AO cannot remain quiet after issuing summons u/s 131 which went unanswered. Without resorting to further investigation no adverse inference could be drawn.
ABCAUS Case Law Citation:
ABCAUS 2453 (2018) 08 ITAT
The instant appeal was filed by the assessee against the order passed by CIT(A) in upholding the addition made u/s 68 of the Income Tax Act, 1961 (the Act) towards share capital.
The assessee was an investment company. The assessment for the relevant Asst Year was framed u/s 143(3) / 147 of the Act. The re-assessment was later subjected to revision proceedings u/s 263 of the Act by the CIT on the ground that the AO had not properly enquired and verified the genuineness and source of share capital and share premium as well as the identity and creditworthiness of the shareholders who had applied for shares of the company. Hence the CIT passed the revision order u/s 263 of the Act by setting aside the order passed by the AO u/s 147/143(3) of the Act with certain specific guidelines regarding investigation to be carried out while assessing the assessee de novo.
The AO observed that the assessee had raised huge share capital by issuing shares at a premium. A notice u/s 142(1) of the Act calling for certain details was issued on the assessee asking it to produce and submit certain details and documents. The said notice could not be served on the assessee. Later the Inspector of Income Tax was deputed to serve the notice which went in vain and accordingly the said notice was served by affixture.
However, there was no response from the assessee to this notice. Later summons u/s 131 of the Act were issued to the directors of the assessee company as well to the subscriber companies. All the summons were returned back by the postal authority with remarks ‘moved / not found/ not known / no such company in this address’ etc. Accordingly the summons u/s 131 of the Act was served by affixture. Again, there were no response to these summons either from the assessee or from the subscriber companies.
The AO accordingly observed that the transactions of share capital were not genuine one in as much as the assessee had failed to produce the shareholders for verification of share capital investments obtained from them. Therefore, the entire share capital and share premium money was added to the total income of the assessee by the AO.
The CIT(A) upheld the action of the AO.
The Tribunal observed that the CIT vide order u/s 263 had directed the AO to make independent enquiries with the shareholders of the assessee company in the manner known to law and not through the assessee. It was observed that the CIT had invoked the revisional jurisdiction u/s 263 of the Act and found that the assessee company in its Balance Sheet had shown to have infused huge equity share capital including share premium and since the AO had not enquired into the source of the share capital and premium infused into the assessee company by verifying the identity, genuineness and creditworthiness of the shareholders, the CIT found the AO while doing assessment did not exercise the role of investigator and, therefore, the order of AO was erroneous so far as prejudicial to the interest of the revenue and directed the AO to make fresh assessment after taking into consideration the pernicious practice of converting black money by the modus operandi as described by the CIT. In the said backdrop, the CIT had given certain guidelines which were given in order to facilitate deep investigation into the case.
The Tribunal opined that the AO could not have remained quiet after issuing summons u/s 131 to the share subscriber companies. The summons when went unanswered, the AO should have resorted to other actions available as per law, which was not done in the instant case. Without resorting to such further verification / investigation / action as per law, the AO ought not to have drawn any adverse inference against the assessee company.
Accordingly, the Tribunal allowed the ground raised by the assessee and remanded the matter back to the file of the AO for de novo assessment and to decide the matter as mandated by the CIT in section 263 order.
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