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Facts
The Assessee appealed against three orders passed by the PCIT under Section 263 of the Income Tax Act, 1961, which set aside the original assessment orders. The PCIT held that the original assessment orders were erroneous and prejudicial to the revenue because the Assessing Officer (AO) failed to conduct adequate inquiries and verifications.
Held
The Tribunal held that the AO had sufficient material on record and had already considered similar loan transactions in the previous assessment year (2012-13), making further inquiry unnecessary for the assessment year 2013-14. Therefore, the PCIT's order under Section 263 was without jurisdiction. The same logic was applied to the appeals for assessment years 2014-15 and 2015-16.
Key Issues
Whether the PCIT was justified in invoking Section 263 to set aside the assessment orders passed by the AO for lack of inquiry, when the AO had already dealt with similar issues in a prior assessment year and the relevant facts were on record.
Sections Cited
263, 147, 144B, 133(6), 143(3), 69A, 68, 69C, 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, G BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER & & Shrikant Finconserv Private Limited F-11, 3rd floor, Manek Mahal, 90, Veer Nariman Road, Churchgate, Mumbai – 400020. [PAN: AAACS5270R] …………. Appellant Vs Principal Commissioner of Income Tax Mumbai - 4 Room No. 629, 6th floor, Ayakar Bhavan, Maharshi Karve Road, Mumbai. …………. Respondent Appearance For the Appellant/Assessee : Shri J.P.Bairagra For the Respondent/Department : Shri Kishor Dhule Date Conclusion of hearing : 26.06.2024 Pronouncement of order : 27.08.2024 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are three appeals preferred by the Assessee challenging the three separate orders passed by the Learned Principal Commissioner of Income Tax, Mumbai- 400004, [hereinafter referred to as the ‘PCIT] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’]. Since all the three appeals involved identical issues arising from common set of facts, 1557 & 1556/MUM/2024 Assessment Year: 2013-14 to 2015-16 the same were heard together and are being disposed off by way of a common order.
We would first take up appeal for the Assessment year 2013-14.
The present appeal has been preferred by the Assessee challenging order, dated 19/03/2024, passed by the learned PCIT under Section 263 of the Act, setting aside Assessment Order, dated 27/03/2022, passed under Section 147 read with Section 144B of the Act pertaining to the Assessment Year 2013-14
The Appellant has raised following grounds of appeal : “1. The Ld. Principal Commissioner of Income Tax (PCIT) erred in issuing the notice u/s 263 of the Income Tax Act, 1961 by holding that the Assessment Order u/s 147 read with section 144B of the Act dated 27-03-2022 was passed by the faceless assessment officer without making enquiry or verification which should have been made.
2. The Ld. PCIT erred in holding that the Assessment Order dated 27- 03-2022 passed is erroneous so far as it is prejudicial to the interest of the revenue due to failure of Assessing officer to make necessary enquiries which was warranted under the facts and circumstances of the case and under the provisions of the law.
3. The Ld. PCIT erred in setting aside that the Assessment Order passed u/s 147 read with section 144B of the Income Tax Act, 1961 dated 27-03-2022 and directed the AO to pass fresh assessment order after making due enquiries and verification in respect of the transaction in the form of accommodation entries between the Assessee company and entities managed, controlled and operated by Mr. Vipul Vihur Bhatt. 4 The Ld. PCTT further erred in not considering the complete facts being submissions and orders as per para 1 to 14 of letter dated 16-02-2024 submitted in response to notice under Section 263 of the Income Tax Act, 1961 to the PCIT. According to which the Assessing officer had made all the enquiries and verification le provided reasons for reopening of the assessment, objection has been raised against the reasons for the reopening of the assessment, and documents filed in response to the notice issued u/s 143(2) of the Income-tax Act, 1961. Further, it is mentioned in Assessment Year: 2013-14 to 2015-16 the submissions against reasons for the reopening of the assessment that this year no loan has been taken from the parties i.e. Lunkad Textiles Pvt Ltd, Victory Sales Pvt. Ltd, and BK Dying & Printing Mills Pvt. Ltd.
