TaxTMI 
TaxTMI 
2018 (10) TMI 1087
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....iled to discharge the onus u/s 68 of the IT Act, 1961 to prove the identity, creditworthiness and genuineness of the transactions made by the investors. 4(a) The order of the CIT(Appeals) is erroneous and not tenable in law and on facts. (b) The appellant craves leave 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 assessee has filed its return of income declaring NIL income on 25.9.2009. Thereafter, the case of the assessee was reopened u/s 147 of the Income Tax Act, 961 (hereinafter referred to as the Act) and accordingly 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 has submitted that the original Income Tax Return filed for the AY 2009-10 dated 25.9.2009 may be considered as return filed in response to the notice dated 25/9/2009 issued u/s 148 of the Act. Thereafter, the AO vide his order dated 31.12.2016 completed the assessment u/s 143(3) r.w.s. 147 of the I.T. Act, 1961 and made the addition of Rs. 40 lacs u/s 68 of the Act and assessed the income on the s....
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....nt statement of the purported shareholders were filed before the Assessing Officer. It was also submitted that no bank accounts statement of the purported shareholders were filed before the AO and the documents relied upon by assessee only establish that the purported shareholders are mere paper entities having no creditworthiness. It was further submitted that Ld. CIT(A) has grossly erred in ignoring the ratio laid down by the Hon'ble 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 of the Act and statements of the entry operators recorded should have been confronted to the assessee. It was further stated 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. Sr. DR also relied upon th....
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....f any enquiry, no adverse inference could be drawn. It was further submitted that share capital subscribed was Rs. 20,00,000/- by M/s. Ganesham Ashiyana (P) Ltd. and the net worth of the said company was of Rs. 23,49,28,063/-. Likewise, in the case of Ahiliya Trading Finance (P) Ltd., share capital subscribed was of Rs. 20,00,000/- and net worth was of Rs. 9,15,10,966/- and hence, no adverse inference could be validly drawn merely in the absence of bank statement of the shareholder. It was also submitted that there was no factually inaccuracy in the order of Ld. 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 the 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 ar....
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....uly all material facts necessary for his assessment, for that assessment year." 11. In other words, that assessing officer is not bound by the restriction impounded by the proviso that no action can be taken unless any income chargeable to tax has escaped income by reason of failure as the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose 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 KMS Associates (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) oth....
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....O had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were "name-lenders and the transactions are bogus." The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO "had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only 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 material....
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.... officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement oj income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief To elaborate, the conclusive proof is not germane 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 comp....
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....is has been found by the learned Judge at page 960 (of 118 ITR) and indeed this is the accepted position on the basis o] which even the proposal of the ITO to the Commissioner (set out at page 964) proceeded. Thereafter, the only material received by the ITO appears to be that the revenue authorities had carried out certain investigations, that they had discovered the existence of bogus hundi brokers who were allegedly lending their names to assessee and that a list had been circulated to various ITOs of the hundi brokers who were allegedly indulging in malpractices. The internal audit party appears 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 departmen....
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....ven though there is no specific allegation that the assessee had failed to disclose all the material facts but the same can be gleaned from the reasons itself We are unable to accept this contention. In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal' o] the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times. This is clearly indicative of the callous manner in which the reasons [or initiating reassessment proceedings are recorded and we are unable to countenance 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....
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....r failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax r Officer has no jurisdiction to 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 inc....
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....mation in a mechanical manner. The reasons recorded ref1ect that the AO did not independently apply his mind to the information received from the Investigation Wing to arrive at a belief that income of the assessee company had escaped assessment. 7.12 Considering the above analysis of facts and circumstances of the case and the case law supported by the AR of the appellant on the issue, I am of the considered view that AO has wrongly assumed the jurisdiction u/s 147 of the I.T. Act. The reason for reopening was not properly recorded. The AO has not applied his mind, approval for issue of notice u/s. 148 of the Act is not in accordance with law. In view of above, assessment order passed u/s. 147 of the Act r.w. section 143(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 Commun....
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....d during the course of assessment proceedings; and therefore, the facts of the case of assessee are totally distinguishable. Lastly, so far as the judgment in the case of Raymond Woolen Mills Ltd. vs. ITO is concerned, Hon'ble Court held that correctness of material is not a thing which can be considered at the stage of assumption of jurisdiction under section 147 of the Act. There is no dispute to the aforesaid proposition and however on the facts of the case, there is no tangible material and therefore, action u/s. 148 of the Act is invalid. 14. Having regard to the factual position and respectfully following the order of the Tribunal in the case of group concern of the assessee in the case of M/s Kapis Impex (P) Ltd. (supra), the notice issued u/s 148 of the Act was held 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 on similar facts and circumstances....
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....of Shri Praveen Kumar Aggarwal, recorded by Investigation Wing Kolkatta and, report from Investigation Wing, Kolkatta to draw adverse inference against the appellant company. None of the above evidences have been confronted by the aassessee. Statements of Praveen Kumar Aggarwal was not recorded at assessment stage and in absence of cross-examination cannot be used against the assessee. The Hon'ble Supreme Court in the case of Andarnan Timber Industries v. CCE 62 taxmann.com 3 while deciding an issue regarding no allowing the cross examination has held that not allowing the assessee to cross examine the witness by the adjudicating authority through statements of those witnesses were made a basis of the impugned order amounted to a serious which makes the order a nullity as it amounted 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 (De....
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....fact has neither been denied and, nor rebutted in the order of assessment. Infact, one of the subscriber i.e. M/s Joyprit Plastic dealers Pvt Ltd has independently confirmed the investment in the assessee company. The assessee has furnished complete details and evidences to discharge the burden in respect of investment by the assessee company. Further the balance sheet which clearly shows that investor companies are engaged in the business of investment and, disinvestment of shares. The investor companies have been furnishing returns of income. The companies are existing much prior to the investment in the assessee company. Once shareholders do exist, have their own independent identity, source of income, maintain books of accounts, carry on their business and, earn income from investments not only in assessee but also shares of other companies, then the inevitable conclusion 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 shareholde....