2022 (2) TMI 604 - AT - Income Tax

Revision u/s 263 by CIT - Second Pr. CIT find the order of Second AO erroneous for lack of enquiry - Scope of doctrine of merger - Addition of unexplained cash credit being share premium received u/s 68 - second round of re-assessment proceedings challenged - second Ld. Pr. CIT again was pleased to set aside the reassessment/second assessment order of the AO and directed fresh assessment ( which means a third assessment to be framed) - whether the second AO carried out his role of an investigator? - HELD THAT:- AO has not drawn any adverse opinion or doubted the identity of the share applicants which view of AO is a possible view in the light of the documents referred to and we also by applying the presumption in section 114 of Indian Evidence act 1872, we presume that the quasi-judicial act of the second AO have been regularly performed. Moreover, the First Ld. Pr.CIT while setting aside the first AO’s order has returned a finding that assessee in the first found itself has filed the relevant documents to prove identity, creditworthiness and genuineness of the share capital and assessee has discharged the onus on it at para4; And after perusing their replies and supporting documents and thereafter having verified their veracity, the second AO was satisfied with the explanation of assessee in respect to the nature and source of credit entries which view of second AO cannot be faulted. And we also note that all the shareholders are regular income tax assessee. Therefore, in the light of the aforesaid documents discussed their identity cannot be disbelieved and the AO’s satisfaction in respect of identity of the shareholders is a possible view and cannot be termed as unsustainable in law or facts.

Coming to the creditworthiness of the shareholders we note that the assessee and the shareholders have brought to the notice of Second AO that they (share subscribers) have enough net worth to invest in the assessee company and the share subscribing companies pursuant to the AO's notice u/s. 133(6) of the Act have furnished their respective audited accounts from which the aforesaid facts are clearly discernible and moreover the share subscribers have also filed before the second AO the source from which they subscribed to shares of assessee (though not required as per law in force for AY 2012-13), bank statement, audited balance sheet etc. Thus the assessee had discharged the onus on it about the creditworthiness of the share- holders.

Source of the investments has been clearly brought to the notice of the second AO during the assessment/reassessment proceedings. Further, the bank statements of all the shareholders as well as that of assessee were filed before the AO, which revealed that the share capital and premium have been subscribed by them through banking channel (NEFT or cheque ) which goes on to show that the assessee has discharged the onus in respect of genuineness of the transaction. Based on the documents and materials called for by the AO who accepted the same after verification is an act of enquiry. And we note that revenue has not brought on record any material to challenge the veracity of the documents referred to above. Moreover, the second Ld. Pr. CIT in his impugned order has not brought any material to rebut the presumption of second AO to justify his intervention u/s. 263 of the Act and which would have upset the decision of the second AO's factual view on the identity, creditworthiness and genuinity of the share transaction. In such scenario, the second AO's view based on the documents referred to by him is a plausible view and in consonance with judicial precedents (supra) which we would like to discuss/ examine each share subscribers.

The second Ld. Pr. CIT in his impugned order has not brought any material to rebut the presumption of second AO to justify his intervention u/s. 263 of the Act and which would have upset the decision of the second AO’s factual view on the identity, creditworthiness and genuinity of the share transaction. In such a scenario, the second AO’s view based on the documents referred to by him is a plausible view

We note from the facts of this case that the second Ld. Pr. CIT – 4 by passing the second revisional order dated 12.03.2019 has substituted the First Pr. CIT’s order passed u/s. 263 of the Act dated 21.09.2016 with his own order which he cannot do since the second assessment order/re-assessment of the Second AO dated 03.11.2016 was pursuant to the first revisional order of the First Ld. Pr. CIT and on the very same subject matter which inter alia was the issue flagged by CASS, which exercise since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e. share capital & premium collected by assessee company. Resultantly the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator, which exercise the Second Ld. Pr.CIT has not done, so the second Ld. Pr. CIT cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. And if this practice is allowed, then there will be no end to the assessment proceedings meaning no finality to assessment proceedings

Pr. CIT has made a bald statement that the AO’s assessment order attracts Explanation 2(c) u/s. 263 of the Act. However, he failed to spell out in his impugned order how the action of AO while framing the assessment order is not in accordance to any order, direction or instruction issued by the Board under section 119 of the Act. So, the deeming fiction as envisaged in Explanation (2) u/s. 263 of the Act cannot be used to interfere with the order of AO - Decided in favour of assessee.