2015 (8) TMI 174 - AT - Income Tax

Validity of revision u/s 263 - Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company? - Whether the failure of the AO to give a logical conclusion to the enquiry conducted by him gives power to the CIT to revise such assessment order? - Held that - We hold that the contention of the ld. AR that since the AO of the assessee-company is not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 w.e.f. A.Y. 2013- 14 and hence the CIT by means of impugned order u/s 263 could not have directed the AO to do so, is unsustainable. Whether the enquiry conducted by the AO can be construed as a proper enquiry? - Held that - The circumstances as discussed indicated that the apparent did not prima facie appear to be real and further investigation was called for. It is highly improbable for any person having sound mind to purchase at arm s length the shares of a private limited company, hardly having any worth, with face value of ₹ 10 at a premium of ₹ 190. This mere fact should have been cornerstone for the AO to embark upon further enquiry to unearth the truth. The genuineness of transactions of issue of share at such hefty premium in this background of the matter was under dark cloud and it skipped the attention of the AO. The contention of the assessee that the capacity of the share subscribers was proved as they subscribed to shares through banking channels after offloading their investments in shares of other companies, needs to be weighed properly in the background of the transactions in the instant cases. In so far as the establishment of genuineness of payment made through banking channels is concerned, we need not go anywhere else except looking at the judgment of the Hon ble jurisdictional High Court in CIT Vs. Precision Finance P. Ltd. (1993 (6) TMI 17 - CALCUTTA High Court ), in which it has been held that Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine . In our considered opinion, the AO miserably failed to examine all such relevant aspects, which must have been gone into during the course of assessment proceedings. AR unsuccessfully tried to justify the premium by submitting that the break-up value of the shares of the assessee companies is quite substantial, somewhere close to the premium. This break-up value has been computed by adding the share capital (say, face value of ₹ 10) and Reserve surplus (say, premium of ₹ 190) and then divided with the number of shares issued. This exercise leads us to nowhere. The reason is obvious that break-up value is being computed after taking into consideration the share premium received with this issue or an earlier issue on the same pattern. Such a break-up value at the close of the year after issue of shares at premium, is bound to remain close to the issue price of shares with premium. What is required to be shown is the break-up value of shares de hors the issue of any shares at premium. Since none of these companies has any other business activity except circulation of money from one company to another and by subscribing to or purchasing shares of other companies at premium/market price, there can be no justification of such a huge premium We agree with the contention of the ld. AR that the mere fact of completing an assessment within a short period of say one or two months, per se, cannot lead to an irreversible conclusion that the assessment was done in undue haste. But where the primary facts themselves point out objectively towards the need to carry out further investigation, as is there in all the cases under consideration, which the AO fails to carry out, it will be called as a case of passing assessment orders in undue haste without application of mind. All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of no enquiry conducted by the AO, what to talk of charactering it as an inadequate enquiry . In our considered opinion, the highly inadequate enquiry conducted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. Whether CIT can set aside the assessment order and direct the AO to conduct a thorough enquiry, thereby interfering with the jurisdiction of the AO conferred on him in terms of section 142(1) and 143(2) of the Act? - Held that - We are extantly not concerned with a situation in which the CIT is directing the AO to make assessment in a particular way, when the assessment proceedings are underway. Rather, the assessment already stands finalized and now the CIT is examining whether the AO properly examined the facts of the case. In such circumstances, it is impermissible to have a recourse to the provisions of section 142(1) and 143(2) for demolishing the order u/s 263 of the Act. We, therefore, refuse to uphold this contention as a reason for setting aside the order passed u/s 263 of the Act. No hesitation in holding that the present case is a glaring example of not making relevant enquiry, which amounts to no enquiry and hence it becomes a case of non-application of mind by the AO. When we approach the facts of the cases under consideration, it is obvious that the extent of enquiry conducted by the AO, being as good as no enquiry, is sufficient in itself to empower the CIT for invoking his jurisdiction u/s 263. Under such circumstances, we cannot cast an impossible burden on the CIT to show the positive leakage of income in concrete terms, when he has simply set aside the assessment order and restored this aspect of the assessment to the file of AO for making a proper enquiry and then deciding. Where the AO fails to conduct an enquiry or proper enquiry, which is called for in the given circumstances, the CIT is empowered to set aside the assessment order by treating it as erroneous and prejudicial to the interests of the revenue. In such circumstances, it is not further required on the part of the CIT to expressly show where the assessment order went wrong. The very fact that no enquiry was conducted or no proper enquiry was conducted in the required circumstances, is sufficient in itself to invoke the provisions of section 263. Non-service of show cause notice u/s. 263 - Held that - The conclusion which necessarily follows is that the requirement of service of notice u/s. 263 of the Act stands on a different footing and cannot be compared to cases where notice is required by law to be mandatorily served on assessee in terms of section 282 of the Act. Accordingly, the cases cited by the learned AR pertaining to service of notice in different contexts, where the Act mandates service of notice in accordance with section 282, lose their significance. Coming back to the language of section 263(1) requiring the passing of order after giving the assessee an opportunity of being heard , it transpires that it refers to giving opportunity of hearing. If despite genuinely giving opportunity of hearing by the CIT, the assessee tries to hoodwink by evading the service of notice as has been done in the cases before us, then the requirement of giving opportunity of hearing gets fully satisfied with. As such, we do not find any lack of opportunity of hearing by the ld. CIT in all such cases. Whether order u/s 263 is barred by limitation? - whether the issue of share capital by the assessee during the previous year was subject matter of reassessment proceedings? - Held that - Nevertheless in the reassessment proceedings in all the cases, the AOs ventured to issue notices u/s. 133(6) of the Act to some of the shareholders for examining as to whether the ingredients of sec. 68 were satisfied. As to whether such enquiry was adequate or not, is a different issue. The fact remains that by issuing notices u/s. 133(6) of the Act, the AOs tried to examine the question of genuineness of share capital in proceedings u/s 147. It thus follows that by holding that the issue of share capital at premium was not properly examined by the AOs, the ld. CIT revised the orders u/s 147 and not the Intimation u/s 143(1) of the Act. The scope of reassessment is no more confined to the issues referred to in notice u/s 148, but also extends to other issues which come to the notice of the AO during the course of reassessment proceedings indicating the escapement of income. No doubt the issue of share capital at premium was not subject matter of notice u/s 148, nevertheless the AO proceeded to examine this aspect, thereby bringing it within the ambit of the order u/s 147. Hon ble Kerala High Court in CIT Vs. K.V. Mankaram Co. (2000 (4) TMI 25 - KERALA High Court ) has held that Intimation u/s 143(1) is an order only for sections 154, 246 and 264 and for all other purposes is only notice of demand. Similar view has been taken in MTNL Vs. CBDT (2000 (8) TMI 53 - DELHI High Court ) holding that Intimation u/s 143(1) is not an assessment order. Since the subject of revision u/s 263 can only be an order passed.. by the Assessing Officer , we fail to see as to how Intimation issued u/s 143(1) in all such cases, which can by no stretch of imagination be treated as an order for the purposes of section 263, can be considered for the purposes of limitation. Viewed from any angle, it is clear that the subject matter of revision in all the cases under consideration were the orders passed u/s 147 of the Act. Going by the admission of the ld. ARs, if limitation is counted from the date of orders u/s 147, then the orders u/s 263 are within the limitation period Territorial jurisdiction of the CIT - whether the jurisdiction in respect of the order of assessment passed u/s. 147 r.w.s. 143(3) of the Act on 21.5.2010 in relation to AY 2008-09, much prior to even the making of request by the competent authority for transfer of cases for co-ordinated investigation and that too, for search matters, could also be said to have been transferred to ACIT/DCIT, Central Circle-XIX, Kolkata? - Held that - The Commissioner transferring jurisdiction has power to transfer all proceedings under the Act, which are pending, completed or which may be commenced after the date of transfer, but that does not mean that he does not have powers to restrict his order of transfer only to a particular case for which request was made, thereby, leaving the jurisdiction in respect of other cases pertaining to an assessee to be exercised by the AO/CIT who already had it. The power to do a particular act also includes a power to restrict the exercise of power partly. In this case there is no dispute that the CIT, Kolkata-II, Kolkata, who passed the order u/s. 263 of the Act had jurisdiction over the assessee. There is no order transferring jurisdiction from ITO, Ward 6(1), Kolkata under CIT, Kolkata-II, Kolkata. The ld. AR, however contended that PAN data in the public domain showed that the assessee s jurisdiction at the relevant time was with ITO, Ward 8(2), Kolkata, who was under the jurisdiction of CIT, Kolkata-III, Kolkata.In our view this objection is frivolous. In the absence of any actual transfer of jurisdiction, the argument is without any force. The jurisdiction as per PAN data in public domain may inadvertently show a wrong feature, but that would not amount to transferring the jurisdiction, which is there in reality. The objection is rejected. Whether an addition in the hands of a company can be made u/s 68 in its first year of incorporation ? - Held that - The decision in Bharat Engineering (1971 (9) TMI 14 - SUPREME Court) relied to submit that it cannot be possible for a newly incorporated to earn undisclosed income of such a magnitude in the very first year of its formation is in the case of a partnership firm and not a private limited company. There is a fundamental difference between a company vis-avis shareholders on one hand and a firm vis-a-vis partners on the other. Whereas a company is a separate legal entity distinct from its shareholders or directors, it is not so in the case of partnership firm. The Hon ble Supreme Court in Malabar Fisheries Company Vs. CIT (1979 (9) TMI 1 - SUPREME Court ) has held that partners and firm are one and the same thing and a firm is nothing but a compendious name given to partners. In view of the above precedents, it becomes manifest that the ratio laid down in Bharat Engineering (supra) cannot be applied to the facts of the present case, which is a company. The contention is rejected.In the absence of any actual transfer of jurisdiction, the argument is without any force. The jurisdiction as per PAN data in public domain may inadvertently show a wrong feature, but that would not amount to transferring the jurisdiction, which is there in reality. The objection is rejected. Effect of order passed u/s 263 in the case of amalgamating company after amalgamation - Held that - It is observed in the instant case despite its amalgamation, the assessee chose to file its return of income after the date of amalgamation, in its earlier name and that is how the assessment got completed u/s 147 in the same name. It is obvious that in such circumstances, the assessee cannot be allowed to take advantage of its own manipulation. It is further interesting to note that the assessee also allowed the proceedings u/s 147 to complete in its earlier name, but is now seeking to object to the order of the ld. CIT on this aspect of the matter. Law does not permit a person to both approbate and reprobate. This contention is therefore, rejected. Whether order u/s 263 becomes invalid for being passed on a closed day? - Held that - It is noted that from the above decision rendered by the Hon ble Allahabad High Court in the case of Kuldip Oil Industries Ltd. (1958 (12) TMI 35 - ALLAHABAD HIGH COURT), that in case of urgency, a trial can be conducted even on a closed holiday. In the present case, the time limit for passing the order u/s. 263 of the Act was expiring on 31.3.2013 and therefore, there was an urgency to pass the order before that date. The objection of the assessee deserves to be and is hereby rejected. Whether the order u/s 263 can be declared as a nullity for the notice having not been signed by the CIT ? - Held that - We have noticed above that there is no requirement under the law for giving a notice for the proceedings u/s 263 in conformity with the provisions of section 282 of the Act. It has been noticed that the assessee should be given an opportunity of hearing and once this is done, the proceedings cannot be challenged on this score. When an assessee is made aware of the proceedings u/s 263, no such objection can be allowed to be taken. As the assessee in the instant case was afforded opportunity of hearing that would suffice compliance with the requirements of audi alterm partem contemplated by the provisions of sec. 263 of the Act. The objection raised by the assessee in this regard, to say the least, is frivolous. Consequences of refusal by the Revenue to accept the written submissions of the assessee - Held that - Coming to the facts of the instant cases, the fact remains that such replies were sent by these assesses when the ld. CIT had given last opportunities and such opportunities were not availed by them. That apart, not giving a proper opportunity of hearing can be no reason for declaring the order void ab initio. The Hon ble Supreme Court in several judgments including Guduthur Brothers Vs. ITO (1960 (7) TMI 5 - SUPREME Court), CIT Vs. Jai Prakash Singh (1996 (3) TMI 7 - SUPREME Court ) and Kapurchand Shreemal Vs. CIT (1981 (8) TMI 2 - SUPREME Court) has held that lack of opportunity is simply an irregularity which does not render the order passed a nullity. In our considered opinion, it is at best an irregularity which will not affect the jurisdiction of the CIT u/s. 263 of the Act. We hold accordingly and dismiss the plea raised by the assessees on this issue. Search proceedings and revision of abated order u/s 263 - Held that - it is clear that if an assessment is completed prior to initiation of search u/s.132 of the Act and if no incriminating material is found regarding a particular item of income during the course of search, then no addition can be made in the assessment of such year u/s. 153A of the Act. If we accept the contention of the ld. AR, then the Revenue would be left without any remedy if such an order passed by the AO is found to be erroneous and prejudicial to the interest of the revenue. In our considered view, in such cases it would be open to the Revenue to explore remedies open to it in law u/s. 263 of the Act, subject to satisfaction of the conditions precedent for exercise of jurisdiction under that provision, even after the initiation of search u/s.132 of the Act. In such circumstances, we are of the view that the plea put forth by the assessee cannot be accepted. The question of the assessee having to face multiple proceedings, in the present case, cannot be the basis to hold that jurisdiction u/s.263 of the Act cannot be invoked. The proceedings u/s. 263 of the Act to revise the order dated 21.2.2013 passed by the AO u/s. 147 of the Act, are valid and cannot held to be without jurisdiction. - Decided against the assessee.

Summary

Issues Involved:
1. Validity of revision orders under Section 263 of the Income-tax Act, 1961.
2. Applicability of Section 68 to share capital with premium.
3. Adequacy and scope of inquiries conducted by the Assessing Officer (AO).
4. Jurisdiction of the Commissioner of Income Tax (CIT).
5. Limitation period for passing orders under Section 263.
6. Validity of service of notice under Section 263.
7. Impact of amalgamation on revision proceedings.
8. Validity of orders passed on closed days.
9. Consequences of refusal to accept written submissions.

Issue-wise Detailed Analysis:

1. Validity of Revision Orders Under Section 263:
The primary question was whether the CITs were within their power to revise the assessment orders passed by the AOs under Section 143(3) read with Section 147. The CITs observed that the AO failed to conduct a thorough investigation into the share capital with premium, rendering the orders erroneous and prejudicial to the interest of the revenue. The Tribunal upheld the CITs' orders, emphasizing that the AO's failure to conduct a proper inquiry justified the revision under Section 263.

2. Applicability of Section 68 to Share Capital with Premium:
The Tribunal held that Section 68 applies to share capital with premium if the assessee company fails to explain the identity, capacity, and genuineness of the transactions. The insertion of the proviso to Section 68 by the Finance Act, 2012, was deemed clarificatory and hence retrospective. The Tribunal rejected the argument that the AO could not examine the genuineness of share capital with premium before the amendment.

3. Adequacy and Scope of Inquiries Conducted by the AO:
The Tribunal found that the inquiries conducted by the AO were inadequate and amounted to no inquiry. The AO failed to investigate the rationale behind issuing shares at a high premium and did not examine the directors of the subscriber companies. The Tribunal held that the CIT was justified in directing the AO to conduct a thorough inquiry.

4. Jurisdiction of the CIT:
The Tribunal addressed various jurisdictional issues, including the territorial jurisdiction of the CIT. In cases where the jurisdiction was transferred, the Tribunal held that the CIT who passed the order under Section 263 had the jurisdiction to do so, as the transfer of jurisdiction was specific to certain cases and did not divest the original CIT of jurisdiction over other matters.

5. Limitation Period for Passing Orders Under Section 263:
The Tribunal held that the period of limitation for passing an order under Section 263 should be reckoned from the date of the order under Section 147, not from the date of the intimation under Section 143(1). The Tribunal rejected the argument that the issue of share capital was not the subject matter of reassessment proceedings.

6. Validity of Service of Notice Under Section 263:
The Tribunal found that the service of notice by affixture was proper in cases where the assessee evaded service of notice. The Tribunal held that the stringent conditions of service of notice under Section 282 do not apply to proceedings under Section 263, which only require giving an opportunity of hearing.

7. Impact of Amalgamation on Revision Proceedings:
The Tribunal held that the proceedings under Section 263 were valid even if the assessee company had amalgamated with another company. The Tribunal emphasized that the assessee cannot benefit from its own manipulation by continuing to file returns and participate in proceedings in its old name after amalgamation.

8. Validity of Orders Passed on Closed Days:
The Tribunal rejected the argument that the order passed on a closed day was null and void. The Tribunal held that the order was valid as the proceedings were concluded on a working day, and the order was passed on a closed day due to urgency.

9. Consequences of Refusal to Accept Written Submissions:
The Tribunal held that the refusal by the CIT's office to accept written submissions was an irregularity but did not render the order void. The Tribunal emphasized that lack of opportunity of hearing is an irregularity that can be cured and does not affect the jurisdiction of the CIT under Section 263.

Conclusion:
The Tribunal upheld the CITs' orders under Section 263, directing the AOs to conduct thorough inquiries into the share capital with premium. The Tribunal addressed various legal and procedural issues, emphasizing the need for proper investigation and adherence to legal requirements.