TaxTMI 
TaxTMI 
2021 (12) TMI 1176
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....re. The assessment was completed u/s.143(3) r.w.s.147 of the Act on 26-03-2013, making solitary addition of Rs. 6,25,000/- on account of denial of deduction u/s.80G. The ld. PCIT observed that the assessee accepted huge loans from certain parties, mainly from Kolkata, for which no proper verification was done by the AO as to their capacity, human probability as to how the Kolkata based parties came to be known to the assessee for advancing loans. Regarding certain other loans from eight parties, the ld. PCIT observed that most of them were penny stock companies having received huge premiums in the first year of their existence, which were providing accommodation entries. Considering the fact that the assessee furnished only certain confirmations from these parties without the respective bank account statements, copy of returns of income, he opined that it did not establish the genuineness of the creditors. In this backdrop, he held that the AO did examine genuineness of these loan transactions. He further noticed that the assessee set off loss/depreciation for the assessment years 1999- 2000 to 2003-04 against the income for the current year and reduced the Business income to Nil. ....
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....gets satisfied. But, there must be material to indicate that the AO did enquire about the relevant issues concerning the assessment and got satisfied with the explanation tendered by the assessee in the same way in which a person reasonably instructed in law will do. Anything short of that renders the assessment order erroneous and prejudicial to the interest of the revenue giving a valid jurisdiction to the CIT to revise the same u/s 263 of the Act. 4. We start with the first issue, namely, acceptance of loan by the assessee from the following Kolkata parties, as have been tabulated by the ld. PCIT on page 1 of the impugned order: Sr. No. Name & address of the party Loan amount Date 1 Gitabali Merchants Pvt. Ltd., 3, Saklat Place, Kolkata-700072 Rs. 25.00 lakh 10/11/2006 2 Glorious Holding Pvt. Ltd. 3, Saklat Place, Kolkata-700072 Rs. 25.00 lakh 09/11/2006 3 Artline Fiscal Services Pvt. Ltd., 3, Saklat Place, Kolkata-700072 Rs. 25.00 lakh 09/11/2006 4 Expresso Tie-up Pvt. Ltd., 3, Saklat Place, Kolkata-700072 Rs. 25.00 lakh 10/11/2006 5 Stronach Trade Pvt. Ltd. 7, Swallow Lane, Kolkata West, Bengal - 001 Rs. 1....
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....ding most of the remaining creditors tabulated above. Loan totaling up to Rs. 2.35 crore on various dates between 04-10-2006 to 13-11-2006 were received by the assessee from the above Kolkata parties, for which the AO did not carry out any investigation notwithstanding the fact that none of them had responded to his notice u/s 133(6) of the Act. 8. Then there are two parties from Mumbai, namely, Vishnu Laminations Private Limited and Sun Transtamp Pvt. Ltd. tabulated in the second table on page 1 of the impugned order, from whom the assessee showed loans with closing balances totaling to Rs. 3.64 crore. The assessee simply filed confirmation from these parties and the AO did not consider it useful to cause further enquiry despite the fact that huge amounts were transacted and there was admittedly no prior business connection or any commercial dealing with them. 9. On page 2 of the impugned order, the ld. PCIT has discussed eight parties, namely, (1) Dhwani Solutions Pvt. Ltd., Mumbai; (2) Bhavsagar Vinimay Pvt. Ltd., Kolkata (3) Money Matters, Mumbai (4) Ushika Merchants Pvt. Ltd., Kolkata (5) Aakanksha Advisory Services Pvt. Ltd., Kolkata (6) Luckyprime Dealer Pvt. Ltd. Kolk....
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.... not notice any such factor and accepted the genuineness of the transaction without conducting any enquiry. 15. Corbal Suppliers Pvt. Ltd. is again a Kolkata based company, from which the assessee declared to have received loan. The ld. PCIT noted from the details furnished by this company that it showed profit of Rs. 19,378/-; made investments of Rs. 8.77 crore in shares of private limited companies; and showed to have received share premium of Rs. 12.87 crore which was utilized either for giving loans or making investment in shares. The AO could not find out anything wanting from the material furnished by this company, which apparently indicated that a further enquiry was called for. 16. On going through the different sets of creditors as discussed above in the impugned order, it clearly emerges that the assessee allegedly received huge money running into several crores as loan from the parties based mainly in Kolkata and Mumbai, whereas it was operating from Aurangabad. Neither any of such companies was engaged in financing business nor the assessee had any prior business dealings with them. Despite this, the AO did not think it appropriate to examine as to how these parti....
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....hin the ambit of cases of nonapplication of mind by the AO. The Hon'ble Supreme Court in Malabar Industrial Co. Ltd. VS. CIT (2000) 243 ITR 83 (SC) has held that an order passed without application of mind is an erroneous order calling for revision u/s 263 of the Act. Considering the factual panorama prevailing in the instant case, we find that though the AO initiated enquiry but completed the assessment either without receiving the replies or having received the replies, failed to apply his mind for drawing logical conclusions. The Hon'ble Supreme Court in Malabar Industrial Company Ltd (supra) has also held that "incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous". The Hon'ble Supreme Court further noticed in para 10 of the judgment that the AO: "accepted entry in the statement of account filed by the appellant in the absence of any supporting material and without making any enquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible". We are also confronted with a similar situation in which the AO incorrectly assumed the correctness of the facts that was actually not the case....
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....make addition on any other income chargeable to tax which escaped the assessment and comes to his notice during the reassessment proceedings, in addition to the point(s) on which the re-assessment was initiated. Turning to the facts of the instant case, we find that though the AO initiated reassessment for denial of deduction u/s.80G, but he did initiate enquiry on receipt of unsecured loans for which the assessee also furnished certain details as discussed above. In that view of the matter, it cannot be said that the ld. PCIT travelled outside the assessment order passed u/s 147 of the Act, which vitiated the revisionary order. 19. After conclusion of the hearing, the ld. AR furnished a letter submitting that the assessment in this case was made on the basis of AIR information and CBDT Circular No.225/26/2006 dated 08-09- 2010 provides that the scrutiny must be restricted to the issues of AIR information and hence no action u/s.263 can be taken in respect of the issues not forming part of AIR information. We have discussed this issue hereinabove pointing out the scope of section 147 and the argument raised by the ld. AR to the effect that since the issue of loans was not decide....
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....he next issue raised by the ld. AR was that section 68 could not have been invoked in respect of unsecured loans because the assessee furnished confirmations from the loan creditors. The contention was based on the judgment of the Hon'ble Supreme Court in CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) in which it has been held that no addition can be made even if the shareholders are bogus. At this stage, it is relevant to mention that we are not considering a case of bogus shareholders in the assessment of a company. Rather, it is a case in which the assessee received unsecured loans from the companies, some of which are penny stock. The ratio of Lovely Exports (supra) has no application to the facts of the case under consideration. 22. To sum up, we highlight some of the pertinent points which amply demonstrate that the AO completed the assessment by miserably failing to apply his mind: - The assessee, situated in Aurangabad, received loans running into crores from certain companies based in Kolkata or Mumbai, that were neither in the financing business nor had any past business dealings with the assessee. No question was asked by the AO as to how the assess....
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.... mind to the issue of unsecured loans which ought to have been done in the facts and circumstances of the case thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue, the sequitur is that the exercise of revisionary power gets justified. As can be seen, that the ld. PCIT did not enhance the assessment on any issue but simply restored the matter to the file of the AO: `with a direction that the assessment order should be reframed as per the provisions of law after considering proper facts and submissions of the assessee and also for necessary verification in the light of the observations made above, after affording proper opportunity to the assessee'. If the assessee has an explainable case on the issues taken note of by the ld. PCIT, it can put forth the same before him in the course of proceedings giving effect to the order passed u/s 263. 25. In the result, the appeal is dismissed. A.Y. 2010-11 26. The assessment in this case was completed u/s.143(3) of the Act on 28-03-2013 accepting genuineness of the loan creditors. Though addition of Rs. 10.00 lakh was made out of expenses and a further addition of Rs. 25.16 lakh was made towa....
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....e party replied to the same. This is a case in which though the assessee received a loan of Rs. 75.00 lakh but no interest was paid which is borne out from page 143 of the paper book, being a copy of account of Gautam Resources in the books of assessee. Such a huge amount of Rs. 75.00 lakh, given the fact that the assessee did not have any prior business or commercial dealings, was allegedly received without any interest. The AO just accepted the genuineness without any whisper. 32. The next is Kasturi Towers Ltd., again a Kolkata based company. The assessee received a sum of Rs. 50.00 lakh from this party which emerges from page 144 of the paper book. Even though interest of Rs. 27,024/- was credited to the account but there was no deduction of tax at source. If there is no deduction of tax at source, the law requires making disallowance u/s 40(a)(ia) of the Act. The AO chose neither to examine the genuineness of the loan nor make the disallowance. 33. The next party is Konark Commerce Industrial Ltd., Kolkata, from whom a sum of Rs. 25.00 lakh was received. A copy of confirmation is available at page 145 of the paper book. There is no payment of any interest despite the fac....