2022 (1) TMI 879 - AT - Income Tax

Tribunal Invalidates Tax Commissioner's Decision Under Section 263, Rules in Favor of Assessee

Bridhi Distributors Pvt. Ltd. Versus Principal Commissioner of Income Tax-4 Kolkata

The Tribunal held that the Second Principal Commissioner of Income Tax (Pr. CIT) did not satisfy the statutory condition precedent required under Section ... Revision u/s 263 by CIT - Addition u/s 68 - unexplained share application money - Scope of exercise of second AO in the reassessment proceedings - whether second Ld. Pr. CIT erred in exercising for the second time revisional jurisdiction u/s. 263 of the Act which action of his was wholly without jurisdiction? - HELD THAT:- All the thirteen (13) share subscribing companies identity and credit worthiness has been brought on record and genuineness of the transaction are discernable from the bank statements. Thus the second AO on the basis of the aforesaid documents has taken a plausible view and did not draw any adverse inference against the assessee, and the view thus taken by the AO cannot be termed as unsustainable in law. In the impugned order the second Ld. Pr. CIT has not found fault with the action of the second AO in giving effect to the specific directions given by his predecessor while passing the first revisional order on 23.08.2016. Thus, we note that when the second AO while framing the reassessment order pursuant to the specific direction of the First Ld. Pr. CIT's order dated 9.02.2016 (first revisional order) has complied with the specific directions of the First Ld. Pr. CIT and based on the inquiry conducted and after perusal of the documents running more than 200 pages which reveals the identity, creditworthiness and genuineness of the share capital and premium collected by the assessee from the share subscribers, the satisfaction of AO as envisaged in Sec. 68 of the Act is a plausible view and the fact that the share subscribers responded to sec. 133(6) notice albeit in the first round and in the second round, the Directors of all investors pursuant to summons u/s. 131 appeared before second AO and produced all documents along with the audited financial statements and other documents referred supra, the assessee had discharged the onus upon it about the identity creditworthiness and genuineness of the share capital and premium collected by the assessee from the respective share subscribers. Since the aforesaid exercise was carried out by the second AO in the reassessment proceedings and the documents referred to above are in the assessment folder, the Second Ld. Pr. CIT erred in holding the reassessment order of the AO in respect of share capital and premium collected by the assessee as erroneous as well as prejudicial to the interest of the revenue. In the light of the aforesaid discussions and on perusal of the documents, we are of the view that AO's view to accept the identity, creditworthiness and genuineness of the share capital and premium collected from the share subscribers was a plausible view and at any rate can be termed as an unsustainable view on law or facts. Second (Ld. Pr. CIT) should himself had conducted an enquiry or at least conducted a preliminary enquiry and was able to bring some evidence/material on record to upset the AO's satisfaction in respect of identity, creditworthiness or genuineness of the share subscribers and thus recorded a finding of fact that the decision of AO's enquiry was faulted or wrong and in that process tried to show that it has resulted in a view which is 'unsustainable in law' which would have justified his action of passing the impugned order u/s. 263 of the Act, which unfortunately is not the case. Since the AO's view on the facts collected and discussed is definitely a possible view, so in the factual background discussed in detail, we are of the considered opinion that Ld. second Pr. CIT ought not to have interfered with the AO's reassessment order which in any case can be classified as 'unsustainable in law' since it is in line with plethora of judicial decisions on the subject. Second AO has conducted enquiry as directed by the First Ld. Pr. CIT on the specific subject matter i.e. share capital and premium collected by the assessee-company. Therefore, the finding of Second Pr. CIT that the Second AO has not conducted enquiry is incorrect and is flowing from suspicion only. Since the assessee company has discharged its onus as discussed supra, and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO's omission to collect the additional documents. second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator, which exercise the Second Ld. Pr.CIT has not done, so the second Ld. Pr. CIT cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. And if this practice is allowed, then there will be no end to the assessment proceedings meaning no finality to assessment