M/S. SPAN FOUNDATION PVT. LTD.,,KOLKATA vs. DCIT, CENTRAL CIRCLE - 3(2), KOLKATA , KOLKATA

At the outset it has been brought to our notice that there is a delay of 211 days in filing these appeals. The assessee’s have moved a condonation petition before the Tribunal to condone the aforesaid delay. The ld. Counsel for the assessee, Shri S.K. Tulsiyan, has submitted before us that these assessee’s are not much aware of the intricacy of income tax and thus, used to rely on the expert advice rendered by their Tax Consultants. Later, on an advice from a senior lawyer, the assessee’s came to know that the order of ld. Principal CIT u/s 263 of the Act is appealable before the Tribunal. Since, their earlier Authorized Representative/Tax Consultants had not intimated the assessee’s about future course of action which needs to be taken against the said order u/s 263 of the Act, the assessee’s did not prefer an appeal before the Tribunal. On advice from a senior lawyer, the assessee’s came to know that the order u/s 263 is appealable and thereafter the assessee’s handed over the relevant records to the senior lawyer who prepared the necessary documents for filing the appeal against the order u/s 263 and therefore, there was a delay about 211 days.

We have heard both the parties on this preliminary issue. Having regard to the reasons given in the application for condonation of delay, we are of the considered opinion that assessee was under a bona fide belief that the impugned order of Pr. CIT was not appealable before this Tribunal, since they were not advised by their Tax Consultants about this legal right. Later on, when a Senior Lawyer advised them to file an appeal, the assessee’s immediately took steps to file the appeals. Therefore, the delay caused, we note, was because of the wrong advice of the Tax Professional, for which assessee’s cannot be penalized. For the ends of justice, we condone the delay and admit the appeal for hearing.

These three appeals filed by the different assessee’s emanate from a common search conducted at their premises, involves common and identical issues, therefore, appeals have been heard together and are being disposed of by this consolidated order. For the sake of convenience, since facts remain similar and the grounds are identical, we take ITA No.2520/Kol/2017 i.e. M/s Cliff Trexim Pvt Ltd,as lead case for deciding the above appeals en masse.

The grounds of appeal raised by the assessee in the lead case (ITA No.2520/Kol/2017) are as follows:

That the action of the Ld. Pr. CIT in invoking juri iction u/s.263 by alleging that the A.O. failed to carry out necessary enquiry and investigation in regard to the share capital is devoid of merit inasmuch as the impugned assessment pertains to unabated assessment of the appellant.

That there being no incriminating material discovered pursuant to search in this case and as per proviso 2 to sec.153A the assessment in this case was not pending, the Ld. Pr. CIT erred in alleging that the A.O. failed to carry out necessary enquiry and investigation in relation to the return which pertained to material already on record.

That the Ld. Pr. CIT under wrong notion has invoked provisions of sec.263 of the Act without considering that during search operation u/s.132 on two occasions, nothing incriminating was found and the impugned assessment u/s.153A/143(3) of the Act was made by the A.O. after making due verification and after being satisfied with the complete details and authentic documents of the share capital filed by the appellant.

That the impugned order passed by the A.O. originally being neither erroneous nor prejudicial to the interest of the revenue, the Ld. Pr. CIT wrongly invoked juri iction by making allegation which is not supported by any evidence or by law.

That, therefore, as the assessment order passed by the A.O. u/s.153A/143(3) of the Act is neither erroneous nor prejudicial to the interest of the revenue as there is no loss of revenue, the impugned order u/s.263 of the Act of the Ld. Pr. CIT directing to reframe the assessment as per his guidelines on the same set of facts and evidence on record being devoid of any merit and bad in law is liable to be quashed and the appellant be given such relief(s) as prayed for.

That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.”

By raising the aforesaid Ground Nos. 1 to 6, the assessee have challenged the juri iction of the Principal CIT u/s 263 of the Act to interfere in the order passed by the Assessing Officer u/s 153A r.w. section 143(3) of the Act. The brief facts apropos the aforesaid issue are that a search and seizure operation under the provisions of section 132(1) of the Act was conducted on Banktesh Group on 29.05.2012 and subsequent dates. The assessee’s are part of the Banktesh Group. In the instant lead case, the assessee filed its return of income for A.Y 2009-10 u/s 139 of the Act on 25.09.2009 showing total income of Rs.4,28,560/-. A notice u/s 153A of the Act was issued on the assessee on 25.06.2014 calling for filing return of income. In response to such notice, the assessee filed its return of income u/s 153A of the Act on 4 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 15.12.2014 declaring total income of Rs.4,28,560/-. The assessment was completed on 30.03.2015 at total income of Rs.7,73,840/-.

Thereafter, the ld. Principal CIT found fault with the assessment order passed by the AO, by takingnote that accommodation entries in the form of bogus share capital have been taken by different assessee’s of the said group with the help of different accommodation entry operators. According to him during search conducted on 02.03.2016, entry operators have confirmed that the allotment of shares made by the above assessee amounting to Rs.10.40 crores on 31.09.2009 is one of the transactions found as accommodation entry. According to ldPr CIT, the allottee companies were found to be bogus and non-existing and the entry operators admitted to have provided accommodation entry in the form of share capital/premium to the Banktesh Group of companies in lieu of commission. Therefore, the ld. CIT issued a show-cause notice u/s 263 of the Act dated 09.11.2016 asking the assessee to show-cause as to why the assessment order passed on 30.03.2015 u/s 153A/143(3) should not be treated as erroneous in so far it is prejudicial to the interest of the Revenue as per the provisions of section 263 of the I.T. Act.

In response to the show-cause notice, the assessee filed written submissions before the ld. Principal CIT and submitted the documents which were submitted by the assessee before the AO in the assessment proceedings u/s 153A of the Act. The assessee submitted that during the assessment proceedings, the assessee has submitted bank statements, balance sheet, Profit & Loss A/c, Income Tax Return Acknowledgement, source of funds for two layers. During the proceedings before the ld. Principal CIT the assessee submitted that during the course of search action conducted

However, the ld. Principal CIT, having gone through the reply of the assessee held that AO failed to conduct detailed investigation about the identity, genuineness and credit worthy of the shareholders. According to him, the genuineness of the investment has to be examined in detail to the extent that the shareholders have invested the money and the corporate veil be lifted. Therefore, the ld. Principal CIT rejected the contention of the assessee and held that order passed by the AO dated 30.03.2015 for A.Y 2009-10 is erroneous and prejudicial to the interest of Revenue and, therefore, he directed the AO to make necessary examination on the issue and pass a fresh assessment order.

Not being satisfied with the order of the ld. CIT(A), the assessee is in appeal before us.

