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Income Tax

Even if AO conducts inquiry for taxability of share capital receipts u/s 68, CIT can revise order u/s 263

Baisakhi Ganguly 8 years ago 4 min read

The Calcutta High Court in the case of Rajmandir Estates Private Limited vs. Principal Commissioner of Income Tax, ITAT NO.113 OF 2016, held that even if Assessing Officer conducts inquiry for taxability of share capital receipts u/s 68, CIT can revise order u/s 263.

Pleaders engaged:

Senior Advocate Mr. N. K. Poddar along with Advocate Mr. Vineet Tibrewal appeared on behalf of the Appellant. On the other hand Mr. A. K. Ghosal, Sr. Advocate along with Advocate P. Dudhoria appeared on behalf of the Respondent.

Date of Hearing:

The hearing was conducted on various dates and lastly on 05.04.2016.

Date of judgment:

The judgement was delivered on13th May, 2016.

Backgrounds of the appeal:

The appeal was directed against a judgement dated 3.11. 2015 passed by the Ld. Income Tax Appellate Tribunal, Kolkata, ‘D’ Bench in the case of ITA No.882/KOL/2013 relating to the assessment year 2009-10 upholding an order dated 22.3. 2013 passed under Section 263 of the Income Tax Act, 1961.

The brief facts of the case were that the share capital of the assessee as at 31.3. 2008 was Rs.55, 15,000/-. During the relevant previous year share capital of the assessee was of Rs.1, 34, 42,370/-. The reserve and surplus which was on 31.3. 2008 of Rs.77, 398/- increased to Rs.39, 92, 61,247/-.

The increase in the share capital and the reserve and surplus was after the issuance of 7, 92,737 number of shares of Rs.10/- each having a premium of Rs.390/-.

The authorised share capital of the assessee was Rs.1, 36, 00,000/ in the relevant assessment year. The assessee filed a return declaring a total income of Rs.24, 658/-.

The assessee then stated to the assessing officer that due to inadvertent mistake he failed to disclose receipt of a sum of Rs.61, 000/- towards consultancy fees. The mistake was for the reason that the sum of Rs.61, 000/- was spent in donating to a club.

Thereafter a notice dated 15.2. 2011 under Section 148 of the Income Tax Act was issued. A notice dated 23.2. 2011 under Section 142(1) of the Act was also issued asking for the details of share application money received by the assessee including the names of the applicants, their address, total amount received, etc.

It was submitted by the learned advocate on behalf of the Appellant that consequent to the notice dated 23.2.2011 the assessee disclosed total details of shares including the money received by them.

The increase in the share capital was stated to have been subscribed by a number of applicants. Out of them 15 corporate applicants were issued notices under Section 133(6) of the Act.

They were directed to disclose the source of money contributed to the share capital of the assessee. It was contended that though the notices under Section 133(6) were issued to only 15 applicants of share, the source of money for each of the applicants of shares including their bank statements were disclosed by the assessee.

From the information it appeared that 19 out of 39 applicants secured funds for contributing to the share capital of the assessee for share application money in their respective companies.

The balance applicants in the share capital of the assessee company did not however disclose the nature of receipt but they disclosed their source of fund.

On what account was the money received not been specified. The forms of share application signed by the applicant companies were also disclosed from which it appeared that the date of allotment, number of allotment, number of shares, application number, etc. were all blank. These particulars should have been filled up by the assessee but were not done.

Assessment under Section 143(3) read with Section 147 of the Act was completed on 30.3. 2011. A notice dated 22.2. 2013 was issued under Section 263 of the Act alleging that the assessment was completed without application of mind and without inquiry including the premium received.

The assessee replied stating that the allegations of the Revenue were labelled without application of mind. The CIT in his order passed under Section 263 stated that this was a case of money laundering which was undetected for lack of requisite inquiry and non-application of mind.

The order passed under Section 143(3)/ 147 was bad in law and prejudicial to the interest of the revenue.

Thus the order was set aside and directions were issued for a thorough inquiry in the case about the layers through which the share capital was rotated.

The A.O. was also directed to summon the Directors of the assessee company and the subscriber companies and to examine them as to when this company was sold.

The Tribunal has upheld the order. The assessee filed the said appeal.

The learned senior advocate appearing for the appellant- assessee submitted that to pass an order under Section 263, the Commissioner should satisfy that the order passed by the assessing officer is erroneous and it is prejudicial to the interest of the revenue.
Unless both these conditions are satisfied, the CIT cannot deal with the order of the assessing officer.

In support of his submissions the learned counsel relied upon the judgement of CIT, West Bengal vs. Calcutta Discount Company Limited reported in (1973) 91 ITR 8 (SC).

The judgment:

After hearing both the sides it was held that the appeal was dismissed. It was also held that the views expressed shall not preclude the authority from deriving its own conclusion in accordance with law.