M/S DEVRAJ SALES PVT. LTD.,KOLKATA vs. CIT, KOLKATA-1I, KOLKATA

The facts of the case are brought out by the ld. CIT at pages 1 & 2 of his order which is extracted for ready reference:- “In the instant case the return of income was filed declaring income of Rs.820/-.The Balance Sheet of the company shows share capital of RS.9,56,00,000/- and Reserve (Share premium) of RS.9,17,76,000/-. Subsequently, the assessee filed a letter before the A.O. on 23.08.2011 stating that intimation u/s 143(1) had not been received and that income of RS.46,500/-had not been shown in its return of income by mistake. The Assessing Officer, on receipt of this letter, issued notice u/s.148 and subsequently, passed order u/s.147/ 143(3) on 21.12.2011 determining the total income at RS.47,320/-.

The ld. CIT passed the impugned order u/s 263 of the Act and set aside the assessment order passed by the Assessing Officer u/s 147 r.w.s. 143(3) on 21/11/2012 by giving the following directions:- “In view of the special facts and circumstances as well as the judicial decision relied upon, the impugned order u/s148 is, therefore, set aside u/s 263 of the IT Act and the A.O. is directed to i) Examine the genuineness and source of share capitol, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. ii) Further the A.O. should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. iii) The A.O. is directed examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any. After conducting the inquiries & verification as directed above, the A.O. should pass a speaking order. providing adequate opportunity of being heard to the assessee. The impugned order u/s 148 is accordingly set aside and assessment should be done afresh.”

Aggrieved the assessee is in appeal before us.

The ld. Counsel for the assessee, Shri Sujoy Sen, objects to this order u/s 263, mainly on two grounds. The first is that principles of natural justice were not followed and the assessee was not given adequate opportunity to represent its case before the Assessing Officer. Secondly, he objected to the statement made by the ld. CIT at page 3 & 4 of his order that, before the amendment to Section 68 of the Act, brought in w.e.f. Assessment Year 2013-14, the addition in question i.e. premium charged on shares issued can be made under the deeming provisions of Section 68 of the Act. He submitted that this is against the proposition of law laid down by the Hon’ble Bombay High Court in the case of M/s. Vodafone India Services Pvt. Ltd vs. Addl. CIT reported in 368 ITR 001(Bom.) and in the case of CIT vs Gagandeep Infrastructure Ltd (2017) 394 ITR 680.

We find as has also been admitted by the ld. DR and the AR that facts and circumstances of the cases under consideration are mutatis mutandis similar to those decided earlier. In our aforesaid order in Subhlakshmi Vanijya Pvt. Ltd., vs. CIT (ITA No. 1104/Kol/2014 A.Y. 2009-10), we have drawn the following conclusions: - A. Contention of the assessee that since the AO of the assessee-company was not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment to section 68 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. 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, 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 ; and 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 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. C. In the given facts and circumstances of all such cases, the notices u/s 263 were properly served through affixture or otherwise. Further the law does not require the service of notice u/s 263 strictly as per the terms of section 282 of the Act. The only requirement enshrined in the provision is to give an opportunity of hearing to the assessee, which has been complied with in all such cases. D. Limitation period for passing order is to be counted from the date of passing the order u/s 147 read with sec. 143(3) and not the date of Intimation issued u/s 143(1) of the Act, which is not an order for the purposes of section 263. In all the cases, the orders have been passed within the time limit. E. The CIT having jurisdiction over the AO who passed order u/s 147 read with section 143(3), has the territorial jurisdiction to pass the order u/s 263 and not other CIT. F. Addition in the hands of a company can be made u/s 68 in its first year of incorporation. G. After amalgamation, no order can be passed u/s 263 in the name of the amalgamating company. But, where the intention of the assessee is to defraud the Revenue by either filing returns, after amalgamation, in the old name or otherwise, then the order passed in the old name is valid. H. Order passed u/s 263 on a non-working day does not become invalid, when the proceedings involving the participation of the assessee were completed on an earlier working day. I. Order u/s 263 cannot be declared as a nullity for the notice having not been signed by the CIT, when opportunity of hearing was otherwise given by the CIT. J. Refusal by the Revenue to accept the written submissions of the assessee sent after the conclusion of hearing cannot render the order void ab initio. At any rate, it is an irregularity. K. Search proceedings do not debar the CIT from revising order u/s passed u/s 147 of the Act.

Some or all of the aforesaid conclusions are applicable to the case of the assessee in the present appeal also. Consequently the grounds of appeal

The second issue raised before us is that the amendment to Section 68 of the Act, by way of introduction of a proviso which is effective from the Assessment Year 2013-14, is retrospective or prospective. 8.1. The ld. CIT held that it is a well settled position of law that even before the amendment to Section 68 / 56(2) of the Act, effective only from Assessment Year 2013-14, the genuineness of the share capital in a Private Limited Company can be examined in the course of assessment and if found to be not genuine the same could be taxed under the provisions of Section 68 of the Act. These statements of the ld. CIT in his order passed u/s 263 of the Act, is objected to by the assessee. These observations, in our view, does not tantamount to holding that the amendment by way of introduction of proviso to Section 68 of the Act, is retrospective in nature. The Hon’ble Jurisdictional High Court in the case of Rajmandir Estates Pvt. Ltd. (supra) held as follows:- “We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open.”

In the result, appeal of the assessee is dismissed.