M/S RISHIPAL INVESTMENTS AND FINANCE (P) LTD.,,NEW DELHI vs. ITO, NEW DELHI

This appeal filed by the assessee is directed against the order dated 06.02.2017 of CIT(A)-36, New Delhi relating to assessment year 2007-08.

Although a number of grounds have been raised by the assessee, however, they all relate to the order of the ld. CIT(A) in confirming the addition of Rs.44,34,500/- made by the Assessing Officer u/s 68 of the I.T. Act. 3. Facts of the case, in brief, are that the assessee is a Private Limited Company and had filed its return of income on 30.10.2007 declaring Nil income. The same was processed u/s 143(1) of the I.T. Act. Subsequently, on the basis of information received from the Investigation Wing of the Department, the Assessing Officer reopened the assessment by issuing notice u/s 148 after recording the following reasons :-

The assessee in response to the same filed a letter stating that the original return filed earlier may be treated as return filed in response to notice u/s 148 of the I.T. Act.

During the course of assessment proceedings, the Assessing Officer asked the assessee to file necessary fresh evidence/documents to prove the existence/creditworthiness of the creditors and genuineness of the transactions in support of share capital/ share premium/ share application money and unsecured loans received by the assessee company for the year under consideration. The assessee, in response to the same, filed certain photocopies of the old and ineligible copies of the confirmation from the creditors. In the mean time, the Assessing Officer had issued notices u/s 133(6) to the subscribers of share capital/ share application money/ share premium and unsecured loan creditors at the addresses provided by the assessee through the Ward Inspector and Notice Server. The Assessing Officer had also issued the notices by speed post at the addresses provided by the assessee. The Ward Inspector and Notice Server in their respective reports submitted that no such companies were found at the given addresses. Similarly, the notices issued by speed post were received back unserved with the postal remark ‘no such person’. The Assessing Officer, therefore, confronted the same to the assessee who filed the present addresses of the subscribers/creditors. The Assessing Officer again issued notices u/s 133(6) which were duly served by the Inspector and Notice Server of the Ward on 18.03.2015 requiring the creditors to file necessary details to prove their existence/creditworthiness and genuineness of the transactions. The Assessing Officer also issued summons u/s 131 to the Principal Officers of all the five subscriber companies for personal deposition and to file the necessary details/ documents to prove their existence/ creditworthiness and genuineness of the transactions. However, no compliance to the summons issued u/s 131 was made by the subscriber companies.

From the details filed earlier by the assessee, the Assessing Officer observed that all the five private limited companies having Balance Sheet worth crores of Rupees are functioning from single premise and having common caretakers. The temporary staff is deployed only to receive the mail. He, therefore, came to the conclusion that all the subscribers of funds are paper companies. In view of the above and rejecting the explanation given by the assessee, the Assessing Officer made addition of Rs.39,50,000/- received by the assessee company towards share application money. Similarly, the Assessing Officer also added an amount of Rs.4,45,000/- towards unsecured loan received from the different persons. The Assessing Officer further added an amount of Rs.39,500/- being unaccounted cash paid as commission for obtaining the unexplained share application money. The Assessing Officer accordingly determined the total income of the assessee at Rs.44,34,500/-.

Since there was non-compliance before the ld. CIT(A), he dismissed the appeal filed by the assessee. While deciding the appeal, the ld. CIT(A) rejected the grounds raised by the assessee challenging the validity of the reopening of the assessment. He also decided the issue on merit and confirmed the addition made by the Assessing Officer.

Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by challenging the validity of the reopening of the assessment as well as the addition on merit.

