TMI Blog2014 (10) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... eration then the order passed u/s 263 is well within the limitation - a perusal of the order passed u/s 263 clearly shows that it is this reassessment order which the CIT has held to be erroneous and prejudicial to the interest of the Revenue, in so far as, no investigation whatsoever have been done by the AO, much less any investigation worth its name - This is also clearly evidence from the order sheet notings in the assessment folder - the order passed u/s 263 is not barred by limitation – Decided against assessee. Validity of order u/s 147 – Whether there was lack of proper enquiry as to the issue of share capital premium when the reopening was done for the specific purpose of escapement of commission income – Held that:- The AO cannot in a reopened assessment do roving enquiry, but what is to be understood is that it is not the reassessment which are in appeal, but, it is revisionary proceedings - If at all, the assessee wanted to challenge the so called roving enquiry which has been done by design, it was to be done within the prescribed time provided in respect of reopened assessment It is not something that can be done in an appeal against the revisionary order passed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and as the information was not fully coming from the assessee had directed the AO to verify whether these three issues relate to the same assessment year - In the order passed u/s 263 the CIT has not in any case extended his jurisdiction u/s 263 to any other assessment year - There is no direction in the order of the CIT directing the AO to consider anything for any other AY - The direction of the CIT is specific - Now it is for the assessee to show as to which year the issues raised by the ld. CIT would relate to - It is only in the knowledge of the assessee as to what the assessee has done in his books - What has happened in the assessee's books cannot be within the knowledge of the ld. CIT - as it is noticed that the CIT has invoked revisionary powers for the relevant AY and has not given any direction in respect of any subsequent AY, the order of the CIT is upheld – Decided against assessee. Erroneous and prejudicial to the interest of the revenue or not - Whether order passed by the AO can be said to be erroneous and prejudicial to the interest of the revenue when the AO has passed the order after inquiry or investigation on the issue of share capital – Held that:- The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. is not entitled to embark upon a fishing expedition and to make roving enquiries as such, assuming but not admitting that proper enquiries were not done in respect of the share capital raised by the assessee, there was no error in the order passed by the A.O. 6. For that the ld. CIT exceeded his jurisdiction by directing the Ld. A.O. as to how the fresh assessment should be framed by him. 7. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal. 4. The assessee has also raised one additional ground wherein the assessee has challenged the order passed u/s 263 of the Act as barred by limitation. 5. The assessee has made an application for admission of the additional ground. Though the revenue has raised objections against the admission of the additional ground as it is noticed that the ground raised by the assessee goes to the root of the order passed u/s 263, in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Corporation reported in 229 ITR 386 (SC) as the ground raised is purely legal in issue and does not require any verification of facts, the same is admitted and adjudicated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d another investigation when the order of the A. O. was neither erroneous nor prejudicial to the interest of the revenue. 4. For that the Ld. CIT was not justif ed in holding that creditworthiness and identity of the shareholders from whom share capital money was received in the instant year remains to be verif ed though the . O. completed the assessment after making proper verif cation. 5. For that in exercising revisionary powers u/s 263 the Ld. CIT lost sight of the well settled legal position that in the assessment u/s 147, the A. O. is not entitled to embark upon a fishing expedition and to make roving enquiries as such, assuming but not admitting that proper enquiries were not done in respect of the share capital raised by the assessee, there was no error in the order passed by the . O. 6. For that the Ld CIT exceeded his jurisdiction by directing the Ld. . O. as to how the fresh assessment should be framed by him. 3. Additional Ground of Appeal: At the outset, the appellant craves leave to raise the following additional grounds of appeal which are mainly legal in nature and were inadvertently missed out from the memorandum of appeal filed -- For that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeal of the assessee and quashed the order passed u/s. 263 in the similar situation and in a case where the ROI was processed u/s 143(1). Copy of the said order is annexed herewith and marked as Annexure: 'A'. In these grounds, the assessee has challenged the validity of revision proceedings u/s. 263. In this regard, submissions are being made hereunder - (a) The various grounds on which the ld. CIT has held the order of the A.O. to be erroneous as well as prejudicial to the interest of the revenue are discussed hereunder one by one - (i) notices u/s. 133(6) have been sent on a test check basis Our Submissions Assessment proceedings are inquiry based proceedings. But it is not possible for the A.O. to make 100% enquiries in respect of all the aspects. There is some element of randomness in conducting the assessment proceedings. It is an absurdity to say that 100% of every transaction be exainined by the A.O. (ii) It is seen that the bank statements of the subscribing companies is for a limited period and not for the whole year. Analysis of this statement does not throw any light whatsoever on the source of the funds of the subscriber companies. The A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jectures and surmises and