TaxTMI 
TaxTMI 
2022 (10) TMI 817
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....of the appellant. 3. The learned Pr. CIT has erred in law as well as on facts in setting aside the assessment order passed by the Id. A.O. u/s. 143(3) of the Act and directing de-novo assessment regarding verification of equity share capital and fresh unsecured loans." 3. The facts of the case are that the assessee is a company engaged in the manufacturing of wall tiles. The assessee e-filed its return of income for A.Y. 2016-17 for loss of Rs.8,43,97,887/-. 3.1 On perusal of record, it was seen that during the assessment year under consideration, the assessee company had issued 15,39,00,000 equity shares at Rs. 10 each to various persons thereby raising equity share capital by Rs. 15,39,00,000/-. Further, it was seen that the assessee has also availed fresh unsecured loans aggregating to Rs. 5,63,49,427/- from directors, share-holders and other persons out of which Rs. 73,59,970/- were repaid during the year. Perusal of the records further revealed that the assessee furnished copies of ITR, Bank Statements and balance-sheet from some of the persons (Share holders and/or loan providers). On further verification of records, it was revealed that barring a few, most of the share....
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.... a prudent person to make such investment having no foreseeable return prospects. 3.2 In view of the above, the learned PCIT ought to have conducted necessary enquiries, as mandated by the provisos of section 68 of the Act, to verify and enquire/ investigate the identity and credit-worthiness of the creditor (loans)/ shareholder and ascertain whether the transaction was genuine and whether these subscribers were creditworthy enough to make such huge investments or not. However, it appeared from the assessment record that the AO accepted the share capital/ loans without any verification whatsoever on the face of the submissions made by the assessee. 4. Thereafter, a show cause notice u/s. 263 of the Act was issued to the assessee. As to why the order passed u/s. 143(3) of the Act dated 21.12.2018 should not be subjected to revision u/s. 263 of the Act as under: 4.1 Return of income has been e-filed on 01/10/2016 for A.Y. 2016-17 declaring loss of Rs. 8,43,97,887/-. The case of has been selected for complete Scrutiny (CASS) specifically to examine: 1). whether outward foreign remittance is from disclosed sources and appropriate withholding and reporting obligation have been comp....
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....eque deposits are appearing in almost all the persons bank statements prior issuing cheque either as share application money or as unsecured loan. Even in such glaring instances, the AO has not examined the nature and source of money in the hands of these persons. 4. First proviso to sec. 68 of the Act clearly provided that in respect of share capital, explanation offered by the assessee-company shall be deemed to be not satisfactory unless the share holder offers explanation about the nature and source of such investment and the AO is satisfied about such explanation. First proviso to section 68 of the Act is as under:- "Provided that when the assessee is a company (not being a company in which the public are substantially interest) and the sum so credited consists of share application money, share capital share premium or any such amount by whatever name called, any explanation offered by such assessee- company shall be deemed to be not satisfactory, unless- a). The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such so credited; and b). Such explanation in the opinion of ....
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.... subject matter of revision proceedings under s.263 of the Act for the year under consideration and in respect of Shri Jagdishbhai Naranbhai panara, the assessee mentioned correct amount of share capital is Rs.15,40,000/- as against Rs.16,00,000/- stated by the learned PCIT and in support of its contention, assessee submitted the details of opening balance and date wise receipt of correct amount of share capital and unsecured loan which are subject matter of present revision proceedings under S. 263 of the Act. It was further submitted that the entire amount of share capital and unsecured loans have been received by assessee's company prior to the commencement of commercial operation and income generating activity. To prove this, assessee is enclosing herewith first sale bill of our company which was issued on 01.01.2016 whereas the entire amount of share capital and unsecured loans were received prior to that date which fact is evident from the chart given in PCIT's order at page 5. Thus the entire amount of share capital and unsecured loans has been entirely received prior to the commencement of commercial operations and income generating activity of our company. This being the p....
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.....8 But, learned PCIT did not agree with the contention of the assessee and held that learned AO failed to make the vital inquiries as to whether the depositors/subscribers are genuine or verifiable? Whether the depositors/subscribers are creditworthy? Whether the source of the source is explained in view of the amended provisions of Section 68 of the Act? From the perusal of the case records of the assessee for the relevant assessment year, there is nothing on record to show that the AO has ever confronted the assessee on these issues and had the AO examined all the above issues, he should have made some noting either in the order sheet or any kind of reference would have been made in the submissions made by the assessee. Therefore, it is not a case of inadequate inquiry but a clear cut case of lack of inquiry. The lack of inquiry or verification at the relevant time by the AO would constitute prejudice to the interest of Revenue and would involve error of fact and law which are vital to the issue on which the case was selected for scrutiny and held that: "14. Considering the above mentioned facts, I hold that the assessment order dated 21.12.2018 finalized by the Assessing Offic....
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...., unless the view taken by the AO is unsustainable in law." 4.5 Similar views were expressed by the Hon'ble apex Court in Greenworld Corporation (supra). 4.6 Similarly, Hon'ble Gujarat High Court in the case of CITv. R.K. Construction Co. [20091 221 CTR (Gui) 415/r20081 12 DTR (Gui) 210/[20091 313 ITR 65 (Gui) held as under : "As far as law is concerned, the AO has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the CIT in revisional proceedings, the CIT has taken a different view. However, in the revisional proceedings under s. 263, it is not open for the CIT to take such a different view in view of the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [20001 159 CTR (SO l/r20001 243 ITR 83 (SO. There is nothing on record to suggest that the view taken by the AO is unsustainable at law. This Court has also taken the same view in case of CIT v. Arvind Jewellers [2002] 177 CTR (Gui) 546/120031 259 ITR 502 (Guj) whereby the order passed by the CIT under s. 263 of the Act was quashed and set aside." 4.7 In the case of CIT v. Arvin....