TaxTMI 
TaxTMI 
2014 (10) TMI 151
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment year filed its return of income on 16.05.2008. As the assessee did not receive the intimation under section 143(1), the assessee had filed a letter dated 11.12.2009 to the AO requesting for a copy of the intimation under section 143(1). This has been shown at page 26 of the paper book. It was a further submission that on 15.12.2009, notice under section Assessment Year: 2008-09 148 was issued, which was shown at page 27 of the paper book. The assessee had filed a reply on 17.12.2009. It was a submission that notice under section 143(2) was issued on 19.02.2010 and another notice under section 142(1) on 24.02.2010 shown at page 30 of the paper book. It was a submission that in serial no.3 of the notice under section 142(1), the AO had specifically asked the assessee to show cause why the amount increased on account of the share applicants should not be added under section 68 of the Act. It was a submission that the assessee had replied by a letter on 08.03.2010 shown at page 31 of the paper book, wherein in para 3 of the reply, the assessee had provided all the information in respect of the share application money received by the assessee. It was a submission that from pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to show how the order is erroneous and (iii) holding the order erroneous on a generalized background statement for which there is no material on record is unsustainable. The ld. AR further placed reliance on the following decisions of various Hon'ble High Courts and the Tribunal. 1) 354 ITR 35 (AP) at para 59 - Spectra Shares & Scrips Pvt. Ltd. 2) 357 ITR 388 (Del) at para 5- DIT-vs- Jyoti Foundation 3) 68 Taxmann 215 (Cal) at para 13 & 14 - Mulchand Bagri 4) Lotus Capital Financial Services, being the decision of the Coordinate Bench of this Tribunal in ITA No.479/Kol/2011 dated 21.11.2011 on which the appeal has been dismissed by the Hon'ble Jurisdictional High Court in GA No.1507/2012 dated 16.07.2012 4.2 The fourth issue being there was no tangible material for the purpose of invoking the powers under section 263 for which proposition, the decision of the Hon'ble Bombay High Court in the case 323 ITR 206 at para 210 was relied upon. It was a submission that the Hon'ble Supreme Court in Malabar Industries reported in 243 ITR 83 has also held that there should be some tangible material for the purpose of treating an order as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 5. In reply, the ld. CIT, DR submitted, at the outset, that the decisions relied upon by the ld. A.R., appearing on behalf of the assessee, were distinguishable in its entirety. It was a submission that the decision in the case of Lotus Capital Financial Services, the assessee had provided the complete details. It was a submission that in assessee's case, only part of the details had been provided and the details whatever had been provided itself were incomplete. It was a submission that the bank account details provided were only for one or two months and the entire transaction was not produced to show the cash transaction which had been done initially. Also no enquiry worth its name was also done. It was a submission that in less than four months, 148 proceeding had been completed, which itself creates a doubt in regard to the veracity of the proceedings itself. It was a submission that the decision of the Hon'ble Calcutta High Court in the case of Active Traders 214 ITR 583 was more applicable to the facts of assessee's case in so far as no inquiry had been done to take a considered view in the course of assessment proceedings then the Commissioner was entitled ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he letter filed on 11.12.2009 is, in fact, just a garb to let the AO initiate proceedings under section 148 for the purpose of getting the seal of approval under the garb of scrutiny assessment in respect of genuineness of the share capital introduced. It was a submission that no independent inquiry whatsoever had been conducted by the AO. Even the so-called bank statements submitted in respect of share applicants were incomplete. 5.2 The ld. CIT,DR further submitted that there has been a total violation of the provisions of section 78 of the Companies Act in so far as section 78 specifies as to how share premium is to be used. It was a submission that pending allotment of the shares, amount must be kept in the bank. The ld. DR drew our attention to the paper book filed on behalf of the assessee to submit that the shares had been allotted to the applicants only on 31.03.2008 in all the cases but the funds have been used for making further investments in the share application of other such companies immediately on receipt of the funds. It was a submission that even the Chartered Accountant, who has audited these companies, were the same and the said C.A. has audited the accounts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terfere with the opinion of the authorities concerned. Hence, the appeal is dismissed. MANJULA CHELLUR, CHIEF JUSTICE, A.M. SHAFFIQUE, JUDGE" 5.3 He further placed reliance upon the decision of the Hon'ble Karnataka High Court in the case of Infosys Technologies Ltd. to submit that it was always open to the assessee to justify the claim of the share capital before the AO. It was a submission that there is no