2012 (2) TMI 18 - HC - Income Tax

AO's s.147/148 assessment upheld where returns and increased share application money accepted; s.263 revocation held unwarranted

THE COMMISSIONER OF INCOME TAX II Versus SOFTWARE CONSULTANTS

HC held the AO's assessment under s.147/148 was not erroneous where the AO accepted the loss return, verified and accepted increased share application ... Revisionary powers of Commissioner u/s 263 - Acceptance of loss return by the Assessing Officer without making any addition - AO also accepted increase in share application money and established genuineness of share application money by issuing summons u/s 131 to person on random basis and statements were recorded - Tribunal quashed the order of CIT(A) - Held that:- Order of the A.O. cannot be regarded as erroneous even if he had failed to carry out necessary verification and required enquiries in respect of the share application money, as no addition has been made on account of the reasons for reopening i.e. investment in FDR, which were recorded before issue of notice u/s 148. As the AO did not make any addition for the reasons recorded at the time of issue of notice under Section 148 of the Act. This position is not disputed and disturbed by the Commissioner of Income Tax in his order under Section 263 of the Act. Sequitur is that the Assessing Officer could not have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act – Decided against the Revenue. Issues:1. Jurisdiction under Section 263 of the Income Tax Act, 1961 - Whether correctly invoked by the Commissioner of Income Tax.2. Acceptance of loss return by the Assessing Officer without making any addition.Issue 1:The case involved an appeal under Section 260A of the Income Tax Act, challenging the order passed by the Income Tax Appellate Tribunal regarding the jurisdiction under Section 263 of the Act. The Commissioner of Income Tax had directed further inquiries into share application money of Rs.47 lacs, alleging that the Assessing Officer failed to conduct necessary verifications and enquiries. The Tribunal quashed the Commissioner's order, stating that the Assessing Officer's failure did not render the assessment order erroneous. The Tribunal highlighted that no addition was made concerning the reasons for reopening, i.e., FDRs worth Rs.20 lacs, and the genuineness of the investment was established by the assessee.Issue 2:Regarding the acceptance of the loss return by the Assessing Officer without any addition, it was held that the order was not erroneous. The Commissioner of Income Tax did not dispute that no addition was made based on the reasons recorded during the notice issuance under Section 148. As a result, the assessment order was deemed not erroneous, and the Commissioner lacked jurisdiction under Section 263 of the Act. The High Court referred to various legal precedents, including the Supreme Court and High Court decisions, emphasizing the conditions for assessing or reassessing escaped income under Section 147 and the necessity for reasons to believe in initiating proceedings.In conclusion, the High Court answered the question of law in favor of the assessee, stating that the Commissioner of Income Tax could not exercise jurisdiction under Section 263 of the Act as the assessment order was not erroneous. No costs were awarded in the case.