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2015 (8) TMI 174 - ITAT KOLKATA

2015 (8) TMI 174 - ITAT KOLKATA - [2015] 43 ITR (Trib) 48 (ITAT [Kolk]) - Validity of revision u/s 263 - Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company? - Whether the 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? - Held that:- We hold that the contention of the ld. AR that since the AO of the assessee-company is not empowe .....

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was called for. It is highly improbable for any person having sound mind to purchase at arm’s length the shares of a private limited company, hardly having any worth, with face value of ₹ 10 at a premium of ₹ 190. This mere fact should have been cornerstone for the AO to embark upon further enquiry to unearth the truth. The genuineness of transactions of issue of share at such hefty premium in this background of the matter was under dark cloud and it skipped the attention of the AO. .....

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T Vs. Precision Finance P. Ltd. (1993 (6) TMI 17 - CALCUTTA High Court ), in which it has been held that : `Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine’. In our considered opinion, the AO miserably failed to examine all such relevant aspects, which must have been gone into during the course of assessment proceedings.

AR unsuccessfully tried to justify the premium by submitting that the break-up value of the shares of the ass .....

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lue at the close of the year after issue of shares at premium, is bound to remain close to the issue price of shares with premium. What is required to be shown is the break-up value of shares de hors the issue of any shares at premium. Since none of these companies has any other business activity except circulation of money from one company to another and by subscribing to or purchasing shares of other companies at premium/market price, there can be no justification of such a huge premium
< .....

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haste without application of mind. All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of `no enquiry’ conducted by the AO, what to talk of charactering it as an `inadequate enquiry’. In our considered opinion, the highly inadequate e .....

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a particular way, when the assessment proceedings are underway. Rather, the assessment already stands finalized and now the CIT is examining whether the AO properly examined the facts of the case. In such circumstances, it is impermissible to have a recourse to the provisions of section 142(1) and 143(2) for demolishing the order u/s 263 of the Act. We, therefore, refuse to uphold this contention as a reason for setting aside the order passed u/s 263 of the Act. No hesitation in holding that th .....

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ive leakage of income in concrete terms, when he has simply set aside the assessment order and restored this aspect of the assessment to the file of AO for making a proper enquiry and then deciding. Where the AO fails to conduct an enquiry or proper enquiry, which is called for in the given circumstances, the CIT is empowered to set aside the assessment order by treating it as erroneous and prejudicial to the interests of the revenue. In such circumstances, it is not further required on the part .....

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ired by law to be mandatorily served on assessee in terms of section 282 of the Act. Accordingly, the cases cited by the learned AR pertaining to service of notice in different contexts, where the Act mandates service of notice in accordance with section 282, lose their significance. Coming back to the language of section 263(1) requiring the passing of order `after giving the assessee an opportunity of being heard’, it transpires that it refers to giving opportunity of hearing. If despite genui .....

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roceedings? - Held that:- Nevertheless in the reassessment proceedings in all the cases, the AOs ventured to issue notices u/s. 133(6) of the Act to some of the shareholders for examining as to whether the ingredients of sec. 68 were satisfied. As to whether such enquiry was adequate or not, is a different issue. The fact remains that by issuing notices u/s. 133(6) of the Act, the AOs tried to examine the question of genuineness of share capital in proceedings u/s 147. It thus follows that by ho .....

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8, nevertheless the AO proceeded to examine this aspect, thereby bringing it within the ambit of the order u/s 147. Hon’ble Kerala High Court in CIT Vs. K.V. Mankaram & Co. (2000 (4) TMI 25 - KERALA High Court ) has held that Intimation u/s 143(1) is an order only for sections 154, 246 and 264 and for all other purposes is only notice of demand. Similar view has been taken in MTNL Vs. CBDT (2000 (8) TMI 53 - DELHI High Court ) holding that Intimation u/s 143(1) is not an assessment order. Since .....

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, if limitation is counted from the date of orders u/s 147, then the orders u/s 263 are within the limitation period

Territorial jurisdiction of the CIT - whether the jurisdiction in respect of the order of assessment passed u/s. 147 r.w.s. 143(3) of the Act on 21.5.2010 in relation to AY 2008-09, much prior to even the making of request by the competent authority for transfer of cases for co-ordinated investigation and that too, for search matters, could also be said to have been tra .....

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who already had it. The power to do a particular act also includes a power to restrict the exercise of power partly. In this case there is no dispute that the CIT, Kolkata-II, Kolkata, who passed the order u/s. 263 of the Act had jurisdiction over the assessee. There is no order transferring jurisdiction from ITO, Ward 6(1), Kolkata under CIT, Kolkata-II, Kolkata. The ld. AR, however contended that PAN data in the public domain showed that the assessee’s jurisdiction at the relevant time was wi .....

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n its first year of incorporation ? - Held that:- The decision in Bharat Engineering (1971 (9) TMI 14 - SUPREME Court) relied to submit that it cannot be possible for a newly incorporated to earn undisclosed income of such a magnitude in the very first year of its formation is in the case of a partnership firm and not a private limited company. There is a fundamental difference between a company vis-avis shareholders on one hand and a firm vis-a-vis partners on the other. Whereas a company is a .....

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s a company. The contention is rejected.In the absence of any actual transfer of jurisdiction, the argument is without any force. The jurisdiction as per PAN data in public domain may inadvertently show a wrong feature, but that would not amount to transferring the jurisdiction, which is there in reality. The objection is rejected.

Effect of order passed u/s 263 in the case of amalgamating company after amalgamation - Held that:- It is observed in the instant case despite its amalgama .....

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. Law does not permit a person to both approbate and reprobate. This contention is therefore, rejected.

Whether order u/s 263 becomes invalid for being passed on a closed day? - Held that:- It is noted that from the above decision rendered by the Hon’ble Allahabad High Court in the case of Kuldip Oil Industries Ltd. (1958 (12) TMI 35 - ALLAHABAD HIGH COURT), that in case of urgency, a trial can be conducted even on a closed holiday. In the present case, the time limit for passing the .....

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t has been noticed that the assessee should be given an opportunity of hearing and once this is done, the proceedings cannot be challenged on this score. When an assessee is made aware of the proceedings u/s 263, no such objection can be allowed to be taken. As the assessee in the instant case was afforded opportunity of hearing that would suffice compliance with the requirements of “audi alterm partem” contemplated by the provisions of sec. 263 of the Act. The objection raised by the assessee i .....

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n several judgments including Guduthur Brothers Vs. ITO (1960 (7) TMI 5 - SUPREME Court), CIT Vs. Jai Prakash Singh (1996 (3) TMI 7 - SUPREME Court ) and Kapurchand Shreemal Vs. CIT (1981 (8) TMI 2 - SUPREME Court) has held that lack of opportunity is simply an irregularity which does not render the order passed a nullity. In our considered opinion, it is at best an irregularity which will not affect the jurisdiction of the CIT u/s. 263 of the Act. We hold accordingly and dismiss the plea raised .....

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h an order passed by the AO is found to be erroneous and prejudicial to the interest of the revenue. In our considered view, in such cases it would be open to the Revenue to explore remedies open to it in law u/s. 263 of the Act, subject to satisfaction of the conditions precedent for exercise of jurisdiction under that provision, even after the initiation of search u/s.132 of the Act. In such circumstances, we are of the view that the plea put forth by the assessee cannot be accepted. The quest .....

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l/2013,ITA No.1073/Kol/2014,ITA No.1481/Kol/2013,ITA No.1499/Kol/2014,ITA No.2135/Kol/2013 - Dated:- 30-7-2015 - Shri R.S. Syal & Shri N.V. Vasudevan, JJ. For the Petitioner : Shri Rajesh Bagri, FCA, Shri N.K. Poddar, Sr. Counsel, Smt. A.K. Tibrewal & Shri Amit Agarwal, Advocates, Shri K.M. Roy, FCA, Shri R.K. Aggarwal, FCA, S.M. Surana, Advocate & Sunil Surana, Advocate, Shri Sujoy Sen, Advocate, Shri S.K. Tulsiyan, Advocate, Shri Subhash Aggarwal & Shri Brijesh Kumar, Advocates .....

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u/s 263 of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment years 2008-09 and 2009-10. Since all these appeals are based on largely similar facts and common grounds of appeal, we are proceeding to dispose them off by this consolidated order for the sake of convenience. 2. Succinctly, the facts of M/s Subhlakshmi Vanijya Pvt. Ltd. are that this assessee filed its return on 2.2.2010 declaring total income of ₹ 1,478/-. The return was processed u/s 14 .....

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ng the course of such proceedings that the assessee issued fresh share capital of ₹ 14,71,800/- on premium of ₹ 7,21,18,200/-. Notices u/s 133(6) were issued to eight subscribers to the share capital out of total 21 subscribers. Replies to such notices were received confirming subscription to the equity share capital of the assessee company at premium. Considering these replies, the AO finalized the assessment at a total income of ₹ 29,530/-, by making the aforenoted additions .....

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in the same format and language. In this backdrop of the facts, it was opined that the entire exercise of filing confirmations was stage-managed by a single person or a group of persons to complete the formalities of filing confirmations so as to lend semblance of credibility to the subscription of share capital with huge premium. The AO was found to have not cross-examined the subscribers nor recorded statement of any of the directors of the assessee or subscriber companies. It was also noted .....

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that the AO ought to have conducted thorough enquiry into at least 2-3 layers to reach the source or the real investor. Considering the fact that issue of a share with a face value of ₹ 10/- by the assessee company at a premium of ₹ 490/- per share required thorough examination by the AO, which he failed to carry out, the ld. CIT, after considering the objections of the assessee, came to hold that the assessment order was rendered erroneous and prejudicial to the interest of the Rev .....

