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TMI Blog2020 (5) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act is absent and, therefore, the Ld. Pr. CIT lacked jurisdiction to assume second time revisional jurisdiction u/s. 263 of the Act. Appeal of the assessee is allowed - I.T.A No. 896/Kol/2019 - - - Dated:- 18-3-2020 - Shri A. T. Varkey, JM And Dr. (Shri) Arjun Lal Saini, AM For the Appellant : S/Shri S.M Surana, Advocate, Abhishek Bangal, FCA, ld.ARs For the Respondent : Dr. (Shri) P.K. Srihari, CIT, ld. DR ORDER PER SHRI A.T. VARKEY, JM This appeal preferred by the assessee against the order of Ld. Principal CIT, Kolkata-4, Kolkata dated 12-03-2019 for the assessment year 2013-14 passed u/s. 263 of the Income-tax Act, 1961 (hereinafter, the Act ). 2. The main grievance of the assessee is against the action of the ld. Pr. CIT invoking his second (2) revisional jurisdictional u/s. 263 of the Act against the action of AO after framing the reassessment pursuant to the first revisional order dated 10.06.2016 which action of Ld. Pr. CIT, according to assessee is without the requisite conditional precedent as laid down u/s. 263 of the Act. 3. Brief facts of the case are that the assessee company filed its return on 28-09-2012 at total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was intended to be carried out and merely accepted the submission of the assessee in this regard. (ii) That A. 0 has also failed to carryout detailed investigation of the shareholders on the very issue that how they decided to invest in such a company which was never known for its line of business and also they invested at huge premium without verifying the financial position. (iii) The A.O further failed to examine the rationale behind raising the said share premium and also did not verify the method adopted by assessee for determining such abnormally huge premium specially keeping in view that prima facie there was no material in the balance sheet of the assessee warranting/justifying such huge premium. (iv) The A.O failed to collect the relevant evidences in order to reach a logical conclusion regarding the genuineness of controlling interest. (v) The A. O failed to examine all the bank accounts for the entire period in the course of verification 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 shareholders in the assessee company. (vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital work in progress was only to the tune of ₹ 6.31 lakhs whereas in the relevant AY as on 31-03-2012 capital work in progress was to the tune of ₹ 3.3 crores, which shows that the assessee was setting up its bricks unit and large scale expansion is going on. The Ld. AR drew our attention to page 50, Vol-1 of the paper book, wherein names of shareholders as well as the percentage of holding of the shares are given. Our attentions was drawn to the fact that there were only five (5) shareholders of the assessee company and out of them two (2) are individuals, who were promoters of the assessee and the remaining were private limited companies of its own group only. Further, it was also brought to our notice that the assessee company is presently doing good business which will be visible from the P L account of the assessee s performance and recently one of the directors, Shri Ashok Choudhury, who holds 23% share of the assessee company, has preferred a petition before the NCLT in respect of a dispute regarding management of the assessee company and drew our attention to Vol.-3, wherein a copy of the company petition has been found placed, (which runs to 362 pages) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pr. CIT to again revise the reassessment order of AO, without satisfying the condition precedent as prescribed in section 263 of the Act want us to quash the impugned order of ld PCIT. Per contra, the ld DR relied on the order of ld PCIT and submitted that the AO while framing the re-assessment order simply believed the version given by the assessee and without properly conducting the inquiry has accepted the claim of assessee which action has been rightly interfered by the ld PCIT and he does not want us to interfere with the order of ld PCIT. 7. Having heard both the parties and after perusing the documents we note that the assessee company was incorporated on 10-02-2010 in A.Y 2010-11. The authorized capital of the assessee company was ₹ 50,00,000/- and paid up share capital of the assessee company as on 31.03.2012 was ₹ 46,00,000/-. Out of which, share capital subscribed and paid up capital during the A.Y under consideration amounted to ₹ 18,60,000/- and the assessee company also received share premium amounting to ₹ 3,53,40,000/-. And later the assessment u/s. 143(3) of the Act was concluded on 20-03-2015, wherein the AO was pleased to add share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated the issue before him. In the circumstances 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 en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to pages 33 38 of paper book-I). Out of the share capital contributed during the year, the share applicants namely Shri Ashok Choudhry and M/s. Star Trade paid ₹ 10 lakhs each by way of share application money in last year which is fact can be discerned from perusal of page 25 of the paper book. (e) We note that the assessee company enjoys term loan from bank and financial institution to the extent of ₹ 38,06,789/- and unsecured loans from directors, relatives of directors and body corporate (₹ 51,20,460/- and ₹ 65,47,214/-). Thus total loan of ₹ 1,16,67,674/-. (f) We note that the assessee company is closely held legal entity and the shareholders (five in numbers) are all from the same group which is evident from the details given in page 2 paper book Vol. 11. (g) We note that the return filed by assessee was taken up for scrutiny on 27.10.2013 and the original assessment was framed u/s. 143(3) of the Act on 20.03.2015 and reassessment order u/s. 263/143(3) on 25.11.2016. (h) We take note of the fact that during the original scrutiny assessment proceedings all the individual shareholders and directors of corporate entities appeared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by AO. 9. We find that the same set of shareholders still continues to hold shares of the assessee company. However, due to internal dispute between one of the director Shri Ashok Choudhury and the other directors regarding the sale of equity shares 166975, Shri Ashok Choudhury has filed company petition before the NCLT at Kolkata under sections 58, 59, 241 and 242 of the Companies Act, 2013. Thus, we note that there is litigation going on before the Hon ble NCLT in respect of allotment of shares of the company which is evident from the company petition which is found placed in paper book Vol. III of 362 pages. 10. We note that though the AO made the entire addition of share capital/premium in the first regular Assessment, the Ld. Pr. CIT in his wisdom was pleased to set-aside the order of AO u/s 263 of the Act vide his order dated 10.6.2016 for de novo assessment but with specific direction of enquiry before framing the re-assessment. 11. Thus, the AO during the 2nd round of re-assessment pursuant to the specific direction of Ld. Pr. CIT dated 10.06.2016 had issued 2nd round of summons dated 22.11.2016 u/s 131 of the Act to directors of assessee company, which is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maan Pvt. Ltd. iii) MOA/AOA of M/s. Subhshree Grihnirmaan Pvt. Ltd. iv) Alltoment advice of M/s. Subhshree Grihnirmaan Pvt. Ltd. v) Income Tax Acknowledgment Audited financial statement of M/s. Subhshree Grihnirmaan Pvt. Ltd. vi) Bank Statement of M/s. Subhshree Grihnirmaan Pvt. Ltd. vii) statement of source of fund of M/s. Subhshree Grihnirmaan Pvt. Ltd. viii) Master data of Startrade Vinimay Pvt. Ltd. ix) PAN Card of Startrade Vinimay Pvt. Ltd. x) MOA/OA of Startrade Vinimay Pvt. Ltd. xi) Allotment advice of Startrade Vinimay Pvt. Ltd. xii) Income Tax Acknowledgment audited financial statement of Startrade Vinimay Pvt. Ltd. xiii) Bank statement of Startrade Vinimay Pvt. Ltd. xiv) Statement of source of fund of Startrade Vinimay Pvt. Ltd. And the details of M/s. Startrade Vinimay Pvt. Ltd. is seen placed from page 155 to 206 of the paper book. The details of other loans and advance taken by the assessee company from the same shareholders which are shown as loans and advance in the books of the assessee company is placed at page 207 to 231 of the paper book. 12. Thus, the AO after summoning the individual share holders and directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled all details and the AO examined the same, and thereafter had issued notice u/s 133(6) of the Act and verified the details, and issued summon u/s 131 to the directors of the assessee company as well as to all the shareholders. And we note that all of them responded and duly appeared before the AO and their statements were recorded and only one shareholder an individual was new and all the shareholder's companies were group companies and the new individual share subscriber was father of a director. (b). We note that next fault pointed out by the Ld. Pr. CIT was the AO failed to carryout detailed investigation as to how they decided to invest in a company at premium which was never a known company . According to us, the Ld Pr. CIT did not appreciate the facts in the proper perspective and did not had taken notice of the important fact that these were the promoters who started the company in the year 2010 for the business of making ash-fly bricks and the only new shareholder individual was father of an existing director; and the assessee company in this assessment year had started expansion activities of the business of making/manufacturing fly ash bricks. We note tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank statements. Before us also all copies and details of bank accounts, have been filed and we find that AO during the assessment proceeding called for the same and examined it, so he has not made any adverse observation against it. So, Ld. Pr. CIT s allegation in respect of nonexamination of bank accounts are baseless and deserves to be rejected. (f) The other fault pointed out by the Ld. Pr. CIT is that the AO failed to trace out the money trail We note that the assessee company is into manufacturing of bricks using fly ash and had set up its factory and the share holder are the promoters/group companies and no allegation has been levelled against the shareholders that they are entry providers. We note that earlier contribution made by them have been accepted in previous years, and also the fact remains that the earlier years of assessment have not been reopened though there was sufficient time for the same. In the light of the documents discussed supra, we are of the opinion that assessee has discharged the onus on it. (g) The last fault taken note by the Ld. Pr. CIT is that the reassessment order prima facie suffers from independent and adequate enquiry. We do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible view, so in the factual background discussed in detail, we are of the considered opinion that Ld. Pr. CIT ought not to have interfered with the AO s reassessment order. In the light of the fact that all individual shareholders and the directors of the corporate shareholders have duly appeared along with documentary evidence and substantiated the share capital and premium they infused into the promoted private limited company, the view taken by the AO after detailed inquiry cannot be termed unsustainable in law. 15. Thus, we find that during the reassessment proceeding pursuant to the first revisional order under section 263 of the Act dated 10.06.2016 and pursuant to the specific directions of the Ld. Pr. CIT, the AO in the second round had summoned the directors of Group companies as well as that of assessee and examined the books and the bank statement and other documents furnished by them to discharge the onus on them about the identity, creditworthiness and genuineness of the transactions and the AO has recorded their statement during reassessment proceedings wherein he has questioned and elicited answers about the identity, creditworthiness and genuineness of the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound atleast is able to upset the AO s satisfaction in respect of identity, creditworthiness and genuineness of the share subscribers and his decision not to make any addition under section 68 of the Act. In the light of the aforesaid discussions and on perusal of the documents, we are of the view that AO s view to accept the identity, creditworthiness and genuineness of the share capital and premium collected from the share subscribers as a plausible view and at any rate can be termed as an unsustainable view on law or facts. 16. For coming to the conclusion that based on the documents and the inquiry conducted by the AO which are on record as discussed in detail supra, the AO s action of accepting the claim of assessee in respect of collection of share capital and premium is a plausible view and at any rate cannot be held to be unsubstantiable in law or facts. We would like to discuss about section 68 of the Act for the sake of completeness. Section 68 of the Act reads as under:- 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 Date: 21st September, 2011 wherein the Court held as follows: In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the wellaccepted princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding that share capital/premium of ₹ 24,00,000/received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company. As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue. After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 21. We also rely on the decision of the Hon'ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd dated 2 December, 2013 in INCOME TAX APPEAL NO.52 OF 2001 wherein the Court held as follows: The Assessing Officer was of the view that the increase in sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund. The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the Assessing Officer had applied the provisions of Section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing. Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner. Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction. The aforesaid judgment was rendered in the context of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques. It appears from the Assessing Officers order that his grievance was that the assessee was not willing to produce the parties who had allegedly advanced the fund. In our opinion, both the Commissioner of Incometax (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars. The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants. In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned 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 thequestions 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 assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) observed that entire share application monies of ₹ 57,00,000/we received during the previous year 200405 relevant to Asst Year 200506 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 the asst year under appeal. Aggrieved, the Revenue is in appeal before us by filing the following ground:- That in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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'ble Calcutta High Court in the case of CIT vs Roseberrv Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided 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 addresses, which were recorded in the Register of Members. The AO observed that as per ROC records the addresses of the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 2009k) 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 received by the single person. Accordingly the AO opined that the assessee has used its unaccounted money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Allahabad High Court in the case of CIT vs Raj Kumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X
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