2025 (7) TMI 1483 - AT - Income Tax

Revision u/s 263 - Bogus loan - Inadequacy of inquiry alleged by ld. PCIT - HELD THAT - Loan was taken through banking channel and it was repaid through the bank channel. Besides interest was also paid and the TDS on interest was also deducted. We note that these are the relevant documents to prove the genuineness of the said transaction. The revenue has not proved with cogent evidence that cash was flowing from the assessee to M/s Dishman Carbogen Amcis Limited. We note that M/s Dishman Carbogen Amcis Limited may be wrong in its own affairs however considering these documents and evidences submitted by the assessee during the assessment proceedings and examined by the AO we find that assessee has discharged his onus to prove the genuineness of the transaction. Therefore in these circumstances the transactions cannot be treated as bogus. Therefore we find that there is no lack of inquiry on the part of assessing officer. Inadequacy of inquiry alleged by ld. PCIT is not a valid ground to assume jurisdiction u/s 263 of the Act. It is also obvious that the assessing officer had no incriminating material concerning M/s Dishman Carbogen Amies Ltd and hence the explanation of the assessee was rightly accepted and no addition on the point of alleged fictitious loans from M/s Dishman Carbogen Amies Ltd was made hence even on merits the PCIT has erred in directing the assessing officer for fresh assessment. PCIT has not pointed out any such incriminating material against the assessee in assessee s name. Further on merits section 68 of the Act is not applicable to the impugned loan obtained by the assessee as it was duly repaid in the subsequent year and that identity creditworthiness and genuineness was also established by the assessee. PCIT has exercised jurisdiction u/s.263 of the Act on the ground that the assessing officer failed to make proper enquiry which he ought to have made before completing the assessment. There is a distinction between lack of enquiry and inadequate enquiry . If there is an enquiry even inadequate that would not by itself give occasion to the PCIT to pass order under section 263 merely because he has a different opinion in the matter. Such a course of action is open only in cases of lack of enquiry . In the assessee s case sufficient enquiry was conducted by the assessing officer as we have noted above. Thus it cannot be said that it is a case of lack of enquiry . Therefore the view taken by the assessing officer was one of the plausible views and the assessment order passed by the assessing officer could not be held to be prejudicial to the Revenue. Appeal of the assessee is allowed.

Summary

ISSUES:

Whether the order passed under section 147 read with section 144B of the Income-tax Act, 1961, accepting returned income without treating loan from a related entity as unexplained cash credit under section 68, was erroneous and prejudicial to the interest of revenue.Whether the Principal Commissioner of Income-tax (PCIT) rightly assumed jurisdiction under section 263 of the Income-tax Act, 1961, on the ground of lack of proper inquiry by the Assessing Officer (AO) in respect of alleged bogus loan transactions.Whether the loan transaction of Rs. 54,02,781/- taken from a related company was fictitious and liable to be taxed under section 115BBE as unexplained cash credit under section 68.Whether the AO conducted sufficient inquiry during assessment proceedings under section 147 read with section 144B of the Act.Whether the invocation of section 263 requires that the assessment order be both erroneous and prejudicial to the interest of revenue, and if these conditions are satisfied in this case.

RULINGS / HOLDINGS:

On the issue of the loan transaction, the court held that the loan of Rs. 54,02,781/- was taken and repaid through banking channels with interest paid and TDS deducted, and the AO had examined these facts; therefore, the transaction cannot be treated as bogus or unexplained cash credit under section 68.The PCIT erred in assuming jurisdiction under section 263 of the Act since the AO had conducted sufficient inquiry by issuing notices under section 142(1) and considering the assessee's documentary evidence; hence, there was no "lack of enquiry" but at most an "inadequate enquiry," which does not justify revision under section 263.The assessment order passed under section 147 read with section 144B was neither erroneous nor prejudicial to the interest of revenue, as the AO took a plausible view based on the evidence before him.The invocation of section 263 requires the order to be both erroneous and prejudicial to revenue, which was not demonstrated in this case; thus, the PCIT's order revising the assessment was quashed.

RATIONALE:

The court applied the statutory provisions of the Income-tax Act, 1961, particularly sections 68, 115BBE, 142(1), 147, 144B, and 263, along with judicial precedents emphasizing the twin conditions for invoking section 263: the order must be erroneous and prejudicial to revenue.It relied on the principle that "if the person sought to be taxed comes within the letter of the law, he must be taxed," and conversely, if the revenue fails to bring the case within the letter of the law, the taxpayer is entitled to relief.The court distinguished between "lack of enquiry" and "inadequate enquiry," holding that mere inadequacy does not justify revision under section 263, supported by precedents including decisions of the Hon'ble Apex Court and coordinate benches.The court noted that the AO had issued a detailed notice under section 142(1), and the assessee had furnished comprehensive documentary evidence including bank statements, ledger accounts, and contra confirmations, which were duly considered.The PCIT's reliance on statements recorded during search proceedings against the related company was insufficient to impugn the genuineness of the loan transaction of the assessee without incriminating material specifically against the assessee.The decision reaffirmed the strict interpretation of taxing statutes and the limited scope of revision under section 263, emphasizing that the jurisdiction cannot be exercised merely because the PCIT disagrees with the AO's view.