AI Drafter 
TaxTMI 
TaxTMI 
2014 (11) TMI 593
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....d a letter dt. 21.4.2008, requesting that the return of income originally filed on 27.9.2001, be treated as a return of income filed in response to notice u/s 148. The AO completed assessment u/s 143(3) read with s.147 of the Act on 23.12.2008 assessing the total income at Rs. 64,00,810/-, inter alia, making an addition on account of share application money of Rs. 1 crore and loan of Rs. 35 lakhs u/s 68 of the Act and commission paid for these accommodation entry of Rs. 2,70,000/-. 3. Aggrieved the assessee carried the matter in appeal challenging both the reopening of assessment as well as the additions on merits. The First Appellate Authority upheld the reopening of the assessment. On the addition of share application money of Rs. 1 crore and loan of Rs. 35 lakhs u/s 68 of the Act, the Ld.CIT(A) deleted the additions. 3.1. The Ld.CIT(A) held that the assessee had discharged the initial onus that lay on it and that the AO was not justified in ignoring various evidences filed before him by the assessee. On the ground that nothing adverse has been brought on record by the AO to establish that the amount of share application money of Rs. 1 crore and the loan of Rs. 35 lakhs res....
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....t the Ld.CIT(A)-XVI, New Delhi has grossly erred both in facts and in law in confirming the action of AO in reopening the assessment u/s 148 of the Act without realising that the assessment had been earlier completed u/s 143(3) of the Act and more than 4 years had passed since the assessment." 6. The Ld.D.R. Mr.J.P.Chandrekar relied upon the order of AO and submitted that the amount in question was received by the assessee from entry operators and this fact was found by the Investigation Wing of the department. He described the modus operandi adopted by the entry operators and took this Bench to the order of the AO and pointed out that cash has been deposited in the account of the creditor company prior to subscribing to the share capital of the company. He referred to each of the companies from which the assessee had received share capital and submitted that the assessee had not discharged its onus of proving the identity, creditworthiness and genuineness of the transaction. He submitted that the assessee failed to furnish substantial evidence regarding the creditworthiness of the alleged investors and the overwhelming circumstantial evidences proves otherwise. He pointed out t....
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.... remark of the Ld.CIT(A) "approved" is not satisfaction as envisaged u/s 151 he further relied on the following judgement. - Amarlal Bajaj vs. ACIT, ITAT Mumbai E Bench in ITA 611/Mum/2004 vide order dt. 24.7.2013 reproted in 333 ITR 237 (Del) - United Electrical Co. Pvt.Ltd., vs. CIT, 258 ITR 317 (Del) 7.4. He further submitted that there is no failure on the part of the assessee to disclose material facts truly and fully necessary for framing an assessment u/s 143(3) and hence the reopening is bad in law, in view of the Proviso to S.147 of the Act, as the reopening is beyond 4 years and as the original assessment was done u/s 143(3) of the Act. 7.5. He further argued that reasons recorded are vague and no belief can be formed by a reasonable person, on the basis of these reasons, about escapement of income. He relied on certain case laws for this proposition, which we would refer if required. 8. The Ld.D.R. opposed these contentions and relied on the order of Ld.CIT(Appeals). He relied on the following case laws for the proposition that the reopening has to be upheld. - Money Growth Investment and Consultants Pvt.Ltd. vs. ITO, Delhi High Court in WP(C) No.6707/2....
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....50058 Subhash Chander Singhal - 500300 23.11.2000 SBP-DG 4544 Kuldeep Textiles P.Ltd. - 500500 21546 24.3.2001 Innovative Wazipur 239 Swetu Stone P.Ltd - 500500 23510 24.3.2001 - do - 1200259-C.A. Division Trading P.Ltd. - 500500 33612 24.3.2001 - do - 225 During the course of the proceedings u/s 148 for the same assessment year, which Was dropped on the technical ground that proper sanction was not obtained, it was noticed that there are other receipts also from the identified entry operators. Information about those entries was not available in the data received from the Investigation Wing. Nevertheless they also fall within the ambit of section 68 of the Act. The assessee has received unexplained sums from the entry operators as per the above details as per information available with the undersigned. As explained above the identity, creditworthiness and genuineness of transactions with the persons found to be entry operators cannot be established. I therefore have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for asses....
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....an Assessing Officer, who is below the rank of [Joint] Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.} [Explanation.-For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148,need not issue such notice himself.]" 6. A simple reading of the provisions of Sec. 151(1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. In the present case, the order sheet which is placed on record show that the Commissioner has simply affixed ....
