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2022 (3) TMI 770 - AT - Income TaxRevision u/s 263 - CIT invoking his second (2nd) revisional jurisdictional - Re-assessment /second assessment framed by AO - addition u/s 68 - whether there is any merit on the finding of the Second Ld. Pr. CIT that the second assessment order/re-assessment order can be termed as erroneous for lack of enquiry? - according to Second Ld. Pr. CIT, the AO in the second round has not enquired about the share capital premium collected by the assessee - HELD THAT - In this assessment year before us i.e. AY 2012-13, the law in force was that if any sum is found credited in the books of an assessee in a financial year and, if the AO asks for the explanation of assessee in respect of the nature and source thereof, then the assessee is duty bound to explain the nature and source of the credit entry in the books and if the assessee fails to explain or if the AO is not satisfied, he may charge to income tax the sum so credited. So, the assessee is bound to explain before the AO the nature and source of share capital, i.e. the identity, creditworthiness and genuineness of the share capital. In this AY 2012-13, the assessee is bound to know about the share applicants who wish to invest their identity, whether they have the financial capacity (creditworthiness) and they are genuine investors in their company (assessee). In this AY, the assessee is not bound by law at the time of collection of share capital to ask the share-applicants from where it is getting the money to invest in the assessee s company. And we also note that share premium can be taxed if it exceeds the fair market value only from next AY i.e. AY 2013-14 and not in this A.Y 2012-13. According to us, from the aforesaid exercise carried out by the Second AO, it cannot be said that second AO did not enquire into the nature and source of the share capital collected by the assessee company. And moreover it is common knowledge that in this computer/digital ear, the AO on a click of the mouse, could have early verified the identity of the share applicant which is available in the website of Ministry of Corporate Affairs and the ITR Acknowledgments filed by them, will enable the AO to cross verify and collect details from the AO of the respective share applicants and independently from the Revenue's departmental data base. We note that all the share subscribing parties filed all the documents called for by the AO (PB-Page 111-368) and were also examined by the AO. Thus, we are of the considered opinion that the AO after verification of their PAN/CIN/ITR, has not drawn any adverse opinion or doubted the identity of the share applicants which view of AO is a possible view in the light of the documents referred to and we also by applying the presumption in section 114 of Indian Evidence Act 1872, we presume that the quasi-judicial act of the second AO have been regularly performed. Therefore, we are of the opinion that the identity of the thirteen (13) share subscribers cannot be doubted and so we approve the action of second AO to accept the same. We note that when the second AO while framing the reassessment order pursuant to the specific direction of the First Ld. Pr. CIT s order dated 31.03.2016 (first revisional order) has complied with the specific directions of the First Ld. Pr. CIT and based on the inquiry conducted and after perusal of the documents running more than 330 pages which reveals the identity, creditworthiness and genuineness of the share capital and premium collected by the assessee from the share subscribers, the satisfaction of AO as envisaged in sec. 68 of the Act is a plausible view and the fact that the directors of the share subscribing companies appeared before AO pursuant to summons and produced all documents along with the audited financial statements and other documents referred supra, the assessee had discharged the onus upon it about the identity creditworthiness and genuineness of the share capital and premium collected by the assessee from the respective share subscribers. Since the aforesaid exercise was carried out by the second AO in the reassessment proceedings and the documents referred to above are in the assessment folder, the Second Ld. Pr. CIT erred in holding the reassessment order of the AO in respect of share capital and premium collected by the assessee as erroneous as well as prejudicial to the interest of the revenue. AO s view to accept the identity, creditworthiness and genuineness of the share capital and premium collected from the share subscribers was a plausible view and at any rate cannot be termed as an unsustainable view on law or facts Second AO has conducted enquiry as directed by the First Ld. Pr. CIT on the specific subject matter i.e. share capital and premium collected by the assessee-company. Therefore, the finding of Second Pr. CIT that the Second AO has not conducted enquiry is incorrect and is flowing from suspicion only - there will be no end to the assessment proceedings meaning no finality to assessment proceedings and that is exactly why the Parliament in its wisdom has brought in safe-guards, restrictions conditions precedent to be satisfied strictly before assumption of revisional jurisdiction. Be that as it may be, as discussed above, we find that the Second Ld. Pr. CIT without satisfying the condition precedent u/s 263 of the Act has invoked the revisional jurisdiction (second time), so all his actions are ab initio void. Ld. CIT(A) has made a bald statement that the AO s assessment order attracts Explanation 2(c) u/s. 263 of the Act. However, he failed to spell out in his impugned order how the action of AO while framing the assessment order is not in accordance to any order, direction or instruction issued by the Board under section 119 of the Act. So, the deeming fiction as envisaged in Explanation (2) u/s. 263 of the Act cannot be used to interfere with the order of AO. This action of Ld. Pr. CIT is bad for non-application of mind - Decided in favour of assessee.
