Marigold Nirman Pvt Ltd, Kolkata vs Assessee

M/s Subhlakshmi Vanijya Pvt. Vs. Commissioner of Income Tax,-I, Ltd., Aayakar Bhawan, 226/1, AJC Bose Road, P-7, Chowringhee Square, 6th Floor, Kolkata - 700 069. Kolkata - 700 020.

PAN: AALCS5695R (Respondent) (Appellant)

Assessee by : Shri Rajesh Bagri,FCA

ITA No.1790/Kol/2013 Assessment Year: 2008-09

Ramshila Enterprises Pvt. Ltd., Vs. Commissioner of Income Tax, 5th Floor, Room No.503, Kolkata-II, Narayani Building, Aayakar Bhawan, 3rd Floor, 27, Brabourne Road, P-7, Chowringhee Square, Kolkata - 700 001. Kolkata - 700 069. PAN: AABCR3063J ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ITA No.1905/Kol/2013 Assessment Year: 2008-09

Tulsi Tracom Pvt. Ltd., Vs. Commissioner of Income Tax, B-222, 2nd Floor, Okhla Kolkata-II, Industrial Area, Phase-I, Aayakar Bhawan, 3rd Floor, New Delhi - 110 020. P-7, Chowringhee Square, PAN: AACCT6121K Kolkata - 700 069

(Appellants) (Respondents)

Assessee by: Shri N.K. Poddar, Sr. Counsel, Smt. A.K. Tibrewal & Shri Amit Agarwal, Advocates.

ITA No.1419/Kol/2013 Assessment Year: 2008-09

M/s Linsey Vinimay Pvt. Ltd., Vs. Commissioner of Income Tax-II, 2C, Mahendra Road, Aayakar Bhawan, Kolkata - 700025. P-7, Chowringhee Square, PAN:AABCL3787D Kolkata - 700 069.

ITA No.1425/Kol/2013 Assessment Year : 2008-09

M/s Balaka Vinimay Pvt. Ltd., Vs. Commissioner of Income Tax, Rajesh Mohan & Associates, Kolkata-II, 34, GC Avenue, 5th Floor, P-7, Chowringhee Square, Unit No.18, Aayakar Bhawan, Kolkata - 700 013. Kolkata - 700 069.

PAN: AABCO0670L

2 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ITA No.1213/Kol/2013 Assessment Year : 2009-10

M/s Orbital Contractors Vs. Commissioner of Income Tax, Financiers Pvt. Ltd., Kolkata-III, 16, Ganesh Chandra Avenue, P-7, Chowringhee Square, 7th Floor, Aayakar Bhawan, Kolkata - 700 013. Kolkata - 700 069.

PAN: AAACO3799D

(Appellants) (Respondents)

Assessee by : Shri K.M. Roy, FCA

ITA No.1262/Kol/2013 Assessment Year: 2008-09

M/s Satabdi Vincom Pvt. Ltd., Vs. Commissioner of Income Tax-II, 52, Weston Street, Aayakar Bhawan, Kolkata - 700012. P-7, Chowringhee Square, PAN:AAKCS9972L Kolkata - 700 069.

ITA No.1073/Kol/2014 Assessment Year: 2009-10

M/s Parasmani Commercial Commissioner of Income Tax-I, Pvt. Ltd.,C/o Rajesh Mohan & Aayakar Bhawan, Associates, P-7, Chowringhee Square, Chartered Accountants, Kolkata - 700 069. Unit No.18, 5th Floor, 34, Ganesh Chandra Avenue, Kolkata - 700013. PAN:AAECP9542

3 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ITA No.1481/Kol/2013 Assessment Year: 2008-09

M/s Radha Krishna Tradecom Commissioner of Income Tax-I, Pvt. Ltd., Aayakar Bhawan, 71, Metcalfe Street, P-7, Chowringhee Square, Kolkata - 700013. Kolkata - 700 069. PAN:AADCR7605N

(Appellants) (Respondents)

Assessee by : Shri R.K. Aggarwal, FCA, S.M. Surana, Advocate & Sunil Surana, Advocate

ITA No.1499/Kol/2014 Assessment Year: 2008-09

M/s Reward Tie-up Pvt. Ltd., Vs. Commissioner of Income Tax-I, C/o Salarpuria Jajodia & Co., Aayakar Bhawan, 7, Chittaranjan Avenue, P-7, Chowringhee Square, Kolkata - 700072. Kolkata - 700 069. PAN:AADCR2573D

ITA No.2135/Kol/2013 Assessment Year : 2008-09

Capetown Merchandise Pvt. Vs. Commissioner of Income Tax, Ltd., Room No.1B, 2nd Floor, Kolkata-II, 542, GT Road (South), P-7, Chowringhee Square, Howrah - 711101. Aayakar Bhawan, Kolkata - 700 069. PAN: AADCC2015P

4 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ITA No.1465/Kol/2013 Assessment Year : 2008-09

M/s Vinayak Financial Vs. Commissioner of Income Tax, Consultant Pvt. Ltd., Kolkata-III, C/o Salarpuria Jajodia & Co., P-7, Chowringhee Square, 7, CR Avenue, Aayakar Bhawan, Kolkata - 700 072. Kolkata - 700 069.

PAN: AACCV6187E

ITA No.861/Kol/2014 Assessment Year : 2009-10

Orbit Vintrade Pvt.Ltd., Commissioner of Income Tax, C/o RSVPC & Company, Kolkata-II, 41A, Ach. JC Bose Road, P-7, Chowringee Square, Suite No.613, Aayakar Bhawan, Kolkata - 700 014. Kolkata - 700 069

PAN: AABCO0670L (Appellants) (Respondents)

Assessee by : Shri Sujoy Sen, Advocate

ITA No.1365/Kol/2013 Assessment Year: 2008-09

M/s Marigold Nirman Pvt. Ltd., Commissioner of Income Tax-II, 27, Sir R.N. Mukherjee Road, Aayakar Bhawan, Kolkata - 700001. P-7, Chowringhee Square, PAN:AAFCM0455M Kolkata - 700 069.

5 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ITA No.1386/Kol/2013 Assessment Year: 2008-09

M/s Kasturi Home Pvt. Ltd., Commissioner of Income Tax-II, 85, Metcalfe Street, 2nd Floor, Aayakar Bhawan, Room No.206, P-7, Chowringhee Square, Kolkata - 700013. Kolkata - 700 069. PAN:AADCK0548F (Respondent)

ITA No.1385/Kol/2013 Assessment Year: 2008-09

M/s Aradhana Plaza Pvt. Ltd., Vs. Commissioner of Income Tax-II, 27, Sir R.N. Mukherjee Road, Aayakar Bhawan, Kolkata - 700001. P-7, Chowringhee Square, PAN:AAGCA2835A Kolkata - 700 069.

(Appellant) (Respondent)

Assessee by : Shri S.K. Tulsiyan, Advocate

ITA No.1538/Kol/2013 Assessment Year: 2008-09

Madhuban Vyapar Pvt. Ltd., Commissioner of Income Tax-I, 255, Rabindra Sarani, Aayakar Bhawan, 4th Floor, Room No.3, P-7, Chowringhee Square, Kolkata - 700007. Kolkata - 700 069. PAN:AAFCM1858E (Appellant) (Respondent)

Assessee by : Shri Subhash Aggarwal & Shri Brijesh Kumar, Advocates

6 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ITA No.1809/Kol/2013 Assessment Year: 2008-09

Banke Behari Construction Vs. Commissioner of Income Tax-II, Pvt. Ltd., Aayakar Bhawan, 4, BBD Bagh (E), Stephen P-7, Chowringhee Square, House, 5th Floor, Room No.77, Kolkata - 700 069. Kolkata - 700001. PAN:AADCB1786G

ITA No.1105/Kol/2014 Assessment Year: 2010-11

Hebiscus Commotrade Pvt. Commissioner of Income Tax-II, Ltd., Aayakar Bhawan, 9/12, Lal Bazar Street, P-7, Chowringhee Square, Mercantile Building, 3rd Floor, Kolkata - 700 069. Kolkata - 700001. PAN:AADCB7777K

(Appellants) (Respondents)

Assessee by : Shri Rajesh Kumar Duggar, FCA & Shri A.K. Upadhyay, Advocate

Department in : S/Shri Sachchidanand Srivastava, all appeals by Niraj Kumar & Dr. Adhir Kumar Bar, CITs, DRs

Dates of Hearing : From 14.07.2015 to 23.07.2015 Date of Pronouncement : .07.2015

7 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

ORDER PER R.S. SYAL, AM:

Through this batch of appeals, different assesses assail the

correctness of separate orders passed by the Commissioners of Income-

tax (CIT) u/s 263 of the Income-tax Act, 1961 (hereinafter also called

'the Act') in relation to the assessment years 2008-09 and 2009-10.

Since all these appeals are based on largely similar facts and common

grounds of appeal, we are proceeding to dispose them off by this

consolidated order for the sake of convenience.

2. Succinctly, the facts of M/s Subhlakshmi Vanijya Pvt. Ltd. are

that this assessee filed its return on 2.2.2010 declaring total income of

Rs.1,478/-. The return was processed u/s 143(1) of the Act. The

assessee, vide its undated letter submitted on 31.12.2010, stated before

the Assessing Officer (AO) that income of Rs.18,449/- earned by it was

omitted to be offered for taxation. The AO issued notice u/s 148 of the

Act on 14.1.2011 and completed the assessment. Apart from making

addition of Rs.18,449/-, which was brought to the notice of the AO by

the assessee itself and a further addition of Rs.9,600/- on account of 8 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Preliminary expenses, the AO observed during the course of such

proceedings that the assessee issued fresh share capital of Rs.14,71,800/-

on premium of Rs.7,21,18,200/-. Notices u/s 133(6) were issued to

eight subscribers to the share capital out of total 21 subscribers. Replies

to such notices were received confirming subscription to the equity share

capital of the assessee company at premium. Considering these replies,

the AO finalized the assessment at a total income of Rs.29,530/-, by

making the aforenoted additions of Rs.28,049/-.

3. The ld. CIT, on perusal of the assessment record, observed that the

issue of share capital with huge share premium, was not properly

examined by the AO inasmuch as notices were issued u/s 133(6) to only

eight subscribers against the total number of 21 subscribers of the

assessee company. He further noticed that replies in response to notices

u/s 133(6) were received in the office of the AO, which appeared to have

been prepared by a single person as these were more or less in the same

format and language. In this backdrop of the facts, it was opined that the

entire exercise of filing confirmations was stage-managed by a single

9 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

person or a group of persons to complete the formalities of filing

confirmations so as to lend semblance of credibility to the subscription

of share capital with huge premium. The AO was found to have not

cross-examined the subscribers nor recorded statement of any of the

directors of the assessee or subscriber companies. It was also noted that

the assessee's balance sheet reflected investments of Rs.8.80 crore in

shares of some other relatively new private limited companies at much

higher price than their real worth. In the opinion of the ld. CIT, the AO

failed to carry out proper investigation of the matter. He also took note

of a racket under which a large number of companies were floated in

identical manner apparently showing to have introduced share capital at

a huge premium by rotating the unaccounted money. He observed that

the AO ought to have conducted thorough enquiry into at least 2-3 layers

to reach the source or the real investor. Considering the fact that issue of

a share with a face value of Rs.10/- by the assessee company at a

premium of Rs.490/- per share required thorough examination by the

AO, which he failed to carry out, the ld. CIT, after considering the

10 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

objections of the assessee, came to hold that the assessment order was

rendered erroneous and prejudicial to the interest of the Revenue. He,

therefore, set aside the assessment order with a direction to the AO for

making a fresh assessment after conducting independent, detailed and

complete enquiries into the subscription to the share capital and

premium introduced in this case and also the investments of Rs.8.80

crore allegedly made by the assessee in certain other such companies.

The assessee is aggrieved against the impugned order.

4. There is another case, namely, M/s Ramshila Enterprises Pvt. Ltd.,

which has been argued before us for four days at a stretch. We have a

quick look at its facts. This assessee filed its return declaring total

income at Rs. Nil. The return was processed u/s 143(1). The case was

reopened by means of notice u/s 148. During the course of assessment

proceedings, it was noticed by the AO that this company had issued

shares with face value of Rs.10 at a premium of Rs.190. Notices u/s

133(6) were issued to some of the subscribers. Replies were received.

No further inquiries on the question of issue of share capital at premium

11 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

were conducted. Assessment was finalized on the total income of

Rs.20,447 making certain disallowances. The ld. CIT set aside the

assessment order on more or less the same reasoning as given in the case

of M/s Subhlakshmi Vanijya Pvt. Ltd. and directed the AO to reframe

the assessment fresh on the lines as directed by him in the case of M/s

Subhlakshmi Vanijya Pvt. Ltd.

5. Facts and circumstances of the other companies in this batch of

appeals are mutatis mutandis similar to those discussed above. All the

ld. Counsel representing such companies have admitted about the

similarity of facts between their respective cases and those of M/s

Subhlakshmi Vanijya Pvt. Ltd. and Ram Shila Enterprises Pvt. Ltd., with

minor but inconsequential changes. Such companies also issued shares

at a huge premium (ranging from Rs.90 to Rs.490 per share having face

value of Rs.10) and made investments in the shares of other private

limited companies at a very high price. In all these cases, returns were

filed with meager income. Either the attention of the AOs was invited by

these assessees towards some nominal income not properly offered for

12 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

taxation or the AOs suo motu noticed some escapement. Reassessments

were made u/s 147 making additions for nominal amounts, after those

AOs issuing notices u/s 133(6) to some of the subscribers and getting

satisfied with the genuineness of receipt of share capital with premium

without recording statements of the directors either of such companies

or those of investee companies, whose shares were purchased at a much

higher value. In all such cases, the ld. CITs have set aside such

assessment orders u/s 263 and directed the AOs to conduct proper

enquiry before deciding the matter. All the assessees in this batch of

appeals are aggrieved against the orders passed u/s 263 of the Act.

6. The ld. ARs have made elaborate submissions on various aspects

of the issue, which we discuss infra at appropriate places.

7. The ld. DR tried to explain the modus operandi of conversion of

black money into white through the medium of companies instantly

before us and others whose appeals have either been fixed along with

this batch of appeals or are yet to be fixed, with the help of a simple

illustration. He explained that the entire episode is completed through

13 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

three levels. In the first level, Company 'A' is incorporated on papers,

which does not carry out any substantial business activity. Suppose, this

company issues ten shares to another dummy company, say X with face

value of Rs.1/- at a premium of Rs.49, raising its share capital to

Rs.500/-. The sum of Rs.500/- standing on the liability side of the

balance sheet of company A is equalized with Investment in shares of

Company 'B', which is again a paper company, at a much higher price

than its real worth. Company 'B', in turn, gets Rs.500/- and invests

the same in the shares of another dummy private limited company 'C',

again at a huge undeserving market price. This process goes on as the

same amount of Rs.500 is rotated through various dummy companies

eventually showing their capital and share premium at Rs.500/-

represented by investment in shares of other dummy companies by equal

amount of Rs.500/- subject to the deduction of certain expenses incurred

or some petty income earned. In the second level, a person, say Mr. Y,

intending to convert his black money into white enters into a deal with

company X, who is shareholder of company 'A'. Company X sells its

14 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

shares of Company A with the purchase price of Rs.500 at its real worth,

say, Rs.6 per share. Mr. Y purchasing shares of company A for apparent

consideration of Rs.6, pays Rs.494/- in cash and, thus, acquires all the

shares of Company 'A' with apparent investment of Rs.6/- and real

investment of Rs.500/-. Mr. Y retains these shares for a period

exceeding one year. In the third level, the operators who have created

this web of dummy companies assist Mr. Y in selling the shares of

company 'A' at Rs.500/- through fictious transactions entered into with

Mr. Z. Mr. Y realizes Rs.500/- in cash and brings this amount into

circulation. Profit of Rs.494/- [Rs.500(sales price) minus

Rs.6(apparent purchase price)] earned by Mr. Y is not chargeable to tax

in terms of section 10(38) as it arises `from the transfer of a long-term

capital asset, being an equity share in a company'. That is how, Mr. Y

converts Rs. 494/- from black to white. The shares of company 'A' are

sold through operators to Mr. Z, who is interested in purchasing share

loss. Mr. Z treats the shares of company A either as his stock in trade or

Investment, depending upon his requirement. If these shares purchased

15 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

for an apparent consideration of Rs.500 are held by Mr. Z as stock in

trade, then at the end of the year, he will value such stock in trade at

market price, say at Rs.10. By doing so, he will show a loss of Rs.490

from the valuation of shares, which will be adjusted against his normal

business income to this extent. If Mr. Z treats these shares as Investment,

then the operator will help him in selling the shares at their market price

of Rs.10. Loss from the sale of Investment, being loss under the head

`Capital gain', will be set off against any other capital gain genuinely

earned by Mr. Z. This is the entire mechanism by which Mr. Y, who

purchased the shares of Company A has succeeded in converting his

black money of Rs. 494 into white. In the same manner, Mr. Y1 and

Mr. Y2 etc. convert their black money of Rs.494 into white by

purchasing the shares of Company B and Company C etc. The end result

is achieved by operators by routing the transactions of shares through

several layers of companies, thereby giving colour of genuineness,

which in reality is nothing but a camouflage. The ld. DR explained that

in the instant appeals, we are concerned with the first level in which

16 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

share worth Rs.10/- are issued for Rs.500/- and the assessee has also

made investment in the shares of other paper companies at huge price,

not in conformity with its market worth, and such companies are not

carrying on any worthwhile business activity.

8. The ld. DR explained that there are hundreds of appeals on this

issue before the Kolkata benches of the tribunal in all of which returns

were filed by such companies with meager income; intimations were

issued u/s 143(1); thereafter notices u/s 148 were issued either at the

instance of such companies divulging a paltry escapement of income or

otherwise ; assessment orders were passed u/s 143(3) read with section

147 after making nominal additions and the AOs, during the course of

such assessment proceedings, made some formal enquiries about shares

issued by such companies at huge premium by issuing notices u/s 133(6)

to some of the shareholders and getting satisfied without any further

investigation. The jurisdictional CITs have passed orders u/s 263 in all

such cases, which have been assailed before the Tribunal.

17 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

9. We have heard Shri N.K. Poddar, Sr. Advocate, Sh. Rajesh

Bagree, Shri K.M. Roy, Shri R.K. Aggarwal, Shri Rajesh Kumar

Duggar, C.A.s, Smt. A.K. Tibrewal, Shri Amit Agarwal, Sh. S.M.

Surana, Sh. Sunil Surana, Shri Sujoy Sen, Shri S.K. Tulsiyan, Shri

Subhash Aggarwal, Shri Brijesh Kumar, Shri A.K. Upadhyay,

Advocates (hereinafter also commonly referred to as the `ld. AR' for

convenience), S/Shri Sachchidanand Srivastava, Niraj Kumar & Dr.

Adhir Kumar Bar, the ld. CIT, DRs (hereinafter commonly referred to as

the `ld. DR' for convenience). Now we proceed to decide the question

of validity of the orders passed by the ld. CIT u/s 263 of the Act in this

batch of appeals. Detailed written and oral submissions advanced by

both the sides have been taken into consideration in the light of material

placed before us and precedents relied on.

10. The primary question which arises for our consideration is as to

whether the CITs were within their power to revise the assessment

orders passed by the AOs u/s 143(3) read with section 147? A view has

been canvassed by the ld. CITs in all the cases under consideration that

18 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the respective AOs should have carried out proper investigation before

accepting the genuineness of the receipt of share capital at such a huge

premium. Improper examination of this aspect, in the opinion of the ld.

