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TMI Blog2022 (10) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... Pr. CIT is required to be quashed and may kindly be quashed. 4. The learned Pr. CIT erred on facts as also in law in alleging that the order u/s. 143(3) is erroneous and prejudicial to the interest of revenue as the AO had not made inquiry & verification (1) in terms of provision of section 68 of the Act in respect of equity share capital of Rs.18.50 Crores (2) claim of depreciation of Rs.6.25 crores on plant and machinery installed during the year under consideration and (3) deduction claimed on account of investment allowance u/s.32AC of the Act of Rs.5.11 crores and thereby setting aside the order passed u/s.143(3} of the Act dated 21.12.2018. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal. 3. The only issue raised by the assessee is that the learned Pr. CIT erred in setting aside the assessment order passed under section 143(3) by holding the same as erroneous insofar prejudicial to the interest of the Revenue 4. The relevant facts, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) for making proper enquiries/verification in terms of provisions of section 68 of the Act in respect of share capital & unsecured loan introduced/raised during the year and the claim of depreciation and additional depreciation. The Pr. CIT-3 made the following observations while passing the Order:- In view of the above, since the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue are satisfied, the assessment order passed u/s 143(3) dtd. 21/12/2018 is set aside with the direction to make proper enquiries/verification in respect of share capital introduced during the year under consideration, unsecured loans (squared up or not) raised during the year and the claim of depreciation allowance and investment allowance. He should carry out inquiries about the various layers through which "the money has been rotated and landed as share capital to the assessee-company. The A.O. is also directed to summon the share applicants and examine them. The source of the money in their hands either through cash or through cheque needs to be examined. Subsequent to the inquiries & verificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e materials available on record. The issue for consideration before us is the scope of enquiry under Explanation 2(a) to section 263 of the Act and whether in the instant facts can it be said that the order is passed by Ld. AO is without making inquiries or verification which should have been made, and hence the assessment is erroneous and thus requiring revision by Pr. CIT u/s 263 of the Act. 9.1 An inquiry made by the Assessing Officer, considered inadequate by the Pr. Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer's prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. 9.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. 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. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'." 9.3 In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) "The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be useful to refer to some Supreme Court decisions on this subject which would throw useful light on the scope of enquiry under Explanation (a) to section 263 of the Act. 9.6 Recently the Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. The facts of this case were that respondent assessee has filed its return of income showing total income of Rs. 62,55,900/- which was assessed under section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissing the SLP filed by the Department held as under:- "We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed" 9.8 The Supreme Court in the recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue's SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: "Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available in the market. All these factors led to the market value of the CDs declining dramatically. It was on account of these reasons, that the assessee had incurred substantial loss arising out of reduction in the value of stock lying at the end of the year. The Tribunal, therefore noted that the Assessing Officer had carried out detailed enquiries and taken a plausible view." 9.10 The coordinate bench of this Tribunal in the case of Torrent Pharmaceuticals Ltd. v Deputy Commissioner of Income-tax, Circle-4(1)(2), Ahmedabad [2018] 97 taxmann.com 671 (Ahmedabad - Trib.) during the course of arguments. In this case the Ahmedabad Tribunal held that where during scrutiny assessment, Assessing Officer disallowed a part of business advancement expenses after verifying bills and vouchers, notice for revision for further disallowance was unjustified. The facts of this case were that the Assessee, a pharmaceutical company, for assessment year 2014-15, claimed business advancement expenses incurred on gift articles distributed by it to various persons. During scrutiny, assessee provided detailed breakup of such expenditure to Assessing Officer in pursuance of specific query raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial to the interests of the revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. 9.12 Now in the facts before us the case of the assessee was selected through "CASS" selection for Complete Scrutiny, where the purpose of assessment was to scrutinize the substantial increase in share capital including creditor in the captioned year. During the course of assessment proceedings, the Ld. AO made detailed enquiries on this issue & on the issue of claim of depreciation on addition of fixed assets and after consideration of time-to-time written submissions filed by the assessee and documents / evidence placed on record, the Ld. AO accepted the submission and explanation of the assessee. The relevant query raised by the AO and reply made by the assessee reads as under: * Vide notice dated 18-07-2018: List of share holders of the company along with details of their share holding. Copy of personal accounts of all the Directors and acknowledgement of returns of income filed by them. Further the source of new capital introduced by Directors, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the directors and shareholders and the same were in turn converted into share capital. Unsecured loans amounting to Rs.86,19,000/- are just the funds introduced by directors and shareholders which were not converted into share capital In compliance with amended section 68 for domestic companies with regard to source of source we have enclosed Personal balance sheets of all possible shareholders, while proofs relating to identity genuineness and creditworthiness are as per Annexure-1 1 During the year under consideration Share capital of Rs.18,50,00,000/- has been introduced. You have also claimed to have taken/accepted unsecured loans/cash credits from Directors shareholders and other amounting to Rs.86,19,000/- A sheet showing the acceptance, conversion to share capital and unsecured loan amount is enclosed herewith along with the Name, PAN and Address Sheet. Contra Confirmation of all the possible creditors are enclosed herewith along with the Ledger Accounts of Creditors. As the Assessee is unable to contact the transporters, contra confirmation from the cannot be provided. Further all the payment to creditors is rounced through banking ..... X X X X Extracts X X X X X X X X Extracts X X X X
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