Loading judgment…
Facts
The assessee, a Non-Banking Financial Company, had its assessment for AY 2012-2013 reopened under Section 148 due to an addition of Rs. 6,82,00,000/- made under Section 68 for unexplained cash credits received as share capital from alleged shell entities. The Assessing Officer initiated reassessment after some investors failed to comply with summons, while the assessee contended it had provided all necessary documentation regarding the identity and creditworthiness of the investors. The Ld. CIT(A) subsequently quashed the reopening, finding the reasons recorded by the AO to be based on incorrect facts and a lack of independent application of mind.
Held
The Tribunal upheld the Ld. CIT(A)'s order, concluding that the Assessing Officer's reasons for reopening were vague, incomplete, based on 'borrowed satisfaction' without independent application of mind, and lacked a clear link to tangible material. It further ruled that the assessee had discharged its onus regarding investor details and that non-compliance by some subscribers to summons alone was an insufficient basis for a Section 68 addition, especially since some subscriber assessments were completed under Section 143(3). Additionally, the Tribunal affirmed that the proviso to Section 68, introduced by Finance Act 2012, is prospective and not applicable to AY 2012-13.
Key Issues
Whether the reassessment proceedings initiated under Section 148 were valid given the Assessing Officer's vague reasons and lack of independent application of mind, and whether the addition under Section 68 for unexplained cash credits (share capital/premium) was justified for AY 2012-13, considering the prospective application of the Section 68 proviso.
Sections Cited
148, 68, 143(3), 143(2), 142(1), 131, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR & SHRI PRADIP KUMAR CHOUBEY
(निर्धारणवर्ा/Assessment Years :2012-2013) DCIT, Central Circle-1(2), Vs SiddheshwariVyapaar Pvt Ltd Kolkata 2nd Floor, 159, Ravindra Sarani Kolkata-700007 PAN No. :AANCS 2337 J (अपीलधर्थी /Appellant) .. (प्रत्यर्थी / Respondent) रधजस्वकीओरसे /Revenue by : Shri Sanat Kumar Raha, CIT-DR निर्धाररतीकीओरसे /Assessee by : ShriSoumitra Choudhury and Rainak Jain, Advocates सुनवाई की तारीख / Date of Hearing : 09/12/2025 घोषणा की तारीख/Date of Pronouncement : 23.12.2025 आदेश / O R D E R
Per Rajesh Kumar, AM:
This is an appeal filed by the revenueagainst the order passed by the ld. CIT(A), Kolkata-20, dated 06.05.2025for the assessment year2012-2013.
The appeal of the revenue is barred by 69 days. Considering the submissions of the ld. CIT-DR and looking to the facts of the case, we condone the delay of 69 days in filing the present appeal by the revenue and the appeal is admitted for hearing.
The only issue raised in this appeal is against the order of the ld. CIT(A) in deleting the addition of Rs.6,82,00,000/- made u/s.68 of the Act on account of unexplained cash credits received from shell entities in the guise of share capital.
4. Facts in brief are that the assessee is a company incorporated under the Companies Act, 1956 and engaged in the business of Non- Banking Financial Company. The assessee filed its return of income for A.Y.2012-2013 on 28.09.2012 by declaring total income amounting to Rs.31,600/-. The case of the assessee was selected for scrutiny and assessment u/s.143(3) of the Act was made by the Assessing Officer by assessing total income amounting to Rs.4,39,680/-. Subsequently, the assessment was reopened by issuing notice u/s.148 of the Act on 29.03.2019 and the assessee in compliance to the said notice filed return of income by declaring total income amounting to Rs.31,600/- on 30.04.2019. The Assessing Officer issued statutory notices u/s.143(2) & 142(1) of the Act to which the assessee duly replied along with relevant evidences as and when required, which was replied by the assessee explaining identity and creditworthiness of the investors and genuineness of the transaction.During the course of assessment proceeding, the Assessing Officer observed that the assessee company has raised share capital by issuing equity share of face value of Rs. 10/- at a premium of Rs. 990/- to 28 allottees. The Assessing Officer in order to verify the transactions issued summons u/s.131 & notices u/s.133(6) of the Act to the subscribing companies. The Assessing Officer noticed that summons u/s.131 of the Act were complied with by the investors companies. The assessee filed before the Assessing Officer, names and addresses, ITRs, bank statements, ROC returns, documents in support of subscription to share including subscribers transactions, allotment letters and Form 2 and copy of details exchanged before allotment, audited balance sheets, profit and loss account, tax audit report and the written submissions. The Assessing Officer also noted that out of 28 share applicants in 24 cases scrutiny assessment was completed for respective assessment years i.e.A.Y.2012-2013 and assessment was made u/s.143(3) of the Act accepting genuineness of transactions. Finally, the Assessing Officer noted that the share capital/share money raised from seven investors aggregating to Rs.6,82,00,000/- is not genuine for the reasons that two investors namely Linkstar Promoters Pvt. Ltd. and Naxal Bari Flour & Rice Mill Pvt. Ltd. did not comply with the summons issued u/s.131 of the Act and raised all the three investors did not comply with the summons properly. Consequently the share capital received from the seven investors was treated as unexplained cash credit and added to the total income of the assessee.
In appellate proceedings, the ld. CIT(A)quashed the reopening of the assessment by observing that the reasons recorded by the Assessing Officer were based on incorrect facts and lack of independent application of mind, by observing and holding as under :- 5.1 I have perused the fact of the case, submissions filed by the appellant and the assessment order passed by the Assessing Officer. The present case was reopened on the basis of information received from DDIT (Inv.)-4(1), Kolkata and on the basis of the same AO has make his reason to believe that appellant has received funds from M/s PanchratanCommotrade Pvt Ltd which was initially come through deposit of cash in proprietorship concern. The AO's belief is founded on the assertion that the funds initially originated as cash deposits in a proprietorship concern, which subsequently moved through M/s Runicha Merchants Ltd and finally reached M/s PanchratanCommotrade Pvt. Ltd. The appellant has strongly objected to the reasons recorded for the reopening, both AO and before this office. It was specifically contended that the recorded reasons were factually incorrect, as the appellant had never entered into any transaction with M/s Runicha Merchants Ltd. Furthermore, itwas submitted that the funds received from M/s PanchratanCommotrade Pvt. Ltd. Amounting Rs. 50,00,000/- were actually sourced from M/s Jaigaon Steels Pvt. Ltd. In support of this claim, the appellant filed detailed documentation, including the source of funds used by M/s Panchratan Commotrade Pvt. Ltd., which is included at page no. 284 of the paper book submitted by the appellant. This office has carefully examined the appellant's submissions and supporting documents and finds the contentions to be correct. The reasons recorded by the AO were based on incorrect facts and lack of independent application of mind. It is a well-settled legal principle that reassessment proceedings initiated on the basis of incorrect facts or borrowed satisfaction are invalid in the eyes of law. In the present case, the only allegation was that the fund trail, as indicated by the Investigation Wing. showed that the appellant was a beneficiary of funds routed through a proprietorship concern and M/s Runicha Merchants Ltd. However, upon verification of the appellant's bank statements and related records, no such connection or transaction involving M/s Runicha Merchants Ltd. could be established. Therefore, the foundation of the reopening is flawed, rendering the reassessment proceedings unsustainable. The reliance can be placed on following judicial pronouncement: Belgundi Cements (P) Ltd vs. ITO [2024] 167 taxmann.com 219 (Karnataka) Nimesh Maheshbhai Shah HUF vs. ITO [2025] 171 taxmann.com 24 (Gujarat) Bhavin JayendrakumarSoni vs. DCIT [2024] 165 taxmann.com 109 (Gujarat) Adinath Leasing And Finance P. Ltd vs Income Tax Officer 2022 Taxscan (ITAT) 1318 Anju Daruka vs ITO, Ward-3(1) 2025 (4) TMI 208-ITAT Kolkata Pr. CIT vs. Meenakshi Overseas (P) Ltd. [2017] 82 taxmann.com 300 (Del) Pr. CIT vs. RMG Polyvinyl (1) Ltd. 2017] 83 taxmann.com 348 (Delhi) Sabh Infrastructure Ltd. vs. ACIT-W.P. (C) No. 1357/2016 CIT vs. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Del) Pr. CIT vs. G & G Pharma India Ltd. [2017] 81 taxmann.com 109 (Delhi) Nu Power Renewables (P.) Ltd. vs. DCIT (2018) 94 taxmann.com 29 (Bombay)
Pr. CIT vs. Shodiman Investments (P.) Ltd. [2018] 93 taxmann.com 153 (Bombay) M/s Geetatax vs. DCIT (Special Civil Application No. 20977 of 2016-Rajasthan High Court) CIT vs. Atul Jain [2008] 299 ITR 383 (Del) Signature Hotels (P.) Ltd. vs. ITO [2012] 20 taxmann.com 797 (Delhi) NCOME TAX DEPARTMEN Delhi) 5.2 The assessee further argues that mere reliance on third-party statements and unverified reports, without providing an opportunity for cross-examination or independent inquiry, cannot form a valid basis for making the addition. The lack of concrete evidence or specific details regarding the nature, date, or amount of the alleged transactions renders the addition unsustainable in law. 5.3 The appellant asserts that it has discharged its onus by providing all necessary details, including Names and confirmations of loan creditors. Documentary evidence supporting the transactions, including bank account details and financial statements. Reliance is placed on the judgment in CIT vs. Orissa Corporation Pvt. Ltd. [159 ITR 78 (SC)), wherein the Hon'ble Supreme Court held that when the assessee provides the names, confirmations, and the loan creditors are income-tax assessees, the initial burden of proof is discharged. Despite this, the AO made an arbitrary addition without issuing notices under relevant provisions for further verification of the transactions. 5.4 In The present case AO had failed to point out any defect, lacuna and/or falsity/shortcomings in the documentary evidences and explanations furnished before him and arbitrarily and wrongly alleged that the Assessee Company was not able to discharge its onus of establishing the identity. creditworthiness of the aforesaid parties and also the genuineness of the transactions entered into with the said parties. The various courts have consistently held that reopening of assessments cannot be initiated solely for the purpose of making inquiries or verifying transactions without any prima facie evidence of income escapement. In this case, the reasons recorded do not reflect any tangible material or evidence that could justify the reopening of the assessment. Useful reference may be made to the judgment in the case of PCIT Vs. Meenakshi Overseas Pvt. Ltd., the Hon'ble Delhi High Court held that the Assessing Officer (AO) did not independently apply their mind to the tangible material that served as the basis for forming the "reason to believe" that income had escaped assessment. The court observed that the AO's conclusions were merely a reproduction of the findings in the Investigation Report, amounting to "borrowed satisfaction." The reasons recorded by the AO failed to establish a clear connection between the tangible material and the formation of the belief that income had escaped assessment.
5.5 In the case of CIT Vs. Insecticides (India) Ltd., the Hon'ble Delhi High Court held that when the reopening of an assessment is based on vague or insufficient information, the notice for reopening must be struck down. The court emphasized that the reasons for reopening should be clear, specific, and supported by adequate material, Reopening based on vague information is not permissible, as it does not meet the legal requirements for forming a valid belief that income has escaped assessment. The court's ruling underscores the necessity for the Assessing Officer to provide precise details and a clear link between the material and the reason to believe that income has escaped assessment. In the case of Signature Hotels P. Ltd. Vs. ITO, the Hon'ble Delhi High Court, while analyzing the reasons recorded for reopening the case based on vägue information, held that the reasons provided by the Assessing Officer must be specific and based on tangible material. The court observed that reopening based on generalized or unclear information is not sufficient, as it does not establish a clear connection between the material and the belief that income has escaped assessment. The court emphasized that the reasons for reopening should demonstrate the link between the information available and the belief of escapement of income, ensuring that the reopening process is not arbitrary and that there is a genuine basis for the belief. In the case of Pr. CIT Vs. G.G. Pharma (India) Ltd., the Hon'ble Delhi High Court observed that if the Assessing Officer (AO) did not apply his mind at the time of recording the reasons for reopening the assessment, a subsequent post-mortem exercise of analyzing the materials will not rectify an inherently defective reopening. The court held that a reopening based on insufficient or vague reasons, without any independent application of mind, is not valid. The Hon'ble High Court emphasized that the AO must form a bona fide belief, based on specific and clear information, that income has escaped assessment. Reopening cannot be justified by merely conducting an analysis of materials after the fact. It is further observed that following the decision of the High Court in the case of PCIT Vs. Meenakshi Overseas Pvt. Ltd. (395 ITR 677), the coordinate bench of the Tribunal in the case of RN Khemka Enterprise Pvt. Ltd. Vs. ITO (ITA No. 7244/Del/2019) dated 12.08.2021 held that if there is a non-application of mind in recording reasons, the Assessing Officer (AO) could not be said to have had reason to believe to justify the reopening of the assessment. While making this observation, the Tribunal noted that the reasons recorded must show that the AO has applied his mind independently and arrived at a bona fide belief that income chargeable to tax has escaped assessment. If the reasons are vague, incomplete, or based merely on general observations without independent scrutiny, the reopening cannot be justified.
The Kolkata Tribunal in the case of DCIT Vs. Great Wall Marketing Pvt. Ltd. in following the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Insecticides (India) Ltd., held that where the reasons recorded did not mention the name of the person from whom the alleged bogus entry was received, as well as the dates of the transactions, such reasons for reopening the assessment were vague and insufficient to justify the reopening. The Tribunal held that the absence of specific details, such as the name of the entry provider and the dates of the transactions, makes the reasons for reopening vague and non- specific, failing to satisfy the requirement of providing tangible material to support the belief that income had escaped assessment. The reopening, based on such vague and incomplete reasons, was thus held to be invalid. 5.6 in view of the above findings, the reasons recorded by the AO for reopening the assessment appear to be vague, incomplete, and based solely on the report from the Investigation Wing without apy independent verification or application of mind. The lack of specific details, coupled with the absence of a clear basis for the "reason to believe," renders the reopening on sustainable under the provisions of the Income Tax Act, 1961.
After hearing the rival contentions of the parties and perusing the material available on record, we find that the Assessing Officer has simply relied upon the information received from the Investigation Wing. We find there is no live link between the information received and the reasons to believe recorded by the Assessing Officer. The Assessing Officer has only noted and discussed the information received and thereafter reached to the conclusion that the income has escaped assessment. In our opinion the re-opening is based upon borrowed satisfaction only as the AO has not recorded his own satisfaction in the reasons to believe. Besides the reasons recorded were vague , scanty and umbiguous on the basis of re- opening can niot be allowed. Therefore, we do not find any infirmity in the order of the ld.CIT(A) on this issue. Ld.CIT(A) has rightly quashed the reopening of the assessment by relying the decision of the Hon’ble Delhi High Court in the case of Meenakshi Overseas Pvt. Ltd., reported in 395 ITR 677 (Del). Ld.CIT(A) has also relied on the decision of the Hon’ble Delhi High Court in the case of Insecticides (India) Ltd., reported in [2013] 38 taxmann.com 403 (Delhi)/[2013] 357 ITR 330 (Delhi), wherein the Hon’ble High Court has held that when the reopening of an assessment is based on vague or insufficient information, the notice for reopening must be struck down. The court emphasized that the reasons for reopening should be clear, specific, and supported by adequate material. Reopening based on vague information is not permissible, as it does not meet the legal requirements for forming a valid belief that income has escaped assessment. Similarly, the ld.CIT(A) relied on the decision of the Hon’ble Delhi High Court in the case of Signature Hotels P. Ltd., reported in [2012] 20 taxmann.com 797 (Delhi)/[2011] 338 ITR 51 (Delhi), wherein the Hon’ble High Court has held that while analyzing the reasons recorded for reopening the case based on vague information, held that the reasons provided by the Assessing Officer must be specific and based on tangible material. It was also observed by the Hon’ble High Court that reopening based on generalized or unclear information is not sufficient, as it does not establish a clear connection between the material and the belief that income has escaped assessment. The ld.CIT(A) has also relied on the decision of the Hon’ble Delhi High Court in the case of G&G.Pharma (India) Ltd., reported in [2017] 81 taxmann.com 109 (Delhi)/[2016] 384 ITR 147 (Delhi), wherein the Hon’ble High Court has held that the Assessing Officer did not apply his mind at the time of recording the reasons for reopening of assessment, a subsequent post- mortem exercise of analyzing the materials will not rectify an inherently defective reopening. The court held that a reopening based on insufficient or vague reasons, without any independent application of mind, is not valid. The Hon’ble High Court emphasized that the Assessing Officer must form a bona fide belief based on specific and clear information, that income has escaped assessment. Finally, the Hon’ble High Court held that reopening cannot be justified by merely conducting an analysis of materials after the fact.
Considering these facts and the ratio laid down by the various Hon’ble High Courts, we are inclined to hold that the assessment is invalidly reopened. Consequently, we uphold the order of the ld. CIT(A) and dismiss the ground raised
by the revenue.
8. So far as merit of the issue is concerned, we find that the assessee has raised share capital from share subscribers qua whom the assessee furnished all details showing names, addresses, bank statements, audited balance sheets, audited financial statements, etc. and the Assessing Officer has not pointed out any defect or deficiency of the said evidence filed by the assessee. Even the Assessing Officer issued notice u/s.133(6) and summons u/s.131 of the Act which in some cases , the subscribers have not responded by furnishing any details before the Assessing Officer. But that can not be the basis for making addition u/s 68 of the Act. We even note that the assessments were framed u/s 143(3) of the Act in some cases of subscribers which are available in the paper book. We 90 to 508 of the paper book. Even in some cases the source of source was also proved in the hands of the subscribers. Therefore, we do not find any infirmity in the order of the ld. CIT(A), who has passed a very lengthy , reasoned and speaking order in this regard. Accordingly, we uphold the same.
So far as the issue of receipt of share capital and share premium is concerned we observe that the amendment to Section 68 by inserting proviso is not retrospective and is applicable retrospective, has been held by the Hon’ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure (P) Ltd. delivered in Income Tax Appeal No.1613 of 2014, dated 20.03.2017, wherein the Hon’ble High Court has held as under :- “We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.”