Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 09/JP/2012
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 09/JP/2012 fu/kZkj.k o"kZ@Assessment Year :1999-2000 cuke The ACIT-1, Alwar M/s Prime Chem Oil Ltd. Vs. 123, MIA, Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCP 2384 G vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 10/JP/2012 fu/kZkj.k o"kZ@Assessment Year :2000-2001 cuke The ACIT-1, Alwar M/s Prime Chem Oil Ltd. Vs. 123, MIA, Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCP 2384 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri Prithaviraj Meena(Addl. CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 01/03/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 10/03/2017 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. These are two appeals filed by the Revenue against the order of Ld. CIT(A), Alwar dated 05.10.2011 for A.Y. 1999-2000 and 2000-2001 respectively. Since common issues are involved, the same were heard together and disposed off by this consolidated order.
2 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
ITA No. 9/JP/12
For the purposes of discussions, we take up the appeal of the Revenue for Assessment Year 1999-2000. The grounds taken by the Revenue in its appeal are as under:-
“1. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 1,75,00,000/- on account of unexplained investment in the subscribed & paid up share capital u/s 69 of the IT Act (inclusive of Rs. 16,60,000/- on account of bogus entries).
That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the trading addition of Rs. 10,00,000/-.
That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 29,96,610/- made on account of accrued loan and advances.
That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the disallowance out of expenses of Rs. 1,35,046/-.
That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the unexplained cash credit u/s 68 of the I.T. Act of Rs. 4,02,646/-“.
Brief facts of the case are that the assessee filed its return of income declaring loss of Rs.56,82,440/- and the same was processed u/s 143(1) of the I.T. Act, 1961. Subsequently, the A.O received information from DIT Investigation, Varanasi that the assessee’s
3 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
company has received bogus entries of Rs. 13,60,000/- on 16.12.1998 from M/s Moon Holding & Credit Ltd., and Rs. 3,00,000/- on 15.03.1999 from Subh in Fin Caps Ltd., New Delhi respectively. On the basis of said information, the assessment proceedings were reopened u/s 148 of the Act and notice was issued to the assessee on 19.03.2005. The reasons for reopening the assessment proceedings were shared with the assessee and after disposing off the assessee’s objections, the reassessment order was passed u/s 143(3) read with section 148 of the Act wherein certain additions were made to the returned income. Being aggrieved, the assessee company carried the matter in appeal before the ld CIT(A) and against the said order, the Revenue is in appeal before us.
The ld DR submitted two broad contentions before us. Firstly, he contended that the ld CIT(A) has clearly erred in holding that the Assessing officer has no jurisdiction on any other issues which come to his notice subsequently in the course of proceedings u/s 147 of IT Act other than the issues mentioned in the reasons recorded u/s 148 and in support, he relied upon the express provisions of section 147 read with Explanation 3 of the Act. Per contra, the ld AR relied upon the decision of the Hon’ble Rajasthan High Court in case of Sri Ram Singh 306 ITR 343. Secondly, the ld DR contended that the initial onus cast on the assessee to prove the identity, creditworthiness and genuineness of the transaction in respect of subscription to the share capital has not been discharged and in support, he relied upon the decision of Hon’ble Supreme Court in case of Navodaya Castles 230 Taxmann 268 (SC). Further, he relied on the order of the Assessing officer. Per contra, the
4 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
ld AR took us through the findings of the ld CIT(A) and relied on the same.
Firstly, we will take up the issue regarding jurisdiction of Assessing officer to assess other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147 of the Act.
The relevant provisions under consideration are Section 147 of the Act and the Explanation 3 to section 147 was introduced by the Finance (No 2) Act, 2009 with retrospective effect from 1.4.1989, both of which reads as under:
“147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 sections 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
5 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
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 sub-section (2) of section 148.”
The Memorandum explaining the Finance Bill (No. 2) 2009 explaining the legislative intent of above explanation provides as under:
“The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for re-opening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section.
Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.
With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147 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
6 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148.
This amendment will take effect retrospectively from 1st April, 1989 and will, accordingly, apply in relation to assessment year 1989-1990 and subsequent years.”
We now refer to the decision of the Hon’ble Rajasthan High Court in case of Sri Ram Singh (306 ITR 343) which has been relied upon by the ld AR and followed by the ld CIT(A). In that case, the issue for consideration before the Hon’ble High Court was "whether in the facts and in the circumstances of the case, the Tribunal was justified in holding that the proceedings for reassessment under section 148/147 of the IT Act were initiated by the AO on non-existing facts because ultimately, the assessee has been able to explain that the income which was believed to have escaped assessment was explainable but some other additions were made under the assessment order?" In that case, the ld Counsel for the assessee submitted that if while exercising powers under section 147, the AO comes to a conclusion, that the income, with respect to which he has entertained "reason to believe" to have escaped assessment, did not escape, or that it was not liable to tax, then merely because he had initiated proceedings, would not confer on him the continued jurisdiction, to assess the other incomes, which have come to his notice subsequently, in the course of proceedings, to have escaped assessment. In that background, the Hon’ble High Court has held as under:
7 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
“24. Reverting back to language of section 147, this much is clear, that the sine qua non for conferment of jurisdiction on the AO, to initiate proceedings under that section is, that he should have "reason to believe" that "any income chargeable to tax has escaped assessment for any assessment year" and that, being that situation, being available, i.e., the AO having entertained a "reason to believe", obviously on valid grounds, he acquires the jurisdiction to assess or reassess "such income", which obviously means, the income, which was chargeable to tax, and had escaped assessment for any assessment year, according to his "reason to believe", and while so assessing or reassessing, he can also, in addition, assess or reassess "any other income chargeable to tax which has escaped assessment and which may come to his notice subsequently in the course of proceedings under section 147".
The precise question, thus requiring to be considered is, as to whether, the conjunctive word used, being "and", used between the expression "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 section 147" is required to be given its due, or is required to be ignored, or is required to be interpreted as "or". Obviously because, if it is to be interpreted as "or", then the language would read as under:
"147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or
8 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
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 re-compute 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 sections 148 to 153 referred to as the relevant assessment year)."
But then if it were to be so read, the word "also" becomes redundant, and to make sense of the sentence, the section would be required to be read by ignoring the words "also", as well, in which event, the section would read as under:
"147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or 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 re-compute 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 sections 148 to 153 referred to as the relevant assessment year)."
It is established principle of interpretation of statutes, that the Parliament is presumed to be not extravagant, in using the words, and therefore, every word used in the section, is required to be given its due meaning.
9 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under section 147 the AO, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment. and which has come to his notice subsequently, in the course of proceedings under section 147.
To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147.”
It is noted that the above judgment in case of Shri Ram Singh's case (supra) has been rendered by the Hon’ble Rajasthan High Court prior to the insertion of Explanation 3 to section 147 of the Act by the Finance (No. 2) Act, 2009, with effect from April 1, 1989.
10 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
We now refer to the decision of the Hon’ble Bombay High Court in case of CIT vs Jet Airways (2010) 195 Taxman 117 (Bombay) which has considered both the decision of Hon’ble Rajasthan High Court in case of Shri Ram Singh's case (Supra) and also the effect of insertion of explanation 3 to section 147 and whether the said decision of Hon’ble Rajasthan High Court still holds good in law post insertion of explanation 3 to section 147 of the Act.
In case of Jet Airways, the substantial question of law arising before the Hon’ble High Court was as to whether where upon the issuance of a notice under section 148, read with section 147, the Assessing Officer does not assess or, as the case may be, reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject-matter of the notice and which has escaped assessment and which comes to his notice subsequently during the course of assessment or reassessment proceedings. According to the assessee, unless the Assessing Officer assesses the income with reference to which he had formed a reason to believe within the meaning of section 147, it would not be open to him to assess or to reassess any other income chargeable to tax which had escaped assessment and which comes to his notice subsequently in the course of the proceedings. On the other hand, the revenue urged that even if during the course of assessment or, as the case may be, reassessment, the Assessing Officer does not assess or reassess the income which he
11 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
has reason to believe had escaped assessment and which formed the subject-matter of a notice under section 148(2), it is nonetheless open to him to assess any other income which, during the course of the proceedings, is brought to his notice as having escaped assessment.
In the above background, the Hon’ble Bombay High Court has held as under (Head Notes):
“The condition precedent to the exercise of the jurisdiction under section 147 is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation of a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147, has to serve a notice on the assessee requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to assess or to 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 section 147. [Para 5]
The effect of the Explanation 3 which was inserted by the Finance (No. 2) Act, 2009 is that, even though the notice issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, yet the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment,
12 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
when such issue comes to his notice subsequently in the course of the proceedings. The reasons for the insertion of the Explanation 3 are to be found in the memorandum explaining the provisions of the Finance (No. 2) Bill, 2009. [Para 6]
The memorandum states that some of the Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was 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). [Para 8]
The effect of section 147, as it now stands after the amendment of 2009, can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve a notice on the assessee under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income
13 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, yet he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. [Para 9]
Interpreting the provision as it stands without adding or deducting from the words used by the Parliament, it is clear that upon formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words 'and also' cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by the Parliament otiose. The Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words 'and also' cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard these words as being conjunctive and cumulative. It is of some significance that the Parliament has not used the word 'or'. The Legislature did not rest content by merely using the word 'and'. The words 'and' as well as 'also' have been used together and in conjunction. Evidently, therefore, what the Parliament intends by use of
14 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
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 used by the Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also 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. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. The Parliament, when it enacted the provisions of section 147 with effect from 1-4-1989, clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which
15 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter. [Para 11]
The Explanation 3 to section 147 lifts the embargo inserted by judicial interpretation on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of the Explanation 3 by the Finance (No. 2) Act, 2009. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or to render the substance and core nugatory. Section 147 has the effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepts the contention of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped
16 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
assessment, it is not open to him to independently assess some other income, and if he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. [Para 16]
Section 147(1), as it stands, postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income 'and also' any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment . The words 'and also' are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by the Parliament. This view has been supported by the background which led to the insertion of the Explanation 3 to section 147. The Parliament must be regarded as being aware of the interpretation placed on the words 'and also', by the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. The Parliament has not taken away the basis of that decision. While it is open to the Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1), as they stood after the amendment of 1-4-1989, continue to hold the field. [Para 17]
In light of above discussions, the decision rendered by the Hon’ble Rajasthan High Court in case of Shri Ram Singh (Supra) continues to hold good post insertion of explanation 3 to Section 147 of the Act. The
17 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
the legal proposition post amendment by the Finance Act, 2009 that emerges is as under:
12.1 Firstly, the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 section 147; and though the notice under section 148(2) does not include a particular issue with respect to which income has escaped assessment, yet he may nonetheless, assess or reassess such income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. In other words, the Explanation 3 to section 147 lifts the embargo inserted by judicial interpretation on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147 of the Act.
12.2 Secondly, if in the course of proceedings under section 147, the AO were to come to a conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction,
18 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147 of the Act.
In the present case, the notice u/s 148 was issued to the assessee in respect of two bogus entries of Rs. 13,60,000/- received on 16.12.1998 from M/s Moon Holding & Credit Ltd., and Rs. 3,00,000/- received on 15.03.1999 from Subh in Fin Caps Ltd., New Delhi respectively as per information received from DDI, Varanasi. Thereafter, the reassessment proceedings were completed wherein the AO besides Rs 16.60 lacs in respect of which the reasons were issued under 148, also brought to tax unexplained subscription to share capital amounting to Rs 158.40 lacs, thus adding the whole of subscribed though unexplained share capital of Rs 175 lacs, trading addition of Rs 10 lacs, unexplained cash credit of Rs 402,646, accrued interest on loans and advances of Rs 29,99,610, disallowance of expenses of Rs 1,35,046 and disallowance of depreciation of Rs 141,950.
It would therefore be relevant to firstly examine the issue in respect of two bogus entries of Rs. 13,60,000/- received on 16.12.1998 from M/s Moon Holding & Credit Ltd., and Rs. 3,00,000/- received on 15.03.1999 from Subh In Fin Caps Ltd., New Delhi which forms the subject matter of notice under section 148 of the Act. If the said issue survives, the AO would have jurisdiction over the other issues and the said other additions made by the Assessing officer would thus arise for examination.
19 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
In this regard, the facts as noted from the assessment records are that in support of share allotted to Moon Holding & Credit Ltd. & Subh in Fin Caps Ltd., the assessee company was asked to produce share allotment register, share application register, counterfoils of the shares certificates & confirmation from the above mentioned concerns. However, none of the above mentioned evidences were produced by the assessee company before the AO. Further, letters were written by the AO to the Subh in Fin Camp Ltd. to confirm the subject entries but it returned with remarks by postal authorities that ‘no such firm exists’. Further, letters were written to Moon Holding & Credit Ltd. but the same was received back with comments of postal authority ‘left’. Therefore, the AO observed that the assessee could not furnish any evidence in support of its claim regarding shares allotted of Rs. 13,60,000/- and Rs. 3,00,000/- to Moon Holding & Credit Ltd. and Subh in Fin Caps Ltd. respectively. Further, the assessee had mentioned the case of CIT Vs Stellar investiment Ltd. 251 ITR page 63. However, the above case law was held not applicable by the AO as facts of the case were different. In the case under consideration, the AO held that the assessee has failed to establish the fact, at the first stage itself, that shares were allotted. The question of the source of the source comes later. Therefore, it is clear that assessee has been unable to prove that Rs. 16.60 Lakhs were allotted for share capital, hence Rs. 16.60/- Lakhs received from Subh in Fin Caps Ltd. & Moon Holding & Credit ltd. was added to the income of the assessee as unexplained investment u/s 69 of the I.T. Act. It is noted that the whole discussion by the AO and even the response of the assessee including the decision of the Hon’ble
20 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
Supreme Court quoted by the assessee in case of Stellar Investments is in the context of section 68 of the Act. Therefore, merely by stating Section 69 instead of Section 68 of the Act by the AO cannot be viewed as a breach of the AO’s jurisdiction to assess such income and the assessee’s right to contest such addition. In any case, the assessee has not taken the said ground or the plea either before the ld CIT(A) or before us. We accordingly proceed with examining the subject matter accepting the AO’s jurisdiction to assess such income under the provisions of section 68 of the Act.
The assessee company carried the matter in appeal before the ld
CIT(A) who allowed the relief to the assessee company and against
such findings, the Revenue is in appeal before us. We now refer to the
relevant finding of the Ld. CIT(A) appeal which are contained in para
5.3 of his order which are reproduced as under:-
“5.3 I have considered the facts of case and submission made by ld. AR and I found that assessee has produced books of account on 07.03.2011 at the time of remand report not at the time of original assessment. The appellant replied vide letter dated 23.002.2006 to the AO that the premises of the company is locked/sealed by PNB/RFC/RIICO and IDBI due to be company proceedings. It also clear from the service of notice u/s 148 for AY 2000-01 that there was no person on registered office and premises was found closed. On verification of the share capital in the balance sheet it is found that share capital in previous year was Rs.5,30,24,000/- and in current year
21 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
i.e. AY 1999-2000 it was 7,05,24,000/- it means there is an addition in share capital at Rs.1.75 Crore during the year. The appellant has produced the books of accounts at the time of remand report along with details of share allotted during the FY 1998-1999 relevant to AY1999- 2000 the position is as under:
S.No Date of No. of Total value of shares Distinctive No. of Details of shares application money received . allotment shares @ 10% per share shares made allotted (Rs.) Date Chequ Amt. Name of party e No. (Rs.) 1. 31.03.99 136000 1360000 5302401 to 5438400 16.12. 19796 13600 M/s Moon 98 8 00 Holding Ltd. 2. 31.03.99 300000 3000000 54401 to 5738400 31.01. _ 30000 M/s Jindal Oil & 99 00 Fats Ltd. 3. 31.03.99 20000 200000 5738401 to 5758400 31.01. _ 57000 M/s 99 0 ShambakaAgrot Pvt. Ltd. (No details furnished in respect of allotment of 55000/- of shares of distinctive numbers from 5302401to 5438400 of the values of 550000/- on the balance amount received out of Rs750000/-above) 4. 31.03.99 1200000 12000000 5813401 16.01.99 - 1500000 to 22.01.99 - 2000000 M/s Ganesh 7013400 06.02.99 276251 1000000 Beno Plast 10.02.99 276252 1500000 Industries 12.02.99 - 500000 15.02.99 276254 1000000 20.02.99 924205 500000 22.02.99 - 100000010 24.01.99 - 00000 24.02.99 - 2000000 12000000
31.03.99 30000 300000 7013401 10.03.99 - 300000 M/s Subhi Fin to Caps Ltd. 7043400 6. 31.03.99 14000 140000 7043401 31.12.98 - 140000 M/s Swift to Fanvest 7057400 Pvt.Ltd. 7. 31.03.99 50000 500000 7057401 31.03.99 - 500000 M/s Thapar to Ispat Ltd. 7107400
As per information received from the DDIT Varanasi that the appellant received Rs. 13,60,000/- vide DD No. 197968 dated 17.12.1998 from current account No. 6015 and Rs.3 lac from Subh in Fin Ltd ( Vesta Healcare Ltd.) through DD No. 6344 dated 15.03.1999 from current account no. 5943 maintained with Vijaya Bank 17, Barkhabha Road New
22 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
Delhi and Vijay Bank Karol Bag Branch New Delhi. The appellant produced the complete books of account before the present AO at the time of remand report along with share allotment register and confirmation of share capital introduced during the FY 98-99 on 07.03.2011 but it was not reported in the remand report but these facts are verifiable from the order sheet of the AO. In remand report the ld. AO has verified the confirmation filed by the appellant with detail of date of receipt of share money, credited in bank account of the appellant, distinctive share No. in case of M/s Moon Holding and Subh In Fin Ltd. (Vesta Healthcare Ltd.) but not found explained as reported by the AO that the appellant had not produced (i)duplicate copy counter foil share allotted (ii)copies of bank statement and (iii) bank book maintained by the company in case of other share holder namely Genesh Benzo Plast, Thapar Ispat, Zindal Oil Swift Fin Vest, Shambhuka Agro including Moon Holding and Subh in Cap but confirmation of above companied obtained by the AO. The appellant relied upon CIT Steeller investment Ltd. 251 ITR 263 (2000) SC and CIT Vs. Lovely Export Pvt. Ltd. 216 CTR 195 ( SC) and argued that if the share application money is received by the assessee company from alleged bogus share holder, whose names are given to the AO, then the department is free to proceed to reopen their individual assessment in accordance with law, but it cannot regarded as undisclosed income of the assessee company. The ld. AO also referred the case on CIT Vs. Ram Kishan Leela 295 ITR 525 (2006) (Raj.) and argued that once the reassessment are pending, the entire assessment is open and is not confined to the scope of reasons recorded by the AO before assuming the jurisdiction. Whereas the ld. AR for the appellant relied upon CIT Vs. Sri Ram Singh
23 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
306 ITR 343 (2008) (Raj.). The AOs case laws referred was in case of two 148 notices were issued for same assessment year by the AO and the issue was that second 148 notices is invalid but in case of referred by the AR issue was when grounds of reopening was not in existence by explaining the reasons by the appellant, the AO has no jurisdiction on any such issue come to the notice subsequently in the course of proceedings u/s 147 of IT Act. Therefore, addition of Rs.1.75 Crore made by the ld. AR is deleted. The assessee gets relief accordingly.
Recently, this Bench in case of M/s Bright Metals Pvt. Ltd. (ITA No. 702/JP/14) vide our dated 24.02.2017 has extensively examined the legal proposition in the context of section 68 of the Act taking into consideration the decision of Hon’ble Supreme Court in case of Navodaya Castle (P) Ltd (Supra) which has been quoted by the ld DR in support of its contentions regarding the onus placed on the assessee company to discharge the initial onus in terms of identification of the shareholder, their creditworthiness and the genuineness of the transaction. The earlier decision of Hon’ble Supreme Court in case of Lovely Exports 216 CTR 195 (SC) which was quoted by the ld AR and relied upon by the ld CIT(A) was also considered in the subsequent decision of Navodaya Castle and due considered by this Bench in case of Bright Metals (supra). It would therefore be relevant to refer to the the decision of the Bright Metals (supra) and the discussions in context of section 68, being germane to the issue under consideration:
“3.1 In case of Navodaya Castle (P) Ltd (supra) which is a case of a private limited company, it is noted that the SLP has been rejected by
24 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
the Hon’ble Supreme Court holding that the Court do not see any merit in the SLP against the order of Hon’ble Delhi High Court. In this case, the Hon’ble Delhi High Court has referred to catena of earlier decisions such as case of CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169, CIT v. N.R. Portfolio (P.) Ltd. [2014] 222 Taxman 157, CIT v. Sophia Finance Ltd. [1994] 205 ITR 98(Delhi) (FB), CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268, CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and CIT v. Nipun Builders & Developers [2013] 350 ITR 407 and has held as under:
“12. The main submission of the learned counsel for the assessee is that once the assessee had been able to show that the shareholder companies were duly incorporated by the Registrar of Companies, their identity stood established, genuineness of the transactions stood established as payments were made through accounts payee cheques/bank account; and mere deposit of cash in the bank accounts prior to issue of cheque/pay orders etc. would only raise suspicion and, it was for the Assessing Officer to conduct further investigation, but it did not follow that the money belonged to the assessee and was their unaccounted money, which had been channelized.
As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received
25 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct.
Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor.
Lovely Exports (P.) Ltd. (supra) was also considered and distinguished in N.R. Portfolio (P.) Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT v. Nipun Builders and Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), wherein it has been held that a reasonable approach has to be adopted and
26 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
whether initial onus stands discharged would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the creditor. It would be also incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves. Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and
27 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.
Now, when we go to the order of the tribunal in the present case, we notice that the tribunal has merely reproduced the order of the Commissioner of Income Tax (Appeals) and upheld the deletion of the addition. In fact, they substantially relied upon and quoted the decision of its coordinate bench in the case of MAF Academy (P.) Ltd., (supra) a decision which has been overturned by the Delhi High Court vide its judgment in MAF Academy (P.) Ltd (supra). In the impugned order it is accepted that the assessee was unable to produce directors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 21. In view of the aforesaid discussion, we feel that the matter requires an order of remit to the tribunal for fresh adjudication keeping in view the aforesaid case law. The question of law is, therefore, answered in favour of the Revenue and against the respondent-assessee, but with an order of remit to the tribunal to decide the whole issue afresh. One of the reasons, why we have remitted the matter is that the cross objections of the respondent- assessee questioning notice under Section 147/148 were dismissed as infructous and even if we decide the issue on merits in favour of
28 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
the Revenue, the cross objections would got revived and require adjudication. The appeal is accordingly disposed of.”
“After going through the various legal authorities as narrated above, the legal proposition that emerges in the context of section 68 is as under:
4.1 Where any sum is found credited in the books maintained by the assessee, Section 68 requires that the assessee should offer an explanation about the nature and source of such sum found credited in its books of accounts to the satisfaction of the Assessing officer. In absence of explanation, or in the event of explanation being not found satisfactory, the sum so credited would be included in the income of the assessee.
4.2 The primary requirements, which should be satisfied cumulatively by the assessee in such cases is identification of the shareholder, creditworthiness of shareholder and the genuineness of the transaction.
4.3 The explanation offered and material submitted by the assessee in support of its explanation should be wholesome, credible and verifiable. These three requirements thereafter have to be tested by the Assessing officer not superficially but in depth having regard to the human probabilities and normal course of human conduct. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on it would shift
29 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
leaving it to the Assessing Officer to start inquiring into the affairs of the third party.
4.4 Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three requirements, it is nonetheless legitimate expectation of the process that he would bring in sufficient proof, which is credible and at the same time verifiable, so as to discharge the initial burden placed on him. Whether initial onus stands discharged would depend upon facts and circumstances of each case.
4.5 The degree of burden of proof on the assessee will vary from assessee to assessee. In case of private limited companies where shares are allotted through private placement to persons generally known to directors or shareholders, directly or indirectly, burden of proof is on higher pedestal as compared to public limited companies where the large scale subscription are offered through public issue and shares are subscribed by general public. In case of private limited companies, the Courts have laid down a strict approach in terms of satisfying such burden of proof.
4.6 In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when
30 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the shareholder. It would be also incorrect to universally state that an inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies' website or search for the addresses of shareholders themselves.
4.7 Unlike the case of private limited companies, in the case of public limited company which has gone for a public issue and got share subscriptions from prospective shareholders across the length and breadth of the country, the legal regime may not be the same. In such cases, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents, bank transactions details and other related KYC documents submitted along with the share application.
31 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
4.8 The word "identity" means the condition or fact of a person or thing being that specified unique person or thing. The identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing certificate of incorporation, PAN number or assessment particulars did not establish the identity of the person. PAN numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertaining active nature of business activity. The actual and true identity of the person or a company was the business undertaken by them. Further, these documents have their limitation and cannot be relied upon blindly when there are surrounding circumstances to show that the subscriber was a paper company and not a genuine investor.
4.9 In respect of the genuineness of the transaction and creditworthiness of the shareholder, it would be incorrect to state that the onus to prove the same stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each other; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation and due diligence to protect the investment and the pay back on such investment, whether the investor professes and was an angel investor, the object and purpose (profit motive) behind the investment and whether any dividend declared and distributed in the past or not. Whether share subscribers have their own profit making apparatus and were involved
32 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
in any tangible business activity or were they merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. Creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of a cheque or by furnishing a copy of statement of bank account of share subscriber, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment.
4.10 The entire evidence available on record has to be considered and a reasonable approach has to be adopted. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction.
4.11 Where the assessee has discharged the initial burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction, the burden of proof shifts on the Assessing officer. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. If the Assessing Officer harbours any doubts of the legitimacy of any subscription, he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or
33 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
illegal dealings or has no material in his possession, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company.
4.12 The case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC) exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In these cases, the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed "accommodation entry providers".”
In light of above legal proposition, if we were to analyse the facts of the present case, the assessee company being a private limited company, the burden of proof is clearly on higher pedestal as compared to public limited companies. Towards discharging the initial onus placed on it, the assessee company has submitted before the Assessing officer that the shares have been allotted to these two private limited companies against the demand draft received from them and distinct no. of shares allotted were submitted before the Assessing officer. The Assessing officer noted that inspite of repeated opportunities provided to the assessee company, the latter has failed to submit books of accounts, share application register, share allotment register,
34 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
counterfoils of the share certificates and confirmation from these companies. Further, the AO noted that the letter issued by his office to these companies to verify the subject transactions were returned by postal authorities stating in one case that the “no such firm exists” and in the another case “left”. The AO accordingly came to a conclusion that the assessee has failed to establish the fact that the share were allotted to these companies at first place.
During the course of appellate proceedings before the ld CIT(A), the latter has stated that the appellant has submitted the books of accounts on 7.3.2011 at the time of remand report and not at the time of original assessment as the premises of the appellant were locked/sealed by PNB/RFC/RIICO and IDBI due to some proceedings. Further, the ld CIT(A) has stated that the appellant has submitted the details of share allotted to these two companies (besides others) in terms of date of allotment, no. of shares allotted, total value of shares, distinctive no. of shares, details of share application in terms of date, cheque no. and amount of share application. In this regard, the ld CIT(A) has called for the remand report from the AO and has stated that the appellant produced complete books of accounts before the present AO at the time of remand report along with share allotment register and confirmation of share capital but it was not reported in the remand report but these facts are verifiable from the order sheet of the AO. The ld CIT(A) further held that in the remand proceedings, the ld AO verified the confirmation filed by the appellant with details of date of receipt of share application credited in the bank account of the appellant. It was also stated by the ld CIT(A) that the reasons why the
35 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
AO didn’t accept the contentions of the appellant is on account of appellant not furnishing duplicate copy of counterfoil of share allotted, copies of bank statement and bank book maintained by the company in case of other shareholders namely Ganesh Benzo Plast, Thapar Ispat, Zindal Oil, Swift Fin Vest, Shambhukha Agro including Moon Holding and Subh In Cap but confirmation of above companies obtained by AO.
We now refer to the letter of A.O. dated 23.02.2011 in the context of 20. remand proceeding, wherein the assessee was asked the following information/documents: “In connection with the above proceedings you are requested to produce the following books/documents and evidences for examination for the year under consideration: i) Copies of Bank accounts maintained by the Company. ii) An addition of Rs.1.75 Crore has been shown in the share capital during the year. Therefore, supporting evidences specially, share application register, share allotment register, duplicate copies of share allotted and confirmation from parties may be produced for verification. iii) Books of accounts specially cash book, bank book ledger & subsidiary book etc. iv) Copies of accounts of M/s Moon Holding & creditors Ltd and M/s Subhin Fin Caps Ltd ( M/s Vatsa Healthcare Ltd) in your books of account with confirmation. v) As per this office records your have received D.D. of Rs. 13.60 lacs on 16.12.98 from M/s Moon Holding & creditors Ltd., and Rs. 3.00 Lacs on 15.03.99 from M/s Subh in Fin Caps Ltd. ( M/s Vatsa Healthcare Ltd)., please explain the nature of transaction with said concerns with documentary evidences.
36 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
vi) Present address of M/s Moon Holding & Creditors Ltd and M/s Subhin Fin Caps Ltd (M/s Vatsa Healthcare Ltd.) vii) Any other documents/papers in respect of issues raised in appeal before the CIT(A)”. 21. The reply of the assessee dated 07.03.2011 in response to the AO’s letter dated 23.02.2011 enclosing the following documents:
“1. Copy of Bank Account maintain by the company are enclosed 2. Share allotment register & confirmation of parties are enclosed 3. Cash book & bank book ledger are produced for your verification 4. Confirmation of Moon Holiday & Assets limited & Subh In fin caps limited are enclosed share application money a/c is enclosed in which both companies amount has been shown 5. D.D. of Rs.13.60 Lacs & 3 Lacs has been received due to share application money from both companies 6. As per record of our company the address given by the company are enclosed a) Moon Holiday & Asset Limited, Rui Mandi Sardar Bazar Delhi b) Subhin fine Cap Limited, Model Gram Ludhiana 7. We have not given any additional evidence under rule 46A before CIT appeal”. 22. After considering the assessee’s submission as above, the remand report of the A.O. dated 02.09.2011, wherein he has stated is as under:-
“ As regards the claim of the A.R. of the assessee that the notice is bad in law, the same is also not acceptable in view of that during the post search inquiries made by the department, the companies which provided the Demand Drafts to the assessee company were found existing only on papers and were floated only for the purpose of channelizing money so that entries to the beneficiaries can be provided. This fact also proved from the letters
37 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
sent by the AO to those companies received back from the postal authorities with the remarks “no such firm exists/ left”. The assessee company had also failed produce the copies of account of those companies and the confirmations obtained from those companies. The assessee company has also failed to produce books of account to prove that no cash entries were provided or cash payment was made by the assessee company to those companies against the DDs received. The facts of this case are different to the cases referred in which it was held if it is assessee that subscribed to increase capital wee not genuine under no circulation covered the amount of Share Capital be regarded as undisclosed income of the assessee company. In its recent decision Hon’ble Delhi High Court in the case of M/s Vijay Power Generator Ltd. Vs. Director of Income-tax and Another 333 ITR 119 have held that where identity and creditworthiness of share applicants is not proved, addition u/s 68 of the Income-tax Act is justified. While delivering this judgment, the Hon’ble High Court have considered the decisions rendered by the Supreme Court in the cases of Stellar Investment Ltd. 251 ITR 263 as well as Lovely Exports Pvt. Ltd. 319 ITR 5 and have held that the ratio in a decision cannot be applied in each case. The facts and circumstances of each case are to be examined as to whether the particular ratio decided in a particular case could be applied. The Hon’ble High Court have further observed that the initial onus in upon the assessee to establish three things necessary to obviate the mischief of section 68 of the Income-tax Act. These are-i) the identity of investors ii) There creditworthiness and iii) the genuineness of the transaction. Only when these three ingredients are established prima-facie, it is only then the department is required to undertake further exercise. Hence, the contention of the assessee that issue of notice is bad in law merely on the basis of saying that the company allotted shares to those parties, is not acceptable and the ground of appeal taken by the assessee in this regard deserves to be rejected.” “I have considered the contention of the assessee. It is submitted that in absence of the books of accounts for the year produce even copies of the accounts of such companies maintained with the assessee company, no justification seems in the assessee’s contention in writing to the companies at the addresses supplied their bank returned back with the remarks of the postal authorities that “no such firm exists/left”. The addresses supplied by the A.R. of the assessee are incomplete and different to the address given by
38 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
their banks. Therefore, the ground of appeal taken by the assessee in this regard deserves to be rejected.” “Further, in compliance to your kind directions given to make further enquiries with regard to increase in share capital of Rs.1.75 crore including alleged share capital of the concerns namely M/s Moon Holding & Credit Ltd of Rs.13.60 lacs and Subh In Fin Caps Ltd of Rs.3.00 lacs. In this connection, a letter was sent to the assessee company with a copy to the AR, requiring furnishing/ produced various details, information, documents and books of accounts. In compliance Sh. M.L. Agrawal, CA alongwith Sh. Rakesh Sharma, accountant of the company attended on 07- 03-2011 and furnished/produced a written reply dated 07-03-2011 alongwith following information, documents, papers- 1. Copy of Bank account maintained in the books of the company for F.Y. 98-99 in support of share application money received of Rs.3,00,000/- on 01.10.1998 vide DD/Ch No. 066344 from .... and Rs.13,60,000/- on 16.12.1998 vide DD/Ch No. 197968 from M/s Moon Holding Ltd, Delhi. 2. Details of members in respect of shares application money received and shares allotted/transferred in F.Y. 98-99 in support of share capital of Rs. 1.75 crore introduced during the year from:- Moon Holding Rs. 13,60,000/- Ganesh Benzo Plast Rs.1,20,00,000/- Thaper Ispat Rs.5,00,000/- Jindal Oil Rs.30,00,000/- Swift Finvest Rs.1,40,000/- Shambuka Agro Rs. 2,00,000/- Subh Fin Cap Rs. 3,00,000/- Total 1,75,00,000/- (A chart prepared on that basis is enclosed for kind perusal).
39 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
Confirmation of members obtained in respect of shares allotted to them: Shambhuka Agro (on the letter pad of that company dated 19-10-2007), Moon Holding ( on the latter paid of assessee company dated 18-09-20), Ganesh Benzo Plast (---------------- do ---------------------------------------), Thaper Ispat (---------------- do ---------------------------------------), Jindal Oil (---------------- do ---------------------------------------), Swift Finvest (---------------- do ---------------------------------------), Sub Fin Cap (---------------- do ---------------------------------------),
But, they have shown their inability to furnish/produce following documents, books, namely as:- (i) Duplicate copy/counterfoils of share allotted, (ii) Copies of bank statement, (iii) Bank book maintained by the company. Therefore, in want of these vital information/documents furnished/produced in the matter, the genuineness/ correctness of the transactions of share application money received to introduce the share capital is not verifiable. However, on the basis of part information/documents furnished with the return submission dated 07-03-2011, a chart of the share allotment made during the year has been prepared which is annexed for your kind perusal. Going through this chart reveals that the share application money were received by the company on various date from Dec, 98 to March 99 of the year from above parties, but the allotment of the shares made to them has only been shown at the end of the relevant accounting year i.e. 31.03.99. Against the most of the entries shown in the company of ledger of share application A/c furnished, no cheque/DD numbers have been shown. As obtained by the AO during the assessment proceedings, the copies of bank statements of two banks (i) PNB,MIA,Alwar for period.............. ( not legible)
40 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
and (ii) Federal Bank Ltd., Fathapuri, Chandni Chowk, Delhi for the period 16.12.98 to 16.04.2001 are only available on record. The dates of the bank statement obtained from PNB, MIA, Alwar are not legible. Moreover, no credit entries of the statement are matching with any entry of share application money received. However, in the forwarding letter dated 26.10.2005, the bank authority has mentioned that he has successfully traced the entry dated 17.12.98 for Rs.13,60,000/- collected by draft. In the copy of bank statement of the Federal Bank Ltd, Fathpuri, Chandni Chowk, Delhi, the following amounts credited on transfer which are matching to the share application money received are only verifiable:- Date Mode Amount Match with the share application money received from
22-01-99 By TR H.V.CLG Rs. 20,00,000/- M/s Ganesh Benji Plast Industries dtd. 22-1-99
08-02-99 By TR AGT. Clearing Rs.10,00,000/- ------------ do----------------- ---- dtd. 06-2-99
10-03-99 By Tr BDP Rs.2,99,655/-M/s Shubh In Fin Caps Ltd dtd. 10-03-99
In absence of the details of all bank account maintained by the assessee the genuineness of entire transactions in respect of share application money received is not ascertainable. Therefore, this ground of appeal taken by the assessee company is also liable to be rejected.
All in all by not producing the alleged share applicants for verification in person, by not providing their correct present addresses, their copies of books of account & bank statements of all the alleged share applicants, the assessee has virtually closed the doors of meaningful further investigation in this case”.
41 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
We have given a careful consideration to the above factual matrix and are of the view that the assessee company, being a private limited company which has received the amount towards the share subscription again from two other private limited companies has failed to discharge the initial onus placed on it. Mere fact that the money has been received through banking channel is not sufficient enough to discharge the burden. The confirmations, on the letterheads of the assessee company without specifying any date of confirmation, identification by way name and designation of the person signing those confirmations on behalf of the investee companies, have been filed during the appellate proceedings, however the letters issued by the Assessing officer to these two investee companies have been returned undelivered and even the new addresses submitted are incomplete which raises a serious question mark on the confirmations so filed as the same is not wholesome, credible and verifiable. As we have stated in case of Bright Metals (supra), the AO has to examine the evidence so produced not superficially but in depth having regard to the human probabilities and normal course of human conduct. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on it would shift leaving it to the Assessing Officer. Further, personal attendance of the Directors of the investee companies were called for by the Assessing officer during the remand proceedings, however they couldn’t appear before the Assessing officer for reasons best known to the assessee company. The identity of the subscriber companies and genuineness of the transaction cannot be established even if one were to accept so called confirmations on face value. The assessee company has to submit some thing more tangible
42 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
to demonstrate the existence, operations and conduct of these investee companies. No documents have been submitted by the assessee company in this regard. Thus, the identity and genuineness of the whole transaction has not been established in the instant case. Further, as we have stated in case of Bright Metals case, it would be incorrect to state that the onus on the assessee stands discharged in all cases merely on account of the fact that payment is made through banking channels. Whether investee companies have their own profit making apparatus and were involved in any tangible business activity or were they merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. These are the facts which the assessee has to submit for examination by the AO but not done in the instant case. The creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of demand drafts when circumstances requires that there should be some more evidence of positive nature to show that the subscribers have made genuine investment. In the present case, the Assessing Officer clearly harbours doubts about the legitimacy of share subscription in the books of the assessee company and has gone about issuing letters seeking confirmation and calling for the personal attendance of the directors of the investee companies. Whilst it does appear that at the time of assessment proceedings, the assessee’s premises were locked due to some Court proceedings and the assessee couldn’t submit appropriate documentation, however the assessee was given sufficient opportunity during the appellate proceedings by the ld CIT(A) and by the AO during the remand proceedings, however, genuine doubts as to the identity,
43 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
creditworthiness and genuineness of transaction continue to persist in the minds of the Assessing officer. In the entirety of facts and circumstances of the case and in light of legal proposition discussed above, the explanation about the nature and source of such sum found credited in its books of accounts has not been found satisfactory and the initial burden on the assessee cannot be said to be have been discharged in the instant case. We accordingly set aside the order passed by the ld CIT(A) and confirmed the order passed by the Assessing officer.
In the result, addition of Rs 16.6 lacs which forms the subject matter of issuance of notice u/s 148 of the Act is hereby confirmed. This will accordingly vest the Assessing officer with the jurisdiction, to subject to tax, any other income chargeable to tax, which the AO has found to have escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147 of the Act.
Each of these issues which AO has noticed subsequently during the course of reassessment proceedings and brought to tax is discussed in the following paragraphs. Here we may clarify that none of these issues find mention in the reasons for issuance of notice under section 148. However, in terms of explanation 3 to section 147, the AO continues to vest jurisdiction in respect of these matters as we have discussed in detail earlier.
44 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
In respect of the first issue, it was noticed by the AO that the assessee has shown an increase in subscribed & paid up capital by Rs. 1.75 Crore (including the above amount of Rs 16.6 lakhs which formed the basis for issuance of notice under section 148) during the year. In- spite of repeated query letters and notices, it was noted by the AO that the assessee was unable to produce share application register of allotment of shares or duplicate copies of shares allotted during the year. The A/R only produce copy of share application account in this books and distinctive Nos. of shares allotted to Moon Holding & Credit Ltd and M/s Subh in Fin Caps Ltd. However, the assessee could not produce share allotment register, duplicate copies of shares allotted of shares is declared by assessee. Since increase in subscribed and paid up capital of Rs. 1.75 Crore is not verifiable. The said sum was treated as assessee’s own undisclosed money invested in the shape of paid up capital and an addition of Rs. 1.75 Crore u/s 69 (treating the said amount as unexplained investment) was made and added to the total income of the assessee company. The ld CIT(A) following the same reasoning and finding as adopted in case of share subscription of Rs 16.6 lakhs has allowed the relief to the assessee company, the same have been discussed in detail in para 19 above and not reproduced again for sake of brevity. Given the similarity of fact pattern, our findings and directions as referred to in detail in para 23 will apply mutatis-mutandi to this addition made by the Assessing officer as well. We accordingly confirm the finding of the Assessing officer as the assessee failed to discharge the initial onus placed on it and the addition made in this regard is confirmed.
45 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
Regarding the second issue, the facts as noted from the assessment records are that the assessee Company was engaged in manufacturing of Vanaspati Ghee. During the year, the assessee has shown sales of Rs. 44,99,14,114/- against immediate proceeding years sales of Rs. 21,42,56,780/-. Though the sales of assessee were better than last year, in the absence of books of account, purchases/sales vouchers, bills/vouchers of expenses debited to trading & profit loss account, the books results shown by assessee was not accepted and a lump-sum addition of Rs. 10.00 Lac was made and the same was added to assessee’s total income.
Regarding the third issue, the facts as appearing from the assessment records are that as per schedule I of audited accounts, the assessee was provided loans and advances of Rs. 1,99,97,407/- during the year. Further, as per schedule H, there is an addition of Rs.20,89,676/- in fixed deposit account during the year. The assessee has shown other income of Rs.2,54,849/- which accrued/earned on FDR loans. In the absence of copy of interest account, the other income was not held verifiable. An addition of Rs.29,99,610/- which was arrived at 15% of Rs 1,99,97,407/- was made and added back to the total income of the assessee company.
Regarding the fourth issue, the facts as appearing from the assessment records are that the bills/vouchers of expenses have not been produced for verification before the AO. The AO disallowed 1/6th of above increased amount i.e. 8,10,279/- vis-à-vis last year, which
46 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
comes to Rs.1,35,046 and added back to the total income of the assessee company.
Regarding the fifth issue, the facts as appearing from the assessment records are that as per schedule D of the audited balance sheet, there was an increase of Rs.4,02,646/- in unsecured loans from others, during the year. Since the assessee has not furnished books of account and confirmation of cash creditors, the increase in unsecured loans remained unverifiable. Therefore, the AO disallowed a sum of Rs.4,02,646/- u/s 68 treating the same as unexplained cash credits and the said amount of Rs.4,02,646/- was added in assessee’s total income.
We now refer to the findings of the ld CIT(A) in respect of all these issues (2-5) as referred above which have been dealt with by the ld CIT(A) at para 6.3 of its order which reads as under:
“6.3 I have considered the facts of the case and remand report given by ld. ACIT and submission made by the ld AR and cases relied upon, I find that assessee could not produce the bills and vouchers and complete books of accounts at the time of assessment because the loan recovery proceedings against the appellant from the various banks who had sealed the premises of the appellant. The addition made by the ld. AO on the ground of none production of books which has been produced at the time of remand report but the ld. AO has not verified the contents of the books of account and no specific defects had been pointed out by the AO in his remand report on all the additions. As discussed above the Ld. AO does not have any jurisdiction on such
47 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar
issues comes to her notice subsequently in the course of proceedings u/s 147 when reasons to believe explained by the assessee. The appellant had submitted audit report duly certified by CA which is also admissible evidence for claiming of deduction has held by the Hon’ble Delhi High Court in case of Additional Commissioner Vs Jai Engg. Works Ltd. 113 ITR 389 ( 1978). Therefore, addition made by the ld. AO for Rs. 10 lac, Rs.4,02,646 and Rs.29,99,610/- and Rs. 1,35,046/- is deleted. The assessee get relief accordingly”.
The ld CIT(A) has given a finding that the assessee company has produced the books of accounts during the course of remand proceedings but the ld. AO has not verified the contents of the books of account and no specific defects had been pointed out by the AO in his remand report on all the additions. It is also noted that adhoc additions have been made by the Assessing officer (except for an amount of Rs.4,02,646/- in respect of unsecured loans) which cannot be sustained in the eye of law. In light of the same, we hereby direct the deletion of all these additions made by the AO in respect of additional issues no. 2 to 4 as discussed above. In respect of addition of Rs 4,02,646 which represent increase in the amount of unsecured loans, the initial onus cast on the assessee has not been discharged and in light of the detailed discussions (supra) in context of share subscription, the same is hereby confirmed.
In light of above, ground no. 1 and 5 taken by Revenue are confirmed and ground no. 2, 3 & 4 are dismissed.
48 ITA No.9 & 10 /JP/2012_ ACIT Vs M/s Prime Chem Oil Ltd., Alwar ITA No. 10/JP/2012
In ITA No. 10/JP/12, both parties agreed that the facts are pari- materia and similar grounds of appeal have been raised by the Revenue as in ITA No. 9/JP/12 decided supra. In view of the same, our observations and decision in ITA No. 9/JP/12 shall apply mutatis- mutandis to this appeal as well. Ground no. 1 taken by Revenue is confirmed and ground no. 2, 3 & 4 are dismissed. In the result, the appeal filed by the Revenue for both the years is partly allowed. Order pronounced in the open court on 10/03/17.
Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 10/03/2017. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- The ACIT,Circle-1, Alwar. 2. izR;FkhZ@ The Respondent- M/s Prime Chem Oil Ltd.123 MIA, Alwar. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 9/JP/2012 & 10/JP/2012} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत