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TMI Blog2022 (8) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case and in law, since the order passed u/s 263 of the Act dated 07.03.2013 is in itself without jurisdiction and bad in law, all the subsequent proceedings are also without jurisdiction and hence bad in law. (2) That on the facts and circumstances of the case and in law, the reopening u/s 147 of the Act having being done for escapement of income in relation to Data Processing Charges, the scope of assessment could not have been expanded unless provided in law. (3) That on the facts and circumstances of the case and in law, the second learned AO failed to carry out the directions issued by the learned PCIT in his order dated 07.03.2013. 4. In the above additional grounds, the assessee has challenged the jurisdiction of ld. Principal CIT under section 263 of the Act in passing the revisionary order thereby setting aside the assessment order framed by the ld. Assessing Officer under section 143(3) r.w.s. 147 of the Act. Before coming to the core issue, we are briefly discussing the facts and background of the case. The assessee filed its return of income on 25.09.2000 declaring a loss of Rs. 3,232/-, which was processed under section 143(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscribers by furnishing the details called for copies of which are placed at pages 32 to 102 of the paper book. The ld. Assessing Officer after examining these details and documents in terms of Explanation 3 to section 148 of the Act accepted the share capital subscribed and invested by the investors as well as identity, creditworthiness and also genuineness of the investments. Pertinent to mention that the ld. Assessing Officer called for the details from the assessee in respect of all the eight investors during the course of proceedings under section 147, which were duly furnished and placed on record as stated hereinabove. Besides, the ld. Assessing Officer also examined the issue of preliminary expenses written off during the year amounting to Rs. 19,200/- as claimed by the assessee and noted that out of the said sum, an amount of Rs. 16,200/- was not eligible for deduction under section 35D of the Act and accordingly Rs. 16,200/- was disallowed in the assessment framed under section 147 read with section 143(3) of the Act dated 28.02.2011. 5. Subsequently ld. Principal CIT-1, Kolkata, on perusing the assessment records in respect of assessment framed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details from the company in respect of all the eight investors which were duly filed and furnished by the company. But despite at this stage, the assessee cannot be allowed to raise the issue of validity of jurisdiction of ld. Pr. CIT under section 263 of the Act in revising assessment order as the same has attained finality and the assessee has missed the bus by not filling appeal before the Tribunal challenging the said revisionary order. At this stage we can only examine the validity of addition in the assessment order under section 143(3) read with section 147/148/263 of the Act dated 31.03.2014. Considering these facts and circumstances, we are not admitting the additional grounds and are dismissed at the preliminary stage. 8. We have duly considered rival contentions and gone through the record carefully. Before we embark upon an inquiry on the facts of the present appeal, in order to find out whether the share capital and share premium money received by the assessee during the year is required to be treated as its unexplained credit and deserves to be added under section 68 of the Income Tax Act, 1961. We deem it appropriate to bear in mind certain basic principles/tests pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which will exhibit nature of transaction and also explain the source of such credit. The explanation should be to the satisfaction of the AO. In order to give such type of explanation which could satisfy the AO, the assessee should fulfill three ingredients viz. (a) identity of the share applicants, (b) genuineness of the transaction, and (c) credit-worthiness of share applicants. As far as construction of section 68 and to understand its meaning is concerned, there is no much difficulty. Difficulty arises when we apply the conditions formulated in this section on the given facts and circumstances. In other words, it has been propounded in various decisions that section 68 contemplates that there should be a credit of amounts in the books of an assessee maintained by the assessee, (b) such amount has to be a sum received during the previous year, (c) the assessee offers no explanation about the nature and source of such credit found in the books, or (d) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The Hon'ble Delhi High Court in the case of CIT v. Novadaya Castles (P.) Ltd. 367 ITR 306 has considered a large number of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion by the Commissioner of Income-tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the directors, Form 2 filed with the Registrar of Companies by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer in the assessment proceedings under section 147 of the Act by invoking the Explanation 3 to section 147 of the Act by calling for the following details from the assessee:- (i) Copy of Bank Statement; (ii) Details of investment; (iii) Details of fresh share capital; (iv) Details from income from other sources; (v) Copy of books of accounts; (vi) Details of loans and advances. The assessee in response to the questionnaire from the ld. Assessing Officer filed/furnished the copies of Bank Statement, details of share applicants along with their PAN and complete addresses, number of shares subscribed and the amount of share capital received by it. Copies of which are placed at pages no. 18 to 31 of the paper book and relevant part are extracted below for the sake of ready reference:- 13. It is also an undisputed fact that the ld. Assessing Officer carried out an independent investigation into the share capital by issuing notices under section 133(6) to the five share applicants on sample basis in the proceedings u/s 147 of the Act, who have been invested money in the capital of the assessee-company by calling for the following details:- (i) Details of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital. The A.O. should not confine himself to conducting enquiries into the subscribers to the share capital only on selective basis. The A.O. should also call upon the assessee to identify the persons who are shown as directors of the assessee company and examine them on oath to verify their credential as directors. The A.O. should pass speaking order after providing reasonable opportunity to the assessee and verifying the source of share capital including the share premium of all the subscribers and rotation of money through various hands so as to ascertain the true nature of transaction which will bring to the fore, the reality of the transactions. Hence the order passed by the A.O. u/s 143(3) r/w 147 for the AY 2008-09 is set aside to be framed de-novo as per directions contained in the above parts of this order". 16. It is pertinent to observe that the ld. Assessing Officer was required to conduct the enquiry as contemplated in the above finding. We have made an analysis of the assessment order dated 31.03.2014. This impugned order is running into four pages and the first one & half page, the ld. Assessing Officer has given background of the litigation. In pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also established the fact that introduction of the share capital in the assessee company is not genuine. Just the manner of payment of the share application moneys by the subscriber companies by the account payee cheques is not sacrosanct for a cash credit to become genuine and definitely this cannot make a bogus transaction as a genuine one. Reliance may be placed on the judicial decisions like CIT Vs. Precison Finance Pvt. Ltd, -208 ITR 465 (Cal), Nizam Wool Agency Vs. CIT, 193 ITR 318 (Ail)". 17. On perusal of the complete order, it nowhere reveals when ld. Assessing Officer has started the investigation? When he has issued notice under section 142(1) or 133(6) to the subscriber of the shares as well as summons under section 131 of the Act to the Directors of the assessee-company? There is no analytical finding at the end of the ld. Assessing Officer. He simply made a narrative observation on this issue, which is almost a cut and paste type of finding. It is pertinent to note that specific directions given by the ld. CIT in the order under section 263 are that the ld. Assessing Officer would issue summons under section 131 of the Income Tax Act to the Directors of subscriber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s attested on 27.03.2014 by Notary Public. We also note that from the evidences before us that Mr. Rakesh Kumar Choubey was holding a PAN bearing No. AFHPC3909G and assessed to tax and has regularly been filing his return of income under the charge of ITO, Ward-37(1), Kolkata. Therefore, it is clear from the above that the statement as called by the ld. Assessing Officer under section 131 is not correct and cannot be allowed as basis for making addition. To the above extent, we note that the allegation of the Assessing Officer for making addition was not correct. Further the ld. Assessing Officer observed that the assessee-company being a newly incorporated company has issued and raised share capital of Rs. 7 crores by issuing shares at a premium of 19 times the face value and also that none of the subscribers furnished the details as requisitioned in the notices under section 133(6) of the Act. Besides ld. Assessing Officer noted that upon perusal of the Profit & Loss Account and Balance-sheet of the share subscriber companies, it is clear that they did not have any business activity and their net worth was meagre. The ld. CIT(Appeals) confirmed the order of ld. Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order as reproduced hereinabove cannot be sustained. The addition was made simply for the reason that ld. Pr. CIT has exercised his jurisdiction under section 263 of the Act setting aside the original assessment. We also note that the ld. Assessing Officer has ignored the facts, documents, confirmations and evidences, which were available on record on the assessment folder. In our opinion, there is no bar in the Act to issue of shares at a premium as it is the prerogative of the Board of Directors to decide the premium amount and the assessee was not required to prove the purpose or justification for charging premium on shares. The ld. Counsel for the assessee to buttress the contentions in favour of the assessee placed reliance is placed on the judgment of the Hon'ble Mumbai Tribunal in the case of ACIT -vs.- Gagandeep Infrastructure Pvt. Limited (2014) 40 CCH 0128. The operating part is extracted as under:- "We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 394 ITR 680 (Bombay.). The case of the assessee also finds support from the another decision of the Hon'ble Madhya Pradesh High Court in the case of CIT -vs.- Chain House International (P) Ltd. reported in 98 taxmann.com 47, wherein the Hon'ble Court has held as under:- "Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates if fixed by any Govt. Authority or unless there is any i restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. " 21. Therefore, the issue of share at premium cannot be a ground for making addition. We also note that the allegation of the authorities below that the share applicants did not respond to the notices issued under section 136 of the Act, whereas this is not the allegation that notices were not served upon the share applicants. We note that the information /d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of notice by the share applicants in the second round of assessment proceedings cannot be used to draw adverse inference against the assessee as the Revenue was having all the necessary evidences/documents which were filed by the share applicants in the first round of assessment in response to the notices issued under section 133(6) of the Act. 23. On the issue of share applicants, they are not having any business activity and their net worth was also very meagre. We note that the share application was received through Banking channel out of own funds of investing companies as is clear from the audited annual accounts and that it is not necessary that source of investment is to be out of taxable income. The assessee's case finds support from the decision of Ami Industries (India) Pvt. Limited (ITA 1231 of 2017) passed by the Hon'ble Bombay High Court, wherein the Hon'ble Court has observed as under:- "It was not necessary that share application money should be invested out of taxable income only". 24. On the third issue that summons issued under section 131 of the Act to the erstwhile and present Directors returned un-served except Mr. Rakesh Kumar Choubey, who was erstwhile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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