RAJENDRA AND URSULA JOSHI HOLDINGS PRIVATE LIMITED,JAIPUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX-1, JAIPUR

PER BENCH

2 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

These two appeals are filed by the two different assessee

aggrieved from the order of the Pr. Commissioner of Income Tax,

Jaipur-2 [ Here in after referred as Ld. PCIT ] for the assessment

year 2017-18 dated 30.03.2022 & 27.03.2022 respectively as per

provision of section 263 of the Act, which in turn arises from the

order passed by the ITO, Ward 5(5) & 2(3), Jaipur passed under

Section 143(3) of the Income tax Act, 1961 (in short 'the Act')

dated 27.12.2019 & 23.10.2019 respectively.

appeals were heard together and we deem it fit to adjudicate the

same with this common order. As facts and grounds taken in both

the appeal are almost similar, we have taken facts and grounds

from the folder of Rajendra and Ursula Joshi Skill Development

Private Limited, in ITA No. 190/JP/2022 and this case is taken as

lead case.

grounds: -

“1. In the facts and circumstances of the present case and as per established law and legal precedents, ld. PCIT has grossly erred in

3 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

exceeding his jurisdiction in passing the Order dated 30-03-2022 u/s 263 of the Income Tax Act, in respect of Assessment Order dated 27.12.2019 passed u/s 143(3) for A. Y. 2017-18, ld. PCIT has grossly erred in passing revisionary order u/s 263 and issuing directions to verify and enquire into source of money in the hands of shareholders of the company. Appellant prays that all the necessary inquiries required for completing assessment, were made by ld. AO during assessment proceedings. Thus, the Assessment Order dated 27.12.2019 passed by the Ld. AO is neither erroneous nor prejudicial to the interest of revenue and therefore, no revision of the same is called for on this account. 2. That the ld. Pr. CIT has further erred in setting aside the Assessment Order dated 27-12-2019 u/s 263 when he portrays the Assessment Order as erroneous but fails to establish or demonstrate as to how the Assessment Order is prejudicial to the interest of revenue, more particularly when the twin requirement of being "erroneous & prejudicial to the interest of revenue" needs to be satisfied cumulatively for invoking the provisions of section 263, thus the impugned Order dated 30-03-2022 so passed deserves to be held bad in the eye of law and be quashed and set aside. 3. That the appellant craves the liberty to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of the appeal.”

company is a private limited company. The main object of the

company is of establishing, promoting running skill development

campus for different trades. The Source of income of the assessee

company for the year under consideration is course fee, hostel fees

and interest earned on fixed deposit receipts. The assessee filed its

return of income for A. Y. 2017-18 on 31.10.2017 declaring loss of

Rs. 8,18,01,112/-. The assessee company has also filed the

4 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur revised return declaring loss of Rs. 8,27,82,626/-. The case of the

assessee company was selected for scrutiny under computer aided

scrutiny selection (CASS) due to large increase in share capital

during the year and large specified domestic transactions. The ld.

AO completed the assessment after considering the revised

computation and loss of the Rs. 8,27,82,626/- was reduced to Rs.

8,25,82,626/- based on these observations the assessment was

completed.

CIT called for the assessment records of the assessee company.

From the record she observed that the assessee company

received share capital in the year under consideration amounting

to Rs. 90.00 Cr., (Rs. 30.00 Cr each from Jayant Joshi, Shri Jalal

Joshi and Shri Nayan Joshi). In absence of any evidence or

documents on record, creditworthiness of the shareholders and

genuineness of the transactions of share capital of Rs. 90.00

Crore was not established. She further observed that the

company made investment of Rs. 1,30,03,08,000/- in unlisted

equity which will result in earning of exempted income in the form

of dividend. Even though the company has not earned any

5 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur exempted income in the year, any direct expenses related to such

investment to earn any exempt income is to be disallowed as per

Rule 8D r.w.s. 14 of the Act as clarified by the CBDT circular no

5/2014 dated 11.02.2014 dated 11.02.2014. Based on these

observations a show cause notice dated 19.02.2022 was issued

u/s. 263 of the Act asking the assessee to file the reply on or

before 02.03.2022.

year 2016-17, the assessee company received the total share

capital of Rs. 90,00,00,000/- (Rupee Ninety cores only) which has

been contributed equally by three existing shareholders of the

company namely Mr. Jayant Joshi, Shri Jalal Joshi and Shri

Nayan Joshi each of them for the amount of Rs. 30,00,00,000/-

(Rupee thirty crores only) Share capital. Each of them has paid

this amount out of the money received by them through cheque

and proper banking channel by way of Gift from their uncle (real

brother of their father) Late Dr. Rajendra Kumar Joshi who was a

swiss national. It is also submitted that the gifts received from

relatives would not be taxable as per section 56(2) of the Act. Dr.

Rajendra Kumar Joshi was born in India but for past more than 40

6 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur years he was the citizen of Switzerland. He Founded a company

Fumapharm AG in Switzerland where he developed medicines for

many serious illnesses. In 2006 BIOGEN a U. S. Biotechnology

company acquired 100 % share capital of Fumapharm AG and as

a part of this BIOGEN paid USD 220 Million to Dr. Rajendra

Kumar Joshi. Dr. Rajendra Kumar Joshi passed away on

01.10.2019. Assessee has submitted that the assessment was

completed u/s. 143(3) of the Act after making detailed inquiries.

Notices issued were duly responded vide submission dated

30.05.2019. The details of increase in share capital were

furnished with the reply dated 30.05.2019. Further, regarding

disallowance as per rule 8D r.w.s. 14 A of the Act, the assessee

has submitted that the assessee company has not claimed any

expenditure related to exempt income during the period, so

section 14A is not applicable.

the ld. Pr. CIT observed that the case was selected for complete

scrutiny under CASS. The assessment was completed vide order

dated 27.12.2019 at assessed loss of Rs. 8,27,82,626/-. The

assessee has received the share capital of Rs. 90 crores from

7 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur three persons namely Mr. Jayant Joshi, Shri Jalal Joshi and Shri

Nayan Joshi. The details of the source of investment made by

these three persons were submitted during assessment

proceedings. However, it is noted that in the assessment

proceeding vide reply dated 30.05.2019 only the names of share

holders and amount of share capital was submitted. The entire

funds invested in the assessee company were admittedly

received from Sh. Dr. Rajendra Kumar Joshi. It is also seen that

the claim of the entire amount of Rs. 90,00,00,000/- having been

received as gift was not supported by even a single gift deed in

the case of any of the share capital investors. There is no

document on record from the donor Sh. Dr. Rajendra Kumar Joshi

about the nature of transaction which shows that it was a gift.

There is no occasion brought on record for the said gift either.

Since, the case was taken for scrutiny with one of the reasons to

examine the substantial increase in Share Capital, the AO was

required to verify the source of share capital. There is no

evidence on record to show that Dr. Rajendra Kumar Joshi in

Switzerland filed any return and the money was gifted from

disclosed sources. In the course of present proceeding also AR

has submitted a certificate dated 23.03.2021 of a Chartered

8 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur Accountant certifying that Mr. Rajendra Kumar Joshi had been

regularly filing his Income Tax Declarations in Switzerland from

the year 2006 till 2019, for each year and his income and net

worth fully supports all the gifts made by him to his relatives in

India. It is also noted that BIOGEN a U.S. Biotech Company

acquired 100% share capital of Fumapharm AG and paid USD

220 Million that happened in the year 2006 and the amounts

under reference were transferred in the year 2016. In the course

of present proceedings AR also submitted declaration/gift deeds

executed by Mrs. Ursula Joshi. The said deeds are executed

much after the gift was made and these are not notarized. In view

of the above, it is evident that AO passed the order without

carrying out detailed verification and investigations which was

warranted considering the facts of the case. As regards the

disallowance as per Rule 8D r.w.s. 14A of the Act, the assessee

submitted that the company has not claimed any expenditure

related to exempt income during any period, so section 14A is not

applicable. In this regard, it is noticed that as per balance sheet

for the year under consideration that the assessee has made

huge investment of Rs. 1,30,03,08,000/- in unlisted equities,

which would result exempted income in the form of dividend and

9 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur thus provisions of section 14A are applicable in this case. The

investment under this head in last year was NIL. The specific

contention of the assessee has been considered and found not

acceptable in the light of the CBDT circular no. 5/2014 dated

11.02.2014, where in para 4 it is specifically mentioned that for

invoking disallowance u/s 14A it is not material that assessee

should have earned such exempt income during the FY under

consideration as per the word “includible” in the section 14A and

Rule 8D. The fact has been further clarified by the latest

amendment of substituting the sub-Rule(2) of Rule 8D of the IT

Rules, 1962 with effect from 02 June, 2016 wherein as per Para 2

it has been held that :

“(2) The expenditure in relation to income which does form part of the total income shall be aggregate of following amounts, namely :- (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly average of opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claim by the assessee.”

10 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Accordingly, the A.O. was required to consider the disallowance

u/s. 14A during assessment proceedings but the A.O. failed to do

so.

hold that, order passed by the AO was erroneous in so far as it is

prejudicial to the interests of the revenue. The relevant findings of

the ld. Pr. CIT is extracted here in below :

“8. In view of the above, I hold that, order passed by the AO was erroneous, in so far as it is prejudicial to the interests of the revenue. While holding so I place reliance on the judgment of Hon'ble Supreme Court in the case of Deniel Merchants P. Ltd. & others VS ITO in appeal No. 2396/2017 dated 10.04.2017. The Hon'ble SC has held as follows in this case.

