TaxTMI 
TaxTMI 
2017 (5) TMI 631
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....er u/s. 263 is also otherwise bad in law for the reasons that 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 sta....
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.... and the justification of high premium and the creditworthiness of the share applicants 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 pr....
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....examined is as to whether the assessee is entitled to challenge the validity of initiation of proceedings u/s 147 of the 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.Whe....
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....order of assessment passed u/s 147 of the Act was illegal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 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....
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....ing. In view of the aforesaid legal position we admit the additional grounds for adjudication. 12. As far as the merits of the validity of initiation of proceedings u/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 r....
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.... appears to be no basis for this conclusion arrived at by the AO in the reasons recorded. The ld. DR however sought to defend the action of the AO by submitting that there was a survey in the business premises of the assessee and in such survey 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 additio....
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....urn of income, which according to the Assessing Officer, might have possibly involved introduction of her un accounted money by the assessee. It is thus clear that the assessment was reopened by the Assessing Officer on the basis of suspicion and in 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 ./201....
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....rawn. 18. In the impugned order u/s 263 of the Act the CIT has observed that the net asset value of the company was only Rs. 42.37 as on 31.03.2007 and net asset value was Rs. 78.74 as on 31.03.2008 respectively and there was no justification at a very 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 appli....
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....ments did not think it fit to make further enquires. In the light of the high share premium received by the Assessee it was incumbent on the part of the AO to examine the rationale or logic behind issuing shares at such a high premium. He ought to have examined the directors 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 ....