2021 (6) TMI 753 - AT - Income Tax

Revision u/s 263 - Addition u/s 68 - unexplained share capital and premium - HELD THAT - AO has enquired about the issue by serving the summons u/s 131 of the Act to the Directors/ Principal officers of share holding companies at their official addresses through the departmental Inspectors. And it is noted that the AO has made field enquiry through the Inspector (on test-check basis) to find out the actual existence of company and to find out whether there are employee/employees working there etc. AO has made specific finding that the share holders are duly registered with the Ministry of Corporate Affairs and they all have filed their respective return of income regularly. The AO notes that the directors of all the share holders company have responded to the summons u/s 131 of the Act and their existence has been verified with the PAN data base and found to be correct. AO has acknowledged to have recorded statement of directors on oath and placed the same on record. The AO has looked into the details of the source of funds submitted by the share holders during the course of statement recorded of the directors and he has recorded his satisfaction on the source of share subscribing money of the share holders. AO has made a finding of fact that the share subscription was made through the banking channel and that all the share subscribers have submitted even their annual return filed for AY 2017-18 (when the Third Assessment order was being framed) even though the assessment was regarding AY 2009-10. Further the AO has noted that the investments made by the share holders are duly reflected in the respective books of accounts and moreover the AO has also noted their creditworthiness and genuineness of the transaction. In order to prove identity, creditworthiness and genuineness of the transaction the assessee had filed the following details of each share subscribers which is evident from PB filed before us. The share holders have filed the following details before AO to prove the identity, creditworthiness and genuineness of the share transaction. The assessee had not only submitted all the details and evidences to prove the share capital raised but has also produced all the directors of shareholder companies who were examined on oath - AO has verified the bank statements, books of accounts, copy of share application and allotment forms, etc. were checked and placed in the records. So the case of assessee is distinguishable and therefore this case law does not apply to the facts of this case. Third PCIT could not have usurped the revisional jurisdiction u/s 263 of the Act without satisfying the condition precedent as prescribed in the section 263 of the Act and consequently the action of the third Ld. PCIT-4, to interfere with the AO s order dated 26.12.2017 by passing impugned orde u/s 263 of the Act is held to be without jurisdiction - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) to invoke revisional jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the Revenue.

Detailed Analysis:

1. Jurisdiction of the PCIT to Invoke Revisional Jurisdiction under Section 263:

At the outset, the assessee challenged the jurisdiction of the Ld. PCIT to invoke the revisional jurisdiction under Section 263 of the Income Tax Act, 1961, without satisfying the condition precedent as prescribed in the section. The PCIT had invoked this jurisdiction for the third time concerning the share capital and premium collected by the assessee.

The Tribunal examined whether the PCIT satisfied the condition precedent stipulated by Section 263, which requires that the assessment order must be both erroneous and prejudicial to the interest of the Revenue. The Tribunal referred to the judicial precedent laid down by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC), which held that the twin conditions must be satisfied for the Commissioner to exercise revisional jurisdiction.

The Tribunal noted that the PCIT's action was based on the assumption that the AO did not conduct a proper inquiry, specifically mentioning the omission to examine Form No. 2 and Form No. 5 under the Companies Act. However, the Tribunal found that these forms were compliance documents filed with the Registrar of Companies and did not contain new information that would influence the outcome of the assessment. Therefore, the omission to consider these forms did not render the AO's order erroneous.

2. Whether the Assessment Order was Erroneous and Prejudicial to the Interest of the Revenue:

The Tribunal scrutinized the actions taken by the AO in the third reassessment order dated 26.12.2017. The AO had conducted a detailed inquiry as directed by the Second PCIT, including issuing summons under Section 131, conducting field inquiries through inspectors, verifying the identity and existence of the shareholding companies, and recording statements of the directors under oath. The AO had also verified the bank statements, books of accounts, and other relevant documents to establish the identity, creditworthiness, and genuineness of the share transactions.

The Tribunal observed that the AO's findings were based on substantial evidence and thorough investigation, and the view taken by the AO was a plausible one. The Tribunal emphasized that the PCIT, while invoking Section 263, must demonstrate that the AO's order was unsustainable in law. The PCIT failed to provide any substantial evidence or reasoning to show that the AO's order was erroneous and prejudicial to the interest of the Revenue.

The Tribunal also distinguished the present case from other cited cases, such as Rajmandir Estates (P) Ltd vs. PCIT, CIT vs. N.R. Portfolio (P) Ltd, and PCIT vs. NRA Iron and Steel (P) Ltd, noting that in those cases, there were significant lapses in the inquiry conducted by the AO, whereas in the present case, the AO had conducted a comprehensive inquiry.

Conclusion:

The Tribunal concluded that the PCIT did not satisfy the jurisdictional conditions prescribed under Section 263 of the Act. The AO had conducted a proper inquiry and the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the Tribunal quashed the impugned order passed by the PCIT and allowed the appeal of the assessee.