"In all these cases, we find that the Commissioner of Income Tax had passed an order under section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court. The Special Leave Petition are dismissed.”

Reliance has been placed on the following judicial pronouncements in this regard:

11 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

1 Jagdish Kumar Gulati vs CIT 269 ITR 71 (Allahabad) 2. Duggal & Co. 220 ITR 456 (Delhi) 3. K.A. Rama Swami Chettiar vs CIT 220 ITR 657 (Mad)

assessee carried the matter in appeal before us challenging the

order passed u/s. 263 of the Act. On merits the ld. AR appearing

on behalf of the assessee submitted a detailed written submission

and the same is extracted here in below:

GOA 1 to 2 Submissions:

12 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. Kindly refer Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC). 1.2 Also kindly refer CIT v/s Max India Ltd. (2007) 295 ITR 282 (SC) wherein it is held that: "The phrase "prejudicial to the interests of the Revenue" in S. 263 of the Income Tax Act, 1961, has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO 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 AO is unsustainable in law."

13 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Ratio of these cases fully apply on the facts of the present case in principle. 1.3 The ld. AR attended time to time, produced books of account including cash book, ledger, subsidiary records and filed various other details as required, stated above and also those even though not required, which were duly examined. The AO made all the inquiries, sought clarifications on all the relevant aspects to the extent he was supposed looking to the nature of the issue involved, the past accepted history of the case and the evidences and material already available therein together with the material provided during the assessment proceedings. Thus, ld. AO framed the assessment in accordance with the available judicial guideline. It is also a fact on record that the assesse opted for personal hearing and denied for e-proceedings. Again an admitted fact is that the AR CA Rajeev Mathur attended on various occasions on as many as nine dates (20/08/2018, 23/08/2018, 28/09/2018, 30/05/2019, 30/05/2019, 11/09/2019, 11/10/2019, 12/10/2019, 26/11/2019) mentioned on the first page of the subjected Assessment Order. Needless to say that, during the course of personal hearings, there was a clear exchange of oral information by way of discussion and the AO was duly informed about the amount and nature of the gift as well as the relation between the donor and donees and delivery and acceptance of the gift by donor and donees respectively. The AO once have been raised relevant queries discussed the issues of identity and creditworthiness of the shareholders, source of investment, copies of bank statement and the genuineness of the transactions. The AR explained him, in a great detail w.r.t all the aspects. It cannot be presumed that a quasi-judicial authority having raised the relevant queries would not have asked anything from the AR during the course of the personal hearing and remained a silent spectator. More particularly, when all the 3 shareholders were regular IT assesses with PAN no. and after discussion with them, he was having the authority and a technical infrastructure to look into the assessment record of this year as well as the preceding year along with the enclosures filed with or within the ROI by the concerned shareholder.

Thus, unless there was something negative available on record or so alleged by the ld. CIT, his attempt to find fault in the actions of the AO, is not legally justified

14 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

2.1 Due application of mind: It is submitted with respect to identity, creditworthiness and genuineness of the share capital and that the receipts towards the share capital of Rs. 90 Crs was from disclosed sources to the extent he was supposed to act in law. Hence the assessment has been made under scrutiny, the AO is supposed to act accordance with law after due application of mind which, in fact, has been done in this case. 2.2 This is also evident from queries raised and the replies given thereto, reproduced hereunder: 2.2.1 Through the Notice/s u/s 142(1) dated 23.05.2019 (PB 16-19), thereto called for explanation as under: “6. Please furnish source of share capital received along with documentary evidences” The Assessee responded to the notice vide letter dated 30.05.2019 Relevant Extract of reply dated 30.05.2019 is reproduced as under.(PB- ):

3 Source of receipt of Share capital amount: AO acted as per Judicial Guidelines: 3.1 This all the more holds good when binding decisions of the Hon’ble jurisdictional High Court in various cases (infra) have propounded the principle in the context of S.68 being only the examination of the identity of the shareholder concerned his/her the confirmation of the fact of providing/ transferring subjected amount to the assessee but the AO is not legally bound to examine source of source, once the immediate source is available. In the present case, the AO was having complete details of the identity in the shape of PAN number, Aadhar & address, etc (PB 56-63). As stated, he was able and he looked into the file of the shareholders in the portal of the department. Thus, in view of the binding judicial guideline, the AO was not obliged still to ask the assessee to provide source of source under the pretense of examination of the creditworthiness of the shareholder. 3.2 Following decisions of Hon’ble Rajasthan High Court are directly relevant for the purpose.

15 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

3.2.1 Kindly refer Labhchand Bohra V/s ITO (2008) 8 DTR 44 (Raj.) (DPB 1-4) held that “Cash credit- burden of proof- identity of the creditors established and the confirmed the credit. This discharged the burden of appellant to prove genuineness. However, capacity of the lender to advancement money to appellant was not a matter which the appellant could be required to establish and that would amount to calling upon him to establish the source of source. Hence addition cannot be sustained.” 3.2.2 In Aravali Trading Co. v/s ITO (2008) 8 DTR 199 (Raj) held that: “Once the existence of the creditors is proved and such persons own the credits which are found in the books of the appellant, the appellant’s onus stand discharged and the latter is not further required to prove the sources from which the creditors could have acquired the money deposited with him and, therefore the addition u/s 68 cannot be sustained in the absence of anything to establish that the sources of the creditors deposits flew from the appellant itself.” 3.2.3 In CIT v. G. M. Mittal Stainless Steel (P.) Ltd. [2003] 263 ITR 255 (SC) “Precedent—Binding nature of judgment—Decision of the jurisdictional High Court—Where the decision of the jurisdictional High Court has not been set aside or at least has not been appended from it would be binding—In view of this CIT proceeding on the basis of the High Court other than jurisdictional High Court on the basis that jurisdictional High Court was erroneous and that the AO who had acted in terms of the High Court’s decision had acted erroneously, was not justified” 4.1 Accordingly, it is submitted that AO raised very specific and directly relevant queries/called for explanation and evidences w.r.t. source of amount received by the company from these shareholders, means to the extent he was supposed to act in law and in accordance with the above decisions. 4.2 As apparent from the record, it is very clear that the Assessee had discharged the burden, by satisfying all the three conditions, as under: 4.2.1 Identity Established: The facts are not denied that the assesse had already submitted complete addresses of all the shareholders as also their Permanent Account Number (PAN) which is the best evidence to prove the identity of a shareholder, in the records of AO itself. Moreover, all the transactions with all the shareholders were admittedly made through banking channels only. Thus, their identity is fully established.

16 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

4.2.2 Genuine Transactions: The genuineness of the transaction is fully established in as much as all the borrowings were made through account payee cheque only and the same was duly verified by the AO from the bank statement of the assesse company filed before him, wherein the fact and the receipt of the subjected amount towards the allotment of share, was clearly visible and was duly verified by the AO. Apart from the bank statement, the AO was also having the ledger accounts of the bank in the account books maintained by the assesse and produced before him containing complete details i.e. the amount, date, cheque number etc. It is not the case of the revenue that the borrowing was made in cash so as to justify any suspicion by thereto. Pertinently the Ld. Pr. CIT never doubted the explanations and never rebutted all the voluminous evidences submitted herein above. Thus, the above factual position is duly admitted even by the Ld. Pr. CIT. Further, pertinent fact is that even the assessment of all the shareholders stands completed (Though u/s 143(1) but still has evidently value), without making any variation in the declared income therefore, the source of funds in their hands before transferring share application money to the appellant, stands established beyond all doubts. Still if the AO doubts the availability of the source in the hands of those shareholders, then the AO/CIT must have taken actions in the hands of those 3 shareholders but not in the case of the assessee. We rely on the CIT vs. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC). 4.2.3 Capacity Proved: Further the creditworthiness of the shareholders also stands fully established in as much as the direct source of the amounts given was the gift received by the shareholders from Late Dr. Rajendra Kumar Joshi, and this clear fact cannot be denied as the transaction have made through account payee cheque/account transfer, reflected in the bank statement of donor as well as the donees and also mentioned in the Gift deed signed by both the parties (PB 44-55). The assessee has not only submitted their PAN no. but also provided copies of Income Tax return of income which contains the computation of total income (PB 67-340). Needless to say that the entire information of that particular shareholder being the ITR, details of income declared, subjected transactions done with the assesse company in the current year as also his creditworthiness/ financial capacity was duly verified by the AO. The Ld CIT, in fact, did not apply his mind on this aspect and ignored that the AO was empowered legally and technically to have examined the veracity of the claim made by the assesse with regard to the creditworthiness of the shareholders.

17 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

5.1 It is not the case of CIT that there was a complete/total lack of inquiry. The law is well settled that the Assessment order cannot be held to be erroneous simply on the allegation of inadequate enquiry. Unless there is an established case of total lack of enquiry. Kindly refer CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), wherein Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held that: “One has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of “lack of inquiry” that such a course of action would be open.” 5.2 In another case of Narain Singla v. PCIT [2015] 62 taxmann.com 255 (Chandigarh - Trib.) it was held that when AO was fully aware of matter, he had appraised evidences filed by assessee and then had formed a view to accept same, Commissioner was unjustified in invoking jurisdiction under section 263. Whether if there was an enquiry, even inadequate, that would not, by itself, give occasion to Commissioner to pass order under section 263, merely because he has a different opinion in matter; it is only in case of 'lack of inquiry' that such a cause of action can be open. 5.3 In CIT vs. Chemsworth Pvt. Ltd. (2020) 275 Taxman 408 (Kar), it was held that: Revision—Erroneous and prejudicial order—AO taking plausible view—AO completed the assessment without considering expenditure which was not allowable under s. 14A—CIT held that non-consideration of disallowable expenditure under s. 14A was erroneous and is prejudicial to the interest of the Revenue—Not correct—CIT has held hat the enquiry conducted by the AO was inadequate and has assumed the revisional jurisdiction—Assessee has filed all the details before the AO and AO has accepted the contention of the assessee that no expenditure was attributable to the exempt income during the relevant assessment year—Thus, while recording the said finding, the AO has taken one of the plausible views in allowing the claim of the assessee— Therefore, CIT could not have set aside the order of assessment merely on the ground of inadequacy of enquiry— Order passed by the CIT was not sustainable in law hence, the Tribunal rightly set aside the impugned order of the CIT. The ld. CIT is completely silent on this aspect in the impugned

18 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

order. 6.1 The allegations made by the Ld. CIT are completely baseless, and hold no ground against the clear and well established facts: The allegation and the basis of holding the Assessment Order erroneous etc. to the effect that the fact of receipt of a gift of Rs. 90 Crs was not supported by gift deed and that there was no document on record from the donor Late Dr. Rajendra Kumar Joshi about the nature of the transaction showing that it was a gift, are not much relevant and does not render any help to the Department in as much as, the substantive fact fully established is that all the 3 shareholders had received the amount of Rs. 90 Crs through E-banking channels. The availability of the fund in the NRE A/c of late Dr. Joshi (PB 366-367) and flowing of the funds from that account to the different relative shareholders to their respective accounts, was elaborately discussed and demonstrated before the AO (and also before the ld. CIT as well) wherein, he could not find any fault. Simply because the assesse could not produce gift deeds by itself does not indicate the fact that the amounts transferred through the banking channels was factually incorrect. Even assuming though not conceding for a moment that there was no gift deed and even assuming that the explanation of the assesse of receiving the fund through mode of gift is not correct then too the substantive fact of receipt in the hands of the shareholders prior to making investment in share capital of the assesse company, cannot be denied. Supposing it were not a gift then also it could have been receipt of a loan or maybe receipt of any nature whatsoever. But at the end of the day, the fact is that the shareholders were in receipt of funds of Rs 90 Crs from the donor late Dr. Joshi, which fact, has not at all been doubted by the Ld. CIT what to talk of disapproving the same. 6.2 But for the completeness, the assesse still submitted gift declarations before the ld CIT (PB 44-55). No doubt, the declaration was signed by donor’s wife Smt Ursula Joshi, for the reason that Dr Joshi had already expired at that point of time but wife being quite aware of his intentions and the fact of this transaction and being the sole surviving legal heir, she was competent enough to sign the declaration. Therefore, there was no reason to doubt the bona fide of the gift declaration more particularly, when there is no contrary evidences or adverse circumstances brought on record. 6.3 His allegation that the gift declaration was made much after the death and secondly they were not notarized are not of much substance and no enquiry as per following legal position and rightly the AO did not insist on the existence of the written gift deeds.

19 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

6.4 Further, Section 122 of the Indian Transfer of Property Act, 1882 deals with all the Gifts and clearly states that “Gift is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee”. In the present case the Gift of Money i.e. moveable property was made voluntarily and without consideration and solely out of love and affection by the Donor – Dr. Rajendra Kumar Joshi to the Donees– 3 Shareholders (his nephews), and the gift was accepted by the donees by utilizing the same for their individual investments in the Assessee company. 6.5 Section 123 of the Transfer of Property Act makes it further clear that only the gift of IMMOVEABLE PROPERTY must be effected by a registered instrument signed by or behalf of the donor. Section 123 clearly mentions that – “For the purpose of making a gift of moveable property, the transfer may be effected either by a registered instrument signed or by delivery”. Since MONEY I.E. MOVEABLE PROPERTY was gifted by the Donor late Dr. Rajendra Kumar Joshi to the Donees (his nephews) and the same was delivered to them through the bank transfer from the Donor’s bank account to the bank account of the donees; Therefore the Gift was valid, legal and complete and did not require any written instrument for its legality or efficacy. 6.6 It is further clarified that it is not the case that the gift is being made or created in the present time by this gift Deed/Declaration; on the contrary the fact of the matter is that the gift was validly and legally given and delivered in the past at the relevant date mentioned in the bank statement of the shareholders submitted herein, and only for providing additional proof to the Income Tax Department for the gift, this declaration and additional attestation of the past gift has been executed in the present time. 6.7 Therefore, the non-availability of the gift deed at the time of the making of gift does not vitiate the gift and the present gift deed/declaration, which is merely attesting and putting in writing the fact of past Gift, is fully in accordance and conformity to Section 122 & 123 of the Transfer of Property Act, as well as the settled legal position. 6.8 Therefore, any reasoning or argument contrary to the aforementioned, would lead to absurd conclusions and results, and all the gifts given under Indian traditions to the family members on various auspicious occasions and the gifts

20 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

received by bride and groom from unrelated people in their marriage ceremony would be disallowed and taxed as income, as there are no gift deeds available for such gifts. This logic and reasoning would not only be contrary to law but also preposterous and against the settled principles of assessment. 6.9 Please note that it was only on the repeated insistence of the PCIT that the shareholders of the Assessee have got these Gift Deeds/Declarations executed for showing and proving the past gifts received by them from late Dr. Rajendra Kumar Joshi. Since Mrs. Ursula Joshi, the legal heir of the Donor late Dr. Rajendra Kumar Joshi is Swiss national and resides in Switzerland therefore the Gift Deeds/Declarations have been executed and notarized in Switzerland. 6.10 Further the certificate dated 23.03.2021 (PB 43) signed by the Certified Chartered Accountant a s regards to the effect that the late Dr Joshi had been filing his income declaration in Switzerland from the year 2006 to 2019, and also certifying the fact that the net worth of Dr Joshi fully supported the gifts made by him to the relatives. The ld CIT did not find any fault by bringing any contrary evidence or adverse circumstance in this regard. 6.11 The ld CIT neither made any enquiry from the Institute of Chartered Accountants of Switzerland nor he made any enquiry directly from the Certified Chartered Accountant so as to ascertain the validity of certificate. But apart from this the substantive fact going to the root is that the amount received by the late Dr Joshi in Switzerland from the declared sources as narrated in Para 5 of the Impugned Order as also through a detailed reply to the SCN u/s 263 (PB 6-17), the entire money so received is through transfer from the Non Resident External (NRE) A/c of late Dr Joshi being maintained in India. It is from this very SBBJ NRE account no 61158966195 (PB 366-367), that all the funds were transferred to shareholders. 7.1 Beyond the scope of enquiry contemplated u/s 263: The scope of enquiry in the present case was limited to the extent of the issues made a basis for selection of the case. The admitted fact was that the case was selected for limited scrutiny so as to examine whether the funds received in the form of share capital are from disclosed sources as per notice issued u/s 142(1) (PB 16-22). It is also a fact available on record that limited scrutiny was not converted to full scrutiny nor the higher authorities did so. Thus, the scope of examination by the AO in this limited scrutiny was

21 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

confined: a) Only to the examination of the fact as to whether the funds received in the form of share capital were from disclosed sources or not. Evidently, there was no pointed reference made to S.68 therefore, the technical requirement of S. 68 being establishing the identity and creditworthiness of the creditor and genuineness of the transaction could not have been presumed by the Ld. Pr. CIT and consequently, he could not have expected the AO to get the same proved by the assesse to the hilt. In other words, this could not be a good basis for holding the subjected assessment as erroneous and prejudicial to the interest of the revenue. It cannot be denied that the very reason of selection was certainly enquired into by the AO in as much as the funds of Rs. 90 Crs in the form of share capital were found received from disclosed sources as they were received from the regular income tax assesses through banking channels. That being the fact, there was no reason, to offer such amount to tax. 7.2 Supporting Case Laws The law is well settled that in the limited scrutiny assessment, the AO can be expected to make enquiry only to the extent of the reason/ basis of selection of the case for the limited scrutiny and the CIT cannot invoke S. 263 on the issues which were not made basis for selection of the case. Kindly refer Mahendra Singh Dhankar (HUF) vs. ACIT, (2021) 35 NYPTTJ 458 (Jp) held that: “Revision—Erroneous and prejudicial order—Limited scrutiny assessment— Case of the assessee was selected for limited scrutiny under CASS on account of mismatch of sales turnover as reported in audit report, ITR, AIR and CIB data— AO issued notice under s. 143(2) and enquired about the issues under consideration—Being satisfied, the AO completed the assessment under s. 143(3) without any adverse finding regarding the issues for which the matter was selected for limited scrutiny—Scope of enquiry in case of limited scrutiny is limited to the extent of the issues for which case is selected for scrutiny under CASS—However, in case during the assessment proceedings the AO is of the view that substantial verification of other issue is also required, then the case may be taken up for comprehensive scrutiny with the approval of the Principal CIT/Director of IT concerned—Without following said procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO— Therefore, where the matter is selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the AO while framing the assessment—For the purposes

22 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

of converting limited scrutiny to complete scrutiny, what is relevant is that there must be some credible material or information on face of the record indicating that there is possibility of underassessment of income if the case is not examined under 'complete scrutiny'—In the instant case, there was no tangible material or information available during the course of assessment proceedings basis which reasonable belief can be formed of escapement or underassessment of income which could have led the AO to seek permission to convert limited scrutiny into complete scrutiny—Issue of valuation of closing work-in-progress as well as matter relating to agriculture income, which are held by the Principal CIT as matters not examined by the AO, are matters which are not part of the reasons for which the case was selected for limited scrutiny—As far as matters for which case was selected for limited scrutiny in terms of mismatch of sales turnover is concerned the Principal CIT has not recorded any adverse findings in terms of lack of enquiry or inadequate enquiry on part of the AO—Therefore, the order passed by the Principal CIT under s. 263 is set aside and the order of the AO is sustained.” In CIT v/s Smt. Padmavathi (2020) 4 NYPCTR 682 (Mad), it was held that: “Revision—Erroneous and prejudicial order lack of proper enquiry—AO in his limited scrutiny, has verified the source of funds, noted the sale consideration paid, the expenses incurred for stamp duty and other charges—Source of funds was verified and the AO was satisfied with the same—Principal CIT while invoking his power under s. 263, faults the AO on the ground that he did not make proper enquiry—It is not clear as to what in the opinion of the Principal CIT is ‘proper enquiry’— Further, merely because the guideline was higher than the sale consideration shown in the deed of conveyance, cannot be the sole reason for holding that the assessment is erroneous and prejudicial to the interest of revenue” In Su-Raj Diamond Dealers (P) Ltd. v/s PCIT (2020) 203 TTJ (Mumbai) 137, it was held that: “Revision—Erroneous and prejudicial order—Lack of proper enquiry vis-a-vis case selected for limited scruting under CASS—As per CBDT Instruction No. 20 of 2015, dt. 29th Dec., 2015, scrutiny in cases selected through CASS is to be confined only to the specific reasons/issues for which the case has been picked up for scrutiny—However, the case may thereafter be taken up for complete scrutiny with the approval of the administrative Principal CIT/CIT, where it is felt that apart from the CASS information there is potential escapement of

23 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

income of more than Rs.10,00,000—In this case, it is neither a fact nor the case of the Revenue that the case was taken up for complete scrutiny with the approval of the administrative CIT— Since the scope of the assessment framed by the AO under s.143(3) was circumscribed by the limited reasons for which the case of the assessee was selected for scrutiny assessment, he was absolutely divested of his powers from traversing on issues which did not fall within the realm of the said limited purpose—Thus, no infirmity could be attributed to the assessment framed by the AO on the ground that he has failed to deal with other issues which did not fall within the realm of the limited reasons for which the case was selected for scrutiny assessment—Thus, the order passed by the AO under s. 143(3) cannot be said to be erroneous— Therefore, order passed by the Principal CIT under s. 263 is quashed.” In Nayek Paper Converters vs. ACIT (2005) 93 TTJ (Cal) 574, it was held that: “Revision—Erroneous order and/or order prejudicial to Revenue—Limited scrutiny assessment by AO under s. 143(2)(1)—Exercise of revisional jurisdiction by CIT directing AO to make comprehensive scrutiny assessment under s. 143(2)(ii)—Invalid—It is the exclusive discretion of the AO to proceed under s. 143(2)(i) or 143(2)(ii) in a given case—AO having chosen to make assessment under s. 143(2)(i) after obtaining approval of Addl. CIT and making proper enquiries, order of AO could not be said to be erroneous and prejudicial to the interest of Revenue—Further, time limit for issue of notice under s. 143(2)(ii) had also expired—Still further, only miniscule cases were to be taken up for comprehensive scrutiny under s. 143(2)(i) as per guidelines issued by CBDT” 8. Alternatively and without prejudice to above, even otherwise on merits, there has been due and proper application of mind in as much as the Ld. AO raised directly relevant queries (as stated above) which were duly replied by the assesse as well. The assesse also submitted certificate stating that the amount received by Dr. Rajendra Joshi was fully offered to tax in the respective country and the amount of gift is included in swiss income and wealth declaration (PB 43) and all related filing have been done. There appears no valid basis to doubt the genuineness and source of the share capital introduced by the 3 shareholders as the same is not baked by any adverse evidence but mere suspicion. In other words, it was nothing but a substitution of opinion by the Ld. CIT. Therefore, on this aspect also the subjected assessment order could not be covered u/s 263 as it was neither erroneous nor prejudicial to the interest of the revenue. 9. Proceeding and order u/s 263 lost its ground and relevance: Interestingly, the respective AOs of all the shareholders have now

24 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

issued notices u/s 148 of the Act for AY 2017-18 (PB 358-363), which clearly implies that the department as a whole is not sure whether the subjected amount of investment in share capital was the undisclosed income of the appellant company for want of established source or it's the undisclosed income of the respective shareholders. Moreover, the issuance of these notices also impels that the ld. CIT wrongly alleged the subjected assessment order of the appellant as erroneous and prejudicial to the interest of revenue because the respective AO's having re opened, shall ask the shareholders to explain the source, failing which additions could be made in their hands. This will result in proceeding on the same issue in the hands of two assesses as also addition of same income twice, which is not permissible in the eyes of law. 10. The allegation of the Ld. CIT that various evidential documents were furnished itself goes to show that the AO did not make requisite enquiries, is not a good basis to invoke S.263 and is mere suspicion and substitution of opinion. moreover, once all the details were made available before the CIT, he should have clearly decided the relevant issues mandatorily required for Section 263, instead of merely setting aside the assessment and sending it back to the AO. kindly refer Elder IT Solutions (P.) Ltd. vs CIT (infra). 11. Even the amendment (Expl. 2(a)) does not confer blind powers: It is held that despite there being an amendment, enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent, it cannot justify the invoking of the Expl. 2(a) in the facts of the present case. Before referring to that Explanation, one has to understand what was the true meaning of the Explanation in the context of application of mind by a quasi-judicial authority. In the case of Narayan Tatu Rane Vs. ITO Itat, (2013) 7 NYPTTJ 1493 (Mum) it was held that newly inserted Explanation 2(a) to Sec. 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his (subjective) opinion, same has been passed without making enquiries or verification which should have been made. 12. The Ld. CIT has observed that as per balance sheet for the year under consideration that the assessee has made huge investment of Rs. 1,30,03,08,000/- in unlisted equities, which would result exempted income in the form of dividend and thus provisions of section 14A are applicable in this case.(Para 7 of the order passed by Pr CIT). 12.1 It is submitted with respect to applicability of Section 14A, Ld AO . Hence the assessment has been made under scrutiny, the AO is supposed to act accordance with law after due application of mind which, in fact, has been done in this case. 12.2 This is also evident from queries raised and the replies

25 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

given thereto, reproduced hereunder: Through the Notice/s u/s 142(1) dated 23.05.2019 (PB 18-19), thereto called for explanation as under:

26 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

circumstances, without even prima facie laying foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on spacious ground that the AO was required to make an enquiry, cannot be held to satisfy the test of existing necessary condition for invoking jurisdiction u/s 263. Jurisdiction u/s 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. 13.3 In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): “ . . . From a rending of sub-section (1) of section 263, it is clear that the power of suomotu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue� . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub- section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 13.4 In Elder IT Solutions (P.) Ltd. vs CIT [2015] 59 taxmann.com 232 (Mumbai - Trib.), it was held that: “18. In the case in hand, there is no dispute that the AO called for financial details of these companies and also examine the parties in order to satisfy himself about the genuineness of the transaction. Therefore, on the basis of the record available before him, the AO accepted the claim of the assessee. The Commissioner has not found any fault with the details and records filed by the assessee in support of the claim but has cited the reasons that the AO has not conducted the proper enquiry. When the entire record was available with the Commissioner then he ought to have given a concluding finding that the view taken by the AO is contrary

27 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

to the law as well as facts emerging from the records. However, the Commissioner has not given any such finding and restored the matter to the record of the AO which is not permissible as per the provisions of section 263 when the AO has conducted the enquiry and allowed the claim of the assessee on the basis of the examination of the record as well as the parties in person. We further note that the assessee has also filed the bank statements of these companies showing the transaction of payment of share premium as well as loans to the assessee. The transactions were also reflected in the return of income filed by these companies, therefore, in any case if the Department has any doubt about the genuineness of arranging the funds by these share applicant companies, the enquiry and investigation should have been conducted in those cases as held by the hon'ble Delhi High Court in the case of Lovely Exports (P.) Ltd. (supra) which has been confirmed by the hon'ble Supreme Court by dismissing the special leave petition filed by the Department.” 13.5 In case of Rajmal Kanwar v. CIT-I [2017] 82 taxmann.com 119 (Jaipur - Trib.) it was held that orders prejudicial to interest of revenue - Assessment year 2011-12 - Where AO had made sufficient enquiries, considered survey records and surrender made by assessee and after considering submissions of assessee completed assessment proceedings under section 143(3), assessment order could not be held to be an erroneous order which was prejudicial to interest of revenue. 13.6 In the case of Abdul Hamid v. Income-tax Officer [2020] 117 taxmann.com 986 (Gauhati - Trib.) it was held that only probability and likelihood to find error in assessment order is not permitted u/s 263. 13.7 CIT v/s Vikas Polymers 341 (2012) ITR 0537 (Del) In view of the above submissions, legal provisions and the established Judicial Principles & Precedents, the impugned order passed u/s 263 deserves to be quashed and set aside in its entirety.

appearing on behalf of the assessee submitted that the issue

raised by the Pr. CIT to invoke the provisions of section 263 are

28 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur already raised by the ld. AO in the proceeding before him and the

details were called for by him. After perusing the details submitted

the ld. AO has taken plausible view on both the issues. The ld. AR

submitted that the gift deed and letter signed by Mrs. Joshi were

submitted (page 366 of the paper book) and placed on records.