5. The Ld. PCIT further erred in not considering various confirmation letters received from Lunkad Textiles Pvt Ltd, Victory Sales Pvt Ltd and BK Dying & Printing Mills Pvt Ltd and copy of the reply filed in response to notice u/s 133(6) of the Income Tax Act, 1961 dated 09-09-2019 issued by the AO to these 3 parties and audited financial statements of the assessee company for year ended 31- 03-2013, copy of bank statement in respect of HDFC Bank from 01- 04-2013 to 31- 03-2016 which were filed vide letter dated 22-02- 2024 in response to query raised by PCIT are duly examined by the PCIT. 6 The Ld. PCIT erred in not considering the direct decision on the issue of not making any reference in respect of detailed enquiries made by AO in the Assessment order of Supreme Court and Bombay High Court which are submitted before him which are incorporated in Para 14 of the order passed u/s 263 of the Income Tax Act, 1961.
7. The Ld. PCIT further erred in relying on the judgments mentioned in Para 6.4 to 6.6 of the order which are not relevant on the facts of the case and held that due to failure of the AO to make necessary enquiries the Assessment Order passed is erroneous and so far, as it is prejudicial to the interest of the revenue and set aside the order.
The Ld. PCTT further erred in holding that it is seen from the records that the Assessing Officer had not made any efforts during the re- assessment proceedings to prove the genuineness of the facts and circumstances brought out in the information and the Assessing Officer merely conducted the re-assessment proceedings without application of mind to bring out the correctness of the facts and documents submitted in regard to the issue discussed.
9. The Ld. PCIT erred in holding that the assessment order passed by the Faceless Assessment Officer IS erroneous and/ or prejudicial to the interest of revenue and therefore action under section 263 is required to be taken to set aside the assessment to the file of Assessing officer.”
Since all the above grounds raised by the Appellant are connected, the same are taken up for adjudication together hereinafter. Assessment Year: 2013-14 to 2015-16
The facts relevant for adjudication of the grounds raised in the present Appeal as emanating from the material on records are that the Appellant is a company that was engaged in the business of finance, investment in shares and renting of properties at the relevant time. For the Assessment Year 2013-14, the Assessee filed return of income on 20/09/2013 declaring income of INR 5,21,040/-. The aforesaid return of income filed by the Assessee was picked up for regular scrutiny and Assessment Order under Section 143(3) of the Act was passed on 25/08/2015 by the Assessing Officer, accepting the return income as assessed income.
6.1. Subsequently, reassessment proceedings were initiated on the basis of information received from the Deputy Director of Income Tax (Investigation), Unit 7(4), Mumbai, vide letter dated 30/09/2016, to the effect that a search and seizure operation under section 132 of the Act was carried out in the case of Mr. Vipul Vidur Bhatt and entities/companies controlled/managed by him. It was discovered that the same were engaged in providing various bogus accommodation entries to beneficiaries. As per the information received, the Appellant had also received accommodation entries for bogus loan from the following entities: Sr.No. Name of Entity Amount (INR) 1. Lunkad Textiles Pvt Ltd. 10,00,000/- 2. Victory Sales Pvt Ltd. 5,40,500/- 3. B.K. Dying and Printing Mills Pvt Ltd 30,00,000/- 6.2. Vide communication, dated 21/04/2021, reasons recorded for reopening the assessment were furnished to the Appellant. The Appellant, vide letter dated 01/05/2021, filed as objections to reopening of assessment wherein it was specifically stated that the Appellant’s Company had not taken or received any loan/accommodation entries during the relevant Assessment year 2013-14. However, ignoring the objections, the Assessing Officer Assessment Year: 2013-14 to 2015-16 continued with the reassessment proceedings. In response to the notice, dated 03/06/2021, issued under section 143(3) read with Section 147 of the Act, the Appellant filed reply, dated 05/06/2021. In the aforesaid reply it was again reiterated that during the relevant previous year no fresh loans were taken from the parties and that the opening balance in their account was on account of loan taken in the earlier years by the Appellant. It was further submitted that for the Assessment Year 2012-13, reassessment proceedings were initiated in the case of Appellant and during the reassessment proceedings the unsecured loans taken from three parties identified by the Assessing Officer were subjected to scrutiny. Vide order, dated 09/12/2019, passed under section 143(3) read with section 147 of the Act [for short ‘Reassessment Order for Assessment Year 2012-13’], the Assessing Officer made addition in respect of the same loan transactions with the aforesaid three parties during the assessment year 2012-13. It was also brought to the notice of the Assessing Officer that the appeal preferred by the Appellant for the assessment year 2012-13 against the Reassessment Order for the Assessment Year 2012-13 was pending adjudication before the CIT(A). The Appellant had also filed a copy of Re-assessment Order for the Assessment Year 2012-13 as well as the appeal preferred before the CIT(A) with the Assessing Officer. The Assessing Officer, thereafter, passed Order under Section 147 read with Section 144B of the Act, on 27/03/2022 accepting the returned income filed by the Appellant.
