Mahotsav Creation Pvt. Ltd., Surat V. Pr. Commission of Income Tax, -1, Surat

ITA 49/SRT/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1744 (ITAT-SURAT)
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-06-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 03-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained cash credit; Unexplained investment; Revision of order; Opportunity of being heard; Principle of natural justice; Period of limitation; Retrospective amendment; Question of law; Time period of passing order; Reassessment proceedings
• Section: 68; 69; 148; 263; 143(3); 133A; 143(1); 195; 143(2); 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.49 & 50/SRT/2021 Assessment Years: (2010-11 & 2011-12) (Virtual Court Hearing) Mahotsav Creation Pvt. Ltd., 101-102, 1 st Floor, Sakar Textile Market, Ring Road, Surat-395002. Vs. Principal Commissioner of Income-Tax-1, Aayakar Bhawan, Majura Gate, Surat-395001 èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAECM2394Q (Appellant) (Respondent) Assessee by Shri Hardik Vora, Advocate Respondent by Shri H. P. Meena, CIT(DR) Date of Hearing 28/06/2022 Date of Pronouncement 22/08/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of these two appeals the assessee has challenged the correctness of the separate orders, all dated 31.03.2021 pertaining to Assessment Years (AY) 2010-11 and 2011-12, passed by the Learned Principal Commissioner of Income Tax-1, Surat [in short “ld. PCIT”] under section 263 of the Income Tax Act 1961 (hereinafter referred to as “the Act”). 2. Since the common and identical issues are involved in both the assessees` appeals, therefore these two appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The facts as well as grounds of appeal narrated in ITA No.49/SRT/2021 for assessment year 2010-11 have been taken into consideration for deciding these two appeals en masse. 3. Grounds of appeal raised by the assessee in “lead” case in ITA No.49/SRT/2021 are as follows: Page | 2 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. “1. The Learned Pr. Commissioner of Income Tax grossly erred in setting aside the order of AO holding that the order passed by the AO is erroneous and prejudicial to the interests of law. 2. On the facts and under the circumstances of the case, the Ld. Pr. Commissioner of Income Tax, erred in initiating the proceedings under section 263 without appreciating that case of the appellant was selected for assessment u/s 148 of the Act. Hence revision u/s 263 and directing the AO to make fresh assessment is bad in law. 3. The Ld. Pr. Commissioner of Income Tax grossly erred in law by issuing notice at the fag-end of the extension period. Revising Order without providing adequate opportunity is not only unjustified but also against the principle of natural justice and bad in law. 4. The Ld. Pr. Commissioner of Income Tax grossly erred in law and on facts of the case in confirming order u/s 263 by invoking provisions of Section 68 by ignoring the fact that the proviso to Section 68 was introduced by Finance Act, 2012 with prospective effect from April 01, 2012. Hence, revising order is bad in law.Therefore, it is prayed that the order of revision may kindly be quashed. 5. The appellant craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing”. 4. The relevant material facts, as culled out from the material on record, are as follows. Assessee before us, is a Private Limited Company and filed its return of income for assessment year 2010-11 on 29.09.2010 declaring total income to the tune of Rs. (-)1,51,162/-. A survey action u/s 133A of the Income Tax Act, 1961 was carried out on 09.09.2016 at the business premises and various documents and papers were impounded. Further, assessee`s case was re-opened by issue of notice u/s 148 of the Income Tax Act 1961 for assessment year 2010-11, after recording the reason and obtaining prior approval of competent authority u/s 151(1) of the Act. Subsequently, the assessment was completed u/s 143(3) r.w.s. 147 of the Income Tax Act for assessment year 2010-11, on 21.12.2017. 5. Later, Learned Principal Commissioner of Income Tax [in short “ld. PCIT”] has exercised his jurisdiction under section 263 of the Income Tax Act. The ld PCIT, on perusal of scrutiny records, it was observed by him that no Page | 3 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. inquiry/addition has been made in respect of bogus share capital of Rs. 8,00,00,000/- received from Kolkata-based shell /paper companies during F.Y. 2009-10, relevant to assessment year 2010-11. As per facts on record, during the assessment year 2010-11, the assessee-company allotted 4,00,000 shares of having face value of Rs.10 at premium of Rs.190 per share to shell/paper companies and received share capital of Rs.8,00,00,000/-. Details of which are as under: Name of investor/Share Date of No. of Face Premium Total Amount Applicant companies allotment shares value per share (Rs.) (Rs.) (Rs.) Novoflex Vyapaar Pvt Ltd 29.06.2009 1,50,000 10 190 3,00,00,000 Kumkum Suppliers Pvt Ltd 31.03.2010 2,50,000 10 190 5,00,00,000 In view of the above facts, a show cause notice bearing No. Ref: ITBA/REV/F/REV1/2020-21/ 1031741614(1) dated 25.03.2021 was issued to the assessee. 