GOPAL EXTRUSIONS PVT LTD,,JALGAON vs. INCOME-TAX OFFICER, WARD - 1(2),, JALGAON

3. Thereafter, the issue came up for hearing before the Tribunal on 15.11.2022. As per the directions of the Hon’ble High Court, assessee submitted the Challan No.280, dated 03.03.2022 issued by HDFC Bank showing the payment of Rs.25,000/-. This Tribunal vide order dated 05.12.2022, dismissed the appeal of the assessee as non-maintainable as the assessee’s has not complied the direction of the Hon’ble High Court by not depositing the amount with ITO, Ward-1(2), Jalgaon as cost. The observation of the Tribunal reads as under:

“6. On careful reading of the above said direction of Hon’ble High Court, we note that the order of this Tribunal was quashed and set aside and the matter is relegated to this Tribunal on a condition that the appellant shall deposit Rs.25,000/- with the Income Tax Officer, Ward-1(2), Jalgaon within a period of two weeks from the date of order.

7. The ld. AR placed on record Challan No. 280 dated 03-03-2022 and submitted that the assessee paid Rs.25,000/- as per directions of the Hon’ble High Court.

8. On perusal of the said challan issued by the HDFC Bank Limited on 03-03-2022, shows that a sum of Rs.25,000/- was paid under the head “basic tax”, whereas, the direction of Hon’ble High Court was to deposit the said amount with the Income Tax Officer, Ward-1(2), Jalgaon as cost.

9. When confronted, the ld. AR submits that the said payment was made by the briefing counsel and he has no idea whether that the said sum was deposited with the Income Tax Officer or paid under the head basic tax.

10. The ld. AR sought time to pay again the said amount with Income Tax Officer, Ward-1(2), Jalgaon.

4. Aggrieved assessee again approached the Hon’ble High Court. The Hon’ble High Court vide Writ Petition No.2758 of 2024 order dated 13th March, 2024 set-aside the Tribunal order dated 05.12.2022 and remitted the appeal back to the Tribunal by giving the following directions :

3. The undisputed aspect in this matter is that the Petitioner deposited the said amount of Rs.25,000/- on 03.03.2022. However, in the appeal that was remitted, the Income Tax Appellate Tribunal passed an order on 05.12.2022 and recorded in paragraphs 7 and 8 that, as the amount has been deposited under the head Basic Tax", there is non-compliance of the order of this Court and, therefore, the appeal of the Petitioner was dismissed.

4. The learned Advocate for the Respondent/Department submits that now that amount has been deposited under the head "Basic Tax", the said amount can be utilized in favour of the Petitioner any time in future, as and when the occasion arises. The Department would make a note of the said deposit under the head of Basic Tax and the Petitioner would be given advantage of the deposit of the said amount. The learned Advocate further suggests that the amount of Rs.25,000/- be deposited in this Court and the same can be utilized for a public cause. The learned advocate for the IT department submits that the cost amount may be utilised as the Court may deem appropriate.

5. In view of the above, this Writ Petition is partly allowed with the following directions:-

(a) The Petitioner shall deposit Rs.25,000/- (Rupees Twenty Five Thousand) in this Court within 07 days. The Registry shall transmit the said amount to the Medical Officer, High Court Dispensary, Aurangabad.

(b) The order dated 05.12.2022 passed by the Income Tax Appellate Tribunal shall stand set aside and Appeal No.ITA No.1663/PUN/2017/ Assessment Year 2008-09, shall stand remitted to the Income Tax Appellate Tribunal "A" Bench at Pune.

(c) The Petitioner shall appear before the said Tribunal on 01.04.2024 and a notice of hearing need not be issued. Further hearing in the matter to take shape in accordance law.”

5. Now the assessee is before the Tribunal. We now proceed to adjudicate the appeal of the assessee.

6. Assessee has raised following grounds of appeal :

“[1] On the facts and in the prevailing circumstances of the case as well as in law, the learned CIT(A) has grossly erred in confirming the reassessment proceedings u/s.147 of the IT Act, which was initiated- in-absence of any valid material showing escapement of income in the hands of appellant Company and hence it is bad in law and void ab initio and may please be quashed.

[2] On the facts and in the prevailing circumstances of the case as well as in law, the learned CIT(A) has grossly erred in confirming the reassessment proceedings u/s.147 of the IT Act, though the impugned notice is bad in law, null, and void ab initio and without jurisdiction for the following reasons and hence the same may please be quashed,

(a) In the absence of fulfillment of conditions precedent for issuance of notice u/s 148 of the Income Tax Act, 1961;

(b) The reasons recorded for issue of notice do not indicate any failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment, and hence, the jurisdictional requirement to reopen the assessment after four years from the end of the relevant assessment, ie AY 2008- 2009 is not satisfied, and hence, an impugned notice issued u/s.148 dt.31-03-2015 is illegal and bad in law;

(c) Validity of re-opening the assessment has to be decided only on the basis of reason recorded for issue of notice u/s.148 and not on the basis of other materials. Therefore, an impugned notice issued u/s.148 dt.31-03-2015 is illegal and bad in law, void ab initio and may please be squashed..

(d) The CIT(A) has erred in confirming A.O's allegation that appellant Company's fund are circulated by way of loan to wife of director and then from wife to the director and therefore the amount was introduced by the directors as his share capital without ascertaining the correctness of the facts and consideration of appellant's submission. Though appellant has proved that this allegation are totally false, incorrect and not tenable.

(e) In absence of proper tenable reasons contain in the said proposal, no approval could have been granted by the Addl.CIT. The grant of approval was not a mere formality. Therefore, approval accorded on the said improper reasons by the Add.CIT, is certainly bad in law and thus, subsequently proceedings u/s.147/148 of the IT Act, too.

[3] On the facts and in the prevailing circumstances of the case as well as in law, the learned CIT(A) has grossly erred in confirming addition of Rs 8,40,00,000/- on account of share capital and share premium received by the appellant Company, treating it as unexplained credits u/s 68 of the Income Tax Act.

[4] On the facts and in the prevailing circumstances of the case as well as in law, the learned CIT(A) has failed to appreciate the facts of case and in confirming the addition of Rs.8,40,00,000/-, u/s.68 of the IT Act, for the following reasons:

(a) Merely on doubt, assumption, presumption, surmises, for the only reasons that the said enquiry letters issued u/s.133(6) of the 1 T Act, were either not served or returned back or served but not complied, and without bringing any evidence on the record by A.O in support of his contentions;

(b) Even though the appellant had furnished all the relevant details so as to establish the identity, creditworthiness and genuineness of the transactions and filing their financial statements and duly discharged its burden under the Act.

Thus, addition may please be deleted.

[5] On the facts and in the prevailing circumstances of the case as well as in law, the learned CIT(A) has grossly erred in confirming the interest charged of Rs.2,72,53,728/-,u/s.234B of the IT Act, even though, appellant was not liable to pay Advance tax in view of the provision of section 208 of the I T Act, and hence, provision of section 234 B of the Act, is not attracted. Therefore, appellant denied the liability of interest u/s.234 B of the IT Act. Thus entire huge interest is requires to be deleted. [6] It is humbly prayed that the reliefs as prayed and such other and further reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice, may please be granted. [7] The Appellate craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.”

8. Aggrieved assessee preferred appeal before ld.CIT(A) challenging the validity of the reopening proceedings along with the addition made u/s.68 of the Act. However, assessee failed to succeed. Finding of ld.CIT(A) reads as under :

“Now I proceed to decide the technical /legal grounds.

7. Ground No.1 is that in the absence of condition precedent for issue of notice u/s. 148, the notice and assessment is bad in law and void ab initio. In this regard the appellant has submitted in Grounds of appeal as under.

"On the facts and in the prevailing circumstance of the case and in law, and in the absence of condition precedent for issuance of notice u/s. 148 of the Income-tax Act, 1961, the impugned notice is bad in law, null and void ab initio and without jurisdiction and hence the same may please be squashed."

7.1 In respect of Ground No.1, the appellant has contended that merely because of enquiry by way of notice u/s. 133(6) and 9 notices were received back un-served and 5 letters though served were not responded, the A.O. should not have drawn the adverse inference of escapement of income. The appellant has also relied on various decisions which are distinguishable on facts and some of which are related to year prior to A.Y. 1989-90 i.e. prior to the amendment of section 147. In order to decide the issue, provisions of section 147 and first proviso to the said section are relevant and hence reproduced below:

"147- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he "may, subject to the provisions of section 148 to 153, assess or reassess "such income" and also any other income chargeable to tax which has escaped assessment and which comes to his notice, subsequently in the course of the proceedings under this section or recomputed, the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned thereafter in this section and in section 148 to 153 referred to as the relevant assessment year.

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under the section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in reasons to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts, necessary for his assessment for that assessment year."

From the above provision, it is evident that what is required from A.Y. 1989-90 for issuing notice for reassessment is that the A.O. should have reason to believe that income has escaped assessment. In the case under appeal, the A.O. had noticed that the appellant company’s funds are circulated by way of loan to wife of director and then from wife to the director and thereafter the amount was introduced by the director as his share capital. It has also been noticed by the A.O. that the appellant company had issued share capital by issuing shares of 10/- each with a premium of 30/- per share and inspite of no business activity and meager income, the 15 companies from Mumbai and Kolkata have invested huge amount of ₹ 8,40,00,000/- with the appellant company. The A.O. observed that the above subscription of 8,40,00,000 is not probable and hence had issued notices u/s. 133(6) to the above mentioned 15 companies. Out of 15 notices issued, 9 notices remained un-served and 5 notices were served but no compliance was received. In view of the facts of the case, the A.O. certainly had reason to believe that income has escaped assessment. It is also worth mentioning here that one of the company has replied in response to notice u/s. 133(6) that it had not contributed any share capital claimed by the appellant company. In view of the above facts and discussion, the contention of the appellant that in the absence of condition precedent for issue of notice u/s. 148, the notice and assessment is bad in law and void ab initio, is rejected. Ground No.1 is dismissed.

8. Ground No.2 is that the approval for reassessment given by Addl. CIT is on improper reasons. In this regard the appellant has submitted in Grounds of appeal as under:

"On the facts and in the prevailing circumstance of the case and in law, that the proposal made by the A.O. for issue of notice u/s. 148, merely on the basis of enquiry letters issued u/s. 133(6) of the I.T. Act, were either not served or returned back or served but not complied and hence that cannot be considered as information and reasonable belief that income chargeable to tax has escaped assessment in respect of those creditors. Therefore in absence of proper tenable reasons contain in the said proposal no approval could have been granted by the Addl. CIT. The grant of approval was not a mere formality. Therefore, approval accepted on the said improper reasons by the Addl. CIT is certainly bad in law and hence, impugned notice issued u/s. 148 dtd. 31/3/2015 is illegal and bad in law, void ab initio and may please be squashed."

8.1 The reason for reopening the assessment is reproduced in para 6.2 of the assessment order. It has also been held while deciding Ground No.1 that on the facts of the case, the A.O. is justified in having reason to believe that, income has escaped assessment. Therefore I am of the considered view that the Addl. CIT is justified in giving approval to the reason recorded for reopening the assessment. The reason recorded by the A.O. for reopening the assessment stating that he has reason to believe that income escaped assessment is proper and cannot be said to be improper as alleged by the appellant. In view of the above facts and discussion, I am of the considered view that the contention of the appellant that the approval for reassessment given by Addl. CIT is on improper reasons is not justified and hence rejected. Ground No.2 is dismissed.

9. Ground Nos.3 & 4 are that there is no findings of failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment. In this regard the appellant has submitted in Grounds of appeal as under:

"3]- On the facts and in the prevailing circumstance of the case and in law, as the reasons received for issue of notice do not indicate any failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment and hence the jurisdictional requirement to reopen the assessment after four years from the end of the relevant assessment Le. A.Y. 2008-09 is not satisfied, and hence an impugned notice issued u/s. 148 on 31/03/2015 is illegal and bad in law, void ab initio and may please be squashed."

4)- On the facts and in the prevailing circumstance of the case and in law, as the reasons recorded for issue of notice do not indicate that A.O. has recorded that "he has reasons to believe that income chargeable to tax has escaped assessment and he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee." Both these conditions should co-exist to confer jurisdiction on the A.O. In absence of such recording, the A.O. do not have jurisdiction for issue of an impugned notice u/s. 148 of the LT. Act, dtd. 31/03/2015 and hence proceedings initiate u/s. 147/148 are invalid, bad in law, void ab initio, and hence requires to be squashed."

9.1 I have carefully considered the facts of the case and rival contentions. On perusal of first proviso to section 147, reproduced in preceding paragraph, it is evident that the said proviso is applicable where an assessment was completed u/s. 143(3) of the Act and in such cases for reopening the assessments, the income chargeable to tax is required to have been escaped assessment for the reason of failure on the part of the assessee to disclose fully and truly all material facts. In view of the fact that in the case under appeal, no assessment was completed u/s. 143(3), this proviso is not applicable to the case under appeal. It has also been noticed that the failure on the part of the assessee to disclose true information is also evident from the reason recorded by the A.O. for reopening the assessment. In view of the above facts, I am of the considered view that the A.O. is justified in issuing notice u/s. 148 and reassessing the income of the appellant. Ground Nos. 3 & 4 are dismissed.

10. Ground No.5 is that the A.O. has rejected the objections raised by the appellant for issuing notice u/s. 148 for reopening the assessment, without giving proper opportunity to the appellant of being heard.

10.1 In this regard it has been noticed that the AO. has given reasonable opportunity to the appellant during the course of the assessment proceedings of being heard. Further reasonable opportunity also given by the undersigned to the appellant during appellate proceedings. The AO had disposed off the objections raised by the appellant in detail vide letter dated 11/09/2015, which has been reproduced in the assessment order. In view of the above facts the appellant is not justified in contending that the A.O. has not given reasonable opportunity to the appellant, of being heard, during assessment proceedings. Therefore the contention raised by the appellant that the A.O. has rejected the objections raised by the appellant for issuing notice u/s. 148 for reopening the assessment, without giving proper opportunity to the appellant of being heard is rejected. Ground No. 5 is dismissed.

11. Ground No.7 is in respect of interest u/s. 234B. In this regard it has been observed that the levy of interest u/s. 234B is mandatory and not optional. This proposition of law is supported by the decision of Hon'ble Supreme Court, in the case of CIT Vs. Anjum M.H. Ghaswala (2001) 252 ITR-0001 (SC) In this case it has been laid down as under :

Section 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expression 'shall' used in the said sections cannot by any stretch of imagination be construed as "may". This is clear from the fact that prior to the amendment brought about by the Finance Act, 1987, the legislature in the corresponding section pertaining to imposition of interest used the expression "may" thereby giving a discretion to the authorities concerned to either reduce or wave interest. The change brought about by the Amending Act (Finance Act, 1987) is a clear indication of the fact that the intention of the Legislature was to make the collection of statutory interest mandatory.

In view of the above facts and discussion and the above mentioned decision of Hon'ble Supreme Court, the contention of the appellant is rejected. Ground No.7 is dismissed.”

9. Now the assessee is in appeal before the Tribunal.

“1. VALIDITY OF REASSESSMENT: a. No reasons are recorded The proposal for reopening as part of the Approval has been placed on record. The said document states that it is a proposal for recording reasons for initiating action u/s 147 and not the reasons recorded by AO. In the said document, there is no whisper about reason to believe by the AO. It only states that the action u/s 147 is being proposed and has been referred for approval. b. No Approval obtained as required u/s 151: The copy of the Approval has been placed on record. It is submitted that the approval has been obtained on the proposal for reopening. The Proposal itself expressly state that the approval is granted as proposed and further directed the AO to record reasons. It is submitted that the legal requisite u/s 147 is to obtain Approval u/s 151 on the reasons recorded. The record produced regarding approval clearly shows that the approval so obtained was not on reasons recorded but on the proposal. This being in clear violation of the jurisdictional condition for reopening u/s 147, the impugned assessment proceedings are not valid in law.

Without prejudice to the above: c. Approval mechanical:

The Approval is mechanical and does not show any application of mind on escapement of income and the material so as to show escapement of income. The approval is granted on the proposal and further directs the AO to record reasons. The remark that "I am satisfied on the satisfaction note" does not independently refer to any material and is been granted mechanically.

The proposal for reasons are dated 31.03.2015 and the approval granted is on the same date. It clearly indicates that the approval has been granted without proper application of mind.

Reliance is placed on decision of Delhi High Court in case of Capital Broadways P Ltd V ITO reported in 167 taxmann.com 533. Held that- Request for approval under section 151 in a printed format was placed before the Assistant Commissioner, who after according his satisfaction, placed the same before the Principal Commissioner. The Principal Commissioner granted the approval on the very same day.

The satisfaction arrived at by the concerned Officer should be discernible from the sanction order passed under section 151. However, as may be seen, the approval order is bereft of any reason. There is no whisper of any material that may have weighed for the grant of approval.

The High Court has referred to the decision of Delhi High Court in case of Yum! Restauants Asia P Ltd reported in DCIT 397 ITR 665.

It further refers decision of MP High Court in case of CIT V S Goyanka Lime & Chemicals Ltd ITA 82/2012, 56 taxmann.com 390 wherein the High Court observed that the exercise of approval is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.

The SLP challenging the decision rendered by the Madhya Pradesh High Court was dismissed by the Supreme Court CIT) v. S. Goyanka Lime & Chemical Ltd. [2015] 64 taxmann.com 313.

Without prejudice to the above: d. Proposal vague and without any tangible material: i The proposal for reasons are vague and are not based on any tangible material to show escapement of income.

The tenor of the proforma proposal clearly states that the notices issued u/s 133 were returned back. This is the sole basis provided by the Id AO to come to the belief that there is escapement of income in the hands of the appellant. The notices were issued in the year 2015 relating to the year FY 2007-08. Apart from the fact that notices were returned back, no other material has been referred to indicate that the share capital invested by the Companies was in fact the income of the appellant Company. ii. The amount of Rs 6,98,10,000/- as stated in the proposal is also not ascertainable as the addition made in assessment is Rs 8,40,00,000/-. There is no application of mind even on the amount of escapement of income.

2. Addition of Rs 8,40,00,000/-:

2. The said supporting documents have not been considered nor has been by AO nor been controverted by AO. The appellant has discharged its burden u/s 68 in respect of-Identity of the creditor Genuineness of the transaction Creditworthiness

7. The AO has referred to the provisions of Section 68 as amended wef from 2013. The said amendment provides that the in case of closely held Company the explanation given by such company shall be deemed to be not satisfactory unless the resident shareholder offers an explanation offers an explanation about the nature and source of such sum and such explanation is found to be satisfactory. It is submitted that the said explanation is not applicable to the year under consideration. Even otherwise it refers to closely held companies. The shareholder companies in case of appellant are independent investments made by them and are not closely held companies.

10. There is no material to show that the share capital received from the companies is unaccounted money of the appellant company. The said Company had closed its business of manufacturing. The reason for obtaining share capital for the purpose of public issue of associate company Tulsi Extrusion has not been considered nor examined. The appellant has explained the commercial reasons for the said investment by the company.

11. The lower authorities have erred in sustain the said addition without there being any material and without making further inquiries. The supporting documents have been furnished and the primary burden is discharged u/s 68.

12. PRAYER:

A. No reasons are recorded by the AO and the impugned reassessment proceedings are bad in law.

B. No Approval u/s 151 is obtained on the reasons recorded.

C. The Approval alongwith proposal clearly shows that it was only proposal and there is no finding about the reason to believe.

D. The appellant has discharged the burden u/s 68 by furnishing the supporting documents.

E. There is no material to show that the money is unaccounted income of the appellant.”

11. Ld. Authorised Representative also drew the attention of the Bench to the paper book/documents filed before the Tribunal on 13.11.2024 and 18.11.2024 and the index of the same is reproduced below :

“1. Return of income, Audit Report, Bank statement and Ledger account of investment and Master Data of MCA in case of Signet Commercial P Ltd. for AY 2008-09

2. Return of income, Audit Report, Bank statement and Ledger account of investment and Master Data of MCA in case of Novoflex Cable Care Systems Ltd for AY 2008-09

3. Return of income, Audit Report of Saumitra Investments and Finance P Ltd for AY 2008-09

4. Return of income, Audit Report of Vivek Tracom P Ltd for AY 2008- 09 and 2015-16 with Master Data of MCA

5. Details on MCA Master Data of Veena Credit & Holdings P ltd

6. Ledger Account of investment in case of Saumitra Investments and Finance P Ltd for AY 2008-09

7. Details on MCA Master Data of Sugreev Traders P Itd

8. Details on MCA Master Data of Avavtee Vyapar P Itd

1. Submission before CIT(A) dt. 31/03/2017

2. Submission before CIT(A) dt. 31/02/2017

3. Notice u/s 148 dt. 31/03/2015

4. Letter of AO dt. 12/08/2015 supplying Reasons recorded

5. Letter dt. 21/08/2015 objecting to reasons

6. Order rejecting objection dt. 15/09/2015

7. CIT Vs. Sophiya Finance Ltd (Delhi)

8. Letter dt. 04/03/2016

9. Confirmation regarding investment by Mrs. Hemlata Sachin Lohiya with ledger a/c

11. Resolution, ITR, Share Application Form, Bank Statement MOM & AOA of Nicco Securities Private Limited

12. Resolution, ITR, Share Application Form, Bank Statement MOM & AOA of Doldrum Investment And Finance Pvt Ltd

13. Resolution, ITR, Share Application Form, Bank Statement MOM & AOA of Oshin Investment And Finance Pvt Ltd

15. Resolution, ITR, Share Application Form, Bank Statement MOM & AOA of Saumitra Investment And Finance Pvt Ltd

16. Resolution, ITR, Share Application, Form Bank Statement MOM & AOA of VDR Consultanta Pvt Ltd

17. Resolution, ITR, Share Application, Form Bank Statement MOM & AOA of Pingle Commerce Pvt Ltd

19. Resolution, ITR, Share Application, Form Bank Statement MOM & AOA of Avanti Vyapaar Pvt Ltd

20. Resolution, ITR, Share Application, Form Bank Statement MOM & AOA of Vivek Tracom Pvt Ltd

12. On the other hand, Ld. Departmental Representative stated that the transaction of issuing share capital with share premium is merely in the nature of accommodation entry and utilized for circulation of funds because there was no running business of the assessee company and therefore genuineness of share application money is not proved and the impugned addition deserves to be affirmed. He drew the attention of the Bench to the following case law compilation :

Sr. Case Law Pages Gist No. 1 CIT Vs N Tarika Properties. 1 to 8 1. Where false evidence had been Investment (P.) Ltd. [2013] 40 adduced by assessee to give colour taxmann.com 525 (Delhi) of genuineness to bogus entries through bank accounts and deposits which were mostly by cash, Assessing Officer was justified in making addition under section 68.

2. PANs are issued without de-facto verification, these can't solely divulge real identity of individual 2 N Tarika Properties 9 to 10 Assessing Officer found that Investment (P.) Ltd. Vs CIT subscribers bank account statements (2014) 51 taxmanh.com 387 were forged and fabricated as there (SC) were corresponding cash deposits in bank accounts before issue of share application cheques and that deposits were through cash or transfer entries from same bank of entry operators High Court by impugned order held that since false evidence had been adduced by assessee to give colour of genuineness to bogus entries through bank accounts and deposits which were mostly by cash, Assessing Officer was justified in making addition. SLP of assessee dismissed 3 CIT Vs Nipun Builders and 11 to 25 Where assessee failed to prove Developers Pvt. Ltd. (2013) identity and capacity of subscriber 30 taxmann.com 292 (Delhi) companies to pay share application money, amount so received was liable to be taxed under section 68 4 CIT Vs Nova Promoters and 26 to 66 Amount received by from Finlease (P.) Ltd. (2012) 18 accommodation entry providers in taxmann.com 217 (Delhi) garb of share application money, was to be added to its taxable income under section 68 5 Rick Lunsford Trade and 67 to 68 SLP dismissed upholding that it is Investment Ltd. Vs CIT [2017] open to the Revenue Department to 77 taxmann.com 110 (SC) make addition on account of alleged share capital u/s 68, where the assessee company has failed. genuineness of its shareholders to show genuineness of its shareholders 6 Navodaya Castle (P.) Ltd. Vs 69 to 70 SLP dismissed against High Court CIT [2015] 56 taxmann.com ruling that certificate of incorporation, 18 (SC) PAN etc., are not sufficient for purpose of identification of subscriber company when there is material to show that subscriber was a paper company and not a genuine investor 7 Konark Structural Engineers 71 to 72 Where assessee-company received (P.) Ltd. Vs DCIT [2018] 96 certain amount as share capital from taxmann.com 255 (SC) various shareholders, in view of fact that summons to shareholders under section 131 could not be served as addresses were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, addition made by Assessing Officer under section 68 was to be confirmed; SLP dismissed 8 Konark Structural Engineers 73 to 80 Where assessee-company received 8 (P.) Ltd. Vs DCIT [2018] 90 certain amount as share capital from taxmann.com 56 (Bombay) various shareholders, in view of fact that summons served to shareholders under section 131 were unserved with remark that addressees were not available, and, moreover, those shareholders were first time assessees and were not earning enough income to make deposits in question, impugned addition made by AO under sec. 68, was to be confirmed 9 J. J. Development (P.) Ltd. Vs 81 Where High Court upheld Tribunal's CIT (2018) 100 taxmann.com order confirming addition under 102 (SC) section 68 in respect of share capital on ground that documents pertaining to share applicants produced by assessee did not demonstrate that such alleged applicants had invested in assessee's share capital, SLP filed against said decision was to be dismissed 10 J. J. Development (P.) Ltd. Vs 82 to 85 When the assessee fails to provide a CIT [2018] 100 taxmann.com convincing explanation with regard to 101 (Cal.) the cash credit before the AD and the same was accepted by the ITAT being a fact finding body, the same cannot be disputed further 11 PCIT VS NDR Promoters (P.) 86 to Where Assessing Officer made Ltd. (2019) 102 taxmann.com 103 additions to assessee's income under 182 (Delhi) section 68 in respect of amount received as share capital from several companies, in view of fact that all of these companies were maintained by one person who was engaged in providing accommodation entries through paper companies and all such companies were located at same address, impugned addition was justified 12 PCIT VS NRA Iron and Steel 104 to Where assessee received share (P.) Ltd. [2019] 110 111 capital/premium, however there was taxmann.com 491 (SC) failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company 13 NRA Iron and Steel (P.) Ltd. 112 to Where are noting relevant decisions, Vs PCIT [2020] 117 113 emerging principles were set out and taxmann.com 752 (SC) in light of these principles, facts were considered and conclusions drawn by the Assessing Officer were found to be correct, review petition against such decision was without any substance 14 Par Excellence Leasing and 114 to Where assessee failed to produce Financial Services (P.) Ltd. Vs 126 controlling persons of share applicant ACIT (2020) 115 companies along with supportive taxmann.com 38 (Delhi-Trib.) documentary evidence for examination and field enquiries in respect of share applicant companies revealed that such companies never existed in given addresses, Assessing Officer rightly inferred that assessee had rooted its own money in books of account through fictitious and bogus companies, and rightly made additions under section 68 15 CIT Vs Midas Golden 127 to Where share capital of assessee- Distelleries (P.) Ltd. (2021) 144 company had been routed through 130 taxmann.com 206 two companies, existence and (Madras) operation of which remained only on paper and enquries conducted showed that huge amounts were brought in assessee's books as share application money through said companies by shareholders, who could not properly explain their source, provisions of section 68 got attracted 16 Vishwatej Developers (P.) 145 to Where addition under section 68 was Ltd. Vs. ACIT (2021) 162 made to income of assessee on taxmann.com 9 (Madras) 130 ground that share capital of more than Rs. 316 crores was invested by foreign company in assessee, onus to prove identity, creditworthiness and genuineness of transaction was solely on assessee and merely because statutory approvals had been obtained by assessee, it did not sanctify transaction 17 CIT VS MAF Academy (P.) Ltd 163 to Where assessee, a private limited (2014) 361 ITR 258 (Delhi) 182 company, sold its shares to unrelated parties at a huge premium and thereupon within short span of time those shares were purchased back even at a loss, share transactions in question were to be regarded as bogus and, thus, amount received from said transactions was to be added to assesee's taxable income under section 68

14(a). So far as the legal issues are concerned, the assessee has challenged the re-assessment proceedings on the ground that there was no tangible material with the AO to form a belief that income has escaped assessment and secondly no valid approval was obtained u/s.151 of the Act. We note that the AO in the instant case after having the information about the alleged circulation of funds between the assessee company through two individuals wherein the interest bearing funds of the assessee company were utilised for giving the funds and then again receiving such funds in the companies accounts in the mode of share application money. Ld. AO had issued notice u/s.148 based on this information alone and the reasons recorded by the ld. AO for reopening of the reassessment proceedings are as follows :

“The Income Tax Department have carried out enquiries and investigated in this case, wherein the DCIT Cir-1, Jalgaon after obtaining prior approval of the Commissioner of Income Tax-2, Nashik have issued letters u/s.133(6) to the investors which are 15 in Nos and postal remarks are as under :

S.No. Name of the person making Date of issue Remarks investment of 133(6) letters 1 Nico Securities Pvt. Ltd., 21/11/2013 Return back Jogeshwari (W), Mumbai “Left” 2 Doldrem Investment & Finance 21/11/2013 Refused Pvt. Ltd., Dahisar (E), Mumbai 3 Ocean Investment & Finance 21/11/2013 Refused Pvt. Ltd., Dahisar (E), Mumbai 4 Veena Credit & Holding Pvt. 21/11/2013 Address moved Ltd., Kolkatta 5 Saumitra Investment & 21/11/2013 Refused Finance Pvt. Ltd., Dahisar (E), Mumbai 6 VDR Consultants Pvt. Ltd., 21/11/2013 Address moved Kolkatta 7 Pingle Commerece Pvt. Ltd., 21/11/2013 Addressee Kolkatta cannot be located 8 Pentium Hi Tech Pvt. Ltd., 21/11/2013 Unclaimed Goregaon (W), Mumbai return to sender

9 Avanti Vyapar Pvt. Ltd., 21/11/2013 Unclaimed Kolkatta return to sender 10 Vivek Tracom Pvt. Ltd., 21/11/2013 No reply Kolkatta received 11 Sugreev Traders Pvt. Ltd., 21/11/2013 No reply Kolkatta received 12 Malinath Trading Pvt. Ltd., 21/11/2013 Not complied till Kolkatta 21/12/2013 13 Novaflex cab case systems 21/11/2013 No reply Ltd., Kolkatta received 14 Signet Commercial Pvt. Ltd., 21/11/2013 No reply Kolkatta received 15 Sarthak Traders 21/11/2013 No reply received These investors have invested in the company Gopal Extrusions (P) Ltd., Jalgaon by paying share premium. Out of 15 letters issued u/s.133(6), 9 letters have been received back by the postal department. In 5 cases, letters have been served but there is no response/compliance.

Thus, it is clear that the so called investors, i.e. Venture Capital Companies either do not exist at the given address or are front persons to introduce non income tax paid money of the beneficiary company, i.e. Gopal Extrusions (P) Ltd., Jalgaon.

In view of the facts mentioned above, there is evidence to show that there is an escapement of income to the tune of Rs.6,98,41,500/- within the meaning of section 147(c) of the Income Tax Act, 1961 for the A.Y. 2008-09.

Since the assessment for the A.Y. 2008-09 exceeds four years and there is no assessment u/s.143(3) completed, sanction for issue of notice u/s.148 of the Income Tax Act, 1961 of the Hon’ble Addl. Commissioner of Income Tax, Range-1, Jalgaon for reopening of proceedings u/s.151 of the I T Act, 1961 for the A.Y. 2008-09 by issue of notice u/s.148 is requested. Hence, the proposal.”

14(b) He has further proceeded to examine the books of the assessee company and noted that share application money has been received from 15 Private Limited Companies based at Mumbai and Kolkata. Ld. AO issued notices u/s.133(6) of the Act to the alleged share applicants for necessary verification as to whether genuine investments have been received. This exercise of the AO gave the result that 09 of the notices could not be served as the share applicant companies were not found at those addresses. Out of the remaining, five companies did not responded to the AO and one company which responded, stated that “we have never invested any amount in M/s. Gopal Extrusions P. Ltd. and nor have had any transaction with them whatsoever and neither the above mentioned company is known to us.” Under these facts noted by the ld. AO, in our view, are sufficient for ld. AO to form a reason to believe that income has escaped the assessment. Hon’ble Supreme Court in the case of Raymond Woolen Mills vs. ITO (1999) 236 ITR 34 (SC) has held that there should be some reason to believe about the escapement of income at the stage of initiation of reassessment proceedings. Sufficiency or correctness of such material cannot be considered at that stage. Thus, when the AO had sufficient material to form reason to believe then he validly proceeded to issue notice u/sl.148 of the Act because for issuing a valid notice u/s.148 of the Act it only needs the reason to believe about the escapement of income and not any conclusive evidence of escapement and such aspect can be dealt during the course of assessment proceedings itself. Also if the AO does all the exercise of correctly calculating the escapement of income prior to issuance of notice u/s.148 of the Act, then carrying out the re-assessment proceedings would be a mere formality rather of no use. Thus, if the AO has reason to believe that there may be escapement of income then he is well within his jurisdiction to issue notice u/s.148 of the Act. Further, we find that the objections raised by the assessee have been duly dealt by the AO prior to framing the re-assessment order. Therefore, we are of the considered view that a valid notice u/s.148 of the Act has been issued for carrying out the re-assessment proceedings.

14(c) As far as another legal issue raised by the assessee that the approval granted u/s.151 is mechanical in nature, we fail to find any merit in such contention because the detailed reasons were recorded providing each and every aspect of the working carried out by the AO prior to recording the reasons and they were in itself sufficient for the approving authority to accord the permission. In case the reasons were not recorded, merely mentioning ‘yes’ for approving the issuance of notice u/s.148 may be questioned. But under the given facts of the case, we find that valid approval u/s.151 of the Act has been granted. Thus all the legal grounds raised by the assessee vide grounds of appeal No.1 and 2 in the instant appeal are hereby dismissed.

No. 3 and 4 raised by the assessee on merits. Admittedly, share application money of Rs.8.40 crore has been received from 15. Private Limited companies based at Mumbai and Kolkata and the list has already been extracted (supra) in the reasons recorded. Now for examining the applicability of section 68 of the Act under the given case where share application money has been received during the year under consideration, we note that the assessee has to explain the nature and source of the alleged sum. For better understanding, we reproduce below the provisions of section 68 of the Act which reads as under :

“Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :

[Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

[Provided also] that nothing contained in the first proviso 86[or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”

i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.

18. Now the last limb which remains to be examined is genuineness of the alleged transaction where the share applicant companies have made investment in the Equity of the company alongwith share premium of Rs.30/- on the Equity share with face value of Rs.10/-. There is no dispute to the fact that the business of the assessee company was closed during F.Y. 2006-07. Even the Director of the assessee company has responded to Question No.17 that the company has closed down its business of manufacturing of PVC pipe. It is also not made clear as to whether any dividend or any return on investments was given to the assessee to such shareholding companies. For the transaction to be genuine it has to be proved that whether a prudent investor would invest in a closed company and that too on a share premium which is 300% of the face value. The assessee company has also not been able to prove that whether any actual business was carried out giving rise to profits in the year or subsequent year. Also most of the share applicant companies are not having any regular business and only the funds in the form of share capital and reserves and surplus are available which have been utilised for giving loans and advances or making investment in other companies. Here we would like to take note of the Judgment of Hon’ble Jurisdictional High Court in the case of Royal Rich Developers Pvt. Ltd. Vs. Pr.CIT (2020) 313 CTR 0478 (Bom.) where the Hon’ble Court while upholding the adsition made u/s.68 of the Act observed that no rational person will invest in shares of a shell/paper company having no worthwhile business at a premium of Rs.35/-. Similar is the case before us where the premium of Rs.30/- has been paid for each Equity share in a company which in the recent past had no regular business activity. We therefore after taking note of the submission filed by the assessee as well as taking note of the judgments relied on by ld. DR, are of the considered view that assessee has miserably failed to prove the genuineness of the alleged transaction of receiving share application money from alleged share applicants and fails on the front of proving genuineness of the alleged share application money. Therefore section 68 of the Act has rightly been invoked by the ld. AO for making the addition in the hands of assessee for unexplained cash credit. We accordingly confirm the addition u/s.68 of the Act and dismiss the grounds of appeal No.3 and 4 raised by the assessee on merits of the case.

Order pronounced on this 29th day of April, 2025.