TaxTMI 
TaxTMI 
2018 (6) TMI 1330
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave to add, alter or amend an/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 or income declaring NIL income on 18.9.2009. Thereafter, the case of the assessee was reopened u/s 147 of the Income Tax Act, 961 (hereinafter referred to 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) r.w.s. 147 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 reopening of assessment as well as on merits of the case, who vide his impugned order dated 22.5.2007 has allowed the appeal of the assessee thereby deleting the addition in dispute and holding the reopening as invalid. 4. Aggriev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid down by the Delhi High Court in the following cases: - CIT v. Nipun Builder and Developers (P) Ltd. 350 ITR 407 (Del) - CIT v. Nova Promoters and Finlease Ltd. 342 ITR 169 (Del) - N. Tarika Properties Investment (P) Ltd. 264 CTR 472 (Del) and SLP dismissed by Apex Court 7. Ld. Sr. DR further stated that Ld. CIT(A) has grossly erred in holding that the enquiry conducted by the Assessing Officer u/s 131 and statements of the entry operators recorded should have been confronted to the assessee. It was submitted that the assessee was afforded an opportunity to rebut the material by issuance of notice u/s 142(1) by the AO but no worthwhile submissions were made before the AO by the assessee. Ld. DR also relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal. 8. On the contrary, Ld. Counsel of the assessee relied upon the decision of the Tribunal in group case filed by the Revenue in the case of M/s Kapis Impex (P) Ltd. ITA No. 4929/D/2017 AY 2009-10 dated 15.3.2018 had contended that since on identical facts the Tribunal has already held that assumption of jurisdiction u/s 148 was bad in law and also on merits the addition is untenable, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in absence of bank statement of one of the shareholder. It is also submitted that there was no factually inaccuracy in the order of CIT(A) and no adverse inference was thus called for. It was thus submitted that in view of the reasoned findings recorded by the Ld. CIT(A), the impugned order made be upheld and appeal of the Revenue may be dismissed accordingly. 10. I have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by both the parties. I find that in this case the assessee is a Private Limited Company. The assessee raised share capital of Rs. 40,00,000/- (including premium of Rs. 36,00,000/-) from 2 shareholders who are corporate entities and are also duly assessed to tax. In the reasons as recorded by the AO, it has been stated as under: "During pre and post search proceedings it was found that the group companies had received share 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fully and truly all materials facts necessary for his assessment, for that assessment year. Therefore, the AO has reason to believe that this amount of Rs. 40,00,000/- represents income of M/s Madhusudhan Packaging (P) Ltd. chargeable to tax which has escaped assessment for A.Y. 2009-10. As the case pertains to a period beyond four years from the end of relevant assessment year at the time issue of notice, necessary sanction has to be obtained from Pr. Commissioner of Income Tax, in view of the amended provision of section 151 w.e.f. 01.06.2015. 12. It is noted from the copy of reasons recorded placed on record that these reasons are identical and verbatim copy of the reasons recorded in the case of M/s Kapis Impex (P) Ltd. (supra) other than the change of the name of shareholder. In an order dated 15.3.2018 in the case of M/s Kapis Impex (P) Ltd. ITA No. 4929/D/2017 AY 2009-10, appeal filed by the revenue against the order of Ld. CIT(A) quashing the assumption of jurisdiction by issue of notice under section 148 of the Act stands dismissed by holding as under: "7.2 The assumption of jurisdiction u/s 147 of the Act is stated to be based on the enquiries conducted by Inspectors ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y a vague felling that they may be "bogus transactions'." 12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate oj Investigation, the AO stated: "I have a/so perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section l43(3) of the Act. With....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection oj objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had hank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. 24. Resultantly, the initiation of proceedings under Section 147 and issuance of notice under Section 148 of the Act are hereby quashed. In the [acts and circumstances of the case, there shall be no order as to costs." 7.6 Further in the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ears to have discovered that some of the creditors whose credits had been accepted in the assessee's case fell within this category and raised an audit objection which was the immediate provocation [or the reopening of the assessment. In this case also, as in the case before the Supreme Court, there is no live connection or link established between the information or the facts, in the possession of the ITO, and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made out by the department would be too general and vague to lead to an inference regarding the truth or otherwise o] the loans recorded by the assessee. We are wholly unable to find any material point of distinction between the acts of the present case and those considered by the Supreme Court in the case of Lakhmani Mewal Das 1976 103 ITR 437." 6. The view taken by the Supreme Court in Lakhmani Mewal Das [supra] was followed in Ganga Saran and Sons Private Limited versus Income-Tax Officer, (1981 J 130 ITR 1 (SC). The matter was again examined by the Supreme Court in Phool Chand Bajrang Lal and Another versus Income-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance that any belief based on such statements can ever be arrived at. The reasons have been recorded without any application of mind and thus no belief that income has escaped assessment can be stated to have been formed based on such reasons as recorded." 7.8 Also in the present case approval as obtained does not meet the test laid by the judgment of Hon'ble Delhi High Court in the case of Pr. CIT V. NC Cables ITA No. 335/2015 dated 11.1.2017 wherein it has been held under:- "11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issue a notice under section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case Jar the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....43(3) of the Act was rightly treated ab initio void by the Ld. CIT(A), which does not need any interference on my part, hence, I uphold this action of Ld. CIT(A) and reject the ground no. 1 raised by the Revenue." 13. I find that Ld. Sr. DR has not disputed the aforesaid factual position either in the course of hearing or in the written submission. However, she has relied on the judgment of Raymond Woolen Mills Ltd. vs. ITO (supra) and Paramount Communications Ltd. vs. Pr. CIT (supra) and Pratibha Finvest (P) Ltd. v. ITO to submit that a contrary view needs to be taken. It is noted that in the case of Paramount vs. Pr. CIT that information was received from the Directorate of Revenue, Intelligence Revenue, Jaipur and based on the said information, notices were issued under section 148 of the Act. The Hon'ble Court held that such information constitute tangible material as it discloses the source of the information and also it revealed that such information related to suppression of material facts including false claims of the nature of bogus purchases from a company which did not even have a manufacturing facility. The above judgment has no application to the facts of the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....notice issued u/s 148 is held to be invalid and therefore, I confirm the action of the Ld. CIT(A) in treating the assessment order passed u/s. 147 r.w.s. 143(3) of the Act as ab-initio-void and reject the ground raised by the revenue. 15. Even on merits, it is noted that the issue is squarely covered by order of the Tribunal in the case of ACIT vs. M/s. Kapis Impex Pvt. Ltd. in ITA No. 4929/Del/2017 wherein the addition was deleted by holding as under: "8. As regards merit of the case is concerned, i.e. addition of Rs. 40 lacs made u/s. 68 of the Act which represents sums received from the shareholders as share capital / share premium and erroneously held as unexplained cash credits u/s. 68 of the Act. During the year the assessee company had received share capital and share premium to the tune of Rs. 40,00,000/- from two shareholders namely Ahiliya Trading & Finance (P) Ltd. and M/s Joyprit Plastic Dealers (P) Ltd. The AO asked the assessee to details of share capital pending allotments, detail of share capital premium received during year including complete detail of party i.e. name, address, PAN, Number of share allotted, total amount, allotment letter and transaction mode. He....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to violation of principles of natural justice. Also in the case of Kishanichand Chellaram v. CIT 125 ITR 713 (SC) in which it was held that any material collected at the back of the assessee and not confronted and no opportunity given to cross-examine, such material cannot be relied upon against the assessee, in view of the following judgements:- - CIT v. Shri Sunil Agarwal 379 ITR 367 (Del) - CIT vs. Rakam Money Matters (P) Ltd. in ITA No. 778/2015 dated 13.10.2015 (Delhi High Court) 8.1 Also on the anvil of the judgment in the case of CIT vs. Kamdhenu Steel and Alloys Ltd. 361 ITR 220 the initial burden is upon the assessee to explain the nature and source of the share application money received by the assessee and held that in order to discharge this burden, the assesee is required to prove the identity of shareholder; the genuineness of transaction and the creditworthiness of shareholders. And mere noncompliance by M/s Ahilya Trading and Finance (P) Ltd. of summons cannot be a ground to shift the burden on the assessee. In any case, once the evidence furnished remains unrebutted in absence of any enquiries from ROC, income tax and bankers, no adverse inference can be draw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usion is that they are not paper companies. My aforesaid view is fortified by the judgement of the Hon'ble Supreme Court in the case of CIT v Lovely Exports (P) Ltd reported in 319 ITR 5 (St.) wherein it has been held that "even if the share capital money is received by the assessee from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee company. " I further find that the Hon'ble Supreme Court of India further observed in the case of CIT vs. Stellar Investment Ltd. reported in 251 ITR 263 by upholding the view taken by the Hon'ble Delhi High Court reported in 192 ITR 287 that in case of a company, even if the subscriber to the share capital are not genuine then too, it would not be regarded as undisclosed income fo the assessee company. Keeping in view of the facts and circumstances of the case as explained above and respectfully following the aforesaid precedents, the action of the Ld. CIT(A) of deletion of addition of Rs. 40 lacs is upheld and accordingly, the ground 2 & 3 raised by the Revenu....