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TMI Blog2024 (5) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. Pr. CIT felt that the Assessing Officer should have made further enquiries on the same issue or that the case was to be examined from some another angle, the same, in our view, cannot be a valid ground to set aside the assessment order. If such an action is allowed by the CIT in revision jurisdiction, then there would be no end to litigation and there would not be any finality to the assessment. The Explanation 2 to Section 263(1) of the Act does not give unbridled powers to the ld. PCIT to simply set aside the assessment order by saying that the AO was required to make further enquiries without pointing out as to what was lacking in the enquiries made by the Assessing Officer and why the ld. Pr. CIT was not satisfied with the reply and evidence furnished by the assessee. The Coordinate Mumbai Bench of the Tribunal in the case of Narayan Tatu Rane [ 2016 (5) TMI 1162 - ITAT MUMBAI] has held that Explanation 2(a) to section 263 of the Act does not authorise or give unfettered power and to revise each and every order on the ground that the Assessing Officer should have made more enquiries and verifications. The impugned order of the ld. Pr. CIT is set aside and the appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law are all left open. 2.1 In view of the aforesaid directions of the Hon ble High Court, the appeal of the assessee has been heard afresh uninfluenced by the earlier order of the Tribunal dated 05.08.2016. 3. At the outset, the ld. counsel for the assessee has invited our attention to the impugned order passed by the ld. Pr. CIT u/s 263 of the Act. The ld. Pr. CIT in this case was of the view that the Assessing Officer has not properly examined the issue relating to the share application money along with premium received by the assessee during the year. 4. The brief facts of the case are that the assessee filed return of income on 28.08.2009 declaring a loss of Rs. 920/- which was processed u/s 143(1) of the Act. Thereafter, the assessee filed a letter before the Assessing Officer stating that a sum of Rs. 40,250/- inadvertently could not be offered as income for taxation. The Assessing Officer, thereafter, after getting necessary approval from the competent authority u/s 151 of the Act, reopened the assessment and passed the assessment order after making addition of the said escapement of Rs. 40,250/- into the income of the assessee. In the said reassessment order, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such substantial amounts. The A.O. should have called for the bank statement of the full financial year for proper analysis verification. iii) the replies were just placed on record and no independent inquiries were carried out regarding the fact whether the subscribing companies were available at the given address, and whether they were genuine corporate entities. iv) The A.O. had not examined u/s 131 any Directors, either of the assessee company or of the subscribing companies. 4.2 The ld. Pr. CIT accordingly set aside the order of the Assessing Officer and directed the Assessing Officer as under: i) Examine the genuineness and source of share capital, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. ii) The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. iii) Further the A.O. should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. counsel, in this respect, has placed reliance on the voluminous evidences on file which were filed before the Assessing Officer including ITR acknowledgements, final accounts, bank statement, allotment advice etc. of the share subscribers and also copies of replies to notices issued u/s 133(6) to respective share applicant companies. The ld. counsel has further referred to page 235 of the paper-book to submit that not only the details of share applicants were filed but also their CIN number, PAN number, details of corporate office address were filed and further the net worth of the share applicants was also shown which was sufficient to make investment in the assessee company and further that it was explained that only a small part of their net worth was invested by the shareholders in the assessee company. Pointing out to the point no.4, the ld. counsel has submitted that even the directors of the assessee were summons u/s 131 of the Act whose statements were duly recorded during the assessment proceedings. The ld. counsel, therefore, has submitted that all the discrepancies noted by the ld. Pr. CIT relating to the assessment order in question were factually wrong. He furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 7.1. The sum and substance of the above reproduced section 263(1) can be summarized in the following points: 1) The Commissioner may call for and examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) erroneous; and (ii) is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) an order enhancing or, (ii) modifying the assessment or (iii) cancelling the assessment and directing a fresh assessment. 8. As per the provisions of section 263 as enumerated above, after getting the explanation from the assessee, the Ld. Pr. CIT was supposed to examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already been done by the Assessing Officer during the assessment proceedings. The ld. Pr. CIT, as discussed above, has not pointed out any error or discrepancy in the evidence furnished by the assessee and without examining such evidence and without counter questioning the assessee on the relevant points and even without considering the submission of the assessee furnished in reply to the show-cause notice, the ld. Pr. CIT, in our view, was not justified in setting aside the order, simply stating that in his view more enquiries were needed to be carried out by the Assessing Officer. 9. It is pertinent to mention here that a deeming fiction has been created in section 263 of the Act by way of Explanation 2 inserted vide amendment made by Finance Act, 2015 w.e.f. 01.06.15 wherein it has been mentioned that where the Commissioner is of the opinion that the Assessing Officer had passed the order without making enquiries or a claim has been allowed without enquiring into the claim or that the same is not in accordance with any order or direction or instruction issued by CBDT, that shall be deemed to be erroneous in so far as its prejudicial to the interest of Revenue. The said deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the phrase prejudicial to the interest of the Revenue under s. 263 has to be read in conjunction with the expression erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. 11.2. Hon'ble Madhya Pradesh High court in the case of CIT vs. Associated Food Products (P) Ltd as reported in 280 ITR 0377 has held that: 10. In view of the aforesaid pronouncement of law and taking into consideration the language employed under s. 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation exercise of a suo-moto power is impermissible. It should not be presumed that initiation of power under suo-moto revision is merely an administrative act. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay). 12.1. This view is further supported by the decision of the Hon'ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri in Tax Appeal No. 177 with Tax Appeal No.178 of 2016, wherein the Hon'ble Gujarat High Court was seized with the following substantial question of law: Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Officer even though the working of allowability of deduction under section 54F is available in the order under section 263 which is not disputed by the assessee before ITAT. 13. We find that the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. Relevant observation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessee s and the unsecured loan taken from M/s Stutee Chit Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee. 64. Since in the instant case the A.O. after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O., he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O. has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/ probed in a particular manner, he cannot assume jurisdiction u/s 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.2. Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) that the ld. CIT has to examine and verify the issue himself and give a finding on merits and form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. Relevant extract is reproduced below: In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that order passed by the Assessing Officer may be erroneous . The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent s computation figures but he had reservations. The CIT in the order has recorded that the considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquires or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. 10. In view of the discussion made above, the impugned order of the Ld. PCIT passed u/s 263 of the Act is not sustainable as per law, the same is accordingly, hereby quashed. Consequential additions made, if any, stand deleted. 11. Apart from challenging the validity of the order of the Pr. CIT u/s 263 of the Act, the ld. counsel for the assessee has raised a legal objection stating that the concerned Assessing Officer did not have territorial jurisdiction to pass the assessment order u/s 147 of the Act. He, in this respect, has submitted that the impugned assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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