M/s Brindavan Commodities Pvt Ltd, Kolkata V. C.I.T kolkata - III, Kolkata

ITA 1607/KOL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83160 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 29-05-2013
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: S S GUPTA
• Keywords: Source of fund; Assessment record
• Section: 142(1); 133(6); 147; 68; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B , KOLKATA [BEFORE HONBLE SRI SHAMIM YAHYA, AM & HONBLE SR I GEORGE MATHAN, JM] ITA NO.1607/KOL/2013 ASSESSMENT YEAR : 2009-10 ( APPELLANT ) (RESPONDENT) M/S.BRINDAVAN COMMODITIES PVT.LTD. -VS- C.I.T., KO LKATA-III, KOLKATA KOLKATA (PAN:AACDB 3837 E) FOR THE APPELLANT WRITTEN SUBMISSIONS AND SHRI S.S.GUPTA, FCA FOR THE RESPONDENT SHRI RAVI JAIN, CIT(DR) DATE OF HEARING : 23.09.2014, 29.09.2014 DATE OF PRONOUNCEMENT : 24/ 10/2014. ORDER PER SHRI SHAMIM YAHYA, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. C.I.T-III, KOLKATA PASSED U/S 263 OF THE IT ACT DT. 25.03.2013 AND PERTAIN TO ASSESSMENT YEAR 2009-10. 2. THE GROUNDS OF APPEAL RAISED IN ASSESSEES APPEA L READ AS UNDER :- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES O F THE CASE, THE HON'BLE CIT HAS ERRED IN LAW AND ON FACTS IN ASSUMING JURISDICTION TO FRA ME ORDER U/S. 263 OF THE ACT. THE ORDER THUS PASSED IS L IABLE TO BE QUASHED. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES O F THE CASE, THE HON'BLE CIT HAS ERRED IN DIRECTING THE AO TO MAKE THE ASSESSMENT ORDER AFRESH BEING THE ORDER OF THE AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. THAT HAVING REGARD TO' THE FACTS AND CIRCUMSTANCES OF THE CASE, THE POWER OF REVISION U/S. 263 OF THE ACT HAS BEEN EXERCISED BY THE HON'B LE CIT MERELY ON THE GROUND OF DOUBT THAT THE AO HAS NOT PROPERLY APPLIED HIS MIND. MERELY BECAUSE T HE OPINION OF THE HON'BLE CIT IS DIFFERENT FROM THAT OF THE AD THIS SECTION CANNOT BE RESORTED TO. 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES O F THE CASE THE HON'BLE CIT HAS ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 2 FAILED TO EXAMINE THE RECORD AND TO DERIVE REQUISIT E SATISFACTION ABOUT EXISTENCE OF BOTH THE PRECONDITIONS THE ORDER OF THE AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE . 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE THE HON'BLE CIT HAS NOT GIVEN ANY COGNIZANCE THAT THE PROVISIONS FOR REVISI ON A FINALLY SETTLED ASSESSMENT HAVE TO BE STRICTLY CONSTRUED. THE MATTERS WHICH HAVE BEEN DETERMINED CANNOT BE ALLOWED TO BE TINKERED WITH ON LIGHTER GROUNDS. 6. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE THE HON'BLE CIT IS NOT JUSTIFIED IN HOLDING THAT THE CREDITWORTHINESS AND IDENTITY OF THE SHAREHOLDERS FROM WHOM SHARE CAPITAL MONEY WAS RECEIVED IN THE INSTAN T YEAR REMAINS TO BE VERIFIED THOUGH THE AO COMPLETED THE ASSESSMENT AFTER MAKING PROPER VERIFICATION. 7. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE I THE HON'BLE CIT CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHIN G AND ROVING ENQUIRIES IN THE MATTER OF ORDER WHICH IS ALREADY CONCLUDED. 8. THE ASSESSEE CRAVES LEAVE TO ADD/ALTER ANY OF TH E GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE LEADING TO THE ORDER PASSED U/S 263 OF THE ACT ARE SUMMARIZED AS UNDER :- THE ORIGINAL RETURN IN THIS CASE WAS FILED ON 31.08 .2009. IN THE SAID RETURN THE ASSESSEE HAS SHOWN A CURRENT LOSS OF RS.23,624/-. THE COMPAN Y HAS NOT CARRIED OUT ANY TRADING ACTIVITY FOR THE CONCERNED ASSESSMENT YEAR. THERE W AS NO INCOME IN THE PROFIT AND LOSS ACCOUNT. CERTAIN ROUTINE EXPENDITURES PERTAINING TH E FILING FEE, PRINTING AND STATIONERY, AUDITORS FEE AND COMPLIANCE FEE WERE DEBITED TO PRO FIT AND LOSS ACCOUNT. AS ON THE CLOSE OF THE PREVIOUS YEAR, THE COMPANY HAD 10,000 EQUITY SHARES OF RS.10/- AMOUNTING TO RS.100,000/-. DURING THE YEAR UNDER CO NSIDERATION THE COMPANY HAD ISSUED 3,09,030 NUMBER OF EQUITY SHARES OF RS.10/- EACH AT A SHARE PREMIUM OF RS.490/- PER SHARE. THUS THE SHARE CAPITAL RAISED W AS RS.30,90,300 AND THE SHARE PREMIUM RAISED WAS RS.15,14,24,700/-. SUBSEQUENT TO THE AFORESAID FILING OF RETURN ASSESSEE SENT A LETTER TO THE AO. THE SAID LETTER W AS UNDATED. HOWEVER THE RECEIPT AT THE INCOME TAX OFFICE SHOWED THE DATE AS 17 TH FEBRUARY, 2011. IN THE SAID LETTER THE ASSESSEE INFORMED THE AO THAT IT DID NOT RECEIVE AN Y INTIMATION U/S 143(1) OF THE ACT. IT WAS FURTHER SUBMITTED THAT THE CONTRACTUAL FEE O F RS.50,000/- RECEIVABLE DURING THE FINANCIAL YEAR 2008-09 HAS NOT BEEN TAKEN INTO BOOK S OF ACCOUNTS AS THE SAME HAS NOT BEEN RECEIVED DURING THE FINANCIAL YEAR AND WILL BE ACCOUNTED FOR IN THE YEAR IN WHICH THE SAID INCOME IS ACTUALLY RECEIVED. ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 3 4. TAKING COGNIZANCE OF THIS ESCAPEMENT THE AO ISSU ED NOTICE U/S 148 OF THE ACT PROPOSING REOPENING OF THE ASSESSMENT AND ASKED THE ASSESSEE TO DELIVER WITHIN 30 DAYS RETURN OF HIS INCOME FOR THE SAID ASSESSMENT Y EAR. IN RESPONSE TO THE SAID LETTER VIDE UNDATED LETTER RECEIVED BY THE INCOME TAX OFFI CE ON 23.02.2011 THE ASSESSEE INFORMED THAT THE ORIGINAL RETURN FILED ON 31.08.20 09 MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THUS IT IS N OTEWORTHY HERE THAT IN ITS EARLIER LETTER THE ASSESSEE HAD SUBMITTED THAT IT HAD NOT ACCOUNTE D FOR CONTRACTUAL FEE OF RS.50,000/- RECEIVABLE DURING THE YEAR 2008-09. HOWEVER, IN THE LETTER IN RESPONSE TO THE SAID NOTICE U/S 148 OF THE ACT THE ASSESSEE DID NOT DISC LOSE THE SAID RS.50,500/- AS ITS INCOME. 