2022 (10) TMI 1131 - AT - Income Tax

Revision u/s 263 by CIT - case of the assessee company for the year under consideration was selected for limited scrutiny for the purpose of verifying and examining a solitary issue, i.e., large share application money that was received against unallotted shares - HELD THAT - As in the present case before us the A.O while framing the assessment had made exhaustive examination and carried out necessary verifications on the issue which had formed the very basis for selection of the assessee s case for limited scrutiny assessment, i.e. large share application money received against unallotted shares, and had only after exhaustive deliberations arrived at a possible and a plausible view and accepted the claim of the assessee of having received genuine share application money from the investor company i.e. M/s. Sakshi Real Estate Pvt. Ltd., therefore, there was no justification for the Pr. CIT to have invoked his jurisdiction u/s 263 of the Act for the purpose of supplanting his view on the issue in hand, on the ground that appraisal of the material that was available before the A.O ought to have been done in a different manner, which, thus, would have resulted to a contrary view as was advocated by him. We, thus, in terms of our aforesaid observations not being able to persuade ourselves to subscribe to the exercise of the revisional jurisdiction by the Pr. CIT set-aside the order passed by him u/s 263 of the act, dated 30.03.2018 and restore the order passed by the A.O u/s 143(3) - Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Erroneous and prejudicial to the interest of revenue.
3. Adequacy of enquiry conducted by the Assessing Officer (A.O).
4. Applicability of Section 68 of the Income-tax Act, 1961.
5. Interpretation of "Explanation 2" to Section 263.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act, 1961:
The assessee challenged the jurisdiction of the Principal Commissioner of Income-Tax (Pr. CIT) under Section 263 of the Income-tax Act, 1961. The Pr. CIT issued a show-cause notice to the assessee, questioning the authenticity of the share application money received by the assessee. The assessee contended that the A.O had already conducted a detailed enquiry and verified the transactions during the assessment proceedings, hence the Pr. CIT could not assume jurisdiction under Section 263.

2. Erroneous and Prejudicial to the Interest of Revenue:
The Pr. CIT held that the assessment order passed under Section 143(3) was erroneous and prejudicial to the interest of revenue. The Pr. CIT argued that the A.O failed to properly verify the authenticity of the share application money received by the assessee from M/s Sakshi Real Estate Pvt. Ltd., which was allegedly a shell company. The Pr. CIT pointed out that the financial statements of the investor company indicated it had not conducted any trading activities and had substantial borrowings and investments, typical of a shell company.

3. Adequacy of Enquiry Conducted by the A.O:
The A.O had conducted an enquiry into the share application money received by the assessee, including issuing a notice under Section 133(6) to the investor company and obtaining various documents such as income-tax returns, audited financial statements, bank statements, and confirmation of the transaction. The director of the investor company also appeared before the A.O and confirmed the transaction. The Tribunal noted that the A.O had carried out a detailed examination and verification of the transaction, and the primary onus cast upon the assessee to substantiate the nature and source of the credits was duly discharged.

4. Applicability of Section 68 of the Income-tax Act, 1961:
The assessee argued that no addition was permissible under Section 68 or any other section of the Income-tax Act, 1961, as the share application money was genuine and substantiated by documentary evidence. The Tribunal agreed with the assessee, noting that the A.O had thoroughly examined the transaction and found it to be in order. The Tribunal emphasized that the A.O had adopted a possible and plausible view based on the evidence available, and the Pr. CIT could not substitute his view under Section 263.

5. Interpretation of "Explanation 2" to Section 263:
The Tribunal analyzed "Explanation 2" to Section 263, which expands the scope of the term "erroneous" to include orders passed without making necessary enquiries or verifications. The Tribunal concluded that the A.O had conducted adequate enquiries and verifications, and it was not a case of lack of enquiry. The Tribunal referred to judicial precedents, including the Supreme Court's judgment in Malabar Industrial Co. Ltd. Vs. CIT, which held that an order cannot be deemed erroneous if the A.O had adopted one of the permissible views in law.

Conclusion:
The Tribunal set aside the order passed by the Pr. CIT under Section 263, restoring the original assessment order passed by the A.O under Section 143(3). The Tribunal held that the A.O had conducted adequate enquiries and verifications, and the Pr. CIT could not invoke Section 263 to substitute his view. The appeal filed by the assessee was allowed.