Hollis Vitrified Pvt. Ltd. Vs PCIT (ITAT Rajkot)
ITAT Rajkot Upholds Sec 263 Revision – Failure to Verify Share Capital Source of Source Makes Assessment Order Erroneous
In Hollis Vitrified Pvt. Ltd. vs PCIT (AY 2018-19), the ITAT Rajkot dismissed the assessee’s appeal and upheld revisionary action u/s 263, holding that the original assessment was passed without proper enquiry into share capital, share premium and unsecured loans. The PCIT noticed that the company had received ₹10.15 crore from about 30 investors, many having very low declared income and insufficient financial capacity, while the AO accepted the transactions merely on the basis of ITR acknowledgements and bank statements without deeper verification.
The Tribunal observed that after amendment to sec 68 (applicable from AY 2013-14), a closely-held company must also prove the “source of source” of share capital/share premium. Since the assessee failed to furnish adequate documentary evidence to establish creditworthiness and genuineness of investors — and the AO did not conduct meaningful enquiry — the assessment order was rightly treated as erroneous and prejudicial to the interests of revenue.
ITAT also noted patterns such as investors funding share subscriptions through fresh unsecured loans or immediate cash deposits (see investor-wise details and bank-flow tables on pages 28-31), reinforcing doubts about genuineness. Consequently, the Tribunal upheld the PCIT’s direction for de-novo assessment and dismissed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
