Case Law Details
Gerah Enterprises P. ltd. Vs PCIT (ITAT Mumbai)
Gerah Enterprises vs. PCIT (ITAT Mumbai): CBDT Circular No. 19/2019 and the Quashing of Section 263 Order
In the complex world of income tax assessments, disputes often arise between taxpayers and the tax authorities. One of the significant tools available to the tax department to rectify apparent errors in assessments is Section 263 of the Income Tax Act, 1961. This section empowers the Principal Commissioner of Income Tax (PCIT) to revise an order if it appears erroneous and prejudicial to the interests of the revenue. However, as with many legal provisions, the use of this section must be in accordance with established guidelines and principles.
This article delves into the case of Gerah Enterprises Pvt. Ltd. vs. PCIT (Income Tax Appellate Tribunal, Mumbai), where the taxpayer challenged the validity of a Section 263 order issued by the PCIT. The case offers essential insights into the application of Section 263 and the role of CBDT Circular No. 19/2019 in determining the fate of such orders.
Background of the Case
Gerah Enterprises Pvt. Ltd., the assessee, filed its income tax return for Assessment Year 2015-16, declaring a total loss of Rs. 28,75,898/-. Subsequently, the case was selected for scrutiny, and an assessment order under Section 143(3) of the Income Tax Act was passed on December 13, 2017, by the Income-Tax Officer-7(1)(1), Mumbai.
The controversy in this case revolves around an unsecured loan of Rs. 68,55,000/- that Gerah Enterprises received from M/s Sri Gopikrishna Trust. The trust’s corpus fund was a mere Rs. 1 lakh, raising concerns about its capacity to grant such a substantial unsecured loan. The audit reports of the trust indicated significant financial transactions, further casting doubt on the source of the loan. Additionally, the assessment accepted certain amounts related to ‘other payable’ and ‘loan and advance’ without adequate inquiry or clarification.
The PCIT, in accordance with Section 263, issued a notice on December 5, 2019, asserting that the assessment order was erroneous and prejudicial to the revenue’s interest due to inadequate inquiry and incorrect acceptance of certain amounts. The PCIT cited the lack of clarity regarding the source of the loan from M/s Sri Gopikrishna Trust as a primary concern.
Grounds of Appeal by Gerah Enterprises
Gerah Enterprises raised several grounds of appeal against the PCIT’s order:
Ground I: Invalid Order
1. The PCIT passed the order under Section 263 in contravention of CBDT Circular No. 19/2019.
2. The appellant contended that the order under Section 263 should be treated as invalid and quashed.
Ground II: Order Bad in Law
1. The PCIT erred in invoking Section 263 and setting aside the assessment order without giving a reasonable opportunity of being heard.
2. The PCIT failed to demonstrate how the order of the Assessing Officer was erroneous.
Key Arguments Presented
The following were some of the crucial arguments presented during the proceedings:
1. Lack of DIN in the Order The appellant contended that the order passed by the PCIT lacked a Document Identification Number (DIN), which violated CBDT Circular No. 19/2019. The circular mandated that all communications must bear a DIN issued by the tax authorities.
2. Inadequate Inquiry by Assessing Officer The PCIT held that the Assessing Officer had not conducted a sufficient inquiry into the unsecured loan from M/s Sri Gopikrishna Trust. In contrast, the appellant argued that the Assessing Officer had sought information and that the audit report and related documents had been provided.
3. ‘Other Payables’ and ‘Loan and Advances’ Regarding ‘other payables’ and ‘loan and advances,’ the appellant claimed that these amounts were properly disclosed in the balance sheet and should not have been added under Section 68 of the Income Tax Act.
4. Jurisdiction Under Section 263 The appellant contended that the PCIT could not invoke Section 263 when the assessment was conducted after detailed inquiry and that Section 263 should only be applied in cases of inadequate or no inquiry.
5. Opportunity for Hearing The appellant raised concerns about not being given adequate opportunity for a hearing and claimed that the PCIT did not grant a fresh opportunity despite seeking an adjournment.
The ITAT Decision
The Income Tax Appellate Tribunal (ITAT) considered the arguments presented by both parties and rendered the following decisions:
1. Lack of DIN in the Order The ITAT found that the order passed by the PCIT did not contain a DIN as required by CBDT Circular No. 19/2019. It noted that the subsequent communication from the PCIT mentioned a DIN but was dated after the order in question. Consequently, the ITAT concluded that the PCIT’s order was in violation of the circular and, therefore, invalid.
