Gujarat High Court
Boghara Polyfab Pvt Ltd, Manish Vimal ... vs Deputy Commssioner Of Income Tax Circle ... on 26 February, 2018
Author: Akil Kureshi
Bench: Akil Kureshi, B.N. Karia
C/SCA/21108/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 21108 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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BOGHARA POLYFAB PVT LTD, MANISH VIMAL AGARVAL
Versus
DEPUTY COMMSSIONER OF INCOME TAX CIRCLE 1(1)(1)
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Appearance:
MR RK PATEL WITH MR DARSHAN R PATEL for the PETITIONER(s) No. 1
MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL for the
RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 26/02/2018
ORAL JUDGMENT
Page 1 of 21
C/SCA/21108/2017 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 31.3.2007 issued by the respondent Assessing Officer for reopening of petitioner's assessment for the assessment year 2010 2011.
2. Brief facts are as under. The petitioner is a private limited company and is trading in yarn and textile. For the assessment year 20102011, the petitioner filed return of income on 11.10.2010 declaring Rs.42.15 lacs (rounded off). Such return was accepted under section 143(1) of the Act without scrutiny. To reopen such assessment, the respondent Assessing Officer issued the impugned notice. In order to do so, he had recorded the following reasons :
"The assessee company has filed its return of income for the year under consideration on 11/10/2010 declaring total income at Rs.42,15,022/.
An information was received from the ITO Ward 1(1)(4), Surat that during the course of assessment proceedings in the case of Nandini Dyeing and Printing Pvt. Ltd for AY 200809, it was noticed that the company had received share capital and share premium from the following company, which was proved to be bogus company, engaged in providing accommodation entries.
Sr. No. Name of the Investor
1 Nakshatra Electricals & Engg. (P) Ltd. 105, Nancy Muncy, No.2
Chandivali, Sakinaka, Mumbai
Besides above, an intimation was received from the ITO Ward 1(1)(2), Surat that during the during the course of assessment proceedings in the case of Envro Infratech Pvt. Ltd for AY 201213, it wa noticed that the company had Page 2 of 21 C/SCA/21108/2017 JUDGMENT received share capital and share premium from the following companies, which were proved to be bogus company engaged in providing accommodation entries.
Sr. No. Name of the Investor
1 Nova Corporate Services (P) Ltd. office no, 3, Tara Apartment, Saki
Vihar Road, Saki Naka, Andheri (E) Mumbai
2 Nupur Management Consultant Pvt. Ltd Office no.3, Tara Apartment,
Saki Vihar Road, Saki Naka, Andheri (E) Mumbai
3 Tiscon Sales Agency Pvt. Ltd, Room No.7, Laxman Nagar Road, Kurar Village, Malad (E) Mumbai 4 Tissot Management consultancy Pvt. Ltd Office No.3, Tara Apartment, Saki Vihar Road, Saki Naka Andheri (E) Mumbai On verification of the materials available on record and facts and circumstances of the case, it is seen that the assessee had shown to have received share capital/share premium amounting to Rs. 1,55,00,000/ during the FY 200910. Since the investor companies have been proved to be shell companies indulged in providing accommodation entires, the share capital/share premium claimed to have been received from such companies by the assessee company is not genuine. Therefore, this amount is nothing but assessee company's own money introduced in the grab of share capital/share premium from the shell company and as such liable for taxation under the provisions of section 68 of the IT Act.
Sr. Name of the Investor Share Share Share Source of Asst. In the case
No. capital premium Informatio of
n
1 Nakshatra 18000 1800000 1800000 ITO Nandini Dyeing
Electricals & Engg. Wd.1(1)(4) and Printing Pvt.
