TaxTMI 
TaxTMI 
2019 (9) TMI 371
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.... 3. The assessment/re-assessment order dated 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 mo....
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.... for revision u/s.263 because in its case also, the 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 genui....
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....ch was processed under sec.143(1). Subsequently however the assessment was 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 befo....
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....ecision. Simply because the Ld. Pr. CIT was of the opinion that the enquiry was not conducted in the 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 en....
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.... section 68. As per Explanations 2, if, in the opinion of the Principal Commissioner, an order is passed without making enquiries 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 pr....
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....se in the opinion of the L.d. AR such income cannot be taxed in the hand of the assessee. Such argument of the Ld. AR also does not hold 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 assesse....
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....ntity of such shareholder companies that are not found existing on their address. (iii) For those shareholder companies that are found existing at their address, 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.(su....
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....TAT, Kolkata in case of M/s. Subhlakshmi Vanijya Pvt. Ltd. (supra) and decision of Allahabad High Court in case of Prem Castings (P) Ltd. (supra) may be drawn by the AO against the investment 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 raise....
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....ruction which ought to have been brought to tax as income of the assessee has escaped the assessment. It is the case of the assessee that in the assessment order passed u/s 147 of the Act, the AO did 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 Kuma....
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....he subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties. " 10. The ITAT Mumbai bench made a reference to another decision of the Hon'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....
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....the primary proceedings are non-est in law or void on the ground of lack of jurisdiction then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. We have already set out the ratio laid down in these decisions at cl 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 ....
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....filed by the assessee for A.Ys 2009-10 & 2010-11 have been perused. The share capital of the assessee and premium alongwith quantum of sales and profit before tax for A.Ys 2009-10 and 2010-11 is depicted below: A.Y Share capital Premium Sales Profit before tax 2009-10 68,79,000/- 90,00,000/- 4,12 crore -48,580/- 2010-11 78,79,000/- 5,80,00,000/- 6.94 crore -73,111 Clearly the sale and 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 yo....
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....acted re-opening reasons sufficiently indicate that the Assessing Officer has narrated the relevant factual backdrop of the search action dated on 25.05.2015 in M/s. Ghnashyam Sarada Group cases. He thereafter found reasons to believe that the assessee had received share application and share premium of Rs. 5 crores including latter head figure of Rs. 4.90 crores @ Rs. 490 per share. He was of the view that the assessee's sales and net loss did not justify the aforesaid exorbitant premium. The Assessing Officer referred 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 inc....
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....tion of Rs. 55 lakhs only in case of one out of three jamakharchi companies and the same stood added u/s. 68 of the Act (supra). 15. It further transpires during the course of hearing that Shri Pransukha was neither promoter nor director of the said entity. We also find that Assessing Officer's reopening reasons formed do not satisfy the settled law as per hon'ble Delhi high court's decision on the very issue in PCIT V/s. RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Del) upholding the tribunal 's order quashing similar 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 ....
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....atutory notices u/s 143(2) and 142(1) are enclosed herewith. Yours faithfully. Sd/- ( Sanjay Mukherjee) DCIT ICir-6/Kol " 8.2. The submissions of the learned counsel for the assessee before us was that the reasons recorded by the AO were mere information received from D.I.T.(Investigation), New Delhi. There was no independent application of mind by the AO based on which it can be said that he arrived at the satisfaction that the income of the assessee is chargeable to tax has escaped assessment. It was submitted that ITA No.660/KoIl20 11 Great Wall Marketing (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 ....