ACIT, CENTRAL CIRCLE-19, NEW DELHI vs. M/S K.R. PULP & PAPERS LTD,, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “C”: DELHI.

BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI N.K. CHOUDHRY, JUDICIAL MEMBER

ITA No.5064/Del./2017 Assessment Year 2009-10

The ACIT, Central M/s. KR Pulp and Papers Circle-19, Room No.104, vs., Ltd., 304, Roots Tower, ARA Centre, E-2, District Centre, Laxmi Jhandewalan, Nagar, New Delhi – 110 092 New Delhi. PAN AAACK5861C (Appellant) (Respondent)

For Revenue : Smt. Sunita Singh, CIT-DR Shri Gautam Jain, Advocate Shri Lalit Mohan, C.A. For Assessee : Ms. Monika Aggarwal, Advocate. Date of Hearing : 03.02.2022 Date of Pronouncement : 31.03.2022

ORDER PER R.K. PANDA, A.M.

This appeal filed by the Revenue is directed against the

order dated 22.05.2017 passed by the Ld. CIT(A) 27, New

Delhi, relating to the A.Y. 2009-10.

a public limited company incorporated on 13.09.1995 under

2 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

the Companies Act 1956 and, is engaged in the business of

manufacturing of kraft paper and brown paper usually used

for packing. The assessee-company had filed its return of

income on 26.09.2009 declaring total income of

Rs.1,95,97,146/- after claiming deduction of

Rs.3,88,42,025/- under section 80IA. The assessment was

completed under section 143(3) on 22.11.2011 determining

the total income of the assessee at Rs.5,84,39,170/-

wherein the A.O. made disallowance of Rs.3,88,42,025/- by

rejecting the claim of deduction under section 80IA made by

the assessee.

2.1. The Assessee challenged the order of the Ld.

CIT(A) who allowed the claim of deduction under section

80IA. On appeal by the Revenue the Tribunal vide

ITA.No.1920/Del./2013 order dated 13.01.2016 dismissed

the appeal filed by the Revenue.

under section 147 of the I.T. Act, 1961 after recording the

following reasons :

3 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

“A search and seizure operation u/s 132 of the I.T. Act, 1961 was

carried out in the case of Shri. Raj Gopal Agarwal, Sh Madho

Gopal Agarwal, Sh. Gopal Agarwal and M/S. K R Pulp & Papers

Ltd. group of companies at various residential and business

premises in Delhi, Shahjahanpur and other places on 08.07.2015

by DDIT(inv.), Unit-2(3), New Delhi. During pre and post search

proceedings it was found that the group companies have received

share capital with exorbitant premium from large number of non-

descript companies mainly based in Kolkata and Delhi from the

period between 1.4.2008 to 31.3.2009. The enquiries were also

got conducted by the Inspectors of the Investigation Wing at Delhi

and Kolkata. Most of the entry providing companies were not

found existing at the given offices in Kolkata. It was also found

that all entry giving companies have been covered under various

searches conducted by Kolkata Investigation Wing and all the

companies were found bogus and non-existent. Further, in the

statement of entry providers along with bogus directors, it has

been admitted that they are in the business of providing

accommodation entries. M/s K R Pulp and Paper Ltd. is one of

them which has received share capital at exorbitant premium from

large number of these non-descript companies mainly based in

Delhi and Kolkata amounting to Rs.36,64,35,000/- in the financial

4 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

year 2008-09. The Investigation Wing on the basis of enquiries

conducted and information collected has sent name, address and

amount of share capital provided to the assessee under

consideration which are as under :

F.Y. 2008-09, Shares issued is 73,28,700 at premium of 40/-

Share

S. No. Name of share Holder Address & Occupation No. of share Total amount premium

40, Strand Road, 2nd floor, R.No.25, Kolkala-1 1. Vikaram financial Services Ltd. 700001 724,000 36,200,000 2,700,000

18A Ramakanta Bose 100,000 2. Critcare financers(P) Ltd. Street, Kqlkata- 5,000,000 4,000,000

105, Old China Bazar Street, 3r<i floor, Kolkata- 700003 3. Astonish Financers (P) Ltd., 140,000 7,000,000 5,600,000

5, Sukhla! Jauhari Lane, Kolkata-700007 100,000 4,000,000 5,000,000 4. Cosmos Real Estates (P) Ltd. "

2/1, Tollygunge Circular 6. K.B. Combines (P) Ltd. Road, Kolkata-700033 150,000 7,500,000 6,000,000

Plus Jet Finvest (P) Ltd. 3A, Mangoe Lane, 8. Koikata-700001 125,000 6,250,000 5,000,000

Ashirvad Vinimay (P) Ltd. 27, Mullick Street, Kolkata-700007 10. 50,000 2,500,000 2,000,000

Co. (P) Ltd., Road, Kolkata – 700001 50,000 2,50,000 11. 2,000,000

5 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

B-2,Sector-III, Salt ,ake City, Kolkata- 700098 Paramveer Distributor (P) Ltd. 30,000 2,500,000 2,000,000 12. 0, Raja Santosh load, Kolkata- 13. Impex Services Ltd. 50,000 2,500,000 1,000,000 700027 14. Raina commodities (P) Ltd. 32, Weston Street, Kolkala-700 1,000,000 012 30,000 2,500,000 15. Limitex Investsments Ltd. 6, G.C. Avenue, 7th loor, Kolkata- 1,000,000 30000 2,500,000 700013 ’rema Mercantile (P) Ltd. i, Synogone Street, Kolkata- 16. 100,000 1,000,000 700001 5,000,000 17. VDR Consultants (P) Ltd. 72/12, Desh Bandhu load, 100,000 1,000,000 Kolkata-700035 5,000,000 18 Amber Credit co. Ltd. 115, College Street, Write Tower, Kolkat - 700012 100,000 5,000,000 1,000,000

19 Abharani Vinimay(P) Ltd. 85, N.s. Road, Kolkata-700001 60000 3,000,000 2,400,000 Adequate Transport & tburs Ltd. 20 20000 D-5/3111, 3ri1 floor, Awadh 1,000,000 800,000 Complex, Laxminagar, Delhi Agile Conglomerate (P) Ltd. 27, Mullick Street, Kolkala- 21. 100000 700007 5,000,000 4,000,000 22. Ahy foods Products Ltd. 50/12, Ashok Nagar, New Delhi- 20000 1,000,000 800,000 110027

C-107, ABC, Complex, 20, Veer 23. Bell Indus Fibrecom (P) Ltd. 3avarkar Block, Shakapur, Delhi- 1,000,000 20000 800,000 110092

C-107, ABC Complex, 20 Veer Jainco Aqua Solutions (P) Ltd. Savarkar Block, Shakarpur, 30000 1,500,000 1,200,000 26 Delhi-110 095

30000 1,500,000 1,200,000 Lifeline Housing Development Finance D-5/3111, 3-' floor, Awadh 27 company Ltd. Complex, Laxminagar, Delhi 4/77,1st floor, Ramesh Nagar, 28 Logitufa solutions (P) New Delhi-110 015 30000 1,500,000 1,200,000 Ltd

6 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

Micro Mac Computers (P) C-230, LIG Flat, --- 30000 1,5000,000 1,200,000 Ltd., 29. Loni East, Delhi.

50000 2,500,000 Paharimata commodities (P) 10A, Hospital Street, 2,000,000 30 Ltd. Kolkala-700072

31 Paramveer distributors (P) LB-2, Sector-111, Salt 200000 1,000,000 8,000,000 Ltd. Lake City, Kolkata- 700098

33 Raj Kavira Mercantile (P) 41, Shibtolla Street, 100000 Ltd. Kolkata-700007 5,000,000 4,000,000

34 Rasraj Enclave Maker(P) 1 A, Grant Lane, Ltd. Kolkata-700007 50000 2,000,000

2,500,000

35 S.S. Finvest (India) Pvt. Ltd. F-15, G.K. Bhagat Shopping complex, 20000 1,000,000 800,000 flaty No.4,1st, floor. Subhash Nagar, Delhi-27

36 Sekhar Commerce (P) Ltd. 52, Weston Street, 200000 1,000,000 8,000,000 Kolkala-700012

37 Sunlit Tradex (India) Pvt. C-230, LIG flat, Durga 30000 1,500,000 1,200,000 htd. Pur Chowk, Loni East, Delhi

38 Supremo Marketing (P) Ltd. 50/12, 3rd floor, 20000 1,000,000 800,000 Ashok Nagar, New Delhi-110 018

39 United Buildmart (P) Ltd. 17/118, 2nd floor, 20000 1,000,000 800,000 subhash Nagar, New Delhi-110 027

40 Vairavi Electrical (P) Ltd. 2B, Grant Lane, Kolka 200000 1,000,000 8,000,000 La-700012

7 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

Since, on the basis of enquiries conducted and statements recorded, it

has been established that the above companies are bogus and non-

existent, the share capital received by M/s K R Pulp and Paper Ltd.

amounting to Rs.36,64,35,000/- in the F.Y. 2008-09 from these large

number of non-descript companies is nothing but its own unaccounted

income routed through these companies.

Keeping in view all above, 1 have reason to believe that an amount at

least of Rs.36,64,35,000/- has escaped assessment in the case of M/s

K R Pulp and Paper Ltd. for the A.Y. 2009-10 within the meaning of

Section 147/148 of Income Tax Act, 1961.

The re-assessment proceedings in this case for A.Y. 2009-10 pertain to

period beyond four years but before the expiry of six years from the

date of issue of notice. In this case, since, the assessment has already

been made u/s 143(3) of the I T. Act for A.Y. 2009-10 the first proviso to

section 147 (as reproduced below) is applicable in this case as the

assessee has not disclosed material facts, necessary during the course

of assessment which now has that the share capital received by M/s K

R Pulp and Paper Ltd. amounting to Rs.36,64,35,000/- in the F.Y. 2008-

09 from these large number of non-descript companies is nothing but its

own unaccounted income routed through these companies.

“Provided that where the assessment under sub section (3) of section

143 or this section has been made for the relevant assessment year,

8 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

no action shall he taken under this section after the expiry of four

years from the end of the relevant assessment year, unless any

income chargeable to tax has escaped assessment for such

assessment year by reason of the failure on the part of the assessee

to make a return under section 139 or in response to a notice issued

under sub- section (1) of section 142 or section 148 or to disclose

fully and truly all material facts necessary for his assessment, for

that assessment year "

In other words, the assessing officer is not bound by the

restriction impounded by the proviso that no action can be taken unless

any income chargeable to tax has escaped income by reason of failure

as the part of the assessee to make a return under section 139 or in

response to a notice issued under sub-section (1) of section 142 or

section 148 or to disclose fully and truly all materials facts necessary

for his assessment, for that assessment year.

Therefore, I have reason to believe that this amount of

Rs.36,64,35,000/-represents income of M/s K R Pulp and Paper Ltd.

chargeable to tax which has escaped assessment for A.Y 2009-10.

As the case pertains to a period beyond four years from the end

of relevant assessment year at the time issue of notice, necessary

sanction has to be obtained from Pr. Commissioner of Income tax, in

view of the amended provision of section 151 w.e.f 01.06.2015.

9 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

Name & designation of A.O. Sd/Shailesh Kumar 19. with signature DCIT, Central Circle-19, New Delhi

Satisfaction of the authority Yes, I am satisfied that this is a 20. concerned as per clause 18 fit case for reopening of

above. assessment for A.Y. 2009-10.

Sd/- Rajesh Kumar

Joint CIT, C.R.5, New Delhi.

Yes, I am satisfied with the

reasons as recorded by the A.O.

It is a fit case for reopening and

issue of notice u/s.148 of the

Act.

Sd/- N.P. Sinha Pr. CIT, Central-II, New Delhi.

2.2. Accordingly, notice under section 148 of the I.T.

Act, 1961 dated 29.03.2016 was issued and served on the

assessee. The assessee vide letter dated 31.03.2016

submitted that the original return filed on 26.09.2009 may

be considered as return filed in response to notice under

10 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

section 148 of the I.T. Act, 1961. The assessee vide letter

dated 04.05.2016 asked for supply of the copy of the

reasons for reopening of the case, which were provided to

the assessee on 11.07.2016. The objection filed by the

assessee vide letter dated 26.08.2016 for such reopening

was disposed of by the A.O. by passing a speaking order on

29.08.2016.

2.3. During the course of assessment proceedings the

A.O. noted that assessee has received share capital of

Rs.25,32,35,000/- and share premium of Rs.20,22,88,000

on account of issue of 50,64,700 shares to 58 companies.

He noted that either these companies are Delhi based or the

companies are having Kolkata based address. In order to

verify their identity and creditworthiness, the A.O. issued

notice under section 133(6) of the I.T. Act, 1961 to confirm

the share capital/share premium amount received. He

noted that most of the 133(6) notices sent to these

companies were either returned back unserved or no

information at all has come from these companies. From the

bank statements and other details in respect of these

11 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

companies furnished by the assessee, he noted that these

companies were just rotating the funds and no worthwhile

business has been done by them. From the copies of the

return of income filed by these companies, the A.O. noted

that they are all showing either NIL or negligible income.

The A.O, therefore, issued commission under section

131(1)(d) of the of the I.T. Act, 1961 dated 17.08.2016 to the

Investigation Wing Unit-3, Kolkata to enquire about the

Kolkata based companies who invested in the shares of the

assessee company. In response to the commission issued, a

reply was received on 01.12.2016 stating that the following

companies are involved in providing accommodation entries

through share capital/share premium.

S. Name of the Share Holder Address 8s Occupation No. of Share Total Share No. Amount Premium 55 BAHAR PAPER PRIVATE 71, CANNING STREET, LIMITED BAGREE MARKET, 5TH 100,000 5,000,000 4,000,000 FLOOR, R. NO. C-556, KOLKATA-700001 12 PAHARIMATA COMMODITIES 10A, HOSPITAL STREET, (P) LTD. KOLKATA- 700072 2,500,000 2,000,000 50000

12 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

2.4. Similar was the case with the Delhi based

companies. The A.O, therefore, confronted the same to the

assessee. Rejecting the various explanation given by the

assessee and observing that all companies from whom the

assessee has received share capital/share premium have

very weak financials and these companies are acted as pass

through entity to transfer money, the A.O. made addition of

Rs.25,32,35,000/- to the total income of the assessee under

section 68 of the I.T. Act, 1961 by concluding as under :

“Conclusion: Out of 58 parties, reply received from 50 parties. Regarding these replies, following important facts were noticed : i) Most of the replies are in the same language, font, format, no. of point etc. ii) The addresses for communication of most of the concerns are same, as per the table in para 3 i.e. 85, N.S. ROAD, 3RD FLOOR, KOLKATA-700001, 27, Mullick Street, Kolkata-700007, R.No. 3, Mirinda Bhawan, Chincholi Bundar Road, Malad (W), Mumbai, O- 334, Mangolpuri, New Delhi-110002 etc. iii) Most of the replies have been sent on the same date. iv)Most of the company from which share capital/share premium received have very weak financials and company acted as pass

13 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

through entity to transfer money, there is equal amount of credit in

bank account of company from which share capital premium

received on same day or immediate previous day for example :

i) TRAMMEL TRADING PRIVATE LIMITED at SI. No. 49 in the

above mentioned table in para 10.- the company has a

returned income of Rs.39,450/- for the AY 2009-10. There is a

cash deposit of Rs.25,00,000/- on 02.09.2016 and the same

amount was credited on 02.09.2016.

b) M/s. Mapple Mercantile Pvt. Ltd. at SI. No. 47 the company

has a small income of Rs.22,660/- for A.Y. 2009-10 share

application money has been given subsequent to four clearing

entries i.e. Rs.25,00,000/- on 28.01.2009 and Rs.25,00,000/-

on 04.02.2009.

c) M/s. Sekhar Commerce Pvt. Ltd. at SI. No. 18 in the above

mentioned table in para 10 - returned income for A.Y. 2009-10

is Nil and share application money Rs.10,00,000/- has been

give through cheque dated 17.09.2008.

d) Most of the cheques for share application money have been

issued from the following banks only :

• Central Bank of India, 85, WS Road, Kolkata – 700001 • Union Bank of India Axis Bank, Kankurgachi Br. Kolkata

14 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

(e) Money in the bank account of applicants were

deposited two to three days before the issue of cheque of share

application money. It is also interesting that the dates

appearing on cheques issued are almost same as those of the

dates on which money was deposited in the accounts of the

applicants. This means that the applicants have issued the

cheques in the favour of the assessee company on the same

date on which money was deposited in the bank accounts

From the above, it can be seen that all these companies

have meager income and are not filing income tax returns

regularly. These companies have apparently been incorporated

for giving accommodation entries. Copies of balance sheets

and P & L a/c. were not provided in most of the companies

and the source of fund was not explained. In any case, these

companies are not going to invest in the assessee company

which has neither yielded dividend nor there is any

appreciation in share price.

Further, from the above, it can be seen that

(a) In the cases of most of the share applicants no confirmation

was filed.

(b) It is not known whether these share applicants exist or

not.

15 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

(c) Although, PANs of these share applicants have been

given but whether they are regularly filing the returns of

income, it is not known whether these share applicants exist or

not.

(d) Although, PANs of these share applicants have been given

but whether they are regularly filing the returns of income is

not known.

(e) The capacity of the share holders to apply for share of the

assessee company is in grave doubt as these are apparently

persons of no means and have subsequently sold the shares to

the promoters of the company at a ridiculously low price.

(f) The genuineness of the transactions is also in doubt as the

source of deposits in the bank account before issue of the

cheques have not been explained.

(g) The assessee company is a private limited company and in

such companies nobody is going to invest until unless that

person is known to the management and he had some

expectation in form of dividend from the company or gain on

account of appreciation in share price both of which are absent

in the instant case.

From the above, mentioned facts as well as after

considering the facts/submission of the assessee, it is found that

the above mentioned companies are not doing any business

16 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

activity which justify for investment in assessee company are only passing funds it is clear from bank state of the party, it can be said that the above mentioned companies are paper company and provide bogus share premium to assessee company. And the entries are nothing but accommodation entries and the total amount of share application money as detailed in the table above amounting to Rs.25,32,35,000/- is added to the assessee’s total income u/s. 68 of the I.T. Act, 1961. Penalty u/s 271(l)(c) of the I.T. Act, 1961 is initiated for furnishing concealment of income/inaccurate particulars of income.

2.5. The A.O. accordingly determined the total income

of the assessee at Rs.27,28,32,150/-.

challenging the addition on merit, challenged the validity of

re-assessment proceedings. The Ld. CIT(A) not only quashed

the re-assessment proceedings, but, also deleted the

addition on merit.

3.2. So far as the addition on merit is concerned, the

Ld. CIT(A) relying on various decisions deleted the addition

on the ground that assessee has discharged the onus cast

17 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

on it by providing the identity and creditworthiness of the

share applicants and genuineness of the transaction. So far

as the validity of re-assessment proceedings are concerned,

the Ld. CIT(A) relying on various decisions quashed the

same on the ground that the original assessment was

completed under section 143(3) and the case was reopened

after a period of 04 years from the end of the relevant

assessment year and there is no allegation of any failure on

the part of the assessee to disclose fully and truly all

material facts necessary for completion of the assessment.

Further, no material much less any incriminating material

was found during the course of search. The A.O. in a

mechanical manner, without application of independent

mind and on vague information has reopened the

assessment which is not in accordance with law.

Revenue is in appeal before the Tribunal, by raising the

following grounds :

18 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

allowing the appeal of the assessee without truly

appreciating the factual matrix of the case.

deleting the addition of Rs.25,32,35,000/- made on

account of unexplained cash credit u/s 68 of the Income

Tax Act, 1961 without properly appreciating the facts and

circumstances of the case.

considering assessment order passed u/s 147 r.w.s 143(3)

as void ab-initio.

tenable in law and on facts.

(b) The appellant craves leave to add, alter or amend

any/all of the grounds of appeal before or during the

course of the hearing of the appeal.”

CIT(A) in deleting the addition and quashing the re-

assessment proceedings. While strongly relying on the order

of the A.O, she submitted that Section 68 of the Income-Tax

Act, 1961 provides that, where any sum is found credited in

19 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

the books of assessee maintained for any previous year, and

the assessee offers no explanation about the nature and

source thereof or the explanation offered by him is not, in

the opinion of the Assessing Officer, satisfactory, the sum so

credited may be charged to income-tax as the income of the

assessee for that previous year. The burden of proof is

heavily cast on the assessee. She submitted that the

assessee first of all must furnish an explanation as

otherwise the cash credit will be treated as his income.

Secondly, the explanation offered must be to the satisfaction

of the Assessing Officer. Relying on various decisions, she

submitted that the assessee in the instant case has failed to

satisfy the three ingredients of provisions of Section 68 of

the I.T. Act, 1961 which has been narrated by the A.O. in

his concluding paragraphs. The Ld. CIT(A) without proper

appreciation of facts of the case has deleted the addition

which is not justified.

5.1. The Ld. D.R. in support of her contention relied on

the following decisions :

20 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

5.2. So far as the quashing of the re-assessment

proceedings are concerned, she submitted that the same is

in accordance with law and, therefore, the Ld. CIT(A) was

not justified in quashing the same.

21 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

other hand strongly supported the order of the Ld. CIT(A).

So far as the validity of the re-assessment proceedings are

concerned, he submitted that the A.O. during the course of

original assessment proceedings had called for the details of

share application money and share premium and the

assessee during the course of assessment proceedings had

filed the details to substantiate the identity and

creditworthiness of the share applicants and the

genuineness of the transaction by furnishing the details of

the share applicants along with their PAN, bank details of

remittance, copy of share application forms, copy of

acknowledgment of ITR, copy of bank statements and copy

of Certificate of Incorporation of share applicant companies

etc. Referring to the copy of the original assessment order

passed under section 143(3) on 22.11.2011 placed at Pages

62 to 70 of the paper book, he submitted that the A.O. after

considering the details filed by the assessee has accepted

the addition to the share capital and no addition was made

on this issue.

22 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

6.1. So far as the other addition made by the A.O. i.e.,

the disallowance of deduction under section 80IA at

Rs.3,88,42,025/- is concerned, the Learned Counsel for the

Assessee submitted that the assessee filed an appeal before

the Ld. CIT(A) and the Ld. CIT(A) vide order dated

17.01.2013 has allowed the claim of deduction under

section 80IA, copy of which is placed at pages 71 to 87 of

the PB. He submitted that against the order of the Ld.

CIT(A) granting deduction under section 80IA, the Revenue

filed an appeal before the Tribunal and the Tribunal vide

ITA.No,.1920/Del./2013 order dated 13.01.2016 dismissed

the appeal filed by the Revenue.

6.2. Referring to the contents of reasons recorded for

reopening of the assessment, he submitted that the

assessment has been reopened after the expiry of 04 years

from the end of the relevant assessment year and there is

no allegation by the A.O. of any failure on the part of the

assessee to disclose fully and truly all material facts

necessary for completion of the assessment. Therefore, in

view of First proviso to Section 147 of the I.T. Act, 1961, the

23 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

reopening is not in accordance with law and is liable to be

quashed. Referring to a plethora of decisions placed in the

case law compilation, Learned Counsel for the Assessee

submitted that when the original assessment has been

completed under section 143(3) of the I.T. Act, 1961 and

there is no allegation by the A.O. of any failure on the part

of the assessee to disclose fully and truly all material facts

necessary for completion of the assessment, such reopening

after a period of 04 years from the end of the relevant

assessment year is null and void. Further, the reasons so

recorded do not indicate how and why the assessee had

failed to make full and true disclosure of the material facts.

6.3. Even otherwise also he submitted that the

reopening made by the A.O. is based on borrowed

satisfaction and there is no application of mind by the A.O.

Further the approval has been given by the Superior

Authorities without application of mind. He submitted that

not only the foundational material not confronted to the

assessee, but, also no live link has been established

between the material/information received from the

24 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

Investigation Wing and the assessee. He submitted that A.O.

in the reasons to believe has referred and relied on the

enquiries/information conducted by the Inspectors of

Investigation Wing at Delhi and Kolkata, the search carried-

out by the Investigation Wing, Kolkata and the statement of

entry providers along with bogus Directors. He submitted

that although assessee has made repeated requests to the

A.O, no statement was supplied to the assessee either

during the course of assessment proceedings or thereafter

till date and, therefore, any conclusion formed on the basis

of such statement shall be highly perverse and untenable.

For the above proposition, the Learned Counsel for the

Assessee referred to the following decisions :

25 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

6.4. He accordingly submitted that the Ld. CIT(A) is

fully justified in quashing the re-assessment proceedings.

Learned Counsel for the Assessee submitted that assessee

has discharged the burden of proof by filing the requisite

documents before the A.O. to substantiate the identity and

creditworthiness of the share applicants and the

genuineness of the transaction. He submitted that out of 53

Companies incorporated under the provisions of Companies

Act, 1956, 20 Investor Companies were registered with the

Reserve Bank of India as NBFC. Further the relevant criteria

to measure the creditworthiness of an entity is not the

return of income, but, the net worth of such entities for the

relevant financial year. For the above proposition, he relied

on the following decisions :

PCIT vs., Goodview Trading Pvt. Ltd., vide 1. ITA.No.377/2016 of Hon’ble Delhi High Court. Copy of which is placed at pages 162 to 165 of PB in case law compilation. Decision of Hon’ble Delhi High Court in the case of 2. CIT vs., Vrindavan Farms (P) Ltd., vide ITA.No.71/2015. [Pages 156-159 of PB] Decision Coordinate Bench of Delhi Tribunal in the

26 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

7.1. Learned Counsel for the Assessee submitted that

there is no material to even allege much less conclude that

such funds have originated from the coffers of the assessee

company. In absence of such allegation, no addition can be

made under section 68 of the I.T. Act, 1961. In support of

this contention, the Learned Counsel for the Assessee relied

upon the following decisions:

7.2. He submitted that out of the 54 shareholders,

response duly accepted as received in the case of 46

shareholders and only in respect of one shareholder notice

remained unserved and in case of 07 shareholders no reply

was received. Learned Counsel for the Assessee referring to

the following decisions submitted that non-service of notice

27 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

under section 133(6) of the I.T. Act, 1961 or non-

appearance of the shareholder in response to notice under

section 133(6) is not a ground for making the addition

under section 68 of the I.T. Act, 1961.

CIT vs., Divine Leasing and Finance (P) Ltd., 299 ITR 1. 268 (Del.) 2. CIT vs., GP International Ltd., 325 ITR 25 (P & H)

7.3. Learned Counsel for the Assessee in yet another

plank of his arguments submitted that copy of statements

recorded by the Investigation Wing were not supplied to the

assessee. Referring to the following decisions, he submitted

that addition cannot be made merely on the basis of

statement of third party recorded behind the back of the

assessee without providing an opportunity to cross-examine

such witness and this is contrary to the principles of

natural justice. In support of this contention, the Learned

Counsel for the Assessee relied upon the following

decisions:

28 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

7.4. Learned Counsel for the Assessee referring to the

following decisions submitted that lack of enquiry by the

A.O. to rebut the fundamental facts on record by the

assessee company makes the addition a nullity.

7.5. Further the A.O. in the instant case has not made

any enquiry in respect of each of the subscribers of share

capital to falsify the various documents filed by the

assessee. He accordingly submitted that the Ld. CIT(A) is

29 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

legally and factually correct in quashing the re-assessment

proceedings and also deleting the addition on merit.

both the sides, perused the orders of the A.O. and the Ld.

CIT(A) and the paper book filed on behalf of the assessee. We

have also considered the various decisions cited before us. We

find the original assessment in this case was completed under

section 143(3) on 22.11.2011 determining the total income of

the assessee at Rs.5,84,39,170/- as against the returned

income of Rs.1,95,97,150/- wherein the A.O. had disallowed

deduction under section 80IA of the I.T. Act, 1961 amounting

to Rs.3,88,42,025/-. We find on appeal filed by the assessee

the Ld. CIT(A) vide order dated 17.01.2013 allowed the claim

of deduction under section 80IA and on appeal by the

Revenue against the order of the Ld. CIT(A), the Tribunal vide

ITA.No.1920/Del./2013 order dated 13.01.2016 dismissed the

appeal filed by the Revenue. We find subsequently the A.O.

reopened the assessment under section 147 of the I.T. Act,

1961 by recording the reasons that income to the tune of

Rs.36,64,35,000/- has escaped assessment within the

30 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

meaning of Section 147/148 of the Income Tax Act, 1961, the

contents of which have already been reproduced in the

preceding paragraph. We find after considering the various

submissions made by the assessee, the A.O. made addition of

Rs.25,32,35,000/- only to the total income of the assessee by

invoking the provisions of Section 68 of the I.T. Act, 1961 in

respect of share application money received from different

companies. We find in appeal the Ld. CIT(A) not only deleted

the addition on merit, but, also quashed the re-assessment

proceedings on the ground that the original assessment was

completed under section 143(3), the reopening has been made

after a period of 04 years from the end of the relevant

assessment year and the reasons do not indicate as to how

and why the assessee has failed to disclose full and true

disclosure of all material facts necessary for completion of

the assessment. Further, the action u/s 147/148 was based

on the report of the Investigation Wing at Kolkata and Delhi

and such enquiries had not been confronted to the assessee

despite specifically being requested. The reasons do not

mention the modus operandi of alleged routing of

31 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

unaccounted money of the assessee through the shareholder

companies and the reasons recorded contain various factual

errors and inaccuracies. He also deleted the addition on

merit on the ground that the assessee has substantiated the

three ingredients of provisions of Section 68 of the I.T. Act,

1961.

8.1. Before deciding the appeal on merit, we would first like

to decide the validity of the re-assessment proceedings. As

stated earlier, the assessment year involved in the instant

case is A.Y. 2009-10 and the original assessment was

completed under section 143(3) on 22.11.2011. We find the

assessee in response to Question No.10 issued by the A.O.

during original assessment proceedings has given the

following reply in respect of subscribed and paid-up share

capital.

