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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Sri Sanjay Garg & Sri Manish Borad
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA [Virtual Court] (Before Sri Sanjay Garg, Judicial Member & Sri Manish Borad, Accountant Member) I.T.A. No.:143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd....................................................Appellant [PAN: AADCG 3380 M] Vs. Pr. Commissioner of Income Tax-1, Kolkata.........................Respondent Appearances by: Sh. Miraz D. Shah, A/R, appeared on behalf of the Assessee. Md. Ghayas Uddin, CIT(D/R), appeared on behalf of the Revenue. Date of concluding the hearing : February 15th, 2022 Date of pronouncing the order : April 27th, 2022 ORDER Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”)2011-12is directed against the order of ld. Pr. Commissioner of Income-tax-1, Kolkata [in short ld. “PCIT”] dated 18.02.2021 vide Document No. (DIN)ITBA/REV/F/REV5/2020-21/1030748091(1)which is arising out of the assessment order framed u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 20.12.2018 by ITO, Ward-2(1), Kolkata.
The assessee is in appeal before the Tribunal raising the following grounds:
“1. For that the reasons for reopening was bad in law and hence the reopening and the order u/s 147/143(3) of the Act was bad in law and hence the subsequent order u/s 263 of the Act was also bad in law and the same be quashed. 2. For that the assessment order passed was passed by an assessing officer who did not have jurisdiction over the case of the assessee and hence the assessment order u/s 147/143(3) of the Act was bad in law and consequentially the subsequent order u/s 263 of the Act was also bad in law and hence the order u/s 263 of the Act be quashed.
I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
For that the sanction u/s 151 of the Act was mechanical and not with application of mind and hence the reopening was bad in law and consequential assessment order and order u/s 263 of the Act was bad in law and hence the order u/s 263 of the Act be quashed. 4. For that the assessment order was neither erroneous nor prejudicial to the interest of revenue and thus order u/s 263 of the Act was bad in law and hence the order u/s 263 of the Act be quashed. 5. For that the records show that there was no material available before the AO at the time of recording of reasons and hence the reopening was bad in law and hence the subsequent order u/s 263 of the Act was also bad in law hence the order u/s 263 of the Act be quashed. 6. For that the Ld PCIT had another view in the matter and hence he held the assessment order to be erroneous and prejudicial to the interest of revenue. That merely because of another possible view and assessment order could not be held to be erroneous and prejudicial to the interest of revenue and thus order u/s 263 of the Act was bad in law and hence the order u/s 263 of the Act be quashed. 7. For that in the facts and circumstances of the case the notice u/s 263 of the Income Tax Act 1961 issued by the Learned Principal Commissioner of Income Tax was without jurisdiction and time barred. Thus, the order passed on the basis of such notice was bad in law and hence the order u/s 263 of the Act be quashed. 8. For that in the facts and circumstances of the case the Learned Principal Commissioner of Income Tax erred in holding that the assessment order passed by the learned assessing officer in the case of the appellant was erroneous and prejudicial to the interest of revenue and thereby setting aside the said assessment order by invoking the provisions of section 263 of the Income Tax Act 1961 and hence the order u/s 263 of the Act be quashed. 9. For that on the facts and in the circumstances of the case, the learned Principal Commissioner of Income Tax erred in holding that the Ld AO did not make any proper enquiry regarding assessment of Rs.41 lakhs received from M/s Icon Trexim Pvt Ltd in UCO bank. Such finding of the learned Principal Commissioner of Income Tax was perverse and therefore the order passed u/s.263 of the Income Tax Act, 1961 is based on wrong appreciation of facts of the case and hence bad in law and hence the order u/s 263 of the Act be quashed. 10. Without prejudice to the above the LdPr.CIT erred in rejecting the plea of the assessee that a police complaint was already filed against some unauthorized Bank account that has been opened and maintained in the name of the assessee at UCO Bank. Hence, the Hon’ble Principal Commissioner of Income Tax erred in invoking provisions of section 263 of the Income Tax Act, 1961 is bad in law and hence the order u/s 263 of the Act be quashed. 11. For that in the facts and circumstances of the case the order passed by the Learned Commissioner of Income Tax u/s 263 of the Income Tax Act 1961 to set aside and restored to the file of A.O. for passing of fresh assessment order after making examination and verification of expenses without considering the submission made by the assessee is not justified and hence the order u/s 263 of the Act be quashed.
