Income Tax Appellate Tribunal - Mumbai
Income Tax Officer, Ward-13(1)(4), ... vs Prahit Trading Private Limited, Mumbai on 30 November, 2018
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ITA No.4391/Mum/2017
CO No.296/Mum/2018
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "C", MUMBAI
Before Shri Sandeep Gosain(JUDICIAL MEMBER)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
ITA 4391/Mum/2017
(Assessment year : 2009-10)
ITO, Wd.13(1)(4), Mumbai vs M/s Prahit Trading Pvt Ltd, 1023,
Corporate Avenue, Sonawala Lane
Near Udyog Bhawan, Goregaon (E)
Mumbai 400 063
PAN : AAECP2097B
APPELLANT RESPONDEDNT
C.O. 296/Mum/2018
(Arising out of ITA 4391/Mum/2017)
(Assessment year : 2009-10)
M/s Prahit Trading Pvt Ltd, vs ITO, Wd.13(1)(4), Mumbai
1023, Corporate Avenue,
Sonawala Lane
Near Udyog Bhawan,
Goregaon (E)
Mumbai 400 063
PAN : AAECP2097B
CROSS OBJECTION RESPONDEDNT
Assessee by Shri Rakesh Joshi
Respondent by Shri Abi Rama Kartikeyan
Date of hearing 15-10-2018
Date of pronouncement 30-11-2018
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ITA No.4391/Mum/2017
CO No.296/Mum/2018
ORDER
Per G Manjunatha, AM :
This appeal filed by the revenue and cross objection filed by the assessee are directed against the order of CIT(A)-9, Mumbai dated 29-03-2017 and they pertain to AY 2009-10. Since, the appeal as well as the cross objection pertain to same assessee and contain common issue, for the sake of convenience, they were heard together and are disposed of, by this common order. CO 296/Mum/2018
2. The assessee has taken a legal ground in its cross objection challenging validity of reopening of assessment on two grounds. Since the cross objection filed by the assessee goes to challenge the jurisdictional issue, we shall, first take up the cross objection filed by the assessee.
3. The assessee has taken the following grounds in the cross objection:-
"1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing in reopening the assessment u/s.147 of the Income Tax Act, 1961, without considering the facts and circumstances of the case,
2. On the facts and circumstances of the case as well as in law, the Learned Assessing Officer has erred in issuing notice u/s.148 of the Income Tax Act, 1961, without obtaining prior approval from proper authority."
4. The brief facts of the case are that the assessee is engaged in the business of trading in textiles, filed its return of income for AY 2009-10 on 27-09-2009 declaring total income at Rs.7,49,647. The return of income was processed u/s 143(1) of the I.T. Act, 1961. Subsequently, the case was reopened u/s 147 of 3 ITA No.4391/Mum/2017 CO No.296/Mum/2018 the I.T. Act, 1961 for the reasons recorded, as per which, income chargeable to tax had been escaped assessment within the meaning of section 147 of the I.T. Act, 1961. Accordingly, a notice u/s 148 of the I.T. Act, 1961 dated 21-03-2014 was issued. Thereafter, the case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to the notices, the authorized representative of the assessee appeared from time to time and furnished the details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has issued shares at a huge premium which is more than the intrinsic value of its shares. Therefore, called upon the assessee to file necessary evidences to justify share premium. In response to notice, the assessee has filed complete details, including names and addresses of persons, who subscribed to the share capital of the assessee. In order to verify genuineness of share premium received from certain companies, the AO issued notices u/s 133(6) of the Act, however, such notices were returned with the remark 'unknown'. Further, out of six parties, five parties filed replies alongwith complete details of amount subscribed to the share capital of the assessee.
