Issue of Share at Premium- CIT can revise order u/s 147 by invoking provision of section 263- ITAT Kolkata
Brief of the case:
In these cases there are 18 different assessees who filed appeal before ITAT aggrieved from the order u/s 263 passed by CITs. In original proceedings AO passed orders with nominal additions after investigation by way of summoning various subscribers to share capital of assessee companies. Subsequently, CIT issued notice u/s 263 and found assessment order erroneous and prejudicial to the interest of the revenue. In order to decide the appeals on merits, ITAT examined two broader questions : –
A) Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company?; and
B) Whether the failure of the AO to give a logical conclusion to the enquiry conducted by him gives power to the CIT to revise such assessment order?
ITAT considered the facts and submissions of the assessee and held that the proceedings u/s. 263 of the Act to revise the order passed by the AO u/s. 147 of the Act, are valid and cannot held to be without jurisdiction.
Facts of the case:
- ITAT found that in all cases 0f 18 different assessee the facts of the case are similar.
- The facts of M/s Subhlakshmi Vanijya Pvt. Ltd. are that assessee filed its return declaring total income of Rs.1,478/- which was processed u/s 143(1). Subsequently assessee submitted a letter before AO and offered an amount of Rs. 18,449/- for taxation.
- The AO issued notice u/s 148 and completed the assessment.
- The AO observed that during the course of reassessment proceedings that the assessee issued fresh share capital of Rs.14,71,800/- on premium of Rs.7,21,18,200/-.
- Notices u/s 133(6) were issued to eight subscribers to the share capital out of total 21 subscribers. Replies to such notices were received confirming subscription to the equity share capital of the assessee company at premium.
- After considering the replies of the assessee AO finalized assessment on 29,530/- which include addition of Rs.18,449/- offered by assessee and Rs. 9,600/- on account of preliminary expenses.
- The CIT after perusing the assessment record, observed that the issue of share capital with huge share premium, was not properly examined by the AO inasmuch as notices were issued u/s 133(6) to only eight subscribers against the total number of 21 subscribers of the assessee company.
- CIT further noticed that replies in response to notices u/s 133(6) were received in the office of the AO, which appeared to have been prepared by a single person as these were more or less in the same format and language.
- In this backdrop of the facts, it was opined that the entire exercise of filing confirmations was stage-managed by a single person or a group of persons to complete the formalities of filing confirmations.
- CIT accordingly directed AO to make a fresh assessment after proper examination of share premium. CIT observed that the AO ought to have conducted thorough enquiry into at least 2-3 layers to reach the source or the real investor.
- Issue of a share with a face value of Rs.10/- by the assessee company at a premium of Rs.490/- per share required thorough examination by the AO.
- In case of an another assessee assessment was repened by means of notice u/s 148. During the course of assessment proceedings, it was noticed by the AO that this company had issued shares with face value of Rs.10 at a premium of Rs.190.
- Notices u/s 133(6) were issued to some of the subscribers. Replies were received. No further inquiries on the question of issue of share capital at premium were conducted.
- Assessment was finalized on the total income of Rs.20,447 making certain disallowances.
- The CIT set aside the assessment order on more or less the same reasoning as given in the case of M/s Subhlakshmi Vanijya Pvt. Ltd. (supra) and directed the AO to reframe the assessment fresh on the lines as directed by him in the case of M/s Subhlakshmi Vanijya Pvt. Ltd. (supra).
- All other assessee companies also issued shares at a huge premium (ranging from Rs.90 to Rs.490 per share having face value of Rs.10) and made investments in the shares of other private limited companies at a very high price. In all these cases, returns were filed with meager income.
- Some of the assessee took plea of improper or non-service of notice u/s 263 and prayed for quash of order u/s 263 and while in one case it was contended that no proceeding was initiated u/s 263 after the initiation of search.
Contention of the revenue:
