TMI Blog2022 (1) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... way of bogus share capital/share application/ unsecured loan , but had explained the manner of introducing the same by way of booking bogus expenditure and rerouting the payment made on account of the same in the form of share capital etc giving all details of the modus operandi ,including the name of parties involved in the same and the dates of the entire money trail. Thus a full and complete disclosure was made by the assessee, who had come completely clean with regard to the bogus transactions undertaken, revealing all possible details of the same. Nothing has been pointed out by the Ld. Pr. CIT in the above explanation and the details filed by the assessee, so as to raise any suspicion regarding the same. With the disclosure being so complete in all aspects and there being nothing to doubt the same, the acceptance of the explanation by the AO, we find ,in the present circumstances cannot be said to be out of place or unreasonable. Even Explanation 2 to section 263, listing various instances where orders of AO are to be treated as erroneous causing prejudice to the Revenue, states orders passed without making inquiries or verification which should have been made(italics p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reed to disallow depreciation on bogus addition to fixed assets amounting to ₹ 18,78,925/- for the impugned year. Ld. Pr. CIT noted that during assessment proceedings, the assessee had explained that the source of the bogus share capital was the money infused from the payment made by it to various firms/individuals on account of bogus expenditure which was capitalized. The Pr. CIT found that the Assessing Officer accepted this explanation of the assessee without making any due efforts and proper enquiries linking the disclosure of unaccounted/ undisclosed income in the form of bogus expenditure allegedly routed through investment in the form of share capital. He was of the view that the inference drawn by the AO accordingly that any addition on account of credit to the capital work in progress made by the assessee, in lieu of the said explanation, would tantamount to double addition ,was erroneous causing prejudice to the Revenue. Accordingly a show cause notice was issued to the assessee u/s. 263 of the Act, reproduced at para 3 of the order as under:- On verification of the case records, it is noticed that a survey action was conducted on 25/02/2014 wherein it was admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment proceedings and all details were submitted in support of the, same., the assessee filed copies of submissions dated 20/04/2015, 09/06/2015, 01/01/2016, 30/01/2016 12/03/2016. On perusal of the same, it is seen that assessee has submitted before the Assessing officer the details of the parties related to the bogus expenditure along with the details of disbursement of the amounts, their withdrawals by the parties concerned, names of the parties in whose accounts the money was re-routed and the details of amounts transferred with date and the name of the party (director, unsecured loans, creditors, etc.), However, on perusal of the assessment order and records, it is seen that the Assessing officer accepted the above submissions without verification with reference to the concerned bank accounts and also did not examine the submission with reference to the credit made to the capital work in progress. In the absence of the same, the credit to capital work in progress was unexplained and liable to be added U/s. 68 of the Act 5. In the case of K.A. Ramaswamy Chettiar (220 ITR 657) the Hon ble Madras High Court has held that when the ITO is expected to make an enquiry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prejudicial to the interest of the revenue. 3. On the facts and in the circumstances of the case, the learned Principal CIT erred in assuming jurisdiction u/s. 263 of the I.T. Act since the AO has taken a possible view after examining and considering the reply and arguments of the assessee as rendered during the course of reassessment proceedings. 4. On the facts and in the circumstances of the case, the learned Principal CIT erred in cancelling the assessment order passed by the Assessing Officer on 14.03.16 u/s.143 (3) r.w.s. 147 of the I.T. Act and directing the Assessing Officer to frame assessment afresh u/s 263 of the IT Act. 6. We have heard the Ld. DR and also gone through the order of the Ld. Pr. CIT. The error noted by him in the order of the AO is his acceptance of the explanation given by the assessee as such without making any inquiry ,of the source of own money introduced by way of bogus share capital/unsecured loan, as being from bogus expenditure booked on account of capital work in progress. As a consequence of the afore stated explanation the assessee had credited his capital work in progress account with the bogus bills earlier debited to it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to raise any suspicion regarding the same. With the disclosure being so complete in all aspects and there being nothing to doubt the same, the acceptance of the explanation by the AO, we find ,in the present circumstances cannot be said to be out of place or unreasonable. 6.6 In the said backdrop the contention of the Ld. Pr. CIT that the AO should have inquired and verified the entire explanation of the assessee, going to the extent of verifying whether the claim of bogus expenditure booked on capital account was correct or not, we find ,is nothing but substituting the AO s discretion with regard to the extent of inquiry to be conducted, which we have found to be reasonable, with his own, taking a different view on the material already considered by the AO while accepting the same This is beyond the ambit of revisionary power conferred u/s 263 of the Act which can be exercised only if the AO s order is found to be in error so as to cause prejudice to the Revenue. It cannot be exercised to dictate the extent of inquiry to be conducted by the AO without pointing out the how the failure to do so by the AO was erroneous causing prejudice to the Revenue. 6.7 Moreover ,we find , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. The High Court in the said decision further went on to observe that : There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. In the case of CIT vs Anil Kumar (2010) 194 Taxman 504 (Del), the Hon ble Delhi High Court had an occasion to deal with an identical issue wherein it was noted that complete details were filed by the assessee before the Assessing Officer, the said details were also there before the CIT in proceedings u/s 263 but he had failed to point out any defect in the same so as to arrive at a conclusion that non examination of the said details had resulted in the AO s order being erroneous. In this backdrop the Hon ble court held that it would not give occasion to pass orders u/s 263 of the Act. 6.8 Even the Hon ble jurisdictional High Court in the case of CIT vs R.K Construction Co.(2008) 313 ITR 65 (Guj) has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has also given complete details with respect to labour expenses called for in assessment proceedings. These details were duly verified by the AO with the books and records. No adverse observation was made by the AO and hence, no addition was made in the regular assessment. The AO has also randomly selected two labourers and examined them and their statements were recorded under s. 131 of the Act. Since all necessary details were furnished by the AO (assessee), there was no reason for the CIT to invoke the revisional jurisdiction under s. 263 of the Act. The CIT has not stopped merely by issuance of notice under s. 263. Once compliance is made, he went on issuing notice after notice and certain adverse inferences were drawn by him from the details collected by him during the revisional proceedings. Those details were thoroughly checked and examined by the Tribunal and arrived at a factual finding that there was no illegality committed by the assessee in entrusting the work to sub-contractors nor there was any illegality in making all due payments to them. The Tribunal has also given specific finding to the effect that there was no evidence on record that these contractors w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis- -vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. 6.9 In view of the above, the finding of error in the order of the AO by the Ld. Pr.CIT, on account of alleged lack of inquiry, without pointing out the necessity for conducting the same, we find is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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