TMI Blog2023 (3) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per A. D. Jain, V. P. This is assessee's appeal against the order dated 26.3.2019 passed by the PCIT-III, Ludhiana, under section 263 of the Income Tax Act, 1961. 2. There is a delay of 16 days in filing the appeal. As per application dated 15.6.2019, which is accompanied by an affidavit of the partner of the Assessee-firm, the appeal was to be filed by 2.6.2019, but it was filed with a delay of 16 days, which occurred due to foreign trip of Shri Kumar Gaurav, partner of the Assessee-firm and the illness of his father. Vide application dated 26.8.2021, the Assessee filed a copy of the passport of the aforesaid partner, showing that the assessee had travelled to Uganda on a business trip during the relevant period. Further, a certificate from Karan Singla Surgical General Hospital, Jagraon has been filed, certifying that the father of the partner of the Assessee-firm was admitted in the said hospital from 17.5.2019 to 31.5.2019, prior to his admission in the PGI, Chandigarh. A copy of the discharge summary of Shri Gian Chand Gupta, father of Shri Kumar Gaurav, partner of the Assessee-firm, from PGI, Chandigarh has also been filed. 3. From the above, eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer had failed to look into these issues and had framed the assessment without application of mind; that the Assessing Officer had simply relied on whatever submissions had been made by the assessee, and had accepted them; that in this case, it was logical to enquire into the source and creditworthiness of the unsecured loans; that in such cases, the vital piece of enquiry is that which establishes, through evidence, the genuineness or otherwise of the transaction; that the Assessing Officer did not look into it, thereby completely failing to look into the three mandatory parameters of identity, creditworthiness and genuineness of the transaction; and that clearly, the assessee had not discharged its onus of establishing the genuineness of the transactions and the Assessing Officer did not make even very basic enquiry on it. The Ld. PCIT, as such, set aside the assessment order to the file of the Assessing Officer for passing a fresh order in accordance with law, in respect of the issue discussed, after giving sufficient opportunity of hearing to the assessee. 5. It has been contended on behalf of the assessee that the case of the assessee was selected for limited scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal audit objection; that this notice is factually incorrect and has been based merely on assumptions and presumptions; that in the last para of the said notice, it has been mentioned that out of Rs. 5.84 cores of unsecured loans, an amount of Rs. 2 crores is required to be treated as unexplained; that the assessee, on the other hand, explained that it had, in fact, accepted unsecured loans amounting to Rs. 3,22,89,000/- only during the year, and not of Rs. 5.84 crores, as stated in the notice, and no unsecured loan of Rs. 2 crores had been accepted by the assessee; and that this figure of Rs. 2 crores was merely an ad-hoc amount. 8. It has further been stated that notice dated 23.8.2018 was issued under section 263 of the Act; that this notice was, again, based on the internal audit objection; that in para 3 of the said notice, the Ld. PCIT has again referred to the unsecured loans of Rs. 2 crores, without making reference to any loan creditors; that this, once again, is an ad-hoc figure; that in its reply to the show cause notice issued under section 263 of the Act, the assessee stated [APB:192, para 2] that the version given therein is factually incorrect, since an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed by the Ld. PCIT cannot be sustained; that the Ld. PCIT has also failed to take into consideration the fact that the assessee had duly paid interest to all the depositors, which expenditure had been allowed as genuine expenditure in the year under consideration, as also in the earlier and subsequent years; and that for these reasons, the order under appeal be quashed, on allowing the appeal of the assessee. 