TaxTMI 
TaxTMI 
2019 (12) TMI 1189
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....ties below being arbitrary, unjust and invalid in the law liable to the quashed and it is prayed to Your honor that they please be quashed and / or any other relief just deem fit and proper please be directed. Appellant pray accordingly." [B] Vide Assessment Order dated 31.03.2014 passed under Section 143(3) / 147 of the Income Tax Act, 1961 (in short "the Act"). The relevant portion of the Assessment Order dated 31.03.2014 is reproduced as under:- The assessee has filed its return of income on 19.11.2006 declaring income of Rs. 52,59,189/-. Assessment in this case was completed u/s 143(3) on 27.10.2008 at income of Rs. 66,17,980/- which was further revised at Rs. 66,23,048/- vide order o/s 154 passed on 27.10.2011. Later on, on the basis of information received from Director of Income Tax (Inv.)-II, New Delhi, notice u/s 148 was issued on 25.03.2013 to the assessee after recording reasons as reproduced below:- "REASONS FOR rssUING NOTICE U/S 148 OF THE I. T. ACT 1961 M/s Ramdev Rice Pvt. Ltd. Vill. Daha, A.Y. 2006-07 Return in this case was filed on 21.11.2006 declaring income of Rs. 52,59,189/- and assessment u/s 143(3) was completed on 27.10.2008 at incom....
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....during the assessment year under consideration from Private limited Companies as per detail given in the letter dated 21.01.2014 and that you have no association or transaction with Sh. Surinder Kumar Jain Group case. 2. You have contended that share capital under consideration has already been disclosed in the return and that action has been initiated upon suspicion and there is no material with the Department for formation of the necessary belief. As per proviso (i) to Sec147, where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of fur 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 the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation (I) to section 147 reads as under:- "Production before the Assessing Officer of accoun....
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....the Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable. in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing afresh inference from the same facts and material which was available with the ITO at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis Of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be a disclosure of the 'true ' and full facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred tie completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but his failure to do so and complete the original assessment proceedings would, not take away his jurisdiction to act inder sectio....
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....he twin conditions prescribed in section 147(a) that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. The argument that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto is not acceptable. The argument is too broad and general in nature and does violence to the plain phraseology of section 147(a) and 148 and is against the settled law. One has to took to the purpose and intent of the provisions. One of the purposes of section 147 appears to be to ensure that a party cannot get away by willfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would, be traversty of Justice to allow the assessee that latitude. " Twin conditions set out by the apex Court as above are met in your case. In the case of AGR Investments Ltd. vs. Addl. CIT & ....
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....ccommodation entries and they were not genuine transactions. It was neither a change of opinion nor did it convey a particular interpretation Of a specific provision which was done in a particular manner in the original assessment and was sough! to be done in a different manner in the proceeding under section 147. The reason to believe had been appropriately understood by the Assessing Officer and there was material on the basis of which the notice was issued. The Court, in exercise of jurisdiction under article 226 Of the Constitution of India pertaining to sufficiency of reasons for formation Of the belief, cannot interfere. The same is not to be judged at that stage. [Para 22] In the instant case, the assessee was desirous of on adjudication by the writ Court with regard to the merits o the controversy. In fact, it required the Court to adjudge the sufficiency Of the material a to make a roving enquiry that the initiation of proceedings under sections 147 and 148 was not tenable. The same does not come within the ambit and sweep of exercise of power under article 226 of the Constitution of India. It was open to the assessee to participate in the reassessment proceedings....
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....bjections filed by you against issue of notice u/s 148 are disposed off. In order to complete the time-barring assessment for the A. Y. 2006-07 in your case, notice u/s 142(1) & 143(2)for 18.03.2014 are enclosed herewith for compliance. Sd/- (Himanshu Roy) Asstt. Commissioner of Income Tax, Circle, Karnal. 3. Notices u/s 143(2) & 142(1) were issued and hearing took place on various dates. Information called for from time to time was furnished. Vide letter dated 27.03.2014, assessee was asked to show cause why not Rs. 90 Lacs be added to the returned income u/s 68 as cash credit in the A. Y. 2006-07 as the explanation offered about the genuineness is not. satisfactory in the opinion of AO because of reasons discussed in this show cause as reproduced below:- "No. ACIT/KNL/2013-14/ Office of the Asstt. Commissioner of Income tax, Circle, Karnal Dated: 27.03.2014 To M/S Ram Dev Rice Pvt- Ltd., V & PO Daha, Distr. Karnal D/Sirs, Sub:- Show cause notice for completing assessment u/s 143(3) of the IT Act. for the A. Y. 2006-07 - Regarding- *** Please refer to the above. 2. In this connection and in continuation ....
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....erating from the same premises, i.e., EuroAsia Mercantile Pvt. Ltd., and Mega Top Promoters Pvt. Ltd. All this fact lay credence to the claim that these are paper concerns controlled by Surendra Jain Group. Upon perusal of data from MCA and ITR, it can be seen that all these capital introduces companies in the assessee company for A. Y. 2006-07 as mentioned earlier in the show cause letter have huge shareholder fund in the form of share capital and/or share premium and very less returned income including nil figure. A prudent business concern would have used its fund judiciously to earn more income out of capital. The subscriber companies in, this context are not doing justice to their shareholders by not earning enough income by not investing wisely. Such correlation of huge shareholder fund with low returned income is the characteristic of entry operator companies, where huge shareholder fund in the form of share capital and share premium is built through routing of money to fund the beneficiary company with capital and share premium. It is this design which serves as conduit for accommodation entry'. Also, upon perusal of MCA data of one of the subscri4er company to th....
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....ice on 28.03.2014 & 29.03.2014 as reproduced below:- "28th March 2014 The Assistant Commissioner of Income Tax, Central Circle, Karnal. Ref:- M/S Ram Dev Rice Private Limited .Assessment Year 2006-07. Sub- Reply to Show Cause Notice Sir, Please refer your show cause notice dated 27th March 2014, where in inter alia the assessee is show caused to explain why the share capital and share premium received by assessee during the year under review should not be charged to Tax u/s 68 of the Income Tax Act, 1961. In this regard without prejudice to our earlier submissions filed before Your Honor during the Assessment Proceeding we on behalf of above named assessee respectfully wish to submit as follows:- 01. During the year under review the assessee received share capital and Share Premium of Rs. 9000000/- from corporate assessee through proper Banking channel. The amount received through proper banking channel is not in doubt as per show cause notice. The genuineness of transaction is proved, as receipt of share capital is through proper banking channel. 02. To further substantiate the transactions, we would like to prove the identity of shareholders and cred....
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....owing decisions which is squarely covering the case in our hands:- a. The Hon'ble Supreme court Of India in special leave petition no. cc. 375/ 2008 Dated 21.01.2008 in the case of commissioner of Income Tax V. Lovely Exports Pvt. Ltd. Reported in 216- CTR - 195 Held That:- "The Share Application money is received by Assessee Company from alleged bogus Share Holders, whose names are given to the Assessing officer then the Department is free to proceed to re-open their individual assessment in accordance with law. Hence we find no infirmity with the impugned judgment" The Department SLP was dismissed by Hon'ble Apex Court of India in the above stated case, which arises from the decision of Hon'ble High Court of Delhi in the Case of divine Leasing & Finance Ltd. Reported in 2007-158-Texmann-440(Del) wherein their lordship decided the issue in favor of Assessee. b. The Hon'ble High Court of Delhi in its judgment dated 23 d December, 2011. In bunch of 11 appeals taking the lead case as ITA no. 972/2009 dated 23.122011 in the case of CIT vs. Kantdhenu Steel and Alloys Ltd. since Reported in 2012 - 68 - DTR - 38 Del and approved by Apex....
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....eturn, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake, this could yet another be contributing factor in the direction AO wanted to go. Likewise, when the bank statements were filed, the AO could find out the address given by those applicant companies in the bank, who opened the bank accounts and are the signatories, who introduced those bank accounts and the manner in which transactions were carried out and the bank accounts operated. This kind of inquiry would have given some more material to the AO to find out as to whether the assessee can be convicted with the transactions which were allegedly bogus and or companies were also bogus and were treated for namesake. We say so with more emphasis because of the reason that normally such kind of presumption against the assessee cannot be made as per the law laid down in various Judgments noted above. Just because of the creditors/share applicants could not be found at the address given it would not give the Revenue a right to invoke Section 68 of the Act without any additional material to support such a m....
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....ope of Sections 68 and 69 of the Act. On the on hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessee herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies aye asked to find oat from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgments in laying down that the Department is not remediless and is free to proceed to reopen the individual of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely E....
