2014 (10) TMI 694 - AT - Income Tax

Jurisdiction of CIT u/s 263 Requisite enquiries carried out or not AO not acted after obtaining the information - Held that - the return of income was filed on 31.08.2009 - The assessee company had shown no trading activity - after collecting some information the AO did not act any further - There is no whisper in the order sheet as to whether AO made any discussion or enquiry with regard to the share capital and share premium - there was no enquiry by the AO and hence the CIT was justified in taking action u/s 263 of the Act - CIT has referred to the common practice being followed particularly in Kolkata where through the entries of share capital and share premium in dummy companies a very large amount is sought to be introduced and laundered by way of these companies - the issue of share capital and share premium needed an enquiry in the proper sense of the word and not a facade of enquiry. It is evident that after collecting some information the AO did not act any further. There is no whisper in the order sheet as to whether AO made any discussion or enquiry with regard to the share capital and share premium. In order dated 18.03.2011 it was barely two days after the receipt of last reply the AO writes in the assessment order that notice u/s 133(6) of the Act were issued to the share subscribers on test check basis the replies from their end are verified . In this regard we agree with the ld. DR, the AO has shown undue haste in completing the assessment. There was no enquiry whatsoever by the AO rather the entire exercise was to make a perfunctory attempt to give a facade of enquiry there was no cogent substance in the submission that prior to the introduction of proviso to section 68 and introduction of section 56(2)(viib) there was no requirement on the AO to enquire the genuineness of amount received as share capital and share premium - The receipt of any amount by whatever name called if the same is not genuine does fall under the ken of section 68 - there is no infirmity in the order passed by the CIT u/s 263 Decision in Zigma Commodities Private Limited vs ITO 2014 (5) TMI 672 - CALCUTTA HIGH COURT followed - Decided against assessee.

Summary

Issues Involved:
1. Jurisdiction of CIT under Section 263.
2. Direction to AO for fresh assessment.
3. Ground of doubt regarding AO's application of mind.
4. Examination of records and preconditions for revision.
5. Strict construction of revision provisions.
6. Verification of shareholders' creditworthiness and identity.
7. Initiation of proceedings for fishing and roving enquiries.

Issue-wise Analysis:

1. Jurisdiction of CIT under Section 263:
The assessee challenged the CIT's assumption of jurisdiction under Section 263, arguing that the CIT erred in law and on facts. The Tribunal noted that the CIT issued a notice under Section 263, stating that the assessment order was passed without proper inquiries, making it erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the CIT's jurisdiction, referencing the Hon'ble Jurisdictional High Court's decision in Zigma Commodities Private Limited vs ITO, which supported the CIT's authority to revise the assessment order.

2. Direction to AO for Fresh Assessment:
The CIT directed the AO to make a fresh assessment, citing the AO's failure to conduct requisite inquiries regarding the substantial share premium received by the assessee. The Tribunal agreed with the CIT, noting that the AO did not pursue inquiries to their logical end and merely collected information without proper verification. The Tribunal emphasized the need for thorough and detailed inquiries into the share capital and share premium transactions.

3. Ground of Doubt Regarding AO's Application of Mind:
The assessee argued that the CIT exercised revision power merely on the ground of doubt regarding the AO's application of mind. The Tribunal found that the AO had shown undue haste in completing the assessment and had not conducted any meaningful verification of the share capital and share premium. The Tribunal concluded that the CIT's action was justified as the AO's order was passed without proper application of mind.

4. Examination of Records and Preconditions for Revision:
The assessee contended that the CIT failed to examine the records and derive requisite satisfaction about the order being erroneous and prejudicial to the interest of revenue. The Tribunal, referencing the Jurisdictional High Court's decision in Zigma Commodities, held that the CIT had sufficiently indicated in the show cause notice that the AO's order appeared erroneous and prejudicial to the revenue, thus fulfilling the preconditions for revision.

5. Strict Construction of Revision Provisions:
The assessee argued that the provisions for revision of a finally settled assessment should be strictly construed. The Tribunal noted that the AO's failure to conduct proper inquiries justified the CIT's action under Section 263, as the AO's order was erroneous and prejudicial to the revenue.

6. Verification of Shareholders' Creditworthiness and Identity:
The CIT held that the AO did not verify the creditworthiness and identity of the shareholders who subscribed to the share capital at a substantial premium. The Tribunal agreed, noting that the AO did not conduct independent inquiries or cross-verify the documents submitted by the shareholders. The Tribunal emphasized the need for the AO to summon and examine the directors of the assessee and the subscribing companies to verify the genuineness of the transactions.

7. Initiation of Proceedings for Fishing and Roving Enquiries:
The assessee claimed that the CIT initiated proceedings to start fishing and roving inquiries. The Tribunal dismissed this claim, stating that the CIT's action was based on the AO's failure to conduct proper inquiries and not on mere suspicion. The Tribunal highlighted the need for detailed inquiries into the substantial share premium received by the assessee.

Conclusion:
The Tribunal upheld the CIT's order under Section 263, directing the AO to conduct thorough and detailed inquiries into the share capital and share premium transactions. The Tribunal emphasized the importance of proper verification and application of mind by the AO in such cases. The appeal filed by the assessee was dismissed.