2021 (10) TMI 79 - AT - Income Tax

Revision u/s 263 - as per CIT assessment framed by the AO under section 143(3) read with section 147 of the Act as erroneous insofar prejudicial to the interest of Revenue - Addition u/s 68 - whether the learned Principle CIT can extend the area of examination under section 263 by revising the assessment order framed under section 147 r.w.s. 143(3)? - HELD THAT - As finding of the learned principal CIT was not correct to some extent. It is for the reason that the company namely M/s. Rachna Finelease Pvt. Ltd. and M/s. Capaxo Logistics Pvt. Ltd. (Arham Properties Pvt. Ltd.) have filed income tax return in response to the notice issued under section 148 of the Act and accordingly assessment was completed under section 147 read with section 143(3) of the Act. The respective assessment orders of M/s. Capaxo Logistics Pvt. Ltd. and M/s. Racna Finless Pvt. Ltd. are placed where huge additions made in the hands of these companies on account of unexplained credit under section 68 of the Act. However, subsequently the learned CIT(A) was pleased to delete the addition made by the AO in their hands.Therefore, the finding of the learned CIT(A) is not correct upto this extent. Once the source of fund in the hand of above companies were held as explained by ld. CIT(A) then amount received by the assessee from these companies cannot be held as unexplained under section 68 of the Act in the proceedings carried out under section 263. All the document it is established that identity, genuineness of transaction and credit worthiness/sources of fund has been established. Further the learned principal CIT have not pointed out any deficiency in these documentary evidences neither any contrary evidences brought by the learned DR before us. Thus the finding of the learned CIT that the creditworthiness of the parties were not proven was not based on the cogent reasons. Thus the finding of the learned PCIT appears to be arbitrary and non-speaking. To our understanding the answer stands negative for the reason that proceeding under section 147 is limited to the extent of reason recorded. Though the provision section 147(1) authorizes AO to make addition with regard to any other issue if it comes to his/her notice during the proceeding. Here it is not the case. Hence the learned principal CIT cannot held the order under section 147 r.w.s. 143(3) for non-enquiry of share capital which was not the part of the proceeding. If he wanted to do so then he has to revise the order under section 143(1) of the Act as the case may be. See M/S. LARK CHEMICALS LTD. 2013 (9) TMI 959 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Principal CIT erred in holding the assessment framed by the AO under section 143(3) read with section 147 of the Income Tax Act, 1961 as erroneous and prejudicial to the interest of Revenue.

Issue-wise Detailed Analysis:

1. Principal CIT's Error in Holding the Assessment as Erroneous and Prejudicial:

Background:
The assessee, a private limited company engaged in providing funds and finance facilities, was subject to reassessment proceedings under section 147 based on information from the investigation wing. The AO framed the assessment under section 143(3) read with section 147, adding ?39,05,50,000 under section 68 for amounts received from M/s. Rachna Finelease Pvt. Ltd. However, no discussion or disallowance was made regarding amounts received from M/s. Capaxo Logistics Pvt. Ltd. and M/s. Hit Flo Control Water Treatment Pvt. Ltd.

Principal CIT's Findings:
The Principal CIT held that the assessment was erroneous and prejudicial because the identity and creditworthiness of the companies providing share application money were not established, as these companies had not filed their income tax returns. The Principal CIT issued a show cause notice and, after considering the assessee's response, concluded that the AO failed to conduct proper enquiries regarding the share application money received from M/s. Capaxo Logistics Pvt. Ltd. and M/s. Hit Flo Control Water Treatment Pvt. Ltd.

Assessee's Arguments:
The assessee contended that the share application money was disclosed in the audited balance sheet and assessed in the hands of the companies providing the funds. The assessee provided detailed evidence, including ledger accounts, bank statements, and confirmations, to establish the identity, genuineness, and creditworthiness of the transactions. The assessee argued that any addition in its hands would lead to double taxation, as the funds were already assessed in the hands of the source companies.

Tribunal's Analysis:
The Tribunal examined the evidence and found that the Principal CIT's findings were not entirely correct. The companies M/s. Rachna Finelease Pvt. Ltd. and M/s. Capaxo Logistics Pvt. Ltd. had filed their income tax returns and were assessed under section 147 read with section 143(3). The CIT(A) had deleted the additions made by the AO in their hands, establishing the source of funds. The Tribunal noted that the Principal CIT's conclusion was arbitrary and not based on cogent reasons.

Legal Precedents:
The Tribunal referred to judgments from the Hon'ble Madras High Court and Hon'ble Delhi High Court, emphasizing that the Principal CIT must point out specific errors and cannot substitute their judgment for that of the AO without a definite conclusion. The Tribunal also cited the Hon'ble Bombay High Court's ruling that the Principal CIT cannot revise an order based on issues not considered in the reassessment proceedings.

Conclusion:
The Tribunal concluded that the Principal CIT's order was arbitrary and non-speaking. The Tribunal found that the identity, genuineness, and creditworthiness of the share application money were established by the assessee. The Tribunal also noted that the AO's reassessment proceedings were limited to the amount received from M/s. Rachna Finelease Pvt. Ltd., and the Principal CIT could not extend the scope to other companies. The Tribunal set aside the Principal CIT's order and restored the AO's assessment.

Judgment:
The appeal filed by the assessee was allowed, and the order of the AO was restored. The Tribunal emphasized that the Principal CIT's findings were not supported by evidence and were arbitrary, leading to the conclusion that the assessment was not erroneous or prejudicial to the interest of Revenue.