Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCHES : F : NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA No. 6094/Del/2018 Assessment Year : 2008-09
PUSHP STEELS & MINING (P) LTD. Vs. ITO, WARD 20(2), 751, KUNDEWALAN STREET, NEW DELHI AJMERI GATE, DELHI – 110 006 (PAN: AADCP2925K) (Assessee) (Respondent)
Assessee by : Sh. Suresh Kumar Gupta, CA Department by : Smt. Sulekha Verma, CIT(DR) & Sh. Surender Pal, Sr. DR.
ORDER PER L.P. SAHU, AM This appeal filed by the assessee is directed against the order passed by the Ld. CIT(A)-7,
New Delhi on 12.09.2018 in relation to the assessment year 2008-09 on the following grounds:-
The impugned assessment is invalid and without jurisdiction as the
said assessment is completed without complying with legal
requirements of the provisions of section 147/148 of the Income Tax
Act, therefore, such assessment is void ab inito and liable to be
quashed.
1.1 On the facts and circumstances of the case, the Ld. CIT(A) has
erred both on facts and in law in rejecting the contention of the
assessee that the order passed by Ld. AO is bad both in the eyes of
law and on facts as the same has been reopened on the basis of reasons
without there being any specific allegation of the failure on part of the
assessee to disclose fully and truly and particular material fact having
bearing on computation of income, as the same has been reopened
after a period of four years from the end of relevant assessment year
and the assessment has already been made under section 143(3).
1.2 On the facts and circumstances of the case, the Ld. CIT(A) has
ignored the contention of the assessee that in the absence of any cogent
material available with the AO, the satisfaction of the AO that income
chargeable to tax has escaped assessment is based on change of
opinion on the issue already adjudicated in the original proceedings
u/s. 143(3) of the Act.
1.3 On the facts and circumstances of the case, the Ld. CIT(A) has not
appreciated the contention of the assessee that the reassessment
proceedings have been initiated after approval by the Pr. CIT, Delhi-7,
New Delhi and the said approval was mechanical and without
application of mind by the above authority in as much as there is no
date of satisfaction by the either of the authorities mentioned in the
performa of obtaining sanction.
On the facts and circumstances of the case, the Ld. CIT(A) has erred both
on facts and in law in confirming the action of the AO in not admitting
the evidences during appeal proceeding ignoring the fact that those
evidences were vitally important for adjudicating the issue of unexplained
cash credit u/s. 68 of the Act.
On the facts and circumstances of the case, the Ld. CIT(A) has erred in
law and has acted against the principles of natural justice in not allowing
the opportunity of cross examination of the person whose testimony is
relied on the AO to draw adverse inference and also ignoring the fact that
the AO has himself recorded the fact in para 7.1 at page 10 of the
impugned assessment order that due to paucity of time the opportunity
could not be allowed to the assessee to cross examine the witness and such
opportunity be allowed by the Ld. CIT(A) is so desired by the assessee.
The Ld. CIT(A) has erred in law in not admitting additional ground under
which the legality of the order of assessment under appeal was challenged
on the ground of the order being passed beyond the period of limitation
prescribed u/s. 153(1) of the I.T. Act.
The Ld. CIT(A) has upheld the rejection of explanation in respect of cash
credit of Rs. 12,45,00,000/- by the AO, simply drawing adverse inference
against the assessee for non-production of director of the investing
company without considering the fact that there is no adverse material
emerging against the investor companies specifically with regard to their
actual existence particularly when the department did not blinker during
the process of merger of the companies before the Hon’ble High Court of
Calcutta.
Without prejudice to ground no. 5, the Ld. CIT(A) has not considered the
submission of assessee that the correct amount of fresh cash credit which
could be added u/s. 68 of the Act is Rs. 9,85,00,000/- instead of Rs.
12,45,00,000/- added in the impugned assessment order.
That the above said additions have been made by indulging in surmises
conjecture and without bringing any adverse material on record.
That the Ld. CIT(A) has erred both on facts and in law in confirming
above said addition ignoring the fact that the same has been made on the
basis of the material collected at the back of the assessee without
providing copy of the same and providing opportunity to rebut the same.
The assessee craves leave to add, delete, modify / amend the above
grounds of appeal with the permission of the Hon’ble appellate authority.
The facts in brief are that the assessee filed its return of income on 30.9.2008 for the
assessment year 2008-09 declaring income of Rs. 3,32,390/-. The Assessing Officer passed the
order u/s. 143(3) of the Income Tax Act, 1961 (in Short “Act”) on 31.3.2016, by assessing the
income at Rs. 4,12,390/-. The order was rectified u/s. 154 of the Act and determining the
assessed income at Rs. 8,84,600/-. Subsequently, information was received from the Joint
Director, Directorate of Enforcement, New Delhi. The Joint Director, Directorate of
Enforcement, New Delhi vide his letter intimated that during the course of investigation in coal
scam matter in which the assessee was accused of being involved they have found certain
information regarding issue of shares by the assessee company. It was informed that the assessee
had issued shares of its group companies and family members at different rates. On 28.2.2008
shares were issued at a premium of Rs. 40/- however, shares were issued at premium of Rs. 490/-
on 31.3.2008 and 24.12.2009. The investigation was stated to be monitored by the Hon’ble
Supreme Court of India. The case of the assessee was reopened u/s. 147 of the Act and the
notice u/s. 148 of the was issued to the assessee on 29.3.2015. Order u/s. 143(3)/147 of the Act
was passed on 31.3.2016, reassessing the income at Rs. 12,54,84,600/- after disallowance of Rs.
12,45,00,000/- u/s. 68 of the Act on account of unexplained cash credit. Against the assessment
order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 12.09.2018
has dismissed the appeal of the assessee and against which the Assessee is in appeal before us.
