TaxTMI 
TaxTMI 
TaxTMI 
2017 (10) TMI 525
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....ing of the case u/s 148 and, therefore, the whole proceedings are void ab-initio. 3. Notwithstanding the above said ground of appeal, the Ld. CIT(A) has erred in confirming the addition of Rs. 50 lacs as made by the Assessing Officer on account of contribution of share capital/share premium by M/s Genesis Fashions P. Ltd. 4. That the assessee having proved the identity, capacity and genuineness of transfer of contribution of Rs. 50 lacs as made by M/s Genesis Fashions P. Ltd., and therefore, such addition as confirmed by the CIT (A) is bad in law and deserves to be quashed. 5. That the CIT (A) has also erred in taking cognizance of the statement recorded during course of survey of one of the director in view of the judgment of Hon'ble Supreme Court in the case of Khader Khan Sons. 2. The relevant facts of the case are that the assessee returned an income of Rs. 54,30,750/- on 26.10.2007. Notice u/s 148 was issued on 31.03.2014 after recording of reasons which have been reproduced in the assessment order itself. Based on the reasons recorded, the assessee was issued a show cause notice to explain the receipt of share application money and justify why addition u/s 68 s....
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.... before the CIT(A). Still aggrieved, the assessee is in appeal before ITAT. 4. The ld. AR submitted that he would be addressing his arguments on the basis of the synopsis filed wherein respective pages of the impugned order and the assessment order alongwith the documents already on record having been filed before the AO and the CIT(A) available in the consolidated Paper Book filed on 19.04.2017 in the two appeals would be referred to. 4.1 Addressing ground Nos. 1 and 2, it was submitted that considering the material available on record, the assessment itself deserves to be quashed as on a plain reading of the reasons recorded, it would show that there was no reason to believe that income has escaped assessment. It was his argument that in-fact there was no reason available as per record before the AO even to suspect as no tangible material has been referred to in the reasons recorded by the AO for taking recourse to Section 148. It was submitted that merely on the basis of a routine information by the Directorate of Income Tax that in same companies, share applications had been received on a premium, the AO without going into any fact or evidence, blindly accepted the routine co....
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.... cannot be said to be a fair exercise of power. If the AO, as per record, considers that shares at a premium in a specific year for the assessee company were not justified but accepts the Share Application money from the other two parties on the very same reasons and selectively chose to only consider addition in the hands of this one party, the said exercise is arbitrary and it is self evident on the face of the record. It was his submission that he would not want to go to the other reasons and just leave his arguments to highlight the arbitrariness and whimsical action of the AO by stating and referring to the fact that addition of only Rs. 50 lacs has been made and not of the entire amount of Rs. 1.49 Crores. Elaborating and reiterating the argument, it was submitted that if for a moment it was to be considered that share application on a premium to the tune of Rs. 1.50 Crores was doubted then the same reason should have been good for the entire amount which should have been added. The AO, it was submitted, has selectively accepted on same facts that premium on share application to the tune of Rs. 1 Crore was to be accepted and for the remaining Rs. 50 lacs, he has added. Addres....
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....ith the AO on which nothing was done by the AO who without looking into any fact proceeded to issue notice without forming his belief to satisfy himself about escapement of income. It was reiterated that nowhere in the reasons recorded, it has been stated that what facts were considered or seen. 4.7 Reliance was also placed upon the following decisions placed in the second set of judgements : I. Income Tax Officer V/s Arti Khattar [Pgs 17 to 22] 41 CCH 25 DEL-ITAT II. ITO V/s M/s Comero Leasing & Financial Pvt. Ltd [Pgs 23-32] ITA No.4281/DEL/2010, ITAT, Delhi Bench at New Delhi III Sunita Jain V/s Income Tax Officer [Pages 33-42] ITA No.501/ADH/2016, ITAT, Ahmedabad Bench, Ahmedabad 4.8 Reverting again to page 5 of the assessment order, it was submitted that the AO has not cared to point out the failure on the part of the assessee to disclose its income fully and truly. No reference to any document or statement except quoting general decisions on human probability has been done. Reliance was placed on the decision of the Chandigarh Bench of the ITAT in the case of Smt. Sarika Jain reported in 46 ITR (Trib) 680, (copy placed at pages 5 to 15 of the Paper Book) for the propo....
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....sue and specific attention was invited to the conclusion drawn at page 28, 29 & 30 namely it was a borrowed satisfaction that also on incorrect facts; ITO V Shri Nilesh Thakur, Green World Corporation V ITO (2009) 314 ITR 81 (S.C), Syntex Ltd. (2009) 313 ITR 221. SLP by the Department against this decision, it was submitted was dismissed by the Apex Court (C.No. 8167 of 2009), Kelvinator of India Ltd. (2002) 181 I.T. Reps 460 (Del) (FB)=(2002) 256 (Del), Sheth Brothers Vs JCIT (2001) 251 ITR 270 (Guj), CIT V Corporation Bank Ltd. (2002) 254 ITR 791 (S.C), Garden Silk Mills P.Ltd. Vs DCIT (1999) 237 ITR 668 (Guj), CIT V Hickson & Dadajee Ltd. (1980) 121 ITR 368 (Bom.), Garden Silk Mills V DCIT (1996) 222ITR 68 (Guj.), Mercury Travels V DCIT (2002) 258 ITR 533 (Cal.), JCIT Vs George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Gauhati), CIT Vs Sambhar Salt Ltd. (2003) 262 ITR 675 (Raj). Considered in the said decision, it was submitted, fully support the case of the assessee in the present set of facts. Reliance was also placed on Aventis Pharma Ltd. V ACIT 323 ITR 570 (Bom), Shri Krishna Pvt. Ltd. V ITO 221 ITR 538 (S.C). and the decisions relied upon therein for the proposition that....
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....nd Bajrang Lai V/s ITO 203 ITR 456 (SC) In this case, the Managing Director had confessed that the company had not advanced any loan to any other person and, therefore, there was sufficient material for formation of belief. In our case, there is no any such statement or any adverse material against the assessee. 4.11 In the circumstance, reliance was placed upon the decision of the Apex Court in the case of Lakhmani Mewal Dass 103 ITR 437 (SC), (copy placed at pages 1 to 4). Carrying us through the principles laid down in the said decision, it was his prayer that the proceedings deserve to be quashed. 5. On merits also, it was submitted that the addition was not maintainable. Attention was invited to the copies of the confirmations/share applications made to the assessee company for shares placed at pages 1 to 10 of the Paper Book. Copy of the bank account of M/s Genesis Fashions P.Ltd. from where the amount had been deposited, it was submitted is at page 12-13 of the Paper Book. Copy of the Broker i.e. of Mayank Financial Services in the books of M/s Genesis Fashions P.Ltd., it was submitted is enclosed at page 11 which demonstrates that the funds were available by way of sale ....
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....of the ITAT in the case of Amravati Infrastructure Developers Pvt. Ltd. in ITA 122/ASR/2013 placed at page 55 to 69 of second set of judgement wherein on similar set of facts and circumstances, it has been held that the identity, genuineness and credit worthiness of the share applicant company stands proved. Another order of the Chandigarh Bench in the case of Radhey Sham Diamond Jewellers of ITAT Chandigarh was also relied upon. Further reliance was placed upon the decision of the Bombay High Court dated 20th March,2017 in the case of Gagandeep Infrastructure Pvt. Ltd. in ITA 1613 of 2014 copy placed at page 43-49 of the second set of the judgement and reliance was also placed upon order dated 05.09.2016 of the ITAT Delhi Bench in the case of M/s Anshika Investments 61 IT Reps.517-DEL-TRIB, copy placed at page 50-54 in the facts of the said decision also the case of the Revenue was that share application money had been paid on a premium and if identity is established, transaction is covered up, service stands explained, the genuineness stands established. Accordingly, it was his submission that even on merit, addition could not be sustained. 6. Ld. CIT-DR submitted that every pro....
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.... reasons for reopening of assessment u/s 148 as mentioned by the Assessing Officer by relying on various case laws and also, the basis of addition made by the Assessing Officer on merits alongwith detailed submissions of the counsel of the appellant. The Assessing Officer has in the reasons brought out in detail, the reason to believe, with regard to the reopening of the case u/s 148 and on the other hand, the appellant had contended that there was no reason to believe with regard to the escapement of income. As is brought out in the reasons recorded by the Assessing Officer, the net worth of the appellant company did not commensurate with the share application money as well as share premium viz the net worth and reserves of the appellant company and that alone was sufficient for forming a belief for the issuance of notice u/s 148. 3.5. I have also gone through the detailed submissions of the counsel of the appellant and different case laws as relied upon by him on issue of assumption of jurisdiction by the Assessing Officer and I find that in those cases, which have been relied upon by the counsel of the appellant, the facts were entirely different. Therefore, such case laws....
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....to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment It is, however, to be noted that both the conditions must be fulfilled if the cas....
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.... taken by assessee from company. Accepted as genuine and original assessments made allowing interest thereon as deduction. Subsequent information from officer assessing company that its managing director had confessed that company had not advanced any loan to any person during period covering date of cash loan Belief of ITO that income had escaped assessment Notice for reassessment Not mere change of opinion Sufficiency of reasons for forming the belief is not for the court to judge subsequent information definite, specific and reliable Notice for reassessment valid. 3.6 What is required for the purposes of forming a belief for taking recourse to action u/s 148 is sufficiency of belief and by going through the reasons for re-opening, it is quite clear that there was a reasonable belief with the AO for re-opening of the case u/s 148 and hence grounds with regard to 148 are dismissed and the action of the AO is confirmed." 6.3. Addressing the arguments advanced on the merits of the addition, it was submitted that in the course of the survey, statement of Director was recorded and carrying us through the specific questions and answers to the questions raised, it was submitted tha....
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....n the case of investment companies. Very importantly the address of M/s Genesis Fashions Private Limited is same as of the assessee M/s the DDA Grew Industries Private Limited. 3.8 The assessing officer decided to carry out a survey under section 133A to clear the doubts with regard to M/s Genesis Fashions Private Limited. The survey was carried out on the premises of the appellant on 2 September 2014 and during the said proceedings, it was found that there is no physical existence of the company M/s Genesis Fashions Private Limited existed at the address of the appellant there are no assets, no business, no staff pertaining to M/s Genesis Fashions Private Limited. It was merely a company floated to provide entries and insist only own people in our of the documents, ITR is, bank account etc. but has no physical existence. The most important fact is that during the course of survey conducted by the department at the premises of the appellant on 02.09.2014, it has been admitted by the Director of the appellant company that the concern M/s Genesis Fashions Pvt. Ltd is a paper company and it has also been admitted that the appellant company did not have any documentary evidence rela....
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....o net worth of the company, who had contributed a sum of Rs. 50 lacs towards the share capital and share premium in the appellant company and the Assessing Officer has discussed in detail after giving reasonable and sufficient opportunity to the appellant to prove the identity, capacity and genuineness of transaction and which the appellant has miserably failed to establish such essential ingredients of section 68. The assessing officer has also relied upon several judicial decision in this matter. The honourable ITAT, Indore in the case of the pressure of plant agree one Dashrath lal agarwal, Ratlam vs Department of incomevtax in its decision dated 9 November 2011 ITA No. 158/ind/2009 has also confirmed the addition on account of non-genuine share capital and share premium and the identity of subscribers could not be established. 3.12 The issue is also directly covered by the ratio of the decision of honourable jurisdictional High Court as well as the jurisdictional ITAT, Chandigarh, In the case of Smt. Harjeet Kaur versus ACIT in ITA No. 280 of 2013 wherein the honourable Punjab and Haryana High Court has upheld the finding and the decision of the honourable ITAT, Chandigarh i....
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....capacity of 'M/s Genesis Fashions Pvt. Ltd has not been proved and thus, the action of the Assessing Officer in making the addition u/s 68 is upheld. In view of the detailed discussion above, it is held that the appellant has failed to discharge its onus of proving the genuineness and creditworthiness of the above transaction and it is beyond any doubt that transaction was just a cover-up to bring its own unaccounted money into its books of accounts. Therefore, the disallowance of Rs. 50,00,000/- u/s 68 of the Act on account of unexplained cash credit is ordered to be confirmed. Resultantly these grounds of appeal are dismissed" 6.6 Accordingly, it was her submission that the additions on merit also deserves to be sustained. 6.7 In view of the fact that similar reasons and similar arguments remain the same in 2008-09 assessment year and the CIT(A) has dismissed the appeal of the assessee considering these very arguments, accordingly it was submitted that those arguments may also be considered for 2008-09 assessment years also and the addition may be sustained. 7. In reply, ld. AR submitted that the assessee has a vested right in a concluded assessment and in case the Revenu....
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....tion that the Revenue at best could only rely upon the reasons recorded by the AO and these reasons now at this stage cannot be supplemented by the Revenue by making derogatory and provoking references to the business of the assessee. It was his submission that the ld. Sr.DR has necessarily to justify assumption of jurisdiction relying upon the reasons recorded which admittedly do not reflect any application of mind of the AO. The routine information received, it was submitted, has been blindly accepted by the AO and the Sr.DR has failed to refer to any fact or evidence to assail this consistent argument on record. The action of the AO, it was submitted, is against the settled legal position. Carrying us through the reasons recorded which have been extracted in the assessment order itself, it was submitted, that no where it is reflected in the routine information that the claim of share application money on a premium was bogus. The facts relatable to the assessee have not even been hinted to in the said routine information. The AO necessarily was required to look at the facts of the case and then form the belief that income has escaped assessment. The AO, it was submitted, instead ....
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.... was warranted etc. We propose to deal with the arguments thereon subsequently but before that, the admitted facts may be referred to namely that the assessee received share application money from three parties totaling Rs. 1,49,50,000/- in the year under consideration. The AO after recording of reasons and issuance of Show Cause Notice that share application money was received in 2007-08 assessment year from the named parties to whom shares were allotted in the 2008-09 assessment year which fact is recorded in the assessment order itself in page 3 by the AO. The assessee admittedly as per the final Show Cause Notice dated 24.06.2016 issued by the AO evident from the scanned copy reproduced in page 2 of the assessment order itself had issued 241500 shares in 2008-09 assessment year of face value of Rs. 10/- at the premium of Rs. 100/-. The assessee's reply as per record has been received by the AO who has extracted the following chart at page 7 of his order as under : Person Amount received (Rs.) Genesis Fashions P. Ltd 50,00,000/- Malkiat Singh 1,00,000/- Ludhiana Scrips P. Ltd. 28,50,000/- 8.1. The AO, admittedly considering the explanation, only questioned the rec....
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....P. Ltd. 8.5 The AO further takes note of the fact that in the survey u/s 133A conducted on the premises of the assessee on 02.09.2014, the Director of the assessee company itself had stated that it was a paper company. It is seen that the entire case of the tax authorities rests on this statement given. The assessee as is evident, has assailed the jurisdictional issue on the ground that there is no independent application of mind by the AO; routine general information has been blindly accepted as gospel truth by the AO it is a case of borrowed satisfaction which has been frowned upon by Courts; no independent formation of belief exercise can be said to have been embarked upon by the AO. It has been is argued that if such an exercise had been done then it would have been noticed by the AO that share application money received was Rs. 1,49,50,000/- and not Rs. 1.50 Crores as wrongly mentioned in the reasons recorded. The exercise of power is said to be contrary to settled legal position namely referring to facts of some other cases instead of the specific facts of the assessee. Further, the exercise is stated to be selective and arbitrary on the grounds that if the fact of allotment....
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....the reasons why the Director did not present himself. The fact of selective targeting of a specific company ignoring the other two major parties who too had applied for shares of assessee company on a premium is self evident. He has instead relying on the decision of the Apex Court in the case of Khadar Khan & Sons (cited supra) has rebutted the department stand stating that statements recorded u/s 133A do not have any evidentiary value. No rebuttal to the said legal proposition has been advanced by the Revenue. The record shows that the assessee as per record has made available copies of the confirmations from M/s Genesis Fashions Pvt.Ltd. which are available at Paper Book pages 6 to 10. Copies of the ledger account of Broker in the books of M/s Genesis Fashions Pvt.Ltd., M/s Mayank Financial Services is available at page 11, copies of the bank statements of M/s Genesis Fashions Pvt.Ltd. is available at Paper Book page 12 and 13, copy of ledger account of share application money for the period 01.04.2006 to 31.03.2007 is available at Paper Book pages 14 to 18. The details of the specific cheques co-relating with the date and the specific cheque number and amount are at Paper Book ....