BRAJESH KHANDELWAL,DHAMTARI vs. PRINCIPAL COMMISSIONER OF INCOME TAX, -I, RAIPUR

As per its grounds of appeal, the assessee has challenged the revisional action of the PCIT whereby the Assessing Officer (A.O.) was directed to pass the assessment order de novo after making enquiries on the points set out in the notice which has already examined and considered during the original assessment proceedings concerning A.Y. 2015-16. The assessee has challenged the assumption of jurisdiction by the PCIT under section 263 of the Act on the ground that the Assessment Order under revision is neither erroneous nor prejudicial to the interest of the Revenue.

Briefly stated, the assessee is engaged in the business of flour and rice mill in proprietary concern M/s. Khandelwal Agro, Dhamtari (CG). For the A.Y. 2014-15 in question, the assessee filed return of income declaring taxable income at Rs.9,11,650/-. The case of the assessee was selected for limited scrutiny under CASS on certain points. The assessment was carried out vide order dated 03.10.201 whereby the income returned was assessed as such.

After completion of the assessment, the PCIT in exercise of revisionary powers issued show cause notice dated 04.02.2019 proposing revisionary proceedings under s.263 of the Act. As per show cause notice, the PCIT essentially alleged that the AO has failed to verify the genuineness and creditworthiness of the lenders who have given loans to the assessee during the year. This lack of enquiry has rendered the order as erroneous and prejudicial to the interest of the Revenue. The PCIT has also alleged that the assessee has failed to verify huge interest payment made during the year. The PCIT accordingly set aside the assessment order on the aforesaid issue and restored the matter for fresh assessment by passing the revisional order in exercise of powers conferred under s.263 of the Act.

Aggrieved, the assessee preferred appeal before the Tribunal.

We have carefully considered the rival submissions on challenge to the jurisdiction acquired under s.263 of the Act and consequential revisional order passed thereon. In defense of the assessment order, the assessee contends that; (i) The case was selected for limited scrutiny for below mentioned reasons:

On cumulative reading of the facts brought out on record, it appears that the limited scrutiny was not strictly meant for verification of loans which is inherently different from capital of the assessee. The AO was expected to verify increase in capital and not on procurement of loans. Notwithstanding, the assessee has presented the relevant data before the AO in support of loans obtained. The interest was paid on the loans and repayment was also made as claimed. In such situation, the view taken by the AO towards bonafides of loans appears quite reasonable and plausible. This being as a rational view taken by the AO cannot be brushed aside in exercise of revisional powers. Indulgence with the order of AO on allegations of inadequacy in enquiry from the point of view of PCIT would render the task of AO arduous and extremely difficult. Further, the observations made by the PCIT appear to be in the realm of suspicion and surmises. For instance, the PCIT has observed that assessee has merely credited the interest amount in the account of lender and has not been actually paid during the year. The PCIT has ignored the fact of deduction of TDS and consequent taxability of such interest in the hands of lender. The fact of repayment of loan has not been taken into account despite such facts having been brought to his notice in the revisional proceedings. Apparently, the exercise of power by the PCIT on items unconnected to limited scrutiny is apparently unjustified and nonetheless, the assessee has placed reasonable evidences to support the factum of receipt of loan. The scope of Section 263 of the Act does not permit the PCIT to substitute his view with that of AO in (Shri Brajesh Khandelwal vs. PCIT) A.Y. 2014-15 - 5 - the garb of directions towards enquiry on facts already on record. The revisional action in the instant case is clearly not justified. The revisional order is accordingly set aside and the assessment order is restored.

In the result, appeal of the assessee is allowed.