During the hearing, Ld. Counsel of the assessee has stated that the assessment made by
the AO is invalid and without jurisdiction as the said assessment is completed without complying
with legal requirements of the provisions of section 147/148 of the Income Tax Act, therefore,
such assessment is void ab inito and liable to be quashed. He further submitted that Ld. CIT(A)
has not considered the contention of the assessee that the order passed by AO is bad both in
the eyes of law and on facts as the same has been reopened on the basis of reasons without there
being any specific allegation of the failure on part of the assessee to disclose fully and truly and
particular material fact having bearing on computation of income, as the same has been reopened
after a period of four years from the end of relevant assessment year and the assessment has
already been made under section 143(3). It was further submitted that in the absence of any
cogent material available with the AO, the satisfaction of the AO that income chargeable to tax
has escaped assessment is based on change of opinion on the issue already adjudicated in the
original proceedings u/s. 143(3) of the Act. It was further submitted that the reassessment
proceedings have been initiated after approval by the Pr. CIT, Delhi-7, New Delhi and the said
approval was mechanical and without application of mind by the above authority in as much as
there is no date of satisfaction by the either of the authorities mentioned in the proforma of
obtaining sanction. Ld. counsel for the assessee has further submitted that Ld. CIT(A) has
confirmed the action of the AO in not admitting the evidences during appeal proceeding
ignoring the fact that those evidences were vitally important for adjudicating the issue of
unexplained cash credit u/s. 68 of the Act. It was the further contention that Ld. CIT(A) has acted
against the principles of natural justice in not allowing the opportunity of cross examination of
the person whose testimony is relied on the AO to draw adverse inference and also ignoring the
fact that the AO has himself recorded the fact in para 7.1 at page 10 of the impugned assessment
order that due to paucity of time the opportunity could not be allowed to the assessee to cross
examine the witness and such opportunity be allowed by the Ld. CIT(A) is so desired by the
assessee. It was the further contention of the ld. counsel for the assessee that lower authorities
erred in not admitting additional ground under which the legality of the order of assessment
under appeal was challenged on the ground of the order being passed beyond the period of
limitation prescribed u/s. 153(1) of the I.T. Act. On merit of the case, the Ld. Counsel for the
assessee submitted that Ld. CIT(A) has upheld the rejection of explanation in respect of cash
credit of Rs. 12,45,00,000/- by the AO, simply drawing adverse inference against the assessee
for non-production of director of the investing company without considering the fact that there is
no adverse material emerging against the investor companies specifically with regard to their
actual existence particularly when the department did not blinker during the process of merger of
the companies before the Hon’ble High Court of Calcutta. It was further submitted that the
addition was made ignoring the fact that the same has been made on the basis of the material
collected at the back of the assessee without providing copy of the same and providing
opportunity to rebut the same. On merits of the case, he submitted that the AO has simply
drawing adverse inference against the assessee for non-production of director of the investing company without considering the fact that there is no adverse material emerging against the investor companies specifically with regard to their actual existence particularly when the department did not blinker during the process of merger of the companies before the Hon’ble High Court of Calcutta. It was further submitted that Ld. CIT(A) has not considered the submission of assessee that the correct amount of fresh cash credit which could be added u/s. 68 of the Act is Rs. 9,85,00,000/- instead of Rs. 12,45,00,000/- added in the impugned assessment order and the additions have been made by indulging in surmises conjecture and without bringing any adverse material on record. In support of his aforesaid contentions, he relied upon
the following case laws:-
- CIT VS. EICHER LTD. 294 ITR 310 (DELHI).
- CALCUTTA DISCOUNT CO. LTD. VS. ITO (1961) 41 ITR 191 (SC)
- CIT VS. KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC)
- CIT VS. FEATHER FOAM ENTERPRISES (P) LTD. (2008) 2967 ITR
342 (DEL.)
- SHEONATH SINGH VS. ACIT (1971) 82 ITR 147 (SC) - DALMIA (P) LTD. VS. CIT & ANR. 64 DTR 417 - BOMBAY STOCK EXCHANGE LTD. VS. DCIT WRIT PETITION NO. 2468 OF 2001 VIDE ORDEDR DATED 12.6.2014. - FENNER INDIA LTD. VS. DCIT 241 ITR 672 (MAD.) - WEL INTERTRADE (P) LTD. VS. ANR. VS. ITO
- CIT VS. ITRATHRAM AHUJA (HUF) (2008) 6DTR 335 (DEL.) - PR. CIT VS. MEENAKSHI OVERSEAS P LTD. 395 ITR 677 (DEL.) - PR. CIT VS. G&G PHARMA INDIA LTD. 384 ITR 147 (DEL.) - PR. CIT VS. N.C. CABLES LTD. 391 ITR 11 DATED 11.1.2017 - CIT VS. S. GOYANKA LIME AND CHEMICALS LTD. ITA NO. 82 TO 89/2012 DATED 15.10.2014. - CIT vs. Orissa Corporation (P) Ltd. 159 ITR 78 - CIT vs. Sophia Finance Ltd. (1994) 205 ITR 0098 (Del.) - CIT vs. Makhni and Tyagi P Ltd. (2004) 267 ITR 433 (Del.) - CIT vs. Lovely Export 299 ITR 268 (SC) - CIT vs. Gangour Investment Ltd. ITA No. 34/2007 - CIT vs. Pradeep Gupta 207 CTR 115 - CIT vs. Divine Leasing & Finance Ltd. CC 375/2008 - CIT vs. Anshika Consultants Pvt. Ltd. ITA No. 467/2014 vide order dated 16.4.2015. 4. On the contrary, Ld. CIT(DR) relied upon the orders of the authorities below and on the issue of Non-Disclosures/Incorrect Disclosure of Material, she submitted that the fact of acceptance of share application money with share premium was something was not disclosed to the department by the assessee in the original proceedings completed u/s 143(3) of the Act. On the issue of non-application of mind u/s 151, she relied on sec 292B of the Act as per which any mistake or defect or omission in the ROI, assessment, notice, summon or other proceedings will not be valid will not invalidate the assessment and the proceedings. On the nature of approval, the Ld. CIT(DR) has relied on the judgment of Mrs Sonia Gandhi to support the nature of
satisfaction arrived at by the Pr. CIT u/s 151 and on the issue of application of mind by the AO at
the time of initiation of proceedings u/s 147, the Ld. CITDR emphasised that at the point of
recording reason, prima facie belief is required to be formed relying on Rajesh Jhaveri Judgment.
On the issue of limitation matter, the Ld. CIT DR submitted that u/s 153B, the limitation is
regarding completion of assessment and not service of the order before the prescribed date. It
was also submitted that since, the post office is open till normal working hours, the AO was in no
position to get the order/slash demand notice dispatched on or before 31.03.2016. On the issue of
cross examination Ld CITDR emphasized that rule of Indian Evidence Act does not apply to
assessment proceedings and therefore the authorities below and had no obligation to allow the
cross examination of the witness when the witness was the witness of the assessee. In that case
the responsibility to present the witness lies on the assessee. However, on the issue of merits, Ld.
CIT(DR) submitted that the issue of shares at different premium is not in accordance with the
companies Act and also the Income Tax Act. She further submitted that in this case neither the
genuineness of the transaction nor the creditworthiness of the companies, the onus of which
rested on the assessee has been discharged. The explanation regarding the amounts credited in
the books of accounts of the assessee has correctly been found to be unsatisfactory by the AO
and amount credited was correctly considered as unexplained and action of the AO of making
the addition of Rs. 12,45,00,000/- u/s. 68 of the Act was rightly upheld by the Ld. CIT(A), which
does not need any interference. In support of her contention, she relied upon the following case
laws:-
- CIT vs. Paramount Communication (P) Ltd. (2017-TIOL-253-SC-
IT)
- Indu Lata Rangwala vs. DCIT (2017 80 taxmann.com 102 (Delhi)
- Thakorbhai Manganbhai Patel vs. ITO (2017) 78 taxmann.com 201
SC
- Aravali INfrapower Ltd. vs. DCIT (2017-TIOL-42-SC-IT).
- Yogendrakumar Gupta vs. ITO (51 taxmann.com 383) SC
- Raymond Woolen Mills Ltd. vs. ITO & Ors. 236 ITR 34
- RK Malhotra ITO vs. Kasturba Lalbahi (1977) 109 ITR 537 (SC)
- CIT vs. PVS Beedies (P) Ltd. (1999) 103 Taxman 294 (SC)
- ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 161
Taxman 316 (SC)
- Yuvraj vs. Union Of India 315 ITR 84 SC
- Ankit Financial Servicse Ltd. vs. DCIT (2017) 78 taxmann.com 58
(Gujarat)
- Pee Aar Securities Ltd. vs. DCIT ITA No. 4978/Del/2014 dated
23.8.2018
- Sonia Gandhi vs. ACIT Others WP© 8482/2018 CM Appeal
32580-32582/2018 order dated 10.9.2018.
- PCIT vs. Meenakshi Overseas Pvt. Ltd. ITA No. 651/2015 of
Delhi High Court. order edated 11.1.2016.
- Pr. CIT vs. Matchless Glass Servicse (P) Ltd. 65 taxmann.com 310
(Delhi)
- Onasis Axies P Ltd. vs. CIT 44 taxmann.com 408 (Delhi)
- CIT vs. N. Tarika Properties Pvt. Ltd. 40 tasxmann.com 525
(Delhi).
- CIT vs. Nipun Builders & Developers P ltd. 30 taxmann.com 292
(Delhi)
- CIT vs. MAF Academy P Ltd. 42 taxmann.com 377 (Delhi)
- CIT vs. Titan Securities Ltd. 32 taxmann.com 306 (Delhi)
- CIT vs. Nova Promoters & Finlease (P) Ltd.
- CIT vs. Youth Construction (P) Ltd. 44 taxmann.com 364 (Delhi)
- CIT vs. Ultra Moderns Exports P Ltd. 40 taxmann.com 458 (Delhi)
- CIT vs. NR Portfolio P Ltd. 29 taxmann.com 291 (Delhi)
- CIT vs. Frostair P Ltd. 26 taxmann.com 11 (Delhi)
- Beutex India (P) Ltd. vs. CIT 18 taxmann.com 9 (Delhi)
- CIT vs. P. Mohankala dated 15.5.2007 (SC)
- Pr. CIT vs. Bikram Singh 85 taxmann.com 104
- CIT vs. Precision Finance P Ltd. 208 ITR 465.
- CIT vs. Durga Prasad More, (1971) 82 ITR 540 (SC)
- Sumati Dayal 214 ITR 801 (SC),
- Somnath Maini 306 ITR 414 (P&H)
- Mc Dowell & Co. Ltd. 154 ITR 147 (SC)
- Ashok Mahendru & Sons (HUF) vs. CIT 173 taxmann.com 178
- Hersh Win Chadha vs. DCIT (ITA Nos. 3088 to 2098 &
3107/Del/2005)
- Dhakeshwari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC)
- SS Gadgil v. Lal & Co. (1964) 53 ITR 231 (SC).
- CIT vs. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Delhi
HC)
- Nokida India P Ltd. vs. DDIT 59 taxmann.com 212
- GTC Industries Ltd. vs. ACIT 65 ITD 380.
- Sanjay Bimalchand Jain vs. ITO in ITA No. 61/Nag/2013 vide
order dated 18.7.2016.
- Disha N. Lalwani vs. ITO in ITA No. 6398Mum/2012 vide order
dated 22.3.2017.
- ITO vs. Shamim M. Bharwoni (2016) 69 taxmann.com 65
- MK Rajeshwari vs ITO in ITA No. 1723/Bang./2018 order dated
12.10.2018.
- Abhimanyu Soin vs. ACIT in ITA No. 951/Chd/2016 order dated
18.4.2018.
- Dinesh Kumar Khandelwal HUF vs. ITO in ITA No. 58 &
59/Nag/2015 order dated 24.8.2016.
- Usha Chandresh Shah vs. ITO in ITA No. 6858/Mum/2011 order
dated 26.9.2014.
- CIT vs. Smt. Jasvinder Kaur 357 ITR 638 order dated 12..6.2013.
(Gauhati High Court)
- ITO vs. Sohail Financials Ltd. ITA No. 4867/Del/2011, ITAT,
Delhi order dated 28.9.2018.
- Ramanand Agarwalla vs. CIT 151 ITR 216 order dated 23.9.2013
– Hon’ble Gauhati High Court.
- CIT vs. TO Abraham Co. 333 ITR 182 order dated 6.1.2011 =
Hon’ble Kerala High Court.
In reply, to the contention of the Ld. CIT(DR) on the issue of Non-Disclosures/Incorrect
Disclosure of Material Facts in view of applicability of proviso to sec 147, Ld. counsel for the
assessee submitted the AO has accepted the claim of share application money from various
parties u/s 68 of IT Act and such acceptance by the AO of the share application money which is
received at different rates of premium, is the fact specifically coming to the knowledge of the
AO in original proceedings. He further stated that the balance sheet of the assessee at page 12
and its Schedules A & B at page 14 of the paper book was before the AO on the basis of which
the assessment proceedings were initiated and completed. Further, the notice u/s 142(1) dated
30.04.2010 and the questionnaire enclosed therewith at paper book at page 27 in item No.4
clearly requires the assessee to submit detail of share capital/share premium. There is no force in
the argument of the Ld CITDR that this fact is not in the knowledge of the AO in the original
proceedings. On the contention of the Ld. CIT(DR), on the issue of Non-Application of Mind
u/s 151, he stated that the Hon’ble Bombay High Court in the case of Smt. Kalpana Shatilal
Haraia case (Judgment compilation PB 136-137) in para 8 (PB 136) held that mistake or error
committed by AO while taking sanction is not the issue, the issue is due application of mind by
the authority granting sanction u/s 151. Therefore, the protection u/s 151 is not available.
Regarding the reliance placed on Sonia Gandhi Judgment, the assessee’s counsel submitted that
the Hon’ble Supreme Court judgment on the issue need be followed in preference to the
judgment of jurisdiction of High Court. He further submitted that the Sonia Gandhi judgment
follows the Meeankshi overseas judgment passed in 11.01.2016 and the Hon’ble Delhi High
Court in the subsequent decision in N.C. Cable P Ltd dated 11.01.2017 supports the case of the
assessee. On the contention of Ld. CIT(DR) on the issue of Application of Mind by the AO at the
time of initiation of proceedings u/s 147, the Ld. counsel for the assessee submitted that the
Assessee has relied on number of authorities which says in para 23 and 16 of the synopsis which
requires that the AO should applied his independent mind and there should be live nexus slash
rational connection between the information available and the belief of escapement of income
formed. It was further submitted that the Rajesh Jhaveri’s case applies to the reassessment
proceedings initiated in the case where no assessment is made u/s 143(3). On the issue of non
application of mind u/s. 151, Ld. Counsel for the assessee replied that the Hon’ble Bombay High
Court in the case of Smt Kalpana Shatilal Haraia case (Judgment compilation PB 136-137) in
para 8 (PB 136) held that mistake or error committed by AO while taking sanction is not the
issue, the issue is due application of mind by the authority granting sanction u/s 151. Therefore,
the protection u/s 151 is not available. On the contention of Ld. CIT(DR), on the issue of cross
examination, Ld. counsel for the assessee submitted that it is correct that strict rule of evidence
act are not applicable to the reassessment proceedings but that does not mean that the AO is
entitled to use the evidence in complete disregard to the principles of natural justice by denying opportunity of cross examination of the witness. The rule of Audi alterampartemis applicable to
the assessment proceedings also which are quasi judicial proceedings. In support of above
proposition of law, the judgments are cited on page 24 of the synopsis. He submitted that Ld.
CITDR is not correct in submitting that Sh Santosh Kumar Shah was the witness of the assessee.
However, the said person was the witness of the department whose statement is relied by the AO
to take the adverse view against the assessee. In reply, to the contention of the Ld. CIT(DR), Ld.
counsel for the assessee submitted on the limitation issue that the term used in sec 153B is
making an order of assessment before the prescribed date and in view of the judgments of the Kerala High Court in the cases of CAGIT vs Kappumalai Estate 234 ITR 187 (Ker) and another
judgment reported in 69 STC 62 and other decisions of 327 STC 303 (AP) and 93 STC 406 (SC),
the order to make the assessment is complete and effective once the same goes beyond the
control of authority concerned. It was also submitted on behalf of the assessee that the assessing
officer in any case should have taken care to pass the order before the limitation date in the
manner that he is able to get the process completed by posting the assessment order/demand
notice. Without prejudice to above, the Ld. CIT DR is not correct in saying that the post office is
open in office hours only for accepting speed post but this facility is available round the clock in
Delhi. Therefore the assessing officer had time to get the speed post article handed over to speed
post authority till 12.0 clock at night. However, on the contention of the Ld. CIT(DR) that the
issue of shares at different premium is not in accordance with the companies Act and also the
Income Tax Act, Ld. counsel for the assessee submitted that the issue of the shares to the
existence shareholders were at the lower rate of premium and this fact has been discussed by the
Ld. CIT(A) on page 14 in para 8.29 and 8.30 and as per the decision of Mumbai Bench in
SudhirMenon HUF 148 ITD 260, the issue of shares to existing shareholders at lower premium
cannot be compared with those issued to new shareholders at higher premium. There is no
violation of Income Tax Law as applicable to AY 2008-09 (prior to introduction of sec
56(2)(vii)(b) w.e.f from 01.04.2013) as well as the companies Act as there is no bar under the
companies Act to issue shares at different premium. The Ld. CITDR did not pint to any
particular section of Companies Act and Income Tax Act for violation of share premium. The
issue of share at Rs.490 premium to outside entities is based on DCF valuation report dated
16.06.2006 as per which value of share is estimated at Rs.436 per share. The AO acknowledges
the above DCF report in para 8 at page 15 of the assessment order. It was further submitted that
there is allegation that the notices u/s 133(6) issued by the AO to share applicant company have
received back unserved from postal authorities and this fact show those companies are dummy
paper companies, shifting onus back to the assessee. The assessee also did not disclose the
current addresses of the share applicants. In reply, Ld. counsel for the assessee submitted that in
original proceedings, the notices u/s 133(6) were issued, served and complied with. From perusal
of the assessment order, there is no mention by the AO that he has ever during reassessment
proceedings issued notices u/s 133(6) to the share applicant companies. So the question of non-
service of the same does not arise. The Ld CIT(A) on page 23 (of para 6.8) mentions the above
fact. The mention of this fact by Ld CIT(A) nothing but assumption of facts based on perception.
The above finding of the Ld. CIT(A) need be expunged and quashed in absence of any
supporting material on record. The allegation of the Ld CITDR that assessee did not disclose the
latest addresses suffers from vice of non-verification of facts. The fact that two companies
namely M/s Weltex and Milan were merged in M/s Jaisri w.e.f 01.04.2009 is on record of the
AO and dealt in para 4 at page 4 of the assessment order, The company M/s Jaisri came to be a
legal entity and the summon u/s 131 was issued to the common director Sh. Sulekh Chand Jain.
This fact is also noted in above para. In view of these facts, the above allegation of non
furnishing of addresses is baseless and farfetched. He further submitted that the Ld. CIT(A) has
relied on various judgments in support of contention that in case of so called entry provider
companies, entire onus is on the assessee to prove that the cash credit by way of share capital is
an unaccounted money introduced in the books of account in the garb of share capital. However,
the assessee has submitted in the written synopsis, various authorities which say that the AO
should consider the evidence produced in support of cash credit and charging of higher premium
is no ground for invoking sec 68 of IT Act and also failure to comply with the summon by the
share applicant companies is no ground for taking adverse view.
We have heard both the parties and carefully considered the case laws and the relevant
documents available on record, especially the impugned order, Written Submissions and the
rejoinder of the assessee’s counsel and the case laws cited by both the parties. From the
assessment order, we find that assessee filed its return of income on 30.9.2008 for the
assessment year 2008-09 declaring income of Rs. 3,32,390/-. The Assessing Officer passed the
order u/s. 143(3) of the Income Tax Act, 1961 (in Short “Act”) on 31.3.2016, by assessing the
income at Rs. 4,12,390/-. The order was rectified u/s. 154 of the Act and determining the
assessed income at Rs. 8,84,600/-. Subsequently, information was received from the Joint
Director, Directorate of Enforcement, New Delhi. The Joint Director, Directorate of
Enforcement, New Delhi vide his letter intimated that during the course of investigation in coal
scam matter in which the assessee was accused of being involved they have found certain
information regarding issue of shares by the assessee company. It was informed that the assessee
had issued shares of its group companies and family members at different rates. On 28.2.2008
shares were issued at a premium of Rs. 40/- however, shares were issued at premium of Rs. 490/-
on 31.3.2008 and 24.12.2009. The investigation was stated to be monitored by the Hon’ble
Supreme Court of India. The case of the assessee was reopened u/s. 147 of the Act and the
notice u/s. 148 of the was issued to the assessee on 29.3.2015. Order u/s. 143(3)/147 of the Act
was passed on 31.3.2016, reassessing the income at Rs. 12,54,84,600/- after disallowance of Rs.
12,45,00,000/- u/s. 68 of the Act on account of unexplained cash credit. We note that AO while
recording the reasons for the belief that income has escaped assessment has recorded the reasons
as under:-
Reasons for the belief that income has escaped assessment:
In this case information has been received from the Joint Director, Directorate of j
Enforcement New Delhi vide his letter No. ECIR/05/ DLZO/2014/ AD(DR) /10956 dated '
01.2015 addressed to the CIT-7, New Delhi intimating that during the course of
investigation in 'coal scam' matter' in which the assessee accused of being involved they
have found certain information regarding issue of shares by the assessee
company. It has been informed that the assessee had issued shares to its group
companies and family members at different rates . On 28.02.2008 shares were issued at
a premium of Rs.490/- however shares were issued at a premium of Rs.490/- on
31/03/2008 and 24/12/2009. The investigation is stated to be monitored by tire Hon'ble
Supreme Court
The information received from Directorate of Enforcement has been considered with
reference to the return of income available on record. It is noticed that these shares were
issued at exorbitantly high premium of Rs.490/- per share to Kolkatta based companies
as per the following details. Remaining investment at a premium of Rs.40 per shares
was received from directors, promoters and their family members during the year.
