TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 728
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....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 identical reasons for reopening the assessments. ....
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....now 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 respect to introduction of Rs. 2,30,00,000/- approximately in the shape of share capital and Rs. 17,10.00.000 in the shape of securities premium is! questionable. 2.1. It gives reasons to believe that this company is just....
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.... 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 found to be locked. Insofar as the parties based in Kolkata were concerned, all the parties had responded by post confirming the investments made in the respective assessee companies along with documentary evidences but none of them appeared in person. With respect to the Guwahati based companies,....
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....panies 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 with copies of bank statements and ITRs. Therefore, the question of invoking the provisions u/s 68 against the appellant did not arise. The appellant has also relied on several case laws to support its claim. 3.3 I have considered the rival claims. The fact that appellant filed the requisite documents before the AO is undispute....
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....y 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. However, these findings were made available to the appellant in the assessment order and the appellant had the opportunity during the appeal proceedings to present its point of view. Significantly, the appellant has not adduced any additional evidence or established any new fact. In this view of the matter, and in view of the relief allowed to the appellant on merits, t....
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....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). 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.260/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 Off....
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....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, therefore, rendered in fructuous. It was further submitted that the Tribunal, however, in the interest of Justice, granted the Assessee the liberty to file to an application to recall the Order along with an application for the condonation of delay in preferring the said Cross Objection. The Ld. AR further submitted that the Department preferred Miscellaneous Application for the restoration of the Appeal on 21.12.2016 which was heard by this Tribunal on 28.01.2019 wherein no one had appeared for the assessee, since no notice of th....
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.... 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 enquires made by the Department on the basis of which the impugned additions were made in the hands of the Assessee were never confronted to the Assessee at any stage of the assessment proceedings, thus rendering the entire assessment proceedings as non-est, bad-in law and void ab intio." 4.1 The Ld. A.R. submitted that the assessees may be permitted to raise the additional ground to the Cross Objection as the same is a Questions of Law. In support, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Chitturi Subbana vs Ku....
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....ed 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, from the outcome of such independent investigation and enquiry, has been proved to not exist. Thus, per the Ld CIT D.R., relief could not have been granted to the assessees since the initial onus cannot merely be discharged by submitting routine details. The Ld. CIT DR submitted that the initial burden of proof u/s 68 of the Income Tax Act, 1961 (hereinafter called 'the Act') is heavily cast on an assessee to furnish an explanation with respect to any sum credited in the books to the satisfaction of the A.O. and that has not been discharged in the cases at hand. It was....
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.... 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. These reports formed the basis of the Assessment Orders. It was submitted that these reports were, however, based on an investigation conducted behind the back of the assesses and were never put to the assessees for rebuttal, as is the assessees' right u/s 142(3) of the Act. Furthermore, going by the 'Reasons Recorded', neither had the statement of Shri B.S. Bisht been provided to the assessees nor was any opportunity to cross examine him been given as is mandated by law by the decision of the Hon'ble Apex Court in Andaman Timber Industries v. CCE [2015] 62 taxmann.com. Per ....
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....paratus 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) 19 taxmann.com 26 (Del), Dwarkadhish Capital P. Ltd. 330 ITR 298 (Del HC) and CIT v. Winstral Petrochemicals P. Ltd. 330 ITR 603 (Del) that have uniformly held that the mere fact that the Inspector's Report alleges the parties to be non-existent at the given address would not give the Revenue a right to invoke section 68 without additional material in support, which as per the Ld. A.R. does not exist in these cases, since the impugned additions have been made solely on surmises and conjectures, without the Assessing Officer having brought on record any such material to discharge the s....
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.... 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 escaped assessment. The words 'reason to believe' and 'escapement of income' have been judicially interpreted by various courts to mean that the reason for the formation of belief must have a rational connection with the information received. Rational connection postulates that there must be some direct nexus or live link between the material coming to the notice of the income tax officer and the formation of the belief that there has been escapement of income of the assessee from assessment in the particular year. This proposition of law is well encapsulated by the Hon'ble Supreme Court in the following decisions: - Calcutta Dis....
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....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 the formation of the belief relating to escapement of the income of the assessee from assessment." - Sheo Nath Singh v. AACIT, 972 SCR (1) 175 (SC): "10:There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the Section. The court c....
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....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 facts and the notice issued by him would be liable to be struck down as invalid." - CIT vs. Lucas TVS Ltd., (2001) 249 ITR 306 (SC): "If there is no failure on part of assessee to disclose fully and truly material facts, wrong interpretation of accounts by AO leading to relief cannot be a ground for reopening and, thus, cannot confer jurisdiction on AO. The reason for the formation of the belief must have a rational connection with the information received. Rational connection postulates that there must be direct nexus or live link between the material coming to the notice of the Income -tax Officer and the formation of the belief that there has been escapement of income of the assessee from assessment in the....
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....r 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 preceding decisions of the Hon'ble Apex Court, for the proceedings u/s 147/148 to be held to be jurisdictionally valid, the A.O. must have in his possession specific information or material to show that the transactions of the assessees were not genuine/fictitious to establish a live link/causal nexus between the material/evidence available on record and the assessee's escaped income. However, in the present case, the 'Reasons Recorded' do not in any manner whatsoever state that the information received from the Investigation Wing or that the recorded statement of Shri B.S. Bisht points towards the share capital and/or share premium received by the assessee companies to be non genuine/bogus. 7.6 However, the A.O in the case of all the three assessees, has sought to draw conclusion based ....
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.... 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, conducted by the A.O. behind the back of the assessees. These enquiries were then utilized for the purpose of making the additions without confronting the same to the assessees, which as per Section 142 of the Income Tax Act, is impermissible in law. 7.10 To elaborate, Section142 of the Act provides for the procedure to be followed by the A.O. while making the requisite enquiries before concluding an assessment. Section 142(1) of the Act empowers the A.O. to call for information/material from the assessee. Section142 (2) empowers the A.O. to make such enquiry as may be necessary for the purpose of such assessment. Section 142 (3) mandates that the information/evidence collected pursuant to the enquiry conducted u/s 142(2), which is proposed to be utilized during the assessment, shall first be put t....
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....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 observe that the statement of Shri B.S. Bisht as stated in the 'Reasons Recorded' has not been utilized by the A.O. as the basis for passing the Assessment Orders. Therefore, we are of the view that the question of whether this statement had been provided to the assessees for cross examination or not, is not required to be gone into. However, it would not be out of place to hold that for the reasons specified above, even the statement of Shri B.S. Bisht recorded behind the back of the assessees could not unilaterally be used by the A.O. without testing the same on the anvil of cross examination as is now the settled law per the judgment in Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3. 7.14 Since the results of the enquiries conducted by the A.O. u/s 142(2) of the Act have not been confronted to the assessee....
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....ven 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 pre-01.04.2013, the assessees are required to only prove the identity, genuineness and creditworthiness of the transactions to discharge their initial burden on proof under Section 68. It has also been argued that there is no requirement in law for the assessees to prove the source of source of the investors. In support, the decisions of the Hon'ble Bombay High Court in Ami Industries (supra), the Hon'ble Delhi High Court in CIT vs. Dwarakadhish Investment P. Ltd., [2011] 330 ITR 298, the decision of the Hon'ble Guwahati High Court in Nemi Chand Kothari vs. CIT, [2004] 136 Taxman 213 (Gau), and the decision of the Hon'ble Gujarat High Court in DCIT vs. Rohini Builders, 256 ITR 360 (Gujarat) were relied upon. It has been contended that when such evidences have remained un-refuted by the A.O., the question of making an additi....
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....ess 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 the Reports prepared by the Inspectors. 10.1.0 We shall first deal with the contents of these field enquiries/ Reports conducted by the A.O. through Inspectors. A perusal of the Reports quoted in the Assessment Orders brings to light that in the case of M/s BBN Transportation Pvt. Ltd, there existed 10 Mumbai based parties and 1 Kolkata based party. In the case of M/s Goldstar Cement Pvt. Ltd, there existed 4 Mumbai based parties, 5 Kolkata based parties and 1 Delhi based party. In the case of M/s Sur Buildcon Pvt. Ltd., there existed 4 Mumbai based parties, 12 Kolkata based parties and 2 Guwahati based parties. The total number of investors across all three assesseess for the respective Assessment Years is therefore 39, with respect to which, as observed above, the assessees have submitted the requisite evidences establishing the ....
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....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 sufficiency of funds to make the respective investments in the assessee companies, the creditworthiness already stands proved in light of the decision of Ami Industries (supra). Further, since the Assessmment Years involved are all pre-AY 2013-2014, we are inclined to hold in support of the submissions and case laws cited by the Ld. A.R. which is that in order to discharge the initial onus of proof u/s 68 prior to 01.04.2013, the assessees need not be required to prove the source of source of such investors. 10.1.3 In respect of the one investor party from Delhi in the case of M/s Goldstar Cement Pvt. Ltd., the A.O. has not conducted any such enquiry u/s 142 (2) of the Act. Therefore, without conducting further enquires in order to rebut the evidences submitted by the assessees, we hold that the A.O. could not have added back the said investments ....