TaxTMI 
TaxTMI 
2014 (11) TMI 593
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....e 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 respectively, received by the assessee from the sai....
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.... 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 that the AO directed the assessee to produce the persons along wi....
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....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.6707/2011 order dt. 23rd April, 2012. - A.G.Holdings Pvt.Ltd. vs. ITO (2012) 72 DTR 346 (Del.) - CIT vs.....
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.....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 assessment for above AY, the income chargeable to tax to the extent of accommodation entry mentioned above, has escaped assessment within the meaning of S.147 of the Act. Since four years has been expired from the en....
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....ficer, 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 "approved" at the bottom of the note sheet prepared by the ITO technical. Nowhere the CIT has recorded his satisfaction. In the case before the Hon'ble Supreme Court (supra) that on AO's report the Commissioner against the question ....
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....s 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 recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction. 8. Hon'ble Delhi High Court in the case of' United Elect....
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....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. Confirmation of loan of Rs. 5,00,000/- PB 7-38 2. Copy of Bank Statement PB 39 3. Acknowledgement of ITR for A.Y. 2001-02 PB 40 4. Company Master Details PB 131 Details regarding M/s Kuberco Sales Private Limited 1. Confirmation of loan of Rs. 5,00,000/- PB 41-42 2. Ack....
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....ted 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. Affidavit of director certifying that company had applied and allotted 50,000 equity shares of Rs. 10 each of assessee co. at par PB 86-87 5. Company Master Details PB 142 Details regarding M/s Right Choice Construction Pvt. Ltd. 1. Share Application Form dated 01-12-2000 for 90,000 equity shares of Rs. 10 each PB 89, 92 2. Extract of Board Resolution signed on 01-12-2000 resolving that Co. shall apply for 90,000 equity shares of Rs. 10 each PB 90, 93 3. Acknowledgement of ITR for A.Y. 2004-05 PB 91,96 4. Affidavit of director certifying that company had applied and allott....
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....solving 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 Details PB 148 12. A perusal of the above demonstrates that the assessee has furnished before the AO evidences to establish the identity of the persons who either invested in share capital or granted a loan. In fact some of the loans were repaid. On the other hand the AO has not conducted any investigation nor did he have any of the material gathered by the Investigation Wing based on which the addition can be made. He merely relied on a report of the Investigation Wing. 13. The legal position enunciated by the Jursidictional High Court is as follows. a) In the case of CIT vs. Gangeshwari Metal P.Ltd. in ITA no.597/2012 judgement dt. 21.1.2013, the Hon'ble High Court after considering the decisions in the case of Nova Promoters and Finlease Pvt.Ltd. 342 ITR 169 and jdugement....
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....hy this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act, 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law." The case on hand clearly falls in the category where there is lack of enquiry on the part of the A.O. as in the case of Gangeshwari Metals (supra). b) In the case of Finlease Pvt.Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8, it is held as follows. "6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application, affidavits fo the directors, form 2 filed with the ROC by....
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....ngs 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 statement of any person or other material on the basis of which it was held that the said investment companies were in the business of providing accommodation entries. (4) The AO has made additions by relying upon the information provided by the Investigation Wing which appears to be based on some statement of entry operator which is never brought on record. (5) The AO has not verified the facts contained in this so called statement, nor the assessee was provided with an opportunity of cross examination. The AO has not done any independent investigation. (6) During the course of reassessment proceedings the AO has called for information from the banks of the said investment companies u/s 133(6) of the Act and the claims of the assessee were duly verified. (7) The AO has not given the basis on which he has come ....