Assessment Order passed months ahead of deadline without inquiries a stronger case for revision u/s 263

Assessment Order passed several months ahead of deadline without making inquiries/verification is without due application of mind & in avoidable haste making stronger case for revision u/s 263

ABCAUS Case Law Citation:
ABCAUS 3229 (2020) (01) ITAT

Important case law relied upon by the parties:
Deniel Merchants Pvt. Ltd. Vs. ITO; Malabar Industries Co. Ltd. Vs. CIT; Rajmandir Estates (P) Ltd. Vs. PCIT ; Shree Manjunathesware packing Products & Camphor Works vs. CIT ; CIT vs. Amitabh Bachchan ; PTC Impex (India) Ltd. Vs. CIT CIT vs. Infosys Technologies Ltd. ; Gee Vee Enterprises Vs. Addl. CIT; Perfetti Van Melle India Pvt. Ltd. ; CIT vs. Apollo Tyres Ltd.

In the instant case, an appeal was filed by the Assessee against the impugned revisionary order u/s 263 of the Income Tax Act, 1961 (the Act) passed by the Principal Commissioner of Income Tax.

In this case, the Assessment Order under Section 143(3) of the Act was passed by the Assessing Officer (“AO”), wherein the returned loss was accepted by the AO.

The operative language of the Assessment Order was as under;

“In response to the notices, Sh. …………. CA and Authorised Representative of the assessee company attended the assessment proceedings from time to time and filed necessary documents/reply. The written admissions filed along with necessary documents and explanations were examined and placed on record. The case was discussed at length with the authorised representative of the assessee.

After going through the submissions made by the assessee, the returned loss is accepted and assessed at returned loss. Tax and interest u/s 234B & 234C has been charged as per tax calculation sheet which forms part of this order. Demand notice and necessary forms are being issued along with copy of this Assessment Order.”

However after a gap of two and half year, show cause notice was issued by the Principal Commissioner of Income Tax (the PCIT) initiating revision proceedings under Section 263 of the Act on account of large amount of share premium received by the assessee and failure of the AO to examine the justification for the same and accepting the fair market value (FMV) adopted by the assessee under Rule 11UA.

Finally, the PCIT passed order under Section 263 setting aside the Assesment order passed by the AO and he was directed to pass fresh speaking order after conducting detailed inquiries on the issue of share premium.

The Tribunal observed that the case was selected for scrutiny with the main reason of verification of large share premium received during the year. Moreover, it was also not in dispute that the AO had completely failed in carrying out any verification in respect of the share capital issued during the year for the purpose of ascertain the genuineness of these cash credits within the meaning of Section 68 of the Act.

The Tribunal stated that it is well settled that it is the initial burden of the assessee to prove identity of the person, genuineness of the transaction and financial capacity of the person; as far as transactions covered by Section 68 of the Act are concerned.

The Tribunal further noted that although some materials were placed from assessee’s side before the Pr. CIT in the course of revision proceedings under Section 263 of the Act in respect of share capital issued at premium, no such materials were placed from the assessee’s side before the AO during the assessment proceedings; and further, that no effort was made by the AO to ascertain the genuineness of cash credits within the meaning of Section 68 of the Act.

The Tribunal opined that the Assessment Order was passed by the AO without making inquiries or verifications which should had been made for ascertaining the genuineness of the cash credits within the meaning of Section 68 of the Act. Also, by virtue of Explanation 2 to Section 263, w.e.f 1- 6-2015, an order passed, in the opinion of the Principal Commissioner or Commissioner of Income Tax, without making inquiries or verifications which should have been made, shall be deemed to be erroneous in so far as it is prejudicial to the interests of Revenue.

The Tribunal noted that the Assessment Order had been passed several months ahead of the deadline prescribed under the Act.

The Tribunal opined that when an Assessment Order is passed several months ahead of prescribed deadline without making enquiries and verifications which should have been made; it can be said that the order was passed without due application of mind, and in avoidable haste; and that makes a stronger case for exercise of jurisdiction under Section 263 of the Act.

In view of the above, the Tribunal held that the impugned revisionary order passed by Pr. CIT under Section 263 was in accordance with law, having regard to specific facts and circumstances of the case. Therefore, the Tribunal declined to interfere with the aforesaid impugned revisionary order. Accordingly, the impugned revisionary order by Pr. CIT passed under Section 263 was upheld and the appeal of the assessee was dismissed.

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