“10. (Q.No.10) Details of Subscribed and Paid-up Share Capital i. Details of Subscribed & paid up Share Capital as on 31.03.2009 is attached in Annexure - I.

32 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

ii. Share Application Forms in respect of Shares allotted/applied during the period 01.04.2008 to 31.03.2009 are attached. During the year the Company has issued 5064700 Equity Shares of Rs.10 each at a premium of Rs.40 per share. Detailed Chart showing the Name of the subscriber, PAN, Address, name of Bank, cheque No, date of Application and date of allotment along with the following is attached • Share Application Form • Proof of Identity (Incorporation certificate issued by ROC). • Copy of PAN/ITR Acknowledgement • Bank Statement in Annexure - II. iii. Authorised Capital of the Company is not enhanced during the year.”

8.2. We find the AO after analyzing the various details filed

by the assessee had passed the order u/s 143(3) without

drawing any adverse inference in respect of the share

capital/share premium during original assessment

proceedings. However, we find the AO in the reasons recorded

had merely stated that there is failure to disclose fully and

truly all material facts necessary for completion of assessment

33 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

which do not satisfy the statutory preconditions provided in

Section 147 of the Income Tax Act, 1961. It has been held in

various decisions that the reasons must indicate how and why

the assessee had failed to make full and true disclosure of the

material facts and mere repetition or quoting the language of

the proviso is not sufficient. The basis of the averment or

statement should be either stated or should be apparent or

explained from the record. However, in the instant case, as

mentioned earlier, the reasons do not specify which material

facts the assessee failed to disclose during the original

proceedings.

8.3. We find the Hon’ble Delhi High Court in the case of

Atma Ram Properties Pvt. Ltd. vs. DCIT reported in 343 ITR

141 which has been relied by the Ld. CIT(A) has held as

under:-

“15. The reasons recorded above do state that

the appellant assessee had failed to fully and

truly disclose the facts but do not indicate why

and how the assessee had failed to make full

and true disclosure of the material facts. Mere

34 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

repetition or quoting the language of the proviso

is not sufficient. The basis of the

averment/statement should be either stated or

should be apparent/lucid / explained from the

record.”

8.4 We further find the Hon’ble Delhi High Court in the

case of Alcatel Lucent France and Ors. vs. ACIT & Ors.

reported in 384 ITR 113 as relied by the Ld. Counsel for the

assesee, has observed as under:-

“38. The reasons for reopening merely repeat

the words of the statute that there has been a

failure by ALF to disclose material particulars.

This is certainly not sufficient as far as the

legal requirement is concerned. It has been

repeatedly held by the Court that the mere

repeating of the words in the statute is hardly

sufficient compliance. Reference in this regard

may illustratively be made to the decision

dated 8th October, 2015 of this court in W.P.(C)

1873 of 2013 (Oracle System Corporation vs.

35 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

Dy. Director of Income Tax) and the decision

dated 18th December, 2008 in W.P. (C) No.

17719-20 of 2006 (Silver Oak Laboratories Pvt.

Ltd. vs. DCIT).”

8.5 We further find there are certain errors in the reasons

recorded. The reasons recorded stated the figure of share

capital / share premium at Rs. 36,64,35,000/- which includes

Rs. 11,32,00,000/- representing share capital raised in AY

2008-09 which stand accepted in the order passed u/s.

143(3) of the I.T. act, 1961.

8.6 We find the assessments have been framed u/s. 153A of

the I.T. Act, 1961 for the AY 2010-11 to 2015-16 as a result of

search u/s. 132(1) on 08.7.2015 and addition of an amount of

Rs. 3,50,00,000/- was made on account of alleged

unexplained share capital in AY 2010-11. However, the said

addition was deleted by the Tribunal vide order dated

11.1.2022 passed in ITA No. 6177/Del/2018 on the ground

that there is no incriminating material found as a result of

search to support the addition made.

36 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

8.7 We find although certain references were made in the

reasons recorded to various enquiries conducted, however,

they were never confronted to the assessee despite specific

requests made vide reply dated 11.11.2016 and 29.12.2016,

copies of which are placed in Paper Book at Pages 180 and

374 of Volume-I respectively. It has been held in various

decisions that if any material collected at the back of the

assessee is not confronted and no opportunity is given to cross

examine the same, then such material cannot be utilized for

making the addition.

8.8 We find the Ld. CIT(A) while quashing the re-assessment

proceedings has observed as under :

“Ground 2 relates to the contention that action under section 147 was without jurisdiction.

27.1. The facts as emerged from record are as under:

27.2. The appellant is a public limited company. The appellant company received share application money of Rs.25,32,35,000/- (including premium of Rs. 20,25,88,000/-) from 58 shareholders who all are corporate entities except one individual and are also duly assessed to tax. It allotted share capital of Rs.36,64,35,000/- (including security premium) out of which Rs.11,32,00,000/- was received in the preceding assessment year. During the course of original assessment proceedings, AO had issued a questionnaire dated 21.6.2011 wherein at point no.10 he required the assessee to submit the details of subscribed and paid up capital and also the detail of shares

37 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

allotted during the year under consideration. The assessee vide submission dated 5.8.2011 had submitted share application form, proof of identity, copy of PAN and 1TR and bank statement of share applicants etc. in response to the above questionnaire; and having regard to the above subscription of shareholders stood accepted in assessment framed u/s 143(3) of the Act. In the reasons as recorded by the AO, it has been stated as under:

- During pre and post search proceedings it was found that group companies have received share capital with exorbitant premium from large number of non descript companies mainly based in Kolkata and Delhi from the period between 1.4.2008 to 31.03.2009. - That enquiries were also got conducted by the Inspectors of the Investigation Wing at Delhi and Kolkata. - Most of the entry providing companies was not found existing at the given offices in Kolkata. - That all entry giving companies have been covered under various search conducted by Kolkata Investigation Wing and all the companies were found bogus and non-existent. - That in the statement of entry providers along with bogus directors, it has been admitted that they are in the business of providing accommodation entries.

- M/s KR Pulp and Paper Ltd is one of them which has received shares capital at exorbitant premium from large numbers of these non- descript companies mainly based in Delhi and Kolkata amounting to Rs.36,64,35,000/- in the financial year 2008-09 and,

- That since, on the basis of enquiries conducted and statements recorded, it has been established that the above companies are bogus and nonexistent, the share capital received by M/s K R Pulp, and Paper Ltd. amounting to Rs.36,64,35,000/- in the F.Y. 2008-09 from these large number of non-descript companies is nothing but its own unaccounted income through these companies.

27.3. It has been then concluded as under :

38 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

“Keeping in view all above, I have reason to believe that an amount at least of Rs.36,64,35,000/- has escaped assessment in the case of M/s KR Pulp and Paper Ltd. for the A.Y. 2009-10 within the meaning of Section 147/148 of Income Tax Act, 1961.

The re-assessment proceedings in this case for A.Y. 2009-10 pertain to period beyond four years but before the expiry of six years from the date of issue of notice, in this case, since, the assessment has already been made u/s 143(3) of the I.T. Act for A.Y. 2009-10 the first proviso to section 147 (as reproduced below) is applicable in this case as the assessee has not disclosed fully and truly all material facts necessary during the course of assessment which now has been established on the basis of enquiries/statement recorded that the share capital received by M/s KR Pulp and Paper Ltd. amounting to Rs.36,64,35,000/- in the F.Y. 2008-09 from these large number of non- descript companies is nothing but its own unaccounted income routed through these companies.

Provided that where an assessment under sub section (3) of section 143 of this section has been made for the relevant assessment year, no action shall be taken this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”

In other words, that assessing officer is not bound by the restriction impounded by the proviso that no action can be taken unless any income chargeable to tax has escaped income by reason of failure as the part of the assessee to make a return under section 139 or in response to a notice issued under sub-

39 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

section (1) of section 142 or section 148 or to disclose fully and truly all materials facts necessary for his assessment, for that assessment year.

Therefore, I have reason to believe that this amount of Rs.36,64,35,000/- represents income of M/s K R Pulp and Paper Ltd. chargeable to tax which has escaped assessment for A.Y. 2009-10.

As the case pertains to a period beyond four years from theend of relevant assessment year at the time issue of notice, necessary sanction has to be obtained from Pr. Commissioner of Income Tax, in view of the amended provision of section 151 w.e.f. 01.06.2015.”

27.4. It is therefore borne out of record that in the instant case, proceedings u/s 147 of the Act were initiated by AO after expiry of four years from the end of relevant assessment year. The proviso to section 147 of the Act, as also noted by AO stipulates as under:

“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year’’

27.5 In view of the foregoing, merely having a reason to believe that income had escaped assessment, is not suffice to reopen assessment beyond the stipulated period of four years, unless it is alleged and proved that a particular income has escaped assessment due to failure on the part of

40 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

assessee to disclose fully and truly all material facts necessary for assessment.

27.6 In the instant case, it is noted that AO has not established in any manner that there was failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment year. On the contrary he has stated that Assessing officer is not bound by the restriction impounded by the proviso that no action can be taken unless any income chargeable to tax has escaped income by reason of failure as the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all materials facts necessary for his assessment, for that assessment year. This assumption is contrary to his own observations when he records that the first proviso to section 147 is applicable in this case as the assessee has not disclosed fully and truly all material facts necessary during the course of assessment which has now been established that since on the basis of enquiries/statement recorded it is established that the share capital received by M/s KR Pulp and Paper Ltd. amounting to Rs.36,64,35,000/- in the FY 2008-09 from these large number of non-descript companies is nothing but its own unaccounted income routed through these companies. Be that as it may, a careful appraisal of the reasons recorded reveals that there is no whisper as to the manner and mode of failure on the part of the assessee to disclose fully and truly all the material facts relevant for the assessment or as to which facts were not disclosed by the appellant company. It is a settled law that mere statement that there is failure to disclose full and true all material fact, does not satisfy the statutory preconditions provided in proviso to section 147 of the Act. The reasons must indicate why and how the assessee had failed to make full and disclosure of the material facts. In the following judgments, it has been luded by Jurisdictional High Courts as under :

a) 343 ITR 141 (Del) Atma Ram Properties Pvt. Ltd vs. DCIT.

41 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

material facts. Mere repetition or quoting the language of the proviso is not sufficient. The basis of the averment/ statement should be either stated or should be apparent/ lucid/explained from the record”.

b) 381 ITR 387(Del) Sun Pharmaceutical Industries Ltd. vs. DCIT

“In the present case, the Assessee had already made a full and true disclosure of all the relevant materials in the first instance when the original assessment was framed. This included the account books, tax audit reports etc. The return was picked up for scrutiny and after two questionnaires were answered to the AO's satisfaction by the Assessee, the assessment was framed under Section 143 (3) of the Act. In the circumstances, the reference by the AO to Explanation I to Section 147 of the Act is, misconceived for the simple reason that once the original return was picked up for scrutiny and the accounts and other documents were subjected to a detailed examination by the AO, the question of there being no full and true disclosure of the material facts did not arise. Significantly, the reasons for re-opening fail to mention which material was failed to be disclosed by the Assessee. In similar circumstances in Global Signal Cables (India) [P.) Ltd. vs, Dy- CIT 12014} 368 ITR 609/120151 229 Taxman 608/54 taxmann.com 114 (Delhi) this Court invalidated the re-opening of the assessment under Section 148 of the Act.

Here again it requires to be observed that the reason for re-opening the assessment, specific to reason (2), fails to spell out the material that was failed to be fully and truly disclosed by the Assessee. It is therefore, not possible to conclude that the jurisdictional 'trigger' for re-opening the assessment was present. As observed in Madhukar Khosla v. Asstt. CIT 120141 367 ITR 165/120151 55 taxmann.com 391 (Delhi):

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 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

42 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

legitimately re-open the completed assessment. In absence of this objective 'trigger', the AO does not possess jurisdiction to re-open the assessment.'

In CIT v. Kelvinator of India Ltd. 120021 256 ITR 1/123 Taxman 433 (Delhi) it was observed that an order that has been purportedly passed without application of mind could not itself confer jurisdiction upon the AO to reopen the proceeding "without anything further" as that would amount to "giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong". In CIT v. Usha International Ltd. [2012] 348 ITR 485/210 Taxman 188/25 taxmann.com 200 (Delhi) a Full Bench of this Court observed that there can be cases where an AO may not raise any written query but still the Assessing Officer in the first round/original proceedings may have examined the subject matter because the aspect or question may be too apparent and obvious. In Swarovski India (P.) Ltd. v. Dy. CIT 120141 368 ITR 601/50 taxmann.com 57/226 Taxman 162 (Mag. I (Delhi), it was held that the escapement of income by itself is not sufficient for reopening the assessment in a case covered by the first proviso to Section 147 of the said Act and unless and until there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. It was insisted that the reasons for reopening of the assessment should specifically indicate which material fact was not disclosed by the Assessee in the course of the original assessment under Section 143(3) of the Act failing which there should not be any reopening of the assessment. In Oracle Systems Corporation y Asstt. PIT 120151 62 taxmann.com 291/235 Taxman 337 (Dehli) this Court reiterated the settled legal position that once a regular assessment is completed in terms of Section 143 (3) a presumption can be raised that such an order was passed by the AO on a proper application of mind. In the present case apart from a bland statement at the end of the reasons that the assessee failed to truly disclose the material particulars, it is not pointed out which material particular was not disclosed in the course of the original assessment by the assessee. Consequently, the Court has no

43 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

hesitation in holding that reason (2) for reopening the assessment is based merely on a change of opinion and not on any tangible material warranting reopening of the assessment under Section 147/148 of the Act. ”

27.7 Apart from the above the assumption of jurisdiction u/s 147 of the Act is stated to be based on the enquiries conducted by Inspectors of the Investigation Wing at Delhi and Kolkata to form an opinion albeit prima-facie that appellant company has received share capital with exorbitant premium from large number of non descript companies mainly based in Kolkatta and Delhi from the period between 1.4.2008 to 31.3.2009. It is a matter of record that such enquiries had not been confronted to the appellant during the course of assessment proceedings through specifically requested vide replies dated 10.11.2016 and 29.12.2016 by the appellant company. In such circumstances all such enquiries cannot mechanically be made a basis to assume jurisdiction. The appellant has highlighted the following aspects in respect of the reasons recorded :

i) That the reasons recorded do not contain name of any single entity which was inquired by the Investigation Wing, the reasons only mention that during pre and post search proceedings it was found that the group companies have received share capital with exorbitant premium from large number of non descript companies mainly based in Kolkata and Delhi from the period between 1.4.2008 to 31.03.2009. ii) Further the reasons just mention that share capital with exorbitant premium was received from large number of non descript companies, but no definite/specific amount of premium has been mentioned in the reasons. iii) Further it has been mentioned in the reasons that enquiries were also conducted by the Inspectors of the Investigation Wing at Delhi and Kolkata; but no date of report of such inquiry has been mentioned and further no list of entities were mentioned which were subject to such inquiries. iv) Further only a generic statement was mentioned that most of the

44 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

entry providing companies were not found existing at the given offices in Kolkata; the reasons nowhere mention the name of the entities nor the address on which such inquiry was conducted, even so the date of such inquiry has not been mentioned. v) Also it is mentioned that all entry giving companies have been covered under various searches conducted by Kolkata Investigation Wing and all the companies were found bogus and non- existent but hereto a vague statement has been mentioned without any definite details in terms of number of companies on which search was conducted, the period of search etc. vi) Also the reasons refer to statement of entry providers along with bogus directors, wherein it has been admitted that they are in the business of providing accommodation entries and the assessee company is one of them which has received shares capital at exorbitant premium from large numbers of these non- descript companies mainly based in Delhi and Kolkata amounting. The reasons do not mention the name of the entry provider who confirmed that assessee-company had received accommodation entries. Further no date of such statement has been mentioned, nor have the modes of such receipt or any details in terms of cheque number or bank been mentioned. vii) Further the reasons do not mention the modus operandi of alleged routing of unaccounted money of the assessee through shareholder companies. It was highlighted that reasons recorded suffer following factual infirmities and errors which prove that the reasons have been drafted without application of mind:

“During the year under consideration assessee has issued share capital including share premium to the tune of Rs.36,64,35,000/ - to various parties, out of which Rs.11,32,00,000/- was received in the immediately preceding previous year i.e. during the financial year 2007-08, detail of Share Application Money was already submitted during the course of assessment

45 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

proceedings vide submission dated 05.08.2011. However, the Ld. AO has mentioned that assessee has received Rs.36,64,35,000/- as share application money during the year and issued the shares at exorbitant premium.

Further the table contains the detail of share issued by the assessee company during the year under consideration and not the amount received by the assessee company as mentioned in the reasons. During the year under consideration assessee has received share application of only Rs.25,32,35000/ - and Rs.11.32.00.000/- was received during the financial year 2007- 08 relevant to assessment year 2008-09.

The column of total amount of the table as produced in the reason works out to Rs.15,43,75,000/- as against Rs.36,64,35,000/- mentioned in the reasons recorded, hence it could not be understood that why the total amount of Rs.36,64,35,000/- be treated as income which escaped assessment in the reasons. In the table produced in the reasons at S.No.1 the total amount is mentioned as Rs.3,62,00,000/- and the security premium as Rs.27,00,000/-, however the security premium should be Rs.2,89,60,000/-, further at S.No.31,36 and 40 the total amount mentioned is Rs.10,00,000/- and security premium Rs.80.00.000/-, it is also not written correctly.”

27.8. In essence it is apparent reasons contain scanty, general, vague observations and not refer to any objective, tangible relevant material. Further even the figures adopted are factually incorrect and do not pertain to the instant year. No specific evidence has been highlighted to arrived at an opinion that either the companies are bogus and non-existent or the money received represented unaccounted income. Though the reasons refer to the search but do not refer to any incriminating material detected as a result of search so as to form a prima facie opinion contrary to the claim made in the original return and accepted in the original assessment u/s 143(3) of the Act. Drawing of list of shareholders based on a Investigation wing report has not

46 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

been judicially accepted as a foundation for assuming jurisdiction u/s 147 of the Act.

27.9 Also mere information does not constitute to be a tangible material to reassess the assessee company without any independent enquiry or application of mind. The Hon’ble Delhi High Court in the case of Pr. CIT v. G&G Pharma India Ltd. 384 ITR 147 has held as under:

“9. The Court at the outset proposes to recapitulate the jurisdictional requirement for reopening of the assessment under Section 147/148 of the Act by referring to two decisions of the Supreme Court. In Chhugamal Rajpal v. SP Chaliha (1971) 79 ITR 603, the Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were "name-lenders and the transactions are bogus." The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO "had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague felling that they may be "bogus transactions'."

47 ITA.No.5064/Del./2017 M/s. K.R. Pulp and Papers Ltd., New Delhi.

reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case.

27.10 In the case of Sarthak Securities Co. (P) Ltd. v. ITO 329 ITR 110 (Del),it has been held as under:

“23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders

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clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted.

27.11. Further in the case of Signature Hotels (P) Ltd. v. ITO 338 ITR 51 (Del) it was held as under:

“5. Before dealing with the facts of the case, we may notice some judgments of the Supreme Court when proceedings under Section 147/148 of the Act can be initiated on statements made by third person

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on the account of "accommodation entry". In ITO versus Lakhmani Mewal Das, [1976] 103 ITR 437 (SC), the Supreme Court affirmed the decision of the High Court and held that there was nothing to show in the confession made by a third party related to the loan taken by the assessee much less a loan which was shown to have advanced by that person to the assessee and, therefore, live link or close nexus, which should be there between the material and the belief formed by the Assessing Officer was missing or was too tenuous to provide legal sound basis for initiation of assessment proceedings under Section 147. After referring to this judgment, a Division Bench of Delhi High Court, in Income-Tax Officer, Special Civil No. VII, New Delhi, and Another versus Dwarka Dass and Brothers, [1981] 131 ITR 571 (Del) has held as under:

"....The Supreme Court, affirming the decision of the High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or was, in any event, too tenuous to provide a legally sound basis for reopening the assessment....

The position in the present case falls within the same category. At the time of the original assessment all the facts relating to the cash credits in question were fully disclosed. This has been found by the learned Judge at page 960 (of 118 ITR) and indeed this is the accepted position on the basis of which even the proposal of the ITO to the Commissioner (set out at page 964) proceeded. Thereafter, the only material received by the ITO appears to be that the revenue authorities had carried out certain investigations, that they had discovered the existence of bogus hundi brokers who were allegedly lending their names to assessee and that a list had been circulated to various ITOs of the hundi brokers who were allegedly indulging in malpractices. The internal audit party appears to have discovered that some of the creditors whose credits

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had been accepted in the assessee's case fell within this category and raised an audit objection which was the immediate provocation for the reopening of the assessment. In this case also, as in the case before the Supreme Court, there is no live connection or link established between the information or the facts, in the possession of the ITO, and the genuineness of the particular loans recorded in the assessee's books. The mere fact that the names of the some of the creditors figured in a list made out by the department would be too general and vague to lead to an inference regarding the truth or otherwise of the loans recorded by the assessee. We are wholly unable to find any material point of distinction between the facts of the present case and those considered by the Supreme Court in the case of Lakhmani Mewal Das [1976] 103 ITR 437."

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Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment.”

27.12. Likewise in the case of CIT v. Suren International (P) Ltd. 357 ITR 24 (Del), it was held as under:

27.13. Also Hon’ble Delhi High Court in the case of Allied Strips Ltd. v. AC1T 384 ITR 424 held in almost similar circumstances that it is a case of change opinion and held as under:

“ 10. It is clear from the above, that the present case is one of change of opinion. The questionnaire and particularly question B.1 specifically raise the issue with regard to share capital. It requires the petitioner to

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give a list, source, genuineness, identity of the shareholders along with confirmation copies of the ledger account of the party including confirmation of the mode, date, address and acknowledgement of return, etc. from the said party along with source and relevant bank entries. The said information was provided by the assessee. After receipt of the said information, Assessing Officer did not think it fit to make an addition and, under these circumstances, no addition itself amounts to forming an opinion as has been held in Usha International Ltd. (supra).

27.14. The Delhi High Court in the case of Amsa India (P) Ltd. v. CIT 393 ITR 154 has held as under:

“5. It is evident from the above factual discussion that the entire basis for the reassessment notice impugned by the petitioner is Sanjay Rastogi’s statement. His questioning and his answers nowhere implicate the petitioner. He specifically names 2-3 concerns as the beneficiaries of the bogus entry business/activity that he was carrying on. However, the statement nowhere mentions the petitioner. The second aspect - and more crucially in this case-is that the issue with respect to the commission expenditure claimed by the petitioner had undergone a further fresh inquiry - albeit in one previous AY 1996-97. The Assessing Officer, on that occasion too felt that the expenditure needed more scrutiny or inquiry. The assessee/petitioner was able to show that M/s Hallmarks Healthcare Ltd. was an existing company which had filed returns and was assessed to income tax. The statement of Sanjay Rastogi may have been the starting point for some kind of an inquiry but in the circumstances of this case, to hold or assume that the individual concern had some association and every transaction of that concern needed scrutiny, was too far at a distance to tread as to sustain as ‘reasons to believe’, under Sections 147/148

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of the Act. Kelvinator’s case (supra) is also authority to the proposition that the material should have a live or proximate link with the assessee’s suspected/concealed income or nondisclosure of a material fact. Precisely that kind of live link is absent in the facts of this case.”

27.15 Further Gujarat High Court in the case of Orient News Prints Ltd. v. DCIT 393 ITR 527 has held as under:

“Similar information of material / details were supplied by the assessee with respect to the share application money. It appears that thereafter the learned Assessing Officer having satisfied with the genuineness with respect to the increase in the share capital as well as share application money and also with respect to the income of the assessee from trading in the fabrics framed scrutiny assessment under Section 143(3) of the IT Act. Therefore, subsequent reopening on the aforesaid grounds can certainly be said to be on a mere change of opinion by the subsequent Assessing Officer. As held by the Hon’ble Supreme Court in the case of Kelvinator India Ltd. (Supra) and the Division Bench of this Court in the case of Gujarat Power Corporation Ltd. (Supra), on mere change of opinion by a subsequent Officer, the reopening of the concluded scrutiny assessment under Section 143(3) of the IT Act is not permissible

…………….

[6.2] Now, so far as submission on behalf of the Revenue that during the assessment proceedings the learned Assessing Officer did not hold any inquiry and called for the information from the concerned share applicants and/or did not issue any notice to the concerned share applicants under Section 133 of the IT Act is concerned, it is required to be noted that the assessee did furnish all the necessary details with respect to share applicants including the names, address and even the PAN card number. Thereafter, if the Assessing Officer is doubting the same, it is for the Assessing Officer to issue the notices under Section 133 of the IT Act. If the learned Assessing Officer is satisfied that the reply given by the assessee and/or the details

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furnished by the assessee, the learned Assessing Officer may not even thereafter issue the notice under Section 133 of the IT Act. However, on the aforesaid ground the reopening is not permissible.

[6.3] In view of the above and for the reasons stated above, when it has been found that the reasons/grounds on which the assessment is sought to be reopened were already gone into in detail by the learned Assessing Officer while framing the scrutiny assessment and after raising the specific queries with respect to increase in the share capital, with respect to share application money and the income of the assessee from the trading in fabrics, only thereafter when the learned Assessing Officer framed the assessment, the impugned reassessment proceeding is not permissible.

[7.0] In view of the above and for the reasons stated above, the present Special Civil Application succeeds. Impugned notice dated 28.03.2016 issued under Section 143(3) of the Income Tax Act, 1961 by the respondent - Assessing Officer is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No costs. ”

27.16 Also in the present case approval as obtained does not meet the test laid down by the judgment of Hon’ble Delhi High Court in the case of Pr. CIT v. M/s N.C. Cables ITA No. 335/2015 dated 11.1.2017 wherein it has been held as under :

“11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the IT AT cannot be disturbed”

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27.17 Similar view has also been expressed in the case of Chhugamal Rajpal vs. S. P. Chaliha and Others 79 ITR 603 (SC). It has held therein as under:

“In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had before him for issuing notice under section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications "it appears that these persons (alleged creditors) are name- lenders and the transactions are bogus". He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfill the requirements of section 151(2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words he must have some prima facie grounds before him for taking action under section 148. Further his report mentions : "Hence proper investigation regarding these loans is necessary". In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148. Before issuing a notice under section 148, the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment

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year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148", he just noted the word "Yes" and affixed his signature thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance.

In the result this appeal is allowed, the order of the High Court is set aside and the impugned notice quashed. The respondent No. 2 shall pay the costs of the appellant both in this court and in the High Court.

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27.18 . The AO in the order of disposing of objection dated 26.8.2016 has observed that after search and seizure operation, new facts shows that assessee has taken bogus share premium. He has also stated that AO is fully authorized to see all the issues in light of facts and findings from search and seizure operation and other information and take necessary action. All require procedure followed by AO. However from the reasons recorded it is apparent that no material much less incriminating material was detected as result of search on the appellant or gathered during the assessment proceedings to allege, observe or assume that the same has taken bogus share capital. The reference to inquiries is vitiated for being vague and general and non specific, apart from the fact they have not been confronted to the appellant.

27.19. . In nutshell, the AO did not apply his own mind to the information and examine the foundation/accuracy of such material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The reasons recorded reflect that the AO did not independently apply his mind to the information received from the Investigation Wing to arrive at a belief that income of the assessee company had escaped assessment.

27.20. Considering the above analysis of facts and circumstances of the case and the case law supported by the AR of the appellant on the issue, I hold that AO has wrongly assumed the jurisdiction u/s 147 of the I.T. Act. The reason for reopening was not properly recorded. Ld. AO has not applied his mind, approval for issue of notice u/s 148 is not in accordance with law. In view of these findings, assessment order passed u/s 147 r.w. section 143(3) is treated ab initio void. Grounds 2 to 2.2 are disposed off accordingly.”

8.9 Since in the instant case the reopening has been

made after a period of 04 years from the end of the relevant

assessment year, the original assessment was completed

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under section 143(3) of the I.T. Act, 1961 and in the reasons

recorded by the A.O. there is mere allegation of failure on

the part of the assessee to disclose fully and truly all

material facts necessary for completion of assessment, but

the reasons do not indicate how the assessee has failed to

make full and true disclosure of all material facts,

therefore, such reopening in our opinion is in violation of

First proviso to Section 147 of the I.T. Act, 1961 in the light

of the decisions of Hon’ble Delhi High Court cited (supra).

The Ld. D.R. also could not controvert the finding given by

the Ld. CIT(A) on this issue while quashing the re-

assessment proceedings. Since the order of the Ld. CIT(A) is

based on judicial precedents including the decisions of

Hon’ble jurisdictional Delhi High Court cited (supra) and the

Ld. D.R. could not bring any material to controvert the

findings given by the Ld. CIT(A) on this issue, therefore, we

do not find any infirmity in the detailed order of the Ld.

CIT(A) in quashing the re-assessment proceedings. We,

therefore, uphold the same and the grounds raised by the

Revenue on this issue are dismissed.

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in holding the assessment order passed under section 147

read with section 143(3) of the I.T. Act, 1961 as void

abinitio, therefore, the grounds challenging the deletion on

merit become academic in nature and, therefore, the same

are not being adjudicated.

dismissed.

Order pronounced in the open court on 31.03.2022.

Sd/- Sd/- [N.K. CHOUDHARY] [R.K.PANDA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated 31st March, 2022. VBP/- Copy to 1. The assessee 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT, Delhi “C” Bench, Delhi 6. Guard File. // By Order //

Assistant Registrar : ITAT Delhi Benches : Delhi.