Kishore Navinchand Jain, Aurangabad V. Principal Commissioner of Income-Tax -1, Aurangabad

ITA 309/PUN/2021

AI Insights

The case involves Kishore Navinchand Jain, an individual engaged in trading activities, who appealed against the order of the Principal Commissioner of Income Tax-1, Aurangabad, which was based on the reassessment order under section 143(3) r.w.s 147 of the Income Tax Act, 1961 for the assessment year 2012-13. The reassessment was initiated to verify the genuineness of unsecured loans used for purchasing property. The Tribunal found that the Assessing Officer had adequately verified the loans and accepted the returned income, leading to the annulment of the section 263 order. The Tribunal also addressed the issue of the timeliness of the section 263 order, concluding it was not time-barred due to an extension granted by the Supreme Court during the COVID-19 pandemic.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134357 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 18-04-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 18-07-2021
• Other Referred Cases: CIT Vs. Future Corporate Resources Ltd, CIT vs Reliance Communications Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: OBTAINING UNSECURED LOANS FROM
• Keywords: Reopening of assessment; Revision of order; Opportunity of being heard; Period of limitation; Assessment record; Reassessment proceedings; Set aside
• Section: 148; 263; 143(3); 14A; 133(6)

Judgement Text

आयकर अपीलीय अिधकरण “बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपीलसं. / ITA No.309/PUN/2021 िनधाᭅरण वषᭅ / Assessment Year : 2012-13 Kishore Navinchand Jain, C/o.Pooja Machinery, Shahganj, Aurangabad – 431001. PAN: AAUPJ 7367 D Vs The Principal Commissioner of Income Tax-1, Aurangabad. Appellant/ Assessee Respondent /Revenue Assessee by Shri Neelesh Khandelwal – AR Revenue by Shri Sardar Singh Meena - DR Date of hearing 19/04/2023 Date of pronouncement 27/04/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Principal Commissioner of Income Tax-1, Aurangabad dated 04.06.2020 emanating from the order of the Assessing Officer dated 19.12.2017 under section 143(3) r.w.s 147 of the I.T.Act, 1961 for the A.Y.202-13. The Assessee has raised the following grounds of appeal: “1. The learned Taxing authorities below had erred in passing order u/s 263. The Income Tax Act provides time of two years from the end of the financial year in which the order sought to be revised was passed. The Assessment order was passed u/s 143(3) r.w.s 147 ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 2 on 19.12.2017. The order under appeal was passed on 04.06.2020 after the expiry of two years. Considering the facts of the case and provisions of law, the order u/s 263 be treated as invalid and bad in law. Just and proper relief be granted to the appellant. 2. Without prejudice ground No.1, the learned Taxing authorities bellow had erred in re-opening the assessment u/s 263. Considering the facts of the case that scrutiny assessment completed u/s 143(3) for AY 2014-15 and re-assessment completed u/s 143(3) r.ws. 147 of the IT Act for 2012-13. Hence, the reopening of assessment u/s 263 is unwarranted and unnecessary. 3. Without prejudice ground No.1 and2, The learned Taxing authorities below had erred in set aside the order passe by learned Assessing Officer u/s 143(3) r.w.s 147. Considering the facts of the case and genuineness of the unsecured loans availed by the appellant, the order passed u/s 263 be set aside as unwarranted and the order passed by learned ITO be reinstated. 4. The appellant prays to be allowed to add, to delete, to enlarge the grounds of appeal at the time of hearing.” Brief facts of the case: 2. The Assessee is an individual engaged in trading activity of machinery, pipes etc. The name of the proprietary concern of the assessee is “Pooja Machinery”. The assessee filed Return of Income for A.Y. 2012-13 on 26.09.2012 declaring total income at Rs.2,05,840/-. In this case, Assessing Officer(AO) reopened assessment by issuing notice under section 148 of the Act, dated 04.10.2016. The reasons recorded for reopening are as under: “During the course of assessment proceedings in the assessee’s own case for the Assessment year 2014-15 it is noticed that assessee has purchased immovable property situated at N-4, ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 3 CIDCO, Aurangabad for a consideration of Rs.70,59,588/-] and the purchase deed was executed on 14/10/2013 i.e. during the financial year 2013-14 pertaining to A.Y.2014-15. Further, on verification of purchase deed it is noticed that, the assessee has made entire payment of Rs.80,00,000/- in the financial year 2011-12 pertaining to A.Y. 2012-13. On verification of submission, it is further noticed that, the property was purchased by the assessee by obtaining unsecured loans from 11 persons. The assessee was asked to produce the copies of return of income, copies of their bank accounts for the F.Y. 2011-12 of these 11 persons. Out of these 11 persons 7 persons belong to the family of the assessee. On verification of the bank account details of these 7 persons, it is noticed that they had made cash deposits in their bank account before issue of cheques to the assessee. The unsecured loan amount of these 7 persons comes to Rs.35,00,000/-. To examine the genuineness of the unsecured loan accepted by the assessee require further verification. I, have, therefore, reasons to believe that the income chargeable to tax to believe that the income chargeable to tax to the extent of Rs.80 lakhs has escaped assessment for the relevant assessment year within the meaning of explanation of section 147 of the Income-tax Act,1961.” 3. The AO passed an assessment order under section 143(3) r.w.s 147 on 19.12.2017 accepting the Return of Income. The AO has specifically mentioned in the assessment order as under : “After verification of books of accounts relevant to the reasons of scrutiny and return of income and details filed during the course of assessment proceedings, the return of income of the assessee is accepted.” ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 4 3.1 Subsequently, the ld.Pr.CIT-1, Aurangabad initiated proceedings under section 263 of the Act on the ground that AO has failed to verify the unsecured loans, therefore, the ld.Pr.CIT treated the assessment order erroneous and prejudicial to the interest of the Revenue. Aggrieved by the order of the Ld.Pr.CIT, the assessee has filed appeal before this Tribunal. Submission of the Ld.Authorised Representative(ld.AR): 4. The Ld.AR for the Assessee filed paper book. Ld.AR submitted that the AO had verified the unsecured loans during the Original Assessment proceedings for AY 2014-15 itself. The AO had issued Notices under section 133(6) of the Act during assessment proceedings for A.Y. 2014-15 and all the lenders have replied to the AO. The AO in the assessment order for A.Y. 2014-15 has given a categorical finding that details of investments for purchase of property were called for and verified. Therefore, there was no valid reason for reopening. Then the AO again verified the Unsecured loan during reassessment proceedings. The assessee had submitted all the details during reassessment proceedings again. The AO verified all these details and then passed the reassessment order accepting return of income. The ld.AR submitted that Assessee has filed all the relevant details of purchase of property. Therefore, Pr.CIT has erred ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 5 in invoking jurisdiction u/s 263. Once the Ld.AO has taken a possible view after verification of the documents, the ld.Pr.CIT cannot say that the assessment order is erroneous. The Ld.AR took us through various case laws filed by him. Submission of Ld. Departmental Representative(Ld.DR): 5. The Ld.DR for the Revenue filed a paper book. “2. Powers of the PCIT / CIT within the jurisdiction assigned: This is brought to the kind notice of the Hon’ble Bench that CIT / PCIT is vested with all the powers in respect of cases falling within his jurisdiction as per the notification of the Government of India and nothing can deter the power of the CIT what has been assigned by the Government of India. Further, the jurisdiction to the Assessing Officer / Range Head has been assigned by the PCIT / CIT on the authority of the notification of the Government of India. The delegated AO / Range Hed informing to the CIT who is having original jurisdiction cannot in any way take away the powers / jurisdiction of the CIT. Further, there is no rule prescribed u/s 263 the particular manner in which the power is to be exercised. In fact, besides the revenue audit, there is a system in place in the department for supervision of the assessment orders and other orders like penalty etc. through periodical inspection and ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 6 review by the PCIT as well as Range Heads and also through internal audit to find out the errors in such orders with regard to revenue leakages. Also there is a system in place to take remedial actions if some errors / revenue leakages are found in such