Act of AO Prejudicial to Interests of Revenue: ITAT upholds Revision Order of PCIT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the act of the assessing officer is prejudicial to the interests of revenue, therefore it upheld the revision order of the Principal Commissioner of Income Tax (PCIT).

The assessee is a company and filed the return of income declaring a loss of Rs.563/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. During the proceedings, the Assessing Officer noticed that the assessee has issued 262250 equity shares of the face value of Rs.490/- aggregating to Rs.12,99,72,500/-. And has an advanced loan of Rs.6,45,03,125/- to one M/s Empower Industries India Ltd.

The Assessing Officer further noted that the assessee and the Empower group are part of the entry provider group i.e. Shirish Chandrakant Shah group. The Assessing Officer called on the assessee to provide the basis for the share premium. And a notice was issued under Section 133(6) of the Income Tax Act to parties who have subscribed to the shares of the assessee company.

The Principal Commissioners of Income Tax (PCIT) has observed that the Assessing Officer has computed the assessment without proper verification of facts & without a correct appreciation of the law and accordingly invoked the revisionary provisions by issuing a show cause notice under Section 263 of the Income Tax Act.

The Authorized Representative submitted the list of ultimate beneficiaries to whom funds are transferred from M/s. Empower India Limited was also submitted which the Assessing Officer has recorded in his order as a finding to state that the assessee is a conduit of the layering of funds.

He argued that the reconciliation statement submitted before the Assessing Officer clearly explains the source of receiving funds by the assessee. Thus, the Assessing Officer has applied his mind and took a conscious call to assess only the commission income in the hands of the assessee.

The Departmental Representative submitted that the direction of the Tribunal has not been properly followed by the Assessing Officer whereby the Tribunal remitted the issue with a direction to verify in whose hands the income is to be assessed whether in the hands of the assessee or Shirish C Shah.

It was further submitted that Assessing Officer did not conduct any enquiry but has simply accepted the submissions of the assessee and, therefore, the PCIT has rightly invoked the provisions of Explanation 2 to Section 263 of the Income Tax Act.

The Two-member bench comprising of Padmavathy S. (Accountant member) and Rahul Chaudhary (Judicial member) held that the PCIT was justified in assuming the jurisdiction by invoking explanation (2) to Section 263 of the Income Tax Act and setting aside the assessment order.

Thus, the appeal filed by the assessee was dismissed.                       

To Read the full text of the Order CLICK HERE

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