TMI Blog2016 (5) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (1993 (4) TMI 55 - BOMBAY High Court ) 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 discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. It was submitted by Mr. Poddar that consequent to the notice dated 23rd February, 2011 the assessee disclosed full particulars as regards the applicants of shares including the money received from them. The aforesaid increase in the share capital is stated to have been subscribed by 39 corporate applicants. 15 out of them were issued notices under Section 133(6) of the Income Tax Act. Those 15 applicants were directed amongst others to disclose the source of money contributed to the share capital of the assessee. Mr. Poddar contended that though the notices under Section 133(6) were issued to only 15 out of 39 applicants of share, the source of money in respect of each of the applicants of shares including their confirmation and bank statements were disclosed by the assessee. From the information made available by the assessee, it appears that 19 out of 39 applicants secured funds, for the purpose of contributing to the share capital of the assessee, on account of share application money. In other words, those 19 applicants collected funds on account of share application money in their respective companies and that money was contributed to the share capital of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a premium of ₹ 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 the List of Allottees of such Shares (copy given herewith), it would be kindly found that all the Shares were offered to, and subscribed by the corporate entities and therefore, there was no question of any outsider making investment in Shares of the assessee-company. It bears importance to state here that the investor companies of Shares were interested to subscribe Shares of the assessee-company as, according to them, the assessee-company had great prospect in future. The CIT in his order dated 22nd March, 2013 passed under Section 263 opined that this was or could be a case of money laundering which went undetected due to lack of requisite enquiry and non-application of mind. He entertained the belief that unaccounted money is laundered as clean share capital by creating a fa ade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened u/s.147 suo motu . The order dated 30th March, 2011 passed under Section 143(3)/ 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b) venture capital company , venture capital fund and venture capital undertaking shall have the meanings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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, made no profits at all. The High Court agreed with the conclusion reached by the Tribunal. It opined that, in the absence of any evidence to show either that the sales were sham transactions or that the market prices were in fact paid by the purchasers, the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the Income Tax Department to assess the difference between the market price and the price paid by the purchasers, as profits of the company. A somewhat similar question came up for consideration before this Court in CIT v. A. Raman Co. [(1968) 1 SCR 10 (SC) : (1968) 67 ITR 11] It is unnecessary to set out the facts of that case and it is sufficient to refer to the relevant observations in the judgment. Shah, J., (as he than was), speaking for the Court, stated the law at p. 17 of the report, thus: The plea raised by the Income Tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 10/- each and to collect the sum of ₹ 390/- per share by way of premium. (5) All the documents required by the assessing officer by the notice under Section 142(1) of the Income Tax Act were duly submitted and they have also been produced before us. There is nothing in the documents, according to him, to arouse any suspicion with regard to (i ) identity, (ii) genuineness of the transaction and (iii) creditworthiness of the applicants of shares. It cannot therefore be said that the assessing officer either did not apply his mind or omitted to make necessary enquiry. He added that the revenue did not disclose anything to contradict the documents disclosed by the assessee or to disprove them or even to dispute the correctness thereof. (6) Commenting upon the order under Section 263 Mr. Poddar contended that the Commissioner has opined that:- a) bank statements of the subscribing companies is for a very limited period and not for the whole year . Mr. Poddar contended that the bank stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 premium in cash to the person from whom the company is purchased. Thus, when share capital is introduced at huge premium in new-formed companies with no business, it should raise the suspicion of the A. O. In fact, such high premium is not commanded even by blue chip quoted companies. Under these circumstances, the A.O. is duty bound to carry out through detailed inquiries and go beyond the layers created by the so called entry operators so that it may be established that the share capital is bogus. Mr. Poddar, contended that the Commissioner has drawn upon his imagination without any factual basis and without any evidence in support thereof. He contended that the finding is perverse to the core. He did not, however dispute that the share capital in this case was introduced by rotating the money. But he objected to the use of the expression Dummy Companies because each of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 statements which is not there in this case. He submitted that the judgements in the case of CIT vs- Durga Prasad More, relied upon by the Commissioner, reported in (1982) 71 ITR 540 and the judgement in the case of CIT Vs- Precision Finance Pvt. Ltd. reported in (1994) 208 ITR 465 are also distinguishable and have no applicability to the facts and circumstances of this case. In the case of Precision Finance Pvt. Ltd. there was nothing to show that the transaction was genuine, whereas in the present case each and every link of the transaction has been proved to the hilt, according to him. (f) He also drew our attention to the Black money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 only to show that the aforesaid act applies only to an undisclosed income earned abroad. (g) The Prevention of Money Laundering Act, 2002 (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 expressed:- Thus, in cases of wrong opinion or finding on the merits, the Commissioner of Income-tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The Commissioner of Income-tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income-tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Inome-tax and he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion 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 subscribers of the share capital. He thereupon set aside the order of assessment. The Tribunal reversed this decision for reasons which we need not go into. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. IF the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. In our opinion, no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt 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 is actually so. Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The Income-tax Officer would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words may be charged (emphasis * added) in section 68 clearly indicates that the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. The Bench had also opined that (page 384): the intention of the Income Tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the fact of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. It was further observed that the Assessing Officer is both an adjudicator as well as an investigator, and it is his duty to ascertain the truth of the facts stated in the return if such an exercise is provoked , or becomes prudent . The Bench held that Section 263 which deals with the revision of orders prejudicial to the Revenue by the Commissioner comes into operation wherever the Assessing Officer fails to make su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. (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 the assessee; and (7) the Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. The Commissioner of Income-tax (Appeals) deleted the addition for the reason that the identity of the shareholders had been established on the strength of Steller Investment, which approach may not be entirely correct in the light of the discussion above. We have already concluded that this merely shifts the burden of proving the illegal or illegitimate nature of the transaction onto the Department. The investigations carried out by the Assessing Officer in Calcutta cannot be relied upon by the Assessing Officer, Bulandshahar, consequent on those proceedings being found to be without jurisdiction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 this was verified through notices u/s. 133(6) of the Act and in response to these notices, the prospective shareholders also replied to the assessee, and the confirmations are on record even before us, the same clearly reveals that complete information was available before the Assessing Officer at the time of framing of assessment and he has given this finding in his order passed u/s. 143(3) of the Act. We, after going through provisions of section 263 of the Act, find that Commissioner can revise assessment order passed by Assessing Officer only if (i) it is erroneous, and (ii) it is prejudicial to the interests of the revenue. If the order sought to be revised is not prejudicial to the interests of the revenue, Commissioner has no jurisdiction to revise it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished, 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 have been submitted. The applicants of shares are also assessees to the income tax. They have furnished pan details. Therefore any further enquiry in the case was not called for. (g) Another unreported judgement of this Court in the case of CIT Vs- Roseberry Mercantile (P) Ltd. was cited by Mr. Poddar wherein the assessing officer was of the opinion that the nature and source of money utilized for the purpose of increasing the share capital was doubtful. He, therefore, added the sum under Section 68/69 of the Income Tax Act. In an appeal the CIT(A) following the case of Lovely Exports Pvt. Ltd. deleted the addition holding that the sum received from the investors could not be added under Section 68. This Court refused to admit an appeal preferred by the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the source. Mr. Poddar contended that the view expressed in the case of Dwarkadhish (supra) that the assessee is not required to prove the source of source has been followed in a series of cases. (a) He drew our attention to a judgement of the Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iltech. 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 ₹ 81.19 crores were bought back by the individuals/ concerns belonging to the same group at a sum of ₹ 10.38 crores. It is on this basis that the differential amount was added back to the income of the assessee. The CIT upheld the order of the assessing officer but the Tribunal deleted the addition. In an appeal preferred by the revenue, the High Court held that:- Also, the fact that the shares of the assessee were subsequently sold at a reduced price is indeed not germane to the question of the genuineness of the investment in the share capital of the Assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares. (12) Mr. Poddar submitted that concluded matters cannot be reopened as was done in this case by the Commissioner of Income Tax. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exercised for the purpose of directing the Assessing Officer to hold another investigation without describing as to how the order of the Assessing Officer is erroneous. From this it also follows that where the assessment order has been passed by the Assessing Officer after taking into account the assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by the Commissioner which showed that there was any discrepancy or falsity in evidence furnished by the assessee, the order of the Assessing Officer cannot be set aside for making deep inquiry only on the presumption and assumption that something new may come out. (14) Mr. Poddar drew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 in the high denomination notes, this also was a pure conjecture or surmise on the part of the Income-tax Officer. Mr. Poddar submitted that since money laundering activities are going on, the CIT thought that the assessee was also a money launderer. Taking inspiration from the aforesaid judgement, Mr. Poddar contended that his client was also tarred with the same brush without any iota of evidence in that behalf. (15) The proviso to Section 68 has been added with effect from 1st April, 2013. Therefore, the proviso is prospective in nature and cannot apply to any transaction during any period prior to 1st April, 2013, whereas the Court, in this case is concerned with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ronouncements 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 private placement of shares the legal regime should be different from that which 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 shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 requirements and does not arrive at any such satisfaction but issues the notice in mechanical exercise of his powers it would really be an act beyond his jurisdiction which can certainly be challenged before this court in the writ jurisdiction. Moreover, issue of a notice in mechanical exercise of powers under s.142(1) would be merely a purported exercise of powers and not a real one and it is always open to a person aggrieved by such a notice to challenge it before this court in its writ jurisdiction (See Union of India v. Tarachand Gupta Bros., AIR 1971 Sc 1558, and also the decision of the Supreme Court in the case of Barium Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 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 Subholaxmi. Mr. Poddar contended that there is factual dissimilarity between the two cases. The challenge thrown to the order under Section 263 passed by the Commissioner could not have been rejected without considering the case of the appellant on merits. The order of the learned Tribunal is, therefore, perverse. The order of the Tribunal, according to him is perverse, for the simple reason that the facts of this case were not examined. The order of the Tribunal should therefore be quashed. (20) Mr. Ghoshal learned senior advocate appearing for the revenue reiterated the contents of the order under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ₹ 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 remanded back by the Division Bench to the Tribunal for rehearing relying upon judgement in the case of Commissioner of Income Tax Vs- N. R. Portfolio (P.) Ltd. reported in (2013) 2014 Taxman 408 (Delhi) wherein a similar addition under Section 68 in respect of receipt on account of share application money was set aside by the CIT and upheld by the Tribunal. The High Court restored the order of addition allowing the appeal of the revenue. The High court also held as follows:- This court is conscious of a view taken in some of the previous decisions that the assessee cannot be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of ₹ 80,000 and the other being receipt of ₹ 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 entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs. (c) The next judgement cited by Mr. Ghosal is in the case of CIT Vs- Active Traders Pvt. Ltd. reported in (1995) 214 ITR 583 (Cal). The receipt was on account of share application money of ₹ 10 lakhs. The Commissioner revised the order on the ground that the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing 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 from six others. The examination of records by the Commissioner revealed that there was no existence of N. K. Trading Company, at 132, Cotton Street, where Atmaram Goel and Mahendra Kedia were stated to be working. They could not also produce any document to show that they were the employees of N. K. Trading Co., and that they were receiving salaries from the alleged firm in the year under reference. The Income-tax Officer only enquired of six of the shareholders. Having regard to all these facts, if the Commissioner was of the view that the assessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservation 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 application of law will satisfy the requirement of the order being erroneous nonapplication of mind and omission to follow natural justice are in same category. Accordingly, we hold that Daga Entrade P. Ltd. [2010] 327 ITR 467 (Gauhati) lays down correct law and the same is not in conflict with the earlier order of this court in Rajendra Singh [1990] 79 STC 1O (Gauhati). Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interests of the Revenue. Cases of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh 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. The stages at which money-laundering could be easily detected are those where cash enters into the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatriated in the form of transfers. The role of the revenue authorities in tackling the menace of laundering black money was commented by the learned author as follows:- It has to be kept in view that India has a problem of black ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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 assessee. (g) Though, Mr. Poddar made extensive submissions scanning the order under Section 263 in between the lines, he did not criticize the finding of the Commissioner that the A.O. did not examine a single Director of the assessee company or of the subscribing company which goes to show that correctness of this assertion is not in dispute. (24) From the aforesaid evidence the following, prima facie, inferences can safely be drawn:- (a)The promoter/director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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-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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual 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 said that the assessment order was prejudicial to the interests of revenue. It was also observed that the factum of advance of initial capital, realization of amounts by sale of gold ornaments and the carrying on of the money-lending and speculative business had already been accepted and assessed in the previous years, that even in the year of assessment in question the Income-tax Officer had added ₹ 1,499 to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect 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 money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 also be made to the judgement of this Court in the case of CIT Vs- Active Traders Pvt. Ltd. (supra). The question for consideration is whether in the presence of materials discussed above the Commissioner was justified in treating the assessment order erroneous and prejudicial to the interest of the revenue. That question in the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion 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 discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditwor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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