TaxTMI 
TaxTMI 
2019 (4) TMI 555
X X X X Extracts X X X X
X X X X Extracts X X X X
....and in law, the CIT(A) was justified in deleting the addition by observing that the identity, creditworthiness and genuineness of the transaction was established by the assessee without even considering the financial statements of the alleged share subscriber. 3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the fact that the alleged share subscriber M/s Pashupati Vinimay Pvt. Ltd. was neither having any substantial business turnover nor having any funds of its own for making huge investment in the share capital of the assessee company. 4. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by concluding that the transactions have been done through Banking channels and there is no case of any cash deposition in the account of the immediate investors company. 5. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the undisputed findings of fact that cash was deposited in the account Bearing No.909020042572 with Axis Bank Ltd. Burrabazar Branch Kolkata of M/s Shiv Kali Trade and through a series of transactions the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 148 on the basis of communication received from the DDIT (lnv.), Kolkata, purely for verification and for conducting enquiries etc. without there being any tangible material, on the basis of his suspicion and assumption. The notice issued on the basis of such communication without any independent enquiries having been conducted by the AO and without application of mind is bad in law and deserves to be quashed. 5. The Pr. CIT, Ajmer has accorded approval for issuing notice u/s 148 in a very routine, mechanical manner & without application of mind by simply putting her signatures below the rubber stamped 'Yes, satisfied'. Such mechanical approval does not fulfill the mandate of provisions of sec. 151 (1) of the Act. Notice issued u/s 148 on the basis of such approval is bad in law and deserves to be quashed." 2. The Id. CIT(A) was not justified in not upholding the ground of the appellant that interest under section 234B is chargeable on returned income and not on assessed income as held by the Hon'ble Jharkhand High Court in its decision dated 25.7.2012 in the case of Sh. Ajay Prakash Verma v. ITO in TA no.38 of 2010, reported in (2013)(1) TMI 140, being consistently follow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sole intent of obfuscating the source. The appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." (ii) On the facts and circumstances of the case, CIT(A) has erred in deleting the addition of Rs. 13,73,734/- made by the A.O. on account of difference in ITS data 26AS. (iii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing. Grounds of assessee's C.O. That the Id. CIT(A) was fully justified in deleting the addition on merit. However, the Id. CIT(A) has erred on facts and in law in dismissing the appeal of the appellant on the following legal grounds raised before him, treating them to be academic & infructuous. 1. (i) the Id. AO has grossly erred in law in completing the assessment u/s 148/143 (3) of the Act, without issuance and service of notice u/s 143(2) within the specified period as mentioned in proviso to sec. 143(2). (ii) Notice u/s 143 (2) issued by the Id. AO on 14-11-2017 was beyond the specified period and thus barred by limitation. Assessment completed by the AO on the basis ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ores for the A.Y. 2010-11 and 2011-12 respectively on account of the share application money U/s 68 of the Act. 4. Before the ld. CIT(A) the assessee was aggrieved of on several counts such as, reopening of assessments on the basis of change of opinion, reopening of assessments without fulfilling the mandate of proviso to sec. 147, reopening of assessments with the approval for issuing notice u/s 148 in mechanical manner & without application of mind, completing the reopened assessments without issuance and service of notice u/s 143(2) within the specified period as mentioned in proviso to sec. 143(2),completing the reopened assessments without any independent enquiries and making additions Rs. 15.59 crores and Rs. 1.94 crores for the A.Y. 2010-11 & 2011-12 respectively on account of the share application money u/s 68 of the Act. 5. By the impugned order, the ld. CIT(A) has observed that facts in both the assessment years under consideration are same, accordingly all the grounds taken by the assessee in both the assessment years were decided by the impugned consolidated order of the ld. CIT(A) dated 05/09/2018. 6. The addition made on account of share capital was deleted by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nding during the original assessment proceeding for his satisfaction regarding identity, creditworthiness and genuineness of transaction of the two companies to whom the shares were allotted. The appellant also referred the original assessment proceedings in which incompliance of AO's directions, the assessee furnished all the details, confirmations, bank statements and other evidences etc. vide its replies dated 02/07/2012, 07/11/2012 and 29/11/2012 to prove the genuineness of the share capital /share premium subscriptions in the names of M/s. Gajanand Goods Pvt. Limited and M/s. Pasupati Vinimay Pvt. Limited (hereinafter referred as PVPL).The appellant referred all the submissions made by it during the original assessment and during the re-assessment proceeding in compliance of the direction of the AO the assessee again filed all the documentary evidences, confirmations etc. before the AO on 28.11.2017 and 08.12.2017. 4.3 It is the submission of the appellant before me that in spite of all such overwhelming documents such as: the Form-2 of the respective allotments, all the details as filed with the Registrar of Companies, Jaipur, the Copy of Balance Sheet, Acknowledgement of I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....um from company namely, M/s M/s Pasupati Vinimay Pvt. Ltd. totaling to Rs. 14.64 crores (addition wrongly made by AO of Rs. 15.59crores) is unjustified; firstly, on the ground that no inquiries were made to rebut the evidences kept on record by the Appellant and secondly, on the ground that Appellant duly discharged its burden casted upon u/s 68 of the Act to explain nature and source of the transactions by proving the identity, creditworthiness of creditor and genuineness of the transaction. Notably, the transactions with the said three companies are duly verifiable from share application form & confirmation with supporting bank statements as mentioned in Para 4.2 above and transaction have been carried out through banking channels only and thus, appellant has duly proved the identity, creditworthiness and genuineness of the transactions. 4.7 The reliance of the AO on some observations raising some suspect in the report of DDIT (Inv.), Unit-1(3), Kolkata on 21/03/2017 for necessary verification and investigation is clearly asking the appellant to prove not only the source over source but asking the appellant to prove source over source for several times without sharing single pi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....investment to party, funds are required to be arranged by the lender, therefore, reflection of such entries in bank statement doesn't lead to draw any adverse inference against the Appellant. Needless to say that Appellant is not required to prove source of the source u/s 68 of the Act in view of the settled judicial precedents. 4.11 It is settled judicial precedents that under the income tax law primary burden u/s 68 of the Act is on the Appellant and once this burden is discharged u/s 68 of the Act, no addition u/s 68 of the Act is justifiable in the hands of the Assessee in view of the judgments in case of Shree Barkha Synthetics Ltd. V/s Assistant Commissioner of Income-tax (2006) 155 TAXMAN 289 (RAJ.), COMMISSIONER OF INCOME-TAX, JAIPUR -II V. MORANI AUTOMOTIVES (P.) LTD. [2014] 264 CTR 86 (RAJASTHAN-HC), CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78/25 Taxman 80F (SC), Commissioner of Income-tax v/s Mark Hospitals (P.) Ltd. [2015] 373 ITR 115 (Madras)(MAG.), Commissioner of Income-tax, Ajmer v. Jai Kumar Bakliwal [2014] 366 ITR 217 (Rajasthan), CIT v/s. Creative World Telefilms Ltd (2011) 333 ITR 100 (Bom), Commissioner of Income-tax-I v. Patel Ramniklal Hirji [2014] 222....
X X X X Extracts X X X X
X X X X Extracts X X X X
....013) 217 Taxman 23(Raj) vii The ITAT, Jaipur in the case of Shalimar Buildcon Pvt. Ltd. Vs. ITO, [2011] 136 TTJ 701 decided similar issue as under: "Shareholder companies having admitted to have subscribed to the share capital of the assessee company and accounted for the source of funds in their books of accounts which is not shown to be incorrect or false, no case is made out for making addition under s. 68 in the absence of any evidence to show that the share capital represented accommodation entries ". 4.13 In view of the above discussion of relevant facts and following the several ratios on the subject from Hon'ble Apex Court, High Courts including jurisdictional High Courts, Tribunals including jurisdictional Tribunals, and in particular, under the fact non-rebuttal of host of evidence in favour of the appellant cited above, the additions made by the AO of Rs. 15.59 crores and Rs. 1.94 crores for the A.Y. 2010-11 & 2011-12 respectively on account of the share application money u/s 68 of the Act is not sustainable and stand deleted. With this ground no. 6 of both the appeal stand allowed. Consequently, the ground no 1 to 5 of both appeal regarding omissions in re-openi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....computation of total income and allow credit of taxes paid by the Appellant and set off or carry forward of losses which are allowable to assessee after verification of the same from record. As regards charging of interest u/s 234A, 234B & 234C of Income Tax Act it is stated that as held in case of Anjum MH Ghaswala (2001) 119 Taxman 352 (Supreme Court) and in case of Hari Narayan Soni (322 ITR 444) by Jurisdictional High Court) interest chargeable u/s 234A, 234B & 234C of Income Tax Act is compensatory and mandatory in nature. The same is of consequential nature and therefore the AO is directed to recompute the interest u/s 234A, 234B & 234C of Income Tax Act after giving effect to this appellate order. Thus, the ground no. 7 in both these appeals is allowed to the extent indicated above. 8. Against the above said order of the ld. CIT(A), the revenue is in further appeal before us with regard to merits of the addition deleted by the ld. CIT(A). However, the assessee is in cross objection had taken ground on account of legality of reopening by him but not decided by the ld. CIT(A). 9. The ld AR argued on behalf of the assessee and submitted that the original return filed by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tribunal in the case of Raj Kumar Chawla Vs ITO (2005) 94 ITD 1 (Delhi ITAT (SB). 10. As per the ld AR, even the proceeding U/s 147/148 of the Act was initiated after four years from the end of the relevant assessment year without fulfilling the mandate of proviso to Section 147 of the Act. Accordingly, notice U/s 148 of the Act was bad in law. 11. As per the ld AR, it is clear from the facts of the case that during the original assessment proceedings, the Assessing Officer has specifically required the assessee to furnish various details to establish genuineness and creditworthiness of the share applicants and in compliance to the same, the assessee has filed details through letter dated 02/7/2012, 07/11/2012 and 29/11/2012. Being fully satisfied with the details so filed and after examining the same, the Assessing Officer has accepted the genuineness of the share capital/share premium in his scrutiny assessment framed U/s 143(3) of the Act. Under such facts and circumstances, it was contended that there was a change of opinion while reopening the assessment on the very same ground. In support of the proposition, reopening can be made for change of opinion. 12. The ld AR also....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 307 ITR 334 (Del) wherein it was held that there is additional burden on the department to show that even if share applicants did not have the means to make investment of the share applicants, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. Reliance was also placed on the decision of the NC Cables Limited (2017) 391 ITR 11 (Del) and the decision of the Hon'ble Madhya Pradesh High Court in the case of Pr.CIT Vs. Chain House International Pvt. Ltd. (2018) 408 ITR 561 (MP). The ld AR has further relied on the detailed findings recorded by the ld. CIT(A) so as to justify the identity, genuineness and creditworthiness of the share applicants. 16. On the other hand, the ld DR has argued that there was information with the Assessing Officer with regard to bogus share capital having been introduced by the assessee. He also invited our attention to the letter issued by the Investigation Wing, Kolkata. With regard to merit of the addition, the ld DR has contended that the assessee could not justify genuineness and creditworthiness of the share applicants, therefore, the ld. CIT(A) was no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iance, the assessee furnished all the details, confirmations, bank statements and other evidences etc. vide its replies dated 02-07-2012, 07-11-2012 and 29-11-2012 to prove the genuineness of the share capital /share premium subscriptions in the names of M/S.Gajanand Goods Pvt.Limited and M/S.Pasupati Vinimay Pvt. Limited (hereinafter referred as PVPL). The relevant excerpts from the above replies are reproduced as under: Reply Dated: - 02.07.2012 "Addition of Share Capital During the year under review assessee Company has made an addition of capital amounting to Rs. 178.40 Lacs by issuing 1784000 equity shares detail as to M/S GAJANAND GOODS PVT. LTD. Ltd. (PAN-AAECS0181P)-225000 Sahres and M/S PASUPATI VINIMAY PVT LTD.(PAN-AADCP5869J)-1559000 shares as below- S. No Date of allotment Allotte's Name Amount of Shares allotted 1. 20.07.2009 M/s Pasupati Vinimay Pvt Ltd M/s Gajanand Goods Pvt Ltd 253000 225000 2. 13.08.2009 M/s Pasupati Vinimay Pvt Ltd. 315000 3. 31.08.2009 M/s Pasupati Vinimay Pvt Ltd. 220000 4. 03.10.2009 M/s Pasupati Vinimay Pvt Ltd. 55000 5. 16.11.2009 M/s Pasupati Vinimay Pvt Ltd. 370000 6. 26.12.2009 M/s Pasupati Vinimay Pvt Ltd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....previous address of the company. The new address is 159, Ravindra sarni 5th Floor Kolkata (WB)-700007. The master data as per ROC department of the companies containing the correct registered office addresses is enclosed herewith for your kind reference marked as Annexure - A, your good office may again sending confirmation/query letter to correct address as stated above. Further the same case is in matter of M/s Pasupati Vinimay Pvt, the new & complete address is 692/1B, Patuli, Shibtolla, P.O. Abdalpur Madhyamgram, Kolkata (WB)-700153. The master data as per ROC department of the companies containing the correct registered office addresses is enclosed herewith for your kind reference marked as Annexure - B, your good office may again sending confirmation/query letter to correct address as stated above. However, in response of our request to both the companies M/s Gajanand Goods Pvt. Ltd and M/s Pasupati Vinimay Pvt Ltd, in respect to justify share investment transactions, they send us the complete set of documents containing Confirmation with all detail of cheque no., date & amount, copy of Bank Statement, Copy of PAN Card, Copy of acknowledgement of Income Tax Return for the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 1559000 shares to M/s Pasupati Vinimay Pvt. Ltd. and received a sum of Rs. 15,59,00,000/- during the year under consideration. Information available with the undersigned it is observed that in the bank account bearing No.909020042572 in Axis Bank Ltd., Burrabazar branch, Kolkata of M/s Shiv Kali Trade, cash has been deposited directly or through clearing which was transferred on the same day or the subsequent day to M/s S.K. Impex. Further verification of bank accounts of M/s S. K. Impex revealed that the fund debited to Accent Commerce and then from there to M/s Cuckoo Merchandise Private Limited, M/s Carnation Trade Link Pvt. Ltd and M/s Blackbird Tie-up Pvt. Ltd. and from the above entities this fund debited to M/s Pasupati Vinimay Pvt. Ltd. who ultimately transferred the said fund to the assessee company i.e. Kanchan India Limited. The assessee company M/s Kanchan India Limited issued 15,59,000 shares to Pasupati Vinimay Pvt. Ltd against the aforesaid fund received. From the information available it is also seen that these above entities were not having any substantial business turnover and this fund was routed without economic rationale. After considering the whole scenari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e just another opinion is also not acceptable. In the present case the material on the basis of which the belief has been formed is a report from the Investigation Wing of the department. This is certainly fresh material and cannot be considered to be the same material which was available with the then AO at the time of original assessment proceedings. In a case where information obtained during the original assessment proceedings is subsequently discovered as false, the question of change of opinion does not arise. (3). Assessee : There is no tangible material for reopening and the reasons recorded are vague and do not have any live link to the escapement of income. Assessing Officer : The objection has got no force at all. At the time of issuing a notice u/s 148, it is not necessary for the AO to conclusively arrive at a finding that there has been escapement of income. At the stage of issue of notice the only requirement is to examine, whether on the available material a reasonable person could form a reasonable view to believe that income chargeable to tax has escaped assessment. He relied on the decision of the Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e notice u/s 148 for the A.Y. 2010-11 was issued by the AO i.e. ACIT Circle, Bhilwara on 29-03-2017. In compliance the assessee filed its return on 30-03-2017 vide acknowledgment No. 722689431300317. A letter was also sent to the AO on the same day intimating him that the return originally filed on 11-10- 2010 may be treated to have been filed in compliance to the notice u/s 148 dated 29-03-2017. 