TMI Blog2016 (10) TMI 1395X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 263 but where the view taken by the Income-tax Officer is unsustainable then the order passed by the Assessing Officer is not only erroneous but also prejudicial to the interest of Revenue. As far as the present cases are concerned, the whole issue is, where did this huge amount of Rs. 39.08 crores came from? The Income Tax Officer issued a detailed notice and a questionnaire but in his order has not decided any of the questions raised by him. His order is totally a nonspeaking order and he has not even decided the issue as to from where money came into the hands of the so-called share holders of these shell companies. We are of the considered view that the Commissioner of Income Tax was fully justified in issuing notice u/s 263 of the Act and further directing the Assessing Officer to pass a fresh order after considering the entire material. It is not as if the Appellants before us will not have an opportunity to present their case before the Assessing Officer. The Settlement Commission has clearly held that the manner in which these investments were made in these shell companies leaves many questions unanswered. Truth must be found out. During search and seizure oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ountant, pass books of all 232 share holders of these 13 Shell Companies were found in his office. The Bank Accounts were held in two banks only. The addresses of Shell Companies were almost identical. The Assessing Officer issued notices to these Shell Companies under Section 153C of the Act, and also issued a questionnaire. It would also be relevant to refer to question (vi) of the questionnaire which reads as follows: (vi) Details of the share capital, share premium account and share application money, if any, which appears as liability in the balance sheet. Please furnish the complete name, address, occupation of the investor and the date and mode of receipt of the funds. Also furnish the compliance made in this regard to the Registrar of Companies. 3. The Companies were also asked to submit explanation in the following terms: 3. You are also hereby asked to furnish explanation/submission with reference to the following points: (I) Details of liability appearing in the balance sheet in form of subscribed share capital, share premium and share application money. In this regard please furnish the complete list giving full name, postal address and PAN and assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 21/10/2011 and duly served. During the course of assessment proceedings, Shri Sunil Kumar Agrawal, CA and AR of the assessee, attended and filed a written submission giving parawise reply to the questionnaire. The assessee company is incorporated on 13/08/2004 which is evident from the copy of the Certificate of Incorporation filed. The assessee company was required to explain the basis of determining his income and furnish information relating to affairs of his business which was done through compliances made during assessment proceedings. Subject to the above the income of the assessee as shown in the return is accepted. Income Assessed : Rs. NIL 5. It would also be pertinent to mention that notices under the Income Tax Act, 1961 were also issued to M/s. Prime Ispat Limited which moved the Settlement Commission of the Income Tax authorities at Calcutta and the Settlement Commission, vide its order dated 07.11.2012 with regard to Shell Companies held as follows: 5.... Thus, in view of the plethora of evidence produced before us, we are of the opinion that the whole of investment other than that made through the medium of 13 shell companies etc. cannot be held as bogus. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees. We are not at all in agreement with these submissions. 8. To appreciate the rival contention of the parties, it would be apposite to refer to Section 263 of the Act, relevant portion of which reads as follows: 263. (1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 9. The Bombay High Court in Commissioner of Income Tax vs. Gabriel India Ltd., {(1993) 203 ITR 108 Bom) held as follows:- The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the utilization of the service of the employees of the holding company. The Assessing Officer had not taken into consideration the exact nature of the claim or the unreasonableness thereof. The Madras High Court held that non performance of such a duty cast upon the Income-tax Officer entitled the Commissioner to invoke his power under Section 263. Relevant observation of the Madras High Court reads as follows:- The non-performance of such a duty on the part of the Income-tax Officer culminated in distortions and prejudices to the Revenue. Such distortions and prejudices to the Revenue for being set right, the Commissioner of Income-tax invoked his power under Section 263 and in exercise of such power he cancelled the assessment passed by the Income-tax Officer with a direction to him to make a fresh assessment, according to law. 12. The Apex Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax, {(2000) 243 ITR 83 (SC)}, has dealt with the revisional powers under Section 263 in detail. The Apex Court held as follows:- A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Revenue Administration . In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Incometax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Commissioner of Income-tax (supra), the Apex Court held that both the conditions must be satisfied and if only one of the conditions is satisfied recourse cannot be had to Section 263. It is also apparent that recourse to Section 263 cannot be taken to correct every small error or mistake committed by the Assessing Officer. However, if the order itself is erroneous the provisions of the section would be attracted. The Apex Court has made it clear that even incorrect assumption of facts would satisfy the requirement of order being erroneous. In case the orders are passed without applying the principle of natural justice or without application of mind then also the Commissioner can exercise his revisional powers. It is important to note that the Apex Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax (supra) further held that the expression prejudicial to the interest of the revenue has very vide connotation and was not confined to loss of tax. If the Assessing Officer adopts one or two courses available under law and it results in loss of revenue then the order cannot be said to be erroneous or prejudicial to the interest of revenue within the meaning of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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