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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 ..... companies and the assessee furnished all the relevant documents which were examined by the AO who had taken a possible view, therefore as per the ratio laid down bin MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX [ 2000 (2) TMI 10 - SUPREME COURT] in the aforesaid referred to case, even if the Ld. Pr. CIT did not agree with the view taken by the A.O., the said assessment order passed by the A.O., cannot be treated as an erroneous order and prejudicial to the interest of the Revenue. 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 Companies were permanently based in Kolkata which was nearly 1700 Km away from Ludhiana and therefore the assessee requested to AO to issue the commission. However the AO after appreciating the complete documentary evidences placed on record and applying his mind to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t along with trading Account/Profit & Loss account, Balance Sheet etc was filed. The information requisitioned as per questionnaire was furnished, placed on record and examined. Books of account were produced. The assessee derives income from Business of wholesale trading of cutting tools. 3. The details filed were duly examined and the case was discussed with the authorized representative of the assessee. After examination, the case is assessed at returned income ₹ 19, 52,040/-. 4. The Ld. Pr. CIT thereafter exercised his revisionary power under section 263 of the Act and observed that proper and sufficient enquiries had not been made by the A.O. which rendered the assessment order erroneous in so far as it is prejudicial to the interest of the Revenue. Ld. Pr. CIT observed as under: "Share issued at Premium by the assessee: A perusal of assessment record of the year under consideration reveals that the assessee had issued shares at premium to the shareholders as detailed below:- Name of Shareholders Shares Face Value of Shares (Rs.) Share Premium (Rs.) Total Value (Rs.) Daisy Suppliers (P) Ltd. 40,000 4,00,000/- 6,00,000/- 10,00,000/- Zinnia Sales (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. Copies of written submissions filed during assessment proceedings were enclosed. That the documents filed before the A.O., included documents filed by the investment companies also to each of whom the A.O. had specifically issued registered letters u/s. 133(6) of the IT Act, 1961. As regards non-production of directors of the investor companies, the AO had required the assessee to do so only vide letter dated 08/12/2016, received by the assessee on 10/12/2016 for producing the directors on 14/12/2016, which was not possible due to the short notice. Reply had been submitted that since these companies are based in Calcutta, 1000 kms away from Ludhiana, because of financial difficulties faced due to demonetization, the assessee is unable to produce the directors, however that the A.O. may issue commission as per the provisions of the Income Tax Act, 1961. As regards proper investigation regarding receipt of share premium with respect of identity, creditworthiness and genuineness, that the A.O. had thoroughly investigated this issue, letter u/s. 133(6) were issued to the investing companies, and had collected information, confirmations, explanations and documentary evidences whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Counsel for the Assessee furnished the documents received by the assessee, in response to the notices issued under section 133(6) of the Act to six companies. In those replies, it was stated that their Directors came into contact with Shri Lokesh Kumar, Director of the assessee company somewhere in the beginning of financial year 2013-14 and Mr. Lokesh Kumar expressed his willingness to sell equity shares of the assessee company, since he was in need of long term funds, after such discussion, exchange of financial documents/data and after negotiation of the rate of the shares, the deal was finalized. 4.6. However, the Ld. Pr. CIT was of the view that the A.O. merely obtained the confirmation from the assessee and accepted the same without conducting enquiry into the identity of the investor or genuineness of the transaction. The Ld. Pr. CIT observed that the companies did not respond to the letters of the A.O. but the assessee furnished details which were called from those investing companies which could not be said to be the independent verification. He also observed that existence of the four companies vis. M/s. Zinnia Sales (P.) Ltd., M/s. Daisy Suppliers(P.) Ltd., M/s. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Active Traders Pvt. Ltd. • CIT vs. Nova Promoters and Finlease (P.) Ltd. • CIT Vs. Precision Finance Pvt. Ltd. • SLP (C) Nos. 23976/2017 in Deniel Merchants Pvt. Ltd. & Anr. Vs. ITO & Anr. • Jai Commercial Co. Ltd. Vs. Joint CIT (2000) 66 TTJ (Del-Trib) 731 • Express Newspapers (P.) Ltd. Vs. CIT (2002) 255 ITR 137 (Mad) • Desai Brothers Ltd. Vs. Dy. CIT (1998) 66 ITD 203 (Pune-Trib) • Gee Vee Enterprises Vs. Addl. CIT & Ors. (1975) 99 ITR 375 (Del) • CIT Vs. Pushpa Devi (1987) 164 ITR 639 (Pat) • Lajja Wati Singhal, Smt. Vs. CIT (1997) 226 ITR 527 (All) • P.K. Fabrics Vs. Asstt. CIT (1998) 67 ITD 326 (Asr-Trib) • V. Narayanan Vs. Dy. CIT (2004) 88 ITD 43 (Chennai Trib) • Ambika Agro Suppliers Vs. ITO (2005) 95 ITD 326 (Pune Trib) 4.9. Ld. CIT(A) held that the A.O. completed the assessment without making proper enquiry and that not only the A.O. had not made proper enquiry and had not verified the correctness and genuineness of the assessee's explanation but he had also made the assessment order without proper application of mind and without properly appreciating the facts. Therefore the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Fair Market Value at ₹ 25 per share having face value of ₹ 10 each. 6.3. Ld. Counsel for the assessee referred to para No. 5.1 of the impugned order and submitted that vide letter dt. 19/12/2016, all the documents which were asked by the A.O. to be produced, were furnished by the assessee. As regards to the non production of the Directors, it was stated that the assessee requested the A.O. to summon the Directors, reference was made to page No. 498 and 499 of the assessee's paper book. 6.4. It was stated that all the investing companies furnished their replies to the A.O., reference was made to page No. 283 to 370 which are the copies of the confirmatory letters received from the investing companies along with supporting documents. It was accordingly submitted that the assessee furnished all the details before the A.O. who examined the same and accepted after proper verification, therefore the Ld. Pr. CIT was not justified in holding that the assessment order passed by the A.O. was erroneous or prejudicial to the interest of the Revenue. 6.5. It was contended that an identical issue has been decided by the ITAT Chandigarh Bench "B" Chandigarh in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 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 already verified/examined while framing the assessment under section 143(3) of the Act, therefore the impugned order may be set aside. 7. In his rival submissions the Ld. CIT DR strongly supported the impugned order passed by the Ld. Pr. CIT and further submitted that the A.O. had not made the proper enquiry before framing the assessment, therefore the assessment order passed by the A.O. was erroneous. It was further submitted that all the companies who made the investment in assessee company were dubious company and were only paper company which fact has not been enquired by the A.O. therefore the Ld. Pr. CIT rightly directed the A.O. to make proper enquiry and to frame assessment denovo. The reliance was placed on the following case laws: • Rajmandir Estates Private Ltd. Vs. Principal Commissioner of Income Tax [2016] 386 ITR 162 (Cal). • Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) • CIT Vs. Active Traders Pvt. Ltd. • Deniel Merchants P. Ltd. & Anr. Vs. ITO & Anr. in SLP(C) Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The information as per para 4 is enclosed here with for your ready reference and records and the premium on the shares has been charged based on the past financial performance of the company as per audited balance sheets and is received as per proviso of section 56(2)(viib) of Income Tax Act, 1961. 5. As per para 5, a copy of bank statement is attached here with for your kind reference and records. 6. As per para 6, the information as called for by your good self has already been filed in annexure 2 as a part of tax audit report which was filed in 1st written submission as per point 1 of the questionnaire dated 03.06.2016 for the year under consideration. 7. As per para 7, a copy of return of allotment filed with ROC is enclosed here with for your reference and records. Complete books of accounts along with vouchers for purchase/sale of goods, vouchers for direct expenses, VAT returns, vouchers for expenses debited to profit & loss acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 erroneous order, unless the view taken by the AO is unsustainable under the law. (vi) If while making the assessment, the A.O. examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the Pr. CIT, while exercising his power under s. 263, is not permitted to substitute his estimate of income in place of the income estimated by the A.O. (vii) The AO exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the Pr. CIT does not feel satisfied with the said conclusion. (vii) The Pr. CIT, before exercising his jurisdiction under s. 263, must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 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 case, the allegation of the Ld. Pr. CIT is that the A.O. had not made proper enquiry, however it is not the case of the Ld. Pr. CIT that there was a lack of enquiry. 