TaxTMI 
TaxTMI 
2018 (2) TMI 2074
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....ing Officer issued the impugned notice. In order to do so, he had recorded the following reasons : "The assessee company has filed its return of income for the year under consideration on 11/10/2010 declaring total income at Rs.42,15,022/. An information was received from the ITO Ward 1(1)(4), Surat that during the course of assessment proceedings in the case of Nandini Dyeing and Printing Pvt. Ltd for AY 2008-09, it was noticed that the company had received share capital and share premium from the following company, which was proved to be bogus company, engaged in providing accommodation entries. Sr. No. Name of the Investor 1 Nakshatra Electricals & Engg. (P) Ltd. 105, Nancy Muncy, No.2 Chandivali, Sakinaka, Mumbai Besides above, an intimation was received from the ITO Ward 1(1)(2), Surat that during the during the course of assessment proceedings in the case of Envro Infratech Pvt. Ltd for AY 2012-13, it was noticed that the company had received share capital and share premium from the following companies, which were proved to be bogus company engaged in providing accommodation entries. Sr. No. Name of the Investor 1 ....
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....aped the assessment for AY 201011 and the assessee company had failed to disclose full and true facts of its case, within the meaning of provisions of sec. 147 of the IT Act. Therefore, I am satisfied that this is a fit case for issue of notice u/s 148 r.w.s. 147 of the Act for action u/s. 147 of the Act for the AY 201011." 3. The petitioner raised objections to the notice of reopening under a communication dated 10.7.2017. Such objections were however, rejected by the Assessing Officer by order dated 28.8.2017. Hence this petition, 4. Taking us through the materials on record, counsel for the petitioner raised the following contentions in support of the challenge : 1) The sole ground mentioned in the reasons recorded by the Assessing Officer is with respect to the share application money received by the assessee company. Under no circumstances, even if the investors and share applicants are found to be non genuine, any additions can be made in the hands of the assessee company with the aid of section 68 of the Act. This being the only ground, the reasons lack validity. Counsel submitted that in view of judgment of Supreme Court in case of CIT v. Lovely Exports (P) L....
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.... There is no question of change of opinion. The Revenue would have much wider scope of reopening in such a case. In the present case, the Assessing Officer has recorded elaborate reasons suggesting that income chargeable to tax had escaped assessment. At this stage, the Court would not enter into sufficiency of such reasons. Since the Assessing Officer had formed a bona fide belief on the basis of tangible materials on record that the income chargeable to tax had escaped assessment, reopening should be permitted. Counsel submitted that the proposition that no matter what the nature of the transactions, no additions can be made in the hands of the company under section 68 of the Act, is not a correct position and does not flow from the judgment of the Supreme Court in case of Lovely Exports (P) Ltd. (supra). Counsel submitted that there is a clear line of distinction where the source of investment made by the shareholder in a company is not established as against the situation where the entire transaction of the share applications and payment of share application money is found to be bogus or fictitious. In this context counsel relied on several judgments to which reference would....
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....the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) further observed as under : "16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding....
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....ent, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (2007) 291 ITR 500 (SC) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer." 10.Within this legal structure, we need to examine the contentions of the counsel for the petitioner. Most contentious issue is his first contention where he argued that no matter what the nature of transaction of share applications, addition in the hands of the company can never be made under section 68 of the Act. Heavy reliance was placed on the decision of Supreme Court in case of Lovely Exports (P) Ltd. (supra) and certain judgments of this Court following such judgment. 11.Lovely Exports (P) Ltd. (supra) was a case where the Supreme Court while rejecting the SLP filed by the Revenue observed that if share application money is received by the company from alleged bogus shareholders whose names are given to the Assessing Officer, then the department....
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....er cannot be stated to have any reason to believe or tangible material to form such an opinion that income chargeable to tax had escaped assessment. Prima facie, the facts appear to be glaring. Whether the assessee will be able to discharge the minimal burden of establishing identity, source and creditworthiness of the depositors is a question not possible to answer without scrutiny. Whether the assessee had started its manufacturing activity and consequently its business operations so as to earn income or not are the issues which cannot be gone into at this stage and must be made part of the reopened assessment to be judged on the basis of evidence which may be brought on record. It is always open for the assessee company to contend before the assessing authority that there has not been over valuation of the allotted shares or that for any legal reasons, in any case, addition cannot be made in the hands of the assessee, despite such glaring facts. These are the issues in the realm of assessment, once it is allowed to be reopened. We are not inclined to terminate the assessment proceedings at this stage on the grounds pressed in service by the petitioners." 13. In an unreported ....
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....ed the judgment of Lovely Exports (P) Ltd. (supra) and reversed the view of the Tribunal making the following observations : "43. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the socalled "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the ITA No.342-2011 Page 45 of 46 modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (2011) 333 ITR 119 (Delhi). 44. In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs.1,18,50,000 made under section 68 of the Act as well as the consequential addition of Rs.2,96,250.....
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....ssee. Mere production of incorporation details, permanent account numbers or income tax returns may not be sufficient when surrounding and attending facts predicate a cover up. The production of incorporation details, PAN numbers or income tax details may indicate towards completion of paper work or documentation but genuineness, creditworthiness and identity of investment and the investors are deeper and obtrusive than mere completion of paper work or documentation." The Court dismissed the petition with the above observations. 19. In case of Commissioner of Incometax v. Empire Builtech P. Ltd. reported in (2014) 366 ITR 110 (Delhi), Division Bench of Delhi High Court allowed the Revenue's appeal and reversed the judgment of the Tribunal deleting addition under section 68 of the Act in the hands of the company. Relying on the judgment of Lovely Exports (P) Ltd. (supra), Division Bench made following observations : "8. Having regard to the circumstances, particularly, the fact that these investors not only did not submit any confirmation and had concededly reported far less income than the amounts invested, this Court is of the opinion that the assessee could not un....
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....ound as compared to a situation where large scale share applications are found to be totally bogus transactions, are completely fictitious or stated to have been entered into by non existent persons or entities. The former is seen as a case where the company has discharged its own whereas the later would be a situation where the very genuineness of the transaction is in doubt. We therefore, do not accept the legal contention in this respect canvased by the counsel for the petitioner. 22. The contention that such an interpretation would defeat the very purpose of amendment in section 68 of the Act with effect from 1.4.2013 cannot be accepted. By such amendment, proviso was added, which 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 assesseecompany 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 ....