ITAT’s jurisdiction is not to rewrite the AO’s order and improve upon it. High Court uphelds Revision order passed u/s 263 for lack of enquiry
ABCAUS Case Law Citation:
ABCAUS 2427 (2018) 07 HC
The instant appeal had been filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) in holding that invocation of Section 263 of the Income Tax Act, 1961 (the Act) was not warranted.
The CIT had passed the revision orders under Section 263 of the Act holding that the AO’s original order was erroneous and prejudicial to the interest of Revenue as the AO had failed to investigation and make enquiries required.
The CIT held that the assessee had shown trading loss in its of books of accounts. It came to the Revenue’s notice that to Directorate of Revenue Intelligence (DRI) was making enquiries as regards fraudulent exports by the assessee for claiming duty drawback The AO has failed to make any enquiry as regards the huge duty drawback claimed.
During the scrutiny carried out under Section 263 of the Act, it was found that the assessee could not supply the PAN of certain creditors. Therefore, it was held that there was a lack of inquiry on the part of the AO to find out bogus purchases or inflation of expenses so as to reduce profits. It was also held that the assessee claimed interest in P&L account and, on the other hand, made interest free advances by saying that these are out of interest free funds. The AO did not make any inquiry as regards the utilization of borrowed funds for non-business purposes. Also, there was the issue of inquiry into disallowance under Section 14A of the Act and the AO’s failure to investigate into the matter.
However, the ITAT set aside the orders of the CIT. On the issue of unsecured loans, the ITAT opined that when the assessee submitted the complete details of unsecured loans along with confirmation of each of the transaction, bank account of each of the person, and acknowledgement of ITR of lenders, which had been duly examined by the AO, it cannot be the case of lack of enquiry. The ITAT faulted the CIT in doubting the genuineness of those transactions without any substantive evidence. The AO at best made inadequate inquiries, and did not omit to do so.
The ITAT recorded the finding that the assessee had furnished details of 22 out of 80 sundry creditors, and claimed to not have filed the details of the rest because they had been squared out in the subsequent years, or no further transactions took place during assessment proceedings. This according to the UITAT established a “discreet” enquiry by the AO.
The Hon’ble High Court observed that the ITAT not only went into the merits of the CIT’s order, which can be considered as only indicative of what were missed out by the AO, but also recorded its findings. It proceeded to hold that amounts due to drawbacks/incentives and foreign exchange fluctuations were to be considered and had been considered, by the AO but not the CIT. However, the AO had not recorded any observation or findings on these issues; nor the issue of the loans, which the assessee received, or the amounts claimed by him as interest.
The Hon’ble High Court opined that the ITAT’s approach can not be validated in reading into the AO’s order, reasons which were simply not there. The ITAT’s order itself disclosed that the AO did not investigate into the question of advances given to others, (having regard to the assessee’s claim for having taken loans, for which interest expenditure was claimed.
The Hon’ble High Court opined that the findings and reasoning of ITAT were clearly indefensible; they amounted to putting a gloss over the AO’s glaring omissions. It had been repeatedly held in decisions that the AO should at least as regards what appears from the record, and what are issues inquired into, during scrutiny assessment, indicate the briefest of reasons, accepting or rejecting any argument. Whereas in the instant case, out of 80 debtors, particulars of 22 were furnished and that PAN particulars of most of them were not provided which could not lead to the conclusion that the doubting of genuineness of those transactions was unwarranted, under Section 263. The ITAT did not say how the observations made by the CIT was unwarranted when the AO’s order made originally was silent about this aspect altogether.
The Hon’ble High Court opined that the ITAT’s findings amounted to supplying reasons in respect of the AO’s order, on aspects, which were not expressly reflected in the assessment order. The Hon’ble High Court stressed that it is the duty of the CIT to record why revision is warranted; however, the ITAT’s jurisdiction is not to rewrite the AO’s order and improve upon it, in a manner of speaking. Accordingly, the orders of the ITAT was set aside as being not sustainable.
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