AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 174
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...., Advocates, Shri Rajesh Kumar Duggar, FCA & Shri A.K. Upadhyay, Advocate For the Respondent : S/Shri Sachchidanand Srivastava, Niraj Kumar & Dr. Adhir Kumar Bar, CITs, DRs ORDER PER R.S. SYAL, AM: Through this batch of appeals, different assesses assail the correctness of separate orders passed by the Commissioners of Income tax (CIT) u/s 263 of the Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment years 2008-09 and 2009-10. Since all these appeals are based on largely similar facts and common grounds of appeal, we are proceeding to dispose them off by this consolidated order for the sake of convenience. 2. Succinctly, the facts of M/s Subhlakshmi Vanijya Pvt. Ltd. are that this assessee filed its return on 2.2.2010 declaring total income of Rs. 1,478/-. The return was processed u/s 143(1) of the Act. The assessee, vide its undated letter submitted on 31.12.2010, stated before the Assessing Officer (AO) that income of Rs. 18,449/- earned by it was omitted to be offered for taxation. The AO issued notice u/s 148 of the Act on 14.1.2011 and completed the assessment. Apart from making addition of Rs. 18,449/-, which was brought to t....
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....ion by the AO, which he failed to carry out, the ld. CIT, after considering the objections of the assessee, came to hold that the assessment order was rendered erroneous and prejudicial to the interest of the Revenue. He, therefore, set aside the assessment order with a direction to the AO for making a fresh assessment after conducting independent, detailed and complete enquiries into the subscription to the share capital and premium introduced in this case and also the investments of Rs. 8.80 crore allegedly made by the assessee in certain other such companies. The assessee is aggrieved against the impugned order. 4. There is another case, namely, M/s Ramshila Enterprises Pvt. Ltd., which has been argued before us for four days at a stretch. We have a quick look at its facts. This assessee filed its return declaring total income at Rs. Nil. The return was processed u/s 143(1). The case was reopened by means of notice u/s 148. During the course of assessment proceedings, it was noticed by the AO that this company had issued shares with face value of Rs. 10 at a premium of Rs. 190. Notices u/s 133(6) were issued to some of the subscribers. Replies were received. No further inquir....
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.... Company 'A' is incorporated on papers, which does not carry out any substantial business activity. Suppose, this company issues ten shares to another dummy company, say X with face value of Rs. 1/- at a premium of Rs. 49, raising its share capital to Rs. 500/-. The sum of Rs. 500/- standing on the liability side of the balance sheet of company A is equalized with Investment in shares of Company 'B', which is again a paper company, at a much higher price than its real worth. Company 'B', in turn, gets Rs. 500/- and invests the same in the shares of another dummy private limited company 'C', again at a huge undeserving market price. This process goes on as the same amount of Rs. 500 is rotated through various dummy companies eventually showing their capital and share premium at Rs. 500/- represented by investment in shares of other dummy companies by equal amount of Rs. 500/- subject to the deduction of certain expenses incurred or some petty income earned. In the second level, a person, say Mr. Y, intending to convert his black money into white enters into a deal with company X, who is shareholder of company 'A'. Company X sells its shares of Company A with the purchase price of Rs....
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....ssee has also made investment in the shares of other paper companies at huge price, not in conformity with its market worth, and such companies are not carrying on any worthwhile business activity. 8. The ld. DR explained that there are hundreds of appeals on this issue before the Kolkata benches of the tribunal in all of which returns were filed by such companies with meager income; intimations were issued u/s 143(1); thereafter notices u/s 148 were issued either at the instance of such companies divulging a paltry escapement of income or otherwise ; assessment orders were passed u/s 143(3) read with section 147 after making nominal additions and the AOs, during the course of such assessment proceedings, made some formal enquiries about shares issued by such companies at huge premium by issuing notices u/s 133(6) to some of the shareholders and getting satisfied without any further investigation. The jurisdictional CITs have passed orders u/s 263 in all such cases, which have been assailed before the Tribunal. 9. We have heard Shri N.K. Poddar, Sr. Advocate, Sh. Rajesh Bagree, Shri K.M. Roy, Shri R.K. Aggarwal, Shri Rajesh Kumar Duggar, C.A.s, Smt. A.K. Tibrewal, Shri Amit A....
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....reholders, such as their PANs, investment through banking channel etc., the AO kept such replies on record without considering it appropriate to personally examine the directors of the shareholder companies or finding out the source of investment by such shareholders in the light of the fact that the shares with face value of Rs. 10 of the assessee, a relatively new private company not having any substantial source of income, were claimed to have been issued at a huge premium of Rs. 490 per share. 12. Similar is the position about other appeals in this batch. The ld. CITs in the impugned orders have noticed that these cases form part of large number of cases in which share capital is shown to have been introduced by rotating the unaccounted money through various companies or entities. Such introduction of share capital was shown in large number of cases on the basis of dummy companies, which were created solely for the purpose of building up share capital. He further noticed the modus operandi of introduction of such bogus share capital with unaccounted cash getting deposited in the accounts of different persons/companies and cheques going from these accounts to various other co....
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....d either to examine the genuineness of share capital with premium in the hands of the company or to tax the excess share premium. It was stated that once the question of issue of shares cannot be examined in the hands of the assessee company, there can be no rationale in the ld. CIT directing the AO to examine the genuineness of share capital in proceedings pursuant to section 263. The ld. DR opposed this contention tooth and nail. 13.b. In order to appreciate the rival contentions in this regard, let us have a look at the prescription of section 68, the relevant part of which provides that : ` Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.'. This section has received the attention of the Hon'ble Supreme Court and almost all the High Courts in numerous cases. It has been almost unanimously held that the burden under this section is discharged by the assessee only ....
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....regarded as undisclosed income of the assessee. 13.d. It is a well settled legal position that every case depends on its own facts. Even a slightest change in the factual scenario alters the entire conspectus of the matter and makes one case distinguishable from another. The crux of the matter is that the ratio of any judgment cannot be seen divorced from its facts. 13.e. At this stage, it is relevant to mention that the Hon'ble jurisdictional High Court has recently in the case of CIT Vs. Maithan International (2015) 277 CTR 65 (Cal) dealt with Lovely Exports and also reproduced the relevant part of the Lovely Exports in para 25 of its judgment, reading as under : - "This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee wh....
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....where a concession is made and court simply decides the issue on the basis of such concession without going into its legality, it can be said that the judgment is in personam and not in rem. But, where, despite the concession, the court thoroughly analyses the factual and legal provision prevailing in that case and, after making an elaborate examination, draws a conclusion, then it cannot be said that the decision is based on a mere concession. In such circumstances, the ratio of the judgment applies with full force to all the parties. This contention of the ld. AR, ergo, fails. 13.i. The Hon'ble Delhi High Court in Nova Promoters (supra), while discussing the factual matrix in the case of Lovely Exports (supra) noticed that the reasoning of accepting the genuineness of share capital, even if the shareholders are bogus, must apply a fortiori to large-scale subscriptions to the shares of a public company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. The Hon'ble High Court further observed that: "It may not apply in circumstances where the shares are allotted directl....
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....13.n. We consider it our duty to mention that the ld. AR has also referred to certain judgments rendered by the Hon'ble Calcutta High Court in which the ratio of Lovely Exports (supra) has been followed and additions deleted. 13.o. Under such circumstances the question arises that if on one point there are conflicting judgments of one High Court, then which of the conflicting views should be followed. It can be noticed that judgment in Maithan International(supra) is latest in the point of time having been rendered on 21.1.2015 by two Hon'ble judges. None of the contrary judgments has been rendered by a Bench of more than two judges and such judgments are older in point of time vis-à-vis Maithan International (supra). In our considered opinion the question of the applicability of which of the contrary decisions by one High Court has been fairly settled in several cases including the judgment in Bhika Ram & Ors. Vs. Union of India (1999) 238 ITR 113 (Del) wherein it has been held that a later judgment of the same strength of judges is binding. It is relevant to mention that the counsel in that case argued that the earlier judgment of the Hon'ble Supreme Court on the point ....
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....ital as well. There is an elaborate discussion on this issue starting from para 24. Their Lordships have not only considered the judgment in the case of Lovely Exports(supra), but also several other judgments including Nova Promoters (supra), Stellar Investment, Sofia Finance, Nipun Builders and Developers, (2013) 350 ITR 407 (Del) etc., all of which deal with the applicability of section 68 in respect of share capital. In view of such a threadbare analysis of the issue coupled with the fact that unsecured loans and share capital have been kept by the Hon'ble High Court on the same pedestal for the purposes of section 68, it is difficult for us to accept the contention that the entire discussion concerning the attractability of section 68 on share capital/premium in the case of a closely held companies is obiter dicta and hence be ignored. 13.s. Be that as it may, even obiter of the jurisdictional High Court cannot be held as non-binding. The Hon'ble Bombay High Court in Tata Iron and Steel Company Ltd. Vs. D.V. Bapat, ITO (1975) 101 ITR 292 (Del), has held that obiter dicta of Supreme Court is binding on all High Courts. When the obiter dicta of Supreme Court is binding on all ....
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.... the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10'. 13.w. As per this proviso where any share capital etc. is credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the AO. The essence of this amendment is that a closely held company is required to satisfy the AO about the share capital etc. issued by it, in the absence of which, an addition u/s 68 can be made in the hands of the company. If we accept the amendment to be prospective, then it would mean precluding the AO from examining the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition u/s 68 notwithstanding the same being non-genuine. In the oppugna....
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....g the provision of the Finance Bill etc. 13.y. The facts of CIT Vs. Gold Coin Health Food (P.) Ltd. (2008) 304 ITR 308 (SC) are that the Finance Act, 2002 amended Explanation 4 to section 271(1)(c) with effect from 01.04.2003 providing that the penalty would be imposed even if the returned income is loss. In the case of Virtual Soft Systems Ltd. Vs. CIT (2007) 289 ITR 83 (SC) (a Bench comprising of two Hon'ble Judges) it was held that prior to the amendment with effect from 1st April, 2003 penalty for concealment of income could not be levied in the absence of any positive income. Doubt was expressed over the correctness of this view by a subsequent Bench. Thereafter in the case of Gold Coin Health Food P. Ltd. (supra), a bench of three Hon'ble Judges overruled the judgment in the case of Virtual Soft Systems Ltd. (supra) by holding that Explanation 4 to section 271(1)(c)(iii) regarding the imposition of penalty, even if there is a loss, is clarificatory and not substantive. It was held to be applying even to the assessment years prior to 1st April, 2003, being the date from which it was brought into force. Thus, it can be easily noticed that the retrospective effect to the amen....
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....trospective. If on the other hand, if the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. Like the case of Gold Coin Health Food P. Ltd. (supra) in which the Hon'ble Supreme Court held that the amendment to Explanation 4 to section 271(1)(c)(iii) simply clarified the position which was existing since inception of the provision that the penalty is leviable on concealment irrespective of the fact whether ultimately assessed income is positive or negative. Similarly in the case of Kanji Shivji And Co. (supra), the Hon'ble Apex Court held that the purpose of Explanation 2 to section 40(b) was simply to clarify that the Income-tax Act recognizes individual statues of a person as different from his representative capacity. This Explanation did not bring in a new provision but clarified that the position was so since the introduction of the provision itself. In this class of clarificatory or explanatory amendments to the sub....
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....ansaction of issue of share capital by a closely held company in the same way as is in the case of transaction of loans. 13.ac. At this juncture, it would be relevant to note the relevant part of the Memorandum explaining the provisions of the Finance Bill, 2012, which is as under : - "Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either (i) does not offer any explanation about nature and source of money ; or (ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer, then, such amount can be taxed as income of the assessee. The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while reco....
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....re premium, etc...'. Next para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. An analysis of the above discussed judgments, including four from the Hon'ble jurisdictional High Court, reveals that section 68 has been understood as casting obligation on the closely held companies to explain the amount of share capital etc. credited in its books of account. When we read the Memorandum explaining the provisions of the Finance Bill, it become....
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...., not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:" shall be considered as income from other sources. 13.ag. This provision mandates that where a closely held company receives any consideration for issue of shares in any previous year from any resident and the consideration received for issue of shares exceeds the face value of such shares, then the aggregate consideration received for such shares, as exceeds the fair market value of the shares, shall be chargeable to income-tax under the head "Income from other sources". A bare perusal of this provision makes it explicit that a new obligation has been put on the closely held companies which issue shares for a consideration greater than the fair market value of its shares. When the shares are so issued at a higher price, then such excess becomes income from other sources in the hands of the company. This amendment is obviously prospective as the position of law be....
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....ing the provisions that proving the genuineness of share capital etc. by a company has always been considered a necessary requirement to escape the magnetization of section 68. The amendment has simply made express which was earlier implied. We, therefore, hold that though amendment to section 56(2)(viib) is prospective, but to section 68 is prospective. If that is the position, then the assessee is always obliged to prove the receipt of share capital with premium etc. to the satisfaction of the AO, failure of which calls for addition u/s 68. 13.ai. The ld. AR relied on the judgment of the Hon'ble Bombay High Court in Vodafone India Services Pvt. Ltd. Vs. Addl. CIT (2014) 368 ITR 1 (Bom) to contend that share premium can under no circumstances be construed as a revenue receipt chargeable to tax. He submitted that the ld. CIT was not justified in revising the assessment order requiring the AO to examine the receipt of share capital/premium from the angle of taxability. It was argued that the share premium can be charged to tax only in the circumstances given in section 56(2)(viib) and that too from the assessment year 2013-14. 13.aj. We are in full agreement with the ld. AR th....
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.... from some of the subscribers, who submitted the necessary details. The ld. AR contended that the AO, on examination of such material, got satisfied with the genuineness of transactions along with identity and capacity of the shareholders. In such circumstances, it could not be said that the AO did not properly apply his mind. It was stated that the way in which assessment should be finalized falls in the exclusive domain of the AO. Relying on section 142(1) and 143(2) of the Act, the ld. AR stated that it is within the province of the AO to decide that which points he wants to take up for enquiry and to what extent and, as such, the CIT cannot interfere with the same. It was contended that once an enquiry is conducted by the AO, even if inadequate, that precludes the CIT from taking recourse to revision u/s 263. He argued that at worst, it may be a case of an inadequate enquiry but cannot be branded as lack of enquiry. He took us through certain decisions for canvassing a view that revision u/s 263 is possible only in case of lack of enquiry and not inadequate enquiry. It was also argued that the order of the CIT is based on suspicion and surmises and has no legal legs to stand on....
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....the rationale or logic behind issuing shares at such a high premium, nor to examine any of the directors of the companies which were subscribers to share capital. No attempt was made to require the assessee to justify the charging of such a high premium and further what prompted the subscribers to purchase shares at such a huge premium when the company did not have any worthwhile net worth and was relatively a new one without any business activity. Appeal of Ramshila Enterprises Pvt. Ltd. has been heard by us as a representative case on merits and it is the common submission of the other assesses that facts and circumstances are similar. Now let us see the so-called enquiry conducted by the AO in the case of Ramshila Enterprises, which has two directors, namely Sh. Sham Lal Khaitan and Sh. Ankit Kumar Khaitan. In all it has 51 shareholders, out of which the AO called for the particulars only from ten companies to whom shares with face value of Rs. 10 were issued at Rs. 190 each. Out of such ten companies, there are eight companies [Gururkul Dealers (P) Ltd., Rich Valley Traders (P) Ltd., Fetish Traders (P) Ltd., Tanya Enclave (P) Ltd., Dolphin Tie-up (P) Ltd., Gajanan Dealers (P) L....
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....the apparent did not prima facie appear to be real and further investigation was called for. It is highly improbable for any person having sound mind to purchase at arm's length the shares of a private limited company, hardly having any worth, with face value of Rs. 10 at a premium of Rs. 190. This mere fact should have been cornerstone for the AO to embark upon further enquiry to unearth the truth. The genuineness of transactions of issue of share at such hefty premium in this background of the matter was under dark cloud and it skipped the attention of the AO. The contention of the assessee that the capacity of the share subscribers was proved as they subscribed to shares through banking channels after offloading their investments in shares of other companies, needs to be weighed properly in the background of the transactions in the instant cases. In so far as the establishment of genuineness of payment made through banking channels is concerned, we need not go anywhere else except looking at the judgment of the Hon'ble jurisdictional High Court in CIT Vs. Precision Finance P. Ltd. (1994) 208 ITR 465 (Cal), in which it has been held that : `Mere payment by account payee cheque is....
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....oceedings u/s 263. It has been demonstrated that five of the shareholders of this company, namely, RBM Finance Pvt. Ltd., D. D. Deposits And Advances Pvt. Ltd., Monalisa Goods Pvt. Ltd., Improve Investment Management Pvt. Ltd and Shankar Credits Pvt. Ltd. have also been subjected to revision u/s 263 on the same score. It has further been shown that six companies (Guru Amardas Hire Purchase Pvt. Ltd., JNJ Finance Co. P. Ltd., Paltani Investemnt & Finance Co. Ltd., RMB Finance Co. Ltd., Adonis Nirman Pvt. Ltd. and Sudarshan Goods Pvt. Ltd.) whose shares have been purchased by Marigold Nirman Private Limited have also been subjected to revisions u/s 263 in similar circumstances. A close scrutiny of the names of the shareholders and investee companies in respect of the above discussed three companies, whose details have been filed by the ld. AR, divulges that the names of companies are rotating from being a shareholder in one company to Investee company in other. To cite example, RBM Finance Pvt. Ltd., which is shareholder in Aradhana Plaza Pvt. Ltd. is investee company in Kasturi Home Pvt. Ltd and Marigold Nirman Pvt. Ltd. Similarly, Paltani Investment & Finance Co. Pvt. Ltd. who is s....
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....ue price of shares with premium. What is required to be shown is the break-up value of shares de hors the issue of any shares at premium. Since none of these companies has any other business activity except circulation of money from one company to another and by subscribing to or purchasing shares of other companies at premium/market price, there can be no justification of such a huge premium. We see no force in this contention of the ld. AR. 17.h. When we see the entire conspectus of the facts of the companies before us, there remains no doubt whatsoever that in the given circumstances, the AO conducted half-baked enquiry ignoring vital aspects which were required to be examined. If a company recently incorporated without carrying out any worthwhile business activity issues shares with face value of Rs. 10/- at a premium of Rs. 190/-, the immediate concern of the AO ought to have been to find out as to whether the receipt of such a premium was justified and whether the parameters of section 68 stood complied with. In the instant case, the AO merely issued notices u/s 133(6) to some of the shareholders whose replies, indicating that they overtly purchased the shares at Rs. 200/-....
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....ons 142(1) and 143(2), the ld. AR submitted that it is the AO who has to conduct an inquiry in the way he feels like. It was further stated that it cannot be expected of the AO to examine each and every detail concerning the return of income. When the legislature has empowered the AO to conduct the inquiry on the points which the AO may require, the ld. AR argued, that the ld. CIT cannot be allowed to interfere by imposing his opinion upon the AO. 18.b. Section 142(1) unequivocally provides that for the purposes of making an assessment under this Act, the AO may serve a notice on any person who has made a return requiring him to produce or cause to be produced such accounts and documents as he may require or: "to furnish in writing and verified in the prescribed manner information in such format and on such points or matters (including a statement of all assets and liabilities of the assessee whether included in the accounts or not) as the AO may require." Language of section 143(2) also gives discretion to the AO to serve on the assessee a notice specifying particulars of claim of loss, exemption, deduction, allowance or relief and require him, `where he has reason to believe t....
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....ed by the AO empowers the CIT to revise the assessment order? 19.a. Now we take up the argument of the ld. AR that since the AO conducted enquiry, which might not have been adequate in the opinion of the ld. CIT, there can be no revision because the power u/s 263 can be invoked only in cases of lack of inquiry and not conducting inadequate inquiry. We partly agree with the contention that where an enquiry is conducted by the AO and he gets satisfied with the genuineness of the transaction, then the CIT cannot intervene through revision for coming to a conclusion that the assessment order passed by the AO was erroneous and prejudicial to the interests of the Revenue. The crux of the matter is that the AO should conduct enquiry to satisfy himself about the genuineness of transactions. Scope of the term `enquiry' can be diverse in different circumstances. There cannot be straitjacket formula to positively conclude as to conducting or non-conducting of `enquiry' by the AO. While, in some cases, collection of necessary material by the AO may lead to an inference about conducting `enquiry', in others, mere obtaining and placing the documents on record may not be equalized with conduct....
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.... of credit worthiness of the parties. The CIT opined that the AO was required to make proper investigation to determine whether the loans were really made by the third parties or they had come out of the sources of the assessee himself. The Tribunal set aside the order u/s 263 of the Act by observing that the AO did conduct enquiry and: "if there is an enquiry, even inadequate, that would not by itself give occasion to the ld. CIT to pass order u/s 263 of the Act." Setting aside the order passed by the Tribunal, the Hon'ble jurisdictional High Court has laid down that : "CIT had reasons to hold that credit worthiness of the alleged lenders was not enquired into." It further went on to hold that a mere examination of the bank passbook, Profit & loss account and Balance sheet is not enough. When the requisite enquiry was not made, the Hon'ble High Court held that, the order was to be considered as erroneous and prejudicial to the interests of the Revenue. It also set aside the view of the Tribunal on inadequate enquiry by holding that: "If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind." It further....
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....nclusion that the shareholders were not genuine. 20.b. We are unable to accept the contention of the ld. AR. It can be seen from the facts recorded in the impugned orders that it has been properly brought out that the assessee company along with hundreds of such other companies were paper companies floated by certain operators with the aim of helping in converting unaccounted money into accounted money. We have also noted above that there several hundred appeals pending before the Tribunal in all of which the same modus operandi has been adopted by issuing shares at huge premium with no substantial business activity and, thereafter, investing the receipt of such share capital with premium in other paper companies again at huge premium and such latter companies being also not undertaking any worthwhile business activity. The further fact that shareholders of one company are investee in other companies so on and so forth also casts great doubt over the genuineness of the transactions. One case cannot be seen in isolation in view of the totality of facts and circumstances as is prevailing in such cases. It is wholly incorrect to say that the action of the ld. CIT, when the web of f....
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....n was put forth by the ld. AR that if the view point of the Department was presumed to be correct for a moment that it was a case of circular transactions, meaning thereby, that one amount of money has passed through several companies, then the addition, if any, can be made only the hands of first company and not the others, through whom the money came into rotation. It was argued that the ld. CIT was not justified in this backdrop of facts in directing the AOs of all the companies to investigate the genuineness of credit in all the companies. 20.e. This argument, though looks attractive at the first flush, but does not stand scrutiny in depth. In all these cases under consideration, the issue is about the genuineness of share capital credited in the books of accounts of such companies. Section 68 unequivocally provides that : `Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that prev....
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.... on that aspect. But where, the AO fails to conduct enquiry, the obligation of the CIT ends with showing that such and such issues required proper investigation at the end of the AO, which he failed to do. In such cases, the assessment order is set aside with the direction to the AO for looking into the matter afresh and then deciding the issue properly. There can be no way for the CIT to tell erroneous approach of the AO on merits in such circumstances because the view of the AO on merits is not available. Requiring the CIT to indicate where the AO went wrong on merits in the cases of no enquiry cases, is like requiring an impossible thing to be done. It is axiomatic that the law does not require an impossible to be complied with. We are reminded of the legal maxim, `Lex neminem cogit ad vana seu impossiblia', which means that the law compels no one to do impossible things. When we approach the facts of the cases under consideration, it is obvious that the extent of enquiry conducted by the AO, being as good as no enquiry, is sufficient in itself to empower the CIT for invoking his jurisdiction u/s 263. Under such circumstances, we cannot cast an impossible burden on the CIT to sh....
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.... to invoke section 263. Repelling this contention, the Hon'ble High Court has held in Maithan International (supra) that : `The judgment in the case of J. L. Morrison does not assist the assessee because in that case the question was whether the receipt was a revenue receipt or a capital receipt. The Assessing Officer treated the receipt as a capital receipt which the Division Bench found was a possible view. Unlike in the present case, no factual enquiry was necessary in that case.' When we examine the facts under consideration, it is obvious that we are dealing with a case in which no meaningful enquiry was conducted by the AO in finalizing the assessment u/s 143(3) read with section 147 and we have before us the order passed by the CIT u/s 263 directing the AO to make proper enquiry qua the issue of share capital on highly unreasonable premium. Once the proceedings are thrown open before the AO, the assessee will have full liberty to argue his case on merits. The assessment orders in the instant cases have become erroneous and prejudicial to the interest of the revenue on the very threshold of not making a proper examination of the issue of share capital at huge premium by the A....
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....essments of the company and the firm on that basis apparently without ascertaining the truth of the facts. Thereafter, revision was done by the CIT and the matter went before the Hon'ble Delhi High Court. The assessee contended that the ITO had made the enquiries and was satisfied about the truth of the facts and hence revision was not maintainable. Repelling the contention advanced on behalf of the assessee, it was held that the: "CIT was justified in exercising his revisional jurisdiction on the ground that the ITO had not made sufficient enquiries before granting registration to the firm and it was not necessary for the CIT to have himself made enquiries before cancelling assessment." In our considered opinion, this judgment is an answer to the contention put forth on behalf of the assessee that the CIT must initially indicate the mistake in the assessment order on merits by making proper enquiry at his end before cancelling assessment under section 263. This judgment makes it palpable that the very fact that the ITO "had not made sufficient enquiries before granting registration to the firm" was considered as sufficient enough to clothe the CIT with the power to revise the asse....
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.... a thorough enquiry, notwithstanding the jurisdiction of the AO in making enquiries on the issues or matters as he considers fit in terms of section 142(1) and 143(2) of the Act, which is relevant only up to the completion of assessment ; iii) Inadequate inquiry conducted by the AO in the given circumstances is as good as no enquiry and as such the CIT was empowered to revise the assessment order ; iv) The order of the CIT is not based on irrelevant considerations and further in the present circumstances, he was not obliged to positively indicate the deficiencies in the assessment order on merits on the question of issue of share capital at a huge premium ; v) the AO in the given circumstances can't be said to have taken a possible view as the revision is sought to be done on the premise that the AO did not make enquiry thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue on that score itself. 23. a. Having dealt with all the five major points taken up by the ld. AR in support of contention for setting aside the orders passed u/s 263, now we turn to the respective precedents directly on the point, relied by both the sides on the sustain....
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....oceedings u/s 147. In all such cases, the CIT invoked his power u/s 263 thereby restoring the matter to the AO for a proper examination and the Tribunal has upheld the action of the CIT by dismissing the appeals filed by the assessees. Detailed orders have been passed by the Kolkata Bench in the case of M/s Bisakha Sales Pvt. Ltd. Vs. CIT (ITA No. 1493/K/2013, dated10.9.2014), Brindavan Commodities Pvt. Ltd. VS. CIT (ITA No. 1607/Kol/2013, dt. 24.10.2014), Ridhi Sidhi Vincom (P) Ltd. Vs. CIT (ITA No. 1410/K/2013, dated 10.10.2014), Star Griha Pvt. Ltd. Vs. CIT (ITA No. 1244/K/2013, dated 14.8.2014) and Bee Tee Credit Marketing Pvt. Ltd. Vs. CIT (ITA No. 1598/K/2013, order dated 14.8.2014). In all the above five cases, the Tribunal has upheld the orders passed by the CIT u/s 263, dismissing the appeals of the assesses. It is further relevant to note that the order in the case of Bisakha Sales (supra) has been passed by the tribunal after duly considering the earlier order favourable to the assessee in Lotus Capital (supra). On further analysis, we find that the fact of such dummy companies floated on a large scale involving similar modus operandi, was not there before the Tribunal i....
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....e at the last known address of the assessee on 12.3.2013. The ld. CIT has also recorded the fact that none appeared on behalf of the assessee nor any reply received on the date of hearing on 18.3.2013. The order u/s. 263 of the Act, was therefore, as an ex-parte order. 26.b. The learned AR contended that as per the provisions of sec. 282(1)(b) of the Act read with order V Rule 17 of Code of Civil Procedure, 1908 (CPC), affixture as a mode of service of notice can be resorted to only where the person on whom notice is sought to be served or his agent refuses to sign acknowledgement or where the serving officer, after using all due and reasonable diligence, cannot find the defendant (i.e., the assessee on whom notice is sought to be served). The learned AR thereafter brought to our notice that the order u/s. 263 of the Act as well as the consequential order dated 18.3.2014 passed by the AO were duly served on the assessee at the address as found in the records of the Revenue. As per his version, the assessee was available at all points of time at the address as found in the records of the Income-tax Department. The service of show cause notice u/s. 263 of the Act by affixture was ....
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....u/s. 263 of the Act, giving the very same address at which notices were returned and hence could not be served by the Revenue. In the grounds of appeal, the assessee remains silent as to its correct address for service. It has not been stated by the assessee that it was not carrying on business at the address at which service of notice was effected by affixture. The learned DR pointed out that in several such cases it had come to light that shell companies had been formed for converting unaccounted money into accounted money and the assessee being a part of such game plan, was trying to playing hide and seek with the Revenue according to its suitability. He argued that the sequence of events and the whole design adopted by the assessee should not be lost sight of while examining the claim of the assessee regarding improper service of notice u/s. 263 of the Act. In the assessment proceedings after the order of CIT u/s. 263 also, the assessee did not participate in the proceedings. According to him the circumstances of the case clearly showed that the motive of the assessee was to evade service of notice and therefore service by affixture was the only proper mode of service in the fa....
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.... him that the CIT did not make even an attempt to effect the service by affixture. Our attention was drawn to the decision of the Hon'ble Bombay High Court in the case of Balaji Marbles vs. Union of India (2015) 58 Taxmann.com 155 (Bom), wherein the Hon'ble Bombay High Court has expressed a view that when the assessee has informed his changed address to the department, service of notice has to be effected at the changed address. It is only when service of notice at the changed address becomes impossible that notice can be served in a different manner. Our attention was also drawn to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Eshan Holdings (P) Ltd. (2012) 25 Taxmann.com 99 (Del), wherein the Hon'ble Delhi High Court held that service of notice issued u/s 148 at the old address of the assessee, though return of income filed before issue of such notice showed the new address, was not a valid service. 26.f. The facts of Ramshila Enterprises Pvt. Ltd. in which this issue is challenged are almost similar to those of Reward Tie-up Pvt. Ltd. Here also, the ld. AR claimed that the notice was sent at earlier address, whereas the new address was already available ....
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....w that non-service of show cause notice will not render the order u/s 263 a nullity. Relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Electro House 82 ITR 824(SC), it was contended that the law does not require notice u/s 263 to be served at all. In conclusion, it was submitted by him that when the assesse himself had given a particular address for service of notice and when the notice was served at that address though by affixture, it could not be said that the assessee was not given proper opportunity of being heard. 26.i. As regards the case of Tulsi Tradcom Pvt. Ltd., the ld. DR stated that change of address was not intimated in a manner known to law and therefore the notice was sent at the old address. It was also submitted that in the light of background facts of the case as explained by the CIT in the impugned order u/s. 263 of the Act, the change of address was also part of the design whereby the assessees were trying to mislead the Department. In the circumstances, it was prayed that the service of notice be held to be proper. 26.j. The learned AR in his rejoinder submitted that opportunity of being heard is always contemplated in the provi....
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....t the order u/s. 263 of the Act was served at the known address is also not denied. The affixture of notice at the last known address is also not denied by the assessee. The emphasis is only on the absence of due diligence by the process server to find out the whereabouts of the assessee. This is a fact which the assessee alleges based on surmises. In this regard it is also seen that the reassessment proceedings were initiated only at the instance of the assessee by filing letter before the AO for issue of intimation u/s. 143(1) of the Act. Thereafter, the assessment was reopened and the assessee promptly participated in such proceedings. When the assessment completed u/s. 147 of the Act was sought to be revised in proceedings u/s. 263 of the Act, the assessee evaded the service of notice. The assessee, however, promptly filed appeal against the order u/s. 263 of the Act, giving the very same address at which notices were returned unserved. There is no allegation that the address at which notice was served by affixture is no longer the address of the assessee for service of notice. As rightly pointed out by the learned DR, the sequence of events prevailing in such companies involve....
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....ity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment'. The requirement in this provision is to pass the order `after giving the assessee an opportunity of being heard.' It is unlike the language of certain provisions of the Act, including section 148 which expressly contain the requirement of issue of notice, as is evident from sub-section (1) of section 148 which provides that : ` Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income ......'. Thus it is evident that whereas section 148 specifically requires serving a notice on the assessee, section 263 simply talks of giving an opportunity of being heard. Section 282 of the Act discusses the service of notice generally and not giving opportunity of hearing. Such opportunity of hearing can be given either by means of service ....
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....n or order or any other communication under this Act" may be made by delivering or transmitting a copy thereof, to the persons therein named (a) By post or by such courier services as may be approved by the Board; or (b) In such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or (c) In the form of any electronic record as provided in Chapter IV of the Information Technology Act, 200 (21 of 2000) or (d) By any other means of transmission of documents as provided by rules made by the Board in this behalf." 26.p. Prior to the amendment, section 282(1) provided as follows: "A notice or requisition under this Act may be served on the persons therein named either by post or as if it were a summons issued by a Curt under the Code of Civil Procedure, 1908 (5 of 1908)." 26.q. A reading of the provisions of sec. 282(1) prior to and after its amendment w.e.f. 1-10-2009 clearly shows that it is only in respect of a notice that is mandatorily required to be served under the Act that the requirement of serving it strictly in the manner required by the aforesaid provisions is contempl....
