AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 694
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..../s. 263 of the Act has been exercised by the Hon'ble CIT merely on the ground of doubt that the AO has not properly applied his mind. Merely because the opinion of the Hon'ble CIT is different from that of the AD this section cannot be resorted to. 4. That having regard to the facts and circumstances of the case the Hon'ble CIT has failed to examine the record and to derive requisite satisfaction about existence of both the preconditions the order of the AO is erroneous as well as prejudicial to the interest of revenue . 5. That having regard to the facts and circumstances of the case the Hon'ble CIT has not given any cognizance that the provisions for revision a finally settled assessment have to be strictly construed. The matters which have been determined cannot be allowed to be tinkered with on lighter grounds. 6. That having regard to the facts and circumstances of the case the Hon'ble CIT is not justified in holding that the 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. 7. That having regard ....
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....receivable during the year 2008-09. However, in the letter in response to the said notice u/s 148 of the Act the assessee did not disclose the said Rs. 50,500/- as its income. 5. Thereafter AO proceeded to issue notice u/s 142(1). In the said notice u/s 142(1) dated 25.02.2011 AO asked the assessee to provide the following information :- "1. Nature of business, the goods/materials in which dealt in along with complete addresses of all establishments with telephone numbers. 2. Residential address with telephone numbers of all the directors with proof of address, PAN of the Directors. 3. List of Share holders with their share holdings along with copy of Form No.2 filed before the Registrar of Companies for the year ended 31.3.2009. 4. Details of Contractual Fees. 5. Details of Preliminary expenses W/O. 6. Details of enhancement of share capital & share premium during the F.Y. 2008-09. Please submit the name, complete postal address, PAN of the persons who have subscribed to share capital & share premium. 7. Details of investments. 8. Evidence in support of filing Fees. 9. Computation of income for the previous year 2008-09 relevant for the A.Y.2009-10 10. All the Bank stat....
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....tion is ITO WD 1(4) 3. We are enclosing herewith Xerox copy of Audited Balance Sheet, IT Acknowledgement of Return for the Assessment Year 2009-10 4. We have applied for 20,000 shares @Rs.10/- each face value and premium of Rs. 490/- per shares. 5.We have paid Rs. 1,01,00,000/-. 6. Mode of payment given below : Date Cheque No. Drawn on Amount 07/08/2008 073482 Development Credit Bank 50,00,000/- 07/08/2008 073483 Development Credit Bank 51,00,000/- 7. We have allotted 20,200 shares on 31.03.2009. 8. We are enclosing herewith Xerox copy of Bank Statement. 9. Sources of investment given below : Date Name of Company Amount 07/08/2008 Enfield Advisory Pvt.Ltd. 1,01,00,000/- We hope that the above statement is sufficient for your scrutiny proceedings, further you need any clarification, we shall submit within due date. Thanking you Yours faithfully Sd/- TANISH TRUCK TERMINAL PVT. LTD. Sd/- Manish Dalmiya (DIRECTOR)" 8. Thereafter from the order sheet entries and the assessment records it transpires that AO did not take any action. In the assessment order AO observed as under :- "It is seen from the copy of Form-2 filed that during the relevant period under assessmen....
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....as stated that A.O. had conducted proper inquiry regarding the identity and creditworthiness of the shareholders. It was also stated that confirmation letters along with PAN, copy of bank statement & Balance sheet of the subscribing companies had been filed before the AO. It was requested that in view of these facts, the proceedings u/s 263 should be dropped. 10.1. Considering the above the ld. CIT observed and held as under :- "The notices u/s 133(6) have been sent on a test check basis. On perusal of the replies, it is seen that the bank statements of the subscribing companies is for a very limited period and not for the whole year. Analysis of this statement does not throw any light whatsoever on the source of the funds of the subscriber companies. The AO should have called for the bank statement of the full financial year for proper analysis & verification. Further, the replies were just placed on record and no independent inquiries were carried out regarding the fact whether the subscribing companies were available at the given address, whether they had the financial capability to invest such substantial amounts and whether they were genuine corporate entities. The AO did no....
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.... income or claimed some deduction wrongly and the AO is requested to issue notice u/s 148. Thereafter, in the proceedings u/s 148, inquiries are carried out in a routine and superficial matter. Confirmations & other documents regarding the share capital are filed which are placed on record. Thereafter, order us/ 147/143(3) is passed adding back the amount offered by the assessee supposedly left out by mistake. It is needless to say that no independent inquiries are carried out regarding the share capital. The company is then passed on to the final purchaser after charging a percentage of the capital in the company. This modus operandi has been confirmed in many search operations carried out by the investigation Wing on entry operators & others over the past few years. Thus it is seen that unacounted money is laundered as clean share capital by creating a façade of paper work, routine the money through several bank accounts and getting it the seal of stautory approval by getting the case reopened u/s 147 suo moto. The Apex Court in the case of Sumati Dayal vs CIT [214 ITR 801] held that the true nature of a transaction has to be ascertained in the light of surrounding circums....
