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Income Tax Appellate Tribunal, AGRA BENCH, ‘SMC’: AGRA
Before: SHRI SHAMIM YAHYA & SHRI YOGESH KUMAR US
ORDER PER SHAMIM YAHYA, AM,
This appeal by the assessee is against the order of the Ld. CIT-2, Agra, passed u/s 263 of the Act dated 16.01.2015 and pertains to Assessment Year 2012-13.
In this case, the ld. CIT observed that the assessment order passed by the AO is erroneous and prejudicial to the interest of Revenue for the following reasons:-
“(i) A loan of Rs. 80,00,000/- is shown to be obtained from M/s Sanwaria Trade Link Pvt. Ltd., Kolkata. From the bank a/c of M/s Sanwaria Trade Link Pvt. Ltd., It is further found that there is chain transaction system to give loan to assessee firm. The credit/transfer entries are of same amount in the creditors/transfer bank account, they/it have transferred to the assessee firm, which seems unusual/non-genuine. It has also been found that M/s Sanwaria Trade Link Pvt. Ltd., does not have funds in its bank account but when it transfers loan to the assessee firm, suddenly it manages fund from other companies and transfer to the assessee firm on the same day or next day. During the course of asst. proceedings, the A.O. has not properly examined the issue either on facts (deposit proceedings issue of cheque) or on the legal framework that the smallness of the bank balance in the bank account of the creditor prior to issue of cheques would clearly reveal that the creditor was not having any source and it was the money of the assessee which was routed through the bank accounts of the creditor for the purpose of giving credits to the assessee. These are therefore apparently accommodation entries only and as such cannot be considered as genuine transactions in the absence of proper enquiry. Merely because the loans have been received through banking channel, is not sacrosanct to make a non genuine transaction as genuine transaction.”
The ld. CIT thereafter noted that the ld. Counsel for the assessee informed that necessary details & documents in respect of the unsecured loan was furnished and the assessee has paid interest @12% on said loan and the transactions were through banking channels. However, the ld. CIT was not satisfied. He noted that a perusal of the assessment record shows that the AO has not made any independent inquiry regarding the confirmations. He further observed that the bank statement of the company advancing the unsecured loan is for a very limited period and not for the whole year. Analysis of this statement does not throw any light whatsoever on the source of the funds. Thereafter, the ld. CIT further observed that the replies were just placed on record and no independent enquiries were carried out regarding the company had the financial capability to advance such substantial amounts and whether it is a genuine corporate entity. Further, the Ld. CIT referred to the decision of the Hon’ble Supreme Court in the case of Sumati Dayal vs CIT (214 ITR 801) and CIT vs Durga Prasad More (82 ITR 540). He further referred to Explanation 2(a) inserted w.e.f. 01.06.2015 to section 263 and finally held that the assessment order is erroneous and prejudicial to the interest of the Revenue and directed the AO to pass an order afresh.
Against this order, the assessee is in appeal before us.
We have heard both the parties and perused the records. The ld. Counsel for the assessee submitted that the AO has made due inquiry and he referred to the order sheet entry that where there was recorded that an independent enquiry was done. He further referred to the catena of case laws.
Per Contra, the Ld. DR relied upon the order of the Ld. CIT.
We have carefully considered the submissions of the assessee and perused the record. We note that the AO has made an inquiry and has obtained the bank statement of the party and necessary confirmation. In this regard, following submission of the ld. Counsel for the assessee regarding the case laws is also germane, which is reproduced hereunder:-
“The appellant places further reliance on following judicial pronouncement 1- CIT v. Development Credit Bank Ltd. (2010) 323 ITR 206 Bom (HC) "Principal objection which revisional authority expressed against order of AO was an alleged failure of A to examine whether capital gain had been earned on transaction relating to investment "held to maturity" and depreciation was claimed on investments held as stock in trade. Court noted from records that assessee had supplied details of long term investment on which profit was computed. Similarly assessee had also explained depreciation. On basis of this enquiry AO concluded that assessee was entitled to depreciation. Court came to the conclusion that observation of CIT that AO had arrived at his findings without conducting an enquiry was erroneous, since an enquiry was specifically held with reference to which a disclosure of details was called for by A0 and made by assessee. Court was of view that Tribunal was justified in coming to conclusion that recourse to powers under section 263 by CIT was not warranted in facts and circumstances of case". 2- Delhi High Court in the case of ITO vs DG Housing Projects Ltd ITA 179/2011 "17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT Isee CIT vs. Shree Manjunathesware Packing Products, 231 IT 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
It is in this context that the Supreme Court in Malabar Industrial Co. Lid. vs. Commissioner of Income Tax, (2000) 243 IT 83 (SC), had observed that the phrase „prejudicial to the interest of Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.
In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent"s computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not. 3-The Commissioner of Income Tax vs Ashish Raipal Delhi High Court ITA 485/2008 "16- The fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee. The fact that there was an enquiry can also be demonstrated with the help of the material available on record with the Assessing Officer. The material, to which a reference has been made in the impugned judgment, would show that there was no „undue haste" in examining the material prior to the passing of the assessment order dated 24.03.2005. At least four letters dated 27.04.2004, 22.02.2005, 28.02.2005 and 18.03.2005 were addressed by the assessee to the Assessing Officer giving details, documents and information pertaining to various queries raise the Assessing Officer. These have been examined by the Tribunal. We have no reason to believe that examination was less than exacting. Therefore, the conclusion Commissioner that there was "lack of proper" verification is unsustainable."” 8. Upon careful consideration, we note that the case laws relied upon by the ld. Counsel for the assessee is fully applicable. We note that the issue was not overlooked but a reasonable inquiry was made by the Assessing Officer in this regard too. In response to queries raised, in the course of the assessment proceedings, the Assessee had filed all material particulars. The CIT has thus acted casually. Therefore, exercise of supervisory jurisdiction is wholly unjustifiable on the issue without making reference to circumstances which warrants necessity of some more enquiries. The Assessing Officer, in the instant case, has made enquiries albeit not probably in the manner in which the CIT would have liked but this cannot be the sacrosanct ground for assumption of jurisdiction under Section 263 of the Act.
Under these circumstances, one cannot possibly say that the Assessing Officer had sleepwalked on the issues involved. Noticeably, the Ld. CIT himself has not entered into any minimal inquiry on the issues himself, if so considered expedient and there is not even prima facie demonstration of fallacy in the action of the Assessing Officer which rendered the order erroneous and which also simultaneously caused prejudice to the revenue.
Merely because the expectations of the Revisional Commissioner are purportedly not met, it should not, in our opinion, necessarily trigger revisional action under Section 263 of the Act in every case. The Ld. CIT has also invoked provisions of section 263 including explanation 2(a) which is effective from 01.06.2015 and it cannot be applied in the current assessment year. Hence, the Ld. CIT’s reference to explanation 2(a) does not support the case of the Revenue. This is not a case of non-inquiry, the AO has made inquiry and on the touchstone of the aforesaid case laws, we find that the ld. CIT’s order cannot be sustained. Hence, we set-aside the order of the ld. CIT and decide the issue in favour of the assessee.
In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 25th July, 2023.