M/S. LADO CERAMIC PVT. LTD.,BELA (RANGPAR), DIST. MORBI. vs. THE PR. CIT-1, RAJKOT, RAJKOT

The assessee has taken the following grounds of appeals:-

Before us, the Counsel for the assessee invited our attention to Page 2 of the assessment order and submitted that the evidence regarding share capital introduced/unsecured loan was accepted by the assessee were scrutinized by the Assessing Officer, and accordingly it cannot be held that the Assessing Officer did not conduct the necessary enquiries during the course of assessment proceedings. Further, the Counsel for the assessee drew our attention to notice under Section 142 (1) of the Act issued by the Assessing Officer dated 18.07.2018, wherein details of new share capital introduced during the year under consideration was called for during the impugned assessment proceedings. Further, vide the aforesaid notice, the Assessing Officer had also called for details of unsecured loans raised during the year under consideration. Further, the Counsel for the assessee submitted that vide notice issued under Section 142(1) of the Act dated 09.11.2018, the Assessing Officer had again called for details of unsecured loans taken by the assessee during the year under consideration. Accordingly, the Counsel for the assessee submitted that the Assessing Officer had made adequate enquiries on the aforesaid aspects during the course of assessment proceedings and accordingly, the Counsel for the assessee placed reliance on judicial precedents, including by the Rajkot Tribunal in support of his contention that once Assessing Officer made

In response, the Ld. DR placed reliance on the fact that the principal CIT has made a specific observation that sufficient enquiries which was required to be made in the matter was not done by the Assessing Officer during the course of assessment proceedings. The Ld. DR placed reliance on the case of Babulal S. Solanki104 taxmann.com 155 (Ahmedabad - Trib.), wherein it was held that Revision proceedings under Section 263 were justified as Assessing Officer accepted assessee's claim of considering sale consideration as per agreement, instead of jantri value on which stamp duty was collected as sale consideration under Section 50C for computation of capital gains, which was clearly unsustainable. The Ld. DR placed reliance on the case of Umesh Krishnani 35 taxmann.com 598 (Gujarat), wherein the Gujarat High Court held that where substantial amount was deposited in bank accounts of lenders shortly prior to issuance of cheques by them, transaction in question being sham, loan amount was to be added to assessee's taxable income under Section 68.

We have heard the rival contentions and perused the material on record. On going to the facts of the instant case, we observe that in the instant case, undeniably the Assessing Officer had made certain enquiries during the course of assessment proceedings, in response to which the assessee had also filed certain details. However, there are also certain glaring discrepancies in the facts of the assessee’s case, in respect of which evidently Assessing Officer did not make any observations/made necessary enquiries during the course of assessment proceedings. In this case, the M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 6 - principal CIT has observed that the substantial investment was made in the shareholding of the assessee company, but during the course of assessment there is no explanation on record for the source of investment in the hands of the subscribers. Further, out of 21 persons, only four persons had filed their balance sheets, it was observed that huge amount of unsecured loans was availed by these persons and accordingly, the aforesaid investments in the share capital of the assessee company were made out of borrowed funds. Further, the shareholders referred to above also gave substantial amount of unsecured loans to the assessee company, but a perusal of the return of income shows that they did not have sufficient means to make the aforesaid investments/give unsecured loans to the assessee company. Accordingly, looking into the facts of the instant case we are of the considered view is that the principal CIT has correctly observed that there was an evident lack of enquiry by the Assessing Officer into the source of investment, which should have been made by the Ld. AO, looking into the facts of the instant case. Also, we observe that the Gujarat High Court in the case of Umesh Krishnani (supra) has also given a specific finding that when immediately before the issuance of funds to the assessee company there was immediate credit in the bank accounts of some of the investors, for which there is no plausible explanation, then addition under Section 68 of the Act is liable to be made. Even in the present facts, the principal CIT observed that in some of the cases prior to making the investments in the assessee company, there was immediate credits in the bank accounts of some of the investors, for which no explanation has been provided by the assessee during the course of assessment proceedings. In the case of Malabar Industrial Co. Ltd. 109 Taxman 66 (SC), the Hon'ble Supreme Court held that if due to an M/s. Lado Ceramic Pvt. Ltd. vs. PCIT Asst.Year –2016-17 - 7 - erroneous order of ITO, Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue. In the case of Neelkantha Commosales (P.) Ltd. 135 taxmann.com 326 (Calcutta), the High Court held that even under non-amended provision of Section 68, an Income-tax Officer was not precluded from making an inquiry about true nature and source of sum found credited in books of assessee, even if same was credited as receipt of share application money. In the case of Nisha Sharma146 taxmann.com 209 (Jabalpur - Trib.), the ITAT held that where assessee's case was selected for limited scrutiny for reasons that it deposited large cash during demonetization and showed large agricultural income, however AO merely relied on assessee's submissions which included sale bills for agricultural income and claimed that cash deposits were made out of past savings, since AO did not make any findings related to opening cash ascribed to past savings nor there was mention of land holdings, crop cultivated and sold, Principal Commissioner was right in invoking revisionary proceedings. In the case of Himachal Pradesh Financial Corpn. 186 Taxman 105 (Himachal Pradesh), the High Court held that the expression 'prejudicial to interest of revenue' as understood in its ordinary meaning is of wide import and not confined to loss of tax alone. Further, if due to an erroneous order of Assessing Officer, revenue is losing tax lawfully payable by a person, it should be certainly prejudicial to interest of revenue. In the case of Deepak Kumar Garg 299 ITR 435 (Madhya Pradesh), the High Court held that where from order of Assessing Officer, it was clear that where the Assessing Officer had done only a semblance of enquiry and, that too, in very slipshod manner and Assessing Officer had accepted version of assessee without proper enquiry,

In the result, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 18/10/2023