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2023 (1) TMI 1030 - AT - Income TaxRevision u/s 263 - Addition u/s 68 - unsecured loan received by the assessee firm from shell companies circulated by ITD/SEBI was to be treated as an unexplained cash credits u/s.68 - repayment of unsecured loans made by the assessee company during the year to 7 companies - HELD THAT - A.O might have examined the loans transaction of the assessee with the aforementioned party, viz. M/s. Alipore Vinimay Private Limited, Kolkata, but in the backdrop of the very fact that the information circulated by the ITD/SEBI revealed that the name of the said lender party figured in the list of shell companies therefore, it was rightly observed by the Pr. CIT that the order of the A.O accepting the loan transaction under consideration had rendered his order passed u/s.143(3) as erroneous in so far as it was prejudicial to the interest of the revenue u/s.263 of the Act. Admittedly, there is no denying the fact that the A.O had looked into the loan transactions under consideration, but the same was to the extent of the material which was therefore before him. Also, it is not the case of the Ld. AR that the observation of the Pr. CIT that the name of the aforementioned investor company, viz. M/s. Alipore Vinimay Pvt. Ltd., Kolkata figured in the list of the shell companies as was circulated by the ITD/SEBI was ill-founded or incorrect. Pr. CIT had set-aside the matter to the file of the A.O with a direction to re-adjudicate the same after affording sufficient opportunity to the assessee, therefore, no infirmity could be attributed to his directions considering the totality of the facts and material as was there before him at the time of passing of the order u/s.263 No infirmity in the view taken by the Pr. CIT who had rightly set-aside the order passed by the A.O u/s.143(3) dated 27.12.2019, i.e., to the extent he had accepted the loan transaction received by the assessee from M/s. Alipore Vinimay Private Limited, for re-adjudication, i.e., after affording a reasonable opportunity of being heard to the assessee, therefore, uphold his order to the said extent. Appeal of the assessee is partly allowed in terms of our aforesaid observations.
Issues Involved:
1. Jurisdiction and validity of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. 2. Treatment of unsecured loan of Rs. 20 lakh as unexplained cash credits under Section 68 of the Act. 3. Treatment of repayment of unsecured loans to seven companies as unexplained expenditure under Section 69C of the Act. Issue-wise Detailed Analysis: 1. Jurisdiction and Validity of the Order Passed by the Pr. CIT under Section 263: The assessee firm challenged the order passed by the Pr. CIT under Section 263 of the Income Tax Act, 1961, arguing that it was without jurisdiction and bad in law. The assessee contended that the issues in question had been deliberated at length by the Assessing Officer (A.O) while framing the assessment under Section 143(3) and that the assessment was made with the approval of the superior authority. The Pr. CIT, however, observed that the assessment order was erroneous and prejudicial to the interest of the revenue, as the A.O had not conducted proper inquiries regarding the unsecured loan and the repayment of loans to shell companies. The Tribunal upheld the Pr. CIT's jurisdiction to revise the order, noting that the information regarding the shell companies was part of the record available for examination under Section 263. 2. Treatment of Unsecured Loan of Rs. 20 Lakh as Unexplained Cash Credits under Section 68: The Pr. CIT observed that the unsecured loan of Rs. 20 lakh received by the assessee from M/s. Alipore Vinimay Private Limited, a company listed as a shell company by ITD/SEBI, should be treated as unexplained cash credits under Section 68 of the Act. The Tribunal noted that although the A.O had examined the loan transaction, the information that the lender was a shell company was subsequently received by the Pr. CIT. The Tribunal, referencing the Supreme Court's judgment in the case of Commissioner of Income Tax, Bangalore Vs. Shree Manjunathesware Packing Products & Camphor Works, held that the Pr. CIT could take into consideration all records available at the time of examination, including the information about the shell company. Therefore, the Tribunal upheld the Pr. CIT's direction to re-adjudicate the issue of the unsecured loan. 3. Treatment of Repayment of Unsecured Loans to Seven Companies as Unexplained Expenditure under Section 69C: The Pr. CIT held that the repayment of unsecured loans amounting to Rs. 2,07,61,437 to seven companies, which were listed as shell companies, should be treated as unexplained expenditure under Section 69C of the Act. The assessee argued that the repayment of loans could not be considered as unexplained expenditure under Section 69C, which pertains to unexplained expenditure incurred during the financial year. The Tribunal agreed with the assessee, stating that Section 69C contemplates the addition of unexplained expenditure incurred during the financial year, and not the repayment of loans. Consequently, the Tribunal set aside the Pr. CIT's direction to treat the repayment of loans as unexplained expenditure under Section 69C, and restored the A.O's order to this extent. Conclusion: The Tribunal partly allowed the appeal of the assessee. It upheld the Pr. CIT's order to the extent of revising the treatment of the unsecured loan of Rs. 20 lakh under Section 68, but set aside the Pr. CIT's direction regarding the repayment of loans under Section 69C. The A.O was directed to re-adjudicate the issue of the unsecured loan after affording a reasonable opportunity of being heard to the assessee.
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