2019 (5) TMI 1592 - AT - Income Tax

Revision u/s 263 - notice issued alleging that AO had not examined the financial worth, genuineness and creditworthiness of transactions relating to introduction of share capital - assessee has not received any money in form of cash or cheque in lieu of share application or share premium; rather the assessee had received investments in form of equity shares - HELD THAT - Here in this case, once there is no transaction in terms of any money, then there could be no question of seeing the creditworthiness by way of their annual revenue or income. The reason being, all these companies were holding investments right from the earlier years in the form of equity shares of various companies and the shares held as investment by them has been transferred to the assessee in consideration for allotment of equity shares. Thus, the source of shares received by the assessee is flowing from investments held by them in their balance sheet which have been part of their assessment records. Under the peculiar facts and circumstances of the case, we do not find any reason that there was any lack of enquiry done by the AO or non-application of mind qua the creditworthiness or genuineness of the transaction. Once, the Assessing Officer has found that a transaction is not in terms of any money after the detailed inquiry and getting the entire records from these 15 companies, then we are unable to appreciate as to how the CIT had reached to a conclusion that the Assessing Officer has failed to investigate the genuineness and creditworthiness of source of funds credited in the books of account of the assessee company. Here in this case, firstly , identity of the parties cannot be in dispute; secondly , the genuineness of the transaction is fully proven by the fact that these companies have given shares to the assessee in lieu of shares allotted to them; and lastly , there is no requirement to examine the creditworthiness of any sum advanced or invested by these companies because there is no transaction in terms of cash/money. The source of investment which has been transferred to the assessee company is flowing from their balance sheets as these shares were held by these companies as investment duly reflected in their balance sheets in earlier years. We do not find it a fit case wherein the Revisionary jurisdiction u/s. 263 could have been exercised in the light of the fact that the Assessing Officer had carried out detailed inquiry and examination directly from the parties in the course of assessment proceedings. Otherwise also, it is trite law that, if the ld. Pr. CIT was not satisfied with the inquiry conducted by the Assessing Officer, then at least he should have carried out some prima facie enquiry himself so as to reach to a conclusion that the inquiry conducted by the Assessing Officer was deficient or lacking. Without conducting any inquiry, Ld. PCIT cannot hold that the either the inquiry conducted by the Assessing Officer was insufficient or there is no verification of the evidences. Under these facts and circumstances the assessment order cannot be set aside on the ground that no inquiry has been made or such an order is erroneous and prejudicial to the interest of revenue. Accordingly, we quash the impugned revisionary order u/s. 263 and restore the assessment order. - Decided in favour of assessee.

Issues Involved:

1. Legality of the Principal Commissioner of Income Tax (Pr. CIT) invoking revisionary jurisdiction under Section 263.
2. Examination of the introduction of share capital and share premium amounting to ?12,10,13,000.
3. Adequacy of the Assessing Officer's (AO) inquiry and verification process.
4. Applicability of Section 68 of the Income Tax Act regarding the sum credited in the books of the assessee.

Issue-wise Detailed Analysis:

1. Legality of the Principal Commissioner of Income Tax (Pr. CIT) invoking revisionary jurisdiction under Section 263:

The assessee challenged the Pr. CIT's order under Section 263, which canceled the assessment order dated 29.03.2015, passed under Sections 147/143(3). The Pr. CIT's order was based on the AO's proposal, which cited non-cooperation by the assessee, last-minute submission of details, and insufficient investigation. The assessee argued that the Pr. CIT initiated proceedings without independent application of mind, relying solely on the AO's proposal. The Tribunal agreed with the assessee, emphasizing that the Pr. CIT must independently examine the assessment records and reach a conclusion that the AO's order is erroneous and prejudicial to the interest of revenue. The Tribunal cited several judgments to support this view, leading to the conclusion that the Pr. CIT's action was invalid.

2. Examination of the introduction of share capital and share premium amounting to ?12,10,13,000:

The AO issued a notice under Section 148 to examine the source of the introduction of share capital and share premium. During the assessment proceedings, the AO raised various queries and issued notices under Section 133(6) to all parties involved. The parties responded with all necessary details, and the AO accepted the introduction of share capital and share premium. The Pr. CIT, however, found the AO's assessment order erroneous and prejudicial to the interest of revenue, noting that the AO did not adequately examine the financial worth, genuineness, and creditworthiness of the transactions.

3. Adequacy of the Assessing Officer's (AO) inquiry and verification process:

The Tribunal found that the AO conducted a detailed inquiry, issuing notices under Section 133(6) and receiving comprehensive responses from all parties. The AO verified the documents and concluded that the share capital and premium were introduced in consideration of investments in equity shares held by the subscribing companies, not in cash or cheque. The Tribunal noted that the AO's inquiry was thorough, and the Pr. CIT's claim of inadequate investigation was unfounded. The Tribunal emphasized that the AO had examined the issue in detail, and there was no lack of inquiry or non-application of mind.

4. Applicability of Section 68 of the Income Tax Act regarding the sum credited in the books of the assessee:

The Tribunal highlighted that Section 68 applies to sums credited in the books of accounts in terms of money. In this case, the assessee received investments in the form of equity shares, not money. Therefore, the deeming provisions of Section 68 were not applicable. The Tribunal concluded that the AO correctly assessed the transactions, considering the investments held by the subscribing companies as reflected in their balance sheets. The Tribunal found no grounds for the Pr. CIT's conclusion that the AO failed to investigate the genuineness and creditworthiness of the transactions.

Conclusion:

The Tribunal quashed the Pr. CIT's revisionary order under Section 263 and restored the AO's assessment order. The Tribunal found that the AO conducted a detailed and proper inquiry, and the Pr. CIT's invocation of Section 263 was invalid due to a lack of independent examination and application of mind. The Tribunal emphasized that the transactions involved investments in equity shares, not money, making Section 68 inapplicable. The appeal was allowed in favor of the assessee.

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