2017 (1) TMI 1097 - AT - Income Tax

Revision u/s 263 - proof of genuineness of the gifts - Held that - In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted. Assessment Order is neither erroneous nor prejudicial to the interest of the revenue. We, therefore, set aside the impugned order passed by the ld. Commissioner u/s. 263 and restore that of the Assessing Officer passed u/s. 143(3) of the Act. - Decided in favour of assessee

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act.
2. Verification of unsecured loans.
3. Verification of increase in share capital and share premium.
4. Verification of advance to suppliers.
5. Verification of expenses debited.
6. Verification of gross loss incurred in manufacturing activity.

Issue-wise Detailed Analysis:

1. Validity of the order under Section 263 of the Income Tax Act:
The assessee challenged the validity of the order dated 29.11.2013 made under Section 263 of the Income Tax Act by the Commissioner of Income Tax (CIT), Baroda. The appellant contended that the assessment order dated 23.11.2011 made under Section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. The CIT initiated proceedings under Section 263 on the grounds that the assessment order was erroneous and prejudicial to the interest of the revenue.

2. Verification of unsecured loans:
The CIT noted that the assessment order did not verify the genuineness of unsecured loans amounting to ?42,16,500/- received from directors who were not assessed to tax and had agricultural income as their only source. The Tribunal found that the assessee had provided confirmations and documentary evidence supporting the agricultural income and bank statements of the directors. The Tribunal cited the Bombay High Court's decision in CIT vs. Gabriel India Ltd., which held that an order cannot be deemed erroneous simply because it lacks elaborate discussion.

3. Verification of increase in share capital and share premium:
The CIT observed that the increase in share capital by ?60.5 lakhs and share premium by ?5.445 crores was not adequately verified during the assessment proceedings. The Tribunal found that the assessee had provided detailed documentary evidence, including board resolutions, PAN card copies, certificates of incorporation, bank statements, and IT returns of the shareholders. The Tribunal concluded that the assessee had responded to the queries raised by the Assessing Officer (A.O.) and that the view taken by the A.O. was one of the possible views.

4. Verification of advance to suppliers:
The CIT noted that no enquiry was made regarding the advance of ?55.31 lakhs to a related party, Kothi Traders. The Tribunal found that the assessee had provided the ledger account of Kothi Traders during the assessment proceedings, indicating that the necessary verification was done.

5. Verification of expenses debited:
The CIT observed that expenses related to interest on service tax and electricity bills were not verified for their penal nature. The Tribunal found that the A.O. had made disallowances of ?9,04,853/- for these expenses, indicating that the verification was done. The Tribunal concluded that the CIT's observation showed non-application of mind.

6. Verification of gross loss incurred in manufacturing activity:
The CIT noted that the explanation for the gross loss incurred due to a rise in raw material costs required further verification. The Tribunal found that the assessee had provided detailed submissions and documentary evidence explaining the reasons for the loss, including the impact of international recession and the fall in steel prices. The Tribunal concluded that the A.O. had made adequate enquiries and that the view taken was one of the possible views.

Conclusion:
The Tribunal held that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. It set aside the order passed by the CIT under Section 263 and restored the assessment order passed under Section 143(3). The Tribunal emphasized that the power under Section 263 can only be exercised when there is no enquiry, not for inadequate enquiry, and cited relevant judicial decisions to support its conclusion. The appeal filed by the assessee was allowed, and the order was pronounced in open court on 10-01-2017.

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