TaxTMI 
TaxTMI 
2021 (9) TMI 1124
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....r, or otherwise". Facts of the case: 3. Briefly stated, the relevant material facts are like this. The assessee before us is a private limited company stated to be engaged in the business as 'investment company' in column 10, page 1, of the impugned assessment order. Its assessment under section 143(3) was completed on 27th February 2014 at Rs. 4,64,80,490. On 28th March 2018, however, the assessment was reopened on the basis of certain information flowing in from the investigation wing. The information so received indicated that the assessee has received monies, in the form of share application money, from an entity by the name of Rohini Vyapar Pvt Ltd but that money, though subjected to routing through several layers, ultimately has its source in of huge cash deposits in one of the branches of ICICI Bank. It was found that high value cash deposits, just below Rs. 10,00,000, were regularly deposited in 19 different bank accounts maintained with ICICI Bank. This is what was referred to as 'Layer 1' accounts, and the amount so deposited in cash, in ICIC Bank alone, aggregated to Rs. 241.50 crores. There were certain addition bank accounts also where cash was de....
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....before us. What was thus deposited in cash in an ICICI Bank branch, or found its way through the said ICICI Bank branch, ultimately found its way, though through at least four layering covering its tracks, to the assessee company. It was in this backdrop that the assessment was reopened and the assessee was asked to "prove identity, capacity and genuineness (of its share application money) even if confirmations are filed and the persons are assessed to tax". The Assessing Officer also issued notice under section 133(6) to Rohini Vyapar Pvt Ltd. The assessee was then asked as to why the amounts so received from Rohini Vyapar Pvt Ltd not be brought to tax, in his hands, under section 68 of the Act. In reply, the assessee made elaborate submissions, and submitted, inter alia, as follows: 1. As per the show cause notice dated 14.12.2018, your goodselves had stated share application money from Rohini Vyapar Private Limited to the tune of Rs. 3,78,29,600/- by issuing 378296 share at Rs. 100 per share (Pace Value Rs. 10 and Rs. 90 as Securities Premium) During the search action conducted at the investigation wing Kolkata it is found that several beneficiaries brought back unaccou....
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....at "Large value cash was deposited into the several bank accounts maintained with ICICI bank followed by immediate transfer to other bank account. Your goodselves has provided the details of cash deposited into various layers i.e. Layer- 1 account, Layer - II Account, Layer A 1 account, Layer A2 account, Layer A3 account, Layer B3 account and Layer B4 account containing details of 66 entitles/ companies i.e Name of Company, Bank Account No., Nane of bank, Cash Deposited and remarks. After providing the said details your goodselves has made general statement that all the intermediate companies are shell companies and concluded that money received by them is nothing but unexplained cash credit. Our good selves not demonstrated that how cash deposited by Layer-1 are related to the assessee company. 4. Further we would like to inform your goodselves that there was no failure on the part of the assessee to disclose fully and truly all material facts during the assessment proceedings. The assessee had candidly disclosed the name of all two companies, the share amount received from them and also the share premium amount received. The fact that the assessee was specifically served....
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....i Vyapar Private Limited to verify the creditworthiness and genuineness of the Rs. 3,52,29,678/- out of total of Rs. 7,87,29,6781-However your goodselves are not even aware of the second subscribing company i.e. Manbhawan Commercial Private Limited, not mentioned it in ether in the reason for reopening nor in the show cause notice from whom Rs. 435,00,000/ is received as share capital and share premium. In the show cause notice you have stated that your goodselves have analyze the data of shell companies, but even does not know from whom such money is received by the assessee company, which shows there is no credible material to have live linkage and directly making addition, which is not accordance with the provisions Income Tax Act. 8. Further we would like to inform your goodselves that notice u/s. 133(6) Was issued to Rohini Vyapar Private Limited to verify the creditworthiness and genuineness is received by it on 18/ 12/2018 and reply n response to the same have been submitted to your goodselves on 19/12/2018. The copy of the same is enclosed herewith vide "ANNEXURE 1". 9. ROHINI VYAPAR PRIVATE LIMITED 9.1. The subscriber company Rohini Vyapar Privat....
