ITO WARD-1(1), NEW DELHI vs. ASM PIPES PRIVATE LIMITED, DELHI

Brief facts of the case are that, the assessee filed return of income declaring loss of Rs. 35,374/-. The case was picked up for scrutiny, the assessment u/s 143(3) was not made. Subsequently, ACIT, Central Circle informed that during the search/post search and assessment proceedings in the case of M/s Charles India Pvt. Ltd., it was established that the assessee was used for benefit of SMC group/Signature builder group of Companies and in the appraisal report, the Investigation Wing, New Delhi had held that during the year under consideration the assessee company had earned undisclosed income in the garb of forfeiture of share application money amounting to Rs. 99,21,000/- shown to have been received from M/s Charles India Pvt. Ltd. Similarly in the case of M/s Shivraj Exim Pvt. Ltd. now merged with the assessee company M/s ASM Pipes Pvt. Ltd. It was observed that M/s Shivraj Exim Pvt. Ltd. also earned undisclosed income in the garb of forfeiture of share application money amounting to Rs. 2,16,80,000/- shown to have been received from M/s Charles India Pvt. Ltd.

In view of the above information processed by the Department, the case of the assessee was reopened u/s 147 of the Act and an assessment order came to be passed on 31/03/2011 u/s 144/147 of the Income Tax Act, 1961 (‘Act’ for short) by making an addition of Rs. 3,16,01,000/- u/s 68 of the Act on account of forfeiture of share application money.

As against the assessment order dated 31/03/2011, the assessee has preferred an appeal before the CIT(A). The Ld. CIT(A) vide order dated 31/10/2019 deleted the addition of Rs. 3,16,01,000/- made by the A.O. u/s 68 of the Act on account of forfeiture of share application money.

Aggrieved by the deletion of the addition made u/s 68 of the Act by the CIT(A), the Department has filed the appeal in ITA No. 9898/Del/2019 and aggrieved by the action of the CIT(A) in non adjudication of the issue of defective notice issued u/s 148 of the Act etc. which was raised by assessee, the C.O No. 24/Del/2020 has been preferred by the Assessee.

The Ld. Counsel for the assessee while addressing argument on the C.O. and on the merit of the case, vehemently submitted that the notice u/s 148 of the Act was issued in combined of two Companies namely ASM Pipes Ltd. and Shivraj Exim Pvt. Ltd. The A.O ought to have recorded separate reasons and ought to have issued separate notices u/s 148 of the Act. Further submitted that, the reasons recorded u/s 148 of the Act is factually erroneous which cannot be construed as ‘reason to believe’ that any income of the assessee had escaped assessment. It was further submitted that, even on the merit the additions of Rs. 99,21,000/- and Rs. 2,16,80,000/- u/s 68 of the Act are erroneous. The Ld. Counsel for the assessee has taken us through the paper books and also relied on the several judicial pronouncements in support of his submission.

Per contra, the Ld. DR relied on the assessment order.

We have heard the parties perused the material on record and gave our thoughtful consideration.

The Ld. A.O. has recorded the reasons on 22/03/2018 jointly in the case of ASP Pipes Ltd. and Shivraj Exim Pvt. Ltd., wherein it is mentioned as under:-

The Ld. A.O. was of the opinion that in the case of ASM Pipes Pvt. Ltd., M/s Charles India Pvt. Ltd. had decided to purchase share of assessee company at two thousand per share and paid share application money to the assessee of Rs. 99,21,000/-, however, M/s Charles India Pvt. Ltd. has not paid first call money i.e. Rs. 49,60,500/- and the assessee Company forfeited the entire amount of Rs. 99,21,000/- on 20/05/2010. Further in the case of Shivraj Exim Pvt. Ltd. the said M/s Charles India Pvt. Ltd. decided to purchase the share of assessee company at two thousand per share and paid share application money to the assessee of Rs. 2,16,80,000/-, however, M/s Charles India Pvt. Ltd. has not paid first call money i.e. Rs. 49,60,500/- and the assessee Company forfeited the entire amount of Rs. 99,21,000/- on 20/05/2010.

It is the specific case of the assessee is that as per the copies of e-return filed, audited balance sheet and profit and loss account of the Company for the Financial Year ending 31/03/2011, during the previous year, the Company has neither received any share application money, nor has allotted, and nor has forfeited any shares. The assessee has also produced audited balance sheet and the profit and loss account for the year ending 31/03/2011 before the A.O. To testify the said contention of the A.O., we have gone through the audited balance-sheet of both ASM Pipes Ltd. & Shivraj Exim Pvt. Ltd. which is reproduced as under:-

On verifying the above audited balance sheet, it is found that for the Financial year ending 31/03/2011, during the previous year the assessee has neither received any share application money nor has forfeited any shares. Therefore, the reasons recorded u/s 148 of the Act is factually incorrect. Thus, the same cannot be construed as ‘reasons to believe’ that any income of the assessee had escaped assessment. The assessment order passed based on the reasons recorded on the pretext of the factually incorrect ‘reason to believe’ cannot be sustained. Besides the same, as discussed above, though there are two entities namely ASM Pipes Pvt. Ltd. and Shivraj Exim Pvt. Ltd. the A.O. has recorded single reasons for alleged income escaping assessment, which is not sustainable in the eyes of law.

In view of the above discussions, we are of the opinion that the Ld. A.O. has committed error in framing the assessment order. Accordingly, we allow the C.O No. 24 Del/2020 filed by the assessee.

In view of allowing the C.O of the assessee, the Appeal in ITA No. 9898/Del/2019 filed by the Revenue is deserves to be dismissed for having become in-fructuous. Accordingly, Appeal filed by the Revenue in ITA No. 9898/Del/2019 is dismissed.