8.6. On a similar issue the Hon'ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (supra) held as under: "(i) that the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee. Such decision of the Assessing Officer could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard. The Assessing Officer had called for explanation on the very item from the assessee and the assessee had furnished its explanation. This fact was conceded by the Commissioner himself in his order. This showed that the Assessing Officer had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding 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 order dt. 15/02/2019 relevant findings have been given as under: "8. We have considered the above submissions of Ld. Representatives of the parties. It is noticed from the record that the assessee company to prove the identity and creditworthiness of the investor companies and genuineness of the transactions has furnished the following documents in relation to the investor company. (A) M/s. Lawa Marketing (P.) Ltd. a) Copy of Application Form for Equity Shares b) Copy of Statement of Bank Account of Transactions effected on 20.03.2012 c) Copy of Permanent Accounts-lumber d) Copy of Income-Tax Return Acknowledgement of A.Y. 2011-12 e) Copy of Blank Share Transfer Form g) Copy of Certificate of Incorporation f) Copy of Memorandum and Articles of Association g) Copy of Letter (along with Enclosed copies) to the Deputy Director of Income-Tax, DDIT (Inv.), Unit-(I)), K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 requested to kindly summon these parties by using Your good office. The assessee company is ready to make payment of diet money for the same". 10. The Ld. counsel in this respect has also relied on the decision of the Hon'ble Rajasthan High Court in the case of 'CIT Vs. Jalan Hard Coke Ltd.,' [2018] 95 taxmann.com 330 (Rajasthan), wherein, in somewhat identical facts, the assessee expressed its inability to produce the share applicants, the Hon'ble High Court held that additions were not warranted observing that the company cannot assess for the income tax to find out the persons who has applied as shareholder. The said decision of the Hon'ble Rajasthan High Court has been affirmed by the Hon'ble Supreme Court by way of dismissal of SLP filed against the said order reported in 'CIT Vs. Jalan Hard Coke Ltd.,' [2018] 95 tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 25 lacs through RTGS and the same was sourced out of the sale of shares for ₹ 32 lacs to M/s. Ability Dealmark (P.) Ltd.). Similarly, the source of funds in the case of M/s. Pansy Dealer (P.) Ltd. has been explained that the same were sourced by sale of shares of M/s. Malcom Marketing Pvt. Ltd. There is voluminous record placed on the file such as share application forms, share certificates, bank accounts statements, confirmation from the investors, certificate of incorporation of the said companies, directors report, auditors report and balance sheets etc. So far as the question as to why the said investment company would investigate the assessee company, that in our view, is the internal/market decision of the said investor company and that cannot be a basis for holding that the said investor is bogus. So far as the observation that the investor companies were running into losses, the Ld. Counsel for the assessee in this respect has demonstrated from the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax officer, the Revenue is losing tax lawfully payable by a person, it will c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Companies were permanently based in Kolkata which was nearly 1700 Km away from Ludhiana and therefore the assessee requested to AO to issue the commission. However the AO after appreciating the complete documentary evidences placed on record and applying his mind to the facts of the case, accepted the evidences filed by the assessee and had taken a possible view. The aforesaid facts are clear from the letter dt. 08/11/2017 written by the assessee to the Ld. Pr. CIT copy of which is placed at page No. 498 & 499 of the assessee's compilation. 9.1. We, therefore, by considering the totality of the facts as discussed hereinabove are of the view that the Ld. Pr. CIT was not justified in exercising his powers under section 263 of the Act and considering the assessment order dt. 27/12/2016 passed by the AO as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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