TaxTMI 
TaxTMI 
2021 (8) TMI 58
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....ition of Rs. 4,36,621/- as unexplained expenditure on account of brokerage 3 On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that the initiation of action u/s 147 of the Act, is invalid and void ab-initio 4 That the grounds of appeal are without prejudice to each other 5. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal." 3. The brief facts are that the assessee is engaged in the business of investment, sales and purchase of shares and has filed its return of income on 31.03.2009. The assessee's case was reopened u/s.148 by issuance of notice on 18.08.2015 on the following reasons recorded:- M/s. Rajni Sales Pvt. Ltd. A.Y. 2008-09 In this case, the return declaring income of Rs. 3,469/- was e-filed on 31.03.2009 vide acknowledgment No.66842781310309. It was processed u/s.143(1) of the IT Act at returned income. A search and seizure action in Surya Prakash Group of cases was carried out on 30.10.2012. During search, in his statement recorded u/s.. 132(4) of the IT Act on 11....
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....en. The fact has been admitted by the chairman of the group and the entry operator. From the examination of records of company, it is found that the amount of Rs. 8.32 crore has been invested in M/s. Prakash Industries Ltd. grou. The funds raised by assessee by way of share application and investments are shown to have been received from companies which are paper companies and run by entry operators. Hence the source of funds is non genuine. The said amount is liable to be taxed. Therefore I have reason to believe that income of Rs. 8.32 crore has escaped assessment for the Assessment Year 2008-09 by reason fo failure on part of assessee to disclose fully and truly all material facts necessary for its assessment. Therefore in my opinion it is a fit case for issue of notice u/s..148." 4. Thereafter, assessee has filed detailed objection against initiation of proceedings which have been disposed of by the ld. Assessing Officer. In the assessment order, the Assessing Officer has made following additions. a. Unexplained cash credit under section 68 of the Act Rs. 8,73,24,240/- on protective basis. b. Unexplained expenditure on account of brokerage....
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....llegedly admitted that unaccounted cash was introduced in the books as share capital which according to the Assessing Officer constitutes material for reopening. First of all, he clarified that the share capital of Rs. 8.32 crore was not received during the impugned assessment year, therefore, entire reasons to believe stands at a wrong footing and there is no escapement of income for this assessment year. He further submitted that the amount of Rs. 8.32 crore is factually incorrect and is Rs. 8.73 crore out of which Rs. 4.36 crore was invested in Prakash Industries Ltd. during the relevant assessment year only. Even otherwise detail retraction was made by Shri Ved Prakash Agarwal in November, 2012 only and the reason to believe have been recorded on 18.02.2015 and there was no such confession by Shri Ved Prakash Agarwal as to the share capital being an accommodation entry. Most importantly Assessing Officer has sought to reopen only to make protective addition in the hands of the assessee which means that Assessing Officer was not sure in his reason to believe that in whose hand income sought to be assessed. Already substantive addition has been done in the hands of Prakash Indust....
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....tached at page no. 2-9 of the paper book. Out of Rs. 8.32 crores, sum of Rs. 4.36 crores was invested in A.Y. 2007-08. Therefore Ld. AO did not proceed legally to add the entire amount in the relevant assessment year. 6. Factual and legal error: -Rs. 8.32 crores has been escaped assessment for the assessment year 2008-09.If the Ld. AO had recorded the reasons after examining the books of the assessee and applying his mind, then he would have known that the assessee did not receive any share capital during the relevant assessment year.In fact during the year under consideration the assessee did not receive credit of Rs. 8.73 crores. The provisions of section 68 specifically states that the if any sum is found credited in the books for any previous year,....the sum so credited may be charged to the income tax as the income of assessee of that previous year." 7. Reasons are vague: i. The Ld. AO in the entire reasons to believe did notmention any material to corroborate his conclusion except for the retracted statements. ii. In the reasons the Ld. AO mentioned that from examination of books it is found that Rs. 8.32 crores has been invested ....
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....ely had escaped assessment, the additions actually made for the respective years were Rs. 27lakhs, Rs. 10 lakhs, Rs. 1.5 crores and Rs. 10 lakhs respectively. This meant that the AO was himself "not sure that the entire amount which was mentioned in the report of the investigation was on account of the escaped income of the Assessee." This also showed that the AO had not applied his mind before issuing notice under Section 148 of the Act." 15. Dr.Ajit Gupta v. ACIT (2016) 383 ITR 361 (Delhi) (HC): It has been held by Hon'ble Delhi High Court that There as on for the reopening of the assessment was a mistaken factual premise that the assessee had changed the system of accounting from mercantile to the cash system. It was more than adequately explained by the assessee that this was an inadvertent error. The assessee has convincingly shown that he has consistently been following the mercantile system of accounting not only for assessment years in question but for the earlier and later assessment years as well. Hence, reassessment notice was to be quashed. 16. CIT vs. Atul Jain [2007] 212 CTR 42 (Delhi): Hon'ble Delhi High Court has held that "17. Lo....
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....nue also did not dispute that the Assessing Officer's assumption that the assessee was carrying on two streams of business was incorrect. Thus, this reason to believe that the Assessee's income had escaped assessment is clearly without any factual basis. [Para 11] Before the Tribunal, the revenue had contended that the errors in the reasons recorded were minor errors, which did not detract from the fact that income had escaped assessment. This contention is without merit as reasons to believe that income had escaped assessment is a necessary pre-condition which enables the Assessing Officer to assume jurisdiction to proceed further. In the event such reasons are found to be erroneous, the Assessing Officer would not have the jurisdiction to make an assessment and any proceedings initiated on the basis of palpably erroneous reasons would be without authority of law. Therefore, even if it is assumed that, infact, the assessee's income has escaped assessment, the Assessing Officer would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional precondition being met to reopen ....
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....o note here that the assessment order in the case of the assessee was passed on 31.03.2015 by making protective addition of Rs. 8.73 crores whereas the substantive addition in the case of M/s Prakash Industries was made on 31.03.2016date i.e, much after the date of assessment order passed in the case of assessee. 5. Your Honours, it is a trite law that no action of reassessment u/s 147 of the Act is permissible for framing protective assessment in the absence of substantive assessment till the date of assumption of jurisdiction u/s 147 of the Act. 6. Hon'ble High Court of Bombay in the case of DHFL Venture Capital Fund Vs. ITO (34 taxmann.com 300) has explained that: "15. The jurisdictional requirement for reopening an assessment under Section 148 is the formation of a reason to believe by the Assessing Officer that income has escaped assessment. The formation of the reason to believe and the existence of that reason must be in the present. Recourse can be taken to the provisions of Section 148 where the Assessing Officer has a reason in present, meaning thereby, a reason which is present to his mind when he forms his reason to believe, that income has es....
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.... of Shri Subodh Gupta which was recorded during the survey on Shri Subodh Gupta in his individual capacity and the AO also proceeded to make a protective assessment/addition without any substantive assessment/addition and without making any further investigation and inquiry about the material and information before him at the time of recording reasons. 23. Accordingly, we have no hesitation to hold that the AO assumed jurisdiction for reopening of assessment u/s 147 of the Act and for issuing notice u/s 148 of the Act on wrong premise and without any justified, cogent and legal reason. We, therefore, further hold that there existed no good or sufficient ground or reason for reopening of the case and issuance of notices u/s 148 of the Act against the assessee company. We also hold that the condition precedent for valid initiation of reassessment is not being satisfied as the belief that income chargeable to tax has escaped assessment does not exist on the date of assuming jurisdiction u/s 147 of the Act. Therefore, all subsequent proceedings including issuance of notice u/s 148 of the Act were illegal and bad in law. Accordingly, ground no. 2, 3 and 4 of the assess....
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....g made an addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income had escaped assessment in the instant year. Therefore, the initiation of reassessment proceedings on this count could not be upheld. [Para 22] II. Addition made is without considering the facts of the case; non application of mind 1. The Ld. AO made addition of Rs. 8.73 crores without considering the facts of the case. 2. While making additions the Ld. AO stated that the "The funds raised by the assessee by way of share application and investments are shown to have been received from companies which are paper companies and run by entry operators. Hence the total source of funds is non genuine. All the shareholders changed during the year...." At para 18 he stated that the" amount of Rs. 8.73 shown in the books is treated as unexplained under section 68 of the Act" 3. He added the entire net worth of the company under section 68 without considering that the assessee did not raise any share capital during the year under consideration. 4. The Ld. AO did....
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....ore the Ld. AO the share certificate of M/s Prakash Industries along with the ledger account and the bank statement highlighting entries of amount invested in Prakash. Refer page no. 45-69 of the paper book. 9. The assessee in response to the notice dated 13.03.2015 filed its reply on 20.03.2015 attached at page no. 57-59 of the paper book stated the name, address, PAN etc. are of each of the purchaser of shares have been given by the assessee and your good self may summon the parties under section 131/133(6) of the Act since the purchasersinformed the assessee that they would provide information if the department directly ask them to produce. 10. However the Ld. AO did not undertake any exercise of summoning the parties himself but forced the assessee to produce the persons. 11. The Ld. AO did never point out any defect or controvert the evidences submitted by the assessee but rejected them and only emphasised on production of controlling persons the opportunity of which was also not provided in spite of the request of the assessee to directly summon such persons. 12. Further it is a trite law that the Ld. AO cannot reject the contemporary evide....
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....e directors were sitting is not illegal and cannot be used against the assessee. The assessee respectfully submitted that the cheque books were lying at the office of the directors for the payment of statutory dues. 3. Most importantly the cheque book is undated which does not pertain to any assessment year and on the basis of such document assessment under section 153C cannot be re-opened. Mere availability of certain documents does not prove that the documents were used for manipulating the accounts of the company. 4. Enquiries revealed that affairs of these investor companies have been managed by entry operator who has given by statement on oath that the company has been floated and sold to Prakash Industries Group for a commission. 1.Any such enquiry report backed by evidences which shows that the Prakash Group has purchased such companies on commission is never confronted to the assessee. 2. All the Statements recorded by the department were retracted. 5. The investor companies have meagre profits and only balance sheet based companies. The investor companiesare situated at a table place not with any infrastructures which are required to conduct prop....
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....converted as share application money through various paper companies including that of assessee company. Admission of Sh. Ved Prakash Agarwal during statement recorded u/s 132(4) of I.T. Act proved the modus operandi used to convert unaccounted money into books of accounts. 1. The statement cannot be relied as it was retracted by Shri. Ved Prakash Agarwal on 02.11.2014. 2. Before using such statement the department has to bring on record the material corroborating such statement. 11. The transaction in the bank account were for the sake of rotation It is submitted that the cash trail as alleged by the Ld. AO have never been provided to the assessee. The Ld. AO has failed to establish that any cash has exchanged hands. In absence of any material to show that the cash was deposited by the assessee company the allegation made by the Ld. AO is baseless. 12. From investment list of this jamakharchi company it is evident that the Kolkata based companies in which investments were made are also jamakharchi companies as seen from their addresses and verification made at some of those companies. Application form proved that same controlling persons are for most of ....
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....with cash/ bank or investment in group companies of Prakash Group. It is submitted that the cash trail as alleged by the Ld. AO have never been provided to the assessee. The Ld. AO has failed to establish that any cash has exchanged hands. In absence of any material to show that the cash was deposited by the assessee company the allegation made by the Ld. AO is baseless. 18. In F.Y. 2007-08 total shareholding was purchased by Prakash Group. It proves the company was specially formed for Prakash Group and cash was given by Prakash Group and cash was given by Prakash Group. 1. Allegation of Ld. AO is baseless. 2.The Ld. AO has made this allegation without referring to the trail of cash exchanging hands. 3. The Ld. AO has failed to show the deposit of cash in the bank account of any of the company referred by him. On issue of brokerage: The addition of brokerage is consequential to the main addition of share capital/investments and solely based on the statement of Shri. V.P. Agarwal.Refer page no. 47-48 of the assessment order.Since the addition of share capital made by the Ld. AO is baseless and Shri. VP Agarwal retracted his statement which ....