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Facts
The assessee's appeal is against a revision order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act for AY 2017-18. The PCIT invoked section 263 on two issues: alleged accommodation entries from Shri Jignesh Shah & Sanjay Shah (Rs. 92,53,463) and from M/s Orange Mist Production Pvt. Ltd (Rs. 5,00,000). The assessee claims these transactions were either not entered into or were already addressed during the original assessment.
Held
The Tribunal held that the PCIT erred in invoking section 263 for the issue of accommodation entries from M/s Orange Mist Production Pvt. Ltd as this was not a subject matter of the assessment order under revision. Furthermore, for both issues, the Tribunal found that the Assessing Officer (AO) had not made an addition in the reassessment order as the assessee had provided explanations and the AO was satisfied. The PCIT failed to bring any material on record to substantiate the allegations of accommodation entries.
Key Issues
Whether the PCIT correctly invoked section 263 of the IT Act to revise the assessment order when the AO had already considered the issues and made no additions, and whether the PCIT provided sufficient material to substantiate the allegations of accommodation entries.
Sections Cited
263, 147, 143(3), 148, 142(1), 68, 115BBE
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the assesse is directed against the revision order dated 11.03.2024 of the Principal Commissioner of Income Tax, Indore-1 passed u/s 263 of the I.T. Act for A.Y.2017-18.
“1. That the order u/s 263 of the Act passed by Ld. PCIT is bad in law and is passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.
That the proceedings u/s 263 of the Act initiated in the case of assessee are void-ab-initio invalid as has been initiated on the basis of recommendation of AO.
3. That the order passed by Ld. PCIT u/s 263 of the Act is further illegal and not tenable under the law as the reassessment order passed u/s 147 of the Act itself was illegal and not tenable under the law.
4. That the Ld. PCIT grossly erred in law and in facts of the case in holding the reassessment order passed by Ld. AO u/s 147 of the Act to be passed without necessary enquiries and verification and thus, to be erroneous and prejudicial to the interest of revenue.
5. That the Ld. PCIT grossly erred in facts of the case in holding that details of alleged transactions were provided to the assessee during the course of assessment proceedings whereas no such details were provided to assessee during reassessment proceedings u/s 147 of the Act thereby disabling the assessee to file objections to the reasons recorded for reopening of assessment proceedings.
6. That the assessee company seeks leave to add, alter, modify or delete any ground of appeal during the course of appellate proceedings.”
The Ld. AR of the assessee submitted that initially the assessment was completed u/s 143(3) of the Act on 30.12.2019 and thereafter the A.O reopened the assessment by issuing the notice u/s 148 of the Act on 31.03.2021 to assess the escaped income on account of accommodation entries received by the assessee from Shri Jignesh Shah & Sanjay Shah to the tune of Rs.92,53,463/-.
The Ld. AR has submitted that during the reassessment proceedings the assessee has explained before the A.O that the Shri Jignesh Shah & Sanjay Shah and further the transaction of Rs.15,00,000/- was already considered by the A.O at the time of original assessment passed u/s 143(3) of the Act on 30.12.2019 wherein the assessee explained that this was not an amount of credit received by the assessee from M/s Haritima Infrastructure but this was only a repayment by the said company of the amount earlier paid by the assessee. The Ld. AR thus submitted that the A.O after considering the reply as well as relevant record was satisfied that there was no transaction between the assessee and Shri Jignesh Shah & Sanjay Shah and hence no addition was made by the A.O in the reassessment order passed u/s 147 r.w.s. 144B of the Act. The Principal CIT has invoked the provisions of Section 263 of the Act on two issues i.e. the accommodation entries received from Shri Jignesh Shah & Sanjay Shah as well as a new issue regarding the accommodation entries taken by the assessee of Rs.5,00,000/- taken from M/s Orange Mist Production Pvt. Ltd .
The AR has pointed out that the second issue as taken up by the PCIT was not at all the subject matter of the reassessment proceedings and further the A.O has passed separate order u/s 147 assessee. Therefore, this issue of alleged accommodation entry of Rs.5,00,000/- received from M/s Orange Mist Production Pvt. Ltd was not a subject matter of reassessment proceedings and cannot be taken up in the revision proceedings u/s 263 of the Act. The Ld. AR has referred to the notice issued by the A.O u/s 142(1) dated 22.06.2019, 30.07.2019 and reply of the assessee dated 31.07.2019 at the time of original security assessment u/s 143(3) of the Act and submitted that the assessee produced all the relevant records including the balance sheet and bank account statements of the assessee with all 3 banks which shows that there is no alleged transaction of receipt of any accommodation entry by the assessee of Rs.92,53,463/- from Shri Jignesh Shah & Sanjay Shah. He has also referred to the notice issued by the A.O during reassessment proceedings u/s 143(2) of the Act dated 12.11.2021 and reply to the said notice dated 17.12.2021, notice issued u/s 142(1) dated 17.12.2021 and reply of the assessee dated 09.03.2022 wherein the assessee has explained that the assessee has not entered into any transaction with the alleged persons and filed all relevant records including the books of accounts as well as assessee as well as relevant record the A.O passed reassessment order u/s 147 r.w.s. 144B of the Act without making any addition on account of alleged accommodation entries. The Ld. AR has submitted that the PCIT has passed the impugned order without bringing any material on record to show that the alleged accommodation entries were received by the assessee when the assessee has already explained that the assessee has not received any accommodation entry or entered into any transaction with the alleged persons. The assessee cannot be asked to prove the negative. He has referred to the reply of the assessee before the A.O and submitted that the assessee has specifically demanded the relevant record alleging the accommodation entries received by the assessee but the same was not provided to the assessee. Thus, the Ld. AR has submitted that the order passed by the PCIT is not sustainable as it is not a case of lack of enquiry on the part of the A.O so far as the alleged entries are concerned. He has relied upon the decision of Hon’ble Supreme Court in case of CIT V/s Alagendran Finance Ltd 293 ITR 1 as well as the decision dated 14.08.2024 of Ahmedabad Bench of the Tribunal in case of Kaivan submitted that the A.O has conducted the enquiry and was satisfied with the reply and explanation supported by the relevant evidences then the case does not fall in the category of order passed by the A.O is erroneous for lack of enquiry.
On the other hand Ld. Departmental Representative has submitted that in the original scrutiny assessment the case of the assessee was taken up for limited scrutiny on the issue of expenditure incurred on earning exempt income. In the reassessment proceedings u/s 147 of the Act the A.O reopened the case and initiated the proceedings on the basis of information available at INSIGHT portal that the assessee has received accommodation entries of Rs.92,53,463/- from Shri Jignesh Shah & Sanjay Shah as well as Rs.15,00,000/- from Haritima Infrastructure. The Ld. DR has further submitted that another transaction of accommodation entry of Rs.5,00,000/- is received from Orange Mist Production Pvt. Ltd under a different PAN of the assessee is also reported on the said portal. Thus, the Ld. DR has submitted that it is a case of double PAN held by the assessee for the purpose of taking the accommodation entries. He has relied not examined the issue by conducting a proper enquiry and simply accepted the reply of the assessee. The Ld. DR has pointed out that the A.O has passed a non speaking order u/s 147 r.w.s. 144B of the Act which shows that the order was passed without application of mind. Therefore, it is a case of complete lack of enquiry on the part of the A.O which renders reassessment order dated 28.03.2022 as erroneous so far as prejudicial to the interest of revenue.
We have considered the rival submissions as well as the relevant material on record. Though at the time of original scrutiny assessment u/s 143(3) of the Act the case of the assessee was taken up for limited scrutiny on the issue of allowability of the expenditure incurred for earning exempt income however, the assessee produced the audited finance statements, bank account statements before the A.O which was called for by the A.O while issuing the notice u/s 142(1) of the Act. This reply was already available with the A.O at the time of initiating the proceedings u/s 147 of the Act by issuing notice u/s 148 of the Act on 31.03.2021.
