TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 632
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....ital as re-investment of latter's unaccounted money itself. 3. The assessee instituted the instant appeal on January 15, 2016 before this Tribunal. It filed an application on March 28, 29, 2016 under rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 seeking to raise an additional ground challenging validity of the reopening taken recourse to by the Assessing Officer without indicating any reliable material and information establishing that any taxable income had in fact escaped assessment. This is followed by its yet another application under the very rule averring that the above additional ground sought to be raised needs to be revised to the following effect : "(1) On the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in framing assessment framed under section 143(3) read with section 147 of the Income-tax Act, 1961 even though the reopening of the assessment is not in conformity with the express legal provisions in view of the following : (a) The Assessing Officer has not established a live link between material being relied upon to reopen the assessment proceedings and the escapement of chargeable income in the hands....
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....o case law holding that this Tribunal can exercise its discretion for raising of a legal question in case the relevant facts are already on record. This is not the Revenue's case that the impugned additional ground involves complicated facts which are not available on record. Or that it does not decide upon the issue of correct tax liability of the assessee/appellant. It raises hyper-technical objections narrated hereinabove. We further find no merit in its pith and substance plea since the same arises when the question is determining as to whether a particular law falls in one head or the other which is to be adjudicated keeping in mind "pith" meaning "true nature" or essence of something and "substance" to be interpreted as the "most important or essential part of something". Our view is that this plea is hardly germane to the legal question of validity of reopening. We accordingly seek guidance from the above two legal precedents and allow the assessee's application dated March 28/29, 2016 seeking to raise an additional ground for challenging validity of reopening. We further accept the assessee's plea by way of an application dated June 24, 2016 and revise the addit....
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....essed to the Deputy Commissioner of Income-tax-Company Circle-1(2), Vadodara quoting assessee's company directors' mutual consultation to declare an unaccounted income of Rs. 9 crores (pages 645 and 646 of the paper book). The assessee thereafter filed a letter dated September 4, 2012 before the Assistant Commissioner of Income-tax-1(2), Vadodara declaring gross income of Rs. 9 crores as under : "To, The Assistant Commissioner of Income-tax, Circle - 1(2), Aayakar Bhavan, Vadodara. Sub : Survey proceedings under section 133A of the Income-tax Act Kindly refer to the captioned subject and the survey conducted at our business premises on 30th August 2012. In the course of survey, various documents were found and impounded. Further proceeding with respect thereto is pending. In the meantime, the company has verified its records for various years, it is felt that there are certain issues/transactions recorded in the regular books of account which may not be possible to substantiate as required under law and that it may take lot of efforts and also substantial time, persuasion with other parties to provide information and details which may or may not be possible to....
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.... thereon on such share capital and share premium amounting to Rs. 7.52 crores and the accordingly income may be taken into account. For the year under consideration, the company expects an estimated profit of Rs. 148 lakhs on which appropriate tax would be paid in accordance with law. Further, the assessee-company desires to fulfil its tax obligations, in accordance with the law, through e-payment at the earliest. To show its commitment we are attaching here with post-dated cheques as under and the same is to be returned to us, on production of proof of e-payment by us : Date Cheque No. Amount 15/9/2012 002038 15 lakhs 25/9/2012 002042 25 lakhs We trust you will find the above offer of the assessee-company as genuine, voluntary and with an intention to buy peace and co-operate with the Department with an understanding and a condition that in doing so, the company shall not be levied any penalty under the Act. Thanking you, Yours faithfully, For Laxmiraj Distributors Pvt. Ltd. Director." 8. We find that the matter did not rest up to this stage. The Assessing Officer issued section 148 notice dated February 13, 2013 after forming reasons to believe that the a....
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....ember 3, 2012. In compliance to summon issued, the assessee attended the office of the undersigned, where his statement under section 131 was recorded. While recording statement, the director of the company was asked vide question Nos. 57 to 70 of the statement recorded under section 131 of the Act on September 3, 2012 about details of investors of the company and the investments made by them. But the director Shri Parasmal Jain who is the only beneficiary to enjoy the profits of the company and who take care all the matters of the company, was unable to give any detail in respect of investors. Even he was not able to name any one of investors who made such huge investments in the company. Later, on the same day the director of the company Shri Parasmal Jain, vide his hand written letter admitted Rs. 9 crores as his unaccounted income. He also stated in the letter that the break-up and the nature of this unaccounted income will be submitted in short duration of time. Accordingly, the assessee-company vide its submission dated September 4, 2012 received this 1,2012, through the director Shri Rarasmal V. Jain, submitted the year-wise nature of the unaccounted income, which is a....
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....pectively through banking channel. It filed its bank statement reflecting the above stated payments. The Assessing Officer would notice that this entity had introduced similar sums in bank accounts within a day or two before the payments in question. He sought to know the source thereof. This query seems to have been never responded. The Assessing Officer observed that this company's balance- sheet inter alia indicated debtors at a negate figure of 1,11,80,888, loans and advances of Rs. 3,19,45,522 increasing from Rs. 1,54,68,468 in the immediate previous year. Its return stated gross total income of Rs. 7,79,572. And that it was further not clear under in which asset side of the balance-sheet had this company shown the impugned investment. The Assessing Officer accordingly asked for further details of source of the credit entry in the above stated bank entity leading to investment being made in the assessee's share capital in question. 10. We stay back on the impugned reassessment order dated March 31, 2014. The Assessing Officer issued a commission to the assessing authority of above investor companies to investigate and conduct inquiry about source of these bank credit ....
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....transactions out of their own capital since it was beyond common prudence as to why would anyone invest in an unknown company shares and buy them back at a heavy loss as done in the instant case. He recorded a finding of fact the assessee had purchased back the very share capital from the ten investor companies in question at Rs. 10 per share. He prepared a chart thereof as extracted hereinabove in his reassessment order. The Assessing Officer then quoted Shri Jain's written statement dated September 4, 2012, his survey statement and deliberations in the entire reassessment exercise to conclude that all this was a sham arrangement lacking the genuineness/creditworthiness. All this made him to make the impugned addition of Rs. 7.52 crores in the nature of the assessee's unaccounted income. 11. The assessee preferred appeal. It filed additional submissions in course of the lower appellate proceedings by pleading that Shri Jain suffered from health complication during reassessment. The Commissioner of Income- tax (Appeals) called for a remand report. The same came on June 11, 2015 reading as under : "5.1.2 In response, the Assessing Officer submitted his remand report as fo....
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....nation along with the proof of their identity, copies of bank accounts, return filing proof, computation of income, Audit reports, balance-sheets, profit and loss account and shareholding pattern of the companies for the financial years 2008-09 and 2009-10.' You are requested to comply with the above on June 2, 2015 at 11.30 a.m. Please note, if you remain fail to comply with the above, on the given date and time, it will be presumed that you have nothing to say in this regard and the report will be submitted to the Commissioner of Income-tax (Appeals)-I, accordingly." ' '3. In response to the above notice the assessee has filed replies on June 2, 2015 and June 11, 2015. The relevant portion of the reply of the assessee dated June 2, 2015 is as under : "With reference to above, I am submitting as under : '1. To prove the identity and creditworthiness of all ten companies from whom share capital has been received, the relevant documents are enclosed herewith as Annexure 1. 2. Copy of bank account of M/s. Laxmiraj Distributors Pvt. Ltd., in which the share capital of Rs. 7.52 crores is deposited, is enclosed herewith as annexure 2. Further, in respect of b....
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....nied to give any personal data to the assessee-company. They have denied to produce before your kind honour along with the required documents as the investment was made by the companies and hence, giving their personal data is not justifiable." 4. The assessee has filed confirmations, copies of return filing proof, and copies of bank statements in respect of the following 6 companies to whom the shares are sold on premium : i. M/s. Angelica Commotrade Pvt. Ltd. ii. M/s. Anticlock Vyapar Pvt. Ltd. iii. M/s. Medlar Dealcom Pvt. Ltd. iv. M/s. Muse Dealers Pvt. Ltd. v. M/s. Veronica Commerce Pvt. Ltd. vi. M/s. Winter Fresh Foods Pvt. Ltd. Although, the assessee filed confirmations, copies of return filing proof, and copies of bank statements for the assessment year 2009-10 but could not produce the main directors or managing directors of those above 6 companies for examination. Secondly, on perusal of acknowledgements of the returns filed by these 6 companies namely M/s. Angelica Commotrade Pvt. Ltd., M/s. Anticlock Vyapaar Pvt. Ltd., M/s. Medlar Dealcom Pvt. Ltd., M/s. Muse Dealers Pvt. Ltd., M/s. Veronica Commerce Pvt. Ltd. and M/s. Winter Fresh Foods Pvt. Ltd., it ha....
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....ch Pvt. Ltd. iv. Chirag Call Shops Pvt. Ltd. Except the copies of confirmations, the assessee could not file any other evidences like copies of return filing proof, and copies of bank statements etc. Secondly, the assessee could not produce the main directors or managing directors of the above 4 companies for examination. Thirdly, the same 1,52,000 shares have been purchased by the related company of the assessee M/s. Laxmiraj Infrastructure Pvt. Ltd. in the month of December 2009 from the above-said 4 companies on face value of Rs. 10 per share only. No prudent investor will sell the shares on loss of Rs. 90 per share within so short span of time. The director of M/s. Flacsel Contech Pvt. Ltd., Sh. Pravinbhai Modi, has already denied any link/transaction ever with M/s. Laxmiraj Distributors Pvt. Ltd. This shows, in real sense, there was no sale purchase of the shares but the assessee has taken accommodation entries only. Fourthly, during the survey proceedings conducted under section 133A of the Income-tax Act at the business premises of the assessee on August 30, 2012 the managing director of the company Sh. Parasmal Jain himself admitted that he himself introduced unaccounte....
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....l through share capital and premium, it thereafter repurchased the very share from investor companies, Shri Jain's statements did not disclose investors' entities' names and that he himself had admitted unaccounted income on assessee's behalf respectively. 14. The assessee comes to first reason of reopening. It invites our attention to the impounded document(s) BF-01 at pages 1 to 620 of the paper book including annual statements, reports and share transfer forms etc. It submits that the Assessing Officer's reassessment order does not refer to any document forming part of this compilation. It contends that all the relevant details of the impugned share capital transfer are already recorded in its regular books as enclosed with the original return. And that there is nothing in BF-01 so as to form reasons to believe that any income taxable has escaped assessment. The assessee refers to case law ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) to buttress its submission that there ought to be a live nexus between such impounded or other material and reasons of reopening. The assessee pleads that the Assessing Officer has merely drawn an inference of its unaccount....
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.... same had in fact claimed the share capital purchase instances to be genuine. We put a specific query as to whether the survey authorities ever made a suggestion that these were sham share capital transfers. The assessee in reply takes us to all of the survey queries not demonstrating any such suggestion even. It thereafter reiterates the fact that it had only offered to pay taxes after treating the impugned transactions as genuine ones. It submits that the Assessing Officer's all four reasons forming foundation of the impugned reopening are liable to be reversed rendering the entire reassessment invalid. 18. The assessee comes to merits of the impugned addition as well. It takes us to the Commissioner of Income-tax (Appeals)'s order page 32 para 6 onwards therein inter alia quoting Shri Jain's survey statement under oath, his finding that relatives of its directors had in fact purchased the impugned share capital, six investor companies had meager incomes, placing reliance on the Hon'ble Delhi High Court judgment in CIT v. MAF Academy P. Ltd. [2014] 361 ITR 258 (Delhi) ; [2014] 42 taxmann.com 377 (Delhi) instead of the other case law quoted and CIT v. Lovely Exports P....
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.... The Assessing Officer holds this company to be not available (supra). The same is stated to be contradicted in his own remand report extracted hereinabove that this time the said company has been found to be available. 22. The assessee takes us to statement of Shri Pravin Modi. It pleads that all the overwhelming documents available in the case file proving this company to have made the impugned investment prevails over such an oral assertion. It refers to the Commissioner of Income-tax (Appeals)'s findings as per the Hon'ble Delhi High Court's decision in MAF Academy case (supra) and seeks to distinguish the same ; more particularly paras 7 to 10 thereof by stating that no such evidence of sham share capital transaction exists in facts of the instant case since there is no basis of any finding of accommodation entry supported from the case record before us. The assessee accordingly argues that it had discharged all its onus on merits as well in proving genuineness/creditworthiness of the impugned share capital transfers. It prays for acceptance of the instant appeal therefore. 23. Shri R. I. Patel is the learned Commissioner of Income-tax-Departmental representative app....
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....xman 316 (SC). (a) Case law under section 68 (1) Navodaya Castle (P.) Ltd. v. CIT [2015] 56 taxmann.com 18 (SC). (2) CIT v. Navodaya Castles P. Ltd. [2014] 367 ITR 306 (Delhi) ; [2014] 50 taxmann.com 110 (Delhi). (3) N. Tarika Property Invest. (P.) Ltd. v. CIT [2015] 371 ITR (St.) 369 (SC) ; [2014] 51 taxmann.com 387 (SC). (4) CIT v. N. Tarika Properties Investment (P.) Ltd. [2013] 40 taxmann.com 525 (Delhi). (5) CIT v. Nipun Builders and Developers P. Ltd. [2013] 350 ITR 407 (Delhi) ; [2013] 30 taxmann.com 292 (Delhi). (6) Riddhi Promoters P. Ltd. v. CIT [2015] 377 ITR 641 (Delhi) ; [2015] 58 taxmann.com 367 (Delhi). (7) CIT v. N. R. Portfolio (P.) Ltd. [2013] 29 taxmann.com 291 (Delhi). (8) CIT v. MAF Academy (P.) Ltd. [2014] 361 ITR 258 (Delhi) ; [2014] 42 taxmann.com 377 (Delhi)." The Revenue accordingly prays for rejection of the instant appeal. 26. We afforded rebuttal opportunity to the assessee. It reiterates its earlier submissions that the main reason for the Assessing Officer in invoking section 148 jurisdiction was on an assumption that it had repurchased the impugned share capital since there is no identity issue of the investor companies. The asses....
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....are the only reasons which can be considered unless formation of this belief is impugned. 29. The Hon'ble apex court similarly in case law of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) holds that reasons for the formation of belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be direct nexus or live link between the material coming to notice of the Income-tax Officer and 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 or truly all relevant facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer 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 far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. Their Lordships then consider ....
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....f taxable income, an Assessing Officer cannot resort to reopening in absence of material leading to formation of reasons to believe as per reasonable prudence that any taxable income has escaped assessment and that the same is not in the nature of a fishing or roving inquiry, respectively and proceed to examine the validly of the impugned reopening before us. 32. The assessee's plea is that the impounded document annexure BF-01 is its annual statement/report at pages 1 to 620 of the paper book already filed with the return. The Assessing Officer's first reason is that a scrutiny thereof indicates the assessee to have introduced unaccounted capital through share capital and premium. The same is nowhere even referred to in the body of assessment order containing 13 pages of the Assessing Officer's findings. We afforded sufficient opportunity to Shri Patel to take us to any such material in BF-01 forming part of the paper so as to even prima facie indicate at slightest pretext that there is even any evidence much less a conclusion indicating the assessee's unaccounted income have been invested in the share capital in question. He fails to refer to any such material. W....
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....ing escaped assessment is accordingly not made out. The assessee succeeds in the instant argument as well. 34. We now come to the assessee's third limb of argument that the mere fact of Shri Jain's statement not being able to furnish names of the investor companies or their negotiators cannot form the reason to believe of its taxable income having escaped assessment. We notice that page 644 contains survey party's specific queries as to whether he remembered the above state particulars of the investors. His reply was that he did not remember. We reiterate that the assessee transferred its share capital in financial year 2008-09 and this survey statement is dated September 3, 2012 i.e. after a time gap of four years. There is further no issue that the Department had already impounded BF-01 on August 31, 2012 stating all details of the assessee's companies contained in its annual statement and other documents. The same was furnished back only after issuance of reopening notice (supra). There is thus nothing in Shri Jain's statement which could be held to be treated as an admission or that it is pointing towards introduction any unaccounted income in share capital....