Pr. CIT's Section 263 revision order set aside for share application money lacking specific enquiry deficiencies

ITAT Kolkata set aside Pr. CIT's revision order under Section 263 regarding share application money/share premium. The Pr. CIT held AO's order erroneous for lack of enquiry, invoking Explanation 2 to Section 263(1). However, ITAT found all discrepancies cited by Pr. CIT were factually incorrect as AO had conducted proper enquiries. The Tribunal held that Explanation 2 does not grant unbridled powers to set aside assessment orders merely stating AO should have made further enquiries without specifying deficiencies in existing enquiries or reasons for dissatisfaction with assessee's replies. Such approach would create endless litigation without assessment finality. Appeal allowed.

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Issues Involved:
1. Validity of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) u/s 263 of the Income Tax Act.
2. Examination of the share application money and premium received by the assessee.
3. Adequacy of the enquiries conducted by the Assessing Officer (AO) during the assessment proceedings.
4. Jurisdiction of the Assessing Officer to pass the assessment order u/s 147 of the Income Tax Act.

Summary:

The present appeal has been preferred by the assessee against the revision order dated 23.03.2015 of the Principal Commissioner of Income Tax-2, Kolkata (Pr. CIT) passed u/s 263 of the Income Tax Act. This is the second round of litigation before the Tribunal. The Hon'ble Calcutta High Court had earlier set aside the Tribunal's common order dated 05.08.2016 and restored the matter back to the Tribunal for a fresh decision on merits and in accordance with law.

The Pr. CIT had observed that the Assessing Officer (AO) did not properly examine the issue relating to the share application money along with the premium received by the assessee during the year. The AO had reopened the assessment and passed an order adding Rs. 40,250/- to the income of the assessee but did not examine the receipt of share application money/share premium amounting to Rs. 10 crores. The Pr. CIT noted that the AO had sent notices u/s 133(6) only on a test check basis and did not conduct independent inquiries or examine the directors of the assessee company or the subscribing companies u/s 131.

The Pr. CIT set aside the AO's order and directed the AO to examine the genuineness and source of share capital for each shareholder by conducting independent inquiries, examine the bank accounts for the entire period, and examine the directors and circumstances necessitating any change in directorship. The Pr. CIT directed the AO to pass a speaking order after conducting the inquiries and verification.

The assessee's counsel argued that the Pr. CIT made general observations without discussing specific facts of the case. It was submitted that the AO had conducted proper inquiries and obtained necessary details from all nine share subscribers, including confirmation letters, PAN, bank statements, and balance sheets. The counsel demonstrated that all factual discrepancies noted by the Pr. CIT were incorrect, and the AO had already complied with the directions given by the Pr. CIT during the assessment proceedings.

The Tribunal considered the rival submissions and noted that the Pr. CIT did not point out any specific discrepancy or error in the details furnished by the assessee. The Tribunal observed that the AO had raised necessary queries, and the assessee had furnished the required details and evidence, which were examined by the AO. The Tribunal held that the Pr. CIT was not justified in setting aside the order without examining the evidence and without pointing out specific errors. The Tribunal referred to the provisions of Section 263 and various judicial precedents, emphasizing that the Pr. CIT must make or cause to make necessary inquiries and provide specific reasons for considering the AO's order erroneous and prejudicial to the interest of revenue.

The Tribunal concluded that the order of the Pr. CIT was not sustainable as the AO had conducted adequate inquiries and the discrepancies pointed out by the Pr. CIT were factually incorrect. The Tribunal quashed the impugned order of the Pr. CIT passed u/s 263 of the Act.

Regarding the jurisdictional issue, the Tribunal noted that the assessee had raised objections about the territorial jurisdiction of the AO to pass the assessment order u/s 147 of the Act. However, the Tribunal did not entertain this objection at this stage as the date of filing of the objections was not clear, and the issue was not raised at any earlier stage of the proceedings.

In the result, the appeal of the assessee was allowed.

Kolkata, the 13th May, 2024.

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