The gift given was from the joint account of Mr. & Mrs. Joshi. May

be the gift deed and letter given afterwards but is for the purpose of

the income tax proceedings itself and no adverse inference be

drawn on this issue. The ld. AR of the assessee submitted that

there is no need to have the deed of gift of movable property to be

registered or should be given in writing at the time of giving the gift.

Thus, as regards the share capital the identities were provided by

submitting the details of the investors PAN & address, details of the

bank account from where the investment was made proves the

genuineness of the transactions and as regards the capacity of the

investor’s details of their ITR filed were submitted. In case of all the

three investor the department has issued 148 to verify the source

of investment made in the company. This action of the department

suggest that they have considered the investment made by the

investor as genuine. Not only that in the proceeding u/s. 143(3)

r.w.s. 263 read with section 144B of the Act for the assessment

29 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

year 2016-17 which has been relied upon by the ld. AR where in it

has been held as under :

“5.1 It has been found that during the relevant year, there is an increase in authorised share capital as well as issued and subscribed capital from Rs.1,77,50,000 as on 31.03.2015 to Rs.2,54.00.000/- as on 31.03.2016, thus showing an increase of Rs.76,50,00,000/. In this regard, the assessee has submitted the details of shareholders from whom the share capital have been received. It is seen that the share capital of Rs.76,50,00,000/- was received from Shri Jayant Joshi, Shri Jalaj Joshi & Shri Nayan Joshi (each Rs.25,50,00,000/-). In support the assessee has submitted that the sources of capital introduced by these persons are from gift received from their uncle Mr. Rajendra Kumar Joshi. In support of the same. the assessee has submitted copies of declarations. The assessee has failed to furnish the other relevant supporting evidence(s) to substantiate the creditworthiness of the donor. In this regard, the assessee has submitted that since late Dr. Rajendra Kumar Joshi and Mrs. Ursula Joshi are citizens of Switzerland and therefore only subject to the laws and jurisdiction of Switzerland and in support of the legality and tax compliance with the laws of Switzerland, the certificate issued by the certified Chartered Accountant of late Dr. Rajendra Kumar Joshi declaring the compliance with the Swiss Income Tax Laws and declarations from the year 2006 till 2019 was furnished by the assessee. However, on careful verification of these details, it has been found that the same has not been quantified anywhere in such declaration or certification. Therefore, the creditworthiness could not be established beyond doubt. 5.2 Further, it is important to mention here that the assessee claimed that the sources of share capital introduced is out of gift received by Shri Jayant Joshi, Shri Jalaj Joshi & Shri Nayan Joshi amounting to Rs.45,73,77.291/- Rs.41,42,32.160/ and Rs.25,50,00, 000/- respectively. Even if the same theory is considered, ignoring the fact that no evidences have been furnished to establish the creditworthiness of the donor, then these three persons/shareholders were required to offer the amount of gift in their return of income u/s 56(2)(vii) of the Act as they do not fall under the exception provided under explanation (e) to provision of section 56(2)(vii) of the Act. However, it is seen from the returns of income filed by them that no income on account of gift received was offered for taxation u/s 56(2)(vii) of the Act. In this regard, the claim of the assessee that these

30 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

three persons falls under the definition of relative as per section 56(2) of the Act is factually incorrect. The provisions of section 50(2X) of the Act mandated to treat the gift received as taxable under the head income from other sources in the hands of recipient. Therefore, the genuineness of transaction is clearly doubtful and is not ascertained beyond doubt it is worth to mention here that in the immediate preceding year, these three persons have also introduced share capital of Rs 30.00 crores (Rs. 10.00 Cr. each). As the all the limbs Le identity, genuineness & creditworthiness has not been proved, the amount of share capital introduced of Rs. 76,50,00,000/- is liable to be treated as income of the by virtue of provision of section 68 of the IT Act, 1961, the same are liable to be treated as income of the assessee.. 5.3 The provision of section 68 of the IT Act, 1961 says that, Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Further, in the case of Shankar Industries v. CIT [1978] 114 ITR 689 the Calcutta High Court held that for the burden of proof of genuineness, the assessee must prove not only the identity of the creditor, capacity of the creditor to advance money and genuineness of the transaction. A mere proof of identity of creditor is not sufficient. Reliance can also be placed on the following decisions (1) CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465 (CAL) "It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently, the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, it was to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee

31 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

proved the identity of the creditors and their creditworthiness. Mere payment by account payee cheque was not sacrosanct nor could it make a non-genuine transaction genuine. Hence, the Tribunal was not justified in deleting the additions of unexplained cash credits and interest thereon." (ii) Kale Khan Mohammad Hanif v. CITI 1963 ] 50 ITR 1 (SC) "It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the ITO is entitled to treat it as taxable income." (iii) Sumati Dayal v. CIT[1995] 80 TAXMAN 89 (SC) "But in view of section 68, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted, can be used against him by holding that it is a receipt of an income nature." 5.4 Therefore, in view of the above facts and decisions, the amount of share capital introduction of Rs.76,50,00,000/- received by the assessee during the year under consideration was considered to be liable to be treated as income of the assessee U/s 68 r.w.s. 115BBE of the I.T.Act, 1961.

This is with reference to the above-mentioned Show Cause Notice for proposed variations u/s 143(3).

32 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

We do not accept the proposed variation and vehemently deny the same. We would like categorically state on record that all the documents and details have been submitted in detail about the creditworthiness and relationship of Shareholders with Late Dr Rajendra Kumar Joshi to establish the identity of the shareholders and their creditworthiness and genuineness of the transactions. At no point of time we have been in default or in failure to furnish any document demanded by the Assessing Officer during this ongoing assessment, rather we have fully complied and submitted all the documents, details and information sought by the Assessing Officer through the previous notices.

We hereby re-submit our detailed response as follows: 1. Introduction of share capital of Rs.76,50,00,000/-

Company has issued the share Capital of Rs. 76.50 Crores to Shareholders. Company has received the share capital amount through banking channel in the Bank of India account No. 662920110000752 from the three shareholders Mr. Jayant Joshi, Mr. Jalaj Joshi & Mr. Nayan Joshi and all the personal details including the PAN of these three shareholders have multiple times been shared with the previous Assessing Officer, the PCIT during the 263 proceedings and with the present Assessing Officer during this ongoing assessment through the previous Reply dated 12/03/2022. The company has issued share capital to Mr Jayant Joshi, Mr Jayant Joshi and Mr Nayan Joshi (Rs. 25.50 Crore each) during the year under consideration. It is already informed that shareholders have invested in the share capital of the company from the gifts received by them from their uncle Mr Rajendra Kumar Joshi.

Further, vide SCN it has been alleged that “The assessee has failed to furnish the other relevant supporting evidence(s) to substantiate the creditworthiness of the donor. In this regard, the assessee has submitted that since late Dr. Rajendra Kumar Joshi and Mrs. Ursula Joshi are citizens of Switzerland and therefore only subject to the laws and jurisdiction of Switzerland and in support of the legality and tax compliance with the laws of Switzerland, the certificate issued by the certified Chartered Accountant of late Dr. Rajendra Kumar Joshi declaring the compliance with the Swiss Income Tax Laws and declarations from the year 2006 till 2019 was furnished by the assessee. However, on careful verification of these details, it has been

33 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

found that the same has not been quantified anywhere in such declaration or certification.”

To Establish the creditworthiness or genuineness of the transaction, through our Reply dated 12/03/2022 we have already submitted the following documents:

S.No Description Annexure . reference to reply dt 12.03.2022 1. Income Tax Returns of shareholders Annexure-4 2. Gift deeds Annexure-4 3. Bank Statements of Shareholders Annexure-7 4. PAS-3 for allotment of shares Annexure-8 5. Writeup about the creation of wealth, Annexure-5 success and experience 6. Copy of “Pravasi Bhartiya Samman Annexure-5 Award” given by the Honourable President of India 7. Certificate of BSP Treuhand AG. Annexure-5 (Certified Chartered Accountant of Switzerland) confirming compliance and declaring income and net worth fully supports all gifts made by him to their relatives in India with Income Tax and Wealth Tax Laws of Switzerland 8. Handelsregister, a Govt. document Annexure-9 showing him as a shareholder in M/s Fumapharm AG 9. Register of shareholders of M/s. Annexure-9 Fumapharm AG Confirmation Letter of Mr. Andreas Annexure-9 10. Bachmann, a Swiss Lawyer representing the former shareholders of M/s. Fumapharm AG 11. UBS AG Bank advice showing deposit of Annexure-9 USD 215 Million

Since in the Show Cause Notice dated 16/03/2022 being replied hereunder, the concern regarding the quantified amount of the Gifts not being mentioned in the previous certificate has been expressed by the Assessing Officer, we further hereby provide the Certificate issued by Chartered Accountant BSP Treuhand AG. (Certified Chartered Accountant of Switzerland) wherein amounts of gifts given to Mr Jayant

34 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Joshi, Mr Jalaj Joshi and Mr Nayan Joshi has been quantified and clearly mentioned the source and credibility of the same. This Certificate is attached herewith and marked as Annexure-1.

