TMI Blog2020 (8) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... facts. Since the assessee company has discharged its onus as discussed and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO s omission to collect the additional documents. Second Pr. CIT has not carried out any such exercise or even spelled out in his impugned order, which all documents the second AO failed to collect for considering the total facts; and even if we presume he has conducted such an exercise, then he has not been able to bring out any adverse factual finding to upset the view of Second AO. No merit in the vague allegation of second Pr. CIT that the second AO has not collected the full facts necessary to decide the issue of share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of mind. In the light of the aforesaid discussion and case laws cited supra, we find merit in the appeal filed by the assessee, therefore, we allow the appeal of assessee on the ground that since the Ld. Pr CIT has exercised his revisional jurisdiction u/s. 263 without satisfying the condition precedent as stipulated in section 263 of the Act. Therefore, we hold that the impugned action of the Ld. Pr. CIT is without jurisdiction and, therefore, is null in the eyes of law - Decided in favour of assessee. - ITA No.838/Kol/2019 - - - Dated:- 12-8-2020 - Shri P.M. Jagtap, Vice President (KZ) And Shri A. T. Varkey, JM For the Appellant : S/Shri Kapil Goel Sandip Goel, Advocates For the Respondent : Shri Vijay Shankar, CIT, DR ORDER PER A. T. VARKEY, JM: This is an appeal preferred by the assessee against the order of Learned Principal Commissioner of Income-tax(hereinafter referred to Ld. Pr. CIT), Kolkatadated14-03-2019 for the Assessment Year(in short AY) 2012-13 passed under section (in short u/s) 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 2. The main grievance of the assessee is against the action of the Ld. Pr. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proper verification of this issue, the First Ld. Pr. CIT by order dated 23.08.2016 was pleased to set aside the original/first assessment order of the AO dated 26.03.2015 for de-novo assessment and directed the AO to specifically examine the source of share application money, identity of investors and its genuineness (hereinafter referred to as the First revisional order). The First Ld. Pr. CIT s specific direction is given below: 4(v) `Considering the above facts and circumstances of case, the assessment order passed on 26.03.2015 is set aside denovo with a direction to AO to carry out proper examination of books of accounts and Bank accounts of assessee as well as investors. AO is also directed to examine the source of share application, identity of investor and its genuineness. ( emphasis given by us) 4. Pursuant to the first revisional order passed by the First Ld. Pr. CIT dated 23.08.2016, in the second round of re-assessment, the AO (hereinafter referred to as Second AO) framed the reassessment order dated 07.12.2016 by making an addition/disallowance u/s. 14A of the Act of ₹ 10,366/- u/s. 143(3) read with section 263 of the Act (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h assessment order may be passed in accordance with the relevant provisions of law. The AO is further directed to adjudicate the said issue do novo and pass a fresh assessment order in accordance with relevant provisions of law. ( emphasis given by us) 6. Aggrieved by the aforesaid action of the second Ld. Pr. CIT, the assessee is before us challenging the action of second the Ld. Pr. CIT by preferring the following original grounds of appeal: 1. For that the order dated 14.03.2019 passed u/s 263 by the Ld. Principal CIT is barred by the law of limitation and liable to be quashed. 2. (a) For that on the facts and in the circumstances of the case, the order passed by the Ld. Principal CIT u/s 263 of the Act is bad in law and is liable to be quashed. (b) For that on the facts and in the circumstances of the case the Ld. Principal CIT was not justified in initiating proceedings u/s 263. 3. (a) For that the Ld. Principal CIT erred in exercising the power of revision for the purpose of directing the A.O. to hold another investigation when the A.O. had complied with the directions of the predecessor Principal CIT, Kolkata-4 in the preceding order u/s 263 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulated in Section 263 of the Act and so bad in law. According to Ld. AR, the original first assessment order was selected for scrutiny through CASS for the reason large share premium received and the First Ld. Pr. CIT while passing his first revisional order dated 26.03.2015 has given specific direction when setting aside the original first assessment order passed by the First AO on 26.03.2015 wherein he directed the second AO to carry out proper examination in respect of share capital premium the assessee received during the assessment year. The Ld AR pointed out the specific instructions of the First Ld. Pr. CIT to the second AO (i) proper examination of the books of account, (ii) proper examination of bank account and the assessee as well as investors, (iii) the AO was directed to examine the source of share application money, (iv) the identity