Income Tax Appellate Tribunal - Delhi
Raj Hans Towers Pvt. Ltd., New Delhi vs Assessee on 14 August, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "F" NEW DELHI
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT
AND SHRI J.SUDHAKAR REDDY ACCOUNTANT MEMBER
ITA No: 1570/Del/2013
Asstt. Year 2004-05
M/s. Raj Hans Towers Pvt. Ltd. vs. ITO
M-33, 2nd Floor, Ward-15(2)
Greater Kailash-1, New Delhi.
New Delhi.
(PAN AAACR0019H)
(Appellant) (Respondent)
Appellant by : Shri R.S. Singhvi, CA
Respondent by :Shri Vikram Sahay, Sr. DR
Date of Hearing :09.7.2015
Date of pronouncement : 14.8.2015
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the assessee directed against the order of Ld. CIT(A) dated 14.2.2013 for the assessment year 2004-05.
2. Facts in brief : The assessee is a private Ltd. Company and it filed its return of income on 23.8.2004 declaring income of Rs. 11,000/-. The return of Income was processed u/s 143(1). Later notice u/s 148 of the Act dated 31.3.2011 was issued to the assessee. The assessee filed a reply dated 11.4.2001, wherein it has stated that, the return of income filed u/s 139 of the Act on 23.8.2004, be treated as a return filed in response to notice u/s 148 of the Act. The assessment was completed on 15.12.2011 u/s 147 r.w.section 143(3) determining total income of Rs. ITA No. 1570/Del/2013
Raj Hans Towers Pvt. Ltd. vs. ITO 2,14,38,400/-. Aggrieved the assessee carried the matter in appeal, challenging both the reopening of assessment as well as the merits of the addition. The first appellate authority dismissed the appeal of the assessee. Aggrieved the assessee filed this appeal on the following grounds :-
1. "(i)That CIT(A) was not justified in confirming reassessment under section 148 without appreciating facts of the case, provisions of law and submission of the appellant.
(ii) That there is no factual or legal basis in assuming jurisdiction U/S 148 as there is no case of any income escaping assessment or any tangible material and recording of satisfaction in the context of provisions of section 148.
2. That even otherwise, orders of lower authorities are not in consonance with reasons recorded by the assessing officer and orders passed by lower authorities are illegal, arbitrary and without jurisdiction.
3. That the appellant has duly filed all the relevant documents in support of addition of Rs. 2,14,27,4001- and same has totally been ignored and disregarded and addition was made on mechanical basis.
4(i). That no evidence or material was brought on record or provided to the appellant in the context of alleged addition and as such there is no valid basis for any such addition in the impugned reassessment proceedings.
(ii) That reference to statement of Sh. S. K. Gupta is without any factual or legal basis in the absence of any such allegation relating to the appellant company.
(iii) That even otherwise no opportunity for clarification and cross examination was allowed and as such the said statement is not admissible or having any evidentiary value.
5. That orders of the lower authorities are not justified on facts and same are bad in law."
3. Ld. Counsel for the assesee Mr. R.S.Singhvi argued that :-
a) The reasons recorded for reopening of assessment are vage, unsubstantiated and are not based on any tangible material 2 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO
b) In the satisfaction note, there is no reference to the nature and character of the transaction, mode and manner of such transaction and the amount attributable to the alleged entry provider.
c) The AO has not made any reference, to the statement of the parties who are alleged entry provider or to the entries in the bank account
d) In the reasons recorded, it is alleged that the assessee has received entries amounting to Rs. 20 lacs from Mrs. Anjali Gupta, Shri R.C. Goel and M/s.
Mitsu Securities Management Ltd. but, however, these entries are not corroborated from the assessment order passed. This proves that the information received by the AO from the investigation wing was vague and incorrect.
e) On the same reasons, reassessment proceedings were initiated against the assessee for assessment year 2005-06 and after verification and recording the statement of Shri S.K. Gupta, the assessment order was passed for the assessment year 2005-06 and no addition was made by the AO on account of alleged accommodation entries.
4. The Ld. Counsel for the asessee relied on the following case laws in support of his argument :-
1. CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC)
2. CIT vs. Central Warehousing Corporation (Delhi High Court) (dated 15/1/15)
3. CIT vs. Kelvinator India (2010) 320 ITR 561 (SC)
4. Mohan Gupta (HUF) vs. CIT (2014) 366 ITR 115 (Delhi High Court) 3 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO
5. On merits he submitted that statement recorded during the course of survey u/s 133A, as no evidentiary value and hence no reliance can be placed on the alleged statement in the possession of the Revenue .
