2022 (1) TMI 626 - AT - Income Tax

Revision u/s 263 by CIT - bogus share capital, share application money and unsecured loan introduced in the assessee company - As per CIT AO failed to make independent inquiry with regard to the same - HELD THAT - We are unable to concur with the Ld. Pr. CIT and we find that in the guise of exercising revisionary powers the Ld. Pr. CIT is taking a different view on the matter and in fact dictating the extent of inquiry which ought to have been conducted by the AO, without pointing out as to how the AO s view accepting the claim and explanation of the assessee, vis a vis source of bogus capital introduced, was flawed or suffered from any infirmity considering the facts and circumstances of the case. Admittedly the assessee during survey had surrendered bogus capital introduced. It was incumbent on the assessing officer therefore, during assessment proceedings, to have sought an explanation and inquire into the source of the same also. The assessee we find therefore had not only admitted to and surrendered on account of its own money introduced by way of bogus share capital/share application/ unsecured loan , but had explained the manner of introducing the same by way of booking bogus expenditure and rerouting the payment made on account of the same in the form of share capital etc giving all details of the modus operandi ,including the name of parties involved in the same and the dates of the entire money trail. Thus a full and complete disclosure was made by the assessee, who had come completely clean with regard to the bogus transactions undertaken, revealing all possible details of the same. Nothing has been pointed out by the Ld. Pr. CIT in the above explanation and the details filed by the assessee, so as to raise any suspicion regarding the same. With the disclosure being so complete in all aspects and there being nothing to doubt the same, the acceptance of the explanation by the AO, we find ,in the present circumstances cannot be said to be out of place or unreasonable. Even Explanation 2 to section 263, listing various instances where orders of AO are to be treated as erroneous causing prejudice to the Revenue, states orders passed without making inquiries or verification which should have been made(italics provided by us), as one of the instances. Meaning thereby that lack of inquiry by itself is not sufficient for exercising revisionary jurisdiction but it is lack of inquiry which should have been made . The finding of error in the order of the AO by the Ld. Pr.CIT, on account of alleged lack of inquiry, without pointing out the necessity for conducting the same, we find is nothing but having a different opinion on the matter, and therefore, we do not agree that the lack of inquiry resulted in the order passed being erroneous so as to cause prejudice to the Revenue. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Alleged error in the assessment order under Section 143(3) of the Income Tax Act.
3. Adequacy of inquiries conducted by the Assessing Officer (AO).
4. Prejudice to the Revenue due to the alleged lack of inquiry.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The appeal was filed against the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. The Pr. CIT exercised his revisionary jurisdiction, setting aside the AO's order and directing a fresh assessment after proper inquiries. The Pr. CIT's authority under Section 263 allows interference if the AO's order is deemed erroneous and prejudicial to the interests of the Revenue.

2. Alleged Error in the Assessment Order under Section 143(3):
The Pr. CIT found the AO's order erroneous for accepting the assessee's explanation of the source of bogus share capital without independent inquiries. During a survey, the assessee admitted to introducing bogus share capital and unsecured loans, surrendering ?1 crore for the assessment year. The Pr. CIT noted that the AO accepted the explanation without verifying the linkage between bogus expenditure and the introduction of share capital, leading to a potential double addition.

3. Adequacy of Inquiries Conducted by the Assessing Officer (AO):
The Pr. CIT criticized the AO for not conducting adequate inquiries into the assessee's explanation. The assessee had provided details of parties related to the bogus expenditure, disbursement amounts, and money routing. However, the Pr. CIT noted that the AO accepted these submissions without verifying bank accounts or examining the credit to the capital work in progress. The Pr. CIT cited legal precedents emphasizing the need for proper inquiries to avoid orders being erroneous and prejudicial to the Revenue.

4. Prejudice to the Revenue Due to Alleged Lack of Inquiry:
The Pr. CIT argued that the AO's failure to verify the explanation rendered the assessment erroneous and prejudicial to the Revenue. The Pr. CIT directed the AO to frame a fresh assessment after proper inquiries. However, the Tribunal disagreed, stating that the Pr. CIT's exercise of revisionary powers was based on a different view rather than pointing out specific flaws or infirmities in the AO's acceptance of the assessee's explanation. The Tribunal emphasized that the Pr. CIT did not conduct his own inquiries to substantiate the need for further verification by the AO.

Conclusion:
The Tribunal found that the assessee had provided a complete disclosure of the bogus transactions, including the modus operandi and money trail. The Tribunal held that the Pr. CIT's direction for further inquiry was beyond the scope of Section 263, which requires pointing out specific errors causing prejudice to the Revenue. The Tribunal set aside the Pr. CIT's order, stating that the exercise of revisionary jurisdiction was not in accordance with the law. The appeal of the assessee was allowed.

Order:
The appeal of the assessee is allowed. The order passed by the Pr. CIT under Section 263 is set aside. The Tribunal pronounced the order in the open court on 14-12-2021.

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