TMI Blog2021 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ho had taken a possible view, therefore as per the ratio laid down bin MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX [ 2000 (2) TMI 10 - SUPREME COURT] in the aforesaid referred to case, even if the Ld. Pr. CIT did not agree with the view taken by the A.O., the said assessment order passed by the A.O., cannot be treated as an erroneous order and prejudicial to the interest of the Revenue. As regards to the allegation that the assessee could not produce Director of the Investor companies, it is noticed that the assessee furnished confirmatory letters received from the Investing companies alongwith copies of the Balance Sheets, copies of Ledger Accounts of the broker etc and requested to the Ld. Pr. CIT to issue commission as per provisions of Section 131(1)(d) of the Act, since all the Directors of Investing Companies were permanently based in Kolkata which was nearly 1700 Km away from Ludhiana and therefore the assessee requested to AO to issue the commission. However the AO after appreciating the complete documentary evidences placed on record and applying his mind to the facts of the case, accepted the evidences filed by the assessee and had taken a possible v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t along with trading Account/Profit Loss account, Balance Sheet etc was filed. The information requisitioned as per questionnaire was furnished, placed on record and examined. Books of account were produced. The assessee derives income from Business of wholesale trading of cutting tools. 3. The details filed were duly examined and the case was discussed with the authorized representative of the assessee. After examination, the case is assessed at returned income ₹ 19, 52,040/-. 4. The Ld. Pr. CIT thereafter exercised his revisionary power under section 263 of the Act and observed that proper and sufficient enquiries had not been made by the A.O. which rendered the assessment order erroneous in so far as it is prejudicial to the interest of the Revenue. Ld. Pr. CIT observed as under: Share issued at Premium by the assessee: A perusal of assessment record of the year under consideration reveals that the assessee had issued shares at premium to the shareholders as detailed below:- Name of Shareholders Shares Face Value of Shares (Rs.) Share Premium (Rs.) Total Value (Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their funds had purchased shares of the assessee company at a premium of ₹ 15/- per share. The assessee had accumulated reserves and surpluses of ₹ 142.84 lacs against paid up capital of ₹ 103.12 lacs, thus apparently there was accumulated profit of ₹ 15/- per share against paid up capital of ₹ 10/- per share. Requirements of Rule 11UA were fully complied with which can be verified from the company's audited balance sheets which were filed during assessment proceedings. The AO had accepted the Fair Market Value of ₹ 25/- per share of face value of ₹ 10/- each as per Rule 11UA of the IT Rules. That all documents required by the A.O. were filed during assessment proceedings. Copies of written submissions filed during assessment proceedings were enclosed. That the documents filed before the A.O., included documents filed by the investment companies also to each of whom the A.O. had specifically issued registered letters u/s. 133(6) of the IT Act, 1961. As regards non-production of directors of the investor companies, the AO had required the assessee to do so only vide letter dated 08/12/2016, received by the assessee on 10/12/2016 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation signed by the investing companies. The Ld. Pr. CIT also pointed out that all the so called investors have PAN, copies of bank accounts alongwith balance sheets were also filed. The Pr. CIT admitted that the funds were transferred through RTGS from respective bank accounts. However these investing companies were not produced before the A.O. even though specifically called upon, by stating that it was not possible to do so due to short notice as they were from Kolkata. 4.5. It was stated before the Ld. CIT(A) that the investor companies being impressed and satisfied by the company's performance and safe investment of their funds, had purchased shares of the assessee company at a premium of ₹ 15/- per share. The Ld. Counsel for the Assessee furnished the documents received by the assessee, in response to the notices issued under section 133(6) of the Act to six companies. In those replies, it was stated that their Directors came into contact with Shri Lokesh Kumar, Director of the assessee company somewhere in the beginning of financial year 2013-14 and Mr. Lokesh Kumar expressed his willingness to sell equity shares of the assessee company, since he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led that requisite enquiry were not conducted regarding the issue as to what prompted the subscribers to the shares to pay premium on shares of a little known company having no or insignificant business activities. Therefore the assessment order was passed without application of mind, no proper enquiry was conducted regarding the identity and creditworthiness of the subscribers and no proper enquiry had been made regarding the genuineness of the transactions. The reference was made to the following case laws: Judgment of High Court of Calcutta in GA No. 509 of 2016 with ITAT No. 113 of 2016 in Rajmandir Estates P. Ltd. Vs. PCIT Kolkata-III, Kolkata order dt. 13/05/2016 Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) CIT Vs. Active Traders Pvt. Ltd. CIT vs. Nova Promoters and Finlease (P.) Ltd. CIT Vs. Precision Finance Pvt. Ltd. SLP (C) Nos. 23976/2017 in Deniel Merchants Pvt. Ltd. Anr. Vs. ITO Anr. Jai Commercial Co. Ltd. Vs. Joint CIT (2000) 66 TTJ (Del-Trib) 731 Express Newspapers (P.) Ltd. Vs. CIT (2002) 255 ITR 137 (Mad) Desai Brothers Ltd. Vs. Dy. CIT (1998) 66 ITD 203 (Pune-Trib) Gee Vee Enterprises Vs. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a case of lack of enquiry, therefore, the Ld. Pr CIT was not justified in exercising his powers under section 263 of the Act. 6.2. It was stated that the Ld. Pr. CIT at page No. 2 of the impugned order referred that the assessee could not produce the Director of Investor Companies, on that ground also the addition could not have been made. It was submitted that the A.O. required the assessee to justify the issuance of share at a premium of ₹ 15 per shares. The said premium was worked out on the basis of valuation of the shares (copy of which is placed at page Nos. 476 477 of the assessee's paper book). It was accordingly submitted that the A.O. on verifying the valuation report of the shares accepted the Fair Market Value at ₹ 25 per share having face value of ₹ 10 each. 6.3. Ld. Counsel for the assessee referred to para No. 5.1 of the impugned order and submitted that vide letter dt. 19/12/2016, all the documents which were asked by the A.O. to be produced, were furnished by the assessee. As regards to the non production of the Directors, it was stated that the assessee requested the A.O. to summon the Directors, reference was made to page No. 498 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lack of enquiry and only on the suspicion, the assessment order framed by the A.O. after the proper enquiry and application of mind, cannot be set aside, the reliance was placed on the following case laws: CIT Vs. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) Director of Income Tax Vs. Jyoti Foundation [2013] 357 ITR 388 (Delhi) Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC) Reliance was also placed on the decision dt. 17/08/2009 of the Hon'ble Jurisdictional High Court in ITA No. 445 of 2008 in the case of CIT Vs. M/s. Unique Autofelts (P.) Ltd., copy of which is placed at page No. 1 to 6 of the assessees paper book. It was accordingly submitted that the Ld. Pr. CIT was not justified in invoking the provisions of section 263 of the Act and directing the A.O. to make assessment denovo after properly examining the facts which the A.O. had already verified/examined while framing the assessment under section 143(3) of the Act, therefore the impugned order may be set aside. 7. In his rival submissions the Ld. CIT DR strongly supported the impugned order passed by the Ld. Pr. CIT and further submitted that the A.O. had not made the proper en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per para 2, copy of ITRs, Computation of Income, Bank Statements and Confirmations of Sh. Lokesh Kumar, Smt. Madhu Aul and Lokesh Kumar HUF is enclosed here with for your kind reference and records. A copy of Share Application Money Form, confirmation certificate from depositor company, copy of resolution for share application to the assessee company, bank statement, copy of PAN card along with a copy of Memorandum and Articles of Association is attached here or your reference and records in case of following persons:- a) Pansy Dealer P. Ltd. b) Daisy Suppliers P. Ltd. c) Zinnia Sales P. Ltd. d) Sunflame Distributors P. Ltd. e) Nilay Distributors P. Ltd. f) Virat Commosale P. Ltd. 3. The documents as mentioned in para 2 above very clearly prove the identity/credit worthiness and genuineness of the transaction by the depositors. The assessee hopes your good self wilt find the above information and documents in order. 4. The information as per para 4 is enclosed here with for your ready reference and records and the premium on the shares has been charged based on the past financial performance of the company as per audited balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Ld. Pr. CIT under section 263 of the Act and the condition to invoke the same may be summarized as under: (i) The Pr. CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the A.O. and it is only when an order is erroneous, the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement of the order being erroneous. (iv) if the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view-with which the Pr. CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under the law. (vi) If while making the assessment, the A.O. examines the accounts, makes enquiries, app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies, copies of the said documents are placed at page No. 281 to 370 of the assessee's compilation. The Assessee also furnished the detailed calculation sheet of Fair Market Value of unquoted equity shares, copies of which is placed at page Nos. 476 477 of the assessee's compilation. The A.O. after making the proper examination of those documents accepted the valuation of shares issued by the Assessee at premium of ₹ 15/- per share. Accordingly, the Fair Market Value of unquoted equity shares under Rule 11UA of the Income Tax Rules was accepted at ₹ 25/- per share. The Ld. Pr. CIT although held that the assessment was completed without making proper enquiry however the valuation of the share furnished to the A.O. by the assessee has not been doubted. On the basis of aforesaid discussion, it can be said that the A.O. not only asked the relevant documents from the assessee but also considered those documents furnished by the assessee while framing the assessment under section 143(3) of the Act. In the present case, the allegation of the Ld. Pr. CIT is that the A.O. had not made proper enquiry, however it is not the case of the Ld. Pr. CIT that there was a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous he should not have set aside the order passed by the AO and directing him to conduct the enquiry. 8.10. On a similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs. M/s. Unique Autofelts (P.) Ltd. (supra) held as under: 5. From the finding of the Tribunal, it is clear that the assessee had given proper explanation by filing the necessary confirmations. In view of such a finding, the Tribunal rightly held that power under Section 263 of the Act could be exercised where view taken by an Assessing Officer was erroneous. While exercising such power, the Commissioner was bound to take into account all relevant facts. If order invoking the said power proceeds on an erroneous assumption, the same could be set aside by the Tribunal. Finding of the Tribunal is not shown to be perverse. No substantial question of law arises. 8.11. One similar issue has also been decided by the ITAT Bench B Chandigarh in ITA No. 1348/Chd/2017 for the A.Y. 2012-13 in the case of M/s. Technico Metals Pvt. Ltd. Vs. DCIT wherein vide order dt. 15/02/2019 relevant findings have been given as under: 8. We have considered the above submissions of Ld. Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had paid a Share Application Money of ₹ 25,00,000/- through RTGS dated 21.03.2012. (iii) Copy of Income-Tax Return Acknowledgement of A.Y. 2012-13 (iii) Copy of Director's Report, Auditor's Report and Balance Sheet of M/s. Pansy Dealer (P.) Ltd. as at 31.03.2012 along with a Schedule of Details of Investments. e) Copy of Confirmation f) Copy of Extract of Minutes of Board Meeting of M/s. Pansy Dealer (P.) Ltd. g) Copy of Share Certificate 9. A perusal of the above reveals that the assessee had furnished the relevant documents to prove the identity, creditworthiness of the investors as well as genuineness of the transactions. However, the Assessing officer harped the assessee to produce the directors of the investor company before him, in reply, to which the assessee submitted as under:- Inspite of the best efforts made by the assessee company, none of the subscriber is agreed to be personally present before Your Honor, since, all these are staying in Kolkata or other places which are far from Ludhiana. The assessee company has already submitted confirmations giving their full addresses. Your Honor is requested to kindly summon thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies could not be traced out at the given address. However, we find from the record that the assessee company has furnished the bank details of the investor companies. The address on the existence of the said companies could have been verified from the account opening forms etc. It is in the common knowledge that the accounts are opened in the bank through introducers who approve that the account holder is known to him/her and is genuine. Enquiries could have been made from the said introducers also. Apart from that, the companies have been duly registered at the given address and duly audited by the auditors. The assessee had also produced on the file the report of the auditors in the case of both the investor companies who have audited the accounts of the aforesaid firms. If there was any doubt about the existence of such companies, the concerned auditors, CA of the respective companies could have been enquired/investigated. It has been explained that the M/s. Lawa Marketing (P.) Ltd. had paid share application money of ₹ 25 lacs through RTGS and the same was sourced out of the sale of shares for ₹ 32 lacs to M/s. Ability Dealmark (P.) Ltd.). Similarly, the sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in considering the assessment order passed by the AO as erroneous on this basis that the assessee could not produce the Directors, as has been held in the aforesaid referred to case of M/s. Technico Metals Pvt. Ltd. Vs. DCIT. 8.13. On a similar issue, the Hon'ble Supreme Court in the landmark judgment reported in the case of Malabar Industries Vs. CIT(supra) has held as under: A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 386 ITR 162 (Cal) wherein the Promoter/Director of the said assessee and their close relatives and Friends had united with the main objective of creating company apparently having the large capital basis but infact those were mere paper company having no real worth and that the share were offered which were subscribed by closely held companies owned by the Promoter/Director or their close relatives and Friends. But in the present case, the facts are different as the investor companies were not related or owned by the Director of the assessee company and the shares were allotted at a premium of ₹ 15/- per share, valuation of which was worked out on the basis of detailed calculation sheet, copy of which is placed at page No. 47 of the assesses compilation. 9. As regards to the allegation that the assessee could not produce Director of the Investor companies, it is noticed that the assessee furnished confirmatory letters received from the Investing companies alongwith copies of the Balance Sheets, copies of Ledger Accounts of the broker etc and requested to the Ld. Pr. CIT to issue commission as per provisions of Section 131(1)(d) of the Act, since all the Directors of Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
