2016 (11) TMI 741 - AT - Income Tax

Revision u/s 263 - receipt of share capital and share premium unexplained - Held that - As rightly pointed out by the ld. Counsel for the assessee since the proceedings u/s 263 of the Act were concluded ex-parte the Assessee had no occasion to place material to satisfactorily explain the receipt of share capital and share premium by the Assessee. There was however no material on the basis of which the CIT could have come to the conclusion that the receipt of share capital and share premium was not satisfactorily explained by the assessee. As rightly contended by the ld. Counsel for the assessee the CIT ought to have set aside the order of the AO and directed the AO to conduct fresh enquiry on the lines indicated in the order of this Tribunal in the case of Subhlakshmi Vanijya Pvt. Ltd. (2015 (8) TMI 174 - ITAT KOLKATA ). We therefore modify the order of CIT and direct the AO to make fresh enquiry with regard to the receipt of share capital and share premium during the previous year after affording Assessee opportunity of being heard. With these observations the appeal of the assessee is treated as partly allowed.

Summary

Issues:
1. Assessment of share capital and share premium received by the assessee.
2. Validity of the order passed under section 263 of the Income Tax Act.
3. Opportunity of being heard and communication of reasons for initiating proceedings.

Analysis:

Issue 1: Assessment of share capital and share premium received by the assessee
The Assessee, a company, filed a return of income for AY 2012-13 declaring a loss. The AO accepted the receipt of share capital and share premium without examining the capacity of the investors or the genuineness of the transactions. The CIT, in an order under section 263, found the AO's order erroneous and prejudicial to revenue. The CIT observed that the high premium for shares without business activities raised doubts. The CIT noted the lack of justification for the high premium and inadequate inquiry by the AO. The CIT concluded that the share capital and premium were the assessee's income. The Tribunal, considering similar cases, directed the AO to conduct a fresh inquiry into the receipt of share capital and premium, as the proceedings were concluded ex-parte. The Tribunal modified the CIT's order, emphasizing the need for a thorough investigation.

Issue 2: Validity of the order passed under section 263 of the Income Tax Act
The Assessee challenged the order under section 263, arguing that no opportunity of being heard was granted. The Tribunal admitted an additional ground for adjudication based on legal grounds and relevant facts. The Tribunal referred to previous cases and concluded that the CIT should have set aside the AO's order and directed a fresh inquiry, as done in similar cases. The Tribunal found that the CIT's order lacked sufficient material to conclude that the receipt of share capital and premium was unsatisfactorily explained. The Tribunal modified the CIT's order and directed the AO to conduct a fresh inquiry after affording the Assessee an opportunity to be heard.

Issue 3: Opportunity of being heard and communication of reasons for initiating proceedings
The Tribunal emphasized the importance of providing an opportunity to be heard and communicating reasons for initiating proceedings. The Tribunal noted that the proceedings were concluded ex-parte, depriving the Assessee of the chance to explain satisfactorily. The Tribunal found that the CIT should have set aside the AO's order and directed a fresh inquiry, following the principles established in previous cases. The Tribunal partially allowed the appeal, highlighting the need for a thorough investigation and proper opportunity for the Assessee to present their case.

This comprehensive analysis addresses the issues involved in the legal judgment, highlighting the key findings and decisions made by the Tribunal regarding the assessment of share capital, validity of the order under section 263, and the importance of providing an opportunity to be heard in such proceedings.