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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI S.RIFAUR RAHMAN & SHRI RAVISH SOOD
ORDER PER RAVISH SOOD, J.M:
The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax-10, Mumbai (for short „Pr.CIT‟) under Sec. 263 r.w.s 254 of the Income Tax Act, 1961 (for short „Act‟), dated 04.12.2019, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) r.w.s 147 of the Act, dated 13.11.2014. The impugned order has been assailed by the assessee on the following grounds of appeal before us:
“1. That in the facts and circumstances of the case and in law, the Ld. Principal CIT has erred in massing the order u/s 263 without considering the fact that the sole issue for reassessment as per reason to believe was charging of excessive share premium on issue of shares and the same was fully examined in re-assessment proceedings whereas the issue of alleged accommodation entries by Shri Praveen Kumar Jain as per the impugned order was not the subject matter of reason to believe and re-opening. Hence, Ld. Principal CIT failed to appreciate that re-assessment order is not erroneous if seen from the point of view of reasons for re-opening.
That in the facts and circumstances of the case and in law, the Ld. Principal CIT has erred in passing the order u/s 263 by ignoring the fact that section M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 2 56(2)(viib) and proviso to section 68 is inserted with effect from 01.04.2013 and is prospective in nature and thus no addition could be made in the hands of the appellant company on account of excess share premium for the assessment year under consideration. Hence, re-opening of assessment itself is bad-in-law and therefore, consequential revisional proceedings is also bad- in-law and void-ab-initio.
3. That on the facts & circumstances of the case, the impugned order passed by the Ld. Principal CIT u/s 263 is time barred as per the ratio laid down by the Hon'ble Apex Court in Alagendran Finance Limited [(2007) 293 ITR 1] in so far as the issue of alleged accommodation entries by Shri Praveen Kumar Jain as per the impugned order is not the subject matter of the reason to believe for re-assessment proceeding, as such, the order u/s 263 is bad-in- law and liable to be quashed 4. That in the facts and circumstances of the case and in law, the Ld. Principal CIT has erred in passing the order u/s 263 by ignoring the decision of Hon'ble Apex Court in the case of Steller Investment Ltd. [2000 (7) TMI 76] and CIT vs. Lovely Exports [(2008) 216 CTR 195], wherein it was stated that, revisionary jurisdiction u/s 263 cannot be exercised for allegation of non- genuineness of share capital and if at all, the alleged share capital was bogus, the same can be added in the hands of shareholders and not in the hands of the appellant company.
5. That in the facts and circumstances of the case and in law, the impugned order is bad in law in so far as the Ld. Principal CIT erred in invoking jurisdiction u/s 263 of the Act without appreciating that if no addition is made on the issue for which reason were recorded, no other additions can be made with respect to issues for which no reasons were recorded. Therefore, direction for making other enquiry/addition is bad-in-law.
6. Your appellant prays for leave to add, alter and amend all or any of the above grounds of appeal
.”
2. Briefly stated, the assessee company which is engaged in the business as that of a sub-contractor had filed its return of income for A.Y. 2009-10 on 30.07.2009, disclosing its total income at Rs.12,49,429/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was reopened under Sec. 147 of the Act. Assessment was framed by the A.O vide his order passed under Sec. 143(3) r.w.s 147 on 13.11.2014 accepting the returned income of the assessee company.
After the culmination of the reassessment proceedings the Pr.CIT-12, Mumbai called for the assessment records of the assessee. On a perusal of the records it was observed by the Pr. CIT-12, Mumbai that as per tje information received from the office of the DGIT(Inv.),Mumbai, vide his letter M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 3 marked as Ref. No. DIT(Inv.)/information/PJ/2013-14, dated 07.03.2014, it was therein conveyed that the information that had surfaced in the course of the search and seizure proceedings conducted on Shri. Praveen Kumar Jain, an infamous accommodation entry provider had revealed that the assessee company as a beneficiary had obtained an accommodation entry of share capital with premium aggregating to Rs.2,18,00,000/-. Observing that the A.O while framing the reassessment under Sec. 143(3) r.w.s 147, dated 13.11.2014 had not properly verified the aforesaid issue in the backdrop of the information received from the office of the DGIT (Inv.), Mumbai, the Pr. CIT- 12, Mumbai called upon the assessee to put forth an explanation as to why the reassessment order passed by the A.O may not be revised under Sec. 263 of the Act. However, not finding favour with the reply filed by the assessee the Pr. CIT-12, Mumbai, vide his order passed under Sec. 263, dated 30.03.2017 „set aside‟ the assessment order with a direction to the A.O to pass a fresh order after giving a reasonable opportunity of being heard to the assessee.
