2023 (12) TMI 763 - AT - Income Tax

ITAT sets aside revision order finding AO properly examined partners' capital contributions during assessment

CEC-UBC (JV) Versus Principal Commissioner of Income Tax Mumbai-1, Mumbai

ITAT Mumbai allowed the appeal, setting aside the revision order u/s 263. The case involved partners' capital contributions to a firm that the CIT claimed ... Revision u/s 263 - partners have contributed capital but the same was not examined by the AO during the assessment proceedings - As per CIT AO did not examine whether the said contribution was from explained sources or not and did not examine the various aspects of the partnership deed - assessee submitted that the return filed by it was selected for scrutiny and various details were sought during the assessment proceedings - HELD THAT:- We find that the assessee not only furnished the copy of the income tax return and the computation of income but also furnished the bank statement of the assessee highlighting the capital contribution made by the partners during the year, the ledger account of the partners in the books of the assessee as well as bank statement of partners highlighting payment made to the assessee. Therefore it is sufficiently evident that the return filed by the assessee was selected for scrutiny, inter-alia, particularly to examine the introduction of large capital or share capital in the year under consideration. AO also examined this issue by seeking various information from the assessee, which was duly furnished by the assessee to substantiate the flow of funds from the partners’ account in Cimechel Electric Co. to the assessee. As some of the partners in Cimechel Electric Co. and the assessee are common. Therefore, these very partners have transferred their funds from one entity to the assessee which has been duly substantiated with the material placed on record. Assessee has also furnished a copy of partnership deed dated 26/05/2017 during the assessment proceedings, which clearly highlighted the name of the partners and the share of their profit/loss. Vide impugned order the learned PCIT though agreed that the assessee has explained the capital contribution, however, even then held the assessment order to be erroneous and prejudicial to the interest of the Revenue on the basis that no enquiry in this respect nor any submission was made during the assessment proceedings. From the record, it is evident that the AO had examined the issue of capital contribution by the partners in the assessee firm, during the assessment proceedings. From the perusal of the notices issued by the AO and the reply filed by the assessee, we find that this issue was specifically raised during the scrutiny assessment proceedings and the same was duly replied to by the assessee. Therefore, it cannot be concluded that this aspect was not examined by the AO. We find that the Hon’ble jurisdictional High Court in CIT vs Reliance Communication Ltd, [2016 (4) TMI 173 - BOMBAY HIGH COURT] held that the fact that the AO did not make any reference in the assessment order cannot make the order erroneous when the issues were indeed looked into. Thus, in view of the facts and circumstances of the present case, we are of the considered opinion that this issue was duly examined by the AO during the scrutiny assessment proceedings. Therefore, the impugned revision order passed under section 263 of the Act is set aside. Appeal by the assessee is allowed. Issues:The appeal challenges an order passed under section 263 of the Income Tax Act, 1961 for the assessment year 2018-19.Grounds Raised by Assessee:1. The Principal Commissioner erred in holding the assessment order as erroneous and prejudicial to revenue.2. The assessment order was neither erroneous nor prejudicial.3. Revision jurisdiction cannot be exercised when issues were satisfactorily replied to.4. Revision jurisdiction cannot be exercised for issues not covered in the show cause notice.5. The assessment order was not unsustainable in law.6. Assessment order cannot be revised if passed after adequate inquiries.7. Assessment order cannot be revised merely for lack of discussion on inquiry results.8. Jurisdiction under section 263 was invoked presumably based on audit objection.9. Misinterpretation of total loss declared in the return.Facts and Proceedings:The assessee, a joint venture engaged in various businesses, filed its return for the year declaring total income. The Assessing Officer accepted the returned income after scrutiny. Subsequently, revisionary proceedings were initiated alleging lack of proper verification of capital contribution by partners. The Principal Commissioner set aside the assessment order directing fresh assessment after detailed inquiries. The assessee contended that all necessary details were submitted during assessment proceedings. The Principal Commissioner disagreed, citing lack of inquiry and cash trail between entities. The Tribunal noted that the issue of capital contribution was examined during scrutiny, as evidenced by documents provided by the assessee. Citing precedents, the Tribunal held that the issue was duly examined by the Assessing Officer and set aside the revision order.Conclusion:The appeal by the assessee is allowed, and the revision order under section 263 is set aside.