CITs, has led to the passing of erroneous orders which are prejudicial to

the interest of the revenue. In order to answer this main question on

merits, we need to examine two broader questions : -

A) Whether the provisions of section 68 can be attracted if share capital

with premium is not properly explained by the assessee company?; and

B) Whether the failure of the AO to give a logical conclusion to the

enquiry conducted by him gives power to the CIT to revise such

assessment order?

11. Adverting to the facts of the case of M/s Subhlakshmi Vanijya Pvt.

Ltd., we find that it issued shares with face value of Rs.10 at a premium

of Rs.490/- per share. In this process, the increase in the paid up share

capital by a sum of Rs.14,71,800/- was coupled with increase in share

premium amounting to Rs.7.21 crore. Its balance sheet depicted

investment of Rs.8.80 crore which was also represented by shares of 19 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

some other private companies at a huge price with trivial backgrounds.

The AO did examine certain aspects of this issue during the course of

reassessment proceedings by issuing notices u/s 133(6) to some of the

subscribers to the share capital. After obtaining details about some of

the shareholders, such as their PANs, investment through banking

channel etc., the AO kept such replies on record without considering it

appropriate to personally examine the directors of the shareholder

companies or finding out the source of investment by such shareholders

in the light of the fact that the shares with face value of Rs. 10 of the

assessee, a relatively new private company not having any substantial

source of income, were claimed to have been issued at a huge premium

of Rs.490 per share.

12. Similar is the position about other appeals in this batch. The ld.

CITs in the impugned orders have noticed that these cases form part of

large number of cases in which share capital is shown to have been

introduced by rotating the unaccounted money through various

companies or entities. Such introduction of share capital was shown in

20 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

large number of cases on the basis of dummy companies, which were

created solely for the purpose of building up share capital. He further

noticed the modus operandi of introduction of such bogus share capital

with unaccounted cash getting deposited in the accounts of different

persons/companies and cheques going from these accounts to various

other companies and, after rotating the money in 3-4 layers, getting

introduced as share capital in other companies.

A) Whether the provisions of section 68 can be attracted if share capital

with premium is not properly explained by the assessee company?

13.a. Now, we turn to the first broader question as to whether the

provisions of section 68 can be attracted in case the share capital with

premium is not properly explained by the assessee company? The ld.

AR argued that the AO is not empowered to examine any aspect of the

issue of share capital with premium in the hands of a company. Relying

on the judgment of the Hon'ble Supreme Court in the case of CIT vs.

Lovely Exports Pvt. Ltd. (2008) 216 CTR 195(SC), he vehemently

argued that no addition can be made in the hands of a company for

21 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

unexplained or improperly explained issue of share capital. It was put

forth that if the share transactions are not genuine, then, the addition can

be made u/s 69 in the hands of such shareholders and not u/s 68 in the

assessment of the company. Taking his argument to next level, it was

stated that the Finance Act, 2012 has inserted a proviso to section 68

w.e.f. 1.4.2013, which only permits the AO to make addition u/s 68 if

the assessee company fails to offer an explanation to the satisfaction of

the AO in respect of receipt of share capital with premium. He argued

that simultaneous with the insertion of the proviso to section 68, the

legislature has also brought in an amendment to section 56(2)(viib)

inserted w.e.f. 1.4.2013 providing that where a company, not being a

company in which the public are substantially interested, receives, in

any previous year, from any person being a resident, any consideration

for issue of shares that exceeds the face value of such shares, the

aggregate consideration received for such shares as exceeds the fair

market value of the shares, shall be chargeable to income-tax under the

head "Income from other sources". In the backdrop of these

22 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

amendments brought in by the Finance Act, 2012, the ld. AR contended

that excess share premium can be charged to tax as income from other

sources and the AO is entitled to make addition u/s 68 in respect of

unsatisfactory explanation given for the receipt of share capital with

premium only from the A.Y. 2013-14. As the year under consideration

is A.Y. 2009-10, the ld. AR argued that the hands of the AO are tied

either to examine the genuineness of share capital with premium in the

hands of the company or to tax the excess share premium. It was stated

that once the question of issue of shares cannot be examined in the hands

of the assessee company, there can be no rationale in the ld. CIT

directing the AO to examine the genuineness of share capital in

proceedings pursuant to section 263. The ld. DR opposed this

contention tooth and nail.

13.b. In order to appreciate the rival contentions in this regard, let us

have a look at the prescription of section 68, the relevant part of which

provides that : ` Where any sum is found credited in the books of an

assessee maintained for any previous year, and the assessee offers no

23 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

explanation about the nature and source thereof or the explanation

offered by him is not, in the opinion of the Assessing Officer,

satisfactory, the sum so credited may be charged to income-tax as the

income of the assessee of that previous year.'. This section has received

the attention of the Hon'ble Supreme Court and almost all the High

Courts in numerous cases. It has been almost unanimously held that the

burden under this section is discharged by the assessee only when the

assessee proves three things to the satisfaction of the AO, viz., identity

of the creditor, capacity of the creditor and genuineness of the

transaction. The Hon'ble jurisdictional High Court in CIT Vs. Korlay

Trading Co. Ltd. (1998) 232 ITR 820 (Cal) has held that mere filing of

the income-tax file number of the creditors is not enough to prove the

genuineness of the cash credit. The creditor should be identified. There

should be creditworthiness. There should be a genuine transaction. In

K.M. Sadhukhan & Sons P. Ltd. Vs. CIT (1999) 239 ITR 77 (Cal), it has

been held that the burden lies on the assessee to prove the genuineness

of loan. The Hon'ble High Court has held that the initial burden is on

24 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the assessee to prove the identity of the creditor, the capacity of the

creditor to advance the loan and the genuineness of the transaction. In

CIT Vs. Precision Finance P. Ltd. (1994) 208 ITR 465 (Cal), the

Tribunal deleted the addition on the footing that since the transactions

were through bank account, hence it was to be presumed that those were

genuine. Setting aside the tribunal order, the Hon'ble High Court has

held that : `It is for the assessee to prove the identity of the creditors,

their creditworthiness and the genuineness of the transactions. Mere

furnishing of the particulars is not enough.'. Similar view has been

taken in several cases. On going through the above judgments, it is

explicit that the onus u/s 68 can be said to have been discharged only

when the assessee proves identity and capacity of the creditor along with

the genuineness of transaction to the satisfaction of the AO. All the three

constituents are required to be cumulatively satisfied. If one or more of

them is absent, then the AO can lawfully make addition.

13.c. Now, we take up the major contention advanced by the ld. AR to

the effect that a company issuing shares is not required to discharge the

25 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

burden cast u/s 68 in respect of share capital. This has been buttressed

taking assistance from the judgment of the Hon'ble Supreme Court in

Lovely Exports (supra). It is no doubt true that Hon'ble Summit Court

has held that if the share application money is received by the assessee

company from alleged bogus shareholders, whose names are given to the

AO, then, the Department is free to proceed to reopen their individual

assessments in accordance with the law, but, it cannot be regarded as

undisclosed income of the assessee.

13.d. It is a well settled legal position that every case depends on its

own facts. Even a slightest change in the factual scenario alters the

entire conspectus of the matter and makes one case distinguishable from

another. The crux of the matter is that the ratio of any judgment cannot

be seen divorced from its facts.

13.e. At this stage, it is relevant to mention that the Hon'ble

jurisdictional High Court has recently in the case of CIT Vs. Maithan

International (2015) 277 CTR 65 (Cal) dealt with Lovely Exports and

26 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

also reproduced the relevant part of the Lovely Exports in para 25 of its

judgment, reading as under : -

"This reasoning must apply a fortiori to large scale subscriptions to

the shares of a public company where the latter may have no

material other than the application forms and bank transaction

details to give some indication of the identity of these subscribers.

It may not apply in circumstances where the shares are allotted

directly by the Company/assessee or to creditors of the assessee.

This is why this Court has adopted a very strict approach to the

burden being laid almost entirely on an assessee which receives a

gift."

13.f. In this case, the Hon'ble jurisdictional High Court appreciated the

`possible difficulty which an assessee may be faced with when asked to

establish unimpeachable creditworthiness of the share subscribers'. It

observed that the "this aspect has to be decided on factual matrix of each

case and strict or stringent test may not be applied to arms length angel

investors or normal public issues.... The said doctrine is applied when

27 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

there is evidence to show that assessee may not be aware, could not have

knowledge or was unconcerned as to the source of money paid or

belonging to the third party. .... However, when there is surrounding

evidence and material manifesting and revealing involvement of the

assessee in the "transaction " and that it was not entirely an arm's

length transaction, resort or reliance to the said doctrine may be

counter-productive and contrary to equity and justice. The doctrine is

not an eldritch or a camouflage to circulate ill gotten and unrecorded

money." Thereafter in para 25, the Hon'ble High Court specifically

considered the judgment in the case of Lovely Exports (supra). It also

took into consideration the judgment in the case of CIT Vs. Nova

Promoters & Finlease P. Ltd. (2012) 342 ITR 0169 (Del), in which it

was held that 'in view of the link between the entry providers and

incriminating evidence, mere filing of PAN number, acknowledgement

of income tax returns of the entry provider, bank account statements etc.

was not sufficient to discharge the onus'. After thoroughly examining

the Lovely Exports judgment in the light of other judgments, the Hon'ble

28 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

jurisdictional High Court has concluded by holding that: `In the case of

a public issue, the Company concerned cannot be expected to know

every detail pertaining to the identity as well as financial worth of each

of its subscribers....In the case of private placement the legal regime

would not be the same. A delicate balance must be maintained while

walking the tightrope of Section 68 and 69 of the Income Tax Act.'

13.g. The ld. AR vehemently argued that this judgment of the Hon'ble

jurisdictional High Court be ignored as the same is based on concession

of the AR appearing in that case and, hence, cannot be treated as an

authority for other cases to follow.

13.h. We are totally unimpressed with the submission advanced by the

ld. AR. It is true that where a concession is made and court simply

decides the issue on the basis of such concession without going into its

legality, it can be said that the judgment is in personam and not in rem.

But, where, despite the concession, the court thoroughly analyses the

factual and legal provision prevailing in that case and, after making an

29 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

elaborate examination, draws a conclusion, then it cannot be said that the

decision is based on a mere concession. In such circumstances, the ratio

of the judgment applies with full force to all the parties. This contention

of the ld. AR, ergo, fails.

13.i. The Hon'ble Delhi High Court in Nova Promoters (supra), while

discussing the factual matrix in the case of Lovely Exports (supra)

noticed that the reasoning of accepting the genuineness of share capital,

even if the shareholders are bogus, must apply a fortiori to large-scale

subscriptions to the shares of a public company where the latter may

have no material other than the application forms and bank transaction

details to give some indication of the identity of these subscribers. The

Hon'ble High Court further observed that: "It may not apply in

circumstances where the shares are allotted directly by the

company/assessee or to creditors of the assessee'.

13.j. The Hon'ble Delhi High Court in CIT Vs. Navodaya Castles Pvt.

Ltd. (2014) 367 ITR 0306 (Del) following the principle laid down in Nova Promoters (supra) has held that the share capital in case of a

30 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

closely held company is required to be examined by the AO in terms of

section 68 and the failure of the assessee to satisfy the AO, calls for

addition u/s 68. It is useful to mention that the SLP filed by the assessee

against this judgment has been dismissed by the Hon'ble Supreme Court

which has been since reported as Navodaya Castles Pvt. Ltd. Vs. CIT

(2015) 230 Taxman 268(SC).

13.k. The Hon'ble jurisdictional High Court in CIT Vs. Active Traders

(P) Ltd. (1995) 214 ITR 583 (Cal) has held that the Assessing Officer in

the assessment of the company has jurisdiction to ask for the

information from the shareholders regarding the source of investment

made in the company. It set aside the view of the tribunal that there

could be no enquiry regarding the source of investment of the

shareholders in the shares of the company. Their Lordships observed

that : `If a cash credit is shown by the company in its books of accounts

and if the source cannot be explained properly the ITO may assess the

sum as income of the company from undisclosed source.'

31 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

13.l. In Mimec (India) P. Ltd. & Anr Vs. DCIT & Ors. (2013) 353 ITR

0284 (Cal) also, the assessee relied on the ratio in the case of CIT vs.

Lovely Exports Pvt. Ltd. for contending that if share application money

was received even from bogus shareholders, the Department could not

regard it as undisclosed income of the assessee company. Repelling such

contention, the Hon'ble High Court observed that : `The judgment in

Commissioner of Income Tax vs. Lovely Exports Pvt. Ltd. was rendered

in the particular facts and circumstances of that case. The judgment may

not lay down any proposition of law that operates as a binding

precedent on this Court....'.

13.m. The Hon'ble jurisdictional High Court in CIT Vs. Nivedan

Vanijya Niyojan Ltd. (2003) 263 ITR 0623 (Cal) has held that where

the assessee-company did not produce the subscribers of its share

capital when required to do so, it failed to establish the identity of said

subscribers, prove their creditworthiness and the genuineness of the

transaction and therefore, addition under section 68 was justified. 32 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

13.n. We consider it our duty to mention that the ld. AR has also

referred to certain judgments rendered by the Hon'ble Calcutta High

Court in which the ratio of Lovely Exports (supra) has been followed

and additions deleted.

13.o. Under such circumstances the question arises that if on one point

there are conflicting judgments of one High Court, then which of the

conflicting views should be followed. It can be noticed that judgment in

Maithan International(supra) is latest in the point of time having been

rendered on 21.1.2015 by two Hon'ble judges. None of the contrary

judgments has been rendered by a Bench of more than two judges and

such judgments are older in point of time vis-à-vis Maithan

International (supra). In our considered opinion the question of the

applicability of which of the contrary decisions by one High Court has

been fairly settled in several cases including the judgment in Bhika

Ram & Ors. Vs. Union of India (1999) 238 ITR 113 (Del) wherein it has

been held that a later judgment of the same strength of judges is binding.

It is relevant to mention that the counsel in that case argued that the

33 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

earlier judgment of the Hon'ble Supreme Court on the point should be

followed as against the later judgment, because the earlier judgment was

not brought to the notice of the Hon'ble Supreme Court in the later case

and even the case was not argued from that angle. Jettisoning such

argument, the Hon'ble High Court has held as under : -

`However, learned counsel for the petitioner relied on Satinder Singh vs. Umrao Singh AIR 1961 SC 908, to submit that compensation would not be treated as income. Learned counsel further submitted that the decision of the Supreme Court in Satinder Singh's case (supra) was not brought to the notice of the Supreme Court when Bikram Singh's case (supra) was decided. It is also submitted that the reasoning on which their Lordships have proceeded in the case of Satinder Singh (supra) was also not argued before the Supreme Court in Bikram Singh's case (supra). Not only are we not satisfied about the correctness of the submission so made, we are also of the opinion that such a plea is not open for consideration by us and Bikram Singh's case (supra), being a later pronouncement of the Supreme Court by a Bench of co-equal strength, it is binding on us.'

13.p. Similar view has been taken by the Full Bench judgment of the

Hon'ble Gujarat High Court in Gujarat Housing Board Vs. Vagaji Bhai

Laxman Bhai AIR 1986 Guj 81 (FB). As such, we are disinclined to

ignore this rule of precedence of judgments and hold that the later

judgment in the case of Maithan International (supra) with equal

34 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

strength of judges is binding on us.

13.q. The ld. Counsel then submitted that the judgment in the case of

Maithan International (supra) cannot be considered as a binding

precedent qua the addition u/s 68 with reference to share capital

because the question before the Hon'ble Court was about the

genuineness of the loan creditors and not that of subscribers to the share

capital. It was submitted that the discussion made in this judgment

about the share capital and the attractability of section 68 is simply

obiter dicta and cannot be construed as ratio decidendi.

13.r. We are not persuaded by the argument put forth by the ld. AR.

There is no doubt that the question before the Hon'ble High Court was

in relation to loan creditors. However, the fact remains that their

Lordships have laid down that section 68 can be invoked when the three

ingredients of section 68 are not satisfied in relation to share capital as

well. There is an elaborate discussion on this issue starting from para

24. Their Lordships have not only considered the judgment in the case

of Lovely Exports(supra), but also several other judgments including

35 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Nova Promoters (supra), Stellar Investment, Sofia Finance, Nipun

Builders and Developers, (2013) 350 ITR 407 (Del) etc., all of which

deal with the applicability of section 68 in respect of share capital. In

view of such a threadbare analysis of the issue coupled with the fact that

unsecured loans and share capital have been kept by the Hon'ble High

Court on the same pedestal for the purposes of section 68, it is difficult

for us to accept the contention that the entire discussion concerning the

attractability of section 68 on share capital/premium in the case of a

closely held companies is obiter dicta and hence be ignored.

13.s. Be that as it may, even obiter of the jurisdictional High Court

cannot be held as non-binding. The Hon'ble Bombay High Court in Tata

Iron and Steel Company Ltd. Vs. D.V. Bapat , ITO (1975) 101 ITR 292

(Del), has held that obiter dicta of Supreme Court is binding on all High

Courts. When the obiter dicta of Supreme Court is binding on all High

Courts, we fail to appreciate as to how obiter dicta of the Hon'ble

jurisdictional High Court can be claimed as not binding on all the

36 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

authorities falling within its jurisdiction. We, therefore, refuse to accept

this contention.

13.t. On an overview of the legal position flowing from the above

discussion it becomes evident that in case of a closely held company

where the shares are issued to the family members or close

friends/relatives, the burden of proof rests on the company to properly

explain the identity and capacity of shareholders along with the

genuineness of the transactions. Ex consequenti, the argument of the ld.

AR that the assessee was not obliged to explain the genuineness of share

capital after having furnished preliminary details about the shareholders

etc., is not capable of acceptance and hence rejected. We hold that in

all cases, where the assessee fails to cumulatively prove to the

satisfaction of the AO, the identity and capacity of the shareholders

along with the genuineness of the transactions there can be no escape

from section 68.

13.u. Now we espouse the next leg of the arguments of the ld. AR that

the insertion of proviso to section 68 by the Finance Act 2012 w.e.f.

37 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

1.4.2013 empowering the AO to examine the genuineness of the share

capital in the case of a company in which public are not substantially

interested, is prospective and, hence, the CIT in the year under

consideration question was not right in directing the AO to examine the

genuineness of share capital with premium. On the other hand, the ld.

DR advocated the retrospective operation of this amendment.

13.v. In order to evaluate the rival the contentions on this issue, we

consider it apt to reproduce the relevant part of the proviso to section,

which reads as under : -

`Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless--

(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and

(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10'.

38 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

13.w. As per this proviso where any share capital etc. is credited in the

case of closely held company, the explanation given by such company

shall be deemed to be not satisfactory, unless the resident shareholder

offers an explanation about the nature and source of such sum so

credited and such explanation is found to be satisfactory by the AO. The

essence of this amendment is that a closely held company is required to

satisfy the AO about the share capital etc. issued by it, in the absence of

which, an addition u/s 68 can be made in the hands of the company. If

we accept the amendment to be prospective, then it would mean

precluding the AO from examining the genuineness of transactions of

receipt of share capital with premium under consideration and hence

prohibiting him from making any addition u/s 68 notwithstanding the

same being non-genuine. In the oppugnation, if the amendment is held

to be prospective, then it would mean that the AO would have all the

powers to examine the genuineness of share capital and share premium

received by the assessee company on the touchstone of section 68. If the

assessee fails to satisfy him on the identity and capacity of the

39 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

subscribers and genuineness of transactions, then addition will be called

for u/s 68 of the Act. We, therefore, firstly need to decide as to whether

the amendment to section 68 by way of insertion of proviso is

retrospective or prospective?

13.x. It is settled rule of construction that every statute is prima facie

prospective unless it is expressly or by necessary implication made to

have retrospective operation. Ordinarily the courts are required to gather

the intention of the legislature from the overt language of the provision

as to whether it has been made prospective or retrospective, and if

retrospective, then from which date. However, some times what happens

is that the substantive provision, as originally enacted or later amended,

fails to clarify the intention of the legislature. In such a situation if

subsequently some amendment is carried out to clarify the real intent,

such amendment has to be considered as retrospective from the date

when the earlier provision was made effective. Such clarificatory or

explanatory amendment is declaratory. As the later amendment clarifies

the real intent and declares the position as was originally intended, it

40 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

takes retroactive effect from the date when the original provision was

made effective. Normally such clarificatory amendment is made

retrospectively effective from the earlier date. It may also happen that

the clarificatory or explanatory provision introduced later to depict the

real intention of the legislature is not specifically made retrospective by

the statute. Notwithstanding the fact that such amendment to the

substantive provision has been given prospective effect, the judicial or

quasi judicial authorities, on a challenge made to it, can justifiably hold

such amendment to be retrospective. The justification behind giving

retrospective effect to such amendment is to apply the real intention of

the legislature from the date such provision was initially introduced. The

intention of the legislature while introducing the provision is gathered,

inter alia, from the Finance Bill, Memorandum explaining the provision

of the Finance Bill etc.

13.y. The facts of CIT Vs. Gold Coin Health Food (P.) Ltd. (2008) 304

ITR 308 (SC) are that the Finance Act, 2002 amended Explanation 4 to

section 271(1)(c) with effect from 01.04.2003 providing that the penalty

41 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

would be imposed even if the returned income is loss. In the case of

Virtual Soft Systems Ltd. Vs. CIT (2007) 289 ITR 83 (SC) (a Bench

comprising of two Hon'ble Judges) it was held that prior to the

amendment with effect from 1st April, 2003 penalty for concealment of

income could not be levied in the absence of any positive income. Doubt

was expressed over the correctness of this view by a subsequent Bench.

Thereafter in the case of Gold Coin Health Food P. Ltd. (supra), a bench

of three Hon'ble Judges overruled the judgment in the case of Virtual

Soft Systems Ltd. (supra) by holding that Explanation 4 to section

271(1)(c)(iii) regarding the imposition of penalty, even if there is a loss,

is clarificatory and not substantive. It was held to be applying even to

the assessment years prior to 1st April, 2003, being the date from which

it was brought into force. Thus, it can be easily noticed that the

retrospective effect to the amendment to Explanation 4 by the Finance

Act, 2002 has been given by holding that the position even anterior to

such amendment was the same inasmuch as the penalty was imposable

even in the case of loss. The intention of the legislature was found to be

42 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

imposing penalty in all such cases even prior to the amendment and that

is how this amendment was held to be clarificatory and therefore,

retrospective.

13.z. Similar is the position in the case of CIT Vs. Kanji Shivji And Co.

(2000) 242 ITR 124 (SC). Explanation 2 to section 40(b) was introduced

with effect from 1st April, 1985 providing that where an individual is a

partner in a firm otherwise than as partner in representative capacity,

interest paid by the firm to such individual shall not be taken into

account for the purposes of clause (b) to section 40. The Hon'ble

Supreme Court in the case of Brij Mohan Das Laxman Das Vs. CIT

(1997) 223 ITR 825 (SC) held this insertion to be declaratory in nature

and hence retrospective. In this case it was held that the interest paid by

the firm to a partner on his individual deposits is not hit by section 40(b),

if the person is a partner not in his individual capacity but as

representing HUF. The same view was taken in Suwalal Anandilal Jain

Vs. CIT (1997) 224 ITR 753 (SC). However in Rashik Lal And Co. Vs.

CIT (1998) 229 ITR 458 (SC), somewhat contrary view was expressed. 43 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

That is how the matter came up before the larger bench of the Hon'ble

Supreme Court in Kanji Shivji And Co. (supra). In this case Explanation

2 to section 40(b) has been held as declaratory and hence retrospective

in operation by affirming the judgments in the cases of Brij Mohan Das

Laxman Das (supra) and Suwalal Anandilal Jain (supra).

13.aa. A survey of the above judgments makes it patent that any

amendment to the substantive provision which is aimed at clarifying the

existing position or removing unintended consequences to make the

provision workable has to be treated as retrospective notwithstanding the

fact that the amendment has been given effect prospectively. In our

considered opinion the border line between a substantive provision

having retrospective or prospective effect, is quite prominent. One needs

to appreciate the nature of the original provision in conjunction with the

amendment. Once a provision has been given retrospective effect by the

legislature, it shall continue to be retrospective. If on the other hand, if

the statute does not amend it retrospectively, then one has to dig out the

intention of the Parliament at the time when the original provision was

44 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

incorporated and also the new amendment. If the later amendment

simply clarifies the intention of the original provision, then it will

always be considered as retrospective. Like the case of Gold Coin

Health Food P. Ltd. (supra) in which the Hon'ble Supreme Court held

that the amendment to Explanation 4 to section 271(1)(c)(iii) simply

clarified the position which was existing since inception of the provision

that the penalty is leviable on concealment irrespective of the fact

whether ultimately assessed income is positive or negative. Similarly in

the case of Kanji Shivji And Co. (supra), the Hon'ble Apex Court held

that the purpose of Explanation 2 to section 40(b) was simply to clarify

that the Income-tax Act recognizes individual statues of a person as

different from his representative capacity. This Explanation did not

bring in a new provision but clarified that the position was so since the

introduction of the provision itself. In this class of clarificatory or

explanatory amendments to the substantive provisions, the object is

always to clarify the intention of the legislature as it was there at the

time of insertion of the original provision. That is the reason for which

45 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the clarificatory amendments are always retrospective irrespective of the

date from which effect has been given to them by the legislature.

13.ab. Armed with the above understanding of the retrospective or

prospective effect, let us analyze whether or not the insertion of proviso

to section 68 is clarificatory? We have noted above that for ruling out

the application of section 68, the assessee must satisfy the AO as to the

identity and capacity of the creditor in addition to the genuineness of

transaction. When we advert to the language of section 68, it transpires

that it refers to `any sum credited' in the books of an assessee

maintained for any previous year. The expression `any sum credited' has

not been specifically defined in the provision. Thus, it would extend to

all the amounts credited in the books of account. A sum can be credited

in the books of account, which would invariably either find its place

either on the income side of the Profit and loss account or in the liability

side of the balance sheet. Items credited to the Profit and loss account

are themselves income and hence there can be no reason to make

addition once again for them. Items appearing on the liability side of the

46 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

balance sheet can be loans or share capital etc. Once there is specific

reference in section 68 for applying it to `any sum credited', there can be

no reason to restrict its application only to `loans' and not to `share

capital'. The burden of proof under 68 can be no different in respect of

issue of share capital by closely held companies vis-à-vis loans or gifts.

The Hon'ble jurisdictional High Court in Maithan International (supra),

Active Traders (supra), Mimec (India) P. Ltd. (supra) and Nivedan

Vanijya Niyojan Ltd. (supra) has specifically held that the above three

ingredients are required to be satisfied even in case of issue of share

capital by a closely held company. First two out of the above four

judgments have considered the judgment in the case of Lovely Exports.

It shows that the intention of the legislature, as interpreted by the

Hon'ble jurisdictional High Court, is always to cast duty on the assessee

to prove the satisfaction of the three ingredients in case of transaction of

issue of share capital by a closely held company in the same way as is in

the case of transaction of loans.

47 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

13.ac. At this juncture, it would be relevant to note the relevant part of

the Memorandum explaining the provisions of the Finance Bill, 2012,

which is as under : -

"Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either

(i) does not offer any explanation about nature and source of money ; or

(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer,

then, such amount can be taxed as income of the assessee.

The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc.

Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large.

In the case of closely held companies, investments are made by known

48 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income.

It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium, etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee-company in the hands of the resident-shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e., a Venture Capital Fund, Venture Capital Company registered with the Securities and Exchange Board of India(SEBI).

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years."

13.ad. A careful perusal of the first para of the Memorandum brings

out that the onus of satisfactorily explaining issue of share capital with

premium etc. by a closely held company is on the company. In the next

para, it has been clarified that : `Certain judicial pronouncements have

created doubts about the onus of proof and the requirements of this

section, particularly, in cases where the sum which is credited as share

49 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

capital, share premium, etc...'. Next para recognizes that judicial

pronouncements, while considering that the pernicious practice of

conversion of unaccounted money through masquerade of investment in

the share capital of a company needs to be prevented, have advised a

balance to be maintained regarding onus of proof to be placed on the

company. The courts have drawn a distinction and emphasized that in

case of private placement of shares the legal regime should be different

from that which is followed in case of a company seeking share capital

from the public at large. After going through the above parts of the

Memorandum explaining provisions of the Finance Bill, there remains

no doubt whatsoever that the onus has always been on the closely held

companies to prove the issue of share capital etc. by the company in

terms of section 68. An analysis of the above discussed judgments,

including four from the Hon'ble jurisdictional High Court, reveals that

section 68 has been understood as casting obligation on the closely held

companies to explain the amount of share capital etc. credited in its

books of account. When we read the Memorandum explaining the

50 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

provisions of the Finance Bill, it becomes vivid that certain contrary

judicial pronouncements created doubts about the onus of proof and the

requirements of this section. Thus, the amendment makes it manifest

that the intention of the legislature was always to cast obligation on the

closely held companies to prove receipt of share capital etc. to the

satisfaction of the AO and it was only with the aim of setting to naught

certain contrary judgments which `created doubts' about the onus of

proof by holding that there was no requirement on the company to prove

the share capital etc. and as such no addition could be made in the hands

of company even if such share holders are bogus. As the amendment

aims at clarifying the position of law which always existed, but was not

properly construed in certain judgments, there can be no doubt about the

same being retrospective in operation.

13.ae. The about discussed judgments from the Hon'ble Summit Court

holding a clarificatory substantive provision as retrospective, despite the

same being made applicable from a particular year, fully govern the

position under consideration. It is interesting to note that the judgment

51 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

of the Hon'ble jurisdictional High Court in Maithan International

(supra) holding that the burden of proving the credit of share capital etc.

is on a closely held company and failure to do so attracts the rigor of

section 68, has been delivered on 21.1.2015, much after the amendment

carried out by the Finance Act, 2012. This case pertains to pre-

amendment era as the order of the tribunal assailed in this case is dated

24.6.2011. It shows that the Hon'ble High Court has also impliedly

approved the proposition that the position anterior to the A.Y. 2013-14

was the same inasmuch as the onus to prove the share capital by a

closely held company was on it. We, therefore, hold that the amendment

to section 68 by insertion of proviso is clarificatory and hence

retrospective. The contrary arguments advanced by the ld. AR, being

devoid of any merit, are hereby jettisoned.

13.af. At this stage, we consider it appropriate to discuss the

submission of the ld. AR that a simultaneous amendment to section

56(2) connected with the amendment to section 68, has also been made

w.e.f. 1.4.2013 and hence section 68 amendment is also retrospective.

52 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

Before appreciating this argument, we set out clause (viib) of section

56(2) as under : -

"where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:" shall be considered as income from other sources.

13.ag. This provision mandates that where a closely held company

receives any consideration for issue of shares in any previous year from

any resident and the consideration received for issue of shares exceeds

the face value of such shares, then the aggregate consideration received

for such shares, as exceeds the fair market value of the shares, shall be

chargeable to income-tax under the head "Income from other sources".

A bare perusal of this provision makes it explicit that a new obligation

has been put on the closely held companies which issue shares for a

consideration greater than the fair market value of its shares. When the

shares are so issued at a higher price, then such excess becomes income

from other sources in the hands of the company. This amendment is

obviously prospective as the position of law before such amendment was

53 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

different. Such share premium was always considered as a capital receipt

not chargeable to tax. Since this insertion has increased the ambit of

income of such companies henceforth for the first time, which was not

the position hitherto, it ceases to be clarificatory and hence cannot be

construed as retrospective.

13.ah. We fail to find out any parallel between the amendments made

to section 68 and section 56(2)(viib) except for the fact that these

provisions have been added by the Finance Act, 2012. A conjoint

reading of proviso to section 68 and section 56(2)(viib) divulges that

where a closely held company receives, inter alia, some amount as

share premium whose genuineness is not proved by the assessee

company or its source etc. is not proved by the shareholder to the

satisfaction of the AO, then the entire amount including the fair market

value of the shares, is chargeable to tax u/s 68 of the Act. If however, the

genuineness of the amount is proved and the shareholder also proves his

source, then the hurdle of section 68 stands crossed and the share

premium, to the extent stipulated, is chargeable to tax u/s 56(2)(viib) of

54 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the Act. It shows that only when source of such share premium in the

hands of a shareholder is properly explained to the satisfaction of the

AO, that the provisions of section 56(2)(viib) gets triggered.

Approaching this section pre-supposes that the assessee genuinely

received share premium from the share-holder having satisfactorily

explained the transaction. Thus it is evident that sections 68 and

56(2)(viib) can never simultaneously operate. The later excludes the

former and vice versa. Consequently, we are unable to accept the

contention of the ld. AR that the proviso to section 68 attached a new

obligation and hence should be declared as prospective. It is axiomatic

that proving genuineness of a transaction of any credit, including share

capital, was always an essential constituent of section 68. Since section

68 covers `any sum credited' in the books without any exception,

which, inter alia, includes share capital, it cannot be held that the

examination of share capital with premium etc. was earlier outside the

ambit of section 68 and now this amendment has brought it into its

purview. We have noted it from several judgments dealing with share

55 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

capital in pre-amendment period and the Memorandum explaining the

provisions that proving the genuineness of share capital etc. by a

company has always been considered a necessary requirement to

escape the magnetization of section 68. The amendment has simply

made express which was earlier implied. We, therefore, hold that

though amendment to section 56(2)(viib) is prospective, but to section

68 is prospective. If that is the position, then the assessee is always

obliged to prove the receipt of share capital with premium etc. to the

satisfaction of the AO, failure of which calls for addition u/s 68.

13.ai. The ld. AR relied on the judgment of the Hon'ble Bombay High

Court in Vodafone India Services Pvt. Ltd. Vs. Addl. CIT (2014) 368 ITR

1 (Bom) to contend that share premium can under no circumstances be

construed as a revenue receipt chargeable to tax. He submitted that the

ld. CIT was not justified in revising the assessment order requiring the

AO to examine the receipt of share capital/premium from the angle of

taxability. It was argued that the share premium can be charged to tax

56 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

only in the circumstances given in section 56(2)(viib) and that too from

the assessment year 2013-14.

13.aj. We are in full agreement with the ld. AR that the judgment in

the case of Vodafone India Services (supra) is an authority for the

proposition that share capital/premium are capital receipts and cannot

be charged to tax. We also fully endorse the argument about the

introduction of section 56(2)(viib) w.e.f. assessment year 2013-14 which

provides for charging share premium to tax in the circumstances and to

the extent provided therein. However, it is significant to note that we are

not concerned with the chargeability of share premium to tax in the

present appeal. Here, the question is about the taxability or otherwise of

such share capital/premium in terms of section 68. It is self evident that

when the assessee fails to prove the identity and capacity of shareholders

along with the genuineness of transactions, the amount of share capital,

etc. is liable to be added u/s 68. It is only where share capital/ premium

are genuinely received and all the three necessary ingredients stand

proved to the satisfaction of the AO that the share premium is not

57 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

chargeable to tax before assessment year 2013-14 and, thereafter,

chargeable to the extent and in the circumstances as enshrined in section

56(2)(viib). This contention, consequently, fails.

13.ak. To sum up, we hold that the contention of the ld. AR that since

the AO of the assessee-company is not empowered to examine or make

any addition on account of receipt of share capital with or without

premium before amendment by the Finance Act, 2012 w.e.f. A.Y. 2013-

14 and hence the CIT by means of impugned order u/s 263 could not

have directed the AO to do so, is unsustainable.

B. Now we espouse the second broader question as to whether the

failure of the AO to give a logical conclusion to the enquiry conducted

by him gives power to the CIT to revise the assessment order?

14. In this regard, Sh. Poddar submitted that the AO, during the course

of proceedings u/s 147, thoroughly examined the question of issue of

share capital at premium. Not only notices u/s 133(6) were issued to

majority of the subscribers, but such notices were also properly

responded giving complete details of their identity with PANs etc., and 58 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

also the sources of investment, being copies of bank accounts from

which the monies were invested by them in the assessee company's

share capital. He took us through certain pages of the paper book which

indicate that the AO called for information from some of the subscribers,

who submitted the necessary details. The ld. AR contended that the AO,

on examination of such material, got satisfied with the genuineness of

transactions along with identity and capacity of the shareholders. In

such circumstances, it could not be said that the AO did not properly

apply his mind. It was stated that the way in which assessment should

be finalized falls in the exclusive domain of the AO. Relying on section

142(1) and 143(2) of the Act, the ld. AR stated that it is within the

province of the AO to decide that which points he wants to take up for

enquiry and to what extent and, as such, the CIT cannot interfere with

the same. It was contended that once an enquiry is conducted by the AO,

even if inadequate, that precludes the CIT from taking recourse to

revision u/s 263. He argued that at worst, it may be a case of an

inadequate enquiry but cannot be branded as lack of enquiry. He took us

59 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

through certain decisions for canvassing a view that revision u/s 263 is

possible only in case of lack of enquiry and not inadequate enquiry. It

was also argued that the order of the CIT is based on suspicion and

surmises and has no legal legs to stand on, more so, when the AO took a

possible view on the matter.

15. The other ld. counsel have adopted the arguments of Sh. Poddar

on merits except for separately giving account of some minor

differences, such as, the amount of share premium, number of

subscribers examined by the AO, the information submitted by such

shareholders accepting subscription to the shares of the companies at

the given premium in their respective cases. Such minor differences in

the facts of each case in this batch of appeal, in our considered opinion,

have no bearing on the overall legal position emerging on the merits of

the case, except for case specific separate legal issues challenged before

us, which we will advert to a little later in this order.

16. Firstly, we are proceeding to examine the legality of the impugned

orders on merits, which is common to all the cases under consideration.

60 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

The larger question of the validity of the orders passed u/s 263 can be

decided by examining the following aspects, which have been argued by

the ld. AR : -

i) Whether the enquiry conducted by the AO in such cases can be

construed as a proper enquiry?

ii) Whether CIT can set aside the assessment order and direct the

AO to conduct a thorough enquiry, thereby interfering with the

jurisdiction of the AO conferred on him in terms of section

142(1) and 143(2) of the Act?

iii) Whether inadequate inquiry conducted by the AO empowers the

CIT to revise the assessment order?

iv) Whether the order of the CIT is based on irrelevant

consideration and further was he not supposed to point out

specifically where the AO went wrong in not properly

examining the issue of share capital?

v) If the AO has taken a possible view, can still the revision be

ordered?

61 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

We will examine all the above aspects, one by one.

i) Whether the enquiry conducted by the AO can be construed

as a proper enquiry?

