Share Capital from Alleged Shell Companies Accepted as Genuine: ITAT quashes Income Tax Revision u/s 263 [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench, set aside the order of the Principal Commissioner of Income Tax (Pr. CIT) passed under Section 263 of theIncome Tax Act, 1961, holding that the re-assessment order accepting share capital and premium could not be considered erroneous or prejudicial to the Revenue.

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The appeal was filed by Surya Roshni Limited, a public limited company engaged in the manufacturing of steel tubes, pipes, cold rolled strips, lamps, and allied items. The case arose after a merger with Surya Global Steel Tubes Ltd., which had received share capital and loans from certain companies alleged to be shell entities.

Based on this, re-assessment proceedings were initiated under Section 147, but the Assessing Officer (AO) accepted the genuineness of the share capital. Subsequently, the Pr. CIT invoked Section 263 to revise the order, terming it erroneous and prejudicial to the Revenue.

The Appellant represented by Akshat Jain & Rajat Jain argued that the AO had already conducted detailed inquiries at three stages-original assessment under Section 143(3), rectification proceedings under Sections 154/155, and re-assessment under Section 147 wherein the identity, creditworthiness, and genuineness of the investor companies were verified.

The assessee submitted confirmations, bank statements, audited financials, and even assessment orders of the investor companies to prove genuineness. It was contended that Section 263 cannot be used to substitute the AO’s opinion with that of the Pr. CIT, especially when proper inquiries were made.

The Revenue Authorities represented by Mahesh Kumar argued that the AO had not conducted independent inquiries and had merely relied on the documents submitted by the assessee. Thus, according to the Pr. CIT, the order was erroneous and prejudicial to the interests of the Revenue.

The Bench comprising Manish Agarwal, Accountant Member and Anubhav Sharma, Judicial Member observed that inquiries were made on three separate occasions and that the assessee had provided comprehensive evidence establishing the genuineness of the transactions. The Tribunal held that inadequate inquiry cannot be equated with lack of inquiry, and since the AO had formed a possible view, the Pr. CIT could not substitute it.

Thus, the tribunal quashed the revisionary order under Section 263 of the Income Tax Act.

Accordingly, allowed the appeals for Assessment Years 2014–15 and 2015–16.

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