Loading judgment…
Facts
The assessee received unsecured loans totaling Rs. 77,00,000/- from three parties during AY 2014-15. The Assessing Officer (AO) accepted these loans without making additions. The Principal Commissioner of Income-tax (PCIT) initiated proceedings under Section 263 of the Income-tax Act, 1961, stating the AO's order was erroneous and prejudicial to the revenue.
Held
The Tribunal held that the assessee had provided sufficient evidence, including confirmations, income tax returns, and bank statements, to establish the genuineness of the loans and their repayment in subsequent years. The PCIT's order, which set aside the AO's assessment order, was found to be incorrect.
Key Issues
Whether the PCIT erred in initiating proceedings under Section 263 and setting aside the assessment order passed by the AO, considering the evidence of loan genuineness and repayment provided by the assessee.
Sections Cited
263, 143(3), 68, 253(3)
AI-generated summary — verify with the full judgment below
Before: SHRI SANJAY GARG & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 263 of the Income-tax Act, 1961 (in short, the Act’) dated 04.03.2024 by the learned Principal Commissioner of Income-tax, Surat [in short ‘PCIT’] for the assessment year (AY) 2014-15.
The grounds of appeal raised by the appellant are as follows: “(1) On the facts and in the circumstances of the case as well as law on the subject, the Ld. PCIT has grievously erred in initiating the proceedings u/s.263 of the Act, 1961.
2014-15 Shhlok Triton Associates (2) On the facts and in the circumstances of the case as well as law on the subject, the Ld. PCIT has grievously erred in assuming jurisdiction u/s.263 of the Act, 1961. (3) On the facts and in the circumstances of the case as well as law on the subject, the Ld. PCIT has erred in violating the principles of natural justice by not mentioning the grounds for initiating action u/s.263 of Income tax Act in the show cause notice issued. As such the order passed u/s.263 is void ab initio. The action of the Ld. CIT was wholly unreasonable, uncalled for and bad in law. (4) On the facts and in the circumstances of the case as well as law on the subject, that the order u/s.263 is merely ‘change in opinion’. The action of the Ld. PCIT was wholly unreasonable, uncalled for and bad in law. (5) On the facts and in the circumstances of the case as well as law on the subject, the Ld. PCIT has grievously erred in assuming that the Ld. Assessing Officer had not verified that the unsecured loan obtained by the appellant during assessment proceedings. (6) On the facts and in the circumstances of the case as well as law on the subject, the entire proceedings are bad in law and invalid as assessment order for the same year was framed, wherein due inquiry was made. (7) On the facts and in the circumstances of the case as well as law on the subject, the Ld. PCIT has grievously erred in setting aside the assessment order u/s.143(3) of the Act without pointing out as to how the order is erroneous and prejudicial to interest of revenue. (8) It is, therefore, prayed that the above proposed proceedings may please be revoked as Ld. Members of the tribunal may deem it proper. (9) Appellant craves liberty to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
The appeal filed by the assessee is late by 22 days in terms of provisions of section 253(3) of the Act. The assessee has filed an application giving reasons for delay in filing the appeal before the Tribunal. The assessee submitted that the delay in filing appeal was due to unavoidable medical exigency. The assessee was 2014-15 Shhlok Triton Associates undergoing treatment for chest pain and heart condition and was admitted to Asian Heart Institute for medical care. Due to medical exigency, the assessee was unable to contact the counsel and the time limit for filing appeal lapsed. The assessee submitted that the delay was neither willful nor deliberate and was due to circumstances beyond its control. It prayed that the delay in filling the appeal may be condoned. The learned Commissioner of Income-tax - Departmental Representative (ld. CIT-DR) for the revenue submitted that the Bench may decide the matter, as it thinks fit. 3.1 We have heard both parties on this preliminary issue of delay of 22 days in filing the appeal. Due to medical exigency, the appellant could not file appeal in time. The delay was neither intentional nor deliberate. We, therefore, condone the delay and admit the appeal for hearing.
