M/S. HITESHWARI MARKETING PVT. LTD., ,KOLKATA vs. ITO, WARD - 14(2), KOLKATA , KOLKATA

The assessee is a company and is in the business of share dealing. It electronically filed its return of income for the Assessment Year 2008-09 on 26.09.2008 disclosing total income of Rs.6570/-. The case was reopened u/s 147 of the Act by issuing notice u/s 148. The assessee filed its return of income on 14.08.2015 disclosing income of Rs.6568/-. Thereafter, the Assessing Officer completed assessment u/s 144 of the Act and determined the total income of Rs.4,88,74,568/-, inter alia, making an addition of Rs.4,88,74,568/-.

Aggrieved, the assessee carried the matter in appeal without success.

Further aggrieved the assessee is before us.

The ld. Counsel for the assessee challenged the reopening on the ground that the reasons recorded are not based on facts and that it was in fact based on wrong facts. He referred to Page No.1 of the assessment order and pointed out that reopening was done based on information received from DDIT(Inv.)Unit-4(1), Kolkata dated 27.03.2015 that payment was received by the assessee company for the allotment of bogus shares. He furnished a copy of the audited balance sheet of the assessee company to demonstrate that there was no increase whatsoever in the share capital or reserves or in the liabilities side of the companies Balance sheet except a loan of Rs.8 lakhs. He argued that the reopening assessment based on wrong facts, is bad in law. He further submitted that, when there is no receipt or allotment of any money towards share application or share capital or a cash credit, the question of making an addition u/s 68 of the Act does not arise.

The ld. Departmental Representative, on the other hand, submitted that notice has been served on the assessee. He submitted that the assessee did not cooperate either before the Assessing Officer or before the ld. CIT(A) by furnishing details of the assessee company and the details of the share premium received during the year and submitted that due to these reasons, the same was added during the year. He argued that the matter may be set aside to the file of Assessing Officer for fresh adjudication in accordance with law so as to enable the A.O to verify this claim of the assessee. Rival contentions heard and persued the materials available on record. On a 7. careful consideration on the facts and circumstances of the case, perusing the papers on record and orders of the authorities below, we hold as follows.

It is seen that there is no increase in the shareholders’ fund. There is no receipt or allotment of any share capital or share premium during the year. The share capital was M/s. Hiteshwari Marketing Pvt. Ltd. Rs.51,24,000/- as on 31.03.2007 and continued to be 51,24,000/- as on 31.03.2008. No share premium or/and share application money has been received during the year. This means that there was no fresh application made for shares nor was there any allotment of shares. Thus, the reasons recorded by the Assessing Officer are factually wrong. Such a re-opening which be based on reasons recorded on apparently wrong facts cannot be sustained. The reasons recorded suffers from total non-application of mind by the Assessing Officer to the information that was received from DDIT(Inv.)Unit-4(1), Kolkata. The Hon’ble Delhi High Court in the case of Artech Infosystems (P) Ltd. v. CIT; [2012] 20 taxmann.com 69 (Delhi) held as follows:

Applying the proposition of law laid down to the facts of this case, as the Assessing Officer has based his reasons for reopening assessment on wrong facts, the re-opening of assessment is quashed as bad in law.

Even otherwise, the reopening is made without application of mind to the material received from DDIT(Inv.)Unit-4(1), Kolkata. This coordinate Bench of this Tribunal in for AY 2002-03 in the case of DCIT Vs. Great Wall Marketing (P) Ltd. vide order dated 03.02.2016 has held as under:

We have heard the submissions of the learned counsel for the assessee both on the validity of initiation of re-assessment proceedings as well as the merits of the appeal. None appeared on behalf of the department. 8.1.We have considered the submissions of the learned counsel for the assessee. As far as the validity of initiation of re-assessment proceedings are concerned the reasons recorded by the AO for initiating proceedings u/s 148 are as follows :- "No.DCIT/Cir- 6/reasons for reopening/09-10 Dated 22/04/2009 To The Principal Officer Greatwall Marketing (P) Ltd. c/o Sri. S.M. Daga 11, Clive Row, Room No. 2 .z-. Fir.Kolkata- 700001. Sir. Sub: Recorded Reasons for Reopening in the case of Greatwall Marketing (P) Ltd. for Asst. Yr. 02-03 Ref: Your letter dated 02/04/09 Please refer to the above. As per information received from investigation wing New Delhi the introduced share capital during the year. had been received from corporate bodies which are non existent and whose capacity to invest ( credit worthiness ) could not be established . Therefore I have reasons to believe that unexplained cash credit had been introduced in your books of accounts in the name of introduction of share capital and receipt of share application money. In absence of satisfactory identity and credit worthiness of the other parties. the entire introduced capital and share application money will be treated as your income for that year. I will therefore continue the proceedings for reassessment of your return u/s 147. Statutory notices u/s 143(2) and 142(1) are enclosed herewith. Yours faithfully. Sd/- (Sanjay Mukherjee) DCIT /Cir-6/Kol " 8.2. The submissions of the learned counsel for the assessee before us was that the reasons recorded by the AO were mere information received from D.I.T.(Investigation), New Delhi. There was no independent application of mind by the AO based on which it can be said that he arrived at the satisfaction that the income of the assessee is chargeable to tax has escaped assessment. It was submitted that information received by the AO was vague and uncertain and cannot be construed to be sufficient and relevant material on the basis of which reasonable person can form belief regarding escapement of income. Reliance was placed by the learned counsel for the assessee on the decision of the Hon'ble Delhi High Court in the case of CIT vs Insceticides (India) Ltd 357 ITR 330 and CIT vs SFIL Stock Broking Ltd. 325 ITR 285 (Delhi). In both the aforesaid decisions the reasons recorded by the AO for initiating proceedings u/s 148 of the Act the Hon'ble Delhi High Court upheld the order of the Tribunal quashing the proceedings. Reliance was also placed on the decision of ITAT, Kolkata 'C' Bench in the case of M/s. Controlla Electrotech (P)Ltd vs DCIT in & 1444/Kol/2014 wherein on identical facts the Tribunal was pleased to quash the reassessment proceedings. On merits the learned counsel for the assessee relied on the order of CIT(A).

We have given a careful consideration of the submissions made by the learned counsel for the assessee. It is clear from the reasons recorded by the AO that the AO acted only on the basis of a letter received from Investigation Wing, New Delhi. The reasons recorded does not give as to who has given the bogus entries to the assessee. The reasons recorded also does not mention as to on which dates and through which mode the bogus entries were made by the assessee. The reasons recorded which are extracted in the earlier part of the order does not show, what was the information given by DIT(Inv.),New Delhi. The date of the information received by the AO were not spelt out in the reasons recorded. The involvement of the assessee is also not spelt out, except mentioning the corporate bodies who had subscribed to the share capital of the assessee were non-existent and not creditworthy. On identical facts the Hon'ble Delhi High Court in the case of CIT vs. Insecticides (India) Ltd (supra) has taken a view that the reasons recorded were vague and uncertain and cannot be construed as satisfaction on the basis of the relevant material on the M/s. Hiteshwari Marketing Pvt. Ltd. basis of which a reasonable person can form a belief that income has escaped assessment. The Hon'ble Delhi High Court has also come to the conclusion that the reasons recorded did not disclose the AO's mind regarding escapement of income. The Hon'ble Delhi High Court ultimately held that initiation of proceedings u/s 148 of the Act was not valid and justified in the eyes of law. The facts and circumstances in the present case are identical to the case decided by the Hon'ble Delhi High Court. Following the said decision we hold that initiation of re- assessment proceedings is not valid. On this ground, the assessment is liable to be annulled."

Applying the proposition of law laid down to the fact of this case, we have to hold that the reopening is bad in law on this ground also. Even otherwise when there is no increase in the share capital or share application money or share premium, and as there is no credit received by the company on this account the addition made u/s 68 for the year is bad in law. Hence we delete the same.

In the result, the appeal of the assessee is allowed. Kolkata, the 10th May, 2019.