M/S ASHOKA PORTFOLIO MANAGEMENT PVT. LTD.,JAIPUR vs. ITO, WARD-1(1), JAIPUR, JAIPUR

The grievance of the assessee is two fold; firstly, raising a legal issue challenging the validity of the order passed u/s. 147 of the Act; and secondly, against the addition of Rs. 20,00,000/- made u/s. 68 of the Act. Since the legal ground goes to the root

Learned counsel for the assessee, referring to the written submissions, submitted that reassessment proceedings carried out by issuing notice u/s. 148 of the Act is solely on the basis of information received from Investigation Wing, Bombay and without conducting any further enquiry and Ld.AO based on the borrowed satisfaction has issued notice u/s. 148 of the Act. It is submitted that the reason for reopening was that the income of Rs. 20,00,000/- has escaped assessment as the assessee is found to be one of the beneficiaries of obtaining accommodation entry in the form of share capital of Rs. 20,00,000/- from M/s. Vanguard Jewels & Yash V. Jewels Ltd. He submitted that the assessee has furnished the regular return of income on 28/09/2008 along with audited financial statement during the year under consideration. There is no increase in the share capital and the alleged sum of Rs. 20,00,000/- is sale proceeds from sale of equity shares held as stock-in-trade. Reliance placed on the following judgments:-

On the other hand, ld.DR vehemently argued supporting the order of the Ld.CIT(A).

I have heard rival contentions and perused the material on record.

Through ground No.1, validity of the reassessment proceedings u/s. 147 of the Act has been challenged. Ld.AO issued notice u/s. 148 of the Act dated 10/07/2015 recording the following reasons:-

Learned counsel for the assessee referring to the details filed in the paper book has demonstrated that there is no increase in share capital and that the alleged sum is received against the sale of equity shares held stock-in-trade. It has been contended before me that Ld.AO has issued notice u/s. 148 of the Act merely on the 4 ITA.No.690/JPR/2025 (M/s. Ashoka Portfolio Management Pvt. Ltd.) basis of borrowed satisfaction and has not conducted any independent enquiry. I have perused the records and observe that assessee is a private limited company and return u/s. 139(1) of the Act stood filed on 28/09/2008 for A.Y. 2008-09 declaring income of Rs.63,810/- along with current loss of Rs.17,50,000/-. In the reasons recorded for reopening the assessment Ld.AO has observed that assessee has received accommodation entry in the form of share capital of Rs.20,00,000/- during the year. I have gone through the audited balance sheet which was also available with the Ld.AO prior to issuance of notice u/s. 148 of the Act. On going through Schedule-I of the balance sheet as on 31/03/2008 placed at paper book page No.8, I observe that issued, subscribed & paid up capital as on 31/03/2007 is Rs. 1,99,77,000/- and as on 31/03/2008 the figure is the same i.e. Rs. 1,99,77,000/- It shows that there is no increase in the share capital and, therefore, the first allegation of against the assessee that assessee has received share capital during the year, is not correct. The second allegation in the reasons recorded by the Ld.AO is that there is escapement of income to the extent of Rs. 20,00,000/- for the amount received from M/s. Vanguard Jewels & Yash V. Jewels Ltd. For that assessee has filed ledger accounts of both these parties and also copy of shares purchase and sale account placed at page No.51-73 of the paper book. Perusal of the same indicates that the assessee was holding the equity shares of Sachin Water Supply Company Pvt. Ltd. and Atul Capital Finance Pvt. Ltd. These equity shares are held as stock-in-trade and verifiable from Schedule-5 of the balance sheet. The assessee has sold the equity shares of Sachin Water

Now, In the light of the above facts, it remains an undisputed fact that Ld.AO has issued notice u/s. 148 of the Act only on the basis of borrowed satisfaction and information of the Investigation Wing. The Ld.AO had made no independent enquiry even when the return of income along with audited balance sheet stood filed.

Now to examine these facts in the light of settled judicial precedents, I notice that the Hon'ble Gujarat High Court in the case of Kantibhai Dharmshibhai Narola (supra) has held that the third party information is only information and does not constitute reason to believe unless and until third party information is subjected to investigation and on the basis thereof independent reasons should be recorded by the Ld.AO before issuance of notice u/s. 148 of the Act.

Further, the Coordinate Delhi Bench in the case of Bhaijee Comodities (P.) Ltd. (supra) has held that “where assessee had sufficiently demonstrated that there was no relevant material to make wide ranging allegations towards accommodation entry in form of share capital and earning fictitious profits and so called belief formed by AO towards escapement of chargeable income was without availability of relevant or tangible material and merely

Further, the Hon'ble High Court of Bombay in the case of Arvind Sahdeo Gupta (supra) held that “if the AO has proceeded on fundamentally wrong facts to form reasonable belief that income chargeable to tax has escaped assessment and the AO while disposing of the objections, does not deal with the factual position asserted by the petitioner, it would be safe to conclude that the Revenue does not dispute the facts stated by the petitioner. On such facts, there could be no reason for the Ld.AO to believe that income chargeable to tax has escaped assessment.”

Respectfully following the ratio laid down by the Hon'ble Courts and coordinate Bench referred (supra), I am of the considered view that since Ld.AO failed to record proper reasons for issuance of notice u/s. 148 of the Act by conducting proper and independent enquiry and that the Ld.AO has merely proceeded on the borrowed satisfaction and even not verified the income tax return and audited balance sheet available with the Ld.AO where the alleged transaction is duly reported and there is no increase in share capital. Therefore, the notice issued u/s. 148 of the Act is illegal, bad in law as Ld.AO failed to assume jurisdiction and thus the reassessment proceedings carried out by the Ld.AO are illegal and void ab initio and are hereby quashed. The impugned addition stands deleted. Ground No.1 challenging the validity of the reassessment proceedings is allowed in favour of the assessee.

In the result, appeal of the Assessee is allowed as per the terms indicated hereinabove.