IMPORTANT POINT
The assessment order is deemed erroneous and prejudicial to the interests of the Revenue if it is passed without making necessary inquiries or verifications, especially in cases involving shell companies and entry operators.

JUDGMENT

Purushaindra Kumar Kaurav, J.

1. The present appeal at the instance of the Revenue is filed against the order dated 14 February 2022, passed by the Income Tax Appellate Tribunal ["ITAT"], setting aside the order of the Principal Commissioner of Income Tax ["PCIT"] passed under Section 263 of the Income Tax Act, 1961 ["Act"] for the Assessment Year ["AY"] 2016-17.

2. The brief facts which are pertinent to decide the present controversy are that the assessee is engaged in the business of real estate development and filed an income tax return ["ITR"] of INR 4,52,68,500/- on 17 October 2016 for AY 2016-17. Thereafter, the case of the assessee was picked up for scrutiny and notice under Section 143(2) of the Act was issued on 10 August 2018.

3. Pursuant to the said notice, an inquiry was undertaken and an assessment order under Section 143(3) of the Act was passed on 26 December 2018, whereby, the Assessing Officer ["AO"] determined the income of the assessee to be INR 4,55,45,110/-, while making an addition of INR 2,76,610/- under Section 14A of the Act.

4. Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) ["CIT(A)"] and the CIT(A) vide its order dated 24 June 2019 partly allowed the appeal of the assessee and restricted the addition made by the AO to the extent of INR 1,37,022/-.

5. Thereafter, by virtue of the powers vested under Section 263 of the Act, the PCIT perused the assessment order dated 26 December 2018 and issued a notice to the assessee on 28 March 2021. Consequently, on 31 March 2021, while exercising powers under Section 263 of the Act, the PCIT set aside the assessment order dated 26 December 2018 considering it to be erroneous and prejudicial to the interests of the Revenue and directed the AO to consider the case afresh.

6. Assailing the order of the PCIT, the assessee preferred an appeal before the ITAT and vide its order dated 14 February 2022, ITAT accepted the contentions of the assessee and set aside the PCIT order dated 31 March 2021 and consequently, restored the assessment order dated 26 December 2018. Aggrieved by the said order, the Revenue has preferred the instant appeal.

7. Vide order dated 15 February 2024, we have admitted the appeal and framed the following substantial questions of law for our consideration:-

"(a) Whether on the facts and circumstances of case and in law, the ITAT was justified in setting aside the order passed by PCIT under Section 263 of the Act without appreciating that issuance of notice under Section 133(6) of the Act is not enough to verify identity, genuineness and creditworthiness of said transaction and the lender?

(b) Whether the ITAT failed to appreciate that the present case pertained to AY 2016-17 thus attracting Explanation 2 to Section 263 of the Act would be applicable and the AO having erred in not making requisite enquiries?"

8. Mr. Puneet Rai, learned counsel appearing on behalf of the Revenue, while highlighting the infirmities in the ITAT order, submitted that the ITAT has failed to appreciate the observations of the PCIT to the effect that the AO did not examine the genuineness and creditworthiness of the unsecured loan transactions undertaken by the assessee for AY 2016-17. He further submitted that the PCIT was correct in holding that the AO had not made any inquiry as it did not take any cognizance of the information forwarded by the Deputy Director of Income Tax (Investigation), Noida ["DDIT"] vide letter dated 28 April 2017. He placed reliance on the decision of the Hon'ble Supreme Court in the matter of Malabar Industrial Co. Limited v. CIT [2000 SCC OnLine SC 371] to substantiate his arguments.

9. Dr. Rajesh Gupta, learned counsel appearing on behalf of the assessee, vehemently opposed the submissions advanced on behalf of the Revenue and submitted that the impugned order does not suffer from any infirmities. He argued that the ITAT was correct in negating the PCIT order since the AO ha