Against the order passed under Sec. 263 by the Pr. CIT-12, Mumbai, the assessee carried the matter in appeal before the Tribunal. The Tribunal vide its order passed in dated 27.11.2017 set aside the order passed by the Pr. CIT-12, Mumbai under Sec. 263 of the Act and remitted the matter back to his file for passing an afresh order after hearing the assessee. In pursuance to the aforesaid order of the Tribunal, the Pr. CIT- 10, Mumbai, passed an order under Sec. 263 r.w.s 254, dated 28.12.2019, observing, that in the backdrop of the aforementioned information received from the DGIT(Inv.), Mumbai, the A.O while passing the reassessment order under Sec.143(3) r.w.s. 147, dated 13.11.2014 had failed to make necessary verifications as regards the genuineness of the share capital alongwith huge premium totalling to Rs.2.18 crores received by the assessee during the year in question, the Pr.CIT was of the view that the same, thus, had rendered the reassessment order passed by the A.O as erroneous insofar as it was prejudicial to the interest of the revenue within the meaning of Sec. 263 of the M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 4 Act. Accordingly, the Pr. CIT-10, Mumbai, vide his order passed under Sec. 263 r.w.s 254, dated 04.12.2019 „set aside‟ the reassessment order passed under Sec. 143(3) r.w.s 147, dated 13.11.2014, with a direction to the A.O to pass a fresh assessment order after making the required inquiries in context of the issue in question.
Aggrieved, the assessee has assailed the order passed by the Pr. CIT- 10, Mumbai, under Sec.263 r.w.s 254, dated 04.12.2019 in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that the Pr. CIT had erroneously assumed jurisdiction and therein passed the order under Sec.263 of the Act. Adverting to the infirmities in the validity of the jurisdiction assumed by the Pr. CIT, it was averred by the ld. A.R that the same comprised of three parts, viz. (i) that the Pr. CIT under Sec. 263 had sought to revise the order with respect to an issue which had never formed the basis for reopening of the assessee‟s case under Sec. 147 of the Act, despite the fact that no addition/disallowance was made as regards the issues on the basis of which the case of the assessee was reopened; (ii) that as the assessee‟s case was not reopened by the A.O on the basis of the information received from DGIT(Inv.), Mumbai, that the assessee as a beneficiary had obtained accommodation entries from Shri. Praveen Kumar Jain and/or his associate concerns, thus, the order passed u/s 263 was barred by limitation, as the period of limitation for passing the impugned order was to be reckoned from the end of the financial year in which the intimation under Sec. 143(1) was passed in the case of the assessee; and (iii) that as per the law as was applicable to the period falling prior to A.Y. 2013-14, as no addition of any unexplained share capital or share premium credited in the books of accounts of a private limited company could have been made in the hands of the company as the same was required to be looked into in the hands of the subscriber, the view, thus, taken by the A.O while framing the reassessment being a tenable view could not have been dislodged by the Pr. CIT in exercise of his revisional jurisdiction u/s 263 of the Act. It was submitted by the ld. A.R that the case of the assessee was M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 5 reopened, for the reason, that the book value per share of the assessee company did not justify the issue of shares at a premium, and also the nature and source of such unjustified premium remained unproved and unexplained within the meaning of Sec. 68 of the Act. It was submitted by the ld. A.R that the A.O in the course of the reassessment proceedings did not make any addition with respect to the issue on the basis of which the case of the assessee was reopened. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that now when no addition was made by the A.O with respect to the issue on the basis of which the case of the assessee was reopened, it was, thus, not open to him to have independently assessed some other income on a standalone basis. It was further submitted by the ld. A.R that in case if some additional income/that had escaped assessment had came to the notice of the A.O in the course of the reassessment proceedings then, in the absence of any addition made as regards the issue on the basis of which the assessee‟s case was reopened under Sec. 147 of the Act, it was incumbent on his part to have resorted to a fresh set of reassessment proceedings for validly assessing such income that had escaped assessment. In support of his aforesaid contention the ld. A.R relied on the judgment of the Hon‟ble High Court of Bombay in the case of CIT-5, Mumbai Vs. Jet Airways (I) Pvt. ltd. (2010) 195 taxman 117 (Bom). In the backdrop of his aforesaid contention, it was vehemently submitted by the ld. A.R that de hors any addition qua the issue on the basis of which the case of the assessee was reopened divested the A.O from assessing any other income in the course of the said proceedings. Adverting to his second contention, it was submitted by the ld. A.R that as the case of the assessee was not reopened by the A.O in the backdrop of the impugned information received from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had obtained accommodation entries from Shri Praveen Kumar