Income Tax Appellate Tribunal - Mumbai
Meenakshi N Shah, Mumbai vs Ito 19(2)(3), Mumbai on 20 June, 2018
आयकर अपील य अ धकरण, मंब ु ई यायपीठ, 'आई',मंब ु ई।
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "I", MUMBAI ी जो ग दर संह, या यक सद य एवं ी जी. मंजूनाथ, लेखा सद य, के सम Before Shri JOGINDER SINGH, Judicial Member, and Shri G. MANJUNATHA, Accountant Member ITA NO.7385/Mum/2016 Assessment Year: 2007-08 DCIT 5(2)(2) Meridian Chem Bond Mumbai बनाम/ Purchase Ltd., 903 Raheja Centre, Free Vs. Press Journal Marg, Nariman Point, Mumbai 400 021 (राज व /Revenue) ( नधा!रती /Assessee) PAN. AAACR1789G 2 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 ITA NO.7082/Mum/2016 Assessment Year: 2007-08 ITO19 (2)(3) Meenakshi N Shah, Mumbai बनाम/ 210/A, Panchratna Opera House, Vs. Mumbai 400 051 (राज व /Revenue) ( नधा!रती /Assessee) PAN. AAIHM7909Q C.O. NO.86/Mum/2018 (Arising out of ITA NO.7385/Mum/2016) Assessment Year: 2007-08 Meridian Chem Bond DCIT 5(2)(2) Purchase Ltd., बनाम/ Mumbai 903 Raheja Centre, Free Vs. Press Journal Marg, Nariman Point, Mumbai 400 021 ( नधा!रती /Assessee) (राज व /Revenue) PAN. AAACR1789G C.O. NO.85/Mum/2018 (Arising out of ITA NO.7082/Mum/2016) Assessment Year: 2007-08 Meenakshi N Shah, ITO19 (2)(3) 210/A, Panchratna बनाम/ Mumbai Opera House, Vs. Mumbai 400 051 ( नधा!रती /Assessee) (राज व /Revenue) PAN. AAIHM7909Q 3 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 नधा!रती क ओर से / Assessee by Shri Suchak Anchaliya (AR) राज व क ओर से / Revenue by Shri Virendra Singh-DR ु वाई क% तार&ख / Date of Hearing :
सन 12/06/2018
आदे श क% तार&ख /Date of Order: 20/06/2018
आदे श / O R D E R
Per Joginder Singh (Judicial Member)
The Revenue is aggrieved by the impugned order dated 29.09.2016 (ITA No.7385/M/2016) and 16.09.2016 (ITA No.7082/M/2016) of the Ld. Commissioner of Income tax(A), Mumbai and the assessees have preferred cross objections.
2. First we shall take up the appeal of the Revenue (ITA 7385/M/2016) wherein the first ground raised pertains to deleting the addition of Rs. 30,00,000/- on account of unexplained credits under section 68 of the Income Tax Act, 1961 (hereinafter the Act).
3. During hearing the learned DR - Shri Virendra Singh defended the addition made by the learned Assessing Officer by contending that there was an information with the Assessing Officer with respect to unexplained credits from 4 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Nice Diamonds and the actual payment of cash was not explained by the assessee therefore, circumstantial evidences cannot be ignored. The learned DR relied upon the decision from Hon'ble Apex Court in the case of Sumati Dayal (82 ITR
540) (SC). It was pleaded that accommodation entries with respect to the loan were provided by Bhawarlal Jain Group and other persons, who were shown as employees/Directors are merely dummy persons and their salary is also paid in cash. The learned DR contended that their statements were recorded by the Department along with the statement of Shri Bhawarlal Jain, wherein they accepted of providing accommodation entries. Our attention was invited to the finding at page 25 of the impugned order along with para 8.3 (page 26 of the order of the learned CIT(A)). Further our attention was invited to page 37 and 40 of the paper-book. The crux of the argument is in support of the addition made by the learned Assessing Officer.
4. On the other hand Shri Suchak Anchaliya, learned Counsel for the assessee defended the impugned order by 5 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 contending that the assessee took loans from M/s. Nice Diamonds, whose proprietor is Shri Bhupender Singh Karnawat and not Bhawarlal Jain as has been discussed in the assessment order. It was pleaded that interest was duly paid through account payee cheque and, ultimately, the loan which was taken from banking channel was also returned through banking channel. It was pleaded that even the statement of Shri Bhupender Singh Karnawat was never recorded by the department. Plea was also raised that the statement of Shri Bhawarlal Jain was recorded, which was retracted by him. It was also explained that no search was carried out on M/s. Nice Diamonds and the entire assessment order speaks of modus operandi of Shri Bhawarlal Jain and no discussion has been made with respect to M/s. Nice Diamonds. The learned counsel further explained that the assessee submitted the necessary details/income tax returns of M/s. Nice Diamonds from whom the loans were taken by the assessee. Our attention was invited to various pages of paper-book, details of loan taken and repaid and the assessee paid interest @6% on such loans for which our attention was 6 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 invited to page 25,44 and 46 of the paper-book. It was also pleaded that M/s. Nice Diamonds also filed affidavit in support of the claim (pg 47 of the paper-book). The learned counsel further contended that the statement recorded from Shri Bhawarlal Jain was never provided to the assessee and even the cross-examination was not provided for which our attention was invited to pg 19 (point no.5 & 6 ) of the submissions made before the learned Assessing Officer. The crux of the argument is that the onus cast upon the assessee under section 68 of the Act was duly discharged by the assessee.
