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TMI Blog2021 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... er after due application of mind and taking into consideration the various replies, material on record and books of account, the action resorted to by the Commissioner of Income Tax is unwarranted and uncalled for. 4. That the order of Commissioner of Income Tax is erroneous, arbitrary, opposed to the facts of the case and is unsustainable in law. From the aforesaid grounds it is gathered that only grievance of the assessee relates to the jurisdiction of the Ld. Pr. CIT assumed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 3. Facts of the case in brief are that the assessee filed its return of income on 04/09/2014 declaring an income of Rs. 19,52,040/- which was processed under section 143(1) of the Act, later on the case was selected for scrutiny. The A.O. assessed the income which was returned by the assessee by observing in para 2 & 3 of the assessment order dt. 27/12/2016 as under: 2. In response to said notices Sh. Ravinder Singh Khera, Chartered Accountant, Authorised representative of the assessee, attended the assessment proceedings from time to time with whom the case was discussed. During the course of assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a direction to make the assessment denovo. 4.2. In response, the assessee submitted as under: That during assessment proceedings, the A.O. had required the assessee to justify the issue of shares at a premium under rule 11UA of the IT Rules, 1962. The assessee had submitted details of turnover, assessable income, tax paid from A.Ys. 2011-12 to 2015-16, and the investor companies being impressed and satisfied by the company's performance and safe investment of their funds had purchased shares of the assessee company at a premium of Rs. 15/- per share. The assessee had accumulated reserves and surpluses of Rs. 142.84 lacs against paid up capital of Rs. 103.12 lacs, thus apparently there was accumulated profit of Rs. 15/- per share against paid up capital of Rs. 10/- per share. Requirements of Rule 11UA were fully complied with which can be verified from the company's audited balance sheets which were filed during assessment proceedings. The AO had accepted the Fair Market Value of Rs. 25/- per share of face value of Rs. 10/- each as per Rule 11UA of the IT Rules. That all documents required by the A.O. were filed during assessment proceedings. Copies of written subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of law to procure whatever further information is required. 4.4. The Ld. Pr. CIT after considering the submissions of the assessee observed that the assessee during the course of assessment proceedings furnished the computation of the issue of share at a premium under Rule 11UA of the Income Tax Rules, 1962 and furnished the details of turnover, assessable income, tax paid from A.Y. 2011-12 to 2015-16 and also furnished the confirmation signed by the investing companies. The Ld. Pr. CIT also pointed out that all the so called investors have PAN, copies of bank accounts alongwith balance sheets were also filed. The Pr. CIT admitted that the funds were transferred through RTGS from respective bank accounts. However these investing companies were not produced before the A.O. even though specifically called upon, by stating that it was not possible to do so due to short notice as they were from Kolkata. 4.5. It was stated before the Ld. CIT(A) that the investor companies being impressed and satisfied by the company's performance and safe investment of their funds, had purchased shares of the assessee company at a premium of Rs. 15/- per share. The Ld. Counsel for the Assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order erroneous in so far as it was prejudicial to the interest of the Revenue. He also observed that not only no disallowance/addition had been made by the A.O. and that the issue had not been properly examined and inquired into, therefore, detailed and deep inquiries were required to be made on this issue before accepting the claim of the assessee. 4.8. Ld. Pr. CIT observed that the assessment record revealed that requisite enquiry were not conducted regarding the issue as to what prompted the subscribers to the shares to pay premium on shares of a little known company having no or insignificant business activities. Therefore the assessment order was passed without application of mind, no proper enquiry was conducted regarding the identity and creditworthiness of the subscribers and no proper enquiry had been made regarding the genuineness of the transactions. The reference was made to the following case laws: * Judgment of High Court of Calcutta in GA No. 509 of 2016 with ITAT No. 113 of 2016 in Rajmandir Estates P. Ltd. Vs. PCIT Kolkata-III, Kolkata order dt. 13/05/2016 * Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) * CIT Vs. Active Traders Pvt. Ltd. * CIT vs. Nova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1. It was further submitted that the Ld. Pr. CIT in para 2 of the impugned order although mentioned that proper and sufficient enquiry had not been made which lapses bears to have rendered the assessment order erroneous in so far as prejudicial to the interest of the Revenue, but he has not mentioned that no enquiry was made by the