The assessee was operating from Aurangabad and had accepted huge loans from certain parties, mainly from Kolkata and Mumbai. While passing the reassessment order under section 148 r.w.s 143(3), the AO mentioned that certain notices under section 133(6) had been issued to the lenders, and a few confirmations have been received. The Commissioner issued a notice under section 263, as the AO failed to verify their capacity and human probability regarding how the Kolkata-based parties came to be known to the assessee and advancing loans.

The Tribunal upheld the revision made by the Commissioner, as there was an utter failure on the part of the AO: first, not all replies were received, and still, the AO proceeded to frame the assessment accepting the lenders as genuine. Second, most of the parties had the same address that had not filed any confirmation during the Assessment proceedings. Further, on the confirmation received by some parties through the assessee, the AO did not consider it worthwhile to cause further enquiry even though massive amounts were transacted. Third, no prior business transaction with any of the parties. On going through the different sets of creditors, it emerges that the assessee allegedly received huge money running into several crores as loans from the parties based mainly in Kolkata and Mumbai, whereas it was operating from Aurangabad. Neither such companies were engaged in financing business, nor did the assessee have any prior business dealings with them. As the AO has not entirely verified the details of the lenders, the assessment order is erroneous and prejudicial to the interest of the Revenue, justifying the exercise of revisionary power by the Commissioner under section 263 of the Act.  (AY. 2003-04)