2022 (2) TMI 603 - AT - Income Tax

Revision u/s 263 - Period of limitation - assessee has claimed depreciation on bogus purchase of Plant Machinery - A.O. while making additions towards bogus purchase of Plant Machinery has omitted to disallow depreciation claimed thereon resulting in an error which is prejudicial to the interest of the revenue - HELD THAT - Assessee fairy submitted that where the A.O. has made disallowance on Plant Machinery it was permissible for the A.O. to disallow the consequential depreciation within the scope of section 147 - The issue being connected to the subject matter of reassessment the action of the PCIT cannot be faulted per se without prejudice to the contentions on bonafides of purchases in the regular appellate proceedings. Averments made on behalf of the assessee and having regard to the fact of additions carried out towards bogus Plant Machinery in the assessment order the .A.O has definitely committed error in not giving consequential effect to such action and thus failed to disallow depreciation as well. We thus see no reason to interfere with the directions given by the PCIT to the A.O. in this regard. Revisional powers of the designated authority u/s 263 to reassess order passed with reference to section 147 read with section 148 - Non verification of share application money and share premium receipt by AO - We observe that identical issue has come for adjudication in another case before the Co-ordinate Bench in the case of Shri Bhiva Shankar Rane 2016 (8) TMI 1565 - ITAT PUNE where the legal issue was examined in detail and it was inter alia held that where the A.O. failed to make detailed probe or enquiries on escapement of other possible income unconnected to reasons recorded the revisional authority cannot compel the A.O. to indulge in making fishing or roving enquiries in exercise of powers conferred under s.263 In the present case the revisional authority has sought to exercise its powers under section 263 of the Act on the ground that the A.O. has failed to make enquiry on receipts of share application money and share premium. It is an admitted position that the aforesaid point did not form the basis for reopening the assessment. As held in Bhiva Shankar Rane vs. ACIT 2016 (8) TMI 1565 - ITAT PUNE the revisional powers under section 263 of the Act cannot be read in a manner to expand the scope of section 147 of the Act. Therefore revisional powers under section 263 cannot be invoked to set aside the reassessment order where the A.O. himself is not competent to embark upon roving enquiries on unconnected issues. Therefore the subject reassessment order cannot be labelled as erroneous per se on the second issue and thus not susceptible to review contemplated under section 263 of the Act. The remedy available to the PCIT is only with reference to original assessment order passed under section 143(3) of the Act where the issue was subject matter of examination. However in the light of decision of the Hon ble Supreme Court in CIT vs. Alagendran Finance Limited 2007 (7) TMI 304 - SUPREME COURT the limitation prescribed under section 263(2) would run from original assessment in respect of issue alien to reasons recorded. Thus when seen qua the original assessment the revisional order on the second issue is clearly barred by limitation. The action of the PCIT on the second issue thus cannot be countenanced. The directions given by the PCIT thus requires to be quashed and set aside in so far as second issue is concerned. - Appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Incorrect allowance of depreciation on bogus purchase of Plant & Machinery.
2. Lack of verification and enquiry on share capital and share premium.

Detailed Analysis:

1. Incorrect Allowance of Depreciation on Bogus Purchase of Plant & Machinery:
The assessee challenged the revisional action of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, asserting that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The PCIT had issued a show cause notice citing that the assessee claimed depreciation on bogus purchase of Plant & Machinery, which the Assessing Officer (A.O.) failed to disallow, resulting in an error quantified at ?59,45,940/-. The Tribunal observed that the A.O. indeed committed an error by not disallowing the consequential depreciation on the bogus Plant & Machinery purchase. Therefore, the Tribunal upheld the PCIT's direction to the A.O. to disallow the depreciation claimed on the bogus purchase.

2. Lack of Verification and Enquiry on Share Capital and Share Premium:
The second issue involved the verification and enquiry on the share capital of ?30,70,050/-, share application money of ?1,05,00,000/-, and share premium of ?1,22,80,200/-. The PCIT alleged that the A.O. did not verify these aspects during the assessment proceedings, making the assessment order prejudicial to the interest of the revenue. The Tribunal noted that this issue did not arise from the reasons recorded for reopening the case under section 148 of the Act, which was primarily concerned with the bogus purchase of Plant & Machinery. The Tribunal referenced the decision in CIT vs. Alagendran Finance Limited, which established that the A.O. is not obligated to make roving enquiries on issues unconnected to the reasons recorded for reassessment. The Tribunal concluded that the revisional authority cannot compel the A.O. to make enquiries on unrelated issues under section 263 of the Act. The Tribunal also noted that the original assessment order passed under section 143(3) had already examined the share capital increase, and any revisional action on this aspect would be barred by limitation under section 263(2). Consequently, the Tribunal quashed the PCIT's directions regarding the second issue.

Conclusion:
The Tribunal partly allowed the appeal, upholding the PCIT's directions on the first issue of disallowing depreciation on bogus Plant & Machinery purchases but quashing the directions on the second issue of verification and enquiry on share capital and share premium due to the lack of jurisdiction and the bar of limitation.