2016 (5) TMI 1290 - AT - Income Tax

Tribunal quashes revisional order, emphasizing need for adequate inquiry and establishing error

The Tribunal quashed the revisional order under section 263, restoring the original assessment order. The appeal was allowed, emphasizing that inadequate ... Revision u/s 263 - unsecured loans unexplained - assessment order held to be “erroneous” - Held that:- It is an undisputed fact of the present case that all the necessary details regarding the unsecured loans along with confirmation and the details regarding the share capital raised from Hillridge Investment Ltd. were again submitted during the revision proceedings vide letter dated 17.2.2015 of the assessee and the learned Principal Commissioner has simply asked the Assessing Officer to reexamine it. The Assessing Officer in his proposed letter sent to the Learned CIT has stated that proper inquiry could not be made due to paucity of information and heavy work load/oversight. This itself supports the case of the assessee that present case is not the case of lack of inquiry but a case of inadequate inquiry on the basis of which an assessment order cannot be held “erroneous” and when an assessment order is not erroneous, it cannot be held as prejudicial to the interest of Revenue. We thus hold that the order impugned is not a valid order as per the requirements laid down under the provisions of sec. 263 of the Act. The same is quashed and in result assessment order passed under sec. 153A read with section 145(3) of the Income-tax Act, 1961 on 28.3.2013 is restored. The grounds involving the issues regarding the validity of the order passed under sec. 263 of the Act are accordingly allowed. - Decided in favour of assessee Issues Involved:1. Validity of the revisional order passed under section 263 of the Income-tax Act, 1961.2. Adequacy of inquiry conducted by the Assessing Officer regarding unsecured loans and share capital.Detailed Analysis:1. Validity of the Revisional Order Under Section 263:The assessee questioned the validity of the revisional order passed under section 263 of the Income-tax Act, 1961, on several grounds. The Principal Commissioner observed that the assessment order was erroneous and prejudicial to the interest of the Revenue due to a lack of proper inquiry/examination/verification by the Assessing Officer. A show-cause notice under section 263 was issued, and despite the assessee's objections, the Principal Commissioner set aside the assessment order on two specific issues, directing the Assessing Officer to frame the assessment afresh.2. Adequacy of Inquiry Conducted by the Assessing Officer:The Principal Commissioner identified two issues in the assessment order:- Acceptance of genuineness and creditworthiness of Rs. 41,50,000 without proper verification.- Lack of inquiry into the name and address of the parties from whom the assessee received an entry of Rs. 20 lacs.The assessee contended that all requisite details of unsecured loans were furnished during the assessment proceedings, and no incriminating material was found during the search. The details provided included acknowledgment of return of income, audited balance sheet, profit and loss account, and notices issued under sections 153A, 143(2), and 142(1) of the Act. The assessee argued that the inquiry conducted was adequate and that the Principal Commissioner’s decision was based on a different opinion rather than a lack of inquiry.The Department, represented by the CIT(DR), argued that the Assessing Officer admitted to not conducting any inquiry on the issues, and the details filed by the assessee were not examined.Judicial Precedents and Findings:The Tribunal referred to several judicial precedents to analyze the case:- CIT vs. Sunbeam Auto Ltd.: It was held that the distinction between 'lack of inquiry' and 'inadequate inquiry' is crucial. If there was any inquiry, even if inadequate, it would not justify invoking section 263 merely because the Commissioner has a different opinion.- ITO vs. DG Housing Projects Ltd.: The CIT must establish that the order is erroneous by conducting necessary inquiry before passing an order under section 263. Remanding the matter without such a finding is not permissible.- CIT vs. M/s. Ankit Garments Manufacturing Co.: Scrutiny assessment orders should be presumed to be made after due verification, and the principle of finality should be maintained unless statutory provisions dictate otherwise.The Tribunal concluded that the present case involved inadequate inquiry rather than a lack of inquiry. The Assessing Officer had raised specific queries regarding share capital and unsecured loans, and the assessee had submitted the requisite details and confirmations. The Principal Commissioner initiated revision proceedings based on the Assessing Officer’s recommendation without independent findings. The Tribunal held that the order impugned was not valid as per the requirements laid down under section 263 of the Act. The assessment order dated 28.3.2013 was restored, and the appeal was allowed.Conclusion:The Tribunal quashed the revisional order under section 263, restoring the original assessment order. The appeal was allowed, emphasizing that inadequate inquiry does not justify invoking section 263, and the Principal Commissioner must independently establish that the assessment order is erroneous and prejudicial to the interest of the Revenue.