6. He argued that initiation of reassessment proceedings was in respect of an amount of Rs. 20 lacs but the AO considered, other additions in an arbitrary manner and without recording proper reasons, had issued a notice u/s 148 illegally. He argued that no other addition can be in the reassessment proceeding beyond the material based to which reasons for reopening was recorded and notice under section 148 cannot be given, unless tangible material comes to the possession of the AO and a fresh reopening notice is issued. He relied on the decision of Hon'ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT (2011) 336 ITR 136 (Delhi) and other cases in support of this contentions. He submitted that the additions have to be deleted on this ground.
7. On merits he argued that the whole addition is based on the statement of Shri S.K. Gupta and in this statement Shri S.K. Gupta has made no references to the name of the assessee M/s. Raj Hans Towers Pvt. Ltd. He submitted that the share capital was received from directors. As regards other transactions i.e. loans he submitted that these were received from directors, family members and associated concerns who were all regularly assessed to income tax. He submitted that all necessary evidences were placed on record in support of these loan and share capital receipt. He argued that the assessee discharged the onus that lay on it by submitting all possible documentary evidence in support of the share capital and loan and that the AO nor the CIT(A) , made any attempt to independently verify the 4 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO same or gather adverse material so as to justify the addition. He relied on the following case laws :-
a) CIT vs. Metaphor Exports P. Ltd. (dated 13.1.2015)
b) ITO vs. Rakam Money Matters P. Ltd. (Delhi ITAT)
c) CIT vs. Rhombus International Pvt. Ltd. (Delhi High Court) (ITA No. 223/13)
d) CIT vs. Kamdhenu Steel & Alloys Ltd. SLP (CC) no. 15640 of 2012, dated 17.9.2012 (Supreme Court)
8. He contended that the correctness and genuineness of this document is not in dispute, they could be no factual or legal basis for any addition, as per legal principles laid down in the case of M/s. Lovely Export Pvt. Ltd. 319 ITR (St.) 5/216 CTR 195 and M/s. Orissa Corporation P. Ltd. 159 ITR 78 (SC).
9. On addition is made on unsecured loans he contended that, these entries are not part of the reasons recorded and though no incriminating or tangible material was found and though the assessee has furnished all the relevant documentary evidence in support of the loans, the addition made without enquiry or evidence . He submitted that the loans are mainly received of Directors, family members and other associated concerns who are regular income tax assessee. He pointed out that the ITAT, in its order for the assessment year 2008-09 has accepted the genuineness of these loans and hence this issue is no more res integra. He relied on the following case laws :-
1. CIT vs. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220
2. CIT vs. Rhombus International Pvt. Ltd. (Delhi High Court) ITA No. 223/13 5 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO
3.CIT vs. Metaphor Exports P. Ltd. judgment dated 13.1.2015
4.CIT vs. Diamond Products Ltd. 177 Taxman 331 (Delhi)
10. The Ld. DR Shri Vikram Sahay on the other hand supported the order of the first appellate authority and submitted that Shri S.K. Gupta was admittedly an entry provider and that Smt. Anjali Gupta is the wife of Shri S.K. Gupta. He referred to answer given to question No. 11 by Shri S.K. Gupta, copy of which was furnished by way of paper book by the revenue and submitted that Shri S.K. Gupta has given details of the bank account maintained by him and his family members and this includes the account of Smt. Anjali Gupta. He referred to page 26 of the assessee's paper book which is a statement of account of Shri R.C. Goel with Oriental Bank of Commerce. He pointed out that, the income of Shri R.C. Goel is by way of salary of Rs. 72,000/- page 18 of the paper book and whereas the cumulative transaction in the bank was Rs. 3.41 crores which is abnormal. He submitted that in the case of Smt. Neelam Goel the rent receipt was Rs. 2,72,400/- and the taxable income was Rs. 165050/- and whereas the cumulative transactions in the bank account were Rs.
50,73,000/-. This shows that the transactions of the assessee are not genuine. The assessee submits that the information received by the revenue was not vague information as alleged. He submitted a note to explain the circumstances leading to the search and survey action on Taneja Group. On the argument that , in the subsequent assessment year, no addition was made by the AO on the very same material, the Ld. DR submitted that this cannot a ground for deleting the additions and the order of the AO for that assessment year is not well founded. He pointed out during this year Shri S.K. Gupta did not appear and give his statement to the AO. He relied on the order of the Ld. CIT(A). He prayed that the order of the Ld. 6 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO CIT(A) should be upheld. He relied on the order of the AO as well as the order of the first appellate authority.
11. The Ld. Counsel for the assesee on the other hand submitted that Shri S.K. Gupta could not appear before the AO for the reason that he was asked to appear on 14th December, by way of notice dated 9th December,2007 and the order was passed on 15th December without giving proper opportunity and hence this cannot be a ground for the addition.
12. Rival contentions heard.
13. 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, as well as case law cited, we hold as follows.
14. The first issue that has to be adjudicated is whether the reopening of assessment is valid in law.
15. The reasons for reopening as recorded by the AO are as follows.
"Reasons for the belief that income has escaped assessment:
I Return declaring income of Rs. 11,000/- was filed on 23.08.2004 which was processed u/s 143(1) on 22.09.2004.
Information has been received from the Investigation Wing of the Income Tax Department that the above named assessee is a beneficiary of accommodation entries received from certain established entry operators identified by the Wing during the period relevant to A.Y. 2004- 05. A comprehensive investigation was carried out by the Investigation wing for identification of entry operators engaged in the business of money laundering for the beneficiaries and on the basis of investigation carried out and evidences collected, a report has been forwarded. I have perused the information contained in the report and the evidences gathered. The report provides details of the modus operandi of the 'money laundering scam' and explain how the unaccounted money of the beneficiaries are ploughed back in its books of account in various forms including the form of bogus share capital/ 7 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO capital gains etc after routing the same through the bank account (s) of the entry operators. Entry operators were identified after thorough investigation on the basis of definitive analysis of their identity, creditworthiness and the source of the money ultimately received by the beneficiaries, These entry operators are found to be mostly absconding/non- complying after the unearthing of the 'Money Laundering Scam' leaving the said money at the disposal of the beneficiaries without any associated cost or liability. In the instant case, the assessee is found to be the beneficiary of accommodation entry 'from such entry operators as per the following specific details of transaction:-
Amount Instrument Date Name of entry provider Name of Bank No. 20,00,000 650618 24.12.2003 Anjali Gupta/R.C. Goel HDFC Mitsu The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned . As explained above, the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that the income chargeable to tax amounting to Rs. 20,00,000/-, which is the assessee's own money, has escaped assessment within the meaning of Section 147 of the Act.
Since four years have since expired from the end of the relevant, assessment year, and no scrutiny assessment was completed in the case of the assessee for the said assessment year, the reasons recorded above for the purpose of reopening of assessment are put up for kind satisfaction of Addl CIT, Range-15, New Delhi in terms of Section 151 of the Act. "
16. Perusal of these reasons demonstrates that
a) It is based on a record from the investigation wing
b) The AO claims to have perused the information contained in the report and the evidence gathered by the investigation wing.
c) The report explains the modus operandi and identifies the entry operators and states that the entry operators are absconding leaving the money at the disposal of the beneficiaries 8 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO
d) The assessee is the beneficiary of the following accommodation entries Name of the Amount Date entry provider Anjali Rs. 20,00,000 24.12.2010 Gupta/R.C. Goel Mitsu
e) The assesee has received unexplained amount from entry operators and the genuineness of the transaction with the persons found to the entry operators cannot be established.
f) Therefore, the AO has the reason to believe that income chargeable to tax amounting to Rs. 20,00,000/-, which is the assessee's own money as escaped assessment.
17. In our view the AO has not referred to any tangible material, which has given into this position, based on which, he has come to the conclusion that income has escaped assessment. When the allegation of the investigation wing is that the assessee is itself an entry provider, to believe that the assesee has received accommodation entries from its directions is not a correct or cogent reason to believe that assessee's own money has been routed through an entry operator. The report of the investigation wing, has been accepted by the AO, without independent application of mind. No reference has been made to any material gathered by the investigation wing, either by way of statements or by way of bank statement evidences etc. There is no prima facie material, to take a prima facie view that the assesee's own money has been introduced by way of accommodation entries. When 9 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO the directiors are alleged to be entry providers for others. The allegation is that the assessee received accommodation entries from its Director Smt. Anjali Gupta. When it is clear that Shri S.K. Gupta is an entry provider himself, the allegation that, the company controlled by himself and other family members has taken accommodation entries, in the absence of any admission by Shri S.K. Gupta or evidence brought on record is a vague and unsubstantiated reason. This is a case where Shri S.K. Gupta and his family members claimed to have invested money in the company and under such circumstances , the reasons recorded for reopening in our view does not stand the tests laid down for sustaining the reopening.
18. Various courts have laid down the principles and propositions based on which the validity of reopening has to be tested.
We list some of them :
1. 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 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.10 ITA No. 1570/Del/2013
Raj Hans Towers Pvt. Ltd. vs. ITO
2. 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.
3. 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.
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 Oil 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;11 ITA No. 1570/Del/2013
Raj Hans Towers Pvt. Ltd. vs. ITO
(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 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)
4. 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.
5. 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 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 12 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO 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.
6 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 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.
7. CIT vs. Atul Jain (2008) 299 ITR 383(Del) held as follows :- 13 ITA No. 1570/Del/2013
Raj Hans Towers Pvt. Ltd. vs. ITO 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.
19. Applying the proposition laid down in these case laws to the facts of this case, we uphold the contentions of the Ld. Counsel for the assessee that the reopening is bad in law for the reason that ,
a) There is no tangible material, which come to the possession of the AO to lead to the conclusion that there was an escapement of income from assessment.
There is no reference to any statement or bank account or any other material other than a main report of the investigation wing.
b) The reasons recorded are not after independent verification and application of mind by the AO and it is merely based on a report of the investigation wing. This is clear from the conclusions in the assessment order that the figure of Rs. 20 lakhs is not correct.
14 ITA No. 1570/Del/2013
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c) The reasons are vague and unsubstantiated and are not corroborated at the time of assessment or by any other evidence, such as statement, bank account copy etc.
d) When share capital is contributed by the directors, to believe that the money in question belonged to the assessee company and that this money was routed through the director of the assessee company, based on the report of the investigation wing is unsubstantiated and not corroborated by any material.
20. We now consider the contentions on merits. The argument of the assessee is that the reopening is bad in law for the reason that approval was not obtained from the Joint Commissioner has to be dismissed as devoid of merit, as the Ld. DR has produced the approval by the Additional Commissioner of Income Tax dated 29.3.2011 and this approval is after due application of mind.
21. On the issue as to whether the AO was right in travelling beyond the reasons recorded for reopening the assessment which was only in respect of amount of Rs. 20 lacs alleged to be accommodation entry of share capital and making additions of amounts unconnected with the reasons and without any other tangible material, we find that the courts have laid down the following propositions of law on this issue:-
a. Ranbaxy Laboratories Ltd. v. Commissioner of Income-tax [2011] 336 ITR 136 . (Del) held as follows :-
Section 148 was supplementary and complementary to section 147. Sub- section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (I) mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute escaped income. Section 147 mandates recording of reasons to 15 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO believe by the Assessing Officer that the income chargeable to tax had escaped assessment. All these conditions were required to be fulfilled to assess or reassess the escaped income chargeable to tax. Under Explanation 3 if during the course of the proceedings the Assessing Officer comes to the conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.
b. CIT v. Living Media India Ltd. [2013] 359 ITR 106 (Delhi) held as follows :-
Reassessment - Notice - Validity - To be judged on basis of Reasons recorded prior to issue of notice - additions based on reasons recorded prior to notice deleted and that order becoming final - reassessment 011 other grounds recorded after issue of notice not valid.
c. Jay Bharat Maruti Ltd. v. CIT (Delhi High Court) [ITA No. 50112007] held as follows :--
Applying the aforesaid principle, it is clear that the proceedings under Section 147 of the Act cannot impinge upon items which have no connection or relation with items of income and/or expenditure which form the basis of a notice under Section 148(1) of the Act.
d. Vipan Khanna v. CIT 255 ITR 220 (P& H) held as follows :-
Reassessment proceeding u/s 147 is a special proceeding and can be confined to only to the issue on the basis of reassessment proceeding has been initiated and no general questionnaire can be issued for the same. It is not permissible for the AO to make fishing and Roving enquiries for finalizing the reassessment of the assessee.
e. Travancore Cements Ltd vs ACIT; (2008) 219 CTR 359 (Ker) Assessing officer gets jurisdiction under Section 148 to assess or reassess the income which has escaped assessment only after Sub-section (2) of Section 148 is complied with. The question is whether Sub-section (2) of Section 148 has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or 16 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO reassessing any of the items which are totally unconnected with the proceedings already initiated.
