Income Tax Appellate Tribunal - Delhi
Acit, Central Circle-19, New Delhi vs Madhusudan Packaging P.Ltd, Delhi on 9 May, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "SMC", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
I.T.A. No. 4930/DEL/2017
A.Y. : 2009-10
ACIT, CENTRAL CIRCLE -19, M/S MADHUSUDAN
ROOM NO. 104, ARA CENTRE, VS. PACKAGING PVT. LTD.,
E-2, JHANDEWALAN, 301, ROOTS TOWER,
NEW DELHI DISTRICT CENTRE,
LAXMI NAGAR,
DELHI - 110 092
(PAN: AAECM8816B)
(APPELLANT) (RESPONDENT)
Department by : Ms. Ashima Neb,
Assessee by : Sh. Gautam Jain, Adv. & Sh.
Piyush Kumar Kamal, Adv.
ORDER
Revenue has filed this Appeal against the impugned Order dated 22.5.2017 passed by the Ld. CIT(A)-27, New Delhi relevant to assessment year 2009-10 on the following grounds:-
"1) The Ld. CIT(A) has erred in law and on the facts in deleting the addition of Rs. 40,00,000/- made by AO on account of unexplained cash credit u/s 68 of the I.T. Act,1961.
2 The ld. CIT(A) has erred in law and on the facts by considering assessment order passed u/s 147 r.w.s 143(3) as void ab-initio.
13 That the ld. CIT(A) has erred in ignoring the facts as the assessee company failed to discharge the onus u/s 68 of the I.T. Act, 1961 to prove the identity, creditworthiness and genuineness of the transactions made by the investors.
4(a) The order of the CIT(Appeals) is erroneous and not tenable in law and on facts.
(b) The appellant craves leave to add, alter or amend an/all of the grounds of appeal before or during the course of the hearing of the appeal."
2. The brief facts of the case are that the assessee has filed its return or income declaring NIL income on 18.9.2009. Thereafter, the case of the assessee was reopened u/s 147 of the Income Tax Act, 961 (hereinafter referred to as the Act) and notice u/s 148 of the Act dated 29.3.2016 was issued after recording reasons. Accordingly, the assessee vide its letter dated 31.3.2016 submitted that the original Income Tax Return filed for the AY 2009-10 dated 18.9.2009 may be considered as return filed in response to the notice u/s 148 of the Act. Thereafter, the AO vide order dated 31.12.2016 completed the assessment u/s 143(3) r.w.s. 147 of the Act and made the addition of Rs. 40 lacs u/s 68 of the Act and assessed the income on the same amount.
3. Against the said order of the ld. AO, assessee appealed before the ld. CIT(A) on the issue of reopening of assessment as well as on merits of the case, who vide his impugned order dated 22.5.2007 has allowed the appeal of the assessee thereby deleting the addition in dispute and holding the reopening as invalid.
24. Aggrieved with the aforesaid order of the ld. CIT(A), Revenue is in appeal before us the Tribunal.
5. During the hearing, Ld. DR filed her written submissions and contended that credible and specific information was received in the case of the assessee company from the investigation wing that it had received bogus share capital from the paper entities and based on the above information and after properly recording the reasons and after taking necessary approval from the statutory authority, the case was reopened by the Assessing Officer u/s 148 of the Act. It was submitted by her that Ld. CIT(A) has grossly erred in holding that assumption of jurisdiction is improper as there is no incriminating material and it was further submitted that since the assessment is completed u/s. 147 of the Act and not under section 153A or 153C and, therefore, finding of incriminating material during the course of search was not necessary. It was further submitted that case laws cited by the Ld. CIT(A) in his impugned order i.e. Pr. CIT v. G&G Pharma India (P) Ltd. 384 ITR 147, Sarthak Securities Co. (P) Ltd. v. ITO 329 ITR 110, Signature Hotels (P) Ltd. v. ITO 338 ITR 51, CIT vs Suren International (P) Ltd. 357 IT 24, Pr. CIT v. N.C. Cables (P) Ltd. in ITA No. 335/2015 and Chhugamal Rajpal v. SP Chaliha and Others 79 ITR 603 are clearly distinguishable and not applicable to the facts of the case here. Reliance was placed on the following judgments:
- Raymond Woolen Mills Ltd. v. ITO and others 236 ITR 34 (SC)
- Pratibha Finvest (P) Ltd. v. ITO ITA No. 263 CTR 206 (Del) 3
- M/s Paramount Communications Ltd. v. Pr. CIT 7 2017-
TIOL-253 (SC)
6. Further on merits, it was submitted that the ld. CIT(A) has grossly erred in holding that the assessee has discharged its onus in establishing the identity, creditworthiness of the purported shareholders and genuineness of the transaction. It was further submitted that Ld. CIT(A) has grossly erred in wrongly noting that the bank account statement of the purported shareholders were filed before the Assessing Officer. It was also submitted that no bank accounts statement of the purported shareholders were filed before the AO and the documents relied upon by assessee only establish that the purported shareholders are mere paper entities having no creditworthiness. It was further submitted that Ld. CIT(A) has grossly erred in ignoring the ratio laid down by the Delhi High Court in the following cases:
- CIT v. Nipun Builder and Developers (P) Ltd. 350 ITR 407 (Del)
- CIT v. Nova Promoters and Finlease Ltd. 342 ITR 169 (Del)
- N. Tarika Properties Investment (P) Ltd. 264 CTR 472 (Del) and SLP dismissed by Apex Court
7. Ld. Sr. DR further stated that Ld. CIT(A) has grossly erred in holding that the enquiry conducted by the Assessing Officer u/s 131 and statements of the entry operators recorded should have been confronted to the assessee. It was submitted that the assessee was afforded an opportunity to rebut the material by issuance of notice u/s 142(1) by the AO but no worthwhile submissions were made before the AO by the assessee. Ld. DR also relied upon the order of 4 the AO and reiterated the contentions raised in the grounds of appeal.
8. On the contrary, Ld. Counsel of the assessee relied upon the decision of the Tribunal in group case filed by the Revenue in the case of M/s Kapis Impex (P) Ltd. ITA No. 4929/D/2017 AY 2009-10 dated 15.3.2018 had contended that since on identical facts the Tribunal has already held that assumption of jurisdiction u/s 148 was bad in law and also on merits the addition is untenable, the said order may be followed for rejecting the appeal filed by the revenue. Further the learned counsel submitted that the Ld. CIT(A) has specifically held in the order that no enquiries had been confronted to the appellant during the course of assessment proceedings though specifically requested vide replies dated 10.11.2016 and 29.12.2016 by the assessee company. It was also pointed that the reasons do not point out any specific evidence that either the companies are bogus non-existent or the money received represented unaccounted income. It was thus submitted that Ld. CIT(A) was justified in holding that AO did not apply his own mind to the information or independently examine the accuracy of information and merely accepted the same in a mechanical manner and therefore both notice u/s 148 and assessment order passed u/s 143(3)/147 of the Act were justifiably held as ab-initio-void.
9. Besides above, on merits it was pointed out that hereto the ld. CIT(A) has highlighted that AO did not make any inquiry on the documentary evidences either from respective AO, ROC and bankers of shareholders companies and evidences filed clearly proved that both the investor companies are existing and genuine companies registered with Registrar of Companies as well as assessed to 5 income tax. It was also pointed that both have independently confirmed the investment. It was further pointed out that statements of Praveen Kumar Aggarwal was not recorded at assessment stage and in absence of cross examination cannot be used against the assessee. As regards the bank statement, it was submitted that bank statement of Joyprit Plastic Dealers is admitted by the Assessing Officer to be on record. Further, bank statement of assessee company was on record and the fact that transaction was through banking channel is not in dispute. Apart from the above, documentary evidences filed included confirmation, financial statements, acknowledgement of returns, PAN Card and therefore, in absence of any enquiry, no adverse inference could be drawn. It was submitted that share capital subscribed was Rs. 30,00,000/- by M/s. Tobu Toys Ltd. and the net worth of the said company was of Rs. 17,86,52,864/-. Likewise, in the case of Joyprit Plastic Dealers, share capital subscribed was of Rs. 10,00,000/- and net worth was of Rs. 4,96,07,903/- and hence, no adverse inference could be validly drawn merely in absence of bank statement of one of the shareholder. It is also submitted that there was no factually inaccuracy in the order of CIT(A) and no adverse inference was thus called for. It was thus submitted that in view of the reasoned findings recorded by the Ld. CIT(A), the impugned order made be upheld and appeal of the Revenue may be dismissed accordingly.
10. I have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by both the parties. I find that in this case the assessee is a Private Limited Company. The assessee raised share capital of Rs. 40,00,000/- (including premium of Rs.36,00,000/-) from 2 shareholders who are corporate entities and 6 are also duly assessed to tax. In the reasons as recorded by the AO, it has been stated as under:
"During pre and post search proceedings it was found that the group companies had received share capital with exorbitant premium from large number of non descript companies mainly based in Kolkata and Delhi from the period between 1.4.2008 to 31.03.2009. That enquiries were also conducted by the Inspectors of the Investigation Wing at Delhi and Kolkata. Most of the entry providing companies was not found existing at the given offices in Kolkata. That all entry providing companies were covered under various search conducted by Kolkata Investigation Wing and all the companies were found bogus and non- existent. That in the statement of directors managing the alleged bogus companies, they admitted that they were in the business of providing accommodation entries; That on the basis of enquiries conducted and statements recorded, it has been established that the companies were bogus and non existent. That the share capital received by the assessee company amounting to Rs. 40,00,000/- in the FY 2008-09 from these large number of non-descript companies is nothing but assessee own unaccounted income through these companies. The AO has observed that keeping in view all above, have reason to believe that amount at least of Rs. 40,00,000/- has escaped assessment in the case of Madhusudan 7 Packaging (P) Ltd. for the AY 2009-10 within the meaning of section 147/148 of the Income Tax Act, 1961. The re- assessment proceedings in this case for A.Y. 2009-10 pertain to period beyond four years but before the expiry of six years from the date of issue of notice, In view of the same, as no assessment has been made in this case for AY 2009-10 u/s 143(3) or u/s 147, the first proviso to section 147 (as reproduced below) is not applicable to the case.
"Provided that where an assessment under sub section (3) of section 143 of this section has been made for the relevant assessment year, no action shall be taken this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
11. In other words, that assessing officer is not bound by the restriction impounded by the proviso that no action can be taken unless any income chargeable to tax has escaped income by reason of failure as the part of the assessee to make a return under section 8 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all materials facts necessary for his assessment, for that assessment year. Therefore, the AO has reason to believe that this amount of Rs.40,00,000/- represents income of M/s Madhusudhan Packaging (P) Ltd. chargeable to tax which has escaped assessment for A.Y. 2009-10. As the case pertains to a period beyond four years from the end of relevant assessment year at the time issue of notice, necessary sanction has to be obtained from Pr. Commissioner of Income Tax, in view of the amended provision of section 151 w.e.f. 01.06.2015.
12. It is noted from the copy of reasons recorded placed on record that these reasons are identical and verbatim copy of the reasons recorded in the case of M/s Kapis Impex (P) Ltd. (supra) other than the change of the name of shareholder. In an order dated 15.3.2018 in the case of M/s Kapis Impex (P) Ltd. ITA No. 4929/D/2017 AY 2009-10, appeal filed by the revenue against the order of Ld. CIT(A) quashing the assumption of jurisdiction by issue of notice under section 148 of the Act stands dismissed by holding as under:
"7.2 The assumption of jurisdiction u/s 147 of the Act is stated to be based on the enquiries conducted by Inspectors of the Investigation Wing -at Delhi and Kolkata to form an opinion albeit prima-facie that appellant company has received share capital with exorbitant premium from large number of non descript 9 companies mainly based in Kolkatta and Delhi from the period between 1.4.2008 to 31.3.2009. It is a matter of record that such enquiries had not been confronted to the assessee during the course of assessment proceedings through specifically requested vide replies dated 10.11.2016 and 29.12.2016 by the assessee company. In such circumstances all such enquiries cannot mechanically be made a basis to assume jurisdiction.
7.3 It is apparent that reasons contain scanty, general, vague observations and not refer to any objective, tangible relevant material. No specific evidence has been highlighted to arrive at an opinion that either the companies are bogus and nonexistent or the money received represented unaccounted income.
Though the reasons refer to the search but do not refer to any incriminating material detected as a result of search so as to form an prima facie opinion contrary to the claim made in the original return and accepted as such. Drawing of list of shareholders based on a Investigation wing report has not been judicially accepted as a foundation for assuming jurisdiction u/s 147 of the Act.10
7.4 Also mere information does not constitute to be a tangible material to re-assess the assessee company without any independent enquiry or application of mind.
The Hon'ble Delhi High Court in the case of Pr. CIT Vs. G&G Pharma India Ltd. 384 ITR 147 has held as under:
"9. The Court at the outset proposes to recapitulate the jurisdictional requirement for reopening of the assessment under Section ] 47/ 148 of the Act by referring to two decisions of the Supreme Court. In Chhugamal Rajpal v. SP Chatiho (1971) 79 ITR 603, the Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were "name-lenders and the transactions are bogus." The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO "had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague felling that they may be "bogus transactions'."
12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th 11 February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate oj Investigation, the AO stated:
"I have a/so perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section l43(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way oj accommodation entries". In the considered view of the Court, in light of the 12 law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.
13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income oj the Assessee has escaped assessment.
Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity."
7.5 In the case of Sarthak Securities Co. (P) Ltd. v. ITO 329 ITR 110 (Del), it has been held as under:-
13"23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence oj Jour companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement oj income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection oj objections, the names of the companies were available with 14 the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had hank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted.
24. Resultantly, the initiation of proceedings under Section 147 and issuance of notice under Section 148 of the Act are hereby quashed. In the [acts and circumstances of the case, there shall be no order as to costs."
7.6 Further in the case of Signature Hotels (.P) Ltd. v.
ITO 338 ITR 51 (Del) it was held as under:-
"5 Before dealing with the facts oj the case, we may notice some judgments of the Supreme Court when proceedings under Section 147/ 148 of the 15 Act can be initiated on statements made by third person on the account of "accommodation entry".
In ITO versus Lakhmani Mewal Das, [1976/ 103 ITR 437 (sq, the Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide legal sound basis for initiation of assessment proceedings under Section 147. After referring to this judgment, a Division Bench of Delhi High Court, in Income-Tax Officer, Special Civil No. VII, New Delhi, and Another versus Dwarka Dass and Brothers, 1981/ 131 ITR 571 (Del) has held as under:
" .... The Supreme Court, affirming the decision of the High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or was, in any event, too tenuous to provide a legally sound basis for reopening the assessment. ...16
The position in the present case falls within the same category. At the time of the original assessment all the facts relating to the cash credits in question were fully disclosed. This has been found by the learned Judge at page 960 (of 118 ITR) and indeed this is the accepted position on the basis o] which even the proposal of the ITO to the Commissioner (set out at page 964) proceeded. Thereafter, the only material received by the ITO appears to be that the revenue authorities had carried out certain investigations, that they had discovered the existence of bogus hundi brokers who were allegedly lending their names to assessee and that a list had been circulated to various ITOs of the hundi brokers who were allegedly indulging in malpractices. The internal audit party appears to have discovered that some of the creditors whose credits had been accepted in the assessee's case fell within this category and raised an audit objection which was the immediate provocation [or the reopening of the assessment. In this case also, as in the case before the Supreme Court, there is no live connection or link established between the information or the facts, in the possession of the ITO, and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made 17 out by the department would be too general and vague to lead to an inference regarding the truth or otherwise o] the loans recorded by the assessee. We are wholly unable to find any material point of distinction between the acts of the present case and those considered by the Supreme Court in the case of Lakhmani Mewal Das 1976 103 ITR 437."
