The assessee company had filed return for relevant AY. During assessment, the AO made addition on account of unexplained share capital. The addition was deleted by the CIT(A). This was confirmed by the Tribunal. Subsequently, there was search and seizure operation and the assessments were framed u/s 153A of the Act. It was found in the search proceeding that the assessee had issued preference shares to shell companies at a high premium.The assessment u/s 153A was completed by AO after making certain additions with respect to the disallowance u/s 14A, the provision for redemption of preference shares u/s 115JB, interest income on FDR not qualified for section 80IB. The CIT granted part relief including on the basis that no addition u/s. 153A was permissible, de hors any incriminating material found during search. The matter travelled to the Tribunal, who granted part relief including the deletion of the addition u/s.14A on the ground that in the case of assessment u/s. 153A, no addition u/s. 153A was permissible de hors cogent material found during search. After some time, CIT passed an order u/s 263 of Act.
The CIT held that the AO had failed to carry out necessary enquiries and failed to apply the correct provisions of the law. The assessment was completed by adopting unreliable and blatantly incorrect/untrue accounts, audited in violation to Schedule VI of Companies Act and ignoring the overwhelming evidences gathered during the course of search. Thus the assessment was found to be erroneous in so far as it was prejudicial to the interest of revenue. The CIT observed that the AO should have considered the addition u/s 68 in this was case for bogus capital. Thus CIT set aside the assessment order. Aggrieved assessee filed appeal before Tribunal.
Tribunal held that,
++ no material pertaining to introduction of share capital from other sources have been found in the search or have come out as a result of investigation nor the same is brought on record. As submitted by the counsel of the assessee except for the material found from M/s. Wellknown Polyesters Ltd. regarding bogus capital expenditure booking and the admission by the assessee company of routing it back to the group companies there was no material found. In such situation, there was neither any reason nor any justification on the part of the AO to further make detailed enquiry for the source of share capital. It is settled law now that dehorse any incriminating material found during search addition made u/s 153A are not sustainable. In this regard, it was noted that in the assessment u/s 153A in the case of M/s.Wellknown Polyesters Ltd., the AO has also made some other addition de hors any incriminating material found during search. The same were deleted by the CIT and confirmed by the ITAT based upon the decision of the jurisdictional High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd;
++ in the case of assessee, in the assessment u/s.143(3) of the Act for the A.Y. 2009-10, the additions for introduction of bogus share capital was made. These were duly deleted by the CIT. The matter had travelled to the ITAT. The ITAT duly confirmed the deletion. Hence, when the issue of bogus share capital from other sources was already examined by the A.O. and the matter was concluded at the level of ITAT, there was no jurisdiction for the CIT to pass an order u/s. 263 on the same issue. In this regard, it was noted that section 263 (1) sub clause (c) doesn't mandate the CIT to exercise jurisdiction on such matters which are under consideration by the CIT(A). Hence, such issues have been taken out of jurisdiction of section 263 by this Act;
++ the view adopted by the AO is a legally permissible possible one and if the CIT is not in agreement therewith, the same shall not gave rise to the jurisdiction by the CIT to hold the order of the A.O is erroneous insofar as it is prejudicial to the interest of the Revenue. Hence, the orders by the CIT in all these cases are quashed. In the result, all the appeals filed by the assessees are allowed.
(See 2019-TIOL-82-ITAT-MUM)
