Commissioner of Income Tax vs Prateek Finance and Investment Co. Ltd.

Dr. M.K. Sharma, J.—This petition u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act", relevant to the assessment year 1985-86 has been preferred by the Revenue seeking a direction to the Income Tax Appellate Tribunal to state a case and refer to this court for its opinion the following question :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in setting aside the order passed by the Commissioner of Income Tax u/s 263 of the Act on the ground that even if it is assumed that the subscribers to the share capital were not genuine, then under no circumstances, the amount of share capital could be regarded as undisclosed income of the assessed ?"

The assessed is a public limited company which was incorporated on June 4, 1983. During the previous year relevant to the assessment year 1985-86, it floated share capital of Rs. 20 lakhs proposing issue of 2 lakhs equity shares of Rs. 10 each, which were allegedly subscribed to the extent of Rs. 1,84,05,250. The assessed filed its return on June 28, 1985, showing a loss of Rs. 8,921. The Income Tax Officer accepted the return of loss u/s 143(1) of the Act by his order dated September 3, 1987. However, the Commissioner of Income Tax, Delhi-II, in exercise of his revisionary jurisdiction u/s 263 of the Act called for and examined the assessment records of the assessee-company. On a perusal of the records and the facts appearing there from, the Commissioner of Income Tax held a prima facie view that the action of the Assessing Officer in accepting the return u/s 143(1) of the Act was prejudicial to the interests of the Revenue and erroneous in law and accordingly he issued notice u/s 263 of the Act to the assessee. After hearing counsel for the assessee, the Commissioner of Income Tax held that the Assessing Officer had failed to make enquiries and investigation into the facts of the instant case by accepting the return of loss u/s 143(1) of the Act which rendered the assessment liable to action u/s 263 of the Act. Accordingly, he set aside the assessment to be made de novo according to law.

Being aggrieved by the aforesaid order passed by the Commissioner of Income Tax, the assessed preferred an appeal before the Tribunal, who relying on the decision of this court in the case of Commissioner of Income Tax Vs. Stellar Investment Ltd., held that even if it is assumed that the subscribers to the share capital were not genuine, the amount of share capital under no circumstances could be regarded as undisclosed income of the assessee-company. With the aforesaid observations, the Tribunal set aside the order of the Commissioner of Income Tax passed u/s 263 of the Act and allowed the appeal filed by the assessee. The Revenue filed a reference application u/s 256(1) of the Act against the aforesaid order passed by the Tribunal. The Tribunal, on hearing the parties, rejected the reference application holding that the question was not referable in view of the fact that a SLP filed by the Revenue against the decision of the court in the case of CIT v. Kwick Travels [1993] 199 ITR 85, was dismissed.

None appeared before us on behalf of the assessee. We have heard learned counsel appearing for the Revenue. Our attention has been drawn to a decision of this court in Commissioner of Income Tax Vs. Sophia Finance Ltd., , wherein, in similar circumstances and facts, this court directed the Tribunal to state a case and refer the following reframed question to this court (at page 110) :

"Was the Tribunal right in setting aside the order of the Commissioner u/s 263 of the Income Tax Act and in holding that the assessment order of the assessed could not be said to be erroneous or prejudicial to the Revenue ?"

Following the ratio of the aforesaid Full Bench decision of this court we also direct the Tribunal to state the case and refer the following reframed question to this court for its opinion :

"Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in setting aside the order passed by the Commissioner of Income Tax u/s 263 of the Act and in holding that even if it is assumed that the subscribers to the share capital were not genuine then under no circumstances the amount of share capital could be regarded as undisclosed income of the assessed ?"

The petition is accordingly disposed of but without any costs.