2017 (8) TMI 180 - HC - Income Tax

Court upholds inquiry into funds source pre-amendments, dismisses appeal.

Alliance Commodeal Pvt. Ltd. & Another Versus Income Tax Officer, Ward 9 (1), Kolkata & Others

The High Court upheld the permissibility of the inquiry into the source of funds for capital infusion before the amendments to Section 68 and Section 56 ... Revision u/s 263 - source of funds resulting in capital infusion in the assessee company - Held that:- As decided in (M/s.Pragati Financial Management Pvt. Ltd. Vs. The Commissioner of Income Tax Officer – II [2017 (3) TMI 1242 - CALCUTTA HIGH COURT] asking for source of source can be relevant inquiry. - Decided against the assessee Issues:1. Revisional jurisdiction of the Commissioner under Section 263 of the Income Tax Act, 1961.2. Legality of the Tribunal's order in directing an inquiry regarding the source of funds for capital infusion.3. Retroactive application of amendments to Section 68 and Section 56 of the Act.4. Permissibility of the exercise before the amendments came into effect.5. Impact of capital infusion at a high premium in the first year of business.Analysis:1. The judgment deals with the assessee's appeal against an order of the Income Tax Appellate Tribunal pertaining to the Assessment year 2009-10. The Commissioner of Income Tax under Section 263 had directed an inquiry into the source of funds for capital infusion in the assessee company. The assessing officer had completed the assessment for the relevant previous year without finding any fault in the accounts related to the capital infusion. The assessee contended that the Revisional authority should have limited the exercise of power to the subject heads based on which reassessment was made. The Tribunal found the amendment to Section 68 of the Act to be retrospective, which the assessee challenged, along with other points, before the High Court.2. The core issue involved the permissibility of the inquiry into the source of funds for capital infusion before the amendments to Section 68 and Section 56 of the Act became operational. The High Court referenced a previous judgment in the case of Rajmandir Estates Private Limited, where it was held that such an exercise was permissible before the amendments. The High Court also cited a subsequent decision in the case of Success Tour and Travels Pvt. Ltd., where the same view was upheld. The High Court dismissed the present appeal, stating that it was covered by their previous decisions, and no substantial question of law was found.3. The High Court emphasized the retrospective operation of the amendments to Section 68 and Section 56 of the Act, noting that the legality of the Tribunal's order was challenged based on this ground. The Court's decision in previous cases confirmed the permissibility of the inquiry before the amendments came into effect. The High Court reiterated that the position of law would remain unchanged even if capital infusion at a high premium was done in the first year of business.4. The judgment highlighted that no other points were raised by the appellant before the High Court. The decision was based on the precedents set by the Court in similar cases, including the permissibility of the inquiry into the source of funds for capital infusion before the relevant amendments were operational. The High Court, therefore, dismissed the present appeal and application, finding no substantial question of law involved.5. In conclusion, the High Court's judgment addressed the revisional jurisdiction of the Commissioner, the legality of the Tribunal's order regarding the source of funds for capital infusion, the retroactive application of amendments to the Act, and the permissibility of the exercise before the amendments. The decision was based on established legal principles and precedents set by the Court in similar cases, ultimately leading to the dismissal of the appeal.