AI Drafter 
TaxTMI 
TaxTMI 
2021 (7) TMI 728
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....e captioned appeals have been preferred by the Department against separate impugned orders dated 19.09.2013 passed by the Ld. Commissioner of Income Tax (Appeals) - 1, New Delhi {CIT (A)} in the case of the captioned assessees, wherein the Ld. CIT (A) has deleted the impugned additions made u/s 68 of the Income Tax Act, 1961 (hereinafter called 'the Act') in respect of the share capital and share premium received by the captioned three assesses. Thus, the Departmental Appeals in all three cases are having a common issue. The Assessees have also filed their respective Cross Objections challenging the orders of the Ld. CIT (A) to the extent that the Ld. CIT (A) has upheld the assumption of jurisdiction of reopening the assessments u/s 147/148 of the Act and to the extent the Assessment Orders passed by the Assessing Officer (AO) have been passed in violation of Principles of Natural Justice. The appeals and the cross objections were heard together and are being disposed of through this common order for the sake of convenience. 2.0 The common facts relating to the three assessees are that the A.O. had, in all the three cases, issued Notices u/s 148 of the Act, after recording ident....
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....l work of steel & energy respectively/ rest of the companies are paper company, they are not doing any actual work or business. Q.8 Who are directors'of such companies ? A. I don't know name of directors at present. Generally, when we incorporate a company. On the recommendation of Sh. Brij Bhushan Singhal, Chairman of our group, we appoint directors of that company, the persons to whom directorship is offered are generally employees of group companies and are trust worthy of management". 2. The Income Tax Return of the company for the A.Y.200910 was examined and it has been found that company is having the total share capital of Rs. 2,31,00,000 and securities premium of Rs. 17,10,000/-. There is debit balance of Rs. 7,39,005/- in the P&L Account of the company. Company has shown gross total income in its ITR of Rs. 970 during the F.Y. 2008-09 (relevant to A.Y.2009-10). After careful examination of the aforesaid facts the following issues arises. (i) That a company which has been found not existing at the address of its registered/corporate office and as per the statement of Sh. B. S. Bisht which is a paper company, the genuineness with r....
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....ir objections against the issuance of notice u/s 148 of the Act by citing non-existence of any live link or casual nexus between the information on record and the reason to believe that the income of the assessees had escaped assessment. The objections of the assessees were, however, rejected by the A.O. During the course of re-assessment proceedings, certain documents evidencing the identity, genuineness and creditworthiness of the share capital and share premium received were furnished before the A.O. by the assessees in response to the notice(s) issued u/s 142(1) of the Act. These documents were in the nature of confirmations, bank accounts, and ITR Acknowledgments of the investors concerned. 2.4 The A.O. issued summons u/s 131 of the Act and also directed that spot enquiry reports be obtained in Mumbai and Kolkata (in the case of all three assessees) and additionally in Guwahati (in the case of M/s Sur Buildcon Pvt. Ltd./Globus Real Infra Pvt. Ltd.). Thereafter, the A.O. observed that the parties in Mumbai either did not respond to the summons served on them or were not found at the given address or the addresses were either incomplete or incorrect or the premises were....
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....ave;-vis M/s BBN Transportation Pvt. Ltd is being reproduced here in under {which is identical in the cases of the other two assessees (apart from the variation in figures)}: "3.2 The case of the revenue is that some of the investor companies could not be found at the given address and also that some of the investor companies responded to the summons by post but did not cause appearance before the tax authorities It is also stated that the income of many of the investor companies was too low or meagre to enable them to make such large investments in the share capital of appellant company. It is further submitted that there appears no justification for large component of share premium paid to the appellant along with the share capital. Based on these observations, the revenue has held that the subscription to share capital, including the share premium. Amounting to Rs. 9,40,00,000/- as unexplained credits of the appellants and held to be unexplained income. The case of the appellant, on the other hand, is that it had discharged its onus to establish the identity of the shareholders/applicants, and the source of the money by filing confirmations from the said parties along w....
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....nces, the conclusion based on the facts relied upon by the revenue that the share capital introduced in the companies belonging to Bhushan Group, including the appellant company, are unexplained, is premature. 3.5 In the above facts and circumstances of the matter, and in view of the case laws relied upon by the Ld. AR, the addition made cannot be legally sustained and is deleted. This ground of appeal is allowed." 2.6.2 On the ground of jurisdiction, the Ld. CIT (A) identically opined the following in the impugned orders across all the three assessees: "4.2 I have considered the assessment order and the submissions made. It is not the case that the appellant was not supplied with the reasons recorded. It raised objections to the reasons recorded, which were duly replied to by the revenue. To this extent, its claim that the reasons or results of enquiry were not supplied during the assessment is incorrect. However, do not I find from the assessment order that the result of enquiry made at Mumbai and Kolkata was made available to the appellant. To that extent, the right of appellant to know the facts and have the opportunity to rebut the evidence was not granted....
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....he investor company). 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal." Grounds of appeal in Cross Objection No.258/Del/2015: "That the order dated 19.09.2013 passed u/s 250 of the Income-tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-I, New Delhi, is against law and facts on the file and bad in law in as much as he was not justified to uphold the action of the Ld. Assessing Officer in resorting to the provisions of Section 148 of the Income-tax Act, 1961." Grounds of appeal in ITA No.6176/Del/2013: "1. The order of Ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld. CIT (A) has erred in deleting the addition of Rs. 9,40,00,000/- made by AO without appreciating the fact that the identity and the creditworthiness of the investors were not established as all the investors were showing a nominal income and neither the investor company and nor the assessee company had produced any proof to substantiate the creditworthiness of the investors (for example balance sheet of the investor company). ....
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....CIT CC-3 vs. M/s Goldstar Cement Pvt. Ltd. in ITA No. 6177/Del/2013 for AY 2008-09. It was submitted that the said assessee had filed an application for condonation of delay which was also accompanied by an affidavit. The issue with respect to the condonation of delay was addressed by the Ld. Counsel. He reiterated the facts narrated in the application, which may be summarized as under: 3.1 It was submitted that the Department had initially preferred an Appeal before this Tribunal on 12.11.2013 after the Ld. CIT (A) had deleted the addition made by the A.O. vide Order dated 19.09.2013. It was submitted that the said appeal was numbered as ITA No. 6177/DEL/2013. It was further submitted that the assessee had, thereafter, filed the necessary Cross Objection (No. 261/DEL/2013) to the said Appeal on 09.05.2015 which was delayed by 579 days. 3.2 The Ld. AR further submitted that the said Appeal and the Cross Objection were listed for hearing before the Tribunal on 07.01.2016 wherein the Revenue's Appeal was dismissed for being defective because only one set (out of the four sets) of Form 36, the GOA and the Verification were signed. The Cross Objections of the assessee were,....
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....nsidering the series of events and the submission of the Ld. A.R, we are of the considered opinion that in the interest of Justice and fair play, the delay needs to be condoned. The bona fide of the reasons have not been assailed by the other side and, therefore, we condone the delay caused in the filing of the Cross Objections before the Tribunal in case of ACIT CC-3 vs M/s Goldstar Cement Pvt. Ltd. ITA No. 6177/Del/2013 for AY 2008-09. 4.0 Now we take up the application for the admission of an additional ground which is identical in the cases of ACIT, Central Circle-13, New Delhi Vs.BBN Transportation Pvt. Ltd., ITA No. 6176/Del/2013 & CO 260/Del/2013 for A.Y. 2008-09 & ACIT, Central Circle-13, New Delhi Vs. Sur Buildcon Pvt. Ltd. (now known as Globus Real Infra Pvt. Ltd.), ITA No. 6174/Del/2013 & CO 258/Del/2013 for A.Y. 2009-10. The said additional ground reads as under: "That the Ld. CIT (A) vide order dt. 19.09.2013 passed u/s 250 of the Income Tax Act, 1961 erred in dismissing the appeal of the Assessee challenging the order of the Ld. DCIT, CC-13, New Delhi to the extent it was passed in violation of principles of natural justice in as much as the results of enq....
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....e Ld. CIT D.R., on behalf of the Revenue, defended the Assessment Orders by submitting that the A.O. had conducted necessary investigations and enquiries to hold that the genuineness of the transactions have not been proved and neither have the same been explained by the assessees. The Ld CIT D.R. submitted that the Ld. CIT (A) had erred in overturning the findings of the A.O. in a summary manner without establishing how the assessees had effectively rebutted the detailed and adverse findings emanating from the enquiries conducted by the A.O. The Ld. CIT D.R. submitted that the assessees had only submitted routine details which were nothing but a façade to cover the real picture. Per the Ld. CIT D.R., the investors, who have put in substantial money in the assessee companies, cannot simply disappear or become untraceable over time, and, if, the said investors were genuine, the onus was on the assessees to satisfy all the queries raised by the A.O. and produce the parties. 5.2 The Ld. CIT D.R. submitted that it was visible from the Assessment Orders that an extensive investigation had been conducted by the A.O.in order to verify the genuineness of the transactions, which, ....
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.....R., the 'reasons recorded' in the present cases cannot be the basis on which any such 'reason to believe' could be arrived at which would even prima facie show that the share capital or share premium received by the assessees for the AYs under appeal was not genuine. Per the Ld. A.R., the A.O. must have in his possession specific information or material to show that the particular transactions of the assessees were not genuine or fictitious. It was submitted that this specific information was, however, absent in the cases at hand, thereby rendering the entire reassessment/s to be in the nature of fishing and roving enquiries, based solely on 'borrowed satisfaction' drawn from the statement of Shri B.S. Bisht recorded by the Investigation Wing. The Ld. AR submitted that the same is impermissible in law in light of the several cited decisions of the Hon'ble jurisdictional Delhi High Court. 6.2 On the violation of the Principle(s) of Natural Justice, the Ld. A.R. submitted that while making the impugned additions, the A.O. has primarily relied upon the Reports of Inspectors who had been deputed to conduct field enquiries in order to verify the genuineness of the investor companies....
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.... and, therefore, the figure of 41 is fictitious. Further, if postal replies had been submitted by 39 investor companies, which is, in fact, the total number of investors in all, then how has the A.O. made an addition u/s 68 by holding that 19 Companies that were based in Mumbai and Guwahati were either not served the summons or they never responded? Thus, per the Ld. A.R. the Reports clearly cannot be relied upon to make any adverse inference against the assessees. 6.6 The Ld. A.R. also submitted that the mere fact that the investor companies did not have their own profit-making apparatus or had reported meagre income did not ipso facto mean that the investors had no creditworthiness. As per the decision of PCIT-1 Vs. Ami Industries Ltd. [2020] 116 taxmann.com 34 (Bom),the investments may be made from own funds available in share capital/reserves account or out of borrowed funds and not necessarily out of taxable income only, further the bank statements also evidence the sufficient availability of funds of the creditors. 6.7 Our attention was next drawn to the decisions of the Hon'ble Jurisdictional Delhi High Court in the cases of CIT-II v. Kamdhenu Steel & Alloys Ltd. (2012....
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....e material and the relevant provisions of the Income Tax Act. We also have gone through the case laws relied upon by the Ld. A.R. Before deciding on the issue as to whether the invocation of jurisdiction u/s 147/148 was valid or not, it is expedient to discuss the relevant provisions involved. The relevant portion of Sec. 147 of the Act reads as follows: "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153referred to as the relevant assessment year): ................" 7.2 The crucial element that emanates from the reading of the aforesaid provision is that the Assessing Officer should have 'reason to believe that any income chargeable to tax has e....
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....e has been under assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information." - ITO v. Lakmani Mewal Das, 1976 103 ITR 437 (SC): "As stated earlier, the reasons for the formation of the belief must have a rational connection with 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 Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time, we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant t....
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....) Ltd. v. ITO, [1981] 130 ITR 1 (SC): "6. ......... The important words under section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the ITO 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. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a ). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material ....
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....mpanies were being run from the said premises - that the main companies of the group were M/s. Bhushan Steel Ltd. & M/s. Bhushan Energy Ltd. and the remaining companies were allegedly paper companies not doing any actual business. - that the directors of the companies run from the said premises were generally employees of the group companies. 7.4.1 Based on the same, the A.O. concluded that the share capital and share premium received by the assessees were 'questionable' in nature and he concluded that he had 'reasons to believe that the assessees were just paper companies established for introducing money from unexplained sources. 7.5 The aforementioned 'Reasons Recorded' neither discuss nor bring on record any specific information showing that any particular transactions made between the assessees and the concerned investors were not genuine/fictitious. Thus, it is apparent from the 'Reasons Recorded' itself that there is no specific information/material in the possession of the A.O. to back his claim that the share capital or share premium received by the assessees for the Assessment Years under appeal was not genuine/ bogus. As encapsulated in the preced....
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....We shall now proceed to adjudicate the next Cross Objection taken by the assessees, which is in respect to the violation of Principles of Natural Justice since the enquiries made by the Department and the subsequent Inspector Reports which formulated the foundation of the impugned addition(s) were never confronted to either of the assessees at any stage of the reassessment proceedings. On a perusal of the Assessment Orders, it is amply clear that the A.O., primarily, had relied upon the Inspectors Reports that was based on the field enquiries conducted to ascertain the genuineness of the investor companies. As is made evident from the Assessment Orders itself, the Inspectors, vide their respective Reports, have stipulated that upon enquiry, either the concerned parties were not found to be existing at the given address, or the addresses were not found, or the premises was found locked. The results of such field enquiries were not brought to the knowledge of the assessees prior to the passing of the Assessment Orders. This fact, when pointed out by the Ld. A.R. has not been disputed by the Ld. CIT D.R. also during the course of hearing before us. The enquiries were, thus, conduct....
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....rmation coming to him to verify authenticity of information was not done as per section 142 of the Act.Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. This is because section 142(2) mandates any such material adverse to the facts of assessee collected by AO u/s 142(1) has to be necessarily put to the assessee u/s 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through the process of assessment u/s 143(3) of the Act." 7.12 We also draw support from the judgment of the Hon'ble Apex Court in Swadeshi Cotton Mills v. Union of India, AIR 1981 SC 818, where the Hon'ble Supreme Court has clearly held that "Where authority functions under a statute and the statute provides for the observance of the principles of natural justice in a particular manner, natural justice will have to be observed in that manner and no other. No wider right than that provided by the statute can be claimed nor can the right be narrowed." 7.13 We further obse....
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....e assessees, by merely submitting routine documents, have not discharged the initial burden of proof that vested on them u/s 68 of the Act. The Ld. CIT DR has further submitted that when any such doubt on the genuineness of the investor companies exists in the mind of the A.O., then the law laid down in Lovely Exports (supra) will not apply since the said decision of the Hon'ble Supreme Court has been distinguished in favour of the Revenue by several decisions of the Hon'ble jurisdictional Delhi High Court such as CIT vs. Navodya Castles, [2014] 50 taxmann.com 110, CIT vs. Sophia Finance Ltd., 205 ITR 98 (Del.) (F.B.), N.R. Portfoilio Pvt. Ltd., 87 DTR 0162 (Del) and 96 DTR 0281 (Del), MAF Academy Pvt. Ltd., 361 ITR 02858 (Delhi), etc. - which, therefore, means that in the instant cases, the assessees ought to have also proven the source of source of the investor companies to establish their genuineness. 9.1 The Ld. A.R., on the other hand, has submitted that all the documents establishing the identity, genuineness and creditworthiness of the transactions had been submitted before the A.O. who has failed to refute them in any manner. It was submitted that is now settled law that....
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.... passing the Assessment Orders, did not raise any doubts with respect to the documentary evidences submitted before him by the assessees. It is again not in dispute that all the investments (in the form of share capital and share premium) have been duly made via banking channels where the investor companies have shown sufficient balances in their bank accounts to make such an investment in the assessee companies. Further, upon a perusal of the bank statements brought on record by the assessees, it is also evident that no cash was found to have been deposited in the bank accounts of the investor companies. All the investor companies (in the case of all the three Assessees) are registered companies and are assessed to tax also, as is evident from the bank statements and/or the ITR Acknowledgments. Therefore, the identity, genuineness of the transaction and the creditworthiness of the investor companies have been proved by the assessees and they have successfully discharged the initial burden of proof that vested on them u/s 68 of the Act. The A.O. has nowhere, in the Assessment Orders, disputed this information/material submitted by the assessees and has merely sought to rely on t....
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....gone unexplained. Any reliance on the same, is, therefore, questionable. In fact, had the said Kolkata based Reports been confronted to the assessees u/s 142 (3) of the Act, such inconsistencies would have been pointed out and rebutted by the assessees during the course of the assessment proceedings itself. However, since the same had not been done by the A.O., the assessees while in appeal, had to explain that all evidences establishing the 3 ingredients of Section 68 had been furnished, where all the Kolkata based parties had responded via post, citing their confirmations with documentary evidences in support - none of which had been refuted by the A.O. 10.1.2 Furthermore, a perusal of the Kolkata based Reports, shows that the same accepts that the bank statements evidencing the receipt of payment via cheque had been produced by the assesses. However, the Reports have also stated that "the assessee has not enclosed the bank statement showing the source of fund for share application money" meaning that per the Department, the source of source was also required to be proved. However, as already opined, since the bank statements of all the investor companies evidence a suffici....
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.... of the Ld. CIT - D.R. who has stated that the assesses must prove the ingredients of identity, genuineness and creditworthiness of the credit entries to the satisfaction of the A.O. and, where, if any doubt on the genuineness of the investor companies exits in the mind of the A.O., then even the source of source must be established, we observe that the critical difference here is that these Inspector Reports have remained unconfronted to the assessees. Had the same been confronted u/s 142 (3) of the Act and to which had the assesssess not offered any explanation, the burden of proof would had shifted back unto the assessees after the A.O. would have brought on record that the initial onus could not have been said to be discharged by the assessees. It is in that context, that the various decisions cited by the Ld. CIT - D.R. would have found relevance, requiring their contextualized application to the facts of this present case. 10.3 We further observe that in the list of cases cited by the Ld. CIT - D.R., the cases pertaining toSec.147/143(3) assessments have no applicability to the present facts since in those cases, the Reasons Recorded clearly specify that the information av....