Ellora Infratech Pvt. Ltd. Vs PCIT (ITAT Delhi)
ITAT Delhi held that invocation of revisionary power u/s. 263 of the Income Tax Act unjustified when AO has exercised its quasi-judicial powers and arrived at a conclusion with reasonable application of mind.
Facts- The case of the assessee was assessed u/s. 143(3) of the Act. Subsequent to the assessment, the Pr. CIT received a proposal from the new incumbent AO vide its communication seeking invocation of supervisory jurisdiction u/s. 263 of the Act. Thereafter, in exercise of powers conferred u/s. 263 of the Act, the Pr. CIT issued SCN alleging that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue for the reasons mentioned the SCN.
Pr. CIT held that the order passed u/s. 143(3) is erroneous and prejudicial to the interest of the revenue and consequently cancelled and set aside the assessment order with a direction to the AO to pass a fresh reasoned assessment order based on facts and issues discussed in the revisional order. Being aggrieved, the present appeal is filed.
Conclusion- Where the AO has exercised its quasi-judicial powers and arrived at a conclusion with reasonable application of mind, such action cannot be brushed aside as erroneous etc. simply because the Revisional Commissioner does not feel satisfied with extent of the inquiry and expects observance of higher standards in this regard. Where the assessee has furnished relevant material and offered explanation, the assessment cannot be ordinarily set aside on the counters of Section 263 for framing better assessment without showing any objective material available on record adverse to the assessee.
Held that it is difficult to hold that the action of the AO is unintelligible. In our view, the AO has not committed any error in not chasing ‘will o the wisp’ in the absence of any brazen circumstances available. In the light of aforesaid discussion, the basis of issuance of show cause notice under s.263 of the Act does not appear to be tenable in law in the peculiar set of facts. Consequently, the assumption of jurisdiction under s.263 of the Act on this ground too, will have to be regarded as without authority of law.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed at the instance of the assessee against the revisional order of the Principal Commissioner of Income Tax-03, New Delhi (‘Pr.CIT’ in short) dated 28.03.2018 passed under Section 263 of the Income Tax Act, 1963 (the Act) whereby the assessment order passed by the Assessing Officer (AO) under Section 143(3) of the Act dated 21.06.2016 concerning AY 2013-14 was sought to be set aside for reframing the assessment afresh in exercise of supervisory jurisdiction.
2. The assessee has raised multiple grounds and has essentially challenged the assumption of jurisdiction by the Pr.CIT under Section 263 of the Act on the ground that the assessment order under revision is neither erroneous nor prejudicial to the interest of the revenue. As a corollary, the assessee has sought to impugn the revisional order passed by the Pr.CIT under Section 263 of the Act. The Grounds raised by the assessee to challenge the revisional order are reproduced hereunder:
“1. That the Ld. Pr. CIT has erred in passing the order u/s. 263 of the Act on the ground that the order passed by the Assessing Officer u/s 143(3) of the Act was found to be erroneous and prejudicial to the interest of Revenue.
2. That the Ld. Pr. CIT has erred in invoking the provisions of section 263 of the Act on the ground that the Assessing Officer had failed to make sufficient inquiries while passing the regular assessment order.
3. That the Ld. Pr. CIT has erred in holding that the loan of Rs.4 crore received by the assessee from M/s Transnational Growth Ltd. and of Rs.2 crore from M/s RKG Finvest Ltd. was an accommodation entry and the Assessing Officer had not made any proper inquiry and had not taken cognizance of search material circulated by Investigation Wing in the case of Jain Bros. In fact, no material in respect of these loans could have been found during search in the case of Jain Bros and therefore, apprehension of Pr. CIT in invoking the provisions of section 263 of the Act is bad in law.
4. That the Ld. Pr. CIT has not applied his mind while initiating proceeding u/s 263 of the Act as the search was conducted in the case of Jain Bros on 19.04.2010 whereas the loans in issue were raised by the assessee in the FY 2012-13.
