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Plausible view taken by AO on genuineness of issue of shares cannot be deemed to be erroneous where based on due application of mind in respect of evidence at hand: ITAT

2019-TIOL-1643-ITAT-DEL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘B’ NEW DELHI

ITA No.3097/Del/2014
Assessment Year: 2006-07

DWARKADHIS BUILDWELL PVT LTD
C/o N K JAIN, ADVOCATE
NAYA BAZAR, BHIWANI
PAN NO:AACCD1951E

Vs

COMMISSIONER OF INCOME TAX
HISAR

R K Panda, AM & Kuldip Singh, JM

Date of Hearing: April 16, 2019
Date of Decision: July 01, 2019

Appellant Rep by: Shri Naveen Gupta CA, Shri Ashu Goyal, CA & Shri Ashok Kumar Jain, CA
Respondent Rep by:
 Ms Nidhi Srivastava, CIT DR

Income Tax – Sections 147, 148 & 263.

Keywords – Bogus share capital – Search & seizure operation – Revisionary Jurisdiction.

The assessee company, filed its return of income for relevant AY. The original assessment was completed, accepting the returned income u/s 143(3) of Act. Subsequently the case of the assessee was reopened after recording the reason that a search & seizure operation was conducted at the premises of the assessee company and it was came to knowledge that assessee was beneficiary of accommodation entries. The AO completed the re-assessment proceedings u/s. 143 (3)/147 at the returned income without making any addition. While doing so he accepted the plea of the assessee on the basis of various decisions including the decision of Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd that if the identity of the investors was established, the assessment in the case of the investors can be re-opened as per law but no addition can be made in the hands of the company who has received the share application money. He accordingly dropped the proceedings initiated u/s. 147 of the Act. But according to CIT the AO did not make any investigation/ verification with regard to the genuineness of the identity of the investor companies inspite of the fact that the record had sufficient material which necessitated further enquiries. He, therefore, issued a show cause notice u/s 263 (1) asking the assessee to explain as to why the order passed by the AO should not be set aside since the order passed by the AO was erroneous and prejudicial to the interest of the revenue. Rejecting the various explanation given by the assessee, CIT set aside the assessment and directed the AO to make fresh assessment. Aggrieved assessee filed appeal before the Tribunal.

On appeal, Tribunal held that,

Whether if after due application of mind on evidences and material available, AO has taken a plausible view regarding genuineness of issue of shares, it cannot be said that the order of the AO is erroneous – YES : ITAT

++ AO in the order passed u/s. 143(3) /147 has followed the decision of Supreme Court in the case of Lovely exports (P) Limited in letter and spirit. In the office note, copy of which is available in the paper book, it is seen that the Assessing officer had forwarded information to the concerned AO of the investor companies for taking further necessary action against them. Thus when the AO passed the order u/s. 147 / 143 (3), it was found that he has followed the decision of Supreme Court in the case of Lovely Exports (P) Limited in letter and spirit. So far as the allegations of the CIT that subsequent decision had come for which he referred to the decision of Delhi High Court in the case of Nova Promoters Finlease is concerned, it was found the Delhi High Court pronounced the said decision on 15.02.2012 whereas the AO in the instant case has passed the order u/s. 143(3)/147 on 13.12.2011. Therefore, there is no merit in the allegation of the CIT of non consideration of the decision since the same was not available at the time of passing of the assessment order;

++ so far as the allegation of the CIT that the AO should have conducted further enquiry which were necessary to gather relevant material which the AO failed to do and there was non application of mind on the part of the AO is concerned, it was found that in the instant case thorough enquiries were conducted by the AO both at the time of original assessment and at the time of reassessment proceedings. Full details giving the names, addresses, number of shares of nominal value and share premium amount of all the share holders alongwith their bank statements, copy of IT returns, PAN etc. were filed before the AO. Even if the share holders were bogus as per allegation of the revenue in view of the reasons recorded for reopening, however, as per prevailing law at that time in view of decision of Supreme Court in the case of Lovely Exports (P) Limited addition could not have been made in the hands of the assessee and addition, if any, could have been made only in the hands of such bogus share holders. Since AO has taken a plausible view, therefore, it cannot be said that the order of the AO is erroneous;

++ Delhi High Court in the case of PCIT Vs. Delhi Airport Metro Express Private Limited vide ITA No.705/2017 order dated 05.09.2017 = 2017-TIOL-1814-HC-DEL-IT has held that for the purpose of exercising jurisdiction u./s. 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry. If the PCIT is of the view that the AO did not undertake any enquiry, it becomes incumbent on the PCIT to conduct such enquiry. If the PCIT does not conduct such basic exercise then the CIT is not justified in setting aside the order u/s. 263 of the IT Act;

++ Delhi High Court in the case of Jyoti Foundation has held that where revisionary authority opined that further enquiry was required, such enquiry should have been conducted by revisionary authority himself to record finding that assessment order passed by the AO was erroneous and pre judicial to the interest of the revenue. Delhi High court in the case of Sunbeam Auto Limited has held that if the AO, while making an assessment, has made inadequate enquiry that would not by itself give occasion to the CIT to pass order u/s.263 merely because he has different opinion of the matter. Only in the case of “lack of enquiry” that such a course of action would be open. It has further been held in the decision that where the view taken by AO was one of the possible views, therefore, the assessment order passed by the AO cannot be held to be prejudicial to the interest of the revenue. The Delhi High court in the case of Anil Kumar Sharma has held that where it was discernible from record that the AO had applied his mind to an issue in question, Commissioner could not invoke section 263 merely because he has different opinion. It was found from a perusal of the paper book that the assessee during the course of original assessment proceedings as well as during reassessment proceedings had filed the requisite details as called for by the AO and the Assessing Officer after considering the same and following the decision of Supreme Court in the case of Lovely Export which was prevailing at the time of passing of the order completed the assessment and he has informed the AO of the investor companies to pass appropriate order. Therefore, the order of the AO in the instant case cannot be held as erroneous. Since for invoking jurisdiction u/s. 263 the twin conditions i.e. order must be erroneous and the order must be prejudicial to the interest of revenue must be fulfilled and since, we have held that the order is not erroneous, therefore, the twin conditions are not satisfied. Therefore, the Ld. CIT in our opinion could not have invoked jurisdiction u/s. 263 of the IT Act. In the result, the appeal filed by the assessee is allowed.

Assessee’s appeal allowed

ORDER

Per: R K Panda:

This appeal filed by the assessee is directed against the order dated 21.03.2014 pased u/s. 263 of the IT Act, 1961 by the CIT, Hisar relating to A. Y. 2006-07.

2. Facts of the case, in brief, are that the assessee is a company and filed its return of income on 11.10.2006 declaring nil income. The original assessment in this case was completed by the ITO, Ward-1, Bhiwani accepting the returned income u/s. 143 (3) vide order dated 31.12.2008. Subsequently the case of the assessee was reopened after recording the following reasons :-

“Original assessment in this case was completed by the ITO, Ward-1, Bhiwani accepting the ‘returned income u/s 143(3) vide his order dated 31.12.2008. On 11.11.2008 a search & seizure operation was conducted at the premises of the assessee company. At the time of survey, the assessee had surrendered a sum of Rs. 7 Crore as mentioned at Page No. 5 of the survey report which is relevant far the Financial year 2008-09 i.e. assessment, year 2009- 10. The assessee paid taxes thereon at Delhi. Out of total tax liability on the surrendered amount of Rs. .7 crore for F.Y. 2008-09 relevant to Asstt. Year 2009-10, the assessee has already paid Rs. 1 Crore of Income tax (Rs. 50 lakh vide BSR Code 0302275 Challan Sr. No. 00571 dated 12.12.2008 and Rs. 50 lakh vide BSR Code 0302275 Challan No. 00144 dated 31.01.2009}

From the perusal of the documents found and impounded from the office of M/s Dwarkadhis Buildwell Pvt. Ltd. At BN 57 East, Shalimar Bagh, New Delhi, during the course of Survey operation under section 133A of the Income tax Act, 1961, it reveals that the assessee has received share capital at huge premium from a number of Companies in the F.Y. 2005-06. Most of these companies have address at 13/34 WEA, Karol Bagh, which is controlled by Shri Tarun Goel who is an Entry Operator as established by the Search & Seizure operation conducted by the Unit IV of DIT (Inv.) on 15.09.2008. M/s Dwarkadhis Buildwell Pvt. Ltd. has 710000 shares of Rs. 7.10 crore. Th’e whole of the share capital pertains to the financial year 2005-06 relevant to assessment year 2006-07.

A search. & seizure operation was conducted against Shri Tarun Goyal & others at 13/34 WEA, Arya Samaj Road, Karol Bagh, New Delhi on 15.09.2008 by UNIT IV(1) of Directorate of Income tax Investigation, New Delhi, during the search and seizure operation and post search enquiries the statements under oath of the following Directors of the above mentioned Companies were recorded, which have been made as Annexures, i.e. Shri Tarun Goyal, Shri Framed Kumar, Shri Harpreet Singh, Smt. Usha Rani & Smt. Ritu Saxena.

Summons were also issued to the other Directors of the above mentioned Companies, but none of the Directors were found on the given addresses. Sh. Tarun Goyal was also asked to produce the Directors’ of the above mentioned Companies but he also failed to produce any Director.

The Statements of the Directors of the above mentioned Companies clearly established that the Directors of the Companies were employees of Sh Tarun Goel and they had no knowledge of the finances of the Companies. They have agreed that they used to sign the cheque books on the direction of Sh. Tarun Goel and they were not aware about the use of those cheques or about the purposes or the parties to whom these cheques were given. Sh Tarun Goel in his statement has admitted that he was using some of the above mentioned Companies for providing accommodation entries.

It would be relevant, to point out here that in the account of opening forms of some Companies, the Photographs of Smt. Usha Rani was pasted against various names like Usha Goyal, Usha Sharma, Urvashi Singh. In her Statement under oath. Smt Usha Rani admitted that it was only her photograph against several names. It indicates that there are several Directors Which are non-existent.

Based on the above facts it is evident that Sh. Tarun Goel is an Entry Operator and has given accommodation entries to various persons and concerns. Therefore, the Share Capital received by M/S Dwarkadhis Buildwell Pvt Ltd from the above mentioned Companies controlled by Sh. Tarun Goyal are in fact accommodation entries and form part of its unaccounted income for the financial year 2005-0G.

From- the finding of search, it is evident and undeniable that all the Companies belonged to Shri Tarun Goyal and were fictitious. He has made an annexure of such beneficiary companies and M/s Dwarkadhis Buildwell P Ltd. is one of them where an amount of Rs. 7.10 crore relevant for assessment year 2006-07 has been taken by this company from the following entry provider companies.

Sr. No.Name of the entry provider companyAmount of share application money (in Rs.)
1.Adonis Financial Services Pvt, Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh,2500000
2.Aries Crafts Pvt. Ltd, 13/34, WEA, Arya Samaj Road, Karol Bagh,5000000
3.Bhawani Portfolio Pvt. Ltd, 13/34, WEA, Arya Saihaj Road, Kami Bagh,3000000
4.Campari Fiscal Services Pvt. Ltd. 13/34, WEI, 4“ Floor, Main Aryn Sttmuj Road. Karol Bagh.6000000
5.Corporate Finlease Pvt. Ltd. 13/34, WEA, Arya Samaj Road5500000
6.Deep Sea Drilling Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh,5500000
7.D U Securities Pvt. Ltd. 13/34, WEA, Arya Saniaj Road, . Karol Bagh,3000000
8.Ebony Investment Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh,2500000
9.Karol Bagh Trading Ltd. 203 Dhaka Chambers, 2069/39, Naivvala, Karol Bagh, New Delhi5000000
10.Merta Finance Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh,5000000
11.Sadguru Finmin Pvt. Ltd. 13/34. WEA, Arya Samaj Road, Karol Bagh,5000000
12.Sai Dwarka Finman Pvt. Ltd. 13/34, WEI, 4″1 Floor, Main Arya Samaj Road, Karol Bagh,5000000
13.Taurus Iron & Steel Co Pvt. Ltd. Gohana Distt3000000
14.Tejasvi Investment Pvt. Ltd. Gohana Distt. Sonepat5000000
15.Thar Steel Pvt. Ltd. 13/34, WEA, .Arya Samaj Road, Karol Bagh,4500000
16.Volga Cresec Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh,5500000
 Total71000000

In this way, the assessee has increased his share application money through, these accommodation entries. In fact accommodation entries are to the tune of Rs, 7.10 Crores forming part of its unaccounted income for the Financial Year 2005-06 relevant to Asstt. Year 2006-07 which has escaped assessment.

I have therefore, reasons to believe that income of Rs 7,10,00,000/- has escaped assessment for the Asstt. Year 2006- 07 and also any other income- chargeable to tax which has escaped assessment and which comes to the notice of s the AO subsequently in the course of proceedings- under this, section.

Issue notice u/s. 148 of the Income Tax Act, 1961.”

3. The Assessing Officer completed the re-assessment proceedings u/s. 143 (3)/147 on 13.12.2011 at the returned income without making any addition. While doing so he accepted the plea of the assessee on the basis of various decisions including the decision of Hon’ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd reported in 216 CTR 195 = 2008-TIOL-238-SC-IT that if the identity of the investors is established, the assessment in the case of the investors can be re-opened as per law but no addition can be made in the hands of the company who has received the share application money. He accordingly dropped the proceedings initiated u/s. 147 of the IT Act, 1961 and accepted the returned income.

4. The Ld. CIT called for the record and examined the same and noted that assessee, during the course of assessment proceedings, had stated that these investor companies were incorporated under the companies Act and have been maintaining bank accounts and the statements of bank accounts alongwith copies of PAN were furnished as evidence of identity of the investors. The assessee company had argued that it received share application money through banking channel and hence the transactions were claimed to be genuine. The assessee company relied upon the judgment of Hon’ble Supreme Court in the case of Lovely Exports Ltd. (2008) 216 CTR 195 6DTR (SC) 308 = 2008-TIOL-238-SC-IT in support of its claim. Assessee further stated that if identity of the investor is established, the assessment in the case of investors can be reopened as per law, but no addition can be made in the hands of the company who has received the share application money.

5. According to Ld. CIT the Assessing officer did not make any investigation/ verification with regard to the genuineness of the identity of the investor companies inspite of the fact that the record had sufficient material which necessitated further enquiries. According to the Ld. CIT, the ratio of the decision of Hon’ble Supreme Court was examined subsequently by various courts including, the Hon’ble Delhi High Court in the case of CIT Vs. Nova Promoters & Finlease (P) Ltd reported in 342 ITR 169 = 2012-TIOL-148-HC-DEL-IT. Although in normal course, addition can be made only in the hands of the investors, however, in this case, these share holders/ investors are not doing any real business but are being used as a vehicle to launder black money. He, therefore, issued a show cause notice u/s 263 (1) asking the assessee to explain as to why the order passed by the Assessing Officer should not be set aside since the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue.

6. Rejecting the various explanation given by the assessee and observing that the Assessing Officer failed to conduct further enquiries which were necessary to gather relevant material, the ld. CIT set aside the assessment and directed the AO to make fresh assessment after gathering relevant material by making proper/ necessary enquiries/ investigations. The relevant observation of the CIT at para 12.1 and 12.2 of his order reads as under :-

“12.1 In view of discussion made in above paras, I am of the considered opinion that the A.O. ought to have appreciated the evidence gathered by the investigation wing and followed a course to confront these evidences to the assessee, including conducting further enquiries which were necessary to gather relevant material which AO failed to do. There has been non-application of mind on the part of the A.O. in not appreciating the material on record as well as in not following course of further inquiry to gather relevant material. Also, there is failure on part of the A.O. to apply provisions of the law, correctly. Therefore, assessment order passed by the A.O. is held as erroneous and prejudicial to the interest of revenue in respect of aforesaid issues. Had the consequent additions been made, there would have been substantial tax effect and thus the cause of the revenue has suffered. Further, the impugned order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue in respect of aforesaid issues. Had the consequent additions been made, there would have been substantial tax effect and thus the cause of the revenue has suffered. Further, the impugned order of the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue as it is in clear violation of the legal provisions contained in the Income Tax Act, 1961. Thus, the validity / sanctity of the legal provisions of the Act, has been eroded and it may serve as a bad precedent. The revenue loss also arises as the consequent additions could have given rise to the occasion of initiation of penalty proceedings under section 271(1) (c) of the Income Tax Act, 1961, for furnishing of inaccurate particulars of its income and concealment of income in respect of above stated issues.”

12.2. The assessment order is, therefore, set aside u/s. 263 91) of the Income Tax Act, 1961 to the above stated extent. The aforementioned issues are restored back to the file of the Assessing Officer. The AO is directed to make fresh assessment after gathering relevant material by making necessary and proper inquiries / investigation, in the light of discussions made in the preceding paras (but not necessarily limiting to the same) and make a judicious and logical order as per law, providing opportunity of being heard to the assessee. Of course, any adverse inference made would require recomputation of income and tax thereon.”

7. Aggrieved with such order of the CIT, the assessee is in appeal before the Tribunal by raising following grounds :-

1. That the order of ACIT, Circle Bhiwani U/s 143(3)/147 dated 13.12.2011 itself is void ab initio, illegal and without jurisdiction being contrary to provisions of law, based on surmises and conjectures. As such action of Ld CIT – Hisar for setting aside order which is void ab initio or non est order by initiating the proceedings U/s 263 is without jurisdiction and liable to be undone.

2. That the order of Ld Commissioner of Income Tax – Hisar is against the law, facts, circumstances, natural justice and all other principles and rules of law as such is liable to be quashed.

3. That Ld Commissioner of Income Tax – Hisar erred in setting aside the order passed u/s 147 r.w.s 143(3) dated 13.12.2011 even though the conditions precedent for validity excising his jurisdiction u/s 263 were not satisfied.

4. That when Ld AO dropped the proceedings initiated by him U/s 147 after considering assessee’s objections and submission and show cause notice issued by Ld CIT – Hisar does not take into account validity of the jurisdiction assumed by Ld AO as per law and talks about only lack of inquiry and investigation on merits then order passed U/s 263 without setting aside the proceedings initiated U/s 147 dropped by Ld AO by stating in the order that “Therefore the proceedings initiated U/s 147 by issuing notice U/s 148 to the assessee are hereby dropped” is liable to be quashed.

5. That the Ld Commissioner of Income Tax – Hisar failed to appreciate the fact that the Ld AO dropped the proceedings initiated U/s 147 read with Sec 148 on a possible view, that the facts and circumstances of the case of appellant company are parallel and covered by the decision and ratio laid down by the Hon. Supreme Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83 = 2002-TIOL-491-SC-IT as such proceedings cannot be held as erroneous therefore Ld CIT has wrongly assumed and invoked provisions of Sec. 263 of the Income Tax Act’1961 which is contrary to the facts and provisions of law as such order U/s 263 is liable to be quashed.

6.1 That the order of ACIT, Circle Bhiwani U/s 143(3)/147 dated 13.12.2011 was neither erroneous nor it was I prejudicial to interest of revenue considering the facts and circumstances of the case and provisions of law. I As such action of Ld CIT-Hisar to set aside the same U/s 263 is without jurisdiction and needs to be undone.

7. The Ld. Commissioner of Income Tax – Hisar erred in holding that the assessment order passed u/s. 143(3)/147 is erroneous and prejudicial to the Interest of the Revenue, ignoring the fact that the Ld. AO has erred in arbitrarily reopening the assessment u/s 147 without having any reasons to believe that income of assessee has escaped assessment as such order U/s 263 is liable to be quashed.

8. The Ld. Commissioner of Income Tax – Hisar erred in holding that the assessment order passed u/s. 143(3)/147 is erroneous and prejudicial to the Interest of the Revenue, which is based on audit objection against which proceedings U/s 154 initiated by Ld AO has been pending and without application of his independent mind as such order U/s 263 on the basis of Audit Objection is void-ab-initio and needs to be quashed.

9. That Ld Commissioner of Income Tax – Hisar exceeded his jurisdiction by relying on documents collected as a result of subsequent inquiry after initiating the proceedings U/s 263 which is not part of record of assessment or reassessment proceedings or available to Ld CIT, as such setting aside the reassessment order U/s 143(3)/147 by exercising powers U/s 263 relying on such documents needs to be quashed being void- ab-initio.

10. That in the facts and circumstance of the case the Ld. CIT Hisar is not justified in law in setting aside the well reasoned order of the ACIT Bhiwani dated. 13/12/11 passed u/s 143(3) /147 dropping the proceedings by following the ratio laid down by the Hon’ble Supreme Court in the case of Lovely Exports Pvt. Ltd. 216 CTR 195 = 2008-TIOL-238-SC-IT in the proceeding initiated on the basis of audit objection without the examining the record and without recording that the how the order was not only erroneous but also prejudicial to the interest of the revenue ignoring the ratio of Malabar Industrial Company Ltd. 243 ITR 83 = 2002-TIOL-491-SC-IT.

11. That the order of the Ld. CIT is also bad in law as it is based on considering the fresh material which was not part of the record of the ACIT at the time of passing the order by the Ld. ACIT dropping the proceedings u/s 148 ignoring the pending proceedings us/s 154 on the based on the audit objection to meet with the audit objection and issuing specific direction to pass the order in a particular manner which cannot be done in proceedings u/s 263 of the Income Tax Act’1961

12. That the appellant craves right to amend, add, delete or withdraw any of the grounds of appeal either before or at the time of hearing of this appeal.

8. The Ld. Counsel for the assessee strongly challenged the order of the CIT. Referring para 12.1 of the order of the CIT he submitted that the Ld. CIT is not in doubt that the Assessing Officer has not conducted any enquiry. According to him the Assessing Officer should have made some further enquiries. Referring to the copy of the notice issued us/. 263 (1) dated 29.11.2012, copy of which is placed at page No.117-118 of the paper book, he submitted that it is the allegation of the ld. CIT that the assessee company has beneficially accepted the share application money from the companies controlled by Sh. Tarun Goyal who has admitted to have used these entities for providing accommodation entries. According to the Ld. CIT there are circumstances which necessitated further enquiries regarding the genuineness of these investor companies. According to him, the Assessing Officer should have made further enquiries in this regard which he failed to carry out.

8.1 Referring to page 17 to page 26 of the paper book, he drew the attention of the bench to the copy of the order passed u/s. 143 (3) on 31.12.2008. He submitted that the return was filed u/s. 139 on 11.10.2006 and the notice u/s. 143 (2) was issued on 10.09.2007. A search in the case of Tarun Goyal took place on 15.09.2008. In the original assessment order, the Assessing Officer after thorough discussion has accepted the share premium of Rs.12,43,35,000/- and the share holders capital Rs.1,41,15,000/-. He submitted that there is no dispute about the share capital amount of Rs.6,71,500/- and share premium of Rs.6,74,50,000/- and the dispute is only regarding share application money of Rs.7,10,00,000/-. Referring to various pages of the paper book he submitted that on three occasions the department had accepted the valuation of shares after making thorough enquiry. Even the AO who passed the order u/s. 147 / 143 (3) on 13.12.2011 did not find any mistake in the valuation for which he did not make any addition and accepted the returned income by dropping the proceedings. Referring to the office note of the Assessing Officer he submitted that the Assessing Officer has forwarded the names of the various investor companies who have applied in the shares of the assessee company to the respective Assessing Officers for taking necessary action.

8.2 The Ld. Counsel for the assessee referring to the decision of Hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Limited reported in 189 taxman 436 = 2009-TIOL-552-HC-DEL-IT submitted that the Hon’ble High Court in the said decision has held that if while making assessment, the AO has made inadequate enquiry, that could not, by itself give occasion to the commissioner to pass an order u/s. 263, merely because he has a different opinion in the matter. It is only in cases of “lack of enquiry” that such a course of action would be open. It has been held that when facts clearly showed that AO had undertaken exercise of examining as to whether expenditure incurred by assessee in replacement of dies and tools was to be treated as revenue expenditure or not and on being satisfied with assessee’s explanation, he accepted the same, it could not be said to be a case of lack of enquiry. Accordingly the order of the Tribunal setting aside the order of the CIT passed u/s. 263 was upheld.

9. The ld. Counsel for the assessee referring to para 8.2.2. of the order of Ld. CIT submitted that the AO has followed the decision of Hon’ble Supreme Court in the case of Lovely Exports (P) Limited (supra). Where as it is the allegation of the Ld. CIT that the Assessing Officer should have followed the decision of Hon’ble Delhi High Court in the case of CIT Vs. Nova Promoters and Finlease Private Limited reported in 342 ITR 0169 = 2012-TIOL-148-HC-DEL-IT. He submitted that the assessment order in the instant case u/s. 143(3) / 147 was passed on 13.02.2011 where as the decision of Hon’ble High Court in the case of Nova Promoters (supra) was pronounced on 15.02.2012. Therefore, the Assessing Officer could not have visualized the decision of Hon’ble Delhi High Court in the case of Nova Promoters (supra).

9. Referring to the decision of Hon’ble Supreme Court in the case of CIT Vs. GM Mittal Stainless Steel Private Limited reported in 130 taxman 67 = 2002-TIOL-220-SC-IT he submitted that the Hon’ble Supreme Court in the said decision has held that if at a particular time when power u/s. 263 was exercised, decision of jurisdictional High Court had not been set aside by the Hon’ble Supreme Court or atleast had not been appealed from, it would not be open to CIT to have proceeded on basis that High Court was erroneous and the Assessing Officer who had acted in terms of High Court decision had acted erroneously. He submitted that in this particular case, the CIT has not recorded any reason whatsoever for coming to the conclusion that the AO was erroneous in deciding that the power subsidy was capital receipt. Given the fact that the decision of the jurisdictional High Court was operative at the material time, the AO could not be said to have erred in law. The fact that this Court had subsequently reversed the decision of the High Court would not justify the CIT in treating the Assessing Officer’s decision as erroneous. The power of the CIT under section 263 of the Act must be exercised on the basis of the material that was available to him when he exercised the power. At that time, there was no dispute that the issue whether the power subsidy should be treated as capital receipt had been concluded against the revenue. The satisfaction of the CIT, therefore, was based on no material either legal or factual which would have given him the jurisdiction to take action under section 263 of the Act.

10. Referring to various other decisions he submitted that as per provisions of section 263 the CIT can call for and examine the record of any proceeding under the Act only on the basis of his being satisfied that the Assessing Officer was erroneous in passing the orders and (2) that the decision of the Assessing Officer was prejudicial to the interest of the revenue. Further, the satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the commissioner.

11. Referring to the decision of Hon’ble Delhi High Court in the case of Delhi Airport Metro Express (P.) Ltd. 184 TTJ 32 (Del) (Confirmed by Delhi High Court at 99 Taxmann.com 82 (Del) he submitted that where commissioner could not successfully establish through his enquiry that order passed by AO was unsustainable in law and moreover view taken by Assessing Officer was a plausible view, which was supported by various judicial precedents, assessment order passed could not be called to be erroneous though may be prejudicial to interest of revenue

12. Referring to the decision in the case of Dharam Pal [2017] 82 taxman.com 83 (Amritsar – Trib) he submitted that the Tribunal in the said decision has held that where the Assessing Officer has examined a particular issue and has completed the assessment after taking a possible view, the commissioner is not permitted to assume powers u/s. 263 simply because he does not agree with the view taken by the Assessing Officer.

13. Referring to the decision of Hon’ble Delhi High Court in the case of Director of Income Tax Vs. Jyoti Foundation (2013) 38 Taxmann.com 180 = 2013-TIOL-569-HC-DEL-IT he submitted that the Hon’ble High court in the said decision has held that where revisionary authority opined that further enquiry was required, such enquiry should have been conducted by revisionary authority himself to record finding that assessment order passed by the AO was erroneous and prejudicial to the interest of the revenue.

14. Referring to the decision of Hon’ble Delhi High Court in the case of CIT Vs. Anil Kumar Sharma reported 194 taxman 504 = 2010-TIOL-267-HC-DEL-IT he submitted that the Hon’ble High Court in the said decision has held where it was discernible from record that Assessing Officer had applied his mind to issue in question, commissioner could not invoke section 263 merely because he has different opinion.

15. Referring to the decision of Hon’ble Delhi High Court in the case of CIT Vs. Hindustan Marketing and Advertising Company Limited reported in 341 ITR 180 = 2010-TIOL-667-HC-DEL-IT he submitted that the Hon’ble Delhi High Court in the said decision has held that where the ITO had made reasonable detailed enquiries, had collected relevant material and discussed various facts of case with assessee, order of CIT to direct fresh assessment by going deeper into the matter would not form a valid or legal basis to exercise jurisdiction u/s. 263.

16. Referring to various other decisions he submitted that when the view taken by the AO was one of the plausible view then the Ld.CIT cannot invoke jurisdiction u/s. 263. He submitted that for invoking the justification under section 263 of the IT Act 1961 the twin conditions namely the order is erroneous and the order is prejudicial to the interest of the revenue must be satisfied. In the instant case although the order may be prejudicial to the interest of the revenue as per the Ld. CIT, however, it cannot be said that the order is erroneous since the AO has taken a plausible view in the light of the decision of Hon’ble Supreme Court in the case of Lovely Exports (P) Ltd. (supra) prevailing at that time. Therefore, the Ld. CIT could not have invoked jurisdiction u/s 263 of the IT Act. He accordingly submitted that the order of the CIT be set aside and the grounds raised by the assessee be allowed.

17. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT. He submitted that the very basis on which the reopening was made was not addressed by the AO. No deeper enquiry was conducted by the Assessing Officer to tax the bogus share capital and share premium in the hands of the assessee. He submitted that the order passed by the AO of Delhi in the case of the investor companies was very much available with the AO at the time of passing of the Assessment Order but he chose not to consider the same.

18. Referring to the decision of Hon’ble Supreme Court in the case of Deniel Merchants Private Limited and another Vs. ITO vide order dated 29.11.2017 he submitted that Hon’ble Supreme Court in the said decision has held that if no proper enquiry was conducted by the Assessing Officer while making the assessment and he accepts the explanation of the assessee in so far as receipt of share application money is concerned, the order of the CIT setting aside the order of the Assessing Officer with a direction to carry out a thorough and detailed enquiry is justified. The order of the Hon’ble High Court was accordingly upheld. He accordingly submitted that since the AO in the instant case has not made any proper enquiry while making the assessment and accepted the explanation of the assessee on account of receipt of share application money, therefore, the Ld. CIT is justified in invoking the jurisdiction u/s. 263 of the IT Act. He also relied on the following decisions :-

1. Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax 243 ITR 83 (SC) = 2002-TIOL-491-SC-IT

2. Bharat Overseas Bank Ltd. Vs. Commissioner of Income Tax 152 TTJ 546 (Chennai)

3. Pratap Footwear Vs. ACIT 1 SOT 638 (Jabalpur)

4. Gee Vee Enterprises Vs. Additional Commissioner of Income Tax 99 ITR 375 = 2003-TIOL-329-HC-DEL-IT

5. CIT Vs. Nagesh Knitwear ITA No.591/2008 order dated 01.06.2012 = 2012-TIOL-424-HC-DEL-IT.

19. The Ld. Counsel for the assessee in his rejoinder submitted that in the case of Deniel Merchants Private Limited (supra) no enquiry was conducted by the AO whereas in the instant case enequiries were conducted twice i.e. once during the original assessment proceedings passed u/s. 143 (3) and subsequently during the reassessment proceedings where order was passed u/s. 143 (3)/ 147. Therefore, it cannot be said that in the instant case no proper enquiry was conducted. He accordingly submitted that the order of Hon’ble Supreme Court in the case of Daniel Merchants (P) Ltd. (supra) is not applicable to the facts of the present case.

20. We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both the sides. We find the original assessment in the instant case was completed by the Assessing Officer u/s. 143 (3) on 31.12.2008 accepting the returned income at Nil. We find the case of the assessee was reopened by issue of notice u/s. 148 after recording reasons and subsequently the Assessing Officer completed the assessment u/s. 143 (3)/147 on 13/12/2011 accepting the returned income and thereby dropping the proceedings initiated u/s.147 of the IT Act. We find the Ld. CIT held the order passed by Assessing Officer u/s 143 (3)/147 as erroneous and prejudicial to the interest of the revenue on the ground that the Assessing Officer simply accepted the case decision relied on by the assessee in the case of Lovely Exports (P) Limited (supra) and the AO had not made any further enquiry regarding such share applicants. According to the Ld. CIT after the decision of Hon’ble Supreme Court various other courts had occasion to consider the said decision and one such decision was decision of Hon’ble Delhi High Court in the case of CIT Vs. Nova Promoters Finlease Private Limited reported in 342 ITR 169 = 2012-TIOL-148-HC-DEL-IT. He was also of the opinion that the AO should have appreciated the evidence gathered by the investigation wing where in certain incriminating material were gathered and the Assessing Officer should have conducted further enquiry which were necessary to gather relevant material which the AO failed to do. According to the Ld. CIT there was complete non application of mind on the part of the AO in not appreciating the material available on record as well as in not following course of further enquiry to gather relevant material. Since there was failure on the part of the AO to apply the provision of law correctly, therefore, he held that the order passed by the AO is both erroneous as well as pre-judicial to the interest of the revenue.

20.1 It is the submission of the ld. Counsel for the assessee that the AO had followed the correct proposition of law available at the time of passing of the order. As per decision of Hon’ble Supreme Court in the case of Lovely Exports (P) Ltd. (supra) even if the share holders are bogus, addition cannot be made in the hands of the assesee and addition can be made only in the hands of such bogus share holders if their identity is known to the department. It is the submission of the Ld. Counsel for the assessee that for invoking jurisdiction u/s. 263 the order must be both erroneous as well as prejudicial to the interest of the revenue. The twin conditions must be satisfied and absence of any one cannot empower the CIT to invoke jurisdiction u/s. 263. It is also his submission that the Assessing Officer in the instant case had conducted thorough enquiry twice and it is not the case of no enquiry or lack of enquiry.

21. We find some force in the above arguments of the Ld. Counsel for the assessee. We find the AO in the order passed u/s. 143(3) /147 has followed the decision of Hon’ble Supreme Court in the case of Lovely exports (P) Limited (supra) in letter and spirit. In the office note, copy of which is available in the paper book, it is seen that the Assessing officer had forwarded information to the concerned AO of the investor companies for taking further necessary action against them. The relevant portion of the office note reads as under :-

“Office Note”

From the record, it is seen that the following company was deposited below mentioned amount of share application money with the assessee M/s. Dwarkadish Build Well Pvt. Ltd. C/o N. K. Jain, Advocate, Naya Bazar, Bhiwani. The assessee has furnished information alongwith supporting documentary evidence with regard to amount of share application money and after verification of these amounts from the relevant books of a/c as well as from the bank statements, no addition is required to be considered in the said assessee company case. The information of the following company are being referred/ sent to the concerned Assessing Officer for taking further necessary action against the below companies.

Sr. No.Name of the entry provider entryAmount of share application money ( in Rs.)
1Adonis Financial Services Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh,2500000
2Aries Crafts Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5000000
3Bhawani Portfolio Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh3000000
4Campari Fiscal Services Pvt. Ltd. 13/34, WEA, 4th Floor, Main Arya Samaj Road, Karol Bagh6000000
5Corporate Finlease Pvt Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5500000
6Deep Sea Driling Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5500000
7DU Securities Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh3000000
8Ebony Investment Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh2500000
9Karol Bagh, Trading Ltd. 203 Dhaka Chambers 2069/39, Naiwala, Karol Bagh, New Delhi5000000
10Merta Finance Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5000000
11Sadguru Finmin Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5000000
12Sai Dwarka Finman Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5000000
13Taurus Iron & Steel Co. Pvt. Ltd. Gohana Distt. Sonepat3000000
14Tejasvi Investment Pvt. Ltd. Gohana Distt. Sonepat5000000
15Thar Steel Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh4500000
16Volga Cresec Pvt. Ltd. 13/34, WEA, Arya Samaj Road, Karol Bagh5500000
 Total71000000

22. Thus when the AO passed the order u/s. 147 / 143 (3), we find he has followed the decision of Hon’ble Supreme Court in the case of Lovely Exports (P) Limited (supra) in letter and spirit. So far as the allegations of the Ld. CIT that subsequent decision had come for which he referred to the decision of Hon’ble Delhi High Court in the case of Nova Promoters Finlease (supra) is concerned we find the Hon’ble Delhi High Court pronounced the said decision on 15.02.2012 whereas the AO in the instant case has passed the order u/s. 143(3)/147 on 13.12.2011. Therefore, we do not find any merit in the allegation of the Ld. CIT of non consideration of the above decision since the same was not available at the time of passing of the assessment order.

23. The Hon’ble Supreme Court in the case of G. M. Mittal Stainless Steel Private Limited (supra) at para 5 of the order has observed as under :-

1. “In this particular case, the CIT has not recorded any reason whatsoever for coming to the conclusion that the Assessing Officer was erroneous in deciding that the power subsidy was capital receipt. Given the fact that the decision of the jurisdictional High Court was operative at the material time, the Assessing Officer could not be said to have erred in law. The fact that this Court had subsequently reversed the decision of the High Court would not justify the CIT in treating the Assessing Officer’s decision as erroneous. The power of the CIT under section 263 of the Act must be exercised on the basis of the material that was available to him when he exercised the power. At that time, there was no dispute that the issue whether the power subsidy should be treated as capital receipt had been concluded as against the revenue. The satisfaction of the CIT, therefore, was based on no material either legal or factual which would have given him the jurisdiction to take action under section 263 of the Act.”

24. So far as the allegation of the Ld. CIT that the AO should have conducted further enquiry which were necessary to gather relevant material which the AO failed to do and there was non application of mind on the part of the AO is concerned, we find in the instant case thorough enquiries were conducted by the AO both at the time of original assessment and at the time of reassessment proceedings. Full details giving the names, addresses, number of shares of nominal value and share premium amount of all the share holders alongwith their bank statements, copy of IT returns, PAN etc. were filed before the AO. Even if the share holders were bogus as per allegation of the revenue in view of the reasons recorded for reopening, however, as per prevailing law at that time in view of decision of Hon’ble Supreme Court in the case of Lovely Exports (P) Limited (surpa) addition could not have been made in the hands of the assessee and addition, if any, could have been made only in the hands of such bogus share holders. Since AO has taken a plausible view, therefore, it cannot be said that the order of the AO is erroneous.

25. We find the Hon’ble Delhi High Court in the case of PCIT Vs. Delhi Airport Metro Express Private Limited vide ITA No.705/2017 order dated 05.09.2017 = 2017-TIOL-1814-HC-DEL-IT has held that for the purpose of exercising jurisdiction u./s. 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry. If the PCIT is of the view that the AO did not undertake any enquiry, it becomes incumbent on the PCIT to conduct such enquiry. If the PCIT does not conduct such basic exercise then the CIT is not justified in setting aside the order u/s. 263 of the IT Act.

26. We find the Hon’ble Delhi High Court in the case of Jyoti Foundation (supra) has held that where revisionary authority opined that further enquiry was required, such enquiry should have been conducted by revisionary authority himself to record finding that assessment order passed by the AO was erroneous and pre judicial to the interest of the revenue. We find Hon’ble Delhi High court in the case of Sunbeam Auto Limited (supra) has held that if the AO, while making an assessment, has made inadequate enquiry that would not by itself give occasion to the CIT to pass order u/s.263 merely because he has different opinion of the matter. Only in the case of “lack of enquiry” that such a course of action would be open. It has further been held in the said decision that where the view taken by AO was one of the possible views, therefore, the assessment order passed by the AO cannot be held to be prejudicial to the interest of the revenue. The Hon’ble Delhi High court in the case of Anil Kumar Sharma (supra) has held that where it was discernible from record that the AO had applied his mind to an issue in question, Commissioner could not invoke section 263 merely because he has different opinion.

27. So far as the decision relied on by Ld. DR in the case of Deniel Merchants (P) Ltd. (supra) is concerned, the Ld. DR could not controvert the submission of the Ld. Counsel for the assessee that no enquiry was conducted in the said case whereas in the case of the assessee enquiries were conducted twice i.e. during the original assessment proceedings and secondly during the reassessment proceedings. Therefore, the decision relied on by Ld. DR is not applicable to the facts of the present case. We find from a perusal of the paper book that the assessee during the course of original assessment proceedings as well as during reassessment proceedings had filed the requisite details as called for by the AO and the Assessing Officer after considering the same and following the decision of Hon’ble Supreme Court in the case of Lovely Export (supra) which was prevailing at the time of passing of the order completed the assessment and he has informed the AO of the investor companies to pass appropriate order. Therefore, in view of our discussion in the preceding paragraphs the order of the AO in the instant case cannot be held as erroneous. Since for invoking jurisdiction u/s. 263 the twin conditions i.e. order must be erroneous and the order must be prejudicial to the interest of revenue must be fulfilled and since, we have held that the order is not erroneous, therefore, the twin conditions are not satisfied. Therefore, the Ld. CIT in our opinion could not have invoked jurisdiction u/s. 263 of the IT Act. We, therefore, set aside the order of the CIT passed u/s. 263 of the IT Act and the grounds raised by the assessee are allowed.

28. In the result, the appeal filed by the assessee is allowed.

(Order pronounced in the open court on 01.07.2019)

(Paras are numbered as per the original text: Editor)

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