2019 (11) TMI 92 - AT - Income Tax

Revision u/s 263 - no proper enquiries were conducted by the Assessing Officer during the course of assessment proceedings - HELD THAT - Powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should. be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' it is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the AO has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. As during the course of assessment proceedings, further supported by thorough investigations/enquiries made by the AO during the assessment proceedings, we are of the considered view that there remains nothing for the PCIT to assume jurisdiction u/s 263 of the Act to say that the assessment order is not only erroneous but prejudicial to the interest of the revenue. We are of the considered view that the PCIT has wrongly assumed jurisdiction u/s 263 of the Act, hence his combined order for all the A.Ys deserves to be set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of the order framed under Section 263 of the Income-tax Act, 1961.
2. Examination of share premium and creditworthiness of subscribers.
3. Application of Explanation 2 to Section 263 of the Act.
4. Satisfaction of twin conditions for invoking Section 263.
5. Adequacy of inquiries conducted by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of the order framed under Section 263 of the Income-tax Act, 1961:
The assessee challenged the validity of the order dated 31.01.2019 framed under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT), Gurgaon for the Assessment Year (A.Y.) 2014-15. The Pr. CIT believed that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue because the AO failed to examine the justification of the share premium and the creditworthiness of the subscribers.

2. Examination of share premium and creditworthiness of subscribers:
The Pr. CIT noted that the assessee-company issued 21,984 shares at ?678.52 per share against the face value of ?10 each, receiving a share premium of ?1,49,16,583. The Pr. CIT opined that the AO did not verify the justification of the share premium with regard to the Fair Market Value (FMV) and the creditworthiness of the subscribers.

3. Application of Explanation 2 to Section 263 of the Act:
The Department Representative (DR) argued that Explanation 2, inserted in Section 263 by the Finance Act, 2015, effective from 01.06.2015, applied to this case. This explanation allows the Commissioner to assume jurisdiction if the AO's order is erroneous and prejudicial to the Revenue.

4. Satisfaction of twin conditions for invoking Section 263:
The Tribunal emphasized that the powers under Section 263 can be exercised only if the assessment order is both erroneous and prejudicial to the interest of the Revenue. The Tribunal cited various judicial decisions, including the Hon'ble Supreme Court in Malabar Industrial Co. Ltd., which stated that for Section 263 to be invoked, the order must be erroneous and prejudicial to the Revenue. An order is erroneous if it is contrary to law, and prejudicial if it affects the Revenue's interests.

5. Adequacy of inquiries conducted by the Assessing Officer:
The Tribunal examined the balance sheet and other documents, noting that the AO had conducted thorough inquiries. The AO had asked the assessee to justify the large share premium, provide details of the applicants, and furnish proof of the debenture money received in the previous financial year. The Tribunal found that the AO had made detailed inquiries and obtained satisfactory explanations and documents from the assessee.

The Tribunal concluded that the Pr. CIT wrongly assumed jurisdiction under Section 263 as the AO had conducted adequate inquiries and the assessment order was neither erroneous nor prejudicial to the Revenue. The Tribunal set aside the Pr. CIT's order and restored the AO's assessment order.

Conclusion:
The appeal of the assessee was allowed, and the order of the Pr. CIT under Section 263 was set aside. The Tribunal held that the AO had conducted proper inquiries and the assessment order was not erroneous or prejudicial to the Revenue. The decision emphasized that mere disagreement with the AO's conclusions does not justify invoking Section 263 unless the order is both erroneous and prejudicial to the Revenue.

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