M/S. VISHWANATH FINCAP PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

Facts of the case, in brief, are that the assessee is a private limited company and filed its return of income on 22.11.2006 declaring total income of Rs.3,77,255/-. Subsequently, the Assessing Officer issued notice u/s 148 by reopening the assessment after recording the following reasons :- “Reason for the belief that income has escaped assessment in the case of M/s Vishwanath Fincap Pvt. Ltd. for AY- 2006-07 M/s Vishwanath Fincap Pvt. Ltd. is assessed to tax with Circle-17(1), New Delhi. Enquiries of Investigation Wing. Delhi of the Department have unearthed huge accommodation entry racket being operated by accommodation entry operator Sh. Surendra Kr. Jain by way of more than 100 companies/firms etc. The investigation wing has compiled a report & data. of the beneficiaries of such entries. The name of the assessee figures in the list of beneficiaries of Share capital Premium/Loan.

I have gone through the report and data sent by the investigation wing. The report clearly indicates that accommodation entries have been taken to plough back uncounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form share application money loans etc and even describes the modus operandi of this scam. The Investigation Wing's list of Beneficiaries (of such accommodation entries) gives comprehensive details of Beneficiaries Name, Entity from where entry received, bank, cheque/RTGS date and even the middleman through which such entry is received. This list contains the name of M/s Vishwanath Fincap Pvt. Ltd. which has taken such accommodation entries. Four entries of Rs.15,60,000/- each have been received as per the following details:

The assessee company objected to the reopening of the assessment. The Assessing Officer vide order dated 23.01.2014 disposed of such objections by passing a speaking order. Subsequently, the Assessing Officer asked the assessee to explain the amount of Rs.15,60,000/- received by it on account of share application/share premium from different companies. The Assessing Officer simultaneously issued summons u/s 131 to four companies from whom the assessee received share application money. However, the summons to M/s Windsor Pet Plas India Pvt. Ltd. and M/s S.R. Cable Pvt. Ltd. were returned back unserved by the postal authorities with remark – “Left without address” whereas the summons to two other parties remained un-complied with till the date of completion of the assessment. The Assessing Officer directed the Ward Inspector, Shri Ankit Kumar to submit his report on the following points :-

The Inspector submitted his report which has been reproduced by the Assessing Officer in the body of the assessment order which reads as under :-

The Assessing Officer issued notice u/s 142(1) and asked the assessee to substantiate the share application money/premium of Rs.15,60,000/- received by it. He also asked the assessee to produce the directors of the companies from whom it has received the so-called share application/share premium. However, instead of producing the directors of the investor companies, the assessee relied on various decisions and argued that since the shareholders of those companies are no longer the shareholder of the present company, therefore, after a gap of four years they cannot force the attendance of the directors of those companies as they do not have any control over them. The assessee simply provided the confirmations and PAN number of the parties concerned. Since the notice u/s 131 were remained un-complied with and the assessee failed to produce the directors of those investor companies, therefore, the Assessing Officer rejected the various explanations given by the assessee. Relying on various decisions the Assessing Officer made addition of Rs.15,60,000/- to the total income of the assessee on account of share application/share premium by invoking the provisions of section 68 of the I.T. Act, 1961. He also added an amount of Rs.54,600/- on account of commission paid for arranging the above share application/share premium.

Before the ld. CIT(A), the assessee apart from challenging the addition on merit also challenged the validity of the reopening of the assessment on the ground that the reopening is void ab-initio since the original assessment was completed u/s 143(3) and the notice u/s 148 r.w.s. 147 was issued after a period of four years when there was no failure on the part of the assessee to disclose fully and truly all material facts required for completing the assessment.

In appeal, the ld. CIT(A) dismissed the ground relating to validity of reopening of the assessment after a period of four years when the original assessment was completed u/s 143(3) and there was no allegation on failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. So far as merit of the case is concerned, he also decided the same against the assessee.

Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-

Without proving and mentioning that there was any failure on the part of the assessee to disclose fully and truly all material facts required for completing the assessment, in the reason recorded or in the assessment order, therefore initiation of proceedings u/s 147 of the Income Tax Act, 1961 is bad and invalid.

The ld. counsel for the assessee referring to page 76 and 76 of the Paper Book drew the attention of the Bench to the assessment order passed by the Assessing Officer u/s 143(3) on 26.12.2008 determining the total income of the assessee at Rs.4,16,520/-. Referring to the notice u/s 148, copy of which is placed at page 1 of the Paper Book, he submitted that the notice u/s 148 was issued on 21.03.2013 which is beyond a period of four years from the end of the relevant assessment year. He submitted that the reopening was based on the report of the Investigation Wing and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Referring to the notice issued u/s 142(1) on 23.04.2008, copy of which is placed in the Paper Book at page 32, he submitted that the Assessing Officer in the said notice has asked the assessee to submit the details as per the questionnaire enclosed. Referring to page 33 – 34 of the Paper Book, he drew the attention of the Bench to the questionnaire issued by the Assessing Officer wherein the Assessing Officer has specifically asked the complete details of the persons who have invested in the share capital and share application money with their names and address, copy of statement and income tax particulars, copy of bank statement etc. Referring to page 35 to 74 of the Paper Book, ld. counsel for the assessee drew the attention of the Bench to the replies given by the assessee on various dates wherein the issue of share application and share premium was explained. Therefore, in absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment, the reopening of the assessment after a period of four years from the end of the relevant assessment year is void as per proviso to section 147 of the I.T. Act, 1961. Relying on various decisions, he submitted that the reopening of the assessment beyond a period of four years from the end of the relevant assessment year is void ab-initio. Therefore, the subsequent proceedings are also to be held as void.

The ld. DR on the other hand heavily relied on the order of the ld. CIT(A). He submitted that the Assessing Officer has received specific information regarding the accommodation entries received by the assessee from S.K. Jain group of companies who are famous entry operators and the assessee has received an amount of Rs.15,60,000/- as share application money/share premium during the year. This fact of accommodation entries and the bogus transaction of share capital was not available with the Assessing Officer at the time of the original assessment completed u/s 143(3) of the I.T. Act. Based on credible information and verification from the record, the Assessing Officer has reason to believe that the income of the assessee has escaped assessment which is more than Rs.1,00,000/-. Therefore, the Assessing Officer was fully justified in reopening the assessment.

Referring to the decision of the Hon’ble Gujarat High Court in the case of Pushpak Bullion (P.) Ltd. vs. DCIT reported in 85 taxmann.com 84, he submitted that Hon'ble High Court in the said decision has held that where Investigation Wing of the Department had during course of investigation in case of a third party found that he was indulged in providing accommodation entries and bogus bills and assessee had made sizeable purchases from him, reopening notice against the assessee was justified.

Referring to the decision of the Hon’ble Allahabad High Court in the case of PCIT vs. Light Carts (P.) Ltd. reported in 85 taxmann.com 331, he submitted that the Hon'ble High Court in the said decision has held that where the assessee has disclosed all material facts necessary for assessment, the Assessing Officer could not reopen assessment after expiry of four years from the end of relevant assessment year merely on the basis of information supplied by the Investigation Wing of the Department that certain income earned by the assessee had escaped assessment.

So far as merit of the case is concerned, he submitted that since the assessee failed to prove the identity and capacity of the share applicants to pay share application money and the genuineness of the transactions, therefore, the amount so received was liable to be taxed u/s 68 of the I.T. Act. For the above proposition, he relied on the following decisions :-

I have considered the rival arguments made by both the sides and perused the material available on record. It is an admitted fact that the original assessment in the instant case was completed u/s 143(3) on 26.12.2008 determining the total income at Rs.4,16,520/- as against the returned income of Rs.3,77,255/-. I find from the notice issued u/s 142(1) along with questionnaire, copy of which is placed at page 32 – 34 of the Paper Book that the Assessing Officer, during the course of original assessment proceedings, had asked the assessee to provide complete details of share capital and share application money with their names and address, copy of statement of income tax particulars, copy of bank statements, etc. I find the assessee vide his various replies given to the Assessing Officer during the original assessment proceedings, copies of which are placed at page 35 to 74 of the Paper Book, had given the requisite details as asked for by the Assessing Officer. The reopening of the assessment in the instant case was made on the basis of the report of the Investigation Wing. In my opinion, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment at the time of original assessment. Therefore, the proviso to section 147 will be applicable to the facts of the present case, according to which, where an assessment u/s 143(3) has been made for the relevant assessment year, no action shall be taken under the provisions of section 147 after expiry of four years from the end of the relevant assessment year unless an income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Even the decision of the Hon’ble Allahabad High Court in the case of PCIT vs. Light Carts (P.) Ltd. (supra) relied on by the ld. DR supports the case of the assessee where it has been held that where the assessee disclosed all material facts necessary for assessment, the Assessing Officer could not reopen the assessment after expiry of four years from the end of the relevant assessment year merely on the basis of information supplied by the Investigation Wing of the Department that certain income earned by the assessee had escaped assessment. Since in the instant case admittedly the assessment has been reopened on the basis of report of the Investigation Wing after a period of four years from the end of the relevant assessment year and the assessee had supplied all requisite details during the course of original assessment proceedings and the assessment was completed u/s 143(3), therefore, the reopening of the assessment after a period of four years from the end of the relevant assessment year is barred by limitation and, therefore, bad in law. I, therefore, quash the reassessment proceedings and the grounds raised by the assessee on this issue are allowed.

Since the assessee succeeds on this legal ground, the ground challenging the addition on merit is not being adjudicated being academic in nature.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 31st August, 2018.