Income Tax Appellate Tribunal - Delhi
Huron Builders Pvt Ltd, New Delhi vs Ito Ward - 6(1), New Delhi on 3 October, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "C" NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
AND
SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER
I.T.A. No.6251/DEL/2019
Assessment Year: 2013-14
Huron Builders Pvt. Ltd., vs. ITO Ward-6(1),
S-19, 2nd Floor, Star City, New Delhi.
District Centre, Mayur
Vihar,
New Delhi.
TAN/PAN: AABCH6627E
(Appellant) (Respondent)
Appellant by: Shri S.K. Garg, Adv. & Shri Akarsh
Garg, Adv.
Respondent by: Ms. Sugandha Sharma, Sr.D.R.
Date of hearing: 09 09 2019
Date of pronouncement: 03 10 2019
ORDER
PER AMIT SHUKLA, J.M.
The appellant namely, M/s Chauran Sales Pvt. Ltd., later on amalgamated with Huron Builders Pvt. Ltd. vide order dated 27.3.2018 passed by National Company Law Tribunal (NCLT) New Delhi, had filed the present appeal against appellate order dated 18.4.2019, passed by the ld. Commissioner of Income Tax (Appeals)-2, New Delhi, for the quantum of assessment passed u/s 147/14(3) for the Assessment Year 2013-14.
I.T.A. No.6251/DEL/2019 2
2. In the grounds of appeal, following grounds have been raised:-
"BECAUSE, (1) proceedings under section 147 by issue of notice under section 148 dated 30.03.2017 in the name of Chauran Sales (P) Ltd, have neither been validly initiated, nor concluded in accordance with the provisions of law, with the consequence that the assessment order dated 29.12.2017 passed in pursuance thereof is null and void;
(2) "reasons recorded" as had been referred to and relied upon by the Assessing Officer for issuing notice under section 148, copy of which is enclosed as Annexure -
1(a) hereto, are wholly deficient and the same are irrelevant also, in meeting the requirement of law as contained in section 147/ read with section 148 of the Act;
(3) otherwise also, the assessment order dated 29.12.2017, relevant extracts of which are enclosed as Annexure - I(b) hereto, is null and void as the same had been passed in violation of the direction given by the ld. Jt. CIT, Range- 6, New Delhi;
WITHOUT PREJUDICE TO THE AFORESAID I.T.A. No.6251/DEL/2019 3 (4) during the course of reassessment proceedings for the year under appeal, the appellant had furnished documentary evidences, in the form of:
(a) application for allotment of shares (in the appellant company) as had been received from 15 share applicants;
(b) copies of Bank statement maintained by each one of the applicants, which constituted proof of creditworthiness of the share applicants (duly taken note of by the Assessing Officer); and
(c) Income tax returns filed by each one of the fifteen applicants, from which their antecedents, stood fully established and the onus, if at all there was any, upon the appellant under section 68 of the Act stood fully discharged and no addition was called for under section 68 of the Act, either on facts or in law;
(5) the Authorities below have erred in law and on facts in making/sustaining addition for sums aggregating Rs.6,26,00,000/- (as had been received from fifteen share applicants), antecedents of all the applicants being 'self-proved' as is evident from the regular assessment proceedings/ assessment order for subsequent assessment year 2014-15 wherein appellant's claim for exemption for 'forfeiture' of the share application money (that had been received during the year), stood fully I.T.A. No.6251/DEL/2019 4 accepted (by the Assessing Officer himself) after full and due enquiries;
(6) the order appealed against is contrary to the facts, law applicable thereto and principles of natural justice."
2.1 The aforesaid grounds can be classified into two broad categories, firstly, legal grounds challenging the validity of reopening u/s 147; and secondly, grounds relating to merits of the addition of Rs.6.26 Crores. We will first take up the legal grounds being a legal and jurisdictional point.
3. Before us Ld. Counsel for the appellant, Sri Sanjay Kumar, first of all drew our attention to the chronology of relevant dates and events placed in the PB at page 1, with reference to the documents enclosed in the PB, which for better appreciation of facts is reproduced hereunder: -
Sl. Date Events
No.
(i) 30.03.2015 "Return" for the assessment year
2014-15 was filed.
(ii) -- Audited statements of account for the
financial year 2013-14, relevant to the assessment year 2014-15 were filed on a requisition being made by the I.T.A. No.6251/DEL/2019 5 Assessing Officer, during the course of assessment proceedings for the assessment year 2014-15. (PB page 25 to 37)
(iii) 02.09.2016 Regular assessment order for the assessment year 2014-15 was passed by the Assessing Officer. (PB page 38 to 41)
(iv) 31.03.2017 Notice under section 148 was issued by the same Assessing Officer, for the assessment year 2013-14 (year under appeal) (PB page 23)
(v) 11.12.2017 The appellant filed letter of date, which contained reproduction of 'Reasons recorded'. (PB page 45)
(vi) 13.12.2017 Letter of date filed before the Assessing Officer during the course of reassessment proceedings for the assessment year 2013-14. (PB page 55 to 66)
(vii) 13.12.2017 Petition under section 144A filed before Jt.CIT/Addl.CIT for seeking direction on validity of initiation of proceedings under section 147 for the assessment year 2013-14 (year under appeal). (PB page 67 to 70) I.T.A. No.6251/DEL/2019 6
(viii) 19.12.2017 Rejoinder submitted on this date, before Joint/Additional CIT, New Delhi in response to the comments of Assessing Officer (as had been called for by the Joint/Additional CIT before deciding the petition under section 144A). (PB page 71 to 89)
(ix) 19.12.2017 Copy of directions issued under section 144A, which did not contain any adverse view on the issue of validity of initiation of proceedings under section 147 for the assessment year 2013-14 (year under appeal before the Hon'ble ITAT).
(PB page 90 to 91)
4. Mr. Sanjay Kumar made pleadings to the effect that notice under section 148 dated 31.3.2017 [as referred to at sl. no.(iv) above] was wholly deficient in meeting the requirement of law relating to 'reopening' under section 147 and accordingly the proceedings were wholly illegal, as not being in accordance with the provisions of law. In support of this contention, he invited our attention to the Synopsis of the case, wherein at pages 1 & 2, "reasons recorded" (for initiation I.T.A. No.6251/DEL/2019 7 of proceeding under section 147) which has also been placed at pages 2 to 3 of PB, reads as under: -
"REASONS RECORDED FOR REOPENING THE CASES U/S 147 OF THE IT ACT, 1961 IN THE CASE OF M/s CHAURAN SALES PVT. LTD PAN: AACCC7945D FOR A. Y. 2013-14.
During the course of assessment proceedings relevant for A.Y. 2014-15 it came to notice that return for A.Y. 2013-14 has not been filed by the assessee company. As per copy of audited accounts submitted there is no operational income and the expenses incurred have been claimed as a business loss. Yet there is large increase in reserves and surpluses which have gone to 11,98,03,401/- as at 31.03.2013 as against Rs. 5,78,53,927/- as on 31.03.2012.
The share capital has also increased from Rs. 5,92,000/- to 12,18,000/-. The receipt of share capital and large share premium money could not be investigated in absence of return of income filed by the assessee company. The assessee appears to be an entry operator as the capital and share premium have been invested in non current asset which are valued at Rs. 12,00,33,150/- as at 31.03.2013.
I have reasons to believe that the increase in share capital and share premium account has escaped assessment and therefore notice u/s 148 of I.T.A. No.6251/DEL/2019 8 the I.T. Act relevant to A.Y. 2013-14 is proposed to be issued.
Necessary sanction of the Ld. Addl. CIT, Range-6 is solicited hereby u/s 151 of the I.T. Act before the issue of notice u/s 148 of the I.T. Act 1961."
(Emphasis in bold is ours)
5. Ld. Counsel very fairly admitted that 'return' for the assessment year 2013-14 had not been filed under section 139, as even according to the Assessing Officer (as had duly been noted by him in the 'reasons recorded' above), there has been no operating income. He submitted that even then, notice under section 148 dated 31.03.2017 had duly been complied with by the appellant, by filing a letter, which amounted to full compliance of the notice under section 148 dated 31.03.2017, although belatedly. Thereby, the appellant had duly participated in the assessment proceedings (initiated in terms of notice u/s 148 dated 31.03.2017) and copy of 'reasons recorded' had been made available to the appellant, on its requisition. On receipt of copy of 'reasons recorded', the appellant filed detail objections dated 11.12.2017, (copy appearing at pages 42 to 54 of the PB) which were to the following effect;
I.T.A. No.6251/DEL/2019 9
(a) non-filing of 'return', particularly when there was no tax liability (as was the case here) did not amount to 'income chargeable to tax had escaped assessment' within the meaning of section 147 of the Act, as finds support from Explanation 2(a) itself, as appearing below section 147 reading as under:-
Explanation 2 - For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely -
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-
tax.
(b) receipts on account of share capital and large share premium could not be subject matter of investigation merely due to non-filing of return for the assessment year 2013-14.
(c) receipts on account of share application money (including premium) did not, per-se, fall in the category I.T.A. No.6251/DEL/2019 10 of 'income which could be said to have escaped assessment' within the meaning of section 147 of the Act. In support, various case laws were relied upon, particularly following: -
A - Judgments rendered by Hon'ble Supreme Court:
i) CIT vs. Steller Investors Ltd. reported in (2001) 251 ITR 263
ii) CIT vs. Sophia Finance Ltd. reported in (1994) 205 ITR 98.
