JALAJ CREATION PVT. LTD,SURAT vs. PINCIPAL CIT-1, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No.166/SRT/2020 (AY 2010-11) (Virtual Court hearing) Jalaj Creation Private Limited, The Income Tax Officer, A-2, Shop No.1007, Regent Textile Ward-1(1)(1), Surat. Vs market, Ring Road, Surat – 395002. PAN : AACCJ 3065 H Applicant Respondent

Assessee by Shri Rajesh Bhuwala – CA Revenue by Shri Ritesh Mishra – CIT(DR) Date of hearing 09.03.2021 Date of pronouncement 03.06.2021

Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee are directed against the order of ld. Principal Commissioner of Income Tax, Surat-1,hereinafter referred as “Ld. Pr.CIT” under section 263 of the Act dated 18.03.2020 for the assessment year (AY) 2010-11. The assessee has raised following grounds of appeal: “1. For that the order of the learned CIT is arbitrary, illegal, excessive, perverse and bad in law. 2. Because the Reopening of assessment by A.O. is itself bad in law and without application of mind as there was no any amount received by assessee from Inland Vanijaya Pvt. Ltd. which was the basis of reopening. The AO has not made any addition for this also. There are judicial rulings which clearly say that if addition could not be made for the matter which was basis of reopening then no addition can be made on any other matter. (CIT v/s Mohmed Juned Dadani (2013) 30 Taxmann.com 1) (Gujarat HC).

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 So when reopening itself is illegal then order u/s 263 is also bad and illegal. In the identical facts, The ITAT Delhi has also held that the assessment order which is bad in law and illegal cannot be revised under section 263 of the Income Tax Act. (ITA No.2857/Delhi/2017-M/s. SPJ Hotels (P) Ltd., New Delhi) - Rs.432600/- 3. Because the learned CIT has not considered that the AO has duly considered the entire amount received during the year and has not made Addition being the fact that no shares were allotted against this share application money of 14.00 lacs and was returned back to applicants after few time. The AO has made the Assessment order after proper Enquiry and perusal of Documents submitted by the assessee. So it is not erroneous or prejudicial to the interest of the revenue. Without making the allotment the Company never owned the money. Total tax effect Rs.4,32,600/-“ 2. Brief facts of the case are that the assessee is a Private Limited Company filed its Return of Income for the assessment year (AY) 2010-11 on 31.08.2010 declaring his total income as Nil. Thereafter, on the basis of information received from DDIT (Investigation), Unit-3(1), Kolkata that M/s Navdurga Distributors Pvt. Ltd., had received fund normally on clearing and transferred to several beneficiaries including of assessee. The name of M/s. Navdurga Distributors Pvt Ltd., used as a conduit for transfer of fund received in clearing. The funds were transferred immediately. The fund received through clearing in Navdurga Distributors Pvt Ltd., were transferred to assessee through Inland Vanijya Pvt Ltd., which is one of the shell companies. On scrutiny, it was noticed that the assessee received share capital and share premium of Rs.31.00 lakhs from Salpaturi Suppliers Pvt.

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 Ltd., Deejay Promoters Pvt. Ltd., Lodha & Company Ltd., Janet Investment Pvt. Ltd., Jabali Commercial Co. Pvt. Ltd., and VHS Jaiswal Sales Pvt. Ltd. 3. The assessee also received share application money of Rs.14 lakhs from Salpaturi Suppliers P. Ltd., Rose Valley Sales P. Ltd. and Janet Investment P. Ltd. The Assessing Officer (AO) made the addition of Rs.31 lakhs with regard to Salpaturi Suppliers Pvt. Ltd., Deejay Promoters Pvt. Ltd., Lodha& Company Ltd., Janet Investment Pvt. Ltd., Jabali Commercial Co. Pvt. Ltd., and VHS Jaiswal Sales Pvt. Ltd. The AO after making certain enquiry and granting opportunity to the assessee completed assessment on 29.12.2017 under section 143(3) r.w.s 147 of the Act. 4. The assessment order dated 29.12.2017 was revised by ld. Pr.CIT under by exercising his jurisdiction power under section 263 of the Act. Before passing the order, the ld. Pr.CIT noted that on perusal of scrutiny record noted that the assessee company taken share capital and share premium of Rs.31,00,000/- from following companies Name of the share subscriber Share capital Rs. Share premium Total credit Rs. Rs. Salpaturi Suppliers Pvt. Ltd 37,500 7,12,500 7,50,000 Deejay Promoters Pvt. Ltd 5,000 9,50,00 1,00,000 Janet Investment Pvt. Ltd.,. 37500 7,12,500 7,50,000 Jabali Commercial Co. Pvt 10,,000 1,90,000 2,00,000 VHS Jaiswal Sales Pvt. Ltd 37,500 71,,500 7,50,000 Lodha & Company Ltd 27,500 5,22500 5,50,,000 Total 1,55,000 29,45,000 31,00,000