5. That the Ld. Pr. CIT has erred in invoking the provisions of section 263 of the Act on the ground that no proper inquiry was made by the Assessing Officer during the assessment proceeding whereas the extensive inquiry had been made by the Assessing Officer during the original assessment proceeding.
6. That the Ld. Pr. CIT has not considered that inadequate / insufficient inquiry does not amount to lack of inquiry so as to attract the provisions of section 263 of the income Tax Act in view of even newly inserted provisions of Explanation 2 to section 263 of the Act.
7. That the Ld. Pr.CIT himself had not examined as to whether loan of Rs.8 crore raised by the assessee were accommodation entry so as to make the order passed by the Assessing Officer erroneous within the ambit of section 263 of the Act; hence the directions given by the Pr. CIT to frame the fresh assessment is contrary to law.
8. That the Ld. Pr. CIT has erred in invoking the powers u/s 263 of the Act on the basis of search conducted in the case of Jain Bros despite the fact that no material could have been found during the search in respect of loan of Rs.8 crore received by the assessee. Even otherwise, it was held by the various Courts that the material found during search cannot be admitted in evidence qua third party.
9. That the order passed by Ld. Pr.CIT u/s 263 of the Act is bad in law as no sufficient opportunity has been afforded to the assessee to defend his case particularly when the assessee had reserved its right to file reply on merits and had concluded the proceeding merely within 07 days. Hence principles of natural justice have been violated in this case.
10. That the Ld. Pr. CIT has passed the order u/s 263 of the Act on surmises and conjectures and therefore, is liable to be set aside.”
3. Briefly stated, the case of the assessee was assessed under Section 143(3) of the Act vide order dated 21.01.2016 relevant to Assessment Year 2013-14. The assessee had filed the return at loss of Rs.3,44,964/- which was assessed at a loss of Rs.2,63,933/-. Subsequent to the assessment, the Pr.CIT received a proposal from the new incumbent AO [ ITO Ward (2) New Delhi] vide its communication dated 20.03.2018 seeking invocation of supervisory jurisdiction under Section 263 of the Act. Thereafter, in exercise of powers conferred under Section 263 of the Act, the Pr. CIT issued Show Cause Notice (SCN) to the Assessee on the next date i.e. dated 21.03.2018 under Section 263 of the Act alleging that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue for the reasons mentioned the SCN. As per the contents of the SCN, the Pr.CIT sought compliance of the SCN on 26th March, 2018 at 3.30 a.m. The hearing was thus allowed to be availed by a solitary notice in a gap of 1 effective working day from service. As per the SCN, the Pr. CIT made allegations to assail the assessment order. The Pr. CIT alleged that the AO has failed to carry out necessary verification towards unsecured loans aggregating to Rs.8 crore received from certain parties. The SCN issued in this regard is reproduced hereunder:
“OFFICE OF THE
PRINCIPAL COMMISSIONER OF INCOME TAX, DELHI-03 ROOM NO.394A, C.R. BUILDING, IP ESTATE, NEW DELHI (Email – [email protected]) Tel – 23378750
——————————————————————————–F.No. Pr.CIT-3/Revision/DLF/2017-18 Dated: 21.03.2018
To
The Principal Officer,
M/s Ellora Infratech Private Limited,
D-22/5, Okhla Industrial Area, Phase-I, New Delhi – 110020.
Sub: Show Cause Notice w/s 263 of the Income Tax Act, 1961, AY. 2013- 14 – regarding.
Ref: Assessment Order u/s 143(3) of the IT Act, 1961 dated 21.01.2016 for AY. 2013-14
* ** ** ** * ** ** *
Kindly refer to the subject mentioned above.
2. The case of M/s. Ellora Infratech Put. Ltd. for the A.Y.2013-14 has been selected for complete scrutiny under CASS on the following reasons:
(i) Large increase of Unsecured Loans.
The case was completed u/s. 143(3) of the IT. Act, 1961 dated 21.01.2016 at a return loss of Rs.2,63,933/- without drawing any adverse inference.
During the year, the company had received unsecured loan of Rs.8 crore from the following companies:
