TMI Blog2018 (10) TMI 1922X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer. PCIT, simply writing that the Assessing officer was required to made more inquiries without making or causing to make any enquiry himself and without pointing out as to what further enquiry which the Assessing officer was required to be made and how without those inquiries the order of the Assessing officer was erroneous and prejudicial to the interest of Revenue, could not have simply set aside the order of the Assessing officer. AS decided in TORRENT PHARMACEUTICALS LTD [ 2018 (8) TMI 754 - ITAT AHMEDABAD] provisions of Section 263 although appears to be of very wide amplitude and more particularly after insertion of Explanation 2, but cannot possibly mean that recourse to Section 263 of the Act would be available to the Revisional Authority on each and every inadequacy in the matter of inquiries and verification as perceived by the Revisional Authority. The Revisional action perceived on the pretext of inadequacy of enquiry in a plannery and blanket manner must be desisted from. As in the case of Narayan Tatu Rane [ 2016 (5) TMI 1162 - ITAT MUMBAI] has held that the Explanation 2 to section 263 does not provide unfettered right to the PCIT to revise each an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded in which he has admitted that he has invested total amount of Rs.l,12,50,000/- during the F.Y. 2011-12 in M/s City Beautiful Hotels Resorts Pvt. Ltd. However, the AO has not made discreet enquiries regarding genuineness of the huge premium paid (Share Capital amount ₹ 1,18,420 whereas share premium amount of ₹ 1,11,31,580), source, of investment and huge transactions reflected in the bank statement of Shri Raja Devinder Singh immediately before making payment of share premium to the Company. Thus, the issue of receipt of huge amounts allegedly on account of share premium remains unexamined on the part of the Assessing Officer for want of apparently needs inquiries for proper assessment. 4. A perusal of part B of the audit report reveals that during the F.Y. 2011-12 the new unsecured loans to the tune of ₹ 22,81,331/- were introduced in the Company. As per reply dated 21.11.2014 regarding details of unsecured loans, it was stated that no amount has been received during the year under consideration which is in contradiction to the amount reflected in-the balance sheet. The AO has not raised/conducted any further query/enquiry on the issue of increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2015 w.e.f, 01.06.2015. You are, therefore, requested to show cause as to why assessment framed vide assessment order dated 31.03.2015 u/s 143(3) of the Income Tax Act, 1961 should not be cancelled by invoking the provisions of section 263 of the Income Tax Act, 1961. 3. In response to the notice, the Ld. counsel for the assessee filed the requisite detailed submissions and vehemently contested the exercise of revision jurisdiction by the PCIT stating that the Assessing officer while making the assessment had made thorough and detailed enquiries and each and every issue raised by the PCIT was duly examined by the Assessing officer during the assessment proceedings and thereafter the Assessing officer had passed the impugned assessment order. That the view taken by the Assessing officer regarding each of the issue was correct and even otherwise was one of the possible views that can be legally taken. The Ld. PCIT, however, held that the Assessing officer did not make the necessary verification in respect of the issues raised by the Ld. PCIT. To bring more clarity, we deem it fit to reproduce the findings of the Ld. CIT(A) on each of the issue as under:- 3.1 Regarding sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, - (a) the order is passed without making inquiries or verification which should have been made (b) ............. (c) (d) Therefore, the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. 3.1.5 The queries raised under para 3 and para 3.1 of the questionnaire are co-related and therefore, merged. The issue involved is regarding investment of an amount of ₹ 1,12,50,000/- during F.Y. 2011-12 in M/s City Beautiful Hotels and Resorts Pvt. Ltd. by Sh. Raja Devinder Singh at a very, high premium. The reply dated 03.02.2017 submitted by the AR of the assessee has been considered and it has been observed that although the AO had recorded statement of Sh. Raja Devinder Singh, the AO had failed to make inquiries and verification which should have been made for establishing genuineness source of investments received and huge transactions reflected in the Bank Statements immediately before making payment of share premium. So, the issue still remains unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted any documentary evidence therefore it cannot be stated to be an authentic explanation unless duly verified. This also needs to be verified. iv) On the issue of earning tax free income during the year under consideration, the assessee has submitted that during the year in question no tax free income was earned by the assessee. It was further stated that this information was duly provided in the assessee's submission dated 28.01.2014. v) On the issue of tax deducted at source and proofs of having permitted them to the govt. account within the prescribed time, the assessee submitted a copy of the required information which was stated to have been submitted during assessment proceedings. vi) On the issue of the basis of valuation of closing stock reflected in the balance sheet, the assessee submitted that stock at the end of every year is taken on physical basis and the same is valued at cost. It was further stated that the said information was also provided during assessment proceedings. vii) Details of movable and immovable assets owned by the assessee during the year under consideration were not provided during assessment proceedings but were provided now. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had furnished the statement of account, confirmation of Royal Kattha Industries from whom the assessee had taken unsecured loans and further the details of the share application money received by the assessee and the shares issued to one Raja Devinder Singh. Page 102 is a copy of the letter addressed to the Assessing officer whereby the assessee, as required by the Assessing officer, had furnished year wise shareholding position. The Ld. Counsel has shown from the documents on the file that the complete details of the persons from whom the assessee during the year had accepted the unsecured loans have been furnished. The assessee had duly explained to the PCIT that during the year the assessee had not issued shares to its directors and that the assessee had not done any transactions with the related parties. So far as share premium received from Raja Devinder Singh was concerned, the Ld. Counsel for the assessee has pointed out to various documents on the file to show that the bank account of the investor was on record and that even the Assessing officer had duly examined and verified the above transactions. The Assessing officer had also recorded the statement of the investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The sum and substance of the above reproduced section 263(1) can be summarized in the following points: 1) The Commissioner may call for and examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) erroneous; and (ii) is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) an order enhancing or, (ii) modifying the assessment or (iii) cancelling the assessment and directing a fresh assessment. Hence, as per the provisions of section 263(1), after getting the explanation of the assessee, the Ld. PCIT was supposed to examine the contention of the assessee and before passing an order of nullifyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nored. No enquiry has been made by the ld. PCIT. It was incumbent for the ld. PCIT to make some minimum independent enquiry to reach to the conclusion that the order of the AO is erroneous and prejudicial to the interest of revenue. The reliance is rightly placed on the decisions of Delhi High Court in ld. PCIT v. Delhi Airport Metro Express Pvt. Ltd. (supra) and Income Tax Officer v. DG Housing Projects Limited (supra). The Hon'ble Delhi High Court in Delhi Airport Metro Express Pvt. Ltd. (supra) has made the following observation: 10. For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of Revenue had to be preceded by some minimal inquiry. In fact, if the ld. PCIT is of the view that the AO did not ITA No. 3205/DEL/2017 undertake any inquiry, it becomes incumbent on the LD. PCIT to conduct such inquiry. 31. The ld PCIT has not referred to Explanation 2 of section 263 of the Act which has been inserted with effect from 01.06.2015 however we agree with the finding of the coordinate bench in the case of Narayan Tatu Rane (supra), wherein it has been held that Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO under s.143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of Section 263 of the Act. 9.1 The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142/14/2015-TPL], Dated 2711-2015 which is reproduced hereunder: 53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression erroneous in so far as it is prejudicial to the interests of the revenue has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of objective facts. The powers outlined under s.263 of the Act are extraordinary and drastic in nature and thus cannot be read to hold that an uncontrolled, unguided and uncanalised powers are vested with the competent authority. The powers under s.263 of the Act howsoever sweeping are not blanket nevertheless. The AO cannot be expected to go to the last mile in an enquiry on the issue or indulge in fleeting inquiries. The action of the Revisional Commissioner based on such expectation requires to be struck down. 9.3 The use of expression which should have been made in clause (a) to Explanation 2 to Section 263 of the Act is significant. This impliedly tests the action of AO on the touchstone of reasonableness and rationality in approach. It clearly suggests that context also holds the key in the matter of enquiry. The action of the AO requires to be evaluated contextually. If the aforesaid Explanation is read in a abstract manner de horse the test of reasonableness and context, the powers of Revisional CIT would be rendered invincible and almost every assessment order can be possibly frustrated. A nuanced understanding of Explanation suggests that inadequacy in inquiry oug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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