TMI Blog2013 (8) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... ack of enquiry or inadequate enquiry cannot be employed where the A.O. has taken one of the possible views, showing his application of mind on the issue - The argument as regards inadequate enquiry predicates on non-application of mind, so that where, therefore, proper application of mind is reflected, the argument of lack of enquiry would not hold. The enquiry, or its absence, even as explained earlier, is purely a matter of fact, so that the decision turns once again on facts - There has been a valid assumption of jurisdiction u/s.263 in the instant case – Appeal allowed – Decided in favor of Assessee. - I.T.A. No.605/Chd/2012 - - - Dated:- 16-8-2013 - Shri D. Manmohan, V. P. And Shri Sanjay Arora, A. M.,JJ. For the Appellant : Shri Deepak Chopra For the Respondent : Shri Surinder Jit Singh ORDER Per Sanjay Arora, A. M. This is an Appeal by the Assessee agitating the Order by the Commissioner of Income Tax-I, Chandigarh ('CIT' for short) dated 30.03.2012 for the assessment year (A.Y.) 2006-07 passed u/s.263 of the Income Tax Act, 1961 ('the Act' hereinafter). The background facts and respective cases 2.1 The assessee-company filed its return of income fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification in relation to the information received from CBDT; firstly, between 26.07.2010 (the date of receipt of the last of the three letters from FTD) to 05.02.2011, i.e., the date of passing of the assessment order and, in fact, up to 31.03.2011 inasmuch as the assessment could have been validly made by him by that date. He was duty bound u/s.68 of the Act to do so, and that in fact was also in substance the directions by the FTD vide its order dated 04.02.2011, and which he did not clearly do, passing the order the very next day. His order was, therefore, erroneous and prejudicial to the interest of the Revenue. Revisionary proceedings u/s.263 of the Act were, accordingly, initiated by the ld. CIT. Copy of the relevant material was required by the assessee-appellant, who contested the said initiation on both, the validity of the initiation, as well as to the proposed addition on merits. There was no question of 'no enquiry' in the present case inasmuch as the relevant details were submitted before the Transfer Pricing Officer (TPO) while proposing the adjustments. The A.O. had accepted the genuineness of the rights issue transactions, and neither did the DRP find anything wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validity of the invocation of section 263 of the Act by the ld. CIT in the facts and circumstances of the case, i.e., the jurisdictional aspect. The apex court in Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC), explained the parameters for and condition upon existence of which, there is a valid assumption of revisionary jurisdiction u/s.263. The same is by way of a four-way test, which succinctly put, are: incorrect assumption of facts; incorrect application of law; without applying the principles of natural justice; and without application of mind. The instant case stands to fall under the fourth category. The law in the matter is well-settled, and toward which we may, apart from the decision in Malabar Industrial Co. Ltd. (supra), relied upon by the assessee itself, cite a few decisions, as Rampyari Devi Sarogi v. CIT (1968) 67 ITR 84 (SC); CIT v. McMillan Co. (1958) 33 ITR 182 (SC); Jai Bharat Tanners v. CIT, 264 ITR 673 (Mad.); Ashok Leyland Ltd. v. CIT, 260 ITR 599 (Mad.); Duggal Co. v. CIT, 220 ITR 456 (Del.); Swarup Vegetable Products v. CIT, 187 ITR 412 (All.); Thalibai F. Jain v. ITO, 101 ITR 1 (Kar.); Gee Vee Enterprises v. CIT (Addl.), 99 ITR 375 (Del.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and been furnished the required details in relation to the share transactions. It was further explained that the transactions were carried out with all the necessary regulatory approvals, and was in consonance with the investment laws of India. Approval from RBI was also secured. In fact, there being renunciation (of rights) by some shareholders, reference was made by the A.O. to the TPO u/s.92CA of the Act and, in fact, an adjustment was recommended by the TPO u/s. 92CA(3), claiming the renunciation by two Indian shareholders as being not at arm's length, even as it was explained by the assessee that the rights share issue was not an international transaction in terms of section 92B of the Act. In sum, there had been adequate enquiry and formulation of the relevant issue/s, so that the charge of non-verification by the A.O. would not hold. We shall consider the contentions raised, on merits. 3.3 Toward the assessee's argument that there was indeed proper verification and enquiry in respect of the impugned credits, in our view, the very fact that the A.O. had sought further details and information from the FTD would itself go to show that he did not consider that adequate and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and circumstances of the case, does not arise in the instant case, and neither are we, accordingly, as an appellate authority, required to adjudicate on the said view by the ld. CIT - the facts of the case being clear, undisputed and patent. In any view of the matter, the facts and circumstances lead unmistakably to the inference of a lack of enquiry. Further, in view of our said clear finding, the assessee's reliance on the presumption of s. 114(e) of the Indian Evidence Act, 1872 would be to no avail. 3.4 The ld. CIT has dwelled at length on as to how and why the time limit for the completion of the assessment was in fact not on 07.02.2011, as presumed by the A.O., as apparent from his proceeding to finalize the assessment on 05.02.2011, but in fact on 31.03.2011, so that he had time at his hand, and ought to have utilized the same for enquiry. We do not consider the same as very relevant to the issue before us. This is for the reason that after having received the draft order by the DRP, the A.O. is bound by law to make no further adjustment or changes in the order as approved. It is under these circumstances that the assessment gets finalized in the manner that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proves the assessee's claim of non-examination of the record. Secondly, the only inference drawn by the ld. CIT is toward the relevancy of the record under reference - the particulars and bank accounts, and of its examination, i.e., towards satisfaction qua the nature and the source of the credits, which has to be arrived at by the A.O. on the parameters of identity, capacity and genuineness of the credit transactions. The bank account statement reflects the movement of funds; in fact, the relevancy of the record is neither disputed by the assessee nor possibly could be. Rather, but for the said bank account statements, it may not be known or could be stated as a fact as to who has and how have the funds been transferred. Further, as shall be apparent, the said observation of meager account balances ostensibly shows that the moneys have not come out of regular bank accounts, so that it is not clear as to whether the source of the funds invested is own funds (of the investing entity) or further sourced by it. Again, highlighting the relevancy of the record, and proper enquiry. And to countenance the assessee impugning the same! The only possible grievance that the assessee could c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be by 'fly by night operators', so as to be regarded as tax avoidant. The purport of the said observation, even presuming the same investors, is different. How would that have a bearing insofar as the applicability or otherwise of s.68 is concerned, is beyond our comprehension. All that is relevant from the stand-point of section 68 is as to who has invested the funds, and whether the assessee has been able to demonstrate, i.e., as would appeal to reason of a man of common prudence, suitably informed, the capacity of the investor to invest the relevant funds, and the genuineness of the transactions, i.e., as being a regular transaction by an existing shareholder or by an interested party, i.e., in case of renunciation of rights. Toward this, the assessee's argument that the investors are existing shareholders has some merit. But to say that for that reason section 68 would not apply is ludicrous. Equally baseless is the argument that section 68 would not apply inasmuch as the shareholder/s is a non-resident. It becomes all the more incumbent to clarify - toward establishing the genuineness - as to what is the business interest of the shareholder, a corporate entity, in investi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5). To the extent these directions are, if at all, inconsistent with the express provision of the law, i.e., section 144C(8), the same would be to no effect or consequence. In fact, in our view, the said direction by the DRP, reproduced as under, is only incidentally mentioned by it, and is only in the nature of a disclaimer; the A.O. having written to it on 05.08.2010, seeking directions for his guidance to complete the assessment, in terms of section 144C(5), while forwarding information received from the FTD: "6. Incidentally, it may be mentioned that the Assessing Officer had forwarded copies of large numbers of documents received by him from Mauritus through FT TR Division of CBDT for necessary action by the DRP without in any manner specifying as to whether any enhancement of income is warranted based on these documents and if yes, to what extent. The DRP is of the considered view that by virtue of powers vested in DRP u/s.144C(5), it cannot take upon itself the entire responsibility of the Assessing Officer. The Assessing Officer is therefore, directed to examine the information at his end and take such further action as may be considered appropriate by him in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment and considers it as erroneous and prejudicial to the Revenue. To this extent his order is not valid inasmuch as the law itself restrains the DRP from issuing the direction to the A.O. for further enquiry, with we having found as a fact that the same does not in fact constitute a direction by DRP as contemplated u/s. 144C(5), and stands mentioned by it only by way of a disclaimer, having neither perused the information under reference nor being the subject matter of consideration by it and, as such, only clarificatory in nature. The assessee's objection is, thus, valid, though the same would be to no consequence. This is as the same forms only one of the grounds on which the ld. CIT finds the A.O.'s order as erroneous. It would not in any manner detract from his other principal finding, i.e., of an absence or lack of proper enquiry in the matter by the A.O., which also informs his order. In fact, his observation with regard to the meager balances in the bank accounts of the shareholders, i.e., through which the funds are routed, is only toward the same. 3.9 The assessee has also referred to its case being sound on merits. The same would be to no effect, given the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, would not apply. The decision in CIT vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Del) clarifies that the argument of lack of enquiry or inadequate enquiry cannot be employed where the A.O. has taken one of the possible views, showing his application of mind on the issue. The argument as regards inadequate enquiry predicates on non-application of mind, so that where, therefore, proper application of mind is reflected, the argument of lack of enquiry would not hold. The enquiry, or its absence, even as explained earlier, is purely a matter of fact, so that the decision turns once again on facts. It needs to be clarified at this stage that it is the non-application of mind which renders the order per se erroneous and prejudicial, with enquiry, an inherently indefinite phenomenon, being the result or consequence. It is for this reason that the same is coupled with the requirement to show that enquiry was prima facie or in the facts and circumstances of the case, warranted. The said decision, therefore, is not applicable. The decision in the cases of CIT vs. Vodafone Essar South, 212 Taxman 184 (Del) and in the case of CIT vs. Design and Automation Engineers (Bombay) P. Ltd. 323 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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