Income Tax Appellate Tribunal - Jodhpur
M/S. Surbhi Minchem Pvt. Ltd. , Jaipur vs Assessee on 9 May, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND
SHRI N. K. SAINI, ACCOUNTANT MEMBER
I.T.A. Nos. 102 & 103/JODH/2014
Assessment Years: 2006-07 & 2007-08
M/s Surbhi Minchem Pvt. Ltd. Vs. The Income Tax Officer
G-A-40, Satyam Complex, Ward-3, Bhilwara.
R.K. Colony, Bhilwara.
PAN No. AAJCS 8074 Q
(Appellant) (Respondent)
Appellant by : Shri P.C. Parwal.
Respondent by : Shri N.A. Joshi, D.R.
Date of hearing : 09/05/2014
Date of pronouncement : 16/05/2014
ORDER
PER N. K. SAINI:
These two appeals by the assessee are directed against the common order dated 16/12/2013 of Ld. CIT(A), Ajmer for the assessment years 2006- 07 and 2007-08. Since the common issues are involved in these appeals and the appeals were heard together, so these are being disposed off by this consolidated order for the sake of convenience.
2. Common legal issue raised vide ground No. 1 in each of the appeal read as under:-
"1. The Ld. CIT(A) has erred on facts and in law in confirming the action of the Assessing Officer in reopening of assessment proceedings u/s 147 of the Income Tax Act, 1961."2
3. Facts related to this issue in brief are that the assessee filed the return of income for the assessment year 2006-07 on 31/7/2006 declaring an income of Rs. 15,930/-, which was processed u/s 143(1) of the I.T. Act, 1961 (hereinafter referred as the Act). Thereafter the Assessing Officer received information from the investigation wing that a search was conducted in M/s Mahasagar Securities Pvt. Ltd. group of companies on 25/11/2009. Shri Mukesh Choksi and Shri Jayesh K. Sampat are Directors in these companies. It was found that above persons had entered into bogus transactions for giving entries of speculation profit/loss, short term/long term gain/loss, share application money, commodities profit/loss on commodity trading (through MCX). It was mentioned that these persons had given the above entries in lieu of cash received and they had charged commission for giving the accommodation entries. The Assessing Officer noted that assessee company had also claimed to have received Rs. 10.00 lacs as an amount for subscription of shares from M/s Alliance Intermediateries and Network Pvt. Ltd. and M/s Talent Infoways Ltd., both group concerns of Mukesh Choksi group, which was a bogus transaction. Accordingly, the Assessing Officer issued a notice u/s 148 of the Act after recording the reasons. In response to the notice issued by the Assessing Officer, the assessee filed the copy of share application form, board resolution, confirmation etc. of above companies and stated that 25000 shares were issued for Rs. 5.00 lacs and amount was received by cheque from M/s Alliance Intermediateries and Network Pvt. Ltd. and M/s Talent Infoways Ltd.. The Assessing Officer noted that the documents 3 produced were singed by Shri Mukesh Choksi who had given bogus entries. He also provided copy of statement of Shri Mukesh Choksi recorded during the search u/s 132(4) of the Act on 26/11/2009 and required the assessee to provide explanation regarding the statement made by Shri Mukesh Choksi that the bogus entries were given in the name of various concerns by him. The assessee again explained that confirmation, copy of share application form, board resolution, registration certification etc. of the companies, which had subscribed to the capital, had been filed and the above transactions had been entered through banking channels, so, the transactions were genuine. However, the Assessing Officer did not find merit in the submissions of the assessee and made the addition of Rs. 10.00 lacs considering the same as bogus share capital and also added Rs. 15,000/- on account of commission for receiving the above entry of Rs. 10.00 lacs.
4. Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and submitted as under:
"1. Assessee company was incorporated on 16.03.2006. It raised share application money with premium of Rs.31,40,000/- between 16.03.2006 to 31.03.2006. Out of the total share application money received by the assessee, an amount of Rs. 10 lacs (50000 Equity Shares of Rs.10 each with share premium of Rs. 10 each) was received from M/s Alliance Intermediateries & Networks Pvt. Ltd., Mumbai and M/s Talent Infoways Ltd, Mumbai on 29.03.2006.
2. The assessee filed the return u/s 139 (1) on 31.07.2006 at a loss of Rs. 15,930/-. No business activity was carried out during the year.4
Thereafter, AO issued notice u/s 148 dated 23.03.2011. (P.B 1) by recording the following reasons:-
"On perusal of the assesses company's return of income for assessment year 2006-2007, which was filed on 31.07.2006 in ITS-1 declaring total loss Rs.15,930; it reveals that the assesses company has incorporated on 16.03.2006 and introduced share capital including share premium i.e. Rs. 15,00,000/- to the tune of Rs. 31,40,000/-.
In due course, the information have received from the DDIT (lnv.-2), Udaipur alongwith report of the DDIT (Inv.), Unit-1 (4), Mumbai that search & seizure action under section 132 of the Income Tax Act, 1961 was undertaken in the case of Mahasagar Group of Companies Mumbai on 25.11.2009 on the basis of information received in an FIU alert from New Delhi regarding suspicious transactions taking place in the bank accounts of M/s Mahasagar Securities Private Limited and its related companies. The directors of these companies were one Mukesh Choksi and Jayesh K. Sampat. During the course of search it was revealed that the Mahasagar Securities Private Limited and its related group of 34 odd companies (the prominent ones being M/s. Alliance Intermediateries & Network Private Limited, M/s Mihir Agencies Private Limited, M/s. Goldstar Finvest Private Limited, etc. all run by Mukesh Choksi) were engaged in fraudulent billing activities and in the business of providing bogus speculation profit/loss, short term/long term gain/loss, share application money, commodities profit/loss on commodity trading (through MCX) and had been continuing this business from many years.
The information have also received from the DDIT (Inv.-2), Udaipur that the assessee company has obtained bogus entries in lieu of cash in the form of share application money from M/s. Alliance Intermediateries & Network Private Limited & Talent Infoways Ltd. Mumbai to the tune of Rs.5
5,00,000 during the period of 2005-06. Extract on related matter given below from the Notes of report of the DDIT (Inv.), Unit-1 (4), Mumbai.
One time entry/share application money: The companies of the group also help other companies introduce their unaccounted income as bogus share application money. For this the client company provides the list of documents to be given by the Mahasagar Group of companies which includes Memorandum & article of association of the Company making the investment, extract of resolution passed at the meeting of the Board of Directors of the company making the investment, declaration by the company making the investment, share application form, bank acknowledgement of receipt of sales consideration, of the shares at a later date duly signed by the Directors of the company making the investment, blank transfer deed, duly signed by the Directors of the company making the investment, list of its present directors. After giving the above mentioned documents, cash is received from the company seeking the entry/ adjustment which is deposited in the bank account of the (Mukesh Choksi) group companies other than the company from which entry is to be given. The funds are transferred from the subsidiary accounts to the bank account of the company making the investment. Cheque is issued in favour of the company seeking the entry/adjustment from the bank account of the company making the investment.
In view of the above facts and circumstances, such share application money introduced out of undisclosed source of income, to the extent of such sum, has escaped assessment should be chargeable to tax under section 147 of the Income Tax Act, 1961. I, therefore, have reasons to believe that the assessee has concealed the particulars of his income for the above mentioned year. Therefore, notice under section 148 of the Income Tax Act, 1961 is being issued for initiating the escaped assessment proceedings under section 147 of the Income Tax, Act, 1961.6
3. From the plain reading of above it can be noted that notice u/s 148 is issued as per the direction of DDIT(Inv.)-UDR & DDIT(Inv.), Mumbai. The primarily condition of section 148 is that AO must have reason to believe that income has escaped assessment. This satisfaction should be of AO himself and not a borrowed satisfaction. The AO has not considered the fact that the assessee was incorporated on 16.03.2006, it has not carried any business activity and therefore no question of generation of income in the hands of assessee arises. Therefore the share money received cannot be income of assessee. Therefore the notice so issued is illegal and bad in law. For this reliance is placed on the decision of Hon'ble Delhi HC in the case of CIT vs. SFIL Stock Broking Ltd. [2010] 325 ITR 285. The facts and the finding of this case are as under;
The Brief facts of this case are that after completion of assessee's assessment the DDIT (Inv.) informed the AO of assessee that during the course of investigation, one SG, proprietor of RK had stated on oath that the transactions through certain bank account were only paper transactions in which the party was intending to take bills paid in cash and issue cheques/drafts showing the said amounts as sale of shares. It was further informed that the assessee was neither a share broker nor a member of any stock exchange and that it was doing the work of giving entries. Further, information was given that the entry of Rs. 20.70 lacs in bank account was nothing but entry taken by paying cash. Thereafter on the basis of the aforesaid information, a notice under section 148 was issued by the AO to the assessee, which was allegedly the beneficiary of the bogus claim of long term capital gain shown on sale/purchase of shares. Accordingly, reassessment was completed. On these facts it was held that the first sentence of the so called reasons recorded by the AO was mere information received from DDIT. The second sentence was a direction given by the very same DDIT to issue a notice u/s 148 7 and the third sentence again comprised a direction given by Add.CIT to initiate proceedings u/s 148 in respect of cases pertaining to the relevant ward. It was clear that the AO referred to the information and the two directions as 'reasons' on the basis of which he was proceeding to issue notice u/s 148. These could not be the reasons for proceeding u/s 147/148. From the so called reasons it was not at all discernible as to whether the AO had applied his mind to the information' and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. Therefore the reassessment was not valid.
