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TMI Blog2024 (3) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions cannot be undermined. Additionally, the genuineness and creditworthiness of the transactions may not be satisfactorily determined solely on the basis of the ledger accounts or the ITR of the entities, especially when the identities of such entities are not bona fide. As observed in N.R. Portfolio [ 2013 (11) TMI 1381 - DELHI HIGH COURT] the task of unveiling the mischief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available. Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led against the order dated 14 February 2022, passed by the Income Tax Appellate Tribunal [ ITAT ], setting aside the order of the Principal Commissioner of Income Tax [ PCIT ] passed under Section 263 of the Income Tax Act, 1961 [ Act ] for the Assessment Year [ AY ] 2016-17. 2. The brief facts which are pertinent to decide the present controversy are that the assessee is engaged in the business of real estate development and filed an income tax return [ ITR ] of INR 4,52,68,500/- on 17 October 2016 for AY 2016-17. Thereafter, the case of the assessee was picked up for scrutiny and notice under Section 143(2) of the Act was issued on 10 August 2018. 3. Pursuant to the said notice, an inquiry was undertaken and an assessment order under Section 143(3) of the Act was passed on 26 December 2018, whereby, the Assessing Officer [ AO ] determined the income of the assessee to be INR 4,55,45,110/-, while making an addition of INR 2,76,610/- under Section 14A of the Act. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [ CIT(A) ] and the CIT(A) vide its order dated 24 June 2019 partly allowed the appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arguments. 9. Dr. Rajesh Gupta, learned counsel appearing on behalf of the assessee, vehemently opposed the submissions advanced on behalf of the Revenue and submitted that the impugned order does not suffer from any infirmities. He argued that the ITAT was correct in negating the PCIT order since the AO has undertaken proper inquiry and an assessment order was duly framed after considering all the relevant facts and circumstances. 10. We have heard the learned counsel appearing on behalf of the parties and perused the record. 11. Before adverting to the merits of the case, it is pertinent to refer to Section 263 of the Act, the relevant extract of which is reproduced herein for reference:- 263. Revision of orders prejudicial to revenue (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner] may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 14. In order to elucidate the scope of the revisional powers of PCIT, it is pertinent to refer to the observations made by the Hon ble Supreme Court in the case of Malabar Industrial Co. Limited v. CIT , wherein, while referring to the revisional powers under Section 263 of the Act, the court observed as under:- 6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to Section 263(1) of the Act. *** 8. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the same as such will be erroneous and prejudicial to the interests of the Revenue. ( See Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84 (SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC 482] .) [Emphasis supplied] 15. Furthermore, the Hon ble Supreme Court in the case of CIT v. Paville Projects (P) Ltd. [2023 SCC OnLine SC 371], followed the dictum laid down in the Malabar Industrial Co. Limited v. CIT and emphasized upon the germane value of the twin conditions imposed under Section 263 of the Act, before invoking the revisional powers. The relevant extract of the said decision is reproduced herein for reference:- 27. Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income Tax Act, the Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are considered in the light of information available on record. It is apparent from own submission of the assessee that indirect expenses relatable to exempt income had been incurred by the assessee towards earning of exempt income on investments in shares but no disallowance was made by the assessee in its computation. Thus, there is no dispute on this issue that relatable expenses which indirectly used towards earning of exempt income should have been apportioned and disallowed by the assessee, which has been calculated by the assessee company at Rs. 1,25,000/-. However, as the disallowances has to be made as per rule 8D(2)(iii) with respect to other expenses, it has to be done as per prescribed rules. It is found from the computation filed by the assessee that only the investments in M/s PAV Reality limited was considered leaving investments in other shares, which should also have been considered while computing disallowances as per rule 8D(2)(iii). 17. Further, once the assessment order was passed on 26 December 2018, the PCIT invoked the powers vested under Section 263 of the Act and issued a notice on 28 March 2021 to the assessee inquiring about the loans advanced to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016. However, along with the above finding it was also communicated that during post-survey proceedings, a letter F No DDIT(Inv.)/Unit-l/Noida/S S/Himanshu /2016-17/258 dated 28.04.2017 was received from DDIT( Inv.), Unit-1, Noida vide which it was reported that a search operation in the case of the Entry operator Sh. Himanshu Verma was carried on 13.04.2017, where he accepted to have provided bogus entries to the tune of Rs 46.06 Crore to the concern M/s Paramount Propbuild Pvt Ltd. during the FYs 2015-16 and 2016-17. The copy of report was enclosed along with the survey report and the copy of ledger accounts of the assessee company M/ s Paramount Propbuild Pvt Ltd in the books of shell companies M/s Sarvottam Securities Pvt Ltd and M/s Upaj Leasing Finance Co. Pvt Ltd were also provided as enclosures. 4. During the assessment proceeding in case of assessee for the A.Y. 2017-18, the interest payment made against the aforesaid entries by M/s Paramount Propbuild Private Limited to M/s Upaj Leasing Finance Company Pvt Ltd and M/s Sarvottam Securities Pvt Ltd during the FY 2016-17 relevant to the. AY 2017-18 to the tune of Rs. 3,23,93,370/- i.e. Rs. 2,12,69,370/- and Rs. 1,11,24,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record could not be made. This led to non-consideration of true nature of purported loan receipts of the assessee company which should have been treated as bogus loans and hence, the order is also prejudicial to the interest of revenue. Thus, the order passed by the A.O. u/s. 143(3) of the I.T. Act, 1961 vide order dated 26/12/2018 and subsequently amended u/s. 154/143(3) is erroneous and prejudicial to the interest of the revenue and requires remedial action u/s 263 of the Income tax Act, 1961. *** 11. Assessee has made a submission that the Assessing Officer has made all the necessary enquiries and taken a view for framing the Assessment Order, and that the order passed by the AO is not erroneous nor prejudicial to the interest of the revenue. However, this is not borne out from the facts available on assessment record. I have carefully perused the assessment records and the assessment order, and I am satisfied that it is a case of lack of enquiry on the claim of unsecured loans by the assessee in its return, despite existence of information about the bogus nature of the loan transactions, especially in respect of M/s Sarvottam Securities Pvt Ltd and M/s Upaj Leasing Finance Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked the jurisdiction under Section 263 of the Act as it was not a case of lack of inquiry. The relevant extracts of the ITAT order are reproduced herein below:- 8. Vide reply dated 15.11.2018, the assessee inter alia, submitted the complete details as sought by the Assessing Officer. This detailed reply of the assessee is exhibited at pages 17 to 20 of the paper book, Confirmation of loan transaction with M/s Sarvottam Securities Pvt Ltd and Upaj Leasing and Finance Co. Pvt Ltd were submitted which are placed at pages 47 to 49 of the paper book. 9. To further examine the loan transaction, the Assessing Officer issued notice u/s 133(6) of the Act to M/s Sarvottam Securities Pvt Ltd and M/s Upaj Leasing and Finance Co. Pvt Ltd. Such notices are placed at pages 322 to 361 of the paper book. 10. M/s Sarvottam Securities Pvt Ltd responded to the notice received by it u/s 133(6) of the Act and filed complete details sought by the Assessing Officer which included confirmation of loan, copy of ledger account, copy of their Income tax return alongwith financial statement for the year ending 31.03.2016. These details are exhibited at pages 324 to 362 of the paper book. 11. Similarly, M/s Upa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed loans received through the entry operator. Notably, the PCIT also recorded that the aspect of the aforementioned loan transactions was sought to be verified by issuing notices under Section 133(6) of the Act, however, when the record reflects that the loan transactions are obtained from the shell companies, then the AO ought to have done further inquiry to ascertain the genuineness and creditworthiness of the loan transactions. 22. The aforenoted aspect, whether the creditworthiness of the loan transactions was a relevant inquiry or not has also been considered by this Court in the case of CIT v. N. R. Portfolio P. Ltd. [2013 SCC OnLine Del 6466], wherein, it was observed that the mere production of incorporation details, Permanent Account Number [ PAN ] or the fact that the company had filed ITR details does not verify the genuineness and creditworthiness of the transactions. The relevant extract of the said decision is reproduced herein for reference:- 27. The decision in the case of Lovely Exports (supra) was considered in CIT v. Nova Promoters and Finlease P. Ltd. (supra) and it was elucidated : The ratio of a decision is to be understood and appreciated in the background of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to express a view to the contrary. 28. In Nova Promoters and Finlease (supra), it was held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN, acknowledgement of Income-tax returns of the entry provider, bank account statements, etc., was not sufficient to discharge the onus. 29. In CIT v. Nipun Builders and Developers P. Ltd. [2013] 350 ITR 407 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon the facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants, etc., have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under section 131 return unserved and uncompiled. This approach would be unreasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions cannot be undermined. Additionally, the genuineness and creditworthiness of the transactions may not be satisfactorily determined solely on the basis of the ledger accounts or the ITR of the entities, especially when the identities of such entities are not bona fide. As observed in N.R. Portfolio [Supra], the task of unveiling the mischief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available. 24. Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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