(P) Ltd. Ltd
2 Nova Corporate 93750 937500 937500 ITO Envro Infratech
Services (P) Ltd. Wd.1(1)(2) Pvt. Ltd
3 Nupur Management 75000 75000 75000 ITO Envro Infratech
Consultant Pvt. Ltd Wd.1(1)(2) Pvt. Ltd
4 Tiscon Sales Agency 700000 7000000 7000000 ITO Envro Infratech
Pvt. Ltd Wd.1(1)(2) Pvt. Ltd
5 Tissot Management 125000 1250000 1250000 ITO Envro Infratech
consultancy Pvt. Ltd Wd.1(1)(2) Pvt. Ltd
1173750 11737500 11737500
In view of above facts, since the above companies are proved to be bogus/paper companies and were given Page 3 of 21 C/SCA/21108/2017 JUDGMENT accommodation entires to the assessee company by way of share capital and share premium during the FY 200910. I have reason to believe that the share capital/share premium received to the extent of Rs.2,34,75,000/ (Rs.1,17,37,500 share capital + Rs.1,17,37,500 share premium) had escaped the assessment for AY 201011 and the assessee company had failed to disclose full and true facts of its case, within the meaning of provisions of sec. 147 of the IT Act. Therefore, I am satisfied that this is a fit case for issue of notice u/s 148 r.w.s. 147 of the Act for action u/s. 147 of the Act for the AY 201011."
3. The petitioner raised objections to the notice of reopening under a communication dated 10.7.2017. Such objections were however, rejected by the Assessing Officer by order dated 28.8.2017. Hence this petition,
4. Taking us through the materials on record, counsel for the petitioner raised the following contentions in support of the challenge :
1) The sole ground mentioned in the reasons recorded by the Assessing Officer is with respect to the share application money received by the assessee company.
Under no circumstances, even if the investors and share applicants are found to be non genuine, any additions can be made in the hands of the assessee company with the aid of section 68 of the Act. This being the only ground, the reasons lack validity. Counsel submitted that in view of judgment of Supreme Court in case of CIT v. Lovely Exports (P) Ltd. reported in 319 ITR (ST) 5 addition, if at all, can be made in the hands of investors or Directors but not in the hands of the company. Counsel submitted that this proposition has been followed by this Court in series of judgments namely, Page 4 of 21 C/SCA/21108/2017 JUDGMENT
i) Commissioner of Income Tax Gandhinagar v. Bhavana Property Developers Ltd. (Tax Appeal No.1039/2009, order dated 11.1.2011)
ii) Hindustan Inks & Resins Ltd v. Dy. CIT. Spl. Range1 & 1 (Tax Appeal No.523/2004, judgment dated 17.6.2011)
iii) Commissioner of Income TaxIV v. Satyendra Traders Pvt. Ltd (Tax Appeal no.692/2010, order dated 4.10.2011)
iv) Commissioner of IncomeTax II v. Maruti Aluminium Pvt. Ltd (Tax Appeal No.330/2011, judgment dated 27.6.2012)
v) Commissioner of IncometaxII v. Gay Lord Industries Ltd (Tax Appeal No.1426/2011, judgment dated 27.6.2012)
2) Counsel submitted that in view of such settled position in law, reopening only on this ground is not permissible. In this regard, counsel further submitted that the legislature inserted proviso to section 68 of the Act with effect from 1.4.2013 which in certain cases would enable the Revenue to make additions under section 68 in case of a private limited company. However, such amendment is not prospective and cannot be applied to the case on hand which arose long before this legislative change took place.
3) Counsel submitted that the Assessing Officer in the reasons recorded has referred to the materials on record.
Page 5 of 21C/SCA/21108/2017 JUDGMENT Since the original assessment was completed without scrutiny, the materials which the Assessing Officer is referring to in such reasons is certainly not appearing on the record. Thus the reasons proceed on erroneous footing and the Assessing Officer is relying on material extraneous to the record. Counsel further submitted that the Assessing Officer was merely proceeding on the basis of information provided to him by another Assessing Officer. There was total lack of application of mind on his part. In short, he was proceeding on the borrowed satisfaction.
4) Counsel lastly contended that it is not clear whether the Commissioner of Incometax had accorded sanction for reopening of the assessment as required under the statute.
5. On the other hand, learned counsel Shri Nikunt Raval opposed the petition contending that the original assessment was not framed after scrutiny. There is no question of change of opinion. The Revenue would have much wider scope of reopening in such a case. In the present case, the Assessing Officer has recorded elaborate reasons suggesting that income chargeable to tax had escaped assessment. At this stage, the Court would not enter into sufficiency of such reasons. Since the Assessing Officer had formed a bona fide belief on the basis of tangible materials on record that the income chargeable to tax had escaped assessment, reopening should be permitted.