5. The AO, after considering relevant submissions of the assessee and also on the basis of information received from the Director of Income-tax (Intelligence & CR Investigation), Mumbai observed that the assessee failed to 4 ITA No.4391/Mum/2017 CO No.296/Mum/2018 prove the genuineness of transactions by filing necessary details including identity, creditworthiness of the parties. The AO further observed that the identification of the person would include the place of work, staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN or assessment particulars did not establish the identity of the person. Similarly, insofar as creditworthiness and genuineness of the transactions, the AO observed that the surrounding and corroborate details clearly establish the fact that the assessee has received share capital from P.K. Jain, group of companies, which are involved in providing accommodation entries in the form of share capital and loans and advances without there being any genuine business activity. It would be incorrect to state that the onus to prove genuineness of the transaction and creditworthiness of the investors discharged in all cases, if payment is made through banking channel. Thus, mere reliance on neutral documentary evidence cannot always be regarded as satisfactory discharge of onus. In this case, on perusal of details, it is abundantly clear that the assessee is beneficiary of bogus entry providers which is clear from the report of the investigation, as per which, the assessee is one of the beneficiaries of accommodation entries provided by Shri PK Jain group of companies. Accordingly, he opined that the assessee failed to prove the identity, 5 ITA No.4391/Mum/2017 CO No.296/Mum/2018 genuineness of transactions and creditworthiness of the parties and accordingly made addition towards share application money of Rs.1.81 crores u/s 68 of the I.T. Act, 1961.
6. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its submissions made before the AO to argue that the AO has made addition merely on the basis information received from Director of Income-tax (Intelligence & CR Investigation), Mumbai without carrying out independent enquiries to ascertain the nature and source of share application money received from certain companies despite assessee furnished complete details of identity, genuineness of transactions and creditworthiness of the parties. The assessee also filed a petition for admission of additional ground challenging the reopening of assessment in question u/s 147 of the Act. The assessee has filed complete detailed written submissions on the issue of legality of reopening of assessment as well as on the issue of addition made by the AO u/s 68 of the IT Act, 1961 which has been reproduced at para 5.2 on pages 4 to 10 & pages 11 to 27 of the order of Ld.CIT(A). The sum and substance of arguments of the assessee, insofar as the issue of reopening of assessment is that there is a complete absence of reasons and escapement of income which is evident from the reasons recorded by the AO, as per which, the assessment has been 6 ITA No.4391/Mum/2017 CO No.296/Mum/2018 reopened on the basis of charging higher premium for issue of shares over and above intrinsic value of the shares as on the date of such issue which resulted in escapement of income. The AO has recorded reasons, as per which, there is no justification for charging huge premium of Rs.400 per share when there is no substantial increase in the net worth of the company. But, fact remains that as on the date of reopening of assessment, the book value of shares is more than or equivalent to the value of shares issued by the assessee. Therefore, the reason to believe arrived at by the AO is on the basis of vague or non existent reasons, as such, consequent reopening of assessment is bad in law. Insofar as addition made by the AO towards share application money, the assessee submitted that it has filed complete details of names and addresses alongwith PAN of the subscribers to prove the identity. The assessee also filed complete details of bank statements and financial statements to prove the genuineness of transactions and creditworthiness of the parties. The AO, ignoring all these facts, made addition only on the basis of non service of notices issued u/s 133(6). The fact that the said parties have subsequently replied by filing complete details. The assessee also relied upon plethora of judicial precedents including the decision of Hon'ble Bombay High Court in the case of CIT vs Vodafone India Services Ltd 368 ITR 001 (Bom).
7. The Ld.CIT(A), after considering relevant submissions of the assessee and 7 ITA No.4391/Mum/2017 CO No.296/Mum/2018 also by relying upon certain judicial precedents, rejected legal ground taken by the assessee challenging reopening of assessment on the ground that the AO has validly reopened the assessment on the basis of information received from Director of Income-tax (Intelligence & CR Investigation), Mumbai, as per which, the assessee is one of the beneficiaries of accommodation entries provided by Shri Pravin Jain through a web of companies run and operated by him. The information received from the Director of Income-tax (Intelligence & CR Investigation), Mumbai constitute a fresh material which is sufficient to form a reasonable belief of escapement of income, therefore, there is no merit in the argument of the assessee that there is a complete absence of reason to believe of escapement of income and accordingly rejected ground taken by the assessee. As regards addition towards share application money, the Ld.CIT(A) observed that the AO in this case has primarily placed reliance on the fact of issue of shares at a premium to come to the conclusion that share application money received from six companies is a non genuine transaction ignoring the fact that the assessee has filed complete details alongwith names and addresses and also PAN to prove identity. The assessee has filed bank statements and financial statements of investors to prove genuineness of transactions and creditworthiness of the parties. The Ld.CIT(A) further observed that the assessee has done everything in its power to prove the three 8 ITA No.4391/Mum/2017 CO No.296/Mum/2018 ingredients required to prove satisfactory nature of share application transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making enquiries from the alleged subscribers by summoning them. The AO, without exercising his powers, simply made addition only on the basis of information received from Director of Income-tax (Intelligence & CR Investigation), Mumbai. With these observation and by following certain judicial precedents, including the decision of Hon'ble Supreme Court in the case of CIT vs Orissa Corporation Pvt Ltd 159 ITR 78 (SC), deleted addition made by the AO towards share application money. The relevant observations of the Ld. CIT(A) are extracted below:-
"6.3.4. Thus, it has to be said that the appellant had done everything in its power to prove the 3 ingredients required to prove the satisfactory nature of the said share application transactions. In these circumstances, the onus had shifted to the AO. If the AO was still not satisfied, he had the option of making inquiries from the alleged lenders by summoning them. He has opted not to comment on the replies furnished by the parties who were summoned nor has he relied on the same. However, in my opinion this is not right since such credible material was available with him and which was in fact filed at his insistence since he issued the notices seeking relevant information. Further, if the AO was not satisfied with what had been given to him by the appellant, he was duty bound to specify what more material he wanted the ' appellant to furnish. The AO never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the AO could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information /material, which he never even . brought to the notice of the appellant for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned loans have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore/ the impugned additions/ made in the assessment order/ has to fail on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available any incriminating material 9 ITA No.4391/Mum/2017 CO No.296/Mum/2018 (reports/ statements etc.) forming basis for action by the AO; (3) failure to give due opportunity to the appellant to cross examine witnesses/ whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of the explanation /evidence tendered by the appellant to explain identity of said parties, creditworthiness and the genuineness of the share application transactions.
6.3.5 In view of the facts narrated above as well as judicial pronouncements referred by me and the case laws relied upon by the appellant which has been reproduced above addition of Rs.1/81,00,000/- as unexplained share application money cannot be upheld. Accordingly, AO is directed to delete the addition of Rs.1/81,00,000/-."
8. Aggrieved by the order of Ld.CIT(A), the revenue filed appeal and the assessee filed cross objection before us.
9. The Ld.AR for the assessee submitted that the Ld.CIT(A) was erred in holding that reopening of assessment is valid in law without appreciating the fact that the AO has formed reasonable belief of escapement of income on the basis of irrelevant or non existing reasons which is evident from the fact that the assessment has been reopened solely on the ground that the assessee has charged share premium for issue of shares over and above the intrinsic value of shares without any justification for issue of shares at a huge premium of Rs.400 when there is no substantial increase in the net worth of the company. The Ld.AR further submitted that if one go through the reasons recorded by the AO for reopening of the assessment, it would be seen that it is solely based on the information received from the Director of Income-tax (Intelligence & CR Investigation), Mumbai, as per which, the assessee has issued shares at a price which is over and above the nominal value of the shares. The AO, without 10 ITA No.4391/Mum/2017 CO No.296/Mum/2018 application of mind independently to ascertain whether the information received from the Director of Income-tax (Intelligence & CR