2023 (7) TMI 745 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - unexplained share capital - CIT observed that the A.O while framing the assessment had failed to make enquiries and verifications which he should have made to ascertain the identity, creditworthiness and genuineness of the transaction of receipt of share capital by the assessee company - HELD THAT - As observed by the Pr. CIT and, rightly so, as the AO while framing the assessment had failed to carry out necessary verification as regards the very issue which had formed the basis of reopening of its case u/s 147 and had summarily accepted the authenticity of the assessee s claim of having received share capital from M/s. Cherry Vintrade Pvt. Ltd., therefore, the same had rendered his order as erroneous in so far it was prejudicial to the interest of the revenue as per Explanation 2 to Sec. 263 of the Act. Our aforesaid conviction that failure of the AO to carry out necessary verification while framing assessment and summarily accepting the explanation of the assessee would render the order passed by him amenable for revision u/s 263 of the Act is supported by the judgment of Deniel Merchants (P) Ltd 2017 (12) TMI 476 - SUPREME COURT . On a perusal of the reasons to believe as per the information, the investment made with the assessee company of Rs. 21.20 lac (supra) by M/s Cherry Vintrade Pvt. Ltd. was sourced out of a receipt of Rs. 51 lac in the latters bank account, which amount had no business rationale or basis but was only received for layering purpose. We are unable to fathom that as to on what basis it is claimed by the ld. AR that reopening of the assessee s case was based on non-descript information. In our considered view, as the A.O had sufficient material with him to arrive at a bonafide belief that the income of the assessee company that was chargeable to tax had escaped assessment, therefore, the claim of the Ld. AR that the reopening of its case was based on non-descript information being absolutely misconceived is accordingly rejected. We, thus, in terms of our aforesaid observations concur with the view taken by the Pr. CIT who had rightly set-aside the assessment order passed by the A.O u/s. 143(3) r.w.s. 147 and, uphold the same. Decided against assessee.

Summary

Issues Involved:

1. Whether the assessment order passed by the AO is erroneous and prejudicial to the interest of Revenue.
2. Whether the revisional order u/s. 263 was passed in violation of principles of natural justice.
3. Validity of the reopening of the assessment u/s. 147 of the Act.

Summary:

Issue 1: Erroneous and Prejudicial Assessment Order

The Pr. CIT set aside the assessment order passed by the AO u/s. 143(3)/147, dated 29.12.2017, for A.Ys. 2010-11 & 2011-12, holding it as erroneous and prejudicial to the interest of Revenue. The AO had summarily accepted the assessee's claim of having received a share capital of Rs. 21.20 lac from M/s. Cherry Vintrade Pvt. Ltd., a paper/bogus/shell company, without adequate verification. The Pr. CIT observed that the AO failed to ascertain the identity, creditworthiness, and genuineness of the transaction. The Pr. CIT directed the AO to reframe the assessment after proper verification.

Issue 2: Violation of Principles of Natural Justice

The assessee contended that the revisional order u/s. 263 was passed without following the principles of natural justice. However, the Tribunal found that the Pr. CIT had provided adequate opportunities to the assessee to present its case. The Pr. CIT's order was based on the failure of the AO to conduct necessary inquiries and verifications, which justified the invocation of jurisdiction u/s. 263.

Issue 3: Validity of Reopening u/s. 147

The assessee challenged the reopening of the assessment u/s. 147, claiming it was based on non-descript information. The Tribunal rejected this contention, noting that the AO had specific information from the Dy. DIT (Inv.), Kolkata, identifying M/s. Cherry Vintrade Pvt. Ltd. as a shell company with dummy directors managed by an entry operator. The AO had sufficient material to form a belief that income had escaped assessment, justifying the reopening u/s. 147.

Conclusion

The Tribunal upheld the Pr. CIT's order setting aside the assessment orders for both A.Y. 2010-11 and A.Y. 2011-12. The appeals filed by the assessee were dismissed, and the AO was directed to reframe the assessments after proper verification. The Tribunal found that the AO's failure to conduct necessary inquiries rendered the assessment orders erroneous and prejudicial to the interest of Revenue. The reopening of the assessment u/s. 147 was also found to be valid.