2019 (1) TMI 1192 - AT - Income Tax

Revision u/s 263 - order passed under section 147 r/w 143(3) as erroneous in so far as prejudicial to the interest of Revenue - identity, genuineness and creditworthiness of the transacting parties who have contributed to share capital/ share premium during the year under consideration and to furnish the basis of valuation/ working of the share price and share premium rates at which such subscription were received by the assessee - Held that - There is no finding regarding determination of fair market value of shares and consequent determination of share premium and thus the genuineness of the transaction where the shares have been issued at a premium. CIT-A has in fact examined these documents so submitted by the assessee and has given a finding that genuineness of transactions and creditworthiness of 15 companies out of total 18 companies have not been examined and verified by the AO. In particular, she has stated in her order that where the bank statements of these 15 companies are not submitted during the reassessment proceedings, how the AO has arrived at a conclusion that these investee companies have the requisite creditworthiness to subscribe to shares at a premium at the relevant point in time when the investment were made is not emanating from the records. Further, it is not a case where there was an audit objection and a different view so suggested by the auditor has been blindly applied by the CIT. No doubt, there was an audit objection in the present case but at the same time, there was lack of adequate enquiry on part of the AO and the ld CIT has given a specific finding in this regard on examination of documents so submitted during the course of assessment proceedings. No infirmity in the order of the CIT exercising her jurisdiction under section 263 of the Act in holding the order passed under section 147 r/w 143(3) as erroneous in so far as prejudicial to the interest of Revenue - decided against assessee.

Issues Involved:
1. Legality of the order passed by Ld. CIT under Section 263 of the Income Tax Act.
2. Verification of the genuineness and creditworthiness of the share capital and premium received by the assessee.

Issue 1: Legality of the Order Passed by Ld. CIT under Section 263

The assessee challenged the order passed by the Ld. CIT under Section 263, arguing that it was based on an audit objection and was issued without following the principles of natural justice. The assessee contended that the AO had already conducted a detailed enquiry on the issues raised by the Ld. CIT. The Ld. AR submitted that the assessee had filed its return of income and that the AO had issued a notice under Section 148 of the IT Act, leading to the verification of the share capital and premium received. The AO, after considering various documents and making necessary enquiries, accepted the genuineness of the share capital raised by the assessee in the assessment order passed under Section 147/143(3) on 30.03.2016.

However, the Ld. CIT initiated proceedings under Section 263 based on an audit objection, stating that out of 18 investing companies, only 3 had provided bank statements. The Ld. CIT concluded that the AO had not made proper verification/examination of the genuineness of transactions and the creditworthiness of the remaining 15 companies. The Ld. CIT, therefore, found the assessment order to be erroneous and prejudicial to the interest of revenue and set it aside for fresh assessment after proper enquiry.

The Tribunal noted that the AO had indeed conducted enquiries and verification but had taken the submissions and documentation provided by the assessee at face value without adequate further examination. The Tribunal held that the AO should have carried out requisite enquiry and verification as warranted in the circumstances, and the lack of such enquiry rendered the assessment order erroneous. Consequently, the Tribunal found no infirmity in the Ld. CIT's order under Section 263.

Issue 2: Verification of the Genuineness and Creditworthiness of the Share Capital and Premium Received by the Assessee

The Ld. AR argued that the AO had made detailed enquiries to verify the genuineness of the share capital money received by the assessee. Notices under Section 133(6) were sent to 18 companies, and the assessee provided various documents to establish the identity, genuineness, and creditworthiness of the transacting parties. The AO accepted the genuineness of the share capital raised by the assessee after considering these documents. The Ld. AR contended that the order passed by the AO could not be considered erroneous and prejudicial to the interest of revenue.

However, the Ld. CIT found that out of 18 companies, only 3 had provided bank statements, and the remaining 15 companies had not furnished the same, claiming that the records were time-barred. The Ld. CIT concluded that the AO had not made proper verification of the genuineness of transactions and the creditworthiness of these 15 companies. The Tribunal agreed with the Ld. CIT's findings, noting that the AO had not carried out adequate enquiry and had completed the reassessment proceedings in a summary manner. The Tribunal emphasized that the AO should have verified the identity and creditworthiness of the shareholders and the genuineness of the share transactions, especially given that the issuance of share capital at a premium was the reason for reopening the assessment proceedings.

The Tribunal found that the AO had taken the assessee's submissions on face value without further examination and verification, and there was no determination of the fair market value of shares and consequent determination of share premium. The Tribunal upheld the Ld. CIT's order, holding that the assessment order was erroneous and prejudicial to the interest of revenue due to the lack of adequate enquiry by the AO.

In conclusion, the Tribunal dismissed the appeal filed by the assessee, upholding the Ld. CIT's order under Section 263.

Order pronounced in the open Court on 10/12/2018.

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