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 5. The Assessing Officer added Share Capital and Share Premium of Rs.31,00,000/- in the Income of the assessee. On scrutiny the ld. PCIT further find that the assessee also received share application money from the three following invertor company; Name of invertor company Amount 1 Salputri Suppliers Pvt Ltd 7,50,000/- 2 Rose Velley Sales Pvt Ltd. 2,50,000/- 3 Janet Investment Pvt Ltd 4,00,000/- Total 14,00,000/- 6. The ld.PCIT after scrutiny of assessment record took his view that the AO has neither considered nor examined the identity, creditworthy and genuineness of transaction of the share application and share premium, nor added to the total income of the assessee, the AO failed to observe the above facts during the assessment proceedings. The share premium received from these companies are also bogus. On the basis of aforesaid observation, the ld. Pr.CIT issued show cause notice dated 24.01.2020 that the assessment order is erroneous and prejudicial to the interest of the Revenue as the same is passed without making enquiries and verification which should have been made by the Assessing Officer and that Explanation 2 to section 263(1) of the Act is also attracted. The assessee filed reply to the show cause notice through his representative on 11.02.2019. In reply, the assessee stated that the assessment order passed by Assessing Officer is illegal and bad in law. The Assessing Officer reopened the case on the basis of share capital

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 received from Inlnad Vanijya P. Ltd., but, no funds was received from said company. The reply of the assessee was not accepted by the Ld.Pr.CIT. The ld.Pr.CIT held that assessment order dated 29.12.2017 passed under section 143(3) r.w.s 147 is erroneous and prejudicial to the interest of the Revenue and the Assessing Officer is directed to recompute and determine the correct total income of the assessee after making the additions as discussed by Ld.Pr.CIT. The Assessing Officer was also directed to provide reasonable opportunity of hearing to the assessee. Aggrieved by the order of ld. Pr.CIT, the assessee has filed present appeal before this Tribunal. 7. We have heard submissions of ld.AR of the assessee and ld.Sr.DR for the Revenue and gone through the material available on record. The ld.AR of the assessee submits that assessment order dated 29.12.2017 passed under section 143(3) r.w.s 147 is itself illegal and bad in law. The Assessing Officer reopened the case on the basis of receipt of share capital received from Inland Vanijya P. Ltd. No funds or even a single penny is received from said company. No addition on this point was made by Assessing Officer while passing the re-assessment order. This objection was raised by assessee during the reassessment proceedings. As the reassessment order is bad in law, therefore, the assessment order cannot be revised. To support his submission, the ld.AR of the assessee relied upon the decision of

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 Jurisdictional High Court in CIT vs. Mohmed Juned Dadani [2013] 30 taxmann.com 1 (Gujarat) and order of Hon’ble Delhi Tribunal in Supersonic Technologies (P) Ltd. Vs. Pr. CIT in ITA Nos: 2269, 2527, 2857 & 3301/Delhi/2017 dated 10.12.2018. The ld.AR submits that reassessment order should be quashed. 8. After hearing the submission of the assessee, the Bench asked the ld.AR of the assessee to make his submission on validity of order passed under section 263 of the Act or on the merit of the additions with regard to share application and share capital money received by the assessee is genuine. The ld.AR for the assessee insisted that he has a strong point in his favour that assessment order dated 29.12.2017 is invalid and bad in law, therefore, it cannot be revised by exercising power by the ld. Pr.CIT under section 263 of the Act. The ld.AR submits that he has filed detailed written submission and furnished the copy of both the decisions on record and his submission should be considered at the time of passing the order. We find that assessee has filed written submission dated 30.11.2020 wherein apart from the short submission which we have recorded above, the assessee has extracted the copy of decision ( 67 pages) Delhi Tribunal in Supersonic Technologies (P) Ltd., (supra).

