2017 (10) TMI 390 - AT - Income Tax

Revision u/s 263 - no source of the amount of USD 185 million - reopening of assessment initiated by AO - CIT initiating proceedings/ assuming jurisdiction/ exercising jurisdiction u/s 263 and setting aside the order passed under Section 143(3) read with Section 147 - Held that - As deliberated on the report received from the Mauritius Revenue Authority and find ourselves to be in agreement with the Principal CIT that independent of the aforesaid fact of non-verification of the report received from the Mauritius Revenue Authorities by the A.O even otherwise the information received from the Mauritius Revenue Authorities was neither complete nor explained the source and creditworthiness of the persons giving the share application money. The certificate of Mazar Chartered accountants Mauritius to which our attention was drawn by the ld. A.R in the backdrop of the fact that the latter had categorically stated as not being the Chartered accountant of EGL as well as in the backdrop of the disclaimer forming part of his certificate thus does not inspire much confidence and cannot be accepted without making necessary verifications of the facts mentioned therein. We are also not impressed by the contention of the ld. A.R that the CIT-5 Mumbai while transferring the case records of the assessee to the CIT-8 Mumbai had in his letter dated 13.08.2014 advised that as no adverse report was received from the Mauritius Revenue Authority therefore there was no requirement of reopening the case of the assessee for the year under consideration and the preceding years. As per the mandate of Sec. 263 the requirement contemplated under the said statutory provision is the satisfaction of the CIT in whose revisional jurisdiction the case of the assessee falls therefore the view or advise of the CIT-5 Mumbai who was rendered functus officio as regards the case of the assessee thus in the present case was not binding on the CIT-8 Mumbai to whom the case of the assessee was transferred. We thus are of the considered view that the advice of the CIT-5 Mumbai did not have any bearing on the assumption of jurisdiction by the CIT-8 Mumbai or the passing of the order of revision u/s 263 by the Principal CIT-9 Mumbai as regards revising of the reassessment order passed by the A.O under Sec. 147 r.w.s 143(3). We thus decline to accept the aforesaid contention so raised before us. Principal CIT had rightly revised the reassessment order passed by the A.O under Sec. 143(3) r.w.s 147 being of the view that the A.O had completed the reassessment without making proper enquiries with regard to the preliminary or basic facts about the source of the share application money found credited in the books of account of the assessee as well as not considering the information which was called for by him from the Mauritius Tax Authorities. Principal CIT remaining well within his jurisdiction had set aside the reassessment order passed by the A.O under Sec. 143(3) r.w.s 147 with a direction to adjudicate afresh the issue as regards the amount of USD 185 million claimed to have been received by the assessee as share application money from ECHL after making necessary verifications and affording reasonable opportunity of being heard to the assessee. We thus in the backdrop of our aforesaid observations uphold the order passed by the Principal CIT-9 under Sec. 263 of the Act . - Decided against assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Erroneous and prejudicial nature of the assessment order.
3. Application of Section 68 of the Income Tax Act.
4. Verification of share application money.
5. Non-application of mind by the Assessing Officer (A.O.).

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The Principal Commissioner of Income Tax (Principal CIT) exercised jurisdiction under Section 263 to revise the reassessment order passed by the A.O. The Principal CIT believed that the A.O. failed to properly verify the source of the share application money received by the assessee, rendering the order erroneous and prejudicial to the interest of the revenue.

2. Erroneous and Prejudicial Nature of the Assessment Order:
The Principal CIT observed that the A.O. had not waited for the report from the Mauritius Revenue Authorities, which was crucial for verifying the source of the share application money. The A.O. passed the reassessment order without examining this report, thereby failing to verify the nature and source of the amount of USD 185 million claimed as share application money from ECHL. This non-verification and non-application of mind by the A.O. rendered the reassessment order erroneous and prejudicial to the interest of the revenue.

3. Application of Section 68 of the Income Tax Act:
The Principal CIT did not apply the first proviso of Section 68, which was introduced prospectively from 01.04.2013, as the case pertained to the Assessment Year 2008-09. The Principal CIT focused on the basic scheme of Section 68, requiring the assessee to establish the nature and source of the amount credited in its books. The assessee failed to satisfy these conditions, as the information from the Mauritius Revenue Authorities indicated that the funds were sourced from EGL, not ECHL.

4. Verification of Share Application Money:
The A.O. had initially sought information from the Mauritius Revenue Authorities to verify the share application money but did not wait for the report before passing the reassessment order. The report revealed that out of USD 185 million, only USD 85 million was received through ECHL's bank accounts, with the remaining amount directly transferred by EGL. This information was not verified by the A.O., leading to the conclusion that the reassessment order was passed without proper verification.

5. Non-application of Mind by the Assessing Officer (A.O.):
The Principal CIT found that the A.O. had summarily accepted the assessee's claim without making necessary verifications, indicating non-application of mind. The A.O.'s failure to examine the report from the Mauritius Revenue Authorities and verify the source of the share application money was a clear case of non-application of mind, making the reassessment order erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Principal CIT rightly exercised jurisdiction under Section 263, setting aside the reassessment order and directing the A.O. to adjudicate afresh after making necessary verifications and affording reasonable opportunity of being heard to the assessee. The appeal of the assessee was dismissed, upholding the order of the Principal CIT.