TaxTMI 
TaxTMI 
2021 (9) TMI 856
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....3) dated 16.11.2018 is erroneous and prejudicial to the interest of the revenue, in absence of which the entire proceedings u/s 263 is vitiated. Therefore, the impugned order dated 11.02.2021 u/s 263 of the Act kindly be quashed. 3. The ld. Pr. CIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly holding that the subjected assessment order u/s 143(3) dated 16.11.2018, was passed without making proper enquiries or verification w.r.t.: (a) Allotment of 1,80,000 shares of Face Value @ Rs. 10/- with premium @ Rs. 50/- per share for total consideration of Rs. 1.08 Crore u/s 68 proviso and, (b) Receipt of large share premium u/s 56(2)(vii) and any other relevant section of the Act. with a direction to the AO to properly examine the identity (typed as entities) 85 creditworthiness of the shareholders/investors and also genuineness of the transactions and also to examine applicability of S. 56(2)(viib) of large share premium and any other relevant section of the Act and also to make necessary additions to the total income or u/s 115JB(1) of the Act, wherever required. ....
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....Act. Thereafter, the case of the assessee was selected for scrutiny by CASS under Limited Scrutiny for the reason that "Whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax." Thereafter, various other necessary notices were issued and after considering the required information and documents, the A.O. accepted the returned income filed by the assessee. Later on, through show cause notice dated 13.01.2021, it was proposed to invoke revisional proceedings u/s 263 of the Act on the ground that captioned assessment order dated 16.11.2018 passed by the AO is erroneous in so far as prejudicial to the interest of Revenue because the AO did not verify /examine the issues which he ought to have made, by observing as under: "2. Thereafter, on examination of records by the undersigned it is seen that the assessee company had issued 1,80,000 shares at face value of Rs. 10/- and as per share premium of Rs. 50/-. Thus, the assessee company had received a total consideration of Rs. 1,08,00,000/- in F.Y. 2015-16 relevant to A.Y. 2016-17. 2.1 The detailed breakup of issued shares to whom the shares have been allot....
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.... in respect of total amount of shares of Rs. 1,08,00,000/- and because of the same, the assessment order u/s 143(3) of the I.T. Act in the case of assessee company for A.Y. 2016-17 is found to be erroneous in so far as it is prejudicial to the interest of revenue." The Ld. Pr.CIT, thereafter, referred to the first proviso to S.68 inserted w.e.f A.Y. 2013-14 and alleged that the AO did not examine the identities and creditworthiness of the shareholders. He further alleged that the AO also did not examine the applicability of the provisions of S. 56(2)(viib) of the Act. He alleged that the AO failed to make proper enquiry in respect of core issues for which the case was selected and such lack of enquiry has rendered the subjected assessment as erroneous. In response, the assessee filed detailed written submission dated 25.01.2021before the ld. PCIT, Udaipur. The ld. PCIT, however feeling dissatisfied, rejected the contentions and held the assessment order erroneous and prejudicial to the interest of revenue, by holding as under: "6. I have carefully examined the written submission of the assessee. The contentions of the assessee have been considered. It is pertinent to me....
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....e of such enquiries, necessary addition wherever required may be made to the total income and to the book profit u/s 115JB(1) of the I.T. Act of the assessee in accordance with the provisions of Income Tax Act and Income Tax Rules. However, an opportunity of being heard should be given to the assessee before passing the order." 4. Now the assessee is in appeal before the ITAT by taking the above mentioned grounds of appeal. 5. All the grounds taken by the assessee in this appeal are interrelated and interconnected but the assessee is mainly aggrieved by the order of the ld. Pr.CIT for passing the order U/s 263 of the Act. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. Pr.CIT and also relied upon the written submissions filed before the Bench and the same are reproduced below: Legal Position on Sec.263 - Judicial Guideline: Before proceeding, we may submit as regards the judicial guideline, in the light of which, the facts of this case are to be appreciated. 1.1 The pre-requisites to the exercise of jurisdiction by the CIT u/s 263, is that the order of the AO is established to be ....
