SAGAR CEMENTS (R) LIMITED ,HYDERABAD vs. DCIT, CIRCLE-1(1)(2), BANGALORE

The Assessee has raised the following grounds of appeal:

That the order of the Authorities below in so far as it is against the assessee is opposed to law, facts, circumstances, natural justice, equity all other known principles of law.

That the total income and total tax computed is hereby disputed.

The Authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled.

That the notice, initiation and all subsequent proceedings u/s 148 of the Act is bad in law, without jurisdiction, barred by law and requires to be cancelled.

The notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled.

The conditions precedent to justify the reopening of the assessment u/s 147 of the Act being absent, the reopening of the assessment is bad in law and the reassessment requires to be cancelled.

That the order u/s 143(3) r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment.

That the entire reassessment proceedings violates the procedure prescribed by the Supreme Court in 259 ITR 19 for 148 proceedings.

The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted under law.

The reasons / findings of the Authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record.

That the Authorities below erred in relying on the information purportedly received from the Office of the Income Tax Officer (Investigation) Unit-4 Kolkata without application of mind before passing the assessment order.

That the Authorities below erred in relying on sworn statements of persons namely Sri Jagdish Prasad Purohit and Sri Dhruv Narayan Jha without the corroboration through cross examination.

That the Authorities below erred in not providing complete details sought by the assessee.

That the Authorities below erred in relying on irrelevant material while ignoring the relevant material.

That the Authorities below erred in making addition of Rs. 11,10,00,000/- as unexplained cash credit u/s 68 of the Act.

That the Authorities below erred in resorting to section 68 of the Act.

The appellant denies the liabilities for interest u/s 234B(3) of the Act. Further prays that the interest if any should be levied only on returned income.

No opportunity has been given before levy of interest u/s 234B(3) of the Act.

Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234B(3) of the Act.

For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.

