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TMI Blog2020 (8) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscribers was a plausible view and at any rate can be termed as an unsustainable view on law or facts. Since the assessee company has discharged its onus as discussed and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO s omission to collect the additional documents. Second Pr. CIT has not carried out any such exercise or even spelled out in his impugned order, which all documents the second AO failed to collect for considering the total facts; and even if we presume he has conducted such an exercise, then he has not been able to bring out any adverse factual finding to upset the view of Second AO. No merit in the vague allegation of second Pr. CIT that the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of AO. This action of Ld. Pr. CIT is bad for nonapplication of mind. In the light of the aforesaid discussion and case laws cited supra, we find merit in the appeal filed by the assessee, therefore, we allow the appeal of assessee on the ground that since the Ld. Pr CIT has exercised his revisional jurisdiction u/s. 263 without satisfying the condition precedent as stipulated in section 263 of the Act. Therefore, we hold that the impugned action of the Ld. Pr. CIT is without jurisdiction and, therefore, is null in the eyes of law - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... verification of this issue, the First Ld. Pr. CIT by order dated 23.08.2016 was pleased to set aside the original/first assessment order of the AO dated 26.03.2015 for de-novo assessment and directed the AO to specifically examine the source of share application money, identity of investors and its genuineness (hereinafter referred to as the First revisional order). The First Ld. Pr. CIT's specific direction is given below: 4(v) `Considering the above facts and circumstances of case, the assessment order passed on 26.03.2015 is set aside denovo with a direction to AO to carry out proper examination of books of accounts and Bank accounts of assessee as well as investors. AO is also directed to examine the source of share application, identity of investor and its genuineness. ( emphasis given by us) 4. Pursuant to the first revisional order passed by the First Ld. Pr. CIT dated 23.08.2016, in the second round of re-assessment, the AO (hereinafter referred to as Second AO) framed the reassessment order dated 07.12.2016 by making an addition/disallowance u/s. 14A of the Act of ₹ 10,366/- u/s. 143(3) read with section 263 of the Act (hereinafter referred to as the second asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is before us challenging the action of second the Ld. Pr. CIT by preferring the following original grounds of appeal: "1. For that the order dated 14.03.2019 passed u/s 263 by the Ld. Principal CIT is barred by the law of limitation and liable to be quashed. 2. (a) For that on the facts and in the circumstances of the case, the order passed by the Ld. Principal CIT u/s 263 of the Act is bad in law and is liable to be quashed. (b) For that on the facts and in the circumstances of the case the Ld. Principal CIT was not justified in initiating proceedings u/s 263. 3. (a) For that the Ld. Principal CIT erred in exercising the power of revision for the purpose of directing the A.O. to hold another investigation when the A.O. had complied with the directions of the predecessor Principal CIT, Kolkata-4 in the preceding order u/s 263 passed on 23.08.2016. (b) Without prejudice to the preceding grounds, the issue before the Ld. CIT was debatable, as such, the Ld. Principal CIT did not have the jurisdiction to initiate another proceedings u/s 263." 7. Assessee also filed additional grounds of appeal, which are as under: "1. That impugned order passed u/s 263 dated 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order passed by the First AO on 26.03.2015 wherein he directed the second AO to carry out proper examination in respect of share capital & premium the assessee received during the assessment year. The Ld AR pointed out the specific instructions of the First Ld. Pr. CIT to the second AO - (i) proper examination of the books of account, (ii) proper examination of bank account and the assessee as well as investors, (iii) the AO was directed to examine the source of share application money, (iv) the identity of the investors and the genuineness of the transaction. According to Ld. AR, all the aforesaid directions of the First Ld. Pr CIT were obeyed in letter and spirit by the second AO. The Ld AR brought to our notice that second AO had conducted enquiry by first of all issuing notice on 19.10.2016 u/s. 143(2) and notice u/s. 142(1) of the Act. According to the Ld. AR pursuant to said notice, Shri Navin Tahlani, director of the assessee-company