ITO 19(2)(3), MUMBAI vs. MEENAKSHI N SHAH, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated

29.09.2016 (ITA No.7385/M/2016) and 16.09.2016 (ITA

No.7082/M/2016) of the Ld. Commissioner of Income tax(A),

Mumbai and the assessees have preferred cross objections.

7385/M/2016) wherein the first ground raised pertains to

deleting the addition of Rs. 30,00,000/- on account of

unexplained credits under section 68 of the Income Tax Act,

1961 (hereinafter the Act).

defended the addition made by the learned Assessing Officer

by contending that there was an information with the

Assessing Officer with respect to unexplained credits from

4 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Nice Diamonds and the actual payment of cash was not

explained by the assessee therefore, circumstantial evidences

cannot be ignored. The learned DR relied upon the decision

from Hon'ble Apex Court in the case of Sumati Dayal (82 ITR

540) (SC). It was pleaded that accommodation entries with

respect to the loan were provided by Bhawarlal Jain Group

and other persons, who were shown as employees/Directors

are merely dummy persons and their salary is also paid in

cash. The learned DR contended that their statements were

recorded by the Department along with the statement of Shri

Bhawarlal Jain, wherein they accepted of providing

accommodation entries. Our attention was invited to the

finding at page 25 of the impugned order along with para 8.3

(page 26 of the order of the learned CIT(A)). Further our

attention was invited to page 37 and 40 of the paper-book.

The crux of the argument is in support of the addition made

by the learned Assessing Officer.

Counsel for the assessee defended the impugned order by

5 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 contending that the assessee took loans from M/s. Nice

Diamonds, whose proprietor is Shri Bhupender Singh

Karnawat and not Bhawarlal Jain as has been discussed in

the assessment order. It was pleaded that interest was duly

paid through account payee cheque and, ultimately, the loan

which was taken from banking channel was also returned

through banking channel. It was pleaded that even the

statement of Shri Bhupender Singh Karnawat was never

recorded by the department. Plea was also raised that the

statement of Shri Bhawarlal Jain was recorded, which was

retracted by him. It was also explained that no search was

carried out on M/s. Nice Diamonds and the entire assessment

order speaks of modus operandi of Shri Bhawarlal Jain and

no discussion has been made with respect to M/s. Nice

Diamonds. The learned counsel further explained that the

assessee submitted the necessary details/income tax returns

of M/s. Nice Diamonds from whom the loans were taken by

the assessee. Our attention was invited to various pages of

paper-book, details of loan taken and repaid and the assessee

paid interest @6% on such loans for which our attention was

6 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 invited to page 25,44 and 46 of the paper-book. It was also

pleaded that M/s. Nice Diamonds also filed affidavit in

support of the claim (pg 47 of the paper-book). The learned

counsel further contended that the statement recorded from

Shri Bhawarlal Jain was never provided to the assessee and

even the cross-examination was not provided for which our

attention was invited to pg 19 (point no.5 & 6 ) of the

submissions made before the learned Assessing Officer. The

crux of the argument is that the onus cast upon the assessee

under section 68 of the Act was duly discharged by the

assessee.

the material available on record. The facts in brief are that the

assessee is a private limited company, engaged in the

business of manufacture of chemicals, declared total income

of Rs. 94,96,330/- on 26.10.2007, which was processed under

section 143(1) of the Act. The case of the assessee was

selected for scrutiny therefore, the assessment was completed

under section 143(3) r.w.s. 147 of the Act determining the

7 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 total income of Rs. 97,26,920/-. During assessment

proceedings the assessee was asked to furnish the details of

loans and advances taken from Shri Bhawarlal Jain to which

the assessee vide letter dated 4.02.2015, made its

submissions. The submissions of the assessee were

considered and the details furnished by the assessee were

found to be correct with respect to advances received before

A.Y. 2007-08 (in A.Y. 2006) as is observed in para 6.1 of the

assessment order. However, the learned Assessing Officer

suspected the genuineness of loans of Rs. 30 lacs taken from

Sankhla Exports and added as unexplained cash credit under

section 68 of the Act.

