2016 (5) TMI 801 - HC - Income Tax

Revision u/s 263 - Is the finding of the Commissioner of Income Tax that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo motu perverse? - Held that - Money allegedly received on account of share application can be roped in under Section 68 of the Income Tax Act if the source of the receipt is not satisfactorily established by the assessee. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of CIT Vs- Nova Promoters and Finlease (P) Ltd. (2012 (2) TMI 194 - DELHI HIGH COURT ). Similar views were expressed by this Court in the case of CIT Vs- Precision Finance Pvt. Ltd. (1993 (6) TMI 17 - CALCUTTA High Court ). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that the ITO may even be justified in trying to ascertain the source of depositor . Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (1993 (4) TMI 55 - BOMBAY High Court ) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. We have demonstrated in some detail as to why is the order of the assessing officer erroneous and prejudicial to the revenue. - Decided against assessee

Summary

Issues Involved:
1. Whether the order under Section 263 directing further investigation is legal.
2. Whether the finding of the Commissioner of Income Tax (CIT) that unaccounted money was or could have been laundered as clean share capital is perverse.
3. Whether the order passed by the assessing officer under Section 143(3)/147 of the Income Tax Act is erroneous and prejudicial to the interest of the revenue.
4. Whether the impugned judgment of the learned Tribunal is perverse.

Detailed Analysis:

1. Legality of the Order under Section 263 Directing Further Investigation:
The Tribunal upheld the CIT's order under Section 263, directing further investigation into the share capital received by the assessee. The CIT found that the assessing officer (AO) did not conduct a thorough inquiry into the increase in share capital and the premium received, which could indicate money laundering. The CIT directed the AO to carry out detailed inquiries, including summoning directors of the assessee and subscriber companies and examining the source of funds. The Tribunal found that the AO's inquiry was inadequate, amounting to no inquiry, thus justifying the CIT's order for further investigation.

2. Perverse Finding of CIT Regarding Money Laundering:
The CIT's finding that unaccounted money could have been laundered as clean share capital was based on several pieces of evidence:
- The share capital was significantly increased by issuing shares at a high premium.
- Many subscriber companies received funds shortly before issuing cheques to the assessee, indicating a possible rotation of funds.
- The share application forms were incomplete, and the shares were subscribed by closely held companies owned by promoters/directors or their relatives and friends.
- The AO did not examine any directors of the assessee or subscriber companies.
The Tribunal found that these facts indicated that the transactions were not genuine and that the subscriber companies were mere name lenders, justifying the CIT's suspicion of money laundering.

3. Erroneous and Prejudicial Order by Assessing Officer:
The Tribunal concluded that the AO's order was both erroneous and prejudicial to the interest of the revenue. The AO failed to conduct a thorough inquiry into the genuineness of the share capital and the creditworthiness of the subscribers. The AO's assessment focused only on minor issues and did not address the significant increase in share capital and premium. The Tribunal noted that the AO's failure to investigate these issues rendered the assessment order erroneous and prejudicial to the revenue, justifying the CIT's intervention under Section 263.

4. Perverse Judgment of the Tribunal:
The Tribunal's judgment was not found to be perverse. The Tribunal thoroughly examined the evidence and the AO's assessment process, concluding that the AO's inquiry was inadequate. The Tribunal's decision to uphold the CIT's order for further investigation was based on a detailed analysis of the facts and circumstances, and it was not influenced by irrelevant considerations or prejudices. The Tribunal's reliance on its earlier judgment in Subhalaxmi Vanijya Pvt. Ltd. was also justified, as the facts and circumstances were similar.

Conclusion:
The appeal was dismissed, and the Tribunal's judgment was upheld. The AO's order was found to be erroneous and prejudicial to the revenue due to inadequate inquiry into the share capital increase. The CIT's direction for further investigation under Section 263 was deemed legal and justified. The Tribunal's judgment was not perverse, as it was based on a thorough examination of the evidence and the AO's assessment process.