orders and the final decision for taking a remedial action is taken by the PCIT / CIT after due application of mind. For example, if some remedial action is required on the audit objection raised in a particular case, the final decision / approval is always taken of the PCIT / CIT before initiating remedial action by way of provisions of section 154, section r.w.s. 148 or section 263 of the Act. 2.1 It is not necessary for the PCIT that he should suo moto call for records and examine it with a view to find out whether the order of the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. The PCIT is entitled / empowered by the law to initiate the proceedings u/s 263 either suo moto or on the basis of information as may be given to him by the departmental authorities or by the internal auditor or the audit officer of the CAG department or o the basis of information received from any other sources. To the extent the CIT receives information from any of these sources, it is purely an administrative action. The quasi judicial function of the CIT u/s 263 starts from the stage when he makes up his mind and issues show cause notice to the assessee under the said section. Thereafter, the CIT is required to give an opportunity of being heard to the assessee before arriving at a conclusion that an order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 7 In the present case the PCIT has perused the case record and has duly applied his mind before issuing notice u/s 263 of the Act. He has given adequate and reasonable opportunity to the assessee and has also give convincing reasons in the order passed by him which fully support the order of the PCIT.” with regard to revenue leakages. Also there is a system in place to take remedial actions if some errors / revenue Findings and Analysis : 6. We have heard both the parties and perused the records. It is an admitted fact by both the parties that the case of the assessee was reopened u/s.148 for verification of unsecured loan especially regarding cash deposits in the bank accounts of some lenders. It is not disputed that the assessee had submitted all the relevant details during the reassessment proceedings. The AO had verified the details and then accepted the returned income. The AO, ITO ward 2(2) Aurangabad has mentioned in the Assessment Order u/s 143(3) r.w.s 147 of the Act that he has verified the books of accounts, submission of the assessee relevant to the reason of scrutiny and then accepted the returned income. 6.1 Ld.Pr.CIT has observed that as under in the Order u/s 263: ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 8 Quote, “4.2 On verification of assessment records, it is seen that the main reason for issue of notice under section 148 of the Income- tax Act, 1961 was to verify the genuineness of the unsecured loans accepted by the assessee. It has been mentioned by the assessing officer in the reasons recorded for issue of notice under section 148 that out of these creditors 7 persons are the family members of the assessee and the unsecured loan providers deposited cash in their bank accounts before issuance of cheques to the assessee. However, while passing the order u/s 143(3) r.w.s 147, the issue of cash deposit immediately before issuance of cheques to the assessee was riot verified by the assessing officer. 4.3 On perusal of the bank statement of one of the creditors Vighneshwar Finance & Investment Ltd. it is seen that the creditor had received amount of Rs.13,00,000/- through RTGS on 19.10.2011 and on the same day Rs.10,00,000/- was transferred to the assessee. Before the credit of Rs.13,00,000/- in to the bank account of the creditor, the amount/ balance available in the bank account was Rs.2,598/-. Further, in the notes to the financial statements of Vighneshwar Finance & Investment Ltd. it has shown short term loans and advances totalling to Rs. 77,25,000/- with narration “unsecured, considered good”. Further, other long term loans advances as “unsecured, considered good” totalling to Rs.38,50,000/-. The year under consideration is the year of Commencement of the business of the company and the company is showing unsecured loans/advances as “good”. Therefore, it is clear that the said company is likely to be a mere entry provider. 4.4 The unsecured loans provided by 7 family members are also on same footing. There were cash deposits in their respective bank accounts immediately before issuance of cheques. The source of income shown in most of the cases is brokerage and commission, ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 9 tailoring and embroidery. The returns of income of the creditors have been placed on records but the detailed investigation regarding actual existence of business, assets required for the same, creditworthiness of the creditors was not done by the assessing officer.” Unquote. 6.2 Thus, the Ld.Pr.CIT has observed in the order u/s 263 that the creditworthiness of the creditors was not verified by the AO, ITO ward 2(2) Aurangabad. It is also admitted by the Ld.Pr.CIT that the assessee had submitted copies of Bank statements of the creditors, copies of return of income of the creditors, Loan confirmations. The AO, ITO, Ward-2(2), Aurangabad had called for information u/s.133(6) of the Act from the creditors. The AO had called for following information u/s 133(6) : 6.3 The lenders have provided the information called for by the AO. The AO had also called for information directly from the Bank Manager, Ajintha Urban Co-Op Bank Ltd Aurangabad, bank statements for the period 01/04/2011 to 31/03/2012 of following persons: 6.4 The Bank had independently provided the information to th AO. 6.5 In these circumstances, it is clear that the AO Aurangabad, lenders u/s 133(6), called specific information and after studying the said information, creditors to be genuine. depends on is no procedure laid down in the Act, Income Tax Rules regarding verification of unsecured loans. The only things Assessee has to prove is identity of the lenders, genuineness of the transaction an creditworthiness of the lenders. In this case Identity and genuineness is not doubted by the ld.Pr.CIT is about creditworthiness. In this case the AO had carried out necessary verification, the Assessee as well as Kishore Navinchand 10 The Bank had independently provided the information to th In these circumstances, it is clear that the AO Aurangabad, had applied his mind, therefore, he issued notices to u/s 133(6), called specific information and after studying the information, AO, ITO, Ward 2(2) Aurang creditors to be genuine. The level of investigation in any case the officer and his understanding of the situation. There is no procedure laid down in the Act, Income Tax Rules regarding verification of unsecured loans. The only things Assessee has to prove is identity of the lenders, genuineness of the transaction an creditworthiness of the lenders. In this case Identity and genuineness is not doubted by the ld.Pr.CIT. The only doubt raised by the Pr.CIT is about creditworthiness. In this case the AO had carried out necessary verification, the Assessee as well as ITA No.309/PUN/2021 Kishore Navinchand Jain [A] The Bank had independently provided the information to the In these circumstances, it is clear that the AO, ITO, Ward-2(2), had applied his mind, therefore, he issued notices to u/s 133(6), called specific information and after studying the ard 2(2) Aurangabad accepted the The level of investigation in any case the officer and his understanding of the situation. There is no procedure laid down in the Act, Income Tax Rules regarding verification of unsecured loans. The only things Assessee has to prove is identity of the lenders, genuineness of the transaction and creditworthiness of the lenders. In this case Identity and genuineness Pr.CIT. The only doubt raised by the Pr.CIT is about creditworthiness. In this case the AO had carried out necessary verification, the Assessee as well as the creditors ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 11 submitted the details called by the AO. The Assessee, lenders had submitted copy of Return of Income, Balance sheet, Bank statement of lenders, Audit report of lenders where ever Audit was applicable. Then after studying the details, the AO arrived at the decision that Loans are genuine. In these circumstances the ld.Pr.CIT cannot replace his own satisfaction. Once the AO after carrying out necessary verification of the impugned issue arrives at a conclusion, the conclusion of the AO is a possible legal view, then the ld.Pr.CIT cannot say that the assessment order is erroneous on account of non- inquiry or inadequate inquiry. 6.6 The Hon’ble Bombay High Court in the case of CIT Vs. Future Corporate Resources Ltd, in IT Appeal No.1275 of 2017 vide order dated September 29, 2021 held as under : Quote ,“ 7. In the order of PCIT it is stated "in paragraph 4.3 of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, interest expense debited by the assessee has not been considered for the calculation of disallowance under section 14A because the same has been incurred for the purpose of business." The PCIT therefore agrees that the Assessing Officer has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 12 with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. 