The assessee even in the reassessment proceedings has filed the submissions dated 17.12.2021 placed at page No. 115 to 117 of the has not taken any accommodation entry from Shri Jignesh Shah & Sanjay Shah. Further the assessee has submitted that the alleged accommodation entry of Rs.15,00,000/- from M/s. Haritima Infrastructure was an issue during the course of original proceedings u/s 143(3) of the Act raised by the A.O vide show cause notice dated 23.12.2019 and assessee duly replied to the said show cause notice by giving the details that the assessee has given an advance of Rs.15.00,000/- to M/s Haritima Infrastructure during the financial year 2015-16 and the same was recovered during financial year 2016-17 therefore, the assessee has not availed any accommodation entry from the said company but the same amount was received as recovery of advance given in the earlier year. The A.O accepted the said reply of the assessee while passing the scrutiny assessment order u/s 143(3) of the Act. This fact is not disputed that the A.O has raised this issue at the time of original scrutiny assessment u/s 143(3) of the Act. The PCIT has issued show cause notice on 14.02.2024 placed at Page 201 to 203 as under:
5.1 Thus the PCIT has taken up two issues in the proceedings u/s 263 of the Act i.e. the accommodation entry of Rs.92,53,463/- received from Shri Jignesh Shah & Sanjay Shah and secondly the accommodation entry of Rs.5,00,000/- received from Orange Mist Production Pvt. Ltd . In para 5 of the show cause notice the PCIT has stated that during the proceedings neither the assessee has furnished any detail nor explained the issue involved with relevant documentary evidence. He has further observed that the submissions and details available on record was not enough to verify the reasons for reopening of the assessment. Thus, he was of the view that the A.O has not at all verified this issue and relevant facts while completing the assessment which renders the order of the A.O as erroneous so far as prejudicial to the interest of revenue. In reply to the show cause notice the assessee has taken a stand that it has not taken any alleged accommodation entry. The reply of the assessee is placed at page 208 to 210 of the paper book as under:
5.2 Thus, once the assessee has denied that it has not received any alleged accommodation entry then the PCIT ought to have bring some material to reflect that the assessee has actually received these accommodation entries. Neither the A.O nor the PCIT has found any entry in the books of accounts of the assessee in respect of these alleged accommodation entries nor from the bank account statements of the assessee that the assessee has received any sum from the alleged accommodation entry providers. Therefore, in the absence of any entries in the books of accounts or bank account statements indicating any transaction between the assessee and the alleged persons the invocation of the jurisdiction u/s 263 of the Act merely on suspicion is not justified. Once the assessee has Sunayana Investment Company Limited stated in clear terms that it has not availed the alleged accommodation entry of Rs.92,53,463/- which is a reason for reopening of the assessment then the assessee cannot be asked to prove the negative. Further when nothing if found or detected from the books of accounts as well as bank account statement of the assessee showing any such transaction then it was incumbent upon the A.O as well as on the PCIT to bring some material on record to prime-facie manifest that the assessee has availed the alleged accommodation entry. Mere mention of information is available with the department is a very vague statement and does not constitute any incrementing tangible material to either make addition or to initiate proceedings u/s 263 of the Act. Though the Assessing Officer has not discussed in the assessment order about the reply and documents filed by the assessee however, it is a matter of record that the assessee produced all the relevant details as well as books of accounts and bank account statements to show that no such entry is reflected either in the books of accounts or in the bank account statement. Once the assessee has produced the relevant record to establish that there is nothing on record i.e. books of accounts and bank account statement to show any such alleged accommodation entries received by the assessee then the burden is shifted on the revenue to bring some tangible material on record to show that the assessee has actually received the alleged accommodation entries.
5.3 As regards the issue of accommodation entries from M/s Orange Mist Production Pvt. Ltd of Rs.5,00,000/- this issue was taken up by the Assessing Officer in the second reassessment proceedings initiated by issuing notice u/s 148 of the Act dated 20.07.2022 and the reassessment order was passed on 27.03.2023 placed at page No. 194 to 205 of the paper book, whereby the A.O has made an addition of Rs.5,00,000/- as unexplained cash credit u/s 68 of the Act in the name of the assessee but under different PAN. Therefore, the said issue was not at all subject matter of the order passed by the Assessing Officer dated 20.03.2022 but this is the issue in the order passed by the Assessing Officer dated 27.03.2023. Therefore, the PCIT cannot taken up the issue which was not a subject matter of the order passed by the Assessing Officer taken up for revision by issuing show cause notice u/s 263 of the Act. We further note that the Assessing Officer in the show cause notice dated 28.02.2023 has given the details of the issue taken up in the earlier proceedings initiated u/s 147 of the Act as well as u/s 143(3) of the Act. For ready reference the said show cause notice is reproduced as under:
5.4 In para 4 of the above show cause notice, the Assessing Officer has referred the reply of the assessee wherein claimed that this issue has already been considered in the assessment orders issued u/s 143(3) and u/s 147 of the Act and copy of the order as well as other documents as relied upon were attached with the reply. The Assessing Officer further noted that on perusal of orders and documents as relied upon by the assessee it was noticed that M/s Orange Mist Production Pvt. Ltd was neither considered nor discussed in the earlier order passed u/s 143(3) of the Act as well as u/s 147 of the Act. This makes clear that all the relevant record, documents and reply of the assessee were available with the Assessing Officer at the time of passing the order u/s 143(3) as well as u/s 147 of the Act. Hence, when nothing has been brought on record either by Assessing Officer or by the PCIT to prime facie indicate that the assessee has actually received the alleged accommodation entries then invoking provisions of Section 263 of the Act merely on suspicion is not permissible. Accordingly, in the facts and circumstances of the case as discussed above the impugned order passed by PCIT is set aside.
The appeal of the assessee is allowed.