Tribunal allows appeal, cancels assessment order under section 263, finding it not erroneous or prejudicial.

The Tribunal allowed the appeal of the assessee, holding that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal canceled the impugned order passed under section 263 by the Pr. CIT on both issues regarding the inquiry into the receipt of funds from a company and the issue of NIL Work In Progress in the final accounts of the assessee company.

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Issues Involved:
1. Validity of the order passed under section 263 of the Income-tax Act, 1961.
2. Inquiry into the receipt of Rs. 7.80 crores on share premium/share capital from M/s Prosperity Mercantile Pvt Ltd.
3. Inquiry into the issue of NIL Work In Progress (WIP) found in the final accounts of the assessee company.

Detailed Analysis:

1. Validity of the order passed under section 263 of the Income-tax Act, 1961:

The appeal was filed by the assessee against the order dated 12.01.2018, passed by the Principal Commissioner of Income Tax (Pr. CIT), Delhi-9, under section 263 for the assessment year 2014-15. The assessee contended that the Pr. CIT was not justified in setting aside the order dated 31.12.2016, passed under section 143(3) by the Assistant Commissioner of Income Tax (ACIT), Circle-25(2), New Delhi, on the grounds that it was allegedly erroneous and prejudicial to the interests of the Revenue. The twin conditions outlined in Section 263 were not fulfilled.

2. Inquiry into the receipt of Rs. 7.80 crores on share premium/share capital from M/s Prosperity Mercantile Pvt Ltd:

The Pr. CIT observed that the ACIT failed to verify the receipt of Rs. 2.75 crores as fresh share capital and Rs. 5.05 crores as fresh share premium from M/s Prosperity Mercantile Pvt Ltd, a Kolkata-based company. The Pr. CIT noted that the ACIT did not take the inquiry to a logical conclusion and appeared to have inadvertently ignored this issue while passing the assessment order. The Pr. CIT highlighted that the assessee did not submit the requisite details as asked by the ACIT, particularly the sources of amounts received in the bank account of M/s Prosperity Mercantile Pvt Ltd. The Pr. CIT concluded that M/s Prosperity Mercantile Pvt Ltd is an entry provider/shell company, which had been acquired by the assessee company for routing its own unaccounted money.

The assessee argued that during the original assessment proceedings, the genuineness of the transaction and the creditworthiness of M/s Prosperity Mercantile Pvt Ltd were inquired into by the ACIT. The assessee had submitted the entire details, including confirmation of account, bank statement, income tax returns, audited balance sheet, and other documents. The assessee contended that once these documents were provided and the ACIT was duly satisfied, it could not be said that no inquiry was done by the ACIT. The assessee further pointed out that M/s Prosperity Mercantile Pvt Ltd had a huge reserve and surplus of Rs. 29.44 crores as of 31.03.2013, from which it had made investments in various companies, including the assessee company. The assessee emphasized that the transactions were made through banking channels, and scrutiny assessments under section 143(3) had been completed for M/s Prosperity Mercantile Pvt Ltd for the assessment years 2014-15 and 2015-16.

The Tribunal observed that the Pr. CIT's assumption of jurisdiction under section 263 was based on the failure of the ACIT to carry out proper inquiry or verification. However, the Tribunal noted that the source of funds with M/s Prosperity Mercantile Pvt Ltd had been accepted in scrutiny proceedings for the same assessment year. The Tribunal concluded that the assessment order could not be held as prejudicial to the interest of the revenue, as the source and creditworthiness of the subscribing company stood proved. The Tribunal held that no addition under section 68 was warranted in the case of the assessee and canceled the impugned order under section 263 on this issue.

3. Inquiry into the issue of NIL Work In Progress (WIP) found in the final accounts of the assessee company:

The Pr. CIT also raised the issue of NIL WIP in the final accounts of the assessee company. However, the Tribunal noted that the Pr. CIT did not provide any adverse finding or comment on why the WIP shown by the assessee at NIL was incorrect or required further inquiry or verification. The Tribunal emphasized that to set aside the assessment on this issue, the Pr. CIT had to demonstrate that the order of the ACIT was erroneous and prejudicial to the interest of the revenue. Since no such demonstration was provided, the Tribunal canceled the order of the Pr. CIT on this issue as well.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal canceled the impugned order passed under section 263 by the Pr. CIT on both issues.

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