TaxTMI 
TaxTMI 
2025 (3) TMI 1955
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....he assessment order and in directing the AO to make assessment afresh on the ground that AO had not conducted worthwhile enquiries during the assessment proceeding even when the AO had conducted thorough enquiries and also most importantly the Pr. CIT failed to carry our any enquiry himself and also failed to demonstrate which most necessary enquiry the Ld. AO failed to carry out. 1.4. The Worthy Pr. CIT failed to appreciate that inadequate inquiry does not amount to lack of inquiry so as to assume valid jurisdiction u/s 263. 1.5. The Worthy Pr. CIT has erred in setting aside the original assessment on the ground that there has been increase in capital and opening stock difference. 1.6. The Worthy Pr. CIT has conducted the impugned proceedings u/s 263 in extreme haste and without affording reasonable opportunity of being heard to the appellant. 3. Briefly the facts of the case are that the assessee filed its return of income for the Assessment Year 2015-16 on 30/09/2015, declaring an income of Rs. 7,65,700/-. The case was selected for limited scrutiny under Section 143(2) of the Income Tax Act, 1961, to examine the source of increase in the proprietor'....
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....Act. An analogous position as above was argued in respect of the apparent change in closing/opening stock of Rs. 1,40,52,866/-. The above reasoning appears to be acceptable but needs to be computationally verified and/or examined. It is also true that the Returns of Income, filed for the 3 sandwiched A.Ys. 2012-13, 2013-14 and 2014-15 have been accepted by the department at this time and any possibility of reopening/resolving the same in the interests of computational correctness/reconciliation is to be examined by the Jurisdictional Assessing officer. It needs to be added at this juncture that the Department accepting the Returns filed for these sandwiched assessment years 2012-13 to 2013-14 cannot be held to an automatic acceptance, approval and certification of the correctness of the statements of accounts supporting such Returns of Income and the amounts reported/reflected therein inter alia and particularly, the closing and opening balances of Capital and Stock as discussed aforesaid. This is because; (i) The assessee has not submitted any statements of accounts duly audited by a competent professional since the Returns of Income for the afo....
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....f proper, detailed, satisfactory and complete inquiries into the matters of increases in capital and stock. Accordingly, the impugned assessment order is set aside for re-verification by the Jurisdictional Assessing Officer(JAO) on the issue of re-examination and re-inquiry into the facts/details of increases in Capital and Stock in the manners detailed earlier in this order. If the JAO is able to prima facie conclude on the basis of such re-verifications that the matters involved stand reconciled in favour of the assessee in a tax compliant basis, he may drop the proceedings initiated u/s 263 of the Act. In the event of any ambiguity or dissatisfaction, he may process the case for formal assessment on the 2 matters in reference so that the errors and prejudice to the interests of revenue are recovered. The assessee is at liberty to adduce the facts as deemed relevant before the Assessing Officer at the time of the assessment proceedings in consequence to this order. The Assessing Officer shall allow the assessee adequate opportunity of being heard and to make relevant submissions. It may be ensured that the fresh assessment order is passed within the prescribed time as stipulated ....
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....therefore, the opening capital as on 01.04.2014 at most could have been Rs. 38,08,136/- only whereas opening capital in the ITR filed for the year in question has been taken at Rs. 96,94,333/-. Therefore, this difference of Rs. 58,86,197/- is income from undisclosed sources which the Ld. AO has failed to examine. b. In this regard, it is most respectfully submitted that this issue of increase in capital by making identical kind of calculation was raised by the Ld. AO during the assessment proceedings also. Thereupon the assessee duly submitted explanation to this issue. Copies of relevant replies filed during assessment proceedings are enclosed at page no.3-26. In the reply dtd. 10.10.2017, it was submitted regarding opening capital as under: "1. It is most humbly and respectfully submitted that the present case has been selected for examination under "Limited Scrutiny Guidelines". In terms of this, one of the reason under Limited scrutiny was source of increase in capital". During the course of previous hearing and as part of our earlier submissions, we had filed copy of our Audited Balance sheet for the year in question wherein the opening balance of capital for....
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.... not just profit earned during intervening periods which could have led to capital balance as on 01.04.2014. And these factors existed in the earlier years for which examination can not be made by revisiting the assessment for the year in question. Therefore, the issue raised by your goodself, on merits, do not pertain to the year in question and hence, it deserves to be dropped. Further, it was also explained during the assessment proceedings and is being submitted now again that increase in capital amount pertains to opening balances in capital account a/c for the year in question and examination of the same can not be made in assessment for the year in question. It is a settled proposition of law by number of decisions including in ITO Vs. Ch. Atchaiah (218 ITR 239 (SC) that AO must tax right income in the right year. This is without prejudice to the fact that addition on this issue can not even be made in the earlier year(s).+ d. Therefore, it is prayed that this issue may please be dropped in these proceedings. 2.2 Arguments on why mismatch in opening stock is not unexplained. a. In the subject notice, your goodself has contended that opening stock in the rel....
