Mere Submission of Documents Insufficient u/s 263, Proper Inquiry and Verification by AO Essential for Valid Assessment: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Authority ( ITAT ) ruled that the mere submission of documents was not sufficient under Section 263 of the Income Tax Act, 1961. The tribunal emphasized that proper inquiry and verification by the assessing officer were essential for valid assessment.

Ten Construction (India) Private Limited, the assessee’s assessment was scrutinized by the assessing officer. The assessing officer completed the assessment under Section 143(3) by making an addition of Rs. 1,54,92,636 as unexplained credits.

The PCIT found that the Assessing Officer ( AO ) disallowed only 10% of the unsecured loans, amounting to Rs. 1,54,92,636, while the remaining Rs. 13,94,33,728 went unverified.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The PCIT invoked Section 263 questioning the lack of proper verification by the AO and declared the assessment order erroneous and prejudicial to the revenue. The PCIT directed the AO to reassess the unsecured loans.

Aggrieved by the PCIT order, the assessee appealed the order before the Mumbai Bench of the ITAT. The assessee’s counsel argued that the original assessment order had already dealt with the unsecured loans and the AO had already made an addition to the total income under Section 68 of the Income Tax Act

The counsel further argued that the matter of addition was already pending before the CIT(A) for the same issue, and invoking Section 263 of the Income Tax Law is unjustified since CIT(A) and PCIT cannot have concurrent jurisdiction on the same matter.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

On the contrary, the revenue counsel argued that AO failed to make proper inquiries regarding the unsecured loan so the AO’s assessment was erroneous and prejudicial to the revenue.

The two-member bench comprising Anikesh Banerjee (Judicial Member) and Girish Agrawal (Accountant Member) noted that the AO had only disallowed 10% of the unsecured loans, without a clear basis or rationale for this percentage.

The tribunal observed that the PCIT was justified in invoking Section 263 of the Income Tax Act, as there was no proper verification of the remaining 90% of the unsecured loans, which amounted to Rs. 13,94,33,728.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The tribunal emphasized that merely submitting documents without actual verification by the AO does not fulfill the conditions under Section 263 of the Income Tax Act. Therefore, the revision order by the PCIT was upheld and the assessee's appeal was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates