ITO 15 (2)(2), MUMBAI vs. M/S LIMBO ENGINEERING P LTD., MUMBAI

Per Rajesh Kumar, Accountant Member:

The above titled appeals have been preferred by the Revenue against the order dated 19.11.2019 & 28.08.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred

2 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. to as the CIT(A)] relevant to assessment years 2011-12, 2012-13 & 2013-14.

3 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. reopened under section 147 of the Act by issuing notice under section 148 of the Act dated 29.03.2018 which was duly served upon the assessee. In response to the said notice under section 148, the assessee filed return of income on 24.04.2018 declaring nil income. The assessee is engaged in the business of financing and trading in shares. The reasons recorded for reopening the assessment under section 148(2) of the Act are reproduced as under for the sake of convenience and ready reference: “5.4.3 "The above mentioned assesses has filed the return of income for A. Y.2011- 12 dated 25.01.2012 declaring total loss of Rs.51,274/-. The said return of income was processed u/s. 143(1) of the IT Act, 1961.

The ADIT(lnv) Unit 2(2), Kolkata vide letter No.ADIT(INV)/U-2(2)/STR 36911/dated 05.03.2018 has forwarded information from credible source in the case of Mr. Ashok Majumdar, wherein it was observed that M/s. Limbo Engineering Pvt. Ltd. (AABCL9224B) had opened current account (Account No.3680301113595) with S B Road Branch, Kolkata, and is one of the beneficiaries whose accounts are being on rotation of high value funds involving large number of accounts pertaining to the branch as well as other branches. There are no business related transaction turnover at over 17 Crores took place in each of these accounts in short span of time.

As per the information received, during the financial year 2010-11 relevant assessment year under consideration, total incoming funds to this account have been computed at Rs.16,60,56,819/-7d total outgoing funds have been computed at Rs.16,59,86,385/-. The extent of such accommodation entries taken may be more. This is because the assessee may have taken accommodation entries in bank accounts from other such bogus concerns, which needs to enquired. The assessee has entered into suspicious and prima facie bogus financial transaction which has been done to suppress its profit. On the basis of above finding from the information provided by investigation wing and due diligence thereof from the records, it is found that assessee had accommodation entries. Further, this office has also examined the facts of case independently and it is found that there is failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment for the year consideration. Therefore, I have the reason to believe that the income chargeable to tax under the provisions has escaped assessment to the extent of Rs.16.60 crores. In this case a return of income was filed for the year under consideration scrutiny assessment u/s.143(3)/144 as stipulated u/s.2(40) of the I. T. Act, 1961 and the return of income was only processed u/s.143(1) of the Act. According to the case, the only requirement to initiate proceedings u/s.147 of the Act is reason which has been recorded above paragraph. In view of the above, provisions of

4 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. clause (b) of explanation 2 to section 147 are applicable to facts of this case for the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

Therefore, there is sufficient material on record, on the basis of which there is reason to believe that assessee has not made full and true disclosure of income thus is escapement of income chargeable to tax to the extent of 16.60 Crores within the meaning of section 147 of the Act. Hence, it is fit case for reopening of proceedings u/s.147 of the I. T. Act, 1961 by issuing u/s.148 of the I. T. Act, 1961." (Not legible and cut from both sides."

5 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. application money received with premium, details of subscribers, their confirmations and resolution passed in the board meeting etc. The AO also directed the assessee to produce the confirmations, PAN numbers of the investors which were replied by the assessee vide written submission dated 06.12.2018 giving the details of share application money, purpose of raising the share application money and also the fact that the said details were examined in the original assessment proceedings which culminated under section 143(3) of the Act. The assessee filed the detailed information regarding the shareholders, their confirmations, details of payments, ITRs and copies of annual accounts etc. The AO also issued notice under section 133(6) of the Act and the result of enquiry is appended in para 4.4.2 of the assessment order. The AO was not satisfied with the genuineness of these transactions on the ground that most of the subscribers were in the first year of their incorporation and in some cases the details were not available. Finally, the AO added the entire amount to the income of the assessee under section 68 of the Act on the ground that assessee has failed to prove the genuineness of the transactions and also suspected the creditworthiness of the subscribers/investors.