The ld. Senior Counsel assailing the decision of ld. Principal CIT drew our attention to show-cause notice (SCN) issued by the ld. Principal CIT dated 04/09.11.2016 and stated as under: “Assessment for the A.Y 2009-10 u/s 153A of the Income Tax Act, 1961 in the case of M/s. Cliff TreximPvt. Ltd. which is a part of Banktesh Group was completed on 30.03.2015 by the DCIT, Central Circle 3(2), Kolkata. 6 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 On analysis of assessment records, it is observed that in the year under consideration, the assessee raised share capital and premium to the tune of Rs.10.40 crore. During the assessment proceeding, the assessee furnished the list of investors who subscribed in shares of the assessee company. The assessee furnished the supporting documents regarding share transactions of investor companies. But no detailed investigation was carried out at the time of assessment regarding genuineness of introduction of share capital. Meanwhile a search operation against Banktesh group was once again conducted on 02.03.2016 by DDIT(lnv.), Unit 2(2),Kol. During the course of search & post search investigation it was found that accommodation entries in the form of bogus share capital have been taken by different group of companies by the said Group with the help of different known accommodation entry operators. The allotment of shares made by the above assessee amounting to Rs.10.40 crore. On 31.09.2009 is one of the transactions found as accommodation entry by the Investigation wing. The allottee companies were found to be bogus and non-existing. The statements of entry operators were also recorded during the search & seizure operation which confirmed the findings of the Investigation Wing. The entry operators admitted to have provided accommodation entry in the form of share capital/premium to the Banktesh Group of Companies in lieu of commission.

The ld. Counsel for the assessee drew our attention to following facts which are undisputed and important to adjudicate the issue.

The ld. Counsel pointed out that the sole satisfaction behind SCN was that during search conducted on 02.03.2016 on Banktesh group and investigation it was found that accommodation entries in the form of bogus share capital have been taken by the group companies with the help of different known accommodation entry operators and one of such accommodation entries were allotment of shares of Rs.10.40 crores by the appellant-company. It was further alleged in the SCN that statements recorded from the entry operators during search operation also confirmed the said position.

In this connection, it is submitted by the AR that a show-cause notice must be accompanied with the material on which the opinion of the authority (Ld. Pr. C.I.T.) is based. Further, such SCN should have documents on the basis of which the Ld. Pr. C.I.T. has arrived at the conclusion that the assessment order u/s.153A/143 of the Act for unabated A.Y. 2009-10 was erroneous and prejudicial to the interests of revenue. Absence of these two ingredients and/or components is a gross violation of principle of natural justice. Furthermore, mention of the reasons for issuing SCN in the subsequent order passed uls.263 of the Act is of no use/avail. The reasons backed by details and evidences are required to be mentioned in the SCN itself so as to offer opportunity to the noticee to meet up the case and serve the purpose of the appellant-noticee.

According to ld. Counsel a reading of SCN, it is quite evident that none of the aforesaid conditions precedent for issuing SCN is existing in this case. Nothing particular has been mentioned on whom search and investigation was carried out. There is no whisper about identity of such entry operators who allegedly admitted to have provided accommodation entries to Banktesh group, including the appellant-company. No report of the Investigating Wing and alleged statement of the so-called entry operators 8 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 were provided to the appellant to ensure authentication of documents collected at the back of the appellant. As a corollary, the appellant was denied to have any opportunity to cross-examine such deposed persons, whose statements were out rightly used against the appellant. Therefore, the whole exercise of the Ld. Pr. C.I.T. in having invoked juri iction u/s.263 of the Act is bereft of principle of natural justice.

Our attention was drawn to the decision of Hon’ble Allahabad Authority did not refer to the material on which opinion was formed nor any document whatsoever was annexed to the SCN. It was thus held as under: "Held, on the facts, that the notice did not state that in the opinion of the appropriate authority, the fair market value of the property in question was 15 per cent more than the apparent consideration mentioned in the agreentent to sell between the parties nor did it refer to the material on which such an opinion was formed. No document whatsoever was annexed to this show-cause notice. The notice was not valid. Moreover, the adjournment of the hearing for a very short period and the change of venue of hearing to Lucknow without giving the petitioner sufficient time to make travel arrangements and in disregard of the fact that the petitioner had applied for the earlier adjournment on the ground of illness depicted a complete disregard of the principles of natural justice. The period of limitation prescribed by section 269UD had expired. This was not a fit case for remand. The proceedings were liable to be quashed.”

It was brought to our notice that on further reference to the Hon'ble Apex Court by the Appropriate Authority, the Hon’ble Apex Court in their judgment reported in (2001) 249 ITR 554 (SC) affirming the judgment of Hon'ble Allahabad High Court held that a SCN must be accompanied with the material on which the opinion of the said authority is based. Further the same should have documented on the basis of which the said authority has arrived

Attention of ours was drawn to the decision of ITAT, Delhi in the case of Cargill India Pvt. Ltd. vs. DCIT (2008) 300 ITR (AT) 223, wherein at pages 52 & 53 of the Report it has been held as under: “122. We further find substance in the arguments of learned counsel for the assessee that not only notices as above were vague, non-specific and showed lack of application of mind, even the show-cause notice issued under section 271G suffered from the same defect. No specific clause of the rule or detail of the international transaction relating to which default was committed, were stated in the show-cause notice issued by the Assessing Officer. The notices issued were prima facie illegal and bad in law. He relied upon the decision in the case of Reckitt and Colman of India Ltd. [1996] 88 ELT 641 (SC) and on the case of Hindustan Polymers Co. Ltd. [1999] 106 ELT 12. In the case of Amrit Foods v. CCE [2006] 6 RC 435; [2005] 190 ELT 433 (SC) wherein their Lordships observed as under (page 438 of 6 RC) : "The Revenue has preferred an appeal from the order of the Tribunal setting aside the imposition of penalty under rule 173Q of the Central Excise Rules, 1944. The Tribunal has set aside the order of the Commissioner on the ground that neither the show-cause notice nor the order of the Commissioner specified which particular clause of rule 173Q had been allegedly contravened by the appellant. We are of the view that the finding of the Tribunal is correct. Rule 173Q contains six clauses the contents of which are not same. It was, therefore, necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of rule 173Q. This not having been done the Tribunal’s finding cannot be faulted. The appeal is, accordingly, dismissed with no order as to costs."

