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Income Tax Appellate Tribunal, F BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI SHRI B.R. BASKARAN, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER (Assessment Year: 2012-13) M/s J.S. Realty Pvt. Ltd., 501/531 Laxmi Mall, New Link Road, Andheri (West), Mumbai - 400053 [PAN: AACCJ5732H] …………… Appellant Income Tax Officer Vs Ward 12(3)(1), Mumbai, Aayakar Bhavan, Maharishi Karve Road, Respondent ……………. Mumbai - 400021 Appearance For the Appellant/Assessee : Shri S L Jain For the Respondent/Department : Ms. Vranda U Matkarni Date Conclusion of hearing : 24.01.2023 Pronouncement of order : 21.04.2023
O R D E R Per Rahul Chaudhary, Judicial Member: By way of the present appeal the Appellant has challenged the 1. order, dated 25/07/2022, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2012-13, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 28/12/2019, passed under Section 147 read with Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
Assessment Year: 2012-13 The Appellant has raised following grounds of appeal: 2.
“1. Ld. CIT(A) erred in upholding validity of notice u/s 148 as reasons recoded were based on information received from Investigation Wing as appellant being charged to be beneficiary of accommodation entries without considering validity of notice on various grounds taken by the appellant. 1.1 Ld. CIT (A) ought to have considered that an assessment was originally completed u/s 143(3) and notice was without compliance of 1st proviso to Sec 147, as reasons recoded did not contain any allegation of non-disclosure of any facts during original assessment proceeding. 1.2 Ld. CT(A) ought to have considered that information received from DDIT(Kolkatta) stated that transaction of M/S SAPTRISHI SUPPLIERS P LTD were suspicious being unusual or complex transaction and economic rational or bonafide purpose'. Similarly in case of KALYANI VINCOME P LTD belief is based on 'information gathered from creditable source that Company is under process of striking off. Thus reasons were based on mere suspicion, without reference to any statement recoded or any verification by LD AO before arriving at belief. Notice is bad in law in lack of any specific, reliable and relevant information. 1.3 Ld. CT(A) ought to have considered that in original proceeding fact of receiving share subscription from two parties was duly disclosed, confirmation along with other evidences were produced, hence all material facts necessary for assessment were disclosed and now the 'belief is just based on suspicion of 'accommodation entries' without there being any material to prove that appellant obtained any accommodation entry from those parties. 1.4 Ld. CIT (A) ought to have considered that LD AO has not provided any copy of Investigation Report or any statement recoded etc along with reasons or thereafter as it was not available with LD AO and LD AO recoded belief merely based 2 Assessment Year: 2012-13 on intimation received from Investigation Wing with any verification, himself, hence, belief is a borrowed belief.
Ld. CIT (A) failed to appreciate that objections taken as to validity of notice u/s. 148 by the appellant were rejected by Ld. AO without providing a copy of the evidence relied upon including statements as referred in the reasons recorded and without dealing each objection taken and objections were rejected without proper consideration and basing rejection on non-existing fact of receiving huge premium.
Ld. CIT (A) ought to have considered that sanction granted u/s 151 was without proper consideration of the facts and hence, bad in law, leading to notice u/s 148 to be invalid.
Ld. CIT (A) erred in confirming addition u/s 68 of Rs 6,07,00,000 based on the fact that appellant failed produce the directors of the Companies although notices u/s 133(6) could not be served, without appreciating the fact that LD AO ought to have verified genuineness of the transactions independently. Ld. CIT (A) should have appreciated the fact that statements of certain directors were basis of 'reasons' and mere, non- production of directors should not be a basis of addition, ignoring documentary evidences produced justify existence of the shareholders.
Ld. CIT (A) erred in confirming addition u/s 68 for non- furnishing relevant documents in appellate proceeding, without appreciating evidences furnished in assessment proceedings as well as appellate proceeding such as confirmation, bank statement, audited accounts, resolution of board of directors of the investor Companies, along with other evidences to prove existence, creditability and genuineness of share application.
Ld. CIT(A) failed to appreciate that copies of the statements relied upon for reopening as well as for assessment were not provided to appellant and necessary opportunity for cross examination was also, not provided and Ld. AO did not Assessment Year: 2012-13 conduct any recoding of the statement during assessment proceeding hence assessment is bad in law.
Ld. CIT (A) should have appreciated that in lack of any evidence of appellant cash funds being source of share application, merely based on funds being withdrawn immediately after deposit cannot be basis of addition u/s 68.
Ld. CIT (A) erred in upholding addition u/s 68 of share applications which were not subject matter of notice under sec 68 without LD AO obtaining any material or carrying out any investigation to prove other share applications.