Although the assessee has raised 20 grounds of appeal, they essentially challenge the reopening of the assessment and the addition on its merits. 04. The assessee, formerly BMM Cements Limited and later reorganised as Sagar Cements Limited, filed its return of income on 29 September 2012, declaring nil total income. The return was selected for scrutiny, and the assessment was completed at the returned income by the assessment order u/s 143 (3) of the Act on 24 March 1015. 05. During the year, the assessee issued 55,50,000 equity shares of ₹10 each to the shareholder, Xplosion Entertainment Private Limited, for a total consideration of ₹11,10,00,000/-. In the original assessment proceedings, the Assessing Officer sought details of the shareholder’s identity and creditworthiness, and of the genuineness of the transaction, which were submitted in a letter dated 17 March 2025. The letter included the board resolution, the shareholder’s certificate of incorporation, income tax returns, financial statements and assessment orders of the investor, and the assessee’s own bank statement showing the bank account from which the funds were drawn. After verifying these documents, the Assessing Officer accepted the shareholder’s identity and creditworthiness and the genuineness of the transaction and completed the assessment under section 143(3) of the Act on 24 March 2015 at the returned income. 06. Subsequently, the Income Tax Investigation Directorate, Calcutta, supplied some information regarding the Investors' transactions with shell companies operating in Calcutta. Based on the available material and information, the Assessing Officer reopened the assessment and, after obtaining the requisite approval from the Additional Commissioner of Income Tax, issued a notice under section 148 of the Act on 30 March 2017. 07. In response, the assessee requested that its original return, filed on 29 September 2012, be treated as the return in response to the notice. The assessee also requested a copy of the information received, which was supplied on 20 June 2017. On 10 July 2017, the assessee sought clarification of the dates in the covering letter and an accompanying letter. It also requested additional evidence and database details concerning investors' transactions with eight companies. On 23 August 2017, the Assessing Officer supplied additional details and copies of statements in electronic form. The assessee filed an objection to the reassessment. By a speaking order dated 27th September 2017, the objection was disposed of. Thereafter, the assessee also requested that the reassessment proceedings be dropped. However, the Learned Assessing Officer proceeded with the reassessment proceedings. 08. During the course of the assessment proceedings, the assessee also sought the cross-examination of the persons who had given statements. Accordingly, the learned assessing officer issued summons under section 131 of the Act on 30th October 2017, directing the parties to appear on 15th November 2017. However, the summons returned with remarks that those persons could not be located. In response to one summons, the brother of the person summoned appeared before the assessing officer and requested time. Again, the summons was issued to that party on 8th December 2017. Even for the second summons, the witness did not turn up. The assessing officer asked the assessee to produce those witnesses. Neither the assessee nor the summoned persons appeared; therefore, the learned assessing officer held that, if the summoned persons do not appear in response to summons, it is the responsibility of the assessee to produce them as the assessee’s witnesses, and the assessing officer can then examine them as the assessee’s witnesses. The assessee and the witnesses continued to seek adjournments to curtail further inquiry, and therefore the learned assessing officer was of the view that this was a deliberate attempt by both the assessee and its witnesses. Thereafter, the learned assessing officer reproduced the statements given by the third parties and based on that, in paragraph number 10 noted that Xplosion Entertainment Private Limited had acted as an intermediary to route the funds to the ultimate beneficiary company, the assessee. The assessee company has received ₹11,10,00,000 as share application money/share capital money from shell companies operated, controlled, and managed by Mr Jagdish Prasad Purohit and others through Messrs Xplosion Entertainment Private Limited. 09. The assessee furnished details of the depositors’ identities and creditworthiness and submitted that the transactions were conducted through banking channels. The learned Assessing Officer held that the use of banking channels alone did not establish creditworthiness or the genuineness of the transactions. He relied on the principle settled by the Hon’ble Supreme Court that genuineness may be assessed on the preponderance of human probabilities. He concluded that the share capital and share application money of ₹11,10,00,000 received by the assessee came through shell companies operated, controlled and managed by Mr Jagdish Prasad Purohit and others. He added this amount under section 68 of the Income Tax Act and, by an order dated 12 December 2017, assessed the assessee’s income at ₹11,10,00,000. 10. Aggrieved by the assessment order, the assessee appealed to the learned CIT(A), challenging both the reopening and the addition on merits. It contended that the reassessment lacked jurisdiction from its inception and amounted to a change of opinion on facts examined and accepted in the original assessment under section 143(3) of the Act. The assessee maintained that it had fully and truly disclosed all material facts, including the share application money received from Explosion Entertainment Private Limited, and that the Assessing Officer could not revisit the accepted explanation without fresh information. The learned CIT(A) rejected this contention, holding that the original assessment rested on corporate documents and bank statements, whereas fresh information from the Investigation Directorate revealed that the investing company was a shell company providing accommodation entries and that the funds represented the assessee’s own unaccounted money routed back through it. This disclosed the underlying nature of the transactions rather than merely reinterpreting the material previously available. The assessee also disputed the live link between the information received, the recorded reasons, and the belief that income had escaped assessment. The learned CIT(A) held that, at the stage of issuing notice under section 148, a reasonable prima facie belief based on relevant material was sufficient; escapement of income need not be conclusively established. He also rejected the allegation of borrowed satisfaction or mechanical action, observing that the Assessing Officer had supplied the reasons and requested details, received objections, and disposed of them through a quasi-judicial process, demonstrating a considered approach. On the claim of full and true disclosure, he held that the finding that the assessee’s own unaccounted money had been routed as share capital inherently indicated a failure to disclose material facts. He therefore upheld the reopening. On natural justice, the learned CIT(A) held that the assessee bore the burden of proving the genuineness of the transactions and, having relied on the individuals’ statements, was also responsible for producing them. He accordingly found no violation of natural justice. 11. On merits, he confirmed the addition, relying on corroborative investigation evidence that Explosion Entertainment Private Limited had no significant business activity and merely served as a conduit for accommodation entries. Its directors’ statements confirmed the operation of a network of companies to convert cash into share capital. He also upheld the Assessing Officer’s reliance on the preponderance of human probabilities, as recognised by the Hon’ble Supreme Court in Sumati Dayal v. CIT [214 ITR 801 (SC)], and rejected the assessee’s reliance on the Supreme Court’s decision in Lovely Exports. Accordingly, he confirmed the addition under section 68 of the Income Tax Act and dismissed the appeal. 12. The authorized representatives, Shri Dr. Pradeep KR and Ms. Girija GP, advocates, filed a 177-page paper book, together with various correspondence during reassessment proceedings, the assessment order passed u/s 143(3) of the Act, information supplied in the original assessment proceedings, judicial precedents, etc. 13. He argued that reopening merely revisited facts already examined. Citing the assessment order under section 143(3) dated 24 March 2015, he submitted that the recorded reasons disclosed no tangible material to justify reopening. Referring to page 40 of the paper book, he stated that the Assessing Officer inferred, from documents supplied by the Investigation Wing regarding the investor’s director, that the investor’s only business was investing in unquoted shares. Thus, ld AO had no material other than that provided by the investor company’s directors to the Investigation Wing. He maintained that he had already furnished these documents during the original assessment, citing the assessee’s letter dated 17 March 2015, which contained complete details. These details appeared from page 16 of the paper book onwards. He therefore argued that reopening without fresh information was invalid. 14. The learned authorized representative stated that the original assessment for the disputed year was concluded by an order dated 24th March 2015. The section 148 notice, reproduced at page 40 of the paper book, was issued on 30 March 2017 for AY 2012-13. He argued that the reopening occurred more than four years after the end of the year, and that the recorded reasons alleged no failure by the assessee. He submitted that reopening required a basis to show failure to disclose fully and truly all material facts necessary for assessment of the assessee. As the recorded reasons had to stand on their own and identified no such failure, he sought the quashing of the reassessment on this ground alone. To support his contention, he cited several judicial precedents. 15. He submitted that the Assessing Officer’s letter dated 11 May 2017 supplied the recorded reasons but not the Investigation Wing’s information. Referring to page 76 of the paper book, accompanying the officer’s letter dated 20 June 2017, he noted that the enclosed ITO (Investigation)’s letter dated 24 March 2017 was supplied to the assessee only on 20 June 2017. He further noted that the order dated 27 September 2017 disposing of the assessee’s objections recorded receipt of the information by the ld AO also on 3 April 2017, whereas the section 148 notice had been issued on 30 March 2017. He questioned how the notice could have been issued before receipt of the information relied upon. This itself shows the ld AO has reopened the assessment without having the complete information from the investigation wing. 16. He submitted that the reopening notice dated 30 March 2017 was preceded by the requisite satisfaction of the Additional Commissioner of Income Tax. The assessee sought details of that approval in a letter dated 10 July 2017, reproduced at page 79 of the paper book, but received none. He submits that, if the information itself is stated to have been received after 30/33/2017, there can be no approval, and if there is an approval, it is without the available material and hence is void in law. 17. Citing page 122 of the paper book, he stated that the assessee requested cross-examination of the persons whose statements supported reopening by a letter dated 12 October 2017 but was denied the opportunity. Relying on the Hon’ble Supreme Court’s decisiondecision dated 02.09.2015 in case of Andaman Timber Industries Vs. CCE 127 DTR 0241 , he argued that an addition based on third-party statements could not stand where specifically requested cross-examination was denied. The Assessing Officer placed the burden of producing the absent witnesses on the assessee; the representative maintained that they were Revenue witnesses. 18. On the merits, he cited the annual accounts of Xplosion Entertainment Private Limited, which showed shareholders’ funds of Rs. 34,89,88,338/- as at 31 March 2012. The assessment order described it as an investor and trader in shares. He argued that, having accepted the investor’s share capital in its reopened assessment, the Revenue could not now treat it as non-genuine. He also cited share application money received on various dates in September 2011 in an ING Vysya bank account of the assessee, recorded as “₹11,10,00,000”, showing the sources of the funds. These details had been furnished to the Assessing Officer. The bank statement also recorded receipts from “ICI Bank” through various clearings from the account of Xplosion Entertainment Limited. 19. Referring to paragraph 3 on page 2 of the assessee’s assessment order, he noted that the officer described the assessee as a subsidiary of Singhi Holdings Private Limited, closely held by the promoters of the “BMM group”. The officer had obtained and verified details of capital investors, loans and advances, current liabilities, increased capital work in progress, and bank accounts. He therefore argued that the addition lacked merit, as the assessee had established the identity, creditworthiness, and genuineness of the investment described as “share capital”. 20. The learned authorized representative further argued that the Assessing Officer relied solely on the Investigation Wing’s report to sustain the addition, without inquiring into the creditor details furnished by the assessee. He cited several judicial precedents, particularly the Hon’ble Delhi High Court’s decision in Sabh infrastructure limited versus ACIT [398 ITR 198]. He argued that reopening was invalid because the recorded reasons did not disclose the information concerning shell companies and that information was not supplied to the assessee. 21. He also relied on the Hon’ble Delhi High Court’s decisions in Oracle System Corporation versus Deputy Commissioner of Income Tax [94 CCH 45], Sarthak Securities Company Pvt Limited versus ITO [329 ITR 110], and CIT versus SMC Share Brokers Private Limited [288 ITR 345]; and on the Hon’ble Supreme Court’s decision in ITO versus Lakhmani Mevaldas [103 ITR 437]. On the merits, he relied on CIT versus Lovely Exports Pvt Limited [216 CTR 195] and the Hon’ble Bombay High Court’s decision in Prashant S Joshi versus ITO [324 ITR 154]. He accordingly sought the invalidation of the reopening and the deletion of the addition on the merits.

Shri N S Sashidhara, CIT DR, learned departmental representative strongly supported the lower authorities’ orders. He stated that reopening was based on information from the Calcutta Investigation Wing that the ₹11,10,00,000 invested by Xplosion entertainment private limited in the assessee’s share capital comprised funds layered by Mr purohit and others for the assessee’s benefit. He argued that the report constituted tangible material on which a prudent person could reasonably believe that income had escaped assessment. The recorded reasons, he maintained, need not expressly state the assessee’s failure to disclose material facts. Relying on the CIT(A)’s order, he argued that withholding information about the accommodation-entry provider itself constituted such failure. He further submitted that the Assessing Officer possessed all relevant information when reopening the assessment and that the lower authority’s order contained no infirmity. 23. On merits, he stated that the assessee received ₹11,10,00,000 from Xplosion entertainment private limited, a shell company with no business activity. He argued that shareholders’ funds alone did not establish genuineness or creditworthiness. On cross-examination, he supported the Assessing Officer’s order because the persons whose statements were relied upon had not appeared. As they had invested ₹11,10,00,000 in the assessee, Assessee was correctly directed to produce them. He argued that failure to secure their appearance did not constitute a procedural irregularity and sought affirmation of the reopening and the ₹11,10,00,000 addition upheld by the CIT(A). 24. We have considered the rival submissions and examined the lower authorities’ orders, the paper book filed by the learned authorized representative, and the judicial precedents cited. We will refer to those precedents where relevant.

During financial year 2011-12, the company issued 2 42,60,000 equity shares of ₹10 each to three shareholders: 12,10,000 to Surakshit Advisors Private Limited, 55,50,000 to Xplosion Entertainment Pvt Limited, and 17,50,000 to Singhi Holdings Pvt Limited, at a premium of ₹10 per share. The dispute concerns only the ₹11,10,00,000 credited in respect of Xplosion Entertainment Pvt Limited, comprising share capital of ₹555,00,000 and a premium of Rs 555,00,000. 26. During the original assessment proceedings, the assessee, by a letter dated 17 March 2015, furnished the board resolutions of the assessee and the investor company, along with the investor’s certificate of incorporation, income tax return, annual reports and assessment orders. The assessee also produced its bank statement to establish that the funds came exclusively from the investor’s ICICI Bank account. On this basis, the assessee maintained that it had discharged its burden of proving the investor’s identity and creditworthiness and the genuineness of the transaction. In the assessment order dated 24 March 2015 under section 143 [3], the learned Assessing Officer expressly accepted the investors’ capital contributions, recorded that the relevant details had been obtained and verified, and accepted the assessee’s returned income. 27. On 30th March 2017 the learned Assessing Officer issued a notice under section 148 of the Income Tax Act for reopening of the assessment. Reasons for the reopening of the assessment were recorded as under:-

Thus all grounds against the reopening of assessment and on the merits of the addition u/s 68 of the Act are allowed. All other Grounds which are either general in nature or consequential are dismissed.

In the result, appeal filed by the Assessee is allowed. Order pronounced in the open court on 23rd October, 2026.