Case Law Details
PCIT Vs Shreeji Prints Pvt. Ltd. (Gujarat High Court)
In the case of PCIT vs Shreeji Prints Pvt. Ltd., the Gujarat High Court dismissed an appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961. The Revenue had challenged the order of the Income Tax Appellate Tribunal (ITAT), Surat Bench, which had set aside a revision order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 for the Assessment Year 2013–14. The PCIT had directed the Assessing Officer (AO) to re-examine the assessment, citing that the AO had accepted unsecured loans amounting to ₹2.49 crore from M/s Georgette Tradecom Pvt. Ltd. and M/s Purba Agro Food Pvt. Ltd. without adequate inquiry, thus rendering the original order erroneous and prejudicial to the interest of the Revenue.
However, the ITAT found that the AO had indeed conducted detailed inquiries into the unsecured loans. The assessee had provided full documentation, including ledger accounts, ITR acknowledgments, audited financial statements, and bank records of the lending companies. The Tribunal noted that the AO had verified the identity, creditworthiness of the lenders, and the genuineness of the transactions before accepting the loans. Additionally, the ITAT pointed out that the PCIT invoked Explanation 2 of Section 263 in the final order but did not mention or confront the assessee with this basis during the show-cause stage, thereby breaching procedural fairness.
The Tribunal concluded that the AO had exercised due diligence and taken a plausible view based on material evidence. It held that merely because a different conclusion could be drawn by the PCIT does not render the AO’s decision erroneous or prejudicial to the interests of the Revenue. The High Court concurred with this reasoning, emphasizing that the AO had acted within the bounds of law and that both conditions for invoking Section 263 were not satisfied. It agreed with the Tribunal that no substantial question of law arose from the case, and therefore, the Revenue’s appeal was dismissed without costs.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. This Tax Appeal is filed at the instance of the Revenue under Section 260A of the Income Tax Act, 1961 [for short, ‘the Act, 1961’] and is directed against the order dated 31st May 2019 passed by the Income Tax Appellate Tribunal, Surat Bench, Surat in ITA No.406/SRT/2018 for the assessment year 201314.
2. The Revenue has proposed the following questions as substantial questions of law:
“(a) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is correct in holding that the PCIT was not empowered and entitled to revise assessment order u/s. 263 of the Act r/w Explanation 2 thereto by ignoring that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in as much as the Assessing Officer has passed the assessment order without making inquires / verification in the light of the unsecured loans of Rs. 2.49 Crores received from M/s. Georgette Tradecom Pvt. Ltd (GTPL) and M/s. Purba Agro Food Pvt. Ltd (PAFPL)?
(b) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is correct in cancelling the impugned order u/s. 263 of the I.T. Act and allowing all the grounds of the Assessee?”
3. The facts giving rise to this appeal may be summarised as under:
3.1 The respondent assessee has filed its return of income showing total income of 62,55,900/ which was assessed under Section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016.
3.2 The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt Ltd amounting to Rs.2.49 Crore and the Assessing Officer allowed these unsecured loans.
3.3 The Principal Commissioner of Income Tax [for short, ‘the PCIT’] invoked Section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balancesheet of the respective companies. The PCIT passed an order under Section 263 of the Act, 1961 dated 28th March 2018 directing the Assessing Officer to pass fresh assessment order under Section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent
4. Being aggrieved by the order passed by the PCIT under Section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under Section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under:
“13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13.10.2015 placed at Page No. 1 of Paper Book shows the AO vide item no.(iii) has asked the information regarding details of unsecured loan outstanding as on 31.03.2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding / squared up vide para 3 of his letter dated 02.11.2015 placed as Annexure2 at page 4 of paper book. The assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 201213 and 201314 and copy of bank statement reflecting the payment received was paid during the financial year 201213 relevant to assessment year 201314 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and proflt and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15.03.2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and showcause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income Tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence,“there is no question of adding the same amount in the hands of the assessee. As regards loans from PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs.1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries.”
“15 The Pr.CIT had observed that Explanation 2 of Section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the showcause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision:
CIT v/s Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem 270 ITR 0157 (MP,CIT v/s. Ganpet Ram Bishnoi 296 ITR 0292 (Raj.), Cadila healthcare Ltd. Vs. Cl 7, Ahmedabadh1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors Vs. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal Vs. CIT, Vamnesi [(201 4) 41 texmann.com 27&(AII Trib.)]. It was contended by the Learned Counsel that Clause (a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Coordinate Bench of Mumbai ga in the case of Narayan Tatu Rane 70 taxmann.com 227 (Mum. Trt.) [PB 1531561 wherein held that explanation cannot laid to have over ridden the law as interpreted / the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., Vs. PCIT in ITA No.3205/Del/2017 and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. Vs. DCIT [2018] 97 TAXMANNCOM 671 (Ahmedabad Tribunal). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee’s claim of loan similar view were also expressed by the Hon’ble Delhi High Court in the case of CIT Vs. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below Section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 01.06.2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification ‘which should have been made’ will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of Section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 2711 2015 which is reproduced hereunder:
“53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue.
53.1 The provisions contained in subsection (1) of section 263 of the Income tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it /s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment.
53.2 The interpretation of expression “erroneous in so far as it /3 prejudicial to the interests of the revenue” has been a contentious one. In order to provide clarity on the issue, section 263 of the Income tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
53.3 Applicability: This amendment has taken effect from 1st day of June, 2015.”
“17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore,the Explanation 2 to Section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.
18. In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal of the Assessee.”
5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of Section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of Section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.
6. Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the
7. In view of such finding of facts arrived by the Tribunal, no questions of law much less of any substantial questions of law arise out of the impugned order passed by the Tribunal.
The appeal, therefore, fails and is dismissed. No order as to costs.
Author Bio
