M/S. CLASSIC FILAMENTS LIMITED,SURAT vs. ITO, WARD 1(1)(1), SURAT

The assessee has raised the following grounds of appeal: “1. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in revising the assessment u/s. 147 when the ld. assessing officer could not have framed re-assessment and he should have dropped the initiation of re-assessment proceedings instead of passing a separate re-assessment order. 2. Even otherwise, the learned Pr. CIT has erred in passing the order u/s. 263, although the assessment order passed u/s. 147 r.w.s. 144B of the I. T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue. 3. On the facts and circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in directing the assessing officer to make fresh inquiry and verification in respect of purchases of Rs. 1,26,47,298/-. 4. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or modified as your honours deem it proper. 5. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of appeal.”

In this case, the assessee company had filed its return of income u/s.139 of the Income tax Act, 1961 [herein after referred to as 'the Act'] for A.Y. 2018- 19 on 22.09.2018 claiming current year loss (-) Rs.6,28,793/-. Subsequently, the case of the assessee company was re-opened on the basis of information received from Investigation Wing regarding accommodation entries from M/s. Riya Enterprises, and notice u/s. 148 of the Act was issued on 31.03.2022. Scrutiny assessment u/s 143(3) r.w.s.144B of the Act was completed on 21.03.2023 by the Assessing officer of the Assessment Unit (herein after referred to as 'the AO') accepting the returned income as filed by the assessee company for the year under consideration. Further, the Principal CIT observed that the assessee company had made transaction to the tune of Rs.1,28,47,298/- with the entity namely M/s Riya Enterprises which has been established a paper entity by the Investigation Wing. The Pr. CIT observed that the assessee failed to furnish the details of the transactions made from M/s. Riya Enterprises and also failed to explain the genuineness of the said transaction with necessary documentary evidences at the time of assessment proceedings u/s. 148. Thus, the Pr. CIT invoked section 263 of the Act and issued notice to the assessee which was replied by the assessee. After considering the assessee’s reply, the Pr. CIT held that the said assessment order dated 21-03-2023 is prejudicial to the interest of the Revenue and set aside with a direction to the AO to pass fresh assessment order.

Being aggrieved by the order u/s. 263 of the Act, the assessee filed appeal before us.

The ld. A.R. pointed out that in the re-assessment proceedings at the time of issuance of notice u/s. 142(1), the assessing Officer has categorically asked about the inquiry in the case of M/s. Riya Enterprises which carried out huge financial transaction for which the assessee has given details vide letter dated 10th March, 2023 and also given the details of the said M/s. Riya Enterprises which is bank statement, audit financial statement certificate by importer/exporter and after taking cognizance of the same, the assessing officer has taken a conscious and considerate view by invoking section 263. The Pr. CIT has again taken the said issue which was already decided by the Revenue.

The ld. D.R. submitted that the assessing officer has not properly verified the same transaction related to M/s. Riya Enterprises and thus it is prejudicial to the interest of the Revenue and there is revenue loss. Thus, section 263 was rightly invoked by the Pr. CIT. The ld. D.R. relied upon the order u/s. 263 of the Act.

We have heard both the parties and perused the material available on record. It is pertinent to note that the assessee has given all the details related to M/s. Riya Enterprises during the original return of income as well as during the re-assessment u/s. 147 of the Act. There was no change in the documents provided by the assessee before the A.O. as well as before the Pr. CIT but the Pr. CIT has totally ignored the evidences and as envisaged u/s. 263 which amounts to the second opinion as the said issue was already decided under proceedings initiated and completed u/s. 147 of the Act. Thus, Pr. CIT without looking into the evidences has come to the conclusion for invocation of 263 which otherwise cannot be invoked as there is no loss of revenue or there is no prejudice to the interest of Revenue. Thus, the invocation of 263 by the Pr. CIT is not justifiable.

In the result, the appeal of the assessee is allowed.