24. On the basis of the said return dated 30-03-2017 the AO issued notice u/s 143(2) & 142(1) on 14-11-2017 and proceeded to complete the assessment u/s 148/143 (3) of the Act on 18-12-2017. 25. For completing an assessment u/s 143 (3) it is mandatory to issue and serve notice u/s 143(2) within six months from the end of the relevant assessment year, as per proviso to see 143(2). This mandatory requirement is also applicable to the reopened assessments u/s 148 also. (ACIT & Anr Vs. Hotel Blue Moon, 321 ITR 362 (SC) and Sanjiv Goel Vs. DCIT, ITA No. 730 to 732 of 2018, 2018 - TIOL-1594-HC-MUM-IT, DOJ 30.07.2018, Bombay High Court. In the case of the assessee the return in compliance to notice u/s 148 dated 29.03.2017 was filed on 30-03-2017 and as such notice u/s 143(2) was to be served w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of cash books, copies of balance sheet and return of income in respect of new creditors introduced in your books of account in the year under consideration. Furnish name, complete address and PAN in respect of old creditors." In compliance, the assessee furnished the following details/ documents etc. through its letters dated 02-07-2012, 07-11-2012 and 29-11-2012 as discussed earlier. (i) Confirmation with all details of cheque No., date & amount, of PVPL (ii) Copy of Bank statement of PVPL (iii) Copy of PAN Card of PVPL (iv) Copy of Income Tax Return for the A.Y. 2010-11 of PVPL (v) Copy of Balance-sheet of PVPL for the year ended on 31-03-2010 (vi) Copies of share allotment letters. (vii) Copy of Minute's Book of PVPL for extract of resolution permitting the company for investment in shares of Kanchan India Ltd. (viii) Copy of Memorandum & Articles of Association of PVPL (ix) Complete Master Data of PVPLForm-2 of the respective allotments as well (x) as all the details filed with the Register of Companies Jaipur, in this regard. Being fully satisfied with the aforesaid details furnished by the assessee and independent, investigation carried out by him, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....swered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The re-assessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons." In a recent decision dated 24.04.2018 in the case of ITO Vs. M/s Techspan India Pvt. Ltd. in civil appeal No. 2732 OF 2007 The Hon'ble Supreme Court has decided the issue of change of opinion with reference to reopening of assessment completed u/s 143(3), as under- "9) Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings. 13) The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for reassessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of Rs. 57,36,811. In the order in question dated 17.08.2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. In the case of Duli Chand Singhania V. ACIT: 269 ITR 192 (P & H), the Hon'ble Punjab and Haryana High Court had noted that the sine qua non for assuming jurisdiction under section 147 of the I.T. Act, in a case falling under the proviso thereto, was that there must be an allegation that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. When there is no such allegation in the reasons supplied to the assessee initiation of proceedings under the proviso to section 147 would be without jurisdiction. In the case of the assessee there is no such allegation of the AO in the reasons recorded by him. Accordingly, the case of the assessee is fully covered by the decisions of Hon'ble Delhi High Court in the case(s) of : 1. Shri Parasram Industries Pvt. Ltd. Vs. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e (India). The last 2 paras of his said letter are again reproduced here as under, even at the cost of repetition- "From the ITD it has been found that both the entities Kanchan India limited and MSP Metallics are genuine companies having high turnover. The funds so received by the companies in the years 2009-10 and 2010-11 require further analysis, investigation and verification by the jurisdictional assessing officer Kanchan India limited [PAN: AABCK0452J] and MSP Metallics [PAN: AACA5907D] of at their end. Conclusion Therefore, the nature of business and exact purpose of transactions of the said assessee could not be determined. Therefore, you are requested to examine the facts and take further necessary action under the Income Tax Act 1961. You are requested to acknowledge the receipt of the letter." He has concluded that the nature of business and exact purpose of transaction of the said assessee (i.e. Shiv Kali Trade (India)) could not be determined, therefore, he requested the ld. AO to examine the facts and take further necessary action. He has also commented that M/s Kanchan India Ltd. (the assessee) and M/s MSP Metallics Ltd. are genuine companies having high turno....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tional connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct, nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee. The apex Court further observed that it was not every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to the escapement of the income of the assessee from assessment. Again this issue was considered by the Hon'ble Supreme Court in the case of Ganga Saran & Sons (P) Ltd. v. ITO, where the apex Court observed that expression "reason to believe" was stronger than the words 'satisfied'. The belief entertained by the AO must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. If there is no rationale and intelligible nexus between the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law. 1.2 The basis for initiating the reassessment proceedings is to be judged solely on the basis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here was any lacuna in the accounts. If such further investigation, by reopening a concluded assessment, is permitted, it would give rise to fishing and rowing enquiries, because, in every case, the Assessing Officer can then issue notice for the purpose of investigation, and thus reopen any concluded assessment 13. An assessment which has attained finality can be reopened only on cogent grounds when the Assessing Officer has, on the basis of some evidence, 'reason to believe' that income assessable to tax has escaped assessment for the year in question. The purpose of the said section is not to reopen the assessment for the purpose of investigation, and then find out the grounds or reasons for reassessment." (v) Bakulbhai Ramanlal Patel Vs. Income Tax Officer, (2011) 56 DTR (Gujarat) 212 "Reading the reasons recorded in their entirety, there is nothing whatsoever to indicate as to which is the income that has not been disclosed by the petitioner or that any income chargeable to tax has in fact escaped assessment. The entire tenor of the reasons recorded indicates that on the basis of some unsubstantiated and vague information, the AO has reopened the assessment for the purpo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....investigation is required to be made in relation to the vague transactions referred to in the reasons recorded. In the case of CIT vs. Batra Bhatta Company (supra), the Delhi High Court held that the proceedings under s. 147 are not to be invoked at the mere whim and fancy of an AO and it has to be seen in every case as to whether the invocation is arbitrary or reasonable. In the facts of the said case, the Court held that merely because the AO felt that the issue required 'much deeper scrutiny', was not ground enough for invoking s. 147. The Court held that it is not belief per se that is a pre-condition for invoking s. 147 of the Act but a belief founded on reasons. The expression used in s. 147 is "If the AO has reason to believe" and not "If the AO believes". There must be some basis upon which the belief can be built. It does not matter whether the belief is ultimately proved right or wrong, but, there must be some material upon which such a belief can be founded. In the case of Sheo Nath Singh vs. AAC (supra), the Supreme Court held that there can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable pers....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (vi) Pr. CIT V/s Manzil Dinesh Kumar Shah in ITA No 451 of 2018 with R/Tax Appeal No 457 of 2018 with R/Tax Appeal No 458 of 2018. (Gujarat High Court) "8. With this background, we may revert to the reasons recorded by the Assessing Officer. Information from the Value Added Tax Department of Mumbai was placed for his consideration. This information contained list of allegedly bogus purchases made by various beneficiaries from Hawala dealers. Assessee was one of them. As per this information, he had made purchases worth Rs. 3.2 1 crores (rounded off) from such Hawala dealers during the financial year 2010-11. According to the Assessing Officer, this information 'needed deep verification'. 9. If on the basis of information made available to him and upon applying his mind to such information, he Assessing Officer had formed a belief that income chargeable to tax has escaped assessment, the Court would have readily allow him to reassess the income. In the present case however, he recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould not enable revenue to resort to section 147 of the I.T. Act. 8. Referring to the decision of Hon'ble Gujarat High Court in the case of Krupesh Ghanshyambhai Thakkar vs. DCIT reported in 77 taxmann.com 293, he submitted that the Hon'ble High Court in the said decision has held that where assessee explained that amounts transferred many times among group concerns were required for banking purposes and capital investment in shares were duly recorded in books, reopening could not be sustained when the Assessing Officer had no tangible material. 9. Referring to the following decisions, he submitted that no proceedings u/s 147 can be initiated merely on the basis of the report of the Investigation Wing :- I. CIT vs. M/S. Indo Arab Air Services [2016] 283 CTR 92 (Delhi) II. Signature Hotels P. Ltd. Vs. Income Tax Officer reported in [2011] 338 ITR 51, III. Commissioner of Income Tax versus SFIL Stock Broking Limited, reported in [2010] 325 ITR 285 (Delhi) IV. Sarthak Securities Company Private Limited versus Income Tax Officer, reported in 329 ITR 110 (Delhi), ITA Nos.3400 & 3401/Del/2013 V. PCIT vs. ShriGovindKripa Builders P. Ltd (ITA 486/2015 dated 04.08.2015) VI. CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t that stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issuance of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. The substantive satisfaction in that case of the Assessing Officer was therefore wrongly interfered with by the Gujarat High Court is the view taken by the Hon'ble Supreme Court. All these legal principles are undisputed. They go to show, as Mr. Gupta emphasizes, that there should be a reason to believe that in the relevant assessment year income chargeable to tax has escaped assessment. We are of the view that in the present case, the reasons recorded fall short of this test." 12. He accordingly submitted the order of the CIT(A) sustaining the validity of the reassessment proceedings should be upheld. 13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and Paper Book filed on behalf of the assessee. We have also considered the various decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the investment in shares of M/s. Rushil Decor were acquired from the capital of the assessee and the same is duly recorded in the books of account, needs to be verified and for that purpose, the assessment for A.Y 2009-2010 is sought to be reopened. 12. In case of Inductotherm [India] P. Limited v. M. Gopalan, Deputy Commissioner of Income-Tax [Supra], Division Bench of this Court has observed that for a mere verification of the claim, the power of reopening of assessment could not be exercised. It is further observed that the Assessing Officer under the guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims, as if it were a scrutiny assessment. 12.1 Similar view has been expressed by the Division Bench in case of Deep Recycling Industries v. Deputy Commissioner of Income Tax - Circle 2 [Supra] wherein it has been held and observed that for mere scrutiny, reopening of the assessment would not be permissible. It is further observed that the reopening of the assessment could be made if the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. The Court has further observed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by him. (i) Pr. CIT, Vs Meenakshi Overseas Pvt. Ltd. ITA 692/2016/ (Delhi High Court) 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 forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the precondition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. (ii) PCIT Vs. RMG Polyvinyl (I) Ltd., 396 ITR 5 (Delhi High Court) (iii) DCIT Vs. Zeco Aircon Ltd. ITA No. 5231/Delhi/2014, DOJ 31.07.2018 (iv) Pioneer Town Planners Pvt. Ltd. Vs. DCIT, ITA No.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rther more reliance is placed on judgement of the Hon'ble Supreme Court in the case of M/s Chuggamal Rajpal Vs. SP Chaliha [1971 79 ITR 603 (SC) where the Hon'ble Supreme Court has held as under: - "Reopening of assessment cannot be based on vague reasons and duty is cast upon the officer exercising jurisdiction under s. 151(2) of the Act to satisfy himself with the reasons and should not merely affix his signature without recording satisfaction. In the aforementioned case, assessment was originally completed for the asst. yr. 1960-61 after thorough scrutiny. Thereafter, AO issued notice under s. 148 of the Act. Assessee challenged validity of that notice, by filing a writ petition in the High Court. It was contended that the requirements of s. 151(2) of the Act were not complied with. Case of the AO was that certain communication was received from the CIT stating that the creditors in the instant case were name lenders and the loan transactions were bogus and that proper investigation regarding the loans taken by the assessee is necessary. He, however, did not mention in the report the material he had before him and his reason for coming to the conclusion that this was a fit cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....10.2017 in ITA No. 450/Del./2014 in the case of Metro Decorative (P) Ltd. v. ITO after considering the decision of Hon'ble Supreme Court & Madhya Pradesh High Court in CIT v. M/s Goyanka Lime and Chemicals Ltd. and considering other decisions on the subject held as under:- "6.We have carefully gone through the record, the documents and decisions relied upon by either side. In so far as the challenge of the assessee as to the legality and validity of the reopening is concerned, assessee is placing reliance on the decisions reported in G&G Pharma India Ltd. (Del. High Court) (supra), N.C. Cables Ltd. (supra) and Meenakshi Overseas Pvt. Ltd. (supra). He also placed reliance on the decisions reported in Signature Hotels Pvt. Ltd. vs. ITO 338 ITR 51 (Del), Sarthak Securities Co. Pvt. Ltd. vs. ITO (2010) 195 Taxman 262 (Del), CIT vs. Kamdhenu Steels & Alloys Ltd. (2012) 119 Taxmann.com 26 (Del.). As could be seen from these decisions, it is consistently held that the reopening based on the information furnished by the Directorate of Investigation and the AO without making any further Investigation on his own, recording the reasons to believe that income escaped assessment are bad. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the Special Leave Petition vide order reported in (2015) 64 taxmann.com 313 (SC). 12. In the circumstances surrounding this case, in view of the decisions referred to above, we are of the considered opinion that the decisions reported in Sarthak Securities Pvt. Ltd. (supra), Signature Hotels (supra), Kamdhenu Steels & Alloys Ltd. (2012) 19 Taxman.com 26 (Del) & G&G Pharma India Ltd. (supra) are directly applicable to the facts of the case to hold that the reasons recorded by the AO in this matter solely basing on the information received from the Directorate of Investigation without any independent exercise of mental process cannot be construed as reasons to believe and the consequent proceedings of reopening are bad under law. Further, the approval/sanction of the Addl. CIT, Range 6, New Delhi is also not in accordance with the requirements of Section 151 of the Act, as is held in M/s S. Goyanka Lime and Chemicals Ltd. (supra) and this also vitiates the proceedings. For these reasons, we hold that the reopening proceedings are bad under law and are liable to be quashed. Since, we are quashed the proceedings on the questions of law, we do not deem it necessary to adjudicate th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee company to PVPL, without any basis or discussion what so ever. From the above facts it has clearly been proved that the ld. AO has made addition purely on the basis of his suspicion without any evidence or basis at all which deserves to be deleted. The Hon'ble Supreme Court in the Case of CIT v/s Lovely Exports (P) Ltd., (2008) 216CTR 295 (S.C.) has held as under:- "If share application money is received by the assessee company 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 assessee company.'' Following the aforesaid judgement of the Hon'ble Apex Court, the Hon'ble Rajasthan High Court in the case of M/S Barkha Synthetics Ltd v/s ACIT, 283 ITR 377 (Raj) has held as under: "The principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channel, the assessee has to prove existence of person in whose name share application is received. Once the existence of shareholder is p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....B in form No. 3CA & 3CD dated 21.07.2011, during the course of assessment proceedings. Notice u/s 143 (2) was issued on 03.08.2012. Notice u/s 142 (1) & query letter was issued by the AO on 22.04.2013 calling for details on various points. Sh. Sandeep Baldi CA attended before the AO from time to time and filed the requisite details. After considering the submissions of the assessee, the ld. AO completed the assessment u/s 143(3) on 10.06.2013, after making some disallowances etc. at loss of Rs. 8,55,87,742/-. During the financial year 2010-11 relevant to the A.Y. 2011-12 the assessee company issued 9,29,000 shares of Rs. 10 each aggregating to Rs. 92,90,000/- at premium of Rs. 8,36,09,999/-, as reflected in Schedule: 1 & Schedule: 2 of the balance-sheet filed before the ld. AO, on the basis of which the ld. AO required the assessee to furnish complete details to prove the identity, creditworthiness and genuineness of the transactions relating to allotment of shares. Relevant queries made by the ld. AO, vide his letter No. DCIT/Circle/BHL/2013-14 dated 22.04.2013 are reproduced as under:- "4. Furnish complete details of Share capital, Share application money, Cash creditors and squ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Balance Sheet, acknowledgement of Income Tax return of M/s Sunflower Merchants Pvt. Ltd. as well as M/s Pasupati Vinimay Pvt. Ltd., which reveals the sources & creditworthiness marked as Annexure-C" Being fully satisfied with the reply of the assessee, the ld. AO completed the assessment u/s 143(3) on 10.06.2013 accepting the share capital/share premium as genuine, without making any addition on this point. Subsequently, the successor AO received communication from DDIT(Inv.), Unit-1(3), Kolkata on 21-03-2017 regarding some verification carried out by him in connection with some bank deposits in A/c No. 9090200425725 of some party M/s Shiv Kali Trade (India), in Axis Bank Ltd., Burrabazar. This report sent by the DDIT vide his letter dated 10-03- 2017 received by the ACIT, Bhilwara on 21-03-2017. 36. On the basis of the aforesaid letter received from DDIT (Inv.), Unit- 1(3), Kolkata on 21.03.2017, the ld. AO i.e. ACIT, Bhilwara on the very next day i.e. 22.03.2017 sent the proposal to the Pr. CIT, Ajmer seeking approval u/s 151(1) for initiating proceedings u/s 148 in the case of the appellant company, for the A.Y. 2010-11, through his letter No. ACIT/Circle/BHL/2016-17/3337, ....