Income Tax Appellate Tribunal - Hyderabad
Komal Agrotech Pvt.Ltd., Hyd, ... vs Ito, Ward-2(1), Hyderabad, Hyderabad on 25 November, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B" : HYDERABAD
BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
AND
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
ITA.No.437/Hyd/2016
Assessment Years 2007-2008
M/s. Komal Agrotech P. The Income Tax Officer,
Ltd., Hyderabad - 012. vs. Ward-2(1),
PAN AABCK9442N Hyderabad.
(Appellant) (Respondent)
Stay Application No.40/Hyd/2016
Arising out of
ITA.No.437/Hyd/2016 - Assessment Year 2007-2008
M/s. Komal Agrotech P. The Income Tax Officer,
Ltd., Hyderabad - 012. vs. Ward-2(1),
PAN AABCK9442N Hyderabad.
(Applicant) (Respondent)
For Assessee : Shri K.C. Devdas
For Revenue : Smt. U. Minichandran
Date of Hearing : 09.11.2016
Date of Pronouncement : 25.11.2016
ORDER
PER J. SUDHAKAR REDDY, A.M.
This appeal is filed by the assessee directed against the order of the CIT(A)-9, Hyderabad dated 11.01.2016 on the following grounds :
1. "The order of the CIT (Appeals)-9 (CIT(A)) in holding that the reassessment proceedings are valid is wholly unsustainable on facts and in law.2
ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad
2. The Ld. CIT(A) failed to note that the learned Assessing Officer merely relied on the information received from DGIT (Investigations), Mumbai to reopen the assessment and neither the assessment order nor the reasons communicated indicate that the Assessing officer had applied his mind to the issue and therefore the entire reassessment proceedings are invalid, without jurisdiction, has no legs to stand and hence must be quashed.
3. The Ld. CIT(A) erred in confirming the addition of Rs.75 lakhs U/s.68 of the I.T. Act, 1961.
4. The Ld. CIT(A) failed to note that the entire evidence and proof for the receipt of Rs.75 lakhs by way of share application money and premiums were filed which has not been dispatched by any of the authorities and therefore the CIT(A) fell into error in confirming the addition of Rs.75 lakhs.
5. The Ld. CIT(A) at page 7.2 of the order erred in holding that the assessee failed to produce Mr. Praveen Kumar Jain for cross examination who was a witness for the department and failed to note that it was not the duty of the appellant to produce any person to substantiate the claim of the department and therefore the addition of Rs.75 lakhs is to be deleted.
6. The Ld. CIT(A) failed to note while confirming the addition or Rs.75 lakhs that the entire enquiry by DGIT (Inv.), Mumbai and the information received by the Assessing Officer about Mr. Praveeen Kumar Jain was used against the appellant without giving a copy of the evidence/statement received from the DGIT (Inv.), Mumbai, thus violating the principles of natural justice and on this ground alone, the entire assessment must be quashed and more so that addition of Rs.75 lakhs by the CIT(A).
7. Any other ground(s) that may arise at the time of hearing."
2. Facts in brief are that the assessee is a company engaged in the business of trading in pulses and grains. On 3 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad 28.07.2008 it initially filed its return of income for the assessment year 2007-08 admitting a total income of Rs.7,89,900. The assessment was reopened and was completed under section. 143(3) r.w.s.147 on 30.03.2015 determining total income at Rs.82,89,890. The addition made and agitated in this appeal is the addition made u/s 68 of the Act to the tune of Rs.75,00,000. The Assessing Officer has observed that during financial year 2006-07, the appellant company had received a sum of Rs.75,00,000 as share capital including premium. As per the Assessing Officer the entire sum was received from certain companies managed by one Mr. Praveen Kumar Jain who has admitted that this money was routed through bogus share applications. According to the Assessing Officer, the said sum of Rs.75,00,000 represented the amounts received from shell Companies. Therefore, the Assessing Officer had added the entire sum of Rs.75,00,000 as unexplained credit u/s 68 of the Act.
2.1. On appeal the First Appellate Authority upheld the order of the Assessing Officer. Further, aggrieved, the assessee is in appeal before us.
2.2. Learned Counsel for the assessee Shri K.C. Devdas submitted that
(a) Reopening of the assessment is bad in law as the Assessing Officer has not applied his mind to the communication from the DGIT (Inv.) Mumbai and merely reopened the assessment.
(b) Sanction from Addl. CIT under section 151 (2) has not been obtained.
4ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad
(c) The addition made under section 68 of the Act is bad in law as the assessee has filed evidence of the identity, creditworthiness and genuineness of the transaction and these evidences remain un-controverted by the Assessing Officer
(d) There is no investigation done or evidence collected by the Assessing Officer to disprove the evidence filed by the assessee. The A.O. had without evidence merely rejected the evidence filed by the assessee on surmises and conjectures.
(e) The addition was made based on a so-called statement of Mr. K. Praveen Kumar Jain which was never provided to the assessee. Mr. K. Praveen Kumar Jain filed an affidavit before the DGIT (Inv.), Mumbai retracting the statement and consequently, his statement cannot form the basis for making the addition.
(f) The statement was obtained behind the back of the assessee and an opportunity of cross-examination has not been provided. Hence, the statements in question cannot be used against the assessee.
(g) A perusal of the assessment order reveals that, the entire addition is based on the so-called investigation by the DGIT (Inv.) Office at Mumbai. The nature of investigation, the evidences collected, during the investigation, the conclusions drawn etc., are not known to the A.O. No material relating to that investigation is furnished to the assessee. Hence, the addition has to be quashed.
3. The Ld. D.R. Smt. U. Minichandran on the other hand, controverted the submissions of the assessee and argued that :
(a) Mr. K. Praveen Kumar Jain is a well-known entry provider and has admitted this fact before the DGIT (Inv.) Mumbai.5
ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad
(b) The Director of the assessee company in a statement recorded under section 131 on 15.09.2014 stated that Mr. Praveen Kumar Jain is a long time friend and that he will produce him and all other evidences and had sought time of two weeks. In such circumstances, to allege that no opportunity of cross-examination is given, is not correct. A copy of the affidavit of Mr. Praveen Kumar Jain retracting his admission before the I.T. Authorities, was filed by the assessee and hence, the onus is shifted to the assessee and it was for the assessee to produce Mr. K. Praveen Kumar Jain before the A.O.
(c) That the assessee could not prove the creditworthiness and genuineness of the transactions in this case and that the A.O. had arrived at the conclusion on examination of the evidences.
(d) That all the information and facts of these transactions are in the personal knowledge and domain of the assessee and to expect the Assessing Officer to investigate and bring-out the details is unwarranted. She relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Tarak Property Investment P. Ltd., 264 CTR 072
(e) She produced the assessment record to demonstrate that approval u/s 151(2) was obtained by the A.O.
(f) That the reopening of assessment was with application of mind and based on tangible material and hence is valid in law. She relied on the order of the Ld.CIT(A).
4. In reply, the Learned Counsel for the assessee submitted that this case of Tarak Property Investment P.Ltd. (supra) was not applicable as certain incriminating material was found in that case and hence was distinguishable on facts. He relied on number of case laws which we will be discussing as and when necessary.
6ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad
5. Rival contentions were heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows.
5.1. We first take-up the issue of reopening. Reasons for reopening are as follows :
"The assessee company M/s Komal Agrotech Pvt. Ltd engaged in the business of wholesale trading in fooD grains and pulses has filed its ROI for A.Y. 2007-08 on 28.10.2007 admitting a total income of Rs.7,89,890 from a gross turnover of Rs.12,92,07,096.
However, intimation has been received from the DGIT(Inv), Mumbai stating that during a search and seizure operation conducted on 01.10.2013 in the case of Sri Praveen Kumar Jain group, it came to light that Sri Praveen Kumar Jain has been controlling various dummy/paper companies whose only function has been to provide accommodation entries to other companies towards sales, unsecured loans and share application money. During the relevant previous year, three of such companies, namely M/s Javda India Impex Ltd., M/s Kush Hindustan Entertainment Ltd., M/s Olive Overseas Pvt. Ltd., have provided accommodation entries of Rs. 25,00,000 each to the assessee company towards share capital of Rs.15,00,000 and Securities premium of Rs. 60,00,000.
These accommodation entries totaling to Rs.75,00,000 have been provided to facilitate the assessee to regularize its unaccounted money of Rs.75,00,000 which has escaped assessment."
5.2. On perusal of these reasons demonstrates that, the assessment of the assessee has been reopened only on the basis of intimation received from DGIT (Inv.) Bombay without verification or application of mind. It was done in a mechanical manner.
7ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad 5.3. Under similar circumstances, the Hon'ble Delhi High Court in the case of (i) Pr. CIT vs. G & G Pharma India Ltd., in ITA.No.545/2015 vide order dated 08.10.2015 at paras 12 and 13 held as follows :
"12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10 February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has, introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called ITA No. 3602/Del/2010 C.O. No. 276/Del/2010 A.Y. 2000-2001 M/s Bawa Float Glass Limited 3 accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed 8 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.
13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity ."
(ii) Signature Hotels Pvt. Ltd. vs. ITO (2011) 338 ITR 51 (Del) held as follows:-
Allowing the petition, that the reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lakhs during financial year 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that 9 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad prima facie showed or established nexus or link which disclosed escapement of-income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September, 200 I. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed.
(iii) CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) held as follows :-
The concept of "change of opinion" on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief.
(iv). Madhukar Khosla vs. ACIT (2014) 367 ITR 165 (Del) held as follows :-
S. 147: If "reasons to believe" art not based on new, "tangible materials", the reopening amounts to an impermissible review.10
ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad In AY 2006-07 the AO passed an assessment order u/s 143(3). Thereafter, after the expiry of four years from the end of the AY, he issued a notice u/s 148 reopening the assessment on the ground that the records showed that an amount of Rs. 25L had to been added to the capital account for which the assessee had offered no explanation and that the same constituted undisclosed income u/s 68. The assessee challenged the reopening on the ground that there was no failure 011 its part to make a disclosure or material facts and the reopening was based on change of opinion. The department relied on the Full Bench verdict in Usha International 348 ITR 485 and argued that as the AO did not apply his mind at all to the question regarding the said capital contribution, it could not be said that there was a "change of opinion". HELD by the High Court allowing the Petition:
(i) In the recorded reasons. no details are provided as to what such information is which excited the AO's notice and attention.
The reasons must indicate specifically what such objective and new material facts are, on the basis of which a reopening is initiated u/s 148. This reassessment is clearly not on the basis of new (or "tangible") information or facts that which the Revenue came by. It is in effect a re-appreciation or review of the facts that were provided along with the original return filed by the assessee;
(ii) The foundation of the AO's jurisdiction and the raison d'etre of a reassessment notice are the "reasons to believe". Now this should have a relation or a link with an objective fact in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective "trigger", the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question. whether the re- opening of assessment 11 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment - no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd 320 ITR 561 (SC) and Orient Craft Ltd 354 ITR 536 (Delhi) followed, Usha International 348 ITR 485 (Del) (FB) referred)
(v) CIT vs. Insecticides (India) Ltd. (2013) 357 ITR 330 (DEL) held as follows :-
Dismissing the appeals, that the reasons recorded for the notice of reassessment for the assessment years 2002-03 and 2003-04 showed that they were based on the information received by the Assessing Officer from the Director of Income-tax (Investigation) that the assessee was involved in giving and taking bogus entries/transactions during the relevant year which actually represented unexplained income of the assessee. The Tribunal had found that the Assessing Officer did not mention the details of the transactions that represented unexplained income of the assessee. The information on the basis of which the Assessing Officer had initiated proceedings under section 147 of the Income- tax Act, 1961, was vague and uncertain and could not be construed to be sufficient and relevant material on the basis of which a reasonable person could have formed a belief that income had escaped assessment. The notice of reassessment was not valid and was liable to be quashed.
(vi) Orient Craft Ltd. vs. CIT (2013) 354 ITR 536 (Del) held as follows :-
Dismissing the appeal, that the reasons disclosed that the Assessing Officer reached the belief that there was escapement 12 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad of income "on going through the return of income" filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. The reasons recorded by the Assessing Officer did confirm the apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-a-vis an intimation issued under section 143(1) could cause to the tax regime. There was nothing in the reasons recorded to show that any tangible material had come into the possession of the Assessing Officer subsequent to the issue of the intimation. The notice ref1ected an arbitrary exercise of the power conferred under section 147.
(vii) Sarthak Securities Co. P Ltd. vs. ITO (2010) 329 ITR 110 (Delhi) held as follows:-
Allowing the petition, that the formation of belief was a condition precedent as regards the escapement of the tax pertaining to the assessment year by the Assessing Officer. The Assessing Officer was required to form an opinion before he proceeded to issue a notice. The validity of reasons, which were supposed to sustain the formation of an opinion, was challengeable. The reasons to believe were required to be recorded by the Assessing Officer. Once the ingredients of section 147 were fulfilled, the Assessing Officer was competent in law to initiate the proceedings under section 147. The Assessing Officer was aware of the existence of"
the four companies with whom the assessee had entered into transaction. Both the orders showed that the Assessing Officer was made aware of the situation by the investigation wing and there was no mention that these companies were fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicated independent application of mind. Though conclusive proof was not germane at 13 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad this stage the formation of belief must be on the base or foundation or platform of prudence which a reasonable person was required to apply. From the perusal of the reasons recorded and the order of rejection of objections, the names of the companies were available with the authority and their existence was not disputed. The assessee in its objections had stated that the companies had bank accounts and payments were made to the assessee through banking channel. The identity of the companies was not disputed. Under these circumstances, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act were to be quashed. CIT v. Lovely Exports (P) Ltd. [2009] 319 ITR (St.) 5 applied.
(viii). CIT vs. Atul Jain (2008) 299 ITR 383(Del) held as follows :-
Dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice under section 148 .. What had been recorded by the Assessing Officer as his "reasons to believe" was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The Assessing Officer had clearly substituted form for substance and therefore the action of the Assessing Officer was not sustainable."
(Emphasis ours).14
ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad 5.4. As the reasons recorded are mechanical and without application of mind whatsoever by the Assessing Officer to the information received from the DGIT (Inv.), Mumbai, we apply the proposition of law laid down by the High Court in this matter and hold that the reopening is bad in law.
6. On the second contention of the assessee that necessary approval under section 151(2) has not been obtained.
We hold that this ground is devoid of merits as the Ld. D.R. has produced the record to prove that an approval has been obtained from the Addl. CIT for reopening of assessments under section 151(2) of the Act. Hence this argument of the assessee is dismissed.
7. Coming to the merits of the case, we find that the assessee has filed the following information.
A. Javda India Impex Ltd.
1. Confirmation letter filed for investment of 25 lakhs (page 32)
2. I.T. Return filed on 27.11.2006 (Page 39).
3. Balance Sheet as on 31.3.2006 (page 33)
4. Return of income filed on 22.10.2007 disclosing an income of Rs.15,73,632 (Page 113)
5. Share capital is Rs.4,50,00,000 and reserves and surplus is Rs.28,74,056.
B. Hindusthan Entertainment Ltd.,
1. Return filed on 29.10.2007 on an income of Rs.6,21,991 (page 143).
2. Confirmation letter for investment of 25lakhs filed (page 34)
3. Balance sheet as on 31.3.2007 (Page 195) 15 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad
4. Share capital is Rs.300,00,000. Reserves & Surplus is Rs.58,30,148.
C. Real Gold Trading Co. Pvt. Ltd. (Formerly known as Olive Overseas P. Ltd.
1. I.T. Return filed on 27.10.2007. Income disclosed is Rs.5,41,580 (Page 103)
2. Confirmation letter (Page 33)
3. Balance sheet (page 114)
4. Share capital is Rs.1,96,37,000 and Reserves & Surplus is Rs.29,85,501."
7.1. There is no investigation whatsoever made by the Assessing Officer. The Assessing Officer merely relied on the alleged investigation done by DGIT (Inv.) Mumbai, without knowing any details of such investigation. No effort was made to obtain the evidence collected by DGIT (Inv.) and the conclusions drawn on such evidence if any by that authority. No material in the form of statements recorded from Mr. Praveen Kumar Jain or the other evidences collected by DGIT (Inv.) Mumbai were given to the assessee. Under these circumstances, we have to necessarily hold that the addition cannot be sustained by applying the following propositions laid down by various High Courts.
8. In the case of CIT vs. Kamdhenu Steel & Alloys Ltd., (2012) 248 ITR 33, the Hon'ble Delhi High Court has held that once the assessee has proved identity of creditor share applicant, by either furnishing PAN or copy of their bank account, the addition under section 68 of the Act cannot be made without any material to support the same.
8.1. In the case of CIT vs. Gangeshwari Metal P. Ltd. in ITA No.597/2012 judgment dated 21.1.2013 reported in 361 ITR 10 16 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad (Del), the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt. Ltd. 342 ITR 169 and judgment in the case of CIT vs. Lovely Exports 319 ITR (Sat.5) (S.C.) the Hon'ble High Court held as follows :
"As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer (sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect -
"Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000 may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000 and not Rs.1,11,50,000 as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000. The assessee has further tries to explain the source of this amount of Rs.55,50,000 by furnishing copies of share application money, balance sheet, etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.55,50,000 received by the assessee are treated as 17 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under Section 271(1)(c ) are being initiated separately. "
The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act, 1961.
Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law. "
The case on hand clearly falls in the category where there is lack of enquiry on the part of the A.O. as in the case of Gangeshwari Metals (supra)."
8.3. In the case of CIT vs. Fair Finvest Ltd., (2013) 357 ITR 146 (Del.) in ITA.No.232/2012 Judgment dt. 22.11.2012 at para 6 to 8, it is held as follows.
"6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application, affidavits for the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr.Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under 18 ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of S. 68 of the Income Tax Act, 1961.
7. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra).
8. The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material."
8.4. Thus a clear distinction has been made out in cases where the AO has conducted certain investigations and in cases where the AO merely rejected the evidences filed by the assessee and made an addition based on presumptions. Applying the propositions laid down in these cases, we have to delete the addition made under section 68 of the Act.
9. The CIT-DR relied on the decision of CIT vs. N. Tarak Properties Investments P. Ltd., (supra). In this case, the Assessing Officer noticed that the extracts of the bank accounts submitted by the assessee during the original assessment proceedings were fabricated. Hence, this is the case of fraud played by the assessee on the Revenue. The assessee had adduced false evidence to get undue advantage by giving colour of genuineness to bogus entries through fabricated bank accounts.
19ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad Under these circumstances, the Hon'ble Delhi High Court upheld the additions made under section 68 of the Act. Hence, the facts of that case are distinguishable from the facts of the assessee's case.
9.1. A plain reading of the assessment order demonstrate that the A.O. merely went by the investigation done by the Office of D.G.I (Investigation), Mumbai. No enquiries or investigation was carried out. No evidence to controvert the claims of the assessee was brought on record by the A.O. Even the statement of Mr.Praveen Kumar was supplied. Nothing is on record about the result if investigations done by DGIT (Inv.), Mumbai. The papers filed by the assessee do demonstrate, the identity, credit worthiness and genuineness of the transaction. The addition is made merely on surmises and conjectures.
9.2. In view of the above discussion, we hold that the addition made under section 68 of the Act is in bad in law. In the result, reopening of the assessment is quashed and the addition is also deleted on merits.
10. In the result, appeal of the assessee is allowed.
11. As the Appeal of the assessee has been allowed, the stay application has become infructuous and accordingly dismissed.
Order pronounced in the open Court on 25.11.2016.
Sd/- Sd/-
(SMT. P. MADHAVI DEVI) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 25th November, 2016.
VBP/-
20
ITA.No.437/Hyd/2016 & SA.No.40/Hyd/2016 M/s. Komal Agrotech P. Ltd., Hyderabad Copy to
1. M/s. Komal Agrotech P. Ltd., 15-9/10, Mukhtiyar Gunj, Hyderabad - 500 012.
2. The Income Tax Officer, Ward-2(1), I.T. Towers, Shantinagar, Hyderabad.
3. CIT(A)-9, 2nd Floor Annexe, Aayakar Bhavan, Basheerbagh, Hyderabad - 500 004.
4. Pr. CIT-2, Hyderabad.
5. D.R. ITAT "B" Bench, Hyderabad.
6. Guard File.