2019 (9) TMI 91 - AT - Income Tax

Revision u/s 263 - AO simply accepted the case decision relied on by the assessee in the case of Lovely Exports (P) Limited 2008 (1) TMI 575 - SC ORDER and the AO had not made any further enquiry regarding such share applicants - enquiries were conducted twice i.e. once during the original assessment proceedings passed u/s. 143 (3) and subsequently during the reassessment proceedings where order was passed u/s. 143 (3)/ 147 - HELD THAT - We find the AO in the order passed u/s. 143(3) /147 has followed the decision of Hon ble Supreme Court in the case of Lovely exports (P) Limited (supra) in letter and spirit. In the office note, copy of which is available in the paper book, it is seen that the Assessing officer had forwarded information to the concerned AO of the investor companies for taking further necessary action against them. When the AO passed the order u/s. 147 / 143 (3), we find he has followed the decision of Hon ble Supreme Court in the case of Lovely Exports (P) Limited (supra) in letter and spirit. So far as the allegations of the Ld. CIT that subsequent decision had come for which he referred to the decision of Hon ble Delhi High Court in the case of Nova Promoters Finlease 2012 (2) TMI 194 - DELHI HIGH COURT is concerned we find the Hon ble Delhi High Court pronounced the said decision on 15.02.2012 whereas the AO in the instant case has passed the order u/s. 143(3)/147 on 13.12.2011. Therefore, we do not find any merit in the allegation of the Ld. CIT of non consideration of the above decision since the same was not available at the time of passing of the assessment order. So far as the allegation of the Ld. CIT that the AO should have conducted further enquiry which were necessary to gather relevant material which the AO failed to do and there was non application of mind on the part of the AO is concerned, we find in the instant case thorough enquiries were conducted by the AO both at the time of original assessment and at the time of reassessment proceedings. Full details giving the names, addresses, number of shares of nominal value and share premium amount of all the share holders alongwith their bank statements, copy of IT returns, PAN etc. were filed before the AO. Even if the share holders were bogus as per allegation of the revenue in view of the reasons recorded for reopening, however, as per prevailing law at that time in view of decision of Hon ble Supreme Court in the case of Lovely Exports (P) Limited (surpa) addition could not have been made in the hands of the assessee and addition, if any, could have been made only in the hands of such bogus share holders. Since AO has taken a plausible view, therefore, it cannot be said that the order of the AO is erroneous. AO in the instant case cannot be held as erroneous. Since for invoking jurisdiction u/s. 263 the twin conditions i.e. order must be erroneous and the order must be prejudicial to the interest of revenue must be fulfilled and since, we have held that the order is not erroneous, therefore, the twin conditions are not satisfied. Therefore, the Ld. CIT in our opinion could not have invoked jurisdiction u/s. 263 of the IT Act. We, therefore, set aside the order of the CIT passed u/s. 263 of the IT Act and the grounds raised by the assessee are allowed.

Issues Involved:
1. Validity of the reassessment order under Section 143(3)/147.
2. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263.
3. Adequacy of the Assessing Officer's (AO) enquiry.
4. Applicability of judicial precedents.
5. Twin conditions for invoking Section 263.

Issue-wise Detailed Analysis:

1. Validity of the reassessment order under Section 143(3)/147:
The assessee filed its return of income declaring nil income, which was initially accepted by the AO. The case was reopened due to a search operation revealing that the assessee received share capital at a huge premium from several companies controlled by an entry operator, Shri Tarun Goyal. However, in the reassessment proceedings, the AO did not make any addition and accepted the returned income, relying on the Supreme Court's decision in CIT Vs. Lovely Exports (P) Ltd. that if the identity of the investors is established, no addition can be made in the hands of the company receiving the share application money.

2. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263:
The CIT invoked Section 263, arguing that the AO's order was erroneous and prejudicial to the interests of the revenue. The CIT noted that the AO failed to conduct further necessary enquiries despite sufficient material indicating that the investor companies were used to launder black money. The CIT relied on the Delhi High Court's decision in CIT Vs. Nova Promoters & Finlease (P) Ltd, which necessitated further verification of the genuineness of the investor companies. The CIT issued a show-cause notice and, after rejecting the assessee's explanations, set aside the assessment order, directing the AO to make a fresh assessment after proper enquiries.

3. Adequacy of the Assessing Officer's (AO) enquiry:
The assessee argued that the AO had conducted adequate enquiries during both the original and reassessment proceedings. The AO had verified the investor companies' identities, bank statements, and PAN details. The AO also forwarded the names of the investor companies to the respective AOs for further action. The Tribunal agreed with the assessee, noting that the AO had followed the Supreme Court's decision in Lovely Exports (P) Ltd. and conducted thorough enquiries. The Tribunal found that the AO's view was plausible and not erroneous.

4. Applicability of judicial precedents:
The Tribunal observed that the AO had relied on the Supreme Court's decision in Lovely Exports (P) Ltd., which was the prevailing law at the time of the reassessment order. The CIT's reliance on the Delhi High Court's decision in Nova Promoters & Finlease (P) Ltd. was not applicable as the decision was pronounced after the reassessment order. The Tribunal cited several judicial precedents, including the Supreme Court's decision in CIT Vs. GM Mittal Stainless Steel Private Limited, which held that the CIT must exercise power under Section 263 based on the material available at the time.

5. Twin conditions for invoking Section 263:
For the CIT to invoke Section 263, the order must be both erroneous and prejudicial to the interests of the revenue. The Tribunal found that the AO's order was not erroneous as it was based on a plausible view supported by the Supreme Court's decision. Since the order was not erroneous, the twin conditions were not satisfied, and the CIT could not invoke Section 263. The Tribunal also noted that if the CIT believed further enquiry was required, the CIT should have conducted the enquiry himself.

Conclusion:
The Tribunal set aside the CIT's order passed under Section 263, holding that the AO's order was not erroneous and the twin conditions for invoking Section 263 were not satisfied. The appeal filed by the assessee was allowed.

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