2017 (4) TMI 614 - HC - Income Tax

Revision u/s 263 - Held that - The revisional proceeding was commenced within the limitation period prescribed under Section 263(2) of the Act. The Tribunal has rightly held in the order impugned that limitation period for passing the order is to be counted from the date of passing the order under Section 147 read with Section 143(3) of the Act and not the date of intimation issued under Section 143(1) of the Act. Tribunal was justified in holding that addition in the hands of a company can be made under section 68 in its first year of incorporation - The mere fact that the assessment year is the year of commencement of business of the assessee cannot insulate it from an inquiry directed towards steps contemplated under Section 68 of the 1961 Act. No notice to show cause before passing the order under Section 263 - Held that - We are of the view that service by post, which had been returned with the endorsement addressee not found , followed by an attempt at personal service and subsequent affixture would constitute substantial compliance of the provisions of Section 282 of the Act. Tribunal, being the highest fact finding body, has already come to the finding that there has been proper service. Furthermore, we find from the order of Tribunal that the appellant was heard at length on factual as well as legal issues. We do not consider it necessary to go into the question as to whether Section 282 of the Act requires compliance or not for effecting service of notice in respect of a proceeding under Section 263 of the Act as we are of the opinion that substantial compliance of the provision of Section 282(1) has been effected in the case of the assessee. We do not find any perversity on the finding of the Tribunal on this issue upholding the proceedings under section 263. first proviso to Section 68 inserted by the Finance Act, 2012 w.e.f 1.4.2013 applies to the Assessment Year 2008 2009 as held by ITAT - Held that - Question is already covered by our judgment in the case of Pragati 2017 (3) TMI 1242 - CALCUTTA HIGH COURT as specifically held that the exercise which is contemplated by the impugned order of the Commissioner was permissible under Section 68 of the 1961 Act, as it stood prior to its amendment by the Finance Act, 2012. We found, in that judgment, that it was not necessary to deal with the question of retroactivity of the said provision.

Issues Involved:
1. Reassessment under Section 147/143(3) of the Income Tax Act, 1961.
2. Initiation of proceedings under Section 263 of the Income Tax Act, 1961.
3. Validity of the reassessment order and whether it was prejudicial to the interest of the Revenue.
4. Addition to income under Section 68 in the first year of incorporation.
5. Service of notice under Section 263 and compliance with principles of natural justice.

Detailed Analysis:

1. Reassessment under Section 147/143(3):
The assessee, an incorporated company, was assessed for the year 2008-09, its first year of assessment. The return filed showed a loss of ?6812/- and total income as nil. However, it was later observed that the assessee earned consultancy fees of ?32,500/- in cash, which was not included in the gross total income. Consequently, a notice under Section 148 was issued for reassessment, and the amount was added back to the total income.

2. Initiation of Proceedings under Section 263:
The Commissioner of Income Tax initiated proceedings under Section 263, observing that the assessee issued shares at a significant premium without proper inquiry into the identity and creditworthiness of the shareholders. The Commissioner directed a detailed inquiry into the share capital infusion, summoning directors and examining the source of funds.

3. Validity of the Reassessment Order:
The Tribunal upheld the Commissioner’s order, noting that the reassessment order was passed without proper inquiries, making it erroneous and prejudicial to the Revenue. The Tribunal dismissed the appeal, following earlier judgments in similar cases, including Rajmandir Estates Private Limited and M/s. Subhlakshmi Vanijya Pvt. Ltd.

4. Addition to Income under Section 68:
The appellant contended that no addition could be made under Section 68 in the first year of incorporation, citing Bharat Engineering & Construction Co. and other cases. However, the court held that the mere fact that it was the first year of business did not insulate the assessee from inquiry under Section 68. The court emphasized that the inquiry was permissible and necessary to determine the source of funds.

5. Service of Notice under Section 263:
The appellant argued that the show-cause notice was not properly served, violating principles of natural justice. The Commissioner’s order stated that notice was served by affixture after attempts at personal service failed. The Tribunal found that substantial compliance with Section 282 was achieved, and the service of notice was proper. The court agreed, noting that the Tribunal’s finding on service was not perverse and did not warrant interference.

Conclusion:
The court dismissed the appeal, finding no substantial question of law. The reassessment and subsequent proceedings under Section 263 were held valid, and the inquiries directed by the Commissioner were deemed necessary and permissible. The service of notice was found to be in substantial compliance with the law, and the addition to income under Section 68 was justified despite it being the first year of incorporation.

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