Income Tax Appellate Tribunal - Kolkata
Ridhi Sidhi Vincom (P) Ltd, Kolkata vs Assessee on 10 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "B", KOLKATA
[Before Hon'ble Sri Shamim Yahya, AM & Hon'ble Sri George Mathan, JM]
ITA No.1410/Kol/2013
Assessment Year : 2008-09
(APPELLANT ) (RESPONDENT)
Ridhi Sidhi Vincom (.P).Ltd. -vs- C.I.T.,- III, Kolkata
Kolkata Kolkata
(PAN:AADCR 7892 R)
For the Appellant Shri Subash Agarwal,
Advocate
For the Respondent Shri Ajay Kumar
Singh,CIT(DR)
Hearing concluded on : 30.09.2014.
Date of Pronouncement : 10.10.2014.
ORDER
Per Shri George Mathan, JM
This is an appeal filed by the assessee against order of ld. C.I.T-Kolkata-III Kolkata passed u/s 263 of the I.T.Act in No.CIT-III/DC(Hq)-3/Kol/263/2012-13/8945 dated 28/03/2013 for Assessment year 2008-09.
2. Shri Subash Agarwal, Advocate, represented on behalf of the assessee and Shri A.K.Singh, CIT(DR) represented on behalf of the Revenue.
3. In the assessee's appeal the assessee has raised the following grounds of appeal :
"1. For that on the facts and in the circumstances of the case, the order passed by the Ld. CIT u/s 263 of the Act is bad in law and is liable to be quashed.
2. For that on the facts and in the circumstances of the case the ld. CIT was not justified in initiating proceedings u/s 263.
3. For that the ld. CIT erred in exercising the power of revision for the purpose of directing the A.O. to hold another investigation when the order of the AO was neither erroneous nor prejudicial to the interest of the revenue.
4. For that the ld. CIT was not justified in holding that creditworthiness and identity of the shareholders from whom share capital money was received in the instant year remains to be verified though the AO completed the assessment after making proper verification.
5. For that in exercising revisionary powers u/s 263 the ld. CIT lost sight of the well settled legal position that in the assessment u/s 147, the A.O. is not entitled to embark 2 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 upon a fishing expedition and to make roving enquiries as such, assuming but not admitting that proper enquiries were not done in respect of the share capital raised by the assessee, there was no error in the order passed by the A.O.
6. For that the ld. CIT exceeded his jurisdiction by directing the Ld. A.O. as to how the fresh assessment should be framed by him.
7. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal."
4. The assessee has also raised one additional ground wherein the assessee has challenged the order passed u/s 263 of the Act as barred by limitation.
5. The assessee has made an application for admission of the additional ground. Though the revenue has raised objections against the admission of the additional ground as it is noticed that the ground raised by the assessee goes to the root of the order passed u/s 263, in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Corporation reported in 229 ITR 386 (SC) as the ground raised is purely legal in issue and does not require any verification of facts, the same is admitted and adjudicated.
6. The ld. AR submitted that for A.Yr.2008-09 the assessee had filed its return of income on 30.03.2009 and assessment was passed u/s 147 r.w.s. 143(3) of the Act on 24.11.2010. It was the submission that this order passed u/s 147 r.w.s. 143(3) of the Act on 24.11.2010 was found to be erroneous and prejudicial to the interest of the Revenue and consequently the powers of section 263 was invoked by the ld. CIT by issuing a show cause notice on 18.03.2013 to which the assessee had filed its reply on 25.03.2013. It was the submission that the submissions made by the assessee were not accepted and the order u/s 263 of the Act was passed on 28.03.2013. It was the submission that the appeal has been filed by the assessee against this order passed u/s 263 on 28.03.2013. The ld. AR on behalf of the assessee drew our attention to the paper book filed by the assessee containing 63 pages. The ld. AR submitted that the written submission on behalf of the assessee was at pages 4 to 21 of the paper book which is extracted as under :-
The assessee company filed its return on 30.09.2008 for the A.Y.: 2008 -2009 showing a total income of Rs. 1,170/-. Subsequently, the case was reopened by the Ld. A.O. on the 3 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 ground that assessee received commission income amounting to Rs.21,000/- which was not disclosed in the return of income. Accordingly, notice u/s. 148 was issued and finally reassessment was completed u/s. 143(3)/147 on 24.11.2010 by assessing the total income at Rs.22,170/-. Then revision proceeding u/s. 263 were initiated against the assessee company and finally a revision order u/s. 263 was passed by the Hon'ble CIT, Kolkata -III setting aside the order u/s. 143(3) / 147 directing the Ld. A.O. to complete the assessment afresh. Being aggrieved with the order of Ld. CIT, the assessee-company filed an appeal before the Hon'ble Tribunal.
2. Grounds of Appeal In the memorandum of appeal, following grounds have raised by the assessee-company
--
1. For that on the facts and in the circumstances of the case, the order passed by the Ld. CIT u/s 263 of the Áct is bad in law and is liable to be quashed.
2. For that on the facts and in the circumstances of the case the Ld. CIT was not justifìed in initiating proceedings u/s 263.
3. For that the Ld. CIT erred in exercising the power of revision for the purpose of directing the A. O. to hold another investigation when the order of the A. O. was neither erroneous nor prejudicial to the interest of the revenue.
4. For that the Ld. CIT was not justifìed in holding that creditworthiness and identity of the shareholders from whom share capital money was received in the instant year remains to be verifìed though the Á. O. completed the assessment after making proper verifìcation.
5. For that in exercising revisionary powers u/s 263 the Ld. CIT lost sight of the well settled legal position that in the assessment u/s 147, the A. O. is not entitled to embark upon a fishing expedition and to make roving enquiries as such, assuming but not admitting that proper enquiries were not done in respect of the share capital raised by the assessee, there was no error in the order passed by the Á. O.
6. For that the Ld CIT exceeded his jurisdiction by directing the Ld. Á. O. as to how the fresh assessment should be framed by him.
3. Additional Ground of Appeal:
At the outset, the appellant craves leave to raise the following additional grounds of appeal which are mainly legal in nature and were inadvertently missed out from the memorandum of appeal filed --
For that the order passed u/s 263 by the Ld. CIT is barred by limitation, as such, the order passed u/s 263 is liable to be quashed.
Copy of a petition praying for admission of additional grounds of appeal along with addition ground is annexed in the paper book.4
ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 3.1. My humble submissions in respect of additional ground of appeal are being made here under -
(a) It is humbly submitted that the ìnstant revisionary order passed by the Ld. CIT u/s.
263 is bad in !aw from the point of view of limitation provided in sec. 263(2). According to sec. 263 (2), no order of revision shall be made after the expiry of two years from the end of the F.Y. in which the order sought to be revised was passed.
