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TMI Blog2021 (10) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... ints set out in the notice which has already examined and considered during the original assessment proceedings concerning AY 2015-16. The assessee has challenged the assumption of jurisdiction by the PCIT under Section 263 of the Act on the ground that the Assessment Order under revision is neither erroneous nor prejudicial to the interest of the revenue. 3. Briefly stated, the assessment in the instant case was framed under Section 143(3) of the Act vide order dated 21.08.2017 by the Assessing Officer whereby the total income of the assessee was assessed at a loss of Rs. (-)34,90,150/-. Thereafter, in exercise of jurisdiction under S. 263 of the Act, the case record of the assessment so made was called by the Revisional Commissioner. On its appraisal, the PCIT observed that the impugned assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. A show-cause notice dated 08.03.2021 (signed on 09.03.2021) was issued to the assessee in this regard seeking compliance through e-mail inexplicably on or before 17.02.2021, i.e. prior to the issuance of notice itself. The personal hearing was however simultaneously allowed to be availed at 11.03.2021 at 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the Act whereby the assessment order passed by Assessing Officer was set aside for fresh adjudication of issues discussed in the revisional order. 5. It is noticed that while the show-cause notice was issued on the points noted in the preceding paragraphs, the final directions in the revisional order was passed taking a slightly different stance. The final directions given to the Assessing Officer on the issues recorded by the PCIT in its revisional order is reproduced hereunder for ready reference:- "1. I have gone through the case record and submission of the assessee furnished during assessment proceedings. From the facts narrated above, it is clear that the Assessing Officer has not conducted any inquiry regarding genuineness of the contention made by the assessee. Therefore, I am satisfied that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue in view of Explanation 2 of Section 263 of the Income tax Act. The A.O. is directed to make adequate enquiries. 1. Identity, Genuineness and creditworthiness of M/s. Gangotri Tracon P. Ltd. in respect of receipt of sum of Rs. 16,00,00,000/- in the light of provisions of section 68 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan from GTPL Rs. 16 cr. having regard to S. 68 of the Act; the absence of verification of agreement for receipt of aforesaid sum by way of advance towards sale of land, non verification of repayment of loans Rs. 6.11 crs and interest Rs. 47.36 lakhs thereon from the perspective of S. 69C of the Act. The directions however appear to be vague and innocuous. 9.1. In defense, the assessee contends that the copies of financial statement of the lender, income-tax returns and ledger account of the lender company for AYs 2014-15, 2015-16 and 2016-17 were filed before the AO during the assessment proceedings in pursuance of enquiry made in this regard. It is simultaneously contended that the amount of Rs. 16 crores alleged by the PCIT was not received during the year at all, but was received in the preceding Assessment Year 2014-15. A fresh advance received during the year stands at Rs. 2.12 crores only. For this assertions, a reference was made to the ledger account of the lender company (page no. 115 of the paper-book) to demonstrate that amount of Rs. 16 crores referred to by PCIT was received though banking channel in FY 2013-14 relevant to AY 2014-15. Similarly, the ledger account (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PCIT only on the basis of the lender company being classified by the SEBI as a shell company coupled with some adversarial statement of one Shri Amit Kumar Kedia. It is vociferously contended that both these facts which are the foundation for entertainment of adverse beliefs were not made available on the record at the time of assessment, but appears to have come on record afterwards. The PCIT purportedly in possession of such so called information, has neither provided the information received from SEBI nor the statement of Shri Amit Kumar Kedia. The Assessee was denied the valuable rights of ascertaining the objectivity and correctness of the so called information. The valuable right of cross-examination of such a third party was thus naturally denied despite requests. It was thus contended that in the absence of the assessee being privy to such adverse material, the action against the assessee cannot be invoked under any circumstances. As further submitted, the lender is a closely held co. and not listed and it is a matter of examination to understand as to how the SEBI is implicated such closely held co. behind its back and without any opportunity. The current status of the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al proceedings and may, at best, arise only at the time of assessment. 9.6. It was next submitted that, the direction no. 4 although vague like other former directions, the repayment of loans and interest is sought to be verified under S. 69C of the Act. In this regard it was contended that it is difficult to visualize as to who the repayment of existing loans which is normal incidence has caused prejudice to the revenue. It was further contended that where the repayment of loans and interest exp thereon are already recorded in the books, S. 69C is non-starter and can not be invoked. 9.7. It was submitted that all the 4 vague and non-descript directions of the PCIT in relation to transaction with GTPL suffers of vice of lack of application of mind and wholly wrong appreciation of facts and law. The directions given to AO to reframe the assessment these counts are inherently and patently opposed to mandate of provisions of S. 263 of the Act. 10. As evident, the facts narrated on behalf of the assessee speak for itself and does not require any serious elaboration. It is trite that section 68 cannot be invoked in relation to credits unconnected to the assessment year in question. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment of this year. It thus cannot be said that the Assessing Officer lacked in pragmatism and reasonableness of a prudent person instructed in law in conducting enquiry on facts which he was neither privy to nor had any impact on the assessment of the year in question. 13. At this juncture, a pertinent legal question also has cropped up on interpretation of mandate available under S. 263 read with Explanation 1 & Explanation 2 appended thereto. The interplay and inter-connect between these Explanation needs some deliberation. 13.1. To begin with, Explanation 2 deems the order passed by the AO to be erroneous in so far as prejudicial to the interest of revenue in certain situations noted therein. We are presently concerned with clause (a) thereto. Clause (a) to Explanation (2) confers powers on the revisional authority under Section 263 where the order is passed without making inquiries or verifications which should have been made. Apparently, in the absence so called incriminating material (as allegedly gathered from third parties in the instant case) at the time of assessment, there is no occasion for the AO to embark upon inquiries which should have been made, as exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation 1. 13.3. In our opinion, a subtle but real distinction between the manner of exercise of revisional powers arise here. Whereas, the template of Explanation-2 itself have been read down and sweeping remit to the AO for fresh enquiries in an unbridled exercise have been discouraged by the Courts, without revisional authority himself undertaking some basic and minimal enquiries; the second situation, in our view, calls for even greater degree of circumspection. In the instance case, where the failure to make deeper enquiries are not attributable to AO per se having regard to the fact that so called adverse material has come to the light only after the completion of the assessment order, it is ostensible that the sacrosanct principles of natural justice in relation to such new adverse material has not been observed at the stage of framing the assessment order. Thus an obvious incidental question would arise towards safeguards available to the Assessee and onus placed on the revisional authority seeking to disturb the order passed in such an extra-ordinary situation. Prima facie, it appears to us that the revisional authority would, in such a situation, be required to don and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validated. Conceivably, the burden on revisional authority with reference to some fresh information surfacing after passing of an order is relatively far greater. 14. In the background of nuanced understanding of law codified in S. 263, we observe that the Assessee has vociferously pleaded before PCIT in the first instance that the so called list of shell co. by SEBI implicating lender (a privately held group co.), statement of some third party witness alleging such a privately managed company to be a shell company and all other material coming to the notice of deptt., which is basis for allegation of order being erroneous, must be confronted and made available to Assessee. Such material were admittedly never confronted to the assessee despite specific request. 14.1. Pertinent here to observe that while it is fairly settled that substantive power enshrined in the Act cannot be ordinarily held hostage to procedural requirements, nonetheless, it bears to recall that procedure delineated in section 263 is a substantive provision and the provision explicitly requires the revisional authority to meet the mandate of principles of natural justice., an abiding characteristic of any adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved and adopted by the shareholders at the time of issue of shares in July 2014, the audited balance-sheet of 31.03.2013 as last available at the time of issue of shares were considered as required; (c) The certificate of the Chartered Accountant vouches the FMV adopted by the assessee which stands at Rs. 169.62 per share on the basis of last audited balance-sheet as on 31.03.2013. 17. In the light of facts pointed out on behalf of the assessee, we are unable to see any error in the action of the AO towards his endorsement on issue of shares at premium. The premium charged is demonstrated to be strictly as per the immediately last available audited and approved balance-sheet at the time of issue of shares. The action of the Assessee is thus on a sound basis. We find prima facie merit in the plea advanced for justification of the requirement of Section 56(2)(viib) of the Act. No abnormality is discernable in the admission of claim of the Assessee by the AO. On facts, the balance-sheet for the FY 2013-14 was stated to be signed on 29.08.2014, i.e. after the issue of shares on 30.07.2014 and, therefore, the stance of the assessee to adopt the figures as per last audited accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry howsoever wide the amplitude of the powers may be. When a glaring and demonstrable fact has been placed before the PCIT to address his concern, the minimum that is expected of him is to look at the relevant facts. He cannot direct the Assessing Officer to make further inquiry/adequate inquiry without himself looking into the facts and carrying out some minimum inquiry to demonstrate the error. The mundane and perfunctory remittance of the issue to the file of the Assessing Officer cannot be approved. 18.2. The action of PCIT is thus set aside and that of AO is restored. 19. As per point no. 7 of the direction, the applicability of Section 40A(3) in respect of payment for purchase of land has been remitted by the PCIT for fresh verification. We straight away find substantial merit in the plea of the assessee that Section 40A(3) has no application in the facts of the case where the payment was made merely by way of advance and consequently not claimed as expenditure/deduction. The PCIT has not controverted the claim of the assessee that no expenditure has been claimed under the provisions of law towards advances made. Apparently, the provisions of Section 40A(3) does not apply t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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