The Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, has recently in an appeal filed before, held that revisionary powers under section 263 can be invoked on account of lack of enquiry by A.O.
The aforesaid observation was made by the ITAT when an appeal was preferred before it by the assessee M/s Sudhir Forgings (P) Ltd., as against the order dated 30.03.2018, passed by the Principal Commissioner of Income Tax, Ludhiana, for assessment year 2013-14.
The brief facts of the case were that during the year under consideration the assessee firm had derived income from manufacturing steel forgings, with the return of income for the captioned assessment year being filed, declaring net taxable income at Nil after setting off income of Rs. 1,59,88,455/- against the brought forward losses of Rs. 81,53,228/.
Subsequently, the assessee’s case was selected for scrutiny under the CASS guidelines and during the assessment proceedings, the assessee was required to file comparative chart of gross turn over, gross profit and net profit ratio, details of secured and unsecured loans, additions made to the fixed assets, confirmed copies of accounts of current assets, current liabilities and comparative details of various expenses debited to the profit and loss account.
The assessee was also required to file the details of closing stock and the basis of its valuation, following which the assessment was completed by making an addition of Rs. 1,11,512/- under section 14A of the Income Tax Act, 1961 along with a further addition of Rs. 50,000/-, being ad hoc disallowance on account of car expenses, computer expenses, electric repair expense and fuel, on the ground that some of the expenses were not properly vouched and that no proper documentation was available in this regard.
The income being computed at Rs. 17,59,970/, after giving the benefit of set off of brought forward losses of Rs. 81,53,228/-, the net taxable income was computed at Rs. Nil. And subsequent to this, the PCIT had issued a notice under section 263 of the Income Tax Act, based on which the case of the assessee was selected for scrutiny through CASS on the following parameters: –
a) Large share premium received
b) Difference in opening stock in current year with the closing stock of previous year
c) Low income shown by large contractors.
With the aforesaid show cause notice pointing out that a perusal of the assessment record would reveal that the issue of share premium receipt by the company had not been examined thoroughly, the PCIT pointed out various deficiencies in the assessment order and required the assessee to show cause as to why the assessment order shall not be set aside as being erroneous as well as prejudicial to the interest of the Revenue.
In response to the show cause notice issued u/s 263 of the Act, the AR submitted that the share premium was not large or excessive and that the intrinsic value had been calculated as per Rule 11 UA of the Income Tax Rules, 1962 and further that the AO had carried a thorough investigation on the issue.
However, the submissions of the assessee did not find favour with the PCIT as he noted that although the AO had called for some of the details relating to share capital during the course of assessment proceedings , the AO had neither sought specific details nor caused any inquiry or verification with reference to the issues pointed out in the Show Cause Notice issued u/s 263 of the Act, and further that the AO, except for placing the information / details filed by the assessee on record, had not carried out even elementary verification of the information so supplied and, thus, the issue of share capital had not been examined / investigated / inquired into by the AO.
It was further noted by the PCIT that the AO had even overlooked the proviso to section 68 of the Income Tax Act which had been brought into effect from 01.04.2013, which empowered the AO to look into the source of source of the persons investing in companies in which the public were not substantially interested, and further that the issue of share premium had also not been examined by the AO with reference to Rule 11 UA of the Rules.
With the PCIT invoking Explanation 2 to section 263 of the Income Tax Act, thereby holding the assessment order to be erroneous and prejudicial to the interest of the Revenue, the assessment order being made without making inquiries or verification which should have been made as required by the provisions of section 68 of the Income Tax Act and Rule 11 UA of the Rules, the assessment order was set aside by him, with a direction to the AO to decide the issue afresh. And it is by being aggrieved by the same, that the assessee has now approached Chandigarh ITAT, challenging the aforesaid action of the PCIT.
With no one appearing on the assessee’s behalf while Sh. Sarabjeet Singh, CIT DR placed his submissions for the Revenue, the ITAT Bench consisting of Vikram Singh Yadav, the Accountant Member, along with Sudhanshu Srivastava, the Judicial Member observed as follows:
“In our considered opinion, it is a case where the AO did not make any inquiry vis-a-vis the share premium and simply accepted the details filed by the assessee and, thus, the AO had failed miserably to carry out the duty cast upon him. Therefore, it is our considered view that it is a case of complete lack of inquiry by the AO.And hence we hold that the Ld. PCIT was absolutely correct in invoking the revisionary powers u/s 263 of the Act.”
Thus dismissing the assessee’s appeal, the Chandigarh ITAT ruled:
“In view of the above discussion, we hold that the impugned order passed u/s 263 of the Income Tax Act needs to be sustained and no interference is called for.”
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