5.1. On appeal before the learned CIT(A), the factual matrix

was considered, along with various case laws and, ultimately,

it was observed that there was no inconsistency or

incoherence in the receipt of loan from the parties,

consequently, the addition was deleted. The relevant finding

as contained in para 5.2.2 (pg 11 of the impugned order)

onwards is reproduced here under:

8 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 “5.2.2. In the instant case, however, as seen from the details filed before the AO, a set of which were also filed before me, I do not find any inconsistency or incoherence in the receipt of loans from the parties. Firstly. as regards the transaction, the same has routed through the banking channels and the source cannot be doubted. Secondly. as was held in several cases that whatever may be the strength of presumption it cannot replace evidence. Even though, the transaction is from a tainted group, the AO has not gathered any additional/independent evidence to show that the transaction with the appellant company was sham, fictitious or artificial except believing the statements given by the entry operators. He has failed to gather evidence to show that the unaccounted cash of the appellant had changed hands subsequently replacing the cheque payments. Thirdly. he has also not answered several valid points raised by the appellant nor proved how the details like PAN, the IT returns, confirmation letters, bank statements of the creditors, audited balance sheet of the creditors cannot be taken note of. Fourthly. the ITAT Mumbai in the case of Anant Shelters P Ltd. (2012) 20 taxmann.com 153 has laid down certain principles with regard to section 68 which the AO is bound to follow but do not seem to have taken note of. They are reproduced as under(para- 7)-

(i) Section 68 can be invoked when following three conditions are satisfied - (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found in the books or the explanation offered by the assessee, in the opinion of the AO, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

(ii) The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee.The opinion of

9 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the AO is required to be formed objectively with reference to the material on record file. Once the explanation of the assessee is found unbelievable or false the AO is not required to bring positive evidence on record to treat amount in question as income of the assessee. While considering the explanation of the assessee, the AO has to act reasonably-application of mind is the sine qua non for forming the opinion.

(iii) Phrase appearing in the section - nature and sources of such credits - should be understood in right perspective, so that genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a causal manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source' or 'origins of the origin' cannot and should not be called for while making inquiry under section.

(iv) In the matters related to section 68 burden of proof cannot be discharged to the hilt -such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the casesfalling under Section 68.

(v) Confirmatory letters or A/c payee cheques do not prove that the amount in question is properly explained for the purpose of section 68.Assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction. All the three ingredients are cumulative and not exclusive.

(vi) In matters regarding cash credit the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee. Amount appearing in the books of alcs. of the assessee is considered a proof against him. He can prove the identity

10 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 of the creditors by either furnishing their PANs or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Credit worthiness of the lender can be established by attending circumstances. Once the assessee produces evidences about identity, genuineness and credit worthiness of the lender onus of proof shifts to the Revenue.

Fifthly, the Honorable Supreme Court in the case of Lovely Exports Private Limited, (2008) 216 CTR 195 (SC), has stated that the AO is at liberty to bring to tax the amounts in their respective hands of the creditors if their identity, genuineness and creditworthiness is not proved. The AO should have made efforts to assess the amounts in the hands of the creditors at least on protective basis. Lastly, even if the creditworthiness of the creditors is not proved it will not automatically give license to the AO to make additions in the hands of the assessee u/s 68 unless it is proved that it is the unexplained money of the assessee which has been introduced in its books of account in the names of bogus/non-existent entities. In the instant case the AO has not made any dent in these lines. On the other hand the appellant has filed the following details in the case of M/s Sankhala Exports P Ltd. to prove the identity, genuineness and creditworthiness of the creditors.

5.2.3 As seen from the above, the appellant has furnished all the details proving conclusively the three ingredients of

11 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 identity and creditworthiness of the creditors and the genuineness of the transaction. The amounts were paid by the creditors from their running bank accounts which were accounted in the books of the appellant as well as the creditors as seen from the audited accounts filed. The transactions were also confirmed by all the creditors who are assessed to tax. Further, the appellant has paid interest through banks to the creditors by duly subjecting the interest amount to TDS and repaid the loans in subsequent assessment years i.e. in AY.2010-11 and 2011-12 along with interest. I find that the AO was in possession of good information in the form of investigation report, to begin with, but he could neither succeed to repudiate the evidences filed by the appellant nor he could gather independent evidence even to establish the surrounding circumstances not to speak of leading evidence to prove his hypothesis. In view of the above discussion I hold that the loan taken by the appellant from the above three parties cannot be doubted and the addition made by the AO u/s 68 of the Act cannot survive the test of appeal. I therefore, direct the AO to withdraw the addition. The ground is allowed.”

If the observation made in the assessment order, leading to

addition made to the total income, conclusion drawn in the

impugned order, material available on record, assertions made

by the ld. respective counsel, if kept in juxtaposition and

analyzed, we find that the assessee, during assessment

proceedings as well as first appellate proceedings filed

necessary details. The following details were filed by the

assessee (as is evident from para 5.1.1 of the impugned order)

12 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 a. copy of the confirmation duly signed by Sankhala

Exports Pvt. LTd. confirming that loan advanced by them

to us are from banking channel.

b. Copy of the ledger account of M/s. Sankhala Exports

Purchase Ltd. in our books of account duly confirmed by

them

c. Copy of PAN card of M/s. Sankhala Exports Purchase

Ltd. to prove their identity.

d. Copy of bank statements evidencing loans advanced to

us and showing that they have sufficient bank balance.

e. Copy of acknowledgment of return of income filed by

M/s. Sankhala Exports Purchase Ltd. for A.Y. 2007-08 to

demonstrate that they are income tax payees and

assessed to income tax

f. Copy of affidavit given by Sankhala Exports Purchase

Ltd. that they advanced loans of Rs. 30 lacs to the

13 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 appellant and no cash was received back by them from

Appellant against the said loan.

g. Copy of bank statement of the appellant evidencing that

loan of Rs. 30 lacs from M/s. Sankhala Exports Purchase

Ltd. received from account payee cheques through

normal banking channels.

h. Copy of Financial statement of M/s. Sankhala Exports

Purchase Ltd. for A.Y. 2007-08 in which said loan

transactions are duly reflected.

5.2. During hearing, the learned counsel for the assessee invited our attention to the decision of the Tribunal claiming to be on identical fact, in the case of M/s. Shree Laxmi Estate Pvt. Ltd. vs. Income Tax Officer (ITA No. 5954/M/2016 and ITA NO.2562/M/2017) wherein one of us (learned Accountant Member) is signatory to the order dated 19.12.2017. Therefore, in all fairness, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 19.12.2017

“2. The brief facts of the case extracted from ITA No.2562/Mum/2017 are that the assessee firm engaged in the business of builders and developers, filed its return of

14 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 income for the assessment year 2012-13 on 29-09-2012 declaring total income at Rs.21,572. The case has been selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued. In response to notices, the authorized representative of the assessee appeared from time to time and submitted the details, as called for. During the course of assessment proceedings, the AO noticed that information received from office of Director of Income-tax (Inv), Mumbai in the case of beneficiaries of accommodation entries obtained from Pravinkumar Jain. On going through the list furnished by the Investigation Wing, it was seen that the assessee was one of the beneficiaries of accommodation entries of loan being taken from group companies of Pravinkumar Jain. Therefore, the AO called upon the assessee to furnish details of loans taken from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd alongwith confirmation letters and their financial statements. In response to show cause notice, the assessee has furnished details of unsecured loans taken from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd alongwith confirmation letters, bank statements and financial statements of the parties to prove identity, genuineness of transaction and creditworthiness of the parties. The AO, after considering relevant submissions of the assessee and also taking into account information received from Investigation Wing, observed that the assessee is beneficiary of bogus accommodation entries provided by group companies of Shri Pravinkumar Jain which is evident from the fact that Shri Pravinkumar Jain was involved in the activity of providing accommodation entries. The AO further observed that ShriDinesh Choudhary a broker involved in arranging accommodation entries from group companies of Shri Pravinkumar Jain admitted in his statement that Shri Pravinkumar Jain was indulging in providing accommodation entries through his various concerns and not carrying out any genuine business activities. Therefore, based on the information received from Investigation Wing, the AO opined that though the assessee has furnished various details to prove identity, the loan transactions are not genuine and accordingly made addition u/s 68 of the Income-tax Act, 1961. Besides, the AO also disallowed interest paid

15 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 against the said bogus loans. The AO also made additions towards estimation of net profit from business activity of construction of Zoom Plaza and Aurm Park. Besides, the AO made addition towards disallowance of MVAT u/s 43B and disallowance of cash payment u/s 40A(3) of the Income-tax Act, 1961. 3. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before CIT(A), assessee filed elaborate written submissions to argue that the AO was not justified in making additions in respect of loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd despite furnishing confirmation letters alongwith the financial statements of the parties to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee further submitted that in response to notice issued u/s 133(6), the above parties filed their replies alongwith required documents before the AO, therefore, the AO was totally incorrect in coming to the conclusion that the loan transactions are bogus accommodation entries only on the basis of information received from Investigation Wing. As regards addition made by the AO towards estimation of net profit from business activity of construction of Aurm Park and Zoom Plaza, the assessee submitted that it is following project completion method for Zoom Plaza and profit method for Aurm Park and maintained separate books of account for both projects. The AO, ignoring above fact has estimated net profit at 10% on expenditure incurred for both the projects. Insofar as addition towards cash expenditure u/s 40A(3), the assessee submitted that it has made purchase at construction site on urgent basis, therefore, the AO was erred in disallowing the same without considering the nature of business of assessee. As regards disallowance of MVAT u/s 43B, assessee submitted that it is following project completion method and said MVAT has been considered in AY 2014-15, therefore, the AO was erred in disallowing MVAT u/s 43B of the Act. The CIT(A), after considering relevant submissions of the assessee and also relying upon plethora of judgements confirmed additions made by the AO towards unsecured loan from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. The CIT(A) also confirmed addition made by the AO towards estimation

16 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 of net profit from Zoom Plaza and Aurm Park and also addition made towards cash purchases u/s 40A(3) of the Act; however, deleted addition made by the AO towards MVAT u/s 43B of the Act. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 4. The first issue that came up for our consideration is addition made by the AO towards unsecured loan u/s 68 of the Act. The AO made addition towards unsecured loans alongwith interest thereon received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the ground that these are bogus accommodation entries received from group companies of Shri Pravinkumar Jain. According to the AO, the assessee is the beneficiary of accommodation entries provided by Shri Pravinkumar Jain from his bogus companies. The AO further observed that though the assessee has furnished details of identity, failed to prove genuineness of transactions and creditworthiness of the parties in the backdrop of clear findings of Investigation Wing that Shri Pravinkumar Jain has admitted that he was indulging in providing accommodation entries. This fact has been further confirmed by Shri Dinesh Choudhary, broker involved in arranging accommodation entries with Shri Pravinkumar Jain, who stated that Shri Pravinkumar Jain is indulging in providing accommodation entries, therefore, the AO opined that unsecured loans stated to be received from those companies are unexplained credit and hence made addition u/s 68 of the Act. It is the contention of the assessee that loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd are supported by valid documents. The assessee further submitted that it has furnished confirmation letters alongwith copies of their bank statement and acknowledgement of IT returns showing the above transactions. The assessee further contended that in response to notices u/s 133(6) issued by AO, the above parties replied alongwith documents mentioned in the notice, therefore, there is no reason for the AO to doubt the transactions only on the basis of information received from Investigation Wing that too, without providing any opportunity of cross examination of the parties. In this regard, he relied upon plethora of judgements including the judgement of Hon’ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd 349 ITR 680 (Bom) and

17 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Hon’ble Supreme Court in the case of Lovely Exports Pvt Ltd vs CIT 216 CTR 295(SC). 5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns. 6. The AO has made addition u/s 68 of the Act, on the ground that the unsecured loans are bogus accommodation entries provided by Shri Pravinkumar Jain through his hawala companies. The provisions of section 68 deal with cases where any sum found credited in the books of

18 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 account of the assessee in any financial year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, then sum so credited may be charged to income-tax as the income of the assessee of that previous year. A plain reading of section 68 makes it clear that the initial burden of proof lies on the assessee. It is well settled legal position that the assessee has to discharge 3 main ingredients in order to discharge the initial burden of proof, i.e. the identity of the creditor, the genuineness of transaction and creditworthiness of the creditors. Once the assessee discharges initial burden placed upon him, then the burden todis prove the said claim shifts upon the AO. In this case, the assessee has discharged his onus cast u/s 68 by filing identity of the creditors, genuineness of transactions and creditworthiness of the parties which is evident from the fact that the assessee has furnished financial statements of the creditors wherein the said transaction has been disclosed in the relevant financial years. We further notice that the assessee also filed financial statements of the creditors which are enclosed in paper book filed. On perusal of the financial statements filed by the assessee, we find that both the companies are active in the website of Ministry of Corporate Affairs. This fact has been further supported by the letter of AO wherein the AO has accepted that both companies, viz. Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd are active in MCA website. We further notice that both the companies have filed financial statements for the year ending 31-03-2006. Therefore, we are of the considered view that the assessee has discharged its initial burden cast u/s 68 by filing identity, genuineness of transaction and creditworthiness of the parties. Once, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis of information received from Investigation Wing, but not based on any evidence to disprove the loan transaction from above companies are ingenuine. Therefore, we are of the view that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act. 7. Coming to the case laws relied upon by the assessee, the

