TaxTMI 
TaxTMI 
2025 (6) TMI 415
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....t Order dated 31.12.2016 passed by the Assessing Officer ['AO'] under Section 143 (3) read with Section 147 of the Act, was allowed and the additions made by the AO under Section 68 of the Act were deleted. FACTUAL MATRIX 3. The Assessee is a public limited company and is engaged in the manufacturing of kraft paper and brown paper usually used for packaging. The Assessee filed its return of income on 26.09.2009 declaring an income of Rs. 1,95,97,146/- for the Financial Year ['FY'] 2008-09 relevant to AY 2009-10. 4. The Assessee's return was selected for scrutiny and notices under Sections 143 (2) and 142 (1) of the Act were issued raising queries regarding deduction claimed by the Assessee under Section 80IA of the Act. The AO framed an assessment order dated 22.11.2011 determining the Assessee's income at Rs. 5,84,39,170/- instead of Rs. 1,95,97,146/- by disallowing the deduction of Rs. 3,88,42,085/- claimed under Section 80IA of the Act. However, the said deductions were thereafter allowed by the CIT(A) and the learned ITAT. Subsequently, on 29.03.2016, the case was reopened under Section 147 of the Act, and a notice under Section 148 of the Act was issued to the Assesse....
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....g Financial Companies ['NBFCs'] with the Reserve Bank of India ['RBI'] who were filing returns of income, and had been in existence prior to the incorporation of the Assessee. On this basis, the CIT(A) concluded that there was no basis to treat them as paper companies and deleted the addition in its entirety. 8. Aggrieved by the order of the CIT(A), the Revenue filed an appeal before the learned ITAT. The learned ITAT vide the impugned order dismissed the appeal of the Revenue. The learned ITAT noted that the reopening had been initiated beyond the period of 4 (four) years from the end of the relevant AY, and the original assessment was already completed under Section 143 (3) of the Act. The learned ITAT also held that the reasons recorded by the AO did not set out as to how the Assessee had failed to make a full and true disclosure of material facts necessary for the assessment. In the absence of the same, the learned ITAT held that the reopening was contrary to the first proviso to Section 147 of the Act. It further noted that the Revenue had not brought any material on record to controvert the findings of the CIT(A). Since the order of the CIT(A) was based on binding judicial....
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....he Investigation Wing found that the Assessee had received share capital with exorbitant premium amounting to Rs. 36,64,35,000/- from a large number of Kolkata and Delhi-based companies which, upon enquiry, were found to be non-existent or operating as accommodation entry providers. The search and investigation revealed that the Directors of these companies admitted in their statements that they were engaged in the business of providing accommodation entries including share capital, unsecured loans, and other similar transactions in exchange for commission. These statements were recorded and analysed, and the trail of funds was also traced. It was found that the supposed investing companies had weak financials, negligible or nil income, and that the share capital received by the Assessee was routed through multiple layering of bank accounts after initial cash deposits. 14. It was further submitted that the Assessee's contention that all necessary material had already been disclosed during the original assessment is without merit. The Revenue argued that the disclosure must be both full and true, and a disclosure, which is merely formal and misrepresents the true character of the....
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....nt under Section 147 of the Act was in accordance with law and the order passed by the AO could not have been treated as void ab initio. Therefore, the findings of the CIT(A) and learned ITAT are contrary to law and deserve to be set aside by allowing the present appeal. SUBMISSIONS BY THE RESPONDENT 19. The learned Counsel for the Assessee submitted that the assumption of jurisdiction under Section 147 of the Act in the present case does not satisfy the conditions laid down in the first proviso to Section 147 of the Act, and accordingly, the reassessment proceedings are liable to be held as void ab initio. The Assessee had filed its return of income for AY 2009-10 on 26.09.2009 declaring income of Rs. 1,95,97,146/-. During the original assessment proceedings, the AO had called for details of subscribed and paid-up capital vide questionnaire dated 21.06.2011. In response, the Assessee had submitted the details of subscribed and paid-up share capital as on 31.03.2009, share application forms, bank statements, PAN, Income Tax Return ['ITR'] acknowledgments and proof of identity of the shareholders. Based on this, the assessment was completed and the AO did not make any addition....
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.... is urged that these facts were never disputed during the original assessment and no material has been brought on record by the Revenue to suggest that the disclosures were false or incomplete at that stage. 25. It is also submitted that the Revenue has relied upon certain decisions, such as Sri Krishna Pvt. Ltd. v. ITO & Ors. (supra), CIT v. Jansampark Advertising & Marketing Pvt. Ltd. (supra), and CIT v. Titan Securities Ltd. (supra), which do not apply to the facts of the present case. In those cases, proviso to Section 147 of the Act was not dealt with and, therefore, they are inapplicable to the facts of the present case. 26. In view of the above, it was submitted that the learned ITAT rightly concluded that the reassessment proceedings were invalid in law. The reasons recorded by the AO do not satisfy the mandatory requirement of disclosing how and in what manner there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment. Hence, the present appeal deserves to be dismissed. ANALYSIS 27. The limited question before this Court for determination is - whether the learned ITAT was correct in ruling that the As....
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....the source of deposits in the bank account before issue of the cheques have not been explained. (g) The assessee company is a private limited company and in such companies nobody is going to invest until unless that person is known to the management and he had some expectation in form of dividend from the company or gain on account of appreciation in share price both of which are absent in the instant case. From the above, mentioned facts as well as after considering the facts/submission of the assessee, it is found that the above mentioned companies are not doing any business activity which justify for investment in assessee company are only passing funds it is clear from bank state of the party, it can be said that the above mentioned companies are paper company and provide bogus share premium to assessee company. And the entries are nothing but accommodation entries and the total amount of share application money as detailed in the table above amounting to Rs.25,32,35,000/- is added to the assessee's total income u/s. 68 of the I.T. Act, 1961. Penalty u/s 271 (1) (c) of the I.T. Act, 1961 is initiated for furnishing concealment of income/ inaccurate particulars....
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....ot be conflated with "reasons to suspect" that an assessee's income has escaped assessment. Whilst it is not necessary for the AO to arrive at a firm conclusion that the assessee's income for the relevant assessment year has escaped assessment - that conclusion is to be drawn during the assessment proceedings - it is necessary that the AO has reasons to believe based on tangible material that has a live nexus with the belief that income has indeed escaped assessment. Concluded and closed assessments cannot be reopened merely on suspicion." 31. In the present case, the AO did not have any tangible material at the stage of issuance of the notice under Section 148 of the Act. His reasons for issuing the notice was based on certain information from Investigation Wing. The AO did not have any specific details regarding the income that was alleged to have escaped assessment. The AO also did not undertake any enquiries to ascertain the facts that lead to form the reasons to believe that the Assessee's income had escaped assessment. It is also material to note that no incriminating material was found during the search conducted under Section 132 of the Act in the case of the Assessee an....
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.... offices in Kolkata; the reasons nowhere mention the name of the entities nor the address on which such inquiry was conducted, even so the date of such inquiry has not been mentioned. v) Also it is mentioned that all entry giving companies have been covered under various searches conducted by Kolkata Investigation Wing and all the companies were found bogus and non-existent but hereto a vague statement has been mentioned without any definite details in terms of number of companies on which search was conducted, the period of search etc. vi) Also the reasons refer to statement of entry providers along with bogus directors, wherein it has been admitted that they are in the business of providing accommodation entries and the assessee company is one of them which has received shares capital at exorbitant premium from large numbers of these non- descript companies mainly based in Delhi and Kolkata amounting. The reasons do not mention the name of the entry provider who confirmed that assessee company had received accommodation entries. Further no date of such statement has been mentioned, nor have the modes of such receipt or any details in terms of cheque number of ba....