17.a. There is no denial of the fact that the AO did issue notices u/s

133(6) of the Act to some of the subscribers of the share capital, who, in

turn submitted details of their PANs, bank accounts, etc., copies of

which have been placed on record. The AO kept such documents on

record and came to hold that the share capital was rightly subscribed and

there was no case for invoking the provisions of section 68. In this

process, he did not consider it fruitful to comprehend the rationale or

logic behind issuing shares at such a high premium, nor to examine any

of the directors of the companies which were subscribers to share

capital. No attempt was made to require the assessee to justify the

charging of such a high premium and further what prompted the

subscribers to purchase shares at such a huge premium when the

company did not have any worthwhile net worth and was relatively a

new one without any business activity. Appeal of Ramshila Enterprises

62 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Pvt. Ltd. has been heard by us as a representative case on merits and it is

the common submission of the other assesses that facts and

circumstances are similar. Now let us see the so-called enquiry

conducted by the AO in the case of Ramshila Enterprises, which has two

directors, namely Sh. Sham Lal Khaitan and Sh. Ankit Kumar Khaitan.

In all it has 51 shareholders, out of which the AO called for the

particulars only from ten companies to whom shares with face value of

Rs.10 were issued at Rs.190 each. Out of such ten companies, there are

eight companies [Gururkul Dealers (P) Ltd., Rich Valley Traders (P)

Ltd., Fetish Traders (P) Ltd., Tanya Enclave (P) Ltd., Dolphin Tie-up

(P) Ltd., Gajanan Dealers (P) Ltd., Dreamz Vanijya (P) Ltd., and

Shambhureshwar Vincom (P) Ltd.], in which the directors of the

assessee company are, in turn, directors. This fact has been brought to

our attention from the notices issued by the AO to these companies

which bear signatures of Sh. Sham Lal Khaitan or Sh. Ankit Kumar

Khaitan as receiver of notices on behalf of such companies. Relevant

documents have been placed in the Departmental Paper Book. Now let

63 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

us have a look at the Profit and Loss account of Ramshila Enterprises P.

Ltd., a copy of which has been placed at page 26 of the assessee's paper

book, for having an idea of the extent of its income with a view to

ascertain justification for premium of Rs.190 against the face value of

Rs.10. It can be noticed that on the Income side, there is only one item

of Income, namely, Interest received of Rs. 2,20,962. On the expenses

side, there are Administrative expenses of Rs. 1,97,783 and Preliminary

expenses written off to the tune of Rs.27,232 and net result is loss of

Rs.4,053. The portrait of the assessee's state of affairs evident on the

very face of it, emerging even on a casual look, in our considered

opinion was sufficient enough to prompt the AO to investigate the

matter further and not stop at merely collecting necessary details from

the companies, most of which had the directors of the assessee company

only.

17.b. The Hon'ble Supreme Court in Sumati Dayal Vs. CIT (1995) 214

ITR 801 (SC) considered a question whether the apparent can be

considered as real. It was observed that apparent must be considered real

64 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

until it is shown that there are reasons to believe that the apparent is not

the real and that the taxing authorities are entitled to look into the

surrounding circumstances to find out the reality and the matter has to

be considered by applying the test of human probabilities. It was further

observed that an inference should be drawn on the basis of the

circumstances available on the record. Considering the circumstances of

the transaction in that case, the Hon'ble Supreme Court has held that an

inference could reasonably be drawn that the winning tickets were

purchased by the appellant after the event and the authorities were right

in drawing an adverse inference against the assessee.

17.c. Adverting to the facts of the instant case, we find that the

circumstances as discussed in earlier para indicated that the apparent did

not prima facie appear to be real and further investigation was called for.

It is highly improbable for any person having sound mind to purchase at

arm's length the shares of a private limited company, hardly having any

worth, with face value of Rs.10 at a premium of Rs.190. This mere fact

should have been cornerstone for the AO to embark upon further enquiry

65 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

to unearth the truth. The genuineness of transactions of issue of share at

such hefty premium in this background of the matter was under dark

cloud and it skipped the attention of the AO. The contention of the

assessee that the capacity of the share subscribers was proved as they

subscribed to shares through banking channels after offloading their

investments in shares of other companies, needs to be weighed properly

in the background of the transactions in the instant cases. In so far as the

establishment of genuineness of payment made through banking

channels is concerned, we need not go anywhere else except looking at

the judgment of the Hon'ble jurisdictional High Court in CIT Vs.

Precision Finance P. Ltd. (1994) 208 ITR 465 (Cal), in which it has

been held that : `Mere payment by account payee cheque is not

sacrosanct nor can it make a non-genuine transaction genuine'. In our

considered opinion, the AO miserably failed to examine all such relevant

aspects, which must have been gone into during the course of

assessment proceedings.

66 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

17.d. Position is more or less same in all the cases under consideration

and other cases, which we are simultaneously disposing by separate

orders. It is significant to note that almost in all such cases, the same set

of shareholder companies of one company find their names in the list of

investee companies, whose shares have been purchased by such

companies. It is manifest from a chart filed by the ld. AR in the case of

Aradhana Plaza Private Limited showing the list of share subscribers

who have been subjected to proceedings u/s 263. It has been

demonstrated that three of the shareholders of this company, namely,

RBM Finance Pvt. Ltd., D. D. Deposits And Advances Pvt. Ltd. And

Sudhakar Commodeal (P) Ltd. have also been subjected to revision u/s

263 on the same score. It has further been shown that six companies

(Guru Amardas Hire Purchase Pvt. Ltd., JNJ Finance Co. P. Ltd., Oliver

Vanijya P. Ltd., Paltani Investemnt & Finance Co. Ltd., RMB Finance

Co. Ltd. and SSA Hire Purchase P. Ltd.) whose shares have been

purchased by Aradhana Plaza Private Limited have also been subjected

to revisions u/s 263 in similar circumstances.

67 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

17.e. Similar is the position in case of Kasturi Home Pvt. Ltd., for

which the ld. AR has filed a separate chart showing the list of share

subscribers who have been subjected to proceedings u/s 263. It has been

shown that three of the shareholders of this company, namely,

Rajlakhmi Vanijya Pvt. Ltd., Guru Amardas Hire Purchase Pvt. Ltd. and

Paltani Investment & Finance Co. Pvt. Ltd. have also been subjected to

revision u/s 263 on the same score. It has further been shown that seven

companies (D. D. Deposits And Advances Pvt. Ltd., RBM Finance Pvt.

Ltd., JNJ Finance Co. P. Ltd., Mandyati Dealcomm Pvt. Ltd., Nirupama

Commerce Pvt. Ltd Shaker Credits Pvt. Ltd. and SSA Hire Purchase P.

Ltd.) whose shares have been purchased by Kasturi Home Pvt. Ltd.,

have also been subjected to revisions u/s 263 in similar circumstances.

17.f. Same position prevails in the case of Marigold Nirman Pvt. Ltd.,

for which the ld. AR has filed a distinct chart showing the list of share

subscribers who have been subjected to proceedings u/s 263. It has been

demonstrated that five of the shareholders of this company, namely,

RBM Finance Pvt. Ltd., D. D. Deposits And Advances Pvt. Ltd.,

68 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Monalisa Goods Pvt. Ltd., Improve Investment Management Pvt. Ltd

and Shankar Credits Pvt. Ltd. have also been subjected to revision u/s

263 on the same score. It has further been shown that six companies

(Guru Amardas Hire Purchase Pvt. Ltd., JNJ Finance Co. P. Ltd.,

Paltani Investemnt & Finance Co. Ltd., RMB Finance Co. Ltd., Adonis

Nirman Pvt. Ltd. and Sudarshan Goods Pvt. Ltd.) whose shares have

been purchased by Marigold Nirman Private Limited have also been

subjected to revisions u/s 263 in similar circumstances. A close scrutiny

of the names of the shareholders and investee companies in respect of

the above discussed three companies, whose details have been filed by

the ld. AR, divulges that the names of companies are rotating from being

a shareholder in one company to Investee company in other. To cite

example, RBM Finance Pvt. Ltd., which is shareholder in Aradhana

Plaza Pvt. Ltd. is investee company in Kasturi Home Pvt. Ltd and

Marigold Nirman Pvt. Ltd. Similarly, Paltani Investment & Finance Co.

Pvt. Ltd. who is shareholder in Kasturi Home Pvt. Ltd is investee

company in Marigold Nirman Pvt. Ltd and Aradhana Plaza Pvt. Ltd.

69 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

This shows that the shareholder companies of one company become

investee companies of other companies and in turn, such later company,

whose shares are purchased, further invest in the shares of other

companies, so on and so forth. This is a striking example of circulation

of capital from one company to another and the rotation is continuing in

all the companies under consideration. This conclusion finds further

corroboration from the arguments advanced by some of the ld. ARs,

while justifying issue of shares at premium, admitting that all the shares

were issued to the related companies only and premium was charged to

avoid payment of fees payable to the Registrar of companies on the

higher figure of authorised capital at the time of incorporation. We fail

to find it as a sheer coincidence that hundreds of companies brought into

existence, having link with each other and none of them doing any

worthwhile business activity, come together to issue shares at such a

huge premium. At best, this argument could have been taken into

consideration if these companies had issued shares to its related

companies at premium and invested the proceeds in some other business

70 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

activity and not purchasing the shares of other related companies

through such a circular route. This shows that the transactions of issuing

shares at a premium to related companies and then purchasing the shares

of other related companies at a huge market price and none of the

companies has any worthwhile business activity, when considered on an

overall basis, is nothing but a smokescreen.

17.g. The ld. AR unsuccessfully tried to justify the premium by

submitting that the break-up value of the shares of the assessee

companies is quite substantial, somewhere close to the premium. This

break-up value has been computed by adding the share capital (say, face

value of Rs. 10) and Reserve & surplus (say, premium of Rs.190) and

then divided with the number of shares issued. This exercise leads us to

nowhere. The reason is obvious that break-up value is being computed

after taking into consideration the share premium received with this

issue or an earlier issue on the same pattern. Such a break-up value at the

close of the year after issue of shares at premium, is bound to remain

close to the issue price of shares with premium. What is required to be

71 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

shown is the break-up value of shares de hors the issue of any shares at

premium. Since none of these companies has any other business activity

except circulation of money from one company to another and by

subscribing to or purchasing shares of other companies at

premium/market price, there can be no justification of such a huge

premium. We see no force in this contention of the ld. AR.

17.h. When we see the entire conspectus of the facts of the companies

before us, there remains no doubt whatsoever that in the given

circumstances, the AO conducted half-baked enquiry ignoring vital

aspects which were required to be examined. If a company recently

incorporated without carrying out any worthwhile business activity

issues shares with face value of Rs.10/- at a premium of Rs.190/-, the

immediate concern of the AO ought to have been to find out as to

whether the receipt of such a premium was justified and whether the

parameters of section 68 stood complied with. In the instant case, the

AO merely issued notices u/s 133(6) to some of the shareholders whose

replies, indicating that they overtly purchased the shares at Rs.200/-

72 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

each, were kept on record. Putting a lid at the matter at that stage only,

the AO did not consider it prudent to examine such shareholders as to

their capacity and genuineness of the transactions. Confronted with such

peculiar and hair-raising circumstances, the AO should have got alerted

and dug the matter deep for unearthing the reality of the transaction.

Unfortunately, nothing of this sort was done by him. It is a perfect

citation for a complete non-application of mind by the AO and of

passing the assessment order in undue haste.

17.i. We agree with the contention of the ld. AR that the mere fact of

completing an assessment within a short period of say one or two

months, per se, cannot lead to an irreversible conclusion that the

assessment was done in undue haste. But where the primary facts

themselves point out objectively towards the need to carry out further

investigation, as is there in all the cases under consideration, which the

AO fails to carry out, it will be called as a case of passing assessment

orders in undue haste without application of mind. All the cases under

consideration have the same common feature of passing assessment

73 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

orders in undue haste. When we consider the above factual matrix, there

can be no escape from an axiomatic conclusion that in all these cases the

enquiry conducted by the AOs is exceedingly inadequate and hence fall

in the category of `no enquiry' conducted by the AO, what to talk of

charactering it as an `inadequate enquiry'. In our considered opinion,

the highly inadequate enquiry conducted by the AO resulting in drawing

incorrect assumption of facts, makes the orders erroneous and

prejudicial to the interests of the revenue.

ii. Whether CIT can set aside the assessment order and direct the

AO to conduct a thorough enquiry, thereby interfering with the

jurisdiction of the AO conferred on him in terms of section 142(1)

and 143(2) of the Act?

18.a. The ld. AR submitted that the ld. CIT was wholly unjustified in

directing the AO to examine share capital in the way he considered it

expedient. It was argued that when the AO issued notices to some of the

subscribers to the share capital and satisfied himself about the

genuineness of the transactions, then, it was not possible for the ld. CIT

74 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

to step into the shoes of the AO and direct him to conduct an inquiry in

the way he considered it correct. Relying on sections 142(1) and 143(2),

the ld. AR submitted that it is the AO who has to conduct an inquiry in

the way he feels like. It was further stated that it cannot be expected of

the AO to examine each and every detail concerning the return of

income. When the legislature has empowered the AO to conduct the

inquiry on the points which the AO may require, the ld. AR argued, that

the ld. CIT cannot be allowed to interfere by imposing his opinion upon

the AO.

18.b. Section 142(1) unequivocally provides that for the purposes of

making an assessment under this Act, the AO may serve a notice on any

person who has made a return requiring him to produce or cause to be

produced such accounts and documents as he may require or: "to furnish

in writing and verified in the prescribed manner information in such

format and on such points or matters (including a statement of all assets

and liabilities of the assessee whether included in the accounts or not) as

the AO may require." Language of section 143(2) also gives discretion

75 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

to the AO to serve on the assessee a notice specifying particulars of

claim of loss, exemption, deduction, allowance or relief and require him,

`where he has reason to believe that any claim of loss, exemption,

deduction, allowance or relief made in the return is inadmissible'. A

careful perusal of these provisions unveils that it is the prerogative of the

AO to require the information "on such points or matters" as he may

require. We are highlighting the expression "on such points or matters"

used in section 142(1) to bring out that it is the privilege of the AO,

which should prevail in requiring the assessee to furnish information

only on such points or matters as he may require. We agree with the ld.

AR that ordinarily it is not possible for the AO to inquire into each and

every entry recorded in the books of account of the assessee. He has to

exercise his acumen in extracting out the relevant points or matters on

which he wants to concentrate. But, what is important in this regard is

that the operation of sections 142(1)/143(2) of the Act comes to an end

when an assessment is completed after examining such point or matters

which the AO feels to inquire before finalizing the assessment. It is only

76 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

thereafter that the revisional powers of the CIT u/s 263 can come into

play for ascertaining if the AO examined all the relevant points, which

ought to have been examined. If the CIT, on examination of records of

assessment, comes to the conclusion that the AO failed to enquire into

certain other relevant aspects which, in fact, necessitated thorough

investigation, then he has all the power to revise the assessment order.

To argue that once the AO, as per his wisdom, has inquired into certain

aspects of assessment which he considered relevant and, thereafter, CIT

cannot intervene, is wholly untenable. If this argument is taken to its

logical conclusion, then it would mean obliterating the provisions of

section 263 from the statute. We are extantly not concerned with a

situation in which the CIT is directing the AO to make assessment in a

particular way, when the assessment proceedings are underway. Rather,

the assessment already stands finalized and now the CIT is examining

whether the AO properly examined the facts of the case. In such

circumstances, it is impermissible to have a recourse to the provisions of

section 142(1) and 143(2) for demolishing the order u/s 263 of the Act.

77 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

We, therefore, refuse to uphold this contention as a reason for setting

aside the order passed u/s 263 of the Act.

iii) Whether inadequate inquiry conducted by the AO

empowers the CIT to revise the assessment order?

19.a. Now we take up the argument of the ld. AR that since the AO

conducted enquiry, which might not have been adequate in the opinion

of the ld. CIT, there can be no revision because the power u/s 263 can be

invoked only in cases of lack of inquiry and not conducting inadequate

inquiry. We partly agree with the contention that where an enquiry is

conducted by the AO and he gets satisfied with the genuineness of the

transaction, then the CIT cannot intervene through revision for coming

to a conclusion that the assessment order passed by the AO was

erroneous and prejudicial to the interests of the Revenue. The crux of

the matter is that the AO should conduct enquiry to satisfy himself about

the genuineness of transactions. Scope of the term `enquiry' can be

diverse in different circumstances. There cannot be straitjacket formula

to positively conclude as to conducting or non-conducting of `enquiry'

78 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

by the AO. While, in some cases, collection of necessary material by

the AO may lead to an inference about conducting `enquiry', in others,

mere obtaining and placing the documents on record may not be

equalized with conducting an enquiry. It depends on the facts and

circumstances of each case. Where the facts are just ordinary and prima

facie there is nothing untoward the recorded transaction, in such

circumstances, the obtaining of the documents and the application of

mind thereon, without a further outside enquiry, may mean that the AO

did conduct enquiry, leaving the question open as to whether it was a

proper or an improper enquiry. But, where the factual scenario of a case

prima facie indicates abnormalities and cry for looking deep into it, then

a mere collection of documents cannot be held as conducting enquiry,

leave aside, adequate or inadequate. In such later cases, only when the

AO, after collection of the initial documents, embarks upon further

investigation, that we can say that he initiated enquiry. Where the facts

of a particular transaction cry hoarse about its non-genuineness and even

a casual look at such facts, prima facie, divulges foul play, then the

79 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

alarm bell must ring in the mind of the AO for making further

examination. Collection of papers on record in such circumstances

cannot be construed as conducting a proper enquiry. If in such

circumstances, the AO simply gathers documents and keeps them on

record, then such nominal enquiry falls within the overall category of

`no enquiry' because of the inaction on the part of the AO to read a

writing on the wall. The facts and circumstances and arguments by the

rival parties in other cases in this batch of appeals are similar.

19.b. At this juncture, we would like to deal with the judgment of the

Hon'ble jurisdictional High Court in the case of Maithan International

(supra). The assessee in that case obtained loans aggregating to Rs.1.60

crore from six private limited companies ranging between Rs.7 lac to

Rs.1.10 crore. These companies had filed their returns with nominal

income. The AO mentioned in the assessment order that Inspector was

deputed to verify fresh loans received during the year. The Inspector

verified such loans and gave a positive report. Keeping such report on

record, the AO accepted the genuineness of the transactions. The CIT

80 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

invoked section 263 by observing that the report given by the Inspector

was very elementary and simply mentioned that he had verified bank

passbooks, Profit & loss account and Balance sheets of these companies.

In none of the reports, he had commented on the issue of credit

worthiness of the parties. The CIT opined that the AO was required to

make proper investigation to determine whether the loans were really

made by the third parties or they had come out of the sources of the

assessee himself. The Tribunal set aside the order u/s 263 of the Act by

observing that the AO did conduct enquiry and: "if there is an enquiry,

even inadequate, that would not by itself give occasion to the ld. CIT to

pass order u/s 263 of the Act." Setting aside the order passed by the

Tribunal, the Hon'ble jurisdictional High Court has laid down that :

"CIT had reasons to hold that credit worthiness of the alleged lenders

was not enquired into." It further went on to hold that a mere

examination of the bank passbook, Profit & loss account and Balance

sheet is not enough. When the requisite enquiry was not made, the

Hon'ble High Court held that, the order was to be considered as

81 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

erroneous and prejudicial to the interests of the Revenue. It also set

aside the view of the Tribunal on inadequate enquiry by holding that: "If

the relevant enquiry was not made, it may in appropriate cases amount

to no enquiry and may also be a case of non-application of mind." It

further observed that the question of inadequate enquiry should be

understood in its proper perspective and: "if it can be shown that the

inadequate enquiry led the AO or may have led into assumption of

incorrect facts, that could make the order erroneous and prejudicial to

the interests of the revenue." Setting a bad trend has also been held to

be prejudicial to the Revenue.

