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Facts
The assessee filed a return of income which was selected for scrutiny on issues including unsecured loans. The assessment order was passed, assessing the income at the returned figure. Subsequently, the Principal CIT initiated revision proceedings under Section 263 of the Income Tax Act, 1961, alleging the assessment order was erroneous and prejudicial to the revenue.
Held
The Tribunal held that the Principal CIT erred in invoking Section 263 as the assessment order was not erroneous. The Tribunal found that the Principal CIT's premise for revision was faulty, as they focused on the opening balance of unsecured loans and interest thereon, while being satisfied with the loans taken during the year. The Tribunal also noted that each financial year is separate and should be discussed independently.
Key Issues
Whether the Principal CIT was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order passed under Section 143(3) when the issues concerning unsecured loans were already examined by the Assessing Officer.
Sections Cited
263, 143(3), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal is directed against the order of the Ld. Pr. CIT, Jaipur -2, dated 31-03-2024 passed u/s. 263 of the Income Tax Act, 1961. The assessee has raised the following grounds of appeal.
1. ‘’1. On the facts and in the circumstances of the case, the Ld. PCIT, Jaipur -2 has erred in law in invoking the provision of Section 263 of the Income Tax Act, 1961 without appreciating the fact that the points relating to unsecured loans, sundry creditors and other liabilities has already been examined by the assessing officer during the course of assessment proceedings. The ld. PCIT has acted against the law and principles of natural justice in invoking the provisions of Section 263. 2. on the facts and in the circumstances of the case, the ld. PCIT, Jaipur-02 has erred in law in setting aside the assessment order u/s. 143(3) of the Act passed by the assessing officer. The Ld. PCIT has not considered the facts and circumstances of the case and ignored the fact that the unsecured loans and other liabilities has already been examined in detail by the assessing officer during the course of assessment proceedings. The Ld. PCIT has acted against the law and principles of natural justice in setting aside the assessment order passed u/s. 143(3) of the Act.
3. The appellant prays that order passed by the Ld. PCIT, Jaipur-2 be quashed and craves to leave to add, amend, alter, vary and withdraw any or all the above grounds of appeal
.’’
2. The brief facts of the case are that the assessee individual filed his return of income on 28-10-2019 declaring total income at Rs. 40,10,000/-. The case of the assessee was selected under CASS for complete scrutiny on the following issues:
A. High Creditors/ Liabilities; B. Refund Claim and C. Unsecured Loans. The case of the assessee was assessed at returned income after considering the replies/submissions of the assessee vide order dated: 28-09-2021. Thereafter, a notice was issued by the office of the Ld. PCIT, Jaipur-2 u/s. 263 of the Act vide dated: 07.03.2024 and the same was complied with by the assessee vide his reply dated: 14.03.2024. Then again a notice was issued by the office of the Ld. PCIT, Jaipur-2 vide dated: 15.03.2024 and the same was replied by the assessee vide letter dated: 26.03.2024. Ultimately, an order u/s. 263 of the Act was passed by the Ld. PCIT, Jaipur-2 vide dated: 31.03.2024 directing the AO as per Para 7 of the order as under:
Accordingly, by virtue of powers conferred on the undersigned under the provisions of section 263 of the Income Tax Act 1961, I hold that the order under Section 143(3) of the IT Act dated 28.09.2021 for AY 2019-20 passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue as the said order has been passed by the Assessing Officer in a routine and perfunctory manner without examining the issue of unsecured loans and sundry creditors. The order of the Assessing Officer is therefore liable to revision under the clause (a), (b) & (c) of Explanation (2) to section 263 of the Income Tax Act. Hence, the assessment order is set aside as discussed above on the issue of unsecured loans and sundry creditors. The AO is directed to examine the issue and pass suitable order after according opportunity of being heard to the assessee.
To further elaborate the issue involved, we need to discuss the names of the parties and transactions with them as discussed by the Ld. PCIT, Jaipur-2 in her order vide Para 2 reproduced as under:
Considering the table above discussed by the Ld. PCIT, Jaipur-2, we observed that there is no harmony in the directions of the Ld. PCIT, Jaipur-2, what she directed vide Para 7 of her order reproduced (supra) vis-à-vis the table she considered for proceeding also reproduced (supra). This observation is further fortified with her finding in her order, where she observed and discussed as under:
Therefore, the amount of Rs. 1, 14, 45,640/- (unsecured loan received Rs. 13, 00,000/- + squared up of unsecured loan during the year amount Rs. 95, 00,000/- + Interest amount 6, 45,640/-) remained unverified during the course of the assessment. Unverified and unconfirmed amount in respect of unsecured loan of Rs. 1,14,45,640/- should have been added back in the total income of the assessee firm u/s. 68 of the Act by the assessing officer, but, the AO failed to consider/apply his mind on this issue. The reply as furnished by the assessee has been considered and placed on record and it is seen that, the assessee has not provided any documentary evidences/confirmations/Income Tax Returns/Bank statements related to unsecured loan creditors of Rs. 1,14,45,640/- (unsecured loan received Rs. 13,00,000/- + squared up of unsecured loan during the year amount Rs. 95,00,000/- + Interest amount 6,45,640/-).
As we considered the table reproduced (supra) as well as the remarks/observations of the Ld. PCIT, Jaipur-2 also reproduced (supra), it can be safely concluded that the whole premise on which the Ld. PCIT, Jaipur-2 proceeded with is at fault, i.e. verification of opening balance (Rs. 95 Lacs) and interest thereon (Rs. 6, 45,640/-) except two petty transactions of loan taken during the year under consideration amounting to Rs. 13 Lacs.
As far as loans taken during the year are concerned, the Ld. PCIT, Jaipur-2 looks to be satisfied and nowhere concerned about the same throughout the order, where as opening balance of loans and interest thereon are concerned, same can’t be a subject matter of verification neither in scrutiny assessment u/s. 143(3) of the Act nor under the revision proceedings u/s. 263 of the Act. As the principle applies that each year is separate year and to be discussed separately. In view of the above, we found the order of the Ld. PCIT, Jaipur-2 is legally not tenable as the same is beyond the scope of powers as enshrined in section 143(3) of the Act/ section 263 of the Act. Accordingly, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 6th Day of December 2024.