CITYSTAR GANGULY PROJECTS LLP,KOLKATA vs. PRINCIPAL CIT - 9, , KOLKATA

The main grievance of the assessee is against the action of the ld. PCIT in assuming his jurisdiction u/s. 263 of the Act without satisfying the condition precedent prescribed by the statute.

The brief facts of the case are that the assessee has filed its R.O.I (Return of Income) for the A.Y under consideration on 29-09-2014 declaring total income of Rs. 8,75,470/-. Thereafter, the case was selected for scrutiny under CASS. The AO noted during the assessment proceedings that the assessee was engaged in construction business under the name and style of ‘M/s. City Star Ganguly Projects’ and disclosed the total turnover of Rs.90,25,099/- along with income from other source amounting to Rs. 21,768/-. Since the assessee’s case was selected for scrutiny through CASS with the reasoning ‘unsecured loans were taken from persons who have not filed their ITR’, the AO therefore asked the assessee to file loan confirmation of every loan creditors. Pursuant to which, the assessee filed the list of loan creditors along with their PAN details etc, which has been acknowledged by the AO. It 1 I.T.A No.1103/Kol/2019 A.Y 2014-15 Citystar Ganguly Projects Ltd.

In its reply dated 18-03-2019, the assessee furnished its objections to the SCN. The assessee brought to the notice of the ld. PCIT that on the issue of loan creditors, specific queries were raised by the AO and in pursuance of it, the assessee had filed before him (the AO) all details along with documents, PAN, etc about loan creditors, who after conducting enquiries with the loan creditors and thereafter being satisfied with the result of his enquiry, has not drawn any adverse view against the loan creditors or assessee, which is clear from para-2 of the assessment order itself. The assessee further brought to the notice of the Ld. Pr. CIT, that out of the four bodies corporate named in the SCN, the impugned loan amount of Rs.1,27,47,000/- was received from two of them, namely M/s Anadya Technologies Pvt Ltd & M/s Hotahoti Wood Products Ltd during the relevant FY 2013-14. However, the ld. PCIT did not agree with the contention, he was pleased to set aside the assessment order for framing de-novo assessment on the reason that the documents submitted by the assessee in support of the claim of genuineness and creditworthiness of the loan creditors were not subjected to verification by the AO during the assessment proceedings. Aggrieved by the aforesaid action of the ld. PCIT, the assessee is before us.

We have heard both the parties and perused the records. We note that Shri Damle, FCA, ld.AR of the assessee assailing the impugned order of the ld. PCIT submitted that the condition precedent for invoking/ assuming revisional jurisdiction u/s. 263 is absent in this case. According to him, the AO is not only an adjudicator, but he is also an investigator/investigating authority. According to the ld. AR, the AO has carried out both the roles given by the statute. According to him, as an investigating authority he has called upon the assessee to file the details of loan creditors. Pursuant to which, the assessee had filed full details before the AO, who after satisfying with the same has not drawn any adverse inference against the assessee on this count. Elaborating this fact the ld. AR drew our attention to pages- 11 & 12 of the Paper book, wherein the AO had issued 133(6) notices to M/s.Anadya Technologies Pvt Ltd and M/s. Hotahoti Wood Products Ltd, wherein following query(ies) was raised against both the loan creditors:

He further submitted that the ld. Pr. CIT never disputed the fact that the AO had indeed enquired into the transaction involving receipt of unsecured loans and therefore it was not a case of ‘lack of enquiry’. He pointed out that the AO treated the impugned order as erroneous and prejudicial to the interest of the Revenue because according to him further inquiry/investigation was required or deeper or further scrutiny should have been undertaken. Relying on the decisions of the Hon’ble Bombay High Court in the case of CIT Vs Nirav Modi (390 ITR 292), Hon’ble Delhi High Court in the case of CIT Vs Leisure Wear Exports Ltd (341 ITR 166) and Hon’ble Calcutta High Court in the case of CIT Vs J.L. Morrison (P) Ltd (366 ITR 593), the Ld. AR claimed that an assessment order cannot be held to be erroneous prejudicial to the interest of the Revenue for ‘inadequate enquiry’ as alleged by the ld. Pr. CIT. He further submitted that in such cases where the allegation is of inadequate enquiry but not lack of enquiry, then the judicial forums have held that the CIT cannot remand

