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TMI Blog2016 (5) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... rose to a sum of Rs. 39,92,61,247.60 paise. The increase in the share capital and the reserve and surplus is consequent to the issuance of 7,92,737 shares of Rs. 10/- each at a premium of Rs. 390/-. The authorised share capital of the assessee during the relevant assessment year was Rs. 1,36,00,000/-. The assessee originally filed a return showing a gross total income of Rs. 24,658/-. The assessee thereafter wrote to the assessing officer that due to inadvertence it had not disclosed receipt of a sum of Rs. 61,000/- on account of consultancy fees. The mistake, it was pointed out, was due to the fact that the sum of Rs. 61,000/- had been spent in making donation to a club. In the circumstances a notice dated 15th February, 2011 under Section 148 was issued. A notice dated 23rd February, 2011 under Section 142(1) of the Income Tax Act was also issued, seeking amongst other the details of share application money received by the assessee, including the names of the applicants, their address, date of receipt and the total amount received. It was submitted by Mr. Poddar that consequent to the notice dated 23rd February, 2011 the assessee disclosed full particulars as regards the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital including the premium received by the assessee. The assessee replied stating, inter alia, as follows:- "On a bare perusal of the impugned Showcause Notice, it would appear that the allegations of the Revenue may be summarized as under: (i) That the Assessing Officer did not make requisite enquiry on the issue as to "what prompted the subscribers" to subscribe Shares at a high premium, issued by a closely held company. (ii) That there is no evidence on record which can show that the issue of subscription of Shares had been examined objectively and, therefore, it appeared to the Revenue that the assessment order was passed without application of mind. Before proceeding to reply to the aforesaid allegations, which, in our humble view, are wholly unfounded, it would be appropriate to recall the undisputed facts borne out by record, as under: In the previous year relevant to the assessment year 2009-10 the assessee- company had issued 7,92,737 Equity Shares of the Face Value of Rs. 10/- each at a premium of Rs. 390/-. Such shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends. From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order under Section 263 can be passed, the Commissioner is obliged to satisfy twin conditions: (i) that the order passed by the assessing officer is erroneous and; (ii) that the order is prejudicial to the interest of the revenue. Unless both these conditions are satisfied, the CIT has no jurisdiction to tinker with the order of the assessing officer. (2) Receipt of share capital during the relevant assessment year was not a taxable event. He drew our attention to Section 56(2)(viib) which was introduced with effect from 1st April, 2013 which reads as follows:- "56. Income from other sources.- (1)... (2) In particular and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income tax under the head "Income from other sources", namely:- . . . (vii-b) where a company, not being a company in which the public are substantially 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: Provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein the following views were expressed:- "The question that, when an assessee transfers some of his stock-in-trade to another person at a price less than the market price, whether that assessee can be considered to have made any profit merely because he has transferred some of his stock-intrade not at the market price but at a lesser price, came up for consideration before the High Court of Madras in Sri Ramalinga Choodambikai Mills Ltd. v. CIT [(1955) 28 ITR 952 (Mad)] . The facts of that case as set out in the head-note are: a limited company sold certain goods showed in its stock-in-trade to its managing agency firm and to another firm in which one of its directors was interested. The sales in question were held to be bona fide sales. At the same time it was held that the goods were sold at a concessional rate. The Income Tax Officer sought to tax the assessee therein after computing the profits earned by that firm on the basis of the market price of the goods sold and not the actual price at which those goods were sold. The assessee challenged the said basis. The Tribunal upheld the contention of the assessee. It came to the conclusion that the assessee had, in reality, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." It is a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden. Hence, if the assessee in this case has arranged its affairs in such a manner as to reduce its tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus foregoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible under law." He submitted that Section 92BA has been enacted and given effect from 1st April, 2013 in order to avoid the applicability of the aforesaid judgement of the Apex Court in the case of CIT -Vs- Calcutta Discount Co. Ltd. (4) He drew our attention to Schedule 10 of the Companies Act in order to show that the increase in the authorized share capital can be made subject to payment of fees prescribed therein. In order to avoid to pay the fees the assessee chose to price the shares at Rs. 10/- each and to collect the sum of Rs. 390/- per share by way of premium. (5) All the docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act were duly served and the noticees duly responded thereto which goes to show beyond any pale of doubt that the subscribing companies were very much available at the given address. (c) The Commissioner opined that:- "In the recent years, it has become a common practice to introduce unaccounted money by way of share capital in dummy companies. The present assessee company is part of the large number of such cases in Kolkata as well as other parts of the country. The share capital is introduced by rotating the money to dummy companies which have been created solely for this purpose. The Directors of such companies are more often than not low paid employees such as peons, darbans, drivers or other persons of humble means. The modus operandi for introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this, the money is transferred by way of cheques to other companies and this is done 3 to 4 layers, the money reaches its intended destination and this company is then sold off to the group or person who will ultimately use the money. He in turn, returns the amount of share capital and prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent inquiries are carried out regarding the share capital. The company is then passed on to the final purchaser after charging a percentage of the capital in the company. This modus operandi has been confirmed in may search operations carried out by the Investigation Wing on entry operators & others over the past few years." Mr. Poddar contended that there is nothing to show that the assessee requested for issuance of any notice under Section 148 of the Income Tax Act. The assessee merely pointed out a mistake discovered subsequent to filing of the return. This, the assessee did in compliance of Section 273A. Uncharitable remarks cannot be passed against the assessee simply because he complied with the law. (e) The Commissioner relied upon the judgement in the case of Sumati Dayal -Vs- CIT reported in (1995) 214 ITR 801 (SC) which, according to him has no manner of application because in that case there was evidence which is altogether absent in the case before us. He submitted that the judgement in the case of CIT -Vs- Nova Promoters and Finlease (P) Ltd. reported in 342 ITR 169 is not applicable to the facts of this case because in that case there were confessional statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccounted funds have, in fact been used by him, even then there is no material to show or link the unaccounted fund with the assessee. In that case the person who admits or is proved to have used unaccounted funds can be assessed under Section 68. The others cannot be assessed because for the same money repeated assessments cannot be made. For the purpose of taxing the assessee under Section 68 nexus between the assessee and the unaccounted money has to be established. In the ultimate analysis the object of any investigation is to find out whether there has been any unaccounted transaction which can come within the provision of Section 68 of the Income Tax Act." Section 68, he contended, insists upon the satisfaction of the assessing officer. Unless the satisfaction of the assessing officer is perverse, the CIT has no jurisdiction to interfere. (7) The next submission advanced by Mr. Poddar is that before the Commissioner exercises jurisdiction under Section 263 he is bound to conduct enquiry himself. He in support of his submission relied upon the views expressed in the case of ITO -Vs- DG Housing Projects Ltd., reported in (2012) 343 ITR 329 wherein the following views were ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enge an order of the Tribunal setting aside an order under Section 263 holding as follows:- "The petitioner seeks reference of the following question: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on facts and in law in holding that the provisions of section 263 have not been validly invoked in this case by ignoring the material fact that the Assessing officer had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives?" In the present case, the subscribed capital of the assessee had been increased. The Income-tax Officer assessed the company and accepted the increase in the subscribed capital. The Commissioner of Income-tax came to the conclusion that the Assessing Officer did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. If the amount credited is a capital receipt then it cannot be taxed but it is for the Income-tax Officer to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital, it does not preclude the Income-tax Officer from going into the question whether this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e latter case section 68, being a substantive section, empowers the Income-tax Officer to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee." Mr. Poddar contended that the existence of the share-holders in this case has duly been proved. Therefore, even the judgement in the case of Sophia Finance Ltd. does not militate against the assessee. (c) The next judgement relied upon by Mr. Poddar is in the case of CIT -Vs- Lovely Exports Pvt. Ltd. reported in (2008) 299 ITR 268 (Delhi) wherein the following views were expressed:- "Therefore, for a detailed discussion on Section 68 one should first turn to Gee Vee Enterprises v. Addl. CIT (1975) 99 ITR 375 (Delhi) and thence finally to the decision of the Full Bench of this Court in Sophia Finance (1994) 205 ITR 98. In Gee Vee Enterprises -Vs- Addl. CIT (1975) 99 ITR 375 (Delhi), the Division Bench had in the context of a challenge to the maintainability of the writ petition on the grounds of the availability of an alternative remedy laid down situations which would justify the invocation of Article 226 of the Constitution. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and treat the subscribed capital as the undisclosed income of the company. "in this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/ subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Ltd. were really endorsed by the aforesaid views expressed in the Lovely Exports Pvt. Ltd. The main plank of the argument advanced by Mr. Poddar is that if the share application money received by the assessee, is bogus, the department is free to proceed to reopen the individual assessment of the applicants of the shares. He contended that the views expressed by the Apex Court both in the case of Steller Investment Ltd. and Lovely Exports Pvt. Ltd. were binding and therefore, the assessing officer could not have taken a different view of the matter. The Commissioner, according to him, drawing upon his imaginary grounds interfered with the order of the assessing officer and that was erroneously upheld by the learned Tribunal. (d) Mr. Poddar drew our attention to a judgement of the Tribunal in ITA No.479/KOL/2011 M/s. Lotus Capital Financial Services Ltd. -Vs- ITO wherein an order under Section 263 passed by the Commissioner of Income Tax was quashed on the ground that:- "We are of the view that the assessee has filed complete details names, addresses, no. of share applied for and allotted, cheque nos., name of bank on which cheques were issued to shareholders and even thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed by AO in his order and documents produced before us by assessee. Accordingly, we set aside the order of CIT passed u/s. 263 of the Act being not as per law." (e) This Court in ITAT No.125 of 2012 CIT -Vs- M/s. Lotus Capital Financial Services Pvt. Ltd. refused to admit an appeal preferred by the revenue. The object of citing this judgement, Mr. Poddar contended, is that the facts and circumstances of the case before us are on all fours of the aforesaid judgment and, therefore, a similar view should be taken. (f) In an unreported judgement of this Court in the case of CIT -Vs- M/s Dataware Pvt. Ltd. (ITAT No. 263 of 2011) addition made by the assessing officer was deleted by the CIT(A) on the ground that the identity of the creditor had been well-established, creditworthiness of the creditor was also proved and the CIT was convinced about the genuineness of the transaction. The order of the CIT(A) was confirmed by the Tribunal. This Court refused to admit an appeal preferred by the revenue. The object of citing this judgment is that the identity of the applicants of shares has been fully established by the assessee. Payments were all made by cheques, bank statements h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital as genuine. He added that if the views of the assessing officer are a possible view, the CIT does not have any jurisdiction to interfere. (10) The next contention advanced by Mr. Poddar is that the assessee is not required to prove the source of source. He in support of his submission relied upon a judgement in the case of CIT -Vs- Dwarkadhish Capital Pvt. Ltd. reported in (2011) 330 ITR 298 (Delhi) Vol.5. In this case share capital was increased by a sum of Rs. 71.75 lakhs. The assessing officer asked for explanations which were duly filed. The assessing officer was, however of the opinion that the assessee had failed to offer proper explanation with respect to 5 subscribers and, therefore a sum of Rs. 35,50,000/- was added. The CIT deleted the additions and the Tribunal affirmed the order of CIT. In an appeal preferred by the revenue the Court opined as follows:- "In any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or Income-tax assessment number and shows the genuineness of transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce or the origin of origin [vide S. Hastimal v. CIT [1963] 49 ITR 273 (Mad) ; Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam) ; CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC); Sarogi Credit Corporaion v. CIT [1976] 103 ITR 344 (Patna)]." (11) The next judgement cited by Mr. Poddar is an unreported judgement of the Delhi High Court in the case of CIT -Vs- Five Vision Promoters Pvt. Ltd. (ITA 234 of 2015). Mr. Poddar submitted that the facts and circumstances in the aforesaid cases are similar to the facts and circumstances of the case before us. The similarity lies in the fact that part of the share capital of the assessee was contributed by 16 companies which in their turn had been financed by M/s. Ganesh Builtech. In other words, Ganesh Builtech invested money in those 16 companies, those 16 companies invested money with the assessee and all of them belonged to the same group. The similarity however ends there. The assessing officer based on the statement made by one Sri Vijay Jindal came to the conclusion that the shares originally issued by the assessee at Rs. 81.19 crores were bought back by the individuals/ concerns belonging to the same group at a sum of Rs. 10.38 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgement cited by Mr. Poddar is in the case of Hari Iron Trading Co. -Vs- CIT reported in (2003) 263 ITR 437 for the following proposition:- "In the absence of any suggestion by the Commissioner as to how the inquiry was not proper, we are unable to uphold the action taken by him under section 263 of the Act." Taking inspiration from the aforesaid views expressed in the case Hari Iron Trading Company, Mr. Poddar contended that in the case before us, the CIT has directed the assessing officer to "carry out enquiries about various layers through which the share capital has been rotated". Mr. Poddar contended that the enquiry through the layers is irrelevant for the purpose of assessment of the assessee, in the light of the judgements in the case Lovely Exports (supra) and Steller Investment (supra). (13) The next submission of Mr. Poddar is as regards scope of Section 263. He cited the judgement in the case of CIT -Vs- Leisure Wear Exports Pvt. Ltd. reported in (2012) 341 ITR 166 (Delhi). He drew our attention to paragraph 9 of the judgment and submitted that he adopts the same as a part of his argument which reads as follows:- "The power of revision is not meant to be exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - CIT reported in (1959) 37 ITR 288 (SC) wherein the following observations were made:- "Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain license at Nawgachia and the prescience inasmuch as the appellant was acquitted of the offence with which it had been charged and its license also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either (i) does not offer any explanation about nature and source of money; or (ii) the explanation offered by the assessee is found to be not 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 where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while recognizing 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that before any notice under this provision could be issued calling upon an assessee to produce any document, the ITO must be satisfied that such a document would be needed for the purpose of making the assessment or in other words the document must have its bearing on the pending assessment, and, secondly, that he requires the document to be so produced for the purpose of making the assessment. To fulfil these requirements it is quite obvious that the ITO must apply his mind because without such application of mind he can never arrive at any bona fide satisfaction on the two points referred to hereinbefore. As pointed out by this court in a Bench decision in the case of Hindustan Motors Ltd. v. T. N. Kaul (Appeal No.280 of 1970) arriving at such a satisfaction is a part of the jurisdictional fact so that the ITO never acquires jurisdiction to issue a notice under s.142(1) for production of any document until he on application of his own mind arrives at a satisfaction that the document so directed to be produced would have its bearing on the assessment and that he requires the same to be produced for making the assessment. Where the ITO does not apply his mind to these requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra). Therefore, the assessing officer had no option but to accept the share capital. Mr. Poddar submitted that in any event this was a possible view. If this was a possible view the Commissioner could not have exercised the revisional jurisdiction. In support of his submission he relied upon the views expressed by the Apex Court in the case of Malabar Industrial Co. Ltd. -Vs- CIT reported in (2000) 243 ITR 83 at page 88 (SC). He added that if it is a possible view then the view cannot be said to be erroneous nor can it be said to be prejudicial to the revenue. (a) Relying upon the judgement in the case of CIT -Vs- Max India Ltd. reported in (2007) 295 ITR 282 at page 284 (SC), Mr. Poddar contended that both on the date when the assessment order was passed and the order under Section 263 was passed the proviso to Section 68 had not been introduced. The law as it stood on the date of exercise of power shall govern the controversy. (19) Lastly, it was submitted by Mr. Poddar that it would appear from the impugned judgment that by the order under challenge only two appeals were disposed of. But the learned Tribunal has relied upon the conclusions arrived at in the judgement of Subhol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication money. The assessee had submitted the share application forms, copies of bank statements of the subscribers of shares to show that the share application amount was debited to their account; confirmation by the applicant companies; certificates of incorporation together with copies of memorandum and articles of association; copies of pan card and income tax return etc. Based on the aforesaid documents no further enquiries were made and the return was processed under Section 143(1) of the Act. Subsequently the case was reopened under Section 147 and a sum of Rs. 54 laks were added to the income of the assessee by the assessing officer. The addition was deleted by the CIT. The Tribunal upheld that order. In an appeal preferred by the revenue the following question was formulated for consideration. "Whether the Income-tax Appellate Tribunal fell into error in upholding the deletion of Rs. 54 lakhs, which was directed to be added back by virtue of Section 68 of the Income-tax Act, 1961, on the ground that the assessee had discharged the onus of proving the identity and the creditworthiness of the share subscriber and the genuineness of the subscription?" The matter was rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to say as to what procedure should be followed by the Assessing Officer in making the assessment of the company. In our view, on the facts of this case, it cannot be said that the Assessing Officer has no jurisdiction to ask for information from the shareholders regarding the source of investment made in the company. As a matter of fact, the Commissioner of Income-tax, in this particular case, came to the conclusion on the facts that the matter relating to shareholders and their subscription to the shares of the assesses-company was not looked into by the Assessing Officer while framing the assessment relevant to the subsequent assessment year and it was found that the Assessing Officer issued summons to all the 34 persons to appear before him and to make depositions in this connection. Out of that, 13 notices came back unserved with the postal remark "not known". With respect to 17 other persons, though the summons was served, they did not appear and they simply sent letters confirming their subscription to the share capital of the company. It was also seen that the letters were written on similar papers and typed in the same typewriter. No acknowledgment or reply was received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i), an observation was made that erroneous assessment referred to the defect which is jurisdictional in nature, as against substitution of one view for the other, merely on the ground that a different view was possible. If read as a whole, the judgment does not exclude error in assessment order, by ignoring relevant material. Not holding such inquiry as is normal and not applying mind to the relevant material would certainly be "erroneous" assessment warranting exercise of revisional jurisdiction. Judgment has to be read as a whole and an observation during the course of reasoning in the judgment should not be divorced from the context in which it was used. The judgment is neither to be interpreted as an Act of Parliament nor as a holy book. If this principle is kept in mind, we do not find any conflict in the view taken in Rajendra Singh [1990] 79 STC 10 (Gauhati) and Daga Entrade P. Ltd. [2010] 327 ITR 467 (Gauhati). Disagreement in Daga Entrade P. Ltd. [2010] 327 ITR 467 (Gauhati) is only to the interpretation which limits the ratio of the judgment by relying only one sentence in isolation divorced from the entire judgment. An incorrect assumption of facts or an incorrect applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value things such as gold, precious stones, art works etc. and reselling the same through cheques or bank transfers etc. 2. Layering This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the audit trail. In this process a series of conversions or transactions are involved for moving the funds to places such as offshore financial centres operating in a liberal regulatory regime. Often "front" companies are formed to accomplish this task. These companies obscure the real owners of the money through the bank secrecy laws and attorney-client privilege. The techniques used for the purpose are to lend the proceeds back to the owner as loans, gifts and etc., under invoicing the items exported to the real owner or etc. In some cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance. 3. Integration This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through "front" companies etc. The money may be invested in real estates, business and etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment register folio, application number, have all been kept blank. These particulars, Mr. Poddar, submitted should have been filled up by the assessee, but that has not been done. (d) Another significant fact admitted by the assessee in reply to the notice to show cause under Section 263 is that the "shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends". (e) From the bank statements disclosed it appears that to have the cheques issued in favour of the asseessee honoured, matching amounts were credited to the accounts of the subscribers shortly before the cheques issued in favour of the assessee were presented for collection. (f) 19 applicants of shares within a period of less than six months had money contributed to their share capital which in their turn they contributed to the share capital of the assessee. So that, the 19 companies which contributed to the share capital of the assessee in the name of assets were left merely with the share-scripts of the assessee. The other lot of 15 subscribers in substance had the share-scripts held by them substituted by the share-scripts of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investment Ltd. was dismissed by the Apex Court, the question had cropped up in the case of Sophia Finance Ltd. reported in (1994) 205 ITR 98 wherein a special bench held as follows:- "As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that all or some of the above conclusions are applicable to the appeals in this batch." The appellant has disclosed a copy of the judgement delivered by the learned Tribunal in Subhalaxmi Vanijya Pvt. Ltd. -Vs- CIT. The learned Tribunal in paragraph 17.i. opined as follows:- "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 enquiry conducted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue." [27] In the case of Smt. Tara Devi Aggarwal -Vs- CIT reported in (1973) 88 ITR 323 (SC) the Tribunal had held as follows:- "The Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment order for 1960-61 was considered by itself, it could not be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and prejudicial to the interests of the revenue. If so and we think it is so the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the incometax authorities is liable for the income thereof." The reasoning advanced by their Lordships in respect of an alleged revenue receipt is, according to us, equally applicable to an alleged capital receipt which, in fact, was received only in papers. The attempt of the assessee, it was apprehended in the case of Tara Devi (supra) was to assist someone else. An identical attempt is involved in this case. Who is the person sought to be assisted by the assessee? This question can only be answered after a thorough enquiry, directed by the CIT, is held. The assessee is interested in stalling that investigation on the plea that the order of the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. (28) We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT -Vs- N. R. Portfolio Pvt. Ltd. reported in (2014) 2 ITR 68 (Delhi) the following views were expressed:- "What we perceive and regard as correct position of law is that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, control and manage them." The persons behind the assessee company and the persons behind the subscribing companies were not interrogated which was essential to unearth the truth. Reference may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction was genuine as was held in the case of CIT -Vs- Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of CIT -Vs- Precision Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that "the ITO may even be justified in trying to ascertain the source of depositor". Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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