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2019 (3) TMI 273
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.... 2. Rs. 25,00,000/- : The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of Rs. 25,00,000/- made by the ld. AO on account of alleged accommodation entries received for share application money and also erred in ignoring the various evidence submitted without rebutting and AO also erred in not providing the cross examinations. Hence the addition so made by the AO and confirmed by the ld. CIT(A) is being totally contrary to the provisions of law and fact on the record and hence the addition may kindly be deleted in full. 3. The ld. AO has grossly erred in law as well as on the facts of the case in charging interest U/s 234A, 234B & 234C,. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, may kindly be deleted in full." 3. Briefly the facts of the care are that the assessee engaged in the business of Real Estate and construction of flats filed its return of income on 30.11.2006 admitting the total income at Nil. Subsequently, the AO received information from Investigation Wing, New Delhi that a search and seizure operat....
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....opening has been done by directly jumping on to the information received from the Investigation Wing by considering it to be sacrosanct. It was accordingly submitted that the AO recorded the reasons in the most arbitrary manner without application of any mind and, thus, this is nothing but a case of borrowed satisfaction which renders the entire proceedings of reopening to be illegal and void-ab-inito. In support, reliance was placed on the decision of Hon'ble Delhi High Court in case of RMG Polyvinyl (I) B Ltd [2017] 83 taxmann.com 348, Meenakshi Overseas Pvt. Ltd. [2017] 395 ITR 677 and N.C. Cables Ltd. [2017] 88 taxmann.com 649 wherein it was held that where reassessment was resorted on the basis of information from DIT (Investigation) stating that the assessee had received accommodation entry and AO fails to independently apply his mind demonstrating link between tangible material and formation of reason to believe, reassessment was not justified. 5. It was further submitted that the reopening was based on the report sent by the Investigation Wing, Delhi, no underlying records were available with AO at the time of recording of reasons and this factum is proved by the order o....
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....4 Taxmann.com 313 (SC) and decision of Hon'ble Delhi High Court in case of PCIT vs. N.C. Cables Ltd. 88 taxmann.com 649 besides various other High Courts and Coordinate Bench decisions. 6. On merits, it was submitted that the AO by placing sole reliance on the report of the Investigation Wing, New Delhi and documents seized by Investigation Wing, considered the share application money of Rs. 25,00,000/- received by the assessee company as bogus. It was submitted that the assessee company issued 10,000 shares of Rs. 10 each at a premium of Rs. 240 per share to M/s Pelicon Finance & lease Ltd. It was submitted that the assessee company duly discharged its onus as required U/s 68 of the IT Act by submitting the following evidences as under:- Particulars Paper book Pages Share application Form 5-7 Board Resolution of M/s Pelicon Finance & Leasing Ltd. 8 Bank Statement evidencing payment through Banking Channel 9,188-190 Income Tax return duly containing PAN 10,172 Audited Financials 11-25,179-186 Memorandum of Association 26-83 Assessment order u/s 143(3) of M/s Pelicon Finance & Lease Ltd for A.Y. 2006-07 i.e. the year under consideratio....
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....essee Company was appearing and alleged that the assessee Company arranged an accommodation entry, through mediator being a person called P.C. Agarwal, from M/s Pelicon Finance & Lease Ltd. It is submitted that P.C. Agarwal was the prime witness and main evidence and his statements would have decided the fate of the allegations of ld. AO. However, his statements were not recorded during search, postsearch, before reopening the assessment and not even during the course of reassessment proceedings as they are not available in the record of ld. AO. The non-recording of statements, at various stages, of above key persons, cannot be accidental or a mere lapse. The very fact that these persons (P.C. Agarwal, Rajesh Agarwal and Ravindra Goel) ever existed is highly doubted. 10. It was further submitted that the AO issued notice u/s 133(6) to M/s Pelicon Leasing Finance Ltd which was duly served and duly responded. M/s Pelicon Leasing Finance Ltd has confirmed that it had given share application money to the assessee Company. Reliance is placed on the decision of Hon'ble ITAT Delhi in the case of Prinku landfin (P.) Ltd. vs. Income Tax Officer, Ward-14(4), New Delhi [2018] 91 taxmann.co....
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.... high. It is pertinent to note that it is not the case where assessee Company issued shares at premium for the very first time. Assessee Company, in previous assessment years as well as in subsequent assessment years issued shares on premium and the premium is supported by the valuation report. 13. It was further submitted that ld. CIT(A) erred in not appreciating the facts of the present case of the assessee Company in correct perspective and assessee's rebuttal of the findings of ld. CIT(A) are as under: i) Ld. CIT(A) held that creditworthiness and genuineness was not proved as the fact of that M/s Pelicon Finance and Leasing Ltd. was carrying out any business activity was not established. It is submitted that the assessee Company during the assessment proceedings submitted the financial statements of shareholder for AY 2005-06 from which the business activities were evident. Thereafter, in response to notice u/s 133(6) M/s Pelicon Finance and Leasing Ltd. submitted its financial statements for AY 2006- 07 from which again it was evident that it was engaged in regular business of investing and financing. It is further submitted that lower authorities have also not pro....
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....justify its premium, furnished a certificate of Chartered Accountant, Yogesh Gautam (M. No.072676) dated 27.06.2016 before CIT(A). As per the certificate, for the year under consideration, fair value of the share of the assessee Company was Rs. 281.48. It is further not the case of ld. CIT(A) that any defect was found in the said certificate. 14. It was further submitted that the ld. CIT(A) has not at all appropriately evaluated and considered the specific and peculiar facts of the case. Before ld. CIT(A), following binding judicial precedents of Hon'ble Rajasthan High Court and Hon'ble ITAT Jaipur Bench were cited: CIT vs. First Point Finance Ltd. 286 ITR 477 (Raj), CIT vs. Barkha Synthetics 182 CTR 175 (Raj), Labhchand Bohra vs. ITO (2008) 8 DTR 44 (Raj), Kanhialal Jangid vs. ACIT (2008) 8 DTR 38 (Raj), Premlata Kedia vs. DCIT 22 TW 481 (JPR), Nirmal Kumar Dugar 31 TW-112 (JP),Narayan Singh vs.ITO 31 TW 191 (JP) and Mohan Sukhani vs. ITO 31 TW 61 (JP). The ld CIT(A) has neither followed the above judgements nor has distinguished the same and the decisions relied upon by the ld CIT(A) are distinguishable. It was finally submitted the assessee Company has discharged its initial ....
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....ubmitted that it would undoubtedly require application of mind on the part of the Assessing Officer when certain materials collected by other wings of the department is placed before him, however, there cannot be any straight jacket formula of the manner in which mind can be applied or shown to have been applied and the same may be gathered from the reasons recorded and other contemporaneous material on record. It was accordingly submitted that there is no infirmity in the action of the Assessing Officer in initiating the proceedings U/s 147 of the Act on the basis of information received from DIT (Investigation), Delhi. It was further submitted that the notice u/s 147 has been issued after seeking approval from the appropriate authority and in support, the assessment records were produced which clearly show application of mind before granting approval on the part of the appropriate authority. 16. On merits, the ld. DR has drawn our reference to the findings of the Assessing Officer which are contained as under:- "I have considered the submissions made by the assessee and have also perused the material available on record. The contentions raised by the assessee are dealt with....
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....In this regard it is pointed out that seized papers (pageNo.43 of Annexure A-52 , page 25 of Annexure A-53, page 6 of Annexure A-54) which is daily cash book seized from the residence of Sh. S.K. Jain shows receipt of cash of Rs. 5,00,000/- through mediator Sh. P.C. Agarwal on 25.02.2006 and on the same date an entry of Rs. 5,00,000/- vide cheuqe No. 048736 has been provided to the assessee company of Kotak Bank, through a dummy company named as Pelicon Finance & Lease Ltd., receipt of cash of Rs. 10,00,000/- through mediator Sh. P.C Agarwal on 17.03.2006 and on the same date an entry of Rs. 10,00,000/- vide cheque No. 005134/- has been provided to the assessee company of UTI Bank through a dummy company named as Pelicon Finance & Lease Ltd., and receipt of cash of Rs. 10,00,000/- on 22.03.2006 and on the same date an entry of Rs. 10,00,000/- vide cheque No. 051886 has been provided to the assessee company of Kotak Bank through a dummy company named as Pelicon finance & Lease Ltd, managed by Sh. S.K. Jain /V.K. Jain. These entries clearly established that the amount of Rs. 25,00,000/- routed through Sh. P.C. Agarwal then company -M/s Pelicon Ltd, New Delhi the assessee for obtainin....
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....ion of the assessee company with the dummy company named Pelicon Finance & Lease Ltd New Delhi is not genuine and the assessee has introduced its own income from undisclosed sources by routing the same through the dummy company by way of share application/share premium money." 17. We have heard the rival contentions and perused the material available on record. For assumption of jurisdiction u/s 147, the Assessing officer has to satisfy the following cardinal tests so laid down by the Courts and only on satisfaction of such tests, he can assume jurisdiction under section 147: (i) The Assessing Officer must form a tentative or prima facie opinion on the basis of material that there is under-assessment or escapement of income; (ii) He must record the prima facie opinion into writing; (iii) The opinion formed is subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion. (iv) Reasons recorded and/or the documents available on record must show a nexus or that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of inco....
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....ON FINANCE & LEASE LTD. Balaji Healthc are Pvt. Ltd. UTI P/o No. 005134 17.03.2006 Rs. 10,00,000/- P. C. Agarwal A-53 25 22.03.20 06 PELICON FINANCE & LEASE LTD. Balaji Healthc are Pvt. Ltd. Kotak P/o No. 051886 22.03.2006 Rs. 10,00,000/- P. C. Agarwal A-54 6 Rs. 25,00,000/- I have perused and gone through the contents of the report of the Investigation Wing, New Delhi and am satisfied that the amount is undisclosed income which has been routed back to the books of accounts of the assessee company in the form of share capital. Thus, in view of the above, I have reason to believe that income to the tune of Rs. 25,00,000/- for the AY 2006-07 has escaped assessment within the meaning of section 147 of the I.T. Act, 1961 on account of failure on the part of assessee to disclosure fully and truly all material facts in respect of the share capital/premium for which a notice u/s 148 of the Act is required to be issued. In view of the above reason, it is requested that necessary approval as laid do....
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....orm of share capital. We therefore find that based on perusal of the report of the DIT, Investigation Wing, New Delhi, the Assessing officer has formed not merely a prima facie belief but has reached a conclusion that the assessee has routed back his undisclosed income in the form of share capital. For reaching such a decisive finding that it is assessee's undisclosed income which has reached the investor company M/s Pelicon Finance & lease Ltd and thereafter, the latter has invested the amount so received in the assessee's company by way of share capital, there is nothing which has been stated in the reasons so recorded. As we have noted above, the satisfaction of the Assessing officer should be discernable from the reasons so recorded only and nothing can be added or supplemented to the reasons. In the instant case, the particulars of the transactions have been given in terms of name of the investor company, date of investment, mode and amount of investment. A reading of such particulars doesn't give any prima facie impression that these are transactions where the assessee' own money has been routed back in form of share capital. Therefore, without establishing the nexus, the Ass....
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.... belief that income has escaped assessment and in absence thereof, the assumption of jurisdiction u/s 147 has no legal basis and resultant reassessment proceedings deserve to be set-aside. Our view is fortified by the decision of the Hon'ble Delhi High Court in case of Meenakshi Overseas Pvt Ltd (supra) wherein it was held as under: "19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "....
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.... subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment was processed under Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to Section 147 will not apply. In other words, even though the reopening in the present case was after the expiry of four years from the end of the relevant AY, it was not necessary for the AO to show that there was any failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he ....
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.... 13. As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had." In light of above discussions and in the entirety of facts and circumstances of the case, the assumption of jurisdiction and initiation of the proceedings under Section 147 of the Act to reopen the assessment proceedings does not satisfy the requirement of law and is hereby set-aside. In the result, ground no. 1 of the assessee's appeal is allowed. 21. Now, coming to the merits of the addition made by the Assessing officer, we find that the assessee has discharged the initial onus cast on it in terms of identity, creditworthiness and genuineness of the transaction. Notably, the assessment proceedings u/s 143(3) have been completed in ....