5. THEREAFTER AO PROCEEDED TO ISSUE NOTICE U/S 142( 1). IN THE SAID NOTICE U/S 142(1) DATED 25.02.2011 AO ASKED THE ASSESSEE TO P ROVIDE THE FOLLOWING INFORMATION :- 1. NATURE OF BUSINESS, THE GOODS/MATERIALS IN WHIC H DEALT IN ALONG WITH COMPLETE ADDRESSES OF ALL ESTABLISHMENTS WITH TELEPHONE NUMB ERS. 2. RESIDENTIAL ADDRESS WITH TELEPHONE NUMBERS OF AL L THE DIRECTORS WITH PROOF OF ADDRESS, PAN OF THE DIRECTORS. 3. LIST OF SHARE HOLDERS WITH THEIR SHARE HOLDINGS ALONG WITH COPY OF FORM NO.2 FILED BEFORE THE REGISTRAR OF COMPANIES FOR THE YEAR ENDE D 31.3.2009. 4. DETAILS OF CONTRACTUAL FEES. 5. DETAILS OF PRELIMINARY EXPENSES W/O. 6. DETAILS OF ENHANCEMENT OF SHARE CAPITAL & SHARE PREMIUM DURING THE F.Y. 2008-09. PLEASE SUBMIT THE NAME, COMPLETE POSTAL ADDRESS, PA N OF THE PERSONS WHO HAVE SUBSCRIBED TO SHARE CAPITAL & SHARE PREMIUM. 7. DETAILS OF INVESTMENTS. 8. EVIDENCE IN SUPPORT OF FILING FEES. 9. COMPUTATION OF INCOME FOR THE PREVIOUS YEAR 2008 -09 RELEVANT FOR THE A.Y.2009-10 10. ALL THE BANK STATEMENTS FOR THE F.Y. 2008-09 IN ORIGINAL TO BE PRODUCED ALONG WITH THE RECONCILIATION, IF ANY. ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 4 6. IN RESPONSE TO THE SAID NOTICE THE ASSESSEE INTE RALIA SUBMITTED A LIST OF SHARE HOLDERS AS ON 31.03.2009 ALONG WITH THEIR PAN NO. A ND ADDRESSES. THE LIST INCLUDED 21 SHAREHOLDERS. OUT OF THE 21 SHAREHOLDERS AO ISSU ED NOTICE U/S 133(6) OF THE ACT TO 9 OF THE SHARE HOLDERS. NOTICE U/S 133(6) OF THE AC T AOS REQUISITION ARE AS UNDER :- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDIN GS IN THE CASE OF M/S.BRINDAVAN COMMODITIES PVT. LTD. BEARING PAN-AADCB3837E, IT IS FOUND THAT YOU MADE INVESTMENT IN SHARES OF M/S. BRINDAVAN COMMODITIES PVT. LTD. DURI NG THE FINANCIAL YEAR 2008-09 RELEVANT TO ASSESSMENT YEAR 2009-10. IT APPEARS THAT YOU ALSO P AID PREMIUM. YOU ARE REQUESTED TO FURNISH FOLLOWING INFORMATION : 1. YOUR PAN 2. YOUR INCOME TAX ASSESSING OFFICER 3. A COPY OF THE FINAL A/CS FOR THE FINANCIAL YEAR 200 8-09 ALONG WITH A PHOTOCOPY OF ACKNOWLEDGEMENT OF RETURN FOR THE ASSESSMENT YEAR 2 009-10. 4. NUMBER OF SHARES APPLIED FOR AND DATE(S) OF APPLICA TION. 5. AMOUNT PAID IN APPLICATION FOR SHARE CAPITAL & SHAR E PREMIUM 6. MODE OF PAYMENT 7. NUMBER OF SHARES ALLOTTED AND DATE OF ALLOTMENT 8. PHOTOCOPY OF BANK STATEMENT AS AN EVIDENCE OF SHOWI NG TRANSACTION. 9. SOURCES OF INVESTMENT. THE ABOVE INFORMATION IS CALLED FOR U/S 133(6) OF T HE I.T.ACT, 1961. YOUR REPLY SHOULD REACH THIS OFFICE BY 7(SEVEN) DAYS FROM THE DATE OF RECEIPT OF THIS LETTER AND FAILURE TO COMPLY WITH THE SAME MAY ATTRACT PENALTY U/S 272A(2 )(C) OF THE I.T.ACT, 1961. 7. IN RESPONSE TO THE NOTICE U/S 133(6) OF THE IT A CT THE SHARE HOLDER COMPANIES MADE STEREOTYPE, UNDATED RESPONSES BEARING RECEIPT AT INCOME TAX DEPARTMENT FROM 11 TH MARCH TO 16 TH MARCH. ONE REPLY WHICH IS A SAMPLE OF THE REPLIES IN THIS REGARD AS CONTAINED IN PAGE 406 OF THE PAPER BOOKS IS AS UNDE R :- SIR, SUB: FURNISHING OF PARTICULARS U/S 133(6) OF THE IN COME TAX ACT, 1961 IN THE CASE OF M/S.BRINDAVAN COMMODITIES PVT.LTD. FOR THE FINANCIA L YEAR 2008-09 RELEVANT TO THE ASSESSMENT YEAR 2009-10. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S IN THE CASE OF M/S.BRINDAVAN COMMODITIES PVT.LTD. BEARING PAN-AADCB3837E, IT IS FOUND THAT YOU MADE INVESTMENT IN SHARES OF M/S.BRINDAVAN COMMODITIES D URING THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSMENT YEAR 2009-10. 1.OUR PAN IS :AACCT7715N 2.OUR INCOME TAX JURISDICTION IS ITO WD 1(4) 3.WE ARE ENCLOSING HEREWITH XEROX COPY OF AUDITED B ALANCE SHEET, IT ACKNOWLEDGEMENT OF RETURN FOR THE ASSESSMENT YEAR 2 009-10 4.WE HAVE APPLIED FOR 20,000 SHARES @RS.10/- EACH F ACE VALUE AND PREMIUM OF RS.490/- PER SHARES. 5.WE HAVE PAID RS.1,01,00,000/-. 6. MODE OF PAYMENT GIVEN BELOW : DATE CHEQUE NO. DRAWN ON AMOUNT 07/08/2008 073482 DEVELOPMENT CREDIT BANK 50,00,0 00/- 07/08/2008 073483 DEVELOPMENT CREDIT BANK 51,00,0 00/- ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 5 7.WE HAVE ALLOTTED 20,200 SHARES ON 31.03.2009. 8. WE ARE ENCLOSING HEREWITH XEROX COPY OF BANK STA TEMENT. 9. SOURCES OF INVESTMENT GIVEN BELOW : DATE NAME OF COMPANY AMOUNT 07/08/2008 ENFIELD ADVISORY PVT.LTD. 1,01,00,000/- WE HOPE THAT THE ABOVE STATEMENT IS SUFFICIENT FOR YOUR SCRUTINY PROCEEDINGS, FURTHER YOU NEED ANY CLARIFICATION, WE SHALL SUBMIT WITHIN DUE DATE. THANKING YOU YOURS FAITHFULLY SD/- TANISH TRUCK TERMINAL PVT. LTD. SD/- MANISH DALMIYA (DIRECTOR) 8. THEREAFTER FROM THE ORDER SHEET ENTRIES AND THE ASSESSMENT RECORDS IT TRANSPIRES THAT AO DID NOT TAKE ANY ACTION. IN THE ASSESSMENT ORDER AO OBSERVED AS UNDER :- IT IS SEEN FROM THE COPY OF FORM-2 FILED THAT DURI NG THE RELEVANT PERIOD UNDER ASSESSMENT, THE ASSESSEE COMPANY HAD ALLOTTED 3,09, 030 NO.OF SHARES @RS.10/- THEREBY RAISING SHARE CAPITAL OF RS.30,90,300/- AND SHARE PREMIUM OF RS.15,14,24,700/-. NOTICE U/S 133(6) WAS ISSUED TO DIFFERENT SHARE SUBSCRIBERS ON TEST CHECK BASIS AND REPLIES FORM THEIR END HAVE BE EN VERIFIED. AO FURTHER MADE NOTE THAT THERE WAS NO BUSINESS TRA NSACTION DURING THE RELEVANT PERIOD UNDER ASSESSEE,. HENCE RS.1200/- WAS DISALLO WED. IT WAS FURTHER MENTIONED THAT THE ASSESSEE HAS VOLUNTARILY DECLARED THAT IT HAD R ECEIVED RS.50,000/- FROM ONE SRI HARISH JOSH AS CONTRACTUAL FEES BUT SAME WAS NOT TA KEN IN TO THE BOOKS OF ACCOUNTS. HENCE RS.50,500/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9. IN THE BACKGROUND OF THE AFORESAID THE LD. CIT I SSUED NOTICE U/S 263 OF THE ACT DATED 01.02.2013. IN THE SAID SHOW CAUSE NOTICE IT WAS STATED THAT ON EXAMINATION OF RECORDS IT WAS FOUND THAT 3,19,030 SHARES WERE ISSU ED BY THE SAID COMPANY AT FACE VALUE OF RS.10/- AT A PREMIUM OF RS.490/- PER SHARE . IN OTHER WORDS, THE ASSESSEE RAISED A PAID UP SHARE CAPITAL OF RS.31.90 LACS WIT H PREMIUM OF RS.15.10 CRORES. IT WAS FURTHER STATED THAT ON PERUSAL OF THE ASSESSMENT RE CORDS IT WAS FOUND THAT REQUISITE INQUIRIES WERE NOT CONDUCTED REGARDING THE ISSUE AS TO WHAT PROMPTED THE SUBSCRIBERS TO THE SHARES TO PAY SUCH SUBSTANTIAL PREMIUM ON SH ARES OF A LITTLE KNOWN COMPANY HAVING NO OR INSIGNIFICANT BUSINESS ACTIVITIES. IT WAS ALSO OBSERVED THAT IT WAS APPARENT THAT THE ORDER WAS PASSED WITHOUT APPLICATION OF MI ND. ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 6 THE SHOW CAUSE NOTICE ALSO STATED THAT PROPER INQUI RY WAS NOT CONDUCTED REGARDING THE IDENTITY AND CREDITWORTHINESS OF THE SHAREHOLDERS. IT WAS STATED THAT THE ORDER WAS PASSED MECHANICALLY WHICH IS LIABLE TO MA KE THE ASSESSMENT ERRONEOUS AND CAUSE PREJUDICE TO THE INTEREST OF REVENUE. IN VIEW OF THESE FACTS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ASSESSMENT SHOULD NO T BE SET ASIDE U/S 263. 10. THE ASSESSEE HAS FILED WRITTEN SUBMISSION ON 22 .02.2013. IT WAS STATED THAT THE ASSESSEE HAD ITSELF OFFERED INCOME FOR TAX AND THAT THE AO HAD PASSED THE ORDER AFTER APPLYING HIS MIND. IT WAS FURTHER STATED THAT THE S HARES WERE SUBSCRIBED TO AT A PREMIUM ON THE BASIS OF MUTUAL UNDERSTANDING AND FA ITH BETWEEN CLOSELY KNIT PERSONS. IT WAS ALSO ARGUED THAT THERE WAS NO YARDSTICK EITH ER IN THE COMPANYS ACT OR IN THE INCOME TAX ACT TO FIX OR REGULATE SHARE PREMIUMS. T HIRDLY, IT WAS STATED THAT A.O. HAD CONDUCTED PROPER INQUIRY REGARDING THE IDENTITY AND CREDITWORTHINESS OF THE SHAREHOLDERS. IT WAS ALSO STATED THAT CONFIRMATION LETTERS ALONG WITH PAN, COPY OF BANK STATEMENT & BALANCE SHEET OF THE SUBSCRIBING C OMPANIES HAD BEEN FILED BEFORE THE AO. IT WAS REQUESTED THAT IN VIEW OF THESE FACT S, THE PROCEEDINGS U/S 263 SHOULD BE DROPPED. 10.1. CONSIDERING THE ABOVE THE LD. CIT OBSERVED AN D HELD AS UNDER :- THE NOTICES U/S 133(6) HAVE BEEN SENT ON A TEST CH ECK BASIS. ON PERUSAL OF THE REPLIES, IT IS SEEN THAT THE BANK STATEMENTS OF THE SUBSCRIBING COMPANIES IS FOR A VERY LIMITED PERIOD AND NOT FOR THE WHOLE YEAR. ANALYSIS OF THIS STATEM ENT DOES NOT THROW ANY LIGHT WHATSOEVER ON THE SOURCE OF THE FUNDS OF THE SUBSCR IBER COMPANIES. THE AO SHOULD HAVE CALLED FOR THE BANK STATEMENT OF THE FULL FINANCIAL YEAR FOR PROPER ANALYSIS & VERIFICATION. FURTHER, THE REPLIES WERE JUST PLACED ON RECORD AND NO INDEPENDENT INQUIRIES WERE CARRIED OUT REGARDING THE FACT WHETHER THE SUBSCRIBING COMP ANIES WERE AVAILABLE AT THE GIVEN ADDRESS, WHETHER THEY HAD THE FINANCIAL CAPABILITY TO INVEST SUCH SUBSTANTIAL AMOUNTS AND WHETHER THEY WERE GENUINE CORPORATE ENTITIES. THE A O DID NOT EXAMINE A SINGLE DIRECTOR OF THE ASSESSEE COMPANY OR OF THE SUBSCRIBING COMPA NIES. FURTHER, THE AO ALSO DID NOT CROSS VERIFY THE INCOME TAX ACKNOWLEDGEMENT, BALANC E SHEET ETC. FROM THE AOS OF THE SUBSCRIBING COMPANIES. IN RECENT YEARS, IT HAS BECOME A COMMON PRACTICE TO INTRODUCE UNACCOUNTED MONEY BY WAY OF SHARE CAPITAL IN DUMMY COMPANIES. T HE PRESENT ASSESSEE COMPANY IS PART OF THE LARGE NUMBER OF SUCH CASES IN KOLKATA A S WELL AS OTHER PARTS OF THE COUNTRY. THE SHARE CAPITAL IS INTRODUCED BY ROTATING THE MON EY TO DUMMY COMPANIES WHICH HAVE BEEN CREATED SOLELY FOR THIS PURPOSE. THE DIRECTORS OF SUCH COMPANIES ARE MORE OFTEN THAN NOT LOW PAID EMPLOYEES SUCH AS PEONS, DARBANS, DRIVERS OR OTHER PERSONS OF HUMBLE MEANS. THE MODUS OPERANDI FOR INTRODUCTION OF UNACC OUNTED MONEY AS SHARE CAPITAL IS ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 7 THAT UNACCOUNTED CASH IS DEPOSITED IN THE BANK ACCO UNTS OF DIFFERENT PERSONS/COMPANIES. AFTER THIS THE MONEY IS TRANSFERRED BY WAY OF CHEQU ES TO OTHER COMPANIES AND THIS IS DONE 3 TO 4 TIMES USING DIFFERENT COMPANIES AND THU S ROTATING THE MONEY INTO 3 TO 4 LAYERS. AFTER 3 TO 4 LAYERS, THE MONEY REACHES ITS INTENDED DESTINATION AND THIS COMPANY IS THEN SOLD OFF TO THE GROUP OR PERSON WHO WILL UL TIMATELY USE THE MONEY. HE IN TURN, RETURNS THE AMOUNT OF SHARE CAPITAL AND PREMIUM IN CASH TO THE PERSON FROM WHOM THE COMPANY IS PURCHASED. THUS, WHEN SHARE CAPITAL IS I NTRODUCED AT HUGE PREMIUM IN NEW FORMED COMPANIES WITH NO BUSINESS, IT SHOULD RAISE THE SUSPICION OF THE A.O. IN FACT, SUCH HIGH PREMIUM IS NOT COMMANDED EVEN BY BLUE CHI P QUOTED COMPANIES. UNDER THESE CIRCUMSTANCES, THE AO IS DUTY BOUND TO CARRY OUT TH ROUGH & DETAILED INQUIRIES AND GO BEYOND THE LAYERS CREATED BY THE SO CALLED ENTRY O PERATORS SO THAT IT MAY BE ESTABLISHED THAT THE SHARE CAPITAL IS BOGUS. THIS HAS NOT BEEN DONE IN THE PRESENT CASE AND THE AO HAD JUST TAKEN ON RECORD THE CONFIRMATIONS, BANK ST ATEMENTS ETC. OF SOME OF THE SUBSCRIBER COMPANIES AND PASSED THE ASSESSMENT ORDE R. IT ALSO NEEDS TO BE POINTED OUT THAT THIS ASSESSEE S CASE IS NOT AN ISOLATED EXAMPLE. THERE ARE HUNDREDS OF SUCH CASES IN THIS C HARGE AND OTHER CHARGES WHERE THE MODUS OPERANDI IS IDENTICAL. ONCE THE MONEY HAS BEE N ROTATED THROUGH 3 TO 4 COMPANIES, RETURN OF INCOME IS FILED SHOWING VERY NOMINAL INCO ME. SUBSEQUENT TO THIS, A LETTER IS WRITTEN TO THE AO THAT INADVERTENTLY THE ASSESSEE C OMPANY HAS LEFT OUT SOME MINOR ITEM OF INCOME OR CLAIMED SOME DEDUCTION WRONGLY AND THE AO IS REQUESTED TO ISSUE NOTICE U/S 148. THEREAFTER, IN THE PROCEEDINGS U/S 148, IN QUIRIES ARE CARRIED OUT IN A ROUTINE AND SUPERFICIAL MATTER. CONFIRMATIONS & OTHER DOCUMENTS REGARDING THE SHARE CAPITAL ARE FILED WHICH ARE PLACED ON RECORD. THEREAFTER, ORDER US/ 147/143(3) IS PASSED ADDING BACK THE AMOUNT OFFERED BY THE ASSESSEE SUPPOSEDLY LEFT OUT BY MISTAKE. IT IS NEEDLESS TO SAY THAT NO INDEPENDENT INQUIRIES ARE CARRIED OUT REGAR DING THE SHARE CAPITAL. THE COMPANY IS THEN PASSED ON TO THE FINAL PURCHASER AFTER CHARGIN G A PERCENTAGE OF THE CAPITAL IN THE COMPANY. THIS MODUS OPERANDI HAS BEEN CONFIRMED IN MANY SEARCH OPERATIONS CARRIED OUT BY THE INVESTIGATION WING ON ENTRY OPERATORS & OTHERS OVER THE PAST FEW YEARS. THUS IT IS SEEN THAT UNACOUNTED MONEY IS LAUNDERED AS CLEAN SHARE CAPITAL BY CREATING A FAADE OF PAPER WORK, ROUTINE THE MONEY THROUGH SEVERAL BANK ACCOUNTS AND GETTING IT THE SEAL OF STAUTORY APPROVAL BY GETTING THE CASE REOPENED U/S 147 SUO MOTO. THE APEX COURT IN THE CASE OF SUMATI DAYAL VS CIT [ 214 ITR 801] HELD THAT THE TRUE NATURE OF A TRANSACTION HAS TO BE ASCERTAINED IN TH E LIGHT OF SURROUNDING CIRCUMSTANCES. THUS, IT IS NOW WELL SETTLED THAT TAX AUTHORITIES A RE ENTITLED TO LOOK INTO SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF A TRANSACT ION BY APPLYING THE TEST OF HUMAN PROBABILITY. REFERENCE IN THIS CONTEXT IS INVITED T O THE APEX COURT DECISION IN THE CASE OF CIT VS DURGA PRASAD MORE [82 ITR 540]. IN THIS CONT EXT, I WOULD ALSO LIKE TO DRAW ATTENTION TO THE JURISDICTIONAL HIGH COURTS DECISI ON IN THE CASE OF CIT VS PRECISION FINANCE PVT. LTD. [208 ITR 465]. IN THAT CASE, THE HONBLE JUDGES OBSERVED THAT IT IS FOR THE ASSESSEE TO PROVE THE IDENTITY OF THE CREDITORS, THEIR CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTIONS. IN OUR VI EW, ON THE FACTS OF THIS CASE, THE TRIBUNAL DID NOT TAKE INTO ACCOUNT ALL THESE INGRED IENTS WHICH HAVE TO BE SATISFIED BY THE ASSESSEE. MERE FURNISHING OF THE PARTICULARS IS NOT ENOUGH. THE ENQUIRY OF THE ITO REVEALED THAT EITHER THE ASSESSEE WAS NOT TRACEABLE OR THERE WAS NO SUCH FILE AND, ACCORDINGLY, THE FIRST INGREDIENT AS TO THE IDENTIT Y OF THE CREDITORS HAD NOT BEEN ESTABLISHED. IF THE IDENTITY OF THE CREDITORS HAD N OT BEEN ESTABLISHED, CONSEQUENTLY THE QUESTION OF ESTABLISHMENT OF THE GENUINENESS OF THE TRANSACTIONS OR THE CREDITWORTHINESS OF THE CREDITORS DID NOT AND COULD NOT ARISE. THE T RIBUNAL DID NOT APPLY ITS MIND TO THE FACTS OF THIS PARTICULAR CASE AND PROCEEDED ON THE FOOTING THAT SINCE THE TRANSACTIONS WERE THROUGH THE BANK ACCOUNT, ACCORDINGLY, IT IS TO BE PRESUMED THAT THE TRANSACTIONS WERE ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 8 GENUINE. IT WAS NOT FOR THE ITO TO FIND OUT BY MAKI NG INVESTIGATION FROM THE BANK ACCOUNTS UNLESS THE ASSESSEE PROVED THE IDENTITY OF THE CREDITORS AND THEIR CREDITWORTHINESS. MERE PAYMENT BY ACCOUNT PAYEE CHE QUE IS NOT SACROSANCT NOR CAN IT MAKE A NON-GENUINE TRANSACTION GENUINE. IN THAT VIE W OF THE MATTER, THE QUESTION BEFORE US IS ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE REVENUE. ATTENTION IS ALSO INVITED TO THE DELHI HIGH COURT D ECISION IN THE CASE OF CIT VS NOVA PROMOTERS & FINLEASE PVT. LTD. [342 ITR 0169] WHERE IT WAS OBSERVED THAT THE FACT THAT THE SHARE APPLICATION MONEY HAD COME THRO UGH CHEQUES AND THE FACT THAT THE SHARE APPLICANTS WERE REGISTERED WITH THE REGISTRAR OF COMPANIES WERE NEUTRAL FACTS AND DID INTO HAVE MUCH EVIDENTIARY VALUE. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE DEC ISIONS OF THE SUPREME COURTS CITED ABOVE. I AM OF THE OPINION THAT THE AO BY NOT PURSUING THE INQUIRIES TO THEIR LOGICAL END HAS MADE THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ORDER IS, THEREFORE, SET ASIDE AND THE AO IS DIRECTED TO CARR Y OUT THROUGH & DETAILED ENQUIRIES IN THE CASE. HE SHOULD CARRY OUT INQUIRIES ABOUT THE V ARIOUS LAYERS THROUGH WHICH THE SHARE CAPITAL HAS BEEN ROTATED. THE AO IS ALSO DIRECTED T O SUMMON THE PRESENT & PAST DIRECTORS OF THE ASSESSEE COMPANY AND THE SUBSCRIBE R COMPANIES AND EXAMINE THEM. THE AO SHOULD ALSO EXAMINE AS TO WHEN THIS COMPANY WAS SOLD. AT THAT POINT OF TIME THE FICTITIOUS ASSETS SUCH AS SHARES IN OTHER COMPANIES OR LOANS GIVEN TO OTHER COMPANIES IS CONVERTED BACK INTO CASH BY CREDIT IN THE ASSESSEE COMPANYS BANK ACCOUNT. THE SOURCE OF THIS MONEY ALSO NEEDS TO BE EXAMINED. FURTHER, I NFORMATION SHOULD BE SENT TO THE AOS OF THE SUBSCRIBER COMPANIES AND TO THE OTHER COMPAN IES THROUGH WHICH THE CAPITAL HAS BEEN ROTATED REGARDING THE FINDINGS OF THE AO. SUBS EQUENT TO THE INQUIRIES & VERIFICATION OF ALL RELEVANT ASPECTS OF THE CASE, THE AO SHOULD PASS A SPEAKING ORDER AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. AGAINST THE ABOVE ORDER OF THE LD. CIT THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE ASSESSEE HAS RAISED VARIOUS GROUNDS CHALLEN GING THE JURISDICTION ASSUMED BY THE LD. CIT U/S 263 OF THE ACT AND THE MERITS OF ORDER PASSED BY HIM. THE LD. COUNSEL OF THE ASSESSEE HAS FILED A WRITTEN SUBMISS ION AND HE SUBMITTED THAT HE SHALL BE RELYING UPON THE SAID WRITTEN SUBMISSION. IN HIS SUBMISSIONS THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT ALL THE GROUNDS TAKEN I N THIS APPEAL RELATE TO THE VALIDITY OF ORDER PASSED U/S 263 OF THE ACT BY THE LD. CIT. TH AT THE MAIN GROUND ON WHICH THE LD. CIT PASSED U/ 263 OF THE ACT WAS THAT REQUISITE ENQ UIRIES WERE NOT CARRIED OUT. THAT IN THIS CONNECTION IT IS THE SUBMISSION THAT THE LD. A O HAD CONDUCTED ENQUIRIES REGARDING RAISING OF SHARE CAPITAL BY ISSUING OF NOTICE TO SH ARE SUBSCRIBERS. THAT SUCH NOTICE WITH REPLIES OF SUBSCRIBER COMPANIES ARE CONTAINED IN TH E PAPER BOOK. THAT ANOTHER OBJECTION OF THE LD. CIT WAS THAT NOTICE WAS ISSUED ON TEST CHECK BASIS. THAT IT IS SUBMITTED THAT OUT OF 3,09,030 SHARES VERIFICATION WAS DONE IN RESPECT OF 27,050 SHARES BY ISSUING OF NOTICE U/S 133(6) OF THE ACT. THAT TH E AO MADE ENQUIRY REGARDING THE ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 9 SHARE CAPITAL BY ISSUING NOTICE U/S 142(1) OF THE A CT. HE SUBSEQUENTLY SOUGHT INFORMATION ABOUT SHARE HOLDERS, THEIR NAMES, COMPL ETE POSTAL ADDRESS AND PA NOS. AMOUNTS SUBSCRIBED TOWARDS SHARE CAPITAL AND SHARE PREMIUM. THAT THE LD. AO MENTIONED IN THE ASSESSMENT ORDER THE FACT OF ISSU E OF NOTICES U/S 133(6) OF THE ACT AND THE REPLIES, VERIFIED BY THE AO. THAT IT IS NOT A CASE OF LACK OF ENQUIRY. THAT THE ENQUIRIES WERE CONDUCTED AND THE VERIFICATION WAS D ONE BY THE LD. AO. THAT IN THE OPINION OF THE LD. CIT SUCH ENQUIRIES WERE NOT PROP ER. THAT IF THE AO HAD NOT APPLIED HIS MIND NO NOTICE U/S 142(1) OF THE ACT AND U/S 13 3(6) OF THE ACT COULD HAVE BEEN ISSUED BY THE LD. AO. IN THIS REGARD THE LD. COUNSE L PLACED RELIANCE UPON THE FOLLOWING CASE LAWS. : I) HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GAB RIEL INDIA LTD 203 ITR 108(BOM) II) HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SUNB EAM AUTO LTD 332 ITR 167, 168(DEL) III) HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS M ULCHAND BAGRI 108 CTR 206 (CAL). 11.1. THE LD. COUNSEL FURTHER SUBMITTED THAT IF THE LD. CIT FELT THAT NO PROPER ENQUIRY IS MADE, HE SHOULD HAVE MADE ENQUIRIES AND NOT SET ASIDE THE ORDER TO AO TO CONDUCT FURTHER ENQUIRIES. IN THIS REGARD THE LD. COUNSEL H AS PLACED RELIANCE UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS J YOTI FOUNDAITON 357 ITR 388 (DEL). THE LD. COUNSEL OF THE ASSESSEE FURTHER PLAC ED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS LOVELY EXP ORTS PVT. LTD. 319 ITR (ST.)5 (SC). IT WAS FURTHER SUBMITTED THAT TO NULLIFY THE EFFECT OF THE ABOVE DECISION, THE LAW WAS AMENDED BY INSERTION OF A PROVISO TO SECTION 68 WITH EFFECT FROM ASSESSMENT YEAR 2013-14 TO PROVIDE THAT ALL CLOSELY HELD COMPANIES HAVE TO SATISFY THE A.O. BY GIVING AN EXPLANATION REGARDING THE SOURCE OF FUNDS IN THE HANDS OF THE SUBSCRIBERS. REGARDING THE JUSTIFICATION OF SHARE PREMIUM SECTIO N 56(2)(VIIB) WAS ALSO INSERTED WITH EFFECT FROM ASSESSMENT YEAR 2013-14 TO PUT AN ONUS ON THE COMPANIES TO JUSTIFY THE PREMIUM RECEIVED. THAT PRIOR TO ASSESSMENT YEAR 2013-14, THE PREMIUM WAS A MATTER OF AGREEMENT AND MUTUAL UNDERSTANDING BETWEE N THE COMPANIES AND THE SUBSCRIBERS IN CASE OF CLOSELY HELD COMPANIES. IN T HIS REGARD THE LD. COUNSEL OF THE ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 10 ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CIT VS STANDARD VACCUM OIL CO. 59 ITR 685 (SC). THE AS SESSEE HAS FURTHER PLACED RELIANCE ON THE FOLLOWING DECISIONS :- 1) HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIA L CO.LTD. VS CIT 243 ITR 83(SC) 2) HONBLE APEX COURT IN THE CASE OF CIT VS MAX INDIA LTD. 295 ITR 282(SC) 3) HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F CIT VS SALUJA EXIM LTD. 329 ITR 603 (P&H) 11.2. IT HAS FURTHER BEEN SUBMITTED IN THE WRITTEN SUBMISSION THAT ASSUMING, BUT NOT ADMITTING THAT THE COMPANY HAS VIOLATED ANY LAW OF LAND BY ISSUING SHARES AT A HUGE PREMIUM, IT IS SUBMITTED THAT SO FAR AS INCOME TAX ASSESSMENTS ARE CONCERNED THE SAME SHOULD BE GOVERNED BY PROVISIONS OF IT ACT, 1961AND IT IS FOR THE AUTHORITIES UNDER THE RESPECTIVE STATUTE TO TAKE ACTION FOR SUCH CONTRAVE NTION. IN THIS REGARD THE ASSESSEES COUNSEL HAS PLACED RELIANCE UPON THE DECISION OF TH E HONBLE APEX COURT IN THE CASE OF DR.T.A.QUERESHI VS CIT 287 ITR 547 (SC) AND ITAT HYDERABAD IN THE CASE OF R VISWANATH VS ITO 59 SOT 22 (HYDERABAD). IT HAS FURT HER BEEN SUBMITTED THAT THE LD. CIT HAS RELIED UPON THE DECISION OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS NOVA PROMOTERS AND FIN LEASE (P) LTD. 342 ITR 169 ( DEL). IT IS SUBMITTED THAT THE CASE IS DISTINGUISHABLE ON FACTS. IN THIS CASE :- 1. THERE WAS INFORMATION FROM INVESTIGATION WING AB OUT ACCOMMODATION ENTRY PROVIDERS AND THEIR MODUS OPERANDI. 2. NAMES OF COMPANIES IN STATEMENTS OF ENTRY PROVID ERS TO INVESTIGATION WING FIGURING AS APPLICANTS TO SHARES IN ASSESSEE. 3. SUMMONS TO SUCH PERSONS NOT RESPONDED TO. IT HAS BEEN SUBMITTED THAT IN THE CASE OF ASSESSEE, IT WAS ONLY ON SUSPICION, THAT ACTION U/S 263 HAS BEEN TAKEN WHICH IS NOT PERMITTED IN IN COME TAX ASSESSMENTS AS HELD IN FOLLOWING CASE :- UMACHARAN SHAW & BROS. 37 ITR 271 (SC) IT IS SETTLED LAW THAT SUSPICION, HOWSOEVER, STRON G CANNOT TAKE THE PLACE OF LEGAL PROOF.. ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 11 IN THESE CIRCUMSTANCES LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ORDER PASSED BY THE LD. CIT BE SET ASIDE, QUASHED AND CANCELLED. 12. PER CONTRA THE LD. DR SUBMITTED THAT THE LD. CI T HAS PASSED AN ORDER U/S 263 OF THE ACT NOT ON ACCOUNT OF ANY VIOLATION OF LAW BY A SSESSEE. HE SUBMITTED THAT THERE IS NO SUCH OBSERVATION WHATSOEVER BY THE LD. CIT IN TH E SAID ORDER PASSED U/S 263 OF THE ACT THAT ASSESSEE HAS MADE VIOLATION OF ANY LAW. TH E LD. DR SUBMITTED THAT THERE IS NO INFERENCE DRAWN BY THE LD. CIT IN THIS REGARD. HENC E HE SUBMITTED THAT THE LD. COUNSEL OF THE ASSESSEES SUBMISSIONS THAT INCOME TAX AUTHO RITIES SHOULD NOT HAVE TAKEN INTO ACCOUNT THE VIOLATION OF OTHER LAWS BY THE ASSESSEE IS NOT AT ALL RELEVANT HERE. THE LD. DR SUBMITTED THAT SECTION 263 OF THE ACT IS MEANT T O FIND WHETHER THE AO HAS PASSED AN ORDER WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. DR SUBMITTED THAT IT WAS A MATTER WHICH CERTAINLY REQU IRE DETAILED ENQUIRY AS TO HOW RS.10/- SHARE WOULD COMMAND A SHARE PREMIUM OF RS.4 90/- FOR A COMPANY WHICH IS NOT ENGAGING INTO ANY ACTIVITY AND WAS INCORPORATED VERY RECENTLY. THE LD. DR CLAIMED THAT LD. CIT HAS NOTED THAT THERE WAS NO ENQUIRY WH ATSOEVER IN THIS REGARD. THE LD. DR FURTHER RECAPITULATED THE OCCURRENCE OF THE EVENTS IN THIS CASE. HE SUBMITTED THAT THE REASSESSMENT WAS OPENED UPON ASSESSEES LETTER INFO RMING ESCAPEMENT OF INCOME. HE REFERRED TO THE CONSEQUENT NOTICE U/S 148 OF THE AC T, ASSESSEES REPLY, ISSUANCE OF NOTICE U/S 133(6) OF THE ACT BY THE AO AND COMPLETI ON OF ASSESSMENT ORDER DATED 18.03.2011. HE SUBMITTED THAT ALL THIS WAS DONE IN AN UNDUE HURRY ON THE PART OF THE AO TO COMPLETE THE ASSESSMENT WHEREBY THE ISSUE OF SHARES AT A HUGE PREMIUM WAS SAID TO BE ENQUIRED AND CLOSED. THE LD.DR FURTHER S UBMITTED THAT OUT OF 21 SHARE HOLDERS AO HAD ISSUED NOTICE TO SIX SHAREHOLDERS BU T FOR 13 SHARE HOLDERS THERE WAS NO ENQUIRY. THE LD. DR SUBMITTED THAT ACTUALLY NO ENQU IRY OR EXAMINATION OR VERIFICATION WAS DONE BY THE AO. AO HAS MERELY COLLECTED CERTAIN DATA AND THIS CANNOT BE EQUATED TO EXAMINATION AND ENQUIRY. IN THIS REGARD THE LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE DECISION OF APEX COURT IN THE CASE OF RAMPYARI DEVI SAROGI VS CIT 67 ITR 84 (SC) FOR THE PROPOSITION THAT WHEN ITO MADE THE ASSESSMENTS IN UNDUE HURRY, ASSUMPTION OF JURISDICTION U/S 263 OF THE ACT WAS J USTIFIED. THE LD.DR FURTHER PLACED RELIANCE UPON THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE WRIT PETITION OF 2014 IN ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 12 THE CASE OF ZIGMA COMMODITIES PRIVATE LTD. AND ANOT HER VS ITO VIDE ORDER DATED 08.05.2014. THE LD. DR SUBMITTED THAT IN THIS CASE THE HONBLE JURISDICTIONAL HIGH COURT WAS CEASED WITH IDENTICAL MATTER AND THE MATT ER WAS DECIDED IN FAVOUR OF REVENUE. THE LD. DR FURTHER SUBMITTED THAT THE ABOV E DECISION IN WRIT PETITION OF THE HONBLE HIGH COURT HAS ALSO BEEN CONFIRMED BY THE D IVISIONAL BENCH OF THE HONBLE HIGH COURT. 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE NOTE THAT THE ASSESSEE HAS ALSO RAISED THE ISSUE TH AT THE LD. CIT FAILED TO EXAMINE THE RECORDS AND HAS FAILED TO DERIVE REQUISITE SATISFAC TION WITH THE PRE CONDITIONS THAT THE ORDER OF AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE FIND THAT SIMILAR ISSUE WAS RAISED IN THE WRIT PETITION BEFORE THE JURISDICTIONAL HIGH COURT IN THE CASE OF ZIGMA COMMODITIES PRIVATE LIMITED VS IT O W.P.NO.281 OF 2014 VIDE JUDGEMENT DATED 08.05.2014. THE LD. DR HAS SUBMITTE D THAT IT IS AN IDENTICAL ISSUE CONSIDERED BY THE JURISDICTIONAL HIGH COURT. THE IS SUE RAISED IN THIS APPEAL MAY ALSO BE CONSIDERED AS COVERED BY THE AFORESAID ORDER OF THE HONBLE HIGH COURT. WE FIND THAT IN THE ABOVE WRIT PETITION THE HONBLE HIGH CO URT HAD NOTED THAT CHALLENGE TO THE NOTICE ISSUED U/S 263 OF THE ACT WAS BASICALLY FOUN D ON THE GROUND THAT THE COMMISSIONER HAS NOT RECORDED SATISFACTION RELATING TO THE ERROR IN THE ORDER PASSED U/S 148 OF THE SAID ACT AFFECTING THE INTEREST OF THE R EVENUE. AFTER EXAMINING THE FACTS OF THE CASE WHICH IS INCIDENTALLY SIMILAR TO THE ONE W E ARE DEALING IN THIS CASE THE HONBLE HIGH COURT DISMISSED THE WRIT PETITION FILE D BY THE PETITIONER. WE MAY RECAPITULATE CONCLUDING PORTION OF THE HONBLE HIGH COURT ORDER : THE COMMISSIONER RECEIVED THE RECORDS PRIOR TO THE ISSUANCE OF THE SHOW CAUSE NOTICE AND OPINED THAT THE ASSESSING OFFICER FAILED TO APP LY HIS MIND OBJECTIVELY AND FAILED TO CONDUCT AN INQUIRY OVER THE SUBSCRIPTION OF THE SHA RES TO VARIOUS SUBSCRIBERS AT A HIGH PREMIUM. SECTION 263 OF THE ACT NEVER ENVISAGES THE SEPARATE RECORDING OF THE SATISFACTION BEFORE ISSUANCE OF THE SHOW CAUSE NOTI CE BUT IF IT IS CLEARLY DISCERNIBLE FROM THE FACTS NARRATED IN THE SHOW CAUSE NOTICE THAT TH E ORDER OF THE ASSESSING OFFICER APPEARS TO BE ERRONEOUS AND A PREJUDICE IS CAUSED T O THE REVENUE, IT WOULD RENDER THE SAID SHOW CAUSE NOTICE LEGAL AND VALID. THE COMMISSIONER HAS INDICATED THE SAME SU FFICIENTLY IN THE SHOW CAUSE NOTICE AND AFFORDED THE OPPORTUNITY TO THE PETITIONER TO F ILE REPLY THERETO WHICH, IN FACT, HAVE BEEN DONE,. WHETHER THE ORDER CAN SUSTAIN ON LEGAL PARAMETERS OR NOT, CAN BE TESTED BY A HIGHER AUTHORITY WHO HAVE BEEN BESTOWED WITH THE POWER OF APPEAL. SECTION 253 OF THE ACT PROVIDES A REMEDY OF APPEAL AGAINST AN ORDE R PASSED UNDER SECTION 263 OF THE ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 13 ACT BY THE COMMISSIONER AND, THEREFORE, SUCH REMEDY IS REQUIRED TO BE RESORTED BY THE PETITIONER. 13.1. WE FURTHER FIND THAT THE ABOVE JUDGMENT OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE WRIT PETITION WAS ALSO CONSIDERED BY T HE DIVISIONAL BENCH OF THE HIGH COURT IN G.A.NO.1911 OF 2014 IN ZIGMA COMMODITIES P VT.LTD VS ITO VIDE ORDER DATED 19 TH AUGUST, 2014. THE HONBLE HIGH COURT HAD DISMISSED THE PETITION APPEAL OF THE APPLICANT. 13.2. UPON CAREFUL CONSIDERATION OF THE ABOVE WE FI ND THAT THERE IS COGENCY IN THE SUBMISSION OF THE LD. DR THAT THE ABOVE ISSUE IS SI MILAR TO THE ONE BEING CONSIDERED BY US IN THIS APPEAL. AS ALREADY DEALT WITH HEREIN ABO VE THE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. HENCE PRELI MINARY OBJECTIONS OF THE ASSESSEE AGAINST THE ASSUMPTION OF JURISDICTION BY THE LD. C IT STAND DISMISSED. NOW WE EXAMINE THE FACTS OF THE PRESENT CASE. 13.3. WE NOTE THAT THE RETURN OF INCOME WAS FILED I N THIS CASE ON 31.08.2009. THE ASSESSEE COMPANY HAD SHOWN NO TRADING ACTIVITY. ONL Y SOME ROUTINE EXPENDITURES WERE INCURRED. HOWEVER, THE ASSESSEE HAS ISSUED EQU ITY SHARES OF RS.10/- OF RS.490/- PER SHARE. IN THIS WAY THE ASSESSEE HAS RAISED SHA RE CAPITAL OF RS.30,90,300/- AND SHARE PREMIUM OF RS.15,14,24,700/-. THE BALANCE SHEET OF THE ASSESSEE COMPANY DID NOT SHOW ANY EVIDENCE OR JUSTIFICATION FOR THE RECEIPT OF SUCH HUGE SHARE PREMIUM. 