Counsel submitted that the proposition that no matter what the nature of the transactions, no additions can be made in the hands of the company under section 68 Page 6 of 21 C/SCA/21108/2017 JUDGMENT of the Act, is not a correct position and does not flow from the judgment of the Supreme Court in case of Lovely Exports (P) Ltd. (supra). Counsel submitted that there is a clear line of distinction where the source of investment made by the shareholder in a company is not established as against the situation where the entire transaction of the share applications and payment of share application money is found to be bogus or fictitious. In this context counsel relied on several judgments to which reference would be made at an appropriate stage.
Counsel submitted that the materials on record would not necessary include only returns and the documents produced by the assessee along with the said return. Counsel contended that the Assessing Officer has applied his independent mind and formed a belief that income chargeable to tax had escaped assessment. Counsel relied on the affidavit in reply filed by the respondent to contend that proper sanction in the present case was also accorded by the higher authority.
6. At the outset, we may recall that the return filed by the assessee was accepted under section 143(1) without scrutiny. In such a situation, as held by the Supreme Court in case of Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500(SC), there would be no question of change of opinion, since in absence of scrutiny assessment, the Assessing Officer cannot be stated to have formed any opinion. The Revenue consequently would have much greater latitude of reopening the assessment. The Supreme Court in the said judgment held and observed as under :
Page 7 of 21C/SCA/21108/2017 JUDGMENT ".....It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any "assessment" is done by them? The reply is an emphatic "no". The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise."
7. These principles were reiterated by Supreme Court in case of Deputy Commissioner of Incometax and another v. Zuari Estate Development and Investment Company Ltd. reported in (2015) 373 ITR 661 (SC)
8. In context of the phrase "reason to believe", the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) further observed as under :
"16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the Page 8 of 21 C/SCA/21108/2017 JUDGMENT fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]."
9. Despite this clear distinction in exercise of powers of reopening of assessment which was previously framed without scrutiny, visavis one which was completed after scrutiny, it is undoubtedly true that in order to exercise such powers, in the former situation, the Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment. This Court in case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of Incometax reported in (2013) 356 ITR 481 (Guj) held as under :
"13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has Page 9 of 21 C/SCA/21108/2017 JUDGMENT escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, reassess the income or recompute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment.
16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITR 500 (SC) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer."
10. Within this legal structure, we need to examine the contentions of the counsel for the petitioner. Most contentious issue is his first contention where he argued that no matter what the nature of transaction of share applications, addition in the hands of the company can never be made under section 68 of the Act. Heavy reliance was placed on the decision of Supreme Court in case of Lovely Exports (P) Ltd. (supra) and certain judgments of this Court following such judgment.
11. Lovely Exports (P) Ltd. (supra) was a case where the Supreme Court while rejecting the SLP filed by the Revenue observed that if share application money is received by the Page 10 of 21 C/SCA/21108/2017 JUDGMENT company from alleged bogus shareholders whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Firstly, this judgment does not lay down the proposition that irrespective of the nature of transaction of share application money, addition in the hands of the company cannot be made without the aid of section 68 of the Act. In fact, pointed reference was made in the said judgment to the details of share applications which were given by the company and the Supreme Court was of the opinion that if there is anything wrong found with such investment, department would be free to reopen their individual assessments. Along this line, this Court has, as correctly pointed out by the counsel for the assessee, dealt with several issues and confirmed the orders of the Tribunals by rejecting the Revenue's appeals. However, we may record that none of these judgments laid down the proposition as firmly and as widely canvased before us.