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....rth of the company as on 31.03.2010 was Rs. 5,20,26,310/- and as on 31.03.2011 was Rs. 5,19,95,522/- which is sufficient to subscribe the shares of assessee company of Rs. 4,35,00,000/- Further the source of the said share application money was from sale of investments held by the company which proves the Creditworthiness of the Company, 10.2. The entire Share application money received of Rs. 4,35,00,000/- from Manbhawan commercial Private Limited has being received through banking channel and no maternal was found during the course of assessments proceedings to prove that money came from the coffers of the MCPL appellant company. The financial statements of RVPE shows that Share have been subscribed of assessee company, which proves that genuineness of the transaction. There was no basis to make any suspicion against the assessee company 10.3. Further we would like to inform your goodselves that in the case of Manbhawan Commercial Private Limited, scrutiny assessment proceedings u/s 143(3) for AY 2007-08 were also carried out by the Income tax Officer-Ward 4(2), Kolkata and order was passed 143(3) vide its order dated 26/03/2009, which proves the identity, credi....
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....make a reference to another document, whether as a letter or report, such document and/or relevant portions of such report should be enclosed along with the reasons" 4. None of these submissions, however, impressed the Assessing Officer. It was noted that the contention of the assessee to the effect that everything was examined in the original scrutiny assessment proceedings and details of investigations conducted by the investigation wing are not furnished to the assessee. It was noted that the money was routed through a large number of intermediate shell companies but given the limited time and resources available to the Assessing Officer for completing these reassessment proceedings, it is not possible to prove the same but then "the assessee has failed to disclose all true and fair transaction before the AO and it was his primary duty to disclose all transactions truly and fairly". The Assessing Officer further observed that "the assessee has not made true and full disclosure before the AO at the time of original assessment as the assessee itself states that it has disclosed only the primary facts". The Assessing Officer further observed that "Hon'ble Bombay High Court, ....
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....,29,600/-. 5.3.1 The appellant has received share capital and share premium from M/S. Rohini Vyapar Pvt. Ltd. and Manbhawan Commercial Pvt. Ltd. 5.2.2 The appellant is engaged in the business of electrification projects, undertaking and development of power supply infrastructure with various government entities. During the year under consideration, the appellant received share application money from Rohini Vyapar Pvt. Ltd. And Manbhawan Commercial Pvt. Ltd. amounting to Rs. 8,13,29,600/-. In the original assessment proceedings u/s.143(3), AO proceeded to make enquiries in order to verify the genuineness of the said share application money received during the year. 5.3.3 Documentary evidences were furnished by the appellant that the identity of the share subscribers are proved as seen from copy of ITR-V, audited financial statements, Pan Card. It is also seen that in the case of both the subscribers viz, Rohini Vyapar Private Limited and Manbhawan Commercial Pvt. Ltd. the assessment has been made u/s 143(3) for assessment year 2007-08. Further in the case of Ronini Vyapar Pvt. Ltd. scrutiny assessment u/s 143(3) has been made for assessment year 2014-15 an....
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....Private Limited and Manbhawan Commercial Pvt. Ltd. are not genuine. On perusal of the said investigation report it is observed that the AO has given details of cash name, cash deposited at various layers, given name of the entity, bank account no. bank name, cash deposited and at the last layer mentioned the name of the appellant company. In the concluding paragraphs the Ld. AO has observed that on perusal of the list of shell company declared by the government it is seen that most of the above intermediate companies whose bank accounts are used for the purpose of rotating the funds has been declared as Shell company and thus the amount received by the above appellant is nothing but unexplained cash credit u/s. 68 of the I.T Act. However the AO has not carried out any investigation or inquiry to verify the said facts and directly relied upon the information received from Investigation wing. The AO has not established the connection between the investigation report and the appellant company. The crucial link between the information available with AO and formation of belief was totally misplaced. The AO has observed in the assessment order itself that to crack the nexus between cash ....