2. Inadequate Inquiry by Assessing Officer The ITAT agreed with the PCIT’s assessment that the Assessing Officer had not conducted a sufficient inquiry into the unsecured loan from M/s Sri Gopikrishna Trust. It emphasized that merely providing the name, address, and PAN of the lender was insufficient to establish the genuineness and creditworthiness of the loan. Hence, the ITAT upheld the PCIT’s decision on this matter.
3. ‘Other Payables’ and ‘Loan and Advances’ The ITAT determined that the Assessing Officer had conducted due inquiries regarding ‘other payables’ and ‘loan and advances’ and accepted the appellant’s submissions and documents. Therefore, the ITAT found no error in the order passed by the Assessing Officer concerning these amounts.
4. Jurisdiction Under Section 263 The ITAT clarified that the PCIT could invoke Section 263 even if the assessment was conducted after detailed inquiry, provided that errors were found that prejudiced the revenue. It affirmed the PCIT’s jurisdiction in this case.
5. Opportunity for Hearing Regarding the opportunity for a hearing, the ITAT noted that the appellant sought an adjournment but did not receive a response or rejection of the adjournment request from the PCIT. Therefore, the ITAT held that the appellant was not granted a reasonable opportunity for a hearing.
Conclusion
The case of Gerah Enterprises Pvt. Ltd. vs. PCIT highlights the importance of adhering to established guidelines and circulars, such as CBDT Circular No. 19/2019, when issuing orders under Section 263 of the Income Tax Act. Failure to comply with these directives can render an order invalid, as seen in this case.
Additionally, the case underscores that the Assessing Officer must conduct thorough inquiries into various aspects of an assessment, particularly concerning unsecured loans and other financial transactions. Mere disclosure of information may not suffice, and it is crucial to establish the genuineness and creditworthiness of such transactions.
While the appellant succeeded in having the PCIT’s order invalidated due to a lack of DIN, the ITAT upheld the PCIT’s jurisdiction and findings on the inadequacy of the inquiry into the unsecured loan. This case serves as a reminder to taxpayers and tax authorities alike of the importance of adhering to legal provisions and circulars while also conducting diligent assessments to ensure the integrity of the tax system.
In conclusion, Gerah Enterprises Pvt. Ltd. vs. PCIT is a noteworthy case that sheds light on the intricacies of income tax assessments and the significant role that CBDT circulars play in determining the validity of Section 263 orders. It serves as a valuable precedent for future cases involving similar issues.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order passed by the Pr. Commissioner of Income-tax-8, (in short Ld. PCIT) Mumbai-20, dated 10th March, 2021 passed under section 263 of the income-tax Act, 1961 (the Act) holding that assessment order passed under section 143(3) of the Act on 13th December, 2017 by The Income-Tax Officer-7(1)(1), (the learned Assessing Officer) Mumbai for Assessment Year 2015-16 is erroneous and prejudicial to the interest of the Revenue.
2. Assessee has raised the following grounds of appeal:-
“GROUND NO. I: IMPUGNED ORDER PASSED IS INVALID:
1. On the facts and circumstances of the case and in law, the ld. PCIT erred in passing order u/s. 263 of the Act in complete contravention of CBDT Circular No. 19 of 2019.
2. The Appellant prays that the order passed u/s. 263 of the Act be treated as invalid and be quashed.
WITHOUT PREJUDICE TO GROUND NO. I:
GROUND NO.II: IMPUGNED ORDER PASSED BY INVOKING PROVISIONS OF SECTION 263 OF THE ACT IS BAD IN LAW:
1. On the facts and circumstances of the case and in law, the ld. Pr. CIT erred in invoking the provisions of section 263 of the Act and setting aside the assessment order treating the same as erroneous and prejudicial to the interest of the revenue and directing the AO to pass an order de novo.
2. Ld. Pr. CIT, inter-alia, failed to appreciate and ought to have held that:
i. Order u/s. 263 of the Act cannot be passed without giving a reasonable opportunity of being heard to the Appellant;
ii. Ld. LEARNED PCIT herself should have made finite enquiries and concluded that both ingredients (erroneous and prejudicial) are satisfied before passing an order u/s 263 of the Act.”