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....the present proceedings u/s 263 on this issue deserves to be dropped. 2.3 It is further submitted that your goodself is proposing to make addition on account of increase in opening capital on one hand and addition on account of opening stock on the other hand. One of these items is on liabilities side and other is on assets side of the balance sheet. Increase in one figure will lead to increase in the other. Making addition for both capital and stock will lead to double taxation. It is on this score also that the subject issues deserves to be dropped. 9.4 Ld. Counsel for the Assessee also submitted his legal arguments before us which read as under: 3. Legal Arguments 3.1 Firstly, the contention raised in the SCN u/s 263, that these issues were not examined by the Ld. AO, is factually incorrect. The scrutiny proceedings were initiated on these very issues and following replies were submitted during the assessment. In our earlier portion of this reply, we have clearly demonstrated that these issues were raised during assessment proceedings and proper replies were furnished. It is only after appreciating these replies that the Ld. AO chose not to make any....
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....n mind difference between lack of enquiry and perceived inadequacy in enquiry-Inadequacy in conduct of enquiry cannot be reason based on which powers under Section 263 can be invoked to interdict an assessment order-AO, having received a response to his query about adjustment of interest, in concerned AYs, against inventory, concluded that, there was a nexus between receipt of funds from investors located abroad and real estate project, which upon being invested generated interest-Thus, it cannot be said that conclusion arrived by AO, that such adjustment was permissible in law, was erroneous- Since Tribunal has returned a finding of fact that there was indeed an enquiry carried out by AO as to nexus between funds invested in fixed deposits (on which interest was earned) and real estate project undertaken by assessee, no interference is called for by Court-Revenue's appeal dismissed." ITO vs. DG Housing Projects Ltd. 343 ITR 329 (Del) Power of Commissioner under s. 263 Scope Held, the Commissioner cannot remit the matter for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order of Assessing Officer is erroneous....
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....nvoke s. 263 if the order of AO is erroneous and it is also prejudicial to interests of the Revenue-Both conditions must coexist-Phrase 'prejudicial to the interests of the Revenue' is of wide import and is not confined to loss of tax-if due to an erroneous order of the AO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue- However, every loss of revenue as a consequence, of an order of AO cannot be treated as prejudicial to the interests of Revenue There was no material to support the claim of assessee that the amount received from purchaser of rubber estate for delayed payment represented compensation for loss of agricultural income-AO accepted the claim of assessee without making any enquiry Order of AO was erroneous-Exercise of jurisdiction by CIT under s. 263(1) justified. 4. In view of the above submissions and arguments, it is most humbly prayed that the proceedings u/s 263 may please be dropped. We shall be highly obliged " 9.5 The Ld. Counsel made the prayer that the proceeding under section 263 may please be dropped and order of the Ld. Pr CIT(A) be dismissed. 10. Per contra, the....
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....satisfied with the reply thereafter another notice dt. 20/10/2017 was issued to the assessee whereby the following issues were raised by the AO. 11.5 The assessee provided the information to the AO vide letter 14/11/2017 and at page 2 of his reply (at page 36 of the PB) it was submitted that there was no increase in capital as projected by the AO, however there was an increase of capital is of Rs. 7,65,700/-. which was duly offered in the return of income. 11.6 Having satisfied with the replies and the document submitted by the assessee the AO passed the order on 26/12/2017 thereby accepting the contention of the assessee. No addition were made on account of increase in capital by the AO in the assessment order. 11.7 From the details of the show cause notices and the reply submitted by the assessee before the AO it is abundantly clear that the AO had made a sufficient inquiry and examined the issues of increase in capital before passing the assessment order. The Ld. Pr. CIT, had also found substance in the submission of the assessee that there was no increase in share capital in the impugned order in A.Y. under consideration and for this reason only he had mentioned at pag....
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.... passed by the Ld. Pr. CIT for increase in capital was incorrect and accordingly we quashed the same. 11.9 With respect to the second issue which was subject matter of 263 proceedings, as noted hereinabove the case was selected for limited scrutiny i.e; " Sale Turnover Mismatch" and "Increase in Capital". Admittedly, the issue sought to have been raised by the Ld. Pr. CIT in the show cause notice was not the subject matter of the limited scrutiny. The law is fairly settled that the AO is only duty bound to examine the issues for which the case was selected. Admittedly, the second issue under section 263 proceedings was not subject matter of examination by the AO and therefore, the order passed by the AO cannot be said to be erroneous or prejudicial to the interest of the Revenue. Once the AO is prohibited to examined any issue which is not the subject matter of the limited scrutiny, it is preposterous, to suggest that the AO should have examine the issue. We do not agree with the order passed by the Ld. Pr. CIT as the AO was required to act and decide the issues assigned to him only and should not expand the scope of limited scrutiny to full scrutiny unless he is permitted to do....