(b) In the instant case, the processing of return / summary assessment for the year in question was made on 21.12.2009 i.e., F.Y. 2009-10 (Page 1 of the A.O.s order). The re- assessment was made for the specific purpose of taxing the assessee for non-disclosure of commission income (as can be seen from the reasons recorded placed in the paper book). The raising of share capital was not the issue of re- openìng. Therefore, the order sought to be revised was the summary assessment / processing done u/s. 143(1). Thus, period of limitation prescribed for passing the order u/s. 263 expired on 31.03.2012. But the order u/s. 263 was passed on 28.03.2013.
(c) The issue is directly covered by the Hon'ble Supreme Court's judgement ìn the case of C1T vs. Alagendran Finance Ltd. 293 ITR 1 where it was held that where CIT in exercising its revisional jurisdiction re-opened order of assessment in relation to a particular issue, which was not the subject of re-assessment proceedings, period of limitation provided for in sec. 263(2) would begin to run from the date of order of original assessment and not from the order of reassessment.
(d) It is pertinent to note here that in the following cases, it was held that summary assessment made u/s. 143(1) can be revised u/s. 263 -
(i) CIT vs. Sri Mahasastha Pictures 263 ITR 304 (Mad)
(ii) CIT vs. Chidambaram Construction Co. 261 ITR 754 (Mad)
(iii) CIT vs. Anderson Marine And Sons Pvt Ltd. 266 ITR 694 (Bom.)
(e) The Hon'ble co-ordinate bench of ITAT, Kolkata in the case of M/s. Usha Martin Ventures Ltd. vs. CIT, ITA No. 576/K/2009, order dated 30.09.2009 following the judgement of Alagendran Finance (supra) allowed the appeal of the assessee and quashed the order passed u/s. 263 in the similar situation and in a case where the ROI was processed u/s 143(1). Copy of the said order is annexed herewith and marked as Annexure: 'A'.
3. Ground No. 1, 2 & 3In these grounds, the assessee has challenged the validity of revision proceedings u/s.
263. In this regard, submissions are being made hereunder -
(a) The various grounds on which the ld. CIT has held the order of the A.O. to be erroneous as well as prejudicial to the interest of the revenue are discussed hereunder one by one -
(i) notices u/s. 133(6) have been sent on a test check basis 5 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 Our Submissions Assessment proceedings are inquiry based proceedings. But it is not possible for the A.O. to make 100% enquiries in respect of all the aspects. There is some element of randomness in conducting the assessment proceedings. It is an absurdity to say that 100% of every transaction be exainined by the A.O.
(ii) It is seen that the bank statements of the subscribing companies is for a limited period and not for the whole year. Analysis of this statement does not throw any light whatsoever on the source of the funds of the subscriber companies. The A.O should have called for the bank statement of the full financial year for proper analysis & verifìcation.
Our submissions In this regard it is humbly submitted that at the time of reassessment proceedings, the A.O. issued 133(6) notices to the share applicants to confirm the transactions with the assessee- company alongwith documentary evidences. Replies accordingly were made by the share- applicants by filing relevant pages of bank statements and other documentary evidences. There is no requirement to file the complete bank statement by the share applicants in response to notice u/s. 133(6).
(iii) The replies were just placed on record and no independent inquiries were carried out regarding the fact whether the subscribing companies were available at the given address, whether they had the financial capability to invest such substantial amounts and whether they were genuine corporate entities.
Our Submissions Admittedly, the share subscribers had submitted the primary documents in the office of the A.O. pursuant to notices issued on them u/s 133(6). Thus, independent enquiries were conducted and the assessment was framed based thereon. It can be seen from the replies received that documents pertaining to the source of investment, bank statements, ITR Acknowledgements and Final Accounts were submitted by them. Even Ld. CIT has failed to point out any defect / irregularity in the documents on record.
The actual existence of the company is not in dispute. The same is registered with ROC. Returns of income cannot be filed without obtaining PAN Nos. PAN Nos. are not allotted unless the department is satisfied about the existence and the identity of the applicant.
(iv) The A. O. did not examine a single Director of the assessee company or of the subscribing çompanies.
Our Submissions There is no requirement of law to examine the directors of the assessee company as well as the subscribing companies u/s 131.
6ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
(v) It has become a common practice to introduce unaccounted money by way of share capital in dummy companies. The present assessee company is part of the large number of such cases in Kolkata as well as other parts of the country.
Our Submissions There is no material to come to this conclusion. Ld. CIT has also not referred to any material to come to such conclusion. The averment in the order has been made on the basis of conjectures and surmises and without any material basis.
(vi) Introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this, the money is transferred by way of cheques to other companies and this is done 3 to 4 times using different companies and thus rotating the money into 3 to 4 layers.
Our submissions There is no material to come to this conclusion. Ld. CIT has also not referred to any material to come to such conclusion in the instant assessees case. The averment in the order has been made on the basis of conjectures and surmises and without any material basis.
(vii) The company is then passed on to the final purchaser after charging a percentage of the capital in the company. This modus operandi has been confirmed in many search operations carried out by the investigation wing on entry operators & others over the past few years.
Our Submissions Ld. CIT has also not referred to any material on record to come to such conclusion in the instant assessees case. The averment in the order has been made on the basis of conjectures and surmises and without any material basis. It is further submitted that in the instant case, as stated above, the A.O. after making proper inquiries in respect of share capital completed the re-assessment proceedings by treating the share capital as genuine. No material is brought on record by the Ld. CIT that the documents on record are not genuine even though the documents in question related to the income tax department like income tax returns of the share subscribers.
As per the judgement of the Hon'ble Supreme Court in the case of Lovely Exports 216 CTR 195, which related to the issue of addition of share capital u/s 68, it was held that addition on account of share capital cannot be made in the hands of the recipient company.
(viii) Attention is also invited to the Delhi High Court in the case of CIT vs- Nova Promoters & Finance Pvt. Ltd. [342 ITR 0169] where it was observed tkat the fact that the share application money had come through cheques and the fact that the share applicants were registered with the Registrar of Companies were neutral facts and did into have much evidentiary value.
Our Submissions 7 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 It is humbly submitted that in the instant case the Ld. CIT has not referred to any material on record to come to such conclusion that the assessee wished to convert its unaccounted money in the form of share capital. It is pertinent to note here that from the records it can be seen that the instant year is the first year of the assessee- company and that the company has not its business operations. As such, no question of arisal of such a huge amount of unaccounted money arises. In the case CIT vs. Bharat Engineering & Construction Co. Ltd. 83 ITR 187, Hon'ble Supreme Court has held that where cash credits are found immediately after the assessee commenced its activities, they could not represent the income / profit of the assessee and it could be reasonably assumed that the entries are capital receipts. It is further submitted that the case of Nova Promoters as relied on by the Ld. CIT, the case is not relating to the sec. 263 proceedings. Further, in the said case, a letter was received by the A.O. from the Director of Income Tax (Investigation) informing that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was also one. This fact was also confirmed by the said persons. However, in the instant case, the Ld. CIT did not bring any material on record to prove the share capital raised by the assessee was ingenuine. Therefore, the ratio of Nova Promoters is not applicable to the instant case.
(d) It is humbly submitted before your Honours that the provision u/sec 263 deals with the revisionary powers of the CIT which are supervisory in nature.
Sec 263: Revision by the Commissioner (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and afler making or causing to be made such enquiry 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.
A. Meaning of the word 'erroneous' and 'prejudicial to the interest of the revenue' It is submitted that the Delhi HC in CIT v. Shri Ashish Rajpal 320 ITR 674, the word 'erroneous' and 'prejudicial to the interest of the revenue' has been explained as follows, "An order is erroneous when it is contrary to the law or proceeds on an incorrect assumption of facts or in breach of principles of natural justice or is passed without application of mind, that is stereo-typed, in as much as, the AO, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is proceeds with undue haste. The expression 'prejudicial to the interest of the Revenue' while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue."
B. Both conditions need to be satisfied in order to exercise powers u/sec 263.
8ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 It is humbly submitted that pre-requisite for exercise of suomotu revisional jurisdiction by the Commissioner u/Sec 263 of the Act is that, the order of the ITO is erroneous in so far as it is pre-judicial to the interest of the Revenue and only if the said twin conditions are fulfilled, then only the revisional order is justified. In the present matter, the AO has conducted deep inquiry and therefore the order is neither erroneous nor prejudicial.
C. Revisional powers cannot be exercised on the ground that the AO should have gone deeper into the matter or should have made a more elaborate discussion.
(i) The Court observed in the case of CIT v. Leisure Wear Exports Ltd. 341 ITR 166 (Del) that -
"Where the assessment order has been passed by the AO after taking into account assessee's submissions and documents furnished by him, and no material is brought on record by the CIT which shows that there was any discrepancy or falsity in the evidence furnished by the assessee, the order of the AO cannot be set aside for making deep enquiry only on the presumption that something new may come out."
(ii) The Court in CIT v. Budhilal Hiralal Rana 125 Taxman 455 (Guj.) held that when there was no material brought on record to justify that there was an error or omission or failure on the part of AO so as to make an order erroneous, then the order passed by the Commissioner, invoking sec. 263 to set aside order of the AO was not valid in law.
It is stated in the instant matter, there is no material brought on record by the CIT to prove how the order of the AO is erroneous in so far as it is prejudicial to the Revenue and the CIT has passed the order ulsec 263 without any base or foundation and at its own whims and caprice and therefore the same is devoid of any merit and should be dismissed in toto.
D. There is a difference between 'ack of enguiry' and 'inadeguate inguiry'.
(i) It is to be noted if there was inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass order u/sec 263 of the Act merely because he has a difference of opinion in the matter. It is only the cases of lack of inquiry that such a course of action would be open.
In the instant case, it can be seen from the paper-book that the A.O has, in the notice issued u/s 142(1), requisitioned various details pertaining to the share capital.
Admittedly, in the instant case notices u/s 133(6) were served on the share subscribers. This itself shows that the A.O has applied his mind to the issue and made proper inquiries.
(ii) The Court observed in DIT v. Jyoti Foundation 357 ITR 388 (Del.)," ...that orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interests of the revenue, but orders which are passed after inquiry or investigation on question or issue are not per se or normally treated as erroneous and 9 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 prejudicial to the interests of revenue because revisionary authority feels and opines that further inquiry or investigation was required or deeper or further scrutiny should be undertaken. Therefore, where revisionary authority opined that further inquiry was required, such inquiry should have been conducted by reversionary authorily himself to record finding that assessment order passed by the ÁO was erroneous and prejudicial to revenue."
(iii) The Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. 332 ITR l67 and CIT v. Anil Kumar Sharma 335 ITR 83 held that the fact as to whether the AO has applied his mind or not need not necessarîly be determined from what has been stated in the assessment order alone, it has to be examined as to whether any inquiry was at aIl conducted by the AO. There exists a difference between lack of inquiry and inadequate inquiry. If there were any inquiry, even inadequate that would not give an occasion to exercise jurisdiction u/sec 263 of the said Act.
(f) It is submitted that the AO examined alI the relevant documents and had conducted a proper inquiry. It is pertinent to note that the ld. commissioner did not himself conduct any inquiry to see how the AO's order was erroneous or prejudicial, which he was duty bound to conduct. Thus, the commissioner's usage of power to conduct fresh assessment was arbitrary.
(g) It is humbly submitted that since the A.O. had made proper enquiries in respect of the share capital, the order of the A.O. is neither erroneous nor prejudicial to the interest of the revenue.
(h) It is humbly submitted that the power u/s 263 is a supervisory power which states that the Commissioner may exercise such power on any proceeding or order under the Act. This connotes he power exercised by a quasi-judicial authority which must be exercised judicially. This is a power coupled with duty and in the very nature of things; this provision for re- ssessing a finally settled assessment has to be strictly construed.
(i) It is further submitted that the word 'prejudicial' should be in conjunction with erroneous order where there must be a prima facie demonstrable error of fact or law. There must be a total non-application of mind and a consequent prejudice to th revenue which is not found in present factual matrix. Here the assessee had shown every detail regarding share capital and AO had applied his mind and passed a final order. For the CIT to exercise a supervisory jurisdiction, it should be exercised in strict terms on blatant error on part of AO since AO has the ultimate authority u/s 147/148 to reopen the assessment and pass a final order. It is contended that courts have held in various rulings that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the revenue.
(j) It is the AO who has primary obligation of being satisfied with the explanation offered by the assessee by applying his mind to the facts and circumstances and the CIT may not interfere unless there is a grievous error, which is not the case here. Once all the material was before the AO and he chose not to deal with the several contentions raised by the company in final assessment, it cannot be said that he had not applied his mind to the material placed before him. Non-application of mind cannot be inferred merely because the assessment order does not specifically discuss the issue.
10ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
(k) It is further submitted that Jurisdiction u/s 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something.
(1) In the following cases, under the similar circumstances as in the instant case, the Courts and the Tribunal has held that the revision proceedings u/s 263 was not justified.
(i) CIT vs. Mehrotra Brothers 270 ITR 157 (MP) "When the assessee has furnished requisite information and the Income-tax Officer has considered the records before him and completed the assessment afier considering the evidence filed and after his satisfaction about the genuineness of cash credits, the order of revision under section 263 on vague ground that the Assessing Officer did not make proper enquiry is not valid."
(ii) CIT vs. Ratlam Coal Ash Company 171 ITR 141(MP) "In the instant case, the Tribunal has found that the assessee had furnished all the requisite information and that the Income-tax Officer, considering all the facts, had completed the assessment. The Tribunal further held that in the circumstances of the case, it could not be held that the Income-tax Officer had made the assessment without making proper enquiries. In view of these findings, the Tribunal, in our opinion, was justfied in law in reversing the order passed by the Commissioner of lncome-tax ."
(iii) Rattan Trading Co. vs. Inspecting Asstt. Commissioner 40 ITD 164 (ITAT- Delhi) "When the Assessing Officer observed in his order that he had examined the books of account and examined the stock particulars and when the stock particulars showed the damaged goods, it must be held that the Assessing Officer had examined all the aspects and d no leave any aspect untouched or unexamined ."
iv) Vidisha Tractors vs. ACIT 53 TTJ 432 (Indore Bench) "In the instant case we find that during the course of original assessment proceedings the assessee had produced the books of accounts and the AO has himself mentioned that such books of accounts produced before him were subjected to test check by him and that the assessment is being completed on the basis of information submitted, examination of books of accounts and after discussion with the assessee's representatives. We find that the relevant details were furnished to the AO along with the assessee's reply dt. l5th Feb., 1988. In òur opinion, merely because the AO has not meticulously dealt with the issue of commission payment and genuineness of the credit entries while completing the assessment, it cannot be said that there was no application of mind by him to the facts and details before him. Mere non-mention of certain facts should not be taken as omission on the part of the AO. It is quite possible that because of subjective satisfaction the detailed discussion might not have been needed in the light of the documents and material on record. In this view of the matter we hold that the CIT was in error in exercising his revisionary powers under s. 263 of the Act and as the conditions precedent for exercising such jurisdiction did not exist. We, therefore, quash the impugned order."
11ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
(v) Hon'ble Gauhati High Court in the case of Bongaigaon Refinery and Petrochemical's case 287 1TR 120 held as under-
"Entertainment of a view different from the one adopted by the Assessing Officer, if plausible would not clothe the Commissioner with the power to interfere therewith under the said provision of the Act. Differently put, an error within the jurisdiction of the Assessing Officer on an evaluation of the materials available would not be exposed to interference in exercise of suomotu revisional powers under section 263 of the Act. The provision though permits the Commissioner to initiate an enquiry as he may deem necessary does not authorise a roving probe into the facts with the disposition to pick out errors to sustain the eventual interference. This assumes great signfìcance in the context of the statutory frame work of the Act outlining the jurisdictional contours of different authorities to adjudicate the issues as legislatively stipulated. The Commissioner in exercise of his revisional powers cannot arrogate to himself a status to surrogate the other authorities and supplant their roles under the Act."
(vi) Hon'ble Supreme Court in the case of Malabar Industries Co. 243 ITR 83 held that the phrase prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the A.O. Every loss of revenue as a consequence of an order of A.O. cannot be treated as prejudicial to the interest of the revenue. It was further held that if the A.O. has adopted one of the courses permissible in law or where two views are possible and the A.O. has taken one view with which CIT does not agree, the order cannot be treated as erroneous and prejudicial to the interest ofthe revenue uriless the view taken by the A.O. is unsustainable in law.
(vii) Under the similar circumstances, the Hon'ble Jurisdictional high court of Kolkata in the case of CIT vs. M/s. Lotus Capital Financial Service Ltd., ITAT 125 of 2012 vide order dated 16.O7.2O12 held the revisionary proceedings u/s. 263 as invalid following the case of Malabar Industrial (supra). (Copy of the order of Hon'ble High Court is annexed herewith and marked as Annexure: 'B') 4. Ground No. 4 In this ground, the assessee has challenged the action of the Ld. CIT in holding that creditworthiness and identity of the shareholders from whom share capital money was received in the instant year remains to be verified. In this regard, our respectful submissions are being made here under -
(a) In the instant case, the assessee-company raised during the year the share capital of Rs.33,20,000/- and also received Share Premium amounting to Rs.2,98,80,000/-. In the course of the re-assessment proceedings, all the relevant details in connection with share capital alongwith the supporting documents were filed which were examinçd by the A.O.
b) The Hon'ble Supreme Court in the case of Lovely Export (P,) Ltd. 216 CTR 195 held that addition on account of share capital cannot be made in the hands of the recipient company.
(c) Recently, in the case of CIT vs. Peoples General Hospital Ltd. 356 ITR 65 (MP), the Hon'ble High Court held as under -
12ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 "If the assessee had received subscripiion to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Act, in the absence of any positive material or evidence to indicate the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company' s own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though in this case, the assessee's contention was that the creditworthiness of the creditor was also established, but according to the Hon'ble High Court, in the light of the judgement of Lovely Exports P Ltd 319 ITR (St.)5(SC), held that we have to see only in respect of the establishment of the identity of the investor."
(d) Further, Kolkata Bench of ITAT in the case of ITO vs. Indian Form Centre Pvt. Ltd., ITA No. 1985/K/2010, following the judgement of Lovely Exports (supra), held that "we observe that the transactions are duly recorded in the audited books of accounts of both the assessee-company as well as aforesaid share applicant companies, who purchased shares of the assessee-company. Therefore, no addition on account of unexplained cash credit is warranted in the case of the assessee on the given facts and circumstances as discussed above. In view of the above, in our considered opinion, the action of the A.O. is contrary to the decision of Hon'ble Apex Court in the case of CIT vs. M/s. Lovely Exports (P) Ltd.(supra)".
Copy of the aforesaid order of ITAT is annexed herewith and marked as Annexure: C.
(e) The Hon'ble Tribunal, Kolkata Bench again in the case of ITO vs. M/s. Savera Suppliers (P) Ltd., ITNo. 12/K/2010, held that -
"As it is noticed from the assessment order that the assessee has placed before the A O copies of return of income, balance sheet and bank account details as also the PAN Nos. of the applicants the assessee has discharged its onus in respect of the share application money received by it. Further, in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs, M/s. Dataware Private Limited ( supra) wherein it has been specifìcally held that so long it is not established that the returns submitted by the creditor has been rejected by its AO, the AO of the assessee is bound to accept the same as genuine when the identity of creditor and the genuineness of the transaction through account payee cheque has been established. We are of the view that the finding of the ld. CIT(A) is on the right footing and does not call for any interference. This view of ours also finds support from the decision of the Hon'ble Supreme Court ìn the case of CIT vs Lovely Exports (P)Ltd referred to supra."
Copy of the aforesaid order of ITAT is annexed herewith and marked as Annexure:'D'.
(f) It is further submitted that as per the various decided cases, it was not necessary for the A.O. to examine source of source of cash credits at the time of passing the reassessment order in the year 2010. In this regard, reliance is placed upon the following judgements-
(i) Nemi Chand Kothari vs. CIT 264 ITR 254 (Gau).
13ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
(ii) Jalan Timbers V. CIT 223 ITR 11 (Gau,
(iii) Dy. CIT vs. Rohini Builders 256 ITR 360 (Guj.)
(iv) CIT V. First Point Finance LILL 286 ITR 477 (Raj)
(v) AC1T vs. Surya Kanta Dalmia 97 1TD 235 (Cal) It has been held by the various High Courts that the assessee cannot be asked to prove source of source or the origin of origin vide S. Hastimal vs. CIT 49 ITR 273 (Mad.), Tolaram Daga vs. CIT 59 IR 632 (Assam), Saraogi Credit Corporation vs. CIT 103 ITR 344 (Pat.) This view finds support from the recent decision of Allahabad High court in the case of CIT vs. Jauharimal Goel 147 Taxman 448 (All).
In vìew of the above there was no error in the order of the A.O. As such, it is prayed that the order passed by the Ld. CIT be directed to be quashed.
5. Ground No. 5In this ground, the assessee has challenged the action of the Ld. CIT in exercising the revisionary power u/s. 263 inspite of the well-settled legal position that in the assessment u/s. 147, the A.O. is not entitled to embark upon a fishing expedition and to make roving enquiries.
(a) In respect of the Ld. CIT's allegation that independent enquiry was not conducted by the AO regarding the source of fund for the investment in the shares of the assessee company, it is humbly submitted that it is the case of re-assessment which was initiated by the revenue with a specific reason that the assessee company did not disclose commission income in the return of income and addition in this regard was also made by the A.O. It ìs humbly submitted that the A.O. was not supposed to make any fishing and roving enquiries and add share capital u/s. 68 of the Act as the assessment proceedings were reopened only for wrongful allowance of expense. The Provisíon of Explanation 3 to Sec 147 is reproduced hereunder-
Sec 147: Income Escaping Assessment Explanation 3 "For the purpose of assessment or reassessment under this section, the AO 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 this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded u/sub-sec (2) of sec 148."
(b) A perusal of the above reveals that the words used in the Explanation 3 are -
"Such issue (means any other escaped income) comes to his notice subsequently in the course of the proceedings under this section."14
ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 A plain and simple reading of the Explanation indicates that any other item of escaped income can be taxed in the re-assessment proceedings which comes to the knowledge of the A.O. durìng such proceedings. This does not envisage making of roving enquiries and embarking upon the fishing expedition.
In the instant case, the A.O. had made proper enquiries in regard to the subject matter of reopening and taxed the escaped income. The Ld. CIT cannot be heard saying that he should have made roving and fishing enquiries in respect of 100% of the share capita1 raised. In this regard. reliance is placed on the following judgements-
(i) Vipiri Khanna v. CIT (2002) 255 ITR 220 (P&H), The court held that Assessing officer cannot embark upon fresh enquiries on the issue which are unconnected with the issue which were the basis of proceedings uìs 1
47. The finaiity of the return filed cannot be dísturbed even ín the proceedings u/s 147 of the Act in respect of issues on which there is no material on record suggesting any escapement of income. The court held that there is no gainsaying the fact that in proceedings u/s 1 47 of the Act, it is only the escaped income which has to be assessed or reassessed.
(ii) Sun Engineering Works Pvt. Ltd. 198 ITR 297 (P & H) When proceedings u/s 147 of the Act are initiated, the proceedings are open only qua items of under assessment. The finality of assessment proceedings on other issues remains undìsturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment u/s 143(3) of the Act or on account of non issue of notice u/s 143(2) of the Act within stipulated period.
(iii) Amrinder Singh Dhiman v. AO 269 ITR 378 (P&H) Thus to conclude assessing officer can bring to tax any other income that have escaped assessment in the reassessment proceedings but for which no reasons were recorded at the start of such proceedings, if some new material comes into picture during such proceedings suggesting escapement of ìncome from assessment. However, Assessing officer cannot embark upon fresh enquiries on the issues which are unconnected with the issue which were the basis of proceedings u/s 147 and for which there is nothing on record to suggest that there has been escapement of income.
(iv) Ranbaxy Laboratories Ltd. vs. CIT 336 ITR 136 (Del) The interpretation of Explanation 3 has specifically fallen for consideration in the ìnstant case. It was held as under-
As per Explanation (3) if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However. the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurísdiction under Section 147 15 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under Section 148.
v) In the following recent cases, it was held that the A.O. cannot make general and fishing enquiries qua "unconnected issues" -
(a) Travancore Cements Ltd. vs. CIT 305 ITR 1 70 (Ker)
(b) Jai Bharat Maruti Ltd. vs. CIT 324 ITR 289 (DeL)
(vi) Hon'ble Supreme Court in the case of CIT vs. Alagendran Finance LUL 293 ITR 1 held that -
There may not be any doubt or dispute that once an order of assessment is reopened, the previous underassessment will be held to be set aside and the whole proceedings would start afresh but the same would not mean that even when the subject- matter of reassessment is distinct and different, the entire proceeding of assessment would be deemed to have been reopened.
6. Ground No. 6The Ld. CIT has given certain directions in the last para of his order as to how the fresh assessment is to be framed by the A.O. It has been held by the Hon'ble Gauhati High Court in the case of Bongaigaon Refineries 287 ITR 120 that the CIT in exercise of his revisional powers cannot arrogate to himself a status to surrogate the other authorities and supplant their roles under the Act.
Thus, the direction given by the Ld. CIT as to how the enquiries are to be conducted in the matter of share capital is beyond the powers conferred u/s 263.
In view of the above respectful submissions, the appeal of the assessee may please be allowed. "
7. Further, the ld. AR submitted that the issue of notice to the assessee's appeal could be considered into seven grounds as follows :-
"1. Whether the order passed u/s 263 by the CIT is barred by limitation ?
2. Whether the order of the AO passed u/s 147 can be said to be erroneous and prejudicial to the interest of revenue for lack of proper inquiries as to the issue of share capital/premium when the re-opening was done for the specific purpose of escapement of commission income?16
ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
3. Whether the CIT was justified in holding the order passed by the A.O. to be erroneous on the issue of share capital/premium when no addition u/s 68 can be made in the instant case in view of the judgments of the Hon'ble Supreme Court in the case of Lovely Export 216 CTR and also in the case of Bharat Engineering & Construction Co.Ltd. 83 ITR 187?
4. Whether CIT in exercise of power u/s 263 can give direction in respect of subsequent year for which revisionary power u/s 263 has not been exercised?
5. Whether the order passed by the A.O. can be said to be erroneous and prejudicial to the interest of revenue when the A.O. has passed the order after inquiry or investigation on the issue of share capital?
6. Whether the CIT was correct in holding the order passed by the A.O. to be erroneous on the basis of a generalized background in the absence of specific material against the assessee?
7. Whether the CIT ought to have made inquiries himself before coming to the conclusion that the order of the A.O. erroneous and prejudicial to the interest of revenue?"
8. Before going into the issues raised, the facts leading to this appeal is set out herein below :-
The assessment year involved is the Assessment Year 2008-09. For the relevant assessment year the assessee has filed its return of income on 30.03.2009 declaring an income of Rs.1,170/-. An intimation u/s 143(1) was issued on 21.12.2009. Subsequently a letter dated 'nil' was filed on 08.07.2010 to the AO mentioning that in the course of preparation of books of accounts for the financial year 2007-08 one item of income relating to the commission receivable towards finalization of a property dealing amounting to Rs.21,000/- was omitted to be incorporated in the books of accounts. It was specified that the mistake was identified after the finalization of audit and filing the income tax return. The said letter was signed by one Shri Kaushik Chowdhury as a director of the assessee company. The said letter was also accompanied by the director's report as also the auditors' report both dated 5th September, 2008. On the basis of this letter received the AO had issued a notice u/s 148 dated 30.08.2010, the same was served by hand as per the acknowledgement slip on 31.08.2010. There is no signature as to who has served this 148 notice. Also a perusal of the tear of acknowledgement shows that the person who has signed on behalf of the assessee company is also not mentioned. In response to 148 notice Shri Kaushik Chowdhury again as a director of the assessee company vide a letter dated 'nil' filed before the Income Tax Officer on 28th September, 2010 requested that the 17 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 original return filed on 30.03.2009 was liable to be treated as return in response to the notice u/s 148. Notices u/s 142(1) and 143(2) dated 04.10.2010 were issued and the same has been served by hand on 07.10.2010. The director's report and the balance sheet, P & L a/c, schedules thereto are signed by Shri Rakesh Agarwal as one of the directors and Shri Deo Kant Singh as another director. Shri Deo Kanti Singh, son of Shri Kishan Singh has signed the verification column of the return of income. One Shri J.Kumarr.Das, son of Shri Asit Bora Das as the director of the assessee company has provided the Power of Attorney to one Shri Vishal Agarwal, FCA to represent the assessee before the AO, Ward-9(3). The power of Attorney is undated and on Rs.10/- non judicial stamp and the date of purchase of the said stamp paper is 10th September, 2010.. The reply to the notice u/s 142(1) is by a letter dated 11.10.2010 filed on 3rd November, 2010. This is signed by an authorised signatory. The name is not specified and this signature is again completely new. In the said reply the assessee has provided the complete audited financial statement along with the computations, details of directors, copy of the bank statement and the details of the share application money including the names and addresses of the parties. Interestingly a perusal of the assessment records shows that the details of the directors as has been mentioned is not found though mentioned in the letter. On the basis of this letter notice u/s 133(6) are said to have been issued to the share applicants on 04.11.2010 again served by hand but the date of service and the identification of the person who has served the said notices are blank. The responses to the notice u/s 133(6) have been filed before ITO,Ward-9(3) by hand on 18.11.2010 and interestingly here also out of 5, three have been filed together in seriatum. All the replies to the notices u/s 133(6) are undated. The assessee has filed a letter dated 'nil' in the course of the assessment u/s 148 that the assessee has received the commission of Rs.21,000/- from two specific person being Shri Pankaj Kr.Agarwal and Shri Navin Kr.Agarwal. Subsequently on 24.11.2010 the assessment order u/s 143(3) r.w.s.147 is complete bringing to tax the addition commission income of Rs.21,000/- as offered and also penalty proceedings u/s 271(1)(c) had been initiated but subsequently dropped. Thus from the time of issuance of notice u/s 148 to the passing of order u/s 143(3) r.w.s. 147 including the alleged verifications all are culminated in exactly less than three months. The order u/s 18 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 263 having been passed on 28.03.2013 the consequential assessment had been completed u/s 143(3) r.w.s.144 on 31.03.2014. A perusal of the assessment order passed in consequence to the order passed u/s 263, there is no cooperation. Though 131 notices have been issued along with 133(6) have been issue there is no response to the 131 notices, also some of the 133(6) notices have been returned unserved, but all the 5 companies have responded and the response to 133(6) though from companies having addresses in Kolkata, the various parts of Kolkata such as Ezra Street, Princip Street, Pretoria St.,. M.G.Road, Ganesh Chandra Avenu3, even Surat, Canning Street, etc. all reply in the same language using the same words and committing the same spelling mistake and they are all responded to by hand again on the same day and filed in seariatum. But they are signed by different people. In the present case the spelling mistake identified which is identical in all the cases is in the certificate issued wherein the cheque no. is being wrongly spelt as CHAQUE instead of CHEQUE. In any case the proceedings subsequent to 263 is not the issue before the Tribunal and the issue before the Tribunal is order u/s 263.
9. Coming to each of the issues raised by the ld. AR. In respect of the first issue as to whether the order passed u/s 263 by the ld. CIT is barred by limitation. It has been argued by the ld. AR that in the reopening proceedings u/s 147 the issue of share capital was not the issue as per the reasons recorded in the order sheet. It was the submission that as the issue was totally different from the issue of reopening and the assessment order having been passed only such issues as have been considered in the reopened assessment fresh issues could not be the subject matter of the revision order u/s 263. It was the submission that as the issue of share capital is not the issue in the reopening of the assessment as also the consequential assessment order passed u/s 147 r.w.s. 143(3) the ld. CIT could not have considered the said assessment order for the purpose of computing the limitation. Consequently it is the intimation which was issued on 21.1.2009 which would have been considered and as the order u/s 263 was passed beyond the limitation period of two years from the end of the financial year in which intimation u/s 143(1) was passed. Order u/s 263 is barred by limitation.
19ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
10. To this the Revenue had submitted that 143(1) was an intimation and not an order. It was also submitted that once the assessment is reopened u/s 147 then all issues are left open. In the present case the reopening having not been challenged in the original proceedings the issue of share capital could be considered in the 263 proceedings.
11. We have considered the rival submissions. In the present case admittedly the assessee has filed a letter dated 'nil' informing the AO of the commission income having been omitted to have been offered to tax. In the said letter the assessee has also enclosed profit and loss account. It is on the basis of this letter that notice u/s 148 was issued. Admittedly in the letter and response to the notice u/s 148 the assessee itself has back tracked on its letter earlier filed having the escaped income. However, in the course of 142(1) proceedings the assesee voluntarily has produced details of the share application and the share premium received by the assessee. Thus what is evident is the assessee was meticulously by design drawn the attention of the AO to the share application money and the share premium. The AO has issued 133(6) notice, however, how the same has been served is conspicuous by its absence, in so far as, there is no evidence as to who has served this 133(6) notice. There are only tear of acknowledgements. Identity of the person serving the notice is absent. The responses to 133(6) are also by hand. Now the issue is, has the AO applied his mind or formed an opinion on the share application money and share premium when he passed the original assessment order u/s 143(3) r.w.s.147. That would be discussed in a separate part of the order. Now the assessee having drawn the attention of the AO to the share application money and share premium and the AO having issued notices u/s 133(6) on the basis of the design of the assessee obviously it would have to be construed that issue was also open before the AO in the course of the reopened assessment. Consequently if there is any error which is prejudicial to the interest of the Revenue on the issue of share application moneys and share premiums then it would be in the reopened assessment which has been rightly revised by the ld. CIT u/s 263. If this re- assessment order is taken into consideration then the order passed u/s 263 is well within the limitation. Further, a perusal of the order passed u/s 263 clearly shows that 20 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 it is this reassessment order which the ld. CIT has held to be erroneous and prejudicial to the interest of the Revenue, in so far as, no investigation whatsoever have been done by the AO, much less any investigation worth its name. This is also clearly evidence from the order sheet notings in the assessment folder. In the circumstances we are of the view that the order passed u/s 263 is not barred by limitation. Consequently issue no.1 is held against the assessee.
12. In respect of issue no.2 which has been raised by the ld. AR as to whether the order passed by the AO u/s 147 can be considered erroneous and prejudicial to the interest of the Revenue for lack of proper enquiry as to the issue of share capital premium when the reopening was done for the specific purpose of escapement of commission income. In respect of this issue it was submitted that the reopening actually was done by bringing to tax the escapement of commission income. Now just because of the lack of proper enquiry of share capital and premium whether the said order can be held to be erroneous and prejudicial to the interest of the Revenue was not applicable. It was the submission that the legislature could not be presumed to have intended to give blanket powers to the AO that on assuming jurisdiction u/s 147 regarding the assessment or re-assessment of escaped income he would keep on making roving enquiry and thereby include different items of income not connected or related with the reason to believe on the basis of which he assumes jurisdiction. It was the submission that on this ground the order passed u/s 263 was liable to be quashed. He placed reliance on the decision of the Delhi High Court in the case of Ranbaxy Labortatories Limited reported in 336 ITR 136.
13. In reply the ld. DR submitted that the reopenings had been done on the basis of the disclosure made by the assessee vide a letter dated 'nil. It was the assessee who gave information regarding the share capital and share premium. Now it is no more for the assessee to change its stand.
14. We have considered the rival submissions. Admittedly the AO cannot in a reopened assessment do roving enquiry, but what is to be understood in the present 21 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 case is that it is not the reassessment which are in appeal before us, it is revisionary proceedings. If at all, the assessee wanted to challenge the so called roving enquiry which has been done by design, as we may repeatedly say, it was to be done within the prescribed time provided in respect of reopened assessment It is not something that can be done in an appeal against the revisionary order passed u/s 263. The assessee himself having brought to the attention the issues to the AO and the AO having not done any investigation and as rightly submitted by the ld. AR, being lack of proper enquiries as to the issue of share capital and premium, the action of the ld. CIT in invoking the provisions of 263 is on a right footing and does not call for any interference. Consequently issue no.2 is held as against the assessee.
15. Coming to the issue no.3, it was submitted that the issue was whether the ld. CIT was justified in holding that the order passed by the AO is erroneous on the issue of share capital/premium when no addition can be made u/s 68 of the Act in the instant case in view of the judgments of the Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also in the case of Bharat Engineering & Construction Co.Ltd. 83 ITR 187. It was the submission that as has been held in the decision of Bharat Engineering & Construction Co. Ltd. in the first year of its creation the assessee cannot have an undisclosed income. In reply the ld. DR submitted that if these were opening share capital or initial share capital it could have been held that the company could not have earned undisclosed income. It was the submission that these are share capitals/premiums issues fraudulently for converting the black money, more so in the nature of money laundering activities and they have been done after the formation of the company and these were rightly liable to be held as undisclosed income of the assessee u/s 68 of the Act. It was also the submission that in Lovely Exports the Hon'ble Supreme Court has held that if the identity, Pan No. etc. are given then the share capital should not be added to the undisclosed income of the assessee u/s 68 of the Act. It was the submission that in the present case the assessee itself has invested in the share application of other such money laundering companies and it is the source of the assessee company which is being verified and the Hon'ble Supreme Court in the case of Lovely Export has clearly held that the AO is at liberty 22 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 to assess the same in the hands of the share applicants. Now the assessee itself is a share applicant of other companies. Therefore even the assessee has to explain its source. It was also the submission that the proviso to section 68 has been introduced w.e.f. 01.04.2013. It was the submission that this proviso being procedural proviso is not linked to the assessment order but to the year of assessment. It was the submission that though the assessment year is 2008-09 in view of the fact that the 263 order has been passed and the assessment is before the AO the provision of proviso to section 68 was rightly available to the AO.
16. We have considered the rival submissions. As has been rightly pointed out by the ld. DR a perusal of the balance sheet of the assessee shows that the assessee has made investments in other companies also. We would not go to the extent of calling or terming the other companies as money laundering companies as they are not before us and their facts are not before us. Admittedly this is not the initial share application. The assessee came into existence on 20th November, 2007 with an initial share capital of about Rs.1 or 2 lakh. The assessee decide to increase its share capital vide an ordinary meeting of the members of the company held on 31.03.2008 and increased the authorised share capital of the company from Rs.2 lakhs to Rs.35 lakhs. This increased share capital is in the form of 3,30,000 number of equity shares of Rs.10/- each. The original shareholders were Shri Vivek Kr.Agarwal and Shri Rohit Kr.Agarwal. Form No.5 to increase in the authorised share capital has been filed only on 08.09.2010 by Shri Vishal Agarwal and the form has been digitally signed by Shri Kaushik Chowdhury and he has been authorised to do so by the Board Resolution No.1 dated 05.08.2010. The receipt for the fees for the increase in the authorised share capital is paid on 24.08.2010. However, the share capital has been increased and share applications called for have been made at a premium on 4.3.2008. Now this itself should have drawn the attention of the AO. The issue of section 68 would clearly apply in the present case, in so far as, the proviso which has been added w.e.f. 01.04.2013 specifically provides for verification of the source of the source especially in respect of share application money, share capital, share premium or any such amount, by whatever name called. The AO having not conducted the enquiry to its 23 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 logical end and having been carried away by the design of the assessee, we are of the view that the ld. CIT was right in invoking the provision of section 263. Here we may specifically mention that proviso to section 68 has been introduced after the decision of the Hon'ble Supreme Court in the case of Lovely Exports and consequently as the proviso is now applicable the AO would be right in verifying the source of the source. A question would arise as to how the order u/s 26 per se can survive as the proviso has been introduced w.e.f. 01.04.2013 and the order u/s 263 has been passed in March, 2013. For this what is to be understood is that invocation of the proviso of section 68 has not been done by the ld. CIT and that the ld. CIT has done in his order u/s 263 is to treat the reassessment order passed by the AO to be erroneous and prejudicial to the interest of the Revenue, in so far as, the issue of share capital has not been looked into or investigated by the AO. Thus it is in the proceedings in consequence to the 263 order that the proviso to section 68 would be more applicable. In the circumstances issue no.3 is held against the assessee.
17. In respect of the 4th issue as to whether the ld. CIT in exercise of power u/s 263 can give direction in respect of subsequent assessment for which revisionary power u/s 263 has not been exercised, it was submitted by the ld. AR that the ld. CIT has given three directions. The first one to verify the issue of share capital introduction, the second to verify the change of ownership of the company and the third to verify the issue of conversion of the investments after the change of management. It was the submission that all the three issues do not relate to the same assessment year. On a specific query from the Bench as to which assessment years each of the issue relate to, the ld. AR was unable to specify. It was the submission that all the three issues can never take place in the same assessment year. In reply the ld. DR submitted that the issue was squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of Bishaka Sales Pvt. Ltd. vs CIT,Kol-II, Kolkata in ITA No.1493/Kol/2013 dated 19.09.2014. It was the submission that the ld. CIT has only directed to verify for the relevant assessment year and there is no specific direction to verify for any subsequent assessment year.
24ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09
18. We have considered the rival submissions. A perusal of the order of the ld. CIT shows that the ld. CIT after verifying the records as available have issued the show cause notice and after considering the reply of the assessee had done further investigation and as the information was not fully coming from the assessee had directed the AO to verify whether these three issues relate to the same assessment year. In the order passed u/s 263 the ld. CIT has not in any case extended his jurisdiction u/s 263 to any other assessment year. There is no direction in the order of the ld.CIT directing the AO to consider anything for any other assessment year. The direction of the ld. CIT is specific. Now it is for the assessee to show as to which year the issues raised by the ld. CIT would relate to. It is only in the knowledge of the assessee as to what the assessee has done in his books. What has happened in the assessee's books cannot be within the knowledge of the ld. CIT. In the circumstances as it is noticed that the ld. CIT has invoked revisionary powers for the relevant assessment year and has not given any direction in respect of any subsequent assessment year, we are of the view that this issue as raised by the assessee does not have legs to stand on. Consequently issue no.4 stands rejected.
19. Coming to the issue no.5 as to whether order passed by the AO can be said to be erroneous and prejudicial to the interest of the revenue when the AO has passed the order after inquiry or investigation on the issue of share capital. Clearly this issue is contradictory to the issue no.2 and 3 as raised by the assessee. The fact that the AO has not taken the issue of the share capital to its logical conclusion is evident. That the whole reopening itself was by design of the assessee is also evident. Now to take shelter under such design and claim that investigation and inquiry has been done by the AO when the facts clearly stand against such claim is also evident. In any case in regard to the issues of the show cause notice u/s 263 in such cases the issue has been decided by the Hon'ble Jurisdictional High Court in a writ petition in the case of Zigma Commodities Private Limited in W.P no. 281 of 2014 dt. 08/05/2014 wherein the Hon'ble Jurisdictional High Court has categorically given a finding that the ld. CIT has verified and has found that the investigation was not done. This order of the Hon'ble Jurisdictional High Court in a writ petition was the subject matter and 25 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 writ appeal before the Hon'ble Jurisdictional High Court in GA no.1911 of 2014 dt.19/08/2014 wherein the Hon'ble High Court has upheld the issue of show cause notice and again in an orbiter dicta has practically upheld the orders passed u/s 263. Thus clearly recognizing the design of the assessee in respect of re-assessments. In the circumstances this issue would have to be held against the assessee respectfully following the decision of the Hon'ble Jurisdictional High Court in the case of writ appeal filed in the case of Zigma Commodities Private Limited. As also the decision of the coordinate bench of this tribunal in the case of Bishaka Sales Pvt Ltd referred to supra. Issue No.5 is held against the assessee.
20. Coming to the 6th issue as to whether the ld. CIT is correct in holding the order passed by the AO is erroneous on the basis of a generalized background in the absence of specific material against the assessee. Again this issue is squarely covered by our finding in respect of issue no.5 and the same stands rejected.
21. Issue No.7 as to whether the ld. CIT ought to have made inquiries himself before coming to the conclusion that the order of the AO erroneous and prejudicial to the interest of revenue is also covered by our findings in respect of the 5th issue and consequently this issue also stands rejected.
22. In the course of the arguments the ld. AR had also made a specific prayer that the issue of the share premium which has been decided in the case of Bisakha Sales Pvt. Ltd. vs CIT, Kol-II, Kolkata vide ITA No.1493/Kol/2013 dated 19.09.2014 needs to be re-visited, in so far as the share premium cannot be treated as income of the assessee. Respecting the sentiments and the fears expressed by the ld. AR we have revisited the decision of the Co-ordinate Bench of this Tribunal in the case of Bisakha Sales Pvt. Ltd. Here it is specifically clarified that in none of the cases relateing to the 263 orders in respect of the share application/ premium cases including the decision in the case of Bisakha Sales Pvt. Ltd. has the Tribunal given any finding as to what is to be assessed and what is not to be assessed in respect of 263 orders passed by the ld. CITs in these groups of cases all that the Tribunal has done is to give its finding whether the order of the ld. CITs passed order u/s 263 are sustainable on the facts of 26 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09 the cases or not. The discussions in the orders of the Tribunal are only the justifications and the reasoning for upholding the orders passed u/s 263 by the ld. CIT on the facts of the cases. Thus it is noticed that the fear expressed by the ld. AR that the share premium would be liable to be treated as income in the hands of the assesses are unfounded. If the assessee is able to substantiate its case that these were actually share premiums then obviously such share premiums if having been collected after due compliance of the laws prescribed would not become income in the hands of the assessee if not admittedly it will have to be assessed as income from other sources. Coming to the issue that the assessee had no business activity and consequently no undisclosed income can be assessed in the hands of the assessee. We must mention here that it is not the business income which is being considered it is the credit in the books of accounts of the assessee which has been questioned u/s 68 of the Act. It is for the assessee to explain the entries in its books and as earlier mentioned if it relates to the share capital then in view of the proviso to the provision of Section 68 of the Act which is applicable prospective in nature on the procedural level would also have to be complied with. In these circumstances we are of the view that order passed u/s 263 is sustainable on the facts of the present case and consequently stands sustained.
23. In the result the appeal of the assessee stands dismissed.
Order pronounced in the court on 10/10/2014.
Sd/- Sd/-
[Shamim Yahya] [ George Mathan ]
Accountant Member Judicial Member
Date: 10/10/2014.
R.G.(.P.S.)
Copy of the order forwarded to:
1. Ridhi Sidhi Vincom (P)Ltd., 11, Sambhu Chatterjee Street, Kolkata-700007.
2 C.I.T.,-III-Kolkata.
3. CIT(A)DR, Kolkata Benches, Kolkata True Copy, By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches 27 ITA.No.1410/K/2013 Ridhi Sidhi Vincom(P).Ltd.
A.Yr.2008-09