- (1.) The subject matter of challenge in this appeal is a judgment and order dated 24th June, 2011 by which the Income Tax Appellate Tribunal has set aside an order passed by the Commissioner in exercise of power under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on the ground, inter alia, that the powers envisaged under section 263 of the Act in setting aside an assessment are large and wide, but these cannot be exercised to allow the Assessing Officer to make up the deficiency of his case. The CIT had exercised power under section 263 of the Act for the following reasons: "9. As regards the unsecured loans, it is seen that the assessee obtained loan aggregating to Rs. 1.60 crores from six private parties credit worthiness of which are doubtful. These are as under. 10. From the details filed, it is seen that the creditors had either nil or negligible income to support such huge cash credits to the assessee. Moreover, from their bank account, it is seen that identical amount was deposited in the bank accounts just 2-3 days before advancing the loan. For example, M/s. Samsung Estate (P) Ltd. received Rs. 10 lakhs from M/s. Pushpak Trading Consultancy (P) Ltd. in December and advanced Rs. 10 lakhs to the assessee on 16th December. Similarly, M/s. Unique Merchant (P) Ltd. received Rs. 5 lakhs from Puspak Trading Co. on 16th December. From the nature of these credit and debit entries in the bank account of the parties, the loans appear to be in the nature of accommodation entries, which require further investigation by the Assessing Officer specially regarding the creditworthiness of the parties. The Assessing Officer has mentioned in the assessment order that the inspector was deputed to verify the fresh loans during the year and his report is on record. The inspector has given identical reports in respect of the enquiries made by him in respect of six parties. His report is very elementary and simply mentions that he has verified bank passbook, P/L account and balance sheet. But, in none of the reports, he has commented on the issue of creditworthiness i.e. whether these parties had sufficient means to advance such huge loan. It is well established that loan credits from parties, who are of no means can not be accepted as genuine. The Assessing Officer was required to make proper investigation to determine whether the loan was really made by the third party or it has come out of the resources of the assessee himself. Thus, he has failed to apply his mind to all aspects of the case. Such non application of mind constitutes passing of an erroneous order which as discussed above is also prejudicial to the interest of revenue".
(2.) The learned Tribunal has set aside the order of the CIT for the following reasons :- "The only other issue is regarding unsecured loan obtained by the assessee from six private limited companies. The Ld. CIT on perusal of the assessment records observed that the A.O. did not make proper enquiries about the creditworthiness of the lenders before accepting the loans to the assessee. He also found in the bank statement of the lenders that identical amounts of loan were deposited in the respective accounts of some of the lenders before they gave loan to the assessee. It thus appears that the Ld. CIT was not satisfied about the enquiry conducted by the A.O. to find out the source of the source. On perusal of the assessment order, it is observed that the A.O. deputed his inspector to enquire into the matter from the lenders. The A.O. was also made available with the return of income, balance sheet, P/L account, bank statement etc. of the lenders. Confirmations from the lenders were also filed before the A.O. We find from the assessment order itself that as many as on six occasions the A.O. heard the assessee and discussed the case with him. Therefore, it cannot be said that the A.O. has not at all enquired into the matter and applied his mind before dealing with the loan creditors and taking a possible view. It is a settled position that the proceedings u/s. 263 of the Act cannot be initiated by the Ld. CIT merely in his supervisory capacity. Before invoking the powers u/s. 263 of the Act, it is necessary for the Ld. CIT to demonstrate that the A.O. had committed a patent error which resulted in prejudice to the revenue. On the contrary, where the Ld. AO has conducted enquiries and after due consideration of the facts and circumstances of the case, he comes to a conclusion, then it is not open to the Ld. CIT to invoke supervisory jurisdiction on the ground of lack of enquiry. Further, a bare reading of section 263 of the Act makes it clear that the pre-requisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the A.O. is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e. if the order of the AO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act just to re-examine or re-verify the issues already examined/verified at the assessment level. It is only when an order is erroneous that the section will be attracted. In the case before us, it is not disputed that the A.O. made enquiries and gone through the documents collected from the lenders and then decided the issue which he deemed fit in the circumstances of the case. The Ld. CIT stated that the AO failed to make any enquiries regarding creditworthiness of the loan creditors. This observation, in our considered opinion, is not correct on the face of the enquiry conducted by the A.O. The A.O. verified/examined the return of income, balance sheet, P/L Account, statement, confirmation etc of the lenders and also perused the Inspector's report, it goes without saying that the A.O. considered the creditworthiness of the loan creditors also. Therefore, it is not the case that the Ld. A.O. did not make any enquiry at all. In our opinion, the entire exercise u/s. 263 of the Act was made by the Ld. CIT merely with a view to give a second inning to the A.O. to re-examine and re-adjudicating the concluded issues. The powers envisaged u/s. 263 of the Act in setting aside an assessment are large and wide, but these cannot be exercised to allow the A.O. to make up the deficiency of his case. Hon'ble ITAT, Kolkata Bench in the case of Plastic Concern vs. ACIT,1997 61 TTJ 87 has held that mere possibility of gathering more material to prove the claim of the assessee wrong would not make the concluded assessment erroneous so long as the Ld. AO had acted judiciously and conducted enquiries in the course of assessment proceedings. There is a distinction between lack of enquiry and inadequate enquiry. If there is an enquiry, even inadequate, that would not by itself give occasion to the Ld. CIT to pass order u/s. 263 of the Act, merely because he has a different opinion in the matter".
(3.) Aggrieved by the order of the learned Tribunal, the revenue came up in appeal. The question of law framed at the time of admission of the appeal is as follows: "Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in law in cancelling the order passed under section 263 of the Income Tax Act, 1961 ignoring the facts that no proper enquiries were made regarding genuineness of loan transactions".;