TaxTMI 
TaxTMI 
2022 (8) TMI 37
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....mission of the appellant and accordingly the order passed by Pr. CIT 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 ac....
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....ced of Rs. 19,99,00,000/- and gave a direction to revise the income, after allowing 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 compa....
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....d Tribunal in the case of Torrent Pharmaceuticals v DCIT [2018] 97 taxmann.com 671 (Ahmedabad - Trib.). The Ld. AR submitted 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....
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.... by invoking provisions of section 263." 8. We have heard the rival contentions of both the parties and perused the materials available on record. The issue for consideration before us is the scope of 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 v....
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....figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner 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 b....
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....t brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant." 13. Before deciding the issue, it would be useful to refer to some Supreme Court decisions on this subject which would throw useful 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 ....
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....tions and Tribunal thus set aside revisional order passed by Commissioner. The Hon'ble High Court upheld Tribunal's order. The Hon'ble Supreme Court while dismissing the SLP filed by the Department held as under:- "We have heard learned counsel for the Revenue 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 re....
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....ough use of computers, source of electronic media is usually shunned, very small section of the community uses computer technology for religious purposes as plenty of printed literature is available in the market. All these factors led to the market value of the CDs declining dramatically. 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 advance....