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....e money received represented unaccounted income. Though the reasons refer to the search but do not refer to any incriminating material detected as a result of search so as to form a prima facie opinion contrary to the claim made in the original return and accepted in the original assessment u/s 143 (3) of the Act. Drawing of list of shareholders based on a Investigation wing report has not been judicially accepted as a foundation for assuming jurisdiction u/s 147 of the Act." 33. It is also not in dispute that during the original proceedings, the AO had issued a questionnaire dated 21.06.2011, whereby the AO called upon the Assessee to submit the details of subscribers, paid up capital and also the details of shares allotted during the year under consideration. The Assessee had furnished the response to the said questionnaire and had submitted the share application money, share application form, proof of identity, copy of PAN and copy of ITR as well as the bank statements of the share applicants. Thus, the identity as well as the creditworthiness of the applicants was duly scrutinized. The copy of the ITR of the share applicants would reflect their capacity to subscribe to the s....
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....ent proceedings. Therefore, the AO was required to have some additional information, beyond what had already been examined, in order to form reasons to believe that the Assessee's income had escaped assessment. 38. It is material to note that the CIT(A) had also examined the issues on merits and had found that the allegations that the Assessee had obtained share capital from unsubstantiated subscribers, was not established. 39. We consider it apposite to refer to the following extract of the CIT(A)'s decision. The same is set out below:- "28.1 The assessee company is engaged in the business of manufacturing of kraft paper and brown paper usually used for packing. It had received share capital and share premium to the tune of Rs.25,32,35,000/- from the 58 shareholders as stated in para 12.6 above. The AO asked the assessee to details of share capital pending allotments, detail of share capital premium received during year including complete detail of party i.e. name, address, PAN, Number of share allotted, total amount, allotment letter and transaction mode. He has also directed to detail of share capital/premium received during FY 2008-09 alongwith the highlight entr....
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.... the back of the assessee and not confronted and no opportunity given to cross-examine, such material cannot be relied upon against the assessee. ....." 40. As noted above, the CIT(A) also faulted the AO for drawing an adverse inference against the Assessee on the basis of certain statement without confronting the Assessee with the statements of 3 (three) persons recorded by the Investigation Wing. It is material to note that the said statements were not recorded during the assessment proceedings and the Assessee had no opportunity to cross examine those 3 (three) persons. 41. The AO was also persuaded to take an adverse inference on the basis that some of the share applicants had not responded to notice under Section 133 (6) of the Act. However, the learned counsel for the Revenue fairly conceded that the Assessee had pointed out that summons under Section 133 (6) of the Act had been issued at incorrect addresses and had also furnished the correct addresses, but no further summons were sent at that addresses. 42. The learned ITAT did not interfere with the CIT(A)'s finding on merits. The learned ITAT accepted the CIT(A)'s finding that the AO's assumption of the j....
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....acts the assessee did not disclose during the original proceedings." 44. The learned ITAT also found that there were factual errors in the reasons recorded in as much it is submitted the figure of share capital / share premium was Rs. 36,64,35,000/-. However, the same is also included the sum of Rs. 11,32,00,000/-, which was also added the capital raised in the previous year relating to AY 2008-09, which was accepted by the assessment order passed under Section 143 (3) of the Act. Additionally, the learned ITAT also noted that the assessments for AY 2010-11 to AY 2015-16 had been framed under Section 153A of the Act, pursuant to the search conducted under Section 132 of the Act on 08.07.2015. The addition of Rs. 3,50,00,000/- was made on account of unexplained share capital in respect of AY 2010-11, but that addition was deleted by the learned ITAT by an order dated 11.01.2022 passed in ITA No.6177/Del/2018 on the ground that there were no incriminating material on the basis of which the said additions could have been sustained. 45. The learned ITAT concurred with the CIT(A) that the material on which the AO relied upon could not be utilized for making an addition as the Asse....