Ld. CIT (A) erred in not appreciating the fact that LD AO rejected evidences produced without any verification, hence addition made u/s unsustainable.
Ld. CIT(A) erred in confirming interest u/s.234B of Rs.1,83,23,604 without appreciating the fact that original assessment was completed on 25.3.2015 and interest van be imposed with reference to additional income assessed from date of original assessment 25-03-2015 as against 1st April 2012”.
Brief facts of the case are that the Appellant, a newly 3. incorporated private limited company, filed its return of income for the Assessment Year 2012-13 on 28/09/2012 declaring total income of INR 8,38,250/-. The case of the Appellant was selected for scrutiny and assessment under Section 143(3) of the Act was completed vide Assessment Order, dated 25/03/2015 (hereinafter referred to as ‘Original Assessment Order’) accepting the returned income. Subsequently, information was received from DDIT (Investigation) Unit 4(2), Kolkata and DDIT (Inv.) Unit 2(2) Kolkata vide letters dated 22/09/2019 and 28/02/2019, the Appellant has received following accommodation entries from alleged paper/shell companies: 4
Assessment Year: 2012-13 Sr.No. Name of the Company Amount (INR) 1 M/s Saptarishi Suppliers Pvt. Ltd. 30,00,000/- 2 Kalyani Vincom Pvt. Ltd. 50,00,000/- (Neelanchal Roadways Pvt. Ltd.) 3 Pushpanjali Carriers Pvt. Ltd. 25,00,000/- Total 1,05,00,000/- On the basis of the above information, the case of the Appellant 4. was reopened by issuing notice dated 30/03/2019, issued under Section 148 of the Act after recording reasons for reopening the assessment and obtaining the approval under Section 151 of the Act. In response to the aforesaid notice, the Appellant requested that original return filed by the Appellant be treated as return filed in response to notice issued under Section 148 of the Act and asked for reasons recorded for reopening assessment vide letter dated 11/04/2019. On receiving the reasons recorded, the Appellant filed objections vide letter dated 17/08/2019 challenging the validity of reopening of the assessment. The Assessing Officer vide order, dated 25/11/2019, rejected the objections raised by the Appellant and proceeded with the re- assessment proceedings which culminated into passing of the Assessment Order, dated 28/12/2019, under Section 147 read with Section 143(3) of the Act whereby an addition of INR 6,07,00,000/- was made by the Assessing Officer under Section 68 of the Act. The Assessing Officer had concluded that the Appellant had received total accommodation entries aggregating to INR 7,12,00,000/- out of which income of INR 1,05,00,000/- have been offered to tax by the Appellant under Income Declaration Scheme, 2016 [for short ‘IDS-2016’], therefore, the balance amount of INR 6,07,00,000/- was added under Section 68 of the Act by the Assessing Officer as unexplained cash credit.
Being aggrieved, the Appellant preferred appeal before the CIT(A) 5. against the Assessment Order, dated 28/12/2019, passed under Section 147 read with Section 143(3) of the Act (hereinafter referred to as ‘Reassessment Order’) challenging the validity of the reassessment proceedings and the addition of INR 6,07,00,000/- made under Section 68 of the Act on merits. The CIT(A) granted limited relief to the Appellant in relation to the applicability of Section 115BBE of the Act. The CIT(A) dismissed the challenge to the validity of reassessment proceedings and confirmed the aforesaid addition of INR 6,07,00,000/- under Section 68 of the Act. Therefore, the Appellant has preferred the present appeal on the grounds reproduced in paragraph 2 above.
Ground No. 1 to 3 pertains to the validity of reassessment 6. proceedings where as Ground No. 4 to 9 challenge the merits of the addition. Ground No. 10 related to levy of interest under Section 234B of the Act. We would first take up Ground No. 1 to 1.4 which goes to the root of the matter.
Ground No. 1 to 3 We have heard both the sides at length on the issues raised, 7. perused the material on record including report from the Assessing Officer, dated 21/09/2022, filed by the Learned Departmental Representative, vide letter dated 05/10/2022, and have taken into consideration the judicial precedents cited.
