TaxTMI 
TaxTMI 
2022 (8) TMI 37
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT is required to be quashed and may kindly be quashed. 4. The learned Pr. CIT erred on facts as also in law in alleging that the order u/s. 143(3) is erroneous and prejudicial to the interest of revenue as the AO had not made inquiry &verification in terms of provision of section 68 of the Acting respect of share capital of Rs. 15,15,02,000/- out of total of Rs.19,99,00,000/- and thereby setting aside the order passed u/s. 143(3) of the Act dated 22.12.17. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed" 3. The relevant facts, in short, are that the assessee is a closely held company and engaged in manufacturing of ceramic tiles. The assessee has e-filed his return of income for the year under consideration declaring NIL income on 28/09/2015. The case was selected through "CASS" selection for Limited Scrutiny and a notice u/s 143(2) of the Act was issued on 02/08/2016. The company had issued 1,99,90,000 equity shares at Rs. 10 each. The Ld. Assessing Officer noted that cash is being deposited in the bank account of many share applicants/depositors immediately before issuing the Ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowing an opportunity of hearing to the assessee. The Pr. CIT-3 made the following observations while passing the Order:- "9. As noted above, the AO initially proposed addition in respect of such investments in share capital, wherein cash and/or cheque has been deposited on the same day or few days before, in their bank accounts before issuing cheque/RTGS towards share capital investment. However, the AO later appears to have changed mind, without making any inquiry or verification and surfacing of any new facts. On one hand the AO had doubted the transactions which happened through both the media i.e. immediate deposit of cash and/or cheque in the bank accounts of shareholders, but on the other hand restricted the addition to: 1. Immediate cash deposits where balance sheet of the share applicant was submitted; and 2. Total amount where no balance sheet of the share applicant was submitted. No inquiry or verification was conducted where cheque was deposited in the bank account of the share applicant immediately before making share capital investment in the assessee company, and the assessee submitted the share applicant balance sheet. It appears that the AO changed conclusi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that since the Ld. AO has made enquiries during the course of assessment proceedings, it would not be open to the Ld Pr. CIT to initiate proceedings u/s 263 of the Act. The said proceedings are thus liable to be set aside. 7. The ld. Departmental Representative argued that the case was picked up for limited scrutiny and during the course of assessment proceedings details of Income Tax Returns, Bank Statements, confirmations of the share applicants were sought for and filed. The Ld. AO noted that cash deposits and cheque deposits were made immediately before investment in shares, for which the assessee had no plausible explanation. The Ld. AO however closed the assessment without making proper enquiries and this fact came to be noted by the Pr. CIT necessitating initiation of proceedings u/s 263 of the Act. The Ld DR placed reliance on the observations of Pr. CIT at page 11 and 12 of the order which are being reproduced below:- "18. Explanation 2 to section 263 of the IT Act, regarding the powers of Commissioner in assuming revisional jurisdictions reproduced hereunder, for ready reference: "Revision of orders prejudicial to revenue: 263. (1) The Principal Commissioner or C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enquiry under Explanation 2(a) to section 263 and whether in the instant facts can it be said that the order is passed by Ld. AO is without making inquiries or verification which should have been made, and hence the assessment is erroneous and thus requiring revision by Pr. CIT u/s 263 of the Act. 9. An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer's prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. 10. Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon'ble court held tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible 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. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'." 11. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) "The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l light on the scope of enquiry under Explanation (a) to section 263 of the Act. 14. Recently the Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. The facts of this case were that respondent assessee has filed its return of income showing total income of Rs. 62,55,900/- which was assessed under section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed" 16. The Supreme Court in the recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue's SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: "Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally. It was on account of these reasons, that the assessee had incurred substantial loss arising out of reduction in the value of stock lying at the end of the year. The Tribunal, therefore noted that the Assessing Officer had carried out detailed enquiries and taken a plausible view." 18. The assessee placed reliance on the case of Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v Deputy Commissioner of Incometax, Circle-4(1)(2), Ahmedabad [2018] 97 taxmann.com 671 (Ahmedabad - Trib.) during the course of arguments. In this case the Ahmedabad Tribunal held that where during scrutiny assessment, Assessing Officer disallowed a part of business advancement expenses after verifying bills and vouchers, notice for revision for further disallowance was unjustified. The facts of this case were that the Assessee, a pharmaceutical company, for assessment year 2014-15, claimed business advancement expenses incurred on gift articles distributed by it to various persons. During scrutiny, assessee provided detailed breakup of such expenditure to Assessing Officer in pursuance of specific query raised by him. Assessing Officer rejected substantial amount from claim of expenditur....