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TMI Blog2020 (3) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... O s action/reassessment order cannot be termed as erroneous and prejudicial to the interest of the Revenue. Therefore, the condition precedent for usurping revisional jurisdiction u/s. 263 of the Act is absent and, therefore, the Ld. Pr. CIT lacked jurisdiction to assume second time revisional jurisdiction u/s. 263 of the Act. Therefore, the assessee succeeds on the legal issue raised and, therefore, on the facts and circumstances discussed (supra), we are inclined to quash the impugned order of Ld. Pr. CIT dated 14.03.2019. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... on to find out the money trail of the share capital. (vi) The A.O failed to adequately trace out the money trail to ascertain the genuineness of source of fund invested by share holders in the assessee company. (vii) On the whole the impugned order dated 11-06-2016 passed u/s. 263/143(3) of the Income Tax Act. 1961 prima facie suffers from lack of independent and adequate enquiry on the aforesaid issues. 3. And the Ld. Pr. CIT issued Show Cause Notice (SCN) to assessee and thereafter the Ld. Pr. CIT notes that the Ld. AR of the assessee appeared and filed written submission which he reproduced from page 3 to 11 and then the Ld. Pr. CIT did not accept the contention raised by the assessee and held at page 16 at para 6 of his impugned order as under: "6. I have carefully considered the submission of the assessee and perused the material available on record and found that the issue pointed out in the show cause needs verification. After having considered the position of law and facts and circumstances of the instant case, I am of the considered opinion that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original assessment order dated 25.03.2015 framed the re-assessment order dated 11.06.2016, wherein the AO held as under: "1. The case was examined by the Pr. CIT-4, Kolkata. The Pr. CIT-4, Kolkata has found that the assessment was made without making enquiries and verifications which would have been made and accordingly held that the assessment was erroneous in so far as prejudicial to the interest of revenue. The Pr. CIT-4, Kolkata has passed the order u/s. 263 on 12.05.2016 setting aside the assessment u/s. 143(3) dated 25.03.2015 with the direction to carry out proper examination of books of accounts and bank accounts of assessee as well as investors and also to examine the source of share application, identity of investor and its genuineness. 2. Accordingly, the case was taken up for fresh assessment. Summons u/s. 131 were issued in the names of directors of the investor companies and the assessee company to appear along with books of accounts and bank statements. 3. In compliance with the summons u/s. 131, the directors of the investor companies appeared personally along with the books of accounts and bank accounts. Statements of the directors of the investor comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of S.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. Pr. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the revenue'' has to be read in conjunction with an "erroneous" order passed by the Assessing Officer. The Hon'ble Supreme Court, held that for invoking powers conferred by S.263 the Ld. Pr CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. It was furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the reassessment order vide para 4(ii) of his order. The specific directions of Ld Pr CIT to AO are as under: i) To carry out proper examination of the books of accounts and bank account of the assessee; ii) to carry out proper examination of the books of accounts and bank account of the investors; iii) AO to examine the source of the share applicants; iv) The AO to examine the identity of the investor and its genuineness; v) The AO to complete the assessment at the earliest without waiting for the time barring date. 9. In the second round before the AO for de novo re-assessment, the AO as per the specific direction of Ld. Pr. CIT (supra), conducted the reassessment proceeding. As per the specific direction of ld. Pr. CIT, the AO summoned the director of the assessee company before him, who duly appeared and produced the books of account on 27.06.2016 (refer page 293 of paper book) and furnished the relevant details viz., bank statements etc., which fact the AO has acknowledged in the reassessment order. We also note that the AO during the reassessment proceedings issued summons u/s. 131 of the Act to the directors of all shareholder companies and acknowledged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Remix Vanijya P. Ltd. Sangini Agencies P. Ltd. Welsome Dealers P. ltd. Sky View Tie Up P. Ltd. Page 41 of paper book Page 80 of paper book Page 99 of paper book Page 129 of paper book Page 157 of paper book Page 178 of paper book Page 204 of paper book Page 255 of paper book Page 230 of paper book ₹ 43,00,000/- (page 69 of PB) ₹ 20.50 crores (page 88 of PB) ₹ 20.85 crores (page 119 of PB) ₹ 51.90 crores (page 142 of PB) ₹ 51.80 crores (page 167 of PB) ₹ 56.15 crores (page 192 of PB) ₹ 46.86 crores (page 219 of PB) ₹ 21.08 crores (page 271 of PB) ₹ 47.59 crores (page 244 of PB) 11. So, from a perusal of the chart, we note that the assessee and the shareholders have brought to the notice of AO that they (share subscribers) have enough net worth to invest in the assessee company and the directors of the share subscribing companies pursuant to the AO's summons u/s. 131 of the Act have duly appeared and produced their respective audited accounts from which the aforesaid facts are clearly discernible and moreover the share subscribers have also filed before the AO the source from which they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.05.2016. Thus, we note that when the AO while framing the reassessment order pursuant to the specific direction of the Ld. Pr. CIT's order dated 12.05.2016 (first revisional order) has complied with the specific directions of Ld. Pr. CIT and based on the inquiry conducted and after perusal of the documents running more than 591 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 share subscribers/directors participating in the reassessment proceedings along with the audited financial statements and other documents referred supra, the assessee had discharged the onus on 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 AO in the original as well as reassessment proceedings and the documents are in the assessment folder and the statements have been recorded of the directors of the share subscribers, the Ld. Pr. CIT erred in holding the reassess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570. We note that against the said decision of Hon'ble Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court. 14. So, with the aforesaid understanding of section 68 of the Act, let us examine whether the view of AO in the light of the investigation and results as discussed supra is a possible view and cannot be termed as un-sustainable view in law and facts. For that let us look at few case laws wherein the AO made additions of share capital and premium and when the aggrieved assessee's filed appeals before the Tribunal/High court/Supreme Court the Hon'ble Courts have held that when the assessee discharges the onus on it in respect of the share subscribers' identity, creditworthiness and genuineness then no addition u/s. 68 of the Act can be made against the assessee. Let us have a look at the following case laws: 15. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutta High Court while relying on the case of Lovely Exports, in the appeal of COMISSIONER OF INCOME TAX, KOLKATA12 IV Vs ROSEBERRY MERCANTILE (P) LTD., ITAT No. 241 of 2010 dated 10- 01-2011 has held: "On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. " It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought ₹ 4, 00, 000/- and ₹ 20,00,000/- towards share capital and share premium respectively amounting to ₹ 24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed. The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees. The Commissioner of Income Tax (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the Assessing Officer, but the Assessing Officer took the view that their investment in the Assessee Company was not genuine, on the basis of some extraneous reasons. The Commissioner of Income Tax (Appeals) took note of the observation of the Assessing Officer that enquiry conducted by the Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of law involved in this appeal far less any substantial question of law. The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds." 19. We also rely on the decision of the Hon'ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commercial (P) Ltd on 13 June, 2011 in ITAT NO 114 of 2011 wherein the Court held as follows: "The only question raised in this appeal is whether the Commissioner of Income-tax (Appeals) and the Tribunal below erred in law in deleting the addition of ₹ 8,52,000/-, ₹ 91,50,000/- and ₹ 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively. After hearing Md. Nizamuddin, learned Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above, consequently we find that AO's view is a plausible view. 21. As noted from the judicial precedents cited above and even at the cost of repetition, we note that as per section 68 of the Act, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned Ld. CIT(1) on the decision of the Hon'ble Apex Court in the case of CIT vs Lovely Exports (P) Ud reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received. 3.4. 