of the investors and the genuineness of the transaction. According to Ld. AR, all the aforesaid directions of the First Ld. Pr CIT were obeyed in letter and spirit by the second AO. The Ld AR brought to our notice that second AO had conducted enquiry by first of all issuing notice on 19.10.2016 u/s. 143(2) and notice u/s. 142(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT 4 by passing the second revisional order dated 14.03.2019 has substituted the First Pr. CIT s order passed u/s. 263 of the Act dated 23.08.2016 with his own order which he cannot do since the second assessment order/re-assessment of the Second AO dated 07.12.2016 was pursuant to the first revisional order of the First Ld. Pr. CIT and on the subject matter on which specific directions/instructions were given by the First Ld. Pr.CIT, which since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e share capital premium collected by assessee company. Resultantly the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator while the AO was carrying out the directions of First Ld. Pr.CIT pursuant to the first revisional order, which exercise according to Ld.AR unfortunately this Second Ld. Pr.CIT has not done. So according to Ld. A.R, he cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AR, when the law was only that assessee need to be aware of first source only then the AO could not have gone and verified beyond the source of the share applicants from whom the assessee had received the share capital. So when the requirement of law is only that assessee must ascertain that the share-applicant, who proposed to invest in assessee s company s share capital has proper identity and creditworthiness and is capable of investing in the assessee, then the AO in turn can verify the identity, creditworthiness and genuineness of the share subscriber from whom the assessee received the share capital and verify whether the identity is proper, whether the transaction took place through banking channel, etc. and the creditworthiness of the share applicant etc. According to Ld AR, if the AO or even the Ld. Pr. CIT expecting/asking the assessee to find out the source of source of share-applicant, when the Law does not in this AY requires assessee to fulfil, then it would be quiet unreasonable, harsh and unfair practice, which action is against the Rule of Law, which is a basic feature of the Constitution of India. Since the law was that assessee should furnish the source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter receiving first revisional order of the First Ld. Pr. CIT (dated 23-08-2016) had issued notice u/s. 143(2) of the Act, dated 19-10-2016 and thereafter, has recorded that on 01-12-2016 Shri Navin Tahini, director of the assesseecompany appeared and produced documents before him (second AO) in the re-assessment proceedings. Thereafter, he ( second AO) passed the second assessment/re-assessment order dated 07-12-2016. According to the Ld. CIT/DR, the order sheet of AO does not mention about issuing of notice(s) u/s. 133(6)of the Act to the shareholders. And the Ld. CIT/DR drew our attention to the replies of shareholders to section 133(6) notice seen placed from pages 26-39 of P.B-1, which according to him, are identical and similar which cast doubt about it s genuineness. So according to Ld. CIT/DR, the AO did not carry out even the basic verification by issuing of notice u/s. 133(6) to share applicants/subscribers. And also he pointed out that the first Ld. Pr. CIT while setting aside the original/first assessment order has ordered the Second AO to frame re-assessment/second assessment de- novo meaning that AO was given full liberty to enquire on all issues including share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements recorded, rationale behind investment in Assessee Company by the shareholders was questioned and many other questions were asked and replied to. (5) The A.O perused the replies along with the enclosures and source of investments by the shareholders and was satisfied about the identity, genuineness and creditworthiness of the shareholders. 12. According to the Ld. AR even though these particular facts are discernible on a perusal of re-assessment/second order, still they were specifically brought to the notice of the Second Ld. Pr. CIT. However, in his impugned second revisional order passed on 14-03- 2019, the Second Ld. Pr. CIT has not made a whisper/allegation about any failure of AO not issuing any notice u/s. 133(6) of the Act and has not controverted the contention of assessee before him the fact that statement of the director of assessee was recorded by the AO after summoning him u/s. 131 of the Act. According to the Ld. AR, the Ld. CIT/DR cannot now bring out certain facts, which are not discussed by the Second Ld. Pr.CIT and make out an altogether different case, when the Second AO has clearly stated in his order that he had duly issued notice u/s. 133(6) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and the original first assessment was framed by the First AO u/s. 143 (3) of the Act on 26-03-2015 by making an addition of ₹ 45,66,01,634/-. Thereafter, the First Ld. Pr.CIT-4, Kolkata issued SCN dated 22.06.2016 to the assessee-company conveying his intention to interdict in the First AO s action in framing the said original first assessment order dated 26-03-2015. Thereafter, the First Ld. Pr.CIT passed his First Revision order u/s. 263 of the Act on 23-08-2016, wherein he was pleased to set aside the original assessment order dated 26-03-2015 and directed de novo assessment along with the specific direction to inquire about the collection of share capital premium. 