Revision us 263 on reasons unconnected with grounds of reopening which was for specific purpose. Calcutta High Court upholds revision by CIT
ABCAUS Case Law Citation:
ABCAUS 1194 (2017) (04) HC
The Substantial Question of Law raised:
One of the grounds raised was as under:
Whether the Learned Tribunal was justified in not adjudicating the specific issue raised before it that the alleged lack of proper enquiries as to the issue of share capital/ premium in the course of proceedings under section 147 cannot be considered as erroneous and prejudicial to the interest of revenue when reopening was done for the specific purpose unconnected with the issue of share capital/premium?
Assessment Year : 2008-09
Date/Month of Pronouncement: March, 2017
Important Case Laws Cited/relied upon:
Commissioner of Incometax, Chennai Vs. Alagendran Finance ltd. [293 ITR 1(SC)]
Ranbaxi Laboratories Ltd. Vs. Commissioner of Income Tax [336 ITR 136 (Delhi)]
Brief Facts of the Case:
The relevant assessment year was the first year of assessment for the company. For the relevant previous year the company had no income and it issued share capital of Rs.24,68,000/- at a premium of Rs.5,68,32,000/-. The share premium was reflected in the balance sheet under the head “reserves and surplus”. The assessee had filed its return for the relevant assessment year showing loss of Rs.6812/-. The return of the assessee was duly processed by the assessing officer, who had accepted the return.
Later, notice was issued under Section 148 of the Income Tax Act, 1961 (‘the Act’) to bring into tax income escaped on account of consultancy fees of Rs. 32,500/- in cash, which was not included in its gross total income shown in the profit and loss account. The re-assessment was completed by adding back Rs. 32,500/- with the total income of the assessee company.
Subsequently, after perusal of the assessment records, Commissioner of Income Tax (‘CIT’) initiated revisionary proceeding under section 263 by issuing notice assigning the following reasons:
- That requisite inquiries were not conducted regarding the issue as to what prompted the subscribers to the shares to pay such substantial premium on shares of a little known company having no or insignificant business activities.
- The assessment order was passed without application of mind
- Proper inquiry was not conducted regarding the identity and creditworthiness of the shareholders
- The assessment order was passed mechanically which was liable to turn the assessment erroneous and cause prejudice to the interest or revenue.
Finally, the CIT set aside the assessment and directed Assessing Offier (‘AO’) to carry out through & detailed enquiries and pass a speaking order after providing adequate opportunity to the assessee.
The assessee appealed against the revisionary order before the Income Tax Appellate Tribunal (‘ITAT’) which following an earlier order passed by it in M/s. Subhlakshmi Vanijya Pvt. Ltd. dismissed it.
Contentions of the Appellant:
It was submitted that the Commissioner ought to have confined his decision, while exercising power under Section 263 of the Act, only to the issue on which reassessment was made under Section 147/143(3) of the Act. The Commissioner, could not have had travelled beyond the grounds which triggered off the reassessment process.
Observations made by the High Court:
It was observed that in the case Ranbaxi Laboratories Ltd. , the Hon’ble Delhi High Court had held that an assessing officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not justified to undertake such exercise when the reasons for initiation of the proceeding did not survive. Whereas in the case of Alagendran Finance Ltd., the revisional power of the Commissioner was in issue before the Hon’ble Supreme Court, but it was in relation to the question of limitation. The Apex Court had held that if revisional power was sought to be exercised in relation to items which did not form the basis of reassessment proceeding, then the Commissioner’s jurisdiction could not be exercised because of the limitation provision contained in Section 263(2) of the 1961 Act.
The Hon’ble High Court opined that the ratio of these two cases did not apply in the facts of the case.
It was observed that though the question of issue of share capital was not a factor which prompted the reassessment proceeding and the triggering factor was consultancy fees escaping the assessment. However, escapement of consultancy fee was accepted by the assessee and thus, widening the scope of reassessment was permissible for the reassessing authority to. Thus the judgment of the Delhi High Court in the case of Ranbaxy did not help the appellant in invalidating the revisional proceeding.
Regarding the case of Alagendran Finance, the Hon’ble High Court opined that it also could not rescue the appellant, as infusion of share capital formed part of the reassessment procedure. The revisional proceeding was thus commenced within the limitation period prescribed under Section 263(2) of the Act.
The question raised was not found to contain any substantial question of law.