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....disclosed sources and have been correctly offered for tax. In view of the above, I would like to give you an opportunity to produce any evidence/information which you feel is necessary in support of the said return of income on or before 29/08/2017 at 11:30 AM." Reply to the above notice was submitted on 29.08.2017 (PB 8) as under: "With reference to the above subject it is submitted that the shares have been issued in the form of share premium from disclosed sources . It is submitted that the net worth of the Company as on 31.03.2015 is Rs. 55,47,060/- and estimated profit upto the date of issue of shares was Rs. 62,940/-, hence total net worth of the Company deemed is Rs. 56,10,000/-.Total 93,500 shares have been issued. Book value of the share was Rs. 60/- and the Company has issued Rights Issue as per book value of the Company. 10 rupees face value shares has been issued at the premium of Rs. 50/- i.e. @ Rs. 60/- per share, hence as per book value the Rights Issue has been allotted. We want a personal hearing the case and do not want E-proceeding facility through our account in e-filing website of the Income Tax Department. We opted out e-ass....
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....e was duly replied vide letter dated 'Nil' and dated 12.11.2018 (PB 14-19), on all the queries raised. The assesee provided complete name and PAN No of all the three shareholders. To prove their genuineness, the assesee also submitted copies of ITR acknowledgements (PB 29-40) and the confirmations duly signed by them (PB 43-45), to whom the shares were allotted. The assesee also submitted justification behind the premium @ Rs. 50/- per share charged as under: "1 That we have allotted the shares on premium as per following calculation: Net Assets Value as on 31.03.2015 : 72,31,418.00 Less: Liabilities : 4,91,891.00 : 11,73,787.00 16,65,678.00 5565740/ 93500 = 59.53 as on 31.03.2015 and as per fair market Value which is Rs. 60/- per share. x x x x As per calculation we have taken the premium as per value of the shares i.e. face value is Rs. 10 per share and premium of Rs. 50/- per share hence total value is Rs. 60/- per share and there is no tax liability on share premium as they are from disclosed sources." The assesse also submitted the copy of bank statements of the assesse company (PB 24-28). 2.3 Th....
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....g only the examination of the identity of the shareholder concerned his/her the confirmation of the fact of providing/ transferring subjected amount to the assesse but the AO is not legally bound to examine source of source, once the immediate source is available. In the present case, the AO was having complete details of the identity in the shape of PAN number & address (PB 29-40). He was also having conformation (PB 43-45) duly signed by the shareholder. As stated, he was able and he looked into the file of the shareholders in the portal of the department. Thus, in view of the binding judicial guideline, the AO was not obliged still to ask the assessee to provide source of source under the pretense of examination of the creditworthiness of the shareholder. 3.2 Following decisions of Hon'ble Rajasthan High Court are directly relevant for the purpose. 3.2.1 Kindly refer Labhchand Bohra V/s ITO (2008) 8 DTR 44 (Raj.) (DPB 1-4) held that "Cash credit- burden of proof- identity of the creditors established and the confirmed the credit. This discharged the burden of appellant to prove genuineness. However, capacity of the lender to advancement money ....
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.... borrowings were made through account payee cheque only and the same was duly verified by the AO from the bank statement (PB 24-28) of the assesse company filed before him, wherein the fact and the receipt of the subjected amount towards the allotment of share, was clearly visible and was duly verified by the AO. Apart from the bank statement, the AO was also having the ledger accounts of the bank in the account books maintained by the assesse and produced before him as also through the confirmation of all the three shareholders (PB 43-45) containing complete details i.e. the amount, date, cheque number etc. It is not the case of the revenue that the borrowing was made in cash so as to justify any suspicion. There was no cash deposit made in their bank A/C just prior to issue of cheque to the assessee company. For the completeness, the details of the amount received from the shareholders is as under: Smt. Chelna Devi Jain, PAN AGTPJ3772H: S.No. Name of share-holder No. Of shares issued during the year Amount of total shares 1 Smt. Chelna Devi Jain 63,475 38,08,500 The payment received by the company in its Bank account maintained with SBBJ ....
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....ortal of the Income Tax Department and emanated from the hearing, were known to the AO, are quite relevant and being submitted hereunder: Chelna Devi: She is an old and regular income tax assesse. This fact can be verified from the PAN Card data. The Return of Income for this year was filed on gross total income of Rs. 12,23,031/- and total income of Rs. 10,72,700/- for A.Y. 2016-17. She is proprietor of M/s Munmun Industries. The Balance Sheet of the proprietary was uploaded in the ROI filed by her. The source of fund transfers to the assesse company was from her proprietary M/s Munmun Industries which is a Tax Audit case with a turnover of Rs. 3523.81 Lakhs. The closing balance of her capital a/c in the proprietary stood at Rs. 97.08 lakhs and her total capital stood at Rs. 148.18 lakhs. Her financial capacity was duly verified by the AO. There is nothing on record to arise any suspicion of the AO nor the Ld. CIT pointed out any adverse material though available on the assessment record but ignored by the AO warranting further investigation with regard to all the three aspects relevant for S.68. INCOME DETAILS OF Smt. CHELNA DEVI (PAN: AGTPJ3772H) HEAD ASSESSMENT Y....
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.... 65,550 Total 7,76,055 6,72,634 6,09,662 6,75,464 4,88,051 Therefore, the allegation and the expectation of the Ld. CIT from the AO acting as quasi-judicial authority, examine the receipts in context with the S. 68 and requiring he assesse to prove the credit to the hilt, is clearly beyond the scope of S. 263, in as much as he was supposed, only to the extent of examination of the fact that the amount so received towards the share premium was not from undisclosed sources (if one strictly go by the reason of selection for limited scrutiny) or to examine the conditions as per RHC decisions. Thus, when AO has acted according to the judicial guideline and the principles propounded by the Hon'ble Rajasthan High Court the AO could not venture to follow the binding decisions. If the ld. CIT had any doubt, he should have directed inquiry in their hands as held in Lovely Exports [2015] 59 taxmann.com 232 (Mumbai - Trib.). Hence, it cannot be said that the impugned assessment order was erroneous and therefore prejudicial to the interest of the revenue, for want of further enquiry by the AO. 4.3 We also rely upon w/s Pg- 2-5 (PB 65-68) ....
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....s case, the AO was not supposed to deem the explanation offered by the assesse as unsatisfactory because the assesse had explained the nature and the source to the satisfaction of the AO and there was no evidence, information or anything else indicating that more enquiry was warranted. Hence, the principle propounded by the Hon'ble Rajasthan High Court in the case of Smt. Harshila Chordiya (Supra) still holds goods in as much as the Proviso broadly states what S. 68 states. In fact, first proviso was inserted to annul the argument that receipts towards share allotment, premium etc. are as of capital nature to avoid the application of S. 68 w.r.t such receipts. Therefore, the ratio laid as above held good in present case also and this law of land having been available on the date of the passing of the Assessment Order dated 16.11.2018, could not have been ignored by the AO. 6.1 It is not the case of CIT that there was a complete/total lack of inquiry. He himself admits in the Impugned Order that the AO did make enquiry on both the issues. The law is well settled that the Assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry.....
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....dequacy of enquiry-Order passed by the CIT was not sustainable in law hence, the Tribunal rightly set aside the impugned order of the CIT. The ld. CIT is completely silent on this aspect. 7.1 Beyond the scope of enquiry contemplated u/s 263: The scope of enquiry in the present case was limited to the extent of the issues made a basis for selection of the case. The admitted fact was that the case was selected for limited scrutiny so as to examine whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax (and not large share premium received during the year verify applicability of sec 56(2)(viib) or any other relevant section) as per notice issued u/s 143(2) dated 12.08.2017 (PB 4-7). It is also a fact available on record that limited scrutiny was not converted to full scrutiny nor the higher authorities did so. Thus, the scope of examination by the AO in this limited scrutiny was confined: a) Only to the examination of the fact as to whether the funds received in the form of share premium were from disclosed sources or not. Evidently, there was no pointed reference made to S.68 theref....
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.... refer Mahendra Singh Dhankar (HUF) vs. ACIT, (2021) 35 NYPTTJ 458 (Jp) (DPB 34-43) 7.2.2 In CIT v/s Smt. Padmavathi (2020) 4 NYPCTR 682 (Mad) 7.3.3 In Su-Raj Diamond Dealers (P) Ltd. v/s PCIT (2020) 203 TTJ (Mumbai) 137 (DPB 44-50) 7.3.4 In Nayek Paper Converters vs. ACIT (2005) 93 TTJ (Cal) 8.1 Applicability of S.56(2) (viib): The Ld. CIT also alleged that the AO did not make enquiries and verification on the issue of large share premium received by the assesse and the applicability of S.56(2)(viib) and other relevant sections even though this was not the reason for scrutiny selection. 8.2 Alternatively and without prejudice to above, even otherwise on merits, there has been due and proper application of mind in as much as the Ld. AO raised directly relevant queries (as stated above) which were duly replied by the assesse as well. The assesse also submitted the computation as to how the assesse derived the amount of the premium which was also admitted by the Ld. CIT in para 3 pg 4 of the Impugned Order. In addition, thereto, the assesse also submitted a report of the expert dated 10.10.2015 under Rule 11UA (PB 46-58) which ful....
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....9 (Jaipur - Trib.) 11.6 Abdul Hamid v. Income-tax Officer [2020] 117 taxmann.com 986 (Gauhati - Trib.) 11.7 CIT v/s Vikas Polymers 341 (2012) ITR 0537 (Del) In view of the above submissions and the Judicial Guideline, the impugned order passed u/s 263 deserves to be quashed. The above submissions are based on the facts & information made available and as per instructions of the appellant." 6. On the other hand, the ld CIT-DR has relied on the order passed by the ld. Pr.CIT. 7. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. As per facts of the present case, we noticed that the assesse, a Private Limited Company, derived income from grading, cleaning and storage of agriculture commodity. It had filed its return of income for the year under appeal on 14.10.2016 declaring income of Rs. 2,07,940/- and book profit declared of Rs. 2,15,690/- u/s 115JB(2) of the Act with tax including interest of Rs. 4....
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....ion "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." 8. It is submitted by the ld. AR that the AO had raised very specific and directly relevant queries/called for explanation and evidences w.r.t. the identities and creditworthiness genuineness of the receipts towards the share premium of Rs. 1.08 Cr and applicability of S.56(2)(viib); to the extent he was supposed to act in law. The relevant para of the assessment order, wherein the AO has examined each any every documents submitted by assessee during scrutiny proceedings, is reproduced below: "The assessee company has filed its e-ITR on 14.10.2016 declaring a total income at Rs. 2,07,940 and book profit declared of Rs. 2,15,690 u/s 115JB(2) of the Income-Tax Act, 1961....
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.... was Rs. 62,940/-, hence total net worth of the Company deemed is Rs. 56,10,000/-.Total 93,500 shares have been issued. Book value of the share was Rs. 60/- and the Company has issued Rights Issue as per book value of the Company. 10 rupees face value shares has been issued at the premium of Rs. 50/- i.e. @ Rs. 60/- per share, hence as per book value the Rights Issue has been allotted. We want a personal hearing the case and do not want E-proceeding facility through our account in e-filing website of the Income Tax Department. We opted out e-assessment proceedings." 10. Thereafter, in notice u/s 142(1) dated 25.06.2018, which are at page No. 9-11of the paper book, the AO raised more queries on the issue in hand as under: "3. To furnish copy of Directors' and Auditors' Report with financial statements as on 31.03.2014, 31.03.2015 & 31.03.2016. 4. To furnish complete detail of bank accounts & Post Office Accounts and other Financial Institution Accounts managed/operated in the table given below - 5. To explain with supporting documents that whether the funds received in the form of Share Premium are from disclosed sources and have been correctly....
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....he shares on premium as per following calculation: Net Assets Value as on 31.03.2015 : 72,31,418.00 Less: Liabilities : 4,91,891.00 : 11,73,787.00 16,65,678.00 5565740/ 93500 = 59.53 as on 31.03.2015 and as per fair market Value which is Rs. 60/- per share. x x x x As per calculation we have taken the premium as per value of the shares i.e. face value is Rs. 10 per share and premium of Rs. 50/- per share hence total value is Rs. 60/- per share and there is no tax liability on share premium as they are from disclosed sources." The assesse also submitted the copy of bank statements of the assesse company which are at page No. 24-28 of the paper book. 11. We observed that the ld. AR produced books of account including cash book, ledger, subsidiary records and filed various other details as required, which were duly examined. The AO made all the inquiries, sought clarifications on all the relevant aspects to the extent he was supposed looking to the nature of the issue involved the past accepted history of the case and the evidences and material already available therein together with the material provided during the assessme....
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....mitted complete addresses of all the three shareholders as also their Permanent Account Number (PAN) which is the best evidence to prove the identity of a shareholder, in the records of AO itself. Moreover, all the transactions with all the shareholders were admittedly made through banking channels only. Thus, their identity is fully established. The genuineness of the transaction is fully established inasmuch as all the borrowings were made through account payee cheque only and the same was duly verified by the AO from the bank statement of the assesse company filed before him, wherein the fact and the receipt of the subjected amount towards the allotment of share, was clearly visible and was duly verified by the AO. Apart from the bank statement, the AO was also having the ledger accounts of the bank in the account books maintained by the assesse and produced before him as also through the confirmation of all the three shareholders containing complete details i.e. the amount, date, cheque number etc. It is not the case of the revenue that the borrowing was made in cash so as to justify any suspicion. There was no cash deposit made in their bank A/C just prior to issue of cheque t....
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....planation were also made during the personal hearing. The Ld Pr.CIT, in fact, did not apply his mind on this aspect and ignored that the AO was empowered legally and technically to have examined the veracity of the claim made by the assesse with regard to the creditworthiness of the shareholders. Therefore, the allegation and the expectation of the Ld. Pr.CIT from the AO acting as quasi-judicial authority, examine the receipts in context with the S. 68 and requiring the assesse to prove the credit to the hilt, is clearly beyond the scope of S. 263, inasmuch as he was supposed, only to the extent of examination of the fact that the amount so received towards the share premium was not from undisclosed sources (if one strictly go by the reason of selection for limited scrutiny) or to examine the conditions as per the Hon'ble Jurisdictional High Court decisions. 14. Further the undisputed facts are that all the three shareholders were allotted equity shares as per the details given at pg 2 of the impugned order in consideration of Rs. 60 per share. Necessary formality of filing return of allotment and making entries in the record were completed as per the provisions of the Companies....
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.... still holds goods inasmuch as the Proviso broadly states what S. 68 states. In fact, first proviso was inserted to annul the argument that receipts towards share allotment, premium etc. are as of capital nature to avoid the application of S. 68 w.r.t such receipts. Therefore, the ratio laid as above held good in present case also and this law of land having been available on the date of the passing of the Assessment Order dated 16.11.2018, could not have been ignored by the AO. 15. We observed that it was not the case of CIT that there was a complete/total lack of inquiry. He himself admits in the impugned order that the AO did make enquiry on both the issues. The law is well settled that the assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry. Unless there is an established case of total lack of enquiry. In this regard, we draw strength from the decision of the Hon'ble Delhi High court in the case of CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del)), wherein Hon'ble Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held that: "One has to see from the record as to whether t....
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....s to examine whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax (and not large share premium received during the year verify applicability of sec 56(2)(viib) or any other relevant section) as per notice issued u/s 143(2) dated 12.08.2017. It is also a fact available on record that limited scrutiny was not converted to full scrutiny nor the higher authorities did so. Thus, the scope of examination by the AO in this limited scrutiny was confined: a) Only to the examination of the fact as to whether the funds received in the form of share premium were from disclosed sources or not. Evidently, there was no pointed reference made to S.68 therefore, the technical requirement of S. 68 being establishing the identity and creditworthiness of the creditor and genuineness of the transaction could not have been presumed by the Ld. Pr. CIT and consequently, he could not have expected the AO to get the same proved by the assesse to the hilt. In other words, this could not be a good basis for holding the subjected assessment as erroneous and prejudicial to the interest of the revenue. It cannot be denied that the very....
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.... the view that substantial verification of other issue is also required, then the case may be taken up for comprehensive scrutiny with the approval of the Principal CIT/Director of IT concerned-Without following said procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO- Therefore, where the matter is selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the AO while framing the assessment-For the purposes of converting limited scrutiny to complete scrutiny, what is relevant is that there must be some credible material or information on face of the record indicating that there is possibility of underassessment of income if the case is not examined under 'complete scrutiny'-In the instant case, there was no tangible material or information available during the course of assessment proceedings basis which reasonable belief can be formed of escapement or underassessment of income which could have led the AO to seek permission to convert limited scrutiny into compl....
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....r which the case of the assessee was selected for scrutiny assessment, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose-Thus, no infirmity could be attributed to the assessment framed by the AO on the ground that he has failed to deal with other issues which did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment-Thus, the order passed by the AO under s. 143(3) cannot be said to be erroneous-Therefore, order passed by the Principal CIT under s. 263 is quashed." In the case of Nayek Paper Converters vs. ACIT (2005) 93 TTJ (Cal) 574, it was held that: "Revision-Erroneous order and/or order prejudicial to Revenue-Limited scrutiny assessment by AO under s. 143(2)(1)-Exercise of revisional jurisdiction by CIT directing AO to make comprehensive scrutiny assessment under s. 143(2)(ii)-Invalid-It is the exclusive discretion of the AO to proceed under s. 143(2)(i) or 143(2)(ii) in a given case-AO having chosen to make assessment under s. 143(2)(i) after obtaining approval of Addl. CIT and making proper enquiries, order of AO could not be said to ....
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....exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue‟ . It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage....