TaxTMI 
TaxTMI 
2026 (9) TMI 1867
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....ny and notice u/s. 143(2) of the Act was issued on 08.08.2013. It was shown that, the AO had issued notice u/s 142(1) of the Act dated 11.06.2014 wherein he had inter alia called for details of share capital/ any introduction of shares and details of bank account of the assessee for FY 2011-12. In response, the assessee had furnished the complete list of shareholders, which is noted to be as follows:-. # Name PAN No. No. of shares Amount Rs. Premium Rs. 1. K. Ramanathan ACCPR2202H 26,12,800 2,61,28,000 2. K. R. Premnath ADIPP1683K 10,00,000 1,00,00,000 3. R. Srinath AGUPS1535J 13,83,300 1,38,33,000 4. AA Plus Share Broker Private Limited AAHCA2831P 5,500 5,50,000 49,50,000 5. Acacio Trade Link Pvt. Ltd., AAICA0609G 2,00,000 20,00,000 1,80,00,000 6. Ailish Traders Pvt. Ltd., AAICA1021G 1,00,000 10,00,000 90,00,000 7. Avance technologies Ltd AAECA5763B 50,000 5,00,000 45,00,000 8. Dhanus Technologies Ltd AABCD3429L 2,20,000 22,00,000 1,98,00,000 9. Diyash Infra Developer Pvt Ltd AACCD8661R 95....
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....y the assessee. The AO issued summons to all the shareholders, out of which six came back un-served and, except one (M/s Speciality Papers Ltd), others did not comply with the same. On further notice, the assessee supplied the details of four individual shareholders mentioned at Sl Nos. 1-3, 15 in the Table above. The AO is found to have accepted the identity, genuineness and creditworthiness of M/s Speciality Papers Ltd and the four individual shareholders, which aggregated to Rs. 5,80,61,000/-. Allowing credit for the income of Rs. 7,70,00,000/- offered under the IDS Scheme, 2016, the AO treated the balance share capital of Rs. 13,94,39,000/- (27,45,61,000 minus 5,80,61,000 minus 7,70,00,000) to be unexplained and added the same u/s 68 of the Act. 5. Aggrieved by the above assessment order, the assessee preferred appeal before the Ld. CIT(A) challenging the legal validity of reopening and the addition made on merits, both of which were dismissed by the Ld. CIT(A). Being aggrieved with the action of the Ld. CIT(A), the assessee is now in appeal before us. 6. Referring to the first proviso to Section 147 of the Act, the Ld. AR submitted that, where an assessee had filed a ret....
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.... him. He thus submitted that, the reference to the search conducted upon Mr. Shah was a mere ruse to reopen the assessment and that on the given facts there was no fresh tangible material in the possession of the AO to justify reopening of a concluded assessment beyond four years. 8. The Ld. AR also pointed out several fundamental defects and factual inaccuracies in the reasons recorded, which according to him, denoted that the same was recorded without basic application of mind and upon borrowed satisfaction. Relying upon the decisions of PCIT vs. Shodiman Investments (P.) Ltd[2020] 422 ITR 337 (Bom) and PCIT vs. Meenakshi Overseas (P.) Ltd.[2017] 395 ITR 677 (Del), he submitted that, the impugned reopening was invalid. He also showed us that, the objections filed by the assessee hadn't been disposed-off by way of speaking order, which in his view, rendered the reopening bad in law. 9. Per contra, the Ld. DR appearing for the Revenue submitted that, Shri Shah was controlling over 200 companies including M/s Ailish Traders Pvt Ltd and therefore the information received by the AO led him to record valid reasons to believe that income chargeable to tax had escaped assessment. S....
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....ive history is that in respect to the reopening u/s. 147 of the Act, the Parliament by Direct Tax Laws (Amendment) Act 1987 w.e.f. 01.04.1989 had substituted "for reason to believe escapement of income" to "for reasons to be recorded by him in writing, is of the opinion'' which gave unbridled subjective satisfaction to the AO was later substituted back to "reason to believe escapement of income'', by the Direct Tax Laws (Amendment)Act, 1989. The Hon'ble Apex Court as well as the Hon'ble jurisdictional High Court as well as other Hon'ble High Courts have already held in plethora of cases the test of a prudent person instructed in law inunderstanding jurisdictional fact & law (mixed question of fact and law) the reason to believe escapement of income (supra). 11. As noted, the AO, who is a quasi-judicial authority is empowered to reopen the assessment only in a given case wherein there is reason to believe escapement of chargeable income to tax, which he has to record before issuing notice u/s 148 of the Act. In this regard, it must be borne in mind that reasons to believe postulates foundation based on information, and belief based on reason. After a foundation based on informati....
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....held that Assessing Officer has no power to review; and emphasized that AO in absence of "tangible material" should not resort to reopening. The Hon'ble Supreme Court held that merely on "change of opinion" the AO should not re-open the assessment because he doesn't enjoy the power to review his own order. 14. Thus, as noted before the AO assumes jurisdiction to re-open it is necessary that the conditions laid down in the said section 147 has to be satisfied viz., AO should record "reason to believe" that the income chargeable to tax for that assessment year has escaped assessment. And, if the AO intends to re-open an assessment [scrutinized u/s 143(3)] after four years from the relevant assessment year, then an additional condition needs to be satisfied viz escapement of income was due to fault of the assessee, in not fully and truly disclosing all the material facts necessary at the time of original assessment. If the conditions stipulated by statute are not satisfied at the first place, then it cannot be said that AO has validly assumed jurisdiction u/s. 147 of the Act. Therefore, the question for consideration is whether on the basis of the reasons recorded by the AO, he cou....
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.... truly and fully disclose all material facts in the course of original assessment. 16. This legal principle has been reiterated by the Hon'ble Supreme Court in the case of New Delhi Television Ltd. [NDTV] v. Dy. CIT[2020] 424 ITR 607 wherein it was held that, the Revenue can take the benefit of extended period of limitation beyond four years and up to six years only if the Revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. In this case (NDTV), we note that the assessee had issued step-up convertible bonds to its subsidiary based in the United Kingdom (UK)named NDTV Network Plc. (hereinafter referred to as the 'NNPLC'). At the time of original assessment, the assessee had disclosed the issue of step-up coupon bonds for US$ 100 million to NNPLC. The assessee had also disclosed the details of entities who subscribed to this issue and also the fact that the bonds were discounted at a lower rate, before the assessment was finalized. Subsequent to completion of the original assessment, the AO was in receipt of information that the assessee had undertaken round tripping of funds and that these funds rai....
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....he benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso section 147 of the Act. This can only be done if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The assessee, in our view had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts. 27. The High Court held that there was no "true and fair disclosure" in view of the law laid down by this Court in Phool Chand BajrangLal's case (supra), and the judgment of the Delhi High Court in Honda Siel Power Products Ltd. v. Dy. CIT [2011] 110 taxmann.com 2/197 Taxman 415/[2012] 340 ITR 53 (Delhi). We have already referred to the judgment in Phool Chand's case (supra), wherein it was held that where the transaction of a particular assessment year is found to be a bogus transaction, the disclosures made could not be said to be all "true" and "full". Relying upon the said judgment the High Court held that merely because the transaction of convertible bonds was disclos....
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....assessee was only liable to receive a guarantee fees on the same which was added to its income. Without saying anything further on merits of the transaction we are of the view that it cannot be said that the assessee had withheld any material information from the revenue. 30. According to the revenue the assessee to avoid detection of the actual source of funds of its subsidiaries did not disclose the details of the subsidiaries in its final accounts, balance sheets, and profit and loss account for the relevant period as was mandatory under the provisions of the Indian Companies Act,1956. It is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that the assessee was bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 3-8-2012 had never asked the assessee to furnish the details. 31. The revenue now has come up with the plea that certain documents were not supplied but according to us all these documents cannot be said to be documents which the assesse....
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....assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. (9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example -- "I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents." His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose ....
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.... assessing officer. What the revenue urges is that the assessee did not make a full and true disclosure of certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts. It was for the assessing officer at this stage to decide what inference should be drawn from the facts of the case. In the present case the assessing officer on the basis of the facts disclosed to him did not doubt the genuiness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No. 1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee." 18. From the above binding ratio of decision of the Hon'ble Apex Court, the principle which thus emerges is that, the Revenue can take the benefit of the extended p....
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....f the bank statement of Ailish Traders P Ltd with the Bharat Co-operative (Mumbai) Ltd having the account number 121/2916, it is seen that the assessee M/s. Shri Coimabatore jewellers India Pvt Ltd had received Rs. 1 crore from Shri. Shirish C Shah. Since Shri.Shirish C Shah is engaged in providing accommodation entries, the payments so received by the assessee M/s. Shri Coimabatore jewellers India Pvt Ltd is nothing but an accommodation entry. 4. Further, on verification of the details, the assessments of the companies providing accommodation entries have since been completed wherein it had been held that impugned companies were engaged in providing accommodation entries 5. Thus from the aforementioned details and the material evidences available, it is evident that income chargeable to tax amounting to Rs. 1,00,00,000 had escaped assessment for the AY 2012-13 6. Having perused the material evidences available, I am satisfied that the income of the assessee chargeable to tax had escaped assessment within the meaning of provisions of section 147 of the I.T. Act 1961 for the AY 2012-13. 7. Based on the materials evidences available and figures adm....
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....assessment of the assessee, particularly when the former was neither shareholder or director of M/s Ailish Traders P Ltd. This assumes importance in light of the categorical finding recorded by the Ld. CIT(A) that, there was also no statement recorded from Mr. Shah against the assessee. The Ld. CIT(A) had observed at Para 6.3.5 that, "...Furthermore, it is also noted from the assessment order that the AO had neither used any statement recorded from Mr Shirish C Shah against the appellant nor Mr Shirish C Shah had given any specific statement against the appellant, which was used by the AO against the appellant. Therefore, it is held that the claim of the appellant that the statement recorded from Mr Shirish C Shah was not provided to the appellant is devoid of any merits." It is thus observed that, the allegation leveled against the assessee in the recorded reasons was not backed by any tangible material but was simply lifted from the bald observations made by the DCIT, CC-2(2), Mumbai in his letter addressed to the AO. 21. The Ld. AR also brought to our notice that, ultimately the AO in the impugned order did not rely on the purported information received from DCIT, CC-2(2), Mu....
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....s part to disclose the relevant material facts truly or fully in the original assessment completed u/s 143(3) of the Act. We find that the AO was also unable to demonstrate as to which relevant material fact did the assessee fail to declare truly or fully in the assessment completed u/s 143(3) of the Acton 16.02.2015, based on which the AO had usurped jurisdiction u/s 147 to reopen the assessments beyond four years. We are therefore inclined to hold that the AO did not satisfy the condition precedent in the first proviso to Section 147 of the Act for reopening of the assessment of AY2012-13 beyond four years. 23. The case of the assessee is found to be squarely supported by the decision of the Hon'ble Delhi High Court in the case of SABH Infrastructure Pvt Ltd Vs ACIT [2018] 398 ITR 198 in which on similar facts and circumstances, the Hon'ble High Court quashed the reopening of concluded assessment undertaken beyond four years. In the decided case also, the assessee had furnished the details of the shareholders and provided their confirmations in the original assessment. The AO being satisfied with the details and information provided by the assessee, completed the original asse....
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..... It is well-settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment. In this case, the reasons failed to mention what facts or information was withheld by the petitioner. Merely relying upon the statement of Mr. Navneet Kumar Singhania that the companies in question were "paper companies", by itself, is insufficient to reopen the assessment, unless the Assessing Officer had further information that these companies were non-existent after making further inquiries into the matter. It is clear that the Assessing Officer did not make any inquiry or investigation, if these companies were in fact "paper companies". No effort has been made to establish the connection between the statement of Mr. Navneet Kumar Singhania and the five companies. 16. Mr. Chaudhary's submission that this court cannot dictate the manner and content of what is to be written in the reasons to believe is correct as a legal proposition. However, the court has to examine the reasons to believe to see if it satisfies the rigour of the provisions. The observations of this court in Multiplex Tradi....
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....e relevant portion is as under:- "12. It was further submitted that although the original assessment for AY 2009-10 was completed under Section 143(3) of the Act on 22.11.2011, the AO, at that stage, had only examined the details of share capital and premium received on a test-check basis. The Assessee had submitted certain documents including share application forms, bank statements, and PAN of the investing companies, which were accepted at face value, were without any suspicion on the nature of those transactions. 13. It is was submitted that during the post-search enquiries, the 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 ....
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....tted that certain references were made in the reasons recorded for various enquiries, but the same were never confronted to the Assessee despite specific requests made vide letters dated 11.11.2016 and 29.12.2016. 22. The learned Counsel for the Assessee placed reliance on the decision of the Supreme Court in New Delhi Television Ltd. v. Dy. CIT [2020] 116 taxmann.com 151/271 Taxman 1/424 ITR 607 (SC), to submit that where the assessee had disclosed all primary facts and the AO had formed his view, subsequent proceedings on the same material are not sustainable merely because the revenue now seeks to draw a different inference. 23. The learned Counsel for the Assessee submitted that the reasons for reopening must specify which fact or information was not disclosed. Reliance is placed on the judgment of this Court in Sabh Infrastructure Ltd. v. ACIT [2018] 99 taxmann.com 409/398 ITR 198 (Delhi), affirmed by the Supreme Court in ACIT v. Sabh Infrastructure Ltd. [2024] 159 taxmann.com 184/297 Taxman 374/461 ITR 339 (SC), for the same. 24. The Assessee further submitted that during the original assessment proceedings, all relevant documentation was submitted ....
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....fully and truly all material facts necessary for completion of the assessment. In the given facts, there was no explanation recorded as to how the Assessee failed to make full, true and all material disclosure of all the facts, and therefore, upheld the impugned order passed by the CIT(A). The conclusion of the learned ITAT must be read in the context that the fact the Assessee had furnished all information including the details of the share applicants, PAN number as well as their ITRs to establish the genuineness and creditworthiness of the entities. The reassessment proceedings would indicate that same was examined during the original assessment proceedings. The learned ITAT's finding regarding the requirement of clear recording as to how the Assessee had failed to truly disclose all material facts, is required to be understood in the aforesaid context. 47. In view of the above and the concurrent findings of the CIT(A) as well as the learned ITAT, the question is answered in favour of the Assessee and against the Revenue." 26. The case of the assessee is also supported by the decision of the Hon'ble Delhi High Court in the case of PCIT Vs South Delhi Promoters Ltd....