Income Tax Appellate Tribunal - Mumbai
Idhasoft Ltd., Mumbai vs Dcit - 15(2)(1), Mumbai on 13 July, 2018
आयकर अपील य अ धकरण, मुंबई यायपीठ, जे, मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "J", MUMBAI ी जो ग दर संह, या यक सद य एवं ी एन. के. धान, लेखा सद य, के सम Before Shri Joginder Singh, Judicial Member, and Shri N.K. Pradhan, Accountant Member ITA NO.5139/Mum/2016 Assessment Year: 2007-08 M/s Idhasoft Ltd. DCIT-15(2)(1), 3, Narayan Building, बनाम/ Room No.357, 3rd Floor 23 L. N. Road, Dadar East, Aayakar Bhavan, Vs. Mumbai-400014 M. K. Road, Mumbai-400020 ( नधा!"रती /Assessee) (राज व /Revenue) P.A. No. AABCI6090G ITA NO.5338/Mum/2016 Assessment Year: 2007-08 DCIT-15(2)(1), M/s Idhasoft Ltd.
Room No.357, 3rd Floor बनाम/ 3, Narayan Building,
Aayakar Bhavan, 23 L. N. Road, Dadar East,
Vs.
M. K. Road, Mumbai-400014
Mumbai-400020
(राज व /Revenue) ( नधा!"रती /Assessee)
P.A. No. AABCI6090G
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5139 & 5338/Mum/2016
Idhasoft Ltd.
नधा!"रती क ओर से / Assessee by Shri Vijay Mehta
राज व क ओर से / Revenue by Shri B.Srinivas CIT-DR
ु वाई क' तार(ख / Date of Hearing :
सन 06/06/2018
आदे श क' तार(ख /Date of Order: 13/07/2018
आदे श / O R D E R
Per Joginder Singh (Judicial Member)
The assessee as well as the Revenue is in cross appeal against the impugned order dated 06/06/2016 of the First Appellate Authority, Mumbai. In the appeal of the assessee, confirmation of reopening of assessment under section 147 of the Income Tax Act, 1961 (hereinafter the Act) has been challenged, whereas, in the appeal of the Revenue, the addition made under section 68 of the Act, deleted by the Ld. First Appellate Authority has been challenged.
2. First, we shall take up the appeal of the assessee (ITA No.5139/Mum/2016), wherein, the ground raised is as under:-
On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeal) erred in holding that the reopening of assessment under section 147 is valid and the Ld. Assessing Officer had valid reasons to initiate the reassessment proceedings. The reopening of assessment is bad in law and needs to be quashed.3
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2.1. During hearing, Shri Vijay Mehta, Ld. counsel for the assessee, challenged the reopening of assessment, beyond four years, by contending that the assessee filed the return on 28/10/2007 and thereafter notice under section 142(1) of the Act was issued on 29/09/2009 and assessment order was passed under section 143(3) of the Act on 15/12/2009. It was explained that notice under section 148 of the Act was issued on 31/03/2014 after four years from end of the Financial Year. Our attention was also invited to the reasons recorded, which has been reproduced at page-4 (para 2.05 of the impugned order). The ld. counsel empathetically explained that M/s Prisum Informatics Ltd. may not be in a position to explain the source of the funds and the assessee is not a party before FIBP and thus there is no failure on the part of the assessee to disclose the material facts, consequently, how assessment can be reopened in the case of the present assessee that too after a period of four years. It was pleaded that even otherwise, the assessee is not expected to prove the source of source and thus there is no failure on the part of the assessee. It was contended that merely stating the word 4 5139 & 5338/Mum/2016 Idhasoft Ltd.
failure in the reasons is not sufficient rather it has to be established by the Ld. Assessing Officer because the reasons cannot be enlarged or curtailed by subsequent happenings. 2.2. On the other hand, the Ld. CIT-DR, Shri B. Srinivas, also invited our attention to para 2.05 (page-4 of the impugned order) and read over the reasons recorded by the Ld. Assessing Officer and reproduced in the aforesaid para. The ld. CIT-DR contended that the reopening was validly done as new material came to the knowledge of the Ld. Assessing Officer, subsequently and it was the duty of the assessee to disclose the material facts, while filing the return. The Ld. CIT- DR relied upon the decision in Aradhana Estate P. Ltd. vs DCIT (2018) 91 taxmann.com 119(Gujarat), Bright Stat Sytex (P.) Ltd. vs Income Tax Officer (2016) 71 taxmann.com 64 (Bom.), Jayant Security & Finance Ltd. vs ACIT (2018) 91 taxmann.com 181 (Gujarat), Paramount Intercontinental Pvt. Ltd. vs Income Tax Officer (2017) 88 taxmann.com 595 (Del.) and Subhlakshmi Vanijya Pvt. Ltd. vs ACIT (2015) 60 taxmann.com 60 (Kolkata) (Trib.).
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2.3. We have considered the rival submissions and perused the material available on record. Before adverting further, it is our bounded duty to analyze the reasons recorded by the Ld. Assessing Officer, which are reproduced hereunder:-
"An information was received from FT & TR-V vide letter no. F.N.159/FC/2013(FIPB) dated 12.03.2014 wherein the FIPB proposal filed by M/s Prism Informatics Limited has been examined. On perusal of the same it is noticed that proposal was rejected since the source of initial investment of USD 7.5 million made by M/s Antleg Cyprus in Idhasoft Limited (assessed to tax in this charge) could not be proved.
Further on perusal of contents of the above referred letter "according to DOR, it is further noticed that the 4 crores shares of Idhasoft was transferred by M/s Antleg Cyprus Limited to M/s Isotechnology Ventrures Limited, Mauritius on 24.05.2010 for an amount of USD 1 whereas about 18 crores shares of Idhasoft are proposed to be transferred for a value of USD 2 Million as per the proposal and M/s Antleg Cyprus Limited could not give satisfactory explanation to substantiate this huge difference in the pricing of shares of Idhasoft."
Since M/s Antleg Cypurs Limited could not file details about actual sources of funds invested by the foreign investors at the time of original investment in M/s Idhasoft Limited and there is lack of clarity regarding the ultimate beneficiaries of M/s. Antleg Cypurs Limited, the board rejected the proposal or FIPB.
In view of the above additional information available on record I have reason to believe that the source of investment made by M/s Antleg Cypurs Limited of USD 7.5 Million in M/s Idhasoft Limited has escaped assessment. The Assessee Company has failed to disclose fully and truly and material all material facts necessary for its assessment.
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2.4. So far as, the aforesaid reasons are concerned, the Ld. Assessing Officer mentions a letter dated 12/03/2014, wherein, M/s Prisum Informatics ltd. filed FIPB proposal, which was examined and the same was rejected. It has been mentioned that since, M/s Antleg Cyprus ltd. could not file the details about the sources of funds invested by foreign investors, therefore, there was a lack of clarity with respect to the beneficiary and therefore income chargeable to tax escaped assessment. The crux of the reasons recorded by the ld. Assessing Officer is that since M/s Antleg Cyprus Ltd. could not explain the source of investment made in M/s Idhasoft ltd., therefore, the assessee company (M/s ACL) could not disclose fully and truly the material facts, which were necessary for assessment.
2.5. So far as, re-opening of assessment u/s 147/148 of the Act on the plea that the Ld. Assessing Officer ignored the fact that there was no reason to believe that income has escaped assessment as there was no tangible material with the Assessing Officer and independent application of mind is concerned, we find that there was information with the 7 5139 & 5338/Mum/2016 Idhasoft Ltd.
Assessing Officer that assessee made bogus purchases from the Hawala parties and the notices sent u/s.133(6) were returned back unserved by the postal department, in this background, we shall analyze whether the Ld. Assessing Officer was right in re-opening the assessment u/s.147 of the Act.
2.6. In the light of the foregoing discussions, it is our bounded duty to examine the validity of reopening u/s 147 r.w.s 148 of the Act, therefore, before adverting further we are reproducing hereunder the relevant provision of section 147 of the Act for ready reference and analysis:-
". If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under 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:8
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Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings 9 5139 & 5338/Mum/2016 Idhasoft Ltd.
under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.
Explanation 4.--For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012."
2.7. If the aforesaid provision of the Act is analyzed, we find that after insertion of Explanation -3 to section 147 of the Act by the Finance (No.2) Act of 2009 with effect from 01/04/1989 section 147 has an effect that Assessing officer has to assess or reassess income (such income) which has escaped assessment and which was basis of formation of belief and, if he does so, he can also assess or reassess any other income which has escaped assessment and which came to the notice during the course of proceedings. Identical ratio was laid down by Hon'ble jurisdictional High Court in CIT vs Jet Airways India Pvt. Ltd. (2010) 195 taxman 117 (Mum.) and the full Bench decision from Hon'ble Kerala High Court in CIT vs Best Wood Industries and Saw Mills (2011) 11 taxman.com 278 (Kerala)(FB). A plain reading of explanation-3 to section 147 clearly depicts that the Assessing Officer has power to make addition, where he arrived to a conclusion that income 10 5139 & 5338/Mum/2016 Idhasoft Ltd.
has escaped assessment which came to his notice during the course of proceedings of reassessment u/s 148. Our view is fortified by the decision in Majinder Singh Kang vs CIT (2012) 25 taxman.com 124/344 ITR 358 (P & H) and Jay Bharat Maruti Ltd. Vs CIT (2010) Tax LR 476 (Del.) and V. Lakshmi Reddy vs ITO (2011) 196 taxman 78 (Mad.). The provision of the Act is very much clear as with effect from 01/04/1989, the Assessing Officer has wide powers to initiate proceedings of reopening. The Hon'ble Kerala High Court in CIT vs Abdul Khadar Ahmad (2006) 156 taxman 206 (Kerala) even went to the extent so long as the AO has independently applied his mind to all the relevant aspect and has arrived to a belief the reopening cannot be said to be invalid.