Brief facts of the case are that the assessee filed its return of income for AY 2014-15 on 27.11.2014, declaring total income of Rs.2,32,06,770/-. The assessment u/s 143(3) of the Act was passed on 09.12.2016, accepting the returned income. The ld. PCIT called for the records and found that one of the reasons for selection of case under scrutiny was unsecured loans from various parties, who had not filed their returns of income. The appellant had not furnished requisite details of unsecured loans from three parties, namely, Shri Ashok P. Thadani (Rs.25,00,000/-), Shri Narendra Kumar Jain (Rs.22,00,000/-) and 2014-15 Shhlok Triton Associates Smt. Sunita Ashok Thadani (Rs.30,00,000/-) to establish the creditworthiness and genuineness of the loan transactions. The assessee had filed only the confirmation letters which were unsigned. The AO, however, did not make any addition of the above amounts u/s 68 of the Act and accepted the return. Hence, the order was held to be erroneous in so far as prejudicial to the interest of revenue u/s 263 of the Act dated 26.03.2019. On appeal, the ITAT, Surat set aside the order of ld. PCIT and remitted the matter back to him to consider the issue afresh after giving sufficient opportunity of hearing to the assessee. Thereafter, the ld. PCIT issued notice u/s 263 on 08.09.2023 and required assessee to furnish reply as to why the assessment order be not revised u/s 263 of the Act. The assessee filed reply, which is reproduced at para 3.1 of the PCIT order. In the said reply, the assessee had filed confirmation along with return of income and bank statement of all three parties. It was also submitted that the assessee had repaid the loans taken from the three parties in support of which confirmations along with returns of income and bank statements highlighting repayment of loan were submitted. The assessee relied on the decisions of the Hon’ble jurisdictional High Court in cases of CIT vs. Ayachi Chandrashekhar Narsangji, (2014) 42 taxmann.com 251 (Guj.) and Rajhans Construction (P.) Ltd. vs. ACIT, (2022) 140 taxmann.com 370 (Surat – Trib.). The ld. PCIT did not accept reply of the assessee by stating that during assessment proceedings, assessee had filed unsigned 2014-15 Shhlok Triton Associates confirmation letters from the lenders. Thereafter, he has discussed provisions of section 68 of the Act and various decisions on the subject section and found that the assessee had not discharged the primary onus in respect of the above three lenders. Thereafter, he has discussed the details of all three parties, who had filed confirmation letter, return of income, bank statement highlighting loan given to the assessee in AY 2014-15 and repayment of the loans. He observed that after repayment of loan, the Shri Ashok P. Thadani and Smt. Sunita Ashok Thadani, had again advanced loans to the assessee. In case of Shri Narendra Kumar Jain HUF, it was found that there were meagre balances throughout the year and before giving loan, there was a major credit entry. The ld. PCIT has observed that the decisions relied upon by the assessee are not relevant in the given facts and circumstances of the case. Therefore, he held that AO passed the order without considering the facts and evidences, without application of mind and correct provisions of the Act, which made the assessment order erroneous as well as prejudicial to the interest of revenue. There was also short levy of tax of Rs.54,07,500/- on addition of Rs.70,00,000/- u/s 68 of the Act. Thereafter, the ld. PCIT has discussed provisions of section 263 of the Act and referred to the decisions of Hon’ble Supreme Court and High Courts in the cases of Malabar Industries Ltd. vs. CIT, 243 ITR 83 (SC), CIT vs. Pavilee Projects Pvt. Ltd., 149 taxman.com 115 (SC), CIT vs. Nagesh Neatwears Pvt. Ltd., 345 ITR 135 (Delhi), ITO 2014-15 Shhlok Triton Associates vs. D. G. Housing Projects Ltd., (ITA No.179/2011 – Delhi HC) and Gee Vee Enterprises vs. Addl. CIT, 99 ITR 375 (Delhi) and held that the order passed by the AO on 09.12.2016 u/s 143(3) of the Act was erroneous in so far as it is prejudicial to the interests of revenue. Hence, the order of AO was set aside with a direction to pass fresh assessment order after taking into consideration the issues as might have been already considered together with the issues discussed in order u/s 263 of the Act.
