Revision u/s 263 upheld as cash deposited in bank of investors of share application money

Revision order u/s 263 upheld as substantial amount of cash was deposited in the bank accounts of all the investors shortly prior to issuance of cheques for share application money

In a recent judgment, ITAT has upheld the revision order u/s 263 passed by the PCIT as substantial amount of cash was deposited in the bank accounts of all the creditors shortly prior to issuance of cheques

ABCAUS Case Law Citation:
ABCAUS 3921 (2024) (03) ITAT

Important Case Laws relied upon by parties:
Metropole Tiles (P.) Ltd. Vs. PCIT
Daniel Merchants Pvt. Ltd.
Torrent Pharmaceuticals Ltd. vs. DCIT reported in (2018) 97 671
Pavankumar M Sanghvi Vs. ITO (20180 97 398 (SC)
Umesh Krishnani Vs. ITO (2013) 35 598
Babulal S Solanki Vs. ITO

In the instant case, the assessee had challenged the order passed by the Principal Commissioner of Income (PCIT) under section 263 of the Income Tax Act, 1961 (the Act) whereby the PCIT had set aside the order passed under section 143(3) and directed Assessing Officer (AO) to carry out inquiries about the money trail of share application money.

cash deposit

The assessee was a Private Limited Company. For the Assessment Year in question, the assessee filed its Return of Income which was processed u/s 143(3) and assessment was completed accepting the Returned loss.

On verification of the case records by PCIT, it was found that the assessee company had raised substantial amount of equity share capital during the Financial Year and it was noticed that some investors have made investment in share capital through banking channel immediately after depositing cash/cheque on the same day or few days earlier in their respective accounts just prior to issue of cheques for share application money. The PCIT was of the view that the Assessing Officer while framing the assessment had failed to verify these issues before passing the assessment order which was erroneous as well as prejudicial to the interest of Revenue.

Therefore, a show cause notice u/s. 263 of the Act was issued. The assessee filed its reply stating that the case was selected for scrutiny assessment to verify inter alia the increase in Share Capital wherein the assessee produced documents proving the identity of the shareholder as well as documents in relation to the genuineness of the transactions. It was stated that while completing the assessment, the Assessing Officer had thoroughly enquired every issue and there is no question non-enquiry and the Revision proceedings was liable to be dropped.

Not satisfied with the reply of the assessee, the PCIT directed the AO to carry out inquiries about the various layers through which the money had been routed and landed as share capital to the assessee-company. The A.O. was also directed to summon the share applicants and examine them about the source of the money in their hands either through cash or through cheque needs to be examined.

Before the Tribunal the assessee furnished that details of unsecured loans accepted and share capital received from the shareholders/lenders and documents furnished before AO in terms of Section 68 of the Act namely Income Tax Returns, Bank Statements and Ledger Accounts. It was contended that the A.O. had gone through the above details and accepted the share application money invested by various investors.

Placing reliance on the judgments of the Co-ordinate Bench, the assessee contended that there was no non-enquiry by the Assessing Officer, so the Invocation of Revision proceedings was against the provisions of law and therefore liable to be quashed.

On the contrary, the Revenue submitted that in multiple cases no bank statements and no ITR of the shareholders were submitted and in cases where bank statements were submitted, it shows immediate receipt of cash before the amount being transferred to Assessee Company as share application money which is akin to the type mentioned in the judgment of the ITAT/ High Court/Hon’ble Supreme Court.

Placing reliance on the judgment of the Hon’ble Supreme Court the Revenue requested to uphold the order of PCIT in consideration of the fact that in a similar matter Hon’ble Apex Court has upheld the order passed under section 263.

The Tribunal observed that in the circumstances where the cash was deposited in their bank accounts just before issuance of cheques by the investors, the Hon’ble High Court has held that even without disturbing the well established principle of not insisting on the assessee proving source of the source, on the robust facts of the revenue authorities have rightly not concluded in favour of the assessee. All issues are essentially in the realm of appreciation of facts.

It was further observed by the ITAT that similarly, the Hon’ble Supreme Court has dismissed the Special Leave Petition where bank statement of lender companies revealed high transactions during day and a consistently minimal balance at end of working day Further, day when assessee was given loan there were credit entries of almost similar amounts, and balance after these transactions was a small amount.

Taking note of the said decision, the Tribunal opined that there was no infirmity in the Revision order passed by PCIT who had set aside the assessment to the file of Assessing Officer to make a detailed enquiry on the share capital introduced by the assessee company

by summoning the share applicants and examine them and to pass a speaking order.

The appeal of the assessee was dismissed.

Download Full Judgment Click Here >>

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