2019 (2) TMI 987 - AT - Income Tax

Revision u/s 263 - addition u/s 68 - lack of enquiry - Held that - The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. An order of assessment passed by the ITO without making necessary enquiries on certain important points connected with the assessment would be erroneous and prejudicial to the interests of the Revenue When the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue. Where the ITO had made enquiries in regard to the nature of the credit received by the assessee who had given detailed explanation in that regard by a letter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation of the assessee such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. We are of the considered view that the assessment passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Hence, we set aside the order passed by the PCIT and restore the assessment order passed by the AO u/s 143(3) - Decided in favour of assessee.

Summary

Issues Involved:
1. Verification of Share Premium received amounting to ?3,55,32,000.
2. Verification of Investments made by the assessee amounting to ?9,43,97,530.

Detailed Analysis:

1. Verification of Share Premium Received:
The Principal Commissioner of Income Tax (PCIT) issued a show cause notice under section 263 of the Income Tax Act, 1961, questioning the share premium received by the assessee. The PCIT noted a discrepancy between the share premium amount stated in the assessee's reply (?35,52,000) and the amount recorded in the assessment (?3,55,32,000), indicating a difference of ?3,19,80,000. The PCIT argued that the Assessing Officer (AO) accepted the assessee’s submission without proper verification, rendering the assessment order erroneous and prejudicial to the interest of the revenue.

The assessee contended that the issue of share premium was thoroughly examined during the assessment proceedings, and all necessary details were provided, including the identity, genuineness, and creditworthiness of the investors. The assessee also highlighted that the discrepancy was a typographical error and provided supporting documents to clarify the correct amount.

The Tribunal found that the AO had indeed conducted necessary inquiries and that the discrepancy was adequately explained by the assessee. The Tribunal also referred to the Supreme Court's decision in CIT vs Lovely Exports 216 CTR 195 (SC), which established that once the identity, genuineness, and creditworthiness of the investors are proven, the amount received cannot be treated as undisclosed income.

2. Verification of Investments:
The PCIT also questioned the investments amounting to ?9,43,97,530 appearing in the assessee's balance sheet, stating that the AO failed to conduct independent verification of these investments. The PCIT argued that the AO merely accepted the information provided by the assessee without proper scrutiny, which was prejudicial to the interest of the revenue.

The assessee argued that all necessary details regarding the investments were provided during the assessment proceedings and that these investments were part of the normal business advances related to its real estate business. The assessee further contended that the investments were made in earlier financial years and were carried forward, thus not forming part of the current year's income.

The Tribunal noted that the AO had made necessary inquiries regarding the investments and was satisfied with the explanations provided by the assessee. The Tribunal emphasized that the AO's order cannot be considered erroneous or prejudicial to the interest of the revenue merely because the PCIT had a different opinion on the adequacy of the inquiries conducted.

Conclusion:
The Tribunal concluded that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal observed that the AO had conducted necessary inquiries and was satisfied with the explanations provided by the assessee regarding both the share premium and the investments. The Tribunal set aside the order passed by the PCIT under section 263 and restored the assessment order passed by the AO under section 143(3) of the Income Tax Act, 1961. The appeal filed by the assessee was allowed.