6.1 After perusing the aforesaid reasons recorded, After perusing the aforesaid reasons recorded, we find that the reasons recorded is based we find that the reasons recorded is based
on general perception of the AO regarding Kolkata companies providing accommodation entries on general perception of the AO regarding Kolkata companies providing accommodation entries on general perception of the AO regarding Kolkata companies providing accommodation entries
to the beneficiaries. We further note that the information is as per the Directorate of
Enforcement communication did not reveal that any new facts/ material or evidence indicating
the state of affairs, contrary to what was already on record, duly examined by the competent
authority. This information was neither a fresh material nor did it indicate the escapement of
income by the assessee in one way or the other. There is no material forwarded with the above
information which could help the AO to reach such a prima facie belief. We note that the AO
communicated with the Director of Income Tax (Investigation) Kolkatta requiring the later to
investigate into the affairs of these companies. The para 3 of the letter read as under :-
You are requested to kindly investigate into affairs of these companies and inform any adverse information regarding the identity, creditworthiness and source of funding of these companies, which may enable this office to take appropriate remedial measures in the case of my assessee at the earliest. Kindly appreciate that the time limit for taking remedial action u/s 148 of the Act is 31.03.2015. 6.2 It is noted that the communications by the AO to two different authorities clearly
indicates that the AO was not in a position to form a belief of escapement of income till the last
communication on 02.03.2015 made with DI (Inv). Further in the reason recorded the AO does
not discuss any feedback received by him as a result of above communications which implies
that the AO remained as deficient in the input as he was before until recording of reasons on
27.03.2015. The moot and important question is what specific material was gathered by the AO
to fill in the blanks found by the AO in the above information. The AO had no fresh tangible
material to support the belief, which is required to be based on the reasons to be recorded, to vest
him with the power of invoking reassessment proceedings u/s 147 of the Act. The AO had
practically the same material and evidences which were placed before him in original
assessment. In the absence of any specific fresh material leading to the AO’s the prima facie
belief of the escapement of income, the consequent action of the AO is merely change of opinion
or review of the earlier decision, which is not permitted in the garb of reassessment. This view is
fortified by the judgment in CIT vs Eicher Ltd.294 ITR 310 (Delhi), where the jurisdictional
High Court held as under :-
“------if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened.”
6.2.1 The Hon’ble Supreme Court of India in the case of ITO vs. Techspan India Private
Limited and Another in the Heads Notes has observed as under:-
Reassessment – conditions precedent – general principles – exemption – export of computer software – assessee having income from software development and human resource development – claiming exemption in respect of income from software development but claiming common expenses – show cause notice issued in original assessment proceedings with regard to allocation of common expenses and assessment made thereafter – question to what extent deduction to be allowed under section 10A well considered in original assessment proceedings – notice for reassessment on ground deduction under section 10A allowed in excess – merely a change of opinion on facts already available in original assessment proceedings – reassessment not permissible – Income Tax Act, 1961 as ss. 10A, 147, 148.”
6.3 The Hon’ble Supreme Court of India in the case of CIT vs. Kelvinator of India Ltd.
[2010] 320 ITR 561 (SC) [affirming CIT vs. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi)
(FB)] J. Kapadia held that the concept of ‘change of opinion’ must be treated as an in-built test to
check abuse of power by Assessing Officer and that the reasons must have a live link with
formation of belief.
6.4 Coming to the other observation which is so called material in support of formation of
belief under section 147, the AO has relied on the general perception aided by his personal belief
unsupported by any material on record terming the companies in Kolkatta to be entities engaged
in the accommodation entry providing activity. The above perception dehors the specific
material is a witch hunt which is not permitted in law when in original proceedings after
conducting necessary enquiry, the AO has accepted the share capital contribution by the three
companies as explained credit. The A.O. has erred in law and on facts in initiating the
proceedings u/s. 147 of the I T Act, 1961 for the reasons based on mere suspicion and the notice
issued u/s. 148 is illegal as such. Reliance in this regard is placed on the ratio decided in Sheo
Nath Singh v ACIT (1971) 82 ITR 147 (SC). In the aforementioned case, the Hon'ble Apex
Court has held that the A.O can act on direct or circumstantial evidence but not on mere
suspicion, gossip or rumour. It is trite law that proceedings u/s 147 of the Act cannot be initiated
either on the basis of mere suspicion or for making fishing or roving enquiries the initiation of
the proceedings u/s 147 of the Act on this ground was held to be illegal and bad in law.
6.5 The last limb of the basis cited in the reasons is the judgment of the Kolkatta Bench of
ITAT in the case of Bishaka Sales. Considering the back ground of the case in the judgment, the
AO took a view that there are paper companies in Kolkatta which are in the activities of
providing accommodation entries to the parties where ownership is changed by inducting the
associates of directors of the beneficiary companies. Again the AO is acting on perception based
on the activities done by number of companies in Kolkata meaning thereby that all the
companies in Kolkatta where there is change of ownership are paper companies engaged in the
accommodation business which is not what is indicate in the information/ judgment of Kolkatta
Bench cited by him. The AO failed to consider this non specific input by applying the same on
the assessee by linking the share applicant companies to the company dealt by the ITAT in the
case of Bishaka Sales. In the absence of such nexus or linkage established by the AO with the
facts of the assessee company or the shareholder companies, the cognizance of such a judgment
amounts to acting on mere suspicion and nothing more. Any action on such basis is nothing but
an exercise in the nature of carrying a roving enquiry in order to carry investigation, much short
of a belief which is the requirement of law. The AO is not entitled to act on suspicion but act
with the prima facie belief of escapement of income.
6.6 The assessment of the assessee for the assessment year under consideration was originally
completed u/s 143 (3) of the IT Act on 24.08.2012. Further the reassessment proceedings have
been initiated after expiry of four years from the end of the above assessment year. By virtue of
proviso to section 147, the initiation of reassessment proceedings is not valid unless the income
chargeable to tax has escaped assessment for such assessment year by reason of the failure on the
part of the assessee to either make a return u/s 139 or in response to notice u/s 142(1) or 148 of
the IT Act or to disclose fully and truly material facts necessary for assessment for the
assessment year under reference. The assessee had objected to reassessment proceedings on
the ground that under proviso to section 147 on page 16 to 17 that the assessee had faltered in
disclosing fully or truly any specific material facts necessary for assessment. The perusal of the
reasons will reveal that there is just a whisper in the reasons of the failure of the assessee to
disclose fully and truly or material facts. The objections of the assessee before the AO vide letter
dated 02.11.2015 are on pages 40-44 and the reference may be made to para 2.1 on page 40 of
the paper book where the assessee had objected to the assumption or jurisdiction by the AO
based on proviso to section 147. The AO vide letter dated 07.12.2015 paper book pages 45-
53 has considered the above objections of the assessee in on page 47where the AO has given a
finding that there was a failure on the part of the assessee to disclose fully and truly all material
facts the amount of Rs 9,31,00,000/- has escaped assessment. Here it is extremely important to
note that although the AO is not allowed to supplement reason at later stage by filling in the gaps
but at that stage also the AO was not able to first point out in identifying which material facts
were not disclosed by the assessee fully and truly and how those facts had bearing on the
computation of income at the first stage of assessment. The assessee submitted that the assessee
had, during the original assessment proceeding completed u/s 143(3) of the Act vide order dated
24.08.2012 (paper book page 25-26), had disclosed all facts in relation to the so called escaped
income of Rs. 9,31,00,000/-, as per the reason recorded. In the absence of any such allegation by
the AO in the reason recorded which are supposedly done by the AO after referring to the
original assessment records and also the information passed on by the Directorate of
Enforcement, the reopening on the account need be quashed. If the AO is not able to make out
any case, in support of his action of reopening of the concluded assessment, of the failure of the
assessee in disclosing any particular material facts or identifying such material facts which had
bearing on the assessment on the particular income, the action of reopening of reassessment is
therefore invalid and need be quashed. A simple statement of failure of the assessee to fully and
truly disclose all material facts, as is done in the order disposing off the objection, leaves the
compliance by the AO midway. It falls short of the requirement of the proviso and therefore fails
to address the demands of the above proviso. . The Hon’ble Delhi High Court in the case of
Dalmia (P) Ltd v CIT & ANR64 DTR 417 held that the onus is on the revenue to show that the
assessee had stated incorrect facts and wrong material facts resulting in the AO proceeding on
the basis of such facts. It was held by the Court that the reason recorded and the documents on
record are of paramount importance and will have to be examined to determine whether the stand
of the Revenue is correct. It was further emphasized that failure to make full and true disclosure
material facts is a precondition which should be satisfied if reopening is after four years of end of
the assessment year. It was held by the Hon’ble Jurisdictional High Court in the case of WelIntertrade (P) Ltd. &Anr. vs. ITO (2009) 308 ITR 22 (Del) that where assessee having fully
and truly disclosed all the material facts necessary for the assessment as required by the AO the
precondition for invoking the proviso to S. 147 was not satisfied and therefore AO acted wholly
without jurisdiction in issuing notice u/s. 148 beyond four years period mentioned in S. 147. The
judgment of the Hon’ble Chennai High Court in the case of Fenner India Ltd v DCIT 241 ITR
672(Mad) also subscribed to the above judicial proposition propounded by the Hon’ble Delhi
High Court in Haryana Acrylic Manufacturing case (supra). The judgment of the Mumbai High
Court in the case of Hindustan Lever Ltd. v/s R.B. Wadkar, Assistant Commissioner of Income
Tax and others, reported in [2004] 268 ITR 332 is categorical on the obligation of the AO to
identify the material facts which were not disclosed by the assessee and also to prove that those
facts were relevant for computation of income. The observations of the Hon’ble Court on the
above issue are reproduced as under:
“---------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 evidence. That vital link isthe safeguard against arbitrary reopening of the concluded assessment.-------.”
6.7 The Hon’ble Bombay High Court in Bombay Stock Exchange Ltd. vs DCIT in Writ
Petition No. 2468 of 2001 (date of order 12.06.2014) held that bald statement that assessee has
failed to make a full & true disclosure of material facts is not sufficient. Details must be given as 27
to which fact was not disclosed. It is true that the reasons for initiating re-assessment proceedings
do in fact state that there was a failure on the part of the Petitioner to disclose fully and truly all
material facts necessary for its assessment.
6.8 The observations of the Hon’ble Delhi High Court in the case of M/s Swarovski India Pvt. Ltd v. Deputy Commissioner of Income Tax, W.P.(C) 1909/2013 decided on 08.08.2014 are
also relevant on the issue of identifying specifically the material facts having bearing on the
assessment not disclosed truly and fully by the assessee in reopening of assessment proceedings;
“12. It is clear that the escapement of income by itself is not sufficient for reopening the assessment in a case covered by the first proviso to Section 147 of the said Act unless and until there is failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. In the present case, it has not been specifically indicated as to which material fact or facts was/were not disclosed by the petitioner in the course of its original assessment under Section 143(3) of the said Act.”
6.9 We find that the judgment of the Hon’ble Delhi High Court in the case of CIT vs
Tirathram Ahuja (HUF) (2008) 6DTR 335 (Del.) is also cited to highlight the proposition that
conditions laid down in proviso to section 147 need be strictly full filled as this power is an
exceptional power and in the absence of strict compliance of conditions of proviso, the exercise
of power held to be unsustainable in law.
6.10 We also note that the order is bad in law because the reason recorded are vague and
without application of mind and are based on the information of the Enforcement Directorate
with no incriminating material which is coming to the possession of the AO for the first time and
which was not there with him at the time of original proceedings. In the reasons recorded in
instant case the AO has not referred to any specific adversarial material (statement etc.) and also
has not described exact nature of transaction in the reasons and has used share application / share
capital / unsecured loans etc. In the reasons and has miserably failed to bring during entire
reopening proceedings any specific tangible material which established assessee is beneficiary of
accommodation entries, which all are sufficient to nullify the extant reopening action. Even there
is no annexure/enclosure to reasons to corroborate the same. No reference and details of
investigation wing information is available. There is no live nexus / rational connection between
Investigation Wing information and belief that assessee’s certain income has escaped
assessment. The non-application of mind is evident in the contradiction contained in the form
filed for recording the reason and for obtaining approval u/s 151 (PB 37). In the Performa, the
item No.7 there is mention of applicable section 147 r.w. Explanation 2(c)(i) implying that the
case is of income being under assessed but in item No.9(b), the AO says that it is neither a case
of under assessment or assessment at low rate of excessive relief or allowing excessive loss of
depreciation. There is also further contradiction that in reply to item no.8, date of filling of return
and fact of filling of return is mentioned which is not required to be mentioned when the case
was not of the assessment for the first time. These contradiction indicate that neither the AO nor
the authorities providing sanction that Addl CIT, Range-20 and Pr C IT-7, Delhi have applied
their respective minds in not questioning the above contradictions. The date of recording reason
is also not mention and also the date of sanction u/s 151 and these material facts indicate that the
sanction provided by the authorities is mechanical as recording of reason. In the identical
circumstances, the Hon’ble Bombay High Court in the case of Smt Kalpana Shantilal HariaVs
ACIT W.P.(L) No.3063/2017 dated 22.12.2017(PB 136-137) quashed the reassessment
proceedings. The jurisdictional Delhi High Court in Yum! Restaurants Asia Pte Ltd VS DDIT in
WP(C) No. 614/2014 dated 31.08.2017(PB 138-140) has also considered the glaring mistakes in
the Performa for approval as the valid ground for quashing the assessment on the premise of non-
application of mind by all the authorities involved in the process of recording reasons and
providing satisfaction u/s 151.