appeared before the second AO which fact has been acknowledged by the second AO in the assessment order; and the second AO also admits that the Director of the assessee-company had produced copy of ITR, audited accounts, computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject matter on which specific directions/instructions were given by the First Ld. Pr.CIT, which since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e share capital & premium collected by assessee company. Resultantly the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator while the AO was carrying out the directions of First Ld. Pr.CIT pursuant to the first revisional order, which exercise according to Ld.AR unfortunately this Second Ld. Pr.CIT has not done. So according to Ld. A.R, he cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. Therefore, according to Ld.AR, if this practice is allowed, there will be no end to the assessment proceedings, since if the next i.e. third or fourth Pr. CIT does not like the next assessment orders being passed by an AO under his jurisdiction, in the way he thought it as proper enquiry to have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's company's share capital has proper identity and creditworthiness and is capable of investing in the assessee, then the AO in turn can verify the identity, creditworthiness and genuineness of the share subscriber from whom the assessee received the share capital and verify whether the identity is proper, whether the transaction took place through banking channel, etc. and the creditworthiness of the share applicant etc. According to Ld AR, if the AO or even the Ld. Pr. CIT expecting/asking the assessee to find out the source of source of share-applicant, when the Law does not in this AY requires assessee to fulfil, then it would be quiet unreasonable, harsh and unfair practice, which action is against the Rule of Law, which is a basic feature of the Constitution of India. Since the law was that assessee should furnish the source of share capital it received in this A.Y, assessee by producing all documents in respect of share-applicants had discharged its onus, then burden shifts to the shoulder of AO to find fault with the documents or test the veracity of the documents. Despite the law was as such, then also AO in the second round, pursuant to the specific direction of the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O) passed the second assessment/re-assessment order dated 07-12-2016. According to the Ld. CIT/DR, the order sheet of AO does not mention about issuing of notice(s) u/s. 133(6)of the Act to the shareholders. And the Ld. CIT/DR drew our attention to the replies of shareholders to section 133(6) notice seen placed from pages 26-39 of P.B-1, which according to him, are identical and similar which cast doubt about it's genuineness. So according to Ld. CIT/DR, the AO did not carry out even the basic verification by issuing of notice u/s. 133(6) to share applicants/subscribers. And also he pointed out that the first Ld. Pr. CIT while setting aside the original/first assessment order has ordered the Second AO to frame re-assessment/second assessment de- novo meaning that AO was given full liberty to enquire on all issues including share capital and premium collected by assessee. So according to Ld. CIT/DR the contention of Ld. AR that the second Ld. Pr. CIT cannot have directed fresh assessment on share capital & premium is devoid of merit and no merger took place as contended by the Ld. AR, so the doctrine of merger did not take place in this case because the Ld. Pr. CIT (First) has dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the Ld. AR even though these particular facts are discernible on a perusal of re-assessment/second order, still they were specifically brought to the notice of the Second Ld. Pr. CIT. However, in his impugned second revisional order passed on 14-03- 2019, the Second Ld. Pr. CIT has not made a whisper/allegation about any failure of AO not issuing any notice u/s. 133(6) of the Act and has not controverted the contention of assessee before him the fact that statement of the director of assessee was recorded by the AO after summoning him u/s. 131 of the Act. According to the Ld. AR, the Ld. CIT/DR cannot now bring out certain facts, which are not discussed by the Second Ld. Pr.CIT and make out an altogether different case, when the Second AO has clearly stated in his order that he had duly issued notice u/s. 133(6) of the Act and got replies from his shareholders and the fact of issue of notice u/s. 133(6) which fact is corroborated by the letter of shareholder's placed at page-32 of PB-1 and others. Therefore according to Ld. AR, the second AO pursuant to the specific direction of First Ld. Pr. CIT has complied with his command and in that process had duly issued summons u/s. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -03-2015. Thereafter, the First Ld. Pr.CIT passed his First Revision order u/s. 263 of the Act on 23-08-2016, wherein he was pleased to set aside the original assessment order dated 26-03-2015 and directed de novo assessment along with the specific direction to inquire about the collection of share capital & premium. 14. Pursuant to the direction of the First Ld. Pr.CIT dated 23-08-2016, the second AO framed the de-novo re-assessment order dated 07-12-2016, wherein the second AO was pleased to accept the assessee's transaction in respect of collection of share capital and share premium to the tune of ₹ 45,66,01,634/- and made further addition of ₹ 10,366/- u/s. 14A of the Act. Thereafter, the new incumbent in the office of Pr. CIT-4, Kolkata issued show cause notice dated 16-01-2019 (hereinafter referred to as the Second SCN) and conveyed his intention to revise the re-assessment/second assessment order of the second AO dated 07-12-2016. After hearing the assessee, the second Ld. Pr. CIT has set aside the said re-assessment/second assessment order of the AO dated 07-12-2016, wherein the Second Ld. Pr. CIT, Kolkata-4, Kolkata vide order dated 14-03-2019 directed the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him; then the assessment order passed by the Assessing Officer can be termed as an erroneous order. Coming next to the second limb, which is required to be examined is as to whether the actions of the AO can be termed as 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. Their Lordship held that it has to be remembered 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. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Pr. CIT/CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue "unless the view taken by the Assessing Officer is unsustainable in law.&qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second Ld. Pr.CIT again was pleased to set aside the reassessment/ second assessment order of the AO dated 07-12-2016 and directed fresh assessment ( which means a third assessment to be framed ). 21. The aforesaid action of the Second Ld. Pr. CIT dated 14-03-2019 is challenged before us. According to the Ld. Counsel, Shri Kapil Goel, the Ld. Pr. CIT erred in assuming his jurisdiction without satisfying the jurisdictional conditional precedents as prescribed u/s. 263 of the Act and therefore, the action of the Ld. Pr. CIT is wholly without jurisdiction and therefore, ab-initio void and therefore, need to be struck down. We note that in order to interfere with the second assessment/re-assessment order passed by the Second AO u/s. 143(3)/263 of the Act dated 07-12-2016, the Second Ld. Pr. CIT has alleged lack of enquiry on the part of the AO in respect of share application money, and for not collecting the full facts. Therefore, it is noted that according to Ld. Pr. CIT, the AO's (second AO) decision was not based on the totality of facts, which makes the second assessment/re-assessment order erroneous in so far as prejudicial to the interest of the revenue. The second Ld. Pr. CIT a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for not bothering to examine the contention of the assessee or to bring on record anything against the assessee and according to him, the AO has simply jumped to the conclusion and treated the share capital as unexplained cash credit. The First Ld. Pr. CIT found fault with the action of AO for not bothering to issue show cause notice regarding points of addition to be made. Therefore, according to the First Ld. Pr. CIT the first original assessment order framed u/s. 143(3) dated 26-03-2015 was against the principle of natural justice and, therefore, he found it fit to order de novo assessment and gave specific direction in respect of share capital & premium collected by assessee. 23. Thereafter, the ld. Pr. CIT was pleased to direct "……………assessment order passed on 26.03.2015 is set aside de novo with the direction to the AO to carry out proper examination of books of account and bank statement of the assessee as well as the investor. The AO is also directed to examine the source of share application, entity of investor and its genuineness". (emphasis given by us). He also directed that the assessment proceedings to be initiated at the ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 28-03-2016 (First Revisional Order). Thereafter, the second AO notes that he received all the replies to his queries from the share applicants/subscribers in response to notices issued u/s. 133(6) of the Act (refer paper book 2 page 2 to 352) and then he carried out the verification of documents submitted by the share applicants/investors for proving the identity, genuineness and creditworthiness and also their source of fund to invest in the assessee company. Thereafter, the second AO by order dated 07/12/2016 disallowed an amount of ₹ 10,366/- u/s. 14A of the Act and thus it is noted that second AO did not draw any adverse inference against the share capital and premium collected by the assessee after carrying out the aforesaid exercise as directed by the First Ld. Pr. CIT to him. This exercise carried out by the second AO while framing the second assessment/re-assessment has been faulted as a case of lack of enquiry by the second Ld. Pr.CIT and the precise question is whether the action of second AO in respect of share capital and premium collected by the assessee can be termed as a case of lack of enquiry. 