THE ISSUE IS - Whether since AO fails to carry out enquiry qua the confession made by person during search for providing bogus entries of share capital to assessee, which in fact is base of initiating re assessment proceedings, the CIT is correct in exercising power u/s 263 as re assessment order is erroneous and prejudicial to the interests of the Revenue. YES IS THE VERDICT.
Facts of the case
The assessee company had filed return of income for relevant AY. In the ensuing assessment u/s 143(3) of the Act, the returned income was accepted. However, subsequently, the AO re-opened the assessment on the ground that certain income chargeable to tax had escaped assessment. A search action u/s 132 was conducted by the DDIT(Inv.), Ahmadabad at the residence and office premises of Shri Shirish C. Shah. It was detected that Shri Shirish C. Shah had created an infrastructure of 212 companies which were used for layering of funds and purchase and sale of shares, which were mainly engaged in the business of providing accommodation entries of share capital and share premium. The information gathered revealed that assessee had obtained accommodation entries from Shri Shirish C. Shah on account of share application money in relevant AY. The AO specifically recorded that in the context of the assessee, Shri Shirish C Shah accepted in his statement recorded, that bogus entries were provided. In the ensuing assessment finalized u/s. 143(3) r.w.s. 147 of the Act the AO called for various details with regard to the share application money received by the assessee and examined the same. The AO accepted the transactions as returned by the assessee and therefore, no addition on account of receipt of share application money was made. But this assessment order was found to be erroneous by the CIT and the relevant show cause notice was issued u/s 263 of Act. As per CIT the re-assessment was finalized "without proper enquiry", qua the share premium of Rs. 1,40,00,000/- received by the assessee from bogus concerns controlled by Shri Shirish C Shah. The CIT set aside the assessment order with a direction to make assessment afresh. Against such decision of the CIT, the assessee filed appeal before Tribunal.
Tribunal held that,
++ the error sought to be pointed out by the Commissioner is that the confession made by Shri Shirish C Shah, which prompted the initiation of proceedings u/s. 148 of the Act, was not enquired into by the AO in the ensuing re-assessment proceedings. The said error brought out by the Commissioner, was clearly borne out of the record. The extract of the reasons recorded by the AO before issuance of notice u/s. 148 of the Act, which clearly averred that Shri Shirish C Shah in the case of the assessee had accepted in his statement recorded that he and his companies are providing only bogus entries for the "One Time Entry" to the beneficiary companies. This is evident from the examination and analysis of the seized and impounded materials of Shri Shirish C Shah. Though the assessee has taken us copiously through various queries raised by the Assessing Officer during the assessment proceedings and replies of the assessee thereof, but there is no material to establish that the confession of Shri Shirish C Shah referred to in the reasons for re-opening, was confronted or enquired into by the Assessing Officer in such re-assessment proceedings;
++ in the present case, it clearly stands out that the AO did not enquire into this aspect of the matter, which was crucial because it was the foundation formulated by him at the time of re-opening of assessment to form an opinion that there was escapement of income qua the share capital and premium received from four companies controlled by Shri Shirish C Shah. Thus, non-enquiry by him on the above lines did render the subsequent assessment to be erroneous as it can be said to be made without application of mind which lead to prejudice to the interests of the Revenue;
++ in the impugned reassessment proceedings, the AO has not carried out any enquiry qua the confession made by Shri Shirish C Shah of having given bogus entries to the assessee qua the share capital and share premium in question. DR appearing for the Revenue has drawn support from the decision Kolkata Bench of the Tribunal, dated 30.07.2017, in the case of M/s. Subhlakshmi Vanijya Pvt. Ltd. vs. CIT & Ors. Hence it was decided to uphold the action of the Commissioner in treating the assessment order as erroneous in so far as it is prejudicial to the interests of the Revenue u/s. 263 of the Act, on the ground that the Assessing Officer not having made proper enquiries qua the share capital subscribed by the four parties of Shri Shirish C Shah controlled group. In the result, the appeal of the assessee is dismissed.
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