finding of the ld. CIT in the 263 order directing that the share capital should be disallowed for added as the undisclosed income of the assessee. It was submission that there is no prejudice to the assessee. It was a submission that the decision of the Coordinate Bench of this Tribunal in the case of Star Griha in ITA no.1244 of 2013 for the assessment year 2008-09 dated 14th August, 2014 applied in the assessee's case also in so far as many of these companies are under investigation by the Ministry of Corporate Affairs as well as CBI, ED and SIT. It was a submission that in the cases of politically exposed, also investigations are at a critical level. It was a submission that though the ld. CIT in some cases has dropped proceedings initiated under section 263 in so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plained the source of the fund as also the relevant bank extracts were produced. After verifying the reply filed by the assessee, the AO had felt that he did not need to do any further inquiry. Possibly, because of this, the AO did not do any further inquiry also. It was a submission that the ld. CIT was liable to demonstrate, while making the inquiry as to where the AO has committed the error, which is prejudicial to the interest of Revenue. It was a submission that this had not been done by the ld. CIT. The ld. CIT has passed the order under section 263 only on presumption and assumption. 6.2 The ld. Sr. Counsel further placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of J.L. Morrison reported in 366 ITR 593. It was a submission that in the said decision the principle laid down was that when the record shows that the inquiry was made by the AO then revision does not lie. It was a further submission that the Revenue was attempting to support an unsupportable order under section 263 by taking the recourse to external ground. It was a further submission that the order under section 263 must stand on its own as has been held by the Hon'b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that case. Note in respect of section 78 of the Companies Act, as called for by the Bench and the balance-sheet and Profit & Loss a/c. from the year 31.03.2009 upto 31.03.2013 along with the schedules thereto and the incorporation certificate of the Company were also placed before the Bench. 6.4 In regard to the provisions of section 78 of the Companies Act, Shri R.K. Kankaria has submitted a note, which reads as follows: "1. It is submitted that share premium is capital in nature and is not a revenue receipt. Reference in this behalf is invited to the following decisions: - (i) Asiatic Oxygen Ltd. v. Deputy Commissioner of Income Tax, (1994) 49 ITD 355 (Cal). (ii) Deputy Commissioner of Income Tax v. MAIPO India Ltd., (2008) 24 SOT 42 (Del). (iii) Brooke Bond India Ltd. v. C.I.T., (1997) 225 ITR 798 (SC) - where it was held that issue of shares at a premium was directly related to the expansion of the capital base of the company and expenditure incurred for such issue was capital expenditure. 2. It is further submitted that in the instant case, there was no contravention of section 78 of the Companies Act, 1956. Sub-section (1) of se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the completion of the assessment, the whole process normally is completed within a period varying between two months to four months. This is so that such reopening never gets recorded in the registers maintained by the AO in respect of such reopening and intimation to higher authorities. 7.2 The first question comes to our mind is as to why this hurry in completing the reassessment proceedings especially when substantial time is still available and detailed inquiry is expected. Normally, once reopening is done by issuance of notice under section 148, the full time as available under the Act is used by the AO but conspicuously in all such cases the assessments are closed fast. These are special cases where within such a short period of issuance of notice under section 148, assessment stands concluded without any investigation or verification or inquiry worth its name. One is left wondering as to whether it is on purpose and design or whether it was in the normal course as this feature is special only to such companies where large share capital has been introduced. 7.3 Tax avoidance is an accepted principle. Any person is entitled to adjust its affairs in such manner as to min....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the share application monies received by the assessee along with the premium are represented in the Balance sheet in the form of current assets being the unquoted equity shares in other such companies. That is the share application money received by the assessee is used for making further investments in other such similar shell companies from whom cash is taken and rerouted through cheques. These shell companies which are acquired by the interested third parties purchase these companies at a fractional amount of the value of the shares. That means a company whose share value is Rs. 10/-, the share is issued at a premium of Rs. 490/- total value of the share becomes Rs. 500/-. This contains first portion of the unaccounted cash brought in or converted through the accommodation entry. Now this 500 rupees share is purchased by the third party or the interested person in taking over the company for the purpose of utilizing its capital. It may be two rupees or three rupees per share. Here the purchase price is even below the face value of the shares or at the face value. The premium is in effect the bonus. The premium already introduced sits in the liability side as a reserve and on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act due to the following two reasons : i) Huge Share premiums were received and this was not enquired into by the AO. ii) AO has not done proper enquiry into the share application money received. 7.6.1 As regards the share premium receipt, we find that the assessee company was incorporated on 12.02.2007. During the current year the assessee company has received share application money for a share of nominal value of Rs. 10 each per share at a premium of Rs. 240/- each. Apparently there was no reason as to why the share of this company would command so much share premium. Since the AO has not done any examination in this respect the ld. CIT has exercised his jurisdiction u/s 263 of the Act. In this regard the ld. Counsel of the assessee has submitted that the share application money was received with a huge share premium only to reduce the incidence of ROC fee which is attracted when shares are allotted at par.The ld. Counsel of the assessee further submitted that the AO need not make any enquiry in this regard as it was not warranted as Section 56(vii)(b) was inserted by Finance Act 2012 w.e.f. 01.04.2013. 7.6.2 Now we find that the above submission of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shares were received after paying huge premium by the allottees. These were subsequently transferred at face value or even at discount. This means that on transfer of shares the allottee did not receive any premium. This means that huge amount was received and paid as share premium with full knowledge that there will be no recovery or there is no scope of recovery of share premium. This was designed to facilitate the transfer of these companies to other persons on payment of nominal or discounted value of shares. In other words the value embedded in the share premium was meant to be transferred under hand, and prima facie it appears that the transfer took place upon payment of under hand money. This is a classic case of money laundering and the share premium was being received and paid to launder the black money. This happens at the second limb i.e., when the directors change and the company changes hand. 7.7.1 The above facts clearly provide that receipt of share application money with huge share premium warranted detailed enquiry by the AO and not a perfunctory enquiry. 7.8 The Hon'ble Apex Court in the case of CIT vs Durga Prasad More 82 ITR 540 and in the case of Suma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the Act, the amount involved was liable to be taxed as revenue receipt. 7.10.1 In fact this is part of the examination directed by the ld. CIT in clause (i) of her order. Another interesting factor in this case is the earnings per share (E.P.S.). Till the year ended 31/3/2010 the E.P.S. was zero. When the E.P.S. was zero the company's share with a face value of Rs. 10/- was commanding a premium of Rs. 490/-. As on 31/3/2011, the E.P.S. rose to Rs. 6.84. This itself shows the change in the management and the liquidation of the "investment in shares", "unquoted shares". But with this E.P.S. the profit after taxation is only Rs. 9,77,992/-. For the year ended 31/8/2012 the profit after taxation is Rs. 15,22,581/- and the E.P.S. is Rs. 10.64. Thus clearly when the E.P.S. is 0, the issuance of such premium on the shares itself calls for detailed enquiry. 7.10.2 Another interesting aspect in this case is the dates. As we mentioned earlier the change in management took place in the assessment year 2010-11, i.e. year ended 31/3/2010, i.e. the period 1/4/2009 to 31/3/2010. The reopening of the assessment and the reassessment proceedings took place during this time. This clea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecision which could be considered when the issues are decided on merits of the addition subject to all the conditions being fulfilled therein. Coming to the decision of Lotus Capital Financial Services Ltd. in G.A. 1507 of 2012 dated 16/07/2012, the Hon'ble Calcutta High Court has upheld the quashing of the order passed under section 263 by the ITAT on the ground that the assessee has filed complete details, and the same was verified by the A.O. and the prospective shareholders also replied and the AO has given his finding in his order passed under section 143(3). In the present case, the facts are completely different. In the first place, the submission of all the details before the AO by the letter dated 08/03/2010 itself is questionable. The AO has done no further verification and the AO has not given any finding in respect of the share capital in the assessment order nor in the order-sheet notings. Only the issue of share application money received has been mentioned. The assessment order is bald in respect of the findings on the issue of share application money received. In these circumstances, this decision also is not of any help to the assessee. The decision relied upon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to plug leakages to the revenue by erroneous orders passed by the lower authorities, whether by mistake or in ignorance or even by design" is more apt to explain the actions that have lead to the 263 orders being passed in such cases. 7.15.2. Here the decision of the Hon'ble Full Bench of the Hon'ble Gauhati High Court in the case of Jawahar Bhattacharjee reported in 341 ITR 434 (Gauhati( (FB) is found to be substantially similar to the assessee's case in so far as the Hon'ble High Court has held "Not holding such inquiry as is normal and not applying the mind to relevant material in making an assessment would be erroneous assessment warranting exercise of revisional jurisdiction." We may further extract some relevant paragraphs from the said order. "Reference may briefly be made to the facts giving rise to the issue. The assessee was asessed for the assessment year 2002-03 by Assessing Officer (AO) giving the benefit of exemption under section 54F of the Income-tax Act, 1961, for long-term capital gains from sale of shares. The shares were purchased on April 21, 2000, for Rs. 19,536 and sold on May 2, 2001, for Rs. 6,36,640, i.e., on the increased pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ke assessment, the same can certainly be exercised when the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Whether or not the order is erroneous has to be decided from case to case. Interpretation of section 263 has been the subject-matter of consideration in various decisions. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), it was observed (pages 87 and 88) : "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind .... Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkntakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting 'prejudicial to the interests of the Revenue.' The High Court held (page 138) : 'In this context, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be a dummy company of one Shri Arun Dalmia. What has been emphasized by the learned senior counsel appearing for the petitioner is that the Assessing Officer had attempted to fill in the gap by terming the amount received from Basant Marketing Pvt. Ltd. as "accommodation entry", which she could not have done without further inquiry/verification. Yet another contention emphasized by the learned senior counsel is that the post-notice correspondence made after the reasons recorded could not have added anything which was lacking in the reasons themselves. He urged that in the absence of any statement given by any director of Basant Marketing Pvt. Ltd. stating that the assessee received and obtained accommodation entry in the form of loans and advances, the reasons lack basis. The director, Mr. Dalmia of Basant Marketing Pvt. Ltd. as contended also does not reveal anywhere and, therefore, it is premature on the part of the Assessing Officer to so record the reasons. It is further urged that the affidavit of Rishabh Dalmia stating on oath that the loan transactions with the petitioner are genuine for having been carried out only through cheques, prima face vindicates that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led, sufficiency of the reasons is not to be gone into by this court. The information furnished at the time of original assessment, when by subsequent information received from the Deputy Commissioner of Income-tax, Kolkata itself found to be controverted, the objection to the notice of reassessment under section 147 of the Act must fail At the costs of ingemination, it needs to be mentioned that at the time of scrutiny assessment, a specific query was raised with regard to unsecured loans and advances received from the said company, namely, Basant Marketing Pvt. Ltd. based at Kolkata. These being the transactions through the cheques and drafts, there would arise no question of the Assessing Officer not accepting such version of the assessee and not treating them as genuine loans and advances. Furnishing the details of names, addresses, PANs, etc., also would lose its relevance if subsequently furnished information, which has been made basis for issuance of notice impugned, concludes that Basant Marketing Pvt. Ltd. is merely a dummy company of one Shri Arun Dalmia, which provided the accommodation entries to various beneficiaries. This court has examined the belief of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fect of jurisdiction. It could extend to an order which may be found to be "erroneous" or "not in accordance with law" for having been passed "without making any enquiry in undue haste". The "jurisdictional" defect has been referred to in that sense. Only limitation laid down is that the order could not be revised without the same being "erroneous" merely because a different view could also be taken. It has not been held that even an order passed, ignoring norms or material could not be interfered with under section 263 of the Act. It is well known that the word "jurisdiction" does not have a fixed meaning. Though in one sense it means entitlement to enter upon the enquiry in question and in wider sense it implies light to conduct enquiry into the matter in lawful manner. Even if there is jurisdiction to go into a matter, failure to have regard to the relevant material may also render an order without jurisdiction." "We have already referred to the judgments of this court in Rajendra Singh [1990] 79 SIC 10 (Gauhati) and two single Bench judgments following the said judgment in Bongaigaon Refinery and Petrochemicals Ltd. [2006] 287 ITR 120 (Gauhati) and Shyam Sunda....