ITAT Partly Sets Aside Order u/s 263 for Improper Mandatory Direction to Add Accommodation Entries [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) Ahmedabad has partly set aside an order passed under Section 263 of the Income Tax Act, 1961, where the Principal Commissioner of Income Tax ( PCIT ) improperly directed mandatory addition of accommodation entries without due verification.

The appellant, Sunil Poonamchand Saraf, had filed an appeal against the order passed by the PCIT, Ahmedabad-1 for the Assessment Year 2013-14. The appellant had originally filed his return declaring an income of Rs.1,99,610, which was accepted in an assessment under Section 147 read with Section 144B. Subsequently, the PCIT observed that the assessee was identified as an end beneficiary of accommodation entries amounting to Rs.4,07,97,829 (Rs. 4.07 crore) from Dishman Group. Finding that no addition was made during reassessment despite recorded reasons and evidences from search and seizure action, the PCIT issued a notice under Section 263, setting aside the assessment and directing the Assessing Officer to make an addition of the alleged accommodation entries.

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During the hearing, the assessee, represented by Mehul K. Patel, contended that the PCIT had exceeded the jurisdiction conferred under Section 263 by directing compulsory addition instead of merely setting aside the order for proper verification. It was submitted that there were various defects in the reopening proceedings and that the assessee had already furnished objections and evidences, which were not adequately considered during the reassessment. It was also argued that the PCIT's direction effectively removed the discretion of the Assessing Officer, which is not permissible under Section 263.

ITAT Bench comprising Suchitra Kamble (Judicial Member) and  Narendra Prasad Sinha (Accountant Member) considered the arguments and the record. The Tribunal observed that although the PCIT rightly invoked Section 263 due to the lack of enquiry by the Assessing Officer regarding the accommodation entries, the direction to compulsorily make an addition was beyond the permissible scope under Section 263.

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The Tribunal held that the PCIT can only direct the Assessing Officer to verify and reframe the assessment after proper enquiry, but cannot mandatorily instruct for addition without examination of facts.

Accordingly, the ITAT quashed the part of the PCIT's order which directed the Assessing Officer to make the addition and sustained only the direction to pass a fresh assessment order after due verification.

In Conclusion, The appeal of the assessee was partly allowed.

To Read the full text of the Order CLICK HERE

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