TMI Blog2022 (4) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... y conducted by the AO on this issue [share capital and premium] in 2015 and consequently the PCIT erred in ignoring the records which contained the enquiry conducted by AO in the year 2015. And therefore the omission on the part of PCIT to ignore the enquiry carried out by the AO [AO, Central Circle] in respect of share capital and premium collected by the assessee, vitiates his impugned action of finding fault with the action of AO [even in respect of the original assessment] on account of lack of enquiry on the part of the earlier AO in respect of share capital/premium. Subsequent events/development also need to taken into consideration while the Ld. Pr. CIT exercised his jurisdiction u/s. 263 of the Act, by applying the same standard in the case in hand the Ld. Pr. CIT ought to have looked into the subsequent enquiries conducted by the AO albeit u/s. 153A of the Act and examined as to whether there was enquiry conducted by the AO in 2015 in respect of the nature and source of the share capital and premium collected by the assessee for AY 2009-10. Here in this case the Ld. Pr. CIT ignored to look into the subsequent action carried out by the AO in the case of assessee s ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee during the relevant year under consideration. 5. Being aggrieved by the action of the Ld. Pr. CIT, the assessee preferred an appeal before this Tribunal on the ground that the Ld. Pr. CIT did not give proper opportunity to the assessee which contention of the assessee was accepted by this Tribunal and the Tribunal was pleased to set aside the order of the Ld. Pr. CIT dated 28.03.2013 and directed the Ld. Pr. CIT to pass fresh orders after hearing the assessee. 6. Meanwhile, a search happened in the assessee s premises on 18.02.2013 and the file of the assessee was transferred from the jurisdictional AO [Ward-8(3)] to the Central Circle on 13.08.2013. Thereafter, the AO, Central Circle passed the order u/s. 153A of the Act dated 23.03.2015 wherein he has not taken any adverse view against the assessee in respect of the share capital/premium. 7. In the light of the developments which took place after the search operation as aforestated, the assessee preferred Misc. Application before the Tribunal and the Tribunal was pleased to pass an order on 22.01.2020 wherein it observed that the Ld. Pr. CIT may look into the arguments of assessee regarding the later developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2009-10 u/s. 153A of the Act, assessing officer had made enquiry and verification in respect of share capital and share premium. In this regard. it is to be reiterated that in pursuance of order of Hon'ble ITAT dated 01/10/2019, present proceeding u/s. 263 of the Act, have been initiated in respect of order u/s. 147/143(3) dated 28/03/2011 and not in respect of order u/s. 153A dated 23/03/2015 passed for AY 2009-10. The assessment proceeding u/s. 143(3)/147 of the Act dated 28/03/2011 which were completed by AO in case of assessee for AY 2009-10, is an independent proceeding from proceeding undertaken u/s 153A of the Act. Completed assessment proceeding, does not become invalid, only because of the fact that there happens to be any subsequent reassessment proceeding for same AY under any other provision of law. Assessment order dated 28/03/2011, as well as disallowance/addition made in such order, remain valid, given that revisionary order passed u/s. 263 dated 28/03/2013, has been set aside by Hon'ble ITAT vide order dated 01/10/2019. Therefore, it becomes immaterial that what action has been taken during proceeding u/s 153A of the Act, as far as proceeding u/s. 263 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. So, according to Ld. AR, while calling for records, he should look into the entire records of that assessment year. For buttressing this contention he drew our attention to the definition of record (supra) [u/s. 263 of the Act.], which states that all the records available at the time of examination and passing of the order by the Ld. Pr. CIT at the time of examination. According to the Ld. Counsel, even though there was an observation by the Tribunal vide order dated 22.01.2020 wherein the Tribunal was pleased to observe that the Ld. Pr. CIT may look into the arguments raised by the assessee regarding further enquiry on the share capital and premium by AO during post search proceedings u/s. 153A of the Act, the Ld. Pr. CIT failed to look into the documents submitted by the assessee (re-assessment order passed by AO) u/s. 153A of the Act wherein the assessee has furnished all documents pertaining to the share capital and premium collected by the assessee during the relevant assessment year under consideration which has been thoroughly enquired into by the AO. Therefore, according to Ld. Counsel, the AO s action on the issue of share capital and premium cannot be held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Circle in order to find out about the nature and source of the share capital and premium had asked from the assessee about it and after taking note that twenty five (25) subscribers had subscribed for the shares, then had issued notice u/s. 133(6) of the Act to all the twenty five (25) share subscribers and after getting the reply/requisitioned documents which are available at page 95 to 119 of the paper book, and the AO after conducting enquiry/verification and being satisfied has not drawn any adverse inference against the assessee in respect of the share capital and premium. Therefore, according to Ld. AR, the contention of the Ld. CIT, DR that no proper enquiry has been conducted by the AO (Central Circle) on this issue is not correct and the AO s order dated 23.03.2015 (post search) was part parcel of the assessment folder of assessee for AY 2009-10; and since it is part of the record, the Ld. Pr. CIT while exercising his revisional jurisdiction is bound to look into it and see whether the issue regarding share capital and premium has been enquired into albeit by the AO during the reassessment pursuant to search i.e. by taking note of the subsequent event (assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him; [ because AO has to discharge dual role of an investigator as well as that of an adjudicator ] then in aforesaid any event, the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok into the proceedings of search assessment. According to the assessee, in the post-search assessment proceedings, the AO had in fact enquired/looked into the identity, creditworthiness and genuineness of the share capital and premium collected by the assessee from twenty five (25) share subscribers. However, the Ld. Pr. CIT did not accept the plea of the assessee and was of the opinion that the revisional jurisdiction is against the order passed by the AO dated 28.03.2011 (original assessment) and since the Tribunal has set aside the revisional order passed by Ld. Pr. CIT u/s. 263 of the Act dated 28.03.2013 for fresh consideration, according to him, the assessment proceedings u/s. 153A of the Act dated 23.03.2015 is immaterial for examining the action of the AO in respect of assessment for AY 2009-10. And thereafter, the Ld. Pr. CIT after going through the assessment order passed by the AO dated 28.03.2011 held that the AO in that proceeding has not enquired into the nature and source of the share capital and premium collected by the assessee and, therefore, the order of the AO dated 28.03.2011 was erroneous as well as prejudicial to the revenue. The relevant portion of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the Ld. Pr. CIT ought to have gone through the record of the assessee pertaining to the year (AY 2009-10) which he proposed to revise. According to him, it is clear from the definition given u/s. 263 of the Act regarding records , the Ld. Pr. CIT while exercising his powers u/s 263 of the Act, ought to have taken into consideration all records relating to any proceedings under the Act available at the time of examination of the Ld. Pr. CIT . According to the Ld. Counsel, the records of the search assessment pertaining to the assessee for the AY 2009-10 was before the Ld. Pr. CIT and he ought to have looked into the records to see whether the AO albeit during the search assessment has enquired about the identity, creditworthiness and genuineness of the twenty-five (25) share subscribers and pursuant to that being satisfied has not drawn any adverse inference against the assessee as contemplated u/s. 68 of the Act. Therefore, according to the Ld. Counsel, the Ld. Pr. CIT erred in not taking into consideration the enquiry conducted by the AO by issuing notice u/s. 133(6) of the Act to all the twenty-five (25) share subscribers and the replies received by the AO and after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to appreciate that the Pr. Commissioner or Commissioner have jurisdiction to exercise his revisional powers if he finds the order of the AO to be erroneous as well as prejudicial to the revenue. We may look at the opening words of section 263 of the Act, which states The Ld. Pr. CIT may call for and examine the record of any proceedings under this Act And after calling for records of any proceedings, in case if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of the revenue, he may interfere with the order of the AO and has the power to enhance or cancel or modify the order of the AO. Now let us look into the meaning of the records which has been inserted by the Finance Act 1988 in section 263 of the Act, and the reason given for bringing out this particular explanation/deeming fiction to word records has been taken note by the Hon ble Supreme Court while passing the order in Shreeman Junathesware Packing Products Camphor Works, supra. The Hon ble Supreme Court noted why the Parliament made the amendment/insertion which is stated in the Memorandum explaining the provisions in the Finance Bill of 1988 and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneous in so far as it is prejudicial to the interests of Revenue he may pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the same or directing a fresh assessment. By the Finance Act, 1988, an Explanation was substituted with effect from 1st June, 1988, to the relevant sections of the Income-tax Act, Wealth-tax Act and Gift-tax Act to clarify that the term record would include all records relating to any proceeding available at the time of examination by the Commissioner. Further, it was also clarified that the Commissioner is competent to revise an order of assessment passed by the Assessing Officer on all matters except those which have been considered and decided in an appeal. The above Explanation was incorporated in the Finance Act, 1988, to clarify this legal position to have always been in existence. Some Appellate Authorities have, however, decided that the Explanation will apply only prospectively, i.e. only to those orders which are passed by the Commissioner after 1.6.1988. Such an interpretation is against the legislative intent and it is, therefore, proposed to amend sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn filed by it had shown the cost of construction at ₹ 20,28,498/-. During the assessment proceedings the AO on 2nd February, 1980 wrote to the DVO to ascertain and report correct cost of the construction of the theatre. The Valuation Officer could not give his report by 31.03.1980 by which date the assessment was to be completed. The ITO, therefore, without waiting for this report passed an order accepting the valuation mentioned by the assessee in its return. Later on, the Valuation Officer submitted his report on 16.12.1980 and he determined the cost of construction at ₹ 34,58,600/- against ₹ 20,28,498/- as stated by the assessee. In the light of the valuation report the Ld. Pr. CIT issued notice u/s. 263(1) of the Act on the ground that investment not accounted for the assessee firm should have been brought to tax and since the ITO having not done so, his order was erroneous and prejudicial to the interest of the revenue. Here, the contention of the assessee was that the valuation report did not form part of the record of proceedings, therefore, it could not be a valid basis for initiating an action u/s. 263 of the Act and for that relied on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. Pr. CIT while exercising his revisional jurisdiction after the direction of the Tribunal dated 01.10.2019 read with order dated 22.01.2020 had passed the impugned order dated 30.03.2011 wherein he has taken into consideration the order passed by the Tribunal dated 01.10.2019 and 22.01.2020. Before the Ld. Pr. CIT the assessee had brought to his notice about the search which happened in the assessee s premises on 18.02.2013 and about the enquiry conducted by the AO, Central Circle in respect of the nature and source of the share capital/premium collected from twenty five (25) subscribers before passing the order u/s. 153A of the Act dated 23.03.2015. The Ld. Pr. CIT while passing the impugned order has taken a narrow view by ludicrously stating that the Tribunal had set aside the order of the AO dated 28.03.2011 and not that of the AO dated 23.03.2015 and, therefore, he was of the opinion that the order passed by the AO u/s. 153A of the Act dated 23.03.2015 for AY 2009-10 was immaterial and irrelevant which view of Ld Pr CIT according to us is ex-facie wrong in the light of the deeming fiction/explanation given for records u/s 263 of the Act. It has been brought to our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the AO albeit during the search assessment proceedings dated 23.03.2015, it cannot be said that the AO has not enquired about the nature and source of the share capital and premium collected by the assessee. Here it has to be taken note that under section 263 of the Act, the Ld. Pr. CIT has to examine all the records pertaining to the assessment year at the time of examination by him, which includes in this case the post-search assessment proceedings dated 23.03.2015 and thereafter only if he finds that the order passed by the AO on any issue is erroneous in so far as it is prejudicial to the interest of the revenue, then only he may interfere by enhancing/modifying/cancelling the assessment order. 23. It is interesting to take note as a matter of fact that in the case laws cited supra, the assessee s contention in those cases were that while exercising revisional jurisdiction u/s 263 of the Act, the Ld. Pr. CIT should not look into the new facts/ records which came in to existence subsequently after the assessment order has been framed by the AO; and in other words, according to those assesses, based on the new facts which came in to existence [in the record] after an AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er passed dated 28.03.2011 will be only looked into while exercising the jurisdiction u/s. 263 of the Act and not the subsequent event of re-assessment in 2015 which forms part and parcel of assessment records at the time when the Ld PCIT was passing the impugned order in the year 2021. According to us, the revenue cannot blow hot and cold at the same time as seen in other cases decided in their (revenue) favor. Since their plea in other cases (supra) were that the subsequent events/development also need to taken into consideration while the Ld. Pr. CIT exercised his jurisdiction u/s. 263 of the Act, by applying the same standard in the case in hand the Ld. Pr. CIT ought to have looked into the subsequent enquiries conducted by the AO albeit u/s. 153A of the Act and examined as to whether there was enquiry conducted by the AO in 2015 in respect of the nature and source of the share capital and premium collected by the assessee for AY 2009-10. Here in this case the Ld. Pr. CIT ignored to look into the subsequent action carried out by the AO in the case of assessee s assessment for AY 2009-10 which is an omission on his part which is erroneous/illegal because as per the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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