2018 (10) TMI 1922 - AT - Income Tax

Revision u/s 263 by CIT - unsecured loans receipts - HELD THAT - After examining the documents and also considering the statement of the investor, the Assessing officer accepted the transactions as genuine. However, out of the abundant caution, he also passed on the information regarding the aforesaid investment to the Assessing officer of the investor so that the source of investment of the investor if so required, may be further investigated by the Assessing officer of the investor so that nothing remains unverified and, in any case, if any evidence regarding the non-creditworthiness of the investor is found, the investment made by the investor could be treated as undisclosed income in his hands. A perusal of the impugned order passed by the Ld. CIT(A) shows that the assessee furnished all the details and had given explanation on the issues raised to the Ld. PCIT but the Ld. PCIT without pointing out any defect in the explanation given by the assessee has simply opined that more verifications and discreet inquiries were required to be made by the Assessing officer. PCIT, simply writing that the Assessing officer was required to made more inquiries without making or causing to make any enquiry himself and without pointing out as to what further enquiry which the Assessing officer was required to be made and how without those inquiries the order of the Assessing officer was erroneous and prejudicial to the interest of Revenue, could not have simply set aside the order of the Assessing officer. AS decided in TORRENT PHARMACEUTICALS LTD 2018 (8) TMI 754 - ITAT AHMEDABAD provisions of Section 263 although appears to be of very wide amplitude and more particularly after insertion of Explanation 2, but cannot possibly mean that recourse to Section 263 of the Act would be available to the Revisional Authority on each and every inadequacy in the matter of inquiries and verification as perceived by the Revisional Authority. The Revisional action perceived on the pretext of inadequacy of enquiry in a plannery and blanket manner must be desisted from. As in the case of Narayan Tatu Rane 2016 (5) TMI 1162 - ITAT MUMBAI has held that the Explanation 2 to section 263 does not provide unfettered right to the PCIT to revise each and every order. It is the responsibility of the PCIT to show that the enquiry for verification conducted by the Assessing officer was not in accordance with the enquires or verification that would have been carried out by a prudent officer. No justification on the part of the Ld. PCIT in exercising his revision jurisdiction u/s 263 of the Act and thereby cancelling the assessment order passed by the Assessing officer. The order passed by the Ld. PCIT u/s 263 is therefore, quashed and consequential assessment / additions made, if any, are hereby set aside. - Decided in favour of assessee.

Summary

Issues Involved:

1. Share premium received and verification of sources.
2. Increase in unsecured loans.
3. Source of purchase of shares by directors and related persons.
4. Unassessed queries raised in the questionnaire.

Detailed Analysis:

1. Share Premium Received and Verification of Sources:

The Principal Commissioner of Income Tax (PCIT) issued a show cause notice under section 263 of the Income Tax Act, 1961, indicating that the Assessing Officer (AO) had not properly verified the genuineness of the share premium amounting to ?6,19,71,580 received by the company. Specifically, the AO did not verify the sources of these amounts or the transactions reflected in the bank statement of the investor, Raja Devinder Singh, who had invested ?1,12,50,000 at a high premium. The assessee argued that the AO had made thorough enquiries, including recording the statement of the investor and verifying his bank statement. However, the PCIT held that the AO failed to make necessary verifications, thus making the assessment order erroneous and prejudicial to the interest of the revenue under Explanation 2(a) of Section 263.

2. Increase in Unsecured Loans:

The PCIT noted that the AO did not conduct any enquiries regarding the identity, creditworthiness of lenders, and genuineness of transactions related to the unsecured loans amounting to ?22,81,331 introduced during the financial year. The assessee contended that details and confirmations of these loans were provided during the assessment proceedings. However, the PCIT found contradictions in the assessee's submissions and concluded that the issue remained unexamined and unverified by the AO, making the assessment order erroneous and prejudicial to the revenue.

3. Source of Purchase of Shares by Directors and Related Persons:

The PCIT highlighted that the AO did not make adequate enquiries regarding the source of purchase of shares by directors and related persons. The assessee explained that the shares were issued in preceding years, except for 11,842 shares allotted to Raja Devinder Singh during the year under consideration. The PCIT found that the AO failed to verify the genuineness and authenticity of the sources of investment, rendering the issue unexamined.

4. Unassessed Queries Raised in the Questionnaire:

The PCIT pointed out several queries raised in the questionnaire dated 20.01.2014 that remained unexamined by the AO, including details of business concerns, sundry debtors and creditors, food cost ratio, tax-free income, taxes deducted at source, valuation of closing stock, and details of movable/immovable assets. The assessee provided explanations and documents during the revision proceedings, but the PCIT found that these issues were not adequately verified by the AO during the assessment proceedings, making the assessment order erroneous and prejudicial to the revenue.

Conclusion:

The PCIT concluded that the AO's failure to examine complete dimensions of the facts and apply the correct law rendered the assessment order erroneous and prejudicial to the interest of the revenue. The PCIT, therefore, cancelled the assessment order under section 143(3) and directed the AO to pass a fresh order after proper verification and enquiries.

Tribunal's Decision:

The Tribunal quashed the PCIT's order, holding that the PCIT could not simply set aside the AO's order without making or causing to make necessary enquiries himself. The Tribunal emphasized that the PCIT must point out specific defects in the AO's assessment and make minimal independent enquiries to establish that the assessment order is erroneous and prejudicial to the interest of the revenue. The Tribunal relied on various judicial precedents, including the decisions of the Delhi High Court and Mumbai Bench of the Tribunal, to support its view. Consequently, the Tribunal allowed the appeal filed by the assessee and set aside the PCIT's order under section 263.