TaxTMI 
TaxTMI 
2008 (5) TMI 297
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....r accommodation entries that in the course of search certain bogus entries were also found to have been given to various companies of ICL group. As per the report from Dy. Director of IT (Inv.) Varanasi received by the AO, one of the companies namely, Chandigarh Theatres (P) Ltd. belonging to the ICL group having office at SCO-3, Sector 26, Chandigarh had also entries from the above companies. In the aforementioned report, it was pointed out that the assessee had received Rs. 50 lakhs by way of bank draft dt. 24th July, 1998 from the current account No. 5943 of M/s Vatsa Health Care Ltd. that this amount was deposited in cash in the bank accounts of other companies at Vijaya Bank, Karol Bagh Branch, New Delhi and these bank accounts were in the names of non-existing and dummy companies. That from the accounts of these companies, the amount was found to have been transferred to current account No. 5943 from which M/s Chandigarh Theatres (P) Ltd. had taken entries. Similarly. an amount of Rs. 1 crore was received from M/s SRG Infotech India Ltd. by way of bank draft dt. 1st July, 1998 and 2nd July, 1998. That this amount was deposited in cash in the bank account of dummy entities and....
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....any is a public limited company quoted at stock exchange with a paid up capital of Rs. 2,14,25,65,000. A photocopy of the document downloaded from the website of a RoC New Delhi giving all the details is enclosed. In addition a copy of share application resolution of the board of directors of SRG Infotech India Ltd., and confirmation obtained at the time of receiving share application money is also enclosed. A fresh confirmation obtained on 7th Sept., 2006 is enclosed. The PAN of the company is AABCS3367E and the company is being assessed in Circle 9(1), New Delhi. Vatsa Healthcare Ltd. The company made share application for 10 lakh shares of Chandigarh Theatres (P) Ltd. A sum of Rs. 50 lakhs was paid along with share application vide draft No. 322223 dt. 24th July, 1998 from the current account No. 5493 with Vijaya Bank, Barakhamba Road, New Delhi. The name of the company has since changed to FIT & Fine Biotect Ltd. The company is being regularly assessed in Range 11, New Delhi at PAN AAACS2378A. Confirmation of the company obtained at the time of receipt of share application. Copy of share application and resolution of board directors of company is enclosed. A fresh confirmation ....
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....1963) 49 ITR 112 (SC) 117 (2) Bharati (P) Ltd. vs. CIT 1975 CTR (Cal) 40 : (1978) 111 ITR 951 (Cal) (3) CIT vs. Precision Finance (P) Ltd. (1994) 121 CTR (Cal) 20 : (1994) 208 ITR 465 (Cal) Reliance has also been placed on the decision of Supreme Court in the case of Sumati Dayal vs. CIT (1995) 125 CTR 124 : (1995) 214 ITR 801 (SC) to support the view that evidence has got to be viewed in the light of surrounding circumstances. The AO has assessed the income of the assessee at Rs. 1 crore by treating the credit in the name of M/s Mahadev Industries Ltd. as undisclosed income of the assessee. Tax at Rs. 35 lakhs has been imposed. Besides interest under s. 234B has been charged at Rs. 39,90,000. 6. The assessee appealed to the CIT(A) and the latter has deleted the addition of Rs. 1 crore vide order dt. 15th May, 2007. Subsequently, the assessee had filed an application under s. 154 before the CIT(A) pointing out that the ground relating to the validity of reassessment challenged before him was not disposed of by him. The CIT(A) has accepted the application of the assessee under s. 154 vide order dt. 29th May, 2007 and in deciding the said ground of appeal held that notice....
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.... discharge the onus in regard to the credit of Rs. 1 crore in the name of M/s Mahadev Industries Ltd. Our attention was invited to the finding of the AO to the effect that the said company was never found to have ever existed at the given address. The assessee had also failed to file confirmation from M/s Mahadev Industries Ltd. in the course of reassessment proceedings. It was accordingly pleaded that the decision of the CIT(A) be set aside and the assessment made by the AO restored. 9. The learned counsel for the assessee, on the other hand, sought to support the decision of the CIT(A). It was contended that M/s Mahadev Industries Ltd. was a listed company at the time when a sum of Rs. 1 crore was received by the assessee towards share application money. It was further contended that the said company had been delisted in the year 2004 only. The assessee had produced whatever evidence was available with it about the investment of Rs. 1 crore made by M/s Mahadev Industries Ltd. with the assessee. The money had been received by four cheques of Rs. 25 lakhs each. According to the learned counsel for the assessee, the burden relating to credit of Rs. 1 crore in the books of account....
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....(SC) 220 : (1976) 103 ITR 437(SC); (2) Dass Friends Builders (P) Ltd. vs. Dy. CIT (2006) 201 CTR (All) 447 : (2006) 280 ITR 77(All); (3) United Electrical Company (P) Ltd. vs. CIT & Ors. (2002) 178 CTR (Del) 192 : (2002) 258 ITR 317 (Del); (4) Hindustan Lever Ltd. vs. R.B. Wadkar, Asstt. CIT & Ors. (2004) 190 CTR (Bom) 166 : (2004) 268 ITR 332 (Bom); (5) Birla VXL Ltd. vs. CIT (1996) 130 CTR (Guj) 281 : (1996) 217 ITR 1 (Guj). 12. Reliance was further placed on the decision of the Gauhati High Court in the case of Jt. CIT & Ors. vs. George Williamson (Assam) Ltd. to support the contention that reopening of assessment is invalid when there is no application of mind by the AO at the time of issue of notice under s. 148. Our attention was invited to page No. 47 of the paper book to support the claim that 50,00,000 shares had been issued to M/s Mahadev Industries Ltd. in lieu of a sum of Rs. 1 crore in financial year 2000-01. The learned counsel for the assessee further contended that the AO was wrong to hold that the address of M/s Mahadev Industries Ltd. was not given. According to the learned counsel for the assessee, the original confirmation issued by M/s Mahadev In....
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....preciation allowance or any other allowance, as the case may be for the assessment year concerned (hereafter in this section and in ss. 148 to 153, referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1-Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely- ....
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.... 30th day of September, 2005 in response to a notice served under this section; and (b) subsequently a notice has been served under clause (ii) of sub-s. (2) of s. 143 after the expiry of twelve months specified in the proviso to cl. (ii) of sub-s. (2) of s. 143 but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in sub-s. (2) of s. 153 every such notice referred to in this clause shall be deemed to be a valid notice Explanation-For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section (2) The AO shall, before issuing any notice under this section record his reasons for doing so." 16. In this case, the assessee had filed return declaring nil income. It is not disputed that no assessment under s. 143(3) was made for the year under appeal i.e., for asst. yr. 1999-2000. The AO had received information from Dy. Director of IT (Inv.), Varanasi and on the basis of the said information the reasons have been recorded before i....
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.... objection of the assessee in the reassessment order against which the assessee had appealed to the CIT(A). The issue to be considered is as to whether the CIT(A) was justified in holding that issue of notice under s. 148 in this case was invalid. As noted from the reasons recorded reproduced above, the AO had received definite information from Dy. Director of IT (Inv.), Varanasi on the basis of which action was taken by the AO. It was contended before us that the AO did not have any record in respect of the assessee for the year under appeal on the basis of which he could have verified the correctness of the information received from Dy. Director of IT (Inv.), Varanasi. We are unable to accept this contention on behalf of the assessee. In this case, there was only a return filed by the assessee declaring nil income. The information on the basis of which notice under s. 148 has been issued indicated providing of dummy entries by various companies. Assuming for argument sake that at the time of issue of notice under s. 148, the AO did not have the benefit of the return of income of the assessee. In our considered view, that would not make any difference insofar as such return would ....
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....fession to the effect that the company was only a name-lender and had never advanced any loans to any person and this was accepted in the assessments of the company for the asst. yrs. 1962-63 to 1964-65. After receipt of this letter the ITO, Azamgarh, issued notices to the appellant for reassessment under s. 147(a) of the IT Act, 1961, on the ground that income had escaped assessment to tax as a result of the failure of the appellant to fully and truly disclose material facts. The appellant thereupon filed a writ petition challenging the validity of the notices for reassessment. In the writ petition, it was averred that a partner of the firm had gone to Calcutta with a draft for Rs. 31,000 and some cash to make payment of outstandings against the firm and he had there raised a cash loan from the company of Rs. 50,000 for making purchases of cloth and paying other outstandings, and that on his return, the partner deposited the sum of Rs. 50,000 on 25th May, 1962 and necessary entries were made in the account books of the firm. The High Court dismissed the writ petition. On appeal to the Supreme Court: Held, affirming the decision of the High Court, that subsequent to the completi....
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....s prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. Held, that the case of the Revenue was that the assessee was charging to its P&L a/c, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals, etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceedings. The commencement of reassessment proceedings was valid." 19. It is pertinent to mention that in this case no assessment was made under s. 143(3) and, therefore, proviso to s. 147 is not attracted. The AO had issued notice under s. 148 on 17th March, 2006 i.e., within six years from the end of the assessment year. The AO on the basis of material available to him was required to form the belief that the income of the assessee had escaped assessment. So however, there was no requirement in this case that such an escapement of....
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....order. The decision of the CIT(A) in this regard is accordingly set aside. 22. We now proceed to consider as to whether provisions of s. 68 are attracted in this case in respect of credit of Rs. 1 crore in the name of M/s Mahadev Industries Ltd. There is no dispute that there was credit entry in the name of M/s Mahadev Industries Ltd. of Rs. 1 crore in the books of account of the assessee. The assessee has termed the credit entry to be art account of application money for issue of shares. Reliance has been placed on various decisions to support the claim that s. 68 is not attracted in respect of shareholders. Before we proceed to consider the issue in the light of the rival contentions we would like to clarify that in the year under appeal, M/s Mahadev Industries Ltd. was not a shareholder of the assessee company. As per balance sheet for the year under appeal, the assessee had the authorized capital of Rs. 50 lakhs only. The authorized capital has been enhanced only in June, 2000 i.e., after about two years of receipt of Rs. 1 crore. The shares have been issued to the company in the financial year 2000-01. Thus in our view, the decisions relating to the applicability of s. 68 i....
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....stries Ltd. of Rs. 1 crore. The money has admittedly been received by four cheques of Rs. 25 lakhs each. However, the AO on having made enquiries could not find the creditor at the given address. The assessee was confronted. The assessee had furnished evidence before the AO to establish that the creditor company was a listed company at the time of deposit of Rs. 1 crore with the assessee. So however, the AO could not find the creditor company at the given address. As per the finding of the AO no such company ever existed at the given address. The assessee was given an opportunity to give the last known address of the creditor. In response the assessee claimed that the credit was on account of application money for allotment of shares and that the shares had been allotted to the creditor company in the financial year 2000-01. We have observed that 20 lakh shares with the face value of Rs. 10 each were allotted to M/s Mahadev Industries Ltd. on 12th July, 2002. The subscribed capital against the allotment of 20 lakhs shares was shown @ Rs. 5 per share amounting to Rs. 1 crore. It is pertinent to mention that the assessment year involved before us is asst. yr. 1999-2000 for the previo....
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....f IT (Inv.) Varanasi. In the case of two creditors, the assessee was able to give satisfactory evidence. In the case of SRG Infotech India Ltd. the authorized capital was more than Rs. 214 crores. Its PAN was also given. Confirmation was also filed. Similarly, in the case of Vatsa Healthcare Ltd. necessary evidence was filed. The creditor was also assessed to tax. PAN was also filed with the AO. However, in the case of M/s Mahadev Industries Ltd. apart from the fact that the money has been received by cheques and that the creditor company was a listed company at the time of receipt of the cheques, no other evidence was filed. In our considered view, the evidence furnished by the assessee was not sufficient to discharge the onus especially when the AO found that no such company existed at the given address. It is also noteworthy that the total authorized capital of the assessee company as enhanced was Rs. 5.50 crores out of which M/s Mahadev Industries Ltd. is claimed to be a shareholder to the extent of Rs. 1 crore. In other words, M/s Mahadev Industries Ltd. has become substantial shareholder of the assessee company after allotment of shares in the asst. yr. 2003-04 (previous year....
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....eversed the decision of the CIT(A). Request for reference to Hon'ble High Court under s. 256(1) of the IT Act, 1961 was rejected by the Tribunal. A reference was sought in the Delhi High Court under s. 256(2) by the Revenue but the same was dismissed by the Hon'ble High Court on the ground that no question of law arose. In dismissing the application of the Revenue, the Hon'ble High Court however, observed 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. The Revenue had filed SLP before the Hon'ble Supreme Court. But the same was not granted. However, it is important to note that subsequently the Full Bench of the Delhi High Court in the case of CIT vs. Sophia Finance Ltd. have clarified its earlier decision rendered in Stellar Investment Ltd. In the case of Sophia Finance Ltd., the Hon'ble Delhi High Court explained the law relating to the powers of the AO under s. 68 with reference to the subscribed share capital. Explaining its decision in the case of CIT vs. Stellar Investment Ltd. at p. 105, it was held as under:....
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....e placements. 25. The burden of proof in the case of a shareholder has further been explained by the Hon'ble Calcutta High Court in the case of Bhola Shankar Cold Storage (P) Ltd. vs. Jt. CIT (2004) 192 CTR (Cal) 625 : (2004) 270 ITR 487 (Cal) on similar lines. So the law in respect of the shareholders is also now well established. If the assessee has discharged the burden in regard to the identity of the shareholder and its genuineness, then is burden gets discharged. So however, if the AO makes enquiry and does not find alleged shareholders at the given address, the assessee has to discharge the onus about its genuineness. In the present case, it is claimed by the assessee that M/s Mahadev Industries Ltd. is a shareholder of the company from asst. yr. 2003-04. The shares held by the said company at the end of the previous year relevant to asst. yr. 2003-04 are about 20 per cent of the total shareholdings of the company. The assessee is unable to give any confirmation from the said company for the credit of Rs. 1 crore in its books of account for asst. yr. 1999-2000. The assessee is also unable to give the present address of the creditor even when credit in the books of account....