6 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. “5.4.4 I have carefully considered the reasons assigned by the Ld. AO for reopening of the assessment and the submissions of the Id. AR together with facts of the case on record. As it could be seen from the reasons recorded, the assessment has been re-opened on the basis of information received from ADIT(lnv.)-Unit 2(2), Kolkata vide letter No.ADIT(lnv.) U-2(2) STR36911 dated 5-3- 2018 claiming that information from credible source in the case of Mr. Ashok Majumdar, wherein it was claimed to have been observed that the assessee had opened current account (Account No.3680301113595) with S B Road Branch, Kolkata and was one of the beneficiaries whose account were being used for rotation of high value funds involving large numbers of accounts pertaining to the same branch as well as other branches. In the beginning of the reason, the Ld. AO mentioned about one Mr. Ashok Majumdar in respect of high value funds in the bank account of the assessee. On going through THE assessment order and record, at this stage I could not understand who is Mr. Ashok Majurndar and how he is associated with the assessee. The Ld AO has also not disclosed credible source of such information. It is further seen that as per the information received, total inflow of funds to the bank account of the assessee have been computed at Rs,16,60,56,819/- and total outgoing funds have been computed Rs.16,59,86,385/- which according to AO could be more because the AO believed that the assessee might have taken accommodation entries in bank accounts from other such bogus concerns, which needed to be enquired as the assessee had entered in to suspicious and prima facie bogus financial transactions which being claimed to have been done to suppress its profit. The Ld. AO therefore claimed that the finding from the information provided by the Investigation Wing and due diligence thereof from the records, it was found that the assessee had entered into accommodation entries. The Ld AO has accordingly formed an opinion that the total amount involved in the accommodation entries was to the extent of Rs.16.60 crores which had escaped assessment in the case of the assessee. I am unable to understand the role of Mr. Ashok Majumdar since the AO has not discussed anything about Mr. Ashok Majumdar in his assessment order and the only material available which was the current account with a bank but there was no link from there to conclude that the transactions in the bank account done to escape assessment of a part of its income. The “reasons” speak about the assessee who might have taken accommodation entries in the bank account and after due diligence thereof from the records the Ld AO has formed an opinion that the assessee had taken accommodation entries without any basis and reason thereof. In my opinion the requirement of law is "reason to believe" and not reason to "suspect". The words used by the Ld AO are "assessee may have taken accommodation entries in the bank accounts from other such bogus concerns, which needs to be enquired. The assessee has entered into suspicious and prima facie bogus financial transaction which has been done to suppress its profit”. I have considered these reasons which appeared to be vague and based on suspicion and guess work and rather in the nature of making an enquiry or verification on the plea of high value transaction in a bank account. However the reason recorded by the AO does not indicate to believe that any part of income has escaped assessment. The AO can assume jurisdiction u/s.147 only if he has sufficient material before him, he cannot form belief on the basis of presumptions, conjecture and surmises. It is established law that suspicion, gossip or rumour should not form basis of reopening of the assessment. Also it is well established that the assessment cannot

7 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. be reopened for doing a "fishing or roving inquiry” without proper reasons to believe, which is not permissible. Further, I did not nexus with the reasons recorded for initiating reassessment proceedings and the information received by the AO from Investigation Wing. Therefore, it appears that the initiation of re-assessment proceedings was without requisite or specific information but was merely made on information received from ADIT(lnv.), Kolkata.

5.4.5 It is seen that in para No.3.1 of the assessment order, the AO first claimed that as per information received from ADIT(lnv.), Unit-2(3), Kolkata :-

"3.1. As per information available in this office, M/s. Limbo Engineering P Ltd (PAN : AABCL9224B) had opened current account (Account No. 3080301113595) with SB Road Branch, Kolkata, and this account has been used for rotation of high value funds involving large number of accounts pertaining to the same branch as well as other branches. It is alleged that there is no business related transaction and turnover of over Rs. 16.60 crores took place in its account in a short span of time three months i.e. from 05.01.2010 to 31.03.2011."

5.6 The Ld AO himself observed that it was alleged that there was no business and the transactions in the bank account were accommodation entries which needed to be enquired. The word used "alleged" means there is no certainty in the information as it is accusation only which could be untrue also. There is nothing on record as to due diligence being carried out so as to assume the bank transactions to be accommodation entries only nor there is any supporting material available with the Ld. AO.

5.4.7 Side stepping the issue of bank account as discussed in para No.3.1 to 3.3 of the assessment order, the Ld. AO jumped directly on the issue of share capital share premium and share application money observing as under:-

"3.4 As per the Schedule 'A' to the audited Balance Sheet as at 31.03.2011, the assessee company raised equity share capital of Rs.80,37,66,000/- in the form of "issued, Subscribed & Paid-up Capital of Rs. 2,16,17,000 /- shares of Rs.1/- each at a premium of Rs.509/- per share (share premium of Rs. 77,21,53,000/-) and there is also share application money pending allotment of Rs.99,96, OOO/- as per Schedule '2' to the audited Balance Sheet as at 31.03.2010. The assessee company has received total money on account of raising of share capital amounting to '80,37,66,000/-"

5.4.8 The Ld. AO has finally made an addition of 80,37,66,000/- to the income of the assessee on account of unexplained cash credit u/s.68 representing share capital/share premium raised by the assessee company.

5.4.9 I have given anxious thought on the issue involved. The whole case of the Id. AO has been built up on certain information of ADIT(lnv.), Unit-2(3), Kolkatta in which it was alleged that the assessee company had opened a bank account and used the same for rotation of high value funds. The Id. AR relied the decision of the Honble jurisdictional ITAT that under the identical facts, in the case of Diwan

8 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. Capital Finance Pvt. Ltd. v. DCIT (ITA No.2091/Mum/2018 dated 10-1-2019) wherein it has been held that no addition u/s.68 could be made merely on information from Investigation Wing. Further it is seen from the reasons recorded for re-opening of the assessment that it has been re-opened on the belief that the assessee might have taken accommodation entries in the bank account computed at Rs 16.60 crore. However, in making re-assessment no addition has been made on this count but the addition has been made on different count i.e. unexplained cash credit u/s.68 representing amount received to the extent of Rs 80,37,66,000/- on account of share capital, share premium and share application. The action of the Ld AO clearly shows the reasons recorded for re-opening of the assessment are non existing or irrelevant and vague as well as ceased to survive. In fact the AO has to restrict the re-assessment proceedings only to issues in respect of which reasons have been recorded for re-opening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded. It is well established that when the AO did not assess income for which reasons were recorded u/s.147, he cannot assess other income also. It is worth to note that this interpretation regarded by the Parliament as being contrary to the legislative intent. Hence, the Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under section 147, though the reasons for such issue have not been included in the reasons recorded in the notice under section 148(2). Section 147 along with Explanation 3 to Section 147 read as

"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 recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned hereafter in this section and in section 148 to 153 referred to as the relevant assessment year.

Explanation 3 – For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under subsection (2) of section 148."

5.4.10 The words used by Parliament 'and also' in Section 147 cannot be read as being alternative. The correct interpretation with regard to these words would be to interpret them as being conjunctive and cumulative. The Parliament did not use the word 'or’ is of vital importance, since the intent is to assess or reassess income escaped assessment for which reasons recorded along with any such income chargeable to tax and escaped assessment which subsequently comes to notice of AO during re-assessment proceedings. The words 'and' as well as 'also' are used in conjunction by the Parliament.

9 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. 5.4.11 Further in support of its case the appellant's AR has heavily relied on the decision of the Honble jurisdictional High Court in CIT V/s. Jet Airways (I) Ltd. (Bom) 331 ITR 236 where on the identical facts has held as under:

"Evidently therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess : (i) such income ; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words "such income" refer to the income chargeable to tax which has escaped assessment, and in respect of which the Assessing: Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of which he has formed a reason to believe that it has escaped assessment and in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. Further the Ld AR also referred to the decision of Honble Delhi High Court the case of Ranbaxy Laboratories Ltd v/s. CIT 336 ITR 136 (Del) it is held that

"under Explanation 3 if during the course of the proceedings the Assessing Officer comes to the conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. The Assessing Officer was satisfied with the justifications given by the assessee regarding the items of club fees, gifts and presents and provision for leave encashment, but during the assessment proceedings, he found the deduction under sections 80HH and 80-1 as claimed by the assessee to be not admissible. He consequently proceeded to make deductions under sections 80HH and 80-1 and accordingly reduced the claim on these accounts. The very basis of initiation of proceedings for which reasons to believe were recorded was income escaping assessment in respect of items of club fees, gifts and presents, etc., but while these items were not disturbed, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-1 which was not permissible. The Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings were initiated but he was not

10 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. justified when the reasons for the initiation of those proceedings ceased to survive." 5.4.12 In the light of the above facts and also placing reliance on the judicial precedents referred to, I am of the considered opinion that the reasons for initiation of reassessment proceedings u/s.147 have ceased to survive as no addition has been for these reasons and hold that the reopening the assessment u/s.147 of the Act is beyond the jurisdiction of the AO. Therefore, I quash the reassessment order passed u/s. 143(3) r.w.s. 147. Accordingly this ground is allowed.”

11 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. the act is beyond the jurisdiction of the AO. The ld DR contended that the decision of the Ld. CIT (Appeal) is not acceptable for the following reasons. First one is that the AO has mentioned about one Mr Ashok Majumdar, however, the AO has not discussed anything about Mr Ashok Majumdar in his assessment order and the only material available was a current account with the bank but there was no link from there to conclude that the transaction in bank account was done to escape assessment for part of its income. The AO has also not disclosed credible source of such information. The ld DR submitted that the observation of the Ld. CIT (Appeal) is erroneous, out of context and contrary to facts on record. The requirement at the stage of issuing reopening notice is only with a prima facie view that income chargeable to tax has escaped assessment by relying on the decision of Spicy Sangria Hotels (P.) Ltd. v. Income-tax Officer[2019] 111 taxmann.com 491 (Bombay). The DR submitted that the reasons recorded need not to be very elaborate, but should reflect application of mind on the part of the Assessing Officer to the evidence available by relying on the decision of Purnima Komalkant Sharma v. DCIT [2019] 419 ITR 361 (Gujarat). The ld. DR stated that all that the AO was to specify was the existence of tangible material in the form of documents or other channels of information which could reasonably or potentially lead to any inference of escapement of income. To require the Revenue to disclose further details regarding the nature of documents or contents thereof would be virtually rewriting the conditions in section 147 of the Act as has been decided in the case of Pr CIT v. Paramount Communication (P.) Ltd. [2017] 392 ITR 444 (Delhi). The amount of

12 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. accommodation entries for the period under consideration i.e. Rs. 16.60 crores was entirely based upon the information received from ADIT (Inv)-Unit-2(2), Kolkota, that specifically refers to the petitioner, wherein it is clearly stated that “The assessee has entered into suspicious and prima facie bogus financial transactions” which clearly establishes a link between the relied upon material and the assessee. Thus the AO had applied his mind to the fact on record and was prima facie satisfied that the reopening of the assessment for the AY 2011- 12 was needed due to those stated facts. The ld CIT (Appeal) has also acknowledged that the material available was a current account with the bank. Merely because information was supplied to Assessing Officer by investigation wing of department would not mean that Assessing Officer could not rely upon it. To support his contentions the ld Dr relies on Choksi VachharajMakanji& Co. v. ACIT [2016] 76 taxmann.com 17 (Gujarat). In AGR Investment Ltd. v. Addl. CIT [2011] 333 ITR 146 (Delhi) the Hon’ble High Court of Delhi has held that where AO had specific information from office of DIT (Investigation) as regards transactions entered into by assessee- company with a number of concerns which had made accommodation entries and they were not genuine transactions, it could be said that there was material on basis of which notice u/s 148 could be issued. In Avirat Star Homes Venture (P.) Ltd. v. ITO [2019] 411 ITR 321 (Bombay) where certain companies which were involved in giving accommodation entries to several beneficiaries, the investigation wing provided copies of the bank's statement and conveyed that from the bank statement and further investigation it was clear that the funds had been

13 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. routed through the accounts of the said company, the Hon’ble jurisdictional High Court has held that “the information supplied by the investigation wing to the Assessing Officer thus formed a prima facie basis to enable Assessing Officer to form a belief of income chargeable tax having escaped assessment.”. In Experion Developers (P.) Ltd. v. CIT [2020] 115 taxmann.com 338 (Delhi) a reopening notice was issued against assessee on ground that an information was received from DIT (Investigation) that a parent company of assessee at Singapore had made an investment of certain amount in assessee company, however, said investing company did not appear to be carrying out any regular business activities and was floated to act as a conduit to funnel funds into Indian companies, the reopening notice issued against assessee after four years from end of relevant assessment year was held to be justified. Further, at this stage, the test is not as to whether there has been any escapement of income, but whether there exist "reasons to believe" that the income chargeable to tax has escaped assessment.[Sri Krishna (P.) Ltd. v. ITO [1996] 221 ITR 538 (Supreme Court), Experion Developers (P.) Ltd. v. CIT [2020] 115 taxmann.com 338 (Delhi).Therefore, the emphasis of the ld CIT(Appeal) on the information in the case of Mr Ashok Majumdar is unwarranted. In case, he had any doubts in this regard, he should have examined information received from ADIT (Inv)-Unit-2(2), Kolkota vide letter No. ADIT (Inv)-U-2(2) Kolkota/STR/36911 dated 05.03.2018 as held by the Apex Court in ITO Vs. Biju Patnaik (1991) 188 ITR 247 (SC).Tt is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts if

14 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. the record discloses the same, the notice or the order does not per se become illegal. Identical is the view held by Hon’ble High Court of Delhi in CIT vs Deepak Knits And Texturise Pvt. Ltd in ITA 769/2010.

7.1. On the issue that assessment cannot be reopened for doing a “fishing and roving enquiry” without proper reason to believe, the ld DR submitted that the observation of the ld CIT (Appeal) are an erroneous, out of context and contrary to facts on record. The reasons recorded as appearing in para-5.4.3 on page 52-53 of the appellate order, can be clearly divided into 2 parts. In the first part in para-2 and para-3 of the reasons, the AO has recorded the information received from ADIT (Inv)-Unit-2(2), Kolkota. Thereafter, in the second part, the AO has recorded reasons as regards escapement of income. Nowhere in the reasons recorded in para-3 onwards as the AO “speak about the assessee who might have taken an accommodation entries in the bank account”. Nowhere has the AO in the reasons recorded opined that accommodation entries in the bank account needs to be enquired. To the contrary, in para-3 of the reasons, the AO has clearly recorded that the assessee has taken accommodation entries and that the income chargeable to tax has escaped assessment to the extent of Rs. 16 .60 crores. Further, the information recorded by the AO in para-3 of the reasons can be further subdivided into 2 part. In the first part it is clearly mentioned that “the total incoming funds to this account have been computed at Rs. 16, 60, 56, 819/-and total outgoing funds have been computed at Rs. 16, 59, 86, 385/-” and in the second part it is mentioned that “the extent of such accommodation

15 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. entries taken may be more. This is because the assessee may have taken accommodation entries in bank accounts from other such bogus concerns, which needs to be enquired.” Nowhere in this information received, as considered in the reasons recorded it is suggested that “the total incoming funds to this account have been computed at Rs. 16, 60, 56, 819/-and total outgoing funds have been computed at Rs. 16, 59, 86, 385/-” which the AO has considered in the later part of the reasons as having escaped assessment, has the ADIT (Inv)-Unit-2(2), Kolkota suggested that it needs to be enquired.

