2022 (7) TMI 783 - ITAT CHENNAI

Revision u/s 263 - Lack of enquiry or no enquiry - scope for application of provisions of Sec.2(22)(a) / 2(22)(d) - specific arguments the assessee that the AO has caused detailed enquiry on the issue of buyback of shares during the course of assessment proceedings by calling for various details, for which, the assessee has filed necessary details and merely, for the reason that the issue does not find mention in the assessment order, it does not mean that the same has not been examined by the AO - HELD THAT:- Once the AO, as per his wisdom has enquired into certain aspects of assessment which he considers relevant and thereafter, the CIT cannot interfere, is wholly untenable. If this argument is taken to its logical conclusion, then it would mean that the provisions of Sec.263 would be redundant. No doubt, if the AO has conducted necessary enquires and has taken a possible view, then there is no scope for the CIT to invoke his jurisdictional powers. However, if the enquiries conducted by the AO are inadequate or it can be said that there is no enquiry at all, then the CIT can very well invoke his powers u/s.263 of the Act, and revise the assessment order. The crux of the matter is that the AO should conduct enquiry to satisfy himself about the genuineness of transaction. The scope of the term enquiry can be different in different cases. There cannot be any hard and past rule to carry out a particular enquiry.

Such enquiry would be subject to satisfaction of AO. If the enquiry conducted by the AO is an objective satisfaction, then, even though, the AO has called for necessary materials during the course of assessment proceedings, it will lead to an inference that he has not conducted enquiries he ought to have been conducted. In other words, mere obtaining and placing documents on records cannot be equated into conducting enquiry. In this case, on perusal of facts available on record, there is a prima facie indication that there are few abnormalities on the issue of buyback of shares. In such case, the AO after collection of certain evidences should embark upon further investigation so as to ascertain the true colours of the transactions, because, what is apparent is not real. However, the AO simply called for certain details on the issue of buyback of shares, but did not reach to a logical conclusion on the issue, even though, there is a scope for application of provisions of Sec.2(22)(a) / 2(22)(d) of the Act. Therefore, we are of the considered view that there is no error in reasons given by the ld. CIT to exercise his jurisdiction.

We find that although, it appears that the AO has conducted enquiries on the issue of buyback of shares, but in principle, the enquiries conducted by the AO is a case of lack of enquiry or no enquiry at all. Because, even though, there is a scope for AO to test the buyback of shares and consideration paid by the assessee in light of provisions of Sec.2(22)(a) / 2(22)(d) of the Act, but, the AO restricted the scope of enquiry in light of provisions of Sec.46A of the Act, relevant provisions of Companies Act, 1956, and tax treaty between India and Mauritius without going into the aspect of distribution of accumulation of profits of the company in the grab of buyback of shares. No doubt, where the law enables the taxpayer to choose one out of various available options, it is the prerogative of the taxpayer to choose the option that leave the taxpayer with less tax burden, but such option should not be a tool for avoidance of legitimate tax payable to the exchequer. In this case, as per options available to the assessee, the assessee can either go for buyback of shares or distribution of dividend. But, such option cannot be an arrangement to give a colour of legitimate tax planning within the four corners of law.

The enquiry conducted by the AO in this case can’t be construed as a proper enquiry and further, inadequate inquiry conducted by the AO in the given circumstances is as good as no enquiry and as such, the CIT was empowered to revise the assessment order. The order of the CIT is not based on irrelevant considerations and further in the present circumstances, he was not obliged to positively indicate the deficiencies in the assessment order on merits on the question of consideration paid for buy back of shares.

AO in the given circumstances can’t be said to have taken a possible view as the revision is sought to be done on the premise that the AO did not make enquiry thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue on that score itself. Therefore, for all these reasons, we hold that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the revenue and thus, the CIT has rightly exercised his jurisdictional powers and set aside the assessment order passed by the AO u/s.143(3) dated 31/12/2016. Hence, we are inclined to uphold the order of the ld.CIT and dismiss the appeal filed by the assessee.