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....as been noted by the tribunal also under the circumstances, we are of the view that the tribunal has not committed any error in deleting the addition. No substantial question of law arises, Dismissed" f. The Hon'ble Jurisdictional Hi h Court o Delhi in the case of CIT V. Divine Leasing & Finance Ltd, General Export Credits Ltd. And Lovely Exports P. Ltd. Reported in 2008-299-ITR-268 (Del) held that:- Head Note:- Cash credits - company - Amounts shown as share capital effect of section 68 - burden of proof - assessee must prove identity of shareholders, genuineness of transaction and creditworthiness of shareholders - No adverse inference if shareholders fail to respond to notice by Assessing officer -- Duty of Assessing Officer to investigate credit worthiness of shareholders -finding that Assessee company had proved genuineness of shareholders- Additions of part of Share Capital under section 68 -Not justified- income tax Act, 1961, s. 68. Approved by Apex Court of India in 2009 - 216 - CTR -195 (SC) CITvs. Lovely Exports Pvt. Ltd g. The Hon'ble Supreme Court of India in the case of E.P. Royapna vs. State of Tamil Nadu Reported in 197....
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.... share premium of the assessee was accepted as genuine. Hence action of Ld. Assessing Officer to re-examine the same issue which is decided in favour by assessee by his predecessor after detail examination amount to review, and review is not allowed in law. Authorities on these points are:- CIT vs. Kelvinator of India Reported in 2010 - 320 - ITR - 561 (SC), where in the Apex Court of India held that "the AO does not have power to review", 2012 - 77- DIR -396 (Del) (FB) CIT vs. Usha International Ltd. a. From the perusal of the reason, it is evident that the action has been initiated upon suspicion and there is no material with the department for formation of the necessary belief. The assessee has already requested that the Return Of Income filed on 29th November 2006 may kindly be treated as filed in compliance to the notice under section 148 of the Act. b. The relevant extracts from the Supreme Court decision in the case of GKN Driveshaft (India) ltd. V. ITO (2003) 259 ITR 19 are reproduced herein below: "We clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file a return and if he so de....
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....hen the department seeks to allege that the share capital received during the year by are "ACCOMODATION ENTRIES", it is settled principal of law that the department has to prove the same by laying positive, cogent, specific and reliable evidence about it. Reference may kindly be made to the following: Kalwa Devadattam v. UOI (1963) 49 ITR 165, 174 (SC) CIT v. Durga Prasad More (1971) 82 ITR 540 (SC) CIT v Daulatram Rawatmull (1973) 87 ITR 349, 360-1 (SC) In similar circumstances, special bench of ITAT has held that any general information contained in letter of Assistant Commissioner, Investigation Circle, is not relevant material to sustain initiation of reassessment proceedings. Since information coming to assessing officer was neither specific, nor reliable and relevant against the assessee, it would not prove that what was disclosed by the assessee in return filled earlier was not true and correct. Kindly refer- Durga Prasad Goyal v. 110 (2006) 98 ITD 227 (Asr.) (SB) An assessing officer has no power to review his own order. No action can be initiated merely on change of opinion as per decisions in following cases: Sardar Kehar....
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....is right is so fundamental that it cannot rectified by appellate authority by giving suck opportunity". 2001-249 -ITR-554(SC) Vijay Kumar Sharma 2001-249-ITR-216(SC) Tin Box Co. 1980-125 -ITR- 713 (SC) Kishan Chand Chela Ram Another allegation of in show cause notice is that the directors of Share Holders Company and their Books of Account are not produced for verification In this regard we most respectfully wish to submit that, it was never asked to produce the Directors of share Holdings Company or their Books of Account. Let it be as it is Your Honor, the appellant respectfully wish to put it record and submit that the shareholders are existing, assessed to Income Tax and the appellant is ready to produce the Directors/Principal officer of shareholder's company before any authority of law. Your Honor may please direct the assessee to produce the directors/principal officer of Share Holders Company before Your Honor for verification and examinations. The another allegation of Ld. Assessing Officer the share holders have shown the meagre income in their Income Tax Return and assessee routed its unaccounted money through share capital & share pr....
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....e and not camouflage and secondly the transaction should duly recorded in the Books of share applicants, if these two conditions are satisfied then no addition should be made". 2. In addition to above the assessee place reliance on following decision. a. The Hon'ble Supreme court or India in special leave petition no. cc. 375/ 2008 Dated 21.01.2008 in the case of commissioner of Income Tax V. Lovely Exports Pvt. Ltd. Reported in 216- CTR -195 Held That:- "The Share Application money is received by Assessue Company from alleged bogus Share Holders, whose names are given to the Assessing officer then the Department is free to proceed to re-open their individual assessment in accordance with law. Hence we find no infirmity with the impugned judgment" b) 2013- 354 - ITR - 296 (Del)-CIT vs. Kinetic Capital Finance Ltd., c) 2013 - 354 - ITR- 282 (Del), Mod Creation P. Ltd. vs. ITO d) 2013-357- ITR - 143 (Del) CIT Vs. Fair Finvest P. Ltd. e) 2013- 96 - DTR - 299 (Del) CIT Vs. Gangeshwari Metal P. Ltd. f) 2013 -89 -DTR- 342 (Del) CIT vs. Nipuan Auto Pvt. Ltd g) 2013 -TIOL-516-ITAT-Del CIT Vs. CNR Leading Sofiech....
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....of companies and concern including 4 shareholders companies namely KDG Properties and Construction Pvt. Ltd., Karishma Industries Ltd., Vogue Leasing and Finance P. Ltd. and World link Telecom Ltd. For a search which took place on 14.09.2D10, it will be difficult to exactly find all the evidence from cash book to bank entry for a period belonging to F. Y, 2005-06. Seizure of certain documents which point towards the fact that investor companies are controlled by entry operators should itself be sufficient to establish ingenuineness of the transaction. Also, as can be made out from the statements of Sh. Surendra Kumar Jain and She Virendra Kumar Jain, even to most obvious reference to the accommodation entry evidence obtained from them, they have remained evasive. So it is hardly expected that only when reference to assessee company is made then only presumption of unexplained credit can be made. These companies who are shareholder in the assessee company, being controlled by the entry operator, itself points towards the doubt towards genuineness transaction between these companies and assessee company.Following is the discussion on statement of Sh. Surendra Jain and Sh Virendra Jai....
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.... Ltd. are entities controlled by S.K. Jain Group as can be evidenced from the copy of evidence as part of enclosure attached with show cause notice. 6. Assessee's contention that no incriminating document related to them have been found is not acceptable as documents related to investor company particularly in the nature of being controlled entity (bank statement of investor companies, pay order of investor companies, specimen signature verification letter, statement in the form of bank instructions - have all been obtained from computers of Sh. S.K. Jain and Sh. V.K. Jain) 7. Vide order sheet entry dated 28.03.2014, when AR was confronted with copy of evidence. He replied that documents pertaining to investor companies of the assessee may be there because their director, financial advisors and consultants of these companies. However the AR says that they do not know Sh. SK. Jain and Sh. V.K. Jaip, they know only the investor companies. 8. AR's contention is not tenable and untrue. Sh. Virendra Kumar Jain is the director of M/S KDG Properties & Construction Pvt. Ltd. For the remainihg 3 investor companies neither Sh. S.R.' Jain or Sh. V.K. Jain is the director.....
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....rajulu Mudaliar v. CIT [1958] 34 ITR 807, Supreme Court observed that it was not the duty of the Revenue to adduce evidence to show from what source, income was derived and why it should be treated as concealed income. The assessee must prove satisfactorily the source and nature of cash received during the accounting year. Similarly observations were made in CIT vs. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC), inter alia holding that it was not necessary for the Revenue to locate the exact source. This principle was reiterated in CIT vs. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. In Yadu Hari Dalmia vs. CIT [1980] 126 ITR 48, a Division Bench of Delhi High Court has observed:- "It is well known that the whole catena of sections starting from s. 68 have been introduced into the taxing enactments step by step in order to plug loopholes and in....
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....pparent is real and if the transaction fails to withstand the test of human probabilities it has to be taken as ingenuine transactions even if documentary evidence suggest otherwise. The same principle has been enunciated in a recent case of Somnath Maini vs. CIT [2008] 306 ITR 414 (P&H). In view of the above, amount Rs. 90,00,000/- of claimed to be received as share capital shown in the share premium account is added to the income of the assessee u/s 68 of the IT Act, being unexplained cash credits. I am satisfied that assessee has concealed particulars of its income of Rs. 90,00,000/- as above, therefore, penalty proceedings u/s 21 are being initiated separately. With the above observations, income of the assessee is computed as under:- Income assessed vide order u/s 143(3) dated 27.10.2008 / 154 dated 27.10.2011 = Rs. 66,23,048/- Add: as discussed in para above = Rs. 90 OO 000/- Total taxable Income = Rs. 1,56,23,048/- Rounded off = Rs. 1,56,23,050/- Assessed at income of Rs. 1,56,23,050/- Charge interest u/s 234B & 234C of the I.T. Act. Issue penalty proceedings u/s 274 read with section 271 (1)(c) of the IT Act. Issue requisit....
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.... a) The AR has submitted that in the present case, the original assessment had been completed u/s 143(3) of the I.T. Act and the notice u/s 148 was issued on 25.03.2013, i.e. after expiry of four years from the end of the relevant assessment year. The AR has argued that in view of the Proviso of Section 147, reopening of the assessment and only be done if there is failure on the part of-the assessee to disclose full and true facts necessary for assessment. However, in the present case there was no allegation by the AO that the appellant had failed to disclose fully and truly all material facts before the AO. b) The AR relied upon various judicial pronouncements to argue that considering the reasons recorded by the AO and the facts of the case, since there was no case to establish that the assessee had failed to disclose all material facts necessary for assessment, there was no justification for reopening of the assessment beyond four years. The AR has submitted that the reopening of the assessment was not justified as there was no material to show that the assessee had failed to disclose all material facts necessary for Assessment. 3.3 Findings:- After going ....
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....the contentions and Grounds of the appellant are dismissed. 4. Ground Nos. 2 & 3 These Grounds relate to addition of Rs. 90 Lacs on account of share capital and share premium. 4.1 On. going through the assessment order, the main observations of the AO can be summarized as follows:- a) The AO has elaborately discussed from Pages 8 to 29, the circumstances and facts which indicated that the amount of Rs. 90 Lacs taken for the S.K. Jain Group of cases were only bogus transactions pertaining to entry operator. The AO has highlighted that on the basis of. specific documents in the form of Annexure A1 to A 163 as well as other documents marked BI and BIis uI it was clear that accommodation entries have been taken by the firm from four concerns which were actually paper concerns and controlled by Sh. Surender Jain and Sh. Virender Jain, who were the accommodation entries provider. b) The AO has highlighted that all these firms were operating from only one address where several other paper entities were being run by Sh. S. K. Jain Group. c) The AO has also highlighted that on analysis of these paper concerns, it was observed that there was huge share hol....
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....es, copy of income tax returns, copy of bank statement and copy of audited statement of the account of these shareholders. The AR emphasized that all the four parties were existing income tax assesses and transactions were through proper bank channels. b) The AR has further emphasized that the AO has not conducted any independent enquiry before making the additions and also not disposed the identity, genuineness and creditworthiness of the shareholders. It was also emphasized that in the case of three shareholders assessment had been completed u/s 143(3)/153 of the I. T. Act. The AR therefore highlighted that since Department had accepted the I.T. returns of three parties u/s 143(3), there was no justification for disputing the genuineness and creditworthiness of the parties from whom the amounts had been received. c) The AR of the appellant has also emphasized that the assessee had discharged its onus for establishing the identity, genuineness and creditworthiness of the parties. The AO has also emphasized that in the statement given by Sh. Surender Kumar Jain and Sh. Virender Jain, their contentions have mostly been evasive and there was no specific information ....
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....icated that various companies in this group were not carrying out bonafide business activities and there was no transparency and justification for such huge amounts in the Balance Sheet of these companies with negligible income earned during the year. Merely because PAN Nos. were provided alongwith income tax returns and the transactions were conducted through banking channels does not lead to the conclusion that the transactions with these four entities were bonafide. c) Reliance is being placed upon the following judicial pronouncements in this regard:- i) CIT vs. Nova Promoters & Phinlies in ITA No. 342 of 2011 (Delhi). ii) CIT Vs. Independent Media Taxman Delhi (2012). iii) CIT vs. N.R. Portfolio Pvt. Ltd. in ITA No. 134/2012 (Delhi). iv) A. Govinda Rajulu Mudaliyar (34 ITR 807) v) Aggarwal Coal Corporation Pvt. Ltd. Vs. ACIT 63 DTR 201 (ITAT, Indore). On the basis of the above and various other decisions, it is clear that in the factual matrix of the present case, where entries had been taken from paper companies and Credit worthiness of the Parties as well as the genuineness of the transaction had not been discharged by....