7.2. On the initiation of the assessment proceedings without requisite or specific information, merely based on information received from ADIT (Inv)-Unit-2(2), Kolkota, the ld DR stated that the observation of the ld CIT (Appeal) are an erroneous and contrary to facts on record. The information received by the AO from the ADIT (Inv)-Unit-2(2), Kolkota vide letter No. ADIT (Inv)- U-2(2) Kolkota/STR/36911 dated 05.03.2018 is very specific as much as thatthe material specifically refers to the petitioner, which clearly establishes a link between the relied upon materials and the petitioner. [Purnima Komalkant Sharma v. DCIT [2019] 419 ITR 361 (Gujarat)]. It specifies that M/s Limbo Engineering Pvt. Ltd. has PAN AABCL9224B), that it opened current account (account no. 3680301113595) with SB Road Branch, Kolkota, and that in 3 months i.e. from 05. 01. 2010 to 31. 03. 2011, the total incoming funds to this account were Rs. 16, 60, 56, 819-/and the outgoing funds Rs. 16,59, 86, 385/- and that there were no businesses related transactions in this account. The case on hand is not one where it could be argued that the Assessing Officer, on absolutely vague or unspecific

16 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. information, initiated the proceedings of reassessment without taking the pains to form his own belief in respect of such materials.

7.3. The ld DR submitted that as per information received from ADIT (Inv)-Unit-2(2), Kolkota it was alleged that there was no business and the transaction in bank account were accommodation entries which needed to be enquired which means that there is no certainty in the information as it is accusation only, therefore there was no due diligence so as to assume the bank transactions to be accommodation entries only. The observation of the ld CIT (Appeal) are an erroneous and out of context as this observation of the ld CIT (Appeal) is with reference to assessment order which is not relevant for deciding the issue of validity of reasons recorded u/s 148 of the act. As discussed earlier, nowhere in the reasons recorded, has the AO recorded that “the transaction in bank account were accommodation entries which needed to be enquired”.

7.4. As regards sidestepping the issue of bank account that AO has jumped directly to the issue of share capital and premium and share application money, the ld DR argued that the observation of the ld CIT (Appeal) are an erroneous. The AO has neither sidestepped the issue nor made an addition on an issue which is independent of issue of credit and debit entries in the bank account. Then ld submitted that during the course of assessment proceedings , the AO has asked the assessee to furnish partywise list of credits and debits appearing in the bank account along with the details of sources besides the details of share application money received during the year

17 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. along with premium vide notice dated 12.11.2018 (Para-3.5 of the Assessment Order) and in response the assessee has furnished reply before the AO on 06.12.2018 wherein it has been stated that the share application money has been received for expansion of business (Para-3.5 of the Assessment Order). Apparently, no further details are submitted before the AO as regards credits and debits appearing the bank account. The AO has further discuss this issue in para by .4 .5 of the assessment order and on page 8 of the said para the AO has given a finding that “From the perusal of the bank statements, it is surprising to note that share application money received is invested into another company the very next day. The whole share application receipts are in the nature of transactions are devoid of any Commercial nature and definitely fall in the realm of non-bona fide transactions.”

7.5. Distinguishing the decision of Diwali Capital Finance Private Limited v DCIT (ITA No. 2091/Mum/2018 dated 10-1- 2019) wherein it has been held that no addition u/s 68 could be made merely on information from Investigation Wing, the ld DR submitted that reliance on the decision of the Hon’ble jurisdictional tribunal in Diwali Capital Finance Private Limited(supra), is misplaced as the issue has been decided in this case on the merits of additions without elaborating on the validity of notice issued u/s 148 of the Act. Further, the above decision cannot be applied blindly without discussing the facts of the case as it is distinguishable on facts, as much as that the notices issued u/s 133 (6) in the present case were returned unserved but the replies submitted from the same addresses. All companies had no credentials to carry out transaction of huge

18 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. amounts as per their income profile and almost all the companies were in the first year of incorporation. Under identical facts and circumstances, the Hon’ble ITAT Ahmedabad in the case of Pawankumar M Sanghvi v. ITO [2017] 165 ITD 260 (Ahmedabad - Trib.) has held that such transactions of the assessee cannot be held to be genuine, a decision has been by the affirmed in 404 ITR 601 (Gujarat) and the SLP dismissed in [2018] 97 taxmann.com 398 (SC).Further also, it is “a matter yet to be gone into by the ITO. It is open to the respondent to place all the necessary material facts and the ITO is free to consider the material and to make a decision in that regard.” ITO Vs. Biju Patnaik (1991) 188 ITR 247 (SC)

7.6. The ld DR also submitted that the conclusion of ld CIT(A) that reasons recorded u/s 148(2) ceased to survive as no addition was made on the issues noted in the reasons is wrong and contrary to the facts. The ld DR assailed the observing that the reasons for the initiation of reassessment proceedings have ceased to survive as no addition has been made on the reasons recorded for initiation of reopening the assessment and relying on the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd. (Bom) 331 ITR 236, the Ld.CIT (Appeal) has held that the reopening of assessment u/s 147 of the act is beyond the jurisdiction of the AO. The observation of the ld CIT(Appeal) are an erroneous. The addition has been made on account of accommodation entries recorded in the bank statement which have been found to be in the nature of share premium and share application money and the amount of the 16.60 crores is subsumed in the addition of Rs. 80, 37, 66, 000/-held as unexplained case credit u/s 68. The facts of the

19 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. case in Ranbaxy Laboratories Ltd vs CIT 336 ITR 136 (Del) referred to in CIT vs. Jet Airways (I) Ltd. (Bom) 331 ITR 236 are distinguishable as much as the reopening was on account of the items of club fees, gifts and presents and provisions leave encashments whereas in the assessment proceedings deduction u/s 80 HH and 80 I as claimed by the assessee was held to be not admissible. In the present case, the issue remains the same i.e. accommodation entries in the form of share premium and share application money which has been assessed to tax in the reassessment. It is also apposite to note the, “the requirement at the stage of issuing reopening notice is only with a prima facie view that income chargeable to tax has escaped assessment. This is not a final view and is subject to further consideration during the assessment proceedings.” [Spicy Sangria Hotels (P.) Ltd. v. ITO [2019] 111 taxmann.com 491 (Bombay)]

20 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. annexures. The ld AR also drew the attention of the bench to the letter of assessee filed on 26.12.2013 before the AO furnishing inter alia details of share capital raised during the year, details of share application money received, details of shareholding (point no 8), details of share premium received etc. The ld AR also referred to para 2 and 3 of the assessment order to lay stress on the point that all these issues were examined during the course of original assessment proceedings and only then the assessment was framed. The ld AR argued that facts were already before AO in original assessment proceedings in respect of share capital, share premium and share application. The ld AR submitted that really speaking, the case on hand is even worse than case of change of opinion as the AO as per the reasons recorded, is not even aware that a scrutiny assessment has been made on an earlier occasion in the case of the assessee. The ld AR relied on the following decisions: Kelvinator of India Ltd – 320 ITR 561 (SC) Kelvinator of India Ltd – 256 ITR 1 (Del) TechSpan India P Ltd – 404 ITR 10 (SC) Century Textile & Industries Ltd – 99 taxmann.com 206 (SC) dismissing SLP against 99 taxmann.com 205 (Bom) Orient News Prints Ltd – 100 taxmann.com 69 (SC) dismissing SLP against 78 taxmann.com 108 (Guj) / 393 ITR 527 (Guj) ICICI Home Finance Co Ltd – 210 Taxman 67 (Bom),Usha International Ltd – 348 ITR 485 (Del FB)

8.1. Then second plea taken by the ld AR to support the order of ld. CIT(A) is that the notice under section 148 dated 29.8.2018 was issued beyond 4 years from the end of relevant assessment year. Therefore, proviso to section 147 shall apply to the re-opening of assessment in case of reopening beyond 4 years where assessment order is passed under section 143(3)

21 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. earlier. The ld AR submitted that all material facts were fully and truely disclosed during the original assessment proceedings. The ld. AR stated that a detailed inquiry was carried out by AO in original assessment proceedings and no addition made by the AO after he found the details and evidences to be in order. Thus there is no failure on the part of the assessee to disclose fully and truly all material facts for assessment though, the AO has alleged so in the reasons recorded. The AO however, has alleged that the assessee has not disclosed fully and truly all material facts. The ld AR stated that this is obviously misplaced inasmuch as the AO could not have made this statement as he is not even aware that an assessment under section 143(3) is made. Thus, no weightage can be given to this phrase which finds place in the recorded reasons. Without prejudice, the ld AR argued that AO did not mention in the reasons as to which “material facts” were not disclosed, which it is submitted, he ought to have mentioned – for this proposition, the assessee places reliance on the following decisions: i)Motor Industries Co Ltd – 11 SOT 478 (Bang-Trib) ii)Hindustan Lever Ltd –268 ITR 332 (Bom)

8.2. The third argument of the ld AR to support the quashing of the proceedings u/s 147 r.w.s. 148 of the Act was that there was complete non-application of mind by AO while recording the reasons to believe. The ld AR referred the first para of the reasons recorded by AO wherein it is stated by the AO that “The above mentioned assessee has filed the return of income for A.Y. 2011-12 dated 25.01.2012 declaring total loss of Rs. 51,274/-. The said return of income was processed u/s. 143(1)

22 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. of the IT Act, 1961.” (emphasis).Thus, the AO was only knowing that the return of income is processed under section 143(1) of the Act whereas as a matter of fact the assessment was framed u/s 143(3) of the Act. The ld AR also submitted that read this with the penultimate para of the reasons where AO referred to Explanation 2(b) to section 147 of the Act which is applicable only when no assessment under 143(3) has been completed. The ld AR, thus, contended that there was total non-application of mind by AO in as much as he is not even aware that earlier an assessment under section 143(3) has been completed in case of the assessee. The ld AR stated that it is common knowledge that the considerations of law applicable are different if originally an order is passed under section 143(3) and 4 years have elapsed vis a vis where there is only an intimation under section 143(1). In the former, the proviso to section 147 is applicable which enjoins certain conditions on the AO, which are jurisdictional in nature, which obviously have not been satisfied by the AO in this case, as according to him there is no assessment passed originally under section 143(3) of the Act. The ld AR stated that this goes to the root of the jurisdiction and thus, if the starting point of the AO itself is incorrect, the impugned proceedings are vitiated. Though it may be mentioned that the AO, as a matter of course, states that “…….there is failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment for the year under consideration….” There is no element of mens rea when he states this inasmuch as he is not even aware that scrutiny assessment has been made previously under section 143(3) of the Act. Thus, using the

23 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. phrase does not give any mileage to the AO; and the impugned reassessment proceedings should fail on this count itself.

8.3. The ld AR also submitted that the approval by Pr CIT under section 151 has been accorded apparently without application of mind and mechanical in nature. The ld AR submitted that the Pr CIT has not even bothered to appreciate the facts of the case correctly whicn amounts to abuse of authority. In defence of his arguments the counsel of the assessee relies on the following decisions – - German Remedies Ltd – 287 ITR 494 (Bom) - Suman Waman Chaudhary – 321 ITR 495 (Bom) - S. Goyanka Lines & Chemicals Ltd – 237 Taxman 378 (SC) - My Car (Pune) (P) Ltd – 263 Taxman 626 (Bom) - United Electrical Company (P) Ltd – 258 ITR 317 (Del) - Asiatic Oxygen Ltd – 372 ITR 421 (Cal) - Maruti Clean Coal and Power Ltd – 400 ITR 397 (Chhattisgarh) - Virat Credit & Holdings Pvt Ltd – ITA No 89/Del/2012 (Delhi Trib) - Sunil Agarwal – 83 ITD 1 (TM)(Delhi Trib)

8.4. The fourth argument of the AR was reopened merely on the basis of information received from Investigation Wing, Kolkata and not on the Satisfaction should be of AO. The ld AR submitted that No independent inquiry made by AO and this is evident from the fact that the AO records in the reasons that the original return of income was processed u/s. 143(1) of the Act, and in the penultimate para of the reasons the AO refers to Explanation 2(b) to section 147 – the said explanation is applicable only when no assessment under 143(3) has been

24 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. completed. Thus, the AO, it is more than evident that he has not applied his mind to the information received vis a vis the records available with him. The assessee vehemently contends that the AO has just stated that “On the basis of above finding from the information provided by investigation wing and due diligence thereof from the records, it is found that assessee had accommodation entries” without any due diligence which is more than evident from the 2nd and 3rd para of the reasons – these are only bald statements made by the AO. The ld AR stated that the records of original assessment also not consulted by AO before issuing notice under section 148 of the Act. The ld AR prayed before the bench that the re-opening can not be sustained as based on borrowed satisfaction. The ld AR in support of his arguments relied on the following decisions: Harikishan Sunderlal Vimani – 88 taxmann.com 548 (Guj) IBM World Trade Corporation – 138 ITR 742 (Bom)

8.5. The ld AR further argued that the assessment can only be re-opened when the AO has “reason to believe” that income has escaped assessment and not on reason to “suspect”. The ld AR submitted that assessment can not be reopened for doing fishing / roving enquiries based on suspicion – The AO in the 3rd para of reasons has recorded that “As per the information received, during the financial year 2010-11 relevant assessment year under consideration, total incoming funds to this account have been computed at Rs 16,60,56,819/- and total outgoing funds have been computed at Rs 16,59,86,385/-. The extent of such accommodation entries taken may be more. This is because the assessee may have taken accommodation entries in bank

25 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. accounts from other such bogus concerns, which needs to be enquired. The assessee has entered in to suspicious and prima facie bogus financial transaction which has been done to suppress its profit” The ld. AR further argued that in the case on hand, the reasons recorded contain the phrases ‘may have taken’, ‘needs to be enquired’, thus, it is crystal clear that the AO wants to conduct fishing enquiries, which he cannot; reliance is placed on the following decisions – - Giriraj Enterprise – 102 taxmann.com 188 (Bom) - The Swastic Safe Deposit and Investment Ltd – WP No 1230 of 2019 (Bom) - NuPower Renewables Pvt Ltd – WP No 3618 of 2018 - Ranchi Handloom Emporium – 235 ITR 604 (Patna)

8.6 The ld AR contended that there was no direct nexus, no live link between the information available with AO and his belief that income has escaped assessment. The AO in the case on hand had some information that “Limbo Engineering Pvt. Ltd. (AABCL9224B) had opened current account with S.B. Branch, Kolkata, and is one of the beneficiaries whose accounts are being on rotation of high value funds involving large number of accounts. As per the information received, during the financial year 2010-11 relevant assessment year under consideration, total incoming funds to this account have been computed at Rs 16,60,56,819/- and total outgoing funds have been computed at Rs 16,59,86,385/-” With this information, the AO concludes that “The assessee has entered into suspicious and prima facie bogus financial transaction which has been done to suppress its profit……On the basis of above finding from the information provided by investigation wing and due diligence thereof from the records, it is found that assessee had accommodation

26 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. entries.”The AR contended that the assessee failed to understand how with the financial information (AO does not even state that the information is of income nature) available with the AO, he concludes that the transactions are motivated to “suppress the profits”. Thus, the AO has miserably failed in linking the information available with him to escapement of income. Thus, the reopening is not valid and the assessee relies on the following decisions: - Indo Arab Air Services – 283 CTR 92 (Del) - Atul Jain – 299 ITR 383 (Del)

8.7. The ld AR submitted before the bench that reasons recorded should be read as they are and cannot be amended or cannot be enlarged or no inference or addition is allowed by relying on the following decision in the case of Hindustan Lever Ltd – 268 ITR 339 (Bom)

27 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. was issued under section 148 of the Act on 29.08.2018 which is apparently beyond 4 years and therefore the case of the assessee can only be reopened under 1st proviso to section 147 which contemplates that the reopening of assessment can only be made where there is a failure on the part of the assessee to disclose fully and truly all material facts which are necessary for assessment of income for that assessment year. We note that in the reasons recorded under section 148(2) the AO has noted that the return filed by the assessee on 25.01.2012 declaring a total loss of Rs.51,274/- was processed under section 143(1) of the Act and thus the AO was not aware whether any assessment was framed under section 143(3). We, further, note that the AO refers to explanation 2(b) to section 147 which is applicable only when no assessment was framed under section 143(3) of the Act and thus we note that there is complete non application of mind on the part of the AO as he is not at all aware of the earlier assessment framed under section 143(3) of the Act. In this case, we note that assessee has fully disclosed of the material facts qua the share capital land share premium and share application money in the original assessment proceedings and AO after examining the same made no addition. Thus we can reasonably believe that there is no failure on the part of the assessee to disclose fully and truly all material facts qua the assessment.

28 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. TechSpan India P Ltd 404 ITR 10 (SC) and Century Textile & Industries Ltd 99 taxmann.com 206 (SC) dismissing SLP against 99 taxmann.com 205 (Bom), ICICI Home Finance Co Ltd – 210 Taxman 67 (Bom), Orient News Prints Ltd – 100 taxmann.com 69 (SC) dismissing SLP against 78 taxmann.com 108 (Guj) / 393 ITR 527 (Guj) which are discussed below: In the case of Kelvinator India Ltd. The Hion’ble Apex Court has held as under: “Therefore, post 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per sereason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe', the Parliament re- introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer”

-The Hon’ble Delhi High Court in Kelvinator of India Ltd(supra) has held that “To confer jurisdiction under section 147(a) two conditions were required to be satisfied, viz., (1 ) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; and (2) he must also have a reason to believe that such escapement occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income under section 139; or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The aforementioned requirements of law must be held to be conditions precedent for invoking jurisdiction of the Assessing Officer to reopen the assessment under section 147. Both the conditions aforementioned are cumulative. It is also a well-settled principle of law that, in the event, it is found that any of the said two conditions is not fulfilled, the notice issued by the Assessing Officer would be wholly without jurisdiction. And n the event it is held that by reason of section 147 if the ITO exercises its jurisdiction for

29 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd. initiating a proceeding for reassessment only upon mere change of opinion, the same may be held to be unconstitutional. Section 147 does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion.”

-TechSpan India P Ltd – 404 ITR 10 (SC) “Section 147 does not allow the re-assessment of an income merely because of the fact that the Assessing Officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the Assessing Officer the power of review and section 147 confers the power to re- assess and not the power to review. . . If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the Assessing Officer any opinion on the questions that are raised in the proposed re- assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings. . . In the order in question dated 17-8-2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of account for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 9-3-2004 which was issued in the original assessment proceedings under section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 9-3-2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details filed do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under section 10A was well considered in the original assessment proceedings itself. Hence, initiation of the re-assessment proceedings under section 147 by issuing a notice under section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings”

30 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd.

Order pronounced in the open court on 29.10.2020.

Sd/- Sd/- (Ram Lal Negi) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated: 29.10.2020. * Kishore, Sr. P.S.

31 ITA No.1388/M/2019 ITA Nos.7276 & 7277/M/2019 M/s. Limbo Enginnering P. Ltd.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order

Dy/Asstt. Registrar, ITAT, Mumbai.