SUNSHINE MERCHANTS P. LTD.,MUMBAI vs. DY CIT -CC-4(1), MUMBAI

This appeal by the assessee is directed against order dated 31/01/2020 passed by the Ld. Commissioner of income- tax(Appeals)-52, Mumbai [in short the Ld. CIT(A)] for assessment year 2011-12, raising following grounds:

1. The CIT(A) erred in law and on facts in upholding the action of the Assessing Officer in making the impugned

Sunshine Merchants Pvt. Ltd. 2 ITA No. 1539/M/2020 reassessment u/s reassessment u/s 143(3)/147 of the Act on the basis 143(3)/147 of the Act on the basis of a borrowed satisfaction from the investigation wing of a borrowed satisfaction from the investigation wing of a borrowed satisfaction from the investigation wing and merely repeating the facts recorded by the and merely repeating the facts recorded by the and merely repeating the facts recorded by the investigation wing in its reference without establishing investigation wing in its reference without establishing investigation wing in its reference without establishing any direct link between the tangible material and any direct link between the tangible material and any direct link between the tangible material and formation of formation of the reason to believe that the income of the reason to believe that the income of appellant had escaped assessment as is clear from the appellant had escaped assessment as is clear from the appellant had escaped assessment as is clear from the addition made that even the relevant assessment addition made that even the relevant assessment addition made that even the relevant assessment folder folder folder was never examined before issuing the was never examined before issuing the was never examined before issuing the impugned notice us 148 of the Act. Thus, the impugned impugned notice us 148 of the Act. Thus, the impugned impugned notice us 148 of the Act. Thus, the impugned reassessment reassessment order is bad in law and void ab initio order is bad in law and void ab initio which must be annulled. which must be annulled.

2. The CIT(A) erred in law and on facts while confirming The CIT(A) erred in law and on facts while confirming The CIT(A) erred in law and on facts while confirming the addition of Rs.3,65,001 as below: the addition of Rs.3,65,001 as below: a. That the appellant does not have to prove source That the appellant does not have to prove source of source of the loan creditor. b. That each of the lender companies had That each of the lender companies had sufficient shareholders funds which was much more than much more than the amount lent to the appellant. c. That quantum of loans and the capacity of the That quantum of loans and the capacity of the lenders do not at all justify to call them shell lenders do not at all justify to call them shell companies in any manner. d. That the premises taken by the CIT(A) is that the premises taken by the CIT(A) is that the amounts received were stare capital cash received were stare capital cash credits. e. That the loan was received in earlier years by That the loan was received in earlier years by account payee cheques. f. f. That the interest was credited to the account f. That the interest was credited to the account f. That the interest was credited to the account of the lenders and applicable TDS on interest of the lenders and applicable TDS on interest

Sunshine Merchants Pvt. Ltd. 3 ITA No. 1539/M/2020 was deducted and paid which has been duly was deducted and paid which has been duly accepted and therefore, the addition deleted on accepted and therefore, the addition deleted on account of interest claimed. g. That no opportunity to cross examine any person That no opportunity to cross examine any person whose statements have been relied in the whose statements have been relied in the assessment proceedings. h. Thus, the additions confirmed for interest irmed for interest credited in the account of the lenders as fresh credited in the account of the lenders as fresh loan should be deleted.

Sunshine Merchants Pvt. Ltd. 4 ITA No. 1539/M/2020

Sunshine Merchants Pvt. Ltd. 5 ITA No. 1539/M/2020 has rejected contention of the assessee challenging validity of the has rejected contention of the assessee challenging validity of the has rejected contention of the assessee challenging validity of the reassessment. The relevant part of his finding is reproduced as eassessment. The relevant part of his finding is reproduced as eassessment. The relevant part of his finding is reproduced as under:

5.3 The main plea of the assessee is that the AO has 5.3 The main plea of the assessee is that the AO has 5.3 The main plea of the assessee is that the AO has reopened the case on a borrowed satisfaction and has not reopened the case on a borrowed satisfaction and has not reopened the case on a borrowed satisfaction and has not conducted any investigation on his own. It is claimed that he conducted any investigation on his own. It is claimed that he conducted any investigation on his own. It is claimed that he has not includ has not included the customary phrases like I have ed the customary phrases like I have independently applied my mind' etc in the independently applied my mind' etc in the reasons. reasons.

5.4 The appellant has validly enumerated the four primary The appellant has validly enumerated the four primary The appellant has validly enumerated the four primary requirements which need to be fulfilled before the case can requirements which need to be fulfilled before the case can requirements which need to be fulfilled before the case can be validly reopened. However, he has failed to be validly reopened. However, he has failed to be validly reopened. However, he has failed to properly appreciate the reasons recorded by the AO in light of these appreciate the reasons recorded by the AO in light of these appreciate the reasons recorded by the AO in light of these four requirements and has fallen into the trap for various four requirements and has fallen into the trap for various four requirements and has fallen into the trap for various decisions which have been liberally quoted by him in his decisions which have been liberally quoted by him in his decisions which have been liberally quoted by him in his submission. It is to be noted that the case of the assessee It is to be noted that the case of the assessee has been pr has been processed under section 143(1) of the Act and no ocessed under section 143(1) of the Act and no assessment us 143(3) had been made prior to issue of notice assessment us 143(3) had been made prior to issue of notice assessment us 143(3) had been made prior to issue of notice under section 148 of the Act. Hence, there was no onus on under section 148 of the Act. Hence, there was no onus on under section 148 of the Act. Hence, there was no onus on the AO to demonstrate that there was a failure on the part of the AO to demonstrate that there was a failure on the part of the AO to demonstrate that there was a failure on the part of the assessee to disclose full the assessee to disclose fully and truly all material facts. It is y and truly all material facts. It is also noted that the AO has applied his mind, examined the also noted that the AO has applied his mind, examined the also noted that the AO has applied his mind, examined the assessee's case with respect to information before him and assessee's case with respect to information before him and assessee's case with respect to information before him and arrived at a satisfaction. arrived at a satisfaction.

5.5 The reliance placed by the assessee on the decision in The reliance placed by the assessee on the decision in The reliance placed by the assessee on the decision in the case of Sho the case of Shodiman Investments Pvt Ltd (supra) has been Investments Pvt Ltd (supra) has been examined. It is noted that the Hon'ble High Court has examined. It is noted that the Hon'ble High Court has examined. It is noted that the Hon'ble High Court has Sunshine Merchants Pvt. Ltd. 6 ITA No. 1539/M/2020 reiterated that a reopening can be done only when there is reiterated that a reopening can be done only when there is reiterated that a reopening can be done only when there is tangible material before the AO which is the basis for forming tangible material before the AO which is the basis for forming tangible material before the AO which is the basis for forming the belief even in cases where assess the belief even in cases where assessment has not been ment has not been completed us 143(3) of the Act. The reliance placed on the completed us 143(3) of the Act. The reliance placed on the completed us 143(3) of the Act. The reliance placed on the decision in the case of Orient Craft Ltd (supra) is required to decision in the case of Orient Craft Ltd (supra) is required to decision in the case of Orient Craft Ltd (supra) is required to be discussed in light of the decision of Shodiman be discussed in light of the decision of Shodiman be discussed in light of the decision of Shodiman Investments. In the case of Swastic Safe Deposit and Investments. In the case of Swastic Safe Deposit and Investments. In the case of Swastic Safe Deposit and Investments Investments Ltd (supra), again the Bombay High Court has Ltd (supra), again the Bombay High Court has reiterated its findings in Shodiman Investments. In all these reiterated its findings in Shodiman Investments. In all these reiterated its findings in Shodiman Investments. In all these cases relied upon by the assessee, the key theme is that cases relied upon by the assessee, the key theme is that cases relied upon by the assessee, the key theme is that there should be tangible material based on which the AO has there should be tangible material based on which the AO has there should be tangible material based on which the AO has to arrive at a satisfaction with to arrive at a satisfaction with respect to escapement of respect to escapement of income.

5.6 In the present case, it is noted that there is sufficient In the present case, it is noted that there is sufficient In the present case, it is noted that there is sufficient tangible material in the form of the findings of elaborate tangible material in the form of the findings of elaborate tangible material in the form of the findings of elaborate investigation conducted by the Investigation Wing. That such investigation conducted by the Investigation Wing. That such investigation conducted by the Investigation Wing. That such a report constitutes a valid tangible ma a report constitutes a valid tangible material has been terial has been affirmed by a number of judicial authorities. affirmed by a number of judicial authorities.

5.7 The Hon'ble jurisdictional High Court, in the case of The Hon'ble jurisdictional High Court, in the case of The Hon'ble jurisdictional High Court, in the case of Export Credit Guarantee Corporation of India Ltd. [WRIT Export Credit Guarantee Corporation of India Ltd. [WRIT Export Credit Guarantee Corporation of India Ltd. [WRIT PETITION NO.502 OF 2012], in their decision dated 11 PETITION NO.502 OF 2012], in their decision dated 11 PETITION NO.502 OF 2012], in their decision dated 11th January, 2013, have noted January, 2013, have noted that:

The Assessing Officer even within a perind of four The Assessing Officer even within a perind of four The Assessing Officer even within a perind of four years cannot reopen an assessment merely on the years cannot reopen an assessment merely on the years cannot reopen an assessment merely on the basis of a change of opinion. The Assessing Officer has basis of a change of opinion. The Assessing Officer has basis of a change of opinion. The Assessing Officer has no power to review an assessment which has been no power to review an assessment which has been no power to review an assessment which has been concluded. concluded. But where he has tangible material But where he has tangible material to come

Sunshine Merchants Pvt. Ltd. 7 ITA No. 1539/M/2020 to the conclusion that there is an escapement of income to the conclusion that there is an escapement of income to the conclusion that there is an escapement of income from assessment, the power to reopen can be from assessment, the power to reopen can be from assessment, the power to reopen can be exercised. The expression reason to believe in Section exercised. The expression reason to believe in Section exercised. The expression reason to believe in Section 147 has been construed in the judgment of the 147 has been construed in the judgment of the 147 has been construed in the judgment of the Supreme Court in Assistant Commissioner of Income Supreme Court in Assistant Commissioner of Inco Supreme Court in Assistant Commissioner of Inco Tax vs. Rajesh Jhaver Stock Brokers P. Ltd., to mean a Tax vs. Rajesh Jhaver Stock Brokers P. Ltd., to mean a Tax vs. Rajesh Jhaver Stock Brokers P. Ltd., to mean a cause or justification. However, at the stage when the cause or justification. However, at the stage when the cause or justification. However, at the stage when the Assessing Officer reopens an assessment, it is not Assessing Officer reopens an assessment, it is not Assessing Officer reopens an assessment, it is not necessary that the material before the Court should necessary that the material before the Court should necessary that the material before the Court should conclusively prove or establish that income has conclusively prove or establish that inc conclusively prove or establish that inc escaped assessment. A reason to believe at the stage escaped assessment. A reason to believe at the stage escaped assessment. A reason to believe at the stage of reopening is all that is relevant. This aspect must be of reopening is all that is relevant. This aspect must be of reopening is all that is relevant. This aspect must be emphasized because it clearly emerges from the emphasized because it clearly emerges from the emphasized because it clearly emerges from the judgment of Rajesh Jhaveri Stock Brokers: judgment of Rajesh Jhaveri Stock Brokers:

Section 147 authorises and permits the Assessing Section 147 authorises and permits the Assessing Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax Officer to assess or reassess income chargeable to tax Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any if he has reason to believe that income for any if he has reason to believe that income for any assessment year has escaped assessment. The word assessment year has escaped assessment. The word assessment year has escaped assessment. The word reason' in the phrase reason to believe would mean reason' in the phrase reason to believe would mean reason' in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification. If the Assessing Officer has cause or justification. If the Assessing Officer has cause or justification to know or suppose that income cause or justification to know or suppose that income cause or justification to know or suppose that income had escaped assessment, it can be said to have had escaped assessment, it can be said to have had escaped assessment, it can be said to have reason to believe that an income had escaped reason to believe that an income had escaped reason to believe that an income had escaped assessment. The expression cannot be read to mean assessment. The expression cannot be read to mean assessment. The expression cannot be read to mean that the Assessing Officer should have finally that the Assessing Officer should have finally that the Assessing Officer should have finally ascertained ascertained the fact by legal evidence or conclusion At the fact by legal evidence or conclusion At that stage, the final outcome of the proceeding is not that stage, the final outcome of the proceeding is not that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is relevant. In other words, at the initiation stage, what is relevant. In other words, at the initiation stage, what is Sunshine Merchants Pvt. Ltd. 8 ITA No. 1539/M/2020 required is reason to believe, but not established fact required is reason to believe, but not established fact required is reason to believe, but not established fact of escapement of income. At the stage of issue of of escapement of income. At the stage of i of escapement of income. At the stage of i notice, the only question is whether there was relevant notice, the only question is whether there was relevant notice, the only question is whether there was relevant material on which a reasonable person could have material on which a reasonable person could have material on which a reasonable person could have formed a requisite belief. Whether the materials would formed a requisite belief. Whether the materials would formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern conclusively prove the escapement is not the concern conclusively prove the escapement is not the concern at that stage. This is so because t at that stage. This is so because the formation of belief he formation of belief by the Assessing Officer is within the realm of by the Assessing Officer is within the realm of by the Assessing Officer is within the realm of subjective satisfaction." subjective satisfaction."

5.8 Hence, contrary to the averment of the assessee that the Hence, contrary to the averment of the assessee that the Hence, contrary to the averment of the assessee that the Assessing Officer should have conducted inquiries and Assessing Officer should have conducted inquiries and Assessing Officer should have conducted inquiries and should have phrased his satisfaction in a should have phrased his satisfaction in a particular way, the particular way, the Hon'ble High Court as well as the Hon'ble Supreme Court Hon'ble High Court as well as the Hon'ble Supreme Court Hon'ble High Court as well as the Hon'ble Supreme Court have held that at the time of arriving at a prima face have held that at the time of arriving at a prima face have held that at the time of arriving at a prima face satisfaction, a full fledged inquiry is not expected from the satisfaction, a full fledged inquiry is not expected from the satisfaction, a full fledged inquiry is not expected from the AO. He needs to have tangible material before him and AO. He needs to have tangible material before him and AO. He needs to have tangible material before him and based on such tangible material and the facts contained in such tangible material and the facts contained in such tangible material and the facts contained in the assessment records of the Assessee, he can form a belief the assessment records of the Assessee, he can form a belief the assessment records of the Assessee, he can form a belief with respect to escapement of income. with respect to escapement of income.”

“5.13 Hence, in all such cases, the detailed investigation 5.13 Hence, in all such cases, the detailed investigation 5.13 Hence, in all such cases, the detailed investigation report of Investigation that has been accepted as a credible report of Investigation that has been accepted as a credible report of Investigation that has been accepted as a credible piece of information. The AO had a credible tangible material piece of information. The AO had a credible tangible material piece of information. The AO had a credible tangible material before him in the form of the re before him in the form of the report of the Investigation Wing port of the Investigation Wing

Sunshine Merchants Pvt. Ltd. 9 ITA No. 1539/M/2020 and based on information contained in the return of income and based on information contained in the return of income and based on information contained in the return of income of the assessee and the information available before him, he of the assessee and the information available before him, he of the assessee and the information available before him, he arrived at a satisfaction. The sufficiency of the satisfaction arrived at a satisfaction. The sufficiency of the satisfaction arrived at a satisfaction. The sufficiency of the satisfaction cannot be challenged. The assumption of ju cannot be challenged. The assumption of jurisdiction by the risdiction by the AO is on valid ground. AO is on valid ground.

5.14 The assessee has also raised an issue that the 5.14 The assessee has also raised an issue that the 5.14 The assessee has also raised an issue that the approval of the Pr. CIT and the Addl approval of the Pr. CIT and the Addl. CIT is mechanical as in CIT is mechanical as in the approval note, they have merely mentioned that "Yes, I the approval note, they have merely mentioned that "Yes, I the approval note, they have merely mentioned that "Yes, I am satisfied". I am not convinced with the am satisfied". I am not convinced with the argument taken argument taken by the assessee. There is no requirement of the approving by the assessee. There is no requirement of the approving by the assessee. There is no requirement of the approving authorities to provide an elaborate reasoning with respect to authorities to provide an elaborate reasoning with respect to authorities to provide an elaborate reasoning with respect to their approval. That they have noted on the approval sheet their approval. That they have noted on the approval sheet their approval. That they have noted on the approval sheet that they are satisfied with the proposal is an indication of that they are satisfied with the proposal is an indication of that they are satisfied with the proposal is an indication of their perusal of the proposal and its approval and is a their perusal of the proposal and its approval and is a their perusal of the proposal and its approval and is a sufficient compliance with the requirements of the section. sufficient compliance with the requirements of the section. sufficient compliance with the requirements of the section.”

“6.2 The submissions of the assessce have been duly The submissions of the assessce have been duly The submissions of the assessce have been duly considered. It is noted that the assessee has not provided nsidered. It is noted that the assessee has not provided nsidered. It is noted that the assessee has not provided any rationale explanation with respect to the credibility of any rationale explanation with respect to the credibility of any rationale explanation with respect to the credibility of Sunshine Merchants Pvt. Ltd. 10 ITA No. 1539/M/2020 these three companies from whom the appellant has taken these three companies from whom the appellant has taken these three companies from whom the appellant has taken loans. Investigations by the Revenue have sufficiently loans. Investigations by the Revenue have sufficiently loans. Investigations by the Revenue have sufficiently demonstrated that these are demonstrated that these are shell companies. The financials shell companies. The financials of these companies also reveal the same. The addresses of of these companies also reveal the same. The addresses of of these companies also reveal the same. The addresses of these companies are fictitious. The transactions of receipt of these companies are fictitious. The transactions of receipt of these companies are fictitious. The transactions of receipt of funds are unverifiable. Under the circumstances, the funds are unverifiable. Under the circumstances, the funds are unverifiable. Under the circumstances, the assessee could not bank on technicalities of lack assessee could not bank on technicalities of lack assessee could not bank on technicalities of lack of cross examination to deny the onus cast on us. examination to deny the onus cast on us. The onus was on The onus was on the assessee to prove the genuineness of the transaction in the assessee to prove the genuineness of the transaction in the assessee to prove the genuineness of the transaction in absence of any financial worth of the company or any absence of any financial worth of the company or any absence of any financial worth of the company or any commercial transactions undertaken by the company. The commercial transactions undertaken by the company. The commercial transactions undertaken by the company. The assessee has erred in assessee has erred in noting the extent of share capital to noting the extent of share capital to arrive at a conclusion that the net worth of the company is arrive at a conclusion that the net worth of the company is arrive at a conclusion that the net worth of the company is sound while the fact is that the share capital is from sound while the fact is that the share capital is from sound while the fact is that the share capital is from unexplained sourcos and has been used for providing bogus unexplained sourcos and has been used for providing bogus unexplained sourcos and has been used for providing bogus entries while the income of the company is n entries while the income of the company is nil and there are il and there are no employees, no address, no operations etc. whatsoever. no employees, no address, no operations etc. whatsoever. no employees, no address, no operations etc. whatsoever. The high volume of transaction on capital account without The high volume of transaction on capital account without The high volume of transaction on capital account without any underlying revenue or physical activity clearly reveals any underlying revenue or physical activity clearly reveals any underlying revenue or physical activity clearly reveals the nature of entity as a shell company. While the appellant the nature of entity as a shell company. While the appellant the nature of entity as a shell company. While the appellant is correct in claiming that once the identity. genuineness of correct in claiming that once the identity. genuineness of correct in claiming that once the identity. genuineness of the transaction and creditworthiness of the lender is proved, the transaction and creditworthiness of the lender is proved, the transaction and creditworthiness of the lender is proved, no addition can be made, in the present case, the credit no addition can be made, in the present case, the credit no addition can be made, in the present case, the credit worthiness as well as the genuineness of the transaction has worthiness as well as the genuineness of the transaction has worthiness as well as the genuineness of the transaction has not been proved b not been proved by the assessee. In cases where the y the assessee. In cases where the transaction is with a company having negligible income and transaction is with a company having negligible income and transaction is with a company having negligible income and turnover and there is enough evidence to show that most of turnover and there is enough evidence to show that most of turnover and there is enough evidence to show that most of the transactions represent multiple layers of companies that the transactions represent multiple layers of companies that the transactions represent multiple layers of companies that have been created for the purpose of diver have been created for the purpose of diverting money or for ting money or for Sunshine Merchants Pvt. Ltd. 11 ITA No. 1539/M/2020 money laundering, the onus was on the assessee to money laundering, the onus was on the assessee to money laundering, the onus was on the assessee to demonstrate that its own transaction represented a genuine demonstrate that its own transaction represented a genuine demonstrate that its own transaction represented a genuine transaction. No such effort is forthcoming from the assessee. transaction. No such effort is forthcoming from the assessee. transaction. No such effort is forthcoming from the assessee. The claim of the assessee with respect to cross The claim of the assessee with respect to cross-examination examination or lack of opportunity is also not found tenable in light of of opportunity is also not found tenable in light of of opportunity is also not found tenable in light of public listing of such companies as shell companies. public listing of such companies as shell companies. public listing of such companies as shell companies.

