2014 (10) TMI 151 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - Receipt of share application money with huge share premium Held that - Receipt of share application money with huge share premium warranted detailed enquiry by the AO and not a perfunctory enquiry Relying upon CIT vs Durga Prasad More 1971 (8) TMI 17 - SUPREME Court revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probability - the change in management took place in the assessment year 2010-11, i.e. year ended 31/3/2010, i.e. the period 1/4/2009 to 31/3/2010 - The reopening of the assessment and the reassessment proceedings took place during this time - This clearly shows the due diligence being attempted with the contumacious intent to attempt to obtain the seal of approval of the Income-tax department in respect of the bogus share capital introduced - after getting the certified copies the date is not incorporated on the certified copy but on a zerox copy of the certified copy and then by mistake such incorporated Xerox copy is used for making the paper book when all other copies are the certified copies - Even to an untrained mind obviously the sight of a document without the original blue coloured seal in a mass of papers should have drawn attention thus, the order passed u/s 263 is upheld. Issue of tangible material Held that - CIT has the power to give directions for assessment of a particular issue as also the powers to set aside the assessment for fresh consideration on specific issues or de novo - when the CIT is directing to assess a particular income then such directions must be on specific tangible material - the order u/s 263 clearly shows that the CIT did have very tangile information and material on the basis of which she has conducted the enquiry and then has set aside the assessment to conduct enquiry in respect of the three limbs of the transactions and grant the assessee the opportunity to explain its case - even on jurisdiction the CIT has rightly invoked her powers u/s 263 of the Act and it is upheld. The assessee has also not cooperated in the assessment proceedings but in the first appeal has been raising allegations against the AO that he has not accepted documents submitted and has not granted adequate opportunity - This also clearly shows the evasionary tactics that are being adopted to wriggle its way out of the corner it has put itself into by its own acts and commissions - A peculiarity in such cases that is noticed is that sheaves of paper documents are readily produced but when a summon is issued the responsible persons conveniently disappear - only the assessee knows the intricacies of its accounts - It is for the assessee to prove its claim of share capital/ application money introduction and its affairs in respect of its accounts - Merely dumping papers and documents on the table of the assessing authority does not in any way mean compliance - The burden of proof cannot be shifted on the revenue by cart loads of documents - The documents submitted must be explained Decided against assessee.

Issues Involved:
1. Invocation of powers under section 263 by the CIT.
2. Alleged lack of proper inquiry by the AO regarding share capital.
3. Applicability of section 56(2)(viib) and its prospective nature.
4. The necessity of tangible material for invoking section 263.
5. Validity of the share premium received by the assessee.
6. Compliance with section 78 of the Companies Act regarding share premium.
7. Examination of the share application money and premium under section 68.

Detailed Analysis:

1. Invocation of Powers under Section 263 by the CIT:
The CIT invoked her powers under section 263 on the grounds that the AO did not make a proper inquiry regarding the share capital. The assessee contended that the AO had conducted necessary inquiries, and the CIT could have made further inquiries if she deemed necessary. The CIT's decision to invoke section 263 was based on substantial information indicating that numerous companies were created with bogus share capital for money laundering purposes. The CIT concluded that the assessment order was erroneous and prejudicial to the interests of the Revenue.

2. Alleged Lack of Proper Inquiry by the AO Regarding Share Capital:
The assessee argued that the AO had specifically raised inquiries on the issue of share application money, and the assessee had provided all necessary information. The AO was satisfied with the replies and did not deem it necessary to make further verification. However, the CIT found that the AO did not conduct an adequate inquiry, particularly given the substantial share premium received by the assessee. The CIT emphasized that the AO's inquiry was perfunctory and not thorough.

3. Applicability of Section 56(2)(viib) and Its Prospective Nature:
The assessee argued that section 56(2)(viib) was introduced w.e.f. 01.04.2013 and could not be applied retrospectively to the assessment year 2008-09. The CIT, however, noted that even before the introduction of section 56(2)(viib), the AO was required to examine the receipt of disproportionate share premium under section 68. The CIT emphasized that the receipt of a substantial share premium warranted detailed inquiry by the AO, irrespective of the introduction date of section 56(2)(viib).

4. The Necessity of Tangible Material for Invoking Section 263:
The assessee contended that there was no tangible material for invoking section 263. The CIT, however, had substantial information indicating that the assessee was involved in money laundering through bogus share capital. The CIT's order under section 263 was based on tangible material and specific information, justifying the need for a detailed inquiry into the share capital and premium received by the assessee.

5. Validity of the Share Premium Received by the Assessee:
The assessee received share application money for shares of nominal value Rs. 10 each at a premium of Rs. 240 each. The CIT found no apparent reason for such a high share premium and concluded that the AO should have conducted a detailed inquiry into the share premium received. The CIT noted that the share premium was disproportionate and not justified by the fair market value of the shares, warranting an examination under section 68.

6. Compliance with Section 78 of the Companies Act Regarding Share Premium:
The CIT highlighted that section 78 of the Companies Act specifies how share premium is to be used. The CIT found that the assessee did not comply with section 78, as the share premium was not utilized in accordance with the prescribed manner. The CIT emphasized that adherence to section 78 is crucial for the share premium to retain its capital receipt characteristic; otherwise, it could be taxed as revenue receipt.

7. Examination of the Share Application Money and Premium under Section 68:
The CIT directed the AO to conduct a detailed inquiry into the share application money and premium received by the assessee under section 68. The CIT noted that the AO's inquiry was inadequate and did not address the disproportionate share premium received by the assessee. The CIT emphasized that the AO should consider the surrounding circumstances and apply the test of human probability, as expounded by the Hon'ble Apex Court in various judgments.

Conclusion:
The CIT's invocation of section 263 was upheld, as the AO's inquiry into the share capital and premium was found to be inadequate. The CIT's order was based on substantial information and tangible material, justifying the need for a detailed inquiry. The appeal filed by the assessee was dismissed.

← Previous Next →