2019 (6) TMI 464 - AT - Income Tax

Revision u/s 263 - enquiry on the part of the AO in examining the creditworthiness of shareholders and genuineness of transaction - notices u/s 133(6) - HELD THAT - It is an admitted material fact on record that the observation of the ld. Pr.CIT regarding the issue of notices u/s 133(6) that the Assessing Officer has issued said notices on test check basis is factually incorrect, as the assessee has received share application money from the three share subscribers during the year under consideration and so notice u/s 133(6) were sent to all the subscribers. From the bank statement of the subscribers companies, it is revealed that there was no cash deposit in this accounts and there was sufficient balance available to make investment in share capital of the assessee company and that the bank statement of the companies itself cannot determine the creditworthiness of the company, in-fact, the reference has to be made to the balance sheet whereas there is no satisfaction of the ld. Pr.CIT in this regard. Pr.CIT relating to sources of source, it is seen that the documentary evidences furnished along with supporting evidences such as bank statement, audited statement of account, balance sheet, profit and loss account, clearly established the fact that the tangible net worth of the disputed companies was more than sufficient and was much more than the amount invested in the shares of the assessee company. Therefore, the source of source of investment has been established by the assessee and after being satisfied with the submission of the assessee, the AO did not opt to make addition u/s 68 of the Act. Pr.CIT has wide supervisory power u/s 263 however, he cannot invoke such powers to substitute the view taken by the Assessing Officer merely on the basis of the presumption. The case laws relied on by the Pr.CIT are distinguished in peculiar facts of the case as the facts of those cases were related to the paper shell companies to convert it unaccounted money into accounted funds/income and no enquiry was invoked by the Assessing Officer by way of issuing notices u/s 133(6), whereas in the present case the investor companies are not paper/shell companies and Assessing Officer has invoked proper and sufficient enquiries by issuing notices u/s 133(6) which are duly complied with by the assessee. - Decided in favour of assessee.

Summary

Issues involved:
Challenging jurisdiction under section 263 of the Income Tax Act and assessment order's alleged errors.

Detailed Analysis:

1. Jurisdiction under Section 263:
The appeal was filed against the order of the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Act for the assessment year 2013-14. The assessee challenged the revisionary order, arguing that the Assessing Officer had conducted proper inquiries regarding creditworthiness of shareholders and genuineness of transactions. The Pr. CIT held that the assessment order was erroneous due to lack of sufficient inquiry by the Assessing Officer. The assessee contended that the Pr. CIT cannot substitute the Assessing Officer's inquiries with his own interpretation, especially when proper and detailed inquiries were conducted by the Assessing Officer. The Pr. CIT's assumption of jurisdiction under section 263 was challenged as not in accordance with the law.

2. Sufficiency of Inquiries by Assessing Officer:
The Assessing Officer had raised specific queries regarding share application money and share premium received by the assessee. The assessee provided detailed responses and documentary evidence to support the transactions. The Assessing Officer's conscious application of mind on the issue was emphasized, stating that he had conducted proper and sufficient inquiries. The Pr. CIT's lack of inquiry before deeming the assessment order as erroneous under section 263 was highlighted. The assessee argued that the Pr. CIT cannot revise orders based on presumptions and that the Assessing Officer's detailed inquiries should be respected.

3. Verification of Transactions and Share Subscribers:
The identity of share subscribers was established through material evidence like PAN, Address, Income Tax Return, Audited Reports, Bank Statements, and other documents. The creditworthiness of investor companies was verified, and the genuineness of transactions was proven beyond doubt. The assessee relied on legal precedents to support their position. The Pr. CIT's observations regarding notices under section 133(6) and sources of source were challenged based on documentary evidence provided during the assessment.

4. Judicial Pronouncements and Conclusion:
After hearing both parties and considering the material on record, the Tribunal found that the Pr. CIT's observations were factually incorrect and based on presumptions rather than evidence. Legal precedents were cited to support the decision that the Pr. CIT cannot substitute the Assessing Officer's views without proper cause. The Tribunal reversed the Pr. CIT's order, upholding the assessment order and allowing the grounds raised by the assessee. The appeal of the assessee was allowed, and the order was pronounced in open court on May 16, 2019.