In the above case the apex court held that if allegations in the show cause notice are not specific and are vague, lacks details and/or unintelligible, that is sufficient to hold that noticee was not given proper opportunity. Such notice was struck down. The cited decisions are applicable to the facts of the case and arguments of Shri Agarwal are well taken. As a penalty of 2 per cent, is imposable under section 271G in respect of international transaction, it was necessary to specify in the show-cause notice under section 271G, the international transactions or the documents/information with reference to which the taxpayer committed the default by failing to furnish the requisite information in time. This would enable him to file a proper reply in defence. Without detail of default, no adequate reply could be furnished. The contention of the learned Departmental representative that specific clauses of rule 10D(1) under which information was not furnished within time and default was committed were mentioned in the penalty order is of no avail. The mention of the above detail in the order is of no use. The details were required to be mentioned in the show cause notice so as to afford reasonable and adequate opportunity to the assessee to meet out the case and serve the purpose of the notice. For the above defect also, the penalty proceedings are held to be vitiated and liable to be cancelled." [Emphasis ours]

According to AR, a perusal of the above decisions including that of the Hon'ble Apex Court, which is law of the land, brings out the necessary requirements of a valid SCN and the same are in equal force applicable to the facts and circumstances of the instant case of the appellant. To sum up, these are - a. The SCN must be accompanied with the material on which the opinion of the issuing authority is based. b. Further, if the said authority has relied on any documents to arrive at his opinion, the same must be made a part of the SCN so as to enable the noticee-assessee to reply to the same.

The absence of the aforesaid ingredients/conditions precedent to issue of a SCN leads to the following results:

To buttress the above submission, following further case laws are relied upon by the Ld. AR: CIT v. Rajesh Kumar [2008] 306 ITR 027 (Del), Hon’ble Delhi High Court has held that –

Without any prejudice to the above submissions, undersigned would further state that the Ld. Pr. C.I.T. "on analysis of assessment records" derived satisfaction for issuing the impugned show-cause notice u/s. 263 of the Act that "no detailed investigation was carried out at the time of assessment regarding genuineness of introduction of share capital. The expression record as used in s.263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order is based. At the same time, if any information asked for by the assessing authority from the assessee or from others to whom he referred the matter during the course of assessment proceeding was not received but received subsequent to the completion of the assessment, in that situation the assessment order passed without receiving such report may appear to be erroneous within the meaning of 13 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 sec.263 of the Act. In the case of the appellant, there is no denying the fact, as detailed above in this submission and acknowledged in the assessment order u/s.153A/143(3) dated 30.03.2015, that in response to notices u/s.143(2)/142(1) and further requisitions made during the course of assessment proceeding, the A/R of the appellant appeared from time to time and produced/submitted necessary details/documents as per requisitions in relation to share capital raised during the year, which were examined. The same confirmation is echoed in the show- cause notice u/s.263 of the Act, to quote "On analysis of assessment records, it is observed that in the year under consideration, the assessee raised share capital and premium to the tune of Rs.10.40 crore. During the assessment proceeding, the assessee furnished the list of investors who subscribed in shares of the assessee company. The assessee furnished the supporting documents regarding share transactions of investor companies." Admittedly, it is not the scenario in the case of the appellant that the A.O. had asked for any further information or evidence from the appellant which were not submitted or received. Similarly, it was not also the case that he had called for some information/report from any other quarter or departmental authority to verify the impugned share transaction, which was not received, far behind passing of the order without receiving such report. That being the admitted position in this case, for invoking provision of s. 263 of the Act, which was received by him after a long gap of one year from the date of passing of the impugned assessment order and definitely this information cannot per se be part of assessment record for the impugned assessment order inasmuch as neither the matter in relation to appellant's share capital was ever referred to the DDIT(Inv.) by the A.O., nor the matter was referred to the DDIT(Inv.) by the A.O. and before receiving report, assessment order was passed.

To buttress the above position clear, reliance was placed on the decision of juri ictional High Court in the case of CIT v. S.M. Oil Extraction Pvt. Ltd. (1991) 190 ITR 404 (Cal). For better appreciation of the ratio of the decision, facts in nutshell in the said case were that the ITO while making the assessment u/s.143(3) accepted the value of plant & machinery as reflected in the balance sheet in toto. During the course of assessment proceeding, the A.O. himself referred the matter for valuation to the Valuation Officer, New Delhi. The valuer made the valuation at Rs.16,12,000/- as against Rs.9,39,449/- shown in the balance sheet. 14 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 However, before such report of the Valuation Officer was received by the A.O., the assessment order u/s.143(3) was passed accepting the assessee's valuation. On the above facts, the Ld. C.I.T. invoked juri iction u/s.263 of the Act and set aside the said assessment order for passing fresh order. On appeal, the Hon'ble Tribunal held that the material (valuation report) which was not in existence at the time the assessment was made and came into existence afterwards could not form part of the records at the assessment stage and cannot be taken into consideration by the C.I.T. for the purpose of invoking his juri iction u/s 263 of the Act. On the above facts, the Hon'ble Calcutta High Court (supra) held as under: "Section 263 of the Income-tax Act, 1961, says that the Commissioner of Income tax may call for the record of any proceedings. The "record" contemplated in section 263(1) of the Income-tax Act, 1961, does not mean only the order of assessment but it comprises all proceedings on which the assessment is based. The Commissioner is entitled for the purpose of exercising his revisional juri iction to look into the whole evidence. The expression "record" as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. All proceedings which constitute evidence on which the assessment order is based must normally be regarded as part of the record. So long as the revisional authority does not rely on any extraneous matter, his juri iction cannot be questioned. The assessment order which, on the face of it, was a good order at the time when it was passed mat, in the light of information which although asked for but received subsequent to the completion of the assessment appear to be erroneous. The Commissioner has the juri iction to rectify the order in such a case so as to eliminate the error. An assessment without considering the valuation report for which proceeding had already been initiated in the course of an assessment proceedings is not a proper assessment and such assessment is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner of Income-tax has juri iction to revise such an assessment. [Emphasis supplied]

Therefore according to ld AR, it is evident from the above decision thus would be that - (1) if the A.O. during pendency of assessment proceeding calls for report from any authority to verify the claim of the assessee and before receiving such report he passes the assessment order, the same constitutes 'record' and the Ld. C.I.T. can invoke juri iction u/s. 263 of the Act; and (2) if that would not be the position, in that case, the 'record' within the meaning of s. 263 of the Act would include only the evidence on which the original assessment order is based/passed. The criterion (2) above is the case of the appellant and hence although the Hon'ble High Court allowed the departmental appeal, but the ratio of the decision is squarely applicable to the case of the present appellant. In view of the above decision of Hon'ble juri ictional High Court, according to ld AR the Ld. Pr. C.l.T. acted beyond his juri iction in having directed revision of assessment and the same is liable to be quashed.