6. The view taken by the Supreme Court in Lakhmani Mewal Das [supra] was followed in Ganga Saran and Sons Private Limited versus Income-Tax Officer, (1981 J 130 ITR 1 (SC). The matter was again examined by the Supreme Court in Phool Chand Bajrang Lal and Another versus Income-Tax Officer and Another, (1993J (203) ITR 456 (SC). In the said case, information was received by the Assessing Officer that the third company had never actually advanced loans to any person and the said third company was in the business consisting entirely of name lending. Noticing the judgment in Lakhmani Mewal Das (supra) It was held that the nature of information which was available was vastly different. In the case of Lakhmani Mewal Das (supra), the information was extremely vague and scanty whereas in the case of Phool Chand Bajrang Lal (supra), the information was specific, unambiguous and clear.
1815. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. Assessing Officer accepted the plea on the basis of vague information mechanical manner. The Commissioner also acted on the same bas mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received Director of Income-Tax (Investigation) and arrive at a belief whether income had escaped assessment."
7.7 Similarly, in the case of CIT v. Suren International (P) Ltd. (Del), it was held as under:
14. The learned counsel for the appellant contended that even though there is no specific allegation that the assessee had failed to disclose 19 all the material facts but the same can be gleaned from the reasons itself We are unable to accept this contention. In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal' o] the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times.
This is clearly indicative of the callous manner in which the reasons [or initiating reassessment proceedings are recorded and we are unable to countenance that any belief based on such statements can ever be arrived at. The reasons have been recorded without any application of mind and thus no belief that income has escaped assessment can be stated to have been formed based on such reasons as recorded."
7.8 Also in the present case approval as obtained does not meet the test laid by the judgment of Hon'ble Delhi High Court in the case of Pr. CIT V. NC Cables ITA No. 335/2015 dated 11.1.2017 wherein it has been held under:-
"11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate 20 reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed"
7.9 Similar view has also been expressed in the case of Chhugamal Rajpal P. Chaliha and Others 79 ITR 603 (SC). It has held therein as under:
"In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had before him for issuing notice under section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the 21 transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfill the requirements of section 151 (2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words he must have some prima facie grounds before him for taking action under section 148. Further his report mentions :
"Hence proper investigation regarding these loans is necessary". ln other words his conclusion is that there is a case [or investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to Issue notice under section 148. Before issuing a notice under section 148, the Income tax Officer must have either reasons to believe that by reason oj the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax 22 Officer has in consequence of information possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax r Officer has no jurisdiction to issue a notice under section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section
148. Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case Jar the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself 23 record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148", he just noted the word "Yes" and affixed his signature thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance. In the result this appeal is allowed, the order of the High Court is set aside and the impugned notice quashed. The respondent No. 2 shall pay the costs of the appellant both in this court and in the High Court.
7.10 The AO in his order while disposing of objection dated 29.8.2016 has supported the action u/s 147 of the Act. However from the reasons recorded it is apparent that no material much less incriminating material was detected as result of search on the appellant or gathered 24 during the assessment proceedings to allege, observe or assume that the same has taken bogus share capital. The reference to inquiries is vitiated for being vague and general and non specific, apart from the fact they have not been confronted to the appellant during the assessment proceedings.
7.11 In nutshell, the AO did not apply his own mind to the information and examine the foundation/ accuracy of such material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The reasons recorded ref1ect that the AO did not independently apply his mind to the information received from the Investigation Wing to arrive at a belief that income of the assessee company had escaped assessment.
7.12 Considering the above analysis of facts and circumstances of the case and the case law supported by the AR of the appellant on the issue, I am of the considered view that AO has wrongly assumed the jurisdiction u/s 147 of the I.T. Act. The reason for reopening was not properly recorded. The AO has not applied his mind, approval for issue of notice u/s. 148 of the Act is not in accordance with law. In view of above, assessment order passed u/s. 147 of the Act r.w. section 143(3) of the Act was rightly treated ab initio void by the Ld. CIT(A), which does not need any interference on my part, hence, I uphold this 25 action of Ld. CIT(A) and reject the ground no. 1 raised by the Revenue."
13. I find that Ld. Sr. DR has not disputed the aforesaid factual position either in the course of hearing or in the written submission. However, she has relied on the judgment of Raymond Woolen Mills Ltd. vs. ITO (supra) and Paramount Communications Ltd. vs. Pr. CIT (supra) and Pratibha Finvest (P) Ltd. v. ITO to submit that a contrary view needs to be taken. It is noted that in the case of Paramount vs. Pr. CIT that information was received from the Directorate of Revenue, Intelligence Revenue, Jaipur and based on the said information, notices were issued under section 148 of the Act. The Hon'ble Court held that such information constitute tangible material as it discloses the source of the information and also it revealed that such information related to suppression of material facts including false claims of the nature of bogus purchases from a company which did not even have a manufacturing facility. The above judgment has no application to the facts of the assessee. In the instant case, the finding of fact recorded by the learned CIT(A) is that assumption of jurisdiction was stated to be based on the enquiries conducted by Inspector of Investigation Wing of Delhi and Kolkata but no such enquiries had been confronted to the appellant during the course of assessment proceedings despite the fact that the specific request were made by the assessee vide replies dated 10.11.2016 and 29.12.2016. In such circumstances, learned CIT(A) held that there was no specific evidence which could constitute tangible material or relevant material to issue notice under section 148 of the Act and as such, the Assessing Officer could not have issued mechanically notice under section 148 of the Act. Thus, the facts of the case of appellant are totally distinguishable from the 26 judgments relied upon by the revenue. As regards, the case of Pratibha Finvest (P) Ltd. v. ITO, here too, the CIT(A), Tribunal and High Court all had held consistently that notice under section 147 of the Act reflected due application of mind to objective material by way of investigation report which could give a rise to bonafide belief that income of assessee had escaped assessment. However, in the instant case as stated above, there are no enquiries which have been confronted to the appellant despite specific request and as such, there is no material which could enable the learned Assessing Officer to form an opinion that income of assessee has escaped assessment so as to allege that share capital represented accommodation entries. Infact in the case of Pratibha Finvest (P) Ltd. v. ITO, appellant has not even requested for reasons recorded during the course of assessment proceedings; and therefore, the facts of the case of assessee are totally distinguishable. Lastly, so far as the judgment in the case of Raymond Woolen Mills Ltd. vs. ITO is concerned, Hon'ble Court held that correctness of material is not a thing which can be considered at the stage of assumption of jurisdiction under section 147 of the Act. There is no dispute to the aforesaid proposition and however on the facts of the case, there is no tangible material and therefore, action under section 148 of the Act is invalid.
14. Having regard to the factual position and following the order of the Hon'ble Tribunal in the case of group concern in the case of M/s Kapis Impex (P) Ltd. (supra), the notice issued u/s 148 is held to be invalid and therefore, I confirm the action of the Ld. CIT(A) in treating the assessment order passed u/s. 147 r.w.s. 143(3) of the Act as ab-initio-void and reject the ground raised by the revenue.
2715. Even on merits, it is noted that the issue is squarely covered by order of the Tribunal in the case of ACIT vs. M/s. Kapis Impex Pvt. Ltd. in ITA No. 4929/Del/2017 wherein the addition was deleted by holding as under:
"8. As regards merit of the case is concerned, i.e. addition of Rs. 40 lacs made u/s. 68 of the Act which represents sums received from the shareholders as share capital / share premium and erroneously held as unexplained cash credits u/s. 68 of the Act. During the year the assessee company had received share capital and share premium to the tune of Rs.40,00,000/- from two shareholders namely Ahiliya Trading & Finance (P) Ltd. and M/s Joyprit Plastic Dealers (P) Ltd. The AO asked the assessee to details of share capital pending allotments, detail of share capital premium received during year including complete detail of party i.e. name, address, PAN, Number of share allotted, total amount, allotment letter and transaction mode. He has also directed to detail of share capital/premium received during FY 2008-09 alongwith the highlight entry in bank statement in which amount received in order to prove identity, creditworthiness and genuineness of the transaction. The assessee admittedly produced several documentary evidence before the AO in order to prove the above ingredients of section 68 of the Act i.e. the assessee furnished the address of the share applicants, CIN No., Incorporation date of 28 com pan , PAN, Authorized capital, paid up capital, names of Directors, certificate issued by Registrar of Companies and return filed before ROC, net worth of all the companies, confirmation, copy of bank statement, copy of acknowledgement of filing of income tax return with audited accounts, copy of company master data, share certificates, share application form for all the investor companies. The AO did not doubt the genuineness of the aforesaid documentary evidence. The AO has not made any inquiry on these documentary evidences either from respective AO, ROC and bankers of shareholder companies. These evidences clearly proved that both the investor companies are existing and genuine companies registered with Registrar of Companies as well as assessed to income tax. M/s Joyprit Plastic Dealers (P) Ltd. has independently confirmed the investment. No material is produced on record that during the course of search in the case of the assessee any material was found to prove that assessee company received any accommodation entries from shareholders. The AO without rebutting the above evidence relied upon statements of Shri Praveen Kumar Aggarwal, recorded by Investigation Wing Kolkatta and, report from Investigation Wing, Kolkatta to draw adverse inference against the appellant company. None of the above evidences have been confronted by the aassessee. Statements of Praveen Kumar Aggarwal 29 was not recorded at assessment stage and in absence of cross-examination cannot be used against the assessee. The Hon'ble Supreme Court in the case of Andarnan Timber Industries v. CCE 62 taxmann.com 3 while deciding an issue regarding no allowing the cross examination has held that not allowing the assessee to cross examine the witness by the adjudicating authority through statements of those witnesses were made a basis of the impugned order amounted to a serious which makes the order a nullity as it amounted to violation of principles of natural justice. Also in the case of Kishanichand Chellaram v. CIT 125 ITR 713 (SC) in which it was held that any material collected at the back of the assessee and not confronted and no opportunity given to cross-examine, such material cannot be relied upon against the assessee, in view of the following judgements:-
- CIT v. Shri Sunil Agarwal 379 ITR 367 (Del)
- CIT vs. Rakam Money Matters (P) Ltd. in ITA No. 778/2015 dated 13.10.2015 (Delhi High Court) 8.1 Also on the anvil of the judgment in the case of CIT vs. Kamdhenu Steel and Alloys Ltd. 361 ITR 220 the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee and held that in order to discharge this burden, the assesee is required to prove the identity of shareholder; the genuineness of transaction and 30 the creditworthiness of shareholders. And mere noncompliance by M/s Ahilya Trading and Finance (P) Ltd. of summons cannot be a ground to shift the burden on the assessee. In any case, once the evidence furnished remains unrebutted in absence of any enquiries from ROC, income tax and bankers, no adverse inference can be drawn. The assesssee has complete documentary evidence in respect of share holders from who it had received share capital and furnished various evidence of each share holder, as per the details given below:-
i) Name, address and complete particulars of the share holder,
ii) Confirmation from shareholders.
iii) Copy of share application form.
iv) Copy of bank statement of assessee.
v) Copy of bank statement of shareholder.
vi) Copy of acknowledgement of return of income
of the shareholder.
vii) Copy of PAN of shareholder.
viii) Audited financial statements of shareholders
x) Certificate of incorporation of shareholder
xi) Copy of share allotment letter received by shareholders.
xii) Copy of share certificates as issued by the assessee.
8.2 After perusing the above, it is established that the share capital received by the assessee company has been fully substantiated not only by 31 documentary evidence including permanent account number, confirmation, addresse, bank statements etc. and, therefore such sum could not in law or on fact be held to be unexplained cash credit u/s 68 of the Act. It was noted that no material has been led by the Assessing Officer to even allege that such investment was made from the coffers of the assessee company. The material on record shows that investors have net worth to make the aforesaid investment in the assessee company. The investors are corporate entities duly assessed to tax and, have made investment made through banking channels, which fact has neither been denied and, nor rebutted in the order of assessment. Infact, one of the subscriber i.e. M/s Joyprit Plastic dealers Pvt Ltd has independently confirmed the investment in the assessee company. The assessee has furnished complete details and evidences to discharge the burden in respect of investment by the assessee company. Further the balance sheet which clearly shows that investor companies are engaged in the business of investment and, disinvestment of 32 shares. The investor companies have been furnishing returns of income. The companies are existing much prior to the investment in the assessee company. Once shareholders do exist, have their own independent identity, source of income, maintain books of accounts, carry on their business and, earn income from investments not only in assessee but also shares of other companies, then the inevitable conclusion is that they are not paper companies. My aforesaid view is fortified by the judgement of the Hon'ble Supreme Court in the case of CIT v Lovely Exports (P) Ltd reported in 319 ITR 5 (St.) wherein it has been held that "even if the share capital money is received by the assessee from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee company." I further find that the Hon'ble Supreme Court of India further observed in the case of CIT vs. Stellar Investment Ltd. reported in 33 251 ITR 263 by upholding the view taken by the Hon'ble Delhi High Court reported in 192 ITR 287 that in case of a company, even if the subscriber to the share capital are not genuine then too, it would not be regarded as undisclosed income fo the assessee company. Keeping in view of the facts and circumstances of the case as explained above and respectfully following the aforesaid precedents, the action of the Ld. CIT(A) of deletion of addition of Rs. 40 lacs is upheld and accordingly, the ground 2 & 3 raised by the Revenue are also rejected."