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.... Ltd. (1TA. No.408/Kol/2017) (Order dated 01.07.2019) 1TAT, Kolkata 5.3.10 The contention of the appellant finds support in the following cases of the Hon'ble Courts in the following case laws. i) The Hon'ble Supreme Court in the case or Commissioner of Income Tax vs. Lovely Exports (P) Ltd. f2008] 216 CTR 195 has held as, "if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in according with law but this amount of Share money cannot be regarded as undisclosed income under section 68 or the assessee company. ii) PCIT vs. Paradise Inland shipping Pvt. Ltd. 84 Taxmann.com 58 (Bombay HC): "where reassessment resorted to on ground that companies which had purchased shares or assessee-company were not in existence, once assessee had produced documentary evidence to establish existence of companies, burden would shift on to revenue to establish initiation of reassessment and, thus, reassessment be set aside." iii) CIT vs. Orchid Industries Pvt. Ltd. 88 Tax....
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.... position and the facts of the case, I am of the considered view that the provisions of section 68 of the Act are not applicable to the appellant and accordingly, the addition is not warranted. This ground of appeal is allowed. 5. The Assessing Officer is aggrieved of the relief so granted by the learned CIT(A) and is in appeal before us. Rival contentions: 6. The basic thrust of learned Departmental Representative's submission, besides vehement reliance on the order of the Assessing Officer, is that the assessee has failed to prove the bonafides of the share application money received by the assessee. In essence, his arguments can be summed up as follows. His basic submission is that it is not a bonafide transaction, and the surrounding circumstances clearly demonstrate that. He submits that the reasons of reopening the assessment eloquently demonstrate that the assessee was beneficiary of a sophisticated money-laundering racket wherein the monies deposited in cash in certain bank accounts of dummy entities, which are feeder accounts, through multiple layering of the accounts, to the accounts of the entities subscribing share capital of the assessee company. Learned D....
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....y optimistic estimation of the revenues of the assessee company, based on projections rather than realities, and these computations hardly show any sound basis. It is also submitted that on the facts and circumstances of the case, it is clear that the companies investing in the capital of the companies are companies of dubious means and that the evidence brought on record by the assessee does not substantiate the bonafides of these entities. It is submitted that the onus of proving the genuineness of the receipts is on the assessee, and the assessee has failed to discharge the same. Learned Departmental Representative then takes us through the assessment order and relies upon each and every observation made therein. It is then contended that the relief granted by the CIT(A) proceeds on sweeping generalisations and the presumption as if it is the responsibility of the Assessing Officer that the receipts by the assessee are bogus, whereas the correct legal position is that the onus is on the assessee to demonstrate the genuineness of transactions. It is then submitted that none can be expected to prove the negative, i.e to prove that the receipts by the assessee are not bonafide. The....
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....upon it, and it is now for the revenue authorities to prove otherwise. It is contended that both the companies subscribing to the shares in the assessee company are active companies as on today, and there are no adverse findings in this respect. It is submitted that one of these companies has huge land bank and it is a successful venture. None of these companies, according to the learned counsel, is listed as a shell company by the Government of India, or any official body. It is then submitted that so far as examination of the source of the source is concerned, the proviso to Section 68 requires that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid h....
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....ruth. It is then submitted that the companies from which the assessee has received the share subscriptions are the companies with proper net worth and means, these companies are properly assessed to tax, these companies have not been declared to be shell companies and just because five levels below these companies, there are cash deposits in some bank accounts, the receipts cannot be rejected as lacking bonafides. Learned counsel then submits that in the reasons recorded for reopening, there is not even a suggestion about lapses on the part of the assessee, and the reassessment being after the end of four years from the end of the relevant assessment year, and the proviso to Section 147 coming into play, the reassessment could not have been validly initiated. Our attention is then invited to rule 27 of the Appellate Tribunal Rules, 1963, and Hon'ble Delhi High Court's judgment in the case of Sanjay Sawhney Vs PCIT [(2020) 116 taxmann.701 (Del)] in support of the proposition that even when the assessee is not in appeal against the order passed by the CIT(A), the assessee can still challenge, and challenge orally- without any petition, the issues decided against him by the CI....
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.... year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of that assessee for that previous year. The burden is thus on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee. The next question is as to what is the kind of explanation that the assessee is expected to give. As noted by Hon'ble Delhi High Court, in the context of issuance of share capital and in the case of PCIT Vs Youth Construction Pvt Ltd [(2013) 357 ITR 197 (Del)], "it involves three ingredients, namely, the proof regarding the identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole". That is the approach adopted by Hon'ble Courts above all along. In the case of CIT v. United Commercial and Industrial Co (P.) Ltd [1991] 187 ITR 596 (Cal)], Hon'ble Calcutta High Court has held that....
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.... of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity, but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life,....
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.... relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents". As a final fact finding authority, this Tribunal cannot be superficial in its assessment of the genuineness of a transaction, and this call is to be taken not only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, the preponderance of human probabilities and ground realities. There may be a difference in subjective perception on such issues, on the same set of facts,....
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.... judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually non-existent. 11. The above approach has met the judicial approval as recently as 2018 when one of the decisions of this Tribunal, authored by one of us (i.e. the Vice President), in the case of Pawankumar M Singhvi (supra) came up for consideration before Hon'ble Gujarat High Court, and Their Lordships of Hon'ble Gujarat High Court, in the judgment reported as Pawankumar M Sanghvi Vs ITO [(2018) 90 taxmann.com 386 (Guj)] approved the said approach and declined to interfere in the matter by observing that "the Tribunal has minutely examined the position of the lenders, the circumstances under which, the amounts were allegedly loaned to come to the conclusion that the transactions were not genuine". The genuineness of the transactions and examination of circumstances in which money was received was thus approved to be the determinative factor. The matter did not end there. The assessee brought the matter before Hon'ble Supreme Court in a special leave petition, and Their Lordships of Hon'ble Supreme Co....
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....hich, would justify addition of the said amount to the income of the assessee". When we take into account these words of guidance of Their Lordships, clearly a superficial and pedantic approach would not suffice, and the approach so adopted in Pawankumar M Sanghvi's case (supra) will be all the more justified. We have no reasons to deviate from this path. It is in this backdrop that we proceed to examine the facts of the case and take a call on the genuineness of these transactions. 12. Let us, in this light, revert to the actual facts of this case. The assessee has received share application monies from Rohan Vyapar Private Limited (RVPL) and Manbhawan Commercial Pvt Ltd (MCPL). These equity shares are issued at 900% premium on the face value of Rs. 10 each, i.e. at Rs. 90 per share. The assessee has issued 3,78,290 equity shares to RVPL, and the amounts received from the RVPL thus are Rs. 37,82,960 for the face value of shares and Rs. 3,40,46,640 for the share premium, aggregating to Rs. 3,78,29,600. 13. Undoubtedly, the legal existence of the share applicant is not in doubt. The assessee has produced sufficient evidences about its existence. 14. The next question is whe....
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.... at the other place, it is mentioned that 'the assessee company is engaged in the process of obtaining dealership of polycab wires and cables' (page 96 of paper-book), and that 'the assessee company is engaged in the business of investments' and that 'there is no material change in the nature of business of company" (page 101 of the paper-book). In an earlier year's scrutiny assessment order, it is stated that the assessee is engaged in the business of 'trading- others' (page 90 of the assessment order). Undoubtedly, these statements are made in the scrutiny assessment orders for three different assessment years but it shows fluctuating stand of the assessee even with respect to the business the assessee was engaged in. 16. Very interestingly, even when RVPL does not have any revenues, except for a bank interest of Rs. 1,13,356, its annual report states, under the head 'operations' of the company, "(t)he performance of the company during the current year was satisfactory" and "(h)owever, your directors are hopeful that performance of the company in the coming years will be more satisfactory". What did the directors derive satisfaction from? There were no business operations duri....
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....y other shell entities- constituting a different layer of this multi-layer transaction, and, as evident from share premium reserve of Rs. 975 lakhs- as against share capital of Rs. 25 lakhs. Once again, the shares are issued at premium that too in a company which has no other activity except for routing the funds to another company, i.e. the assessee, by making investments therein at a huge premium. That defies logic, and such transactions donot take place in the real life world. The assessee company is stated to be not connected with Rohini Vyapar Pvt Ltd in any manner, and yet the share subscriber had such a faith in the assessee company that it subscribed to the shares at 900% premium. That is something quite unusual. 19. The assessee has sought to justify the same on the basis of discounted cash flow method on the basis of assumption that sale will grow @ 10% p.a., the net profit after tax will be constant at 4.25% and that discounting rate is taken at 15%. A copy of this valuation report is placed before us at pages 37 and 38 of the paper-book. The DCF valuation, at page 38, shows the figure of Rs. 1,67,46,057 for the financial year ended 31st March 2010. This figure is arr....
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....rt is overstated by 13,000% vis-à-vis the actual facts of the case. Clearly the premium valuation, under the DCF method, is incorrect and fallacious. The figure that should have been taken in the cash inflow ought to have been adjusted by any adjustment on account of increase in the working capital, and, as evident from the figures for the year ended 31st March 2011, that substantially vitiates the computations. When such figures are not taken into account, or are unknown, DCF valuation becomes meaningless. 20. That is, however, not the only incorrectness in the share premium valuation. 21. A plain look at the financial statements and the valuation computations will raise many red flags and must trigger investigations for any reasonable person. While the increase of debtors from Rs. 7,01,26,264 (as on 31.3.2010) to Rs. 61,45,13,889 (as on 31.3.2011), by almost 900%, should raise red flags, even the increase in creditors from Rs. 6,00,34,819 (as on 31.3.2010) to Rs. 40,69,01,328 (as on 31.3.2011), by almost 800%, is unusual. The turnover figure has gone up in this year from Rs. 35.56 crores (as on 31.3.2010) to Rs. 90.11 crores (as on 31.3.2011), i.e. by more than 250% ....
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.... for premium is rejected, for this reason alone, the addition under section 68 is justified. We have several additional reasons to uphold the impugned addition. 24. Undoubtedly, the company investing in the assessee company, i.e. RVPL, itself is owned by some other entities and the actual investors are thus not known in a transparent manner. The assessee does not throw any light beyond submitting the financial statements of the company investing shares. The genuineness of investment is far from established for this reason as well. 25. When we see the bank account of the Rohini Vyapar Pvt Ltd, we find that this company had paid amounts of Rs. 30,60,203 and Rs. 1,06,69,475 on 27th October 2010 but within a week prior thereto, the clearing cheques from different companies on 21st October (Rs. 115 lakhs), 23rd October (Rs. 50.67 lakhs) and 26th October (Rs. 25 lakhs). Similarly, when payments were made to the assessee company on 7th February 2011 (Rs. 100 lakhs), 15th February (Rs. 100 lakhs) and 26th February (Rs. 15 lakhs), immediately preceding transaction entries (on 7th January though) are for repayment credits. That leaves the net balance of Rs. 45,755.07 and that is where ....
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....of bank statement shows that Manbhawan Commercial receives Rs. 40 lakhs from one Nexcare Agency on 16 July 2010, Rs. 55 lakhs from Campus Impex on 16th July 2010, and, on that very day pays, by bank transfer, Rs. 95 lakhs to the assessee company. Similarly, on 23rd July and 24th July, Manbhawan Commercial receives Rs. 55 lakhs and Rs. 25 lakhs from Nexcare Aencies, and immediately thereafter, on 26th July 2010, pays Rs. 80 lakhs to the assessee company. On 29th July, Manbhawan receives Rs. 20 lakhs from Bliss Dealcom and on 29 July 2010, receives Rs. 30 lakhs from Nexcare Agnecies on 30 July 2010, and immediately thereafter, on 30 July 2010, pays Rs. 50 lakhs to the assessee company. On 12th August, Manhawan receives Rs. 40 lakhs from Campus Impex and Rs. 60 lakhs from Nexcare Agencies, and, on the very next day, i.e. 13 August 2010, pays over Rs. 100 lakhs to the assessee company. The same is the position with respect to receipts of Rs. 50 lakhs each from Nexcare Agencies and Campus Impex on 17th August, and subsequent payment of Rs. 100 lakhs to the assessee company. 31. Clearly, all these transactions are circular transactions with opacity about the ultimate owners as evident....
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....ent of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. The two companies investing in the share capital of the assessee clearly fit this description. Given these facts, and given the ground realities of shell companies facilitating such manoeuvrings, the plea of the assessee cannot be accepted. We reject the same. 34. Let us now turn ....
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....ore the Assessing Officer would not negate the case of the assessee". The situation before us materially different inasmuch as the analysis of balance sheet, as also other documents, shows lack of genuineness, and presence of the share applicants is not even an issue. 38. As regards the Hon'ble Supreme Court's judgment in the case of Lovely Exports (supra), Hon'ble Supreme Court has, after duly taking note of this decision and in the case of NRA Iron and Steel Pvt Ltd (supra), observed that "The practice of conversion of unaccounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the Assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the assessee". It cannot, therefore, be said that just because the assessee has received the share subscription monies from identified shareholders, the same cannot be ....
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....nothing to do with the fact situation that we are dealing with. It is genuineness of a transaction which is issue before us and it is not even the case of in the revenue that these companies, investing in share capital of the assessee company, did not exist. This decision is, therefore, not relevant in the present context. 41. A reference is then made to a large number of decisions by the coordinate bench. The approach adopted in these decisions may be slightly different from the approach adopted by us, but then, as we have noted earlier in our analysis, our approach has been approved by the Hon'ble Courts above, and we thus no reasons to deviate from the same. In any case, in none of these decisions, the related facts have not been analyzed in much detail and these decisions cannot be support to the proposition that such an analysis is uncalled for. Quite to the contrary thereto, Hon'ble Supreme Court, in the case of NRA Iron and Steel Ltd (supra), have emphasized that the practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny, and that it would be particularly so in the case of private placement of shares, ....
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....ie devoid of legal merits, er will deal with the plea on merits. 45. It is a case of reopened assessment and very specific and elaborate reasons for reopening the assessment, as set out in paragraph # 3 earlier in this order, but the assessee had objected to this reopening on the ground that "on the facts and in the circumstances of the case and in law, the learned Assessing Officer erred in carrying reassessment proceedings under section 147, although the scrutiny assessment under section 143(3) was carried out in the case of the appellant and all the facts, including share application money received, were thoroughly verified by the Assessing Officer. As such, it is not a fit case for reassessment under section 147, the same may be quashed". 46. Under rule 27, "(t)he respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him". Quite clearly, therefore, the scope of rule 27 is confined to a ground raised in the first appeal on any of the grounds which is decided against the assessee. There is a subtle distinction in the scope of rule 27 vis-s-vis scope of cross-objections inasmuch as while assessee can raise a....
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....m of Rs. 5,50,573, inclusive of principal and interest. On 19-9-1943, the claim was compromised and on 5-10-1943, a compromise decree for a sum of Rs. 3,50,000 in full and final satisfaction of the mortgagee's claim, was decreed. That debt was subsequently discharged. For the assessment year 1944- 45, the assessee as karta of his Hindu undivided family, was assessed to income-tax on a total income of Rs. 78,556. While the assessment proceedings were pending before the ITO, Trichy, information was received by the assessing ITO from ITO, Erode, to the effect that the mortgagor had paid secretly to the mortgagee a sum of Rs. 1,50,000 during the year ending 9-4-1944 and that the said amount had not been included in the compromise decree. On enquiry by the ITO, Trichy, the assessee denied having received any such amount secretly. The assessment proceedings were then concluded accepting the statement of the assessee. The Assessing Officer, Trichy, however, made further enquiries into the matter and examined the party in the mortgage case, and came to the prima facie conclusion that a sum of Rs. 1,50,000 (secretly received) had escaped assessment by reason of the omission of the asses....
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....t open to him thereafter to initiate proceedings under section 34. A Bench of three learned Judges of this Court repelled the contention and observed thus : "... On the facts found by the Tribunal, it is established that the assessee's father had clearly suppressed the receipt of Rs. 1,50,000 from the mortgagor. The assessee had a duty to disclose fully and truly all material facts necessary for his assessment. Herein we are not dealing with a case corning under section 34(1)(b). All that we have to see is whether the requirements of section 34(1)(a) are satisfied. This Court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, ruled that to confer jurisdiction on the Income-tax Officer to take action under section 34(1)(a) two conditions must be satisfied, viz., (1) he has reason to believe that there was underassessment, and (2) that he must have reason to believe that the under-assessment has resulted from non-disclosure of material facts. On the facts found, underassessment is established and it is also established that the under-assessment was due to non-disclosure of material facts. There can be no doubt that at the time he issued notice under section 34(1)(a)....
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....l facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the ITO, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational con....
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....case inasmuch as admittedly there was material with the Assessing Officer which prima facie indicated that the share capital issuance at huge premium was a bogus transaction and 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 Assessing Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is also important to bear in mind the fact that the requirement of proviso to Section 147 is that "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 four 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" but then when a transaction, on ....
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....facts necessary for making assessment for that year. Clearly, that was not the case. As noted by the Assessing Officer at para 2.9 of the assessment order, Hon'ble Bombay High Court's judgment dated 24th December 2014, in the case of Om Vinyl Pvt Ltd, "A disclosure, even if full, may not be true. All information may be furnished which are necessary for assessment. Yet, if this disclosure is not true, it would not satisfy the test of true and full disclosure, and, therefore, assessee's contention that it has disclosed all the facts, during original assessment, cannot be considered as true". Nothing has been brought on record to show inapplicability of these observation of Hon'ble jurisdictional High Court, which, in our considered view, directly apply to the facts of this case. The conclusions arrived at by the learned CIT(A), in rejecting the ground of appeal raised by the assessee with respect to validity of reassessment proceedings, was. therefore, correct and we approve the same. 48. Learned counsel, nevertheless, raises some more grounds with respect to reopening of the assessment. Such issues are beyond the scope of rule 27 and need not, therefore, be entertained. What rule....
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....katta". Underneath, he provided a list of 17 companies who had transacted with the assessee company during the year under consideration and were alloted equity shares by purported investment of sizeable share capital and share premium amounts. On verification of such materials, the Assessing Officer noted that the assessee had received share capital/share premium amount, amounting to Rs. 14.76 crores. Since the investor companies were found to be shell companies indulging in providing accommodation entries, the Assessing Officer was of the opinion that the share capital/share premium claimed to have been received from the company by the assessee was not genuine. Amount is nothing but assessee's own money introduced in the garb of share capital/share premium from the shell companies and therefore, such amount is liable to be taxed under section 68 of the Act. He therefore, recorded his satisfaction that the income to the tune of Rs. 14.76 crores had escaped assessment and that this was due to the assessee having failed to disclose truly and fully all facts. 8. Section 147 of the Act provides inter-alia that if the Assessing Officer has the reason to believe that any inc....
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....e the Assessing Officer only after the assessment was completed. Since on the basis of such materials, Assessing Officer, as we have recorded, came to a reasonable belief that income chargeable to tax had escaped assessment, merely because these transactions were scrutinised by the Assessing Officer during the original assessment also would not preclude him from reopening the assessment. His scrutiny during the assessment will necessarily be on the basis of the disclosures made by the assessee. 9. With these foundational conclusions, we may deal with the contentions of the counsel for the petitioner : 10. The contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted. The Assessing Officer, as noted, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies. 11. Merely because the transactions in question were examined by the Assessing Officer during the original assessment would not make any difference. The scrutiny was on the basis of disclosures made and materials supplie....
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.... the post notice correspondence dated March 05, 2014, it has been stated by the Assessing Officer that Basant Marketing Pvt. Ltd. provided accommodation entry to various companies, where assessee company is one of them. Basant Marketing Pvt. Ltd. is a dummy company of one Shri Arun Dalmia and substantial material is found to base such reasons recorded during the search by CBI, Mumbai and, therefore, the Assessing Officer issued a notice to show cause as to why the said amount of Rs. 8.71 crore received from Basant Marketing Pvt. Ltd. should not be treated as cash credit under section 68 of the Act. 21. This Court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, ....
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....tion itself was sham and bogus, as reference to such transaction during the original assessment and raising certain queries in this respect would not prevent him from reopening the assessment on the principle of change of opinion. As noted, the opinion would be formed on the basis of disclosures. When disclosures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. In the present case, as noted, Assessing Officer received additional information after the original assessment was over, on the basis of which he formed a belief that the entire transaction was a sham transaction. At this stage, where the Court is examining the validity of notice of reopening, it is not necessary that the Assessing Officer must have conclusive evidence to hold that invariably additions would be made in the income of the assessee. What is required is the reason to believe that income chargeable to tax as escaped assessment. Sufficiency of the materials in the hand of the Assessing Officer which enabled him to form such a belief would not be examined. A reference in this respect is made to a decision of the Supreme Court in the case of....
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....on 68 of the Act would have applicability. Proviso added by the Finance Act 2012 with effect from 1.4.2013, does not change this position. Proviso reads as under : '68.... Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless - (a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory;....." 15. As per this proviso, where the assessee is a company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, explanation offered by the assessee company shall be deemed to be not satisfactory, unless the person in whose name such credit is recorded in the b....
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....d by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue. 10. In case of Central Provinces Manganese Ore Co. Ltd. v. Income Tax Officer, Nagpur (supra) the Supreme Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee had declared very low price in respect of the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under-voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found by the Customs Authorities that the assessee had under-voiced goods during export. Under ....
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....'ble Supreme Court, in the case of ACIT Vs Rajesh Jhaveri Stock Brokers Pvt Ltd [(2007) 291 ITR 500 (SC)], "At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief". The answer to this question is essentially, in our humble understanding, in positive, as the Assessing Officer had credible information to point towards the assessee being a beneficiary of this financial manoeuvring. As we have seen above, if the Assessing Officer has information to form a reasonable opinion that prima facie the entire transaction itself was sham and bogus, as reference to such transaction during the original assessment and raising certain queries in this respect would not prevent him from reopening the assessment on the principle of change of opinion. As noted, the opinion would be formed on the basis of disclosures. When disclosures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. That is the settled legal position as was also held in case of Phool Chand Bajrang Lal (supra) and which has been elaborated upon earlier in this ord....
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....s...........Similarly the observation..........that if it is alleged that these ......were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction ..... takes place in secret and direct evidence about such purchase would be rarely available". Of course, as Hon'ble Supreme Court has observed, in the case of Durga Prasad More (supra), that "human minds may differ as to the reliability of a piece of evidence but in that sphere the decision of the final fact finding authority is made conclusive by law", and it is in this light, and being alive to the immense faith put in this Tribunal by Hon'ble Courts above, that we have taken the above call. 51. In the result, the appeal is allowed. Pronounced in the open court today on the 21st day of September, 2021. ============= Document 1 2. Explain the steps involved in Discounted Cash Flow (DCF) or Free Cash Flow (FCF) Method of valuation in an M&A. The Discounted Cash Flow (DCF) /Free Cash Flow (FCF) Valuation takes into consideration the future earnings of the business. The Value of the Business depends on projected future revenues and costs, expected Capital....