6. In response to the above show notice of Ld. PCIT, the assessee submitted its reply which is reproduced below: “3. The assessee responded on 29.03.2021 online via ITBA; before the appointed date and time. The response is detailed and long as under: "...Sub: Objection to Show cause notice u/s 263 of the Income Tax Act, 1961 - A. Y. 2010-11 dated 25/03/2021 -Request for dropping the proceeding. Ref: ITBA/REV/F/REV1/2020-21/ 1031741614(1) In view of above show cause notice, details/explanations are given hereunder for your honour reference: First and foremost, the Assessee repeats and reiterates that whatever has been stated by your honour in the show cause is far from the truth and therefore the Assessee denies each and every contention, averment and allegation made in the show cause. The show cause served by your honour is vague and bad in law. Nothing contained in the reply to the above show cause should be deemed to have been admitted by the Assessee for want of specific denial. 1. Firstly, it is pertinent to note that Assessment Order u/s 143(3) r.w.s. 147 which is allegedly sough to be revised was passed on 26/12/2017. hence Page | 4 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. limitation period for revision u/s 263 of the Act was originally ended on 31/03/2020. But said limitation was extended by Section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 up to 31/03/2021. The impugned show cause notice u/s 263 was issued on 25/03/2021, which is at the fag-end of extended period of limitation. Ld. PCIT had kept revision proceedings dormant for more than 3 years, and in undue haste and on the vary last moment of the limitation period, without providing adequate opportunity of being heard, proceeded with issuing impugned show cause notice, which is not only unjustified but against the cardinal principles of natural justice. 2. Furthermore, it is pertinent to note that the Ld. PCIT had only allowed 4 days to file reply, out of which, 2 days are weekend and date of filing reply is on Public Holiday (Holi and Dhuleti). Hence, effectively only 1 day was given to file the reply to the impugned show-cause notice. 3. The investor company i.e. Kumkum Suppliers Pvt. Ltd. had available the fund since the AY 2006-07 and the assessment for the same AY has been also completed u/s 143(2) by the Jurisdictional AO, ITO 1(4), Kolkata, Order date: 28/11/2008. The copy of said assessment order along with the Audited Financial Statement for the FY 2005-06 are furnished as per ANNEXURE - 1. 4. It is pertinent to note that that the status of the investor company till dated is active company and the same can be verified from the Master Data of the MCA The screen shot of the Company Master Data of the Investor Company is furnished as under: 5. As apparent from the extract above extract of the MCA, the directors viz Shri Dilip Chopra and Smt. Parmeshwari Chopra appointed as director on 24/12/2009 and it is submitted that all the investments (as stated above) are made after such appointment 6. Further recently the assessment of the investor company has been completed u/s 143(3) for the AY 2.017-18 by the ITO Ward - 1(1)(3), Surat by passing the order dated 10/12/2019. The copy of the said assessment order is attached as per ANNEXURE - 2. 7. It is also submitted that the investor company i.e. Kumkum Suppliers Pvt. Ltd. have made exclusive investment in the assessee company only. This fact is verifiable from the perusal of the financial statements for the FY 2011-12 to FY 2016-17 of the assessee company. The copy of the same are furnished as per ANNEXURE- 3. 8. Further, from the perusal of the financial statements, it is apparent fact that the investor company had made the total investment of Rs. 15.75 Crores in the assessee company and the history of such investment and status of the assessment is stated as under:... Copy of order passed by Hon'ble CIT(A)-3, Surat is attached herewith as per ANNEXURE - 4. As Hon'ble CIT(A)-3 had already favored the assessee Page | 5 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. company on the very same issue, hence no adverse view in this regard may please be drawn. Moreover, during AY 2009-10, on the very similar issue, Hon'ble CIT(A)-3, Surat had already favored the assessee company on the very same issue, hence no adverse view in this regard may please be drawn. Copy of order is enclosed herewith as per ANNEXURE-5 9. Furthermore, first proviso to Section 68 of the Act was inserted by Finance Act, 2012 w.e.f. 01/04/2013. Please appreciate that, insertion of first proviso led to paradigm shift in the law, wherein onus of proof was placed on the company to prove the genuineness of money received by the shareholder. 10. Your Honours attention is invited to Bombay High Court's ruling in case of CIT v. M/s Gagandeep Infrastructure Private Limited (ITA 1613 of 2014), wherein it was held that insertion of first proviso is prospective in nature, relevant portion of ruling is reproduced below for your Honour's reference: Proviso to Section 68 of the Act has been introduced by the Finance Act, 2012 with effect from 1st April, 2013. Thus, it would be effective only from the Assessment Year 2013- 14 on wards and not for the subject Assessment Year. In fact, 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 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states 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. 11. Your Honour's attention is invited to the landmark ruling of Supreme Court in case of CIT Vs. Lovely Exports (P.) Ltd [2008] 216 CTR 195 (SC). where 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. Relevant portion is reproduced below for your Honours reference: "If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under sect/on 68 of assessee-company Page | 6 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. "2. Can the amount of share money be regarded as undisclosed income under section 68 of IT 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." 12. Hence, considering above in the assessee's case, pre-amended Section 68 is applicable and law declared by the Hon'ble Supreme Court in case of CIT Vs. Lovely Exports (P.) Ltd (Supra) needs to be upheld- At this juncture assessee company places reliance on the following judicial pronouncements: CIT vs. Steller Investment Ltd. SUPREME COURT OF INDIA, [2001] 115 TAXMAN 99 (SC) 4. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances can the amount of share capital be regarded as an undisclosed income of the assessee. It may be that there are some bogus shareholders in whose name the shares had been issued and the money may have been provided by some other persons. If the assessment of the persons, who are alleged to have really advanced the money, is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. C.I.T Vs. KAMDHENU STEEL & ALLOYS LTD [Petition(s) for Special Leave to Appeal (Civil)....../2012 (CC 15640/2012), dated 17/09/2012 [2012] 19 taxmann.com 26 (Delhi)] Section 68 of the Income tax Act 1961 Cash credits Assessment year 200405 Whether once adequate evidence/material is given, which would prima facie discharge burden of assessee in proving identity of shareholders, genuineness of transaction and creditworthiness of shareholder, thereafter in case such evidence is to be discarded or it is proved that it is 'created' evidence, revenue is supposed to make thorough investigation before it could nail assessee and fasten assessee with a liability under sections 68 and 69 Held, yes Whether where assessee had given particulars of registration of investing/applicant companies confirmation from share applicants bank accounts details. Arceli Realty Limited (Formerly known as Ellora Electricals Ltd.) vs Income Tax Officer - 15(1)(1), Mumbai in ITA No.6492/Mum/2016 dated 21.04.2017 "The satisfaction has to be derived from the relevant facts and that to on the basis of proper enquiry by the Assessing Officer and such enquiry must be reasonable and just. In the present case, the Assessing Officer has not brought any evidence on record that the amounts received from M/s Alka Diamond Industries Ltd. and M/s Yash-V-Jewels Ltd. are merely accommodation Page | 7 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. entries. As mentioned earlier, the Ld. Assessing Officer has acted merely on the basis of information received from the Investigation wing. The ratio laid down by Hon'ble Delhi High Court in CIT vs Vrindaban Farms Pvt. Ltd. squarely gives shelter to the assessee, wherein, it was held that if the identity and other details of share applicant are available, the share application money cannot be treated as undisclosed income in the hands of the company. In the present case, the assessee even has proved the source of source. therefore, the creditworthiness was also proved, consequently, no addition made u/s 68 of the Act can be said to be justified. The ratio laid down in Creative World Telefilms Ltd. (supra) by Hon'ble jurisdictional High Court squarely comes to the rescue of the assessee. The assessee duly furnished the proof of identity like PAN, bank account details from the bank, other relevant material, genuineness of the transaction, payment through banking channel and even the source of source, therefore, the assessee has proved the conditions laid down u/s 68 of the Act. It is also noted that in spite of repeated request, the Ld. Assessing Officer did not provide opportunity to cross examine the concerned persons and even the relevant information and allegation, if any, made therein, which has been used against the assessee, was not provided to the assessee. At this stage, we add here that mere information is not enough rather it has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the Department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the assessee of such evidence, if any. or the information, no addition can be made. Even otherwise, as per Article-265 of the Constitution of India, only legitimate taxes have to be levied and collected. In our humble opinion, the assessee has duly discharged the onus caste upon it, therefore, respectfully following the decisions from Hon'ble Apex Court, Hon'ble High Courts and Hon'ble jurisdictional High Court, we reverse the order of the Ld. Commissioner of Income Tax (Appeal), resultantly, this ground of the assessee is allowed." 14. Accordingly, the Apex Court & various High Court cited supra had already decided the present issue in favour of the Assessee in toto that addition on account of raising share capital is not permissible in the case of the Company and the department is free to take necessary actions if required to the share applicants. 15. It is further submitted that, till date above shareholding remain as it is. Had above share capital and share premium were not genuine, assesses would have bought back it subsequently. 16- Prayer: - We hope above details shall fulfill your requirements. If your honour requires more details then Assessee may please be informed so as to make suitable submission to the best of your satisfaction. If your honour inclined to take any contrary view in this regard then Assessee may please be given a reasonable opportunity of being heard. Assessee also reserves right to make further submission if needed. We are requesting you to drop the revision proceedings u/s 263..." Page | 8 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. 7. However, ld. PCIT rejected the contention of the assessee and observed that assessing officer did not inquiry about share capital issue and intentionally ignored to examine the issue relating to share capital and share premium. Therefore, ld PCIT has directed the assessing officer as follows: (1) The Assessing Officer has to carry out any inquiry into the income tax records of the investors/shareholders keeping in view the facts and circumstances as elucidated in the case. (2) The Assessing Officer to verify the actual business of the shareholders viz. Moh Vogue Apparels Pvt. Ltd. (Former Novoflex Vyapaar Pvt. Ltd.) and Kumkum Suppliers Pvt. Ltd., the genuineness of the entities. (3) The Assessing Officer to investigate into the creditworthiness of the share applicants viz. Moh Vogue Apparels Pvt. Ltd. (Former Novoflex Vyapaar Pvt. Ltd.) and Kumkum Suppliers Pvt. Ltd., during the year under consideration and also into the income and earnings of the share applicants. (4) The Assessing Officer to inquire into the involvement of entry-operator, Shri Amit Kedia in the shareholder companies and also the role of proxies, Sh. Jwala Parasd Gupta and Sh. Sanjay Kumar Tibrewal in the investor companies of the assessee company as per relevant Reports of Investigation Wing. (5) This is a case of possible money-laundering by use of the web of Kolkata based entry operators. The basic and apparent premises are as per the Show Cause Notice in the case. However, the Assessing Officer is required to examine the fund flow of the shareholders for at least 5 layers and unearth cash deposits into Bank Accounts of the shareholders or their shareholders in the case for inquiry into money laundering, as per mandate of the Hon'ble Supreme Court of India in Rajmandir Estates (P.) Ltd. v. PCIT (supra). (6) The Assessing Officer to make an independent and detailed enquiry of the so-called investor companies from Kolkata to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions, as per the directions of the Hon'ble Apex Court in PCIT-1 v. NRA Iron & Steel (P.) Ltd. (supra); Page | 9 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. (7) Further, the Assessing Officer is to make an inquiry into the commission expenses to arrange for accommodation entries (bogus share capital/share premium), if it is the case; (8) The A.O. is directed to inquire, call for, appreciate and if required; accept or, controvert nor disapprove the material filed by the assessee as the case may be. 8. In the light of the above discussions, the re-assessment order in the case of the assessee-company passed for A.Y. 2010-11, u/s 143(3) r.w.s. 147 of the Act made on 21.12.2017 was held to be erroneous and prejudicial to the interest of revenue and assessing officer was directed to frame the assessment de novo. 9. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us. 10. Shri Hardik Vora, Learned Counsel for the assessee, begins by pointing out that issues raised by ld PCIT in his order under section 263 of the Act, have not been subject matter of survey, however, these issues have been examined by the assessing officer during the original assessment proceedings. During the Revision proceedings, the ld PCIT issued show cause notice to the assessee to explain the transaction, which is placed at paper book Page 1-33. The reply of the show- cause notice furnished by the assessee is placed at Page no.34-161 of assessee`s paper book. The reasons of re-opening u/s 147 of the Act are placed at Page No.162-166, of the paper book. The objection against re- opening is placed at paper book Page no.167-186 and order of disposing objection is placed at paper book Page.187-197. The Ld. Counsel, argued that there was no material relating to share application money in survey proceedings and reasons recorded by the Assessing Officer u/s 147, which is placed at paper book Page no.162, with reference to survey proceedings, are not valid. Therefore, order passed by Ld.PCIT in exercising his jurisdictional power under section 263 of the Act holding that order passed by the AO u/s Page | 10 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. 147 r.w.s. 143(3), is erroneous and prejudicial to the interest of revenue, is factually incorrect. 11. On the other hand, Ld. CIT-DR for the Revenue submitted that assessee has shown nil income vide paper book Pg-81. The Ld. CIT-DR also pointed out that assessee was engaged in providing bogus entry and engaged in hawala transaction, therefore Ld. PCIT has exercised his jurisdictional power u/s 263 of the Act. The Ld. CIT-DR for the Revenue has also pointed out that Assessing Officer has not examined deliberately the issue of share application money to the tune of Rs.8 crores. Therefore, order of Ld. PCIT passed under section 263 may be upheld. 12. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials brought on record. First, we have to see whether the requisite jurisdiction necessary to assume revisional jurisdiction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedents laid down by the Hon’ble 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 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 the issue before him; then the order Page | 11 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined 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 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”. 13. Taking note of the aforesaid dictum of law laid down by the Hon’ble Apex Court, let us examine whether order passed by the assessing officer under section 147 r.w.s. 143(3) of the Act, dated 21.12.2017 is erroneous and prejudicial to the interest of revenue. The learned Counsel invited our attention towards reasons recorded by the Assessing Officer which is placed at paper book Page no.162, and the same is reproduced below: “Reasons for issuing notice u/s. 148 of the Income Tax Act, 1961 The assessee has filed return declaring income at Rs. Nil on 29.09.2010 which was processed u/s. 143(1). Subsequently, a survey u/s 133A of the IT Act, 1961 was carried out on 09.09.2016 at the business premises of the assessee and various documents/ papers/ GC cash book were impounded relating to P.Y. 2009-10 to 2016-17. During the survey statement of Shri Narendra M. Lunkar was recorded on oath, who is account head of the assessee company. In the statement he admitted that the impounded documents/ papers generated from the computer were written by him, which are relating to the business concern which is working here. He further admitted that cash transactions written on these documents/ papers are relating to unaccounted investment / payments of Shri Naresh Chopra director of the assessee- company. These transactions are not recorded in the personal books of accounts of the said director and the company. Various opportunities were provided to the Page | 12 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. assessee company & its directors during the post survey proceedings as well as in the scrutiny assessment of the company (AY 2014-15) to verify the impounded material with the relevant regular books of accounts. But no compliance was made by the assessee. Hence, impounded materials are not reconciled from the regular books of accounts of the assessee. 2. Later on, the assessee filed application before the Settlement Commission Addl. Bench -II, Mumbai on 01.12.2016 for the AY 2014-15, 2015-16, 2016- 17. In the application, the applicant stated before the ITSC that it maintain unaccounted transactions on the system in the name of Saree Sansar till 31.03.2013. But from 01.04.2013, it maintain unaccounted transactions in the name GC (i.e. GC means GUPT CODE) on the tally software by shifting data in tally from the old software. Hence, transactions maintained in the name of Saree Sansar and GC are not accounted for in the regular books of accounts. 3. As per annexure A-7 (page no. 95) one year wise sheet of advancing loans are found relating to FY 2009-10, 2010-11, 2011-12 & 2012-13 and these transactions are not accounted for in the relevant books of accounts. Details of transactions relating to the FY: 2009-10 are as under: Hence, the assessee has concealed the income of Rs. 36,78,991/-. 4. On perusal of page no. 72 of annexure BF-5 it is seen that there is one entry written on page, according to which material of Rs.31,00,000/- was purchased by the assessee and against which following cash payments were made to Shri Rehmat Bhai during the year. Sr. No. Date of Payment Amount of payment 1 14-Jul-09 100000 2 21-Jul-09 100000 3 27-AUR-09 50000 1 Total 2,50,000 In view of above, it is clear that the assessee made cash payment of Rs.2,50,000/- to Shri Rahmat Bhai, which are not accounted for in the regular books of accounts. 5. On perusal of page no. 73, 76, 77 & 78 of annexure BF-5 it is seen that on these pages details of various debit amounts are written in the name of Debit G C and there are same type of debit entries are written in the name of Debit - MCPL relating to FY 2009-10. Details of debit entries (OC) are as under: Sr. No. Name of person to whom loan given Amount 1 AD Mukesh Khatri (Loan) 50,000/- 2 Shridhar Malpani 16,000/- 3 Amirendra Bhai 3,00,000/- 4 Idresh AD: Shenaz 30,000/- 5 Mama Vijay Raj ji 30,00,000/- 6 Kamlesh Bhai (Sajni Art) 2,57,500/- 7 Rehmat Bhai 25,491/- Total 36,78,991/- Page | 13 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. Above advances/ loans are not accounted for in the regular books of accounts of the assessee. Hence, assessee has concealed income of Rs.27,38,235/-. 6. On perusal of page no. 15, 45 to 50, 66, 67, 70 of annexure BF-5 it is seen that various transactions of loans, advances etc. are written on these pages relating to FY 2009-10, 2010-11, 2011-12 & 2012-13, which are not accounted for in the regular books of accounts of the assessee. Details of the transaction for the FY 2009-10 are as under: Sr. No. Name of the party Amount 1 Aruna Kasat 870000 2 Mukesh Mali 483665 3 Aruna Tex 846105 4 Hypno Tex 538465 Total 2738235 Page | 14 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. Accordingly the assessee has concealed income to the extent of Rs.1,74,25,000/- . 7. As per annexure BP-8 (page no. 58) one ledger account in the name of Jainam Creation for the FT; 2009-10 was impounded, according to which the assessee has paid Rs. 3,60,292/- to Jainam Creation through cash on various dates. The above transactions are not accounted for in the regular books of accounts. Hence, assessee concealed the income of Rs.3,60,292/-. It is clear from the above discussion that the assessee has not disclosed fully and truly material fact, which are necessary for the assessment. In the light above discussion it is clear that the assessee has concealed income of Rs.2,44,52,518 (36,78,991 + 2,50,000 + 27,38,235 + 1,74,25,000 + 3,60,292) during the year. Therefore, I have reason to believe that the assessee has concealed the income to the extent of Rs. 2,44,52,518/- which is an escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Hence, this is a fit case for issuing notice u/s. 148.” 14. From the above reasons recorded, it is vivid that there is nothing mentioned about share capital and share premium. Thus, assessment was not reopened to examine the issue relating to share capital and share premium. The reassessment proceedings were initiated to tax the unaccounted payment, loans and advances and various unaccounted transactions. There is no whisper about the share capital and share premium in the reasons so recorded by the assessing officer under section 147 of the Act. We also note that assessing officer has not discovered any other income which is chargeable to tax and has escaped assessment during the reassessment proceedings as per third proviso to section 147 of the Act, hence it is quite clear that the share capital and share premium, was not the subject matter before assessing officer, during the reassessment proceedings under section 147 of the Act. We note that ld PCIT has exercised his jurisdiction under section 263 of the Act, to the effect that assessing officer has not examined share capital and share premium. However, as we have noted that this issue was not there before the assessing officer in the reasons recorded by him under section 147 of the Act. Therefore, the issue relating to share capital and share premium, cannot be examined by the assessing officer in reassessment proceedings, as it was not the part of reasons recorded by the assessing officer. Therefore, we note that jurisdiction exercised by ld PCIT under section 263 of the Act is not in accordance with law. The ld Page | 15 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. PCIT has selected the item (share capital and share premium) which is not subject matter of reassessment proceedings therefore, order passed by the assessing officer under section 147 r.w.s. 143(3) of the Act, dated 21.12.2017 is neither erroneous nor prejudicial to the interest of revenue. Therefore, jurisdiction exercised by the ld PCIT under section 263 of the Act to tax the share capital and share premium is not valid in the eye of law. 15. We note that Hon`ble High Court of Calcutta, in the case of Jai Kumar Kankaria, [2002] 120 Taxman 810 (Calcutta) held that there is no scope under section 263 to reopen an assessment on subsequent event or any new material. The findings of the Hon`ble Court is reproduced below: “6. Having heard the learned counsels for the parties and considering the materials placed before me, it appears from the affidavit that there is no basis for taking action. The whole point is whether the appropriate official can issue any order of withdrawal retrospectively even in a case of fraud. I do not find any such authority. Rather, I find an authority that the department concerned cannot withdraw any approval retrospectively. The donation was effected in 1984 and the assessment order was passed in the assessment year 1985-86. The validity of the approval was till December 1985. It may be a make-believe transaction or may be a true transaction, but this Court will not enquire into these facts at this stage. The writ petitioner pursuant to the aforesaid approval had acted upon it and donation having been made and the same having been accepted by the department, all these have been accepted by all concerned. Therefore, it is not open for the department concerned to reopen the assessment on the aforesaid fact within the sweep and purview of section 263. The retrospective effect cannot be given while seeking a withdrawal of the approval as it has been rightly pointed out by Dr. Pal and I also find support for the aforesaid proposition from the judgment rendered by Mrs. Justice Pal. I am also of the view that this case does not fall within the purview of section 263 for revision of the order prejudicial to the revenue. The revisional authority will exercise the aforesaid power under section 263 only when the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The term 'erroneous' will be looked into from the facts and circumstances and the materials which are placed before the Assessing Officer at the time of the assessment. There is no scope under the aforesaid section to reopen an assessment on subsequent event or any new material. 