16. The Ld. Sr. DR during the course of hearing pointed that the reliance placed by the assessee's counsel on the decision of Tribunal is misplaced since the factum of non-disclosure of bank account of the purported shareholder had not been brought on record. It is noted that the bank statement was not filed in the case of M/s Kapis Impex (P) Ltd. is factually incorrect as the AO himself notes that so far as one of the shareholders namely M/s Joyprit Plastic Dealers (P) Ltd. filed a bank statement in response to the notice u/s 133(6) of the Act. Moreover bank statement of the assessee duly established that the transaction were through banking channel which fact is not denied or disputed. In such circumstances and in light of the other 34 irrefutable facts and evidences including the confirmation, acknowledgement of returns, financial statement of shareholders coupled with lack of enquiries in respect of such evidences would not warrant a different opinion. Further, even in the instant case we note that both the shareholders had creditworthiness to subscribe to the share capital as net worth of M/s. Tobu Toys Ltd. was Rs. 17.86 crores and M/s. Joyprit Plastic Dealers was Rs. 4.96 crores as against share capital subscribed of Rs. 30,00,000/- and Rs.
10,00,000/- respectively and therefore, having regard to the facts of the case and the aspect that no enquiries have been made by the Assessing Officer to doubt any of the evidences furnished by the assessee, the claim of subscription of share capital is upheld. The judgments as cited by the Ld. DR are inapplicable. In the case of Nipun Builders (supra), summons were issued under section 131 of the Act to the companies at the addressed furnished which returned unserved. Further, even the learned Assessing Officer deputed inspector who confirmed that no such company existed at the addresses furnished. Also, the assessee was called upon to produce Principal officers of the assessee company yet no compliance was made. In such circumstances, the Hon'ble Court held that the burden of the assessee remained un-discharged. In the instant case, no enquiries whatsoever have been made by the Assessing Officer 35 by deputing inspector or directing the assessee to produce shareholders. All what has happened is that summons under section 133(6) of the Act were issued which were complied with. The adverse inference on the basis of the statement of Pravin Aggarwal is incorrect since the same was neither confronted and no cross examination was afforded to the assessee company. Also the case of CIT vs. Nova Promoters & Finlease (P) Ltd. (supra) supports the claim of the assessee wherein it was held that the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before it. The judgment in the case of CIT v N. Tarika Properties Investment (P) Ltd. (supra) is also inapplicable as in the said case, false evidences had been adduced to prove genuineness of the share capital which is not so in the instant case. Thus, on the facts of the case, the findings of the CIT(A) remain unrebutted and the conclusion of the CIT(A) to delete the addition by holding that once shareholders do exist, have their own independent identity, source of income, maintain books of accounts, carry on their business and earn income from investments not only in assessee but also shares of other companies, then the inevitable conclusion is that they are not paper companies is upheld 36 and the addition in dispute is deleted. Accordingly, Ground No. 1 to 3 raised by the revenue are rejected.
17. In the result, appeal filed by the revenue is dismissed.
Order pronounced on 09/05/2018.
Sd/-
[H.S. SIDHU] JUDICIAL MEMBER Date 09/05/2018 "SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order, Assistant Registrar, ITAT, Delhi Benches 37