2.8. We are aware that "mere change of opinion" cannot form the basis of reopening when the necessary facts were fully and truly disclosed by the assessee in that situation, the ITO is not entitled to reopen the assessment merely on the basis of change of opinion. However, powers under amended provision are wide enough where there is a reasonable belief with the Assessing Officer, that income has escaped 11 5139 & 5338/Mum/2016 Idhasoft Ltd.
assessment, because the powers with effect from 01/04/1989 are contextually different and the cumulative conditions spelt out in clauses (a) and (b) of section 147, prior to its amendment are not present in the amended provision. The only condition for action is that the Assessing Officer "should have reason to believe" that income chargeable to tax has escaped assessment. Such belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material facts by an assessee as contemplated in pre-amended section 147. Viewed in that angle, power to reopen assessment is much wider under the amended provision. Our view is fortified by the decision from Hon'ble Delhi High Court in Bawa Abhai Singh vs DCIT (2001) 117 taxman 12 and Rakesh Agarwal vs ACIT (1996) 87 taxman 306 (Del.). The Hon'ble Apex Court in CIT vs Sun Engineering works Pvt. Ltd. 198 ITR 297 (SC) clearly held that proceedings u/s 147 are for the benefit for the Revenue, which are aimed at gathering the 'escaped income'. At the same time, We are aware that powers u/s 147 and 148 of the Act are not unbridled one as it is hedged with several safeguards 12 5139 & 5338/Mum/2016 Idhasoft Ltd.
conceived in the interest of eliminating room for abuse of this power by the AO. However, the material available on record, clearly indicates that income chargeable to tax had escaped assessment, therefore, the ld. Assessing Officer was within his jurisdiction to reopen the assessment. The Hon'ble Apex Court in Ess Ess Kay Engineering Co. Pvt. Ltd. (2001) 247 ITR 818 (SC) held that merely because the case of the assessee was correct in original assessment for the relevant assessment year, it does not preclude the ITO to reopen the assessment of an earlier year on the basis of finding of his fact that fresh material came to his knowledge.
2.9. Under section 147, as substituted with effect from 01/04/1989, the scope of reassessment has been widened. After such substitution, the only restriction, put in that section is that "reason to believe". That reason has to be a reason of a prudent person which should be fair and not necessarily due to failure of the assessee to disclose fully and partially some material facts relevant for assessment (Dr. Amin's Pathology Laboratory vs JCIT (2001) 252 ITR 673, 682 (Bom.) Identical ratio was laid down by Hon'ble Delhi High 13 5139 & 5338/Mum/2016 Idhasoft Ltd.
court in United Electrical Company Pvt. Ltd. vs CIT (2002) 258 ITR 317, 322 (Del.) and Prafull Chunnilal Patel vs ACIT 236 ITR 832, 838 (Guj.). The essential requirement for initiating reassessment proceeding u/s 147 r.w.s 148 of the Act is that the ld. Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The Hon'ble Gujarat High Court in Prafull Chunnilal Patel vs ACIT (supra) even went to the extent that at the initiation stage formation of reasonable belief is needed and not a conclusive finding of facts. Identical ratio was laid down in Brijmohan Agrawal vs ACIT (2004) 268 ITR 400, 405 (All.) and Ratnachudamani S. Utnal vs ITO (2004) 269 ITR 272, 277 (Karnataka) applying Sowdagar Ahmed Khan vs ITO (1968) 70 ITR 79(SC).
2.10. So far as, the meaning of expression, "reason to believe" is concerned, it refers to belief which prompts the Assessing Officer to apply section 147 to a particular case. It depend upon the facts of each case. The belief must be of an honest and reasonable person based on reasonable grounds. The Assessing Officer is required to act, not on mere 14 5139 & 5338/Mum/2016 Idhasoft Ltd.
suspicion, but on direct or circumstantial evidence. Our view find support from the ratio laid down in following cases:-
i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Vishnu Borewell vs ITO (2002) 257 ITR 512 (Orissa), iii. Central India Electric Supply Company Ltd. vs ITO (2011) 333 ITR 237 (Del.), iv. V.J. Services Company Middle East ltd. vs DCIT (2011) 339 ITR 169 (Uttrakhand), v. CIT vs Abhyudaya Builders (P. ) Ltd. (2012) 340 ITR 310 (All.), vi. CIT vs Dr. Devendra Gupta (2011) 336 ITR 59 (Raj.), vii. Emirates Shipping Line FZE vs Asst. DIT (2012) 349 ITR 493 (Del.).
viii. Reference may also made to following judicial decisions:-
ix. Safetag international India P. Ltd. (2011) 332 ITR 622 (Del.), x. CIT vs Orient Craft Ltd. (2013) 354 ITR 536 (Del.) xi. Acorus Unitech Wirelss Pvt. Ltd. vs ACIT (2014) 362 ITR 417 (Del.).
xii. Praful Chunilal Patel: Vasant Chunilal Patel vs Asst. CIT (1999) 832, 843-44, 844-45 (Guj.), xiii. Venus Industrial Corporation vs Asst. CIT (1999) 236 ITR 742, 746 (Punj.), xiv. Srichand Lalchand Talreja vs Asst. CIT (1998) 98 taxman 14, 19 (Bom.), xv. Usha Beltron Ltd. vs JCIT (1999) 240 ITR 728, 736-37, 739 (Pat.) xvi. Kapoor Brothers vs Union of India (2001) 247 ITR 324, 331, 332-33 xvii. Vippy Processors Pvt. Ltd. vs CIT (2001) 249 ITR 7, 8 (MP) 15 5139 & 5338/Mum/2016 Idhasoft Ltd.
2.11. In Dilip S. Dahanukar vs Asst. CIT (2001) 248 ITR 147, 150-51 (Bom.). The Hon'ble jurisdictional High Court held as under:-
"Held, that there was material on record on the basis of survey and statement of person to show that the assessee had wrongfully claim deduction u/s 80IA. Therefore, the Assessing Officer had reason to believe that income had escaped assessment for assessment year 1994-95."
Identically in the case of Srichand Lalchand Talreja v. Asst. CIT, (1998) 98 Taxman 14, 19 (Bom), where the information regarding acquisition of the asset was not available with the Assessing Officer during the relevant assessment year 1992-93 and such information was disclosed in the return for the assessment year 1995-96, the Hon'ble jurisdictional High Court held that the Assessing Officer can form a bona fide belief that there was escapement of income in relation to assessment year 1992-93.
2.12. The Hon'ble jurisdictional High Court in Export Credit Guarantee Corporation of India Ltd. v. Addl. CIT, (2013) 16 5139 & 5338/Mum/2016 Idhasoft Ltd.
350 ITR 651 (Bom), where there had been no application of mind to the relevant facts during the course of the assessment proceedings by the Assessing Officer, the reopening of the assessment was held to be valid.
2.12. The Hon'ble jurisdictional High Court in Girilal & Co. v. S.L. Meena, ITO, (2008) 300 ITR 432 (Bom), held that in order to invoke the extraordinary jurisdiction of the court the petitioner must also make out a case that no part of the relevant material had been kept out from the Assessing Officer). The information was in the annexures and consequently Explanation 2(c)(iv) of section 147 would apply. The reassessment proceedings after four years were valid.
2.14. In the case of Deputy CIT v. Gopal Ramnarayan Kasat, (2010) 328 ITR 556 (Bom), it was not the case of the assessee that the notice issued was after the expiry of the time limit provided in section 153(2). The reassessment proceedings were held to be valid. In Indian Hume Pipe Co. Ltd. v. Asst. CIT, (2012) 348 ITR 439 (Bom), both in the computation of 17 5139 & 5338/Mum/2016 Idhasoft Ltd.
taxable long-term capital gains in the original return of income and in the computation that was submitted in response to the query of the Assessing Officer there was a complete silence in regard to the dates on which the amounts were invested, as such there being a failure to disclose fully and truly material facts necessary for assessment. The reassessment proceedings were held to be valid. This view was also confirmed in following cases:-
a. Dalmia P. Ltd. v. CIT, (2012) 348 ITR 469 (Del); b. CIT v. K. Mohan & Co. (Exports), (2012) 349 ITR 653 (Bom);
c. Remfry & Sagar v. CIT, (2013) 351 ITR 75 (Del); d. OPG Metals & Finsec Ltd. v. CIT, (2013) 358 ITR 144 (Del). 2.15. In the case of Venus Industrial Corporation v. Asst. CIT, (1999) 236 ITR 742, 746 (P & H) [Where initiation was started within four years for re-examining the deduction under section 80HHC, was held to be wrongly allowed in the original assessment. Identically, in the case of Happy Forging Ltd. v. CIT, (2002) 253 ITR 413,416-17 (P & H), where excise duty paid in advance was shown as an asset in the balance sheet and was allowed as a deduction, reassessment notice on the 18 5139 & 5338/Mum/2016 Idhasoft Ltd.
ground that excise duty was shown as an asset in the balance sheet and was not routed through the profit and loss account. The reopening at this stage was held to be valid. In the case of Vipan Khanna v. CIT, (2002) 255 ITR 220, 230 (P & H), where from the facts it was clear that the assessee had claimed depreciation in the return at the rate of 50 per cent and he had nowhere disputed the fact that the admissible rate of depreciation to him was 40 per cent., such fact alone was sufficient to initiate reassessment proceedings under section 147 and, therefore, such initiation was sustained. The Hon'ble Punjab & Haryana High Court in Mrs. Rama Sinha v. CIT, (2002) 256 ITR 481, 483, 486, where the reassessment notice has been issued on the basis of definite information from CBI regarding investments by the assessee which had not been disclosed during the original assessment proceedings, such initiation has been upheld.
2.16. In the case of Pal Jain v. ITO, (2004) 267 ITR 540, 544-45, 548, 549 (P & H), applying Phool Chand Bajrang Lal v. ITO, (1993) 203 ITR 456 (SC), although the transaction of sale of shares was disclosed and accepted in the original 19 5139 & 5338/Mum/2016 Idhasoft Ltd.
assessment, but the subsequent discovery by the DDI (Investigation) revealed that the transaction was not genuine, a reassessment notice after four years has been held to be valid because there was no true disclosure of the material facts. In this regard, the petitioner-assessee cannot draw any support from the statement for challenging the validity of the notice for reassessment. It goes without saying that for the purpose of making the assessment, the Assessing Officer shall have to confront the petitioner with the entire material in his possession on the basis of which he proposes to make the additions. In Punjab Leasing Pvt. Ltd. v. Asst. CIT, (2004) 267 ITR 779, 781-82 (P & H), where depreciation was allowed to the assessee, who was engaged in the business of financing of vehicles and consumer durables on 'hire-purchase basis' as well as on 'lease/rent basis', a reassessment notice issued after four years has been held not to suffer from any illegality as the same was based on the bona fide action of the competent authority to determine whether or not the vehicles in respect of which the petitioner had been claiming depreciation, were actually owned by it.
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2.17. In Jawand Sons v. CIT(A), (2010) 326 ITR 39 (P & H), in the initial assessment, the benefit of deduction of the duty drawback and DEPB under section 80-IB was wrongly granted to the assessee, for which it was not entitled. Therefore, reassessment proceedings to withdraw the deduction were held to be valid. Likewise, in CIT v. Hindustan Tools & Forgings P. Ltd., (2008) 306 ITR 209 (P & H), where, the assessee in the regular assessment had been allowed deduction more than actually allowable under section 80HHC. Therefore, the action initiated by the AO for reassessment under section 147(b) could not be held to be invalid. 2.18. In the case of Markanda Vanaspati Mills Ltd. v. CIT, (2006) 280 ITR 503 (P & H), wherein, the information furnished by the assessee gave no clue to the payment of liability in regard of the sales tax collected in excess. The Assessing Officer was held to be validly initiated the reassessment proceedings under section 147 for both the years under consideration. In the case of Sat Narain v. CIT, (2010) 320 ITR 448 (P & H), the document did not form the sole basis for the Assessing Officer to initiate reassessment 21 5139 & 5338/Mum/2016 Idhasoft Ltd.
proceeding but he also took into consideration the letter written by the Assistant Commissioner as well as the fact that no return had been filed by the assessee for assessment year 1995-96. Thus, it was held that the Assessing Officer had rightly invoked the jurisdiction to initiate the reassessment proceedings under section 147. In the case of CIT v. Hukam Singh, (2005) 276 ITR 347 (P & H), it was held that the respondents did not have the locus standi to question the orders of reassessment on the ground of lack of notice. Non- issuance of notice to some of the legal heirs of the late P was merely an irregularity and the same did not affect the validity of the reassessment orders. Likewise, in Tilak Raj Bedi v. Joint CIT, (2009) 319 ITR 385 (P & H), wherein, facts coming to light in a subsequent assessment year could validly form the basis for initiating reassessment proceedings, in view of Explanation 2 to section 147. The action of the income tax authorities in reopening the assessment of the assessee and restricting the deduction under section 80-IB was held to be valid.
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2.19. In the case of Smt. Usha Rani v. CIT, (2008) 301 ITR 121 (P & H), there was nothing on record to show the relationship between the donor and the donee, capacity of the donor to make gifts and the occasion therefore. The assessee had failed to discharge the onus to prove the gifts. The reassessment proceedings were held to be valid. In the case of Usha Beltron Ltd. v. Joint CIT, (1999) 240 ITR 728, 736-37, 739 (Pat), where the investigation report indicated that the Officer had reason to believe that on account of failure on the part of the petitioner-assessee to disclose true and full facts, income had been grossly under assessed, reassessment proceedings were held validly initiated. 2.20. In the case of Kapoor Brothers v. Union of India, (2001) 247 ITR 324, 331, 332-33 (Pat), where the material evidence for the purpose of reopening of the assessment already completed has been brought to the notice of the authority during the course of enquiry. The notice was held to be valid by the Hon'ble High Court. In the case of Vippy Processors Pvt. Ltd. v. CIT, (2001) 249 ITR 7, 8 (MP), where the need to issue notice arose due to noticing of vast difference in 23 5139 & 5338/Mum/2016 Idhasoft Ltd.
value of properties disclosed by the assessee and that of the report of the Valuation Officer and the reasons that led to the issue of the notice were duly recorded and the same were also adequate and based on relevant facts and material, initiation was upheld. In Triple A Trading & Investment Pvt. Ltd. v. Asst. CIT, (2001) 249 ITR 109, 110-11 (MP), where the notice was issued after recording reasons in that regard, initiation was upheld.
2.21. Likewise, Hon'ble Gujarat High Court in Garden Finance Ltd. v. Add/. CIT, (2002) 257 ITR 481, 489, 494-95, special leave petition dismissed by the Supreme Court: (2002) 255 ITR (St.) 7-8 (SC), where the assessee was holding shares in an amalgamating company and he was allotted shares in the amalgamated company and such shares were sold by him and he has disclosed the market price of such shares as on the date of amalgamation as the cost of acquisition of such shares and has not disclosed the cost of acquisition of shares in the amalgamating company in accordance with section 49(2) read with section 47(vii), initiation of reassessment proceedings after four years has been sustained because there 24 5139 & 5338/Mum/2016 Idhasoft Ltd.
was failure on the part of the assessee to disclose material facts necessary for assessment. Likewise, in Suman Steels v. Union of India, (2004) 269 ITR 412,418-19 (Raj), where the return of the assessee for assessment year 1995-96 was processed under section 143(1)(a) accepting the net profit rate declared by the assessee, who carried on con- tract business, initiation of reassessment proceedings by issuing a notice dated 15-5-2001 proposing to reassess petitioner-assessee at higher rate in view of the presumptive rate prescribed under section 44AD has been sustained. In the case of Dr. Sahib Ram Giri v. ITO, (2008) 301 ITR 294 (Raj), the reassessment proceedings were initiated after recording reasons in writing by the AO. The non-availability of a few documents demanded by the assessee would not make the reassessment proceedings initiated for the reasons recorded in detail illegal. 2.22. In the case of Desh Raj Udyog : Chaman Udyog v. ITO, (2009) 318 ITR 6 (All), in the assessment years in question, the matter was still to be decided finally by the assessing authority whether the income should be treated under the head 'Business income' or 'property income'. The 25 5139 & 5338/Mum/2016 Idhasoft Ltd.
assessee would get opportunity to show sufficient cause to the assessing authority during the course of assessment. Thus, it could not be said that there was no relevant material to initiate proceedings under section 147. In the case of Kartikeya International v. CIT, (2010) 329 ITR 539 (All), in view of the matter, the petitioner was not entitled for the deduction on the duty drawback amount under section 80-IB and since it had been allowed in the assessment order passed under section 143(1), it had escaped assessment. On these facts the initiation of the proceedings under section 147 read with section 148 for assessment years 2005-06 and 2006-07 was legal and in accordance with law.
2.23. Likewise, in the case of Sunil Kumar lain: Suresh Chandra lain v. ITO, (2006) 284 ITR 626 (All), notwithstanding the fact that the amount had been assessed to tax in the hands of P, he had taken a stand that the amount did not belong to him and instead belonged to S. Thus, it was not clear as to in whose hands the amount in question had to be assessed. The ITO was justified in taking proceedings under section 147 for assessing the amounts in the hands of the 26 5139 & 5338/Mum/2016 Idhasoft Ltd.
petitioners according to the claim made by the petitioners. Likewise, Hon'ble Kerala High Court in CIT v. Dr. Sadique Ummer, (2010) 322 ITR 602 (Ker), where, the Assessing Officer collected further information to complete the reassessments which was also permissible under the Act. The finding of the first appellate authority as well as the Tribunal, that the Assessing Officer had no material to believe that the income had escaped assessment was wrong and contrary to facts. The assessee had not maintained any books of account. Therefore, the reopening of assessments was held to be valid and within time. In the case of CIT v. Uttam Chand Nahar, (2007) 295 ITR 403 (Raj), the notice requiring the assessee to file the return within 30 days was in accordance with section 148 as it must be deemed to be in force with effect from 1-4-1989, and in force as on the date notice was issued. There was no violation of section 148 in respect of the specified period within which the return is to be submitted. The reassessment proceedings were held to be valid.
In the case of CIT v. C. V. layachandran, (2010) 322 ITR 520 (Ker), where, the assessee did not concede the income 27 5139 & 5338/Mum/2016 Idhasoft Ltd.
on capital gain either under the un-amended provision or un-der the amended provision, the recourse open to the Department was to bring to tax income escaping assessment under section 147 which was not time barred or otherwise invalid. Likewise, in Atul Traders v. ITO, (2006) 282 ITR 536 (All), the account books or record and other material were all common which were being considered by the CIT(A) in the proceedings relating to three appeals. The petitioner had notice and opportunity of being heard. The reassessment proceedings were held to be validly initiated. In the case of Inductotherm (India) P. Ltd. v. lames Kurian, Asst. CIT, (2007) 294 ITR 341 (Guj), the Assessing Officer had found that there were errors in the computation of allowances. The reassessment proceedings were held to be valid. In the case of Papaya Farms Pvt. Ltd. vs. DCIT, (2010) 323 ITR 60 (Mad), where the assessee had furnished incorrect particulars and therefore, the reopening of the assessment was held to be justified.
2.24. In the case of CIT v. Kerala State Cashew Development Corporation Ltd., (2006) 286 ITR 553 (Ker), 28 5139 & 5338/Mum/2016 Idhasoft Ltd.
wherein, the assessee was following the mercantile system of accounting should not have claimed deduction of penal interest which had accrued not in the previous year relevant to the assessment year but in earlier years. This the assessee had not disclosed. The reassessment was held to be valid. Likewise, in Kusum Industries P. Ltd. v. CIT, (2008) 296 ITR 242 (All), as the award had become final it would be taken that the directors of the assessee had accepted the factum of earning of secret profit not reflected in the books of account, which was also binding on the company. The non-appearance of one of the arbitrators and one of the directors in respect of the summon issued under section 131 would not make the reassessment invalid. The Hon'ble Kerala High Court in CIT v. Indo Marine Agencies (Kerala) P. Ltd., (2005) 279 ITR 372 (Ker), held that the entry would amount to an order under section 144. The mere fact that it was not communicated to the assessee would not make such an assessment recorded in the order sheet illegal and that would not bar further proceedings under section 147. Thus, the assessment was held to be validly reopened under Explanation 2(c) to section 29 5139 & 5338/Mum/2016 Idhasoft Ltd.
