TaxTMI 
TaxTMI 
2022 (1) TMI 821
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be quashed. 2. The Commissioner of Income-tax (Appeals) - 4, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Assessing Officer in upholding the action of the Assessing Officer in making an addition of a sum of Rs. 17,00,00,000 being amounts received as share application money on the ground that the appellants failed to prove the nature and genuineness of the share capital and creditworthiness of the share applicants thereby treating the said sums as unexplained cash credit under section 68 of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the monies do not belong to the appellants and the provisions of section 68 are not applicable to the facts of the case. 3. The CIT(A) erred in upholding the action of the Assessing Officer in treating business loss of Rs. 9,09,65,476 as speculation loss by invoking the provisions of Explanation to section 73. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessment proceedings i.e on 13.03.2015 had filed with the A.O its written submissions. 4. On a perusal of the financial statements it was observed by the A.O that the assessee had claimed to have received an amount of Rs. 15.30 crores as share premium during the year under consideration from the following 4 companies: "(a) M/s Jay Investtrade Private Ltd. (b) M/s Shanti Financial Services Private Ltd. (c) M/s HSM Financial Services Private Ltd. (d) M/s Kundan Leasing and Finvest Private Ltd." It was observed by the A.O that the assessee company had claimed to have allotted shares to the aforementioned share subscribers, as under: Sr. No. Name of the share subscribers Address of the Share Subscribers Number of shares Allotted Amount received as share application money (in Rs.) 1 M/s Jay Investtrade Private Ltd. 21, Modi Street, Achal Building, 3rd Floor, Fort, Mumbai 400001 1,30,000 1,30,00,000/- 2 M/s Shanti Financial Services Private Ltd. 21, Modi Street, Achal Building, 3rd Floor, Fort, Mumbai 400001 8,00,000 8,00,00,000/- 3 M/s HSM Financial Service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce shares of Jay Investrade P. Ld. 9,25,00,000/- 5,76,00,000 2. Jay Investrade P. Ltd. 130000 preference shares of Chandra Financial Services P. Ltd. 50000 preference shares of Shanti Financial Services Pvt. Ltd. 1,30,00,000/- 50,00,000/- 3. Shanti Financial Services Pvt. Ltd. 8,00,000 preference shares of Chandra Financial Services P. Ltd. 1,50,000 preference shares of jay Investrade P. Ltd. 8,00,00,000/- 1,50,00,000/- Backed by his aforesaid observations the A.O was of the view that there was a circular flow of money in the form of investments wherein the same company was investing in and allotting its preference shares to other companies. Apart from the aforesaid, it was gathered by the A.O that all the aforementioned companies (including the assessee company) had suffered huge losses during the year under consideration, as under: Sr. No. Name of the company Returned income for A.Y. 2009-10 (In Rs.) 1 Chandra Financial Services P. Ltd. Loss of Rs. 9,23,62,408/- 2 Jay Investrade Pvt. Ltd. Loss of Rs. 3,41,58,259/- 3 Shanti Financial Services Pvt. Ltd. Loss of Rs. 3,24,28,420/- 4 HSM Financial Services Pvt. L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y forward of the same was to be disallowed. Alternatively, the A.O was of the view that as the business loss shown by the assessee was from trading of shares of other companies, therefore, as per "Explanation" to Sec. 73 of the Act the same being in the nature of a speculation loss was not eligible for set-off against the other heads of income. Accordingly, in the backdrop of his aforesaid observations the A.O vide his order passed u/s 144 r.w.s 147, dated 20.03.2015 assessed the income of the assessee company at Rs. 17 crores. 6. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Observing, that there was circular flow of money amongst the assessee and the other companies to whom shares were claimed to have been allotted; and that the said share subscribers had no financial capacity to make the investments in question, the CIT(A) was not inclined to accept the assessee"s claim of having carried out genuine transactions of receipt of share capital/premium from the aforesaid companies. Also, it was observed by the CIT(A) that the assessee despite specific directions had neither filed the valuation report in support of its claim of having received huge share p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es and their shareholding pattern, income tax credentials etc. Our attention was drawn by the ld. A.R to the reply dated 02.11.2011 that was filed by the assessee in compliance to the aforesaid notice issued u/s 142(1) of the Act, wherein at Serial Nos. 9 & 11 the assessee had furnished an "Explanatory note" as regards the increase in share capital a/w the details as regards the shareholders. Backed by his aforesaid contentions the ld. A.R had assailed the validity of the reopening of the concluded assessment of the assessee company for two fold reasons, viz. (i) that the case of the assessee was reopened in the absence of any material/information on the basis of which the A.O could have formed a bonafide belief that the income of the assessee chargeable to tax had escaped assessment; and (ii) that the reopening of the assessee"s case was even otherwise not sustainable as the same was merely backed by a change of opinion of the A.O as against that as was held by his predecessor while framing the regular assessment vide order passed u/s 143(3), dated 29.12.2011 qua the issue of receipt of share premium by the assessee company. 8. Per contra, the ld. Departmental Representative (f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to persuade ourselves to accept the same. As noticed by us hereinabove, the ld. D.R in order to drive home his claim that the assessee having not challenged the validity of the jurisdiction assumed by the A.O u/s 147 of the Act, thus, could not be allowed to raise its objection qua the same in the course of the appellate proceedings had relied on the judgment of the Hon"ble High Court of Madras in the case of Hanon Automotive Systems India (P.) Ltd. Vs. DCIT, Circle-2(2) (2019) 101 taxmann.com 514 (Madras). In our considered view, the support drawn by the ld. D.R on the aforesaid judicial pronouncement is misconceived and in fact misplaced in context of the facts involved in the case of the assessee before us. On a perusal of the aforesaid judgment, we find that the issue before the Hon"ble High Court was as to whether or not the assessee without raising its objections before the lower authorities to the reasons to believe on the basis of which its case had been reopened could be permitted to question the reopening of its case by filing a writ petition before the Hon"ble High Court ? Answering the said issue, it was observed by the Hon"ble High Court that as the assessee had not ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee had remained unexplained in light of the decision of the Hon"ble High Court of Bombay in the case of Major Metals Ltd. vs. UOI 207 taxman.com 185 (Bom). However, we find that there is no whisper by the A.O in the reasons of any such material and/or information that had formed a basis for him to arrive at a bonafide belief that the share premium received by the assessee company had remained unexplained. In our considered view, as per the mandate of law, the A.O for reopening of a concluded assessment is required to have before him reasons which had formed a basis for him to arrive at a bonafide belief that the income of the assessee chargeable to tax for the year under consideration had escaped assessment. Our aforesaid view is fortified by the judgment of the Hon"ble Apex Court in the case of ACIT Vs. Rejesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC). In its aforesaid order, it was, inter alia, observed by the Hon"ble Apex Court that a notice for reopening of an assessment u/s 147 of the Act could only be justified if the A.O has reasons to believe that the income of the assessee chargeable to tax had escaped assessment. On a perusal of the aforesaid reasons to beli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing and PAN numbers. Also, the A.O had categorically directed the assessee to furnish the details of additions to share capital a/w names and addresses of the parties concerned. In reply, we find that the assessee company had vide its letter dated 2nd November, 2011, furnished the requisite details of the shareholders a/w an explanatory note pertaining to the increase in share capital during the year under consideration. In the backdrop of the aforesaid facts, we are of the considered view that the A.O while framing the regular assessment u/s 143(3), dated 29.12.2011 had consciously formed an opinion that the additions to the share capital of the assessee company was in order. Backed by the aforesaid facts, we find substance in the claim of the ld. A.R that the reassessment proceedings had been initiated by the A.O not on the basis of any fresh tangible material or any new information which had came to his notice subsequent to the culmination of the original assessment proceedings, but on the basis of the same set of facts as were there before his predecessor at the time of framing of the regular assessment u/s 143(3) dated 29.12.2011. On a careful perusal of the reasons recorded b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1 to initiate proceedings under s. 148 of the Act. It can now be taken as a settled law, because of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion." We further find that the Hon'ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom), had observed, that as no new information/material was received by the A.O, therefore, the fresh application of mind by him to the same set of facts and material which were available on record at the time of framing of the assessment but had inadvertently remained omitted to be considered would tantamount to review of order, which is not permissible as per law. The Hon"ble High Court while concluding as hereinabove had held as under:- "10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief." 24. In the present case, for all the assessment years in question, and a fortiorari for asst. yr. 2004-05, what the AO has purported to do is to reopen the assessment on the basis of a mere change of opinion. That the AO had no tangible material is evident from the circumstance that the reasons which have been disclosed contain a reference to the same basis, nam....