2025 (7) TMI 253 - AT - Income Tax

Revision u/s 263 - validity of reassessment proceedings stood completed on the assessee u/s 147 after making addition being the amounts received from 5 companies as unexplained cash credit u/s 68 and adhoc estimation of commission at the rate of 2 percent - HELD THAT - We hold that there is no error that could be attributed in the reassessment order even though no verification was indeed made by the AO with regard to amount received from Saloni Build Tech Private Limited. It is a fact that amount received from Saloni Build Tech Private Limited had already been reflected in the balance sheet and in the regular return of the assessee. Hence if at all there is any error the error could only be attributed in the original intimation framed under section 143(1) of the Act and not in the reassessment order. Hence in that scenario the original intimation under section 143(1) of the Act should have been subjected to revision within the permissible time limit as per section 263 of the Act. Reliance in this regard has been rightly placed by the learned AR on the decision of Alagendran Finance Limited 2007 (7) TMI 304 - SUPREME COURT . Respectfully following the same we hold that there cannot be any error in the reassessment order framed by the learned AO with regard to non-enquiry of amounts received from Saloni Build Tech Private Limited. Hence one of the twin conditions for initiating revision proceedings under section 263 stood non-satisfied. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal was whether the Principal Commissioner of Income Tax (PCIT) had validly exercised revision jurisdiction under section 263 of the Income-tax Act, 1961, to revise the reassessment order passed under section 147 of the Act for the assessment year 2014-15. Specifically, the issue was whether the reassessment order was erroneous and prejudicial to the interests of the revenue due to the non-inclusion of an amount of Rs. 1,45,00,000/- allegedly received from M/s Saloni Buildtech Private Limited, which was treated as an accommodation entry in a subsequent assessment year.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of revision jurisdiction invoked under section 263 of the Act to revise the reassessment order under section 147 for AY 2014-15.

Relevant legal framework and precedents: Section 263 of the Income-tax Act empowers the PCIT to revise any order passed by the Assessing Officer if such order is erroneous in so far as it is prejudicial to the interests of the revenue. However, the exercise of this jurisdiction is circumscribed by the requirement that the order under revision must be erroneous and prejudicial. The Supreme Court decision in CIT vs Alagendran Finance Limited (293 ITR 1) was relied upon, which clarifies that revision under section 263 cannot be invoked to correct errors in an order passed under section 143(1), especially if the order under section 147 or reassessment is not itself erroneous.

Court's interpretation and reasoning: The Tribunal noted that the reassessment order dated 27-03-2022 was passed after reopening the assessment under section 147 based on specific information received about accommodation entries aggregating Rs. 4.46 crores from five companies allegedly controlled by a common person. The reassessment order made an addition of this amount as unexplained cash credit under section 68 of the Act and also made an adhoc addition of commission.

The PCIT sought to revise this reassessment order under section 263 on the ground that an additional amount of Rs. 1.45 crores received from M/s Saloni Buildtech Private Limited was not added, despite this party being found tainted in the assessment year 2015-16. The PCIT contended that this amount should have been treated as an accommodation entry and added under section 68 in AY 2014-15 as well.

The Tribunal found that the assessee had not received Rs. 1.45 crores as share premium from Saloni Buildtech Private Limited but had received only Rs. 65 lakhs as loan during AY 2014-15. The assessee furnished all requisite details to prove the three ingredients of section 68 in respect of this loan, including repayment details, which were not disputed or found deficient by the PCIT. The Tribunal emphasized that once the assessee discharges its initial onus to prove the nature and source of credit, the burden shifts to the revenue to make further verifications, which was not done in this case.

The Tribunal relied on a coordinate bench decision which held that once reassessment proceedings are initiated on specific reasons and additions are made accordingly, the PCIT cannot invoke revision jurisdiction under section 263 on grounds not covered by the reasons for reopening. Here, the reassessment was based on accommodation entries from five companies, and the addition was made accordingly. The alleged omission regarding Saloni Buildtech Private Limited was not part of the reasons for reopening and thus could not be the basis for revision under section 263.

Key evidence and findings: The assessee's return and balance sheet reflected the amount received from Saloni Buildtech Private Limited. The assessee furnished documents to prove the genuineness of the loan and its repayment. The PCIT did not conduct any further inquiry or verification to challenge these documents. The reassessment order made additions only with respect to amounts from the five companies identified in the reopening reasons, excluding Saloni Buildtech Private Limited.

Application of law to facts: The Tribunal held that the reassessment order was not erroneous as it dealt with the specific reasons for reopening. The omission to add the amount from Saloni Buildtech Private Limited could, at most, be an error in the original intimation under section 143(1), not in the reassessment order. Since the time limit for revising the original intimation had expired, the PCIT could not invoke section 263 to revise the reassessment order on this ground.

Treatment of competing arguments: The PCIT argued that since Saloni Buildtech Private Limited was a tainted party in AY 2015-16, the amount received in AY 2014-15 should also be added. The Tribunal rejected this, noting the factual distinction that the amount received was a loan duly documented and repaid, not share premium, and that the PCIT had not challenged the documents. The Tribunal also rejected the PCIT's attempt to expand the scope of revision beyond the reasons for reopening the assessment.

Conclusions: The Tribunal concluded that the revision proceedings under section 263 were not maintainable as one of the twin conditions for invoking such jurisdiction-existence of an erroneous order prejudicial to revenue-was not satisfied in relation to the reassessment order. The revision proceedings were quashed, and the appeal of the assessee was allowed on both legal and factual grounds.

3. SIGNIFICANT HOLDINGS

"Once the assessee furnishes the primary details to prove the nature and source of credit within the meaning of section 68 of the Act, the assessee had discharged its burden and the onus shifts to the revenue. The revenue in the instant case had not bothered to make further verification with regard to the details furnished by the assessee. Hence, no adverse inference could be drawn on the documents filed by the assessee and no addition could be made under section 68 of the Act on merits."

"Once, the re-assessment proceedings are initiated on a specific issue and the addition is made in the hands of assessee then the Commissioner of Income Tax is precluded from exercise of jurisdiction under section 263 of the Act on a ground which is not covered by the reasons during the reopening of the assessment since the time for completing the assessment u/s 143(3) of the Act had expired."

"It is a fact that amount received from Saloni Build Tech Private Limited had already been reflected in the balance sheet and in the regular return of the assessee. Hence, if at all there is any error, the error could only be attributed in the original intimation framed under section 143(1) of the Act and not in the reassessment order. Hence in that scenario, the original intimation under section 143(1) of the Act should have been subjected to revision within the permissible time limit as per section 263 of the Act."

Core principles established include that revision jurisdiction under section 263 cannot be invoked to revise an order passed under section 147 unless the order is shown to be erroneous and prejudicial to revenue, and that the scope of revision is limited to the grounds on which reassessment was initiated. The burden of proof under section 68 initially lies on the assessee to furnish primary evidence, after which the burden shifts to the revenue to disprove the genuineness of the credit. Failure by the revenue to verify or challenge the documents furnished by the assessee precludes making additions under section 68.

Final determinations were that the reassessment order dated 27-03-2022 was not erroneous or prejudicial to the revenue in respect of the amounts received from Saloni Buildtech Private Limited, and therefore, the revision proceedings under section 263 were not maintainable and were quashed. The appeal of the assessee was allowed accordingly.