M/S OLYMPUS SUPPLIERS PVT. LTD.,KOLKATA vs. PCIT, CIR-2, KOLKATA, KOLKATA

This is a second round of litigation before us. Earlier, the assessee had filed appeal before this Tribunal against the impugned order of the Pr. CIT passed u/s 263 of the Act, however, the said appeal of the assessee was dismissed along with three other cases by a common order dated 05.08.2016. Being aggrieved by the said order, the assessee preferred further appeal before the Hon’ble Calcutta High Court bearing No. ITAT/328/2017 IA No.GA/2/2017 (Old No.GA/3184/2017). It was pleaded before the Hon’ble Calcutta High Court that the appeal of the assessee was dismissed along with other appeals, however, the specific Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd grounds canvassed by the assessee in its appeal were not considered by the Tribunal. The Hon’ble High Court set aside the order passed by the Tribunal and restored the matter back to the Tribunal for decision afresh observing as under:

As observed by us, since we are not going into the merits of the impugned order nor the correctness of the said order of the learned Tribunal, we leave it to the Department to canvass all points at the appropriate stage. Thus, we are of the considered view that the matter has to be sent back to the learned Tribunal to take a decision on merits and in accordance with law, specifically with regard to the grounds canvassed by the appellants before it. For the above reasons, the appeal is allowed and the stay application stands closed and the order passed by the learned Tribunal is set aside and the appeal in for the assessment year 2009-10 stands restored to the file of the learned Tribunal and the said appeal shall be heard and decided by the learned Tribunal on merits and in accordance with law. In view of the above liberty is granted to the appellants as well as the respondents to canvass all points, both on facts as well as on law, before the learned Tribunal, consequently the substantial questions of law are all left open.

At the outset, the ld. counsel for the assessee has invited our attention to the impugned order passed by the ld. Pr. CIT u/s 263 of the Act. The ld. Pr. CIT in this case was of the view that the Assessing Officer has not properly examined the issue relating to the share application money along with premium received by the assessee during the year.

The brief facts of the case are that the assessee filed return of income on 28.08.2009 declaring a loss of Rs.920/- which was processed u/s 143(1) of the Act. Thereafter, the assessee filed a letter Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd before the Assessing Officer stating that a sum of Rs.40,250/- inadvertently could not be offered as income for taxation. The Assessing Officer, thereafter, after getting necessary approval from the competent authority u/s 151 of the Act, reopened the assessment and passed the assessment order after making addition of the said escapement of Rs.40,250/- into the income of the assessee. In the said reassessment order, the Assessing Officer also took note of the fact that during the previous year, the assessee has raised Rs.10 crores by issuing 10 lakh equity shares of face value of Rs.1/- at a premium of Rs.99/- by private placement. A perusal of the impugned order of the ld. Pr. CIT would show that the ld. Pr. CIT at the first instance noted about general modus operandi adopted by various assessees in introducing their income from undisclosed sources as share application and premium. Thereafter, the ld. Pr. CIT noted the facts of the case and observed that the assessee during the year had received share capital along with premium of Rs.10 crores, however, the Assessing Officer had framed the assessment u/s 147 of the Act by adding Rs.40,250/- only and that he had not examined the issue relating to the receipt of share application money/share premium. In response to the show-cause notice issued by the ld. Pr. CIT u/s 263 of the Act, the assessee filed written submissions, a gist of which has been reproduced in the order of the ld. Pr. CIT itself, which read as under:

At the outset, the ld. counsel for the assessee has submitted that in this case, the ld. Pr. CIT had made general observation. No specific facts of the case of the assessee have been discussed and, therefore, the observation of the ld. Pr. CIT that the assessment order passed u/s 147 of the Act was erroneous and prejudicial to the interest of revenue was not based on any specific findings of the ld. Pr. CIT. The ld. counsel, in this respect, pointing out 1st point of the ld. Pr. CIT that the notices u/s 133(6) have been sent only on test check basis has submitted that the said observation of the ld. Pr. CIT was factually wrong. He, in this respect, has submitted that in this case the share application money was received by the assessee from 9 share applicants, the details of which have been furnished at page 19 of the paper-book and that the notices u/s 133(6) were issued by the Assessing Officer to all the 9 share subscribers and all of them had filed necessary details and evidences including the confirmation of subscription of shares to the assessee company. The ld. counsel inviting our attention to the 2nd point has submitted that the ld. Pr. CIT has observed that only the extract of the bank statement has been submitted which reflects only Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd the impugned transaction and is not for the whole year. The ld. counsel in this respect has invited our attention to the relevant pages of the paper-book to submit that in fact the concerned shareholders have furnished the bank statements of the entire year and that the findings of the ld. Pr. CIT that the bank statement reflected only the impugned transactions were also factually wrong. The ld. counsel referring to the 3rd point noted by the ld. Pr. CIT that the replies were just placed on record and no independent inquiries were carried out regarding the fact whether the subscribing companies were available at the given address, and whether they were genuine corporate entities, the ld. counsel, in this respect, has placed reliance on the voluminous evidences on file which were filed before the Assessing Officer including ITR acknowledgements, final accounts, bank statement, allotment advice etc. of the share subscribers and also copies of replies to notices issued u/s 133(6) to respective share applicant companies. The ld. counsel has further referred to page 235 of the paper-book to submit that not only the details of share applicants were filed but also their CIN number, PAN number, details of corporate office address were filed and further the net worth of the share applicants was also shown which was sufficient to make investment in the assessee company and further that it was explained that only a small part of their net worth was invested by the shareholders in the assessee company. Pointing out to the point no.4, the ld. counsel has submitted that even the directors of the assessee were summons u/s 131 of the Act whose statements were duly recorded during the assessment proceedings. The ld. counsel, therefore, has submitted that all the discrepancies noted by the ld. Pr. CIT relating to the assessment order in question were factually wrong. He further pointed out to the directions given by the ld. Pr. CIT to the Assessing Officer and submitted that whatever the ld. Pr. CIT directed I.T.A. No.1088/Kol/2016 Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd to the Assessing Officer to comply with, that has already been done by the Assessing Officer during the assessment proceedings. The ld. counsel, therefore, has submitted that the ld. Pr. CIT had wrongly and illegally exercised his jurisdiction u/s 263 of the Act.

The ld. DR, on the other hand, has relied upon the order of the ld. Pr. CIT in this respect.

We have considered the rival submissions. In the case in hand, we note that the assessee in response to the notice issued by the ld. Pr. CIT duly furnished all the details and evidences and also specifically pleaded that the concerned Assessing Officer had conducted proper enquiry regarding the identity and creditworthiness of the shareholders. Confirmation letters along with PAN, copy of bank statements and balance sheet of subscribing companies had been filed before the Assessing Officer. That the identity, creditworthiness of the share- subscribers was duly established before the Assessing Officer. The ld. Pr. CIT without pointing out any discrepancy, error or infirmity in the details furnished by the assessee, has simply noted that the Assessing Officer has not made the requisite enquiries. Under the circumstances, the ld. Pr. CIT was supposed to go through the said details and should have pointed out as to which of the fact or explanation needs what further enquiries. The Ld. Counsel has demonstrated that all the factual discripancies pointed by the Ld. PCIT regarding lack of enquiry by the Assessing Officer, were, infact, factually wrong. The Assessing Officer had not only raised the necessary queries but also asked the assessee to furnish the necessary details and evidences, which the assessee duly furnished and the same also stood examined by the Assessing Officer. The Ld. PCIT, however, without going through the such details, simply observed that the Assessing Officer, should have Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd made enquiries on those points. At this stage, it will be relevant to discuss the relevant provisions of Section 263 of the Act. “Section 263(1) of the Income- Tax Act reads as under:

As per the provisions of section 263 as enumerated above, after getting the explanation from the assessee, the Ld. Pr. CIT was supposed Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd to examine the contention of the assessee. Before passing an order of modifying, enhancing or cancelling the assessment, he was supposed either to himself make or cause to make such an enquiry as he deems necessary. The words “as he deems necessary”, in our view, do not mean that the Ld. Pr. CIT is left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263 of the Act, it was incumbent upon the Ld. Pr. CIT to make or cause to make an enquiry. So far as the words “as he deems necessary” are concerned, the said words suggest that the enquiries which are necessary to form a view as to whether the order of the Assessing Officer is erroneous and prejudicial to the interest of Revenue? A perusal of the impugned order of the ld. Pr. CIT reveals that the Ld. Pr. CIT had asked the assessee about the validity of the assessment order for want of necessary enquiries and verifications by the Assessing Officer relating to share application money and premium, to which the assessee had given a detailed reply. Once a point wise reply was given by the assessee, then a duty was cast upon the Ld. Pr. CIT to examine the reply of the assessee and form a prima-facie opinion as to whether the order of the Assessing Officer was erroneous so far as it was prejudicial to the interest of Revenue. We further note that the Ld. Pr. CIT did not raise any query as to what enquiries were made by the Assessing Officer before proceeding to pass the assessment order in question. The opinion of the Commissioner that the Assessing Officer had not made proper enquiries or verifications should be based on his objective satisfaction and not a subjective satisfaction from the assessment order. Admittedly, the Assessing Officer asked the assessee to furnish the necessary details from time to time which were duly furnished by the assessee and after considering the same the Assessing Officer passed the assessment order. The ld. Counsel for the assessee, Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd has demonstrated before us that all the four points, which the Ld. PCIT has held that the Assessing officer was supposed to examine, have been duly examined by the Assessing Officer during the assessment proceedings and the observations of the Ld. PCIT regarding any lack in enquiry on all the four points was factually wrong. Even, whatever, directions have been given by the ld. Pr. CIT to the Assessing Officer and that have already been done by the Assessing Officer during the assessment proceedings. The ld. Pr. CIT, as discussed above, has not pointed out any error or discrepancy in the evidence furnished by the assessee and without examining such evidence and without counter questioning the assessee on the relevant points and even without considering the submission of the assessee furnished in reply to the show-cause notice, the ld. Pr. CIT, in our view, was not justified in setting aside the order, simply stating that in his view more enquiries were needed to be carried out by the Assessing Officer.

It is pertinent to mention here that a deeming fiction has been created in section 263 of the Act by way of Explanation 2 inserted vide amendment made by Finance Act, 2015 w.e.f. 01.06.15 wherein it has been mentioned that where the Commissioner is of the opinion that the Assessing Officer had passed the order without making enquiries or a claim has been allowed without enquiring into the claim or that the same is not in accordance with any order or direction or instruction issued by CBDT, that shall be deemed to be erroneous in so far as its prejudicial to the interest of Revenue. The said deeming provisions, in our view, are not applicable for the assessment year under consideration i.e. A.Y. 2009-10. 9.1 In this case the ld. Pr. CIT, taking shelter in Explanation 2 to Section 263(1) of the Act, held that the order of the Assessing Officer I.T.A. No.1088/Kol/2016 Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd was erroneous and prejudicial to the interest of the revenue on the ground of lack of enquiry. However, as observed above, the Ld. Counsel has demonstrated from the records that all the discrepancies pointed out by the Ld. PCIT regarding lack of enquiries , were factually incorrect. The Ld. Counsel has demonstrated that all the points regarding which the Ld. PCIT has mentioned that the Assessing Officer should have made enquiry, were duly enquired into by the Assessing Officer. The observations of the Ld. PCIT, therefore, were a general observation and no specific observation has been made in respect of any of the details or evidence furnished by the assessee and as to why the ld. Pr. CIT was not satisfied about such details/replies furnished by the assessee. Simply because the ld. Pr. CIT felt that the Assessing Officer should have made further enquiries on the same issue or that the case was to be examined from some another angle, the same, in our view, cannot be a valid ground to set aside the assessment order. If such an action is allowed by the ld. Pr. CIT in revision jurisdiction, then there would be no end to litigation and there would not be any finality to the assessment. The Explanation 2 to Section 263(1) of the Act does not give unbridled powers to the ld. PCIT to simply set aside the assessment order by saying that the Assessing Officer was required to make further enquiries without pointing out as to what was lacking in the enquiries made by the Assessing Officer and why the ld. Pr. CIT was not satisfied with the reply and evidence furnished by the assessee. 9.2. Further, the Coordinate Kolkata Bench of the Tribunal in the case of ‘M/s Rani Sati Agro Tech Pvt. Ltd. vs. ITO’ in order dated 19.06.2023 while analysing the provisions of section 263 of the Act has considered various case laws, the relevant part of the order of the Coordinate Bench of the Tribunal is reproduced as under: Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd “10.1. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the ld. Pr. CIT taken u/s 263.

In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 taxmann.com 272 (Bombay). 12.1. This view is further supported by the decision of the Hon'ble Gujarat High Court in the case of Shri Prakash Bhagchand Khatri in Tax Appeal No. 177 with Tax Appeal No.178 of 2016, wherein the Hon'ble Gujarat High Court was seized with the following substantial question of law: "Whether the Tribunal is right in law and on facts in upholding the order passed by the CIT under section 263 of the Act on merits and still storing the issue of allowability of deduction under section 54 of the Act to the file of Assessing Officer even though the working of allowability of deduction under section 54F is available in the order under section 263 which is not disputed by the assessee before ITAT." Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd

We find that the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. Relevant observation of the High Court reads as under: "63. We find the Hon'ble Delhi High Court in the case of Vikas Polymer reported in 341 ITR 537 has held as under: “We are thus of the opinion that the provisions of s. 263 of the Act, when read as a composite whole make it incumbent upon the CIT before exercising revisional powers to: (i) call for and examine the record, and (ii) give the assessee an opportunity of being heard and thereafter to make or cause to be made such enquiry as he deems necessary. It is only on fulfilment of these twin conditions that the CIT may pass an order exercising his power of revision. Minutely examined, the provisions of the section envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the satisfaction of the AO, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the AO called for interference and revision. In the instant case, for example, the CIT has observed in the order passed by him that the assessee has not filed certain documents on the record at the time of assessment. Assuming it to be so, in our opinion, this does not justify the conclusion arrived at by the CIT that the AO had shirked his responsibility of examining and investigating the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly Assessment Year : 2009-10 M/s Olympus Suppliers Pvt Ltd reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee.”

Since in the instant case the A.O. after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O., he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O. has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/ probed in a particular manner, he cannot assume jurisdiction u/s 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised

In view of the discussion made above, the impugned order of the Ld. PCIT passed u/s 263 of the Act is not sustainable as per law, the same is accordingly, hereby quashed. Consequential additions made, if any, stand deleted.

Apart from challenging the validity of the order of the Pr. CIT u/s 263 of the Act, the ld. counsel for the assessee has raised a legal objection stating that the concerned Assessing Officer did not have territorial jurisdiction to pass the assessment order u/s 147 of the Act. He, in this respect, has submitted that the impugned assessment u/s 147 of the Act was passed by the ITO, Ward-6(3), Kolkata, whereas, the jurisdiction over the assessee was of ITO, Ward-9, Kolkata. The ld. DR, on the other hand, pointing out to the provisions of section 124(3) has stated that the assessee never raised any objection relating to the territorial jurisdiction of the Assessing Officer to frame the assessment at any stage of the assessment proceedings or therefore this issue has been raised by the assessee for the first time before this Tribunal. The ld. counsel, on the other hand, has submitted that the assessee had duly filed objections agitating the territorial jurisdiction of the Assessing Officer to frame the impugned assessment order. The ld. DR, in this respect, has invited our attention to the report filed by the Assessing Officer, wherein, it has stated that no such objections were raised by the assessee during the assessment proceedings. However, the ld. DR admitted that a copy of objection letter was found in the record. However, there was no order or other entry evidencing of filing of such objections during the assessment proceedings. The ld. DR, in this respect, has submitted that perhaps the assessee somehow has managed to insert the aforesaid objections at a later stage in the final