27. According to us, when the Assessment Order is framed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) Such explanation in the opinion of the Assessing officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10]. 29. Here it is to be noted that the first proviso and second proviso was inserted by Finance Act, 2012 with effect from 01.04.2013, so it is applicable only for/from AY 2013- 14 and not for this AY 2012-13. 30. Next let us refer to the definition of income stated in Section 2(24) of the Act. Section 2(24) of the Act includes:- i) profits and gains …….. ……… xvi) any consideration received for issue of shares as exceeds the Fair Market Value of the shares referred to in clause (viib) of sub-section (2) of section 56. 31. It is noted that this amendment was made by an insertion of clause (xvi) in section 2(24) of the Act was by Finance Act 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied, 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, 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. For coming to such a conclusion let us discuss few case laws: (A) Coming to the share premium, it is noted that this Tribunal in ITA- 2411/KOL/2017 in the case of Kanchan Plywood Products Pvt. Ltd. -vs.- ITO vide order dated 01.05.2019 has taken note that - Per contra, the Learned DR vehemently supported the order of the authorities below and wondered us to how the assessee-company issued share to three Private Limited C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it has found satisfied. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT vis. Lovely Exports (P) Ltd. 317 ITR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. " (B) The Tribunal Mumbai Bench in the case of DCIT vs. M/s. Alcon Biosciences (P) Ltd., ITA No. 1946/M/2016, Order dated 28.02.2018 held as under· "As regards the AOs observation with regard to the issue of shares at a face value of ₹ 10/- issued at a premium of ₹ 990 per share, we find that there is no merit in the findings of the AO for the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application forms and Form No. 2 filed with the Registrar of Companies. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s 68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd. 317 ITR 218. " (D)[Green Infra Limtied - 38 taxmann.com 253 (Mumbai-Trib). 10. We have considered the rival submissions and carefully perused the orders of the lower authorities and the material evidences brought on record in the form of Paper book. The entire dispute revolves around the charging of share premium of ₹ 490/- per share on a book value of ₹ 10/- each. This dispute is more so because of the fact that the assessee company was incorporated during the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012-13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents-assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. Similarly, the Commissioner of Income-tax (Appeals) on consideration of facts, found that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the Tribunal. It is further pertinent to note that the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issueof share in excess of its fair market value, This Came into the statute only with effect from April 1, 2013 and thus, would have no application to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or anyother business or commercial rights of similar nature, whichever is higher: (d)Venture capital company, venture capital fund, and venture capital undertaking shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10]". It was pleaded that the aforesaid provisions cannot be made applicable for the year under appeal. Accordingly, it was argued that the issuance of shares of premium cannot be brought to tax under any section of the Income Tax Act up to assessment year 2012- 13. We find that the reliance placed by the Id. AR in the decision of Hon'ble Bombay High Court in Pr. CIT vs. Apeak Infotech reported in 88 Taxmann.com 695 dt 08.06.2017 wherein the question raised before the Hon'ble Bombay High Court are as under: A. Whether on the facts and circumstances of the case and in law, the Tribunal was correct to uphold the decision on Commissioner of Income Tax (Appeals) that the share premium received by the assessee-company cannot be taxed under Section 68 of the Act ignoring the ratio laid down by this Court in its decision reported in the case of Major Metals Ltd. vs. Union o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the Tribunal. (d) We may also point out that decision of this court in Major Metals Ltd. v. Union of India [20121 19 taxmann.com 1761207 Taxman 185/[20131 359 ITR 450 Bom. proceeded on its own facts to uphold the invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the assessee-company were not creditworthy inasmuch as they did not have financial standing which would enable them to make an investment of ₹ 6,00,00,000 at premium at ₹ 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by this court in its writ jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the authorities that shareholder/share applicants were unid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 and so is not applicable in this AY. Further, as noted, the definition of income as provided under section 2(24) of the Act at the relevant time (AY 2012-13) did not define as income any consideration received for issue of shares in excess of its fair market value. This came into effect from 01.04.2013 and thus would have no application to the share premium received by the assessee in the previous year relevant to AY 2012-13. With this back-drop in respect of the requirement of law, let us study the judicial precedents which were laid by the Hon'ble Apex Court and Hon'ble High Courts on the provision of section 68 of the Act, while dealing with Share Capital/loan etc so that we can examine whether pursuant to the specific direction of First Ld Pr CIT, the second AO has discharged his role as an investigator and whether his re-assessment/second assessment order is a plausible view or can be termed as unsustainable view. Before we adjudicate let us look at section 68 of the Act as is applicable in this case and the judicial precedents on the issue at hand. 35. Section 68 under which the addition has been made by the Assessing Officer reads as under: "68. Where any sum is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: "Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. " ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor… " ********** "In other words, though under section 68 an Assessing Officer is free to show, with the help of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness." 38. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the issue of discharge of assessee's onus in relation to a cash credit appearing in his books of account, has observed and held as under:- "4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order." 39. We also take note of the decision of the Hon'ble High Court, Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 41. 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 Hon'ble Jurisdictional Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f COMISSIONER OF INCOME TAX, KOLKATA-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 such money was questionable and evidence produced was unsatisfactory. Conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concluded that the total share capital issued by the Assessee Company could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 45. Further, our attention was drawn to 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 Advocate appearing on behalf of the appellant and after going through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an unsustainable view in law. We on a conjoint reading of the First Revisional Order of the First Pr. CIT dated 23.08.2016 and the reassessment /Second assessment of the AO dated 07.12.2016, the following facts can be discerned:- (a)The First Ld. Pr. CIT has recorded a finding after perusal of the first assessment records/folder that during the first round of scrutiny proceeding, the assessee company produced the following documents before the first AO in the original assessment to satisfy the AO in respect of identity, creditworthiness and genuineous of share subscribers:- (i) audited financial statements; (ii) copy of Form filed with the ROC; (iii) copy of PAN Card of the assessee company; (iv) details and copy of share applicants; (v) bank statement reflecting the transaction; (vi) records relating to investors in order to establish identity, genuineness and creditworthiness of the share subscribers. 47. We note that the First Ld. Pr. CIT in his first revisional order, found that AO in the first assessment proceedings though has been provided with the aforesaid documents has not examined these documents, which according to him, should have been carried out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company. 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. 