2017 (3) TMI 1242 - HC - Income Tax

Revision u/s 263 -provisions of Section 68 as amended given retrospective operation - C.I.T. to direct an enquiry to ascertain the source and genuineness of the sums being projected by the appellants as capital receipts - Held that - We have already observed that the judgment in the case of Rajmandir Estates Private Ltd. (2016 (5) TMI 801 - CALCUTTA HIGH COURT ) was delivered considering the unamended provision of Section 68 of the Act. In the case of the assessees before us, there is no differing feature so far as applicability of the said statutory provision is concerned, even though the Tribunal in Subhalakshmi Vanijya Pvt. Ltd. (2015 (8) TMI 174 - ITAT KOLKATA) had held that the provisos to Section 68 of the Act are retrospective in their operation, and delivered the decision against the assessee in that case that reasoning. In the appeal of Rajmandir Estates Private Ltd. (supra), the Coordinate Bench did not consider it necessary to examine the question of retroactivity of the aforesaid provision. The Coordinate Bench found the order of the C.I.T. to be valid examining the order applying the unamended provision of Section 68 of the Act only. We do not find any other distinguishing element in these appeals which would require addressing the question as to whether the amendment to Section 68 of the Act was retrospective in operation or not. Neither do we need to address the issue that if the inquiries, as directed, revealed that share capital infused were actually unaccounted money, whether the same could be taxed in accordance with Section 56(2) (vii b) or not. It is not necessary in these appeals to deal with the question of retroactivity of the aforesaid provisions, for which that authority was cited. Asking for source of source can be relevant inquiry. - Decided against the assessee

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of the show-cause notice under Section 263 of the Income Tax Act.
3. Inquiry into the identity and creditworthiness of shareholders.
4. Retrospective applicability of the amended Section 68 of the Income Tax Act.
5. Legitimacy of the Commissioner’s directive for further inquiry.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The court condoned the delay in filing the appeals for ITAT 178 of 2016 and ITAT 14 of 2017, being satisfied that the appellants were prevented by sufficient cause from filing within the prescribed time.

2. Validity of the Show-Cause Notice under Section 263:
The Commissioner of Income Tax (C.I.T.) issued a show-cause notice under Section 263 of the Income Tax Act, stating that the assessment order was erroneous and prejudicial to the interest of the revenue due to insufficient inquiry into the substantial premium paid on shares of a little-known company. The appellant contended that no show-cause notice was issued, but this point was not pressed during the hearing.

3. Inquiry into the Identity and Creditworthiness of Shareholders:
The C.I.T. found that the assessing officer did not conduct requisite inquiries regarding the identity and creditworthiness of the shareholders. The Commissioner directed a thorough inquiry, including summoning the directors of the assessee and subscriber companies, and examining the source of funds and the layers through which the share capital was rotated.

4. Retrospective Applicability of the Amended Section 68:
The Tribunal, relying on its decision in Subhalakshmi Vanijya Pvt. Ltd. Vs. C.I.T., held that the amended Section 68, which requires the assessee to prove the receipt of share capital with premium to the satisfaction of the assessing officer, was retrospective in operation. The appellant argued against this, citing the Supreme Court’s decision in Commissioner of Income Tax Vs. Vatika Township Pvt. Ltd., which held that amendments should not be given retrospective effect unless explicitly stated.

5. Legitimacy of the Commissioner’s Directive for Further Inquiry:
The court upheld the Commissioner’s directive for further inquiry, finding it to be a step towards potentially charging the share capital receipts as income if the assessing officer remained unsatisfied with the explanation provided by the assessee. The Tribunal’s dismissal of the appeal was based on the precedent set by the Subhalakshmi Vanijya Pvt. Ltd. case, which supported the Commissioner’s directive for detailed inquiries.

Conclusion:
The court found no substantial question of law in the appeals and dismissed them, affirming the Commissioner’s directive for further inquiry and the retrospective applicability of the amended Section 68 as per the Tribunal’s earlier decision. The court also noted that the special leave petition against a similar judgment in Rajmandir Estates Private Limited was dismissed by the Supreme Court, reinforcing the validity of the Commissioner’s actions.

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