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Facts
The assessee filed a return of income for AY 2013-14. The AO reopened the assessment under Section 148 to assess escaped income related to unsecured loans. The AO made a disallowance of 10% of the loan amount. The PCIT invoked Section 263, considering the addition to be erroneous and prejudicial to revenue, directing a de-novo assessment.
Held
The Tribunal held that the PCIT erred in invoking Section 263 when the issue of unsecured loan was already pending before the CIT(A). The Tribunal noted that the loan transaction was conducted through banking channels and supported by documentation, and that the assessee's appeal against the AO's addition was already pending.
Key Issues
Whether the PCIT can invoke Section 263 when the same issue is pending before the CIT(A)? Whether the unsecured loan transaction was an accommodation entry?
Sections Cited
263, 143(3), 148, 147, 144B
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the assesse is directed against the revision order dated 18.03.2024 of Principal Commissioner of Income Tax-1 Indore passed u/s 263 of the Act for A.Y. 2013-14.
The assessee has raised following grounds of appeal:
1.That on the facts and circumstances of the case Ld. Pr.CIT-1, Indore has erred in invoking provisions of Section 263 of Income Tax Act, 1961 directing AO to frame the assessment de-novo and assess the income in the hands of the assessee.
2. That on the facts and in the circumstances of the case Ld. Pr.CIT-1, Indore has erred in invoking provisions of Section 263 of Income Tax Act, 1961 by blatantly ignoring the jurisdictional judicial pronouncements in favour of the assesse on merits of this case. The action of Ld. Pr.CIT-1, Indore was wholly unreasonable, uncalled for and bad in law. 3.That the impugned order so passed is illegal and wrong 4. That the assessee craves leave to add, amend, alter or delete any of the grounds of appeal and all the grounds are without prejudice to each other.”
We have heard the Ld. AR as well as Ld. DR and carefully perused the impugned order along with the order of the A.O. The assessee filed its return of income for the Assessment Year under consideration on 27.09.2013 declaring total income of Rs.71,75,100/-. The original assessment order u/s 143(3) of the Act was completed on 30.11.2015 at total income of Rs. 73,00,000/-. Thereafter the case was reopened by the A.O vide notice u/s 148 of the Act on 31.03.2021 to assess the income escaped assessment on account of unsecured loans taken by the assessee from M/s. Jay Jyoti India Pvt. Ltd. In the reassessment order passed u/s 147 r.w.s. 144B of the Act dated 30.03.2022 the unsecured loan of Rs.40,00,000/- taken by the assessee.
Thereafter the PCIT on perusal of the assessment recorded observed that the assessee has received accommodation entry to the tune of Rs.40,00,000/- during the year under consideration from M/s. Jay Jyoti India Pvt. Ltd which was liable to be added to the income of the assessee whereas the A.O has made addition of Rs.4,00,000/- @10% of the total transaction of Rs.40,00,000/-. Thus the PCIT was of the opinion that the A.O has passed the reassessment order without making required enquiry/investigation which has resulted the assessment erroneous in so far as prejudicial to the interest of the revenue. He has issued a show cause notice dated 29.02.2024 u/s 263 of the Act. The assessee replied to the show cause notice and submitted that the reassessment was reopened on the very issue and the assessee submitted all relevant documents including the confirmation of the party, statement of bank account and proof of repayment of the said unsecured loan within a period of 40 days.
Further the assessee also pointed out that the addition made by the A.O has been challenged by the assessee by filing the appeal before CIT(A) which is pending for adjudication. Thus, the assessee matter of appeal before CIT(A) and therefore, the jurisdiction of the PCIT is barred to invoke the provisions of Section 263 of the Act on the same issue which is a subject matter before CIT(A). The assessee has also contested the matter on the merits and submitted that when no unsecured loan was standing in the books of accounts as on 31.03.2013 as the transaction of taking loan and repayment of the same was and within 40 days then the same cannot be treated as an accommodation entry and consequently added to the income of the assessee. The PCIT has set aside the order of the A.O with the direction to reexamine the issue to make de-nova assessment in para 13 as under:
“13. Therefore, in view of the above discussion, I am of the considered opinion that the assessment order dated 30/03/2022 for A.Y. 2013-14 is erroneous in so far as it is also prejudicial to the interest of revenue on account of passing of the assessment order without making required inquiries and verification, which should have been made, Accordingly, I am satisfied that provisions of section 263 of Income Tax Act 1961 are required to be invoked. Therefore, the assessment for A.Y. 2013-14 framed on 30/03/2022 is hereby set-aside to the file of AO to re-examine the issue and to make de-novo assessment, indicated in the preceding discussion, u/s 263 and passing an order as per the law after making necessary verification, inquiries and investigations. It would be not out of place to mention that the AO shall re-examine only the issue which has been indicated for further investigation in the preceding discussion, after according due opportunities of being heard to the assessee”
We have further noted that the assessee produced the copies of the bank accounts of the assessee as well as M/s. Jay Jyoti India Pvt. Ltd to show that receipt of the loan as well as repayment of the loan were done through the banking channel and there is nothing suspicious found either by the A.O or PCIT in respect of these transaction. The assessee has also filed the ITR of M/s. Jay Jyoti India Pvt. Ltd along with confirmation of advancing the loan and repayment of loan by the assessee. Ld. AR has relied upon the decision of this Tribunal dated 21.08.2023 in case ACIT V/s Krishna Devcon Ltd in to 10/Ind/2022 and submitted that the Tribunal has decided the issue of unsecured loan taken by the said assessee from M/s. Jay Jyoti India Pvt. Ltd in favour of the assessee. Therefore, it emanates from the record produced by the assessee that the alleged transaction of loan of Rs.40,00,000/- was taken by the assessee through banking channel and it was also repaid by the assessee through banking channel within the period of 40 days. The entries of the loan taken by the assessee as well as repayment of loan are reflected in the bank account of the assessee and nothing was standing as loan from M/s. Jay Jyoti India Pvt. of the loan transaction has been challenged by the assessee before CIT(A) which is pending for adjudication. Thus it is clear that the very issue of unsecured loan is a subject matter pending before CIT(A) and therefore as per Clause-(c) of explanation-1 of Section 263(1) of the Act the Commissioner cannot invoke the provisions u/s 263 of the Act on the issue which is a subject matter of appeal filed against the order of the A.O. Accordingly in the facts and circumstances of the case as discussed above when the entire record was available with the A.O as well as PCIT then the matter could have been decided conclusively by the PCIT instead of remanding the matter to the A.O who has already passed an order on this issue and made the addition @10% of the loan amount.
Moreover, when the issue is a subject matter of appeal pending before CIT(A) then the PCIT ought to have not taken up the said issue u/s 263 of the Act. Hence, the impugned order passed by the PCIT is unsustainable and the same is set aside.
The appeal of the assessee is allowed.
Order is pronounced in the open court on 18.10.2024.