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Facts
The assessee, Alcom Investment Pvt. Ltd., received Rs. 2.55 Crores as share capital and premium in Assessment Year 2008-09. The Assessing Officer added this amount under Section 68, citing unexplained cash credit, as the identity, creditworthiness, and genuineness of investor companies were not established. The CIT(A) subsequently deleted this addition, leading to an appeal by the Revenue and a cross-objection by the assessee challenging the legal validity of the assessment reopening.
Held
The Tribunal dismissed the Revenue's appeal on merits, affirming the CIT(A)'s decision to delete the Section 68 addition. The assessee's cross-objection was allowed, as the reopening of assessment under Section 147/148 was found to be bad in law, having been initiated after more than five years on borrowed satisfaction of the Assessing Officer without independent application of mind, contrary to established legal principles from judgments like Kelvinator and Signature Hotels.
Key Issues
Whether the addition of share capital and premium under Section 68 was justified, and whether the reopening of assessment under Section 147/148 was valid given the delay and alleged borrowed satisfaction of the Assessing Officer.
Sections Cited
147, 148, 143(2), 142(1), 133(6), 143(3), 68, 139, 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. ORDER / आदेश Per Pradip Kumar Choubey, JM: This is an appeal preferred by the revenue and the cross-objection preferred by the assessee against the orders of the Ld. Commissioner of Income Tax (Appeals)-Pune- 12 (hereinafter referred to as the “Ld. CIT(A)”] dated 12.10.2023 for the AY 2008-09.
At the very outset it appears that the present appeal has been filed after a delay of 21 days, for this a condonation petition has been filed by the department. The learned A/R did not raise any objection in condoning the delay, accordingly delay is here by condoned.
Brief facts of the case of the assessee are that the assessee being a company namely Alcom Investment Pvt. Ltd. formerly known as Garima Vanijya Pvt. Ltd engaged in the business of non-banking financial institution. The assessee filed its original return of income for AY 2008-09 declaring total income of Rs. 26,302/-. The appellant was carrying on the business of buying & selling of shares & advancing loans. The appellant company is holding certificate of registration u/s 45-1A issued by the Reserve Bank of India. The appellant had filed its original return of income for the A.Y. 2008-09 on 25.09.2008, declaring total income of Rs. 26,302/-. An information received from the office of the DDIT(Inv.), Aurangabad on 25.03.2015, that the appellant company M/s. Alcom Investment Pvt. Ltd. had received some share capital and share premium during F.Y. 2007-08, which was held to be unexplained. As per the Balance Sheet and share allotment details of the said company which was earlier named Garima Vanijya Pvt. Ltd., it was seen that the company had allotted 5,10,000 shares of Rs. 10 each at a premium of Rs. 40 each thereby raising total funds of Rs. 2,55,00,000/-. One of the companies namely M/s Tejasvini Vinimay Pvt. Ltd. had also invested in one of the group concerns of Jhaveri Group namely M/s. Mars Fincom Pvt. Ltd. During the search action conducted u/s 132 of the act, 1961, in the case of Jhaveri group of companies, the appellant had declared undisclosed income on account of unexplained share premium received by one of the group companies and the group company M/s CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. Alcom Investment Pvt. Ltd. had received share capital and share premium during F.Y. 2007-08. On the basis of the information received from the office of the DDIT(Inv.), Aurangabad, the AO had issued a notice u/s 148 of the Income Tax Act, 1961 on 26.03.2015 after duly recording the reasons and after taking prior approval of the Jt. CIT, Central Range Nashik. Notice u/s 148 of the Act was duly served on the appellant on 30.03.2015 and the appellant was requested to file its return of income within 30 days from the service of the notice. Further notice u/s 143(2) of the Act was also issued on 29.09.2015. Further notice u/s 142(1) of the Act along with questionnaire was issued on 18.11.2015 and duly served on the appellant. The appellant company submitted its ITR & Audit statement on 02.12.2015. During the course of the assessment proceedings, reasons for reopening of assessment u/s 147 of the I.T. Act were given to the CA & AR of the appellant company on 22.12.2015 as per request by the AR. Later on, on 28.01.2016 at the time of hearing of the case, CA & AR Shri Ashok Patil appeared and raised objections against reopening of assessment which was duly disposed of on 28.01.2016. The CA & AR of the appellant submitted the reply on 17.02.2016 in response to the questionnaire dated 18.11.2015. The notices u/s 133(6) of the I.T. Act, 1961 were issued to all the 07-share purchaser / investor companies on 18.11.2015 for the purpose of verification as per address forwarded by the DDIT (Inv.), Aurangabad and address available on the ITD System. However, the same were returned to the AO with remarks “Not Known” or / and “Refused”. On verification of the submission dated 17.02.2016, the AO found that the appellant had allotted its shares amounting to Rs. 2,55,00,000/- (face value and premium of the share were Rs. 10/- and Rs. 40/- respectively). Further the AO noticed that appellant failed to furnish any details of investor companies. The appellant / AR did not file ITR, computation, bank statement, audit report of investor companies so as to establish their identity, creditworthiness and genuineness. In view of the aforesaid discussion, in-depth inquiry and investigations were carried out and it was held by the AO that the appellant had failed to discharge its onus to prove the identity and creditworthiness of purchaser / investor companies and also the genuineness of transactions with regard to ‘purchase of shares’ of Rs. 2,55,00,000/- received by it in the relevant year. Furthermore, it was also held that the CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. evidences / documents and explanations offered by the appellant company w.r.t. to the sale of shares were neither bonafide nor verifiable and therefore, in no way satisfactory. In view of the above facts and circumstances, the AO was of the opinion that the appellant company had failed to offer satisfactory explanation in respect of issue of shares amounting to Rs. 2,55,00,000/-. Therefore, the order u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 was passed on 29.03.2016, assessing total income of the appellant at Rs. 2,55,26,300/- after making an addition of Rs. 2,55,00,000/- on account of unexplained cash credit u/s 68 of the Income Tax Act, 1961. Aggrieved by the order, the appellant filed appeal on 31.03.2016. The Ld. CIT(A) allowed the appeal of the assessee by giving direction to delete the addition of amount of Rs. 2,55,00,000/-.
Being aggrieved and dissatisfied the department has preferred the instant appeal.
The assessee has also filed its cross-objection against the said appeal bearing no. 20/Kol/2024 for AY 2008-09 on the legal ground with regard to the reopening of assessment.
The Ld. Counsel for the revenue challenges impugned order there by submitting that the Ld. CIT(A) did wrong by giving direction to delete the amount of Rs. 2,55,00,000/- ignoring the fact that the share transaction has not been established as there was admission of Shri Rajesh Kumar Agarwal that M/s Tejaswini Vinimay Pvt. Ltd. used to provide accommodation entries for earning commission. The ld. Counsel further submits that the Ld. CIT(A) further erred in holding that the share capital with premium received by the assessee was in the nature of capital and same could not be assessed u/s 68A of the Act ignoring the order of AO wherein the AO has held that the share transaction was bogus and investors were paper companies acted as mere name lenders.
Contrary to that the Ld. A.R has supported the impugned order on merit but challenges the same on the legal ground by submitting that notice u/s 148 for reopening was issued on 26.03.2015 which is more than 5 years from the end of the relevant assessment year 2008-09. The Ld. Counsel further submits that the reasons recorded by CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. the AO (Aurangabad) reveals that it was recorded that DDIT(Inv) sent a letter to the AO on 25.03.2015 and immediately on the next date i.e. on 26th March, the AO records the reason and issued notice u/s 148 of the Act. The Ld. Counsel submits that the AO has only borrowed satisfaction of the Investigation Wing and without application of his own mind to reopen the case. The Ld. Counsel cited a decision passed by the Hon’ble Supreme Court in the case of Kelvinator (320 ITR 561), decision of Hon’ble Delhi High Court in the case of SFIL Stock Broking Ltd. (325 ITR 285), Sarthak Securities Ltd. (329 ITR 110) and Signature Hotels Pvt. Ltd. (338 ITR 51).
Upon hearing the submission of the Ld. Counsel for the respective parties, we have perused the order of Ld. CIT(A) and the facts of the case of the assessee. It is the case of the assessee that case of the assessee was reopened by issuing notice u/s 148 of the Act which were issued on 26.03.2015. There is no denying to this fact that the reopening was made after more than five years as the case under consideration relates to the relevant assessment year 2008-09. The AO after reopening of the case has passed an order u/s 143(3) read with Section 147 has held that as per the balance sheet and share allotment details, the said company which was earlier named Garima Vanijya Pvt. Ltd., it was seen that the company had allotted 510000 share of Rs. 10/- each at a premium of Rs. 40/- each. There was raising a total fund of Rs. 2,55,00,000/- and as per the order of AO the company had failed to offer satisfactory explanation in respect of issue of shares amounting to Rs. 2,55,00,000/- and assessed total income of Rs. 2,55,26,300/- after making an addition of Rs. 2,55,00,000/-. We have gone through the order of the Ld. CIT(A) and find that the assessee has challenged the order of A.O. before the Ld. CIT(A) apart from the legal grounds as well as on merit also. The Ld. CIT(A) find that the assessee had issued shares amounting to Rs. 2,55,00,000/- during AY 2008-09 to seven companies and the companies are as follows:
We further find that before the AO, following documents have been filed by the assessee with regard to the company which are as follows: a) Form No. 23AC, i.e. the details of the company as per the website of the ROC as on 31-03-2008. b) Ledger A/c of the appellant in the books of the investor depicting the money given by bank transfer towards share application money. c) Bank statement of the investor cos. d) PAN of the investors. e) Income tax return of the investors. f) Financial a/cs of the investors including Balance Sheet, P & L a/c and annexures as on 31-03-2008. a) Form No. 23AC, i.e. the details of the company as per the website of the ROC as on 31-03-2008 b) Financial a/cs of the investors including Balance Sheet, P & L a/c and annexures as on 31-03-2008. c) Form No. 20B and 66. a) Form No. 23AC, i.e. the details of the company as per the website of the ROC as on 31-03-2008. b) Ledger A/c of the appellant in the books of the investor depicting the money given by bank transfer towards share application money. c) Bank statement of the investor cos. d) PAN of the investors. e) Income tax return of the investors. f) Financial a/c’s of the investors including Balance Sheet, P & L a/c and annexures as on 31-03-2008. a) Form No. 23AC, i.e. the details of the company as per the website of the ROC as on 31-03-2008. b) Financial a/c’s of the investors including Balance Sheet, P & L a/c and annexures as on 31-03-2008. a) Form No. 23AC, i.e. the details of the company as per the website of the ROC as on 31-03-2008. b) Financial a/cs of the investors including Balance Sheet, P & L a/c and annexures as on 31-03-2008. c) Form No. 20B. b) Director’s report and Balance Sheet as on 31-03-2008. a) Form No. 23AC, i.e. the details of the company as per the website of the ROC as on 31-03-2008. b) Financial a/cs of the investors including Balance Sheet, P & L a/c and annexures as on 31.03.2008.
The important question arises at this stage is that whether the assessee had furnished the required information to explain the source. We find that the Ld. CIT(A) out of seven parties as discussed above, five has submitted his reply and companies are i) Tejaswi Vinimay Pvt. Ltd. ii) Butterfly Vyapaar Pvt. Ltd.iii) Creation Vinimay Pvt. Ltd. iv) Panther Vyapaar Pvt. Ltd. v) Jinvani Commodeal Pvt. Ltd. Later on two companies that are Creation Vinimay Pvt. Ltd. and Bhartiya Commercials Pvt. Ltd. has also sent their details and information. The AO in its remand report has admitted the above facts. The Ld. CIT(A) after going over the entire facts of the case and the reply submitted that the company, has given its finding by mentioning address of the company total share allotment and value of shares which are as follows:
The Ld. CIT(A) has clearly held as under :
“During the appellate proceedings, the appellant company provided the latest/present addresses of above mentioned share purchaser /investors to which notices u/s 133(6) were issued calling for various details. The same were forwarded to the AO for verification. After CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. verification of the same, the AO has submitted the remand report vide their letters dated 13.04.2017 & 22.05.2017 respectively. The above mentioned detailed remand reports were forwarded to the appellant for comments. In response to the same, the appellant vide letter dated 26.05.2017 has filed a rejoinder to the remand report stating that so far as reports dated 13.04.2017 and 24.05.2017 by the AO in respect of all seven shareholders, the replies and the evidences on record suggest that all the below three criteria as per section 68 are fulfilled. (i) Identity is established (ii) Creditworthiness is established (iii) Transaction is genuine Therefore, now in respect of all the seven shareholders from whom share capital has been received during the year, the required criteria are fulfilled hence the addition u/s 68 is not sustainable. Further, the appellant has also relied on the case of CIT Vs. Gagandeep Infrastructure (P.) Ltd. (Supra) in Income Tax Appeal No. 1613 of 2014 dated 20th Mar 2017 wherein it is held that the Finance Act, 2012 is prospective and will not apply to period prior to Assessment Year 2013- 14 and further that Section 68 of the Act cannot be applied in the hands of the investee company when the details of the shareholder investors are known.”
Keeping in view the documentary evidences furnished by the assessee before the Ld. CIT(A), we do not find any infirmity in the impugned order with regard to merit of the case. Accordingly, we dismiss the revenue’s appeal.
Now coming to the legal question raised by the assessee with regard to the reopening of case, we find that notice u/s 148 for reopening was issued on 26.03.2015 for the relevant assessment year 2008-09 i.e. after more than five years. The reason recorded by the AO as the case of the assessee is transferred from Kolkata to Aurangabad which are as follows:
“The DDIT(Inv), Aurangabad had vide letter dt. 25-03-2015 submitted that the above company which has been recently centralized with this office has received some share capital and premium during F.Y. 2007-08 which may be unexplained as one of the group companies of this group has admitted and declared undisclosed income on account of unexplained share premium and hence requested to take timely action as the limitation date for reopening assessment for A.Y. 2008-09 is 31-03-2015.” Prima facie it appears from the reasons recorded that the DDIT(Inv) sent a letter to the AO on 25th March and immediately on the next date i.e. 26th March the AO recorded the reasons and issued notice u/s 148 of the Act. It is clear by sending reasons recorded that the AO has only on borrowed satisfaction of the Investigation Wing and without application of his own mind to reopen the case by observing thus:
Prima facie it appears from the reasons recorded that the DDIT (Inv) sends a letter to the AO on 25thMarch and immediately on the next date, i.e. 26thMarch, the AO records the reasons and issues notice u/s 148. As mentioned in the end, only because the limitation date for reopening is expiring, the action is directed to be taken as soon as possible. The AO has only on borrowed satisfaction of the Investigation Wing and without application of his own mind CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. reopened the case. Even in the information received from the Investigation wing, it is no where alleged that income chargeable to tax has escaped assessment. They have merely raised a doubt that some of the share capital may be unexplained and therefore directed to take remedial measures. However between receipt of information from the investigation wing and issuance of notice u/s 148, the AO has not satisfied himself that income chargeable to tax has escaped assessment. Satisfaction of the AO and reason to believe are sine qua non for reopening an assessment which has to based upon some tangible material which the AO relies upon and after making due inquiries, goes ahead to reopen.
We have gone through the judgment of the Hon’ble Supreme Court in the case of Kelvinator (supra) and find that the Hon’ble Supreme Court has held thus:
Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b ) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfillment of certain preconditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe', the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer.
In the case of Signature Hotels (supra), it was held:
“Section 147 is wide enough but it is not plenary. One has to consider and examine the crucial expression 'reason to believe' used in the said section. The Assessing Officer must have 'reason to believe' that an income chargeable to tax has escaped assessment. This is mandatory and the 'reasons to believe' are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ Court, but existence of belief is the subject-matter of the scrutiny. A notice under section 148 can be quashed if the 'belief' is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which in the instant case was available with the Assessing Officer, when he recorded the reason. There should be a link between the CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. reasons and the evidence/material available with the Assessing Officer. However, for initiation of proceedings, it is not necessary that the material should conclusively prove the escapement. The 'reasons to believe' would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and does not mean that the Assessing Officer should have finally ascertained the said fact by legal evidence or reached a conclusion, as this is determined and decided in the assessment order, which is the final stage before the Assessing Officer. The Assessing Officer reopened assessment of the assessee on the basis of information received from the DIT (Investigation) that amount received by the assessee from company 'S' was nothing but accommodation entry and the assessee was the beneficiary. Held that the reason given by the assessee did not satisfy the requirements of section 147. The reasons and the information referred to were extremely scanty and vague. There was no reference to any document or statement except an annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income. Further, it was 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. Therefore, the proceedings under section 148 were to be quashed.”
In the present case the AO Kolkata had on 26-03-2015 issued a notice u/s 148 after recording reasons. A portion of the reasons recorded by the Kolkata ITO is reproduced as under: “It can be seen from the letter no. ABD/DDIT(Inv)/JhaveriCrr/2014- 15/1429 dated 04-03-2015 from the Dy. DIT Aurangabad that during the search action conducted u/s 132 of the act, 1961, in the case of Jhaveri group of cos., the assesse has declared undisclosed income on a/c of unexplained share premium received by one of the group cos. and the group co. M/s Alcom Investment Pvt. Ltd. has received share capital and share premium during various F.Ys. But it is seen that the above assessee has received some of the share capital & share premium during F.Y. 2007-08.”
it is pertinent to mention here that even after the case was centralized and the AO Aurangabad had issued a similar notice on the same date, the proceeding by the Kolkata AO was never dropped. It is a settled law that there cannot exist more than one notice of reopening for the same assessment year without first disposing off the earlier notice as per the decision of the Hon’ble Gujarat High Court in the case of Aditya Medisales Ltd. (2016) 73 Taxmann.com 197.
CO No. 20/Kol/2024 Assessment Year: 2008-09 Alcom Investment Pvt. Ltd. 17. Going over the facts of the case as well as the said decision, we find substance in the argument of the Ld. Counsel of the assessee that in the present case, reopening is bad in law. Accordingly on this issue cross objection of the assessee is hereby allowed.
In the result, the appeal of the revenue is dismissed and the cross objection of the assessee is allowed. Order is pronounced in the open court on 17th January, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 17th January, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Income Tax Officer 2. Respondent – Alcom Investment Pvt. Ltd., Room No. 4, Chitrakoot, A.J. C. Bose Road, Kolkata-700020 3. Ld. CIT(A)-Pune-12 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)