The relevant facts, in brief, as culled out from the material on 8. record are that regular scrutiny assessment was framed on the Appellant under Section 143(3) of the Act wherein the Assessing
Assessment Year: 2012-13 Officer had examined receipt of share capital of INR 3,01,00,000/- as well as the receipt of share application money of INR 4,11,00,000/- during the Assessment Year 2012-13. Notice under Section 142(1) of the Act, dated 20/11/2013 was issued by the Assessing Officer calling for details of share application and share premium. In response, the Appellant had filed submissions dated 02/03/2015 and 05/03/2015 giving the details of shares allotment money and share application money received and furnished the name, address and Permanent Accounts Number of the share allottees/applicants, ledger account confirmations, acknowledgement of income tax return, statement of the share allottees/applicants and the bank statement of the share allottees/applicants. The details/documents furnished included details/documents for Saptarishi Suppliers Pvt. Ltd., Neelanchal Roadways Pvt. Ltd. and Pushpanjali Carriers Pvt. Ltd. The Assessing Officer, after examining the details/information furnished by Appellant, passed the Original Assessment Order without making any observations or additions/disallowances. Therefore, it was contended by the Ld. Authorised Representative for the Appellant that the Appellant had made full and true disclosure of all the primary facts during the assessment proceedings and therefore, the reassessment proceedings, which have been initiated after the expiry of four years from the end of the relevant Assessment Year, could not have been initiated as there was no default on the part of the Appellant and the Assessing Officer did not have any fresh tangible material to formulate a belief that income had escaped assessment. The Assessing Officer erred in initiating reassessment proceedings merely on the basis of report of the investigation wing which Assessment Year: 2012-13 cannot constitute fresh tangible material. It was further contended on behalf of the Appellant the reassessment proceedings have been initiated merely on account of change of opinion on the basis of material already on record which was examined during original assessment proceedings.
On the other hand, the Ld. Departmental Representative 9. contended that the Appellant had failed to make full and true disclosure during the assessment proceedings and in support of the aforesaid, the Ld. Departmental Representative invited our attention to the fact that the Appellant had disclosed income under IDS-2016 which included income of INR 30,00,000/- pertaining to credit received from Saptarishi Suppliers Pvt. Ltd. Without prejudice to the aforesaid, Ld. Departmental Representative submitted that even if it is assumed that disclosure of primary facts was made by the Appellant during the assessment proceedings, the same could not be considered as full and true disclosure. Since the Appellant had failed to make full and true disclosure, the Assessing Officer was justified in reopening the assessment. Ld. Departmental Representative submitted that the report/information received from the Investigation Wing, which constitutes fresh tangible material, clearly pointed out that the Appellant was a beneficiary of the accommodation entries.
In rejoinder, the Ld. Authorised Representative for the Appellant 10. submitted that there was no allegation in the reason recorded that the Appellant had failed to make full and true disclosure during the assessment proceedings. The Learned Departmental Representative could not, at this stage, supplement the reasons
Assessment Year: 2012-13 recorded. The Learned Authorised Representative also referred to the order disposing of objections as well as the report of Assessing Officer, dated 21.09.2022, filed by the Learned Departmental Representative, and contended that the Assessing Officer had failed to provide any material on the basis of which belief was formed that income had escaped assessment till date and therefore, it can be concluded that there was no fresh tangible material with the Assessing Officer.
It is admitted position that original assessment under Section 11. 143(3) of the Act was framed on the Appellant vide Original Assessment Order on 25/03/2015. Thereafter, reassessment proceedings were initiated after the expiry of four years from the end of the Assessment Year 2012-13, as notice, dated 30/03/2019, was issued under Section 148 of the Act. Therefore, as per the proviso under Section 147 of the Act, the reassessment proceedings could have been initiated provided the income chargeable to tax has escaped assessment by reasons of failure on the part of the Appellant to disclose fully and truly all material facts necessary for his assessment for the Assessment Year 2012-13. On perusing the reasons recorded, we find that the Ld. Authorised Representative for the Appellant has correctly pointed out that the reasons recorded do not contain any allegations of non-disclosure on the part of the Appellant.
It is settled legal position that the reasons are required to be read 12. as they were recorded by the Assessing Officer. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to reach to the conclusion as to whether there was failure
Assessment Year: 2012-13 on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. [Hindustan Lever Limited Vs. R.B. Wadkar: (2004) 268 ITR 332 (Bombay)].