Ld. counsel for the assessee referring to page 23 of the Paper Book drew the attention of the Bench to the share application money received by the assessee from different persons, the details of which are as under :-

Referring to the above, he submitted that the Assessing Officer has already allowed the amount of Rs.1,00,000 received from AGM Holding Pvt. Ltd. and has made addition of only Rs.39,50,000/- in respect of remaining persons. Referring to the reasons recorded by the Assessing Officer, copy of which is placed at page 1 and 2 of the Paper Book, he submitted that the Assessing Officer had re-opened the assessment by recording reasons on account of accommodation entries received by the assessee from Zenith Estates and Vishrut. However, there is no addition on account of Zenith Estates. He, further submitted that although in the reasons recorded, the Assessing Officer has mentioned the name of Vishrut, however, the assessee has received the share application money from Vishrut Marketing Pvt. Ltd.. He submitted that Vishrut is different from Vishrut Marketing Pvt. Ltd.. He accordingly submitted that no addition has been made by the Assessing Officer on the basis of which the reasons were recorded and the Assessing Officer has made some other additions without issuing separate notice u/s 148 of the I.T. Act.

Referring to the decision of the Hon’ble Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. reported in 331 ITR 236, he submitted that the Hon'ble High Court in the said decision has held that the Assessing Officer may assess or re-assess 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 the section. It is only when in proceedings u/s 147, the Assessing Officer assesses or re-assesses 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 u/s 147 of the I.T.

Referring to the decision of the Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. (supra), he submitted that the Hon'ble High Court following the above decision and various other decisions has upheld the decision of the Tribunal in holding that the Assessing Officer had the jurisdiction to re-assess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for initiation of those proceedings ceased to survive.

Ld. counsel for the assessee further challenged the validity of the assumption of jurisdiction on the ground that in clause 7 of the reasons prima- facie shows that assessment is proposed to be made for the first time whereas in the same page below clause 10, the Assessing Officer mentions that the assessee has filed its return of income for the assessment year 2007-08 on 30.10.2007 declaring total income at Nil which was processed u/s 143(1) on 03.09.2008 at the returned income. Thus, there is complete non-application of mind by the Assessing Officer. He also relied on the following decisions to substantiate his case on merit as well as validity of the re-assessment proceedings :- (i) Pr.CIT vs. Meenakshi Overseas (P) Ltd., order dated 26.05.2017.

He accordingly submitted that since the addition has not been made on the basis of which reopening was made, therefore, the other additions made by the Assessing Officer without issuing fresh notice u/s 148 by initiating re- assessment proceedings does not survive and therefore, the assessment order has to be quashed.

Ld. DR on the other hand relied on the order of the Assessing Officer and the ld. CIT(A). He submitted that the assessee had obtained accommodation entries from the paper companies which has been established by the Assessing Officer. The assessee was unable to satisfy the ingredients of provisions of section 68 for which the Assessing Officer made the addition which has been sustained by the ld. CIT(A). Referring to the decision of the Hon’ble Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO reported in 236 ITR 34, he submitted that the Hon'ble Supreme Court in the said decision has held that in determining whether commencement of reassessment proceedings was valid or not it has only to be seen whether there was prima-facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.

Referring to the decision of the Hon’ble Delhi High Court in the case of Paramount Intercontinental Pvt. Ltd. vs. ITO reported in 2017-TIOL-376-HC- IT, he submitted that the Hon'ble High Court in the said decision has held that when the assessee himself is unable to satisfactorily explain correctness of the entries made in his books, he cannot challenge the reassessment notice issued u/s 147 of the I.T. Act.

Referring to the decision of the Hon'ble Supreme Court in the case of Thakorbhai Maganbhai Patel vs. ITO reported in 78 taxmann.com 201, he submitted that the Hon'ble Supreme Court in the said decision has dismissed the SLP against High Court’s ruling where reopening of assessment u/s 147 was held to be valid despite the Assessing Officer not passing speaking order against objections filed by the assessee.

Referring to the decision of the Hon’ble Delhi High Court in the case of PCIT vs. Paramount Communication (P.) Ltd. reported in 79 taxmann.com 409, he submitted that the Hon'ble High Court in the said decision has held that information regarding bogus purchase by assessee received by DRI from CCE which was passing on to revenue authorities was ‘tangible material outside record’ to initiate valid re-assessment proceedings.

