Appeal allowed, order quashed under Section 263. Commissioner lacked jurisdiction. Valid reassessment order.

The appeal was allowed, and the order under Section 263 by the Principal Commissioner of Income Tax was quashed. The Assessing Officer's reassessment order was deemed valid as it was found that proper inquiries were conducted, and a plausible view was taken. The court held that the Principal Commissioner lacked jurisdiction to initiate revisional proceedings without conducting independent inquiries and proving the Assessing Officer's view unsustainable. Consequently, the initiation of revisional proceedings was declared void.

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Issues Involved:

1. Validity of the initiation of proceedings under Section 263 of the Income Tax Act, 1961.
2. Determination of whether the assessment order under Section 143(3)/147 dated 27.12.2019 is erroneous and prejudicial to the interest of revenue.
3. Examination of the transfer of unaccounted funds of Rs. 25,00,000 and the claim of fictitious loss of Rs. 43,02,450.
4. Evaluation of whether the Assessing Officer (AO) conducted proper verification and inquiries.
5. Consideration of whether the Principal Commissioner of Income Tax (Pr. CIT) applied his mind properly while passing the order under Section 263.

Detailed Analysis:

1. Validity of the Initiation of Proceedings under Section 263:

The assessee challenged the invocation of revisionary jurisdiction by the Ld. Pr. CIT under Section 263 of the Income Tax Act against the AO's reassessment order dated 29.03.2019. The assessee argued that the Pr. CIT did not have the jurisdiction to invoke Section 263, as the AO's reassessment was neither erroneous nor prejudicial to the interest of the revenue. It was contended that the AO had conducted proper inquiries and had taken a plausible view, which should not have been interfered with by the Pr. CIT.

2. Assessment Order under Section 143(3)/147:

The AO issued a notice under Section 148 proposing to reopen the assessment based on the belief that the assessee had a transaction of Rs. 25 lakhs with M/s. Kalyan, an entry operator. The assessee objected, stating there were no transactions with M/s. Kalyan during the assessment year. The AO accepted this contention and did not draw any adverse inference regarding the Rs. 25 lakhs transaction while framing the reassessment on 27.12.2019. Additionally, the AO raised a new issue regarding a loss of Rs. 43,02,250 claimed by the assessee from share transactions with M/s. Scan Steel Ltd. (SSL). After examining the documents provided by the assessee, the AO did not find any adverse inference on this issue either.

3. Transfer of Unaccounted Funds and Claim of Fictitious Loss:

The Pr. CIT issued a notice to exercise revisional jurisdiction, stating that the AO had not properly inquired into the Rs. 25 lakhs transaction with M/s. Kalyan and the loss claimed from transactions with M/s. SSL. The Pr. CIT believed that the unaccounted fund of Rs. 25 lakhs was layered through various companies before reaching the assessee, and the loss of Rs. 43,02,450 was fictitious. Consequently, the Pr. CIT set aside the reassessment order, directing the AO to reassess the case after considering these facts.

4. Verification and Inquiries by the AO:

The Bench noted that the AO had scrutinized the return of income and conducted inquiries on both the Rs. 25 lakhs transaction and the loss from share transactions. The AO accepted the assessee's explanations and did not make any additions. The Bench observed that the AO had taken a possible view based on the inquiries and documents submitted by the assessee. It was emphasized that the Pr. CIT could not interfere with the AO's view unless it was unsustainable in law.

5. Application of Mind by the Pr. CIT:

The Bench found that the Pr. CIT's action of invoking Section 263 was without proper jurisdiction. The Pr. CIT's improvement in the allegation regarding the Rs. 25 lakhs transaction, by introducing the layering concept, was not part of the original reasons recorded by the AO for reopening the assessment. The Bench held that the AO should have made reasonable inquiries based on the information received and recorded proper reasons for reopening. Since the AO's reasons for reopening were found to be fragile and not legally valid, the reassessment order itself was considered null and void. Consequently, the initiation of revisional proceedings by the Pr. CIT was also deemed void.

Conclusion:

The appeal of the assessee was allowed, and the order passed by the Pr. CIT under Section 263 was quashed. The Bench emphasized that the AO had conducted proper inquiries and taken a plausible view, which should not have been interfered with by the Pr. CIT without conducting his own inquiries and finding the AO's view unsustainable in law. The reassessment order dated 27.12.2019 was held to be valid, and the initiation of revisional proceedings by the Pr. CIT was declared void.

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