Jain and/or its associate concerns thus, the assessment order passed him under Sec. 143(3) r.w.s 147, dated 13.11.2014 could not be held to be erroneous. It was submitted by the ld. A.R that the infirmity, if any, as regards non-consideration of the information received from M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 6 the office of the DGIT(Inv.), Mumbai, as regards receipt of impugned accommodation entry by the assessee from the aforesaid entry provider could only be related to the intimation passed by the A.O under Sec. 143(1) of the Act, and thus, the period of limitation for passing the order under Sec.263 was to be reckoned from the end of the financial year in which the aforesaid intimation was passed. To sum up, it was the claim of the ld. A.R that as the order passed by the A.O under Sec. 143(3) r.w.s 147, dated 13.11.2014 by no means could be held to be erroneous thus, the error, if any, could only be related to the initial intimation passed under sub-section (1) to Sec.143 of the Act and the limitation contemplated in sub-section (2) to Sec. 263 of the Act was to be reckoned accordingly. It was, thus, the claim of the ld. A.R that by all means the order passed by the Pr. CIT-10, Mumbai, under Sec. 263 was barred by limitation. Adverting to his third contention, the ld. A.R assailed the validity of the jurisdiction assumed by the Pr. CIT-10, Mumbai under Sec. 263 of the Act. It was submitted by the ld. A.R that prior to the introduction of the „first proviso‟ to Sec. 68 of the Act, vide the Finance Act, 2012 w.e.f 01.04.2013, the addition as regards any unexplained share capital or share premium could not have been made in the hands of the company, as the same was required to be looked into only in the hands of the subscriber of the share capital. In support of his aforesaid contention the ld. A.R relied on the judgment of the Hon‟ble High Court of Delhi in the case of CIT Vs. Stellar Investments Ltd. (1991) 192 ITR 287 (Del). It was submitted by the ld. A.R that the aforesaid order of the Hon‟ble High Court of Delhi had thereafter been upheld by the Hon‟ble Supreme Court in CIT Vs. Stellar Investments Limited (2001) 251 ITR 263 (SC), wherein the “Special Leave Petition”(for short “SLP”) filed by the revenue was dismissed. Also, reliance was drawn by the A.R on the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. 317 ITR 218 (SC). In the backdrop of his aforesaid contentions it was averred by the ld. A.R that as the A.O while framing the assessment for the year under consideration i.e A.Y. 2009-10 had as per the law as was then available on the statute not made any addition towards the M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 7 impugned unexplained share capital/premium in the hands of the assessee company, the same, thus being a possible and a plausible view taken by him could not have been dislodged by exercising of revisional jurisdiction by the Pr.CIT under Sec. 263 of the Act. In order to support his aforesaid claim it was submitted by the ld. A.R that the Hon‟ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT (2000) 109 taxman 66 (SC), had held, that a possible view taken by the A.O cannot be brought within the realm of the revisional jurisdiction of the CIT under Sec. 263 of the Act. On the basis of his aforesaid contentions, it was submitted by the ld. A.R that the Pr. CIT had on all the aforesaid three counts wrongly assumed jurisdiction and therein revised the assessment framed by the A.O vide his order passed u/s 143(3) r.w.s 147, dated 13.11.2014.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the order passed by the Pr. CIT-10, Mumbai, under Sec. 263 of the Act. It was submitted by the ld. D.R that as the A.O had received information from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had obtained an accommodation entry of share capital with premium of Rs.2.18 crores, therefore, the failure on his part to have considered the same while framing the reassessment had clearly rendered his order as erroneous insofar it was prejudicial to the interest of the revenue. Insofar the contentions advanced by the counsel for the assessee that the order passed under Sec. 263 was barred by limitation, it was submitted by the ld. D.R that the period of limitation had to be reckoned from the end of the financial year in which the impugned order under Sec. 143(3) r.w.s 147, dated 13.11.2014 was passed by the A.O. It was, thus, submitted by the ld. D.R that as no infirmity did emerge from the order passed by the Pr. CIT-10, under Sec. 263 r.w.s 254, dated 04.12.2019, the appeal filed by the assessee being devoid and bereft of any force of law was therefore liable to be dismissed.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 8 record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. As is discernible from the records, the case of the assessee was reopened by the A.O, for the reason, that considering the book value per share of the assessee company the issuance of shares at a premium and also the nature and source of the same was found to be unjustified. On a perusal of the „reasons to believe‟ dated 25.03.2014, we find that the same read as under:
M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 9 As can be gathered from the above, the case of the assessee was reopened on the standalone basis that the issue of its 2,18,000 shares of a face value of Rs. 10/- each at a premium of Rs. 90/- per share on 31.03.2009 as per the A.O was not justified. In fact, the A.O in order to fortify his aforesaid conviction had categorically observed that the book value per share by applying the „Net asset value method‟ as on 31.03.2008 was only Rs. 51.07 before the issue of fresh capital at a premium. Further, it was observed by him that after issue of fresh share capital the book value per share by applying the aforesaid method worked out at Rs. 68.27 per share on 31.03.2009. It was further observed by the A.O that the assessee company which was incorporated on 30.07.2009 had no asset base with any intrinsic value as per the details disclosed by the assessee in its return of income. Also, it was noticed by the A.O that the assessee had not earned any substantial profits or paid taxes in the year under consideration or in the preceding years. It was, thus, in the backdrop of his aforesaid observation that the A.O holding a reason to believe that the unjustified share premium was liable to be brought to tax in the hands of the assessee under Sec. 68 had reopened its case u/s 147 of the Act. Interestingly, at no stage the A.O had in the „reasons to believe‟ referred to any information received from the DGIT(Inv.), Mumbai, that the assessee as a beneficiary had obtained accommodation entry of share capital/premium of Rs. 2.18 crores from Shri. Praveen Jain or his associate concerns. In sum and substance, the information as had been heavily relied upon by the Pr. CIT-10, Mumbai, in his order passed under Sec. 263 for holding the reassessment order passed by the A.O under Sec. 143(3) r.w.s 147, dated 13.11.2014 as erroneous does not find any mention in the „reasons to believe‟ on the basis of which the case of the assessee was reopened under Sec. 147 of the Act. In our considered view, as stated by the ld A.R, and rightly so, now when the case of the assessee was reopened on a specific ground with respect to which no addition was thereafter made by the A.O while passing the reassessment order under Sec. 143(3) r.w.s 147, dated 13.11.2014, the Pr. CIT thereafter could not have held the said reassessment order as erroneous M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 10 within the meaning of Sec. 263 of the Act, for the reason, that the A.O had failed to make an addition as regards a stray issue which had never formed a basis for reopening of the assessee‟s case. In fact, we find that the Hon’ble High Court of Bombay in the case of CIT Vs. Jet Airways Limited (2010) 195 taxman 117 (Bom) had observed, that if no addition is made by the A.O while framing the assessment under Sec. 147 w.r.t the issue on the basis of which the case of the assessee was taken up for reassessment then, it would not be open to him to independently assess some other income. Accordingly, now when the A.O had not made any addition w.r.t the issue on the basis of which the case of the assessee was reopened under Sec. 147 of the Act, the Pr. CIT could not have held the reassessment order to be erroneous, on the ground, that he had failed to make an addition as regards the issue which had never formed the basis for reopening of its case, despite the fact that no addition insofar the issue forming the basis for taking up the case of the assessee for reassessment was made by the A.O. Apart from that, we are also unable to comprehend as to on what basis the Pr. CIT had attempted to improve upon the „reasons to believe‟ by trying to transpose the information received from the DGIT(Inv.), Mumbai, as a part of the basis leading to the reopening of the assessee‟s case. In fact, we concur with the contention of the ld. A.R that in case the A.O in the course of the reassessment proceedings would had come across certain information which revealed that the income of the assessee chargeable to tax and escaped assessment then, considering the fact that no addition was made as regards the issue on the basis of which the case of the assessee had been reopened, it was open for him to have issued a fresh notice under Sec. 148 with respect to the aforesaid escaped assessment that had came to his notice. Be that as it may, we are of a strong conviction that as the case of the assessee was never reopened on the basis of the information received by the A.O from the DGIT(Inv), Mumbai, that the assessee as a beneficiary had obtained accommodation entry of share capital/premium of Rs.2.18 crores thus, in the absence of any addition made w.r.t the issue on the basis of which the case was reopened it was not open M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 11 for the A.O to have made an addition in the backdrop of the aforesaid impugned information received from the office of the DGIT(Inv.), Mumbai. As such, not being able to persuade ourselves to subscribe to the view taken by the Pr.CIT that the failure on the part of the A.O to have made the requisite inquiries as regards the genuineness of the introduction of fresh share capital with huge premium aggregating to Rs. 2.18 crores vis-a-vis information received from the DGIT(Inv.),Mumbai, regarding accommodation entry received by the assessee from Shri Praveen Kumar Jain and his associate concerns had rendered the order passed by the A.O u/s 143(3) r.w.s 147, dated 13.11.2014 as inter alia erroneous within the meaning of Sec. 263 of the Act, we herein uphold the assessment order passed by him under Sec. 143(3) r.w.s 147, dated 13.11.2014.
