2023 (7) TMI 1354 - AT - Income Tax

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 ... Revision u/s 263 - Inadequate or non enquiry - unsecured loan - CIT noted that a perusal of the assessment record shows that the AO has not made any independent inquiry regarding the confirmations - HELD THAT:- We note that the AO has made an inquiry and has obtained the bank statement of the party and necessary confirmation. In response to queries raised, in the course of the assessment proceedings, the Assessee had filed all material particulars. CIT has thus acted casually. Therefore, exercise of supervisory jurisdiction is wholly unjustifiable on the issue without making reference to circumstances which warrants necessity of some more enquiries. AO in the instant case, has made enquiries albeit not probably in the manner in which the CIT would have liked but this cannot be the sacrosanct ground for assumption of jurisdiction u/s 263 of the Act. Under these circumstances, one cannot possibly say that AO had sleepwalked on the issues involved. Noticeably, the Ld. CIT himself has not entered into any minimal inquiry on the issues himself, if so considered expedient and there is not even prima facie demonstration of fallacy in the action of the Assessing Officer which rendered the order erroneous and which also simultaneously caused prejudice to the revenue. Merely because the expectations of the Revisional Commissioner are purportedly not met, it should not, in our opinion, necessarily trigger revisional action under Section 263 of the Act in every case. CIT has also invoked provisions of section 263 including explanation 2(a) which is effective from 01.06.2015 and it cannot be applied in the current assessment year. Hence, the Ld. CIT’s reference to explanation 2(a) does not support the case of the Revenue. This is not a case of non-inquiry, the AO has made inquiry, thus we find that the ld. CIT’s order cannot be sustained - Decided in favour of assessee. 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.