882/- noted by the ld.Pr.CIT to have been received by the assessee from Kalapan Shah, the source of Rs.29,61,194/- can be attributed to the amounts transferred by the assessee to her, which is evident from the copy of the ledger account also. It is only the difference of Rs.1,50,000/- which can be said to be credit given by the Kalpana Shah to the assessee, which we agree with ld.counsel for the assessee as too minor amount to invite exercise of revisionary jurisdiction by the ld.Pr.CIT for non-verification of the genuineness of unsecured loans received by the assessee from Ms. Monali Shah and Kalpana Shah, the assessee having clarified all anomalies noted by the ld.Pr.CIT in the said transaction with documentary evidences, and the Pr.CIT having accepted the same, but restoring the issue to the AO only for the purpose of verification. Also with respect to the credit-worthiness of Kalpana Shah, we have noted that net unsecured loans received from her is too minor an amount of Rs.1.5 lakhs to have invoked revisionary jurisdiction from the ld.Pr.CIT - Appeal of the assessee is allowed.

Issues Involved:
1. Legality of the order passed under section 263 of the Income Tax Act, 1961.
2. Verification of genuineness of unsecured loans taken by the assessee.
3. Establishment of creditworthiness of lenders.

Detailed Analysis:

1. Legality of the order passed under section 263 of the Income Tax Act, 1961:

The assessee contested the legality of the order dated 26/02/2021 passed by the Pr. Commissioner of Income-Tax (Pr.CIT) under section 263 of the Income Tax Act, 1961, arguing that it was "bad in law and ab initio void." The tribunal examined whether the Pr.CIT had the grounds to exercise revisionary jurisdiction under section 263. It was highlighted that for exercising such jurisdiction, the Pr.CIT must categorically point out errors in the order of the Assessing Officer (AO), and this power cannot be exercised merely for verification purposes.

2. Verification of genuineness of unsecured loans taken by the assessee:

The Pr.CIT noted discrepancies in the details of unsecured loans taken by the assessee from two individuals, Kalpana S. Shah and Monali H. Shah. Specifically, the Pr.CIT found that certain transactions were not reflected in their respective bank accounts. For instance, Rs.22,00,000/- allegedly paid to Kalpana S. Shah by the assessee was not found credited in her bank account. Similarly, transactions amounting to Rs.35,20,000/- from Monali H. Shah were not reflected in her bank account.

However, the assessee provided bank statements showing these transactions, which the Pr.CIT accepted but still held the assessment order to be erroneous. The tribunal found that the Pr.CIT did not conclusively verify the transactions and merely restored the issue to the AO for further verification. The tribunal held that the Pr.CIT should have carried out the verification exercise himself before concluding that the AO's order was erroneous.

3. Establishment of creditworthiness of lenders:

The Pr.CIT also questioned the creditworthiness of Kalpana S. Shah, noting that there was no income-tax return on record for her to prove her creditworthiness. The assessee clarified that the transactions were merely transfers of funds back and forth, with no substantial amount being received as a loan. The tribunal found that the net unsecured loan received from Kalpana S. Shah was approximately Rs.2 lakhs, which was too minor an amount to warrant the exercise of revisionary jurisdiction by the Pr.CIT.

Conclusion:

The tribunal concluded that the Pr.CIT did not conclusively establish errors in the AO's order and merely restored the issues for verification, which was not sufficient to invoke revisionary jurisdiction under section 263. The tribunal set aside the order passed by the Pr.CIT and allowed the appeal of the assessee, stating that the anomalies noted by the Pr.CIT were either non-existent or too minor to justify the exercise of revisionary powers.

Order:

The appeal of the assessee was allowed, and the order passed by the Pr.CIT under section 263 of the Act was set aside. The tribunal pronounced the order on 20th January 2023 at Ahmedabad.

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