2022 (5) TMI 1093 - AT - Income Tax

Revision u/s 263 by CIT - Case selected for scrutiny through CASS - assessee has made fresh investment in unlisted equity shares of two companies and observed that though the source of fund is out of business receipt, but the officer has not conducted any verification/enquiry to verify the veracity of the claim - HELD THAT - Assessee was selected for limited scrutiny for two issues namely sales turnover mismatch and investment in unlisted equity shares . In the body of the assessment order there is no discussion about the reasons for selection for limited scrutiny nor there is any discussion of the issues raised before us. Though there is a reply filed by the assessee before the ld. PCIT stating that the required information were filed but they are not sufficient to prove that whether ld. AO raised sufficient enquiry about the investment in unlisted equity shares. In the case of limited scrutiny assessment, AO is duty bound to examine the details minutely which are linked to the reasons for limited scrutiny. Records do not contain the copy of notice issued u/s 142(1) of the Act, replies filed by the assessee, specific questions raised by the ld. AO referring to the investment in unlisted equity shares and the source of such investment. In the impugned order, ld. PCIT has restored the issue to the file of the ld. AO for examining the above referred issue of investment in unlisted equity shares by invoking the powers u/s 263 and restoring the file back to the ld. AO for examining the same in light of the documentary evidences to be filed by the assessee. We, therefore, under the given facts and circumstances of the case are of the considered view that the ld. PCIT has rightly assumed jurisdiction u/s 263 of the Act and restored the issue of examination of investment in unlisted equity shares of two companies to the file of ld. AO. Accordingly, all the grounds raised by the assessee are dismissed.

Summary

Issues:
1. Jurisdiction of the PCIT under section 263 of the Income Tax Act, 1961.
2. Adequacy of inquiry conducted by the AO regarding investment in unlisted equity shares.
3. Compliance with legal procedures in limited scrutiny assessments.

Analysis:
1. The appeal pertains to the Assessment Year 2015-16 challenging the order of the Principal Commissioner of Income-tax-2, Kolkata. The assessee raised multiple grounds alleging arbitrariness and illegality in the PCIT's order under section 263 of the Income Tax Act, 1961. The PCIT invoked powers under section 263 after observing fresh investments in unlisted equity shares without adequate verification by the AO, leading to underassessment of income.

2. The PCIT's notice highlighted discrepancies in the unexplained investments in unquoted equity shares, emphasizing the lack of disclosure by the assessee. The PCIT found the assessment order to be erroneous and prejudicial to revenue due to inadequate inquiry by the AO. Despite the assessee's submissions, the PCIT deemed the assessment order unsatisfactory and directed the AO to re-examine the issue, focusing on the investment in unlisted equity shares.

3. The Tribunal noted that the case underwent limited scrutiny for specific issues, including sales turnover mismatch and investment in unlisted equity shares. However, the assessment order lacked detailed discussion on these issues. The absence of essential documents like notices, replies, and specific queries regarding investments raised concerns about the adequacy of the AO's inquiry. Consequently, the PCIT's decision to remit the matter back to the AO for thorough examination was deemed appropriate under section 263 of the Act.

4. Ultimately, the Tribunal upheld the PCIT's jurisdiction under section 263 and dismissed all grounds raised by the assessee, affirming the PCIT's decision to restore the issue of unlisted equity share investments to the AO for further scrutiny. The appeal was consequently dismissed on 17th May 2022 by the Kolkata ITAT.