7. Moreover, I take note of the fact that the approval was sought to be withdrawn in 1987 when the life of the approval had already gone. Therefore, I am of the view that this impugned notice is not liable to be sustained as the very basis and/or the materials are unfounded under the law and this, in my view, is improper exercise of jurisdiction under section 263.” Page | 16 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. 16. On the identical facts, our view is fortified by the Judgment of Hon`ble High Court of Bombay in the case of Lark Chemicals Ltd, [2015] 55 taxmann.com 446 (Bombay) wherein it was held that for issues which were not subject of reopening of assessment, period of limitation for revision would commence from date of order of assessment and not reassessment. The findings of the Hon`ble Court is reproduced below: “10. The Revenue's grievance, as canvassed by Mr. Charanjeet Chandrapal, learned counsel for the Revenue, is that the period of limitation of two years provided under section 263 of the Income-tax Act would have no application when the issue arises out of bogus bills and non-genuine purchases. This is so as, according to him, the same would be opposed to public policy amounting to defrauding the State. In such circumstances, the period of limitation provided under the Act would not run from the original assessment order but would run from the reassessment order even if the issues have not been dealt with in the reassessment order. In view of the above, he submits that the decisions relied upon in the impugned order in Alagendran Finance Ltd.'s case (supra) and Ashoka Buildcon Ltd.'s (supra) are inapplicable as they did not deal with the issue relating to bogus bills and non-genuine purchases which arises in the present case. 11. As against the above, Ms. Vasanti Patel, learned counsel appearing for the assessee, submits that the assessment order dated June 28, 2006, passed under section 143(3)/147 of the Act dealt only with the issue of non-genuine purchases. The impugned order holds that the issue dealt with in the order dated June 28, 2006, is not erroneous. This issues has been accepted by the Revenue as no question with regard to that has been formulated. All other issues considered in the order passed under section 263 of the Act by the Commissioner of Income-tax were not the subject matter of the reassessment order dated June 28, 2006, but of assessments done earlier under section 143(1) of the Act. Therefore, the issues on which the revisional jurisdiction is being exercised were admittedly issues which arose in the proceeding/assessment done prior to reopening of the assessment. In view of passage of time the jurisdiction to exercise powers under section 263 of the Act with regard to assessment done under section 143(1) of the Act had lapsed. Ms. Vasanti Patel further submits that the Tribunal has merely followed the binding decisions of the apex court in the matter of Alagendran Finance Ltd.'s (supra) and of this court Ashoka Buildcon Ltd.'s (supra). Consequently, no question of law arises for consideration by this court. 12. We have considered the rival submissions. It is not disputed that save and except the issue of non-genuine purchases all other issues dealt with by the Commissioner of Income-tax in the order dated March 30, 2009, were not a subject matter of the assessment order passed on June 28, 2006, under section 143(3)/147 of the Act. All the other issues on which the Commissioner of Income-tax is seeking to exercise the jurisdiction under section 263 of the Act were concluded by virtue of an intimation under section 143(1) of the Act which admittedly was done beyond a period of two years prior to the notice Page | 17 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. dated March 17, 2009, issued under section 263 of the Act. Section 263(2) of the Act provides that no order would be made in exercise of the jurisdiction under section 263(1) of the Act after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. It is an admitted position that the Commissioner of Income-tax has not exercised the revisional jurisdiction in respect of the order/intimation passed section 143(1) of the Act within two years of it being passed. Therefore, exercise of jurisdiction on those issues under section 263 of the Act is time barred as held by this court in CIT v. Anderson Marine & Sons (P.) Ltd. [2004] 266 ITR 694/139 Taxman 16. Moreover, in view of the decision of the apex court in the matter of Alagendran Finance Ltd.'s case (supra) as well as our court in the matter of Ashoka Buildcon Ltd.'s case (supra) the jurisdiction under section 263 of the Act cannot be exercised on issues which were not subject matter of consideration while passing the order of reassessment under section 143(3)/147 of the Act but a part of an assessment done earlier under the Act. 13. In the above view, we find no fault with the order of the Tribunal in allowing the respondent's appeal. The submission of Mr. Chandrapal, learned counsel for the Revenue, is that in the case of bogus bills and non-genuine purchases, i.e., where the State is being defrauded the limitation as provided under section 263 of the Act be ignored cannot be accepted. This is for the reason that neither the Tribunal nor we, in our appellate jurisdiction, can ignore the mandate of limitation provided under the Act. This is an issue which would fall within the domain of Parliament so as to make suitable amendment to the law after considering the various competing interests. So far as the submission of Mr. Chandrapal, learned counsel for the Revenue, with regard to the decision of the Supreme Court in Alagendran Finance Ltd.'s case (supra) and of this court Ashoka Buildcon Ltd.'s case (supra) being inapplicable merely on the ground that they do not deal with the issues of bogus bills or non-genuine purchases is in fact no distinction. The principle laid down in the aforesaid decisions is that a notice under section 263 of the Act cannot be issued beyond the period of two years from the date when the order sought to be revised is passed. The case law relied upon in the impugned order are clearly applicable to the present facts. 14. In view of the fact that the impugned order has applied the binding decisions of the apex court and this court, we see no reason to entertain the three questions of law as proposed by the Revenue. 15. Accordingly, the appeal dismissed with no order as to costs.” 17. We note that assessee filed its return of income for assessment year 2010-11 on 29.09.2010 showing total income at Rs. Nil and current year losses to the tune of Rs. 1,51,162/-. Later on, assessee`s case was re-opened by issue of notice u/s 148 of the Income Tax Act 1961 for assessment year 2010-11, after recording the reason. Notice under section 148 of the Act was issued on 31.03.2017. Thus, the reassessment proceedings were initiated after six years Page | 18 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. from the end of assessment year 2010-11. The re-assessment was completed u/s 143(3) r.w.s. 147 of the Income Tax Act for assessment year 2010-11, on 21.12.2017. After that, ld PCIT has exercised his jurisdiction to revise order passed u/s 143(3) r.w.s. 147 of the Income Tax Act for assessment year 2010- 11, wherein the subject matter of reasons of reopening in respect of share capital and share premium was not there, however, it may be subject matter of original assessment. Now, there is no scope under section 263 to reopen an assessment on subsequent event or new material of share capital and share premium. That is issues (of share capital and share premium) considered in the order passed under section 263 of the Act by the Principal Commissioner of Income-Tax were not the subject matter of the reassessment order dated 21.12.2017, but of assessments done earlier under section 143(1) of the Act. Therefore, the issues on which the revisional jurisdiction is being exercised were admittedly issues which arose in the proceeding/assessment done prior to reopening of the assessment. In view of passage of time the jurisdiction to exercise powers under section 263 of the Act with regard to assessment done under section 143(1) of the Act had lapsed. Thus, the jurisdiction under section 263 of the Act cannot be exercised on issues ( share capital and share premium) which were not subject matter of consideration while passing the order of reassessment under section 143(3)/147 of the Act but a part of an assessment done earlier under the Act. Thus, the jurisdiction exercised by ld PCIT is not in tune with the provisions of section 263 of the Act. 18. The Assessing Officer has passed the reassessment order under section 143(3) r.w.s 147 of the Act dated 21.12.2017, after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry in respect of issue of share capital and share premium, has to fail. Page | 19 ITA.49 &50/SRT/2021 (AY.10-11 & 11-12) Mahotsav Creation Pvt. Ltd. Based on these facts and circumstances, we quash the order dated 31.03.2021 passed by the ld PCIT under section 263 of the Act. 19. In the Result, appeal filed by the assessee in ITA No. 49/SRT/2021, is allowed. 20. The identical and similar issues are involved in the case of assessee in assessment year 2011-12 in ITA No. 50/SRT/2021, therefore our observations in ITA No.49/SRT/2021 for A.Y.2010-11 shall apply mutatis mutandis. Hence, the appeal preferred by the assessee in ITA No. 50/SRT/2021, is also allowed. 21. In the result, Both the appeals filed by the assessee are allowed. Registry is directed to place one copy of this order in all appeals folder / case file(s). Order is pronounced in the open court on 22/08/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 22/08/2022 Dkp Outsourcing Sr.P.S./ SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat