The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav noted that clause (a) of Explanation 2 of Section 263 of the Act introduces a deeming fiction to the effect that the order passed via the AO will be acknowledged wrong and prejudicial to the interests of the revenue if the order is passed without doing investigations which must have been incurred.
Therefore neither there is any aspect of the discussion for the above-noted things in the assessment order nor does the assessment record duly show that the AO has incurred an investigation under the findings of the investigation report, the court discovered that under Section 263 of the Income Tax Act the matter to invoke the revisional powers.
The respondent or assessee is engaged in the business of real estate development and has filed an income tax return (ITR). The assessee’s case was selected for scrutiny, and a notice under Section 143(2) was issued.
An inquiry was functioned and u/s 143(3) of the Income Tax Act an assessment order was passed, through which the assessing officer determined the taxpayer’s income while making an addition under Section 14A of the Income Tax Act.
The taxpayer desired an appeal before the Commissioner of Income Tax (Appeals), and the CIT (A) partly permitted the taxpayer’s petition and restricted the addition made by the AO.
Under the powers conferred under Section 263, the PCIT perused the assessment order and issued a notice to the taxpayer. During practising powers under Section 263, the PCIT set aside the assessment order, acknowledging it to be inaccurate and prejudicial to the interests of the Revenue, and asked the AO to consider the case afresh.
Assailing the PCIT order, the taxpayer proceeded with a petition before the ITAT, and vide its order on February 14, 2022, the contentions of the taxpayer were accepted by the ITAT, set aside the PCIT order, and therefore restored the assessment order on December 26, 2018. Dissatisfied with the order, the department has preferred the petition.
While emphasizing the infirmities in the ITAT order the department, argued that the ITAT is unable to appreciate the PCIT observations to the effect that the AO did not interrogate the genuineness and creditworthiness of the unsecured loan transactions embarked on via taxpayer for AY 2016–17. In stating that the AO does not incur any inquiry the PCIT was true since it did not take any cognizance of the details forwarded by the Deputy Director of Income Tax (Investigation), Noida (DDIT).
The taxpayer claimed that ITAT was true in denying the order of PCIT as the AO has embarked on the inquiry and an assessment order was duly made post acknowledging all the facts and cases.
The court witnessed that the PCIT or CIT can, inter alia, practice the revisional powers u/s 263 if the prohibition of the twin prerequisites is fulfilled, i.e., the assessment order in question is incorrect and prejudicial to the interests of the Revenue. Section 263 specifies the parameters that would render an assessment order incorrect and prejudicial to the interests of the revenue.
The court ruled that the order of assessment shows any component of inquiry or verification. The discussion for the loan transactions in question is missing. The assessment record shows that the AO has not carried any factual steps to verify the transaction’s authenticity and creditworthiness which deserves consideration under the findings that arose from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd.
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The court mentioned that “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 that at least was expected to have been made by the AO,”
| Case Title | M/S Paramount Propbuild Pvt. Ltd. & Commissioner Of Income Tax |
| Citation | ITA 247/2023 |
| Date | 19.03.2024 |
| Appellant | Mr. Puneet Rai, SSC with Mr. Ashvini Kumar, Mr. Rishab Nangia & Mr. Nikhil Jain, Advs. |
| Counsel For Respondent | Dr. Rakesh Gupta, Mr. Somil Agarwal, Mr. Dushyant Agrawal & Mr. Prateek Bhati, Advs. |
| Delhi High Court | Read Order |
