M/S EHEALTHSYSTEM HEAITH-CARE LTD.,PUNE vs. PCIT-1, PUNE, PUNE

in the assessment proceedings and proceedings u/s 133(6) of the Income Tax Act, 1961

5. The above ground may be allowed to be altered, amended, modified, deleted etc in the interest of natural justice.”

Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee filed a paper book. The first argument of Ld.AR was that after the assessment order was passed the Assessing Officer had issued notice under section 133(6) of the Act, and the Assessee filed required details regarding the Loan. Hence at the time of the 263, the Pr.CIT had all details hence 263 is not maintainable. Ld.AR also submitted that it has been submitted that Loan was given by Mr.Prakash Loharkar and Mayura Mirajkar. These two individual had in turn borrowed money from Nilesh Kande group without interest. Ld.AR submitted that Nilesh Kande received Rs.90,00,000/- from LIC on interest on 4/10/2017 which he gave to Prakash. Ld.AR filed a Loan Sanction Letter dated 15/09/2017 issued by LIC in principal sanctioning Home Loan at an interest rate 0f 8.5%. Therefore, Ld.AR submitted that Assessee has explained source of source hence 263 is bad in law.

2.1 Ld.AR for the Assessee relied on following case laws :  Priya Kishor Jagtiani - ITAT Pune - 1274/PUN/2017  Kailas Ravindrappa Sakhare - ITAT Pune 1290/PUN/2017  DG Housing Project Ltd - Delhi High Court - 20 taxmann.com 587  Nirav Modi-Bombay High Court - 71 taxmann.com 272  Gabriel India Ltd-Bombay High Court - 71 Taxman 585  Reward Construction P Lid - ITAT Pune PUN/2017  Vikas Polymers - Delhi High Court-194 Taxman 57 Submission of ld.DR : 3. Mr.Ajay Kumar Keshari - ld.Commissioner of Income tax Ld.Departmental Representative(ld.DR) for the Revenue filed a written submission.

3.1 Submission of ld.DR for the Revenue is reproduced here under : “The case laws relied upon in this instant case, along with the issues and their gist, are attached herewith. It is important to mention that the factual matrix of this case is covered by the case laws cited in the attachment, particularly on the issues of improper/inadequate enquiry, non-application of mind by the Assessing Officer, and the failure to explain the source and genuineness of transactions as well as the creditworthiness during the assessment proceedings or proceedings under Section 263 of the Act.

The bank statements do not demonstrate the capacity of the lenders. Furthermore, cash deposits have been found to have been made into the bank account of Mr. Nilesh Kanade. Additionally, the following facts have emerged from the proceedings under Section 263 of the Act, which are supported by the case laws attached herewith as well as the given below facts:

A lack of proper enquiry does not satisfy the mandatory conditions of establishing the creditworthiness and genuineness of the transaction. Submission of bank statements and copies of ledgers is insufficient to establish the creditworthiness of the lenders. The appellant must establish each and every entry of unsecured loans from the lenders and demonstrate the specific capacity of the lender to advance the loan.

In this regard, reliance is placed on the decisions in Sumati Dayal v. CIT (SC) and CIT v. Durga Prasad More (SC), CIT v. Precision Finance Pvt. Ltd. (Calcutta HC) and Kale Khan Mohammad Hanif v. CIT (SC).

The facts and case laws attached herewith are submitted for kind consideration while adjudicating this issue.”

3.2 Ld.Departmental Representative for the Revenue vehemently submitted that the entire transaction is sham. He further added that no prudent person will borrow money from LIC at 8.5% interest and give it to someone interest free. Ld.DR submitted that on perusal of the Loan Sanction Letter of LIC explains that it is a Home Loan and LIC disburses Home Loan directly to the Builder or the person from home is purchased. Ld.DR also submitted that on record there is no evidence that LIC has disbursed the Loan. Ld.DR relied on Hon’ble Supreme Court decision in Sumati Dayal to submit that person borrowing money at 8.5% interest and giving it interest free is beyond Human Probability; hence the entire story of the assessee is sham.

3.2 Ld.DR submitted that at the time of assessment no documents were submitted before the AO, hence Pr.CIT was right in invoking 263.

Findings & Analysis : 4. We have heard both the parties and perused the records. In this case Assessee e-filed return of income on 31.10.2018 declaring total income at NIL and loss of Rs. 1,92,91,031/-. The case of the Assessee was selected for Scrutiny. In the Assessment Order the Assessing Officer has recorded that Assessee failed to comply notice dated 21/12/2020, 19/01/2021. Then another letter was issued to assessee asking it to file the details called for. On 02/04/2021 Assessee filed only Bank Account details, Copy of bank Pass book, name & address of directors, Copy of financial statement and Audit report. The Assessee has filed a paper book. We have studied the paper book and noted that at Page 1-5 of the paper book is the submission of the assessee during the assessment proceedings. Even as per the paper book of the assessee the assessee has only filed financials, audit report, name and address of the Directors, Ledger account of loan obtained from the directors. No other details have been filed by the assessee during the assessment proceedings.

4.1 It is also a fact that assessee have maintained a running account of its directors. During the year the assessee has received Loan of Rs.1,42,45,797/- from its Directors Mr. Prakash Loharkar and Ms.Mayura Mirajkar. As per the Ledger Account (page 30,31 of Paper book) of Prakash Loharkar the opening balance of Loan is Rs.11,19,95,229/- and closing balance as on 31/03/2018 is Rs.12,37,90,826/-. Similarly Opening Balance of Loan from Mayura Mirajkar is Rs.24,81,949/- and closing balance as on 31/3/2018 is Rs.49,32,149/-.

4.2 The ledger submitted by assessee is as under :

4.3 Ld.Pr.CIT on examination of records noted that during the assessment proceedings the Assessee had not proved Genuineness of Loans and Creditworthiness of the Lenders. Though the AO had asked assessee to file the details assessee failed to comply during the assessment proceedings. Hence, Ld.Pr.CIT initiated the proceedings u/s 263 of the Act. During the proceedings u/s 263 of the Act the assessee submitted that Mr.Prakash Loharkar had obtained loan from Nilesh Kanade Group, who intern had obtained Loan from financial institutes. However, no Return of Income of Mr.Prakash Loharkar was filed, rather admittedly Mr.Prakash had not filed Return of Income for AY 2018-19. Mayura Mirajkar though had filed return of income but had shown meager income. On analysis of details filed Ld.Pr.CIT passed the order u/s 263 dated 04/03/2024, held that the assessment order was erroneous and prejudicial to the interest of revenue qua the Unsecured Loan , accordingly Pr.CIT set aside the assessment order for limited purpose of verification of unsecured loan.

4.4 Aggrieved by the Order under section 263 of the Act the Assessee has filed appeal before this Tribunal.

4.5 During the appeal proceedings before this Tribunal, the ld.AR submitted that after the completion of Assessment Order, the Assessing Officer had called for certain information under section 133(6) of the Act and assessee filed all details regarding the Loan. Ld.AR for the Assessee pleaded that thus, all the details were filed before the Assessing Officer, hence, proceedings under section 263 of the Act, were bad in law.

4.6 However, it is an accepted fact that during the Assessment Proceedings, the Assessee had not filed basic documents like Loan Confirmations, copy of return of Income of the Lender. The onus was on assessee to prove Genuineness of Loans and creditworthiness of lender. Nothing was filed during assessment proceedings to prove genuineness of loan and creditworthiness of lender. It is also an admitted fact that Mr.Prakash had not filed any Return of Income for AY 2018-19. It is an admitted fact that Mr.Praksah was not having the funds to lend money to the assessee. It has been claimed by the Ld.AR that Mr.Praksah was provided Interest Free Loan by Nilesh Kande Group. However, even before us the Ld.AR has not specifically stated what is Nilesh Kande Group? Is it a Firm, company? Also, it has been pleaded by Ld.AR that so called Nilesh Kanade group obtained Loan from some Financial Institutes. We specifically asked Ld.AR that has the Nilesh Kanade group obtained Interest bearing Loan from Financial Institutes?, Ld.AR submitted that Nilesh Kanade had obtained Interest bearing Loans from Financial Institutes, and Ld.AR further submitted that Nilesh Kanade Group gave Interest Free Loan to Mr.Prakash. However, we have specifically asked Ld.AR to take us through the Bank statements and demonstrate that Mr. Prakash had received money from Nilesh Kanade group, Ld.AR explained some entries but could not explain all entries pertaining to the year.

4.7 We have studied the Loan Sanction letter issued by LIC in the joint name of Nilesh Kanade and Ms.Rupa Kanade which is at page 86 of the paper book. The said letter is in Principle Sanction of Home Loan at Interest Rate of 8.5%. It is fact that LIC never disburses Home Loan directly to the Account of the borrower but it disburses Loan to the seller directly. Therefore, the claim made by ld.AR is not acceptable. Also no trail of money has been shown by Ld.AR though we specifically asked.

4.8 The another Director Ms.Mayura Mirajkar has deposited cash on previous day and then given that amount as Loan to assessee, the scan of details submitted by assessee is as under :

4.9 It can be observed from above that on 12/01/2018 Ms.Mayura Mirajkar has deposited cash in her bank account and then immediately gave Loan to assessee. Similarly, on 18/01/2018 she deposited cash and then immediately gave loan to assessee. This shows that Creditworthiness and Genuineness of transaction is not proved. The most important is that these details were not filed during assessment proceedings.

4.10 From the submission of the Ld.AR for the Assessee, we are convinced that Genuineness of the Transaction is not proved.

Also, no prudent person will obtain interest bearing loan and give interest free loan which itself explains that the so-called Loan is not a genuine Loan.

4.11 Section 263 of the Act is reproduced as under : Revision of orders prejudicial to revenue. 263. (1) The 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 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 an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 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 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 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; (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 Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 4.12 Thus, as per Explanation-2 to Section 263 of the Act, any order passed without making inquiries which should have been made is an order erroneous and prejudicial to the interest of the revenue. The Pr.CIT can initiate proceedings under section 263 of the Act when the Assessment Order is erroneous and prejudicial to the interest of the revenue. Also, any order passed without making the inquiries which should have been done is order erroneous and prejudicial. Hence, when we apply the provisions of the Section 263 to the Assessment Order it is observed that admittedly the Assessing Officer during assessment proceedings had not carried out necessary inquiries to prove Creditworthiness of the Lenders, Genuineness of the transaction. Also admittedly, during the Assessment Proceedings the assessee had not filed any Loan confirmation from Lenders, admittedly one of the Lender had not filed any Return of Income for A.Y.2018-19, and another Lender had shown meager Income in the Return. Admittedly, the Lenders had no sufficient resources to lend such huge amounts to the assessee without any Interest. During the hearing before this Tribunal, we asked the Ld.AR has the Loan been Repaid? The Ld.AR submitted that the Loan has not yet been repaid. Thus admittedly even after so many years the so called Loan is outstanding and the Lender has not received any Interest. This itself is outside the human probability and explains that the entire transaction is non-genuine.

4.13 In these facts and circumstances, we are of the opinion that the Assessment Order was erroneous and prejudicial to the interest of revenue hence we uphold the Order under section 263 of the Act.

4.14 Ld.AR took a plea that details were filed subsequent to the assessment proceedings before the Assessing Officer, hence Pr.CIT should not have invoked proceedings under section 263 of the Act. We do not agree to this plea of the Ld.AR. First the so called details submitted after the completion of Assessment Proceedings i.e. after passing the Assessment Order, itself shows that the required details were not filed during assessment proceedings. Therefore, the ld.Pr.CIT was right in holding that the assessment order is erroneous and prejudicial as at the time of Assessment AO had not carried out inquiries to prove Genuineness of loan and creditworthiness of lender. Also, we have perused the so called details filed by the Assessee after the Assessment Proceedings, we are of the opinion that even after the Assessment Proceedings, during 263 proceedings, the Assessee has failed to prove the genuineness of the transaction. We have discussed above at length how assessee has failed to prove genuineness of the transactions.

4.15 Hence, for all the reasons discussed we uphold the order under section 263 of the Act.

4.16 Ld.AR has raised a legal ground that the ld.Pr.CIT has not given findings and has set aside the issue of unsecured loan to the Assessing Officer for verification. We do not agree with the ld.AR. As per section 263 the ld.Pr.CIT shall pass an order as the circumstances of the case justifies including setting aside the issue to the Assessing Officer for verification and appropriate order. Therefore, there is no illegality in the order under section 263 passed by the ld.Pr.CIT. In interpretation of statute, when there is no ambiguity in the section, plain meaning of the section shall be adopted. In the fiscal statute no words should be added. There is no specific provision in Section 263 that ld.Pr.CIT has to record specific findings qua the impugned issue. Hence we cannot add those words to the statute. Therefore, there is no merit in said submission of Ld.AR. Accordingly, dismissed. 4.17 Ld.AR has relied on the decision of Hon’ble Supreme Court in the case of Pr.CIT Vs. Shreeji Prints Pvt. Ltd., 282 taxmann 464. In the case of the Pr.CIT Vs. Sreeji Prints Pvt. Ltd the Hon’ble Supreme Court has dismissed the SLP of the revenue without discussing merits. However, in the case of the Sreeji Prints Pvt. Ltd, the ITAT has given the findings that Assessing Officer had made elaborate inquiries and then accepted the genuineness of loan. Thus, the case of Shreeji Prints Pvt. Ld is distinguishable on facts as in the case of the assessee E-Health System Health care Ltd, we have specifically given the findings that the Assessee had not carried out necessary inquiries to prove Creditworthiness of lender and Genuineness of the Transactions. Hence the case relied by the Assessee is not applicable in this case. Ld.AR also pleaded that specific show cause invoking explanation was not issued. In this context, we had during the hearing confronted the ld.AR decision of Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachchan 384 ITR 200 (SC) where in Hon’ble Supreme Court in Para 11 held as under : Quote, “11. It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263 ” Unquote.

4.18 Thus, Hon’ble Supreme Court has specifically explained that there is nothing in the section 263 of the Act to raise the notice to the level of statutory notice. Only condition is that assessee should get opportunity to explain. In the case of the Assessee, the ld.Pr.CIT has elaborately recorded the assessee’s submission which explains that assessee had sufficient opportunity to explain the impugned issue. Therefore, the plea of the Ld.AR is dismissed.

4.19 Assessee has also relied on some other decisions but all the decisions relied by the assessee are distinguishable on facts hence not applicable.

4.20 For all the elaborate reasons discussed above, we uphold the order under section 263 of the Act. Accordingly, all the grounds raised by the assessee are hereby dismissed, we have discussed each issue raised by the assessee in depth in earlier paragraphs.