TaxTMI 
TaxTMI 
2019 (7) TMI 868
X X X X Extracts X X X X
X X X X Extracts X X X X
.... too without verifying the contents of the information. The impugned order being bad in law as the basis of the reopening is on the borrowed satisfaction. 1.2 On the facts and circumstances of the case, the Ld, CIT(A) legally erred in confirming the assessment order passed which is bad in law as the statement relied on of the alleged parties, were never supplied to the appellant. The appellant asked for the copies of the statement and cross examination of the parties vide letter dated 20/12/2017 filed on 21/12/2017, hence on that count itself, in absence of natural justice the order is bad in law. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the addition of Rs. 18,00,00,000 as unexplained cash credit u/s 68 of the Act made during the re-assessment proceedings. The amount was received by account payee cheque(s) on account of the share capital; the Ld. CIT(A) erred in ignoring the judgment of the Hon'ble Apex Court in Lovely Exports Pvt Ltd [216 CTR 195] and host of other judgments including Jurisdictional High Court judgment in the case of Creative World Telefilms Ltd.[333 ITR 100| and Paradise Inland Shipping Pvt Ltd. (unre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... received through various modes like clearings, inter-branch transfer and RTGS, Subsequently, the entire money is getting moved out of the account on the same or succeeding days. The information has been received in respect of 4 entities, including M/s, BLA Power Holdings P. Ltd. regarding high value of transfer transactions with the account of M/s. Lifetime Financial Services Ltd. 4. It is observed that M/s. Lifetime Financial Services Ltd. is the Principal Company. M/s. Lifetime Financial Services Ltd. has invested in shares of the companies, including an amount of Rs. 3,00,00,000/- in shares of M/s. BLA Power Holding Pvt. Ltd. as on 31.03.20W (3,00,000 shares Rs. 100 each). It had also advanced loans, on which it is earned interest income of Rs. 1,95,740/- during the F.Y. 2009-10. Apart from this interest income, M/s. Lifetime Financial Services Ltd. has no other business income. Hence, the huge investment in shares made by M/s. Lifetime Financial Services Ltd. is not justifiable. Also, M/s. Lifetime Financial Services Ltd. had not filed any details with regard to shareholders or other relevant information to substantiate the source of funds in its hand. 5. In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing financial year 2009-10 and citing all these circumstances, the AO came to believe on the basis of reasons that transactions of Rs. 3 crore in the assessee company by M/s. Lifetime Financial Services Pvt. Ltd. or any other income chargeable to tax which may come to the notice of the AO subsequently in the course of proceedings of assessment have escaped assessment within the meaning of section 147 read with section 148 of the Act. In other words, the AO formed the belief on the basis of information received from investigation wing to the effect that M/s. Lifetime Financial Services Pvt. Ltd. was a paper company/fake company and was only set up for the purpose of routing funds to the assessee which has resulted into escapement of income. Whereas in contrast the facts of the case of the assessee are totally different, the assessee has allotted 6% non cumulative, non comfortable redeemable preference shares during the year as per details below: Sr. No. Party Name No. of Preference Shares Amount (Rs.) Face Value {Rs. 10 each) Premium Amount (Rs.} {Ra.90 each} Total Amount (Rs.) 1 Masantoshi International Limited 4,00,000 40,00,000 3,60,00,000 4,OO....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment on the basis of material available. Thus the ld. CIT(A) dismissed the appeal of the assessee on jurisdictional point by observing and holding as under: "Thus, it shall be seen that the Hon'ble Bombay High Court has clearly held in this ' order that at the stage of issuing notice u/s 148 , the AO is not required to establish escapement beyond any doubt at all. It is enough if at the stage of initiation of re-assessment proceedings, a reasonable inference can be drawn based on the material available that any income has most likely escaped assessment. Indeed, if the escapement is already established beyond doubt, where is the question of conducting any assessment proceedings at all ! The whole assessment or re-assessment exercise shall be superfluous. This cannot obviously be the intention of Legislature. There cannot be of course any arbitrary issuance of re-assessment notices. But, that doesnot mean that the AO shallbe a mute spectator with his hands tied behind looking at a tax-evasion waiting for the strong evidence to fall in his possession somehow. It is like stopping a policeman from acting on a complaint of murder or theft by a person on the ground th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....can come to a definitive conclusion armed with all the evidence of precise escapement of income , as is being asked by the appellant. 3.2.27 In view of the above unambiguous view of judicial authorities with regard^ tore-opening of assessments, I do not find any merit in the contentions of the appellant for this ground of appeal. Therefore, reopening of assessment is sustained and this ground of appeal is dismissed." 7. The Ld. A.R. vehemently argued before the Bench that the assessment was wrongly and invalidly reopened by issuing notice under section 148 of the Act as the reasons recorded for issuing notice under section 148 of the Act do not give any belief that income of the assessee has escaped the assessment in any way whatsoever. The reasons recorded by the AO after receiving information from the ADIT(Inv) wing refer to two facts namely; (a) opening of bank account by M/s. Lifetime Financial Services Pvt. Ltd. and (b) subscription in the shares of assessee company by M/s. Lifetime Financial Services Pvt. Ltd. The Ld. A.R. submitted that the conclusion of the AO that M/s. Lifetime Financial Services Pvt. Ltd. is a paper company/fake company is totally fallacious a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ook 2 to show that the said investor has capital and reserves of more than Rs. 34,00,00,000/- at the beginning as well as at the end of the year and contribution in the preference shares of the assessee company was made out of the capital and reserves and thus controverted the conclusion and findings given by the AO in the assessment order. 8. The Ld. A.R. also referred to the reopening of assessment in A.Y. 2010-11 in the case of M/s. Lifetime Financial Services Pvt. Ltd. on the ground that the said company had received a share premium of Rs. 30.94 crores without substantiating the source or credit of such share premium. However, the AO accepted the returned income filed by the said company while framing assessment under section 143(3) read with section 147 of the Act vide order dated 30.11.2017 a copy of which is filed at page No.251 to 252 of the paper book 2. The Ld. A.R. therefore submitted that in the assessment order of said company there was no such allegation to the effect that the said company was a paper company or fake company or not a bonafide company. The status of the said company was accepted as company which was following mercantile system of accounting as re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the AO clearly do not give him any belief that income has escaped assessment. 9. The Ld. D.R., on the other hand, controverting the arguments of the Ld. A.R. submitted that the assessment in the present case was framed under section 143(1) of the Act and not under section 143(3) of the Act. The AO has reopened the assessment of the assessee on the basis of specific information received from the investigation wing during the year to the effect that the M/s. Lifetime Financial Services Pvt. Ltd. has opened an account with a meager amount of Rs. 1.00 lakh and was followed by heavy transactions of high value of which the assessee was one of the beneficiaries. The Ld. D.R. submitted that the assessee has entered into these transactions with M/s. Lifetime Financial Services Pvt. Ltd. in order to route the undisclosed income. The Ld. D.R. submitted that in the said investing company there was hardly an income and income was only of Rs. 8,185/- during the year. The AO has ex facie formed opinion by due application of mind that income of the assessee company has escaped by reason of these transactions made by M/s. Lifetime Financial Services Pvt. Ltd. with the assessee company. In defenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en referred to as a bogus company by any of the alleged entry provider whose statements were referred to in the assessment order. Similarly, in the other two cases Aradhana Estate Pvt. Ltd. vs. DCIT (supra) and Khatu Shyam Processor Pvt. Ltd. vs. DCIT (supra) information was received with respect to accommodation entry provider being a shell company on the basis of which assessment was completed whereas in the present case no such information was received by the AO. The Ld. A.R. therefore submitted that the reassessment proceedings are bad in law and liable to be quashed. 11. We have heard the rival submissions of both the parties and perused the material on record including the decisions cited by the rival parties in their respective defense. We observe from the facts before us that the AO received information from the investigation wing that a bank account has been opened by M/s. Lifetime Financial Services Pvt. Ltd. with a deposit of Rs. 1,00,000/- followed by heavy transactions in the said bank account out of which a transaction of Rs. 3 crore was made by the said company with the assessee company in the form of purchase of 6% non cumulative, non comfortable, redeemable pref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture Pvt. Ltd. (supra) wherein the Hon'ble Courts have held that once the steps have been taken by the Revenue against the shareholder no action lies against the company on the ground that income has escaped assessment by the reason of investments/subscription in the share of the assessee company by the investors whose cases have been taken up by the Revenue in order to verify the transactions. We find merit in the arguments of the Ld. A.R. that there has to be live link between the material coming to the possession of the AO and formation of belief regarding escapement of income and is squarely covered by the ratio laid down by the jurisdictional High Court in the case of Pr. CIT vs. Shodiman Investment Pvt. Ltd. (supra). We have perused the decision relied upon by the Revenue and found that they have been rendered on the different facts and are not applicable to the present case. We, therefore, in view of the aforesaid facts and ratio laid down by the various judicial forums hold that reopening as made by the AO is not proper and without valid jurisdiction and accordingly we set aside the order of Ld. CIT(A) on this issue. Accordingly we hold that the re-assessment proceedings u/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y in the same. Once the return is picked up for scrutiny, an assessment order has to be necessarily passed in such a case by the AO. There is no choice left. Nonpassing of assessment order in a scrutiny case shall get noticed in the on-line system and may invite adverse criticism of the AO concerned. As such, he does pass a non-descript order. Further, there is no point making addition in these cases, as the real beneficiaries are someone else and, they have only received commission. The real beneficiaries are already being taken care of by their respective AOs or the officers of Investigation Wing etc etc. So, just like PAN, a scrutiny assessment order passed per se doesnot help the appellant. 3.3.26 In view of the above detailed discussion, I have no hesitation in confirming the action of the AO in adding the alleged share application money of Rs. 4,00,00,0007- from Masantoshi International Ltd., Rs. 3,00,00,0007- from Sharadraj Trade fin Ltd., Rs. 2,00,00,000/- from Blue Print Securities Ltd., Rs. 4,00,00,000/- from Konark Commerce Industries Ltd., Rs. 2,00,00,000/-from Impex Services Ltd and Rs. 3,00,00,000/- from Lifetime Financial Services Ltd., totally aggr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O's reference in the assessment order to notices issued under section 133(6) of the Act being returned and unserved, the Ld. A.R. submitted that same was never put confronted or before the assessee during the course of assessment proceedings so the fact is not known to the assessee as to how and why the notices under section 133(6) of the Act were not served upon the investors. Even the repeated requests by the assessee seeking the inspection of assessment of records was denied which were sought in order to verify the existence of such notices issued under section 133(6) of the Act/ whether the same were sent on the correct address/ whether the sufficient time was given to the investors by the AO to reply the same. The Ld. A.R. submitted that in absence of any such information and refusal to give copies of the notices, adverse inference may be drawn against the Revenue. The Ld. A.R. submitted that AO has relied on the statements of certain persons alleged to be entry providers, copies whereof were never given to the assessee and no cross examination was ever provided either by the AO or by the Ld. CIT(A) and therefore the addition as made by the AO needs to be struck down on this s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO to re-open the assessment of those shareholders in accordance with law and revenue can not add the same to the income of the assessee. The Hon'ble court as held that the proviso to section 68 of the Act as was introduced by the Finance Act 2012 w.e.f. 1.4.2013 is effective from AY 2013-14 and not to the year under consideration. The Ld. A.R. also relied on the decision of Pr. CIT vs. Aditya Birla Telephone Ltd. 105 taxman.com 206 wherein the Hon'ble Jurisdictional Bombay High Court has distinguished Pr CIT Vs NRA Iron and Steel (P) Ltd and held that the source of source is not required to be proved and merely because there is huge investments of funds in the assessee by various multiple corporate entities itself would not be sufficient to brand the impugned transactions as sham. However, the assessee has sufficiently proved the source of investments for all these companies to be out of share capital and reserves and therefore no addition is justified under section 68 of the Act. The Ld. A.R. also submitted that the decisions referred to by the Revenue in the case of PCIT vs. NRI Iron and Steel Pvt. Ltd. 103 taxman.com 48 is distinguishable on facts. In the said case the AO h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e submission of confirmations, IT returns, PANs, bank statements etc. would not automatically prove the genuineness of the transactions and creditworthiness of the investors. The Ld. D.R. argued that the assessee is required to discharge his primary onus by establishing identity and creditworthiness of the investors and genuineness of the transactions which was not done in the present case. The ld DR heavily relied on the decision of the hon'ble apex court in the case of Pr CIT Vs NRA Iron and Steel Pvt Ltd.(supra) in support of his arguments. The Ld. D.R. finally prayed before the Bench that the order of Ld. CIT(A) may be upheld as the same is passed by following various judicial decisions and is a very reasoned and speaking order. 17. We have heard the rival submissions of both the parties and perused the material on record. We observe that in this case the assessee has filed the necessary evidences in the form of share application forms, bank statements of the investors, their PAN cards, ITRs, assessment orders, list of directors, ROC master data, audited financial statements and also the details of registration with stock exchanges in case of some of the investors. We furthe....