The facts of this case are squarely applicable on the facts of the assessee's case and therefore the reassessment proceedings initiated against the assessee are not valid.
In view of the above the assessment made by the AO is illegal and bad in law."
5. The Ld. CIT(A) after considering the submissions of the assessee observed that the contention of the assessee that the satisfaction of the Assessing Officer was the borrowed satisfaction was not apparent from the facts of the case as the Assessing Officer had received the specific information regarding the bogus share capital introduced in the name of M/s Alliance Intermediateries Ltd. and M/s Talent Infoways Ltd. Mumbai by Shri Mukesh Choksi, who admitted the same during the search in the case of above concerns and that the Assessing Officer had recorded detailed reasons for reopening the case u/s 147 of the Act and the escaped income of Rs. 10.00 lacs had been held to be the income of the assessee as per the specific provision of the Act. The ld. CIT(A), therefore, upheld the action of the 8 Assessing Officer for issuance of notice u/s 148 of the Act and assessment proceedings initiated u/s 147 of the Act. A reference was also made to his earlier decision dated 27/2/2012 in the case of M/s Madhu Sulzcon Pvt. Ltd. Bhilwara in appeal No. 335/11-12 for the assessment year 2007-08. Now the assessee is in appeal.
6. The Ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that from the plain reading of the reasons recorded by the Assessing Officer, it was clear that a notice u/s 148 of the Act was issued as per the information received from DDIT (Inv.), Udaipur & DDIT(Inv), Mumbai and in the second para of the reason even the name of M/s Talent Infoways Ltd., Mumbai was not referred. It was further stated that the reasons recorded by the Assessing Officer only indicated that as per the information of DDIT (Inv.), Mumbai, certain companies of Mukesh Choksi group were operating and providing accommodation entries and the assessee had also received share capital from such company. It was contended that the Assessing Officer just made general observation about information supplied by the Investigation Wing and sought to reopen the assessment without pointing out how the assessee had failed to disclose particulars in respect of share capital money fully and truly. It was further contended that the primary condition of Section 148 of the Act was that the Assessing Officer must have reason to believe that income has escaped assessment and this satisfaction should be of the Assessing Officer himself and not a borrowed satisfaction. Therefore, the notice so issued to the 9 assessee was illegal and bad in law. Reliance was placed on the following case laws:-
1. Rasalika trading and Investment Co. (P) Ltd. Vs. DCIT & Anr.
(2014) 101 DTR 24 (Del.) (HC).
2. CIT Vs. Kamdhenu Steel & Alloys L:td. & Ors. (2012) 68 DTR 38 (Del.) (HC).
3. Income Tax Officer Vs. Jyoti Global Pvt. Ltd. (2010) 29 CCH 929 (Del.) (Trib.)
4. CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del.) (HC). It was further submitted that the Ld. CIT(A) upheld the validity of reassessment by holding that the assessee's contention that the satisfaction of the Assessing Officer was a borrowed satisfaction was not apparent from the facts of the case as the Assessing Officer had received the specific information regarding the bogus share capital introduced in the name of M/s Alliance Intermediateteries & Networks Pvt. Ltd. and M/s Talent Infoways Ltd., Mumbai by Shri Mukesh Choksi, who admitted the same during the search in the case of above concerns and the Assessing Officer had recorded the detailed reasons for reopening the case u/s 147 of the Act but the Ld. CIT(A) ignored the following:-
- In the 'reasons to believe', the Assessing Officer had merely referred to certain investigation carried out by the DDIT (Inv.), Mumbai and Udaipur in respect of bogus/accommodation entries provided by M/s Alliance Intermediateries & Networks Pvt. Ltd. and M/s Talent Infoways Ltd.. The reading of these reasons clearly indicates that the Assessing Officer has not applied his own mind to 10 the issue or carried out any independent verification before issuing the notice.
- The assessee company was incorporated only on 16/03/2006. It has not carried any business activity and therefore no question of generation of income in the hands of assessee arises.
- So far as the order of Ld. CIT(A) in case of M/s Madhu Sulzcon Pvt. Ltd. is concerned, the Hon'ble ITAT has set aside this order to the file of the Assessing Officer as this case was decided ex-parte. Therefore, the order of Ld. CIT(A) in this case do not survive."
It was, accordingly, submitted that the assessment made by the Assessing Officer deserves to be set aside being illegal and bad in law.
7. In his rival submissions, the Ld. D.R. strongly supported the impugned order passed by the Ld. CIT(A) and reiterated the observations made by the Ld. CIT(A) in the said orders.
8. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the Assessing Officer reopened the assessment by issuing the notice u/s 148 of the Act and invoked the jurisdiction u/s 147 of the Act.
The provisions contained in Section 147 of the Act read as under:-
"147. 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 11 (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:"
From the above provisions, it is clear that for taking action u/s 147 of the Act, the Assessing Officer must have reason to believe that an income chargeable to tax has escaped assessment for any assessment year. Therefore, the Assessing Officer must satisfy himself regarding the escapement of income. He should not act mechanically or on the information supplied by any other person. In the present case, the Assessing Officer acted on the information supplied by the Directorate of the Income Tax (Inv.), Udaipur and Mumbai but he has not applied his independent mind and the reassessment proceedings were initiated only on the basis of information received from the investigation wing of the department. In the present case, the satisfaction regarding the escapement of income, was not of the Assessing Officer, therefore, without applying his mind, the Assessing Officer was not justified in invoking the provisions of Section 147 of the Act by issuing notice u/s 148 of the Act. On the similar issue, Hon'ble Delhi High Court in the case of CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del.) held as under:-
12
" The assessee in his original return of income had shown a long- term capital gain of Rs. 40,953/-. The return was processed under section 143(1) of the Income Tax Act, 1961. Subsequently, on the basis of the information given by the Deputy Director of Income-tax (Investigation) that the assessee was allegedly the beneficiary of a bogus claim of long-term capital gain shown on sale/purchase of shares a notice under section 148 of the Act was issued by the Assessing Officer to the assessee. In the reassessment proceedings, the Assessing Officer made an addition of Rs. 20,70,000/- holding that the assessee could not explain the source of the entries. The Commissioner (Appeals) confirmed the order passed by the Assessing Officer. The Tribunal quashed the entire reassessment proceeding. On appeal:
Held, dismissing the appeal, that the first sentence of the reasons recorded by the Assessing Officer was mere information received from the Deputy Director of Income-tax (Investigation). The second sentence was a direction given by the same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprised a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. The Assessing Officer referred to the information and the two directions as reasons on the basis of which he was proceeding to issue notice under section 148. These could not be the reasons for proceeding under section 147/148 of the Act. As the first part was only an information and the second and the third parts of the reasons were mere directions, it was not at all discernible as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessment. There was no substantial question of law for consideration."
In the present case also, the reason recorded by the Assessing Officer were merely on the basis of information received from DDIT (Inv.) Udaipur and Mumbai, therefore, from the so called reason, it was not at all discernable as to whether the Assessing Officer had applied his mind to the information and independently arrived at a belief that on the basis of the material which he had 13 before him the income had escaped assessment, therefore, the reassessment u/s 147 of the Act was not valid and accordingly the same is quashed. Since we have quashed the reassessment order, therefore, no findings are being given for the grounds raised by the assessee on merit.
9. In I.T.A. No. 103/Jodh/2014, the facts are identical and even the rival contentions were similar, therefore, our findings given in former part of this order relating to I.T.A. No. 102/Jodh/2014 for the A.Y. 2006-07 shall apply mutatis mutandis for the A.Y. 2007-08.
10. In the result both the appeals of the assessee are allowed.
(Order pronounced in the open court on 16/05/2014)
Sd/- sd/-
(HARI OM MARATHA) (N. K. SAINI)
Judicial Member Accountant Member
Dated: 16th May, 2014
*Ranjan
Copy forwarded to:
1. Appellant-
2. Respondent-
3. CIT(A)
4. CIT
5. D.R.
By Order
Assistant Registrar
ITAT, Jodhpur.