2023 (11) TMI 755 - AT - Income Tax

Revision u/s 263 - as per CIT Inadequate enquiry made on the issue of sundry creditors balance outstanding - HELD THAT - CIT have noted, has held that since the assessee had not furnished bank statement of the sundry creditors, inquiry regarding their genuineness and credit worthiness was incomplete, casting prejudice to the Revenue. We are unable to agree with the ld.Pr.CIT in this count. It is not the case of the ld.Pr.CIT that no inquiry was conducted by the AO on the issue of sundry creditors balance outstanding. His case of the assessment order being erroneous on this count, rests on inadequacy of inquiry. It is not denied that the assessee has furnished complete details of sundry creditors giving their names, addresses, their PAN and the details of the transaction undertaken with them during the year. The assessee had also stated that it was not possible for him to procure the bank statement of these sundry creditors. CIT has not pointed out as to why more inquiry needed to be conducted regarding sundry creditors. There is no reason given by him as to why the sundry creditors reflected by the assessee needed to be doubted. There is no financial analysis done by the ld.Pr.CIT leading to create a doubt regarding existence of this quantum of sundry creditors. Except for stating that huge sundry creditors were outstanding as at the end of the year, there is no basis given for stating so. There is no comparison of the turnover of the assessee or of the purchases made by the assessee with the outstanding creditors; there is no finding by the ld.CIT(A) that considering low volume of operation conducted by the assessee, the extent of sundry creditors outstanding is too huge so as to cast a doubt on the existence of such outstanding sundry creditors as at the end of the year. No exercise worth its name has been carried out by the ld.Pr.CIT so as to justify the need for further inquiry to be done regarding the sundry creditors. Hon ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd. 2009 (9) TMI 633 - DELHI HIGH COURT while dealing with issue of adequacy of inquiry by AO for the purposes of section 263 has held that inadequate inquiry alone is not sufficient for holding assessment order erroneous unless it is found by the Ld.CIT /PCIT to have resulted in error causing prejudice to the Revenue. Thus where details were filed to the AO and the Commissioner was unable to point out defects conclusively in the material for arriving at a conclusion that particular income had escaped assessment on account of non application of mind by AO, order for revision of assessment order on account of the same u/s 263 of the Act was not sustainable in law. See Anil Kumar Sharma 2010 (2) TMI 75 - DELHI HIGH COURT The order passed under section 263 of the Act is set aside. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Denial of fair opportunity of hearing to the assessee.
3. Merits of the revisionary power exercised by the Principal Commissioner of Income Tax (Pr.CIT) regarding the addition of new sundry creditors.

Summary:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961:
The assessee challenged the order passed by the Principal Commissioner of Income Tax (Pr.CIT) under section 263 of the Income Tax Act, 1961, arguing that it was unwarranted, unjustified, and bad in law. The Pr.CIT had set aside the issues of addition of new sundry creditors amounting to Rs. 3,66,31,437, treating them as unexplained cash credits under section 68 of the Act.

2. Denial of fair opportunity of hearing to the assessee:
The assessee contended that the order under section 263 was passed without giving a fair opportunity of hearing. Only two notices were issued during the peak of the COVID-19 pandemic, making it virtually impossible for the assessee to respond. The Tribunal agreed, noting that the Pr.CIT issued only two notices in March 2021 and passed the order without a fair hearing, violating the principles of natural justice. Citing the Apex Court's decision in Sona Builders vs UOI, orders passed in violation of natural justice cannot be restored for fresh hearing and must be set aside. The Tribunal quashed the order under section 263 on this ground alone.

3. Merits of the revisionary power exercised by the Pr.CIT regarding the addition of new sundry creditors:
The Pr.CIT noted that the Assessing Officer (AO) had not verified the quantum increase of sundry creditors, which should have been disallowed under section 68 of the Act. The assessee argued that the AO had conducted due inquiries, including specific queries about the sundry creditors, and had accepted their genuineness after reviewing the provided details. The Tribunal found that the Pr.CIT failed to demonstrate any error in the AO's order. The Pr.CIT's claim of inadequate inquiry was not sufficient to hold the assessment order erroneous. The Tribunal cited the Delhi High Court's decision in CIT vs Sunbeam Auto Ltd., which held that inadequate inquiry alone does not justify revision under section 263 unless it results in prejudice to the Revenue. The Tribunal concluded that there was no error in the AO's order, and the revisionary order under section 263 was set aside.

Conclusion:
The appeal of the assessee was allowed, and the order passed under section 263 of the Income Tax Act, 1961, was quashed. The judgment was pronounced on 17th November 2023 at Ahmedabad.