2015 (8) TMI 1595 - AT - Income Tax

Validity of Revision u/s 263 - addition on account of receipt of share capital with or without premium before amendment to section 68 - HELD THAT - Contention of the assessee that since the AO of the assessee- company was not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment to section 68 by the Finance Act 2012 w.e.f. A.Y. 2013-14 and hence the CIT by means of impugned order was 263 could not have directed the AO to do so is unsustainable. Failure of the AO to give a logical conclusion to the enquiry conducted by him gives power to the CIT to revise such assessment order as inadequate inquiry conducted by the AO in the given circumstances is as good as no enquiry and as such the CIT was empowered to revise the assessment order and AO in the given circumstances can t be said to have taken a possible view as the revision is sought to be done on the premise that the AO did not make enquiry thereby rendering the assessment order erroneous and prejudicial to the interest of the revenue on that score itself. All the orders have been passed within the time limit. The notices u/s. 263 were properly served through affixture or otherwise. Further the law does not require the service of notice u/s. 263 strictly as per the terms of section 282 of the Act. The only requirement enshrined in the provision is (o give an opportunity of hearing to the assessee which has been complied with in all such cases. Order passed u/s. 263 on a non-working day does not become invalid when the proceedings involving the participation of the assessee were completed on an earlier working day.Order u/s. 263 cannot be declared as a nullity for the notice having not been signed by the CIT when opportunity of hearing was otherwise given by the CIT. Refusal by the Revenue to accept the written submissions of the assessee sent after the conclusion of hearing cannot render the order void ab initio. At any rate it is an irregularity. Search proceedings do not debar the CIT from revising order us passed u/s. 147 of the Act. Decided against assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this batch of appeals include:

- Whether the Commissioners of Income-tax (CIT) were justified in invoking their revisionary powers under section 263 of the Income-tax Act, 1961 to revise assessment orders passed under section 143(3) read with section 147, particularly in cases involving receipt of share capital at a huge premium prior to the amendment of section 68 by the Finance Act, 2012.

- Whether the Assessing Officers (AOs) had jurisdiction and authority to examine or make additions regarding share capital receipts before the amendment of section 68.

- Whether the enquiry conducted by the AO was adequate and whether failure to conduct a thorough enquiry rendered the assessment order erroneous and prejudicial to the interests of the revenue.

- The validity and procedural correctness of notices issued under section 263, including questions of service, limitation period, territorial jurisdiction, and formal requirements such as signing of notices and timing of orders.

- Applicability of section 263 revision powers post-amalgamation of companies.

- Whether refusal by the Revenue to accept written submissions post-hearing or orders passed on non-working days affect the validity of revision orders under section 263.

- Whether search proceedings affect the CIT's power to revise assessment orders under section 147.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction and Power of AO to Examine Share Capital Receipt Prior to Amendment of Section 68

Legal Framework and Precedents: Prior to the Finance Act, 2012 (effective from A.Y. 2013-14), section 68 of the Income-tax Act did not explicitly empower the AO to scrutinize share capital receipts with or without premium in the same manner as post-amendment. The question arose whether the AO had jurisdiction to make any addition or inquiry regarding receipt of share capital at premium before this amendment.

Court's Interpretation and Reasoning: The Tribunal rejected the contention that the AO lacked jurisdiction to examine share capital receipts before the amendment. It held that the CIT's revisionary powers under section 263 could be invoked if the AO failed to conduct a proper enquiry, regardless of the AO's perceived jurisdictional limitations.

Application of Law to Facts: The Tribunal found that the AO's enquiry was superficial, limited to issuing notices under section 133(6) to some shareholders and accepting their responses without further investigation. This was deemed inadequate to discharge the AO's duty to verify the genuineness of share capital receipts.

Conclusion: The AO's limited enquiry was insufficient and the CIT was empowered to revise the assessment order to direct a more thorough investigation, thereby upholding the validity of the CIT's order under section 263.

Issue 2: Adequacy of AO's Enquiry and Power of CIT under Section 263

Legal Framework and Precedents: Section 263 empowers the CIT to revise an assessment order if it is erroneous in so far as it is prejudicial to the interests of the revenue. The scope of this power includes setting aside orders where the AO's enquiry is inadequate or incomplete.

Court's Interpretation and Reasoning: The Tribunal emphasized that failure by the AO to arrive at a logical conclusion after conducting an enquiry amounts to an erroneous order. It held that inadequate enquiry is tantamount to no enquiry.

Key Findings:

• The enquiry conducted by the AO was not a proper enquiry.
• The CIT can set aside the assessment order and direct the AO to conduct a thorough enquiry, even if the AO's jurisdiction is limited to certain stages under sections 142(1) and 143(2).
• The CIT's order under section 263 need not positively indicate the deficiencies on merits but can be based on the premise that the AO did not make any enquiry.
• The AO cannot be said to have taken a possible view if the enquiry was not conducted at all.

Application of Law to Facts: Given the AO's failure to properly investigate the share capital receipt issue, the CIT's revision was justified.

Treatment of Competing Arguments: The assessee's argument that the AO had no jurisdiction and hence the CIT could not direct enquiry was rejected.

Conclusion: The CIT's exercise of revisionary power under section 263 was valid and necessary to protect the revenue.

Issue 3: Validity of Service of Notices under Section 263 and Procedural Compliance

Legal Framework and Precedents: Section 263 requires that the assessee be given an opportunity of hearing before passing a revisionary order. Section 282 prescribes the mode of service of notices but is not mandatory for section 263 notices.

Court's Interpretation and Reasoning: The Tribunal held that service of notices under section 263 through affixture or other modes was valid. Strict compliance with section 282 is not mandatory for section 263 notices.

Key Findings:

• Opportunity of hearing was given in all cases, fulfilling the essential requirement.
• Limitation for passing order under section 263 runs from the date of order under section 147 read with section 143(3), not from the date of intimation under section 143(1).
• Territorial jurisdiction lies with the CIT having jurisdiction over the AO who passed the assessment order under section 147 read with section 143(3).
• Order passed on a non-working day is valid if proceedings involving the assessee's participation were completed on an earlier working day.
• Notice under section 263 not signed by the CIT does not invalidate the order if hearing was given by the CIT.
• Refusal by Revenue to accept written submissions after hearing is irregular but does not render the order void ab initio.

Application of Law to Facts: All procedural requirements were met in the impugned cases, and no procedural irregularity invalidated the CIT's orders.

Conclusion: The revision orders under section 263 were procedurally valid.

Issue 4: Revision Orders Post-Amalgamation

Legal Framework and Precedents: Post-amalgamation, the amalgamating company ceases to exist, and assessment or revision orders cannot be passed in its name. However, if the assessee attempts to defraud revenue by filing returns in the old name or similar acts, orders in the old name may be valid.

Court's Interpretation and Reasoning: The Tribunal held that no order under section 263 can be passed in the name of the amalgamating company after amalgamation unless there is evidence of intent to defraud the revenue.

Application of Law to Facts: Where such intent was shown, orders passed in the old name were upheld.

Conclusion: The principle safeguards the revenue against fraudulent attempts while respecting corporate identity changes.

Issue 5: Effect of Search Proceedings on Revision Powers

Legal Framework and Precedents: Search proceedings under the Income-tax Act do not bar the CIT from exercising revisionary powers under section 263 for assessment orders passed under section 147.

Court's Interpretation and Reasoning: The Tribunal clarified that the existence of search proceedings does not oust the jurisdiction of the CIT to revise orders under section 263.

Conclusion: CIT's revision powers remain intact notwithstanding search proceedings.

3. SIGNIFICANT HOLDINGS

"The enquiry conducted by the AO in such cases can't be construed as a proper enquiry; inadequate inquiry conducted by the AO in the given circumstances is as good as no enquiry and as such, the CIT was empowered to revise the assessment order."

"The order of the CIT is not based on irrelevant considerations and further in the present circumstances, he was not obliged to positively indicate the deficiencies in the assessment order on merits on the question of issue of share capital at a huge premium."

"The law does not require the service of notice u/s. 263 strictly as per the terms of section 282 of the Act. The only requirement enshrined in the provision is to give an opportunity of hearing to the assessee, which has been complied with in all such cases."

"Limitation period for passing order is to be counted from the date of passing the order u/s. 147 read with sec. 143(3) and not the date of Intimation issued u/s. 143(1) of the Act, which is not an order for the purposes of section 263."

"After amalgamation, no order can be passed u/s. 263 in the name of the amalgamating company. But, where the intention of the assessee is to defraud the Revenue by either filing returns, after amalgamation, in the old name or otherwise, then the order passed in the old name is valid."

These principles collectively establish that the CIT's revisionary powers under section 263 are broad and can be exercised to rectify erroneous assessment orders prejudicial to the revenue, especially where the AO's enquiry is inadequate. Procedural formalities, while important, do not rigidly constrain the CIT's jurisdiction provided the assessee is given a fair opportunity to be heard. The Tribunal upheld the CIT's orders in all appeals, dismissing the assessees' challenges.