2017 (5) TMI 982 - HC - Income Tax

Order invalid on the ground of violation of the principles of natural justice - revision u/s 263 - Held that - The very fact that the adjournment petition was received after the hearing was concluded at best could imply that the assessee was seeking re-hearing, and we do not think such a plea was justified. No application for adjournment was made on the day the hearing was scheduled to take place before the Commissioner. If the noticee does not turn up before the authority before whom he has to respond to the notice, but seeks adjournment of hearing after two days, the noticee cannot complain of violation of the principles of natural justice. The Commissioner did not commit any error of law warranting interference from a superior appellate forum under the circumstances in deciding the case on merit. Moreover, the assessee had full opportunity to deal with the issue on merit before the Tribunal. Commissioner had outlined the manner in which the enquiry was to be carried out. There is no specific direction in the order stipulating in what way the case was to be decided. The Assessing Officer has been directed to pass a speaking order after providing reasonable opportunity to the assessee and upon verifying the source of share capital including the share premium of all the subscribers and rotation of money through various hands so as to ascertain the true nature of transaction which would bring to the fore, the reality of the transactions. The Commissioner's order gives a guideline on how the Assessing Officer shall proceed with the enquiry. The order, as we have already observed, does not contain a mandate in which manner the assessing officer shall pass the order. In our opinion, such a direction does not attract the prohibitory provisions of section 119. The said provision deals with power and jurisdiction of the Board to issue instruction on subordinate authorities. We do not think the Commissioner's order with which the assessee is aggrieved has been passed in breach of such principles. No substantial question of law.

Summary

Issues:
1. Validity of order under section 263 of the Income Tax Act, 1961 regarding share capital infusion at premium.
2. Rejection of adjournment prayer by the Commissioner during the proceeding under section 263.
3. Jurisdiction of the Commissioner to direct the Assessing Officer's re-enquiry process.

Issue 1:
The appeal under section 260A of the Income Tax Act, 1961 challenges the order passed by the Commissioner of Income Tax, Kolkata-III under section 263 directing an inquiry into the infusion of share capital at a high premium by the assessee-company. The Commissioner's order primarily focused on the source of funds related to the share capital infusion, prompting a fresh enquiry. The appellant, after a re-assessment triggered by undeclared miscellaneous income, failed in their appeal before the Income Tax Appellate Tribunal. The High Court, referencing previous judgments, upheld challenges to similar Commissioner orders, rejecting the appellant's additional point on adjournment prayer rejection.

Issue 2:
The rejection of the adjournment prayer during the proceeding under section 263 was a key contention. The Commissioner concluded the hearing despite the prayer for adjournment due to the death of the senior authorized representative's father. The appellant argued that the Commissioner did not communicate the rejection of the adjournment request, which was received after the scheduled hearing date. The High Court held that as the adjournment request was not made on the hearing date, the appellant could not claim a violation of natural justice principles.

Issue 3:
Regarding the Commissioner's direction to the Assessing Officer for a re-enquiry, the appellant argued that the Commissioner lacked jurisdiction to mandate the enquiry process. The High Court analyzed the order and concluded that the Commissioner's directive did not breach the prohibitory provisions of section 119, as it did not specifically dictate the outcome of the enquiry. The Court dismissed the appeal, stating that the Commissioner's order did not violate principles of natural justice or exceed jurisdiction, as the appellant had ample opportunity to address the issue before the Tribunal.

In summary, the High Court dismissed the appeal challenging the Commissioner's order under section 263, rejected the claim of adjournment prayer violation, and upheld the Commissioner's jurisdiction to direct the re-enquiry process by the Assessing Officer.