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
For that in the facts and circumstances of the case the order passed by the Learned Commissioner of Income Tax u/s 263 of the Income Tax Act 1961 is based on wrong appreciation of facts of the case and is bad in law and hence the order u/s 263 of the Act be quashed. 13. For that in the facts and circumstances of the case the order passed by the Learned Commissioner of Income Tax u/s 263 of the Income Tax Act 1961 is without any basis and hence the same be quashed and hence the order u/s 263 of the Act be quashed. 14. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.” 2.1. The assessee has also raised following additional grounds of appeal:
“For that the order u/s 263 is bad in law for the reason that the processing u/s 147 initiated itself was bad in law, the order u/s 147/143(3) was not maintainable and an invalid assessment cannot be set aside u/s 263 of the Act.” 3. Brief facts of the case as per records are that the assessee is a private limited company. Return of income was filed on 02.09.2011 declaring income of Rs.438/-. Notice u/s 148 of the Act was issued on 28.03.2018 and duly served. The reason for re-opening was based on the information received from the Investigation Wing that the assessee has received Rs.41,00,000/- from M/s. Icon Trexim Pvt. Ltd. as a beneficiary during the Financial Year (in short “FY”) 2010-11. Reasons recorded and supplied to the assessee. During the assessment proceedings the assessee submitted that it maintains account with Union Bank of India and no such amount has been received during the FY 2010-11. Books of account were produced which were examined and assessment was completed on 28.12.2018 u/s 143(3) of the Act r.w.s. 147 of the Act. Subsequently ld. PCIT-1, Kolkata invoked revisionary powers and issued the following show cause notice to the assessee dated 04.01.2021:
“Whereas the undersigned had called for and examined the record of your case and it is considered that the impugned assessment order passed u/s 143(3) of the I T Act, 1961 by the ITO, Ward - 2(1), Kolkata on 20.12.2018 for A.Y. 2011-12 is, prima facie, erroneous in so far as it is prejudicial to the interests of the revenue for the following reasons: In the instant case, it was observed that during the assessment proceedings the assessee filed explanation multiple times that there was no such receipt/transaction made Of the assessee and in support produced the Bank statement of foe account maintained with Union Bank of India (A/c no. 436901010036508) in which there was minimal transaction and closing Balance
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
was Rs. 10,375/- which is also reflected in foe Balance Sheet/ Return of income as Balance with Bank and by producing Books of account in which there was no changes in Share Capital/ Share Premium or investment amounts from the previous year. Further, it is observed that the assessee used to maintain another bank account with UCO Bank, Brabourne Road Branch (A/c No. 01900210002650) which was suppressed by the assessee during the assessment proceedings and also did not disclose the transaction made through that account, in its Books of Accounts for the A.Y 2011-12. It is also found that in that account the assessee had received the amount of Rs. 41 Lakh from Icon Trexim Pvt. Ltd. on 12.03.2011, further there are also several other debit & credit entries in that account throughout the year which the assessee has not been accounted for in its Books of accounts for the A.Y 2011-12. AO has passed the impugned assessment order without any application of mind nor conducting any enquiries or verifications which should have been made in this case. 2. Having regard to the facts and circumstances of the case and in law and in accordance with the provisions of Sec. 263(1) of I.T. Act, 1961 you are hereby given an opportunity of being heard to show cause as to why the impugned assessment order passed u/s 143(3) by ITO, Ward - 2(1), Kolkata on 20.12.2018 for A.Y. 2011-12 should not be held as erroneous in so far as it is prejudicial to the interests of the revenue. You may accordingly furnish your written submissions u/s 263(1) of I.T. Act, 1961 on 18.01.2021 at -04.15 P.M. In this regard, either personally or through an authorised representative elaborating and/or evidencing your contentions/submissions. Considering the pandemic situations arising due to COVID-19, you are requested to make written submissions with necessary details through E-mail ID: kolkata.pcit1@incometax.gov.in” 4. Ld. Counsel for the assessee firstly referred to the additional grounds of appeal stating that the impugned proceedings having carried out are bad in law for the reason that the re-assessment proceedings carried out u/s 143(3) of the Act r.w.s. 147 of the Act are itself bad in law and not maintainable and, therefore, invalid assessment cannot be set aside u/s 263 of the Act. Ld. Counsel for the assessee heavily relied on the decision of this Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd. vs. CIT, Kol-IV in ITA Nos. 764 to 766/Kol/2014 dated 05.04.2017. Referring to this decision it was stated that this Tribunal has held that firstly the assessee can challenge the validity of the assessment order during the appellate proceedings for examination of order passed u/s 263 of the Act. Secondly, it was also stated that if the assessment order passed is illegal or invalid in the eyes of law then ld. PCIT/CIT did not have a valid jurisdiction to pass the order u/s 263 of the Act to revise non-est assessment order. It was also
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd. stated that in the instant case the re-opening has been done just to examine whether the assessee has received a sum of Rs.41,00,000/- from M/s. Icon Trexim Pvt. Ltd. Ld. Assessing officer (in short ld. “AO”) was not having any material evidence to prove that the assessee owns the alleged bank account in which such sum has been credited. Further, the assessee has denied again and again to have maintained any such bank account with UCO Bank, Brabourne Road Branch wherein the said sum of Rs.41,00,000/- has been credited. Even a police complaint has been filed by the assessee in this regard that some nefarious person has opened the bank account in the company’s name. Based on these facts, it was claimed that the re- assessment proceedings were initiated only for the purpose of verification and examination which is not the scope of re-assessment proceedings and, therefore, the said proceedings are illegal and bad in law and, therefore, the consequent order passed u/s 263 of the Act dated 18.02.2021 deserves to be quashed.