A.O. So, it was not a case of lack of enquiry, therefore, the Ld. Pr CIT was not justified in exercising his powers under section 263 of the Act. 6.2. It was stated that the Ld. Pr. CIT at page No. 2 of the impugned order referred that the assessee could not produce the Director of Investor Companies, on that ground also the addition could not have been made. It was submitted that the A.O. required the assessee to justify the issuance of share at a premium of Rs. 15 per shares. The said premium was worked out on the basis of valuation of the shares (copy of which is placed at page Nos. 476 & 477 of the assessee's paper book). It was accordingly submitted that the A.O. on verifying the valuation report of the shares accepted the Fair Market Value at Rs. 25 per share having face value of Rs. 10 each. 6.3. Ld. Counsel for the assessee referred to par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hd/2017 for the A.Y. 2012-13 dt. 13/11/2019. 6.7. It was reiterated that the A.O. asked the assessee to furnish the information relating to investor companies which were furnished vide letter dt. 14/12/2016 copy of which is placed at page No. 188 to 196 of the assessee's paper book, therefore it was not a case of lack of enquiry and only on the suspicion, the assessment order framed by the A.O. after the proper enquiry and application of mind, cannot be set aside, the reliance was placed on the following case laws: * CIT Vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) * Director of Income Tax Vs. Jyoti Foundation [2013] 357 ITR 388 (Delhi) * Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC) Reliance was also placed on the decision dt. 17/08/2009 of the Hon'ble Jurisdictional High Court in ITA No. 445 of 2008 in the case of CIT Vs. M/s. Unique Autofelts (P.) Ltd., copy of which is placed at page No. 1 to 6 of the assessees paper book. It was accordingly submitted that the Ld. Pr. CIT was not justified in invoking the provisions of section 263 of the Act and directing the A.O. to make assessment denovo after properly examining the facts which the A.O. had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s here with following information and documents for your kind perusal and records:- 1. As per para 1, detail of addition to share application money, share capital and share premium is attached here with for your kind perusal and records. 2. As per para 2, copy of ITRs, Computation of Income, Bank Statements and Confirmations of Sh. Lokesh Kumar, Smt. Madhu Aul and Lokesh Kumar HUF is enclosed here with for your kind reference and records. A copy of Share Application Money Form, confirmation certificate from depositor company, copy of resolution for share application to the assessee company, bank statement, copy of PAN card along with a copy of Memorandum and Articles of Association is attached here or your reference and records in case of following persons:- a) Pansy Dealer P. Ltd. b) Daisy Suppliers P. Ltd. c) Zinnia Sales P. Ltd. d) Sunflame Distributors P. Ltd. e) Nilay Distributors P. Ltd. f) Virat Commosale P. Ltd. 3. The documents as mentioned in para 2 above very clearly prove the identity/credit worthiness and genuineness of the transaction by the depositors. The assessee hopes your good self wilt find the above information and documents in order. 4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.3. Now we have to consider as to whether the A.O. had made the proper enquiry or not and that the view taken by the A.O. was a possible view in accordance with law or not. 8.4. The power of the Ld. Pr. CIT under section 263 of the Act and the condition to invoke the same may be summarized as under: (i) "The Pr. CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the A.O. and it is only when an order is erroneous, the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement of the order being erroneous. (iv) if the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view-with which the Pr. CIT does not agree, it cannot be treated as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investor companies furnished the confirmatory letters to the A.O. alongwith documents relating to the Financial Statements filed with the Registrar of the Companies, copies of the said documents are placed at page No. 281 to 370 of the assessee's compilation. The Assessee also furnished the detailed calculation sheet of Fair Market Value of unquoted equity shares, copies of which is placed at page Nos. 476 & 477 of the assessee's compilation. The A.O. after making the proper examination of those documents accepted the valuation of shares issued by the Assessee at premium of Rs. 15/- per share. Accordingly, the Fair Market Value of unquoted equity shares under Rule 11UA of the Income Tax Rules was accepted at Rs. 25/- per share. The Ld. Pr. CIT although held that the assessment was completed without making proper enquiry however the valuation of the share furnished to the A.O. by the assessee has not been doubted. On the basis of aforesaid discussion, it can be said that the A.O. not only asked the relevant documents from the assessee but also considered those documents furnished by the assessee while framing the assessment under section 143(3) of the Act. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied from the enquiry made by the AO he should have conducted the enquiry himself to record the findings that the assessment order was erroneous he should not have set aside the order passed by the AO and directing him to conduct the enquiry. 8.10. On a similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs. M/s. Unique Autofelts (P.) Ltd. (supra) held as under: "5. From the finding of the Tribunal, it is clear that the assessee had given proper explanation by filing the necessary confirmations. In view of such a finding, the Tribunal rightly held that power under Section 263 of the Act could be exercised where view taken by an Assessing Officer was erroneous. While exercising such power, the Commissioner was bound to take into account all relevant facts. If order invoking the said power proceeds on an erroneous assumption, the same could be set aside by the Tribunal. Finding of the Tribunal is not shown to be perverse. No substantial question of law arises." 8.11. One similar issue has also been decided by the ITAT Bench "B" Chandigarh in ITA No. 1348/Chd/2017 for the A.Y. 2012-13 in the case of M/s. Technico Metals Pvt. Ltd. Vs. DCIT wherein vide orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012 evidencing the Fact that M/s. Pansy Dealer (P.) Ltd. had paid a Share Application Money of Rs. 25,00,000/- through RTGS dated 21.03.2012. (iii) Copy of Income-Tax Return Acknowledgement of A.Y. 2012-13 (iii) Copy of Director's Report, Auditor's Report and Balance Sheet of M/s. Pansy Dealer (P.) Ltd. as at 31.03.2012 along with a Schedule of Details of Investments. e) Copy of Confirmation f) Copy of Extract of Minutes of Board Meeting of M/s. Pansy Dealer (P.) Ltd. g) Copy of Share Certificate 9. A perusal of the above reveals that the assessee had furnished the relevant documents to prove the identity, creditworthiness of the investors as well as genuineness of the transactions. However, the Assessing officer harped the assessee to produce the directors of the investor company before him, in reply, to which the assessee submitted as under:- "Inspite of the best efforts made by the assessee company, none of the subscriber is agreed to be personally present before Your Honor, since, all these are staying in Kolkata or other places which are far from Ludhiana. The assessee company has already submitted confirmations giving their full addresses. Your Honor is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported that the aforesaid companies could not be traced out at the given address. However, we find from the record that the assessee company has furnished the bank details of the investor companies. The address on the existence of the said companies could have been verified from the account opening forms etc. It is in the common knowledge that the accounts are opened in the bank through introducers who approve that the account holder is known to him/her and is genuine. Enquiries could have been made from the said introducers also. Apart from that, the companies have been duly registered at the given address and duly audited by the auditors. The assessee had also produced on the file the report of the auditors in the case of both the investor companies who have audited the accounts of the aforesaid firms. If there was any doubt about the existence of such companies, the concerned auditors, CA of the respective companies could have been enquired/investigated. It has been explained that the M/s. Lawa Marketing (P.) Ltd. had paid share application money of Rs. 25 lacs through RTGS and the same was sourced out of the sale of shares for Rs. 32 lacs to M/s. Ability Dealmark (P.) Ltd.). S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T was not justified in considering the assessment order passed by the AO as erroneous on this basis that the assessee could not produce the Directors, as has been held in the aforesaid referred to case of M/s. Technico Metals Pvt. Ltd. Vs. DCIT. 8.13. On a similar issue, the Hon'ble Supreme Court in the landmark judgment reported in the case of Malabar Industries Vs. CIT(supra) has held as under: "A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 162 (Cal) wherein the Promoter/Director of the said assessee and their close relatives and Friends had united with the main objective of creating company apparently having the large capital basis but infact those were mere paper company having no real worth and that the share were offered which were subscribed by closely held companies owned by the Promoter/Director or their close relatives and Friends. But in the present case, the facts are different as the investor companies were not related or owned by the Director of the assessee company and the shares were allotted at a premium of Rs. 15/- per share, valuation of which was worked out on the basis of detailed calculation sheet, copy of which is placed at page No. 47 of the assesses compilation. 9. As regards to the allegation that the assessee could not produce Director of the Investor companies, it is noticed that the assessee furnished confirmatory letters received from the Investing companies alongwith copies of the Balance Sheets, copies of Ledger Accounts of the broker etc and requested to the Ld. Pr. CIT to issue commission as per provisions of Section 131(1)(d) of the Act, since all the Directors of Investing Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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