8. ” Unquote . 6.7 Thus, the principal of the law emanating from the above decision of the Hon’ble Jurisdictional High Court is that when two views are legally possible and AO adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s 263 of the Act. 6.8 It will not be out of place to mention here that the order u/s 263 was in consequence to the review report of the Addl.Commissioner of Income Tax, Range-2, Aurangabad dated 07/05/2018 (page 171-174 of department’s paper book) submitted to Pr.CIT and proposal of the ITO ward 2(2) Aurangabad dated 14/05/2018 for initiating action u/s 263 of the Act (page 175-178 of Department’s PB). The Assessing Officer, National Faceless ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 13 Assessment Centre Delhi passed an order u/s143(3) r.w.s. 263 dated 16/09/2021 (page 187-196 of department’s paper book). On perusal of the said assessment order u/s 143(3) r.w.s.263, it is observed that the AO has added unsecured loans on the ground that for some lenders the assessee has filed Bank Statement only for the period Sep 2021 to December 21 and Assessee has filed return of income of the lenders for only 2012-13 and not for A.Y.2011-12, 2010-11. 7. The Hon’ble Bombay High Court has held in the case of CIT vs Reliance Communications Ltd [2017] 396 ITR 217 (Bom) vide order dated 28/03/2016 as under : Quote , “... The entire details were filed and the order itself indicates that it can be inferred that the Assessing Officer not only made enquiries, but satisfied himself with the assessee's replies furnished from time to time in support of its stand. When the Tribunal concludes in this manner and finally in paragraph 16 holds that the Assessing Officer took a perfectly correct or a possible view, then, the order passed by him cannot be termed as erroneous insofar as it is prejudicial to the interest of the Revenue. The Commissioner of Income Tax was not, therefore, justified in invoking section 263 of the Act. 11. We are of the view that the Tribunal's order and conclusions are essentially on facts. They cannot be termed as perverse and after it adverted to the rival contentions and all the materials on record. The Tribunal's order cannot thus be held to be vitiated by an error of law apparent on the face of record so as to call for ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 14 interference in our further appellate jurisdiction. The appeal, therefore, does not raise any substantial questions of law, but the attempt of the Revenue is to have a reappreciation and reappraisal of the same factual material. That is impermissible. The appeal is, therefore, devoid of merits and is dismissed.” Unquote. 8. In this case we have already observed that the AO had carried out necessary verification and then arrived at the conclusion that the returned income needs to be accepted. The view taken by the AO is a plausible legal view. Therefore, respectfully following the Hon’ble Bombay High Court, (supra), we hold that the order u/s 263 is not maintainable. Hence, we annul the order u/s 263. Accordingly, Ground No.2 & 3 raised by the assessee are allowed. Ground No.1 : 9. The assessee has pleaded that the order u/s.263 was time barred. The basic facts are as under : Date of Re-assessment order : 19/12/2017 Date of order u/s 263 : 04/06/2020 9.1 As per section 263(2) of the Act, the Order under section 263 shall be passed within two years from the end of the financial year in which the order sought to be revised was passed. In this case the order sought to be revised is Order u/s 143(3) r.w.s. 147 dated 19/12/2017. Thus, the time to pass the order u/s 263 was upto ITA No.309/PUN/2021 Kishore Navinchand Jain [A] 15 31/03/2020. There was national Lock down due to Covid-19. However, due to Covid-19 pandemic, the Hon'ble Supreme Court on 23 rd March 2020 in Suo Moto Civil Writ Petition (Civil) No.3 of 2020 directed extension of the period of limitation w.e.f. 15/03/2020. Therefore, the time limit to pass the order u/s 263 automatically got extended by the Hon’ble Supreme Court’s order. Therefore, we are of the opinion that the order under section 263 was passed within the extended time and hence it is not time barred. Accordingly, Ground No.1 of the assessee is dismissed. 10. In the result, appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 27 th April, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 27 th April, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.