Per contra the ld. DR supported the observation made by the ld. Pr.CIT, and he submitted that since no summons were issued by the AO in respect of loan creditors the ld. PCIT in his wisdom held that without issuing summons against the loan creditors how the AO could verify veracity of the loan creditors. According to him since the assessment records did not have the documents of other two creditors he wondered as to how the AO could verify. Therefore, according to ld CIT DR, the ld. PCIT has rightly invoked his jurisdiction and he does not want us to interfere with the order of the ld PCIT.

Having heard both the parties, and on a careful consideration of the facts and circumstances of the case, we find that the ld. Pr. CIT invoked the revisionary jurisdiction on the broad allegation that the AO failed to make adequate enquiries with regard to the creditworthiness of the four loan creditors, from whom the assessee had received huge loan of Rs.1,27,47,000/- during the year, when the information gathered u/s 133(6) showed that they had reported ‘NIL’ or low income and claimed huge TDS refund or they had accepted huge unsecured loans. In this background, it is first relevant to examine the facts on record before adjudicating the validity of the usurpation of jurisdiction by the ld. Pr. CIT u/s 263 of the Act on the grounds set out in the SCN. It is noted that the impugned loan of Rs.1,27,47,000/- is the subject matter of SCN issued u/s 263 of the Act, which the assessee received from two bodies corporate i.e. Anadya Technologies Pvt Ltd & Hotahoti Wood Products Ltd. Although in the SCN, the ld PCIT while proposing to usurp the revisional jurisdiction found fault with the Assessment order on the ground of non-enquiry by AO into the loan transaction by the assessee with M/s Purbanchal Prestressed Ltd, which we find that enquiry under Section 133(6) was in fact carried out by the AO from the said party and evidence in support of compliance made by the said party was also furnished before the ld. Pr. CIT. We therefore note that since the evidence led by the assessee in this regard was found to be factually true,

We shall now turn to the transactions involving receipt of loan of Rs.1,27,47,000/- from M/s Anadya Technologies Pvt Ltd & M/s Hotahoti Wood Products Ltd during the year. It is noted that upon examining the loan confirmations furnished by the assessee in response to the notice issued u/s 142(1), the AO had proceeded to make independent enquiries from both these loan creditors u/s 133(6) of the Act. On perusal of the copy of notice issued u/s 133(6) placed at Pages 11 & 12 of the paper book, it is noted that the AO had made specific and detailed enquiries from both the loan creditors regarding the transaction involving payment of loan to the assessee. The relevant questions posed by the AO in his notice u/s 133(6) have been reproduced at Para 5 above. In response both the loan creditors had furnished the relevant details along with documentary evidences as sought by the AO and copies of these replies were also furnished before the ld. Pr. CIT in the proceedings u/s 263 of the Act. As regards M/s Anadya Technologies Pvt Ltd, which had advanced the majority portion of total loan i.e. Rs.1,00,00,000/-, it is noted that this company is regularly assessed to tax and is holding PAN – AADCA7382F. On perusal of the financial statements furnished in response to notice u/s 133(6) of the Act, we find that the loan creditor had own funds to the tune of Rs.256.07 lacs out of which it had advanced the loan of Rs.100 lacs. We also note that the loan creditor did not have any long term borrowings as alleged by the ld. Pr. CIT in the SCN. We further note that this loan creditor had earned gross revenue of Rs.709.59 lacs during the year and reported net profit of Rs.53,77,880/-. Against such profit, the company had also made provision for current tax of Rs.10,28,091/-. The IT Acknowledgment of the loan creditor substantiated that it had disclosed net tax payable of Rs.10,28,091/- towards which it had paid taxes by way of TDS of Rs.6,17,510/- and self-assessment tax of Rs.4,55,940/- at the time of filing of return of income. We thus find that no tax refund whatsoever was claimed by this loan creditor. In view of the foregoing facts, we thus note that the ld. Pr. CIT’s primary premise which formed the basis of the impugned SCN dated 13.03.2019, that the information gathered u/s 133(6) revealed that the loan creditor had reported ‘NIL’ income, claimed TDS refund and had obtained huge unsecured loans is factually incorrect and unfounded. The loan confirmation furnished by M/s Anadya Technologies Pvt Ltd further revealed that the assessee had also paid interest at the rate of 9%

We also note that similar enquiries u/s 133(6) were made by the AO from M/s Hotahoti Wood Products Ltd which had advanced loan of Rs.27,47,000/- to the assessee. From the details furnished by M/s Hotahoti Wood Products Ltd, we note that, (a) the company was regularly assessed under the PAN – AAACH5090E with ITO, Ward 4(1), Guwahati, (b) it derived interest income of Rs.59,60,929/- from the money lending business during FY 2013-14and had filed return of income on 26.09.2014, (c) it held registration certificate dated 09.11.1998 issued by Reserve Bank of India permitting the company to carry on NBFC activities, (d) it had own funds of Rs.1983.13 lacs and had borrowed of Rs.219.15 lacs in the course of money lending business, out of which it advanced loan of Rs.27,47,000/- to the assessee, (e) the loan was given through banking channel and the immediate source of fund was also explained, and (f) the loan carried interest of 9% on which the assessee deducted tax u/s 194A of Rs.46,407/-. On these facts we note that the information gathered u/s 133(6) substantiated the creditworthiness of the loan creditor. It is further observed that M/s Hotahoti Wood Products Ltd is an associate company of the assessee because its Designated Partner, Shri C R Modi is also the Director on the Board of the loan creditor. In that view of the matter the genuineness of the transaction could not be doubted. It is also observed that the assessee had furnished the copy of the assessment order dated 29.06.2016 passed u/s 143(3) in the case of M/s Hotahoti Wood Products Ltd before the ld. Pr. CIT, to substantiate that no adverse inference was drawn against the business of money lending carried on by the lender company, M/s Hotahoti Wood Products Ltd.

In view of the foregoing facts we find that the information gathered by the AO through the enquiries conducted u/s 133(6) of the Act from the loan creditors, sufficiently established the creditworthiness of the loan creditor and the genuineness of the transactions and therefore the allegation on which the ld. Pr. CIT proceeded to issue the show cause notice u/s 263 is found to be untenable on facts and in law.

Having set out the facts above, we now turn to examine the assessee’s challenge to the usurpation of jurisdiction by ld. Pr.CIT to invoke his revisional powers enjoyed u/s 263 of the Act. To adjudicate this issue we have to first see whether the requisite jurisdiction necessary to assume revisional jurisdiction existed before the Pr. CIT exercised his powers. For that, we have to examine whether in the first place the order of the Assessing Officer found fault by the Principal CIT, was erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed by the without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. For invoking powers conferred by S.263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order some real and tangible loss is caused to the interest of the revenue. Their Lordship in the said judgment therefore held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer

In the given facts of the present case, we find that the only fault found by the ld. Pr. CIT to interfere with the order of AO was the alleged inadequate enquiry into the loan creditors and alleged non-application of mind to the information gathered u/s 133(6) of the Act from the loan creditors. We are aware of the fact that the Assessing Officer's role while framing an assessment is not only as that of an adjudicator but he is also an investigator. The AO has a dual role to perform i.e. he is an investigator as well as an adjudicator and therefore, if he fails in any one of the two roles as afore-stated, his order can be termed as erroneous. From the order of the Ld. Pr. CIT, we note that he found fault with the AO’s role of an investigator because in his subjective opinion the AO did not properly investigate into the facts of the case. Keeping the foregoing fault in mind and taking into account the facts as discussed in earlier paragraphs, we note that in the given facts of the present case the AO had made specific enquiry into the loan transactions of the assessee with its loan creditors based on the CASS parameter. In response to the enquiries made u/s 133(6) (as discussed supra), the loan creditors have filed their documents/details to substantiate/prove their identity(ies), creditworthiness and genuineness of the loan transactions. Thus, we find that the AO had examined all the details and called for financial statements of the loan creditors for verification of the loan transactions. Having done so, the AO has not drawn any adverse inference against any loan creditors, which has been recorded in para 2 of his assessment order, which is as under:-

