ITAT sets aside CIT revision order under section 263 for unsecured loans after finding adequate inquiry conducted

The ITAT AGRA ruled in favor of the assessee, setting aside the CIT's revision order u/s 263 regarding unsecured loans. The tribunal found that the AO had conducted adequate inquiry by obtaining bank statements and confirmations from parties, despite the CIT's claim of inadequate investigation. The court held that the CIT acted casually without demonstrating any fallacy in the AO's assessment that caused revenue prejudice. Additionally, the CIT incorrectly applied explanation 2(a) of section 263, which was effective from 01.06.2015 and not applicable to the current assessment year. The tribunal concluded this was not a case of non-inquiry, making the supervisory jurisdiction unjustifiable.

---

---

Issues Involved:
The judgment involves the issue of whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of Revenue, specifically regarding a loan transaction of Rs. 80,00,000 obtained from a company and the adequacy of inquiries made by the AO in relation to the unsecured loan.

Loan Transaction Issue:
The ld. CIT observed that the loan transaction was suspicious as the creditor company did not have funds in its bank account before transferring the loan to the assessee firm. The ld. CIT found the transactions to be unusual and non-genuine, raising concerns about the authenticity of the loan. The AO was criticized for not properly examining the issue, leading to the conclusion that the assessment order was erroneous and prejudicial to the Revenue's interest.

Adequacy of Inquiries Issue:
The ld. CIT noted that the AO did not conduct an independent inquiry regarding the unsecured loan and its source of funds. The limited bank statement provided did not shed light on the source of funds, and no proper verification was done to confirm the financial capability of the creditor company. Citing relevant case laws, the ld. CIT held that the assessment order was erroneous and directed the AO to pass a fresh order.

Judgment:
The Appellate Tribunal heard both parties and considered the submissions. The ld. Counsel for the assessee argued that the AO had made due inquiry and referred to order sheet entries indicating independent inquiries. The Tribunal found that the AO had indeed made inquiries, obtained necessary confirmations, and referred to relevant case laws supporting the adequacy of the inquiries made. The Tribunal concluded that the ld. CIT had acted casually and that the AO had conducted reasonable inquiries, albeit not in the exact manner desired by the ld. CIT. The Tribunal found no prima facie demonstration of fallacy in the AO's actions, rendering the ld. CIT's order unjustifiable. The Tribunal set aside the ld. CIT's order, deciding the issue in favor of the assessee, and allowed the appeal.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.

---