9. The Ld. DR, on the other hand, has placed strong reliance on the impugned order. It has been contended that the assessment order passed by the Assessing Officer was an order of ten lines, passed without discussing any issue, without making any verification of unsecured loans; that the notice dated 26.12.2016, issued under section 142(1) of the Act, called for only calculation of net profit, trading account, computation chart and audit report, etc., without raising any query on the unsecured loans; that vide notice dated 10.2.2017, the only evidence regarding the genuineness of the unsecured loans was called for; that no question was asked with regard to the creditworthiness of the unsecured loan creditors; that it was only on 28.3.2017, after seeking various adjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power by merely citing the audit objection cannot be said to be a valid exercise of such power, that the Ld. PCIT is required to give an independent finding, considering the record and pointing out the error in the order of the Assessing Officer, which error is prejudicial to the interests of the Revenue. Reliance was placed on C.B.D.T. Instruction No. 7/2017, dated 21.7.2017, laying down the Standard Operating Procedure to enable receipt/Revenue audit objections, and stating that it is incumbent upon the Ld. PCIT to take action under section 263 of the Act on the acceptance of the audit objection. Reliance was placed on 'CIT vs. Shree Manjunathesware Packaging Products and Camphor Works', 96 Taxman 1 (SC). Reliance was also placed on 'Mannesmann Demag A.G. vs. DCIT', 53 ITD 533 (Del.). Apropos the assessee's contention that the assessment order was neither erroneous, nor prejudicial to the interests of the Revenue, it has been contended by the Department that as was the case herein, the Assessing Officer's action of just raising a query and just receiving information filed by the assessee does not amount to enquiry, rendering the assessment order both erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the creditworthiness of such lenders, sans which, mere filing of the return of income, PAN and bank account statement is not sufficient. 11. In its rejoinder, the assessee has contended that in the assessment order, the Assessing Officer has clearly stated that he has placed all the documents on record and has considered and discussed the same with the Counsel of the assessee; that therefore, it is incorrect to contend that the assessment order was only of ten lines and contained no discussion on any issue; that it has been wrongly submitted by the Department that the Assessing Officer has not raised any question regarding creditworthiness of the unsecured loans; and that para 2(ii) of the notice issued under section 142(1) of the Act clearly raised the following query: furnish necessary evidence regarding the genuineness of the unsecured loans received during the year by giving their complete address, PAN, whether assessed to income tax or not, and their confirmed copies of accounts. Also explain the reason for much (sic) huge increase of unsecured loans during the year . 12. It was contended that the assessee made full compliance of the aforesaid query, by fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have gone through the material placed on record. 14. The assessee's case was selected for limited scrutiny vide notice dated 29.7.2016, issued under section 43(2) of the Act. Therein, inter alia, the issue of unsecured loans was identified for examination. A copy of the said notice has been placed at pages 9 10 of the assessee's paper book ('APB' for short). A notice under section 142(1) of the Act was also issued. In response to this notice, the assessee filed reply dated 28.3.2017 (APB:11). Along with the said reply, confirmed copies of account of various unsecured loans, along with proof of fresh additions (if any), were enclosed. The said details have been filed before us at pages 1 to 139 of the APB. These details consist of: (i) Detailed chart of unsecured loans. Pages 1-2 of paper book. (ii) Copy of ledger account of the unsecured Loan creditors duly confirmed by the creditors with the PAN mentioned in the same. The said copy of accounts reflects the receipts of the amount or any payment made in account and also the interest paid on unsecured loans with TDS deducted on the same. (iii) Copy of Income Tax return along with computation of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the claim of capital gain was accepted by the Assessing Officer after necessary enquiry and it was thereafter that the order under section 143(3) of the Act was passed; that it was true that the Assessing Officer had not passed any written detailed order while accepting the explanation of the assessee with regard to capital gains, but the fact was that the Assessing Officer had raised queries and the assessee had given detailed reply, which meant that the Assessing Officer had passed his order after making necessary enquiries; that they (the Hon'ble Court) agreed with the view of the Tribunal that the order of the Assessing Officer cannot be branded as erroneous merely because