TaxTMI 
TaxTMI 
2016 (10) TMI 1395
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ispat Limited was a closely held limited company of Shri B.L.Agrawal and Chartered Account Shri Sunil Kumar Agrawal. Thereafter, search and seizure operations were conducted in the office of Shri Sunil Kumar Agrawal, Chartered Accountant and during these search and seizure operations, it was discovered that there was an investment of Rs. 39.08 crores by some shell companies in M/s. Prime Ispat Limited. The Appellants before us are the Shell Companies. Notice was issued to the Shell Companies to show cause from where they have got the funds to the extent of Rs. 39.08 crores. It would also be pertinent to mention that during search and seizure operations conducted in the office premises of Shri Sunil Kumar Agrawal, Chartered Accountant, pass books of all 232 share holders of these 13 Shell Companies were found in his office. The Bank Accounts were held in two banks only. The addresses of Shell Companies were almost identical. The Assessing Officer issued notices to these Shell Companies under Section 153C of the Act, and also issued a questionnaire. It would also be relevant to refer to question (vi) of the questionnaire which reads as follows: "(vi) Details of the share ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Kumar Verma 9. Radhelal Chhatri 10. Lalaram Sinha" 4. A detailed reply was submitted by the Appellants herein and thereafter the Assessing Officer passed an order on 30.12.2011 which is identical in all the cases and reads as follows: "2. On being so satisfied on the basis of the documents seized as mentioned above and pertaining to the assessee company, notice U/s. 153C was issued to the assessee on 29/09/2011 and served on 29/09/2011 requiring to file the return of its income within 30 days of receipt of the notice. In response to which the return of income is filed by the assessee in this office on 21/11/2011. In its return the assessee has declared total income of Rs. NIL. The case was selected for scrutiny by issue of notice U/s. 143(2) dt. 05/12/2011 and questionnaire alongwith notice U/s. 142(1) were issued upon the assessee on 21/10/2011 and duly served. During the course of assessment proceedings, Shri Sunil Kumar Agrawal, CA and AR of the assessee, attended and filed a written submission giving parawise reply to the questionnaire. The assessee company is incorporated on 13/08/2004 which is evident from the copy of the Certificate of Incorpora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest of the Revenue since it shows total non-application of mind. 7. The Appellants before us challenged the order of the Commissioner of Income Tax before the Income Tax Appellate Tribunal (hereinafter called 'the Tribunal') which, vide impugned order dated 22.04.2016 has rejected the appeals. The main issue raised before us is that the order of the Assessing Officer cannot be said to be erroneous or prejudicial to the interest of the Revenue. It is also urged that the finding of the Settlement Commission cannot be a foundation for issuing notice under Section 263 of the Act. Lastly, it is urged that this amount of Rs. 39.08 Crores had been added to the income of Shri B.L.Agrawal and therefore, action could not be taken under Section 263 of the Act, especially when the Assessing Officer after sending a detailed questionnaire has accepted the case of the assessees. We are not at all in agreement with these submissions. 8. To appreciate the rival contention of the parties, it would be apposite to refer to Section 263 of the Act, relevant portion of which reads as follows: "263. (1) The CIT may call for and examine the record of any proceeding under this Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the interests of the Revenue. The section did not at first contain any Explanation. An Explanation was added to section 263(1) by the Taxation Laws (Amendment) Act, 1984. By the Finance Act, 1988, the said Explanation was substituted with effect from June 1, 1988. The Explanation was again amended by the Finance Act, 1989. By the amendments made by the Finance Acts of 1988 and 1989 a definition of the term "record" was provided. It has been provided that "record" shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner." 11. A Division Bench of the Madras High Court in Mofussil Warehouse and Trading Co. Ltd. vs. Commissioner of Income-tax, {(1999) 238 ITR 867 (Mad)} was dealing with a case where the assessee company paid amounts to the holding company by way of reimbursement in relation to the utilization of the service of the employees of the holding company. The Assessing Officer had not taken into consideration the exact nature of the claim or the unreasonableness thereof. The Madras High Court held that non performance of such a duty cast upon the Income-tax Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....High Court of Bombay in Commissioner of Income-tax v. Gabriel India Ltd., {(1994 Tax LR 116 (Bom)} and the High Court of Gujarat in Commissioner of Income-tax v. Smt. Minalben S. Parikh, {(1995) 215 ITR 81 (Guj)} treated loss of tax as prejudicial to the interests of the revenue. Mr. Abaraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. Commissioner of Income-tax, {(1987) 163 ITR 129 (Mad)} interpreting "prejudicial to the interests of the revenue". The High Court held, "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration". In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion, {(2009) 314 ITR 81 SC}, while dealing with Section 263 held as follows:- "Jurisdiction under Section 263: The scope of the provisions of section 263 of the Act is no longer res integra. The power to exercise suo motu power of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue, exist." 15. From a reading of the aforesaid judgments, it is apparent that the powers conferred on the Commissioner under Section 263 are very wide. However, two conditions have to be met before the Commissioner can exercise his powers under this section. The order sought to be reviewed should be erroneous and should also be prejudicial to the interest of the revenue. In Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax (supra), the Apex Court held that both the conditions must be satisfied and if only one of the conditions is satisfied recourse cannot be had to Section 263. It is also apparent that recourse to Section 263 cannot be taken to co....