2021 (8) TMI 1209 - AT - Income Tax

Revision u/s 263 - as per CIT AO's action in respect of receipt of share capital by the assessee is erroneous as well as prejudicial to the revenue - HELD THAT - AO had issued notice u/s.142(1) and called for all the details of the share subscribers/share premium and pursuant to the notice of AO, the assessee had filed all the documents to substantiate the identity, creditworthiness and genuineness of the share subscription. The source of source of the share subscription was also brought to the notice of the AO, Assessee company is a private limited company and it is closely held and has raised share subscription from its own directors and their wives who are all income tax assessee's and all the money has come through banking channel and their creditworthiness has also been proved by the documents produced - PCIT erred in finding that the source of share subscribers has not been properly enquired by the AO - since the condition precedent for invoking the revisional jurisdiction has not been satisfied the Ld. PCIT lacks of jurisdiction. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (PCIT) rightfully assumed revisional jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) failed to properly investigate the source of share capital and share premium received by the assessee company.

Detailed Analysis:

Issue 1: Assumption of Revisional Jurisdiction under Section 263
The primary contention raised by the assessee was that the PCIT usurped the revisional jurisdiction under Section 263 without satisfying the conditions precedent, i.e., without validly holding that the AO's action was erroneous as well as prejudicial to the revenue. The assessee argued that the AO had already enquired into the details of the share capital and share premium received, and had accepted the explanations provided by the assessee. The PCIT's main fault was alleging that the AO did not enquire into the source of investment of share capital by issuing a notice under Section 133(6) of the Act. However, the assessee contended that the AO had specifically asked for the 'source of source,' which was duly answered by showing that the funds were obtained from the sale of blue-chip scrips and immovable property.

Issue 2: Investigation of Source of Share Capital and Share Premium
The brief facts reveal that the assessee company filed a return of income showing a total income of Nil, and the return was selected for scrutiny on the issue of infusing share capital on premium to the tune of ?1,08,15,000/-. The AO issued a notice under Section 142(1) and asked for details regarding the shares and share premium. The assessee provided details about the issuance of 51,500 shares to the directors and their relatives, substantiating the identity, creditworthiness, and genuineness of the transactions with PAN details, return of income, bank statements, computation of income, and balance sheets. The source of funds for the share subscription was shown to be from the sale of quoted equity shares on the NSE and the sale of immovable property.

The PCIT, in his show-cause notice, pointed out that the AO did not verify the source of money invested by the subscribers of shares and their capacity during the assessment proceedings. However, the assessee had already provided substantial evidence to prove the identity, creditworthiness, and genuineness of the share subscribers and the transactions. The AO had accepted the loans taken from the same parties (shareholders), which was not questioned by the PCIT.

Legal Precedents and Conclusion
The judgment referred to the legal precedent set by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC), which held that for the PCIT to assume revisional jurisdiction under Section 263, the order of the AO must be both erroneous and prejudicial to the interest of the revenue. The judgment emphasized that an order cannot be termed erroneous if the AO has adopted one of the permissible courses of action under the law, even if it results in a loss to the revenue, unless the view taken by the AO is unsustainable in law.

The tribunal found that the AO had indeed enquired into the details of the share subscribers and their sources of funds, and the assessee had provided all necessary documents to substantiate their claims. Therefore, the tribunal concluded that the PCIT erred in finding that the AO did not properly enquire into the source of share subscribers. Since the conditions for invoking revisional jurisdiction were not satisfied, the tribunal quashed the PCIT's order and allowed the appeal of the assessee.

Judgment:
The appeal of the assessee was allowed, and the order of the PCIT was quashed. The tribunal held that the PCIT lacked jurisdiction to interfere in the assessment order passed by the AO dated 20.12.2018. The order was pronounced in the open court on 19th August 2021.