I-T - Revisional power can be exercised if AO has taken assessee's submissions on face value without carrying out examination and verification: ITAT
By TIOL News Service
JAIPUR, JAN 14, 2019: THE ISSUE IS - Whether revisional power u/s 263 is rightly exercised by CIT if the AO besides issuing notices u/s 133(6) has taken the assessee's submissions on face value without carrying out further examination and verification on shares issued at premium. - YES IS THE VERDICT.
Facts of the case
The assessee company had filed its return of income for relevant AY. A notice u/s 148 of Act was issued. on 05.01.2015. The reason recorded for issuance of notice was that during the course of proceedings u/s 147 of IT Act, 1961 for the AY 2009-10, information was received from the Director of Income Tax (I&CI), Jaipur that assessee had issued 47,500 equity shares of Rs.10/- each at premium of Rs.170/- per share, totaling to Rs.85,50,000/- which was found unreasonable by the Directorate. As per Form No.2 submitted by assessee company to ROC, the date of allotment of share was 01.10.2007, hence the matter relates to AY 2008- 09 and not AY 2009-10. Therefore, share premium of Rs.80,75,000/- and share capital of Rs.4,75,000/- had escaped assessment within the meaning of section 147 of Act. The AO after making necessary enquiries framed the assessment u/s 147/ 143(3) accepting the genuineness of share capital raised by the assessee. Later on CIT exercised its power u/s 263 to set aside the assessment order passed by AO. Aggrieved assessee filed appeal before Tribunal.
Tribunal held that,
++ the AO has taken the submissions and documentation in support thereof on face value and has not carried out adequate enquiry and has completed the reassessment proceedings in a summarily manner and in that sense, erroneous. It is a case where the issuance of share capital at a premium was the precise reason for reopening the assessment proceedings. In other words, where the AO has the reasons to believe that income has escaped assessment at the start of the reassessment proceedings, in order to dislodge his own self- belief, the AO should have carried out requisite enquiry and verification as warranted in such circumstances and thereafter, he should have reached the necessary conclusion. It is not a question of determining the nature and extent of investigation that the AO should carry out in the present circumstances, rather it is a case where a person of reasonable intellect and understanding of tax laws and procedures will carry out the requisite enquiry as warranted in the facts and circumstances of the present case;
++ the AO besides issuing notices u/s 133(6) has taken the assessee's submissions on face value without carrying out further examination and verification. There is no finding regarding determination of fair market value of shares and consequent determination of share premium and thus the genuineness of the transaction where the shares have been issued at a premium. The CIT has in fact examined these documents so submitted by the assessee and has given a finding that genuineness of transactions and creditworthiness of 15 companies out of total 18 companies have not been examined and verified by the AO. In particular, she has stated in her order that where the bank statements of these 15 companies are not submitted during the reassessment proceedings, how the AO has arrived at a conclusion that these investee companies have the requisite creditworthiness to subscribe to shares at a premium at the relevant point in time when the investment were made is not emanating from the records. Further, it is not a case where there was an audit objection and a different view so suggested by the auditor has been blindly applied by the CIT. No doubt, there was an audit objection in the present case but at the same time, there was lack of adequate enquiry on part of the AO and the CIT has given a specific finding in this regard on examination of documents so submitted during the course of assessment proceedings. No infirmity was found in the order of the CIT exercising her jurisdiction u/s 263 of the Act in holding the order passed under section 147 r/w 143(3) as erroneous in so far as prejudicial to the interest of Revenue. In the result, the appeal filed by the assessee is dismissed.
(See 2019-TIOL-123-ITAT-JAIPUR)