13.4. NOW SUBSEQUENT TO THE FILING OF THIS RETURN T HE ASSESSEE SENT AN UNDATED LETTER TO THE AO. THE DATE OF RECEIPT BY THE INCOME TAX OFFIC E WAS SHOWN IN THIS LETTER AS 17.02.2011. IN THE SAID LETTER THE ASSESSEE INFORME D THE AO THAT RS.50,000 CONTRACTUAL FEE HAVE NOT BEEN ACCOUNTED FOR IN THE INCOME. AO T OOK COGNIZANCE OF THIS LETTER AND ISSUED NOTICE FOR REOPENING U/S 148 ON 21.02.2011. IN RESPONSE TO THIS NOTICE AGAIN VIDE UNDATED LETTER RECEIVED BY ITO ON 23.02.2011 T HE ASSESSEE INFORMED THAT THE ORIGINAL RETURN FILED ON 31.08.2009 MAY BE TREATED AS RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THUS IT IS NOTEWORTHY HERE THAT IN ITS EARLIER LETTER THE ASSESSEE HAS SUBMITTED THAT IT HAD NOT ACCOUNTED FOR CONTRACTUAL FEE OF RS.50,000/- RECEIVABLE ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 14 DURING THE YEAR 2008-09. HOWEVER IN THE LETTER IN R ESPONSE TO THE SAID NOTICE U/S 148 OF THE ACT THE ASSESSEE DID NOT DISCLOSE THE SAID AMOU NT AS ITS INCOME. THUS THERE IS A CONSIDERABLE COGENCY IN THE PLEA OF THE LD. DR THAT IT WAS A DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO GET THE ACCOUNT REOPENED AN D FACADE OF SCRUTINY ASSESSMENT CREATED TO COVER UP THE ISSUE OF SHARE CAPITAL WITH HUGE SHARE PREMIUM. NOW IN THE NOTICE U/S 142(1) OF THE ACT DATED 25.12.2011 THE A SSESSEE ASKED THE ASSESSEE TO PROVIDE SOME INFORMATION AND THIS INCLUDED SHARE CA PITAL AND SHARE PREMIUM. IN RESPONSE TO THIS NOTICE THE ASSESSEE SUBMITTED THE DETAILS AGAIN BY UNDATED LETTER. DESPITE RECEIVING INFORMATION ABOUT THE NAME OF PER SON FROM WHOM ASSESSEE HAS ALLEGEDLY RECEIVED UNACCOUNTED CONTRACTUAL INCOME A O CHOSE TO REMAIN SILENT ON THIS ISSUE. HE GOES ON TO ISSUE NOTICE TO SHARE APPLICAN TS/HOLDERS. OUT OF 21 SHAREHOLDERS THE AO ISSUED NOTICES U/S 133(6) OF THE ACT TO 9 OF THE SHAREHOLDERS ON 7.3.2011. THERE IS NO REFERENCE AS TO HOW THESE NOTICES WERE SERVED. HOWEVER, TEAR OF ACKNOWLEDGMENT SLIP IS THERE WHICH SUGGESTS SERVICE BY HAND. IN RESPONSE TO THIS NOTICE ALL THE REPLIES RECEIVED WERE UNDATED. HOWEV ER, AS PER THE RECEIPT BY THE INCOME TAX OFFICE MENTIONED THEREIN THE SAME WERE RECEIVED BETWEEN 11 TH MARCH TO 16 TH MARCH. AFTER THE ISSUANCE OF NOTICE U/S 133(6) ON 7 .3.2011 THE AO ON 14.03.2011 IN THE ORDER SHEET NOTES THAT SHRI MAHESH SHARMA APPEA RED AND MATTER PERTAINING TO PAYMENT OF ROC FEE AND SECTION 35D WERE DISCUSSED. ON 17.03.2011. AO RECORDS THAT SHRI MAHESH SHARMA, AR APPEARED AND PROVIDED BOOKS OF ACCOUNTS WHICH WERE TEST CHECKED. IT IS NOTEWORTHY THAT REOPENING WAS RESORT ED FOR THE REASON THAT THERE IS ESCAPEMENT OF CONTRACTUAL INCOME. IN THIS REGARD AS SESSEE ONLY SUBMITTED THE NAME OF A PERSON AND AMOUNT. THIS WAS ACCEPTED BY THE AO WI THOUT ANY FURTHER ENQUIRY. 13.5. FROM THE ABOVE IT IS EVIDENT THAT AFTER COLLE CTING SOME INFORMATION THE AO DID NOT ACT ANY FURTHER. THERE IS NO WHISPER IN THE ORD ER SHEET AS TO WHETHER AO MADE ANY DISCUSSION OR ENQUIRY WITH REGARD TO THE SHARE CAPI TAL AND SHARE PREMIUM. IN ORDER DATED 18.03.2011 IT WAS BARELY TWO DAYS AFTER THE R ECEIPT OF LAST REPLY THE AO WRITES IN THE ASSESSMENT ORDER THAT NOTICE U/S 133(6) OF THE ACT WERE ISSUED TO THE SHARE SUBSCRIBERS ON TEST CHECK BASIS THE REPLIES FROM TH EIR END ARE VERIFIED. IN THIS REGARD WE AGREE WITH THE LD. DR, THE AO HAS SHOWN UNDUE HA STE IN COMPLETING THE ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 15 ASSESSMENT. HE HAS COLLECTED CERTAIN INFORMATION BU T HAS NOT MADE ANY VERIFICATION WHATSOEVER. THERE IS NO ENQUIRY REGARDING THE ISSUE AS TO WHAT PROMPTED THE SUBSCRIBERS TO PAY HUGE SHARE PREMIUM IN PURCHASING THE SHARES OF THE ASSESSEE COMPANY HAVING NO SIGNIFICANT ACTIVITY. THE ENTIRE SEQUENCE OF EVENT SHOW THAT EXERCISE WAS DONE AND CREATE A FAADE OF ENQUIRY. 13.6. WE FIND THAT THE LD. DR RELIANCE UPON THE DEC ISION OF THE HONBLE APEX COURT IN THE CASE OF RAMPRIYA DEVI SARAOGI VS CIT 67 ITR 84 (SC) IS GERMANE AND SUPPORTS THE CASE OF THE REVENUE. AS IN THAT CASE THERE IS A MPLE MATERIAL HERE TO SHOW THAT ITO HAS MADE ASSESSMENTS IN UNDUE HURRY. IN SUCH CIRCUM STANCES ACTION OF THE LD. CIT(A) U/S 263 IS FULLY JUSTIFIED. THIS ASPECT IS ALSO TO BE SEEN IN THE LIGHT OF THE BACKGROUND OF THE FACTS. IN THIS CASE A NEWLY STARTED COMPANY ISSUES SHARE OF RS.10/- EACH AT A PREMIUM OF RS.490/- THE ASSESSMENT IS REOPENED AT T HE INSTANCE OF THE ASSESSEE INFORMING THAT CERTAIN COMMISSION INCOME HAVE ESCAP ED ASSESSMENT THEREAFTER ASSESSEE DOES NOT CONFIRM THE ESCAPEMENT OF COMMISS ION INCOME IN THE RETURN. AO DOES NOT DWELL ON THE ESCAPEMENT OF COMMISSION INCO ME AS REPORTED BY THE ASSESSEE. AO ISSUES NOTICES AND RECEIVES UNDATED RESPONSE OF THE ASSESSEE COMPANY. THE AO THEN ISSUES 133(6) NOTICE TO 9 SHARE HOLDERS BY HAN D. CERTAIN INFORMATION COMES FROM THESE COMPANIES IN UNDATED REPLIES. THE REPLIES ARE NOT SUBJECTED TO ANY ENQUIRY WHATSOEVER, BUT THE AO WROTE IN THE ORDER THAT REPL IES ARE VERIFIED. IT IS VERY CLEAR THAT LEAVE ALONE THE QUESTION OF ENQUIRY THE ENTIRE EPIS ODE WAS DESIGNED TO CREATE A FACADE OF SCRUTINY ASSESSMENTS JUSTIFYING THE RECEIPT OF SHARE PREMIUM AND SHARE CAPITAL. 13.7. FROM THE ABOVE DISCUSSION IT IS AMPLY CLEAR T HAT THERE WAS NO ENQUIRY BY THE AO AND HENCE THE LD. CIT WAS JUSTIFIED IN TAKING AC TION U/S 263 OF THE ACT. FURTHERMORE THE ABOVE IS ALSO TO BE VIEWED IN THE L IGHT OF THE BACKGROUND OF THIS CASE AS REFERRED BY THE LD. CIT IN HIS ORDER. THE LD. CI T HAS REFERRED TO THE COMMON PRACTICE BEING FOLLOWED PARTICULARLY IN KOLKATA WHE RE THROUGH THE ENTRIES OF SHARE CAPITAL AND SHARE PREMIUM IN DUMMY COMPANIES A VERY LARGE AMOUNT IS SOUGHT TO BE INTRODUCED AND LAUNDERED BY WAY OF THESE COMPANIES. . IN THESE CIRCUMSTANCES THE ISSUE OF SHARE CAPITAL AND SHARE PREMIUM NEEDED AN ENQUIRY IN THE PROPER SENSE OF THE WORD AND NOT A FACADE OF ENQUIRY. ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 16 13.8. IN THIS REGARD WE MAY ALSO REFER TO THE FOLL OWING OBSERVATIONS IN THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CAS E OF STAR GRIHA IN ITA NO.1244 OF 2013 FOR THE ASSESSMENT YEAR 2008-09 DATED 14 TH AUGUST, 2014 ON A SPECIFIC QUERY FROM THE BENCH AS TO WHAT HAS LED TO THIS SUDDEN SPURT IN THE 263 BEING INITIATED IN THE SHARE APPLICATION AND SHARE APPLICANTS OF THE VARIOUS COMPANIES. IT WAS THE REPLY BY THE LD. CIT(DR) IN THE FOLLOWIN G WORDS : MANY OF THESE COMPANIES ARE UNDER INVESTIGATION BY THE MINISTRY OF CORPORATE AFFAIRS AS WELL AS CBI, ENFORCEMENT DIREC TORATE & SIT. IN CASE OF POLITICALLY EXPOSED PERSON, THE INVESTIGATIONS ARE AT A CRITICAL LEVEL AND THEREFORE THE NAMES OF THE ENTRY OPERATORS CANNOT B E DIVULGED AT THIS JUNCTURE. 13.9. FURTHER MORE WE NOTE THAT THE FOLLOWING OBSER VATIONS IN THE DECISION OF THIS TRIBUNAL IN THE CASE OF BISAKHA SALES PVT. LTD. VS CIT-KOL-II,KOL VIDE ITA NO.1493/KOL/2013 DATED 19.09.2014 AS UNDER ARE ALSO TO BE TAKEN INTO ACCOUNT : THERE IS ANOTHER IMPORTANT ASPECT WHICH SHOULD ALSO BE BORNE IN MIND IN THIS CASE. THESE SHARES WERE RECEIVED AFTER PAYING HUGE PREMIUM BY THE ALLOTTEES. THESE WERE SUBSEQUENTLY TRANSFERRED AT FACE VALUE OR EVEN AT DISCOUNT. THIS MEANS THAT ON TRANSFER OF SHARES THE ALLOTTEE DID N OT RECEIVE ANY PREMIUM. THIS MEANS THAT HUGE AMOUNT WAS RECEIVED AND PAID AS SHARE PRE MIUM WITH FULL KNOWLEDGE THAT THERE WILL BE NO RECOVERY OR THERE IS NO SCOPE OF R ECOVERY OF SHARE PREMIUM. THIS WAS DESIGNED TO FACILITATE THE TRANSFER OF THESE COMPAN IES TO OTHER PERSONS ON PAYMENT OF NOMINAL OR DISCOUNTED VALUE OF SHARES. IN OTHER WOR DS THE VALUE EMBEDDED IN THE SHARE PREMIUM WAS MEANT TO BE TRANSFERRED UNDER HAND, AND PRIMA FACIE IT APPEARS THAT THE TRANSFER TOOK PLACE UPON PAYMENT OF UNDER HAND MONE Y. THIS IS A CLASSIC CASE OF MONEY LAUNDERING AND THE SHARE PREMIUM WAS BEING RECEIVED AND PAID TO LAUNDER THE BLACK MONEY. 13.10. IN THIS REGARD THE FOLLOWING CASE LAWS FROM HONBLE APEX COURT ARE ALSO RELEVANT. THE HONBLE APEX COURT IN THE CASE OF CIT VS DURGA PRASAD MORE 82 ITR 540 AND IN THE CASE OF SUMATI DAYAL VS CIT 214 ITR 801 HAS EXPOUNDED THAT REVENUE AUTHORITIES ARE ALSO SUPPOSED TO CONSIDER THE SURRO UNDING CIRCUMSTANCES AND APPLY THE TEST OF HUMAN PROBABILITY. IN THESE CASES THE T RANSACTIONS THOUGH APPARENT WERE HELD TO BE NOT REAL ONES. IN 63 ITR 609 IN THE CASE OF CIT VS SRI MEENAKSHI M ILLS LTD HONBLE APEX COURT HAS HELD THAT IN EXCEPTIONAL CIRCUMSTANCES COURTS A RE ENTITLED TO LIFT THE VEIL OF CORPORATE ENTITY AND TO PAY REGARD TO THE ECONOMIC REALITIES BEHIND THE LEGAL FACADE . ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 17 13.11. THE CASE LAWS RELIED UPON BY THE LD. COUNSE L OF THE ASSESSEE ARE NOT APPLICABLE ON THE FACTS OF THE CASE. THE CASE LAWS DEALT WITH THE SITUATION WHERE THE AO HAS MADE SOME ENQUIRY WHICH IN THE OPINION OF TH E LD. CIT WAS NOT ADEQUATE. IN THE PRESENT CASE AS HAS ALREADY BEEN FOUND OUT THER E WAS NO ENQUIRY WHATSOEVER BY THE AO RATHER THE ENTIRE EXERCISE WAS TO MAKE A PERFUNC TORY ATTEMPT TO GIVE A FACADE OF ENQUIRY. WE ALSO DO NOT FIND ANY COGENT SUBSTANCE I N THE SUBMISSION THAT PRIOR TO THE INTRODUCTION OF PROVISO TO SECTION 68 AND INTRODUC TION OF SECTION 56(2)(VIIB) THERE WAS NO REQUIREMENT ON THE AO TO ENQUIRE THE GENUINENES S OF AMOUNT RECEIVED AS SHARE CAPITAL AND SHARE PREMIUM. THE RECEIPT OF ANY AMOUN T BY WHATEVER NAME CALLED IF THE SAME IS NOT GENUINE DOES FALL UNDER THE KEN OF SECT ION 68. 13.11. THIS CASE WAS HEARD ON 23.09.2014. ASSESSEE S COUNSEL SHRI S.S.GUPTA, FCA HAD APPEARED AND FILED A WRITTEN SUBMISSION WHICH I S ON RECORD. SHRI GUPTA WAS ASKED TO SUBMIT IF HE HAD ANYTHING ELSE TO SAY. SHRI GUPT A IN THE ORAL SUBMISSION REITERATED THE POINTS NOTED IN THE WRITTEN SUBMISSION. THE LD. DR WAS ALSO HEARD. THE CASE WAS ADJOURNED FOR FURTHER SUBMISSION BY THE LD. DR. ON SUBSEQUENT DATES THE LD. COUNSEL OF THE ASSESSEE SOUGHT REPEATED ADJOURNMENT. ON 29. 09.2014, THE LD. DR STATED THAT HE HAD NOTHING MORE TO SUBMIT, HENCE THE ADJOURNMENT P ETITION WAS DISMISSED AND THE CASE WAS TREATED AS HEARD. 13.12 IN THESE CIRCUMSTANCES IN THE BACKGROUND OF T HE AFORESAID DISCUSSION AND PRECEDENT IN OUR CONSIDERED OPINION THERE IS NO INF IRMITY IN THE ORDER PASSED BY THE LD. CIT U/S 263. ACCORDINGLY WE UPHOLD THE SAME. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24.10.2014. SD/- SD/- [ GEORGE MATHAN ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 24.10.2014 R.G.(.P.S.) ITA.NO.1607/KOL/2013 M/S.BRINDAVAN COMMODITIES PVT.L TD.,KOL A.YR.2009-10 18 COPY OF THE ORDER FORWARDED TO: 1. M./S. BRINDAVAN COMMODITIES PRIVATE LIMITED, 7, GRA NT LANE, LAL BAZAR, KOLKATA-700012. 2 C.I.T., KOLKATA-III, KOLKATA. 3 . CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES