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2025 (5) TMI 1304 - AT - Income TaxRevision u/s 263 - Reassessment order passed u/s. 147 r.w.s. 144B challanged - AO mentioned that as the information received in the category of high risk transaction on Insight Portal assessee has significant financial transactions of unaccounted cash - HELD THAT - As in the reasons recorded for reassessment wrong information / incorrect information is mentioned. With respect to the information available with the AO is merely tax evasion petition wherein one person has informed that assessee has sold goods in cash out of books of account. Merely the names of parties are mentioned along with the amount against their names. There was no evidence with respect to any sale bill or any chit or any note showing the sale material and amount. The AO also did not make any enquiry before reopening of the assessment. Thus naturally the reasons recorded on reopening of assessment are not sustainable. Therefore reopening is bad. We find that the foundation of revisionary proceedings u/s. 263 culminating into revisionary order is the reassessment proceedings. If the reassessment proceedings itself are based on invalid assumption of jurisdiction u/s. 147 of the Act naturally the subsequent proceedings u/s. 263 of the Act cannot stand. Even otherwise on merits of the case the ld. PCIT has not mentioned what further enquires the AO should have made which he has failed to make. PCIT did not refer to any material which even remotely suggested that assessee has made sales in cash which is not recorded in the books of account. On the examination of cash sales summary it is apparent out of total sales of Rs. 10.14 crores sale of Rs. 96.86 crores is recorded in cash in the cash book of assessee. Beyond that no information is available with the Revenue that any sum received by assessee on sale of goods of fabric is not recorded in the books of account. It was further shown that the amount that has been stated as sales summary without bill is already in the books of account of the assessee. E.g. in case of Progress Zone Bangalore a sum of Rs. 1, 03, 061/- was not stated to be accounted for in the books as per the TEP. However on receipt of information from the same party it was found that Bill No. 708 dated 9.3.2017 is recorded in the books of account of the buyer and the seller. The same facts are available in case of other 3 parties shown before us which is also being noted that in case of Fashion Era all payments are made by the buyer by cheque. Therefore even in the reassessment proceedings in the absence of evidence no addition was made. The ld. PCIT also did not mention reference to any evidence. Therefore it is an accepted fact that no addition could have been made in the hands of the assessee in the absence of any information. The information is to be reliable and with evidence. The AO has made enquiries by obtaining information u/s. 133(6) from some of the parties and found that there is no substance in the tax evasion petition. Even that enquiry could have been made by the AO prior to issue of notice u/s. 142(1) of the Act. On the basis of these information the revisionary order passes is not sustainable for the reason that reassessment proceedings u/s. 147 of the Act are invalid and further even otherwise the order is neither erroneous nor prejudicial to the interests of the revenue because it was framed on the basis of information available on record and no tangible information is available with respect to unaccounted cash sales by the assessee as alleged in the tax evasion petition. Revisionary order passed u/s. 263 of the Act by the ld. PCIT is quashed - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of jurisdiction exercised by PCIT under section 263 Legal framework and precedents: Section 263 empowers the PCIT to revise any order passed by an AO if it is found to be erroneous in law or on facts and prejudicial to the interests of the revenue. However, the jurisdiction under section 263 is limited and cannot be exercised if the underlying order itself is invalid or passed without jurisdiction. Court's interpretation and reasoning: The Court noted that the revisionary proceedings under section 263 were predicated on the reassessment order passed under section 147. The Court found that the reassessment order itself was invalid because the reopening was based on incorrect and insufficient reasons. Since the reassessment order lacked jurisdictional validity, the subsequent revisionary order under section 263 could not stand. Application of law to facts: The PCIT relied on the reassessment order being erroneous and prejudicial. However, the reassessment order was passed on the basis of reopening that was bad in law. The Court held that if the foundation of the revisionary proceedings is flawed, the revisionary order must be quashed. Conclusion: The PCIT's jurisdiction under section 263 was invalid as the reassessment order was not sustainable. Issue 2: Validity of reopening under section 147 and sufficiency of reasons recorded Legal framework and precedents: Reopening of