In the reasons recorded, the Assessing Officer has referred to 13. three alleged accommodation entries aggregating to INR 1,05,00,000/-. One of the aforesaid three entries pertains to credit of INR 3,00,000/- received by the Appellant from Saptarishi Suppliers Pvt. Ltd. which was, admittedly, offered to tax under IDS-2016, and therefore, the question of escapement of income in relation to the same does not arise. As regard, INR 25,00,000/- and INR 50,00,000/- received from Neelanchal Roadways Pvt. Ltd. and Pushpanjali Carriers Pvt. Ltd. is concerned, we find that in paragraph 8 of the reasons recorded it is merely stated that as per the information received from the Investigation Wing, the Appellant has received accommodation entries from two layers, i.e. from M/s Kalyani Vincom Pvt. Ltd. through Neelanchanl Roadways Pvt. Ltd. and M/s Pushpanjali Carriers Pvt. Ltd. which are shell/paper companies. While in paragraph 7 and 7A of the reasons recorded, the Assessing Officer has discussed the information gathered in respect of Kalyani Vincom Pvt. Ltd., and has alleged that Kalyani Vincom Pvt. Ltd. is not doing any actual business. No such discussion or allegations are there in respect of Neelanchal Roadways Pvt. Ltd. and Pushpanjali Carriers Pvt. Ltd. Only the financial position of the aforesaid companies has been tabulated. A perusal of financial position of Neelanchal Roadways Pvt. Ltd. tabulated in reasons recorded shows that for the Assessment Year 2012-13 shows that the aforesaid company had authorised share capital of INR 76,00,000/- out of which share 10
Assessment Year: 2012-13 capital of INR 75,00,000/- was issued and paid up. During the Assessment Year 2012-13, the aforesaid company had earned revenue of INR 80,394/- from operations and offered to profit before tax of INR 5,144/-. Similarly, for the Assessment Year 2012-13, Pushpanjali Carriers Pvt. Ltd. had authorised share capital of INR 64,00,000/- out of which share capital of INR 63,86,000/- was issued and paid up. During the Assessment Year 2012-13, the aforesaid company had earned revenue of INR 46,350/- from operations and had profit before tax of INR 1,880/. In our view, no inference can be drawn merely on the basis of the aforesaid financial information. Thus, the reasons recorded by the Assessing Officer are in the nature of findings and the reasons recorded do not bring out the basis of arriving at the aforesaid findings. In our view, even if it is presumed the report received from the Investigation Wing vide letter dated 28/02/2019, constitutes fresh tangible material, the reasons recorded do not provide any link between the report of the investigation wing and formation of belief by the Assessing Officer that the income chargeable to tax has escaped assessment.
We find that during the original assessment proceedings the 14. Appellant had furnished information/details relating to share allotment/application money received by the Appellant from Neelanchal Roadways Pvt. Ltd. and Pushpanjali Carriers Pvt. Ltd. the Reasons Recorded do not even contain any averment regarding failure on the part of the Appellant to the source fully and truly all material facts. As per the reasons recorded, the Assessing Officer initiated reassessment proceedings on forming the belief that cash credits aggregating to INR 1,05,00,000/- received from shell/paper companies, which should have been 11
Assessment Year: 2012-13 taxed in the hands of the Appellant under Section 68 of the Act as unexplained cash credits, have escaped assessment. However, as per the first proviso to Section 147 of the Act is not sufficient that the Assessing Officer should form a belief that income has escaped assessment. In a case where assessment was framed under Section 143(3) of the Act and the reassessment proceedings are sought to be initiated after the expiry of period of 4 years from the end of the relevant assessment year, as per the first proviso to Section 147 of the Act, the precondition to initiation of reassessment proceedings under Section 147 of the Act and issuance of notice under Section 148 of the Act is the formation of belief that the income chargeable to tax has escaped assessment and that the such escapement of income has taken place on account of failure on the part of an assessee to disclose fully and truly all material facts necessary for assessment of income. In the present case, the Assessing Officer has failed to record that escapement of income had arisen on account of the aforesaid failure on the part of the Appellant. Therefore, we hold that the reassessment proceedings for the Assessment Year 2012-13 were initiated by the Assessing Officer without complying with the provisions of Section 147 of the Act and therefore, the same are set aside. Our view is in line with the recent judgment of the Hon’ble Bombay High Court in the case of Punia Capital (P.) Ltd. Vs. Assistant Commissioner of Income-Tax: [2023] 149 taxmann.com 53 (Bombay)[15-02-2023].
Accordingly, in view of the above, the Reassessment Order 15. passed by the Assessing Officer on 28/12/2019 under Section 147 read with Section 143(3) of the Act is set aside and the Original Assessment Order passed under Section 143(3) of the Act is re- 12
Assessment Year: 2012-13 instated. Thus, Ground No. 1 and 1.1 raised by the Appellant is allowed while Ground No.1.2 to 1.4 as well as Ground No. 2 & 3 raised by the Appellant are disposed off as being infructuous.
Ground No. 4 to 10 Since we have set aside the Reassessment Order, the additions 16. made during the reassessment proceedings stand deleted. Accordingly, Ground No. 4 to 9 pertaining to the merits of the matter are dismissed as being infructuous. While Ground 10 related to levy of interest under Section 234B of the Act is disposed off as being consequential in nature.
In result, the appeal preferred by the Assessee is allowed.
Order pronounced on 21.04.2023.