2018 (4) TMI 986 - AT - Income Tax

Revision u/s 263 - fault in share capital raised by the assessee company - assessment u/s 153A - Held that - The sheet anchor on which the Principal CIT based his foundation to find fault with the AO is emanating from the second search which happened on 02.03.2016 based on which investigation report has been made wherein the share capital raised by the assessee company for Assessment Year 2009-10 is under suspicion/cloud. Principal CIT refers to the second search which happened on 02.03.2016 and the investigation report thereafter made by the investigation wing which is subsequent and obviously a development after framing the assessment order by the Assessing Officer dated 30.03.2015. AO cannot be said to be a clairvoyant, who could have forecasted or foreseen that a second search would take place on 02.03.2016 and thereby some material/oral/evidence would be collected by the investigation wing a year before i.e. on 30.03.2015 when the assessment order was framed by AO after the fallout of first search conducted on 29.05.2012. It is not the case of the Principal CIT that Assessing Officer failed to take into consideration any incriminating material unearthed during first search on 29.05.2012 and has failed to make any investigation on it or make any additions / disallowances thereon. The case of the Principal CIT is simply that during second search on 02.03.2016, the investigation wing has found fault with the share capital raised by the assessee company for Assessment Year 2009-10. It should be noted that the Assessing Officer has framed assessment u/s 153A on 30.03.2015 as per the law laid down by the Hon ble Delhi High Court in the case of CIT vs. Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) and other High courts/Apex Court as stated above which according to us is the correct view or at the most can be definitely termed as a plausible view. Therefore, the view taken by the Assessing Officer cannot be held to be erroneous order and prejudicial to the interest of the revenue as held by the Hon ble Supreme Court in the case of Malabar Industries vs. CIT (2000 (2) TMI 10 - SUPREME Court). - Decided in favour of assessee

Issues Involved:
1. Condonation of Delay in Filing Appeals
2. Jurisdiction of Principal CIT under Section 263
3. Adequacy of Enquiry by Assessing Officer
4. Incriminating Material Requirement for Unabated Assessments
5. Validity of Show-Cause Notice under Section 263
6. Impact of Subsequent Search on Prior Assessment

Issue-Wise Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Tribunal addressed the 211-day delay in filing the appeals by the assessee. The assessee claimed ignorance of the appealability of the Principal CIT's order under Section 263 due to reliance on their Tax Consultants. Upon advice from a senior lawyer, the appeals were filed. The Tribunal condoned the delay, noting that the delay was due to wrong advice from the Tax Professional, and admitted the appeals for hearing.

2. Jurisdiction of Principal CIT under Section 263:
The assessee challenged the jurisdiction of the Principal CIT under Section 263 to interfere with the order passed by the Assessing Officer under Section 153A r.w. Section 143(3). The Tribunal examined whether the Principal CIT had the requisite jurisdiction to invoke Section 263. It was noted that the Principal CIT's jurisdiction under Section 263 requires the order to be both erroneous and prejudicial to the interest of the revenue. The Tribunal found that the Principal CIT's order was based on subsequent search findings, which could not be a basis to revise the original assessment order that was not erroneous or prejudicial to the revenue at the time it was made.

3. Adequacy of Enquiry by Assessing Officer:
The Principal CIT alleged that the Assessing Officer failed to conduct a detailed investigation regarding the genuineness of the share capital. The Tribunal noted that the Assessing Officer had examined the necessary documents provided by the assessee during the assessment proceedings. The Tribunal emphasized that the Assessing Officer's role includes both investigation and adjudication, and in the absence of any incriminating material found during the first search, the AO's order could not be deemed erroneous.

4. Incriminating Material Requirement for Unabated Assessments:
The Tribunal reiterated that for assessments that are not pending (unabated) at the time of search, additions can only be made based on incriminating material found during the search. The Tribunal cited various judicial precedents, including the Hon'ble Delhi High Court's decision in Kabul Chawla, which held that in the absence of incriminating material, the completed assessment can only be reiterated. Since no incriminating material was found during the first search, the AO's order was not erroneous.

5. Validity of Show-Cause Notice under Section 263:
The Tribunal scrutinized the show-cause notice issued by the Principal CIT under Section 263. It was found that the notice did not provide specific details or material on which the Principal CIT's opinion was based. The Tribunal referred to judicial precedents that emphasize the necessity of providing detailed reasons and material in the show-cause notice to ensure compliance with principles of natural justice. The Tribunal concluded that the absence of such details rendered the notice invalid.

6. Impact of Subsequent Search on Prior Assessment:
The Principal CIT's order was influenced by findings from a subsequent search conducted on 02.03.2016. The Tribunal highlighted that the AO could not have foreseen the findings of a future search when framing the original assessment order on 30.03.2015. The Tribunal held that the Principal CIT could not use subsequent search findings to revise an assessment order that was not erroneous based on the facts and law applicable at the time it was made.

Conclusion:
The Tribunal quashed the orders of the Principal CIT dated 15.03.2017, holding that the Principal CIT lacked jurisdiction to invoke Section 263 as the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The appeals were allowed, and the Section 263 proceedings were deemed ab initio void.

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