5. We have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee is a private limited company, engaged in the business of manufacture of chemicals, declared total income of Rs. 94,96,330/- on 26.10.2007, which was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny therefore, the assessment was completed under section 143(3) r.w.s. 147 of the Act determining the 7 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 total income of Rs. 97,26,920/-. During assessment proceedings the assessee was asked to furnish the details of loans and advances taken from Shri Bhawarlal Jain to which the assessee vide letter dated 4.02.2015, made its submissions. The submissions of the assessee were considered and the details furnished by the assessee were found to be correct with respect to advances received before A.Y. 2007-08 (in A.Y. 2006) as is observed in para 6.1 of the assessment order. However, the learned Assessing Officer suspected the genuineness of loans of Rs. 30 lacs taken from Sankhla Exports and added as unexplained cash credit under section 68 of the Act.
5.1. On appeal before the learned CIT(A), the factual matrix was considered, along with various case laws and, ultimately, it was observed that there was no inconsistency or incoherence in the receipt of loan from the parties, consequently, the addition was deleted. The relevant finding as contained in para 5.2.2 (pg 11 of the impugned order) onwards is reproduced here under:
8
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 "5.2.2. In the instant case, however, as seen from the details filed before the AO, a set of which were also filed before me, I do not find any inconsistency or incoherence in the receipt of loans from the parties. Firstly. as regards the transaction, the same has routed through the banking channels and the source cannot be doubted. Secondly. as was held in several cases that whatever may be the strength of presumption it cannot replace evidence. Even though, the transaction is from a tainted group, the AO has not gathered any additional/independent evidence to show that the transaction with the appellant company was sham, fictitious or artificial except believing the statements given by the entry operators. He has failed to gather evidence to show that the unaccounted cash of the appellant had changed hands subsequently replacing the cheque payments. Thirdly. he has also not answered several valid points raised by the appellant nor proved how the details like PAN, the IT returns, confirmation letters, bank statements of the creditors, audited balance sheet of the creditors cannot be taken note of. Fourthly. the ITAT Mumbai in the case of Anant Shelters P Ltd. (2012) 20 taxmann.com 153 has laid down certain principles with regard to section 68 which the AO is bound to follow but do not seem to have taken note of. They are reproduced as under(para- 7)-
(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 AO, 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 offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee.The opinion of 9 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 the AO for not accepting the 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 AO is required to be formed objectively with reference to the material on record file. Once the explanation of the assessee is found unbelievable or false the AO is not required to bring positive evidence on record to treat amount in question as income of the assessee. While considering the explanation of the assessee, the AO 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 causal manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be called for while making inquiry under 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 casesfalling under Section 68.
(v) Confirmatory letters or A/c payee cheques do not prove that the amount in question is properly explained for the purpose of section 68.Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive.
(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 alcs. of the assessee is considered a proof against him. He can prove the identity 10 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue. Fifthly, the Honorable Supreme Court in the case of Lovely Exports Private Limited, (2008) 216 CTR 195 (SC), has stated that the AO is at liberty to bring to tax the amounts in their respective hands of the creditors if their identity, genuineness and creditworthiness is not proved. The AO should have made efforts to assess the amounts in the hands of the creditors at least on protective basis. Lastly, even if the creditworthiness of the creditors is not proved it will not automatically give license to the AO to make additions in the hands of the assessee u/s 68 unless it is proved that it is the unexplained money of the assessee which has been introduced in its books of account in the names of bogus/non-existent entities. In the instant case the AO has not made any dent in these lines. On the other hand the appellant has filed the following details in the case of M/s Sankhala Exports P Ltd. to prove the identity, genuineness and creditworthiness of the creditors.
1. Confirmation of Nc.
2. Income tax returns.
3. Bank Statements showing the loan transactions.
4. Audited Balance sheet & P&L A/c along with the schedule wherein credit in the name of the appellant is outstanding in their books.
5. Reply given by the party to the notice issued by the AO u/s 133(6) confirming the transaction with the assessee.
6. Payment of interest to creditors after subjecting the amount to TDS.
7. Details of repayment of loans in the form of bank statements and confirmation from the party to that extent. 5.2.3 As seen from the above, the appellant has furnished all the details proving conclusively the three ingredients of 11 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 identity and creditworthiness of the creditors and the genuineness of the transaction. The amounts were paid by the creditors from their running bank accounts which were accounted in the books of the appellant as well as the creditors as seen from the audited accounts filed. The transactions were also confirmed by all the creditors who are assessed to tax. Further, the appellant has paid interest through banks to the creditors by duly subjecting the interest amount to TDS and repaid the loans in subsequent assessment years i.e. in AY.2010-11 and 2011-12 along with interest. I find that the AO was in possession of good information in the form of investigation report, to begin with, but he could neither succeed to repudiate the evidences filed by the appellant nor he could gather independent evidence even to establish the surrounding circumstances not to speak of leading evidence to prove his hypothesis. In view of the above discussion I hold that the loan taken by the appellant from the above three parties cannot be doubted and the addition made by the AO u/s 68 of the Act cannot survive the test of appeal. I therefore, direct the AO to withdraw the addition. The ground is allowed."
