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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SH. G.D. AGRAWAL & SH. SUDHANSHU SRIVASTAVA
PER BENCH : The appeal is preferred by the department against order dated 29.08.2014 passed by the Ld. CIT (Appeals)-XXXI, New Delhi for assessment year 2006-07 wherein vide the impugned order the Ld. CIT(A) has deleted the addition of Rs. 1,18,80,000/- made by the AO as un-accounted investment of the assessee. The cross objection is preferred by the assessee and it challenges the action of the Ld. CIT (A) in upholding the validity of initiation of re-assessment proceedings in the assessee’s case.
The brief facts of the case are that the original return of income was filed declaring a gross total income 3,82,100/-. This return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). Subsequently, reasons for recorded for re- opening of the assessment on 28.03.2013 and the assessee was called upon to file a return of income in response to the notice u/s
In response the assessee submitted that the original return of income filed u/s 139 of the Act may be treated as the return filed in response to notice u/s 148 of the Act. are as under:-
“Reasons for the belief that income has escaped assessment in the case ofSh. Jawahar Lai Kesarwani
Sh. J. L Kesarwani is a close relative of Sh. U. D. Kesarwani who is the owner and managing director of the following companies. M/s Madhyam construction company Pvt. Ltd. (Pan no. (a) AADCM8688G) M/s Madhyam Hosing (P) Ltd. (PAN no. AADCM7666G) (b) M/s Madhyam Hosing Solutions (P) Ltd. (PAN no. (c) AADCM5942R) All of these companies are having their registered office at 201-202 Pankaj House, Pocket -H LSC Sarita Vihar , New Delhi . Sh U.D Kesarwani has used these companies for converting ill gotten black money worth more than Rs. 16 crores without paying any income tax. During the A.Y. 2005-06 the paid up capital of the company M/s Madhyam Construction Company Pvt. Ltd. has suddenly increased to Rs. 14 crores. This was done by issuing RS. 14 Crores worth of shares at a premium of Rs. 12.6 crores. Similarly the paid up capital of the company M/s Madhyam Housing (P) Ltd. has increased in the same A.Y. to Rs. 2 cr. This was done by issuing Rs. 20 Lacs worth os shares at a premium of Rs. 18 cr. The total capital of 4 C.O. 115.d.17 (Jawahar Lal Kesarwani) these companies thus rose to Rs. 16 Cr. In one year. Notably during the A.Y. 2004-05 the capital of both these companies was Rs. 1 Lac each only so an increase from Rs. One Lac to Rs. 14 cr. And from Rs. 2 cr. This sudden and whopping increase in paid up capital has happened in the following manner & deserves your immediate attention. He allotted the shares as per details given below. (a) Shares worth Rs. 80 Lacs were allotted to M/s Namo Resorts Pvt. Ltd. B-12B, Gali No, Shakarpur , New Delhi -92 of Rs. 90/share. It means Rs. 8 cr. Were invested by a company which itself is not worth more than Rs. 50 Lacs. (b) Shares worth Rs.601 Lacs were allotted to M/s Napstel India Pvt. Ltd. 311-D-5, Avadh Complex , Laxmi Nagar , New Delhi -92 at a premium of Rs. 90/- per share. It means Rs. 6 cr. Were invested by a company itself is not worth more than Rs. 50 Lacs. (c) Similarly shares worth Rs. 20 Lacs were allotted to some company again at a premium of Rs. 90/- per share . We have not come to know the name of the company but it means that a small time company invested Rs. 2 cr. Which itself may not be worth more than a few lacs of rupees. From the perusal of contents of the allegation , it is inferred that the allegation are primarily relating to the issues which pertains to the F.Y.2004-05. No action can be taken from income tax point of view as the proceedings are barred by limitation and any action , if contemplated under the IT act be merelya futile exercise and legally in fructuous .
5 C.O. 115.d.17 (Jawahar Lal Kesarwani) During A.Y. 2006-07 all these shares have been transferred to Sh. U.D. Kesarwani and his close relatives at through away prices ofRs. 1/- only. It means, in a nutshell, that Rs. 16 cr. of back money was converted at a price of Rs. 16 lacs only. This has resulted in a huge ;loss to the Government exchequer by deliberate evasion of income tax. Name of few of the close aides relatives of Sh. U.D. Kesarwani , who were instrumental in this conversion are as follows :- (1) Sh. U.D.Kesarwani (2) Sh. U.D.Kesarwani (HUF) (3) Sh. J.L.Kesarwani (4) Sh. J.L.Kesarwani. (HUF) (5) Sh. Shyam Babu (6) Smt. Madhuri Devi (7) Smt. Savita Kesarwani It has come to notice that M/s Namo Resorts Pvt. Ltd WB - 12 Gali no.i Shakarpur, New Delhi had purchased shares from M/s Madhyam Construction Company Pvt. Ltd. worth ofRs. 80 Lacs (8,00,000 shares) at a premium of Rs. 90 per shares for total consideration of Rs. 8 croces during the F.Y. 2004-05. After 31-03- 2005 immediately on 30-04-2005 Sh. Jawharlal Kesarwani father of Sh. U.D. Kesarwani buy back 1,00,000/- shares from M/s Namo Resorts Pvt. Ltd. at the rate of Rs. 1 per share, later on 31-08-2005 Sh. Jawharlal Kesarwani buy back 20,000 shares from M/s Namo Resorts Pvt. Ltd. at the rate of Rs. 1 per share. Whereas M/s Namo Resorts Pvt. Ltd. purchased these shares from the company M/s Madhyam Construction Company Pvt. Ltd. of Sh. U.D. Kesarwani
6 C.O. 115.d.17 (Jawahar Lal Kesarwani) and Sh. Jawharlal Kesarwani at the rate ofRs. 100/- per share during the year ending 31-03-2005 at the premium of Rs. 90 Per share and major portion of shares purchased by Sh. Jwharlal Kesarwani on 30-04-2005. The book value fair marked value of these shares was Rs. 100/- per share for M/s Namo Resorts Pvt. Ltd. as the company had purchased these shares from M/s Madhyam Construction Company Pvt. Ltd. during the year ending 31-03-2005 Rs. 100/- per share. Thus the assessee Sh. Jawharlal Kesarwani had purchased the shares for a consideration less than fair market Value book value by suppressing the book value of the shares by amount Rs. 99/-(Book value Rs. 100/- Rs. 1 purchased consideration) per share and Sh. Jawharlal Kesarwani had purchased 1,20,000/- during the F.Y. 2005- 06. Because on perusal of assessment order passed by ITO Ward 13 (1) , New Delhi u/s 143(3) of the It Act for A.Y. 2006-07 of M/s Namo Resorts Pvt. Ltd. received from ITO Ward 13(1) on fax. It was found that M/s Namo Resorts Pvt.Ltd. company has been engaged in the business of providing of accommodation entries M/s Namo Resorts Pvt. Ltd. had provided accommodation entries to PACL of Rs. 57,36,200/- during the F.Y. 2005-06 and ITO Wardi3(i) .New Delhi, assessed the income received from providing of accommodation entries as the commission income @ 3% of the total amount of entries provided i.e Rs. 57,36,200/- during the A.y 2006-07 and thus computed additional taxable income of Rs.1,72,086/- (3% of RS. 57,36,200/) Similar activities may be done by the company M/s Namo Resorts Pvt. Ltd. in the case of M/s Madhyam Construction Company Pvt. Ltd. Thus
7 C.O. 115.d.17 (Jawahar Lal Kesarwani) the total consideration which the less than book value fair market value is Rs. i,i8,8o,oo(ggxi,20,ooo) is the income chargeable to income tax of Sh. Jawharlal Kesarwani (the assessee) from undisclosed sources for the F.Y. 2005-061.S. A.Y. 2006-07 In view of the facts, I have reason to believe that income amounting to Rs. 1,18,80,000 has escaped assessment by reason of the failure on the part of the assessee to disclosed and truly all material facts in its return filed u/s 139 of the Act. In view of the above facts, approval for initiating proceedings u/s 147 of the I.T. Act for the A.Y. 2006-07 MAY be accorded in accordance of proviso of section 151 of the Act.”
2.2 The assessee was required to furnish details about the transactions as mentioned in the reasons recorded. After considering the submissions of the assessee, the AO was of the opinion that the investor of the assessee company was not a genuine investor but an entry operator. The AO further held that the assessee had routed his unaccounted money through the entry operator. The AO proceeded to make an addition of Rs. 1,18,80,000/- to the income of the assessee.
2.3 Aggrieved, the assessee approached the Ld. CIT (A) and challenged the action of the AO by questioning the very validity of the initiation of re-assessment proceedings. The assessee also the assessee’s legal challenge to the validity of initiation of re- assessment proceedings and upheld the same. The Ld. CIT (A), however, deleted the addition on merits.
2.4 Now, the department has approached the ITAT and has challenged the deletion of addition by the Ld. CIT (A) on merits whereas the assessee has challenged the upholding of validity initiation of the re-assessment proceedings.
At the outset, the Ld. Authorised Representative submitted that the assessee’s C.O. challenging the validity of initiation of re- assessment proceedings should be taken up first because if the assessee’s C.O. is allowed and the re-assessment proceedings are held to be bad in law, then the department’s appeal will not be survive.
The Ld. Sr. Departmental Representative had no objection to the assessee’s C.O. being heard first.
The Ld. Authorised Representative drew our attention to the copy of reasons recorded as available in the paper book and submitted that it would be seen from the reasons recorded that there was no tangible material in possession of the AO for escaped assessment. The Ld. Authorised Representative submitted that in the reasons to believe it has been alleged that a relative of the assessee Sri U.D.Kesarwani had used the company for converting his ill-gotten money. It was submitted that there is no allegation by the AO that the assessee has any unaccounted income. It was submitted that from the reasons recorded it would be seen that Sri U.D. Kesarwani is the owner and Managing Director of M/s. Madhyam Construction Company Pvt. Ltd. and during the assessment year 2004-05, shares of this company were allotted to two companies viz. M/s. Namo Resorts Pvt. Ltd. and M/s. Napstel India Pvt. Ltd. @ Rs. 100/- Per share (having face value of Rs. 10/- and premium of Rs. 90/- per share). The Ld. Authorised Representative further submitted that in the reasons recorded it has been further stated that in the assessment year under consideration the assessee had purchased 1,20,000 shares of M/s. Madhyam Construction Co. Pvt. Ltd. from M/s. Namo Resort Pvt. Ltd. at the rate of Re. 1/- per share and that the price paid by the assessee was less than the price at which M/s. Namo Resorts Pvt. Ltd. has purchased the shares of M/s. Madhyam routed its unaccounted money through an entry operator and the differential amount of Rs. 99 per share was the unaccounted investment of the assessee which was routed through the entry operator M/s. Namo Resorts Pvt. Ltd. The Ld. Authorised Representative further submitted that in the instant case, share capital money was received by M/s. Madhyam Construction Company Pvt. Ltd., and, therefore, the receipt of capital had to be examined in the case of the aforesaid company and not in the case of the assessee. It was also submitted that the explanation of the assessee for buying the shares at a lesser price had been duly submitted before the AO but the submissions of the assessee were brushed aside without bringing any cogent reason. It was also submitted that the assumption of the AO is solely based on admission of one Sri Manoj Jain, Director of M/s. Namo Resort Pvt. Ltd but, the assessee was not provided the opportunity to cross examine Sri Manoj Jain before relying on the said statement.
5.1 The Ld. Authorised Representative further submitted that in the instant case there was no valid material and the assumptions could not be the foundation for proceedings u/s 147 of the Act.
The Ld. Authorised Representative placed reliance on a number of judicial precedents to support his contention that the reopening in assessee’s case was not valid. The Ld. Authorised Representative also submitted that the Delhi Bench of the ITAT in related case of Savita Kesarwani, on identical recording of reasons for re-opening, had quashed the re-assessment proceedings vide CO no. 244/Del/2016 in for assessment year 2006-07. The Ld. Authorised Representative submitted that the reassessment proceedings deserved to be quashed.
In response to the C.O., the Ld. Sr. Departmental Representative placed reliance on the concurrent findings of the AO as well as the Ld. CIT (A) and submitted that the re- assessment proceedings had been validly initiated. The Ld. Sr.
Departmental Representative vehemently argued that the AO had taken a correct recourse by reopening the assessment in the assessee’s case as it had come to the notice of AO that the paid capital of M/s. Madhyam Construction Company Pvt. Ltd., had suddenly increased to Rs. 14 crores after issuing shares at a of Sri U.D. Kesarwani who was the Managing Director of Madhyam Construction Company Pvt. Ltd. It was further submitted that the assessee’s name also figured in purchase of shares from M/s. Namo Resorts Pvt. Ltd. at a price which was much lower than its face value. The Ld. Sr. Departmental Representative, placing reliance on the observations of the Ld. CIT (A) while dismissing the assessee’s challenge to the initiation of re- assessment proceedings, submitted that the C.O. of the assessee deserved to be dismissed.
We have heard the rival submissions and have also perused the material on record as well as the reasons recorded for re- opening of the assessment. We find that in an identical issue in a related case of the assessee group, the ITAT Delhi Bench has already quashed the re-assessment proceedings on an identical set of reasons recorded. In the case of DCIT vs. Smt. Savita Kesarwani (ITA NO. 6107/Del/2014 vide order dated 25.07.2016), the ITAT Delhi Bench, while quashing the re-assessment proceedings, held as under:
13 C.O. 115.d.17 (Jawahar Lal Kesarwani) “5. It is settled law in view of the decisions of the Hon’ble Supreme Court in the case of Ganga Saran & Sons Pvt. Ltd. Us. ITO 130 ITR 1; S.V. Narayanappa Vs. CIT 63 ITR 219; and Sheonath Singh Vs. ACIT 82 ITR 147 (SC) that the belief entertained by the AO must be arbitrary or irrational. It must be reasonable. It must be based on the reasons which are relevant and material. No doubt the court cannot investigate into the adequacy or sufficiency of the reasons which weighed with the AO in coming to the belief but the court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice u/s. 147 of the I.T. Act. The belief must be held in good faith. It may not be merely a pretence as has happened in this case. Extraneous and irrelevant material cannot be the basis for reason to believe. There must be direct nexus to the conclusion of the fact arrived by the AO and the primary facts upon which the conclusion is based. Merely the agreed consideration, in the opinion of the AO, is less, cannot be the basis until and unless there is material that the actual consideration is more or the consideration agreed is less than the consideration a has to be taken in accordance with law. In view of this fact I am of the view that reasons recorded u/s. 147 does not fulfill the ingredients of section 147 and consequently the assessment framed u/s 143(3)/ 147 is void ab initio and liable to be quashed. I, accordingly quash the reassessment. This disposes off the cross objection filed by the assessee.”
7.1 Accordingly taking into consideration the fact that a co- ordinate Bench of this Tribunal has quashed the re-assessment proceedings in case of Smt. Savita Kesarwani on similar set of reasons recorded and who is also related party, we quash the re- assessment proceedings and allow the C.O. of the assessee.
In view of our quashing the re-assessment proceedings, the appeal of the department on merits becomes academic in nature and the same is dismissed as having become in fructuous.
In the result the C.O. of the assessee stands allowed whereas the appeal of the department stands dismissed.
(Order pronounced in the open court on 23rd July, 2018).