Second section 263 revision on same subject quashed by ITAT

Amritrashi Infra Pvt Ltd Vs PCIT (ITAT Kolkata)

Second revision u/s 263 quashed by ITAT holding not permissible on the same subject matter on which specific direction given by First PCIT have been complied by AO. Doctrine of merger applied.

Aggrieved by the aforesaid action of the Second Ld Pr. CIT, Kol-4, now the assessee is before us. The question before us is twofold. Firstly, whether the second Ld. Pr. CIT satisfied the statutory condition-precedent as prescribed in section 263 of the Act before invoking the Revisionary Jurisdiction. Secondly, whether the Second Ld Pr. CIT can again interfere in the re-assessment order framed by the AO which was pursuant to the first revisional order passed by the First Ld. Pr. CIT u/s. 263 of the Act, when the subject matter was the same and the re-assessment order of the second AO has merged with the First Revisional order of First Ld. Pr. CIT.

So the question is whether there is any merit on the finding of the Second Ld. Pr. CIT that the second assessment order/re-assessment order dated 7-12-2016 can be termed as erroneous for lack of enquiry. On a conjoint reading of the second SCN and operative portion of the impugned order, it can be safely deduced that according to Second Ld. Pr.CIT, the AO in the second round has not enquired about the share capital & premium collected by the assessee. For that we need to carefully examine as to whether the second AO has carried out his dual role as an investigator as well as an adjudicator while deciding the issue of share capital and premium collected by the assessee for AY 2012-13. Before we examine about the investigative role of the AO, we need to examine the law as it stood in AY 2012-13 and is applicable in this case.

So we note that in this assessment year before us i.e. AY 2012-13, the law in force was that if any sum is found credited in the books of an assessee in a financial year and, if the AO asks for the explanation of assessee in respect of the nature and source thereof, then the assessee is duty bound to explain the nature and source of the credit entry in the books and if the assessee fails to explain or if the AO s not satisfied, he may charge to income tax the sum so credited. So, the assessee is bound to explain before the AO the nature and source of share capital, i.e. the identity, creditworthiness and genuineness of the  share capital. In this AY, the assessee is bound to know about the share applicants who wish to invest their identity, whether they have the financial capacity (creditworthiness) and they are genuine investors in their company (assessee). In this AY, the assessee is not bound by law at the time of collection of share capital to ask the share-applicants from where it is getting the money to invest in the assessee’s company. And we also note that share premium can be taxed if it exceeds the fair market value only from next AY i.e. AY 2013-14 and not in this A.Y.n other words, in the impugned order the second Ld. Pr. CIT has not found fault with the action of the second AO in giving effect to the specific directions given by him while passing the first revisional order on 23.08.2016. Thus, we  note that when the second AO while framing the reassessment order pursuant to the specific direction of the First Ld. Pr. CIT’s order dated 23.08.2016 (first revisional order) has
complied with the specific directions of the First Ld. Pr. CIT and based on the inquiry conducted and after perusal of the documents running more than 352 pages which reveals the identity, creditworthiness and genuineness of the share capital and premium collected by the assessee from the share subscribers, the satisfaction of AO as envisaged in sec. 68 of the Act is a plausible view and the fact that the share subscribers responded to sec. 133(6) notice and produced all documents along with the audited financial statements and other documents referred supra, the assessee had discharged the onus upon it about the identity creditworthiness and genuineness of the share capital and premium collected by the assessee from the respective share subscribers. Since the aforesaid exercise was carried out by the second AO in the reassessment proceedings and the documents referred to above are in the assessment folder, the Second Ld. Pr. CIT erred in holding the reassessment order of the AO in respect of share capital and premium collected by the assessee as erroneous as well as prejudicial to the interest of the revenue. In the light of the aforesaid discussions and on perusal of the documents, we are of the view that AO’s view to accept the identity,creditworthiness and genuineness of the share capital and premium collected from the share subscribers was a plausible view and at any rate can be termed as an unsustainable view on law or factsSince the AO’s view on the facts collected and discussed is definitely a possible view, so in the factual background discussed in detail, we are of the considered opinion that Ld. second Pr. CIT ought not to have  interfered with the AO’s reassessment order which in any case can be classified as ‘unsustainable in law’ since it is in line with plethora of judicial decisions of the subject.

Looking from another angle of doctrine of merger canvassed before us, we note from the facts of this case that the second Ld. Pr. CIT – 4 by passing the second revisional order dated 14.03.2019 has substituted the First Pr. CIT’s order passed u/s. 263 of the Act dated 23.08.2016 with his own order which he cannot do since the second assessment order/re-assessment of the Second AO dated 07.12.2016 was pursuant to the first revisional order of the First Ld. Pr. CIT and on the very same subject matter on which specific directions/instructions were given by the First Ld. Pr.CIT, which direction since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e. share capital & premium collected by assessee company. Resultantly, the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator, which exercise the Second Ld. Pr.CIT has not done, so the second Ld. Pr. CIT cannot be permitted to again  ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. And if this  practice is allowed, then there will be no end to the assessment proceedings meaning no finality to assessment proceedings and that is exactly why the Parliament in its wisdom has  brought in safe-guards, restrictions & conditions precedent to be satisfied strictly before assumption of revisional jurisdiction.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal preferred by the assessee against the order of Learned Principal Commissioner of Income-tax(hereinafter referred to Ld. Pr. CIT), Kolkatadated14-03-2019 for the Assessment Year(in short AY) 2012-13 passed under section (in short u/s) 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

2. The main grievance of the assessee is against the action of the Ld. Pr. CIT invoking his second (2nd) revisional jurisdictional u/s. 263 of the Act against the action of the Assessing Officer (hereinafter referred to as ‘AO’) who framed the re-assessment order pursuant to the first revisional order dated 23.08.2016 which impugned action of Ld. Pr. CIT, according to assessee, is without satisfying the requisite conditional precedent as stipulated u/s. 263 of the Act and therefore without jurisdiction and resultantly bad in law, so it has to be quashed. [Please note that since there are two assessment orders, and two Ld. Pr. CIT’s involved in this Appeal, for better & easy understanding the case, the AO, who framed the original assessment order is called as ‘First AO’ and the re-assessment /second assessment framed AO will be called as the ‘Second AO’ and the first revisional order passed by CIT is called as ‘First Ld. Pr. CIT’ and the second incumbent, who passed the impugned order is called as ‘Second Ld. Pr. C.I.T’].

3. Brief facts of the case are that the assessee company filed its return of income on 30-03-2013 declaring an income of Rs. 1630/-. The case was selected for scrutiny u/s. 143(2) of the Act under CASS citing the reason “large share premium received” and assessment u/s. 143(3) of the Act was framed by the AO (hereinafter referred to as the First AO) in the original first assessment on 26.03.2015 making addition of total income of Rs.45,66,01,634/- under section 68 of the Act on account of alleged unexplained cash credit being share capital received [hereinafter referred to as the first assessment order]. Thereafter, the Ld. Pr.CIT-4 (hereinafter referred to as the First Ld. Pr. CIT ) issued show cause notice dated under section 263 of the Act (hereinafter referred to as the first SCN) against the order passed by the First AO in the original scrutiny assessment u/s. 143(3) of the Act dated 26.03.2015. The reason for interference cited inter-alia by the First Ld. Pr. CIT was that though the reason for selection for scrutiny was “large share premium received”, however, from a perusal of the assessment record/folder suggests that the First AO passed the original first assessment order without giving proper opportunity to the assessee and even though the assessee discharged its onus by furnishing documents, the AO with a predetermined mind has framed the high-pitched assessment and so, in order to carry out proper verification of this issue, the First Ld. Pr. CIT by order dated 23.08.2016 was pleased to set aside the original/first assessment order of the AO dated 26.03.2015 for de-novo assessment and directed the AO to specifically examine the source of share application money, identity of investors and its genuineness (hereinafter referred to as the First revisional order). The First Ld. Pr. CIT’s specific direction is given below:

4(v) ` Considering  the  above facts  and circumstances  of  case, the  assessment  order passed on 26.03.2015 is set aside denovo with a direction to AO to carry out  proper examination of books of accounts and Bank accounts of assessee as well as  investors. AO is also directed to examine the source of share application, identity of  investor and its genuineness. 

(emphasis given by us)

4. Pursuant to the first revisional order passed by the First Ld. Pr. CIT dated 23.08.2016, in the second round of re-assessment, the AO (hereinafter referred to as Second AO) framed the reassessment order dated 07.12.2016 by making an addition/disallowance u/s. 14A of the Act of Rs.10,366/- u/s. 143(3) read with section 263 of the Act (hereinafter referred to as the second assessment/re-assessment order) by observing as under:

“Thus certain expenses incurred which need to be disallowed as per section 14A of I T Act read with Rule 8D and considering the circular no. 5/2014 dt. 11.02.2014. The disallowance in accordance with the section 14A of the I T Act read with Rule 8D is computed herein below:

A. 14A r.w.r. 8D(1):

Particulars	Rs.
Audit Fees	1,500
Printing & Stationery	1,125
Communication Expenses	740
Travelling & Conveyance	2,890
Salaries & Wages	3,800
General Expenses	311
Total	10,366

5. In respect of the said second assessment/re-assessment order dated 07.12.2016, the Ld. Pr. CIT-4 (hereinafter referred to as the second Ld. Pr. CIT, vide his show cause notice (SCN) dated 16.01.2019 proposed to exercise his revisional jurisdiction (hereinafter referred to as the second SCN). The second Ld. Pr. CIT thereafter heard the assessee and passed the impugned order dated 14.03.2019 wherein he was pleased to again set aside the reassessment order/second assessment order dated 07.12.2016 and directed de-novo adjudication (hereinafter referred to as the second impugned revisional order of Ld. Pr. CIT or impugned order) by observing as under:

“7.  In my considered opinion, this is a case of lack of enquiry on the part of the AO.  Not collecting the full facts and not taking enquiry to logical end which could enable  AO to take decision based on the totality of facts makes this order erroneous in so far  as prejudicial to the interest of revenue. After having considered the position of law and facts and circumstances of the instance case, I am of the considered opinion that  the assessment order passed by the AO is  erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2© below section 263(1) of the  Act.   Accordingly, the issue is set aside to the table of AO. the AO is directed to provide reasonable opportunity to the assessee company to produce documents and evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of law. The AO is further directed to adjudicate the said issue do novo and pass a fresh assessment order in accordance with relevant provisions of law.”

(emphasis given by us)

6. Aggrieved by the aforesaid action of the second Ld. Pr. CIT, the assessee is before us challenging the action of second the Ld. Pr. CIT by preferring the following original grounds of appeal:

“1. For that the order dated 14.03.2019 passed u/s 263 by the Ld. Principal CIT is barred by the law of limitation and liable to be quashed.

2. (a) For that on the facts and in the circumstances of the case, the order passed by the Ld. Principal CIT u/s 263 of the Act is bad in law and is liable to be

(b) For that on the facts and in the circumstances of the case the Ld. Principal CIT was not justified in initiating proceedings u/s 263.

 3. (a) For that the Ld. Principal CIT erred in exercising the power of revision for the purpose of directing the A.O. to hold another investigation when the A.O. had complied with the directions of the predecessor Principal CIT, Kolkata-4 in the preceding order u/s 263 passed on 08.2016.

(b) Without prejudice to the preceding grounds, the issue before the Ld. CIT was debatable, as such, the Ld. Principal CIT did not have the jurisdiction to initiate another proceedings u/s 263.”

7. Assessee also filed additional grounds of appeal, which are as under:

“1. That impugned order passed u/s 263 dated 14.03.2019 IInd round) by PCIT 4 Kolkata for the period under consideration is void ab initio as very first assessment order u/s 143(3) dated 26.03.2015 is itself passed on non existing and unlawful grounds and is without authority of law, accordingly all subsequent proceedings including impugned order u/s 263 (dated 14.03.2019) is void ab initio and deserves to be quashed”

2. That impugned order passed u/s 263 dated /4.03.2019 (IInd round) by PCIT 4 Kolkata for the period under consideration is void ab initio as there is no power under the statute to invoke section 263 qua order passed in consequence to first revision order u/s. 263 and that too by again setting aside the second order passed in consequence to first revision order u/s 263 accordingly same (order passed u/s. 263 dated 14.03.2019) deserves to be quashed.

 3. That impugned order passed u/s 263 dated 14.03.2019(IInd round) by PClT 4 Kolkata for the period under consideration is void ab initio as both the foundational orders namely first assessment order u/s 143(3) dated 26.03.2015 is invalid and unlawful order (which in turn can cause no valid prejudice u/s 263) and further first revision (thereon u/s 263 to improvise the said asst. order (no such power u/s 263 there) is also invalidly passed and all subsequent proceedings including impugned order u/s 263 (dated 14.03.2019) being based on invalid orders deserves to be ”

8. The Ld. AR Shri Kapil Goel, first of all wants us to adjudicate Ground numbers 2 & 3 of the original grounds of appeal. Assailing the impugned action of the Second Ld. Pr. CIT to exercise for the second time revisional jurisdiction u/s. 263 of the Act, as wholly without jurisdiction the Ld AR contended that the Ld Pr CIT ought not to have invoked the revisional jurisdiction since second AO had framed the reassessment pursuant to the first revisional order of First Ld. Pr. CIT dated 23.08.2016, which impugned action of the second Ld. Pr. CIT, according to him is without satisfying the requisite conditional precedent as stipulated in Section 263 of the Act and so bad in law. According to Ld. AR, the original first assessment order was selected for scrutiny through CASS for the reason ‘large share premium received’ and the First Ld. Pr. CIT while passing his first revisional order dated 26.03.2015 has given specific direction when setting aside the original first assessment order passed by the First AO on 26.03.2015 wherein he directed the second AO to carry out proper examination in respect of share capital & premium the assessee received during the assessment year. The Ld AR pointed out the specific instructions of the First Ld. Pr. CIT to the second AO – (i) proper examination of the books of account, (ii) proper examination of bank account and the assessee as well as investors, (iii) the AO was directed to examine the source of share application money, (iv) the identity of the investors and the genuineness of the transaction. According to Ld. AR, all the aforesaid directions of the First Ld. Pr CIT were obeyed in letter and spirit by the second AO. The Ld AR brought to our notice that second AO had conducted enquiry by first of all issuing notice on 19.10.2016 u/s. 143(2) and notice u/s. 142(1) of the Act. According to the Ld. AR pursuant to said notice, Shri Navin Tahlani, director of the assessee-company appeared before the second AO which fact has been acknowledged by the second AO in the assessment order; and the second AO also admits that the Director of the assessee-company had produced copy of ITR, audited accounts, computation of income, details of directors, details of business activities, details of increase in share capital, Form 2 and Form 5, list of shareholders, details of bank account. The Ld. AR pointed out that in the second/re-assessment order, the second AO has accepted that the aforesaid details were examined and thereafter the second AO further records the facts that he issued notice u/s. 133(6) of the Act to all the shareholders and directed them to prove their identity, genuineness and creditworthiness of the share transaction as required by the First Ld. Pr. CIT vide his order dated 23.08.2016 passed u/s. 263 of the Act (first revisional order of Ld. Pr. CIT). The Ld. AR also drew our attention to the fact that the second AO has clearly acknowledged that the shareholders have replied to all his queries to prove their identity, genuineness and creditworthiness as well as the source of funds which facts have been duly verified by him. The Ld. AR pointed out that the AO has observed in the second/re-assessment order that the assessee-company was incorporated on 11.02.2012 i.e. this is the first assessment year of the assessee-company after incorporation and the AO has admited that he has examined the books of account and found that the assessee company has shown Rs.44,61,00,000/- as non-current investment as on 31.03.2012 and thereafter has made only an addition/disallowance of Rs.10,366/- u/s. 14A of the Act. Therefore, according to Ld. AR, pursuant to the first revisional order of the First Ld. Pr. CIT passed u/s. 263 of the Act when was complied in letter and spirit by the second AO, subsequent/impugned action of the next incumbent in the chair of Pr.CIT-4 (second) to undertake an exercise of revisional jurisdictional under section 263 (revision) which culminated in second  revisional order dated 14.03.2019 tantamount to the new incumbent in the chair of Pr.CIT-4 (second) reviewing the order of his predecessor Pr. CIT-4 (First) dated 23.08.2016, which is not permitted by Law. According to Ld. AR, the second Ld. Pr. CIT – 4 by passing the second revisional order dated 14.03.2019 has substituted the First Pr.  CIT’s order passed u/s. 263 of the Act dated 23.08.2016 with his own order which he cannot do since the second assessment order/re-assessment of the Second AO dated 07.12.2016 was pursuant to the first revisional order of the First Ld. Pr. CIT and on  the subject matter on which specific directions/instructions were given by the First Ld. Pr.CIT, which since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e share capital & premium collected by assessee company. Resultantly the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator while the AO was carrying out the directions of First Ld. Pr.CIT pursuant to the first revisional order, which exercise according to Ld.AR unfortunately this Second Ld. Pr.CIT has not done. So according to Ld. A.R, he cannot be permitted to again ask  the AO to  start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. Therefore, according to Ld.AR, if this practice is allowed, there will be no end to the assessment proceedings, since if the next i.e. third or fourth Pr. CIT does not like the next assessment orders being passed by an AO under his jurisdiction, in the way he thought it as proper enquiry to have been conducted in a given case or subject matter, then he will interfere and ask the AO to re-do the assessment again and again, which is not permissible and that is exactly why the Parliament in its wisdom has brought in safe- guards, restrictions & conditions precedent to be satisfied strictly before assumption  of revisional jurisdiction. According to Ld.AR, the conditions precedent is that the Ld. Pr. CIT should find that assessment order framed by the AO as erroneous in so far as prejudicial to the Revenue. According to Ld.AR, the Second Ld. Pr. CIT without satisfying this condition precedent has invoked the revisional jurisdiction (second time), so all his actions are ab initio void. The Ld. AR also pointed out that only from the next AY i.e. AY 2013-14 i.e. with effect from 01.04.2013, the Parliament has inserted sub-clause (vii) (b) in sub-section(2) to section 56of the Act by which the share premium could have been ascertained and brought to tax. The Ld. AR also pointed out that only from AY 2013-14, the AO when considering section 68 of the Act could have even looked for the second source of the share capital & premium. In this assessment year (AY 2012-13) the onus on the assessee in respect of credit found in the books was confined to prove the identity, creditworthiness and genuineness of the Source i.e. only the first source not the second source also. And since that was the requirement of law, according to Ld AR, when the assessee face the scrutiny proceedings before the AO, he is bound to satisfy the AO as per the law in force  during this relevant assessment year (AY 2012-13) and it cannot be expected from him/assessee to be a clairvoyant to anticipate the requirement of law for future years and satisfy those also before the AO in the present AY, when there is no such requirement of law that the assessee must be aware of the source of source of the share-applicant at the time when he collects the share capital itself and according to him, if it is insisted then it is unfair and unreasonable. According to Ld. AR, when the law was only that assessee need to be aware of first source only then the AO could not have gone and verified beyond the source of the share applicants from whom the assessee had received the share capital. So when the requirement of law is only that assessee must ascertain that the share-applicant, who proposed to invest in assessee’s company’s share capital has proper identity and creditworthiness and is capable of investing in the assessee, then the AO in turn can verify the identity, creditworthiness and genuineness of the share subscriber from whom the assessee received the share capital and verify whether the identity is proper, whether the transaction took place through banking channel, etc. and the creditworthiness of the share applicant etc. According to Ld AR, if the AO or even the Ld. Pr. CIT expecting/asking the assessee to find out the source of source of share-applicant, when the Law does not in this AY requires assessee to fulfil, then it would be quiet unreasonable, harsh and unfair practice, which action is against the Rule of Law, which is a basic feature of the Constitution of India. Since the law was that assessee should furnish the source of share capital it received in this A.Y, assessee by producing all documents in respect of share-applicants had discharged its onus, then burden shifts to the shoulder of AO to find fault with the documents or test the veracity of the documents. Despite the law was as such, then also AO in the second round, pursuant to the specific direction of the First Ld. Pr. CIT-4, issued notice u/s. 133(6) of the Act to all the share applicants/subscribers have clearly acknowledged having received their replies to the section 133(6) notice and conceded the fact that all of them had given their confirmation of subscribing to the share capital and premium in assessee’s company  as well as their source of income for applying for the share capital and premium, thus it was pointed out by the Ld AR that the source of source was also disclosed before the second AO and also furnished inter-alia information that they are having PAN and regularly filing tax returns. Therefore, according to Ld. AR, the AO has conducted enquiries and has recorded these facts and, therefore, order of the AO who is a quasi- judicial authority vested with the power to assess the income of an assessee cannot be termed as erroneous for lack of enquiry. Further according to Ld. AR, the view of the second AO on the facts of the case is a plausible view and the Second Ld. Pr. CIT has not termed the view of second AO to be unsustainable in Law. So the Ld AR contented that the very action of invoking of jurisdiction u/s. 263 of the Act by the Second Ld. Pr. CIT is bad in law and so has to be quashed.

9. Per contra, the Ld CIT/DR Shri Vijay Shankar vehemently opposed the plea of the Ld. AR and contended that the Second Ld. Pr. CIT had the jurisdiction to interfere by exercising his jurisdiction u/s. 263 of the Act and pointed out to us that the words used in Section 263 does not bar in any way second or third or fourth exercise of revisional jurisdiction, if he finds the assessment order/re-assessment order of AO is erroneous in so far as prejudicial to the Revenue. According to him, the second/re-assessment was erroneous for lack of enquiry. According to him, this fact will be evident from a perusal of the order sheet placed at page-39 of the P/B-1 which would reveal that the AO has not conducted proper enquiry. According to the Ld. CIT/DR, a perusal of the order sheet would reveal that the AO on 26.08.2016 after receiving first revisional order of the First Ld. Pr. CIT (dated 23-08-2016) had issued notice u/s. 143(2) of the Act, dated 19-10-2016 and thereafter, has recorded that on 01-12-2016 Shri Navin Tahini, director of the assessee- company appeared and produced documents before him (second AO) in the re-assessment proceedings. Thereafter, he ( second AO) passed the second assessment/re-assessment order dated 07-12-2016. According to the Ld. CIT/DR, the order sheet of AO does not mention about issuing of notice(s) u/s. 133(6)of the Act to the shareholders. And the Ld. CIT/DR drew our attention to the replies of shareholders to section 133(6) notice seen placed from pages 26-39 of P.B-1, which according to him, are identical and similar which cast doubt about it’s genuineness. So according to Ld. CIT/DR, the AO did not carry out even the basic verification by issuing of notice u/s. 133(6) to share applicants/subscribers. And also he pointed out that the first Ld. Pr. CIT while setting aside the original/first assessment order has ordered the Second AO to frame re-assessment/second assessment de- novo meaning that AO was given full liberty to enquire on all issues including share capital and premium collected by assessee. So according to Ld. CIT/DR the contention of Ld. AR that the second Ld. Pr. CIT cannot have directed fresh assessment on share capital & premium is devoid of merit and no merger took place as contended by the Ld. AR, so the doctrine of merger did not take place in this case because the Ld. Pr. CIT (First) has directed de novo assessment. So according to CIT DR, the Second Ld. Pr. CIT’s impugned action is correct since the AO’s second assessment order was erroneous for lack of enquiry. And, therefore, he does not want us to interfere.