14. Pursuant to the direction of the First Ld. Pr.CIT dated 23-08-2016, the second AO framed the de-novo re-assessment order dated 07-12-2016, wherein the second AO was pleased to accept the assessee s transaction in respect of collection of share capital and share premium to the tune of ₹ 45,66,01,634/- and made further addition of ₹ 10,366/- u/s. 14A of the Act. Thereafter, the new incumbent in the office of Pr. CIT-4, Kolkata issued show cause notice dated 16-01-2019 (hereinafter refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated an issue before him; then the assessment order passed by the Assessing Officer can be termed as an erroneous order. Coming next to the second limb, which is required to be examined is as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue? The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO s second assessment/re-assessment order dated 7.12.2016: 19. In response to the second SCN issued by Second Ld. Pr. CIT u/s. 263 of the Act, the assessee has given reply dated 05-02-2019, wherein the aforesaid faults as pointed out by the Second Ld. Pr. CIT in the said show cause notice dated 16-01-2019, was point-wise explained by the assessee. 20. Thereafter, the Second Ld. Pr.CIT again was pleased to set aside the reassessment/ second assessment order of the AO dated 07-12-2016 and directed fresh assessment ( which means a third assessment to be framed ). 21. The aforesaid action of the Second Ld. Pr. CIT dated 14-03-2019 is challenged before us. According to the Ld. Counsel, Shri Kapil Goel, the Ld. Pr. CIT erred in assuming his jurisdiction without satisfying the jurisdictional conditional precedents as prescribed u/s. 263 of the Act and therefore, the action of the Ld. Pr. CIT is wholly without jurisdiction and therefore, ab-initio void and therefore, need to be struck down. We note that in order to interfere with the second assessment/re-assessment order passed by the Second AO u/s. 143(3)/263 of the Act dated 07-12-2016, the Second Ld. Pr. CIT has alleged lack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese documents, which according to him, should have been carried out by the AO. Further, The First Ld. Pr. CIT found fault with the AO s order for non-issuance of notice u/s. 133(6) of the Act. The Ld. Pr. CIT found fault with the AO s order in not discussing the basis of evidence on which adverse inference was drawn against the assessee. Moreover, the First Ld. Pr. CIT found fault with the AO for not bothering to examine the contention of the assessee or to bring on record anything against the assessee and according to him, the AO has simply jumped to the conclusion and treated the share capital as unexplained cash credit. The First Ld. Pr. CIT found fault with the action of AO for not bothering to issue show cause notice regarding points of addition to be made. Therefore, according to the First Ld. Pr. CIT the first original assessment order framed u/s. 143(3) dated 26-03-2015 was against the principle of natural justice and, therefore, he found it fit to order de novo assessment and gave specific direction in respect of share capital premium collected by assessee. 23. Thereafter, the ld. Pr. CIT was pleased to direct assessment order passed on 26.03.2015 is set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond assessment order that he has examined the aforesaid details and thereafter issued notices u/s. 133(6) of the Act to all the shareholders and directed them to prove their identity, genuineness and creditworthiness regarding the share transaction with the assessee as per the direction of the Ld. Pr.CIT-4, Kolkata (First Ld. Pr. CIT) in his order passed u/s. 263 of the Act dated 28-03-2016 (First Revisional Order). Thereafter, the second AO notes that he received all the replies to his queries from the share applicants/subscribers in response to notices issued u/s. 133(6) of the Act (refer paper book 2 page 2 to 352) and then he carried out the verification of documents submitted by the share applicants/investors for proving the identity, genuineness and creditworthiness and also their source of fund to invest in the assessee company. Thereafter, the second AO by order dated 07/12/2016 disallowed an amount of ₹ 10,366/- u/s. 14A of the Act and thus it is noted that second AO did not draw any adverse inference against the share capital and premium collected by the assessee after carrying out the aforesaid exercise as directed by the First Ld. Pr. CIT to him. This exercise ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) Such explanation in the opinion of the Assessing officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10]. 29. Here it is to be noted that the first proviso and second proviso was inserted by Finance Act, 2012 with effect from 01.04.2013, so it is applicable only for/from AY 2013- 14 and not for this AY 2012-13. 