DATTATRAY HANMANTRAO DESAI,KARAD vs. PRINCIPAL COMMISSIONER OF INCOME TAX, PUNE

He noted that the assessee had filed the confirmation, copy of acknowledgement of ITR for assessment year 2018-19 filed by the respective creditors and copies of bank statements for financial year 2017-18 of the lenders reflecting the transactions. However, mere filing of the documents according to the Ld. PCIT is not sufficient to establish the loans raised / capital introduced. According to him, the Assessing Officer has to analyze the veracity of those documentary evidences and establish their genuineness and creditworthiness of the parties involved by conducting proper enquiries and verification and satisfy himself about the correctness of the claim. Such satisfaction must not be illusory or imaginary but must have been derived from the relevant facts and evidences and on the basis of proper enquiry of all material before him. However, no such enquiry was made by the Assessing Officer in order to satisfy the basic ingredients of section 68 of the Act. He noted various discrepancies vis-à-vis documentary evidences furnished by the assessee in support of borrowings / credits availed, the details of which are as under: Sr. Name of the Amount of Documents Remarks No creditors Loan available on record 1 Krishnat 97,61,000/- Unsigned copy of No document in support of Eknath Chav ITR-V for AY identity proof is available, 2018-19 showing ITR-V and declaration are returned income deficient, name of bank & at Rs.3,09,700/-, branch not mentioned in Conformation, the bank statement, extract of bank further, the debit on statement of 19.03.2018, corresponding account no. to the loan given to the assessee, is preceded by 31090200000192 immediate credits in 10 tranches between 17.03.2016 to 19.03.2018 totaling to loan amount. He has filed return on income for A.Y. 2018-19 on 31.08 2018 disclosing a meagre income of Rs. 3,89,700/- which does not commensurate with the quantum of loan advanced

In view of the above discrepancies, the Ld. PCIT was of the opinion that the assessment order dated 19.04.2021 passed by the Assessing Officer u/s 143(3) of the Act for assessment year 2018-19 prima facie appears to be erroneous and prejudicial to the interest of Revenue. He therefore, issued a show cause notice u/s 263(1) of the Act to the assessee giving an opportunity of being heard to in the matter. The assessee in response to the same submitted that during the course of assessment proceedings whatever details were asked for by the Assessing Officer were submitted including the names of the persons from whom such unsecured loans were obtained by filing their income tax returns, bank statements, etc. Further, the books of account produced by the assessee were never rejected. Relying on various decisions it was argued that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue and therefore, the proceedings initiated u/s 263 of the Act should be dropped.

However, the Ld. PCIT was not satisfied with the arguments advanced by the assessee. He noted that the case of the assessee was selected for limited scrutiny on the issue of share capital / other capital. The assessee has introduced substantial amount of capital to the tune of Rs.19,60,06,676/- during the year which was claimed to have been borrowed from various persons. He noted that the comparative analysis of the income tax returns filed by the respective creditors vis- à-vis the quantum of loans given reveals the following position:

He accordingly noted that the unsecured loans given by the loan creditors are grossly disproportionate to the annual income disclosed by them. Further, a perusal of the bank accounts of the respective creditors reveals that there were unusual activities involving huge credits in the said bank accounts before the impugned loan transactions. He noted that there are no adequate documents to establish the correct identity, genuineness of the transactions and creditworthiness of the creditors. In view of the above and relying on various decisions, the Ld. PCIT held that the assessment order dated 19.04.2021 passed by the Assessing Officer u/s 143(3) r.w.s. 144B of the Act is erroneous in so far as it is prejudicial to the interest of Revenue. He, therefore, partly set aside the order of the Assessing Officer for the limited purpose of examining the transaction involving unsecured loans and other financial transactions. He further directed the Assessing Officer to specifically examine the following aspects: i) The AO shall conduct detailed inquiries with regard to the unsecured loans and other financial transactions as detailed in paras 4.2 to 4.4 by calling for the relevant evidences relating to the said transactions and properly verify the same and if necessary, examine the persons concerned. ii) The AO may examine the credits/unsecured loans keeping mind the proviso to Sec 68 of the Act. iii) The AO, upon verification of the relevant details/documents, shall record his clear findings as to the identity of the creditor, genuineness of the transactions and creditworthiness of the respective creditors, in respect of the transactions under consideration.

Aggrieved with such order of the PCIT, the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee at the outset submitted that during the course of assessment proceedings the Assessing Officer had asked for various details which the assessee has provided. Merely because the Assessing Officer has not passed a speaking order giving reasons in the manner in which the Ld. PCIT wants, the assessee cannot be held responsible.

Referring to the decision of Hon’ble Karnataka High Court in the case of CIT v. Gokuldas Exports [2012] 20 taxmann.com 491 (Karnataka), he submitted that the Hon’ble High Court in the said decision has held that if in given facts and circumstances of a case, two views are possible and one view has been adopted by Assessing Officer, then that view alone would not be sufficient to exercise powers under section 263 by Commissioner.

Referring to the decision of Hon’ble Punjab & Haryana High Court in the case of Pr. Commissioner of Income-tax (Central) v. Kanin (India) [2022] 141 taxmann.com 83 (Punjab & Haryana), he submitted that the Hon’ble High Court in the said decision has held that before reaching the conclusion that order of Assessing Officer is erroneous and prejudicial to interests of revenue, revisionary authority itself has to undertake some enquiries to establish that assessment order is erroneous and prejudicial to interests of revenue. It has been held that where order was passed by Principal Commissioner holding that assessment made by Assessing Officer was erroneous and prejudicial to interest of revenue as assessment order had been passed without making Inquiries or verification, however, Principal Commissioner was not in a position to point out as to what inquiries or verification should have been made but had not been made by Assessing Officer so as to make present case fall within Explanation 2(a) to section 263, Tribunal rightly set aside order passed by Principal Commissioner.

Referring to the decision of Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax v. Pramod Kumar Tekriwal [2023] 154 taxmann.com 142 (SC), he submitted that the Hon’ble Supreme Court in the said decision has dismissed the SLP filed against the order of High Court in holding that where Assessing Officer made addition of 3 per cent in respect of bogus purchases over and above rate of gross profit of 4.63 per cent declared by assessee and passed assessment order, since assessee had produced all necessary details of purchase, sales, audited books of account, quantity details and there was no discrepancy between purchase and sales declined, Assessing Officer had taken one possible view out of two assumption and thus to assumption of jurisdiction by Principal Commissioner under section 263 was erroneous.

Referring to the decision of Hon’ble Allahabad High Court in the case of M.L. Chains v. Principal Commissioner of Income-tax [2023] 154 taxmann.com 508 (Allahabad), he submitted that the Hon’ble High Court in the said decision has held that Where Commissioner issued a notice under section 263 to assessee, however no opportunity was given to assessee for defending or presenting its case, and moreover, revenue recorded a contrary finding in respect of reply submitted by assessee, impugned order passed under section 263 could not be so stained.

He also relied on the following decisions: (i) Global Vectra Helicorp Ltd. vs. Assessment Unit, NFAC (2024) 162 taxmann.com 274 (Del) (ii) Sutherland Global Services (P.) Ltd. vs. DCIT (2024) 162 taxmann.com 393 (Mad) (iii) Dinamalar vs. ACIT (2024) 161 taxmann.com 804 (Mad.) (iv) GHH India Mining and Tunnelling Equipment (P.) Ltd. vs. PCIT (2024) 162 taxmann.com 763 (All)

He accordingly submitted that the order passed by the Ld. PCIT be set aside.

The Ld. DR on the other hand heavily relied on the order of the Ld. PCIT invoking the jurisdiction u/s 263 of the Act. He submitted that the case was selected for limited scrutiny on the issue of Share capital / other capital. During the year the assessee has received unsecured loans to the extent of Rs.19.60 crores from the 7 parties who are said to be the friends and relatives of the assessee. A perusal of their returned income shows that they have declared very meager income as compared to the huge loans and advances given by them. The Assessing Officer has passed a cryptic order and without verifying the identity and creditworthiness of the loan creditors, has accepted the same. Under these circumstances, the Ld. PCIT has rightly invoked the jurisdiction u/s 263 of the Act. He accordingly submitted that the grounds raised by the assessee should be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the case of the assessee was selected for limited scrutiny on the issue of Share capital / other capital. It is also an admitted fact that the assessee during the year has received an amount of Rs.19,60,06,676/- from the 7 parties who are said to be the friends and relatives of the assessee. A perusal of the assessment order shows that the Assessing Officer has passed the order as under:

A perusal of the record shows that the parties who have extended the loan to the assessee have declared very meager income as compared to the huge loans and advances given to the assessee the details of which are as below:

Although the case was selected for scrutiny on the issue of Share capital / other capital, however, the Assessing Officer without verifying the identity and creditworthiness of the loan creditors in terms of provisions of section 68 has accepted the same in a mechanical manner.

We find the provisions of section 263 of the Act read as under: ―263. (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 interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988] by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer [or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; [(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] had been the subject

A perusal of the assessment order shows that the order has been passed by Assessing Officer without making any enquiry or verification which should have been made in the instant case. When the lenders are declaring very meager income, how can they extend the loans to the extent of crores of rupees should have opened the eyes of the Assessing Officer. However, the Assessing Officer for the reasons best known to him, has closed his eyes and accepted the documents filed by the assessee and completed the assessment without application of mind. Under these circumstances, if the provisions of section 263 of the Act are not invoked, then we are afraid that such provisions will become redundant and the Assessing Officers can do anything in the name of enquiry. The various decisions relied on by the Ld. Counsel for the assessee are of no help to him especially when the assessment order has been passed by the Assessing Officer by closing his eyes and accepting the huge loans and advances despite meager income declared by those lenders. Under these circumstances and in view of the detailed reasoning given by the Ld. PCIT on this issue, we do not find any infirmity in his order invoking the jurisdiction u/s 263 of the Act. We accordingly uphold the same and the grounds raised by the assessee are dismissed.

In the result, the appeal filed by the assessee is dismissed.