10. In his rejoinder, Ld.AR drew our attention to page-32 of the P/B-1, wherein one of the investors (Flow Top Agency Pvt. Ltd) vide dated 25-11-2016 has clearly mentioned that it was replying pursuant to the receipt of notices issued by the AO u/s. 133(6) dated 07-11- 2016 and furnished the answers to the queries raised by AO and filed all documents called for by the AO. He also drew our attention to the fact that in the reply to the Second Ld. Pr. CIT’s show cause notice dated 16-01-2019, the assessee vide reply dated 05-02-2019 has clearly pointed out that the AO had issued notices u/s. 133(6) of the Act to all the share applicants and after verifying their respective replies and documents, the Second AO has accepted the identity, creditworthiness and genuineness of the investors/share applicants and after applying his mind ( i.e after verification) has decided not to draw any adverse inference against the assessee in respect of share capital and premium transaction with assessee. And only after completion of enquiry, the AO has passed a speaking order and drew our attention to the second/re-assessment order. However, according to Ld. AR, even though these facts were pointed out to the second Ld. Pr. CIT, he did not controvert these facts. And the Ld. AR drew our attention to the second assessment order of AO and took us through the order to substantiate his

11. According to the Ld. AR the following facts can be noted if one goes through the re- assessment/second assessment order of the AO dated 07-12-2016,:-

(1) The AO completed enquiry by perusing replies submitted under section 133(6),

(2) He checked books of accounts and bank

(3) Also issued notice under section 131 and recorded statements of Assessee Company’s director

(4) In the statements recorded, rationale behind investment in Assessee Company by the shareholders was questioned and many other questions were asked and replied

(5) The A.O perused the replies along with the enclosures and source of investments by the shareholders and was satisfied about the identity, genuineness and creditworthiness of the shareholders.”

 12. According to the Ld. AR even though these particular facts are discernible on a perusal of re-assessment/second order, still they were specifically brought to the notice of the Second Ld. Pr. CIT. However, in his impugned second revisional order passed on 14-03- 2019, the Second Ld. Pr. CIT has not made a whisper/allegation about any failure of AO not issuing any notice u/s. 133(6) of the Act and has not controverted the contention of assessee before him the fact that statement of the director of assessee was recorded by the AO after summoning him u/s. 131 of the Act. According to the Ld. AR, the Ld. CIT/DR cannot now bring out certain facts, which are not discussed by the Second Ld. Pr.CIT and make out an altogether different case, when the Second AO has clearly stated in his order that he had duly issued notice u/s. 133(6) of the Act and got replies from his shareholders and the fact  of issue of notice u/s. 133(6) which fact is corroborated by the letter of shareholder’s placed at page-32 of PB-1 and others. Therefore according to Ld. AR, the second AO pursuant to the specific direction of First Ld. Pr. CIT has complied with his command and in that process had duly issued summons u/s. 131 of the Act to the Director of assessee-company and recorded his statement and even questioned him the rationale behind the share premium which was duly explained by the director and thereafter had gone through the documents submitted by assessee and thereafter had issued notices u/s. 133(6) of the Act and has acknowledged in his order that he received the replies from the shareholders along with documents to substantiate the identity, creditworthiness and genuineness of the share capital & premium invested by them along with the source of fund, which facts were verified by  the Second AO. And after satisfying himself, the second AO accepted the share capital & premiums, and in that process did not draw any adverse view or made any addition u/s. 68 of the Act, which view is a possible view as per law and cannot at any rate be classified as unsustainable in law. So according to Ld. AR, the order of second AO in respect of his view/satisfaction regarding share capital & premium is the result of specific direction of the First Ld. Pr. CIT, so doctrine of merger has taken place and on this subject matter, the second Pr. CIT cannot enter into and again revise, which power he does not enjoy. Notwithstanding this contention, according to Ld.AR the mandatory condition precedent to invoke the revisionary jurisdiction u/s. 263 has not been fulfilled, without which the Second Ld. Pr. CIT could not have exercised his revisional power. Thus, according to Ld.AR, the second Ld. Pr. CIT has not satisfied the conditions precedent which is sine qua non for usurping the revisional jurisdiction u/s. 263 of the Act and therefore, the very assumption of jurisdiction itself is ab initio void and therefore, need to be quashed.

13. We have heard both the parties and carefully gone through the submissions as put forth on behalf of the assessee and Revenue along with the documents furnished and the case law(s) relied upon by both the parties. It is noted that in this case the original return was filed u/s. 139 of the Act and the original first assessment was framed by the First AO u/s. 143 (3) of the Act on 26-03-2015 by making an addition of Rs. 45,66,01,634/-. Thereafter, the First Ld. Pr.CIT-4, Kolkata issued SCN dated 22.06.2016 to the assessee- company conveying his intention to interdict in the First AO’ s action in framing the said original first assessment order dated 26-03-2015. Thereafter, the First Ld. Pr.CIT passed his First Revision order u/s. 263 of the Act on 23-08-2016, wherein he was pleased to set aside the original assessment order dated 26-03-2015 and directed de novo assessment along with the specific direction to inquire about the collection of share capital & premium.

14. Pursuant to the direction of the First Ld. Pr.CIT dated 23-08-2016, the second AO framed the de-novo re-assessment order dated 07-12-2016, wherein the second AO was pleased to accept the assessee’s transaction in respect of collection of share capital and share premium to the tune of Rs. 45,66,01,634/- and made further addition of Rs. 10,366/- u/s. 14A of the Act. Thereafter, the new incumbent in the office of Pr. CIT-4, Kolkata issued show cause notice dated 16-01-2019 (hereinafter referred to as the Second SCN) and conveyed his intention to revise the re-assessment/second assessment order of the second AO dated 07-12-2016. After hearing the assessee, the second Ld. Pr. CIT has set aside the said re-assessment/second assessment order of the AO dated 07-12-2016, wherein the Second Ld. Pr. CIT, Kolkata-4, Kolkata vide order dated 14-03-2019 directed the AO to pass a fresh assessment

15. Aggrieved by the aforesaid action of the Second Ld Pr. CIT, Kol-4, now the assessee is before us. The question before us is twofold. Firstly, whether the second Ld. Pr. CIT satisfied the statutory condition-precedent as prescribed in section 263 of the Act before invoking the Revisionary Jurisdiction. Secondly, whether the Second Ld Pr. CIT can again interfere in the re-assessment order framed by the AO which was pursuant to the first revisional order passed by the First Ld. Pr. CIT u/s. 263 of the Act, when the subject matter was the same and the re-assessment order of the second AO has merged with the First Revisional order of First Ld. Pr. CIT. In order to adjudicate both this legal issue, first of all we need to examine the basic jurisdictional issue i.e. whether the condition precedent stipulated by section 263 of the Act was satisfied, so that the Second Ld. Pr. CIT could have exercised his revisional power which he is empowered to do by the Act. For that, we note that the statutory condition precedent as prescribed by section 263 of the Act is that the Ld. Pr. CIT can invoke the revisional jurisdiction, if the assessment order is erroneous in so far as prejudicial to the Revenue. Keeping this in mind, we have to examine as to whether in the first place the order of the Second Assessing Officer found fault by the Second Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedent laid down by the Hon’bIe Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC), wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the Commissioner of Income Tax ( in short, ‘CIT’). The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated an issue before him; then the assessment order passed by the Assessing Officer can be termed as an erroneous order. Coming next to the second limb, which is required to be examined is as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue? The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Pr. CIT/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 Assessing Officer is unsustainable in law.”

16. Taking note of the aforesaid dictum of law of the Hon’ble Apex Court which was laid in Malabar Industries Ltd CIT (supra), let us examine whether the second assessment order/re-assessment order passed by the Second AO u/s. 143(3)/263 of the Act dated 07-12-2016 is erroneous in so far as prejudicial to the interest of the revenue. As we have seen the First AO in the original first assessment order passed u/s. 143(3) of the Act made an addition of Rs.45,66,01,634/- by an order dated 26-03-2015, which has been interdicted by the first revisional order passed by the First Ld. Pr. CIT vide order dated 28- 03-2016, wherein the Ld. Pr. CIT was pleased to set aside the original first assessment order dated 26-03-2015 and directed the AO to de novo assess the income of the assessee and gave specific direction to enquire about share capital & premium. The operative portion of the first revisional order dated 28.03.2016 is again reproduced below for the sake of continuity:-

“4(v)    Considering  the  above  facts  and  circumstances  of  the  case,  the assessment  order passed on  26.03.2015  is set  aside  denovo with a  direction to carry  out  proper  examination  of books of accounts and Bank accounts of assessee as well as investors.

 The AO is also directed to examine the source of share application, identity of investors  and its genuineness.

 The assessment proceedings may be initiated at the earliest to be completed without  waiting time barring date. The AO must provide sufficient opportunity of being heard to the assessee in order to meet natural justice, equity and fairness.”(emphasis given by us)

17. Pursuant to the aforesaid direction of the First Ld. Pr. CIT, the Second AO has framed the re-assessment/second assessment order by making an addition of only Rs.10,366/- u/s. 14A of the Act vide order dated 07-12-2016 as under:

18. Thereafter, the Second Ld. Pr. CIT issued show cause notice ( hereinafter referred to as the second SCN ) dated 16-01-2019 pointing out certain faults in the AO’s second assessment/re-assessment order dated 12.2016:

19. In response to the second SCN issued by Second Ld. Pr. CIT u/s. 263 of the Act, the assessee has given reply dated 05-02-2019, wherein the aforesaid faults as pointed out by the Second Ld. Pr. CIT in the said show cause notice dated 16-01-2019, was point-wise explained by the

20. Thereafter, the Second Ld. Pr.CIT again was pleased to set aside the re- assessment/second assessment order of the AO dated 07-12-2016 and directed fresh assessment ( which means a third assessment to be framed ).

21. The aforesaid action of the Second Ld. Pr. CIT dated 14-03-2019 is challenged before us. According to the Ld. Counsel, Shri Kapil Goel, the Ld. Pr. CIT erred  in assuming his jurisdiction without satisfying the jurisdictional conditional precedents as prescribed u/s. 263 of the Act and therefore, the action of the Ld. Pr. CIT is wholly without jurisdiction and therefore, ab-initio void and therefore, need to be struck down. We note that in order to interfere with the second assessment/re-assessment order passed by the Second AO u/s. 143(3)/263 of the Act dated 07-12-2016, the Second Ld. Pr. CIT has alleged lack of enquiry on the part of the AO in respect of share application money, and for not collecting the full facts. Therefore, it is noted that according to Ld. Pr. CIT, the AO’s (second AO) decision was not based on the totality of facts, which makes the second assessment/re- assessment order erroneous in so far as prejudicial to the interest of the revenue. The second Ld. Pr. CIT also opines that the AO’s order dated 07-12-2016 of the AO (second assessment/re-assessment order) is in accordance with the Explanation 2(c) below section 263(1) of the Act( supra), therefore by deeming fiction of law the order is erroneous. Therefore, he was pleased to set aside the said re-assessment order/second assessment order and directed the AO to pass a fresh/ De-novo assessment order, which will be the third assessment order. According to the Ld. Counsel, the Second Ld. Pr. CIT in the second  round while exercising his revisional jurisdiction could not have first of all assumed revisional jurisdiction and secondly could not have modified the earlier revisional order of the First Ld. Pr. CIT’s passed u/s 263 of the Act dated 28-03-2016, when the fact remains that the AO has followed the direction of the First Ld. Pr. CIT-4 on the subject matter i.e. share application money (share capital & premium ) while passing the second re-assessment order dated 07-12-2016. In order to appreciate this contention of Ld AR, we perused the first revisional order dated 23-08-2016 passed u/s. 263 of the Act by the first incumbent Ld. Pr. CIT while setting aside the original first assessment order dated 26-03-2015 wherein he has recorded certain finding of fact after perusal of the records (first assessment folder/records of assessee). The First Pr CIT has acknowledged that in the first round of assessment proceedings, the assessee company had duly furnished before the AO the following documents:-

(i) audited financial statements;

(ii) copy of Form filed with the ROC;

(iii) copy of PAN Card of the assessee company;

(iv) details and copy of share applicants;

(v) bank statement reflecting the transaction;

(vi) records relating to investors in order to establish identity, genuineness and creditworthiness of the share

22. The First Ld. Pr. CIT found that AO in the first assessment proceedings though has been provided with the aforesaid documents has not examined these documents, which according to him, should have been carried out by the AO. Further, The First Ld. Pr. CIT found fault with the AO’s order for non-issuance of notice u/s. 133(6) of the Act. The Ld. Pr. CIT found fault with the AO’ s order in not discussing the basis of evidence on which adverse inference was drawn against the assessee. Moreover, the First Ld. Pr. CIT found fault with the AO for not bothering to examine the contention of the assessee or to bring on record anything against the assessee and according to him, the AO has simply jumped to the conclusion and treated the share capital as unexplained cash credit. The First Ld. Pr. CIT found fault with the action of AO for not bothering to issue show cause notice regarding points of addition to be made. Therefore, according to the First Ld. Pr. CIT the first original assessment order framed u/s. 143(3) dated 26-03-2015 was against the principle of natural justice and, therefore, he found it fit to order de novo assessment and gave specific direction in respect of share capital & premium collected by

22. Thereafter, the ld. Pr. CIT was pleased to direct “……………assessment order passed on 26.03.2015 is set aside de novo with the direction to the AO to carry out proper  examination of books of account and bank statement of the assessee as well as the investor.  The AO is also directed to examine the source of share application, entity of investor and its  genuineness”. (emphasis given by us). He also directed that the assessment proceedings to be initiated at the earliest and to be completed without waiting for time bar limit. With the aforesaid specific direction, the First Ld. Pr. CIT has set aside the first original assessment order dated 26-03-2015.

24. So we note that the second AO was specifically directed by the First Ld. Pr. CIT to carry out the followings actions in addition to de-novo assessment Thereafter, we note that the original assessment of AO dated 26.03.2016 was set aside back to AO u/s. 263 of the Act by the First Ld. Pr. CIT by his first revisional order dated 23.08.2016 for de-novo assessmentwhich means the second AO is free to assess the income of assessee afresh, but with specific directions to AO while framing the reassessment order vide para 4(v) of his order. The specific directions of First Ld Pr CIT to AO are as under:

(i)  To carry out proper examination of the books of accounts and bank account of the assessee;

ii) To carry out proper examination of the books of accounts and bank account of the investors;

iii) AO to examine the source of the share applicants;

iv) The AO to examine the identity of the investor and its genuineness;

v) The AO to complete the assessment at the earliest without waiting for the time barring date.

25. Now let us examine whether the second AO carried out his role of an investigator. In this respect, we note that pursuant to the aforesaid direction of the First Ld. Pr. CIT (first revisional order) dated 28-03-2016, the Second AO has recorded in his re- assessment/second assessment order that he had issued notice u/s. 142(1) on 19-10-2016, wherein he (AO) acknowledges that Shri Navin director of the assessee company appeared on different dates and produced the following documents:-

i) Copy of ITR (Income Tax Returns)

ii) Audited accounts

iii) Computation of income

iv) Details of business activities

v) Details of investment/share capital

vi) Form 2 and From 5

vii) List of shareholders

viii) Details of bank accounts

26. The AO also acknowledges in his re-assessment / second assessment order that he has examined the aforesaid details and thereafter issued notices u/s. 133(6) of the Act to all the shareholders and directed them to prove their identity, genuineness and creditworthiness regarding the share transaction with the assessee as per the direction of the Ld. Pr.CIT-4, Kolkata (First Ld. Pr. CIT) in his order passed u/s. 263 of the Act dated 28-03-2016 (First Revisional Order). Thereafter, the second AO notes that he received all the replies to his queries from the share applicants/subscribers in response to notices issued u/s. 133(6) of the Act (refer paper book 2 page 2 to 352) and then he carried out the verification of documents submitted by the share applicants/investors for proving the identity, genuineness and creditworthiness and also their source of fund to invest in the assessee company. Thereafter, the second AO by order dated 07/12/2016 disallowed an amount of Rs. 10,366/- u/s. 14A of the Act and thus it is noted that second AO did not draw any adverse inference against the share capital and premium collected by the assessee after carrying out the aforesaid exercise as directed by the First Ld. Pr. CIT to him. This exercise carried out by the second AO while framing the second assessment/re-assessment has been faulted as a case of lack of enquiry by the second Ld. Pr.CIT and the precise question is whether the action of second AO in respect of share capital and premium collected by the assessee can be termed as a case of lack of enquiry.

27. According to us, when the Assessment Order is framed on an issue which is the result of lack of enquiry, then the assessment order in respect of that issue would be erroneous because of that omission on the part of the AO to investigate that relevant fact which if enquired could have created a different result and consequently affected the veracity of the very claim made by the assessee. Then in that case we can say that the AO failed to discharge his role as an investigator, which omission caused prejudice to the Revenue, then the condition precedent to invoke revisional jurisdiction us/. 263 of the Act will be satisfied. So the question is whether this fault i.e. lack of enquiry on share capital and premium alleged by the second Ld. Pr.CIT is correct, which is a mixed question of fact and

28. So the question is whether there is any merit on the finding of the Second Ld. Pr. CIT that the second assessment order/re-assessment order dated 7-12-2016 can be termed as erroneous for lack of enquiry. On a conjoint reading of the second SCN and operative portion of the impugned order, it can be safely deduced that according to Second Pr. CIT, the AO in the second round has not enquired about the share capital & premium collected by the assessee. For that we need to carefully examine as to whether the second AO has carried out his dual role as an investigator as well as an adjudicator while deciding the issue of share capital and premium collected by the assessee for AY 2012-13. Before we examine about the investigative role of the AO, we need to examine the law as it stood in AY 2012-13 and is applicable in this case. Section 68 of the Act reads as under:-

Section 68: 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:

Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application  money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless-

(a) The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and

(b) Such explanation in the opinion of the Assessing officer aforesaid has been found to be satisfactory: 

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10].

29. Here it is to be noted that the first proviso and second proviso was inserted by Finance Act, 2012 with effect from 01.04.2013, so it is applicable only for/from AY 2013- 14 and not for this AY 2012-13.

30. Next let us refer to the definition of income stated in Section 2(24) of the Act. Section 2(24) of the Act includes:-

i) profits and gains

……..

………

xvi) any consideration received for issue of shares as exceeds the Fair Market Value of the shares referred to in clause (viib) of sub-section (2) of section 56.

31. It is noted that this amendment was made by an insertion of clause (xvi) in section 2(24) of the Act was by Finance Act 2012 with effect from 04.2013.

32. Correspondingly, the Parliament inserted sub-clause (viib) in sub-section 2 of section 56 of the Act by Finance Act 2012, w.e.f. 01.04.2013, that is for AY 2013-14 (not this AY 2012-13) in respect of computing and taxing the premium of shares in the hands of assessee (i.e.to tax the difference in consideration of value of shares if it exceeded the fair market value), which for the purpose of complete understanding of the law though not applicable is reproduced as under:-

Section 56(2)(viib):

 “Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received-

(i) By a venture capital undertaking from a venture capital company or a venture capital fund, or

(ii) By a company from a class or classes of persons as may be notified by the Central Government in this

Explanation- For the purposes of this clause,

(a) The fair market value of the shares shall be the value-

(i) As may be determined in accordance with such method as may be prescribed, or

(ii) As may be substantiated by the company to the satisfaction of the Assessing Officer based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar

Whichever is higher:

(b) Venture capital company, venture capital fund, and venture capital undertaking shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10]”.

33. So we note that in this assessment year before us i.e. AY 2012-13, the law in force was that if any sum is found credited in the books of an assessee in a financial year and, if the AO asks for the explanation of assessee in respect of the nature and source thereof, then the assessee is duty bound to explain the nature and source of the credit entry in the books and if the assessee fails to explain or if the AO is not satisfied, he may charge to income tax the sum so credited. So, the assessee is bound to explain before the AO the nature and source of share capital, i.e. the identity, creditworthiness and genuineness of the share capital. In this AY, the assessee is bound to know about the share applicants who wish to invest their identity, whether they have the financial capacity (creditworthiness)  and they are genuine investors in their company (assessee). In this AY, the assessee is not bound by law at the time of collection of share capital to ask the share-applicants from where it is getting the money to invest in the assessee’s company. And we also note that share premium can be taxed if it exceeds the fair market value only from next AY i.e. AY 2013-14 and not in this A.Y. For coming to such a conclusion let us discuss few case laws:

(A) Coming to the share premium, it is noted that this Tribunal in ITA- 2411/KOL/2017 in the case of Kanchan Plywood Products Pvt. Ltd. –vs.- ITO vide order dated 01.05.2019 has taken note that –

Per contra, the Learned DR vehemently supported the order of the authorities below and wondered us to how the assessee-company issued share to three Private Limited Companies when its face value of Rs. 10/- at a premium of Rs. 990/-. According to the Learned DR, the assessee-company had a meager return of income in the year under consideration and therefore, question of any person subscribing such high premium to the shares of the assessee-company cannot be believed. A:cording to the Learned DR when the income of the assessee is meager, the action of the share subscribing companies in giving astronomical prices for the shares is against preponderance of probabilities and cited the decision of the Hon’ble Supreme Court as well as Delhi High Court in CIT vs N .R. Portfolio Pvt. Ltd.

Further, according to Ld. AR in the case of unlisted companies, it is common knowledge that premium fixed is a matter of mutual agreement and ITAT Mumbai in the case of Gagandeep Infrastructure Pvt. Ltd., (supra) has held that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. And the aforesaid view of the ITAT has been upheld by the Hon’ble Bombay High Court order dated 20th March 2017. Further the Hon’ble High Court observed as under-

“(i) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1^stApril, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. Infact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1^stApril, 2013 was its normal meaning. The Parliament did not introduce to Section 68 of the Act with retrospective effect nor does the proviso so introduced that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it has found satisfied.

(ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT vis. Lovely Exports (P) Ltd. 317 ITR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit. “

(B) The Tribunal Mumbai Bench in the case of DCIT vs. M/s. Alcon Biosciences (P) Ltd., ITA No. 1946/M/2016, Order dated 28.02.2018 held as under·

“As regards the AOs observation with regard to the issue of shares at a face value of Rs.10/- issued at a premium of Rs.990 per share, we find that there is no merit in the findings of the AO for the reason that the issue of shares at a premium and subscription to such shares is within the knowledge of the company and the subscribers to the share application money and the AO does not have any role to play as long as the assessee has proved genuineness of transactions. We further notice that the AO cannot question issue of shares at a premium and also cannot bring to tax such share premium within the provisions of section 68 of the Act, before (supra) held that Proviso inserted to section 68 is prospective in nature.

Hon’ble M.P. High Court in the case of CIT vs. Chain House International (P) Ltd., order dated 07.08.2018, decision reported in 98 taxmann.com47 has held at para 52 as under-

“Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates if fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned ..”.

(C) The Mumbai Tribunal in the case of ACIT-l(l) vs. M/s. Gagandeep Infrastructure Pvt. Ltd. the ITAT has held as under:

“We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with Sec. 78 of the Companies Act, 1956. Further, the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipt and is not income for its ordinary sense. It is not in dispute that the assessee had filed all the requisite details/documents which are required to explain in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies.

Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s 68 of the Act. We draw support from the decision of the Hon’ble Supreme Court in the case of Lovely Exports Ltd. 317 ITR 218. “

(D)[Green Infra Limtied – 38 taxmann.com 253 (Mumbai-Trib).

10. We have considered the rival submissions and carefully perused the orders of the lower authorities and the material evidences brought on record in the form of Paper book. The entire dispute revolves around the charging of share premium of Rs. 490/- per share on a book value of Rs. 10/- each. This dispute is more so because of the fact that the assessee company was incorporated during the year under consideration. Therefore, according to the revenue authorities, it is beyond any logical reasoning that a company with zero balance sheet could garner Rs. 490/-per share premium from its subscribers. Such transaction may raise eyebrows but considering the subscribers to the assessee company, the test for the genuineness of the transaction goes into oblivion. It is an undisputed fact admitted by the Revenue authorities that 10,19,000 equity shares has been subscribed and allotted to IDFC PE Fund-Il which company is a Front Manager of IDFC Ltd., in which company Government of India is holding 18% of shares. The contributors to the IDFC PE Fund-Il who is a subscriber to the assessee’s share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are all public sector undertakings. Therefore, to raise eyebrows to a transaction where there is so much of involvement of the Government directly or indirectly does not make any

10.1 No doubt a non-est company or a zero balance company asking for a share premium of Rs. 490/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. Details of subscribers were before the Revenue authorities. The AO has also confirmed the transaction from the subscribers by issuing notice u/s. 133(6) of the Act. The Board of Directors contains persons who are associated with IDFC group of companies, therefore their integrity and credibility cannot be doubted. The entire grievance of the Revenue revolves around the charging of such of huge premium so much so that the Revenue authorities did not even blink their eyes in invoking provisions of Sec. 56( I) of the Act.

[Hon’ble Bombay High Court in the case of Apeak Infotech-88 taxmann.com. 695 (Bombay) when the question was “whether the amount received as share premium on issue of share by the respondent-assessees-companies could be taxed as profits and gains of business in the hands of the assessees under section 28(iv) of the Act”.

In any case, we may point out that the amendment to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012-13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents- assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. Similarly, the Commissioner of Income-tax (Appeals) on consideration of facts, found that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the Tribunal.

It is further pertinent to note that the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issueof share in excess of its fair market value, This Came into the statute only with effect from April 1, 2013 and thus, would have no application to the share premium received by the respondent-assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT-v.-Gagandeep Infrastructure (P.) Ltd. [201TI 80 taxmann.com.272/247 Taxman 245/394 ITR 680 (Bom) has while refusing to entertain a question with regard -to the .proviso to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and would be effective only from the assessment year 2013-14.

(E) ITA-2270/KOL/2016 –Trend Infra Developers Pvt. Ltd.

The assessee specifically argued before the ld. CIT(A) that the allotment of shares at a premium cannot be considered as sham or income of the assessee. It was pleaded at a preliminary level that the receipt of share capital and share premium is on capital account and that the same cannot be subject to tax as income. Specific submissions were also made in the context of introduction of section 56(2)(viib) inserted by the Finance Act, 2012 with effect from 01.04.2013 which reads as under:

“(viib) Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received-

(iii) By a venture capital undertaking from a venture capital company or a venture capital fund, or

(iv) By a company from a class or classes of persons as may be notified by the Central Government in this behLF.

Explanation- For the purposes of this clause,

(c) The fair market value of the shares shall be the value-

(iii) As may be determined in accordance with such method as may be prescribed, or

(iv) As may be substantiated by the company to the satisfaction of the Assessing Officer based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or anyother business or commercial rights of similar nature, whichever is higher:

(d) Venture capital company, venture capital fund, and venture capital undertaking shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10]”.

It was pleaded that the aforesaid provisions cannot be made applicable for the year under appeal. Accordingly, it was argued that the issuance of shares of premium cannot be brought to tax under any section of the Income Tax Act up to assessment year 2012- 13.

We find that the reliance placed by the Id. AR in the decision of Hon’ble Bombay High Court in Pr. CIT vs. Apeak Infotech reported in 88 Taxmann.com 695 dt 08.06.2017 wherein the question raised before the Hon’ble Bombay High Court are as under:

A. Whether on the facts and circumstances of the case and in law, the Tribunal was correct to uphold the decision on Commissioner of Income Tax (Appeals) that the share premium received by the assessee-company cannot be taxed under Section 68 of the Act ignoring the ratio laid down by this Court in its decision reported in the case of Major Metals Ltd. vs. Union of India [2013J 3591TR 450 (Bom)?

B. Whether on the facts and circumstances of the case and in law, the Tribunal as well as the Commissioner of Income Tax (Appeals) was right in deleting addition made by the Assessing Officer, by holding that the share premium receipt is capital in nature?”

The Hon’ble Court held as under:

Regarding Question A:

(a) The issue raised by the Revenue in this question is to bring to tax the share premium received under section 68 of the Act. We find that the issue of bringing the share premium to tax under section 68 of the Act was not an issue which was urged by the appellant Revenue before the Tribunal. The only issue which was urged before the Tribunal as recorded in paraJ J of the impugned order is the addition of share capital and share application money in the hands of the assessee as income under section 28(iv) of the Act. We find that the Commissioner of Income-tax (Appeals) did considerthe issue of applicability of section 68 of the Act and concluded that it does not apply.

The Revenue seems to have accepted the same and did not urge this issue before the Tribunal. Mr. Bhoot, learned counsel appearing for the Revenue also fairly states that the issue of applicability of section 68 of the Act was not urged by the Revenue before the Tribunal.

(b) It is a settled position in law as held by this court in CIT v. Tata Chemicals Ltd. [20021 J 22 Taxman 6431256 ITR 395 (Bom.) that in an appeal under section 260A of the Act, the High Court can only decide a question if it had been raised before the Tribunal even if not determined by the Tribunal. Therefore, no occasion to consider the question as prayed for arises.

(c) In any case, we may point out that the amendment to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012-13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents-assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. Similarly, the Commissioner of Income-tax (Appeals) on consideration of facts, found that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the Tribunal.

(d) We may also point out that decision of this court in Major Metals Ltd. v. Union of India [20121 19 taxmann.com 1761207 Taxman 185/[20131 359 ITR 450 Bom. proceeded on its own facts to uphold the invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the assessee-company were not creditworthy inasmuch as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000 at premium at Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by this court in its writ jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the authorities that shareholder/share applicants were unidentifiable or bogus.

(e) In the above view Question No. A is not being entertained in view of the decision in Tata Chemical Ltd. (supra). Accordingly, the question (A) is not entertained.

Regarding Question B :

(a) We find that the impugned order of the Tribunal upheld the view of the Commissioner of Income-tax (Appeals) to hold that share premium is capital receipt and therefore, cannot be taxed as income. This conclusion was reached by the impugned order following the decision of this court in Vodafone India Services (P.) Ltd. (supra) and of the apex court in G. S. Homes and Hotel (P.)Ltd. (supra). In both the above cases the court has held that the amount received on issue of share capital including premium are on capital account and cannot be considered to be income.

(c) It is further pertinent to note that the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have. no application to the share premium received by the respondent-assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 (Bom.) has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and would be effective only from the assessment year 2013-14.

(c) In view of the above. question No. B as proposed also does not give rise to any substantial question of law as it is an issue concluded by the decision of this court in Vodafone India Services (P.) Ltd. (supra) and in the apex court in G. S. Homes and Hotels (P.)Ltd. (supra).Thus not entertained.

34. Relying on the aforesaid judicial precedents of Hon’ble High courts and the Tribunal, we are of the opinion that in this AY i.e. AY 2012-13, the amendment in section 68 of the Act took place wherein the addition of proviso was with effect from 01.04.2013 and so is not applicable in this AY. Further, as noted, the definition of income as provided under section 2(24) of the Act at the relevant time (AY 2012-13) did not define as income any consideration received for issue of shares in excess of its fair market This came into effect from 01.04.2013 and thus would have no application to the share premium received by the assessee in the previous year relevant to AY 2012-13. With this back-drop in respect of the requirement of law, let us study the judicial precedents which were laid by the Hon’ble Apex Court and Hon’ble High Courts on the provision of section 68 of the Act, while dealing with Share Capital/loan etc so that we can examine whether pursuant to the specific direction of First Ld Pr CIT, the second AO has discharged his role as an investigator and whether his re-assessment/second assessment order is a plausible view or can be termed as unsustainable view. Before we adjudicate let us look at section 68 of the Act as is applicable in this case and the judicial precedents on the issue at hand.

35. Section 68 under which the addition has been made by the Assessing Officer reads as under:

“68. 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. “

 The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words ‘shall’ be charged to income-tax as the income of the assessee of that previous year”. The Hon’ble Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word “may” and not “shall“. Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Hon’ble Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.

36. In a case wherein the AO made the addition u/s 68 of the Act because the lenders of loan to assessee did not turn up before him [AO], the Hon’ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the  creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon’ble Court has further stressed the presence of word “may” in section 68. The Hon’ble Apex Court  ratio was taken note by the Hon’ble Gujarat High Court in the case of Dy CIT vs Rohini Builders (2002) 256ITR360 wherein the Hon’ble High Court observed  at pages 369 and 370 of this order are reproduced hereunder:-

“Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by’ treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.

37. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon’ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68 of the Act, by holding that the same should be decided by taking into consideration also the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon’ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon’ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the order are reproduced herein below:-

“While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: 

“Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. “ 

********

What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of  the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. “ 

**********

” … If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had’ with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor… “ 

********** 

“In other words, though under section 68 an Assessing Officer is free to show, with  the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ….” 

********** 

“Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by  the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness.”

 38. Further, in the case of CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All.) their lordships, on the issue of discharge of assessee’s onus in relation to a cash credit appearing in his books of account, has observed and held as under:-

“4. The Tribunal has recorded a finding that the assessee has discharged the onus which was on him to explain the nature and source of cash credit in question. The assessee discharged the onus by placing (i) confirmation letters of the cash creditors; (ii) their affidavits; (iii) their full addresses and GIR numbers and permanent account numbers. It has found that the assessee’s burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AA C, setting aside the assessment order.” 

39. We also take note of the decision of the Hon’ble High Court, Calcutta in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata 347 ITR 347 wherein the Court held as follows:

“15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, 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 Assessing Officer to assessee.

16. In the case before us, the appellant by producing the loan-confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements.”

 40. In a case where the issue was whether the assessee availed cash credit as against future sale of product, the AO issued summons to the creditors who did not turn up before him, so AO disbelieved the existence of creditors and saddled the addition, which was overturned by CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO’s decision, which action of Tribunal was challenged in the Hon’ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax 353 ITR 171 wherein the Tribunal’s decision was overturned and decision of Ld. CIT(A) upheld and the Hon’ble High Court held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows:

8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).

 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. 

 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: 

“The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. “ 

11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest

12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also

 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed.

 41. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Hon’ble Jurisdictional Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Hon’ble Court held as follows:

“In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness” of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. 

So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness” of transaction through account payee cheque has been established. 

We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities.”

 42. Our attention was also drawn to the decision of the Hon’ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295:

“Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee- company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.

43. Our attention was also drawn to the decision of the Hon’ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of COMISSIONER OF INCOME TAX, KOLKATA-IV Vs ROSEBERRY MERCANTILE (P) LTD., ITAT No. 241 of 2010 dated 10- 01-2011 has held:

“On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. “ 

It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000/- and Rs.20,00,000/- towards share capital and share premium respectively amounting to Rs.24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs.24,00,000/-. 

On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company. 

As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue. 

After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.

44. Our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd dated 2 December, 2013 in INCOME TAX APPEAL NO.52 OF 2001 wherein the Court held as follows:

“The Assessing Officer was of the view that the increase in share capital by RS.52,03,500/- was nothing but the introduction of the assessee’s own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee. 

Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong.

The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of Rs. 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed. 

The Commissioner of Income Tax Appeals, further found that the Assessee Company received the applications through bankers to the issue, who had been appointed under the guidelines of the Stock Exchange and the Assessee Company had been allotted shares on the basis of allotment approved by the Stock Exchange. The Assessee Company had duly filed the return of allotment with the Registrar of Companies, giving complete particulars of the allottees. 

The Commissioner of Income Tax (Appeals) found that  inquires had confirmed the existence of most of the shareholders at the addresses intimated to the Assessing Officer, but the Assessing Officer took the view that their investment in the Assessee Company was not genuine, on the basis of some extraneous reasons. The Commissioner of Income Tax (Appeals) took note of the observation of the Assessing Officer that enquiry conducted by the  Income Tax Inspector had revealed that nine persons making applications for 900 shares were not available at the given address and rightly concluded that the total share capital issued by the Assessee Company could not be added as unexplained cash credit under ‘Section 68 of the Income Tax Act. Moreover, if the nature and source of investment by any shareholder, in shares of the Assessee Company remained unexplained, liability could not be foisted on the company. The concerned shareholders would have to explain the source of their fund. 

The learned Commissioner on considering the submissions of the, respective parties and considering the materials, found that the Assessing Officer had applied the provisions of Section 68 of the Income Tax Act arbitrarily and illegally and in any case without giving the assessee adequate opportunity of representation and/or hearing. 

Learned Tribunal agreed with the factual findings of the learned Commissioner and accordingly the learned Tribunal dismissed the appeal of the Revenue and affirmed the decision of the learned Commissioner. 

Mr. Dutta appearing on behalf of the petitioners cited judgment of the Division Bench of this Court in Commissioner of Income Tax Vs. Ruby Traders and Exporters Limited reported in 236 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction. 

The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too,  in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment. 

By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law. 

The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factual findings cannot be interfered with, in appeal. We are of the view that once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds.”

45. Further, our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the case of Commissioner of Income Tax vs M/s. Leonard Commercial (P) Ltd on 13 June, 2011 in ITAT NO 114 of 2011 wherein the Court held as follows:

“The only question raised in this appeal is whether the Commissioner of Income-tax (Appeals) and the Tribunal below erred in law in deleting the addition of Rs.8,52,000/-, Rs. 91,50,000/- and Rs. 13,00,000/- made by the Assessing Officer on account of share capital, share application money and investment in HTCCL respectively. 

After hearing Md. Nizamuddin, learned Advocate appearing on behalf of the appellant and after going through the materials on record, we find that all such application money were received by the assessee by way of account payee cheques and the assessee also disclosed the complete list of shareholders with their complete addresses and GIR Numbers for the relevant assessment years in which share application was contributed. It further appears that all the payments were made by the applicants by account payee cheques. 

It appears from the Assessing Officers order that his grievance was that the assessee was not willing to produce the parties who had allegedly advanced the fund. 

In our opinion, both the Commissioner of Income-tax (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars. 

The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants. 

In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. 

We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the  present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. 

The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law.

46. In the light of the afore-cited judicial precedents, let us examine the case in hand and find out whether pursuant to the specific direction of First Ld. Pr. CIT, the second AO has discharged his role as an investigator in respect of share capital and premium collected by the assessee or whether the AO failed to enquire on this issue and whether his re- assessment/second assessment order is a plausible view or it can be termed as an unsustainable view in law. We on a conjoint reading of the First Revisional Order of the First Pr. CIT dated 23.08.2016 and the reassessment /Second assessment of the AO dated 07.12.2016, the following facts can be discerned:-

(a) The First Ld. Pr. CIT has recorded a finding after perusal of the first assessment records/folder that during the first round of scrutiny proceeding, the assessee company produced the following documents before the first AO in the original assessment to satisfy the AO in respect of identity, creditworthiness and genuineous of share subscribers:-

(i) audited financial statements;

(ii) copy of Form filed with the ROC;

(iii) copy of PAN Card of the assessee company;

(iv) details and copy of share applicants;

(v) bank statement reflecting the transaction;

(vi) records relating to investors in order to establish identity, genuineness and creditworthiness of the share

47. We note that the First Ld. Pr. CIT in his first revisional order, found that AO in the first assessment proceedings though has been provided with the aforesaid documents has not examined these documents, which according to him, should have been carried out by the AO. The First Ld. Pr. CIT at para (4) of his first revisional order has clearly made a finding that “ From the above discussion it is evident that the assessment proceedings in the case of assessee was completed in a very casual manner and hurried manner flouting all established  The assessee   had  discharged  its  onus  by  furnishing/documents  before the AO.”Further, the First Ld. Pr. CIT mainly found fault with the AO’s order for non-issuance of notice u/s. 133(6) of the Act to the shareholders. The First Ld. Pr. CIT found fault with the AO’ s order in not discussing the basis of evidence on which adverse inference was drawn against the assessee. Moreover, the First Ld. Pr. CIT found fault with the AO for not bothering to examine the contention of the assessee or to bring on record anything against the assessee and thus according to him, the AO with  a pre-determined mind has simply jumped to the conclusion that the share capital collected by assessee as unexplained cash credit u/s. 68 of the Act. Therefore, according to the First Ld. Pr. CIT, the first original assessment order framed u/s. 143(3) of the Act dated 26-03-2015 was against the principle of natural justice and, therefore, he found it fit to order denovo assessment and gave specific direction in respect of share capital & premium collected by assessee.

48. Thereafter, the ld. Pr. CIT was pleased to direct “……………assessment order  passed on 26.03.2015 is set aside de novo with the direction to the AO to carry out proper  examination of books of account and bank statement of the assessee as well as the investor.

 The AO is also directed to examine the source of share application, entity of investor and its  genuineness”. (emphasis given by us). He also directed that the assessment proceedings to be initiated at the earliest and to be completed without waiting for time bar limit. With the aforesaid specific direction, the First Ld. Pr. CIT has set aside the first original assessment order dated 26-03-2015.

49. So we note that the second AO was specifically directed by the First Ld. Pr. CIT to carry out the followings actions in addition to de-novo assessment which means the second AO is free to assess the income of assessee afresh, however, he has to do the following specific actions as directed in respect of share-applicants who applied for shares in assessee- company. The specific directions of Ld. Pr CIT to AO are as under:

(i) To carry out proper examination of the books of accounts and bank account of the assessee;

ii) To carry out proper examination of the books of accounts and bank account of the investors;

iii) AO to examine the source of the share applicants;

iv)  The AO to examine the identity of the investor and its genuineness;

v) The AO to complete the assessment at the earliest without waiting for the time barring

50. In the second round before the AO for de novo re-assessment, the second AO as per the specific direction of the First Ld. Pr. CIT (supra), conducted the reassessment proceeding. As per the specific direction of Ld. First Pr. CIT, the Second AO firstly summoned the director of the assessee company Shri NavinTahin before him, who duly appeared and produced the books of account on 01.12.2016 and furnished the relevant details , (i) copy of ITR, (ii) audited accounts, (iii) details of directors, (iv) the details of the share-applicants, (v) details of business activity, (vi) details of increase in share capital, (vii) Form 2, (viii) Form 5, (ix) bank statements evidencing payment through banking transaction, which fact the AO has acknowledged in the reassessment order. [And here we should keep in mind that the First Ld. Pr. CIT’s finding of fact after perusal of original assessment records that assessee in the first round before AO has produced PAN,ROC details, audited financial statements, details and copy of share applicants, bank statements reflecting the transaction, records relating to investors to establish identity, creditworthiness & genuineness. And the finding of First Ld. Pr. CIT that assessee had discharged its onus by furnishing/documents before the AO.]Secondly, after examining these documents, we also find that the second AO issued notices u/s. 133(6) of the Act to all the thirteen (13) share applicants and pursuant to the notice, all the shareholders have filed their respective (i) PAN details, (ii) CIN detail, (iii) Audited Annual Report for FY 2011-12 (AY 2012-13), (iv) ITR acknowledgment for AY 2012-13 which the AO acknowledges that he verified the same and thus we note that the identity of the investors were duly furnished by the assessee’s director; and the AO verified the veracity of the same from all the share applicants by issuing notice u/s 133(6) of the Act and moreover it is common knowledge that in this computer/digital era, the AO on a click of the mouse, could have easily verified the identity of the share applicant which is available in the website of Ministry of Corporate Affairs and the ITR Acknowledgments filed by them, will enable the AO to cross verify and collect details from the AO of the respective share applicants and independently from the Revenue’s departmental data base. We note that all the share subscribing parties filed all the documents called for by the AO [PB-2] and were also examined by the AO along with audited accounts from which these details show their identity.

Sl N.	Name of company	CIN	PAN	ITR filed for AY 2012-13
1.	M/s. K. R. Overseas Pvt. Ltd.	U51109WB1994PTC061965	AACCK0101B	yes
2.	M/s. Kakrania Trading Pvt. Ltd.	U70101WB1994PTC062137	AABCK151611	yes
3.	M/s. AmbalaTrafin Pvt. Ltd.	U67120WB1995PTCO74397	AACCA1184G	yes
4.	M/s. Subhiksha Pvt. Ltd.	U52190WB2011PTC157073	AAPCS2068E	yes
5.	M/s. Shivarshi Construction Pvt. Ltd.	U45400WB2011PTC170957	AAQCS7848M	yes
6.	M/s. Shivashiv Pvt. Ltd.	U74999WB2012PTC 173749	AARCS0094C	yes
7.	M/s. Flowtop Agency Pvt. Ltd.	U52190WB2012PTC 173352	AABCF9036D	yes
8.	M/s. SukhSagar Residency Pvt. Ltd.	U45400WB2011PTC170958	AARCS1553N	yes
9.	M/s. Kamaldhan Developers Pvt. Ltd.	U45400WB2011PTC170944	AAECK6810D	yes
10.	M/s.    LabhdhanImpex  Pvt. Ltd.	U51909WB2011PTC171524	AACCL2111J	yes
11.	M/s.    SubhsreeImpex   Pvt. Ltd.	U51909WB2011PTC171513	AARCS1845D	yes
12.	M/s.    Maharaja   Merchants Pvt. Ltd.	U51109WB2005PTC102343	AAECM224E	yes
13.	M/s. Sristi Sales Pvt. Ltd.	U51109WB2005PTC102121	AAICS8900L	yes

51. Thus, we note that the AO after verification as aforesaid, has not drawn any adverse opinion or doubted the identity of the share applicants which view of AO is a possible view in the light of the documents referred to and we also by applying the presumption in section 114 of Indian Evidence Act 1872, we presume that the quasi-judicial act of the second AO have been regularly performed. Coming to the contention of Ld. CIT, DR, that order sheet maintained by the Second AO does not reveal that AO had issued notice u/s. 133(6) of the Act to the share subscribers, we note that the AO in his reassessment/second assessment order has clearly asserted that he had issued notice u/s. 133(6) of the Act to all the share applicants as directed by the First Ld. Pr. CIT and we note from the perusal of some letters written by the share applicants clearly referring to the AO’s sec. 133(6) notice (refer inter- alia page 32 of PB-I). So, the clear assertion of the Second AO in his order that pursuant to his issue of notice u/s. 133(6), he received the documents called for cannot be disbelieved merely because he did not mention this event in the order sheet. Moreover, the assessee or the share applicants does not have any control over the order sheet maintained by the AO and the failure of AO to mention this action cannot be a reason to disbelieve the AO’s assertion that he issued notice u/s. 133(6) of the Act. Moreover, we have to examine the re- assessment/second assessment order of AO and not the order-sheet maintained by him which has not been negatively commented upon by the Second Ld Pr CIT and it is not the fault for which the Ld Pr CIT exercised his power u/s 263 of the Act. Thus, we note that second AO issued sec. 133(6) notice and collected documents running more than 352 pages. Moreover, the First Ld. Pr. CIT while setting aside the first AO’s order has returned a finding that assessee in the first round itself has filed the relevant documents to prove the identity, creditworthiness and genuineness of the share capital and that assessee had discharged its onus by filing the same. So we find that during the second round, the AO issued notices to share-holders u/s. 133(6) and after perusing their replies and supporting documents and thereafter having verified their veracity, the second AO was satisfied with the explanation of assessee in respect to the nature and source of share capital which view of second AO cannot be faulted. And we also note that all the share-holders are regular income tax assessee’s. Therefore in the light of the aforesaid documents discussed their identity cannot be disbelieved and the AO’s satisfaction in respect of identity of the shareholders is a possible view and cannot be termed as unsustainable in law or facts.

52. Coming to the creditworthiness of the shareholders, our attention was drawn to the balance sheet of the shareholders (PB- 2) which was filed before the AO and the Ld. Pr. CIT and we note that their source of investment and net worth as per balance sheet as on 31.03.2012 as well as the sum invested by them in the assessee is discernible as under:

Name	Source of investment	Capital & Reserves	Sum invested in assessee’s business
M/s. K. R. Overseas Pvt. Ltd.	Page 8 Paper Book-2	Rs.66,77,47,921 (page 22 PB-2)	Rs.1,30,000/-
M/s. Kakrania Trading Pvt. Ltd.	Page 45Paper Book-2	Rs.66,52,71,914 (page 62 PB-2)	Rs.1,39,00,000/-
M/s. AmbalaTrafinpvt. Ltd.	Page 88Paper Book-2	Rs.624,711,003 (page 101 PB-2)	Rs.4,40,00,000/-
M/s. Subhiksha Pvt. Ltd.	Page 115Paper Book-2	Rs.222,397,317 (page 128 PB-2)	Rs.45,00,000/-
M/s. Shivarshi Construction Pvt. Ltd.	Page 146Paper Book-2	Rs.53,89,95,046 (page 153 PB-2)	Rs.4,66,00,000/-
M/s. Shivashiv Pvt. Ltd.	Page 170Paper Book-2	Rs.14,29,56,146 (page 178 PB-2)	Rs.6,55,00,000/-
M/s. Flowtop Agency Pvt. Ltd.	Page 193Paper Book-2	Rs.15,38,94,946 (page 200 PB-2)	Rs.4,49,00,000/-
M/s. Sukh Sagar Residency Pvt. Ltd.	Page 212 Paper Book-2	Rs.56,18,93,960 (page 220 PB-2)	Rs.2,31,00,000/-
M/s. Kamaldhan Developers Pvt. Ltd.	Page246-247Paper Book-2	Rs.56,18,94,080 (page 254 PB-2)	Rs.12,54,00,000/-
M/s. Labhdhan Impex Pvt. Ltd.	Page 270PaperBook-2	Rs.56,18,94,080 (page 277 PB-2)	Rs. 3,80,00,000/-
M/s. SubhsreeI mpex Pvt. Ltd.	Page 290 of paper book	Rs.76,60,93,960 (page 297 PB-2)	Rs. 2,76,00.000/-
M/s. Maharaja Merchants Pvt. Ltd.	–	Rs.1,54,58,399 (page 313 PB-2)	Rs. 50,00,000/-
M/s. Sristi Sales Pvt. Ltd.	–	Rs.1,12,25,632 (page 336 PB-2)	Rs.50,00,000/-

53. So, from a perusal of the above chart, we note that the assessee and the shareholders have brought to the notice of Second AO that they (share subscribers) have enough net worth to invest in the assessee company and the share subscribing companies pursuant to the AO’s notice u/s. 133(6) of the Act have furnished their respective audited accounts from which the aforesaid facts are clearly discernible and moreover the share subscribers have also filed before the second AO the source from which they subscribed to shares of assessee (though not required as per law in force for AY 2012-13), bank statement, audited balance sheet etc except M/s Maharaja and M/s Sristi Sales. Thus the assessee had discharged the onus on it about the creditworthiness of the share- holders. So we note that the source of the investments has been clearly brought to the notice of the second AO during the assessment/reassessment proceedings. Further,  the bank statements of all the shareholders as well as that of assessee were filed before the AO, which revealed that the share capital and premium have been subscribed by them through banking channel (NEFT or cheque) which goes on to show that the assessee has discharged the onus in respect of genuineness of the transaction. Based on the documents and materials called for by the AO who  accepted the same after verification is an act of enquiry. And we note that revenue has not brought on record any material to challenge the veracity of the documents referred to above. Moreover, the second Ld. Pr. CIT in his impugned order has not brought any material to rebut the presumption of second AO to justify his intervention u/s. 263 of the Act and which would have upset the decision of the second AO’s factual view on the identity, creditworthiness and genuinity of the share transaction. In such a scenario, the second AO’s view based on the documents referred to by him is a plausible view and in consonance with judicial precedents (supra) which we would like to discuss/ examine each share subscribers totaling thirteen (13) infra;-

(i) On perusal of the paper book-2, it reveals that the documents are placed at page 12 to 37 of share applicant M /s. K.R. Overseas Pvt. Limited which is a Private Limited Company, and which has Permanent Account No. AACCK0101B and CIN U51109WB1994PTC061965 and its Net-worth as on 31.03.2012 (in total)- share capital & reserve is to the tune of Rs.66,77,47,921/- (PB page 22) and the investment made in the assessee-company including the share premium comes to Rs.1,30,00,000/-.  The  payment  has  been  made  through  banking  channel  and deposit amount of Rs.1,05,00,000/- took place as on 01.03.2012 by NEFT and Rs.25,00,000/- as on 06.03.2012. The Board Resolution for investment of the Company is filed and the share application form, ITR acknowledgment, Bank statement, explanation of source of funds as well as financial statements have been filed by the assessee at P. B page 3-37and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicant had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(ii) We note from a perusal of the paper book-2 pages 38 to 77, the details of share applicant M /s. Kakrania Trading Pvt. Ltd. It is a Private Limited  Company which has a PAN AABCK151611and its CIN number is U70101WB1994PTC062137 and the Net worth of this company as on 31.3.2012Rs.66,52,71,914/- (PB- page62) and investment made in the assessee company is to the tune of Rs.1,39,00,000/- and this share applicant has made the transaction through banking channel four times on 01.03.2012 Rs.30,00,000 through NEFT; and by cheque on 02.03.2012a sum of Rs. 59,00,000/-; and on 7.3.2012 and by cheque  on 12.3.2012 Rs. 25 lakh each. There is board resolution for investment in assessee’s company and Share Application Form, Bank statement, ITR acknowledgement, and explanation of source of fund as well as financial statement available in the PB-page 39 to 77. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicant by adducing PAN as well as income-tax returns. The financial statement shows that the share applicants had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicant had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(ii) We note from a perusal of the paper book-2 pages78 to 111, the details of share  applicant M /s. Ambala   Trafin Pvt. Ltd. It is a Private Limited Company which has a PAN AACCA1184G and its CIN number is U67120WB1995PTCO74397 and the Net worth of this company as on 31.3.2012 Rs.62,47,11,003- (PB-page101) and investment made in the assessee company is to the tune of Rs. 4,40,00,000/- and this share applicant has made the transaction through banking channel on 01.03.2012 Rs. 25 lakhs; and on 03.03.2012 Rs. 40 lakhs through NEFT; and by cheque on Rs. 3,75,00,000/-on 27.3.2012 . There is board resolution for investment in assessee’s company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 79 to 111 in the PB-II. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. Thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(iv) We note from a perusal of the paper book pages-2,112 to 137, the details of share applicant M/s. Subhiksha Pvt. Ltd. It is a Private Limited Company which has a PAN AAPCS2068E and its CIN number is U52190WB2011PTC157073 and the Net worth of this company as on 31.3.2012 Rs.22,23,97,317/- (PB-page 128.) and investment made in the assessee company is to the tune of Rs. 45,00,000/- and this share applicant has made the transaction through banking channel on 02.03.2012 a sum of Rs.45 lakhs through NEFT. There is board resolution for investment in assessee’s company and Share Application Form Bank statement,  ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 113 to 137 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(v) We note from a perusal of the paper book-2, pages 138 to 159 the details of share  applicant  M /s.  Shivarshi  Construction  Pvt.  Ltd.  It  is  a  Private  Limited  Company which has a PAN AAQCS7848M and its CIN number is U45400WB2011PTC170957 and the net worth of this company as on 31.3.2012 Rs.53,89,95,046/- (PB-page 153) and investment made in the assessee company is to the tune of Rs. 4,66,00,000/- and this share applicant has made the transaction through banking channel on 29.03.2012 Rs.4,66,00,000/-through Cheque.  There  is board resolution for investment in assessee’s company and Share Application Form Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 139 to 159 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to  prove  the  identity,  creditworthiness  and  genuineness  of  the  transactions.

Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

We note from a perusal of the paper book pages-2, 160 to 184 the details of share applicant M/s. Shivashiv Dealcom Pvt. Ltd. It is a Private Limited Company which has a PAN AARCS0094C and its CIN number is U74999WB2012PTC 173749 and the net worth of this company as on 31.3.2012 Rs.14,29,56,146/-(PB- page 178) and investment made in the assessee company is to the tune of Rs.6,55,00,000/- and this share applicant has made the transaction through banking channel on 29.03.2012 Rs.6,55,00,000/- through Cheque. There is board resolution for investment in assessee’s company and Share Application  Form Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 161 to 184 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(vi) We note from a perusal of the paper book-2, pages 185 to 206 the details of share applicant M /s. Flowtop Agency  Pvt. Ltd.    It is a Private Limited Company which has a PAN AABCF9036D and its CIN number is U52190WB2012PTC 173352and the net worth of this company as on 31.3.2012 Rs.15,38,94,946/- (PB- page 200 ) and investment made in the assessee company is to the tune of Rs. 4,49,00,000/- and this share applicant has made the transaction through banking channel  on   30.03.2012   Rs.4,49,00,000/-     through   Cheque. There  is board resolution for investment in assessee’s company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 186 to 206 n the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee- company after getting the notice under section 133(6) of the Act.

(vii) We note from a perusal of the paper book pages-2,207 to 226 the details of share  applicant  M /s.  SukhSagar  Residency Pvt. Ltd. It  is  a  Private Limited Company which has a PAN AARCS1553N and its CIN number is U45400WB2011PTC170958and the net worth of this company as on 31.3.2012 Rs.56,18,93,960/-(P.B-2 pages-220) and investment made in the assessee company is to the tune of Rs.2,31,00,000/- and this share applicant has made the transaction through banking channel on 31.3.2012 Rs. 2,31,00,000/- through NEFT. There is board resolution for investment in assessee’s company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 208-226 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements and thus we note that the assessee had duly discharged its onus to prove the identity of the share applicants by adducing PAN as well as income-tax returns. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(ix) We note from a perusal of the paper book-2, pages 227 to 261 the details of share applicant M /s. Kamaldhan Developers Pvt. Ltd.   It is a Private Limited Company which has a PAN AAECK6810D and its CIN number is U45400WB2011 PTC 170944 and the net worth of this company as on 31.3.2012 Rs.56,18,94,080/- and investment made in the assessee company is to the tune of Rs.12,54,00,000/- and this share applicant has made the transaction through banking channel on 31.03.2012 Rs. 12,54,00,000/- through NEFT. There is board resolution for investment in assessee’s company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 228 to 261 in the PB. This share applicant regularlyfiled Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(x) We note from a perusal of the paper book-2, pages 262 to 283 the details of share applicant M/s. Labhdhan Impext Pvt. Ltd. It is a Private Limited Company which has a PAN AACCL2111J and its CIN number is U51909WB2011PTC171524 and the net worth of this company as on 31.3.2012 Rs.56,18,94,080/- (P.B-2, page 277) and investment made in the assessee company is to the tune of Rs.3,80,00,000/- and this share applicant has made the transaction through banking channel on 31.03.2012 a sum of 3,80,00,000/- through NEFT. There is board resolution for investment in assessee’s company and Share Application Form, Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 163-283 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(xi) We note from a perusal of the paper book-2 pages 284 to 303 the details of share applicant M /s. Subhsree Impex  Pvt. Ltd.    It is a Private Limited Company which has a PAN AARCS1845D and its CIN number is U51909WB2011PTC171513 and the net worth of this company as on 31.3.2012 Rs.76,66,93,960/- (P.B-2, page-297)and investment made in the  assessee company is to the tune of Rs.2,76,00,000/- and this share applicant has made the transaction through banking channel on 31.03.2012 a sum of Rs.2,76,00,0000/- through NEFT. There is board resolution for investment in assessee’s company and Share Application Form , Bank statement, ITR acknowledgement, explanation of source of fund as well as financial statement available in the PB-page 285-303 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. This company has furnished the details of source of Funds and has duly filed financial statements. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(xii) We note from a perusal of the paper book-2, pages 304 to 326 the details of share  applicant  M /s.  Maharaja  Merchants  Pvt.  Ltd.  It is a Private Limited Company which has a PAN AAECM224E and its CIN number is U51109WB2005PTC102343 and the net worth of this company as on 31.3.2012 Rs.1,54,58,399/-(page 313 of P.B-2)and investment made in the assessee  company is to the tune of Rs.50 lakhs and this share applicant has made the transaction through banking channel on 28.02.2012 a sum of Rs.50lakhs through Cheque. There is Share Application Form, Bank statement, ITR  acknowledgement, financial statement available in the PB-page 304 to 326 in the PB. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Further, it is noted that the share applicants had furnished the source of investment made in the assessee-company after getting the notice under section 133(6) of the Act.

(xiii) We note from a perusal of the paper book-2 pages 327 to 352 the details of share applicant M /s. Sristi Sales Pvt. Ltd.    It is a Private Limited Company which has a PAN AAICS8900L and its CIN number is U51109WB2005PTC 102121 and the net worth of this company as on 31.3.2012 Rs.1,12,25,612/- and  investment made in the assessee company is to the tune of Rs.50 lakhs and this share applicant has made the transaction through banking channel on 28.02.2012 a sum of Rs. 50 lakhs through Cheque. There is Share Application, Bank statement, ITR acknowledgement, financial statement available in the PB-2, page 328 to 352. This share applicant regularly filed Income Tax Return (ITR) and it has filed its Bank statement. The financial statement shows that the share applicant had enough funds to invest in the assessee-company and the transaction has happened through banking channel. Thus the assessee has discharged the onus to prove the identity, creditworthiness and genuineness of the transactions. Thus from the discussion above, it is noted except the last two investors  the other eleven (11) share applicants out of thirteen (13) share-holders had furnished the source of investment made in the assessee-company after getting the notice from second AO under section 133(6) of the Act. Thus we note that the AO on the basis of the aforesaid documents has taken a plausible view and did not draw any adverse inference against the assessee, and the view thus taken by the AO cannot be termed as unsustainable in law.

54. So, from the aforesaid facts revealed during the second round, we note that AO has discharged his duty as an Investigator and enquired as per the direction of the First Ld. Pr. CIT dated 23.08.2016 u/s. 263 of the Act (First 263 order) and further we note that the Second Ld. Pr. CIT while issuing the Show Cause Notice while exercising his revisional jurisdiction for second time has not made even a single allegation about the non- compliance/failure on the part of Second AO in respect of the specific direction given by the First Ld. Pr. CIT dated 23.08.2016 while setting aside the original assessment order passed by the AO dated 26.03.2016. In other words, in the impugned order the second Ld. Pr. CIT has not found fault with the action of the second AO in giving effect to the specific directions given by him while passing the first revisional order on 23.08.2016. Thus, we note that when the second AO while framing the reassessment order pursuant to the specific direction of the First Ld. Pr. CIT’s order dated 23.08.2016 (first revisional order) has complied with the specific directions of the First Ld. Pr. CIT and based on the inquiry conducted and after perusal of the documents running more than 352 pages which reveals the identity, creditworthiness and genuineness of the share capital and premium collected by the assessee from the share subscribers, the satisfaction of AO as envisaged in sec. 68 of the Act is a plausible view and the fact that the share subscribers responded to sec. 133(6) notice and produced all documents along with the audited financial statements and other documents referred supra, the assessee had discharged the onus upon it about the identity creditworthiness and genuineness of the share capital and premium collected by the assessee from the respective share subscribers. Since the aforesaid exercise was carried out by the second AO in the reassessment proceedings and the documents referred to above are in the assessment folder, the Second Ld. Pr. CIT erred in holding the reassessment order of the AO in respect of share capital and premium collected by the assessee as erroneous as well as prejudicial to the interest of the revenue. In the light of the aforesaid discussions and on perusal of the documents, we are of the view that AO’s view to accept the identity, creditworthiness and genuineness of the share capital and premium collected from the share subscribers was a plausible view and at any rate can be termed as an unsustainable view on law or facts

55. Further, we also take note that while he proposed to interfere u/s. 263 of the Act, he had opined that there was no detailed or independent enquiry but finally concluded that there was lack of enquiry. So, the Ld. Second Pr. CIT accepts that there was enquiry made by the second AO, however, he concludes that there was lack of enquiry. So when there was an enquiry conducted by AO then the AO has discharged the duty of an investigator. And we note that all the documents referred to above are available is the assessment folder before the Second Ld. Pr. CIT and he could have easily examined the veracity of these documents from the department’s data base by click of a mouse and could have recorded his finding of fact if he found anything wrong with these share subscribers and could have pointed out the adverse fact, if any, which the Second Ld. Pr. CIT has not made in the impugned order. So the inference that can be drawn is that the veracity of the factual contents of the documents running more than 352 pages (PB-2) could not be factually controverted by the Second Ld. Pr. CIT. And still if the Ld. Pr. CIT is not satisfied and wanted to interfere invoking jurisdiction u/s. 263 of the Act, he has to show that the enquiry conducted by AO was flawed or the enquiry conducted by AO was on a wrong direction or on wrong assumption of fact/law or that the AO misdirected himself in factual investigation or applied the law erroneously in respect of the facts collected by him. For doing so, in the facts discussed supra, he second (Ld. Pr. CIT) should himself had conducted an enquiry or at least conducted a preliminary enquiry and was able to bring some evidence/material on record to upset the AO’s satisfaction in respect of identity, creditworthiness or genuineness of the share subscribers and thus recorded a finding of fact that the decision of AO’s enquiry was faulted or wrong and in that process tried to show that it has resulted in a view which is “unsustainable in law” which would have justified his action of passing the impugned order u/s. 263 of the Act, which unfortunately is not the case. Since the AO’s view on the facts collected and discussed is definitely a possible view, so in the factual background discussed in detail, we are of the considered opinion that Ld. second Pr. CIT ought not to have interfered with the AO’s reassessment order which in any case can be classified as ‘unsustainable in law’ since it is in line with plethora of judicial decisions of the subjects.

56. To sum up, we find from the above said facts that the Second AO has conducted enquiry as directed by the First Ld. Pr. CIT on the specific subject matter i.e. share capital and premium collected by the assessee-company. Therefore, the finding of Second Pr. CIT that the Second AO has not conducted enquiry is incorrect and is flowing from suspicion only. And as discussed, the allegation/fault pointed out by the Second Ld. Pr. CIT that the Second AO failed to collect total facts also cannot be accepted for the simple reason that Ld. Pr. CIT has not spelt out in the impugned order what he meant by total facts or in the alternative when the assessee has discharged its onus, as required by the law in force in this AY 2012-13, then the Ld. Pr. CIT ought to have called for which ever additional documents/materials or issued summons or issued notices and collected those facts which according to Second Ld. Pr. CIT, the AO omitted to collect and then demonstrated that those actions/documents which he collected in that process gave result to  a  different finding of fact which will turn upside down the claim of the assessee and thus able to show that the actions/omission of AO in conducting the investigation was erroneous, which unfortunately is not the case before us. And equally bad is the bald allegation/fault that second AO has not collected total facts cannot be accepted being vague and based on conjectures and surmises and so meritless. Since the assessee company has discharged its onus as discussed supra, and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO’s omission to collect the additional documents. However, we note that the Second Pr. CIT has not carried out any such exercise or even spelled out in his impugned order, which all documents the second AO failed to collect for considering the total facts; and even if we presume he has conducted such an exercise, then he has not been able to bring out any adverse factual finding to upset the view of Second AO. So we find no merit in the vague allegation of second Pr. CIT that the second AO has not collected the full facts necessary to decide the issue of share capital & So we note that the Second AO, the assessing authority who is a quasi- judicial office has discharged his dual role as an investigator as well as an adjudicator. Looking  from another angle of doctrine of merger canvassed before us, we note from the facts of this case that the second Ld. Pr. CIT – 4 by passing the second revisional order dated 14.03.2019 has substituted the First Pr. CIT’s order passed u/s. 263 of the Act dated 23.08.2016 with his own order which he cannot do since the second assessment order/re-assessment of the Second AO dated 07.12.2016 was pursuant to the first revisional order of the First Ld. Pr. CIT and on the very same subject matter on which specific directions/instructions were given by the First Ld. Pr.CIT, which direction since having been complied by the AO, brings into operation the doctrine of merger the subject matter i.e. share capital & premium collected by assessee company. Resultantly the second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator, which exercise  the Second Ld. Pr.CIT has not done, so the second Ld. Pr. CIT cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. And if this practice is allowed, then there will be no end to the assessment proceedings meaning no finality to assessment proceedings and that is exactly why the Parliament in its wisdom has brought in safe-guards, restrictions & conditions precedent to be satisfied strictly before assumption of revisional jurisdiction. Be that as it may be, as discussed above, we find that the Second Ld. Pr. CIT without satisfying the condition precedent u/s 263 of the Act has invoked the revisional jurisdiction (second time), so all his actions are ab initio void.

 57. Lastly, coming to the observations of the Second Ld. Pr.CIT that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue in accordance with Explanation 2(c) to section 263(1) of the Act.[ For ready reference it is reproduced.] Explanation 2 under section 263 of the Act reads as under:-

For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if in the opinion of the Principal Commissioner or Commissioner,-

(a)……….

(b)………..

(c)the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

58. However, we note that the Ld. CIT(A) has made a bald statement that the AO’s assessment order attracts Explanation 2(c) u/s. 263 of the Act. However, he failed to spell out in his impugned order how the action of AO while framing the assessment order is not in accordance to any order, direction or instruction issued by the Board under section 119 of the Act. So, the deeming fiction as envisaged in Explanation (2) u/s. 263 of the Act cannot be used to interfere with the order of AO. This action of Ld. Pr. CIT is bad for non- application of mind. In the light of the aforesaid discussion and case laws cited supra, we find merit in the appeal filed by the assessee, therefore, we allow the appeal of assessee on the ground that since the Ld. Pr CIT has exercised his revisional jurisdiction u/s. 263 without satisfying the condition precedent as stipulated in section 263 of the Act. Therefore, we hold that the impugned action of the Ld. Pr. CIT is without jurisdiction and, therefore, is null in the eyes of law and consequently it is quashed and since we allowed ground number 2&3 of the original grounds raised by the assessee, the other additional grounds are left open. As discussed the impugned order of Ld Pr CIT is quashed.

59. In the result, the appeal of assessee is allowed.

Order is pronounced in the open court on 12th  August, 2020.