19.c. When we comparatively consider the facts of the instant case vis-

a-vis those of Maithan International (supra), it can be seen that the facts

under consideration are on a much weaker footing. In the present case,

the AO obtained confirmations and copies of bank statements, etc., from

some of the shareholders and got himself satisfied, whereas in the case

of Maithen International, an Inspector was also deputed to conduct a

82 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

further enquiry in addition to the collection of documents etc. as has

been done in the instant cases.

19.d. Decision of the Hon'ble Full Bench of the Guwahat High Court

in the case of Jawahar Bhattacharjee reported in (2012) 341 ITR 434

(Gau.) (FB) is also an authority for the proposition that : "not holding

such enquiry as is normal and not applying mind to the relevant

material in making an assessment would certainly be erroneous

assessment warranting exercise of revisional jurisdiction".

19.e. Testing the facts of the present case on the touchstone of the ratio

decidendi of the Hon'ble jurisdictional High Court in Maithan

International (supra), we have no hesitation in holding that the present

case is a glaring example of not making relevant enquiry, which

amounts to `no enquiry' and hence it becomes a case of non-application

of mind by the AO. This argument, therefore, fails.

iv) Whether the order of the CIT is based on irrelevant

consideration and further was he supposed to point out 83 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

specifically where the AO went wrong in not properly examining

the issue of share capital?

20.a. The next plank of the marathon submissions of the ld AR was that

the ld. CIT passed order based on irrelevant material, surmises and

conjectures and was hence unsustainable in law. He submitted that it

was the order of the ld. CIT which was perverse and not that of the AO.

Relying on the judgment of the Hon'ble Supreme Court in the case of

Lal Chand Bhagat Ambika Ram vs. CIT (1959) 37 ITR 288 (SC), the ld.

AR argued that the ld. CIT acted without any evidence for coming to

conclusion that the shareholders were not genuine.

20.b. We are unable to accept the contention of the ld. AR. It can be

seen from the facts recorded in the impugned orders that it has been

properly brought out that the assessee company along with hundreds of

such other companies were paper companies floated by certain operators

with the aim of helping in converting unaccounted money into

accounted money. We have also noted above that there several hundred

appeals pending before the Tribunal in all of which the same modus

84 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

operandi has been adopted by issuing shares at huge premium with no

substantial business activity and, thereafter, investing the receipt of such

share capital with premium in other paper companies again at huge

premium and such latter companies being also not undertaking any

worthwhile business activity. The further fact that shareholders of one

company are investee in other companies so on and so forth also casts

great doubt over the genuineness of the transactions. One case cannot be

seen in isolation in view of the totality of facts and circumstances as is

prevailing in such cases. It is wholly incorrect to say that the action of

the ld. CIT, when the web of fictitious companies involved in such

dubious practice was unearthed, was based on surmises and conjectures.

The judgment in the case of Lal Chand Bhagat Ambika Ram (supra) is

based on the facts in which there was no evidence of that assessee

involved into smuggling. On the contrary, we are confronted with a

situation in which the case records of the assessee divulge that it issued

shares at huge underserving premium coupled with the fact that it also

made investments in the shares of other companies at much higher

85 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

prices, without any justification and further the shareholder companies

of the assessee company are directly or through its directors,

simultaneously investee companies in other such companies, all of

which have no meaningful business activity. It is the same pattern

which has been adopted by all these companies, of which the assessee is

a part. It would be utterly erroneous to hold that in the facts and

circumstances of the assessee company, there was no material before the

ld. CIT to invoke jurisdiction u/s 263.

20.c. The argument of the ld. AR that any company is entitled to issue

shares at any premium which it likes and that the Companies Act does

not prohibit issuing shares at premium, does not in our considered

opinion, bring any change in our conclusion in background of the factual

position as is prevailing before us. We agree that any company can

issue shares at any amount of premium. It is only when the shares are

genuinely issued at a certain amount of premium that there cannot be

any inquiry. If, however, the striking reality of a situation is visible even

to closed eyes, that the shares were not genuinely issued at the given

86 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

premium, then there can be no fetters on the powers of the authorities to

examine the genuineness of the persons subscribing to share capital. A

line of distinction should be drawn between the cases where shares are

genuinely issued at premium on one hand and the cases where the shares

are not genuinely issued at premium or there is some foul play in the

issue of shares at premium on the other. In such latter situations, the

authorities cannot be debarred from thoroughly examining the aspect of

share premium from all the possible angles. If, on such examination, it is

found that the transaction of issue of shares at premium was not genuine,

then the law will have to take its own course.

20.d. Another contention was put forth by the ld. AR that if the view

point of the Department was presumed to be correct for a moment that it

was a case of circular transactions, meaning thereby, that one amount of

money has passed through several companies, then the addition, if any,

can be made only the hands of first company and not the others, through

whom the money came into rotation. It was argued that the ld. CIT was

87 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

not justified in this backdrop of facts in directing the AOs of all the

companies to investigate the genuineness of credit in all the companies.

20.e. This argument, though looks attractive at the first flush, but does

not stand scrutiny in depth. In all these cases under consideration, the

issue is about the genuineness of share capital credited in the books of

accounts of such companies. Section 68 unequivocally provides that :

`Where any sum is found credited in the books of an assessee

maintained for any previous year, and the assessee offers no explanation

about the nature and source thereof or the explanation offered by him is

not, in the opinion of the Assessing Officer, satisfactory, the sum so

credited may be charged to income-tax as the income of the assessee of

that previous year.' The crux of the matter is that if any money is

credited in the books of accounts of a company in the form of share

capital and the assessee fails to satisfy the AO, then the sum so credited

has to be charged to tax u/s 68 of the Act. The very fact of such share

capital having been credited in the books of account of several

88 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

companies, is enough to consider all such cases within the purview of

section 68.

20.f. It was then argued by the ld. AR, by relying on certain decisions,

that before branding the assessment order as erroneous and prejudicial to

the interests of the Revenue, it was incumbent upon the CIT to expressly

show some mistake in the assessment order making it erroneous and

prejudicial to the interest of the revenue. A mere mention in the order of

the CIT that proper enquiry was not conducted, in the opinion of the ld.

AR, was an incorrect appreciation of the provisions of section 263. So

long as there is an evidence on the record of the AO about the

conducting of a proper enquiry, the ld. AR argued, that the ld. CIT

cannot invoke the provisions of section 263. The sum and substance of

the submission was that before assuming jurisdiction u/s 263, the ld. CIT

was supposed to point out where the AO went wrong. Since the

impugned order of the ld. CIT was silent on this aspect, the ld. AR

argued that the same be set aside.

89 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

20.g. We agree with the proposition advanced by the ld. AR, but in our

considered opinion, the same is not applicable to the facts of the instant

case. Such a proposition applies where the AO has made proper enquiry

and still comes to a wrong conclusion, which renders the assessment

order erroneous and prejudicial to the interest of the revenue. In such

circumstances, it becomes the duty of the CIT to expressly point out

where the AO went wrong on merits. But in a case, where no enquiry

has been conducted at all or the so-called enquiry conducted by the AO

is as good as no enquiry, as is the case under consideration, in such

circumstances, the CIT simply needs to point out those relevant aspects

of assessment, which the AO lost sight of, but were required to be

properly probed. This difference, may in certain circumstances, be

appreciated with the help of conclusion drawn by the CIT. When he

expressly shows a particular aspect of an assessment as going wrong on

merits, the order u/s 263 cancels the assessment order on that aspect. But

where, the AO fails to conduct enquiry, the obligation of the CIT ends

with showing that such and such issues required proper investigation at

90 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the end of the AO, which he failed to do. In such cases, the assessment

order is set aside with the direction to the AO for looking into the matter

afresh and then deciding the issue properly. There can be no way for the

CIT to tell erroneous approach of the AO on merits in such

circumstances because the view of the AO on merits is not available.

Requiring the CIT to indicate where the AO went wrong on merits in the

cases of no enquiry cases, is like requiring an impossible thing to be

done. It is axiomatic that the law does not require an impossible to be

complied with. We are reminded of the legal maxim, `Lex neminem

cogit ad vana seu impossiblia', which means that the law compels no

one to do impossible things. When we approach the facts of the cases

under consideration, it is obvious that the extent of enquiry conducted by

the AO, being as good as no enquiry, is sufficient in itself to empower

the CIT for invoking his jurisdiction u/s 263. Under such circumstances,

we cannot cast an impossible burden on the CIT to show the positive

leakage of income in concrete terms, when he has simply set aside the

assessment order and restored this aspect of the assessment to the file of

91 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

AO for making a proper enquiry and then deciding. This argument of

the ld. AR, being devoid of any merits, is rejected.

v) If the AO has taken a possible view, can still the revision be

ordered?

21.a. The ld. AR argued that section 263 cannot be arbitrarily invoked

where the AO has taken one of the possible views. He bolstered this

contention with certain authorities that point out that if the AO adopts

one possible view, with which the CIT is not agreeable, that cannot be

considered as a case warranting the invocation of section 263. The ld.

AR invited our attention towards certain other judgments of the Hon'ble

jurisdictional High Court including the case of CIT vs. Roseberry

Mercantile (P) Ltd., copies of which have been placed on record, in

which it has been held that the judgment in the case of Lovely Exports

(supra) is applicable and the question of share capital cannot be

examined in the hands of the assessee. It was submitted that even

though there are some judgments holding the non-application of the

judgment of the Lovely Exports (supra) to closely held companies, it

92 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

shows that the issue in question was debatable and, as such, incapable

of being examined in the proceedings u/s 263. Relying on CIT vs. J.L.

Morrison (India) Ltd. (2014)366 ITR 0593 (Cal), the ld. AR stated that

once the AO has taken a possible view, it cannot be said that view taken

by him was erroneous making the assessment order amenable to

revision.

21.b. Taking into consideration the amendment brought to section 68

by the Finance Act, 2012, we have held in the part (A) of this order that

the AO is not only empowered but duty bound to make an addition u/s

68 of the Act on account of receipt of share capital with or without

premium even in the period anterior to the A.Y. 2013-14, if the assessee

company fails to prove identity and capacity of the shareholders in

addition to the genuineness of the transaction.

21.c. It is further interesting to note that in Maithan International

(supra) also, the appellant assessee relied on the judgment in the case of

J.L. Morrison (India) Ltd. (supra) for contending that since the AO on

examination of the material before him has taken a possible view, then

93 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the CIT gets precluded to invoke section 263. Repelling this contention,

the Hon'ble High Court has held in Maithan International (supra) that :

`The judgment in the case of J. L. Morrison does not assist the assessee

because in that case the question was whether the receipt was a revenue

receipt or a capital receipt. The Assessing Officer treated the receipt as a

capital receipt which the Division Bench found was a possible view.

Unlike in the present case, no factual enquiry was necessary in that

case.' When we examine the facts under consideration, it is obvious that

we are dealing with a case in which no meaningful enquiry was

conducted by the AO in finalizing the assessment u/s 143(3) read with

section 147 and we have before us the order passed by the CIT u/s 263

directing the AO to make proper enquiry qua the issue of share capital

on highly unreasonable premium. Once the proceedings are thrown

open before the AO, the assessee will have full liberty to argue his case

on merits. The assessment orders in the instant cases have become

erroneous and prejudicial to the interest of the revenue on the very

threshold of not making a proper examination of the issue of share

94 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

capital at huge premium by the AO. This factor alone renders the

assessment order open to revision u/s 263.

21.d. We are reminded of the judgment of the Hon'ble Supreme Court

in Malabar Industrial Company Ltd. Vs. CIT (2000) 243 ITR 83 (SC), in

which it has been held that non-application of mind by the AO makes

the order erroneous and prejudicial to the interests of the Revenue. An

order is said to be erroneous when it does not conform to the law or

proceeds on incorrect assumption of facts. An order is said to be

prejudicial to the interests of the revenue not only where the due tax has

not come to the coffers of the exchequer, but, also where bad precedent

is set by the AO. In other words, the expression 'prejudicial to the

interests of the revenue' needs to be viewed in a broader sense and

cannot be confined to its narrow meaning of non-realization of the due

tax only. It further explained the ambit of the expression 'prejudicial to

the interests of the revenue' by laying down that it: "is not an expression

of art and is not defined in the Act. Understood in its ordinary meaning,

it is of wide import and is not confined to loss of tax." The Hon'ble

95 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

jurisdictional High Court in Maithan International (supra) has also held

that: "Setting a bad trend is also prejudicial to the revenue." The facts of

the instant cases speak volumes of the bad trend set up by the AO in not

conducting proper enquiries in hundreds of such cases, which in our

considered opinion have been rightly set aside by the CITs u/s 263 of the

Act.

21.e. The Hon'ble Delhi High Court in Gee Vee Enterprises vs. Addl.

CIT and Others (1975) 99 ITR 375 (Del), was confronted with the facts

in which that assessee was incorporated with the object of acquiring loan

and making construction. It purchased some bungalow after borrowing

loans as its share capital was very limited. Some of the directors and

shareholders of that assessee company entered into partnership. An

agreement was entered into between two sister concerns. The

partnership was to complete a multi-storied building on the plot after

taking advances from the licensee to whom flats in the building were to

be allotted. The partner was to keep 90% of its money and pay 10% of it

to the company as consideration for this agreement. In view of the 10%

96 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

of the money so received, the company was to issue shares to licensees

who were to take up the flats. The ITO made the assessments of the

company and the firm on that basis apparently without ascertaining the

truth of the facts. Thereafter, revision was done by the CIT and the

matter went before the Hon'ble Delhi High Court. The assessee

contended that the ITO had made the enquiries and was satisfied about

the truth of the facts and hence revision was not maintainable. Repelling

the contention advanced on behalf of the assessee, it was held that the:

"CIT was justified in exercising his revisional jurisdiction on the ground

that the ITO had not made sufficient enquiries before granting

registration to the firm and it was not necessary for the CIT to have

himself made enquiries before cancelling assessment." In our

considered opinion, this judgment is an answer to the contention put

forth on behalf of the assessee that the CIT must initially indicate the

mistake in the assessment order on merits by making proper enquiry at

his end before cancelling assessment under section 263. This judgment

makes it palpable that the very fact that the ITO "had not made sufficient

97 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

enquiries before granting registration to the firm" was considered as

sufficient enough to clothe the CIT with the power to revise the

assessment order and it was not considered necessary in such

circumstances: "for the CIT to have himself made enquiries before

cancelling the assessment." It transpires that the fact that no enquiry

was conducted by the AO or even though the enquiry was conducted,

but, the relevant enquiry was omitted to be conducted, is sufficient to

brand an assessment order erroneous and prejudicial to the interests of

the revenue. Similar view has been taken by the Hon'ble Supreme Court

in the case of Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) in

which it has been held that an assessment made by the AO "in undue

haste without making any enquiry" would render an assessment order

erroneous and prejudicial to the interests of the revenue. Similar view

has been taken by the Hon'ble Apex Court in Smt. Tara Devi Aggarwal

vs. CIT (1973) 88 ITR 323 (SC). We have held in an earlier para that the

assessment orders under consideration were passed in undue haste in

98 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

terms of lack of proper enquiry, thereby making them eligible for

revision by the CIT u/s 263 of the Act.

21.f. The Hon'ble Gujarat High Court in Addl. CIT vs. Mukur

Corporation (1978) 111 ITR 312 (Guj), has held that it is not necessary

that CIT in his order u/s 263 should come to a firm conclusion that the

order of the AO was erroneous in so far as it was prejudicial to the

interest of the revenue. Where the AO allowed deduction without

properly probing the matter, the Hon'ble High Court held that the

initiation of proceedings u/s 263 was proper.

21.g. From an overview of the above discussed judgments, it is crystal

clear that where the AO fails to conduct an enquiry or proper enquiry,

which is called for in the given circumstances, the CIT is empowered to

set aside the assessment order by treating it as erroneous and prejudicial

to the interests of the revenue. In such circumstances, it is not further

required on the part of the CIT to expressly show where the assessment

order went wrong. The very fact that no enquiry was conducted or no

99 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

proper enquiry was conducted in the required circumstances, is

sufficient in itself to invoke the provisions of section 263.

22. We, therefore, answer all the five aspects discussed above by

holding that : i) the enquiry conducted by the AO in such cases can't

be construed as a proper enquiry; ii) CIT u/s 263 can set aside the

assessment order and direct the AO to conduct a thorough enquiry,

notwithstanding the jurisdiction of the AO in making enquiries on the

issues or matters as he considers fit in terms of section 142(1) and

143(2) of the Act, which is relevant only up to the completion of

assessment ; iii) Inadequate inquiry conducted by the AO in the given

circumstances is as good as no enquiry and as such the CIT was

empowered to revise the assessment order ; iv) The order of the CIT is

not based on irrelevant considerations and further in the present

circumstances, he was not obliged to positively indicate the deficiencies

in the assessment order on merits on the question of issue of share

capital at a huge premium ; v) the AO in the given circumstances can't

be said to have taken a possible view as the revision is sought to be done

100 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

on the premise that the AO did not make enquiry thereby rendering the

assessment order erroneous and prejudicial to the interest of the revenue

on that score itself.

23. a. Having dealt with all the five major points taken up by the ld. AR

in support of contention for setting aside the orders passed u/s 263, now

we turn to the respective precedents directly on the point, relied by both

the sides on the sustainability or otherwise of order u/s 263. The ld. AR

submitted that the Kolkata bench of the Tribunal in Lotus Capital

Financial Services Ltd. Vs. ITO (ITA No.479/Kol/2011) has decided

similar issue of revision in the assessee's favor. It was submitted that

this Tribunal order has been affirmed by the Hon'ble jurisdictional High

Court vide its judgment dated 16.7.2012, a copy of which was placed on

record. He submitted that when the AO passed the order, these

precedents in favour of the assessee enabled him to form a view that

examination of share capital with premium was not contemplated u/s 68

and, hence, the ld. CIT entertaining a contrary view could not invoke the

provisions of section 263. Per contra, the ld. DR also relied on certain

101 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

tribunal orders passed by the tribunal directly on the point upholding

revision.

23.b. We have heard both the sides. It is no doubt true that the

Tribunal in the case of Lotus Capital Financial (supra) has set aside the

order passed by the CIT in which the latter revised the assessment order,

inter alia, on the ground of improper examination by the AO of certain

shares issued by the assessee company at premium. When we go to the

judgment rendered by the Hon'ble Calcutta High Court in the case of

Lotus Capital, it is manifested that the substantial question of law was

not found to arising from the Tribunal order as the same was based on

the facts recorded by the Tribunal. The Hon'ble High Court refused to

interfere with the factual findings recorded by the tribunal, being the

final fact finding authority. Not admitting the question as a substantial

question of law arising from the Tribunal order, cannot be equated with

the approving the view taken by the Tribunal. Since the Hon'ble High

Court refused to re-appreciate the facts as recorded by the Tribunal and,

thereafter, did not admit the question of law proposed by the Revenue,

102 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the only conclusion which can be drawn is that at best, there is no

decision of the Hon'ble High Court on various legal aspects of the

matter as have been discussed above. Au contraire, we find that

identical issue came up for consideration before the Kolkata Bench of

the Tribunal in five cases. In all such cases, the facts were mutatis

mutandis similar inasmuch as these companies before the tribunal had

issued shares at huge premium and the AO had accepted the

genuineness of the transactions in proceedings u/s 147. In all such

cases, the CIT invoked his power u/s 263 thereby restoring the matter to

the AO for a proper examination and the Tribunal has upheld the action

of the CIT by dismissing the appeals filed by the assessees. Detailed

orders have been passed by the Kolkata Bench in the case of M/s

Bisakha Sales Pvt. Ltd. Vs. CIT (ITA No.1493/K/2013,

dated10.9.2014), Brindavan Commodities Pvt. Ltd. VS. CIT (ITA No.

1607/Kol/2013, dt. 24.10.2014), Ridhi Sidhi Vincom (P) Ltd. Vs. CIT

(ITA No.1410/K/2013, dated 10.10.2014), Star Griha Pvt. Ltd. Vs. CIT

(ITA No.1244/K/2013, dated 14.8.2014) and Bee Tee Credit Marketing

103 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Pvt. Ltd. Vs. CIT (ITA No.1598/K/2013, order dated 14.8.2014). In all

the above five cases, the Tribunal has upheld the orders passed by the

CIT u/s 263, dismissing the appeals of the assesses. It is further relevant

to note that the order in the case of Bisakha Sales (supra) has been

passed by the tribunal after duly considering the earlier order favourable

to the assessee in Lotus Capital (supra). On further analysis, we find that

the fact of such dummy companies floated on a large scale involving

similar modus operandi, was not there before the Tribunal in the case of

Lotus (supra), which order was passed in 2011. This case was decided in

isolation without the overall background of a web of several hundred

companies floated on the same pattern with ulterior motive. As against

that, most of the above orders passed by the tribunal against the assessee

have been passed in 2014 after considering the factual matrix in a great

detail. Considering the totality of the facts and circumstances in the

instant case, we are more inclined to follow the latter considered view

taken by the Kolkata Bench of the tribunal against the assessee in five

orders. Apart from that, the recent judgment of the Hon'ble

104 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

jurisdictional High Court in Maithan International (supra) has clearly

approved the standpoint of the Revenue in upholding the order passed

u/s 263 where the AO conducted inadequate enquiry which has been

equated with no enquiry in the given circumstances. The ratio of this

judgment applies with full force to the facts under consideration. Respectfully following the ratio decidendi of the judgment of the

Hon'ble High Court in the cased of Maithan International (supra) and

the aforequoted five Tribunal orders against the assessee, we are of the

considered opinion that the ld. CIT was justified in revising the

assessment order and remitting the matter to the file of AO for

conducting proper enquiry in the light of the directions given by him.

24. We, therefore, sum up our conclusion that the ld. CIT was justified

in setting aside all the assessment orders in question, on merits.

25. We have noticed above that apart from merits of the cases, some of

the ld. ARs have taken up and argued other legal grounds challenging

the jurisdiction, limitation, non-service or improper service of notice u/s

263 etc., which we will take up consideration hereinafter.

105 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

C. Issue of Non-service of show cause notice u/s. 263 :

26.a. In the case of Reward Tie-up Private Limited, the assessee has

also challenged the order u/s. 263 of the Act as void in law for non-

service of show cause notice before passing of the impugned order. The

learned AR brought to our notice para 5 of the order u/s. 263 of the Act,

wherein the ld. CIT has recorded the fact that notices u/s. 263 of the Act

were issued to the assessee on 4.3.2013 and 6.3.2013 but were not

served since no such company existed at the given address and hence

was duly served by affixture at the last known address of the assessee on

12.3.2013. The ld. CIT has also recorded the fact that none appeared on

behalf of the assessee nor any reply received on the date of hearing on

18.3.2013. The order u/s.263 of the Act, was therefore, as an ex-parte

order.

26.b. The learned AR contended that as per the provisions of sec.

282(1)(b) of the Act read with order V Rule 17 of Code of Civil

Procedure, 1908 (CPC), affixture as a mode of service of notice can be

resorted to only where the person on whom notice is sought to be served

106 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

or his agent refuses to sign acknowledgement or where the serving

officer, after using all due and reasonable diligence, cannot find the

defendant (i.e., the assessee on whom notice is sought to be served).

The learned AR thereafter brought to our notice that the order u/s. 263 of

the Act as well as the consequential order dated 18.3.2014 passed by the

AO were duly served on the assessee at the address as found in the

records of the Revenue. As per his version, the assessee was available at

all points of time at the address as found in the records of the Income-tax

Department. The service of show cause notice u/s. 263 of the Act by

affixture was therefore claimed to be not in accordance with the

requirements of order V Rule 17 CPC as it was not true that service of

notice in the usual manner could not have been effected even after due

and reasonable diligence as the assessee could not be found.

26.c. For the proposition that before passing an order u/s.263 of the Act

the assessee must be given a reasonable opportunity of being heard by

issue and service of a show cause notice, the learned counsel for the

assessee relied on certain decisions including Smt. Kiron Devi Singhee

107 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

vs. CIT & Ors. 58 ITR 0419 (Cal) and CIT vs. Ramendra Nath Ghosh

82 ITR 0888 (SC). In support of the proposition that if a notice u/s.263

of the Act is not properly served, the order passed u/s. 263 of the Act is

liable to be held as invalid and void, the learned counsel for the assessee

relied on certain decisions including Tin Box Co. Vs. CIT 249 ITR 0216

(SC). Certain other decisions on the importance of opportunity of being

heard before passing orders having civil consequences by statutory and

other authorities, were also brought to our notice.

26.d. Per contra, the learned DR placed reliance on the order of the

CIT on this issue and highlighted the fact that two notices were sent to

the assessee at the known address but could not be served and only

thereafter service by affixture was resorted to. Our attention was also

drawn towards the conduct of the assessee in as much as in the

assessment proceedings after the order u/s. 263 of the Act, he did not

participate in the proceedings resulting in an order u/s. 144 of the Act.

The assessee however received the order of assessment at the known

address. According to him the non-service of notice u/s. 263 of the Act

108 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

at the known address is also part of the design of the assessee whereby it

was trying to avoid the process of scrutiny of the receipt of share capital

during the previous year. In this regard he pointed out that the

reassessment proceedings were initiated only at the instance of the

assessee by his filing letter before the AO for issue of intimation

u/s.143(1). Thereafter, the assessment was reopened and the assessee

promptly participated in such proceedings. When the assessment

completed u/s. 147 of the Act was sought to be revised in proceedings

u/s. 263 of the Act, it evaded the service of notice. The assessee

however promptly filed appeal against the order u/s. 263 of the Act,

giving the very same address at which notices were returned and hence

could not be served by the Revenue. In the grounds of appeal, the

assessee remains silent as to its correct address for service. It has not

been stated by the assessee that it was not carrying on business at the

address at which service of notice was effected by affixture. The learned

DR pointed out that in several such cases it had come to light that shell

companies had been formed for converting unaccounted money into

109 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

accounted money and the assessee being a part of such game plan, was

trying to playing hide and seek with the Revenue according to its

suitability. He argued that the sequence of events and the whole design

adopted by the assessee should not be lost sight of while examining the

claim of the assessee regarding improper service of notice u/s.263 of the

Act. In the assessment proceedings after the order of CIT u/s. 263 also,

the assessee did not participate in the proceedings. According to him the

circumstances of the case clearly showed that the motive of the assessee

was to evade service of notice and therefore service by affixture was the

only proper mode of service in the facts and circumstances of the present

case.

26.e. In the case of M/s. Tulsi Tradecom Pvt. Ltd., there is similar

challenge to the service of notice u/s. 263 of the Act. The circumstances

under which order u/s. 263 of the Act was passed by the CIT are

identical to the case of Reward Tie-up Pvt. Ltd. (supra), which we have

set out in the earlier paragraphs. There are some distinguishing features

in this appeal, in so far as service of notice u/s.263 of the Act is

110 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

concerned. Shri N.K. Poddar, the learned AR pointed out that show-

cause notice was not even served by affixture in this case. He drew our

attention to a list of dates and events filed in this case. He drew our

attention to the order dated 30.3.2013 passed u/s 263 of the Act in which

the CIT has clearly observed that a show cause notice was sent by post

for compliance on 22.3.2013 and the same was returned by the postal

authorities on 25.3.2013. He brought to our notice that as early as

31.5.2012, the registered office of the assessee was shifted from 2, Raja

Woodmunt Street, Kolkata-1 to the address shown in the order u/s 263

of the Act, namely, B-222, 2nd Floor, Okhla Industrial Area, Phase-I,

New Delhi - 20. Our attention was also drawn to the fact that the

change of registered office from West Bengal to New Delhi was duly

intimated to the Department and approved by the Company Law Board.

The AO while completing the proceedings u/s 147 read with section

143(3) of the Act was informed by a letter filed in the course of

assessment proceedings intimating the change of address accompanied

by the order of CLB and the requisite forms filed by the assessee with

111 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the Registrar of Companies. These documents are placed at page nos.

33-36 of the assessee's paper book. According to the learned AR, the

show cause notice in these circumstances ought to have been sent at the

new address. He pointed out that the CIT issued show-cause notice

dated 18.3.2013 and the same was addressed at the old address in

Kolkata. Since the order u/s 263 of the Act contained the Delhi address

of the assessee, the same was received by the assessee and, thereafter,

the assessee obtained copy of the show-cause notice dated 18.3.2013

which is placed at page 11 and 12 of the assessee's paper book from the

office of the CIT. According to him, mere return of the postal cover

unserved cannot be treated as valid service. It was submitted by him

that the CIT did not make even an attempt to effect the service by

affixture. Our attention was drawn to the decision of the Hon'ble

Bombay High Court in the case of Balaji Marbles vs. Union of India

(2015) 58 Taxmann.com 155 (Bom), wherein the Hon'ble Bombay High

Court has expressed a view that when the assessee has informed his

changed address to the department, service of notice has to be effected at

112 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the changed address. It is only when service of notice at the changed

address becomes impossible that notice can be served in a different

manner. Our attention was also drawn to the decision of the Hon'ble

Delhi High Court in the case of CIT vs. Eshan Holdings (P) Ltd. (2012)

25 Taxmann.com 99 (Del), wherein the Hon'ble Delhi High Court held

that service of notice issued u/s 148 at the old address of the assessee,

though return of income filed before issue of such notice showed the

new address, was not a valid service.

26.f. The facts of Ramshila Enterprises Pvt. Ltd. in which this issue is

challenged are almost similar to those of Reward Tie-up Pvt. Ltd. Here

also, the ld. AR claimed that the notice was sent at earlier address,

whereas the new address was already available on the record of the

Department and the change was duly acknowledged by the Department.

The ld. AR submitted that report of the IT Inspector who effected

service by affixture also indicated the affixture at the old address. It was

pointed out that before effecting service of notice by affixture, the IT

Inspector was obliged under law to exercise due diligence to find out if

113 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

notice could be personally served on the assessee. He pointed out that

when the Inspector goes to a wrong address for service of notice, there is

complete absence of due diligence on the part of the Inspector. For the

proposition that service by affixture was not valid as the same was not in

conformity with the provisions of Order-V, Rule 17 of the CPC. In

support of this proposition, he relied on certain decisions including ITO

vs. Ashok Glass Works, 125 ITR 491.

26.g. The ld. DR pointed out that Ramshila Enterprises Pvt. Ltd., has

been frequently shifting its office to different places from time to time.

In the letter addressed to the AO received by the AO on 6.4.2010, the

assessee's address was shown as 14, Prince Street, 3rd Floor, Kolkata -

72. Notice u/s 148 of the Act was served at this address on the assessee

in connection with the re-assessment proceedings for the AY 2008-09.

He pointed out that this notice was received by the assessee at 4, Clive

Road, 4th Floor, Room No.405, Kolkata. The assessee participated in

the re-assessment proceedings. Thereafter, the assessee intimated the

AO and the CIT by letters received by the AO/CIT on 7.5.2010 and

114 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

21.5.2010 respectively, to the effect that it was withdrawing the

migration of PAN and, therefore, the assessee had not shifted to a new

address. In the light of the above facts, the ld. DR submitted that the

service by affixture was proper as the assessee itself wanted service of

notice at the old address from 21.5.2010 and as early as 7.5.2010.

26.h. Without prejudice to the above submissions, the ld. DR also

submitted that non-service or improper service of notice u/s 263 of the

Act will not render the order u/s 263 of the Act a nullity. It could at

best be an irregularity capable of curing. In this regard, a copy of

decision of the Hon'ble Calcutta High Court dated 10.3.2015 in Corus

Steels Pvt. Ltd. WP No.6103 of 2015 dated 10.3.2015 was filed before

us. In the aforesaid decision, the Hon'ble Calcutta High Court took the

view that non-service of show cause notice will not render the order u/s

263 a nullity. Relying on the decision of the Hon'ble Supreme Court in

the case of CIT Vs. Electro House 82 ITR 824(SC), it was contended that

the law does not require notice u/s 263 to be served at all. In conclusion,

it was submitted by him that when the assesse himself had given a

115 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

particular address for service of notice and when the notice was served

at that address though by affixture, it could not be said that the assessee

was not given proper opportunity of being heard.

26.i. As regards the case of Tulsi Tradcom Pvt. Ltd., the ld. DR stated

that change of address was not intimated in a manner known to law and

therefore the notice was sent at the old address. It was also submitted

that in the light of background facts of the case as explained by the CIT

in the impugned order u/s.263 of the Act, the change of address was also

part of the design whereby the assessees were trying to mislead the

Department. In the circumstances, it was prayed that the service of

notice be held to be proper.

26.j. The learned AR in his rejoinder submitted that opportunity of

being heard is always contemplated in the provisions where the result is

likely to affect the rights of an assessee. Such opportunity of hearing

may be specifically enshrined in the provision or in its absence, it has to

be inferred. He pointed out that the Hon'ble Supreme Court in the case

of Maneka Gandhi Vs. Union of India 1981 (1) SCC 644 (SC) at page

116 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

709 para 94, relied on the decision of the House of Lords in the case of

Ridge Vs. Baldwin and held that even where opportunity of being heard

is not statutorily required to be given and where the principles of natural

justice are violated, then the order passed without affording such

opportunity of being heard is to be regarded as void and it is not an

irregularity which can be cured by calling upon the authority to afford

opportunity of being heard.

26.k. We have given a very careful consideration to the rival

submissions in the light of the precedents relied upon. Firstly we will

deal with the case of Reward Tie-up Pvt. Ltd. The requirements of order

V Rule 17 of CPC is that the process server after using all due and

reasonable diligence cannot find the defendant who is absent from his

residence at the time when service is sought to be effected on him at the

known address and there is no likelihood of his being found at the

residence within a reasonable time and there is no agent empowered to

accept service of the summons on his behalf nor any other person on

whom service can be made. It is only thereafter that the process server

117 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

is empowered to effect service by affixture. In the present case two

notices were sent to the assessee at the known address. Both the notices

could not be served and were returned unserved. It is only thereafter

that service of notice was effected by affixture. The learned counsel for

the assessee harped on the aspect of absence of due and reasonable

diligence to find the assessee before effecting service by affixture. The

assessee is a company and its known address is 113, N.S.Road,

Kolkatta-700 001. The notices when sent at this address were returned

twice as there was none to receive the notices, it has to be reasonably

presumed that the requirements of Order V rule 17 CPC did exist to

effect proper service of notice. A company is an artificial juridical

person. Therefore the requirements of finding availability of the

assessee within a reasonable time at the known address cannot be strictly

complied with. The fact that the order u/s. 263 of the Act was served at

the known address is also not denied. The affixture of notice at the last

known address is also not denied by the assessee. The emphasis is only

on the absence of due diligence by the process server to find out the

118 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

whereabouts of the assessee. This is a fact which the assessee alleges

based on surmises. In this regard it is also seen that the reassessment

proceedings were initiated only at the instance of the assessee by filing

letter before the AO for issue of intimation u/s. 143(1) of the Act.

Thereafter, the assessment was reopened and the assessee promptly

participated in such proceedings. When the assessment completed u/s.

147 of the Act was sought to be revised in proceedings u/s.263 of the

Act, the assessee evaded the service of notice. The assessee, however,

promptly filed appeal against the order u/s.263 of the Act, giving the

very same address at which notices were returned unserved. There is no

allegation that the address at which notice was served by affixture is no

longer the address of the assessee for service of notice. As rightly

pointed out by the learned DR, the sequence of events prevailing in such

companies involved in assisting the conversion of unaccounted moneys

into accounted monies, cannot be lost sight of. The circumstances of the

case clearly show that the motive of the assessee was to evade service of

notice and therefore service by affixture, in our considered opinion,

119 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

cannot be held as anything other than a proper service. As such, we are

satisfied that the service of notice u/s. 263 of the Act in the given facts

and circumstances of the case was proper. The subsequent conduct of

the assessee in not participating in assessment proceedings after the

order u/s. 263 of the Act, cannot also not be lost sight of. Since on facts

we have come to the conclusion that there has been valid service of

notice u/s. 263 of the Act, we are of the view that the decisions relied

upon by the learned AR do not require consideration. The objection by

the assessee in this regard is held to be without any basis.

26.l. As far as the case of Tulsi Tradecom Pvt. Ltd. is concerned, the

address given in the return of income was the basis on which notices

were sent at the Kolkata Address. There is nothing on record to indicate

that the change of address was taken cognizance by the AO. In the

circumstances notices were sent at the Kolkata address. The assessee

cannot, therefore, have any grievance as will be discussed in the

subsequent paragraphs.

120 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

26.m. As far as service of notice in the case of Ramshila Enterprises

Pvt. Ltd. is concerned, we find that the assessee has been shifting its

address from time to time, as has been pointed out by the learned DR.

When such frequent change in the address is seen in the background of

the factual position as discussed in the earlier part of the order, we

cannot resist the conclusion that the service at the last known address by

affixture was proper.

26.n. Apart from discussing the proper service of notice on merits of

the above cases, we may also add as a legal proposition that there is no

requirement of service of notice u/s. 263 of the Act in terms of section

282 of the Act and CPC as has been argued before us. Sub-section (1) of

section 263 provides that : `The Commissioner may call for and

examine the record of any proceeding under this Act, and if he considers

that any order passed therein by the Assessing Officer is erroneous in so

far as it is prejudicial to the interests of the revenue, he may, after giving

the assessee an opportunity of being heard and after making or causing

to be made such inquiry as he deems necessary, pass such order thereon

121 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

as the circumstances of the case justify, including an order enhancing or

modifying the assessment, or cancelling the assessment and directing a

fresh assessment'. The requirement in this provision is to pass the order

`after giving the assessee an opportunity of being heard.' It is unlike the

language of certain provisions of the Act, including section 148 which

expressly contain the requirement of issue of notice, as is evident from

sub-section (1) of section 148 which provides that : ` Before making the

assessment, reassessment or recomputation under section 147, the

Assessing Officer shall serve on the assessee a notice requiring him to

furnish within such period, as may be specified in the notice, a return of

his income ......'. Thus it is evident that whereas section 148 specifically

requires serving a notice on the assessee, section 263 simply talks of

giving an opportunity of being heard. Section 282 of the Act discusses

the service of notice generally and not giving opportunity of hearing.

Such opportunity of hearing can be given either by means of service of

notice in terms of section 282 or otherwise. Clause (b) of sub-section (1)

containing the requirement of service `in such manner as provided under

122 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of

service of summons' can apply only when there is requirement of

service of notice in the relevant provision, which would require

compliance in terms of section 282. But where a particular provision

does not contemplate service of notice and only refers to giving

opportunity of hearing, then the strict provisions of section 282 cannot

apply. So long as the assessee stands informed of the proceedings

against him, there can be no irregularity in this regard. Thus it is clear

that unlike provisions of sec. 148 of the Act, sec. 263 of the Act does not

require any notice to be strictly issued by the Commissioner in

conformity with section 282 of the Act. Once the law does not

specifically oblige him to give notice except giving the opportunity of

hearing to the assessee, the strict conditions of service of notice as

mandated u/s 282 of the Act cannot be imported. All that he is required

to do is to give the assessee an opportunity of being heard and make or

cause to make such inquiry as he deems necessary. This requirement

has nothing to do with the jurisdiction of the Commissioner. It simply

123 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

pertains to the region of natural justice. Breach of the principles of

natural justice may prejudice the legality of the order made but cannot

affect the jurisdiction of the Commissioner. So long as the order passed

by the AO is erroneous and prejudicial to the interest of the revenue, the

jurisdiction vests with the CIT to revise such an order, of course, subject

to the limitation enshrined in the provision. The above is the view of the

Hon'ble Supreme Court expressed in the case of CIT Vs. Electro House

82 ITR 824 (SC).The decisions relied by the learned ARs taking a

contrary view, in our considered opinion, have to be read subject to the

decision of the Hon'ble Supreme Court. Therefore, the stringent

conditions of service of notice as required u/s. 148 of the Act and in the

manner contemplated by sec. 282 of the Act, cannot be read into the

provisions of sec. 263 of the Act.

26.o. Sec. 282(1) of the Act as it existed after the substitution by the

Finance (No.2) Act, 2009 w.e.f. 1-10-2009 provides that

"The service of a notice or summon or requisition or order or any other communication under this Act" may be made by delivering or transmitting a copy thereof, to the persons therein named

124 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

(a)By post or by such courier services as may be approved by the Board; or

(b) In such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or

(c)In the form of any electronic record as provided in Chapter IV of the Information Technology Act, 200 (21 of 2000) or

(d) By any other means of transmission of documents as provided by rules made by the Board in this behalf."

26.p. Prior to the amendment, section 282(1) provided as follows:

"A notice or requisition under this Act may be served on the persons therein named either by post or as if it were a summons issued by a Curt under the Code of Civil Procedure, 1908 (5 of 1908)."

26.q. A reading of the provisions of sec. 282(1) prior to and after its

amendment w.e.f. 1-10-2009 clearly shows that it is only in respect of a

notice that is mandatorily required to be served under the Act that the

requirement of serving it strictly in the manner required by the aforesaid

provisions is contemplated. The expression "or any other

communication under this Act" as appearing in sec. 282(1) of the Act

after the amendment w.e.f. 1-10-2009 would cover only cases mentioned

in clause (c) and (d) of the amended provisions of sec. 282(1) of the Act.

125 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

In other words the requirements of service as required under the code of

civil procedure, 1908 is not strictly applicable to a notice u/s. 263 of the

Act, though of course, the assessee must be put to notice in a reasonable

manner about the proceedings against him.

26.r. In the light of the above discussion, the conclusion which

necessarily follows is that the requirement of service of notice u/s. 263

of the Act stands on a different footing and cannot be compared to cases

where notice is required by law to be mandatorily served on assessee in

terms of section 282 of the Act. Accordingly, the cases cited by the

learned AR pertaining to service of notice in different contexts, where

the Act mandates service of notice in accordance with section 282, lose

their significance.

26.s. Coming back to the language of section 263(1) requiring the

passing of order `after giving the assessee an opportunity of being

heard', it transpires that it refers to giving opportunity of hearing. If

despite genuinely giving opportunity of hearing by the CIT, the assessee

tries to hoodwink by evading the service of notice as has been done in

126 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the cases before us, then the requirement of giving `opportunity of

hearing' gets fully satisfied with. As such, we do not find any lack of

opportunity of hearing by the ld. CIT in all such cases. This argument

fails.

D. Whether order u/s 263 is barred by limitation?

27.a. The learned AR of Linsey Vinimay Pvt. Ltd. submitted that the

assessee filed its return of income for the AY 2008-09 on 21.12.2008

and an intimation u/s.143(1) of the Act was issued on 3.8.2009. He then

brought our notice the fact that in the reasons recorded for initiating

proceedings u/s. 147 of the Act, a copy of which is placed at page 14 of

the assessee's paper book, the issue of examination of share capital was

not there, which in his opinion was restricted only to share issue

expenses being capital or revenue. It was, therefore, pleaded that the

period of limitation should be reckoned from the date of intimation u/s.

143(1) of the Act viz., 3.8.2009, in which case the limitation for passing

order u/s. 263 of the Act got expired on 31.3.2012. Since the order was

passed by the ld. CIT on 30.3.2013, the ld. AR explained that such order

127 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

was barred by limitation. To buttress this contention, the learned AR

drew our attention to the decision of the Hon'ble Supreme Court in the

case of CIT Vs. Alagendra Finance Ltd. 293 ITR 1 (SC). He also relied

on the decision of the Hon'ble Bombay High Court in the case of Lark

Chemicals 368 ITR 655 (Bom) wherein similar view has been taken.

27.b. The learned DR on the other hand pointed out that the order

sought to be revised u/s. 263 of the Act was the order dated 6.4.2010

passed u/s. 147 r.w.s. 143(3) of the Act and in the said order the issue of

receipt of share capital by the assessee was investigated by the AO, even

though the assessment was not reopened for that purpose. He pointed

out the relevant provisions of Explanation 3 to sec.147 of the Act which

provides that once an assessment is validly reopened, the AO is free to

go into any other issues relating to income escaping assessment or

underassessment and his jurisdiction is not restricted to only such issues

on which reassessment proceedings were initiated. He pointed out that

in the reassessment proceedings, the AO did go into the question of

receipt of share capital at premium and therefore, the said issue was

128 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

clearly part of the reassessment proceedings. It was further submitted

that while issuing intimation u/s. 143(1) of the Act, the AO could not

have gone into the examination of issue of share capital at premium. He

argued that that Intimation u/s. 143(1) of the Act is not an assessment

order and hence it cannot be said that the issue of receipt of share capital

by the assessee was subject matter of any proceedings u/s 143(1).

27.c. He also pointed out that when challenging the order u/s. 263 of

the Act on merits, all the assessees have taken a consistent stand that the

issue with regard to receipt of share capital by the assessee was

thoroughly examined by the AO in the reassessment proceedings u/s.

147 of the Act and, therefore, it was at best a case of inadequate enquiry

for which jurisdiction u/s. 263 of the Act cannot be invoked. But, when

it comes to the issue of limitation, the assessee takes a stand that the

issue with regard to receipt of share capital was never the subject matter

of reassessment proceedings u/s. 147 of the Act. It was also brought to

our notice that similar argument raised by the assessee was considered

and rejected by the Kolkata bench of the Tribunal in identical facts and

129 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

circumstances in Riddhi Siddhi Vincom (P) (supra) vide para 11 of its

order.

27.d. The ld. AR, representing Tulsi Tradecom Pvt. Ltd., also claimed

that the order u/s 263 of the Act was barred by limitation in the same

circumstances as discussed above. In support of the contention that

scrutiny of share capital was never the subject matter of re-assessment

proceedings, the ld. AR brought to our notice the decision of the

Hon'ble Punjab & Haryana High Court in the case of Vipan Khanna vs.

CIT, 255 ITR 220 (P&H). In the aforesaid case, the assessee had filed a

return of income and the intimation u/s 143(1)(a) of the Act was issued

by the AO. No notice u/s 143(2) was issued to frame an assessment

within the time required for framing an assessment u/s 143(3) of the Act.

Thereafter, proceedings u/s 147 of the Act were initiated on the ground

that the assessee claimed depreciation at a higher rate. The question

before the Hon'ble Court in the proceedings u/s 147 of the Act was

whether the AO can go into issues other than claim of depreciation at a

higher rate. The Hon'ble Punjab &Haryana High Court held that the

130 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

issues other than claiming higher depreciation became final because the

AO did not issue a notice u/s 143(2) of the Act for framing assessment

u/s 143(3) of the Act. The Hon'ble High Court held that jurisdiction u/s

147 of the Act is confined only to such income which has escaped tax or

has been under-assessed and does not extend to revising, reopening or

re-considering the whole assessment. The decision in the case of Sun

Engineering Works Pvt. Ltd., 198 ITR 297 (SC) was referred to by the

Hon'ble P&H High Court. According to the ld. AR, the issue of

examination of share capital could not be said to be the subject matter of

re-assessment proceedings and, therefore, it could not be claimed that

the said issue was the subject matter of proceedings u/s 147 of the Act.

He also submitted that period of limitation needs to be reckoned from

the date of intimation u/s 143(1) of the Act. Similar arguments were put

for in the case of Ramshila Enterprises Pvt. Ltd. On a specific query

from the Bench, it was admitted by all the ld. ARs that if the period of

limitation is counted from the date of passing of order u/s 147, then the

orders u/s 263 fall within the limitation period of two years. 131 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

27.e. Responding to the this, the ld. DR pointed out that the law has

since been amended and Explanation 3 to section 147 has been inserted

by the Finance Act of 2009 with retrospective effect from 1.4.1989, as

per which the AO has jurisdiction not only to assessee or re-assess

income in respect of any issue which has escaped assessment, but, also

such other issues that come to his notice subsequently in the course of

the proceedings u/s 147 notwithstanding that the reasons for such issue

have not been included in the reasons recorded u/s 148(2). According to

the ld. DR, the decision relied upon by the ld. AR would not be of any

use in the light of this amendment.

27.f. We have given a very careful consideration to the rival

submissions. The period of limitation for passing an order u/s.263 of the

Act in terms of sec. 263(2) of the Act is : `two years from the end of the

financial year in which the order sought to be revised was passed'. The

orders sought to be revised by the ld. CIT in the present set of cases are

the orders u/s 147. Now, if we go by the dates of Intimations, then the

orders u/s 263 are barred by limitation, but if we go by the dates of the

132 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

orders u/s 147, then all the orders passed u/s. 263 of the Act are

admittedly within the limitation period.

27.g. The larger question, thus, is whether the issue of share capital by

the assessee during the previous year was subject matter of reassessment

proceedings? It is no doubt true that in the reasons recorded for

initiating proceedings u/s.147 of the Act, the issue of examination of

share capital raised by the assessee during the previous year was not the

reason for re-opening of the assessment. It was restricted only to share

issue expenses whether capital or revenue expenditure or some other

minor disallowances in other cases. Nevertheless in the reassessment

proceedings in all the cases, the AOs ventured to issue notices u/s.

133(6) of the Act to some of the shareholders for examining as to

whether the ingredients of sec. 68 were satisfied. As to whether such

enquiry was adequate or not, is a different issue. The fact remains that

by issuing notices u/s. 133(6) of the Act, the AOs tried to examine the

question of genuineness of share capital in proceedings u/s 147. It thus

follows that by holding that the issue of share capital at premium was

133 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

not properly examined by the AOs, the ld. CIT revised the orders u/s 147

and not the Intimation u/s 143(1) of the Act.

27.h. We also find merit in the argument of the learned DR that with

the introduction of Explanation 3 to section 147 with retrospective effect

from 1.4.1989, the AO acquires jurisdiction not only to assess or re-

assess income in respect of which he issued notice u/s 148, but also such

other issues that come to his notice subsequently in the course of the

proceedings u/s 147, notwithstanding that the reasons for such issue

have not been included in the reasons recorded u/s 148(2). Clause 57 of

the Finance (No. 2) Bill, 2009 inserting Explanation 3 in section 147

with retrospective effect from 1st April, 1989 provides as under : -

"for the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of the proceedings under the section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section 2 of section 148".

134 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

27.i. Notes on Clauses appended to the Finance (No. 2) Bill also state

that clause 57 of the Bill seeks to amend section 147 relating to income

escaping assessment. It is proposed to insert Explanation 3 to the said

section so as to provide that for the purpose of assessment or

reassessment under this section, the Assessing Officer may assess or

reassess income in respect of any issue which has escaped assessment

and such issue comes to his notice subsequently in the course of

proceeding under this section, notwithstanding that the reasons for such

issue have not been included in the reasons recorded under sub-section

(2) of section 148. This amendment has been made effective

retrospectively from 1st April, 1989. Further, the Memorandum

explaining the provisions of the Finance Bill mentions that it is a

clarificatory amendment, as under : -

"The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for reopening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Some Courts have held that the Assessing Officer has to 135 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issues for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section

148."

27.j. In view of the aforesaid statutory amendment, it is clear that the

scope of reassessment is no more confined to the issues referred to in

notice u/s 148, but also extends to other issues which come to the notice

of the AO during the course of reassessment proceedings indicating the

escapement of income. No doubt the issue of share capital at premium

was not subject matter of notice u/s 148, nevertheless the AO proceeded

to examine this aspect, thereby bringing it within the ambit of the order

u/s 147.

27.k. Now we take up the next aspect of this issue, as to whether

Intimation u/s 143(1) can at all the characterized as `order' eligible for

revision u/s 263. In this regard, we find that the Hon'ble Kerala High

136 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Court in CIT Vs. K.V. Mankaram & Co. (2000) 245 ITR 353 (Ker) has

held that Intimation u/s 143(1) is an order only for sections 154, 246 and

264 and for all other purposes is only notice of demand. Similarl view

has been taken by the Hon'ble Delhi High Court in MTNL Vs. CBDT

(2000) 246 ITR 173 (Del) holding that Intimation u/s 143(1) is not an

assessment order. Since the subject of revision u/s 263 can only be an

`order passed.. by the Assessing Officer', we fail to see as to how

`Intimation' issued u/s 143(1) in all such cases, which can by no stretch

of imagination be treated as an `order' for the purposes of section 263,

can be considered for the purposes of limitation.

27.l. Viewed from any angle, it is clear that the subject matter of

revision in all the cases under consideration were the orders passed u/s

147 of the Act. Going by the admission of the ld. ARs, if limitation is

counted from the date of orders u/s 147, then the orders u/s 263 are

within the limitation period. This contention of the ld. ARs, therefore,

fails.

E. Territorial jurisdiction of the CIT

137 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

28.a. This issue arises in the case of Ramshila Enterprises Pvt. Ltd.

The ld. AR submitted that the ld. CIT, Kolkata-II, Kolkata, who passed

the impugned order had no territorial jurisdiction to do so. He firstly

drew our attention to the order u/s.263 and submitted that the same was

passed on 26.3.2013 by the CIT, Kolkata-II, Kolkata. It was also shown

that the show-cause notice dated 18.3.2013 u/s. 263 of the Act, which

was also issued by the CIT, Kolkata-II, Kolkata. He also invited our

attention towards an order dated 3.9.2012 passed u/s. 127(2)(a) of the

Act whereby the jurisdiction over the assessee was transferred from ITO,

Ward-4(1), Kolkata to ACIT/DCIT, Central Circle XIX, Kolkata with

immediate effect. It was, therefore, urged that the CIT, Kolkata-II,

Kolkata, who passed the impugned order on 26.3.2013 had no

jurisdiction whatsoever on the date of passing the order and therefore the

proceedings u/s.263 of the Act deserved to be quashed on this short

ground.

28.b. It is not in dispute that the CIT, Kolkata-II, Kolkatta had

jurisdiction over cases with ITO, Ward 4(2), Kolkata and CIT, Central

138 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Circle, Kolkata had jurisdiction over cases with ACIT/DCIT, Central

Circle-XIX, Kolkata. The argument of the learned AR was that only the

CIT, Central Circle, Kolkata could have exercised powers of revision

u/s. 263 of the Act on and from 3.9.2012. It is relevant to mention in

this regard that the transfer of jurisdiction of the assessee from ITO,

Ward-4(1), Kolkata to ACIT/DCIT, Central Circle XIX, Kolkata,

happened owing to a search u/s. 132 of the Income Tax Act, 1961 (Act)

in "Atha Mines" group of cases on 17.11.2011. The order of assessment

which was revised by the CIT u/s. 263 of the Act, which is impugned in

this appeal, is an order u/s. 147 r.w.s. 143(3) of the Act dated 21.5.2010

in relation to the AY 2008-09. It is also relevant to mention that the

transfer of jurisdiction as per the order dated 3.9.2012 is relating to

assessment of income arising out of seized material in the search and

inasmuch as request for transfer of jurisdiction was made by the

competent authority for facilitating the co-ordinated investigation of

search cases. The order specifically mentions that jurisdiction is being

139 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

transferred in the interest of revenue for better co-ordination, effective

investigation and meaningful assessment.

28.c. The learned DR submitted that CIT, Central, Kolkata, consequent

to the search had addressed a letter dated 24.12.2012 to the CIT,

Kolkata-II, Kolkata, requesting for transfer of jurisdiction from ITO,

Ward 4(1), Kolkata to ACIT, Central Circle-19, Kolkata. The ld. DR

filed before us copy of the request of CIT, Central Circle, Kolkata to

CIT, Kolkata-II, Kolkata dated 24.12.2012. This letter mentions about

the search in the case of "Atha Mines" group and, further, makes a

reference to the interests of the revenue, administrative convenience and

coordinated investigation, and, on that ground, request was made to pass

necessary order u/s 127 transferring the jurisdiction in the case to DCIT,

Central Circle-19, Kolkata. The ld. DR brought to our notice a letter

dated 11.7.2013 which is placed at page 4 of the Revenue's paper book,

in which the assessee wrote to the ITO, Ward 4(1), Kolkata, the fact that

the jurisdiction had not been changed despite the order dated 3.9.2012.

The ld. DR also pointed out that it is only on 29.7.2013 that the ITO,

140 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Ward 4(1), Kolkata physically transferred all the files to the DCIT,

Central Circle 19, Kolkata. Copy of the forwarding letter of ITO, Ward

4(1), Kolkata dated 29.7.2013 which was received by the DCIT, Central

Circle-19 on 5.8.2013 was filed before us. The Ld. DR further

submitted that even in the worst scenario, the proceedings cannot be

held to be null and void and it is at best an irregularity which can be

cured.

28.d. We have considered the rival submissions in the light of material

placed before us and precedents relied upon. The question is as to

whether the jurisdiction in respect of the order of assessment passed u/s.

147 r.w.s. 143(3) of the Act on 21.5.2010 in relation to AY 2008-09,

much prior to even the making of request by the competent authority for

transfer of cases for co-ordinated investigation and that too, for search

matters, could also be said to have been transferred to ACIT/DCIT,

Central Circle-XIX, Kolkata? Before answering this question, we

consider it expedient to take note of the contention of the ld. AR about

Explanation below sec.127, which reads as under :

141 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

"Explanation - In section 120 and this section, the word "case" , in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year. "

28.e. As per the ld. AR, the provisions of sec.127 of the Act refer to

only "transfer any case". The expression "case" has been defined to

mean "all proceedings under this Act in respect of any year which may

be pending on the date of such order or direction or which may have

been completed on or before such date, and includes also all proceedings

under this Act which may be commenced after the date of such order or

direction in respect of any year". According to him, the assessment

proceedings completed u/s. 147 r.w.s. 143(3) of the Act by order dated

21.5.2010 which was sought to be revised in proceedings u/s. 263 of the

Act would fall within the category of " all proceedings in this Act in

respect of any year which may have been completed before the date of

order u/s.127(2)(a) of the Act". He also placed reliance on the decision

142 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

of the jurisdictional high court rendered in the case of ITO Vs. Ashoka

Glass Works reported in 125 ITR 491 (Cal) to support his contentions in

this regard. In the aforesaid case the assessee was assessed for the AY

1962-63 by the ITO "A" Ward, District Howrah. He initiated penalty

proceedings and referred the penalty proceedings to IAC, Range XX,

under sec. 274(2) of the Act. Pending these proceedings, the CIT passed

an order u/s. 123(1) transferring the jurisdiction to the IAC, Range XXII,

who was given exclusive jurisdiction. Thereafter, the IAC, Range XXII,

called upon the respondent to appear before him to show cause why

penalty should not be imposed on him u/s.271(1) ( c) of the Act. The

question before the Court was as to whether IAC, Range XXII had valid

jurisdiction over the case. The Hon'ble Calcutta High Court held that

consequent to the order u/s. 127(1) of the Act transferring jurisdiction,

the IAC, Range-XX was completely divested of jurisdiction and it was

only the IAC, Range XXII who would have jurisdiction in the case.

