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TMI Blog2021 (6) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee was reopened u/s 147 and the first scrutiny assessment order was passed u/s 143(3)/147 of the Act dated 29.12.2011 determining an income of Rs. 53,130/- (hereinafter referred to as the first assessment order and the AO who passed this order will be referred hereinafter as the First AO). 4. Thereafter the Ld. CIT-II invoked revisional jurisdiction u/s 263 of the Act and set aside the first assessment order dated 29.12.2011 and directed de-novo assessment by order dated 05.03.2014 (hereinafter referred to as the First CIT revisional order and the Ld CIT who passed this order will be referred hereinafter as the First Ld CIT). 5. Pursuant to the order of Ld. CIT-II, dated 05.03.2014, the AO gave effect to it on 31.03.2015, making an addition of share capital & premium to the tune of Rs. 16.25 crores. (hereinafter referred to as the second reassessment order and the AO who passed this order will be referred hereinafter as the Second AO). 6. Thereafter the Ld. PCIT-4, invoked his Second revisional jurisdiction u/s 263 on 19.12.2016 and gave specific direction while framing de novo assessment (hereinafter referred to as the second PCIT revisional order and the Ld PCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... precedent stipulated by section 263 of the Act was satisfied, so that the Third Ld. Pr. CIT could have exercised his revisional power which he is empowered to do by the Act. For that, we note that the statutory condition precedent as prescribed by section 263 of the Act is that the Ld. Pr. CIT can invoke the revisional jurisdiction, if the assessment order is erroneous in so far as prejudicial to the Revenue. Keeping this in mind, we have to examine as to whether in the first place the order of the Third Assessing Officer found fault by the Third Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedent laid down by the Hon'bIe Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC), wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the Commissioner of Income Tax ( in short, 'CIT'). The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterests 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 it is prejudicial to the Revenue - recourse cannot be had to Sec.263 (1) of the Act. It also held at pg-88 as follows: "The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision is not in accordance with the law; that to invoke suomotu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suomotu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. It held that the Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted; that to do so is to divide one argument into two and multiply the litigation. It held that cases may be visualized where the Income Tax Officer while making an assessment examines the accounts, makes inquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the account or by making some estimate himself; that the Commissioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether he had jurisdiction or not and whether the income tax assessed in the assessment years which were originally passed were correct or not" 31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out: a) 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 erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue - recourse cannot be had to Sec.263 (1) of the Act. b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Incometax Officer is unsustai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 19. Now we examine the principles laid down in the following judgments. :- DIRECTOR OF INCOME TAX vs. JYOTI FOUNDATION 357 ITR 388 (Delhi High Court ) It was held that revisionary power u/s 263 is conferred on the Commissioner/Director of Income Tax when an order passed by the lower authority is erroneous and prejudicial to the interest of the Revenue. Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of the Revenue, but orders which are passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interest of the Revenue because the revisionary authority feels and opines that further inquiry/investigation was required or deeper or further scrutiny should be undertaken. INCOME TAX OFFICER vs. DG HOUSING PROJECTS LTD343 ITR 329 (Delhi) Revenue does not have any right to appeal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under s. 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under s. 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether the assessment order was passed by the Assessing Officer without application of mind, it was held that the Court has to start with the presumption that the assessment order was regularly passed. There is evidence to show that the assessing officer had required the assessee to answer 17 questions and to file documents in regard thereto. It is difficult to proceed on the basis that the 17 questions raised by him did not require application of mind. Without application of mind the questions raised by him in the annexure to notice under Section 142 (1) of the Act could not have been formulated. The Assessing Officer was required to examine the return filed by the assessee in order to ascertain his income and to levy appropriate tax on that basis. When the Assessing Officer was satisfied that the return, filed by the assessee, was in accordance with law, he was under no obligation to justify as to why was he satisfied. On the top of that the Assessing Officer by his order dated 28th March, 2008 did not adversely affect any right of the assessee nor was any civil right of the assessee prejudiced. He was as such under no obligation in law to give reasons. The fact, that all re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) of the Act made an addition of Rs. 16.26 crores by an order dated 31.03.2015, which has been interdicted by the Second revisional order passed by the Second Ld. Pr. CIT vide order dated 19.12.2016, wherein the Ld. Pr. CIT was pleased to set aside the second assessment order dated 31.03.2015 and directed the AO to de novo assess the income of the assessee and gave specific direction to enquire about share capital & premium. The operative portion of the second revisional order dated 19.12.2016 is reproduced below:- "4.(iv). Considering the facts and circumstances of the case as discussed above and as per submission of assessee, the assessment order was passed without making inquiries and verifications which would have been made and therefore the order passed on 31.03.2015 stands erroneous insofar as prejudicial to the interest of revenue and is set aside de novo 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. The assessment proceedings may be initiated at the earliest and to be completed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh these two crucial documents and then only ought to have given clean chit to the assessee. Omission to do so makes the order passed by the Third AO on 26.12.2017 erroneous. In this context we note that Form No. 2 as per Company Act, is the return filed before the Registrar of Companies in respect of allotment of shares. In that Form No 2, the complete details of allotment of shares issued by the assessee company need to be given viz. number of shares, value of shares, nature of payments to whom allotted etc.; and Form No. 5 needs to be filed as per the Companies Act if there is increase in authorized Capital. Thus we note that Form No. 2 and Form No. 5 need to be filed as per the Companies Act before the Registrar of companies which a compliance form giving details of share capital and premium is issued by the assessee company which facts are discernible from the face of the balance sheet. No new information can be discerned from perusal of Form No. 2 and Form No. 5 and moreover when an AO notices that the assessee company has raised share capital and premium then he calls for the nature and source of it from the assessee; and the assessee pursuant to the same has to discharge th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire about the existence of the shareholding companies who was allotted shares by the Assessee Company. Whether, there is any office at the specified addresses belong to the share holding companies, is there any employee/employees working, whether it looks like office or anything else etc. On perusal of the inspector's report placed in the records reveal the existence as well as identity of the companies. Due to paucity of time inspector was deputed to enquire on test check basis. At least 3(three) enquiry reports submitted by the Inspector which speak itself supporting the existence of the share holding company. (ii) It is observed that the shareholders are private limited companies, registered with the Ministry of .Corporate, regularly filing its return of income stating the Fairview affairs and letter issued u/s-133(6) and summons-131 of the I.T. Act, 61 were duly received. So, it may be established that the share holding companies have an established identity. Moreover, the directors of all the companies have responded to summons u/s-131 with the evidences as asked for. Moreover, addresses have been verified with the RAN database and. found ' correct. Statement of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors is proved transacted through-banking system which is not in dispute then the Assessee Company must be treated to have proved that the creditor/creditors had the creditworthiness. Acting upon the direction, statements are recorded under oath of each and every director of the shareholding companies at the chamber and before doing so copy of PAN card was verified with the original as proof of identity. Apart from that copy of bank statement, books,of a/c, audit report, copy of share application and allotment, bank statement and return filing evidences are checked and placed in the records. In most of the eases directors were interrogated with the facts and figure of the company as balance Sheet and (P+L) a/c do not reveal any business activities and asked to explain why and how the fund was invested and collected. Almost all the directors explained that short term advances/loan recovered and invested on the long term basis expecting moderate benefit would come in the long run without being perturbed whatever the premium component considering the lucrative investment opportunity. As the Assessee Company decided to start their business from the relevant F.Y. 2008-09 old limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed through electronic system as unexplained credit and should not be taxed within the purview of I.T. Act, 61. Unless; department showing that the investment made by subscribers actually emanated from coffers of assessee ta be treated as undisclosed income of the assessee. No such transaction has been identified from the documentary evidence collected from various enquiries especially in the bank statement of any share holding companies where from adverse inference can be drawn. It is. observed that the shareholders are private limited companies, registered with the Ministry of Corporate, regularly filing its return of income stating the Fairview state of affairs and letter issued u/s-133(6) and summons-131 of the I.T, Act, 61 were duly received. So, it may be established that the share .holding companies have an established identity. Moreover, the directors of ail the companies have responded to summons u/s-131 with the evidences as asked for. Moreover, addresses have been verified with the PAN database and found correct. Statement of all the directors of share holding companies have been recorded and duly placed on the records. The case is heard and discussed." 