6.11 We also note that the action of the AO has been taken mechanically on the basis of
alleged report of Enforcement Department. The mere recording/ formulation of reasons on the
basis of reproduction of information from Investigation Wing and, issuing notice for initiation of
re-assessment proceedings does not constitute application of mind much less independent
application of mind. Hence, the proceedings are without jurisdiction. It is settled law that AO
cannot act mechanically on the basis of report of Enforcement Directorate and to show that the
AO has applied his mind, he must distinct all those materials and he must also show that what
was material on record. Hence, initiation of proceedings is also based on non-application of mind
much less independent application of mind. This view is fortified by the decision of the Hon’ble
Delhi High Court in the case of Pr. CIT v. G&G Pharma India Ltd. reported at 384 ITR 147
(Del), wherein it has been held as under:-
“Today when the case was called out, Mr. Sawhney produced before the
Court the very same letter of the AO dated 15th September 2010 which
has been reproduced in its entirely in the impugned order of the ITAT. He
submitted that the AO was himself present in the Court and further efforts
would be made to locate the materials on the basis of which the AO
formed his opinion regarding reopening of the assessment. The Court was
not prepared to grant further time for this purpose since it was not clear
that the materials were, in fact, available with the Department.
In the present case, after setting out four entries, stated to have been
received by the Assessee on a single date i.e. 10th February 2003, from
four entities which were termed as accommodation entries, which
information was given to him by the Directorate of Investigation, the AO
stated: "I have also perused various materials and report from
Investigation Wing and on that basis it is evident that the assessee
company has introduced its own unaccounted money in its bank account
by way of above accommodation entries." The above conclusion is
unhelpful in understanding whether the AO applied his mind to the
materials that he talks about particularly since he did not describe what
those materials were. Once the date on which the so called
accommodation entries were provided is known, it would not have been
difficult for the AO, if he had in fact undertaken the exercise, to make a
reference to the manner in which those very entries were provided in the
accounts of the Assessee, which must have been tendered along with the
return, which was filed on 14th November 2004 and was processed under
Section 143(3) of the Act. Without forming a prima facie opinion, on the
basis of such material, it was not possible for the AO to have simply
concluded: "it is evident that the assessee company has introduced its own
unaccounted money in its bank by way of accommodation entries". In the
considered view of the Court, in light of the law explained with sufficient
clarity by the Supreme Court in the decisions discussed hereinbefore, the
basic requirement that the AO must apply his mind to the materials in
order to have reasons to believe that the income of the Assessee escaped
assessment is missing in the present case.”
6.11 It is further noted that the approval granted by the competent authority is a mechanical
approval and action has been taken mechanically because on perusing the reasons recorded, it demonstrates that Pr. CIT has written “Yes, it is a fit case for the issue of notice u/s. 148.”
which establishes that the competent authority has not recorded proper satisfaction / approval,
before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice
u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate
of Enforcement. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening
in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed.
Our aforesaid view is fortified by the following decisions:-
(A) Hon’ble Delhi High Court in the case of Pr. CIT vs. M/s NC Cables Ltd. in ITA No. 335/2015 has held as under:-
Section 151 of the Act clearly stipulates that the CIT(a), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ says nothing. It is not as if the CIT(A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer, For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed.”
(B). Hon’ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. reported in (2015) 56 taxmann.com 390 (MP) has held as under:-
“7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so “Yes, I am Satisfied”. In the case of ARjun Singh vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:-
“The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commisisoner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material
If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration.”
(C.) Hon’ble Supreme Court of India in the case of CIT vs. S. Goyanka Lime & Chemical Ltd. reported in (2015) 64 taxmann.com 313 (SC) in the Head Notes has held that “Section 151, read with section 148 of Income Tax Act, 1961 – Income escaping assessment – Sanction for issue of notice (Recording of satisfaction) – High Court by impugned order held that where Joint Commissioner recorded satisfaction in mechanical manner and without
application of mind to accord sanction for issuing notice under section 148, reopening of assessment was invalid – Whether Special Leave Petition filed against impugned order was to be dismissed – Held, Yes (in favour of the Assessee).” 7. In the background of the aforesaid discussions, we find that case laws relied by the Ld. CIT(DR) on the legal issue are distinguished on facts, hence, does not support the case of the Revenue. However, the case laws discussed by us in this order, as aforesaid are directly applicable on the issues raised in ground no. 1. Therefore, respectfully following the precedents, as aforesaid on the issues of legal grounds, we are of the considered view that proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the re-assessment is quashed. Since we have already quashed the re-assessment, the other grounds have become academic and are therefore not adjudicated and accordingly, the assessee’s appeal is allowed.
In the result, the Appeal filed by the Assessee stands allowed
Order pronounced on 07-02-2019. Sd/- Sd/-
[H.S. SIDHU] [L.P. SAHU] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 07-02-2019 SRBhatnagar Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.