without any material basis. (vi) Introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this, the money is transferred by way of cheques to other companies and this is done 3 to 4 times using different companies and thus rotating the money into 3 to 4 layers. Our submissions There is no material to come to this conclusion. Ld. CIT has also not referred to any material to come to such conclusion in the instant assessees case. The averment in the order has been made on the basis of conjectures and surmises and without any material basis. (vii) The company is then passed on to the final purchaser after charging a percentage of the capital in the company. This modus operandi has been confirmed in many search operations carried out by the investigation wing on entry operators others over the past few years. Our Submissions Ld. CIT has also not referred to any material on record to come to such conclusion in the instant assessees case. The averment in the order has been made on the basis of conjectures and surmises and without any material basis. It is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring any material on record to prove the share capital raised by the assessee was ingenuine. Therefore, the ratio of Nova Promoters is not applicable to the instant case. (d) It is humbly submitted before your Honours that the provision u/sec 263 deals with the revisionary powers of the CIT which are supervisory in nature. Sec 263: Revision by the Commissioner (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and afler making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. A. Meaning of the word 'erroneous' and 'prejudicial to the interest of the revenue' It is submitted that the Delhi HC in CIT v. Shri Ashish Rajpal 320 ITR 674, the word 'erroneous' and 'prejudicial to the interest of the revenue' has been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT has passed the order ulsec 263 without any base or foundation and at its own whims and caprice and therefore the same is devoid of any merit and should be dismissed in toto. D. There is a difference between 'ack of enguiry' and 'inadeguate inguiry'. (i) It is to be noted if there was inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass order u/sec 263 of the Act merely because he has a difference of opinion in the matter. It is only the cases of lack of inquiry that such a course of action would be open. In the instant case, it can be seen from the paper-book that the A.O has, in the notice issued u/s 142(1), requisitioned various details pertaining to the share capital. Admittedly, in the instant case notices u/s 133(6) were served on the share subscribers. This itself shows that the A.O has applied his mind to the issue and made proper inquiries. (ii) The Court observed in DIT v. Jyoti Foundation 357 ITR 388 (Del.), ...that orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interests of the revenue, but orders which are passed after inquiry or investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual matrix. Here the assessee had shown every detail regarding share capital and AO had applied his mind and passed a final order. For the CIT to exercise a supervisory jurisdiction, it should be exercised in strict terms on blatant error on part of AO since AO has the ultimate authority u/s 147/148 to reopen the assessment and pass a final order. It is contended that courts have held in various rulings that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the revenue. (j) It is the AO who has primary obligation of being satisfied with the explanation offered by the assessee by applying his mind to the facts and circumstances and the CIT may not interfere unless there is a grievous error, which is not the case here. Once all the material was before the AO and he chose not to deal with the several contentions raised by the company in final assessment, it cannot be said that he had not applied his mind to the material placed before him. Non-application of mind cannot be inferred merely because the assessment order does not specifically discuss the issue. (k) It is further submitted that Jurisdiction u/s 263 cannot be invoked for makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with the issue of commission payment and genuineness of the credit entries while completing the assessment, it cannot be said that there was no application of mind by him to the facts and details before him. Mere non-mention of certain facts should not be taken as omission on the part of the AO. It is quite possible that because of subjective satisfaction the detailed discussion might not have been needed in the light of the documents and material on record. In this view of the matter we hold that the CIT was in error in exercising his revisionary powers under s. 263 of the Act and as the conditions precedent for exercising such jurisdiction did not exist. We, therefore, quash the impugned order. (v) Hon'ble Gauhati High Court in the case of Bongaigaon Refinery and Petrochemical's case 287 1TR 120 held as under- Entertainment of a view different from the one adopted by the Assessing Officer, if plausible would not clothe the Commissioner with the power to interfere therewith under the said provision of the Act. Differently put, an error within the jurisdiction of the Assessing Officer on an evaluation of the materials available would not be exposed to interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. b) The Hon'ble Supreme Court in the case of Lovely Export (P,) Ltd. 216 CTR 195 held that addition on account of share capital cannot be made in the hands of the recipient company. (c) Recently, in the case of CIT vs. Peoples General Hospital Ltd. 356 ITR 65 (MP), the Hon'ble High Court held as under - If the assessee had received subscripiion to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Act, in the absence of any positive material or evidence to indicate the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company' s own income from undisclosed sources. It was nobody's case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though in this case, the assessee's contention was that the creditworthiness of the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary for the A.O. to examine source of source of cash credits at the time of passing the reassessment order in the year 2010. In this regard, reliance is placed upon the following judgements- (i) Nemi Chand Kothari vs. CIT 264 ITR 254 (Gau). (ii) Jalan Timbers V. CIT 223 ITR 11 (Gau, (iii) Dy. CIT vs. Rohini Builders 256 ITR 360 (Guj.) (iv) CIT V. First Point Finance LILL 286 ITR 477 (Raj) (v) AC1T vs. Surya Kanta Dalmia 97 1TD 235 (Cal) It has been held by the various High Courts that the assessee cannot be asked to prove source of source or the origin of origin vide S. Hastimal vs. CIT 49 ITR 273 (Mad.), Tolaram Daga vs. CIT 59 IR 632 (Assam), Saraogi Credit Corporation vs. CIT 103 ITR 344 (Pat.) This view finds support from the recent decision of Allahabad High court in the case of CIT vs. Jauharimal Goel 147 Taxman 448 (All). In v ew of the above there was no error in the order of the A.O. As such, it is prayed that the order passed by the Ld. CIT be directed to be quashed. In this ground, the assessee has challenged the action of the Ld. CIT in exercising the revisionary power u/s. 263 inspite of the well-settled legal position that in the assessment u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbed even n the proceedings u/s 147 of the Act in respect of issues on which there is no material on record suggesting any escapement of income. The court held that there is no gainsaying the fact that in proceedings u/s 1 47 of the Act, it is only the escaped income which has to be assessed or reassessed. (ii) Sun Engineering Works Pvt. Ltd. 198 ITR 297 (P H) When proceedings u/s 147 of the Act are initiated, the proceedings are open only qua items of under assessment. The finality of assessment proceedings on other issues remains und sturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment u/s 143(3) of the Act or on account of non issue of notice u/s 143(2) of the Act within stipulated period. (iii) Amrinder Singh Dhiman v. AO 269 ITR 378 (P H) Thus to conclude assessing officer can bring to tax any other income that have escaped assessment in the reassessment proceedings but for which no reasons were recorded at the start of such proceedings, if some new material comes into picture during such proceedings suggesting escapement of ncome from assessment. However, Assessing officer cannot embark upon fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to himself a status to surrogate the other authorities and supplant their roles under the Act. Thus, the direction given by the Ld. CIT as to how the enquiries are to be conducted in the matter of share capital is beyond the powers conferred u/s 263. In view of the above respectful submissions, the appeal of the assessee may please be allowed. 7. Further, the ld. AR submitted that the issue of notice to the assessee's appeal could be considered into seven grounds as follows :- 1. Whether the order passed u/s 263 by the CIT is barred by limitation ? 2. Whether the order of the AO passed u/s 147 can be said to be erroneous and prejudicial to the interest of revenue for lack of proper inquiries as to the issue of share capital/premium when the re-opening was done for the specific purpose of escapement of commission income? 3. Whether the CIT was justified in holding the order passed by the A.O. to be erroneous on the issue of share capital/premium when no addition u/s 68 can be made in the instant case in view of the judgments of the Hon'ble Supreme Court in the case of Lovely Export 216 CTR and also in the case of Bharat Engineering Construction Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incom(P).Ltd. A.Yr.2008-09 original return filed on 30.03.2009 was liable to be treated as return in response to the notice u/s 148. Notices u/s 142(1) and 143(2) dated 04.10.2010 were issued and the same has been served by hand on 07.10.2010. The director's report and the balance sheet, P L a/c, schedules thereto are signed by Shri Rakesh Agarwal as one of the directors and Shri Deo Kant Singh as another director. Shri Deo Kanti Singh, son of Shri Kishan Singh has signed the verification column of the return of income. One Shri J.Kumarr.Das, son of Shri Asit Bora Das as the director of the assessee company has provided the Power of Attorney to one Shri Vishal Agarwal, FCA to represent the assessee before the AO, Ward-9(3). The power of Attorney is undated and on ₹ 10/- non judicial stamp and the date of purchase of the said stamp paper is 10th September, 2010.. The reply to the notice u/s 142(1) is by a letter dated 11.10.2010 filed on 3rd November, 2010. This is signed by an authorised signatory. The name is not specified and this signature is again completely new. In the said reply the assessee has provided the complete audited financial statement along with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identified which is identical in all the cases is in the certificate issued wherein the cheque no. is being wrongly spelt as CHAQUE instead of CHEQUE. In any case the proceedings subsequent to 263 is not the issue before the Tribunal and the issue before the Tribunal is order u/s 263. 9. Coming to each of the issues raised by the ld. AR. In respect of the first issue as to whether the order passed u/s 263 by the ld. CIT is barred by limitation. It has been argued by the ld. AR that in the reopening proceedings u/s 147 the issue of share capital was not the issue as per the reasons recorded in the order sheet. It was the submission that as the issue was totally different from the issue of reopening and the assessment order having been passed only such issues as have been considered in the reopened assessment fresh issues could not be the subject matter of the revision order u/s 263. It was the submission that as the issue of share capital is not the issue in the reopening of the assessment as also the consequential assessment order passed u/s 147 r.w.s. 143(3) the ld. CIT could not have considered the said assessment order for the purpose of computing the limitation. Consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue on the issue of share application moneys and share premiums then it would be in the reopened assessment which has been rightly revised by the ld. CIT u/s 263. If this re- assessment order is taken into consideration then the order passed u/s 263 is well within the limitation. Further, a perusal of the order passed u/s 263 clearly shows that it is this reassessment order which the ld. CIT has held to be erroneous and prejudicial to the interest of the Revenue, in so far as, no investigation whatsoever have been done by the AO, much less any investigation worth its name. This is also clearly evidence from the order sheet notings in the assessment folder. In the circumstances we are of the view that the order passed u/s 263 is not barred by limitation. Consequently issue no.1 is held against the assessee. 