50. In the second round before the AO for de novo re-assessment, the second AO as per the specific direction of the First Ld. Pr. CIT (supra), conducted the reassessment proceeding. As per the specific direction of Ld. First Pr. CIT, the Second AO firstly summoned the director of the assessee company Shri NavinTahin before him, who duly appeared and produced the books of account on 01.12.2016 and furnished the relevant details viz., (i) copy of ITR, (ii) audited accounts, (iii) details of directors, (iv) the details of the share-applicants, (v) details of business activity, (vi) details of increase in share capital, (vii) Form 2, (viii) Form 5, (ix) bank statements evidencing payment through bankin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. U52190WB2012PTC 173352 AABCF9036D yes 8. M/s. SukhSagar Residency Pvt. Ltd. U45400WB2011PTC170958 AARCS1553N yes 9. M/s. Kamaldhan Developers Pvt. Ltd. U45400WB2011PTC170944 AAECK6810D yes 10. M/s. LabhdhanImpex Pvt. Ltd. U51909WB2011PTC171524 AACCL2111J yes 11. M/s. SubhsreeImpex Pvt. Ltd. U51909WB2011PTC171513 AARCS1845D yes 12. M/s. Maharaja Merchants Pvt. Ltd. U51109WB2005PTC102343 AAECM224E yes 13. M/s. Sristi Sales Pvt. Ltd. U51109WB2005PTC102121 AAICS8900L yes 51. Thus, we note that the AO after verification as aforesaid, 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. Coming to the contention of Ld. CIT, DR, that order sheet maintained by the Second AO does not reveal that AO had issued notice u/s. 133(6) of the Act to the share subscribers, we note that the AO in his reassessment/second assessment order has clearly asserted that he had issued notice u/s. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y them in the assessee is discernible as under: Name Source of investment Capital & Reserves Sum invested in assessee's business M/s. K. R. Overseas Pvt. Ltd. Page 8 Paper Book-2 ₹ 66,77,47,921 (page 22 PB-2) ₹ 1,30,000/- M/s. Kakrania Trading Pvt. Ltd. Page 45Paper Book-2 ₹ 66,52,71,914 (page 62 PB-2) ₹ 1,39,00,000/- M/s. AmbalaTrafinpvt. Ltd. Page 88Paper Book-2 ₹ 624,711,003 (page 101 PB-2) ₹ 4,40,00,000/- M/s. Subhiksha Pvt. Ltd. Page 115Paper Book-2 ₹ 222,397,317 (page 128 PB-2) ₹ 45,00,000/- M/s. Shivarshi Construction Pvt. Ltd. Page 146Paper Book-2 ₹ 53,89,95,046 (page 153 PB-2) ₹ 4,66,00,000/- M/s. Shivashiv Pvt. Ltd. Page 170Paper Book-2 ₹ 14,29,56,146 (page 178 PB-2) ₹ 6,55,00,000/- M/s. Flowtop Agency Pvt. Ltd. Page 193Paper Book-2 ₹ 15,38,94,946 (page 200 PB-2) ₹ 4,49,00,000/- M/s. Sukh Sagar Residency Pvt. Ltd. Page 212 Paper Book-2 ₹ 56,18,93,960 (page 220 PB-2) ₹ 2,31,00,000/- M/s. Kamaldhan Developers Pvt. Ltd. Page246-247Paper Book-2 ₹ 56,18,94,080 (page 254 PB-2) ₹ 12,54,00,000/- M/s. Labhdhan Impex Pvt. Ltd. Page 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each share subscribers totaling thirteen (13) infra;- (i) On perusal of the paper book-2, it reveals that the documents are placed at page 12 to 37 of share applicant M/s. K.R. Overseas Pvt. Limited which is a Private Limited Company, and which has Permanent Account No. AACCK0101B and CIN U51109WB1994PTC061965 and its Net-worth as on 31.03.2012 (in total)- share capital & reserve is to the tune of ₹ 66,77,47,921/- (PB page 22) and the investment made in the assessee-company including the share premium comes to ₹ 1,30,00,000/-. The payment has been made through banking channel and deposit amount of ₹ 1,05,00,000/- took place as on 01.03.2012 by NEFT and ₹ 25,00,000/- as on 06.03.2012. The Board Resolution for investment of the Company is filed and the share application form, ITR acknowledgment, Bank statement, explanation of source of funds as well as financial statements have been filed by the assessee at P. B page 3-37and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 3,75,00,000/-on 27.3.2012 . There is board resolution for investment in assessee's company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 79 to 111 in the PB-II. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. Thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act. (iv) We note from a perusal of the paper book pages-2,112 to 137, the details of share applicant M/s. Subhiksha Pvt. Ltd. It is a Private Limited Company which has a PAN AAPCS2068E and its CIN number is U52190WB2011PTC157073 and the Net worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act. (vi) We note from a perusal of the paper book pages-2, 160 to 184 the details of share applicant M/s. Shivashiv Dealcom Pvt. Ltd. It is a Private Limited Company which has a PAN AARCS0094C and its CIN number is U74999WB2012PTC 173749 and the net worth of this company as on 31.3.2012 ₹ 14,29,56,146/-(PBpage 178) and investment made in the assessee company is to the tune of ₹ 6,55,00,000/- and this share applicant has made the transaction through banking channel on 29.03.2012 ₹ 