1. We also find that the impugned issue is also covered by the decision of Hon'ble Calcutta High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the- questions raised before their lordships and decision rendered thereon is as under:- "On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire sum of ₹ 57,00,000/- to tax as unexplained cash credit u/s 68 of the Act. 4.2. On first appeal, the Learned CIT(A) observed that entire share application monies of ₹ 57,00,000/- we received during the previous year 2004-05 relevant to Asst Year 2005-06 from 20 persons and the shares were allotted to them during the asst year under appeal. He observed that the assessee had furnished details of the share applicants giving the date wise receipts, mode of payment, amount, name, address, income tax returns, PA No. of share applicants along with their balance sheet. The Learned CITA also observed that the assessee in its reply to show cause notice before the Learned AO had requested him to use his power and authority for the physical appearance of the shareholders which was not exercised by the Learned AO. Instead the Learned AO continued to insist on the assessee to produce the shareholders before him. He ultimately concluded that the assessee had duly discharged its onus of providing complete details of the shareholders and in any case, no addition could be made u/s 68 of the Act in the asst year under appeal as no share application monies were received during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the arguments of the Learned DR and written submissions and paper book already available on record. The facts stated in the Learned CIT(A) were not controverted by the Learned DR before us. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned CITA on the decision of the Hon'ble Apex Court in the case of CIT vs Lovelv Exports (p) Ltd reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received. 6. 1. We also find that the impugned issue is also covered by the decision of Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside this issue to the file of the Learned AO for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In view of the aforesaid findings and respectfully following the decision of the apex court (supra), Jurisdictional High Court (supra) and Delhi High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the grounds raised by the Revenue are dismissed." (c) The ITAT Kolkata in ITA No.1061/Ko1/2012 in the case of ITO Wd.3(2) Kol, vs. M/s. Steel Emporium Ltd dated 05-02-2016. In this the decision the Ld. Tribunal held as follows: "10. We have heard both the rival parties and perused the materials available on record. The Ld. DR vehemently supported the order of the AO. Before us the Ld. AR submitted that the assessee raised share application money during the year from 25 applicants. The AO was furnished with the copy of Form 2 of Allotment of Shares to the Applicants as filed with the Registrar of Companies, West Bengal. On the date of receipt of Share applications from the Applicants, they furnished their a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py enclosed) c) Copy of Form 18 about the Registered Office of the applicants for change of address subsequent to the date of allotment, i.e. 31.03.2009 (copies enclosed) d) Members register e) Share application & Allotment Register f) Copy of board resolution. g) Replies from Share applicants to the notice u/s. 133(6) issued to them by the AO seeking information and documents about the sources and to examine their identity, genuineness of the transaction and their creditworthiness. (copy enclosed). h) Copy of audited accounts. i) Copy of bank statements. j) Copy of Income tax acknowledgment of return filed for AY 2009- k) Copy of PAN Card. l) Details of sources of funds. m) Copy of covering letter for delivery of shares. n) Copy of master data as per ministry of Company Affairs records. o) Copy of Annual return. p) Copy of Memorandum and articles of Association. Finally the Ld. AR relied on the order of the Ld. CIT(A 10. 1 From the aforesaid discussion we find that the AO has made the addition of the share application money because all the nine companies were having the common address and the notice sent under section 133(6) was receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the AO's inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of ₹ 54,00,000/ -. The ground Nos. 2 and 3 are allowed, " 7. Aggrieved by the order of CIT{A) the Revenue is in appeal before the Tribunal. 8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon'ble Allaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Ld. Pr. CIT to interfere with the reassessment order of the AO, is without jurisdiction and liable to be quashed.
24. Therefore, in the light of the discussion on fact as well as on law, we are of the considered opinion that AO's action (reassessment) pursuant to the first revisional order of Ld. Pr. CIT dated 12.05.2016, to accept the share capital and premium as a possible view in facts and law as per the ratio laid by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. Vs. CIT 243 ITR 83 (SC) the AO's action/reassessment order cannot be termed as erroneous and prejudicial to the interest of the Revenue. Therefore, the condition precedent for usurping revisional jurisdiction u/s. 263 of the Act is absent and, therefore, the Ld. Pr. CIT lacked jurisdiction to assume second time revisional jurisdiction u/s. 263 of the Act. Therefore, the assessee succeeds on the legal issue raised and, therefore, on the facts and circumstances discussed (supra), we are inclined to quash the impugned order of Ld. Pr. CIT dated 14.03.2019.
25. In the result, appeal of the assessee is allowed
Order is pronounced in the open court on 20th March, 2020. X X X X Extracts X X X X X X X X Extracts X X X X
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