We shall now advert to the claim of the ld. A.R that as prior to the introduction of the „first proviso‟ to Sec. 68 of the Act vide the Finance Act, 2012 w.e.f 01.04.2013 the amount inter alia credited towards unexplained share capital or share premium in the books of a private limited company could not be regarded as the undisclosed income of the company, and the same was to be in the hands of the subscribers to the share capital. We find, that the aforesaid claim of the ld. A.R is supported by the judgment of the Hon’ble High Court of Delhi in the case of CIT vs. Stellar Investments Ltd. (1991) 192 ITR 287 (Del) which thereafter had been upheld by the Hon’ble Supreme Court in the case of CIT vs. Stellar Investments Ltd. (2001) 251 ITR 263 (SC). Also, a similar view had been taken by the Hon’ble High Court of Bombay in CIT-1, Vs. M/s Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bom). In fact, in the case of Gagandeep Infrastructure Pvt. ltd, (supra) it was held by the Hon‟ble High Court that the „first proviso‟ to Sec. 68 of the Act that was introduced by the Finance Act, 2012 w.e.f 1st April, 2013 would be effective only from A.Y. 2013-14 onwards. Also, we find that the Hon’ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. 317 ITR 218 (SC) had held, that wherever the revenue urges that the amount of share application money had been received from bogus shareholders then, it M/s Hinal Estate Pvt. Ltd. Vs. PCIT-10 12 is for the A.O to proceed by reopening the assessment of such shareholders and assess them to tax in accordance with law. It was observed by the Hon‟ble Apex Court that the aforesaid factual position would not entitle the revenue to add the unexplained share capital/premium to the income of the assessee company as an unexplained cash credit. In the backdrop of the aforesaid settled position of law, we find favour with the claim of the ld. A.R that the A.O while framing the assessment in the case of the assessee for A.Y 2009-10, by not bringing the impugned amount of share premium to tax in the hands of the assessee company had thus, by so doing acted as per the mandate of law as then so available on the statute and thus, taken a possible and plausible view which by no means could have been dislodged by the Pr. CIT in exercise of his revisional jurisdiction under Sec.263 of the Act.
We shall now deal with the contention of the ld. A.R that as the period of limitation provided for under sub-section (2) to Sec. 263 in the present case was to be reckoned from the end of the financial year in which the intimation under sub-section (1) to Sec. 143 was passed in the case of the assessee, and not from the order of reassessment passed under Sec.143(3) r.w.s 147, dated 13.11.2014, the impugned order passed u/s 263 was thus barred by limitation. We find substantial force in the aforesaid claim of the ld. A.R that as the alleged error was not the subject matter of the reassessment proceedings under Sec.147 of the Act, therefore, the period of limitation contemplated in sub-section (2) to Sec. 263 would stand triggered with reference to the date on which the initial intimation under Sec. 143(1) was passed in the case of the assessee company and the same by no means could be related to the date of passing of reassessment order under Sec. 143(3) r.w.s 147, dated 13.11.2014. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Alagendran Finance Limited (2007) 293 ITR 1 (SC) and the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. M/s Lark Chemicals Ltd. (2014) 368 ITR 655 (Bom). In the aforesaid judicial pronouncements, it was held by the Hon‟ble Courts that as the issue on which the CIT was seeking to exercise his jurisdiction under