IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "F" NEW DELHI
BEFORE SHRI G.C. GUPTA, VICE PRESIDENT
AND SHRI J.SUDHAKAR REDDY ACCOUNTANT MEMBER
ITA No: 1570/Del/2013
Asstt. Year 2004-05
M/s. Raj Hans Towers Pvt. Ltd. vs. ITO
M-33, 2nd Floor, Ward-15(2)
Greater Kailash-1, New Delhi.
New Delhi.
(PAN AAACR0019H)
(Appellant) (Respondent)
Appellant by : Shri R.S. Singhvi, CA
Respondent by :Shri Vikram Sahay, Sr. DR
Date of Hearing :09.7.2015
Date of pronouncement : 14.8.2015
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the assessee directed against the order of Ld.
CIT(A) dated 14.2.2013 for the assessment year 2004-05.
2. Facts in brief : The assessee is a private Ltd. Company and it filed its return
of income on 23.8.2004 declaring income of Rs. 11,000/-. The return of Income was
processed u/s 143(1). Later notice u/s 148 of the Act dated 31.3.2011 was issued to
the assessee. The assessee filed a reply dated 11.4.2001, wherein it has stated that,
the return of income filed u/s 139 of the Act on 23.8.2004, be treated as a return
filed in response to notice u/s 148 of the Act. The assessment was completed on
15.12.2011 u/s 147 r.w.section 143(3) determining total income of Rs.
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2,14,38,400/-. Aggrieved the assessee carried the matter in appeal, challenging
both the reopening of assessment as well as the merits of the addition. The first
appellate authority dismissed the appeal of the assessee. Aggrieved the assessee
filed this appeal on the following grounds :-
1. "(i)That CIT(A) was not justified in confirming reassessment under section 148 without
appreciating facts of the case, provisions of law and submission of the appellant.
(ii) That there is no factual or legal basis in assuming jurisdiction U/S 148 as there is no
case of any income escaping assessment or any tangible material and recording of
satisfaction in the context of provisions of section 148.
2. That even otherwise, orders of lower authorities are not in consonance with reasons
recorded by the assessing officer and orders passed by lower authorities are illegal,
arbitrary and without jurisdiction.
3. That the appellant has duly filed all the relevant documents in support of addition of
Rs. 2,14,27,4001- and same has totally been ignored and disregarded and addition
was made on mechanical basis.
4(i). That no evidence or material was brought on record or provided to the appellant in
the context of alleged addition and as such there is no valid basis for any such
addition in the impugned reassessment proceedings.
(ii) That reference to statement of Sh. S. K. Gupta is without any factual or legal basis in
the absence of any such allegation relating to the appellant company.
(iii) That even otherwise no opportunity for clarification and cross examination was
allowed and as such the said statement is not admissible or having any evidentiary
value.
5. That orders of the lower authorities are not justified on facts and same are bad in
law."
3. Ld. Counsel for the assesee Mr. R.S.Singhvi argued that :-
a) The reasons recorded for reopening of assessment are vage, unsubstantiated
and are not based on any tangible material
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b) In the satisfaction note, there is no reference to the nature and character of
the transaction, mode and manner of such transaction and the amount
attributable to the alleged entry provider.
c) The AO has not made any reference, to the statement of the parties who are
alleged entry provider or to the entries in the bank account
d) In the reasons recorded, it is alleged that the assessee has received entries
amounting to Rs. 20 lacs from Mrs. Anjali Gupta, Shri R.C. Goel and M/s.
Mitsu Securities Management Ltd. but, however, these entries are not
corroborated from the assessment order passed. This proves that the
information received by the AO from the investigation wing was vague and
incorrect.
e) On the same reasons, reassessment proceedings were initiated against the
assessee for assessment year 2005-06 and after verification and recording the
statement of Shri S.K. Gupta, the assessment order was passed for the
assessment year 2005-06 and no addition was made by the AO on account of
alleged accommodation entries.
4. The Ld. Counsel for the asessee relied on the following case laws in support of
his argument :-
1. CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC)
2. CIT vs. Central Warehousing Corporation (Delhi High Court) (dated 15/1/15)
3. CIT vs. Kelvinator India (2010) 320 ITR 561 (SC)
4. Mohan Gupta (HUF) vs. CIT (2014) 366 ITR 115 (Delhi High Court)
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5. On merits he submitted that statement recorded during the course of survey
u/s 133A, as no evidentiary value and hence no reliance can be placed on the
alleged statement in the possession of the Revenue .
6. He argued that initiation of reassessment proceedings was in respect of an
amount of Rs. 20 lacs but the AO considered, other additions in an arbitrary manner
and without recording proper reasons, had issued a notice u/s 148 illegally. He
argued that no other addition can be in the reassessment proceeding beyond the
material based to which reasons for reopening was recorded and notice under
section 148 cannot be given, unless tangible material comes to the possession of
the AO and a fresh reopening notice is issued. He relied on the decision of Hon'ble
Delhi High Court in the case of Ranbaxy Laboratories Ltd. vs. CIT (2011) 336 ITR
136 (Delhi) and other cases in support of this contentions. He submitted that the
additions have to be deleted on this ground.
7. On merits he argued that the whole addition is based on the statement of
Shri S.K. Gupta and in this statement Shri S.K. Gupta has made no references to the
name of the assessee M/s. Raj Hans Towers Pvt. Ltd. He submitted that the share
capital was received from directors. As regards other transactions i.e. loans he
submitted that these were received from directors, family members and associated
concerns who were all regularly assessed to income tax. He submitted that all
necessary evidences were placed on record in support of these loan and share
capital receipt. He argued that the assessee discharged the onus that lay on it by
submitting all possible documentary evidence in support of the share capital and
loan and that the AO nor the CIT(A) , made any attempt to independently verify the
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same or gather adverse material so as to justify the addition. He relied on the
following case laws :-
a) CIT vs. Metaphor Exports P. Ltd. (dated 13.1.2015)
b) ITO vs. Rakam Money Matters P. Ltd. (Delhi ITAT)
c) CIT vs. Rhombus International Pvt. Ltd. (Delhi High Court) (ITA No. 223/13)
d) CIT vs. Kamdhenu Steel & Alloys Ltd. SLP (CC) no. 15640 of 2012, dated
17.9.2012 (Supreme Court)
8. He contended that the correctness and genuineness of this document is not
in dispute, they could be no factual or legal basis for any addition, as per legal
principles laid down in the case of M/s. Lovely Export Pvt. Ltd. 319 ITR (St.) 5/216
CTR 195 and M/s. Orissa Corporation P. Ltd. 159 ITR 78 (SC).
9. On addition is made on unsecured loans he contended that, these entries are
not part of the reasons recorded and though no incriminating or tangible material
was found and though the assessee has furnished all the relevant documentary
evidence in support of the loans, the addition made without enquiry or evidence . He
submitted that the loans are mainly received of Directors, family members and other
associated concerns who are regular income tax assessee. He pointed out that the
ITAT, in its order for the assessment year 2008-09 has accepted the genuineness of
these loans and hence this issue is no more res integra. He relied on the following
case laws :-
1. CIT vs. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220
2. CIT vs. Rhombus International Pvt. Ltd. (Delhi High Court) ITA No. 223/13
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3.CIT vs. Metaphor Exports P. Ltd. judgment dated 13.1.2015
4.CIT vs. Diamond Products Ltd. 177 Taxman 331 (Delhi)
10. The Ld. DR Shri Vikram Sahay on the other hand supported the order of
the first appellate authority and submitted that Shri S.K. Gupta was admittedly an
entry provider and that Smt. Anjali Gupta is the wife of Shri S.K. Gupta. He referred
to answer given to question No. 11 by Shri S.K. Gupta, copy of which was furnished
by way of paper book by the revenue and submitted that Shri S.K. Gupta has given
details of the bank account maintained by him and his family members and this
includes the account of Smt. Anjali Gupta. He referred to page 26 of the assessee's
paper book which is a statement of account of Shri R.C. Goel with Oriental Bank of
Commerce. He pointed out that, the income of Shri R.C. Goel is by way of salary of
Rs. 72,000/- page 18 of the paper book and whereas the cumulative transaction in
the bank was Rs. 3.41 crores which is abnormal. He submitted that in the case of
Smt. Neelam Goel the rent receipt was Rs. 2,72,400/- and the taxable income was
Rs. 165050/- and whereas the cumulative transactions in the bank account were Rs.
50,73,000/-. This shows that the transactions of the assessee are not genuine. The
assessee submits that the information received by the revenue was not vague
information as alleged. He submitted a note to explain the circumstances leading to
the search and survey action on Taneja Group. On the argument that , in the
subsequent assessment year, no addition was made by the AO on the very same
material, the Ld. DR submitted that this cannot a ground for deleting the additions
and the order of the AO for that assessment year is not well founded. He pointed
out during this year Shri S.K. Gupta did not appear and give his statement to the
AO. He relied on the order of the Ld. CIT(A). He prayed that the order of the Ld.
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CIT(A) should be upheld. He relied on the order of the AO as well as the order of the
first appellate authority.
11. The Ld. Counsel for the assesee on the other hand submitted that Shri S.K.
Gupta could not appear before the AO for the reason that he was asked to appear
on 14th December, by way of notice dated 9th December,2007 and the order was
passed on 15th December without giving proper opportunity and hence this cannot
be a ground for the addition.
12. Rival contentions heard.
13. On a careful consideration of the facts and circumstances of the case and a
perusal of the papers on record and the orders of the authorities below, as well as
case law cited, we hold as follows.
14. The first issue that has to be adjudicated is whether the reopening of
assessment is valid in law.
15. The reasons for reopening as recorded by the AO are as follows.
"Reasons for the belief that income has escaped assessment:
I Return declaring income of Rs. 11,000/- was filed on 23.08.2004 which was processed u/s
143(1) on 22.09.2004.
Information has been received from the Investigation Wing of the Income Tax Department
that the above named assessee is a beneficiary of accommodation entries received from
certain established entry operators identified by the Wing during the period relevant to A.Y.
2004- 05. A comprehensive investigation was carried out by the Investigation wing for
identification of entry operators engaged in the business of money laundering for the
beneficiaries and on the basis of investigation carried out and evidences collected, a report
has been forwarded. I have perused the information contained in the report and the
evidences gathered. The report provides details of the modus operandi of the 'money
laundering scam' and explain how the unaccounted money of the beneficiaries are ploughed
back in its books of account in various forms including the form of bogus share capital/
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capital gains etc after routing the same through the bank account (s) of the entry operators.
Entry operators were identified after thorough investigation on the basis of definitive
analysis of their identity, creditworthiness and the source of the money ultimately received
by the beneficiaries, These entry operators are found to be mostly absconding/non-
complying after the unearthing of the 'Money Laundering Scam' leaving the said money at
the disposal of the beneficiaries without any associated cost or liability. In the instant case,
the assessee is found to be the beneficiary of accommodation entry 'from such entry
operators as per the following specific details of transaction:-
Amount Instrument Date Name of entry provider Name of Bank
No.
20,00,000 650618 24.12.2003 Anjali Gupta/R.C. Goel HDFC
Mitsu
The assessee has received unexplained sums from the entry operators as per the above details as
per information available with the undersigned . As explained above, the identity, creditworthiness
and genuineness of transactions with the persons found to be entry operators cannot be
established. I therefore have reasons to believe that the income chargeable to tax amounting to Rs.
20,00,000/-, which is the assessee's own money, has escaped assessment within the meaning of
Section 147 of the Act.
Since four years have since expired from the end of the relevant, assessment year, and no scrutiny
assessment was completed in the case of the assessee for the said assessment year, the reasons
recorded above for the purpose of reopening of assessment are put up for kind satisfaction of Addl
CIT, Range-15, New Delhi in terms of Section 151 of the Act. "
16. Perusal of these reasons demonstrates that
a) It is based on a record from the investigation wing
b) The AO claims to have perused the information contained in the report
and the evidence gathered by the investigation wing.
c) The report explains the modus operandi and identifies the entry operators
and states that the entry operators are absconding leaving the money at
the disposal of the beneficiaries
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d) The assessee is the beneficiary of the following accommodation entries
Name of the Amount Date
entry
provider
Anjali Rs. 20,00,000 24.12.2010
Gupta/R.C.
Goel Mitsu
e) The assesee has received unexplained amount from entry operators and
the genuineness of the transaction with the persons found to the entry
operators cannot be established.
f) Therefore, the AO has the reason to believe that income chargeable to
tax amounting to Rs. 20,00,000/-, which is the assessee's own money as
escaped assessment.
17. In our view the AO has not referred to any tangible material, which has given
into this position, based on which, he has come to the conclusion that income has
escaped assessment. When the allegation of the investigation wing is that the
assessee is itself an entry provider, to believe that the assesee has received
accommodation entries from its directions is not a correct or cogent reason to
believe that assessee's own money has been routed through an entry operator. The
report of the investigation wing, has been accepted by the AO, without independent
application of mind. No reference has been made to any material gathered by the
investigation wing, either by way of statements or by way of bank statement
evidences etc. There is no prima facie material, to take a prima facie view that the
assesee's own money has been introduced by way of accommodation entries. When
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the directiors are alleged to be entry providers for others. The allegation is that the
assessee received accommodation entries from its Director Smt. Anjali Gupta. When
it is clear that Shri S.K. Gupta is an entry provider himself, the allegation that, the
company controlled by himself and other family members has taken accommodation
entries, in the absence of any admission by Shri S.K. Gupta or evidence brought on
record is a vague and unsubstantiated reason. This is a case where Shri S.K. Gupta
and his family members claimed to have invested money in the company and under
such circumstances , the reasons recorded for reopening in our view does not stand
the tests laid down for sustaining the reopening.
18. Various courts have laid down the principles and propositions based on which
the validity of reopening has to be tested.
We list some of them :
1. Signature Hotels Pvt. Ltd. vs. ITO (2011) 338 ITR 51 (Del) held as follows:-
Allowing the petition, that the reassessment proceedings were initiated on the
basis of information received from the Director of Income-tax (Investigation)
that the petitioner had introduced money amounting to Rs. 5 lakhs during
financial year 2002-03 as stated in the annexure. According to the information,
the amount received from a company, S, was nothing but an accommodation
entry and the assessee was the beneficiary. The reasons did not satisfy the
requirements of section 147 of the Act. There was no reference to any
document or statement, except the annexure. The annexure could not be
regarded as a material or evidence that prima facie showed or established
nexus or link which disclosed escapement of-income. The annexure was not a
pointer and did not indicate escapement of income. Further, the Assessing
Officer did not apply his own mind to the information and examine the basis
and material of the information. There was no dispute that the company, S,
had a paid-up capital of Rs. 90 lakhs and was incorporated on January 4, 1989,
and was also allotted a permanent account number in September, 200 I. Thus,
it could not be held to be a fictitious person. The reassessment proceedings
were not valid and were liable to be quashed.
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2. CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) held as follows :-
The concept of "change of opinion" on the part of the Assessing Officer to
reopen an assessment does not stand obliterated after the substitution of
section 147 of the Income-tax Act, 1961, by the Direct Tax Laws (Amendment)
Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have
reason to believe that income has escaped assessment, but this does not imply
that the Assessing Officer can reopen an assessment on mere change of
opinion. The concept of "change of opinion" must be treated as an in-built test
to check the abuse of power. Hence after April 1, 1989, the Assessing Officer
has power to reopen an assessment, provided there is "tangible material" to
come to the conclusion that there was escapement of income from
assessment. Reason must have a link with the formation of the belief.
3. Madhukar Khosla vs. ACIT (2014) 367 ITR 165 (Del) held as follows :-
S. 147: If "reasons to believe" art not based on new, "tangible materials", the
reopening amounts to an impermissible review.
In AY 2006-07 the AO passed an assessment order u/s 143(3). Thereafter, after
the expiry of four years from the end of the AY, he issued a notice u/s 148
reopening the assessment on the ground that the records showed that an
amount of Rs. 25L had to been added to the capital account for which the
assessee had offered no explanation and that the same constituted
undisclosed income u/s 68. The assessee challenged the reopening on the
ground that there was no failure 011 its part to make a disclosure or material
facts and the reopening was based on change of opinion. The department
relied Oil the Full Bench verdict in Usha International 348 ITR 485 and argued
that as the AO did not apply his mind at all to the question regarding the said
capital contribution, it could not be said that there was a "change of opinion".
HELD by the High Court allowing the Petition:
(i) In the recorded reasons. no details are provided as to what such information is
which excited the AO's notice and attention. The reasons must indicate
specifically what such objective and new material facts are, on the basis of which
a reopening is initiated u/s 148. This reassessment is clearly not on the basis of
new (or "tangible") information or facts that which the Revenue came by. It is in
effect a re-appreciation or review of the facts that were provided along with the
original return filed by the assessee;
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(ii) The foundation of the AO's jurisdiction and the raison d'etre of a reassessment
notice are the "reasons to believe". Now this should have a relation or a link with
an objective fact in the form of information or facts external to the materials on
the record. Such external facts or material constitute the driver, or the key which
enables the authority to legitimately re-open the completed assessment. In
absence of this objective "trigger", the AO does not possess jurisdiction to reopen
the assessment. It is at the next stage that the question. whether the re- opening
of assessment amounts to "review" or "change of opinion" arises. In other words,
if there are no "reasons to believe" based on new, "tangible materials", then the
reopening amounts to an impermissible review. Here, there is nothing to show
what triggered the issuance of notice of reassessment - no information or new
facts which led the AO to believe that full disclosure had not been made
(Kelvinator of India Ltd 320 ITR 561 (SC) and Orient Craft Ltd 354 ITR 536 (Delhi)
followed, Usha International 348 ITR 485 (Del) (FB) referred)
4. CIT vs. Insecticides (India) Ltd. (2013) 357 ITR 330 (DEL) held as follows :-
Dismissing the appeals, that the reasons recorded for the notice of
reassessment for the assessment years 2002-03 and 2003-04 showed that they
were based on the information received by the Assessing Officer from the
Director of Income-tax (Investigation) that the assessee was involved in giving
and taking bogus entries/transactions during the relevant year which actually
represented unexplained income of the assessee. The Tribunal had found that
the Assessing Officer did not mention the details of the transactions that
represented unexplained income of the assessee. The information on the basis
of which the Assessing Officer had initiated proceedings under section 147 of
the Income-tax Act, 1961, was vague and uncertain and could not be
construed to be sufficient and relevant material on the basis of which a
reasonable person could have formed a belief that income had escaped
assessment. The notice of reassessment was not valid and was liable to be
quashed.
5. Orient Craft Ltd. vs. CIT (2013) 354 ITR 536 (Del) held as follows :-
Dismissing the appeal, that the reasons disclosed that the Assessing Officer
reached the belief that there was escapement of income "on going through
the return of income" filed by the assessee after he accepted the return under
section 143(1) without scrutiny, and nothing more. This was nothing but a
review of the earlier proceedings and an abuse of power by the Assessing
Officer. The reasons recorded by the Assessing Officer did confirm the
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apprehension about the harm that a less strict interpretation of the words
"reason to believe" vis-a-vis an intimation issued under section 143(1) could
cause to the tax regime. There was nothing in the reasons recorded to show
that any tangible material had come into the possession of the Assessing
Officer subsequent to the issue of the intimation. The notice ref1ected an
arbitrary exercise of the power conferred under section 147.
6 Sarthak Securities Co. P Ltd. vs. ITO (2010) 329 ITR 110 (Delhi) held as
follows:-
Allowing the petition, that the formation of belief was a condition precedent
as regards the escapement of the tax pertaining to the assessment year by the
Assessing Officer. The Assessing Officer was required to form an opinion before
he proceeded to issue a notice. The validity of reasons, which were supposed
to sustain the formation of an opinion, was challengeable. The reasons to
believe were required to be recorded by the Assessing Officer. Once the
ingredients of section 147 were fulfilled, the Assessing Officer was competent
in law to initiate the proceedings under section 147. The Assessing Officer was
aware of the existence of" the four companies with whom the assessee had
entered into transaction. Both the orders showed that the Assessing Officer
was made aware of the situation by the investigation wing and there was no
mention that these companies were fictitious companies. Neither the reasons
in the initial notice nor the communication providing reasons remotely
indicated independent application of mind. Though conclusive proof was not
germane at this stage the formation of belief must be on the base or
foundation or platform of prudence which a reasonable person was required
to apply. From the perusal of the reasons recorded and the order of rejection
of objections, the names of the companies were available with the authority
and their existence was not disputed. The assessee in its objections had stated
that the companies had bank accounts and payments were made to the
assessee through banking channel. The identity of the companies was not
disputed. Under these circumstances, the initiation of proceedings under
section 147 and issuance of notice under section 148 of the Act were to be
quashed.
CIT v. Lovely Exports (P) Ltd. [2009] 319 ITR (St.) 5 applied.
7. CIT vs. Atul Jain (2008) 299 ITR 383(Del) held as follows :-
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Dismissing the appeals, that the only information was that the assessee had
taken a bogus entry of capital gains by paying cash along with some premium
for taking a cheque for that amount. The information did not indicate the
source of the capital gains which in this case were shares. There was no
information which shares had been transferred and with whom the
transaction had taken place. The Assessing Officer did not verify the
correctness of the information received by him but merely accepted the truth
of the vague information in a mechanical manner. The Assessing Officer had
not even recorded his satisfaction about the correctness or otherwise of the
information for issuing a notice under section 148 .. What had been recorded
by the Assessing Officer as his "reasons to believe" was nothing more than a
report given by him to the Commissioner. The submission of the report was not
the same as recording of reasons to believe for issuing a notice. The Assessing
Officer had clearly substituted form for substance and therefore the action of
the Assessing Officer was not sustainable.
19. Applying the proposition laid down in these case laws to the facts of this
case, we uphold the contentions of the Ld. Counsel for the assessee that the
reopening is bad in law for the reason that ,
a) There is no tangible material, which come to the possession of the AO to lead
to the conclusion that there was an escapement of income from assessment.
There is no reference to any statement or bank account or any other material
other than a main report of the investigation wing.
b) The reasons recorded are not after independent verification and application of
mind by the AO and it is merely based on a report of the investigation wing.
This is clear from the conclusions in the assessment order that the figure of
Rs. 20 lakhs is not correct.
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c) The reasons are vague and unsubstantiated and are not corroborated at the
time of assessment or by any other evidence, such as statement, bank
account copy etc.
d) When share capital is contributed by the directors, to believe that the money
in question belonged to the assessee company and that this money was
routed through the director of the assessee company, based on the report of
the investigation wing is unsubstantiated and not corroborated by any
material.
20. We now consider the contentions on merits. The argument of the assessee is
that the reopening is bad in law for the reason that approval was not obtained from
the Joint Commissioner has to be dismissed as devoid of merit, as the Ld. DR has
produced the approval by the Additional Commissioner of Income Tax dated
29.3.2011 and this approval is after due application of mind.
21. On the issue as to whether the AO was right in travelling beyond the reasons
recorded for reopening the assessment which was only in respect of amount of Rs.
20 lacs alleged to be accommodation entry of share capital and making additions of
amounts unconnected with the reasons and without any other tangible material, we
find that the courts have laid down the following propositions of law on this issue:-
a. Ranbaxy Laboratories Ltd. v. Commissioner of Income-tax [2011] 336 ITR
136 . (Del) held as follows :-
Section 148 was supplementary and complementary to section 147. Sub-
section (2) of section 148 mandates reasons for issuance of notice by the
Assessing Officer and sub-section (I) mandates service of notice to the
assessee before the Assessing Officer proceeds to assess, reassess or
recompute escaped income. Section 147 mandates recording of reasons to
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believe by the Assessing Officer that the income chargeable to tax had
escaped assessment. All these conditions were required to be fulfilled to
assess or reassess the escaped income chargeable to tax. Under Explanation
3 if during the course of the proceedings the Assessing Officer comes to the
conclusion that some items have escaped assessment, then notwithstanding
that those items were not included in the reasons to believe as recorded for
initiation of the proceedings and the notice, he would be competent to make
assessment of those items. For every new issue coming before the Assessing
Officer during the course of proceedings of assessment or reassessment of
escaped income, and which he intends to take into account, he would be
required to issue a fresh notice under section 148.
b. CIT v. Living Media India Ltd. [2013] 359 ITR 106 (Delhi) held as follows :-
Reassessment - Notice - Validity - To be judged on basis of Reasons recorded
prior to issue of notice - additions based on reasons recorded prior to notice
deleted and that order becoming final - reassessment 011 other grounds
recorded after issue of notice not valid.
c. Jay Bharat Maruti Ltd. v. CIT (Delhi High Court) [ITA No. 50112007] held as
follows :--
Applying the aforesaid principle, it is clear that the proceedings under Section
147 of the Act cannot impinge upon items which have no connection or
relation with items of income and/or expenditure which form the basis of a
notice under Section 148(1) of the Act.
d. Vipan Khanna v. CIT 255 ITR 220 (P& H) held as follows :-
Reassessment proceeding u/s 147 is a special proceeding and can be confined
to only to the issue on the basis of reassessment proceeding has been
initiated and no general questionnaire can be issued for the same. It is not
permissible for the AO to make fishing and Roving enquiries for finalizing the
reassessment of the assessee.
e. Travancore Cements Ltd vs ACIT; (2008) 219 CTR 359 (Ker)
Assessing officer gets jurisdiction under Section 148 to assess or reassess the
income which has escaped assessment only after Sub-section (2) of Section
148 is complied with. The question is whether Sub-section (2) of Section 148
has to be complied with if any other income chargeable to tax has escaped
assessment, or which comes to his knowledge subsequently in the course of
the proceedings. In other words, when proceedings are already on in respect
of one item in respect of the income for which he had already recorded
reasons is it necessary that he should record reasons for assessing or
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reassessing any of the items which are totally unconnected with the
proceedings already initiated.
22. Applying the proposition laid down in these case laws to the facts of this
case, we uphold the contentions of the assessee that the AO cannot consider
additions other than those material in the reasons for reopening in the absence of
fresh tangible material. In case fresh tangible material comes to the possession of
the AO on any other issue, then the proper course of action would be, to record
fresh reasons and issue a fresh notice u/s 148 . Thus the additions made by
travelling beyond the reason for re-opening, without tangible material , is bad in
law..
23. The other arguments of the Ld. Counsel for the assesee is that, on the very
same reasons, based on the very same material, reasons were recorded and
reassessment proceedings were initiated for the assessment year 2005-06 and the
Assessing Officer had dropped the proceedings after recording the statement of Shri
S.K. Gupta on 15.3.2013, on the ground that nothing adverse was found and hence
no adverse inference is drawn. In our view this order of the AO for the assessment
year 2005-06, cannot in any way influence the proceedings for this assessment year.
Each assessment year is an independent proceedings and the additions during the
impugned assessment year has to be decided based on the merits and evidence of
the current assessment year. Thus this contention of the assessee is rejected.
24. On merits, we find that the assessee has received share capital and loans
from its directors and their family members and associated concerns. Evidences
were filed consisting of
a) Confirmation of account letters alongwith PAN number
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b) Copy of IT return and acknowledgement
c) Copy of computation of income
d) Bank statement
e) In the case of company, copy of audit report alongwith balance sheet
and profit and loss account , director's reports and in certain cases
copy of assessment orders u/s 143(3) have been filed.
25. The assessee, in this case has furnished evidences in support of the
transactions. There is no investigation whatsoever by the AO. No specific reasons
are recorded by the AO or by the Ld. CIT(A), as to why the evidence filed by the
assessee, casewise, cannot be accepted. No attempt has been made to discredit the
evidences filed by the AO. Ld. DR had tried to fill in this gap by analysing the
evidences filed by the assessee and bringing to the notice of the bench the issue of
creditworthiness of some of the share applicants. Out of four persons who have
purchased shares and out of 11 persons who have given loans, the Ld. DR analysed
the evidence filed only by two persons. To this extent the claim of the Ld. DR is
credible. The creditworthiness of these persons is not proved . Nevertheless in our
view when Directors / share holders of the assessee company confirms having
contributed capital and fails to substantiate the source of such contribution, this
addition should be made in the hands of such directors / share holders, as no
investigation is carried out by the AO in these cases also.
26. A perusal of the above demonstrates that the assessee has furnished before the
AO evidences to establish the identity of the persons who either invested in share
capital or granted a loan. On the other hand the AO has not conducted any
investigation nor did he have any of the material gathered by the Investigation Wing
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based on which the addition can be made. He merely relied on a report of the
Investigation Wing.
27. The legal position enunciated by the Jurisdictional High Court is as follows.
a) In the case of CIT vs. Gangeshwari Metal P.Ltd. in ITA no.597/2012 judgement
dt. 21.1.2013, the Hon'ble High Court after considering the decisions in the case of
Nova Promoters and Finlease Pvt.Ltd. 342 ITR 169 and jdugement in the case of CIT
vs. Lovely Exports 319 ITR (Sat.5)(S.C.) held as follows.
"As can be seen from the above extract, two types of cases have been indicated.
One in which the Assessing Officer carries out the exercise which is required in law
and the other in which the Assessing Officer (sits back with folded hands' till the
assessee exhausts all the evidence or material in his possession and then comes
forward to merely reject the same on the presumptions. The present case falls in the
latter category. Here the Assessing Officer after noting the facts, merely rejected the
same. This would be apparent from the observations of the Assessing Officer in the
assessment order to the following effect-
"Investigation made by the Investigation Wing of the department clearly
showed that this was nothing but a sham transaction of accommodation
entry. The assessee was asked to explain as to why the said amount of
Rs.l,11,50,000/- may not be added to its income. In response, the assessee
has submitted that there is no such credit in the books of the assessee.
Rather, the assessee company has received the share application money for
allotment of its share. It was stated that the actual amount received was Rs.
55, 50, 000/- and not Rs.l,11,50,000/- as mentioned in the notice. The
assessee has furnished details of such receipts and the contention of the
assessee in respect of the amount is found correct. As such the unexplained
amount is to be taken at Rs.55,50,000/-. The assessee has further tries to
explain the source of this amount of Rs.55,50,000/- by furnishing copies of
share application money, balance4 sheet, etc. of the parties mentioned above
and asserted that the question of addition in the income of the assessee does
not arise. This explanation of the assessee has been duly considered and
found not acceptable. This entry remains unexplained in the hands of the
assessee as has been arrived by the Investigation wing of the department. As
such entries of Rs. 55, 50, 000/- received by the assessee are treated as an
unexplained cash credit in the hands of the assessee and added to its income.
Since I am satisfied that the assessee has furnished inaccurate particulars of
its income, penalty proceedings under Section 271(1)(c ) are being initiated
separately. "
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The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category
and that is why this Court decided in favour of the revenue in that case. However,
the facts of the present case are clearly distinguishable and fall in the second
category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There
was a clear lack of inquiry on the part of the Assessing Officer once the assessee
had furnished all the material which we have already referred to above. In such an
eventuality no addition can be made under Section 68 of the Income Tax Act, 1961.
Consequently, the question is answered in the negative. The decision of the
Tribunal is correct in law. "
The case on hand clearly falls in the category where there is lack of enquiry on the
part of the A.O. as in the case of Gangeshwari Metals (supra).
b) In the case of Finlease Pvt.Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement
dt. 22.11.2012 at para 6 to 8, it is held as follows.
6. This Court has considered the submissions of the parties. In this case the
discussion by the Commissioner of Income Tax (Appeals) would reveal that the
assessee has filed documents including certified copies issued by the ROC in relation
to the share application, affidavits for the directors, form 2 filed with the ROC by
such applicants confirmations by the applicant for company's shares, certificates by
auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on
the general inference to be drawn from the reading of the investigation report and
the statement of Mr.Mahes Garg. To elevate the inference which can be drawn on
the basis of reading of such material into judicial conclusions would be improper,
more so when the assessee produced material. The least that the Assessing Officer
ought to have done was to enquire into the matter by, if necessary, invoking his
powers under Section 131 summoning the share applicants or directors. No effort
was made in that regard. In the absence of any such finding that the material
disclosed was untrustworthy or lacked credibility the Assessing Officer merely
concluded on the basis of enquiry report, which collected certain facts and the
statements of Mr. Mahesh Garg that the income sought to be added fell within the
description of S. 68 of the Income Tax Act, 1961.
7. Having regard to the entirety of facts and circumstances, the Court is satisfied
that the finding of the Tribunal in this case accords with the ratio of the decision of
the Supreme Court in Lovely Exports (supra).
8. The decision in this case is based on the peculiar facts which attract the ratio of
Lovely Exports (supra). Where the assessee adduces evidence in support of the
share application monies, it is open to the Assessing Officer to examine it and reject
it on tenable grounds. In case he wishes to rely on the report of the investigation
authorities, some meaningful enquiry ought to be conducted by him to establish a
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link between the assessee and the alleged hawala operators, such a link was shown
to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon
by the revenue. We are therefore not to be understood to convey that in all cases of
share capital added under Section 68, the ratio of Lovely Exports (supra) is
attracted, irrespective of the facts, evidence and material."
14. Thus a clear distinction has been made out in cases where the AO has conducted
certain investigations and in cases where the AO merely rejected the evidences filed
by the assessee and made an addition based on presumptions.
28. As the assessee has produced evidences in support of this claim and as the
AO has not conducted any investigation nor collected any evidence to controvert the
claim of the assessee in our view applying the proposition laid down in the case law
discussed above the additions are bad in law. Thus we allow the appeal of the
assessee.
Order pronounced in the open court on 14th August, 2015.
sd/- sd/-
(G.C. GUPTA) (J. SUDHAKAR REDDY)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: the 14th August, 2015
`veena'
Copy of the Order forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
6. Guard File By order
Dy. Registrar
Sl. Description Date
No.
1. Date of dictation by the Author 9.7.2015
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2. Draft placed before the Dictating Member 14.7.2015
3. Draft placed before the Second Member
4. Draft approved by the Second Member
5. Date of approved order comes to the Sr. PS
6. Date of pronouncement of order
7. Date of file sent to the Bench Clerk
8. Date on which file goes to the Head Clerk
9. Date of dispatch of order
22
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