2017 (6) TMI 182 - AT - Income Tax

Tribunal Upholds CIT's Order for Thorough Inquiry into Share Transactions

M/s. Meera Merchandise Pvt. Ltd. Versus C.I.T. (Kol-I), Kolkata

The Tribunal dismissed the appeal, upholding the CIT's order for the AO to conduct a thorough inquiry into share capital and share premium transactions. ... Revision u/s 263 - CIT directing the AO to make proper enquiries in respect of the receipt of share capital - no enquiry was conducted - Held that:- It is relevant to mention that we have disposed of more than 500 cases involving same issue through certain orders with the main order having been passed in a group of cases led by Subhlakshmi Vanijya Pvt. Ltd. vs. CIT [2015 (8) TMI 174 - ITAT KOLKATA ] to hold that the contention of the ld. AR that since the AO of the assessee-company is not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 w.e.f. A.Y. 2013- 14 and hence the CIT by means of impugned order u/s 263 could not have directed the AO to do so, is unsustainable. In the present case is a glaring example of not making relevant enquiry, which amounts to `no enquiry’ and hence it becomes a case of non-application of mind by the AO. The very fact that no enquiry was conducted or no proper enquiry was conducted in the required circumstances, is sufficient in itself to invoke the provisions of section 263. - Decided against assessee. Issues Involved:1. Legitimacy of the CIT’s order to reverify the share capital.2. Validity of invoking section 263 by the CIT.3. Adequacy of the AO's examination of share capital subscribers.4. Mode of delivery for notices issued under section 133(6).5. Necessity of cross-examining share capital subscribers under section 131.6. Verification of the existence, creditworthiness, and genuineness of the subscribers.7. Implications of the assessee sharing the same address with other companies.8. Relevance of the Sumati Dayal SC judgment to the present case.9. Jurisdiction and procedural aspects of the CIT’s order under section 263.Detailed Analysis:1. Legitimacy of the CIT’s Order to Reverify the Share Capital:The CIT directed the AO to reverify the share capital, which was not initially the subject matter of assessment under section 148. The Assessee contended that the CIT erred in ordering this reverification. However, the CIT observed that the AO did not conduct a thorough inquiry into the share capital and share premium, which warranted intervention under section 263.2. Validity of Invoking Section 263 by the CIT:The CIT invoked section 263, arguing that the AO's order was erroneous and prejudicial to the interests of the revenue. The CIT noted that the AO failed to conduct adequate inquiries, particularly regarding the identity, creditworthiness, and genuineness of the share capital subscribers. The Tribunal upheld the CIT’s invocation of section 263, emphasizing that inadequate inquiry by the AO is equivalent to no inquiry, thus justifying the CIT’s revisionary powers.3. Adequacy of the AO's Examination of Share Capital Subscribers:The CIT criticized the AO for examining the share capital subscribers only on a test-check basis and not thoroughly verifying their identity, creditworthiness, and genuineness. The Tribunal agreed with the CIT, noting that the AO’s failure to conduct a comprehensive inquiry rendered the assessment order erroneous and prejudicial to the revenue.4. Mode of Delivery for Notices Issued Under Section 133(6):The CIT pointed out that the AO served notices under section 133(6) through hand delivery instead of postal services, which was deemed improper. The Tribunal upheld the CIT’s observation, emphasizing the need for proper service of notices to ensure the authenticity of responses.5. Necessity of Cross-Examining Share Capital Subscribers Under Section 131:The CIT argued that the AO should have cross-examined the share capital subscribers under section 131 to verify their credentials. The Tribunal supported this view, highlighting the importance of cross-examination in establishing the genuineness of the transactions.6. Verification of the Existence, Creditworthiness, and Genuineness of the Subscribers:The CIT noted that the AO did not adequately verify the existence, creditworthiness, and genuineness of the share capital subscribers. The Tribunal concurred, stating that the AO’s failure to conduct a thorough inquiry justified the CIT’s intervention under section 263.7. Implications of the Assessee Sharing the Same Address with Other Companies:The CIT observed that the assessee shared its address with other companies, raising doubts about its genuineness. The Tribunal upheld the CIT’s concern, noting that such circumstances warranted a more thorough investigation by the AO.8. Relevance of the Sumati Dayal SC Judgment to the Present Case:The CIT referenced the Sumati Dayal SC judgment, which deals with the genuineness of transactions. The Tribunal agreed that the principles from this judgment were relevant, particularly regarding the need for thorough verification of the share capital transactions.9. Jurisdiction and Procedural Aspects of the CIT’s Order Under Section 263:The Tribunal addressed several procedural aspects, including the proper service of notices, the limitation period for passing the order, and the jurisdiction of the CIT. The Tribunal concluded that the CIT had the territorial jurisdiction and that the procedural requirements were met, thus upholding the CIT’s order under section 263.Conclusion:The Tribunal dismissed the appeal by the assessee, upholding the CIT’s order directing the AO to conduct a thorough inquiry into the share capital and share premium transactions. The Tribunal emphasized the importance of proper and comprehensive inquiries by the AO to ensure the genuineness of such transactions and protect the interests of the revenue.