2021 (10) TMI 458 - AT - Income Tax

Revision u/s 263 by CIT - As per CIT A.O. had without proper verification and examination of records has accepted the claim of assessee -Sum surrendered by the assessee on account of unaccounted investments in the house property and against the surrendered income the assessee had set off the business loss - HELD THAT - We found that this issue relating to set off of loss was duly examined by the A.O. which is evident from the assessment order itself - As the amended provisions of Section 115BBE are not applicable in the case of the assessee. Even otherwise there is specific mention of this set off at page No. 2 and para No. 6 of the order of assessment which goes to show that the matter with regard to set off was examined and verified by the A.O. With regard to reference to DVO a detailed query regarding house construction was made by the A.O. vide query dated 5/11/2018 and reply together with valuation report along with technical certificate was filed on 12.07.2018 - Further query relating to investment was raised at the time of statement recorded u/s 131 during survey. A.O. during assessment proceedings appreciated the statement and impounded material in the backdrop of surrendered income and regular income. The order sheet entry dated 06.12.2018 is testimony to the examination and verification done by AO. Thus in this way there had been detailed examination and verification of investment in the house construction. Therefore ld. PCIT was not justified in invoking the provisions of Section 263 of the Act on this issue. Difference in amount of closing stock as shown in balance sheet and audit report - While computing stock turnover stock in trade means the average of opening and closing stock. In this way the average of opening and closing stock comes to Rs. 4869765/- and the nature of two figures are different and hence not comparable. Thus in view of the above explanation and the documents placed on record the ld. PCIT was not justified in invoking provisions of Section 263 of the Act on this issue. Advance as given in cash to Sh. Naveen Mahipal in two installments and the source of the credit was not examined by the A.O - Since the assessee had borrowed funds for the investment in such non business activities therefore the interest claimed be disallowed. In this regard a very detailed and comprehensive and categorical findings was recorded by the A.O.. while doing so the A.O. had called for Cash book vide query - The same was produced and examined as is evident from the opening paragraph of the order of assessment. Further the reflection of such advance in the balance sheet as clear from the order of the PCIT is a sufficient and adequate proof regarding the nature and source of transaction. For the asset side of the balance sheet the liabilities as well as the capital balance constitute the basis. It is important to mention here that the PCIT also called for application of Section 269T in relation to the impugned advance against purchase of land. In this regard we are of the view that Section 269T restricts repayment of loan deposit or specified advance if the amount exceeds Rs. 20000 or more. However in the instant case there has not been any repayment of the nature specified above rather there is rather advancement by the assessee hence the provision of sec. 269T are not attracted. Thus the ld. PCIT was not right in invoking the provisions of Section 263 of the Act on this issue. Assessee has received unsecured loan form Shri Virendra Agarwal and the same was not examined by the A.O. - All the bank statements of the assessee are on record and in case there had been any receipt of unsecured loan from Virendra Agarwal then definitely it would have been shown therein. Our attention was also drawn to the statement containing the balance sheet of Smt. Sunita Agrawal and M/s Yogesh Enterprises as well as consolidated as on 31.3.15 was furnished - The assessee has no sufficient funds to purchase any fixed assets. Since the assessee has not received any unsecured loans therefore in the absence of any receipt of unsecured loan there is no onus to examine the creditworthiness. Thus in our view the ld. PCIT was not right in invoking the provisions of Section 263 of the Act on this issue. Assessee had received a total loan of Rs. 15 Lacs from one Smt. Rekha instead of Rs. 5.00 lacs as shown by the assessee - On perusal of the Bank Statement it is obvious that the immediate source of unsecured loan of Rs. 5 lakhs from Rekha Verma was the money received by her from Mr. Kripa Shankar Verma on 13.05.2015 amounting to Rs. 320000.00 through account payee cheque and from Gajanand Verma on 11.05.2015 amounting to Rs. 180000.00. Since the current income didn t constitute the source of unsecured loan therefore the comparison of current income with the amount of unsecured loan does not have any meaning and relevance. It is a settled law that the assessee cannot be asked to explain whether the cash credit has suffered tax or not. IN this regard we draw strength from the decision in the case of CIT Vs. Metachen 1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT . Since the case of the assessee was not subjected to audit U/s 44AB of the Act therefore threw as no obligation upon her to deduct tax at source. Since the A.O. was aware of the turnover and facts of the case of the immediately preceeding year thus did not fasten the assessee with the obligation of tax deduction at source. Thus in our view the ld. PCIT was not right in invoking the provisions of Section 263 of the Act on this issue. Unexplained transactions as per documents found in search - A.O. during assessment proceedings thoroughly examined and verified the statements recorded and the documents found during survey against the backdrop of the surrendered income and regular income. The aforesaid action is before it is evident from the note sheet entry dated 6/12/2018. Thus in this way the observation of the ld. PCIT is not based on correct facts and therefore the ld. PCIT was not right in invoking the provisions of Section 263 on this issue. Thus as applying the principles laid down in the case of Sir Dorabji Tata Trust 2020 (12) TMI 1121 - ITAT MUMBAI it is evident that in the present case the A.O. had made all necessary enquiries and verifications as can be expected of a prudent judicious and responsible A.O. in normal course of his assessment work. Even ld. PCIT has not specified as to what type of enquiry ought to have been made by the A.O. which would have resulted into income or disallowance or any other adverse action therefore in such circumstances the order passed by the A.O. cannot be branded as erroneous and prejudicial to the interest of revenue therefore we set aside and quash the order passed u/s 263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the Principal Commissioner of Income Tax (PCIT) setting aside the Assessing Officer's (AO) order without considering facts and circumstances.
2. Establishment of pre-requisite conditions for invoking revisional provisions under Section 263 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Legality of PCIT Setting Aside AO's Order
The PCIT set aside the AO's order on the grounds that it was erroneous and prejudicial to the interests of the Revenue. The PCIT highlighted six specific issues:

1. Set-off of Business Loss:
- The assessee surrendered Rs. 60 lakhs as unaccounted investments in house property and set off a business loss of Rs. 20.25 lakhs.
- The AO allowed this set-off, which the PCIT contested, invoking Section 263.
- The Tribunal found that the AO had duly examined this issue, referencing the office note which allowed the business loss claimed by the assessee.
- The amendment in Section 115 BBE, prohibiting the set-off of any type of loss, was prospective and not applicable to the assessee's case. Thus, the PCIT was not justified in invoking Section 263 on this issue.

2. Discrepancy in Closing Stock:
- The PCIT noted a discrepancy between the closing stock figures in the audit report (Rs. 48,69,765) and the balance sheet (Rs. 50,20,156).
- The Tribunal clarified that the figures were different due to the nature of the calculation (average of opening and closing stock).
- The PCIT's invocation of Section 263 on this issue was deemed unjustified.

3. Advance of Rs. 25 Lakhs to Sh. Naveen Mahipal:
- The PCIT directed the AO to verify the source of this advance.
- The Tribunal found that the AO had already examined this issue in detail, including calling for the cash book and verifying the balance sheet.
- Section 269T, which restricts repayment of loans exceeding Rs. 20,000, was not applicable as there was no repayment involved.
- The PCIT's invocation of Section 263 on this issue was unjustified.

4. Unsecured Loan from Shri Virendra Agarwal:
- The PCIT alleged non-examination of an unsecured loan from Shri Virendra Agarwal.
- The Tribunal found that no such loan was received during the year in question; it was an old loan from FY 2009-10.
- The AO had examined the financial statements, including the merging of individual and proprietorship accounts.
- The PCIT's invocation of Section 263 on this issue was factually incorrect and unjustified.

5. Loan from Smt. Rekha Verma:
- The PCIT observed that the assessee received Rs. 15 lakhs from Smt. Rekha Verma but only showed Rs. 5 lakhs, and failed to deduct TDS on interest payment.
- The Tribunal found that the AO had verified the ITR, bank statements, and confirmations of accounts, and the PCIT had misinterpreted the transactions.
- The assessee was not obligated to deduct TDS as the payee had furnished Form 15G.
- The PCIT's invocation of Section 263 on this issue was unjustified.

6. Impounded Documents:
- The PCIT noted that a file containing 102 pages was found during the survey but not examined by the AO.
- The Tribunal found that the AO had examined these documents during the assessment proceedings.
- The PCIT's invocation of Section 263 on this issue was based on incorrect facts and unjustified.

Issue 2: Establishment of Pre-requisite Conditions for Invoking Section 263
- The Tribunal emphasized that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the interests of the revenue.
- The AO had conducted necessary inquiries and verifications expected of a prudent, judicious, and responsible officer.
- The Tribunal referenced various legal precedents, including the Supreme Court's decision in CIT Vs. Kwality Steel Suppliers Complex, which held that where two views are possible, the AO's view cannot be treated as erroneous.
- The Tribunal also discussed the nature and scope of Explanation 2(a) to Section 263, highlighting that the Commissioner must reasonably form a view that inquiries or verifications were lacking, which was not demonstrated in this case.

Conclusion:
- The Tribunal concluded that the AO had conducted all necessary inquiries and verifications, and the PCIT's order under Section 263 was not justified.
- The appeal of the assessee was allowed, and the PCIT's order was quashed.

Order Pronounced:
- The order was pronounced in the open court on 07/10/2021.