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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 ..... he share holders during the course of statement recorded of the directors and he has recorded his satisfaction on the source of share subscribing money of the share holders. AO has made a finding of fact that the share subscription was made through the banking channel and that all the share subscribers have submitted even their annual return filed for AY 2017-18 (when the Third Assessment order was being framed) even though the assessment was regarding AY 2009-10. Further the AO has noted that the investments made by the share holders are duly reflected in the respective books of accounts and moreover the AO has also noted their creditworthiness and genuineness of the transaction. In order to prove identity, creditworthiness and genuineness of the transaction the assessee had filed the following details of each share subscribers which is evident from PB filed before us. The share holders have filed the following details before AO to prove the identity, creditworthiness and genuineness of the share transaction. The assessee had not only submitted all the details and evidences to prove the share capital raised but has also produced all the directors of shareholder companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 who passed this order will be referred hereinafter as the Second Ld PCIT) 7. Pursuant to the second revisional order of PCIT-4, dated 19.12.2016, the AO conducted enquiry as directed by Ld. PCIT and after being satisfied with the explanation and documents submitted by the assessee to prove the nature and source of the share capital of ₹ 16.26 crores, he accepted the claim of assessee and did not make any addition on this issue vide order dated 26.12.2017 ( hereinafter referred to as the Third assessment order and the AO who passed this order will be referred hereinafter as the Third AO). 8. Conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of 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 an issue before 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 erroneous and prejudicial to the interests of the Revenue. RampyarideviSaraogi v. CIT (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal V. CIT (1973) 88 ITR 323 (SC) . 25. In Max India Ltd. (3 Supra) , reiterated the view in Malabar Industrial Co.Ltd. (2 Supra) and observed that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead 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 the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. 27. In Sunbeam Auto Ltd. ( 5 Supra), the Delhi High Court held that the Assessing Officer in the assessment order is not required to give a detailed reason in respect of each and every item of deduction, etc.; that whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, on perusal of the record, may be of the opinion that the estimate made by the Officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer; but that would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure; there must be material available on the record called for by the Commissioner to satisfy him prima facie that the order is both erroneous and prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unsustainable in law. c) 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 and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression prejudicial to the interest of the Revenue is of wide import a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 requisite papers were summoned and thereafter the matter was heard from time to time coupled with the fact that the view taken by him is not shown by the revenue to be erroneous and was also considered both by the Tribunal as also by us to be a possible view, strengthens the presumption under Clause (e) of Section 114 of the Evidence Act. A prima facie evidence, on the basis of the aforesaid presumption, is thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c 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 without waiting time barring date. The AO must provide sufficient opportunity of being heard to the assessee in order to meet natural justice, equity and fairness. 13. Pursuant to the aforesaid direction of the Second Ld. PCIT, the Third AO had framed the re-assessment/Third assessment order by accepting the nature and source of the share capital premium collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete 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 the burden on it u/s 68 of the Act and the assessee is duty bound to prima facie to prove the identity, creditworthiness of the share subscribers and genuineness of the transaction. For doing so, the assessee has to file evidence to prove the nature of receipt capital or investment or loan etc; and from whom the loans have been obtained/to whom the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the directors of share holding companies have been recorded and duly placed on the records. (iii) Details of source of funds have been submitted by ail the shareholders during the course of statement recorded and found satisfactory. (iv) None of the applications have been made any transaction otherwise than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholding 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 companies are always interested to utilise its fund realising old short term loans/advances of selling old investments where from no benefit has been generating. As an investment company it is the conventional phenomenon of each and every board of directors always looks forward for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 perusal of the aforesaid action taken by the Third AO pursuant to the specific direction given by the Ld. PCIT-4, Kolkata dated 19.12.2016, we note that the AO has enquired about the issue by serving the summons u/s 131 of the Act to the Directors/ Principal officers of share h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 which are filed as per the Companies Act and carried out enquiries based on it. We have in this regard had already noted (supra) that these documents are only compliance forms filed before the Registrar of Companies when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 ₹ 10/- each at a premium of ₹ 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 through several bank accounts and getting it the seal of statutory approval by reopening the ease u/s 147 suo moto. The appeal of the assessee before ITAT was unsuccessful. On assessee s appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 assessee company by the shareholders is a small fraction of their total own funds. This fact is apparent from the table placed at page 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 share capital of ₹ 17.60 crores. In the course of assessment proceedings, the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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