The Certificate also clearly provides that above gifts are duly declared in the Donors’ income and wealth declaration of 2015 and 2016.

It may be seen from the certificate that Chartered Accountant is providing the quantification as well as certifying that these Gifts were made to relatives from the Income of the Late Rajendra Kumar Joshi and such income was declared in his Income Tax Declaration during the relevant period.

Further, the allegation is also made that the assessee has failed to furnish the other relevant supporting evidence(s) to substantiate the creditworthiness of the donor. This allegation is vehemently denied as all the required and relevant documents have been provided by the Assessee in the Reply dated 12/03/2022 as well as this reply. The Assessee has provided all the relevant documents and have fully proved the creditworthiness and genuineness of the source of source i.e. the Donor late Dr. Rajendra Kumar Joshi. In none of the previous Notices issued to the Assessee, there has ever been any demand of a particular document which the Assessee has not submitted or failed to submit. In the absence of a clear and categorical demand of particular document(s) by you good office, the Assessee cannot be faulted or non-suited on vague and general allegations. It is categorically restated that we have supplied all the required documents and details for proving the creditworthiness and genuineness of the source of money invested in the share capital. Moreover the, judgments referred in the Show Cause Notice refer to those situations whereby the Assessee for proving the creditworthiness was solely relying on the fact that the money was received through check in the bank account of the Assessee and failed to provide other details of the source. In the present case the facts are totally different and the Assessee is not merely relying on the fact of the transfer of the share capital in the company’s bank account through Cheques but has also provided full and credible information including the PAN & Income Tax Returns of the shareholders as well as the documents and detailed information regarding the creditworthiness of the source of the funds of the shareholders. Therefore the judgments referred and relied on in the Show Cause Notice are not applicable in the facts and circumstances of the present case of the Assessee.

35 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Though we have already submitted our reliance on various judgments of the Hon’ble Supreme Court, various High Courts and Tribunals but the same have not been considered in the Show Cause Notice dated 16/03/3022 therefore the following is re-submitted for your kind reference and consideration: We have relied on the decision of Apex Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 1 VERSUS NRA IRON & STEEL PVT. LTD. 2019 (3) TMI 323 - SUPREME COURT, wherein the principles which emerge where sums of money are credited as Share Capital/Premium are :- i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit- worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. – ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. – iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.

In this regard, we have provided all the documents to establish the Creditworthiness and genuineness of the transaction. It may also be seen that all the Shareholders are filing return of income, share application form and allotment letter is available on record, the share application money was paid by the account payee cheques, details of bank account belonging to the share applicants and their bank statements is available on record and no amount was ever deposited in cash and the share applicants have substantial credit worthiness. Reliance is placed on decision of Hon’ble CALCUTTA HIGH COURT, in the case of PRINCIPAL COMMISSIONER OF INCOME TAX, CENTRAL-1, KOLKATA VERSUS M/S. ANMOL STAINLESS PVT. LTD., 2022 (2) TMI 649.

Further, we have also provided source to source and their creditworthiness. The law is very well settled that if the initial burden is discharged by the Assessee by producing sufficient materials in support of the Share Application, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the

36 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Assessing Officer to assessee. In the instant case, the Assessee by producing the permanent account numbers and address of Shareholders and further indicating that the Share Capital was taken by account payee cheques, no doubt, prima facie, discharged the initial burden of proof. There has been never a case that we have failed to provide any document or information demanded by the Assessing Officer rather all the documents and details which were demanded by the AO have been supplied by us. Even we have supplied more documents and information, though not demanded from us, to clearly show and establish the bonafides, genuineness and creditworthiness of the transactions and parties.

Further, if the view of department is that the share application money is received by the assessee- company from alleged bogus shareholders, Company has in all genuineness clearly disclosed and provided the names and PAN of all the three Shareholders to the AO, and the Department is free to proceed to reopen the individual assessments of the three shareholders in accordance with law. The Company cannot be faulted or blamed for the personal transactions taking place in the individual personal bank accounts of the shareholders.

Reliance is placed on the decision of the Hon’ble Apex Court in the case of CIT vs Lovely Exports (P) Ud reported in (2008) 216 CTR 195 (SC), wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.”

Reliance is also placed on the case of M/S. KUMAR NIRMAN AND NIVESH PVT. LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX BANGALORE 2020 (3) TMI 340 - KARNATAKA HIGH COURT- wherein it has been held that the assessee in support of identity, genuineness of transaction and credit worthiness of M/s Bhuwania Bros. Pvt. Ltd. had supplied a copy of the balance sheet and profit and loss account to the Assessing Officer. The appellant had also filed the copy of the return of income of M/s. Bhuwania Bros Pvt. Ltd. as well as copy of information letter. The appellant having proved the identity and credit worthiness of the party as well as the genuineness of the transaction had discharged its burden and it was for the revenue to conduct an enquiry and to prove that the transaction in question was not genuine and the identity of the creditor was not established and it

37 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

had no credit worthiness. In the instant case, the revenue has not conducted any enquiry and has failed to discharge its burden. We answer the substantial question of law in favour of the assessee and against the revenue.

In line with principle laid down by Apex Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) - 1 VERSUS NRA IRON & STEEL PVT. LTD., Company has discharged their obligation to prove the genuineness of the transaction, the identity of the shareholders, and credit-worthiness of the investors. Now its AO duty to investigate the genuineness of the transaction and Creditworthiness of the Shareholders. However, in the instant case no investigation has been made by the Assessing officer.

We also rely on the Apex Court decision in the case of Orissa Corpn. (P.) Ltd. wherein it had held that since the assessee had given the names and addresses of the creditors, all of whom were income-tax assessees, the failure of the creditors to respond to the Department’s notices would not justify an adverse inference being drawn against the assessees. The Court also kept in perspective the fact that the documentation had also been produced by the assessee. It is obvious that the Supreme Court considered that in these circumstances the onus of proof had been discharged by the assessee. It is also palpable that the Supreme Court was of the further opinion that the Department had not discharged the burden of proof that had shifted to it, since it did nothing more than issue notices under section 131 of the Income-tax Act. Therefore, the Department ought to have made efforts to pursue these notices/creditors to determine their creditworthiness.

In case of Softline Creations Pvt Ltd 387 ITR 636 (Del), the Hon’ble Delhi High Court has held as under:

“(4) This court has considered the concurrent order of the CIT(A) as well as the ITAT. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of PAN numbers, to highlight the identity of the share applicants, as well as produced the affidavits of Directors. Furthermore, the bank details of share applicants too had been provided.

In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their credit-worthiness. The AO chose to proceed no further but merely

38 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

added the amounts because of the absence of the Directors physically present themselves before him.

(6) We are of the opinion that no question of law arises, having regard to the concurrent findings of fact. The assessee has, in our opinion, complied with the law spelt out by the Supreme Court in CIT vs. Lovely Exports Pvt. Ltd. 216 CTR (SC) 195. The appeal is meritless and is consequently dismissed.”

We also rely on the decision of Hon’ble Rajasthan High Court in the case of M/S SHREENATH HERITAGE LIQUOR PVT. LTD. VERSUS PR COMMISSIONER OF INCOME TAX 2018 (11) TMI 952, wherein it has held that where the assessee has discharged the initial burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction, the burden of proof shifts on the Assessing officer. In such a case, the AO cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. If the Assessing Officer harbours any doubts of the legitimacy of any subscription, he is empowered, and dutybound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings or has no material in his possession, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.

In view of above judicial pronouncements and legal position, it is a settled preposition that when assessee has proved identity and credit worthiness of the Shareholders as well as the genuineness of the transaction and has discharged its burden then it is for the revenue to conduct an enquiry and to prove that the transaction in question is not genuine.

It may be noted that in the instant case, company has discharged its onus to prove the creditworthiness of Shareholders and genuineness of transaction and also provided all documents of Shareholders such as PAN, ITR, Bank Statement and further, company has also provided source to source and their related documents. Accordingly, Amount of Share Capital cannot be included in the income as per Section 68 of the Income Tax Act.

39 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

It seems the detailed statement regarding the relationship between the Donor and the Donees and all the documentary proofs in support of the relationship has not been examined and adverted to before issuance of the Show Cause Notice.

In the case of all the three shareholders the DONOR LATE DR. RAJENDRA KUMAR JOSHI IS THE BROTHER OF THE PARENT (FATHER) OF THE DONEE (RECIPIENT OF GIFT). Late Dr. Rajendra Kumar Joshi (Donor), Mr. Jitendra Kumar Joshi and Mr. Vinod Kumar Joshi are real brothers and are sons of late Shri Mahabir Prasad Joshi and late Mrs. Javitri Devi Joshi. Mr. Jitendra Kumar Joshi is the father of the shareholders Mr. Jayant Joshi & Mr. Jalaj Joshi. Mr. Vinod Kumar Joshi is the father of the shareholder Mr. Nayan Joshi. In this regard, to establish the tax exempted relation between DONOR and DONEES, the Copy of Identity cards of Donor, Donees and their fathers have already been provided in our Reply dated 12/03/2022 but since the same were not examined and the Show Cause Notice wrongly alleges that the relationship between the Donor and the Donees is not tax exempt for gift purpose, therefore the above documentary proofs are again attached herewith for your record and kind perusal and marked as “Annexure-2”

Specific details of the Gifts and DONOR and DONEE relation are summarised below:

DONEE Father Donor’s Details Relation to DONOR DONEE Donee Mr Jitendra Uncle Late Dr Rajendra Jayant Joshi Kumar Joshi s/o (Brother of Kumar Joshi s/o s/o Mr. late Shri Mahabir the late Shri Mahabir Jitendra Prasad Joshi parent/father Prasad Joshi Kumar Joshi of Donee) Mr Jitendra Uncle Late Dr Rajendra Kumar Joshi s/o (Brother of Kumar Joshi s/o Jalaj Joshi s/o late Shri Mahabir the late Shri Mahabir Mr. Jitendra Prasad Joshi parent/father Prasad Joshi Kumar Joshi of Donee)

40 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Mr Vinod Kumar Uncle Late Dr Rajendra Joshi s/o late (Brother of Kumar Joshi s/o Nayan Joshi Shri Mahabir the late Shri Mahabir s/o Mr. Vinod Prasad Joshi parent/father Prasad Joshi Kumar Joshi of Donee)

It may be seen that aforementioned shareholders have each received such amount as Gift from Dr. Rajendra Kumar Joshi who is the real brother of their fathers, and the relationship of the Donor with each of the three recipients/Donees clearly falls under the definition of Relative under section 56(2) of Income tax Act, 1961.

We would like to inform you that As Per Section 56(2) of Income Tax Act, 1961, any sum of money or kind received as gift from relatives will not be taxable at all means and there is no limit specified for amount (gift) received from the relative, hence any amount received from relatives is not taxable.

Relevant Extract of the proviso of Section 56(2)(vii) and Explanation (e) is placed below:

Provided further that this clause shall not apply to any sum of money or any property received- (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under 24[ 48[section 12AA or section 12AB]; or ] (h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vii) of section 47. (e) "relative" means,-

(i) in case of an individual-

(A) spouse of the individual; (B) brother or sister of the individual; (C) brother or sister of the spouse of the individual; (D) brother or sister of either of the parents of the individual;

41 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

(E) any lineal ascendant or descendant of the individual; (F) any lineal ascendant or descendant of the spouse of the individual; (G) spouse of the person referred to in items (B) to (F); and (ii) in case of a Hindu undivided family, any member thereof];

In view of the above, Gift from Dr. Rajendra Kumar Joshi, the brother of their fathers, and the relationship of all the shareholders clearly falls under the definition of relative under section 56(2) of Income tax Act, 1961.

In view of the above submissions and the Judicial Precedents, the Draft Assessment Order conveyed through the Show Cause Notice dated 16/03/2022 may kindly be dropped and no addition should be made.

We request your good office to provide opportunity of Personal Hearing before passing the order in the present assessment proceedings.

6.1 The explanation of the assessee has been examined with reference to the facts of the case. As a result, the explanation of the assessee has been found acceptable. The order u/s 263 of the Act was passed to conduct the necessary inquiries and verification to ascertain the sources of the share capital introduced. Based on the explanation and documents submitted by the assessee, the sources of share capital introduced appears to be in order. Hence, no adverse inference is drawn and the set- aside assessment is completed accordingly.”

Thus, the action of the reopening of the investor share holder case

it self proves that the department has already accepted the fact

that the identity, genuineness and capacity of the shareholder is

proved and no addition can be made in the case of the company

and if at all the addition is to be made and it should be made

considering the receipt of the gift from relative it can be made in

the hands of the investors and not in the hands of the company.

42 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

The department has already reopened the cases of the investor

share holders and thus, on this issue the view taken by the Pr. CIT

is contrary to the overall facts of the case. As regards the

disallowance of under section 14A of the Act the ld. AO vide notice

issued u/s. 142(1) dated 23.05.2019 vide question no. 9 asked the

assessee as under;

The assessee company has relied to this question and its related

submission stating that no exempt income has been claimed

during the year under consideration and the ld. AO has taken a

plausible view of the matter so the contention of the ld. Pr. CIT that

the issue has not been examined is incorrect.

DR) during the course of hearing, strongly relied upon the order of

the ld. Pr. CIT and submitted that he has rightly invoked the

provisions of Section 263 of the Act. He further submitted that as

regards the disallowance as per Rule 8D r.w.s. 14A of the act, the

43 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur assessee company has merely submitted that the it has not

claimed any expenditure related to exempt income during any

period, so section 14A is not applicable. The assessee company

has huge investment in unlisted equities which would result

exempted income in the form of dividend and thus provisions of

section 14A are applicable in the light of the CBDT circular no.

5/2014 dated 11.02.2014 where in it is clarified that for invoking

disallowance u/s. 14A it is not material that the assessee should

have earned such exempt income. He relied upon the amendment

made in the Act w.e.f 02.06.2016. The ld. DR relying on the

judgement of Honorable apex court in the case of K. P. Varghese

Vs. ITO 7 Taxman 13 (SC) submitted that the circular and

instructions issued by the CBDT is binding to the ld. AO which has

not considered while dealing with the issue on hand. Vide notice

dated 23.05.2019 Q. No. 9 (Assessee paper book page 18) the ld.

AO has called for details of expense incurred to earn the exempt

income only and assessee has given only one line reply and thus

the issue not examined as per rule 8D r.w.s. 14A of the Act. Thus,

the ld. AO has not examined this issue and thus he supported the

order of the Pr. CIT. As regards the introduction of share capital

the money has been invested by the shareholder out of the gift

44 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur received by his relative and thus, the AO has to verify the source of the source in view of the amendment in the provision of section 68 of the Act. The judgement relied upon by the ld. AR are all either on the different facts or are before the amendment of section 68 of the Act. The AO has not done any independent enquiry about the gift that the shareholders has received. Even the gift deed was signed by Mrs. Joshi as Mr. Joshi is no more and the deeds were executed afterwards. In the light of these facts relying on the judgement of Gee Vee Enterprises vs. Addl. CIT 99 ITR 375 (Delhi) and the explanation 2 of section 263 ld. DR supported the action of the ld. Pr. CIT quashing the order of the assessing officer. In addition to these the ld. DR in support his arguments and contentions raised has relied on the following decisions:

• [2000] 109 Taxman 66(SC) Malabar Industrial Co. Ltd., Vs. Commissioner of Income-tax • [2007] 158 Taxman 160(SC) Commissioner of Income-tax, Bhopal Vs. Raison Industries Ltd. • [1975] 99 ITR 375(DELHI) Gee Vee Enterprises Vs. Additional Commissioner of Income-tax • [2000] 108 Taxman 464 (Madras) Commissioner of Income- tax Vs. Seshasayee Paper & Boards Ltd. • [2006] 101 ITD 405(MUM.) Arvee International Vs. Additional Commissioner of Income-tax, Range 19(1), Mumbai • [1986] 25 Taxman 341(MP) Commissioner of Income-tax Vs. Shriram Development Co.

45 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur • [2018] 95 taxmann.com 366 (SC) Deniel Merchants (P.) Ltd. Vs Income-tax Officer • [1981] 7 Taxman 13 (SC) K.P. Varghese Vs. Income-tax Officer

impugned order passed under S. 263, the rival contentions raised

by both the parties and the material placed on record as well as

gone through the judicial pronouncements relied upon by both the

parties to drive home to their contentions. From the fact, we noticed

that the assessee is a private limited company and filed return for

the year under consideration on 31-10-2017 declaring total loss of

Rs. 8,18,01,112/-. Thereafter, the assessee filed revised return of

income electronically on 19.10.2018 declaring loss of Rs.

8,27,82,626/-. The case of the assessee was selected for scrutiny

assessment under CASS (Computer Aided Scrutiny Selection).

Accordingly, the AO issued notice u/s 143(2) and 142(1) of I.T. Act.

The assessee filed required documents in response to the notices

issued. After considering the reply, the assessment was completed

u/s 143(3) of I.T. Act dated 27.12.2019 on the returned income.

Subsequently, the ld. Pr. CIT – Jaipur- 2 issued show cause notice

u/s 263 of the Act on 19.02.2022 for which assessee filed reply

contenting the notice issued. However, the ld. Pr. CIT was not

46 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur convinced with the reply filed by the assessee and, therefore, he

set aside the order passed the AO dated 27.12.2019. The ld. AR of

the submitted a chart attached as Annexure – A here in below

where in it has been stated that “interestingly, all the persons

involved in the transaction starting from Donor (Late Dr. Shri

Rajendra Kumar Joshi) to his nephews, companies in which

donor’s nephews invested and then after further investment by that

company has received the Income Tax Notice, which clearly

implies that the department as a whole is not sure as to whether

the subjected amount of investment in share capital was the

undisclosed income of the appellant company for want of

established source or it’s the undisclosed income of the respective

shareholders or it’s unexplained income of Doner. Moreover, the

issuance of these notices also impels that the ld. CIT wrongly

alleged the subjected assessment order of the appellant as

erroneous and prejudicial to the interest of revenue because the

respective AO’s having reopened the case, shall ask the

shareholders to explain the source, failing which additions could be

made in their hands. This will result in proceeding on the same

issue in the hands of the Four assessee as also addition of same

income four times, which is not permissible in the eyes of law.” He

47 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur further submitted that pursuant to the proceeding u/s. 143(3) r.w.s.

263 read with section 144B of the Act for the assessment year

2016-17 has after giving the detailed show cause considered the

submission of the assessee and accepted the fact that the

investment made by the shareholder is genuine and no addition

can be made in the hands of the company. Considering these

facts, the view of the ld. Pr. CIT that the order passed by the ld. AO

so far as regards the share capital introduced by the assessee

company is neither erroneous not prejudicial to the interest of

revenue. The ld. AR draw our attention that on the similar issue

there was an order of the Pr. CIT for A. Y. 2016-17 which was

challenged before the bench and bench based on the set of fact

has taken a view that the assessee company has not placed on

record the required details related to the investment made in the

share capital and have taken a view that the order passed by the

ld. AO for A. Y. 2016-17 was prejudicial to the interest of the

revenue as the details called for was not completely placed on

record. Thus, the view of the ld. Pr. CIT was confirmed for that

year. But for the year under consideration the ld. AR submitted all

the details called for by the ld. AO were submitted in the

assessment proceedings. He also submitted that the de novo

48 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur assessment proceedings initiated consequent upon the

proceedings u/s. 143(3) r.w.s. 263 read with section 144B of the

Act for the assessment year 2016-17 is completed and the order is

placed on record by the assessee. The ld. DR has not controverted

any of the findings recorded by the ld. AO in that order and once

the investment made by the shareholder in one year is accepted

and on the same set of fact in another year how can a difference

stand be taken by the department on the similar set of

circumstances. For this year the ld. AO has called for the details

required to complete the assessment based on the reason of

selection under CASS, assessee submitted the details called for

and ld. AO taken a plausible view on the issue. Whereas the ld. Pr.

CIT considered that the AO has not been seen all the issues of

selection of the case of the assessee. The bench notes that the

prerequisite exercise of jurisdiction by the learned Principal CIT

under section 263 of the Act is that the order of the AO is

established to be erroneous in so far as it is prejudicial to the

interest of the Revenue. The Principal CIT has to be satisfied of

twin conditions, namely (i) the order of the AO sought to be revised

is erroneous; and (ii) it is prejudicial to the interests of the Revenue.

If any one of them is absent i.e., if the assessment order is not

49 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur erroneous but it is prejudicial to the Revenue, provision of section

263 cannot be invoked. This provision cannot be invoked to correct

each and every type of mistake or error committed by the AO; it is

only when an order is erroneous as also prejudicial to Revenue's

interest, that the provision will be attracted. An incorrect

assumption of the fact or an incorrect application of law will satisfy

the requirement of the order being erroneous. The phrase

'prejudicial to the interest of the Revenue has to be read in

conjunction with an erroneous order passed by the AO. Every loss

of revenue as a consequence of the order of the AO cannot be

treated as prejudicial to the interest of the Revenue. It is pertinent

to mention that if the AO has adopted one of the two or more

courses permissible in law and it has resulted in loss of revenue, or

where two views are possible and AO has taken one view with

which the Pr. CIT does not agree, it cannot be treated as an

erroneous order and it is prejudicial to the interest of the Revenue,

unless the view taken by the AO is totally unsustainable in law. In

this regard, we draw strength from the decision of the Hon'ble

Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT

(2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). We also draw

strength from the decision of the Hon'ble Supreme Court in the

50 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007)

295 ITR 282 (SC) wherein it was held that:

"The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law."

Thus, based on this decision it is also noteworthy to mention that

one of the pre-requisite before invoking S. 263 and the allegation of

the Ld. Pr. CIT is that there has been incorrect assumption of fact

and law by the Assessing Officer. However, despite our deep and

careful consideration of the material on record including the finding

recorded in the subjected Assessment order dated 27.12.2019 and

in the findings recorded in the order under challenge, we do not

find any incorrectness and incompleteness in the appreciation of

facts made by the AO. In the light of these observations, we do not

agree on this aspect to this extent with Ld. Pr. CIT. However, we

now proceed to consider whether the AO has also incorrectly

appreciated and assumed the law while making the subjected

assessment to be termed, as erroneous and prejudicial to the

51 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur interest of the revenue. The facts are not disputed that the

assessee has submitted the proof of identity of shareholders,

capacity by showing the gift received and genuineness of the

transactions as the shareholder and company both have supplied

the information related to these transactions. Even the issue was

similar in assessment year 2016-17 wherein the investor

shareholders being same and the investment made by the

shareholder were accepted and even the proceedings u/s. 143(3)

r.w.s. 263 read with section 144B of the Act for the assessment

year 2016-17 has after giving the detailed show cause and

considered the submission of the assessee and accepted the fact

that the investment made by the shareholder is genuine and no

addition was made in the case of the company what else the ld. AO

can do in this case so as to prove the investment made by the

shareholder in the assessee company. Even the factual input made

by the ld. AR that the case of shareholders are re-opened to check

the genuineness of the investment made by them in that

circumstances we believe the plausible view was taken by the AO

on this issue. As regards, the disallowance under section 14A r.w.r.

8D the ld. AR of the assessee has submitted that there is no

exempt income for the year under consideration and there is no

52 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

expenditure incurred to earn the exempt income. This view and

argument were accepted by the AO. On this aspect the ld. AR of

the assessee relied upon the judgement reported at 275 Taxman

408 in the case of CIT Vs. Chemsworth Private Limited. The

relevant finding of the court in this case is extracted here in below

for the sake of brevity:

53 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Ltd. [2010] 189 Taxman 436/[2011] 332 ITR 167 (Delhi) it has been held by Delhi High Court that Assessing Officer in the order of assessment is not required to give detailed reasoning in respect of each and every item of deduction and therefore, the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case. The question of lack of enquiry/inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the Commissioner of Income-tax under section 263 of the Act. In the instant case, the Commissioner of Income-tax has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding, the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set aside the order of assessment merely on the ground of inadequacy of enquiry, the order passed by the Commissioner of Income-tax is not sustainable in law and the same has rightly been set aside by the Tribunal. In view of preceding analysis, the substantial question of law framed by this court is answered against the revenue and in favour of the assessee. In the result, we do not find any merit in the appeal. The same fails and is hereby dismissed.

54 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur

Annexure -A

55 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur In addition, the ld. AR of the of the assessee relied upon the

judgment of jurisdictional High Court in the case of CIT Vs.

Rajasthan Financial Corporation reported at 134 CTR 145 (Raj) it

has been held by the court that “Once the AO has made enquiries

during the course of assessment proceedings on the relevant

issues and the assessee has given detailed explanation by a letter

in writing and the assessing officer allowed the claim being

satisfied with the explanation of assessee, the decision of the AO

cannot be held to be erroneous simply because in his order not

make an elaborate discussion in that regard.” There are several

other decisions cited by the ld. AR of the assessee for which no

contrary decision was brought to our notice. Hence, we are of the

considered view that the ld. Pr. CIT acted beyond jurisdiction in

holding that the assessment order dated 27.12.2019 for A. Y. 2017-

18 passed by the AO is held erroneous in so far as it is prejudicial

to the interests of the revenue for the purpose of section 263 of the

Income Tax Act. As the assessment was completed after making

required amount of enquiry and there was no lake of enquiry or

investigation by the AO on the issues which was raised by the ld.

Pr. CIT under the provision of section 263 proceedings. Therefore,

the findings of Ld Pr. CIT that order passed by AO on 27.12.2019

56 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur was passed without conducting necessary enquires and without

verifying necessary details was without any basis or without any

evidence on record and mere guess work that that the ld AO has

not conducted the enquiry.

submission, case laws relied upon by the assessee (supra), we find

that it is not a fit case for passing the order u/s 263 of the Income

Tax Act by the ld Pr. CIT. The order passed u/s 143(3) dated

27.12.2019 by the AO was neither erroneous nor prejudicial to the

interest of the revenue. Thus, the order passed by the AO is

confirmed and grounds of the assessee are allowed.

case in ITA No. 190-JP-2022 and we have heard both the parties

and persuaded the materials available on record. The bench has

noticed that the issues raised by the assessee in this appeal No.

192/JP/2022 is equally similar on set of facts and grounds.

Therefore, it is not imperative to repeat the facts and various

grounds raised by both the parties. Hence, the bench feels that the

decision taken by us in ITA No. 190/JP/2022 for the Assessment

57 ITA Nos 190 & 192/JP/2022 Rajendra and Ursula Joshi Skill Development Pvt. Ltd., Jaipur vs. PCIT-2, Jaipur Year 2017-18 shall apply mutatis mutandis in ITA No. 192-JP-2022

for the Assessment Year 2017-18.

In the result both the appeal of the assessee is allowed.

Order pronounced in the open court on 24/08/2022 Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 24/08/2022. *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Rajendra and Ursula Joshi Skill Development 1. Pvt. Ltd., Jaipur Rajendra and Ursula Joshi Holdings Pvt. Ltd., Jaipur izR;FkhZ@ The Respondent- PCIT, Jaipur-1 & PCIT, Jaipur-2 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr@ CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. 6. xkMZ QkbZy@ Guard File { ITA Nos. 190 & 192/JP/2022} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत