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Issues involved: Appeal against order of CIT u/s 263 for assessment year 2005-06.
Summary: Issue 1: Challenge to CIT's order u/s 263. The assessee appealed against the CIT's order u/s 263, contending that the order was bad in law and on facts. Issue 2: Conditions for invoking powers u/s 263. The assessee argued that both conditions, i.e., assessment order being erroneous and prejudicial to revenue, must be fulfilled for invoking powers u/s 263. Issue 3: Lack of show cause notice. The assessee claimed that no show cause notice was issued for initiating proceedings for the assessment year. Issue 4: Initiation of proceedings by CIT. The CIT was criticized for initiating proceedings for verification without any error or prejudice to revenue. Issue 5: Substitution of opinion. The CIT was accused of ignoring the contention that proceedings u/s 263 cannot be used to substitute the AO's opinion. Issue 6: Addition of loan and share capital. The CIT directed the AO to add amounts on account of fresh loans and share capital, which was contested by the assessee. The assessee, a private limited company engaged in garment manufacturing and exporting, had its assessment finalized u/s 144. The CIT directed the AO to add amounts on account of unexplained loan and share capital, as the genuineness and identity of the sources were not established by the assessee. The ITAT held that the CIT's initiation of proceedings u/s 263 was justified, as the AO had not considered the issue earlier and no explanation was provided. However, to ensure justice, the ITAT modified the direction to allow the assessee an opportunity to be heard and submit details. The appeal was partly allowed, sustaining the order u/s 263 with the mentioned modification.
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