the order does not contain the details which the PCIT feels should have been included. Their Lordships found support form 'CIT vs. Gabriel India Ltd.', 203 ITR 108 (Bombay), wherein it was held that the power of suo motu revision under sub-section (1) of section 263 of the Act is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist; that if the Income Tax Officer, acting in accordance with law, makes a certain assessment, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case the assessee had had produced necessary evidence that there was no discrepancy either in cash or in the stock; that the Assessing Officer did not accept the assessee's explanation in respect of cash and added Rs. 50,000/- to its total income; that however, the Assessing Officer accepted the explanation in respect of difference in stock; that the record also showed that the contention of the assessee was found to be correct on verification and, therefore, the Assessing Officer had accepted the contention of the assessee that in fact, there was no discrepancy in stock; and that the Tribunal had decided the matter against the assessee, basing its findings entirely on the fact that there was no mention in the assessment order about the inquiries made by the Assessing Officer regarding the discrepancy in stock. It was held that this was not the correct approach, as was evident from the provisions of section 263(1) of the Act; that in the absence of any suggestion by the CIT as to how the enquiry was not proper, the action taken by him under section 263 of the Act could not be sustained; and that thus, the findings of the Tribunal were liable to be reversed and the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat out of total 29 loan creditors, 15 creditors are old loan creditors, whose loans have been accepted as genuine in the earlier years. The source of the source as shown by the creditors does not prove the assessee to be indulging in capital formation or to be routing his own income, as sought to be made out in the impugned order. With regard to the loans, the interest paid by the assessee to the creditors stands assessed in the hands of the creditors. This apart, the interest has been allowed as expenditure to the assessee not only during the year under consideration, but also in the earlier as well as subsequent years. 19. So far as regards the internal audit objection, in the notice, it was mentioned that out of Rs. 5.84 crores, unsecured loans of Rs. 2 crores were required to be treated as unexplained. As explained by the assessee before the Assessing Officer by virtue of reply dated 23.4.2018 (APB:187-188), in fact, the assessee had accepted fresh unsecured loans to the tune of Rs. 3,22,89,000/- only, and not of Rs. 5.84 crores. Further, no unsecured loans of Rs. 2 crores were there. Therefore, the Ld. PCIT erred in raising the issue of alleged unsecured loans of Rs. 2 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08. Rajiv Aggarwal 1050000/- 1050000/- 09. Ram Kanwar 45000/- 45000/- 10. Ram Kanwar HUF 265000/- 265000/- 11. Shri Bhagwati Agro Mills 2000000/- 2000000/ - 12. Komal Aggarwal 950000/- 950000/- 13. Rajnish Jain 1010000/- 1010000/- 14. Rohini 520000/- 520000/- 15. Abhishek Jain 350000/- 1350000/- 16. Gian Ghand HUF 468000/- * 468000/- * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhagwati Agro Mills 2000000/- 2000000/- 36. Surjiv Kumar 1440000/- 1440000/- 37. Surjiv Kumar HUF 10000/- 10000/- 38. Ram Kanwar HUF 55000/- 55000/- 39. Rohini 20000/- 20000 /- 40. Rajneesh Jain HUF 202416/- 202416/- 41. Parminder Singh Co. 1000000/- 1000000/- 42. Abhishek Jain 353797/- 353797/- 43. Ashish Jain 1000000/- 1000000/- 44. Gian Chand HUF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed proof of the source from which they had offered credits to the assessee and in most of the cases, they were all assessed to tax and the transactions had been conducted through regular banking channels, the cash credits were to be accepted as genuine. 25. In 'Prayag Tendu Leaves Processing Co. vs. CIT', 400 ITR 120 (Jharkhand), it was held where the assessee had given support of the amount received from a particular person with necessary documents, such as copies of demand draft and cheques, no addition could have been made in respect of the amounts received by the assessee; and that in view of the amounts having been received through account payee cheques or bank drafts, the assessee could not have been asked about the source of income of its creditors. 26. In 'Braham Deve Gupta vs. PCIT, New Delhi', 88 taxmann.com 831 (Del) (Trib.), it was held that where the assessee brought on record the audited profit loss account, balance sheet, statement of affairs and capital account, which were duly examined and the Assessing Officer had also verified the books of account, vouchers, etc., there was no question of lack of enquiry on the part of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ham Dev Gupta VS Pre CIT (Del)187TTJ 1 2 CIT vs Anil Kumar Sharma 335 ITR (Del) 83 3 Sir Dorabji Tata Trust Vs. DCIT (E) ITAT Mumbai F Bench 209 TTJ (Mumbai) 409 4 CIT Vs. Nirav Modi 390 ITR (Bom) 292 5 Reliance Money INF Ltd. Vs. Pr. CIT-183 TTJ (Mum)636 6 Delhi Airport Metro Express (P) Ltd., Vs Pr. CIT- 184 TTJ(Del) 32 7 Colour Publications (P) Ltd. Vs. Pr.CIT-196 TTJ (Mum)257 8 Aryan Arcade Ltd. Vs, Pr. CIT- 412 ITR (GUJ) 277 9 Meerut Roller Flour Mills (P) Ltd., Vs CIT- 420 ITR (AII) 216 10 Khetawat Properties Ltd. Vs Pr. CIT-205 TTJ (Cal) 412 11 Yogesh Mavjibhai Gala Vs. Pr. CIT- 208 TTJ (Mum) 872 12 MOIL Ltd Vs. CIT- 396 ITR (Bom) 242 13 Yerram Venkata Subb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not so. As discussed, herein, specific query was raised by the Assessing Officer which was replied to in detail by the assessee and the Assessing Officer, as noted in the assessment order, had examined all the documents filed by the assessee and the Assessing Officer had accepted the same while framing the assessment order. 35. In 'CIT vs. Active Traders (P) Ltd.' (supra), again, no enquiry had been made by the Assessing Officer, whereas in the assessee's case, it is not so. 36. In 'Denial Merchants Pvt. Ltd. vs. ITO' (supra), the assessee's appeal before the Hon'ble High Court was dismissed on the ground that no substantial question of law arose. The SLP was dismissed by the Hon'ble Supreme Court for the reason that the CIT had cancelled the assessment on the basis that the receipt of share application money had been accepted by the Assessing Officer without making any proper enquiry. Again, the facts are entirely different from those of the assessee's case. 37. In the case of 'Rajmandir Estates Pvt. Ltd. vs. PCIT' (supra), the Assessing Officer had accepted the share application money on the basis of the list of shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the source of the creditors. 3) The query raised by the AO was, thus, responded to by the Assessee. 4) On the basis of the voluminous documentary evidence so produced by the Assessee before the AO as well as before the PCIT, the genuineness of the loans and the creditworthiness of the loan creditors cannot be said to be not proved, particularly in the absence of any finding of the Ld. PCIT to such effect. 5) Just because the satisfaction of the AO to the response of the Assessee was not recorded in an elaborate manner in the assessment order, this was not reason good enough for the Ld. PCIT to have ensconced upon invoking revisionary jurisdiction u/s. 263 in the absence of the twin perquisites of the assessment order being erroneous and prejudicial to the interests of the Revenue having been established. 6) Mere brevity or terseness of the assessment order, by itself, did not entitle the powers under section 263 to be set in motion, eliciting the PCIT's conclusion that no proper enquiry had been conducted by the AO. 7) The fact that the AO had raised queries and the Assessee had responded by filing all the requisite documentary evidence meant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 21) The Department has not been able to deny before us, the obtaining position, as above. 22) Though he said so in the impugned order, the PCIT did not state, either in the show cause notice, or in his order, the creditors from whom the alleged amount of Rs. 2 crores had been received by the Assessee. 23) The figure of Rs. 2 crores mentioned by the PCIT was, in fact, taken from the internal audit objection, as also had been queried about by the AO, which query had adequately been responded to by the Assessee, to the entire satisfaction of the AO, and the error in raising this figure as credits accepted by the Assessee was laid bare before the PCIT, which, though, was wrongly not accepted by the PCIT. 24) The Department has remained unable to dispute that the figure of Rs. 2 crores is, in fact, the difference between the loan credits taken by the Assessee during the year, at Rs. 3,22,89,000/- and the amount of Rs. 1,13,03,863/-, representing loans repaid. The figure of Rs. 2 crores, therefore, is not the amount of unsecured loans accepted by the Assessee during the year under consideration. The Assessee's explanation to this effect was simply ignored by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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