TaxTMI 
TaxTMI 
2019 (9) TMI 371
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....ed 30-11-2017 forming subject matter. The impugned 263 proceedings reveals that the department had carried out a search dated 25-08-2015 in M/s. Ghanshyam Sarda Group of cases. It noticed therein that Shri Gopal Sarda had controlled and managed the assessee NBFC. The assessee had raised total share capital of Rs. 5 crores during the relevant previous year. One Shri Suresh Kumar Pansukha's got recorded his statement during the course of the said search admitting himself to be an entry operator controlling and managing a number of shell/jamakharchi companies. He further deposed that has companies M/s. P.R Niryat Pvt. Ltd, Suman Vanijya Pvt. Ltd and Urch Traders Pvt. Ltd. Had invested in shares of M/s Nillampathy Tracon Pvt. Ltd & M/s. Rozelle Sales & Services P.Ltd . The Assessing Officer noticed in this factual backdrop that one of assessee's (seventeen) shares subscriber was M/s Urch Traders P.Ltd. He, therefore, framed reasons to before us this back drop of facts that the assessee company had ploughed back unaccounted income as share capital thereby giving rise an instance of the taxable income having escaped assessment. He set into to motion section 148/147 proceedings vide reope....
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....AO has made inadequate enquiry to verify the genuineness of share capital despite the premium in this case being much more higher i.e.,Rs. 490/- per share as compared to Rs. 190/- per share in case of Subhlakshmi Vanijya Pvt. Ltd.(supra) and that too, such a high premium has been paid by all the 17(seventeen) companies despite the fact that the assessee company is incurring losses. Despite there being a clear finding by the search team that all the shareholder companies are paper/jamakharchi companies, the AO has only relied upon making of verification by issuing notices u/s.133(6} and not making any field enquiry to ascertain genuineness of these shareholder companies. The pattern to provide funds by these paper/jarmakharchi companies is similar to what has been analyzed by the vs. Commissioner of Income Tax-1, Kolkata (supra) because ali these shareholder companies do not have any significant source of income but they have made investment of huge amount of money in share capital of the assessee company only by circulation of capital from one company to another company. Before accepting the amount of RsAA5 crore as genuine investment in share capital of the assessee company by ....
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....s reopened u/s.147 on the basis of some search which was conducted in Ghanshyam Sarda Group. In response to the said notice the assessee filed the return. The Ld. AO took up the assessment for scrutiny. In the course of scrutiny proceedings the Ld. AO specifically called the details of share capital raised by the assessee. The assessee duly filed all the evidences including acknowledgement of filing of the return by the shareholders, their Audited Profit and Loss Account and Balance sheet their bank statements, the source of investment made by them, the details of registration of shareholder companies with the registrar of companies, the evidence of existence of the companies at the given address and copy of PAN and the particulars and details of the directors. The AO issued notice u/s.131/133(6) to the shareholders and examined the same thoroughly. It is only thereafter that the AQ found that the sum of Rs. 55 lakhs being share capital received from Urch Traders was not explained by the assessee. Therefore, the Ld. AO added back the said amount as income: The assessee has already filed an appeal before the Ld. CIT( A) on 11/12/2017. In the back ground of the aforesaid facts it ....
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.... manner contemplated by the Ld. Pr. CIT assessment cannot be cancelled. It appears that your honour have relied on the decision in the case of Subhluxmy Vanijya Pvt. Ltd., but in that case no enquiry was made by the AO at all, the assessee was completed in post haste and the said company was considered as not a genuine company. The finding was that no enquiry was made at all. The facts of the assessee's case are altogether different. The assessee company is doing huge business, the turnover of which is more than 7 crores. The existence of the company and its business is not doubted or disputed. The capital of the company is is 78 lakhs whereas the serve and surplus is over Rs. 6.44 crores. This shows the creditworthiness of the assessee company. It is also submitted that in the notice u/s.263 there is no finding that the shareholder companies were not existing on the roll of the department or that they are not regularly filing their Income Tax Returns or return before the ROC. It appears that your honour have not looked into the assessment records. All the details and enquiries made by the AO in respect of share capital are on record. Therefore, provisions of sec.263 cannot ....
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....or verification, which should have been made, such order shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue.. My satisfaction on proper enquiry not made by the AO is not subjective but based on those enquiries that should have been made by the AO but has not been made as discussed in para 2 of this order. The issue, whether inadequate inquiry conducted by the Assessing Officer empowers the Commissioner to revise the assessment order, has been quite exhaustively dealt with in the order of ITAT, Kolkata in case of M/s. Subhlokshmi Vanijya Pvt. Ltd.(supra), holding that if the AO simply gathers documents and keep them on record, then such nominal enquiry falls within the overall category of 'no enquiry'. It is also wrong on part of the Ld. AR to say that in case of M/s. Subhlakshmi Vanijya Pvt. Ltd., no enquiry was made by the AO at all. In the case of M/s. Subhlakshmi Vanijya Pvt. Ltd. also, the Aa issued notices u/s.133(6) but he failed to comprehend the manner or logic behind issuing shares at such a high premium, nor to examine any of the Directors of the companies which were subscribers to share capital and he simply accepted the rep....
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....old good because the present case is with respect to examination of genuineness of share capital of a private limited company. In case of Perm Castings (P) Ltd. -vs- CIT (2017) 88 taxmann.com 189 (Allahabad), it has been held that in case of private limited company, subscription to share capital is made through private invitation and not through public document. Therefore, it was the assessee company itself that ought to have known the person/s it invited to subscribe to its share capital and hence, the assessee cannot hide behind the shell of a corporate entity to feign ignorance of the real person who may have subscribed to its share capital. This is a special fact known only to the assessee who alone may have been aware of the real identity of such persons. Upon failure to disclose and establish the identity of such a person, an adverse inference and consequential addition had to be made in the hands of the assessee company itself under section 68 of the Act by disbelieving the cash credit entries found recorded in the books of the assessee being a private limited company. Therefore, in view of the above decision of the Allahabad High court, in case of a private limited company,....
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....ess, enquiries should be made as to who are the persons who are looking after the business and day to day affairs, such as administrative, accounts, audits etc. of these companies. These persons along with directors of these companies should be examined on oath u/s.131 of the Act. During examination of these persons, books of account of these companies should also be called for and examined while taking statements of these persons. This examination should be done in comprehensive manner in order to ascertain whether these companies are running any genuine business to earn income to generate fund out of which, investment in share capital fund of the assessee company has been made or they have only facilitated in circulation of capital from one company to another without doing any worthwhile business activity and they have come together to facilitate in issuing of shares at such a huge premium of Rs. 490/- per shares to the assessee company 2S observed by the ITAT, Kolkata in case of M/s. Subhlakshmi Vanijya Pvt. Ltd.(supra). In case, these shareholder companies are found to be having no worthwhile business and funds for investment in share capital of the assessee came only through c....
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....estment in share capital of the assessee company shown by these shareholder companies and necessary addition u/s.68 should be made on the basis of findings of the AO about Identity, credit worthiness of shareholders and genuineness of transactions keeping in view the provisions of section 68. Before passing revised order as per my directions as discussed in this para, the assessee should be confronted with .all the findings which are adverse to it, calling for its explanation on these findings and then decision for addition u/s.68 should be taken after considering the explanation of the assessee, if any filed. 8. In view of my above decision, the assessment order passed u/s. 147/143 (3) dated 30.11.2017 for A.Y.2010-11 is set aside to the extent and for the purpose of further examination and passing of a revised assessment order as discussed in previous para. The addition of Rs. 55 lakh made in original assessment order shall remain intact." 7. Learned counsel's first and former plea raised during the course of hearing is that the PCIT has erred in law and on facts in holding that assessee could not have challenged the correctness of re-opening / re-assessment in his revision ....
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.... not make any addition on account of unexplained investment in construction. It is the plea of the assessee that when no addition is made on the grounds on which re-assessment proceedings are initiated then no other addition can be made in such reassessment proceedings. 8. The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation of proceedings u/s 147 of the Act in the present appeals in which he has challenged the validity of order passed u/s 263 of the Act. The Id. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/.s 263 of the Act which seeks to revise an order passed u/s 147 of the Act, to challenge the validity of the order passed u/s.147 of the Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the Id. Counsel for the assessee placed before. us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITA 99 ITD 621 (Luck) and ITAT Mumbai ' G ' Bench in the case of M/s. Westlife Development Ltd. Vs Principal CIT in ITA NO.688/MumI2016. In both the decisions a view has been tak....
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....'ble Supreme Court in the case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193 and the decisions in the case of Indian Bank vs Manilal Govindji Khona (201:;) 3 SCC 712. The IT A T Mumbai bench also held that if order of assessment passed u/s 147 of the Act was iI1egal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 of the Act by CIT. The Mumbai Bench has in this regard placed reliance on the decision of Hori' ble Delhi bench of the Tribunal in the case of Krishna Kumar Saraf vs CIT in ITA N0.4562/DeIl2007 order dated 24.09.2015 wherein it was held as follows :- 17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the 'ye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the d....
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....we do not wish to repeat the same. Suffice it to say the law is well settled that invalidity of the primary proceedings for want of proper jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we admit the additional grounds for adjudication." 10. We conclude in view of the abstracted detailed discussion that the assessee is very much entitled to challenge validity of the above said re-assessment in collateral proceedings. 11. We now proceed to read with latter most important issue of validity of reopening/ re-assessment framed on 30.11.2017. Both the learned representatives take us to the Assessing Officer's re-opening reasoning recorded as under:- Reasons for belief that income has escaped assessment: A search & seizure operation was conducted on 25.08.2015 in the "Ghnshyam Sarada" group of cases. During the search and the post search proceedings it was found that some of the companies controlled and managed by Gopal Sarada which inter alia include Rozelle Sales & Services Pvt. Ltd has raised capital at premium during financial year 2009-10, the details is given underneath:- Sl. No. ....
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....the net loss does not in any way justify the premium the company has commanded for issue of shares during financial year 2009-10. It may be pertinent 10 mention here that during the post search proceedings statement of Shri Suresh Kumar Pansukha, entry operator was recorded u/s 131, and he accepted that the share capital was raised through his shell/jamakharchi companies which ore managed and controlled by him (Page 277 10 280 of the appraisal report). Relevant portion of the statement is furnished below: Q7. Do you know the companies namely Rozelle Sales & services Pvt. Ltd, Nillimapathy racon Pvt Ltd, P.R Niryaat pvt lld, Summon Vanijya lid and Urchi Traders Pvt Ltd? If yes, please stole the business relation between them and you. Ans: Sir, P R Niryaaat pvt Ltd, Summbn Vanijya Pvt Lld and Urchi Traders pvt. Ltd are shell/jamakharchi companies controlled and managed by me. These companies have invested in the shore capital of Rozelle Sales & Services Pvt Ltd and Nilimapathy Tracon Pvl Ltd. The exact details are not known to me now. I want to state that i have already recorded a statement in respect of Urchi Traders Pvl Ltd before the DDIT(lnv) Unit 2(3), Kolkata. Q8. I....
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....rred to the entry operator's statement (supra) that his shell/jama kharchi entities namely M/s. P. R Niryaat Pvt. Ltd M/s. Suman Vanijya, M/s. Urch Traders P.Ltd (supra) had invested in assessee's share capital. He thereafter rendered that the assessee's fundamentals could not justify the foregoing exorbitant premium. And that it had loughed back the group's unaccounted income in the guise of share capital received through shell/jamakharchi companies. 13. We observe that in this backdrop of facts of re-opening reasons that the Assessing Officer has nowhere formed his belief of assessee's taxable income having escaped assessment of ploughing back of the undisclosed income. We wish to reempahsise on the above extracted reasons of re-opening are merely an "inference " than a belief to this effect. Learned CIT/DR at this stage has filed copy of hon'ble apex court's decision (2017) 77 taxmann. com 285 (sc) Rajmandir Estates Pvt. Ltd V/s. PCIT by holding hon'ble jurisdictional high court's decision affirming the tribunal's coordinate bench's order declining various taxpayers ' appeals against the CIT's similar revision exercise in case of shell entities having subscribed to their share....
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....re-opeing based on investments, wherein the Assessing Officer had nowhere undertaken any independent enquiry. Thus lordships hold that mere such an information could not be treated as tangible material for the purpose of initiation of 148/147 proceedings. Similar case law CIT V/s. Insecticies (2013) 357 ITR 330, M/s. Sabh Infrastructure V/s. ACIT (2017) 398 198 also echoes the very ratio. The above latter judicial precedent holds that the Assessing Officer must also supply report/document as relied upon by him. Coupled with this, tribunal's co-ordinate bench's order in Great Wall Marketing (P) Ltd v/s.DCIT ITA No. 660/Kol/2011 decided on 3-2-2016 also holds a similar re-opening based on investigation report without Assessing Officer's application of mind ais not sustainable vide the following detailed discussion "7. Before us the learned counsel for the assessee filed a petition under Rule 27 of ITAT Rules. As per Rule 27 of ITAT Rules 1963, a respondent in an appeal, though he may not have appealed, may support the order appealed against any of the grounds raised against him. Since the issue with regard to the validity of initiation of proceedings u/s 148 of the Act was decided....
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....P)Ltd. A. Yr.2002-03 information received by the AO was vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which reasonable person can form belief regarding escapement of income. Reliance was placed by the learned counsel for the assessee on the decision of the Hon'ble Delhi High Court in the case of CIT vs Insceticides (India) Ltd 357 ITR 330 and CIT vs SFIL Stock Broking Ltd. 325 ITR 285 (Delhi). In both the aforesaid decisions the reasons recorded by the AO for initiating proceedings us 148 of the Act the Hon'ble Delhi High Court upheld the order of the Tribunal quashing the proceedings. Reliance was also placed on the decision of ITAT, Kolkata 'C' Bench in the case of M/s. Controlla Electrotech (P)Ltd vs DCIT in ITA Nos.1443 & 1444/Koll2014 wherein on identical facts the Tribunal was pleased to quash the reassessment proceedings. On merits the learned counsel for the assessee relied on the order of CIT(A). 9. We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter rece....