2016 (5) TMI 1453 - AT - Income Tax

Revision u/s 263 on share capital - AO s order erroneous and prejudicial to the revenue interest - Held that - It is not the Department s case that no information regarding the share application money was called for by the AO. That relevant details and documents were furnished by the assessee during the assessment proceedings has been acknowledged by the Ld. CIT in the impugned order also. Hence, no inference can be drawn that the AO has not examined the issue although he has not expressed it it in as many terms as may be considered appropriate by his superior authority and even if the same is found to be inadequate the same cannot be a ground for revision. AO has conducted an enquiry. However, he has not launched a lengthy discussion on the issue of share capital but that does not lead to an inference that there has been a lack of enquiry on his part on the issue. It is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an AO, acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO. Therefore, it cannot be held that in the instant case the AO s order was erroneous and prejudicial to the interest of the revenue within the terms of section 263 of the Act. Once the issue of share capital was considered and examined by the Assessing Officer, Ld. Commissioner cannot set aside the order without recording contrary finding. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Adequacy of the Assessing Officer's (AO) inquiry regarding the share capital received.
3. Whether the AO's order was erroneous and prejudicial to the interest of the revenue.

Issue-wise Detailed Analysis:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961:
The appeal was preferred against the order dated 26/3/2012 passed under section 263 of the Income Tax Act, 1961 by the Commissioner of Income Tax (CIT). The CIT issued a show-cause notice stating that the assessment order dated 13.12.2010 was erroneous and prejudicial to the interest of the revenue due to the AO's failure to investigate the genuineness and creditworthiness of the share capital transactions amounting to ?1,79,00,000/-.

2. Adequacy of the Assessing Officer's (AO) inquiry regarding the share capital received:
The CIT observed that the AO did not carry out any further investigation into the genuineness and creditworthiness of the share capital received, despite the assessee providing details such as Form No. 2 and share application money forms. The CIT also noted that a CD from the investigating wing indicated that the assessee was a beneficiary of accommodation entries amounting to ?85,00,000/- from entry providers, which the AO failed to investigate.

3. Whether the AO's order was erroneous and prejudicial to the interest of the revenue:
The CIT concluded that the AO's order was erroneous and prejudicial to the interest of the revenue due to the lack of proper inquiries into the share capital transactions. The CIT directed the AO to verify the details of the cash credit received by the assessee and scrutinize the share application money after giving the assessee an opportunity to be heard.

The assessee argued that the CIT's allegations were based on assumptions and that all relevant documents were submitted during the assessment proceedings. The assessee contended that the CIT did not confront them with the CD evidence or identify the entry operators. The assessee also cited judicial precedents to argue that the CIT cannot act on assumptions and must establish that the assessment is erroneous and prejudicial to the revenue.

The Tribunal emphasized that for the CIT to exercise revisionary powers under section 263, the order must be both erroneous and prejudicial to the interest of the revenue. The Tribunal noted that the AO had conducted an inquiry and obtained relevant details from the assessee. The Tribunal held that the CIT cannot substitute his judgment for that of the AO simply because the AO's order was not written elaborately. The Tribunal cited various judicial pronouncements to support the view that if the AO has made an assessment in accordance with law, the same cannot be branded as erroneous by the CIT.

The Tribunal concluded that the AO had conducted an inquiry into the share capital transactions, and the CIT's action under section 263 was not justified. The Tribunal quashed the proceedings under section 263 and allowed the assessee's appeal.

Conclusion:
The Tribunal found that the AO's order was not erroneous and prejudicial to the interest of the revenue, as the AO had conducted an inquiry into the share capital transactions. The Tribunal quashed the CIT's order under section 263 and allowed the assessee's appeal.