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2022 (9) TMI 458
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....both appeals are similar and identical, therefore, both appeals were heard together and are disposed of by this common order for the sake of convenience. 3. First we take ITA No.1074/Ahd/2016 for A.Y. 2006-07. 4. The grounds of appeal raised by assessee read as under: 1. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing officer in issuing notice u/s.148 of the I. T. Act, 1961 which is illegal and bad in law. 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in passing an order u/s.143(3) r.w.s.147 of the I.T.Act,1961 by issuing notice u/s. 148 of the Act, which is illegal and bad in law hence the same should be cancelled. 3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made by the Assessing Officer of Rs.50,00,000/- on account of Share allottment to Shital Securities Pvt. Ltd. of Rs.25,00,000/- and to Dhanvidhya Impex Pvt. Ltd. of Rs.25,00,000/- 4. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs. 1,61,379/- made by the Assessing Officer out o....
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....t proceedings u/s 148 of the Act. The copy of the reasons for reopening of the assessment u/s 147 of the Act dated 18.03.2011 were enclosed. It has been stared that during the course of survey operation carried out on 29.03.2010, it was found that there was capital introduction from alleged fictitious entities during the year under appeal. The financial capability have been questioned and it has also been stated that the inquiry conducted by the Investigation Wing led to the conclusion that the so called share applicants had admitted to the fact that they were providing accommodation entries only and the investments made by them in the shares of the appellant company was out of the cash received from Shri Mahendrabhai K. Shah, Director of the assessee company. Presuming that the assessee company was introducing unaccounted income in the garb of share capital and share premium it was concluded that assessee company had not disclosed fully and truly all material facts related to the issue and therefore, it was necessary to enquire about genuineness of the share capital which necessitated the re-opening of the assessment. Furthermore reference to the same alleged evasion of capital ga....
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....e following judicial pronouncement in support of its contention. i. CIT v Smt. Paramjit Kaur (2009) 311ITR 38 (P&H) Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time, it cannot be stated to be a plenary power. The Assessing Officer can assume jurisdiction under the said provision, provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The Assessing Officer must record reasons showing due application of mind before taking recourse to reassessment proceedings. The Assessing Officer can assume jurisdiction for reassessment proceedings, provided he has reasons to believe, but the same cannot be taken recourse to on the basis: of reasons to suspect. [Para 4] In the instant case, it was undisputed that the Assessing Officer had initiated reassessment proceedings on the basis of information received from the survey ci....
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.... Assessing Officer was without due authority of law as it suffered from serious legal infirmities - Held, yes - Whether therefore, reassessment framed by Assessing Officer was to be cancelled - Held, yes Assessee contended in the above referred cases that the reopening of the assessment has been undertaken on the basis of the report of the Investigation wing. There is no independent satisfaction of the AO that there is escapement of income. Under such circumstances the reopening of the assessment is not justified. But learned AO did not agree with the contention of the assessee and made addition on the basis of aforesaid facts. 7. During the course of assessment proceedings, it is noticed that share capital of the assessee company is increased by amount of Rs.50,00,000/-. On verification, it is noticed that the shares were allotted to following persons:- 1. Shital Securities Pvt. Ltd. Rs. 25,00,000/- 2. Dhanvidhya Impex Pvt. Ltd. Rs. 25,00,000/- Summons u/s.131 of the Act were issued to the above parties. Inspector of this office was deputed to serve the summons. In the case of M/s. Sheetal Security Finance Ltd., the Inspector vide his report dtd. 03.11.2011....
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....ment of the return of income, xerox copy of the PAN & resolution passed authorizing the Subscription of shares. 7.2 But as per learned AO, the assessee failed to produce Managing Director of M/s. Sheetal Securities Finance Ltd. from where it had received amount for share allotment and accordingly allotted shares to them. The new address of person is not furnished by the assessee even though requested hi response to return of un-served summons. It is the duty of the assessee to prove identity, genuineness of transaction and credit worthiness of the person who had made investment with them. The assessee failed to present the person and also failed to give the address of the person from where he can be enforced to attend the office. Therefore, the identity of the person cannot be established. Further, from copy of acknowledgement of return filed of Sheetal Securities Finance Ltd. the credit worthiness and genuineness cannot be established. However, on verification of acknowledgement, it is noticed that the party was having loss of Rs.3,75,915/-. It is very much clear that if the person is having loss in its business he will not proceed for investment in other companies. Also Shri R....
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....de by Shri Rupang Shah before the Investigation Wing of the Department. In the said statement, Shri Rupang Shah had admitted the business of share investment and trading. The statement indicates that Shri Mahendra Shah one of the Director in the company had made cash payment who introduced unaccounted income in the garb of share capital and share premium in M/s. Goldfinch Jewellery Ltd. But the statement of Shri Rupang Shah was never supplied to the assessee, for which, assessee wrote a letter to AO on 16.12.2011 requesting him to supply a copy of Investigation Wing . He also stated that unless and until some cogent evidences in support of contention is made available to the assessee to its reserve its right of cross examination of Shri Rupang Shah. Learned AO passed the said assessment order on 22.12.2011 and investments have been made through banking channel and addresses were supplied to the AO. But, learned AO did not inquire from the return of income of the person whom shares were transferred. It is pertinent to note that copy of PAN Card was supplied to the AO alongwith computation of income. Bank statements from where investment had been made but learned AO did not examine a....
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.... would vest in the Assessing Officer only if, there is tangible material in his possession for coming to a conclusion that there was an escapement of income chargeable to tax, from assessment and the reasons with the Assessing Officer must have a live link with the formation of belief. Testing the case in hand in the backdrop of the position so settled in the judgments relied upon by Mr. Pathy as well as on the transitory change as clarified in the judgment of Kelvinator of India Ltd. (supra), it is to be seen whether the case in hand would pass the test. 28. The reasons in possession of the Assessing Officer finds mention in the enclosure to Annexure -B to the counter affidavit and runs under. "The assessee has not produced concrete evidence like land adanga register, nature of crop cultivated expenses incurred to whom the agricultural produce was sold, who cultivated the land and how the income was derived. In the absence of any material produced to substantiate the receipt an agricultural income therefore, I have reason to believe that the quantum of agriculture income as claimed in ITR for the A.Y.2011-12 is not his agricultural income. Accordingly, the same i....
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....ening of such proceedings and which power cannot be exercised for initiating a roving enquiry. 30. Even if the judgments rendered by the Supreme Court in the case of Calcutta Discount Co. Ltd. and Lakhmani Mewal Das (supra) is relatable to preamended provisions of Section 147, in view of the legal position settled by the Supreme Court in the judgment rendered in the case of Kelvinator of India Ltd. (supra), whatsoever doubts that may be present are in the mind of the department is set at rest. In this contest we are persuaded to reproduce the opinion of the Division Bench of this Court recorded in the case of Rina Sen (supra) relied upon by Mr. Pathy, which not only relates to the period after amendment to Section 147 but also discusses the extent of power exercised by an Assessing Officer under Section 147 when it records at page 226 as under: "...................... ..It is well settled that the object of Section 147 of 'the Act' is not to make a roving or fishing enquiry. While it is open to the authority in an appropriate case to make an enquiry confidentially or otherwise -in order to obtain information or verify facts disclosed to him by the assessee....
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...., the AO formed the reason to believe that income had escaped assessment is missing. As pointed out by the ITAT in para 17 "the entire case is based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence has been brought on record to connect assessee with the amount of US $ 62,000, rather it is a case of zero investigation." 14. It is one thing to state that the above documents were available but an entirely different thing to state that on examining those documents the AO found the live link for forming the reason to believe that the sum added had escaped assessment. It must be recalled that these were re-assessment proceedings and not at the stage where it was enough to form a prima facie view for re-opening the assessment. In the re-assessment proceedings the AO was expected to undertake a full-fledged inquiry into the documents produced before him to come to the conclusion that the addition sought to be made was justified. As pointed out by the ITAT or that the AO seems to have done is to simply borrow the conclusions drawn by the ED without making any independent inquiry himself into the matter. Even before the ITAT, the R....
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....t is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be 'independent' and not 'borrowed' or 'dictated' satisfaction. Law in this regard is now well-settled. ............................... .................................. 39. The entire basis for reopening the assessment is on the premise that there was a cash transaction of a huge amount, and having regard to the same, there was no true and full disclosure. We have already explained that this issue of cash transaction is nothing but a mere guess, and at the cost of repetition, the transaction of sale was not with K. Star Corporation. M/s. K. Star Corporation, in the present case, is the second buyer. 40. In our opinion, there is no escapement of income chargeable to tax. The conditions precedent for resorting to reopening of the assessment under section 147 of the Act 1961 are not satisfied in the present case. 41. In the overall view of the matter, we are not convinced with the satisfaction arrived at by the respondent for the purpose of reopening of the assessment f....
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....there being any further inquiry by the Assessing Officer to form an opinion that income chargeable to tax has escaped assessment and/or without applying mind to the information in the form of DVO's report, the Assessing Officer is not justified in reopening the assessment. From the material available on the record; except the report of DVO, there was no tangible material available with the Assessing Officer to form a believe that the income chargeable to tax has escaped the assessment." vii. PCIT vs. RMG Polyvinyl (I) Ltd. [2017] 83 taxmann.com 348 (Delhi), wherein Hon'ble Delhi High Court observed that: "13. As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had." viii. PCIT vs.....
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....ted, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. No costs." x. ACIT vs. EI Dorado Biotech (P.) Ltd. [2021] 123 taxmann.com 265 (Ahmedabad - Trib.), wherein co-ordinate bench held as under: "35. Yet, the another controversy arises whether not affording opportunity to cross-examine a witness upon whose statement AO sought to rely for making addition is illegality leading to vitiating the assessment or is irregularity leading to setting aside of the assessment for providing opportunity for cross-examination of the witness by the assessee. This controversy has been resolved by the judgment of the Hon'ble Apex Court in the case of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC). wherein the Hon'ble Apex Court observed as under- After considering facts and circumstances of the case and going through the above said judgments, we are of the considered view that learned AO has made addition on....
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.... to the total income of the assessee. 5.2 Aggrieved assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT (A) submitted that the ld. CIT-A decided the issue pertaining to the assessment year 2005-06 in favour of the assessee. Therefore, the AO erred in rejecting the claim of the assessee after having a reliance on the order of his predecessor pertaining to the assessment year 2005-06. 6. However, the ld. CIT (A) rejected the claim of the assessee by observing that there was no evidence available to demonstrate that the vehicle used for the business. 7. Being aggrieved by the order of ld. CIT (A) assessee is in appeal before us. 8. The ld. AR before us filed a paper book running from pages 1 to 136 and submitted that the assessee was the beneficial owner of the asset as the assessee made the payment for the acquision of such assets. Thus the benefit of depreciation cannot be denied merely on the ground that the ownership is in the name of Director/employee of the Company. 8.1 The ld. AR further submitted that the assessee had claimed interest on the car loan, insurance premium of the car, petrol expenses on the scoot....
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....hicle as discussed above. These expenses are like interest on a car loan, petrol expenses, repair and maintenance expenses etc. The necessary details of such expenses are available in the financial statements placed on page 97 in the paper book. It is undisputed fact that these expenses have not been disallowed. Thus, it can be transpired that the Revenue has admitted these expenses incurred by the assessee for the business. Thus in our considered view, we find that the authorities below have made the addition on account of depreciation without the application of mind. Accordingly, we hold that the disallowance on account of depreciation made by the Revenue is not sustainable. 10.3 It is also important to note that the AO also made similar disallowance in the earlier assessment year 2005-06, but the learned CIT (A) deleted the addition made by the AO. The learned DR has also not brought anything on record to demonstrate whether an appeal was preferred by the Revenue against the order of learned CIT-A. Thus in the absence of requisite information from the side of the learned DR, we hold that the Revenue did not challenge the order of the learned CIT-A for the assessment yea....
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....-13 decided on 01.03.2019 with following observations: "11. The next issue raised by the assessee is that Ld. CIT (A) erred in confirming the disallowance of Rs. 13,45,356/- on account of labour charges. 12. The assessee in the year under consideration has claimed labour expenses of Rs. 19,29,390/- only. The assessee in support of labour expenses filed the copies of the bills issued by the labourer. However, the AO found that some of the bills filed by the assessee amounting to Rs. 13,45,356/- pertains to the Assessment Year 2006-07. Therefore, the same was disallowed and added to the total income of the assessee. 13. Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that it had received labour charges amounting to Rs. 42,00,303/- only against labour expenses of Rs. 19,20,390/- only. 13.1 The assessee before the ld. CIT (A) submitted that it is making the payment to labourers periodically against the work carried out by them. However, at the end of the year all the payment made to the labors are clubbed and against such payment, a single bill is issued by the labors. The assessee also submitted t....
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....vidence to demonstrate whether any job work was carried out on the jewelry. 16.2 The Ld. DR vehemently supported the order of the authorities below. 16.3 We have heard the rival contentions and perused the materials available on record. The assessee in the year under consideration has claimed Labour expenses amounting to Rs. 19,20,390/-. However, the AO found that the bills filed by the assessee in support of Labour expenses for Rs. 13,45,356/- pertain to the financial year 2006-07. Therefore, the same was disallowed and added to the total income of the assessee. 16.4 Subsequently, the learned CIT (A) also confirmed the action of the AO by observing that the assessee failed to furnish sufficient documentary evidence to demonstrate that there was an actual transfer of jewelry from the assessee to the laborers for carrying out the necessary work on such jewelry. 16.5 The assessee has filed revised bills of the current year which were raised by the laborers on the last day of the previous year. 16.6 The assessee has not deducted the TDS on the bills raised by the labors in the manner as provided under the provisions of law. Thus the ld. CIT....