16. From a perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of shares (v) Total amounts (vi) ITR acknowledgment (vii) Bank statement (viii) Board resolution (ix) Share application form (x) Certificate of source of share amount (xi) Allotment advise 17. These details have also been filed before us, which is discernible from paper book-volume II page 57 to 481. In the light of the aforesaid facts discussed (supra) we note that AO has conducted enquiry to find out nature and source of the credit entry in the form of share capital and premium collected by the assessee. Therefore, the order passed by the Third AO pursuant to the directions of Second Ld. PCIT-4, Kolkata is the outcome of the enquiry conducted by Ld PCIT and the view taken by the AO is a plausible view. Moreover since the Third Ld. PCIT was interfering with the order passed by the Third AO which was enquired as per the direction of second Ld. PCIT, then he (Third PCIT) at least should have pointed out as to where the third AO faulted while making the enquiry as ordered by Second Ld. PCIT dated 19.12.2016. Here in this case, the only fault pointed out by the third Ld. PCIT is that the third AO has not collected the purported crucial document Form No. 2 and 5 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The view taken by the AO is a plausible view and is in line with the judicial precedents on the issue of share capital and premium and at any rate cannot be termed as 'unsustainable in law'. And the case laws cited by the Ld PCIT are not applicable in the facts of this case and he erred in relying on the same to interfere by exercising his revisional jurisdiction and by erroneously relying on the case laws, he mis-directed himself without properly understanding the facts of these cases which for completeness will be discussed (infra). 18. Rajmandir Estates (P) Ltd vs PCIT 363 ITR 162 (Cal) 1.1 In this case, the assessee had increased the share capital, reserves and surplus by issuing shares of Rs. 10/- each at a premium of Rs. 390/-. Assessment was framed u/s 143(3) r.w. section 147. Subsequently, a notice u/s 263 was issued alleging that the assessment u/s 143(3)/147 was completed without application of mind and without requisite enquiry into the increase in share capital including premium received by the assessee company. Ld. CIT passed order u/s 263 holding that the unaccounted money was laundered as clean share capital by creating a fa?ade of paper work, routing the money th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee itself for getting seal of statutory approval. But in the instant case, the A.O. has framed the assessment order not at the behest of the assessee but as per the direction of his superior authority i.e. Ld. PCIT. (b) In the instant case, A.O. has followed the direction of his superior authority i.e. Ld. PCIT to the AO which is evident from the finding given by the A.O.at page 5 and 6 of his order (supra). (c) In the instant case, nowhere in his order, Ld. PCIT has alleged that the assessee has laundered the unaccounted money as clean in the form of share capital by creating a facade of paper work. (d) In the instant case, the assessee has disclosed the share application forms which are placed in the paper book, Volume II, (index has been placed at page 55). On perusal of the share application forms, it can be seen that none of the requisite columns are blank. Further, share allotment letters / advice were also disclosed / produced. The said advices contain complete details like allotment advice no., date of allotment, certificate nos, distinctive nos. and no part has been kept blank. (e) In the instant case, unlike in the above referred case, the investment in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain facts are provided, the assessee's duties are over. If on verification, or during proceedings, the AO cannot contact the share applicants, or that the information becomes unverifiable, or there are further doubts in the pursuit of such details, the onus shifts back to the assessee. At that stage, if it falters, the consequence may -well be an addition under Section 68. " 2.2. However in this case before us, the AO has recorded the statements under oath of each and every director of the shareholding companies and before doing so, copy of PAN card was verified with original as proof for identity and also conducted field enquiries by Inspector. Further bank Statements, books of accounts, copy of share application and allotment forms, bank statements etc were checked and placed in the records (Refer page 5 of the assessment order dated 26.12.2017) (supra). Further it is nobody's finding that cash was deposited at any stage in the bank account of the shareholders, so the case of assessee is distinguishable and so this case law does not apply to the facts of this case.. 3. PCIT vs. NRA Iron and Steel (P) Ltd 103 taxmann.com 48 (SC) 3.1 In this case, the assessee had raised a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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