4.1. Even on merits of the case it was stated that the issue raised in the impugned proceedings was the subject matter of the re-assessment proceedings carried out in the case of the assessee wherein detailed submissions were filed on various occasions as called for by the ld. AO and the assessee was never supplied the material which shows that the assessee own and control the bank account held with UCO Bank in which the alleged amount of Rs.41,00,000/- was received. Further, even ld. PCIT has also not given any such proof that the assessee owns and controls the bank account held with UCO Bank Brabourne Road Branch. Thus, even on this fact itself it is alternatively claimed that ld. PCIT erred in holding the assessment proceedings as erroneous and prejudicial to the interest of the Revenue.
Per contra, ld. D/R vehemently argued supporting the order of the ld. PCIT and also submitted that this claim of the assessee that it has filed a police complaint on 14.12.2019 was not before the conclusion of the re- assessment proceedings and it is an afterthought.
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
We have heard rival contentions and perused the records placed before us and carefully gone through the records filed by the assessee. We will first take up the additional ground raised by the assessee challenging the legality of the impugned of the order for the reason that the proceedings initiated u/s 147 of the Act was in itself bad in law and a non-est assessment order. We find that for the purpose of re-opening, following reasons were recorded and supplied to the assessee:
“An information has been received from ADIT(INV.), Unit-4, Kolkata vide letter No. ADIT(Iinv)/U-4/Kol/S-150/STR No.1000069309/17-18/10642-10645 dated 15.03.2018. It has been informed that the assessee M/s. Golden Vincom Pvt. Ltd. at 2, Lal Bazar Street, Kolkata-700001 has received Rs.41 lakhs from M/s. Icom Trexim Pvt. Ltd. (A/c No.01900210002667 of UCO Bank) as a beneficiary company daring the F.Y. 2010-11. It is also verified from the ITR of assessee for A.Y. 2011-12 that turnover is Rs. NIL and total income is Rs. 438/-, which could not justify this type of transaction. The assessee has received an amount of Rs.41 lakhs from M/s. Icom Trexim Pvt. Ltd. out of the bogus transactions and assessee is also one of the beneficiary of these bogus transactions during the F.Y. 2010-11. Hence, I have reason to believe that Rs. 41 lakhs is actually undisclosed income of assessee M/s. Golden Vincom Pvt. Ltd. during F.Y. 2010-11. relevant to A.Y. 2011-12 which was escaped assessment. In view of the above, I find it is a fit case for re-opening by issuing Notice u/s.148 and proposed for re-open subject to approval of Addl. CIT, R-2, Kolkata/ Pr.CfT-1, Kolkata.” 7. During the course of re-assessment proceedings, the assessee categorically denied that it has not received the sum of Rs.41,00,000/- from M/s. Icon Trexim Pvt. Ltd. and also stated that the total bank transaction of the company was far below the said alleged amount as evident from the regular bank account maintained by the assessee company with Union Bank of India, account no. 436901010036308. Further, on 03.10.2018 ld. A/R on behalf of the assessee stated before ld. AO that the assessee company maintained the account only with UBI and no other bank account is maintained. Thereafter, on 25.10.2018, ld. AO supplied the copy of UCO Bank account by e-mail which is received from ADIT (Investigation), OSD. This UCO Bank account was maintained with Brabourne Road Branch. In reply on 05.10.2018 it was submitted on behalf of the assessee that the transaction shown are with Golden Vincom and not with Golden Vincom
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd. Pvt. Ltd. Thereafter, ld. AO issued letter to UBI in which the assessee maintains bank account. Reply/statement was collected by the inspector. Books of account were produced, financial statements were placed on record. It was explained that no such transaction was carried out. On 17.12.2018 letter was issued to ADIT (Inv.)(OSD), Unit-4, Kolkata by the AO stating the status of the examination carried out but no reply was received from the ADIT (Inv.) and the case was assessed at returned income on 20.12.2018.
7.1. On going through the above series of facts it clearly spells out that the re-opening in the case of the assessee beyond four years was not supported by any strong evidence against the assessee. From the flow of events happening on the dates appearing on the order sheet it seems that ld. AO during the verification of the transaction had a suspicion that the assessee had received the said amount of Rs.41,00,000/- from M/s. Icon Trexim Pvt. Ltd. If the ld. AO was very certain, he should have collected a report from UCO Bank about the persons owning that account, their photographs, their identity proof and correlate the same with the directors and other credentials of the assessee company and then come to a conclusion that the said account is owned and possessed by the assessee company. No such exercise was done and nor the Investigation Wing gave any reply to prove that the assessee owned and maintained account with UCO Bank, Brabourne Road Branch, Kolkata wherein the said transaction has taken place. The assessee has even filed a complaint with the Officer-in-Charge, Behala police station, Kolkata on 14.12.2019 stating that “during the course of income tax assessment proceedings for the FY 2011-12 it came to our notice that a Current account in our name is maintained and operated at UCO Bank, Brabourne Road Branch, Kolkata. It is reported that the said account was never related to us and it did give some sense of manipulation for unlawful means which never came across to us.” This shows that the assessee has completely disowned bank account and for the re-assessment proceedings to reach to a conclusion, ld. AO ought to have possessed a concrete evidence against the assessee at the time of initiation of assessment proceedings. It,
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
thus, indicate that the re-assessment proceedings in question have been initiated only for the purpose of verification and examination which is not the scope of re-assessment proceedings.
7.2. We find that the same issue came up for adjudication before this Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd. vs. CIT in ITA Nos. 764 to 766/Kol/2014 order dated 05.04.2017 and relevant portion of the decision applicable is extracted below:
“8. The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation of proceedings u/s 147 of the Act in the present appeals in which he has challenged the validity of order passed u/s 263 of the Act. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/.s 263 of the Act which seeks to revise an order passed u/s 147 of the Act, to challenge the validity of the order passed u/s. 147 of the Act as well as initiation of proceedings u/.s 147 of the Act. In this regard the Id. Counsel for the assessee placed before us two decisions one rendered by Lucknow Bench of ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai ‘ G ‘ Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in ITA NO.688/Mum/2016. In both the decisions a view has been taken by the Tribunal that when an Assessment order passed u/s 147 of the Act was illegal the CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon’ble Mumbai bench of the Tribunal has specifically framed the following questions: “1. Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non-est assessment order?” 9. On question no. 1 and 3 which is relevant to the present case the Hon’ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon’ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117 wherein the Hon’ble Supreme Court observed as follows:
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." 10. The ITAT Mumbai bench made a reference to another decision of the Hon’ble Supreme Court in the case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193 and the decisions in the case of Indian Bank vs Manilal Govindji Khona (2015) 3 SCC 712. The IT AT Mumbai bench also held that if order of assessment passed u/s 147 of the Act was illegal and nullity in the eyes of law then that order cannot be revised by invoking powers u/s 263 of the Act by CIT. The Mumbai Bench has in this regard placed reliance on the decision of Hon’ble Delhi bench of the Tribunal in the case of Krishna Kumar Saraf vs CIT in ITA NO.4562/Del/2007 order dated 24.09.2015 wherein it was held as follows: “17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon’ble Madras High Court in the case of CIT Vs. Git sons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same 20. In view of above discussion ground no. 3 is allowed and revision order passed u/s 263 is quashed.” 11. The learned DR relied on the order of the CIT(A). We have considered the rival submissions. We are of the view that the validity of the order u/s 147 of the Act depends upon the AO assuming jurisdiction to make an order of assessment u/s 147 of the Act after fulfilling the conditions laid down in the said section namely reason to believe the income chargeable to tax for that assessment year has escaped assessment. If this condition is not satisfied then it cannot be said the AO has validly assumed jurisdiction u/s 147 of the Act. If the validity of proceedings u/s 147 of the Act has not been challenged by the assessee by filing appeal against the order u/s. 147 of the Act, can it be challenged in the appeal against
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
an order u/s 263 of the Act revising the invalid order u/s 147 of the Act. This issue has been analysed by the Hon’ble Mumbai Bench of the tribunal in the case of M/s. Westlife Development Ltd. (supra) and 147 proceedings has been equated to primary proceedings and the proceedings u/s 263 passed equated to collateral proceedings. It has further been held based on various judicial pronouncements of the Hon’ble Supreme Court that if the primary proceedings are non-est in law or void on the ground of lack of jurisdiction then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. We have already set out the ratio laid down in these decisions and we do not wish to repeat the same. Suffice it to say the law is well settled that invalidity of the primary proceedings for want of proper jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we admit the additional grounds for adjudication. 12. As far as the merits of the validity of initiation of proceedings u/s 147 of the Act for A.Y.2007-08 and 2008-09 are concerned the question for consideration is as to whether on the basis of the reasons recorded it can be said that there can arise any belief on the part of the AO that income chargeable to tax for the relevant assessment years has escaped assessment. In this regard the reasons recorded by the AO for initiating proceedings u/.s 147 of the Act for A.Y.2007-08 and 2008-09 has already been set out by an order in the earlier part of this order. The gist of the reasons recorded by the AO is that the assessee had made investments of about Rs.4 crore in construction of hotel/resort at Mandarmoni, Purba Midnapore. It is the further allegation in the reasons recorded that to a notice u/s 133(6) of the Act, the Assessee had in reply admitted investment of only Rs.3.38 crores in construction of hotel and that source of funds for such construction was out of share capital and secured loan. It is also not disputed that the value of investments as stated by the assessee in its reply to the notice u/s 133(6) of the Act, was duly shown as the investment in construction of hotel with the balance sheet of the assessee. The AO has however inferred that there is a difference in the value of investment in construction of hotel as shown in the books of account and as per the information in possession of the AO which is a sum of Rs.4 crores. Another reason given by the AO is that the difference in the amount of investment in construction might have been met by the Assessee out of income not disclosed. It has also been mentioned that the source of investment with regard to the actual cost of construction requires investigation. 13. In this regard it can be seen that in its reply dated 26.07.2010 to the notice u/s 133(6) of the Act the assessee has given the following details: “Kindly refer to your above letter dated 18.06.2010 calling for information u/s. 133(6) of the Income Tax Act, 1961 Regarding investment in Hotel Ajoy Minar situated in Mandarmoni, Dist. - Purba Medinipur. As asked for, we are furnishing the information along with enclosures for your kind perusal.- I. Total Amount invested up to 31.03.2010 is Rs. 3,38,43,644.00 and source of fund is given hereunder: - Share Capital Rs. 1,88,30,000.00 Unsecured Loan Rs. 1.65.16,005.00 Total Rs. 3,53,46,005.00
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
We are enclosing herewith the list of share holders and loaners up to 31.03.2010 showing names, address and PAN of the respective parties for your ready reference. The figures relating to 2009-10 included with the above are subject to audit. The above two lists are the clear evidence in support of credit worthiness of our company, 2. A separate year wise list of Investment in Hotel Ajoy Minar is enclosed as asked for. 3 We are enclosing herewith photo copy of Audited Balance Sheet for the years 2006-07, 2007-08 & 2008-09. The Audit of Accounts for the year ending 31st March, 2010 is under progress. The same, if required, will be furnished when the same will be signed by the auditor. 4 The photo copies of two bank accounts are enclosed for your kind perusal.” 14. In the light of the aforesaid reply the question that needs to be answered is as to how did the AO get information that the assessee had invested Rs.4 crores in hotel at Mandarmoni, Purba Medinipur. Apparently there appears to be no basis for this conclusion arrived at by the AO in the reasons recorded. The Id. DR however sought to defend the action of the AO by submitting that there was a survey in the business premises of the assessee and in such survey there was evidence to show that the assessee had invested a sum of Rs.4 crores in construction of a hotel at Mandarmoni. We are of the view that this submission of the Id. DR cannot be accepted. The law is well settled that the reasons recorded by the AO have to be tested on the basis of specific wordings of the reasons so recorded. No external material can be shown to justify the conclusion arrived at in the reasons recorded unless these materials are specifically referred to or incorporated in the reasons recorded. In the reasons recorded the AO has not disclosed the basis of this conclusion that the assessee made an investment of Rs. 4 crores in the construction of a hotel at Mandarmoni. We find that in this regard that Hon’ble Bombay High Court in the case of Hindustan Lever Ltd., Vs. R.B.Wadkar (2004) 268 ITR 0332 the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the AO to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd.
evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. 15. We are also of the view that as rightly contended by the Id. Counsel for the assessee that the reasons recorded are vague and belief regarding escapement of income is on mere pretence. In this regard the decision of IT AT Kolkata bench in IT A No.671/Kol/2015 dated 18.09.2015 in the case of Dr. Papiya Dutta vs ITO is relevant and it has been held in the aforesaid decision as follows: “It is clearly evident from the reasons recorded by the Assessing Officer that there was actually no reason for him to have formed a belief about the escapement of any income of the assessee from the assessment, but the assessment was reopened by him to verify or examine certain particulars furnished by the assessee in the return of income, which according to the Assessing Officer, might have possibly involved introduction of her un accounted money by the assessee. It is thus clear that the assessment was reopened by the Assessing Officer on the basis of suspicion and in order to make fishing and roaming enquiries, which, in my opinion, is not permissible. It is a settled position of law that the assessment can be reopened under section 147/148 on the basis of 'reason to believe' and not 'reason to suspect'. As held by the Coordinate Bench of this Tribunal in the case of Deputy Director of inc me Tax (International Taxation )-21, Mumbai -vs.- Societe International De Telecommunication ( supra) cited by the Id. counsel for the assessee, unless the reasons to believe about the escapement of income exist, no recourse can be taken to the provisions of section 147. It was held that where an Assessing Officer ventures to initiate reassessment proceedings with an object of finding some material about the escapement of income, such reassessment cannot legally stand and the law doe s not permit the Assessing Officer to conduct inquiries after the initiation of reassessment 1TA No. 671 / KOL .72015 Assessment year: 2008 - 2009 proceedings, to find if there is an escapement of income. It was held that the scope of section 147 cannot encompass such an action under which certain examination is to be conducted for forming a reason to believe as to the escapement of income. If the facts of the present case including especially the reasons recorded by the Assessing Officer for reopening the assessment a reconsidered in the light of the decision of the Coordinate Bench of this Tribunal in the case of Deputy Director of income Tax (International Taxation)-21, Mumbai - vs.- Societe International De Telecommunication (supra), 1 am of the view that the initiation of reassessment proceeding itself was bad in law and the assessment completed by the Assessing Officer under section 143(3) read with section 147 in pursuance of such invalid initiation is liable to be cancelled. I order accordingly.” 16. In the present case also the re-assessment proceedings have been initiated only for the purpose of verification and examination which is not the scope of reassessment proceedings. It would be the case of rather reasons to suspect rather than reasons to belief that there was escapement of income. It is a case of the AO seeking to make fishing and roving inquiry without any basis. We have no
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hesitation in concluding that initiation of reassessment proceedings in the present case was not valid as the mandatory requirement of such 147 has not been satisfied. We therefore hold that reassessments orders for A.Y.2007-08 and 2008- 09 dated 30.12.2011 were invalid. Consequently order passed u/s 263 of the Act dated 21.03.2014 for A.Y.2007-08 and 2008-09 are also held to be invalid and quashed. Thus the appeals being ITA No.765 and 766/Kol/2014 are allowed. ITA NO.764/Kol/2014 (A.Y.2009-10) 17. As far as this appeal is concerned this arises out of an order passed u/s 263 of the Act revising an order passed u/s 143(3) of the Act dated 30.12.2011. In the assessment u/s 143(3) of the Act the AO has observed that the assessee has received share capital and share premium of Rs.8,80,000/- and Rs.79,20,000/- respectively during the relevant previous year. He also observed that to verify the genuineness of the share applicants notices u/s 133(6) of the Act were issued to the share applicants. Replies received from them were verified and placed and no adverse inference were drawn. 18. In the impugned order u/s 263 of the Act the CIT has observed that the net asset value of the company was only Rs.42.37 as on 31.03.2007 and net asset value was Rs.78.74 as on 31.03.2008 respectively and there was no justification at a very high premium which was eight times of the share capital and that the AO failed to examine as to why such high premium was paid by a person acquiring shares of the assessee company. The CIT has also observed that the facts and circumstances under which such high premium was charged raised serious concern and about the genuineness of the transactions as well as the source of funds. The CIT also found that notice u/s 133(6) of the Act was issued by the AO only to five out of seven share holders and that no query was raised regarding the justification of the premium. Finally the CIT came to the conclusion that order of the AO was erroneous because the AO failed to make proper inquiries with regard to the receipt of share capital and share premium by the assessee. We have already set out in the earlier part of the order the directions given by CIT in the order u/s 263 of the Act. In short it is the direction of CIT that the share applicants should be summoned to find out the genuineness of the transactions in the light of the share premium paid by them and also to see that if the subsequent transfer of shares by the share holders had lower price. 19. The Id. Counsel for the assessee submitted before us that the only grievance of the CIT in the impugned order was justification for a high premium. It was the submission that the justification of paying high premium on shares acquired was not necessary to be examined u/s 68 of the Act prior to introduction of first proviso to section 68 of the Act by the Finance Act 2012 w.e.f. 01.04.2013 whereby it has been provided 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
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(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: It was therefore submitted by him that the impugned order u/s 263 cannot be sustained. It was also submitted by him that there is no charge of money laundering by CIT in the impugned order and therefore the decision of the Hon’ble Calcutta High Court in the case of Subhlakshmi Vanijya Pvt. Ltd (ITA No. 1104/Kol/2014) dated 30.7.2015 (2015) 155 ITD 171 (Kolkata) will not be applicable. The Id counsel also submitted that there was improper application of mind by CIT as he has acted on the basis of the recommendation of the AO and has not applied his mind. The ld. DR relied on the order of CIT and further submitted that the CIT has applied his mind and has duly accepted the recommendations of the AO and issued notices in the seeking which clearly exhibits application of mind by CIT. 20. We have considered the rival submissions. It is nobody’s case that the AO did not issue notices u/s 133(6) of the Act to some of the subscribers of the share capital, who, in turn submitted details of their PANs, bank accounts, etc., copies of which have been placed on record. The AO after getting some documents did not think it fit to make further enquires. In the light of the high share premium received by the Assessee it was incumbent on the part of the AO to examine the rationale or logic behind issuing shares at such a high premium. He ought to have examined the directors of the companies who had subscribed to share capital. No attempt was made to require the assessee to justify the charging of such a high premium and further what prompted the subscribers to purchase shares at such a huge premium when the company did not have any worthwhile net worth and was relatively a new one without any business activity. To argue that once the AO, as per his wisdom, has inquired into certain aspects of assessment which he considered relevant and, thereafter, CIT cannot intervene, is wholly untenable. If this argument is taken to its logical conclusion, then it would mean obliterating the provisions of section 263 from the statute. The Hon’ble jurisdictional High Court in the case of Maithan International 277 CTR 65 (Cal) had to consider a case where an assessee obtained loans aggregating to Rs.1.60 crore from six private limited companies ranging between Rs.7 lac to Rs.1.10 crore. These companies had filed their returns with nominal income. The AO mentioned in the assessment order that Inspector was deputed to verify fresh loans received during the year. The Inspector verified such loans and gave a positive report. Keeping such report on record, the AO accepted the genuineness of the transactions. The CIT invoked section 263 by observing that the report given by the Inspector was very elementary and simply mentioned that he had verified bank passbooks, Profit & loss account and Balance sheets of these companies. In none of the reports, he had commented on the issue of credit worthiness of the parties. The CIT opined that the AO was required to make proper investigation to determine whether the loans were really made by the third parties or they had come out of the sources of the assessee himself. The Tribunal set aside the order u/s 263 of the Act by observing that the AO did conduct enquiry and: “if there is an enquiry, even inadequate, that would not by itself give occasion to the Id. CIT to pass order u/s 263 of the Act.” Setting aside the order passed by the Tribunal, the Hon’ble jurisdictional High Court has laid down that : “CIT had reasons to hold that credit worthiness of the alleged lenders was not enquired into.” It further went on to hold that a mere examination of the bank passbook, Profit & loss account and Balance sheet is not enough. When the requisite enquiry was not made, the Hon’ble High
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Court held that, the order was to be considered as erroneous and prejudicial to the interests of the Revenue. It also set aside the view of the Tribunal on inadequate enquiry by holding that: “If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non- application of mind.” It further observed that the question of inadequate enquiry should be understood in its proper perspective and: “if it can be shown that the inadequate enquiry led the AO or may have led into assumption of incorrect facts, that could make the order erroneous and prejudicial to the interests of the revenue.” Setting a bad trend has also been held to be prejudicial to the Revenue. 21. When we comparatively consider the facts of the instant case visa-vis those of Maithan International (supra), it can be seen that the facts under consideration are on a much weaker footing. In the present case, the AO obtained confirmations and copies of bank statements, etc., from some of the shareholders and got himself satisfied, whereas in the case of Maithan International, an Inspector was also deputed to conduct a further enquiry in addition to the collection of documents etc. as has been done in the instant cases. We are therefore of the view that the enquiry conducted by the AO was inadequate and would amount to no enquiry at all. 22. As to whether enquiry into high share premium ought to have been made by the AO and also as to what was the justification for such high premium could to be investigated by the AO at all because the 1st proviso to Sec.68 of the Act inserted by the Finance Act, 2012 w.e.f. 1-4.2013 was only prospective in operation, we are of the view that since section 68 covers 'any sum credited’ in the books without any exception, which, inter alia, includes share capital, it cannot be held that the examination of share capital with premium etc. was earlier outside the ambit of section 68 and now this amendment has brought it into its purview. The amendment has simply made express which was earlier implied. We are therefore of the view that the assessee is always obliged to prove the receipt of share capital with premium etc. to the satisfaction of the AO, failure of which calls for addition u/s 68 of the Act. 23. The argument with regard to non application of mind by the CIT is without any basis as all show cause notice u/s.263 of the Act were issued by him and ultimately he has passed the impugned order. There is no material brought on record to show that the CIT acted without application of mind. We therefore reject this argument on behalf of the Assessee. 24. We are therefore of the view that the order u/s.263 of the Act is valid and proper in so far as it relates to AY 2009-10 is concerned and we uphold the same. 25. In the result, ITA No. 765 & 766/Kol/2014 are allowed while ITA No.764/Kol/2014 is dismissed.” 7.3. From perusal of the above finding of this Tribunal and various decisions referred and related therein, we find that the same is squarely applicable on the facts of the instant case so much so that the re- assessment proceedings carried out in the instant case by issuing show cause notice dated 28.03.2018 are clearly seems to have been initiated for
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I.T.A. No.: 143/Kol/2021 Assessment Year: 2011-12 M/s. Golden Vincom Pvt. Ltd. the purpose of verification and examination and there was no solid evidence with the ld. AO against the assessee to prove that the assessee owns and maintains a bank account with the UCO Bank, Brabourne Road Branch. Even till today a copy of such bank statement has not been supplied to the assessee nor the ld. PCIT in the impugned order has referred to any such bank statement in its position along with certificate of the bank authorities which could show that the assessee owns any such bank account with UCO Bank wherein the alleged transaction has been credited. Thus, it remains beyond doubt that the re-assessment proceedings were initiated only for the purpose of verification and examination and as per the finding of this Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd. (supra) is held to be not the scope of the re-assessment proceedings and such re- assessment proceedings do not satisfy the statutory requirement of Section 147 of the Act and the same is thus, held to be invalid. Since we have held the re-assessment proceedings u/s 143(3)r.w.s. 147 of the Act dated 20.12.2018 as invalid and bad in law, the consequent proceedings carried out u/s 263 of the Act dated 18.02.2021deserves to be quashed and held to be invalid. Thus, the additional ground of appeal raised by the assessee is allowed.
As other grounds are concerned, since we have already quashed the order u/s 263 of the Act as bad in law, we find it merely academic to deal with the remaining grounds of the appeal. Therefore, other grounds are dismissed as infructuous.
In the result, the appeal of the assessee is allowed as per the terms indicated above.
Kolkata, the 27th April, 2022.
Sd/- Sd/- [Sanjay Garg] [Manish Borad] Judicial Member Accountant Member Dated: 27.04.2022 Bidhan (P.S.)
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Copy of the order forwarded to: 1. M/s. Golden VincomPvt. Ltd., 231A, Roy Bahadur Road, Kolkata-700 034. 2. Pr. Commissioner of Income Tax-1, Kolkata. 3. CIT(A)- 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.