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...., the appeal filed by the Assessee is allowed. 18. Now, we come to ITA No.273/Ahd/2017 for A.Y. 2010-11. 19. The grounds of appeal raised by assessee for A.Y. 2010-11 read as under: "1. The Learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs.5,50,00,000/- made by the Assessing Officer u/s.68 of the Income Tax Act, 1961 being an amounts received as share Capital of Rs. 1,10,00,000/- & Share Premium of Rs.4,40,00,000/-. 2. The Learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs. 1,58,073/- out of disallowance of labour expenses of Rs.3,95,184/- made by the Assessing Officer holding the same as not being utilized fully for the business purpose of the assessee." 19. The facts of the case are that the assessee company had filed the return of income for A.Y.2010-11 on 15.10.2010 declaring total income of Rs.94,75,790/-. The assessment was completed u/s 143(3) of the Act on 22.03.2013 determining the total income at Rs.6,48,99,762/-. While completing the assessment an addition of Rs.5,50,00,000/- was made on account of the alleged unexplained cash credit u/s 68 of the Act. The A.O. in para 3.1 & pg.....
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....ted by sufficient cause from producing the evidences from which he was called upon to produce by the A.O. and which was relevant to the ground of appeal. Though the latest address of the share applicants have been furnished to the AO at the assessment stage itself the appellant company desires to furnish following evidences in support of the genuineness of the cash credit: Sr. No. Name of depositors Amount Additional evidences furnished 1 Terry Towel Industry Pvt. Ltd. 50,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. 2 Parekh Estate & Properties Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income 3 Arjit Securities Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. King Merchants Pvt ....
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....red the letter furnished by the appellant dated 14.03.2013. It was brought to the A.O. that there might be a possibility of change of address and therefore the latest addresses of the depositors/share holders were furnished. It was also requested to the A.O. that since they have no capacity or legal authority to produce those parties direct verification may be undertaken at their end at the latest addresses so made available. 2.4 The A.O. in para 3.4 has reached the conclusion that identity of the person who are investors in the share capital has not been proved by the appellant company. The addresses furnished have also been found to be incorrect. As per the AO it was only on account of incorrect addresses that request was made to produce the persons for examination. Instead of producing the parties for examination the appellant has furnished their latest addresses and claimed that the primary onus cast upon him has been discharged. It is also been alleged that the arguments made by the appellant are not acceptable since the addresses were wrong and notice/summons could not be served upon them. Even the new addresses furnished were just prior to the assessment getting tim....
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....re basis for making the additions is supposedly non service of the summons to the various share applicants at the addresses furnished by the appellant company. It is contended by the A.O. that though the addresses were provided by the appellant company the summons/notices remain un-served. At this juncture it may be brought to your Honors attention that the detailed addresses of the share applicants were furnished vide letter dated 03.10.2012 and filed on the same date. The A.O. informed the appellant company of the non service only vide letter dated 12.03.2013. Therefore, it is pertinent to note that the A.O. only after 5 months of the receipt of information regarding the detailed addresses provided intimated the appellant company of the non service of the summons to the share applicants. Only at the fag of the end of the year when the assessment was becoming time barred did the A.O. intimate the appellant company of the non service of the summons/letters to the share applicants. It may not be out of place to mention that all the share applicants are located outside Ahmedabad. The A.O., thereafter provided only 3 days to produce those share applicants for examination with all the ....
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....owledgement of return of income & audited Balance Sheet as downloaded from MCA website. 6 Seatrans Dan Shipping Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. It would be observed that since the identity, genuineness and creditworthiness of the cash creditors stands established the addition deserves to be deleted." 20. Thereafter, the assessee preferred first statutory appeal before the learned CIT(A) who partly allowed the appeal of the assessee on the ground that the learned AO served notice to the companies to whom shares were transferred but returned back as unserved and held that these were old paper companies. 21. Now, assessee has come before us by way of second statutory appeal. 22. We have gone through the relevant record and impugned order. During the course of assessment proceedings, it is noticed that assessee company has received share capital amounting to Rs.1,10,00,000/- and Rs.4,40,00,000/- as share premium from the outsiders during the year under assessment and ac....
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....iness and identity of investors are established, L revenue should not justifiably put itself in armchair of a businessman or in position of Board of Directors and assume role of ascertaining how much is a reasonable premium having regard to circumstances of case - Held, yes - Whether, thus, once genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on ground that shares were issued at excess premium - Held, yes [Paras 51 and 53] [In favour of assessee]" 22.1 The co-ordinate Bench in case of ACIT vs. EI Dorado Biotech (P.) Ltd. [2021] 123 taxmann.com 265(Ahmedabad-Trib.), wherein it is held that: "Section 68 of the Income-tax Act, 1961 - Cash credits (Share Capital) - Assessment year 2009-10 -Assessee company issued equity shares at premium to several companies and received consideration of certain amount - An information was received from Director (Investigation) that a search was conducted upon one PRS who was controlling and managing said companies which had subscribed shares of assessee - During search, PRS recorded statement that he was engaged in providing bogus accommodation entries in form of share capit....