2023 (10) TMI 690 - AT - Income Tax

Revision u/s 263 by CIT - addition u/s 68 treating the entire share capital subscribed as unexplained cash credit - AO concluded the assessment u/s 143(3) r.w.s. 254 in which he has estimated the commission @1% on the entire amount of share capital an accordingly made an addition - HELD THAT - From the perusal of the details submitted by the assessee it is noticed that the assessee has submitted a reconciliation linking the amount received as share capital to an excel sheet seized during the search of Shri Shirish C Shah. It is relevant here to mention that the AO in the original proceedings u/s 143(3) had issued notices under section 133(6) to check the source of the capital contribution and had received a reply from the parties that they had not made any capital contribution - Given this, in our considered view, AO in the remanded proceedings ought to have looked into further details based on the reconciliation to verify how each line in the bank statement relates to the seized material of Shirish C Shah. The reconciliation statement as it is does not establish the fact that the source for the capital contribution is from material seized without further enquiry or verification of details. Therefore we are inclined to agree with the finding of the PCIT that there is lack of enquiry on the part of the AO as far as one leg of the transaction is concerned where assessee is claimed to be the conduit. It is the duty of the AO to ascertain the truth of the facts stated / submitted by the assessee especially when the circumstances of the case are such as to provoke an inquiry and the word erroneous in section 263 includes the failure to make such an inquiry. The decisions relied on by the AR cannot be directly applied to assessee's case since the findings are based on facts specific to each case. PCIT while invoking the explanation has given a clear finding with regard to the lack of enquiry on the part of the AO and has accordingly held the order to erroneous and prejudicial to the interest of the revenue. We therefore see no infirmity in the action of the PCIT. We hold that the PCIT was justified in assuming the jurisdiction by invoking explanation (2) to section/s 263 of the Act and setting aside the assessment order. Appeal filled by assessee dismissed.

Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under section 143(3) read with section 254 of the Income-tax Act, 1961, was erroneous and prejudicial to the interest of revenue.
2. Whether the AO conducted proper enquiries before passing the order.
3. Whether the assessee furnished necessary evidence to substantiate its case.
4. Whether the AO's acceptance of one of the two possible legal views was valid.

Summary:

Issue 1: Erroneous and Prejudicial Order
The Principal Commissioner of Income-tax (PCIT) held that the AO's order was erroneous and prejudicial to the interest of revenue. The AO had accepted the assessee's claim that it was a conduit company without conducting independent enquiries or verifying the ultimate beneficiary of the transactions. The PCIT invoked section 263, setting aside the AO's order and directing a denovo assessment.

Issue 2: Proper Enquiries by AO
The Tribunal found that the AO did not conduct necessary enquiries to verify the assessee's claim of being a conduit company. The AO accepted the assessee's submissions without further verification, including the reconciliation of bank statements and seized material. The Tribunal agreed with the PCIT that there was a lack of enquiry on the part of the AO.

Issue 3: Furnishing of Necessary Evidence
The assessee submitted various details, including reconciliation statements and lists of ultimate beneficiaries. However, the Tribunal noted that these submissions were not independently verified by the AO. The AO relied on the assessee's submissions and the assessment done in the hands of M/s Empower India Ltd without conducting any independent enquiry.

Issue 4: Acceptance of Legal Views
The Tribunal observed that the AO had not followed the Tribunal's direction to ascertain in whose hands the income should be assessed. The AO assessed only the commission income in the hands of the assessee without determining the ultimate beneficiary of the transactions. This was beyond the Tribunal's directions, making the AO's order erroneous and prejudicial to the interest of revenue.

Conclusion:
The Tribunal upheld the PCIT's order, agreeing that the AO's assessment was erroneous and prejudicial to the interest of revenue due to lack of proper enquiry and verification. The appeal filed by the assessee was dismissed.

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