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, we find that the assessee, during assessment proceedings as well as first appellate proceedings filed necessary details. The following details were filed by the assessee (as is evident from para 5.1.1 of the impugned order) 12 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 a. copy of the confirmation duly signed by Sankhala Exports Pvt. LTd. confirming that loan advanced by them to us are from banking channel.
b. Copy of the ledger account of M/s. Sankhala Exports Purchase Ltd. in our books of account duly confirmed by them c. Copy of PAN card of M/s. Sankhala Exports Purchase Ltd. to prove their identity.
d. Copy of bank statements evidencing loans advanced to us and showing that they have sufficient bank balance. e. Copy of acknowledgment of return of income filed by M/s. Sankhala Exports Purchase Ltd. for A.Y. 2007-08 to demonstrate that they are income tax payees and assessed to income tax f. Copy of affidavit given by Sankhala Exports Purchase Ltd. that they advanced loans of Rs. 30 lacs to the 13 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 appellant and no cash was received back by them from Appellant against the said loan.
g. Copy of bank statement of the appellant evidencing that loan of Rs. 30 lacs from M/s. Sankhala Exports Purchase Ltd. received from account payee cheques through normal banking channels.
h. Copy of Financial statement of M/s. Sankhala Exports Purchase Ltd. for A.Y. 2007-08 in which said loan transactions are duly reflected.
5.2. During hearing, the learned counsel for the assessee invited our attention to the decision of the Tribunal claiming to be on identical fact, in the case of M/s. Shree Laxmi Estate Pvt. Ltd. vs. Income Tax Officer (ITA No. 5954/M/2016 and ITA NO.2562/M/2017) wherein one of us (learned Accountant Member) is signatory to the order dated 19.12.2017. Therefore, in all fairness, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 19.12.2017 "2. The brief facts of the case extracted from ITA No.2562/Mum/2017 are that the assessee firm engaged in the business of builders and developers, filed its return of 14 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 income for the assessment year 2012-13 on 29-09-2012 declaring total income at Rs.21,572. The case has been selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued. In response to notices, the authorized representative of the assessee appeared from time to time and submitted the details, as called for. During the course of assessment proceedings, the AO noticed that information received from office of Director of Income-tax (Inv), Mumbai in the case of beneficiaries of accommodation entries obtained from Pravinkumar Jain. On going through the list furnished by the Investigation Wing, it was seen that the assessee was one of the beneficiaries of accommodation entries of loan being taken from group companies of Pravinkumar Jain. Therefore, the AO called upon the assessee to furnish details of loans taken from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd alongwith confirmation letters and their financial statements. In response to show cause notice, the assessee has furnished details of unsecured loans taken from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd alongwith confirmation letters, bank statements and financial statements of the parties to prove identity, genuineness of transaction and creditworthiness of the parties. The AO, after considering relevant submissions of the assessee and also taking into account information received from Investigation Wing, observed that the assessee is beneficiary of bogus accommodation entries provided by group companies of Shri Pravinkumar Jain which is evident from the fact that Shri Pravinkumar Jain was involved in the activity of providing accommodation entries. The AO further observed that ShriDinesh Choudhary a broker involved in arranging accommodation entries from group companies of Shri Pravinkumar Jain admitted in his statement that Shri Pravinkumar Jain was indulging in providing accommodation entries through his various concerns and not carrying out any genuine business activities. Therefore, based on the information received from Investigation Wing, the AO opined that though the assessee has furnished various details to prove identity, the loan transactions are not genuine and accordingly made addition u/s 68 of the Income-tax Act, 1961. Besides, the AO also disallowed interest paid 15 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 against the said bogus loans. The AO also made additions towards estimation of net profit from business activity of construction of Zoom Plaza and Aurm Park. Besides, the AO made addition towards disallowance of MVAT u/s 43B and disallowance of cash payment u/s 40A(3) of the Income-tax Act, 1961.
3. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before CIT(A), assessee filed elaborate written submissions to argue that the AO was not justified in making additions in respect of loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd despite furnishing confirmation letters alongwith the financial statements of the parties to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee further submitted that in response to notice issued u/s 133(6), the above parties filed their replies alongwith required documents before the AO, therefore, the AO was totally incorrect in coming to the conclusion that the loan transactions are bogus accommodation entries only on the basis of information received from Investigation Wing. As regards addition made by the AO towards estimation of net profit from business activity of construction of Aurm Park and Zoom Plaza, the assessee submitted that it is following project completion method for Zoom Plaza and profit method for Aurm Park and maintained separate books of account for both projects. The AO, ignoring above fact has estimated net profit at 10% on expenditure incurred for both the projects. Insofar as addition towards cash expenditure u/s 40A(3), the assessee submitted that it has made purchase at construction site on urgent basis, therefore, the AO was erred in disallowing the same without considering the nature of business of assessee. As regards disallowance of MVAT u/s 43B, assessee submitted that it is following project completion method and said MVAT has been considered in AY 2014-15, therefore, the AO was erred in disallowing MVAT u/s 43B of the Act. The CIT(A), after considering relevant submissions of the assessee and also relying upon plethora of judgements confirmed additions made by the AO towards unsecured loan from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. The CIT(A) also confirmed addition made by the AO towards estimation 16 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 of net profit from Zoom Plaza and Aurm Park and also addition made towards cash purchases u/s 40A(3) of the Act; however, deleted addition made by the AO towards MVAT u/s 43B of the Act. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
4. The first issue that came up for our consideration is addition made by the AO towards unsecured loan u/s 68 of the Act. The AO made addition towards unsecured loans alongwith interest thereon received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the ground that these are bogus accommodation entries received from group companies of Shri Pravinkumar Jain. According to the AO, the assessee is the beneficiary of accommodation entries provided by Shri Pravinkumar Jain from his bogus companies. The AO further observed that though the assessee has furnished details of identity, failed to prove genuineness of transactions and creditworthiness of the parties in the backdrop of clear findings of Investigation Wing that Shri Pravinkumar Jain has admitted that he was indulging in providing accommodation entries. This fact has been further confirmed by Shri Dinesh Choudhary, broker involved in arranging accommodation entries with Shri Pravinkumar Jain, who stated that Shri Pravinkumar Jain is indulging in providing accommodation entries, therefore, the AO opined that unsecured loans stated to be received from those companies are unexplained credit and hence made addition u/s 68 of the Act. It is the contention of the assessee that loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd are supported by valid documents. The assessee further submitted that it has furnished confirmation letters alongwith copies of their bank statement and acknowledgement of IT returns showing the above transactions. The assessee further contended that in response to notices u/s 133(6) issued by AO, the above parties replied alongwith documents mentioned in the notice, therefore, there is no reason for the AO to doubt the transactions only on the basis of information received from Investigation Wing that too, without providing any opportunity of cross examination of the parties. In this regard, he relied upon plethora of judgements including the judgement of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd 349 ITR 680 (Bom) and 17 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd vs CIT 216 CTR 295(SC).
5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns.
6. The AO has made addition u/s 68 of the Act, on the ground that the unsecured loans are bogus accommodation entries provided by Shri Pravinkumar Jain through his hawala companies. The provisions of section 68 deal with cases where any sum found credited in the books of 18 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 account of the assessee in any financial 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 AO, satisfactory, then sum so credited may be charged to income-tax as the income of the assessee of that previous year. A plain reading of section 68 makes it clear that the initial burden of proof lies on the assessee. It is well settled legal position that the assessee has to discharge 3 main ingredients in order to discharge the initial burden of proof, i.e. the identity of the creditor, the genuineness of transaction and creditworthiness of the creditors. Once the assessee discharges initial burden placed upon him, then the burden todis prove the said claim shifts upon the AO. In this case, the assessee has discharged his onus cast u/s 68 by filing identity of the creditors, genuineness of transactions and creditworthiness of the parties which is evident from the fact that the assessee has furnished financial statements of the creditors wherein the said transaction has been disclosed in the relevant financial years. We further notice that the assessee also filed financial statements of the creditors which are enclosed in paper book filed. On perusal of the financial statements filed by the assessee, we find that both the companies are active in the website of Ministry of Corporate Affairs. This fact has been further supported by the letter of AO wherein the AO has accepted that both companies, viz. Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd are active in MCA website. We further notice that both the companies have filed financial statements for the year ending 31-03-2006. Therefore, we are of the considered view that the assessee has discharged its initial burden cast u/s 68 by filing identity, genuineness of transaction and creditworthiness of the parties. Once, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis of information received from Investigation Wing, but not based on any evidence to disprove the loan transaction from above companies are ingenuine. Therefore, we are of the view that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act.
7. Coming to the case laws relied upon by the assessee, the 19 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom). We have gone through the case laws relied upon by the assessee in the light of the facts of the present case and find that the Hon'ble High Court categorically observed that the Proviso to section 68 has been inserted by the Finance Act, 2012 wef 01-04-2013 is applicable from AY 2013-14 onwards. The Court further observed that the Parliament did not introduce the proviso to section 68 with retrospective effect nor does the Proviso introduced states that it was introduced for removal of doubts. Therefore, it is not open to give retrospective effect. The relevant portion of the order of High Court is extracted below:-
"The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding the basis that the ad d ition of the proviso to section 68is immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.
In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a 20 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 case in this context to the pre-amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit." [Para 3]
8. The assessee has also relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Archid Industries Pvt Ltd in ITA No1433/Mum/2014 dated 5th July, 2017. The Hon'ble Bombay High Court, after considering relevant facts and also by following judgement in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of share i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would be applicable in the facts and circumstances of the present case."
9. The assessee has also relied upo the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). The Hon'ble Apex Court while deleting the addition made u/s 68 observed that if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the department is free to proceed 21 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 to reopen their individual assessments in accordance with law, but this amount of share application money cannot be regarded as undisclosed income u/s 68 of the Income-tax Act, 1961.
10. Coming to the case laws relied upon by the Ld.DR. The Ld.DR relied upon the decision of Hon'ble Delhi High Court in the case of Principal CIT vs Bikram Singh in ITA No.55/Del/2017 dated 25-03-2017. We have gone through the case law relied by the Ld.DR in the light of facts of the present case and find that the facts of case before Hon'ble Delhi High Court are entirely different from facts of the present case. The Hon'ble Delhi High Court, has considered the fact that the individuals, who advanced loans had no financial strength to lend such huge sum of money to the assessee, that too, without any collateral security without interest and without a lender agreement. Under these facts, the Hon'ble Court held that mere establishing of their identity and the fact that the amounts have been transferred through cheque payment does not by itself mean that the transactions are genuine. In this case, the assessee has furnished all evidences and also the parties personally responded to the notices issued by the AO u/s 133(6) by filing various details, therefore, case law relied upon by the Ld.DR cannot be applicable to the facts of the present case.
11. In this view of the matter and considering the ratio of the case laws discussed above, we are of the considered view that the assessee has discharged identity, genuineness of transactions and creditworthiness of the parties. Therefore, there is no reason for the AO to make addition towards loan u/s 68 of the Act. Hence, we direct the AO to delete addition made towards loans alongwith interest u/s 68 of the Act."
5.3. In view of the details contained in para 5.1 ((supra), now we shall examine the provision of section 68 of the Act. As per which the assessee is expected to offer an explanation with 22 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 respect to the nature and source of cash credits to the satisfaction of the Assessing Officer. For ready reference section 68 of the Act is reproduced hereunder:-
"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."
5.4. 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 23 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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 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 24 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 (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 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 25 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 sacrosanct. In the present appeal, we find that the assessee duly furnished the details of loan before the learned Assessing Officer as well as before the learned CIT(A). The loan was obtained through banking channel and the interest was also paid on such loan and ultimately the loan amount was returned. No evidence has been brought on record by the learned Assessing Officer evidencing that the loan was in fact accommodation entry as has been alleged in the assessment order and also argued by the learned DR. No material was gathered by the Assessing Officer to substantiate his presumption that in fact unaccounted cash of the assessee changed hands which was subsequently, replaced in the form of cheque. The assessee explained the genuineness of the transaction with documentary evidence as the confirmation from the party from whom loan was taken was filed supported by an affidavit and, admittedly, the loan was obtained through banking channel. The ledger account of M/s. Sankhala Exports P Ltd. was also filed along with the account of the assessee. The copy of the PAN card of M/s. Sankhala Exports was filed therefore, the identity is not in dispute. The copy of 26 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 bank statement of M/s. Sankhala Exports P Ltd., evidencing the advancement of loan showing sufficiency of funds and transaction in the account of the assessee was filed therefore, the transfer of money/loan through banking channel was produced/explained. The copy of acknowledgement of return filed by M/s. Sankhala Exports P Ltd. for A.Y. 2007-08 demonstrating that the concerned party is income tax assessee was also filed along with the affidavit sworn by the party confirming advancing loan to the assessee and receipt of the loan amount back along with interest therefore the genuineness of transaction cannot be doubted. The copy of the bank statement of the assessee evidencing that the loan was taken through banking channel was also filed therefore, the genuineness of the transaction cannot be doubted. The copy of financial statement of M/s. Sankhala Exports P Ltd. for A.Y. 2007-08, reflecting the loan transactions was filed. Therefore, the identity, creditworthiness and genuineness of the transaction along with the source of the amount is duly established. It is further noted that the whole addition is based upon the statement tendered by the key person of 27 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Bhawarlal Jain Group and such statement was later on retracted therefore, merely on the basis of statement that too in the absence of cogent material, we are of the view, cannot be the sole basis for making the addition. There is no basis for suspicion that the loan transaction was merely accommodation entry because no material has been brought on record by the Revenue in support of its suspicion. Even otherwise, suspicion cannot take the shape of evidence however, strong it may be. We are in agreement with the argument of learned DR only to the extent that it is not uncommon in the business as series of operations are conducted by the investigating agencies wherein accommodation entries are taking shape of cash credit/unexplained loan. However, in the present case no material evidence has been brought on record by the Revenue that in fact, the impugned loan is an accommodation entry or any cash had transacted hands. No independent inquiry was conducted by the learned Assessing Officer proving that any cash was transacted between the parties. Identical is the observation in the impugned order wherein no inconsistency 28 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 or incoherence in receipt of loan from the concerned party was found. Even if it is presumed that the transaction was through tainted person still no evidence has been brought on record to strengthen the presumption that accommodation entries were in fact taken. It is further noted that inspite of request of the assessee (as is evident from record page 19 of the paper-book) neither the statement nor cross-examination with respect to Shri Bhawarlal Jain was provided to the assessee, therefore, it is violation of principle of natural justice. In its application dated 18.03.2015, addressed to the learned Income Tax Officer the assessee has clearly mentioned/explained (para 4 onwards) as under:
"4. Further the concern M/s. Nice Diamond is assessed to Income Tax Act, 1961 (hereinafter the Act) vide PAN No. AIKPK8272C and regular in filing the IT return with Income Tax Authority.
5.The party M/s. Nice Diamond (Prop Mr. Bhupendra Singh Karnawat) is available and ready to appear before you and even you can also issue notice under section. 133(6) or summon under section. 131 of the Act for verification the genuineness of loan.
6. The assessee already requested you to provide the opportunity of cross examination to prove the genuineness of transaction, however till date no 29 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 opportunity of cross examination was provided by you.
7. The assessee has not paid or receive any cash against the said loan and there is no corroborative evidence to prove that the assessee has paid any cash against the said loan as the loan taken by the assessee is genuine and through banking channel.
8. Further in whole assessment proceeding's you have not stated whether any search and seizure action was carried out on M/s. Nice Diamond and Mr. Bhupendra Singh Karnawat has given any statement before Investigation Wing, Mumbai and specifically named the assessee. If any statement of Mr. Bhupendra Singh Karnawat recorded at all than the assessee request you to provide the copy of the statement on which you are relying.
9. In the said show cause notice you have stated that this office has carried out the independent enquiries/investigation under IT Act. Therefore, I request you to provide the detailed of the same. As the same cannot be used against the assessee without providing copy of the same."
If the aforesaid request/reply of the assessee is analyzed there is no dispute that the assessee categorically stated that the concerned party i.e. M/s. Nice Diamond (proprietor Mr. Bhupendra Singh Karnawat) is available and is ready to appear before the Assessing Officer and even further requested that the learned Assessing Officer is free to issue notice under section 133(6) or summons under section 133(1) of the Act for 30 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 verification and genuineness of the loan. This request of the assessee was never considered by the learned Assessing Officer. In para 7 of the same application (page 19 of the paper-book) it has been claimed that the assessee has not paid or received any cash against the said loan and further there is no corroborative evidence to prove the allegation made against the assessee. In para 6 of the aforesaid letter, the assessee has requested for providing cross examination to prove the genuineness of the transactions, which was not provided to the assessee. Even in the impugned order the learned first appellate authority has observed that the assessee paid interest through banking channels to the creditor by duly deducting the TDS and the loan amount was returned along with interest. This observation of the learned CIT(A) was never contradicted at any staed. It was noted that the claim/explanation of the assessee was never repudiated by the learned Assessing Officer with the help of any evidence and even no independent evidence was gathered to establish the surrounding circumstances, not to speak of bringing any evidence on record to prove the presumption by the Assessing 31 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Officer. Even otherwise, we are of the considered opinion that no addition can be made merely on the basis of statement made by a third party unless and until any corroborative material is brought on record to substantiate such statement/presumption. As mentioned earlier, presumption cannot take the shape of evidence however, strong it may be. Thus, we find no infirmity in the conclusion drawn by the learned CIT(A). Resultantly, the appeal of the Revenue is dismissed.
6. Now we shall take up the appeal of the Revenue in ITA No. 7082/M/2016 in the case of Smt. Meenakshi N Shah. The learned DR contended that she is daughter of Mr. Bhawarlal Jain, obtained bogus loan entries from Bhawarlal Jain Group. On the other hand, the learned counsel for the assessee contended that the fact and issue is identical to the case in ITA No.7385/Mum/2016.
6.1 We have considered the rival submissions and perused the material available on record. We have deliberated upon the issue in earlier paras of this order, while disposing of ITA 32 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 No.7385/M/2016, therefore, considering the factual finding recorded by the learned CIT(A) and discussion made by us, we find no infirmity in the order of the first appellate authority. Thus, this appeal of the Revenue is also dismissed.
7. Now we shall take up the Cross-objections of the assessee (CO Nos. 85 & 86/M/2018) wherein, the assessee has challenged the re-opening of assessment under section 147 of the Act.
7.1 The learned counsel for the assessee invited our attention to the reasons recorded by contending that there is ambiguity in the reasons for which our attention was invited to page 6 of the paper-book, which talks about Bhawarlal Jain Group and consequent search and survey action carried out by the Investigation Wing on 03.10.2013. Our attention was further invited to page 15 of the paper-book, containing a letter dated 05.01.2018, addressed to Meenakshi N Shah. The crux of the argument on behalf of the assessee is that for taking an action reasons should be on the same ground for which our attention was invited to the order of Hon'ble 33 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Bombay High Court in the case of Jet Airways (I) Ltd (331 ITR 236 (Bom)). On the other hand, the learned DR strongly defended the re-opening of assessment by explaining that there was information with the learned Assessing Officer that the assessee has taken accommodation entries from Bhawarlal Jain Group, therefore, there was a reasonable belief with the Assessing Officer that income chargeable to tax has escaped assessment. It was pointed out that reasons for re- opening were correctly recorded. Our attention was invited to the decision from Hon'ble Apex Court in the case of 291 ITR 500 (Supreme Court). The learned DR also invited our attention to section 292C of the Act.
7.2 We have considered the rival submissions and perused the material available on record. So far as, re-opening of assessment u/s 147/148 of the Act on the plea that the Ld. AO 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 the assessees 34 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 are individuals and the return was processed under section. 143(1) of the Act. Subsequently, the learned Assessing Officer on the basis of information received from the Investigation Wing with respect to search taken in the group concern of Shri Bhawarlal Jain, who indulged in providing accommodation entries, after recording the reasons, re-opened the assessment under section. 147 of the Act. A search and seizure action was conducted in the group concerns of Shri Bhawarlal Jain, wherein it was revealed that the group is engaged in providing accommodation entries to various parties by issuing non- genuine bills and also gave unsecured loans. As per the Revenue Shri Bhawarlal Jain Group is doing all these activities merely on papers without effecting real business activity and issuing bogus bills. The statement of Shri Bhawarlal Jain was recorded by the department (though retracted later on) admitting that they are providing accommodation entries/unsecured loans. However, in response to the notice the assessee furnished necessary details of the loans and interest paid thereon along with the copy of the affidavit duly sworn by the person from whom loan 35 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 were taken, confirming the claim of the assessee. The learned Assessing Officer on the basis of information re-opened the assessment. With this background, we shall analyze whether the Ld.AO was right in re-opening the assessment u/s.147 of the Act.
7.3 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. 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 36 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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:
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 37 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018
(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 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."
7.4. 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 38 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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 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.
39
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.5 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 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) 40 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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 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.
41
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.6 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 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 Gujara 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 42 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 (All.) and Ratnachudamani S. Utnal vs ITO (2004) 269 ITR 272, 277 (Karnataka) applying Sowdagar Ahmed Khan vs ITO (1968) 70 ITR 79(SC).
7.7. 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 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:- 43
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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) 7.8 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 44 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.9 The Hon'ble jurisdictional High Court in Export Credit Guarantee Corporation of India Ltd. v. Addl. CIT, (2013) 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.
7.10. 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 45 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.11 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 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);46
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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). 7.12. 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 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 47 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.13. 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 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 48 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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. 7.14. 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 49 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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. 7.15. 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 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 50 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.16. 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 51 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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. 7.17. 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 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 52 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.18. 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 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 53 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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. 7.19. 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 assessee would get opportunity to show sufficient cause to the assessing authority during the course of assessment. Thus, it 54 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.20. 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 petitioners according to the claim made by the petitioners. 55
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
7.21. In the case of CIT v. C. V. layachandran, (2010) 322 ITR 520 (Ker), where, the assessee did not concede the income 56 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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.
57
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.22 In the case of CIT v. Kerala State Cashew Development Corporation Ltd., (2006) 286 ITR 553 (Ker), 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 58 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 proceedings under section 147. Thus, the assessment was held to be validly reopened under Explanation 2(c) to section
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. 7.23 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 59 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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 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.
7.24 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 60 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 material facts necessary for the assessment of the relevant assessment year. The reassessment proceedings had been validly initiated.
7.25 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 61 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 years under consideration. The reassessment proceeding was held to be valid.
7.26 In Aurobindo Sanitary Stores v. CIT, (2005) 276 ITR 549 (Ori), there being a substantial difference between the 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 62 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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 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.
63
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.27 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 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)]; 64
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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)]; 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)].
7.28 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 65 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 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. 7.29. It is noted that Hon'ble jurisdictional High Court in the case of Yuvraj vs UOI (2009) 315 ITR 84 (Bom.) held as under:-
"that from the perusal of the order one found no application of mind on the part of the Asstt. Commissioner to the facts of the case, the issue to be dealt with and the reasons for passing the order. The value of the land was not determined by the revenue. The issue relating to capital gain or casual income was also not addressed by the revenue. In the light of the same, in the facts of the case, the Assessing Officer was justified in issuing the notice under section 148. The Asstt. Commissioner did not apply his mind and failed to record good and proper reasons for passing the order. In the facts of the case, one did not find mere change of opinion in recording reasons for issuing notice under section 148 by the Assessing Officer.
Likewise, Hon'ble Apex Court in the case of Raymond Woollen Mills Ltd. vs Income Tax Officer (1999) 236 ITR 34 (Supreme Court) held that the Supreme Court had only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency 66 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 or correctness of the material was not a thing to be considered at this stage. The Supreme Court could not strike down the reopening of the case in the facts of the instant case. It would be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee might also prove that no new facts came to the knowledge of the ITO after completion of the assessment proceeding. The Supreme Court was not expressing any opinion on the merits of the case. The questions of fact and law were left open to be investigated and decided by the assessing authority. The assessee would be entitled to take all the points before the assessing authority.
The appeals were dismissed.
7.30. The Hon'ble Jurisdictional High Court in the case of Jet Airways (I) Ltd .331 ITR 236(Bom) held as under:
"Explanation 3 to section 147 of the Income-tax Act, 1961, was inserted by the Finance (No. 2) Act of 2009, with effect from April 1, 1989. The effect of the Explanation is that even though the notice that has been issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of 67 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 the proceedings. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and" as well as "also"
have been used together and in conjunction. Evi-dently, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess : (i)such income ; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147 . An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148 , he accepts the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a notice under section 148 would be necessary in the event of challenge by the assessee. The effect of section 147 as it now stands after the amendment of 2009 can therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment 68 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148 ; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 the section ; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section."
The Hon'ble High Court while coming to the aforesaid conclusion relied upon the decision from Hon'ble Rajasthan High Court in the case of CIT v. SHRI RAM SINGH [2008] 306 ITR 343 (Raj) and also considered following decisions:
• CIT v. Atlas Cycle Industries [1989] 180 ITR 319 (P&H) • CIT v. Shri Ram Singh [2008] 306 ITR 343 (Raj) • CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 • (SC) Jaganmohan Rao (V.) v. CIT/EPT [1970] 75 ITR 373 • (SC) Travancore Cements Ltd. v. Asst. CIT [2008] 305 ITR 170 (Ker) • Vipan Khanna v. CIT [2002] 255 ITR 220 (P&H) 69 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.31 Hon'ble Apex Court in the case of ACIT vs. RAJESH JHAVERI STOCK BROKERS P. LTD. 291 ITR 500 (Supreme Court) held as under:
"Under the scheme of section 143(1) of the Income-tax Act, 1961, as substituted with effect from April 1, 1989, and prior to its substitution with effect from June 1, 1999, what were permissible to be adjusted under the first proviso to section 143(1)(a) were : (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly (iii) those claims which were, on the basis of the information available in the return, prima facie inadmissible, and were to be rectified/allowed/dis-allowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts and documents, either in allowing or in disallowing deductions, allowance or relief. Though technically the intimation issued was deemed to be a demand notice under section 156, that did not preclude the right of the Assessing Officer to proceed under section 143(2) : that right is preserved and not taken away.
With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted. During the period between April 1, 1998, and May 31, 1999, sending of an intimation was mandatory. The legislative intent is very clear from the use of the word "intimation" as substituted for "assessment"
that two different concepts emerge. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a) no addition which is impermissible by the information given in the return could be made by the 70 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Assessing Officer. The intimation under section 143(1)(a) cannot be treated to be an order of assessment. Under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where
(a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. It cannot therefore be said that an "assessment" is done by them. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156 for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. Nothing more can be inferred from the deeming provisions. Therefore, there being no assessment under section 143(1) (a), the question of change of opinion does not arise.
The expression "reason to believe" in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is "reason to believe" but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. ITO v. SELECTED DALURBAND COAL CO. P. LTD. [1996] 217 ITR 597 (SC) and RAYMOND WOOLLEN MILLS LTD. v. ITO [1999] 236 ITR 34 (SC) followed.
71
Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Taxing income escaping assessment in the case of an intimation under section 143(1)(a) is covered by the main provision of section 147 as substituted with effect from April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by the main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued. 7.32. If the material available on record and the judicial pronouncements discussed hereinabove are kept in juxtaposition with the facts of the present appeal, we find that the Ld. Assessing Officer was genuinely of the view that income chargeable to tax has escaped assessment as the assessee could not prove the genuineness of the transactions for purchasing fish and even the assessee did not appear before the Ld. Assessing Officer and even respond to the notices served upon the assessee and were issued u/s 147, 143(2) and 142(1) of the Act. While coming to a particular conclusion, the Hon'ble Apex Court in the case of Rajesh Jhaveri Stock Brokers ((supra)), distinguished the decision from Hon'ble Gujarat High Court taken in ADANI EXPORTS v. DEPUTY CIT (ASSESSMENT) [1999] 240 ITR 224 (Guj) by 72 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 holding that the Assessing Officer had jurisdiction to issue notice under section 148 for bringing to tax income escaping assessment in an intimation under section 143(1)(a) on the ground that the claim for bad debts by the assessee was not acceptable as the conditions for allowance specified in section 36(1)(vii) and (2) were not fulfilled. The Hon'ble Apex Court reversed the decision of Hon'ble Gujarat High Court in RAJESH JHAVERI STOCK BROKERS P. LTD. v. ASST. CIT [2006] 284 ITR 593 and also considered the decisions in Adani Exports v. Deputy CIT (Assessment) [1999] 240 ITR 224 (Guj), Apogee International Ltd. v. Union of India [1996] 220 ITR 248 (SC), Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 (SC), (ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). In the present appeal, the return filed by the assessee was processed under section. 143(1) of the Act and on the basis of information received from Investigation Wing and consequent search carried out in the cases of Bhawarlal Group, re-opened the assessment under section. 147/148 of the Act having reasonable belief that 73 Meridian Chem Bond P Ltd.
& Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 income chargeable to tax has escaped assessment, therefore, totality of facts available on record, clearly indicates that there was reasonable belief with the Assessing Officer that income chargeable to tax had escaped assessment. Consequently, so far as reopening is concerned, in the light of foregoing discussion, we do not find any infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal), thus, this ground of the assessee is devoid of any merit, therefore, dismissed in both the cross-objections.
Finally, the appeals of the Revenue and cross-objections of the assessee are 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 12/06/2018.
Sd/- Sd/-
(G. Manjunatha) (Joginder Singh)
लेखा सद#य / ACCOUNTANT MEMBER या$यक सद#य / JUDICIAL MEMBER
मब
ुं ई Mumbai; (दनांक Dated : 20/06/2018
SA-PS
74
Meridian Chem Bond P Ltd.
& Meenakshi N Shah
ITA No.7385 & 7082/Mum/2016 &
C.O. No.86 & 85/Mum/2018
आदे श क %$त'ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ, / The Appellant
2. -.यथ, / The Respondent.
3. आयकर आय0 ु त(अपील) / The CIT, Mumbai.
4. आयकर आय0 ु त / CIT(A)- , Mumbai
5. 2वभागीय - 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,