Addition cannot be made if identity of bogus shareholders is known to the Department

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

21. So far as the allegation of the Ld. PCIT that the AO should have conducted further enquiry which were necessary to gather relevant material which the AO failed to do and there was non application of mind on the part of the AO is concerned, we find in the instant case thorough enquiries were conducted by the AO at the time of reassessment proceedings. Full details giving the names, addresses, number of shares of nominal value and share premium amount of all the share holders alongwith their bank statements, copy of IT returns, PAN etc. were filed before the AO. Even if the share holders were bogus as per allegation of the revenue in view of the reasons recorded for reopening, however, as per prevailing law at that time in view of decision of Hon’ble Supreme Court in the case of Lovely Exports (P) Limited (surpa) addition could not have been made in the hands of the assessee and addition, if any, could have been made only in the hands of such bogus share holders. Since AO has taken a plausible view, therefore, it cannot be said that the order of the AO is erroneous.

22. We find the Hon’ble Delhi High Court in the case of PCIT Vs. Delhi Airport Metro Express Private Limited vide ITA No.705/2017 order dated 05.09.2017 has held that for the purpose of exercising jurisdiction u./s. 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry. If the PCIT is of the view that the AO did not undertake any enquiry, it becomes incumbent on the part of the PCIT to conduct such enquiry. If the PCIT does not conduct such basic exercise then the PCIT is not justified in setting aside the order u/s. 263 of the IT Act.

23. We find the Hon’ble Delhi High Court in the case of Jyoti Foundation (supra) has held that where revisionary authority opined that further enquiry was required, such enquiry should have been conducted by revisionary authority himself to record finding that assessment order passed by the AO was erroneous and pre judicial to the interest of the revenue. We find Hon’ble Delhi High court in the case of Sunbeam Auto Limited (supra) has held that if the AO, while making an assessment, has made inadequate enquiry that would not by itself give occasion to the CIT to pass order u/s.263 merely because he has different opinion of the matter. Only in the case of “lack of enquiry” that such a course of action would be open. It has further been held in the said decision that where the view taken by AO was one of the possible views, therefore, the assessment order passed by the AO cannot be held to be prejudicial to the interest of the revenue. The Hon’ble Delhi High court in the case of Anil Kumar Sharma (supra) has held that where it was discernible from record that the AO had applied his mind to an issue in question, Commissioner could not invoke section 263 merely because he has different opinion.

24. So far as the decision relied on by Ld. DR in the case of Deniel Merchants (P) Ltd. (supra) is concerned, the Ld. DR could not controvert the submission of the Ld. Counsel for the assessee that no enquiry was conducted in the said case whereas in the case of the assessee enquiries were duly conducted during the reassessment proceedings. Therefore, the decision relied on by Ld. DR is not applicable to the facts of the present case. The various other decisions relied on by ld. DR are also distinguishable and not applicable to the facts of the present case. We find from a perusal of the paper book that the assessee during the course of reassessment proceedings had filed the requisite details as called for by the AO and the Assessing Officer after considering the same completed the assessment which is in consonance with the decision of the Hon’ble Supreme Court in the case of Lovely Exports prevailing at that time. Therefore, in view of our discussion in the preceding paragraphs the order of the AO in the instant case cannot be held as erroneous. Since for invoking jurisdiction u/s. 263 the twin conditions i.e. order must be erroneous and the order must be prejudicial to the interest of revenue must be satisfied and since, we have held that the order cannot be held to be erroneous since the view of the AO in accepting the share capital is a plausible view, therefore, the twin conditions are not satisfied. Therefore, the Ld. PCIT in our opinion could not have invoked jurisdiction u/s. 263 of the IT Act. We, therefore, set aside the order of the PCIT passed u/s. 263 of the IT Act and the grounds raised by the assessee are allowed.

25. In this view of the matter, we set aside the order of the PCIT passed u/s 263 of the Act and the grounds raised by the assessee are allowed.

26. In the result, the appeal filed by the assessee is allowed.