2021 (4) TMI 243 - AT - Income Tax

Revision u/s 263 - Addition u/s 68 - reopening of assessment u/s 147 - Bogus share capital collected by the assessee company - HELD THAT - In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, a perusal of their respective balance sheets reveals that these Companies are having enough capital and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held by Hon'ble jurisdictional High Court in CIT vs DATAWARE 2011 (9) TMI 175 - CALCUTTA HIGH COURT which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. The share applicants have confirmed the share application in response to the notice u/s. 133(6)of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. Thus the assessee has discharged the onus on it; and the AO enquired about it during the reassessment after reopening proceeding for this issue and it has been thoroughly enquired as discussed supra and the view taken by AO is a plausible view in line with the judicial precedence supra and so it cannot be called erroneous. So the Ld. PCIT erred in holding the AO's re-assessment order as erroneous. in the light of the aforesaid judicial precedents and in the light of fact that AO has conducted enquiries in respect of share capital collected by the assessee company before accepting the share subscribers identity, creditworthiness and genuineness of the transaction and being satisfied did not find it necessary to make any addition u/s. 68 of the Act, which action could not have been interfered by the Ld. PCIT u/s. 263 of the Act since the jurisdictional condition precedent for invoking the same is not satisfied in the facts of this case We note that the Ld. PCIT proceeded on wrong, assumption of facts and law. Since the Ld. PCIT has interfered by invoking 263 jurisdiction without satisfying the condition precedent i.e. AO's order to be erroneous as well as prejudicial to the Revenue, the issuance of SCN and consequent impugned action is null in the eyes of law. Therefore, the assumption of revisional jurisdiction is bad in law and so quashed. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to invoke revisional power under Section 263 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) conducted adequate inquiries during the reassessment proceedings.
3. The validity of the reassessment order passed under Sections 147/143(3) of the Income Tax Act, 1961.
4. The legal requirements for proving the identity, creditworthiness, and genuineness of share capital transactions.

Issue-wise Detailed Analysis:

1. Jurisdiction of the PCIT to Invoke Revisional Power under Section 263:
The main grievance of the assessee was that the PCIT did not have the requisite jurisdiction to invoke revisional power under Section 263 for AY 2010-11. The assessee contended that the PCIT failed to demonstrate how the AO's reassessment order was erroneous and prejudicial to the interest of the revenue. The PCIT issued a show-cause notice (SCN) stating that the AO did not examine the identity, creditworthiness, and genuineness of transactions related to share capital and share premium received by the assessee. The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which requires that both conditions—erroneous and prejudicial to the interest of the revenue—must be satisfied for invoking Section 263.

2. Adequacy of Inquiries by the AO during Reassessment:
The assessee argued that the AO had conducted thorough inquiries during the reassessment proceedings. The AO issued multiple notices under Sections 143(2), 142(1), 133(6), and 131, and received responses from the share applicants. The AO verified the identity, creditworthiness, and genuineness of the share transactions through various documents, including PAN, bank statements, ITR acknowledgments, and audited financial statements. The Tribunal noted that the AO had reopened the assessment based on information from the ADIT (Investigation) and conducted seven hearings before passing the reassessment order. The Tribunal found that the AO's inquiries were adequate and in line with the requirements for AY 2010-11.

3. Validity of the Reassessment Order under Sections 147/143(3):
The reassessment was initiated based on information that the assessee had raised share capital from dubious and shell companies. The AO reopened the assessment to investigate the creditworthiness, genuineness, and identity of the share applicants. The Tribunal observed that the AO had conducted a detailed investigation and accepted the share capital after verifying the documents provided by the assessee. The Tribunal held that the AO's action was a plausible view and could not be termed as erroneous or prejudicial to the revenue.

4. Legal Requirements for Proving Identity, Creditworthiness, and Genuineness of Share Capital Transactions:
The Tribunal emphasized that for AY 2010-11, the assessee was required to prove the "source" of the share capital but not the "source of source." The assessee provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the share applicants. The Tribunal referred to several judicial precedents, including CIT v. S. Kamaljeet Singh, Lovely Exports, and decisions of the Calcutta High Court, which supported the assessee's position. The Tribunal concluded that the AO's acceptance of the share capital was based on a thorough investigation and aligned with the legal requirements for the relevant assessment year.

Conclusion:
The Tribunal quashed the PCIT's order, holding that the AO had conducted adequate inquiries and the reassessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal emphasized the importance of finality in tax disputes and the need for the PCIT to conduct preliminary inquiries before invoking revisional jurisdiction under Section 263. The appeal of the assessee was allowed, and the additional ground of appeal was left open as academic.

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