IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘G’ NEW DELHI
Assessment Year: 2009-10
M/s SATYASHIV SHARES AND SECURITIES PVT LTD
M-11, SOUTH EXTENSION, PART-2, NEW DELHI
PAN NO: AANCS5482Q
PRINCIPAL COMMISSIONER OF INCOME TAX
Prashant Maharishi, AM & K N Chary, JM
Date of Hearing: April 25, 2019
Date of Decision: June 26, 2019
Appellant Rep by: Shri R C Rai, CA & Ms Kamal Sharma, CA
Respondent Rep by: Shri S S Rana, CIT DR
Income Tax – Section 263(1)
Keywords – Accommodation entry
THE assessee is in the business of sale & purchase of shares. The return for the relevant AY was processed u/s 143(1). Subsequently, the Revenue conducted a search operation in the case of Mr. Surendra Jain which revealed that the assessee was one of the beneficiary to who accomodation entry was provided. Notice for reopening was sent to which the assessee filed the original return which was already processed. The AO noted instances of cash credit but after further notices u/s 131, accepted the return of the assessee. The CIT noted that the AO made some error by ommitting to examine seized materials in the form of cash book and appraisal report. Hence, notices u/s 263 was served upon the assessee. The CIT rejected the submissions made by the assessee and passed the revision order.
On hearing the appeal, the Tribunal following the ruling of Calcutta HC in Raj mandir Estates private limited vs CIT – 2016-TIOL-972-HC-KOL-IT where on the same factual matrix the action of the CIT invoking jurisdiction u/s 263 was upheld, held that there was no reason to not uphold the order of the CIT as the order passed by the AO u/s 147 r/w sec. 143 (3) is erroneous and prejudicial to the interest of the Revenue.
Assessee’s appeal dismissed
Rajmandir Estate P Ltd vs PCIT, Kolkata – 2016-TIOL-972-HC-KOL-IT
Daniel merchant’s private limited vs ITO – SLP No. 23976/2017
Per: Prashant Maharishi:
1. This is an appeal filed by the assessee against the order of the ld Pr. CIT-8, New Delhi dated 24.03.2017 for the Assessment Year 2009-10 passed u/s 263 of The Income Tax Act [The Act] holding that assessment order passed u/s 147 read with section 143 (3) of the Act by The Income Tax Officer, Ward 22 (4), New Delhi [The AO] dated 31/7/2014 is erroneous and prejudicial to the interest of the revenue.
2. The assessee has raised the following grounds of appeal:-
“1. On the facts and in the circumstances of the case as well as in the law the Ld. Pr. Commissioner of Income Tax grossly erred in alleging that the assessment order passed U/s 143(3)/147 of the Income Tax Act, 1961 dated 31.07.2014 is erroneous and prejudice to the interest of Revenue and passing the order U/s 263 of the Income Tax Act, 1961 without any cogent ground.
2. On the facts and in the circumstances of the case as well as in the law the Ld. Pr. Commissioner of Income Tax grossly erred in alleging that the Ld. Assessing Officer has completed the reassessment without examining the details and incriminating documents.
3. On the facts and in the circumstances of the case as well as in the law the Ld. Pr. Commissioner of Income Tax grossly erred in exceeding the inquiry beyond the show cause notice issued U/s 263 of the Act without providing adequate opportunity.
4. On the facts and in the circumstances of the case as well as in the law the Ld. Pr. Commissioner of Income Tax grossly erred in:-
i. Setting aside the original assessment order passed by the Ld. Assessing Officer and claiming it is erroneous and prejudice to interest of the Revenue,
ii. Alleging that the Ld. Assessing Officer did not examined the details and other materials viz. hard copy of appraisal report of Shri S.K. Jain group forwarded by jurisdictional Commissioner, Delhi-III dated 12.03.2013.
3. The brief facts of the case shows that the assessee is a company engaged in the business of sale and purchase of shares, has filed its return of income on 9/11/2011 declaring loss of INR 9 4759/-. The return was processed under section 143 (1) of the income tax act. Further in assessee’s case, information was received from The Director Of Income Tax (Investigation), New Delhi that post search and seizure operation action was undertaken in case of Shri Surendra Jain (entry operator) and it was informed that the assessee company’s name was also found to be one of the beneficiaries in the list of persons who got benefited by obtaining accommodation entries from such entry operators belonging to Sri SK Jain group. Consequent to that the case of the assessee was reopened u/s 147 of the income tax act after recording the necessary reasons and obtaining necessary approval from the higher authorities by issuing notice u/s 148 on 18/3/2014. In response to the above notice, assessee submitted a letter dated 23/5/2014 stating that the original return filed u/s 139 of the income tax act may be treated to have been filed in response to notice u/s 148 of the income tax act.
4. As assessment proceedings u/s 147 commenced, The learned assessing officer asked the assessee to prove the cash credit of INR 7,500,000 under section 68 of the income tax act. The assessee filed confirmation and copy of the income tax return as well as other necessary details to discharge the onus cast upon under section 68 of the income tax act. The notices u/s 133 (6) were further issued and notices u/s 131 has also been issued. The statements were also recorded of the directors in this regard. Consequently assessment order u/s 143 (3) read with section 147 of the income tax act was passed on 31/7/2014 accepting the returned income of the assessee.
5. During the course of the review of the assessment work of some of the charges, it was noticed by the learned principal Commissioner of income tax that though the assessment was reopened u/s 148 of the income tax act on the allegation of accommodation entries taken from Sri SK Jain group of concerns who were subjected to search on 14/9/2010 by the investigation wing of the income tax department and some of the assessing officers did not examine the seized material in the form of cash book and the books containing the details of cheques issued by such concerns seized from the premises of Sri SK Jain during search. He further noted that the investigation wing, Delhi forwarded the hard copy of the appraisal report to the then jurisdictional Commissioner, Delhi as per the letter dated 12/3/2013 which was received by him on 15/3/2013 along with the relevant seized material containing thousands of pages. However at the time of completion of the assessment u/s 147 of the income tax act by the learned assessing officer, referred the appraisal report but did not look into the relevant seized material in soft copy furnished to him. And therefore consequent to that a show cause notice u/s 263 of the income tax act was issued on 25/1/2017. In the show cause notice, the learned principal Commissioner of income tax has noted that AO has failed to consider the seized material in the case of Sri SK Jain group of cases wherein in annexure A – 101 page number 13 dated 9/5/2008, there were certain entries relating to the transactions. After noting the various transactions from the seized paper, learned principal Commissioner of income tax stated that from the above information, it is clear that the amount of INR 75,00,000 is brought in the books of the assessee company through RTGS in the name of Messer Shalini Holdings Pvt Ltd on 9/5/2008, 14/05/2008 and 8/8/2008 as an accommodation entry in lieu of cash of INR 7,500,000 given by assessee through Shri Ram Pal Ji. The AO has failed to examine this point during 148 proceedings for assessment year 2009 – 10.
6. The above show cause notice was replied by the assessee stating that the order passed by the learned assessing officer is neither erroneous nor prejudicial to the interest of the revenue.
7. The learned principal Commissioner of income tax rejected the explanation of the assessee. He held that in case of the assessee company all the shares held by Shalini Holdings Ltd were transferred to the various individuals 9 group members) at the rate of INR 51/- per share 9 substantially less than at what the shares were acquired by entry operator). Thereafter the learned principal Commissioner of income tax discussed the various seized materials found during the course of search wherein the name of the middlemen, the date of the transaction, the instrument numbers and the bank account were mentioned. He further referred to several seized material along with the cash book found. He then held that as he has perused case records of the assessee for the relevant assessment year and found that there is nothing on record to show that the learned assessing officer has ever confronted the assessee on such seized documents. He further held that had the AO examined the seized material, there should have been some noting either in the order sheet or in the questionnaire issued to the assessee by the AO or in the submission of the assessee before the assessing officer. He further held that the learned assessing officer has merely tried to verify the existence and the creditworthiness of the parties investing in the shares of the assessee company. He failed to make inquiries regarding the genuineness of the transactions whether the cheque was issued in lieu of cash as was appearing in the seized material. He further held that the seized material clearly indicate the cheques issued against the receipt of cash through some intermediaries and the details of cheque number, bank name, date, amount and the name of the issuing party clearly matches with the cheques credited in the bank account of the assessee. He further referred to the decision of the honourable jurisdictional High Court in case of paramount communications Ltd dated 14/2/2017 in ITA number 725, 726 and 727 of 2016 = 2017-TIOL-850-HC-DEL-IT where validity of proceedings under section 148 on the basis of the report of the investigating agencies were upheld. He further held that the reassessment order was passed without making proper verification and inquiries, and is therefore, deemed to be erroneous insofar as it is prejudicial to the interest of the revenue and hence can be revised u/s 263 of the income tax act as per the amended provisions of section 263 with effect from 1/6/2015. Accordingly he held that the order passed by the learned assessing officer is erroneous and prejudicial to the interest of the revenue and therefore directed the learned assessing officer to look into the seized material and confront the same to the assessee. He further directed that the assessing officer would also examine the reasons for transferring shares later on at nominal rates to the directors or the relatives of the concerns in which the assessee company is interested and pass a speaking order after affording an opportunity of being heard to the assessee. Accordingly, the order u/s 263 of the income tax act was passed on 24/3/2017, which is under challenge in this appeal.
8. At the time of hearing of the appeal the assessee preferred an additional ground of appeal as per application dated 15/10/2018:-
“on the facts and in the circumstances of the case as well as in law, the impugned revision order passed by the learned principal Commissioner of income tax is ab initio void and bad in law since the reopening and consequent assessment order passed by the learned assessing officer is invalid and nullity in the eyes of law.”
9. The learned authorised representative submitted that the ground under reference is legal in nature, goes to the root of the matter and do not require any fresh facts to be investigated, hence, it is prayed to be admitted in terms of the decision of the honourable Supreme Court of India in the case of NTPC Ltd vs CIT 229 ITR 383 (SC) = 2002-TIOL-279-SC-IT.
10. The learned departmental representative vehemently opposed the additional ground raised by the assessee and stated that it has never been raised before the lower authorities and there is no reasons stated by the assessee that why it has not been raised before the lower authorities and therefore now it cannot be raised by the assessee.
11. We have carefully considered the rival contention and find that the assessee has raised a legal ground, which is going to the root of the matter and does not require investigation of any fresh facts. Further legal grounds can be raised at any time. In view of this, we admit the additional ground raised by the assessee.
12. As it has been requested by the learned authorised representative to first decide the additional ground raised by the assessee, we proceed to hear the same.
13. The assessee submitted that notice u/s 143 (2) of the income tax act has never been served on the assessee and therefore the assessment order passed by the learned AO is invalid.
14. In response to the same, the learned departmental representative produced the notice dated 7/7/2014 issued under section 143 (2) of the income tax act 1961 by the income tax officer, Ward 7 (4), New Delhi. He further produced the certified copies of the proceeding wherein in the order sheet on 7/7/2014 notice was issued u/s 143 (2) of the act.
15. We have carefully considered the rival contention and find that the learned assessing officer has issued notice u/s 143 (2) of the income tax act on 7/7/2014 and therefore the contention of the assessee that no notice has been issued under section 143 (2) of the income tax act is devoid of any merit. Further on reading the assessment order at para number 2 of the learned assessing officer has categorically mentioned that statutory notices have been issued under section 143 (2) and 142 (1) of the income tax act. Further in the present case in response to notice u/s 148 of the income tax act dated 18/3/2014, assessee has submitted as per letter dated 23/5/2014 that the return of income filed under section 139 of the income tax act may be treated to have been filed in response to notice u/s 148 of the income tax act 1961. After receipt of the above letter on 7/7/2014, learned assessing officer has shown issue of notice u/s 143 (2) of the income tax act which is also corroborated by the copies of the order sheet. In view of this, we dismiss the additional ground raised by the assessee.
16. Coming to the merits of the issue whether the order passed by the learned assessing officer is erroneous and prejudicial to the interest of the revenue or not, learned authorised representative vehemently argued that the learned assessing officer has completely verified all the details asked for by the AO. He further referred to the fact that the notices u/s 133 (6) of the act and under section 131 of the income tax act was also issued by the assessing officer and it were complied with. He further stated that the statement were also recorded of the various depositors and therefore nothing is left which could have been done by the learned assessing officer as he has made a complete enquiry. He further stated that when the learned assessing officer has made complete enquiry, with respect to the reasons for which the case of the assessee was reopened, the order passed by the learned assessing officer cannot be held to be erroneous and prejudicial to the interest of the revenue. He therefore submitted that the order passed by the learned principal Commissioner of income tax under section 263 of the income tax act is liable to be quashed.
17. Countering the argument of the learned authorised representative, the learned departmental representative stated that the learned assessing officer has failed to examine the seized material found during the course of the search which was required to be verified by him before making an assessment u/s 147 of the income tax act. He further stated that the case of the assessee was reopened for the purpose of the verification of the cash credit which has resulted into seizure of huge documents which clearly showed that the assessee has obtained an accommodation entry and therefore failure of the assessing Officer to examine these seized material clearly vitiate the assessment proceedings and therefore the order passed by the learned assessing officer is erroneous and prejudicial to the interest of the revenue. He further referred to para number 5 onwards of the order of the learned principal Commissioner of income tax wherein it has been held that the learned assessing officer has not verified the seized material provided to him in the soft copy. He further stated that there is no notings in either in the order sheet or any of the notices or any of the replies of the assessee about explanation of the assessee on those seized material. He therefore submitted that after the amendment to the provisions of section 263 of the income tax act with effect from 1/7/2015, order passed by the learned assessing officer is not sustainable in law and its erroneous and prejudicial to the interest of the revenue.
18. Both the parties referred to the plethora of the judicial precedents supporting their own views and arguments.
19. We have carefully considered the rival contention and perused the orders of the lower authorities. Identical issue has been decided by the coordinate bench in ITA number 6905/del/2017 for assessment year 2007-08 along with 4 other assessees having similar facts, where in the order passed by the learned principal Commissioner of income tax u/s 263 of the income tax act was upheld. The case of the assessee is also falling into the similar factual matrix including the name of the accommodation entry provider and the similar seized material. The coordinate bench vide para number 10 and 11 has considered the two decisions of the coordinate benches for upholding the order passed by the Commissioner of income tax u/s 263 of the income tax act. Further in para number 12, coordinate bench also considered the decision of the honourable Supreme Court in case of Daniel merchant’s private limited vs ITO dated 29/11/2017 where the special leave petition against the decision of the honourable Calcutta High Court was dismissed. Further the factual matrix is also identical to the decision of the honourable Calcutta High Court in case of Raj mandir Estates private limited vs CIT 386 ITR 162 = 2016-TIOL-972-HC-KOL-IT where the action of the learned CIT-A invoking jurisdiction u/s 263 of the income tax act was upheld. Further in another decision of the honourable Calcutta High Court in property financial management Ltd 2017 (3) TMI – 1242 dated 7/3/2017 also the order passed by the learned principal Commissioner of income tax u/s 263 was also held to be valid.
20. Honourable Calcutta High court in case of rajmandir Estate P Ltd 386 ITR 162 = 2016-TIOL-972-HC-KOL-IThas held as under :-
“(21) After hearing the learned advocates, we are of the opinion that the following questions arise for consideration :
(a) Whether in the light of the views expressed in the case of Lovely Exports (supra) and Steller Investment (supra), the order under section 263 directing further investigation is legal ?
(b) Is the finding of the Commissioner of Income-tax that unac counted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under section 147 suo motu perverse ?
(c) Whether the order passed by the Assessing Officer under section 143(3)/147 of the Income-tax Act is erroneous and also prejudicial to the interests of the Revenue ?
(d) Whether the impugned judgment of the learned Tribunal is per verse ?
(22) We shall consider the second question first.
In a commentary on the Prevention of Money Laundering Act, 2002 by Dr. M. C. Mehanathan published by Lexis Nexis, 2014, the steps of money laundering are described as follows :
“Steps of money-laundering
Although money-laundering often involves a complex series of transactions, it generally includes the following three basic steps :
It involves introduction of the proceeds of crime into the financial system. This is accomplished by breaking up large amounts of cash into smaller sums that are then deposited directly into a bank account, or by purchasing monetary instruments, transferring the
Page No : 0202
cash overseas for deposit in banking/financial institutions, use for purchase of high value things such as gold, precious stones, art works, etc. and reselling the same through cheques or bank transfers, etc.
This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the audit trail. In this process a series of conversions or transactions are involved for moving the funds to places such as offshore financial centres operating in a liberal regulatory regime. Often ‘front’ com panies are formed to accomplish this task. These companies obscure the real owners of the money through the bank secrecy laws and attorney-client privilege. The techniques used for the purpose are to lend the proceeds back to the owner as loans, gifts and, etc., under invoicing the items exported to the real owner or, etc. In some cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance.
This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through ‘front’ companies, etc. The money may be invested in real estates, business and, etc.
The stages at which money-laundering could be easily detected are those where cash enters into the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatri ated in the form of transfers.”
The role of the revenue authorities in tackling the menace of laun dering black money was commented by the learned author as follows :
“It has to be kept in view that India has a problem of black eco nomy, which is unaccounted and many a time the holders of black money also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unre ported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled through special anti-money-laundering laws.”
Page No : 0203
(23) The following pieces of evidence are noticeable :
(a) 39 corporate subscribers purchased 7,92,737 shares of Rs. 10 each at a premium of Rs. 390 per share. In the process the assessee-company raised a paid up share capital of Rs. 79.27 lakhs with a premium of Rs. 31.7 crores.
(b) From the information made available by the assessee, it appears that 19 out of 39 applicants secured funds, for the purpose of contributing to the share capital of the assessee, on account of share application money. In other words, those 19 applicants collected funds on account of share application money in their respective companies and that money was con tributed to the share capital of the assessee. 15 out of the 39 applicants pro cured the requisite fund by selling shares. The rest of the applicants of shares, in the share capital of the assessee-company, did not disclose the nature of receipt at their end though the source of fund was identified. What has not been specified is, as to on what account was the money received.
(c) The forms of share application purporting to have been signed by the applicant companies have also been disclosed from which it appears that the date of allotment, number of allotment, number of shares allotted, share ledger folio, allotment register folio, application number, have all been kept blank. These particulars, Mr. Poddar, submitted should have been filled up by the assessee, but that has not been done.
(d) Another significant fact admitted by the assessee in reply to the notice to show cause under section 263 is that the “shares were offered to, and subscribed by the closely held companies owned by the promoters/directors or their close relatives and friends”.
(e) From the bank statements disclosed it appears that to have the cheques issued in favour of the assessee honoured, matching amounts were credited to the accounts of the subscribers shortly before the cheques issued in favour of the assessee were presented for collection.
(f) 19 applicants of shares within a period of less than six months had money contributed to their share capital which in their turn they con tributed to the share capital of the assessee. So that, the 19 companies which contributed to the share capital of the assessee in the name of assets were left merely with the share-scrips of the assessee. The other lot of 15 subscribers in substance had the share-scrips held by them substituted by the share-scrips of the assessee.
(g) Though, Mr. Poddar made extensive submissions scanning the order under section 263 in between the lines, he did not criticize the finding
Page No : 0204
of the Commissioner that “the Assessing Officer did not examine a single director of the assessee-company or of the subscribing company” which goes to show that correctness of this assertion is not in dispute.
(24) From the aforesaid evidence the following, prima facie, infer ences can safely be drawn :
(a) The promoter/directors of the assessee and their close relatives and friends had united with the common object of creating at least 20 (19+1) companies apparently having a large capital base, but, in fact these are mere paper companies having no real worth. The transaction of sale and purchase of shares was nominal rather than real.
(b) The allegation, in response to the notice to show-cause under section 263 that “it bears importance to state here that the investor com panies of shares were interested to subscribe shares of the assessee com pany as, according to them, the assessee-company had prospect in future,” is a plain lie.
(c) The blank share application forms, etc., tabulated above go to show that the alleged application for shares and the alleged allotment were not in the usual course of the business.
(d) In the light of the aforesaid pieces of evidence and the prima facie finding, we are emboldened to say that the three requirements : (A) identity of the shareholders ; (B) genuineness of the transaction and (C) the creditworthiness of the shareholders repeatedly impressed, by Mr. Poddar, upon us, have not been satisfied. Identity of the alleged share-holders is known but the transaction was not a genuine transaction. The transaction was nominal rather than real. The creditworthiness of the alleged share holders is also not established because they did not have any money of their own. Each one of them received from somebody and that somebody received from a third person. Therefore, prima facie, the share-holders are mere name lenders.
(25) For the reasons discussed in the preceding paragraph, we are satisfied that the judgment in the case of CIT v. Steller Investment (supra) has no manner of application to the facts and circumstances of this case. The question as to whether there has been a device adopted for money laundering also did not crop up for consideration in that case.
The Prevention of Money Laundering Act, 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investment Ltd. was dismissed by the apex court, the question had cropped up in the case of CIT v. Sophia Finance Ltd. reported in  205 ITR 98 (Delhi) [FB] = 2003-TIOL-277-HC-DEL-IT wherein a special bench held as follows (page 104) :
Page No : 0205
“As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said expla nation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words ‘any sum found credited in the books’ in section 68 indi cates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money.”
In the case of Sumati Dayal v. CIT  214 ITR 801 (SC) = 2002-TIOL-885-SC-IT-LB. Their Lordships held that a capital receipt can become taxable if the explanation offered by the assessee about the nature and source thereof is not satis factorily explained.
The judgment in the case of CIT v. Lovely Exports Pvt. Ltd. reported in  299 ITR 268 (Delhi) = 2006-TIOL-353-HC-DEL-IT lends no assistance to the assessee because in that case the Division Bench reiterated that omission to make an enquiry, where such an exercise is provoked, shall render the order of the Assessing Officer both erroneous and prejudicial to the Revenue. The Division Bench went on to hold that the Revenue should not harass the assessee where “the preponderance of evidence indicates absence of culpability”. In the present case there exists reasonable suspicion if not prima facie evidence of culpability.
(26) The learned Tribunal in the impugned judgment in paragraphs 3, 4 and 5 observed, inter alia, as follows :
Page No : 0206
“We have heard the rival submissions and perused the relevant material on record. It is relevant to mention that we have disposed of more than 500 cases involving same issue through certain orders with the main order having been passed in a group of cases led by Subh lakshmi Vanijya P. Ltd. v. CIT (I.T.A. No. 1104/Kol/2014), dated July 30, 2015-  43 ITR (Trib) 48 (Kol) = 2015-TIOL-2421-ITAT-KOL for the assessment year 2009-10. Both the sides have fairly admitted that facts and circumstances of the cases under consideration are mutatis mutandis similar to those decided earlier, except for certain issues which we will advert to a lit tle later. In our aforesaid order in Subhlakshmi Vanijya P. Ltd. v. CIT (I.T.A. No. 1104/Kol/2014), dated July 30, 2015  43 ITR (Trib) 48 (Kol) = 2015-TIOL-2421-ITAT-KOL, we have drawn the following conclusions… :
It is noticed that all or some of the above conclusions are appli cable to the appeals in this batch.”
The appellant has disclosed a copy of the judgment delivered by the learned Tribunal in Subhlakshmi Vanijya P. Ltd. v. CIT. The learned Tribunal in paragraph 17.i opined as follows (page 87 of 43 ITR (Trib)) :
“All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic con clusion that in all these cases the enquiry conducted by the Assessing Officers is exceedingly inadequate and hence fall in the category of ‘no enquiry’ conducted by the Assessing Officer, what to talk of char actering it as an ‘inadequate enquiry’. In our considered opinion, the highly inadequate enquiry conducted by the Assessing Officer result ing in drawing incorrect assumption of facts, makes the orders erro neous and prejudicial to the interests of the Revenue.”
(27) In the case of Smt. Tara Devi Aggarwal v. CIT  88 ITR 323 (SC) = 2002-TIOL-543-SC-IT-LB, the Tribunal had held as follows (page 327) :
“The Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment order for 1960-61 was considered by itself, it could not be said that the assessment order was prejudicial to the interests of the Revenue. It was also observed that the factum of advance of initial capital, realization of amounts by sale of gold orna ments and the carrying on of the money-lending and speculative business had already been accepted and assessed in the previous years, that even in the year of assessment in question the Income-tax Officer had added Rs. 1,499 to the disclosed income from speculative business and Rs. 1,270 to the disclosed income from interest and made the assessment on a total income of Rs. 9,037 ; as such it could
Page No : 0207
not be said that the assessment was prejudicial to the interests of the Revenue and that at the most it could be said that the assessee could not have carried on any business at the addresses given by her but where an assessment has been made without territorial jurisdiction it could not be said to be prejudicial to the interests of the Revenue.”
This court set aside the order of the learned Tribunal. In an appeal by the assessee before the apex court their Lordships upheld the order of this court holding, inter alia, as follows (page 328 of 88 ITR) :
“The learned advocate for the assessee contends that under section 33B the Commissioner had no jurisdiction to cancel the assessment made by the Income-tax Officer inasmuch as it cannot be said that where an assessee has been assessed to tax it was prejudicial to the interests of the Revenue on the ground that no assessment could have been made in respect of the income of which she made a volun tary return. This contention in our view is unwarranted by the language of section 33B. The words of the section enable the Com missioner to call for and examine the record of any proceeding under the Act and to pass such orders as he deems necessary as the cir cumstances of the case justify when he considers that the order passed was erroneous in so far as it is prejudicial to the interests of the Revenue. It is not, as submitted by the learned advocate, pre judicial to the interests of the Revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the Revenue. If so-and we think it is so-the Commissioner under sec tion 33B has ample jurisdiction to cancel the assessment and may ini tiate proceedings for assessment under the provisions of the Act against some other assessee who according to the Income-tax autho rities is liable for the income thereof.”
The reasoning advanced by their Lordships in respect of an alleged revenue receipt is, according to us, equally applicable to an alleged capital receipt which, in fact, was received only in papers. The attempt of the assessee, it was apprehended in the case of Tara Devi (supra) was to assist someone else. An identical attempt is involved in this case. Who is the per son sought to be assisted by the assessee ? This question can only be answered after a thorough enquiry, directed by the Commissioner of
Page No : 0208
Income-tax, is held. The assessee is interested in stalling that investigation on the plea that the order of the Assessing Officer is neither erroneous nor prejudicial to the interests of the Revenue.
(28) We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the Assessing Officer did not hold the requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the Assessing Officer. The fact that the Assessing Officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself which reads as follows :
“During the financial year the assessee-company has issued 792737 No. of equity share with a face value of Rs. 10 along with a premium of Rs. 390.
Thereafter, notices under section 133(6) of the Income-tax Act, 1961 were also issued to verify the transactions of the assessee on test check basis. The case is discussed and heard. Issue relevant for deter mination of total income of the assessee is discussed as under :”
The issues relevant according to the Assessing Officer were a receipt of a sum of Rs. 61,000 on account of consultancy charges and the prelimi nary expenses written off amounting to a sum of Rs. 60,000. He, therefore, completed the assessment after making addition of a sum of Rs. 1,21,000. When it is an order erroneous in so far as the same is prejudicial to the interests of the Revenue was considered by this court in the case of CIT v. Maithan International  375 ITR 123 (Cal) = 2015-TIOL-887-HC-KOL-IT to which one of us (Girish Chandra Gupta, J.) was a party wherein the following views were expressed (page 147) :
“It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by per functory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial orders. Where the relevant enquiry was not undertaken, as in this case, the order is erroneous and prejudicial too and, therefore, revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. In a dif ferent context the apex court observed ‘contra veritatem lex nunquam aliquid permittit : implies a duty on the court to accept and accord its approval only to a report which is the result of faithful and fruitful investigation.’
Page No : 0209
(See Sidhartha Vashisht alias Manu Sharma v. State (NCT of Delhi) reported in  6 SCC 1 paragraph 200 at page 80)”
In the case of CIT v. N. R. Portfolio P. Ltd.  2 ITR-OL 68 (Delhi) = 2013-TIOL-955-HC-DEL-IT, the following views were expressed (page 86) :
“What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditwor thiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee’s knowledge. Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genu ineness, creditworthiness, identity are deeper and obtrusive. Compa nies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and man age the said companies. It is the persons behind the company who take the decisions, control and manage them.”
The persons behind the assessee-company and the persons behind the subscribing companies were not interrogated which was essential to unearth the truth. Reference may also be made to the judgment of this court in the case of CIT v. Active Traders Pvt. Ltd. (supra).
The question for consideration is whether in the presence of materials discussed above the Commissioner was justified in treating the assessment order erroneous and prejudicial to the interests of the Revenue. That ques tion in the facts and circumstances has to be answered in the affirmative.
(28) We find no substance in the submission that the order of the learned Tribunal is perverse, after examining all the submissions advanced by Mr. Poddar.
(29) Whether receipt of share capital was a taxable event prior to April 1, 2013 before introduction of clause (viib) to the sub-section (2) of section 56 of the Income-tax Act ; whether the concept of arm’s length pricing in a domestic transaction before introduction of sections 92A and 92BA of the Income-tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of Rs. 1.36 crores raised nearly a sum of Rs. 32 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under section 68 of the Income-tax Act if the
Page No : 0210
source of the receipt is not satisfactorily established by the assessee. Ref erence in this regard may be made to the judgment in the case of Sumati Dayal v. CIT (supra), wherein their Lordships held that any sum “found credited in the books of the assessee for any previous year, the same may be charged to Income-tax… “. We are unable to accept the submission that any further investigation is futile because the money was received on capital account. The Special Bench in the case of Sophia Finance Ltd. (supra) opined that “the use of the words “any sum found credited in the books” in section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of the Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of CIT v. Nova Pro moters and Finlease (P.) Ltd. (supra). Similar views were expressed by this court in the case of CIT v. Precision Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the proviso to section 68 of the Incometax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that “the Income-tax Officer may even be justified in trying to ascertain the source of the depositor”. Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the sub mission that the exercise of power under section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the Commissioner of Income-tax was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the Assessing Officer which should have provoked him to make further investigation. The Assessing Officer did not attach any importance to that aspect of the mat ter as discussed above by us. The judgment in the case of Leisure Wear Exports Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy.
The judgment in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspi cion held that this was or could be a case of money laundering. We as a
Page No : 0211
matter of fact have discussed this issue in great detail and need not reit erate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the Assessing Officer. It is true that the Assessing Officer had requisitioned the necessary details by his notice under section 142(1) but he thereafter did not apply his mind thereto. The judgment in the case of J. L. Morrison (India) Ltd. has no manner of application because in that case the question essentially was whether the receipt was of a capital or revenue nature. The facts and cir cumstances were not in dispute. Moreover, the view taken by the Assessing Officer was not shown nor was held by the court to be an erroneous view. Whereas in this case we have demonstrated in some detail as to why is the order of the Assessing Officer erroneous and prejudicial to the Revenue.
The judgment in the case of Malabar Industrial Co. Ltd. (supra) and Max India Ltd. do not apply to the facts of this case for reasons already discussed by us. From the judgment of the learned Tribunal in the case of Subholaxmi, placed before us in great detail by Mr. Poddar, we find that all important issues placed for consideration by no other than Mr. Poddar himself were duly considered by the learned Tribunal.
(30) For reasons already discussed we answer the issue No. (a) and (c) in the affirmative and the issue Nos. (b) and (d) in the negative. In the result the appeal fails and is dismissed. It is clarified that the views expressed herein are for the purpose of disposal of this appeal and shall not preclude the statutory authority from arriving at its own conclusion in accordance with law.”
21. In view of above facts, respectfully following the decision of the coordinate bench, where one of us is the author, we do not find any reason to not to uphold the order of the learned principal Commissioner of income tax u/s 263 of the income tax act as the order passed by the learned assessing officer u/s 147 read with section 143 (3) of the income tax act is erroneous and prejudicial to the interest of the revenue. Accordingly, all the grounds raised by the assessee in this appeal are dismissed.
22. In the result, appeal filed by the assessee against the order of the learned principal Commissioner of income tax u/s 263 of the income tax act is dismissed.
(Order pronounced in the open court on 26.06.2019)