B - Judgments rendered by Hon'ble Delhi High Court:
i) CIT vs. Steller Investors Ltd. reported in (1991) 192 ITR 287
ii) CIT vs. Oasis Hospitalities (P) Ltd. reported in (2011) 333 ITR 119
iii) CIT vs. Divine Leasing and Finance Ltd. reported in (2008) 299 ITR 268.
iv) CIT vs. SFIL Stock Broking Ltd. reported in (2010) 325 ITR 285
v) Pr. CIT vs. N.C. Cables Ltd. reported in (2017) 391 ITR 11 C - Other judgments:
(i) Jaya Securities Ltd. vs. CIT reported in (2008) 166 Taxmann 6 I.T.A. No.6251/DEL/2019 11
(ii) CIT Ghaziabad Vs. Surya Packaging Pvt. Ltd.
(unreported judgment and order dated
18.02.2013)
(iii) CIT Vs. Banaras Swarn Kala Kendra Pvt. Ltd.
(unreported judgment dated 19.02.2013)
(iv) CIT Vs. Jay Dee Securities & Finance Ltd.
(unreported judgment dated 11.08.2011)
(v) CIT Vs. Al Anam Agro Foods (P) Ltd. (unreported judgment dated 17.10.2012).
(d) and over and above all this, the proceedings had been initiated on the ground that the assessee "company appears to be an entry operator, as capital and share premium had been invested in non-current assets";
such a ground for taking action under section 147 was not permissible in law.
6. In the said objections, after discussing the matter in detail, specific objections to all the components of the 'reasons recorded' had been taken which had been summarized, in the following manner: -
"5.2 It is stated that the "reasons recorded" as aforesaid are wholly deficient in meeting the requirement of law as stated hereinafter;I.T.A. No.6251/DEL/2019 12
Para Contents of para Reply No.
(i) "During the course On a conjoint reading of of assessment sub-paras (i) and (ii), para proceedings relevant phrasing done by us for for A.Y. 2014-15 it the sake of convenience, it came to notice that would be seen that it has return for A.Y. been found as a fact that 2013-14 has not as per the audited balance been filed by the sheet there was a loss.
assessee company. From this it follows that As per copy of there was no obligation on audited accounts the assessee to file submitted there is "return" for the no operational assessment year 2013-14, income and the under reference here.
expenses incurred Therefore, no adverse have been claimed inference could have been as a business loss. drawn from the fact of non Yet there is large filing the return under I.T.A. No.6251/DEL/2019 13 increase in reserves section 139 of the Act.
and surpluses which As regards increase in
have gone to share capital and General
11,98,03,401/- as Reserve, it was also not by
at 31.03.2013 as your goodself that such
against Rs. increase was on account of
5,78,53,927/- as on share capital. It is
31.03.2012." submitted that increase in
(ii) "The share capital share capital, per se lead
has also increased to a inference that income from Rs. 5,92,000/- chargeable to tax has to 12,18,000/-. The escaped assessment so as receipt of share to call for initiation of capital and large proceedings under section share premium 147. It is a law well settled money could not be that share capital by itself investigated in is a capital receipt in the absence of return of hands of the recipient and income filed by the it is not chargeable to tax assessee company. as such, unless it is found I.T.A. No.6251/DEL/2019 14 The assessee that source of capital so appears to be an received remained entry operator as unexplained. There is no the capital and even a whisper in the share premium have "reasons recorded" that been invested in non source of share capital current asset which (and so also share are valued at Rs. premium which is a 12,00,33,150/- as component of share at 31.03.2013." capital) was unexplained.
(iii) "I have reasons to Based on the aforesaid believe that the observations which were in increase in share the realm of surmises only, capital and share it cannot be said that premium account "increase in share capital has escaped and share premium assessment and account Income has therefore notice u/s escaped assessment." It 148 of the I.T. Act is a necessary ingredient of relevant to A.Y. taking action under I.T.A. No.6251/DEL/2019 15 2013-14 is proposed section 147 that "income to be issued." chargeable to tax has escaped assessment". In the "reasons recorded", neither in the earlier sub-
paragraphs nor in this
sub-para it has been
stated that any income
chargeable to tax has
escaped assessment. As
stated above, share capital
and share premium, per-se
are not income chargeable
to tax.
7. It was further contended by the ld. Counsel that the appellant's objection as referred to in its letter dated 11.12.2017 (supra) had not been properly appreciated and unjustly been rejected by the Assessing Officer and has proceeded to pass the assessment order even though there were serious irregularities / infirmities in initiation of I.T.A. No.6251/DEL/2019 16 proceedings under section 147. The primary reason being, said very sum of Rs.6.26 Crores (which represent part value of the consideration for sale of shares) had been treated as capital receipt in the assessment year 2014-15 passed earlier under section 143(3) on 02.09.2016 by the same Assessing Officer, wherein the event of forfeiture of the said very sums aggregating Rs.6.26 Crores had taken place. The event of forfeiture was apparent from the face of the Balance Sheet of the subsequent year, copy of which appears on pages 25 to 37 of the paper book.
8. Proceeding further, it was contended by the Ld. Counsel that the Assessing Officer initiated the proceedings under section 147 by issue of notice under section 148 dated 31.03.2017 for the assessment year 2013-14, whereas the same Assessing Officer had passed the assessment order for the subsequent assessment year i.e. 2014-15 (wherein the event of forfeiture fell) vide order dated 02.09.2016, after being fully aware of the event of forfeiture of sums aggregating Rs.6.26 Crores (representing part payment of share application money). He had pre-examined the Balance Sheet I.T.A. No.6251/DEL/2019 17 as at 31.3.2014 and even enquired into the nature of the sums aggregating Rs.6.26 Crores as appearing under the head 'share forfeiture account', in the following manner:-
"Particulars As at As at
31.03.2014 31.03.2013
Amount Amount (Rs.)
(Rs.)
SHARE CAPITAL
AUTHORISED
SHARE CAPITAL
20,00,000 20,00,000
2,00,000 Equity
Shares of Rs.10/-
each
20,00,000 20,00,000
ISSUED &
SUBSCRIBED
SHARE
CAPITAL 18,44,000 18,44,000
1,84,400 Equity
Shares of Rs.10/-
each
18,44,000 18,44,000
PAID UP SHARE
CAPITAL
Fully Paid Up 59,200
Equity shares of 5,92,000 5,92,000
Rs.10/- each P.Y.
- 6,26,000
(1,25,200 Equity
Shares of Rs.5/-
I.T.A. No.6251/DEL/2019 18
each)
Shares Forfeited 6,26,000 -
Account
12,18,000 12,18,000
9. It was further submitted by the ld. Counsel that on the facts and circumstances of the case, initiation of proceedings under section 147 could not be said to be based on relevant and tangible material and in any case initiation of proceedings under section 147 was not based on "good faith". For this purpose, he also referred to and relied upon the appellant's rejoinder dated 13.12.2017, (copy appearing on pages 71 to 89 of the PB) to the disposal of objections as had been made by the Assessing Officer. In the said rejoinder and in terms of para 15 thereof, prayer had been made to the effect that "your goodself be pleased to examine the assessee's response to the order dated 13.12.2017 as the same would have a bearing on the direction under section 144A as has been sought by the assessee so that justice is done" but was of no avail. Ld. Counsel further invited our attention to the petition dated 13.12.2017, wherein directions under section 144A had been sought from the Addl. CIT, vide para I.T.A. No.6251/DEL/2019 19 7.1, which reads as under: -
"Firstly : initiation of proceedings under section 147 by issue of notice under section 148 dated 31.03.2017 was not valid;
Secondly : and/or without prejudice to the above, it was contended on merits also that the assessee's onus stood fully discharged and no addition on this score was called for;
Thirdly : and in any , in view of the proven fact that sums in question had flown from well defined sources and that too by way of share application money, the subject matter of enquiry gets shifted to the share applicants themselves, wholly unconnected with the present assessee.
PRAYER
8.1 It is prayed that your goodself be pleased to peruse the submissions made hereinfore and examine veracity thereof so that appropriate directions for completion of assessment, which may stand reasons and equity, may be issued and the assessment proceedings get concluded in accordance with the provision of law."
10. Besides, the Ld. counsel has also referred to and relied upon before us, on catena of case laws as have been referred to in para 5 hereinfore and also other cases dealing with the rule of following 'precedence' and also to a number of the case I.T.A. No.6251/DEL/2019 20 laws, as mentioned in the rejoinder dated 19.12.2017 as addressed to the ld. Jt. CIT, Range-6, New Delhi (copy of which appears at pages 71 to 89 of the PB), in continuation to the earlier petition submitted under section 144A of the Act. In such rejoinder, as stated by him, the appellant had rightfully distinguished the case laws, as had been referred to by the Assessing Officer in the 'disposal' made by him to the assessee's objection dated 13.12.2017.
11. Sri Sanjay Kumar further submitted that on the issue of initiation of proceedings under section 147, the assessment order dated 29.12.2017 was in violation of the direction issued by the Addl. CIT on a petition moved by the assessee/appellant under section 144A. After considering the said material, the Adl.CIT had agreed with the contention by the appellant (as contained in the Petition under section 144A and in the Rejoinder) and accordingly gave directions on some specific issues. In support of this contention the Ld. Counsel referred to the copy of order under section 144A placed at pages 90 and 91, of the PB. He further submitted that, in compliance with the directions so given by the Addl. CIT, the I.T.A. No.6251/DEL/2019 21 Assessing Officer had required the appellant to produce its Director which were duly complied with by it, by producing Sri D.C. Saxena (Director of the appellant's company) who got his statement recorded by the Assessing Officer. From the said statement, he pointed out that, it would be seen that he was not an 'entry operator', as had been alleged in the 'reasons recorded'. Sri D.C. Saxena was in his 80s and had retired from the services of U.P. Government, long back and it was explained by him that he had come in contact with the investors/ share applicants in a 'group meeting'. All such persons which were 15 (fifteen) in number, were the share applicants and all of them had deposited part of agreed sale consideration, aggregating Rs.6.26 Crores, along with share applications submitted by all of them. As per the information given by them in response to summon issued under section 133(6), the summon in question as had originated from their respective bank accounts. All of them were income-tax assessees, full information about their respective income-tax particulars had been given by them on the specific issues (as had been raised in the summons issued by the Assessing Officer).