Referring to the decision of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. reported in 291 ITR 500, he submitted that the Hon'ble Supreme Court in the said decision has held that so long as the conditions of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate re-assessment proceedings, even when intimation under section 143(1) has been issued.

Referring to the decision of the Hon’ble Gujarat High Court in the case of Murlibhai Fatandas Sawlani vs. ITO reported in 2016-TIOL-370-HC-AHM-IT, he submitted that the Hon'ble High Court in the said decision has held that it is not open to the assessee to object to the reopening by asking the Assessing Officer to produce the source from where the Assessing Officer has gathered the information for forming a belief that income chargeable to tax has escaped assessment.

Referring to the decision of the Hon’ble Delhi High Court in the case of Paramount Intercontinental Pvt. Ltd. vs. ITO in order dated 07.02.2017, he submitted that the Hon'ble High Court in the said decision has held that the reopening of the assessment on the basis of report of the Investigation Department is valid. He also relied on the decision of the Co- ordinate Bench of the Tribunal in the case of Tarun Goyal vs. ACIT and bunch of other appeals vide consolidated order dated 18.10.2013 wherein the addition made u/s 68 on account of accommodation entries was upheld. He accordingly, submitted that the order of the ld. CIT(A) be upheld and the grounds raised by the assessee be dismissed.

I have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the Assessing Officer, on the basis of the information received from the Investigation Wing that assessee is the beneficiary of accommodation entries of Rs.10,50,000/- received from Zenith Estates and Vishrut reopened the assessment by issuing notice u/s 148 of the I.T. Act. From the details furnished by the assessee, I find the assessee has received share application money of Rs.40,50,000/- from 9 subscribers, the details of which are given as per page 23 of the Paper Book. The above details were also filed before the Assessing Officer and the ld. CIT(A) which were perused by them. From the said details, I find the Assessing Officer has accepted an amount of Rs.1,00,000 and has made addition of Rs.39,50,000/- on account of the remaining 8 subscribers. A perusal of the reasons recorded vis-à-vis the details of parties from whom the assessee has received share application money shows that no addition has been made on account of Zenith Estate. Similarly, addition of Rs.50,000/- has been made as the unaccounted share application on account of “Vishrut Marketing Pvt. Ltd.” whereas the reasons show that the share application money has been received from “Vishrut”. I find merit in the argument of the ld. counsel for the assessee that the “Vishrut Marketing Pvt. Ltd.”, a private limited company is separate and distinct from “Vishrut” as appears in the reasons recorded by the Assessing Officer. Thus, in-effect no addition has been made on the basis of which the assessment was reopened and addition has been made on account of share application money received from some other companies.

The Hon’ble Bombay High Court in the case of Jet Airways (I.) Ltd. (supra) has observed as under :-

I find following the above decision and host of other decisions, the Hon’ble Delhi High Court in the case of Ranbaxy Laboratories Ltd. (supra) has held as under :-

In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under Section 80 HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under Section 80HH and 80-I and accordingly reduced the claim on these accounts.

In view of our above discussions, the Tribunal was right in holding that the Assessing Officer had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive. Consequently, we answer the first part of question in affirmative in favour of Revenue and the second part of the question against the Revenue.”

Since in the instant case admittedly no addition has been made on account of which the assessment was reopened and addition has been made on account of share application money received from certain other companies other than the names appearing in the reasons recorded, therefore, respectfully following the above decisions cited (supra) I hold that the Assessing Officer is not justified in making the various other additions and the ld. CIT(A) was not justified in sustaining such addition. The ground raised by the assessee on the issue of validity of re-assessment proceedings is accordingly decided in its favour.

Since the assessee succeeds on the legal ground raised by it, therefore, the grounds relating to the merit of the addition become academic in nature and therefore are not being adjudicated.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 22nd day of December, 2017.