Issues Involved:
1. Validity of the invocation of revisional jurisdiction under Section 263 of the Income Tax Act, 1961. 2. Examination of identity, creditworthiness, and genuineness of share capital and premium received by the assessee. 3. Compliance with the directions given by the first revisional order. 4. Applicability of Explanation 2(c) to Section 263(1) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Validity of the invocation of revisional jurisdiction under Section 263 of the Income Tax Act, 1961: The main grievance of the assessee was against the action of the Ld. Pr. CIT invoking his second revisional jurisdiction under Section 263 of the Act against the action of the AO, who framed the re-assessment order pursuant to the first revisional order dated 31.03.2016. The assessee contended that the second revisional jurisdiction was invoked without satisfying the requisite conditions as stipulated under Section 263 of the Act, making it without jurisdiction and bad in law. 2. Examination of identity, creditworthiness, and genuineness of share capital and premium received by the assessee: The assessee had filed its return of income for the assessment year 2012-13 declaring NIL income. The AO noted that the assessee received share capital of ?40 lakhs and a premium of ?19,98,00,000, totaling ?20,38,00,000. The AO asked the assessee to produce documents to prove the identity, creditworthiness, and genuineness of the share capital. Despite filing submissions and documents, the assessee failed to produce the directors of the share subscribing companies, leading the AO to make an addition of ?20,38,00,000 under Section 68 of the Act. The first revisional order by the First Ld. Pr. CIT found that the AO had issued notices under Section 133(6) to all share applicants, who replied with documents proving their identity, creditworthiness, and genuineness. The First Ld. Pr. CIT concluded that there was a violation of natural justice and directed a de novo assessment. 3. Compliance with the directions given by the first revisional order: In the second round of reassessment, the Second AO framed the re-assessment order dated 15.09.2016, making an addition of ?2,919 under Section 14A read with Rule 8D. The Second Ld. Pr. CIT, however, issued a show-cause notice and set aside the reassessment order, directing de novo adjudication, citing lack of enquiry by the AO. The assessee contended that the Second AO had complied with the directions of the First Ld. Pr. CIT by examining the books of account, bank accounts of the assessee and investors, and verifying the source of share application money, identity of investors, and genuineness of transactions. The Second AO had summoned the directors of the share applicant companies, who appeared and provided the necessary documents. The Second AO did not find anything adverse and accepted the share capital and premium collected by the assessee. 4. Applicability of Explanation 2(c) to Section 263(1) of the Income Tax Act, 1961: The Second Ld. Pr. CIT invoked Explanation 2(c) to Section 263(1) of the Act, stating that the assessment order was erroneous and prejudicial to the interest of the revenue due to lack of enquiry. The Tribunal noted that the Second AO had conducted the necessary enquiry and verified the documents, and the view taken by the AO was plausible and in line with judicial precedents. The Tribunal held that the Second Ld. Pr. CIT could not invoke revisional jurisdiction without showing that the AO's enquiry was flawed or that the AO's view was unsustainable in law. Conclusion: The Tribunal concluded that the Second AO had complied with the directions of the First Ld. Pr. CIT and conducted a proper enquiry. The Second Ld. Pr. CIT's invocation of revisional jurisdiction under Section 263 was without satisfying the condition precedent and was therefore null and void. The Tribunal quashed the impugned order of the Second Ld. Pr. CIT.
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