In the above factual background a presumption can be safely drawn that the AO bore the capacity to draw satisfaction with the explanations furnished by the assessee as well as the loan creditors regarding the loan of Rs.1,27,47,000/- received during the year and that the AO exercised due care by conducting requisite enquiries in respect of these loan transactions as the circumstances demanded, before drawing plausible inference in favour of the assessee. In this regard we find that somewhat similar issue was considered by the Hon’ble Bombay High Court in the case of CIT Vs Nirav Modi (supra). In the decided case the assessee had claimed to have received gifts from non-resident and these were claimed to be non-taxable by the assessee. In the course of assessment the AO had accepted the assessee’s claim of the gifts being non-taxable after conducting enquiries from the donors. Later on the CIT revised the AO’s order holding it to be erroneous and prejudicial to the interests of the Revenue on the ground of inadequate enquiry with regard to source of the source of the gifts received by the assessee. On appeal the coordinate Bench of this Tribunal set aside the revision order passed u/s 263 On further appeal the Hon’ble High Court upheld the order of the Tribunal, by observing as under:

We are also alive to clause (a) of Explanation (2) to Section 263 of the Act inserted by Finance Act, 2015 w.e.f. 01.06.2015 which seeks to clarify that the order passed by the lower authorities to be erroneous in so far as prejudicial to the interest of the Revenue in the event of absence of inquiry which should have been made. The aforesaid clause only provides for situation where inquiries or verifications should be made by reasonable and prudent officer in the context of the case. Such clause cannot be read to authorize or give unfettered powers to the Commissioner to revise each and every assessment order. The applicability of the clause is thus essentially contextual. As observed in the preceding paras, the AO had made specific and detailed cross verifications from the loan creditors and the information gathered from them, satisfied the three ingredients embedded in Section 68 of the Act. Apart from making sweeping statements, which have been found to be factually erroneous, no objective material has been brought on record by the ld. Pr. CIT to implicate the assessee or the AO per se of being guilty of non-enquiry. We further find that when confronted with the reasons set out in the SCN, the assessee had led before the ld. Pr. CIT sufficient documentary evidence which proved that the SCN had proceeded on assumption of incorrect facts which were not borne out from the assessment records. It was also established before the ld. Pr. CIT that before completion of assessment, the AO had indeed made enquiries from all the loan creditors u/s 133(6) and only after objective consideration of the evidences furnished, order u/s 143(3) of the Act was passed. On receipt of these objections, the ld. Pr. CIT himself did not make any effort to prove any factual or legal infirmity in the documents or explanations furnished nor he was able to prove that any of the documents or evidences were false so as to establish that the AO’s order was erroneous as well as prejudicial to the Revenue’s interests because the view taken by him was unsustainable in law. On the contrary, the ld. Pr. CIT merely set aside the assessment order directing AO to pass the order afresh in accordance with law which in our opinion was nothing but giving the AO second innings without establishing that the AO’s order was erroneous as well as prejudicial to the interests of the Revenue. Our findings in this regard find support in the following judgments:

For these reasons, we are of the considered view that the assessment order is not the result of non-application of mind or any inadequate enquiry. We are also of the considered opinion that while passing the assessment order the AO did not follow a view which can be said to be ‘unsustainable in law’. In the circumstances therefore, the jurisdictional facts for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and all subsequent actions are 'null' in the eyes of law. We therefore quash the order impugned before us.

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