proceedings and that is exactly why the Parliament in its wisdom has brought in safe-guards, restrictions & conditions precedent to be satisfied strictly before assumption of revisional jurisdiction. Be that as it may be, as discussed above, we find that the Second Ld. Pr. CIT without satisfying the condition precedent u/s. 263 of the Act has invoked the revisional jurisdiction (second time), so all his actions are ab initio void CIT(A) has made a bald statement that the AO's assessment order attracts Explanation 2(c) u/s. 263 of the Act. - Decided in favour of assessee. Issues Involved:1. Legality of the second revisional jurisdiction invoked under Section 263 of the Income-tax Act, 1961.2. Examination of identity, creditworthiness, and genuineness of share capital and premium collected by the assessee.3. Compliance with the specific directions given in the first revisional order.4. Application of the doctrine of merger.5. Validity of invoking Explanation 2(c) under Section 263 of the Act.Detailed Analysis:1. Legality of the Second Revisional Jurisdiction under Section 263:The main grievance of the assessee was against the action of the Second Principal Commissioner of Income Tax (Pr. CIT) invoking his second revisional jurisdiction under Section 263 of the Act. The assessee contended that this action was without satisfying the requisite conditional precedent as stipulated under Section 263 and, therefore, without jurisdiction and bad in law. The Tribunal noted that the Second Pr. CIT did not satisfy the statutory condition precedent prescribed by Section 263, which requires the assessment order to be erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that the assessment order passed by the Assessing Officer (AO) must be erroneous due to incorrect assumptions of fact, incorrect application of law, violation of natural justice, lack of application of mind, or lack of investigation.2. Examination of Identity, Creditworthiness, and Genuineness of Share Capital and Premium:The Tribunal examined whether the Second AO conducted a proper inquiry into the share capital and premium collected by the assessee. The Tribunal found that the Second AO issued notices under Section 142(1) and summons under Section 131 to the directors of the share subscribing companies. The directors appeared before the AO with their books of accounts and bank statements, and their statements were recorded. The Tribunal noted that the AO verified the identity, creditworthiness, and genuineness of the share transactions. The Tribunal observed that the AO's view was a plausible one based on the documents and evidence provided, which included PAN details, CIN details, audited annual reports, ITR acknowledgments, and bank statements.3. Compliance with Specific Directions in the First Revisional Order:The Tribunal found that the Second AO complied with the specific directions given by the First Pr. CIT in the first revisional order dated 09.02.2016. The First Pr. CIT had directed the AO to carry out a proper examination of the books of accounts and bank accounts of the assessee and the investors, and to examine the source of share application, identity of investors, and genuineness of transactions. The Tribunal noted that the Second AO followed these directions and conducted a thorough inquiry.4. Application of the Doctrine of Merger:The Tribunal discussed the doctrine of merger, which implies that once an order is passed by a higher authority, the original order merges with the higher authority's order. The Tribunal noted that the Second Pr. CIT's action of passing a second revisional order substituted the First Pr. CIT's order, which was not permissible. The Tribunal emphasized that the subject matter of share capital and premium collected by the assessee had already been examined and decided by the First Pr. CIT, and the Second Pr. CIT could not re-examine the same subject matter without pointing out specific errors in the Second AO's compliance with the First Pr. CIT's directions.5. Validity of Invoking Explanation 2(c) under Section 263:The Tribunal addressed the Second Pr. CIT's reliance on Explanation 2(c) under Section 263, which deems an order to be erroneous if it is not made in accordance with any order, direction, or instruction issued by the Board under Section 119. The Tribunal found that the Second Pr. CIT made a bald statement without specifying how the AO's order violated any such directions or instructions. The Tribunal held that the Second Pr. CIT's action was based on non-application of mind and was, therefore, invalid.Conclusion:The Tribunal concluded that the Second Pr. CIT's invocation of revisional jurisdiction under Section 263 was without satisfying the condition precedent and was, therefore, null and void. The Tribunal quashed the impugned order of the Second Pr. CIT and allowed the appeal of the assessee.