AI Drafter 
TaxTMI 
TaxTMI 
2018 (3) TMI 1607
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..... 68 of the I.T. Act, 1961 to prove the identity, creditworthiness and genuineness of the transactions made by the Investors. 4(a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal. 2. The brief facts of the case are that the assessee has filed its return, declaring NIL income on 18.9.2009. Thereafter, the case was reopened u/s. 147 of the Income Tax Act, 1961 (hereinafter referred as the Act) and notice u/s. 148 of the Act dated 29.3.2016 was issued after recording reasons. Accordingly, the assessee vide its letter dated 31.3.2016, submitted that the original income tax return filed for the AY 2009-10 dated 18.9.2009 may be considered as return filed in response to the notice u/s. 148 of the Act. Thereafter, the AO vide order dated 31.12.2016 completed the assessment u/s. 143(3) of the Act and made the addition of Rs. 40 lacs u/s. 68 of the Act and assessed the income on the same amount. 3. Against the said order of the Ld. AO, assessee appealed before the Ld. CIT(A) on the issue of reopeni....
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....ated that assessee has duly discharged the burden placed u/s. 68 of the Act vis-à-vis following ingredients: i) Identity of the share holders. ii) Creditworthiness of the share holders. iii) Genuineness of the transactions. 6.1 Ld. Counsel of the assessee further stated that assessee has filed complete documentary evidence in respect of share holders from who it had received share capital and furnished various evidence of each share holder, as per the details given below:- i) Name, address and complete particulars of the share holder, ii) Confirmation from shareholders. iii) Copy of share application form. iv) Copy of bank statement of assessee. v) Copy of bank statement of shareholder. vi) Copy of acknowledgement of return of income of the shareholder. vii) Copy of PAN of shareholder. viii) Audited financial statements of shareholders x) Certificate of incorporation of shareholder xi) Copy of share allotment letter received by shareholders. xii) Copy of share certificates as issued by the assessee. It was further submitted that, perusal of the ....
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.... capital with exorbitant premium from large number of non descript companies mainly based in Kolkata and Delhi from the period between 1.4.2008 to 31.03.2009; That enquiries were also conducted by the Inspectors of the Investigation Wing at Delhi and Kolkata. Most of the entry providing companies were not found existing at the given offices in Kolkata; That all entry providing companies were covered under various search conducted by Kolkata Investigation Wing and all the companies were found bogus and non- existent; That in the statement of directors managing the alleged bogus companies, they admitted that they were in the business of providing accommodation entries; That on the basis of enquiries conducted and statements recorded, it has been established that the companies were bogus and non-existent. That the share capital received by the assessee company amounting to Rs. 40,00,000/ - in the F.Y. 2008-09 from these large number of non-descript companies is nothing but assessee own unaccounted income through these companies. The AO has observed that keeping in view all above, have reason to believe that an amount at least of Rs. 40,00,000/ - has escaped assessment in the case of M....
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.... to 31.3.2009. It is a matter of record that such enquiries had not been confronted to the assessee during the course of assessment proceedings through specifically requested vide replies dated 10.11.2016 and 29.12.2016 by the assessee company. In such circumstances all such enquiries cannot mechanically be made a basis to assume jurisdiction. 7.3 It is apparent that reasons contain scanty, general, vague observations and not refer to any objective, tangible relevant material. No specific evidence has been highlighted to arrive at an opinion that either the companies are bogus and nonexistent or the money received represented unaccounted income. Though the reasons refer to the search but do not refer to any incriminating material detected as a result of search so as to form an prima facie opinion contrary to the claim made in the original return and accepted as such. Drawing of list of shareholders based on a Investigation wing report has not been judicially accepted as a foundation for assuming jurisdiction u/s 147 of the Act. 7.4 Also mere information does not constitute to be a tangible material to re-assess the assessee company without any independent enquiry or applicati....
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....he considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case. 13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT (A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income oj the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity." 7.5 In....
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....Act can be initiated on statements made by third person on the account of "accommodation entry". In ITO versus Lakhmani Mewal Das, [1976/ 103 ITR 437 (sq, the Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide legal sound basis for initiation of assessment proceedings under Section 147. After referring to this judgment, a Division Bench of Delhi High Court, in Income-Tax Officer, Special Civil No. VII, New Delhi, and Another versus Dwarka Dass and Brothers, 1981/ 131 ITR 571 (Del) has held as under: " .... The Supreme Court, affirming the decision of the High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should ....
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....third company was in the business consisting entirely of name lending. Noticing the judgment in Lakhmani Mewal Das (supra) It was held that the nature of information which was available was vastly different. In the case of Lakhmani Mewal Das (supra), the information was extremely vague and scanty whereas in the case of Phool Chand Bajrang Lal (supra), the information was specific, unambiguous and clear. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. Assessing Officer accepted the plea on the basis of vague information mechanical manner. The Commissioner also acted on the same bas mechanically giving his app....
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....r: "In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had before him for issuing notice under section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfill the requirements of section 151 (2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words he must have some prima facie grounds before him for taking action under section 148. Further his report mentions : "Hence proper investigation regarding these loans is necessary". ln ot....
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....ffixed his signature thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance. In the result this appeal is allowed, the order of the High Court is set aside and the impugned notice quashed. The respondent No. 2 shall pay the costs of the appellant both in this court and in the High Court. 7.10 The AO in his order while disposing of objection dated 29.8.2016 has supported the action u/s 147 of the Act. However from the reasons recorded it is apparent that no material much less incriminating material was detected as result of search on the appellant or gathered during the assessment proceedings to allege, observe or assume that the same has taken bogus share capital. The reference to inquiries is vitiated for being vague and general and non s....
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....shed the address of the share applicants, CIN No., Incorporation date of com pan , PAN, Authorized capital, paid up capital, names of Directors, certificate issued by Registrar of Companies and return filed before ROC, net worth of all the companies, confirmation, copy of bank statement, copy of acknowledgement of filing of income tax return with audited accounts, copy of company master data, share certificates, share application form for all the investor companies. The AO did not doubt the genuineness of the aforesaid documentary evidence. The AO has not made any inquiry on these documentary evidences either from respective AO, ROC and bankers of shareholder companies. These evidences clearly proved that both the investor companies are existing and genuine companies registered with Registrar of Companies as well as assessed to income tax. M/s Joyprit Plastic Dealers (P) Ltd. has independently confirmed the investment. No material is produced on record that during the course of search in the case of the assessee any material was found to prove that assessee company received any accommodation entries from shareholders. The AO without rebutting the above evidence relied upon statemen....
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....y of bank statement of assessee. v) Copy of bank statement of shareholder. vi) Copy of acknowledgement of return of income of the shareholder. vii) Copy of PAN of shareholder. viii) Audited financial statements of shareholders x) Certificate of incorporation of shareholder xi) Copy of share allotment letter received by shareholders. xii) Copy of share certificates as issued by the assessee. 8.2 After perusing the above, it is established that the share capital received by the assessee company has been fully substantiated not only by documentary evidence including permanent account number, confirmation, addresse, bank statements etc. and, therefore such sum could not in law or on fact be held to be unexplained cash credit uls 68 of the Act. It was noted that no material has been led by the Assessing Officer to even allege that such investment was made from the coffers of the assessee company. The material on record shows that investors have net worth to make the aforesaid investment in the assessee company. The investors are corporate entities duly assessed to tax and, have made investment made through banking channel....