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TMI Blog2023 (10) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous nor prejudicial to the interest of the revenue. As a corollary, the assessee has sought to impugn the revisional order passed by the Pr.CIT under Section 263 of the Act. The Grounds raised by the assessee to challenge the revisional order are reproduced hereunder: "1. That the Ld. Pr. CIT has erred in passing the order u/s. 263 of the Act on the ground that the order passed by the Assessing Officer u/s 143(3) of the Act was found to be erroneous and prejudicial to the interest of Revenue. 2. That the Ld. Pr. CIT has erred in invoking the provisions of section 263 of the Act on the ground that the Assessing Officer had failed to make sufficient inquiries while passing the regular assessment order. 3. That the Ld. Pr. CIT has erred in holding that the loan of Rs. 4 crore received by the assessee from M/s Transnational Growth Ltd. and of Rs. 2 crore from M/s RKG Finvest Ltd. was an accommodation entry and the Assessing Officer had not made any proper inquiry and had not taken cognizance of search material circulated by Investigation Wing in the case of Jain Bros. In fact, no material in respect of these loans could have been found during search in the case of Jain Bros a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a loss of Rs. 2,63,933/-. Subsequent to the assessment, the Pr.CIT received a proposal from the new incumbent AO [ ITOWard (2) New Delhi] vide its communication dated 20.03.2018 seeking invocation of supervisory jurisdiction under Section 263 of the Act. Thereafter, in exercise of powers conferred under Section 263 of the Act, the Pr. CIT issued Show Cause Notice (SCN) to the Assessee on the next date i.e. dated 21.03.2018 under Section 263 of the Act alleging that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue for the reasons mentioned the SCN. As per the contents of the SCN, the Pr.CIT sought compliance of the SCN on 26th March, 2018 at 3.30 a.m. The hearing was thus allowed to be availed by a solitary notice in a gap of 1 effective working day from service. As per the SCN, the Pr. CIT made allegations to assail the assessment order. The Pr. CIT alleged that the AO has failed to carry out necessary verification towards unsecured loans aggregating to Rs. 8 crore received from certain parties. The SCN issued in this regard is reproduced hereunder: "OFFICE OF THE PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-03 ROOM NO.394A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. Notices u/s 133(6) of the IT Act, 1961 were issued on 18.10.2015 through speed post in the name of M/s Bailley Foods Pvt. Ltd., M/s Lessure Buildcon Pvt. Ltd., M/s. Sandeep Credits Pvt. Ltd. & M/s. White House Buildtech Pvt. Ltd. to furnish details of transaction held with the assessee company along with supporting documents in order to justify identity creditworthiness and genuineness of the transactions. The information was required to be furnished by 30.10.2015. In the following cases notices returned unserved with postal remark 'left': S.No. S. No. Name of the company Amount 1 M/s Bailley Foods Pvt. Ltd Rs. 47,00,000/- 2 M/s LessureBuildcon Pvt. Ltd: Rs. 75,00,000/- 4 M/s White House Buildtech Pvt. Ltd. Rs. 55,00,000/- Further, In case of M/s Sandeep Credits Pvt. Ltd, no information was furnished in compliance to notice issued u/s 133(6) of the IT Act, 1961. Confirmation was filed on 28.10.2015 by M/s Vinsan Credits & Securities Pvt. Ltd vide letter dated 21.10.2015 even though no notice u/s.133(6) of the I.T. Act, 1961 was issued to the company by the then AO. These facts further strengthen the fact that loan received from these companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inued their old activity of accommodation entry provider in shape of share capital/premium, loan etc. and also formed new corporate entity so that nobody keep track on them. Besides, in the assessment order for AY. 2005-06 in the case of Sh. Virendra Kumar Jain, the AO confronted various materials impounded during the search & seizure operation, and held that Jain brothers are accommodation entry provider. During the assessment proceedings, both of them chose not, to explain the source of cash deposits, therefore, entire cash received was held as unaccounted income and further commission of 1.8% was also charged to tax as income earned from commission for providing accommodation entries. In second appeal, the Jain Brothers admitted before the Hon'ble ITAT that they are engaged in the business of providing accommodation entries and charging commission at certain percentage from the beneficiaries. Accordingly, the Hon'ble ITA'T in their case in ITA Nos.6991 to 6997/Del/ 2014 & ITA Nos. 6998 to 7004/Del/2014 vide order dated 03.02.2016 decided to set aside the order to the A.O. asking him to assess Jain brothers in light of certain judicial pronouncements all of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium. The Enforcement Directorate also arrested one of the mediators of this group Shri Rajesh Aggarwal who facilitate accommodation entry for the end users. In view of the above fact, loan of Rs. 6 crore received from M/s RKG Finvest Ltd. and M/s Trans National Growth Ltd. is merely an accommodation entry and the A.O. has not made any proper enquiry and also not take cognizance of the search material circulated by the Investigation Wing of the Department in case of Jain Brothers. Further, loan of Rs. 2 crore received from other companies also paper companies engaged in the business of providing accommodation entries as discussed above. You are, therefore; directed to show cause as to why an order In terms of provisions of section 263 may not be passed for AY 2013-14 setting aside the order passed u/s 143 (3) dated 21.1.2016 in your case. You are afforded ail opportunity of being heard to contest the charge made in this notice by appearing personally or through an authorised representative on the 26th March, 2018 at 3.30 AM in Room No. 394A, C. R. Building, I.P. Estate, New Delhi-110002 or Me a written, submission by the appointed date, failing which it will be presumed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or the same date i.e. 09.09.2015. Language of the confirmation is also word to word same although no authorized signatory was common. These facts signifies that it was only a cover up exercise by the assessee company. Notices u/s 133(6) of the IT Act, 1961 were issued on 18.10.2015 through speed post in the name of M/s Bailley Foods Pvt. Ltd., M/s Lessure Buildcon Pvt. Ltd., M/s. Sandeep Credits Pvt. Ltd. & M/s. White House Buildtech Pvt. Ltd. to furnish details of transaction held with the assessee company along with supporting documents in order to justify identity creditworthiness and genuineness of the transactions. The information was required to be furnished by 30.10.2015. In the following cases notices returned unserved with postal remark 'left': S.No. S. No. Name of the company Amount 1 M/s Bailley Foods Pvt. Ltd Rs. 47,00,000/- 2 M/s LessureBuildcon Pvt. Ltd: Rs. 75,00,000/- 4 M/s White House Buildtech Pvt. Ltd. Rs. 55,00,000/- Further, In case of M/s Sandeep Credits Pvt. Ltd, no information was furnished in compliance to notice issued u/s 133(6) of the IT Act, 1961. Confirmation was filed on 28.10.2015 by M/s Vinsan Credits & Securite Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerns floated and controlled by them through various persons by appointing them as directors / partners/ proprietors. Post search, & seizure operation carried by the Department, both Jain brothers continued their old activity of accommodation entry provider in shape of share capital/premium, loan etc. and also formed new corporate entity so that nobody keep track on them. Besides, in the assessment order for AY. 2005-06 in the case of Sh. Virendra Kumar Jain, the AO confronted various materials impounded during the search & seizure operation, and held that Jain brothers are accommodation entry provider. During the assessment proceedings, both of them chose not, to explain the source of cash deposits, therefore, entire cash received was held as unaccounted income and further commission of 1.8% was also charged to tax as income earned from commission for providing accommodation entries. In second appeal, the Jain Brothers admitted before the Hon'ble ITAT that they are engaged in the business of providing accommodation entries and charging commission at certain percentage from the beneficiaries. Accordingly, the Hon'ble ITA'T in their case in ITA Nos.6991 to 6997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converting the same into share premium transactions in the beneficiary company. In this process Jain Brothers earned money as a certain percentage of the unaccounted money converted into share capital &share premium. The Enforcement Directorate also arrested one of the mediators of this group Shri Rajesh Aggarwal who facilitate accommodation entry for the end users. In view of the above fact, loan of Rs. 6 crore received from M/s RKG Finvest Ltd. and M/s Trans National Growth Ltd. is merely an accommodation entry and the A.O. has not made any proper enquiry and also not take cognizance of the search material circulated by the Investigation Wing of the Department in case of Jain Brothers. Further, loan of Rs. 2 crore received from other companies also paper companies engaged in the business of providing accommodation entries as discussed above. Therefore, the order passed u/s.143(3) of the IT Act dated 21.01.2013 by the then A.O. is appears to be erroneous and prejudicial to the interest of revenue may kindly be annulled. Submitted for kind consideration please. Income Tax Officer, Ward-8(2), New Delhi 5. In response to the SCN, the assessee filed a reply dated 26.03.2018 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malafide can be imputed. It was further pointed out that the delay occurred is not intentional or deliberate and the aforesaid delay of 230 days occurred has not caused any serious prejudice to the Revenue The learned counsel referred to the decision rendered by the Hon'ble Supreme Court in the case of Collector of Land Acquisition vs. Mst. Katiji & Ors. 167 ITR 471 (SC) to contend that the substantial justice deserves to be preferred over the technical glitch committed by the assessee in belated filing for plausible reasons. Having regard to the contents of the application and keeping in mind negligible prejudice that may have occurred to the revenue by such delay, we adopt justice oriented approach to weigh the plea of existence of 'sufficient cause' for delay. Hence, in exercise of powers conferred under s. 253(5) of the Act, the delay in presenting appeal before ITAT stands condoned and the appeal is admitted for adjudication. 7. The ld. counsel for the assessee made extensive submissions and assailed the revisional action of the Pr.CIT assertively. The ld. Counsel made wide ranging submissions on facts and law and cited judicial precedents to support its case. We shall deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revisional action of such wide amplitude carrying adverse consequences has been exercised casually at the fag end of the limitation (despite time limit of 2 long years available from the end of the financial year in which assessment order under review was passed) in total disregard to the canons of judicial propriety and thus has fastened civil consequences on the assessee by impinging upon the salutary rights of the assessee of being heard. The Pr.CIT proceeded to set aside the completed assessment without confronting fresh material giving rise to foundation for allegations referred in show cause. 7.3 The Ld. Counsel next contended that it is palpable from the sequence of events that the PCIT has summarily relied upon the recommendation of new AO to displace the assessment order passed by the then AO in discharge of quasi judicial function under statute. While doing so, the Pr. CIT has neither bothered to provide any effective opportunity to the Assessee nor cared to make any minimal enquiry himself even into newer aspects of the case purportedly came to light after passing the assessment order. The admitted fact that the then AO did make enquiry on the subject matter and accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible view on propriety of loans in question. The AO thus acted with degree of caution and circumspection. Hence, the allegation that adequate inquiry contemplated was not made on the point in issue is contradictory to the assessment records itself and does not hold any water. Also, the case of the Pr.CIT is nowhere about the 'lack of inquiry' per se but is built on 'inadequacy of inquiry' as is evident from the SCN as well as the revisional order. The ld. Counsel thus submitted that revision based on inadequacy or insufficiency of enquiry without making any enquiry himself to raise probabilities of any misdemeanor is contrary to the plethora of judicial precedents. 7.5 The ld. counsel adverted to the SCN and submitted that the SCN is marred with multiple defects which are squarely opposed to pre-condition for initiation of revisional proceedings. The ld. Counsel culled out the observations made in the SCN to advert that the primary grounds for such actions such as; summons under s. 131 should have been issued to lenders for personal deposition; Inspector of the Ward should have been deputed to make field inquiries to ascertain existence of loan investors; findings of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enhancing or modifying the assessment or canceling the assessment and directing afresh assessment. Thus, the revisional powers conferred on the Pr.CIT/CIT under s. 263 of the Act are of very wide amplitude with a view to address the revenue risks which are objectively justifiable. 11. In the backdrop of factual matrix, subsisting in the case in hand, the substantive issue that emerges for adjudication is whether the Pr.CIT under the umbrella of revisonary powers is entitled to upset the finality of assessment proceedings completed before the AO on the ground that AO committed error in passing assessment order without proper verification of propriety of loans received. Implicit in the question is the scope of powers and attendant duty of Revisional Commissioner in the event of alleged inadequacy of enquiry into various aspects of an issue. 12. On perusal of the SCN dated 26.02.2020 issued by the Pr.CIT proposing to set aside the assessment order dated 20.04.2017 passed by AO under s. 143(3) of the Act, we notice that the Pr.CIT is essentially dissatisfied with the degree of inquiry made in respect of issues raised therein. 13. As noted extensively, multi prong attack has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed. No other notice was served. Palpably, it is a case of total lack of opportunity to the assessee to defend its case. A question would arise as to whether a failure to give a reasonable opportunity to the assessee of being heard was only a procedural irregularity in such gross circumstances and thus curable and did not render the order passed by the PCIT ab initio void and nonest in law per se ? 15. In the case of Tata Chemicals Limited vs. DCIT, ITA No.3127/Mum/, order dated 30.06.2011, the co-ordinate bench after making reference to the decision in the judgement in Maneka Gandhi vs. Union of India AIR 1978 SC 597 and other judgments observed that the order which infringes the fundamental principle, passed in violation of audi alteram partem rule, is a nullity. When a competent Court or authority holds such an order as invalid or sets it aside, the impugned order becomes null and void. Once it is concluded that the order in question is null and void, it is not for the adjudicating authority to advise the Commissioner as to what should he do. He is always at liberty to do whatever action he can take in accordance with the law, but a life to null and void order by remitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake of predecessor AO, which is quite understandable. What is not understandable is the use of similar expression of 'then AO' copied in the SCN too. The action of the Pr. CIT is overtly on dotted line and a mere copy paste. The SCN ex-facie reflects gross lack of application of mind by the Pr. CIT. It can be safely inferred that the proposal was made by the AO at the behest of Pr. CIT indeed which was thus copied in the SCN without change of even a coma. As a result, the generalized and extraneous observations of AO [viz. summons under s. 131 ought to have been issued in addition to enquiry carried out under s. 133(6); reliance on report of investigation wing of deptt. much prior to the FY 2012-13 and thus wholly irrelevant for subsequent loans in question; reference to findings vis a vis AY 2005-06; SFIO report in relation to period prior to transactional year FY 2012-13 etc.] has crept in the SCN. Adoption of such vague and irrelevant observations of AO by the Pr. CIT vindicates the contention of the Assessee that the powers have been exercised without any application of mind. It is also not known whether the Pr. CIT was privy to 'case records' at the time of hurried issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the idealistic point of view of the Revisional Commissioner. The records suggest that the AO cannot be blamed to have acted in a perfunctory manner merely because the expectations of Revisional Commissioner are purportedly not meet. 16.1 Noticeably, it is also not the case of Pr. CIT either that it is a case of 'lack of enquiry' per se. On a bare perusal of the SCN, it is seen that the Pr. CIT has alleged absence of 'proper enquiry'. In para 5 of the revisional order too, the Pr. CIT alleged absence of 'proper enquiry' or 'sufficient enquiry'. The Pr. CIT has repeatedly asserted his objection on the sufficiency and adequacy of enquiry as brought to him by the present AO. Thus, while forming opinion adverse to the assessee, the Pr.CIT has essentially challenged the void in extent of enquiry on the bonafides of the lenders. 16.2 The expression 'lack of enquiry' is quite distinct from the expression 'insufficient enquiry'. We pause here to note the position of law enunciated in the judicial dicta governing the field. It is evolved by judicial precedents that in the case of inadequacy in inquiry (unlike lack of inquiry) on a point in issue, the Pr.CIT is expected to make some pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seful reference in this regard can be made to the decision of Hon'ble Gujarat High Court in case of Rohini Builders (supra) and also Nemi Chand Kothari (supra); ITO vs. Diza Holdings (P) Ltd. 255 ITR 573 (Kerala) and so on. Thus, when seen in the light of judicial precedents elucidating law pertaining to Section 68 of the Act, it appears that it is not obligatory on the part of the assessee to steadfastly vouch the source of the source and thus, onus in the present case was reasonably discharged on ascertaining the facts with reasonable degree of care expected of a statutory functionary. This also means that the AO is not called upon in law to obdurately adhere to extra vigil expected by a superior authority. The AO is thus entitled to draw satisfaction in favour of the assessee in exercise of its statutory discretion available under s. 68 of the Act. Where the AO has exercised its quasi-judicial powers and arrived at a conclusion with reasonable application of mind, such action cannot be brushed aside as erroneous etc. simply because the Revisional Commissioner does not feel satisfied with extent of the inquiry and expects observance of higher standards in this regard. Where the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.
16.6 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. In our view, the 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 under s. 263 of the Act does not appear to be tenable in law in the peculiar set of facts. Consequently, the assumption of jurisdiction under s. 263 of the Act on this ground too, will have to be regarded as without authority of law.
17. Thus, seen from any angle, the assessment order passed under s. 143(3) of the Act could not be frustrated in the circumstances. The impugned revisional order passed under Section 263 thus requires to be quashed and set aside.
18. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 12/10/2023 X X X X Extracts X X X X X X X X Extracts X X X X
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