6.3. Vide order, dated 19/03/2024, passed by the Learned PCIT in exercise of powers of revision under Section 263 of the Act, the above order, dated 27/3/2022, was set aside on the ground that the same was erroneous in so far as prejudicial to the interest of Revenue on the ground that the Assessing Officer had failed to make necessary inquiry/investigation. According to the Learned Assessment Year: 2013-14 to 2015-16 PCIT, the provisions contained in Explanation 2 of Section 263 of the Act, the Assessment Order passed by the Assessing Officer would be deemed to be erroneous in so far as prejudicial to the interest of Revenue, as the same was passed without inquiry/verification which should have been made by the Assessing Officer. The Learned PCIT concluded that the Assessing Officer had passed Assessment Order without any application of mind to the facts/documents furnished by the Appellant.
6.4. Being aggrieved, by the order, dated 19/03/2024, passed by the Learned PCIT, the Appellant has preferred the present appeal before the Tribunal on the ground reproduced in paragraph number 2 above.
We have heard both the sides and have perused material placed before us as part of paper book filed by the Appellant.
7.1. On perusal of material on record, we find that the factual averments made by the Learned Authorized Representative for the Appellant are supported by the documents on record. On perusal of reasons recorded for reopening the assessment, we find that the reassessment proceedings were initiated on the basis of information that the Appellant had received bogus/accommodation entries in respect of loan received from the following parties: S.No. Name of Entity Amount (INR) 1. Lunkad Textiles Pvt Ltd. 10,00,000/- 2. Victory Sales Pvt Ltd. 5,40,500/- 3. B.K. Dying and Printing Mills Pvt Ltd 30,00,000/- 7.2. It was contended by the Appellant that no fresh loans were received from above three parties during the assessment year 2013-14. It was also contended that additions in respect of aforesaid loan amounts were already made in the hands of the Appellant vide Reassessment Order for the Assessment Year 2012-13. On perusal of the aforesaid Reassessment Order for the Assessment Year: 2013-14 to 2015-16 Assessment Year 2012-13 [placed at page 32 to 40 of the paper book], we find that the Assessing Officer has in paragraph numbers 7 to 12 recorded as under: “7. Further, show cause notice has been issued to assessee to explain as to why the transaction made with M/s Lunkad Textiles Pvt Ltd, Victory Sales Pvt Ltd and B.K. Dyeing and Printing Mills Pvt Ltd should not be treated as bogus transaction in the nature of accommodation entry and why the same should not be added as per the provision of I.T. Act, 1961. Assessee not submitted his reply to the show cause 8. As the assessee failed to provide the evidences whatsoever which would cumulatively prove all the three essential ingredients, such as, identity. creditworthiness, genuineness of the loan lenders, it is held that the said unexplained money transaction cannot be accepted as genuine borrowings of the assessee and the same are squarely covered by the provisions of section 69A of the L. T. Act.
9. In this case, it is concluded assess's loan transaction with theses three parties are not genuine as the above parties are not doing any business as per their director Shri. Vipul Vidhur Bhatt. These parties are paper companies and entry providers. In view of the above assesse's transactions done with these parties during the F.Y. 2011-12 relevant to A.Y. 2012-13 are not acceptable and treated as bogus transactions and same are added to the total income of the assessee as cash credits u/s 68 of the LT. Act, 1961 as under, 10. The assesse has received loan of Rs. 10,00,000/- on 28.08.2011 from M/s Lunkad Textiles Pvt. Ltd. As per information the assesse has taken accommodation entry of Rs. 10,49,131/-. On perusal of records it is noticed that the assesse has received loan of Rs. 10,00,000/- on 23.08.2011 and paid interest of Rs. 54,590/- less TDS Rs. 5459/-. This resulted closing balance of Rs. 10,49,131/-. Hence Rs. 10,54,590/- is added to total income as the transaction done during A.Y. 2012-13 with non-genuine and bogus entry operator company. 10.1 The assesse has received Rs. 15,00,000/- on 23.08.2011 from M/s Victory Sales Pvt. Ltd. As per information the assesse has taken accommodation entry of Rs. 31,95,196/. Assessment Year: 2013-14 to 2015-16 On perusal of records it is noticed that opening balance of loan account is Rs. 15,73,750/-. The assesse has received loan of Rs. 15,00,000/- on 23.08.2011 and paid interest of Rs. 2,16,885/- less TDS Rs. 21,689/-. This resulted closing balance of Rs. 31,95,196/. Hence Rs.17,10885/- is added to total income as the transaction done during A.Y. 2012-13 with non-genuine and bogus entry operator company. 10.2 In the case of M/s B.K. Dyeing & printing Mills Pvt. Ltd. the assesse has opening loan balance of Rs. 5,27,000/-. During the year under consideration the assesse has paid interest amount of Rs. 45,000/-. Hence, interest amount of Rs. 45,000/- is added to total income as the transaction done during A.Y. 2012-13 with non-genuine and bogus entry operator company.
Now coming to the fact of this case, it is very much clear that the amount of Rs.28,16,475/- (10,54,590/- 17,16,885/- + 45,000/-) shows to have received/paid by the assessee from M/s Lunkad Textiles Pvt. Ltd., M/s Victory Sales Pvt. Ltd. and M/s B.K. Dyeing & printing Mills Pvt. Ltd. is only an entry made by the assessee in its books of account the amount which has advance to the assessee by it. Thus, in this situation the only conclusion can be drawn that the assessee has routed the unaccounted money in its books of account. Also the assessee could not able to establish the creditworthiness of the party from whom it has received the amount as unsecured loan. The creditworthiness of the party from whom the assessee has received the amount is not proven even though the identity is established.
In view of the above facts, I am of the opinion that the amount of Re 28,16,475/- received by the assessee on account of unsecured loan transaction from M/s Lunkad Textiles Pvt. Ltd., M/s Victory Sales Pvt. Ltd. and M/s B Dyeing & printing Mills Pvt. Ltd. is not genuine and therefore, the same is hereby added back to the total income of the assessee as unaccounted cash credit u/s. of the Income Tax Act, 1961. The interest paid on the above loan amount disallowed as unexplained expenditure u/s 69C of the 1.T. Act, 1961” (Emphasis Supplied)
7.3. On perusal of above, we find that while concluding the reassessment proceedings for the Assessment Year 2012-2013, Assessment Year: 2013-14 to 2015-16 vide order dated 09/12/2019, the Assessing Officer has returned following findings – (a) that the Appellant had received a loan of INR 10,00,000/- from Lunkad Textiles Pvt Ltd on 23/08/2011, (b) that the Appellant had received amount of INR 15,00,000/- on 23/08/2011 from M/s Victory Sales Pvt Ltd which was in addition to the opening balance of INR 15,73,7000/- as on 01/04/2012 and (c) that in respect of M/s B.K. Dyeing and printing Mills Private Limited, there was opening balance of INR 5,27,000/- as on 01/04/2011 and during the assessment year 2012-2013 interest of INR 45,000/- had accrued. Thus, material on record clearly showed that no loan was received by the Appellant during the relevant previous year. Given the aforesaid facts, which were apparent from the assessment record, in our view, no further inquiry/verification was required to be conducted by the Assessing Officer before passing the order dated 27/03/2022 passed under Section 147 read with 144B of the Act. We note that the Learned PCIT has not dealt with the submissions made by the Appellant wherein it was contended that no loans were received by the Appellant from the parties during the relevant previous year and has invoked the provision contained in Explanation 2 to Section 263(1) of the Act.
7.4. As per Explanation 1(b) to section 263 of the Act, the terms ‘record’ is define to include all records relating to any proceedings available at the time of examination by the PCIT. As per Section 263(1) of the Act, the PCIT may call for and examine ‘record’ before exercising powers of revision after giving assessee opportunity of being heard. The powers of revision are to be exercised in case of an order which is erroneous in so far as prejudicial to the interest of revenue. Explanation 2 to Section 263(1) creates a deeming fiction by which order passed by the Assessing Officer is deemed to be erroneous in so far are prejudicial to the interest of revenue. However, the aforesaid Assessment Year: 2013-14 to 2015-16 deeming fiction comes into operation on formation of opinion by the concerned income tax authority that, inter alia, the order under consideration has been passed without making any inquiries or verification which should have been made. We have already concluded that in the facts of the present case it cannot be said that the Assessing Officer failed to make any inquiry or verification which should have been made since all the relevant facts/material formed part of the record. Once additions was made in the hands of the Appellant in the reassessment proceedings for the Assessment Year 2012-2013 in respect of loans received from the three parties identified by the investigation wing of the income tax department as bogus loan entry providers, the same loan amount could not have been added in the hands of the Appellant again in the reassessment proceedings for the Assessment Year 2013-14 since the same would have amount to taxation of same loan amount twice in the hands of the Appellant. These facts were available on record before the Assessing Officer in the form of the Reassessment Order for the Assessment Year 2012-13 and no further inquiry/verification was required to conclude as aforesaid. We hold that the Learned PCIT could not have taken shelter of provisions contended in Explanation 2 to Section 263 of the Act. Accordingly, Order dated 19/03/2024, passed by the Learned PCIT is quashed as being without jurisdiction and the order, dated 27/03/2022, passed by the Assessing Officer under section 147 read with section 144B of the Act is restored. Thus, Ground No. 1 & 2 raised by the Appellant are allowed and balance grounds raised by the Appellant are dismissed as being infructuous. (Assessment Year 2015-16)
8. We note that on identical basis, Assessment Order, for the assessment year 2014-15, dated 27/03/2022, and the Assessment Order for the Assessment Year 2015-16, dated Assessment Year: 2013-14 to 2015-16 27/03/2022, both, passed under Section 147 read with Section 144B of the Act, were set aside by the Learned PCIT, vide two separate orders passed under Section 263 of the Act, each, dated 19/03/2024. 7.5. On perusal of reasons recorded for reopening the assessment, we find that by recording reasons identical those recorded for the Assessment Year 2013-14, reassessment proceedings for the Assessment Years 2014-15 and 2015-16 were initiated on the basis of same information received from the Deputy Director of Income Tax (Investigation), Unit 7, Mumbai vide letter, dated 30/09/2016, regarding accommodation entries taken by the Appellant from the same three parties (namely, Lukand Textiles Pvt Ltd, Victory Sales Pvt Ltd and B.K. Dying and Printing Mills Pvt. Ltd.). During the re-assessment proceedings it was contended by the Appellant that the Appellant had not undertaken any loan transactions with the aforesaid 3 parties during the relevant previous year(s) and therefore, no addition could be made in the hands of the Appellant. The Assessing Officer had accepted the aforesaid submission by accepting returned income as assessed income while passing order under Section 147 read with Section 144B of the Act. The aforesaid order was set aside by the Learned PCIT giving identical reasoning as given in order dated 19/03/2024 passed by the PCIT under Section 263 of the Act for the Assessment Year 2013-14. Since there is no challenge in the facts and circumstances of the case, our findings/adjudication in relation to the appeal for the Assessment Year 2013-14 shall apply mutatis mutandis to the appeal for the Assessment Years 2014-15 and 2015-16. Accordingly, adopting reasoning given in paragraph 7 to 7.4 above, we set aside the order passed under Section 263 of the Act by the Learned PCIT for Assessment Years 2014-15 and 2015-16, both dated 19/03/2024, and restore Assessment Order passed under Section 147 read with Section 144B of Act for the Assessment Year: 2013-14 to 2015-16 Assessment Year 2014-15 and 2015-16, each dated 27/03/2022. Thus, Ground No. 1 & 2 raised by the Appellant in appeal for the Assessment Year 2014-15 and 2015-16 are allowed and balance grounds raised by the Appellant in the aforesaid appeals are dismissed as being infructuous.
In the result, all three appeals preferred by the Appellant are allowed.
Order pronounced on 27.08.2024. ( Prashant Maharishi) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 27.08.2024 Patil,Sr.P.S. Assessment Year: 2013-14 to 2015-16