2018 (1) TMI 316 - AT - Income Tax

Revision u/s 263 - Held that - In the present case it has not been stated that any such other incriminating documents is relied upon by the ld CIT. in the present case no relationship was also established as stated in para No. 23(d) of that decision. Further, as stated in para No. 23(g) of that decision, that the AO did not examine a single director of the assessee company or of the subscribing company, but in the present case directors of the subscribing company were examined and they confirmed the facts. Further, the amount of investment in share by those companies looking to the project of the company was also not found to be a plain lie. There is no allegation in the present case of money laundering also. In that case on the facts, it was held to be a case of inadequate enquiry‟ as the ld Assessing Officer did not hold requisite investigation except for calling for the records. In the present case, the ld Assessing Officer has made the due enquiry by examining the directors of the subscribing companies. Therefore, in the present case the ld Assessing Officer also examined the persons behind the company who take the decisions, controlled and managed them. On such examination also the fact of confirmation of investment was reiterated. Therefore, in view of the above distinguishing facts, the reliance by the ld DR on the decision of the Hon ble Calcutta High Court does not in case of Rajmandir Estates Pvt. Ltd Vs. CIT 2016 (5) TMI 801 - CALCUTTA HIGH COURT help the case of Revenue. For the reasons given herein above we quash the order of the ld CIT passed u/s 263 of the Act on 17.02.2017. - Decided in favour of assessee.

Issues Involved:
1. Erroneous and prejudicial assessment order under Section 153A.
2. Thorough examination of identity, genuineness, and creditworthiness of share application money.
3. Validity of the Principal Commissioner of Income Tax's (PCIT) revision under Section 263.
4. Adequacy of Assessing Officer's (AO) inquiry and verification.
5. Impact of subsequent DDIT report on the assessment.
6. Legality of de novo assessment order direction.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Assessment Order under Section 153A:
The appeals were filed against the order of the CIT (Central), Gurgaon, under Section 263 of the Income Tax Act, holding that the order of the AO passed under Section 153A was erroneous and prejudicial to the interest of revenue. The CIT argued that the AO failed to thoroughly examine the identity, genuineness, and creditworthiness of the parties from whom the alleged share application money was received. The CIT set aside the assessment order to be made de novo.

2. Thorough Examination of Identity, Genuineness, and Creditworthiness:
The assessee argued that the AO had conducted detailed inquiries and served notices on all shareholders under Sections 131 and 133(6). The shareholders complied, and their directors' statements were recorded on oath. The AO verified the identity, genuineness, and creditworthiness of the shareholders, including documents like share application forms, board resolutions, bank statements, income tax returns, and balance sheets. The AO also issued summons to the directors of the subscribing companies, who confirmed the transactions and explained the source of funds.

3. Validity of PCIT's Revision under Section 263:
The assessee contended that the CIT's invocation of Section 263 was unwarranted as the AO had made adequate inquiries and verification. The CIT's order did not specify what further inquiries should have been made by the AO. The CIT's direction for a de novo assessment was seen as an exercise in futility, as the AO had already conducted a thorough investigation. The CIT failed to show how the AO's order was erroneous and prejudicial to the interest of revenue.

4. Adequacy of AO's Inquiry and Verification:
The AO's inquiries included issuing notices under Section 133(6) to the shareholder companies, recording statements of their directors under Section 131, and verifying the documents submitted. The AO's order, although brief, was based on a thorough examination of the facts and documents. The CIT's order did not indicate any specific inadequacies in the AO's inquiries.

5. Impact of Subsequent DDIT Report on the Assessment:
The DDIT report dated 17.04.2015, received after the AO's order, indicated that the shareholder companies were paper entities used to siphon off funds from Bhushan Power and Steel Ltd. However, the AO's assessment was completed on 13.06.2014, before the DDIT report was available. The CIT's reliance on the DDIT report to revise the AO's order was not justified, as the report was not part of the records at the time of the AO's assessment.

6. Legality of De Novo Assessment Order Direction:
The CIT's direction for a de novo assessment was beyond jurisdiction. The show cause notice was issued for verification of receipt of share capital from three parties, but the CIT set aside the entire assessment for a fresh examination. The CIT's order was seen as self-contradictory, as it directed re-examination while already concluding that the transactions were bogus. The CIT did not carry out any independent inquiries or verification.

Conclusion:
The Tribunal quashed the CIT's order passed under Section 263, holding that the AO had conducted adequate inquiries and verification. The AO's order was neither erroneous nor prejudicial to the interest of revenue. The Tribunal also quashed the orders passed by the CIT in related cases for similar reasons. All three appeals filed by the assessees were allowed.

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