TMI Blog2014 (10) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... used for making the paper book when all other copies are the certified copies - Even to an untrained mind obviously the sight of a document without the original blue coloured seal in a mass of papers should have drawn attention – thus, the order passed u/s 263 is upheld. Issue of tangible material – Held that:- CIT has the power to give directions for assessment of a particular issue as also the powers to set aside the assessment for fresh consideration on specific issues or de novo - when the CIT is directing to assess a particular income then such directions must be on specific tangible material - the order u/s 263 clearly shows that the CIT did have very tangile information and material on the basis of which she has conducted the enquiry and then has set aside the assessment to conduct enquiry in respect of the three limbs of the transactions and grant the assessee the opportunity to explain its case - even on jurisdiction the CIT has rightly invoked her powers u/s 263 of the Act and it is upheld. The assessee has also not cooperated in the assessment proceedings but in the first appeal has been raising allegations against the AO that he has not accepted documents submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) on 24.02.2010 shown at page 30 of the paper book. It was a submission that in serial no.3 of the notice under section 142(1), the AO had specifically asked the assessee to show cause why the amount increased on account of the share applicants should not be added under section 68 of the Act. It was a submission that the assessee had replied by a letter on 08.03.2010 shown at page 31 of the paper book, wherein in para 3 of the reply, the assessee had provided all the information in respect of the share application money received by the assessee. It was a submission that from page 37 of the paper book was the list of the share application moneys received along with the details of the premium, etc. It was a submission that the assessment order was passed under section 143 r.w.s. 147 on 05.04.2010. It was a further submission that in the show cause notice issued under section 263, the ld. CIT had raised two issues, one was the issue of premium on shares and the second was the issue of no proper inquiry by the AO. It was a submission that the assessee is a private limited company and the provision of section 56(2)(viib) was introduced to the Income-Tax Act w.e.f. 01.04.2013 and conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the appeal has been dismissed by the Hon'ble Jurisdictional High Court in GA No.1507/2012 dated 16.07.2012 4.2 The fourth issue being there was no tangible material for the purpose of invoking the powers under section 263 for which proposition, the decision of the Hon'ble Bombay High Court in the case 323 ITR 206 at para 210 was relied upon. It was a submission that the Hon'ble Supreme Court in Malabar Industries reported in 243 ITR 83 has also held that there should be some tangible material for the purpose of treating an order as erroneous and prejudicial to the interest of revenue. It was a further submission that the issue on the share capital was now Assessment Year: 2008-09 settled in so far as the Hon'ble Supreme Court in the case of Lovely Exports reported in 216 CTR 195(SC) has upheld the issue that if the details of the share applicants are provided then no addition on account of the share application money was liable to be made in the hands of the assessee company. It was a further submission that the ld. CIT has referred to the decision of the Hon'ble Delhi High Court in the case of Nova Promoters and Finlease (P) Ltd. reported in 342 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which had been done initially. Also no enquiry worth its name was also done. It was a submission that in less than four months, 148 proceeding had been completed, which itself creates a doubt in regard to the veracity of the proceedings itself. It was a submission that the decision of the Hon'ble Calcutta High Court in the case of Active Traders 214 ITR 583 was more applicable to the facts of assessee's case in so far as no inquiry had been done to take a considered view in the course of assessment proceedings then the Commissioner was entitled to invoke her powers under section 263. It was a submission that consequential orders to the order passed under section 263 had also been passed and there was absolutely no compliance from the assessee's side in the course of the consequential assessment. The ld. DR further drew our attention to the decision of the Hon'ble Karnataka High Court in the case of Infosys Ltd. reported in 341 ITR 293 to submit that provision of section 263 was intended to plug leakages to the Revenue by reviewing orders passed by the lower authorities, whether by mistake or in ignorance or even by design. It was a submission that in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It was a submission that pending allotment of the shares, amount must be kept in the bank. The ld. DR drew our attention to the paper book filed on behalf of the assessee to submit that the shares had been allotted to the applicants only on 31.03.2008 in all the cases but the funds have been used for making further investments in the share application of other such companies immediately on receipt of the funds. It was a submission that even the Chartered Accountant, who has audited these companies, were the same and the said C.A. has audited the accounts of more than the prescribed number of companies. In respect of 263 order passed, the ld. CIT,DR further placed reliance on the decision of the Hon'ble Kerala High Court in the case of Apollo Tyres Ltd. in ITA No.196 of 2013 wherein the Hon'ble High Court, by an order dated 17.10.2013, has held as follows: 3. This order of the Commissioner was challenged before Tribunal, who confirmed the order of the Commissioner by order dated 8.2.2013. Aggrieved by this, the appellant assessee is before us. 4. According to learned Senior Counsel, Commissioner failed to appreciate that the Assessing Officer did consider the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Coordinate Bench of this Tribunal in the case of Star Griha in ITA no.1244 of 2013 for the assessment year 2008-09 dated 14th August, 2014 applied in the assessee's case also in so far as many of these companies are under investigation by the Ministry of Corporate Affairs as well as CBI, ED and SIT. It was a submission that in the cases of politically exposed, also investigations are at a critical level. It was a submission that though the ld. CIT in some cases has dropped proceedings initiated under section 263 in some cases, it did not preclude the AO from initiating proceedings under section 147/148 for reopening of the assessment. It was a submission that the time for such reopening was also available. It was a submission that the order of the ld. CIT passed under section 263 was liable to be upheld. 6. In reply, the ld. Sr. Counsel, appearing on behalf of the assessee, placed before us a copy of the letter written by Shri R.K.Kankaria, Chartered Accountant explaining how the date 08.03.2010 appeared on the left hand bottom of the document submitted at page 31 of the assessee's paper book, which is extracted hereinbelow. 11.09.2014 The Hon'ble Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission that in the said decision the principle laid down was that when the record shows that the inquiry was made by the AO then revision does not lie. It was a further submission that the Revenue was attempting to support an unsupportable order under section 263 by taking the recourse to external ground. It was a further submission that the order under section 263 must stand on its own as has been held by the Hon'ble Calcutta High Court in the case of CIT -vs- Howrah Flour Mills Ltd. reported in 236 ITR 156. It was a further submission that the scope of the amendment to section 68 by introduction of the proviso thereto is as per the notes on the clauses and the memorandum explaining the clauses to operate from the assessment year 2013-14. The ld. Sr. Counsel drew our attention to 342 ITR Statute 55 56 at clauses 21 and 22 of the Bill as also the notes to the clauses as statute pages 159 and 160 and the memorandum explaining the clauses at statute pages 242,244 and 247. 6.3 The ld. A.R. further placed before us copy of the appeal filed by the assessee before the ld. CIT(A) against the consequential assessment order passed as consequence to the order under section 263. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brooke Bond India Ltd. v. C.I.T., (1997) 225 ITR 798 (SC) - where it was held that issue of shares at a premium was directly related to the expansion of the capital base of the company and expenditure incurred for such issue was capital expenditure. 2. It is further submitted that in the instant case, there was no contravention of section 78 of the Companies Act, 1956. Sub-section (1) of section 78 was duly complied with by transferring a sum equal to the premium to share premium account . Sub-section (2) of section 78 provides for application of the share premium account in the manner specified. The assessee's share premium account remains intact. Submission on behalf of the revenue that section 78 regulates the manner of utilisation of the money received by way of share premium is not borne out from the section. 7. We have considered the rival submissions. A perusal of the order of the ld. CIT passed under section 263 shows that on the basis of substantial information available to her that there were numerous companies which were created with bogus share capital for the purpose of money laundering, the ld. CIT has called for the records and has, after due verifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded without any investigation or verification or inquiry worth its name. One is left wondering as to whether it is on purpose and design or whether it was in the normal course as this feature is special only to such companies where large share capital has been introduced. 7.3 Tax avoidance is an accepted principle. Any person is entitled to adjust its affairs in such manner as to minimize tax liability. However, the methodology and acts done in such cases of capital formation is not tax avoidance. It is more in the nature of tax evasion by money laundering. These transactions have in effect three limbs. The first limb is the creation of the shell companies with substantial share capital which is balanced with inventories in the form of shares in other shell companies. The second limb is the transfer of such shell companies to persons who desire to use such substantial share capital companies for converting their unaccounted money into accounted funds and use such shell companies to do legitimate business. The third limb is when the shell companies after being taken over, the assets in the form of inventories are encashed whereby the unaccounted monies are laundered and br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. Now this 500 rupees share is purchased by the third party or the interested person in taking over the company for the purpose of utilizing its capital. It may be two rupees or three rupees per share. Here the purchase price is even below the face value of the shares or at the face value. The premium is in effect the bonus. The premium already introduced sits in the liability side as a reserve and on the asset side as investments in other shell companies. Now once the controlling interest is taken, then the balance sheet has to be cleaned. The balance sheet which now holds in current assets the un-quoted shares of other shell companies and loans and advances get cleaned by again liquidating these current assets. Now these current assets representing the share application money or the inventories being shares in the unquoted companies are sitting at a premium because these shares have also been applied for and purchased at a premium. How this money was brought back into the company has not been examined. When this has come back has not been examined and who are the people responsible when these transactions took place has not been examined. Here the second round of laundering of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application money was received with a huge share premium only to reduce the incidence of ROC fee which is attracted when shares are allotted at par.The ld. Counsel of the assessee further submitted that the AO need not make any enquiry in this regard as it was not warranted as Section 56(vii)(b) was inserted by Finance Act 2012 w.e.f. 01.04.2013. 7.6.2 Now we find that the above submission of the ld. Counsel of the assessee is not acceptable. In this case shares of ₹ 10 were applied at a premium of ₹ 240/-. There is no apparent reason as to why such huge amount of share premium would be paid for obtaining share of face value of ₹ 10. Any normal prudent person who makes investment in shares would make the investment in accordance with the fair market value of the shares. It certainly warranted an enquiry by the AO. Moreover, the enquiry into the other aspect of share application money receipt was also to be done keeping in view this aspect of huge share premium receipt. 7.6.3 In this regard we may note that section 56 (vii)(b) reads as under :- 56 (viib) :Where a company, not being a company in which the public are substantially interested, receives, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and paid to launder the black money. This happens at the second limb i.e., when the directors change and the company changes hand. 7.7.1 The above facts clearly provide that receipt of share application money with huge share premium warranted detailed enquiry by the AO and not a perfunctory enquiry. 7.8 The Hon'ble Apex Court in the case of CIT vs Durga Prasad More 82 ITR 540 and in the case of Sumati Dayal vs CIT 214 ITR 801 has expounded that revenue authorities are also supposed to consider the surrounding circumstances and apply the test of human probability. In these cases the transactions though apparent were held to be not real ones. 7.8.1 In 63 ITR 609 in the case of CIT vs Sri Meenakshi Mills Ltd Hon'ble Apex Court has held that in exceptional circumstances courts are entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. 7.8.2 Hence just because the share application with huge and unjustified share premium was received from corporate entities through banking channel, no enquiry is warranted is not at all a sustainable plea on the facts and circumstances of the case and on the basis of exposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 0, the issuance of such premium on the shares itself calls for detailed enquiry. 7.10.2 Another interesting aspect in this case is the dates. As we mentioned earlier the change in management took place in the assessment year 2010-11, i.e. year ended 31/3/2010, i.e. the period 1/4/2009 to 31/3/2010. The reopening of the assessment and the reassessment proceedings took place during this time. This clearly shows the due diligence being attempted with the contumacious intent to attempt to obtain the seal of approval of the Income-tax department in respect of the bogus share capital introduced. 7.11 Now coming to the issue of the letter at page 31 of the paper book on which the date 8/3/2010 has been incorporated. One is left wondering as to why in the first place the certified copies were being obtained. These are as admitted by the assessee to be documents and letters submitted by the assessee itself. If it is so, then the copies of the same would be available with the assessee. Now after getting the certified copies the date is not incorporated on the certified copy but on a zerox copy of the certified copy and then by mistake such incorporated Xerox copy is used for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the AO has not given any finding in respect of the share capital in the assessment order nor in the order-sheet notings. Only the issue of share application money received has been mentioned. The assessment order is bald in respect of the findings on the issue of share application money received. In these circumstances, this decision also is not of any help to the assessee. The decision relied upon by the ld. Sr. Counsel in the case of Mulchand Bagri reported in 68 Taxman 215 (Cal) is also not applicable in so far as in that case, there was exchange of correspondence and actual enquiries were conducted by the AO. In the assessee's case, this is not so. 7.13.1 Similarly, in the case of Spectra Share Scrips as also Jyoti Foundation, enquiries had been done by the AO therein. In the assessee's case the absence of enquiry is expressly evident from the absence of any order-sheet noting in respect of such enquiry as also the absence of any mention of any enquiry in the assessment order. 7.14 Further the fact that the ld. CIT has in her order under section 263 addressed the issues of the three layers in the transaction clearly shows the enquiry done by the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence may briefly be made to the facts giving rise to the issue. The assessee was asessed for the assessment year 2002-03 by Assessing Officer (AO) giving the benefit of exemption under section 54F of the Income-tax Act, 1961, for long-term capital gains from sale of shares. The shares were purchased on April 21, 2000, for ₹ 19,536 and sold on May 2, 2001, for ₹ 6,36,640, i.e., on the increased price of more than 30 times in one year. The Commissioner of Income-tax (CIT) held the order to be erroneous and prejudicial to the interests of the Revenue and exercised suo motu revisional jurisdiction under section 263 of the Act. It was inter alia, observed that while accepting the genuineness of the share transaction, the Assessing Officer failed to make any enquiry which, in the facts and circumstances, would normally be made to ascertain the capital gain in question. The assessee was not a habitual operator of share market and had no share of any other company; share was not of a well known company; the price jumped from ₹ 6 per share to ₹ 200 per share within a short span of thirteen months without any apparent reason. The Assessing Officer could have obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l orders passed without applying the principles of natural justice or without application of mind .... Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkntakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting 'prejudicial to the interests of the Revenue.' The High Court held (page 138) : 'In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income- tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of the Revenue administration.' In Our view, this interpretation is too narrow to merit acceptance. 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 certainly be prejudicial to the interests of the Revenue. 7.17 We have extracted only such portion as ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. as contended also does not reveal anywhere and, therefore, it is premature on the part of the Assessing Officer to so record the reasons. It is further urged that the affidavit of Rishabh Dalmia stating on oath that the loan transactions with the petitioner are genuine for having been carried out only through cheques, prima face vindicates that the entire exercise is based on suspicion. The entire thrust, therefore, is that issuance of notice is nothing but a fishing inquiry. As discussed at length while adverting to the law, that sufficiency of reasons recorded by the Assessing Officer need not be gone into by this court. Of course, the Assessing Officer when forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings as fresh facts revealed the non- disclosure full and true Such facts were not previously disclosed or it can be said that if previously disclosed, they expose untruthfulness of facts revealed. The Assessing Officer required jurisdiction to reopen und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so would lose its relevance if subsequently furnished information, which has been made basis for issuance of notice impugned, concludes that Basant Marketing Pvt. Ltd. is merely a dummy company of one Shri Arun Dalmia, which provided the accommodation entries to various beneficiaries. This court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director CBI, Mumbai, intimate to the DIT (Investigation), Mumbai. A case is registered against Mr. Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy companies of Mr. Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material may also render an order without jurisdiction. We have already referred to the judgments of this court in Rajendra Singh [1990] 79 SIC 10 (Gauhati) and two single Bench judgments following the said judgment in Bongaigaon Refinery and Petrochemicals Ltd. [2006] 287 ITR 120 (Gauhati) and Shyam Sundar Agarwal [2003] 131 STC 70 (Gauhati) as also the second Division Bench judgment in Daga Entrade P. Ltd. [2010] 327 ITR 467 (Gauhati). No doubt, in Rajendra Singh [1990] 79 STC 10 (Gauhati), an observation was made that erroneous assessment referred to the defect which is jurisdictional in nature, as against substitution of one view for the other, merely on the ground that a different view was possible. If read as a whole. the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to the relevant material would certainly be erroneous assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course of reasoning in the judgment should not be divorced from the context in which it was used. The judgment is neither to be inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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