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....Act got expired on 31.3.2012. Since the order was passed by the ld. CIT on 30.3.2013, the ld. AR explained that such order was barred by limitation. To buttress this contention, the learned AR drew our attention to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Alagendra Finance Ltd. 293 ITR 1 (SC). He also relied on the decision of the Hon'ble Bombay High Court in the case of Lark Chemicals 368 ITR 655 (Bom) wherein similar view has been taken. 27.b. The learned DR on the other hand pointed out that the order sought to be revised u/s. 263 of the Act was the order dated 6.4.2010 passed u/s. 147 r.w.s. 143(3) of the Act and in the said order the issue of receipt of share capital by the assessee was investigated by the AO, even though the assessment was not reopened for that purpose. He pointed out the relevant provisions of Explanation 3 to sec.147 of the Act which provides that once an assessment is validly reopened, the AO is free to go into any other issues relating to income escaping assessment or underassessment and his jurisdiction is not restricted to only such issues on which reassessment proceedings were initiated. He pointed out that in the reassessmen....
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....a higher rate. The Hon'ble Punjab &Haryana High Court held that the issues other than claiming higher depreciation became final because the AO did not issue a notice u/s 143(2) of the Act for framing assessment u/s 143(3) of the Act. The Hon'ble High Court held that jurisdiction u/s 147 of the Act is confined only to such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or re-considering the whole assessment. The decision in the case of Sun Engineering Works Pvt. Ltd., 198 ITR 297 (SC) was referred to by the Hon'ble P&H High Court. According to the ld. AR, the issue of examination of share capital could not be said to be the subject matter of re-assessment proceedings and, therefore, it could not be claimed that the said issue was the subject matter of proceedings u/s 147 of the Act. He also submitted that period of limitation needs to be reckoned from the date of intimation u/s 143(1) of the Act. Similar arguments were put for in the case of Ramshila Enterprises Pvt. Ltd. On a specific query from the Bench, it was admitted by all the ld. ARs that if the period of limitation is counted from the date of passing of order u/s 147, then....
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....re capital at premium was not properly examined by the AOs, the ld. CIT revised the orders u/s 147 and not the Intimation u/s 143(1) of the Act. 27.h. We also find merit in the argument of the learned DR that with the introduction of Explanation 3 to section 147 with retrospective effect from 1.4.1989, the AO acquires jurisdiction not only to assess or reassess income in respect of which he issued notice u/s 148, but also such other issues that come to his notice subsequently in the course of the proceedings u/s 147, notwithstanding that the reasons for such issue have not been included in the reasons recorded u/s 148(2). Clause 57 of the Finance (No. 2) Bill, 2009 inserting Explanation 3 in section 147 with retrospective effect from 1st April, 1989 provides as under : - "for the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of the proceedings under the section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section 2 of section 148"....
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....apement of income. No doubt the issue of share capital at premium was not subject matter of notice u/s 148, nevertheless the AO proceeded to examine this aspect, thereby bringing it within the ambit of the order u/s 147. 27.k. Now we take up the next aspect of this issue, as to whether Intimation u/s 143(1) can at all the characterized as `order' eligible for revision u/s 263. In this regard, we find that the Hon'ble Kerala High Court in CIT Vs. K.V. Mankaram & Co. (2000) 245 ITR 353 (Ker) has held that Intimation u/s 143(1) is an order only for sections 154, 246 and 264 and for all other purposes is only notice of demand. Similarl view has been taken by the Hon'ble Delhi High Court in MTNL Vs. CBDT (2000) 246 ITR 173 (Del) holding that Intimation u/s 143(1) is not an assessment order. Since the subject of revision u/s 263 can only be an `order passed.. by the Assessing Officer', we fail to see as to how `Intimation' issued u/s 143(1) in all such cases, which can by no stretch of imagination be treated as an `order' for the purposes of section 263, can be considered for the purposes of limitation. 27.l. Viewed from any angle, it is clear that the subject matter of revision in....
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....jurisdiction was made by the competent authority for facilitating the co-ordinated investigation of search cases. The order specifically mentions that jurisdiction is being transferred in the interest of revenue for better co-ordination, effective investigation and meaningful assessment. 28.c. The learned DR submitted that CIT, Central, Kolkata, consequent to the search had addressed a letter dated 24.12.2012 to the CIT, Kolkata-II, Kolkata, requesting for transfer of jurisdiction from ITO, Ward 4(1), Kolkata to ACIT, Central Circle-19, Kolkata. The ld. DR filed before us copy of the request of CIT, Central Circle, Kolkata to CIT, Kolkata-II, Kolkata dated 24.12.2012. This letter mentions about the search in the case of "Atha Mines" group and, further, makes a reference to the interests of the revenue, administrative convenience and coordinated investigation, and, on that ground, request was made to pass necessary order u/s 127 transferring the jurisdiction in the case to DCIT, Central Circle-19, Kolkata. The ld. DR brought to our notice a letter dated 11.7.2013 which is placed at page 4 of the Revenue's paper book, in which the assessee wrote to the ITO, Ward 4(1), Kolkata, the....
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....n the category of " all proceedings in this Act in respect of any year which may have been completed before the date of order u/s. 127(2)(a) of the Act". He also placed reliance on the decision of the jurisdictional high court rendered in the case of ITO Vs. Ashoka Glass Works reported in 125 ITR 491 (Cal) to support his contentions in this regard. In the aforesaid case the assessee was assessed for the AY 1962-63 by the ITO "A" Ward, District Howrah. He initiated penalty proceedings and referred the penalty proceedings to IAC, Range XX, under sec. 274(2) of the Act. Pending these proceedings, the CIT passed an order u/s. 123(1) transferring the jurisdiction to the IAC, Range XXII, who was given exclusive jurisdiction. Thereafter, the IAC, Range XXII, called upon the respondent to appear before him to show cause why penalty should not be imposed on him u/s. 271(1) ( c) of the Act. The question before the Court was as to whether IAC, Range XXII had valid jurisdiction over the case. The Hon'ble Calcutta High Court held that consequent to the order u/s. 127(1) of the Act transferring jurisdiction, the IAC, Range-XX was completely divested of jurisdiction and it was only the IAC, Range....
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....ower should be exercised either as a whole or not at all. Such an argument is fallacious and defeats the very purpose of conferring a larger power. As the actual transfer of the files from the incumbent AO to the new AO had taken place only on 29.7.2013 and further the order sought to be revised by the ld. CIT u/s 263 was passed much prior to the even making of request for transfer of jurisdiction in respect of search matters, we have absolutely no doubt in our mind that only the CIT Kolkata II, Kolkata had the jurisdiction to revise the assessment order passed u/s 147 as has been done in this case. The contention of the learned AR in this regard is held to be without substance and not unacceptable. 28.g. The issue of territorial jurisdiction has also been raised by the assessee in Satabdi Vincome Pvt. Ltd. In this case there is no dispute that the CIT, Kolkata-II, Kolkata, who passed the order u/s. 263 of the Act had jurisdiction over the assessee. There is no order transferring jurisdiction from ITO, Ward 6(1), Kolkata under CIT, Kolkata-II, Kolkata. The ld. AR, however contended that PAN data in the public domain showed that the assessee's jurisdiction at the relevant time wa....
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.... becomes manifest that the ratio laid down in Bharat Engineering (supra) cannot be applied to the facts of the present case, which is a company. The contention is rejected. G. Effect of order passed u/s 263 in the case of amalgamating company after amalgamation, 30.a. Sh. Subhash Agarwal, the learned AR representing Madhuban Vyapar Pvt. Ltd., stated that the assessee ceased to exist on the date of passing of the revisional order u/s 263 as it got amalgamated with another company prior to that. Referring to the scheme of arrangement which was sanctioned by the Hon'ble High Court, he pointed out that the date of transfer as per the scheme of amalgamation was 10.10.2007. It was stated that on the Hon'ble High Court accepting the scheme of amalgamation, the assessee as a separate entity, ceased to exist and hence no proceedings could have been taken in the name of the amalgamating company, which in the instant case is the assessee, Madhuban Vyapar Pvt. Ltd. To support his contention, he placed reliance on Saraswati Industrial Syndicate Vs. CIT 186 ITR 278 (SC) and R.C. Jain Vs. CIT 273 ITR 384 (Del). 30.b. We do not dispute the general proposition that once a company gets amal....
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....ullity. In this regard, he placed reliance on the following decisions:- i) Kuldip Oil Industries Ltd. Vs. Ch.Pratap Singh AIR 1957 505 (All); ii) ITO vs. Shivnath Viswanath&Ors. 19 TTJ 450 (All); and iii) B & Brothers Engineering Works &Anr.vs. UOI 153 Taxmann 405 (Guj). 31.b. We have gone through all the decisions relied by the ld. AR. A common thread running through all these cases is that the proceedings were fixed on a holiday, which has been held to be improper. In contrast, we are confronted with a situation in which the proceedings were fixed for last hearing on 28.3.2013, which was working day. It is only that the ld. CIT, after concluding the proceedings, passed the impugned order on a holiday. The bar in not working on the holidays extends only qua the taking up of the proceedings involving participation from outsiders. It cannot be said that the Government servants, having completed the hearing of the proceedings on a working day, cannot work on holidays to clear their work without the involvement of public at large. It is a common knowledge that the Officers of the Income-tax Department work around the clock close to various limitation peri....
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....in Radha Krishna Tradcom Pvt. Ltd. and some other cases have brought to our notice that the replies sent by the assessees to the show cause notice u/s 263 of the Act were returned as 'Refused' by the ld. CIT. It was submitted that since the objections of the assessee have not been considered as contained in those letters, the impugned orders be held as void because of lack of adequate opportunity to the assessee. 33.b. We do not approve the way in which the office of the CIT has refused to accept the written submissions made on behalf of various assessees. It is impermissible for any Government office to refuse to accept any letter or communication. It is only after receiving the letter or communication, that the authority can decide about taking or not taking its cognizance. 33.c. Coming to the facts of the instant cases, the fact remains that such replies were sent by these assesses when the ld. CIT had given last opportunities and such opportunities were not availed by them. That apart, not giving a proper opportunity of hearing can be no reason for declaring the order void ab initio. The Hon'ble Supreme Court in several judgments including Guduthur Brothers Vs. ITO (1960)....
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....n defined and therefore has to be understood by keeping in mind the second proviso to sec.153A(1) of the Act, which lays down that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in sec. 153A(1)((b) of the Act, which is pending on the date of initiation of search u/s. 132 of the Act, shall abate. If an assessment for any of the Assessment years falling within the six assessment years referred to in sec.153A(1)(b) of the Act is already completed before the date of initiation of search u/s. 132 of the Act, then assessment of total income for such year u/s. 153A of the Act can only be "reassessed" and not "assessed". The expression "reassessed" would include reassessment pursuant to order u/s. 153A of the Act. He submitted that the purpose of the second proviso to sec. 153A(1) of the Act is to ensure that there are no multiple assessments for the same Assessment year. In this regard our attention was drawn to the decision of the Hon'ble Delhi High Court in CIT Vs. Anil Kumar Bhatia 211 Taxman 453 (Delhi) wherein it has been held in para 21 as under : - 21. Now there can be cases where at the tim....
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....ct. The Special Bench of the tribunal in Allcargo Global Logistics Ltd. (2012) 16 ITR (Trib.) 380 (Mum)(SB) had the occasion to consider the following question: - "1. Whether, on the facts and in law, the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found, during the course of search"?" The Special Bench answered the question by holding that: "(a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search" 34.d. In the light of the above ruling of the Special Bench, it is clear that if an assessment is completed prior to initiation of search u/s. 132 of the Act and i....