2020 (1) TMI 14 - AT - Income Tax

Tribunal upholds Income Tax revision due to AO's oversight, emphasizes thorough investigation

The Tribunal upheld the Principal Commissioner of Income Tax's exercise of revisionary jurisdiction under section 263 due to the Assessing Officer's ... Revision u/s 263 - assessment was reopened u/s 148 of the Act on the allegation of accommodation entry taken from Shri S.K. Jain group of cases, which were subjected to search on 14/9/2010 by the Investigation Wing - HELD THAT:- AO should have verified the genuineness of the transaction and also should have carried out adequate enquiry to come to a logical conclusion that either there is no accommodation entry and the contents found qua the assessee being one of the beneficiary of the accommodation entry in the books of account of the concerns of S.K. Jain group are false or bogus; or assessee had amply demonstrated and substantiated before the AO regarding the genuineness of the transaction of the accommodation entry. In absence of such a mandate which was cast upon the AO, we are of the opinion that the assessment order is not only erroneous but also prejudicial to the interest of revenue, as the issue definitely required proper enquiry and verification by the AO. Once adequate or proper enquiry has not been done, then in terms of Explanation 2 inserted in section 263 of the Act by the Finance Act, 2015, w.e.f. 1.6.2015, the assessment order is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. Present case is squarely covered by the decision of Surya Jyoti Software Pvt. Ltd. vs. Pr. CIT [2017 (11) TMI 1588 - ITAT DELHI] which was passed on identical set of facts. We further note that the present case is also covered against the assessee by the judgment of the Hon'ble Supreme Court of India in the case of Deniel Merchants Pvt. Ltd. vs. ITO [2017 (12) TMI 476 - SUPREME COURT] wherein dismissed the SLPs in cases where the AO did not make any proper inquiry while making the assessment and accepted the explanation(s) of the assessee(s) insofar as receipt of share application money was concerned. We hold that the Ld. Pr. CIT has rightly exercised his jurisdiction under section 263 of the Act in setting aside the order of the Assessing Officer being erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, we confirm the order of the Ld. Pr. CIT and dismiss the grounds raised by the assessee before us. Appeal of the assessee stands dismissed. Issues Involved:1. Legitimacy of the reassessment order under section 147/148.2. Examination of seized material by the Assessing Officer (AO).3. Justification for the Principal Commissioner of Income Tax’s (Pr. CIT) revisionary jurisdiction under section 263.4. Adequacy of inquiries and verification by the AO.Issue-wise Detailed Analysis:1. Legitimacy of the Reassessment Order under Section 147/148:The AO reopened the assessment under section 147/148 based on information from a search and survey action conducted by the Investigation Wing, which indicated that the assessee had taken an accommodation entry from M/s Sunny Cast & Forge Ltd. amounting to Rs. 4,90,000/-. The AO completed the reassessment at the returned income without making any additions.2. Examination of Seized Material by the AO:The Pr. CIT issued a notice under section 263, stating that the AO failed to examine the seized material and did not tax the amount of Rs. 4,90,000/- as unexplained credit. The Pr. CIT noted that the relevant seized documents were not provided to the assessee. The Pr. CIT found that the cheque number mentioned in the seized material was credited in the assessee’s bank account, and evidence of cash deposits against the name of Shri Y.K. Gupta was also found. The AO's reassessment order lacked examination of these seized materials.3. Justification for the Pr. CIT’s Revisionary Jurisdiction under Section 263:The Pr. CIT exercised revisionary jurisdiction under section 263, noting that the AO did not consider the relevant seized material, which indicated that the assessee was a beneficiary of accommodation entries. The Pr. CIT directed the AO to examine the seized material, confront the assessee with it, and pass a fresh order. The Tribunal upheld the Pr. CIT’s action, noting that the AO failed to make inquiries on the issue for which the case was reopened.4. Adequacy of Inquiries and Verification by the AO:The Tribunal found that the AO did not properly verify the seized material or confront the assessee with it. The AO focused on verifying the existence of parties rather than the genuineness of the transactions. The Tribunal noted that the assessment order did not reflect any examination of the seized material, and the order sheet entries did not indicate that the assessee was confronted with the seized documents. The Tribunal concluded that the AO’s failure to conduct proper inquiries rendered the assessment order erroneous and prejudicial to the interest of the revenue.Conclusion:The Tribunal dismissed the assessee’s appeal, confirming that the Pr. CIT rightly exercised jurisdiction under section 263. The AO’s failure to examine the seized material and conduct adequate inquiries justified the revision of the reassessment order. The Tribunal’s decision was consistent with precedents and the Supreme Court’s judgment in similar cases. The appeal of the assessee was dismissed, and the order of the Pr. CIT was upheld.