30. Next let us refer to the definition of income stated in Section 2(24) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us i.e. AY 2012-13, the law in force was that if any sum is found credited in the books of an assessee in a financial year and, if the AO asks for the explanation of assessee in respect of the nature and source thereof, then the assessee is duty bound to explain the nature and source of the credit entry in the books and if the assessee fails to explain or if the AO is not satisfied, he may charge to income tax the sum so credited. So, the assessee is bound to explain before the AO the nature and source of share capital, i.e. the identity, creditworthiness and genuineness of the share capital. In this AY, the assessee is bound to know about the share applicants who wish to invest their identity, whether they have the financial capacity (creditworthiness) and they are genuine investors in their company (assessee). In this AY, the assessee is not bound by law at the time of collection of share capital to ask the share-applicants from where it is getting the money to invest in the assessee s company. And we also note that share premium can be taxed if it exceeds the fair market value only from next AY i.e. AY 2013-14 and not in this A.Y. For coming to such a conclusion let us di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it has found satisfied. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT vis. Lovely Exports (P) Ltd. 317 ITR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. (B) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s 68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd. 317 ITR 218. (D)[Green Infra Limtied 38 taxmann.com 253 (Mumbai-Trib). 10. We have considered the rival submissions and carefully perused the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Apeak Infotech-88 taxmann.com. 695 (Bombay) when the question was whether the amount received as share premium on issue of share by the respondent-assessees-companies could be taxed as profits and gains of business in the hands of the assessees under section 28(iv) of the Act . In any case, we may point out that the amendment to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012-13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents-assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. Similarly, the Commissioner of Income-tax (Appeals) on consideration of facts, found that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue- (iii) As may be determined in accordance with such method as may be prescribed, or (iv) 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 anyother business or commercial rights of similar nature, whichever is higher: (d)Venture capital company, venture capital fund, and venture capital undertaking shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10] . It was pleaded that the aforesaid provisions cannot be made applicable for the year under appeal. Accordingly, it was argued that the issuance of shares of premium cannot be brought to tax under any section of the Income Tax Act up to assessment year 2012- 13. We find that the reliance placed by the Id. AR in the decision of Hon'ble Bombay High Court in Pr. CIT vs. Apeak Infotech reported in 88 Taxmann.com 695 dt 08.06.2017 wherein the question raised before the Hon'ble Bombay High Court are as under: A. Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as led by the respondents-assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. Similarly, the Commissioner of Income-tax (Appeals) on consideration of facts, found that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the Tribunal. (d) We may also point out that decision of this court in Major Metals Ltd. v. Union of India [20121 19 taxmann.com 1761207 Taxman 185/[20131 359 ITR 450 Bom. proceeded on its own facts to uphold the invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the assessee-company were not creditworthy inasmuch as they did not have financial standing which would enable them to make an investment of ₹ 6,00,00,000 at premium at ₹ 990 per share. It was this finding of the fact arrived at by the Settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices (P.) Ltd. (supra) and in the apex court in G. S. Homes and Hotels (P.)Ltd. (supra).Thus not entertained. 34. Relying on the aforesaid judicial precedents of Hon ble High courts and the Tribunal, we are of the opinion that in this AY i.e. AY 2012-13, the amendment in section 68 of the Act took place wherein the addition of proviso was with effect from 01.04.2013 and so is not applicable in this AY. Further, as noted, the definition of income as provided under section 2(24) of the Act at the relevant time (AY 2012-13) did not define as income any consideration received for issue of shares in excess of its fair market value. This came into effect from 01.04.2013 and thus would have no application to the share premium received by the assessee in the previous year relevant to AY 2012-13. With this back-drop in respect of the requirement of law, let us study the judicial precedents which were laid by the Hon ble Apex Court and Hon ble High Courts on the provision of section 68 of the Act, while dealing with Share Capital/loan etc so that we can examine whether pursuant to the specific direction of First Ld Pr CIT, the second AO has discharged his role as an investigator and whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon ble Gujarat High Court in the case of Dy CIT vs Rohini Builders (2002) 256ITR360 wherein the Hon ble High Court observed at pages 369 and 370 of this order are reproduced hereunder:- Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. 38. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the issue of discharge of assessee's onus in relation to a cash credit appearing in his books of account, has observed and held as under:- 4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee's burden st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: 8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made. 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 41. When a question as to the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 43. Our attention was also drawn to the decision of the Hon'ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of COMISSIONER OF INCOME TAX, KOLKATA-IV Vs ROSEBERRY MERCANTILE (P) LTD., ITAT No. 241 of 2010 dated 10- 01-2011 has held: On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought ₹ 4, 00, 000/- and ₹ 20,00,000/- towards share capital and share premium respectively amounting to ₹ 24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer under Section 68 of the Act was wrong. The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of ₹ 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed. The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees. The Commissioner of Income Tax (Appeals) found that inquires had confirmed the existence of most of the shareholders at the addresses intimated to the Assessing Officer, but the Assessing Officer took the view that their investment in the Assessee Company was not genuine, on the basis of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of ₹ 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law. The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds. 45. Further, our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commercial (P) Ltd on 13 June, 2011 in ITAT NO 114 of 2011 wherein the Court held as follows: The only question raised in this appeal is whether the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore-cited judicial precedents, let us examine the case in hand and find out whether pursuant to the specific direction of First Ld. Pr. CIT, the second AO has discharged his role as an investigator in respect of share capital and premium collected by the assessee or whether the AO failed to enquire on this issue and whether his reassessment/ second assessment order is a plausible view or it can be termed as an unsustainable view in law. We on a conjoint reading of the First Revisional Order of the First Pr. CIT dated 23.08.2016 and the reassessment /Second assessment of the AO dated 07.12.2016, the following facts can be discerned:- (a)The First Ld. Pr. CIT has recorded a finding after perusal of the first assessment records/folder that during the first round of scrutiny proceeding, the assessee company produced the following documents before the first AO in the original assessment to satisfy the AO in respect of identity, creditworthiness and genuineous of share subscribers:- (i) audited financial statements; (ii) copy of Form filed with the ROC; (iii) copy of PAN Card of the assessee company; (iv) details and copy of share applicants; (v) bank statement reflect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order dated 26-03-2015. 49. So we note that the second AO was specifically directed by the First Ld. Pr. CIT to carry out the followings actions in addition to de-novo assessment which means the second AO is free to assess the income of assessee afresh, however, he has to do the following specific actions as directed in respect of share-applicants who applied for shares in assessee-company. The specific directions of Ld. Pr CIT to AO are as under: (i) To carry out proper examination of the books of accounts and bank account of the assessee; ii) To carry out proper examination of the books of accounts and bank account of the investors; iii) AO to examine the source of the share applicants; iv)The AO to examine the identity of the investor and its genuineness; v) The AO to complete the assessment at the earliest without waiting for the time barring date. 50. In the second round before the AO for de novo re-assessment, the second AO as per the specific direction of the First Ld. Pr. CIT (supra), conducted the reassessment proceeding. As per the specific direction of Ld. First Pr. CIT, the Second AO firstly summoned the director of the assessee company Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. M/s. K. R. Overseas Pvt. Ltd. U51109WB1994PTC061965 AACCK0101B yes 2. M/s. Kakrania Trading Pvt. Ltd. U70101WB1994PTC062137 AABCK151611 yes 3. M/s. AmbalaTrafin Pvt. Ltd. U67120WB1995PTCO74397 AACCA1184G yes 4. M/s. Subhiksha Pvt. Ltd. U52190WB2011PTC157073 AAPCS2068E yes 5. M/s. Shivarshi Construction Pvt. Ltd. U45400WB2011PTC170957 AAQCS7848M yes 6. M/s. Shivashiv Pvt. Ltd. U74999WB2012PTC 173749 AARCS0094C yes 7. M/s. Flowtop Agency Pvt. Ltd. U52190WB2012PTC 173352 AABCF9036D yes 8. M/s. SukhSagar Residency Pvt. Ltd. U45400WB2011PTC170958 AARC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Second Ld Pr CIT and it is not the fault for which the Ld Pr CIT exercised his power u/s 263 of the Act. Thus, we note that second AO issued sec. 133(6) notice and collected documents running more than 352 pages. Moreover, the First Ld. Pr. CIT while setting aside the first AO s order has returned a finding that assessee in the first round itself has filed the relevant documents to prove the identity, creditworthiness and genuineness of the share capital and that assessee had discharged its onus by filing the same. So we find that during the second round, the AO issued notices to share-holders u/s. 133(6) and after perusing their replies and supporting documents and thereafter having verified their veracity, the second AO was satisfied with the explanation of assessee in respect to the nature and source of share capital which view of second AO cannot be faulted. And we also note that all the share-holders are regular income tax assessee s. Therefore in the light of the aforesaid documents discussed their identity cannot be disbelieved and the AO s satisfaction in respect of identity of the shareholders is a possible view and cannot be termed as unsustainable in law or fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,60,93,960 (page 297 PB-2) ₹ 2,76,00.000/- M/s. Maharaja Merchants Pvt. Ltd. - ₹ 1,54,58,399 (page 313 PB-2) ₹ 50,00,000/- M/s. Sristi Sales Pvt. Ltd. - ₹ 1,12,25,632 (page 336 PB-2) ₹ 50,00,000/- 53. So, from a perusal of the above chart, we note that the assessee and the shareholders have brought to the notice of Second AO that they (share subscribers) have enough net worth to invest in the assessee company and the share subscribing companies pursuant to the AO s notice u/s. 133(6) of the Act have furnished their respective audited accounts from which the aforesaid facts are clearly discernible and moreover the share subscribers have also filed before the second AO the source from which they subscribed to shares of assessee (though not required as per law in force for AY 2012-13), bank statement, audited balance sheet etc except M/s Maharaja and M/s Sristi Sales. Thus the assessee had discharged the onus on it about the creditworthiness of the share- holders. So we note that the sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicant had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act. (ii) We note from a perusal of the paper book-2 pages 38 to 77, the details of share applicant M/s. Kakrania Trading Pvt. Ltd. It is a Private Limited Company which has a PAN AABCK151611and its CIN number is U70101WB1994PTC062137 and the Net worth of this company as on 31.3.2012₹ 66,52,71,914/- (PBpage62) and investment made in the assessee company is to the tune of ₹ 1,39,00,000/- and this share applicant has made the transaction through banking channel four times on 01.03.2012 ₹ 30,00,000 through NEFT; and by cheque on 02.03.2012a sum of ₹ 59,00,000/-; and on 7.3.2012 and by cheque on 12.3.2012 ₹ 25 lakh each. There is board resolution for investment in assessee s company and Share Application Form, Bank statement, ITR acknowledgement, and explanation of source of fund as well as financial statement available in the PB-page 39 to 77. This share applicant regularly filed Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TC157073 and the Net worth of this company as on 31.3.2012 ₹ 22,23,97,317/- (PB-page 128.) and investment made in the assessee company is to the tune of ₹ 45,00,000/- and this share applicant has made the transaction through banking channel on 02.03.2012 a sum of ₹ 45 lakhs through NEFT. There is board resolution for investment in assessee s company and Share Application Form Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 113 to 137 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as well as financial statement available in the PB-page 161 to 184 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act. (vii) We note from a perusal of the paper book-2, pages 185 to 206 the details of share applicant M/s. Flowtop Agency Pvt. Ltd. It is a Private Limited Company which has a PAN AABCF9036D and its CIN number is U52190WB2012PTC 173352and the net worth of this company as on 31.3.2012 ₹ 15,38,94,946/- (PBp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act. (ix) We note from a perusal of the paper book-2, pages 227 to 261 the details of share applicant M/s. Kamaldhan Developers Pvt. Ltd. It is a Private Limited Company which has a PAN AAECK6810D and its CIN number is U45400WB2011 PTC 170944 and the net worth of this company as on 31.3.2012 ₹ 56,18,94,080/- and investment made in the assessee company is to the tune of ₹ 12,54,00,000/- and this share applicant has made the transaction through banking channel on 31.03.2012 ₹ 12,54,00,000/- through NEFT. There is board resolution for investment in assessee s company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 228 to 261 in the PB. This share applicant regularlyfiled Income Tax Return (ITR) and it has filed its Bank statement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11PTC171513 and the net worth of this company as on 31.3.2012 ₹ 76,66,93,960/- (P.B-2, page-297)and investment made in the assessee company is to the tune of ₹ 2,76,00,000/- and this share applicant has made the transaction through banking channel on 31.03.2012 a sum of ₹ 2,76,00,0000/- through NEFT. There is board resolution for investment in assessee s company and Share Application Form , Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 285-303 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had furnished the source of investment made in the assessee-company after getting the notice from second AO under section 133(6) of the Act. Thus we note that the AO on the basis of the aforesaid documents has taken a plausible view and did not draw any adverse inference against the assessee, and the view thus taken by the AO cannot be termed as unsustainable in law. 54. So, from the aforesaid facts revealed during the second round, we note that AO has discharged his duty as an Investigator and enquired as per the direction of the First Ld. Pr. CIT dated 23.08.2016 u/s. 263 of the Act (First 263 order) and further we note that the Second Ld. Pr. CIT while issuing the Show Cause Notice while exercising his revisional jurisdiction for second time has not made even a single allegation about the noncompliance/ failure on the part of Second AO in respect of the specific direction given by the First Ld. Pr. CIT dated 23.08.2016 while setting aside the original assessment order passed by the AO dated 26.03.2016. In other words, in the impugned order the second Ld. Pr. CIT has not found fault with the action of the second AO in giving effect to the specific directions given by him while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded his finding of fact if he found anything wrong with these share subscribers and could have pointed out the adverse fact, if any, which the Second Ld. Pr. CIT has not made in the impugned order. So the inference that can be drawn is that the veracity of the factual contents of the documents running more than 352 pages (PB-2) could not be factually controverted by the Second Ld. Pr. CIT. And still if the Ld. Pr. CIT is not satisfied and wanted to interfere invoking jurisdiction u/s. 263 of the Act, he has to show that the enquiry conducted by AO was flawed or the enquiry conducted by AO was on a wrong direction or on wrong assumption of fact/law or that the AO misdirected himself in factual investigation or applied the law erroneously in respect of the facts collected by him. For doing so, in the facts discussed supra, he second (Ld. Pr. CIT) should himself had conducted an enquiry or at least conducted a preliminary enquiry and was able to bring some evidence/material on record to upset the AO s satisfaction in respect of identity, creditworthiness or genuineness of the share subscribers and thus recorded a finding of fact that the decision of AO s enquiry was faulted or wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO s omission to collect the additional documents. However, we note that the Second Pr. CIT has not carried out any such exercise or even spelled out in his impugned order, which all documents the second AO failed to collect for considering the total facts; and even if we presume he has conducted such an exercise, then he has not been able to bring out any adverse factual finding to upset the view of Second AO. So we find no merit in the vague allegation of second Pr. CIT that the second AO has not collected the full facts necessary to decide the issue of share capital premium.So we note that the Second AO, the assessing authority who is a quasi- judicial office has discharged his dual role as an investigator as well as an adjudicator. Looking from another angle of doctrine of merger canvassed before us, we note from the facts of this case that the second Ld. Pr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or instruction issued by the Board under section 119; or 58. However, we note that the Ld. CIT(A) has made a bald statement that the AO s assessment order attracts Explanation 2(c) u/s. 263 of the Act. However, he failed to spell out in his impugned order how the action of AO while framing the assessment order is not in accordance to any order, direction or instruction issued by the Board under section 119 of the Act. So, the deeming fiction as envisaged in Explanation (2) u/s. 263 of the Act cannot be used to interfere with the order of AO. This action of Ld. Pr. CIT is bad for nonapplication of mind. In the light of the aforesaid discussion and case laws cited supra, we find merit in the appeal filed by the assessee, therefore, we allow the appeal of assessee on the ground that since the Ld. Pr CIT has exercised his revisional jurisdiction u/s. 263 without satisfying the condition precedent as stipulated in section 263 of the Act. Therefore, we hold that the impugned action of the Ld. Pr. CIT is without jurisdiction and, therefore, is null in the eyes of law and consequently it is quashed and since we allowed ground number 2 3 of the original grounds raised by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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