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TMI Blog2022 (10) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... d opinion it is a case where the AO did not make any inquiry vis- -vis the share premium and simply accepted the details filed by the assessee and, thus, the AO had failed miserably to carry out the duty cast upon him. Therefore, it is our considered view that it is a case of complete lack of inquiry by the AO and, therefore, we hold that the Ld. PCIT was absolutely correct in invoking the revisionary powers u/s. 263 - Appeal of the assessee stand dismissed. - ITA No. 505/CHD/2018 - - - Dated:- 28-9-2022 - SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER And SHRI VIKRAM SINGH YADAV , ACCOUNTANT MEMBER Assessee by : None ( Adj. Application ) Revenue by : Sh. Sarabjeet Singh , CIT DR ORDER Per Sudhanshu Srivastava , Judicial Member : This appeal is preferred by the assessee against order dated 30.03.2018 passed by the Ld. Principal Commissioner of Income Tax-3, Ludhiana [hereinafter referred to as 'PCIT'] for assessment year 2013-14. 2. The brief facts of the case are that during the year under consideration the assessee firm derived income from manufacturing steel forgings. The return of income for the captioned assessment year was filed declaring n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue. 2.4. However, the submissions of the assessee did not find favour with the Ld. PCIT and he noted that although the AO had called for some of the details relating to share capital during the course of assessment proceedings but the AO had neither sought specific details nor had caused any inquiry or verification with reference to the issues pointed out in the Show Cause Notice issued u/s. 263 of the Act. The Ld. PCIT noted that the AO, except for placing the information/details filed by the assessee on record, had not carried out even elementary verification of the information so supplied and, thus, the issue of share capital had not been examined/investigated/inquired into by the AO. It was further noted by the Ld. PCIT that the AO had even overlooked the proviso to section 68 of the Act which had been brought into effect from 01.04.2013 which empowered the AO to look into the source of source of the persons investing in companies in which public were not substantially interested. It was further noted by the Ld. PCIT that the issue of share premium had also not been examined by the AO with reference to Rule 11 UA of the Rules. The Ld. PCIT also invoked Explanation 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts as the shares were not issued at Excess Premium , but were issued at intrinsic value calculated on historical cost or NAV basis. 3. That the order of Ld. Pr. CIT-3 is erroneous as intact there is no difference between closing stock of preceding year viz-a-viz opening stock of the relevant year. That the Ld. Pr. CIT-3 proceeded to pass the order u/s. 263 without even pointing out a single rupee difference between the both. 4. The Order of learned Pr. CIT-3 is against the weight of evidence, equity and natural justice. 3. When the appeal was called for hearing, an adjournment application dated 14.09.2022 from Shri Pankaj Bhalla, the Ld. AR for the assessee was placed before us stating that adjournment was being sought for the reason that the consequential order u/s. 143(3) read with section 263 of the Act was still awaited. We, thereafter, perused the entire file and we note that earlier this appeal was fixed for hearing on 12.07.2022 and the reason for seeking adjournment on that date was that the consequential order u/s. 143(3) r.w.s. 263 of the Act was still awaited. Before that, the appeal was fixed for hearing on 17.05.2022 and on that day, an application had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case ex-parte qua the assessee. 4. The Ld. CIT DR submitted that the reason for selection of the assessee's case for limited scrutiny was for the reason of large share premium having been received by the assessee company and that a perusal of the assessment order would show that the AO has not even mentioned such fact in the body of the assessment order. The Ld. CIT DR relied upon the various observations of the Ld. PCIT, as contained in the impugned order, and submitted that as the AO had failed to raise the necessary queries vis- -vis the share premium received, the Ld. PCIT had rightly invoked his revisionary powers u/s. 263 of the Act. The Ld. CIT DR submitted that the order of the Ld. PCIT be upheld and the appeal of the assessee be dismissed. 5. We have heard the Ld. CIT DR and have also perused the impugned order. We note that the assessee has not even bothered to file any paper book containing relevant documents connected with the assessment proceedings and/or 263 proceedings in support of its grounds of appeal challenging the action of the Ld. PCIT in invoking the revisionary powers u/s. 263 of the Act. 5.1. At this juncture, it will be worthwhile to rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71,61,056/- (c) The investor company i.e. M/s. Bhole Baba Vanijya Pvt. Ltd., is Registered with ROC, Kolkata with Registered Office address at : 4B, Madan Mohan Burman Street, Kolkata, West Bengal, whereas, it is filing its return at the address 74-A. Tagore Nagar, Civil Lines, Ludhiana, which is the address of your company i.e. M/s. Sudhir Forgings Pvt. Ltd. (d) Perusal of bank account reveals that the bank account of investor company, from which the shares have been subscribed, is jointly owned by the following parties: (i) M/s. Bhole Baba Vanijya Pvt. Ltd. - Primary Holder. (ii) Sh. Dhruv Garg, S/o Rameshwar Ray- Joint Holder 1 (iii) Sh. Shy am Babu Ray, S/o Ra mesh war Ray -Joint Holder 2 (iv) Sh. Jagdish Chand Garg, S/o Achru Ram Garg - Joint Holder 3 Further examination of the assessment record reveals that Sh. Dhruv Carg (Joint Holder 1) is one of the Directors of assessee Company i.e. M/s. Sudhir Forgings Pvt. Ltd. The Directors of M/s. Bhole Baba Vanijya Pvt. Ltd. are Sh. Shyam Babu Ray, Sh. Ram Krishan Rana, Sh. Ranesh Singh and Sh. Nandan Singh Bisht. The co-relation between Sh. Dhruv Gary with M/s. Bhole Baba Vanijya Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king channel out of funds available with the parties from time to time. Hence identity and creditworthiness of the share holder and genuineness of the transaction is beyond doubt. 5.4. It was the contention of the assessee before the Ld. PCIT that, thus, all the documents have been given and the issue was with respect to genuineness, creditworthiness and identity. It was contended by the assessee that creditworthiness was proved by the net worth of the subscriber which was evident from the balance sheet of the investor and that the genuineness also was beyond doubt and that further the provisions of section 263 of the Act could not be resorted to make fishing inquiries. 5.5. A perusal of the impugned order further shows that the Ld. PCIT, after considering the various contentions of the assessee, observed that the issue of share capital had not been examined/investigated/inquired into by the AO. It was further noted that when the AO had information regarding the share application money including substantial premium, then he should have examined the net worth of the assessee. The Ld. PCIT further noted that the profitability of the assessee company ever since its incorporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of shares in terms of Rule 11 UA of the Income Tax Rules. The Ld. PCIT has pointed out that the AO had failed in doing so and we also have no document or evidence before us which would refute such observation of the Ld. PCIT. Thus, on an overall view of the facts, as emanating from the record before us, it is established that the AO had merely asked the assessee for filing information in respect of share premium but apparently no meaningful inquiry had been carried out by the AO on such information filed by the assessee. 5.8. The Hon'ble Delhi High Court has emphasized in the case of ITO Vs. DG Housing Projects Ltd. [345 ITR 153 (Del)] that where there is complete lack of inquiry on the part of the AO, the assessment order would be erroneous. We also find that in terms of Explanation 2 below section 263 of the Act, which has been made effective from assessment year 2015-16 w.e.f. 01.04.2016, an assessment order is deemed to be erroneous in so far as prejudicial to the interest of the Revenue if the AO fails to carry out the inquiries which ought to have been carried out on the facts and circumstances of the case. In the present case, the Ld. PCIT has rightly observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that the Income-tax Officer made the assessments in undue hurry... the assessee made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in-law, etc., which should have put any Income-tax Officer on his guard. But the Income tax Officer without making any inquiries to satisfy himself passed the assessment order. A short stereo-typed assessment order was made for each assessment year No evidence whatsoever was produced in respect of the money- lending business done.... No names were given as to the parties to whom the loans were advanced......... In Tara Devi Aggarwal v. Commissioner of Income-tax also the Income-tax officer, Howrah, while remarking that the source of income of the assessee was income from speculation and interest on investments stated that neither the assessee was able to produce the details and vouchers of the speculative transactions made during the accounting year nor was there evidence regarding the interest received by the assessee from different parties on her investments. Notwithstanding these defects the Income Tax Officer did not investigate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer to further investigate the facts stated in' the return when circumstances would make such an inquiry prudent and the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 5.10. In the case of CIT vs. Nagesh Knitwears 345 ITR 135 (Del), the Hon'ble Delhi High Court after considering the ratio of its earlier decisions including its decision in the case of ITO vs DG Housing Projects Ltd. (345 ITR 153) held as under:- 36. As far as Section 263 is concerned, we have examined the said Section in depth and detail in ITO Vs. D G Housing Projects Ltd. decided on 1st March, 2012, in ITA No. 179/2011 and observed as under:- 10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 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 revis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal v. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. 5.11. In view of the above cited judicial precedents and on facts of the case, we are of the considered view, that there was a complete lack of inquiry on the part of the AO on the issue of share p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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