Case: Recently in Elder IT Solutions Pvt Ltd. Vs. CIT (ITAT Mumbai), the Commissioner set aside the order of Assessing Officer (AO) and passed an order u/s 263. ITAT quashed the said order on the basis that AO has verified the genuineness of all transaction and cannot be said that AO has not conducted the proper enquiry.

Issue of the case:

On the  issue of share premium money and unsecured loan, the Commissioner held that the order of the Assessing Officer suffers from several defects as the Assessing Officer has not raised any question while recording the statement with respect to the credentials of the applicant companies. Thus the Commissioner has questioned the justification of payment of premium of Rs. 999 on a face value of Rs. 1 per share when the assessee company does not have any credentials in the market to attract the huge premium on its preferential share. Therefore, the Commissioner set aside the assessment order and remanded the matter back to the file of Assessing Officer for a fresh consideration after giving reasonable opportunity to the assessee of being heard. The assessee appealed against the revision order of Commissioner of Income Tax, passed u/s 263 of the Income Tax Act.

It was held that:

The AO called for financial details of the company and also examine the parties in order to satisfy himself about the genuineness of the transaction on the basis of the record available before him. The Assessing Officer has accepted the claim of the assesse. The Commissioner has not found any fault with the details and records filed by the assessee in support of the claim but have cited the reasons that the Assessing Officer has not conducted the proper enquiry. The assessee has also filed the bank statements of these companies showing the transaction of payment of share premium as well as loans to the assesse. The Commissioner has travelled beyond the jurisdiction as prescribed u/s 263 and the revision order is not sustainable and is set aside.

One more reasons for setting aside the assessment order in respect of the share premium is the justification of payment of huge premium in comparison to the prospective earnings of the assessee. It is pertinent to note that as per the provisions of section 68, the addition can be made if the transaction of cash credit is not properly explained by the assessee by establishing the identity of the creditor; the capacity of the creditor and genuineness of the transactions to the satisfaction of the Assessing Officer. There is not dispute about the identity of the parties as it was also not disputed by the Commissioner, the source and capacity of these parties were prima facie established by the assessee by producing their financial statements and bank accounts etc. The Commissioner has also found from record the source of payment of share premium as the share application money and loan generated by these companies, therefore, the availability of fund was not disputed by the Commissioner but how that fund was generated by these companies is the only reason for revising the assessment order on this.

The Commissioner himself has not given a concluding finding about the genuineness of the transactions, therefore, the enquiry of source of source is not warranted when the identity and source as well as transaction through banking channel has already been established by the assessee in view of the decision in the case of Lovely Exports. The Commissioner has also not brought out any fact or material to suggest or cast any doubt about the genuineness of the transaction, accordingly, the setting aside of the assessment order and restoring back to the file of Assessing Officer for fresh consideration is beyond the jurisdiction u/s 263.

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