6,55,00,000/- through Cheque. There is board resolution for investment in assessee's company and Share Application Form Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 226 the details of share applicant M/s. SukhSagar Residency Pvt. Ltd. It is a Private Limited Company which has a PAN AARCS1553N and its CIN number is U45400WB2011PTC170958and the net worth of this company as on 31.3.2012 ₹ 56,18,93,960/-(P.B-2 pages-220) and investment made in the assessee company is to the tune of ₹ 2,31,00,000/- and this share applicant has made the transaction through banking channel on 31.3.2012 ₹ 2,31,00,000/- through NEFT. There is board resolution for investment in assessee's company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 208-226 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l on 31.03.2012 a sum of ₹ 3,80,00,000/- through NEFT. There is board resolution for investment in assessee's company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 163-283 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act. (xi) We note from a perusal of the paper book-2 pages 284 to 303 the details of share applicant M/s. Subhsree Impex Pvt. Ltd. It is a Private Limited Company which has a PAN AARCS1845D and its CIN number is U51909WB2011PTC171513 and the net worth of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xiii)We note from a perusal of the paper book-2 pages 327 to 352 the details of share applicant M/s. Sristi Sales Pvt. Ltd. It is a Private Limited Company which has a PAN AAICS8900L and its CIN number is U51109WB2005PTC 102121 and the net worth of this company as on 31.3.2012 ₹ 1,12,25,612/- and investment made in the assessee company is to the tune of ₹ 50 lakhs and this share applicant has made the transaction through banking channel on 28.02.2012 a sum of ₹ 50 lakhs through Cheque. There is Share Application, Bank statement, ITR acknowledgement, financial statement available in the PB-2, page 328 to 352. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Thus from the discussion above, it is noted except the last two investors the other eleven (11) share applicants out of thirteen (13) share-holders had furnished the source of investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of share capital and premium collected by the assessee as erroneous as well as prejudicial to the interest of the revenue. 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 was a plausible view and at any rate can be termed as an unsustainable view on law or facts 55. Further, we also take note that while he proposed to interfere u/s. 263 of the Act, he had opined that there was no detailed or independent enquiry but finally concluded that there was lack of enquiry. So, the Ld. Second Pr. CIT accepts that there was enquiry made by the second AO, however, he concludes that there was lack of enquiry. So when there was an enquiry conducted by AO then the AO has discharged the duty of an investigator. And we note that all the documents referred to above are available is the assessment folder before the Second Ld. Pr. CIT and he could have easily examined the veracity of these documents from the department's data base by click of a mouse and could have recorded his finding of fact if he found any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alternative when the assessee has discharged its onus, as required by the law in force in this AY 2012-13, then the Ld. Pr. CIT ought to have called for which ever additional documents/materials or issued summons or issued notices and collected those facts which according to Second Ld. Pr. CIT, the AO omitted to collect and then demonstrated that those actions/documents which he collected in that process gave result to a different finding of fact which will turn upside down the claim of the assessee and thus able to show that the actions/omission of AO in conducting the investigation was erroneous, which unfortunately is not the case before us. And equally bad is the bald allegation/fault that second AO has not collected total facts cannot be accepted being vague and based on conjectures and surmises and so meritless. Since the assessee company has discharged its onus as discussed supra, and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 57. Lastly, coming to the observations of the Second Ld. Pr.CIT that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue in accordance with Explanation 2(c) to section 263(1) of the Act.[ For ready reference it is reproduced.] Explanation 2 under section 263 of the Act reads as under:- For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if in the opinion of the Principal Commissioner or Commissioner,- (a)………. (b)……….. (c)the order has not been made in accordance with any order, direction or ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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