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....s to their logical end has made the order erroneous and prejudicial to the interest of revenue. The order is, therefore, set aside and the AO is directed to carry out through & detailed enquiries in the case. He should carry out inquiries about the various layers through which the share capital has been rotated. The AO is also directed to summon the present & past Directors of the assessee company and the subscriber companies and examine them. The AO should also examine as to when this company was sold. At that point of time the fictitious assets such as shares in other companies or loans given to other companies is converted back into cash by credit in the assessee company's bank account. The source of this money also needs to be examined. Further, information should be sent to the AOs of the subscriber companies and to the other companies through which the capital has been rotated regarding the findings of the AO. Subsequent to the inquiries & verification of all relevant aspects of the case, the AO should pass a speaking order after providing adequate opportunity to the assessee." Against the above order of the ld. CIT the assessee is in appeal before us. 11. The assessee has ....
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.... Court in the case of DIT vs Jyoti Foundaiton 357 ITR 388 (Del). The ld. Counsel of the assessee further placed reliance on the decision of Hon'ble Apex Court in the case of CIT vs Lovely Exports Pvt. Ltd. 319 ITR (St.)5 (SC). It was further submitted that to nullify the effect of the above decision, the law was amended by insertion of a proviso to Section 68 with effect from assessment year 2013-14 to provide that all closely held Companies have to satisfy the A.O. by giving an explanation regarding the source of funds in the hands of the subscribers. Regarding the justification of Share Premium Section 56(2)(viib) was also inserted with effect from assessment year 2013-14 to put an onus on the Companies to justify the premium received. That prior to Assessment Year 2013-14, the premium was a matter of agreement and mutual understanding between the Companies and the subscribers in case of closely held companies. In this regard the ld. Counsel of the assessee placed reliance on the decision of the Hon'ble Apex Court in the case of CIT vs Standard Vaccum Oil Co. 59 ITR 685 (SC). The assessee has further placed reliance on the following decisions :- 1) Hon'ble Apex Court in the case....
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....ation of other laws by the assessee is not at all relevant here. The ld. DR submitted that section 263 of the Act is meant to find whether the AO has passed an order which is erroneous and prejudicial to the interest of the revenue. The ld. DR submitted that it was a matter which certainly require detailed enquiry as to how Rs. 10/- share would command a share premium of Rs. 490/- for a company which is not engaging into any activity and was incorporated very recently. The ld. DR claimed that ld. CIT has noted that there was no enquiry whatsoever in this regard. The ld. DR further recapitulated the occurrence of the events in this case. He submitted that the reassessment was opened upon assessee's letter informing escapement of income. He referred to the consequent notice u/s 148 of the Act, assessee's reply, issuance of notice u/s 133(6) of the Act by the AO and completion of assessment order dated 18.03.2011. He submitted that all this was done in an undue hurry on the part of the AO to complete the assessment whereby the issue of shares at a huge premium was said to be enquired and closed. The ld.DR further submitted that out of 21 share holders AO had issued notice to six share....
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....ommissioner received the records prior to the issuance of the show cause notice and opined that the Assessing Officer failed to apply his mind objectively and failed to conduct an inquiry over the subscription of the shares to various subscribers at a high premium. Section 263 of the Act never envisages the separate recording of the satisfaction before issuance of the show cause notice but if it is clearly discernible from the facts narrated in the show cause notice that the order of the Assessing officer appears to be erroneous and a prejudice is caused to the revenue, it would render the said show cause notice legal and valid. The Commissioner has indicated the same sufficiently in the show cause notice and afforded the opportunity to the petitioner to file reply thereto which, in fact, have been done,. Whether the order can sustain on legal parameters or not, can be tested by a Higher Authority who have been bestowed with the power of appeal. Section 253 of the Act provides a remedy of appeal against an order passed under section 263 of the Act by the Commissioner and, therefore, such remedy is required to be resorted by the petitioner." 13.1. We further find that the above ju....
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....e of share capital with huge share premium. Now in the notice u/s 142(1) of the Act dated 25.12.2011 the assessee asked the assessee to provide some information and this included share capital and share premium. In response to this notice the assessee submitted the details again by undated letter. Despite receiving information about the name of person from whom assessee has allegedly received unaccounted contractual income AO chose to remain silent on this issue. He goes on to issue notice to share applicants/holders. Out of 21 shareholders the AO issued notices u/s 133(6) of the Act to 9 of the shareholders on 7.3.2011. There is no reference as to how these notices were served. However, tear of acknowledgment slip is there which suggests service by hand. In response to this notice all the replies received were undated. However, as per the receipt by the income tax office mentioned therein the same were received between 11th March to 16th March. After the issuance of notice u/s 133(6) on 7.3.2011 the AO on 14.03.2011 in the order sheet notes that Shri Mahesh Sharma appeared and matter pertaining to payment of ROC fee and section 35D were discussed. On 17.03.2011. AO records that Sh....
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....rder that replies are verified. It is very clear that leave alone the question of enquiry the entire episode was designed to create a facade of scrutiny assessments justifying the receipt of share premium and share capital. 13.7. From the above discussion it is amply clear that there was no enquiry by the AO and hence the ld. CIT was justified in taking action u/s 263 of the Act. Furthermore the above is also to be viewed in the light of the background of this case as referred by the ld. CIT in his order. The ld. CIT has referred to the common practice being followed particularly in Kolkata where through the entries of share capital and share premium in dummy companies a very large amount is sought to be introduced and laundered by way of these companies.. In these circumstances the issue of share capital and share premium needed an enquiry in the proper sense of the word and not a facade of enquiry. 13.8. In this regard we may also refer to the following observations in 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 "On a specific query from the Bench as to what has l....