Taking support from this judgment, it was claimed by the ld. AR that the

entire jurisdiction of the assessee got vested only with CIT Central

143 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

Circle and CIT Kolkata - II, Kolkata was practically divested of his

jurisdiction over the case of the appellant pursuant to transfer of

jurisdiction order passed by him on 3.9.2012 u/s 127(2)(a) of the Act.

28.f. In our considered opinion, the order dated 3.9.2012 u/s. 127(2)(a)

of the Act only transferred jurisdiction with reference to assessment of

income in the hands of the assessee consequent to seized material in the

course of search on "Athna Mines" group of cases. This is clear from

the order which specifically refers to the transfer keeping in mind

"interest of revenue for better co-ordination, effective investigation and

meaningful assessment". That does not mean that the jurisdiction of

ITO, Ward-4(1) Kolkata and that of CIT, Kolkata-II, Kolkata, was

completely transferred even in respect of other matters, more

specifically the orders which already stood passed by him on such date.

The facts of the case decided by the Hon"ble Calcutta High Court in the

case of Ashoka Glass works (Supra) are clearly distinguishable in as

much as that case related to transfer of jurisdiction in a specific case and

such transfer did not arise consequent to a search in any group case as in

144 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the present case. There was, therefore, no necessity for better co-

ordination, effective investigation and meaningful assessment. The

definition of `case' for the purpose of sec.127 of the Act as given in the

Explanation below sec. 127 does not debar the Commissioner from

transferring only a particular case, more so when the request for transfer

was made in specific circumstances, such as proper co-ordination of

search cases. The Commissioner transferring jurisdiction has power to

transfer all proceedings under the Act, which are pending, completed or

which may be commenced after the date of transfer, but that does not

mean that he does not have powers to restrict his order of transfer only

to a particular case for which request was made, thereby, leaving the

jurisdiction in respect of other cases pertaining to an assessee to be

exercised by the AO/CIT who already had it. The power to do a

particular act also includes a power to restrict the exercise of power

partly. It cannot be said that the power should be exercised either as a

whole or not at all. Such an argument is fallacious and defeats the very

purpose of conferring a larger power. As the actual transfer of the files

145 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

from the incumbent AO to the new AO had taken place only on

29.7.2013 and further the order sought to be revised by the ld. CIT u/s

263 was passed much prior to the even making of request for transfer of

jurisdiction in respect of search matters, we have absolutely no doubt in

our mind that only the CIT Kolkata II, Kolkata had the jurisdiction to

revise the assessment order passed u/s 147 as has been done in this case.

The contention of the learned AR in this regard is held to be without

substance and not unacceptable.

28.g. The issue of territorial jurisdiction has also been raised by the

assessee in Satabdi Vincome Pvt. Ltd. In this case there is no dispute

that the CIT, Kolkata-II, Kolkata, who passed the order u/s. 263 of the

Act had jurisdiction over the assessee. There is no order transferring

jurisdiction from ITO, Ward 6(1), Kolkata under CIT, Kolkata-II,

Kolkata. The ld. AR, however contended that PAN data in the public

domain showed that the assessee's jurisdiction at the relevant time was

with ITO, Ward 8(2), Kolkata, who was under the jurisdiction of CIT,

Kolkata-III, Kolkata.

146 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

28.h. In our view this objection is frivolous. In the absence of any

actual transfer of jurisdiction, the argument is without any force. The

jurisdiction as per PAN data in public domain may inadvertently show a

wrong feature, but that would not amount to transferring the jurisdiction,

which is there in reality. The objection is rejected.

F. Whether an addition in the hands of a company can be made u/s

68 in its first year of incorporation ?

29.a. Shri Subhash Aggarwal, the ld. AR of Madhuban Vyapar Pvt.

Ltd. submitted that this company was formed only during the previous

year relevant to the assessment year under consideration. Placing

reliance on the decision of the Hon'ble Supreme Court in the case of

Bharat Engineering, 83 ITR 197 (SC), he submitted that it cannot be

possible for a newly incorporated to earn undisclosed income of such a

magnitude in the very first year of its formation. It was further

submitted that though the aforesaid decision relates to a case of a

partnership firm, but its ratio will equally apply to a private limited

company also. A view was canvassed that in case of any doubt about

147 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the share capital in the first year, the addition u/s 69 could be considered

only in the hands of promoters and not the company u/s 68 of the Act.

The ld. DR opposed this contention.

29.b. We have considered the rival submissions. The decision in

Bharat Engineering (supra), has been rendered by the Hon'ble Supreme

Court in the case of a partnership firm and not a private limited

company. There is a fundamental difference between a company vis-a-

vis shareholders on one hand and a firm vis-a-vis partners on the other.

Whereas a company is a separate legal entity distinct from its

shareholders or directors, it is not so in the case of partnership firm. The

Hon'ble Supreme Court in Malabar Fisheries Company Vs. CIT (1979)

120 ITR 49 (SC) has held that partners and firm are one and the same

thing and a firm is nothing but a compendious name given to partners. Similar view has been reiterated in Third ITO Vs Arunagiri Chettiar

(1996) 220 ITR 232 (SC) in which it has been held that tax arrears of

firm can be recovered from a person who was a partner thereof in the

relevant accounting year under s. 25 of the Partnership Act. In view of

148 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the above precedents, it becomes manifest that the ratio laid down in

Bharat Engineering (supra) cannot be applied to the facts of the present

case, which is a company. The contention is rejected.

G. Effect of order passed u/s 263 in the case of amalgamating

company after amalgamation,

30.a. Sh. Subhash Agarwal, the learned AR representing Madhuban

Vyapar Pvt. Ltd., stated that the assessee ceased to exist on the date of

passing of the revisional order u/s 263 as it got amalgamated with

another company prior to that. Referring to the scheme of arrangement

which was sanctioned by the Hon'ble High Court, he pointed out that the

date of transfer as per the scheme of amalgamation was 10.10.2007. It

was stated that on the Hon'ble High Court accepting the scheme of

amalgamation, the assessee as a separate entity, ceased to exist and

hence no proceedings could have been taken in the name of the

amalgamating company, which in the instant case is the assessee,

Madhuban Vyapar Pvt. Ltd. To support his contention, he placed

149 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

reliance on Saraswati Industrial Syndicate Vs. CIT 186 ITR 278 (SC)

and R.C. Jain Vs. CIT 273 ITR 384 (Del).

30.b. We do not dispute the general proposition that once a company

gets amalgamated with another, it loses its original identity and no

proceedings can be taken in its earlier name. Such proceedings have to

continue in the name of the amalgamated company and order can also be

passed in the new name. However, this general position can have no

application, where the Revenue is kept in dark and is not informed about

such amalgamation. The position becomes more critical where, even

after such amalgamation, the amalgamating company launches

proceedings in its old name. In such circumstances, it cannot be allowed

on turn around later and claim that though it wrongly initiated the

proceedings in wrong name, but the court should have taken cognizance

of the reality of amalgamation. No assessee can be allowed to derive

benefit from its own fraudulent practices.

30.c. It is observed in the instant case despite its amalgamation, the

assessee chose to file its return of income after the date of

150 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

amalgamation, in its earlier name and that is how the assessment got

completed u/s 147 in the same name. It is obvious that in such

circumstances, the assessee cannot be allowed to take advantage of its

own manipulation. It is further interesting to note that the assessee also

allowed the proceedings u/s 147 to complete in its earlier name, but is

now seeking to object to the order of the ld. CIT on this aspect of the

matter. Law does not permit a person to both approbate and reprobate.

This contention is therefore, rejected.

H. Whether order u/s 263 becomes invalid for being passed on a

closed day?

31.a. Sh. Surana, the ld. AR of Shatabdi Vincom Pvt. Ltd. submitted

that the order passed by the CIT u/s 263 of the Act on 30.3.2013 was

null and void. In this regard, he pointed out that 29th March, 2013 was

Good Friday, 30th March, 2013 was Saturday and the 31st March, 2013

was Sunday. All these three days were closed days. It was brought to

our notice that the CBDT issued an instruction to the AOs for keeping

the offices open on 30th and 31st March, 2013, which did not require the

151 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

office of the CIT also to remain open on such date. According to him,

the CBDT instruction which derive its validity from the provisions of

section 119 of the Act, cannot extend to declaring a gazetted holiday as a

full-fledged working day for the income-tax offices. It was thus pleaded

that since the impugned order was passed on a holiday, the same should

be held as a nullity. In this regard, he placed reliance on the following

decisions:-

i)Kuldip Oil Industries Ltd. Vs. Ch.Pratap Singh AIR1957 505(All);

ii) ITO vs. ShivnathViswanath&Ors.19 TTJ 450 (All); and

iii)B & Brothers Engineering Works &Anr.vs. UOI153 Taxmann 405 (Guj).

31.b. We have gone through all the decisions relied by the ld. AR. A

common thread running through all these cases is that the proceedings

were fixed on a holiday, which has been held to be improper. In contrast,

we are confronted with a situation in which the proceedings were fixed

for last hearing on 28.3.2013, which was working day. It is only that the

ld. CIT, after concluding the proceedings, passed the impugned order on

a holiday. The bar in not working on the holidays extends only qua the 152 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

taking up of the proceedings involving participation from outsiders. It

cannot be said that the Government servants, having completed the

hearing of the proceedings on a working day, cannot work on holidays to

clear their work without the involvement of public at large. It is a

common knowledge that the Officers of the Income-tax Department

work around the clock close to various limitation periods, so as to

facilitate the completion of their work in time. It is a cause to appreciate

and not to deprecate. The situation would have been different if the ld.

CIT had fixed the hearing of the case on a holiday and also passed the

order on such holiday. That would have rendered the proceedings

improper. Instantly, we are concerned with a situation in which the

proceedings for final hearing were rightly taken up by the ld. CIT on a

working day and it is only that the order has been passed on a holiday

after conclusion of such proceedings on a working day. In our

considered opinion, no illegality can be traced from the passing of the

impugned order on a holiday.

153 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

31.c. Be that as it may, it is noted that from the above decision

rendered by the Hon'ble Allahabad High Court in the case of Kuldip Oil

Industries Ltd. (supra), that in case of urgency, a trial can be conducted

even on a closed holiday. In the present case, the time limit for passing

the order u/s. 263 of the Act was expiring on 31.3.2013 and therefore,

there was an urgency to pass the order before that date. The objection of

the assessee deserves to be and is hereby rejected.

I. Whether the order u/s 263 can be declared as a nullity for the

notice having not been signed by the CIT ?

32.a. The ld. AR in Paramani Commercial Pvt. Ltd. brought to our

notice that the show cause notice u/s 263 was not signed. According to

him, the order u/s 263 flowing from such unsigned notice be declared as

void.

32.b. In our considered opinion this objection is again unsustainable.

We have noticed above that there is no requirement under the law for

giving a notice for the proceedings u/s 263 in conformity with the

provisions of section 282 of the Act. It has been noticed that the assessee 154 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

should be given an opportunity of hearing and once this is done, the

proceedings cannot be challenged on this score. When an assessee is

made aware of the proceedings u/s 263, no such objection can be

allowed to be taken. As the assessee in the instant case was afforded

opportunity of hearing that would suffice compliance with the

requirements of "audi alterm partem" contemplated by the provisions of

sec. 263 of the Act. The objection raised by the assessee in this regard,

to say the least, is frivolous.

J. Consequences of refusal by the Revenue to accept the written

submissions of the assessee

33.a. The ld. ARs in Radha Krishna Tradcom Pvt. Ltd. and some other

cases have brought to our notice that the replies sent by the assessees to

the show cause notice u/s 263 of the Act were returned as 'Refused' by

the ld. CIT. It was submitted that since the objections of the assessee

have not been considered as contained in those letters, the impugned

orders be held as void because of lack of adequate opportunity to the

assessee.

155 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

33.b. We do not approve the way in which the office of the CIT has

refused to accept the written submissions made on behalf of various

assessees. It is impermissible for any Government office to refuse to

accept any letter or communication. It is only after receiving the letter or

communication, that the authority can decide about taking or not taking

its cognizance.

33.c. Coming to the facts of the instant cases, the fact remains that such

replies were sent by these assesses when the ld. CIT had given last

opportunities and such opportunities were not availed by them. That

apart, not giving a proper opportunity of hearing can be no reason for

declaring the order void ab initio. The Hon'ble Supreme Court in several

judgments including Guduthur Brothers Vs. ITO (1960) 40 ITR 298

(SC), CIT Vs. Jai Prakash Singh (1996) 219 ITR 737 (SC) and

Kapurchand Shreemal Vs. CIT (1981) 131 ITR 451 (SC) has held that

lack of opportunity is simply an irregularity which does not render the

order passed a nullity. In our considered opinion, it is at best an

irregularity which will not affect the jurisdiction of the CIT u/s. 263 of

156 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

the Act. We hold accordingly and dismiss the plea raised by the

assessees on this issue.

K. Search proceedings and revision of abated order u/s 263

34.a. The ld. AR appearing for M/s Hebiscus Commotrade Pvt. Ltd.

stated that consequent to a search u/s.132 of the Act in the case of some

other assessee and discovery of material belonging to the assessee in

such search, proceedings u/s.153C of the Act were initiated against the

assessee. A notice was issued for filing return in respect of six years

including the year for which the assessee is before us. It was contended

that once the proceedings u/s.153C of the Act were initiated, the CIT

could not have invoked the powers u/s. 263 of the Act for revising an

order of assessment already passed by the Assessing authority under u/s.

147 of the Act in respect of an assessment year which is comprised in

the period of six assessment years covered by the first proviso to sec.

153A of the Act. His submission was that the CIT u/s. 263 of the Act

has to examine the records of assessment for exercising jurisdiction.

The records of assessment for the purpose of section 263 of the Act

157 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

would include the records as on the date of issue of show cause notice.

He stated that the ld. CIT had full knowledge of the fact of proceedings

u/s. 153C of the Act having been initiated against the assessee on

15.11.2012 and as such he could not have revised the order passed u/s

147, which was abated. He drew our attention to the provisions of

sec.153A of the Act, for contending that whenever a search is conducted

after 31.5.2003, then the AO has no other option but to issue notice

u/s.153A of the Act and then assess or reassess total income for the six

assessment years immediately preceding the assessment year relevant to

the previous year in which such search is conducted. According to him,

similar would be the position even in the case of proceedings u/s. 153C

of the Act. His further submission was that the expression "assess or

reassess" used in sec.153A(1)(b) of the Act has not been defined and

therefore has to be understood by keeping in mind the second proviso to

sec.153A(1) of the Act, which lays down that assessment or

reassessment, if any, relating to any assessment year falling within the

period of six assessment years referred to in sec. 153A(1)((b) of the Act,

158 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

which is pending on the date of initiation of search u/s.132 of the Act,

shall abate. If an assessment for any of the Assessment years falling

within the six assessment years referred to in sec.153A(1)(b) of the Act

is already completed before the date of initiation of search u/s.132 of the

Act, then assessment of total income for such year u/s.153A of the Act

can only be "reassessed" and not "assessed". The expression

"reassessed" would include reassessment pursuant to order u/s.153A of

the Act. He submitted that the purpose of the second proviso to sec.

153A(1) of the Act is to ensure that there are no multiple assessments for

the same Assessment year. In this regard our attention was drawn to the

decision of the Hon'ble Delhi High Court in CIT Vs. Anil Kumar Bhatia

211 Taxman 453 (Delhi) wherein it has been held in para 21 as under : -

21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek. Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer 159 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

has to determine not merely the undisclosed income of the assessee, but also the 'total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the same assessment year determining the total income of the assessee. In order to ensure this state of affairs namely, that in respect of the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition.

34.b. The learned AR submitted that assessment in the case of the

assessee u/s. 147 of the Act for the AY 2010-11 was completed on

21.2.2012 and the proceedings u/s.153C of the Act were initiated on

5.11.2012. The crux of his argument was that there can be no revision

of an abated assessment order. In support of his stand, the learned AR

relied on Canara Housing Development Compnay Vs. DCIT (2014) 114

DTR 162 (Karn). The submission of the learned DR on the other hand 160 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.) & 18 other appeals of different assessees

was that such an assessment can be validly revised in exercise of powers

u/s. 263 of the Act, even after the initiation of search u/s.132 of the Act.

34.c. We have considered the rival submissions. We shall first

consider the scope of assessment u/s.153A of the Act. The Special

Bench of the tribunal in Allcargo Global Logistics Ltd. (2012) 16 ITR

(Trib.) 380 (Mum)(SB) had the occasion to consider the following

question: -

"1. Whether, on the facts and in law, the scope of assessment u/s 153A encompasses additions, not based on any incriminating material found, during the course of search"?"

The Special Bench answered the question by holding that:

"(a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO,

(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search"

161 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

34.d. In the light of the above ruling of the Special Bench, it is clear

that if an assessment is completed prior to initiation of search u/s.132 of

the Act and if no incriminating material is found regarding a particular

item of income during the course of search, then no addition can be

made in the assessment of such year u/s. 153A of the Act. If we accept

the contention of the ld. AR, then the Revenue would be left without any

remedy if such an order passed by the AO is found to be erroneous and

prejudicial to the interest of the revenue. In our considered view, in such

cases it would be open to the Revenue to explore remedies open to it in

law u/s. 263 of the Act, subject to satisfaction of the conditions

precedent for exercise of jurisdiction under that provision, even after the

initiation of search u/s.132 of the Act. In such circumstances, we are of

the view that the plea put forth by the assessee cannot be accepted. The

question of the assessee having to face multiple proceedings, in the

present case, cannot be the basis to hold that jurisdiction u/s.263 of the

Act cannot be invoked. The argument raised by the assessee on this

count is not acceptable.

162 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

34.e. It is no doubt true that the Hon'ble Karnataka High Court in the

case of Canara Housing (supra) has not accepted the ruling of the

Special Bench in the case of Allcargo logistics (supra). However, the

Hon'ble Bombay High Court in the case of CIT Vs. Continental

Warehousing Corporation ITA No.523/2013 vide its judgment dated

21.4.2015, after referring to the decision of the Hon'ble Delhi High

Court in the case of Anil Kumar Bhatia (supra) and that of the Hon'ble

Karnataka High Court in Canara Housing (supra) has taken a view that

the decision rendered by the Special Bench is to be followed. No

decision of the Hon'ble Calcutta High Court on the point has been

brought to our notice. We are of the opinion that the view expressed by

the Hon'ble Bombay High Court, which is in tune with the decision

rendered by the Special Bench in the case of Allcargo Logistics (supra),

should to be followed. It is, therefore, held that the proceedings u/s. 263

of the Act to revise the order dated 21.2.2013 passed by the AO u/s. 147

of the Act, are valid and cannot held to be without jurisdiction.

Accordingly, this issue is also decided against the assessee.

163 ITA No.1104/Kol/2014 (M/s Subhalakshmi Vanijya Pvt. Ltd.)

& 18 other appeals of different assessees

35. Before parting with this order, we want to make it clear that all the

decisions cited by both the sides have been duly taken into consideration

while drawing our conclusions on the points under consideration.

Specific reference to some of the decisions cited in the order has been

avoided either due to their repetitive nature or to relieve the order from

unnecessary repetitions.

36. In the result, all the appeals are dismissed.

The order pronounced in the open court on 30.07.2015.

Sd/- Sd/-

[N.V. VASUDEVAN] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated,30th July, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

164