2022 (8) TMI 37 - AT - Income Tax

Assessing Officer's Inquiry Upheld, Principal Commissioner's Intervention Rejected

The Tribunal allowed the assessee's appeal, finding that the Assessing Officer had conducted adequate inquiries and applied his mind regarding the share ... Revision u/s 263 - Addition u/s 68 - unexplained cash credits - HELD THAT:- As the principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the revenue, for example, when an AO adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. In the present case of the assessee was selected through 'CASS' selection for Limited Scrutiny, where the purpose of assessment was to scrutinize the substantial increase in share capital in the captioned year. During the course of assessment proceedings, AO made detailed enquiries on this issue and after consideration of time-to-time written submissions filed by the assessee and documents / evidence placed on record, AO made additions (inclusive of the cash deposits) by treating the same as unexplained cash credits. Pr. CIT initiated 263 proceedings on the ground that the AO has not made enquiries or verification which should have been made in respect of share capital introduced during the year under consideration. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the Ld. AO had made detailed enquiries and after consideration of material placed on record, made an addition - We thus find no error in the order of AO so as to justify initiation of 263 proceedings by the CIT. The Ground of appeal raised by the assessee is thus allowed. Issues Involved:1. Legality of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, 1961.2. Whether the Assessing Officer (AO) made adequate inquiries regarding the share capital introduced by the assessee.3. The application of Explanation 2(a) to section 263 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Legality of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, 1961:The assessee contested the legality of the Pr. CIT's order, arguing that it was 'bad and illegal' and should be quashed. The Pr. CIT initiated proceedings under section 263, asserting that the AO's order was erroneous and prejudicial to the interests of the Revenue. The Pr. CIT observed that the AO had not made adequate inquiries regarding the share capital introduced during the year under consideration, specifically concerning the immediate cash and cheque deposits in the bank accounts of shareholders before issuing cheques/RTGS for share capital investment. The Pr. CIT concluded that the AO's failure to make necessary inquiries or verification rendered the assessment order erroneous and prejudicial to the interests of the Revenue.2. Whether the Assessing Officer (AO) made adequate inquiries regarding the share capital introduced by the assessee:The assessee argued that the AO had made detailed inquiries during the assessment proceedings, including requesting confirmations from share applicants, copies of acknowledgment of return of income, and bank passbooks. The AO added Rs. 4,83,98,000/- as unexplained cash credits under section 68 of the Act after considering the evidence submitted by the assessee. The assessee contended that since the AO had conducted inquiries and applied his mind, the initiation of proceedings under section 263 was unjustified. The Tribunal noted that the AO had made inquiries and added a substantial amount to the assessee's income, indicating that the AO had applied his mind to the issue.3. The application of Explanation 2(a) to section 263 of the Income Tax Act, 1961:The Tribunal examined the scope of inquiry under Explanation 2(a) to section 263, which states that an order shall be deemed erroneous if passed without making inquiries or verification that should have been made. The Tribunal referenced several judicial precedents, including decisions by the Delhi High Court and the Supreme Court, distinguishing between 'lack of inquiry' and 'inadequate inquiry.' The Tribunal emphasized that an inquiry made by the AO, even if considered inadequate by the Pr. CIT, does not render the AO's order erroneous. The Tribunal concluded that the AO had made detailed inquiries and applied his mind to the issue, and the Pr. CIT could not impose his understanding of the extent of inquiry.Conclusion:The Tribunal allowed the assessee's appeal, holding that the AO had made adequate inquiries and applied his mind to the issue of share capital introduced during the year. The Tribunal found no error in the AO's order to justify the initiation of proceedings under section 263 by the Pr. CIT. The Tribunal emphasized that the Pr. CIT could not substitute his judgment for that of the AO, who had exercised his quasi-judicial power in accordance with the law. The Tribunal concluded that the assessment order was not erroneous or prejudicial to the interests of the Revenue, and thus, the proceedings under section 263 were unjustified.Order:The appeal filed by the assessee was allowed, and the order pronounced in the Court on 29/07/2022 at Ahmedabad.