12. In case of Olwin Tiles India Pvt. Ltd. v. Deputy Commissioner of Incometax reported in (2016) 382 ITR 291 (Guj), Division Bench of this Court considered the legality of notice of reopening of an assessment issued by the Assessing Officer. It was also a case where the return was accepted under section 143(1) of the Act without scrutiny. The reasons indicated bogus share application money received by the company which the Assessing Officer desired to bring to tax. The Court rejected the petition making the following observations :
"14. Reverting back to the reasons recorded by the Page 11 of 21 C/SCA/21108/2017 JUDGMENT Assessing Officer, he noted that the assessee company had issued share capital of Rs.2.66 crores (rounded off) during the Financial Year 201011. the assessee had issued 60,000/ shares at a face value of Rs.10 per share with a premium of Rs.990/ per share. The Assessing Officer, on the basis of assets and liabilities furnished by the assessee company in its balance sheet, after computing the net worth of the company, noted that the share valuation of the assessee company would come to Rs.33/, whereas shares have been allotted at Rs.1,000/ per share, i.e. at a premium of Rs.967/ per share. On the basis of such working out, he recorded his reason to believe that income to the extent of Rs. Rs.5.80 crores had escaped assessment. We do not find that the reasons are perverse or so untenable as to terminate the assessment at this stage on the ground that the Assessing Officer cannot be stated to have any reason to believe or tangible material to form such an opinion that income chargeable to tax had escaped assessment. Prima facie, the facts appear to be glaring. Whether the assessee will be able to discharge the minimal burden of establishing identity, source and creditworthiness of the depositors is a question not possible to answer without scrutiny. Whether the assessee had started its manufacturing activity and consequently its business operations so as to earn income or not are the issues which cannot be gone into at this stage and must be made part of the reopened assessment to be judged on the basis of evidence which may be brought on record. It is always open for the assessee company to contend before the assessing authority that there has not been over valuation of the allotted shares or that for any legal reasons, in any case, addition cannot be made in the hands of the assessee, despite such glaring facts. These are the issues in the realm of assessment, once it is allowed to be reopened. We are not inclined to terminate the assessment proceedings at this stage on the grounds pressed in service by the petitioners."
13. In an unreported judgment in case of Sagun Construction Pvt ltd. v. Income Tax Officer (Special Civil Application No.13514/2015 and connected matter, order dated Page 12 of 21 C/SCA/21108/2017 JUDGMENT 14.6.2016), once again this Court considered the case where the assessment was sought to be reopened on the basis of bogus share application money. Counsel for the assessee in the said case also relied on judgment in case of Lovely Exports (P) Ltd. (supra). This Court referred to three decisions of Delhi High Court in cases of Riddhi Promoters P. Ltd. vs. Commissioner of Income Tax reported in 377 ITR 641, Commissioner of Income Tax vs. Youth Construction Pvt. Ltd. reported in 357 ITR 197, Commissioner of Income Tax vs. Navodaya Castles Pvt. Ltd. reported in 367 ITR 306 and that of Calcutta High Court in case of Commissioner of Income Tax, CentralI vs. Maithan International reported in 375 ITR 123 and dismissed the petition rejecting the assessee's contention that reasons lack validity.
14. In case of Commissioner of Income tax v. Divine Leasing and Finance Ltd reported in (2008) 299 ITR 268 (Delhi), Division Bench of Delhi High Court in context of section 68 of the Act and the amounts shown by the company as share capital observed that the assessee must prove the identity of the shareholders, the genuineness of the transaction and creditworthiness of the shareholders. Decision in case of Lovely Exports (P) Ltd. (supra) was noticed and referred. On facts ofcourse, the Tribunal's finding that assessee had discharged basic onus was confirmed.
15. In case of Commissioner of Incometax v. Oasis Hospitalities P. Ltd reported in (2011) 333 ITR 119 (Delhi), High Court again in the context of share Page 13 of 21 C/SCA/21108/2017 JUDGMENT application money and addition under section 68 of the Act observed that primary onus is on the assessee which in the said case was held to have been discharged since the assessee had produced PAN number, bank account statements and copies of incometax returns of the share applicants. The Court was conscious of the judgment of Supreme Court in case of Lovely Exports (P) Ltd. (supra).
16. In case of Commissioner of Incometax v. Nova Promoters and Finlease (P) Ltd reported in (2012) 342 ITR 169 (Delhi), Division Bench of Delhi High Court considered the judgment of the Tribunal by which addition made under section 68 of the Act of Rs. 1.18 crores (rounded off) was deleted in the hands of the company. The Court noticed the judgment of Lovely Exports (P) Ltd. (supra) and reversed the view of the Tribunal making the following observations :
"43. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so called "share subscription monies" to the assessee. There was thus specific involvement of the assesseecompany in the ITA No.3422011 Page 45 of 46 modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (2011) 333 ITR 119 (Delhi).
44. In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs.1,18,50,000 made under section 68 of Page 14 of 21 C/SCA/21108/2017 JUDGMENT the Act as well as the consequential addition of Rs.2,96,250. We accordingly answer the substantial questions of law in the negative and in favour of the department. The assessee shall pay costs which we assess at Rs.30,000/."
17. In case of Commissioner of Incometax v. Youth Construction P. Ltd. reported in (2013) 357 ITR 197 (Delhi), Delhi High Court once again considered the question of addition under section 68 of the Act in the hands of the company concerning the share application money. The Court was conscious of the decision in case of Lovely Exports (P) Ltd. (supra). It was observed that the onus is on assessee to prove the identify of the share applicants, their creditworthiness and genuineness of the transactions. Holding that these requirements were not followed, the matter was remanded for fresh consideration after reversing the decision of the Tribunal.
18. In case of Commissioner of Incometax v. MAF Academy P Ltd reported in (2014) 361 ITR 258 (Delhi), Delhi High Court considered the assessee's challenge to the notice of reopening of an assessment which was framed without scrutiny. The Assessing Officer had recorded detailed reasons indicating that the company had indulged in accommodation entries and there was material suggesting investment of unaccounted income. The assessee's challenge also revolved around the judgment of Supreme Court in case of Lovely Exports (P) Ltd. (supra). Delhi High Court referred to its earlier judgment in case of CIT v. NR Portfolio Pvt. Ltd. (Income Tax Appeal No.1018/2011 and connected matter, judgment dated 22.11.2013), in which after referring to the judgment of Page 15 of 21 C/SCA/21108/2017 JUDGMENT Supreme Court in case of Lovely Exports (P) Ltd. (supra), it was observed that the principle may not apply in a case where there is large scale subscription to the shares of the company and there is no material other than the application forms and bank transaction details to give some identification of the identity of these subscribers. It may not also apply in circumstances where the shares are allotted directly by the company to the creditors. The Court then proceeded to take note of other decisions noted above and observed as under :
"29. We have further held that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transactions. The onus to prove the three factum is on the Assessee as the facts are within the personal knowledge of the Assessee. Mere production of incorporation details, permanent account numbers or income tax returns may not be sufficient when surrounding and attending facts predicate a cover up. The production of incorporation details, PAN numbers or income tax details may indicate towards completion of paper work or documentation but genuineness, creditworthiness and identity of investment and the investors are deeper and obtrusive than mere completion of paper work or documentation."
The Court dismissed the petition with the above observations.
19. In case of Commissioner of Incometax v. Empire Builtech P. Ltd. reported in (2014) 366 ITR 110 (Delhi), Division Bench of Delhi High Court allowed the Revenue's appeal and reversed the judgment of the Tribunal deleting addition under section 68 of the Act in the hands of the company. Relying on the judgment of Lovely Exports (P) Page 16 of 21 C/SCA/21108/2017 JUDGMENT Ltd. (supra), Division Bench made following observations :
"8. Having regard to the circumstances, particularly, the fact that these investors not only did not submit any confirmation and had concededly reported far less income than the amounts invested, this Court is of the opinion that the assessee could not under the circumstances be said to have discharged the burden which was upon it in the first instance in view of the law declared in Lovely Exports (supra) matter. It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the AO to afford any reasonable explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the Revenue having discharged the onus if at all which fell upon it. This Court also notices that the assessee in this case was incorporated barely few months before the commencement of the assessment year, and there is no further information, or anything to indicate why its mark up of the share premium thousand folds in respect of the shares which were of the face value of 10 lakhs was justified."
20. Calcutta High Court in case of Rick Lunsford Trade and Investment Ltd v. Commissioner of Income tax reported in (2016) 385 ITR 399 (Cal) dismissed the appeal of the assessee confirming the addition of share application money in the hands of the assessee company under section 68 of the Act. In this judgment ofcourse, Calcutta High Court had not referred to the judgment in case of Lovely Exports (P) Ltd. (supra).
21. It can thus be seen that neither this Court nor other High Courts whose judgments we have noticed and referred have understood the judgment of the Supreme Court in Page 17 of 21 C/SCA/21108/2017 JUDGMENT case of Lovely Exports (P) Ltd. (supra) as to lay down a blanket proposition that no matter what the nature of transaction of share applications and receipt of the companies in form of share application money, under no circumstances, addition under section 68 of the Act, can be made in the hands of the company. Basic onus on the assessee to establish identity of the investor, genuineness of the transaction and creditworthiness attaches, also attaches on a company. There is a clear distinction between a situation where the company discharges its basic onus of providing details of the share applicants, genuineness of the transactions and their creditworthiness, but the Revenue still chases the company instead of inquiring with the investors if any mismatch or unexplained investments are found as compared to a situation where large scale share applications are found to be totally bogus transactions, are completely fictitious or stated to have been entered into by non existent persons or entities. The former is seen as a case where the company has discharged its own whereas the later would be a situation where the very genuineness of the transaction is in doubt. We therefore, do not accept the legal contention in this respect canvased by the counsel for the petitioner.
22. The contention that such an interpretation would defeat the very purpose of amendment in section 68 of the Act with effect from 1.4.2013 cannot be accepted. By such amendment, proviso was added, which reads as under :
"68....
Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application Page 18 of 21 C/SCA/21108/2017 JUDGMENT money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assesseecompany shall be deemed to be not satisfactory, unless
(a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory;.....
23. This proviso basically aims to ease the burden of proof on the Revenue while making addition in the hands of the company of share capital with the aid of section 68 of the Act by creating additional requirement in cases of companies of specified category. This proviso nowhere makes a substantive provision enabling the Revenue to make such addition under section 68, something which hitherto was not permissible. The deeming fiction is not in relation to the substantive addition of the cash credit in the accounts of the assessee but is with respect to the requirement of satisfactory explanation offered by the assessee being a company.
24. Division Bench of this Court recently in case of Aradhna Estate Pvt. Ltd v. Deputy Commissioner of Income tax Circle1 (1) (Special Civil Application No.21999/2017, judgment dated 20.2.2018) had an occasion to deal with the assessee's challenge to the notice of reopening. One of the grounds raised was that under section 68 of the Act, no additions can be made in the hands of the company concerning the share application. The Court rejected the contention making the following observations :
Page 19 of 21C/SCA/21108/2017 JUDGMENT "14. Section 68 of the Act, as is well known, provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited maybe charged to incometax as the income of the assessee of that previous year. That the share application money received by the assessee from abovenoted companies was only by nature of accommodation entries and in reality, it was the funds of the assessee which was being rerouted. Undoubtedly. Section 68 of the Act would have applicability. Proviso added by the Finance Act 2012 with effect from 1.4.2013, does not change this position...."
25. This brings us to the sufficiency of the reasons recorded by the Assessing Officer. As held by the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra), the sufficiency of reasons cannot be gone into at this stage. Nevertheless, the Assessing Officer must have tangible materials at his command to form a belief that the income chargeable to tax had escaped assessment. In this context, we may recall the Assessing Officer referred to the materials available with him which prima facie suggested that the assessee company had received share capital and share premium from various companies which were proved to be bogus companies engaged in providing mere accommodation entries. After analysing such materials, he came to the conclusion that share capital/share premium amounting to Rs. 1.55 crores received by the assessee during the financial year 20092010 relevant to the present assessment year was bogus. It cannot be stated that the Assessing Officer did not have tangible materials at his command to form such a belief.
Page 20 of 21C/SCA/21108/2017 JUDGMENT
26. His reference to "materials on record" must be understood in the context of facts on record. The Assessing Officer was not writing a statute. His expression therefore, cannot be seen with such rigidity. If therefore, he referred to the returns filed by the assessee and the accompanying documents as also materials received by him post acceptance of return, ofcourse without scrutiny as "materials on record", he did not commit any legal error. He was ofcourse, referring to the materials placed for his consideration which enabled him to form such a belief.
27. The contention that this is a case of borrowed satisfaction also cannot be accepted. The Assessing Officer had perused the materials and analysed the same so as to come to the conclusion that prima facie it suggested that the assessee had received large number of share applications/share premiums from the companies which were bogus companies and which engaged in providing accommodation entries.
28. The respondent has filed affidavit stating that before issuing notice, sanction was granted by the competent authority. A statement on oath, in absence of any contrary material on record need not be disbelieved.
29. In the result, petition is dismissed. Interim relief stands vacated.
(AKIL KURESHI, J.) (B.N. KARIA, J.) raghu Page 21 of 21