Income Tax Appellate Tribunal - Mumbai
Shree Global Tradefin Ltd, Mumbai vs Dcit Cen Cir 5(1), Mumbai on 15 October, 2018
आयकर अपील य अ धकरण, मुंबई यायपीठ, जे, मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "J", MUMBAI
ी जो ग दर संह, या यक सद य एवं
ी एन. के. धान, लेखा सद य, के सम
Before Shri Joginder Singh, Judicial Member, and Shri N.K. Pradhan, Accountant Member ITA NOs.7310 to 7313/Mum/2017 Assessment Years: 2010-11, 2008-09 & 2007-08 Shree Global Tradefin Ltd. DCIT-Central Circle-5(1) 35, Ashok Chambers, बनाम/ 19th Floor, Air India Broach Street, Devji Building, Nariman Point, Vs. Retansey Marg, Mumbai-400 020.
Masjid Bunder Mumbai-400 009.
(राज व /Revenue) ( नधा"#रती /Assessee) P.A. No. AAACB2975J
नधा"#रती क ओर से / Assessee by Shri D.V. Lakhani राज व क ओर से / Revenue by Shri N.C. Mohanty Sr. Standing Counsel ु वाई क' तार(ख / Date of Hearing :
सन 14/08/2018 आदे श क' तार(ख /Date of Order: 15/10/2018 2 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 आदे श / O R D E R Per Joginder Singh (Judicial Member) This bunch of four appeals is by the assessee against the impugned orders all dated 17/11/2017 of the Ld. First Appellate Authority, Mumbai, for Assessment Years 2007-08 to 2010-11.
2. First, we shall take up the appeal for Assessment Year 2007-08 (ITA No.7313/Mum/2017), wherein, grounds no. 1 to 3, raised by the assessee, pertains to validity of issuance of notice under section 148 of the Income Tax Act, 1961 (hereinafter the Act), which as per the assessee, is bad in law as the basic conditions enshrined in section 147 are not complied with.
2.1. During the hearing, the ld. counsel for the assessee, Shri D. V. Lakhani, advanced arguments identical to the grounds raised by explaining that during the original assessment proceedings, the assessee furnished the audited financial statements, all schedules and other relevant documents, along with the return wherein no addition was 3 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 made and thereafter the assessment was completed under section 143(3) of the Act on 15/12/2009. It was explained that notice under section 153C of the Act was issued on 26/12/2011, to which also, it was claimed that during these proceedings, complete information along with necessary details/evidences were filed and there also no addition was made while passing the order under section 143(3) r.w.s. 153C of the Act. It was further explained that notice under section 148 of the Act was issued on 21/03/2014 for which our attention was invited "to the reasons recorded" by the Ld. Assessing Officer (pages 5 & 6 of the paper book). The ld.
counsel invited our further attention to the objections filed by the assessee (page-7 to 9 of the paper book). The Ld. Assessing Officer rejected the objections for which our attention was invited to page-10 & 11 of the paper book). The ld. counsel also explained that in the rejection order, the ld. Assessing Officer mentioned wrong date of issuance of notice under section 148 as 16/12/2013, whereas, in fact notice under section 148 was issued on 21/03/2014. It was also pointed out that the ld. Assessing Officer wrongly mentioned the date 4 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 of filing of return as 09/01/2014. It was contended that the Ld. Assessing Officer did not consider the issues raised in the objections and has not dealt with any of the objections, which were raised by the assessee and merely relied upon the statements of Shri Om Hari Halan, Shri B.L. Agarwal and Shri Mukesh Chokshi, recorded during survey proceedings under section 133A of the Act in the case of "Lloyds Group of cases".
Our attention was invited to the statements available at pages 174 to 225 of the paper book. It was explained that the Ld. Assessing Officer relied upon the statement of Shri Mukesh Chokshi recorded on16/01/2013, whereas, in the reasons recorded the Ld. Assessing Officer referred to the statements recorded on 25/11/2009 and 26/11/2009, therefore, the Ld. Assessing Officer cannot improve upon any aspects beyond the reasons recorded, for which reliance was placed upon certain decisions, which will be dealt with in succeeding paras of this order. In support, reliance was placed upon the decision from Hon'ble jurisdictional High Court in the case of Hindustan Lever Ltd. (268 ITR 332)(Bom.).
5M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 2.2. The ld. counsel further explained that the order passed under section 153C of the Act was quashed by the Tribunal for which our attention was invited to pages 2779 to 2786 (paper book no.2) containing these orders. It was contended that the reassessment proceedings are in respect of order passed under section 153C of the Act and once that order is quashed, there is no question of escapement of income in respect of particulars of income, determined in order, passed under section 153C of the Act. It was also explained that the statement of aforementioned three persons, recorded during survey proceedings under section 133A in the case of Lloyd Group of cases, does not have any direct relationship with the escapement of income in the hands of the present assessee, because in the statements reference has been made to the transactions between certain parties and fourteen companies and even there is no whisper in the statement of all the three parties to the effect that any transactions took place with the assessee company. It was contended that in order to invoke the provisions of reassessment proceedings, there has to be a "direct and live 6 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 link" between the material available with the Assessing Officer and his conclusion that income chargeable to tax has escaped assessment. In support, the assessee relied upon the decision from Hon'ble Apex Court in the case of Income Tax Officer vs Lakhmani Mewal Das (103 ITR 437) (Supreme Court).
2.3. The ld. counsel for the assessee also took another plea that notice issued to the assessee is beyond four years from the end of the assessment year and thus proviso of section 147 is applicable as original assessment was completed under section 143(3) of the Act. The Ld. counsel empathetically argued that for a valid notice under section 147 of the Act, in the reasons so recorded, there must be a finding to the effect that income chargeable to tax has escaped assessment and there should be a failure on account of the assessee to disclose fully and truly all material facts which are necessary for assessment. The ld. counsel again invited to our attention to the reasons recorded (page -5 & 6 of the paper book), wherein, even there is no whisper in the reasons that in fact there is a failure on the part of the assessee to disclose fully and truly all material facts, which are necessary for 7 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment. The ld. counsel further explained that there was not even a single transaction with the assessee from any of the parties, which are allegedly managed by Shri Mukesh Chokshi, thus, no value can be attributed to the statement of Shri Mukesh Chokshi , Shri BL Aggarwal and Shri Om Hari Halan.
2.4. The crux of the arguments, on behalf of the assessee, is that the reassessment proceedings are bad in law as there was no tangible material with the Assessing Officer with respect to the amounts received by the assessee from fourteen parties in respect of whom addition was made and thus it tentamounts to change of opinion. The ld. Counsel, in support, relied upon the decision from Hon'ble jurisdictional High Court in the case of Purity Techtextile Ltd. vs ACIT (325 ITR 459)(Bom.) and another decision from Hon'ble Apex Court in CIT vs Kelvinator India ltd. (320 ITR 561)(Supreme Court).
The ld. counsel further argued that the conditions of the proviso to section 147 of the Act are not satisfied as there are no allegations in the reasons to the effect that there was any failure on the part of the assessee to disclose all material facts 8 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 fully and truly, which are necessary for assessment. In support of this proposition, reliance was placed upon the following decisions:-
i. German Remedies Ltd. V/s. Dy. CIT 287 ITR 494 (Bom) ii. Balkrishna Hiralal Wani V/s. I.Tax Officer & Othrs.
321 ITR 519 (Bom) iii. Jashan Textile Mills P. Ltd. V/s. Dy. CIT & Othrs.
284 ITR 542 (Bom) iv. Commr. of I.Tax V/s. Foramer France. 264 ITR 566 (SC) v. Shree Ram Foundry Ltd. Vs Dy. Commr. of Income Tax 250 CTR 116 (Bombay) vi. Sound Casting (P) Ltd. V/s. Dy. CIT & Othrs. 250 CTR 119 (Bom) vii. Titanor Components Limited Vs Asstt. Commr. of Income Tax , Circle -2 Writ Petition No.71 of 2005 (Bombay) viii. Wel Intertrade P. Ltd. V/s. Income Tax Officer 308 ITR 22 (Delhi) 2.5. Another plea raised by the assessee was that once the original proceedings are quashed then nothing survives. It was contended that the Tribunal quashed the proceedings under section 153C of the Act then no order can survive in 9 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 respect of which it can be construed that income chargeable to tax had escaped assessment. For this proposition, reliance was placed upon the decision from Mumbai Bench of the Tribunal in Westlife Development Ltd. vs Pr. CIT (ITA No.688/Mum/2016).
2.6. The ld. counsel further contended that addition has been made under section 68 of the Act and this section is invoked in relation to issue of shares by the assessee company, therefore, in view of the amendment, made in section 68 of the Act w.e.f. Assessment Year 2013-14, no addition can be made for earlier Assessment years. Reliance was placed upon the decision from Hon'ble jurisdictional High Court in CIT vs M/s Gagandeep Infrastructure Pvt. Ltd. (ITA No.1613/2014) (Bom.). The Ld. counsel also invited our attention to the objections of the assessee, which were rejected on 20/01/2015 and issuance of notice under section 142(1) of the Act. It was contended that the notice was issued within 30 days of the rejection of the objections and therefore the notice issued is bad in law. Reliance was placed upon the decision in GKN Driveshafts Ltd. (259 ITR 19)(Supreme Court) and in the 10 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 case of Asian Paints (296 ITR 90)(Bom.). It was also explained that all these companies are assessed by the same Assessing Officer and consequent assessment orders were passed. Our attention was invited to page-60, wherein, the details of cheque, bank name, branch name and amount is mentioned.
Our attention was further invited to pages 216, 223, 174, 184, 182, 185, 188, 199, 206, 207 and other pages of the paper book. The ld. counsel further invited our attention to page 47 onwards and order of the Tribunal pages 740 to 852 and page 695(para-4.1) of the Ld. Commissioner of Income Tax (Appeal).
These orders are passed in the hands of the Companies who have invested in the appellant company. The Ld. Commissioner of Income Tax (Appeals) has given a categorical finding that the Additional Commissioner of Income Tax (Central Circle) has admitted before him that during investigations of the share capital, being the source in the hands of the companies who have invested in the share capital of the Appellant company, that there was no any evidence found of cash deposits in the hands of those companies three level below. This finding was never challenged by the 11 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Department. The ld. counsel also filed a facts sheet narrating the complete factual and legal position of the present matters.
2.7. On the other hand, the Ld. Sr. Standing Counsel, Shri N. C. Mohanty, strongly defended the issuance of notice under section 148 of the Act by contending that income chargeable to tax had escaped assessment, for which our attention was invited to the observation made in the assessment order as well as in the impugned order. It was pleaded that the statements of Shri B. L. Agarwal, Shri Om Hari Halan and Shri Mukesh Chokshi were recorded, wherein, they have tendered that the assessee is the beneficiary of bogus share capital and the income was rooted through various companies, thus, based upon the statement upon these persons, notice under section 148 of the Act were issued in March 2014 and thus additions were rightly made under section 68 of the Act. It was also explained that survey action under section 133A of the Act as carried out in the case of M/s Lloyad Steel Industries on 20/12/2012 and the statement of Shri Babulal Agarwal and Shri Mukesh Chokshi and Shri Om Hari Halan were recorded. It was explained that 12 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Shri Babul lal Agarwal is the director of M/s Lloyd Steel Industries and the Director had admitted that there was suppression of yield in the manufacturing activites and claiming deduction of bogus expenses in the case of M/s Lloyd Steel Industries and this suppressed income was routed through fourteen companies. Our attention was invited to the statement of Shri Om Hari Halan recorded on 19/12/2012, wherein, he admitted that he was looking after the affairs of fourteen companies , thus, on the basis of statement of these three persons, notice under section 148 of the Act was rightly issued in March 2014 and thus the consequent addition under section 68 of the Act was rightly made. At this stage, the Bench asked the ld. Sr. Standing Counsel whether any tangible material came in the possession of the ld. Assessing Officer at the later stage, for which it was explained that statements were recorded from these three persons. These statements were claimed to be tangible material. However, the Ld. counsel for the assessee, in rejoinder argued that as far as statements of Shri Mukesh Choksi is concerned there is no whisper about any transaction with the Appellant Company.
13M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 As regards the statement of Shri Om Hari Hallan, recorded on 19.12.2012, the statement was continued overnight and on 20.12.2012 when the statement was recorded he has clarified certain recording of wrong facts in the statement on 19.12.2012 and confirmed that all the transactions are genuine and there are evidences supporting the source of the funds and also the appellate authorities have deleted the additions in the hands of the investing companies. As far as the Shri BL Aggarwal is concerned, the issue was offer of income in the hands of Lloyd Steel Industries Ltd, the method of earning income and application of income which has nothing to do with the transaction of the Appellant company.
In view of this no reliance can be placed on the statement of all the three persons to conclude that income chargeable to tax has escaped assessment. There is no direct nexus between what's stated in the statements and escapement of income in the hands of the Appellant company.
2.8. The Ld. Sr. Standing Counsel also contended that the cases relied upon by the assessee are on different facts, therefore, may not be applicable to the facts of the present 14 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 appeals. Similarly the Ld. Counsel of the Appellant also contended the facts of the case laws relied upon by the Ld. Sr. Standing Counsel are different from the facts of the present case and cannot be relied upon.
2.9. We have considered the rival submissions and perused the material available on record. Before adverting further, we are reproducing hereunder the notice issued under section 142(1) of the Act, by the Ld. Assessing Officer along with annexure for Assessment Years 2004-05 to 2010-11 in the proceedings initiated after issue of notice u/s 153C in the case of the Appellant, which is reproduced hereunder:-
ANNEXURE TO NOTICE U/S 142(1) Assessment Year: 2004-05 TO 2010-11
1. Letter of authority authorizing the person who is attending in connection with the assessment proceedings at the time of first hearing.
2. Submit a hard copy of original return, revised return and , return u/s 153A/C of income alongwith computation of income and tax payable on it, Profit as Loss Account and Balance Sheet with all enclosures.
3. Please furnish a detailed note on the 'nature of your business activities undertaken during the year clearly indicating the modus operandi of the business. Any change in activities of the company vis-a-vis the earlier year may be invariably indicated.
4. Please furnish complete address and telephone numbers of your office, branches, godowns and all other business premises.
5. Details of Directors in the following format Year wise Sl. No. Name of residential PAN Place of Assessment address of the Directors 1 2 3 4
6. Please give a list of all sister concerns where directors are interested directly or 15 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 indirectly and also those concerns which are under the same management, in the following format Sl. No. Name of residential PAN Place of Assessment address of the Directors 1 2 3 4
7. Please furnish details of your all bank accounts giving the branch addresses and account number in the following format:
Sl. No. Name of residential A/c. No. Type of Name of the person(s) address of the Bank Account acuhorized to operate Branch the account 1 2 3 4 5
8. Name and addresses of the parties(along with PAN and the designation of the Assessing officer where .presently assessed to tax ) to whom loans and advances have been given and reasons for not earning any interest on the same, in following format:
Sl. No. Name and Opening Addition Repayments Balance address of the balance during the during the year outstanding on party year year ending
9. Details of investments sold/made during the year along with the capital gain working and source of Investment. Explain the same.
10. Please file details of the shareholding as on year ending on 31.03.2004 to 31.03.2010 in the following format specifically mention about promoters share holdings:
Sl. No. Name & address of the PAN No. No. of shares Percentage of share share holder held holding 1 2 3 4 5
11. Details of carry forward and brought forward losses and assessed losses in the following format:
Sl. No. A.Y. Claimed loss Assessed loss
12. On perusal of profit and loss account for various years for AY 2004-05 to 2010-11, it appears the assessee company has debited loss on sale of shares. In this regard, you are required to provide details with all documentary support(copy of demat account, transaction cum holding statement, contract notes, source of purchase amount etc) in following format:
Sr. Scrip/MF Opening Purchase Sale Holding Divd. STT Closg.
No. balance peirod Recv. Pd. Balance
(day
wise)
Date Qty Value Date Qty Value Date Qty Value
16
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
13. Please file detail of credits on account of Preference share capital. Establish the identity and creditworthiness of the persons from whom - these amounts have been received. Fii their confirmed copy of account along With PAN, present address, bank statement of that party showing • the particular transactions and acknowledgement of IT return for the year under 'consideration.
14. Bank reconciliation statement in respect of bank balance(s) along with bank statement for the financial years under consideration.
15. Please File the loan confirmation along with copy of account showing each entry for each year for Secured and unsecured loans along with the Bank statement and 1TR acknowledgement of the Lender.
16. Please provide the details of Sundry Debtors, Sundry Creditors and Loans and Advances.
17. Please Provide the details of Sales party wise ( with Address and PAN no) above Rs 5 lacs for the financial year under consideration.
18. Please Provide the details of Purchase party wise ( with Address and PAN no) above Rs 5 lacs for the financial year under consideration.
19. Please provide the details of All Expenses debited to Profit 8r, Loss a/c for the financial year under consideration.
20. Kindly go through all the seized/impounded documents including that on electronic media and loose papers found from your residence / office / business premises and give a detailed explanation alongwith all relevant supporting documents on all the transactions recorded in the same, showing that the same are duly reflected in your books of accounts for income tax purposes.
21. Kindly ,go through all the statements given, on various dates u/s.132 and 131. of the 1.T.Act 1961, and furnish explanation, statement-wise, on the compliance made for all the commitments with respect to furnishing of details/ explanations/ evidence on specific queries posed. If you have still not complied with the same, you are requested to do so, failing which, it will be understood that no explanation/details/evidence have been furnished in respect of the transactions referred to in the said queries.
22. You are requested to furnish the above details on 15.05.2011 at 11.30 AM.
All the details should be submitted in the order in which they appear above preferably in type written form. Submission of details on floppy/CD alongwith the hard copy will be appreciated. Since sufficient time is given to you, all the details should be submitted in one go. In case you have already replied any of the above mentioned particulars, you may mention it in your reply. Please make sure that submission should be in same sequence as it appears in this questionnaire.
23. You are requested to explain the contents of the seized papers at times of hearing and further queries in this regard will be raised accordingly.
Kindly note that non-compliance to the notice may attract penalty u/s 271(1)(b) of the I.T. Act, 1961 of Rs.10000/- for each such failure.
Sd/-
Assisstant Commissioner of Income Tax Central Circle-32 Mumbai 17 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 2.10. The assessee filed original return of income on 23/10/2007 along with audited financial statements and other details and the order was passed under section 143(3) accepting the returned income. Thereafter, notice under section 153C was issued on 16/12/2010. Since, the facts are identical, therefore, we deem it appropriate to summarize the date-wise events of the assessment proceedings, which are as under:-
Sr. Particul A.Y. A.Y. A.Y. A.Y.
N ars
O.
2007-08 2008-09 2009-10 2010-11
1 Return 23.10.2007 25.09.2008 09.10.2009 27.09.2010
filed
u/s.
139(1)
2 Order 15.12.2009 29.10.2010 ---- 26.12.2011
u/s.
143(3)
3 Notice 16.12.2010 16.12.2010 16.12.2010 NA
u/s.
153C
4 Return 07.05.2011 07.05.2011 09.05.2011 NA
filed in
respons
e to
notice
u/s.
153C
5 Order 26.12.2011 26.12.2011 26.12.2011 NA
u/s
153C
r.w.s.
143(3)
18
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
6 Order of 01.08.2012 01.08.2012 01.08.2012 01.08.2012
CIT(A)
7 Order of 14.09.2016 14.09.2016 14.09.2016 14.09.2016
Hon'ble
ITAT
8 Survey 19/20.12.2 19/20.12.2 19/20.12.2 19/20.12.2
u/s. 012 012 012 012
133A in
the case
of Lloyds
Steel
Industri
es Ltd.
Basis for
issue of
notice
u/s 148
9 Notice 21.03.2014 21.03.2014 16.12.2013 24.03.2014
u/s 148
10 Return 02.04.2014 02.04.2014 09.01.2014 02.04.2014
filed in
respons
e to
notice
11 Order 31.03.2015 31.03.2015 31.03.2015 31.03.2015
u/s 147
r.w.s
143(3)
12 Order of 17.11.2017 17.11.2017 17.11.2017 17.11.2017
CIT(A)
against
which
the
present
appeal
is filed
If the aforesaid chart is analyzed for Assessment Year 2007-08, it is seen that the assessee filed return under section 139(1) of the Act on 23/10/2007 for Assessment Year 2008-09 on 25/09/2008, for Assessment Year 2008-09 on 09/10/2009 19 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and for Assessment Year 2010-11 on 27/09/2010. Orders under section 143(3) of the Act, accepting the returned income were passed on the dates mentioned in the aforesaid chart.
Thereafter, notices under section 153C were issued on the respective dates mentioned in the chart. The assessee filed the return in response to notice under section 153C, which are also summarized above. The Ld. Assessing Officer framed the assessment under section 153C r.w.s. 143(3) of the Act on the dates mentioned in the chart above.
2.11. We note that before framing the assessment/ original assessment under section 143(3) of the Act, the assessee was issued a detailed questionnaire with respect to issue in hand. All these documents/reply, analysis were duly filed by the assessee during original assessment. This factual matrix is part of record and not even denied by the Revenue.
Thus, we note that the original assessment was framed after examination of facts, due application of mind and thereafter the assessment was framed under section 143(3) and also under 143(3) rws 153C of the Act. The Ld. AO accepted the claim of the Appellant regarding the genuineness of the share 20 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 capital received from all the four parties in AY 2007-08. We further note that the assessee filed necessary declaration and details of issue of preference shares with the Registrar of the companies. No premium was received against issue of preference shares in its books of accounts. Notices under section 143(2) and 142(1) were issued to the assessee asking for complete details and information, amount received in Assessment Year 2007-08 and issue of preference shares in the subsequent period.
2.12. In the light of the arguments advanced from both sides and the facts available on record, now question arises whether there was a "change of opinion" by the Assessing Officer and consequent validity of reopening of assessment u/s 147/148 after a period of four years. Before adverting further, we are expected to analyze the assessment order and facts of the appeal. In this case, the facts are summarized as under:-
Original assessment was completed on 15/12/2009 u/s. 143(3). The audited financial statements and all the schedules were filed were filed by the assessee. No addition was made.21
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Notice u/s.153C was issued and order u/s. 143(3) r.w.s.153C was passed on 26/12/2011. During these proceedings also the complete information and details were filed by the assessee. No addition was made.
Notice u/s. 148 was issued on 21/3/2014. The reasons were recorded which are on page 5 & 6 of the paper book. The objections are filed which are on pages 7 to 9 of the paper book. AO rejected the objections which are on pages 10 & 11 of the paper book.
In the rejection order the AO has wrongly mentioned the date of issue of notice u/s. 148 as 16/12/2013. The AO has wrongly mentioned the date of filing of the return as 09/01/2014. AO also has not considered the issues raised in the objections and has not dealt with any of the issues which have been raised.
Ld. Assessing Officer has relied upon the statement recorded during the survey proceedings u/s. 133A in the case of Lloyds Group of cases. Reliance is placed on the statement of Shri B.L. Agarwal, Shri Mukesh Choksi and Shri Om Hari Halan. The copies of these statements are on pages 174 to 225.
The Ld. Assessing Officer has relied upon the statement of Shri Mukesh Choksi which was recorded on 16/1/2013 whereas in the reasons he has referred to the statements recorded on 25/11/2009 and 26/11/2009. Ld. Assessing Officer cannot improve upon any aspects beyond the reasons recorded.
The order passed u/s. 153C of the Act has been quashed by the Tribunal, the said orders are available at pages 2779 to 2786 of the paper book -2.
The reassessment proceedings are in respect of the order passed u/s. 153C. Once the order passed u/s. 153C itself is quashed, there is no question of escapement of income in respect of that particular income determined in the order passed u/s. 153C of the Act.
The statements of all the 3 persons do not have any direct relationship with escapement of income in the hands of the 22 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee company. In the statements there is a reference to transactions between certain parties and fourteen companies. There is not a whisper in the statement of all the 3 parties to the effect that any transaction with the assessee company. In order to invoke the provisions of reassessment proceedings under section 147/148 of the Act, there has to be a direct and live link between the material available with the Assessing Officer and his conclusion that income chargeable to tax has escaped assessment.
The notice is issued beyond 4 years from the end of the assessment year. Proviso of Section 147 is applicable as original assessment was completed in 143(3) of the Act. In order to issue a valid notice, in the reasons there must be a finding to the effect that the income chargeable to tax has escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Reference is made to the reasons which are on pages 5 & 6 and there is no whisper in the reasons to the effect that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
There is not a single transaction with any of the parties which are alleged to have been managed by Mr. Mukesh Choksi with the assessee. In view of this, no value can be attributed to the statement which is tendered by Mr. Mukesh Choksi.
2.13. So far as, the facts of Assessment Year 2008-09 are concerned, these are summarized as under:-
Original assessment was completed on 29/10/2010 u/s. 143(3). The audited financial statements and all the schedules were filed. No addition is made.
Notice u/s.153C was issued and order u/s. 143(3) r.w.s. 153C was passed on 26/12/2011. During these proceedings also the complete information and details were filed. No addition is made.
Notice u/s. 148 was issued on 21/3/2014. The reasons were recorded which are on page 5 & 6 of the paper book. The objections are filed which are on pages 7 to 9 of the paper book.23
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 AO rejected the objections which are on pages 10 & 11 of the paper book.
In the rejection order the AO has wrongly mentioned the date of issue of notice u/s. 148 as 16/12/2013. The AO has wrongly mentioned the date of filing of the return as 09/1/2014. AO also has not considered the issues raised in the objections and has not dealt with any of the issues which have been raised.
AO has relied upon the statement recorded during the survey proceedings u/s. 133A in the case of Lloyds Group of cases. Reliance is placed on the statement of Shri B.L. Agarwal, Shri Mukesh Choksi and Shri Om Hari Halan. The copies of these statements are on pages 174 to 225 of the paper book filed for A.Y. 2007-08.
The AO has relied upon the statement of Shri Mukesh Choksi which was recorded on 16/1/2013 whereas in the reasons he has referred to the statements recorded on 25/11/2009 and 26/11/2009. AO cannot improve upon any aspects beyond the reasons recorded.
The order passed u/s. 153C has been quashed by the Hon'ble Tribunal as per orders which are on pages 2779 to 2786 of the paper book 2 containing the order passed.
The reassessment proceedings are in respect of the order passed u/s. 153C. Once the order passed u/s. 153C itself is quashed the question of escapement of income in respect of that particular income determined in the order passed u/s. 153C does not arise. The statements of all the 3 persons does not have any direct relationship with escapement of income in the hands of the appellant company. In the statements there is a reference to transactions between certain parties and fourteen companies. There is not a whisper in the statement of all the 3 parties to the effect that any transaction with the appellant company. In order to invoke the provisions of reassessment proceedings there has to be a direct and live link between the material available with the Assessing Officer and his conclusion that income chargeable to tax has escaped assessment.
The notice is issued beyond 4 years from the end of the assessment year. Proviso of Section 147 is applicable as original assessment was completed in 143(3). In order to issue a valid notice, in the reasons there must be a finding to the effect that the income chargeable to tax has escaped assessment on account of failure on the part of the appellant to disclose fully and truly all 24 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 material facts necessary for the assessment. Please refer to the reasons which are on pages 5 & 6 and there is not a whisper in the reasons to the effect that there is a failure on the part of the appellant to disclose fully and truly all material facts necessary for the assessment.
There is not a single transaction with any of the parties which is alleged to have been managed by Mr. Mukesh Choksi with the appellant. In view of this no value can be attributed to the statement which is given by Mr. Mukesh Choksi 2.14. If the aforesaid facts are analysed it can be concluded that the reassessment proceedings are bad in law because the assessee has made full disclosure of material facts during original proceedings u/s. 143(3) and further proceedings and consequent order was passed u/s153C rws 143(3) of the Act. There is no tangible material available with the Assessing Officer as regards the amount received by the assessee from the four parties in AY 2007-08 and six parties in AY 2008-09 in respect of whom the additions are made.
Based on the same facts, without having any evidence the Assessing Officer has issued notice u/s. 148 of the Act. This tantamount to change of opinion on the same set of facts without having any tangible material. In support of this proposition, reliance is placed upon the decisions in the case of Purity Techtextile Pvt. Ltd. V/s. Asst. CIT 325 ITR 459 25 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 (Bom), wherein the Hon'ble jurisdictional High Court observed/held as under :
"2. The challenge in these proceedings under Article 226 of the Constitution of India is to the reopening of assessments for assessment years 2003-04 and 2004-05 by notices dated 24-3-2009 and 31-3-2009 in purported exercise of powers under section 148 of the Income-tax Act, 1961.
3. The assessee claimed a deduction under section 80-IB of the Act commencing from assessment year 2001-02. The assessee claims to have set up an industrial undertaking in an industrially backward area at Nani Daman. Briefly stated, from the record of the Court it appears that the Maharashtra State Financial Corporation ('MSFC') had granted loan facilities to a company by the name of Innovative Plastics Private Limited. The company was in default of the payment of its dues, following which MSFC exercised its powers under section 29 of the State Financial Corporations Act and sold the land and building to Khosla Filters Private Limited under a Deed of Conveyance dated 24- 12-1999 for consideration. The purchaser granted a lease of the property on 29-12-1999 to the Petitioner for a period of ten years. The Petitioner sought registration as a Small Scale Unit for manufacturing filter bags, filter panels, made ups of cotton and man-made fabrics. Provisional registration was granted to the Petitioner by the Director of Industries on 3-3-2000. The Petitioner made an investment of Rs. 7,19,447/- for the purchase of plant and machinery and set up an industrial undertaking on the property. Industrial production commenced from 6-4-2000 and a permanent license was received on 19-2-2001.
4. The Petitioner made its claim for the first time in respect of the profits derived from the industrial undertaking under section 80-IB of the Act for assessment year 2001-02. The case of the Petitioner for assessment year 2001-02 was selected for scrutiny and during the course of the assessment proceedings, queries were raised with respect to the entitlement of the Petitioner to claim a deduction under section 80-IB. By its letter dated 3-12-2002, the Petitioner submitted details as regards the setting up of the industrial undertaking. An order of assessment was passed under section 143(3) of the Act on 31-10- 2002 for assessment year 2001-02. A deduction under section 80-IB was allowed. The return for assessment year 2002-03 claiming a 26 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 deduction under section 80-IB was processed under section 143(1)(a). For assessment year 2003-04, an order of assessment was passed under section 143(3). During the course of the assessment proceedings, the Petitioner inter aliasubmitted its Certificate of Registration as an SSI Unit and an Audit Report in Form 10CCB. Among the details disclosed included the circumstance that a license to work had been issued by the local Authority. A copy of the license to work the factory issued on 14-8-2000 by the Chief Inspector of Factories, Daman was annexed to the Form 10CCB. The license contains a specific endorsement to the effect that the plans had been approved by the Sarpanch on 12-9-1988. Further details were filed by the Petitioner by a letter dated 25-1-2005 during the course of assessment proceedings for assessment year 2003-04, including the Certificate of Registration as an SSI Unit and the power connection release order. On 28-2-2005, an assessment order was passed under section 143(3) of the Act for assessment year 2003-04. The assessment order duly notes that the assessee had claimed a deduction under section 80-IB of the Act for the unit which was set up in an industrially backward area and that Form 10CCB was available on record.
5. The Petitioner was allowed the benefit of a deduction under section 80-IB of the Act for assessment years 2004-05, 2005-06 and 2006-07. On 24-3-2009 and 31-3-2009 the assessment for assessment years 2003-04 and 2004-05 was sought to be reopened in exercise of powers under section 148 of the Act. The reasons which have been recorded by the Assessing Officer note that the assessee had taken an industrial unit at Daman on rent from an associate concern and that a deduction had been allowed under section 80-IB for assessment years 2003-04 and 2004-05. However during the course of the assessment proceedings for a subsequent year, it was observed that the factory had been purchased by Khosla Investment Private Limited and was given on license to the assessee. The notices record that the plan of the factory premises was approved by the Sarpanch on 12-9- 1988, which would show that the industrial unit was already in existence and in the use of some other person for the purpose of availing benefits provided under the Act. In the case of the assessee, it has been stated that the factory plan having been approved twelve years prior to the commencement of the business of the assessee, that would lead to an inference that the business/industrial unit of the assessee had come into existence at the place where the business of someone else was already in existence and that the other party had 27 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 availed of the benefit provided in the Act. A reference has been made to the provisions of section 80-IB of the Act to suggest that one of the conditions for claiming a deduction is that the business should not be formed either by splitting up or by reconstruction of a business already in existence.
6. The assessee filed objections to the reasons recorded by the Assessing Officer. While disputing that there was reason to believe that income had escaped assessment within the meaning of section 147, the assessee submitted that : (i) The sale by MSFC was only of the land and building and that it was the assessee which had installed the plant and machinery; (ii) There was absolutely no basis in the statement of the revenue that the business of the assessee had been formed by splitting up or reconstruction of a business already in existence; (iii) The reassessment notice appeared to have been issued pursuant to an Audit Report and the Assessing Officer had no reason to believe that income had escaped assessment.
7. The objections were dealt with by the Assessing Officer and disposed of by an order dated 13-11-2009. The Assessing Officer has once again reiterated that during the course of subsequent proceedings, a copy of the license was filed by the assessee, which states that the plan for the factory was approved by the Sarpanch on 12-9-1988. According to the Assessing Officer, this document was not produced or submitted by the assessee during the course of the assessment proceedings for earlier years. Consequently, according to the Assessing Officer, there was valid reason to believe that income had escaped assessment inasmuch as the information showed that the industrial undertaking was in existence prior to the date of the lodging of the claim for deduction under section 80-IB of the Act by the assessee for assessment year 2001-02.
8. Two Petitions under Article 226 of the Constitution have been instituted by the assessee to challenge the reopening of the assessment for assessment years 2003-04 and 2004-05. The assessment for assessment year 2003-04 has been reopened beyond a period of four years after the expiry of the relevant assessment year. The reopening of assessment for assessment year 2004-05 is within a period of four years from the expiry of relevant assessment year. The case for assessment year 2004-05 will be considered separately in the later part of the judgment.
9. On behalf of the Petitioner, it was urged before the Court by learned counsel that : (i) There was no failure on the part of the assessee to 28 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 disclose all material facts relevant to the assessment. The license was filed when assessment proceedings took place for assessment year 2003-04. A full enquiry was made and all relevant details were disclosed. The license contains a disclosure of the circumstance that plans had been approved on 12-9-1988; (ii) In any event, there was no connection between the alleged non-disclosure and the conclusion formed by the Assessing Officer. Even if it were to be assumed that a factory had been worked at the site by the person who was subjected to proceedings under State Financial Corporations Act, 1961 by MSFC, that would not disentitle the Petitioner to the benefit of a deduction under section 80-IB of the Act. The Petitioner who has set up a new industrial undertaking by purchasing plant and machinery would still be entitled to a deduction under section 80-IB of the Act; (iii) The reasons for reopening an assessment must indicate both a failure to disclose all material facts and what circumstance constitutes the failure to disclose. In the present case, that requirement has not been fulfilled; (iv) In the present case, the Assessing Officer had not formed the belief that income had escaped assessment. The information which has been obtained under the Right to Information Act would reveal that the action had been instituted merely on the basis of an Audit Report; (v) The benefit of a deduction under section 80-IB was granted for assessment years 2001-02 and 2002-03, where the assessment orders have attained finality. Unless the deduction for the first year was withdrawn in accordance with law, the relief for the subsequent years cannot be withheld.
10. Insofar as the companion writ petition is concerned, as noted earlier, the assessment has been reopened within a period of four years of the expiry of the relevant assessment year. In that case, it has been urged that the reopening of the assessment amounts to a case of a change of opinion. No material was available before the Assessing Officer to come to the conclusion that the income had escaped assessment, having regard to the fact that for the earlier assessment years, the assessment had been completed after the assessee had placed on record all the circumstances including the fact that the plans had been approved on 12-9-1988. It was urged that there was no reason to believe that income had escaped assessment since it is only on the basis of an audit objection that the assessment was sought to be reopened. Finally it was urged that the revenue was not entitled to reopen the assessment for assessment year 2004-05, once the assessment for the earlier years had attained finality.29
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
11. On behalf of the Revenue, it has been submitted, based on the reply, that during the course of the subsequent proceedings a copy of the license was filed by the Petitioner which state that the plan for the factory had been approved by the Sarpanch on 12-9-1988. This information, according to the revenue, was not produced during the course of the assessment proceedings for the earlier years. The information showed that the industrial undertaking was in existence much before the date of the lodging of the claim under section 80-IB of the Act for assessment year 2001-02. According to the Revenue, the industrial unit was already in existence and was in use of some other person for the purposes of availing the benefit under section 80-IB of the Act.
12. Section 147 provides that 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 163 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 the section. Under the first proviso, where an assessment has been made under sub-section (3) of section 143 or section 147 for the relevant assessment year, no action can be initiated under section 147 after the expiry of four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason of the failure of the assessee inter alia to disclose fully and truly all material facts necessary for his assessment, for that assessment year. The jurisdictional condition under section 147 is the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment for any assessment year. The reasons which are recorded by the Assessing Officer are crucial and it is on the basis of those reasons alone that the validity of the order reopening an assessment has to be decided. Where an assessment has been made under section 143(3), action can be initiated after the expiry of four years from the end of the relevant assessment year if the income chargeable to tax has escaped assessment because of the failure of the assessee to make fully and truly a disclosure of the material facts. The provisions of section 147 have been interpreted in a recent judgment of the Supreme Court in CIT v. Kelvinator of India Ltd. [2001] 320 ITR 561. The Supreme Court noted that after 1-4-1989 the power to reopen is much wider than earlier since the substantive part of section 147 only imposes one condition namely that the Assessing Officer must have reason to believe that income has 30 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 escaped assessment. The Supreme Court held that nonetheless, a mere change of opinion would not justify the exercise of the power to reopen an assessment and there must be tangible material before the Assessing Officer to come to the conclusion that income has escaped assessment. The Supreme Court held thus :
". . ., one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
13. The assessee made a claim for deduction under section 80-IB of the Act, initially for assessment year 2001-02, which was allowed. The benefit of a deduction under section 80-IB was also granted for assessment year 2002-03. The assessment order for assessment year 2001-02 was passed under section 143(3) of the Act, upon scrutiny. During the course of assessment proceedings for assessment year 2003-04, the assessee filed an Audit Report in Form 10CCB in which relevant particulars of the license to work that was granted to the unit of the assessee was disclosed. The license to work dated 14-8-2000, copy of which was filed before the Assessing Officer, contains a disclosure of the fact the plans have been approved by the Sarpanch by his letter dated 12-9-1988. The basis on which the assessment for assessment years 2003-04 and 2004-05 has been sought to be reopened is that it was during the course of assessment proceedings for subsequent years that the revenue had obtained a copy of the license which showed that the plans have been approved as far back as on 12-9-1988. This statement which is contained in the reasons, on the basis of which the assessment is sought to be reopened, is belied by the record which shows that the Revenue was in possession of the material produced by the assessee during the course of the 31 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment proceedings for assessment year 2003-04 which showed that the plans had been approved in the year 1988. Therefore, the basis on which the assessment has been sought to be reopened is factually incorrect. The Assessing Officer granted the assessee a deduction under section 80-IB after being appraised of all the relevant details, including those in Form 10CCB which showed that plans had been approved in 1988.
14. Moreover, the fact that plans for the building were approved in the year 1988 would make no difference to the claim of the assessee to a deduction under section 80-IB of the Act. Both in the notice reopening the assessment and in the order disposing of the objections of the assessee, reliance has been sought to be placed on the provisions of sub-clause (i) of clause (1) of sub-section (2) of section 80-IB. Sub- clause (i) postulates that the industrial undertaking ought not to have been formed either by splitting up or reconstruction of a business already in existence. On the basis of the facts and circumstances and as recorded by the Assessing Officer, it cannot possibly be postulated that the industrial undertaking of the assessee was formed either by the splitting up or by the reconstruction of a business already in existence. As already noted, it is an admitted position that the land and building was sold by MSFC in exercise of its statutory powers and the purchaser in turn has leased out the land and building to the assessee. It is not the case of the Revenue in the reasons for reopening the assessment that the plant and machinery installed by the assessee has been previously used. Section 80-IB(2)(ii) provides that the industrial undertaking should not be formed by transfer to a new business of plant and machinery or a plant previously used for any other purpose. It is not the case of the Revenue in the reasons for reopening the assessment that the industrial undertaking of the assessee has been formed by transfer of plant and machinery which has been previously used for any other purpose. The assessee has annexed to the petition before the Court a copy of the Deed of Conveyance under which MSFC transferred the right of the defaulter only in respect of the land and building. The plant and machinery was not the subject-matter of the sale. The Deed of Conveyance contains a specific recital that the machinery was not being sold. In these circumstances, it is apparent from the record before the Court that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment so as to justify the invocation of the powers under section 148 of the Act beyond the 32 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 expiry of a period of four years from the end of the relevant assessment year.
15. We may also note in addition that the assessee has filed together with its affidavit in rejoinder, a copy of the information received during the course of a query under the Right to Information Act. The information included a letter by the Assessing Officer to the Commissioner of Income-tax dated 24-3-2009 seeking permission to the proposal for reopening the assessment under section 151(1) of the Act. The Assessing Officer has noted, while seeking approval of the Commissioner of Income-tax, that during the course of Revenue audit proceedings, an audit objection has been raised on the ground that the assessee was not eligible to a deduction under section 80-IB from assessment year 2002-03. The Assessing Officer notes that the audit objection was not accepted but that as a precautionary measure the assessment was reopened under section 147. There is merit in the submission urged on the part of the assessee that the Assessing Officer had no reason to believe that income had escaped assessment. We clarify that we have not regarded this circumstance namely, the information which was divulged during the course of a query and the Right to Information Act as the only and exclusive circumstance for coming to a conclusion that the power has not been validly exercised. Basically, the validity of the exercise of the powers to reopen an assessment has to be decided with reference to the reasons recorded while re-opening the assessment. The reasons recorded while reopening the assessment do not justify the exercise of the power in the facts of this case.
16. Insofar as the companion writ petition is concerned (Writ Petition No. 268 of 2010), the reopening of the assessment has taken place within a period of four years from the expiry of the relevant assessment year. However, so far as this case is concerned, it is apparent that the Assessing Officer did not have before him any additional material at all to form a belief that income had escaped assessment. The assessee had admittedly placed on record before the Assessing Officer for assessment year 2003-04 the circumstance that the plans have been approved for the building on 12-9-1988. There was no material before the Assessing Officer, that would lead to a formation of belief that the income had escaped assessment. We may also note that in the present case as well the Assessing Officer appears to have relied exclusively on an audit objection, which has already been dealt with while considering the facts of Writ Petition No. 269 of 2010. There was hence a total absence of "tangible material", 33 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 as explained in the judgment of the Supreme Court in Kelvinator of India Ltd.'s case (supra) to justify the conclusion that income had escaped assessment. Finally, it would be necessary to note, as we have observed earlier, that mere existence of the land and building since 1988 is not a circumstance which would disentitle the assessee to the benefit of a deduction under section 80-IB of the Act, once other requirements of the provisions are fulfilled.
17. For all these reasons, we quash and set aside the notices dated 24-3-2009 and 31-3-2009. Rule is made absolute accordingly. In the circumstances of the case, there shall be no order as to costs."
2.15. In the aforesaid case, the Hon'ble jurisdictional High Court held that the jurisdictional condition under section 147 is the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment for any assessment year. The reasons which are recorded by the Assessing Officer are crucial and it is on the basis of those reasons alone, that validity of the order reopening an assessment has to be decided. Where an assessment has been made under section 143(3), action can be initiated after the expiry of four years from the end of the relevant assessment year if the income chargeable to tax has escaped assessment because of the failure of the assessee to make fully and truly a disclosure of the material facts. [Para 12]. The Hon'ble High Court further observed that the basis on which the assessment for the assessment years 2003-04 and 2004-05 had been sought to be 34 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 reopened was that during the course of assessment proceedings for the subsequent years, the revenue had obtained a copy of the license which showed that the plans had been approved as far back as on 12/09/1988. That statement, which was contained in the reasons and on the basis of which the assessment was sought to be reopened, was belied by the record which showed that the revenue was in possession of material produced by the assessee during the course of the assessment proceedings for the assessment year 2003-04, which showed that plans had been approved in the year 1988. Therefore, the basis on which the assessment had been sought to be re-opened was factually incorrect. The Assessing Officer granted the assessee deduction under section 80-IB after being appraised of all the relevant details including those in Form 10CCB which showed that plans had been approved in 1988. [Para 13] It was also observed that the fact that plans for the building were approved in the year 1988 would make no difference to the claim of the assessee to a deduction under section 80-IB of the Act. Both, in the notice for reopening the 35 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment and in the order disposing of the objections of the assessee, reliance had been sought to be placed on the provisions of clause (i) of sub-section (2) of section 80-IB.
Clause (i) postulates that the industrial undertaking ought not to have been formed either by splitting up or reconstruction of a business already in existence. On the basis of the facts and circumstances and as recorded by the Assessing Officer, it could not possibly be postulated that the industrial undertaking of the assessee was formed either by the splitting up or by the reconstruction of a business already in existence.
It was an admitted position that the land and building were sold by MSFC in exercise of its statutory powers and the purchaser, in turn, had leased out the land and building to the assessee. It was not the case of the revenue in the reasons for reopening the assessment that the plant and machinery installed by the assessee had been previously used. Section 80-IB(2)(ii ) provides that the industrial undertaking should not be formed by transfer to a new business of plant and machinery or a plant previously used for any other purpose. It was not the case of the revenue in the reasons for reopening 36 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the assessment that the industrial undertaking of the assessee had been formed by transfer of plant and machinery which had been previously used for any other purpose. The assessee had annexed to the petition before the Court a copy of the deed of conveyance under which MSFC transferred the right of the defaulter only in respect of the land and building. The plant and machinery was not the subject-matter of the sale.
The deed of conveyance contained a specific recital that the machinery was not being sold. In those circumstances, it was apparent from the record before the Court that there was no failure on part of the assessee to disclose fully and truly all the material facts necessary for its assessment so as to justify the invocation of the powers under section 148 beyond the expiry of a period of four years from the end of the assessment year 2003-04. [Para 14] 2.16. Importantly, the Hon'ble High Court observed that insofar as the assessment year 2004-05 was concerned, though the reopening of the assessment had taken place within a period of four years from the expiry of that assessment year, yet it was apparent that the Assessing 37 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Officer did not have before him any additional material at all to form a belief that income had escaped assessment. The assessee had, admittedly, placed on record before the Assessing Officer for the assessment year 2003-04 the circumstances under which the plans had been approved for the building on 12-9-1988. There was no material before the Assessing Officer that would lead to a formation of belief that income chargeable to tax had escaped assessment. There was, hence, a total absence of 'tangible material' to justify the conclusion that income had escaped assessment. Finally, it would be necessary to note that mere existence of the land and building since 1988 was not a circumstance which would disentitle the assessee to the benefit of a deduction under section 80-IB once other requirements of the provisions were fulfilled. [Para 16]. Finally, the Hon'ble High Court quashed/set-aside the notices dated 24/03/2009 and 31/03/2009. While coming to the aforesaid conclusion, the Hon'ble jurisdictional High Court considered/followed the decision from Hon'ble Apex Court in the case of Commr. of 38 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Income Tax V/s. Kelvinator of India Ltd. & Eicher Ltd. 320 ITR 561 (SC).
2.17. The Hon'ble Apex Court in Kelvinator of India Ltd.
320 ITR 561 (Supreme Court) held/observed as under:-
" Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b ) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4- 1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of 39 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the words 'reason to believe', the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. [ Para 4]"
2.18. If the aforesaid decisions from Hon'ble jurisdictional High Court as well as from Hon'ble Apex Court are analyzed with the facts of the present appeals, we find that the conditions of the proviso to section 147 of the Act are not satisfied as there is no allegation in the reasons to the effect that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. This view of ours is further fortified by various decisions, some of which are as under:-
a. Commr. of I.Tax V/s. Foramer France. 264 ITR 566 (SC) b. German Remedies Ltd. V/s. Dy. CIT 287 ITR 494 (Bom) c. Shree Ram Foundry Ltd. Vs Dy. Commr. of Income Tax 250 CTR 116 (Bombay HC) d. Titanor Components Limited Vs Asstt. Commr. of Income Tax , Circle -2 Writ Petition No.71 of 2005 (Bombay) e. Jashan Textile Mills P. Ltd. V/s. Dy. CIT & Othrs. 284 ITR 542 (Bom) f. Wel Intertrade P. Ltd. V/s. Income Tax Officer 308 ITR 22 (Delhi) g. Balkrishna Hiralal Wani V/s. I.Tax Officer & Othrs.
321 ITR 519 (Bom) 2.19. If the ratio laid down, in aforesaid cases, is analyzed with the facts of the present appeals, it can be concluded that 40 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 if there is no allegation in the reasons to the effect that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment then the proviso to section 147 of the Act are not satisfied. The Hon'ble Delhi High court in the case of Wel Intertrade Pvt. Ltd. vs Income Tax Officer 308 ITR 22 (Del.) held as under:-
"Since the notice under section 148 had been issued after the expiry of four years from the end of the relevant assessment year, the proviso to section 147 would come into play. A plain reading of the said proviso makes it clear that where the provisions of section 147 are being invoked after the period of four years from the end of the relevant assessment year, in addition to the Assessing Officer having reason to believe that any income chargeable to tax has escaped assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee failing to make a return under section 139, etc., or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In the instant case, the question of making a return was not an issue and the only question was with regard to the second portion of the proviso which related to failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Insofar as this precondition was concerned, there was not a whisper of it in the reasons recorded by the Assessing Officer. In fact, the Assessing Officer could not have made that as a ground, because he had required the assessee to furnish details with regard to loss occasioned by foreign exchange fluctuation which the assessee did by virtue of its reply. Since the assessee had fully and truly disclosed all the material facts necessary for the assessment, the precondition for invoking the proviso to section 147 had not been satisfied. [Para 9] Therefore, the impugned notice issued under section 148 as well as the proceedings pursuant thereto were all without jurisdiction and deserved to be quashed."
2.20. Likewise, Hon'ble jurisdictional High Court in the case of German Remedies Ltd. vs DCIT 287 ITR 494 (Bom.) held/observe as under:-
41M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "These petitions, filed under article 226 of the Constitution of India, are directed against the notices dated 15-9-2003, issued under section 148 of the Income-tax Act, 1961 ('Act' for short), seeking to reopen completed assessments of the petitioner-assessee for the assessment years 1997- 98 and 1998-99, along with order dated 18-2-2005 passed by the Deputy Commissioner of Income-tax, Range 6(3), Mumbai, rejecting the objections taken by the petitioners to reopening their completed assessments.
2. Parties to the petition are same; issue involved is identical; challenges to the impugned orders are common; so this common judgment shall dispose of both petitions.
The facts necessary to appreciate rival contentions are taken from Writ Petition No. 619/2005, wherein assessment year involved is 1998-99.
The Facts :
3. The petitioners are the Public Limited Company engaged in the business of manufacturing pharmaceutical products and other formulations. The return of income for the assessment year 1998-99 was filed on 29-11-1998. The last date of the assessment year was 31-3-1998.
4. The assessment order was passed under section 143(3) of the Act on 7-1-2000. Last date for issue of notice under section 148(1) as per proviso to section 147 was 31-3-2003, whereas notice under section 148(1) came to be issued on 15-9-2003; which came to be served on the petitioners on 8-10-2003.
5. The petitioners responded to the notice under protest and filed a letter seeking the reasons for issuing the notice to reopen the assessment. In spite of specific request, respondent No. 1 did not disclose reasons. Hence, petitioners were required to file writ petition being Writ Petition No. 3065 of 2004. On being noticed, respondent-department appeared and disclosed reasons vide their affidavit dated 17-1-2005 for reopening assessment under section 148 of the Act. In view of the disclosure of reasons; petitioners were permitted to file objections, within two weeks from the date of the order dated 18-1-2005, with the respondents to object to reopen the assessment. The petition came to be disposed of. The reasons disclosed are as under :
"(i )Expenses on interest, royalty, consultancy and analytic fees in the foreign currency were allowed though there is no evidence on record to show that tax had been deducted before remittance of the same. Under section 40(a) of the Act, the payments in foreign currency are allowed in the year in which tax has been deducted.42
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(ii)Central excise duty and customs duty payable on finished goods for the year is not taken into account in valuing closing stock resulting into underassessment."
6. The objections to the reasons recorded were decided by the respondent No. 1 vide its order dated 18-2-2005; whereby objections raised came to be rejected.
7. Being aggrieved by the aforesaid action of respondent No. 1, petitioners have invoked writ jurisdiction of this Court to challenge their action.
8. On being noticed, respondents appeared in this petition and filed their counter-affidavit and tried to justify their action.
Submissions :
9. The learned counsel appearing for the petitioners submits that notice issued under section 148 dated 15-9-2003 for assessment year 1998-99 by respondent No. 1 is barred by limitation since it has been issued beyond the statutory period of 4 years from the end of the relevant assessment year. According to the learned counsel for the petitioners, period of 4 years commences on 31-3-2003 and as such impugned notice issued under section 147 seeking to reopen for both the assessment years 1997-98 and 1998-99 is bad in law and without jurisdiction.
10. The learned counsel further submits that returns were subject to scrutiny and the assessment under section 143(3) as such notice under section 148(1) cannot be issued merely on change of opinion. No fresh facts have been brought on record to issue the notice in question, as such, impugned notice issued under section 148 seeking to reopen the assessment for years 1998-99 is without jurisdiction and bad in law.
11. The learned counsel for the petitioners further submits that the approval granted by the CIT, Mumbai, suffers from non-application of mind. According to him, approval was granted in a most casual manner. He placed reliance on the judgment of the Delhi High Court in the case of United Electrical Co. (P.) Ltd. v. CIT [2002] 258 ITR 3171, wherein the Delhi High Court held that the power vested in the Commissioner under section 151 to grant or not to grant approval to the Assessing Officer to reopen an assessment is coupled with a duty. The Commissioner was duty bound to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. That power cannot be exercised casually, in a routine and perfunctory manner.
12. The learned counsel further submits that the reasons recorded do not attribute any omission or inadvertence on the part of the petitioners to 43 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 make true and full disclosure of its income. In his submission, no material is available on record to justify formation of belief that the income of the petitioners had escaped assessment.
13. The learned counsel further submits that full information with respect to the tax deducted at source from the payments made to various parties towards its expenditure was disclosed in the return of income for the TDS in Form No. 27 which was filed on 22-6-1998; whereas details of party and payments made were also disclosed in the return of income. The Tax Audit Report accompanied with the Annual Return filed with the return clearly mentioned that all the obligations with respect to TDS were properly satisfied and complied with. He also submits that notice under section 148 of the Act has been issued contrary to the Circular issued by the CBDT No. 349, dated 31-3-1989.
14. The learned counsel for the petitioners further submits that second reason for issuing the notice under section 148(1) is with respect to valuation of closing stock with Modvat (Excise and custom duty paid). The petitioners submit that this very issue was considered in detail in the assessment order dated 21-12-2000. Reference to provisions of section 145A is to be found also in the assessment order. He further submits that on this very same ground the petitioners had preferred an appeal for assessment year 1998-99; which was allowed by the First Appellate Authority and also the Tribunal based on the decision of this Court in the case of CIT v. Indo Nippon Chemicals Co. Ltd. [2000] 245 ITR 3841 which was subsequently affirmed by the Apex Court in the judgment of CIT v.Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 2752 . Petitioners have placed reliance on various judgments of this Court as well as of the Apex Court in the cases of (1) Caprihans India Ltd. v. Tarun Seem, Dy CIT [2004] 266 ITR 566 (Bom) (2) CIT v. Foramer France [2004] 264 ITR 566 (SC) (3) Hindustan Lever Ltd. v. R.B. Wadkar, Asstt. CIT (No.
2) [2004] 268 ITR 339 (Bom.) (4) Grindwell Norton Ltd. v. Jagdish Prasad Jangid, Asstt. CIT [2004] 267 ITR 673 (Bom.).
Per Contra :
15. The learned counsel appearing for the revenue submits that notice under section 148 of the Act was issued after recording reasons for re- opening of the assessment. He further submits that section 149(1)(b) empowers the respondents to reopen the assessment with prior approval of the Commissioner of Income-tax under section 151(1) of the Act. He 44 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 further submits that there was no evidence on record to show that TDS had been deducted after making payment under section 40(a) of the Act. He further submits that since the assessee had failed to make full and true disclosure of relevant material the assessment remained under section 147 of the Act. He further submits that the respondent applied provisions of section 147 which empowers reopening of assessment completed under section 142(3) after recording reasons. The reasons recorded for re-opening assessment were already furnished and, therefore, action of the respondent was in accordance with law. He further submits that the reasons furnished were objected by the petitioner and same were decided in accordance with law and, therefore, petition is liable to be dismissed.
16. The learned counsel for the revenue also pressed into service two affidavits; one filed by Shri Samir Takriwal, Deputy Commissioner of Income-tax, Circle 6(3), Mumbai, who had jurisdiction over the petitioners. He has stated on oath that he had prepared proposal for opening of assessment year 1998-99 and since 4 years had already elapsed, he did obtain prior approval from the Commissioner of Income-tax to reopen assessment. According to him, he had prepared the proposal and he himself had gone to the office of the Commissioner of Income-tax on 15-9- 2003 with file for taking his prior approval.
17. The second affidavit is that of Shri Tarkeshwar Singh, who at the relevant time, was working as Commissioner of Income-tax, City-6. He has stated on oath that on 15-9-2003, the Assistant Commissioner of Income-tax/Assessing Officer in the petitioner's case had approached his office for taking prior approval to the proposal for reopening the assessment of the petitioner under section 148 for the assessment year 1998-99. He, in the affidavit, states that after discussing the matter with the Assistant Commissioner, he was satisfied that a case has been made out for reopening the assessment as such granted approval to the proposal on the same day, i.e., 15-9-2003.
18. In rejoinder, the petitioner submits that the contention raised with respect of provisions of sections 149(1)(b) and 151 is not correct. He submits that the approval granted is without application of mind and the same appears to have been granted in routine and perfunctory manner. He further reiterated that respondent has not given any reply to the petitioner's specific submissions that during the course of original assessment the issue of valuation of closing stock was examined in detail in the light of the ratio laid down by the Apex Court in the case of CIT v. British Paints India Ltd. [1991] 188 ITR 441 , as such the power to reopen exercised by the revenue is bad and illegal.
Consideration :
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19. Having heard rival parties and having examined averments made in the petition and the counter-affidavits, one has to reach to the conclusion that power to reopen has been exercised on unsustainable reasons. It is not in dispute that the return of income filed by the petitioner was accompanied by audit report, profit and loss accounts and tax audit report under section 44AB of the Act. The record reveals that true and full information with respect to TDS from the payments made to various parties towards expenditure was disclosed in the return for TDS in Form No. 27 on 22nd June, 1998, which is produced on record at Ex. J. along with Challan at page 155. Details of the various parties and payments were enclosed to the return of income which clearly showed that all obligations with respect to TDS were properly complied with. Petitioner vide letter dated 27-11-1998 had also submitted statement of TDS and certificate as such, according to the petitioners, the first reason pressed into service to reopen is unsustainable.
20. So far as second reason for issuing notice under section 148(1) with respect to valuation of closing stock with Modvat (excise and custom duty paid) is concerned, it may be noted that the inventory is required to be valued either at cost or market price whichever is lower. According to this principle, assessee had valued its closing stuck at cost. The cost of purchase consists of purchase price including duties and taxes, freight inwards and other expenditure attributable to acquisition and bringing the stock in the present situation and location as on the date of valuation. The excise duty and sales tax paid on the purchase of raw materials forms part of the cost and is required to be taken into consideration for the purpose of valuation not closing stock as laid down by the Apex Court in the case of British Paints India Ltd. (supra).
21. The very same judgment has been followed in the assessment order dated 21-12-2000 (Ex. D). Assessment order also refers to section 145(A). The same order related to assessment year 1998-99 which was allowed by the first appellate authority was also before the Income-tax Appellate Tribunal, based on the decision of this Court in the case of Indo Nippon (supra).
22. In the above circumstances, the reasons mentioned are unsustainable. Those reasons do not lead to formation of belief that income has escaped assessment for assessment year 1998-99.
23. Having said so, it is necessary to consider two more submissions advanced on behalf of the petitioners. Firstly, the impugned notice is barred by limitation since it was issued beyond period of 4 years from the end of relevant assessment year. Failure on the part of petitioners to disclose full and true material has not been alleged. In this case, power to reopen has been exercised after expiry of 4 years from the end of relevant 46 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment year to which they relate. In the circumstances, the impugned notice having been issued beyond 4 years from the last date of the relevant assessment year without alleging any failure to disclose full and true material facts is liable to be set aside.
24. It is not in dispute that the Assessing Officer on 15-9-2003 had himself carried file to the Commissioner of Income-tax and on the very same day, rather same moment in the presence of the Assessing Officer, the Commissioner of Income-tax granted approval. As a matter of fact, while granting approval it was obligatory on his part to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return of income filed for the assessment of income of that assessment year. It was also obligatory on the part of the Commissioner to consider whether or not power to reopen is being invoked within a period of 4 years from the end of the assessment year to which they relate. None of these aspects have been considered by him which is sufficient to justify the contention raised by the petitioner that the approval granted suffers from non-application of mind. In the above view of the matter, the impugned notices and consequently the order justifying reasons recorded are unsustainable. The same are liable to be quashed and set aside.
25. In the result, the petitions are allowed. Rule made absolute in each petition with no order as to costs."
2.21. In another case, the Hon'ble Apex Court in CIT vs Foramer France 264 ITR 566 (Supreme Court) held/observed as under:-
The petitioner-assessee, a foreign company incorporated in France, was engaged in the business of oil exploration and providing expertise and assistance in the said field throughout the world. During the assessment year 1988-89, the petitioner-company was operating under three contracts with the ONGC, for drilling operation by employing its own rig and also for manning and management services for supervision of drilling activities carried on by the ONGC on its own rigs. In the assessment year 1988-89, the assessee's rig was sold to a party with the result that the operations on that rig were for a part of the year whereas the operations on the other rigs continued up to the assessment year 1991-92. The assessee returned the income relating to its own rig as ordinary business income but returned the income by way of proceeds from manning 47 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and management contracts as fees for technical services supported by an order dated 25-8-1987 issued by the Income-tax Department under section 195(2) directing the ONGC to apply a tax rate of 30 per cent on the income from said contracts. However, the Assessing Officer, while making the assessment under section 143(3) on 26/27- 2-1991, took the view that the proceeds from manning and management contracts were taxable as business income in terms of section 44BB in the light of the Tribunal's decision in the case of Scan Drilling. The aforesaid assessment order was accepted by the petitioner in order to buy peace and avoid protracted litigation and had, thus, become final. Thereafter, the department issued a notice under section 148 on 20-11-1998 proposing to treat the income of the petitioner-company as fees for technical services and not business income in view of the Tribunal's decision in the case of Boudier Christian relating to petitioner-company's expatriate employee. Aggrieved by the said notice, the petitioner challenged it filing writ petitions.
The High Court held that since admittedly there was no failure on the part of petitioner to make return or to disclose fully and truly all material facts necessary for assessment, proviso to new section, which bars issue of notice under section 148 after expiry of four years from end of relevant assessment year, squarely applied to facts of instant case, and, therefore, impugned notice was barred by limitation. Since notice under section 148 was without jurisdiction, there was no merit in plea that the petitioner was to be relegated to alternative remedy. It was also held that the provisions of section 153 are inapplicable to issue of notice under section 148 and refer to assessment. A 'direction' or 'finding' as contemplated by section 153(3)(ii), must be a finding necessary for disposal of a particular case, that is to say, in respect of a particular assessee and in relevance to a particular assessment year. To be a direction as contemplated by section 153(3)(ii), it must be an express direction necessary for disposal of case before authority or Court. Further, it could not be said that proposed reassessment was in consequence of, or to give effect to, any finding or direction of the Tribunal in case of petitioner's employee and, therefore, provisions of section 153(3)(ii) would not apply to facts of the instant case."
2.22. If the ratio laid down in the aforesaid cases is analyzed, it has been clearly held by Hon'ble Apex Court and 48 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Hon'ble High various high courts that there has to be a live link and direct relationship between the information available with the Assessing Officer and the conclusion that income chargeable to tax has escaped assessment. There is no live link as regards the statement of Shri Mukesh Choksi as no transaction have taken place with any of the company alleged to be managed by Shri Mukesh Choksi. In support of this proposition reliance can be placed upon the decision from Hon'ble Apex Court in the case of Income Tax Officer vs Lakhmani Mewal Das 103 ITR 437, wherein, it was observed as under:-
"Two conditions have to be satisfied before an ITO acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the ITO, or
(b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence 49 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 could with due diligence have been discovered by the ITO will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.
The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the ITO to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that, the ITO did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief.
The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the ITO in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law.
Reference to the names of 'N', 'D' 'S' in the report of the ITO to the Commissioner of in the instant case did not stand on a better footing than the reference to the three names in the report made by the ITO in the case of Chhugamal Rajpal v. S.P. Challita [1971] 79 ITR 603 (SC). Therefore, it was that the second ground mentioned by the ITO, i.e., reference to the names of 'N', 'D', 'S' could not have led to the formation of the belief that the assessee's income of the respondent-assessee chargeable to tax had escaped assessment for that year because of the failure or omission of the 50 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee to disclose fully and truly all material facts. Therefore, the High Court was justified in excluding this ground from consideration.
'M' against whose name there was an entry about the payment in the books of the assessee, having made a confession that he was doing only name-lending, there was nothing to show that the above confession related to a loan to the assessee and not to someone else, much less to the loan which was shown to have been advanced by that person to the assessee-respondent. There was also no indication as to when that confession was made and whether it related to the period which was the subject-matter of the assessment sought to be responded. The report was made on 13-2-1967. In the absence of the date of the alleged confession, it would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it related to the period from 1-4-1957, to 31-3-1958, and that it pertained to the loan shown to have been advanced to the assessee would be rather far-fetched.
The reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.
The powers of the ITO to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the 51 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the ITO in the instant case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material fact was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The High Court was not in error in holding that the said material could not have led to the formation of the belief that the assessee's income had escaped assessment because of his failure or omission to disclose fully and truly all material facts. The revenue's appeal was, thus, dismissed."
2.23. If the aforesaid order of Hon'ble Apex Court is analyzed with the facts of the present appeals, we find that the Ld. Assessing Officer has tried to "improve upon" the reasons by referring to the statement of Shri Mukesh Choksi recorded on 16/1/2013 at the time of rejecting the objections of the appellant. In the reasons there is a reference to the statement recorded on 25/11/2009 & 26/11/2009 and there was no reference to the statement recorded on 16/1/2013. The Ld. Assessing Officer thus cannot improve upon the reasons recorded. Our above proposition is fortified by the decision 52 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 from Hon'ble jurisdictional High Court in the case of Hindustan Lever Ltd. 268 ITR 332 (Bom.), wherein, it was held/observed as under:-
"2. In this petition, the petitioners are challenging the notice dated 5th November, 2002, for reopening the assessment for assessment year 1996-97, issued by respondent No. 1, under section 148 of the Income-tax Act, 1961 ("Act" for the short).
3. The petitioners are engaged in the business of manufacture of various consumer products in respect of which excise duty is payable. The petitioners also import certain raw materials for its manufacturing activities subject to payment of customs duty may be leviable under the provisions of the Customs Act, 1962.
4. The petitioners had filed its return of income for the assessment year 1996-97 on 30th November, 1996. The computation of income was accompanied by a specific note reading as under :
". . . in accordance with the practice followed for the earlier years, the company has not made a provision for excise duty and custom duty on stocks lying at the year ended in bonded warehouse estimated at Rs. 5,85,71,968 (1994-95) Rs. 112,502,531) and accordingly not included the said amount in the valuation of inventories. This has no effect on the profits for the year."
The accounts which accompanied the return of income also made a specific reference to this accounting policy which was followed. The audit report which was furnished in accordance with the provisions of section 44AB also made a specific reference to the method of accounting adopted by the petitioners in respect of the goods lying in bonded warehouse. The petitioners submit that it had made a full disclosure of all the material facts along with the return of income that was filed with the department.
5. The aforesaid return of income was revised on 31st March, 1998 as a result of amalgamation of M/s. Brooke Bond Lipton India Ltd. into the petitioners. The disclosures made in the original return were reiterated in the revised return that was filed. The respondent No. 2 completed the assessment of the petitioners income under section 143(3) of the Act vide his order dated 29th January, 1999 and assessed the petitioners to an income of Rs. 3,39,29,08,460.
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6. Subsequently, respondent No. 3 issued notice under section 263 proposing to revise the petitioner's assessment year 1996-97 since, according to him, the same was erroneous and prejudicial to the interest of the Revenue. According to him, the central excise and customs duty payable of Rs. 5,85,71,968 in respect of goods lying in bonded warehouse ought to have been included while valuing the inventory.
7. The petitioners by its letter dated 22nd March, 2002 objected to the exercise of revisional power by respondent No. 3 contending that the assessment order was dated 29th January, 1999 and the said order could not be revised under section 263 of the Act inasmuch as sub- section (2) of section 263 provided that an order could be revised only within a period of two years from the end of financial year in which it was passed. In the circumstances, respondent No. 3 was requested to drop the revisional proceedings. The respondent No. 3, accordingly, accepted the contention of the petitioners and dropped the initiated revisional proceedings vide his order dated 28th March, 2002.
8. The petitioners, thereafter, on 7th November, 2002 were served with notice dated 5th November, 2002 issued under section 148 of the Act by which respondent No. 1 has stated that he had reason to believe that the petitioner's income chargeable to tax for assessment year 1996-97 had escaped assessment and he, therefore, called upon the petitioners to furnish its return of income within thirty days from the date of receipt of the said notice. The petitioners by its letter dated 12th November, 2002 requested respondent No. 1 to furnish to it the reasons recorded by him prior to the issuance of the said notice so as to enable them to comply with the same.
9. The petitioners filed their return under protest and, thereafter, they were served with the notice dated 3rd December, 2002 under section 142(1) of the Act, issued by respondent No. 2, by which the petitioners were called upon to show cause as to why the sum of Rs. 5,85,71,968 should not be added to the value of the closing stock and their income for the relevant year be not increased to that extent. The petitioners were also required to explain the deductions claimed by them under section 80HHC and 80-IA as well as on account of the leave salary that was debited.
10. The petitioners finding failure on the part of the Assessing Officer to disclose the reasons in spite of specific request filed this petition under article 226 of the Constitution of India to challenge notice dated 5th November, 2002 issued under section 148 of the Act.
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11. On being noticed, respondents appeared and filed their counter affidavit disclosing the reasons recorded prior to issuance of the notice under section 148. The said reasons recorded read as under :
"From the Notes to the audited accounts, it is seen that while valuing closing stock, Central Excise and Customs Duty leviable on stock lying in godown was not considered as forming part of cost of the closing stock. Although no such duty was paid during the relevant previous year, liability to pay such duty arises immediately on manufacture of excisable goods. Also, Boards Instruction No. 1389, dated 24-3-1981 provides for inclusion of Central Excise and Custom duty in Valuation of inventory. In view of this position, I have reason to believe that income chargeable to tax has escaped assessment inasmuch as excise and custom duty leviable, Rs. 5.85 crores has not been added to the value of closing stock, while completing the scrutiny assessment under section 143(3) on 29-1-1999."
12. Firstly, the learned counsel for the petitioners contend that the notice issued under section 148 of the Act is barred by limitation in view of proviso to section 147. He further submits that nowhere in the reasons it is recorded or stated that the petitioner-assessee has failed to disclose fully and truly all material facts necessary for the assessment for that assessment year as such the Assessing Officer has no jurisdiction to reopen the concluded assessment after expiry of four years from the last day of the relevant assessment year. He, therefore, submits that the notice under section 148 cannot be held to be within limitation.
13. Secondly, on merits he submits that all the material facts necessary for the assessment for that assessment year were fully and truly disclosed. He submits that along with return Profit & Loss Account, Tax Audit Report with explanatory note were enclosed and the assessment was completed under section 143(3) of the Act.
14. Learned counsel for the petitioners also contends that excise duty and customs duty have been paid before due date of furnishing return of income. He submits that proviso to section 147 will clearly apply to the facts of this case and it cannot be said that the income has escaped assessment on account of failure on the part of the petitioner to disclose all material facts. Learned counsel also relied upon the case of Hindustan Lever Ltd. v. V.K. Pandey, Joint CIT [2001] 251 ITR 209 and Caprihans India Ltd. v. Prakash 1 Chandra [2002] 256 ITR 721 . Based on these two judgments he submitted that the facts of the present case are identical to those 55 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 involved in the aforesaid cases. Hence the challenge set up in this petition is squarely covered by the judgment of this Court.
15. Mr. Desai, learned counsel for the Revenue tried to contend that so far as merits of the case are concerned the same can be dealt with by the Assessing Officer and the petitioners should be directed to appear before the Assessing Officer with liberty to raise all the contentions.
16. Mr. Desai, with respect to the contention that the notice under section 148 is barred by limitation and that the Assessing Officer has no jurisdiction to issue such notice, contends that even if the words "failure to disclose fully and truly all material facts relevant for assessment for assessment year" are absent in the reasons recorded, still such reasons can be inferred on the text of the reasons recorded. He, therefore, submits that the notice under challenge is well within the scope of section 147 as such this petition is liable to be dismissed being without any substance.
Consideration :
17. Having heard the parties at length, we are of the opinion that the petitioner can be disposed of on the first contention raised by the petitioner, wherein the petitioner has contended that the notice issued under section 148 is without jurisdiction being hit by the proviso to section 147 of the Act as such not within the prescribed period provided under proviso to section 147 of the Act. In the circumstances, it would be necessary to turn to section 147 of the Act, which reads as under :
"147. Income escaping assessment.--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 (hereinafter 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 56 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 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."
18. Reading of proviso to section 147 makes it clear that 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 proceeding under section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be for the concerned assessment year. However, where an assessment under sub-section (3) of section 143 has been made for relevant assessment year, no action can be taken under section 147 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 reasons of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. [Emphasis supplied]
19. In the case in hand it is not in dispute that the assessment year involved is 1996-97. The last date of the said assessment year was 31st March, 1997 and from that date if four years are counted, the period of four years expired on 1st March, 2001. The notice issued is dated 5th November, 2002 and received by the assessee on 7th November, 2002. Under these circumstances, the notice is clearly beyond the period of four years.
20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his 57 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.
21. Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside.
22. Since we are setting aside the impugned notice only on the first ground of challenge, in our opinion it is not necessary to go to the other question and record our findings in that behalf.
23. In the result, the impugned notice is quashed and set aside. Rule is made absolute in terms of prayer clause (a) with no order as to costs."
2.24. If the aforesaid ratio is analyze, it lays down that when statutory functionary makes an order, based on certain grounds, its validity or propriety must be judged by the reasons so mention/recorded and cannot, on challenge, by 58 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 supplementing fresh reasons in the shape of an affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time, it comes to the court on account of a challenge get validated by additional grounds later brought out. Our this proposition is supported by the ratio laid down in following decisions:-
i. Mohinder Singh Gill vs Chief Election Commissioner AIR 1978 Supreme Court 851, 858 ii. Commissioner of Police vs Gordhandas Bhanji AIR 1952 Supreme Court 16, 18 iii. Assam Frontier Tea Ltd. vs IAC (1987) 164 ITR 253, 262 (Gauh) iv. General Electric Technical Service Company vs State of Bihar (1990) 76 STC 134, 142 (pat.) v. Leukoplast (India) Ltd. vs State of goa (1988) 71 STC 180, 198-99 (Bom.) vi. N. Subhakaran vs CIT (1992) 198 ITR 720, 723-24 (Ker.) vii. Abhiyaman Educational And Research Institutions vs State of Tamilnadu AIR 1991 Mad 246, 268-69.
viii. Chunnilal Onkarmal Pvt. Ltd. vs CIT (1997) 224 ITR 233, 236 (MP) ix. Kakarla Krishnamurthy vs CIT (1995) 216 ITR 2016, 214-15 (AP) 59 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 2.25. If the ratio laid down in the aforesaid cases is analyzed with the facts of the present appeal and the issue in hand, it can be concluded that a quasi judicial order has to stand on its own legs; it has to sustain itself on its own reasoning. Its validity has to be judged by the reasons so mentioned/recorded and fresh reasons cannot be allowed to supplement and buttress the same. In other words a lame order cannot be propped up by adventititous crutches of new facts and reasons (Dayal Industries vs CCT (1996) 100 STC 215, 222 (WBBT)], thus, the legality of an order challenged has to be examined on the basis of the reasons indicated in the order. Any subsequent additional ground to support the said order, which are not indicated in the order would not justified the action of the authority passing the order (Swastik Metal Printers vs State (1997) 107 STC 353, 356 (All.)].
2.26. If this issue is analyzed in the light of plurality of assessment order of the same year, in our view is not possible, because, it is well settled principle that once the original assessment is quashed then there cannot be any escapement 60 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 of income qua that assessment proceedings. It is pertinent to mention here that once the original proceedings are quashed then nothing survives. In the present appeal, when the order of the Tribunal quashing the proceedings under section 153C of the Act is passed then there is no order survives in respect of which could be construed that the income chargeable to tax has escaped assessment. This view is fortified by the decision and the ratio laid down therein of the Mumbai Bench of the Tribunal in the case of Westlife Development Ltd. vs Pr. CIT (ITA No.688/Mum/2016), order dated 24/06/2016 is reproduced hereunder:-
"This appeal has been filed by the assessee against the order of Ld. Principal Commissioner of Income Tax-5, Mumbai (hereinafter called as CIT) passed u/s 263 dated 22-12-2015 for A.Y. 2011-12on the following grounds:
"1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax [CIT] erred in initiating proceedings u/s.263 of the Income Tax Act, 1961 (the Act) vide showcause notice dated 20-04-2015 and passing an order u/s. 263 of the Act as the reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of the Act, and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law, the appellant prays that the order of the learned CIT passed u/s.263 of the Income Tax Act, 1961 may be cancelled being void ab-initio and bad in law.
2. On the facts and in the circumstances of the case and in law, learned Commissioner of Income Tax erred in holding that assessment order dated 24-10-2013 passed by the Assessing 61 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Officer u/s 143(3) of the Act with regard to issue of shares at premium was erroneous and prejudicial to the interest of the revenue despite the issues raised having been duly considered by the learned Assessing Officer while framing the assessment u/s 143(3) of the Act.
3. On the facts and in the circumstances of the case and in law, the learned CIT erred in not himself conducting necessary/ proper enquiry and verification of issues mentioned in the notice issued u/s. 263 of the Act and setting aside the assessment order for a de-novo adjudication on issues mentioned therein which is wrong and contrary to the provisions of the Act, and the Rules made thereunder.
4. On the facts and in the circumstances of the case and in law, the learned CIT erred in issuing notice dated 20-04-2015 u/s. 263 of the Act in the name Westpoint Leisure parks Pvt. Ltd, a company which had already become non-existent on the date of issuance of the said notice on account of its merger with the appellant company (Westlife Development Ltd) despite the fact regarding amalgamation been specifically brought to notice of the Income Department vide appellant's letter dated 03-09-2013. As such, the entire proceedings u/s. 263 are void ab initio, illegal, bad in law and deserve quashed.
2. During the course of hearing, arguments were made by CA Vijay Mehta, on behalf of the assessee and Shri Goli Srinivasa Rao, CIT-DR on behalf of the Revenue.
3. During the course of hearing, he Ld. counsel of the assessee inter- alia stated that in this case the impugned order passed u/s 263 is bad in law on the jurisdictional ground, that is to say that the original assessment order passed u/s 143(3) dated 2440-2013 which has been sought to be revised by the Id.CIT was a nullity in the eyes of law, and therefore an order, which was a nullity in the eyes of law had no existence in the eyes of law and, therefore, the same could not have been revised by the Ld.CIT, thereby giving fresh life to the proceedings which had no legal existence in the eyes of law. In this regard, it has been further explained by the Id. counsel that the original assessment was f ramed u/s 143(3) upon an erstwhile company, viz. M/s 'W estpoint Leisureparks Pvt Ltd' (hereinafter called WLPL), which had already got amalgamated into another company namely M/s 'Westlife Development Ltd' (hereinafter called W DL) and therefore, on the date of framing of the assessment order, WLPL was 62 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 not in existence. It was further submitted that this fact was brought to the knowledge of the Assessing Officer; despite that, the Assessing Officer framed the assessment upon a non-existing entity. It was submitted by him that framing of an assessment upon a company which has already been amalgamated by way of an order of the High Court is nullity in the eyes of law and in support of his arguments he placed reliance upon the following judgments:
1. Judgment of Delhi High Court in the case of Spice Infotainment Ltd. Vs. Commissioner of Service Tax in ITA 475 & 476 of 2011, dated 03.08.2011
2. CIT v. Dimension Apparels P. Ltd. [370 ITR 288 (Del)]
3. I. K. Agencies P. Ltd. v CIT [347 ITR 664 (Cal)]
4. CIT v Express Newspapers Ltd. [40 ITR 38 (Mad)]
5. Judgment of Delhi High Court in the case of CIT v Micra India P. Ltd. (2015) 57 Taxmann.com 163 (Del)
6. Order of the Tribunal Mumbai Bench, in the case of Instant Holdings Ltd. ACIT in ITA no. 4593, 4748/Mum/2011 order dated 09.03.2016.
7. Order of the Tribunal Kolkata Bench, in the case of Emerald Company Ltd in ITA no. 428/Ko1/2015 order dated 13.01.2016
8. Judgment of Karnataka High Court in the case of CIT v Intel Techno India P. Ltd. (2015) 57 Taxmann.com 159 (Kar)
9. Order of the Tribunal Kolkata Bench, in the case of Gestener (India) ACIT in 1TA no. 275/Ko1/2007 "
4. It was further argued by him that the impugned assessment order was non est in the eyes of law and, therefore, the same could not have been revised by the Id.CIT. In this regard, he relied upon the judgment of Hon'ble Delhi High in CIT vs Escorts Farms Pvt Ltd 180 ITR 80 (Del) and upon the decision of the co-ordinate bench in the case of Krishna Kumar Saraf vs CIT ITA No.4562/De1/2011 dated 24- 09-32015 and Steel Strips Ltd v ACIT 53 ITD 553 (Chd). He thus requested that the impugned revision order passed by the Id.CIT is illegal on this primary jurisdictional ground itself.
5. Per contra, Ld. Departmental Representative for the Revenue vehemently opposed the arguments of the Id. Counsel. It was submitted by the Id. CIT-DR that even if the original assessment order was framed in the name of an erstwhile company, the same was only a mere irregularity and that does not make the assessment as nullity in the eyes of law. It was submitted that such lapses were protected u/s 292B of the Act.
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6. In addition to the above, it was further submitted by him that the issue with regard to illegality in the original assessment order cannot be raised here during the proceedings challenging the order u/s 263. It was further submitted by him that in any case, the ld.CIT had proper jurisdiction to make revision of the impugned assessment order.
7. We have heard both the parties on this issue and also gone through the orders passed by the lower authorities as well as the judgments relied upon before us. In our view, we need to decide following issues, before we go into any other issues or merits of the impugned order:
1. Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263?
2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee?
3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?
In our considered view, since these issues are jurisdictional issues and go to the root of the matter, therefore before dealing with any other issue, we shall first deal with all above three issues one by one, as under:
8. Challenging the jurisdictional defects of assessment order for assailing the jurisdictional validity of the revision order passed u/s 263: The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as 'primary proceedings'. These are, in effect, basic / foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated u/s 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as 'collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature?
64M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 8.1. We have analysed this issue carefully. There is no doubt that after passing of the original assessment order, the primary (i.e. original proceedings) had come to an end and attained finality and, therefore, outcome of the same cannot be disturbed, and therefore, the original assessment order framed to conclude the primary proceedings had also attained finality and it also cannot be disturbed at the instance of the assessee, except as permitted under the law and by following the due process of law. Under these circumstances, it can be said that effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the assessee. But, the issue that arises here is that if the original assessment order is illegal in terms of its jurisdiction or if the same is null & void in the eyes of law on any jurisdictional grounds, then, whether it can give rise to initiation of further proceedings and whether such subsequent proceedings would be valid under the law as contained in Income Tax Act? It has been vehemently argued before us that the subsequent proceedings (i.e. collateral proceedings) derive strength only from the order passed in the original proceedings (i.e. primary proceedings). Thus, if order passed in the original proceedings is itself illegal, then that cannot give rise to valid revision proceedings. Therefore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages, only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed, then, it may so happen that though order passed in the original proceedings was illegal and thus order passed in the subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many judgments by various courts, and some of them have been discussed by us in followings paragraphs.
65M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 8.2. In a matter that came up before Hon'ble Supreme Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors., [1955] 1 5CR 117 the facts were that the appellant in that case had undervalued the suit at Rs.2,950 and laid it in the court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Regist ry raised th e object ion as to valuat ion under Section
11. The value of the appeal was fixed at Rs.9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuation fixed by the High Court the appeal against the decree of the court of the Subordinate Judge did not lie to the District Court, but to the High Court and on that account the decree of the District Court was a nullity. Alternatively, it was contended that it caused prejudice to the appellant. In considering that contention at page 121, a four Judge Bench of Hon'ble Supreme Court speaking through Vankatarama Ayyar, J. held that:
"It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties."
8.3. This judgment was subsequently followed by Hon'ble Supreme Court in the landmark case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193, wherein an issue arose whether a decree can be challenged at the stage of execution and whether a decree which remained uncontested operates as res-judicata qua the parties affected by it. Hon'ble apex court, taking support from aforesaid judgment, observed as under:
"In the light of this position in law the question for determination is whether the impugned decree of the Civil Court can be assailed by the appellant in execution. It is already held that it is the Controller under the Act that has exclusive jurisdiction to order ejectment of a tenant from a building in the urban area leased out by 66 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the landlord. Thereby the Civil Court inherently lacks jurisdiction to entertain the suit and pass a decree of ejectment. Therefore, though the decree was passed and the jurisdiction of the Court was gone into in issue Nos. 4 and 5 at the ex-parte trial, the decree there-under is a nullity, and does not bind the appellant. Therefore, it does not operate as a res judicata. The Courts below have committed grave error of law in holding that the decree in the suit operated as res judicata and the appellant cannot raise the same point once again at the execution."
8.4. Similar view has been taken by Hon'ble Supreme Court by following aforesaid judgments recently in the case of Indian Bank vs Manual Govindji Khona reported in 2015 (3) SCC 712. Further, similar view was emphasized by Hon'ble Bombay High Court (GOA Bench) in the case of Mavany Brothers vs CIT (Tax Appeal No 8 of 2007) in its order dt 17th April, 2015 wherein it was held that an issue of jurisdiction can be raised at any time even in appeal or execution.
8.5. The aforesaid principles, enunciated by the Apex Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors, supra were reiterated by the Apex Court in the cases of Superintendent of Taxes vs Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy v. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in Kiran Singh (supra) is applicable even to revenue statutes such as the Income Tax Act. Dasa Muni Reddy (supra) is a judgment where the principle of 'coram non judice' was applied to rent control law. It was held that neither the rule of estoppel nor the principle of res ludicata can confer the Court jurisdiction where none exists. Here also the principle that was put into operation was that jurisdiction cannot be conferred by consent or agreement where it did not exist, nor can the lack of jurisdiction be waived.
8.6. These judgments were subsequently noticed by Hon'ble Gujarat High Court in the case of P. V. Doshi 113 ITR 22(Gujrat).
67M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 This case arose under the Income Tax Act with reference to the provisions of Section 147 dealing with re-assessment. The facts were that the assessment was sought to be reopened under Section 147 and notice under section 148 was issued. Validity of reopening was not challenged upto Tribunal and additions were challenged on merits only. The Tribunal restored the matter to the Assessing Officer with some directions to reexamine the issue on merits. When the matter came back to the assessing officer the assessee specifically raised the point of jurisdiction to reopen the assessment, contending that the notice of reopening was prompted by a mere change of opinion. The AO rejected plea of the assessee but the AAC accepted this ground and also held the reassessment to be bad in law on jurisdictional ground. Against the order of the AAC the Revenue went in appeal before the Tribunal and specifically raised the plea that the question of jurisdiction to reopen the assessment having been expressly given up by the assessee in the appeal against the reassessment order in the first round, the assessee was debarred from raising that point again before the AAC and the AAC was equally wrong in permitting the assessee to raise that point which had become final in the first round and in adjudicating upon the same. The plea of the Revenue impressed the Tribunal which took the view that after its earlier order in the first round of proceedings the matter attained finality with regard to the point of jurisdiction which was given up before the AAC and not agitated further and that in the remand proceedings what was open before the Assessing Officer was only the question whether the addition was justified on merits and the point regarding the jurisdictional aspect was not open before the Assessing Officer. According to the Tribunal, the assessee having raised the point in the first round and having given it up could not revive it in the second round of proceedings where the issue was limited to the merits of the additions. In this view, the Tribunal accepted the Revenues plea. The assessee thereafter carried order of the Tribunal in reference before the Gujarat High Court. The High Court after considering various judgments of the Supreme Court on the point of jurisdiction to reopen the assessment and also after specifically discussing the judgment of the Supreme Court in Onkarmal Nathmal Trust (supra) and Dasa Muni Reddy (supra) held that the Tribunal was in error in holding that the question of jurisdiction became final when it passed the earlier remand order. It was held that neither the question of res judicata nor the rule of estoppel could be invoked where the jurisdiction of an authority was 68 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 under challenge. According to Hon'ble Gujarat High Court, the rule of res judiccitci cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuniary or territorial or over the subject matter of the dispute. Hon'ble High Court further held that since neither consent nor waiver can confer jurisdiction upon the Assessing Officer where it did not exist, no importance could be attached to the fact that the assessee, in the first round of proceedings, expressly gave up the plea against the erroneous assumption of jurisdiction by the assessing authority. According to the Hon'ble Court, the "finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction, it would be only a nullity confirmed in further appeals'. In this view of the matter, Hon'ble High Court finally answered the reference in favour of the assessee.
8.7. It is further noted that many of these judgments were discussed and followed by the co-ordinate bench of the Tribunal in the case of Indian Farmers Fertilizers Co-operative Ltd vs KIT 105 lTD 33 (Del), wherein a similar issue had arisen. In this case, the issue raised before the bench was whether it is open to the assessee, not having appealed against the reassessment order, to set up or canvass its correctness in collateral proceedings taken for rectification thereof u/s 154. The bench minutely analysed law in this regard and applying the principle of 'coram non judice' and following aforesaid judgments of the supreme court, it was held that if an assessee seeks to challenge the reassessment proceedings as being without jurisdiction, when action for rectification is sought to be taken on the assumption of the validity of the reassessment order, then the assessee has to step in and protect its interests and the liberty to question even the validity of the reassessment proceedings ought to be given to it....... " (emphasis supplied). 8.8. Similar view was taken in another decision of the Tribunal in the case of Dhiraj Suri vs ACIT 98 lTD 87 (Del). In the said case, appeal was filed by the assessee before the Tribunal against the levy of penalty. In the appeal challenging the penalty order, the assessee challenged the validity of block assessment order which had determined the tax liability of the assessee on the basis of which penalty was levied subsequently. The revenue objected with 69 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 respect to the ground of the assessee raising jurisdictional issues of assessment proceedings in the appeal against the penalty order. After analysing the legal position, as clarified by Hon'ble Gujrat High Court in the case of P.V. Doshi, supra and Hon'ble Bombay High Court in the case of Jainaravan Babulal vs CIT. 170 ITR 399, the bench held as that if the block assessment itself is without jurisdiction then there is no question of levy of any penalty u/s. 158BFA(2) and therefore it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty.
8.9. We also derive support from another judgement of Hon'ble Bombay High Court in the case of Inventors Industrial Corporation Ltd vs CIT 194 ITR 548 (Bombay) wherein it was held that assessee was entitled to challenge the jurisdiction of the AO to initiate re-assessment proceedings before the CIT(A) in the second round of proceedings, even though he had not raised it in earlier proceedings before the Assessing Officer or in the earlier appeal. 8.10. Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s 263 on the ground that the impugned assessment order was non est and we hold accordingly.
9. Whether the impugned assessment order passed u/s 143(3) dated 24-10- 2013 was valid in the eyes of law or a nullity as has been claimed by the assessee on the ground that it was framed in the hands of a non-existing company. 9.1 Now we proceed to decide the issue raised by the assessee that the impugned assessment order dated 24-10-2013 on the ground that the same was non est for the reason that it has been framed in the hands of a non est entity, since WLPL had got amalgamated into WDL at the time of framing of the assessment order by the Assessing Officer. The requisite facts and chronology of events brought out by the assessee before us are as under:
S.No. Date Particulars
(1) 22.01.2008 Westpoint Realtors Pvt. Ltd., incorporated.
(2) 30.06.2011 Name of the company changed from
Westpoint Realtors Pvt. Ltd. to Westpoint
Leisureparks Pvt. Ltd. referred to as
WLPL).
70
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
(3) 23.07.2013 Westpoint Leisureparks Pvt. Ltd.,
amalgamated with Westlife Development
Ltd.( referred to as WDL).
(4) 03.09.2013 Assessee intimated to the Assessing
Officer the fact of amalgamation. Copy of
Scheme as well as High Court order
submitted to the Assessing Officer
(enclosed at page number 57 of P.B).
(5) 24.10.2013 Assessment order passed by the
Assessing Officer in t h e n a m e o f e r s t
w h i l e c o m p a n y W e s t p o i n t
Leisureparks Pvt. Ltd.
(6) 22.12.2015 Ld. CIT has revised the above referred
assessment order vide impugned order
passed u/s 263 of the Act.
9.2. During the course of hearing before us, our attention has been drawn by Ld. Counsel upon letter dated 03-09-2013 filed before the Assessing Officer during the course of original assessment proceedings intimating him about the amalgamation of erstwhile company WLPL with WDL, copy of which is placed at paper book page 57. It is noted that in the said letter the assessee has brought out complete facts and figures mentioning about the fact of amalgamation. Ld. CIT-DR expressed doubts above filing of this letter before the AO and therefore to clarify all the doubts in this regard, further time was given to him to verify and produce the assessment records. Accordingly, on the next date of hearing assessment records were produced and it was confirmed by Ld. CIT-DR that this letter was available in the assessment records. We also examined the records to cross verify this fact. We find it appropriate to reproduce the contents of the said letter as under:-
Xxxxxxxxxxxxxxxxxxxx 9.3. It is also shown to us that this letter has been duly acknowledged by the office of the Income-tax Officer, Range 5(3)(4) (i.e. the AO) on 06-09- 2013. Our attention was also drawn on the copy of order of Hon'ble Bombay High Court dated 19h July, 2013 for effecting the amalgamation of two companies. Our attention was further drawn on the fact that the Permanent Account Number belonging to WDL was also brought to the notice 71 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 of the Assessing Officer. Our attention was also drawn on subsequent letters filed before Assessing Officer. For example, letter dt 21-10-2013 (paper book page 107-108) showing that all subsequent replies were written by WDL and submitted to the AO on its letterhead. All these documentary evidences were shown to bring home the point that the factum of amalgamation was very much in the knowledge of Assessing Officer and thus Assessing Officer was aware that WLPL was no more in existence. Therefore, by framing the order upon WLPL, a grave error was committed and it was a case of jurisdictional lapse on the part of the Assessing Officer and thus, the resultant order was nullity in the eyes of law.
9.4. On the other hand, it has been argued by the Ld. CIT-DR that it was merely a procedural defect which was curable and does not make the order a nullity. It was further argued by the Ld. CIT-DR that the same was curable u/s 292BB and since the assessee had participated in the proceedings, therefore, the assessee could not challenge the resultant assessment order as nullity in the eyes of law.
9.5. We have carefully gone through the facts of the case and submissions made by both the sides before us. We have also gone through the legal position in this regard. It is noted by us that this issue is no more res integra. All the arguments made by the Ld. CIT-DR have already been addressed by many Courts. The judgements relied upon by Ld. Counsel are directly on this issue and squarely covers these issues.
9.6. In addition to that, it is noted that interestingly, Hon'ble Bombay High Court recently decided identical issue in its judgment in the case of Jitendra Chandralal Navlani Chandralal Navlani & Anr vs UOI Anr vs UOI in writ petition No. 1069 of 2016 vide order 81h June, 2016 as under:
"On receipt of the reopening notice, the Chartered Accountant of the erstwhile M/s. Addler Security Systems Pvt. Ltd., had originally accepted the some but immediately thereafter by letter dated 5th May, 2015 pointed out that the company M/s. Addier Security Systems Pvt. Ltd. is no longer in existence as it has been dissolved. Consequent thereto, the Assessing Officer has also issued a notice under Section 142(1) of the Act to one of the petitioner who was the Director of erstwhile M/s. Addler Security 72 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Systems Pvt. Ltd. (since dissolved). In response, the Director of the erstwhile M/s. Addler Security Systems Pvt. Ltd., pointed out that the company has already been dissolved and it is no longer in existence. Notwithstanding the above, the Assessing Officer by an order dated 28th March, 2016 has passed the impugned order framing the assessment in case of M/s. Addler Security Systems Pvt. Ltd. (since dissolved) for Assessment Year 2008-
09.
4. Normally we would not have entertained a petition as an alternative remedy to file an appeal is available to the petitioners. However, prima facie, the impugned notice has been issued in respect of a non existing entity as MIs. Addler Security Systems Pvt. Ltd., which stands dissolved, having been struck off the Rolls of the Registrar of Companies much before its issue. Consequently, the assessment has been framed also in respect of the non-existing entity. This defect in issuing a reopening notice to a non-existing company and framing an assessment consequent thereto is an issue which goes to the root of the jurisdiction of the Assessing Officer to assess the non-existing company. Thus, prima fade, both the impugned notice dated 24th March, 2015 and the Assessment Order dated 28th March, 2016, are without jurisdiction." (emphasis supplied).
9.7. Further, recently, the co-ordinate bench of hAT Mumbai decided identical issue in the case of M/s Genesys Worldeye Ltd in ITA No.473/Mum/2012 order dated 03-06-2016 in which one of us (AM) was a party. The relevant part of this order is reproduced hereunder:
"4.8. In our view, this argument of the Ld. DR is also not in accordance with law. The assessment is to be made by the AO in accordance with law. The jurisdiction to frame the assessment order upon a particular person can be made by the AO in accordance with the law only. The jurisdiction to frame an assessment can neither be conferred nor can it be taken away by an assessee or any other person from the AO on the basis of their consent or otherwise. If the assessment orders are framed on the basis of consent or objection of the assessee 's alone then it would give rise to a chaotic situation. Thus, it is for the AO to carefully determine his jurisdiction to make an assessment in a lawful manner upon the appropriate person and the obligation to do so rest solely upon the shoulders of the AO which he is obliged to fulfil 73 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 by following due process of law. There is no estoppel against law. If an assessment order is framed without the authority of law, then, the same would be nullity in the eyes of law, as no tax can be collected without the authority of law, as has been clearly laid down in Article 265 of our constitution.
4.9. It is noted by us that all these issues and arguments have already been dealt with and this entire controversy has already been put to rest by various courts in their judgments. Hon'ble Delhi High Court in the case of Spice Infotainment Ltd (Supra) has analysed this entire controversy in detail and held that assessment order passed under such circumstances would be nullity in the eyes of law. The relevant observations of the Hon'ble High Court in the said case are very useful to deal with this controversy and the same are reproduced hereunder for the sake of ready reference: "
6. On the aforesaid reasoning and analysis, the Tribunal summed up the position in para 14 of its order which reads as under:-
"In the light of the discussions made above, we, therefore, hold that the assessment made by the AO, in substance and effect, is not against the non-existent amalgamating company. However, we do agree with the proposition or ration decided in the various cases relied upon by the learned counsel for the assessee that the assessment made against non-existent person would be invalid and liable to be struck down. But, in the present case, we find that the assessment, i n s u b s t a n c e a n d e f f e c t , h a s b e e n m a d e a g a i n s t amalgamated company in respect of assessment of income of amalgamating company for the period prior to amalgamation and mere omission to mention the name of amalgamated company alongwith the name of amalgamating company in the body of assessment against the item "name of the assessee" is not fatal to the validity of assessment but is a procedural defect covered by Section 292B of the Act. We hold accordingly."
7. The aforesaid line of reasoning adopted by the Tribunal is clearly blemished with legal loopholes and is contrary to law. N o d o u b t , M / s S p i c e w a s a n a s s e s s e e a n d a s a n incorporated company and was in existence when it filed the returns in respect of two assessment years in questions. However, before the case could be selected for scrutiny and assessment proceedings could be initiated, M/s Spice got amalgamated with MCorp Put. Ltd. It was 74 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the result of the scheme of the amalgamation filed before the Company Judge of this Court which was dully sanctioned vide orders dated 11th February, 2004. With this amalgamation made effective from 1st July, 2003, M/s Spice ceased to exist. That is the plain and simple effect in law. The scheme of amalgamation itsel f pro vide d for this con sequenc e, ina smuch a s simultaneous with the sanctioning of the scheme, M/s Spice was also stood dissolved by specific order of this Court. With the dissolution of this company, its name was struck off from the rolls of Companies maintained by the Registrar of Companies.
8. A company incorporated under the Indian Companies Act is a juristic person. It takes its birth and gets life with the incorporation. It dies with the dissolution as per the provisions of the Companies Act. It is trite law that on amalgamation, the amalgamating company ceases to exist in the eyes of law. This position is even accepted by the Tribunal in para-14 of its order extracted above. Having regard this consequence provided in law, in number of cases, the Supreme Court held that assessment upon a dissolved company is impermissible as there is no provision in IncomeTax to make an assessment thereupon. In the case of Saraswati Industrial Syndicate Ltd. Vs. CIT, 186 ITR 278 the legal position is explained in the following terms:
"The question is whether on the amalgamation of the Indian Sugar Company with the appellant Company, the Indian Sugar Company continued to have its entity and was alive f o r t h e p u r p o s e s of S e c t i o n 4 1 ( 1 ) o f t h e A c t . T h e amalgamation of the two companies was effected under the order of the High Court in proceedings under Section 391 read with Section 394 of the Companies Act. The Saraswati Industrial Syndicate, the trans free Company was a subsidiary of the Indian Sugar Company, namely, the transferor Company. Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October, 1962 and it ceased to be in existence thereafter. Though the scheme provided that the transferee Company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that Company incurred or it could incur, any liability, before the dissolution or not thereafter.
Generally, where only one Company is involved in change and the rights of the share holders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In 75 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or amalgamation has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the share holders of each blending Company become substantially the share holders in the Company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new Company, or by the transfer of one or more undertakings to an existing Company. Strictly amalgamation does not cover the mere acquisition by a Company of the share capital of other Company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See Halsburys Laws of England 4th Edition Vol. 7 Para 1539. Two companies may join to form a new Company, but there may be absorption or blending of one by the other, both amounts to amalgamation. When two companies are merged and are so joined, as to form a third Company or one is absorbed into one or blended with another, the amalgamating Company loses its entity."
9. The Court referred to its earlier judgment in General Radio and Appliances Co. Ltd. vs M.A. Khader (1986) 60 Comp Case 1013. In view of the aforesaid clinching position in law, it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact in the name of amalgamated company and there was only a procedural defect.
10. Section 481 of the Companies Act provides for dissolution of the company. The Company Judge in the High Court can order dissolution of a company on the grounds stated therein. The effect of the dissolution is that the company no more survives. The dissolution puts an end to the existence of the company. It is held in M.H. Smith (Plant Hire) Ltd. Vs. D.L. Mainwaring (T/A Inshore), 1986 BCLC 342 (CA) that "once a company is dissolved it becomes a non-existent party and therefore no action can be brought in its name. Thus an insurance company which was subrogated to the rights of another insured company was held not to be entitled to maintain an action in the name of the company after the latter had been dissolved".
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ITA Nos7310 to 7313/Mum/2017
11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said ,,dead person. When notice under Section 143 (2) was sent, the appellant/ amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings and assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law.
12. Once it is found that assessment is framed in the name of non- existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act. Section 292B of the Act reads as under:-
"292B. No return of income assessment, notice, summons or other proceedings furnished or made or issue or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reasons of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act."
13. The Punjab & Haryana High Court stated the effect of this provision in CIT Vs. Norton Motors, 275 ITR 595 in the following manner:-
"A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, Section 292B can be relied upon for resisting a challenge to the notice, etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language of that section from which it 77 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the same cannot be cured by having resort to Section 292B.
14. The issue again cropped up before the Court in CIT Vs. Harjinder Kaur (2009) 222 CTR 254 (P&H). That was a case where return in question filed by the assessee was neither signed by the assessee nor verified in terms of the mandate of Section 140 of the Act. The Court was of the opinion that such a return cannot be treated as return even a return filed by the assessee and this inherent defect could not be cured inspite of the deeming effect of Section 292B of the Act. Therefore, the return was absolutely invalid and assessment could not be made on a invalid return. In the process, the Court observed as under:-
"Having given our thoughtful consideration to the submission advanced by the learned Counsel for the appellant, we are of the view that the provisions of Section 292B of the 1961 Act do not authorize the AO to ignore a defect of a substantive nature and it is, therefore, that the aforesaid provision categorically records that a return would not be treated as invalid, if the same "in substance and effect is in conformity with or according to the intent and purpose of this Act". Insofar as the return under reference is concerned, in terms of Section 140 of the 1961 Act, the same cannot be treated to be even a return filed by the respondent assessee, as the same does not even bear her signatures and had not even been verified by her. In the aforesaid view of the matter, it is not possible for us to accept that the return allegedly filed by the assessee was in substance and effect in conformity with or according to the intent and purpose of this Act. Thus viewed, it is not possible for us to accept the contention advanced by the learned Counsel for the appellant on the basis of Section 292B of the 1961 Act. The return under reference, which had been taken into consideration by the Revenue, was an absolutely invalid return as it had a glaring inherent defect which could not be cured in spite of the deeming effect of Section 292B of the 1961 Act."
15. Likewise, in the case of Sri Nath Suresh Chand Ram Naresh Vs. CIT (2006) 280 ITR 396, the Allahabad High Court held that the issue of notice under Section 148 of the Income Tax Act is a 78 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 condition precedent to the validity of any assessment order to be passed under section 147 of the Act and when such a notice is not issued and assessment made, such a defect cannot be treated as cured under Section 292B of the Act. The Court observed that this provisions condones the invalidity which arises merely by mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of this Act. Since no valid notice was served on the ass essee to reassess the income, all the consequent proceedings were null and void and it was not a case of irregularity. Therefore, Section 292B of the Act had no application.
16. When we apply the ratio of aforesaid cases to the facts of this case, the irresistible conclusion would be provisions of Section 292B of the Act are not applicable in such a case. The framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person.
17. The order of the Tribunal is, therefore, clearly unsustainable. We, thus, decide the questions of law in favour of the assessee and against the Revenue and allow these appeals."
4.10. This judgment was subsequently followed by another detailed judgment by Hon'ble Delhi High Court in the case of CIT v. Dimension Apparels Pvt. Ltd. (supra) wherein all the arguments which have been made before us by the Ld. DR have been dealt with by the Hon'ble High Court and it was held that framing of the assessment order upon a non-existing person was a jurisdictional defect and not merely a curable procedural defect, and thus nullity in the eyes of law. 4.11. In view of all these facts as have brought before us and the judgments brought before us and in the absence of any contrary judgment having been brought before us, we find that impugned assessment order is nullity in the eyes of law and the same is herby quashed, and thus additional grounds raised by the assessee are allowed. Since we have allowed the appeal of the assessee on the additional grounds, we do not find it necessary to go into grounds raised on merits and therefore, these are treated as infructuous."
9.8. It is also noted that Hon'ble Calcutta High Court in the case of I.K. Agencies Pvt Ltd, supra as well as Honble Karnataka High 79 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Court in the case of CIT vs Intel Technology Pvt Ltd 380 ITR 272 (Karnatka) also followed the view taken by Hon'ble Delhi High Court in the case of Spice Infotainment Ltd 247 CTR 500 (Delhi) and held that framing of assessment against non-existing entity/person would go to root of matter and was not mere procedural irregularity, but a jurisdictional defect and there could not be any assessment against a dead person. Thus, apparently, assessment proceedings having been initiated against non- existing company even after amalgamation of assessee company with another company were illegal, and thus order passed under such proceedings without jurisdiction and null & void.
9.9. During the course of hearing, no contrary judgement was brought to our notice by the Ld. CIT-DR. It was fairly stated that as on date this issue was covered in favour of the assessee in view of the judgments as discussed above. In these facts and circumstances and the clear position of law coming out from above discussed judgments of Hon'ble Bombay High Court, Delhi High Court, Calcutta High Court and Karnatka High Court, we find that the impugned assessment order having been passed in the hands of WLPL i.e. a non est entity at the time of passing the said assessment order was null & void in the eyes of law.
10. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the imp u g ned order u/s 263 to revise the non est assessment order: Having decided the aforesaid two issues, the next issue that is to be decided by us is about the validity of order passed u/s 263 by the Ld. CIT seeking to revise the assessment order which was nullity in the eyes of law.
10.1. We have discussed in detail in earlier part of our order that an invalid order cannot give birth to legally valid proceedings. It is further noticed by us that some of the judgments relied upon by the Ld. Counsel have already addressed this issue. This issue has also been decided by the co-ordinate bench (Delhi Bench of Tribunal) in the case of Krishna Kumar Saraf vs CIT (supra). The relevant part of the order is reproduced below:
17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee.80
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the some was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the some was legal, which went to the root of the matter.
19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the same.
20. In view of above discussion, ground no.3 is allowed and revision order passed u/s 263 is quashed."
10.2. It is further noticed by us that similar view has been taken by Chandigarh Bench of the Tribunal in the case of Steel Strips Ltd (supra).
11. Thus, after taking into account all the facts and circumstances of the case, we find that in this case, the original assessment order passed u/s 143(3) dt 24-10-2013 was null & void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed.
12. Since we have quashed the impugned order passed u/s 263 by Ld. CIT on jurisdictional ground, we do not find it necessary to 81 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 deal with, at this stage, other legal aspects and issues raised on merits of the impugned order.
13. We further clarify, at the cost of repetition, that our order shall have no bearing on the tax liability determined by the original assessment order dt. 24- 10-2013, if any.
14. In the result, the appeal filed by the assessee is allowed."
2.27. During hearing, the ld. counsel for the assessee took another plea that addition has been made invoking the provisions of section 68 of the Act in relation to issue of shares by the assessee company and thus in view of amendement made w.e.f. Assessment Year 2013-14, section 68 cannot be invoked in respect of share capital received by the assessee, for which the assessee placed reliance upon the decision from Hon'ble Bombay High Court in the case of CIT vs M/s Gagandeep Infrastructure Pvt. Ltd. (ITA No.1613 of 2014). However, the Ld. Sr. Senior Standing Counsel defended the addition made by the Ld. Assessing Officer.
2.28. We have considered the rival submissions and perused the material available on record. In view of the above submissions, we are reproducing hereunder the aforesaid order from Hon'ble jurisdictional High Court 82 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 [Gagandeep Infrastructure Pvt. Ltd. (2017) 80 taxmann.com 272(Bom.)] for ready reference and analysis:-
"1. This Appeal under section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 23' April, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order is in respect of Assessment Year 2008-09.
2. Mr. Suresh Kumar, the learned counsel appearing for the Revenue urges the following re-framed questions of law for our consideration:-
"(1) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of Rs.7,53,50,000/- under Section 68 of the Act being share capital/share premium received during the year when the Assessing Officer held the same as unexplained cash credit?
(ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restricting the disallowance under Section 14A of the Act only to the amount of expenditure claimed by the assessee in the absence of any such restriction under Section 14A and/or Rule SD?"
3. Regarding question no.(i):-
(a) During the previous relevant to the subject Assessment Year the respondent-assessee had increased its share capital from Rs.2,50,000/- to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores.
Consequently he called upon the respondent to justify the charging of share premium at Rs.190/- per share. The respondent furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the respondent- assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as 83 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 unexplained cash credit within the meaning of Section 68 of the Act.
(b) Being aggrieved, the respondent carried the issue in appeal. By an order dated 24th May, 2011 the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition of Rs.7.53 crores made by the Assessing Officer by holding that the Assessing Officer had given no reason to conclude that the investment made (inclusive of premium) was not genuine. This inspite of evidence being furnished by the respondent in support of the genuineness of the transactions. Further he held that the appropriate valuation of the shares is for the subscriber/investor to decide and not a subject of enquiry by the Revenue. Finally he relied upon the decision of the Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 to hold that if the amounts have been subscribed by bogus shareholders it is for the Revenue to proceed against such shareholders. Therefore it held the Assessing Officer was not justified in adding the amount of share capital subscription including the share premium as unexplained credit tinder Section 68 of the Act.
(c) Being aggrieved, the Revenue carried the issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondent-assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon, would be on capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P) Ltd. (supra) to uphold the finding of the CIT(A) and dismissing the Revenue's appeal.
(d) Mr. Suresh Kumar, the learned counsel appearing for the Revenue contends that proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for A.Y. 2008-09. The basis of the above submission is that the de hors the proviso also the requirements as 84 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 set out therein would have to be satisfied.
(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre- proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
4.(a) Admit the substantial question of law at (ii) above.
(b) The issue arising in question no. (ii) is essentially whether application of Rule 8D(2)(iii) of the Income Tax Rules would not permit the Revenue to disallow expenditure not claimed i.e. much larger than the expenditure/debited in earning its total income. The Counsel inform us that there is no decision on this issue of any Court available and it would effect a large number of cases whether similar issues arise. Therefore, this issue would require an early 85 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 determination. In the above view, at the request of the Counsel, the appeal is kept for hearing on 17th April 2017 at 3.00P.M. subject to overnight part heard.
5. Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to the present appeal available, to be produced when sought for by the Court."
2.29. In the aforesaid order, the Hon'ble jurisdiction High Court has clearly held that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory".
Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the 86 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-
amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assess them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
3. Another argument raised by the Ld. counsel for the assessee was that since the Ld. Assessing Officer rejected the 87 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 objection on 20/01/2015 and he has issued a notice under section 142(1) on 20/01/2015 and thereafter the Ld. Assessing Officer issued notice within 20 days, this is contrary to ratio laid down by Hon'ble Apex Court in GKN Driveshafts (India) Ltd. 259 ITR 19 (Supreme Court) and Hon'ble jurisdictional High Court in the case of Asian Paints Ltd. 296 ITR 90 (Bom.). The ld. Sr. Standing Counsel defended the impugned order.
3.1. Before adverting further, it is our bounded duty to examine section 147 of the Act. Section 114 of the Evidence Act, 1872, is permissive and not a mandatory provision. Nine situations by way of illustrations are stated. These are by way of example or guidelines. As a permissive provision it enables to judge to support his judgment but there is no scope of presumption when facts are known. Presumption of facts under section 114 is rebuttable. The presumption raised under illustration (e) to section 114 of the Act means that when an official act is proved to have been done, it will be presumed to have been regularly done but it does not raise 88 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 any presumption that an act was done for which there is no evidence or proof.
(i) Assessments cannot be validly reopened under section 147 of the Act even within four years, if an assessee had furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made under section 143(3). So long as the assessee has furnished full and true particulars at that time of original assessment and so long as the assessment order is framed under section 143(3) of the Act, it matters little that the Assessing Officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects.
(ii) Section 114(e) of the Act can be applied to an assessment order framed under section 143(3) of the Act, provided there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. The ratio laid down in the following cases usefully throw lights on the issue in hand:-
L. A. Firm v. CIT [1976] 102 ITR 622 (Mad) (para 9) A. L. A. Firm v. CIT [1991] 189 ITR 285 (SC) (paras 32, 60, 61) 89 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Anandji Haridas and Co. P. Ltd. v. Kushare (S. P.), STO [1968] 21 STC 326 (SC) (para 35) Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC) (para 34) Barium Chemicals Ltd. v. CLB [1966] 36 Comp Cas 639 (SC) (para 56) BLB Ltd. v. Asst. CIT [2012] 343 ITR 129 (Delhi) (para 14) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (para 45) CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) (paras 9, 34) CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 (Bom) (para 21) CIT v. DLF Power Ltd. [2012] 345 ITR 446 (Delhi) (para 14) CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi) (paras 10, 28) CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) [FB] (paras 2, 12, 20, 48) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) (paras 2, 28) CIT v. Khemchand Ramdas [1938] 6 ITR 414 (PC) (para 50) CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) (para 18) CIT (Asst.) v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) (paras 4, 12) CIT v. Sharma (H. P.) [1980] 122 ITR 675 (Delhi) (para 9) Consolidated Photo and Finvest Ltd. v. Asst.CIT [2006] 281 ITR 394 (Delhi) (paras 9, 11) Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi) (para 17) G. R. Ramachari and Co. v. CIT [1961] 41 ITR 142 (Mad) (paras 38, 61) Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H) (para 10) 90 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 ITO v. Habibullah (S. K.) [1962] 44 ITR 809 (SC) (para 50) Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) (paras 34, 35) Indian Hume Pipe Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom) (para
17) 3i Infotech Ltd. v. Asst. CIT [2010] 329 ITR 257 (Bom) (para 26) International Woollen Mills v. Standard Wool (U. K.) Ltd. [2001] 5 SCC 265 (para 30) Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) (paras 9, 33, 34, 35) KLM Royal Dutch Airlines v. Asst. Director of I. T. [2007] 292 ITR 49 (Delhi) (para 12) Kunhayammed v. State of Kerala [2000] 245 ITR 360 (SC) (para 31) Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC) (para 34) Muthukrishna Reddiar v. CIT [1973] 90 ITR 503 (Ker) (para 9) New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi) (para 18) Praful Chunilal Patel v. Makwana (M. J.)/Asst. CIT [1999] 236 ITR 832 (Guj) (para 21) Snowcem India Ltd. v. Deputy CIT [2009] 313 ITR 170 (Bom) (para 31) Sri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC) (paras 56, 58) Suresh Budharmal Kalani v. State of Maharashtra [1998] 7 SCC 337 (para
29) Union of India v. Suresh C. Baskey [1996] AIR 1996 SC 849 (para 20) United Mercantile Co. Ltd. v. CIT [1967] 64 ITR 218 (Ker) (para 9) "(i) What is meant by the term 'change of opinion' ?
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(ii) Whether assessment proceedings can be validly reopened under section 147 of the Act, even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion ?
(iii) Whether the bar or prohibition under the principle 'change of opinion' will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects ?
(iv) Whether and in what circumstances section 114(e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion ?"
3.2. To explain the aforementioned position of the law, we are reproducing hereunder the relevant provision of section 147 of the Act.
"147. Income escaping assessment.--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 re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee 92 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 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.
Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the fore going proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been under assessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allow ance under this Act has been computed.
Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148."
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ITA Nos7310 to 7313/Mum/2017 3.3. For reopening an assessment made under section 143(3) of the Act, the following conditions are required to be satisfied:-
(i) the Assessing Officer must form a tentative or prima facie opinion on the basis of material that there is underassessment or escapement of income ;
(ii) he must record the prima facie opinion into writing ;
(iii) the opinion formed is subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion.
(iv) reasons recorded and/or the documents available on record must show a nexus or that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income.
(v) In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. The Explanation to the section stipulates that mere production of books of account or other documents from which the Assessing Officer could have, with due diligence, inferred material facts, does not amount to "full and true disclosure of material facts"
(the proviso is not applicable where reasons to believe for issue of notice are recorded and notice is issued within four years from the end of assessment year).
3.4. The expression "change of opinion" postulates "formation of opinion" and then a "change thereof". In the context of section 147 of the Act it implies that the Assessing Officer should have formed an opinion at the first instance, i.e., in the proceedings under section 143(3) and thereafter, 94 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 with the initiation of the reassessment proceeding, the Assessing Officer proposes or wants to take a different view.
The word "opinion" is derived from the latin word "opinari"
which means "to believe", "to think". The word "opinion" as per the Black's Law Dictionary means a statement by a judge or a court of a decision reached by him incorporating cause tried or argued before them, expounding the law as applied to the case and, detailing the reasons upon which the judgment is based.
Advanced Law Lexicon by P. Ramanatha Aiyar (third edition) explains the term "opinion" to mean "something more than mere retaining of gossip or hearsay; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question . . . An opinion is a conviction based on testimony . . . they are as a result of reading, experience and reflection".
3.5. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection to use the words in Law Lexicon by P. Ramanatha Aiyar. The question of change of 95 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 opinion arise when an Assessing Officer forms an opinion and decides not to make an addition or holds that the assessee is correct and accepts his position or stand. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H), a Division Bench of the Hon'ble Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. Applying the principles laid down by the Full Bench as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed on record by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted/rejected the view canvassed by the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, 96 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of his lapses.
3.6. The Hon'ble Delhi High Court in Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 (Delhi) held as under:
"In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best 97 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion."
3.7. From the foregoing discussion, the clear position emerges as under:
(1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion.
(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion".
(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but 98 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.
3.8. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort may be made through section 263 of the Act. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. Here a distinction has to be drawn between erroneous application/interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the 99 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression "material facts" means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same may come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer's proceeding on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. A decision from Hon'ble Delhi High Court dated September 26, 2011 in Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi) throws light on the issue.
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ITA Nos7310 to 7313/Mum/2017 3.9. We have perused the original assessment orders passed under section 143(3) of the Act and thereafter 153C r.w.s. 143(3) of the Act, which are available on record, therefore, the same are not being repeated/reproduced and the orders itself evidences that the original assessment was framed after due application of mind and on examination of material facts/details/reply/profit & loss account, balance sheet, etc. Thus, it is clear that the original assessment was framed after due application of mind, consequently, it can be said the reassessment framed by the Assessing Officer in the second category is a case of "change of opinion" and cannot be reopened for the reason that the assessee, as required, has placed on record primary material facts but on the basis of legal understanding, the Assessing Officer has taken a particular view.
3.10. If the totality of facts is analyzed, it brings us to the observations of the Delhi High Court in Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) [FB] which read as under
(page 18):101
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on October 31, 1989. The said circular admittedly is binding on the Revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular."
3.11. From a perusal of clause 7.2 of the said circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had been carried out, i.e., only with a view to allay the fears that the omission of the expression 'reason to believe' from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessment on mere change of opinion. It is, therefore, evident that even according to the CBDT a "mere change of opinion"
cannot form the basis for reopening a completed assessment.
3.12. In the event it is held that by reason of section 147 if the Income-tax Officer exercises its jurisdiction for initiating a proceeding for re-assessment only upon mere change of opinion, the same may be held to be unconstitutional. We are, therefore, of the opinion that section 147 of the Act does not postulate conferment of unbridled power upon the Assessing Officer to initiate reassessment proceeding upon mere "change of opinion".
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ITA Nos7310 to 7313/Mum/2017 3.13. The Hon'ble Apex Court thereafter referred to the subsequent decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) wherein it was observed that some of the observations made in Kalyanji Mavji (supra) were far too wide and the statute did not permit reappraisal of material considered by the Assessing Officer during the original assessment. The observations in Kalyanji Maviji (supra), relied upon by the Ld. Sr. Standing Counsel, that reopening would cover a case "where income has escaped assessment due to the oversight, inadvertence or mistake" was too broadly expressed and did not lay down the correct law. It was clarified and observed at page 1004 in Indian and Eastern Newspaper Society [1979] 119 ITR 996 (SC) as under:
"Now, in the case before us, the Income-tax Officer had, when he made the original assessment, considered the provisions of sections 9 and
10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC), where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within section 34(1)(b) of the Indian Income-tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income-tax Officer discovers that he has committed an error in consequence of which income has escaped 103 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC), CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and Bankipur Club Ltd. v.
CIT [1971] 82 ITR 831 (SC), and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) suggesting the contrary do not, we say with respect, lay down the correct law."
3.14. The Hon'ble jurisdictional High Court in the case Aroni Commercials Ltd. vs DCIT (2014) 362 ITR 403 (Bom.) held as under:-
■ The Bombay High Court in the case of Asian Paints Ltd. v. Dy. CIT [2008] 296 ITR 90 has clearly laid down that when an assessment is sought to be reopened under section 148 and the objections of the assessee have been overruled by the Assessing Officer, then in such a case the Assessing Officer will not proceed further in the matter for a period of four weeks from the date of receipt of the order rejecting the objections of the assessee. [Para 4] ■ It is axiomatic that the law declared by the High Court is binding on all authorities functioning within its jurisdiction. It is not open to the Assessing Officer to feign ignorance of the law declared by the High Court and pass orders in defiance of the law laid down by it. It is averred in the petition that the Assessing Officer was informed at the hearing held on 10-12-2013 that the assessee is preparing a petition to challenge the reopening for the assessment year 2008-09 on identical grounds as done in earlier assessment year 2007-08 which is pending in the High Court and ad interim relief has also been granted restraining the revenue from proceeding with the assessment for the assessment year 2007-08. The passing of an order on 19-12-2013 by the Assessing Officer in undue haste and thereafter contending that in view of alternative remedy the writ petition should not be entertained does not appear bona fide. This undue haste in passing the impugned order dated 19-12-2013 is an attempt to overreach the Court and to thwart the assessee's challenge to the impugned order dated 20-11-2013 pending before the High Court. [Para 6] ■ In the above circumstances, the order dated 19-12-2013 passed by the Assessing Officer under section 143(3) read with section 147 was liable to be set aside. [Para 7] 104 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 ■ The power of the Assessing Officer under sections 147 and 148 to reopen an assessment is classified into two:
(a) Reopening of assessment within a period of four years from the end of the relevant assessment year and
(b) Reopening of assessment beyond a period of four years from the end of the relevant assessment year.
■ The common jurisdictional requirement for reopening of assessment both within and beyond a period of four years has to be on the basis of reason to believe that income chargeable to tax has escaped assessment and the reasons for issuing a notice to reopen are recorded before issuing a notice. However, there is one additional jurisdictional requirement to be satisfied while seeking to reopen the assessment beyond the period of four years from the end of the relevant assessment year viz. that there must have been a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. Thus the primary requirement to reopen any assessment is a reason to believe that income chargeable to tax has escaped assessment. However, as observed by the Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 in the context of sections 147 and 148 that reason to believe found therein does not give arbitrary powers to reopen an assessment. The concept of change of opinion is excluded/omitted from the words reason to believe. Thus a change of opinion would not be reason to believe that income chargeable to tax has escaped assessment. Besides the power to reassess is not a power to review. Further reopening must be on the basis of tangible material. [Para 11] ■ Therefore, the power to reassess cannot be exercised on the basis of mere change of opinion. If all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the Assessing Officer notice under sections 147 and 148 is not permissible. The powers under sections 147 and 148 cannot be exercised to correct errors/mistakes on the part of the Assessing Officer while passing the original order of assessment. There is a sanctity bestowed on an order of assessment and the same can be disturbed by exercise of powers under sections 147 and 148 only on satisfaction of the jurisdictional requirements. Further the reasons for reopening an assessment have to be tested/examined only on the basis of the reasons recorded at the time of issuing a notice under section 148 seeking to reopen an assessment. These reasons cannot be improved upon and/or supplemented much less substituted by affidavit and/or oral submissions.
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ITA Nos7310 to 7313/Mum/2017 ■ Moreover the reasons for reopening an assessment should be that of the Assessing Officer alone, who is issuing the notice, and he cannot act merely on the dictates of any another person in issuing the notice. Moreover the tangible material upon the basis of which the Assessing Officer comes to the reason to believe that income chargeable to tax has escaped assessment can come to him from any source. However, the reasons for the reopening have to be only of the Assessing Officer issuing the notice. At the stage of issuing notice under section 148 to reopen a concluded assessment, the satisfaction of the Assessing Officer issuing the notice is of primary importance. This satisfaction must be prima facie satisfaction of having a reason to believe that income chargeable to tax has escaped assessment. At the stage of the issuing of the notice under section 148 it is not necessary for the Assessing Officer to establish beyond doubt that income indeed has escaped assessment. [Para 12] ■ The parties proceeded on the basis that the impugned notice dated 28-3-2013 seeking to reopen the assessment was a notice within a period of four years from the end of the relevant assessment year. The reason seeking to reopen the assessment is that the assessee had so written/manipulated its account that the normal business profit in share trading was claimed as short-term capital gain so as to attract the lower rate of tax. [Para 13] ■ During the assessment proceedings, the assessee had by a letter dated 9-7-2010 pointed out that it was engaged in the business of financing, trading and investment in shares and securities. Further by a letter dated 8-9-2010, the assessee has disclosed in detail as to why its profit on sale of investments should not be taxed as business profits but charged to tax under the head capital gain. In support of its contention, the assessee had also relied upon CBDT Circular No. 4/2007, dated 15-6-2007. It would, therefore, be noticed that the very ground on which the notice dated 28-3-2013 seeks to reopen the assessment was considered by the Assessing Officer while originally passing assessment order dated 12-10- 2010. This by itself demonstrates the fact that notice dated 28-3- 2013 under section 148 seeking to reopen assessment is based on mere change of opinion.
■ However, according to the revenue, the aforesaid issue now raised has not been considered earlier, as the same is not referred to in the assessment order dated 12-10-2010 passed for the assessment year 2008-09. Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference 106 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and/or discussion to disclose its satisfaction in respect of the query raised. There can be no doubt in the instant case that the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12-10-2010. It would, therefore, follow that the reopening of the assessment by impugned notice dated 28-3-2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12-10- 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. [Para 14] ■ It was contended by the revenue that this is not a case of change of opinion, as the reopening is based on fresh tangible material, namely, audit report furnished by the internal audit department of the revenue. Neither the reasons furnished to the assessee disclose the material obtained from the audit report of the internal audit department of the revenue as the basis for reopening assessment, nor the order dated 20-11-2013 rejecting the assessee's objection state that the ground for reopening is the tangible material disclosed by the internal audit department of the revenue. The Bombay High Court in the case of Hindustan Lever v. R.B.Wadkar [2004] 268 ITR 332/137 Taxman 479 has held that the challenge to reopening of an assessment can only be resisted on the basis of the reasons recorded at the time of issuance of notice and no further reasons either orally at the bar or by filing of an affidavit can be considered to meet the challenge to reopening of an assessment. Therefore, it would not be permissible for the revenue to advance submissions on the basis of an audit report, which was not basis of the reasons recorded at the time of issuing notice under section 148. [Para 15] ■ Be that as it may, even if, one examines audit report dated 29-9- 2011 from the internal audit department it would be noticed that the basis of the audit report is the interpretation/inference drawn by the auditors from the accounts submitted by the assessee to the department during the course of its assessment proceedings. The reasons as indicated in the audit report are similar to the reasons as set out in the grounds for reopening the assessment by the Assessing Officer. Neither the audit report, nor the grounds for reopening assessment disclose any tangible material for the purpose of reopening the assessment but relies upon opinion/inferences drawn by the internal audit department on existing material and these inferences/opinion differ from the one drawn by the Assessing Officer while passing assessment order dated 12-10-2010. This is not a case of any new fact being 107 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 available by virtue of internal audit which could lead to a reasonable belief that income chargeable to tax has escaped assessment. [Para 16] ■ One of the grounds set out in the order dated 20-11-2013 for rejecting the assessee's objection on reopening the assessment was that the assessee had failed to furnish sample contract note, Demat account and shareholding pattern of the companies to whom loans were advanced. This ground is factually incorrect. In fact, the assessee by its letter dated 13-9-2010 had supplied the Assessing Officer with sample of contract note, Demat account statement and also share holding pattern of the companies to whom the loans were advanced. [Para 17] ■ Therefore, the entire proceeding for reopening the assessment had emanated only on account of change of opinion on the part of the Assessing Officer. [Para 19] ■ There was no reason for the Assessing Officer to have had a reasonable belief that income chargeable to tax has escaped assessment. Accordingly, the impugned notice dated 28-3-2013 issued under section 148 as well as the impugned order dated 20- 11-2013 passed by the Assessing Officer rejecting the assessee's objection to reopen the assessment were liable to be set aside. [Para 20] The Hon'ble High court while coming to a particular conclusion, duly considered the followed cases:-
• Asian Points Ltd. v. Dy. CIT [2008] 296 ITR 90 (Bom.) (para 6); • CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 11) and • Hindustan Lever v. R.B.Wadkar [2004] 268 ITR 332/137 Taxman 479 (Bom.) (para 15) followed.
• CIT v. Gopal Purohit [2011] 336 ITR 287/[2010] 188 Taxman 140 (Bom.) (para 9), • CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 11) 3.15. In another case in CIT vs Amitabh Bachhan (2012) 349 ITR 76 (Bom.), the Hon'ble jurisdictional High Court observed/held as under:-
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ITA Nos7310 to 7313/Mum/2017 "This appeal by the Revenue under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the said Act") challenges the order March 19, 2010, passed by the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") in respect of the assessment year 2002-03.
2. Being aggrieved, the appellant has raised the following questions of law for consideration by this court.
"(a) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the Assessing Officer was not justified in initiating proceedings under section 147 of the Act and, accordingly, upholding the order of the Commissioner of Income-tax (Appeals) in holding that the whole assessment is annulled ?
(b) Whether, on the facts and in the circumstances of the case, the Tribunal in law was right in holding that the Assessing Officer was not justified in initiating the proceedings under section 147 even though the Assessing Officer had sufficient reasons in the form of nine issues to believe that the income chargeable to tax has escaped assessment ?"
3. On October 13, 2002, the respondent-assessee had filed his return of income declaring his income at Rs. 14.99 crores for the assessment year 2002-03. Thereafter, on March 31, 2002, the respondent- assessee filed a revised return of income declaring his total income for the assessment year 2002-03 wherein he claimed expenses at 30 per cent. ad hoc amounting to Rs. 6.31 crores and determining his income at Rs. 8.11 crores. However, before the assessment for the assessment year 2002-03 could be completed, the respondent- assessee by a letter dated March 13, 2004, withdrew the revised return along with his claim of deduction of 30 per cent. ad hoc expenses from his total income. On March 29, 2005, the Assessing Officer completed the assessment for the assessment year 2002-03 determining the respondent's income at Rs. 56.41 crores.
4. On April 5, 2006, a notice under section 148 of the said Act was issued to the respondent-assessee seeking to reopen the assessment proceedings for the assessment year 2002-03. The reasons recorded for reopening the assessment were as under :
"3. On a perusal of the records, it is seen that the assessee filed the revised return claiming estimated expenses at 30 per cent. on the professional receipts, based on ad hoc estimated expenses claimed 109 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 by the insurance agents because they cannot prove certain expenses being incurred to persuade the insurers. However, when the Assessing Officers asked to substantiate these expenses, the claim was withdrawn by the assessee without furnishing the details regarding sources for incurring these expenses were incurred out of undisclosed source which required further verification under the provisions of section 69 of the Income-tax Act. Further, there are certain issues for verification like :
(i) Applicability of section 40A(3) in respect of cash journal expenses.
(ii) Personal element in respect of vehicle expenses claimed.
(iii) Professional expenses claimed were exactly for the purpose of profession or not.
(iv) Books of account maintained by the assessee were not examined.
(v) The assessee maintained seven bank accounts, but details in respect of six bank accounts were furnished. Details in respect of S. B. A/c. No. 107456 with SBI were neither provided nor called for by the Assessing Officer which might have been maintained by the assessee for professional receipts from EEL/Star TV, etc.
(vi) Receipts of dividend from Vithal Nagar Co-operative Society with reference to investment in house property.
(vii) Sources of cash deposits in savings bank A/c. No. 11155
(viii) Distribution income from M/s. Ethnic Enterprises.
(ix) Deposits in S. B. A/c. No. 11155 under the head "Receipts on behalf of Mrs. Jaya Bachchan."
5. Consequent to the above notice by an order dated December 31, 2007, the respondent was assessed to a total income of Rs. 20.05 crores. This was arrived at after adding an amount of Rs. 6.31 crores as unexplained expenses under section 69C of the said Act for which notice under section 148 of the said Act had been issued.
6. The respondent-assessee carried the matter in appeal to the Commissioner of Income-tax (Appeals), challenging the initiation of proceeding under section 147 of the said Act and consequent 110 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 completion of reassessment by order dated December 31, 2007. By an order dated March 4, 2009, the Commissioner of Income-tax (Appeals) set aside the reassessment order dated December 31, 2007, by holding that the Assessing Officer has wrongly assumed jurisdiction under section 147 of the said Act. The material on the basis of which the assessment was sought to be reopened was always available during the time of the original proceeding leading to the assessment order dated March 29, 2005. Being aggrieved, the appellant-Revenue filed an appeal to the Tribunal.
7. On appeal, the Tribunal held that the reasons recorded for initiating reassessment proceeding under section 147 of the said Act clearly indicates that there was no new material which had come to the notice of the Assessing Officer so as to lead to a reasonable belief that income assessable to tax has escaped assessment. The ad hoc expenses of 30 per cent. from the receipts was the subject- matter of consideration of the Assessing Officer when he passed the assessment order on March, 29 2005, under section 143(3) of the said Act. Consequently, there was no fresh tangible material for the Assessing Officer to initiate reassessment proceeding under section 147 of the said Act.
8. Both the Commissioner of Income-tax (Appeals) and the Tribunal have correctly come to the conclusion that there was no fresh tangible material before the Assessing Officer to reach a reasonable belief that the income liable to tax has escaped assessment. The order passed originally on March 29, 2005, under section 143(3) of the said Act was passed after the respondent had made ad hoc claim for expenditure at 30 per cent. of the professional receipts in the revised return of income which was later withdrawn. In fact the reasons for reopening the assessment for the year 2002-03 itself records that the claim of 30 per cent. ad hoc expenses was withdrawn when the respondent-assessee was asked to substantiate the claim. Therefore, the same material was a subject-matter of consideration during the proceedings for assessment leading to order dated March 29, 2005. In the circumstances, there could be no basis for the Assessing Officers to form a belief that income has escaped assessment. It is a settled position of law that review under the garb of reassessment is not permissible. In the circumstances, we uphold the order of the Tribunal dated March 19, 2010.
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9. In view of the above, no substantial question of law arises for consideration by this court. Appeal is dismissed. No order as to costs."
3.16. In A. L. A. Firm (supra), the Hon'ble Apex Court explained that there was no difference between the observations of the Supreme Court in Kalyanji Maviji [1976] 102 ITR 287 (SC) and Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC), as far as proposition (4) is concerned. It was held that (page 297 of 189 ITR) :
"We have pointed out earlier that Kalyanji Maviji's case [1976] 102 ITR 287 (SC) outlines four situations in which action under section 34(1)(b) can be validly initiated. The Indian Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has only indicated that propo sition (2) outlined in this case and extracted earlier may have been somewhat widely stated ; it has not cast any doubt on the other three propositions set out in Kalyanji Mavji's case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). Proposition (2) may be briefly summarized as permitting action even on a 'mere change of opinion'. This is what has been doubted in the Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). This proposition clearly envisages a formation of opinion by the Income- tax Officer on the basis of material already on record provided the formation of such opinion is consequent on 'information' in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of. To give a couple of illustrations ; suppose an Income-tax Officer, in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital 112 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 realisation not chargeable to tax. Subsequently, he finds, in the forest of papers filed in connection with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the Income-tax Officer derives information from the record on an investigation or enquiry into facts not originally undertaken. Again, suppose the Income-tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji. The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed comes to him only much later.
What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Maviji's case [1976] 102 ITR 287 (SC). The difference, if one keeps in mind the trend of the judicial decisions, is this. Proposition (4) refers to a case where the Income- tax Officer initiates reassessment proceedings in the light of 'information' obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the Income-tax Officer, having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from the earlier assessment should have been brought to tax. In other words, as pointed out in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC), it also ropes in cases of a 'bare or mere change of opinion' where the Income-tax Officer (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income- tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the 113 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji [1976] 102 ITR 287 (SC). The second paragraph from the judgment in the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the Income-tax Officer realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas 21 STC 326. Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law (at page 629 of 102 ITR) :
The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act'."
(emphasis supplied) The aforesaid observations are a complete answer to the issue that if a particular subject-matter, item, deduction or claim is not examined by the Assessing Officer, it will nevertheless be a case of "change of opinion" and the reassessment proceedings will be barred.
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ITA Nos7310 to 7313/Mum/2017 3.17. We are conscious of the fact that the aforesaid observations have been made in the context of section 147(b) with reference to the term "information" and conceptually there is difference in scope and ambit of reopening provisions incorporated with effect from April 1, 1989. However, it was observed by the Hon'ble Apex Court in Kelvinator of India Ltd.
[2010] 320 ITR 561 (SC) that the amended provisions are wider. What is important and relevant is that the principle of "change of opinion" was equally applicable under the un- amended provisions. The Supreme Court was, therefore, conscious of the said principle, when the observations mentioned above in A. L. A. Firm [1991] 189 ITR 285 were made.
3.18. Under the amended provisions of section 147, an assessment can be reopened if the Assessing Officer has "reason to believe" that income chargeable to tax has escaped assessment; but if he wants to do so after a period of four years from the end of the assessment year, he can do so only if the assessee has fallen short of his duty to disclose fully and truly all material facts necessary for his assessment. It does 115 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 not follow that he cannot reopen the assessment even within the period of four years as aforesaid if he has reason to believe that the assessee has failed to make the requisite disclosure.
All that the section says is that in a case where the assessment is sought to be reopened after the period of four years, the only reason available to the Assessing Officer is the non-disclosure of material facts on the part of the assessee.
The Act places a general duty on every assessee to furnish full and true particulars along with the return of income or in the course of the assessment proceedings so that the Assessing Officer is enabled to compute the correct amount of income on which the assessee shall pay tax. The position has been further clarified by the proviso itself in a case where assessment under sub-section (3) of section 143 of the Act or this section has been made for the relevant assessment year, no action shall be taken 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 year by the reason of failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub-section 116 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 (1) of section 142 or section 148 or to disclose truly and fully all material facts necessary for his assessment for that assessment year. It is also noted that the scope of newly substituted (w.e.f. 01/04/1989) section 147 has been elaborated in department circular number 549 dated 31st October, 1989, meaning thereby, on or after 01/04/1989, initiation of reassessment proceedings has to be governed by the provisions of section 147 to 151 as substituted (amended) w.e.f. 01/04/1989. Still, power u/s 147 of the Act, though very wide but not plenary. We are aware that Hon'ble Gujarat High Court in Praful Chunilal Patel: Vasant Chunilal Patel vs ACIT (1999) 236 ITR 82, 840 (Guj.) even went to the extent that action under main section 147 is possible in spite of complete disclosure of material facts. The primary condition of reasonable belief having nexus with the material on record is still operative. However, we are of the view, that mere fresh application of mind to the same set of facts or "mere change of opinion" does not confer jurisdiction to the Assessing Officer even under the post 1989 section 147 of the Act. Our view find support from the decision from Hon'ble Delhi High court 117 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 in Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.), Garden Silk Mills Pvt. Ltd. vs DCIT (1999) 151 CTR (Guj.) 533, Govind Chhapabhai Patel vs DCIT 240 ITR 628, 630 (Guj.), Foramer vs CIT (2001) 247 ITR 436 (All.), affirmed in CIT vs Foramer Finance (2003) 264 ITR 566, 567 (SC), Ipica Laboratories vs DCIT (2001) 251 ITR 416 (Bom.), Ritu Investment Pvt. Ltd.(2012) 345 ITR 214 (Del.), Ketan B. Mehta vs ACIT (2012) 346 ITR 254 (Guj.), Ms. Praveen P. Bharucha vs DCIT (2012) 348 ITR 325 (Bom.), CIT vs Usha International Ltd. 348 ITR 485 (Del.), Agricultural Produce Market Committee vs ITO (2013) 355 ITR 348 (Guj.), B.B.C. World News Ltd. vs Asst. DIT (2014) 362 ITR 577 (Del.). Identical ratio was laid down in CIT vs Malayala Manorma Company Ltd. (2002) 253 ITR 378 (Ker.) We think this thread runs through the various provisions of the Act. But Explanation 1 to the section confines the duty to the disclosure of all primary and material facts necessary for the assessment, fully and truly. As to what are material or primary facts would depend upon the facts and circumstances of each case and no universal formula may be attempted. The legal or factual 118 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 inferences from those primary or material facts are for the Assessing Officer to draw in order to complete the assessment and it is not for the assessee to advise him, for obvious reasons. The Explanation, however, cautions the assessee that he cannot remain smug with the belief that since the assessee has produced the books of account before the Assessing Officer from which material or evidence could have been with due diligence gathered by him, he has discharged his duty. It is for him to point out the relevant entries which are material, without leaving that exercise to the Assessing Officer. The caveat, however, is that such production of books of account may, in the light of the facts and circumstances, amount to full and true disclosure; this is clear from the use of the expression "not necessarily" in the Explanation. Thus, the question of full and true disclosure of primary or material facts is a pure question of fact, to be determined on the facts and circumstances of each case. No general principle can be laid down. It was observed by the Hon'ble Apex Court, in various cases that there should be some "tangible material" coming into the possession of the Assessing Officer in such cases to 119 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 enable him to resort to section 147 of the Act. Despite being a case of full and true disclosure, tangible material coming to the possession of the Assessing Officer after he made the original assessment under section 143(3), would influence the opinion, formed or presumed to have been formed earlier, by the assessing authority; he can with justification change it, but that would not be a case of a "mere change of opinion"
unguided by new facts or change in the legal position. It will be a case of the assessing authority having "reason to believe", notwithstanding that full and true particulars were furnished by the assessee which were examined, or presumed to be examined, by him. There was a divergence of opinion amongst various High Courts as to what constitute "Information" for the purposes of section 34(1)(b) of the 1922 Act (which corresponds to section 147(b) of the 1961 Act) the Hon'ble Apex Court in CWT vs Imperial Tobacco Company Ltd. (1966) 61 ITR 461 has noted such divergence of opinion on the point.
Hon'ble jurisdictional High Court in CIT vs Sir Mohammad Yusuf Ismail (1944) 12 ITR 8 (Bom.) held that mere change of opinion on the same facts are on question of law or mere 120 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 discovery of mistake of law is not sufficient information and that in order to sustain action u/s 34 by further holding that reassessment is not permissible. The Hon'ble Apex Court in Simon Carves Ltd. (1976) 105 ITR 212 held that errorless legally correct order cannot be reopened, therefore, it is settled law that without any new information and on the basis of mere change of opinion, reopening of assessment is not permissible.
As was held in CIT vs TTK Prestige ltd. (2010) 322 ITR 390 (Karn.) SLP dismissed in 2010 322 ITR (St.) 14 (SC). Reference also made to Asian Paints ltd. vs DCIT (2009) 308 ITR 195 (Bom.), Andhra Bank Ltd. vs CIT (1997) 225 ITR 447 (SC). The observations of the Supreme Court are a protection against the abuse of power; they also protect the Revenue which can, in the light of subsequent coming into light of facts or law, reopen the assessment. In the light of the aforesaid discussion, since, there was no new tangible material available with the Assessing Officer while resorting to section 147/148 of the Act, more specifically, while framing original assessment u/s 143(3) of the Act, there was full disclosure of material 121 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 facts by the assessee and on the basis of those facts, assessment was completed u/s 143(3) of the Act.
3.19. The Hon'ble jurisdictional High Court in a later decision dated 18/01/2016 in Nirmal Bang Securities Pvt. Ltd.
vs ACIT (2016) 382 ITR 83 (Bom.) on the issue of reopening u/s 147/148 of the Act, considering various judicial pronouncements like Hindustan Lever Ltd. vs ACIT (2004) 268 ITR 332 (Bom.), CIT vs K Mohan & Company (2012) 349 ITR 653 (Bom.), Prashant S. Joshi vs Income Tax Officer (2010) 324 ITR 154 (Bom.) held that the notice issued u/s 148 of the Act cannot be sustained as the same is without jurisdiction.
3.20. In another case Hon'ble jurisdictional High Court in Asian Paints Ltd. ((supra)) held/observed as under:-
"1. Heard learned counsel for the petitioner and the respondent. Rule, returnable forthwith. By consent all the petitions are taken up for final hearing.
2. In all the above petitions, it is a case regarding reopening of the assessment order under section 148 of the Income-tax Act. In all the above cases, the petitioners have filed their respective objections on January 15, 2007, with regard to reopening of the assessment.
3. The learned senior counsel for the petitioner pointed out that in some of the cases as soon as the objections were rejected by the concerned Income-tax Officer, even the assessment order has been passed within a very short time whereby the assessee is left without any remedy to challenge such an order of rejection.122
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4. Hence we make it clear that if the Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee.
5. Accordingly, rule is made absolute.
6. We also direct that the Income-tax Officer concerned shall follow the above procedure strictly in all such cases of reopening of assessment.
7. All the petitions stand disposed of accordingly."
3.21. In the aforesaid order, the Hon'ble High Court has clearly held that that if the Assessing Officer does not accept the objections filed to notice under section 148, he shall not proceed further in the matter for a period of four weeks from the date of receipt of service of the said order on objections on the assessee. If the totality of the facts and the discussion made hereinabove is analyzed, admittedly, so far as, the Assessment Years 2007-08 and 2008-09 are concerned, the reopening was made by the Ld. Assessing Officer beyond four years (as agreed by the Ld. Sr. Standing Counsel also), therefore, it is not permissible. So far as, the Assessment Year 2009-10 and 2010-11 are concerned, since, the assessee made full disclosure of material facts which were necessary for framing the assessment and the original assessment was completed under section 143(3), therefore, there is no evidence 123 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 that income chargeable to tax had escaped assessment on account of failure on the part of the assessee to disclose the material facts fully and truly then the reopening is illegal as the same as amounts to change of opinion on the same set of facts without having any tangible material. It is further observed that the condition of proviso to section 147 are not satisfied as there is no failure on the part of the assessee to disclose fully and truly all material facts, which were necessary for framing the assessment. The facts in all the Assessment Years are identical. The Ld. Assessing Officer merely relied upon the statement recorded during survey proceedings under section 133A in the case of Lloyd Group of cases and the statements of three persons (statements are available on pages 174 to 225 of the paper book) and further the Ld. Assessing Officer relied upon the statement of Shri Mukesh Chokshi recorded on 16/01/2013, whereas, in the reasons recorded, the Ld. Assessing Officer made reference to the statements recorded on 25/11/2009 and 26/11/2009, thus, the Ld. Assessing Officer is not permitted to improve upon any aspect beyond the reasons recorded as we have 124 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 made an elaborate discussion in earlier paras of this order by following the ratio laid down in various cases passed by the Hon'ble Apex Court/High Courts. The statement of all the three persons does not have any direct relationship or material which could construe that there is escapement of income in the hands of the present assessee. It is further noted that in the statement, there was a reference made to the transaction between certain parties and fourteen companies and even there is no whisper in the statements tendered by all the three persons to the effect that any transaction was made with the assessee company. In order to invoke the provisions of section 147 of the Act, there should be a direct and live link between the material available with the Ld. Assessing Officer and his conclusion that income chargeable to tax had escaped assessment. It is further noted that there was not a single transaction with any of the parties which are alleged to manage by Shri Mukesh Chokshi with the assessee, thus, no value can be attributed to the statement tendered by Shri Mukesh Chokshi. Similarly the statements of Shri BL Aggarwal and Shri Om Hari Hallan also does not relate to any 125 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 direct material or information which could be construed as escapement of income by the present Assessee. It is further noticed that the assessee made full disclosure in the proceedings under section 143(3) and 153C r.w.s. 143(3) and there was no tangible material with the Ld. Assessing Officer with regard to amount received by the assessee from four parties in respect of whom the additions were made. Based on the same facts, without having any evidence, the Ld. Assessing Officer issued notices under section 148 and thus this tantamount to change of opinion on the same set of facts without having any change in the material.
3.22. During hearing, the Ld. Sr. Standing Counsel relied upon the decision of AGR Investment Ltd. v. Additional Commissioner of Income-tax 333 ITR 146 (Del.), from Hon'ble Delhi High Court. In reply, to this decision, the Ld. counsel for the assessee explained that in this case, the facts are altogether different, therefore, may not help the Revenue. Our attention was invited to the facts of this case and in that situation, the conclusion drawn by the Hon'ble High Court. We 126 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 have gone through this order. The Hon'ble High Court held/ observed as under:-
"The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has a cause or justification to think or to suppose that income has escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words 'reason to believe' cannot mean that the 'Assessing Officer' should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and if he likes, from any information he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he has reason to believe that such an income has escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief, though justified for the purpose of initiation of the proceedings under section 147, may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such an income has escaped assessment, the Assessing Officer is not required to base his belief on any final adjudication of the matter. [Para 9] In the instant case, the assessee submitted with immense vehemence that it had entered into correspondence to have the documents but the Assessing Officer treated them as objections and made a communication. However, on a scrutiny of the order, it was perceivable that the authority had passed the order dealing with the objections in a very careful and studied manner. He had taken note of the fact that transactions involving Rs. 27 lakhs mentioned in the report of the Directorate of Investigation constituted fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represented the undisclosed income. The Assessing Officer had referred to the subsequent information and adverted to the concept of true and full disclosure of facts. There was specific information received from the office of the Directorate of Investigation as regards the transactions entered into by the assessee-company with a number of concerns which had made accommodation entries and they were not genuine transactions. It was neither a change of opinion nor did it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and was sought to be done in a different manner in the proceeding under section 147. The reason to believe had been appropriately understood by the Assessing Officer and there was 127 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 material on the basis of which the notice was issued. The Court, in exercise of jurisdiction under article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. [Para 22] In the instant case, the assessee was desirous of an adjudication by the writ Court with regard to the merits of the controversy. In fact, it required the Court to adjudge the sufficiency of the material and to make a roving enquiry that the initiation of proceedings under sections 147 and 148 was not tenable. The same does not come within the ambit and sweep of exercise of power under article 226 of the Constitution of India. It was open to the assessee to participate in the reassessment proceedings and to put forth its stand and stance in details to satisfy the Assessing Officer that there was no escapement of taxable income. [Para 23] Consequently, the writ petition was liable to be dismissed."
3.23. A division Bench of Hon'ble Delhi High Court in New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi), referred to the decision of the Hon'ble Apex Court in CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) and made following observations. (page 392) :
"In the case of CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC), the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee."
"As recorded above, the reasons recorded or the documents available must show nexus that in fact they are germane and relevant to the 128 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 subjective opinion formed by the Assessing Officer regarding escapement of income. At the same time, it is not the requirement that the Assessing Officer should have finally ascertained escapement of income by recording conclusive findings. The final ascertainment takes place when the final or reassessment order is passed. It is enough if the Assessing Officer can show tentatively or prima facie on the basis of the reasons recorded and with reference to the documents available on record that income has escaped assessment."
3.24. The Ld. Sr. Standing Counsel relied upon the decision in the case of Om Venyls Pvt. Ltd. ((supra)), wherein, it was held as under:-
"The information received by the Assessing Officer on which basis the impugned notice is issued is specific. There is no ambiguity in the information which would require investigation. The information of accommodation entries has been given by a participant and this is reason enough to believe that income chargeable to tax has escaped assessment. At this stage, the Assessing Officer is not required to conclusively prove that the reasons in support of the impugned notice establish that the petitioner has taken accommodation entries. This is a matter which would be subject of further investigation during the reassessment proceedings. At that stage it would be open to the petitioner to raise all permissible defences and also to insist on cross examination of the persons who have made a statement implicating the petitioner in having participated in taking accommodation entries. However these are subject matters of investigation into adjudicatory facts and this Court would not in the present facts at the very threshold prevent the Assessing Officer from making further enquiry into a prima facie view which has been formed in the reasons indicated in support of the impugned notice "
3.25. Another case relied upon by the Revenue is Aradhna Estates P. Ltd. vs DCIT (404 ITR 105)(Guj.), wherein the Hon'ble High Court held as under:-
■ In reasons recorded by the Assessing Officer for reopening the assessment. He pointed out that the information was received from the investigation wing of the department at Calcutta 129 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 regarding shell companies which had given accommodation entries for share premium to Surat based companies. A list of 114 Calcutta based companies was provided which had given accommodation entries to such Surat based companies. Statements of many entry operators and dummy Directors recorded during various search and seizure operation, survey operation and investigation were checked. The Assessing Officer thereupon proceeded to record that "On perusal of data so provided by the Deputy Director (Investigation), it is noticed that during the period under consideration, the assessee company has accepted share capital/share premium from the following entries/parties which have been proved to be shell companies based on the investigation conducted by the Deputy Director (Investigation). Underneath, he provided a list of 17 companies who had transacted with the assessee company during the year under consideration and were alloted equity shares by purported investment of sizeable share capital and share premium amounts. On verification of such materials, the Assessing Officer noted that the assessee had received share capital/share premium amount, since the investor companies were found to be shell companies indulging in providing accommodation entries, the Assessing Officer was of the opinion that the share capital/share premium claimed to have been received from the company by the assessee was not genuine. Amount is nothing but assessee's own money introduced in the garb of share capital/share premium from the shell companies and therefore, such amount is liable to be taxed under section 68. He therefore, recorded his satisfaction that the income had escaped assessment and that this was due to the assessee having failed to disclose truly and fully all facts. [Para 7] ■ Section 147 provides inter alia that if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may subject to the provisions of sections 148 to 153, assess or reassess such income. Proviso to section 147 of course requires that where the assessment under sub-
section (3) of section 143 has been made for the relevant assessment year, no action shall be taken under this section after the expiry of the four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee to make return under section 139 or in response to a notice issued under sub-section (1) of section 142 or 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this context, it is well settled that the requirement of full and true disclosure on part of the assessee is not confined to filing of return alone but would continue all throughout during the assessment proceedings also.
130M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 In this context, the materials on record would suggest that the Assessing Officer had received fresh information after the assessment was over prima facie suggesting that sizeable amount of income chargeable to tax in case of the assessee had escaped assessment and that such escapement was on account of failure on part of the assessee to disclose truly and fully all material facts. The Assessing Officer formed such a belief on the basis of such materials placed before him and upon perusal of such material. This is not a case where the Assessing Officer was reexamining the materials and the documents already on record filed by the assessee along with the return or subsequently, brought on record during the assessment proceedings. It was a case where entirely new set of documents and materials was placed for his consideration compiled in the form of report received from the investigation wing. Such material was perused by the Assessing Officer and upon examination thereof, he formed a belief that the assessee company had received share application and share premium money from as many as 20 different investor companies who were found to be shell companies and indulging in giving accommodation entries. From this view point, since the Assessing Officer had sufficient material at his command to form such a belief. Such materials did not form part of the original assessment proceedings and was placed before the Assessing Officer only after the assessment was completed. Since on the basis of such materials, Assessing Officer, came to a reasonable belief that income chargeable to tax had escaped assessment, merely because these transactions were scrutinised by the Assessing Officer during the original assessment also would not preclude him from reopening the assessment. His scrutiny during the assessment will necessarily be on the basis of the disclosures made by the assessee. [Para 8] ■ The contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted. The Assessing Officer, as noted, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies. [Para 10] ■ Merely because the transactions in question were examined by the Assessing Officer during the original assessment would not make any difference. The scrutiny was on the basis of disclosures made and materials supplied by the assessee. Such material is found to be prima facie untrue and disclosures not truthful. Earlier scrutiny or examination on the basis of such disclosures or materials would not debar a fresh assessment. Each individual case of this nature is bound to have slight difference in facts. [Para 11] 131 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 ■ The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing out the material available which had a live link with formation of belief that the income chargeable to tax had escaped assessment. At this stage, as is often repeated, one would not go into sufficiency of such reasons. [Para 13] ■ Section 68 as is well known, provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. That the share application money received by the assessee from above-noted companies was only by nature of accommodation entries and in reality, it was the funds of the assessee which was being re-routed. Undoubtedly. Section 68 would have applicability. Proviso added by the Finance Act, 2012 with effect from 1-4-2013, does not change this position. [Para 14] ■ As per this proviso, where the assessee is a company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, explanation offered by the assessee company shall be deemed to be not satisfactory, unless the person in whose name such credit is recorded in the books of the company also offers an explanation about the nature and source of sum so credited and such explanation in the opinion of the Assessing Officer has been found to be satisfactory. Essentially, this proviso eases the burden of proof on the revenue while making addition under section 168 with respect to non genuine share application money of the companies. Even in absence of such proviso as was the case governing the periods with which we are concerned in the present case, if facts noted by the Assessing Officer and recorded in reasons are ultimately established, invocation of section 68 would be called for. [Para 15] ■ The contention that the Assessing Officer had merely and mechanically acted on the report of the investigation wing also cannot be accepted. One has reproduced the reasons recorded by the Assessing Officer and noted the gist of his reasons for resorting to reopening of the assessment. The Assessing Officer had perused the materials placed for his consideration and thereupon, upon examination of such materials formed a belief that income chargeable to tax had escaped assessment. [Para 16] 132 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 ■ In the result, petition is dismissed. [Para 17] 3.26. In the case of Phool Chand Bajrang Lal & Anr. 203 ITR 456 (Supreme Court), relied upon by the ld. Sr. Standing Counsel, the Hon'ble Apex Court held as under:-
From the plain phraseology of section 147, it appears that two conditions precedent which are required to be satisfied before an ITO can acquire jurisdiction to proceed under clause (a) of section 147, read with sections 148 and 149, beyond the period of four years but within a period of eight years, from the end of the relevant year, are: (a) that the ITO must have reason to believe that the income, profits or gains chargeable to tax had either been under assessed or escaped assessment, and (b) that the ITO must have reason to believe that such escapement or under-assessment was occasioned by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Both these conditions must co-exist in order to confer jurisdiction on the ITO. The ITO is obliged before initiating proceedings under section 148 to record the reasons for the formation of his belief to reopen the assessment.
In the instant case the ITO did not seek to draw any fresh inference which could have been raised at the time of original assessment on the basis of the material placed before him by the assessee relating to the loan from the Calcutta company and which he failed to draw at that time.
Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing afresh inference from the same facts and material which was available with the ITO at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be a disclosure of the 'true' and full facts in the case and the ITO would have the 133 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred tie completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but his failure to do so and complete the original assessment proceedings would, not take away his jurisdiction to act under section 147, on receipt of the information subsequently.
In the instant case, the subsequent information on the basis of which the ITO acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non- specific.
From a combined review of the judgments of the Apex Court, it follows that an ITO acquires jurisdiction to reopen assessment under section 147(a) read with section 148 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the ITO, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the ITO at the time of making the original 134 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the ITO arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment.
The argument that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto is not acceptable. The argument is too broad and general in nature and does violence to the plain phraseology of sections 147(a) and 148 and is against the settled law. One has to took to the purpose and intent of the provisions. One of the purposes of section 147 appears to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be traversty of Justice to allow the assessee that latitude.
Therefore, in the facts of the present case the ITO, Azamgarh rightly initiated the reassessment proceedings on the basis of subsequent information, which was specific, relevant and reliable, and after recording the reasons for formation of his own belief that in the original assessment proceedings, the assessee had not disclosed the material facts truly and fully and, therefore, income chargeable to tax had escaped assessment. He therefore, correctly invoked the provisions of sections 147(a) and 148. The High Court was, thus, perfectly justified in dismissing the writ petition."
3.27. Another case relied upon by the Revenue is Sri Krishna Pvt. Ltd. vs Income Tax Officer 221 ITR 538 (Supreme Court), wherein, it was held as under:-
"The ITO can issue the notice under section 148 proposing to reopen the assessment only where he has reason to believe that on Account of either the omission or failure on the part of the assessee to file the return or on account of the omission or failure on the part of the 135 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee to disclose fully and truly all material facts necessary for his assessment for that year income has escaped assessment. The existence of the reason( s) to believe is supposed to be the check, a limitation, upon his power to reopen the assessment. Section 148(2) impose a further check upon the said power, viz., the requirement of recording of reasons for such reopening by the ITO. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board as the case may be, has to be satisfied, on the basis of the reasons recorded by the ITO, that it is a fit case for issuance of such a notice. The power conferred upon the ITO by sections 147 and 148 is thus not an umbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessees from harrassment resulting from mechanical reopening of assessment but this protection avails only those assessees who disclose all material facts truly and fully. In the instant case, the Assessing Officer had submitted a chart showing that out of the unsecured hundi loans of Rs. 8,53,298 claimed by the assessee, ten persons who were said to have lent a total amount of Rs. 30,80,000 were common to both the assessment years 1959-60 and 1960-61. In other words, these very ten persons were said to have advanced loans again during the next year and all ten were found to be bogus lenders as recorded in the assessment proceedings relating to assessment year 1960-61. In the reasons recorded by the ITO (as required by section 148(2) , he had, stated clearly that in the course of assessment proceedings for the succeeding assessment year, it was found that out of the unsecured hundi loans put forward by the assessee, a larger number were found to be bogus and that many of the so-called lenders were found to be near relations of the directors or the principal shareholders. He stated that similar loans were also noticed for the assessment year 1959-60 and, therefore, he had reason to believe that there had been no true and full disclosure of all material facts by the assessee for the assessment year 1959-60 leading to escapement of income. It was not alleged by the assessee that the Assessing Officer had not checked up or tallied the names of the alleged lenders for both the assessment years and that he merely went by the fact that there were unsecured hundi loans for both the assessment years. In the absence of any such allegation which allegation, if made, could have afforded an opportunity to the Assessing Officer to answer the said averment, it must be presumed that the Assessing Officer did find that a large number of alleged lenders who were found to be bogus during the assessment year 1960-61 were also put forward as lenders during the assessment year 1959-60 as well Evidently, this was what he meant in the context, whenhe spoke of 'similar loans' being noticed for the year in question as well In such a situation, it was impossible to say that the Assessing Officer had no reasonable ground to believe that there had been no full and true disclosure of all 136 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 material facts by the assessee during the relevant assessment year and that on that account, income chargeable to tax had escaped assessment.
Every disclosure is not and cannot be treated to be a true and full disclosure. A disclosure may be a false one or true one. It may be a full disclosure or it may not be. A partial disclosure may very often be a misleading one. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. This calls for an examination of the decisions of the Court analysing and elucidating sections 147 and 148. The obligation on the assessee to disclose the material facts--or what are called, primary facts--is not a mere disclosure but a disclosure which is full and true. A false disclosure is not a true disclosure. The disclosure must not only be true but must be full-- 'fully and truly'. A fake assertion, or statement, of material fact, therefore, attracts the jurisdiction of the ITO under section 147.
In the instant case according to the Assessing Officer on the basis of investigations and enquiries made during the assessment proceeding relating to the subsequent assessment year, he had come in to possession of material, on the basis of which he had reasons to believe that the assessee had put forward certain bogus and fake unsecured hundi loans said to have been taken by him from non- existent persons or his dummies, as the case may be, and that on that account income chargeable to tax had escaped assessment. According to him, this was a fake assertion to the knowledge of the assessee. The ITO said that during the assessment relating to subsequent assessment year, similar loans (from some of these very persons) were found to be bogus. On that basis, he sought to reopen the assessment. Having created and recorded bogus entries of loans, the assessee could not say that he had truly and fully disclosed all material facts necessary for his assessment for that year. True it was that ITO could have investigated the truth of the said assertion--which he actually did in the subsequent assessment year--but that did not relieve the assessee of his obligation, placed upon him by the statute, to disclose fully and truly all material facts. Indubitably, whether a loan, alleged to have been taken by the assessee, was true or fake, was a material fact and not aninference,factual or legal, to be drawn from given facts. In the instant case, it was shown that ten persons who had allegedly lent loan were established to be bogus persons or mere namelenders in the assessment proceeding relating to the subsequent assessment year.
The dispute was at the stage of the validity of the notice under section 148/ 147. The enquiry at this stage k only to see whether there are reasonable grounds for the ITO to believe and not whether the omission/failure and the escapement of income is established.137
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 For the above reasons, the Assessing Officer was right in issuing notice under section 148. Therefore, the assessee's petition for quashing the validity of a notice issued under section 148 read with section 147 was dismissed."
3.28. We note that in the aforesaid orders, the facts are altogether different from the facts from the present case therefore, the aforesaid decisions, in our humble opinion, may not help the Revenue. However, the decision from Hon'ble jurisdictional High Court in Purity Techtextile Pvt.
Ltd. ((supra)) and various other decisions including the decision in Kelvinator Of India Ltd. ((supra)) clearly comes to the rescue of the assessee. It is further noted that even in the reasons recorded by the Ld. Assessing Officer, neither he recorded any satisfaction nor made any allegations to the effect that there was a failure on the part of the assessee to disclose the material facts fully and truly.
Thus, it can be concluded that so far as Assessment Year 2007-08 and 2008-09 are concerned, the reassessment proceedings are beyond four years (as admitted by Ld. Sr. Standing Counsel also), therefore, merely on the basis of change of opinion, reassessment is not permissible.
138M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
4. So far as, Assessment Years 2009-10 is concerned, the facts are summarized as under:
Notice u/s.153C was issued and order u/s. 143(3) r.w.s. 153C was passed on 26/12/2011. During these proceedings complete information and details were filed. No addition is made.
Notice u/s. 148 was issued on 16/12/2013. The reasons were recorded which are on page 6 & 7 of the paper book. The objections are filed which are on pages 8 to 11 of the paper book. AO rejected the objections which are on pages 12 & 13 of the paper book.
AO has relied upon the statement recorded during the survey proceedings u/s. 133A in the case of Lloyds Group of cases. Reliance is placed on the statement of Shri B.L. Agarwal, Shri Mukesh Choksi and Shri Om Hari Halan. The copies of these statements are on pages 174 to 225 of the paper book for A.Y. 2007-08.
The AO has relied upon the statement of Shri Mukesh Choksi which was recorded on 16/1/2013 whereas in the reasons he has referred to the statements recorded on 25/11/2009 and 26/11/2009. AO cannot improve upon any aspects beyond the reasons recorded.
The order passed u/s. 153C has been quashed by the Hon'ble Tribunal as per orders which are on pages 2779 to 2786 of the paper book 2 containing the order passed.
The reassessment proceedings are in respect of the order passed u/s. 153C. Once the order passed u/s. 153C itself is quashed the question of escapement of income in respect of that particular income determined in the order passed u/s. 153C does not arise.
As regards the bogus purchases referred to in para 6 of the reasons, there is a reference to the purchases made by M/s. Halan International and M/s. Halan International being the beneficiary of the transactions. We are carrying on business in the style and name of Shree Global 139 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Tradefin Limited and we have nothing to do with M/s. Halan International. There is no allegation as regards the purchases which are made by us. The information regards the Halan International cannot be the base for concluding that income chargeable to tax has escaped assessment.
The statements of all the 3 persons does not have any direct relationship with escapement of income in the hands of the appellant company. In the statements there is a reference to transactions between certain parties and fourteen companies. There is not a whisper in the statement of all the 3 parties to the effect that any transaction with the appellant company. In order to invoke the provisions of reassessment proceedings there has to be a direct and the live link between the material available with the Assessing Officer and his conclusion that income chargeable to tax has escaped assessment.
There should be a cogent material available with the Assessing Officer to come to conclusion that income chargeable to tax has escaped assessment. In the present case the Learned AO is trying to relate the information available with the conclusion that income chargeable to tax has escaped assessment and hence notice issued u/s. 148 is bad in law.
There is not a single transaction with any of the parties which are alleged to have been managed by Mr. Mukesh Choksi with the appellant. In view of this no value can be attributed to the statement which is given by Mr. Mukesh Choksi.
4.1. We have perused the order for Assessment Year 2009-10 dated 16/12/2011 passed under section 143(3) r.w.s.
153C of the Act (pages 21 to 26 of the paper book), wherein the assessee declared business loss of Rs.2,93,79,768/- and short term loss of Rs.76,68,122/-. Discussion has been made 140 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 with respect to search and seizure action under section 132 of the Act, which was carried out in the case of Jogia Properties Pvt. Ltd. on 04/03/2010, wherein, as per the Revenue certain documents belonging to the assessee were seized, thus, the case was covered under section 153C of the Act. Based on this action, the premises of the assessee was surveyed under section 133 of the Act, thereafter, case was centralized to the present charge under section 127(2) of the Act and thereafter notices under section 153A r.w.s. 153C of the Act were issued to the assessee, wherein, the assessee was directed to file return of income within seven days from the receipt of this notice. The assessee filed the return on 09/05/2011 declaring business loss at the same figure of Rs.2,93,79,768/- and Short Term Loss of Rs.76,68,122/- (as originally filed) under normal provisions of the Act and declared book profit of Rs.8,81,542/- under section 115JB of the Act. Subsequently, notices under section 143(2) and 142(1) along with questionnaire were issued to the assessee. The assessee attended the proceedings and filed details from time to time as has been accepted by the Ld. Assessing Officer himself in 141 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 para-4 (page-22 of the paper book). The Ld. Assessing Officer has made an elaborate discussion with business activities of the assessee, expenses attributable to the earning exempt income under section 14A r.w.r 8D and notification no.45/2008, dated 24/03/2008. Meaning thereby, the assessment order was passed after due application of mind and after examination of material facts.
4.2. Identical are the facts for Assessment Year 2010-11 which are summarized as under:-
Notice u/s. 142(1) was issued and order u/s. 143(3) was passed on 26/12/2011. During these proceedings the complete information and details were filed. No addition is made.
Notice u/s. 148 was issued on 24/3/2014. The reasons were recorded which are on page 6 of the paper book. The objections are filed which are on pages 7 to 10 of the paper book. AO rejected the objections which are on pages 11 & 12 of the paper book.
AO has relied upon the statement recorded during the survey proceedings u/s. 133A in the case of Lloyds Group of cases. Reliance is placed on the statement of Shri B.L. Agarwal, Shri Mukesh Choksi and Shri Om Hari Halan. The copies of these statements are on pages 174 to 225 of the paper book for A.Y. 2007-08.
The AO has relied upon the statement of Shri Mukesh Choksi which was recorded on 16/1/2013 whereas in the reasons he has referred to the statements recorded on 25/11/2009 and 26/11/2009. AO cannot improve upon any aspects beyond the reasons recorded.
142M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 The statements of all the 3 persons does not have any direct relationship with escapement of income in the hands of the appellant company. In the statements there is a reference to transactions between certain parties and fourteen companies. There is not a whisper in the statement of all the 3 parties to the effect that any transaction with the appellant company. In order to invoke the provisions of reassessment proceedings there has to be a direct and the live link between the material available with the Assessing Officer and his conclusion that income chargeable to tax has escaped assessment.
There should be a cogent material available with the Assessing Officer to come to conclusion that income chargeable to tax has escaped assessment. In the present case the Learned AO is trying to relate the information available with the conclusion that income chargeable to tax has escaped assessment and hence notice issued u/s. 148 is bad in law.
There is not a single transaction with any of the parties which is alleged to have been managed by Mr. Mukesh Choksi with the appellant. In view of this no value can be attributed to the statement which is given by Mr. Mukesh Choksi.
4.3. We have also perused the assessment order for Assessment Year 2010-11, dated 26/12/2011(pages 7 to 11 of the paper book), wherein, vide assessment order dated 26/12/2011 passed under section 143(3) of the Act, the assessee declared income of Rs.1,19,88,923/- under the normal provisions of under section 115JB and the said return was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny, therefore notices under 143 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 section 143(2) and 142(1) along with questionnaire were issued to the assessee. The Ld. Assessing Officer himself mentioned that the assessee filed the details from time to time and an elaborate discussion has been made by the Assessing Officer and thereafter the assessment order was passed after due application of mind and considering/examining the details. It is not the case that the assessment were framed either under section 143(1) or without due application of mind or without examining the material facts. We observe that the assessments were framed after examining the material facts, filed by the assessee from time to time and on due application of mind and that too under section 143(3) of the Act, thus, there is no material on record, brought by the Revenue indicating that any new tangible material was gathered by the Revenue. The Ld. Assessing Officer reopened the assessment merely on the basis of statement of three persons that too without bringing on record any incriminating material which can lead to the conclusion that there was escapement of income. If the aforesaid facts of Assessment Year 2007-08 and 2008-09 are kept in juxtaposition with the facts of 2009-10 144 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and 2010-11, we find that the facts are identical and the assessee made full disclosure of material facts in proceedings under section 143(3) for both the years and u/s 153C r.w.s 143(3) of the Act for AY 2009-10. For both the years also no tangible material was available with the Ld. Assessing Officer as regards the amounts received by the assessee from various parties in respect of whom the additions were made in the aforesaid two assessment years. Based on the same facts, without having any evidence, the Ld. Assessing Officer issued notice under section 148, thus, this tantamount to change of opinion on the same set of facts without having any tangible material that income chargeable to tax escaped assessment. In the light of this factual finding the decision from Hon'ble jurisdictional High Court in Purity Techtextile Pvt. Ltd.
((supra)) and Kelvinator of India Ltd. ((supra)) from Hon'ble Apex Court clearly comes to the rescue of the assessee as the conditions of proviso to section 147 of the Act are not satisfied as even in the reasons there is no allegation to the effect that there was failure on the part of the assessee to disclose the material facts fully and truly. The cases in favour of the 145 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee has already been discussed by us from Hon'ble Apex Court, Hon'ble jurisdictional High Court and Hon'ble Delhi High Court, therefore, the same are not being repeated. As we have discussed there has to be a live link and direct relationship between the information available with the ld.
Assessing Officer and the conclusion that income chargeable to tax has escaped assessment. It is also noted that there is no live link with regard to statement tendered by Shri Mukesh Chokshi as there was no transaction took place with any of the alleged company managed by Shri Mukesh Chokshi. The Ld. Assessing Officer while reopening the assessment has mentioned the statement of Shri Mukesh Chokshi tendered on 16/01/2013 at the time of rejecting the objections raised by the assessee, whereas in the reasons recorded, reference has been made to the statement of Shri Chokshi recorded on 25/11/2009 and 26/11/2009 and no reference was made to the statement recorded on 16/01/2013, thus, the Ld. Assessing Officer is not permitted to improve upon the reasons recorded by the Ld. Assessing Officer as was held by Hon'ble jurisdictional High Court in Hindustan Lever Ltd. 268 ITR 332 146 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 (Bom.) and various cases discussed by us in various paras of this order. Similarly the statement of Shri BL Aggarwal and Shri Om Hari Hallan also does not enduce any evidence which could tantamount to escapement of income for AY 2009-10 and 2010-11 also. For AY 2009-10, it is further observed that once the original proceedings are quashed by the Tribunal under section 153C of the Act then nothing survives in respect of which it could be construed that income chargeable to tax has escaped assessment.
Thus, being on identical facts, the reassessment for Assessment Year 2009-10 and 2010-11 also, cannot be said to be valid. Thus, the identical grounds of all the appeals with respect to validity of reassessment proceedings under section 148 of the Act are held to be invalid, consequently, the impugned grounds are allowed.
5. Since, we have held the reassessment proceeding under section 148 to be invalid, there is no need to go into the merits, still and we deem it appropriate to examine the issues in hand on merits also. Grounds no. 4 to 6 (2007-08) are with 147 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 respect to addition made under section 68 of the Act in respect of receipt of funds to the extent of Rs.15,50,00,000/-.
5.1. During hearing, the Ld. counsel for the assessee, vehemently argued that the addition made under section 68 of the Act is not justified as the assessee has fulfilled all the conditions enshrined under section 68 of the Act and the assessee is not expected to prove the source of source. It was argued on behalf of the assessee that the assessee received funds from four parties during Assessment Years 2007-08 and the amount so received in Assessment Year 2007-08 was treated as share application money in Assessment Year 2010- 11 and preference shares were issued, at par, in Assessment Year 2011-12 and no premium was received by the assessee against issuance of such preference share. It was explained that the assessee filed necessary declaration, details of issue of preference shares, at par, to the Registrar of the companies and in the books of accounts also, no premium was received against the issue of preference shares. It was argued that the assessee filed original return on 23/10/2007, annexed with audited financial statement and other relevant details and 148 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 thus the order was passed under section 143(3) accepting the return income and thereafter notice under section 153C was issued to the assessee on 16/12/2011 and further notices under section 143(2) and 142(1) of the Act were issued asking the assessee for complete details and information about the amount received in Assessment Year 2007-08 and further issue of preference share in the subsequent period. It was explained that the assessee further filed the details and thereafter order under section 143(3) r.w.s. 153C was passed at the claim of the assessee was accepted and no addition was made. The Ld. counsel further explained that thereafter notice under section 148 of the Act was issued on 21/03/2014 and finally addition of Rs.15,50,00,000/- was made under section 68 of the Act and on further appeal, the addition was confirmed. The Ld. Counsel invited our attention to annexure-
1, wherein, party-wise details of addition made and other particulars of the said parties were enclosed. It was contended that all the four parties are separate legal entities, assessed to tax and have independently filed their return along with PAN Nos. and the transactions are duly reflected in the regular 149 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 books of accounts, the details of cheque no., name of the bank and other details were submitted before the authority. It was contended that the same transactions were confirmed by all the four parties and in their audited financial statements and all the four parties are assessed by the same Assessing Officer who has passed the assessment order in the case of the assessee for Assessment Year 2007-08. The Ld. Counsel also relied upon the following cases:-
i. Commr. of Income Tax Vs. G.P. International Ltd. (2010) 186 Taxman 229 (P & H) ii. Commr. of Income Tax Vs. Siri Ram Syal Hydro Power Pvt.
Ltd. 196 Taxman 441 (Delhi) iii. Commr of Income Tax Vs. HLT Finance Pvt. Ltd. (2011) 12 Taxman p. 247 (Delhi) iv. Commr. of Income Tax Vs. Oasis Hospitalities P. Ltd. 333 ITR 119 (Delhi) v. Asstt. Commr. of Income Tax, Central Circle 13 Vs. Adamine Construction (P) Ltd. 87 taxmann.com 216 (ITAT - Delhi) vi. Commr. of Income Tax, Central - III Vs. Anshika Consultants (P.) Ltd. 62 taxmann.com 192 (Delhi) vii. Asstt. Commr. of Income Tax Vs. Bahubali Dyes Ltd. 55 taxmann.com 357 (ITAT - Delhi) viii. Bharti Syntex Ltd. Vs. Deputy Commr. Of Income Tax 19 taxmann.com 361 (ITAT - Jaipur) ix. Commr. of Income Tax Vs. Fair Invest Ltd. 44 taxmann 356 (Delhi) x. Asstt. Commr. of Income Tax Vs. Hitkarni Prakashan Ltd. 15 taxmann.com 316 (ITAT - Jabalpur) xi. Commr. Of Income Tax, Bhopal (M.P) Vs. Peoples General Hospital Ltd. 35 taxmann.com 444 (Madhya Pradesh) xii. Commr. of Income Tax,Chennai Vs. Pranav Foundations Ltd.150
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 51 taxmann.com 198(Madras) xiii. Principal Commr. of Income Tax - 8 Vs. Softline Creations (P.) Ltd. 81 taxmann.com 269 (Delhi) xiv. Jadau Jewellers and Manufacturers (P.) Ltd. Vs. Asstt.
Commr. of Income Tax Central Circle -2 83 taxmann.com 249 (ITAT - Jaipur) xv. Lovely Exports Pvt. Ltd. -299 ITR (Delhi High Court) page 268 and SLP rejected by Supreme Court in 319 ITR (statute page
5) xvi. Commr. of Income Tax Vs. Creative World Telefilms Ltd. 333 ITR 100(Bombay) xvii. Asstt. Commr. of Income Tax Vs. Venketeshwar Ispat (P) Ltd.
(Chhatisgarh) xviii. Commr. of Income Tax Vs. Gangour Investment Ltd. (2009) 179 Taxman 1 (Delhi) xix. Commr. of Income Tax Vs. STL Extursion Pvt. Ltd. (2011) 333 ITR p.269 (MP) The crux of the argument is that the assessee has fulfilled all the conditions being - identity, creditworthiness and genuineness of the transaction- as required under section 68 of the Act and the assessee is not expected to prove the source of source. Plea was also raised that on earlier occasion, the matter travelled to the Tribunal in the cases of concerned parties and the addition so made were deleted.
5.3. On the other hand, the Ld. Sr. Standing Counsel, defended the addition so made under section 68 of the Act by arguing that the assessee did not establish the identity, creditworthiness and genuineness of the transaction. Reliance was placed upon the decision in CIT vs Nepun Builders & 151 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Developers Pvt. Ltd. (2013) 350 ITR 407(Del) and CIT vs Empire Builtech Ltd. (2014) 366 ITR 110 (Del.).
5.4. We have considered the rival submissions and perused the material available on record. Considering the totality of facts, we are summarizing hereunder the facts of the Assessment Year 2007-08.
a) The assessee is a listed Public Limited Company, received funds from four parties during A.Y. 2007-08, which was treated as share application in A.Y. 2010-11 and the preference shares were issued in A.Y. 2011-12.
b) The preferential shares were issued at par against which no premium was received. The assessee filed the necessary declarations and the details of issue of preferential shares issued at par to the Registrar of Companies and in the books of accounts of the assessee also, no premium was received against issue of the preference shares.
c) The assessee had filed original return of income on 23/10/2007. Alongwith the return of income the audited financial statements and the details were submitted. The order was passed u/s. 143(3) accepting the returned income. Thereafter notice u/s. 153C was issued on 16/12/2010. Notices u/s. 143(2) & 142(1) of the Act were issued asking for the complete details and the information about the amount received in A.Y. 2007-08 and issue of preferential shares in the subsequent period. After examining the replies and other details filed by the assessee, the assessment was framed under section 143(3) rws 153C and the claim of the assessee was accepted. No addition was made even in this proceeding. Notice u/s. 153C was issued by the Central Circle - 32. The order is passed with the approval of the Addl. Commr. of Income Tax, Central Circle.
152M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
d) Thereafter the notice u/s. 148 was issued to the assessee on 21/3/2014 and finally the addition was made u/s. 68 amounting to Rs. 15,50,00,000/-. The CIT (Appeals) confirmed the additions which are under challenge before this Tribunal. The party-wise details of additions made and the other particulars of the said parties are enclosed as Annexure - 1. The details are summarized as under :
(Amount in Rs.) Shar Order u/s Retu Order u/s 153 Order of Order of e Order of ITAT 143(3) rws rn Inco Notic A/ 153C CIT(A) -41 CIT(A) -53 Balan Appli 147 Name of filed me e u/s. ce catio Addit Deletio Addi the Co. u/s decla 153A Addit n Addi ion n Addit tion 139(1 red /C dated dated ion Recei tion delete dated Confir dated ion dated delet ) ved d med ed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Jogia 22- 4000 03- 26- 31- 4000 17- 4000 Properties Nil Nil NA - NA - Nil 10-07 0000 08-10 12-11 03-15 0000 11-17 0000 Ltd Karburi 23- 3500 29- 26- 31- 3500 17- 3500 Properties Nil Nil NA - NA - Nil 10-07 0000 12-10 12-11 03-15 0000 11-17 0000 Ltd Reva 22- 6000 31- 26- 6000 20- 60000 18- 600000 31- 6000 17- 6000 Properties Nil Nil 10-07 0000 12-10 12-11 0000 07-12 000 11-16 00 03-15 0000 11-17 0000 Ltd Vedisa 22- 2000 31- 26- 31- 2000 17- 2000 Properties Nil Nil NA - NA - Nil 10-07 0000 12-10 12-11 03-15 0000 11-17 0000 Ltd Total -
15,50,00,000 5.5. The assessee challenged the addition before the First Appellate Authority and filed necessary details there also, which are summarized as under:-
PAGES Sr. Particulars Paper book Jogia Karburi Reva Vedisa No. No. Prop. Ltd. Prop. Ltd. Prop. Ltd. Prop. Ltd.
1 Balance Sheet & profit Loss A/c 1 154-156 159-161 164-166 169-171 2 Copy of Income Tax Returns 1 22 26 30 34 3 Ledger account in books of SGTL 1 139 140 141 142 153 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 4 Ledger account confirmations 4 1 2 3 NA 5 Pref. Shares Application forms 4 29 30 32 33 6 Pref. Shares Allottment Letters 4 45 46 48-49 50-51 6 Details of Money received giving complete bank details 4 66-68 69-70 73-75 76-77 7 Round (1) 8 Order Passed u/s. 153A/C 2 167-170 232-235 335-357 412-415 9 order of the CIT (A) 2 NA NA 669-706 NA 10 Order of ITAT 2 NA NA 760-839 NA 11 Round (2) 12 Order Passed u/s. 143(3) r.w.s147 2 928-942 970-983 1034-1047 1076-1089 13 order of the CIT (A) 2 1705-1919 1920-2133 2339-2548 2549-2765 5.6. We have analyzed the assessment order, impugned order and submissions from both sides carefully and found that all the four parties are separate legal entities, they are assessed to tax and filed the tax returns under their PAN No. regularly for all the years including for A.Y. 2007-08. All the transactions are reflected by them in their regular books of accounts which are audited and were submitted before various authorities. The details of the cheque Nos., name of the bank, date and the branch were also submitted during all the assessment and appellate proceedings. The said transactions were also confirmed by all the four parties. In their audited financial statements the said transactions are reflected. All the four parties are assessed to tax by the same Assessing Officer who has passed the assessment order in the case of 154 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee for A.Y. 2007-08. All the parties have filed all the details in support of their claim of receipt of money in their hands and investments made with the assessee during their assessment proceedings. The copies of the orders passed by the Assessing Officer in their cases are also made available by the assessee in the paper book filed before this Tribunal. The reference of the documents filed by each of the party is given in paperbooks filed during the course of appellate proceedings before the Tribunal. The written submissions were filed before the Ld. Commissioner of Income Tax (Appeal) and as annexure to the submission made before CIT (Appeals) all the documents refer to above were filed.
5.7. Now, we shall summarize the facts of Assessment Year 2008-09, which are as under:-
1. The assessee is a listed Public Limited Company, received funds from six parties during A.Y. 2008-09. The amount, received in A.Y. 2008-09 was treated as share application in A.Y. 2010-11 and the preference shares were issued in A.Y. 2011-12.
2. The preference shares were issued at par. No premium is received against issue of the preference shares. Assessee had filed the necessary declarations and the details of issue of preference shares issued at par to the Registrar of Companies. In the books of accounts of the assessee also no premium is received against issue of the preference shares.
3. The assessee had filed original return of income on 25/09/2008 and along-with the return of income the audited financial statements and 155 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the details were filed. The Ld. Assessing Officer framed assessment under section u/s. 143(3) accepting the return of income. Thereafter notice u/s. 153C was issued on 16/12/2010. Notices u/s. 143(2) & 142(1) were issued asking for the complete details and the information about the amount received in A.Y. 2008-09 and issue of preference shares in the subsequent period. After examining the details and replies of the assessee, the assessment was framed u/s. 143(3) rws 153C and the claim of the assessee was accepted. No addition was made even in this proceeding. Notice u/s. 153C was issued by the Central Circle - 32. The order is passed with the approval of the Addl. Commr. of Income Tax, Central Circle.
4. Thereafter the notice u/s. 148 was issued on 21/3/2014. In the assessment order the addition is made u/s. 68 amounting to Rs. 1,11,75,00,000/-. The CIT (Appeals) confirmed the additions. The issue before the tribunal is regarding the said additions of Rs. 1,11,75,00,000/-.
5. The party-wise details of additions made and the other particulars of the said parties are given here-below as Annexure -1. Against the name of each party the additions made by the Learned AO amounting to Rs. 1,11,75,00,000/- is mentioned in column No. 4. The total addition made is Rs. 1,11,75,00,000/-. The details of the same is as under :
(Amount in Rs.) Retu Order u/s 153 Order of Order of Order u/s Order of Share rn Inco Notic C CIT(A)-41 ITAT 143(3) rws 147 CIT(A) -53 Balan Applic Name of filed me e u/s. Deletio Additi ce ation Additi the Co. u/s decla 153A/ date Additi date n Additi on Addit Receiv on date date date 139( red C d on d Confir on delete ion ed deleted d d d
1) med d 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Archive 16- 26- 24- 18- 31- 17-
247500 31- 500000 500000 500000 247500 247500 Realty 09- Nil 12- 07- 11- 03- 11- Nil 000 12-10 00 00 00 000 000 Dev. Ltd. 08 11 12 16 15 17 16- 26- 25- 18- 31- 17-
Auster 250000 31- 100000 100000 100000 250000 250000
09- Nil 12- 07- 11- 03- 11- Nil
Prop. Ltd. 00 12-10 00 00 00 00 00
08 11 12 16 15 17
17- 26- 27- 18- 31- 17-
Jogia Prop. 207500 03- 128000 128000 128000 207500 207500
09- Nil 12- 07- 12- 03- 11- Nil
Ltd. 000 08-10 000 000 000 000 000
08 11 12 15 15 17
17- 26- 26- 18- 31- 17-
Karburi 212500 29- 134000 134000 134000 212500 212500
09- Nil 12- 07- 11- 03- 11- Nil
Prop. Ltd. 000 12-10 000 000 000 000 000
08 11 12 16 15 17
22- - 26- 20- 18- 31- 17-
Reva Prop. 187500 31- 720000 720000 720000 187500 187500
09- 35596 12- 07- 11- 03- 11- Nil
Ltd. 000 12-10 00 00 00 000 000
08 44 11 12 16 15 17
17- 26- 24- 18- 31- 17-
Vedisa 237500 31- 600000 600000 600000 237500 237500
09- Nil 12- 07- 11- 03- 11- Nil
Prop. Ltd. 000 12-10 00 00 00 000 000
08 11 12 16 15 17
Total
111,75,00,000
156
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
5.8. Thereafter, the assessee preferred appeal before the Ld. Commissioner of Income Tax (Appeal), written submissions were filed along with annexure and all the documents filed before the Ld. Commissioner of Income Tax (Appeal) are summarized as under:-
PAGES Paper Archive Jogia Sr. Auster Karburi Reva Vedisa Particulars book Realty Prop.
No. Prop. Ltd. Prop. Ltd. Prop. Ltd. Prop. Ltd.
No. Dev. Ltd. Ltd.
Balance Sheet & profit Loss
1 1 159-161 165-167 170-172 175-177 180-182 185-187
A/c.
2 Copy of Income Tax Returns 1 22 26 30 35 39 43
Ledger account in books of
3 1 145 146 147 148 149 150
SGTL
4 Ledger account confirmations 4 4 5 6 7 8 9
5 Pref. Shares Application forms 4 26 27 29 30 32 33
6 Pref. Shares Allotment Letters 4 40 41-42 45 46 48-49 50-51
Details of Money received
7 4 60-61 62-63 66-68 69-70 73-75 76-77
giving complete bank details
8 Round (1)
9 Order Passed u/s. 153A/C 2 27-52 79-104 171-208 236-266 358-384 416-442
10 order of the CIT (A) 2 471-502 503-537 569-601 602-635 669-706 707-739
11 Order of ITAT 2 760-839 760-839 740-759 760-839 760-839 760-839
12 Round (2)
Order Passed u/s. 143(3)
13 2 887-900 901-913 943-956 984-998 1048-1061 1090-1103
r.w.s147
14 order of the CIT (A) 2 1118-1314 1315-1511 1705-1919 1920-2133 2339-2548 2549-2765
5.9. All the six parties are separate legal entities. They are assessed to tax. They have filed the tax returns under their PAN No. regularly for all the years including for A.Y. 2008-09.157
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 All the transactions are reflected in their regular books of accounts which are audited and submitted to various authorities. The transactions are reflected in the regular bank account. The details of the cheque Nos., name of the bank, date and the branch were also submitted during all the assessment and appellate proceedings. The said transactions are also confirmed by all the 6 parties. In their audited financial statements the said transactions are reflected. All the 6 parties are assessed to tax by the same Assessing Officer who has passed the assessment order in the case of assessee for A.Y. 2008-09. All the parties have filed all the details in support of their claim of receipt of money in their hands and investments made with the assessee during their assessment proceedings. The copies of the orders passed by the Assessing Officer in their case are also filed in the paper book. The reference of the documents filed by each of the party is given paper book which was filed during the course of appellate proceedings before the tribunal.
5.10. The submissions of the assessee for this Assessment Year are identical to Assessment Year 2007-08 158 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and also the case laws, which we have discussed in earlier paras of this order. All the six parties received share application money from various corporate entities, which are summarized as under:
Amount (in Party-wise details of Share Application money received by six companies in A.Y. 2008-09 Rs.) ARCHIVE AUSTER SR. JOGIA KARBURI REVA VEDISA NAME OF THE COMPANY PAN NO. REALTY PROP. TOTAL NO. PROP. LTD. PROP. LTD. PROP. LTD. PROP. LTD.
DEV. LTD. LTD.
ALKA DIAMOND
1 AAACA5236D - - - 50,00,000 50,00,000
INDUSTRIES LTD.
ARTILEGENCE BIO-
2 AAACI7359F 2,00,00,000 - - 2,50,00,000 1,95,00,000 6,45,00,000
INNOVATIONS LTD
BAY INLAND FINANCE
3 AABCB9510A 1,00,00,000 - - 2,20,00,000 3,20,00,000
PVT.LTD.
BHASKAR FUND
4 AABCB3120E 2,00,00,000 - - 2,80,00,000 4,80,00,000
MANAGEMENT PVT. LTD.
CLIFTON SECURITIES PVT
5 AAACC5995P 1,00,00,000 - - 2,20,00,000 50,00,000 3,70,00,000
LTD
6 DELTON EXIM PVT. LTD. AABCD6200F 2,00,00,000 - 1,00,00,000 2,20,00,000 5,20,00,000
DOLDRUM INVESTMENT
7 AACCD5604L 1,50,00,000 50,00,000 2,00,00,000 1,50,00,000 2,00,00,000 1,00,00,000 8,50,00,000
AND FINANCE PVT.LTD.
GATEWAY COMPUTERS
8 AABCG7845F - - - 1,00,00,000 1,00,00,000 2,00,00,000
PVT. LTD.
GROMORE FUND
9 MANAGEMENT CO. PVT. AAACG9919K 1,00,00,000 - - 2,00,00,000 3,00,00,000
LTD.
GYNESHWAR TRADING &
10 AACCG7998L - - - 2,00,00,000 1,00,00,000 3,00,00,000
FINANCE PVT.LTD
HEMA TRADING
11 AABCH4279G - - 1,55,00,000 3,20,00,000 1,45,00,000 6,20,00,000
COMPANY PVT.LTD.
HINGORA FINVEST PVT
12 AAACH6694N - - 1,00,00,000 1,50,00,000 1,00,00,000 3,50,00,000
LTD
13 ISPAT SHEETS LTD. AAACI4429E 2,00,00,000 - 2,45,00,000 3,00,00,000 7,45,00,000
14 JAVDA INDIA IMPEX LTD AAACA7065L - - 2,00,00,000 2,00,00,000 4,00,00,000
KIRTI ELECTRO SYSTEM
15 AACCK0083G 1,00,00,000 - 1,00,00,000 2,20,00,000 1,00,00,000 5,20,00,000
PVT. LTD.
MANGALAM EXPORTS
16 AAECM2069A 1,00,00,000 - - 1,00,00,000
PVT LTD
17 NOVELTY TRADERS LTD AABCN8817E 2,00,00,000 - 2,50,00,000 2,00,00,000 6,50,00,000
OSHIN INVESTMENT &
18 AAACO9051G 1,50,00,000 50,00,000 2,25,00,000 1,50,00,000 2,00,00,000 1,00,00,000 8,75,00,000
FINANCE PVT LTD
REALGOLD TRADING
19 AACCR4512K - - 1,50,00,000 75,00,000 2,25,00,000
COMPANY PVT.LTD
SHIVLAXMI EXPORTS
20 AADCS6058E 50,00,000 - - 1,00,00,000 1,50,00,000
LTD.
SIDH HOUSING
21 AAKCS6606H - - 1,50,00,000 1,50,00,000 1,00,00,000 4,00,00,000
DEVELOPMENT CO LTD.
159
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
SINCERE EQUITY
22 AADCS7427B 1,00,00,000 - - 50,00,000 1,00,00,000 2,50,00,000
SERVICES PVT LTD
STOCKNET
23 AAECS8494F 2,00,00,000 - 2,00,00,000 - 2,50,00,000 6,50,00,000
INTERNATIONAL LTD
TERRY TOWEL
24 AACCT2642J 3,25,00,000 50,00,000 - - - 2,75,00,000 6,50,00,000
INDUSTRIES LTD.
TRICON BUSINESS PVT
25 AAACT9466E - 1,00,00,000 - - - 2,00,00,000 3,00,00,000
LTD
WILCO FINEXIM PRIVATE
26 AAACW4586E - - - 25,00,000 75,00,000 - 1,00,00,000
LIMITED
27 YASH V. JEWELS LTD. AAACY1119P - - - - - 1,55,00,000 1,55,00,000
Total 24,75,00,000 2,50,00,000 20,75,00,000 21,25,00,000 18,75,00,000 23,75,00,000 1,11,75,00,000
5.11. It is noteworthy that the assessee has fulfilled the conditions being - identity, creditworthiness and genuineness of the transaction- as required under section 68 of the Act and has discharged the onus cast upon it. In the assessment proceedings u/s. 143(3) rws 153C the department has accepted the source of the funds in the hands of six companies. Wherever the Assessing Officer did not accept the source of the funds in the hands of the six companies the Commr. of Income Tax (Appeals) deleted the addition and on the 2nd appeal filed by the department the Hon'ble Tribunal confirmed the orders of the CIT(A). This clearly proves that all the six companies had their independent source of funds which is also proved and established by each one of them in their own independent proceedings before the department. The Commr. of Income Tax (Appeals) while deleting the additions 160 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 made by the Learned AO, the lead case of Reva Properties Ltd.
has categorically held in para 4.11 that "it is also pertinent to mention that during the appellate proceedings the case was discussed with the AO and the Addl. CIT, Central Range- 8, Shri R. M. Tiwari. During the discussion, I have asked the Addl. CIT to explain whether any investigation regarding the bank details have been made in this case. The Addl. CIT has fairly admitted that complete bank enquires were made in case of all investing companies on the basis of details submitted by the assessee up to third down layer but nowhere it was found that cash was deposited in any account before issuing the cheques for investments made in the purchase of shares of the assessee company. He has further stated that since no adverse finding was recorded during the bank account investigation, therefore it was not mentioned in the assessment order". The Hon'ble Tribunal also confirmed the deletion of the addition by the CIT (Appeal) and has categorically observed that "once the assessee has given the complete details and information of the investors who have made investments in the share capital of the company and proved the identity then no addition can be made 161 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 in the hands of the assessee company in respect of such investments". This fact clearly proves that even in the hands of six companies the source of the funds is explained meaning that the Assessee has not only explained the source of the funds being the amount received from six companies but also has proved the source of the source in the hands of the said six companies. In the hands of assessee in the earlier two proceedings the amount received from all the six parties is accepted and no additions were made.
5.12. It is further noted that the Assessing Officer has in the present reassessment proceedings, being the third round, has taxed the amount received from all the six companies without having any direct evidence contrary to what was available on record. The reassessment proceedings are initiated based on the statements of 3 parties. In their statement also there is no reference to the investment made by the 6 parties with the assessee. No evidence or proof is brought on record to prove contrary to what is established by the assessee as well as also by the 6 parties and what is concluded by the CIT (Appeals) and the Tribunal in their 162 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 individual proceedings. One of the person on whose statement the reliance is placed for reopening is that of Shri B.L. Agarwal. He has offered the income in the hands of Lloyds Steel Industries Limited now known as Uttam Value Steels Limited for A.Y. 2007-08 to 2010-11 amounting to Rs. 556 crores. Lloyds Steel Industries Limited filed the revised return of income for all the 4 years and offered the income. During survey u/s. 133A on Lloyds Steel Industries Limited when this disclosure was made, no corresponding unaccounted assets to the extent of Rs. 556 crores were found. When inquired about the application of the income Shri B.L. Agarwal stated that these funds are routed through fifty-four companies who have made investments in fourteen companies. The six companies which are referred to in A.Y. 2008-09 are the companies amongst the fourteen companies. The statement given during the survey proceedings was not accepted by the Assessing Officer in the assessment proceedings of Lloyds Steel Industries Limited. Penalty u/s. 271(1)(c) amounting to Rs.
190.40 crores was levied on Lloyds Steel Industries Limited.
The Hon'ble Tribunal has passed the order in ITA No. 3622 to 163 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 3625/Mum/2016 on 22/05/2007 deleting the penalty levied by the Assessing Officer and confirmed by CIT (Appeals). The Hon'ble Tribunal has also dealt with the aspect of the investments in the fourteen companies through fifty-four companies. The tribunal has relied upon the orders passed by the Hon'ble Tribunal in the case of eight companies out of the fourteen companies and has held that "the above orders of the Tribunal passed in some of the cases out of the fourteen companies clearly establish that the share application money received by those companies are genuine and proved. Thus, there is no involvement of the present assessee in introduction of share capital, much less in cash, in those companies.
Therefore, the other foundation of the Assessing Officer in levying the penalty i.e. utilization of cash in introduction of share application money in fourteen companies also fails". This also proves that the money received by the fourteen companies is genuine and is proved by them. The six companies involved in A.Y. 2008-09 is out of the fourteen companies and hence this fact clearly establishes not only the source but the source of the source also.
164M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 5.13. During hearing, the ld. counsel for the assessee invited out attention to the observation made by First Appellate Authority, which is in para 6.14 of the impugned order. On the subject of source of the funds in the hands of the fourteen companies the two different propositions arose.
First being the genuine investments by fifty-four companies in to the share capital of fourteen companies and second being the investments made by the Lloyds Steel Industries Limited through the fifty-four companies in the fourteen companies.
The department on one side is rejecting the explanation regarding the application of the income by Lloyds Steel Industries Limited and also simultaneously treating the investments by fifty-four companies as non-genuine investments in the fourteen companies. The department also levied penalty on Lloyds Steel Industries Limited u/s. 271(1)(c) of the Act. This penalty order was finally carried in appeal before this Tribunal, wherein, after having detailed discussion, the Tribunal vide order dated 22/05/2017 (ITA No.3622, 3623, 3624 & 3625/Mum/2016) for various Assessment Years, deleted the penalty. The relevant portion of the order 165 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 dated 22/05/2017 is reproduced hereunder for ready reference and analysis:-
"These are the appeals filed by assessee against the order of CIT(A)- 48, Mumbai dated 31/03/2016 for the A.Y.2007-08 to 2010-2011 in the matter of imposition of penalty u/s.271(1)(c) of the IT Act.
2. We have heard the counsels for both the parties and we have also perused the material placed on record as well as the orders passed by the revenue authorities. As per the facts of the present case, assessee is a listed public limited company engaged in the business of manufacturing steel. The assessee has a manufacturing plant situated at wardha.. A survey action u/s 133A was taken by the Investigation Wing against the assessee on 19/12/2012. The survey took place at the office premises as well as at the factory premises where the manufacturing activity is carried on. Not a single piece of paper is found either from the office premises or from the factory premises which could prove or indicate or suggest that the assessee has earned unaccounted income. However, during course of survey, statement of Director of Company Shri Babu Lal was recorded on 21/12/2012, wherein he offered income earned during the course of business. No iota of proof is also found regarding the manufacturing results disclosed by the assessee. The Investigation Wing has not issued a - single letter or a show cause or a questionnaire after conduct of the survey to the assessee pointing out any discrepancy or defect in the books of account or regarding detection of unaccounted income. The assessee on its own voluntarily filed a letter dated 27/12/2012 on 07/01/2013 with the Investigation Wing offering the income of Rs.557.50 crores for A.V. 2007-08 to 2010-11. As no incrementing material/document was found, the assessee was left with no choice but to state that the said income was generated on account of difference in yield, when in fact and in substance there was no defect or error in the yield which is disclosed by the assessee in the regular books of accounts. The assessee thereafter filed the return of income disclosing the income offered in the letter dated 27/12/2012 on 15/01/2013 and filed a copy of the same with the Investigation Wing. Notice u/s 148 was issued on 25/11/2013 received by the assessee on 27/11/2013. The assessee filed a letter stating that the return filed voluntarily on 15/01/2013 may be treated as return in response to notice u/s 148. The assessments for the impugned assessment years were framed u/s 147 r.w.S. 143(3) of the Income Tax Act("the Act"). The impugned penalty in respect of impugned assessment years were imposed by the ACIT, Central Circle-41, Mumbai("AO") u/s.271(1)(c) of the IT Act.166
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
3. By the impugned order, CIT(A) confirmed the penalty so imposed by the AO against which assessee is in further appeal before us.
4. Common grounds have been raised in all the years under consideration. The ground taken by assessee in the A.Y.2010-11 reads as under:-
1. The learned CIT (A) failed to appreciate that the Assessee has neither concealed its income nor furnished inaccurate particulars thereof.Therefore, the penalty of Rs. 36,98,42,950/- is liable to be deleted.
2. Without prejudice to the above, the learned CfT (A) failed to appreciate that the Assessee is a loss-making company and has brought forward losses which were entitled to be set off against income, if any, of the current year. This shows that the Assessee never had the intention to conceal its income or furnish inaccurate particulars thereof.
3. Without prejudice to the above, the learned Cl'T (A) failed to appreciate that the Assessee had suo motu included the income offered during survey in the return which was filed before issuance of notice under sec. 148 which was duly accepted by the AO. Since the returned income was accepted, there is no question of levying penalty on the same.
4. Without prejudice to the above, the learned Cl'T (A) failed to appreciate that the AO had not specified in the notice u/s 271(1)(c) r.w.s. 274 whether the penalty was leviable for concealment of income or for furnishing inaccurate particulars thereof. Therefore, the penalty is liable to be deleted.
5. Without prejudice to the above, the learned CIT(A) failed to appreciate that the AO has not specified the exact charge in the penalty order whether the Assessee had concealed its income or furnished inaccurate particulars thereof. Therefore, the levy of penalty is not justified.
5. Before us, qua the legal issue, the Ld. Counsel submitted that, firstly, in the assessment order, the AO has not framed any specific charge, on which he intends to impose penalty, he has mentioned under both the charges, which cannot be the case, because both the charges in penalty operates in two different fields. Secondly, he submitted that, in the notice issued under section 274 r.w.s. 271, the AO has not satisfied himself and has not struck off the particular charge, that is, penalty sought to be imposed is whether on concealment of income or for furnishing of inaccurate particulars of income. In the penalty order while levying the penalty, he has levied the penalty for concealing the 167 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 particulars of taxable income, that is, for concealment of income. Thus, he submitted that such a levy of penalty is not tenable in view of law laid down in catena of decisions including that of the Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory, reported in [2013] 359 ITR 565. This decision, he submitted has been followed by various benches of the Tribunal and later on reiterated by the Karnataka High Court again in the case of Steel Industries, reported in [2014] 51 taxmann.com 127. The lists of all the decisions filed before us in the form of separate compilation are as under:-
Sr.No. Case Law ITA / Citation
1 CIT v. Manjunatha Cotton & Ginning I359 ITR 565) (Kar)
Factory
2 CIT v. SSA's Emerald Meadows 73 taxmann.com 241 (Kar)(HC)
3 CIT v. SSA's Emerald Meadows (73 taxmann.com 248)(SC)
4 CIT v. Samson Perinchery (ITA 1154, 953, 1097, 1226 / 2014, order
dated January 5, 2017)(Bom HC)
5 M/s. Wadhwa Estate & Developers India Pvt. ITA 2158/Mum/2016 order dated
Ltd., vs. ACIT February 02, 2017 (TMum)
6 Dr. Sarita Milind Darave v. ACIT ITA No.2187/Mum/2014, order dated 21,
2016)(TMum)
7 Sejal P. Savla v. ACIT ITA 3282/Mum/2015 order dated
August 10, 2016 (TMum)
8 ACIT v. Dipesh M. Panjwani ITA
No.6330,5878,6328,6188/M/2012,
order dated March 18, 2016)(TMum)
9 Sanghavi Savla Commodity Brokers ITA No. 1746/Mum/2011
P Ltd. vs ACIT
10 Parinee Developers Pvt Ltd vs ACIT ITA No.6772/M/2013, order dated
September 11, 2015)(T.Mum)
11 Shri Hafeez S Contractor vs ACIT ITA No. 6222/Mum/2013
12 H Lakshminarayana vs ITO 61 Taxmann.com 373 (Bang-Trib)
13 Tulip Mines pvt. Ltd., v. DCIT ITA No.2407/Kol/2013, order dated
October 7, 2016)
14 Suvaprasanna Bhatacharya vs ACIT ITA No.1303/Kol/2010
15 DCIT v Ittina Properties Pvt Ltd. ITA No.36/Bang/2014
16 A.R. Chadda v. ACIT (80 ITD 56) (T Del)(TM)
17 CIT vs Steel Centre 51 taxmann.com 127 (Kar-HC)
18 CIT vs Manjunathan Cotton & 359 ITR 565 (Kar-HC)
Ginning Factor
6. The Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra) has observed and held as under:-
59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the 168 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order.
However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation- 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to 169 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without 170 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 striking of the relevant clauses will lead to an inference as to non-application of mind".
P) Notice under section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or not furnishing of incorrect particulars of income.
q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law".
7. On merits it was contended by learned AR that it was a voluntary disclosure and nothing incriminating was found either during the course of survey or thereafter. He invited our attention to the income assessed which was equal to the return income except in the A.Y.2010-11. As per learned AR, there was addition of Rs.4,38,93,410/- in the A.Y.2010-11 as compared to the return income and the disclosure made by the assessee in the revised return. As per learned AR the said addition also does not call for levy of concealment penalty in view of the replies submitted by the assessee dated December 30, 2013 when it was submitted that the purchases made during the year from M/s Gupta Metallics and power Ltd. all the necessary details were filed. All the purchases are duly reflected in the books of account and purchases are supported by the invoices. It was submitted that material in respect of these purchases were received at the factory premises of the assessee at wardha. The payments are made by a/c payee cheques and the material purchased was consumed in the manufacturing process. The AO conveniently ignored all these submissions only on the ground that the said supplier company did not file sales tax return / income tax returns for last three to four years. The addition is made simply for the reason that the supplier party did not show the sales before the sales tax department or the income tax department. It is submitted that by producing all the necessary details the assessee had discharged the onus prima facie. If the AO was to disallow the purchases then he was required to make further queries which he did not make. The assessee, in view of losses did not contest such addition but that in itself cannot be held to be sufficient for levy of concealment penalty without having brought any material on record that the submissions made by the assessee regarding purchase of the material from the said party was in anyway incorrect, more particularly when yield declared by the assessee 171 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 in the revised return was duly accepted by the AO on the purchases which include the impugned purchases. The law is well-established that penalty proceedings are distinct and different from assessment proceedings and even if the assessee does not challenge the addition the levy of concealment penalty is not automatic. Therefore, it is requested that the mere addition made to the income cannot be a ground for sustainable of concealment penalty, particularly in the facts and circumstances of the present case.
8. Following judicial pronouncements were relied on by learned AR:-
Vipul Life Sciences Ltd., v DCIT [2015]68 SOT 321 (Mum) In this case survey under section 133A was conducted on November 20, 2012. During the survey assessee offered additional income of Rs. 34,73,47/- in addition to original returned income at Rs. 8,43,618. In response to notice under section 148 return of income was filed at Rs. 1,19,10,300/- and assessment was completed at Rs. 1,19,11,555/- by making small addition of Rs. 1,235/- to the returned income filed in response of notice under section 148. On the additional income offered penalty of Rs. 11,80,489/- was levied. The AO rejected the objection of the assessee that penalty should not be levied as the assessment has been framed according to the returned income in which the additional income was offered. The AO observed that the returned of income was neither filed under section 139(
1) nor it was a revised return as per provisions of section 139(5). This fact is mentioned in para 6 while reproducing the order passed by the CIT(A). It was further 'Observed by the AO that in consequent to survey action taken on November 20, 2012 the assessee filed letter dated January 14, 2013 and subsequently has filed return of income in response to notice under section 148 dated March 4, 2013 and assessment was framed vide order dated March 26,2013. In these circumstances the levy of penalty was sustained by CIT(A) and his order was challenged before the ITAT. The ITAT taking note of all the above facts mentioning in para 24 of the order and taking recourse to the decision of the coordinate bench in the cases of Muninaga Reddy v ACIT [2013] 37 taxmann.com 440(8ang.);
Vasavi Shelters v. ITO [2013] 32 taxmann.com 26(8ang.); Ajay Sangari v ACIT [2011] 51 SOT 127(Chd.); CIT v Shankaerlal Nebhumal Uttamchandani [2009] 311 ITR 327(Guj.); Oilip Kedia v ACIT [2013] 40 taxmann.com 102(Hyd.); SVC Projects (P.) Ltd. v JCIT [2011] 132 ITO 11(Vishaka.); after referring to 172 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 all these decisions and after extracting relevant portions of the decision it has been held by the Tribunal that in all these cases either there was a search operation or there was a survey operation on the assessee and a consequence thereof, the assessee filed its return/revised return/reassessment return including the amount offered for tax and which was accepted by the AO. IT was observed that in all these cases the judicial fora was of the view that the penalty was not exigible. The relevant portion from the said decision is reproduced below:-
30. We are supported by the decision of the coordinate Bench at Bangalore in the case of Muninaga Reddy v. Asstt. CIT [2013J 37 taxmann.com 440, where it was held, "There can be no concealment or nondisclosure, as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax and, therefore, no penalty under section 271(1)(c) could be levied. The words 'in the course of any proceedings under this Act' in section 271(1) are prefaced by the satisfaction of the Assessing Officer or the Commissioner (Appeals). When a survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. One has to keep in mind that it is the Assessing Officer who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is thus obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings. It necessarily follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in the return filed by him. The assessee can furnish the particulars of income in his return and everything would depend upon the return filed by the assessee. This view gets supported by Explanations 4, 5 and 5A of section 271 (1). Obviously no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied. Section 271 (1 )(c) has to be construed strictly. Unless it is found that there is actually a concealment or nondisclosure of the particulars of income, penalty cannot be imposed. There is no 173 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 such concealment or non disclosure, as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax".
This is an identical case, where survey operations had taken place and the assessment was reopened u/s 148, the coordinate Bench deleted the penalty.
31. In the case of Vasavi Shelters v. ITO [2013] 32 taxmann.com 26, the coordinate Bench at Bangalore held, "There can be no concealment or nondisclosure as the assessee had made a complete disclosure in the return and offered the surrendered amount for the purposes of tax and therefore no penalty under section 271(1)(c) could be levied. The words 'in the course of any proceedings under this Act' in section 271(1 )(c) are prefaced by the satisfaction of the Assessing Officer or. the Commissioner (Appeals).
When a survey is conducted by a survey team, the question of satisfaction of Assessing Officer or the Commissioner (Appeals) or the Commissioner does not arise. One has to keep in mind that it is the Assessing Officer who initiates penalty proceedings and directs the payment of penalty. He cannot record any satisfaction during the course of survey. Decision to initiate penalty proceedings is taken while making assessment order. It is, thus, obvious that the expression 'in the course of any proceedings under this Act' cannot have the reference to survey proceedings.
It necessarily, follows that concealment of particulars of income or furnishing of inaccurate particular of income by the assessee has to be in return filed by it. The assessee can furnish the particulars of income in his return and everything would depend upon the return filed by the assessee. This view gets supported by Explanations 4 as well as 5 and 5A of section 271.
Obviously, no penalty can be imposed unless the conditions stipulated in the said provisions are duly and unambiguously satisfied.
Since the assessee was exposed during survey, may be, it would not have disclosed the income but for the said survey. However.
174M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 there cannot be any penalty only on surmises, conjectures and possibilities.
Section 271(1 )(c) has to be construed strictly. Unless it is found that there is actually a concealment of nondisclosure of particulars of income in return filed by assessee, penalty cannot be imposed. There is no such concealment or nondisclosure as the assessee had made a complete disclosure in the return and offered the surrendered P. amount for the purposes of tax".
32. In the case of Ajay Sangari v. Addl. CIT [2011J 16 taxmann.com 1151[2012J 51 SOT 127 (Chd.) (URO) coordinate Bench at Chandigarh held, "Whether since Assessing Officer had failed to point out any discrepancy in explanation furnished by assessee and had proceeded to assess income in hands of assessee on basis of surrender made by assessee, it could not be said that assessee had concealed any income And there was no merit in levy of penalty under section 271 (1)(c).
33. In the case of CIT v. Shankerlal Nebhumal Uttamchandani [2009J 311 ITR 327 (Guj), it was held, "In the circumstances, it is apparent that the same income, namely, the amounts in the bank accounts along with interest there on, have been assessed in the hands of the assessee as well as different family members. Hence, even the Department is not certain as to the right person who is amenable to tax qua the said income. in the circumstances, the Tribunal rightly came to the conclusion that no penalty is exigible under the provisions of section 271 (1 )(c) of the Act when the Tribunal has found that admittedly the family members have not been treated as benamidars of the assessee nor have the family members stated that they are the benamidars of the assessee.
13. In the view that the court has taken it has not been found necessary to enumerate and deal with more than a dozen authorities cited by both the sides. The question referred for the opinion of this court is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The 175 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 reference stands disposed of accordingly with no order as to costs".
34. In the case of Dilip Kedia v. Asstt. CIT [2013J 40 taxmann.com 102 (Hyd.) the coordinate Bench at Hyderabad held, "considering all the aspects viz., the assessee had declared the amount he will be offering in the course of statement recorded under section 132(4), the Assessing Officer has not brought on record any other materials or evidence for coming to the conclusion that the assessee had concealed any income except for the statement recorded under section 132(4), even the CBDT has cautioned the Assessing Officers to make additions based purely on the sworn statements recorded under section 132(4), the Explanation 5A as it stood on the date of filing of return / revised return by the assessee, levy of penalty on the additional income included in the return based only on the sworn statement of the assessee cannot be sustained. Accordingly the penalty levied upon the assessee deserved to be deleted".
35. In the case of SVC Projects (P.) Ltd. v. Jt. CIT [2011J 12 taxmann.com 155/132 1TD 11 the coordinate Bench at Vishakhapatnam held, additions were made by the Assessing Officer under any account. Now the question arise whether the additional income declared by the assessee during the course of survey conducted before the start of the assessment proceedings can be called to be an addition for invoking the Explanation 2, on claim of the assessee raised in succeeding year to be the source of deposits? The answer to certainly in the negative because the Explanation 2 can only be invoked where the additions of income are made during the course of assessment of earlier assessment years. Therefore, we are of the considered view that the provisions of Explanation to section 271 can only be invoked where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income or deducted in computing the loss in the assessment year of such person for any earlier assessment year or years but in respect of which no 176 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 penalty under clause (3) of section 271 (1) had been levied. Meaning thereby, if no additions were made or losses were reduced in any assessment of any earlier assessment years Explanation 2 to section 271 (1) cannot be invoked even then the assessee claimed the additional income offered in earlier assessment years to be the source of any receipt, deposit, outgoing or investment in succeeding year. It is also a settled position of law that the rule of strict interpretation be applied to the penal provision under the I. T. Act.
In the instant case, undisputedly no additions were made in the assessment for the assessment year 2004-05 as the Assessing Officer has accepted the revised return filed by the assessee without tinkering with accounts prepared by him and computed his income. Therefore, the Explanation 2 to section 271(1) cannot be invoked and the penalty under section 271 (1 )(c) cannot be levied in assessment year 200405 for the additional income offered during the course of survey. We therefore, set aside the order of the CIT(A) and delete the penalty". 36. As it can be noted, that the in all the above cases extracted by us, either there was a search operation or there was a survey operation on the assessee and as a consequence thereof, the assessee filed its return / revised return / reassessment return including the amount offered for tax and which was accepted by the AO. In all these cases, the judicial fora was of the view that penalty was not exigible."
CIT v Shankerlal Nebhumal Uttamchandani [2009] 311 ITR 327(Guj) In this case search was conducted on October 27, 1987 at the premises of firm and its partners. During the course of search various documents, loose papers, pass books, bank statements, etc. were found and seized on the basis of bank pass books in the names of various family members of the assessee, certain queries were raised by the revenue and proceedings were going on. On February 27,1989 the assessee surrendered the amount reflected in the bank accounts in the name of family members as his own income from undisclosed sources which was followed by revised return filed on March 31, 1989. Notices u/s 148 were issued to regularise those returns on February framed in the 177 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 basis of revised returns including estimated addition of marriage expenses and concealment penalty was initiated. On the offered income penalty was levied which was upheld by the CIT(A). The Tribunal deleted the penalty on the ground that though queries were raised from the assessee with regards to deposits in the bank accounts but no specific notice was issued by the departmental authorities alleging particular item of income which has been concealed by the assessee. Thus, there was only a prima facie belief that the assessee has concealed his income and the process of detection was not complete by dated March 31, 1989 when the assessee filed the revised return in which the additional income was offered. On these facts it was argued on behalf of the department before Hon'ble High Court that Tribunal has failed to appreciate that the default was committed by the assessee when the return on income was originally filed and declaration in the revised return did not absorb the assessee so as to delete the penalty imposed. It was also argued that filing of revised return consequent upon certain queries raised by the department was an admission of the assessee regarding concealment of income and therefore Tribunal has erred in coming to the conclusion that there was no detection and the returns were voluntary in nature. These submissions of the department are recorded in para 8 of the judgment. On these submissions their Lordships have held that Tribunal was right in coming to the conclusion that till March 31, 1989 process of detection was not complete and their Lordships noted the fact that the very same amount standing to the credit of the bank account of various family members had already been assessed by the revenue authorities. Thus, their Lordship's have upheld the order of the Tribunal vide which the penalty was deleted. For the sake of completeness para 11 to 13 from the above decision are being reproduced:-
"11. As noted hereinbefore, the Tribunal has in terms found that though certain queries were raised and put to the assessee there was no specific pinpointing of particular items of income which have been concealed by the assessee. The Tribunal has found, as a matter of fact, that till March 31, 1989, the process of detection was not complete, the date March 31, 1989, being the date of filing of the revised returns. In face of these findings recorded on the basis of evidence appreciated by the Tribunal, 178 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the court does not find it necessary to deal with any other issues considering the question referred for the opinion of this court. In fact, there is no material on record to indicate that the aforesaid finding of the Tribunal is incorrect in any manner whatsoever. Furthermore, the Tribunal has also noted as a matter of fact that the very same amounts standing to the credit of the bank accounts of various family members had already been assessed by the Departmental authorities along with interest in the hands of the family members and it was also an admitted position that those family members have nowhere admitted that the family members were benamidars of the assessee
12. In the circumstances, it is apparent that the same income, namely, the amounts in the bank accounts along with interest thereon, have been assessed in the hands of the assessee as well as different family members. Hence, even the Department is not certain as to the right person who is amenable to tax qua the said income. In the circumstances, the Tribunal rightly came to the conclusion that no penalty is exigible under the provisions of section 271 (1 )(c) of the Act when the Tribunal has found that admittedly the family members have not been treated as benamidars of the assessee nor have the family members stated that they are the benamidars of the assessee.
13. In the view that the court has taken it has not been found necessary to enumerate and deal with more than a dozen authorities cited by both the sides. The question referred for the opinion of this court is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs."
The above decision will be fully applicable to the fact of the present case. The survey was conducted on December 19, 2012. Much before any detection was made, the additional income was voluntarily offered for taxation in the statement recorded during the course of survey. Almost immediately the surrender was reiterated vide letter dated December 27, 2012 filed on January 7,2013 and within a period of eight days the returns 179 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 were revised. Notice u/s 148 was issued much after the revised returns filed by the assessee on the dates described in the tables above and all of them are prior to the issue of notice u/s 148. The returns were voluntary returns and income declared therein were accepted by the AO. Therefore, the above case is fully applicable to the case of the assessee and it is a case where the income was voluntarily offered to tax before any detection was made by the department. It may also be mentioned here that in the above case the revised returns filed by the assessee in respect of AY 1985-86 and 1986-87 were beyond the time limit described in section 139(5) of the Act, thus, Ld. AO and CIT(A) have committed an error to reject the voluntary action of the assessee to file return beyond the period prescribed in section 139(5) as the relevance of voluntary revised return is to be seen in the context of non-levy of penalty particularly whereas the reassessment itself has been done in accordance with the revised return so filed by the assessee.
9. It was also brought to our notice that the Assessing Officer has made several incorrect statement and allegations while levying the penalty. This was duly brought to the notice of the CIT (A) in the course of the hearing vide written submissions filed before him. However, the CIT (A) has completely ignored such vital factual discrepancies pointed out by the assessee. The relevant part of the written submissions filed before the CIT (A) as under:-
"39. The Learned Assessing Officer while passing the older u/s. 271('l)(c) has made various wrong statements and false allegation. In para 2 the Learned Assessing Officer stated that large scale evasion of tax by Lloyds group by way of routing unaccounted cash through share application money was unearth during the search action conducted at the premises of Jog/a Properties on 04/03/2010 in consequence of other search action conducted on 25/11/2009 in case of Shri Mukesh Choksi who was engaged in the business of pro v/ding bogus bills, bogus tong term, short term gains, speculation profit and bogus share application money. There is not a single truth in this statement of the Learned Assessing Officer Firstly in a search on 04/03/2010 nothing incrementing was found either against Jogia group companies or against Lloyds group. This proves that the statement of Learned Assessing Officer is wrong. Secondly in a search on 0410312010 a disclosure of income was made amounting to Rs. 109.75 crores in respect of certain transactions of share capita! However, the companies filed 180 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Nil return and did not offer the income. The Assessing Officer passed the order u/s. 143(3) r w , 153A and 153C and made the additions of Rs. 12245 crores and the same is deleted by CIT (Appeals). As on the date of passing of the assessment order of the penalty order, no addition survives and hence the allegation that unaccounted cash was routed by Lloyds group."
10. It was further pointed out by the CIT (A) as under:
'42 The Learned Assessing Officer in para 121 has stated that due to departmental action in 2010 and 2012 the assessee facing consistent and repeated investigation was left with no choice and preferred to come clean and offer the surprised income over the years as additional income. It is also stated that the sequence of events narrated supra that when Investigation trail was leading to the assessee company then it was forced to offer the suppressed income as additional income. This is wrong statement of fact as 2010 there was no search or survey on the assessee. Not a single correspondence has taken place by the investigation wing or the Assessing Officer during 2010 proceedings either at investigation level or at assessment level In 2010 survey proceedings also as explain earlier there was no proof of evidence either pre or post survey which could lead to conclusion that the department had sufficient information against the assessee and the assessee had no option but to offer the income. This proves that the statement of the Learned Assessing Officer is contrary to the facts."
11. As per learned A.R, none of the above submissions were considered by the CIT(A).
12. CIT v Suresh Chandra Mittal [2000] 241 ITR 124 (Madhya Pradesh) (HC) affirmed by supreme court in CIT v Suresh Chandra Mittal [2001) 251 ITR 9 (SC).
"Once revised assessment was regularised by revenue and Assessing Officer had failed to take any objection in that matter, assessee's declaration of income in revised returns and his explanation that he had done so to buy peace with department and to come out of vexed litigation could be treated as bona fide and no penalty could be levied for concealment of income."
13. It was submitted by learned AR that decision of the Bombay High Court in CIT v Smt Kaushalya(Supra) is not appl icable to the facts of the present case for following reasons:
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- The issue is now decided by the Apex Court in Commissioner of Income-tax v. SSA'S Emerald Meadows [2016] 73 taxmann.corn 248 (SC) wherein it is clearly held that there is no merit in the petition. The SLP was against the order of Karnataka High Court in -CIT v. SSA'S Emerald Meadows [2016] 73 taxmann.corn 241 (Kar.) wherein the High Court affirmed decision of Tribunal, relying on decision of CIT v Manjunath Cotton and Ginning Factory (2013) 359 ITR 565(Karn) holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )( c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. Hence, the ratio laid down in CIT v Manjunath(Supra) has been confirmed by the Supreme Court.
- In the case of CIT v Manjunath(Supra) one of the appeals disposed off was Veerabhadrappa Sangappa & Co ITA NO 5020 of 2009 [Pg no 577] where the issue involved was identical. SLP against said appeal was dismissed. Order of SLP was submitted at the time of hearing.
- The Bombay High Court in CIT vs. Samson Perinchery ITA NO 1154 of 2014 dtd5/1/2017 (Bom)(HC) after considering decision of CIT v Manjunath(Supra) has held that failure by the AO to specify in the s. 274 notice whether the penalty is being initiated for 'furnishing of inaccurate particulars of income' or for 'concealment of income' is fatal. It reflects non- application of mind and renders the levy of penalty invalid. Hence, decision in CIT v Samson (Supra) which is a later decision will have higher precedence value over CIT v Smt Kaushalya [Supra].
-When there are two conflicting decisions of the same higher court of equal strength and later decision has not considered earlier decision then lower court must follow the decision which lays down the law more elaborately and accurately as held in Amar Singh Yadav v Shanti Devi & Ors AIR 1987 Pat 191. As Bombay High Court in CIT vs. Samson Perinchery (Supra) has followed Karnataka High court in CIT v Manjunath(Supra) which has ultimately been upheld by the Apex Court as pointed out above, the decision of Bombay High Court in CIT vs. Sarnson Perinchery (Supra) has to be followed.
- Without prejudice to above the Bombay High Court in CIT v Smt Kaushalya [1995] 216 ITR 660 (Bom)(HC) has held that the SC cannot be vague. In the facts of the present case penalty is initiated in Asst order and confirmed in penalty order for twin charges ie concealment of income as well as furnishing inaccurate particulars of income. This is impermissible as held in Mangalam Drugs & Organics Ltd v DCIT ITA No. 5454/M/2011 AY 04-05 DTD 24/912015 (MUm)(Trib).
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14. On the other hand, Ld. CIT DR submitted that, the entire facts and circumstances leading to the levy of penalty has to be seen and simply because inappropriate words have not been deleted in the notice issued u/s.271(1)(c), does not mean that whole penalty proceedings gets vitiated. Section 271(1)(c) provides levy of penalty under both the charges and if the AO in the penalty order has levied the penalty on any one of the charge then also, it cannot be held that penalty order is bad in law. The substance and facts relating to levy of penalty has to be seen. On merits, she strongly relied upon the order of the CIT(A).
15. It was also contention of CIT DR that AO has properly recorded satisfaction while passing assessment as well as penalty order which clearly indicate proper application of mind by the Assessing Officer. She also relied on the decision of Bombay High Court in case of Smt. Kaushalya & Ors. 216 ITR 660 (Bom) to canvass support for her plea that non-striking off the irrelevant portion of notice would not invalidate the imposition of penalty u/s271(1)(c) of the Act.
16. As per learned DR, the undisclosed income is unearthed as a result of survey u/s. 133A and investigations carried out by the department. Due to this, the assessee offered additional income of Rs. 557.5 cr. for the AYs 2007-08 to 2010-11. The assessee never intended to offer this income to the department and the assessee had guilty mind with all the elements of mens rea. That is why the assessee did not offer this income in the original returns filed u/s. '139(1) for the AYs 2007-08 to 2010-11. This income is offered after the survey operation when the assessee was totally cornered and had no alternate but to offer this income' for taxation. The assessee is giving the wrong statement that this is a self declaration. The evidences of undisclosed income were detected at the time of survey itself. Shri Babulal Agarwal, Managing Director of the assessee company had categorically admitted in his statement recorded on 21.12.2012 that the assessee company had generated unaccounted fund in various years which was invested as share application money in fourteen companies which in turn invested the same in share application money of Shree Global Tradefin Ltd. and finally invested in the assessee company as share application money.12. Reliance was placed by Ld. DR in the case of Mak Data Ltd. The Hon'ble Delhi High Court vide order dated 22.01.2013 reported in 31 Taxman 35. In that case also a survey u/s. 133A was conducted and the assessee surrendered undisclosed income on account of share application money. The argument of the assessee was that surrender of income was suo moto before any investigation and there was no other evidence in the possession of the department except the surrender. The Hon'ble High Court did not accept the argument of the assessee and confirmed levy of penalty by the AO and set aside the order of the ITAT which had cancelled the penalty. The assessee filed appeal before the Hon'ble Supreme Court The Hon'ble Supreme Court vide order dated 30.10.2013 reported in 38 Taxmann.com 448 has confirmed the order of the Hon'ble Delhi High Court.
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17. We had carefully gone through the orders of the authorities below and the material placed before us. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us in the context of factual matrix of the case.
18. From the record we found that survey proceedings were initiated in the assessee's case on December 19, 2012 and also in some other cases. In a statement on oath which was recorded on December 21, 2012 Sh. Babu Lal Agarwal, then director of the assessee company, had offered the income earned by the assessee through its business. As a result letter dated December 27, 2012 addressed to DDIT(lnv.) Unit-IX(3) Mumbai was filed on January 7, 2013 wherein an additional income of Rs. 557.50 crores was offered and the same was included in the returns of income filed for the impugned assessment years and also formed part of the assessed income on which impugned penalty has been levied.
19. The additional income so offered was accepted and assessed by AO. Such income was bifurcated into various heads which have been accepted by the AO and additional income has been assessed accordingly. For sake of completeness of facts regarding additional income in respect of each of the year as offered by assessee and accepted by AO for making the addition are described under the head trading sales, Raw Materials purchases for manufacturing, purchases from other parties for manufacturing difference on account of yield. Yearwise details are as under:-
A.Y.2007-08 Sr. Nature of head Particulars Qty (MT) Gross Income No. 1 Trading Sales A Trading other than 14616 44.94 0.88 "Ragni trading & Investment Ltd., and Shree Global Tradefin Ltd., (assessee sister concern) 2 Trading Sales B "Trading with Ragni 0 4.9 0.1 trading & Investment Ltd., and Shree Global Tradefin Ltd., (assessee sister concern) 3 RM purchase for Cost of raw material is 302586 434.12 17.37 manufacturing inflated by 4% in AY 2007-08, Now disclosed as additional income of Rs.17.37 crores.184
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4 A. purchase from other Bogus purchases from 0 0 0.16
parties for 15 parties which were
manufacturing identified by Sales Tax
authorities as non-
genuine
5 B. purchase from other Bogus purchases with 33399 10.96 10.96
parties for three parties viz., VMN
manufacturing steel Chem (India) Pvt.
Ltd., Akash Steel
Traders and Rajvi
Trading Pvt. Ltd.,
6 Difference on a/c. of Difference in "Yield as 0 142.00
yield per Steel-Industrial
norms(84.5%)" and
yield shown by
assessee
TOTAL 171.47
A.Y.2008-09
Sr. Nature of head Particulars Qty (MT) Gross Income
No.
1 Trading Sales A Trading other than 100025 338.87 7.03
"Ragni trading &
Investment Ltd., and
Shree Global Tradefin
Ltd., (assessee sister
concern)
2 Trading Sales B "Trading with Ragni 0 35.73 0.72
trading & Investment
Ltd., and Shree Global
Tradefin Ltd., (assessee
sister concern)
3 A. purchase from other Bogus purchases from 0 0 0.23
parties for 15 parties which were
manufacturing identified by Sales Tax
authorities as non-
genuine
4 Difference on a/c. of Difference in "Yield as 0 0 118.00
yield per Steel-Industrial
norms(84.5%)" and
yield shown by
assessee
TOTAL 125.98
2009-10
Sr. Nature of head Particulars Qty (MT) Gross Income
No.
1 Trading Sales A Trading other than 118580 524.82 22.68
"Ragni trading &
Investment Ltd., and
185
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Shree Global Tradefin
Ltd., (assessee sister
concern)
2 Trading Sales B "Trading with Ragni 0 32.85 1.41
trading & Investment
Ltd., and Shree Global
Tradefin Ltd., (assessee
sister concern)
3 A. purchase from other Bogus purchases from 0 0 1.32
parties for 15 parties which were
manufacturing identified by Sales Tax
authorities as non-
genuine
4 Capex Addition to P & M 0 2.91 0.22
worth 2.91 cr in
A.Y.2009-10 not fully
supported with
evidence & vouchers
5 Difference on a/c. of Difference in "Yield as 0 0 130.00
yield per Steel-Industrial
norms(84.5%)" and
yield shown by
assessee
TOTAL 155.63
2010-11
Sr. Nature of head Particulars Qty (MT) Gross Income
No.
1 Trading Sales A Trading other than 189238 793.96 22.55
"Ragni trading &
Investment Ltd., and
Shree Global Tradefin
Ltd., (assessee sister
concern)
2 Trading Sales B "Trading with Ragni 0 0 0.7
trading & Investment
Ltd., and Shree Global
Tradefin Ltd., (assessee
sister concern)
3 A. purchase from Bogus purchases from 0 0 0.7
other parties for 15 parties which were
manufacturing identified by Sales Tax
authorities as non-
genuine
4 Capex Addition to P & M worth 0 0 0.4
2.91 cr in A.Y.2009-10
not fully supported with
evidence & vouchers
5 Difference on a/c. of Difference in "Yield as 0 0 80.00
186
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yield per Steel-Industrial
norms(84.5%)" and yield
shown by assessee
TOTAL 104.42
20. In this manner, the additional income has been assessed as per offer made by the assessee in pursuance to survey conducted by the department on December 19, 2012 for which statement of the then Director was recorded on December 20,2012 and offer was made. Immediately on January 7,2013 letter dated December 27,2012 was filed with the DDIT (Inv.) confirming the offer of additional income and immediately revised returns were also filed on January 15, 2013 before any detection was made by the Department. It is evident from the facts that notice u/s.148 was issued not only after the offer was made but long after the return was filed by the assessee. Date wise events upto the date of issue of notice u/s.143(2) in respect of AY 2007-08 are described as under:-
LIST OF DATES AND EVENTS Sr. Date Particulars No. 1 30/10/2007 Original return of income filed 2 23/12/2009 Date of Assessment order u/s.143(3) 3 19/12/2012 Survey u/s.133A 4 20/12/2012 Statement of Sh. Babu Lal Agarwal, then the director of the assessee company recorded by the survey authorities wherein he offered the unaccounted income generated during AYs 2007-08 to 2010-11 of an amount of Rs.556,96,50,000/-.
5 07/01/2013 Letter dated 27/12/2012 filed with DDIT (Inv.) Unit-IX(3), Mumbai, confirming the offer of the unaccounted income as per the breakup in AYs 2007-08 to 2010-11 of amounting to Rs.557.50 crores as per letter and describing all the details 6 15/01/2013 Revised return according to the offer of undisclosed income was filed.
7 21/03/203 Notice u/s.148 was issued 8 06/09/2013 Notice u/s.143(2) was issued.
21. For AYs 2008-09 to 2010-11 dates in respect of above serial number 2 to 6 are same and rest of the dates are described assessment year wise in the following table:-
Assessment Original Date Notice Notice
Year return of Assessment u/s.148 was u/s.143(2)
income filed order issued was issued
u/s.143(3)
2008-09 25/09/2008 23/12/2010 05/12/2013 10/12/2013
2009-10 27/09/2009 30/12/2011 25/11/2013 02/12/2013
2010-11 26/09/2010 20/12/2012 25/11/2013 02/12/2013
187
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22. In the penalty notices so issued in respect of AYs-2007-08 to 2010-11 u/s 274 r.w.s 271 of the Income Tax Act, 1961 dated January 6, 2014 the ITO did not Specify as to whether the penalty was leviable for concealment of income or for furnishing inaccurate particulars thereof. Copy of notices issued by the AO in respect of each of the assessment years are placed in the paper book.
23. On the above facts AO has levied the concealment penalty and the CIT(A) has upheld the concealment penalty. We found that Ld. CIT(A) has narrated the discussion made by the AO in the penalty order in para 4.1 and at pg. 19 of the impugned order the CIT(A) has extracted the analysis of the AO in the penalty order in respect of AY 2007-08 and in para 4.2 it has been specifically stated by the CIT(A) that the facts ·relevant to all the assessment years are identical with the facts of AY 2007-08 except of quantum of additional income declared by the assessee which was then added by the AO while passing the reassessment orders under section 147 r.w.s 143(3) in para 4.3 he has reproduced the analysis of the AO in which it was stated by the AO that the submissions of the assessee with regards to non levy of penalty can be summarised which inter alia include that the disclosure has been made suo moto by the assessee and it was to buy peace and was conditional subject to non-levy of penalty. The AO observed that the action taken under section 133A and post survey investigation resulted in unearthing the concealment of additional income which was due to departmental action in 2010 and then in 2012; that the assessee was facing consistent and repeated investigation, therefore, was not left with any choice except to come clean and offered the suppressed income over the years as additional income. Therefore the AO has held that penalty was leviable. Such conclusion of the AO has been reproduced at pg. 23 of the impugned order. From the record we found that the assessee has had raised before CIT(A) manifold arguments that notice issued under section 271 (1 )(c) is not justified and such contention is recorded at Pg. 27 of the impugned order. From Pgs. 28-36 Ld. CIT(A) reproduced the submissions made by the assessee before him. At Pgs. 28-32 the submissions of the factual aspect are recorded and specific submission were made in respect of each of the addition and it was pointed out that neither the survey team nor the AO had any proof or evidence to conclude that the assessee had filed inaccurate particulars regarding the total addition of Rs. 171.47 crores. These submissions are reproduced by Ld. CIT(A) in para 5.1 at pg. 24-36 of the impugned order.
24. With regards to the addition of share capital on the basis of survey and search, etc. on third parties it was submitted before the lower authorities that so far as it relates to share capital introduced in fourteen companies the issue was well settled and the assessment in the case of eight companies are done under section 153A/153C for the block period and out of total share application/capital of Rs. 340 crores the AO has accepted the claim of Rs. 225.55 crores and made addition of Rs. 122.45 crores which 188 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 orders were passed on December 26, 2011. Against the addition eight companies had filed appeals before the CIT(A) and CIT(A) deleted the addition vide order dated July 20, 2012, July 23, 2012, July 24, 2012, July 25, 2012, July 26, 2012 and July 27, 2012 and all these events happened prior to the date of survey at assessee's premises and thus, share capital has been accepted as genuine either at assessment stage or in appeal proceedings. These submission of the assessee are reproduced by the CIT(A) at pg. 31 of the impugned order. However, there was no evidence or material from which it can be said that the additional income offered by the assessee were detected by the department in the search and surveys. Therefore, the offer made by the assessee was voluntary. Upon such submissions made by the assessee before CIT(A), Ld. CIT(A) has specifically required the AO to furnish details of evidence available with the AO to make these additions. Such requirement by the CIT(A) from the AO are listed at pg. 37 of the impugned order where the relevant portion of letter written by CIT(A) to AO is reproduced.
25. In reply to CIT(A) calling the remand report, the AO submitted two letters dated April 29,2015 and May 18,2015. From the letter dated April 29, 2015 it was noted by the CIT(A) that AO did not give specific answers to the queries raised by CIT(A). Therefore, it has been mentioned by him in para 6.3 at pg. 39 of the impugned order that the first remand report sent by the AO was cryptic and did not address the points on which the comments were sought. Therefore, Ld. CIT(A) provided second opportunity to the AO for which the second letter was submitted. In second reply too no reference was made to any evidence or material to substantiate the additions except the excerpt from the statements recorded during the course of survey regarding voluntary offer of the addition and reference can be made to the second remand report of the AO which has been reproduced in the impugned order at pgs. 39-62 of the order. The conclusion drawn by CIT(A) to uphold the addition are recorded in para 10.1 from pg. 63 of the impugned order. It can be seen from the impugned order that from para 10.1 to 11.11 Ld. CIT(A) has discussed the admission made by the then director of the assessee company who made the declaration of additional income which was duly reflected in the return filed immediately after the statement made during the survey, thereafter, in para 12.1 Ld. CIT(A) has discussed that whether the addition was solely on the basis of admission of income by the assessee. He has observed that he has perused the material available on record including survey report and statement of various persons recorded. Again, CIT(A) was referring to the survey and search actions taken on Mukesh Chokshi group and M/s Shree Global Tradefin Ltd., etc. and after referring to the statements only he concluded that in view of the search and survey conducted by the Department on Mukesh Chokshi group and M/s Global Tradefin Ltd., the assessee was left with no other alternative but to surrender and offer the amount involved as its income. Such conclusion of the CIT(A) is recorded in para 12.4 to 12.6 of the impugned order at pg. 73-75.
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26. It is clear from the remand report sent by AO and the inference drawn by CIT(A) that there was no material or evidence except the statements to support the conclusion. It is only on account of voluntary offer made in the statement recorded on December 20, 2012 followed by the immediate letter dated December 27, 2012 submitted on January 7, 2013 and filling of income tax returns on 15.01.2013 including the income voluntary offered to tax. The conduct of the assessee is bonafide and in answer to question No.40 it was made clear that the offer is subject to non levy of concealment penalty.
27. We found that initially Ld. CIT(A) took cognizance of the arguments of the assessee that there was no material or evidence on record to support the impugned addition and it is only on account of voluntary offer made by the assessee and finding that first remand report did not fulfill the requirements of first letter written to AO seeking remand report, Ld. CIT(A) again required the AO to submit detailed report. In second remand report also the AO did not refer to any such material or evidence and wholly relied upon the statements. It was also made clear that after the search on Mukesh Choksi group and survey on Jogia Properties not even single enquiry letter was issued to the assessee. However, while drawing the conclusion against the assessee Ld. CIT(A) has conveniently ignored these very factors which are very important to determine the issue that whether or not the assessment of the impugned addition is on account of detection by the Department or the question that the offer is voluntary and bonafide. In view of the facts that voluntary offer was made in statement dated January 15, 2013 which was followed by letter dated 27.12.2012 filed on 07.01.2013 and immediate filling of the revised return on 15.01.2013 all immediate and prompt actions taken by the assessee indicates not only the bonafide conduct of the assessee but also establish the fact that the impugned addition is on account of voluntary offer made by the assessee during the survey and till the date of filling of the voluntary returns i.e. on January 15, 2013 there was no detection by the Department. Such bonafide and voluntary action of the assessee is further strengthen by the fact that Ld. AO has accepted the offer and income has been determined according to returns of income filed on January 15, 2013 except an addition of Rs. 4,38,93,410/- in the AY 2010-11 on account of purchases made from Gupta Metallics as per para 6 of the assessment order for AY 2010-11.
28. Before proceeding to assail the penalty Order and the impugned order, it may be mentioned that while upholding the penalty Ld. CIT(A) and CIT DR has relied on some decisions, which have no application to the present case as these have been rendered in different context as follows.
MAK Data ('P.) Ltd. v. CIT [2013] 358 ITR 593
- In this case pursuant to survey conducted on December 16, 2003, blank transfer deeds of share signed by the persons who applied for the shares were found and impounded on the basis of which addition was made on the offer made by the assessee during the course of the assessment 190 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 proceedings and addition of Rs. 40,47,000/- was made. The Supreme Court while affirming the penalty has taken the note of the fact that the survey was conducted more than ten months before the assessee filed its regular return of income. The Supreme Court took note of the fact that had it been the intention of the assessee to make true and full disclosure of its income, it would have filed the return declaring the income inclusive of the amount which was surrendered later during the course of assessment proceedings and from these facts, consequentially, it is clear that the assessee had no intention to declare its true income. It is therefore levy of penalty was upheld. The facts in the present case are entirely different as the assessee, before detection of the impugned addition had made voluntary disclosure in the statement submitted during the course of survey which was followed by detailed letter submitted on January 7, 2013 and return of income on January 15, 2013 including the offered income which has been accepted by the AO. To substantiate the above submissions reference is invited to the following observations of the Hon'ble apex court from this decision:-
"9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum or association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income 191 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961."
-The above view is also strengthened by the decision of the Hon'ble Jurisdictional High Court dated February 9, 2016 in the case of CIT vs. Shri. Hiralal Doshi ITA No. 2331 of 2013 wherein their lordships have discussed the decision of the Supreme Court in the case of MAK Oata(supra) and observed that the said case would not be universally applicable as the said case was rendered on the facts which are completely distinguishable (para 10 is to be reproduced).
"10. The reliance by the Revenue upon the decision of the Apex Court in Mak Data P. Ud(supra) to contend that the justification of having deleted and accepted the amount of RS.1.62 Crores as business income, to buy peace is not available. We find that the facts in that case are completely distinguishable and the observations made therein would not be universally applicable.
In that case, a sum of Rs.40.74 lakhs had never been disclosed to the Revenue. During the course of survey, the assessee therein had surrendered that amount with a covering letter that this surrender has been made to avoid litigation and buy peace with the Revenue. In the aforesaid circumstances, the Apex Court held that the words like "to avoid litigation and buy peace" is not sufficient explanation of an assessee's conduct. It held that the assessee had to offer an explanation for the concealment of income and/or furnishing of inaccurate particulars of income by leading cogent and reliable evidence. The Apex Court further records that in the facts of the case before it the surrender of income was not voluntary but was made only on the account of detection by the Assessing Officer during the course of survey. Further, the Apex Court also records the fact that the survey was conducted more than 10 months before the assessee filed its return of income. However, the assessee therein had not declared this income in its return of income filed subsequent to the survey which again indicated the fact that he had no intention to declare its true income. In any event, the facts in the present case as found by the CIT(A) and the Tribunal is that the Respondent assessee had disclosed an amount of Rs. 1.62 Crores in the original return by crediting the same to its capital account being Long Term Capital Gain on the sale of share. Thus, the Assessee was under bonafide belief that the income from long term capital 192 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 gain was exempt from tax. Thus, the decision of the Apex Court would not apply to the facts arising in the present case. "
- Thus, it has been held that bonafide belief and disclosure prompted by survey could make a difference and can be considered as a factor for non-levy of concealment penalty. Thus, the reliance by Ld. CIT(A) on decision in the case of MAK Data(supra) is incorrect and not sustainable in law.
Deloitte Consulting India (P.) Ltd. v ACIT [2014] 151 ITD 454
- In this case also the assessee did not disallow entire marketing expenses in respect of international transaction and this issue was already referred by the AO to the TPO. Thereafter, the assessee revised its return and it was held that such action of the assessee was not voluntary and during the course of assessment proceeding. Thus, this case is also not applicable to the facts of the present case.
A.M. Shah & Co. v CIT [1999] 238 ITR 415(Guj.) The facts of the case are entirely different from the facts of the case of the assessee. The assessee challenged the levy of penalty on the ground inter alia including that the assessment was on estimate basis and' penalty could not be sustained. The fact was that serious discrepancies were found in the books of account and excess sales were shown while purchases were not shown, bogus purchases were claimed and purchases were not shown in sales or stock. The assessee never revised its return and serious discrepancies were noticed in the books of accounts itself. Therefore, facts of the said case do not match with the present case and the levy of concealment penalty in that case is entirely in different context.
Prempal Gandhi v CIT [2011] 335 ITR 23(P&H) In this case after assessment was completed it came to the notice of the AO that the assessee had substantial transactions in the bank which were not disclosed. Reassessment proceedings were initiated and assessee filed revised return in pursuance to reassessment proceedings offering the peek credit and interest thereon with a condition that no penalty be imposed and he may not be prosecuted. The AO did not accept the conditions. It is on these facts levy of penalty was upheld by the High Court. The facts of this case are entirely different from the facts of the present case. In the above case the revised return was filed only after initiation of reassessment proceedings i.e. after the issue of notice under section 148 whereas in the present case, the return were revised much before issue of notice under section 148 and the facts are different in its entirety. In the decision of Hon'ble apex court in the case of Sun Engineering 198 ITR it has been held that while following judicial 193 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 precedent, it is important to see the context in which such decision has been rendered. The context in the above case being entirely different, the ratio laid down in the above decision cannot be applied to the present case.
29. In view of the above factual position, we first deal with the legal ground taken by assessee which reads as under:-
4. Without prejudice to the above, the learned Cl'T (A) failed to appreciate that the AO had not specified in the notice u/s 271(1)(c) r.w.s. 274 whether the penalty was leviable for concealment of income or for furnishing inaccurate particulars thereof. Therefore, the penalty is liable to be deleted.
5. Without prejudice to the above, the learned CIT(A) failed to appreciate that the AO has not specified the exact charge in the penalty order whether the Assessee had concealed its income or furnished inaccurate particulars thereof. Therefore, the levy of penalty is not justified.
30. The two charges for initiating the penalty operate on two different footing and under the penal provision the charge has to be very specific and not vague. These charges are not to be reckoned as any casual remark, which can be interchanged by the AO at any stage on his whims and fancies. It is not an error which is rectifiable or to be ignored, albeit it is a fatal error which vitiates the entire initiation itself. If charge itself is vague and not clear, then the onus cast upon the assessee under Explanation itself gets vitiated as assessee is precluded from a chance to give a specific rebuttal on that charge. It is a trite law that circumstances and facts for levy of penalty under both the grounds operate in a different fields. The courts have held that in the notice under section 274 r.w.s. 271, the AO has to specify the charge on which he intends to levy penalty. This aspect of the matter has been consistently reiterated by the Hon'ble High Courts from time to time.
31. We found that Notice under section 271(1)(c) is issued on standard performa in which inappropriate words and paragraphs were neither struck off nor deleted. Reference is made to the copy of notice issued under section 274 r.w.s 271 of the Income Tax Act, 1961 on January 2, 2014 in respect of all the assessment years the copies of which are placed in the paper book. We found that the said notices have been issued on standard performa and in the notices the inappropriate words and paragraphs were neither struck off nor deleted. Thus, the assessing authority was not sure as to whether he had proceeded on the basis that the assessee had either concealed its income or had furnished inaccurate particulars. Thus, the 194 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 notices so issued are not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non-application of mind on the part of the assessing authority.
32. There can be no doubt that penalty u/s. 271(1)(c) of the Act is levied for concealing particulars of income or for furnishing inaccurate particulars of such Income, which are the two limbs of this provision. In other words, it is only when the authority invested with the requisite power is satisfied that either of the two events existed in a particular case that proceedings u/s. 271(1)(c) of the Act are initiated. This pre-requisite should invariably be evident from the notice issued u/s. 274 r.w.s. 271 of the Act, which is the jurisdictional notice, for visiting an assessee with the penal provision. The intent and purpose of this notice is to inform the assessee as to the specific charge for which he has been show caused so that he could furnish his reply without any confusion and to the point. In the present case, neither the assessee nor anyone else could make out as to whether the notice u/s. 274 r.w.S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. There are a catena of judgments highlighting the necessity for identifying the charge for which the assessee is being visited and in all those decisions, Hon'ble Courts have repeatedly held that where the jurisdictional notice is vague, similar to the one in the present case, the consequent levy cannot be sustained.
33. In this connection, reliance is first placed upon the judgment of the Hon'ble Karnataka High Court In the case of CIT v. Manjunatha Cotton and Ginning Factory & Ors. and Veerabhadrappa Sangappa and Co. (359 ITR 565, 577, 601, 603-604) in which the facts are similar. In those bunch of tax appeals, several assessee and several issues were involved. In so far as LT.A. No. 5020 of 2009 was concerned, one of the substantial questions on which the appeal was filed by the revenue was:
"Whether the notice issued under section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal?"
34. While answering the above in favour of the assessee, the following findings were recorded by the Hon'ble Court:
"61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment furnishing inaccurate particulars of income are 195 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 different Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering Works reported in [1980] 122 ITR 306 (GUJ) and the Delhi High Court in the case of CIT v. Virgo Marketing P Ltd reported in [2008 171 Taxman 156 has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment then the notice has to be appropriately marked Similar is the case for furnishing inaccurate particulars of income. "(p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.
35. Thereafter, in so far as the manner in which the statutory notice was required to be issued, the Hon'ble Court concluded thus:
(p) Notice u/s 274 of the Act should be specifically state the grounds mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income.
36. Finally, in concurring with the findings recorded in the order of the Tribunal, it was held thus:
66. In view of the aforesaid law, we are of the view that the Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law and accordingly justified in interfering with the order passed by the appellate authority as well as the assessing authority and in setting aside the same. Hence, we answer the substantial questions of law framed in this case in favour of the assessee and against the Revenue. "196
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37. The aforesaid judgment was unsuccessfully challenged by the revenue as it was rejected vide Petition for Special Leave to Appeal (C) No. 13898/2014 dated 11.07.2016, a copy of which was placed on record.
38. Reliance was next placed upon another judgment of the Hon'ble Karnataka High Court in the case CIT v. SSA'S Emerald Meadows (Income Tax Appeal No. 380 of 2015 decided on 23.11.2016). In this case also s similar situation arose in as much as the Hon'ble Court was required to adjudicate on the following substantial question:
(1) Whether, omission of assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?"
39. The aforesaid question was dealt with by the Hon'ble Court in favour of the assessee in the following words:
"3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with section 271(1)(c) of the Income-tax Act 1961 (for short 'the Act; to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act the penalty proceedings had been initiated le. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunel while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income-tax vs. Manjunatha Cotton And Ginning Factory (2013) 359 ITR 565.
4. In our view since the matter is covered by judgment of the Division Bench of this Court we are of the opinion no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed."
40. The SLP filed by the department in the aforesaid case also was dismissed by the Hon'ble Supreme Court vide Petition for Special Leave to Appeal (C) No .... ./2016 (CC No. 11485/2016) dated 05.08.2016. Copies of the aforesaid judgment of the Hon'ble Karnataka High Court and that of the Hon'ble Supreme Court have been placed on record.
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41. The Hon'ble jurisdictional High Court in the case of CIT v. Shri Samson Perinchery [Income Tax Appeal No. 1154 of 2014 and others dated 05.01.2017] had also occasion to consider a similar issue. In this case, though proceedings u/s. 271(1)(c) of the Act were initiated for furnishing of inaccurate particulars of income, in the notice issued u/s. 274 r.w.s. 271 of the Act in the standard form, the charge for which it was issued was also not identified, as in the present case. In deleting the levy, so far as non- specification of the default in the jurisdictional notice, the following findings were recorded by the Hon'ble Bombay High Court:
"7 Therefore, the issue herein stands concluded in favour of the Respondent-Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Menjuneth Cotton and Ginning Factory (supra).
8. In view of the above, the question as framed do not give rise to any substantial question of law Thus, not entertained"
42. The Hon'ble Supreme Court in Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), the aforesaid principle laid in Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon'ble Supreme Court in UOI v/s Dharmendra Textile Processors (2008) 306 ITR 277 (SC). The Hon'ble Jurisdictional High Court in CIT v/s Smt. Kaushalya & Ors., [1995] 216 ITR 660 (Bom), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed, vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. The Hon'ble Jurisdictional High Court in Samson Perinchery (supra), following the decision of Hon'ble Karnataka High Court in CIT v/s Manjunatha Cotton & Ginning Factory, [2013] 359 ITR 565 (Kar.), held, order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated.
43. In addition to the aforesaid binding judgments, there are several orders passed by co-ordinate Benches of he Tribunal on this very point. In all those 198 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 orders also penalty levied u s. 271(l)(c) of the Act on the basis of similar vague notice was cancelled. Relevant paragraphs from some such orders are extracted below:
(a) Prakash H. Savla v. ACIT (ITA No. 3381/Mum/2015 dated 11.11.2016):
"5. We have considered the rival submissions and perused the relevant material on record We have gone through the notice u/s. 274 r.ws. 271(1)(c) of the Act issued on 30.122009 by the AD (p. 40-41 of the Paper Book). At the end of the notice, it has been mentioned that inappropriate words end paragraph should be deleted The AD has not done so. In fact in the said notice. 'have concealed the particulars of your income or furnished inaccurate particulars of such income' are appearing. There is no denial above fact by the Id DR.
5.4 In CIT vs. Smt Kaushalya (1994) 75 Taxman 549 (Bom), the Hon'ble Bombay High Court has held that 'The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified .
6. Respectfully following the above decisions. we hold that the notice dated 30.12.2009 issued by the AD u/s. 274 r.ws. 271 of the Act for the AY 2003-04 for initiating penalty proceedings u/s. 271
(l)(c) of the Act In the present case is invalid "
(b) Oleander Farms P. Ltd. V. DCIT (ITA No. 5197/Mum/2014 dated 28.11.2016) "6. We have considered the rival submissions and perused the relevant material on record We find in the notice u/s. 274 r.w.S. 271 dated 27/12/2011, the AO has mentioned 'have concealed the particulars of your income or ------furnished inaccurate particulars Of such income.' The said notice has been filed by the Id Counsel of the assessee in the paper book which is at page 30 In the said notice issued by the AO, it has been mentioned at bottom that inappropriate words and paragraphs be deleted Still the AO has not deleted the inappropriate words and paragraphs. It is not spelt out as to whether penalty proceedings are sought to be levied for 'furnishing inaccurate particulars of income' or 'concealing particulars of such income Thus there is merit in the contentions of the Id Counsel of assessee on the above fact 199 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 6.4. In CIT vs. Smt. Kaushalya [1994] 75 Taxman 549 (Bom), the Hon'ble Bombay High Court has held that 'The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified' Respectfully following the above decisions, we hold that the notice dated 27122011 issued by the AO u/s. 274 r. w. s. 271 of the Act for the A Y 2004-05 for initiating penalty proceeding u/s. 271(1)(c) of the Act in the present case is invalid In view of the above, the other grounds of appeal raised by the assessee against the levy of penalty u/s. 271 (1) (c) of the Act require no adjudication at this stage. The order of the Id CIT (A) sustaining the penalty of the Act is thus set aside."
(c) Chandru K. Mtrchandani vs. ITO (ITA No. 5368/Mum/2014 dated 05.04.2017) "4.1.2 In this regard the learned A.R. of the assessee drew the attention of the Bench to the notice issued by the Assessing Officer to the ITO Ward 14(3)3), Mumbai under section 274 r w. s. 271
(l)(c,) of the Act dated 30.12.2011 (copy placed at pg 1 of paper book). It is submitted that the notice is a standard printed notice which does not indicate the required particulars, le. as to whether the initiation of penalty is for concealment of income or for furnishing of inaccurate particulars of income, since the AO has not deleted therein the inappropriate words and paragraphs; thereby evidencing total non-application of mind by the AO and of his not being clear as to under which of the two limbs the penalty was to be considered for.
4.3.3 The Legal position- has been reiterated by the Hon'ble Karnataka High court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 5675 (Kart) and which has not been interfered with by the Hon'ble Apex Court in the appeal preferred against it by Revenue. This proposition has been affirmed and upheld by the Hon'ble Bombay H19l7 Court in the case of CIT vs. Samson Perinchery "supra). Before us, no contrary judgment of the Hon'ble High Courts or of Hon 'h/e Apex Court, referred to and followed by the coordinate Bench in its order in Precisions Containers Ltd. (supra) has been brought to our notice or cited or referred to. Therefore, taking into consideration the facts and circumstances of the case on hand and applying the ratio 200 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 and deriving support from the decision of the Hon'ble Apex Court relied on by the Coordinate Bench in its order (supra) we hold that the notice dated 30.12.2011 issued for initiation of penalty proceedings under section 271(1)(c) of the Act for A. Y 2006-07 is defective and issued without application of mind and is therefore invalid and bad in law. Consequently the order dated 27.09.2013 levying penalty under section 271(1)(c) of the Act for A.Y 2006-07 is also invalid and liable to be cancelled In this view of the mater the impugned order of the learned CIT (A) is reversed and the additional grounds and 2 raised by the assessee for A. Y 2006-07 are allowed."
(d) Global Proserv Ltd. V. ACIT (ITA Nos. 7332 to 7335/Mum/2014 dated 14.03.2017) "10. We also find from the notice dated 263.2013 issued under section 271(1)(c) rws. 274 of the Act extracted hereinbefore that the notice has been issued in standard format without striking off any of the two limbs ie. for concealing the particulars of income or furnishing inaccurate particulars of income of such income under which the penalty was initiated against the assessee. In view of these facts we are of the view that the AO lacked application of mind in initiating penalty proceedings while framing assessment and also while issuing the notice initiating penalty proceedings u/s. 274 r.ws. 271(1)(c) of the Act.
11. We are therefore respectfully following the ratio laid down by the Hon'ble High Courts including the jurisdictional High Court and Supreme Court hold that the order of the CIT (A) upholding the imposition of penalty u/s. 271(1)(c) of the Act where the AO had not specified or mentioned the charge on which the penalty has been imposed is not correct and cannot be sustained In view of the foregoing discussion we set aside the order of CIT(A) and direct the AO to delete the penalty levied u/s. 271(1)(c) of the Act."
(e) Dr. Santa Wind Davare v. ACIT & vice versa (ITA No. 2187/Mum/2014 & anr dated 2 1.12.2016) "12. A combined reading of the decision rendered by the Hon'ble Bombay High Court in the case of Smt. B. Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of D111p N. Shroff (supra) would make it clear that there should be application of mind on the part of the AU at the time of issuing notice. Here, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the 201 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 AG, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya "supra) and observed as under-
The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified' In the instant case also, we are of the view that the A 0 has issued a notice, that too incorrect one, in a routine manner Further the notice did not specify the charge for which the penalty notice was issued Hence, in our view, the AG has failed to apply his mind at the time of issuing penalty notice to assessee,
14. In view of the foregoing discussions, we are of the view that assessee should succeed on this legal issue. Accordingly, the penalty proceedings initiated by the A0 without application of mind is liable to be set aside and we order accordingly."
(f) Wadhwa Estate & Developers India Pvt. Ltd. V. ACIT (ITA No. 2158/Mum/2016 dated 24.02.2017
7. Further on a reference to the notice issued under section 274 r/w sect/on 271, which is in a standard printed format, a copy of which is placed at Page-i 7 of the paper book, we have found that the Assessing Officer has not specified which limb of the provision contained under section 271(1)(c) is attracted to the assessee.
The Hon'ble Jurisdictional High Court in CIT v/s. Smt. Kaushalya & Ors. [1995] 216 ITR 660 (Bom), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. The Hon'ble Jurisdictional High Court in Samson Perinchety (supra) following the decision of Hon'ble Karnataka High Court in CIT v/s. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 5675 (Karn) held, order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated In the present case, neither the 202 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment order nor the notice issued under section 274 indicate the exact charge on the basis of which the Assessing Officer intends to impose penalty under section 271(1)(c). Therefore, viewed in the light of the principles laid down in the judicial precedents discussed herein above, we are of the opinion that the Assessing Officer having failed to record his satisfaction while initiating proceedings for imposition of penalty under section 271(1)(c) as to which limb of the provisions of section 271(1)(c) is attracted, the order imposing penalty is invalid.........................
44. In so far as the judgment of the Hon'ble Bombay High Court in the case of CIT v. Smt. Kaushalya and Ors (216 ITR 660), rendered on 14.01.1992, it may be noted that in their subsequent and recent decision in the case of CIT v. Shri Samson Perinchery (supra), discussed above, the issue was decided in favour of the taxpayer. It is well settled that when there are conflicting judgments, the latter one has to be followed as per Bhika Ram and Ors. v. UOI [238 ITR 113 (Del)]. The ratio laid down in Bhika Ram and Ors. v. UOI [238 ITR 113 (Del)] was followed in Datamatics Financial Services Ltd. v. JCIT [95 lTD 23, 30 (Mum)]. The relevant observations made by the Tribunal in that case on the point were:
"7 Considering the first submission, we find that it is only the later decision which has a precedent over earlier decision even in a case where earlier decision was neither cited nor discussed in the later decision. The situation in the present case is rather on strong footing as the earlier decision was under consideration of their Lordships In the later decision. In the case of Bhika Ram (238 ITR
113), their Lordships of Delhi High Court, when faced with a situation where in a later decision, the Hon 'ble Supreme Court did not consider the earlier decision, observed as follow:-
'However, learned counsel for the petitioner relied on Satinder Singh v. limrao Singh AIR 1961 SC 908, to submit that compensation would not be treated as income. Learned counsel further submitted that the decision of the Supreme Court in Satinder Singh 's case AIR 1961 SC 908 was not brought to the notice of the Supreme Court when Bikram Sigh 's case [1997] 224 IT!? 551, was decided. It /5 also submitted that the reasoning on which their Lordsh,s have proceeded in the case of Satinder Singh AIR 1961 SC 908, was also not argued before the Supreme Court in Bikram Singh 's case [1997] 224 ITR 551. Not only are we not satisfied about the correctness of the submission so made, we are also of the opinion that such a plea is not open for consideration by us and Bikram Singh 's case [1997]224 ITR 551 (SC), being a later pronouncement of the Supreme Court by a Bench of co-equal strength, it is binding on us."203
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
45. Similar findings were recorded in ITO v. Sanatan Textrade Ltd. [2010] 4 ITR (Trib) 593 (Mum). They were:
'11. Now the posit/on which prevails before us is that there is one judgment in the case of CIT v. Pithwa Engg. Works [2005] 276 ITR 519 (Born) dated July 1, 2005, according to which the instruction prescribing the monetary limit is applicable even to old references;
and on the other hand the judgment in the case of Chhajer Packaging and Plastics (P.) Ltd /20081300 ITR 180 (Born) dated September 28, 2007 rules that the instructions laying down the monetary limits for filing appeals are prospective and do not apply to pending matters. Patently there is a conflict of the opinion in the two judgments of the hon 'ble jurisdictional High Court. Both these judgments have been rendered by the hon 'b/e Bombay High Court with the strength of two judges each. The question which looms large before us is to decide whether the later or the former judgment should be followed The Hon'ble Delhi High Court in the case of Bhika Ram v. Union of India [1999] 238 ITR 113 has held that a later decision by a Bench of equal strength is binding In view of this precedent, it is manifest that the judgment rendered in the case of Chhajer Packaging and Plastics P. Ltd [2008] 300 ITR 180 (Born) is binding on us and accordingly only the monetary limit relevant at the time of filing the appeal is to be considered The instruction providing a different monetary ceiling of tax effect, prevailing at the time when appeal is taken up for hearing, is not germane"
46. In fact, the co-ordinate Benches have already followed this precedent in Prakash H. Savia v. ACIT, Oleander Farms P. Ltd. V. DCIT, Dr. Santa Milind Davare v. ACIT & vice versa and Wadhwa Estate & Developers India Pvt. Ltd. v. ACIT, discussed hereinabove. It was also held in that when there are conflicting judgments of jurisdictional High Court and if the earlier judgment is not referred to at all in the latter one, it is open to the Tribunal to follow the judgment, the reasoning of which appeals to it, vide CIT v. Madhukant M. Mehta [132 ITR 159, 180 (Guj)].
47. Recently ITAT Mumbai Bench in the case of Meherjee Cassinath Holdings Pvt. Ltd., in ITA No.2555/Mum/2012 vide order dated 28/04/2017 has held as under:-
8. We have carefully considered the rival submissions. Sec.
271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the 204 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T.Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee- company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-
"83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to 205 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]"
9. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non- application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.
10. In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the 206 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, ITA Nos. 1154, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.
11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :-
"12. A combined reading of the decision rendered by Hon'ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the 207 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non- application of mind in the case of Kaushalya (supra) and observed as under:-
"....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified."
In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee."
12. The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.
13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the 208 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
14. Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non- application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the assessee are not being dealt with.
15. In the result, the appeal filed by the assessee is allowed, as above.
48. In the case of SLK Properties ITA No.140/PN/2014 vide order dated 18.03.2016, Pune Bench of ITAT held as under:-
19. The first plank of argument of the Ld. Counsel for the assessee is regarding the validity of the penalty order in view of an invalid notice for levy of penalty. According to him in para 10 of the assessment order the AO has initiated penalty proceedings u/s.271(1)(c) of the I.T. Act, 1961 for concealing the particulars of income and furnishing of inaccurate particulars of such income. Even at the end of the assessment order the AO mentions issue notice u/s. 274 r.w.s. 271(1)(c) also of the Act, 1961 for concealment of income as discussed in the body of the assessment order. Further the notice dated 22-03-2012 for penalty proceedings u/s. 271(1)(c) does not speak clearly as to whether such penalty is being levied for concealment of income or furnishing of inaccurate particulars of income. Therefore, according to him, in view of the decision of Hon'ble Karnataka High Court in the case of 209 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Manjunatha Cotton and Ginning Factory (Supra) which has been followed by the Coordinate Bench of the Tribunal in the case of Sanjog Tarachand Lodha (Supra) such penalty notice is bad in law where it is not clear from the notice u/s.274 about the reasons for levying penalty. According to him, the penalty order passed on the basis of such invalid notice is not sustainable.
20. We find merit in the above submission of the Ld. Counsel for the assessee. Admittedly, the AO in the body of the assessment order at para 10 has initiated penalty proceedings for concealment of particulars of income and furnishing inaccurate particulars of income by the assessee. At the end of the assessment order the AO mentions issue notice u/s.274 r.w.s.271(1)(c) for concealment of income as discussed in the body of the order. The relevant para 10 and last part of the assessment order read as under :
"10. The penalty proceedings u/s.271(1)(c) of the I.T. Act, 1961 for concealing the particulars of income and furnishing inaccurate particulars of such income are separately initiated."
........ ...... ......
........ ...... ......
"Assessed u/s.153A(b) r.w.s.153C of the I.T. Act, 1961. Charge interest due as per section 234A, 234B & 234C of the I.T. Act, 1961. Give credit for prepaid taxes after verification. Issue notice u/s.274 r.w.s.271(1)(c) of the I.T. Act, 1961 for concealment of income as discussed in the body of order."
21. We further find from the notice issued u/s.274 r.w.s.271(1)(c) dated 31-12-2008 is also silent on the reasons for initiation of penalty proceedings u/s.271(1)(c) of the I.T.Act, 1961.
22. We find identical issue had come up before the Pune Bench of the Tribunal in the case of Sanjog Tarachand Lodha Vs. ITO vide ITA Nos. 688 and 689/PN/2014 order dated 31-08- 2014 for A.Yrs. 2007-08 and 2008-09. We find the Tribunal under identical circumstances had held the notice issued u/s.271(1)(c) r.w.s. 274 as invalid and cancelled the penalty levied on the basis of such invalid notice by observing as under:
"5. We have heard the submissions made by the ld. DR and have thoroughly perused the written submission along with paper book 210 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 filed by the assessee. A search and seizure action u/s. 132 of the Act was conducted on 21-05-2009 in the case of Lodha Group. Pursuant to notice issued u/s. 153A, the assessee filed his return of income for the impugned assessment years. In the return of income for the impugned assessment years, the assessee declared additional income admitted during the course of search. The assessment was completed u/s. 153A r.w.s. 143(3) by accepting the income returned by the assessee. Thus, no further addition was made during the course of assessment proceedings. Penalty u/s. 271(1)(c) was initiated against the assessee on the additional income admitted during search and returned u/s. 153A proceedings. The assessee has placed on record notices issued u/s. 271(1)(c) r.w.s. 274 of the Act for levy of penalty in the assessment years 2007-08 and 2008-09. The said notices are at pages 15 and 16 of the paper book. A perusal of notices show that they are stereo type notices, with blank spaces. Specific reasons for levy of penalty u/s. 271(1)(c), whether it is for concealment of particulars or for furnishing inaccurate particulars or for both, have not been specified. The assessee in his written submission has pointed out that if the irrelevant columns of the printed form of notice u/s. 274 have not been stuck off by the Assessing Officer, the notice for levy of penalty u/s. 271(1)(c) shall be deemed to be invalid. In support of these submissions, reliance has been placed on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory reported as 359 ITR 565 (Karan).
6. A perusal of the order passed u/s. 271(1)(c) dated 28-06- 2012 levying penalty shows, that in para 2 the Assessing Officer has specifically mentioned that penal proceedings u/s. 271(1)(c) are initiated for concealing the income. The relevant extract of para 2 of the order levying penalty reads as under:
"2. ..........Since assessee had originally concealed income to the extent of Rs.7,92,190/-, penalty proceedings u/s. 271(1)(c) of the Act was initiated on finalization of assessment proceedings."
In both the impugned assessment years, the order levying penalty are similarly worded.
7. In the concluding paragraph of the order, the Assessing Officer has observed that the penalty is levied for furnishing of inaccurate particulars of income and concealing income. The relevant extract of para 7 of the order reads as under:
211M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "7. I am satisfied that the assessee has without any reasonable cause, furnished an inaccurate particulars of income and thereby concealed his income to the extent of ............................"
Furnishing of inaccurate particulars of income and concealing of income are two different expressions having different connotations. For initiating penalty proceedings, the Assessing Officer has to be very specific for the reasons of levying penalty, Whether it is for furnishing of inaccurate particulars of income or concealing of income or for both. In the present case, a perusal of notice issued u/s. 271(1)(c) r.w.s. 274 shows that the Assessing Officer has not specified the reasons for levying of penalty i.e. whether it is for furnishing of inaccurate particulars or concealment of income or both. Further, a bare perusal of the order levying penalty would show that the Assessing Officer is not clear whether the penalty is levied for concealment of income or furnishing of inaccurate particulars of income or both.
8. The Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (supra) has held that where it is not clear from the notice u/s. 274 the reasons for levying of penalty the notice itself is bad in law and the penalty order passed on the basis of such notice is not sustainable. The relevant extract of the order of Hon'ble High Court reads as under:
"NOTICE UNDER SECTION 274
59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order.
However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest 212 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference 213 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."
9. Thus, in the facts of the case and documents on record, we are of the considered view that the notice issued u/s. 271(1)(c) r.w.s. 274 is invalid and thus, the subsequent penalty proceedings arising there from are vitiated. The impugned orders are set aside and the appeals of the assessee are allowed."
23. So far as reliance on the decision of Mak Data Pvt. Ltd. by the Ld. Departmental Representative is concerned the same in our opinion is not applicable to the facts of the present case. The decision in the case of Mak Data Pvt. Ltd. has to be understood in the context of the facts of the said case. Therefore, before relying on a particular sentence or paragraph of the said decision one has to read the preceding paragraph of the said decision which read as under:
214M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings.
Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.
Therefore, the reliance only on the sentence appearing in para 10 of the judgement without reading it in the context under which said observation was made in para 9 is misplaced by the Ld. Departmental Representative.
24. A plain reading of the decision of Hon'ble Supreme Court from para 9 and 10 combinedly suggest that the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. Therefore, the reliance by the Ld. Departmental Representative on the decision of Mak Data Pvt. Ltd. in our opinion is misplaced and not applicable to the facts of the present case. This view of ours finds support from the decision of Kolkata Bench of the Tribunal in the case of Suvaprasanna Bhataacharya 215 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Vs. ACIT in ITA No.1303/Kol/2010 order dated 06-11-2015 for A.Y. 2006-07. In this view of the matter, we are of the considered opinion that since it is not clear from the notice u/s.274 the reasons for levying of penalty as to whether it is for concealment of income or for furnishing of inaccurate particulars of income, therefore, the notice itself is bad in law and invalid. Therefore, the penalty order passed subsequently on the basis of such invalid notice also has to be held as bad in law. We accordingly cancel the penalty levied by the AO. Since the assessee succeeds on this technical ground the arguments on merit is not being adjudicated being academic in nature.
25. In the result, the appeal filed by the assessee is allowed.
49. Recently ITAT Mumbai Bench in the case of Visaria Securities Pvt. Ltd., in ITA No.7585/Mum/2016 vide order dated 08/05/2017 has held as under:-
13. We have heard arguments on this issue and a perusal of the notice issued under section 274 r.w.s. 271 of the Act dated 26.12.11 and 11.08.14 reveals that the AO has not deleted the inappropriate words and parts of the notice, whereby it is not clear as to the default committed by the assessee, i.e. whether it is concealment of particulars of income or furnishing of inaccurate particulars of income that the penalty under section 271(1)(c) of the Act is sought to be levied. In this regard, we find that the Hon'ble High Court of Karnataka in its order in the case of M/s Manjunatah Cotton & Ginning Factory in ITA No. 2546 of 2005 dated 13.12.2012, relied on by the assessee, has held that such a notice, as has also been issued in the case on hand, is invalid and the consequential penalty proceedings are also not valid. The relevant portion of their Lordships judgement at paras 59 to 62 thereof are extracted hereunder for reference: -
"59. As the provision stands, the penalty proceedings can be initiated on various ground set therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, inthe notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained 216 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the 217 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations, The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 13 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Thom, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."
14. The conclusion drawn therein by their Lordships at para 63 thereof and particularly at p) to s) thereof are as under: -
"63 .....................................
a) .....................................
p) Notice under section 274 of the Act should specifically state the ground mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On 218 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on the limb and finding the assessee guilty of another limb is bad in law." 15. It may be mentioned that in this regard, no contrary decision of the Hon'ble Apex Court or the Hon'ble Bombay High Court has been brought to our notice or placed before us for consideration. Therefore, respectfully following the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory reported in (2013) 359 ITR 565 (Kar), decision of Hon'ble Bombay High Court in the case of CIT Vrs Samson Perinchery dated 05.01.2017, we hold that the notice issued under section 274 r.w.s. 271 of the Act dated 26.12.11 and 11.08.14 for A.Y. 2009-10 for initiating penalty proceedings under section 271(1)(c) of the Act in the case on hand is invalid and consequently, the penalty proceedings are also invalid. Therefore the penalty levied by AO and upheld by the Ld. CIT(A) is hereby dropped.
50. In the case of Chandru K. Mirchandani in ITA no. 5368/Mum/2014 order dated 05/04/2017, after taking into account the ratio laid down in the case of CIT v. Samson Perinchery of the Bombay High Court as well as other decisions of the various high courts, the tribunal deleted the penalty levied by the assessing officer on the ground that the penalty notice issued was defective and without application of mind since the Assessing Officer had failed to delete therein the inappropriate words in paragraphs.
51. In the case of Global Proserv Ltd. v. ACIT in ITA no. 7332 to 7335/Mum/2014 order dated 14/03/2017, Hon'ble Tribunal deleted the penalty levied by the assessing officer u/s.271(1)(c) of the Act under the identical circumstances and after taking into account the judgement of the Bombay High Court in the case of CIT v. Smt. Kaushalya [216 ITR 660], order of the co-ordinate bench in the case of the Dhaval K. Jain v ITO in ITA 996/Mum/2014 and followed the ratio laid down by the Bombay High Court in the case of CIT v. Samson Perinchery.
52. In the case of Dr. Sarita Milind Darave v ACIT in ITA no. 2187/Mum/20 14 order dated21/12/2016, the Hon'ble Tribunal deleted the penalty levied by the assessing officer u/s.271(1)(c) of the Act under the identical circumstances and after taking into account the judgement of the Bombay High Court in the case of CIT v. Smt. Kaushalya [216 ITR 660] and followed the ratio laid down by the Bombay High Court in the case of CIT v. Samson Perinchery.
219M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
53. In view of the aforesaid binding judgments and orders of the coordinate Benches of the Tribunal, the inevitable inference could be that in the instant cases before us the Assessing Officer had not made up his mind as to the specific charge to which the assessee was to be penalized. In the premises, as has been held in the rulings discussed hereinabove, the levy of penalty u/s. 271(1)(c) of the Act was not justified. Accordingly on this legal ground we delete the penalty in all the years under consideration.
54. Although we have deleted the penalty on legal ground, but as both the parties had argued at length on merits of the levy or otherwise of penalty, for the sake of completeness we also decide the issue on merits. Even on merit the penalty levied cannot be sustained. The detailed reasons thereof are as under. On perusal of the orders passed by the lower authorities it is clear that there are two foundations set up against the assessee by the Department to levy the penalty.
A. Alleged cash generation out of several activities like mis- declaring yield of steel, suppression of gross profit on trading turnover, bogus purchase, inflation of purchase etc. B. Alleged utilization of such cash generation for the purpose of introducing share application money in fourteen companies.
55. We found that none of the above allegations are either factually correct or established from the material on record.
56. Taking up the first foundation of levy of penalty it can be observed that there is no evidence whatsoever, except the survey statement, to support the allegation of cash generation. As explained in detail before the lower authorities the statements were general in nature and in fact, during the course of the proceedings before the Assessing Officer himself, the assessee had taken a categorical stand that there is no generation of cash by mis-declaring yield of steel or by resorting to any other method. Nothing has been brought on record by the Assessing Officer to prove anything contrary. Thus, there is no evidence or material on record to support the allegation of cash generation. When the assessee took a categorical stand before the Assessing Officer to the effect that there is no generation of cash, it is incumbent upon the Assessing Officer to prove with the help of material on record that there was in fact a generation of cash and thereby concealment of income. Nothing of that sort has been done.
57. In respect of the declaration of income on account of correct yield in the steel production, we found that the addition was made purely on the basis of adhoc formulae contained in the statement of the assessee. The 220 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 actual yield of the steel was compared with the standard yield of 84.5% in each of the assessment years and varying amounts were offered in the four assessment years under consideration on the assumption that there has to be an uniform yield of 84.5% year-afteryear. During the assessment proceedings, the Assessing Officer had, in fact, wanted further justification in respect of additional income on account of difference in yield. Accordingly, he made the following observations in para 2.11 on page No. 10 of the assessment order for A.Y. 2007-08.
'2.11 In these assessment proceedings, the AR of the assessee vide order sheet entry dated 09-12-2012 was asked to furnish justification in respect of the additional Income on account of difference in yield detected during the course of survey and post survey proceedings."
58. In reply to the above, the assessee had submitted as under:
9. As regards your query regarding the basis for adopting the yield at 84 % during A.Yrs 2007-08 to 2010-11, as explained in the earlier correspondence during the survey proceedings, the Investigation Wing in the oral discussion had indicated that in the steel industry the average yield ranges in the range of 84% to 8595. During the course of survey, it was explained that the yield depends upon the process being carried out by the different companies and also on the type of the raw material, which Is being used for manufacturing steel There is no hard and fast rule or formula, which could be adopted as a benchmark for determining the ratio of raw material to finished goods, being the yield in the manufacturing process. We were informed at that time the data available In the public domain of a competitor viz., Ispat Industries Ltd demonstrate that their yield was about 84%. The process undertaken by the Ispat Industries Ltd is a different than the process adopted by us and also the type of raw material used by them was also different from the raw material It was also explained that due to poor quality of raw material, inefficiency of the old plant & machinery, inappropriate compensation of different kind of raw mater/al and defect in the production required re-melting the average yield in all these four years was in the range of 7747961 to 80.56%. Based on all these facts and in order to buy peace the working of the Investigation Wing of the average yield was accepted"221
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
59. From the above, it is evident that during the course of the assessment proceedings, the assessee took a categorical stand that the declaration on account of yield was based on adhoc working suggested by the investigation wing during the course of survey. It was further contended that the offer was made to buy peace. This submission of the assessee was not disputed by the Assessing Officer in the assessment proceedings.
60. Similar is the position in respect of the addition made on account of profit margin in steel trading activity wherein adhoc profit margin of 3% is assumed for all the years. In the same manner, there is another adhoc addition on account of inflation of raw-material cost by 4%. Thus, all the additions made during the assessment proceedings are on the basis of declaration made during the course of survey and accordingly. offered in the return of income. However, this was neither been accepted by the assessee nor proved by the Assessing Officer by any evidence whatsoever. Therefore, the inflation of expenditure and thereby generation of cash cannot be the basis of levy of penalty u/s. 27(1)(c) of the Act.
61. Apart from this, the CIT (A) had given a specific opportunity to the Assessing Officer by way of remanding the matter to him, not only once but twice. While directing the remand report, the CIT (A) specifically asked the Assessing Officer to bring on record any evidence in support of his claim that income has been concealed and cash has been generated by mis-declaring the yield of steel. This is evident from the letter dated 15.04.2015 addressed by the CIT(A) to the Assessing Officer, the gist of which has been extracted in paragraph 6.1 of the impugned order. Since the Assessing Officer did not address to the issues on which his report was called for, the CIT (A) had given another opportunity to him vide letter dated 18.05.2015. The second opportunity given to the Assessing Officer and the report furnished in response thereto have been referred to in paragraph No. 6.3 of the impugned order and thereafter. Though the Assessing Officer had consumed about fifteen pages, even a cursory reading of the exhaustive reply show that he had not dealt with the specific directions contained in paragraph 6 of the letter dated 15.04.2015, referred to above. Since the Assessing Officer had failed to adduce any evidence in spite of specific directions, the CIT (A) should not have taken any adverse view in the matter while giving his verdict.
62. The Assessing Officer ought to have brought on record the positive evidence to show that the actual yield of the steel has been concealed and the same was 84.5% for the years under consideration. Needless to say that the onus is on the Department to prove the existence of the income which has been alleged to be concealed. In the present case the same has not been done as the only evidence in possession of the Assessing Officer is survey statement whereas during the assessment proceedings the assessee has maintained that the yield was properly disclosed.
222M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
63. As regards the declaration made on account of bogus purchases and inflated purchases, we noticed that except the statement of Mr. Babulal Agarwal, Director of the company and others, recorded during the course of survey and the declaration made by him, there is nothing on the record to support the allegation of bogus or inflated purchases. There is a reference in the assessment order to some of the enquiry made by the investigation wing prior to the date of survey. However, the result of the enquiry has not been brought on record. In fact, while making an addition, and also at the time of levying the penalty, the Assessing Officer has completely relied upon the statement of the director and not on any hard evidence. In these circumstances, the categorical stand of the assessee that there was no inflation or booking of bogus purchases and thereby generation of any cash deserves to be accepted.
64. It is important to note that penalty proceedings are separate and distinct from the assessment proceedings. The addition of income in the assessment proceedings cannot by itself be the basis for levy of penalty u/s. 271(1)(c) of the Act, more particularly when the assessee has challenged the existence of the income itself.
65. The judgment of the Hon'ble Gujarat High Court in the case of National Textiles v. CIT (249 ITR 125) is on this point. In this case, the Hon'ble Court was concerned about the tenability or otherwise of penalty u/s. 271(1)(c) of the Act qua addition made u/s. 68 of the Act. Since the levy was sustained up to the stage of the Tribunal, the assessee approached the Hon'ble High Court where, in deleting the penalty, it was held thus:
'Held, that, in the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed nor were there any supporting documents on record The accountant, who had arranged the loans was not produced and it was stated that he had left the service as relations with him were strained In this state of accounts and evidence in the quantum proceedings, the Department was justified in treating the cash credits as income of the assessee, but merely on that basis by recourse to Explanation 1 penalty under section 271(J)(c) could not have been imposed without the Department making any other effort to come to the conclusion that the cash credits could in no circumstances have been amounts received as temporary loans from various parties. Admittedly, the assessee in the quantum proceedings failed to produce the accountant but the Department also in penalty proceedings made no effort to summon him. Therefore, it was a case where there was no 223 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 circumstances to lead to a reasonable and positive inference that the explanation that cash credits were arranged as temporary loans was false. The facts and circumstances were equally consistent with the hypothesis that they could have been sundry loans in small amounts obtained from different parties. Therefore, the imposition of penalty was not justified."
66. The co-ordinate Bench in the case of ACIT v. VIP Industries Ltd. [30 SOT 254, 262-263 (Mum)] had also taken a similar view. In this case, the issue for consideration was the validity or otherwise of the levy u/s. 271(1)() of the Act with respect to additions sustained in quantum proceedings. In disagreeing with the levy made by the Assessing Officer and in-concurring with the findings of the CIT (A) for deleting penalty levied with respect to an addition sustained, the Tribunal held as under:
"8.....................A great deal of emphasis had been laid by the Id DR on the fact that since the addition has been upheld by the Tribunal, then the penalty should also be confirmed In our considered opinion the mere fact of confirmation of addition cannot per se lead to the confirmation of the penalty. It is obvious that both the quantum and the penalty proceedings are independent of each other In the penalty proceedings the assessee is given chance to show that why the penalty be not imposed with reference to the addition made or confirmed in the quantum proceedings. If the assessee succeeds in explaining his case then no penalty can follow and vice versa. It is, therefore, amply clear that the confirmation of the addition by the Tribunal in quantum proceedings cannot mean that the penalty be automatically confirmed If the content/on of the Id DR is taken to the logical conclusion then the penalty proceedings would require obliteration from the statute and the very act of making addition in quantum should entitle the Assessing Officer to impose penalty simultaneously."
67. In the case of Shirm Capital Management v. ITO [ITA No. 2876/Mum/2010 dated 24.06.2011] also, the Tribunal had occasion to consider and adjudicate a similar issue. There, the tenability or otherwise of penalty levied u/s. 271(1)(c) of the Act with respect to part of the addition made u/s. 68 of the Act sustained in first appeal, and also a disallowance of interest of certain amount was debated. Since the levy 224 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 was sustained in the first appeal, the dispute was carried in further appeal in which it was held thus:
"5. ................. The balance addition made under section 68 to the extent of Rs. 650 Iakhs, however, was sustained by the Tribunal mainly because there was failure on the part of assessee to satisfactorily explain the unsecured loans to the extent of Rs. 650 /akhs in terms of section 68. There was, ho we ver nothing brought on record during the course of quantum proceedings to show that the said amount represented assessee's own income/money which was introduced in the form of unsecured loans. On the contrary, the said amount was treated as deemed income of the assessee by invoking the pro visions of section 68 mainly because assessee failed to satisfactorily explain the relevant unsecured loans in terms of sect/on 68. As held by the Hon 'ble Allahabad High Court in the case of Add!. CIT vs. Rawa/pindi Floor Mills P. Ltd. 125 ITR 243, if the assessee fails to prove the genuineness of loans in the assessment proceedings, the addition towards total income can be said to be justified but on that ground alone penalty under section 271(1)(c) cannot be imposed"
68. The other foundation for levy of penalty is utilization of cash by the assessee in the share application money of fourteen companies. The relevant discussion on background facts is on page No. 1 to 4 of the penalty order. It is important to note that in the entire assessment proceedings there is no mention about such utilization of cash in share application money. The assessment order merely talks about booking of various bogus expenses and the disallowance thereof. The Assessing Officer has not even alleged in the assessment order that the assessee has utilized the cash in share application money of fourteen companies. At the conclusion of the relevant discussion in the assessment order the Assessing Officer has initiated the penalty proceedings u/s. 271(1)(c) of the Act. Thus, the penalty has been initiated on the ground that the assessee had booked bogus expenditure. As discussed hereinabove, the levy of penalty on the above ground cannot be sustained as there is no evidence of booking of such bogus expenditure or misdeclaration of yield or profit. The question, therefore, now is whether the penalty which was initiated on account of alleged bogus expenditure, could be levied in respect of introduction of cash in fourteen companies.
69. It is a well-settled proposition in law that levy of penalty u/s. 271(1)(c) of the Act is permitted only on those counts on which the same was 225 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 initiated and satisfaction was recorded. In other words, penalty cannot be levied on a ground which is not specified in the assessment order while initiating the penalty and for which satisfaction has not been recorded. In support of this view, reliance is placed upon the binding judgement of the jurisdictional High Court in the case of CIT v. Acme Associates [2016] 76 taxmann.com 242. In this case, noticing that the aggregate area of two flats bought by a couple through a joint agreement exceeded 1,000 sq. It, the claim for deduction u/s. 80-IB(10) of the Act was disallowed by the Assessing Officer. Simultaneously, proceedings u/s. 271(1)(c) of the Act were initiated for furnishing 'inaccurate information/concealing of income'. The appeal filed in quantum proceedings was withdrawn as during its pendency the assessee was served with notice u/s. 153A of the Act consequent to search u/s. 132 of the Act. Thereafter, the Assessing Officer levied penalty u/s. 271(1)(c) of the Act on the very ground for which proceedings under this provision were initiated. However, in the appeal filed there against, it was confirmed on a different ground, namely, that during the search the assessee had disclosed that the project in respect of which the deduction was claimed was not completed before the due date, i.e. 31.03.2008. This order, however, was overturned in second appeal. In the appeal filed u/s. 260A of the Act at the instance of the revenue, the Hon'ble jurisdictional High Court was pleased to uphold the order impugned in the following words:
"9. It is undisputed position before us that initiation of penalty under Section 271 (1)(c) of the Act by the Assessing Officer is on the ground of area of flat being sold in excess of 1000 sq. ft. being concealed It was this ground that the Respondent -assessee is required to offer explanation during penalty proceedings to establish that the claim as made in the return of income was not on account of furnishing of inaccurate particulars of income or concealment of income vis-a-vis of selling flat having area of 1000 sq. ft. The Assessing Officer under the Act also considered the Respondent -assessee '5 explanation in the context in which the penalty proceedings were initiated and did not rightly place any reliance upon the subsequent events. In an appeal from the order of the Assessing Officer, the CIT (A) could not have imposed penalty on a new ground which was not the basis for initiation of penalty. The appeal before the CIT (A) was with regard to issue of penalty under Section 271(1)(c) of the Act only on the ground on which the penalty proceedings were initiated in the assessment order"226
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
70. There is an allegation that Shree Global Trade fin Ltd (SGTL) and the fourteen companies detailed in paragraph 3.6 of the penalty order, from whom share application money was received, were not reliable as, according to the Assessing Officer, they were only paper companies. However, except making such bald allegation, AO had not brought on record any evidence in support. In any case, when the assessee had adduced corroboratory evidences in support of its cases, the onus had shifted and it was for the Assessing Officer to prove his case which he had miserably failed.
71. Most importantly, the additions made in most of the aforesaid companies were deleted by the CIT (A) and they were concurred with in the further proceedings. In the case of Jogia Properties Ltd., one of the fourteen companies, the additions on account of share application money were made by the Assessing Officer in assessment years 2008-09 and 2009-10 and when his orders were carried in appeals, they were deleted by the CIT (A) holding that such additions were not warranted. Feeling aggrieved, the dispute was carried by the revenue in further proceedings to the Tribunal and, relying upon the admission and offer made by one of the directors and another and also the linkage of one Shri Mukesh Chokshi, a hawala dealer with the receipt, restoration of the additions was sought for. However, in absence of any corroborating evidence, as in the case of the assessee, the Tribunal after considering a plethora of rulings on the point, had decided the controversy in favour of the assessee by observing as under:
14 We have perused the case laws relied upon by the Ld Representatives of the parties. In our view, each case has to be decided on its own facts. Merely because, in the case of one company Gold Star Finvest Pvt. Ltd run by Mukesh Choksh, the income has been determined on percentage/commission basis treating the said company as accommodation entry provider, that Itself cannot hold a justification to completely ignore the facts and evidences brought on the file by the assessee. The case of the assessee has to be adjudged on the basis of its own set of facts and evidences. Moreover the facts and circumstances of the case of the assessee are squarely covered by the various decisions of the Hon 'b/e Jurisdictional High court Of Bombay. We further find that the issue, relating to the investments made by the companies relating to the said Mr. Mukesh Chokshi in some other cases, has travelled up to the level of Hon'ble Supreme Court In the case of "Shri Mukesh R. Marolia vs. Additional CIT" (2006) 6 SOT 247 (Mum), the assessee had 227 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 made share transaction through the companies M/s. Richmond Securities Pvt. Ltd. and M/s. Scorpio Management Mr Mukesh Chokshi has been the director of M/s. Richmond Securities Pvt. Ltd The Tribunal, after considering the overall facts and circumstances of the case, observed inter- alia that on the basis of evidence available and there being no incriminating material found during the search action, observed that the assessment has to be completed on the basis of records and material available before the Assessing Authority. The personal know/edge and excitement on events should not lead the AO to a state of affairs where salient evidences are overlooked Where every transaction of the assessee has been accounted, documented and supported in such an event even though, the amount invested by the assessee has grown into a very sizeable amount which looks quite amazing the evidence produced by the assessee cannot be brushed aside. The Tribunal under such circumstances deleted the addition. The Revenue took the matter to the Hon'ble Bombay High Court. The Hon'ble Bombay High Court, while adjudicating the above issue in tI7e case styled as "CIT vs. Shri Mukesh R. Marolia" in I/A No. 456 of 2007 decided on 07.09.2011, observed that though there was some discrepancy in the statement of director (Mr Mukesh Chokshi) of M/s. Richmond Securities Pvt Ltd regarding the sale transact/on, but owing to the factual finding given by the Tribunal on the basis of evidences furnished by the assessee, the decision of the Tribunal cannot be faulted. The Hon 'ble Bombay High Court upheld the finding of the Tribunal holding the sale transactions as genuine.
The Department preferred appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court dismissed the SLP No.20146/2012 styled as "CIT vs. Shri Mukesh R. Marolia vide order dated 27.01.14 Similarly in the case of "CIT vs. M/s. Kesar A. Gada in ITA No. 300 of 2013 decided on 21.01.15 wherein the AO, while making the additions under section 68 of the Act, had relied upon the statement of Mr. Mukesh Chokshi that he had given various accommodation entries to various parties. The Hon 'b/e Bombay High Court observed that where the assessee had brought the relevant evidences regarding the 228 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 genuineness of transaction and that in his statement Mr Mukesh Chokshi had not mentioned the name of the respondent/assessee as one to whom accommodation entries were given, the Hon 'ble Bombay High Court upheld the findings of the Ld. CIT(A) which were further confirmed by the Tribunal holding that the transactions were genuine and the additions under sect/on 68 of the Act were not warranted Similar findings have been given by the Hon'ble Bombay High Court in the case of 'CIT vs. Kasturben H Gada" in ITA No. 299 of 2013 decided on 21.01.15 In CIT vs. M/s. Sharda Credit Pvt. Ltd (supra), the Hon'ble High Court has dismissed the appeal of the revenue on identical facts. The Hon'ble Bombay High Court while upholding the order of the Tribunal in the above stated appeals has also relied upon the decision of the Hon'ble Bombay High Court in the case of "Shri Mukesh R. Marolia" (supra). Even in the case of "Smt Rajni S Chowdhry" (supra), the Hon'ble Bombay High Court has upheld the decision of the Tribunal given on the basis of appreciation of evidence and factual finding accepting the transaction carried carries through broker M/s Gold Star Finvest (P) ltd as genuine.
15. We further find that the issue is squarely covered by the various decisions of the Tribunal on the basis of same facts. Recently the Tribunal, in the case of "ITO vs. Superfine Construction Pvt. Ltd & Others" in ITA No 3645/M/2014 & Others vide common order dated 30.11.2015 in identical facts and circumstances while dealing with the issue of making investments by way of share application money Invested by the same companies as in the case of an assessee le. M/s. Talent Infoways and M/s. Mihir Agencies, has upheld the findings of the L CIT (A) deleting the additions.
The other case laws relied upon by the Ld. DR are thus not applicable to the case of the assessee in the light of the direct decision of the Jurisdictional High Court on the identical facts which holds a binding precedent on this Tribunal Even otherwise there is no evidence on record that the assessee had given its own money to the Investing company for the purpose of making investments. It may be observed that the Hon 'ble Supreme Court in the case of Lovely Exports Pvt. Ltd referred above has clearly laid down the law that once 229 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the assessee has given the complete details and the information of the investors who have made investments in the share capital of the company and proved identify then no addition can be made in the hands of the assessee company and in respect of such investments the department should proceed against the individual investor In the case in hand also, the requisite details, proof, confirmation, evidences etc are produced The ratio of the decision of the Hon 'ble Supreme Court is directly applicable on the facts of the case.
In view if the above discussion of the matter, we do not find any infirmity in the factual finding given by the CIT (A) after duly appreciation of evidence on the file and the same is accordingly upheld"
72. In the appeals concerning Archive Realty Developers Ltd., Karburi Properties Development Ltd., Vedisa Properties Developers Ltd., Auster Properties Developers Ltd. and Reve Properties Developers Ltd. for A.Ys. 2008-09 and 2009-10, and Chikura Properties Ltd. for A.Y. 2009- 10, which are other six entities appearing in the list given in paragraph No. 3.6 of the penalty order also, similar orders were passed by the Tribunal by placing reliance upon the aforesaid order in Jogia Properties Ltd. vide ITA Nos. 6104 & 6105/Mum/2012 and Ors. dated 18.11.2016.
73. Thus, the above orders of the Tribunal passed in some of the cases out of the fourteen companies clearly establish that the share application money received by those companies are genuine and proved. Thus, there is no involvement of the present assessee in introduction of share capital, much less in cash, in those companies. Therefore, the other foundation of the Assessing Officer in levying the penalty, i.e., utilization of cash in introduction of share application money in fourteen companies also fails.
74. As regards the observation of the CIT (A) that some out of the fourteen companies have taken a stand before the CIT (A) that their share application money was proved as the assessee had declared the same, we observe that there is nothing to support the above allegation. In any case, such contention, which is that of fourteen companies and not that of the assessee, has not been accepted by the Department and, therefore, it cannot be said that the assessee has given any cash merely because some of those entities have raised such contention at some stage of their litigation.
75. The Income-tax Department cannot take contradictory stand on the same set of facts. While deciding the case of fourteen companies, the Income-tax Department having taken a stand that introduction of share application money was not explained by disclosure made by the present 230 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee, while levying the penalty the Income-tax Department cannot base their finding on the footing that the assessee had introduced share application money in fourteen companies. In any case, the Tribunal in some of the cases out of fourteen companies has already held the share application money to be genuine on merit and, therefore, the entire issue based on the stand taken by fourteen companies becomes academic.
76. The main argument which has been repeatedly harped upon in the order of the Assessing Officer as well as the CIT (A) is regarding the search which took place on 25.11.2009 at the premises of Shri Mukesh Choksi and also a search on 04.03.2010 which took place at the premises of Jogia Properties Ltd. It has been repeatedly emphasized that Shri Mukesh Choksi is involved into accommodation transactions and the share application money of fourteen companies are bogus as the same has been routed through the companies controlled by Shri Mukesh Choksi. However, this allegation completely loses its relevance when we see that the Tribunal has passed the order in the case of Jogia Properties Ltd. and subsequently in the case of another eight companies wherein the share application money has been held to be genuine. It is also relevant to note that in the corresponding order of CIT (A) as well as in the order of Tribunal in all the above cases, there is a detailed discussion about the share application money and also reference to above searches and the enquiry in the case of Shri Mukesh Choksi. After considering the entire gamut of information and facts, the CIT (A) and the Tribunal have come to the conclusion that the share application money is genuine.
77. In light of this, the large part of the discussion made by the Assessing Officer and the CIT (A) in their respective orders becomes irrelevant and without base. The penalty levied on such incorrect base deserves to be quashed.
78. Recently Hon'ble Delhi High Court in the case of Neeraj Jindal ITA No.463/2016 & CM No.26604/2016 vide order dated 09/02/2017 observed as under:-
13. At the outset, it must be noted that pursuant to the search and seizure operation conducted under Section 132(4) of the Act, the assessee was given notice under Section 153A to file fresh return of his income. Thereafter, the assessee filed revised returns and the return filed by the assessee under Section 153A was accepted as such by the A.O. However, the A.O. was of the opinion that inasmuch that the income disclosed by the assessee under Section 153A was higher than the income in the original return filed under Section 139(1) and since in his view, such disclosure of income was a consequence of the search conducted on the assessee, there 231 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 was concealment of income which attracted Section 271(1)(c) of the Act. Therefore, the question that needs to be answered is whether penalty is to be levied automatically whenever the assessee declares a higher income in his return filed under Section 153A in comparison to the original return filed under Section 139(1).
14. The Supreme Court held, in Shri T. Ashok Pai v. Commissioner of Income Tax, Bangalore (2007) 7 SCC 162, that penalty under Section 271(1)(c) is not to be mandatorily imposed. In other words, the levy of penalty under this provision is not automatic. This view has been reiterated in Union of India v. Rajasthan Spinning and Weaving Mills, (2009) 13 SCC 448 to say that for there to be a levy of penalty under Section 271(1)(c), the conditions laid out therein have to be specifically fulfilled. Section 271(1)(c) of the Act, being in the nature of a penal provision, requires a strict construction. While considering the interpretation of this provision, this Court in Commissioner of Income Tax v. SAS Pharmaceuticals (2011) 335 ITR 259 (Del), stated that:
"It is to be kept in mind that Section 271(1)(c) of the Act is a penal provision and such a provision has to be strictly construed. Unless the case falls within the four-corners of the said provision, penalty cannot be imposed. Subsection (1) of Section 271 stipulates certain contingencies on the happening whereof the AO or the Commissioner (Appeals) may direct payment of penalty by the Assessee." Thus, what is required to be judged is whether there has been a "concealment" of income in the return filed by the assessee.
15. Earlier decisions indicated a conflict of opinion as to whether Section 271(1)(c) required the revenue to specifically prove mens rea on the part of the assessee to conceal his income. In order to remove the element of mens rea, the Finance Act, 1964 deleted the word "deliberately" that preceded the words "concealed the particulars of his income" in Section 271(1)(c). Nonetheless, even post the amendment, the Apex Court in K.C. Builders v. Assistant Commissioner of Income Tax, 265 ITR 562 (SC) held that:
"The word „concealment‟ inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even 232 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 if takes out the case from the purview of non-disclosure, cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income."
16. Thus, despite the fact that there is no requirement of proving mens rea specifically, it is clear that the word "conceal" inherently carries with it the requirement of establishing that there was a conscious act or omission on the part of the assessee to hide his true income. This was also the conclusion of the Supreme Court in the case of Dilip N. Shroff Karta of N.D. Shroff v. Joint Commissioner of Income Tax, Special Range Mumbai and Anr., (2007) 291 ITR 519 (SC). In a later decision in Union of India v. Dharmendra Textile Processors, (2008) 13 SCC 369, the Supreme Court overruled its decision in Dilip N. Shroff (supra). Thereafter, in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., (2010) 11 SCC 762 the Court clarified that Dilip N. Shroff (supra) stood overruled only to the extent that it imposed the requirement of mens rea in Section 271(1)(c); however, no fault was found with the meaning of "conceal" laid down in Dilip N. Shroff's case. Thus, as the law stands, the word "conceal" in Section 271(1)(c), would require the A.O. to prove that specifically there was some conduct on part of the assessee which would show that the assessee consciously intended to hide his income.
17. In this case, the A.O. in his order noted that the disclosure of higher income in the return filed by the assessee was a consequence of the search conducted and hence, such disclosure cannot be said to be "voluntary". Hence, in the A.O.'s opinion, the assessee had "concealed" his income.
233M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 However, the mere fact that the assessee has filed revised returns disclosing higher income than in the original return, in the absence of any other incriminating evidence, does not show that the assessee has "concealed" his income for the relevant assessment years. On this point, several High Courts have also opined that the mere increase in the amount of income shown in the revised return is not sufficient to justify a levy of penalty.
18. The Punjab & Haryana High Court in Commissioner of Income Tax v. Suraj Bhan, (2007) 294 ITR 481 (P & H), held that when an assessee files a revised return showing higher income, penalty cannot be imposed merely on account of such higher income filed in the revised return. Similarly, the Karnataka High Court in the case of Bhadra Advancing Pvt Limited v. Assistant Commissioner of Income Tax, (2008) 219 CTR 447, held that merely because the assessee has filed a revised return and withdrawn some claim of depreciation penalty is not leviable. The additions in assessment proceedings will not automatically lead to inference of levying penalty. The Calcutta High Court in the case of Commissioner of Income Tax v. Suresh Chand Bansal, (2010) 329 ITR 330 (Cal) held that where there was an offer of additional income in the revised return filed by the assessee and such offer is in consequence of a search action, then if the assessment order accepts the offer of the assessee, levy of penalty on such offer is not justified without detailed discussion of the documents and their explanation which compelled the offer of additional income. The Madras High Court in the case of S.M.J. Housing v. Commissioner of Income Tax, (2013) 357 ITR 698 held that where after a search was conducted, the assessee filed the return of his income and the Department had accepted such return, then levy of penalty under Section 271(1)(c) was not justified. From the above cases it would be clear that when an assessee has filed revised returns after search has been conducted, and such revised return has been accepted by the A.O., then merely by virtue of the fact that such return showed a higher income, penalty under Section 271(1)(c) cannot be automatically imposed.
234M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
79. Full Bench of Allahabad High Court in case of Bhairav Lal Verma vs. Union of India in C.M.W.P.No.1502 of 1991 vide order dated 17/10/1997 held as under:-
As a principle of law it cannot be held that the disclosure of the concealed income 'after the raid or search cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material available on the record. The criteria for deciding this question is to find out as to whether the Department has any incriminating material with regard to the disclosed income. If the answer is in the affirmative, the disclosure cannot be said to be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary even if it was made after raid/ search.
81. Applying the proposition laid down in the above judicial pronouncements to the facts of the instant case, we do not find any merit for imposition of penalty.
82. In view of the above discussion, we do not find any merit for imposition of penalty u/s.271(1)(c) on the legal ground of notice u/s.271(1)(c) r.w.s. 274 as well as on merits. Accordingly, we delete the penalty imposed u/s. 271(1)(c) in all the years under consideration.
83. In the result, appeals of the assessee are allowed."
In this background the Learned CIT (Appeals) has observed that "the department has been inconsistent in making additions in 14 investing companies by not accepting the claim that it is out of the income generated in the case of Uttam Value Steels Limited (formerly known as Lloyds Steel Industries Limited) and at the same time levying penalty on Uttam Value Steels Limited on the footing that it had introduced share application money in the fourteen companies". This also clearly 235 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 proves the inconsistent stand of the department as regards the investments by fifty-four companies is concerned in the share capital of fourteen companies. Even otherwise all these issues does not directly affect the assessee at all because the assessee has received the funds from the six companies which is amongst the fourteen companies.
5.14. So far as the statement of Mukesh Choksi, which was relied upon by the Ld. Assessing Officer, nowhere states any transaction entered into with the assessee. The names of the companies referred to in his statement have no transaction with the assessee. The statements were also recorded in 2009.
In view of this no reliance can be placed on the statement of Mr. Mukesh Choksi.
5.15. So far as the statement of Shri Om Hari Halan, the reliance is placed by CIT (A) and Learned DR on the statement recorded on 19/12/2012. The recording of the statements started on 19/12/2012 and was continued in the night with little break and was completed on 20/12/2012. The statement is recorded on 19/12/2012 and in the morning of 20/12/2012 at 324, Mastermind IV, Royal Palm, Aarey Milk 236 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Colony, Goregaon East, Mumbai - 400 065 at the office of Jogia Properties Ltd. Then he was brought to the office of Lloyds Steel Industries Limited on 20/12/2012 situated at 16th floor, C-Wing, Kamala City, Lower Parel, Mumbai and the statement continued. During recording of this statement he has clearly stated that in answer to Question No. 3 that there were certain factual mistake in giving answers on 19/12/2012 & 20/12/2012 (first half) he clarified and confirmed that the identity and genuineness and credit worthiness of all the parties have been produced with the documentary evidences.
He has also confirmed that the confirmations, the balance sheets and the other documents have also being produced. He confirmed that in the Appellate proceedings the identity, genuineness and credit worthiness has been proved. The Learned AO and CIT (Appeals) has conveniently omitted to refer to the statement recorded on 20/12/2012 and has only relied upon what is stated on 19/12/2012. There is not a whisper in the statement of Shri Om Hari Halan that the transaction between 6 parties of the assessee is not genuine.
237M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 5.16. The Learned Sr. Standing Counsel, during the course of argument has relied on para 8.4, 8.5 & 8.6 of the CIT (Appeals) order. He argued that the investments made by fifty-
four companies into fourteen companies are not genuine and tried to establish from the share capital and other data being who are the shareholders of those fifty-four companies. He also relied upon certain case laws in support of the claim that the action of the AO and CIT (A) is justified. He relied upon the findings of the AO as well as CIT (A) in general and supported both the orders.
5.17. The Ld. counsel for the assessee, before us, contended that the reliance on the para 8.4 to 8.6 does not in anyway established that the amount received by assessee from six companies is not genuine. As regards the fifty-four companies who have invested in fourteen companies the order of the Hon'ble Tribunal referred to above have clearly held beyond any doubt about the genuineness of the transactions between the fifty-four companies and the fourteen companies.
As far as assessee is concerned all these analysis can at best be termed as testing the source of the source in the hands of 238 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 fourteen companies but nothing is established to prove that as far as assessee is concerned the source of the funds is clearly proved. The Learned counsel for the assessee also stated that nowhere the CIT (Appeals) has brought on record any material which could prove that the finding of the tribunal does not hold good in the reassessment proceedings also. The facts of the case laws relied upon by the Learned Sr. Standing Counsel are different from the present facts. In those cases there were the statement of certain parties and there were transaction between those parties and the assesses which could give reason to believe that the transaction may not be genuine. In the present case none of the statements of all the 3 parties give any evidence or a reference to the amount received by the assesses from 6 parties. The ratio of these decisions is not applicable on the facts of the case.
5.18. Now, we shall summarize the facts of Assessment Year 2009-10, which are as under:-
1. As mentioned earlier, the assessee is a listed Public Limited Company, received funds from nine parties during A.Y. 2009-10, which was treated as share application in A.Y. 2010-11 and the preferential shares were issued in A.Y. 2011-12, issued at par an no premium was received against issuance of preferential 239 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 shares. It is also noted that the assessee filed the necessary declarations and the details of issue of preference shares, issued at par, to the Registrar of Companies. In the books of accounts of the assessee also no premium is received against issue of the preference shares.
2. It is also noted that the assessee had filed original return of income on 09/10/2009 which was annexed with the audited financial statements and other details. Thereafter notice u/s. 153C was issued on 16/12/2010. Notices u/s. 143(2) & 142(1) were also issued by the Ld. Assessing Officer asking the assessee for complete details and the information about the amount received in A.Y. 2009-10 and issue of preference shares in the subsequent period. After examining the details filed by the assessee and replies of the assessee, the Ld. Assessing Officer framed assessment u/s. 143(3) rws 153C and the claim of the assessee was accepted. No addition was made even in this proceeding. Notice u/s. 153C was issued by the Central Circle -
32. The order is passed with the approval of the Addl. Commr. of Income Tax, Central Circle.
3. Thereafter the notice u/s. 148 was issued on 16/12/2013. In the assessment order the addition is made u/s. 68 amounting to Rs. 219,10,00,000/-. The CIT (Appeals) confirmed the additions, which is under challenge before this Tribunal.
4. The party-wise details of additions made and the other particulars of the said parties are summarized hereunder in Annexure-1. Against the name of each party the additions made by the Learned Assessing Officer amounting to Rs. 219,10,00,000/- is mentioned in column No. 4.
(Amount in Rs.)
Ret Order u/s Order of Order of Order u/s Order of
urn Share 153 C CIT(A)-41 ITAT 143(3) rws 147 CIT(A) -53
Inco Notic Bala
file Applic
Name of me e u/s. Deletio Additi nce
d ation Additi
the Co. decla 153A date Addit dat n Additi on Add
u/s Receiv on date dat
red /C d ion ed Confir dated on delete ition
139 ed deleted d ed
med d
(1)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Archive 24- 26- 24-
187500 16- 67500 675000 18- 675000
Realty 09- Nil 12- 07- NA - NA - Nil
000 12-10 000 00 11-16 00
Dev.Ltd. 09 11 12
Auster 24- 26- 25-
410000 31- 18750 187500 18- 187500
Prop. 09- Nil 12- 07- NA - NA - Nil
000 12-10 0000 000 11-16 000
Ltd. 09 11 12
240
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
Cikura 24- 26- 23- 17-
435000 31- 14150 141500 18- 141500 31- 43500 43500
Prop. 09- Nil 12- 07- 11- Nil
000 12-10 0000 000 11-16 000 03-15 0000 0000
Ltd. 09 11 12 17
Jogia 27- 26- 27- 17-
187500 03- 39000 390000 18- 390000 31- 18750 18750
Prop. 09- Nil 12- 07- 11- Nil
000 08-10 000 00 12-15 00 03-15 0000 0000
Ltd. 09 11 12 17
Karburi 24- 26- 26- 17-
187500 29- 25000 250000 18- 250000 31- 18750 18750
Prop. 09- Nil 12- 07- 11- Nil
000 12-10 000 00 11-16 00 03-15 0000 0000
Ltd. 09 11 12 17
Martand 24- 26- 23- 17-
295000 16- 70000 700000 26- 700000 31- 29500 29500
Prop. 09- Nil 12- 07- 11- Nil
000 12-10 000 00 05-17 00 03-15 0000 0000
Ltd. 09 11 12 17
Reva 26- 26- 20- 17-
187500 31- 77500 775000 18- 775000 31- 18750 18750
Prop. 09- Nil 12- 07- 11- Nil
000 12-10 000 00 11-16 00 03-15 0000 0000
Ltd. 09 11 12 17
Vedisa 24- 26- 24- 17-
177500 31- 77500 775000 18- 775000 31- 17750 17750
Prop. 09- Nil 12- 07- 11- Nil
000 12-10 000 00 11-16 00 03-15 0000 0000
Ltd. 09 11 12 17
Prasoon 24- Pending
123500 30- 12350
Prop. 09- Nil NA NA 0 NA 0 NA 0 before Nil
000 12-16 0000
Ltd. 09 CIT(A)
Total
219,10,00,000
5.19. All the nine parties are separate legal entities, assessed to tax and filed their tax returns under their PAN No. regularly for all the years including for A.Y. 2009-10. All the transactions are reflected in their regular books of accounts which are audited and submitted to various authorities. The transactions are reflected in the regular bank account. The details of the cheque Nos., name of the bank, date and the branch were also submitted during all the assessment and appellate proceedings. The said transactions are also confirmed by all the nine parties. In their audited financial statements the said transactions are reflected. Eight out of nine parties are assessed to tax by the same Assessing Officer who has passed the assessment order in the case of assessee 241 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 for A.Y. 2009-10. All the parties have filed the necessary details in support of their claim of receipt of money in their hands and investments made with the assessee during their assessment proceedings. The copies of the orders passed by the Assessing Officer in their cases are also available on record (photocopies of the same are filed by the assessee in the paper book). The reference of the documents filed by each of the party is given below in Annexure-2 giving the reference to the paper book which is filed during the course of appellate proceedings before the tribunal. Identically, the assessee filed its written submissions before the Ld. Commissioner of Income Tax (Appeal). The details of the same is as under :
PAGES Pape Archive Sr. r Real. Auster Cikura Jogia Karburi Martan Reva Vedisa Prasoo Particulars No. book Dev. Prop. Prop. Prop. Prop. d Prop. Prop. Prop. n Prop.
No. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
Balance Sheet & profit Loss 441-
1 435-437 447-449 453-455 458-460 463-465 469-471 475-477 481-483
1 A/c. 443
2 Copy of Income Tax Returns 1 207 211 215 220 225 229 233 238 242
Ledger account in books of 409-
1 408 411-412 413 414 415 416 417 418
3 SGTL 410
4 Ledger account confirmations 4 10 11 12 13 14 15 16 17 18
5 Pref. Shares Application forms 4 26 27 28 29 30 31 32 33 38
6 Pref. Shares Allottment Letters 4 40 41-42 43-44 45 46 47 48-49 50-51 58
Details of Money received
7 4 60-61 62-63 64-65 66-68 69-70 71-72 73-75 76-77 85-86
giving complete bank details
8 Round (1)
105- 385-
2 53-78 137-166 209-231 267-291 292-321 443-470 NA
9 Order Passed u/s. 153A/C 136 411A
503-
2 471-502 538-568 569-601 602-635 636-668 669-706 707-739 NA
10 order of the CIT (A) 537
242
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
760-
2 760-839 760-839 740-759 760-839 840-852 760-839 760-839 NA
11 Order of ITAT 839
12 Round (2)
Order Passed u/s. 143(3) 999- 1011- 1062- 1104-
2 NA NA 914-927 957-969 NA
13 r.w.s147 1010 1022 1075 1117
1512- 1705- 1920- 2134- 2339- 2549-
2 NA NA NA
14 order of the CIT (A) 1704 1919 2133 2338 2548 2765
5.20. For this Assessment Year also, the submissions of the assessee are that the identity, genuineness and capacity of the all the nine parties giving the complete information about the transactions, the burden is discharged by the assessee.
Once the parties who are regularly assessed to tax have confirmed the transactions and have recorded the said transactions in their regular books of accounts and the department has assessed the said parties, no further obligation is left to be discharged by the assessee. In support of this proposition the assessee relies upon various decisions which we have mentioned in earlier paras of this order and are not being repeated. It was pleaded that The ratio of these decisions clearly support the proposition made by the assessee that having discharged the obligation and producing all the necessary evidences required to support the receipt of the amount no addition can be made in the hands of the assessee for A.Y. 2009-10.
243M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 5.21. Having established the identity and genuineness of the transaction and the supporting evidences the source of the funds is explained. It is an accepted proposition of law that the assessee cannot be asked to prove the source of the source of the funds. For this proposition, reliance can be placed upon the decision of the Hon'ble Bombay High Court in the case of Principal CIT vs Vidhatha Towers Pvt. Ltd. ITA No. 819 of 2015 decided on 17/4/2018. The Hon'ble High Court has held that during the A.Y. 2010-11 the assessee was not required to explain the source of the source of the funds. Without prejudice to the submission that the assessee is not required to prove the source of the source of the funds for A.Y. 2009- 10, the assessee has also proved the source of the source of the funds in the hands of all the nine entities. Reference is made to the table below where the details of all the nine parties which received share application money from various corporate bodies have been reflected. These are summarized as under:-
Party-wise details of Share Application money received by nine companies in A.Y. 2009-10 Amount (in Rs.) ARCHIVE AUSTER CIKURA JOGIA KARBURI PRASOON VEDISA SR. NAME OF THE MARTAND REVA PROP.
PAN NO. REALTY PROP. PROP. PROP. PROP. PROP. PROP. TOTAL
NO. COMPANY PROP. LTD.
DEV. LTD. LTD. LTD. LTD. LTD. LTD. LTD.
LTD.
ALEMBIC
1
SECURITIES AAMCA3748G 0 20000000 0 0 0 0 0 0 0 20000000
244
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
PVT.LTD
ALPHA CHEMIE
TRADE
2
AGENCIES PVT
AADCA9890L 0 79000000 0 0 0 0 0 0 0 79000000
LTD
ARTILEGENCE
BIO-
3
INNOVATIONS
AAACI7359F 20000000 5000000 15000000 0 0 25000000 0 5000000 17500000 87500000
LTD
BAY INLAND
4 FINANCE AABCB9510A 10000000 0 15000000 0 0 10000000 0 13500000 2500000 51000000
PVT.LTD.
BHASKAR FUND
5 MANAGEMENT AABCB3120E 0 0 20000000 0 0 20000000 0 0 10000000 50000000
PVT. LTD.
CLIFTON
PEARSON
6
EXPORT &
AACCC0049A 10000000 10000000 10000000 0 12300000 40000000 0 0 0 82300000
AGENCIES LTD.
CLIFTON
7 SECURITIES PVT AAACC5995P 0 10000000 20000000 0 0 5000000 0 10000000 4500000 49500000
LTD
DELTON EXIM
8
PVT. LTD.
AABCD6200F 0 10000000 0 0 20000000 0 5000000 10000000 45000000
DOLDRUM
INVESTMENT
9
AND FINANCE
AACCD5604L 21000000 31000000 37500000 0 0 7500000 0 27500000 8500000 133000000
PVT.LTD.
GANGA BUILDER
10
LTD
AAACG9808K 0 0 0 0 0 10000000 0 0 0 10000000
GATEWAY
11 COMPUTERS AABCG7845F 0 0 10000000 0 0 0 5000000 9500000 24500000
PVT. LTD.
GROMORE FUND
12 MANAGEMENT AAACG9919K 0 5500000 10000000 0 0 10000000 0 0 0 25500000
CO. PVT. LTD.
GYNESHWAR
TRADING &
13
FINANCE
AACCG7998L 10000000 5000000 21500000 0 0 5000000 0 22500000 22000000 86000000
PVT.LTD
HINGORA
14 FINVEST PVT AAACH6694N 0 12500000 17500000 0 0 0 0 0 30000000
LTD
ISPAT SHEETS
15
LTD.
AAACI4429E 20000000 20000000 35000000 0 0 30000000 0 17500000 2000000 124500000
MACROSOFT
16 TECHNOLOGY AAECM2069A 0 5000000 10000000 0 0 0 0 0 15000000
PVT LTD
MIHIR
17 AGENCIES PVT. AABCH7898H 0 15000000 0 25000000 15000000 0 0 0 55000000
LTD.
NEWOUTLOOK
18 SECURUITES AABCN6529M 5000000 7500000 12000000 0 5000000 0 5000000 3500000 38000000
LTD
NICCO
19 SECURITIES PVT AABCN1737D 10000000 10000000 15000000 0 5000000 0 5000000 3500000 48500000
LTD
NOVELTY
20
TRADERS LTD
AABCN8817E 10000000 20000000 38000000 0 10000000 15000000 0 29000000 5000000 127000000
OLYMPUS
21
VISION PVT.LTD
AAACO3898H 0 10500000 20000000 0 0 0 0 0 0 30500000
OSHIN
INVESTMENT &
22
FINANCE PVT
AAACO9051G 24000000 21000000 37500000 0 10000000 22500000 0 12500000 9000000 136500000
LTD
PAREKH ESTATE
23 & PROPERTIES AAACP4173A 0 5000000 0 0 32500000 0 66500000 0 0 104000000
PVT.LTD
PENTIUM HI
24
TECH PVT LTD
AACCP0374P 0 0 10000000 0 0 0 0 0 0 10000000
RADHA GOPAL
25 SALES AGENIES AAACR0658N 0 16000000 0 0 26100000 0 0 0 0 42100000
PVT.LTD.
SEATRANS DAN
26 SHIPPING AACCS0822K 0 15000000 5000000 35000000 4500000 0 0 0 0 59500000
PVT.LTD
SHAKTI ISPAT
27 PRODUCTS AAGCS8347D 15000000 0 10000000 0 0 0 0 18500000 43500000
PVT.LTD.
ARJIT
28 SECURITIES PVT AABCS4462Q 0 5000000 17500000 47000000 0 0 0 0 0 69500000
LTD
SHIVLAXMI
29
EXPORTS LTD.
AADCS6058E 0 0 0 0 20000000 0 0 3500000 23500000
SIDH HOUSING
30 DEVELOPMENT AAKCS6606H 12500000 4000000 17500000 0 5000000 0 10000000 28000000 77000000
CO LTD.
STOCKNET
31 INTERNATIONAL AAECS8494F 15000000 9000000 17500000 0 25000000 0 5000000 12500000 84000000
LTD
SUPER FINANCE
32
LTD AAGCS7188C 5000000 0 0 0 20000000 0 10000000 2500000 37500000
TALENT
33
INFOWAY LTD.
AACCT9444L 0 0 0 14000000 0 0 0 0 0 14000000
245
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
TERRY TOWEL
34 INDUSTRIES AACCT2642J 0 59000000 3500000 62500000 45600000 0 23700000 0 0 194300000
LTD.
WILCO FINEXIM
35 PRIVATE AAACW4586E 0 0 0 0 5000000 0 0 5000000 5000000 15000000
LIMITED
YAMROOSH
36 INVESTMENT AAACY1193P 0 10000000 0 4000000 21500000 0 33300000 0 0 68800000
PVT.LTD.
Total 187500000 410000000 435000000 187500000 187500000 295000000 123500000 187500000 177500000 2191000000
5.22. It is further noted that in the assessment
proceedings u/s. 143(3) rws 153C the department has accepted the source of the funds in the hands of eights companies. Wherever the Assessing Officer did not accept the source of the funds in the hands of the companies the Ld. Commissioner of Income Tax (Appeal) deleted the addition and on the 2nd appeal filed by the department the Hon'ble Tribunal confirmed the orders of the CIT(A). This clearly proves that all the companies had their independent source of funds which is also proved and established by each one of them in their own independent proceedings before the department. The Ld. Commissioner of Income Tax (Appeal) while deleting the additions made by the Learned AO, the lead case of Reva Properties Ltd. has categorically held in para 4.11 that "it is also pertinent to mention that during the appellate proceedings the case was discussed with the AO and the Addl. CIT, Central Range- 8, Shri R. M. Tiwari. During the discussion, I have 246 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 asked the addl. CIT to explain whether any investigation regarding the bank details have been made in this case. The Addl. CIT has fairly admitted that complete bank enquires were made in case of all investing companies on the basis of details submitted by the assessee upto third down layer but nowhere it was found that cash was deposited in any account before issuing the cheques for investments made in the purchase of shares of the assessee company. He has further stated that since no adverse finding was recorded during the bank account investigation, therefore it was not mentioned in the assessment order". The Tribunal also confirmed the deletion of the addition by the Ld. Commissioner of Income Tax (Appeal) and has categorically observed that "once the assessee has given the complete details and information of the investors who have made investments in the share capital of the company and proved the identity then no addition can be made in the hands of the assessee company in respect of such investments". This fact clearly proves that even in the hands of nine companies the source of the funds is explained meaning thereby the assessee has not only explained the 247 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 source of the funds being the amount received from nine companies but also has proved the source of the source in the hands of the said nine companies also.
5.23. In the hands of assessee in the earlier proceedings the amount received from all the nine parties is accepted and no additions were made. The tribunal while deleting the penalty levied u/s 271(1)(c) in the hands of Lloyd Steel Industries has given finding which is reproduced in earlier paras and the facts being the same for AY 2009-10, the same will be applicable to the present Assessment Year also.
5.24. It is noteworthy that in the case of Jogia Properties Ltd., the addition made by the ld. Assessing Officer were deleted by the First Appellate Authority against which the Revenue carried the matter in appeal before the Tribunal, there also, the Tribunal, vide order dated 18/12/2015, (ITA No.6106 & 6107/Mum/2012), (pages 740 to 759 of paper book No.2), wherein, the Tribunal examined the factual matrix and upheld the order of the First Appellate Authority by dismissing the appeals of the Revenue. The relevant portion 248 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 of this order is reproduced hereunder for ready reference and analysis:-
"The above titled appeals have been preferred by the Revenue against the common order dated 27.07.2012 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to AY 2008-09 and AY 2009-10. As the facts and issues involved in both the appeals are similar and the impugned order of the Ld. CIT(A) is also common in both the appeals, hence the same are taken together for disposal with this common order.
2. The brief facts of the case as drawn out from the impugned order and the available record on the file are that a search and seizure operation was carried out u/s. 132 of the I.T. Act at the business premises of assessee on 04.03.2010 situated at 208, Ashirwad Building, Ahmedabad Street, Carnac Bunder, Mumbai. During the course of search it was found that assessee had been maintaining its books of accounts at another premises situated at 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bunder, Mumbai - 400 009. Therefore, the said premise was covered for survey action u/s. 133A of the I.T. Act. During the survey action, it was revealed that seven other companies have also been operating from the said premise Bhatia Niwas. It revealed that the assessee and all the above stated seven companies were engaged in investment activities and have made investments in equity shares of various companies including one M/s. Shree Global Trade fin. Ltd. The investments were made out of the share capital of the company, which consisted of the share application money received from various other concerns. It was also revealed that there was one common director in some of the above stated seven companies e.g. Shri Ajay Kumar has been the director of M/s Jogia Properties Pvt. Ltd., M/s Auster Properties Pvt. Ltd. and M/s Reva Properties Pvt. Ltd. Similarly Shri Om Hari Halan has been a director in M/s Archive Realty Developers Pvt. Ltd. and M/s. Vedisa Properties Pvt. Ltd.; Similarly Sh. Narayan Hari Halan was director in M/s. Martand Properties Pvt. Ltd., M/s. Karburi Proprties Pvt. Ltd. and M/s. Cikura Properties Pvt. Ltd. Further, it was also revealed that all the above said Directors were closely related to each other. The case of the assessee was thus covered under section 153A and the other seven companies were covered u/s. 153C of the I.T. Act.
3. During the course of another separate survey action in the case of 'M/s. Shree Global trade fin. Ltd.' i.e. the company in which the assessee company had made investment, statement of one Shri Jose Mathew, Jt. General Manager in the said company 'M/s. Shree Global trade fin. Ltd.' was also recorded on 04.03.2010. In his 249 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 statement, he stated that the share application money received in the assessee company and other group companies have been obtained by paying cash in lieu of the cheques received as share capital. The said money received as share capital by the assessee company and other group companies was further invested in his company 'M/s Shree Global trade fin. Ltd.; This statement of Shri Jose Mathew was confronted to Shri Ajay Kumar, one of the Directors of the assessee company who in turn offered the amount received as share capital from the companies as mentioned in the assessment order as unexplained credits. Shri Jose Mathew and Sh. Ajay Kumar however, retracted from their statements latter on.
5. The Assessing Officer (hereinafter referred to as the AO) issued notice u/s. 153A to the assessee. In the return filed in response to the notice u/s 153A, the amount declared as undisclosed income in the statement of Shri Ajay Kumar, Director of the company during the search action had not been disclosed. The AO observed that all the above said 7 companies have been doing their business from the same place and that these concerns were also not well established companies. A total of ten companies (eight companies in AY 2008-09 & 2 companies in AY 2009-10), names of which have been mentioned in the assessment order, had subscribed to the shares of these companies including the assessee. The AO further noted that the above concerns were sister concerns and their nature and the modus operandi was same as that of the assessee company. The AO further observed that the search and seizure operation was also conducted on one Shri Mukesh Chokshi, who was operating many companies through which he was indulged in providing the bogus entries including long term capital gain, short term capital gain, losses, speculative losses and share application money etc. It was also observed that two companies of Mr. Mukesh Chokshi, i.e. M/s. Talent Infoway and M/s. Mihir Agencies have also made investment in AY 2009-10 for the purchase of shares in the M/s. Jogia Group of companies.
The AO observed that Shri Ajay Kumar, Director of the company had offered the amount received as share capital from above said companies as unexplained credits in AY. 2008-09 & AY 2009-10. Since the undisclosed income declared in the statement was not offered for taxation in the return filed, therefore, the AO gave a show cause notice to the assessee to submit complete details of share application money received and utilized. The AO also asked the assessee to submit the complete evidences to prove the identity, credit worthiness and genuineness of the transaction of the share holding companies. In response to the show cause notice, the Ld. AR of the assessee submitted its reply along with relevant details, confirmations and evidences etc.; The AO however was not satisfied with the reply of the assessee and noted certain discrepancies in the 250 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 evidences submitted by the assessee viz. the assessee had not provided share application form; No Board resolution was provided; Bank statements were not provided in some cases or that the directors of the company were not produced for cross examination. The AO thereafter discussed the issue of retraction of statement given by the Director of the company, Shri Ajay Kumar and observed that the statement recorded by the income-tax authorities u/s. 131 has evidentiary value even after its retraction and that the same can be used against the assessee. The AO further held that the documents filed relating to share application money were all result of an afterthought and the same cannot be relied or considered as supporting documentary evidences for receiving share application money and retracting the declaration made. In view of all these facts and circumstances, the AO held that the assessee had failed to prove the identity, credit worthiness and genuineness of the transaction of the above share holding companies, he therefore, treated the investment made by these companies amounting to Rs.12,80,00,000/- and Rs.3,90,00,000/- for the AYs. 2008-09 & 2009-10 respectively as undisclosed income of the assessee company u/s. 68 of the I.T. Act. Being aggrieved by the above additions, the assessee filed appeal before the CIT(A).
5. The Ld. CIT(A), after considering the submissions of the assessee and analyzing the facts and circumstances of the case, observed that 10 companies had subscribed the share application money in the assessee company. The papers relating to the identity, creditworthiness and genuineness of the transaction relating to these companies were submitted by the assessee to the AO. The AO had also made bank enquiry in this respect but no discrepancy or incriminating evidence was found. The Ld. CIT(A) further noted that no incriminating document relating to the share application money was found or seized during the course of search. Further in respect to the companies, M/s. Mihir Agencies P. Ltd. & M/s. Talent Infoway Ltd. in which one Mr. Mukesh Choksi has been a director, the Ld. CIT(A) observed that these companies had been registered with the registrar of companies. These companies had subscribed to the shares of the assessee company in AY 2009-10. The Ld. CIT(A) in this respect observed that during assessment proceedings, the Ld. AR of the assessee had submitted all the details relating to these companies. All the companies were having PAN and independently and regularly assessed to tax. Complete details of cheque number., date of cheque, bank a/c. share allotment letters giving detail of share certificate number, copy of bank account of the assessee was submitted before the AO. He further noted that the statement of Mr. Choksi was not recorded in the context of this case but was recorded in some other case. Mr. Choksi had given a general statement that he was giving accommodation entries to the companies against cash received from them. Nowhere in the statement, had he stated that 251 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 cash was received from the assessee company and cheque was issued against the cash as share application money. There was no mention in the said statement that transaction with the assessee company was not genuine. No incriminating document was found and seized during search operation to prove that cash was given against cheques received from these companies. Even independent enquiry made in respect of the bank accounts of these companies, the AO could not find any instance of cash deposit against issuing of cheques. The Ld. CIT(A) thereafter examined the applicability of section 68 of the Act to the set of facts of the case of the assessee and concluded that for the establishment of identity, each company was having PAN and regularly assessed to tax; For creditworthiness, each company had independent bank account and details were submitted to the AO; For genuineness of transaction, all payments were made through account payee cheques duly reflected in the bank of each company and the assessee company's bank account. Therefore, all the conditions, i.e. identity, creditworthiness and genuineness of transaction were fulfilled. Thus reliance cannot be placed on a general statement of Mr. Choksi alone which was not corroborated by any documentary evidence. He therefore held that in totality of facts & circumstances, the case was covered by the decision of Hon'ble Supreme Court in case of Lovely Exports Pvt. Ltd.[216 CTR 195 (SC)].He therefore deleted the additions so made by the Assessing Officer u/s. 68 of the Act.
Being aggrieved by the above deletion of the additions made by the AO, the Revenue has thus come in appeal before us.
6. We have heard the rival contentions of the Ld. Representatives of the parties at length and have also gone through the record. The contention of the Ld. DR has been that during the search action, Sh Ajay kumar, one of the directors of the company had admitted that the money received as share application money was unexplained income of the assessee and he had offered it for taxation. He therefore has contended that subsequent retraction is nothing but an afterthought of the assessee. The Ld. DR has further contended that Sh. Mukesh Chokshi was a hawala dealer, hence the share application money received by the assessee was the result of a bogus transaction. The Ld. DR in this respect has relied upon the decision of the co-ordinate bench of the Tribunal in the case of "Gold Star Finvest (p) Ltd."[2013] 33 Taxmann.com 129. The Ld. DR has also referred to the decisions of the Tribunal in the case of "M/s. Richmand Securities Pvt. Ltd." in ITA No.4624/Mum/2005 dated 29.8.2008 and further in the case "M/s. Mihir Agencies Pvt. Ltd." in ITA No.4912/Mum/2005 dated 30.5.2008 wherein the decision in the case of "M/s Gold Star Finvest (P) Ltd" has been followed.
7. The Ld. A.R. on the other hand has relied upon the documents produced before the lower authorities and has reiterated the 252 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 submissions as were made before the lower authorities. Inviting our attention to the case record relating to AY 2008-09, the Ld. AR has pointed out that none of the companies who had invested in the assessee company in the AY 2008-09 belonged to Sh. Mukesh Chokshi. He has further invited our attention to the various documents filed in the paper book to contend that the assessee had submitted all the required details such as balance sheet, return filed giving the full particulars about the company, the confirmations from the investing companies regarding the investments made in the share capital of the assessee company, certificate from the auditors to the effect that the said company was assessed to tax and that the investment was duly reflected in their regular books of accounts. The details of allotment of shares, the complete details giving cheque number, name of the bank, date, amount, address, PAN Number, ROC Number etc. in respect of each of the eight companies from whom the assessee had received the share application money in the AY 2008-09 was filed. The details of the notice issued by the assessee company for holding the meetings of the shareholders and the proof of dispatch of the notice to the shareholder were also submitted. The Ld. AR has further submitted that even in respect the 2 companies which belonged to Sh. Mukesh Chokshi, who had invested in the assessee company in the AY 2009-10, the assessee had submitted all the requisite details such as the name, address, PAN number, Registration number with Registrar of Companies, details of the bank account, details of shares allotted, intimation to ROC about issue of shares, issue of notices by the assessee company for holding, the meetings of the shareholders and proof of dispatch of notice to the shareholder.
8. He has further contended that there was nothing incriminating found either during the search action or otherwise on the record warranting such additions in the case of assessee. The Ld. AR has further invited our attention to the written submissions filed before the Ld. CIT(A), wherein, each of the objections raised by the AO in respect of the evidences submitted in relation to each of the eight companies was duly replied and dealt with. It has been explained that the assessee had provided the complete details of the share application money received together with confirmations and that there was no statutory obligation to obtain the application form from the investor. The investor companies had given a ledger account confirmations. Complete details about the bank account giving cheque number, date, name of bank was submitted. The Ledger Account confirmation in the books of Investor company was also submitted. The board resolution was not available with assessee as the assessee has got no legal right to ask for copy of board resolution when complete information about the investments made was available. The evidence relating to the net worth of the investing companies was also submitted.253
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 The Ld. DR on the other hand, though, has fairly admitted that no direct incriminating material against the assessee was found during the search action, he, however, has contended that it is a case of circumstantial evidence which is corroborated with the admission of one of the directors of the assessee company.
At this stage the Ld. AR has pointed to the question No. 15 in the statement of Sh. Ajay Kumar, Director of the company, wherein it was pointed out to him that one Mr. Jose Mathews had on 4.3.2010, during the course of survey in the case of Shree Global Trade fin. Ltd., had stated that the share application received in case of the assessee from certain companies had been obtained by paying cash. In reply to question No. 15, it has been stated by the said Sh. Ajay Kumar that the statement given by Mr. Jose Mathews was not true. He was not aware about the business activity of the assessee company. The Ld. AR has further stated that Mr. Jose Mathews had nothing to do with the business activity of the assessee company. Mr. Jose Mathews also had retracted the statement which was recorded during the course of survey u/s. 133A and the necessary proof and evidence for the same was also produced before the AO. The AO had also thereafter not issued any notice to Mr. Jose Mathews. The Ld. AR therefore has submitted that no reliance can be placed in the statement of Mr. Jose Mathews.
9. We have considered the above submissions of the Ld. AR of the assessee. We have also gone through the statement of Sh. Ajay Kumar Halan, recorded under section 131 of the Act. The relevant part of his statement for the purpose of proper analysis is reproduced as under:254
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 255 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 We find force in the above submissions of the Ld. AR. of the assessee. Mr. Jose Mathews was the employee of Shree Global Trade fin. Ltd. and not of the assessee company neither of the alleged seven Group companies of the assessee. The said Mr. Jose Mathews was even in no way related to the investing companies who made investments in the assessee company, the transactions relating to which have been treated bogus by the AO. When the said person was neither the employee of the assessee company nor was in any way related to the investing companies, his statement in the circumstances could not be said to have any evidentiary value. Mr. Jose Mathews was the employee of the company in which the assessee had made the investments, which was a totally different transaction. He was not in any manner connected to the transactions in question before us. As regards the statement of Shri Ajay Kumar Halan, the Ld. AR while inviting our attention to answer to question 256 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 No.3 of the statement has submitted that he was appointed as the director on 15.2.2010 only. That he was not the director in the previous year relevant to A.Y. 2009-10. He was also not the Director during the previous year from 1.4.2009 to 15.2.2010, during the time when the transaction had taken place.
He was not the employee of the assessee company nor was any way connected with the business of the assessee prior to 15.2.2010. He has further pointed out that there was no direct admission of Sh. Ajay Kumar about any unexplained income. He has demonstrated that he was given an impression that in view of the statement of Sh. Mukesh Chokshi and Sh. Mr. Jose Mathews in some other search or survey actions, it was established that the assessee had received unexplained investment, in response to which he stated that he has come to know about these facts then only as revealed by the department and taking into consideration the fact and circumstances as were before him when these question were put to him, he agreed to offer the amount as unexplained income of the company. In view of this the Ld. AR has submitted that no reliance can be placed on the statement of Sh. Ajay Kumar who was neither in any way connected with the activities of the company when the transaction took place nor his admission was based on his personal knowledge, rather he agreed to admit the additions on the basis of facts presented to him i.e. the alleged unreliable statements of Mukesh Chokshi and Mr. Jose Mathews.
10. The Ld. AR has further explained that during the assessment proceedings, the assessee vide different letters including letter dated November 30, 2011 had explained to the Assessing Officer all the above facts and that the disclosure was made solely on the basis of information provided to him by the investigation wing and purely on the mistaken belief that the transaction of share investments by nine companies could not be explained. However subsequently he gathered the information, the papers, the documents, the confirmations, bank statements, balance sheets and other records of all the nine companies. Based on the information and documents he found that all the nine companies were genuine and they had invested in the share capital of the assessee company. No confessional statement was given by any of the nine shareholding company before the Investigation Wing.
11. We find force in this contention also of the Ld. AR. A perusal of the statement of Sh. Ajay Kumar, recorded under section 131 of the Act, as reproduced above, reveals that the acceptance or offer of the unexplained income was not based on his own knowledge or admission of facts but on the basis of facts and statements presented by the revenue before him. He has never admitted that the transactions were not genuine or the same were bogus. In answer to question No.13 put to him, he has stated to the investigation wing that he did not know Mr. Mukesh Choksi, neither he was aware of his group concerns. The shares were allotted to M/s. Talent Infoways and M/s Mihir Agencies in due course after duly complying with all the legal provisions. Similarly in the case of other companies as is revealed from the answer to question No.15, that owing to the facts mentioned by the investigation wing and the facts and circumstances which were available to him on that date, he had agreed to disclose the share application money received as unexplained. The Ld. AR has duly brought on the file that he was not connected to the company 257 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 when the transactions took place. Under such circumstances, in the absence of any corroborating evidence and solely on the basis of retracted statement of the said Sh. Ajay Kumar, a perusal of which reveals that the same was not based on his own knowledge of the relevant facts/transaction in question, additions made by the AO cannot be held to be justified in any manner.
The Ld. AR has further brought our attention in this respect to the Instructions issued by CBDT bearing No.F.No.286/2/2003-IT (Inv.II) dated 10/3/2003 wherein it has been stated that during the course of search / survey, no attempt should be made to obtain the confession as to the undisclosed income. Any action on the contrary shall be reviewed adversely. CBDT has also referred to the fact that if the confession statements are taken which are not based on credible evidence then later they are retracted. In the present case also, not a single incriminating material was found during the search action. The addition is made purely on the basis of declaration made by Sh Ajay Kumar, Director. The Ld. AR has relied upon the following decisions in this respect.
(a) DCIT vs Pramukh Builders ITA No. 2170/Ahd./1999 A.Y. 1994- 95 dated 6.7.2007 Reported in 115TTJ p. 330 (Third Member)
(b) CIT vs. K. Bhuvanendra and Others 303 ITR p. 235 (Madras High Court)
(c) S. Khader Khan Son Reported in 300 ITR p. 157 (Madras High Court)
(d) Oriental Containers Ltd. vs. ACIT (2010) 6 Taxmann.com 121 (Mum).
(e) Prem Sons ITA No.4698/MUM/2006 AY 2003-04 dt. 15/1/2009
(f) KalashbenManharlalChokshi 174 Taxmann pg.466 (Guj.High Court)
(g) Rajesh Jain ITA No.SSA No.203/Del/2003 reported in 100 TTJ 929
12. We have gone through the above case laws relied upon by the Ld. AR. We find that in the above mentioned Judicial decisions, the various courts of law have been almost unanimous in holding that though the admission is an important piece of evidence but it can not be said that it is conclusive; it is open to the person who made the admission to show that it is incorrect and that merely on the basis of statement recorded during the search under mistaken belief and which has been retracted subsequently and without there being any corroborative evidence or incriminating material found, no addition can be made.
As regards the statement of Mr. Mukesh Choksi relied upon by the revenue, the Ld. AR has submitted that he had never stated that assessee had given any cash to him or any accommodation entry was provided by him to the assessee. No name of the assessee figured in his statement recorded in any other case. During the course of survey/search on assessee also, not a single evidence was found to suggest that cash was 258 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 given to Mr. Mukesh Choksi and accommodation entries were taken. The ld. AR has relied upon the decisions of the Hon'ble Bombay High Court as well as various decisions of the Mumbai Tribunal wherein it has been held that no reliance can be placed on the statement of Mr. Mukesh Choksi when the assessee has independently established the genuineness of the transaction.
The Ld. AR has further relied upon the following decisions wherein it has been held that once the assessee submits the basic information about the investor company and substantiates the same no addition can be made by invoking the provisions of Section 68 of the Income Tax Act, 1961.
a) Lovely Exports Pvt. Ltd. - 299 ITR (Delhi High Court) page 268 and SLP rejected by the Supreme Court in 319 ITR (statute page 5).
b) CIT vs Creative World Telefilms Limited 333 ITR p. 100 (Bombay High Court)
c) ACIT vs. VenketeshwarIspat (P) Ltd. (Chhatisgarh High Court) (2010) 41 DTR - 350
d) CIT vsGangour Investments Ltd. (2009) 18 DTR (Delhi) - 242
e) CIT vs STL Extrusion Pvt. Ltd. (2011) 333 ITR - p. 269 (MP High Court)
f) CIT vs. G.P. International Limited (2010) 325 ITR p. 25 (P&H)
g) CIT vs. Siri Ram Syal Hydro Power Pvt. Ltd. 196 Taxman p. 444 (Delhi High Court)
h) CIT vs HLT Finance Pvt. Ltd. (2011) 201 Taxman p. 28 (Delhi High Court)
13. On the other hand the Ld. DR has relied upon one decision of Mumbai ITAT in the case of Gold Star Finvest Pvt. Ltd. (supra) wherein while determining the income of that assessee, the Tribunal has estimated the income at certain percentage. The Ld. AR has however submitted that the ratio of this decision cannot overrule the decisions of Bombay High Court and several Mumbai ITAT decisions as relied upon by him. He has further relied upon the following decisions wherein the additions made by the AO on the basis of general statement of Mukesh Chokshi have ultimately been deleted by the higher authorities.
1. Kataria Ketan Ishwarlal Vs. ITO - ITA No.4304/M/2007 decided on 30.04.2010.
2. ACIT Vs. Shri Ravindrakumar Toshniwal - ITA No.5302/M/2008 decided on 24.02.2010
3. ITO Vs. Truptic Shah - ITA No.1442/M/2010 decided on 29.04.2011
4. Smt. Manjulaben L. Shah Vs. ITO - ITA No.3112/M/2014 decided on 31.10.2014
5. M/s SDB Estate private ltd. vs. ITO ITA No. 584/M/2015 decided on 15.04.2015
6. M/s. Yamuna Estate Pvt. Ltd. vs. ITO ITA No.2672/M/2012 decided on 09.09.2015 259 M/s Shree Global Tradefin Ltd.
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7. CIT vs. Rajni Devi A. Choudhry (Bom. HC) ITA NO. 1333of 2008 decided on 27.4.2009
8. "Shri Mukesh R. Marolia vs. Additional CIT" (2006) 6 SOT 247 (Mum)
9. "CIT vs. Shri Mukesh R. Marolia" in ITA No.456 of 2007 decided on 07.09.2011 (Bom HC)
10. SLP No.20146/2012 styled as "CIT vs. Shri Mukesh R. Marolia vide order dated 27.01.14 (SC)
11. "CIT vs. M/s. Kesar A. Gada in ITA No.300 of 2013 decided on 21.01.15(Bom. HC)
12. "CIT vs. Kasturben H. Gada" in ITA No.299 of 2013 decided on 21.01.15.(Bom HC)
13. CIT vs. M/s Sharda Credit Pvt. Ltd. ITA NO. 3090 of 2009 decided on 12.9.2011(Bom. HC)
14. We have perused the case laws relied upon by the Ld. Representatives of the parties. In our view, each case has to be decided on its own facts. Merely because, in the case of one company Gold Star Finvest Pvt. Ltd. run by Mukesh Chokshi, the income has been determined on percentage/commission basis treating the said company as accommodation entry provider, that itself cannot hold a justification to completely ignore the facts and evidences brought on the file by the assessee. The case of the assessee has to be adjudged on the basis of its own set of facts and evidences. Moreover the facts and circumstances of the case of the assessee are squarely covered by the various decisions of the Hon'ble Jurisdictional High Court Of Bombay. We further find that the issue, relating to the investments made by the companies relating to the said Mr. Mukesh Chokshi in some other cases, has travelled up to the level of Hon'ble Supreme Court. In the case of "Shri Mukesh R. Marolia vs. Additional CIT" (2006) 6 SOT 247 (Mum), the assessee had made share transaction through the companies M/s. Richmond Securities Pvt. Ltd. and M/s. Scorpio Management. Mr. Mukesh Chokshi has been the director of M/s. Richmond Securities Pvt. Ltd. The Tribunal, after considering the overall facts and circumstances of the case, observed inter-alia that on the basis of evidence available and there being no incriminating material found during the search action, observed that the assessment has to be completed on the basis of records and material available before the Assessing Authority. The personal knowledge and excitement on events should not lead the AO to a state of affairs where salient evidences are overlooked. Where every transaction of the assessee has been accounted, documented and supported in such an event, even though, the amount invested by the assessee has grown into a very sizeable amount which looks quite amazing, the evidence produced by the assessee cannot be brushed aside. The Tribunal under such circumstances deleted the addition. The Revenue took the matter to the Hon'ble Bombay High Court. The Hon'ble Bombay High Court, while adjudicating the above issue in the case styled as "CIT vs. Shri Mukesh R. Marolia" in ITA No.456 of 2007 decided on 07.09.2011, observed that though there was 260 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 some discrepancy in the statement of director (Mr. Mukesh Chokshi) of M/s. Richmond Securities Pvt. Ltd. regarding the sale transaction, but owing to the factual finding given by the Tribunal on the basis of evidences furnished by the assessee, the decision of the Tribunal cannot be faulted. The Hon'ble Bombay High Court upheld the finding of the Tribunal holding the sale transactions as genuine.
The Department preferred appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court dismissed the SLP No.20146/2012 styled as "CIT vs. Shri Mukesh R. Marolia vide order dated 27.01.14.
Similarly in the case of "CIT vs. M/s. Kesar A. Gada in ITA No.300 of 2013 decided on 21.01.15 wherein the AO, while making the additions under section 68 of the Act, had relied upon the statement of Mr. Mukesh Chokshi that he had given various accommodation entries to various parties. The Hon'ble Bombay High Court observed that where the assessee had brought the relevant evidences regarding the genuineness of transaction and that in his statement Mr. Mukesh Chokshi had not mentioned the name of the respondent/assessee as one to whom accommodation entries were given, the Hon'ble Bombay High Court upheld the findings of the Ld. CIT(A) which were further confirmed by the Tribunal holding that the transactions were genuine and the additions under section 68 of the Act were not warranted. Similar findings have been given by the Hon'ble Bombay High Court in the case of "CIT vs. Kasturben H. Gada" in ITA No.299 of 2013 decided on 21.01.15. In CIT vs. M/s Sharda Credit Pvt. Ltd. (supra), the Hon'ble High Court has dismissed the appeal of the revenue on identical facts. The Hon'ble Bombay High Court while upholding the order of the Tribunal in the above stated appeals has also relied upon the decision of the Hon'ble Bombay High Court in the case of "Shri Mukesh R. Marolia" (supra). Even in the case of "Smt Rajni S Chowdhry" (supra), the Hon'ble Bombay High Court has upheld the decision of the Tribunal given on the basis of appreciation of evidence and factual finding, accepting the transaction carried carries through broker M/s Gold Star Finvest (P) ltd. as genuine.
15. We further find that the issue is squarely covered by the various decisions of the Tribunal on the basis of same facts. Recently the Tribunal, in the case of "ITO vs. Superline Construction Pvt. Ltd. & Others" in ITA No.3645/M/2014 & Others vide common order dated 30.11.2015 in identical facts and circumstances while dealing with the issue of making investments by way of share application money invested by the same companies as in the case of an assessee i.e. M/s. Talent Infoways and M/s. Mihir Agencies, has upheld the findings of the Ld. CIT(A) deleting the additions.
The other case laws relied upon by the Ld. DR are thus not applicable to the case of the assessee in the light of the direct decision of the Jurisdictional High Court on the identical facts which holds a binding precedent on this Tribunal. Even otherwise there is no evidence on record 261 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 that the assessee had given its own money to the investing company for the purpose of making investments. It may be observed that the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. referred above has clearly laid down the law that once the assessee has given the complete details and the information of the investors who have made investments in the share capital of the company and proved identify then no addition can be made in the hands of the assessee company and in respect of such investments the department should proceed against the individual investor. In the case in hand also, the requisite details, proof, confirmation, evidences etc. are produced. The ratio of the decision of the Hon'ble Supreme Court is directly applicable on the facts of the case.
In view of the above discussion of the matter, we do not find any infirmity in the factual finding given by the CIT(A) after duly appreciation of evidence on the file and the same is accordingly upheld.
16. In the result, the above captioned appeals of the Revenue are hereby dismissed."
6. It is further noted that similarly, in the cases of other companies namely Archieves Realty Developers Ltd., Auster Properties Ltd., Cikura Properties Ltd., Karbury Properties ltd., Rewa Properties Ltd, Vedisa Properties Ltd.
(760 to 839 of paper book No.2), also the additions made by the Ld. Assessing Officer were deleted by the Ld. Commissioner of Income Tax (Appeal) and thereafter the Revenue carried the matter in appeal before the Tribunal and assessee filed cross objections. The Tribunal examined the factual matrix and thereafter vide order dated 18/11/2016 (ITA No.6104 & 6105/Mum/2012), the Tribunal examined the 262 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 facts and decided in favour of the assessee. The relevant portion of the aforesaid order is reproduced hereunder:
"These are the appeals filed by the revenue and cross objections by the assessee against the order of CIT(A), Mumbai, for the assessment years 2008-09 & 2009-2010, in the matter of order passed u/s.143(3) r.w.s. 153C of I.T.Act.
2. As the issues involved in all the appeals as well as cross objections are same, therefore, all the appeals and cross objections were heard together and are being disposed off by this common order.
For the sake of convenience, the grounds raised in ITA No.6104/Mum/2012 as well as grounds raised in Cross Objection No.259/Mum/2014 are reproduced hereunder :-
Grounds raised by revenue in ITA No.6104/Mum/2012 are as under :-
1. Whether on facts and in the circumstances of the case and in law.
The Ld.CIT(A) is justified in allowing the addition made of Rs.3,00,00,000/- u/s.68 on account of unexplained investment in share capital of various companies. Without appreciating the fact that the assessment order framed after due verification.
2. Whether on facts and in the circumstances of the case and in law,. The Ld.CIT(A) is justified in allowing the addition made of Rs.2,00,00,000/- u/s.68 on account of unexplained investment as share application money from Delton Exim P.Ltd. without appreciating the fact that the assessment order was framed after due verification.
Grounds raised by assessee in ITA No.6104/Mum/2012 are as under :-
1. On the facts & circumstances of the case the Learned CIT has erred in concluding that the action of the Learned Assessing Officer in invoking the provisions of Section 153C is justified. The appellant prays that the condition of Section 153C is not satisfied and the Learned Assessing Officer has wrongly invoked the provisions of Section 153C.
2. The Respondent craves leave to add, alter or amend the grounds of appeal which are without prejudice to one other.
3. Rival contentions have been heard and record perused. Facts in brief are that search and seizure action u/s, 132 of the IT. Act was 263 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 conducted on 04.03.2010 at the business premises of M/s. Jogia Properties Ltd., at 208, Ashirwad Building, Ahmedabad Street, Carnac Bunder, Mumbai. During the course of search it was found that M/s. Jogia Properties Ltd. is maintaining its books of accounts at 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bundr, Mumbai - 400 009. Therefore, this premise was also covered u/s. 133A of the IT. Act wherein it was revealed that the following companies are operating from the said premises :
S.No. Name of the party
1. Auster Properties Pvt. Ltd.
2. Reva properties Pvt. Ltd.
3. Archive Realty Developers Pvt. Ltd.
4. Vedisa Properties Pvt. Ltd.
5. Martand Properties Pvt. Ltd.
6. Karburi Pronrties Pvt. Ltd.
7. Cikura Properties Pvt. Ltd.
4. All the above said companies were found to be engaged in investment activities and have made investments in equity shares of various companies. The investments are made out of the share capital of the company, which consists of the share application money received from various other concerns. During the course of search action on M/s. Jogia Properties Pvt. Ltd., it was revealed that the above mentioned group companies, which operates at the same address i.e., 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bundr, Mumbai - 400 009 also received share application money and are also investing In M/s. Shree Global Tradefin Ltd.
5. During the course of post search operation, it was revealed that the Director in one company is also the Directors in other company for eg., S. No. Name of the Director Name of the Company
1. Shri Ajay Kumar Joola Properties Pvt. Ltd.
2. Shri Ajay Kumar Auster Properties Pvt. Ltd.
3. Shri Ajay Kumar Reva Properties Pvt. Ltd.
4. Shri Om Hari Halan Archive Realty Developers Pvt. Ltd.
5. Shri Om Hari Halan Vedisa Properties Pvt. Ltd.
264M/s Shree Global Tradefin Ltd.
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6. Shri Narayan Hari Halan Martand Properties Pvt. Ltd.
7. Shri Naravan Hari Halan Karburi Proprties Pvt. Ltd.
8. Shri Narayan Hari Halan Cikura Properties Pvt. Ltd.
6. Further, it was also revealed that all the above said Directors are brothers and are from the same family. As all the above said 7 companies including the Jogia Properties Ltd., were doing their business from the same place, i.e. 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bundr, Mumbai - 400 009, the AO observed that all these concerns are not well established companies, which is also proved from the income & expenditure statement that no rent, electricity charges or any other expenditure is claimed which would show normal functioning of the concern.
Therefore, from these facts and the material found during the course of search / survey and post search proceedings it is concluded by AO that the above concerns are sister concerns and the nature and the modus operandi is same as that of the assessee company. Hence, as the warrant has been issued in this name of M/s. Jogia Properties Pvt. Ltd., this company is covered u/s. 153A and the above concerns are co-related to .each other the other group concerns (i.e., other 7 companies mentioned above including the assessee company) are covered u/s. 153C of the IT. Act. The AO further observed that a search action was conducted on one Shri Mukesh Chokshi who was operating many companies through which indulged in providing bogus entries including long term capital gain, short term capital gain, F&O losses, Speculative Losses, share application money, etc. The post survey / search proceedings in this case revealed that the Jogia Group companies have taken bogus share application money from Mukesh Chokshi's concerns viz., M/s.Talent Infoway, M/s.Mihir Agencies & M/s.Alpha Chemie Trade Agencies.
7. AO further stated that during the post search/survey operations in the case of M/s. Jogia Properties Pvt. Ltd., statement on oath u/s. 131(1) of the I TAct, 1961 of Shri Narayan Hari Halan, one director of the assessee company was recorded and in reply to question No.12, he has submitted as under:
Q,12. It is seen that your company has taken money against allotment of shares from the following other concerns also. The details of the same are as under:
Sl. Name of the company Share capital (Rs.)
No.
1 M/s Cliftons Securities Pvt. Ltd. 20000000
2 M/s New Outlook Securities Pvt. Ltd. 12000000
265
M/s Shree Global Tradefin Ltd.
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3 M/s Hingora Finvest Pvt. Ltd. 17500000
4 M/s Delton Exim Pvt. Ltd. 10000000
5 M/s Ispat Sheets Ltd. 35000000
6 M/s Growmore Fund Management Co. Ltd. 10000000
7 M/s Bhasker Fund Management Ltd. 20000000
8 M/s Shaqti Ispat products Pvt. Ltd. 10000000
9 M/s Gateway Computers Pvt. Ltd. 10000000
10 M/s Nicco Securities Pvt. Ltd. 15000000
11 M/s Oshin Investment & Finance Pvt. Ltd. 37500000
12 M/s Sidh Housing Development Co. Ltd. 17500000
13 M/s Gyaneshwar Trading & Finance Pvt. 21500000
Ltd.
14 M/s Doldrum Investment & Finance Pvt. 37500000
Ltd.
15 M/s Cliftons Peersons Export Pvt. Ltd. 10000000
16 M/s Micro Technology Pvt. Ltd. 10000000
17 M/s Olympus Vision Pvt. Ltd. 20000000
18 M/s Pentium Hitech Pvt. Ltd. 10000000
Total: 32,35,00,000
I am showing you the statement recorded from Shri Jose Mathew on 04-03-2010 during the course of survey in the premises of M/s. Shree Globle Tradefinn Ltd in which he has stated that the share application received in the above companies have been obtained by paying cash in lieu of the cheques received as share capital.
Ans. ... ... ... Out of the total 18 parties mentioned in your question, we have reviewed the records and the documents. I have consulted my other two directors also. However, owing to the above facts mentioned by you and the circumstances today, I am offering the sum of Rs. 13.15 Crores, received as share capital recorded in the books of accounts from following 5 parties as unexplained credits in A. Y. 2009-10:
Sl. Name of the company Share capital
No. (Rs.)
1 M/s Hingora Finvest Pvt. Ltd. 17500000
2 M/s Oshin Investment & Finance Pvt. Ltd. 37500000
3 M/s Sidh Housing Development Co. Ltd. 17500000
4 M/s Gyaneshwar Trading & Finance Pvt. Ltd. 21500000
5 M/s Doldrum Investment & Finance Pvt. Ltd. 37500000
Total: 13,15,00,000
8. In response to the AO's query, the assessee had filed various submissions in respect of return of income filed along with confirmations with various financial statements in respect of share application money and the share capital.266
M/s Shree Global Tradefin Ltd.
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9. In reply to the AO's query, the assessee, vide their letter dated 01-11-2011 has submitted as under:
1. All the six shareholding companies who have made investments in our company are independent existing corporate bodies. They are registered with Registrar of Companies. They are maintaining regular books of accounts. They have their own bank accounts. They have filed the return of income. They have filed a confirmation to the effect that they have made investments in the equity shares of the company from their bank account. They have submitted the full details of their bank account from which the said investments are made. They all are assessed to tax having PAN. Copies of their audited accounts is also submitted.
2. We submit that once the identity of the shareholder is established and their confirmation is filed which is supported with various papers, documents etc. then the burden is discharged by the company. The shareholders have also confirmed the said investments which further supports our claim that they have made the investments in the share capital of our company.
3. We further state that you have asked us to produce the directors of the above companies. We would like to place on record that we have discharged the burden by establishing the identity and genuineness of the shareholding company. We have filed before you their confirmations, the details of bank accounts, their balance sheets, proof of filing the return with ROC, their PAN etc. We do not have any authority or power to produce any director of all the above shareholding companies, who have made investments in share capital of our company.
19) subsequently, vide this office letter dated 11-11- 2011, the assessee company was again given a show cause letter to submit its detailed explanation.
10. In reply to the AO's query the assessee company vide their letter dated 30-11-2011 has submitted as under:
1. The correct status of our company is public limited company and the name of company is Cikura Properties Ltd.
The registered office of the said company till the date of search action on Jogia Properties Ltd. was 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bunder, Mumbai-400003. Please refer to original return of income filed for A.Y.2009-10 in which the said address is disclosed.
267M/s Shree Global Tradefin Ltd.
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2. A search action was undertaken on M/s. Jogia Properties Ltd. on 4/3/2010. No search action u/s 132 or survey action u/s 133 A is undertaken against our company. No summons were issued to us by the Investigation Wing in the search proceedings of Jogia Properties Ltd. We do not have any relationship with Jogia Properties Ltd.
3. We understand that the search proceedings started on 4/3/2010 continued in the case of Jogia Properties Ltd. and on 15/4/2010 the prohibitory order was lifted which was placed in the business premises of M/s. Jogia Properties Ltd. I was asked to be present at the premises of Jogia Properties Ltd. situated at 208, Ashirwad Building, Ahmedabad Street, Masjid Bunder, Mumbai - 400 009 to explain the papers belonging to the company found from the premises of Jogia Properties Ltd. Statement u/s. 132 was recorded by the Income tax officials. At that point of time I did not have all books of account or records of our company. I was informed that transaction of share application with the five parties viz. Oshin Investments & Finance Pvt. Ltd., Sidh Housing Development Co. Ltd., Gyaneshwar Trading & Finance Pvt. Ltd., Hingora Finvest Pvt. Ltd. and Doldrum Investment & Finance Pvt. Ltd. who are the shareholders of our company are not genuine. Reference was made to the statement of one Mr. Jose Mathew wherein he has stated that share application money is received by paying cash. I am not conversant with the provisions of Income Tax Act. I was not the director of the company during the financial year relevant to A.V. 2009-10. I did not have all the books of accounts or records. I had stated that Mr. Jose Mathew is not aware about the business activity of our company. The statement made by Mr. Jose Mathew is not true. No evidence was found that share application is received from five companies by paying cash in lieu of the cheques received. In this background and based on the information given to me by the officials of the Income tax department I had admitted that the investments made by five companies into the share capital of our company is not explainable and made a disclosure of income of Rs. 13,15,00,000/-. I state that the disclosure was made purely on mistaken belief that the transaction of share investments by five companies cannot be explained and the taxable income of the company will be to the extent of Rs. 13,15,00,000/- pertaining to A.Y. 2009-10 and 2010-11.
4. However subsequently I gathered the information, the papers, the documents, the confirmations, bank statements, balance sheets and other records of all the five companies. Based on the information and documents I had observed that all the five companies are genuine and they have invested in 268 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the share capital of the company. No confessional statement is given by any of the five shareholding company before the Investigation Wing Mumbai or anywhere else. The transactions of share investments by all the five companies can be explained. Therefore while filing the return of income for A.Y. 2009-10 and 2010-11 in response to the notice issued u/s 153 C, the company did not include the income of Rs. 13,15,00,000/-. The Non inclusion of the income obtained on 15/4/2010 may be treated as retraction of income. Please refer to letter dt.18/7/2011 submitted in your office on 22/7/2011 wherein also the fact of retraction has been mentioned. The real income as per the provisions of Income Tax Act, 1961 is only chargeable to tax. No evidence or documents was found to prove that we had paid cash and received share application. Mr. Jose Mathew is not a director or employee of our company. He is no way connected with our company. No reliance can be placed on statement of Mr. Jose Mathew.
5. I further state that all the five companies are independent existing corporate bodies. They are registered with Registrar of Companies. They are maintaining regular books of accounts. They have their own bank accounts. They have filed the return of income. They have filed a confirmation to the effect that they have made investments in the equity shares of the company from their bank account. They have submitted the details of their bank account from which the said investments are made. They all are assessed to tax having PAN.
6. I submit that once the identity of the shareholder is established and their confirmation is filed which is supported with various papers, documents etc. then the burden is discharged by the company. The shareholders have also confirmed the said investments which further supports our claim that they have made the investments in the share capital of our company.
7. I would further like to point out that there is nothing on record to suggest that our company has made the cash payments to all the five shareholders for the purpose of making investments into the share capital of the company.
8. All the five shareholding companies are not associates or group companies of our company. We do not have any other relationship with them except that they are shareholders of our company. We have not entered into any other transaction with them. None of the directors of our company is either the director or shareholder of all the five shareholding companies.
269M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 None of the directors of give shareholding companies are directors or shareholders of our company.
9. I submit that just on the basis of the statement recorded u/s 131 no amount can be brought to tax iA the absence of any other evidence or material.
10. In response to your questionnaire dated 5/5/2011, we have submitted before you the name and address of the shareholding company, the PAN No., the details of share application money received, issue of shares against share application, cheque No., name of the Bank, Branch and confirmation. We established the identity and credit worthiness of the companies who have made investments in the share capital of the company. We have submitted all the details called for in your questionnaire.
11. We have also proved before you that we have issued the shares to all the five shareholding companies. The details of distinctive number of shares, share certificate numbers and number of shares issued have been submitted to you. We had intimated the Registrar of Companies of issue of shares by filing the requisite forms. We had filed the annual return in which year after year their names are reflected as shareholders. All these events happened much prior to 4/3/2010 when the search action is taken against M/s. Jogia Properties Ltd.
12. As regards the transaction with M/s. Delton Exim Pvt. Ltd. we have produced before you their confirmation, details of bank account, their balance sheet, PAN and other relevant information. The said company is in existence and has filed the return of income upto 31/3/2011. They are carrying on their business from 48/A New Alipore, Block -C, Kolkatta - 700 053. With reference to your allegation that the notice issued to them was returned back with the remark 'Not Known' and the Inspector of Investigation Wing also failed to serve the notice. We are not in a position to make any comment on this aspect as we do not know as to in which period this particular event has happened. The said company is in existence at the above address and they are carrying on their business from the said premises. Without prejudice we submit that if for some reason the notices are not served or notices are returned back does not mean that our transaction with the said company is not genuine especially when we have submitted before you various documents and papers in support of the claim that they have invested into share capital of our company. We have discharged our burden by establishing the genuineness of the share capital.
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13. We further state that we have produced sufficient evidence in support of the claim that the shareholding companies have made investments in the share capital. Non production of the director should not be construed that the investments made by the shareholding company is not genuine.
14. We further state that there is no incriminatory documents or papers which are contrary to the facts submitted to you.
15. I would like to state that whatever is required to be produced in support of the share capital introduced by the five shareholding companies, we have submitted the same before you. All the five shareholding companies are in existence, having their separate independent identity and having their separate source of income. They have filed the confirmations for their shareholding in our company and also supported the same with the documents. In view of this we submit that the sum of Rs.13,15,00,000/- should not be added as income for A.V. 2009-10 and 2010-11.
16. We also submit that M/s. Delton Exim Pvt. Ltd. is a genuine independent corporate body which has invested Rs.1,00,00,000/- at the share capital in A.Y.2009-10 should not be added as income for A.Y.2009-10.
11. The AO considered the detailed reply of the assessee in the documents filed by him with regard to the share applicants, their bank account, PAN details etc., However, not being satisfied with these documents and the explanation given by the assessee, AO made addition on account of share capital u/s.68 of the IT Act.
Before the CIT(A), assessee challenged legality / validity of assessment framed u/s.153C and also merit of addition so made.
12. Addition made by the AO on account of share capital in the case of M/s. Reva Properties Ltd., Mumbai was deleted by CIT(A) after observing as under:-
I have considered the submissions of the appellant, order of the AO and facts of the case in brief are that a search and seizure operation was carried out in case of M/s. Jogia Properties Pvt. Ltd. Certain loose papers were found and seized relating to the 8 group companies including the assessee. During the course of search, a statement of Shri Jose Mathew, Jt. General Manager of the group company 271 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 was recorded who has submitted that the share capital received in these companies is collected through cheques from different companies against the cash given back to the share holders. In the post search enquiries, the statement of Shri Ajay Kumar, Director was also recorded u/s. 131 who has stated that Shri Jose Mathew is not aware about the business activity of the company. The statement made by Shri Jose Mathew is not correct because he was not an employee with these companies and was not aware about the share application money. But, Shri Ajay Kumar has declared this share application money as undisclosed income. However, in the return filed in response to notice u/s. 153A, this amount was not declared. Then, the AO issued show cause notice to the assessee to explain the same. In response to this show cause notice, the AR of the appellant has submitted that the statement of Shri Jose Mathew was retracted by an affidavit filed before the Dy. Director of Investigation and there was no discrepancy found in the share capital and no incriminating document was found and seized and the appellant also retracted the statement recorded u/s. 131 by not offering income in the return filed. Therefore, the undisclosed income declared in the statement has not been disclosed in the return of income filed. After considering the reply of the appellant, the AO has given his observation and inferences of each company-wise. In nutshell, the AO has raised objection that the equity share of Rs.10/- of the assessee is issued at a premium of Rs.240/- per share and the assessee has not provided share application form. Secondly, it was alleged that no board resolution was provided. Thirdly, no bank account statement was submitted. Fourthly, the confirmation certificate submitted was signed only by one Director. Next, the AO has raised the 'objection that P & L account and Balance-sheet submitted were not certified by the Chartered Accountant. Finally, the AO, objected that the Directors of the company were not produced to prove the identity, creditworthiness and genuineness of the investors and the documents submitted by the AR of the appellant were not found during the course of survey and search operation. In view of these Facts, the AO has treated the investment made by the above said nine companies as unexplained u/s. 68 of the IT. Act and added back Rs.6,00,00,000/- Rs.7,20,00,000/- and Rs.7,75,00,000/- to the taxable income for the AYs. 2007-08, 2008-09 & 2009- 10 respectively.272
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 4.6 On the other hand, the AR of the appellant has submitted that during the course of search and survey operation in case of M/s. Jogia Group of companies, no incriminating document was found and seized relating to eight companies including the assessee. The statement recorded of Shri Jose Mathew was retracted by submitting an affidavit that he was not acting as Jt. General Manager of these companies but he was working as Jt. General manager with other group companies and he do not know anything about these companies and moreover, the statement was recorded by using undue influence on him which are narrated in the affidavit filed before the Dy. Director of Investigation. To rebut the objections of the AO, the appellant has submitted that complete details of share application money received alongwith confirmation from the respective companies was furnished before the AO. The complete details about payment towards share application money giving cheque No., date, name of the bank was also submitted. The Board resolution was not available with the appellant as the appellant has no legal right to ask for the Board resolution when complete information about the investments is made available by the investing company. Regarding the bank statement, the AR of the appellant has submitted that complete details of cheque No., date, name of the bank was submitted. The confirmation of the parties was submitted before the AO. The objection of the AO that the investing companies are not generating significant income was reverted by the AR of the appellant by submitting that net worth of the companies was substantial as mentioned in the balance- sheet in each case. Regarding the presence of Directors of the investing company, the AR has submitted that it has, no authority to produce any director of the company and request was made to the AO but no summons were issued by the AO to the directors. Regarding the allegation of the AO that no documents were found during the search and survey operations, it was submitted that no search and survey was undertaken against the appellant and other 7 group of companies and nobody has asked for the documents during the search and survey operations. To strengthen the evidences submitted before the AO, the AR of the appellant has also relied on various decisions including the decision of Hon'ble Supreme Court in case of Lovely Exports Pvt. Ltd. supra. Thus, the AR of the appellant has argued that since all the documents were submitted to prove the identity, creditworthiness and genuineness of the transaction of the investing companies, no addition is called for.
273M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 4.7 From the perusal of the submissions and the arguments of the AO, it is observed that in the present case 9 investing companies supra has made investment in the shares at a premium of Rs.240/- per share. The AO has raised objections regarding the submissions filed by the appellant during the assessment proceedings each company-wise and the AR of the appellant has also rebut the objections of the AO each company-wise in the submissions filed during the appellate proceedings. Since the facts and documents in all the companies are the same, therefore, to avoid repetition and for the sake of convenience, a combined discussion has been made for all the above said investing companies. As per the provisions of section 68, the AO is empowered to call for the details to prove the identity, creditworthiness and genuineness of the transaction. During the assessment proceedings, the AO has given show cause notice to the assessee company to submit complete details regarding the share application money received from the above said investing companies. The AR of the appellant has submitted the PAN, complete details of cheque No., date and name of the bank of each company, confirmation certificate of each company duly signed by the directors to confirm that investment has been made, P&L account and balance-sheet of each company were submitted and moreover, no incriminating document was found and seized during the course of search in case of M/s. Jogia Properties Ltd. relating to these companies. The main objection of the AO was that in the post search enquiries, the statement of Shri Ajay Kumar, Director of the company was recorded who has declared the share application money as undisclosed income and promised to declare in the return to be filed in response to notice u/s. 153A. In the return filed, the assessee has not declared the undisclosed income on account of share application money as admitted in the statement recorded u/s. 131 of the I.T. Act. The AO has made a lengthy discussion on the retraction of the statement recorded of Shri Jose Mathew and Shri Ajay Kumar, Director of the company. Shri Jose Mathew has submitted an affidavit before the DDI (Inv.)two days after the search by explaining that he is not an employee of the companies and he do not know anything about the. share application money or functioning of these companies and the statement was recorded by putting undue pressure on him. Neither the DDI(lnv) nor the AO has given any comment on this affidavit in the assessment order except by writing that it was only an afterthought. A 274 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 copy of the documents filed before the AO was also submitted before me from the perusal of which it was . noticed that all the investing companies are assessed to income-tax which is clear from their PAN. During the appellate proceedings, the AR was also asked to submit the copy of acknowledgment of filing of return which was also filed and noticed that all the investing companies are assessed to tax. Secondly, from the perusal of bank details submitted, it is noticed that the date of cheque with cheque No. name of the bank, amount etc. all details were submitted before the AO. The copy of P&L account and the balance-sheet of each company was submitted, from the perusal of which it shows that each company have reserves and surplus of substantial amount as disclosed in the balance-sheet. The confirmation certificate was also submitted before the AO duly signed by the director of the investing company to confirm that investment was made for the purchase of shares of this company. The objection of the AO that investing companies are showing very low income cannot determine the investments made by. these companies because the balance-sheet shows the reserves and surplus worth crores of rupees in all cases. The other objection of the AO that documents submitted during the course of assessment proceedings were not found during the course of search is not based on any reasoning and substance because no search operation was carried out in case of the assessee and other 7 group companies. Further, the AR has also submitted that nobody had asked for the documents during the search operation in case of M/s. Jogia Properties Itd.
4.8 Now, the conditions of section 68 are to be examined on the basis of the papers submitted during the assessment proceedings and appellate proceedings. To prove the identity, the appellant has submitted the PAN and acknowledgment page of each investing company which proves that the assessee is an existing company. The details of bank account giving the cheque No., the date and name of the bank proves the creditworthiness of each company and the amount of crores of rupees shown as reserve and surplus in the balance-sheet of each company further strengthens the argument of the appellant. Regarding the genuineness of the transaction, there is no doubt that all the payments were made through account payee cheques and duly reflected in the accounts of the investing companies which is evidenced by the date of cheque, cheque No. and name of the bank of each 275 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 company. Further, the confirmation certificates of each investing company duly signed by the director itself confirm that the investment was made by account payee cheques only. In view of these facts, the three conditions laid down u/s. 68, i.e. identity, creditworthiness and genuineness of the transaction are duly proved by the documentary evidences filed during the assessment proceedings and appellate proceedings. The other objection of the AO that the income shown by these companies is very small cannot be accepted because the investment made in the shares is not from the current year income but it is from the reserves and surplus shown in the balance-sheet of each company which are duly reflected in the bank account from where the cheques have been issued by each investing company. Further, the AO has objected that directors of the company were not produced. In this regard, the AR of the appellant has shown his inability during the assessment proceedings and it was the duty of the AO to make investigation by issuing summons and commissions to his counterparts for the presence of the directors. The other objection that these papers were not found during the search is also without any reason because no search operation was carried out in the case of the assessee and other 7 group companies, therefore, the question of these papers does not arise.
4.9 During the appellate proceedings, an opportunity was given to the AO to represent his case and the submissions of the appellant were also given to the AO for his counter comments. Since the facts of the investing companies in all the cases is the same, therefore, to avoid repetition and for the sake of convenience, the submissions in the case of M/s. Martand Properties Ltd. was given to the AO. The gist of the AO's comments is reproduced as under:
"Para-wise reply on para-wise submission made by assessee is as follows:
Para 1,2,3,4,5,6 and 7 of the submission made by assessee As explained by the Assessing Officer in his order in para number 2,3,4,5,6 and 7 and specially 8, the assessee's case is covered under Section 153C and notice issued to assessee and order passed by the assessing officer is not bad in law.
Para 8 and 9 of the submission made by assessee.276
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Claim of the assessee that the all investing companies in the appellant company are independent companies cannot be accepted. All four companies i.e., Oshin, Sidh Housing, Doldrum Gyaneshwar have same registered address. All these companies are running the so-called business from the same place and have a common director viz. Mr. Jha. This clearly indicates that all these companies are managed by the same group.
Para 11. 12. 13. 14, 15 and 16 of the submission made by assessee.
Assessee has mentioned in these paragraphs basically documents submitted by the assessee to support its claim. However merely submitting some documents will not suffice for the purpose of the assessee. Assessing Officer In his order in para 22 sub para 1, 2, 3, 4, 5 and 6 has mentioned in detail flaws, contradictions and shortcomings in the submission of documents made by the assessee. In view of this it cannot be said that the assessee has fully discharged its onus.
Para 17. 18. 19.20, 21,22 and 23 of the submission made by assessee.
Assessee has given its response to the objections raised by assessing officer in his order regarding various documents submitted by the assessee to support its claim.
Share application form is one of the very important document to support claim of investment. The same is not provided by the assessee. In case of Oshin Investments and Finance Pvt. Ltd., assessee has mentioned that confirmation letter taken from investing company dated 5th February 2009 was having its date as 5/2/2009 due to mistake. Assessee has not substantiated that it was mistake only and not a afterthought of preparing documents to support its claim. Assessee has also mentioned that no adverse inference can be drawn with respect to place of registered office is of the company and place of residence of directors that is Mumbai and Kolkata respectively.
However, these contradictions definitely cast doubts over genuineness of transaction. Hence even if no definite conclusive adverse inference can be drawn but preponderance of probability is to be considered and contradictions mentioned by assessing officer does make the case in favour of revenue.277
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 The facts that copy of bank account of the investing company was not produced to support appellant's claim and not a single document regarding investment of existing companies in the appellant company was found definitely casts doubts over the genuineness of transaction. Assessee has further mentioned that for AY 2010-11, auditors were M/s. Sudhir Otlikar and company. Hence certificate issued by J & 8 Associates in the capacity of the auditors of investing company on 12th March 2010 will not help assessee's cause.
Also the fact that investing company is not generating any net profit indicates that it should not have surplus funds to invest in the appellant company.
These contradictions tilt the case in favour of revenue following principle of preponderance of probability.
Para 24. 25, 26 and 27 of the submission made by assessee.
Assessee's claim that assessing officer has not contradicted material produced by the assessee company cannot be accepted. Assessing Officer has in detail brought upon the contradictions in the submission made by the assessee. Address of the investing company was not located when enquiries were made by Investigation Wing of Kolkata. Investing companies does not have any significant net profit to have surplus funds to invest money Into appellant company. These facts tilt the case in favour of revenue by following principle of preponderance of probability. Further statement given by Mr. John Mathews clearly indicates that investment transaction was not genuine and was in lieu of cash paid by the appellant company.
Para 28, 29, 30, 31, 32, 33, 34 and 350f the submission made by assessee.
Appellant company has not fully discharged its onus of proving genuineness of transaction and creditworthiness of investing company in the light of contradictions brought on the record by the assessing officer. Since appellant company has not fully discharged its basic onus, additions made under section 68 are fully justifiable. All the case laws relied upon by the assessee presume that assessee 278 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 has discharged its primary onus completely. However this is not the case with the appellant company. .
Para 36 37, 38 and 39 of the submission made by assessee 'Statement given by one of the director of the appellant company has evidentiery value. The statement is not taken under coercion or force. The statement is given voluntarily. In view of this retraction of the statement cannot be accepted. Mr. John Mathews having no relation to business activity of the appellant company is not the relevant point here. His statement is to be considered with reference to claim of investment made by investing companies. In this context statement by Mr. John Mathews has evidentiary value. Shri Heri Narayan Halan, director of the appellant company is responsible dignitary of the company and is in the knowledge of affairs of the company. Hence, assessee's contention that no reliance should be made upon statement of the director of appellant company is not acceptable.
Para 40,41 and 42 of the submission made by assessee.
Declaration of undisclosed income given by the assessee in this case is voluntary. It has on its own given the declaration. No coercion or force is used by Department to take any such confession. It was only when during recording of statement assessee could not substantiate its claim, it offered undisclosed income for taxation. Addition in this case is made on the fact that assessee company did not discharge its onus of proving genuineness of transaction and creditworthiness of investing companies in view of various contradictions shown by the assessing officer in his order. Thus it Is clear that addition is not made purely and merely on the basis of declaration made.
Para 43 and 44 of the submission made by assessee. Levy of the interest is as per provisions of the law. As brought upon by the assessing officer in his order share capital claimed by the assessee has been treated as assessee's own income under section 68 and hence assessee is liable to pay interest on the tax which he is not paid at the time of filing of return or at the stages of advance-tax payment.279
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Para 45 of the submission made by assessee.
No comments.
In view of the above, it is requested that addition made by the assessing officer may be upheld".
4.10 The comments of the AD were also given to the AR of the appellant for further submission. The AR has made submissions and submitted that no new facts has been brought on record by the AO except the repetition as given in the assessment order. The submissions of the AR are also reproduced above. From the perusal of the remand report and submission of the appellant, it is observed that the AO has repeated the same arguments as given in the assessment order and no new fact has been brought on record. Since the facts of the assessment order and arguments of the AD has been discussed, therefore, no further comments are required.
4.11 It is also pertinent to mention that during the appellate proceedings the case was discussed with the AD and the Addl, CIT, Central Range-8, Shri R.M. Tiwari. During the discussion, I have asked the Addl. CIT to explain whether any investigation regarding the bank details have been made in this case. The Addl. CIT has fairly admitted that complete bank enquiries were made in case of all investing companies on the basis of details submitted by the assessee upto third down layer but nowhere it was found that cash was' deposited in any account before issuing the cheques for investment made in the purchase of shares of assessee company. He has further stated that since no adverse finding was recorded during the bank account investigation, therefore, it was not mentioned in the assessment order.
4.12 From the fact that the AO has made enquiries in all the bank accounts upto third down layer and nowhere it was found that the cash was deposited against issuing of cheques for investment of shares in these companies, therefore, the statement recorded of Shri Jose Mathew itself proves wrong in which he has stated that the cash was given and cheques were received for the investment of shares in these companies. The statement of Shri Ajay Kumar, Director, automatically goes wrong on the basis of the fact that nowhere in any account it was found that .cash was deposited before issuing cheques for investing in the share application money of these companies and moreover, no incriminating document was found and 280 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 seized and no statement was given by any director of the investing company that cash was received against cheques issued. The director has also retracted its statement by not disclosing the income admitted in the return filed. Although it is an established law that the statement recorded u/s. 132(4) and 132(1) of the LT. Act is having evidentiary value but it is not a conclusive evidence until and unless it is corroborated with documentary evidences. In the present case, the statement of Shri Jose Mathew and Shri Ajay Kurnar has proved wrong because nowhere in the bank account investigation, it was found by the AO that in all cases any cash was deposited before issuing the cheques for share application money in these companies. In view of these facts, the statements recorded without any corroborative evidence cannot be adversely applied against the assessee. Besides, the facts of the case, the decisions of Hon'ble Courts relied on by the AR of the appellant are also in favour of the assessee, the gist of which is reproduced as under :
"COMMISSIONER OF INCOME TAX VS. OASIS HOSPITALmES PVT. LTD. 333 ITR pg. 119 We may also usefully refer to the judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. P. Mohanakala [(2007) 291 ITB 278 (SC)]. In that case, the assessee had received foreign gifts from one common donor. The payments were made to them by Instruments issued by foreign banks and credited to the respective accounts of the assessees by negotiations through bank in India. The evidence indicated that the donor was to receive suitable compensation from the assessees. The AO held that the gifts though apparent were not real and accordingly treated all those amounts which were credited In the books of account of the assessee, as their Income applying Section 68 of the Act. The assessee did not contend that even If their explanation was not satisfactory the amounts were not of the nature of Income. The CIT (A) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the AO and the CIT(A). On appeal, the High Court re- appreciated the evidence and substituted Its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the Court while reversing the decision of the High Court held that the 281 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 findings of the AO, CIT (A) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 & 539 of 2008 Page 12 of 27 of banking transaction as not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact.
While doing so, the legal position contained in Section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of Section 68 of the Act suggests that (i) here has to be credit of amounts in the books maintained by the assessee; (if) such credit has to be sum of money during the previous year; and (ii) either
(a) the assessee offers no explanation about the nature and source of such credits found In the books or (b) the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged to income tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the AO tor not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books Is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even If the explanation is not acceptable, the material and attending circumstances available on record do not ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 & 539 of 2008 Page 13 of 27 justify the sum found credited In the books being treated as a receipt of Income nature.
We would like to refer to another judgment of the Division Bench of this Court in the case of Commissioner of Income Tax Vs. Value Capital Services P. Ltd. [(2008) 307 ITR 334 (Delhi)]. The Court In that case held that the additional 282 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 burden was on the Department to show that even if share application did not have the means to make investment, the Investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee under Section 68 of the Act.
It is also of relevance to point out that In Commissioner of Income Tax Vs. Stellar Investment Ltd. [(1991) ITR 287 (Del.)] where the increase in subscribed capital of the respondent company accepted by the ITRO and rejected by the CIT on the ground that a detailed investigation was required regarding the genuineness of subscribers to share capital, as there was a device of converting black money by issuing shares with the help of formation of an Investment which was reversed by the Tribunal, this Court held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances the amount of share capital could be regarded as undisclosed income of the company. This view was confirmed by the Apex Court in CIT Vs. Stellar Investment Ltd. [(2001) 251 ITR 263 (SC)].
ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 & 539 of 2008 Page 14 of 27 Having taken note of the legal position in detail, we now proceed to decide each appeal on the application of aforesaid principles. ITA No.2093 of 2010 & ITA No.2095 of 2010.
In both these appeals, the assessee Is the same. Since these appeals pertain to two assessment years, vtz., Assessment Year 2003-04 and Assessment Year 2004-05, that Is the reason for two appeals though common issue is based on Identical facts.
While making the assessment In respect of return filed for Assessment Year 2004-05, the AO noticed that the assessee had received share application money of 3 lacs each from sIx private limited companies during the year relevant Assessment Year 2003-04. It Is for this reason notice under Section 148 of the Act was Issued in respect of Assessment Year 2003-04 and reassessment done. The AO made addition of 18 lacs to the Income of the assessee on protective basis In the Assessment Year 283 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 2004-05 as well. It is for this reason we say that the transaction Involved In both the appeals is same.
The order of the AO would reveal that it had received an information from the Investigation Wing which had made various enquiries/investigations on the basis of which It was found that these six Investors belong to one Mahesh Garg Group who were not carrying on any real business activity and were rather engaged In the business of providing accommodations entries. They were, thus, entry operators of which the assessee was the beneficiary. According to the AO, the modus operandi Involved In such type of activity was like this: an entry operator operates a number of accounts In the same bank/branch or In different ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 & 539 of 2008 Page 15 of 27 branches in the name of companies, firms, proprietary concerns and individuals and for the operation of these bank accounts, filing Income tax returns etc., persons are hired. Most of these persons work on part-time basis and are called upon to sign documents, cheque books, etc. whenever required. Whenever any' beneficiary Is Interested In taking, an entry, he would approach the entry operator and handover the cash along with commission and take cheques, Demand Draft, Postal Order. The cash Is deposited by the Entry Operator In a bank account either In his name or In the name of relative/friends or other person hired by him for the purposes of opening the bank account. After the deposit of cash when there is sufficient balance, the Entry Operator Issues Demand Draft, Postal Orders, cheques in the name of beneficiary. Most of these concerns/individuals also have obtained PAN· from the Department and are filing Inc. returns, but what Is shown In the return Is not actual state of affairs.
The assessees filed copies of PAN, acknowledgement of filing income tax returns of the companies, their bank account statements for the relevant period, l.e., for the period when the cheques were cleared. However, parties were not produced in spite of specific direction of the AO instead of taking opportunities in this behalf. Since the so- called Directors of these companies were not produced on this ground coupled with the outcome the detailed inquiry made by the Investigating Wing of the Department, the AO made the addition. This addition could not be sustained as the primary onus was discharged by the assessee by producing PAN number, bank account, copies of. income tax returns of the share applicants, etc. We also find that 284 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 & 539 of 2008 Page 16 of 27 Assessing Officer was influenced by the information received by the Investigating Wing and on that basis generally modus operandi by such Entry Operators is discussed in detail. However, whether such modus operandi existed in the present case or not was not investigated by the AO. The assessee was not confronted with the investigation carried out by the Investigating Wing or was given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Wing.
As regards discrepancies found by the AO in the bank statement, suffice is to mention that the bank statements that were filed by the assessee were provided by the shareholders and were computer printed on the bank stationery. The same were filed by the assessee during the assessment proceedings without any suspicion of their being incorrect. During the assessment proceedings, the assessee was never confronted by the AO that there are discrepancies between the bank statements filed and the statements directly called by the A.O. However, even after considering the alleged discrepancies, it does not follow that the amount of share capital was the undisclosed income of the assessee. Even the correct Bank statements as claimed by the AO reveal that the assessee has received cheques from the shareholders. In this backdrop, the following observations of this Court in the case of Commissioner of Income Tax Vs. K.C. Fibers Ltd. (2010) 187 TAXMAN 53 (Del.) are reproduced: "It is strange that when the Assessing Officer is questioning the bona fides of M/s Diamond Protein Ltd. for collecting money to subscribe to the share to the capital of the assessee, but it is the assessee who is fastened with the liability. The Assessing Officer did not question M/s Diamond Protein Ltd. in this behalf. Insofar as Assessing Company is concerned, it is not disputed that money was paid to its towards the aforesaid share application money, by means of cheques. It is not for the Assessing Company to probe as to the source from where n/s Diamond Protein Ltd. collected the aforesaid money. It was for the Assessing ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 & 539 of 2008 Page 17 of 27 Officer, in these circumstances to inquire into the affairs of M/s Diamond Protein Ltd. which is an independent company inasmuch as no finding is arrived at by the Assessing Officer that the two companies are umbrella companies or have any relationship with each other. "
285M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 We are, therefore, of the opinion that there is no merit in these two appeals, which are accordingly dismissed at the admission stage Itself.
ITA NO.2094 of 2010 In this case, the assessee had shown receipt of 99.18 lacs on account of share application money. In order to prove the genuineness of the transactions and Identity of the share applicants and their creditworthiness, the assessee had filed confirmation from these parties, which were 30 In number. The assessee had also supplied Income tax particulars of these share applicants. The AO issued notices under Section 133(6) of the Act, which remained unserved on 22 out of 30 parties. Even remaining 08 persons did not respond. Local inquiry made through Inspector revealed that the parties did not exist at the given addresses. On Inquiries from bank, the AO found various discrepancies In the statement sent by the bank and the statement produced by the assessee. Even some of the names given by the assessee were not the same as In the bank records. The AO confronted entire material to the assessee and allowed various opportunities. However, the assessee did not produce even a single party. Accordingly, the AO made an addition of '99.18 lacs to the Income of assessee on account of unexplained share capital under Section 68 of the Act. Similarly, the AO also made addition of 3.1 0 lacs on account of unexplained credit under Section 68 of the Act.
ITA Nos.2093, 2094, 2095 of 2010,514 of 2007 & 539 of 2008 Page 18 of 27 The CIT (A) allowed the appeal and deleted the addition. After recording the findings that necessary documents to prove the identity of Investors, creditworthiness and genuineness of the transactions were produced by the assessee, he was of the opinion that even when some discrepancies were found in the bank statement of these Investors produced by the assessee, facts remain that the AO had himself obtained the copies of the bank statement of some of the share applicants and the perusal of those statements reveals that there was a debit entry in support of demand draft purchased by the share applicant. The assessee had also filed copies of the confirmations In acknowledgement of Income tax returns filed by the share applicants from which it was clear that the tax payers were the existing assessees and they had filed the return of income in Delhi Itself. On this evidence, It was concluded that the shareholders were identifiable who were assessed to Income tax and therefore under no 286 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 circumstances, the share capital could be treated as undisclosed Income of the company.
The Tribunal while confirming the aforesaid view of the CIT (A) has summarized the discussion as under:
9. We have carefully considered the rival submissions in the light of the material placed before us. The necessary details were filed b; e assessee with the AO to show the identity of the person who had applied for the shares. The shares also been allotted to respective persons in respect of which intimation was given to Registrar of Companies and necessary evidence has also been placed on record in the paper book which found place at page 23 and 24 of the paperbook. The assessee also had placed on record the evidence as well as copy of income-tax returns of the share applicants. Keeping in view all these evidences it cannot be held that the assessee did not establish the identity of the share applicants. If it is so, then the law as pronounced by the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (supra) is clear that if the share application ITA , 2a95 of 2010, 514 of 2007 & 539 of 2008 Page 19 of 27 money is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments In accordance with law, but the same cannot be regarded as undisclosed income of the assessee. In this view of the situation, we find no Infirmity in the order of the CIT(A) vide which addition made on account of share application money has been deleted. "
Having regard to the decisions noted above, we are of the view that the addition was rightly deleted by the CIT (A) and the tribunal. Requisite documents were furnished showing the existence of the shareholders from bank accounts and even their income tax details. From bank accounts of these shareholders, it was found that they had deposited certain cash and source thereof was questionable. The AO should have made further probe which he failed to do. Moreover, remedy with the Department lies in reopening the case of these Investors and the addition cannot be made in the hands of assessee.
We accordingly dismiss this appeal".
CIT vs. Divine Leasing & Finance Ltd., General Exports & Credits Ltd. & Lovely Exports P. Ltd. IT A No. 953/2006 287 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 The Income-tax Appellate Tribunal has dismissed the Revenue's appeal and thus there are concurrent findings pertaining to the factual matrix following paragraph from the impugned decision adequately highlight the necessary details :
"Thus, the question is whether in the present case, the Assessing Officer had material to conclude that the share applicants, In question did not exist. It is seen that the assessee company has furnished the necessary details such as PAN No./lncome-tax Ward No./PAN card of the share applicants and some of them are assessed to tax. No share application money has been received through banking charges. In some cases, the confirmations/affidavits of share applicants containing the above detail were also filed. It is seen that the Assessing Officer did not carry out any inquiry into the income-tax record of the persons who had given the PAN No./Ward No. In order to ascertain the non-existence of the share applicants In question. The Assessing Officer has neither controverted nor disapproved the material filed by the assessee. In the case of CIT v. Makhnl and Tyagi P. Ltd. reported in [2004] 267 ITR 433 (Delhi), the jurisdictional High Court has decided that when the documentary evidence was placed on record to prove the Identity of all the shareholders Including their PAN/GIR number and filing of other documentary evidence In the form of ration card etc., which had neither been controverted nor disapproved by the Assessing Officer, no interference was called for. The Tribunal has justified in deleting the addition. The Assessing Officer proceeded to make the impugned addition on the ground that in some cases where summons issued were returned unserved and in some cases summons though served but there was no compliance. In this connection, it may be mentioned that In the case of CIT v. Orissa Corporation Ltd. [1986] 159 ITR 78 (SC) the Hon'ble Court has held that when the assessee borrows the loan and if an assessee gives names and addresses of the creditors, who are assessed to tax and full particulars' Is furnished then the assessee ahs discharged the duty. If the Revenue merely issues summons under section 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Addition cannot be made under section 68".
No question of law, far less any substantial question of law arises for out consideration. We may, however, briefly 288 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 reflect upon a submission made by the learned counsel for the respondent to the effect that the assessee had, in its letter dated March 8, 1999, requested the Assessing Officer to examine the assessment records of the share applicants whose GR Nos. had been supplied. It is not controverted that action was not taken by the Assessing Officer, but It has justifiably been contended that this inaction is due to paucity of time left at that stage since the assessment had to be passed by March 31, 1999. It has been painted out that several adjournments had been granted by the Assessing Officer oil the asking of the assessee. The timing of the assessee's said letter is most suspect. Generally speaking, It is Incumbent on the Assessing Officer to manage his schedule, while granting adjournments, In such a manner that he does not run out of time for discharging the duties cast on him by the statute. In the present case, the details had been furnished to the Assessing Officer much before March 1999, but he failed to react to the shifting of the burden to Investigate Into the creditworthiness of the share applicants. Therefore, the appeal is dismissed.
CIT vs. Lovely Exports P. Ltd. [2009]319 ITR (St.) 5 (SC) (para 2) - ITA (L) No. 2182 of 2009 Heard learned counsel for the Revenue. Office objections are overruled. Registry is directed to register the appeal. At the instance of the Revenue, the appeal is taken up for admission.
The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal and the Tribunal was pleased to follow the judgment of the apex court in the case of CIT v. Lovely Exports P. Ltd. [2008] 21, CTR 195; [2009] 319 ITR (St.) 5 wherein the apex court observed that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing officer, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their Pan/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing officer to make proper investigation and reach the shareholders. The Assessing officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the Assessing officer ought to have found 289 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs.
CIT v. STL Extrusion P. Ltd. (MP) [2011] 333 tm 269 The said order was challenged by the respondent before the Tribunal. The Tribunal by the impugned order dated May 10, 2010, allowed the appeal of the respondent by observing thus:
"3. We have considered the rival submissions of learned representatives of both, sides and perused the material available on record. Ground No. 1 is, general in nature, therefore, requires no deliberation from our side. For ground No.2 the brief facts are that the assessee company is engaged in the business of manufacturing and trading of PVC liquid pipes, originally filed its return of loss of Rs. 22, 91,022 on November 30, 2000. A search under section 132 was carried out at the premises of the assessee company on October 8, 2003. Consequent to search, a notice under section 153C read with section 153A was served upon the assessee on June 3, 2004 to which the assessee again filed the return of loss, I.e., Rs.22,91,022/- as originally filed. During the assessment proceedings the assessee was asked about the details of increase in share capital of the assessee to which the assessee filed a list containing nine share holders from whom the share capital of Rs.l,59,300 and Rs.15,31,200 was received. The assessee also filed confirmation from the subscribers through duly notarized affidavits containing, the details like name, address, age, source of Income, annual income, date of purchase of application of share tendered, number of shares purchased alongwith the amount given by subscribers. On receipt of these confirmations, neither anything was asked from the assessee nor any inquiry was made. The addition of Rs.l,59,300 was made by the Assessing Officer by observing as under:
'On a perusal of the submission made by the assessee In respect of share application money received by the assessee during the year. It is seen that In respect of the following persons the assessee has received share application money In cash. These persons are not 290 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessed to Income-tax and PAN are not mentioned. On a perusal of the affidavits filed, it is seen that all the affidavits are In the handwriting of one person. It is also noticed that even on the same page the signatures of the deponent differs. It is quite unlikely that when a person is applying for.huge amounts such as Rs.5,00,000/- ore more Is not assessed to tax. Hence considering the above, the names of the persons are not genuine and it Is the unexplained money of the assessee, which Is Introduced by the assessee company under the name of share application money. These persons appear to be dummy person and hence the entire amount of the share application money is considered as bogus share application money. The assessee company has not proved the genuineness of such person also not proved the capacity to apply for such huge amounts. These are dummy and the assessee company has Introduced its own money as share application money.
4. On appeal, the learned appellate authority by following the decision of the hon'ble jurisdictional High Court in the case of crr v. Rathi Finlease Limited [200B] 215 CTR (MP) 429 to the effect that the onus is on the assessee to establish the genuineness of the credits, affirmed the stand of the Assessing Officer which is under challenge before the Tribunal. We have found that the Impugned addition under section 68 of the Act has been made by the learned Assessing officer by suspecting that the share application money is bogus without appreciating the facts and the contents of the affidavit have not been disapproved. Thus, the undisputed fact is that the assessee has proved the Identity of the subscribers with the help of affidavits which were not found to be bogus or false. An affidavit Is not a mere piece of paper rather It carried Its authenticity as the contents of the same are duly sworn before a Magistrate or a Notary Public/Oath Commissioner, as the case may be.
During the signing of these affidavits, the deponent, appears before the person before whom they are sworm and their signatures are duly taken on the register maintained by such Notary Public. If the Assessing Officer was apprehensive on the authenticity of such affidavit, nothing prevented him to cross examine the deponents and to verify the contents of such affidavits but that was not done in the present appeals. Therefore, in view of a decision of the Hon'ble apex court In the case of Mehta Parikh and Company v. CIT (supra), these affidavits become unchallengeable. The ratio laid down by the Hon'ble Delhi Court In the case of err v. Shiv Prakash 291 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Aggrawal [2008] 306 ITR 324 (relevant page 326) further fortifies out view. As far as the reliance of the Revenue upon the decision from the Hon'ble jurisdictional High Court In the case of CIT v. Rathi Finance limited [2008] 215 CTR (MP) 429 to the extent that the assessee has to establish the genuineness of the credits, we are in full agreement with the argument but In the present appeal the assessee has duly established the Identity, source of the credits. Even It Is not the case that the shares have been Issued to non-existing persons.
Broadly we are of the view that once the Identity and source of the subscribers is established for making share application, no addition can be made under section 68 of the Act because even the Hon'ble apex court in the case of CIT vs. Lovely Exports Limited even stepped ahead by concluding as under (2008) 216 CTR (SC) 195; (2009) 319 ITR (St.)5:
'If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to tie Assessing Officer then the Department is free to proceed to reopen their individual assessments in accordance with law, but is cannot be regarded as undisclosed income of the assessee company'.
Our view is further fortified by the decision of the Hon'ble Delhi High Court in CIT v. Divine Leasing and Finance Limited, general Exports and Credit Limited and Lovely Exports Private Limited [2008] 299 ITR 268 (Delhi) wherein it was held that it Is the duty of the Assessing Officer to investigate the creditworthiness of the shareholders and in view of the finding that the assessee proved the genuineness of shareholders no addition can be made under section 68 of the Act. In the present appeal, since the assessee has discharged its onus by proving the Identity of subscribers and even otherwise had any suspicion still remained in his mind, nothing prevented him to initiate action as per the provisions of the Act. The existence of subscribers to share application is not in doubt as the assessee duly furnished their names, age, address, date of filling the application, number of shares for which respective applications were made, amount given and the source of income of the applicant. In view of these facts, we are of the considered opinion that there is no justification for making the Impugned addition because once the existence of the investors/share subscribers is proved, the onus shifts on the Revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee company itself. Once the 292 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 confirmation letters are filed, no addition can be made on account of the share application money in the hands of the company. Our view finds support from the decision in Shri Barkha Synthetics Limited v. Asst. CIT [2006]283 ITR 377; 155 Taxman 289 (Raj). The cases like CIT v. G.P. International Limited [2010] 325 ITR 25 (P& H); 229 CTR (P&H) 86, CIT v. Steller Investment Limited [1991] 192 ITR287 and Sphla Finance Limited [1994] 205 ITR 98 (Delhi) support the case of the assessee".
4.13' In my knowledge there were two decisions in favour of the revenue which were also confronted to the assessee during the appellate proceedings, the decision of Hon'ble Delhi High Court in case of Nova promoters & Finleys P. Ltd. (342 ITR 169). The AR of the appellant has submitted that the facts of the present case are distinguishable as all evidences in support of claim that investment was made by genuine shareholders were submitted before the AO and during the appellate proceedings also. There is no allegation of availing accommodation entry as alleged in the decision of Hon'ble Delhi High Court. There is no proof of giving cash against the cheques issued by the investing companies. No statement of any director of the investing company was recorded nor any summons were issued. The AD has not rejected any submission made during the course of assessment proceedings. In an other case of Indore Bench of Tribunal in case of Agrawal Coal Corporation Ltd. (135 ITD 27.0), the AR has submitted that complete submissions from the investing companies, details of cheque No., name of the bank and date of cheques were submitted before the AO. The confirmation from the auditors of the company were also submitted. The balance-sheet and P&L account of the investing company which had shown substantial net worth were also submitted. The proof of filing statutory returns by the companies for the current period were also submitted. The proof of filing statutory returns by the companies for the current period were also submitted. The proof of issue of notice to the 'shareholders were also filed. The appellant had also already issued shares and the detail of distinctive No., share certificate No., intimation to ROC about issue of shares, payment of stamp duty, interest and statutory reserves maintained under the Companies Act were submitted and no summons were issued by the AO to prove that the companies were not existing. In view of these facts, it is observed that the facts given in the decision of Hon'ble Delhi High Court and the Tribunal are distinguishable to the facts of the present case. Since in 293 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 this case no company belonging to Mr. Choksi had made investment in shares, therefore, there is no relevance of the statement mentioned by the AO.
4.14 In view of the above facts and judicial decisions of Hon'ble Courts, it is held that the assessee has proved the identity, creditworthiness and genuineness of the transaction by submitting documentary evidences during the course of assessment proceedings and before me. Moreover, the facts of the present case are covered by the decision of Hon'ble Supreme Court in case of Lovely Exports Pvt. Ltd. supra and the other decisions as discussed above where it is held that once the identity of the shareholder/subscriber is established, payment was made through account payee cheques, net worth of the subscriber is proved by filing balance-sheet and moreover, confirmation letters are filed, no addition can be made on account of share application money in the hands of the company. In totality of facts and circumstances, it is held .that the three conditions of section 68 are proved by submission of documentary evidences and no incriminating document was found and seized and nothing adverse was found in the investigation of the bank account by the AO in each case of the company, therefore, the addition made by the AO is not sustainable, hence deleted.
13. Similarly, addition made by AO on account of share capital in the case of M/s. Auster Properties Ltd., was deleted by CIT(A) after observing as under:-
"Since the appellant company is a group company and the modus operandi for collecting the share application money and the evidences filed relating to the investing companies are the same and there is no change in the facts and circumstances of the present case, therefore, the same decision is followed in this case. In the case of M/s. Reva Properties Ltd., there were nine companies who have subscribed the share application money but in the present case there are eight companies. Out of these eight companies, 5 companies are the same as discussed in the case of M/s. Reva Properties Ltd. and M/s.Mihir Agencies P. Ltd., M/s. Alembic Securities Pvt. Ltd. & M/s. Alpha Chemi Trade Agency Pvt. Ltd. are new companies in this case who have subscribed the share capital in AY 2009-10 amounting to Rs.l,50,000/-, 2,00,00,000/- & Rs.7,90,00,000/- respectively. The papers relating to the identity, creditworthiness and genuineness of the transaction relating to these companies were also the same as submitted and discussed in the case of other companies. On the basis of the submissions made and the bank enquiry made by the Assessing Officer, no discrepancy was pointed out and moreover, 294 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 no incriminating document was found and seized during the course of search relating to the share application money. M/s. Alpha Chemi Trade Agency Pvt. Ltd., M/s. Alembic Securities Pvt. Ltd., M/s. Mihir Agencies P. Ltd. & . M/s. Talent Infoway Ltd. are the companies. One Mr. Mukesh Choksi is a director in these companies. These companies had also subscribed shares of the assessee company. In the assessment order, the Assessing Officer has made reference that in one statement recorded in some other case, Mr. Choksi has stated that he was engaged in giving accommodation entries to the companies for creating bogus capital gain and was also issuing the bogus bills. From this statement, the AO has drawn inference that the share capital subscribed by these companies was bogus, i.e. cheques were issued against cash received from the assessee company. During assessment proceedings, the AR of the appellant has submitted details relating to these companies. It was submitted that all the companies were having PAN and independently and regularly assessed to tax. Complete details of cheque No., date of cheque, bank a/c. share allotment letters giving detail of share certificate No., copy of bank account of the assessee was submitted before the AO. But the AO has not accepted these documents and relied on the statement of' Mr. Choksi only and added back the share application money by holding it as unexplained cash credit u/s. 68 of the LT. Act.
4.6 From the perusal and submission of the appellant and facts of the case, it is noticed that the statement of Mr. Choksi was not recorded in the context of this case but was recorded in some other case. He has given a general statement that he was giving accommodation entries to the companies against cash received from them. Nowhere in the statement he has stated that he has received cash from the assessee company and issued cheque against this cash as share application money. There is no mention in the statement that transaction with the assessee company was not genuine. No incriminating document was found and seized during· search operation to prove that cash was given against cheques received from these companies. Even independent enquiry made for the bank account of these companies, the AO has not found any instance of cash deposit against issuing .of cheques. Now, it has to be examined whether these companies had fulfilled the conditions of section 68. For identity, the each company has PAN and regularly assessed to tax. For creditworthiness, each company has independent bank account and details were submitted to the AO. For genuineness of transaction, all payments were made through account payee cheques duly reflected in the bank of each company and. 'the assessee company's bank account. Therefore, all the conditions,' i.e. identity, creditworthiness and genuineness of transaction are 295 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 fulfilled. Thus reliance cannot be placed on a general statement of Mr. Choksi alone which is not corroborated by any documentary evidence. In totality of facts and circumstances, it is held that the case is covered by the decision of Hon'ble Supreme Court in the case of Lovely Exports (supra). Thus, the addition made by the Assessing Officer u/s. 68 is not sustainable, hence deleted and the ground of appeal is allowed.
14. Addition made on account of share capital in case of M/s. Karburi Properties Ltd., was deleted by CIT(A) after observing as under:-
Since the appellant company is a group company and the modus operandi for collecting the share application money and the evidences filed relating to the investing companies are the. same and there is no change in the facts and circumstances of the present case, therefore, the same decision is followed in this case. In the case of M/s. Reva Properties Ltd., there were nine companies who have subscribed the share application money but In the present case there are eight companies. Out of these eight companies, 7 companies are the same as discussed in the case of M/s. Reva Properties Ltd. and only M/s. Mihir Agencies P. Ltd. is new company in this case who have subscribed the share capital in AY 2009-10 amounting to Rs.1,50,000/-.The papers relating to the identity, creditworthiness and genuineness of the transaction relating to this company were also the same as submitted and discussed in the case of other companies. On the basis of the submissions made and the bank enquiry made by the Assessing Officer, no discrepancy was pointed out and moreover, no incriminating document was found and seized during the course of search relating to the share application money. M/s. Alpha Chemi Trade Agency Pvt. Ltd., M/s. Alembic Securities Pvt. Ltd., M/s. Mihir Agencies P. Ltd. & M/s. Talent Infoway Ltd. are the companies registered with the registrar of companies. One Mr. Mukesh Choksi is a director in these companies: These companies had also subscribed shares of the assessee company. In the assessment order, the Assessing Officer has made reference that in one statement recorded in some other case, Mr. Choksi has stated that he was engaged in giving accommodation entries to the companies for creating bogus capital gain and was also issuing the bogus bills. From this statement, the AO has drawn inference that the share capital subscribed by these companies was bogus, i.e. cheques were issued against cash received from the assessee company. During assessment proceedings, the AR of the appellant has submitted details relating to these companies. It was submitted that all the companies were having PAN and independently and regularly assessed to tax. Complete details of cheque No.,' date of cheque, bank a/c. share allotment letters giving detail of share certificate 296 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 No., copy of bank account of the assessee was submitted before the AO. But the AO has not accepted these documents and relied on the statement of Mr. Choksi only and added back the share application money by holding it as unexplained cash credit uls, 68 of the LT. Act.
4.6 From the perusal and submission of the appellant and facts of the case, it is noticed that the statement of Mr. Choksi was not recorded in the context of this case but was recorded in some other case. He has given a general statement that he was giving accommodation entries to the companies against cash received from them. Nowhere in the statement he has stated that he has received cash from the assessee company and issued cheque against this cash as share application money. There Is no mention in the statement that transaction with the assessee company was not genuine. No incriminating document was found and seized during search operation to prove that cash was given against cheques received from these companies. Even independent enquiry made for the bank account of these companies, the AO has not found any instance of cash deposit against issuing of cheques. Now, it has to be examined whether these companies had fulfilled the conditions of section 68. For identity, the each company has PAN and regularly 'assessed to tax. For creditworthiness, each' company has independent bank account and details were submitted to the AO. For genuineness of transaction, all payments were made through account payee cheques duly reflected in the bank of each company and the assessee company's bank account. Therefore, all the conditions, Le. identity, creditworthiness and genuineness of transaction are fulfilled, Thus reliance cannot be placed on a general statement of Mr. Choksi alone which is not corroborated' by any documentary evidence. In totality of facts & circumstances, it is held that the case is covered by the decision of Hon'ble Supreme Court in case of Lovely Exports (supra). Thus, addition made by the Assessing Officer u/s. 68 is not sustainable, hence deleted and the ground of appeal is allowed.
15. Similar addition made on account of share capital in case of Vedisa Properties Ltd., was deleted by CIT(A) after observing as under:
Since the appellant company is a group company and the modus operandi for collecting the share application money and the evidences filed relating to the investing companies are the same and there is no change in the facts and circumstances of the present case, therefore, the same decision is followed in this case. In the case of M/s. Reva Properties Ltd., there were nine companies who have subscribed the share application money but in the present case there are six companies. All these companies are the same as discussed in the case of M/s. Reva Properties 297 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Ltd., On the basis of the submissions made and the bank enquiry made by the Assessing Officer, no discrepancy was pointed out and moreover, no incriminating document was found and seized during the course of search relating to the share application money. Therefore, it is held that the identity, creditworthiness and genuineness of the transaction has been proved and the addition made by the Assessing Officer u/s. 68 is not sustainable, hence deleted.
16. Addition made on account of share capital in case of M/s. Archieve Reality Developers Pvt. Ltd., was deleted by CIT(A) after observing as under:-
Since the appellant company is a group company and the modus operandi for collecting the share application money and the evidences filed relating to the investing companies are the same and there is no change in the facts and circumstances of the present case, therefore, the same decision is followed in this case. In the case of M/s. Reva Properties Ltd., there were nine companies who have subscribed the share application money but in the present case there are 5 companies. All the companies are the same as discussed in the case of M/s. Reva Properties Ltd., On the basis of the submissions made and the bank enquiry made by the Assessing Officer, no discrepancy was pointed out and moreover, no incriminating document was found and seized during the course of search relating to the share application money. Therefore, it is held that the identity, creditworthiness and genuineness of the transaction has been proved and the addition made by the Assessing Officer u/s. 68 is not sustainable, hence deleted.
17. Addition made on account of share capital in case of M/s. Chikura Properties Ltd., was deleted by CIT(A) after observing as under:-
All these grounds are relating to the investment made by each company in the share application money of the assessee which is discussed in the above ground by taking a combined view because the facts and documentary evidence in each company are the same. Therefore, to avoid repetition and for the sake of convenience, all these grounds are discussed in a cumulative manner in the above grounds. Therefore, these grounds have become infructuous, hence dismissed.
18. However, the CIT(A) dismissed the legal ground taken by assessee with regard to validity of assessment framed u/s.153C.
19. Against the above, orders of CIT(A) revenue is in further appeal before us whereas assessee had filed cross objection 298 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 wherein legality of assessment framed u/s.153C was challenged.
20. Learned AR has drawn our attention to the share capital received by the following assessee and disallowed by the AO. Our attention was invited to the detailed finding given by CIT(A) as quoted above, wherein the CIT(A) has deleted the same. As per learned AR, Hon'ble Tribunal vide its order dated 18/12/2015 in ITA No.6106 & 6107/Mum/2012 for assessment year 2008-2009, 2009-2010 had confirmed the action of the CIT(A) for deleting these additions. The details of name of company, assessment year and the relevant pages of the Tribunal are as under:-
Name of the Sr.No. Company Assessment Remarks Year Archive Realy Developers 1 Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2008-09 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P.Ltd., 2008-09 Ltd., Refer page No.10 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Delton Exim Pvt. Ltd., 2008-09 Ltd., Archieve Realy Developers 2 Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2009-10 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P.Ltd., 2009-10 Ltd., Gyaneshwar Trading & Refer page No.11 of the Order of the CIT(A) in Finance Co.Ltd., 2009-10 the case of Archieve Realty Developers Ltd., Refer page No.11 of the Order of the Hon'ble Sidh Housing Development ITAT J Bench in the case of Jogia Properties Co. Ltd., 2009-10 Ltd., 3 Auster Properties Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2008-09 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P. Ltd., 2008-09 Ltd., 4 Auster Properties Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2009-10 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P. Ltd., 2009-10 Ltd., Refer page No.11 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Hingora Finvest Pvt. Ltd., 2009-10 Ltd., Sidh Housing Development Refer page No.11 of the Order of the Hon'ble Co. Ltd., 2009-10 ITAT J Bench in the case of Jogia Properties 299 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Ltd., Gyaneshwar Trading & Refer page No.12 of the Order of the CIT(A) in Finance Co. Ltd., 2009-10 the case of Auster Properties Ltd., Refer page No.13 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Mihir Agencies P. Ltd., 2009-10 Ltd., Refer page No.12 of the Order of the CIT(A) in Alembic Securities Pvt. Ltd., 2009-10 the case of Auster Properties Ltd., Alpha Chemi trade Agency Refer page No.12 of the Order of the CIT(A) in Pvt. Ltd., 2009-10 the case of Auster Properties Ltd., 5 Cikura Properties Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2009-10 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P. Ltd., 2009-10 Ltd., Refer page No.11 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Hingora Finvest Pvt. Ltd., 2009-10 Ltd., Refer page No.11 of the Order of the Hon'ble Sidh Housing Development ITAT J Bench in the case of Jogia Properties Co. Ltd., 2009-10 Ltd., Gyaneshwar Trading & Refer page No.11 of the Order of the CIT(A) in Finance Co. Ltd., 2009-10 the case of Cikura Properties Ltd., Refer page No.10 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Deltron Exim Pvt. Ltd., 2009-10 Ltd., 6 Karburi Properties Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2008-09 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P. Ltd., 2008-09 Ltd., Refer page No.11 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Hingora Finvest Pvt. Ltd., 2008-09 Ltd., Refer page No.11 of the Order of the Hon'ble Sidh Housing Development ITAT J Bench in the case of Jogia Properties Co. Ltd., 2008-09 Ltd., Gyaneshwar Trading & Refer page No.11 of the Order of the CIT(A) in Finance Co. Ltd., 2008-09 the case of Karburi Properties Ltd., Refer page No.11 of the Order of the Hon'ble Hema Trading Company Pvt. ITAT J Bench in the case of Jogia Properties Ltd., 2008-09 Ltd., Refer page No.10 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Deltron Exim Pvt. Ltd., 2008-09 Ltd., 7 Karburi Properties Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2009-10 Ltd., Refer page No.13 of the Order of the Hon'ble ITAT J Bench in the case of Jogia Properties Mihir Agencies Pvt. Ltd., 2009-10 Ltd., 8 Reva Properties ltd., Refer page No.10 of the Order of the CIT(A) in Javda India Impex Ltd., 2007-08 the case of Reva Properties Ltd., 9 Reva Properties Ltd., Refer page No.11 of the Order of the Hon'ble Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties Ltd., 2008-09 Ltd., Refer page No.11 of the Order of the Hon'ble Doldrum Investments & ITAT J Bench in the case of Jogia Properties Finance P. Ltd., 2008-09 Ltd., 300 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
Refer page No.11 of the Order of the Hon'ble
ITAT J Bench in the case of Jogia Properties
Hingora Finvest Pvt. Ltd., 2008-09 Ltd.,
Refer page No.11 of the Order of the Hon'ble
ITAT J Bench in the case of Jogia Properties
Realgold trading co. Pvt. Ltd., 2008-09 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Hema Trading Company Pvt. ITAT J Bench in the case of Jogia Properties
Ltd., 2008-09 Ltd.,
10 Reva Properties Ltd.,
Refer page No.11 of the Order of the Hon'ble
Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties
Ltd., 2009-10 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Doldrum Investments & ITAT J Bench in the case of Jogia Properties
Finance P. Ltd., 2009-10 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Sidh Housing Development ITAT J Bench in the case of Jogia Properties
Co. Ltd., 2009-10 Ltd.,
Gyaneshwar Trading & Refer page No.11 of the Order of the CIT(A) in
Finance Co. Ltd., 2009-10 the case of Reva Properties Ltd.,
Refer page No.10 of the Order of the Hon'ble
ITAT J Bench in the case of Jogia Properties
Deltron Exim Pvt. Ltd., 2009-10 Ltd.,
11 Vedisa Properties Ltd.,
Refer page No.11 of the Order of the Hon'ble
Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties
Ltd., 2008-09 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Doldrum Investments & ITAT J Bench in the case of Jogia Properties
Finance P. Ltd., 2008-09 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Sidh Housing Development ITAT J Bench in the case of Jogia Properties
Co. Ltd., 2008-09 Ltd.,
Refer page No.11 of the Order of the CIT(A) in
Javda India Impex Ltd., 2008-09 the case of Vedisa Properties Ltd.,
Gyaneshwar Trading & Refer page No.11 of the Order of the CIT(A) in
Finance Co. Ltd., 2008-09 the case of Vedisa Properties Ltd.,
Refer page No.10 of the Order of the Hon'ble
ITAT J Bench in the case of Jogia Properties
Deltron Exim Pvt. Ltd., Ltd.,
12 Vedisa Properties Ltd.,
Refer page No.11 of the Order of the Hon'ble
Oshin Investment & Fin P. ITAT J Bench in the case of Jogia Properties
Ltd., 2009-10 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Doldrum Investments & ITAT J Bench in the case of Jogia Properties
Finance P. Ltd., 2009-10 Ltd.,
Refer page No.11 of the Order of the Hon'ble
Sidh Housing Development ITAT J Bench in the case of Jogia Properties
Co. Ltd., 2009-10 Ltd.,
Gyaneshwar Trading & Refer page No.11 of the Order of the CIT(A) in
Finance Co. Ltd., 2009-10 the case of Vedisa Properties Ltd.,
Refer page No.10 of the Order of the
Hon'ble ITAT J Bench in the case of
Deltron Exim Pvt. Ltd., 2009-10 Jogia Properties Ltd.,
21. With regard to the filing of cross objection in case of Karburi Properties Ltd., contention of learned AR was that in the appeal proceedings ITA No.6097/M/2012 for A.V. 2008-09 being the appeal filed by the Income tax department against the order of the Commr. of Income Tax (Appeals) assessee has filed the cross objection on 23rd December 2014 which is registered under CO.NO.264/M/2014. As per learned AR, assessee had received the intimation about filing of 301 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the appeal by the Department in Form 36 alongwith Grounds of Appeal on 7th October 2013. As per provisions of Section 253(4) of Income Tax Act, 1961, assessee was required to file the cross objections within 30 days from the receipt of the intimation of filing the appeal by the Department. The said cross objection was required to be filed on or before 6th November, 2013. The said cross objection is filed on 23/12/2014. There is a delay of 410 days.
22. Application for condonation of delay was filed on the following grounds:-
We were under a bonafide belief that once the addition made by the Assessing Officer is deleted and no addition survives after the order of CIT (Appeal) which will result into Nil demand against us and hence we are not eligible to file the cross objections as our grievance regarding the tax liability is resolved by the order of the Commr. of Income Tax (Appeal). In the present case the addition made by the Learned Assessing Officer is totally deleted by the Learned Commr. of Income Tax (Appeal) and there is no demand outstanding against us for A.Y. 2008-09.
2. Based on the above bonafide belief, we did not file the cross objection within the period of 30 days from the date of receipt of the Form No.36 and the Grounds of Appeal.
3. We submit that in the cross objection the legal issue has been raised regarding the applicability of Section 153C of Income Tax Act, 1961. On the facts & circumstances of the case, it is our prayer that notice issued u/s 153C is bad in law.
This is a legal issue and it goes to the root of the proceedings. We submit that a legal issue can be raise by the appellant at any time before the disposal of the appeal.
4. Reliance is placed in the case of National Thermal Power Co. Ltd., 229 ITR pg.383 (Supreme Court) wherein the Hon'ble Supreme Court has held that the question of law arising from the facts can be raised before the Hon'ble Tribunal. The ratio of this decision is applicable on the facts of the case. We also rely upon the decision in the case of Pratap Singh Ravinderjeet Singh 218 ITR pg.536 (M.P. High Court), wherein it has been held that legal issue which goes to the root of the matter then it should be admitted.
5. We also submit that under R le 27 of Income Tax Appellate Tribunal Rules, the Respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. The Hon'ble Commr. of 302 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Income Tax (Appeals) has decided the issue of the validity of issue of notice u/s 153C against us. According to us, we are eligible to defend ourselves on the issue of validity of notice u/s 153C. We rely upon the decision of Hon'ble Mumbai Tribunal in the case of ACIT vs Triace, ITA No.2827 /MUM/04 (A.Y.1995-96) wherein the issue was identical. The assessee challenged the validity of notice u/s 148 of Income Tax Act, 1961. The Learned CIT(Appeal) held the said issue against the assessee, but gave relief on merits. The assessee did not filed the appeal to the Hon'ble Tribunal on the issue of validity of notice u/s 148. The Department filed the appeal against the relief given on merits. The assessee objected to the validity of notice before Hon'ble Tribunal and relied upon Rule 27 of Income Tax Appellate Tribunal Rules. The Hon'ble members have held that the ground of the assessee should be admitted and have decided the matter accordingly.
6. Based on the above legal matrix, we request your honour to kindly condone the delay in filing the cross objection and admit the legal ground regarding the validity of issue of notice u/s 153C.
23. With regard to filing of cross objection under Rule 27 of ITAT Rules, reliance was placed on the following decisions:-
a. The Asst. Commr. Of Income Tax Cir 18(3) vs. M/s. Triace ITA No.2827/M/04 (Mumbai ITAT) b. National Thermal Power Co.Ltd., vs. Commissioner of Income Tax Reported in 229 ITR 383 (SC) c. Pratapsingh Ravindrajeet Singh vs. Commissioner of Income Tax Reported in 218 ITR 536 (Madhya Pradesh High Court)
24. With regard to applicability of the provisions of Section 153 C, learned AR submitted that the conditions of Section 153C are not satisfied. The learned Assesseing Officer has wrongly exercised the jurisdiction u/s 153C. The provisions of Section 153C can only be invoked when the Assessing Officer, who is dealing with the case of a person against whom search has taken place, is satisfied that any money, bullion, jewellery or other valuable article or thing or books of accounts or documents belongs to a person other than a person referred to in section 153 A then the books of accounts or documents or seized assets shall be handed over to the Assessing Officer "having jurisdiction over such other person and the Assessing Officer shall proceed against such other person and issue such other person notice and assess or reassess the income of such other person in "accordance with the provisions of Section 153 A. The basic condition is that the money, bullion, jewellery or other valuable article 303 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 or thing or books of accounts or documents belongs to a person other than a person referred to in section 153 A are found during" the course of search in case of a person against whom the proceedings are initiated u/s153A. The Assessing Officer had issued the notice u/s 153 C dated 16/12/2010. Assessee had filed the letter dated 12/1/2011 asking for the copy of the satisfaction recorded and as to how the conditions of Section 153C are satisfied. The Assessing Officer has not recorded any satisfaction applicable to A.Y. 2008-09. Our attention was invited to the satisfaction which is on page 7 of the paper book. The Assessing Officer has recorded a noting for A.Y. 2004-05 to A.Y. 2009-10. There is no recording of the satisfaction as applicable to A.Y. 2008-09. He has referred to page 1 of Annexure A- 1 seized in the case of Jogia Properties Ltd, he has referred to page No.1 as the document. As per learned A.R. this paper cannot be considered as document. Page No.1 is on page No.8 of the paper book. This page contains the details of various companies giving the details of their bank account with Union Bank of India, Nariman Point branch with the name of the persons who are authorized to operate the said" bank account. The name of the assessee company is appearing at Sr.No.13. These details must have been prepared by Jogia Properties Pvt. Ltd. Page No.1 by no stretch of imagination can be construed as a document belonging to the assessee. This is a piece of paper wherein details of bank account of 24 companies are mentioned and the name of the assessee is appearing at Sr.No.13. It was submitted that no document belonging to the assessee was found during the course of search in case of Jogia Properties Pvt. Ltd. When no document was found belonging to the assessee notice u/s 153C cannot be issued. During the course of investigation of Jogia Properties Pvt. Ltd, the reply was filed before the ADI Investigation Wing.
25. Reliance was placed on the case of Vijaybhai Chandrani' Reported in 333 ITR P.·436, wherein the Hon'ble Gujarat High Court has held that during the course of search the document belonging to other person should be found to initiate proceedings u/s. 153C, it was also held that there may be a reference to a petitioner in the paper seized in as much as his name is reflected in the seized paper and certain details are given under different column but it does not mean that the document belong to the petitioner.
26. With regard to merit of addition, learned AR contended that assessee has produced all the necessary evidences and proof in support of the claim that the amount of share capital received from eight parties is genuine and supported with the documents and 304 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 provisions of Section 68 cannot apply to the said transactions. As per learned A.R. during the course of search no incrementing material was found to prove that the transactions with eight parties are not genuine and the assessee has given cash and has received the cheque from these parties. The assessee has produced the documents such as the proof of existence of the Corporate body, registration number with ROC, PAN No., balance sheet, ROC returns, details about the share capital introduced giving the details such as cheque number, name of bank and branch, confirmation of giving share capital, certificate from Auditors of the Company, Board Resolution of the investing company, proof of filing the tax return, investor companies having high networth etc. The transaction of share capital is duly reflected in the regular books of accounts. No undisclosed income is found or detected during the course of search.
27. As per learned AR during the assessment proceedings, the Ld. Assessing Officer did not issue a single letter, notice or summons to any of the investing company and has not brought on record a single material contrary to the evidences produced by the assessee.
28. Our attention was also invited to Page 31 of the CIT(A)'s order wherein he has given a finding that "even independent enquiry made about the bank account of these companies, the AO has not found any instance of cash deposit against issue of cheques". This finding is not challenged by the Department. There are total six assesses and the Ld. CIT (A) has treated the case of M/s. Reva Properties Ltd., as the lead case. He has given a finding on internal page 29 giving a reference to the case of Reva Properties Ltd., and also has stated that the facts are the same in all cases. During the hearing the Ld. Counsel for the appellant has produced the order passed by Ld. CIT(A) in the case of Reva Properties Ltd and in para 4.11 internal page 27, he has given a finding that during appellate proceedings he had discussed the matter with the Ld. AO and the Ld. Addl. Commr. and asked whether any investigation regarding bank details have been made. He has stated that the Ld. Commr. has fairly admitted that complete bank enquiries were made in case of all Investing companies on the basis of the details submitted by the assessee upto third down layer but nowhere it was found that cash was deposited in any account before issuing the cheque for investments made in the purchase of shares of the assessee company. He further stated that since no adverse finding was recorded during the bank account investigation, this fact was not mentioned in the assessment order. The Department has not challenged this finding of Ld. CIT(A) which clinches the issue and proves the allegation of the Department 305 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 that assessee has given cash and has received cheques from the investing companies.
29. Learned AR also placed on record the order of the Co-ordinate Bench and contended that in the case of Jogia Properties Ltd, the Hon'ble J-Bench in appeal no. 6106 and 6107 for A.Y. 2008-09 and 2009-10 has approved the order of Ld. CIT (A) deleting the addition made by the Ld. Assessing Officer u/s 68. The parties who have made investments in Jogia Properties Ltd and the parties who have made investments in the share capital of the assessee company are same, except one party viz. Gyaneshwar Trading & Finance Co Ltd. The details of the said party is submitted at pages 83 to 105 of paper book for AY. 2008-09. The ratio of decision of the Hon'ble Tribunal in the case of Jogia Properties Ltd is also squarely applicable on the facts of the case. The Hon'ble Tribunal has also dealt with the issue of statement by Shri Jose Mathews, the directors of the company and also the statement of Mr. Mukesh Chokshi. The conclusion of the Hon'ble Tribunal on all these aspects also is applicable on the facts of the case.
30. On the other hand, learned CIT(DR) contended that, the documents were found and seized belonging to the assessee company which cannot be denied because the entries of these loose papers is duly reflected in the books of account. Therefore, there is not even an iota of doubt that the seized papers are not belonging to the assessee. In view of these facts and circumstances, the AO has rightly issued notice u/s. 153C with the satisfaction that the documents found and seized during the search are belonging to the assessee company.
31. As per learned DR, the objection of the assessee that no incriminating documents were found and seized during the search operation at the business premises of M/s. Jogia Properties Pvt. Ltd. is not sustainable because in the provisions u/s. 153C there is no mention of the word "incriminating" or undisclosed". It is simply mentioned that the books of account or documents seized belonging to a person other than the person referred to in section 153A, then the books of account will be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each other person and issue notice and assess or re-assess his income in accordance with the provisions of section 153A.
32. It was vehemently argued by learned CIT(DR) that nowhere in the language of section 153C is mentioned the words 'incriminating' 306 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 or 'undisclosed'. Therefore, the intention is very clear that if the documents belonging to the other person are found in the search and seizure operation, then the AO has the jurisdiction to issue notice u/s. 153C r.w.s. 153A after recording the reasons. In the present case, the documents which were found and seized belonging to the assessee. Secondly, the statement of Shri Jose Mathew was recorded on the date of search and a consequent statement of Shri Ajay Kumar was recorded on 15/04/2010 who has made a disclosure on account of share application money in case of companies mentioned in the assessment order in respective years. On the basis of the seized papers and the statements recorded, the AO has reason to believe and he has recorded the reasons as per the provisions of section 153A. Since the AO having jurisdiction over the case of person searched and the assessee was the same, he was justified in issuing notice u/s. 153C after recording satisfaction.
33. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR during the course of hearing before us. We had also carefully gone through the order passed by Tribunal in case of Jogia Properties Ltd., wherein search was carried out u/s.132 and assessment was framed u/s.153A dated 18/12/2015, wherein the Tribunal have confirmed the action of the CIT(A) for deleting the addition made by AO on account of share capital. The precise observation of the Tribunal was as under:-
"The above titled appeals have been preferred by the Revenue against the common order dated 27.07.2012 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to AY 2008-09 and AY 2009-10. As the facts and issues involved in both the appeals are similar and the impugned order of the Ld. CIT(A) is also common in both the appeals, hence the same are taken together for disposal with this common order.
2. The brief facts of the case as drawn out from the impugned order and the available record on the file are that a search and seizure operation was carried out u/s. 132 of the I.T. Act at the business premises of assessee on 04.03.2010 situated at 208, Ashirwad Building, Ahmedabad Street, Carnac Bunder, Mumbai. During the course of search it was found that assessee had been maintaining its books of accounts at another premises situated at 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bunder, Mumbai
- 400 009. Therefore, the said premise was covered for survey action u/s. 133A of the I.T. Act. During the survey action, it was 307 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 revealed that seven other companies have also been operating from the said premise Bhatia Niwas. It revealed that the assessee and all the above stated seven companies were engaged in investment activities and have made investments in equity shares of various companies including one M/s. Shree Global Trade fin. Ltd. The investments were made out of the share capital of the company, which consisted of the share application money received from various other concerns. It was also revealed that there was one common director in some of the above stated seven companies e.g. Shri Ajay Kumar has been the director of M/s Jogia Properties Pvt. Ltd., M/s Auster Properties Pvt. Ltd. and M/s Reva Properties Pvt. Ltd. Similarly Shri Om Hari Halan has been a director in M/s Archive Realty Developers Pvt. Ltd. and M/s. Vedisa Properties Pvt. Ltd.; Similarly Sh. Narayan Hari Halan was director in M/s. Martand Properties Pvt. Ltd., M/s. Karburi Proprties Pvt. Ltd. and M/s. Cikura Properties Pvt. Ltd. Further, it was also revealed that all the above said Directors were closely related to each other. The case of the assessee was thus covered under section 153A and the other seven companies were covered u/s. 153C of the I.T. Act.
3. During the course of another separate survey action in the case of 'M/s. Shree Global trade fin. Ltd.' i.e. the company in which the assessee company had made investment, statement of one Shri Jose Mathew, Jt. General Manager in the said company 'M/s. Shree Global trade fin. Ltd.' was also recorded on 04.03.2010. In his statement, he stated that the share application money received in the assessee company and other group companies have been obtained by paying cash in lieu of the cheques received as share capital. The said money received as share capital by the assessee company and other group companies was further invested in his company 'M/s Shree Global trade fin. Ltd.; This statement of Shri Jose Mathew was confronted to Shri Ajay Kumar, one of the Directors of the assessee company who in turn offered the amount received as share capital from the companies as mentioned in the assessment order as unexplained credits. Shri Jose Mathew and Sh. Ajay Kumar however, retracted from their statements latter on.
4. The Assessing Officer (hereinafter referred to as the AO) issued notice u/s. 153A to the assessee. In the return filed in response to the notice u/s 153A, the amount declared as undisclosed income in the statement of Shri Ajay Kumar, Director of the company during the search action had not been disclosed. The AO observed that all the above said 7 companies have been doing their business from the same place and that these concerns were also not well established companies. A total of ten companies (eight companies in AY 2008-09 & 2 companies in AY 2009-10), names of which have been mentioned in the assessment order, had subscribed to the shares of these companies including the assessee. The AO 308 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 further noted that the above concerns were sister concerns and their nature and the modus operandi was same as that of the assessee company. The AO further observed that the search and seizure operation was also conducted on one Shri Mukesh Chokshi, who was operating many companies through which he was indulged in providing the bogus entries including long term capital gain, short term capital gain, losses, speculative losses and share application money etc. It was also observed that two companies of Mr. Mukesh Chokshi, i.e. M/s. Talent Infoway and M/s. Mihir Agencies have also made investment in AY 2009-10 for the purchase of shares in the M/s. Jogia Group of companies.
The AO observed that Shri Ajay Kumar, Director of the company had offered the amount received as share capital from above said companies as unexplained credits in AY. 2008-09 & AY 2009-10. Since the undisclosed income declared in the statement was not offered for taxation in the return filed, therefore, the AO gave a show cause notice to the assessee to submit complete details of share application money received and utilized. The AO also asked the assessee to submit the complete evidences to prove the identity, credit worthiness and genuineness of the transaction of the share holding companies. In response to the show cause notice, the Ld. AR of the assessee submitted its reply along with relevant details, confirmations and evidences etc.; The AO however was not satisfied with the reply of the assessee and noted certain discrepancies in the evidences submitted by the assessee viz. the assessee had not provided share application form; No Board resolution was provided; Bank statements were not provided in some cases or that the directors of the company were not produced for cross examination. The AO thereafter discussed the issue of retraction of statement given by the Director of the company, Shri Ajay Kumar and observed that the statement recorded by the income-tax authorities u/s. 131 has evidentiary value even after its retraction and that the same can be used against the assessee. The AO further held that the documents filed relating to share application money were all result of an afterthought and the same cannot be relied or considered as supporting documentary evidences for receiving share application money and retracting the declaration made. In view of all these facts and circumstances, the AO held that the assessee had failed to prove the identity, credit worthiness and genuineness of the transaction of the above share holding companies, he therefore, treated the investment made by these companies amounting to Rs.12,80,00,000/- and Rs.3,90,00,000/- for the AYs. 2008-09 & 2009-10 respectively as undisclosed income of the assessee company u/s. 68 of the I.T. Act. Being aggrieved by the above additions, the assessee filed appeal before the CIT(A).309
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
5. The Ld. CIT(A), after considering the submissions of the assessee and analyzing the facts and circumstances of the case, observed that 10 companies had subscribed the share application money in the assessee company. The papers relating to the identity, creditworthiness and genuineness of the transaction relating to these companies were submitted by the assessee to the AO. The AO had also made bank enquiry in this respect but no discrepancy or incriminating evidence was found. The Ld. CIT(A) further noted that no incriminating document relating to the share application money was found or seized during the course of search. Further in respect to the companies, M/s. Mihir Agencies P. Ltd. & M/s. Talent Infoway Ltd. in which one Mr. Mukesh Choksi has been a director, the Ld. CIT(A) observed that these companies had been registered with the registrar of companies. These companies had subscribed to the shares of the assessee company in AY 2009-10. The Ld. CIT(A) in this respect observed that during assessment proceedings, the Ld. AR of the assessee had submitted all the details relating to these companies. All the companies were having PAN and independently and regularly assessed to tax. Complete details of cheque number., date of cheque, bank a/c. share allotment letters giving detail of share certificate number, copy of bank account of the assessee was submitted before the AO. He further noted that the statement of Mr. Choksi was not recorded in the context of this case but was recorded in some other case. Mr. Choksi had given a general statement that he was giving accommodation entries to the companies against cash received from them. Nowhere in the statement, had he stated that cash was received from the assessee company and cheque was issued against the cash as share application money. There was no mention in the said statement that transaction with the assessee company was not genuine. No incriminating document was found and seized during search operation to prove that cash was given against cheques received from these companies. Even independent enquiry made in respect of the bank accounts of these companies, the AO could not find any instance of cash deposit against issuing of cheques. The Ld. CIT(A) thereafter examined the applicability of section 68 of the Act to the set of facts of the case of the assessee and concluded that for the establishment of identity, each company was having PAN and regularly assessed to tax; For creditworthiness, each company had independent bank account and details were submitted to the AO; For genuineness of transaction, all payments were made through account payee cheques duly reflected in the bank of each company and the assessee company's bank account. Therefore, all the conditions, i.e. identity, creditworthiness and genuineness of transaction were fulfilled. Thus reliance cannot be placed on a general statement of Mr. Choksi alone which was not corroborated by any documentary evidence. He therefore held that in totality of facts & circumstances, the case was covered by the decision of 310 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Hon'ble Supreme Court in case of Lovely Exports Pvt. Ltd.[216 CTR 195 (SC)].He therefore deleted the additions so made by the Assessing Officer u/s. 68 of the Act.
Being aggrieved by the above deletion of the additions made by the AO, the Revenue has thus come in appeal before us.
6. We have heard the rival contentions of the Ld. Representatives of the parties at length and have also gone through the record. The contention of the Ld. DR has been that during the search action, Sh Ajay kumar, one of the directors of the company had admitted that the money received as share application money was unexplained income of the assessee and he had offered it for taxation. He therefore has contended that subsequent retraction is nothing but an afterthought of the assessee. The Ld. DR has further contended that Sh. Mukesh Chokshi was a hawala dealer, hence the share application money received by the assessee was the result of a bogus transaction. The Ld. DR in this respect has relied upon the decision of the co-ordinate bench of the Tribunal in the case of "Gold Star Finvest (p) Ltd."[2013] 33 Taxmann.com 129. The Ld. DR has also referred to the decisions of the Tribunal in the case of "M/s. Richmand Securities Pvt. Ltd." in ITA No.4624/Mum/2005 dated 29.8.2008 and further in the case "M/s. Mihir Agencies Pvt. Ltd." in ITA No.4912/Mum/2005 dated 30.5.2008 wherein the decision in the case of "M/s Gold Star Finvest (P) Ltd" has been followed.
7. The Ld. A.R. on the other hand has relied upon the documents produced before the lower authorities and has reiterated the submissions as were made before the lower authorities. Inviting our attention to the case record relating to AY 2008-09, the Ld. AR has pointed out that none of the companies who had invested in the assessee company in the AY 2008-09 belonged to Sh. Mukesh Chokshi. He has further invited our attention to the various documents filed in the paper book to contend that the assessee had submitted all the required details such as balance sheet, return filed giving the full particulars about the company, the confirmations from the investing companies regarding the investments made in the share capital of the assessee company, certificate from the auditors to the effect that the said company was assessed to tax and that the investment was duly reflected in their regular books of accounts. The details of allotment of shares, the complete details giving cheque number, name of the bank, date, amount, address, PAN Number, ROC Number etc. in respect of each of the eight companies from whom the assessee had received the share application money in the AY 2008-09 was filed. The details of the notice issued by the assessee company for holding the meetings of the shareholders and the proof of dispatch of the notice to the shareholder were also submitted. The Ld. AR has further submitted that even in respect the 311 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 2 companies which belonged to Sh. Mukesh Chokshi, who had invested in the assessee company in the AY 2009-10, the assessee had submitted all the requisite details such as the name, address, PAN number, Registration number with Registrar of Companies, details of the bank account, details of shares allotted, intimation to ROC about issue of shares, issue of notices by the assessee company for holding, the meetings of the shareholders and proof of dispatch of notice to the shareholder.
8. He has further contended that there was nothing incriminating found either during the search action or otherwise on the record warranting such additions in the case of assessee. The Ld. AR has further invited our attention to the written submissions filed before the Ld. CIT(A), wherein, each of the objections raised by the AO in respect of the evidences submitted in relation to each of the eight companies was duly replied and dealt with. It has been explained that the assessee had provided the complete details of the share application money received together with confirmations and that there was no statutory obligation to obtain the application form from the investor. The investor companies had given a ledger account confirmations. Complete details about the bank account giving cheque number, date, name of bank was submitted. The Ledger Account confirmation in the books of Investor company was also submitted. The board resolution was not available with assessee as the assessee has got no legal right to ask for copy of board resolution when complete information about the investments made was available. The evidence relating to the net worth of the investing companies was also submitted.
The Ld. DR on the other hand, though, has fairly admitted that no direct incriminating material against the assessee was found during the search action, he, however, has contended that it is a case of circumstantial evidence which is corroborated with the admission of one of the directors of the assessee company.
At this stage the Ld. AR has pointed to the question No. 15 in the statement of Sh. Ajay Kumar, Director of the company, wherein it was pointed out to him that one Mr. Jose Mathews had on 4.3.2010, during the course of survey in the case of Shree Global Trade fin. Ltd., had stated that the share application received in case of the assessee from certain companies had been obtained by paying cash. In reply to question No. 15, it has been stated by the said Sh. Ajay Kumar that the statement given by Mr. Jose Mathews was not true. He was not aware about the business activity of the assessee company. The Ld. AR has further stated that Mr. Jose Mathews had nothing to do with the business activity of the assessee company. Mr. Jose Mathews also had retracted the statement which was recorded during the course of survey u/s. 133A and the necessary proof and evidence for the same was also produced 312 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 before the AO. The AO had also thereafter not issued any notice to Mr. Jose Mathews. The Ld. AR therefore has submitted that no reliance can be placed in the statement of Mr. Jose Mathews.
8. We have considered the above submissions of the Ld. AR of the assessee. We have also gone through the statement of Sh. Ajay Kumar Halan, recorded under section 131 of the Act. The relevant part of his statement for the purpose of proper analysis is reproduced as under:313
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 We find force in the above submissions of the Ld. AR. of the assessee. Mr. Jose Mathews was the employee of Shree Global Trade fin. Ltd. and not of the assessee company neither of the alleged seven Group companies of the assessee. The said Mr. Jose Mathews was even in no way related to the investing companies who made investments in the assessee company, the transactions relating to which have been treated bogus by the AO. When the said person was neither the employee of the assessee company nor was in any way related to the investing companies, his statement in the circumstances could not be said to have any evidentiary value. Mr. Jose Mathews was the employee of the company in which the assessee had made the investments, which was a totally different transaction. He was not in any manner connected to the transactions in question before us. As regards the statement of Shri Ajay Kumar Halan, the Ld. AR while inviting our attention to answer to question No.3 of the 314 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 statement has submitted that he was appointed as the director on 15.2.2010 only. That he was not the director in the previous year relevant to A.Y. 2009-10. He was also not the Director during the previous year from 1.4.2009 to 15.2.2010, during the time when the transaction had taken place. He was not the employee of the assessee company nor was any way connected with the business of the assessee prior to 15.2.2010. He has further pointed out that there was no direct admission of Sh. Ajay Kumar about any unexplained income. He has demonstrated that he was given an impression that in view of the statement of Sh. Mukesh Chokshi and Sh. Mr. Jose Mathews in some other search or survey actions, it was established that the assessee had received unexplained investment, in response to which he stated that he has come to know about these facts then only as revealed by the department and taking into consideration the fact and circumstances as were before him when these question were put to him, he agreed to offer the amount as unexplained income of the company. In view of this the Ld. AR has submitted that no reliance can be placed on the statement of Sh.
Ajay Kumar who was neither in any way connected with the activities of the company when the transaction took place nor his admission was based on his personal knowledge, rather he agreed to admit the additions on the basis of facts presented to him i.e. the alleged unreliable statements of Mukesh Chokshiand Mr. Jose Mathews.
10. The Ld. AR has further explained that during the assessment proceedings, the assessee vide different letters including letter dated November 30, 2011 had explained to the Assessing Officer all the above facts and that the disclosure was made solely on the basis of information provided to him by the investigation wing and purely on the mistaken belief that the transaction of share investments by nine companies could not be explained. However subsequently he gathered the information, the papers, the documents, the confirmations, bank statements, balance sheets and other records of all the nine companies. Based on the information and documents he found that all the nine companies were genuine and they had invested in the share capital of the assessee company. No confessional statement was given by any of the nine shareholding company before the Investigation Wing.
11. We find force in this contention also of the Ld. AR. A perusal of the statement of Sh. Ajay Kumar, recorded under section 131 of the Act, as reproduced above, reveals that the acceptance or offer of the unexplained income was not based on his own knowledge or admission of facts but on the basis of facts and statements presented by the revenue before him. He has never admitted that the transactions were not genuine or the same were bogus. In answer to question No.13 put to him, he has stated to the investigation wing that he did not know Mr. Mukesh Choksi, neither he was aware of his group concerns. The shares were allotted to M/s. Talent Infoways and M/s Mihir Agencies in due course after duly complying with all the legal provisions. Similarly in the case of other companies as is revealed from the answer to question No.15, that owing to the facts 315 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 mentioned by the investigation wing and the facts and circumstances which were available to him on that date, he had agreed to disclose the share application money received as unexplained. The Ld. AR has duly brought on the file that he was not connected to the company when the transactions took place. Under such circumstances, in the absence of any corroborating evidence and solely on the basis of retracted statement of the said Sh. Ajay Kumar, a perusal of which reveals that the same was not based on his own knowledge of the relevant facts/transaction in question, additions made by the AO cannot be held to be justified in any manner.
The Ld. AR has further brought our attention in this respect to the Instructions issued by CBDT bearing No.F.No.286/2/2003-IT (Inv.II) dated 10/3/2003 wherein it has been stated that during the course of search / survey, no attempt should be made to obtain the confession as to the undisclosed income. Any action on the contrary shall be reviewed adversely. CBDT has also referred to the fact that if the confession statements are taken which are not based on credible evidence then later they are retracted. In the present case also, not a single incriminating material was found during the search action. The addition is made purely on the basis of declaration made by Sh Ajay Kumar, Director. The Ld. AR has relied upon the following decisions in this respect.
(a) DCIT vs Pramukh Builders ITA No. 2170/Ahd./1999 A.Y. 1994-95 dated 6.7.2007 Reported in 115TTJ p. 330 (Third Member)
(b) CIT vs. K. Bhuvanendra and Others 303 ITR p. 235 (Madras High Court)
(c) S. Khader Khan Son Reported in 300 ITR p. 157 (Madras High Court)
(d) Oriental Containers Ltd. vs. ACIT (2010) 6 Taxmann.com 121 (Mum).
(e) Prem Sons ITA No.4698/MUM/2006 AY 2003-04 dt. 15/1/2009
(f) Kalashben Manharlal Chokshi 174 Taxmann pg.466 (Guj. High Court)
(g) Rajesh Jain ITA No.SSA No.203/Del/2003 reported in 100 TTJ 929
12. We have gone through the above case laws relied upon by the Ld. AR. We find that in the above mentioned Judicial decisions, the various 316 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 courts of law have been almost unanimous in holding that though the admission is an important piece of evidence but it can not be said that it is conclusive; it is open to the person who made the admission to show that it is incorrect and that merely on the basis of statement recorded during the search under mistaken belief and which has been retracted subsequently and without there being any corroborative evidence or incriminating material found, no addition can be made.
As regards the statement of Mr. Mukesh Choksi relied upon by the revenue, the Ld. AR has submitted that he had never stated that assessee had given any cash to him or any accommodation entry was provided by him to the assessee. No name of the assessee figured in his statement recorded in any other case. During the course of survey/search on assessee also, not a single evidence was found to suggest that cash was given to Mr. Mukesh Choksi and accommodation entries were taken. The ld. AR has relied upon the decisions of the Hon'ble Bombay High Court as well as various decisions of the Mumbai Tribunal wherein it has been held that no reliance can be placed on the statement of Mr. Mukesh Choksi when the assessee has independently established the genuineness of the transaction.
The Ld. AR has further relied upon the following decisions wherein it has been held that once the assessee submits the basic information about the investor company and substantiates the same no addition can be made by invoking the provisions of Section 68 of the Income Tax Act, 1961.
a) Lovely Exports Pvt. Ltd. - 299 ITR (Delhi High Court) page 268 and SLP rejected by the Supreme Court in 319 ITR (statute page 5).
b) CIT vs Creative World Telefilms Limited 333 ITR p. 100 (Bombay High Court)
c) ACIT vs. Venketeshwar Ispat (P) Ltd. (Chhatisgarh High Court) (2010) 41 DTR - 350
d) CIT vs Gangour Investments Ltd. (2009) 18 DTR (Delhi) -
242e) CIT vs STL Extrusion Pvt. Ltd. (2011) 333 ITR - p. 269 (MP High Court)
f) CIT vs. G.P. International Limited (2010) 325 ITR p. 25 (P&H)
g) CIT vs. Siri Ram Syal Hydro Power Pvt. Ltd. 196 Taxman p.
444 (Delhi High Court)
h) CIT vs HLT Finance Pvt. Ltd. (2011) 201 Taxman p. 28 (Delhi High Court) 317 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
13. On the other hand the Ld. DR has relied upon one decision of Mumbai ITAT in the case of Gold Star Finvest Pvt. Ltd. (supra) wherein while determining the income of that assessee, the Tribunal has estimated the income at certain percentage. The Ld. AR has however submitted that the ratio of this decision cannot overrule the decisions of Bombay High Court and several Mumbai ITAT decisions as relied upon by him. He has further relied upon the following decisions wherein the additions made by the AO on the basis of general statement of Mukesh Chokshi have ultimately been deleted by the higher authorities.
1. Kataria Ketan Ishwarlal Vs. ITO - ITA No.4304/M/2007 decided on 30.04.2010.
2. ACIT Vs. Shri Ravindrakumar Toshniwal - ITA No.5302/M/2008 decided on 24.02.2010
3. ITO Vs. Truptic Shah - ITA No.1442/M/2010 decided on 29.04.2011
4. Smt. Manjulaben L. Shah Vs. ITO - ITA No.3112/M/2014 decided on 31.10.2014
5. M/s SDB Estate private ltd. vs. ITO ITA No. 584/M/2015 decided on 15.04.2015
6. M/s. Yamuna Estate Pvt. Ltd. vs. ITO ITA No.2672/M/2012 decided on 09.09.2015
7. CIT vs. Rajni Devi A. Choudhry (Bom. HC) ITA NO. 1333of 2008 decided on 27.4.2009
8. "Shri Mukesh R. Marolia vs. Additional CIT" (2006) 6 SOT 247 (Mum)
9. "CIT vs. Shri Mukesh R. Marolia" in ITA No.456 of 2007 decided on 07.09.2011 (Bom HC)
10. SLP No.20146/2012 styled as "CIT vs. Shri Mukesh R. Marolia vide order dated 27.01.14 (SC)
11. "CIT vs. M/s. Kesar A. Gada in ITA No.300 of 2013 decided on 21.01.15(Bom. HC)
12. "CIT vs. Kasturben H. Gada" in ITA No.299 of 2013 decided on 21.01.15.(Bom HC)
13. CIT vs. M/s Sharda Credit Pvt. Ltd. ITA NO. 3090 of 2009 decided on 12.9.2011(Bom. HC) 318 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
14. We have perused the case laws relied upon by the Ld. Representatives of the parties. In our view, each case has to be decided on its own facts. Merely because, in the case of one company Gold Star Finvest Pvt. Ltd. run by Mukesh Chokshi, the income has been determined on percentage/commission basis treating the said company as accommodation entry provider, that itself cannot hold a justification to completely ignore the facts and evidences brought on the file by the assessee. The case of the assessee has to be adjudged on the basis of its own set of facts and evidences. Moreover the facts and circumstances of the case of the assessee are squarely covered by the various decisions of the Hon'ble Jurisdictional High Court Of Bombay. We further find that the issue, relating to the investments made by the companies relating to the said Mr. Mukesh Chokshi in some other cases, has travelled up to the level of Hon'ble Supreme Court. In the case of "Shri Mukesh R. Marolia vs. Additional CIT" (2006) 6 SOT 247 (Mum), the assessee had made share transaction through the companies M/s. Richmond Securities Pvt. Ltd. and M/s. Scorpio Management. Mr. Mukesh Chokshi has been the director of M/s. Richmond Securities Pvt. Ltd. The Tribunal, after considering the overall facts and circumstances of the case, observed inter-alia that on the basis of evidence available and there being no incriminating material found during the search action, observed that the assessment has to be completed on the basis of records and material available before the Assessing Authority. The personal knowledge and excitement on events should not lead the AO to a state of affairs where salient evidences are overlooked. Where every transaction of the assessee has been accounted, documented and supported in such an event, even though, the amount invested by the assessee has grown into a very sizeable amount which looks quite amazing, the evidence produced by the assessee cannot be brushed aside. The Tribunal under such circumstances deleted the addition. The Revenue took the matter to the Hon'ble Bombay High Court. The Hon'ble Bombay High Court, while adjudicating the above issue in the case styled as "CIT vs. Shri Mukesh R. Marolia" in ITA No.456 of 2007 decided on 07.09.2011, observed that though there was some discrepancy in the statement of director (Mr. Mukesh Chokshi) of M/s. Richmond Securities Pvt. Ltd. regarding the sale transaction, but owing to the factual finding given by the Tribunal on the basis of evidences furnished by the assessee, the decision of the Tribunal cannot be faulted. The Hon'ble Bombay High Court upheld the finding of the Tribunal holding the sale transactions as genuine.
The Department preferred appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court dismissed the SLP No.20146/2012 styled as "CIT vs. Shri Mukesh R. Marolia vide order dated 27.01.14.
Similarly in the case of "CIT vs. M/s. Kesar A. Gada in ITA No.300 of 2013 decided on 21.01.15 wherein the AO, while making the additions under section 68 of the Act, had relied upon the statement of Mr. Mukesh Chokshi that he had given various accommodation entries to various parties. The Hon'ble Bombay High Court observed that where the assessee 319 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 had brought the relevant evidences regarding the genuineness of transaction and that in his statement Mr. Mukesh Chokshi had not mentioned the name of the respondent/assessee as one to whom accommodation entries were given, the Hon'ble Bombay High Court upheld the findings of the Ld. CIT(A) which were further confirmed by the Tribunal holding that the transactions were genuine and the additions under section 68 of the Act were not warranted. Similar findings have been given by the Hon'ble Bombay High Court in the case of "CIT vs. Kasturben H. Gada" in ITA No.299 of 2013 decided on 21.01.15. In CIT vs. M/s Sharda Credit Pvt. Ltd. (supra), the Hon'ble High Court has dismissed the appeal of the revenue on identical facts. The Hon'ble Bombay High Court while upholding the order of the Tribunal in the above stated appeals has also relied upon the decision of the Hon'ble Bombay High Court in the case of "Shri Mukesh R. Marolia" (supra). Even in the case of "Smt Rajni S Chowdhry" (supra), the Hon'ble Bombay High Court has upheld the decision of the Tribunal given on the basis of appreciation of evidence and factual finding, accepting the transaction carried carries through broker M/s Gold Star Finvest (P) ltd. as genuine.
15. We further find that the issue is squarely covered by the various decisions of the Tribunal on the basis of same facts. Recently the Tribunal, in the case of "ITO vs. Superline Construction Pvt. Ltd. & Others" in ITA No.3645/M/2014 & Others vide common order dated 30.11.2015 in identical facts and circumstances while dealing with the issue of making investments by way of share application money invested by the same companies as in the case of an assessee i.e. M/s. Talent Infoways and M/s. Mihir Agencies, has upheld the findings of the Ld. CIT(A) deleting the additions.
The other case laws relied upon by the Ld. DR are thus not applicable to the case of the assessee in the light of the direct decision of the Jurisdictional High Court on the identical facts which holds a binding precedent on this Tribunal. Even otherwise there is no evidence on record that the assessee had given its own money to the investing company for the purpose of making investments. It may be observed that the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. referred above has clearly laid down the law that once the assessee has given the complete details and the information of the investors who have made investments in the share capital of the company and proved identify then no addition can be made in the hands of the assessee company and in respect of such investments the department should proceed against the individual investor. In the case in hand also, the requisite details, proof, confirmation, evidences etc. are produced. The ratio of the decision of the Hon'ble Supreme Court is directly applicable on the facts of the case.
In view of the above discussion of the matter, we do not find any infirmity in the factual finding given by the CIT(A) after duly appreciation of evidence on the file and the same is accordingly upheld.
320M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
16. In the result, the above captioned appeals of the Revenue are hereby dismissed.
Order pronounced in the open court on 18.12.2015.
34. It is clear from the order of the Tribunal that all the share applicants for which additions have been made by AO have been dealt by Tribunal in threadbare. The Tribunal have also considered the judicial pronouncements cited before it as applicable to the facts of the instant case and confirmed the finding of the CIT(A) with reference to the merit of the addition so made by AO on account of share capital which was deleted by the CIT(A). We found that CIT(A) in all these years have also deleted the addition after recording detailed finding which are as per material on record. Detailed finding has been recorded by CIT(A) while deleting addition in the hands of Jogia Properties Ltd., with reference to the very same share applicants and the Tribunal in its order dated 18/12/2015 had further fortified the finding of CIT(A). Thus two appellate authorities have given the concurrent finding with regard to the identity, genuineness and creditworthiness of all the share applicants, therefore, no addition was warranted on account of these share applicants. Respectfully following the order of the Tribunal in case of Jogia Properties Ltd., wherein also from the very same applicants, share capital was received except Gyaneshwar Trading & Finance Co. Ltd., We had also gone through the documentary evidences filed in case of Gyaneshwar Tradings to prove the identity, genuineness and creditworthiness. As per the documents placed at page 83 to 105 of paper book for A.Y.2008- 09, all the three conditions have been satisfied and no addition u/s.68 is warranted for the amount invested by Gyaneshwar Trading & Finance Co. Ltd., Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the addition so made on account of share capital.
35. With regard to the legal issue taken by the assessee in the cross objection, as per our considered view, the same can be taken at any time as per the verdict of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd., 229 ITR pg.383. We also found that assessee has given sufficient reason for delay in filing the cross objection. Since it is purely legal issue which goes to the root of the issue considering the reasons filed for condonation of delay, we are satisfied that there was sufficient 321 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 reasons for delay in filing the cross objection, accordingly, in the interest of substantial justice, we condone the delay and decide the legal issue. The assessee has challenged the legality of the assessment framed u/s.153C on the plea that no satisfaction was recorded by AO of the searched person so as to empower the concerned AO of these concerns to make addition u/s.153C. Learned AR placed on record report on inspection taken of the records dated 28/08/2015 which reads as under:-
Jogia Properties Ltd.
A.Y. 2008-09 alld 2009-10 ITA No.6106/M/2012 and 6107/M/2012 Hearing fixed on 8th September, 2015 Report on the inspection taken of the records The appellant had made an application vide letter dated 05/08/2015 to the Assessing Officer requesting for inspection of the assessment records.
The said assessment records were with the Hon'ble Commr. of Income Tax, DR, Smt. Neena Pandey, f-Bench, Mumbai ITAT.
The Inspector Ms. Ambika Shashidharan, attached to f-Bench, Mumbai ITAT, gave the inspection of the records on 20/08/2015 at 3 pm. Shri Dilip V. Lakhani, Chartered Accountant, the authorised representative and Shri Viresh Sohoni, the representative of the appellant, took the inspection of the assessment records and the findings of the said inspection are as under.
1. There is no proof or evidence on record to the effect that the Assessing Officer gave the copies of the statement recorded of Mr. Mukesh Chokshi on 25/11/2009 and 11/12/2009.
2. No proceeding sheet / order sheet was available for inspection,
3. No recording of any satisfaction for initiating proceedings u/s 153C against 7 companies.
Place: Mumbai Dilip V. Lakhani Viresh Sohoni Dated: 20/08/2015 Authorised Representative Representative of Appellant
36. It is clear from the above inspection report that no satisfaction has been recorded by the AO of the searched person i.e., M/s. Jogia Properties Ltd., for initiating proceedings u/s.153C against these seven companies.
37. From the record we found that in the file of the company which was searched viz. Jogia Properties Ltd., the Ld. 322 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Assessing Officer has not recorded any satisfaction to comply with the provisions of Section 153C. A search & seizure action was taken against M/s. Jogia Properties Ltd and pages 1 to 126 which are a part of Annexure- A 1 were seized in the hands of Jogia Properties Ltd.,. The search took place on 4th and 5th March 2010. The Ld. Assessing Officer of Jogia Properties Ltd. did not record any satisfaction as per the provisions of Section 153C. The assessee has produced the copy of the inspection report which was obtained in the proceedings of Jogia Properties Ltd. In the inspection report it is clearly stated that the Ld. Assessing Officer of Jogia Properties Ltd has not recorded any satisfaction. The Ld. CIT (DR) also has not produced any evidence during the course of hearing to prove that the Ld. Assessing Officer of Jogia Properties Ltd has recorded the satisfaction.
38. Hon'ble Gujarat High Court in the case of Vijaybhai N Chandrani 333 ITR 436 held as under:-
Sections 153A, 1538 and 153C of the Income-tax Act, 1961, lay down a scheme for assessment in case of search and requisition. Section 153C which is similarly worded to section 158BD of the Act, provides that where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A he shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person. However, there is a distinction between the two provisions inasmuch as under section 153C notice can be' issued only where the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to such other person, whereas under section 158BD if the Assessing Officer was satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or assets were requisitioned under section 132A, he could proceed against such other person under section 158BC. Thus a condition precedent for issuing notice under section 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such 323 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 person. If the requirement is not satisfied, recourse cannot be had to the provisions of section 153C.
Held, allowing the petition, that admittedly, the three loose papers recovered during the search proceedings did not belong to the petitioner. It was not the case of the Revenue that the three documents were in the handwriting of the petitioner. In the circumstances, when the condition precedent for issuance of notice was not fulfilled action taken under section 153C of the Act stood vitiated.
39. Learned AR also invited our attention to page 3 of the paper book filed in cross objection proceedings. Page 3 is the copy of the satisfaction recorded u/s 153C in the hands of Karburi Properties Ltd. The reference to years are 2004-05 to 2009-10. The Ld. Assessing Officer has relied upon page 1 of Annexure - A 1 of the seized panchnama dated 04.03.2010. The said page 1 is on page 4 of the paper book. The said page contains the details of 24 entities giving the name, account number and the persons who are authorized signatory. This paper does not belong to Karburi Properties. During the course of investigation, the assessee had filed detailed explanation on the contents of pages 1 to 126 and copy of the submissions made before the Ld. Assessing Officer. The said explanation was accepted and there is not a whisper about the contents of any of the pages from 1 to 126 in the assessment order.
40. For understanding of legal requirement of initiating proceeding u/s.153C, we here below reproduce provision of Section 153C.
Assessment of income of any other person.
Section 153C reads as under.
Assessment of Income of any other person.
153C. Notwithstanding anything contained in section 139, section 147, section 148, section 149, Section 151 and section 153, where the Ld. Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Ld. Assessing Officer having jurisdiction over such other person and that Ld. Assessing Officer shall proceed against each such 324 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.
Provided that in case of such other person, the reference to the date of initiation of the search under Section 132 or making of requisition under section 132A in the second proviso to [sub- Section (1) of 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Ld. Assessing Officer having other person.
Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Ld. Assessing Officer shall not be required to issue notice for assessing or reassessing the total assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment has abated."
In Order to issue a valid notice u/s 153C, the Ld. Assessing Officer of a person against whom search action is taken, records a satisfaction that any money, bullion, jewellery or other valuable article or thing, or books of account or documents seized, belong to a person, other than a person referred to in Section 153A, then the such books of account or documents or assets seized shall be handed over to the Ld. Assessing Officer having jurisdiction over such other person. The recording of the satisfaction is a must and even if the Ld. Assessing Officer for the person searched and the 'other person' is the same, still the satisfaction has to be recorded by the Ld. Assessing Officer of the search person referred to in Section 153A.
41. of the proposition that for initiating proceedings u/s.153C, satisfaction should be recorded in the file of searched person, reliance can be placed on the following judicial pronouncements.
a. Vijaybhai N. Chandrani Vs. Asst. Commr. Of Income Tax Reported in 333 ITR 436 (Guj. HC) b. Pepsico India Holdings (P.) Ltd. Vs. Asst. Commr. Of Income Tax 325 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Reported in 228 Taxmann 116 (Delhi HC) c. Beejay Securities & Finance Ltd. ITA Nos. 4859 to 4865/MUM/2009 (AY. 2001-02 to AY. 2007-08) date of pronouncement 24/06/2011 d. M/s. Jindal Stainless Ltd. ITA Nos. 3480 & 3481 (Del) 2006 (AY. 2003-04 & 2004-05) Reported in 21 ITAT INDIA 812 (Delhi) e. LMJ International Ltd. ITA No. 2173/Koll2006 (AY. 1999-2000) Reported in 119 TTJ (Kol)
214. f. Right Development & Estate Pvt. Ltd. ITA Nos. 4616 to 4619/MUM/2009 (AY. 2004-05 to AY. 2007-08) date of pronouncement 23/09/2011.
g. Asst. Commr. Of Income Tax Vs. Inlay Marketing Pvt. Ltd. (ITAT Delhi) h Tanvir Collections Pvt. Ltd. Vs. Asst. Commr. Of Income Tax (ITAT Delhi) i V. K. Fiscal Services Pvt. Ltd. Vs. Dy. Commr. Of Income Tax (ITAT Delhi) j. Dy. Commr. Of Income Tax, Central Circle-5 New Delhi Vs. Qualtron Commodities Pvt. Ltd. 54 Taxmann.com 295 (Delhi Tribunal) k Dy. Commr. Of Income Tax Vs. Aakash Arogya Mindir P. Ltd 58 Taxmann.com 293 (Delhi Tribunal) l. CIT vs. Sinhgad Technical Education Society, 378 ITR pg.84 (Bombay High Court) m. CIT vs. Mechmen (2015) 280 CTR 198 (Madhya Pradesh High Court) n. CIT vs. IBC Knowledge Park Pvt Ltd, (2016) Taxmann.com, 108 (Karnataka High Court) o. Cit vs. Shettys Pharmaceuticals & Biologicals Ltd., (2015) 230 Taxman 268 (Andhra Pradesh High Court)
42. Applying proposition of law laid down in above judicial pronouncements, notice issued u/s 153C is bad in law and 326 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 consequently the order passed by the Ld. Assessing Officer u/s 153C needs to be cancelled.
43. Now, coming to the statement of one Mr. Jose Mathews which was recorded during course of search. Subsequently Mr. Jose Mathews has retracted his statement. The fact of retraction was also intimated to the Ld. Assessing Officer during the assessment proceedings. The necessary proof for the same was also produced during the course of hearing. Mr. Jose Mathews was neither an employee nor a director nor a person anyway connected with the affairs of either Jogia Properties Ltd or any of these 7 companies. His statement has no evidential value. During the course of search and post search investigation also not a single piece of evidence was found by the Investigation Wing or by the Ld. Assessing Officer to prove what was originally stated by Mr. Jose Mathews. This retraction of statement of Jose Mathews have also been dealt by the Tribunal elaborately in its decision dated 18/12/2015 and after considering the same Tribunal had uphold the deletion of addition in respect of share capital.
44. From the record we found that of post search investigation on 15/04/2010, a summons u/s 131 was issued to the director of the company Mr. Narayan Hari Halan. He was appointed as director of the company on 15/02/2010. He was nowhere connected with the affairs of Jogia Properties Ltd or Karburi Properties Ltd., during the period 01/04/2007 to 31/03/2008 and 01/04/2008 to 31/03/2009. He was not aware about the affairs of the company for the period 01/04/2007 to 31/03/2009.
45. We found Tribunal have elaborately dealt with the summon issued to Mr. Narayan Hari Halan in its order dated 18/12/2015. We found that the director of the company while recording statement has clearly stated that Mr. Jose Mathews is not fully aware about the business activity of the company. The statement made by Mr. Jose is not true. He also further stated that owing to the facts mentioned to him by the Authorised Officer and the circumstances of that case he is offering certain sum received as share capital as the income for A.Y. 2008-09 and 2009-10. The statement of the director cannot be referred to as the document found during the course of search and on the basis of the statement no notice u/s 153C can be issued.
46. We had also gone through the statement of Mr. Mukesh Chokshi. In this statement there is no reference to the 327 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessee. There is no allegation that the assessee has given the cash and received the Cheque by way of share application. The statement of Mr. Mukesh Chokshi cannot be base for acquiring jurisdiction by issue of notice u/s 153C is concerned. The Tribunal have also dealt threadbare with the statement of Shri Mukesh Chokshi in its order dated 18/12/2015.
47. In view of the above, we can conclude that no document belonging to the assessee was found during the course of search and also none of the statements of Mr. Jose Mathews, Mr. Narayan Hari Halan or Mr.Mukesh Chokshi can be construed as a document belonging to the assessee for issue of notice u/s 153C.
48. Now, coming to the contention of CIT (DR) during the course of hearing with respect to the cross objection so filed by the assessee. The CIT(DR) referred the document seized during the course of search were confronted with the director of the company. This is not a correct statement of fact. The documents which were seized were explained in the assessment proceedings and no incriminating material is seized. No papers belonging to the assessee is seized and hence the question of confronting the same to the directors does not arise. There is no reference in the assessment order regarding confrontation of the documents to the directors and also in the satisfaction recorded there is no reference to this aspect.
49. The CIT(DR) has referred to the incriminating documents. We found that no document belonging to the assessee was found and hence the question of incrementing document may not arise/.
50. Learned DR placed reliance on the on the decision of the Hon'ble Chhatisgarh High Court in the case of Trilok Singh Dhillon. We found that facts of the case are distinguishable and not applicable to the facts of the instant case. Our above observation further fortified by the Circular No.24 dated 31/12/2015 issued by Central Board of Direct Taxes wherein it has been clarified that even if the Ld. Assessing Officer of the assessee who is searched and the Ld. Assessing Officer of other person is the same, the Ld. Assessing Officer of the assessee who is searched has to record satisfaction. This Circular makes the position very clear and the Circular is applicable on the facts of the case. Based on this Circular also 328 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the notice issued by the Ld. Assessing Officer of the assessee company is not valid.
51. In view of the above factual and legal matter, we do not find any merit for the order passed u/s.153C r.w.s. 143(3).
52. In the result, Cross Objection filed by the assessee is allowed in terms indicated hereinabove, whereas appeals filed by Revenue are dismissed."
6.1. It is also observed from the record, as argued by the Ld. counsel for the assessee that in the cases of M/s Martand Properties Ltd., the Revenue as well as the assessee preferred cross appeals before this Tribunal (Pages 840 to 852 of paper book No.2), the matter travelled to the Tribunal, wherein, vide order dated 26/05/2017 (ITA No.6101/Mum/2012), the Tribunal examined the factual matrix and held as under:-
1. "These two appeal u/s 253 of the Income-tax Act (the Act) are directed against the consolidated order of ld. CIT (A)-41, Mumbai dated 23.07.2012 for assessment year 2009-10 and 2011-12. The issue involved in both the appeals and Cross Objection (C.O) are common therefore, both the appeal and C.O. were heard together and are being decided by this consolidated order to avoid the conflicting decision. For appreciation of fact, we are referring the facts in appeal No.ITA No.6101/M/2012 for AY 2009-10. The assessee has raised the following grounds of appeal:
1. Whether on facts and in the circumstances of the case and in law. The Ld. CIT(A) is justified in allowing the addition made of Rs. 5,00,00,000/- u/s 68 on account of unexplained investment in share capital of various companies. Without appreciating the fact that the assessment order framed after due verification.
2. Whether on facts and in the circumstances of the case and in law. The Ld. CIT(A) is justified in allowing the addition made of Rs. 2,00,00,000/- u/s 68 on account of unexplained investment in share capital of various companies, without appreciating the fact that the assessment order framed after due verification.
2. The assessee in its C.O. No. 255/M/2014 in ITA No. 6101/M/2012 raised the following grounds of objection/ appeal:329
M/s Shree Global Tradefin Ltd.
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1. Whether on facts & circumstances of the case the Ld. CIT has erred in concluding that the action of the Learned Assessing Officer in invoking the provisions of Section 153C is justified. The appellant prays that the condition of Section 153C is not satisfied and the Learned Assessing Officer has wrongly invoked the provisions of Section 153C.
3. Brief facts of the case are that a search and seizure action u/s 132 of the Act was conducted on 04.03.2010 at the business premises of Jogia Properties Ltd., at 208, Ashirwad Building, Ahmedabad Street, Carnac Bunder, Mumbai. During the course of search proceeding, it was found that Jogia Properties Ltd. is maintaining books of account at 20, Bhatia Niwas, 233/235, Samuel Street, Masjid Bunder, Mumbai. Therefore, this premises were also covered u/s 133A of the Act. On search at Bhatia Niwas, it was revealed that the following companies are operating from the said premises.
S. No. Name of the party
1 Auster Properties Pvt Ltd.
2 Reva Properties Pvt. Ltd.
3 Archive Realty Developers Pvt Ltd.
4 Vedisa Properties Pvt. Ltd.
5 Martand Properties Pvt. Ltd.
6 Karburi Properties Pvt. Ltd.
7 Cikura Properties Pvt Ltd.
4. These above-referred companies were found to be engage in investment activities in share of various companies. The investments were made out of share capital of the company which consist of share application money received from the other various concerned. It was also revealed that Director in one company is also the Director of other company. The Directors are brothers and from the same family. On the basis of material and fact emerge during the search and survey, the assessing officer concluded that all concerned are sister concern and their nature and modus operandi the same as of the assessee. The warrant has been issued in the name of Jogia Properties. Hence, the assessee was also covered u/s 153A ( along with other seven group companies) on the basis of document found and seized and the disclosure made by Directors of respective company. A search action was also conducted on one Mrs. Mukesh Choksy, who was indulged in providing bogus entries in both survey/search proceedings.
During the investigation it was revealed that Jogia Group have taken bogus share application money from Mukesh Choksy Group concerned. The statement of Shri Narayan Hari Halan Director , Shri Ajay Kumar Director of company and Shri Jose Mathew and were also recorded on15.04.2010 wherein Sh. Narayan Hari Halan Director offered income of Rs. 5.00 Crore. On the basis of their statement, the A.O. recorded the reasons and issued notice u/s 153C dated 23.07.2010. In reply to the notice, the assessee filed return of income on 29.09.2010 declaring total income at Rs. Nil. On 330 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 verification of return of income the AO noticed that the assessee has not disclosed the income of Rs. 5.00 Crore as disclosed in the statement recorded u/s 131 on 15.04.2010.The AO served the notice u/s 142(1) dated 05.05.2011 and asked to give the details of share application money and utilization thereon in respect of share application money of Rs. 2.00 Crore received from M/s Delton Exim Pvt Ltd. The assessee filed its reply dated 01.11.2011 and contended that all share holding of company who have made investment in assessee-company are independent existing corporate bodies, they are maintaining their regular books of account, having their own bank account, filed separate return of income, all details were supplied, the assessee further contended that identity of share holder is established, therefore, confirmation is filled with supported document. The assessee further vide its letter dated 30.11.2011 submitted another reply for AY 2009-10 and 2010-11 which is reproduced as under:
1. The correct status of our company is public limited company and the name of company is Martand Properties Ltd. The registered office of the said company till the date of search action on Jogia Properties Ltd.
was 20, Bhatia Niwas, 233/235, Samuel Street, masjid Bunder, Mumbai 400003. Please refer to original return of income filed for A.Y. 2009-10 in which the said address is disclosed.
2. A search action was undertaken on M/s. Jogia Properties Ltd. on 4/3/2010. No search action u/s 132 or survey action u/s 133 A is undertaken against our company. No summons were issued to us by the Investigation Wing in the search proceedings of Jogia Properties Ltd. We do not have any relationship with Jogia Properties Ltd.
3. We understand that search proceedings started on4/3/2010 continued in the case of Jogia properties Ltd and on15/04/2010 the prohibitory order was lifted which was placed in the business premises of M/s Jogia properties Ltd. On15/04/2010 I was asked to be present at the premises of Jogia properties Ltd situated at 208 Ashirwad building, Ahemdabad Street, Masjid Bunder, Mumbai 400009 to explain the papers belonging to the company found from the premise of Jogia properties Ltd. Statement under section 131 was recorded by the income tax official. At the point of time I did not have all books of accounts or record of our company. I was informed that transaction of share application with the 5 companies viz Ocean investments and finance private limited, Sidh Housing Development company Ltd, Gyaneshwar trading and finance private limited, Ganga Builders Ltd and Doldrum Investment and finance private limited, who are the shareholder of our company are not genuine. Reference was made to the statement of one Mr. Jose Matthew wherein he had stated that share application money is received by paying cash. I have not convergent with the provision of income tax act. I was not the director of the company during the financial year relevant to the assessment year 2009-10. I did not have all books of accounts or record. I had stated that Mr Jose Matthew is not aware about the business activity of our company. The statement of Mr Jose Matthew is not true. No evidence was found that share application is received from 5 companies by paying cash s in lieu of cheque received. In this background and based on the information given to me by the officer of income tax Department I had admitted that investment made by 5 331 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 companies into share application of our company is not explainable and made the disclosure of income of Rs. 5 crore. I state that disclosed that was made purely on mistaken belief that the transaction of share investments by 5 companies cannot be explained and the taxable income of company will not be to the extent of Rs. 5 crore pertaining to AY 2009-
10.
4. However subsequently I gathered the information, the papers, the documents, the confirmation, bank statement, balance sheet and other records of all the 5 companies. Based on the information and documents I had observed that all the 5 companies are genuine and they have invested in the share capital of the company. No confessional statement is given by any of 5 shareholding company before the investigating wing Mumbai or anywhere else. The transaction of share investment by all 5 companies can be explained. Therefore while filing the return of income for A Y 2009-10 in response to the notice under section 153C, the company did not include the income of Rs. 5 crore. The noninclusion of income obtained on 15 April 2010 may be treated as a retraction of income. Please refer to letter dated 18 July 2011 submitted in your office on 22 July 2011 wherein also the fact of retraction has been mentioned. The real income as per the provision of income tax act 1961 is only chargeable to tax. No evidence or documents was found to prove that the head paid case of received share application. Mr Jose Matthew is not director or employee of our company. He is no way connected with our company. No reliance can be placed on statement of Mr Jose Matthew.
5. I further state that all the five companies are independent existing corporate bodies. They are registered with Registrar of Companies. They are maintaining regular books of accounts. They have their own bank accounts. They have filed the return of income. They have filed a confirmation to the effect that they have made investments in the equity shares of the company from their bank account. They have submitted the details of their bank account from which the said investments are made. They all are assessed to tax having PAN.
6. I submit that once the identity of the shareholder is established and their confirmation is filed which is supported with various papers, documents etc. then the burden is discharged by the company. The shareholders have also confirmed the said investments which further supports our claim that they have made the investments in the share capital of our company.
7. I would further like to point out that there is nothing on record to suggest that our company has made the cash payments to all the five shareholders for the purpose of making investments into the share capital of the company.
8. All the five shareholding companies are not associates or group companies of our company. We do not have any other relationship with them except that they are shareholders of our company. We have not entered into any other transaction with them. None of the directors of our company is either director or shareholder of all the five shareholding companies. None of directors of five shareholding companies are directors or shareholders of our company.
9. I submit that just on the basis of the statement recorded u/s 131 no amount can be brought to tax in the absence of any other evidence or material.
332M/s Shree Global Tradefin Ltd.
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10. In response to your questionnaire dated 5/5/2011, we have submitted before you the name and address of the shareholding company, the PAN No., the details of share application money received, issue of shares against share application, cheque No., name of the Bank, Branch and confirmation. We established the identity and credit worthiness of the companies who have made investments in the share capital of the company. We have submitted all the details called for in your questionnaire.
11. We have also proved before you that we have issued the shares to all the five shareholding companies. The details of distinctive number of shares, share certificate numbers and number of shares issued have been submitted to you. We had intimated the Registrar of Companies of issue of shares by filing the requisite forms. We had filed the annual return in which year after year their names are reflected as shareholders. All these events happened much prior to 4/3/2010 when the search action is taken against M/s. Jogia Properties Ltd.
12. We further state that your have in para 7 of the proceeding sheet dt. 11.11.2011 have referred to the sum of Rs. 1,50,00,000/- received by us as share application money from M/s Sidh Housing Delopment Co. Ltd. and Rs.1,00,00,000/- from M/s. Oshin Investment in A. Y. 2010-11, aggregating to Rs.2,50,00,000/-. In this regard we have to state that we have already filed details of share application money received issue of shares against share application, cheque No., name of the Bank, Branch and confirmation. These are the same parties from whom in A. Y.2009-10 also the amount is received towards share application. We have established before you the identity and credit worthiness of both the parties which will also hold good for A. Y. 2010-11. The party who has made investment in A. Y. 2009-10 has made further investment in A.Y.2010-11.
13. We further state that we have produced sufficient evidence in support of the claim that the shareholding companies have made investments in the share capital. Non production of the director should not be construed that the investments made by the shareholding company is not genuine.
14. We further state that there are no incriminatory documents or papers which are contrary to the facts submitted to you.
15. I would like to state that whatever is required to be produced in support of the share capital introduced by the five shareholding companies, we have submitted the same before you. All the five shareholding companies are in existence, having their separate independent identity and having their separate source of income. They have filed the confirmations for their shareholding in our company and also supported the same with the documents. In view of this we submit that the sum of Rs. 7,50,00,000/- should not be added as income for A. Y. 2009-10 and 2010-11."
5. The contention of assessee was not accepted by AO holding that one of the director disclosed undisclosed income of Rs. 5 crore during the course of such and seizure operations, the statement was recorded under section 131 (1) and thus made the addition of Rs. 5 crore on account of share capital. For Delton Exim Private limited 333 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the assessing officer concluded that during the post-survey operation it was revealed that share application money of Rs. 2 crore was received. The assessee despite ample opportunity has not proved the identity, creditworthy of the company and genuinity of the transaction. Hence the amount was added in the income of assessee under section 68 of the act. On appeal before the ld. CIT(A), the addition was deleted. Aggrieved by the order of ld. CIT(A), this appeal is filed before us.
6. We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR of assessee submitted that assessee has filed C.O. in support of his legal contention raised before the ld. CIT(A). It was further argued that similar additions were made in cases of group concerned which was covered by the search and seizure action u/s 132 conducted on 04.03.2010. We have noticed that the C.O. of the assessee is barred by 390 days of limitation period. The ld. AR of the assessee during the course of hearing was asked to explain the cause of delay. The ld. AR of the assessee argued that assessee has raised legal ground of objection in its C.O. which goes to the root of the case. The ld. AR of assessee further invited our attention to the order of Co- ordinate Bench of this Tribunal in group cases in ITA No. 6104, 6105/Mum/12 and C.O. No. 259 & 260/Mum/2012, wherein the similar delay in filing the Cross Objection on identical grounds was condoned by the Tribunal. On the other hand, ld. DR for the Revenue not disputed the contention of ld. AR of assessee and submitted that the delay was condoned by the Co-ordinate Bench.
7. We have considered the rival contention of the parties and gone through the order of Co-ordinate Bench in assessee's group case wherein the Tribunal in para 35 of its order condoned the delay in filing the Cross objections holding that assessee has raised purely a legal issue, which goes to the root of the issue and was allowed. We respectfully following the decision of Co-ordinate Bench on identical grounds in assessee's group case is inclined to condone the delay in filing the Cross Objection.
8. In support of C.O. the ld. AR of the assessee argued that the ground of Cross Objection raised by assessee is covered by the decision of Tribunal in assessee's group case in ITA No. 6104 & 6105/M/2012 with Cross Objection therein vide C.O. No. 259 & 260/M/2012 ACIT v/s Archieve Realities Developers Ltd., ITA No. 6097 & 6098/M/2012 & Cross Objection No. 264 & 265/M/2012 M/s Carburi Properties Developers Ltd. v/s ACIT, ITA No. 6099 & 6100/M/2012 with Cross Objection therein vide C.O. 269 & 270/M/2012 M/s Vedisa Properties v/s ACIT, ITA No.6109 & 334 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 6110/M/2012 with Cross Objection therein vide C.O. 261 & 262/M/2012 M/s Auster Properties v/s ACIT, ITA No. 6108, 6112 & 6113/M/2012 with Cross Objection therein vide C.O. 266, 267 & 268/M/2012 M/s Reva Properties v/s ACIT, ITA No.6096/M/2012 with Cross Objection therein vide C.O. 263/M/2012 M/s Cikura Properties v/s ACIT. The assessee in the said case was also covered by the search and seizure operation. It was argued that on allowing the cross objections of assessee's in the order of deletion of similar addition by Commissioner (Appeals) was sustained by Tribunal. It was further argued that the AO has not recorded any satisfaction as required under law. On the other hand, ld. DR for the Revenue not disputed that on similar grounds in Cross Objection was allowed. The ld. DR for the Revenue further submitted that each and every case has to be seen on its own merit.
9. We have considered the contention of both the parties and seen that the Co-ordinate Bench while discussing with the similar issue in assessee's group case which was covered by search & seizure action, passed the following order:
The assessee has challenged the legality of the assessment framed u/s.153C on the plea that no satisfaction was recorded by AO of the searched person so as to empower the concerned AO of these concerns to make addition u/s.153C. Learned AR placed on record report on inspection taken of the records dated 28/08/2015 which reads as under:-
Jogia Properties Ltd.
A.Y. 2008-09 alld 2009-10 ITA No.6106/M/2012 and 6107/M/2012 Hearing fixed on 8th September, 2015 Report on the inspection taken of the records The appellant had made an application vide letter dated 05/08/2015 to the Assessing Officer requesting for inspection of the assessment records.
The said assessment records were with the Hon'ble Commr. of Income Tax, DR, Smt. Neena Pandey, f-Bench, Mumbai ITAT.
The Inspector Ms. Ambika Shashidharan, attached to f-Bench, Mumbai ITAT, gave the inspection of the records on 20/08/2015 at 3 pm. Shri Dilip V. Lakhani, Chartered Accountant, the authorised representative and Shri Viresh Sohoni, the representative of the appellant, took the inspection of the assessment records and the findings of the said inspection are as under.
1. There is no proof or evidence on record to the effect that the Assessing Officer gave the copies of the statement recorded of Mr. Mukesh Chokshi on 25/11/2009 and 11/12/2009.
2. No proceeding sheet / order sheet was available for inspection, 335 M/s Shree Global Tradefin Ltd.
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3. No recording of any satisfaction for initiating proceedings u/s 153C against 7 companies.
Place: Mumbai Dilip V. Lakhani Viresh Sohoni Dated: 20/08/2015 Authorised Representative Representative of Appellant
36. It is clear from the above inspection report that no satisfaction has been recorded by the AO of the searched person i.e., M/s. Jogia Properties Ltd., for initiating proceedings u/s.153C against these seven companies.
37. From the record we found that in the file of the company which was searched viz. Jogia Properties Ltd., the Ld. Assessing Officer has not recorded any satisfaction to comply with the provisions of Section 153C. A search & seizure action was taken against M/s. Jogia Properties Ltd and pages 1 to 126 which are a part of Annexure- A 1 were seized in the hands of Jogia Properties Ltd., The search took place on 4th and 5th March 2010. The Ld. Assessing Officer of Jogia Properties Ltd. did not record any satisfaction as per the provisions of Section 153C. The assessee has produced the copy of the inspection report which was obtained in the proceedings of Jogia Properties Ltd. In the inspection report it is clearly stated that the Ld. Assessing Officer of Jogia Properties Ltd has not recorded any satisfaction. The Ld. CIT (DR) also has not produced any evidence during the course of hearing to prove that the Ld. Assessing Officer of Jogia Properties Ltd has recorded the satisfaction.
38. Hon‟ble Gujarat High Court in the case of Vijaybhai N Chandrani 333 ITR 436 held as under:-
Sections 153A, 1538 and 153C of the Income-tax Act, 1961, lay down a scheme for assessment in case of search and requisition. Section 153C which is similarly worded to section 158BD of the Act, provides that where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A he shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person. However, there is a distinction between the two provisions inasmuch as under section 153C notice can be' issued only where the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to such other person, whereas under section 158BD if the Assessing Officer was satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or assets were requisitioned under section 132A, he could proceed against such other person under section 158BC. Thus a condition precedent for issuing notice under section 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the requirement is not satisfied, recourse cannot be had to the provisions of section 153C.
Held, allowing the petition, that admittedly, the three loose papers recovered during the search proceedings did not belong to the petitioner. It was not the case of the Revenue that the three documents were in the handwriting of the petitioner. In the circumstances, when the condition precedent for issuance of 336 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 notice was not fulfilled action taken under section 153C of the Act stood vitiated.
39. Learned AR also invited our attention to page 3 of the paper book filed in cross objection proceedings. Page 3 is the copy of the satisfaction recorded u/s 153C in the hands of Karburi Properties Ltd. The reference to years are 2004-05 to 2009-10. The Ld. Assessing Officer has relied upon page 1 of Annexure - A 1 of the seized panchnama dated 04.03.2010. The said page 1 is on page 4 of the paper book. The said page contains the details of 24 entities giving the name, account number and the persons who are authorised signatory. This paper does not belong to Karburi Properties. During the course of investigation, the assessee had filed detailed explanation on the contents of pages 1 to 126 and copy of the submissions made before the Ld. Assessing Officer. The said explanation was accepted and there is not a whisper about the contents of any of the pages from 1 to 126 in the assessment order.
40. For understanding of legal requirement of initiating proceeding u/s.153C, we here below reproduce provision of Section 153C.
Assessment of income of any other person.
Section 153C reads as under.
Assessment of Income of any other person.
153C. Notwithstanding anything contained in section 139, section 147, section 148, section 149, Section 151 and section 153, where the Ld. Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Ld. Assessing Officer having jurisdiction over such other person and that Ld. Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.
Provided that in case of such other person, the reference to the date of initiation of the search under Section 132 or making of requisition under section 132A in the second proviso to [sub- Section (1) of 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Ld. Assessing Officer having other person.
Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Ld. Assessing Officer shall not be required to issue notice for assessing or reassessing the total assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made except in cases where any assessment has abated."
In Order to issue a valid notice u/s 153C, the Ld. Assessing Officer of a person against whom search action is taken, records a satisfaction that any money, bullion, jewellery or other valuable article or thing, or books of account or 337 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 documents seized, belong to a person, other than a person referred to in Section 153A, then the such books of account or documents or assets seized shall be handed over to the Ld. Assessing Officer having jurisdiction over such other person. The recording of the satisfaction is a must and even if the Ld. Assessing Officer for the person searched and the 'other person' is the same, still the satisfaction has to be recorded by the Ld. Assessing Officer of the search person referred to in Section 153A.
41. of the proposition that for initiating proceedings u/s.153C, satisfaction should be recorded in the file of searched person, reliance can be placed on the following judicial pronouncements.
a. Vijaybhai N. Chandrani Vs. Asst. Commr. Of Income Tax Reported in 333 ITR 436 (Guj. HC) b. Pepsico India Holdings (P.) Ltd. Vs. Asst. Commr. Of Income Tax ITA No.6104/12 & 11 other appeals CO No.259/12 & 11 other cross objections Reported in 228 Taxmann 116 (Delhi HC) c. Beejay Securities & Finance Ltd. ITA Nos. 4859 to 4865/MUM/2009 (AY. 2001-02 to AY. 2007-08) date of pronouncement 24/06/2011 d. M/s. Jindal Stainless Ltd. ITA Nos. 3480 & 3481 (Del) 2006 (AY.2003-04 & 2004-05) Reported in 21 ITAT INDIA 812 (Delhi) e. LMJ International Ltd. ITA No. 2173/Koll2006 (AY. 1999-2000) Reported in 119 TTJ (Kol) 214.
f. Right Development & Estate Pvt. Ltd. ITA Nos. 4616 to 4619/MUM/2009 (AY. 2004-05 to AY. 2007-08) date of pronouncement 23/09/2011.
g. Asst. Commr. Of Income Tax Vs. Inlay Marketing Pvt. Ltd. (ITAT Delhi) h Tanvir Collections Pvt. Ltd. Vs. Asst. Commr. Of Income Tax (ITAT Delhi) i V. K. Fiscal Services Pvt. Ltd. Vs. Dy. Commr. Of Income Tax (ITAT Delhi) j. Dy. Commr. Of Income Tax, Central Circle-5 New Delhi Vs. Qualtron Commodities Pvt. Ltd. 54 Taxmann.com 295 (Delhi Tribunal) k Dy. Commr. Of Income Tax Vs. Aakash Arogya Mindir P. Ltd 58 Taxmann.com 293 (Delhi Tribunal) l. CIT vs. Sinhgad Technical Education Society, 378 ITR pg.84 (Bombay High Court) m. CIT vs. Mechmen (2015) 280 CTR 198 (Madhya Pradesh High Court) n. CIT vs. IBC Knowledge Park Pvt Ltd, (2016) Taxmann.com, 108 (Karnataka High Court) o. Cit vs. Shettys Pharmaceuticals & Biologicals Ltd., (2015) 230 Taxman 268 (Andhra Pradesh High Court) 338 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
42. Applying proposition of law laid down in above judicial pronouncements, notice issued u/s 153C is bad in law and consequently the order passed by the Ld. Assessing Officer u/s 153C needs to be cancelled.
10. Considering the decision of Co-ordinate Bench wherein it was held that no satisfaction was recorded. Hence, notice u/s 153A is bad-in-law and consequential order passed by AO is not sustainable.
11. In the result, C.O. filed by assessee is allowed.
12. As we have allowed the C.O of the assessee by following the decision of Co-ordinate Bench, thus, the discussion on the grounds of appeal raised by Revenue become academic. In the result, appeal of the Revenue is dismissed as infructuous.
ITA No. 6103/Mum/2012 for AY 2010-1113. The revenue has raised only one ground of appeal, which is identical to the grounds of appeal in ITA No. 6104 & 6105/M/2012 ACIT v/s Archieve Realities Developers Ltd., ITA No. 6097 & 6098/M/2012 M/s Carburi Properties Developers Ltd. v/s ACIT, ITA No. 6099 & 6100/M/2012 M/s Vedisa Proporties v/s ACIT, ITA No.6109 & 6110/M/2012 M/s Auster Properties v/s ACIT, ITA No. 6108, 6112 & 6113/M/2012 M/s Reva Properties v/s ACIT, ITA No.6096/M/2012 M/s Cikura Properties v/s ACIT.. The ld. AR of the assessee argued that the grounds of appeal raised by Revenue are also covered by the decision of Co-ordinate Bench in assessee's group case in the above referred decisions. The ld. DR for the revenue submitted that he has nothing to add in his submission except to rely on the order of Assessing Officer.
14. Considering the facts that the Co-ordinate Bench of the Tribunal has already dismissed the appeal of the Revenue in assessee's group case which was covered in search & seizure action u/s 132 conducted on 04.03.2010, the Revenue has raised identical grounds except the difference in the figure of additions in the present appeal. Thus, respectfully following the decision of Co-ordinate Bench wherein it was held that no satisfaction was recorded by Assessing Officer before initiating action u/s 339 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 153C of the Act. Hence, the assessment order passed without recording satisfaction u/s 153C of the Act is bad-in-law. In the result the appeal of the Revenue for AY 2010-11 is dismissed.
15. In the result appeal filed by Revenue vide ITA No. 6101 & 6103/M/2012 in ACIT v/s M/s Martand Properties Ltd. for AY 2009-10 & 2010-11 are dismissed and the Cross Objection No.255/M/2014 filed by the assessee is allowed."
6.2. If the aforesaid decisions of the Tribunal are examined, one clear fact is oozing out that the additions made by the Ld. Assessing Officer were deleted by the Ld. Commissioner of Income Tax (Appeal) or by the Tribunal that too after due examination of facts. The transactions of all the investing companies were found to be genuine and they have established their identity, capacity and creditworthiness as necessary evidences were produced by these companies with respect to source of funds and their genuineness/ creditworthiness. So far as identities are concerned, that is not in dispute at any stage, thus, the ingredients of section 68 of the Act has been complied with by the assessee in the present appeals. If the source of funds in the hands of investing companies was found to be genuine by the Ld. Commissioner of Income Tax (Appeal) or by the Tribunal, as 340 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the case may be, there is no question of making addition in the hands of the present assessee because the assessee is not expected to prove the source of source. In such a situation, it is observed that in any event, if all the sources in the hands of investing companies is to be reviewed/examined, it can be tested in their hands but certainly no addition can be made in the hands of the present assessee as has been held by the Hon'ble Apex Court as well as by the Hon'ble various High Courts [Lovely Exports Pvt. Ltd.(2009) 319 ITR (ST.) 5(Supreme Court)] and by Hon'ble jurisdictional High Court in a latest decision in the case of Pr. CIT vs Veedhata Towers Pvt.
Ltd.(ITA No.819 of 2015), order dated 17/04/2018.
6.3. The Ld. Assessing Officer, in the present reassessment proceedings, being the second round, has taxed the amount received from all the nine companies without having any direct evidence contrary to what was available on record during earlier proceedings/original proceedings. The reassessment proceedings were initiated merely on the bases of statements of three persons, as discussed above and in their statements also, there is no reference to the investment 341 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 made by the nine parties with the assessee. No evidence or proof is brought on record to prove contrary to what is established by the assessee as well as also by the nine parties and what is concluded by the Ld. Commissioner of Income Tax (Appeal) and the Tribunal in their cases.
6.4. The Learned counsel for the assessee also relied upon the observation of the Learned CIT (Appeals) which is on para 6.14 of the order. On the subject of source of the funds in the hands of the fourteen companies the two different propositions arose. First being the genuine investments by fifty-four companies in to the share capital of fourteen companies and second being the investments made by the Lloyds Steel Industries Limited through the fifty-four companies in the fourteen companies. The department on one side is rejecting the explanation regarding the application of the income by Lloyds Steel Industries Limited and also simultaneously treating the investments by fifty-four companies as non-genuine investments in the fourteen companies. The department also levied penalty on Lloyds Steel Industries Limited u/s. 271(1)(c). In this background 342 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the Learned CIT (Appeals) has observed that "the department has been inconsistent in making additions in fourteen investing companies by not accepting the claim that it is out of the income generated in the case of Uttam Value Steels Limited (formerly known as Lloyds Steel Industries Limited) and at the same time levying penalty on Uttam Value Steels Limited on the footing that it had introduced share application money in the fourteen companies". This also clearly proves the inconsistent stand of the department as regards the investments by fifty-four companies is concerned in the share capital of fourteen companies. Even otherwise all these issues does not directly affect the assessee at all because the assessee has received the funds from the nine companies which is amongst the fourteen companies. It is further noted that in the appeals before us, the addition has been made on the basis of statement tendered by Shri Mukesh Choksi wherein, it has not been stated that any transaction entered into by him with the present assessee. The names of the companies referred in the statement had no transaction with 343 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the assessee. It is further noted that the statements were recorded in year 2009, thus, no reliance can be placed upon the statement of Shri Mukesh Choksi. So far as, the statement of Shri Om Hari Halan, is concerned, reliance has been placed by the Ld. Commissioner of Income Tax (Appeal) and also by the Learned Sr. Standing Counsel on the statement recorded on 19/12/2012. It was explained by the Ld. counsel for the assessee before us that the recording of the statements started on 19/12/2012 and was continued in the night with little break and was completed on 20/12/2012. The statement is recorded on 19/12/2012 and in the morning of 20/12/2012 at 324, Mastermind IV, Royal Palm, Aarey Milk Colony, Goregaon East, Mumbai - 400 065 at the office of Jogia Properties Ltd. Then he was brought to the office of Lloyds Steel Industries Limited on 20/12/2012 situated at 16th floor, C-Wing, Kamala City, Lower Parel, Mumbai and the statement continued. During recording of this statement he has clearly stated that in answer to Question No. 3 that there were certain factual mistake in giving answers on 19/12/2012 & 20/12/2012 (first half) he 344 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 clarified and confirmed that the identity and genuineness and credit worthiness of all the parties have been produced with the documentary evidences. He has also confirmed that the confirmations, the balance sheets and the other documents have also being produced. He confirmed that in the Appellate proceedings the identity, genuineness and credit worthiness has been proved. The Learned Assessing Officer and CIT(A) has conveniently omitted to refer to the statement recorded on 20/12/2012 and has only relied upon what is stated on 19/12/2012. There is not a whisper in the statement of Shri Om Hari Halan that the transaction between nine parties of the assessee is not genuine. Similarly the statement of Shri BL Aggarwal recorded during the survey proceedings do not lead any evidence as regards the amounts received by the assessee company from nine investing companies and there is nothing to construe that any facts emerges which is contrary to the finding given by the Ld CIT(A) and the Tribunal in the cases referred to hereinabove.
345M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 6.5. Before us, the Learned Sr. Standing Counsel, during the course of argument before us, invited our attention to paras 8.4, 8.5 & 8.6 of the impugned order. He argued that the investments made by fifty-four companies into fourteen companies are not genuine and tried to establish from the share capital and other data being who are the shareholders of those fifty-four companies. He also relied upon certain case laws in support of the claim that the action of the Assessing Officer and CIT (A) is justified. He relied upon the findings of the Assessing Officer as well as CIT (A) in general and supported both the orders.
6.6. We have perused the aforesaid paras in the impugned order and find that the reliance on the para 8.4 to 8.6 does not in anyway established that the amount received by the assessee from nine companies is not genuine. As regards the fifty-four companies who have invested in fourteen companies the order of the Tribunal referred to above have clearly held beyond any doubt about the genuineness of the transactions between the fifty-four companies and the 346 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 fourteen companies. So far as, assessee is concerned, all these analysis can at best be termed as testing the source of the source in the hands of fourteen companies but nothing is established to prove that as far as assessee is concerned the source of the funds is clearly proved. The Learned AR also stated that nowhere the CIT (Appeals) has brought on record any material which could prove that the finding of the tribunal does not hold good in the reassessment proceedings also. The facts of the case laws relied upon by the Learned Sr. Standing Counsel are different from the present facts. In those cases there were the statement of certain parties and there were transaction between those parties and the assesses which could give reason to believe that the transaction may not be genuine. In the present case none of the statements of all the three parties give any evidence or a reference to the amount received by the assesses from nine parties. The ratio of these decisions is not applicable on the facts of the case. From the above, it is evidently clear that the assessee has fulfilled the conditions enshrined in section 68 of the Act, being - identity, creditworthiness and genuineness of the transactions.
347M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
7. Now, we shall summarize the facts of the Assessment Year 2010-11, which are as under:-
1. The assessee is a listed Public Limited Company, received funds from seven parties during A.Y. 2010-11 and treated as share application in A.Y. 2010-11 and the preference shares, at par, were issued in A.Y. 2011-12 and no premium was received against issue of preferential shares. The assessee had filed the necessary declarations and the details of issue of preference shares issued at par to the Registrar of Companies. In the books of accounts of the assessee also no premium is received against issue of the preference shares.
The assessee had filed original return of income on 27/09/2010, attached with the audited financial statements and other necessary details. Thereafter Notices u/s. 143(2) & 142(1) were issued asking the assessee for the complete details and the information about the amount received in A.Y. 2010-11 and issue of preference shares in the subsequent period. The Ld. Assessing Officer after examining the details and the audited financial statements/replies of the assessee framed assessment u/s. 143(3) and the claim of the assessee was accepted. No addition was made in this proceeding. Notice u/s. 143(2) was issued by the Central Circle - 32.
2. Thereafter the notice u/s. 148 was issued on 24/03/2014. In the assessment order the addition was made u/s. 68 amounting to Rs. 210,61,50,000/-. The Ld. CIT (Appeals) confirmed the addition, which is under challenge before this Tribunal.
3. Both the ld. representative took identical argument before us as was preferred for earlier Assessment Years and identical cases were relied upon. Considering the arguments advanced from both sides, we are summarizing hereunder the party-wise details of the additions made and the other particulars of the said parties are given here-below as Annexure
-1. Against the name of each party the additions made by the Learned Assessing Officer amounting to Rs. 210,61,50,000/- is mentioned in column No. 4.
348M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
(Amount in Rs.)
Order
Retu Not Order of Order of Order u/s
Share passed u/s Order of CIT(A)
rn Inco ice CIT(A)-41 ITAT 143(3) rws 147 Balanc
Appli 143(3)
Name of filed me u/s. e
cation Addi Deleti
the Co. u/s decl 143 Additio
Recei dat Addi dat tion on Addit Addition
139( ared (2) Dat Date n
ved ed tion ed delet Confi dated ion deleted
1) ed d
ed rmed
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
22- 08- 26- 23- 26-
Martand 31- 17-
09- 14000 11- 12- 2500 07- 2500 05- 25000 14000 14000000
Prop. Ltd. 03-15 11-17
10 Nil 0000 10 11 0000 12 0000 17 000 0000 0 Nil
22-
Bulls Eye
09- 24045
Prop. Ltd.
10 Nil 0000 NA NA - NA - NA - NA - NA - Nil
22-
Buildzone
09- 14500
Prop. Ltd.
10 Nil 0000 NA NA - NA - NA - NA - NA - Nil
22-
Indraneel
09- 43500
Prop. Ltd.
10 Nil 0000 NA NA - NA - NA - NA - NA - Nil
22- 29- 23-
Prasoon
09- 31150 09- 11-
Prop. Ltd.
10 Nil 0000 11 12 - NA - NA - NA - NA - Nil
22-
Rochan 17-
09- 39920
Prop. Ltd. 12-12
10 Nil 0000 NA NA - NA - NA - - NA - Nil
22- 28- 19-
Nirvan
09- 43500 09- 11-
Prop. Ltd.
10 Nil 0000 11 12 - NA - NA - NA - NA - Nil
Total
210,61,50,000
7.1. We note that all the seven parties are separate legal entities, and are assessed to tax. They filed their respective tax returns along with PAN nos. regularly for all the years including for A.Y. 2010-11. All the transactions are reflected in their regular books of accounts which are audited one and were submitted before the Revenue/various authorities. The transactions are reflected in the regular bank account. The details of the cheque Nos., name of the bank, date and the branch were also submitted during all the assessment and 349 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 appellate proceedings. The said transactions are also confirmed by all the seven parties. In their audited financial statements the said transactions are reflected. The reference of the documents filed by each of the party is given below giving the reference to the paper book which is filed during the course of appellate proceedings before the tribunal. It is further noted that the assessee filed written submission before the First Appellate Authority along with annexure/documents referred above. The details of the same is as under :
PAGES Paper Martand Bullseye Buildzo Indrane Nirvan Prasoon Rochan Sr. No Particulars book Prop. Prop. ne Prop. el Prop. Prop. Prop. Prop.
No. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
Balance Sheet &
1 1 305-307 310-312 315-317 321-323 327-329 333-335 339-341
profit Loss A/c.
Copy of Income
2 1 182 191 186 196 200 204 208
Tax Returns
Ledger account in
3 1 276 277-278 279 280-281 285 282 283-284
books of SGTL
Ledger account
4 4 19 20 21 22 23 24 25
confirmations
Pref. Shares
5 4 31 35 34 36 37 38 39
Application forms
Pref. Shares
6 4 47 54-55 52-53 56 57 58 59
Allottment Letters
Details of Money
received giving
7 4 71-72 79-80 78 81-82 83-84 85-86 87-88
complete bank
details
8 Round (1)
Order Passed u/s.
9 2 322-334 NA NA NA 853-854 855-856 878-879
143(3)
order of the CIT
10 2 636-668 NA NA NA NA NA NA
(A)
11 Order of ITAT 2 840-852 NA NA NA NA NA NA
12 Round (2)
350
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
Order Passed u/s. 1023-
13 2 NA NA NA NA NA 880-886
143(3) r.w.s. 147 1033
order of the CIT 2134-
14 2 NA NA NA NA NA NA
(A) 2338
7.2. Before us, it was submitted by the Ld. counsel for the assessee, that the assessee has proved the identity, genuineness and capacity of the all the seven parties giving the complete information about the transactions and the burden cast upon the assessee is discharged. Once the parties who are regularly assessed to tax have confirmed the transactions and have recorded the said transactions in their regular books of accounts and the tax department has assessed the said parties, no further obligation is left to be discharged by the assessee. For the present Assessment Year also, the assessee has relied upon same cases, which we have mentioned in earlier paras of this order, therefore, the same are not being repeated and will be discussed in the later paras, while adjudicating the issue in hand.
7.3. The ratio of these decisions clearly support the proposition made by the assessee that having discharged the obligation and producing all the necessary evidences required to support the receipt of the amount no addition can be made in the hands of the A for A.Y. 2010-11. It was pleaded that 351 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 since the assessee has established the identity and genuineness of the transaction with the supporting evidences the source of the funds is explained. Thus, it is an accepted proposition of law that the assessee cannot be asked to prove the source of the source of the funds. For this proposition reliance was placed upon the decision of the Hon'ble Bombay High Court in the case of Principal CIT vs Vidhatha Towers Pvt. Ltd. ITA No. 819 of 2015 decided on 17/4/2018, wherein, the Hon'ble High Court has held that during the A.Y. 2010-11 the assessee was not required to explain the source of the source of the funds. Without prejudice to the submission that A is not required to prove the source of the source of the funds for A.Y. 2010-11, the assessee has also proved the source of the source of the funds in the hands of all the seven entities.
Reference is made to details given below. All the seven parties received share application money from various corporate bodies.
Party-wise details of Share Application money received by seven companies in A.Y. 2010-11 Amount (in Rs.) BULLS NAME OF BUILDZO INDRANE MARTAN NIRVAN PRASOON ROCHAN SR. EYE THE PAN NO. NE PROP. EL PROP. D PROP. PROP. PROP. PROP. TOTAL NO. PROP.
COMPANY LTD. LTD. LTD. LTD. LTD. LTD.
LTD.
ALEMBIC
AAMCA3
1 SECURITIES - - - - - 1,00,00,000 - 1,00,00,000
748G
PVT.LTD
352
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
ALPHA
CHEMIE
AADCA9
2 TRADE - - - - - 3,95,00,000 - 3,95,00,000
890L
AGENCIES
PVT LTD
ARTILEGEN
CE BIO- AAACI73
3 - 1,50,00,000 4,50,00,000 2,00,00,000 2,00,00,000 1,00,00,000 - 11,00,00,000
INNOVATION 59F
S LTD
BAY INLAND
AABCB9
4 FINANCE - - 1,50,00,000 1,00,00,000 1,00,00,000 1,00,00,000 - 4,50,00,000
510A
PVT.LTD.
BHASKAR
FUND AABCB3
5 - - 1,00,00,000 1,00,00,000 1,50,00,000 - - 3,50,00,000
MANAGEME 120E
NT PVT. LTD.
CLIFTON
PEARSON
AACCC0
6 EXPORT & - 50,00,000 1,50,00,000 - 2,00,00,000 50,00,000 - 4,50,00,000
049A
AGENCIES
LTD.
CLIFTON
AAACC5
7 SECURITIES - - 50,00,000 2,00,00,000 - - - 2,50,00,000
995P
PVT LTD
DELTON
AABCD6
8 EXIM PVT. - - 50,00,000 - 1,00,00,000 50,00,000 - 2,00,00,000
200F
LTD.
GANGA
AAACG9
9 BUILDER - - 1,50,00,000 - 1,00,00,000 - - 2,50,00,000
808K
LTD
GATEWAY
AABCG7
10 COMPUTERS - - 1,00,00,000 - 1,50,00,000 1,00,00,000 - 3,50,00,000
845F
PVT. LTD.
GROMORE
FUND
AAACG9
11 MANAGEME - 50,00,000 50,00,000 - 1,50,00,000 - - 2,50,00,000
919K
NT CO. PVT.
LTD.
GYNESHWA
R TRADING AACCG7
12 - - 2,50,00,000 - 1,50,00,000 50,00,000 - 4,50,00,000
& FINANCE 998L
PVT.LTD
ISPAT AAACI44
13 - - 5,40,00,000 2,00,00,000 5,00,00,000 50,00,000 - 12,90,00,000
SHEETS LTD. 29E
KINGS
AADCK0
14 MERCHANTS 80,00,000 - - - - - 6,75,00,000 7,55,00,000
285F
PVT.LTD.
LITTLE
STAR AABCL3
15 80,00,000 - - - - - 6,00,00,000 6,80,00,000
VYAPAAR 152C
PVT LTD
MAHASAGA
R AADCM3
16 - - - - - 3,37,00,000 - 3,37,00,000
SECURITIES 257P
PVT LTD
NEWOUTLO
OK AABCN6
17 - 1,00,00,000 1,50,00,000 - 1,50,00,000 - - 4,00,00,000
SECURUITES 529M
LTD
NICCO
AABCN1
18 SECURITIES - - 1,50,00,000 1,00,00,000 - - - 2,50,00,000
737D
PVT LTD
NOVELTY
AABCN8
19 TRADERS - 50,00,000 3,60,00,000 1,00,00,000 6,00,00,000 50,00,000 - 11,60,00,000
817E
LTD
OLYMPUS
AAACO3
20 VISION - 1,00,00,000 50,00,000 - 1,50,00,000 50,00,000 - 3,50,00,000
898H
PVT.LTD
OSHIN
AAACO9
21 INVESTMEN - 2,50,00,000 3,50,00,000 1,00,00,000 3,00,00,000 50,00,000 - 10,50,00,000
051G
T & FINANCE
353
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
PVT LTD
PAREKH
ESTATE & AAACP4
22 - - - - - 80,00,000 - 80,00,000
PROPERTIES 173A
PVT.LTD
PARMATMA
TOURS & AAACP3 15,66,00,00
23 2,42,00,000 - - - - - 18,08,00,000
TRAVELS 762B 0
LTD.
ROSEMERY
AADCR6
24 AGENCIES - - - - - - 1,50,00,000 1,50,00,000
139B
PVT LTD
SEATRANS
DAN AACCS0
25 93,00,000 - - - - - - 93,00,000
SHIPPING 822K
PVT.LTD
SHAKTI
ISPAT AAGCS8
26 - 50,00,000 - 50,00,000 1,50,00,000 - - 2,50,00,000
PRODUCTS 347D
PVT.LTD.
ARJIT
AABCS4
27 SECURITIES 2,50,00,000 - - - 2,95,00,000 5,45,00,000
462Q
PVT LTD
SHIVLAXMI
AADCS6
28 EXPORTS - 2,00,00,000 2,00,00,000 50,00,000 1,50,00,000 1,00,00,000 - 7,00,00,000
058E
LTD.
SIDH
HOUSING AAKCS6
29 - 2,00,00,000 5,00,00,000 1,50,00,000 4,00,00,000 1,50,00,000 - 14,00,00,000
DEVELOPME 606H
NT CO LTD.
SOUTH EAST
ASIA AAKCS6
30 7,39,50,000 - - - - - 7,39,50,000
PACKAGING 768C
PVT. LTD.
STOCKNET
AAECS8
31 INTERNATIO - 1,00,00,000 2,00,00,000 - 3,50,00,000 97,00,000 - 7,47,00,000
494F
NAL LTD
SUPER
AAGCS7
32 FINANCE - 50,00,000 1,00,00,000 - 2,00,00,000 - - 3,50,00,000
188C
LTD
SUNBRIGHT
AAKCS8
33 DISTRIBUTO 2,95,00,000 - - - - - - 2,95,00,000
651G
RS PVT. LTD.
TERRY
TOWEL AACCT2
34 6,25,00,000 - - - - 1,00,00,000 3,22,00,000 10,47,00,000
INDUSTRIES 642J
LTD.
TRICON
AAACT9
35 BUSINESS - - - - - - 3,34,00,000 3,34,00,000
466E
PVT LTD
WAMAN
AAACW
36 COMMERCIA - - - - - - 50,00,000 50,00,000
7183K
L PVT LTD
WILCO
FINEXIM AAACW
37 - 1,00,00,000 2,50,00,000 50,00,000 1,00,00,000 - 5,50,00,000
PRIVATE 4586E 50,00,000
LIMITED
YAMROOSH
AAACY1 10,56,00,00
38 INVESTMEN - - - - - - 10,56,00,000
193P 0
T PVT.LTD.
3992,00,00
Total 2404,50,000 1450,00,000 4350,00,000 1400,00,000 4350,00,000 3115,00,000 21061,50,000
0
7.4. It was explained before us, by the Ld. counsel for the assessee, that in the hands of assessee in the earlier 354 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 proceedings the amount received from all the seven parties is accepted and no additions were made and the Assessing Officer has in the present reassessment proceedings, being the second round, has taxed the amount received from all the seven companies without having any direct evidence contrary to what was available on record. The reassessment proceedings are initiated based on the statements of three parties. In their statement also there is no reference to the investment made by the seven parties with the assessee. No evidence or proof is brought on record to prove contrary to what is established by the assessee as well as also by the seven parties and what is concluded by the CIT (Appeals) and the Tribunal in their individual proceedings. One of the person on whose statement the reliance is placed for reopening is that of Shri B.L. Agarwal. He has offered the income in the hands of Lloyds Steel Industries Limited now known as Uttam Value Steels Limited for A.Y. 2007-08 to 2010-11 amounting to Rs. 556 crores. Lloyds Steel Industries Limited filed the revised return of income for all the 4 years and offered the income. During survey u/s. 133A on Lloyds Steel Industries 355 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Limited when this disclosure was made, no corresponding unaccounted assets to the extent of Rs. 556 crores were found.
When inquired about the application of the income Shri B.L. Agarwal stated that these funds are routed through fifty-four companies who have made investments in fourteen companies.
8. Now, we shall deal with the cases relied upon by the assessee. The first decision is Devine Leasing Ltd. (299 ITR
268)(Del.). It was held as under:-
"This batch of Appeals has been filed by the revenue seeking to reverse the concurrent findings of the Commissioner of Income-tax Appeals ['CIT(A)' for brevity] as well as the Income-tax Appellate Tribunal ('ITAT' for short) adverse to the revenue. Succinctly stated, in January, 1984 the assessee had commenced its business of extending finance to industrial enterprises. The total issued, subscribed and paid up capital in the assessment years 1984- 85, 1985-86 and 1986-87 was Rs. 99,80,000 received from Directors/Promoters and also by way of a public issue. These sums were received through banking channels and complete records were maintained. The Assessing Officer ('AO' for short) made the following additions which came to be deleted/reversed by the CIT(A), whose decision was thereafter upheld by the ITAT.
Assessment year Amount received by way Addition made and
of share capital by deleted by learned
the assessee-company CIT(A) and deletion
upheld by learned ITAT
1984-85 10,23,000 9,53,500
1985-86 13,05,350 13,05,350
1986-87 76,51,650 76,51,650
Total 99,80,000 99,10,500
356
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
2. In March, 1987 the assessee filed a revised return for assessment year 1984-85 and assessment year 1985-86 by taking advantage of the Amnesty Scheme and surrendered Rs. 62,500 and Rs. 1,87,000 in the respective years. In these fresh assessment proceedings the Assessing Officer issued summons under section 131 of the Income-tax Act and thereafter impounded the Shareholders' Register, Share Application Forms and Share Transfer Register. The assessee has contended that because these materials were in the custody of the Department the former was unable to furnish any further details pertaining to the subscribers.
3. Reliance has been placed on behalf of the assessee on CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 1 (Delhi) which has been repeatedly relied upon in several subsequent decisions. In our opinion this ruling has been misinterpreted and misconstrued. We, therefore, reproduce the entire Order verbatim for facility of reference:
"The petitioner seeks reference of the following question :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on facts and in law in holding that the provisions of section 263 have not been validly invoked in this case by ignoring the material fact that the Assessing Officer had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives ?' In the present case, the subscribed capital of the assessee had been increased. The Income-tax Officer assessed the company and accepted the increase in the subscribed capital. The Commissioner of Income-tax came to the conclusion that the Assessing Officer did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment.
The Tribunal reversed this decision for reasons which we need not go into.
It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that, would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.357
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 In our opinion, no question of law arises and the petition is, therefore, dismissed." (p. 288) This Order was unsuccessfully carried in appeal by the revenue and was summarily dismissed by the Apex Court in CIT v.Stellar Investment Ltd. [2001] 251 ITR 2632 in these brief words - "We have read the question which the High Court answered against the revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The Appeal is dismissed. No order as to costs."
4. In Stellar Investment the Division Bench had observed firstly, that no question of law had arisen before it; secondly, that if some bogus shareholders had been detected their assessment could justifiably be re- opened; and thirdly that the amount of increased share capital could not be assessed in the hands of the company. The later two aspects undeniably possess the character of question of fact. Reference to section 68 of the Income-tax Act (hereafter referred to as the 'IT Act') is conspicuous by its absence. The Stellar Investment ratio cannot be stretched to the extent that it partakes as a reflection on section 68, when the enquiry pertained only to section 263. In Mysore State Road Transport Corpn. v. Mysore Road Transport Appellate Tribunal AIR 1974 SC 1940, the Supreme Court had referred to an essay by Professor A.L. Goodhart for the proposition that the ratio decidendi of a case is determined by taking into account the facts treated by the Judge deciding the case as being material, and that his decision is based thereon. Mention should immediately be made of the view prevailing in the Gujarat High Court expressed in Nirma Industries Ltd. v. Dy. CIT [2006] 155 Taxman 330, to the effect that the dismissal of an appeal under section 260A of the Income- tax Act "implies that the order of ITAT on the issue stands merged in the order of the High Court, and for all intents and purposes it is the decision of the High Court which is operative and which is capable of being given effect to." Indeed, this precedent contains a comprehensive and erudite discussion on the question of merger of assailed judgments/orders into the decision of the Appellate Court, and with humility, we commend its careful reading. The views of the Supreme Court have been assimilated from a plethora of precedents on this aspect of the law. What should not be lost sight of is the reality that the ITAT actively considers disputes pertaining to the facts as well as to the interpretation of the law. When the High Court dismisses an appeal filed under section 260A of the Act it does not ignore the factual matrix pertaining to the particular assessee; and it also does not interpret the law in abstraction or in its generality. If the High Court considers it necessary to speak broadly on the law it invariably frames a substantial question of law and thereafter decides it by a judgment in contradistinction to an order. The question before the Bench in Nirma Industries Ltd.'s case (supra) was whether the ITAT could assume a question being open to discussion despite the fact that the High Court had declined to admit the appeal on that question in respect of that assessee, for a previous assessment year. We are in the agreement with the Bench of the Gujarat High Court that the rejection of the appeal on certain grounds would operate as res 358 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 judicata, but in our understanding it would operate between the litigating parties. We are unable to concur with the argument of Mr. Aggarwal, learned counsel for the assessee that the dismissal of an appeal under section 260A constitutes an expression of a judicial view on the questions of law which the appellant had proposed in the appeal. In other words, Stellar Investment would have to be restricted to the facts that had occurred strictly in those appeals and no further. We are in respectful agreement with the understanding of the Division Bench in CIT v. Dolphin Canpack Ltd. [2006] 204 CTR (Delhi) 50 as articulated in this sentence - "In Steller Investment Ltd.'s case (supra) the issue which the revenue proposed to raise, related to the propriety of the Tribunal taking resort to section 263 in the case by ignoring the material fact that the Assessing Officer had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of whom were found to be students and housewives." Rejection of an appeal under section 260A is similar to the dismissal in limine by the Supreme Court of Special Leave Petition. This is also the view of the Calcutta High Court. Authority for the proposition is available in Municipal Corpn. of Delhi v. Gurnam Kaur AIR 1989 SC 38 and more recently in Director of Settlements, AP. v. M.R. Apparao AIR 2002 SC 1598. The Full Bench of the Patna High Court in Smt. Tej Kumari v. CIT [2001] 247 ITR 210 1 has pithily made a distinction between the dismissal in limine of an SLP and the dismissal of a regular civil appeal by a non-speaking order. The view was that in the former it would not be possible to extract any expression on the legal position on the part of the Court.
5. This analysis, however, does not lead to the consequence that the conundrum indirectly covered by Stellar Investment remains unresolved. A perusal of the opinion of the Full Bench in CIT v. Sophia Finance Ltd. [1994] 205 ITR 982 (Delhi) makes it conclusively clear that this aspect of the law is no longer res integra. It should always be borne in mind that Division Benches cannot choose to navigate through waters which have already been voyaged, mapped and channelled by larger Benches.
6. We find it indeed remarkable that the attention of the Sophia Finance Full Bench had not been drawn to the decision of the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 3, which if cited would really have left no alternative to the Full Bench but to arrive at the conclusion it did. The books of account of the assessee contained three cash credits aggregating Rs. 1,50,000 allegedly received as loans from three individual creditors under hundis. Letters of confirmation as well as the discharged hundis were produced; but notices/summons sent to them remained unserved because they had reportedly 'left' that address. The view of the Tribunal was that merely because the assessee could not produce these three parties, there was nevertheless no justification to draw an adverse inference. This approach as accorded approval by the Supreme Court in these words :
"In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were 359 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 income-tax assessees. Their index numbers were in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises."
(p. 84) This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application Forms and Bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift.
7. Sumati Dayal v. CIT [1995] 214 ITR 8011 (SC) a succinct yet complete precis on the essentials of income-tax liability can be discerned from these words - "In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee." This decision is adequate authority for the proposition that by virtue of section 68 of the Income-tax Act the assessee is obliged to establish that amounts credited in the accounts do not represent its income; in that case the assessee's version that she had won them through betting on horse racing in two consecutive years did not attract credibility. The Apex Court had followed its earlier decision, namely, Orissa Corpn. (P.) Ltd.'s case (supra) wherein it had held that since the assessee had given the names and addresses of the creditors, all of whom were income-tax assessees, the failure of the creditors to respond to the Department's notices would not justify an adverse inference being drawn against the assessees. The Court also kept in perspective the fact that the documentation had also been produced by the assessee. It is obvious that the Supreme Court considered that in these circumstances the onus of proof had been discharged by the assessee. It is also palpable that the Supreme Court was of the further opinion that the Department had not discharged the burden of proof that had shifted to it, since it did nothing more than issue notices under section 131 of the Income- tax Act. Therefore, the Department ought to have made efforts to pursue these notices/creditors to determine their creditworthiness. These observations sound the death-knell for the contentions raised on behalf of the Department in the present batch of appeals.
360M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
8. Justice B.N. Kirpal (as the learned Chief Justice of India then was) had authored the Order/Judgment both in Stellar Investment and in Sophia Finance. Justice Kirpal's extraordinary experience as the Advocate for the revenue spanning two decades, and the platitude of precedents established by him in this realm of law may be paralleled only by his Lordship D.K. Jain and in this respect their Judgments can be viewed as exceptional and incomparable. In the latter Judgment it has been specifically recorded that section 68 and its implications had not been analyzed in the former Order. Therefore, for a detailed discussion on section 68 one should first turn to Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) and thence finally to the decision of the Full Bench of this Court in Sophia Finance.
9. In Gee Vee Enterprises case (supra) the Division Bench had in the Context of a challenge to the maintainability of the Writ Petition on the grounds of the availability of an alternative remedy laid down situations which would justify the invocation of Article 226 of the Constitution. The Bench had also opined that the "intention of the Legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case". It was further observed that the Assessing Officer is both an adjudicator as well as an investigator, and it is his duty to ascertain the truth of the facts stated in the Return if such an exercise is 'provoked', or becomes 'prudent'. The Bench held that section 263 which deals with the Revision of orders prejudicial to the revenue by the Commissioner comes into operation wherever the Assessing Officer fails to make such an inquiry, because it renders the order of the Assessing Officer "erroneous". It seems to us that if this duty pervades the normal functioning of the Assessing Officer, it becomes acute and essential in the special circumstances surrounding section 68 of the Income- tax Act.
10. Returning to Sophia Finance, the Full Bench which was now presided over by B.N. Kirpal, J. (as the Chief Justice of India then was) had enunciated that section 68 reposes in the Income-tax Officer or Assessing Officer the jurisdiction to inquire from the assessee the nature and source of the sum found credited in its books of account. If the explanation proffered by the assessee is found not to be satisfactory, further enquiries can be made by the Income-tax Officer himself, both in regard to the nature and the source of the sum credited by the assessee in its books of account, since the wording of section 68 is very wide. The Full Bench opined that - "If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons.... . If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt but if 361 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of section 68 may be invoked." It will at once become obvious that the Court had not reflected upon the question of whether the burden of proof rested entirely on the assessee, and at which point, if any, this burden could justifiably be shifted to the Assessing Officer. The Full Bench in fact clarified that they were "not deciding as to whom and to what extent is the onus to show that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend on the facts of each case." It has been argued, but without substance, that the Full Bench did not go further than holding that the only responsibility on the assessee is to identify the subscriber; or that the Assessing Officer was not required to delve into the creditworthiness of the subscriber; or that the Assessing Officer need not be satisfied about the genuineness of the transaction.
11. Before applying the law to the facts of the present case, we should reflect on the manner in which the Division Bench dealt with the factual matrix in Dolphin Canpack. It observed that where a "credit entry relates to the issue of share capital, the ITO is also entitled to examine whether the alleged shareholders do in fact exist or not. Such an inquiry was conducted by the Assessing Officer in the present case. In the course of the said inquiry, the assessee had disclosed to the Assessing Officer not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the Income-tax Department. Super added to all this was the fact that the amount received by the company was all by way of cheques. This material was, in the opinion of the Tribunal, sufficient to discharge the onus that lay upon the assessee. This is evident from the passage extracted from the order passed by the Tribunal earlier. In the absence of any perversity in the view taken by the Tribunal or anything to establish conclusively that the finding regarding the genuineness of the subscribers and the transactions suffers from any irrationality, we see no substantial question of law arising for our consideration in this appeal to warrant interference. This appeal accordingly fails and is hereby dismissed." It seems clear to us that where moneys have been received in cash or even Demand Drafts, the standard of proof would be much more rigorous and stringent than where the transaction is by cheque where the date and source of the investment cannot be manipulated.
12. The Calcutta High Court has held in CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 4651 that it is not sufficient for an assessee to disclose that credits in their Books had been received through Banking channels; the identity as well as the creditworthiness of the creditor must nevertheless be proved. In Sajan Dass & Sons v. CIT [2003] 264 ITR 435 2 (Delhi) the Division Bench was not convinced that merely because moneys could be identified and traced through banking channels the genuineness of the Gift in question stood established. This is obviously because an assessee can scarcely be heard to say that he does not know all particulars pertaining to the donor. Thereafter, the same dialectic lead the Bench to arrive at the opposite 362 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 conclusion in CIT v. R.S. Sibal [2004] 269 ITR 429 3 (Delhi). In CIT v. Makhani & Tyagi (P.) Ltd. [2004] 267 ITR 4334 (Delhi), this Court has not given its imprimatur to the inaction of the Assessing Officer in doing nothing further after the issuance of summons under section 131 of the Income-tax Act. It did not condone the Assessing Officer, failing to issue coercive process, and in this manner attempting incorrectly to shift the burden on the assessee to establish the legitimacy of the transaction. In CIT v. Antarctica Investment (P.) Ltd. [2003] 262 ITR 493(Delhi), the Court was satisfied that no interference was justified since the assessee had produced the Share Application Forms along with confirmation letters and copies of their accounts, copies of their bank accounts of cheque payments and their Auditor's Report. The Assessing Officer's conclusion that the genuineness of the transaction had not been made good was not upheld. This conclusion was reached despite the fact that notices received by one of the common Directors of the two subscribing companies had been ignored and no information was forthcoming from the latter. However, the Under Secretary (Land Revenue, Government of Sikkim, Gangtok) had stated that both the subscribing companies were incorporated in Sikkim and their addresses were disclosed in the return of allotments; the subscribers thus stood identified. Their financial standing or capacity was not investigated by the Court. The decision in CIT v. Achal Investment Ltd. [2004] 268 ITR 2115 (Delhi) is also on the same lines.
13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the IT Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.
14. In CIT v. S. Kamaraja Pandian [1984] 150 ITR 703 1, the Madras High Court took the view that it is for the assessee to initially prove the genuineness of the loan, and that the onus shifts to the Department only after the assessee has prima facie substantiated this fact. In that case one of the creditors had denied the transaction. The Patna High Court in Addl. CIT v. Hanuman 363 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 2 Agarwal [1985] 151 ITR 150 was faced with the availability of a confirmatory letter filed by the assessee in whose books of account a credit was found. GIR number of the creditor was supplied, and it appears that he had confessed that this transaction was not genuine. The High Court did not act on the confession since it had not been made available to the assessee. The Bench observed that since the correct name and address, and the GIR number of the creditor had been supplied by the assessee the initial onus under section 68 of the Income-tax Act had been "completely discharged" by the assessee. It would not be sanguine to conceive of a possibility of a genuine contributor abandoning his investment for diverse reasons. That would not lead to the conclusion that the assessee is automatically guilty of attempt of converting its income into capital.
15. In Bharati (P.) Ltd. v. CIT [1978] 111 ITR 951 (Cal.) where notices to these alleged creditors had come back unserved, the Division Bench affirmed that the mere filing of confirmatory letters by the assessee did not discharge the onus that lay on the assessee. Different Division Benches of the same High Court have opined that the assessee must prove ( a) the identity, (b) the capacity of the creditors to advance money, (c) the genuineness of the transaction. (See Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.); C. Kant & Co. v. CIT [1980] 126 ITR 63 3 (Cal.) and CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596 4 (Cal.). In CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.), certain shares purchased through a broker were lost. The assessee furnished the name of the broker, as also the date of the sale, amount of purchase money and sale money. The broker was found not to have maintained regular accounts. However, the Court refused to draw an inference adverse to the assessee's interests. Instead the Calcutta High Court observed that the ITO ought to have investigated the matter more thoroughly to controvert the claim of the assessee, and concurred with the conclusion of the Tribunal that the latter had discharged the initial burden that lay on it. The High Court set aside the decision of the Tribunal which had reversed the findings of the ITO as well as the CIT (Appeals) since the assessee had supplied the income-tax file number of the creditor before it. The High Court noted that the mere filing of the income-tax number was not sufficient to establish the identity and creditworthiness of the creditor and genuineness of the transaction. Although Orissa Corporation was referred to the decision of the Full Bench of this Court in Sophia Finance was not even cited. Korlay Trading as well as Sophia Finance was applied by the same Division Bench of the Calcutta High Court in four decisions delivered in March 2003. In Hindusthan Tea Trading Co. v. CIT [2003] 263 ITR 2891 (Cal.), the Bench opined that in the case of a subscription to the share capital of a company, if section 68 of the Income-tax Act is to be resorted to, it is necessary for the assessee to prove and establish the identity of the subscriber, their creditworthiness and the genuineness of the 'transaction'. Once material to prove these ingredients are produced it is for the Assessing Officer to find out as to whether, on these materials, the assessee has succeeded in establishing the ingredients mentioned above. The Assessing Officer can 'lift the veil' and enquire into the real nature of the 364 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
transaction. CIT v. Ruby Traders & Exporters
Ltd. [2003] 263 ITR 3002 (Cal.), CIT v. Nivedan Vanijya Niyojan
3
Ltd. [2003] 263 ITR 623 (Cal.) and CIT v. Kundan Investment
Ltd. [2003] 263 ITR 626 4 (Cal.) are the other three.
16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/sub-scriber; (2) the genuineness of the transaction, namely: whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.
17. For a complete understanding of the concept of 'burden of proof' attention should be drawn to decisions delivered in the context of penalty proceeding under section 271 of the Income-tax Act CIT v. Anwar Ali [1970] 76 ITR 696 was decided by the Apex Court holding that, if there is no evidence on record except the explanation of the assessee, which explanation has been found to be false, it still does not follow that the receipt constitutes taxable income. This decision was followed by the Apex Court in Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 opining that the "mere falsity of the explanation given by the assessee is insufficient without there being, in addition, cogent material or evidence from which the necessary conclusion attracting a penalty can be drawn." However, as has been noted in Addl. CIT v. Jeevan Lal Sah 1995 Supp. (4) SCC 247 amendments were incorporated by Finance Act, 1964, into section 271 which had deleted the word "deliberately" in its sub-section 1(c), thereby shifting the onus of proof onto the assessee, rendering Anwar Ali's case (supra) ineffectual. Nevertheless, in CIT v. Mussadilal Ram 1 Bharose [1987] 165 ITR 14 it has been enunciated by the Supreme Court that though the explanation shifts the burden to the assessee to show absence of fraud, this onus is a rebuttable one. The burden is not discharged by the assessee tendering an incredible or fantastic explanation; and every explanation does not have to be accepted. In our opinion, it is for Parliament to introduce legislation if the duty presently resting on the Department is thought to be too onerous. We ought not to twist the language of a statute to remove the burden of proof altogether from the Department even though it 365 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 has the necessary wherewithal to discharge it. The malaise can also be arrested if unclaimed share subscriptions are taken over by the State and/or if the assessee concerned is precluded from distributing dividends, bonus shares etc. against such share subscriptions unless they are duly claimed by the original subscribers within a prescribed period, perhaps not exceedings three years. Thereafter the shares could automatically stand transferred to the State on the principle of escheat. For these events to happen, requisite amendments to the Income-tax Act may be required.
18. We shall now turn our attention to the facts and details of the present appeals. The appeal of the revenue in respect of assessment years 1984-85 and 1986-87 was rejected on 4-9-2003 by the ITAT Bench comprising Shri R.M. Mehta and Shri Ram Bahadur. With regard to the in between assessment year 1985-86 another Bench comprising Shri H.L. Karwa and Shri B.R. Jain dismissed the Revenue's appeal on 12-8-2005.
19. As would be evident from a perusal of the Table (supra) for the assessment year 1984-85 the assessee had filed a return declaring a loss of Rs. 25,090 and consequent upon the addition of Rs. 9,53,500 made under section 68 the assessment was made on this sum. The ITAT noted that the assessee was a Public Limited Company which had received sub-scriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of the Securities Contract Regulation Act, 1956 as also the Rules & Regulations of the Delhi Stock Exchange. Complete details appear to have been furnished. The ITAT has further recorded that the Assessing Officer had not brought any positive material or evidence which would indicate that the shareholders were (a) benamidars or (b) fictitious persons or (c) that any part of the share capital represented the company's own income from undisclosed sources. By the same Orders dated 4-9-2003 the addition of Rs. 76,51,650 for the assessment year 1986-87 deleted by the CIT(A), was upheld.
20. In connection with assessment year 1985-86 the ITAT has extracted portions of the Orders of the CIT(A) and we must assume that it did so to adopt that reasoning. The ITAT has not articulated its own reasoning in respect of Ground No. 1 before it viz. deletion of the addition of Rs. 13,05,450 on account of unexplained shares subscription; whilst it has done so with regard to the other ground viz., deletion of addition of Rs. 9,95,000 made on account of unexplained loans. The ITAT has categorically held that the assessee "has discharged its onus of proving the identity of the share subscribers". Had any suspicion still remained in the mind of the Assessing Officer he could have initiated 'coercive process' but this course of action has not been adopted. In view of the concurrent finding pertaining to the factual matrix we find no merit in these Appeals which we accordingly dismiss.
ITA No. 880/200621. In respect of this assessee namely, General Exports & Credits Ltd., the ITAT has reversed the decision of the CIT(A) on the subject with which we are presently concerned. It is trite that the decision of the ITAT should not be 366 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 interfered with by the High Court unless it finds it perverse and totally unacceptable. This is especially so with regard to the factual aspects of any appeal where there are concurrent conclusions of the lower Authorities. The assessee as well as the revenue had assailed the order dated 22-2-2002 of the CIT(A) pertaining to the assessment year 1989-90. We are presently concerned with the dispute raised by the revenue relating to the deletion of the addition of Rs. 1,00,18,500 made by the Assessing Officer under section 68 of the Income-tax Act. The Assessing Officer had noticed that the assessee had received these amounts towards share capital and share application money on account of issue of rights shares to five companies pursuant perforce to the renunciation of rights shares by several individual shareholders. At the time of the search conducted of the assessee the requisite renunciation Forms were not found. As in the case of Divine Leasing & Finance Ltd., these five companies were registered in Sikkim and remarkably at the same address, namely, Dorjee Building, Nam Nang Road, Gangtok. All of them had replied to the Department asking for further time to provide details. The CIT(A) has noted that (a) the stridently adverse findings of the Assessing Officer at Calcutta had been struck down in Appeal; (b) Notices under section 143(6) of the Income-tax Act sent to the five Companies were replied to by them; (c) these Companies were duly incorporated under the Sikkimese Companies Act;
(d) assessment of these Companies had been framed under the Sikkimese Taxation Manual; (e) their share subscriptions or capital were received through Banking channels. The CIT(A) deleted the addition for the reason that the identity of the shareholders had been established on the strength of Steller Investment, which approach may not be entirely correct in the light of the discussion above. We have already concluded that this merely shifts the burden of proving the illegal or illegitimate nature of the transaction onto the Department. The investigations carried out by the Assessing Officer in Calcutta cannot be relied upon by the Assessing Officer, Bulandshahar consequent on those proceedings being found to be without jurisdiction. While rejecting the assault of the revenue on this aspect the ITAT has cogently noted that the share capital issued to the original shareholders in the assessment year 1984-85, which had been cancelled by the Assessing Officer, Calcutta, was found to be valid by the jurisdictional Assessing Officer at Bulandshahar. But we hasten to clarify that the statement of law made by the ITAT to the effect that in case of share capital no additions could be made if it is established that the shareholders exist is not completely correct, and has not been so enunciated by this Court in Sophia Finance.
22. It has been contended on behalf of the revenue that the Rights Issue could not have been subscribed to by the aforementioned five Companies sans renunciation by the original shareholders. It has also be argued, and with merit, that the ITAT had not articulated the premise for arriving at the conclusion that the renunciation had taken place in a legal manner. We have also noticed that the Rights Issue were picked up only in 1989-90. These factors are not relevant in these proceedings, even if there have been transgressions to the Companies Act. Support for this approach can be found from the Coca-Cola Export 367 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 1 Corpn. v. ITO [1998] 231 ITR 200 . The Apex Court observed that - "If any remittance of foreign exchange had been made in excess of the prescribed limit from January 1, 1969, that will be for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, cannot be a ground for the Income-tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or 147(b) of the Act on the ground that that will be 'in consequence of information' in his possession in the shape of these two letters". The analogy commends application to these proceedings also. In these circumstances we find no scope for interference under section 260A of the Income-tax Act. This appeal is accordingly dismissed. There shall be no order as to costs.
ITA No. 953/200623. The ITAT has dismissed the revenue appeal and thus there are concurrent findings pertaining to the factual matrix. The following paragraph from the impugned decision adequately encapsulates the necessary details :
"Thus, the question is whether in the present case, the Assessing Officer had material to conclude that the share applicants in questions did not exist. It is seen that the assessee-company has furnished the necessary details such as PAN No./Income-tax Ward No./ration card of the share applicants and some of them are assessed to tax. The share application money has been received through banking channel. In some case, the confirmations/affidavits of share applicants containing the above detail were also filed. It is seen that the Assessing Officer did not carry out any inquiry into the income-tax record of the persons who have given the PAN No./Ward No. in order to ascertain the non-existence of the share applicants in question. The Assessing Officer has neither controverted nor disapproved the material filed by the assessee. In the case of CIT v. Makhani & Tyagi (P.) Ltd. [2004] 267 ITR 433 1 (Delhi), the jurisdictional High Court has held that when the documentary evidence was placed on record to prove the identity of all the shareholders including their PAN/GIR numbers and filing of other documentary evidence in the form of ration card etc. which had neither been controverted nor disapproved by the Assessing Officer, no interference was called for. The Tribunal was justified in deleting the addition. The Assessing Officer proceeded to make the impugned addition on the ground that in some case some summons issued were returned unserved and in some case summons though served but there was no compliance. In this connection, it may be mentioned that in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 2 (SC) the Hon'ble Court has held that when the assessee borrows the loan and if an assessee gives names and addresses of the creditors, who are assessed to tax and full particulars is furnished then the assessee has discharged the duty. If the revenue merely issues summons under section 131 and does not pursue the matter further, the assessee does not become responsible for the same even if the creditors do not appear. Addition cannot be made under section 68.368
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 No question of law, far less any substantial question of law arises for our consideration. We may however briefly reflect upon a submission made by learned Counsel for the respondent to the effect that the assessee had, by its letter dated 8-3-1999 requested the Assessing Officer to examine the Assessment Records of the share applicants whose GR Nos. had been supplied. It is not controverted that action was not taken by the Assessing Officer, but it has justifiably been contended that this inaction was due to paucity of time left at that stage since the assessment had to be framed by 31- 3-1999. It has been pointed out that several adjournments had been granted by the Assessing Officer on the asking of the assessee. The timing of the assessee's said letter is most suspect. Generally speaking, it is incumbent on the Assessing Officer to manage his schedule, while granting adjournments, in such a manner that he does not run out of time for discharging the duties cast on him by the statute. In the present case the details had been furnished to the Assessing Officer much before March 1999 but he failed to react to the shifting of the burden to investigate into the creditworthiness of the share applicants. Therefore, the appeal is dismissed."
8.1. Another case relied upon is from Hon'ble jurisdictional High Court in CIT vs Creative World Telefilms Ltd. (333 ITR 100) (Bom.), wherein, it was held as under:-
"Heard learned counsel for the Revenue. Office objections are overruled. Registry is directed to register the appeal. At the instance of the Revenue, the appeal is taken up for admission.
2. The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex court in the case of CIT v. Lovely Exports (P.) Ltd. Application No. 11993 of 2007, dated 11-1-2008, wherein the apex court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is 369 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs."
8.2. In the case of ACIT vs Venketeshwar Ishpat Pvt. Ltd.
319 ITR 393 (Chhatishgarh), the Hon'ble High Court held as under:-
"1. This appeal under section 260A of the Income-tax Act, 1961 (in short "the Act"), has been admitted on the following substantial questions of law :
"1.1 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) and whether it was justified in confirming his views in deleting the addition made by the Assessing Officer on account of unexplained investment in share capital in spite of the respondent's failure to discharge the onus cast upon it as per the pro visions of the law.
1.2. Whether on the facts in the circumstances of the case, the Tribunal was justified in confirming the order of the Commissioner of Income-tax (Appeals) in respect of the share capital ignoring the fact that no verification pertaining to its source was ever carried out in the year in which it was introduced.
1.3. Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the order of the Commissioner of Income-tax (Appeals) deleting the addition of ignoring the fact that the said addition are backed by specific provisions of the Income-tax Act."
2. The short question for consideration of this appeal is--whether the Tribunal as well as the Commissioner of Income-tax (Appeals) were justified in deleting the addition made by the Assessing Officer (in short "AO") on account of unexplained investment in share capital in spite of the respondent's failure to discharge the onus cast upon it as per the provisions of law.
3. Briefly stated, the facts of the case are that the assessee-company filed its return for the assessment year 1989-90. In the assessment proceedings, the Assessing Officer called upon the assessee to establish the identity and creditworthiness of the share applicants as the balance-sheet reflected the capital amount of Rs. 26,45,200. In order to confirm the investment, notices were issued to the shareholders in their given addresses and in 29 cases, the letters sent were returned unserved with the remark that the address is not complete or other similar reason. The Assessing Officer, not satisfied with the explanation of the assessee, added Rs. 13,36,000 towards holdings of the shareholders, whose confirmation could not be adduced.
4. Before the Commissioner of Income-tax (Appeals), the assessee sought permission for adducing additional evidence under rule 46A of the Income-
370M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 tax Rules, 1962, which was accepted and appeal of the assessee was allowed on the basis of additional evidence adduced by the assessee as also keeping in view of the fact that for subsequent assessment year, the share holders investment was confirmed during the assessment proceedings.
5. The appeal preferred by the Revenue was further dismissed by the impugned order.
6. Mr. Dubey, learned senior advocate appearing for the respondent submits that apart from the reasons assigned by the respondent, the Tribunal, wherein it has been held that the investment has been verified on the basis of the additional evidence adduced by the assessee, in view of the latest judgment of the hon'ble Supreme Court in the matter of CIT v. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 ; [2008] 216 ITR (St.) 195, investment by the alleged bogus shareholders in a company cannot be regarded as the undisclosed income of the assessee-company, though individual investors can be proceeded against by the Department.
7. Mr. Rajeshwar Rao, learned counsel for the appellant, does not dispute their ratio of law laid down by the hon'ble Supreme Court in the aforesaid judgment.
8. We have heard learned counsel for the parties and perused the impugned order.
9. In the matter of Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5, the question before the hon'ble Supreme Court was--whether the amount of share money can be regarded as undisclosed income under section 68 of the Act ? Answering the above question, the hon'ble Supreme Court has held that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee-company.
10. Thus, in view of the binding judgment of the hon'ble Supreme Court as also the findings recorded by the Commissioner of Income-tax (Appeals), which have been subsequently confirmed in appeal by the Appellate Tri bunal, we are of the opinion that there is no question of law, much less a substantial question of law, arising for adjudication of this appeal. The appeal is, accordingly, dismissed."
8.3. The Hon'ble Delhi High Court in CIT vs Gangour Investment Ltd. (2009) 179 taxman 1 (Del.) held as under:-
"The revenue can make addition under section 68 only if the assessee is unable to explain the credits appearing in its books of account. In the instant case, the assessee had filed subscription form of each of the investors, in particular, 'TT' Ltd. The said subscription forms contained 371 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 details, which set out not only the identity of the subscribers, but also gave information with respect to their addresses as well as PANs. During the course of scrutiny, the Assessing Officer had also asked for and was supplied with a copy of the statement of the bank accounts of 'TT' Ltd. The payments were made by way of a cheque. Finding of fact in respect of those ingredients had been returned both by the Commissioner (Appeals) as well as the Tribunal. [Para 4.1] 'TT' Ltd. was a widely held company having its own paid-up share capital amounting to Rs. 3.4 crores. The assessee was a member of NSE and was involved in sale and purchase of shares. In those circumstances, it could be said that the assessee had discharged its onus in respect of the veracity of transactions. [Para 4.2] In the circumstances, the revenue's appeal was to be dismissed."
While coming to the aforesaid conclusion, the Hon'ble High Court duly considered the following decisions:-
i. CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268 /[2007] 158 Taxman 440 (Delhi) [Para 4.2], ii. CIT v. Sofia Finance Ltd. [1994] 205 ITR 98 /[1993] 70 Taxman 69 (Delhi) (FB) [Para 4.2] and iii. CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR (SC) 195 [Para 4.2].
8.4. The Hon'ble Madhya Pradesh High Court in the case of CIT vs STL Extrusion Pvt. Ltd. (2011) 333 ITR 269 (M.P.) held as under:-
"The assessee having duly furnished the names, age, address, date of filing the application of share, number of shares of each subscriber there was no justification for the Assessing Officer for making the impugned addition because once the existence of the investors/share subscribers was proved, onus shift to the revenue to establish that either the share applicants were bogus or the impugned money belonged to the assessee itself. It was also found that after filing of the affidavits of the said subscribers the revenue at no stage of the proceedings sought any opportunity to rebut the said affidavits. Therefore, no question of law much less substantial question of law arises in this appeal. [Paras 6 and 7]"372
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 8.5. In the case of CIT vs G.P. International Ltd. (2010) 186 taxman 229 (P & H), the Hon'ble High Court held as under:-
The revenue has filed this appeal under section 260A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), against the order dated 12-2-2009, passed by the Income-tax Appellate Tribunal, Delhi Bench 'I' New Delhi (hereinafter referred to as 'the ITAT') in ITA No. 4346/Delhi/2005, pertaining to the assessment year 1996-97, while raising the following substantial questions of law :
(1)Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs. 3,30,000 made by the Assessing Officer on account of liability of M/s. Axis Chemicals & Pharmaceuticals even though the assessee had failed to prove the existence and genuineness of the liability? (2)Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in confirming the order of the learned CIT (A) in deleting the addition of Rs. 15,00,000 made by the Assessing Officer on account of unproved share capital disregarding the fact that the assessee had failed to prove the existence, genuineness and creditworthiness of these shareholders despite specific requirement of the law?
2. In the present case, the Assessing Officer, while completing the assessment under section 143(3) of the Act, made addition of Rs. 3,30,000 in respect of outstanding payable to M/s. Axis Chemicals & Pharmaceuticals Ltd., Faridabad and addition of Rs. 15,00,000 on account of unexplained share capital besides other additions. On appeal filed by the assessee, the CIT(A) vide its order dated 9-8-2000 set aside the assessment order and remanded back the matter to the Assessing Officer to frame the assessment afresh after providing full opportunity of being heard to the assessee. Thereafter, the Assessing Officer completed the assessment under section 143(3) read with section 250 of the Act and again made the aforesaid two additions. The assessee again filed appeal against the order of the Assessing Officer. The CIT(A) deleted both the aforesaid additions. The appeal filed by the revenue against the order of the CIT(A) has been dismissed by the ITAT. Hence, this appeal.
We have heard learned counsel for the appellant-revenue. As far as the addition of Rs. 3,30,000 is concerned, it has been held that during the proceedings under section 143(3) read with section 250 of the Act, the assessee furnished a confirmation certificate from M/s. Axis Chemicals & Pharmaceuticals Ltd., Faridabad along with PAN. On asking of the Assessing Officer, the assessee has confirmed that the said liability is still outstanding. In spite of that material, the Assessing Officer made the addition of the 373 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 amount on the basis that this liability has ceased to exist and the same is not payable by the assessee, and treated the said liability as income by invoking provision of section 41(1) of the Act. The CIT(A), while deleting the said addition, has observed that the similar addition was made in the case of Febon Con, Faridabad, where the similar liability was shown to be payable to the same party i.e., M/s. Axis Chemicals & Pharmaceuticals Ltd., Faridabad. In that case, the said addition was deleted by the ITAT. It is the admitted position that the said order of the ITAT passed in ITA Nos. 114 to 116/Delhi/2004 has become final. In view of these facts, in our opinion, the ITAT has rightly come to the conclusion that the aforesaid liability of the assessee cannot be said to have ceased to exist and the provision of section 41(1) and Explanation to this provision are not applicable, because the assessee is still showing it as a liability in its books and has not written off the same.
3. Regarding the addition of Rs. 15,00,000 on account of unexplained share capital, it has been held that at the time of the original assessment, the assessee had supplied the list of the persons along with their addresses to whom the shares were sold. The said list contained information, such as name, address and number of shares allotted. The Assessing Officer had issued enquiry letter under section 133(6) of the Act at random basis to 25 persons, out of whom some of the persons confirmed the genuineness of the transaction. However, some persons did not respond. In view of this fact, out of the total share capital of Rs. 54,28,500, the Assessing Officer made an addition of Rs. 15,00,000 by treating the sources of share capital of those persons as unexplained. In our opinion, the CIT(A) as well as the ITAT have rightly deleted the aforesaid addition, because in the instant case, the Assessing Officer is not doubting the identity of the persons from whom the assessee has shown receipt of application money. Merely because some of the persons did not respond to the notice issued by the Assessing Officer under section 133(6) of the Act, it cannot be taken that the said transaction was ingenuine. It has been held by the Hon'ble Supreme Court in CIT v. Lovely Exports (P.) Ltd. [S.L. A. No. 11993 of 2007, dated 11-1-2008] that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. But the said amount cannot be taken as unexplained income in the hands of the assessee.
4. In view of the above, we do not find any illegality in the impugned order passed by the ITAT and in our opinion, no substantial questions of law, as raised by the revenue in this appeal, arise from the order of the ITAT. Dismissed."
374M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 8.6. The Hon'ble Delhi High Court in CIT vs Siri Ram Hydor Power Pvt. Ltd. (196 taxman 441)(Del.) held/observed as under:-
"The present appeal has been filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "Act, 1961") challenging the order dated 22-1-2010 passed by the Income-tax Appellate Tribunal (for brevity "Tribunal") in ITA No. 3497/Delhi/2009 for the assessment year 2006-07.
2. Ms. Suruchii Aggarwal, learned counsel for the Revenue submitted that the Tribunal had erred in law in deleting the addition on account of unexplained share application money under section 68 of the Act, 1961. Ms. Aggarwal also submitted that the Tribunal had deleted the said addition even though the genuineness of transaction, creditworthiness and identity of the creditor had not been proved by the respondent-assessee.
3. However, upon a perusal of the file, we find that the said addition was deleted by the Commissioner of Income-tax (Appeals) [for short 'CIT(A)'] and the Tribunal on the ground that identity of share applicant was not in doubt and he was an Income-tax assessee holding a valid Permanent Account Number (PAN). In fact, the CIT(A) in its order has observed as under:-
"2.5 I have carefully considered the submissions made on behalf of appellant. It is true that in appeal proceedings, the appellant's AR himself attended and volunteered for producing Sh. Sujit Acharya before the Assessing Officer for examination which shows genuine intention of the appellant. On this specific request the remand order was passed. However the witness could be produced in the remand proceedings. The AR has explained the reasons for appellant's inability to produce him. However from the documents placed before the Assessing Officer and in appeal it is found that the identity of the share applicant is not in doubt. Copy of his PAN card, for No. 32 his consent letter to be a director of the company and bank account (although of subsequent period) do prove the existence and identity of the party. He is a director of the company. The PAN number has also been checked on the computer system of department and it shows the jurisdiction of Sh. Sujit Acharya with ITO ward 23(4) New Delhi. It is also seen that the signature of Sh. Sujit Acharya on various documents do tally with each other. Same signatures appear on the confirmation letter in which he has confirmed having paid Rs. 50 lacs to the appellant company. It is not in dispute that the payment has been made as share application money in lieu of which two share certificate allotting total 50,000 shares of Rs. 100 each were issued to him on 1-2-2007. The ratio of Supreme Court decision in the case of Lovely Exports is very clear and has been reconsidered or reviewed. In fact the ratio has been followed in many cases by other judicial authorities. Since in this case the identity of the person and genuineness of 375 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 transaction is proved, in my opinion the addition of share application money in the case of appellant company is not justified. If the Assessing Officer has any doubt about the source of payment, he may send the information to the Assessing Officer having jurisdiction over Sh. Sujit Acharya for further necessary action. In view of this addition of Rs. 50 lakhs is deleted."
4. The Tribunal in its impugned order has also observed as under:--
"6. In the present case, it is not in dispute that the assessee has received share application money from its Director Shri Sujit Acharya, who has filed confirmation letter before the Assessing Officer. The existence of Shri Sujit Acharya was not in dispute inasmuch as his identity and existence is established by fact that he was having Permanent Account Number as well as he is maintaining bank account with Axis Bank, a copy of which was filed before the Assessing Officer. His existence is also established from the fact that in Form No. 22, filed with the Registrar of Companies, Shri Sujit Acharya has been shown as a Director and he has given his consent to act as a Director of the Company. It is, thus, a case where identity of the shareholder has been established, and it is the case where the shareholder has confirmed that he has made investment of Rs. 50 lakhs towards share capital in the assessee company. The CIT(A) has also made his own enquiry and found that PAN has been allotted to Shri Sujit Acharya having jurisdiction with Income-tax Officer, Ward-23(4), New Delhi. The CIT(A) has also compared the signature of Shri Sujit Acharya on various documents and found that the signature were tallied with each other. It is also not in dispute that the shares were allotted to him on 1-2-2007. In the light of these facts, the CIT(A) has deleted the addition by applying the ratio of decision of Hon'ble Supreme Court in the case of CIT v. Lovely Exports 216 CTR
195. It is also pertinent to note that it is not the case where certain investigation have been made by the department where from it has been revealed that this transaction of payment of share application money is bogus, and it is merely an accommodation entry. The department has also not been able to point out any material or evidence on the basis of which it could be said that money has been emanated from coffers of the assessee company so as to treat the share application money as undisclosed income of the assessee company. In case the department has any doubt about the source of payment made by Shri Sujit Acharya, the department is free to proceed against Shri Sujit Acharya for further action as so observed by the ld. CIT(A).
7. In this view of the matter, we don't find any material or basis to take a view other than the view taken by the CIT(A) in deleting the addition of Rs. 50 lakhs being share application money received by the assessee from Shri Sujit Acharya. We, therefore, not inclined to interfere with the order of the CIT(A), which is accordingly upheld."
5. In our considered opinion, the approach adopted by CIT(A) and Tribunal is in consonance with the decision of Supreme Court in CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008] wherein it has been held as under :--
376M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "2. Can the amount of share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment...."
6. Keeping in view the aforesaid mandate of law and the concurrent finding of facts arrived at by the two authorities below, the share application money cannot be regarded as undisclosed income of assessee under section 68 of Act, 1961.
7. Accordingly, present appeal is dismissed in limine."
8.7. In the case of CIT vs HLT Finance Pvt. Ltd. (2011) 12 taxman 247 (Del.), the Hon'ble High Court held as under:-
"The present appeal has been filed under section 260A of Income-tax Act, 1961 (for brevity "Act, 1961") challenging the order dated 23-6-2009 passed by the Income-tax Appellate Tribunal (in short "ITAT") in ITA No. 2041/Delhi/2006, for the assessment year 1998-99.
2. Ms. Prem Lata Bansal, learned counsel for the revenue submitted that ITAT had erred in law in deleting the addition of Rs. 18,00,000 made by the Assessing Officer (in short 'AO') on account of unexplained share application money under section 68 of Act, 1961. She further submitted that ITAT had deleted the said addition even though the primary onus had not been discharged by the respondent-assessee with regard to the identity, creditworthiness and genuineness of the transaction.
3. However, upon a perusal of the file, we find that the said addition was deleted by the ITAT on the ground that the share applicants were identified and the revenue was at liberty to reopen the assessment of all such bogus shareholders. In fact, ITAT in the impugned order has observed as under:--
"3. It was argued by the learned AR that all the primary information with regard to shareholders was furnished before the lower authorities. Our attention was drawn to Annexure I wherein with respect to each and every shareholder the assessee has furnished status of person, relationship with the company and the documents filed before the lower authorities. From this statement, we found that assessee has filed confirmation in respect of Shri N.R. Suri and Mrs. Harvinder Kaur. In respect of Shri M.P. Khanna and Shri J.P. Khanna, the assessee has filed capital account in the firm from where withdrawal for this investment was made and these two are the directors of the assessee company. The assessee has also filed copies of ledger account. In respect of three private limited companies, the assessee has filed copy of ledger account and in case of Hallmark Healthcare 377 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Limited, the assessee has also filed affidavit for advancing the money on account of share capital. In respect of all these three companies, the Assessing Officer has directly obtained the bank statement from where relevant cheques on account of share capital were issued. On the basis of these certificates as narrated by the Assessing Officer and CIT(A) we can safely conclude that identity of the shareholders was established and the only grievance of the CIT(A) was with regard to creditworthiness of these shareholders and genuineness of transaction. Hon'ble Supreme Court in the case of Divine Leasing and Finance Limited dismissed the SLP filed by the Revenue against the order of Hon'ble Jurisdictional High Court, with speaking order. In case of Value Capital Service (P.) Ltd., in ITA No. 348/08, vide order dated 25-4-2008, Hon'ble Delhi High Court held that it is very difficult for the assessee to show the creditworthiness of strangers and if the revenue had any doubt with regard to ability to make the investment, their returns may be reopened by the department. Hon'ble Supreme Court in the case of Lovely Exports while rejecting the department's SLP No. 11993/07 dated 11-1-2008, held that when the share application money is received by the assessee-company from alleged bogus shareholders whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Similar was the finding of Hon'ble Supreme Court in the case of Shipra Retailers (P.) Ltd. In SLP No. 451/08 dated 21-1-2008 as also in the case of Divine Leasing & Finance Ltd. In SLP No. 375/08 dated 21-1-2008.
4. The various judgments relied on by the learned AR and placed on record clearly lay down the ratio to the effect that in respect of money introduced by way of share capital, and the assessee-company furnished the names and particulars of shareholders for establishing their identity, the department may proceed to reopen the assessments of all such alleged bogus shareholders whose investment in the share capital is found to be unexplained.
5. In view of the above, we allow the appeal of the assessee with the similar direction to the effect that department is at liberty to reopen the individual assessment as alleged shareholders, as per provisions of law."
4. In our considered opinion, the approach adopted by CIT(A) and ITAT is in consonance with the decision of Supreme Court in CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008] wherein it has been held as under:--
"2. Can the amount of share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment......"378
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
5. Keeping in view the aforesaid mandate of law, the share application money of Rs. 18,00,000 cannot be regarded as undisclosed income of assessee under section 68 of Act, 1961. Accordingly, present appeal is dismissed in limine.
In favour of assessee.
†Appeal arising from order of ITAT, Delhi in IT Appeal No. 2041 (Delhi) of 2006, dated 23-6-2009."
8.8. The Hon'ble Delhi High Court in CIT vs Oasis Hospitalities Pvt. Ltd. (333 ITR 119) (Del.) held as under:-
"As per the provisions of section 68, in case the assessee has not been able to give satisfactory explanation in respect of certain expenditure or where any sum is found credited in the books of account, the Assessing Officer can treat the same as undisclosed income and add it to the income of the assessee. The assessee is required to give satisfactory explanation about the 'nature and source' of such sum found credited in the books of account. [Para 3] It is a common knowledge that insofar as the companies incorporated under the Indian Companies Act are concerned, whether private limited or public limited companies, they raise their capital through shares, though the manner of raising the share capital in the private limited companies on the one hand and public limited companies on the other hand would be different. In the case of private limited companies, normally, the shares are subscribed by family members or persons known/close to the promoters. Public limited companies, on the other hand, generally raise public issues inviting general public at large for subscription of these shares. Yet, it is also possible that in case of public limited companies, the share capital is issued in a close circuit. [Para 4] When the companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and, thus, deposit share application money. These amounts received from such shareholders would, naturally, be the sums credited in the books of account of the assessee. If the Assessing Officer doubts the genuineness of the investors, who had purportedly subscribed to the share capital, he may ask the assessee to explain the nature and source of those sums received by it on account of share capital. It is in this scenario, the question arises about the genuineness of the transactions. The plain language of section 68 suggests that when the assessee is to give satisfactory explanation about receipts, burden of proof is on the assessee to provide nature and source of those receipts. [Para 5] In order to discharge this burden, the assessee is required to prove :
(a ) identity of the shareholder;379
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 (b ) genuineness of the transaction; and (c ) creditworthiness of the shareholders. [Para 11] In case the investor/shareholder is an individual, some documents will have to be filed or the said shareholder will have to be produced before the Assessing Officer to prove his identity. If the creditor/subscriber is a company, then the details in the form of its registered address or PAN identity, etc., can be furnished. [Para 12] Genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it had come from the coffers of that very shareholder. When the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of the transaction would be proved. Other documents showing the genuineness of the transaction can be the copies of the shareholders' register, share application forms, share transfer register, etc. [Para 13] As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. [Para 14] The observations of the Supreme Court in the case ofCIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR (SC) 195 go to suggest that the department is free to proceed to reopen the individual assessment in case of alleged bogus shareholders in accordance with law and, thus, not remediless. It is, thus, for the Assessing Officer to make further inquiries with regard to the status of these parties to bring on record any adverse findings regarding their creditworthiness. This would be more so where the assessee is a public limited company and has issued the share capital to the public at large, as in such cases the company cannot be expected to know every detail pertaining to the identity and the financial worth of the subscribers. Further, initial burden on the assessee would be somewhat heavy in case it is a private limited company where the shareholders are family friends/close acquaintances, etc. It is because of the reason that in such circumstances, the assessee cannot feign ignorance about the status of the parties. [Para 20] The Supreme Court, in the case ofCIT v. P. Mohanakala[2007] 291 ITR 278 / 161 Taxman 169, held that the expression 'the assessee 380 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 offers no explanation' means that the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by it. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory, there is, prima facie, evidence against it, viz., the receipt of money. The burden is on the assessee to rebut the same, and if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. [Para 21] Having taken note of the legal position in detail, each appeal would have to be decided on the application of aforesaid principles. [Para 24] IT Appeal Nos. 2093 and 2095 of 2010 Addition could not be sustained as the primary onus was discharged by the assessee by producing PAN, bank account, copies of the income-tax returns of the share applicants, etc. It was also found that the Assessing Officer was influenced by the information received by the investigating Wing and on that basis general modus operandi by such entry operators was discussed in details. However, whether suchmodus operandi existed in the instant case or not was not investigated by the Assessing Officer. The assessee was not confronted with the investigation carried out by the Investigating Wing nor was it given an opportunity to cross-examine the persons whose statements were recorded by the Investigating Wing. [Para 28] As regards discrepancies found by the Assessing Officer in the bank statement, it was to be mentioned that the bank statements that were filed by the assessee were provided by the shareholders and were computer printed on the bank stationery. The same were filed by the assessee during the assessment proceedings without any suspicion of their being incorrect. During the assessment proceedings the assessee was never confronted by the Assessing Officer that there were discrepancies between the bank statements filed and the statements directly called for by the Assessing Officer. However, even after considering the alleged discrepancies, it did not follow that the amount of share capital was the undisclosed income of the assessee. Even the correct bank statements as claimed by the Assessing Officer revealed that the assessee had received cheques from the shareholders. [Para 29] 381 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Therefore, the addition could not be sustained [Para 30] IT Appeal No. 2094 of 2010 The addition was rightly deleted by the Commissioner (Appeals) and the Tribunal. Requisite documents were furnished showing the existence of the shareholders from bank accounts and even from their income-tax details. From bank accounts of those shareholders, it was found that they had deposed that certain cash and source thereof was questionable. The Assessing Officer should have further probed which he had failed to do. Moreover, remedy with the department lay in reopening the cases of those investors and, therefore, the addition could not be made in the hands of the assessee. [Para 34] Therefore, the revenue's appeal was to be dismissed. [Para 35] IT Appeal No. 514 of 2007 Insofar as the statements of the five persons produced were concerned, they were gone into and analyzed by the three authorities below on the basis of which finding of fact was arrived at that neither their identity was established nor their capacity to invest that kind of money was proved. They were all agriculturists and had not produced a single document to support their version. That was a finding of fact and there was no reason to interfere with the same. [Para 42] The findings of the authorities below could not be treated as perverse as those were on the basis of proper analysis of the statements of those persons which were recorded by the Assessing Officer. The initial onus is upon the assessee to establish three things necessary to obviate the mischief of section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise. In the instant case, no such documents were filed and no steps were taken by the assessee which could establish the aforesaid three ingredients. [Para 43] Additional evidence in the form of bank statement, etc., was given, but the assessee had not done anything to prove those bank accounts. [Para 44] For all those reasons, the assessee had not been able to discharge the onus ptomaine and addition had been rightly made. [Para 46] 8.9. The Delhi Bench of the Tribunal in ACIT vs Adamine Construction Pvt. Ltd. (87 taxman.com 216)(Del.) held as under:-
382M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 ■ In the present case there were 11 investor companies claimed to have invested in the assessee-company. In support of their identity and creditworthiness as well as genuineness of the transactions, the assessee had filed before the Assessing Officer, their (investor companies) confirmations, Income Tax return acknowledgements (except in the case of RGTC), bank accounts with this submission that entire amount had been received by the assessee-company through normal banking channels by account payee cheques/demand drafts. The confirmations filed revealed the source of funds, particulars of the bank account through which payments were received and the Income Tax particulars establishing the identity and creditworthiness of the respective share applicants. Thus, the assessee had discharged its primary onus to establish identity and creditworthiness of the investor companies as well as genuineness of the transactions.
■ The Assessing Officer, on the other hand, had doubted the genuineness of the claimed receipt on the basis that some of the investor companies could not be found at the given address and that some of the investor companies responded to the summons by post, but had not caused appearance before him. The Assessing Officer also held that income of many of the investor companies was too low or meager to enable them to make such large investments in the share capital of the assessee- company. The Assessing Officer also observed that there appeared no justification for large components of share premium paid to the assessee along with the share capital.
■ The Assessing Officer also remained suspicious about the claimed investor companies on the basis of reasons recorded for initiation of reopening of assessment proceedings based on the report relating to survey conducted at the premises of the assessee that the business premises of the assessee actually belong to BSL and several other companies were having their Registered offices in the same premises. ■ The submission of the assessee in this regard remained that there is no law that more than one company cannot have its Registered office at one address and that there is no law that companies cannot change their Registered offices. It was submitted that business raise capital and such capital is rotated in economy for increasing production and trade and for making more efficient use of capital. Companies change and, sometimes in quick succession. This is the normal formation of capital in any open economy and the process of capital formation cannot be taken to be representing only unaccounted funds or impeded. ■ It was submitted that all the companies having Registered office at the premises undisputedly belonged to one, 'B' Group. The sources of capital introduced in these companies were established during the respective assessment proceedings. It was further contended that no evidence was found during search to indicate introduction of cash in the form of share capital. It is also pertinent to mention over here that out of 383 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 total 11 investor companies, notices could not be served in case of 3 companies as they were not available on the given addresses. The remaining eight companies had responded and had filed their submissions. However, there is no dispute that in case of all the 11 investor companies, the assessee had filed primary documents and had accordingly discharged its initial onus to establish identity and creditworthiness of the investor companies and genuineness of the transaction as there is no dispute that all the transactions have been done through banking channels, i.e., through account payee cheques and demand drafts.
■ Thus, the Assessing Officer has failed to discharge its onus to prove that the documents filed by the assessee, as discussed above, were false or fabricated as the Assessing Officer has not made any efforts to verify those documents especially when there is no dispute that all the investor companies were filing their returns of income and were being assessed by the Department. The Assessing Officer on the contrary remained suspicious on the claimed receipt from the investor companies on some other factors like some of them were not found on their given addresses, some of them had furnished their submissions through posts and some of them were not having sufficient income etc. as discussed above. Under these circumstances, the Commissioner (Appeals) was justified in deleting the addition made under section 68 on account of unexplained share capital and share premium. [Para 18] While coming to the aforesaid conclusion, the Delhi Bench of the Tribunal duly followed/considered the following decisions:-
i. CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 (Delhi) (para 17);
ii. CIT v. Orbital Communication (P.) Ltd. [2010] 327 ITR 560 (Delhi) (para 17);
iii. CIT v. Winstral Petrochemicals (P.) Ltd. [2011] 330 ITR 603/10 taxmann.com 137/199 Taxman 135 (Mag.) (Delhi) (para 17);
iv. Pr. CIT v. N.C. Cables Ltd. [2017] 391 ITR 11 (Delhi) (para 17) v. Pr. CIT v. Softline Creations (P.) Ltd. [2016] 387 ITR 636/[2017] 81 taxmann.com 269 (Delhi) (para 17) 384 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 vi. North Wales Police v. Evans [1982] 1 WLR 1155 (para
5), vii. Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (para 7), viii. Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043/[1981] 6 Taxman 363 (All.) (para 7), ix. Sheo Nath Singh v. Appellate Asstt. CIT [1971] 82 ITR 147 (SC) (para 7), x. Ajit Jain v. Union of India [2000] 242 ITR 302/[2001] 117 Taxman 295 (Delhi) (para 7), xi. VXL India v. Asstt. CIT [1995] 215 ITR 295/83 Taxman 582 (Guj.) (para 7), xii. Surat City Gymkhana v. Asstt. CIT [2001] 76 ITD 327 (Ahd.) (para 7), xiii. Ram Bai v. CIT [1999] 236 ITR 696/103 Taxman 121 (SC) (para 7), xiv. Bagsu Devi Bafna v. CIT [1966] 62 ITR 506 (Cal.) (para
7), xv. Kishinchand Chellaram v. CIT [1980] 125 ITR 713/4 Taxman 29 (SC) (para 7), xvi. R.B. Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement Commission [1989] 176 ITR 169/43 Taxman 34 (SC) (para 7), xvii. Rajesh Kumar v. Dy CIT [2006] 287 ITR 91/157 Taxman 168 (SC) (para 7), xviii. C.B. Gautam v. Union of India [1993] 199 ITR 530/[1992] 65 Taxman 440 (SC) (para 7), xix. Prakash Chand Nahta v. CIT [2008] 301 ITR 134/170 Taxman 520 (MP.) (para 7), xx. CITv. Gangeshwari Metal (P.) Ltd. [2013] 30 taxmann.com 328/214 Taxman 423/[2014] 361 ITR 10 (Delhi) (para 16), xxi. Pr. CIT v. N.C. Cables Ltd. [2017] 391 ITR 11 (Delhi) (para 16), 385 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 xxii. Pr. CIT v. Softline Creations (P.) Ltd. [2016] 387 ITR 636/[2017] 81 taxmann.com 269 (Delhi) (para 16), xxiii. CIT v. Real Time Marketing (P.) Ltd. [2008] 306 ITR 35/173 Taxman 41 (Delhi) (para 16), and xxiv. CIT v. Kamdhenu Steel & Alloys Ltd. [2014] 361 ITR 220/[2012] 206 Taxman 254/19 taxmann.com 26 (Delhi) (para 16).
8.10. Hon'ble Delhi High Court in CIT vs Anshika consultants Pvt. Ltd. 62 taxman.com 192 (Del.) held/observed as under:-
■ Whether the assessee-company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed, the investigation report which was specifically called from the concerned department was available but not discussed by the Assessing Officer. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants' particulars were available with the Assessing Officer in the form of balance sheets income-tax returns, PAN details etc. While arriving at the conclusion that he did, the Assessing Officer did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. As held concurrently by the Commissioner (Appeals) and the Tribunal, these conclusions were clearly baseless and false. This Court is constrained to observe that the Assessing Officer utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. [Para 6] ■ For the above reasons, the concurrent findings of fact, as to the true identity of the share applicants, their creditworthiness and genuineness of the transaction, are based on sound reasoning and do not call for interference. No substantial question of law arises. The appeals are 386 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 dismissed. [Para 7] 8.11. The Delhi Bench of the Tribunal in ACIT vs Bahubali Dyes Ltd. (55 taxman.com 357)(Del.) held as under:-
"Where assessee established identity, genuineness and creditworthiness of shareholder companies by submitting all essential evidence, no addition could be made on account of unexplained cash credit [In favour of assessee] The assessee received share capital and share premium from six companies. Assessee established identity, genuineness and creditworthiness of shareholder companies by submitting all essential evidence. Shareholder companies affirmed investment made by them in shares of assessee-company and also produced necessary evidence in support of such investment. Held that share capital as well as share premium/reserve of all companies was several times more than amount invested by them in share capital of assessee company proving their creditworthiness. Thus, no addition could be made on account of unexplained cash credit."
8.12. In the case of Bharti Syntex Ltd. vs DCIT 19 taxman.com 361(Trib.), the Jaipur Bench of the Tribunal held as under:-
"Assessee having filed necessary details like certificate of incorporation of investor companies, their PANs, their balance sheets and also share certificates issued in order to prove that actual share money had been received and shares had been allotted to respective parties, addition made under section 68 in respect of said share money in assessee's hands was not justified [In favour of assessee] The assessee-company had received share application money from the three companies. The Assessing Officer observed that investments made by these three companies in shares of assessee-company were prima facie doubtful. On examination, he found that the share application money received by the assessee-company was prima facie an accommodation entry. The Assessing Officer also found that a director of company, from which assessee had 387 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 received share application money had accepted the fact that the transactions were not genuine and it was merely accommodation entry. In view of these facts, the Assessing Officer made addition under section 68. The Commissioner (Appeals) sustained the addition. Held that certificate of incorporation of investor companies was placed on record. It means that they were registered companies under the Companies Act. PANs of all the three parties had been given and surprisingly no enquiry had been made by the Department from its own department whether the PANs allotted to these parties were correct or not or these companies were assessed to tax or not. The assessee-company had filed copy of its balance sheet also showing the shares of the assessee-company in their books of account on said assets. Year-wise these shares had been shown in their balance sheet and they had stated that they were regularly assessed to tax. Copy of confirmation along with affidavit and share certificates issued were also placed on record. Therefore, by merely saying that these parties were not traceable and treating the share application money as unexplained money under section 68 was not correct. The assessee had filed necessary details for the purpose of proving that it had received actual share application money and the shares had been allotted. Shares had been allotted to the respective companies. The assessee-company was showing the shareholders in its balance sheet and these companies were also showing the assets in their balance sheet in the shape of shares in the assessee-company. All these companies were assessed to tax and, therefore, the addition sustained by the Commissioner (Appeals) was not justified."
8.13. The Hon'ble Delhi High Court in the case of CIT vs Fair Finvest Ltd. 44 taxman 356 (Del.) order dated 22/11/2012, held as under:-
"Where assessee had filed documents including certified copies issued by Registrar of Companies in relation to share application and affidavits of directors, Assessing Officer could not make addition on account of share application money solely on basis of investigation report [In favour of assessee] Where assessee adduces evidence in support of share application monies, it is open to Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on report of investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between assessee and alleged hawala operators. Where assessee had filed documents including certified copies issued by Registrar of Companies in relation to share application, affidavits of 388 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 directors, Form 2 filed with Registrar of Companies by such applicants, confirmations by applicants for company's shares, certificates by auditors, etc., Assessing Officer was not justified in making addition under section 68 on account of share application money merely on general inference to be drawn from the reading of the investigation report. The least that Assessing Officer ought to have done was to enquire into matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors."
While coming to the aforesaid conclusion, the Hon'ble Delhi High Court the following decisions:-
i. CIT v. Nova Promoters & Finlease (P.) Ltd. [IT Appeal No. 342 of 2011, dated 15-2-2012] (para 3) and ii. CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR (SC) 195 8.14. The Hon'ble Madhya Pradesh High Court in the case of Peoples General Hospital Ltd. 35 taxman.com 444 (M.P.), held as under:-
■ In the case of CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008], the Apex Court specifically held that if the identity of the person providing share application money is established, then the burden is not on the assessee to prove the creditworthiness of the said person. However, the department can proceed against the said company in accordance with law. [Para 16] ■ The position of the present case is identical. It is not the case of any of the parties that the company in Sharjah is a bogus company or a non- existent company and the amount which was subscribed by the said company by way of share subscription was in fact the money of the assessee. In the present case, the assessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine, though as per contention of the assessee the creditworthiness of the creditor was also established. In the present case, in the light of the judgment of Lovely Exports (P.) Ltd. (supra), only establishment of the identity of the investor is to be seen. The Delhi High Court also, in the case of CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440, considering a similar question held that the assessee-389
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 company, having received subscriptions from the public/rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources. [Para 16] ■ In view of law laid down by the Apex Court, the substantial questions framed in these appeals do not arise for consideration. Accordingly, all these appeals are dismissed with no order as to costs. [Para 17] While coming to the aforesaid conclusion, the Hon'ble High Court also considered the following decisions:
(i) CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440 (Delhi) (para 9),
(ii) Bhav Shakti Steel Mines (P.) Ltd. v. CIT [2010] 320 ITR 619/[2009] 179 Taxman 25 (Delhi) (para 9),
(iii) Amines Plasticizers Ltd. v. CIT [1997] 223 ITR 173 (Gauhati) (para 9),
(iv) CIT v. G.M. Mittal Stainless Steel Ltd. [2004] 271 ITR 219/[2005] 142 Taxman 349 (MP) (para 9),
(v) CIT v. Ruby Traders & Exporters Ltd. [2003] 263 ITR 300/[2004] 134 Taxman 29 (Cal.) (para 9) and
(vi) CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008](para 10).
8.15. The Hon'ble Madras High Court in CIT vs Pranav Foundations Ltd. 51 taxman.com 198 (Madras) held as under:-
390M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 ■ A bare reading of section 68 makes it clear that in a case where any sum is found credited in the books of account and the assessee has not given satisfactory explanation in respect of the same, the Assessing Officer can treat the same as undisclosed income and add it to the income of the assessee. All that the said provision contemplates is that the assessee has to give satisfactory explanation about the 'nature and source' of such sum found credited in the books of account. [Para 5] ■ In view of the fact that all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment. Thus, the assessee has categorically established the nature and source of the said sum and discharged the onus that lies on it in terms of section 68. When the nature and source of the amount so invested is known, it cannot be said to undisclosed income. Therefore, the addition of such subscriptions as unexplained credit under section 68 is unwarranted. [Para 6] ■ That apart, a reading of the decision of the Supreme Court in CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 makes it clear that the department has a right to reopen the individual assessment if the allegation of bogus shareholding is proved. This is not a case of investment by bogus shareholders. The four limited companies have made investment and that is borne out by records. The Commissioner (Appeals) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessee has explained in no uncertain terms the nature and source of income. [Para 7] ■ In the result, the appeal is dismissed. [Para 9] 8.16. Hon'ble Delhi High Court in Pr. CIT vs Softline Creations Pvt. Ltd. 81 taxman.com 269 (Del.), vide order dated 31/08/2016, held as under:-
"Where assessee had provided permanent account numbers, bank details and affidavits of directors of share applicant company, no addition could be made under section 68 on account of share application money merely because of failure of directors to physically present themselves before Assessing Officer [In favour of assessee] Where the assessee had provided sufficient information by way of permanent account numbers, to highlight the identity of the share applicants, as well as produced the affidavits of the directors and furthermore the bank 391 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 details of the share applicants too had been provided, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their creditworthiness and, therefore, addition made by the Assessing Officer under section 68 merely because of the failure of the directors to physically present themselves before him was not justified."
8.17. The Jaipur Bench of the Tribunal in Jadau Jewellers & Manufacturers Pvt. Ltd. (83 taxman.com 249) held as under:-
"Where assessee produced before Assessing Officer copy of share application, copy of PAN and bank accounts to prove identity, genuineness and creditworthiness of cash creditor, share application money could not be added under section 68 [In favour of assessee] The assessee claimed to have received share application money from certain companies. The Assessing Officer, however, held that amount received from said companies in the form of share capital was only accommodation entries.
Held that the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of directors report, auditors report, copy of balance sheet, copy of profit and loss a/c, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. Thus, addition made by the Assessing Officer was to be deleted.
Section 153A of the Income-tax Act, 1961 - Search and seizure - Assessment in case of - Assessment year 2008-09 - Where time limit to issue notice under section 143(2) had expired in respect of return filed by assessee under section 139(1) and during course of search no incriminating documents were found in case of assessee, notice issued to assessee under section 153A read with section143(3) was void ab initio [In favour of assessee] The assessee challenged notices issued to it under section 153A read with section143(3) on the ground that same was invalid. Held that in this case the return under section 139(1) was filed on 30-9-2008 as per law for the year under consideration. The Assessing Officer could issue notice by 30-9-2009 under section 143(2). In this case, search was conducted 392 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 on 6-5-2010.Thereafter the Assessing Officer issued notice on 16-9-2011 under section 153A read with section 143(2). During the course of search, no incriminating documents were found. Therefore, no notice can be issued under section 153A read with section 143(3) because no proceeding was pending before the Assessing Officer which has abated for issue of notice on the date of initiation of search. Thus, order passed under section 153A read with section 143(3) is held void ab initio."
While coming to the aforesaid conclusion, the Bench duly considered the following decisions:-
Onassis Axles (P.) Ltd. v. CIT [2014] 364 ITR 53/44 taxmann.com 408/224 Taxman 80 (Mag.) (Delhi) (para
3), CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi) (para 3), CIT v. Barkha Synthetics Ltd. [2004] 270 ITR 477/[2003] 131 Taxman 114 (Raj.) (para 3), Jai Steel (India) v. Asstt. CIT [2013] 219 Taxman 223/36 taxmann.com 523 (Raj.) (para 3), Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 3), CIT v. Winstral Petrochemicals (P.) Ltd. [2011] 330 ITR 603/10 taxmann.com 137/199 Taxman 135 (Mag.) (Delhi) (para 4), CIT v. Samir Bio-Tech (P.) Ltd. [2010] 325 ITR 294 (Delhi) (para 4), Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) (para 4), Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC) (para
4), CIT v. Anupam Kapoor [2008] 299 ITR 179/166 Taxman 178 (Punj. & Har.) (para 4), All Cargo Global Logistics Ltd. v. Dy. CIT [2012] 137 ITD 287/23 taxmann.com 103 (Mum.) (SB) (para 4.1), CIT v. Smt. Shaila Agarwal [2012] 346 ITR 130/204 Taxman 276/[2011] 16 taxmann.com 232 (All.) (para 4.1), 393 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Vishal Dembla v. Dy. CIT [2013] 40 taxmann.com 134/[2014] 61 SOT 10 (URO) (Jodh. - Trib.) (para 4.1), Marigold Merchandise (P.) Ltd. v. Dy. CIT [2015] 55 taxmann.com 358 (Delhi - Trib.) (para 4.1), Gurinder Singh Bawa v. Dy. CIT [2012] 28 taxmann.com 328 (Mum. - Trib.) (para 4.1), Kusum Gupta v. Dy. CIT [IT Appeal Nos. 4873 (Delhi) of 2009, dated 28-3-2013] (para 4.1), MGF Automobiles Ltd. v. ACIT [IT Appeal Nos. 4212 & 4213 (Delhi) of 2011, dated 28-6-2013] (para 4.1), Tarannum Zafar Khan v. ACIT [IT Appeal Nos. 5888 to 5890 (Mum.) of 2009, dated 12-7-2013] (para 4.1), Vee Gee Industrial Enterprises v. ACIT [IT Appeal Nos. 1 & 2 (Delhi) of 2011, dated 12-7-2013] (para 4.1), Asstt. CIT v. Mir Mazharuddin [2013] 35 taxmann.com 541/59 SOT 9 (URO) (Hyd. - Trib.) (para 4.1), Asstt. CIT v. Ms. Asha Kataria [IT Appeal Nos. 3105 to 3107 (Delhi) of 2011, dated 20-5-2013] (para 4.1), Natvar Parikh & Co. Ltd. v. Dy. CIT [IT Appeal Nos. 2143 to 2145 (Mum.) of 2009, dated 22-1-2014] (para 4.1), CIT v. Navodaya Castles (P.) Ltd. [2014] 367 ITR 306/50 taxmann.com 110/226 Taxman 190 (Mag.) (Delhi) (para 5), CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC) (para
5) and CIT v. Vijay Power Generator Ltd. [IT Appeal No. 514 (Delhi) of 2007] (para 6.1).
8.18. The Hon'ble Assam High Court in Tolaram Daga vs CIT (59 ITR 632)(Assam) held as under:-
"The sources from which the money was realised by the third party were not within the special knowledge of the assessee as the depositor happened to be his wife. Whether he had knowledge at all of the source of the money deposited by the third-party was a matter which had to be decided on 394 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 evidence. The mere fact that the third party making the deposit happened to be the wife of the assessee did not ipso facto make the assessee come into the knowledge of the sources from which the money was realised. Under law, in the absence of specific proof of that knowledge, it cannot be assumed that the assessee had the knowledge in question within the meaning of section 106 of the Evidence Act. In order to rely on this section, which lays down that when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him, it must be established first that the person has especial knowledge of that fact, having regard to the circumstances of the case.
It would appear that the accounts of the firm which had been produced in the case had been accepted and acted upon by the department and no serious challenge had been made to their genuineness or that they were kept regularly in the course of business. That being the case, the accounts were relevant and afford prima facie proof of the entries and the correctness thereof under section 34 of the Evidence Act, so that where a deposit is found to have been made by a third party in the accounts of the firm, that entry was prima facie proof that that amount in question was deposited by the person in whose name the deposit stood. To require the firm or the individual partners to go further and adduce proof of the sources from which the deposits in question appearing in the accounts in the name of third parties were derived by them, would be placing a burden on the firm as well as the partners, which was not required or justified by law. In most cases it may be imposable for the firm or the partners to determine the sources from which the money deposited with them had been realised by the depositors. In the instant case, there were not only the accounts of the firm showed that the deposit stood in the name of assessee's wife but also, in addition, the declaration made by her that the money belonged to her and the deposit was made by her. It was also significant that lady was also assessed to income-tax on the basis of a return made by her. The enquiry as to the source from which this amount was acquired or obtained by her might perhaps, be relevant in an investigation into the assessment to be made regarding her income and when determining the correctness of the return submitted by her. But the mere fact that the assessee was unable to satisfy the monies which she deposited with the firm could not, be used against the assessee. The Tribunal, therefore, was not justified in either demanding proof or in drawing an adverse inference against the assessee on his failure to produce the same.
The only other circumstance relied on by the Tribunal was that a similar sum of Rs. 10,000 was deposited on the same day by another partner's wife with the firm. This circumstance might have been a coincidence or might have been done by the two ladies agreeing to invest their respective monies with the firm. Whatever may be the reason, the fact that somebody else made a similar deposit on the same day was, totally irrelevant in deciding upon the nature of the deposit made by assessee's wife. The Tribunal, therefore, was not justified in relying on the circumstance as a price of evidence against the assessee. Undoubtedly, it was not a "material" at all on which the Tribunal could base its decision.395
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 On a careful consideration of the facts and circumstances of the case and the law applicable thereto, there was no justification for the conclusion reached by the Tribunal that the sum which stood in the name of the wife of the assessee was not shown to be her money but the money of the assessee himself and that therefore the decision of the Tribunal was clearly unsustainable in law.
Note : The case was decided in favour of the assessee."
8.19. If the ratio laid down in the aforesaid cases, is analyzed, majority of the cases says that once the assessee proved the identity, creditworthiness and genuineness of the transactions, no addition can be made under section 68 of the Act in the cases of the present assessee. The Hon'ble jurisdictional High Court in Creative World Telefilms Ltd.
((Supra)) clearly held that in the case in hand, it was not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement 'not traceable'.
The Assessing Officer ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant 396 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 material details and particulars were given by the assessee to the Assessing Officer. In the above circumstances, the view taken by the Tribunal could not be held to be faulted. No substantial question of law was involved in the appeal. In the result, the revenue's appeal was to be dismissed in limine. In the case of Oasis Hospitalities ((supra)), the Hon'ble Delhi High Court observed that the assessee had shown certain receipts on account of share application money. In order to prove the genuineness of the transactions and identity of the share applicants and their creditworthiness, it had filed confirmation from those parties and their income-tax particulars. The Assessing Officer issued notices under section 133(6), which remained unserved on 22 out of 30 parties. Even the remaining 8 persons did not respond. Local inquiries made through Inspector revealed that the parties did not exist at the given addresses. On inquiries from the bank, the Assessing Officer found various discrepancies in the bank statement sent by the bank and the statement produced by the assessee. He confronted entire material to the assessee and allowed it various opportunities. However, the assessee did not produce 397 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 even a single party. Accordingly, the Assessing Officer made addition of amount in question to the income of the assessee on account of unexplained share capital under section 68. On appeal, the Commissioner (Appeals), after recording the findings that necessary documents to prove the identity of investors, creditworthiness and genuineness of the transactions were produced by the assessee, concluded that the shareholders were identifiable who were assessed to income-tax and, therefore, the share capital could not be treated as undisclosed income of the assessee-company.
Similar ratio was laid down by Hon'ble Apex Court in the case of Lovely exports Pvt. Ltd. [2008] 216 CTR 195 (SC), wherein, the Hon'ble Apex Court even went to the extent that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company.
398M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
9. Now, in the light of the aforesaid summarized facts and the judicial pronouncements, discussed hereinabove, if the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, the order of the Tribunal in the cases of investing parties material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before adverting further, it is our bounded duty to examine the provision of section 68 of the Act, which is reproduced hereunder for ready reference and analysis:-
"68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :
Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless--
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and 399 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section
10."
9.1. As per section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanic Products Exporting Company vs CIT 241 ITR 497 (Kerala.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act.
Our view is fortified by the ratio laid down in Hon'ble Apex Court in P. Mohankala (2007)(291 ITR 278)(SC). A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is well settled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, it is open to the Revenue to hold 400 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. Where the assessee failed to prove satisfactorily the source and nature of such credit, the Revenue is free to make the addition. The principle laid down in Ganpati Mudaliar (1964) 53 ITR 623/A. Govinda Rajulu Mudaliar (34 ITR
807)(SC) and also CIT vs Durga Prasad More (72 ITR 807)(SC) are the landmark decisions. The ratio laid down therein are that if the explanation of the assessee, if found to be unsatisfactory, the amount can be treated as income of the assessee. The ratio laid down in Daulat Ram Rawatmal 87 ITR 349 (SC) throws light on the issue. In the case of a cash entry, it is necessary for the assessee to prove not only the identity of the creditor but also the capacity of the creditor and genuineness of the transactions. The onus lies upon the assessee, under the facts available on record. A harmonious construction of section 106 of the evidence Act and section 68 of the Income Tax Act will be that apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness 401 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 of the creditors. In CIT vs Korlay Trading Company Ltd. 232 ITR 820 (Cal.), it was held that mere mention of file number of creditor will not suffice and each entry has to be explained separately by the assessee (CIT vs R.S. Rathaore) 212 ITR 390 (Raj.). The Hon'ble Guwahati High Court in Nemi Chandra Kothari vs CIT (264 ITR 254)(Gau) held that transaction by cheques may not be always sacrosanct. In the present appeal, the assessee duly fulfilled the conditions enshrined u/s 68 of the Act and produced necessary evidence for its claim.
9.2. The Ld. Sr. Standing Counsel relied upon the decision in the case of CIT vs Nipun Builders & Developers (2013) 350 ITR 407 (Del.), wherein, it was held as under:-
Onus is upon the assessee to prove the identity and creditworthiness of subscribers and the genuineness of transactions under section 68 • Under section 68 the onus is on the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. As to how the onus can be discharged would depend on the facts and circumstances of each case. It is expected of both the sides - The assessee and the assessing authority - to adopt a reasonable approach.
• The assessee was a private limited company, which cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons known to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share-subscribers and the assessee- company lose touch with each other and become incommunicado. It is a continuing relationship.
• The share-subscribers in the present case have each invested substantial amounts in the assessee's shares. Most of them, barring two or three, are 402 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 themselves private limited companies. The assessee-company received the share monies; it even says that the communications sent by it at the addresses did not return unserved, yet when the Assessing Officer requested it that too only after trying to serve the summons unsuccessfully to produce the principal officer of the subscribing companies, the assessee developed cold feet and said it cannot help if those companies did not appear and that it was for the Assessing Officer to enforce their attendance.
• It was not open to the assessee, given the facts of this case, to direct the Assessing Officer to go to the website of the company law department/ROC and search for the addresses of the share-subscribers and then communicate with them for proof of the genuineness of the share- subscription. That is the onus of the assessee, not of the Assessing Officer. [Para 7] • So far as creditworthiness of the share subscribers is concerned, difficulty may be faced by the assessee to unimpeachably establish the creditworthiness of the share-subscribers, but at the same time mere furnishing of the copies of the bank accounts of the subscribers is not sufficient to prove their creditworthiness. There must be some positive evidence to show the nature and source of the resources of the share- subscriber himself.
• If the assessee was serious enough to establish its case, it ought to have produced the principal officers of the subscribing companies before the Assessing Officer so that they could explain the sources from which the share-subscription was made. That would also have taken care of the difficulty of the assessee in proving the creditworthiness of the subscriber companies.
• Instead , the assessee took an adamant, attitude and failed to comply with the direction of the Assessing Officer. It also challenged the Assessing Officer's finding that the summons sent to the companies came back unserved with the remark 'no such company', which was also supported by the report of the inspector who made a visit to the addresses. • The assessee thus took a very extreme stand which was not justified; certainly it did nothing worthwhile to discharge the onus to prove the creditworthiness of the subscribing companies. [Para 8] Tribunal did not seriously appraise the facts and circumstances of the case.
• A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the Assessing Officer and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. It has further been observed that the report of the investigation wing cannot conclusively prove that the assessee' s own monies were brought back in the form of share application money.
• It is not the burden of the Assessing Officer to prove that connection. There has been no examination by the Tribunal of the assessment proceedings in 403 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. • No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under section 68. • With respect, it appears that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case. [Para 12] • In view of above, it has to be held that the Tribunal was not right in law in upholding the order of the Commissioner (Appeals) deleting the addition made under section 68 on the ground that the assessee had proved the nature and source of the share subscription money and had established the identity and creditworthiness of the share-subscribers and the genuineness of the transactions. [Para 13] 9.3. Another case relied upon by the Revenue is CIT vs Empire Builtech Pvt. Ltd. (2014) 366 ITR 110 (Del.), wherein, it was held as under:-
■ In Lovely Exports (supra), the Supreme Court emphasized that the initial burden is upon the assessee to show as to the genuineness of the identity of the individuals or entities which seek to subscribe to the share capital. In the instant case, the Assessing Officer in his order, has produced the tabular statement describing the number of shares subscribed by the investors, the amounts paid by them, the individuals who paid the amount towards share capital and the gross income reported by each of such investors to the revenue. A look at that chart would show that the investors had, by and large, reported amounts far less as compared to the sums invested by them towards share capital. Furthermore, the Assessing Officer had, during the course of assessment, issued notices under section 133(6) to the investors - 28 of them responded; 2 did not receive the notice and 9 of them received the notices and responded but did not submit any confirmation. [Para 7] ■ Having regard to the circumstances, particularly, the fact that these investors not only did not submit confirmation but had concededly reported far less income than the amounts invested, the assessee could not, under the circumstances, be said to have discharged the burden which was upon it. It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the Assessing Officer to afford any reasonable 404 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the revenue having discharged the onus if at all which fell upon it. The assessee in this case was incorporated barely few months before the commencement of the assessment year, and there is no further information, or anything to indicate why its mark up of the share premium thousand fold in respect of the shares which were of the face value of Rs. 10 lakhs was justified. [Para 8] ■ The impugned order is, accordingly, set aside to the extent it deleted the addition pertaining to 11 subscribers/investors whose particulars could not be verified and who did not respond to the notices issued by the Assessing Officer. [Para 10] 9.4. We note that in the aforesaid decision, the Hon'ble High Court held that under section 68 it is not sufficient for assessee to merely disclose address and identities of shareholders; it has to show genuineness of such individuals or entities. Furthermore, the Assessing Officer had, during the course of assessment, issued notices under section 133(6) to the investors - 28 of them responded; 2 did not receive the notice and 9 of them received the notices and responded but did not submit any confirmation. Having regard to the circumstances, particularly, the fact that these investors not only did not submit confirmation but had concededly reported far less income than the amounts invested, the assessee could not, under the circumstances, be said to have discharged the burden which was upon it. It is not sufficient for the assessee to merely disclose the addresses 405 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 or identities of the individuals concerned. However, in the present appeals, the facts are altogether different, as we have discussed in various paras of this order, therefore, this judicial pronouncement may not help the Revenue, being on different facts.
9.5. Another case relied upon by Ld., Sr. Standing Counsel is the decision from Hon'ble Apex Court in N. K. Proteins Ltd. vs DCIT in 84 taxman.com 195 (Supreme Court), wherein, the issue was with respect to addition made under section 69C of the Act for bogus purchases, which were shown on basis of fictitious invoices and were debited in trading account. In that situation, the Tribunal recorded a categorical factual finding that these purchases were from bogus suppliers and, thus, Tribunal made addition of 25 per cent of total purchases. The Hon'ble High Court upheld the finding of the Tribunal. Thus, the aforesaid decision may not help the Revenue, being on different facts.
9.6. The ratio laid down in ACIT vs Rajeev Tandon 294 ITR (AT) 219 (Del.), which was confirmed by Hon'ble Apex Court, in 294 ITR 488, supports the case of the Revenue.
406M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Identical ratio was laid down in CIT vs Anil Kumar 392 ITR 552 (Del.), wherein it was held that mere identification of the donor and movement of gift through banking channel is not sufficient to prove the genuineness of gift. Now, it is clear that onus is upon the assessee to discharge the same and to fulfill the conditions enshrined under section 68 of the Act 9.7. Now, question arises whether the assessee has discharged its onus cast upon it. If the totalities of facts are analyzed, we find that all the parties are assessed to tax and out of fourteen parties, eight parties are assessed to tax by the same Assessing Officer, who has assessed the present assessee, therefore, their identity is not in dispute. All the fourteen parties are separate legal entities, assessed to tax and filed their returns along with their PAN Nos. and all the transactions are reflected in their regular audited books of accounts. The transactions by the four parties were confirmed by the other side and necessary details were filed before the Ld. Assessing Officer along with the proof of receipt of money in their hands and investment made with the assessee during their assessment proceedings. The copies of the assessment 407 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 orders passed by the ld. Assessing Officer in their cases are available on record in the paper books filed by the assessee.
The tribunal in the their orders have also given clear findings that the parties who have invested in the Assessee company are genuine and the additions made in the hands of the investing companies were deleted.
9.8 Now, question arises whether addition can be made in the hands of the assessee under section 68 of the Act. In the present appeals, the identity of the parties is not in dispute, the source of amount in the hands of the assessee is established and thirdly so far as genuineness of transaction is concerned, in earlier proceedings, the matter travelled up to the Tribunal in the cases of investing parties, wherein, it was held to be genuine, therefore, how the same amounts, which was invested in the present assessee company can be non-
genuine. However, we observe here that the assessee is not expected to prove the source of source. The assessee has already discharged the onus cast upon it. So far as, the genuineness of transaction of other parties and the onus cast upon them has to be discharged by them only.
408M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 9.9. As per mandate of section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon, satisfactorily to explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanic Products Exporting Company vs CIT 241 ITR 497 (Kerala.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon'ble Apex Court in P. Mohankala (2007)(291 ITR 278)(SC). A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is well settled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. Where the assessee failed to prove satisfactorily the source and nature of such credit, the 409 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Revenue is free to make the addition. Though there is a decision from Hon'ble Guwahati High Court in the case of Nemi Chand Kothari, which says that payment by cheque is always not sacrosanct and other attendant circumstances has to be considered. This decision has been considered by Hon'ble Delhi High Court in a later decision in CIT Vs Shiv Dhooti Pearls & Investment Ltd. [2015] 64 taxmann.com 329 (Delhi), wherein, it was held as under:-
""12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra), Therein the Gauhati High Court referred to Section 68 of the Act and observed that The onus of the Assessee "to the extent of his proving the source whom which he has received the cash credit." The High Court held that the AO had ample 'freedom' to make inquiry "not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself" Thereafter, the High Court, on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act, held as under:-
'What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor's) sub- creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub- creditors, actually belongs to, or was of, the Assessee himself. In other words, while Section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, Section 106 makes the Assessee liable to disclose only the source(s) from 410 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 where he has himself received the credit and it is not the burden of the Assessee to show the source(s) of his creditor nor is it the burden of the Assessee to prove the creditworthiness of the source(s) of the sub-creditors. If Section 106 and Section 68 are to stand together, which they must, then, the interpretation of Section 68 has to be in such a way that it does not make Section 106 redundant. Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the Income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the Assessee."
9.10. In another decision in Mod. Creations Pvt. Ltd. vs Income Tax Officer (2013) 354 ITR 282 (Delhi), the Hon'ble High Court held/observed as under:-
"It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the 411 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub- creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors
14. In Mod. Creations (P.) Ltd. (supra) this Court negatived the case of the Revenue that the onus was on the Assessee to prove the source of the sub- creditor. It was observed as under:
"14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A0. that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this all egati on. The I TAT, i n our vi ew, wit hout adver ti ng t o t he aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being ma/a Tide. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O if the Assessing Officer. had any doubt about the material placed on record, which was largely bank statements of the creditors and their income tax returns, it could gather the 412 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A. 0. In any event what both the A. 0. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub- creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub- creditors. [See CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC)!.
(Emphasis supplied) 9.11. If the aforesaid position of law is kept in juxtaposition with the facts of the present appeals, one clear fact is oozes out that the assessee duly discharged its onus as cast upon by section 68 of the Act. Our view finds support from the decision from Hon'ble jurisdictional High Court in the case of CIT vs Tania Investment Pvt. Ltd. 322 ITR 394 (Bom.) and the Bench of this Mumbai Tribunal in the case of Income Tax Officer vs Anant Shelters Pvt. Ltd. (2012) 20 taxman.com 153(Mum.). The ratio laid down by Hon'ble jurisdictional High Court in Tania Investment Pvt. Ltd. ((supra)) is reproduced hereunder for ready reference:-
"The Revenue is in appeal on the following question :
"Whether on the facts and in the circumstances of the case and in law the hon'ble Tribunal was right in deleting the addition of Rs.7,41,17,495 413 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 made by the Assessing Officer towards unexplained cash credits even though the assessee-company had not proved the creditworthiness of the creditors to advance the loans to the assessee- company ?"
2. In the instant case, the Assessing Officer has disallowed the loss on the ground that there was no material. Before the Commissioner of Income- tax (Appeals) remand report was called from the Assessing Officer. The Assessing Officer on remand in his report admitted that the identity of the parties and also that there was corresponding entries in the books of account. The Commissioner of Income-tax (Appeals) consequently allowed the appeal. The Revenue came in appeal before the Income-tax Appellate Tribunal which was dismissed and consequently, the present appeal.
3. At the hearing on behalf of the Revenue, the learned counsel submits that in the case of entries in books of account pertaining to cash credit, the assessee has to establish (i) the identity of the party, (ii) capacity, and (iii)the genuineness of the transaction. In the instant case, the learned counsel admits that so far as identity is concerned, the parties have been identified and similarly in the books of account produced by them corresponding entries were found. The learned counsel submits that one of the predicate, namely, capacity to advance loan was not established, and the Income-tax Appellate Tribunal ought to have restored the matter to the Assessing Officer for reconsideration.
4. The learned Tribunal in its order, in order to answer the said contention, observed as under :
"The learned Assessing Officer having any doubt with regard to capacity of the party to advance loan, no one prevented him to verify the capacity of the creditors."
5. In our opinion, the books of account were available to the Assessing Officer. The books of account itself would indicate the capacity of the party to advance loan. There was no further need on the part of the assessee to prove the capacity of the creditors.
6. In the instant case, it is not possible to hold that the reasoning adopted by the Tribunal is devoid of merit and/or unsustainable. In the light of that, there is no merit in the appeal, which is accordingly, dismissed."
9.12. In the aforesaid case, the Hon'ble High Court while dismissing the appeal observed/held that when the books of account were available to the Assessing Officer and the books themselves would indicate the capacity of the party to advance loan. There was no further need on the part of the assessee to 414 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 prove the capacity of the creditors. Thus, the reasoning adopted by the Tribunal was sustainable.
9.13. In another case of ACIT vs Linfox Logistics Pvt. Ltd.
(ITA No.864/Mum/2012), order dated 30/09/2015, where the issue was with respect to cash credit from a foreign country, the Tribunal deleted the addition made on the basis of FIRC, issued by bank in following terms.
"7. We have carefully considered the rival submissions. During the year under consideration the assessee company received a sum of Rs. 1,02,78,800/-, which was claimed to be received from its parent company i.e. M/s.Linfox International Group Pty. Ltd., Australia. In support of such credit, assessee furnished before the lower authorities a copy of the F1RC issued by the Bank. The CIT(A) has noticed that the copy of FIRC furnished by the assessee reflects the name of the assessee as the beneficiary and the name of the sender/remitter - M/s.Linfox International Group Pty. Ltd., Australia was also mentioned. It is also noticed by the CIT(A) that FIRC shows purpose of the remittance as "towards share application". Quite clearly, the impugned sum has been received by the assessee through banking channels, and the material on record clearly brings out source as well as the nature of the amount received. Under these circumstances, in our view, the CIT(A) made no mistake in holding that the identity and creditworthiness of the creditor and genuineness of the transaction stood satisfactorily explained. In the absence of any credible material with the Revenue to disprove the findings of the CIT(A), we hereby affirm the same. Thus, on this aspect the Revenue fails."
9.14. Likewise, Hon'ble Delhi High Court affirmed the order of the Tribunal in the case of CIT vs Tulip Finance Ltd.
(2009) 178 taxman 182 (Delhi) held/observed as under:-
415M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "3 .......... As regards the remaining shareholder, that is S, it was noted that he was an NRI and the share capital of Rs. 15 lees received from him was through his NRE account. The remittances were through three separate cheques, of which details were available.
The assessee had also filed bank certificates submitted to the RBI presumably for the purpose of remittance of dividend to said S. In the light of such evidence, the CIT(A) as also the Tribunal had come to a conclusion of fact that the assessee had discharged the burden which lay upon it for establishing the identity of the shareholders as well as the genuineness of the transactions. As such, the Tribunal confirmed the findings of the CIT(A) and deleted the addition which had been made by the AO. It is obvious that the findings returned by the CIT(A) as well as the Tribunal are pure findings of fact and no question of law arises on this issue."
9.15. It is noteworthy that Hon'ble jurisdictional High Court in a later order, dated 17/04/2018 in the case of Pr.
CIT vs Veedhata Towers Pvt. Ltd. (ITA No.819 of 2015) on the issue whether the Ld. Assessing Officer is entitled to enquire into "source of source" to come to a finding that the particular credit was not genuine in terms of section 68 of the Act, held as under:-
"This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 21st January, 2015 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 21st January, 2015 is in respect of Assessment Year 2010-11.
2 The Revenue urges only the following question of law, for our consideration:
(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal is correct in interpreting Section 68 to hold that the AO was not entitled to enquire into the 'source of the source' to come to a finding that a particular credit was not genuine in terms of Section 68 ?"
3. The impugned order dated 21st January, 2015 of the Tribunal allowed the respondent-assessee's appeal by deleting the addition of Rs.1.65 crores made under Section 68 of the Act.
416M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
4. The respondent-assessee had obtained a loan from M/s. Lorraine Finance Pvt. Ltd (LFPL). The Assessing Officer held that the respondent- assessee was unable to establish the genuineness of the loan transaction received in the name of LFPL nor the respondent was able to prove the credit worthiness/the real source of the fund. This led to the addition of the loan of Rs.1.65 crores as unexplained cash credit under Section 68 of the Act by order dated 20th March, 2010 for Assessment Year 2010-11.
5. In appeal, the view of the Assessing Officer was upheld by the Commissioner of Income-Tax (Appeals) in First Appeal.
6. On further appeal, the Tribunal while allowing the respondent's appeal records on facts that, it is undisputed that the loan was taken from LFPL. It is also undisputed that the Lender had confirmed giving of the loan through loan confirmations, personal appearance and also attempted to explain the source of its funds. It also records the fact that the sum of Rs.64.25 lakhs had already been returned to LFPL through account payee cheques and the balance outstanding was Rs.1 crore and 75 lakhs. Besides, it records that the source of source also stands explained by the fact that the director of the creditor had accepted his giving a loan to the respondent's lender. In face of the above fact, it is the Revenue's case that the source of source, the respondent is unable to explain. In law, the impugned order notes that, the subject assessment year is 2010-11. The requirement of explaining the source of the source of receipts came into the statute book by amendment to Section 68 of the Act on 1st April, 2013 i.e. effective from Assessment Year 2013-14 onwards. Therefore, during the subject assessment year, there was no requirement to explain the source of the source. Be that as it may, the impugned order of the Tribunal held that the respondent-assessee had discharged the onus placed upon it under Section 68 of the Act by filing confirmation letters, the Affidavits, the full address and pan numbers of the creditors. Therefore, the Revenue had all the details available with it to proceed against the persons whose source of funds were alleged to be not genuine as held by the Apex Court in Commissioner of Income Tax V/s. Lovely Exports (P.) Ltd. [2009] 319 ITR (St.) 5 (SC).
7. The grievance of the appellant is that, even in the absence of the amendment to Section 68 of the Act, it is for the respondent-assessee to explain the source of the source of the funds received by an assessee. It is submitted that the respondent has not able to explain the source of the funds in the hands of M/s. LFPL and therefore this Appeal needs to be admitted.
8. This Court in Commissioner of Income Tax V/s. Gangadeep Infrastructure Pvt. Ltd, 394 ITR 680 has held that the proviso to Section 68 of the Act has been introduced by the Finance Act, 2012 w.e.f. 1st April, 2013 and therefore it would be effective only from Assessment Year 2013-14 onwards and not for the earlier assessment years. In the above decision, reliance was placed upon the decision of the Apex Court in Lovely Exports (supra) in the context of the pre-amended Section 68 of the Act. In the above case, the Apex Court while dismissing the Revenue's Appeal from the Delhi High Court had observed that, where 417 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the Revenue urges that the money has been received from bogus shareholders then it is for the Revenue to proceed against them in accordance with law. This would not entitle the Revenue to invoke Section 68 of the Act while assessing the respondent for not explaining the source of its source. In any event, the impugned order of the Tribunal has raised a finding of fact that the respondent had discharged the onus which is cast upon it in terms of the pre-amended Section 68 of the Act by filing the necessary confirmation letters of the creditors, their Affidavits, their full address and their pan.
9. Thus, the Tribunal has rendered a finding of fact which is not shown to be perverse. In any event, the question as proposed in law of the obligation to explain the source of the source prior to 1st April, 2013, Assessment Year 2013-14, stands concluded against the Revenue by the decision of this Court in Gangadeep Infrastructure (supra).
10. Therefore, the question as proposed does not give rise to any substantial question of law. Thus, not entertained.
11. Accordingly, the Appeal is dismissed. No order as to costs."
In the aforesaid case, the Hon'ble jurisdictional High Court relied upon the decision from Hon'ble Apex Court in CIT vs Lovely Exports Pvt. Ltd.(2009) 319 ITR (St.) 5(Supreme Court) and considering the decision of Hon'ble Bombay High Court itself in the case of CIT vs Gangandeep Infrastructure Pvt. Ltd. 394 ITR 680 (Bom.) held that proviso to section 68 of the Act was introduced by the Finance Act, 2012, w.e.f. 01st April 2013, therefore, it will be effective only from Assessment Year 2013-14 onwards and not for earlier Assessment Years.
The Hon'ble High Court considered the plea of the Revenue that money was received from bogus share holders, then it is for the revenue to proceed against them in accordance with law but this would not entitle the Revenue to invoke section 418 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 68 of the Act, while assessing the respondent for not examining the source of the source. This later order from Hon'ble jurisdictional High Court squarely comes to the rescue of the assessee. However, we find that the assessee has fulfilled the conditions enshrined in section 68 of the Act and has discharged the onus cast upon it. Thus, in view of the above decisions, the assessee is not expected to prove the source of source. The payments were through account payee cheque and the identity, creditworthiness, genuineness of the transaction has been established. Thus, the addition so made under section 68 of the Act deserves to be deleted. We mention here that so far as the genuineness of transaction/source of funds in the hands of fourteen entities, is concerned, if the Department so chooses, it can be tested, in the hands of those investing entities in accordance with law, but certainly in the hands of the present assessee, it has to be deleted. This decision of ours will be applicable to identical ground raised in the respect of all four appeals before us.
10. The next common ground, raised by the assessee, for all the Assessment Years, is with respect to commission 419 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 allegedly paid to the entities, who advanced funds to the assessee company amount added under section 68 of the Act treating the same as income of the assessee. We are summarizing hereunder the brief facts for Assessment Year 2007-08.
10.1. The Ld. Assessing Officer assumed that the assessee has made the payment of 3% by way of commission in respect of the amounts received towards issue of preference shares. This addition is made without having any proof or evidence or material on record. No evidences were found even in the survey proceedings to the effect that the assessee has made payment of any commission. Before us, the ld. counsel for the assessee strongly denied having made any payment of commission by contending that the additions are arbitrary and based on assumption and conjecture. On the other hand, the Ld. Sr. Standing Counsel defended the addition made on account of commission so paid. ` 10.2. We have considered the rival submissions and perused the material available on record. Without going into much deliberation, we note that the Learned Assessing Officer 420 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 has relied upon the statement of Shri Om Hari Halan recorded on 19/12/2012. (The correct date should be 20/12/2012 being statement recorded in the first half). The Learned Assessing Officer has interpreted that Mr. Om Hari Halan was doing the transactions for a margin of 2% to 3%. The Learned Assessing Officer, therefore added 3% of the total money received amounting to Rs. 15,50,00,000/- in AY 2007-08 in the hands of the assessee as the income. Similar additions are also made at 3 % of the amount which is taxed u/s 68 for AY 2008-09, 2009-10 and 2010-11. The Learned counsel for the assessee has stated that on 20/12/2012 Shri Om Hari Halan, in the first half of the statement recorded has stated that he was expecting some return from assessee in the range of 12% to 15% and he was expected to give return to the investors who has invested in fourteen companies at the rate of 12%.
However, in answer to question No. 82 he has clarified no returns have been received by him till the date of recording the statements. Further in his statements which were recorded in the later part at the office of Lloyds Steel Industries Limited in answer to question no. 3 he further 421 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 clarified that the investments are made in the preference shares of the appellant company and hence no return is received. This clearly proves that there was no question of giving any return by assessee. Even his statement does not any way prove that the appellant has made a payment of 3% by way of commission. Even otherwise, we are of the view that real income can only be taxed. There is no scope for presumption or estimation of income when there is no evidence available with the department to prove that the assessee has incurred any expenditure of the nature of commission to the extent of 3%. Thus, this addition made on presumptive basis deserves to be deleted. Identical are the facts/issue for remaining Assessment Years, therefore, our this conclusion will be applicable to identical ground in the respective appeal. The addition so made is therefore, directed to be deleted.
11. The next ground for Assessment Year 2009-10 (grounds no. 9 to 11) are with respect to addition made on account of bogus purchases @ 12.5% of the purchases from various parties. The ld. counsel for the assessee explained that 422 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the total purchases made from three parties are to the tune of Rs.24,44,25,543/- , whereas, the Ld. Assessing Officer made addition of the equal amount and the Ld. Commissioner of Income Tax (Appeal) restricted the addition to 12.5% of the value of the purchases amounting to Rs. 3,05,53,190/- It was explained by the Ld. Counsel that the assessee is a trader dealing in steel on wholesale basis and clearly identified/explained every purchase with the corresponding sale. It was submitted that quantitative information about the transaction in steel trading were duly furnished before the authorities. It was empathetically argued that the parties to whom the goods are sold are accepted as genuine and the assessee purchased steel from various other parties which is also at the respective same rate and the same has been accepted by the Assessing Officer. The assessee earned margin of about 0.30% on the steel trading transactions for which our attention was invited to page-285 of the paper book. In respect of the trading transaction in respect of the three parties, the assessee earned profit @ 0.26%, whereas, the profit earned in respect of the transaction which are not 423 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 accepted by the Assessing Officer is at par with the profit earned in other transaction where the Ld. Assessing Officer has accepted the genuineness of the purchases. In support of this proposition the appellant relies upon following decisions:
DCIT 25 (3) Mumbai Vs Rajeev G. Kalathil ITAT Mumbai Free India Assurance Services Ltd Vs Dy. Commr. of Income tax ITAT Mumbai 12 taxman 424 (Mum) Jagdamba Trading Co. Vs income tax Officer ITAT Jodhpur 16 SOT 66 Ganpatraj A. Sanghavi Vs Asst. Comm. Of Income Tax 15 (3) ITAT Mumbai Babulal C. Borana Vs Third Income Tax Officer 282 ITR pages 251 Bom High Court Commr. Of income Tax-II Vs Gujarat Ambuja Export Ltd. 43 Taxmann 244 Guj. High Court Commissioner of income tax Vs M.K. Brothers 30 Taxmann 547 (Guj. HC) Commr. Of income tax-I Vs Nangalia Fabrics P.Ltd. 220 Taxmann 17 HC Guj.
Commr. Of Income tax-I Mumbai Vs Nikunj Eximp Enterprises P. Ltd. 372 ITR 619 (Bom HC) Sagar Bose Vs Income Tax Officer ITAT, Calcutta 56 ITD 561 (CAL.) 11.1. On the other hand, the ld. Sr. Standing Counsel defended the addition made on account of bogus purchases by placing strong reliance upon the decision of the Ld. Commissioner of Income Tax (Appeal). Reliance was placed upon the following decisions.:424
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Om Vinyls (P) Ltd. vs Income Tax Officer (Writ Petition (L) No.114 of 2014 (Bombay) Aradhna Estate (P) Ltd. vs DCIT (2018) 404 105 (Guj.) Phool Chang Bajrang Lal & Anr. Vs Income Tax Officer 203 ITR 456 (Supreme Court) Sri Krishna (P) Ltd. vs Income Tax Officer & Ors. 221 ITR 538 (Supreme Court) Nikunj Eximp Enterprises (P) Ltd. vs ACIT (2014) 48 taxmann.com 20 (Bom.) CIT vs Nipun Builders & Developers Pvt. Ltd. (2013) 350 ITR 407 (Del.) CIT vs Empire Builtech (P.) Ltd. (2014) 366 ITR 110 (Del.) N. K. Industries Ltd. vs DCIT (2016) 72 taxmann.com 289 (Guj.) N. K. Proteins Ltd. vs DCIT (2017) 84 taxmann.com 195 (Supreme Court) 11.2. We have considered the rival submissions and perused the material available on record. Before adverting further, we deem it appropriate to deal with various case laws so that we can reach to a particular conclusion. Some of the decisions more specifically on section 69C of the Act with respect to bogus purchases are as under:-
11.3. The Hon'ble Gujarat High Court in Sanjay Oilcakes Industries vs. CIT (2009) 316 ITR 274 (Guj.) held as under:-
"11. Having heard the learned advocates appearing for the respective parties, it is apparent that no interference is called for in the impugned order of the Tribunal dated April 29, 1994, read with the order dated September 29, 1994, made in miscellaneous application. In the principal order the Tribunal has recorded the following findings:-425
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "8.3. We have considered the rival submissions and perused the facts on record. In our opinion, the action of the Commissioner of Income-tax (Appeals) confirming 25 per cent. of the amounts claimed is fair and reasonable and no interference is called for. The Commissioner of Income-tax (Appeals) has gone through the purchase prices of the raw material prevalent at the time and rightly came to the conclusion that the disallowance to the extent of 25 per cent. was called for. It is established that the parties were not traceable ; they opened the bank accounts in which the cheques were credited but soon thereafter the amounts were withdrawn by bearer cheques. That fairly leads to the conclusion that these parties were perhaps creation of the assessee itself for the purpose of banking purchases into books of account because the purchases with bills were not feasible. Thus, the abovenoted parties become conduit pipes between the assessee-firm and the sellers of the raw materials. Under the circumstances, it was not impossible for the assessee to inflate the prices of raw materials. Accordingly, an addition at the rate of 25 per cent. for extra price paid by the assessee than over and above the prevalent price is fair and reasonable and we accordingly confirm the finding of the Commissioner of Income-tax (Appeals)."
12. Thus, it is apparent that both the Commissioner (Appeals) and the Tribunal have concurrently accepted the finding of the Assessing Officer that the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by account payee cheques, the cheques have been deposited in bank accounts ostensibly in the name of the apparent sellers, thereafter the entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank accounts. In the light of the aforesaid nature of evidence it is not possible to record a different conclusion, different from the one recorded by the Commissioner (Appeals) and the Tribunal concurrently holding that the apparent sellers were not genuine, or were acting as conduit between the assessee-firm and the actual sellers of the raw materials. Both the 426 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Commissioner (Appeals) and the Tribunal have, therefore, come to the conclusion that in such circumstances, the likelihood of the purchase price being inflated cannot be ruled out and there is no material to dislodge such finding. The issue is not whether the purchase price reflected in the books of account matches the purchase price stated to have been paid to other persons. The issue is whether the purchase price paid by the assessee is reflected as receipts by the recipients. The assessee has, by set of evidence available on record, made it possible for the recipients not being traceable for the purpose of inquiry as to whether the payments made by the assessee have been actually received by the apparent sellers. Hence, the estimate made by the two appellate authorities does not warrant interference. Even otherwise, whether the estimate should be at a particular sum or at a different sum, can never be an issue of law."
In the aforesaid case, the Hon'ble High Court accepted that the apparent sellers, who issued the said bills were not traceable and the goods received from parties other than the persons, who had issued the bills for such goods. The purchases were shown to have been made by making payments, through banking channel and thus the apparent sellers were not genuine or were acting as conduit between the assessee and the actual seller. In such a situation, the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) as well as by the Tribunal was affirmed. Hon'ble Apex Court in Kachwala Gems vs JCIT (2007) 158 taxman 71 427 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 observed that an element of guesswork is inevitable in cases, where estimation of income is warranted.
11.4. The Ld. Sr. standing counsel relied upon the decision in Nikunj Eximp Enterprises P. Ltd. vs ACIT (2014) 48 taxmann.com 20(Bom.) and N. K. Industries Ltd. vs DCIT (2016) 72 taxmann.com 289 (Guj.), wherein, it was held as under:-
"The Tribunal in the case of Vijay Proteins Ltd. (supra) has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woollen Carpet Factory (supra) or Vijay Proteins Ltd. (supra) In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73,23,322/-. 6.1 In the case of NR Paper & Boards Ltd. (supra), this Court has discussed the issue as to whether after making of block assessment, regular assessment is barred or prohibited by law. This court has held that there would be no overlapping in the nature of assessment made under this Chapter of undisclosed income and the regular assessment made u/s 143(3). However, if the said decision is read in context of questions raised in the present appeal, it cannot be read as having held that even if the material found during the course of search expose the falsity of the entries made in the regular books of accounts, the consequent concealed income cannot be assessed as undisclosed income in the block assessment under Chapter XIV-B. The said decision shall therefore not be applicable on the facts and circumstances of the present case. The Tribunal is justified in holding the same against the assessee and in favour of revenue."428
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 11.5. In the case of N. K. Proteins Ltd. vs DCIT (2017) 84 taxmann.com 195 (Supreme Court) was held as under:-
"Entire purchases shown on basis of fictitious invoices were debited in trading account - Tribunal came to a categorical finding that there were purchases from bogus suppliers and, thus, Tribunal made addition of 25 per cent of total purchases - High Court by impugned order upheld Tribunal's finding - Whether SLP against said impugned order was to be dismissed."
11.6. The Hon'ble Gujarat High Court in CIT vs Bholanath Poly Fab. Pvt. Ltd. (2013) 355 ITR 290 (Guj.) held/observed as under:-
"5. Having come to such a conclusion, however, the Tribunal was of the opinion that the purchases may have been made from bogus parties, nevertheless, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year under consideration were sold by the assessee. Therefore, the purchases of the entire 1,02,514 meters of cloth were sold during the year under consideration. The Tribunal, therefore, accepted the assessee's contention that the finished goods were purchased by the assessee, may be not from the parties shown in the accounts, but from other sources. In that view of the matter, the Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. The Tribunal relied on its earlier decision in the case of Sanket Steel Traders and also made reference to the Tribunal's decision in the case of Vijay Proteins Ltd. v. Asst. CIT [1996] 58 ITD 428 (Ahd).
6. We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assessee did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax. This was the view of this court in the case of Sanjay Oilcake Industries v. CIT [2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16, 2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed."429
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 11.7. Likewise, the Hon'ble Gujarat High Court in CIT vs Vijay M. Mistry Construction Ltd. (2013) 355 ITR 498 (Guj.) held/observed as under:-
"6. As is apparent from the facts noted hereinabove, the Commissioner (Appeals) after appreciating the evidence on record has found that the assessee had in fact made the purchases and, hence, the Assessing Officer was not justified in disallowing the entire amount. He, however, was of the view that the assessee had inflated the purchases and, accordingly, by placing reliance on the decision of the Tribunal in the case of Vijay Proteins (supra) restricted the disallowance to 20 per cent. The Tribunal in the impugned order has followed its earlier order in the case of Vijay Proteins to the letter and enhanced the disallowance to 25 per cent. Thus, in both cases, the decision of the Commissioner (Appeals) as well as that of the Tribunal is based on estimate. This High Court in the case of Sanjay Oil Cake [2009] 316 ITR 274 (Guj) has held that whether an estimate should be at a particular sum or at a different sum can never be a question of law.
7. The apex court in the case of Kachwala Gems [2007] 288 ITR 10 (SC) has held that in a best judgment assessment there is always a certain degree of guess work. No doubt, the authorities should try to make an honest and fair estimate of the income even in a best judgment assessment and should not act totally arbitrarily but there is necessarily some amount of guess work involved in a best judgment assessment.
8. Examining the facts of the present case in the light of the aforesaid decisions, the decision of the Tribunal, being based on an estimate, does not give rise to any question of law so as to warrant interference.
9. In so far as the proposed questions (C), (D) and (E) are concerned, the same are similar to the proposed question (A) wherein the Tribunal has restricted the addition to 25 per cent. on similar facts. In the circumstances, for the reasons stated hereinabove, the said grounds of appeal do not give rise to any question of law.
430M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
10. As regards the proposed question (B) which pertains to the deletion of addition of Rs. 7,88,590 made on account of inflation of expenses paid to Metal and Machine Trading Co. (MMTC), the Assessing Officer has found that MMTC was a partnership firm of Shri Nitin Gajjar along with his father and brother operating from Bhavnagar. A perusal of their transactions with the assessee indicated that there is some inflation of expenses as detailed in paragraph 6.1 of the assessment order. After considering the evidence on record, the Assessing Officer disallowed the amount Rs. 7,88,590 on account of payment made to MMTC.
11. The assessee preferred an appeal before the Commissioner (Appeals), who upon appreciation of the evidence on record found that the Assessing Officer had not rejected the genuineness of the purchases made from MMTC while making the disallowance. His observations were based on inflation of rates which were being charged from the assessee. According to the Commissioner (Appeals), though MMTC in some respect could be attributed to be associated with the assessee-company, still it could not be expected that MMTC was carrying out its business without any motive or profit. According to the Commissioner (Appeals), it was proved by the assessee that the rates charged by MMTC were comparable with the prevailing market rates, no such addition can stand. The Commissioner (Appeals) took note of the fact that it was not the case of the Assessing Officer that the purchases had been directly effected from third parties and not directly from MMTC ; the difference could not be the net profit in the hands of MMTC ; and that while conducting the entire exercise MMTC would have to incur certain expenditure in transportation, in engaging personnel in the office and other operations and was accordingly of the view that there was no case of actual inflation of rates and deleted the addition.
12. The Tribunal, in the impugned order, has concurred with the findings recorded by the Commissioner (Appeals) and has found that the assessee had made purchases from MMTC at the prevailing market rates and that MMTC had incurred certain expenditure in engaging personnel in the office and other operations and would make some income from the entire exercise. In the circumstances, the purchases made by the assessee from MMTC would not be hit by the provisions of section 40A(2) of the Act.
431M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
13. Thus, the conclusion arrived at by the Tribunal is based on concurrent findings of fact recorded by the Commissioner (Appeals) as well as the Tribunal. It is not the case of the Revenue that the Tribunal has taken into account any irrelevant material or that any relevant material has not been taken into consideration. In the absence of any material to the contrary being pointed out on behalf of the Revenue, the impugned order being based on concurrent findings of fact recorded by the Tribunal upon appreciation of the evidence on record, does not give rise to any question of law in so far as the present ground of appeal is concerned.
14. In relation to the proposed question (F) which relates to the deletion of addition of Rs. 44,54,426 made on account of purchase of crane and allowing depreciation on the same, the Assessing Officer observed that the assessee had purchased a crawler crane for an amount of Rs. 24,61,000 excluding the cost of spare parts of Rs. 14,98,490. The Assessing Officer after examining the evidence on record and considering the explanation given by the assessee, made addition of Rs. 44,54,426, Rs. 39,59,490 being the purchase price of the crane along with its spare parts and Rs. 4,94,936 being depreciation claimed by the assessee. The Commissioner (Appeals), upon appreciation of evidence on record, was of the view that the Assessing Officer has not appreciated the facts of the case properly and had made disallowance which was not permitted by the Income-tax Act. It was held that disallowance could only have been made in respect of expenses debited to the profit and loss account whereas in the present case the purchase of crane and spare parts of the crane and other machineries were in the nature of acquisition of capital asset. According to the Commissioner (Appeals), the disallowance could have been made on depreciation only if at all the Assessing Officer conclusively proved that the purchases of crane and other parts are bogus. Upon appreciation of the material on record the Commissioner (Appeals) found that the Assessing Officer has simply brushed aside all the evidence on account of technical infirmities and that the evidence such as octroi receipt ; hypothecation of the crane to the bank; existence of the crane even till date with the assessee conclusively proved that the crane was purchased and it was in use even as on date with the assessee. The Commissioner (Appeals) accordingly found that there was no scope for any disallowance and 432 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 accordingly deleted the disallowance made on account of purchase of crane and allowed the depreciation as claimed by the assessee.
15. The Tribunal, in the impugned order, has noted that the cost of crane was never claimed by the assessee in the return of income. Before the Tribunal, the assessee produced the evidence that the crane in question was registered with the RTO and the same was wholly and exclusively used for the purposes of its business. The Tribunal, therefore, held that the Commissioner (Appeals) was legally and factually correct in deleting the disallowance of cost of crane as well as depreciation thereon.
16. From the facts emerging from the record, it is apparent that the assessee had never claimed the cost of the crane in the return nor had it debited the expenses to the profit and loss account, and as such the question of disallowing the same and adding the same to the income would not arise. Moreover, in the absence of any evidence to indicate that the purchase was bogus or that the crane in fact did not exist, the question of disallowing the deprecation in respect of the same also would not arise. When the assessee had conclusively proved the purchase and existence of the crane, and had not debited the expenses to the profit and loss account, no addition could have been made in respect of the purchase price nor could have depreciation been disallowed in respect thereof. The Tribunal was, therefore, justified in deleting the addition as well as disallowance of depreciation.
17. In the light of the aforesaid discussion, it is not possible to state that there is any legal infirmity in the impugned order made by the Tribunal so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeal is dismissed."
11.8. The Hon'ble jurisdictional High Court in the case of CIT vs Ashish International Ltd. (ITA No.4299/2009) order dated 22/02/2011, observed/held as under:-
433M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "The question raised in this appeal is, whether the Tribunal was justified in deleting the addition on account of bogus purchases allegedly made by the assessee from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. in his statement had stated that there were no sales / purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The appellate authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs."
11.9. The Hon'ble Gujarat High Court in CIT vs M.K. Brothers (163 ITR 249) held/observed as under:-
"Being aggrieved by the aforesaid order, the assessee went in second appeal before the Tribunal. It was urged on behalf of the assessee that the transactions in question were normal business transactions and the assessee had made payments by cheques. The parties did not come forward and if they did not come, the assessee should not suffer. However, on behalf of the Revenue, it was urged that detailed inquiries were made and thereafter the conclusion was reached. The Tribunal found that there was no evidence anywhere that these concerns gave bogus vouchers to the assessee. No doubt, there were certain doubtful features, but the evidence was not adequate to conclude that the purchases made by the assessee from the said parties were bogus. The Tribunal accordingly, did not sustain the addition retained by the Appellate Assistant Commissioner. Hence, at the instance of the Revenue, the aforesaid question has been referred to this court for opinion.
On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a 434 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. Accordingly, the reference stands disposed of with no order as to costs."
11.10. The Mumbai Bench of the Tribunal in the case of DCIT vs Rajeev G. Kalathil (2015) 67 SOT 52 (Mum.
Trib.)(URO), identically, held as under:-
"2.2.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority(FAA).Before him it was argued that assessee had filed copies of bills of purchase from DKE and NBE, that both the suppliers were registered dealers and were carrying proper VAT and registration No.s, that ledger accounts of the parties in assessee's books showed bills accounted for, that payment was made by cheques, that a certificate from the banker giving details of cheque payment to the said parties was also furnished. Copies of the consignment, received from the Government approved transport contractors showing that material purchased was actually delivered at the site was furnished before the AO. It was also argued that some of the material purchased from the said parties were lying part of closing stock as on 31.03.2009 as per the statement submitted on record. After considering the assessment order and the submissions made by the assessee, FAA held that the transactions were supported by proper documentary evidences, that the payments made to the parties by the assessee were in 435 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 confirmation with bank certificate, that the suppliers was shown as default under the Maharashtra VAT Act could not be sufficient evidences to hold that the purchases were non- genuine, that the AO had not brought any independent and reliable evidences against the assessee to prove the non- genuineness of the purchases, that there was no evidence regarding cash received back from the suppliers. Finally, he deleted the addition made by the AO .
"2.3.Before us, Departmental Representative argued that both the suppliers were not produced before the AO by the assessee, that one of them was declared hawala dealer by VAT department, that because of cheque payment made to the supplier transaction cannot be taken as genuine. He relied upon the order of the G Bench of Mumbai Tribunal delivered in the case of Western Extrusion Industries. (ITA/6579/Mum/2010- dated 13.11.2013). Authrorised representative (AR) contended that payments made by the assessee were supported by the banker's statement, that goods received by the assessee from the supplied was part of closing stock, that the transporter had admitted the transportation of goods to the site.He relied upon the case of Babula Borana (282 ITR251), Nikunj Eximp Enterprises (P) Ltd. (216Taxman171)delivered by the Hon'ble Bombay High Court.
2.4.We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the supplier was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself. Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of the suppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done.
Transportation of good to the site is one of the deciding factor to be considered for resolving the issue. The FAA has given a finding of fact that part of the goods received by the assessee was forming part of closing stock. As far as the case of Western Extrusion Industries. (supra)is concerned, we find that in that matter cash was immediately withdrawn by the supplier and there was no evidence of movement of goods. But, in the case before us, there is nothing, in the order of the AO, about the cash traial. Secondly, proof of movement of goods is not in doubt. Thererfore, considering the peculiar facts and circumstances of the case under appeal, we are of the opinion that the order of the FAA does not suffer from any legal infirmity and there are not sufficient evidence on file to endorse 436 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 the view taken by the AO. So, confirming the order of the FAA, we decide ground no.1 against the AO."
11.11. We also observe that the Mumbai Bench of the Tribunal in the case of Jitendra M Kitawat vs Income Tax Officer (ITA No.7.49 & 7050/Mum/2016) (Assessment Year 2009-10 & 2007-08) vide order dated 13/04/2018, held as under:-
"3.Effective Ground of appeal,raised by AO,is about not sustaining addition of Rs.3.65 crores made under the head peak credit of transactions related to bogus purchases.The AO had received information from the office of the DGIT(Inv.),Mumbai regarding search actions which were carried out in the cases of Bhanwarlal Jain Group and Rajendra Jain Group.As per the informa -tion of the investigation wing,Bhanwarlal Jain(BJ)and other persons associated with him as well as Rajendra Jain(RJ)and person of his group had admitted, under oath during the course of search and seizure proceedings,that they were providing accommodation entries for bogus purchases, through their various benami concerns.On the basis of the information received,the AO held that the assessee had obtained non-genuine bills form following five entities:
Name Amount
1.M/s. A2 Jewels(AJ)- Rs.1.88 crores
2.M/s. Daksh Diamonds(DD)- Rs. 33.87 lakhs
3.M/s.Jewel Diam (JM)- Rs.82.87 lakhs
4.M/s.Little Daim (JD)- Rs.58.09 lakhs
5.M/s.Vitrag Rs.1.91 lakhs
He made an addition of Rs.3,65,08,250/-to the total income of the assessee,as per the provisions of section 69 C of the Act.The AO further observed that BJ had explained the modus operandi and had confessed that the group was issuing bogus bills and was providing accommodation entries.
4.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)and made detailed submissions.After considering the available material,he observed that mere payment by account-payee-cheques would not be sacrosanct.He referred to the case of Precision Finance(P)Ltd.(208ITR465)of the Hon Calcutta High Court and held that the AO had held that the accommodation entries were given in form of cheques/ RTGS,that same were routed through bank accounts of various bogus entities of BJ Group,that BJ had admitted that his group was issuing bogus bills,that later on 437 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 BJ had retracted his statement,that those evidences could not be overlooked,that the assessee had made purchases from some other parties probably in cash,that it had taken bills from the other parties to regularize the transactions.He referred to the case of Vijay Proteins Ltd. (58ITD428), Sanjay Oil Cakes (316 ITR 274) and Simit P Seth (356ITR451)and held that once the sales were accepted by the AO the very basis of purchases could not be questioned,that the entire purchase price could not be disallowed,that only the profit element embedded in such purchases could be added to the income of the assessee,that the estimation would vary with business to business.Finally,he held that in the case under consideration purchases were not beyond doubt,that the assessee had shown correspond -ing sales in the books of account,that what could be taxed was differential gross profit.He estimated the GP @ 12.5% and directed the AO to reduce the GP already shown by the assessee from the estimate.
5.During the course of hearing before us,the Departmental Representative(DR)stated that assessee did not produce the stock register during the assessment proceedings,that the AO had doubted the sales made by the assessee,that transactions routed through banking channels did not prove genuineness of the transactions,that notices issued u/s.133(6) remained unserved,that there was no justification for restricting the addition to 12.5%.He relied upon the case of N K Proteins Ltd.(2017-TOIL-23-SC-IT,dated 16/01/2017).
The Authorised Representative(AR)argued that the AO had not provided opportunity of cross examining BJ,that from day-one the assessee was asking for cross examination,that he had raised a specific ground before FAA about not following the principles of natural justice and denying the opportunity of cross examination by the AO,that the FAA wrongly stated that request by assessee was made late,that AO had rejected the books of account without finding any defect in them,that on the basis of uncorroborated statement of third parties books of accounts should not have been rejected,that assessee had filed the evidence to prove genuineness of purchases,that it had filed ledger account(Pg.36 of the PB),copy of bank statement,confirmation letter(Pg.49 of the PB),purchase bill,copy of acknowledgement of return of income for the AY.2007-08 from LD along with bank statement of the supplier,that it had also filed an affidavit of the supplier stating that disputed transaction was genuine,that similar documents were also submitted for JD, DD,AJ and Vitrag.He referred to pages 66 to 169 of the PB.
He further stated that VAT department had treated these transaction as genuine,that BJ had retracted his statement,that the suppliers were assessed to tax,that copies of their returns of income and balance sheets were furnished during the assessment proceedings,that the AO had not proved that the returns of incomes of the suppliers were non genuine,that in response to the notices issued u/s.133(6)of the Act the suppliers had admitted to have supplied goods to the assessee,that the AO deliberately did not mention said fact while completing assessment order, that regular stock registers were maintained by all the suppliers,that there was no evidence of cash withdrawal,that the AO had not rejected the sales made by the assessee,that basic conditions for invoking the provisions of section 69 C were not fulfilled.He referred to cases of Indo Unique 438 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Trading Pvt.Ltd.(ITA.s/6341/ Mum/2016 & 6721/Mum/2016-AY.07- 08,dtd.16/8/2017);wherein the addition made by AO were deleted by the Tribunal.In that case statement made by BJ were considered(Pg.118-124 of the Legal PB-II).He also relied upon the cases of Ronak Gems Pvt.Ltd.(ITA/3118/Mum/2017,AY.2007-08,dated 04/10/2017);M/s.Vaman International Pvt.Ltd. (ITA.s/1020 & 1041/Mum/ 2017,A.Y.2007-08,2008-09& appeals for other AY. s);Kaysons Agencies Private Ltd.(ITA/3812/ Mum/2014,AY.2005-06,dtd.17/3/2017);M/s. Fancy Wear(ITA/ 1596/Mum/2016,AY.2011-12).He also referred to VAT returns filed by DD,AJ and LD filed for the AY.2007-08..Finally, he relied upon the order of the Tribunal in the case of M/s. Vama International(ITA.s/7315-7317/Mum/2016,AY.s2013- 14,2012-13,2011-12,dtd.15/2/2018).In that case the Tribunal had deliberated upon identical issue i.e.alleged bogus purchases from BJ group.
6.Here,we would like to mention that identical issue was decided by us while adjudicating the appeals filed by the AO and Jitendra M Kitawat(HUF) vide our dated 11.04.2018 (ITA/ 7047/ Mum/2016/& ITA/7100/Mum/2016-AY.2007-
08).Relevant portion of the order is reproduced here for ready reference.
" 5.Before proceeding further,we would like to reproduce the relevant portion of the order of the Tribunal in the case of Vama International(supra)which contains the facts of the case,arguments of the AR and the DR and the finding of the Tribunal.The order reads as under:
"3 .Briefly stated the facts are that, the assessments for the Assessment Years 2011-12 to 2013-14 were reopened u/s. 147 of the Act based on the information received from DGIT(Investigation), Mumbai that the assessee is one of the beneficiaries of bogus purchases made by certain entities operated/managed by Bhanwarlal Jain group which is only a bogus concern. During the course of search, Shri Bhanwarlal Jain has admitted in the statement taken on oath u/s. 132(4) of the Act that he has indulged in providing accommodation entries and also admitted that these are paper companies with no real business transactions. It was also admitted by him that he was engaged in business of bill shopping through all the concerns due to which they do not have any physical stock of diamond with them at any of its places at any point of time. It was also admitted that they were merely lending names of various concerns to importer of diamonds who takes actual delivery. Based on this information from DGIT(Investigation) the assessments were reopened and in the course of re-assessment proceedings assessee was required to prove the genuineness of the purchases made from the entities operated by Shri Bhanwarlal Jain. Assessee furnished its submissions along with purchase bills, copy of ledger account, copies of bank statements etc. to verify the genuineness of the purchases. The Assessing Officer issued notices u/s.133(6) of the Act to the parties and some of the parties have confirmed that the transactions from the assessee was genuine. Parties have filed their acknowledgment of Income-tax return filed, copy of invoice, ledger account of the assessee firm in their books showing payments received from the assessee. However, the Assessing Officer not convinced with the submissions of the assessee and since no delivery challans were furnished to prove the delivery of goods have been actually made by the alleged suppliers to the assessee and since the Directors/ Proprietors of the supplier companies/firms have deposed on oath that all the concerns controlled and managed by them are not doing any real trading in diamonds but indulged in paper transaction only, the Assessing Officer rejected the submissions of the assessee that the purchases made from these entities are genuine. The Assessing Officer stated that the statement recorded from Shri Bhanwarlal Jain clearly established that the 439 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 concerns controlled and operated by them are not carrying out any genuine business activity.
4. It was also observed by the Assessing Officer that the report received from the office of the DGIT (Investigation) during the course of post search inquiries the modus-operandi followed by the group concerns have been accepted by the key persons in the group. Even during the post search enquires Shri Bhanwarlal Jain admitted the fact that they are engaged in paper transaction only without any physical stock of the goods in the name of their numerous concerns they import rough and cut and polished diamonds for the other clients who do not want to show import in their own books. Further these concerns issued bills accommodation entries in a commission to various parties who normally purchases diamonds in cash from undisclosed parties and need bills to show purchases against sales in their account. Further these concerns also provide accommodation entries to unsecured loan against cash. Therefore, the Assessing Officer concluded that the transactions made by these entities managed by Shri Bhanwarlal Jain are only providing accommodation entries to the beneficiaries and assessee is one among such beneficiaries. Therefore, the Assessing Officer concluded that the material was debited against various suppliers have entered into stock register and the assessee has shown corresponding sales against the said purchases debited and this could only mean that the diamonds were brought by the assessee from the gray market without bill and to adjust these transactions into the Books of Accounts, assessee has obtained bills from Shri Bhanwarlal Jain group concerns. Therefore, he concluded that the assessee obtained only the bogus bills without movement of goods and goods were purchased in gray market by paying cash. Therefore, taking note of all these factors into consideration the Assessing Officer in so far as the Assessment Years 2012-13 and 2013-14 treated 12.5% of the purchases as non- genuine and in so far as Assessment Year 2011-12 is concerned 100% of the purchases were treated as bogus purchases.
5. The Ld.CIT(A) upheld the action of the Assessing Officer in treating the purchases as non-genuine as there is no movement of goods and it was admitted by Shri Bhanwarlal Jain that they are providing only accommodation entries and there was no real transaction. The Ld.CIT(A) also accepted the action of the Assessing Officer in disallowing certain percentage of impugned purchases, in view of the decision of the Hon'ble Gujarat High Court in the case of CIT v. Bholanath Polyfab Pvt. Ltd. [355 ITR 290] and CIT v. Simit P. Seth [356 ITR 451] and accordingly he estimated the profit element in the purchases at 12.5% for all the Assessment Years 2011-12 to 2013-14.
6. Before us the Learned Counsel for the assessee submits that assessee is into trading and export of diamonds and the disallowances were made only based on the admission of Shri Bhanwarlal Jain in the course of search and seizure proceedings and since the parties have confirmed that the transaction has entered into by the assessee are genuine the purchases cannot be treated as non-genuine, especially since sales are not disputed and they have accepted. Ld. Counsel for the assessee further submitted that, assessee submitted Copies of purchase invoices, Ledger confirmations, Copies of Bank Statements reflecting payments made to the suppliers and Stock register reflecting inward of goods purchased from them and corresponding sales in support of genuineness of its purchases. Learned Counsel for the assessee submitted that AO issued notices u/s. 133(6) calling for relevant details from the parties. Each of the party has replied and submitted Ledger A/c of the assessee in their books of accounts, Copies of Sales Invoices issued by them, Bank statements reflecting the payments made by the assessee to them, Copies of acknowledgement of Income-tax Returns 440 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 filed by them, Audited Profit & Loss A/c and Balance Sheet for all the years involved. Ld. Counsel for the assessee submitted that none of the submitted documents have been doubted by the lower authorities. The sales made by the assessee included exports as well and thus, many of the purchases made from the impugned parties were exported out of India. Thus, it is submitted that the assessee discharged its onus to prove the genuineness of purchases made by it from the impugned parties.
7. Ld. Counsel for the assessee further submitted that none of the impugned parties have been declared as Hawala Dealers or Suspicious Dealers by the Sales Tax Department and the genuineness of the purchases have been doubted merely on the basis of a statement of a 7 third-party namely Mr. Bhanwarlal Jain. In fact, one of the parties i.e. M/s. Daksh Diamonds has been granted a registration under the new GST Act as well. The Sales Tax Department has not initiated any action against the assessee for disallowance of set-off in respect of VAT paid on the purchases from the impugned parties.
8. Learned Counsel for the assessee further submitted that the AO did not appreciate the fact that the assessee purchased diamonds from the impugned parties and there is a practice of hand delivery of such precious and low-weighing materials. Therefore, no adverse conclusion can be drawn merely due to absence of documents proving deliveries.
9. Ld. Counsel for the assessee submitted that, the credit period of six months is very common in the diamond industry. The AO's observation in the order for AY 2011-12 that unreasonable credit period has been granted by Daksh Diamonds is factually incorrect. The AO has mentioned that all the parties have been paid regularly except for Daksh Diamond. However, out of total purchases of ₹.9,47,27,364/- outstanding creditors at the year-end were ₹.4,49,93,630 which is almost 50%. Even the purchase made prior to purchase from Daksh Diamond was also outstanding e.g. purchase of ₹.26,54,752/- from Vaishali Gems dated 22.10.2010.
10. Ld. Counsel for the assessee further submitted that the AO has asked the assessee to produce the parties without appreciating the fact that it was beyond the control of the assessee. The AO ought to have invoked the powers given to him under the Act by issuing summons to them requiring their personal attendance.
11.The facts and circumstances as outlined above, clearly suggest that the purchases by the assessee from M/s. Daksh Diamonds cannot be doubted but a major flaw in these transactions is the unverifiable nature of transactions of these purchases from M/s. Daksh Diamonds as it was not found available at the given address."
However, Ld. Counsel for the assessee submitted that the fact is that the AO issued notices u/s. 133(6) to all the parties which were not only served upon them but were also responded by all of them.
12. Ld. Counsel for the assessee submitted that the Ld.CIT(A) agrees with the fact that the AO has merely relied upon the statement recorded by the Investigation wing and in- depth investigation was not carried out to the extent required. The Ld.CIT(A) ought to have made the investigation either on his own or through the AO which in his opinion was required before confirming any addition. The statements of Mr. Bhanwarlal Jain and others relied upon by the AO have been retracted by them. Learned 9 Counsel for the assessee submitted that the impugned parties have been engaged into imports as well which evident from the audited P & L Account submitted by them. This fact has also been noted by the AO in his order.
13. The Ld. Counsel for the assessee further submitted that the GP margin earned by the assessee from sale of materials purchased from the impugned parties is comparable with the margin earned from other transactions. The addition @12.5% would distort this position and it would show unrealistic results as mentioned below: Year Overall GP% 441 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 GP% in other transactions GP% in the impugned transactions GP% after considering addition @12. 5% 2011-12 5.49% 5.15% 5.01% 16.88% 2012-13 6.31% 4.50% 4.66% 16.57% 2013-14 6.32% 3.97% 3.72% 15.85%
14. Thus the Learned Counsel for the assessee submitted that the purchases are not bogus and they cannot be treated as non-genuine. Therefore, pleaded to delete the addition/disallowance made by the Assessing Officer.
15. Ld. DR vehemently supported the orders of the authorities below. Ld. DR further submits that as per the CBDT instructions profit margin for the diamond trade is 6% and therefore at least 6% is to be estimated as the profit element from these purchases following the CBDT Instructions.
16. We have heard the rival submissions, perused the orders of the authorities below. In this case the assessments were reopened based on the information from the DGIT(Investigations), Mumbai that assessee is a beneficiary from the entities operated by Shri Bhanwarlal Jain wherein the search took place and it was found that Shri Bhanwarlal Jain is providing only accommodation entries and there were no actual sale transactions. Assessing Officer observed that the assessee could not prove the movement of goods from the suppliers to the assessee. In the absence of delivery challans and based on the statements of Bhanwarlal Jain that they have provided only accommodation bills, the Assessing Officer has concluded that the assessee has obtained only bogus bills and assessee might have purchased goods in gray market. The Assessing Officer estimated the Gross Profit Margin on such purchases at 12.5% for the Assessment Years 2012-13 and 2013-14. For the Assessment Year 2011-12 the entire purchases were treated as non- genuine. The Ld.CIT(A) taking note of the submissions of the assessee as well as the averments of the Assessing Officer and various case laws estimated the profit element from these purchases at 12.5% for all the Assessment Years 2011-12 to 2013-14. The Ld.CIT(A) in his order observed as under:
"11. I have carefully gone through the assessment order passed by the Assessing Officer and the written submissions of the appellant on the issue. I have also considered various case laws relied upon by the appellant. My observations are as under.
12. The AO has formed his view about the bogus nature of the purchase made by the appellant from M/s.Daksh Diamonds on the basis of various incriminating. documents and evidences seized during the course of search & seizure action in the case of Bhanwarlal Jain Group, which has established that the said group was engaged in providing accommodation entries of bogus sales/purchases/loans to various beneficiaries.
13. In my opinion, simply relying upon the information received from the DGIT (Inv.) regarding the default committed by M/s. Daksh Diamonds cannot be taken as the sole basis to treat the entire purchases made from it as bogus or non-genuine. The Assessing Officer has primarily relied on the conclusions drawn by the Investigation Wing on the basis of the statement given before the Income tax authorities and heavy reliance on such statement to treat entire purchases made from the above party as bogus, cannot be held to be justified. The information received from the DGIT(Inv.) was a piece of evidence to initiate in-depth independent investigation on the issue, which the Assessing Officer has not fully carried out. Further full enquiry on the given set of facts and circumstances and without appreciating the evidences submitted by the appellant in respect of the purchases made from the alleged bogus party has remained to be carried out before arriving at the conclusion that impugned purchase debited in the books of the appellant are bogus.442
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
14. It is not the case of the Assessing Officer that the above party i.e. M/s. Daksh Diamonds specifically stated that it had made bogus sales to the appellant. The purchase invoices, payments to the parties through cheques and closing stock inventory submitted by the appellant are certain important evidences regarding the purchases made by the appellant that cannot be set aside summarily. Therefore, the conclusion drawn regarding the purchases made from M/s.Daksh Diamonds being entirely bogus, is not justified.
15. In this regard, the ratio was laid down by the Hon'ble High Court of Bombay in the case of CIT v.Nikunj Eximp Enterprises(P.)Ltd.,is very relevant,wherein it was held that-
"When the assessee have filed letter of confirmations of the suppliers, Bank statements highlighting the payment entries through account payee cheque, copies of invoices, stock reconciliation statements before the AO; and merely because the suppliers did not appear before the AO, one cannot conclude that the purchases were not made by the assesses. The AO cannot disallow the purchases on the basis of suspicion because the suppliers were not produced before them."
16.The facts and circumstances as outlined above, clearly suggest that the purchases by the appellant from M/s.Daksh Diamonds cannot be doubted but a major flaw in these transactions is the unverifiable nature of transactions of these purchases from M/s. Daksh Diamonds as it was not found available at the given address. Thus the purchase prices shown on the invoices are not subjected to verification and as such it was difficult to establish the correctness of the purchase prices paid for the materials purchased from them. Such verification of the sale price shown on the invoices/bills was necessary to ascertain the correctness of the profits shown by the appellant for the period under consideration. This verification was also vital to determine as to whether the purchase prices shown on the bills/invoices, are as per prevailing market prices of the materials purchased and to ascertain that the price paid for the materials purchased from M/s.Daksh Diamonds is not over invoiced. In the absence of any such verification of the correctness of the price paid for the materials purchased by the appellant, the purchase price paid as mentioned on the invoices/bills cannot be accepted as the correct price paid for the goods purchased from M/s.Daksh Diamonds. In view of the same, the possibility of over-invoicing of the materials purchased to reduce the profit, 'cannot be ruled out. Therefore, the gross profit rate shown by the appellant for the year under consideration cannot be relied upon. In the circumstances, the correct approach in such transactions would be to estimate the additional benefit or profit earned on these purchases and not to disallow the entire purchases from M/s. Daksh Diamonds. The disallowance of the entire amount of purchases from M/s.Daksh Diamonds would not be logical and would amount to travesty of justice. In my view either the purchases from above mentioned party are over invoiced or the purchases were actually made but not from the said party from which it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation.
17. As of now the issue of bogus purchases has been much discussed and debated by the various courts and tribunals. In many judicial pronouncements on the issue, the courts have taken a consistent view that in case of non-existent parties from whom the purchases are shown to have been made, only pert of such purchases can be disallowed, particularly in the cases where the corresponding sales are not doubted. Alternatively, the profit embedded in such sales against the alleged bogus purchase, can only be brought to tax.
443M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
18. In the case of CIT-1 Vs Simit P. Sheth, ITA no. 553 of 2012, order dated 16.01.2013, while deciding a similar issue the Hon'ble High Court of Gujarat has held that:
"We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and nonexistent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation. In the present case, CIT believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence therefore, the Commissioner (Appeals) believed assessee s theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of accounts. That being the position, not the entire purchase price but only profit element embedded in such purchases can be added to the income of the assessee. So much is clear by decision of this Court. In particular, Court has also taken a similar view in case of Commissioner of Income Tax-IV vs. Vijay M Mistry Construction Ltd. vide order dated 10.01.2011 passed in Tax Appeal No. 1090 of 2009 and in case of Commissioner of Income Tax-I vs. Bholanath Poly Fab Pvt. Ltd. vide order dated 23.10.2012 passed in Tax Appeal No. 63 of 2012. The view taken by the Tribunal in case of Vijay Proteins Pvt. Ltd. Vs. CIT reported in 58 ITD 428 came to be approved." (Emphasis supplied)
19. Similarly while dealing with an identical issue, in the case of CIT v. Bholanath Poly Fab (Purchase)Ltd. ITA.No.No. 63 of 2012, in the order dated 23/10/2012, the Hon'ble High Court of Gujarat has held as under:-
"We are of the opinion that the Tribunal committed no error. Whether the purchases themselves were bogus or whether the parties from whom such purchases were allegedly made were bogus is essentially a question of fact. The Tribunal having examined the evidence on record came to the conclusion that the assesses did purchase the cloth and sell the finished goods. In that view of the matter, as natural corollary, not the entire amount covered under such purchase, but the profit element embedded therein would be subject to tax.This was the view of this court in the case of Sanjay Oilcake Industries v. CIT (2009] 316 ITR 274 (Guj). Such decision is also followed by this court in a judgment dated August 16,2011, in Tax Appeal No. 679 of 2010 in the case of CIT v. Kishor Amrutlal Patel. In the result, tax appeal is dismissed."
20. In view of the facts and circumstances and the judicial pronouncements cited above; what can be disallowed or taxed in the instant case of the alleged bogus purchases is only the excess profit element embedded in such purchases shown to have been made from M/s.Daksh Diamonds. The appellant has not placed any evidence on record that the goods were purchased from the above party at arms' length price. The appellant has also not placed on record any comparable bills/invoices for purchases of similar items made from other parties to establish that the purchases from M/s.Daksh Diamonds in question was at par with the purchases made from other parties during the period under consideration. The possibility of such purchases from unregistered dealers without invoices cannot be ruled out. Hence possibility of such purchases from unregistered 444 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 dealers without invoices cannot be ruled out. In view of the above, the correctness of the purchase prices mentioned on such bills/invoices issued by M/s.Daksh Diamonds in question cannot be accepted and some additional profit needs to be estimated on such purchases made from M/s.Daksh Diamonds. As the purchases invoices issued against the alleged bogus purchases remains unverifiable, and part of the profit element on the purchases made from M/s.Daksh Diamonds already included in the above gross profit rate shown for the year under consideration, it would be fair and just, if the additional gross profit @ 12.5% is applied on such total alleged bogus purchases amounting to Rs.1,05,18,970/-,the additional gross profit on such purchases would come to Rs. 13, 14, 871/- which need to be added to the income of the assessee on account of alleged bogus purchases for the year under consideration and the balance addition made amounting to Rs. 92,04,099/-is hereby deleted. The Assessing Officer is directed accordingly. Hence, grounds no. 1 & 2 are partly allowed."
17. As could be seen from the above the Ld.CIT(A) did not agree with the Assessing Officer that the purchases by the assessee are bogus/non genuine. However, the Ld.CIT(A) observed that purchases made cannot be doubted and there is a major flaw in these transactions is the unverifiable nature of transactions as the parities are not found available in the given address. However, we see that the parties have responded in these cases for the notices issued u/s. 133(6) of the Act, they have filed Ledger Account of the assessee in their books of accounts, Copies of Sales Invoices issued by them, their Bank statements reflecting the payments made by the assessee to them, Copies of acknowledgement of Income-tax Returns filed by them, Audited Profit & Loss A/c and Balance Sheets to show that the transactions of sales made to the assessee are genuine. On a careful consideration of the submissions made by the assessee, we find considerable force in the submissions not to treat the purchases made by the assessee from the parties as non-genuine/bogus.
18. The reason for treating these purchases as non-genuine /bogus is the statements given by Bhanwarlal Jain group and non-submission of delivery invoices by the assessee. It is the submission of the assessee that the statements given by Bhanwarlal Jain group have been retracted by them subsequently and there is a practice of hand delivery of such precious and light weighing materials like Diamonds is prevailing in the industry. Therefore, no adverse conclusion can be drawn merely due to absence of documents proving deliveries. The analysis furnished before us on the Gross Profit margin shown by the assessee also suggest that assessee is consistent in showing overall Gross Profit around 6% in these Assessment Years. The average Gross Profit shown by the assessee stood at 6.04% for these Assessment Years. Therefore even if we go by the submissions of the Ld.DR that the profit element should be estimated at 6% as per the CBDT Circular the assessee has already shown 6.04% of overall Gross Profit during these three Assessment Years. The disallowance/estimation of profit on purchases by treating them as bogus cannot be made only on the statements recorded from third parties, especially when those parties have responded to the notice issued u/s.133(6) of the Act by filing all necessary documents to prove that they have made sales to the assessee. It is also the submission of the assessee that none of the impugned parties have been declared as Hawala dealers or suspicious dealers by the Sales Tax Department and the genuineness of the purchases have been doubted merely on the basis of the statement given by the Bhanwarlal Jain group. The assessee has furnished all necessary evidence to prove the genuineness of the purchases, the parties have also responded to the notices u/s. 133(6) of the Act by filing necessary evidence as to prove that the purchases are genuine. Thus the assessee discharged the onus to prove the genuineness of the transactions made by the assessee from the impugned parties. The Assessing Officer completely failed to make further enquiries in these cases. The documents furnished by the supplier of the goods have not been disproved by the Assessing Officer in these matters.
445M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017
19. We also find that the Coordinate Bench in the case of Indo Unique Trading Pvt Ltd. v. DCIT in ITA.No. 6341/Mum/2016 considered almost an identical situation wherein the suppliers have responded to the notices issued u/s. 133(6) of the Act and confirmed the transaction by filing various details before the Assessing Officer, in such circumstances the Coordinate Bench accepted the contentions of the assessee that the purchases cannot be treated as bogus simply relying on the statements in the case of Bhanwarlal Jain group. While holding so the Coordinate Bench observed as under: -
"10. We have heard rival contentions and perused the record. We notice that the assessing officer has reopened the assessment for the second time after expiry of four years from the end of the assessment year, on the basis of information received from the investigation wing about the bogus nature of transactions entered by Shri Bhanwarlal Jain group. Even though the AO has mentioned the reasons that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, yet he has not specified the manner of failure.
11. On the contrary, we notice that the assessee has proved the genuineness of purchases by obtaining confirmation letters in the form of affidavits from all the suppliers. The AO has done independent enquiry during the course of assessment proceedings by issuing notices u/s 133(6) of the Act to all the suppliers. We notice that the notices were duly served upon the suppliers and they have also responded by filing their replies duly confirming the transactions. The AO has rejected the replies by observing that the replies lacked details and they did not mention about the nature of transactions. In our view, the said observations are vague in nature. On the contrary, a perusal of the affidavits furnished by the suppliers would show that they have confirmed the sales effected by them to the assessee. Further they have also verified and signed the ledger account copies as available in the books of account. When the suppliers confirm that the transactions of sales made by them to the assessee are genuine, that too, in response to the notices issued by the AO u/s 133(6) of the Act during the course of assessment proceedings, in our view, the said replies cannot be rejected without bringing on record any material to show that they are not true. We notice that the AO did not bring any material on record and he simply relied upon the report given by the investigation wing. As per Ld A.R, the statement given by Shri Bhanwarlal jain is a general statement only. The assessee, as stated earlier, has furnished confirmation of ledger accounts and also affidavits to prove the genuineness of transactions. We notice that the AO could not controvert those documents.
12. In view of the foregoing discussions, we are of the view that the assessee has duly discharged the burden to prove the genuineness of purchases. On the contrary, the AO has simply relied upon the report given by the investigation wing. In this view of the matter, we are of the view that no addition is called for on account of alleged bogus purchases. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the impugned addition."
20. In view of what is discussed above,we are of the view that the assessee has duly discharged its burden of proving the genuineness of the purchases and the Assessing Officer without making proper investigation, simple relied on the statements of third party to treat the purchases as bogus. Assessing Officer could not prove that the information furnished by the suppliers are not genuine so as to treat the sales made by them are only bogus. In the circumstances, we set aside the orders of the lower authorities and delete the disallowance made towards bogus purchases for all these Assessment Years i.e. 2011-12 to 2013-14 which are under appeal before us.
21. In the result,appeals of the assessee are allowed.
446M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Considering the above,we are of the opinion that the issue of bogus purchase of diamonds from BJ group has been already been deliberated upon by the Tribunal and it stands decided.Facts of the case under consideration are almost identical to the facts of Vama International(supra).In that case also the AO had added the entire purchases to the income of the assessee and the FAA had given part relief to the assessee.In the instant case,the assessee was denied the opportunity of cross examination though it had made a request to the AO during the assessment proceedings.By not allowing cross examination of the third party,whose statement was being used against the assessee,the AO had violated the basic principles of natural justice.Only on that count the order can be quashed.But, we are considering other factors.BJ has retracted his statement.So,the authenticity of the material relied upon by the AO reduces to a great extent.The supplier has admitted the transaction and the AO has not doubted the sales.It is also found that DD had filed VAT returns.Considering the all these facts and respectfully following the order of the Tribunal in the case of Vama International (supra),we decide the effective ground of appeal against the AO."
We find that facts of the case under consideration are identical to the facts of Jitendra M Kitawat (HUF).Therefore,following the order in that matter,we dismiss the effective ground of appeal, filed by the AO for the AY.2007-08.
ITA/7050/Mum/2016-AY.2007-08:
7.Grond no.6,raised by the Assessee,is about direction given by the FAA to the AO to estimate the profit of 12.5% of the purchase from above mentioned five suppliers namely,AJ,DD,JD, LD and Vitarag.The assessee has also objected to addition of Rs.25.53 lakhs to his income as well invoking of section 69C of the Act. 7.1.While deciding the appeal filed by the AO,we have decided the issue against the AO. Following the same,we decide ground no.6 in favour of the assessee.We are also of the opinion that provisions of section 69C are not applicable in case of alleged bogus purchases.
8.Next Ground is about addition of Rs.79,80,000/-.During the assessment proceedingings,the AO found that the assessee had taken unsecured loans of Rs.79.80 lakhs.After discussing the modus operandi followed by BJ Group,the AO treated the amount in question as unexplained cash credit,invoking the provision of section 68 of the Act.
8.1.In the appellate proceedings before the FAA,the assessee made detailed submissions.After considering the assessment order and the submission of the assessee,the FAA held that he had received unsecured loan of Rs.79.80 lakhs from LD,that he had admitted that loan was received through banking channels and that same could not be considered as unexplained cash credit,that during the appellate proceedings the assessee had changed its stand,that before him the assessee claimed that it had received advances from LD,that it was also claimed that advances received were for business purposes and that disputed amount was returned back to LD.The FAA further observed that it did not furnish details of the business deals which did not materialize.Finally,he upheld the order of the AO.
8.2.Before us,the AR argued that supporting evidences-to prove genuineness of loan like ledger account,bank statement,confirmation letter,purchase bill,copy of return of income filed by LD for the year under appeal-were submitted before the departmental authorities,that in its affidavit LD had admitted of advancing 447 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 loans,that identity, creditworthiness and genuineness of the transactions were proved beyond doubt,that money was returned back to the lender in the subsequent year,that LD had admitted receiving back the money,that the assessee was one of the creditors of LD.He referred to the cases of Sanghavi Reality Pvt.Ltd.(ITA.s/3018-20/Mum/2017 AY.2008-09-2011-12),Vikram Muktilal Vora(ITA/842/Mum/2017,AY.2007-08),Gujarat Construction(ITA/7040/Mum/2016,AY.2007-08) 8.3.We have heard the rival submissions and perused the material before us.We find that the FAA had observed that the transaction with LD could not be considered genuine as it had advanced unsecured loans to the assessee.It is found that LD in its affidavit has admitted that it had advanced loan to the assessee. 8.4.We find that identical issue was decided by us,in the case of Jitendra M Kitawat(HUF)that was decided by us on 11.04.2018(supra).We are reproducing the order dealing with the issue and it reads as follow:
"8.3.Here we would like to refer to the case of Reliance Corporation (ITA/1069-71/Mum/ 2017, AY.2008-09 to 2010-11,dtd.12/04/2017)wherein the similar issue was dealt with.In that case also,on the basis of search and seizure operations carried out in the case of BJ, additions u/s.68 were made to the total income of the assessee.We are reproducing the relevant portion of the order and it reads as under:
4.Facts of the case are that the assessee filed its return of income on 15.10.2010 declaring a total income at Rs.56,732/-.The return was processed under section 143(1) and the assessment was completed u/s 143(3) assessing and other three appeals the total income of the assessee at an income of Rs.33,82,280/- vide order dated 20.3.2013. The case of the assessee was re-opened under section 147, on the basis that the information has been received from DGIT(Inv), Mumbai upon search and seizure action u/s 132 of the Act carried out on the group of Shri Bhanwarlal Jain that the assessee has received accommodation entries from the said parties/ concerns managed and operated by him.According to the information,the assessee obtained accommodation entries in the form of unsecured loans from M/s Laxmi Trading Company, M/s Rose Impex and Megha Gems, which are belonging to Shri Bhanwarlal Jain. The AO accordingly formed an opinion that the income to the tune of Rs.2,02,62,016/- has escaped assessment within the meaning of section 147 of the Act and accordingly reopened the assessment by issuing notice under section 148 of the Act dated18.3.2015 and ultimately the assessment was completed vide order dated 4.3.2016 passed under section 143(3) read with section 147 of the Act assessing the total income of the assessee at an income of Rs.1,66,31,511/- as against the earlier assessment made at Rs.33,82,280/- made under section 143(3) dated 20.3.2013 thereby making two additions namely unexplained cash credit from the parties referred hereinabove of Rs.1,29,04,231/- and unexplained expenditure of Rs.3,45,000/- under section 69C of the Act. The assessee filed before the AO various informations/details like loan confirmations from the lenders, ledger account, PAN of the parties, Profit & Loss account and the and other three appeals balance sheet etc including the bank statement of the lenders and also of the assessee confirming the receipt of money through banking channel and form No.16 qua the TDS deducted. The lenders confirmed the loans having been given to the assessee during personal appearance before the AO in response to notice u/s 133(6) of the Act However, the AO acting solely on the information received 448 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 from DGIT(Inv), Mumbai rejected the contentions of the assessee and framed the assessment as stated above.
5.Aggrieved by the order of the AO, the assessee preferred and appeal before the ld.CIT(A) who dismissed the appeal of the assessee ex-parte on the ground that the assessee failed to appear before the ld.CIT(A) by observing and holding as under :
"4 Decision on grounds of appeal no.1: 4.1 The relevant facts are like this. The assessee is a firm which is engaged in the business of builders & developers. A search & seizure action was conducted in the Bhanwarlal Jain group of cases by Investigation Wing Mumbai. As a result of search, it was found by the Investigation Wing that this group is a leading entry provider of Mumbai. There are many concerns floated by the group who provide accommodation entries of bogus loan The AO received an information that the appellant has also taken loan from concerns found in the list of entry providers related with Bhanwarlal Jain group of cases. The AO asked the appellant to show cause as to why loan taken from Mls Laxmi Trading Company & Mls Rajan Diamonds should not be disallowed and added to the total income. As per the assessment order the appellant did not file any written submission on this issue. The AO added the amount of fresh loans and interests on existing doubtful loans paid during the AY 2010-11 to the total income of the appellant. In this way, addition of Rs 1,29,04,231/- was made to the total income of the appellant and other three appeals 4.2 During the course of appeal proceedings, no one appeared nor was any written submission made. In the statement of facts and grounds ofappeal only general facts are stated. In absence of any written submission against the view taken by the AO in the assessment order it is held that the AO has rightly made the addition. The grounds of appeal No.1 is accordingly dismissed.
5 Decision on grounds of appeal no.2:
5.1 As per the assessment order the AO took a view that the appellant had introduced unexplained cash credits from entities related with Bhanwarlal Jain group of cases through accommodation entries arranged on commission basis. The AO accordingly computed 3% of Rs 1,15,00,000/- as undisclosed expenditure within the meaning of section 69C of the Act. In this way addition of Rs 3,45,000/- was made to the total income of the appellant.
5.2 During the course of appeal proceedings, no one appeared nor was any written submission made. In the statement of facts and grounds of appeal only general facts are stated. In absence of any written submission and/or document to substantiate the argument of the appellant against the view taken by the AO in the assessment order it is held that the AO has rightly made the addition. The grounds of appeal no.2 is accordingly dismissed. Aggrieved by the order of the FAA, the assessee is in appeal before us.
6. The ld. AR vehemently submitted before us that the order upholding the addition by the FAA was wrong and against the provisions of the Act. The ld. AR respectfully submitted before the Bench in order to make addition u/s 68C of the Act when the following three things are not establishedi.e. (i) identity of the creditors (ii) genuineness 449 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 of the transactions and (iii) creditworthiness of the creditors. The ld.AR submitted that the onus is cast upon the assessee to explain the sources from which he has received the cash credit and the creditworthiness of the creditors is to be gauged vis -a-vis the transactions and other three appeals which occurred between the assessee and the creditors. The ld. AR submitted that it was not the burden or responsibility of the assessee to find out the source of creditors or the capacity of the creditors in order to prove the genuineness of transactions as has been held by the Hon'ble Gauhati High Court in the case of CIT V/s Smt. Sangmitra Bharali reported in 361 ITR 481). The ld AR further submitted that the addition was made out of unsecured loans raised by the assessee from the group concern of Bhanwarilal Jain Group engaged in providing accommodation entries. On the contrary , there was no indication or proof that loans taken by the assessee were merely accommodation entries and the money actually gone back to the lenders . The ld.AR also submitted that the creditors appeared before the AO in response to the notice issued u/s 133(6) and during the course of recording statements by the AO the lenders confirmed the loans having given to the assessee. Besides all the necessary details were submitted before the AO during the assessment proceedings.The assessee also provided the loan confirmation from the creditors, PAN of creditors ledger extract copy of Income tax return, profit and loss account, balance sheet and bank statement of the creditors and also of the assessee and form no.16 issued qua the TDS deducted and deposited. The ld. AR further submitted that the assessee has completely discharged its onus cast upon it by filing necessary informations/details before the AO and the AO without carrying out any further investigations and verification in the matter solely relied upon the and other three appeals information received from the DGIT(Inv) Mumbai that the creditors were engaged in issuing accommodation entries. In support of his contention, the ld.AR relied on the decision of the Hon'ble Supreme Court in the case of ITO V/s Lakhmani Mewal Das reported in (1976) 103 ITR 437 (SC), the decision of the Hon'ble Delhi High Court in the case of CIT V/s Gangeshwari Metal (P) Ltd reported in (2013) 96 DTR 299, wherein it has been held that there was a clear lack of enquiry on the part of the AO. Once the assessee had furnished all the material including PAN, loan confirmations and bank statements, in such an eventuality, no addition can be made u/s 68 of the Act. According to the ld.AR, the AO merely proceeded on the basis of information received from the third party and framed the assessment by making additions by stating in the assessment order that the explanation of the assessee is not acceptable. The ld. AR further relied upon the number of decisions like :
i) CIT V/s Varinder Rawley (2014) 366 ITR 232 (P&H);
ii) CIT V/s Sachital Communications (2014) 227 Taxman 219 (Mag);
iii) CIT V/s Patel Ramniklal Hirji (2004) 222 Taxman 15 (Mag);
iv) CIT V/s Jaikumar Bakliwal (2014) 366 ITR 217 (Raj);
v) Nemi Chand Kothari V/s CIT (2003) 264 ITR 254(Gauhati);
vi) CIT V/s Shalimar Buildwell Pvt (2014) 220 Taxman 138) (All);
vii) CIT V/s Lalpuria Construction P L (2013) 215 Taxman 12(Mag) (Raj)
viii) M/s Rushabh Enterprise V/s ACIT (Mum) WP 167/2015 and other three appeals
ix) Andaman Timber Industries V/s CCE (2015) 281 CTR 0241 (SC)
x) CIT V/s M/s Ashish International in ITA 4299/Mum/2009
7. Per contra, the ld.DR relied upon the orders of the authorities below by submitting that the loan creditors M/s Bhanvarilal Jain group was found to be engaged in the business of providing accommodation entries during the search and seizure action his group and the assessee was found to be the one of the beneficiaries of the said accommodation entries.
The ld. DR submitted that in the present case though the assessee has filed all the necessary information but since the assessee borrowing monies from the tainted parties who were provided accommodation entries, it is beyond doubt that money borrowed by the assessee was nothing but accommodation entries. Lastly, the ld. DR prayed that in 450 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 view of the facts and the order of the FAA should be upheld by dismissing the appeal of the assessee.
8.We have heard the rival contentions perused the material placed before us including the orders of authorities below and orders relied upon by the parties. We find that undisputedly the assessee has borrowed money by way of loan from three aforesaid three parties i.e M/s Laxmi Trading Company, M/s Rose Impex and Megha Gems from whom the assessee borrowed the money and total outstanding including the interest as on 31.3.2010 were amounting to Rs.1,29,04,231/-. The case of the assessee was re-opened upon receiving the and other three appeals information from DGIT(Inv), Mumbai that the assessee was one of the beneficiary of the said accommodation entries provided by Mr.Bhanwarlal Jain and group. We find from the record that the assessee filed during the course of assessment proceedings all the details like loan confirmation letters from the creditors, PAN of the creditors, bank statements og the creditors and the assessee, form no.16 qua TDS on interest ,profit and loss account and balance sheet including the ledger account of the creditors, and ITR etc. Moreover, the loan creditors also appeared before the AO in compliance to the notice issued under section 133(6) of the Act and filed confirmations before the AO that loans were actually given to the assessee. From all these details and facts on record, we find that the assessee has discharged its onus cast upon it by filing all the necessary details as called for by the AO to corroborate the transactions of borrowing the money and thereby satisfied all the three main ingredients i.e. creditworthiness of the creditors, genuineness of the transactions and identity of the creditors by filing all the details as discussed above which proved that the identity of the creditors, genuineness of the transactions and creditworthiness of the creditors have been established by the assessee. So much so that the loan creditors in response to the notice issued under section 133(6) appeared before the AO and confirmed the that they have given interest bearing loans to the assessee on which TDS have been deducted and paid and form no.16A issued to the loan creditors also filed before the AO. Once the assessee has filed all and other three appeals the necessary documents before the AO then the onus is shifted to the department to disprove the stand of the assessee, which department has failed to do so in the present case. The AO has merely proceeded and relied on the information received from the DGIT(Inv), Mumbai that the assessee is one of the beneficiary of the accommodation entries without bringing any material against the assessee on record by contrary to the defense put up by the assessee during the course of appellant proceedings. No cross examination was allowed to the assessee and information was used against the assessee causing violation of natural justice. The FAA dismissed the appeal of the assessee exparte for non attendance of the ld.AR. In the case of Lakhmani Mewal (supra) the Hon'ble Supreme Court has¬ held as under :
"Section 147 of the Income-tax Act, 1961 [Corresponding to section 34(1) of Indian Income-tax Act, 1922] - Income escaping assessment - Illustrations - Assessment year 1958-59 - Whether reasons for formation of belief contemplated by section 147(a) for reopening of assessment must have rational connection with or relevant bearing on formation of belief, and rational connection postulates that there must be direct nexus or live link between material coming to Income-tax Officer's notice and formation of his belief that there has been escapement of assessee's income from assessment in particular year because of his failure to disclose fully and truly all material facts - Held, yes - Whether duty cast upon assessee is to make true and full disclosure of primary facts at time original assessment, and it is for Income-tax Officer to draw correct inference from primary facts - Held, yes - Whether if Income-tax Officer draws inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment - Held, yes - ITO completed original assessment by allowing deduction of interest paid to certain creditors - Subsequently, he reopened 451 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 assessment for reasons recorded in report submitted to Commissioner for and other three appeals obtaining sanction under section 147(a) that one creditors had confessed that he was doing only name lending and that other creditors were only name lenders - There was no material to show that confession made by said creditor related to loan to assessee and not to some one else and also that said confession related to period which was subject matter of assessment - There was also no material to show that other creditors were name lenders - Whether live link or close nexus which should be there between material before Income-tax Officer and belief which he was to form regarding escapement of income of assessee from assessment because of latter's failure or omission to disclose fully and truly all material facts was missing in case - Held, yes - Whether, thus, High court was not in error in holding that said material could not have led to formation of belief that income of assessee had assessment because of his failure or omission to disclose fully and truly all material facts - Held, yes.
In the case of Smt. Sangmitra Bharali (upra) the Hon'ble Gauhati High-Court held as under : "
I. Section 68, read with sections 45 and 54F, of the Income-tax Act, 1961 - Cash credits (Undisclosed income v. LTCG) - Assessment year 2001-02 - Assessee held shares of company BPAL just for a period over 12 months and declared sale value 25 times more than purchase price - Company BPAL was not found at given address nor were its directors traceable - Purchase was not made through banking channel nor purchase price was verifiable in any way - Whether it was simply a sort of modus operandi to convert undisclosed income into a long-term 'capital gain' claiming same to be exempted invoking section 54F - Held, yes [Para 44] [In favour of revenue] II. Section 68 of the Income-tax Act, 1961 - Cash credits (Advance by purchaser) - Assessment year 2001-02 - One VHPL allegedly advanced assessee cash against booking of flat - Assessee proved that amount so received was duly recorded in books of account of VHPL - Identity of VHPL was also established by filing its IT returns, balance sheets, etc. - Whether no addition could be made in hands of assessee - Held, yes [Para 59] [In favour of assessee] III. Section 68 of the Income-tax Act, 1961 - Cash credits (Advance by purchaser) - Purchaser of car advanced certain sum to assessee - Identity of purchaser and genuineness of transaction was established - Whether transaction could not be treated as bogus and impugned amount could not be treated as an undisclosed income of assessee - Held, yes [Para 64] [In favour of assessee]"
In the case of Gangeshwari Metal (P)Ltd (supra), the Hon'ble Delhi High Court has held as under : "
There are two types of cases, 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. [Para 9] • There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the relevant material. In such an eventuality no addition can be made under section 68. [Para 10] • In view of above, impugned order passed by the Tribunal was to be upheld. [Para 11] In the case of Varinder Rawley (supra), the Hon'ble Punjab and Hariyana High Court has held as under :
452M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 "where the assessee shows that the entries regarding credit in a third party's account were in fact received from third party and are genuine, he discharges the onus. In that case, the sum cannot be charged as the assessee's income in the absence of any material to indicate that it belongs to the assessee", particularly in a case where no summons u/s 131 is issued against the third party"
In the case of Sachitel Communications P.Ltd (supra), the hon'ble Gujara High Court has held as under :
"II. Section 68 of the Income-tax Act, 1961 - Cash credit (Loans) - Assessment year 2006-07 - Commissioner (Appeals) and Tribunal concurrently found that assessee proved identity of creditor and capacity to pay and that payment was made through banking channel - Whether no addition could be made on account of unsecured loan
- Held, yes [Para 3] [In favour of assessee]"
In the case of Patel Ramniklal Hirji, the Hon'ble Gujrat High Court has held as under :
"The addition on the basis that four depositors furnished requisite details to prove their identity and showed the place of their residence. The loan was received through account payee cheques. Copies of Bank Statements was given and the details of PAN were available. All the materials duly proved the genuineness of the transaction of loan as well as creditworthiness of the depositors. Hence, the addition u/s. 68"
In the case of Jaikumar Bakliwal (supra), the Hon'ble Rajasthan High Court has held as under:
"Three things are required to be proved by recipient of money i.e. (1) identity of the creditor (2) capacity of the creditor to advance money and (3) genuineness of the transaction. Held, dismissing the appeal, that all cash creditors were assessed to income-tax and they proved a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that the assessee was operating their bank accounts. Most of the cash creditorsappeared before the Assessing Officer and their statements under Section 131 of the Income-tax Act, 1961, were also recorded on oath. There was no clinching evidence nor had the Assessing Officer been able to prove that the money actually belonged to none but the assessee. The addition of Rs.17,27,2501- under section 68 was not justified."
In the case of Nemi Chand Kothari (supra), the Hon'ble High Court has held as under :
"16. A person may have funds from any source and an assessee, on such information received, may take loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the and other three appeals assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a- vis the trasnactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuinenss of the transaction and the creditworthiness of the creditor visa-vis the transactions, which had taken place between the assessee and the creditor and not 453 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what source or sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transctions, which he had with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor. No such additional burden can be placed on an assessee, which is not envisaged by section 106 of the the Evidence Act. The Revenue/Assessing Officer, however, remains free to show that the amount, which has come to the hands of the assessee by way of loan from the creditor actually belonged to the assessee, but this conclusion cannot be reached by mere failure on the part of the sub-creditor to show his creditworthiness and/or the genuineness of the trsnaction between the creditor and sub-creditor, for, the creditor may receive any amount from sources known to the creditor only and if he fails to show how he has received the amount, in question, or if he fails to show the creditworthiness of his sub-creditor, such an amount may be treated as the income from undisclosed source of the creditor or of the sub-creditor, as the case may be, but such failure, on the part of the creditor cannot, in the absence of any clinching evidence, be treated as the income of the assessee derived from undisclosed source. :Held (i) that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him, under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted and other three appeals to the Assessing Office to prove the contrary. The failure on the part of the creditors to show that their Sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or where owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources." (ii) that no assessment could be made contrary to the provisions of law. In the instant case, the very basis for making the assessment was under challenge. If the assessment was based on a completely erroneous view of law, such findings could not be regarded as mere findings of facts, but must be treated as substantial questions of law. Therefore, the question raised in the appeal was a substantial question of law because it went to the very root of the assessment made. The aforesaid view has been also considered and fortified and favourably referred to by the Allahabad High Court in the case of C.I.T. v. Shalimar Buildwell Pvt. Ltd. (2014) 220 Taxman 138 (All.) In the case of Lalpuria Construction P. Ltd (supra) the Hon. Rajasthan High Court has held that "that in the case of Accommodation entry - without giving an opportunity of cross examination merely on the basis of oral statement additions cannot be made u/s. 68. It is further held that: "The oral statement of a third party recorded by Search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s. 68 on account of alleged accommodation entries. " Besides, it is further submitted that the Hon'ble Bombay High Court in the case of Mls. Rushabh Enterprise v. ACIT 454 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 had occasion to go through the identical issue and two of the Creditors in that case, i.e. Mls. Laxmi Trading Co. and Mls. Rose Impex were also parties in the case of the assessee.
In the case of Andaman Timber Industries (supra), the Hon'ble Supreme Held as under :.
"Not allowing the assessee to cross exarrune the witnesses by the Adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullify in as much as it amounted to violation of principles of Natural Justice because of which the assessee was adversely affected."
The order was vacated. The aforesaid view was earlier considered by the Jurisdictional High Court in the case of CIT v. Ashish International. In our considered view the facts of the assessee case are squarely covered by the ratio laid down in the decisions referred to above. We ,therefore , in view of our observations and the ratio laid down by the various decisions are inclined to set aside the order of CIT(A) and direct he AO to delete the additions of Rs. 1,29,04,231/-. Since we have decided the issue of addition u/s 68 in favour of the assessee, the addition as sustained by the ld CIT(A) u/s 69C of the Act of Rs. 3,45,000/- is also ordered to be deleted. In result the appeal of the assessee is allowed."
We find that in the cases relied upon by the assessee i.e. Sanghavi Reality Pvt.Ltd.( supra), Vikram Muktilal Vora(supra),Gujarat Construction(supra),the order of the Reliance Corporation(supra) has been followed.As the fact of the case under consideration are similar to above referred cases,so,following those orders,we decide seventh ground of appeal,raised by the assessee,in its favour.
Following the above referred order of the Jitendra M Kitawat-HUF(supra),we decide GOA 7 in favour of the assessee.
ITA/7099/Mum/2016-AY.2009-10:
9.Effective ground of appeal,raised by the AO,for the year under consideration,is not sustaining the addition of Rs.1.03 crores made invoking the provisions of section 69C of the Act.We find that facts for the year are identical to the facts of 2007-08-the only difference is the names of suppliers.As per the AO the alleged bogus purchases were made from Kothari & Co.(KC),LD, Megha Gems(MG)and Minal Gems(Minal).Following our order dtd.11.04.2018 in the case of Jitendra M Kitawat(HUF),we dismiss the effective ground of appeal raised by the AO. ITA/7049/Mum/2016-AY.2009-10:
10.First effective ground(GOA-6)raised by the assessee is about confirming the addition of Rs. 12.99 lakhs on account of purchases made from four parties mentioned at paragraph no.9. Following our order for the AY.2007-08,we decide GOA in favour of the assessee.
11.Seventh ground pertains to addition of Rs.1.30 lakhs made u/s.68 of the Act for the unsecured loan taken by the assessee from KC.We have already dealt with the issue while adjudicating the order for the year 2007-08.Following the same,we decide GOA 7 in assessee's favour.455
M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 11.12. We note that in the aforesaid order dated 13/04/2018, the Bench considered various decisions, wherein, broadly, the addition was restricted to 12.5% by the Ld. Commissioner of Income Tax (Appeal) and the Bench of this Tribunal, considering the decision in the case of N. K. Protein Ltd. (2017-TOIL-23-SC-IT), dated 16/01/2017), relied upon by Ld. Sr. Standing Counsel also, on the issue of section 69C of the Act with respect to bogus purchases, deliberated upon various decisions and finally deleted the whole addition, which clearly fortifies the case of the assessee.
11.13. In another decision in Pr. CIT vs Tejua Rohit Kumar Kapadia (Tax Appeal No.691 of 2017), order dated 18/09/2017, wherein, the Revenue filed appeal before the Hon'ble High Court, against the decision of the Tribunal dated 16/01/2017 with respect to bogus purchases, held as under:-
"1. The Revenue is in appeal against the judgment of Income Tax Appellate Tribunal dated 16.1.2017 raising the following question for our consideration :
"Whether on the facts and circumstances of case and in laws the Appellate Tribunal was justified in treating the bogus purchase of Rs.5,19,86,285/- legitimate only on the basis that purchases are duly supported by bills and all the payments were made by account payee cheques by overlooking findings of the Investigation Wing in the case of Shri Kulwant Singh Yadav, who was running 456 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 shroff business and he in his statement on oath stated that he issue acknowledgment to the beneficiary on receipt of cheque and delivered cash and the assessee was one of the beneficiaries?"
2. The Assessing Officer had disallowed purchase expenditure of Rs. 5.19 crores making the additions treating the purchases as bogus. The assessee carried the matter in appeal. CIT(Appeals) allowed the appeal inter¬alia on the ground that all payments were made by the assessee by Account Payee cheque. The assessee was in fact, a trader. All purchases made from M/s. Raj Impex were found to have been sold and sales were also accepted by the Assessing Officer. The Revenue carried the matter in appeal before the Tribunal. The Tribunal dismissed the earlier making following observations: "31. We have given a thoughtful consideration to the orders of the authorities below. There is no dispute that the purchases made from M/s. Raj Impex were duly supported by bills and all the payments have been made by account payee cheques. There is also no dispute that M/s Raj Impex have confirmed all the transactions. There is no evidence to draw the conclusion that the entire purchase consideration which the assessee had paid to M/s. Raj Impex had come back to the assessee in cash. 32. It is also true that no adverse inference has been drawn so far as the sales made by the assessee is concerned. We also find that the entire purchases made by the assessee from M/s. Raj Impex have been accounted by Raj Impex and have paid the taxes accordingly. Considering the facts in totality well appreciated by the First Appellate Authority, we do not find any error or infirmity in the findings of the First Appellate Authority. Ground No.1 is accordingly dismissed."
3. It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises.
4. Tax Appeal is dismissed."
In the aforesaid order, bogus purchases to the tune of Rs.5,19,86,285/- were held to be justified by the Tribunal and the said order was carried in appeal before the Hon'ble High 457 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 Court, by the Revenue, wherein, the appeal of the Revenue was dismissed. This matter was further carried in appeal before the Hon'ble Apex Court and the SLP No.12670/2018 was dismissed on 04/05/2018. This decision clearly comes to the rescue of the assessee.
11.14. In another case in Indo Unique Trading Pvt.
Ltd. vs DCIT (ITA No.6341/Mum/2016), order dated 16/08/2017, on identical issue with respect to bogus purchases, wherein, the GP rate was declared at 6% against which, it was adopted at 9% and finally, the Tribunal deleted the addition. In another case of DCIT vs M/s Ronak Gems Pvt. Ltd. (ITA No.3118/Mum/2017), order dated 04/10/2017 (wherein, one of us i.e. Ld. Accountant Member is signatory to the order), the disallowance was mada @ 8% of the alleged bogus purchases to the tune of Rs.9,12,47,945/-, finally, observed that even the disallowance at the rate of 2.5%, sustained by the Ld. Commissioner of Income Tax (Appeal) was held to be unjustified, and finally deleted, clearly supports the case of the assessee.
458M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 11.15. The Hon'ble jurisdictional High Court in CIT vs Nikunj Exim Enterprises Pvt. Ltd. (2015) 372 ITR 619 (Bom.) held/observed as under:-
"7. We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defence Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus. No fault can be found with the order dated April 30, 2010, of the Tribunal."
11.16. If the ratio laid down by Hon'ble jurisdictional High Court in the aforesaid case of M/s Nikunj Eximp.
Enterprises Pvt. Ltd.((supra)) is analyzed with the facts of the present appeal, are that the Ld. Assessing Officer made addition with respect to bogus purchases made from three 459 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 parties namely, Anuj Enterprises, Shri Nakodaji Impex & C R Enterprises, amounting to Rs.24,44,25,543/-. Before the First Appellate Authority, the submission of the assessee was that all the purchases are supported by invoices, payments are made through account payee cheques and all the transactions are duly reflected in the books of accounts. Plea was also raised that the gross profit earned on these purchases was 0.26% as against 0.30%, overall of the assessee during the year. The assessee also filed reconciliation chart for purchases and sales. Ultimately, these purchases went to Lloyd Steel Industries Ltd. wherein GP @ 3% was offered in the reassessment. (see para 29.1 to 29.3 of the impugned order).
Before us, the ld. counsel for the assessee, explained that in the case of M/s Halan International, the profit & loss was showed at 0.3% and net profit of 0.01% on the sales turnover.
It was empathetically argued that the Ld. Assessing Officer made addition equal to the value of purchases, whereas, every purchases and sales are identified as the quantitative information were duly filed by the Assessing Officer and the parties to whom the goods are sold were accepted to be 460 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 genuine by the Revenue. A strong Plea was raised by the assessee that the purchases made from various parties, which is also at the same rate, which has been accepted by the Assessing Officer. The ld. counsel further explained that the margin of 0.30% on such trading transactions (page-285 of the paper book).
11.17. If the totality of facts and the arguments advanced from both sides is kept in juxtaposition with the decision from Hon'ble jurisdictional High Court in the case of Nikunj Eximp. ((supra)), there is no dispute that the purchases are identified by the sales and the parties to whom goods are sold were accepted as genuine and the assessee made purchases from various other parties also at identical rate which has been accepted by the Revenue, wherein, the assessee earned margin of about 0.30% on steel trading transactions (page 285 of the paper book) and further in respect of trading transactions with three parties, the assessee earned 0.26% profit. The profit so earned was accepted by the Assessing Officer, whereas, the ld. Assessing Officer himself accepted the genuineness of transaction. The Hon'ble 461 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 jurisdictional High Court in Nikunj Eximp Pvt. Ltd. clearly held that "We have considered the submission on behalf of the Revenue. However, from the order of the Tribunal dated April 30, 2010, we find that the Tribunal has deleted the additions on account of bogus purchases not only on the basis of stock statement, i.e., reconciliation statement but also in view of the other facts. The Tribunal records that the books of account of the respondent-assessee have not been rejected. Similarly, the sales have not been doubted and it is an admitted position that substantial amount of sales have been made to the Government Department, i.e., Defense Research and Development Laboratory, Hyderabad. Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the Commissioner of Income-tax (Appeals), one cannot conclude that the purchases were not made by the respondent-assessee. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have disallowed the deduction of Rs. 1.33 crores on 462 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 account of purchases merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them. We find that the order of the Tribunal is well a reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crores was not bogus.
No fault can be found with the order dated April 30, 2010, of the Tribunal." Thus, considering the facts available on record, we find force in the argument of the Ld. counsel for the assessee.
The crux of the arguments is that the profit margin earned by the assessee is somewhere between 0.26% to 0.30% as the purchases and sales are genuine, thus, the addition may be restricted to 0.30%. Though, we find force in the argument of the ld. counsel for the assessee as the same is based upon the facts, still to plug the leakage of Revenue and to safeguard the interest of the Revenue, we deem it appropriate to restrict the profit margin at the rate of 3% against 12.5% sustained by the Ld. Commissioner of Income Tax (Appeal), thus, the impugned ground is partly allowed.
11.18. The last ground raised by the assessee in the respective appeal is levy of interest under section 234B and 463 M/s Shree Global Tradefin Ltd.
ITA Nos7310 to 7313/Mum/2017 234D of the Act. The ld. counsel for the assessee as well as the ld. sr. Standing Counsel argued that it is consequential in nature. Considering the totality of facts and the arguments from both sides, the levy/charging of interest is held to be consequential in nature. The Ld. Assessing Officer is directed accordingly.
Finally, the appeals of the assessee are partly allowed.
Order pronounced in the open Court on 15/10/2018.
Sd/- Sd/-
(N.K. Pradhan) (Joginder Singh)
लेखा सद#य / ACCOUNTANT MEMBER या$यक सद#य / JUDICIAL MEMBER
मब
ुं ई Mumbai; *दनांक Dated : 15/10/2018
f{x~{tÜ? P.S / नजी स चव
आदे श क %$त'ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ/ / The Assessee
2. 0यथ/ / The Respondent.
3. आयकर आय2 ु त(अपील) / The CIT, Mumbai.
4. आयकर आय2 ु त / CIT(A)- , Mumbai
5. 4वभागीय त न ध, आयकर अपील(य अ धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड" फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मब ंु ई / ITAT, Mumbai,