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TaxTMI 
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2014 (10) TMI 611
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....f directing the A.O. to hold another investigation when the order of the AO was neither erroneous nor prejudicial to the interest of the revenue. 4. For that the ld. CIT was not justified in holding that creditworthiness and identity of the shareholders from whom share capital money was received in the instant year remains to be verified though the AO completed the assessment after making proper verification. 5. For that in exercising revisionary powers u/s 263 the ld. CIT lost sight of the well settled legal position that in the assessment u/s 147, the A.O. is not entitled to embark upon a fishing expedition and to make roving enquiries as such, assuming but not admitting that proper enquiries were not done in respect of the share capital raised by the assessee, there was no error in the order passed by the A.O. 6. For that the ld. CIT exceeded his jurisdiction by directing the Ld. A.O. as to how the fresh assessment should be framed by him. 7. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal." 4. The assessee has also raised one additional ground wherein the assessee has challenged the order passed u/s 263 of the Act as barred by li....
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....#39;ble Tribunal. 2. Grounds of Appeal In the memorandum of appeal, following grounds have raised by the assessee-company-- 1. For that on the facts and in the circumstances of the case, the order passed by the Ld. CIT u/s 263 of the Áct is bad in law and is liable to be quashed. 2. For that on the facts and in the circumstances of the case the Ld. CIT was not justifìed in initiating proceedings u/s 263. 3. For that the Ld. CIT erred in exercising the power of revision for the purpose of directing the A. O. to hold another investigation when the order of the A. O. was neither erroneous nor prejudicial to the interest of the revenue. 4. For that the Ld. CIT was not justifìed in holding that creditworthiness and identity of the shareholders from whom share capital money was received in the instant year remains to be verifìed though the Á. O. completed the assessment after making proper verifìcation. 5. For that in exercising revisionary powers u/s 263 the Ld. CIT lost sight of the well settled legal position that in the assessment u/s 147, the A. O. is not entitled to embark upon a fishing expedition and to make roving enquiries as suc....
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....he order of reassessment. (d) It is pertinent to note here that in the following cases, it was held that summary assessment made u/s. 143(1) can be revised u/s. 263 - (i) CIT vs. Sri Mahasastha Pictures 263 ITR 304 (Mad) (ii) CIT vs. Chidambaram Construction Co. 261 ITR 754 (Mad) (iii) CIT vs. Anderson Marine And Sons Pvt Ltd. 266 ITR 694 (Bom.) (e) The Hon'ble co-ordinate bench of ITAT, Kolkata in the case of M/s. Usha Martin Ventures Ltd. vs. CIT, ITA No. 576/K/2009, order dated 30.09.2009 following the judgement of Alagendran Finance (supra) allowed the appeal of the assessee and quashed the order passed u/s. 263 in the similar situation and in a case where the ROI was processed u/s 143(1). Copy of the said order is annexed herewith and marked as Annexure: 'A'. In these grounds, the assessee has challenged the validity of revision proceedings u/s. 263. In this regard, submissions are being made hereunder - (a) The various grounds on which the ld. CIT has held the order of the A.O. to be erroneous as well as prejudicial to the interest of the revenue are discussed hereunder one by one - (i) notices u/s. 133(6) have been sent on a test check basis Our Submissi....
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....o requirement of law to examine the directors of the assessee company as well as the subscribing companies u/s 131. (v) It has become a common practice to introduce unaccounted money by way of share capital in dummy companies. The present assessee company is part of the large number of such cases in Kolkata as well as other parts of the country. Our Submissions There is no material to come to this conclusion. Ld. CIT has also not referred to any material to come to such conclusion. The averment in the order has been made on the basis of conjectures and surmises and without any material basis. (vi) Introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this, the money is transferred by way of cheques to other companies and this is done 3 to 4 times using different companies and thus rotating the money into 3 to 4 layers. Our submissions There is no material to come to this conclusion. Ld. CIT has also not referred to any material to come to such conclusion in the instant assessees case. The averment in the order has been made on the basis of conjectures and surmises and without any mat....
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.... assumed that the entries are capital receipts. It is further submitted that the case of Nova Promoters as relied on by the Ld. CIT, the case is not relating to the sec. 263 proceedings. Further, in the said case, a letter was received by the A.O. from the Director of Income Tax (Investigation) informing that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was also one. This fact was also confirmed by the said persons. However, in the instant case, the Ld. CIT did not bring any material on record to prove the share capital raised by the assessee was ingenuine. Therefore, the ratio of Nova Promoters is not applicable to the instant case. (d) It is humbly submitted before your Honours that the provision u/sec 263 deals with the revisionary powers of the CIT which are supervisory in nature. Sec 263: Revision by the Commissioner (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and afler ....