According to ld AR, despite the aforesaid facts and settled position in law, the appellant filed a reply against the said show cause notice u/s 263 of the Act vide letter dated 16.01.2017 objecting to the impugned proceeding on the premise that the show cause notice alleges that the A.O completed the assessment u/s 153A of the Act without making enquiry and investigation in respect of share capital of Rs.10.40 crores received by the appellant- company during the relevant assessment year. The appellant submitted in its reply that during the course of search & seizure operation, no incriminating document in respect of share capital raised by the appellant-company or assessee group as a whole was found or seized. The case of the appellant was centralized and selected for assessment under the provisions of sec. 153A of the Act. During the course of the said assessment, the appellant was asked to furnish the details in respect of the share capital raised during the block period A.Y. 2007-08 to 16 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 A.Y. 2014-15. The appellant during the course of hearing filed all the necessary details in respect of the share capital raised and also submitted supporting documents. On the basis of the documents filed, the A.O. made further enquiries and assessment in the case of the appellant- company was completed on 30.03.2015 determining the total income at Rs.7,73,842/- In its aforesaid reply dated 16.01.2017 in response to show cause notice u/s.263 of the Act, the appellant further submitted as under and could be seen at pages 19 to 26 of the P/B:

The ld. Counsel submitted that assessment made u/s 153A/143(3) of the Income Tax Act, 1961 was made by the Learned Assessing Officer after making due verification of the share capital raised by the aforesaid assessee. During the course of assessment proceedings the Ld. Assessing Officer was provided with complete details of the share capital raised and allotted during the year along with documents like bank statement, balance sheet and profit and loss account, ITR acknowledgement, source of fund for two layers. As per information available with us due verification of the documents filed was made by the Ld. Assessing Officer. After being satisfied by the documents filed and enquiries made, the Ld. Assessing Officer made addition in respect of 14A, Preliminary Expenses and Interest on IT & FBT therefore, the order passed u/s 153A/143(3) of the Income Tax Act, 1961 should not be considered as erroneous and prejudice to the interest of the revenue.

The ld. Counsel submitted that the reason for initiation of revision proceedings as mentioned in notice u/s 263 of the Income Tax Act, 1961, is on the basis of allegations made by the Ld. DDIT (Inv.), Unit-2(2), Kolkata. In this regard it wassubmitted that during the course of search action made

According to him, it is evident from the records that no corroborative evidence has been found during course of search and therefore mere statement without the corroborative evidence cannot be made basis of the assessment. Reliance is placed on the following cases- M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10

The ld. Counsel submitted that proceedings u/s 263 of the Act has been initiated on the basis of material obtained behind the back of the assessee and assessee should be provided with the information under ld PR CIT possession along with an opportunity to cross examine the alleged entry operators. In this regard our attention was drawn to the decision of the Hon'ble Delhi High Court in the case of CIT v. Rajesh Kumar 306 ITR 27 (Delhi) and the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries v. Commissioner of Central Excise 281 CTR 241 (SC). Also in the case of K.P. Varghese v. Income Tax Officer (SC)(1981) 131 ITR 597 the Hon'ble Apex Court held that - "the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not corrected declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment of suppression of the consideration."

According to the ld. Counsel, the order passed by the Assessing Officer cannot be treated as erroneous as he had nothing to do more in light of the aforesaid apex court and high court decisions. The apex court in above cases has held that even if the enquiry could not be made the disallowance could not be made as the assessee had discharged his onus. The courts have further observed that even if the share applicants are bogus, the addition could be made in the hands of the share 19 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 applicants and not in the hands of the Assessee Company. So there was no need to make any enquiry.

According to the ld. Counsel, in the aforesaid notice u/s 263 of the Income Tax Act, 1961, it has also been stated that the proper enquiry was not made. The method and process of proper enquiry has not been mentioned in the Income Tax Act, 1961. It is left at the discretion of the assessing officer. In respect of enquiry being made by the learned assessing officer, we are citing the following judgments from which it is crystal clear that it is not judicious to revise the order u/s 263 of the Income Tax Act, 1961 on the plea of proper enquiry. In the case of Commissioner of Income Tax, Kolkata V/s M/sLotus Capital Financial Services Ltd., ITAT 125 of 2012 in which the company had raised share capital and the assessment was passed u/s 143(3) of the Income Tax Act, 1961, the Hon'ble CIT revised the order u/s 263 of the Income Tax Act, 1961 on the plea that proper enquiry was not made in spite of the fact that the learned A.O. had made proper enquiry. The Hon'ble ITAT Kolkata Bench held that proceedings u/s 263 of the Income Tax Act, 196l was bad in law. The Hon'ble High Court of Kolkata has also confirmed the said order of ITAT, Kolkata. Sir, the facts of M/s Lotus Capital Financial Services Ltd. (supra) is identical to the facts of this case. The Hon'ble Gujarat High Court in the case of CIT vs. R.K. Construction Company 313 ITR 65 held that since all the necessary details were furnished to the Assessing Officer, there was no reason for the Commissioner to invoke the revisional juri iction under section 263 of the Act. The Assessing Officer had taken a particular view on the basis of the evidence produced before him. On the basis of the evidence before the Assessing Officer and materials which were collected by the Commissioner in revisional proceedings, the Commissioner had taken a different view. However, in the revisional proceedings under section 263, it was not open for the Commissioner to take such a different view. There was nothing on record to suggest that the view taken by the Assessing Officer was unsustainable in law. The Hon'ble Punjab and Haryana High Court in the case of CIT vs. Deepak Mittal, 324 ITR 411 held that change of opinion by reappraising 20 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 the evidence is not within the parameters of revisional juri iction of the Commissioner under section 263 of the Income Tax Act, 1961. In the case of CIT vs. Anil Kumar Sharma (1010) 194 Taxman 504 (Del) the Hon'ble High Court has held that though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings u/s 263 of the I.T. Act, 1961 would fall into the area of the Commissioner having a different opinion. Hence, the case would not be one of lack of inquiry and commissioner cannot reopen case u/s263 of the Income Tax Act, 1961. The Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. 295 ITR 282 considering its earlier decision in the case of Malabar Industries Company Ltd.243 ITR 83 held as under: "The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income Tax Act, 1961 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss or revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law."

From the above decisions, according to ldAR, that it shall not be proper on the part of the Learned Commissioner of Income Tax to revise the order u/s 263 of the Income Tax Act, 1961 on the ground of proper enquiry. The term proper enquiry has not been mentioned in the Income Tax Act, 1961 and since the Learned Assessing Officer is a quasi-judicial

According to ld AR, section 263 of the Income Tax Act, 1961 does not visualize a case of substitution of the judgment of the Commissioner for that of the subordinate authority who passed the order which is sought to be revised. The order passed by a subordinate authority in exercise of its quasi-judicial power vested in him in accordance with law, cannot be termed erroneous merely because the Commissioner does not feel satisfied with the conclusions reached. In this regard, reference may be made to the decision of the Bombay High Court in CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom), wherein it was held as under: "The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a higher figure than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. This is because the Income-tax Officer has exercised the quasi-judicial power vested in him in 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. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself would not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent.”