22. Applying the proposition laid down in these case laws to the facts of this case, we uphold the contentions of the assessee that the AO cannot consider additions other than those material in the reasons for reopening in the absence of fresh tangible material. In case fresh tangible material comes to the possession of the AO on any other issue, then the proper course of action would be, to record fresh reasons and issue a fresh notice u/s 148 . Thus the additions made by travelling beyond the reason for re-opening, without tangible material , is bad in law..
23. The other arguments of the Ld. Counsel for the assesee is that, on the very same reasons, based on the very same material, reasons were recorded and reassessment proceedings were initiated for the assessment year 2005-06 and the Assessing Officer had dropped the proceedings after recording the statement of Shri S.K. Gupta on 15.3.2013, on the ground that nothing adverse was found and hence no adverse inference is drawn. In our view this order of the AO for the assessment year 2005-06, cannot in any way influence the proceedings for this assessment year.
Each assessment year is an independent proceedings and the additions during the impugned assessment year has to be decided based on the merits and evidence of the current assessment year. Thus this contention of the assessee is rejected.
24. On merits, we find that the assessee has received share capital and loans from its directors and their family members and associated concerns. Evidences were filed consisting of
a) Confirmation of account letters alongwith PAN number 17 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO
b) Copy of IT return and acknowledgement
c) Copy of computation of income
d) Bank statement
e) In the case of company, copy of audit report alongwith balance sheet and profit and loss account , director's reports and in certain cases copy of assessment orders u/s 143(3) have been filed.
25. The assessee, in this case has furnished evidences in support of the transactions. There is no investigation whatsoever by the AO. No specific reasons are recorded by the AO or by the Ld. CIT(A), as to why the evidence filed by the assessee, casewise, cannot be accepted. No attempt has been made to discredit the evidences filed by the AO. Ld. DR had tried to fill in this gap by analysing the evidences filed by the assessee and bringing to the notice of the bench the issue of creditworthiness of some of the share applicants. Out of four persons who have purchased shares and out of 11 persons who have given loans, the Ld. DR analysed the evidence filed only by two persons. To this extent the claim of the Ld. DR is credible. The creditworthiness of these persons is not proved . Nevertheless in our view when Directors / share holders of the assessee company confirms having contributed capital and fails to substantiate the source of such contribution, this addition should be made in the hands of such directors / share holders, as no investigation is carried out by the AO in these cases also.
26. A perusal of the above demonstrates that the assessee has furnished before the AO evidences to establish the identity of the persons who either invested in share capital or granted a loan. On the other hand the AO has not conducted any investigation nor did he have any of the material gathered by the Investigation Wing 18 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO based on which the addition can be made. He merely relied on a report of the Investigation Wing.
27. The legal position enunciated by the Jurisdictional High Court is as follows.
a) In the case of CIT vs. Gangeshwari Metal P.Ltd. in ITA no.597/2012 judgement dt. 21.1.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt.Ltd. 342 ITR 169 and jdugement in the case of CIT vs. Lovely Exports 319 ITR (Sat.5)(S.C.) 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.l,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.l,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, balance4 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 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. "19 ITA No. 1570/Del/2013
Raj Hans Towers Pvt. Ltd. vs. ITO 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).
b) In the case of Finlease Pvt.Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement 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 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 20 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO 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."
14. 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.
28. As the assessee has produced evidences in support of this claim and as the AO has not conducted any investigation nor collected any evidence to controvert the claim of the assessee in our view applying the proposition laid down in the case law discussed above the additions are bad in law. Thus we allow the appeal of the assessee.
Order pronounced in the open court on 14th August, 2015.
sd/- sd/- (G.C. GUPTA) (J. SUDHAKAR REDDY) VICE PRESIDENT ACCOUNTANT MEMBER Dated: the 14th August, 2015 'veena' Copy of the Order forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard File By order Dy. Registrar Sl. Description Date No. 1. Date of dictation by the Author 9.7.2015 21 ITA No. 1570/Del/2013 Raj Hans Towers Pvt. Ltd. vs. ITO 2. Draft placed before the Dictating Member 14.7.2015 3. Draft placed before the Second Member 4. Draft approved by the Second Member 5. Date of approved order comes to the Sr. PS 6. Date of pronouncement of order 7. Date of file sent to the Bench Clerk 8. Date on which file goes to the Head Clerk 9. Date of dispatch of order 22