2022 (8) TMI 1128 - AT - Income Tax

Revision u/s 263 by CIT - Scope of the Reassessment order - AO made no inquiry/addition in respect of bogus share capital received from Kolkata-based shell /paper companies - Reopening of assessment initiated against assessee - HELD THAT - From the reasons recorded, it is vivid that there is nothing mentioned about share capital and share premium. Thus, assessment was not reopened to examine the issue relating to share capital and share premium. The reassessment proceedings were initiated to tax the unaccounted payment, loans and advances and various unaccounted transactions. There is no whisper about the share capital and share premium in the reasons so recorded by the assessing officer under section 147. AO has not discovered any other income which is chargeable to tax and has escaped assessment during the reassessment proceedings as per third proviso to section 147 of the Act, hence it is quite clear that the share capital and share premium, was not the subject matter before assessing officer, during the reassessment proceedings under section 147. We note that ld PCIT has exercised his jurisdiction under section 263 of the Act, to the effect that assessing officer has not examined share capital and share premium. However, as we have noted that this issue was not there before the assessing officer in the reasons recorded by him under section 147 of the Act. Therefore, the issue relating to share capital and share premium, cannot be examined by the assessing officer in reassessment proceedings, as it was not the part of reasons recorded by the assessing officer. Jurisdiction exercised by ld PCIT under section 263 of the Act is not in accordance with law. PCIT has selected the item (share capital and share premium) which is not subject matter of reassessment proceedings therefore, order passed by the assessing officer under section 147 r.w.s. 143(3) is neither erroneous nor prejudicial to the interest of revenue. Therefore, jurisdiction exercised by the ld PCIT under section 263 of the Act to tax the share capital and share premium is not valid in the eye of law. The issues on which the revisional jurisdiction is being exercised were admittedly issues which arose in the proceeding/assessment done prior to reopening of the assessment. In view of passage of time the jurisdiction to exercise powers under section 263 of the Act with regard to assessment done under section 143(1) of the Act had lapsed. Thus, the jurisdiction under section 263 of the Act cannot be exercised on issues ( share capital and share premium) which were not subject matter of consideration while passing the order of reassessment under section 143(3)/147 of the Act but a part of an assessment done earlier under the Act. Thus, the jurisdiction exercised by ld PCIT is not in tune with the provisions of section 263 of the Act. AO has passed the reassessment order under section 143(3) r.w.s 147 after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry in respect of issue of share capital and share premium, has to fail. Based on these facts and circumstances, we quash the orderpassed by the ld PCIT under section 263 - Appeal of assessee allowed.

Issues Involved:
1. Validity of the initiation of proceedings under Section 263 of the Income Tax Act.
2. Adequacy of the inquiry conducted by the Assessing Officer regarding share capital and share premium.
3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 to revise the assessment order.

Detailed Analysis:

1. Validity of the initiation of proceedings under Section 263 of the Income Tax Act:
The assessee argued that the PCIT initiated proceedings under Section 263 without appreciating that the case was selected for assessment under Section 148, and thus, revising the order under Section 263 and directing a fresh assessment was bad in law. The PCIT issued the notice at the fag-end of the extension period, which was considered unjustified and against the principles of natural justice. The assessee contended that the show cause notice served by the PCIT was vague, bad in law, and issued without providing adequate opportunity for a response, effectively allowing only one day for filing the reply.

2. Adequacy of the inquiry conducted by the Assessing Officer regarding share capital and share premium:
The PCIT observed that no inquiry/addition was made concerning the bogus share capital of Rs. 8,00,00,000 received from Kolkata-based shell/paper companies during the Financial Year 2009-10, relevant to the Assessment Year 2010-11. The PCIT directed the Assessing Officer to carry out a detailed inquiry into the income tax records of the investors/shareholders, verify the actual business and genuineness of the entities, investigate the creditworthiness of the share applicants, and examine the involvement of entry-operators, among other directives. However, the Tribunal noted that the reassessment proceedings were initiated to tax unaccounted payments, loans, and advances, with no mention of share capital and share premium in the reasons recorded by the Assessing Officer under Section 147. Therefore, the issue of share capital and share premium was not part of the reassessment proceedings, and the Assessing Officer could not have examined it.

3. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 to revise the assessment order:
The Tribunal examined whether the requisite jurisdiction necessary to assume revisional jurisdiction existed before the PCIT. The Tribunal referred to the judicial precedent set by the Hon'ble Supreme Court in Malabar Industries Ltd. vs. CIT, which requires that the order of the Assessing Officer must be erroneous and prejudicial to the interest of the Revenue for the PCIT to exercise revisional jurisdiction. The Tribunal found that the reassessment order was neither erroneous nor prejudicial to the interest of the Revenue concerning the share capital and share premium, as these issues were not part of the reassessment proceedings. The Tribunal also referred to the judgments of the Hon'ble High Court of Calcutta and the Hon'ble High Court of Bombay, which held that there is no scope under Section 263 to reopen an assessment on subsequent events or new material not considered in the reassessment order.

Conclusion:
The Tribunal concluded that the jurisdiction exercised by the PCIT under Section 263 was not in accordance with the law, as the issue of share capital and share premium was not part of the reassessment proceedings. The Tribunal quashed the order passed by the PCIT under Section 263 and allowed the appeals filed by the assessee for both Assessment Years 2010-11 and 2011-12. The Tribunal emphasized that the reassessment order passed by the Assessing Officer was after due application of mind and verification of the relevant details, and thus, it could not be termed as erroneous and prejudicial to the interest of the Revenue.

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