Reference was also made to the decision of Guwahati High Court in SantalalMahendiRatta (HUF) v. Commissioner of Taxes (2006) 143 STC 511 (Gau): (2002) 1 GLR 197 (Gau), where in this High Court while examining section 36 of the Assam General Sales Tax Act, 1993, which is parimateria, held as under:

In Bongaigaon Refinery and Petrochemicals Ltd. v. Union of India (2006) 287 ITR 120 (Gau), the Guwahati High Court held as under (page 130): "The above judicial pronouncements therefore adumbrate the essence and extent of the revisional juri iction of an authority akin to the Commissioner of Income-tax under the Act. Not only is the exercise of the suomotu power conceptualised therein hedged by the two conditions of error in the order sought to be revised and the consequential prejudice to the Revenue, but no interference is permissible unless the same is afflicted by a juri ictional error or o potent illegality rendering the same ex facie invalid and non-existent in law. The process to derive the satisfaction that the order is erroneous and is thus prejudicial to the interests of the Revenue, the sine qua non for invocation of the power, thus logically has to be informed with the above limitations. "

Further, according to ld AR., under the provision of Income Tax Act, 1961, the Commissioner has the power to revise the assessment order

The Division Bench of the Calcutta High Court too in the case of Jeewanlal (1929) Ltd. vs. Addl. CIT reported in (1977) 108 ITR 407 (Cal), following the law laid down by the Supreme Court in Sirpur Paper Mills Ltd. (1970) 77 ITR 6 (SC) observed " this order was passed at the suggestion of the audit department of the revenue and not by the Additional Commissioner in exercise of his quasi-judicial discretion. I have noticed the terms of section 263 of the Act which empowers the Commissioner to call for examination of the record and thereafter to make an order. In this case the Commissioner purported to exercise the power at the suggestion of the audit department. This position would be clear if one refers to the averment made in paragraph 4(d) of the affidavit-in-opposition, by one Madan Mohan Lal, filed on behalf of the respondents. From the facts it is apparent that the Additional Commissioner did not exercise his discretion and judgment. In 24 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 the aforesaid view of the matter, on the basis of the principles enunciated by the Supreme Court in the case of Sirpur Paper Mills Ltd. v. Commissioner of Wealth-tax [1970] 77 ITR 6 (SC), this notice cannot also be sustained. The notice, therefore, issued on the 24th of March, 1972, is hereby quashed and set aside."

Hence, according to ld AR, proceeding u/s 263 of the Income Tax Act, 1961 is not in accordance with law in light of above mentioned decisions of Sirpur Paper Mills (supra).

Further, the ld AR submitted that merely because of the fact that assessing officer's order is erroneous, a Commissioner of Income Tax cannot interfere. Similarly, because an order of the assessing officer is prejudicial to the interests of the revenue, it will not attract revisional juri iction under section 263 of the Income Tax Act, 1961. These two elements, namely, that the order is erroneous and it is prejudicial to the interests of the revenue must co-exist. When an assessing officer has several choices and the he adopts one of the choices, it cannot be interfered with unless it is shown that the choice of exercise by the assessing officer is without application of mind or wholly contrary to the law. The revisional power conferred on the Commissioner is not an appellate power, but a supervisory power. Thus, a Commissioner cannot sit as an appellate authority under section 263 of the Income Tax Act, 1961 on an order passed by an assessing officer. Section 263 of the Income Tax Act, 1961, it must be borne in mind, gives to the Commissioner a special power, which has almost no parallel in any other statute. It is an extraordinary revisional power. This power cannot be exercised as a juri ictional corrective power or as a review of the orders passed by subordinate authorities. This power under section 263 of the Income Tax Act, 1961 can be invoked only for the purpose of correcting such wrongs, which have 25 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 taken place because of non-application of law or for a wholly incorrect application of law and when such application or non-application of law causes prejudice to the revenue. The power under section 263 cannot be equated to, or be regarded as, an appellate juri iction or even ordinary revisional juri iction. The revisional juri iction under section 263 of the Income Tax Act, 1961 is a unique juri iction, which has to be understood in the context of the scheme of the Act. Such power can be exercised only against orders which are erroneous, in the sense that it goes to the root of the juri iction and also prejudicial to the interests of the revenue.

According to ld AR, revisional authority before treating an assessment as erroneous should apply its own mind and should not base its decision on others view. Besides in cases where there is no lack of juri iction on the part of the assessing authority in passing the orders of assessment and assessing authority does not exceed his juri iction in passing such orders, the same cannot be termed erroneous within the meaning of section 263 of the Income Tax Act, 1961 to enable the Commissioner to invoke power under section 263 of the Income Tax Act, 1961. 39. The ld AR submitted that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with "an erroneous order passed by the Assessing Officer'. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an A.O. adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the A.O. has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the A.O. is unsustainable in law. 26 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10

Further, in respect of the verification of identity and genuineness of share capital money raised by the assessee company, the ld. AR submitted that the assessee company has furnished all the necessary details and documents in respect of share capital raised by it such as name, address, PAN of the share applicants etc. and the necessary details and documents were filed of the share applicants company before AO.

The ld AR submitted that it is evident from the above discussions that no incriminating material was found during the search operation relating to share capital and the decisions of judicial authorities brought to the notice of the Ld.Principal CIT clearly provide that in an unabated assessment year, the addition can only be made based on the incriminating material and that the statements taken behind the back of the appellant has no evidentiary value. That being so, relying upon such statements nothing can be held against the appellant. Moreover, a statement is never discovery of any incriminating material in course of a search and without linking up such statement with the incriminating material, such statement has no evidentiary value. The Ld. Principal CIT did not agree with the submissions of the appellant. He dealt with few cases relating to cash credit including the decision of Hon'ble Kerala High Court in the case of Bismillah Trading Co. vs. Intelligence Officer (248 ITR 292) and held that the A.O. has power to investigate the identity, creditworthiness and the genuineness of the shareholders.

It is submitted by the ld AR that the Ld. Principal CIT did not speak a word in respect of the various authorities which were brought to his notice supporting the appellant's claim that without incriminating material no further investigation or enquiry is required and that the assessment order of the Assessing Officer did not suffer from any deficiency and hence there is no lack of enquiry. Therefore, as no prejudice has been caused to the 27 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 revenue, the proceeding initiated u/s.263 of the Act is bad in law. In spite of the above facts, the Ld. Principal CIT proceeded to hold that the action of the A.O. in having not enquired into the identity, creditworthiness and genuineness of the shareholders has led to an erroneous order in so far as it is prejudicial to the interests of revenue for the reason that no enquiry or investigation was done at the time of assessment regarding the genuineness of the share capital to the tune of Rs.10.40 crores.

On the above facts, according to ld AR, since the action of the Ld. Principal CIT is directly in conflict with the settled position in law, the order passed u/s.263 of the Act dated 15.03.2017 is legally unsustainable and calls for being quashed. Reliance in this connection is placed on the following further decisions, the ratios of which are applicable to the facts and circumstances of the instant case of the appellant-company: i) Principal CIT Vs. Kurele Paper Mills P. LTD. [2016] 380 ITR 571 (Del]- "Held, dismissing the appeal, that the order of the Commissioner (Appeals) revealed that there was factual finding that no incriminating evidence related to share capital issued was found during the course of search as was manifest from the order of the Assessing Officer. Consequently, it was held that the Assessing Officer was not justified in invoking section 68 of the Income-tax Act, 1961, for the purposes of making additions on account of share capital. There was nothing to show that the factual determination was perverse. [Emphasis given]

The Supreme Court has dismissed the SLP filed by the Department in [2016] 380 ITR (St.) 64] ii) ACIT Vs. Budhiya Marketing Pvt.Ltd. (2015) 44 ITR(Trib) 617 (Kol) - held as under:-

CIT vs. Veerparabhu Marketing Ltd. (2016) 388 ITR 574 (Cal), held as under: “The existence of incriminating material in the seized material is a pre- requisite before exercising power u/s 153C r.w.s 153A of the Income Tax Act, 1961. On the questions whether the Appellate Tribunal was justified in not holding that pursuant to a search and seizure, an assessment or reassessment was to be made afresh in accordance with section 153C

CIT vs. Kabul Chawla (2015) 380ITR 573 (Del), wherein it has been held as under: (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to completed assessment proceedings. (vi) In so far as pending assessments are concerned, the juri iction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. "[Emphasis given] 30 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 "

In view of the above discussions, it is possible to effect reconciliation of the two provisos appended to s. 153A by restricting the meaning of the term "assess or reassess" appearing in the first proviso. After the search, in our considered opinion, the total income of the assessee is to be recomputed on the basis of the undisclosed income unearthed during search and the same is to be added with the regular income assessed under s. 143(3) or computed under s. 143(1) for each of the six preceding assessment years. Where any prepaid taxes are there, the same ore required to be given credit for computing the further tax payable by the assessee. The assessee is also required to pay interest under ss. 234A and 234B on the tax due on the basis of new calculation. Where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such years cannot be disturbed in our considered view. [Emphasis given]

Furthermore, according to the ld. AR, it is a settled position in law that juri iction u/s.263 of the Act in respect of issues which were beyond the juri iction of the A.O. while framing the original assessment u/s. 153A/143(3) of the Act cannot be exercised. It is because that scope of revisionary juri iction depends upon the scope of proceedings/ order sought to be revised u/s263 of the Act. The issues, which are outside the scope of the particular assessment, would, as a necessary corollary, be outside the scope of revisionary proceedings undertaken to revise such assessment. In substance, what the A.O. could not do directly, the Ld. C.I.T. cannot do indirectly. In support of the said settled position, following further reliance is placed before the Hon'ble Bench: “The provisions of sections 153A to 153C cannot be interpreted to be a further innings for the Assessing Officer and/or assessee beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. 31 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered on by based on the incriminating material found during the course of search or requisition of documents." [Emphasis supplied] In this case the question raised by the department was whether the Tribunal was justified in cancelling the order passed by the C.I.T. u/s. 263 of the Act directing the A.O. to disallow and to bring to tax expenditure wrongly claimed by the assessee and allowed in original assessment. The said departmental appeal was dismissed on the proposition that the bar which applies to the assessing officer equally applies to the CIT, for the purposes of section 263 of the Act. c) The Full Bench of the Hon'ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) observed as under: " ... It is well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake." [Emphasis given] M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 In this case, the AO initiated proceedings u/s 147 on the issue of taxability of certain FDRs, which were found in possession of a director of the company. However, the director claimed that the FDRs, in her name, actually belonged to the assessee. This stand was accepted by CIT(A) in the appeal filed by the said director. Thereafter, the AO in the case of the assessee issued notice u/s 148 of the Act and passed assessment order accepting that the assessee had established and proved the source and their capacity to invest Rs. 20 lacs and, accordingly, no addition was made on this count. The return filed by the assessee, showing loss of Rs. 1,02,756/- was accepted. Subsequently, the Ld. CIT vide order u/s 263 directed the Assessing Officer to conduct further enquiries in respect of share application money of Rs. 47 lacs. The Hon'ble ITAT quashed the order u/s 263, inter alia, on the ground that since no addition could have been made on the issue of share application money, the assessment order could not be regarded as erroneous. Affirming the decision of the ITAT, the Hon'ble Delhi High Court in the said case held as under by stating that since AO could not have made addition on account of share application money, the assessment order was not erroneous and CIT could not have exercised juri iction u/s 263 of the Act: "Held, dismissing the appeal, that the Tribunal had held that the order of the Assessing Officer could not be regarded as erroneous even if the Assessing Officer had failed to carry out necessary verification and required enquiries in respect of the share application money, as no addition had been made on account of the reasons for reopening which were recorded before issue of notice under section 118 of the Act. It had held that the Assessing Officer could not have made an addition on account of the share application money as no addition had been made on account of fixed deposits of Rs.20 lakhs. The tribunal had noticed and recorded that in the reasons for reopening it was mentioned that the assessee had made investment in the form of fixed deposits of Rs.20 lakhs but in the assessment order passed u/s 147/143(3) of the Act it had been held that the assessee had been able to show and establish

On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Commissioner of Income Tax u/s 263, which we have already noted in our earlier para and is not being repeated for the sake of brevity. According to the ld. DR in this case since the assessment was not scrutinized u/s 143(3), so it cannot be held to be unabated assessment and relied on the order of Hon’ble Calcutta High Court in the case of Tata Metaliks

We have heard both the parties and perused the materials available on record, we note that there was a search u/s 132(1) of the Act which was conducted against the assessee company on 29.05.2012 (hereinafter referred to the ‘first search’) triggering section 153A proceedings against the assessee which proceedings culminated in the AO framing order u/s 153A/143(3) passed on 30.03.2015, which order of the AO has been interfered by the ld. Pr. CIT exercising his juri iction u/s 263 of the Act, which action of the ld. CIT is under challenge before us. Before this first search, we note certain important facts which are germane to decide the “lis” before us. We note that the assessment year under consideration is Assessment Year 2009-10. It is an undisputed fact that the original return of income was filed by the assessee on 25.09.2009 declaring total income of Rs.4,28,560/- .Thereafter, the return of income was processed u/s 143(1) dated 25.11.2011. It is pertinent here to note that no notice u/s 143(2) was issued against the assessee for scrutiny of the assessment and it got expired on 30.09.2010. Therefore, when the first search happened on 29.05.2012, there was no assessment proceeding pending before the Assessing Officer on the date of 35 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 first search. The Assessing Officer, thereafter, completed the assessment u/s 153A read with 143(3) at Rs.7,73,640/- on 30.03.2015 by making additions of Rs.3,41,973/- u/s 14A and other additions of Rs.2812 & Rs.499 to the returned income by the assessee to the tune of Rs.4,28,560/-.

We note that on 02.03.2016 another search and seizure operation was conducted on assessee (hereinafter termed as “second search”). Thereafter, impugned action of Pr. CIT started by issuance of a show-cause notice dated 04/09.11.2016 calling upon the assessee as to why the order passed by the Assessing Officer dated 30.03.2015 u/s 153A/143(3) should not be interfered by invoking his revisional juri iction u/s 263 of the Act. According to the ld. Principal CIT, the order passed by the Assessing Officer dated 30.03.2015 (which is the assessment framed u/s 153A/143(3) as a fallout of first search) is erroneous and prejudicial to the interest of the Revenue because the Assessing Officer has not conducted proper investigation in respect of share capital and premium to the tune of Rs.10.40 crores. In the SCN the ld. Principal CIT, has mentioned about certain statement recorded by the Investigation Wing during search and seizure dated 02.03.2016 (second search) wherein the statement of certain purported entry operators were recorded against the assessee company in respect of the share capital introduced in the assessment year under consideration. Based on the aforesaid reasoning, the ld. Principal CIT found fault with the assessment order passed by the Assessing Officer u/s 153A/143(3) passed on 30.03.2015. The assessee company has challenged in the first place, the very usurpation of juri iction by ld. Principal CIT to invoke his revisional powers enjoyed u/s 263 of the Act. Therefore, first we have to see whether the requisite juri iction necessary to assume revisional juri iction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer

Taking note of the aforesaid dictum of law laid down by the Hon’ble Apex Court, let us examine whether the Assessing Officer passed order u/s 153A/143(3) dated 30.03.2015 (assessment framed after first search) is erroneous as well as prejudicial to the interest of the revenue. Undisputedly, the assessment year under question i.e. Assessment Year 2009-10 which was not pending before the Assessing Officer on the date of search on 29.05.2012 (first search), therefore, the assessment which is not pending before the Assessing Officer is an unabated proceeding and the Assessing Officer is empowered to make any addition only based on incriminating materials found/unearthed during search. This is a settled position of law and is no longer res integra. The following judgments are given in support of the above proposition of law:- The Hon’ble Delhi High Court in Kabul Chawla (supra) has laid down the law which spells out the power of the AO while exercising power u/s 153A after search u/s 132 of the Act was conducted by the Revenue. The same is reproduced as under:

However, we note that the ld. Principal CIT while invoking the juri iction u/s 263 of the Act, has taken note of the second search which happened on 02.03.2016 and has referred to the investigation carried out by the investigation wing after the second search on 02.03.2016. In this context, it would be appropriate to reproduce the again the show-cause notice issued by the Principal CIT which is as under: OFFICE OF THE PR. COMMISSIONER OF INCOME TAX, CENTRAL, KOLKATA – 2

From a reading of the above show-cause notice of ld. Principal CIT when we analyse the same, what is revealed is the following:

Further, we note that pursuant to the aforesaid SCN, the assessee’s replied to the Pr. CIT, extracts of which has been reproduced by the Principal CIT in the impugned order before us. In the impugned order,we note thatthe Principal CIT has added only the list of shareholders to whom the shares were allotted. In other words, other than the factual contents given in the SCN issued by him (supra), only the list of shareholders are reproduced by the Principal CIT in his order. In the impugned order of Principal CIT, after reproducing certain extracts of the reply of the assessee and judicial precedents, we note that the Principal CIT without giving any factual finding or reasoning as to how the order of the AO can be held to be erroneous in so far as it is prejudicial to the interest of Revenue has simply without adducing any new facts other than what has been stated and reproduced by us in SCN (supra) has simply held that “no enquiry or examination and verification was done at the time assessment regarding the genuineness of introduction of share capital to the tune of Rs.10.40 crores. Therefore, the assessment made is lacking such examination/verification which is necessary to assess the income of the assessee and such omission to make necessary enquiry has made the order erroneous in so far as prejudicial to the interest of the Revenue’’. Since, there is nothing new in the impugned order other than what is stated in SCN reproduced above and detailed analysis stated in Para52 above, we note that facts stated in (i) to (v) are that which is relevant to assessment for A.Y 2009-10 after the first search on 29.05.2012 which is reproduced again for better understanding: 44 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 (i) The assessment u/s 153A/143(3) against the assessee being a party of Banktesh Group for A.Y 2009-10 has been completed on 30.03.2015 by the AO. (ii) The Prin. CIT did an analysis of assessment records and he observed that in the year under consideration, i.e A.Y 2009-10, the assessee has raised share capital and premium to the tune of Rs.10.40 crores. (iii) During the assessment proceedings, the assessee furnished the list of investors who subscribed in shares of the assessee company. (iv) The assessee furnished the supporting documents regarding share transactions of investors companies (v) But no detailed investigation was carried out at the time assessment regarding genuineness of introduction of share capital

From a perusal of the above facts reveal that ld. Principal CIT is finding fault with the AO in not conducting detailed enquiry about the share capital introduced into the assessee company. Though in the same breath, the Principal CIT admits that assessee has produced all relevant documents before the AO in respect to the share capital. However, the ld. Principal CIT missed the most important fact that A.Y 2009-10 was not pending before the Assessing Officer on the date of first search on 29.05.2012, so it is an unabated assessment and the AO could have only reiterated the assessment crystallized as per intimation forwarded by the Department u/s 143(1) dated 25.11.2011 wherein the Department accepted the returned income filed by the assessee on 25.09.2009, because there was no incriminating material unearthed/seized during search (first) on 29.05.2012. It is very important to take note of the Hon’ble Delhi High Court in Kabul Chawla case (supra) wherein on a similar situation laid the law as under:

So from the aforesaid dictum of law laid by the Hon’ble High Courtin the absence of any incriminating material unearthed during first search on 29.05.2012, we have no hesitations to hold that for A.Y 2009-10, the AO could have only reiterated the assessment intimated u/s 143(1) of the Act, because the time for issuance of scrutiny notice u/s 143(2) expired on 30.09.2010 and the assessment for this relevant assessment year, therefore, was not pending before the AO on the date of search on 29.05.2012 and, therefore, is an unabated assessment. Therefore, as per the law laid down by the Hon’ble High Court, the AO could not have disturbed the assessment already existing without the aid of incriminating materials seized during search on 29.05.2012 (first search). Therefore, the order of the AO cannot be held to be erroneous order. Therefore, without finding the order of the AO to be erroneous, the ld. Principal CIT lacks juri iction to usurp the revisional juri iction u/s 263 of the Act. 62.For completeness of the adjudication, when we look at the SCN and the impugned order of ld. Principal CIT, we note that the following facts have influenced him to invoke the section 263 juri iction which are (vi) to (ix) which are again reproduced for better understanding.

