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2024 (3) TMI 959 - DELHI HIGH COURTValidity of Revision u/s 263 - Revision of orders prejudicial to revenue - loan transactions advanced to the assessee by entry operators - disallowance u/s 14A of the Act read with Rule 8D(2)(iii) - PCIT, while exercising the revisional powers, recorded that M/s. Sarvottam Securities Ltd. and M/s. Upaj Leasing & Finance Pvt. Ltd. are the shell companies of Mr. Himanshu Verma, an entry operator and the assessee was the beneficiary of the unsecured loans received through the entry operator and AO ought to have done further inquiry to ascertain the genuineness and creditworthiness of the loan transactions - HELD THAT:- As in light of the findings which are unravelled from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. that the entities M/s. Sarvottam Securities Ltd. and M/s. Upaj Leasing & Finance Pvt. Ltd. are the shell companies of an entry operator, the relevance of ascertaining the genuineness and creditworthiness of the transactions cannot be undermined. Additionally, the genuineness and creditworthiness of the transactions may not be satisfactorily determined solely on the basis of the ledger accounts or the ITR of the entities, especially when the identities of such entities are not bona fide. As observed in N.R. Portfolio [2013 (11) TMI 1381 - DELHI HIGH COURT] the task of unveiling the mischief of the human minds working behind the corporate veil in such cases requires a deeper scrutiny, which goes beyond the periphery of documents ordinarily submitted for the purpose of assessment. An inquiry for ascertaining the creditworthiness and genuineness of financial transactions necessarily requires unknotting of the transactions, by going beyond what is conspicuously available. Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and creditworthiness of aforenoted loan transactions. Therefore, this is the minimum inquiry which atleast was expected to have been made by the AO. It is apposite to point out that clause (a) of Explanation 2 of Section 263 of the Act introduces a deeming fiction to the effect that the order passed by the AO shall be considered erroneous and prejudicial to the interests of the Revenue, if the order is passed without making inquiries or verification, which should have been made. Henceforth, since neither there is any facet of discussion about the aforenoted aspects in the assessment order nor the assessment record duly reflects that the AO has done inquiry in the light of the findings of the investigation report. We find that the present is a fit case to invoke the revisional powers under Section 263 of the Act. So far as question (a) is concerned, we hold that the ITAT was incorrect in holding that the AO had duly made the inquiry in the instant case and considered the material produced before it. Furthermore, the ITAT also erred in holding that the PCIT has wrongly assumed the jurisdiction under Section 263 of the Act as the assessment order is not only prejudicial to the interests of the Revenue but also erroneous in nature. So far as question (b) is concerned, it is crystal clear that Explanation 2 to Section 263 of the Act will be applicable in the instant case as the said explanation was inserted vide Finance Act, 2015 with effect from 01 June 2015 and the case of the assessee belongs to AY 2016-17. Thus, questions of law need to be answered in favour of the Revenue and against the assessee.
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