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argued before us for four days at a stretch. We have a quick look at its facts. This assessee filed its return declaring total income at Rs. Nil. The return was processed u/s 143(1). The case was reopened by means of notice u/s 148. During the course of assessment proceedings, it was noticed by the AO that this company had issued shares with face value of ₹ 10 at a premium of ₹ 190. Notices u/s 133(6) were issued to some of the subscribers. Replies were received. No further inquiries .....

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ppeals are mutatis mutandis similar to those discussed above. All the ld. Counsel representing such companies have admitted about the similarity of facts between their respective cases and those of M/s Subhlakshmi Vanijya Pvt. Ltd. and Ram Shila Enterprises Pvt. Ltd., with minor but inconsequential changes. Such companies also issued shares at a huge premium (ranging from ₹ 90 to ₹ 490 per share having face value of ₹ 10) and made investments in the shares of other private limi .....

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ording statements of the directors either of such companies or those of investee companies, whose shares were purchased at a much higher value. In all such cases, the ld. CITs have set aside such assessment orders u/s 263 and directed the AOs to conduct proper enquiry before deciding the matter. All the assessees in this batch of appeals are aggrieved against the orders passed u/s 263 of the Act. 6. The ld. ARs have made elaborate submissions on various aspects of the issue, which we discuss inf .....

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. Suppose, this company issues ten shares to another dummy company, say X with face value of ₹ 1/- at a premium of ₹ 49, raising its share capital to ₹ 500/-. The sum of ₹ 500/- standing on the liability side of the balance sheet of company A is equalized with Investment in shares of Company B , which is again a paper company, at a much higher price than its real worth. Company B , in turn, gets ₹ 500/- and invests the same in the shares of another dummy private lim .....

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nto a deal with company X, who is shareholder of company A . Company X sells its shares of Company A with the purchase price of ₹ 500 at its real worth, say, ₹ 6 per share. Mr. Y purchasing shares of company A for apparent consideration of ₹ 6, pays ₹ 494/- in cash and, thus, acquires all the shares of Company A with apparent investment of ₹ 6/- and real investment of ₹ 500/-. Mr. Y retains these shares for a period exceeding one year. In the third level, the .....

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any . That is how, Mr. Y converts ₹ 494/- from black to white. The shares of company A are sold through operators to Mr. Z, who is interested in purchasing share loss. Mr. Z treats the shares of company A either as his stock in trade or Investment, depending upon his requirement. If these shares purchased for an apparent consideration of ₹ 500 are held by Mr. Z as stock in trade, then at the end of the year, he will value such stock in trade at market price, say at ₹ 10. By doi .....

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of Company A has succeeded in converting his black money of ₹ 494 into white. In the same manner, Mr. Y1 and Mr. Y2 etc. convert their black money of ₹ 494 into white by purchasing the shares of Company B and Company C etc. The end result is achieved by operators by routing the transactions of shares through several layers of companies, thereby giving colour of genuineness, which in reality is nothing but a camouflage. The ld. DR explained that in the instant appeals, we are concerne .....

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e issued u/s 143(1); thereafter notices u/s 148 were issued either at the instance of such companies divulging a paltry escapement of income or otherwise ; assessment orders were passed u/s 143(3) read with section 147 after making nominal additions and the AOs, during the course of such assessment proceedings, made some formal enquiries about shares issued by such companies at huge premium by issuing notices u/s 133(6) to some of the shareholders and getting satisfied without any further invest .....

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convenience), S/Shri Sachchidanand Srivastava, Niraj Kumar & Dr. Adhir Kumar Bar, the ld. CIT, DRs (hereinafter commonly referred to as the ld. DR for convenience). Now we proceed to decide the question of validity of the orders passed by the ld. CIT u/s 263 of the Act in this batch of appeals. Detailed written and oral submissions advanced by both the sides have been taken into consideration in the light of material placed before us and precedents relied on. 10. The primary question which .....

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eous orders which are prejudicial to the interest of the revenue. In order to answer this main question on merits, we need to examine two broader questions : - A) Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company?; and B) Whether the 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? 11. Adverting to the facts of the case of M/s S .....

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cts of this issue during the course of reassessment proceedings by issuing notices u/s 133(6) to some of the subscribers to the share capital. After obtaining details about some of the shareholders, such as their PANs, investment through banking channel etc., the AO kept such replies on record without considering it appropriate to personally examine the directors of the shareholder companies or finding out the source of investment by such shareholders in the light of the fact that the shares wit .....

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roduction of share capital was shown in large number of cases on the basis of dummy companies, which were created solely for the purpose of building up share capital. He further noticed the modus operandi of introduction of such bogus share capital with unaccounted cash getting deposited in the accounts of different persons/companies and cheques going from these accounts to various other companies and, after rotating the money in 3-4 layers, getting introduced as share capital in other companies .....

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t of the Hon ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195(SC), he vehemently argued that no addition can be made in the hands of a company for unexplained or improperly explained issue of share capital. It was put forth that if the share transactions are not genuine, then, the addition can be made u/s 69 in the hands of such shareholders and not u/s 68 in the assessment of the company. Taking his argument to next level, it was stated that the Finance Act, .....

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tantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares, shall be chargeable to income-tax under the head "Income from other sources". In the backdrop of these amendments brought in by the Finance Act, 2012, the ld. AR contended that excess share premium can be charged to tax .....

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d in the hands of the assessee company, there can be no rationale in the ld. CIT directing the AO to examine the genuineness of share capital in proceedings pursuant to section 263. The ld. DR opposed this contention tooth and nail. 13.b. In order to appreciate the rival contentions in this regard, let us have a look at the prescription of section 68, the relevant part of which provides that : Where any sum is found credited in the books of an assessee maintained for any previous year, and the a .....

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assessee proves three things to the satisfaction of the AO, viz., identity of the creditor, capacity of the creditor and genuineness of the transaction. The Hon ble jurisdictional High Court in CIT Vs. Korlay Trading Co. Ltd. (1998) 232 ITR 820 (Cal) has held that mere filing of the income-tax file number of the creditors is not enough to prove the genuineness of the cash credit. The creditor should be identified. There should be creditworthiness. There should be a genuine transaction. In K.M. .....

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rough bank account, hence it was to be presumed that those were genuine. Setting aside the tribunal order, the Hon ble High Court has held that : It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. Mere furnishing of the particulars is not enough. . Similar view has been taken in several cases. On going through the above judgments, it is explicit that the onus u/s 68 can be said to have been discharged only when the asses .....

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from the judgment of the Hon ble Supreme Court in Lovely Exports (supra). It is no doubt true that Hon ble Summit Court has held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then, the Department is free to proceed to reopen their individual assessments in accordance with the law, but, it cannot be regarded as undisclosed income of the assessee. 13.d. It is a well settled legal position that every case de .....

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the Lovely Exports in para 25 of its judgment, reading as under : - This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/assessee or to creditors of the assessee. This is why this Court has adopted a ver .....

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e said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. .... However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the transaction and that it was not entirely an arm s length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doc .....

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returns of the entry provider, bank account statements etc. was not sufficient to discharge the onus . After thoroughly examining the Lovely Exports judgment in the light of other judgments, the Hon ble jurisdictional High Court has concluded by holding that: In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers....In the case of private placement the legal regime would not be .....

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mply decides the issue on the basis of such concession without going into its legality, it can be said that the judgment is in personam and not in rem. But, where, despite the concession, the court thoroughly analyses the factual and legal provision prevailing in that case and, after making an elaborate examination, draws a conclusion, then it cannot be said that the decision is based on a mere concession. In such circumstances, the ratio of the judgment applies with full force to all the partie .....

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n of the identity of these subscribers. The Hon ble High Court further observed that: It may not apply in circumstances where the shares are allotted directly by the company/assessee or to creditors of the assessee . 13.j. The Hon ble Delhi High Court in CIT Vs. Navodaya Castles Pvt. Ltd. (2014) 367 ITR 0306 (Del) following the principle laid down in Nova Promoters (supra) has held that the share capital in case of a closely held company is required to be examined by the AO in terms of section 6 .....

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for the information from the shareholders regarding the source of investment made in the company. It set aside the view of the tribunal that there could be no enquiry regarding the source of investment of the shareholders in the shares of the company. Their Lordships observed that : If a cash credit is shown by the company in its books of accounts and if the source cannot be explained properly the ITO may assess the sum as income of the company from undisclosed source. 13.l. In Mimec (India) P. .....

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circumstances of that case. The judgment may not lay down any proposition of law that operates as a binding precedent on this Court…. . 13.m. The Hon ble jurisdictional High Court in CIT Vs. Nivedan Vanijya Niyojan Ltd. (2003) 263 ITR 0623 (Cal) has held that where the assessee-company did not produce the subscribers of its share capital when required to do so, it failed to establish the identity of said subscribers, prove their creditworthiness and the genuineness of the transaction and .....

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International(supra) is latest in the point of time having been rendered on 21.1.2015 by two Hon ble judges. None of the contrary judgments has been rendered by a Bench of more than two judges and such judgments are older in point of time vis-à-vis Maithan International (supra). In our considered opinion the question of the applicability of which of the contrary decisions by one High Court has been fairly settled in several cases including the judgment in Bhika Ram & Ors. Vs. Union of .....

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gh Court has held as under : - However, learned counsel for the petitioner relied on Satinder Singh vs. Umrao Singh AIR 1961 SC 908, to submit that compensation would not be treated as income. Learned counsel further submitted that the decision of the Supreme Court in Satinder Singh s case (supra) was not brought to the notice of the Supreme Court when Bikram Singh s case (supra) was decided. It is also submitted that the reasoning on which their Lordships have proceeded in the case of Satinder .....

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Board Vs. Vagaji Bhai Laxman Bhai AIR 1986 Guj 81 (FB). As such, we are disinclined to ignore this rule of precedence of judgments and hold that the later judgment in the case of Maithan International (supra) with equal strength of judges is binding on us. 13.q. The ld. Counsel then submitted that the judgment in the case of Maithan International (supra) cannot be considered as a binding precedent qua the addition u/s 68 with reference to share capital because the question before the Hon ble Cou .....

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ips have laid down that section 68 can be invoked when the three ingredients of section 68 are not satisfied in relation to share capital as well. There is an elaborate discussion on this issue starting from para 24. Their Lordships have not only considered the judgment in the case of Lovely Exports(supra), but also several other judgments including Nova Promoters (supra), Stellar Investment, Sofia Finance, Nipun Builders and Developers, (2013) 350 ITR 407 (Del) etc., all of which deal with the .....

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s it may, even obiter of the jurisdictional High Court cannot be held as non-binding. The Hon ble Bombay High Court in Tata Iron and Steel Company Ltd. Vs. D.V. Bapat , ITO (1975) 101 ITR 292 (Del), has held that obiter dicta of Supreme Court is binding on all High Courts. When the obiter dicta of Supreme Court is binding on all High Courts, we fail to appreciate as to how obiter dicta of the Hon ble jurisdictional High Court can be claimed as not binding on all the authorities falling within it .....

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liged to explain the genuineness of share capital after having furnished preliminary details about the shareholders etc., is not capable of acceptance and hence rejected. We hold that in all cases, where the assessee fails to cumulatively prove to the satisfaction of the AO, the identity and capacity of the shareholders along with the genuineness of the transactions there can be no escape from section 68. 13.u. Now we espouse the next leg of the arguments of the ld. AR that the insertion of prov .....

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ntions on this issue, we consider it apt to reproduce the relevant part of the proviso to section, which reads as under : - Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a res .....

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ion 10 . 13.w. As per this proviso where any share capital etc. is credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the AO. The essence of this amendment is that a closely held company is required to satisfy the AO about the share capital etc. issued by it, in the ab .....

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the genuineness of share capital and share premium received by the assessee company on the touchstone of section 68. If the assessee fails to satisfy him on the identity and capacity of the subscribers and genuineness of transactions, then addition will be called for u/s 68 of the Act. We, therefore, firstly need to decide as to whether the amendment to section 68 by way of insertion of proviso is retrospective or prospective? 13.x. It is settled rule of construction that every statute is prima .....

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situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made re .....

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ng retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision was initially introduced. The intention of the legislature while introducing the provision is gathered, inter alia, from the Finance Bill, Memorandum explaining the provision of the Finance Bill etc. 13.y. The facts of CIT Vs. Gold Coin Health Food (P.) Ltd. (2008) 304 ITR 308 (SC) are that the Finance Act, 2002 amended Explanation 4 to section 271(1)(c) with effect from 01.04 .....

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(supra), a bench of three Hon ble Judges overruled the judgment in the case of Virtual Soft Systems Ltd. (supra) by holding that Explanation 4 to section 271(1)(c)(iii) regarding the imposition of penalty, even if there is a loss, is clarificatory and not substantive. It was held to be applying even to the assessment years prior to 1st April, 2003, being the date from which it was brought into force. Thus, it can be easily noticed that the retrospective effect to the amendment to Explanation 4 .....

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ion 40(b) was introduced with effect from 1st April, 1985 providing that where an individual is a partner in a firm otherwise than as partner in representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of clause (b) to section 40. The Hon ble Supreme Court in the case of Brij Mohan Das Laxman Das Vs. CIT (1997) 223 ITR 825 (SC) held this insertion to be declaratory in nature and hence retrospective. In this case it was held that the i .....

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on 2 to section 40(b) has been held as declaratory and hence retrospective in operation by affirming the judgments in the cases of Brij Mohan Das Laxman Das (supra) and Suwalal Anandilal Jain (supra). 13.aa. A survey of the above judgments makes it patent that any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment .....

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Parliament at the time when the original provision was incorporated and also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. Like the case of Gold Coin Health Food P. Ltd. (supra) in which the Hon ble Supreme Court held that the amendment to Explanation 4 to section 271(1)(c)(iii) simply clarified the position which was existing since inception of the provision that the penalty is leviable on .....

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lf. In this class of clarificatory or explanatory amendments to the substantive provisions, the object is always to clarify the intention of the legislature as it was there at the time of insertion of the original provision. That is the reason for which the clarificatory amendments are always retrospective irrespective of the date from which effect has been given to them by the legislature. 13.ab. Armed with the above understanding of the retrospective or prospective effect, let us analyze wheth .....

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ision. Thus, it would extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share ca .....

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has specifically held that the above three ingredients are required to be satisfied even in case of issue of share capital by a closely held company. First two out of the above four judgments have considered the judgment in the case of Lovely Exports. It shows that the intention of the legislature, as interpreted by the Hon ble jurisdictional High Court, is always to cast duty on the assessee to prove the satisfaction of the three ingredients in case of transaction of issue of share capital by a .....

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satisfactory by the Assessing Officer, then, such amount can be taxed as income of the assessee. The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases wh .....

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hich is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment tow .....

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hands of the resident-shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e., a Venture Capital Fund, Venture Capital Company registered with the Securities and Exchange Board of India(SEBI). This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment yea .....

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para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking .....

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ld companies to explain the amount of share capital etc. credited in its books of account. When we read the Memorandum explaining the provisions of the Finance Bill, it becomes vivid that certain contrary judicial pronouncements created doubts about the onus of proof and the requirements of this section. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction .....

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spective in operation. 13.ae. The about discussed judgments from the Hon ble Summit Court holding a clarificatory substantive provision as retrospective, despite the same being made applicable from a particular year, fully govern the position under consideration. It is interesting to note that the judgment of the Hon ble jurisdictional High Court in Maithan International (supra) holding that the burden of proving the credit of share capital etc. is on a closely held company and failure to do so .....

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ment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the ld. AR, being devoid of any merit, are hereby jettisoned. 13.af. At this stage, we consider it appropriate to discuss the submission of the ld. AR that a simultaneous amendment to section 56(2) connected with the amendment to section 68, has also been made w.e.f. 1.4.2013 and hence section 68 amendment is also retrospective. Before appreciating this argument, we set out cla .....

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any consideration for issue of shares in any previous year from any resident and the consideration received for issue of shares exceeds the face value of such shares, then the aggregate consideration received for such shares, as exceeds the fair market value of the shares, shall be chargeable to income-tax under the head "Income from other sources". A bare perusal of this provision makes it explicit that a new obligation has been put on the closely held companies which issue shares fo .....

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the position hitherto, it ceases to be clarificatory and hence cannot be construed as retrospective. 13.ah. We fail to find out any parallel between the amendments made to section 68 and section 56(2)(viib) except for the fact that these provisions have been added by the Finance Act, 2012. A conjoint reading of proviso to section 68 and section 56(2)(viib) divulges that where a closely held company receives, inter alia, some amount as share premium whose genuineness is not proved by the assessee .....

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hands of a shareholder is properly explained to the satisfaction of the AO, that the provisions of section 56(2)(viib) gets triggered. Approaching this section pre-supposes that the assessee genuinely received share premium from the share-holder having satisfactorily explained the transaction. Thus it is evident that sections 68 and 56(2)(viib) can never simultaneously operate. The later excludes the former and vice versa. Consequently, we are unable to accept the contention of the ld. AR that .....

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ndment has brought it into its purview. We have noted it from several judgments dealing with share capital in pre-amendment period and the Memorandum explaining the provisions that proving the genuineness of share capital etc. by a company has always been considered a necessary requirement to escape the magnetization of section 68. The amendment has simply made express which was earlier implied. We, therefore, hold that though amendment to section 56(2)(viib) is prospective, but to section 68 is .....

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t justified in revising the assessment order requiring the AO to examine the receipt of share capital/premium from the angle of taxability. It was argued that the share premium can be charged to tax only in the circumstances given in section 56(2)(viib) and that too from the assessment year 2013-14. 13.aj. We are in full agreement with the ld. AR that the judgment in the case of Vodafone India Services (supra) is an authority for the proposition that share capital/premium are capital receipts an .....

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ident that when the assessee fails to prove the identity and capacity of shareholders along with the genuineness of transactions, the amount of share capital, etc. is liable to be added u/s 68. It is only where share capital/ premium are genuinely received and all the three necessary ingredients stand proved to the satisfaction of the AO that the share premium is not chargeable to tax before assessment year 2013-14 and, thereafter, chargeable to the extent and in the circumstances as enshrined i .....

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o whether the failure of the AO to give a logical conclusion to the enquiry conducted by him gives power to the CIT to revise the assessment order? 14. In this regard, Sh. Poddar submitted that the AO, during the course of proceedings u/s 147, thoroughly examined the question of issue of share capital at premium. Not only notices u/s 133(6) were issued to majority of the subscribers, but such notices were also properly responded giving complete details of their identity with PANs etc., and also .....

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ces, it could not be said that the AO did not properly apply his mind. It was stated that the way in which assessment should be finalized falls in the exclusive domain of the AO. Relying on section 142(1) and 143(2) of the Act, the ld. AR stated that it is within the province of the AO to decide that which points he wants to take up for enquiry and to what extent and, as such, the CIT cannot interfere with the same. It was contended that once an enquiry is conducted by the AO, even if inadequate .....

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15. The other ld. counsel have adopted the arguments of Sh. Poddar on merits except for separately giving account of some minor differences, such as, the amount of share premium, number of subscribers examined by the AO, the information submitted by such shareholders accepting subscription to the shares of the companies at the given premium in their respective cases. Such minor differences in the facts of each case in this batch of appeal, in our considered opinion, have no bearing on the overa .....

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conducted by the AO in such cases can be construed as a proper enquiry? ii) Whether CIT can set aside the assessment order and direct the AO to conduct a thorough enquiry, thereby interfering with the jurisdiction of the AO conferred on him in terms of section 142(1) and 143(2) of the Act? iii) Whether inadequate inquiry conducted by the AO empowers the CIT to revise the assessment order? iv) Whether the order of the CIT is based on irrelevant consideration and further was he not supposed to poi .....

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ts, etc., copies of which have been placed on record. The AO kept such documents on record and came to hold that the share capital was rightly subscribed and there was no case for invoking the provisions of section 68. In this process, he did not consider it fruitful to comprehend the rationale or logic behind issuing shares at such a high premium, nor to examine any of the directors of the companies which were subscribers to share capital. No attempt was made to require the assessee to justify .....

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Ramshila Enterprises, which has two directors, namely Sh. Sham Lal Khaitan and Sh. Ankit Kumar Khaitan. In all it has 51 shareholders, out of which the AO called for the particulars only from ten companies to whom shares with face value of ₹ 10 were issued at ₹ 190 each. Out of such ten companies, there are eight companies [Gururkul Dealers (P) Ltd., Rich Valley Traders (P) Ltd., Fetish Traders (P) Ltd., Tanya Enclave (P) Ltd., Dolphin Tie-up (P) Ltd., Gajanan Dealers (P) Ltd., Dream .....

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Ltd., a copy of which has been placed at page 26 of the assessee s paper book, for having an idea of the extent of its income with a view to ascertain justification for premium of ₹ 190 against the face value of ₹ 10. It can be noticed that on the Income side, there is only one item of Income, namely, Interest received of ₹ 2,20,962. On the expenses side, there are Administrative expenses of ₹ 1,97,783 and Preliminary expenses written off to the tune of ₹ 27,232 and .....

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arent can be considered as real. It was observed that apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. It was further observed that an inference should be drawn on the basis of the circumstances available on the record. Considering the c .....

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It is highly improbable for any person having sound mind to purchase at arm s length the shares of a private limited company, hardly having any worth, with face value of ₹ 10 at a premium of ₹ 190. This mere fact should have been cornerstone for the AO to embark upon further enquiry to unearth the truth. The genuineness of transactions of issue of share at such hefty premium in this background of the matter was under dark cloud and it skipped the attention of the AO. The contention .....

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Finance P. Ltd. (1994) 208 ITR 465 (Cal), in which it has been held that : Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine . In our considered opinion, the AO miserably failed to examine all such relevant aspects, which must have been gone into during the course of assessment proceedings. 17.d. Position is more or less same in all the cases under consideration and other cases, which we are simultaneously disposing by separate orders. It i .....

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Deposits And Advances Pvt. Ltd. And Sudhakar Commodeal (P) Ltd. have also been subjected to revision u/s 263 on the same score. It has further been shown that six companies (Guru Amardas Hire Purchase Pvt. Ltd., JNJ Finance Co. P. Ltd., Oliver Vanijya P. Ltd., Paltani Investemnt & Finance Co. Ltd., RMB Finance Co. Ltd. and SSA Hire Purchase P. Ltd.) whose shares have been purchased by Aradhana Plaza Private Limited have also been subjected to revisions u/s 263 in similar circumstances. 17.e. .....

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D. Deposits And Advances Pvt. Ltd., RBM Finance Pvt. Ltd., JNJ Finance Co. P. Ltd., Mandyati Dealcomm Pvt. Ltd., Nirupama Commerce Pvt. Ltd Shaker Credits Pvt. Ltd. and SSA Hire Purchase P. Ltd.) whose shares have been purchased by Kasturi Home Pvt. Ltd., have also been subjected to revisions u/s 263 in similar circumstances. 17.f. Same position prevails in the case of Marigold Nirman Pvt. Ltd., for which the ld. AR has filed a distinct chart showing the list of share subscribers who have been s .....

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. Ltd., Adonis Nirman Pvt. Ltd. and Sudarshan Goods Pvt. Ltd.) whose shares have been purchased by Marigold Nirman Private Limited have also been subjected to revisions u/s 263 in similar circumstances. A close scrutiny of the names of the shareholders and investee companies in respect of the above discussed three companies, whose details have been filed by the ld. AR, divulges that the names of companies are rotating from being a shareholder in one company to Investee company in other. To cite .....

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rther invest in the shares of other companies, so on and so forth. This is a striking example of circulation of capital from one company to another and the rotation is continuing in all the companies under consideration. This conclusion finds further corroboration from the arguments advanced by some of the ld. ARs, while justifying issue of shares at premium, admitting that all the shares were issued to the related companies only and premium was charged to avoid payment of fees payable to the Re .....

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er business activity and not purchasing the shares of other related companies through such a circular route. This shows that the transactions of issuing shares at a premium to related companies and then purchasing the shares of other related companies at a huge market price and none of the companies has any worthwhile business activity, when considered on an overall basis, is nothing but a smokescreen. 17.g. The ld. AR unsuccessfully tried to justify the premium by submitting that the break-up v .....

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same pattern. Such a break-up value at the close of the year after issue of shares at premium, is bound to remain close to the issue price of shares with premium. What is required to be shown is the break-up value of shares de hors the issue of any shares at premium. Since none of these companies has any other business activity except circulation of money from one company to another and by subscribing to or purchasing shares of other companies at premium/market price, there can be no justificat .....

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concern of the AO ought to have been to find out as to whether the receipt of such a premium was justified and whether the parameters of section 68 stood complied with. In the instant case, the AO merely issued notices u/s 133(6) to some of the shareholders whose replies, indicating that they overtly purchased the shares at ₹ 200/- each, were kept on record. Putting a lid at the matter at that stage only, the AO did not consider it prudent to examine such shareholders as to their capacity .....

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f say one or two months, per se, cannot lead to an irreversible conclusion that the assessment was done in undue haste. But where the primary facts themselves point out objectively towards the need to carry out further investigation, as is there in all the cases under consideration, which the AO fails to carry out, it will be called as a case of passing assessment orders in undue haste without application of mind. All the cases under consideration have the same common feature of passing assessme .....

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to the interests of the revenue. ii. Whether CIT can set aside the assessment order and direct the AO to conduct a thorough enquiry, thereby interfering with the jurisdiction of the AO conferred on him in terms of section 142(1) and 143(2) of the Act? 18.a. The ld. AR submitted that the ld. CIT was wholly unjustified in directing the AO to examine share capital in the way he considered it expedient. It was argued that when the AO issued notices to some of the subscribers to the share capital an .....

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wered the AO to conduct the inquiry on the points which the AO may require, the ld. AR argued, that the ld. CIT cannot be allowed to interfere by imposing his opinion upon the AO. 18.b. Section 142(1) unequivocally provides that for the purposes of making an assessment under this Act, the AO may serve a notice on any person who has made a return requiring him to produce or cause to be produced such accounts and documents as he may require or: to furnish in writing and verified in the prescribed .....

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eturn is inadmissible . A careful perusal of these provisions unveils that it is the prerogative of the AO to require the information on such points or matters as he may require. We are highlighting the expression on such points or matters used in section 142(1) to bring out that it is the privilege of the AO, which should prevail in requiring the assessee to furnish information only on such points or matters as he may require. We agree with the ld. AR that ordinarily it is not possible for the .....

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f the CIT u/s 263 can come into play for ascertaining if the AO examined all the relevant points, which ought to have been examined. If the CIT, on examination of records of assessment, comes to the conclusion that the AO failed to enquire into certain other relevant aspects which, in fact, necessitated thorough investigation, then he has all the power to revise the assessment order. To argue that once the AO, as per his wisdom, has inquired into certain aspects of assessment which he considered .....

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case. In such circumstances, it is impermissible to have a recourse to the provisions of section 142(1) and 143(2) for demolishing the order u/s 263 of the Act. We, therefore, refuse to uphold this contention as a reason for setting aside the order passed u/s 263 of the Act. iii) Whether inadequate inquiry conducted by the AO empowers the CIT to revise the assessment order? 19.a. Now we take up the argument of the ld. AR that since the AO conducted enquiry, which might not have been adequate in .....

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f the matter is that the AO should conduct enquiry to satisfy himself about the genuineness of transactions. Scope of the term enquiry can be diverse in different circumstances. There cannot be straitjacket formula to positively conclude as to conducting or non-conducting of enquiry by the AO. While, in some cases, collection of necessary material by the AO may lead to an inference about conducting enquiry , in others, mere obtaining and placing the documents on record may not be equalized with .....

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lities and cry for looking deep into it, then a mere collection of documents cannot be held as conducting enquiry, leave aside, adequate or inadequate. In such later cases, only when the AO, after collection of the initial documents, embarks upon further investigation, that we can say that he initiated enquiry. Where the facts of a particular transaction cry hoarse about its non-genuineness and even a casual look at such facts, prima facie, divulges foul play, then the alarm bell must ring in th .....

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lar. 19.b. At this juncture, we would like to deal with the judgment of the Hon ble jurisdictional High Court in the case of Maithan International (supra). The assessee in that case obtained loans aggregating to ₹ 1.60 crore from six private limited companies ranging between ₹ 7 lac to ₹ 1.10 crore. These companies had filed their returns with nominal income. The AO mentioned in the assessment order that Inspector was deputed to verify fresh loans received during the year. The .....

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ake proper investigation to determine whether the loans were really made by the third parties or they had come out of the sources of the assessee himself. The Tribunal set aside the order u/s 263 of the Act by observing that the AO did conduct enquiry and: if there is an enquiry, even inadequate, that would not by itself give occasion to the ld. CIT to pass order u/s 263 of the Act. Setting aside the order passed by the Tribunal, the Hon ble jurisdictional High Court has laid down that : CIT had .....

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made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind. It further observed that the question of inadequate enquiry should be understood in its proper perspective and: if it can be shown that the inadequate enquiry led the AO or may have led into assumption of incorrect facts, that could make the order erroneous and prejudicial to the interests of the revenue. Setting a bad trend has also been held to be prejudicial to the Revenue. 19.c. When we .....

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the instant cases. 19.d. Decision of the Hon ble Full Bench of the Guwahat High Court in the case of Jawahar Bhattacharjee reported in (2012) 341 ITR 434 (Gau.) (FB) is also an authority for the proposition that : not holding such enquiry as is normal and not applying mind to the relevant material in making an assessment would certainly be erroneous assessment warranting exercise of revisional jurisdiction . 19.e. Testing the facts of the present case on the touchstone of the ratio decidendi of .....

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capital? 20.a. The next plank of the marathon submissions of the ld AR was that the ld. CIT passed order based on irrelevant material, surmises and conjectures and was hence unsustainable in law. He submitted that it was the order of the ld. CIT which was perverse and not that of the AO. Relying on the judgment of the Hon ble Supreme Court in the case of Lal Chand Bhagat Ambika Ram vs. CIT (1959) 37 ITR 288 (SC), the ld. AR argued that the ld. CIT acted without any evidence for coming to conclu .....

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which the same modus operandi has been adopted by issuing shares at huge premium with no substantial business activity and, thereafter, investing the receipt of such share capital with premium in other paper companies again at huge premium and such latter companies being also not undertaking any worthwhile business activity. The further fact that shareholders of one company are investee in other companies so on and so forth also casts great doubt over the genuineness of the transactions. One ca .....

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a situation in which the case records of the assessee divulge that it issued shares at huge underserving premium coupled with the fact that it also made investments in the shares of other companies at much higher prices, without any justification and further the shareholder companies of the assessee company are directly or through its directors, simultaneously investee companies in other such companies, all of which have no meaningful business activity. It is the same pattern which has been adop .....

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the factual position as is prevailing before us. We agree that any company can issue shares at any amount of premium. It is only when the shares are genuinely issued at a certain amount of premium that there cannot be any inquiry. If, however, the striking reality of a situation is visible even to closed eyes, that the shares were not genuinely issued at the given premium, then there can be no fetters on the powers of the authorities to examine the genuineness of the persons subscribing to shar .....

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was not genuine, then the law will have to take its own course. 20.d. Another contention was put forth by the ld. AR that if the view point of the Department was presumed to be correct for a moment that it was a case of circular transactions, meaning thereby, that one amount of money has passed through several companies, then the addition, if any, can be made only the hands of first company and not the others, through whom the money came into rotation. It was argued that the ld. CIT was not just .....

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any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The crux of the matter is that if any money is credited in the books of accounts of a company in the form of share capital and the assessee fails to satisfy the AO, then the sum so credited has to be charge .....

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to the interest of the revenue. A mere mention in the order of the CIT that proper enquiry was not conducted, in the opinion of the ld. AR, was an incorrect appreciation of the provisions of section 263. So long as there is an evidence on the record of the AO about the conducting of a proper enquiry, the ld. AR argued, that the ld. CIT cannot invoke the provisions of section 263. The sum and substance of the submission was that before assuming jurisdiction u/s 263, the ld. CIT was supposed to po .....

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h circumstances, it becomes the duty of the CIT to expressly point out where the AO went wrong on merits. But in a case, where no enquiry has been conducted at all or the so-called enquiry conducted by the AO is as good as no enquiry, as is the case under consideration, in such circumstances, the CIT simply needs to point out those relevant aspects of assessment, which the AO lost sight of, but were required to be properly probed. This difference, may in certain circumstances, be appreciated wit .....

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hen deciding the issue properly. There can be no way for the CIT to tell erroneous approach of the AO on merits in such circumstances because the view of the AO on merits is not available. Requiring the CIT to indicate where the AO went wrong on merits in the cases of no enquiry cases, is like requiring an impossible thing to be done. It is axiomatic that the law does not require an impossible to be complied with. We are reminded of the legal maxim, Lex neminem cogit ad vana seu impossiblia , wh .....

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ct of the assessment to the file of AO for making a proper enquiry and then deciding. This argument of the ld. AR, being devoid of any merits, is rejected. v) If the AO has taken a possible view, can still the revision be ordered? 21.a. The ld. AR argued that section 263 cannot be arbitrarily invoked where the AO has taken one of the possible views. He bolstered this contention with certain authorities that point out that if the AO adopts one possible view, with which the CIT is not agreeable, t .....

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there are some judgments holding the non-application of the judgment of the Lovely Exports (supra) to closely held companies, it shows that the issue in question was debatable and, as such, incapable of being examined in the proceedings u/s 263. Relying on CIT vs. J.L. Morrison (India) Ltd. (2014)366 ITR 0593 (Cal), the ld. AR stated that once the AO has taken a possible view, it cannot be said that view taken by him was erroneous making the assessment order amenable to revision. 21.b. Taking i .....

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n Maithan International (supra) also, the appellant assessee relied on the judgment in the case of J.L. Morrison (India) Ltd. (supra) for contending that since the AO on examination of the material before him has taken a possible view, then the CIT gets precluded to invoke section 263. Repelling this contention, the Hon ble High Court has held in Maithan International (supra) that : The judgment in the case of J. L. Morrison does not assist the assessee because in that case the question was whet .....

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y the CIT u/s 263 directing the AO to make proper enquiry qua the issue of share capital on highly unreasonable premium. Once the proceedings are thrown open before the AO, the assessee will have full liberty to argue his case on merits. The assessment orders in the instant cases have become erroneous and prejudicial to the interest of the revenue on the very threshold of not making a proper examination of the issue of share capital at huge premium by the AO. This factor alone renders the assess .....

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y where the due tax has not come to the coffers of the exchequer, but, also where bad precedent is set by the AO. In other words, the expression prejudicial to the interests of the revenue needs to be viewed in a broader sense and cannot be confined to its narrow meaning of non-realization of the due tax only. It further explained the ambit of the expression prejudicial to the interests of the revenue by laying down that it: is not an expression of art and is not defined in the Act. Understood i .....

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ee Vee Enterprises vs. Addl. CIT and Others (1975) 99 ITR 375 (Del), was confronted with the facts in which that assessee was incorporated with the object of acquiring loan and making construction. It purchased some bungalow after borrowing loans as its share capital was very limited. Some of the directors and shareholders of that assessee company entered into partnership. An agreement was entered into between two sister concerns. The partnership was to complete a multi-storied building on the p .....

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he matter went before the Hon ble Delhi High Court. The assessee contended that the ITO had made the enquiries and was satisfied about the truth of the facts and hence revision was not maintainable. Repelling the contention advanced on behalf of the assessee, it was held that the: CIT was justified in exercising his revisional jurisdiction on the ground that the ITO had not made sufficient enquiries before granting registration to the firm and it was not necessary for the CIT to have himself mad .....

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e the CIT with the power to revise the assessment order and it was not considered necessary in such circumstances: for the CIT to have himself made enquiries before cancelling the assessment. It transpires that the fact that no enquiry was conducted by the AO or even though the enquiry was conducted, but, the relevant enquiry was omitted to be conducted, is sufficient to brand an assessment order erroneous and prejudicial to the interests of the revenue. Similar view has been taken by the Hon bl .....

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erms of lack of proper enquiry, thereby making them eligible for revision by the CIT u/s 263 of the Act. 21.f. The Hon ble Gujarat High Court in Addl. CIT vs. Mukur Corporation (1978) 111 ITR 312 (Guj), has held that it is not necessary that CIT in his order u/s 263 should come to a firm conclusion that the order of the AO was erroneous in so far as it was prejudicial to the interest of the revenue. Where the AO allowed deduction without properly probing the matter, the Hon ble High Court held t .....

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rong. The very fact that no enquiry was conducted or no proper enquiry was conducted in the required circumstances, is sufficient in itself to invoke the provisions of section 263. 22. We, therefore, answer all the five aspects discussed above by holding that : i) the enquiry conducted by the AO in such cases can t be construed as a proper enquiry; ii) CIT u/s 263 can set aside the assessment order and direct the AO to conduct a thorough enquiry, notwithstanding the jurisdiction of the AO in mak .....

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in the assessment order on merits on the question of issue of share capital at a huge premium ; v) the 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. 23. a. Having dealt with all the five major points taken up by the ld. AR in support of contention for setting aside the .....

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py of which was placed on record. He submitted that when the AO passed the order, these precedents in favour of the assessee enabled him to form a view that examination of share capital with premium was not contemplated u/s 68 and, hence, the ld. CIT entertaining a contrary view could not invoke the provisions of section 263. Per contra, the ld. DR also relied on certain tribunal orders passed by the tribunal directly on the point upholding revision. 23.b. We have heard both the sides. It is no .....

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same was based on the facts recorded by the Tribunal. The Hon ble High Court refused to interfere with the factual findings recorded by the tribunal, being the final fact finding authority. Not admitting the question as a substantial question of law arising from the Tribunal order, cannot be equated with the approving the view taken by the Tribunal. Since the Hon ble High Court refused to re-appreciate the facts as recorded by the Tribunal and, thereafter, did not admit the question of law propo .....

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the transactions in proceedings u/s 147. In all such cases, the CIT invoked his power u/s 263 thereby restoring the matter to the AO for a proper examination and the Tribunal has upheld the action of the CIT by dismissing the appeals filed by the assessees. Detailed orders have been passed by the Kolkata Bench in the case of M/s Bisakha Sales Pvt. Ltd. Vs. CIT (ITA No.1493/K/2013, dated10.9.2014), Brindavan Commodities Pvt. Ltd. VS. CIT (ITA No. 1607/Kol/2013, dt. 24.10.2014), Ridhi Sidhi Vinco .....

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rder favourable to the assessee in Lotus Capital (supra). On further analysis, we find that the fact of such dummy companies floated on a large scale involving similar modus operandi, was not there before the Tribunal in the case of Lotus (supra), which order was passed in 2011. This case was decided in isolation without the overall background of a web of several hundred companies floated on the same pattern with ulterior motive. As against that, most of the above orders passed by the tribunal a .....

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passed u/s 263 where the AO conducted inadequate enquiry which has been equated with no enquiry in the given circumstances. The ratio of this judgment applies with full force to the facts under consideration. Respectfully following the ratio decidendi of the judgment of the Hon ble High Court in the cased of Maithan International (supra) and the aforequoted five Tribunal orders against the assessee, we are of the considered opinion that the ld. CIT was justified in revising the assessment order .....

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ke up consideration hereinafter. C. Issue of Non-service of show cause notice u/s. 263 : 26.a. In the case of Reward Tie-up Private Limited, the assessee has also challenged the order u/s. 263 of the Act as void in law for nonservice of show cause notice before passing of the impugned order. The learned AR brought to our notice para 5 of the order u/s. 263 of the Act, wherein the ld. CIT has recorded the fact that notices u/s. 263 of the Act were issued to the assessee on 4.3.2013 and 6.3.2013 b .....

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Civil Procedure, 1908 (CPC), affixture as a mode of service of notice can be resorted to only where the person on whom notice is sought to be served or his agent refuses to sign acknowledgement or where the serving officer, after using all due and reasonable diligence, cannot find the defendant (i.e., the assessee on whom notice is sought to be served). The learned AR thereafter brought to our notice that the order u/s. 263 of the Act as well as the consequential order dated 18.3.2014 passed by .....

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reasonable diligence as the assessee could not be found. 26.c. For the proposition that before passing an order u/s.263 of the Act the assessee must be given a reasonable opportunity of being heard by issue and service of a show cause notice, the learned counsel for the assessee relied on certain decisions including Smt. Kiron Devi Singhee vs. CIT & Ors. 58 ITR 0419 (Cal) and CIT vs. Ramendra Nath Ghosh 82 ITR 0888 (SC). In support of the proposition that if a notice u/s.263 of the Act is no .....

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ted the fact that two notices were sent to the assessee at the known address but could not be served and only thereafter service by affixture was resorted to. Our attention was also drawn towards the conduct of the assessee in as much as in the assessment proceedings after the order u/s. 263 of the Act, he did not participate in the proceedings resulting in an order u/s. 144 of the Act. The assessee however received the order of assessment at the known address. According to him the non-service o .....

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e assessment completed u/s. 147 of the Act was sought to be revised in proceedings u/s. 263 of the Act, it evaded the service of notice. The assessee however promptly filed appeal against the order u/s. 263 of the Act, giving the very same address at which notices were returned and hence could not be served by the Revenue. In the grounds of appeal, the assessee remains silent as to its correct address for service. It has not been stated by the assessee that it was not carrying on business at the .....

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the assessee regarding improper service of notice u/s.263 of the Act. In the assessment proceedings after the order of CIT u/s. 263 also, the assessee did not participate in the proceedings. According to him the circumstances of the case clearly showed that the motive of the assessee was to evade service of notice and therefore service by affixture was the only proper mode of service in the facts and circumstances of the present case. 26.e. In the case of M/s. Tulsi Tradecom Pvt. Ltd., there is .....

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ttention to a list of dates and events filed in this case. He drew our attention to the order dated 30.3.2013 passed u/s 263 of the Act in which the CIT has clearly observed that a show cause notice was sent by post for compliance on 22.3.2013 and the same was returned by the postal authorities on 25.3.2013. He brought to our notice that as early as 31.5.2012, the registered office of the assessee was shifted from 2, Raja Woodmunt Street, Kolkata-1 to the address shown in the order u/s 263 of th .....

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te forms filed by the assessee with the Registrar of Companies. These documents are placed at page nos. 33-36 of the assessee s paper book. According to the learned AR, the show cause notice in these circumstances ought to have been sent at the new address. He pointed out that the CIT issued show-cause notice dated 18.3.2013 and the same was addressed at the old address in Kolkata. Since the order u/s 263 of the Act contained the Delhi address of the assessee, the same was received by the assess .....

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015) 58 Taxmann.com 155 (Bom), wherein the Hon ble Bombay High Court has expressed a view that when the assessee has informed his changed address to the department, service of notice has to be effected at the changed address. It is only when service of notice at the changed address becomes impossible that notice can be served in a different manner. Our attention was also drawn to the decision of the Hon ble Delhi High Court in the case of CIT vs. Eshan Holdings (P) Ltd. (2012) 25 Taxmann.com 99 .....

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ord of the Department and the change was duly acknowledged by the Department. The ld. AR submitted that report of the IT Inspector who effected service by affixture also indicated the affixture at the old address. It was pointed out that before effecting service of notice by affixture, the IT Inspector was obliged under law to exercise due diligence to find out if notice could be personally served on the assessee. He pointed out that when the Inspector goes to a wrong address for service of noti .....

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ssed to the AO received by the AO on 6.4.2010, the assessee s address was shown as 14, Prince Street, 3rd Floor, Kolkata - 72. Notice u/s 148 of the Act was served at this address on the assessee in connection with the re-assessment proceedings for the AY 2008-09. He pointed out that this notice was received by the assessee at 4, Clive Road, 4th Floor, Room No.405, Kolkata. The assessee participated in the re-assessment proceedings. Thereafter, the assessee intimated the AO and the CIT by letter .....

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ce of notice u/s 263 of the Act will not render the order u/s 263 of the Act a nullity. It could at best be an irregularity capable of curing. In this regard, a copy of decision of the Hon ble Calcutta High Court dated 10.3.2015 in Corus Steels Pvt. Ltd. WP No.6103 of 2015 dated 10.3.2015 was filed before us. In the aforesaid decision, the Hon ble Calcutta High Court took the view that non-service of show cause notice will not render the order u/s 263 a nullity. Relying on the decision of the Ho .....

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tated that change of address was not intimated in a manner known to law and therefore the notice was sent at the old address. It was also submitted that in the light of background facts of the case as explained by the CIT in the impugned order u/s.263 of the Act, the change of address was also part of the design whereby the assessees were trying to mislead the Department. In the circumstances, it was prayed that the service of notice be held to be proper. 26.j. The learned AR in his rejoinder su .....

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e opportunity of being heard is not statutorily required to be given and where the principles of natural justice are violated, then the order passed without affording such opportunity of being heard is to be regarded as void and it is not an irregularity which can be cured by calling upon the authority to afford opportunity of being heard. 26.k. We have given a very careful consideration to the rival submissions in the light of the precedents relied upon. Firstly we will deal with the case of Re .....

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y thereafter that the process server is empowered to effect service by affixture. In the present case two notices were sent to the assessee at the known address. Both the notices could not be served and were returned unserved. It is only thereafter that service of notice was effected by affixture. The learned counsel for the assessee harped on the aspect of absence of due and reasonable diligence to find the assessee before effecting service by affixture. The assessee is a company and its known .....

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Act was served at the known address is also not denied. The affixture of notice at the last known address is also not denied by the assessee. The emphasis is only on the absence of due diligence by the process server to find out the whereabouts of the assessee. This is a fact which the assessee alleges based on surmises. In this regard it is also seen that the reassessment proceedings were initiated only at the instance of the assessee by filing letter before the AO for issue of intimation u/s. .....

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ture is no longer the address of the assessee for service of notice. As rightly pointed out by the learned DR, the sequence of events prevailing in such companies involved in assisting the conversion of unaccounted moneys into accounted monies, cannot be lost sight of. The circumstances of the case clearly show that the motive of the assessee was to evade service of notice and therefore service by affixture, in our considered opinion, cannot be held as anything other than a proper service. As su .....

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bjection by the assessee in this regard is held to be without any basis. 26.l. As far as the case of Tulsi Tradecom Pvt. Ltd. is concerned, the address given in the return of income was the basis on which notices were sent at the Kolkata Address. There is nothing on record to indicate that the change of address was taken cognizance by the AO. In the circumstances notices were sent at the Kolkata address. The assessee cannot, therefore, have any grievance as will be discussed in the subsequent pa .....

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ervice of notice on merits of the above cases, we may also add as a legal proposition that there is no requirement of service of notice u/s. 263 of the Act in terms of section 282 of the Act and CPC as has been argued before us. Sub-section (1) of section 263 provides that : 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 Assessing Officer is erroneous in so far as it is prejudicial to the interests o .....

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s of the Act, including section 148 which expressly contain the requirement of issue of notice, as is evident from sub-section (1) of section 148 which provides that : Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income ...... . Thus it is evident that whereas section 148 specifically requires serving a notice .....

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only when there is requirement of service of notice in the relevant provision, which would require compliance in terms of section 282. But where a particular provision does not contemplate service of notice and only refers to giving opportunity of hearing, then the strict provisions of section 282 cannot apply. So long as the assessee stands informed of the proceedings against him, there can be no irregularity in this regard. Thus it is clear that unlike provisions of sec. 148 of the Act, sec. 2 .....

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nt has nothing to do with the jurisdiction of the Commissioner. It simply pertains to the region of natural justice. Breach of the principles of natural justice may prejudice the legality of the order made but cannot affect the jurisdiction of the Commissioner. So long as the order passed by the AO is erroneous and prejudicial to the interest of the revenue, the jurisdiction vests with the CIT to revise such an order, of course, subject to the limitation enshrined in the provision. The above is .....

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existed after the substitution by the Finance (No.2) Act, 2009 w.e.f. 1-10-2009 provides that The service of a notice or summon or requisition or order or any other communication under this Act may be made by delivering or transmitting a copy thereof, to the persons therein named (a) By post or by such courier services as may be approved by the Board; or (b) In such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or (c) In the form o .....

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sions of sec. 282(1) prior to and after its amendment w.e.f. 1-10-2009 clearly shows that it is only in respect of a notice that is mandatorily required to be served under the Act that the requirement of serving it strictly in the manner required by the aforesaid provisions is contemplated. The expression or any other communication under this Act as appearing in sec. 282(1) of the Act after the amendment w.e.f. 1-10-2009 would cover only cases mentioned in clause (c) and (d) of the amended provi .....

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d to cases where notice is required by law to be mandatorily served on assessee in terms of section 282 of the Act. Accordingly, the cases cited by the learned AR pertaining to service of notice in different contexts, where the Act mandates service of notice in accordance with section 282, lose their significance. 26.s. Coming back to the language of section 263(1) requiring the passing of order after giving the assessee an opportunity of being heard , it transpires that it refers to giving oppo .....

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assessee filed its return of income for the AY 2008-09 on 21.12.2008 and an intimation u/s.143(1) of the Act was issued on 3.8.2009. He then brought our notice the fact that in the reasons recorded for initiating proceedings u/s. 147 of the Act, a copy of which is placed at page 14 of the assessee s paper book, the issue of examination of share capital was not there, which in his opinion was restricted only to share issue expenses being capital or revenue. It was, therefore, pleaded that the pe .....

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d on the decision of the Hon ble Bombay High Court in the case of Lark Chemicals 368 ITR 655 (Bom) wherein similar view has been taken. 27.b. The learned DR on the other hand pointed out that the order sought to be revised u/s. 263 of the Act was the order dated 6.4.2010 passed u/s. 147 r.w.s. 143(3) of the Act and in the said order the issue of receipt of share capital by the assessee was investigated by the AO, even though the assessment was not reopened for that purpose. He pointed out the re .....

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the reassessment proceedings. It was further submitted that while issuing intimation u/s. 143(1) of the Act, the AO could not have gone into the examination of issue of share capital at premium. He argued that that Intimation u/s. 143(1) of the Act is not an assessment order and hence it cannot be said that the issue of receipt of share capital by the assessee was subject matter of any proceedings u/s 143(1). 27.c. He also pointed out that when challenging the order u/s. 263 of the Act on merit .....

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ent proceedings u/s. 147 of the Act. It was also brought to our notice that similar argument raised by the assessee was considered and rejected by the Kolkata bench of the Tribunal in identical facts and circumstances in Riddhi Siddhi Vincom (P) (supra) vide para 11 of its order. 27.d. The ld. AR, representing Tulsi Tradecom Pvt. Ltd., also claimed that the order u/s 263 of the Act was barred by limitation in the same circumstances as discussed above. In support of the contention that scrutiny o .....

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proceedings u/s 147 of the Act were initiated on the ground that the assessee claimed depreciation at a higher rate. The question before the Hon ble Court in the proceedings u/s 147 of the Act was whether the AO can go into issues other than claim of depreciation at a higher rate. The Hon ble Punjab &Haryana High Court held that the issues other than claiming higher depreciation became final because the AO did not issue a notice u/s 143(2) of the Act for framing assessment u/s 143(3) of the .....

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s and, therefore, it could not be claimed that the said issue was the subject matter of proceedings u/s 147 of the Act. He also submitted that period of limitation needs to be reckoned from the date of intimation u/s 143(1) of the Act. Similar arguments were put for in the case of Ramshila Enterprises Pvt. Ltd. On a specific query from the Bench, it was admitted by all the ld. ARs that if the period of limitation is counted from the date of passing of order u/s 147, then the orders u/s 263 fall .....

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ding that the reasons for such issue have not been included in the reasons recorded u/s 148(2). According to the ld. DR, the decision relied upon by the ld. AR would not be of any use in the light of this amendment. 27.f. We have given a very careful consideration to the rival submissions. The period of limitation for passing an order u/s.263 of the Act in terms of sec. 263(2) of the Act is : two years from the end of the financial year in which the order sought to be revised was passed . The or .....

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t true that in the reasons recorded for initiating proceedings u/s.147 of the Act, the issue of examination of share capital raised by the assessee during the previous year was not the reason for re-opening of the assessment. It was restricted only to share issue expenses whether capital or revenue expenditure or some other minor disallowances in other cases. Nevertheless in the reassessment proceedings in all the cases, the AOs ventured to issue notices u/s. 133(6) of the Act to some of the sha .....

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he Act. 27.h. We also find merit in the argument of the learned DR that with the introduction of Explanation 3 to section 147 with retrospective effect from 1.4.1989, the AO acquires jurisdiction not only to assess or reassess income in respect of which he issued notice u/s 148, but also such other issues that come to his notice subsequently in the course of the proceedings u/s 147, notwithstanding that the reasons for such issue have not been included in the reasons recorded u/s 148(2). Clause .....

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the reasons recorded under sub-section 2 of section 148". 27.i. Notes on Clauses appended to the Finance (No. 2) Bill also state that clause 57 of the Bill seeks to amend section 147 relating to income escaping assessment. It is proposed to insert Explanation 3 to the said section so as to provide that for the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess income in respect of any issue which has escaped assessment and such issue comes .....

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sing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for reopening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in .....

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edings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148." 27.j. In view of the aforesaid statutory amendment, it is clear that the scope of reassessment is no more confined to the issues referred to in notice u/s 148, but also extends to other issues which come to the notice of the AO during the course of reassessment proceedings indicating the escapement of income. No doubt the issue of sha .....

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only for sections 154, 246 and 264 and for all other purposes is only notice of demand. Similarl view has been taken by the Hon ble Delhi High Court in MTNL Vs. CBDT (2000) 246 ITR 173 (Del) holding that Intimation u/s 143(1) is not an assessment order. Since the subject of revision u/s 263 can only be an order passed.. by the Assessing Officer , we fail to see as to how Intimation issued u/s 143(1) in all such cases, which can by no stretch of imagination be treated as an order for the purpose .....

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case of Ramshila Enterprises Pvt. Ltd. The ld. AR submitted that the ld. CIT, Kolkata-II, Kolkata, who passed the impugned order had no territorial jurisdiction to do so. He firstly drew our attention to the order u/s.263 and submitted that the same was passed on 26.3.2013 by the CIT, Kolkata-II, Kolkata. It was also shown that the show-cause notice dated 18.3.2013 u/s. 263 of the Act, which was also issued by the CIT, Kolkata-II, Kolkata. He also invited our attention towards an order dated 3.9 .....

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a-II, Kolkatta had jurisdiction over cases with ITO, Ward 4(2), Kolkata and CIT, Central Circle, Kolkata had jurisdiction over cases with ACIT/DCIT, Central Circle-XIX, Kolkata. The argument of the learned AR was that only the CIT, Central Circle, Kolkata could have exercised powers of revision u/s. 263 of the Act on and from 3.9.2012. It is relevant to mention in this regard that the transfer of jurisdiction of the assessee from ITO, Ward-4(1), Kolkata to ACIT/DCIT, Central Circle XIX, Kolkata, .....

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asmuch as request for transfer of jurisdiction was made by the competent authority for facilitating the co-ordinated investigation of search cases. The order specifically mentions that jurisdiction is being transferred in the interest of revenue for better co-ordination, effective investigation and meaningful assessment. 28.c. The learned DR submitted that CIT, Central, Kolkata, consequent to the search had addressed a letter dated 24.12.2012 to the CIT, Kolkata-II, Kolkata, requesting for trans .....

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ion in the case to DCIT, Central Circle-19, Kolkata. The ld. DR brought to our notice a letter dated 11.7.2013 which is placed at page 4 of the Revenue s paper book, in which the assessee wrote to the ITO, Ward 4(1), Kolkata, the fact that the jurisdiction had not been changed despite the order dated 3.9.2012. The ld. DR also pointed out that it is only on 29.7.2013 that the ITO, Ward 4(1), Kolkata physically transferred all the files to the DCIT, Central Circle 19, Kolkata. Copy of the forwardi .....

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ment passed u/s. 147 r.w.s. 143(3) of the Act on 21.5.2010 in relation to AY 2008-09, much prior to even the making of request by the competent authority for transfer of cases for co-ordinated investigation and that too, for search matters, could also be said to have been transferred to ACIT/DCIT, Central Circle-XIX, Kolkata? Before answering this question, we consider it expedient to take note of the contention of the ld. AR about Explanation below sec.127, which reads as under : Explanation - .....

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f sec.127 of the Act refer to only transfer any case . The expression case has been defined to mean all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year . According to him, the assessment proceedings completed u/s. 147 r.w.s. 143(3) of the Act b .....

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d for the AY 1962-63 by the ITO A Ward, District Howrah. He initiated penalty proceedings and referred the penalty proceedings to IAC, Range XX, under sec. 274(2) of the Act. Pending these proceedings, the CIT passed an order u/s. 123(1) transferring the jurisdiction to the IAC, Range XXII, who was given exclusive jurisdiction. Thereafter, the IAC, Range XXII, called upon the respondent to appear before him to show cause why penalty should not be imposed on him u/s.271(1) ( c) of the Act. The qu .....

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CIT Kolkata - II, Kolkata was practically divested of his jurisdiction over the case of the appellant pursuant to transfer of jurisdiction order passed by him on 3.9.2012 u/s 127(2)(a) of the Act. 28.f. In our considered opinion, the order dated 3.9.2012 u/s. 127(2)(a) of the Act only transferred jurisdiction with reference to assessment of income in the hands of the assessee consequent to seized material in the course of search on Athna Mines group of cases. This is clear from the order which s .....

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re clearly distinguishable in as much as that case related to transfer of jurisdiction in a specific case and such transfer did not arise consequent to a search in any group case as in the present case. There was, therefore, no necessity for better coordination, effective investigation and meaningful assessment. The definition of case for the purpose of sec.127 of the Act as given in the Explanation below sec. 127 does not debar the Commissioner from transferring only a particular case, more so .....

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g to an assessee to be exercised by the AO/CIT who already had it. The power to do a particular act also includes a power to restrict the exercise of power partly. It cannot be said that the power should be exercised either as a whole or not at all. Such an argument is fallacious and defeats the very purpose of conferring a larger power. As the actual transfer of the files from the incumbent AO to the new AO had taken place only on 29.7.2013 and further the order sought to be revised by the ld. .....

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Pvt. Ltd. In this case there is no dispute that the CIT, Kolkata-II, Kolkata, who passed the order u/s. 263 of the Act had jurisdiction over the assessee. There is no order transferring jurisdiction from ITO, Ward 6(1), Kolkata under CIT, Kolkata-II, Kolkata. The ld. AR, however contended that PAN data in the public domain showed that the assessee s jurisdiction at the relevant time was with ITO, Ward 8(2), Kolkata, who was under the jurisdiction of CIT, Kolkata-III, Kolkata. 28.h. In our view .....

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mitted that this company was formed only during the previous year relevant to the assessment year under consideration. Placing reliance on the decision of the Hon ble Supreme Court in the case of Bharat Engineering, 83 ITR 197 (SC), he submitted that it cannot be possible for a newly incorporated to earn undisclosed income of such a magnitude in the very first year of its formation. It was further submitted that though the aforesaid decision relates to a case of a partnership firm, but its ratio .....

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here is a fundamental difference between a company vis-avis shareholders on one hand and a firm vis-a-vis partners on the other. Whereas a company is a separate legal entity distinct from its shareholders or directors, it is not so in the case of partnership firm. The Hon ble Supreme Court in Malabar Fisheries Company Vs. CIT (1979) 120 ITR 49 (SC) has held that partners and firm are one and the same thing and a firm is nothing but a compendious name given to partners. Similar view has been reit .....

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malgamating company after amalgamation, 30.a. Sh. Subhash Agarwal, the learned AR representing Madhuban Vyapar Pvt. Ltd., stated that the assessee ceased to exist on the date of passing of the revisional order u/s 263 as it got amalgamated with another company prior to that. Referring to the scheme of arrangement which was sanctioned by the Hon ble High Court, he pointed out that the date of transfer as per the scheme of amalgamation was 10.10.2007. It was stated that on the Hon ble High Court a .....

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ts original identity and no proceedings can be taken in its earlier name. Such proceedings have to continue in the name of the amalgamated company and order can also be passed in the new name. However, this general position can have no application, where the Revenue is kept in dark and is not informed about such amalgamation. The position becomes more critical where, even after such amalgamation, the amalgamating company launches proceedings in its old name. In such circumstances, it cannot be a .....

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obvious that in such circumstances, the assessee cannot be allowed to take advantage of its own manipulation. It is further interesting to note that the assessee also allowed the proceedings u/s 147 to complete in its earlier name, but is now seeking to object to the order of the ld. CIT on this aspect of the matter. Law does not permit a person to both approbate and reprobate. This contention is therefore, rejected. H. Whether order u/s 263 becomes invalid for being passed on a closed day? 31. .....

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CIT also to remain open on such date. According to him, the CBDT instruction which derive its validity from the provisions of section 119 of the Act, cannot extend to declaring a gazetted holiday as a full-fledged working day for the income-tax offices. It was thus pleaded that since the impugned order was passed on a holiday, the same should be held as a nullity. In this regard, he placed reliance on the following decisions:- i)Kuldip Oil Industries Ltd. Vs. Ch.Pratap Singh AIR1957 505(All); ii .....

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T, after concluding the proceedings, passed the impugned order on a holiday. The bar in not working on the holidays extends only qua the taking up of the proceedings involving participation from outsiders. It cannot be said that the Government servants, having completed the hearing of the proceedings on a working day, cannot work on holidays to clear their work without the involvement of public at large. It is a common knowledge that the Officers of the Income-tax Department work around the cloc .....

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that the order has been passed on a holiday after conclusion of such proceedings on a working day. In our considered opinion, no illegality can be traced from the passing of the impugned order on a holiday. 31.c. Be that as it may, it is noted that from the above decision rendered by the Hon ble Allahabad High Court in the case of Kuldip Oil Industries Ltd. (supra), that in case of urgency, a trial can be conducted even on a closed holiday. In the present case, the time limit for passing the ord .....

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red as void. 32.b. In our considered opinion this objection is again unsustainable. We have noticed above that there is no requirement under the law for giving a notice for the proceedings u/s 263 in conformity with the provisions of section 282 of the Act. It has been noticed that the assessee should be given an opportunity of hearing and once this is done, the proceedings cannot be challenged on this score. When an assessee is made aware of the proceedings u/s 263, no such objection can be all .....

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t the replies sent by the assessees to the show cause notice u/s 263 of the Act were returned as Refused by the ld. CIT. It was submitted that since the objections of the assessee have not been considered as contained in those letters, the impugned orders be held as void because of lack of adequate opportunity to the assessee. 33.b. We do not approve the way in which the office of the CIT has refused to accept the written submissions made on behalf of various assessees. It is impermissible for a .....

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void ab initio. The Hon ble Supreme Court in several judgments including Guduthur Brothers Vs. ITO (1960) 40 ITR 298 (SC), CIT Vs. Jai Prakash Singh (1996) 219 ITR 737 (SC) and Kapurchand Shreemal Vs. CIT (1981) 131 ITR 451 (SC) has held that lack of opportunity is simply an irregularity which does not render the order passed a nullity. In our considered opinion, it is at best an irregularity which will not affect the jurisdiction of the CIT u/s. 263 of the Act. We hold accordingly and dismiss .....

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e is before us. It was contended that once the proceedings u/s.153C of the Act were initiated, the CIT could not have invoked the powers u/s. 263 of the Act for revising an order of assessment already passed by the Assessing authority under u/s. 147 of the Act in respect of an assessment year which is comprised in the period of six assessment years covered by the first proviso to sec. 153A of the Act. His submission was that the CIT u/s. 263 of the Act has to examine the records of assessment fo .....

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h is conducted after 31.5.2003, then the AO has no other option but to issue notice u/s.153A of the Act and then assess or reassess total income for the six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. According to him, similar would be the position even in the case of proceedings u/s. 153C of the Act. His further submission was that the expression assess or reassess used in sec.153A(1)(b) of the Act has not been defi .....

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ct is already completed before the date of initiation of search u/s.132 of the Act, then assessment of total income for such year u/s.153A of the Act can only be reassessed and not assessed . The expression reassessed would include reassessment pursuant to order u/s.153A of the Act. He submitted that the purpose of the second proviso to sec. 153A(1) of the Act is to ensure that there are no multiple assessments for the same Assessment year. In this regard our attention was drawn to the decision .....

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l abate". The reason is not far to seek. Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the 'total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the same assessment year determining the total income of t .....

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se proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. 34.b. The learned AR submitted that assessment in the case of the assessee u/s. 147 of the Act for the AY 2010-11 was completed on 21.2.2012 and the .....

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he rival submissions. We shall first consider the scope of assessment u/s.153A of the Act. The Special Bench of the tribunal in Allcargo Global Logistics Ltd. (2012) 16 ITR (Trib.) 380 (Mum)(SB) had the occasion to consider the following question: - 1. Whether, on the facts and in law, the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found, during the course of search"? The Special Bench answered the question by holding that: (a) In so far as p .....

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f search, and undisclosed income or undisclosed property discovered in the course of search 34.d. In the light of the above ruling of the Special Bench, it is clear that if an assessment is completed prior to initiation of search u/s.132 of the Act and if no incriminating material is found regarding a particular item of income during the course of search, then no addition can be made in the assessment of such year u/s. 153A of the Act. If we accept the contention of the ld. AR, then the Revenue .....

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