From the reading of the aforesaid facts taken note by the Principal CIT, it is evident that the sheet anchor on which the Principal CIT based his foundation to find fault with the Assessing Officer is emanating from the second search which happened on 02.03.2016 based on which investigation report has been made wherein the share capital raised by the assessee company for Assessment Year 2009-10 is under suspicion/cloud. So, the Principal CIT refers to the second search which happened on 02.03.2016 and the investigation report thereafter made by the investigation wing which is subsequent and obviously a development after framing the assessment order by the Assessing Officer dated 30.03.2015. The Assessing Officer cannot be said to be a clairvoyant, who could have forecasted or foreseen that a second search would take place on 02.03.2016 and thereby some material/oral/evidence would be collected by the investigation wing a year before i.e. on 30.03.2015 when the assessment order was framed by AO after the fallout of first search conducted on 29.05.2012. 64. From the facts narrated above, we note that it is not the case of the Principal CIT that Assessing Officer failed to take into consideration any incriminating material unearthed during first search on 29.05.2012 and has 47 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 failed to make any investigation on it or make any additions / disallowances thereon. The case of the Principal CIT is simply that during second search on 02.03.2016, the investigation wing has found fault with the share capital raised by the assessee company for Assessment Year 2009-10. It should be noted that the Assessing Officer has framed assessment u/s 153A on 30.03.2015 as per the law laid down by the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) and other High courts/Apex Court as stated above which according to us is the correct view or at the most can be definitely termed as a plausible view. Therefore, the view taken by the Assessing Officer cannot be held to be erroneous order and prejudicial to the interest of the revenue as held by the Hon’ble Supreme Court in the case of Malabar Industries vs. CIT (supra). The Assessing Officer’s order dated 30.03.2015 at any rate cannot said to be unsustainable in law.

In any event, we note that the Assessing Officer has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT (supra). Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of juri iction exercising revisional juri iction by the Principal CIT is ‘’null’’ in the eyes of law and, therefore, we are inclined to quash the very assumption of juri iction to invoke revisional juri iction u/s 263 by the Principal CIT. Therefore, we quash all the orders of the Principal CIT dated 15.03.2017 being ab initio void.

Before we part, we would like to address the contention of ld. CIT(DR), that since intimation u/s 143(1) was only issued by the Department in this case, it cannot be viewed that the assessment was unabated on the date of search. We note that the very same issue was before the Hon’ble Delhi High court in Kabul Chawla (supra) wherein also the issue of 143(1) intimation and the expiry of time to issue 143(2) notice by Assessing Officer before the date of search was also adjudicated and thereafter only the law was laid down by the Hon’ble High Court of Delhi, so the issue raised by the ld. CIT(DR) is no longer res integra and therefore, has no merit. The Hon’ble Calcutta High court’s order in Tata Metaliks Ltd. is distinguishable on facts and pertained to filing of revised return of income in cases where assessee received intimation u/s 143(1) of the Act and is not in conflict with the view of Hon’ble Delhi High Court in Kabul Chawla (supra) which is on 153A proceedings after search is conducted by the Department.

Moreover, it has to be remembered that Principal CIT cannot do indirectly what he could have done directly. The said proposition of law has been laid in a similar case by this Tribunal in the case of M/s Ujjal Transport Agency vs. CIT, Central-II in IT(SS) No.58/Kol/2013 Assessment Year 2007- 08 wherein it has held as under:

Having held that the scope of the proceedings u/s.153A in respect of assessment year for which assessment have already been concluded and which do not abate u/s.153A of the Act, that the assessment will have to be confined to only incriminating material found as a result of search, the question to be decided is as to whether the proceedings u/s.143(1) of the Act can be said to be assessment proceedings concluded that have not abated u/s.153A of the Act" Section l53A of the Act, uses the expressing "pending assessment or reassessment". When a return is filed and acknowledgement or intimation issued u/s.143(1), the proceedings initiated by filing the return are closed, unless a notice u/s 143(2) of the Act is issued. In the present case, the period for issuing the notice u/s 143(2) elapsed. Therefore the process has 49 M/s. Garg Brothers Pvt. Ltd. M/s. Cliff TreximPvt. Ltd. M/s. Span Foundation Pvt. Ltd. Assessment Year: 2009-10 attained the finality which can only be assailed u/s 148 or 263 of the Act. It can thus be concluded that making of an addition in an assessment under section 153A of the Act, without the backing of incriminating material, is unsustainable even in a case where the original assessment on the date of search stood completed under section 143(1) of the Act, thereby resulting in non-abatement of such assessment in terms of the Second Proviso to section 153A(1) of the Act.

In the light of the discussion above, our conclusion is that in the present case, the issue with regard to additional depreciation could not and ought not to have been examined by the AO in the assessment proceedings u/s.153A of the Act as the said issue stood concluded with the assessee's return of income being accepted u/s.143(1) of the Act prior to the date of search and no notice having been issued u/s.143(2) of the Act within the time limit laid down in that section which time limit as per the law prevailing on the date when the Assessee filed return of income i.e.,30.10.2007, would expire on 31.12.2008. Such assessment u/s.143(1) of the Act did not abate on the date of search which took place on 15.1.2009.In respect of assessments completed prior to the date of search that have not abated, the scope of proceedings u/s.153A of the Act has to be confined only to material found in the course of search. Since no material whatsoever was found in the course of search, the question of allowing additional depreciation or not could not have been subject matter of proceedings u/.s.153A of the Act. Consequently, the CIT in exercise of his powers u/s 263 of the Act ought not to have or could not have directed examination of the said issue afresh by the Assessing Officer. Thus ground no.1 raised by the assessee is allowed. The proceedings u/s 263 of the Act is accordingly quashed. In view of the above conclusion, the other ground of appeal raised by the assessee does not require any consideration. 18.In the result, appeal of the assessee is allowed.”

Since, we have quashed the Section 263 proceedings; therefore, we are not adjudicating the other arguments of the ld. AR.

In the result, these three appeals of the assessee’s are allowed.

"वभागीय""त"न"ध ,आयकरअपील"यअ"धकरण ,कोलकाता/ DR, ITAT, Kolkata 5. गाड"फाईल 6. / Guard file. स"या"पत""तBy Order