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 9. On the other hand, the ld. CIT-DR for the Revenue supported the order of ld. Pr.CIT. The ld. CIT-DR submits that the assessee has challenged validity of order under section 263 of the Act before this Tribunal. The assessee has already filed appeal against the additions made in the reassessment order dated 29.12.2017, which is pending before the ld.CIT(A). The ld.CIT-DR further submits that in the present proceedings, the Tribunal has to consider the validity of order passed under section 263 of the Act and the merit of additions or whether the Assessing Officer while passing the assessment order has examined the issue of share application or share premium received from three share subscriber companies of Rs.14,00,000/-. The ld.CIT-DR submits that neither the Assessing Officer examined the issue related with share subscribing issue of three companies namely, Salputri Suppliers Pvt Ltd, Rose Valley Sales Pvt Ltd. and Janet Investment Pvt. Ltd. nor there is any reference in the assessment order. The assessment order is, thus erroneous and prejudicial to the interest of the Revenue. Since the ld.AR of the assessee failed to make any submission on the merit, thus, the order passed under section 263 of the Act is liable to be upheld. 10. We have considered the rival submission of the parties and have gone through the orders of authorities below. We find that the Assessing Officer while passing the assessment order has neither raised any query nor make

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 any reference in the assessment order, with regard to share application and share premium of Salputri Suppliers Pvt Ltd, Rose Valley Sales Pvt Ltd. and Janet Investment Pvt. Ltd. Before us, the ld.AR of the assessee failed to bring any material that issue related with the transaction of share application money and share premium of all these three entities was examined by Assessing Officer. No submission with regard to the identity, creditworthiness or genuineness of the transaction of these three companies were made before us. The ld.AR for the assessee rather insisted that assessment order is illegal and bad in law. We find that none of the case law relied by the learned AR for the assessee is helpful to the assessee as the facts of both the case law are at variance. In in CIT Vs Mohmed Juned Dadani (supra), the Hon’ble High Court was seized with the group of appeals filed by revenue wherein the order of Tribunal, in a statutory appeal under section 260(A) was challenged. The Hon’ble Court examined the validity of the order under section 147 and there was no issue about the validity of the order passed under section 263. However, before us the assessee has assailed the order of ld.PCIT passed under section 263 of the Act. Further, the principle of merger is not applicable in the order passed under section 263. The order under section 263 is separate and independent

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 order. In other words the assessment order is not merged with the order of ld.PCIT passed under section 263 of the Act. 11. Similarly, the facts of other case law in Supersonic Technologies (P) Ltd Vs PCIT (supra) are also quite different. In the said case the ld. PCIT while exercising his power under section 263 tried to give the new lease of life to the invalid order passed by assessing officer. In the said case the ld. PCIT himself noted that the assessing officer has not issued notice under section 143(2) of the Act and revised the assessment order. Thus, the legal submission raised by the learned AR for the assessee are not acceptable to us. No other legal or factual issues were raised or pressed before us, therefore, we do not find merit in any of the grounds of appeal raised by the assessee. 12. Now adverting to the validity of the order passed under section 263 of the Act, we find that during the assessment the assessing officer has not examined the issue related with the receipt of share premium received form three companies i.e. identity, creditworthy and genuineness of transaction of the share application and share premium, nor added to the total income of the assessee. In our view the failure of AO to examine the above facts during the assessment proceedings the assessment order is not only erroneous but prejudicial to the interest of the Revenue. Thus, the twin conditions of the

Jalaj Creations Pvt. Ltd., ITA No.166/SRT/2020 for A.Y.2010-11 provisions of section 263 of the Act is fulfilled. Hence, we affirm the order of ld. PCIT dated 18.03.2020. In the result the grounds of appeal raised by the assessee are dismissed. 13. In the result the appeal of the assessee is dismissed. No order as to cost. Order announced at the time of hearing of appeal on 03 June 2021 by placing result on the notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 03/06/2021 / sgr Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR True copy/ By order / / TRUE COPY / / Assistant Registrar, ITAT, Surat