TaxTMI 
TaxTMI 
2019 (2) TMI 987
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....so investments, has filed its return of income for AY 2010-11 on 20-09-2010 declaring total income at Nil. The assessment was completed u/s 143(3) of the I.T. Act, 1961 determining total loss at Rs. 7,66,237 by making certain disallowances. Subsequently, the PCIT-6, Mumbai issued a show cause notice u/s 263 and asked the assessee as to why the assessment order passed u/s 143(3) of the I.T. Act, 1961 dated 22-03-2013 shall not be revised under the provisions of section 263 of the I.T. Act, 1961 for the reasons stated in his show cause notice. In the said show cause notice, the PCIT has questioned two issues, i.e. fresh share capital alongwith share premium raised by the assessee by issue of shares to certain parties and also huge investments made to the tune of Rs. 9,43,97,530. According to the PCIT, although the AO has carried out certain enquiries in regard to the issue of share capital to Shri Anil Deshpande family, on perusal of assessment records it was observed that the assessee claims to have received share capital amounting to Rs. 3,55,32,000, when the reply filed to show cause notice u/s 142(1) dated 16-08-2012, the assessee stated that it has received share premium of Rs. ....
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....e of Malabar Industrial Company Ltd vs CIT 243 ITR 83(SC) held that assessment order passed by the AO is erroneous insofar as it is prejudicial to the interest of the revenue as the AO failed to carry out required enquiries insofar as share premium received from NRIs and also huge investments appearing in the assets side of the balance-sheet. Although the AO has conducted primary enquiries with regard to the share premium but having regard to the nature of credits found in the form of money received from NRIs, the AO ought to have conducted required enquiries through FT&TR division of CBDT which is competent authority to conduct cross border investments through proper channel. In this case, the AO has simply accepted explanation filed by the assessee without carrying out further investigation even though the shares were issued at a huge premium of Rs. 600 per share. Similarly, the AO has failed to carry out necessary enquiries with regard to the subscription to preference shares of M/s Nagarkar Developers Pvt Ltd as well as equity investments in Reis Magos Property Developers Pvt Ltd. The AO failed to examine as to what returns were received by the assessee from these investment....
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....I does not ipsofacto show the creditworthiness of the subscriber. There was clear failure on the part of the A.O. to make relevant and meaningful enquiries. 8. I am therefore, convinced that the AO has failed to carry out relevant and meaningful enquiries, especially in respect of areas mentioned above. It is settled proposition of law that failure of the AO to carry out relevant and meaningful enquiries as warranted by the facts and circumstances of the case rendered (lie assessment order erroneous and prejudicial to the interest of the revenue. This also emerges from the ratio of the decisions such as Malabar Industrial Co. Ltd. vs CIT 243 ITR 83{SC), CIT vs Max India Ltd. 295 ITR 282(SC), CIT Vs Mangal Castings 303 ITR 23(P&H), CIT v. Kohinoor Tobacco Products(P)Ltd.[1998] 234 ITR 557, CIT v. Mahavar Traders[1996] 220 ITR 167(MP), Duggal & Co.v. CIT[1996] 220 ITR 456, CIT vs MEPCO Industries Ltd 294 ITR 121(Mad.), Meerut Roller Flour Mills Ltd vs CIT[2013] 35 Taxman.com 183<A1L), Bharti Hexacom Ltd v CIT [2013] 33 Taxman.com.210(Delhi-Tr.), CIT v RKBK Fiscal Service(P) Ltd [2013] 32 Taxman.com.l53(Cal.), M.I. Overseas Ltd v DIT (Int.Tax) [2012] 28 Taxman.com, 279 (Uttar....
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....the Revenue. In its words: "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should .have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income Tax Officer to further investigate the ....
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....a) the extent of enquiry, signified variously by the expression/words: "absence of enquiry", "lack of enquiry", "inadequate enquiry", etc., is only the manifestation of the error, i.e. non-application of mind, per se erroneous and prejudicial to the interest of the Revenue, which permeates or characterizes the enquiry, though would need to be shown to exists despite the enquiry to the extent made; (b) the A.O. has adopted one of the courses permissible in law, which has though resulted in a loss to the Revenue, or where two views are possible and the A.O. has taken one view, which though in view of the Ld, CIT is not correct. 3.3. The matter, thus, becomes primary factual, so that it would, in each case be required to be seen if the A.O. has considered all the materials, or that there has been a proper examination and verification by him, demonstrating application of mind, in adopting a considered view and, thus, eschew the charge of non-application of mind. It is the variation in the factsituation of different cases, which also explains the divergent result of the decisions by the Hon'ble Courts, i.e. in the wake of well settled law. What, then, is required i....
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....ents. The Ld.AR further submitted that the PCIT has admitted the fact that the AO has conducted certain enquiries, but, still opined that the enquiries conducted by the AO are inadequate. The findings of the PCIT are based on the submissions made by the assessee during assessment proceedings, where there is typographical error in respect of share premium received from four individuals, as per which, the assessee stated to have received share premium of Rs. 8,88,800 each, whereas the correct amount is Rs. 88,83,000. These facts were brought to the notice of the PCIT at the time of proceedings before him, but the PCIT has ignored all these evidences, mainly for the reason that the said investment is received from NRIs and the source of investment has not been examined during assessment proceedings. The Ld.AR referring to the paper book filed during revisional proceedings, submitted that the assessee has filed complete details of shares issued to NRIs including share certificates and also filed copies of returns filed with ROC alongwith fund received through proper banking channels. The AO has satisfied with the explanation furnished by the assessee, completed assessment without makin....
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....t the AO failed to refer the matter to FT & TR and also failed to carry out required enquiries, before assessment, which caused prejudice to the interest of the revenue. Similarly, even though various advances have been given to certain parties, the AO failed to gather necessary information in respect of those investments, but simply accepted certain informations filed by the parties, in response to 133(6) notices which caused prejudice to the interest of the revenue. Therefore, the PCIT was right in revising the assessment order passed by the AO and hence, his order should be upheld. 7. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The PCIT revised the assessment order u/s 263 of the Act, on the ground that the AO failed to carry out required enquiries with regard to the issue of share premium and advance appearing in balance-sheet. The PCIT has questioned two issues - (i) share premium received from four NRI investors and (ii) investments appearing in balance-sheets. Insofar as share premium received from NRIs, there is no doubt with regard to the fact that the issue was a subject matter of deliberati....
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....e balance-sheet, the PCIT observed that although huge investment has been made in various companies' name, AO failed to call for details in order to ascertain whether these investments were in the normal course of business and what returns these investments given to the assessee, but simply accepted the explanation furnished by the assessee at the time of assessment proceedings, which caused prejudice to the interest of the revenue. We find that the AO has cast necessary enquiries insofar as investments appearing in the balance-sheet and after being satisfied with the explanation, assesment has been completed. Therefore, the same cannot be considered as non application of mind and also lack of enquiry. We further notice that all these investments were made in the earlier financial year and the same has been carried forward to the year under consideration. Even otherwise, assuming for a moment, the AO has not carried out necessary enquiries, but when these investments are made in the earlier financial year, the same cannot be considered as income for the current year. 10. In this factual background, if we analyse the provisions of section 263, we find that the language used by....
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....ld be erroneous and prejudicial to the interests of the Revenue When the ITO is expected to make an enquiry of a particular item of income and he does not make an enquiry as expected, that would be a ground for the CIT to interfere with the order passed by the ITO since such an order passed by the ITO is erroneous and prejudicial to the interests of Revenue. Where the ITO had made enquiries in regard to the nature of the credit received by the assessee who had given detailed explanation in that regard by a letter in writing and all these are part of the record of the case and the claim was allowed by the ITO on being satisfied with the explanation of the assessee such decision of the ITO cannot be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. 12. Coming to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gabriel India Ltd (supra). We find that the Hon'ble Bombay High Court in the said judgement observed that in order to exercise jurisdiction u/s 263, the Commissioner must have material to prima facie come to the conclusion that the ord....
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....e interest of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be subject-matter c revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. There must be material available on record called for by the Commissioner to satisfy him, prima facie, that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on records to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objective factors were available from the records called ....
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....self, would not be indicative of the fact that the Assessing Officer had not applied his mind to the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reasons in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate, that would not, by itself, give occasion to the Commissioner to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. [Para 12] In the instant case, the Assessing Officer had called for explanation on items in question from the assessee and the assessee had furnished his explanation. Said fact was even taken note of by the Commissioner himself in his order. [Para 13] That clearly showed that the Assessing Officer had undertaken the ex....
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.... machines by which the car parts were manufactured. Those dyes were, thus, the components of the machines. Those dyes needed constant replacement, as their life was not more than a year. The assessee had also explained that since those parts were manufactured for the automobile industry, which had to work accurately at high speed for a longer period, replacement of those parts at short intervals became imperative to retain accuracy. Because of those reasons, those tools and dyes had a very short span of life and could produce maximum one lakh permissible shorts. Thereafter, they had to be replaced. With the replacement of such tools and dyes which were the components of a machine, no new assets came into existence, nor was their benefit of an enduring nature. It neither enhanced the life of existing machines of which these tools and dyes were only parts, nor had their production capacity increased. In CIT v. Mysore Spun Concrete Pipe (P.) Ltd.] 1992] 194 ITR 159/60 Taxman 170 (Kar.). the High Court held that the replacement of moulds was not in the nature of replacement of a capital machinery but in the nature of replacement of apart of the machinery which, in turn, was in the natu....