2019 (12) TMI 921 - HC - Income Tax

High Court upholds Tribunal decision on Section 263 appeal, stresses need for reasons in tax cases

The High Court dismissed the appeal filed by the revenue challenging the setting aside of the revisional order by the Commissioner of Income Tax under ... Revision u/s 263 - assessee had obtained certain unsecured loans during the year in question - case was selected for limited scrutiny through CASS and notice u/s 143 (2) was issued and on being satisfied the Assessing Officer accepted the return income of the assessee - HELD THAT:- Documents relating to the persons who had granted the loans had not only been submitted before the Assessing Officer but had also been produced before the Commissioner and at no stage was it pointed out that from a perusal of those documents, a case was made out for further requiring the assessee to obtain the balance sheets of all those persons and the Tribunal in these circumstances firstly held that the Commissioner erred in holding that the bank statement and the income tax returns had not been filed before the Assessing Officer and secondly the Tribunal noticed and further held no infirmity has been pointed out by the Ld. Pr. CIT in the same in his entire order which would show that the creditworthiness of the loanees was doubtful and the AO having not taken cognizance of the same had committed an error causing prejudice to the Revenue. We fail to understand the relevance of the balance sheet of the loanees for establishing their creditworthiness when all other relevant documents for the same, i.e. return of income of the loanees and copy of their bank statement from which the loans were advanced were filed and no adverse observation with respect to the same has been made by the Ld. Pr. CIT effecting the creditworthiness of the loanees. - Decided against revenue Issues:Appeal under Section 260A of the Income Tax Act against setting aside of revisional order by the Commissioner of Income Tax under Section 263 of the Act regarding unsecured loans obtained by the assessee.Analysis:1. The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal, which set aside the revisional order of the Commissioner of Income Tax under Section 263 of the Income Tax Act. The case pertained to the assessment year 2014-2015 where the assessee had obtained unsecured loans. The Commissioner set aside the order of the Assessing Officer, stating that the creditworthiness of the persons providing the loans needed to be verified through their income tax returns and balance sheets. The Tribunal found that all relevant documents regarding the loans had been submitted and no adverse observations were made regarding the creditworthiness of the loanees.2. The appellant argued that substantial questions of law arose in the case, questioning the Tribunal's decision to set aside the Commissioner's order. The appellant cited precedents where additions were confirmed due to unproved transactions and insufficient creditworthiness. The appellant also contended that the Tribunal ignored relevant decisions of higher courts and the insertion of Explanation 2 of Section 263 of the Income Tax Act in 2015.3. The appellant relied on a decision of the High Court of Karnataka in a similar case to support their argument. The court emphasized the importance of assessing authority providing reasons for their conclusions, especially in cases involving tax relief. The court highlighted that every conclusion by the assessing authority should be supported by reasons, and failure to do so can result in an order being prejudicial to the revenue.4. The High Court dismissed the appeal, stating that the arguments presented did not align with the facts of the case. The court found no merit in the appeal and upheld the decision of the Tribunal to set aside the Commissioner's order. Consequently, the pending civil miscellaneous application was disposed of as the main case was dismissed.