3. Fact of the case shows that the assessee is a company engaged in financial services business, filed its return of income declaring total loss of Rs. 28,75,898/-. The case of the assessee was picked up for scrutiny and the assessment order was passed under section 143(3) of the Act on 13.12.2017 at the returned income of the assessee.
4. The learned PCIT examined the records and statedin show cause notice dated 03/12/2019 issued u/s 263 of the Act that the assessee has received a sum of Rs. 680,68,74,000/- as unsecured loan from M/s Sri Gopikrishna Trust. Said Trust was having a corpus of only Rs. 1 lacs. The audited accounts of that trust for 31/3/2015 shows that it has unsecured loan of Rs. 1006,73,50,000/- and investment of Rs. 87.63/-crores and has given a loan of Rs. 914.84 crores to various companies. There was no proof of disbursement of loan to above Trust by any bank before loan was advanced to assessee company. Therefore, the learned PCIT was of the view that the above said trust does not have capacity to grant unsecured loan of the above sum. It was also noted that the source for this loan was also not clear. Further, the Assessing Officer accepted the amount of ‘other payable’ at Rs. 13,48,320/- and loan and advance of Rs. 3,27,83,970/- without obtaining any clarification. Therefore, the assessment was completed without inquiry on these issues or recording reasons for accepting claim of the assessee. Therefore, Ld PCIT issued notice under section 263 of the Act on 5th December, 2019.
5. The assessee explained that one Akshar Fincom Pvt. Ltd. (AFPL) is a corporate trustee of M/s Sri Gopikrishna Trust. Assessee submitted that before ld AO assessee drew attention to tax audit report of assessee where the name, address, PAN of the trust along with the amount of loan as well as maximum outstanding amounts was disclosed. Therefore, on this basis, ld Ao has accepted the loan as genuine. Thus ld AO has made due inquires. Before LD PCIT assessee submitted tax audit report of the trust, where the loan given to the assessee company is also disclosed and the financial capacity of the trust to give loan of Rs. 67.65 lacs is evident from the audited financial statements of the trust and from the income tax return of the trust. Therefore on this account the order of the LD AO is neither erroneous and nor prejudicial to the interest of revenue.
6. It was also stated that with respect to the details of ‘other payable’ of Rs. 13,48,320/- as well as loan of Rs. 3,27,83,970/-, assessee is compiling the details and requested for short adjournment.
i. The learned PCIT passed an order under section 263 of the Act on 10th March, 2021 noted that;
ii. Assessee has accepted loan of Rs. 68,55,000/-from M/s Sri Gopikrishna Trust, which is having a corpus fund of Rs. 1 lacs. Further, the loan sanctioned of HDFC Bank to that trust is on 26th September, 2014 of Rs. 750,00,00,000/-, whereas, the loan has been given to the assessee of Rs. 65,55,000/- before that date of loan from bank and only Rs. 2 lacs is advanced after the sanctioned of the loan to the trust by bank. Therefore, source of the loan is not clear. The Assessing Officer failed to verify the same. The Assessing Officer also did not make any third party inquiry to verify the genuineness of the transaction. Further, the bank account of the trust as well as the corporate trustee i.e. Akshar Fincom Limited was one bank account but the transactions in books of trust are recorded separately, hence, whether source of the funds belongs to the corporate trustee or the trust was not known.
8. With respect to the details in relation to other payable of Rs. 13,48,320/- and loan and advance of Rs. 3,27,83,970/- as assessee did not submit any reply before the learned PCIT either before the learned PCIT or before the learned Assessing Officer and learned Assessing Officer has accepted the same. There was an error in the order of the learned Assessing Officer, which is prejudicial to the interest of the Revenue.
9. In view of this, ld PCIT held that Assessing Officer has failed to make necessary inquiry and bring all true facts on record necessary for determining the true character and nature of the income. Omission to do so has resulted in an order, which is erroneous and prejudicial to the interest of the Revenue, therefore, she set aside the order to the file of the learned Assessing Officer with a direction to frame the order de novo.
10. The assessee aggrieved with that order preferred the appeal before learned PCIT.
12. The assessee challenged the order of the learned PCIT on several counts that:-
a. Order of The ld PCIT did not mention any DIN [ Document Identification Number ] that is in contravention of circular no. 19/2019 and therefore, such an order bad in law. He relied on the decision of Union of India Vs. Azadi Bachao Andolan [2003] and UCO bank Vs. CIT [1999] 237 ITR 889 (SC) stating that CBDT circular are binding by Income tax authorities.
b. Learned PCIT has not come to a definite conclusion that the order of ld AO is erroneous and prejudicial to the interest of the Revenue. He submitted that the learned PCIT has failed to show that how the order passed by learned Assessing Officer was erroneous.
c. Show cause notice did not mention issue of ‘other payables and ‘other loans and advances’ , when those issues were raised during the course of hearing by the ld PCIT, assessee sought time for furnishing the reply, but the learned PCIT with a pre- determined mind held that as the issue would be set aside to the file of the Assessing Officer, no further time was given. Therefore, ld PCIT did not give any further opportunity to the assessee. He submitted that neither the adjournment was rejected nor a fresh opportunity is granted. Therefore, the order is bad in law to that extent.
d. learned PCIT has held that ld Assessing Officer has failed to make any inquiry with respect to certain issues. On aspect of loan accepted from Gopikishan Trust, He referred to the paper book submitted before us and submitted that the Assessing Officer has made an inquiry by issue of notice under section 142(1) of the Act dated 19th June, 2017 with respect to unsecured loan from the persons. On 14th August, 2017, the assessee vide point no. 26 submitted that assessee has received unsecured loan of Rs. 67,55,000/- from M/s Sri Gopikrishna Trust through its corporate trustee Akshar Fincom Pvt. Ltd. It was further stated that name, address, Loan amount, and PAN of the said trust is appearing in clause 31 of the tax audit report of assessee. He also referred to the balance sheet of the assessee where it was noted that M/s Sri Gopikrishna Trust through its corporate trustee Akshar Fincom Pvt. Ltd. is holding 100% shares of the assessee company. He further referred to note no. 3 of the annual account wherein the understating unsecured loan from related party of Rs. 68,06,874/- is shown. In view of this, he submitted that assessee has furnished details before the Assessing Officer and therefore, there is no further information that Assessing Officer could have inquired.
e. On the issue of ‘ Other payable’ and “ Loans and advances’ He submitted that the Assessing Officer raised an query vide notice under section 142(1) of the Act dated 6th December, 2017 with respect to the other payables of Rs. 13,48,320/- and loan and advance of Rs. 3,27,83,970/- and the learned PCIT has stated that there is no response of the assessee to that letter and therefore, these items has been accepted by the Assessing Officer without any inquiry. The learned Authorized Representative submitted that these items were asked by ld AO for addition under section 68 of the Act. He referred to the balance sheet of the assessee company and referred to schedule [6] where ‘short term loans and advances’ given by the assessee company are demonstrated. He showed that a sum of Rs. 327,83,21,970/- is an amount given by the assessee to the other parties. These amounts could not be added under section 68 of the Act as there is no loan taken by the assessee but it is amount given as loan by the assessee. With respect to the ‘other payables’ of Rs. 13,48,320/- he submitted that these are properly disclosed in the balance sheet and therefore the same could not have been added under section 68 of the Act. He also referred to various submissions before ld AO on this aspect.
f. He submitted that Explanation [2] to section 263 of the Act does not given an unfettered power to the PCIT to assume jurisdiction under section 263 of the Act. He stated that provision of section 263 of the Act could not have been invoked when the assessment is passed after detailed inquiry.
g. Learned Assessing Officer has made complete inquiry with respect to the issue of loan. SO therefore, it is not at all a case of no inquiry or inadequate inquiry.
h. assessment order passed under section 143(3) of the Act dated 13th December, 2017 was pursuant to selection of return For ‘Limited scrutiny’ under CASS. For this proposition, he referred to the notice issued under section 143(2) of the Act dated 22nd September 2016. He submitted that the issue of loans and advances was not a matter of ‘limited scrutiny’ and therefore, the ld PCIT could not have initiated action under section 263 of the Act on that issue.
i. Assessee filed reply dated 10th December, 2019, before ld PCIT wherein assessee , with respect to loan of Gopikrishna Trust, submitted following details; (i) Board resolution appointing Akshar Fincom Pvt. Ltd. as corporate trustee (ii) Letter of opening of bank account of the M/s Sri Gopikrishna Trust (iii) return of income for Assessment Year 2016-17 of the trust. (iv) the assessment order of the corporate trustee Akshar Fin Com Ltd. under section 143(3) of the Act on 26th March, 2015 (v) The letter dated 24th May, 2017 filed by the M/s Sri Gopikrishna Trust before the learned Assessing Officer of the trust along with its bank statement (the bank statement in the name of Akshar Fincom Pvt. Ltd.) (vi) The letter dated 25th September 2017 filed by the Trust before its Assessing Officer wherein the submission of the ledger account of the assessee was made. On this basis, the argument of the learned Authorized Representative was that before the learned PCIT complete details were furnished and nothing was left therefore, she should have accepted that there is no error in the order of the learned Assessing Officer.
j. With respect to not giving opportunity, he further referred to the adjournment letter dated 9th March 2021 filed before ld PCIT that despite seeking an adjournment the learned PCIT passed an order with respect to the loan amount and other payables.
11. In view of the above facts, it was argued that the order passed by the learned PCIT is bad in law, Order passed by ld AO is after making due inquires and no further inquiries could have been made and the details produced before the learned PCIT clearly shows that there was no error in the order passed by the learned Assessing Officer. Therefore, according to him, the order passed by the learned PCIT deserves to be quashed.
12. The learned CIT Departmental Representative vehemently supported the order of the learned PCIT. He submitted that
a. issue of loan from the M/s Sri Gopikrishna Trust as well as the issue of other payables and other loans and advances is clearly forming part of the limited scrutiny notice issued by the Assessing Officer.
b. with respect to the unsecured loan from the M/s Sri Gopikrishna Trust, he submitted that the assessee has neither filed a confirmation and has not given any details to discharge its onus with respect to the loan.
c. learned Assessing Officer did not inquire anything about loan from M/s Sri Gopikrishna Trust but merely accepted on the basis of disclosure in tax audit report.
d. Learned PCIT has clearly held that there are no inquiries about the source of funds lent by the M/s Sri Gopikrishna Trust to the assessee.
e. there was no certainty from which banking account i.e. whether of the corporate trustee or the assessee, the funds were used for lending.
f. Shareholding of the M/s Sri Gopikrishna Trust in the assessee or the relationship of related parties neither proves the credit worthiness of the M/s Sri Gopikrishna Trust and nor the genuineness of the above transaction.
g. learned PCIT has correctly directed the Assessing Officer to verify the details on this aspect.
h. With respect to the other payables, loans, and advances given, it was submitted that neither before the learned Assessing Officer nor before the learned PCIT, assessee has uttered a single word on this issue, therefore, there is no inquiry , so learned PCIT has directed to the Assessing Officer to correct the same.
i. it is not correct that assessee has not been granted an opportunity on this aspect but despite opportunity, assessee sought adjournment and never furnished the details. He submitted that the request for adjournment was made on 9th March 2021 for 4 to 5 days and the notice was given for the above information on 31st March, 2021 and therefore, it is the assessee who has not availed opportunity.
j. On the issue of mentioning the DIN in the order passed by the learned PCIT he referred to the intimation letter dated 11th March, 2021, wherein PCIT has mentioned the DIN number in the order passed under section 263 of the Act dated 11th March, 2021. He therefore, submitted that the claim of the assessee that DIN is not mentioned in order passed under section 263 of the Act is not correct.
13. The learned Authorized Representative in rejoinder submitted that the order under section 263 of the Act was passed on 10th March, 2021 where letter dated 11th March, 2021 of ld PCIT gives same Document Identification Number (DIN) but with respect to the order under section 263 of the Act dated 11th March, 2021. He therefore, submitted that this clearly proves that there is no document identification number in the order passed by the learned PCIT on 10/3/2021. Further there is no reference that why such number is not mentioned in the order . He specifically referred to the instruction of CBDT dated 14th August 2019, which clearly says that any communication, which is not in conformity with paragraph No. 2 and paragraph no. 3 of the circular, shall be treated as invalid and shall be deemed to have never been issued. On the issue of not granting opportunity of hearing to the assessee he submitted that hearing is fixed on 10th March, 2021 and assessee sought adjournment on 9th March, 2021, there is no communication of rejection of adjournment and 10th March, 2021, the PCIT has passed an order under section 263 of the Act. Therefore, the direction of the PCIT to verify the other payables and other loans and advances by invoking the revisionary jurisdiction is devoid of any merit.
14. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee has challenged the order of the learned PCIT passed under section 263 of the Act on following two grounds:-
i. That the order passed without mentioning the Din as well as not mentioning the reasons for not mention the DIN is contravention of circular No. 19 of 2019 and therefore invalid.
ii. That the order passed is [1] bad in law and [2] no reasonable opportunity is given, [3] the order passed by the learned Assessing Officer is not erroneous and [4] further the learned PCIT should have inquired to show that the assessment order passed is erroneous and prejudicial before passing an order under section 263 of the Act. It also challenges on the issue that one of the items for which the provisions of section 263 of the Act have been invoked by the learned PCIT is not falling within the issues for which the case of the assessee is selected under limited scrutiny.
15. On the issue of not mentioning the DIN in the order passed under section 263 of the Act, we find that Circular no. 19/2019 issued on 14th August, 2019 provided that to maintain proper audit trail of communication the Central Board Of Direct Tax (CBDT) in exercise of its power under section 119 of the Act has directed that no communication have been issued by income tax authorities relating to assessment, appeals, orders, statutory or otherwise, exemptions, inquiry, investigation, verification of information, penalty, prosecution, rectification and approval etc. to the assessee or to other person on or after the 1st October, 2019 shall have a computer generated document identification number allotted and is duly quoted in the body of such communication. In paragraph No. 3, the Board has also made certain exception where it may not be mentioned, that there has to be a proper recording of reasons in writing needs to be recorded in the file as well as the approval of Chief Commissioner etc. Further, the communication issued should also contain the fact that it is issued manually without a DIN and the date of obtaining written approval of higher authorities. There is also a specific format given in the circular of recording such as fact. In paragraph no. 4 it is also provided any communication, which is not in conformity with the above provision, shall be treated as invalid, and shall be deemed to have never been issued. It further provides that the manual communication is also require to be regularized within 15 working days by holding the manual communication generating DIN and its communication to the other party. Therefore, It needs to be examined whether the order passed by the learned PCIT is in conformity with the above direction or not. The learned PCIT-8, Mumbai passed the order under section 263 of the Act on 10th March, 2021. It does not contain any DIN and further any of the six paragraphs in her order shows that this communication is issued manually without having DIN as it falls in any of the exceptions, and any permission has been taken from the respective authorities. CBDT also issued press release explaining the above mechanism on PRESS RELEASE, DATED 14-8-2019. On 11 March, the ld PCIT sent a communication stating intimation letter for order under section 263 of the Act dated 11 March 2021 stating, “this is to inform you that order under section 263 of the Act dated 11th March, 2021 is having document No. (DIN) ITBA/REB/M/REB5/ 20202021/ 1031404838(1).) This communication states that DIN for order passed under section 263 of the Act dated 11th March 2021 has some DIN. Surprisingly, no order was passed under section 263 of the Act in case of the assessee on 11th March 2021. Impugned order was as passed on 10th March 2021. Therefore, it is apparently clear that the order passed by the learned PCIT on 10/03/2021 was in clear violation of the instructions of Central Board Of Direct Taxes vide circular no. 19/2019 dated 14th August, 2019. For this reason, the order passed by the learned PCIT deserves to be quashed.
16. Coming to the merits of the case, we find that the case of the assessee was selected for scrutiny vide notice under section 143(2) of the Act dated 22nd September, 2016 under limited scrutiny where four reasons are mentioned. the two of the reasons were as under:-
(i) Low income and high loan/ advances/ investment
(ii) Unsecured loans.
17. As per the audited financial statements of the assessee it is apparent that assessee has share capital of only Rs. 1 lacs and has short term borrowings of 300,68,06,874/-compared to Rs. 51,874/- only in the immediately previous preceding year. The assessee on the Assets side has short-term loans and advances of Rs. 330,92,46,575/-against Rs. Nil in the previous year. Further, on the revenue of Rs. 30,92,46,575/- the assessee has incurred a loss of Rs. 28,75,898/-. The facts show that the assessee has taken unsecured loan of Rs. 67,55,000/- from M/s Sri Gopikrishna Trust during the year. Gopikrishna Trust has claimed to own 100% shareholding of the assessee company. Ld Assessing Officer asked the assessee with respect to unsecured loans vide letter dated 19th June 2017. Vide letter dated 14th August 2017, the assessee merely narrated that the name, address and PAN of the lender are mentioned in clause 31 of the tax audit report. No other inquiries were made by the learned Assessing Officer and no further information was submitted by the assessee. Merely submitting the name, address, PAN number of the lender does not prove any creditworthiness and genuineness of the transaction. Further, the learned PCIT, on information produced by assessee, clearly carried out her own independent enquiry on the documents furnished by the assessee to note that GopiKrishna Trust did not have any bank account of its own but is transacting from the bank account of its corporate trustees Akshar Fincom Pvt. Ltd. Further, she has also co-related the source of the fund available to the trust as well as the dates of loan given by bank to the assessee and thereafter held that substantial loan given by the M/s Gopikrishna Trust to the assessee is prior to obtaining loan by the trust from banks. Further, in absence of any independent bank account of M/s Sri Gopikrishna Trust no information is available about whether loan given by sources from sources of the corporate trustee or by the trust. Thus, sources of funds belonging to Gopikrishna Trust were also not clear. Thus, it is clearly demonstrated by the ld PCIT That the learned Assessing Officer has not made any inquiry worth its name about above loan. Mere disclosure in tax audit report does not show creditworthiness and genuineness of the loans. Further in factual matrix of assessee’s meager share capital, loan not commensurating with the financial of assessee, clearly needs proper examination of loans by ld AO . In view of this issue, we find that the learned Assessing Officer has failed to make any inquiry and therefore, the Ld PCIT after making due inquiries has correctly assumed the jurisdiction under section 263 of the Act. Ld PCIT carried out her own inquiry and set aside the matter back to the file of the learned Assessing Officer.
18. The second issue is with respect to the outstanding ‘other payables’ of Rs. 13,48,320/- as well as loans and advances of Rs. 327,81,970/-. The learned PCIT has issued show cause notice to the assessee stating that vide letter dated 16th October, 2017, Para no. 4, assessee was asked by The ld AO firstly vide question no. 11 of notice dated 19th June, 2017 with respect to other payables of Rs. 13,48,320/- as well as the loan and advance of Rs. 3,27,83,970/-. The assessee vide letter dated 5th December, 2017 [ page no 136 of Paper book] vide Para No. 46 stated that the details of grouping of loan and advances are appearing in schedule [6] of the balance sheet as on 31st March, 2015. According to which Rs. 3,22,74,65,753/- is given to Piramal Estate Pvt. Ltd. and Rs. 5,08,56,164/- are given to Shri Hari Trust. Prior to that on 26th October 2017, the Assessing Officer issued letter to the assessee wherein he asked copies of loan agreement with Piramal and Shri Hari Trust. Further by same letter the Assessing Officer asked to submit the copy of certificate of provisional fees of ICRA limited of Rs. 13,48,320/-. The assessee tried to explain before the Assessing Officer with respect to the schedules in the balance sheet along with names of the parties on 5th October, 2017. The letters dated 26th October 2017 submitted by the learned Authorized Representative vide page No. 26 of the paper book. The assessee vide letter dated 8th November, 2017 [ page 68 of paper book] stated details about serial No. 39 schedule details of payment made to ICRA and further vide serial No.42 submitted the copy of the Term sheet and agreement for loans and advances to Piramal Estate Pvt. Ltd. and Shri Hari trust. It also submitted agreement dated 2nd June 2014 before the Assessing Office . Thus the finding of the ld PCIT that assessee did not submit necessary details before the ld AO. is devoid of any merit. The learned Assessing Officer carried out due inquiries on this issue and therefore order of the learned Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue on this aspect.
19. As we have already held that order of learned PCIT on the issue of ‘other payables’ and ‘loans and advances’ is not sustainable in law. Therefore, There is no requirement of adjudicating about proper opportunity of hearing granted to the assessee by the learned PCIT.
20. Therefore, in nutshell; for completeness,
(i) The order passed by the learned PCIT under section 263 of the Act is quashed as it is in violation of the CBDT circular No. 19/2019 and
(ii) On the merits the order of the learned PCIT with respect to the loan amount of Rs.66,65,000/- from M/s Sri Gopikrishna Trust clearly holds that the order of the learned Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
(iii) On the issue of other payables and loans and advances due inquiries have been made by the learned Assessing Officer therefore there is no error in the order of the learned Assessing Officer.
21. However, as we have quashed the order of the learned PCIT on ground no.1, the appeal of the assessee is allowed.
22. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 30.03.2022.
