By TIOL News Service

MUMBAI, DEC 14, 2016: THE ISSUE IS - Whether the exercise of revisional jurisdiction by CIT u/s 263 is warranted, where the AO after having asked a pertinent question of the method of valuation of unlisted shares, failed to pursue that line of enquiry. YES IS THE VERDICT.

Facts of the case:

The assessee is a company. For the AY 1997-98, it filed its return declaring a loss on account of dealing in shares. AO after accepting the loss held that the same could be carried forward to be set off against speculation profits. AO assessed that assessee to 'Nil Income'. The CIT, during the revision proceedings u/s 263, held that loss on account of sale of shares was shown at Rs.1.20 Crores. This arose as 3 lakh shares were purchased on 1st April, 1996 at Rs.50/per share and also sold on the same date at a price of Rs.10/per share. This without giving the Balance Sheet of M/s. Mayo (I) (P) Ltd. nor the valuation of the shares. CIT opined that the transaction of shares in Mayo (I) (P) Ltd., was a sham transaction. Therefore, he directed AO to reframe the assessment.

On appeal, the HC held that,

++ AO had sought various details along with documentary evidence, if any, to enable him to complete the Assessment. No method of valuation of shares was submitted to AO during the proceedings, leading to the Assessment Order. It is to be noted that AO after having asked a pertinent question of the method of valuing unlisted shares in his letter did not pursued that line of enquiry. The required information was not furnished by assessee nor any explanation offered for not furnishing the same. It is also not a case where AO was satisfied with regard to his query by some other explanation offered by assessee;

++ In fact, merely asking a question which goes to the root of the matter and not carrying it further is a case of non enquiry, if the query is not otherwise satisfied while responding to another query. In the present facts, the question raised has not been responded to by some explanation which would render the enquiry commenced, futile. In fact, the CIT specifically exercised powers u/s 263 on the basis that the necessary information was not furnished by asssesee in support of its claim nor AO enquired into the same. Thus, this is a case of non enquiry and not inadequate enquiry.

(See 2016-TIOL-3001-HC-MUM-IT)