2022 (10) TMI 651 - AT - Income Tax

Revision u/s 263 - lack of inquiry by AO - as per CIT, selection of the assessee's case for limited scrutiny was for the reason of large share premium having been received by the assessee company and that a perusal of the assessment order would show that the AO has not even mentioned such fact in the body of the assessment order - HELD THAT - There was a complete lack of inquiry on the part of the AO on the issue of share premium and, therefore, in view of complete lack of inquiry by the AO, we have no option but to hold that the order of the Ld. PCIT deserves to be upheld. We would like to emphasize that it is clearly being brought out from the records that the assessee had submitted details like date-wise details of share capital receipts, confirmation certificates from the investor, copy of ITR along with computation chart and the balance sheet of the investor etc., bank statement of the investor but no explanation was called for regarding valuation of shares or the genuineness and creditworthiness of the investors. Therefore, in our considered opinion it is a case where the AO did not make any inquiry vis- -vis the share premium and simply accepted the details filed by the assessee and, thus, the AO had failed miserably to carry out the duty cast upon him. Therefore, it is our considered view that it is a case of complete lack of inquiry by the AO and, therefore, we hold that the Ld. PCIT was absolutely correct in invoking the revisionary powers u/s. 263 - Appeal of the assessee stand dismissed.

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
2. Examination of share premium received by the assessee.
3. Alleged difference in opening and closing stock.
4. Procedural fairness and natural justice.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:
The appeal was preferred by the assessee against the order dated 30.03.2018 passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961 for the assessment year 2013-14. The PCIT issued a notice under Section 263, indicating that the assessment order was erroneous and prejudicial to the interest of the Revenue due to the lack of thorough examination of the share premium received by the company. The PCIT held that the Assessing Officer (AO) had not conducted a proper inquiry or verification, particularly with respect to the provisions of Section 68 and Rule 11 UA of the Income Tax Rules. The Tribunal upheld the PCIT's order, noting that the AO had failed to carry out the necessary inquiries and verification, thereby making the assessment order erroneous and prejudicial to the interest of the Revenue.

2. Examination of Share Premium Received by the Assessee:
The PCIT highlighted that the AO did not thoroughly examine the issue of share premium received by the assessee company. The PCIT pointed out deficiencies such as the lack of inquiry into the creditworthiness and genuineness of the transactions, especially since the investor company had declared NIL income and had gross receipts of only Rs. 20,000/-. The AO had merely placed the information/details filed by the assessee on record without conducting any meaningful verification. The Tribunal agreed with the PCIT's observations, emphasizing that the AO was duty-bound to inquire into the creditworthiness and genuineness of the transactions and verify the valuation of shares in terms of Rule 11 UA of the Income Tax Rules. The Tribunal noted that the AO's failure to conduct such inquiries justified the invocation of Section 263 by the PCIT.

3. Alleged Difference in Opening and Closing Stock:
The PCIT's show cause notice also mentioned a difference in the opening stock in the current year compared to the closing stock of the previous year. However, the assessee contended that there was no such difference. The Tribunal did not find any specific findings or evidence regarding this issue in the PCIT's order or the AO's assessment order. Therefore, this issue did not significantly impact the Tribunal's decision to uphold the PCIT's order under Section 263.

4. Procedural Fairness and Natural Justice:
The assessee argued that the PCIT's order was passed without giving a reasonable and fair opportunity to respond to the issues raised, particularly regarding the genuineness and creditworthiness of the share application money received. The Tribunal noted that the assessee had repeatedly sought adjournments and had not shown any genuine requirement for further accommodation. The Tribunal concluded that the assessee was not interested in pursuing the appeal and that the adjournment requests were dilatory tactics. The Tribunal proceeded with the hearing ex-parte qua the assessee, rejecting the adjournment application and emphasizing that an adjournment is not a matter of right but an accommodation granted by the Court if circumstances warrant it.

Conclusion:
The Tribunal upheld the PCIT's order under Section 263, dismissing the assessee's appeal. The Tribunal emphasized the AO's failure to conduct necessary inquiries and verification regarding the share premium received, thereby making the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal also highlighted the importance of procedural fairness and the misuse of adjournment requests by the assessee. The final result was the dismissal of the assessee's appeal.

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