12. In respect of issue no.2 which has been raised by the ld. AR as to whether the order passed by the AO u/s 147 can be considered erroneous and prejudicial to the interest of the Revenue for lack of proper enquiry as to the issue of share capital premium when the reopening was done for the specific purpose of escapement of commission income. In respect of this issue it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ium when no addition can be made u/s 68 of the Act in the instant case in view of the judgments of the Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also in the case of Bharat Engineering Construction Co.Ltd. 83 ITR 187. It was the submission that as has been held in the decision of Bharat Engineering Construction Co. Ltd. in the first year of its creation the assessee cannot have an undisclosed income. In reply the ld. DR submitted that if these were opening share capital or initial share capital it could have been held that the company could not have earned undisclosed income. It was the submission that these are share capitals/premiums issues fraudulently for converting the black money, more so in the nature of money laundering activities and they have been done after the formation of the company and these were rightly liable to be held as undisclosed income of the assessee u/s 68 of the Act. It was also the submission that in Lovely Exports the Hon'ble Supreme Court has held that if the identity, Pan No. etc. are given then the share capital should not be added to the undisclosed income of the assessee u/s 68 of the Act. It was the submission th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention of the AO. The issue of section 68 would clearly apply in the present case, in so far as, the proviso which has been added w.e.f. 01.04.2013 specifically provides for verification of the source of the source especially in respect of share application money, share capital, share premium or any such amount, by whatever name called. The AO having not conducted the enquiry to its logical end and having been carried away by the design of the assessee, we are of the view that the ld. CIT was right in invoking the provision of section 263. Here we may specifically mention that proviso to section 68 has been introduced after the decision of the Hon'ble Supreme Court in the case of Lovely Exports and consequently as the proviso is now applicable the AO would be right in verifying the source of the source. A question would arise as to how the order u/s 26 per se can survive as the proviso has been introduced w.e.f. 01.04.2013 and the order u/s 263 has been passed in March, 2013. For this what is to be understood is that invocation of the proviso of section 68 has not been done by the ld. CIT and that the ld. CIT has done in his order u/s 263 is to treat the reassessment order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the knowledge of the assessee as to what the assessee has done in his books. What has happened in the assessee's books cannot be within the knowledge of the ld. CIT. In the circumstances as it is noticed that the ld. CIT has invoked revisionary powers for the relevant assessment year and has not given any direction in respect of any subsequent assessment year, we are of the view that this issue as raised by the assessee does not have legs to stand on. Consequently issue no.4 stands rejected. 19. Coming to the issue no.5 as to whether order passed by the AO can be said to be erroneous and prejudicial to the interest of the revenue when the AO has passed the order after inquiry or investigation on the issue of share capital. Clearly this issue is contradictory to the issue no.2 and 3 as raised by the assessee. The fact that the AO has not taken the issue of the share capital to its logical conclusion is evident. That the whole reopening itself was by design of the assessee is also evident. Now to take shelter under such design and claim that investigation and inquiry has been done by the AO when the facts clearly stand against such claim is also evident. In any case in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically clarified that in none of the cases relateing to the 263 orders in respect of the share application/ premium cases including the decision in the case of Bisakha Sales Pvt. Ltd. has the Tribunal given any finding as to what is to be assessed and what is not to be assessed in respect of 263 orders passed by the ld. CITs in these groups of cases all that the Tribunal has done is to give its finding whether the order of the ld. CITs passed order u/s 263 are sustainable on the facts of the cases or not. The discussions in the orders of the Tribunal are only the justifications and the reasoning for upholding the orders passed u/s 263 by the ld. CIT on the facts of the cases. Thus it is noticed that the fear expressed by the ld. AR that the share premium would be liable to be treated as income in the hands of the assesses are unfounded. If the assessee is able to substantiate its case that these were actually share premiums then obviously such share premiums if having been collected after due compliance of the laws prescribed would not become income in the hands of the assessee if not admittedly it will have to be assessed as income from other sources. Coming to the issue tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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