Investigation), Mumbai suggests escapement of income, has reopened the assessment on the basis of irrelevant and non existent reasons. Therefore, the reopening is bad in law and consequent re-assessment proceedings are liable to be quashed. The Ld.AR further submitted that the AO has reopened assessment to tax share premium received by the assessee for issue of shares on the ground that the assessee has issued shares at a premium which is over and above the intrinsic value of shares, but fact remains that there was absolutely no basis for the AO to form a belief that any income chargeable to tax has escaped assessment within the meaning of provisions of section 147, as value of the shares as on date of balance-sheet is equivalent or more than value of shares issued at a premium. The Ld.AR taken an alternative argument to challenge the validity of reopening of the assessment on the ground that before issue of notice u/s 148, the mandatory requirement of section 151(2) has not been fulfilled. The AO has issued 148 notice by taking approval from the CIT-4, Mumbai. As per the provisions of section 151(2), the AO ought to have taken approval from the Joint Commissioner before issuer of notice. Therefore, the requirement of section 151(2) was not satisfied with and accordingly, the notice issued u/s 148 is invalid and consequent assessment proceedings are bad in law. In this 11 ITA No.4391/Mum/2017 CO No.296/Mum/2018 regard, the Ld.AR has relied upon the following decisions:-
1. Prasant S Joshi vs ITO (2010) 324 ITR 154 (Bom)
2. Bakulbhai Ramanlal Patel vs ITO (2011) 56 DTR 212 (Guj)
3. Ghanshyam K Khabrani vs ACIT 346 ITR 443 (Bom)
10. On the other hand, the Ld.DR strongly supporting the reopening of assessment submitted that where the assessment has been reopened on the basis of information received from Investigation Wing which suggests the assessee is a beneficiary of accommodation entries provided by bogus entry providers, the information received constitute a fresh tangible material which is sufficient to form a reasonable belief of escapement, therefore, there is no merit in the argument of the assessee that the reopening of assessment has been done on irrelevant or non existent reasons. The Ld.DR submitted that at the time of initiation of proceedings u/s 148 what is required is a tangible material which suggests escapement of income. The AO need not prove escapement of income at the time of initiation of 148 proceedings. In this case, the assessment has been reopened on the basis of information received from Director of Income-tax (Intelligence & CR Investigation), Mumbai. Therefore, the AO was right in reopening the assessment u/s 147 of the I.T. Act, 1961.
11. We have heard both the parties, perused the material available on record 12 ITA No.4391/Mum/2017 CO No.296/Mum/2018 and gone through the orders of authorities below. The reopening of assessment has been done on the basis of information received from Director of Income-tax (Intelligence & CR Investigation), Mumbai which states that the assessee is a beneficiary of accommodation entries provided by Shri PK Jain group of companies, through a web of companies. The AO has formed reasonable belief of escapement of income on the basis of information, as per which, the assessment has been reopened to tax excess share application money received from six subscribers. As per the reasons recorded for reopening of the assessment, the assessee has issued shares at a premium over and above the intrinsic value of shares without any justification for issue of shares at a huge premium and also without any substantial increase in the net worth of the company. According to the AO, share premium depends upon profitability, goodwill and the nature of the business of the company. In this case, on perusal of the balance-sheet, which has been e-filed, there appears to be no corresponding accretion to the assets of the company, which could justify the unreasonably high premium received from the issue of preference shares. The intrinsic value of the shares in comparison to the premium received on the shares is not substantiated. Therefore, he opined that the large premium received by the assessee company is unconvincing and unjustified.
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12. For the purpose of invoking the provisions of section 147, formation of requisite belief precedes the initiation of the proceedings. As per the provisions of section 148(2), before issuing notice u/s 148, the AO is required to record reasons in the form of belief that income chargeable to tax has escaped assessment. In the present case, on a plain reading of the reasons recorded, we find that no such belief appears to have been recorded by the AO which suggests escapement of income. The AO has formed reasonable belief of escapement of income solely on the basis of information received from Director of Income-tax (Intelligence & CR Investigation), Mumbai without independent application of mind before issue of notice to ascertain is there any escapement of income on account of charging of share premium. The AO went only on the premises of charging premium over and above the intrinsic value of the shares as on the date of issue of shares without proper application of mind to the material available with him. The case of the AO is that share premium is over and above the intrinsic value of shares, but fact remains that as on the date of issue of shares, the book value of shares is equivalent or more than the amount charged to the subscribers which is evident from the fact that the assessee has filed a valuation certificate from an independent Chartered Accountant, as pert which, the book value of share is Rs.501 per share as on 31-03-2008.
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13. From the above, it is clear that reason of belief of escapement has been arrived at on the basis of vague and non existent reasons, vice versa for fishing enquiry. The entire tenor of the reasons recorded indicates that on the basis of some unsubstantiated and vague information, the AO has reopened the assessment for the purpose of making a revolving and fishing enquity to verify as to whether any income, in fact, has escaped assessment, which fact is borne out from the reasons recorded. For all these reasons, it is evident that there was absolutely no basis for the AO to form a reasonable belief that any income chargeable to tax has escaped assessment within the meaning of the substantive provision of section 147. Therefore, we are of the considered opinion that there was absolutely, no basis for the AO to form a belief that income chargeable to tax had escaped assessment and which is based on certain material, which suggests escapement of income. When assessment has been reopened on irrelevant or non existing reasons, the only inference that could be drawn is that the basis for reopening of assessment is not based on any material which suggests escapement of income and accordingly, we are of the considered view that the AO was erred in reopening of the assessment within the meaning of section 147 of the Income-tax Act, 1961. We further notice that where the reasons recorded reflect that the matter requires detailed investigation and further verification, the AO has reason to suspect 15 ITA No.4391/Mum/2017 CO No.296/Mum/2018 and no reason to believe that income chargeable to tax has escaped assessment, and therefore, the assumption of jurisdiction by the AO is invalid and as such, the impugned notice u/s 148 is not sustainable.
14. Coming to the second ground of cross objection taken by the assessee. The assessee has taken second ground upon which, the reopening is sought to be challenged, is that the mandatory requirement of section 151(2) requires a sanction to be taken for the issuance of notice u/s 148 in certain cases. In this case, the assessment has been reopened within 4 years from the end of relevant assessment year. As per the provisions of section 151(2), no notice shall be issued u/s 148 by an assessing officer, who is below the rank of Joint Commissioner of Income-tax, unless the Joint Commissioner is satisfied on the reasons recorded by such AO that it is a fit case for issue of such notice. In this case, on perusal of notice u/s 148 issued by the AO dated 21-03-2014, it is very clear that the notice has been issued after obtaining necessary satisfaction of the CIT-4, Mumbai. Section 151(2) mandates that the satisfaction has to be of the Joint Commissioner. The expression, "Joint Commissioner" has been defined in section 2(28C) of the Act to mean a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax u/s 117(1). The Commissioner is not a Joint Commissioner within the meaning of section 2(28C) of the Act. Therefore, the approval given by the Commissioner 16 ITA No.4391/Mum/2017 CO No.296/Mum/2018 cannot be considered as approval given by the Joint Commissioner. In the instant case, there is no doubt of whatsoever, with regard to the approval for issue of notice, as said approval has been taken from the Commissioner instead of the Joint Commissioner. There is no statutory provision under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates a satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. In this case, since the approval has been taken from an authority different from the authority which requires to be granted his approval for issue of notice, we are of the considered view that there was no compliance of the mandatory requirement of sections 147 and 151(2) and accordingly, the notice issued by the AO u/s 148 cannot be sustained in law.
15. Coming back to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Bombay High Court in the case of Prashant S Joshi vs ITO (2010) 324 ITR 154 in support of its first proposition of irrelevant or non existing reasons for formation of reasonable belief of escapement of income. We find that the Hon'ble Court, in the said case has observed that if the reasons to believe has been arrived at on irrelevant or non existing reasons, then there was absolutely no basis for the AO to form a 17 ITA No.4391/Mum/2017 CO No.296/Mum/2018 reasonable belief that any income chargeable to tax has escaped assessment within the meaning of provisions of section 147 of the Income-tax Act, 1961. The relevant observations of the Court are as under:-
"The first proviso to s. 147 has no application in the facts of this case. The basic postulate which underlines s. 147 is the formation of the belief by the AO that any income chargeable to tax has escaped assessment for any assessment year. The AO must have reason to believe that such is the case before he proceeds to issue a notice under s. 147. The reasons which are recorded by the AO for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed grow with age and ingenuity by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, well-settled that the question as to whether there was reason to believe, within the meaning of s. 147 that income has escaped assessment, must be dertermined with reference to the reasons record by the AO. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under s.148."