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..... Budhilal Hiralal Rana 125 Taxman 455 (Guj.) held that when there was no material brought on record to justify that there was an error or omission or failure on the part of AO so as to make an order erroneous, then the order passed by the Commissioner, invoking sec. 263 to set aside order of the AO was not valid in law. It is stated in the instant matter, there is no material brought on record by the CIT to prove how the order of the AO is erroneous in so far as it is prejudicial to the Revenue and the CIT has passed the order ulsec 263 without any base or foundation and at its own whims and caprice and therefore the same is devoid of any merit and should be dismissed in toto. D. There is a difference between 'ack of enguiry' and 'inadeguate inguiry'. (i) It is to be noted if there was inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass order u/sec 263 of the Act merely because he has a difference of opinion in the matter. It is only the cases of lack of inquiry that such a course of action would be open. In the instant case, it can be seen from the paper-book that the A.O has, in the notice issued u/s 142(1), requisitio....
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....thority which must be exercised judicially. This is a power coupled with duty and in the very nature of things; this provision for re- ssessing a finally settled assessment has to be strictly construed. (i) It is further submitted that the word 'prejudicial' should be in conjunction with erroneous order where there must be a prima facie demonstrable error of fact or law. There must be a total non-application of mind and a consequent prejudice to th revenue which is not found in present factual matrix. Here the assessee had shown every detail regarding share capital and AO had applied his mind and passed a final order. For the CIT to exercise a supervisory jurisdiction, it should be exercised in strict terms on blatant error on part of AO since AO has the ultimate authority u/s 147/148 to reopen the assessment and pass a final order. It is contended that courts have held in various rulings that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the revenue. (j) It is the AO who has primary obligation of being satisfied with the explanation offered by the assessee by applying his mind to the facts and circumstances and the CIT may n....
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.... books of accounts and the AO has himself mentioned that such books of accounts produced before him were subjected to test check by him and that the assessment is being completed on the basis of information submitted, examination of books of accounts and after discussion with the assessee's representatives. We find that the relevant details were furnished to the AO along with the assessee's reply dt. l5th Feb., 1988. In òur opinion, merely because the AO has not meticulously dealt with the issue of commission payment and genuineness of the credit entries while completing the assessment, it cannot be said that there was no application of mind by him to the facts and details before him. Mere non-mention of certain facts should not be taken as omission on the part of the AO. It is quite possible that because of subjective satisfaction the detailed discussion might not have been needed in the light of the documents and material on record. In this view of the matter we hold that the CIT was in error in exercising his revisionary powers under s. 263 of the Act and as the conditions precedent for exercising such jurisdiction did not exist. We, therefore, quash the impugned ....
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....al money was received in the instant year remains to be verified. In this regard, our respectful submissions are being made here under - (a) In the instant case, the assessee-company raised during the year the share capital of Rs. 33,20,000/- and also received Share Premium amounting to Rs. 2,98,80,000/-. In the course of the re-assessment proceedings, all the relevant details in connection with share capital alongwith the supporting documents were filed which were examinçd by the A.O. b) The Hon'ble Supreme Court in the case of Lovely Export (P,) Ltd. 216 CTR 195 held that addition on account of share capital cannot be made in the hands of the recipient company. (c) Recently, in the case of CIT vs. Peoples General Hospital Ltd. 356 ITR 65 (MP), the Hon'ble High Court held as under - "If the assessee had received subscripiion to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Act, in the absence of any positive material or evidence to indicate the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company&....
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....yee cheque has been established. We are of the view that the finding of the ld. CIT(A) is on the right footing and does not call for any interference. This view of ours also finds support from the decision of the Hon'ble Supreme Court ìn the case of CIT vs Lovely Exports (P)Ltd referred to supra." Copy of the aforesaid order of ITAT is annexed herewith and marked as Annexure:'D'. (f) It is further submitted that as per the various decided cases, it was not necessary for the A.O. to examine source of source of cash credits at the time of passing the reassessment order in the year 2010. In this regard, reliance is placed upon the following judgements- (i) Nemi Chand Kothari vs. CIT 264 ITR 254 (Gau). (ii) Jalan Timbers V. CIT 223 ITR 11 (Gau, (iii) Dy. CIT vs. Rohini Builders 256 ITR 360 (Guj.) (iv) CIT V. First Point Finance LILL 286 ITR 477 (Raj) (v) AC1T vs. Surya Kanta Dalmia 97 1TD 235 (Cal) It has been held by the various High Courts that the assessee cannot be asked to prove source of source or the origin of origin vide S. Hastimal vs. CIT 49 ITR 273 (Mad.), Tolaram Daga vs. CIT 59 IR 632 (Assam), Saraogi Credit Corporation vs. CIT 103 ITR 344 (Pat.) ....
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....caped income. The Ld. CIT cannot be heard saying that he should have made roving and fishing enquiries in respect of 100% of the share capita1 raised. In this regard. reliance is placed on the following judgements- (i) Vipiri Khanna v. CIT (2002) 255 ITR 220 (P&H), The court held that Assessing officer cannot embark upon fresh enquiries on the issue which are unconnected with the issue which were the basis of proceedings uìs 1 47. The finaiity of the return filed cannot be dísturbed even ín the proceedings u/s 147 of the Act in respect of issues on which there is no material on record suggesting any escapement of income. The court held that there is no gainsaying the fact that in proceedings u/s 1 47 of the Act, it is only the escaped income which has to be assessed or reassessed. (ii) Sun Engineering Works Pvt. Ltd. 198 ITR 297 (P & H) When proceedings u/s 147 of the Act are initiated, the proceedings are open only qua items of under assessment. The finality of assessment proceedings on other issues remains undìsturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment u/s 143(3) of the....
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....e proceedings would start afresh but the same would not mean that even when the subject- matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened. The Ld. CIT has given certain directions in the last para of his order as to how the fresh assessment is to be framed by the A.O. It has been held by the Hon'ble Gauhati High Court in the case of Bongaigaon Refineries 287 ITR 120 that the CIT in exercise of his revisional powers cannot arrogate to himself a status to surrogate the other authorities and supplant their roles under the Act. Thus, the direction given by the Ld. CIT as to how the enquiries are to be conducted in the matter of share capital is beyond the powers conferred u/s 263. In view of the above respectful submissions, the appeal of the assessee may please be allowed. " 7. Further, the ld. AR submitted that the issue of notice to the assessee's appeal could be considered into seven grounds as follows :- "1. Whether the order passed u/s 263 by the CIT is barred by limitation ? 2. Whether the order of the AO passed u/s 147 can be said to be erroneous and prejudicial to the interest of revenue ....
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....r the acknowledgement slip on 31.08.2010. There is no signature as to who has served this 148 notice. Also a perusal of the tear of acknowledgement shows that the person who has signed on behalf of the assessee company is also not mentioned. In response to 148 notice Shri Kaushik Chowdhury again as a director of the assessee company vide a letter dated 'nil' filed before the Income Tax Officer on 28th September, 2010 requested that the ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd. A.Yr.2008-09 original return filed on 30.03.2009 was liable to be treated as return in response to the notice u/s 148. Notices u/s 142(1) and 143(2) dated 04.10.2010 were issued and the same has been served by hand on 07.10.2010. The director's report and the balance sheet, P & L a/c, schedules thereto are signed by Shri Rakesh Agarwal as one of the directors and Shri Deo Kant Singh as another director. Shri Deo Kanti Singh, son of Shri Kishan Singh has signed the verification column of the return of income. One Shri J.Kumarr.Das, son of Shri Asit Bora Das as the director of the assessee company has provided the Power of Attorney to one Shri Vishal Agarwal, FCA to represent the assessee befor....
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....o 133(6) though from companies having addresses in Kolkata, the various parts of Kolkata such as Ezra Street, Princip Street, Pretoria St.,. M.G.Road, Ganesh Chandra Avenu3, even Surat, Canning Street, etc. all reply in the same language using the same words and committing the same spelling mistake and they are all responded to by hand again on the same day and filed in seariatum. But they are signed by different people. In the present case the spelling mistake identified which is identical in all the cases is in the certificate issued wherein the cheque no. is being wrongly spelt as CHAQUE instead of CHEQUE. In any case the proceedings subsequent to 263 is not the issue before the Tribunal and the issue before the Tribunal is order u/s 263. 9. Coming to each of the issues raised by the ld. AR. In respect of the first issue as to whether the order passed u/s 263 by the ld. CIT is barred by limitation. It has been argued by the ld. AR that in the reopening proceedings u/s 147 the issue of share capital was not the issue as per the reasons recorded in the order sheet. It was the submission that as the issue was totally different from the issue of reopening and the assessment order h....
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....r.w.s.147. That would be discussed in a separate part of the order. Now the assessee having drawn the attention of the AO to the share application money and share premium and the AO having issued notices u/s 133(6) on the basis of the design of the assessee obviously it would have to be construed that issue was also open before the AO in the course of the reopened assessment. Consequently if there is any error which is prejudicial to the interest of the Revenue on the issue of share application moneys and share premiums then it would be in the reopened assessment which has been rightly revised by the ld. CIT u/s 263. If this re- assessment order is taken into consideration then the order passed u/s 263 is well within the limitation. Further, a perusal of the order passed u/s 263 clearly shows that it is this reassessment order which the ld. CIT has held to be erroneous and prejudicial to the interest of the Revenue, in so far as, no investigation whatsoever have been done by the AO, much less any investigation worth its name. This is also clearly evidence from the order sheet notings in the assessment folder. In the circumstances we are of the view that the order passed u/s 263 is ....
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.... AR, being lack of proper enquiries as to the issue of share capital and premium, the action of the ld. CIT in invoking the provisions of 263 is on a right footing and does not call for any interference. Consequently issue no.2 is held as against the assessee. 15. Coming to the issue no.3, it was submitted that the issue was whether the ld. CIT was justified in holding that the order passed by the AO is erroneous on the issue of share capital/premium when no addition can be made u/s 68 of the Act in the instant case in view of the judgments of the Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also in the case of Bharat Engineering & Construction Co.Ltd. 83 ITR 187. It was the submission that as has been held in the decision of Bharat Engineering & Construction Co. Ltd. in the first year of its creation the assessee cannot have an undisclosed income. In reply the ld. DR submitted that if these were opening share capital or initial share capital it could have been held that the company could not have earned undisclosed income. It was the submission that these are share capitals/premiums issues fraudulently for converting the black money, more so in the natur....
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.....2010 by Shri Vishal Agarwal and the form has been digitally signed by Shri Kaushik Chowdhury and he has been authorised to do so by the Board Resolution No.1 dated 05.08.2010. The receipt for the fees for the increase in the authorised share capital is paid on 24.08.2010. However, the share capital has been increased and share applications called for have been made at a premium on 4.3.2008. Now this itself should have drawn the attention of the AO. The issue of section 68 would clearly apply in the present case, in so far as, the proviso which has been added w.e.f. 01.04.2013 specifically provides for verification of the source of the source especially in respect of share application money, share capital, share premium or any such amount, by whatever name called. The AO having not conducted the enquiry to its logical end and having been carried away by the design of the assessee, we are of the view that the ld. CIT was right in invoking the provision of section 263. Here we may specifically mention that proviso to section 68 has been introduced after the decision of the Hon'ble Supreme Court in the case of Lovely Exports and consequently as the proviso is now applicable the AO....
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....e to the same assessment year. In the order passed u/s 263 the ld. CIT has not in any case extended his jurisdiction u/s 263 to any other assessment year. There is no direction in the order of the ld.CIT directing the AO to consider anything for any other assessment year. The direction of the ld. CIT is specific. Now it is for the assessee to show as to which year the issues raised by the ld. CIT would relate to. It is only in the knowledge of the assessee as to what the assessee has done in his books. What has happened in the assessee's books cannot be within the knowledge of the ld. CIT. In the circumstances as it is noticed that the ld. CIT has invoked revisionary powers for the relevant assessment year and has not given any direction in respect of any subsequent assessment year, we are of the view that this issue as raised by the assessee does not have legs to stand on. Consequently issue no.4 stands rejected. 19. Coming to the issue no.5 as to whether order passed by the AO can be said to be erroneous and prejudicial to the interest of the revenue when the AO has passed the order after inquiry or investigation on the issue of share capital. Clearly this issue is contradic....
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....emium which has been decided in the case of Bisakha Sales Pvt. Ltd. vs CIT, Kol-II, Kolkata vide ITA No.1493/Kol/2013 dated 19.09.2014 needs to be re-visited, in so far as the share premium cannot be treated as income of the assessee. Respecting the sentiments and the fears expressed by the ld. AR we have revisited the decision of the Co-ordinate Bench of this Tribunal in the case of Bisakha Sales Pvt. Ltd. Here it is specifically clarified that in none of the cases relateing to the 263 orders in respect of the share application/ premium cases including the decision in the case of Bisakha Sales Pvt. Ltd. has the Tribunal given any finding as to what is to be assessed and what is not to be assessed in respect of 263 orders passed by the ld. CITs in these groups of cases all that the Tribunal has done is to give its finding whether the order of the ld. CITs passed order u/s 263 are sustainable on the facts of the cases or not. The discussions in the orders of the Tribunal are only the justifications and the reasoning for upholding the orders passed u/s 263 by the ld. CIT on the facts of the cases. Thus it is noticed that the fear expressed by the ld. AR that the share premium would b....