2023 (5) TMI 731 - AT - Income Tax

Revision u/s 263 by CIT - As per PCIT AO fails to examine the issue on increase in share premium in light of provisions of section 56(2)(vii), although, the assessee has made huge cash deposits during demonetization period, the AO has not verified the issue in light of SOP issued by CBDT for verification and as the assessee has claimed deduction for provision for bad and doubtful debts, the Assessing Officer has not applied his mind to relevant provisions of Act, before allowing the claim - HELD THAT - Although the assessee has received huge share premium, but the Assessing Officer has not verified the issue in light of provisions of section 56(2)(vii) of the Act, by calling for specific details with regard to price charged by the assessee and valuation of shares, but simply accepted the explanation of the assessee without any verification with regard to price determined for allotment of shares. As regards huge cash deposits during demonetization period, although the assessee has deposited a sum of Rs. 19.53 crores into various bank accounts, but the Assessing Officer has not made any attempts to verify huge cash deposits in light of SOP issued by CBDT for verification of cash deposits during demonetization period. Similarly, the claim of provision for bad and doubtful debts written of was also not verified with reference to provisions of section 36(1)(vii) r.w.s. 36(2) of the Act. From observations of AO, it is very clear that although the assessee did not furnished relevant details called for by the Assessing Officer with reference to increase in share premium, cash deposit during demonetization period and provision for bad and doubtful debts, but the Assessing Officer has completed the assessment on the basis of available information on record and accepted income declared by the assessee for the relevant assessment year. Even though the assessee has not furnished any details with regard to three issues taken up by the PCIT for revision proceedings, AO has completed the assessment and accepted the income declared for relevant assessment years. Thus AO has failed to verify the issues in light of relevant provisions of the Act and he ought to have verified in light of provisions of section 263 of the Act and Explanation (2) to section 263 which rendered the assessment order to be erroneous in so far as it is prejudicial to the interests of the revenue and thus, the PCIT has rightly invoked their jurisdiction u/s. 263 - PCIT, after considering relevant facts has rightly set aside the assessment order passed by the Assessing Officer u/s. 143(3) - Decided against assessee.

Summary

Issues involved:
The judgment involves the assessment order passed by the Principal Commissioner of Income Tax, Chennai-3 under section 263 of the Income-tax Act, 1961 for the assessment year 2017-18.

Grounds of Appeal:
The appellant raised multiple grounds of appeal challenging the order passed by the CIT-3, Chennai under section 263. The grounds included contentions regarding jurisdiction, examination of issues during assessment proceedings, and the completion of assessment with thorough verification and details submitted.

Facts of the Case:
The assessee, a company engaged in Micro Finance Institution (MFI), filed its return of income for the assessment year 2017-18. The assessment was completed under section 143(3) of the Act, accepting the income declared by the assessee. Subsequently, revision proceedings were initiated by the PCIT, Chennai-3, focusing on issues such as share premium increase, cash deposits during demonetization, and bad debts written off.

Revision Proceedings and PCIT Order:
The PCIT issued a show cause notice under section 263, raising concerns about the assessment order's treatment of share premium, cash deposits, and bad debts. After considering submissions, the PCIT concluded that the assessment order was erroneous and prejudicial to revenue interests due to lack of verification on these issues. The PCIT set aside the assessment order for reassessment.

Arguments and Decision:
The appellant argued that the Assessing Officer had examined the issues thoroughly during assessment proceedings and had sought necessary details. However, the PCIT and CIT-DR contended that the assessment order was erroneous and prejudicial to revenue interests due to lack of verification on the identified issues. The Tribunal upheld the PCIT's decision, stating that the assessment order was indeed erroneous and prejudicial to revenue interests, leading to the dismissal of the appellant's appeal.

Conclusion:
The Tribunal affirmed the PCIT's decision to set aside the assessment order under section 263, emphasizing the importance of verifying issues such as share premium increase, cash deposits during demonetization, and bad debts claimed. The appeal filed by the assessee was ultimately dismissed by the Tribunal on 10th May, 2023, in Chennai.