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TMI Blog2021 (3) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... ee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicants have confirmed the share application in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. Assessee has discharged the onus on it; and twice the AO enquired about it and in the reassessment this issue has been thoroughly enquired as discussed supra and the view taken by AO is a plausible view in line with the judicial precedence supra and so it cannot be called erroneous. So the Ld PCIT erred in holding the AO s re-assessment order as erroneous. AO has conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site jurisdiction to invoke the revisional power u/s 263 of the Act for AY 2012- 13, which is purely a legal issue. So it needs to be adjudicated first. 3. The Ld. A.R Shri Sanjay Kejriwal assailing the action of Ld. PCIT to exercise his revisional jurisdiction u/s 263 of the Act contended that Ld. PCIT without satisfying the essential condition precedent as stipulated by the Statute (Section 263 of the Act) could not have invoked the revisional jurisdiction to interfere with the re-assessment order passed by the AO. According to him, before the Ld. PCIT invokes his revisional jurisdiction, first of all he has to satisfy that the AO's re-assessment order which he proposes to interfere with is erroneous as well as prejudicial to the interest of revenue as stipulated in section 263 of the Act. According to Ld. A.R, the Ld. PCIT has miserably failed to bring out in the impugned order/ show-cause notice (SCN) as to how the AO's reassessment order dated 29.12.2017 is erroneous as well as prejudicial to the revenue. According to Ld. A.R, the Ld. PCIT has expressed his desire to exercise his revisional jurisdiction by issuing show-cause notice (SCN) dated 31.01.2020 which is reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the assessee i.e. M/s ACS Traders Pvt. Ltd. had undergone scrutiny in the hands of AO twice and therefore this issue had been thoroughly investigated by the AO, so the Ld. PCIT erred in holding that AO has passed the re-assessment order dated 29.12.2017 without carrying out any enquiries. 5. The Ld. A.R brought out the history of this assessment in respect of AY 2012- 13 and submitted that this is a case where in the assessee's case for AY 2012-13 was initially selected for scrutiny u/s 143(3) of the Act and first original assessment order was passed on 26.03.2015 and drew our attention to page 72 of PB and order sheet of assessment proceedings which is placed at page 97 to 98 of PB which fact we find it to be correct. Thereafter according to Ld. A.R, the AO reopened the original assessment u/s 147 of the Act by issuing notice u/s 148 of the Act dated 28.03.2017 and drew our attention to the order sheet of AO which is placed at page 100 to 102 of the PB. Thereafter the Ld. A.R drew our attention to the reasons recorded for reopening the original assessment (dated 26.03.2015) which was given to the assessee vide letter dated 24.11.2017 which is placed at page 75 of the PB w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to page 100 of PB which is the order sheet maintained by the AO in respect of the re-assessment proceedings. A perusal of it reveals that the AO had recorded this reason for re-opening (supra) on 27.03.2017 and thereafter had issued the notice u/s 148 of the Act on the same date. It is noted that the hearing in respect of re-opened assessment was conducted by the AO on eight (8) occasions/dates and thereafter has passed the reassessment order [second/re- assessment order] dated 29.12.2017 u/s 143(3) read with Section 147 of the Act. Thus according to the Ld. A.R, the AO before the re-assessment order was passed on 29.12.2017, had fixed the matter for hearing on eight (8) occasions/dates; and during the said proceedings, he (AO) had issued notice u/s 143(2) as well as u/s 142(1) notice dated 21.11.2017; and pursuant to the enquiries made by AO the assessee had filed reply dated 29.11.2017 along with the following documents to substantiate its claims on the issue of share-capital and premium i.e. share subscribers identity, creditworthiness and genuineness of the transaction with the assessee company: i) Copy of audited financial statements for AY 2011-12 ii) Copy of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACS Traders Pvt. Ltd.] And based on the information, that the said group has raised share capital from dubious shell companies ;and that this capital (₹ 25 Lakhs + ₹ 1.25 cr. premium) which the assessee had raised is nothing but unaccounted cash of the company, the AO reopened the original scrutiny assessment; and further the AO specifically noted that the share capital raised by assessee company of ₹ 1.50 crores, need further investigation especially for verifying the creditworthiness, genuineness and proof of identity of the allottees which exercise, he needs to do in the interest of the revenue. And the other reason according to AO, for further investigation was that share capital of ₹ 1.50 crores is not commensurate to the return of income filed by the assessee. Therefore, keeping these reasons/suspicion/allegations in mind, the AO proposed to reopen the assessment dated 26.03.2015 and thereafter conducted further investigation after re-opening. So according to Ld. A.R, when the AO proposed to reopen the original scrutiny assessment (first) dated 26.03.2015 and had conveyed his intention for conducting further investigation in respect of share capital/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have gone behind the entry provider and source of the deposit in making the payment from the bank account of the aforesaid company (share subscribers) and looked into the cash trails; and second fault according to Ld. PCIT was that despite non-service of notice by the postal department, how the share subscribers could respond to the AO; and third fault according to Ld. PCIT was that the AO has not carried out the enquiries at bank on the basis of replies from the five share subscribers. Therefore the Ld. PCIT concluded that the order passed by the AO u/s 147/143(3) of the Act dated 29.12.2017 was erroneous as well as it is prejudicial to the interest of the revenue and therefore he cancelled the reassessment order dated 29.12.2017 and directed the AO to conduct de novo assessment and also advised the AO to focus on the cash trail of all the bank accounts involved in the transaction of money from the bank account of the assessee company. Countering the faults pointed out by the Ld. PCIT to interfere with the order passed by the AO, the Ld. A.R, submitted that it needs to be kept in mind that the AO had re-opened the first/regular/original 143(3) assessment dated 26.03.2015 on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment year concerned is AY 2012-13. Thus, according to Ld. A.R, the AO's action in accepting the share capital & premium collected by the assessee based on the documentary evidence furnished by the assessee in respect of five (5) share applicants and after thorough investigation, cannot be found fault with and in any case their (share subscribers) identity could not be questioned since two of the share applicants has undergone scrutiny assessment for AY 2012-13 (page 400 to 412 of PB) and all the share applicants being assessed to the income tax; and the payments were made through banking channels could not have been doubted, when the fact is that the AO has examined independently the same by issuing summons u/s 131 and 133(6) of the Act. Therefore according to Ld. A.R, the Ld. PCIT's action of usurping the revisional jurisdiction on the specious plea that no enquiry was conducted by the AO is patently erroneous and based on wrong assumption of facts and law; and thus according to Ld. A.R, the Ld. PCIT could not have invoked revisional jurisdiction u/s 263 of the Act. Therefore, according to the Ld. A.R, the very invocation of Section 263 jurisdiction itself is bad i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; [ because AO has to discharge dual role of an investigator as well as that of an adjudicator ] then in aforesaid any event, the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, what 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 needs to be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation) which fact need to be examined by re-opening the assessment and by conducting further investigation. This fact led him to believe that there is escapement of income and therefore he proposed to reopen the assessment by 'recording the reasons' which has been reproduced supra. Thereafter it is noted that the AO during the re-assessment proceedings has given eight (8) opportunities of hearing to the assessee and thereafter had passed the re-assessment order u/s 147/143(3) of the Act dated 29.12.2017. It is also noted from the order sheet which is placed from 100 to 102 that the AO had issued notices u/s 133(6) to the share applicants as well as summons u/s 131 of the Act to the assessee company. We note that the statement of the director of assessee company Shri Ashok Kumar Agarwal was recorded on oath by AO as 13/03/2015 u/s 131 of the Act (refer 9 to 12 PB). We note that during the reassessment proceedings the AO had issued 143(2) notice and 143(1) notice to the assessee and summoned various documents to substantiate the identity, creditworthiness and genuineness of the share transaction of ₹ 1.50 crore. We note that the assessee had filed following documents b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Total investment by these two entities itself is to the tune of ₹ 1,02,90,000/- out of ₹ 1,50,00,000/-. And the rest of the three entities subscribed therefore balance of ₹ 47.10 Lakh shares & premium i.e. (M/s Evesite Commodities, M/s Intellectual Securities invested ₹ 20,000/- each as share capital and ₹ 8,00,000/- as premium (Total ₹ 47,10,000/-) and it is noted all the five entities have furnished their respect CIN & DIN numbers, registered addresses, email-ID, and their respective status of these companies are shown as "active" which fact can be seen from a perusal of company Master Data (refer Page 44 to 51 of PB) (except M/s Eversite commodities which has been amalgamated (refer Pg. 46 of PB). We find that all the five share subscribers have directly replied to the AO pursuant to notice issued u/s 133(6) of the Act which is found placed at page 60-69 of PB. From a perusal of the same, the following details along with supporting documents were filed respectively by them directly to the AO (i) PAN (ii) Assessing Ward (iii) details of share (iv) copy of ITR (v) copy of audited Balance sheet and P & L account (vi) copy of bank statement (vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly discernible for 'reasons recorded' to re-open (supra) itself. And we find that after re-opening the AO has enquired by issuing notice u/s 133(6) directly to the five share applicants which were replied by them directly to AO; and on summons u/s 131 of the Act, the assessee company's director had appeared before the AO and his statement was recorded under oath by AO u/s 131 of the Act. We find that out of the five share applicant two (2) have undergone scrutiny assessment u/s 143(3) of the Act and they had invested ₹ 102,90,000/-. And all the five share subscriber are Income Tax assessee's and their entire details as discussed (supra) has been filed before the AO pursuant to his notices and the AO being satisfied with their identity, creditworthiness & genuinity have accepted after enquiry, the share capital of ₹ 25 Lakhs & premium of ₹ 1.25 crore which is a plausible view as far as law was applicable for AY 2012-13 is concerned. So the Ld. PCIT erred in finding that no enquiry was conducted. The Ld. PCIT's action to interfere exercise the revisional jurisdiction by terming the AO's action as a fall out of no enquiry is perverse; and his finding fault with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent delivered by the CTR at 216 CTR 295: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 17. Our attention was also drawn to the decision of the Hon'ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong. The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of ₹ 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment. By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of ₹ 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question 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. Further, our attention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot find any reason to interfere with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law. 20. As noted from the judicial precedents cited above, 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, when called upon by the AO to do so. 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 applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, these C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is not satisfied in the facts of this case as discussed supra. However in case still if he (Ld. PCIT) wanted to exercise his jurisdiction despite the AO making enquiries as found by us (supra), then he (Ld. PCIT) should have himself conducted preliminary enquiry and should have been able to show that AO's enquiry was not correctly made by finding deficiency/infirmity in the documents/ material collected by the AO or even able to disprove the transaction of share capital by bringing material to suggest that the share transaction of assessee was an eye wash. This exercise the Ld. PCIT has not carried out. So according to us, in the light of the enquiries conducted by the AO in respect of share transaction, the Ld. PCIT could not have found the action of AO to be erroneous for want of no enquiry. And the view taken by the AO in respect of share transaction is a plausible view; and at any rate cannot be termed as un-sustainable view. We note that the action of Ld. PCIT smacks of arbitraries and is bad in law for non-application of mind and the Ld. PCIT proceeded on wrong, assumption of facts. Since the Ld. PCIT has interfered by invoking 263 jurisdiction without satisfying the c ..... 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