6.3 Another claim made by the assessee is that the loans Another claim made by the assessee is that the loans Another claim made by the assessee is that the loans pertain to earlier years and hence cannot be added in the pertain to earlier years and hence cannot be added in the pertain to earlier years and hence cannot be added in the current year. In this regard, the current year. In this regard, the details filed by the assessee details filed by the assessee has been examined and it is noted that while the opening has been examined and it is noted that while the opening has been examined and it is noted that while the opening balance of the loans is Rs 10,00,000 in respect of each of balance of the loans is Rs 10,00,000 in respect of each of balance of the loans is Rs 10,00,000 in respect of each of these three companies, loans taken during the year has been these three companies, loans taken during the year has been these three companies, loans taken during the year has been shown at Rs 1,21,667/ shown at Rs 1,21,667/- in respect of each of these in respect of each of these companies. As such, the addition made by the AO to the companies. As such, the addition made by the AO to the companies. As such, the addition made by the AO to the extent of Rs 3,65,001/ extent of Rs 3,65,001/- under section 68 of the Act has be under section 68 of the Act has been correctly made by the AO and correctly made by the AO and is sustained. The additional is sustained. The additional addition of Rs 3,65,0017 addition of Rs 3,65,0017- shown as interest on the above shown as interest on the above amount is not found to b amount is not found to be based on any material and hence, e based on any material and hence, the addition to this extent stands deleted. the addition to this extent stands deleted.”

Sunshine Merchants Pvt. Ltd. 12 ITA No. 1539/M/2020 as well as merit of the addition. The ground as well as merit of the addition. The ground Nos. Nos. 1 and 2 of the appeal of the assessee are accordingly dismissed. appeal of the assessee are accordingly dismissed.