ITAT upholds AO's assessment order, quashes PCIT's Section 263 order.

The ITAT held that the AO conducted adequate inquiries and examinations, finding the assessment order not erroneous or prejudicial to revenue. The ITAT quashed the PCIT's Section 263 order and upheld the AO's assessment order, allowing the assessee's appeal.

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Issues Involved:
1. Invocation of Section 263 by the Principal Commissioner of Income Tax (PCIT).
2. Jurisdiction under Section 263.
3. Examination and verification of loans and creditors by the Assessing Officer (AO).
4. Adequacy of inquiries conducted by the AO.
5. Compliance with Standard Operating Procedures (SOP) issued by CBDT.

Summary:

1. Invocation of Section 263 by the PCIT:
The assessee challenged the invocation of Section 263 by the PCIT, arguing that the order dated 21-10-2022 was erroneous and prejudicial to the interests of the revenue. The PCIT had issued a show cause notice proposing to invoke revisional proceedings under Section 263 on the grounds that the AO did not verify/examine certain issues, making the assessment order erroneous and prejudicial to the revenue.

2. Jurisdiction under Section 263:
The PCIT assumed jurisdiction under Section 263, claiming the assessment order was prejudicial to the interests of the revenue because the AO did not verify/examine the issues adequately. The assessee argued that the PCIT's assumption of jurisdiction was contrary to the provisions of law and facts on record.

3. Examination and Verification of Loans and Creditors:
The PCIT's allegations included:
- Liability of Rs. 9,81,205/- under Sundry Creditors without corresponding purchases or transactions.
- Non-maintenance of books by the assessee, not satisfactorily examined in assessment proceedings.
- Inadequate documentary evidence for unsecured loans.
- Confirmations of loans from creditors lacking necessary details and not matching with Schedule "E".
The assessee provided detailed submissions, including confirmations, affidavits, bank statements, and other documents to support the identity, creditworthiness, and genuineness of the transactions. The AO had raised specific queries and received detailed replies from the assessee.

4. Adequacy of Inquiries Conducted by the AO:
The assessee argued that the AO made detailed inquiries and examinations as required by law. The AO's queries and the assessee's responses were documented, and the AO was satisfied with the explanations provided. The AO's acceptance of the assessee's submissions was based on a reasonable and judicious view, and the PCIT's allegations of inadequate inquiry were unfounded.

5. Compliance with SOP Issued by CBDT:
The PCIT alleged non-compliance with the SOP issued by CBDT. However, the assessee argued that the SOP was not binding and that the AO had fulfilled all the requirements. The SOP required examination of credits found during the year, which the AO had done. The PCIT's reliance on SOP was not a valid ground for invoking Section 263.

Conclusion:
The ITAT found that the AO had made necessary inquiries and examinations, and the assessment order was neither erroneous nor prejudicial to the interests of the revenue. The AO's acceptance of the assessee's submissions was based on a reasonable and judicious view. The ITAT quashed the impugned order passed under Section 263 by the PCIT and sustained the AO's assessment order. The appeal of the assessee was allowed.

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