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....xplanation 2 (c)(i) of the income-tax Act, 1961." 7. In the light of the above mentioned reasons, in our considerate view, Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO's belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put "approved" and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has reco....
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....that the reassessment is bad in law, we do not find it necessary to decide other issues which are on merits of the case." 10.3. No contrary judgement or order is brought to our notice. This being a Co-ordinate Bench order, we are required to follow the same. 10.4. The decision cited by the Ld.D.R. does not pertain to the issue of contravention of provisions of S.151 of the Act. These judgements are on other aspects relating to reopening. Thus respectfully following the decision of the Coordinate Bench in the matter, we hold that the reopening is bad in law for the reason that the Ld.CIT-V, Delhi has not recorded his satisfaction as contemplated u/s 151 of the Act. 11. Coming to the merits of the case we find that the assessee has furnished the following documents in support of transactions entered into by him. Details of loan creditors are as under: Details regarding M/s Kuldeep Textiles Pvt. Ltd. 1. Confirmation of loan of Rs. 5,00,000/- - dated 29-01-2003 PB 33 - 34 2. Acknowledgement of ITR for A.Y. 2001-02 PB 35 3. Copy of Bank Statement PB 36 4. Company Master Details PB 130 Details regarding M/s Swetu Stone Pvt. Ltd. 1.....
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.... Marketing Pvt. Ltd. 1. Share Application Form dated 1-12-2000 applying for 90,000 equity shares of Rs. 10 each PB 63,67 2. Extract of Board Resolution PB 64,68 3. Acknowledgement of ITR for A.Y. 2004-05 PB 65,71 4. Affidavit of director certifying that company had applied and allotted 90,000 equity shares of Rs. 1 0 each of assessee co. at par PB 69-70 5. Company Master Details PB 140 Details regarding M/s Particular Manage Finlease (India) Pvt. Ltd. 1. Share Application Form dated 13-11-2000 applying for 50,000 equity shares of Rs. 10 each PB 72,75 2. Extract of Board Resolution PB 73,76 3. Acknowledgement of ITR for A.Y. 2004-05 PB 74,80 4. Affidavit of director certifying that company had applied and allotted 50,000 equity shares of Rs.l0 each of assessee co. at par PB 77-78 5. Company Master Details PB 141, 149 Details regarding M/s Transpan Financial Services Ltd. 1. Share Application Form applying for 50,000 equity shares of Rs. 10 each PB 81, 84 2. Extract of Board Resolution PB 82,85 3. Acknowledgement of ITR for A.Y. 2004-05 PB 83, 88 4. Affidav....
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.... PB 145 Details regarding M/s Rahul Finlease Pvt. Ltd. 1. Share Application Form dated 23-11-2000 for 80,000 equity shares of Rs. 10 each PB 121 2. Extract of Board Resolution signed on 23-11-2000 resolving that Co. shall apply for 80,000 equity shares of Rs. 10 each PB 122, 3. Acknowledgement of ITR for A.Y. 2004-05 PB 123 4. Affidavit of director certifying that company had applied and allotted 90,000 equity shares of Rs. 10 each of assessee co. at par PB 124-125 5. Company Master Details PB 147 Details regarding M/s Royal Credits Pvt. Ltd. 1. Share Application Form dated 22-11-2000 for 80,000 equity shares of Rs. 10 each PB 126 2. Extract of Board Resolution signed on 22-11-2000 resolving that Co. shall apply for 80,000 equity shares of Rs. 10 each PB 127 3. Affidavit of director certifying that company had applied and allotted 80,000 equity shares of Rs. 0 each of assessee co. at par PB 128-129 4. Company Master Details PB 146 Details regarding M/s Royal Finvest Pvt. Ltd. 1. Company Master Details PB 148 Details regarding M/s Sober Associates Ltd. 1. Company Master Det....
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....of share application money, balance4 sheet, etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs. 55,50,000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income, penalty proceedings under Section 271(1)(c) are being initiated separately." The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such....
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....thorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section 68, the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material." 14. Thus a clear distinction has been made out in cases where the AO has conducted certain investigations and in cases where the AO merely rejected the evidences filed by the assessee and made an addition based on presumptions. 15. The Ld.CIT(A) has in his order observed that - (1) that the AO during the course of original assessment proceedings made direct enquiries with the creditors and share applicants and accepted the same as genuine. Thus the existence cannot be doubted. (2) confirmations were filed both before the AO and the CIT(A) in support of the genuineness and creditworthiness of the creditors. (3) The AO has neither discussed in the assessment order nor provided to the assessee, copies of any s....