2023 (10) TMI 1408 - AT - Income Tax

Revision u/s 263 - Lack of proper enquiry - unexplained investment in equity shares and unsecured loans - as per CIT no reasonable return on such investment by way of dividend is visible in these cases, thus no prudent investor would like to block such huge amount of money, that too borrowed money, in shares of the assessee company where no return on investment appeared forthcoming HELD THAT - PCIT has correctly observed that there was an evident lack of enquiry by the Assessing Officer into the source of investment, which should have been made by the Ld. AO, looking into the facts of the instant case. Also, we observe that in the case of Umesh Krishnani 2013 (8) TMI 79 - GUJARAT HIGH COURT has also given a specific finding that when immediately before the issuance of funds to the assessee company there was immediate credit in the bank accounts of some of the investors, for which there is no plausible explanation, then addition under Section 68 of the Act is liable to be made. Even in the present facts, the principal CIT observed that in some of the cases prior to making the investments in the assessee company, there was immediate credits in the bank accounts of some of the investors, for which no explanation has been provided by the assessee during the course of assessment proceedings. As decided in case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT case that if due to an erroneous order of ITO, Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue. Further, if due to an erroneous order of Assessing Officer, revenue is losing tax lawfully payable by a person, it should be certainly prejudicial to interest of revenue. In our considered view, the enquiry made by the Assessing Officer was not adequate and he simply accepted the version of the assessee without application of mind. Principal CIT has not erred in facts and in law in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Decided against assessee.

Summary

Issues:
Assessment order challenged for lack of proper inquiry into source of investments in shares and loans.

Analysis:
1. The appeal was filed against the order passed by the Ld. Principal Commissioner of Income Tax-1, Rajkot for Assessment Year 2016-17. The appellant raised grounds challenging the legality of the order and the lack of inquiry into the source of investments in equity shares and unsecured loans.

2. The Principal CIT observed discrepancies in the case, noting that substantial investments were made in the company's shares without adequate verification. Only a few shareholders submitted balance sheets, raising concerns about the source of their investments. The PCIT found that the Assessing Officer failed to conduct necessary inquiries as required under Section 68 of the Act.

3. The appellant argued that the Assessing Officer did conduct inquiries, citing notices issued under Section 142(1) of the Act requesting details of share capital and unsecured loans. However, the PCIT contended that the AO did not make sufficient inquiries, leading to the revision of the assessment order.

4. The Tribunal analyzed the facts and found that while some inquiries were made, crucial discrepancies remained unaddressed. The lack of explanation for the source of investments, reliance on borrowed funds, and insufficient means of shareholders to make such investments were key factors. Citing judicial precedents, including the Gujarat High Court's decision, the Tribunal upheld the PCIT's view that the AO's lack of proper inquiry rendered the assessment order erroneous and prejudicial to revenue interests.

5. Relying on legal principles from various cases, the Tribunal concluded that the AO's failure to conduct thorough inquiries and acceptance of the appellant's claims without proper verification led to an erroneous assessment order. Consequently, the appeal was dismissed, affirming the PCIT's decision.

6. The judgment was delivered by the Tribunal on 18/10/2023, upholding the PCIT's findings and dismissing the appellant's appeal against the assessment order for Assessment Year 2016-17.