Daniel Merchants Private Limited vs. ITO (Supreme Court)

DATE: November 29, 2017 (Date of pronouncement)
DATE: December 5, 2017 (Date of publication)
AY: -
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S. 68 Bogus share capital: Law laid down in Subhlakshmi Vanijya Pvt. Ltd vs. CIT 155 ITD 171 (Kol), Rajmandir Estates 386 ITR 162 (Cal) etc that the CIT is entitled to revise the assessment order u/s 263 on the ground that the AO did not make any proper inquiry while accepting the explanation of the assessee insofar as receipt of share application money is concerned cannot be interfered with

In Pragati Financial Management Pvt. Ltd vs. CIT and Rajmandir Estates Private Limited vs. Pr. CIT 386 ITR 162 (Cal) the Calcutta High Court held as follows:

(i) Bogus share capital: Mere fact that payment was received by cheque or that the applicants were companies borne on the file of the Registrar of Companies does not prove that the transaction was genuine. Even under the unamended s. 68, the onus is on the assessee prove the creditworthiness of the subscribers. Argument that the amendment to s. 68 is not retrospective is not required to be considered

(ii) Even if the AO has conducted an inquiry into the taxability of share capital receipts u/s 68, the CIT is entitled to revise u/s 263 if the AO has not applied his mind to important aspects. Law in Lovely Exports 299 ITR 268, Sophia Finance 205 ITR 98 etc does not apply as they are prior to the Money Laundering Act 2002. Qs whether receipt towards share capital is taxable pre s. 56(2)(viib) & whether proviso to s. 68 is retrospective are left open

In Daniel Merchants Private Limited vs. Income Tax Officer the Calcutta High Court dismissed the appeal of the assessee on the following basis:

“The assessee seeks to raise certain points of law in this appeal which were subject matters before this Court in four appeals already decided and in all the four appeals it was found that the questions raised were not substantial questions of law. These decisions are Rajmandir Estates Private Limited Vs. Principal Commissioner of Income Tax, Kolkata-III reported in (2016) 386 ITR 162 (Kol.), M/s. Pragati Finance Management Private Limited Vs. CIT-II in ITAT No.178 of 2016 which was decided on 7th March, 2017, Success Tours and Travels Private Limited & Anr. Vs. Income Tax Officer, Ward- 9(4) Kolkata & Ors. in ITAT No.178 of 2015 which was decided on 23rd March, 2017 and M/s. AIM Fincon Pvt. Ltd. Vs. Commissioner of Income-tax, Kolkata-III in ITAT No.137 of 2016 which is decided today itself. The instant appeal and stay application shall accordingly stand dismissed.”

On appeal by the assesse to the Supreme Court HELD dismissing the SLP:

“In all these cases, we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court.”

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