2013 (6) TMI 661 - AT - Income Tax

Revision - Jurisdiction power u/s 263 by CIT - credit worthiness of persons introducing new share application money were not ascertained by the then AO - No enquiry in respect to sundry creditors has been made by the A.O.- Details regarding other Income as declared by assessee had not been called for by the then A.O. - No verification with regard to decrease in stock - No verification with regard to sundry debtors - Allegation of the CIT is on the premise that AO did not consider the factual position and there was lack of inquiry or investigation on indicated item - Held that - What emerges from the order-sheet and record is that AO conducted inquiry on all these aspects by way of questionnaire and notices u/s 142(1). In the assessment order there are clear finding of satisfaction by AO that all the compliance was made and he was satisfied about the information provided by the assessee by way of account books, record and the compliance to the questionnaire. Thus, the allegation of CIT is not sustainable that it is a case of non-inquiry or lack of inquiry. As with the perusal of the order-sheet and voluminous compliance filed by the assessee which is placed on paper book, clearly suggest that proper inquiries were made which are duly complied on the indicated issues. Though DR has referred to the short and cryptic order of AO CIT no where refers to the short order. It is not the shortness of the order which makes it tenable or not, rather there are contents of the order about clear findings of the AO on the record which will make the order tenable. Thus in agreement with assessee that while exercising powers u/s 263 CIT should not frame issues about third parties whose record was not before him as relying upon CIT Vs. Anil Kumar Sharma (2010 (2) TMI 75 - DELHI HIGH COURT), CIT Vs. Sunbeam Auto Ltd. (2009 (9) TMI 633 - Delhi High Court), DLF Ltd. (2012 (9) TMI 626 - DELHI HIGH COURT), Max India Ltd. (2007 (11) TMI 12 - Supreme Court of India), Malabar Industrial Co. Ltd. (2000 (2) TMI 10 - SUPREME Court), M/s New Cyberabad City (2013 (6) TMI 531 - ITAT HYDERABAD) and The Civil Services Society (2013 (6) TMI 530 - ITAT DELHI). Thus order passed by the CIT u/s 263 is quashed - assessee s appeal allowed.

Summary

Issues Involved:
1. Validity of the assumption of jurisdiction under Section 263 of the Income-tax Act by the Commissioner of Income Tax (CIT).
2. Adequacy and propriety of the inquiries conducted by the Assessing Officer (AO) during the assessment proceedings.
3. Whether the assessment order was erroneous and prejudicial to the interests of the revenue.

Issue-wise Detailed Analysis:

1. Validity of the Assumption of Jurisdiction under Section 263:
The assessee challenged the assumption of jurisdiction under Section 263 on the grounds that the show cause notice was vague and mechanical, based on mere suspicion without proper verification of records, and contrary to the judgments of the Supreme Court in Malabar Industrial Co. Ltd. (243 ITR 83) and the Delhi High Court in Max India Ltd. (295 ITR 282). The CIT, while exercising jurisdiction under Section 263, called for the record and identified several issues indicating that the AO did not make proper inquiries or investigations, thus rendering the assessment order erroneous and prejudicial to the interests of the revenue.

2. Adequacy and Propriety of the Inquiries Conducted by the AO:
The assessee contended that the AO had completed the assessment after making due inquiries and verifying the records, written submissions, and explanations provided by the assessee. The AO's order, although short, contained proper findings, verification, and observations. The CIT, however, identified multiple issues such as the introduction of new share application money, sundry creditors, details of closing stock, other income, decrease in stock, and advances given, which were not properly verified by the AO. The assessee provided detailed responses and documentary evidence to demonstrate that all relevant inquiries were made and duly complied with during the assessment proceedings.

3. Whether the Assessment Order was Erroneous and Prejudicial to the Interests of the Revenue:
The CIT held that the AO's failure to make proper inquiries resulted in undue benefit to the assessee, making the assessment order erroneous and prejudicial to the interests of the revenue. The assessee argued that the AO's inquiries and findings were correct and that the CIT's perception of the inquiries being inadequate did not justify the revision under Section 263. The assessee relied on several judicial precedents, including the Supreme Court's judgment in Malabar Industrial Co. Ltd. and the Delhi High Court's judgment in Sunbeam Auto Ltd., to support the contention that the AO's order was neither erroneous nor prejudicial to the interests of the revenue.

Conclusion:
The tribunal examined the order-sheets and the voluminous compliance filed by the assessee, which indicated that proper inquiries were made by the AO. The tribunal concluded that the AO conducted proper inquiries, verified the records, and recorded satisfaction about the correctness and acceptability of the books of accounts and explanations provided by the assessee. The tribunal also noted that the CIT should not have framed issues about third parties whose records were not before him. Based on the entirety of facts and circumstances, the tribunal held that the CIT erroneously assumed power of revision under Section 263 and quashed the order passed by the CIT.

Judgment:
The assessee's appeal was allowed, and the order passed by the CIT under Section 263 was quashed. The assessment order was upheld as neither erroneous nor prejudicial to the interests of the revenue. The order was pronounced in open court on 14/06/2013.