assessment under section 147 requires the AO to have a reason to believe that income has escaped assessment, supported by tangible material. The reasons recorded must be clear, specific, and based on credible information. Court's interpretation and reasoning: The Court observed that the AO's reasons for reopening mentioned escapement of income for AY 2016-17, whereas the reopening notice was for AY 2017-18, indicating a factual error. Further, the AO incorrectly stated that no original assessment had been made, ignoring the fact that an assessment under section 143(3) was completed accepting the returned income. The Court found that the reopening was based on mere information from an Insight Portal and a TEP, without any tangible evidence such as bills, invoices, or corroborative documents. Key evidence and findings: The TEP alleged unaccounted cash sales of Rs. 16.85 crores but did not provide supporting documentary evidence. The AO did not conduct adequate enquiries before reopening. The AO's enquiries post-reopening included issuing notices under section 133(6) to 10 parties, with limited responses and no conclusive evidence of unaccounted sales. Application of law to facts: The Court held that the reasons recorded were based on incorrect information and lacked tangible material. The AO's failure to verify the information before reopening rendered the reopening invalid. Treatment of competing arguments: The assessee argued the reopening was bad in law due to incorrect reasons and lack of evidence. The Revenue contended that the TEP and partial enquiries justified reopening. The Court sided with the assessee, emphasizing the absence of credible material and procedural lapses. Conclusion: The reopening under section 147 was invalid and the reassessment order passed thereon was unsustainable. Issue 3: Whether reassessment order was erroneous and prejudicial to the interests of the revenue Legal framework: An order is erroneous and prejudicial if it is based on incorrect facts or law, or if the AO fails to make necessary enquiries resulting in loss to the revenue. Court's interpretation and reasoning: The reassessment order accepted the returned income without making any additions despite the TEP allegations. The AO had issued notices to some parties but did not receive conclusive evidence to support the claim of unaccounted sales. The Court noted that the PCIT did not specify what further enquiries were necessary or what material was overlooked. The Court found that the AO had made reasonable enquiries based on available information and the reassessment order was not erroneous or prejudicial. Application of law to facts: Since no credible evidence was found to support the claim of unaccounted sales, and the reassessment order reflected the returned income, the order could not be faulted as erroneous or prejudicial. Treatment of competing arguments: The Revenue argued that the reassessment was incomplete and enquiry insufficient. The Court found no basis for this, as the AO had conducted enquiries and accepted the returned income in absence of evidence. Conclusion: The reassessment order was neither erroneous nor prejudicial to the interests of the revenue. Issue 4: Adequacy of enquiries by AO before passing reassessment order Legal framework: AO is required to make necessary enquiries to verify the genuineness of the income and transactions before completing reassessment. Court's interpretation and reasoning: The AO issued notices under section 133(6) to 10 major parties, received responses from 4, and invoices from 2. The Court found that the AO had made reasonable efforts to verify the information. The PCIT's assertion of inadequate enquiry was not supported by any specific findings or evidence. Application of law to facts: The AO's enquiries were proportionate and based on available information. The absence of evidence from parties did not imply failure of enquiry. Conclusion: The AO conducted adequate enquiries before passing the reassessment order. Issue 5: Whether assessee can challenge validity of reassessment in revisionary proceedings under section 263 Legal framework: Generally, validity of reassessment can be challenged in appeals or writ proceedings. However, the scope of challenge in section 263 proceedings is limited to whether the order is erroneous or prejudicial. Court's interpretation and reasoning: The Revenue contended that the assessee cannot challenge reassessment validity in section 263 proceedings. The Court observed that since the reassessment order was the basis for revision, and the reassessment itself was invalid due to lack of jurisdiction and improper reasons, the question of revising such an order does not arise. The Court treated the challenge to reassessment validity as integral to deciding the revisionary jurisdiction. Conclusion: The assessee was entitled to challenge the reassessment validity in the context of section 263 proceedings, and such challenge was upheld. 3. SIGNIFICANT HOLDINGS The Court held that:
Core principles established include:
Final determinations:
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