147. Likewise, in CIT v. N. Jayaprakash, (2006) 285 ITR 369 (Ker), where, the assessee could not, after having persuaded the assessing authority to withdraw the notice dated 1-10- 1993, pointing out that it was not in conformity with law, be allowed to contend that the notice was valid due to the omission of the time-limit by the Finance (No.2) Act, 1996, with effect from 1-4-1989. In the absence of specific provision in the Finance (No. 2) Act, 1996, invalidating proceedings initiated by the Income-tax Officer, the action taken by him applying the then existing law could not be said to be invalid. 2.25. Likewise, in CIT v. S.R. Talwar, (2008) 305 ITR 286 (All), the factum of taking advances or loan from T and K, in which the assessee was one of the directors had not been disclosed nor a copy of the ledger account of the assessee maintained by the company filed. In view of the absence of these details, the Assessing Officer could not examine the taxability of advances or loan raised by the assessee. There was failure to disclose material facts necessary for assessment. The reassessment proceedings were held to be valid. In another case, the Hon'ble Allahabad High Court in Chandra 30 5139 & 5338/Mum/2016 Idhasoft Ltd.
Prakash Agrawal v. Asst. CIT, (2006) 287 ITR 172 (All), wherein, the Income-tax Department had sent a requisition on 27-3-2002, under section 132A requisitioning the books of account and other documents seized by the Central Excise Department. The record of the proceeding dated 18-4-2002, showed that the requisition was not fully executed as all the books of account and other documents had not been delivered to the requisitioning authority. The proceedings initiated under section 147 was held to be valid.
2.26. In Ramilaben Ratilal Shah v. CIT, (2006) 282 ITR 176 (Guj), held that the noting in the diary constituted sufficient information for the escapement of income by either non-declaration of correct sale consideration or furnishing of inaccurate particulars as regards sale consideration. Thus, the Tribunal was justified in holding that the assessee had failed to disclose fully and truly all material facts necessary for the assessment of the relevant assessment year. The reassessment proceedings had been validly initiated.
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2.27. Likewise, in CIT v. Abdul Khader Ahamed, (2006) 285 ITR 57 (Ker), it was clear from the reasons recorded by the Deputy CIT that he prima facie had reason to believe that the assessee had omitted to disclose fully and truly the material facts and that as a consequence income had escaped assessment. The reassessment was held to be valid. In the case of U.P. State Brassware Corporation Ltd. v. CIT, (2005) 277 ITR 40 (All), the principles laid down by the Calcutta High Court in CIT v. New Central Jute Mills Co. Ltd. : (1979) 118 ITR 1005 (Cal) did constitute information on a point of law which should be taken into consideration by the ITO in forming his belief that the income to that extent had escaped assessment to tax and, the reassessment was held to be valid. In Sunder Carpet Industries v. ITO, (2010) 324 ITR 417 (All), held that the Departmental Valuer's Report constituted material for entertaining a belief of escaped income in the years under consideration. The reassessment proceeding was held to be valid.
2.28. In Aurobindo Sanitary Stores v. CIT, (2005) 276 ITR 549 (Ori), there being a substantial difference between the 32 5139 & 5338/Mum/2016 Idhasoft Ltd.
figures of liabilities towards sundry creditors in the party ledgers of the assessee-firm and the figures of liabilities towards sundry creditors in the balance-sheet of the assessee- firm for the previous year relevant to the assessment year 1989-90. These materials had a direct link and nexus for formation of a belief by the Assessing Officer that income of the assessee-firm had escaped assessment because of failure of the assessee to disclose fully and truly all material facts necessary for the assessment. In the case of CIT v. Best Wood Industries & Saw Mills, (2011) 331 ITR 63 (Ker), the assessee challenged the validity of the reassessment on the ground that the AO had exceeded his jurisdiction under section 147 and both the first appellate authority as well as the Tribunal accepted the contention of the assessee holding that so far as the reassessments related to assessment of unexplained trade credits, they were invalid. On appeal, it has been held that the reassessments were to be valid. In Honda Siel Power Products Ltd. v. Deputy CIT, (2012) 340 ITR 53 (Del), there being omission and failure on the part of the assessee to disclose 33 5139 & 5338/Mum/2016 Idhasoft Ltd.
fully and truly material facts Thus reassessment proceedings were held to be valid.
In Atma Ram Properties Private Ltd. v. Deputy CIT, (2012) 343 ITR 141 (Del), as the books of account and other material were not produced and no letter was filed, the order passed by the Commissioner (Appeals) in the assessment year 2001-02 would constitute 'information' or material from any external source and, as such, the reassessment proceedings for the assessment year 2000-01 were held to be valid. Likewise, in the case of CIT v. Smt. R. Sunanda Bai, (2012) 344 ITR 271 (Ker), the reassessment in question were held to be valid on the fact that the assessee claimed and was given relief under section 80HHA for the three preceding year which disentitled her for deduction under section 80HH for the assessment years 1992-93 and 1993-94.
2.29. In the case of Aquagel Chemicals P. Ltd. v. Asst. CIT, (2013) 353 ITR 131 (Guj), since there being sufficient material on record for the Assessing Officer to form a belief as regards the escapement of income in relation to the claim of 34 5139 & 5338/Mum/2016 Idhasoft Ltd.
depreciation in respect of the building of coal fire boiler, the reassessment was held to be valid. In the case of Convergys Customer Management v. Asst. DIT, (2013) 357 ITR 177 (Del), where there being prima facie material in the possession of the Assessing Officer to form a tentative belief that section 9(1)(i) held attracted, said reason by itself constituted a relevant ground to reopen the assessment of the assessee. Reference may also be made to i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)]; ii. Ashok Arora v. CIT [(2010) 321 ITR 171 (Del)]; iii. CIT v. Chandrasekhar BaLagopaL [(2010) 328 ITR 619 (Ker)]; iv. Jayaram Paper Mills Ltd. v. CIT [(2010) 321 ITR 56 (Mad)]; v. Kerala Financial Corporation v. Joint CIT [(2009) 308 ITR 434 (Ker)];
vi. Mavis Satcom Ltd. v. Deputy CIT [(2010) 325 ITR 428 (Mad)]; vii. CIT v. Madhya Bharat Energy Corporation Ltd. [(2011) 337 ITR 389 (Del)];
viii. Kone Elevator India P. Ltd. v. ITO [(2012) 340 ITR 454 (Mad)]; ix. Vijay Kumar Saboo v. Asst. CIT [(2012) 340 ITR 382 (Karn)]; x. Siemens Information Systems Ltd. v. Asst. CIT [(2012) 343 ITR 188 (Bom)];
xi. I.P. Patel & Co. v. Deputy CIT [(2012) 346 ITR 207 (Guj)]; xii. Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy CIT [(2012) 346 ITR 228 (Guj)];
xiii. Video Electronics Ltd. v. Joint CIT [(2013) 353 ITR 73 (Del)]; 35
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xiv. A G Group Corporation v. Harsh Prakash [(2013) 353 ITR 158 (Guj)];
xv. Inductotherm (India) P. Ltd. v. M. GopaLan, Deputy CIT [(2013) 356 ITR 481 (Guj)]; CIT v. Dhanalekshmi Bank Ltd. [(2013) 357 ITR 448 (Ker)];
xvi. Sitara Diamond Pvt. Ltd. v. ITO [(2013) 358 ITR 424 (Bom)]; xvii. Rayala Corporation P. Ltd. v. Asst. CIT [(2014) 363 ITR 630 (Mad)].
2.30. So far as, the decision in the case of CIT vs Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) is concerned, the Hon'ble Apex Court, while coming to a particular conclusion, only in a situation, when not a single piece of paper or document was recovered, therefore, the Hon'ble Court held that since there was no tangible material found and the addition was merely on the basis of statement only then reopening of assessment u/s 147 of the Act was not permissible. Likewise, in the case of CIT vs S. Khader Khan Son (2012) 254 CTR 228 (SC), affirming the decision of Madras High Court in (2008) 300 ITR 157 (Mad.), the whole addition was made solely on the basis of statement u/s 133A and no other material was found, in that situation, it was held that the such statement has no evidentiary value. 36
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2.31. In the case of Aradhna Estate Pvt. Ltd. vs DCIT (2018) 91 taxmann.com 119 (Gujarat), the Hon'ble High Court observed/held as under:-
"In reasons recorded by the Assessing Officer for reopening the assessment. He pointed out that the information was received from the investigation wing of the department at Calcutta regarding shell companies which had given accommodation entries for share premium to Surat based companies. A list of 114 Calcutta based companies was provided which had given accommodation entries to such Surat based companies. Statements of many entry operators and dummy Directors recorded during various search and seizure operation, survey operation and investigation were checked. The Assessing Officer thereupon proceeded to record that "On perusal of data so provided by the Deputy Director (Investigation), it is noticed that during the period under consideration, the assessee company has accepted share capital/share premium from the following entries/parties which have been proved to be shell companies based on the investigation conducted by the Deputy Director (Investigation). Underneath, he provided a list of 17 companies who had transacted with the assessee company during the year under consideration and were alloted equity shares by purported investment of sizeable share capital and share premium amounts. On verification of such materials, the Assessing Officer noted that the assessee had received share capital/share premium amount, since the investor companies were found to be shell companies indulging in providing accommodation entries, the Assessing Officer was of the opinion that the share capital/share premium claimed to have been received from the company by the assessee was not genuine. Amount is nothing but assessee's own money introduced in the garb of share capital/share premium from the shell companies and therefore, such amount is liable to be taxed under section 68. He therefore, recorded his satisfaction that the income had escaped assessment and that this was due to the assessee having failed to disclose truly and fully all facts. [Para 7] Section 147 provides inter alia that if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may subject to the provisions of sections 148 to 153, assess or reassess such income. Proviso to section 147 of course requires that where the assessment under sub-section (3) of section 143 has been made for the relevant assessment year, no action shall be taken under this section after the expiry of the four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee to make return under section 139 or in response to a notice issued under sub-section (1) of section 142 or 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this context, it is well settled that the requirement of full and true 37 5139 & 5338/Mum/2016 Idhasoft Ltd.
disclosure on part of the assessee is not confined to filing of return alone but would continue all throughout during the assessment proceedings also. In this context, the materials on record would suggest that the Assessing Officer had received fresh information after the assessment was over prima facie suggesting that sizeable amount of income chargeable to tax in case of the assessee had escaped assessment and that such escapement was on account of failure on part of the assessee to disclose truly and fully all material facts. The Assessing Officer formed such a belief on the basis of such materials placed before him and upon perusal of such material. This is not a case where the Assessing Officer was reexamining the materials and the documents already on record filed by the assessee along with the return or subsequently, brought on record during the assessment proceedings. It was a case where entirely new set of documents and materials was placed for his consideration compiled in the form of report received from the investigation wing. Such material was perused by the Assessing Officer and upon examination thereof, he formed a belief that the assessee company had received share application and share premium money from as many as 20 different investor companies who were found to be shell companies and indulging in giving accommodation entries. From this view point, since the Assessing Officer had sufficient material at his command to form such a belief. Such materials did not form part of the original assessment proceedings and was placed before the Assessing Officer only after the assessment was completed. Since on the basis of such materials, Assessing Officer, came to a reasonable belief that income chargeable to tax had escaped assessment, merely because these transactions were scrutinised by the Assessing Officer during the original assessment also would not preclude him from reopening the assessment. His scrutiny during the assessment will necessarily be on the basis of the disclosures made by the assessee. [Para 8] The contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted. The Assessing Officer, as noted, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies. [Para 10] Merely because the transactions in question were examined by the Assessing Officer during the original assessment would not make any difference. The scrutiny was on the basis of disclosures made and materials supplied by the assessee. Such material is found to be prima facie untrue and disclosures not truthful. Earlier scrutiny or examination on the basis of such disclosures or materials would not debar a fresh assessment. Each individual case of this nature is bound to have slight difference in facts. [Para 11] The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing out the material available which had a live link with formation of belief that the income chargeable to tax had escaped assessment.38
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At this stage, as is often repeated, one would not go into sufficiency of such reasons. [Para 13] Section 68 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 may be charged to income tax as the income of the assessee of that previous year. That the share application money received by the assessee from above-noted companies was only by nature of accommodation entries and in reality, it was the funds of the assessee which was being re- routed. Undoubtedly. Section 68 would have applicability. Proviso added by the Finance Act, 2012 with effect from 1-4-2013, does not change this position. [Para 14] As per this proviso, where the assessee is a company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, explanation offered by the assessee company shall be deemed to be not satisfactory, unless the person in whose name such credit is recorded in the books of the company also offers an explanation about the nature and source of sum so credited and such explanation in the opinion of the Assessing Officer has been found to be satisfactory. Essentially, this proviso eases the burden of proof on the revenue while making addition under section 168 with respect to non genuine share application money of the companies. Even in absence of such proviso as was the case governing the periods with which we are concerned in the present case, if facts noted by the Assessing Officer and recorded in reasons are ultimately established, invocation of section 68 would be called for. [Para 15] The contention that the Assessing Officer had merely and mechanically acted on the report of the investigation wing also cannot be accepted. One has reproduced the reasons recorded by the Assessing Officer and noted the gist of his reasons for resorting to reopening of the assessment. The Assessing Officer had perused the materials placed for his consideration and thereupon, upon examination of such materials formed a belief that income chargeable to tax had escaped assessment. [Para 16] In the result, petition is dismissed. [Para 17]"
2.32. The Hon'ble Gujarat High Court while validating the reopening of assessment under section 147/148 of the Act in a later order (aforesaid) dated 20/02/2018 on the issue of cash credit (share application money) duly considered the 39 5139 & 5338/Mum/2016 Idhasoft Ltd.
arguments of both sides and followed the following the decisions I. Jayant Security and Finance Ltd. v. Asstt. CIT [Special Civil Application No. 18921 of 2017, dated 12-2-2018] (para 12); II. Raymond Woolen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) (para 13);
III. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 13) IV.Pr. CIT v. Gokul Ceramics [2016] 241 Taxman 1/71 taxmann.com 341 (Guj.) (para 16) And distinguished the following decisions i. Allied Strips Ltd. v. Asstt. CIT [2016] 384 ITR 424/69 taxmann.com 444 (Delhi) (para 11) and ii. Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.) (para 11) The Hon'ble High Court while upholding the validity of reopening also considered following decision, which were referred by both sides-
I. Allied Strips Ltd. v. Asstt. CIT [2016] 384 ITR 424/69 taxmann.com 444 (Delhi) (para 5), II. Harikrishan Sunderlal Virmani v. Dy. CIT [2017] 394 ITR 146 (Guj.) (para 5), III. Raymond Woolen Mills Ltd.v. ITO [1999] 236 ITR 34 (SC) (para 6), IV. Yogendrakumar Gupta v. ITO [2014] 366 ITR 186/46 taxmann.com 56 (Guj.) (para 6), 40 5139 & 5338/Mum/2016 Idhasoft Ltd.
V. Aaspas Multimedia Ltd. v. Dy. CIT [2017] 83 taxmann.com 82/249 Taxman 568 (Guj.) (para 6), VI. Jayant Security & Finance Ltd. v. Asstt. CIT [Sp. Civil Application No. 18921 of 2017, dated 12-2-2018] (para
12), VII.Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 13) and VIII. Pr. CIT v. Gokul Ceramics [2016] 241 Taxman 1/71 taxmann.com 341 (Guj.) (para 16).
2.33. The sum and substance of the aforesaid decision was that since the Assessing Officer was having sufficient material at his command to form a reasonable belief that income chargeable to tax had escaped assessment, merely because this transactions were scrutinize by the Assessing Officer during the original assessment, would not preclude him from reopening assessment. Thus, the assessment notice was held to be justified. In the appeal before us, the ld. Assessing Officer received information dated 12/03/2014, therefore, the Ld. Assessing Officer was under a reasonable belief that income chargeable to tax has escaped assessment as the Ld. Assessing Officer had not formed any opinion and this information was received at the later stage, which in our opinion was sufficient to initiate reassessment proceedings. Explanation-1 to section 147 of the Act supports our view. 41
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Referring to the said explanation in consolidated Photo & Finvest Ltd. (2006) 281 ITR 394 (Del.), Hon'ble High Court observed as under:-
"8. It is clear from the above that the two critical aspects which need to be addressed in any action under section 147 are whether the Assessing Officer has "reason to believe" that any income chargeable to tax has escaped assessment and whether the proposed reassessment is within the period of limitation prescribed under the proviso to section
147. Explanation (1 ) to the said provision makes it clear that production of account books or other evidence from which the Assessing Officer could with due diligence discover material evidence would not necessarily amount to disclosure within the meaning of the proviso that stipulates an extended period of limitation for action in cases where the escapement arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment."
2.34. The formation of opinion by the Assessing Officer has to be considered on the touch stone whether there was reasonable belief that income has escaped assessment and for that purpose, the Hon'ble Apex Court in Raymond Woolen Mills Ltd. vs Income Tax Officer throws light on the issue and further by Hon'ble jurisdictional High Court in M/s Girilal & Company vs Income Tax Officer 300 ITR 432 (Bom.). It is also noted that fresh information was received by the Assessing Officer, which in our view, entitle the Assessing Officer to have prima facie to reason to believe that income has escaped assessment. The ratio laid down by Hon'ble Apex Court In Claggett Brachi Company Ltd. vs CIT 177 ITR 409 (Supreme 42 5139 & 5338/Mum/2016 Idhasoft Ltd.
Court), Hon'ble Bombay High Court in Anusandhan Investment Ltd. vs DCIT 287 ITR 482 and Piaggio Vhicles Pvt. Ltd. vs DCIT 290 ITR 377 (Bom.) held that in a case of reopening after four years subsequent to scrutiny assessment, contradiction was recovered by between tax audit report and return of income, it was a case of omissions and/or failure on the part of the assessee to disclose fully and truly all facts for computation of income, therefore, respectfully following the aforesaid decisions and the factual matrix narrated before us, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), therefore, the on the impugned issue of validity of reopening, we upheld the same, resulting in to, dismissal of appeal of the assessee.
3. Now, we shall take up the appeal of the Revenue (ITA No.5338/Mum/2016), wherein, deleting the addition made under section 68 of the Act, by the Ld. Assessing Officer has been challenged ignoring the finding of FIBP. 3.1. During hearing, Shri B. Srinivas, Ld. CIT-DR read over the order of the First Appellate Authority in detail by inviting our attention to the various paras of the impugned 43 5139 & 5338/Mum/2016 Idhasoft Ltd.
order. The crux of the argument advanced on behalf of the Revenue is that the source of funds was not explained before FIBP or before the ld. Assessing Officer and thus the Ld. Commissioner of Income Tax (Appeal) granted relief to the assessee without going into the root of the issue as genuineness of the transaction was not proved by the assessee as basic information was available with the Ld. Commissioner of Income Tax (Appeal). It was also submitted that the basic ingredients of section 68 of the Act were not proved by the assessee. Reliance was placed upon the decision in Subhlakshmi Vanijya Pvt. Ltd. vs CIT (2015) 60 taxman.com 60 (Kolkata)(Trib.), order dated 30/07/2015. 3.2. On the other hand, Shri Vijay Mehta, ld. counsel for the assessee, strongly defended the impugned order by inviting our attention to the assessment order as well as the factual finding recorded by the Ld. Commissioner of Income Tax (Appeal). The crux of the argument is that the money is received from M/s Antleg Cyprus Ltd. and the assessee has given inward remittance certificate. It was contended that the assessee is not expected to prove the source of source. So far 44 5139 & 5338/Mum/2016 Idhasoft Ltd.
as, the decision relied upon by the Ld. CIT-DR in the case of Subhlakshmi Vanikya Pvt. Ltd. ((supra)) is concerned, the ld. counsel explained that the issue before the Kolkata bench was whether the amendment is prospective in nature which has been replied by Hon'ble Bombay High Court in CIT vs Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680(Bom.). The Ld. counsel relied upon the decision of the Mumbai Tribunal in the case of Arceli Reality Ltd. vs Income Tax Officer (ITA No.6492/Mum/2016), order dated 21/04/2017. It was contended that the Ld. Assessing Officer merely made the addition on the basis of rejection of an application by FIPB unit made by M/s Prism Informatics Ltd. for issuance of share capital to M/s Antleg Cyprus Ltd. Our attention was invited to the factual finding recorded in para 2.4.23 onwards of the impugned order along with the provision of section 68 of the Act.
3.3. We have considered the rival submissions and perused the material available on record. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, 45 5139 & 5338/Mum/2016 Idhasoft Ltd.
material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before adverting further, it is our bounded duty to examine the provision of section 68 of the Act, which is reproduced hereunder for ready reference and analysis:-
"68. 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 may be charged to income-tax as the income of the assessee of that previous year :
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 money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company 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 such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section
10."46
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3.4. As per section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanic Products Exporting Company vs CIT 241 ITR 497 (Kerala.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon'ble Apex Court in P. Mohankala (2007)(291 ITR 278)(SC). A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is well settled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. Where the assessee failed to prove satisfactorily the 47 5139 & 5338/Mum/2016 Idhasoft Ltd.
source and nature of such credit, the Revenue is free to make the addition. The principle laid down in Ganpati Mudaliar (1964) 53 ITR 623/A. Govinda Rajulu Mudaliar (34 ITR
807)(SC) and also CIT vs Durga Prasad More (72 ITR 807)(SC) are the landmark decisions. The ratio laid down therein are that if the explanation of the assessee is unsatisfactory, the amount can be treated as income of the assessee. The ratio laid down in Daulat Ram Rawatmal 87 ITR 349 (SC) further supports the case of the assessee. In the case of a cash entry, it is necessary for the assessee to prove not only the identity of the creditor but also the capacity of the creditor and genuineness of the transactions. The onus lies on the assessee, under the facts available on record. A harmonious construction of section 106 of the evidence Act and section 68 of the Income Tax Act will be that apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of the creditors. In CIT vs Korlay Trading Company Ltd. 232 ITR 820 (Cal.), it was held that mere mention of file number of creditor will not suffice and each entry has to be explained 48 5139 & 5338/Mum/2016 Idhasoft Ltd.
separately by the assessee (CIT vs R.S. Rathaore) 212 ITR 390 (Raj.). The Hon'ble Guwahati High Court in Nemi Chandra Kothari vs CIT (264 ITR 254)(Gau) held that transaction by cheques may not be always sacrosanct. In the present appeal, the assessee duly fulfilled the conditions enshrined u/s 68 of the Act and produced necessary evidence for its claim. 3.5. The ratio laid down in ACIT vs Rajeev Tandon 294 ITR (AT) 219 (Del.), which was confirmed by Hon'ble High Court , in 294 ITR 488, supports the case of the Revenue. Identical ratio was laid down in CIT vs Anil Kumar 392 ITR 552 (Del.), wherein it was held that mere identification of the donor and movement of gift through banking channel is not sufficient to prove the genuineness of gift. Now, in the light of the foregoing discussion, we shall examine the facts of the present appeal. Before going into the facts of the present appeal, we are expected to analyze the background of the case. It is noted that one M/s Prism Informatics ltd. (hereinafter in short Prism) made an application before FIPB with respect to shares of M/s Antleg Cyprus ltd. and the same was rejected on the ground that M/s Antleg Cypurs Ltd. could not explain 49 5139 & 5338/Mum/2016 Idhasoft Ltd.
satisfactorily the difference in the pricing and since M/s Antleg Cyprus Ltd. could not file the details about the sources of funds invested by foreign investor, the assessee company fail to disclose fully and truly all material facts necessary for its assessment. A share swap agreement dated 23/04/2013 was entered into between M/s Antleg Cyprus Ltd. and M/s Prism, wherein, prism was acquired 18m15,49,522 equity shares of assessee company from M/s Antleg Cyprus Ltd. which comprised of 17.25% of share holding. The consideration was to be paid by way of allotting upto 40 lakh equity share of Rs.1 each of Prism at the issue price of Rs.35/- , thus, M/s Prism filed application to FIPB for approval of issue of 40 lakh equity shares to M/s Antleg Cyprus ltd., this proposal was rejected by FIPB for the reason that no details of actual source of original investment in appellant company was filed by Antleg Cyprus ltd. and thus addition was made under section 68 of the Act by the Ld. Assessing Officer. 3.6. On appeal before the First Appellate Authority, the addition so made was deleted which is under challenge by the Revenue, before this Tribunal. Before adverting further, the 50 5139 & 5338/Mum/2016 Idhasoft Ltd.
relevant finding of the Ld. Commissioner of Income Tax (Appeal) is reproduced hereunder:-
"2.4.22 Ground No. 2 is in respect of the merits of the addition of unexplained cash credit of Rs.27.10 crore. Ld. AO made the addition by holding that the nature and source of investments made by M/s Antleg Cyprus Ltd. were not found to be genuine by FIPB while examining the proposal of M/s Prism Informatics Ltd. for issuance of share capital to M/s Antleg Cyprus Ltd. He further held that as the primary pre-condition laid down by the Income Tax Act was not satisfied, the second condition regarding satisfaction of the AO with the explanation provided by the assessee was automatically not satisfied. Accordingly, he proceeded to add back the investment in the appellant company equivalent to US$ 7.5 million but restricted it to the Balance Sheet figure of the share capital (including share application money) at Rs.27.10 crore.
2.4.23 Per Contra, the appellant has vehemently argued that Ld. AO had completely ignored the facts on record and had merely proceeded to make the addition on the basis of the rejection done by the FIPB unit. In this regard, it has been submitted that the total share capital of the appellant company was Rs.27.10 crore out of which Issued, Subscribed and Paid-up- Capital was Rs.22.71 crore and Share Application Money was Rs.4.39 crore. It has also been stated that Ld. AO has completely ignored the fact that investment made by M/s Antleg Cyprus Ltd. in A.Y. 2007-08 was only US$ 10,50,000 and that even this payment was made by M/s Antleg Ltd. on behalf of M/s Antleg Cyprus Ltd. to the extent of US$ 10,50,000 equivalent to Rs.4.61 crore as per the Certificate for Foreign Inward Remittance issued by the Citibank and the confirmation of M/s Antleg Ltd. as well as M/s Antleg Cyprus Ltd. filed before the Ld. AO (Page Nos. 30,31 and 32 respectively of the paper book filed on 20th April, 2016 during the appellate proceedings). It has further been mentioned that M/s Antleg Ltd. had made an investment of US$ 10,00,000 equivalent to Rs.4,42,40,000/- as per Certificate of Foreign Inward Remittance dated 11.01.2007 and a further sum of US$ 30,00,000 equivalent to Rs.13,23,60,000/- as per Certificate of Foreign Inward Remittance dated 10.01.2007 of Citibank (these 51 5139 & 5338/Mum/2016 Idhasoft Ltd.
documents were filed before the Ld. AO as well). The appellant has also stated that all these facts were filed in Form FCGPR before the Reserve Bank of India and hence, it could not be said that the appellant was hiding certain information or that the money which was brought in was through any suspicious manner. As regards the balance, it has been stated that the investments were made by certain individual shareholders as reported to the RBI and M/s Antleg Cyprus Ltd. was nowhere in question.
2.4.24 Upon perusal of the facts brought before me, I find that the actual investment made by M/s Antleg Ltd. on its own and on behalf of M/s Antleg Cyprus Ltd. in A.Y.2007-08 was as under:
xxxxxxxxxxxxxxxxxxxxxxxxxx 2.4.25 To understand the impact of above entries, it will be useful to understand the provisions of section 68 in right perspective.
While dealing with the taxation laws, Courts have regularly invoked section 106 of the Evidence Act, 1872. Section 68 is the statutory recognition of the said section according to which a person is in the best position to know the relevant facts related to him. Treating the cash credits as income of the assessee is not a new concept introduced by the Act. The effect of section 68 is that a sum found credited in the books of the assessee can be charged to income-tax as his income. Over the years law regarding cash credits has evolved and has taken a definite shape. A few important aspects of the law with regard to section 68 can be enumerated here -
(i) section 68 can be invoked when following three conditions are satisfied - (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year
(ii) The expression the assessee offers no explanation means the assessee proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the 52 5139 & 5338/Mum/2016 Idhasoft Ltd.
explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record Once the explanation of the assessee is found unbelievable or false, the Assessing Officer is not required to bring positive evidence on record to treat amount in question as income of the assessee. However, while considering the explanation of the assessee, the Assessing Officer has to act reasonably - application of mind is the sine qua non for forming the opinion.
(iii) Phrase appearing in the section - "nature and sources of such credits" - should be understood in right perspective, so that genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a casual manner. Assessee cannot be asked to prove the impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be ca/led for while making inquiry under this section.
(iv) In the matters related to section 68, burden of proof cannot be discharged to the hilt - such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under section 68.
(v) Though confirmatory letters or account payee cheques do not prove that the amount in question is properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction, it/s also true that money received through foreign remittance with RBI approval is a strong indicator of bona fide of the cash credit that has to be disapproved only with positive evidence.
(vi) In matters regarding cash credit, the onus of proof is not a static one. As per the provisions of the section, the initial burden of proof lies on the assessee. Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANs or assessment orders or such other documents. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the 53 5139 & 5338/Mum/2016 Idhasoft Ltd.
lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and creditworthiness of the lender, onus of proof shifts to the revenue.
xxxxxxxxxxxxxxxxxxxxxxxxx 2.4.27 If above referred principles are applied to the facts and circumstances of the case under consideration, it becomes absolutely clear that the appellant had discharged its onus and burden of proof. Not only had it furnished the trail of banking transactions, it had also produced copies of Form-FCGPR submitted to the RBI evidencing receipt of funds from the foreign entity. Further, confirmation of the said entity was also furnished before the Id AO which has not been negated by him. Thus, the identity of the creditor, its creditworthiness and genuineness of the transaction stands explained and if the Id. AO still harboured any doubts about the creditworthiness or identity of the creditor, he had all the right under the Act to hold further inquiry and confront the appellant with such inquiry. To the contrary, Id AO did not make any attempt to discharge his burden to rebut the evidences produced by the appellant made the addition merely on the basis of information received from FT & TR Division of CBDT even though all the issues raised in the said communication stood clarified during the re- assessment proceedings. It is trite law that the AO cannot brush aside the evidences submitted during assessment proceedings and make additions on mere whims and fancies. Even the Hon'ble Supreme Court in the case of State of Kerala v. C. Velukutty Co. [1966] 60 ITR 239 has held that the judgment is a faculty to decide the matters with wisdom truly and legally and not to depend on the arbitrary caprice of a Judge, but on settled and invariable principles of justice.
2.4.28 Further, Hon'ble Supreme Court in the case of Mahabir Prasad Santosh Kumar v. State of LIP. AIR 1970 SC 1302 has observed as under:
"Recording of reasons in support of a decision on a disputed claim by a quasi- judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim. If the order is subject to appeal, the necessity to record reasons is greater, for without recorded 54 5139 & 5338/Mum/2016 Idhasoft Ltd.
reasons the appellate authority has no material on which it may determine whether the facts were properly ascertained, the relevant law was correctly applied and the decision was just."
2.4.29 On weighing the pros and cons, I am of the considered view that Ld. AO has given a go by to the known canons of jurisprudence by completely ignoring the evidence produced by the appellant. He has not even adverted to the fact that RBI had taken cognizance of the Form-FCGPR for initial allotment of 17,66,00,000 equity shares of Re.1 each at par to M/s Antleg Ltd. and not M/s Antleg Cyprus Ltd. which clearly showed that Rs.17,66 crore was received from the former. He also misdirected himself in ignoring the FIRC issued by Citi Bank for inward remittance of US$ 5,50,000 dated 03.02.2007 and of US$ 5,00,000 dated 14.03.2007 as per which the above sums were received from M/s Antleg Ltd. and in doing so, he also ignored the confirmation to the above effect filed by M/s Antleg Ltd. I find that, though not required, the appellant has, in fact, given the source of source and hence, the addition made by the Ld. AO cannot stand the test of legal scrutiny. I am also fortified in my above view by the decision of the Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. Tania Investments (P.) Ltd 322 ITR 394 (Born) and the Hon'ble Mumbai Bench of ITAT in the case of Income-tax Officer 9(1)-1 V. Anant Shelters (P.) Ltd. [2012] 20 taxmann.com 153(Mum.) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 2.4.33 It is seen that vide Para 2(b) of the Grounds of Appeal, the appellant has raised a without prejudice ground stating that in any case, the total investment made by M/s Antleg Cyprus Ltd. was only Rs.4.61 crore (Rs.21.92 lac + Rs.2.19 crore + Rs.2.20 crore) and the balance was accounted for by M/s Antleg Ltd. and others and hence, Ld. AO could not have made the addition of sum of Rs.27.10 crore by making an allegation regarding M/s Antleg Cyprus Ltd. which was shareholder only to the extent of Rs.4.61 crore. 2.4.34 As mentioned in respect of Ground No. 2(a), it is 55 5139 & 5338/Mum/2016 Idhasoft Ltd.
apparent that MIs Antleg Cyprus Ltd. would at best be responsible for investment of Rs.4.61 crore and even that amount was set off by way of Foreign Inward Remittance of US$ 10,50,000 vide Remittance dated 03/02/2007 and 14.03.2007 made by M/s Antleg Ltd. on behalf M/s.Antlég Cyprus Ltd. and thus the source of the funds which was routed through banking channels and reported to the RBI stands explained. If Ld. AO wanted to bring certain other information or evidence on record to negate the appellant's claim, he was not precluded from doing so. However, as brought out earlier, it is seen that he has not even cared to discuss the facts available on record and has merely gone by the FIPB rejection. As far as the policy decision of FIPB unit is concerned, the same cannot be held to be legally tenable for looking into the source of funds received by the appellant and for which detailed Foreign Remittance Certificates were also submitted to the Ld. AO including Form FCGPR submitted to the RBI. In this case, Ld. AO has based his findings only on the rejection of investment proposal by the FIPB and ignored the plethora of evidence produced by the appellant in support of the source of funds remitted through the banking channel and for which regular filings were made to the RBI and Ministry of Corporate Affairs. Thus, in view of the overbearing evidence and position of law analysed supra, addition made by the Ld.A0 has no legs to stand. Accordingly, Ground Nos. 2(a) and 2(b) are allowed.
2.5 In the result, the appeal is Partly Allowed." 3.7. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before adverting further, we are expected to analyze the facts. We note that the addition was made by the Ld. Assessing Officer on the premise that the 56 5139 & 5338/Mum/2016 Idhasoft Ltd.
nature and source of investment made by M/s Antleg Cyprus Ltd. were not found to be genuine by FIPB, while examining the proposal of M/s Prism Informatics Ltd. for issuance of share capital to M/s Antleg Cyprus Ltd.. Now, question arises whether addition can be made in the hands of the assessee under section 68 of the Act, while dealing with the case/application of a third party. The obvious reply is "NO". Because, firstly, the assessee is not expected to prove the source of source. Secondly, the identity of the parties is not in dispute and thirdly so far as genuineness of transaction is concerned, the assessee is not expected to prove the genuineness of transaction between third parties. There are so many decisions on this aspect which will be dealt with at later stage. As mentioned earlier, the Ld. Assessing Officer proceeded to make the addition merely on the basis of rejection of application done by FIB unit with respect to a third party. The total share capital of the assessee company was Rs.27.10 crores out of which issued, subscribed and paid up capital was Rs.22.71 crores and the share application money was Rs.4.39 crores. The Ld. Assessing Officer ignored 57 5139 & 5338/Mum/2016 Idhasoft Ltd.
this factual matrix that the investment made M/s Antleg Cyprus Ltd. in Assessment Year 2007-08 was only US$ 10,50,000/- and even this payment made by M/s Antleg Ltd. on behalf of M/s Antleg Cyprus Ltd. which is equivalent to Rs.4.61 crores as per the certificate for Foreign Inwards Remittance issued by City Bank and confirmation of M/s Antleg Ltd. as well as M/s Antleg Cyprus Ltd. filed before the Ld. Assessing Officer. These documents were duly considered by the Ld. Assessing Officer but he, while making the addition, was more inclined towards the application rejected by FIPB unit of M/s Prism Informatics Ltd.. The certificate of Foreign Inward Remittance dated 11/01/2007 (for Rs.4,42,40,000/-) and further a sum of US$30,00,000/- (equivalent of Rs.13,23,60,000/-) certificate dated 10/01/2007 of City Bank were filed before the Assessing Officer. All these documents were filed in Form FCGPR before Reserve Bank of India and thus cannot be said that the present assessee hide some information. So far as, the remaining investment is concerned, it was made by the individual share holder as reported by RBI and M/s Antleg Cyprus Ltd. was nowhere in question. The 58 5139 & 5338/Mum/2016 Idhasoft Ltd.
actual investment made by M/s Antleg Ltd. on its own and on behalf of M/s Antleg Cyprus ltd. in Assessment Year 2007-08 is summarized as under:-
Name of Date of Date of No. of shares Amount Amount in Allottee Receipt of Allotment in USD Rs.
Funds of shares Antleg 10/01/2007 10/01/2007 17,66,00,000 40,00,000 17,66,00,000 Ltd. Antleg 03/02/2007 30/03/2007 21,92,500 5,50,000 2,41,17,500 Cyprus Ltd. Antleg 14/03/2007 30/04/2007 87,86,250 5,00,000 2,20,06,250 Cyprus Ltd. Total(A) 50,50,000 22,27,23,750
3.8. If the impact of above entries is analyzed in the light of section 68 of the Act vis-à-vis section 106 of the evidence Act. As per section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanic Products Exporting Company vs CIT 241 ITR 497 (Kerala.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon'ble Apex Court in P. Mohankala (2007)(291 ITR 278)(SC). A close reading of section 68 and 69 59 5139 & 5338/Mum/2016 Idhasoft Ltd.
of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is well settled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. Where the assessee failed to prove satisfactorily the source and nature of such credit, the Revenue is free to make the addition. However, we note that the Ld. Commissioner of Income Tax (Appeal) has examined the issue in hand in a justifiable manner. Though there is a decision from Hon'ble Guwahati High Court in the case of Nemi Chand Kothari, which says that payment by cheque is always not sacrosanct and other attendant circumstances has to be considered. This decision has been considered by Hon'ble Delhi High Court in a later decision in CIT Vs Shiv Dhooti Pearls & Investment Ltd. [2015] 64 taxmann.com 329 (Delhi), wherein, it was held as under:-
60
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""12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra), Therein the Gauhati High Court referred to Section 68 of the Act and observed that The onus of the Assessee "to the extent of his proving the source whom which he has received the cash credit." The High Court held that the AO had ample 'freedom' to make inquiry "not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself" Thereafter, the High Court, on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act, held as under:-
'What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor's) sub- creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub- creditors, actually belongs to, or was of, the Assessee himself. In other words, while Section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, Section 106 makes the Assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the Assessee to show the source(s) of his creditor nor is it the burden of the Assessee to prove the creditworthiness of the source(s) of the sub-creditors. If Section 106 and Section 68 are to stand together, which they must, then, the interpretation of Section 68 has to be in such a way that it does not make Section 106 redundant. Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the Income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the Assessee to 61 5139 & 5338/Mum/2016 Idhasoft Ltd.
prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the Assessee."
3.9. In another decision in Mod. Creations Pvt. Ltd. vs Income Tax Officer (2013) 354 ITR 282 (Delhi), the Hon'ble High Court held/observed as under:-
"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub- creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors
14. In Mod. Creations (P.) Ltd. (supra) this Court negatived the case of the Revenue that the onus was on the Assessee to prove the source of the sub- creditor. It was observed as under:
"14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness 62 5139 & 5338/Mum/2016 Idhasoft Ltd.
of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A0. that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this all egati on. The I TAT, i n our vi ew, wit hout adver ti ng t o t he aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being ma/a Tide. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O if the Assessing Officer. had any doubt about the material placed on record, which was largely bank statements of the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A. 0. In any event what both the A. 0. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub- creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub- creditors. [See CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC)!.
(Emphasis supplied) 63 5139 & 5338/Mum/2016 Idhasoft Ltd.
3.10. If the aforesaid position of law is kept in juxtaposition with the facts of the present appeal, one clear fact is oozes out that the assessee duly discharged its onus as cast upon by section 68 of the Act, because, the assessee not only furnished the trail of banking transaction rather also produced the copies of form FCGPR submitted to the RBI evidencing receipt of funds from the foreign entity. As observed by the Ld. Commissioner of Income Tax (Appeal), the assessee also filed confirmation of the said entity before the Ld. Assessing Officer which has not been negated by him, thus, the identity of the creditor, its creditworthiness and the genuineness of the transaction has been explained. It seems that the Ld. Assessing Officer was more influenced by the application rejected with respect to M/s Prism and ignored the evidence of Citi Bank for remittance of the sum received from M/s Antleg Ltd. along with the confirmation filed by M/s Antleg Ltd. Even otherwise, the assessee is not expected to prove the source of source (though that has also been proved) as has been observed by the First Appellate Authority. Our view finds support from the decision from Hon'ble 64 5139 & 5338/Mum/2016 Idhasoft Ltd.
jurisdictional High Court in the case of CIT vs Tania Investment Pvt. Ltd. 322 ITR 394 (Bom.) and the Bench of this Mumbai Tribunal in the case of Income Tax Officer vs Anant Shelters Pvt. Ltd. (2012) 20 taxman.com 153(Mum.). The ratio laid down by Hon'ble jurisdictional High Court in Tania Investment Pvt. Ltd. ((supra)) is reproduced hereunder for ready reference:-
"The Revenue is in appeal on the following question :
"Whether on the facts and in the circumstances of the case and in law the hon'ble Tribunal was right in deleting the addition of Rs.7,41,17,495 made by the Assessing Officer towards unexplained cash credits even though the assessee-company had not proved the creditworthiness of the creditors to advance the loans to the assessee- company ?"
2. In the instant case, the Assessing Officer has disallowed the loss on the ground that there was no material. Before the Commissioner of Income- tax (Appeals) remand report was called from the Assessing Officer. The Assessing Officer on remand in his report admitted that the identity of the parties and also that there was corresponding entries in the books of account. The Commissioner of Income-tax (Appeals) consequently allowed the appeal. The Revenue came in appeal before the Income-tax Appellate Tribunal which was dismissed and consequently, the present appeal.
3. At the hearing on behalf of the Revenue, the learned counsel submits that in the case of entries in books of account pertaining to cash credit, the assessee has to establish (i) the identity of the party, (ii) capacity, and (iii)the genuineness of the transaction. In the instant case, the learned counsel admits that so far as identity is concerned, the parties have been identified and similarly in the books of account produced by them corresponding entries were found. The learned counsel submits that one of the predicate, namely, capacity to advance loan was not established, and the Income-tax Appellate Tribunal ought to have restored the matter to the Assessing Officer for reconsideration.
4. The learned Tribunal in its order, in order to answer the said contention, observed as under :
"The learned Assessing Officer having any doubt with regard to capacity of the party to advance loan, no one prevented him to verify the capacity of the creditors."65
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5. In our opinion, the books of account were available to the Assessing Officer. The books of account itself would indicate the capacity of the party to advance loan. There was no further need on the part of the assessee to prove the capacity of the creditors.
6. In the instant case, it is not possible to hold that the reasoning adopted by the Tribunal is devoid of merit and/or unsustainable. In the light of that, there is no merit in the appeal, which is accordingly, dismissed. 3.11. In the aforesaid case, the Hon'ble High Court while dismissing the appeal observed/held that when the books of account were available to the Assessing Officer and the books themselves would indicate the capacity of the party to advance loan. There was no further need on the part of the assessee to prove the capacity of the creditors. Thus, the reasoning adopted by the Tribunal was sustainable.
3.12. In another case of ACIT vs Linfox Logistics Pvt. Ltd. (ITA No.864/Mum/2012), order dated 30/09/2015, where the issue was with respect to cash credit from a foreign country, the Tribunal deleted the addition made on the basis of FIRC, issued by bank in following terms.
"7. We have carefully considered the rival submissions. During the year under consideration the assessee company received a sum of Rs. 1,02,78,800/-, which was claimed to be received from its parent company i.e. M/s.Linfox International Group Pty. Ltd., Australia. In support of such credit, assessee furnished before the lower authorities a copy of the F1RC issued by the Bank. The CIT(A) has noticed that the copy of FIRC furnished by the assessee reflects the name of the assessee as the beneficiary and the name of the sender/remitter - M/s.Linfox International Group Pty. Ltd., Australia was also 66 5139 & 5338/Mum/2016 Idhasoft Ltd.
mentioned. It is also noticed by the CIT(A) that FIRC shows purpose of the remittance as "towards share application". Quite clearly, the impugned sum has been received by the assessee through banking channels, and the material on record clearly brings out source as well as the nature of the amount received. Under these circumstances, in our view, the CIT(A) made no mistake in holding that the identity and creditworthiness of the creditor and genuineness of the transaction stood satisfactorily explained. In the absence of any credible material with the Revenue to disprove the findings of the CIT(A), we hereby affirm the same. Thus, on this aspect the Revenue fails."
3.13. Likewise, Hon'ble Delhi High Court affirmed the order of the Tribunal in the case of CIT vs Tulip Finance Ltd. (2009) 178 taxman 182 (Delhi) held/observed as under:-
"3 .......... As regards the remaining shareholder, that is S, it was noted that he was an NRI and the share capital of Rs. 15 lees received from him was through his NRE account. The remittances were through three separate cheques, of which details were available. The assessee had also filed bank certificates submitted to the RBI presumably for the purpose of remittance of dividend to said S. In the light of such evidence, the CIT(A) as also the Tribunal had come to a conclusion of fact that the assessee had discharged the burden which lay upon it for establishing the identity of the shareholders as well as the genuineness of the transactions. As such, the Tribunal confirmed the findings of the CIT(A) and deleted the addition which had been made by the AO. It is obvious that the findings returned by the CIT(A) as well as the Tribunal are pure findings of fact and no question of law arises on this issue."
3.14. In another case, Hon'ble Madhya Pradesh High Court, in the case of CIT vs Peoples General Hospital Ltd. (2013) 35 taxmann.com 444(Madhya Pradesh), while affirming the decision of the Tribunal, held as under:-
"In the case of CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008], the Apex Court specifically 67 5139 & 5338/Mum/2016 Idhasoft Ltd.
held that if the identity of the person providing share application money is established, then the burden is not on the assessee to prove the creditworthiness of the said person. However, the department can proceed against the said company in accordance with law. [Pare16] The position of the present case is identical- It is not the case of any of the parties that the company in Sharjah is a bogus company or a non-existent company and the amount which was subscribed by the said company by way of share subscription was in fact the money of the assessee. In the present case, the a.ssessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine, though as per contention of the assessee the creditworthiness of the creditor was also established. In the present case, in the light of the judgment of Lovely Exports (P.) Ltd. (supra), only establishment of the identity of the investor is to be seen. The Delhi High Court also, in the case of CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 2681[2007] 158 Taxman 440, considering a similar question held that the assessee- company, having received subscriptions from the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources. [Para 16] In view of law laid down by the Apex Court, the substantial questions framed in these appeals do not arise for consideration. Accordingly, all these appeals are dismissed with no order as to costs."
3.15. Though we have analyzed the facts in earlier paras of this order, with the help of certain cases but still fact remains that the whole addition was made by the Assessing Officer (as mentioned earlier), on the basis of application rejected by FIPB, while examining the proposal of M/s Prism Informatics Ltd., for issuance of share capital to M/s Antleg 68 5139 & 5338/Mum/2016 Idhasoft Ltd.
Cyprus by holding that the primary condition is not satisfied. However, as mentioned earlier (and observed by First Appellate Authority also), the assessee has discharged its onus, cast upon it by section 68 of the Act. This factual matrix was duly considered by Ld. Commissioner of Income Tax (Appeal) as well as by us. The explanation offered by the assessee with respect to nature and source of the credits was neither negated before Ld. Commissioner of Income Tax (Appeal) nor before this Tribunal as the assessee has satisfactorily explained the same. The effect of section 68 of the Act r.w.s 106 of the evidence Act is that a sum found credited in the books of the assessee can be charged to tax if the same is satisfactorily not explained. However, we find that the assessee has duly explained the nature and source even though the assessee is not expected to prove the source of source still we find that the ingredients enshrined in section 68 has been fully explained by the assessee as the burden has been satisfactorily discharged. The payments were through account payee cheque and the identity, creditworthiness, genuineness of the transaction (as the money was received 69 5139 & 5338/Mum/2016 Idhasoft Ltd.
through foreign remittance with RBI approval) has been established. Thus, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal), resultantly, the appeal of the Revenue is also dismissed. Finally,
(i) the appeal of the Revenue (ITA No.5338/Mum/2016) is dismissed
(ii) the appeal of the assessee (ITA No.5139/Mum/2016) is also dismissed.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 06/06/2018.
Sd/- Sd/-
(N.K. Pradhan) (Joginder Singh)
लेखा सद$य / ACCOUNTANT MEMBER या%यक सद$य / JUDICIAL MEMBER
मब
ुं ई Mumbai; *दनांक Dated : 13/07/2018
f{x~{tÜ? P.S / नजी स चव
70
5139 & 5338/Mum/2016
Idhasoft Ltd.
आदे श क &%त(ल)प अ*े)षत/Copy of the Order forwarded to :
1. अपीलाथ/ / The Appellant
2. 0यथ/ / The Respondent.
3. आयकर आय2 ु त(अपील) / The CIT, Mumbai.
4. आयकर आय2 ु त / CIT(A)- , Mumbai
5. 4वभागीय त न ध, आयकर अपील(य अ धकरण, मब ुं ई / DR, ITAT, Mumbai
6. गाड! फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मब ुं ई / ITAT, Mumbai,