2021 (9) TMI 856 - AT - Income Tax

Revision u/s 263 by CIT - case of the assessee was selected for scrutiny by CASS under Limited Scrutiny for the reason that Whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax. - HELD THAT - AR produced books of account including cash book, ledger, subsidiary records and filed various other details as required, which were duly examined. AO made all the inquiries, sought clarifications on all the relevant aspects to the extent he was supposed looking to the nature of the issue involved the past accepted history of the case and the evidences and material already available therein together with the material provided during the assessment proceedings - AO was having complete details of the identity in the shape of PAN number address - He was also having conformation of the parties duly signed by the shareholder. As stated, he was able and he looked into the file of the shareholders in the portal of the department. AO raised very specific and directly relevant queries/called for explanation and evidences w.r.t. source of amount received by the company from three. Assessee had already submitted complete addresses of all the three shareholders as also their Permanent Account Number (PAN) which is the best evidence to prove the identity of a shareholder, in the records of AO itself. Moreover, all the transactions with all the shareholders were admittedly made through banking channels only. Thus, their identity is fully established. The genuineness of the transaction is fully established inasmuch as all the borrowings were made through account payee cheque only and the same was duly verified by the AO from the bank statement of the assessee company filed before him, wherein the fact and the receipt of the subjected amount towards the allotment of share, was clearly visible and was duly verified by the AO. Apart from the bank statement, the AO was also having the ledger accounts of the bank in the account books maintained by the assessee and produced before him as also through the confirmation of all the three shareholders containing complete details i.e. the amount, date, cheque number etc. It is not the case of the revenue that the borrowing was made in cash so as to justify any suspicion. There was no cash deposit made in their bank A/C just prior to issue of cheque to the assessee company. CIT also alleged that the AO did not make enquiries and verification on the issue of large share premium received by the assesse and the applicability of S.56(2)(viib) and other relevant sections even though this was not the reason for scrutiny selection. Alternatively and without prejudice to above, even otherwise on merits, there has been due and proper application of mind inasmuch as the AO raised directly relevant queries which were duly replied by the assessee as well. In addition, thereto, the assessee also submitted a report of the expert dated 10.10.2015 under Rule 11UA which are at page Nos. 46-58 of the paper book which fully justified charging premium @ ₹ 50 per share. Hence, the AO was fully justified in not applying in S. 56(2)(viib). There appears no valid basis to compute excessive value of ₹ 1.73 per share which is not supported by any expert report but mere suspicion. In other words, it was nothing but a substitution of opinion by the Ld. Pr.CIT. Therefore, on this aspect also the subjected assessment order could not be covered u/s 263 as it was neither erroneous nor prejudicial to the interest of the revenue. The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity - we quash the order passed by the ld. Pr.CIT U/s 263. Appeal of the assessee is allowed.

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act.
2. Assumption of jurisdiction under Section 263 without specific findings.
3. Alleged lack of proper inquiries or verification by the Assessing Officer (AO).
4. Alleged change of opinion by the Principal Commissioner of Income Tax (Pr.CIT).
5. Incorrect invocation of Explanation 2 to Section 263.
6. Alleged excess consideration received on the issue of shares.

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act:
The Tribunal examined whether the Pr.CIT was justified in invoking Section 263, which allows revision of an order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that the Pr.CIT must be satisfied with twin conditions: the order being erroneous and prejudicial to the Revenue. The Tribunal cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v/s CIT, emphasizing that not every loss of revenue can be treated as prejudicial unless the order is unsustainable in law.

2. Assumption of Jurisdiction under Section 263 without Specific Findings:
The Tribunal observed that the Pr.CIT assumed jurisdiction without recording specific findings that the AO's order was erroneous and prejudicial to the Revenue. The Tribunal highlighted that the AO had raised specific queries and received detailed explanations and documents from the assessee regarding the share premium and the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the AO had duly applied his mind and made inquiries as required.

3. Alleged Lack of Proper Inquiries or Verification by the AO:
The Pr.CIT alleged that the AO did not make proper inquiries or verification regarding the share premium and the applicability of Section 56(2)(viib). The Tribunal found that the AO had made specific inquiries, received detailed responses, and verified the identity, creditworthiness, and genuineness of the transactions. The Tribunal cited decisions from the Rajasthan High Court, emphasizing that once the identity and confirmation of the creditors are established, the burden shifts from the assessee.

4. Alleged Change of Opinion by the Pr.CIT:
The Tribunal noted that the Pr.CIT's action was based on a change of opinion, which is not permissible under Section 263. The Tribunal emphasized that the AO had adopted one of the permissible views in law, and the Pr.CIT's disagreement with this view did not render the AO's order erroneous.

5. Incorrect Invocation of Explanation 2 to Section 263:
The Tribunal found that the Pr.CIT incorrectly invoked Explanation 2 to Section 263, which provides that an order shall be deemed erroneous if it is passed without making inquiries or verification that should have been made. The Tribunal held that this explanation does not confer unbridled power on the Pr.CIT to revise every order and that the AO had made adequate inquiries.

6. Alleged Excess Consideration Received on the Issue of Shares:
The Tribunal addressed the Pr.CIT's allegation that the consideration received by the assessee on the issue of shares was in excess of the Fair Market Value (FMV). The Tribunal found that the AO had examined the FMV and the share premium and that the assessee had justified the premium charged with supporting documents, including an expert report. The Tribunal concluded that the AO's decision not to apply Section 56(2)(viib) was justified.

Conclusion:
The Tribunal quashed the order passed by the Pr.CIT under Section 263, holding that the AO had made proper inquiries and verification, and the Pr.CIT's action was based on a change of opinion. The Tribunal emphasized that the AO had adopted a permissible view in law, and the Pr.CIT's disagreement did not render the AO's order erroneous or prejudicial to the interests of the Revenue. The appeal of the assessee was allowed.

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