Aggrieved by the order of ld. PCIT, the assessee filed appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee has filed two paper books including various details filed before lower authorities and compilation of various decisions in favour of assessee. He submitted that during the revision proceedings u/s 263 of the Act, the assessee had filed reply on 17.01.2024 and submitted all required details, i.e., confirmation, return of income, bank statements etc., which supports the genuineness of the three unsecured loans. Such details are at pages 7 to 9 of the PCIT order. The appellant had also submitted that the impugned loans had been repaid to all three parties in the subsequent year(s) for which confirmation of accounts, returns of income and bank statements were submitted to prove the factum of repayment. The ld. AR submitted that since the appellant had submitted all details to prove genuineness of the loan taken during the year and all the lenders had filed return 2014-15 Shhlok Triton Associates of income and since the loan had been repaid in the subsequent year(s), therefore, the order of ld. PCIT holding that the order u/s 143(3) of the Act was erroneous and prejudicial to the interests of revenue is not correct and the same should be quashed. The ld. AR has relied on the decisions in cases of CIT vs. Ayachi Chandrashekhar Narsangji (supra), PCIT vs. Ojas Tarmake (P.) Ltd., 156 taxmann.com 75 (Guj.), PCIT vs. Ambe Tradecorp (P.) Ltd., 145 taxmann.com 27 (Guj.), DCIT vs. Rohini Builders, 127 taxmann.com 523 (Guj.), CIT-1 vs. Apex Therm Packaging (P.) Ltd., 42 taxmann.com 473 (Guj.), ACIT vs. Bharatbhai Kanjibhai Kakadiya, Bhupatbhai Thakarshibhai Mavani vs. ACIT, 140 taxmann.com 370 (Surat – Trib.)., Rajhans Construction (P.) Ltd. vs. ACIT, 140 taxmann.com 370 (Surat – Trib.), Naresh Nemchand Shah vs. ACIT, 146 taxmann.com 351 (Surat – Trib.).
On the other hand, the ld. CIT-DR supported the order of ld. PCIT. He submitted that the AO has passed a very cryptic order without verifying the issue of unsecured loan in the proper perspective. He has accepted the reply of the assessee without application of mind and allowed relief without making inquiries or verification, which should have been made.
We have heard both parties and perused the materials available on record. We have also deliberated on the decision relied upon by both sides. The ld. PCIT held the order of AO passed u/s 143(3) of the Act as erroneous in so far as 2014-15 Shhlok Triton Associates prejudicial to the interests of revenue because the AO had accepted the unsecured loan of Rs.77,00,000/- received from three parties without proper inquiry and verification in the light of the principles of section 68 of the Act. The ld. AR, on the other hand, submitted that all details had been given to the ld. PCIT during 263 proceedings and it was also proved with evidence that the impugned loans were repaid in the subsequent years. Therefore, there was no justification for passing the order u/s 263 setting aside the order of AO. We have perused the details. Before deciding the issue, it would be proper to examine the scope and ambit of section 263 of the Act, which reads 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 interest 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]. 7.1 It is clear from a plain reading of section 263 of the Act that the PCIT or the CIT may call for and examine the records of any proceedings under the Act. If he considers that any order passed by the AO or the TPO is erroneous in so far as it is prejudicial to the interests of revenue, he is required to give assessee an 2014-15 Shhlok Triton Associates opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, he may pass such order thereon as the circumstances of the case justify including enhancing or modifying the assessment order, cancelling the assessment and directing a fresh assessment. Therefore, the PCIT, after giving opportunity of hearing or after making or causing to be made such inquiry as he deems necessary, may pass such order thereon as the circumstances of the case justify. In the instant case, the ld. PCIT had issued show cause notice u/s 263 of the Act, in response to which assessee filed various details, which are at pages 7 to 9 of the assessment order. The appellant filed written submission along with evidences in respect of the three unsecured loans. The appellant had filed confirmation of the lenders, returns of income, bank statement highlighting loan given to the assessee in the subject AY 2014-15. It also filed details regarding repayment of such loans by the assessee, viz. confirmation, return of income, bank statement highlighting repayment of loans made by the assessee in AY 2015-16 to Shri Ashok P. Thadani and Smt. Sunita A. Thadani and in AYs 2015-16 to 2017-18 to Shri Narendra Kumar Jain HUF. This fact of repayment of loans in subsequent years has not been disputed by the revenue. Since the repayment of the loans was made in the subsequent year(s) as stated above, addition u/s 68 of the Act is not permissible in view of binding decisions in cases of Ayachi Chandrashekhar Narangji (supra), Ojas Tarmake (P.)