AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 631
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....hat no addition was made for the reasons recorded for reopening of the assessment u/s. 147 and as such no other addition could have been made by the AO, therefore the CIT cannot direct the AO to enquire and make addition of share capital." 3. The facts giving rise to the present appeal are as follows : The Assessee is a company. As per the order of assessment it is said to be engaged in construction business. For A.Y.2007-08 and 2008-09 the assessee filed returns of income on 27.10.2007 and 05.09.2008 respectively declaring total income of Rs. .Nil. The return was processed u/s 143(1) of the Income Tax Act, 1961 (Act). Subsequently notice u/s 147 of the Act was issued after recording the reasons which is common for A.Y.2007-08 & 2008-09. The reasons recorded read as follows :- "Recorded reason for re-opening U/S 147 of the I. T. Act 1961, for the A.Yrs. 2007-08 and 2008-09. Information in possession revealed that the assessee made investment about 4 crores in Hotel/ Resorts business at Mandarmoni, Purba Midnapore. Whereas by virtue of a reply to notice u/s 133(6) of the I. T. Act 1961 the assessee stated to have invested about Rs. 3.38 crores in the said hotel/resorts durin....
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....ants were not properly examined by the AO. Ultimately the CIT passed an order u/s 263 of the Act dated 21.03.2014 in which he set aside the order of AO holding that order of AO was erroneous and prejudicial to the interest of the revenue and he directed the AO to make proper inquiries in respect receipt of share capital by the assessee. The following were the relevant observations of the CIT :- "4. In view of the above, the assessment order passed is erroneous and prejudicial to the interest on the revenue and therefore the same is hereby set aside denovo with direction to the AO to make thorough examination of the funds raised by the assessee by issuing shares at differential prices of Rs. 10/- and Rs. 100/-. The AO should issue summons to the corporate share applicants and' make inquiry into the fact whether the shares so allotted to corporate shareholders were transferred later on at prices lower than the issue price to any person related to the assessee company. The AO should also examine the transferees by issuing summons and should' specifically inquire the price at which the same acquired by them. If the shares' have finally been transferred in the names ....
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....e Act in the present appeals in which he has challenged the validity of order passed u/s 263 of the Act. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/.s 263 of the Act which seeks to revise an order passed u/s 147 of the Act, to challenge the validity of the order passed u/s.147 of the Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the ld. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai ' G ' Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon'ble Mumbai bench of the Tribunal has specifically framed the following questions :- " 1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination....
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....63 of the Act by CIT. The Mumbai Bench has in this regard placed reliance on the decision of Hon'ble Delhi bench of the Tribunal in the case of Krishna Kumar Saraf vs CIT in ITA NO.4562/Del/2007 order dated 24.09.2015 wherein it was held as follows :- " 17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is ....
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..../s 147 of the Act for A.Y.2007-08 and 2008-09 are concerned the question for consideration is as to whether on the basis of the reasons recorded it can be said that there can arise any belief on the part of the AO that income chargeable to tax for the relevant assessment years has escaped assessment. In this regard the reasons recorded by the AO for initiating proceedings u/.s 147 of the Act for A.Y.2007-08 and 2008-09 has already been set out by an order in the earlier part of this order. The gist of the reasons recorded by the AO is that the assessee had made investments of about Rs. 4 crore in construction of hotel/resort at Mandarmoni, Purba Midnapore. It is the further allegation in the reasons recorded that to a notice u/s 133(6) of the Act, the Assessee had in reply admitted investment of only Rs. 3.38 crores in construction of hotel and that source of funds for such construction was out of share capital and secured loan. It is also not disputed that the value of investments as stated by the assessee in its reply to the notice u/s 133(6) of the Act, was duly shown as the investment in construction of hotel with the balance sheet of the assessee. The AO has however inferred t....
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....urvey there was evidence to show that the assessee had invested a sum of Rs. 4 crores in construction of a hotel at Mandarmoni. We are of the view that this submission of the ld. DR cannot be accepted. The law is well settled that the reasons recorded by the AO have to be tested on the basis of specific wordings of the reasons so recorded. No external material can be shown to justify the conclusion arrived at in the reasons recorded unless these materials are specifically referred to or incorporated in the reasons recorded. In the reasons recorded the AO has not disclosed the basis of this conclusion that the assessee made an investment of Rs. 4 crores in the construction of a hotel at Mandarmoni. We find that in this regard that Hon'ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (2004) 268 ITR 0332 the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO t....
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....n order to make fishing and roaming enquiries, which, in my opinion, is not permissible. It is a settled position of law that the assessment can be reopened under section 147/148 on the basis of 'reason to believe' and not 'reason to suspect'. As held by the Coordinate Bench of this Tribunal in the case of Deputy Director of income Tax (International Taxation )-21, Mumbai -vs.- Societe International De Telecommunication ( supra) cited by the Id. counsel for the assessee, unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It was held that where an Assessing Officer ventures to initiate reassessment proceedings with an object of finding some material about the escapement of income, such reassessment cannot legally stand and the law doe s not permit the Assessing Officer to conduct inquiries after the initiation of reassessment ITA No. 671 / KOL ./2015 Assessment year: 2008 - 2009 proceedings, to find if there is an escapement of income. It was held that the scope of section 147 cannot encompass such an action under which certain examination is to be conducted for forming a reason to believe as....
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.... high premium which was eight times of the share capital and that the AO failed to examine as to why such high premium was paid by a person acquiring shares of the assessee company. The CIT has also observed that the facts and circumstances under which such high premium was charged raised serious concern and about the genuineness of the transactions as well as the source of funds. The CIT also found that notice u/s 133(6) of the Act was issued by the AO only to five out of seven share holders and that no query was raised regarding the justification of the premium. Finally the CIT came to the conclusion that order of the AO was erroneous because the AO failed to make proper inquiries with regard to the receipt of share capital and share premium by the assessee. We have already set out in the earlier part of the order the directions given by CIT in the order u/s 263 of the Act. In short it is the direction of CIT that the share applicants should be summoned to find out the genuineness of the transactions in the light of the share premium paid by them and also to see that if the subsequent transfer of shares by the share holders had lower price. 19. The ld. Counsel for the assessee s....
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....rs of the companies who had subscribed 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. To argue that once the AO, as per his wisdom, has inquired into certain aspects of assessment which he considered relevant and, thereafter, CIT cannot intervene, is wholly untenable. If this argument is taken to its logical conclusion, then it would mean obliterating the provisions of section 263 from the statute. The Hon'ble jurisdictional High Court in the case of Maithan International 277 CTR 65 (Cal) had to consider a case where an assessee obtained loans aggregating to Rs. 1.60 crore from six private limited companies ranging between Rs. 7 lac to Rs. 1.10 crore. These companies had filed their returns with nominal income. The AO mentioned in the assessment order that Inspector was deputed to verify fresh loans received during the year. The Inspector verified such loans and gave a positive report. Keeping such report on record, the AO ac....