2018 (3) TMI 1782 - AT - Income Tax

Revision u/s 263 - unexplained cash credit - whether a case of lack of enquiry or a lack of adequate and proper enquiry on the part of the Assessing officer? - HELD THAT - We find that it is clearly a case whether the AO has failed to examine the basic and fundamental requirements to determine the identity, creditworthiness and genuineness of these transactions. If the AO has carried out the verifications of the documents as has been done by the ld PCIT, it would have surely put him on guard and prompted him to carry out further independent examination of these investor companies and there would not have been an occasion for the latter to invoke his revisionary jurisdiction. AO has failed to adhere to the basic standard operating procedures of examining such transactions especially in light of glaring concerns so noticed and the assessment so completed is therefore clearly without due application of mind. Here, we refer to a recent communication issued by the CBDT dated 10.1.2018 wherein the CBDT has reiterated the standard operating procedure for examining the transactions in the context of section 68. To our mind, the said communication doesn't lay down any new standard operating procedure rather it emphasise and basically bring out a well down procedure for examination of transactions in context of section 68 of the Act and which should be followed by the Assessing officers and duly monitored and supervised by the Higher authorities. In the instant case, the AO has clearly not appreciated the issue at hand and thus has not applied his mind and carried out the necessary examination and investigation which any officer with a reasonable intellect faced with a similar situation would have carried out. In our view, it is not a case of inadequate enquiry rather it is a case of no enquiry. Where the AO shuts his eyes and the ld PCIT discovers the glaring discrepancies leading to non-satisfaction of cardinal test of identity, creditworthiness and genuineness of the transactions during the course of his examination of records, we donot think there is any infirmity or illegality in him exercising his revisionary jurisdiction u/s 263 of the Act. It is not a case where the Pr. CIT has set-aside the assessment rather he has examined these transactions and has carried out broad analysis of the documentation so submitted by the assessee company and has come to a conclusion, that the AO has failed to carry out adequate enquiries which he should have conducted especially in light of glaring discrepancies in the documentation so submitted by the assessee company which raises a question mark on the genuineness of the whole transactions and also in light of information received from Directorate of Income Tax (Investigation), Mumbai that the assessee company has taken accommodation entries from Praveen Jain, an entry operator - upheld the order passed by the ld Pr CIT u/s 263 of the Act setting aside the assessment order passed by the Assessing officer being erroneous and prejudicial to the interests of the Revenue - Decided against assessee.

Summary

Issues Involved:
1. Validity of the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Whether the assessment order dated 02.06.2014 was erroneous and prejudicial to the interest of the revenue.
3. Whether proper enquiries regarding the genuineness, identity, and creditworthiness of the investors were made during the assessment proceedings.

Detailed Analysis:

1. Validity of the Order Passed by PCIT under Section 263:
The appeal was filed against the order of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, which set aside the assessment order dated 02.06.2014. The PCIT noted discrepancies and lack of proper enquiry by the Assessing Officer (AO) regarding the receipt of share capital with a huge premium from various companies. The PCIT observed that the assessment order was erroneous and prejudicial to the interest of the revenue because the AO accepted the assessee's claim without conducting proper enquiries.

2. Erroneous and Prejudicial to the Interest of the Revenue:
The PCIT initiated proceedings under Section 263, noting that the AO failed to verify the genuineness of transactions, creditworthiness, and identity of the investors. It was found that the companies from which the assessee received share capital were either non-existent or had minimal income, raising doubts about their ability to make such investments. The PCIT highlighted that the AO did not conduct independent enquiries and relied solely on the documents provided by the assessee, which were found to be questionable.

3. Proper Enquiries Regarding Genuineness, Identity, and Creditworthiness:
The PCIT observed that the AO did not carry out appropriate enquiries to establish the genuineness of the transactions, the identity and existence of the alleged investors, and their creditworthiness. The PCIT noted that most of the investor companies had bank accounts in the same bank and received credits from a common source, indicating a syndicate operation. The AO's failure to conduct necessary enquiries made the assessment order erroneous and prejudicial to the revenue.

Additional Observations:
- The PCIT referred to the Supreme Court's decision in Malabar Industrial Company Ltd. vs. CIT, which held that an order passed without application of mind and without enquiry justifies the invocation of Section 263.
- The PCIT also cited the decision of the Hon'ble Supreme Court in Rampyari Devi Sarogi vs. CIT, emphasizing that the AO's failure to make necessary enquiries renders the assessment order erroneous.
- The PCIT directed the AO to make a fresh assessment after conducting proper enquiries regarding the genuineness of the share capital and share premium received from the alleged investor companies.

Tribunal's Decision:
The Tribunal upheld the PCIT's order, agreeing that the AO failed to examine the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the AO did not follow the standard operating procedures for examining transactions under Section 68 of the Act. The Tribunal emphasized that the AO's lack of enquiry and failure to verify the discrepancies in the documents submitted by the assessee justified the PCIT's invocation of Section 263. The appeal filed by the assessee was dismissed, and the PCIT's order was upheld.

Conclusion:
The Tribunal concluded that the PCIT was justified in invoking Section 263 and setting aside the assessment order due to the AO's failure to conduct proper enquiries. The assessment order was found to be erroneous and prejudicial to the interest of the revenue, and the appeal filed by the assessee was dismissed.