Tax Tribunal affirms Commissioner's order under section 263, dismissing appellant's challenges. Assessment proceedings to continue.

The Tribunal upheld the order of the Principal Commissioner under section 263, dismissing the appellant's challenges. The Assessing Officer was directed to continue assessment proceedings, conduct verifications, and examine documents as required by law. The appeal was dismissed, affirming the order pronounced on 30th March, 2023.

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Issues involved:
The judgment involves issues related to the jurisdiction of Principal Commissioner of Income tax under section 263 of I.T. Act, 1961, applicability of provisions of section 2(22)(e), verification of cash deposits during demonetization period, and the adequacy of inquiries made by the Assessing Officer.

Jurisdiction of Principal Commissioner under Section 263:
The appeal was filed against the order passed by the Ld.PCIT, Bengaluru-2 for A.Y. 2017-18. The grounds of appeal challenged the jurisdiction of the Principal Commissioner, alleging that the order was bad in law, erroneous, and void ab-initio. The appellant contended that the assessment order was passed without proper inquiries and was merely based on a change of opinion, which does not confer jurisdiction under section 263. The appellant also argued that the PCIT did not make conclusive findings on errors, indicating a lack of basis for passing the order under section 263.

Applicability of Section 2(22)(e) Provisions:
The Ld.PCIT initiated proceedings under section 263 to verify a payment made by the assessee to a party and loans received from another entity, questioning the applicability of section 2(22)(e) provisions. The PCIT observed that the AO did not verify the applicability of these provisions, leading to the conclusion that the assessment order was erroneous and prejudicial to the interests of revenue. The appellant, a Non-Banking Financial Company, argued that the provisions of section 2(22)(e) were not applicable to the transactions in question, as the details were submitted to the AO during scrutiny and were verified.

Verification of Cash Deposits during Demonetization:
Another issue raised was the verification of cash deposits made by the appellant during the demonetization period. The Ld.AO did not follow CBDT circulars for necessary verifications, leading the PCIT to set aside the assessment order under section 263. The Tribunal directed the AO to verify the cash deposits based on the circulars, ensuring the genuineness of the deposits and granting the appellant a proper opportunity to justify the claims.

Adequacy of Inquiries by Assessing Officer:
The Tribunal noted that the AO did not raise specific queries on the issues subject to section 263 proceedings and failed to follow CBDT circulars for verifying cash deposits. The AO's lack of examination regarding the applicability of section 2(22)(e) provisions and the status of the appellant as a NBFC raised concerns. The Tribunal directed the AO to conduct thorough verifications and inquiries in accordance with the law, including verifying the documents related to the appellant's NBFC status and the applicability of section 2(22)(e) provisions.

Conclusion:
The Tribunal upheld the order passed by the Ld.PCIT under section 263, dismissing the grounds raised by the appellant. The Tribunal directed the AO to continue the assessment proceedings, carry out necessary verifications, and examine the documents in accordance with the law. The appeal filed by the assessee was ultimately dismissed, and the order was pronounced in the open court on 30th March, 2023.

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