2021 (11) TMI 999 - AT - Income Tax

Revision u/s 263 by CIT-A - inadequacy in enquiry on share application money - Addition u/s 68 - HELD THAT - The assessee has established not only the source of loan obtained but has also adequately demonstrated before the AO the source of money in the hands of the share applicants. A small portion of cash deposited by lender doesn't necessarily signify any collusion with assessee. The relevant facts were present before AO and were scrutinized. Thus, the burden of proof cast upon the assessee was broadly discharged. A presumption can be safely drawn that the AO was armed with reasonable evidences to draw satisfaction with the explanation offered by the assessee towards receipt of share application money from various parties and consequently it can be said that the statutory discretion was exercised in favour of the assessee based on tell-tale evidences furnished by the assessee in this regard. The action of the AO thus cannot be wholly disregarded as untenable or implausible more so, where share applicants attended the enquiry and deposed on oath for the subscription made. The share applicants are assessed to tax and confirmed the subscription. On these facts, a question would arise as to whether it was incumbent upon the AO to disregard such evidences and hold the explanation to be unsatisfactory in terms of Section 68 of the Act or not. Having regard to the prerogative vested with the AO towards the extent and manner of inquiry for drawing satisfaction, it is difficult to hold that the action of the AO is unintelligible. In our view, the AO has not committed any error in not chasing 'will o the wisp' in the absence of any brazen circumstances. In the light of aforesaid discussion, the basis of issuance of show cause notice under s. 263 of the Act does not appear to be tenable in law in the peculiar set of facts. Consequently, the assumption of jurisdiction under s. 263 of the Act will have to be regarded as without authority of law. As noted, the share applicants have unequivocally confirmed the share subscription. In such facts, it will be difficult to discredit the share application money received per se and make additions in the realm of s. 68 of the Act in the hands of the assessee in place of the share applicants where 'source of source' allegedly remains unproved in the opinion of the PCIT. Therefore purported inadequacy in inquiry as alleged, cannot be stated to be 'erroneous' per se in so far as assessee is concerned, even if, such inaction of AO towards fuller enquiry is branded as 'prejudicial to the interest of Revenue'. Therefore, the mandatory twin conditions of Section 263 is also not found to be fulfilled when tested on the touchstone of taxability of share application money in the hands of assessee on the grounds of unproved source of source.We thus concur with the plea on behalf of the assessee that S. 263 proceedings cannot be inflicted upon the assessee in these circumstances. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961.
2. Adequacy of the Assessing Officer's (AO) inquiry into the source of share application money.
3. Examination of share capital and security premium.
4. Verification of inventory of land.
5. Analysis of trading account showing loss.

Detailed Analysis:

1. Jurisdiction of the PCIT under Section 263 of the Income Tax Act, 1961:
The assessee challenged the jurisdiction assumed by the PCIT under Section 263 of the Act, contending that the assessment order passed by the AO was not erroneous or prejudicial to the interest of the revenue. The Tribunal noted that the supervisory jurisdiction under Section 263 allows the PCIT to review the records and pass orders if the AO's order is found to be erroneous and prejudicial to the revenue. However, the Tribunal emphasized that the PCIT's dissatisfaction with the degree of inquiry by the AO does not automatically justify the assumption of jurisdiction under Section 263.

2. Adequacy of the AO's inquiry into the source of share application money:
The PCIT alleged that the AO did not make adequate inquiries regarding the share application money received by the assessee. The AO had accepted the share application money based on documents such as confirmations, income tax returns, balance sheets, and bank statements of the share applicants. The AO also issued summons and recorded statements of the share applicants under Section 131 of the Act. The Tribunal found that the AO conducted a reasonable inquiry and exercised statutory discretion judiciously. The Tribunal held that the PCIT's view of inadequate inquiry does not render the AO's order erroneous or prejudicial to the revenue.

3. Examination of share capital and security premium:
The PCIT raised concerns about the verification of share capital and security premium received by the assessee. The assessee provided details of share capital and security premium, along with supporting documents, during the assessment proceedings. The Tribunal observed that the AO had examined these details and found them satisfactory. Therefore, the Tribunal concluded that the AO's order was not erroneous or prejudicial to the revenue in this regard.

4. Verification of inventory of land:
The PCIT pointed out that the AO did not verify the inventory of land. The assessee submitted purchase deeds and supporting documents for the land purchased during the year, which the AO examined. The Tribunal noted that the AO had verified the inventory of land and found no discrepancies. Hence, the Tribunal held that the AO's order was not erroneous or prejudicial to the revenue concerning the inventory of land.

5. Analysis of trading account showing loss:
The PCIT observed that the trading account showed purchases exceeding sales, resulting in a loss. The assessee clarified that the trading account actually showed a gross profit. The Tribunal reviewed the trading account and confirmed that the assessee had earned a gross profit. Therefore, the Tribunal concluded that the AO's order was not erroneous or prejudicial to the revenue regarding the trading account.

Conclusion:
The Tribunal held that the AO had conducted reasonable inquiries and exercised statutory discretion judiciously. The PCIT's dissatisfaction with the degree of inquiry did not justify the assumption of jurisdiction under Section 263. The Tribunal quashed the revisional order passed by the PCIT and allowed the appeal of the assessee. The Tribunal emphasized that the AO's order could not be set aside merely because the PCIT expected a higher standard of inquiry. The Tribunal also noted that the mandatory twin conditions of Section 263 were not fulfilled, as the AO's order was neither erroneous nor prejudicial to the revenue.

← Previous Next →