COLORADO CHATTELS PVT. LTD.,NEW DELHI vs. ITO,WARD-6(2), DELHI

The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 17.06.2024 for the Assessment Year 2012-13.

Brief facts of the case are, the AO received information from the Office of the ITO (Inv.), Unit 2(3), New Delhi relating to the assessee. Accordingly, the case was reopened after obtaining approval for issuance of notice u/s 148 of the Income-tax Act, 1961 (for short ‘the Act’). Accordingly, approval was obtained u/s 151(1) of the Act. The AO has reproduced the reasons of reopening in his assessment order. The reasons recorded by the AO are that the companies, namely, M/s. First Hi Fin Limited and M/s. U P Electricals Ltd.

Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A) and filed detailed submissions. After considering the detailed submissions, ld. CIT(A) sustained the addition made by the AO with the observation that assessee has made submissions challenging reopening proceedings but it failed to file any documentary evidences to prove the genuineness of transaction and creditworthiness of these two companies and also observed that the assessee had not explained nature of receipt as well.

Aggrieved with the above order, assessee filed appeal raising following grounds of appeal :-

At the time of hearing, ld. AR of the assessee submitted as under :- “ In this case notice u/s 148 was issued on the plea that M/s U P Electricals Limited & M/s First Hi-Fin Limited who had purchased shares of the Colorado Chattels Pvt. Ltd. in Financial Year 2011-12 are non-existing companies and had given accommodation. On this account, the AO was requested to give the copy of information received from Investigation Unit and also reasons for starting sec. 148 alongwith details of showing accommodation. The Ld. AO only supplied reasons for reopening that too after 2-3 reminders and did not give information received from investigation and material in support of accommodation was not supplied inspite of many letters which are in paper book appearing a~ pages 5, 8, & 12. However, the AO was informed that these companies have filed suit against Directors of Colorado Chattels Pvt. Ltd. in National Company Law Tribunal. Consequently it cannot be said that these companies are non- existing. The Ld. AO was also supplied copies of Petitions, and address of the advocates of these companies were also given as per pages 18 to 23 & 26 and the AO was requested to contact the advocates and take the address of these companies from them. No action on this is taken. The AO did not supply material of Investigation Unit nor the report of Inspector and the material in support of accommodation. Ld. AO was also informed that when two companies had purchased the shares they had filed the balance sheet, Audit Reports and payment was through cheque, acknowledgment of return of these companies. In balance sheet, M/s First Hi-Fin Limited had share capital of Rs.6.,00,00,000/- apart from reserve of Rs.17,47,78,696/- and M/s U P Electricals Limited had capital of Rs.1,25,00,000/- apart from reserve of Rs.3,09,43,948/-. Since the AO was not providing details, he was informed that we will file writ and he may not take action for one week so that we could Hon'ble Delhi High Court. On this, the Ld. AO instead of waiting, sent the assessment order. Sec. 148 proceedings are ab-initio; incorrect because it is started on the same material on which the assessee has issued the shares. There is no new material in support of starting sec. 148 proceedings as held by Hon'ble Delhi Tribunal in ACIT vis O.P Chawla reported at 306 ITR 328(Trib.) copy attached. It is settled law that on same material sec. 148 proceedings could not be started as per 342 CTR 465 (Born) in case of Shri Saibaba Sansthan Trust v/s UOI. Similarly in respect to accommodation reliance was placed on Hon'ble Supreme Court judgment reported at 472 ITR 1 (SC) copy attached laying down that entity with which sale of share was entered was not shell entity if no enquiry or any material in support of this was filed. On above account the proceedings 148 are void, bad in law and without any tangible new material. Consequently the proceedings and assessment are void, and need to be cancelled.”

On the other hand, ld. DR of the Revenue relied on the findings of the ld. CIT (A) and he brought to our notice page 7 of the appellate order and submitted that AO has admitted to verify the creditworthiness of these two paper companies, they do not have proper financial health and further submitted that even the Directors of the company are untraceable. He supported findings of the ld. CIT (A) that these companies are paper companies and assessee has not proved the genuineness of the transactions.

Considered the rival submissions and material placed on record. I observed that the AO received certain information from the investigation wing and based on the abovesaid information, he issued several notices to the companies, namely, UP Electricals Ltd. and M/s. First Hi Fin Limited. AO himself made Inspector to locate these companies and based on the information from the Inspector, both these companies are not traceable, he formed an opinion that these are paper companies. It was also brought to my notice that they have not complied by filing annual returns with ROC. Accordingly, AO recorded the reasons for reopening and proceeded to reopen the assessment by taking approval from competent authority and accordingly formed an opinion of income escapement. After considering the submissions of the assessee, AO observed that both these companies have invested in the assessee company by way of share capital and share application money. It is fact on record that assessee has declared gross receipts and also declared profit during the year under consideration. The AO himself observed that the assessee has received share capital from the abovesaid two companies and merely because these companies are untraceable. the investment made by these companies are treated as accommodation entries and made addition in the hands of the assessee. At the time of hearing, it is brought to my notice that both these companies having huge share capital and also huge reserves in the Balance Sheet. Assessee also filed copy of Balance Sheet before the tax authorities. The AO has issued notice u/s 148 of the Act by recording the reasons that assessee has received funds from these companies and also it was found that assessee has issued shares to these companies. I observed that the Assessing Officer himself recorded the findings that these companies are in existence in the ROC portal. Non-compliance by these companies itself cannot be the reason to treat the receipt of share capital money as bogus. It is submitted before me that these companies are in existence and they have huge share capital and reserves. It is also brought to my notice that these two companies filed suit against the assessee company. The details were already filed before Assessing Officer. The Assessing Officer has completed the assessment without bringing on record how the shares subscribed by these companies are accommodation as bogus. If there is any failure on the part of two companies under investigation, the assessee has to bring on record the relevant proceedings initiated against these companies by the respective erstwhile Assessing Officers. No such findings were brought on record and only the assessee was asked to prove the genuineness of the share capital. Making assessment and framing opinion without proper verification is bad in law. In my view, the initiation of proceedings without there being proper material in the hands of AO is bad in law. Therefore, the reassessment is bad in law and accordingly quashed.

In my view, in case Assessing Officer has any material received from the respective Assessing Officers of the companies, namely, UP Electricals Ltd. and M/s. First Hi Fin Limited, he has liberty to proceed the proceedings not otherwise.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 28TH day of May, 2025.