16. The assessee also relied upon the decision of Hon'ble Gujarat High Court in the case of Bakulbhai Ramanlal Patel vs ITO (supra). We find that the Hon'ble Gujarat High Court has considered similar issue and on identical set of facts held that where the reasons recorded reflect that the matter requires detailed investigation and further verification, the AO has reason to suspect and not reason to believe that income chargeable to tax has escaped 18 ITA No.4391/Mum/2017 CO No.296/Mum/2018 assessment and, therefore, the assumption of jurisdiction by the AO is invalid and the impugned notice u/s 148 is not sustainable. The relevant observations of the Court are extracted below:-
"For the purpose of invoking the provisions of s. 147, formation of requisite belief precedes the initiation of the proceedings. In the circumstances, in the light of the provisions of sub-s. (2) of s. 148, before issuing notice under s. 148, the AO is required to record reasons for the formation of belief that income chargeable to tax has escaped assessment. In the present case, on a plain reading of the reasons recorded, no such belief appears to have been recorded by the AO. A bare reading of Expln. 2 to s. 147 of the Act shows that the same merely lays down the categories of cases which shall be deemed to be cases where income chargeable to tax has escaped assessment. The said Explanation nowhere speaks of verification of transactions or of deemed income. Reading the reasons recorded in their entirety, there is nothing whatsoever to indicate as to which is the income that has not been disclosed by the petitioner or that any income chargeable to tax has in fact escaped assessment The entire tenor of the reasons recorded indicates that on the basis of some unsubstantiated and vague information, the AO has reopened the assessment for the purpose of making a roving and fishing inquiry to verify as to whether any income has in fact escaped assessment which fact is borne out from the reasons recorded, wherein the AO has categorically recorded thus : "In view of the above facts and circumstances of the case, detailed investigation/verification is required and it is also required to bring the assessee in tax net." Insofar as bringing the assessee in the tax net is concerned, the petitioner admittedly has filed return of income and has been assessed in respect thereof, the petitioner is, therefore, already within the tax net. Since the reasons recorded do not reflect the requisite belief that income chargeable to tax has escaped assessment, the basic requirements of s. 147 have not been satisfied. It is not the case of the AO that any income chargeable to tax has escaped assessment. The case of the AO is that in case the petitioner is a defaulter, under the provisions of the Act, in relation to ground No. 2 either under s. 269SS or s. 271B and in relation to ground No. 3 either under s. 269T or s. 40A(3). In case of default under the provisions of s. 269SS, s. 269T and s. 271B, penalty is leviable under the ss. 271D, 271E and 271B respectively. The aforesaid provisions are penalty provisions and even if the petitioner were liable to pay penalty under the said provisions, the same would not give rise to a conclusion that income has escaped assessment. From the reasons recorded, it is apparent that the AO did not have any material before him so as to satisfy the requirements of s. 147 in as much as, there is no material whatsoever before the AO on the basis of which a reasonable man would come to the conclusion that any income chargeable to tax has escaped assessment. The reasons recorded reflect that the AO feels that the matter requires detailed investigation and further verification. Thus, it appears that the AO has reason to suspect and not reason to believe that income chargeable to tax has escaped assessment. This, however, is not a valid ground for invoking the provisions of s. 147. The reason to believe that 19 ITA No.4391/Mum/2017 CO No.296/Mum/2018 income chargeable to tax has escaped assessment must be based upon material on record. In the facts of the present case, there is no such material. In the circumstances, in the absence of basic requirements of s. 147 being satisfied, the assumption of jurisdiction by the AO is invalid and as such, the impugned notice under s. 148 cannot be sustained. --Shankarlal Nagji & Co. & Ors. vs. ITO (2009) 20 DTR (Guj) 116 : (2010) 322 ITR 90 (Guj), P.S. Subramanyan, ITO & Anr. vs. Simplex Mills Ltd. (1963) 48 ITR 182 (SC) and Chhugamal Rajpal vs. S.P. Chaliha & Ors. (1971) 79 ITR 603 (SC) relied on."
17. The assessee has also relied upon the decision of Hon'ble Bombay High Court in the case of Ghanshyam K Khabrani vs ACIT (supra) in support of its second proposition of sanction of issue of notice u/s 151(2) of the Income-tax Act, 1961. We find that the Hon'ble High Court in the light of section 151(2) of the Act, held that there is no statutory provision, under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of the power, the satisfaction must be of that authority. The relevant observations of the Court are as under:-
"On admitted facts no reasonable person duly informed in law could have formed a reason to believe that there was an escapement of income in assessment year 2004-05. The case of the revenue is that an amount o/Rs. 10 crores was received by the assesses during the financial year corresponding to assessment year 2003- 04 but has not been brought to tax. That being the position, it is impossible to comprehend as to how the assessment for assessment year 2004-05 can be reopened. The proceedings for assessment year 2003-04 are pending in appeal. The revenue is at liberty to seek recourse to its legitimate powers available in law in relation to assessment year 2003-04 where the appeal is pending. The mandatory requirement of section 147 is that there must be a reason to believe that income has escaped assessment. Ex-facie the reasons which were disclosed to the assessee cannot form the basis of a reason to believe that income has escaped assessment for assessment year 2004-05. Moreover, it is evident that even the letter dated 11-3-2010 of the Additional DIT (Investigation) was much prior to the finalization of the assessment for assessment year 2003-04 on 27-12-2010. Therefore, this is not a case where there is any tangible material on the basis of which the assessment for assessment year 2004-05 can legitimately be opened. [Para 5] 20 ITA No.4391/Mum/2017 CO No.296/Mum/2018 The second ground upon which the reopening is sought to be challenged is that the mandatory requirement of section 151(2) has not been fulfilled. Section 151 requires a sanction to be taken for the issuance of a notice under section 148 in certain cases. In the instant case, an assessment had not been made under section 143(3) or section 147 for assessment year 2004-05. Hence, under sub-section (2) of section 151, no no!ice can be issued under section 148 by an Assessing Officer who is below the rank 'of Joint Commissioner after the expiry of 4 years from the end of the relevant assessment year unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. The expression 'Joint Commissioner' is defined in section 2(28C) to mean a person appointed to be a Joint Commissioner oj Income-lax or an Additional Commissioner of Income-tax under section 117(1). In the instant case, the record before the Court indicates that the Assessing Officer submitted a proposal on 28-3-2011 to the Commissioner (Appeals) through the Additional Commissioner. On 28-3-2011. the Additional Commissioner forwarded the proposal to the Commissioner.
On this, a communication was issued on 29-3-2011 from the office of the Commissioner (I) conveying approval to the proposal submitted by the Assessing Officer. There is merit in the contention raised on behalf of the assessee that the requirement of section 151(2) could have only been fulfilled by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice under section 148. Section 151(2) mandates that the satisfaction has to be of the Joint Commissioner. That expression has a distinct meaning, by virtue of the definition in section 2(28C). The Commissioner is not a Joint Commissioner within the meaning of section 2(28C). In the instant case, the Additional Commissioner forwarded the proposal submitted by the Assessing Officer to the Commissioner. The approval which has been granted is not by the Additional Commissioner but by (he Commissioner. There is no statutory provision under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. [Para 6] Once the Court has come to the conclusion that there was no compliance of the mandatory requirements of sections 147 and 151(2), the notice reopening the assessment cannot be sustained in law."
18. In this view of the matter and respectfully following the case laws discussed above, we are of the considered view that the reopening of assessment u/s 147 is done on the basis of irrelevant or non existing reasons without having the mandate of section 151(2) of the Income-tax Act, 1961. Therefore, we are of the considered view that notice issued by the AO u/s 148 21 ITA No.4391/Mum/2017 CO No.296/Mum/2018 without a valid reason reopening of assessment and also without taking a mandatory approval requires to be taken from a particular functionary cannot be sustained. Accordingly, we quash the re-assessment notice issued u/s 148 of the Income-tax Act, 1961 and consequent re-assessment proceedings.
19. In the result, the cross objection filed by the assessee is allowed. ITA No.4391/Mum/2017
20. The revenue has filed appeal against the order of the Ld.CIT(A) allowing relief towards addition made by the AO u/s 68 of the Income-tax Act, 1961 in respect of share application money. The Ld.CIT(A) has deleted addition made by the AO on the ground that the assessee has proved the three ingredients, i.e. identity, genuineness of transactions and creditworthiness of the parties with necessary details. Since, we have quashed the re-assessment order passed by the AO, the addition made by the AO u/s 68 of the Act is merely academic in nature, which does not require any specific adjudication. Therefore, we dismiss the appeal filed by the revenue.
21. In the result, the appeal filed by the revenue is dismissed.
22. As a result, the appeal filed by the revenue is dismissed and the cross objection filed by the assessee is allowed.
22ITA No.4391/Mum/2017 CO No.296/Mum/2018 Order pronounced in the open court on 30th November, 2018.
Sd/- sd/-
(Sandeep Gosain) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 30th November, 2018
Pk/-
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Asstt. Registrar, ITAT, Mumbai