2023 (10) TMI 773 - AT - Income Tax

Revision u/s 263 - As per CIT AO has failed to carry out necessary verification towards unsecured loans aggregating to Rs. 8 crore received from certain parties - HELD THAT - The expression lack of enquiry is quite distinct from the expression insufficient enquiry . It may be possible for the CIT in some cases to show and establish that facts on record or inferences drawn from facts on record per se justified or mandated further inquiry or investigation which the AO has erroneously not undertaken. Such finding must be clear, unambiguous and not debatable. CIT must demonstrate that the order is both erroneous as well as prejudicial to the interest of the Revenue by such lapse on the part of the AO. This is the position of law enunciated by several cases including CIT .v. Goetze (India) Ltd. 2013 (12) TMI 607 - DELHI HIGH COURT , DG Housing Projects Ltd 2012 (3) TMI 227 - DELHI HIGH COURT , CIT vs. Sunbeam Auto Ltd 2009 (9) TMI 633 - DELHI HIGH COURT - As a question would arise whether, firstly, the action of the AO is unsustainable in law or not, owing to such assertions on mere inadequacy and secondly, whether the mandate u/s 68 of the Act for extent of inquiry by way of cross verification is absolute or left to the discretion to be reasonably exercised by the AO. As observed in the preceding paras, even if inquiry with regard to source of source of loan in a particular manner as suggested by Pr. CIT is omitted to be carried out, the provisions of Section 68 of the Act cannot be automatically fastened on the assessee. To reiterate, no objective material is discernible from the SCN or from the revisioanal order to implicate the assessee per se. Having regard to the prerogative vested with the AO towards the extent and manner of inquiry for drawing satisfaction, it is difficult to hold that the action of the AO is unintelligible. AO has not committed any error in not chasing will of the wisp in the absence of any brazen circumstances available. In the light of aforesaid discussion, the basis of issuance of show cause notice u/s 263 of the Act does not appear to be tenable in law in the peculiar set of facts. Consequently, the assumption of jurisdiction u/s 263 of the Act on this ground too, will have to be regarded as without authority of law. Assessee appeal allowed.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act.
2. Adequacy of inquiry by the Assessing Officer (AO) during the assessment proceedings.
3. Alleged accommodation entries and the genuineness of loans.
4. Opportunity of being heard and principles of natural justice.
5. Timeliness and procedural aspects of the revisional order.

Summary:

1. Assumption of Jurisdiction under Section 263:
The assessee challenged the assumption of jurisdiction by the Principal Commissioner of Income Tax (Pr.CIT) under Section 263 of the Income Tax Act on the grounds that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Pr.CIT issued a Show Cause Notice (SCN) alleging that the assessment order was erroneous due to inadequate inquiry into unsecured loans amounting to Rs. 8 crore.

2. Adequacy of Inquiry by the AO:
The Pr.CIT contended that the AO failed to make sufficient inquiries regarding the unsecured loans received by the assessee. Specifically, the Pr.CIT alleged that the AO did not issue summons for personal deposition of the loan providers and did not take cognizance of search material from the Investigation Wing related to Jain brothers, who were alleged accommodation entry providers.

3. Alleged Accommodation Entries:
The Pr.CIT held that the loans from M/s Transnational Growth Ltd. and M/s RKG Finvest Ltd. were accommodation entries and that the AO had not conducted proper inquiries. The Pr.CIT also referred to reports from the Serious Fraud Investigation Office (SFIO) and the Enforcement Directorate, which implicated Jain brothers in providing accommodation entries.

4. Opportunity of Being Heard and Principles of Natural Justice:
The assessee argued that the Pr.CIT did not provide sufficient opportunity to respond to the SCN, violating the principles of natural justice. The SCN was issued on 21.03.2018 with a compliance date of 26.03.2018, effectively giving the assessee only one working day to respond. The Tribunal found this to be a significant procedural lapse, rendering the revisional order null and void.

5. Timeliness and Procedural Aspects:
The Tribunal noted that the revisional order was passed hastily and at the instance of the new incumbent AO, without independent application of mind by the Pr.CIT. The Tribunal highlighted that the Pr.CIT merely adopted the AO's proposal verbatim, indicating a lack of independent examination of the case records.

Conclusion:
The Tribunal quashed the revisional order under Section 263, holding that the Pr.CIT failed to provide adequate opportunity to the assessee and did not exercise independent judgment. The Tribunal emphasized that the AO had conducted inquiries, and the Pr.CIT's dissatisfaction with the extent of these inquiries did not justify the invocation of Section 263. The appeal of the assessee was allowed.