I.T.A. No.6251/DEL/2019 22
13. Coming to the order of CIT(A), that had been impugned before us, it was pointed out by Sri Sanjay Kumar that she had rejected the said ground vide paras 5, 6 and 6.1 which are reproduced hereunder: -
"5. Submission of the appellant:- The appellant has made written submission dated 25.02.2019 and 03.04.2019 alongwith paper book.
6. Decision:- I have gone through the assessment order, grounds of appeal and the submission filed by the appellant. Grounds of appeal are adjudicated as under:
6.1 Ground no.1, 2 & 3:- These grounds are directed against the opening of assessment under section
147. The appellant had not filed original return. The AO has noticed that there is increase in share capital and share premium. In view of these two facts, he reopened assessment. In response, the appellant submitted that there was a loss and, therefore, the return was not filed. It is pertinent to mention here that in this case, there is no allegation against the share applicant companies nor any information has been received against the appellant from any quarter. From the submissions filed by the appellant, reasons recorded are quoted as under:
"Assessee had not filed return. As per copy of audited accounts, there was no operational income and expenses I.T.A. No.6251/DEL/2019 23 incurred have been claimed as business class. There is large increase in reserves and surplus".
On the basis of reasons recorded, it appears that the AO has perused the audited account and wanted to examine the introduction of share capital. Since no return had been filed, the decision of the AO to examine the share capital appears justified. The technical grounds do not have much validly. The grounds are, therefore, ruled against the appellant."
14. Ld. Counsel argued that, from a perusal of the same, it can be seen that the Ld. First Appellate Authority did not accept the appellant's contention for the reason that "it appears that the AO had perused the audited accounts and wanted to examine the introduction of share capital. Since no return had been filed the decision of the AO to examine the share capital appears justified. The technical grounds do not have much validity". In short, non-filing of 'return' under section 139, was the core ground for rejection of the appellant's ground related to very validity of initiation of proceedings under section 147 for the assessment year 2013-
14). He submitted that action under section 147 could not be said or held to be mere technical grounds as such grounds I.T.A. No.6251/DEL/2019 24 had affected very jurisdiction of the Assessing Officer to initiate proceedings under section 147.
15. On the other hand, Ld. Senior DR, appearing on behalf of revenue vehemently opposed the arguments put forth by the ld. Counsel and strongly relied upon the order of the CIT(A), on the issue of initiation of proceedings under section 147 and submitted that same was valid. She submitted, that law relating to taking action under section 147 had undergone a complete change w.e.f. 1.4.1989 and in support of her contention, she referred to and relied upon the decision of Hon'ble Supreme Court in the case of Asstt. CIT Vs. Rajesh Jhaveri Stock Brokers P. Limited reported in (2007) 291 ITR 500, wherein it had been held by the Hon'ble Apex Court that at the stage of initiation of proceedings under section 147, all that was needed was ex-facie "reason to believe" about escapement of income chargeable to tax. The Assessing Officer was neither obliged, nor expected to refer any conclusive evidence in this respect, while initiating the proceedings under section 147. In the instant case also the Assessing Officer had issued notice under section 148 for examination of such a huge share capital which could not I.T.A. No.6251/DEL/2019 25 take place, owing to non-filing of return under section 139 by the assessee. If no return has been filed, then AO was within his power to examine the source of receipts under the head share capital and share premium and such notice was liable to be held to be valid in the eyes of law and he was obliged to do so, as per proviso appearing below section 139 of the Act. Such a non-filing of return at the original stage had effectively prevented the Assessing Officer to make enquiries and he was not left with any option, but to initiate proceedings under section 147.
DECISION
16. We have heard the rival contentions, perused the relevant material referred to before us by the parties and the relevant finding given in the impugned orders. From the chronology of relevant dates and events as incorporated in foregoing para 3, it is seen that regular assessment for the assessment year 2014-15 (i.e., subsequent year) had been completed under section 143(3) on 02.09.2016. Although, the Assessing Officer had not referred to the event of forfeiture, but such an event was writ-large in the financial statements I.T.A. No.6251/DEL/2019 26 for the financial year 2013-14, relevant to the assessment year 2014-15 which had been taken note in the 'reasons recorded' by the Assessing Officer. Relevant extract of the information for the assessment year 2014-15 are available on record, as extract from the financial statements for the financial year 2013-14, which have been reproduced by us in para 8 hereinfore. In other words, the Assessing Officer himself, in full awareness of the event of forfeiture that had taken place in the subsequent assessment year (owing to non- payment of call money by the same applicant), had accepted the sums in question to be 'capital receipt'. If the Assessing Officer has accepted the forfeiture of shares as capital receipts in A.Y. 2014-15, then how the same share application money received in the A.Y. 21013-14 can be taxable income, as it is a law well settled that such 'capital receipt' cannot fall in the category of "income chargeable to tax that had escaped assessment" as envisaged in section 147 of the Act, unless found or held to be bogus.
17. It is also not the case of the AO that the deeming provision contained in section 56(2)(viib) are applicable, that I.T.A. No.6251/DEL/2019 27 is, the money received for the transfer of shares was more than the fair market value the shares. Therefore, even in respect of the component of share application money and premium, it could not be said or held that such receipts had escaped assessment. In any case, such a ground had not been mentioned in the 'reasons recorded' and it is a law well settled that the 'reasons recorded' cannot be supplemented at a later stage.
18. In the instant case, as per observations made in the 'reasons recorded' by the AO to the effect that as per the 'Audited Balance sheet' for the year ending on 31.03.2013 (relevant to the assessment year 2013-14, under appeal here) there was operating Loss. In our considered opinion, presence of operating loss by itself could not be equated to be obligation of the appellant to file return under section 139. Although as per proviso below section 139, it could be said that the assessee being a company should have filed its return, but here the issue is, if in the presence of operating loss, as had been found and noted by the Assessing Officer himself in the 'reasons recorded', whether non-filing of return I.T.A. No.6251/DEL/2019 28 could be equated with "income chargeable to tax had escaped assessment". In our opinion, Explanation 2(a) appearing below section 147 (which has been incorporated in para 5 above) clarifies that, where no return of income has been furnished by the assessee even though his total income in respect of which he is assessable under the Act during the previous year exceeds the maximum amount which has not been offered or has not been assessed to income-tax, then it is a deemed case of income chargeable to tax which has escaped assessment. In other words, if the assessee has not earned any income or the income earned is below taxable limit, then it cannot be a case of deemed escapement of income. There has to be an income which exceeds taxable limit. Here in this case admittedly assessee did not had any profits from operations and no income was earned during the year, therefore, it cannot be held that assessee was hit by Explanation 2(a). The condition precedent for reopening the assessment or assessing the income u/s 147 is that the AO must have tangible material before him to entertain reason to believe that, firstly, that it is in the nature of income which is I.T.A. No.6251/DEL/2019 29 chargeable to tax under the Act; and secondly, such an income has escaped assessment.
19. Before us, catena of case laws has been referred to and relied upon by the ld. Counsel in support of his contention that "reasons recorded" are not only required to be based on relevant and tangible material but the same should have been found to be held in good faith also. Hon'ble Allahabad High Court in the case of Indra Prastha Chemicals Pvt. Ltd. vs. CIT reported in (2004) 271 ITR 113, wherein their lordships after visiting various case laws decided by Hon'ble Supreme Court, like; Sheonath Singh vs. Appellate Asstt. Commissioner of Income Tax reported in (1971) 82 ITR 147; ITO vs. Lakhmani Mewal Das reported in (1976) 1043 ITR 437; and Ganga Saran & Sons Pvt. Ltd. vs. ITO reported in (1981) 130 ITR 1, held as under: -
"Thus, it is well settled that the "reason to believe" under section 147 must be held in good faith and should have a rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Further, this court in proceedings under article 226 of the Constitution of India can scrutinize the I.T.A. No.6251/DEL/2019 30 reasons recorded by the Assessing Officer for initiating the proceedings under section 147/148 of the Act. The sufficiency of the material cannot be gone into but relevancy certainly be gone into."
19. The judgment of Hon'ble Supreme Court in the case of Asstt. CIT Vs. Rajesh Jhaveri Stock Brokers P. Limited reported in (2007) 291 ITR 500 (as had been referred to and heavily relied upon by the ld. Senior DR) is also of no avail to the Revenue as the law relating to reopening had not been changed, in relation to existence of tangible material as a condition precedent. This is fully borne out from the said decision, itself, as clarified later on by the Hon'ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. reported in (2013) 354 ITR 536 wherein it was observed (by the Hon'ble Court) as under: -
"Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the Revenue to point out the difference between an "assessment" and an "intimation". The context in which those observations were made has to be kept in mind. They were made to point out that where an "intimation" is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and, therefore, I.T.A. No.6251/DEL/2019 31 when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasised that the only requirement for disturbing the finality of an intimation is that the Assessing officer should have "reason to believe" that income chargeable to tax has escaped assessment. In our opinion, the said expression should apply to an intimation in the same manner and subject to the same interpretation as it would have applied to an assessment made under section 143(3). The argument of the Revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an "assessment" then it can never be subjected to section 147 proceedings, for, that section covers only an "assessment" and we wonder if the Revenue would be prepared to concede that position. It is nobody's case that an "intimation" cannot be subjected to section 147 proceedings; all that is contended by the I.T.A. No.6251/DEL/2019 32 assessee, and quite rightly, is that if the Revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements."
20. Now we shall examine the 'reasons' as recorded by the AO, whether they meet the requirement of law, that is, are based on any tangible material which can lead to formation of reason to believe and are in good faith and is not merely a I.T.A. No.6251/DEL/2019 33 pretense to make roving and fishing inquiry. Our analysis of the 'reasons recorded' by the AO are as under: -
The AO in his 'reasons recorded' at the first instance records that, "During the course of assessment proceedings relevant for A.Y. 2014-15 it came to notice that return for A.Y. 2013-14 has not been filed by the assessee company. As per copy of audited accounts submitted there is no operational income and the expenses incurred have been claimed as a business loss............" Ergo, the material referred to by the Assessing Officer in his 'reasons recorded' is the information gathered during the course of the assessment proceedings for the A.Y. 2014-15, firstly, to the extent that assessee has not filed the return of income; and secondly, as per the audited accounts submitted he found that there is no operational income and the expenses incurred have been claimed as a business loss. Now can this be reckoned as reason to believe to acquire jurisdiction to make assessment u/s
147. In our opinion it cannot, as discussed in detail in the foregoing paras that mere non-filing of return itself I.T.A. No.6251/DEL/2019 34 in this case was not sufficient to resort to section147.
Moreover, if we go by the event of A.Y. 2014-15, then there cannot be any reason to believe that the share application money and large share premium can be adversely viewed or can be held to be in the nature of income escaping assessment, as in the A.Y. 2014-15, forfeiture of same share application money has been held to be capital receipt. Thus, the entire premise of issuing notice u/s 148 to examine the share application based on assessment proceedings for A.Y. 2014-15 has no legs to stand.
AO in the other part of the reasons observes that "there is large increase in reserves and surpluses which have gone to 11,98,03,401/- as at 31.03.2013 as against Rs. 5,78,53,927/- as on 31.03.2012" and "The share capital has also increased from Rs. 5,92,000/- to 12,18,000/-." Increase in reserves and surpluses and share capital, itself is not the indicative of any income chargeable to tax escaping assessment, unless there is any material or evidence coming on record that increase in reserves and surpluses and share capital is due to some bogus means I.T.A. No.6251/DEL/2019 35 or colourable transaction or by of any accommodation entry. No such material has been brought on record nor any adverse report based on any inquiry preceded before issuance of notice u/s 148.
AO thereafter in his reasons proceeds more on his hypothesis and presumptions sans any material or any such finding recorded by him based on any inquiry during the course of the assessment proceedings for the A.Y. 2014-15, which is evident from his following observations:
"The receipt of share capital and large share premium money could not be investigated in absence of return of income filed by the assessee company. The assessee appears to be an entry operator as the capital and share premium have been invested in non current asset which are valued at Rs. 12,00,33,150/- as at 31.03.2013. I have reasons to believe that the increase in share capital and share premium account has escaped assessment and therefore notice u/s 148 of the I.T. Act relevant to A.Y. 2013-14 is proposed to be issued."I.T.A. No.6251/DEL/2019 36
From the above, it is quite clear that AO seeks to investigate share capital and large share premium because no return of income was filed by the assessee. Once again jurisdiction u/s 147 cannot be resorted to simply investigate any entry in the books of account and it cannot be pretense to go back to make assessment or reassessment for the assessment year which got barred by the statute. The Courts have time and again have envisaged that there has to be material having rational connection and relevant bearing on the formation of the belief and should not be extraneous or irrelevant. Here the AO proceeds on his surmise when he says, "assessee appears to be an entry operator......." Does AO have any material or inquiry to back his surmise, answer is no. There is no such whisper in the reasons recorded nor there any reference to any such material or inquiry in his entire assessment order that assessee has been found to be entry operator or beneficiary of any accommodation entry. The basis for reason to believe cannot be on any surmises or presumption. There has to some prima facie material having some live link nexus I.T.A. No.6251/DEL/2019 37 with the formation of reason to believe, otherwise, any whims or fancy entertained by the AO can lead to reopening of the assessment, which time and again has been judicially frowned and warned by the courts. Thus, in our opinion the aforesaid reasons are in the realm of surmises and conjectures and do not clothe the Assessing Officer with jurisdiction to make any assessment or reassessment u/s 147.
21. Further, along with the Synopsis of the case filed by the appellant, copy of statement on oath of Sri D.C. Saxena, Director of the company (who had been extensively examined by the Assessing Officer, in response to the directions given by the ld. Jt. CIT) had been appended. From the said question-answer, it is seen that Sri D.C. Saxena had given all the requisite information which if read with the information given by the share applicants themselves in compliance to the summons issued by the AO to each one of them under section 133(6) which has been referred to in the assessment order also, the explanation and evidences given by the appellant assessee stands fully corroborated. As per the information I.T.A. No.6251/DEL/2019 38 given by each one of them, all of them stood identified by their income tax particulars and entries related to investment made by them in partly paid shares in the appellant company had originated from the realisations made by each one of them from definite sources. So much so that even source of the source had been explained by them. Relevant extract of the said statement is reproduced hereunder: -
Q5 Do you confirm the receipt of the same? A5. Yes Q6 Please state that as to how you came in contract with these concerns?
A6 I came into contact with these concerns in a group meeting.
Q7. Do you the know the directors of these concerns personally?
A7. Yes I came to know about them, when these concerns decided to invest in our company. I still remember few names out of them.
Q8. Please state whether any Board meeting or Notice to existing share holders was given while deciding to receive share capital and share premium from these concerns.
A8. Yes all the statutory requirements were completed and required meetings were conducted to I.T.A. No.6251/DEL/2019 39 pass the necessary resolutions for receiving additional capital and premium.
Q9. Please provide the copies of the same. A9. Same shall be provided on the next date. Q10. Do you wish to say anything else?
A10. No thanks.
22. Here on facts of the present case, non-filing of return under section 139 and non-appearance of such share applicants, in person, could not justify initiation of proceedings under section 147 against the appellant, firstly, the share application money forfeited in the subsequent year has been accepted to be capital receipts by the AO in order passed u/s 143(3); and secondly, identities, genuineness of the transactions and the creditworthiness of the persons stood fully proved by the information made available by them to the assessee.
23. Even at the cost of repetition, we reiterate that here in this case regular assessment for the assessment year 2014-15 (subsequent year) had been completed on 02.09.2016 u/s 143(3). In the assessment so made, the Assessing Officer had accepted the act of forfeiture of the share application money and premium aggregating to Rs.6.26 Crores, as 'Capital I.T.A. No.6251/DEL/2019 40 Receipt' and did not proceed to tax the same, by treating it otherwise. It is noteworthy that such forfeiture related to the same share application money aggregating Rs.6.26 Crores as had been received during the year under appeal before us i.e. assessment year 2013-14. After having accepted the forfeited amount as capital receipt, there remained no justification whatsoever for initiation of proceedings under section 147 for the assessment year 2013-14 and that too after a lapse of more than six months.
24. The ld. CIT(A) had justified the initiation of proceedings u/s 147 on the short ground that, "AO has perused the audited accounts and wanted to examine the introduction of share capital. Since no return had been filed the decision of AO to examine the share capital appears justified. The technical grounds do not have much validity. The grounds are therefore ruled against the appellant." First of all, as discussed in detail herein above that it is a trite and law well settled that AO can acquire jurisdiction to reopen the assessment or to assess the income u/s 147, when he has 'reason to believe' that income chargeable to tax has escaped assessment and such reason to I.T.A. No.6251/DEL/2019 41 believe should be based on tangible material coming on record having live link nexus with income escaping assessment. Provision of section 147 cannot be invoked merely for selection of case for scrutiny so as to examine and assessing any income or claim or carrying out any roving and fishing inquiry. For this purpose, the statute has empowered AO under different sections like 142(1), 143(2), etc. Conditions for acquiring jurisdiction for making assessment or reassessment u/s 147 are different and cannot be equated with selection of a case for scrutiny assessment. Decision of the AO to examine the share capital does not and cannot constitute tangible material so as to justify initiation of proceedings under section 147, especially when same share capital when it was forfeited stands accepted by the same AO. Further, non-filing of return as stated above cannot justify the invoking of section 147 as condition precedent as given in the section must be satisfied as discussed by us in the foregoing paragraphs.
25. To sum up, our conclusion is that initiation of proceedings under section 147 are hit by complete lack of I.T.A. No.6251/DEL/2019 42 requisite 'reason to believe' on based on tangible material/evidence. In the reason recorded, there is not even whisper that the share application money (alongwith premium) was bogus in nature. The authorities below have simply justified the initiation of proceedings under section 147 on the grounds that there was non-filing of return under section 139, owing to which the introduction of share capital could not be examined and for such an examination only action under section 147 was necessary. In our considered opinion, the reasons recorded were not based on correct and legal premise and such 'reasons recorded' suffer from complete lack of jurisdiction. Even at the cost of repetition, we hold that, although sufficiency of reasons cannot be gone into, but very existence of requisite reason to believe can be examined and that too lawfully in the appellate proceedings. On such an examination, we find that there did not exist any material, much less tangible material for holding validity of 'reason to believe'. Accordingly, very initiation of proceedings under section 147 is held invalid and accordingly the assessment order dated 29.12.2017 passed under section 147 is liable to be quashed and we hold so.
I.T.A. No.6251/DEL/2019 43
26. In the result the appeal is allowed on this preliminary issue and the assessment order dated 29.12.2017 is quashed. Since that assessment order has been quashed, we did not consider it necessary to adjudication the ground related to merits of addition of Rs.6.26 Crores, as had been received from fifteen share applicants and is kept open.
27. In the result appeal of the appellant is allowed.
Order pronounced in the open Court on 3rd October, 2019.
Sd/- Sd/-
[ANADEE NATH MISSHRA] [AMIT SHUKLA]
[ACCOUNTANT MEMBER] JUDICIAL MEMBER
DATED: 3rd October, 2019
PKK: