M/S. PRATIK METALS PVT. LTD.,JODHPUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX-1, JODHPUR

PER SANDEEP GOSAIN, J.M.

The present appeal has been filed by the assessee against the order

of Ld. Pr. CIT-I, Jodhpur dated 26.03.2018 passed U/s 263 of the Income

Tax Act, 1961 (in short, the Act) for the assessment year 2008-09.

Following grounds have been taken by the assessee:

"1. The order passed by the ld. CIT, Jodhpur U/s 263 is bad in law and bad on facts.

2 ITA 156/Johd/2018 M/s Prateek Metals Pvt. Ltd. Vs PCIT

income for A.Y. 2008-09 at NIL income which was assessed as such. The

AO initiated proceedings U/s 148 of the Act vide notice dated 30.03.2O15

and assessment was completed. The assessment U/s 143(3)/148 of the Act

was completed vide order dated 31.03.2017 in which the income as

originally assessed was accepted.

the AO by taking action U/s 148 of the Act as according to him there was

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increase in share capital of the company, which was not genuine and he

passed order U/s 143(3)/148 of the Act making addition of the said

amount. The addition was deleted in appeal before the ld. CIT(A) and the

said order was also confirmed by Jodhpur Bench of the ITAT in their order

dated 09.08.2017 in ITA No. 207/Jodh/2017. One of the reasons for

deleting the said addition in the said year was that the amount of share

capital was received in AY 2008-09 and only allotment of shares was made

in AY 2009-10, and therefore on these grounds the addition cannot be

sustained.

10 given in the appellate proceedings action U/s 148 was taken for the year

under consideration. Even from the reasons recorded it is seen that the

action was taken on the basis of proceedings for AY 2009-10.

under consideration for initiated for verification of the share capital which

are the same grounds as taken for the A.Y. 2009-10, and complete details

which were submitted in A.Y. 2009-10 were also submitted in the year

under consideration also. The AO while completing the said assessment had

examined these details and after complete verification of the same and also

considering the fact that the amount of share capital cannot be assessed in

the hands of the assessee for the year under consideration as the

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amendment in Section 2(24), Section 56(2)(viib) and Section 68 were made

applicable from A.Y. 2013-14 in relation to share capital and premium and

therefore, no addition was made. This decision of the AO was examining

the complete details and this was precisely the reason for which the action

U/s 148 was taken. Such a view according to the appellant cannot be said

to be erroneous view and there was no justification for initiation of action

U/s 263 by the CIT.

held that when the identity of the share holder is established no addition

can be made in the hands of the assessee. The amendments made in the

law in Section 68 of the Act as well as in Section 56 of the Act were

applicable only from assessment year 2013-14 and were not applicable in

the year under consideration. Even on merits of the case it was submitted

that the assessee had submitted that voluminous details with regard to the

issue of share capital. The assessee company received a total sum of Rs.

1,50,00,000/- (One crore and fifty lacs) from 5 limited companies as Share

Application money alongwith Share Premium in A.Y. 2008-09. The shares

were allotted to all those companies in A.Y. 2009-10. It was contended that

the assessee submitted interalia the Copies of accounts of all the companies

pertaining to A.Y. 2008-09 and A.Y. 2009-10 indicating the amount was

received towards share application, copy of bank statement, confirmations,

copy of PAN card, and annual reports.

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can be made in respect of share capital and share premium in the hands of

the assessee company, where the assessee company had furnished

evidence to prove the identity, of the shareholders and the issue is covered

in favour of the appellant by the decision of Honble Supreme Court in the

case of CIT V/s Lovely Exports (P.) Ltd. (2008) 6 DTR (SC) 308 in which it

was 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 law, but it cannot be regarded as

undisclosed income of assessee company. Similar view was given by the

Hon'ble Supreme Court in the case of CIT v. Steller Investment Ltd. (2000)

164 CTR (SC) 287: 251 ITR 263 (SC) in which it was held that even if it be

assumed that the subscribers to the increase share capital were not

genuine, nevertheless, under no circumstances can the amount of share

capital be regarded as undisclosed income of the assessee. Reference was

also made to the judgment of Hon'ble Rajasthan High Court in the case of

CIT v. Shree Barkha Synthetic Ltd. 182 CTR (Raj) L75, in which High Court

has followed the judgement of Hon'ble Supreme Court in the case of CIT

V/s Steller Investments Ltd.

allotment of share to the companies and observed that enquiry letter were

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issued to them in AY 2009-10 U/s 133(6) which were returned back. During

A.Y. 2009-10 the appellant could not prove the source and creditworthiness

of the share capital received. The shares of the company in the subsequent

years had been transferred to certain related persons which also indicates

that the share capital received was not genuine. The crux of the order is

that the AO was not justified in accepting the contention of the assessee

and the order so passed is erroneous and prejudicial to the interest of

Revenue and therefore, the order was set aside to make fresh examination

of the genuineness of the share application money U/s 68 of the Act.

authorities below.

considered the material placed on record, order passed by the Revenue

Authorities as well as judgements relied upon by the parties. From the

record, we notice that main issue in the present controversy is as to

whether the order passed by the A.O. can be said to be erroneous or

prejudicial to the interest of revenue. In case the order passed U/s

143(3)/148 of the Act, the A.O. is not erroneous then eventuality the power

U/s 263 of the Act cannot be exercised. From the facts, we notice that in

the reassessment order passed, the issue had been duly examined and on

the basis of the examination of the relevant records and the application of

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law, one of the possible opinion had been drawn by the A.O., which cannot

be said to be erroneous so far as prejudicial to the interest of revenue. In

this regard, we drawn interest from the decision of the Hon’ble Supreme

Court in the case of Malabar Industrial Co. Ld. Vs CIT (2000) 243 ITR 83

(SC) wherein the Hon’ble Supreme Court had observed that “Section 263 of

the Income Tax Act, 1961, makes it clear that the prerequisite for the

exercise of jurisdiction by the Commission suo moto under it, is that the

order of the Income Tax Officer is erroneous in so far as it is prejudicial to

the interests of the revenue. Even if one of them recourse cannot be held

to Section 263(1) of the Act. The A.O. after going through the material on

record and after considering the explanation of the assessee, had applied

his mind. His view was that the amendment are not applicable in the case

of the assessee for the year under consideration which is a possible view.

The CIT did not agree with the conclusion reached by the ITO. However,

Section 263 of the Act does not empower him to take action on these facts

to arrive at the conclusion that the order passed by the ITO is erroneous

and prejudicial to the interest of the revenue. Since the material was there

on record and the said material was considered by the ITO and a particular

view was taken, the mere fact that different view can be taken, should not

be the basis for an action U/s 263 of the Ac and it cannot be held to be

justified.

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justified. The order can be said to be erroneous assessment only if it

deviates from the law and if the AO acting in accordance with law makes a

assessment, the same cannot be branded as erroneous by the

Commissioner. The AO has exercised the quasi-judicial power vested in him

accordance with law and arrived at a conclusion and such a conclusion

cannot be termed to be erroneous simply because the Commissioner does

not feel satisfied with the conclusion. In the present case it cannot be said

that there is an incorrect application of law so that the order being

erroneous. The amendments were from A.Y. 2013-14 and the judicial

decisions were also to the effect that it cannot be made in relation to share

capital where identity is proved. The phrase "prejudicial to the interests of

the Revenue" has to be read in conjunction with an erroneous order passed

by the Assessing Officer. The view of the AO that the amendments were

not retrospective is also one of the possible view and such a view cannot be

said to be erroneous. The Hon'ble Supreme Court in the case of CIT v.

Vatika Township Private Limited reported (2014) 367 ITR 466 (SC) held

that when the amendment was made from a particular date the intention of

the legislature was to treat it prospective and it could not be treated as

declaratory/statutory or curative in nature. Similarly in the case of Zile

Singh Vs State of Haryana & Ors. 2004(8) SCC 1, it was observed as follows

the cardinal principle of construction that every statute is prima facie

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prospective unless it is expressly or by necessary implication made to have

a retrospective. Unless there are words in the statute sufficient to show the

intention of the legislature to affect existing rights, it is deemed to be

prospective only." In view of above we find that there is no error in the

conclusion drawn by the AO while passing the order and therefore, the

impugned order U/s 263 of the Act is not justified and the same is hereby

quashed.

Order pronounced in the open court on 19/03/2020.

Sd/- Sd/- (R.C.SHARMA) (SANDEEP GOSAIN) Accountant Member Judicial Member

Dated :. 19/03/2020 *Ranjan Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. The CIT(A) 5. DR, ITAT, Jodhpur 6. Guard File (ITA No. 156/Jodh/2018)

Assistant Registrar Jodhpur Bench