19 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 assessee has relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom). We have gone through the case laws relied upon by the assessee in the light of the facts of the present case and find that the Hon’ble High Court categorically observed that the Proviso to section 68 has been inserted by the Finance Act, 2012 wef 01-04-2013 is applicable from AY 2013-14 onwards. The Court further observed that the Parliament did not introduce the proviso to section 68 with retrospective effect nor does the Proviso introduced states that it was introduced for removal of doubts. Therefore, it is not open to give retrospective effect. The relevant portion of the order of High Court is extracted below:-

“The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding the basis that the addition of the proviso to section 68is immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.

In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a

20 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 case in this context to the pre-amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit.” [Para 3] 8. The assessee has also relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs Archid Industries Pvt Ltd in ITA No1433/Mum/2014 dated 5th July, 2017. The Hon’ble Bombay High Court, after considering relevant facts and also by following judgement in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of share i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would be applicable in the facts and circumstances of the present case.”

21 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 to reopen their individual assessments in accordance with law, but this amount of share application money cannot be regarded as undisclosed income u/s 68 of the Income-tax Act, 1961. 10. Coming to the case laws relied upon by the Ld.DR. The Ld.DR relied upon the decision of Hon’ble Delhi High Court in the case of Principal CIT vs Bikram Singh in ITA No.55/Del/2017 dated 25-03-2017. We have gone through the case law relied by the Ld.DR in the light of facts of the present case and find that the facts of case before Hon’ble Delhi High Court are entirely different from facts of the present case. The Hon’ble Delhi High Court, has considered the fact that the individuals, who advanced loans had no financial strength to lend such huge sum of money to the assessee, that too, without any collateral security without interest and without a lender agreement. Under these facts, the Hon’ble Court held that mere establishing of their identity and the fact that the amounts have been transferred through cheque payment does not by itself mean that the transactions are genuine. In this case, the assessee has furnished all evidences and also the parties personally responded to the notices issued by the AO u/s 133(6) by filing various details, therefore, case law relied upon by the Ld.DR cannot be applicable to the facts of the present case.

5.3. In view of the details contained in para 5.1 ((supra), now we shall examine the provision of section 68 of the Act. As per which the assessee is expected to offer an explanation with

22 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 respect to the nature and source of cash credits to the satisfaction of the Assessing Officer. For ready reference section 68 of the Act is reproduced hereunder:-

“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.”

5.4. As per section 68 of the Act, onus is upon the assessee to

discharge the burden so cast upon. First burden is upon the

assessee to satisfactorily explain the credit entry contained in

23 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 his books of accounts. The burden has to be discharged with

positive material (Oceanic Products Exporting Company vs CIT

241 ITR 497 (Kerala.). The legislature had laid down that in

the absence of satisfactory explanation, the unexplained cash

credit may be charged u/s 68 of the Act. Our view is fortified

by the ratio laid down in Hon’ble Apex Court in P. Mohankala

(2007)(291 ITR 278)(SC). A close reading of section 68 and 69

of the Act makes it clear that in the case of section 68, there

should be credit entry in the books of account whereas in the

case of 69 there may not be an entry in such books of

account. The law is well settled, the onus of proving the source

of a sum, found to be received/transacted by the assessee, is

on him and where it is not satisfactorily explained, it is open

to the Revenue to hold that it is income of the assessee and no

further burden lies on the Revenue to show that income is

from any other particular source. Where the assessee failed to

prove satisfactorily the source and nature of such credit, the

Revenue is free to make the addition. The principle laid down

in Ganpati Mudaliar (1964) 53 ITR 623/A. Govinda Rajulu

Mudaliar (34 ITR 807)(SC) and also CIT vs Durga Prasad More

24 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 (72 ITR 807)(SC) are the landmark decisions. The ratio laid

down therein are that if the explanation of the assessee is

unsatisfactory, the amount can be treated as income of the

assessee. The ratio laid down in Daulat Ram Rawatmal 87

ITR 349 (SC) further supports the case of the assessee. In the

case of a cash entry, it is necessary for the assessee to prove

not only the identity of the creditor but also the capacity of the

creditor and genuineness of the transactions. The onus lies

on the assessee, under the facts available on record. A

harmonious construction of section 106 of the evidence Act

and section 68 of the Income Tax Act will be that apart from

establishing the identity of the creditor, the assessee must

establish the genuineness of the transaction as well as the

creditworthiness of the creditors. In CIT vs Korlay Trading

Company Ltd. 232 ITR 820 (Cal.), it was held that mere

mention of file number of creditor will not suffice and each

entry has to be explained separately by the assessee (CIT vs

R.S. Rathaore) 212 ITR 390 (Raj.). The Hon’ble Guwahati High

Court in Nemi Chandra Kothari vs CIT (264 ITR 254)(Gau)

held that transaction by cheques may not be always

25 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 sacrosanct. In the present appeal, we find that the assessee

duly furnished the details of loan before the learned Assessing

Officer as well as before the learned CIT(A). The loan was

obtained through banking channel and the interest was also

paid on such loan and ultimately the loan amount was

returned. No evidence has been brought on record by the

learned Assessing Officer evidencing that the loan was in fact

accommodation entry as has been alleged in the assessment

order and also argued by the learned DR. No material was

gathered by the Assessing Officer to substantiate his

presumption that in fact unaccounted cash of the assessee

changed hands which was subsequently, replaced in the form

of cheque. The assessee explained the genuineness of the

transaction with documentary evidence as the confirmation

from the party from whom loan was taken was filed supported

by an affidavit and, admittedly, the loan was obtained through

banking channel. The ledger account of M/s. Sankhala

Exports P Ltd. was also filed along with the account of the

assessee. The copy of the PAN card of M/s. Sankhala Exports

was filed therefore, the identity is not in dispute. The copy of

26 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 bank statement of M/s. Sankhala Exports P Ltd., evidencing

the advancement of loan showing sufficiency of funds and

transaction in the account of the assessee was filed therefore,

the transfer of money/loan through banking channel was

produced/explained. The copy of acknowledgement of return

filed by M/s. Sankhala Exports P Ltd. for A.Y. 2007-08

demonstrating that the concerned party is income tax

assessee was also filed along with the affidavit sworn by the

party confirming advancing loan to the assessee and receipt of

the loan amount back along with interest therefore the

genuineness of transaction cannot be doubted. The copy of

the bank statement of the assessee evidencing that the loan

was taken through banking channel was also filed therefore,

the genuineness of the transaction cannot be doubted. The

copy of financial statement of M/s. Sankhala Exports P Ltd.

for A.Y. 2007-08, reflecting the loan transactions was filed.

Therefore, the identity, creditworthiness and genuineness of

the transaction along with the source of the amount is duly

established. It is further noted that the whole addition is

based upon the statement tendered by the key person of

27 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Bhawarlal Jain Group and such statement was later on

retracted therefore, merely on the basis of statement that too

in the absence of cogent material, we are of the view, cannot

be the sole basis for making the addition. There is no basis

for suspicion that the loan transaction was merely

accommodation entry because no material has been brought

on record by the Revenue in support of its suspicion. Even

otherwise, suspicion cannot take the shape of evidence

however, strong it may be. We are in agreement with the

argument of learned DR only to the extent that it is not

uncommon in the business as series of operations are

conducted by the investigating agencies wherein

accommodation entries are taking shape of cash

credit/unexplained loan. However, in the present case no

material evidence has been brought on record by the Revenue

that in fact, the impugned loan is an accommodation entry or

any cash had transacted hands. No independent inquiry was

conducted by the learned Assessing Officer proving that any

cash was transacted between the parties. Identical is the

observation in the impugned order wherein no inconsistency

28 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 or incoherence in receipt of loan from the concerned party was

found. Even if it is presumed that the transaction was

through tainted person still no evidence has been brought on

record to strengthen the presumption that accommodation

entries were in fact taken. It is further noted that inspite of

request of the assessee (as is evident from record page 19 of

the paper-book) neither the statement nor cross-examination

with respect to Shri Bhawarlal Jain was provided to the

assessee, therefore, it is violation of principle of natural

justice. In its application dated 18.03.2015, addressed to the

learned Income Tax Officer the assessee has clearly

mentioned/explained (para 4 onwards) as under:

“4. Further the concern M/s. Nice Diamond is assessed to Income Tax Act, 1961 (hereinafter the Act) vide PAN No. AIKPK8272C and regular in filing the IT return with Income Tax Authority.

5.The party M/s. Nice Diamond (Prop Mr. Bhupendra Singh Karnawat) is available and ready to appear before you and even you can also issue notice under section. 133(6) or summon under section. 131 of the Act for verification the genuineness of loan.

29 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 opportunity of cross examination was provided by you.

If the aforesaid request/reply of the assessee is analyzed there

is no dispute that the assessee categorically stated that the

concerned party i.e. M/s. Nice Diamond (proprietor Mr.

Bhupendra Singh Karnawat) is available and is ready to

appear before the Assessing Officer and even further requested

that the learned Assessing Officer is free to issue notice under

section 133(6) or summons under section 133(1) of the Act for

30 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 verification and genuineness of the loan. This request of the

assessee was never considered by the learned Assessing

Officer. In para 7 of the same application (page 19 of the

paper-book) it has been claimed that the assessee has not

paid or received any cash against the said loan and further

there is no corroborative evidence to prove the allegation made

against the assessee. In para 6 of the aforesaid letter, the

assessee has requested for providing cross examination to

prove the genuineness of the transactions, which was not

provided to the assessee. Even in the impugned order the

learned first appellate authority has observed that the

assessee paid interest through banking channels to the

creditor by duly deducting the TDS and the loan amount was

returned along with interest. This observation of the learned

CIT(A) was never contradicted at any staed. It was noted that

the claim/explanation of the assessee was never repudiated by

the learned Assessing Officer with the help of any evidence

and even no independent evidence was gathered to establish

the surrounding circumstances, not to speak of bringing any

evidence on record to prove the presumption by the Assessing

31 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Officer. Even otherwise, we are of the considered opinion that

no addition can be made merely on the basis of statement

made by a third party unless and until any corroborative

material is brought on record to substantiate such

statement/presumption. As mentioned earlier, presumption

cannot take the shape of evidence however, strong it may be.

Thus, we find no infirmity in the conclusion drawn by the

learned CIT(A). Resultantly, the appeal of the Revenue is

dismissed.

No. 7082/M/2016 in the case of Smt. Meenakshi N Shah.

The learned DR contended that she is daughter of Mr.

Bhawarlal Jain, obtained bogus loan entries from Bhawarlal

Jain Group. On the other hand, the learned counsel for the

assessee contended that the fact and issue is identical to the

case in ITA No.7385/Mum/2016.

6.1 We have considered the rival submissions and perused

the material available on record. We have deliberated upon the

issue in earlier paras of this order, while disposing of ITA

32 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 No.7385/M/2016, therefore, considering the factual finding

recorded by the learned CIT(A) and discussion made by us, we

find no infirmity in the order of the first appellate authority.

Thus, this appeal of the Revenue is also dismissed.

assessee (CO Nos. 85 & 86/M/2018) wherein, the assessee

has challenged the re-opening of assessment under section

147 of the Act.

7.1 The learned counsel for the assessee invited our

attention to the reasons recorded by contending that there is

ambiguity in the reasons for which our attention was invited

to page 6 of the paper-book, which talks about Bhawarlal Jain

Group and consequent search and survey action carried out

by the Investigation Wing on 03.10.2013. Our attention was

further invited to page 15 of the paper-book, containing a

letter dated 05.01.2018, addressed to Meenakshi N Shah. The

crux of the argument on behalf of the assessee is that for

taking an action reasons should be on the same ground for

which our attention was invited to the order of Hon'ble

33 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Bombay High Court in the case of Jet Airways (I) Ltd (331 ITR

236 (Bom)). On the other hand, the learned DR strongly

defended the re-opening of assessment by explaining that

there was information with the learned Assessing Officer that

the assessee has taken accommodation entries from

Bhawarlal Jain Group, therefore, there was a reasonable belief

with the Assessing Officer that income chargeable to tax has

escaped assessment. It was pointed out that reasons for re-

opening were correctly recorded. Our attention was invited to

the decision from Hon'ble Apex Court in the case of 291 ITR

500 (Supreme Court). The learned DR also invited our

attention to section 292C of the Act.

7.2 We have considered the rival submissions and perused

the material available on record. So far as, re-opening of

assessment u/s 147/148 of the Act on the plea that the Ld.

AO ignored the fact that there was no reason to believe that

income has escaped assessment as there was no tangible

material with the Assessing Officer and independent

application of mind is concerned, we find that the assessees

34 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 are individuals and the return was processed under section.

143(1) of the Act. Subsequently, the learned Assessing Officer

on the basis of information received from the Investigation

Wing with respect to search taken in the group concern of Shri

Bhawarlal Jain, who indulged in providing accommodation

entries, after recording the reasons, re-opened the assessment

under section. 147 of the Act. A search and seizure action

was conducted in the group concerns of Shri Bhawarlal Jain,

wherein it was revealed that the group is engaged in providing

accommodation entries to various parties by issuing non-

genuine bills and also gave unsecured loans. As per the

Revenue Shri Bhawarlal Jain Group is doing all these

activities merely on papers without effecting real business

activity and issuing bogus bills. The statement of Shri

Bhawarlal Jain was recorded by the department (though

retracted later on) admitting that they are providing

accommodation entries/unsecured loans. However, in

response to the notice the assessee furnished necessary

details of the loans and interest paid thereon along with the

copy of the affidavit duly sworn by the person from whom loan

35 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 were taken, confirming the claim of the assessee. The learned

Assessing Officer on the basis of information re-opened the

assessment. With this background, we shall analyze whether

the Ld.AO was right in re-opening the assessment u/s.147 of

the Act.

7.3 In the light of the foregoing discussions, it is our

bounded duty to examine the validity of reopening u/s 147

r.w.s 148 of the Act. Before adverting further we are

reproducing hereunder the relevant provision of section 147 of

the Act for ready reference and analysis:-

“. 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) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return

36 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or

37 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. 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 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. Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”

7.4. If the aforesaid provision of the Act is analyzed, we

find that after insertion of Explanation -3 to section 147 of the

Act by the Finance (No.2) Act of 2009 with effect from

01/04/1989 section 147 has an effect that Assessing officer

has to assess or reassess income (such income) which has

escaped assessment and which was basis of formation of belief

and, if he does so, he can also assess or reassess any other

income which has escaped assessment and which came to the

notice during the course of proceedings. Identical ratio was

laid down by Hon’ble jurisdictional High Court in CIT vs Jet

38 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Airways India Pvt. Ltd. (2010) 195 taxman 117 (Mum.) and the

full Bench decision from Hon’ble Kerala High Court in CIT vs

Best Wood Industries and Saw Mills (2011) 11 taxman.com

278 (Kerala)(FB). A plain reading of explanation-3 to section

147 clearly depicts that the Assessing Officer has power to

make addition, where he arrived to a conclusion that income

has escaped assessment which came to his notice during the

course of proceedings of reassessment u/s 148. Our view is

fortified by the decision in Majinder Singh Kang vs CIT (2012)

25 taxman.com 124/344 ITR 358 (P & H) and Jay Bharat

Maruti Ltd. Vs CIT (2010) Tax LR 476 (Del.) and V. Lakshmi

Reddy vs ITO (2011) 196 taxman 78 (Mad.). The provision of

the Act is very much clear as with effect from 01/04/1989, the

Assessing Officer has wide powers to initiate proceedings of

reopening. The Hon’ble Kerala High Court in CIT vs Abdul

Khadar Ahmad (2006) 156 taxman 206 (Kerala) even went to

the extent so long as the AO has independently applied his

mind to all the relevant aspect and has arrived to a belief the

reopening cannot be said to be invalid.

39 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.5 We are aware that “mere change of opinion” cannot

form the basis of reopening when the necessary facts were

fully and truly disclosed by the assessee in that situation, the

ITO is not entitled to reopen the assessment merely on the

basis of change of opinion. However, powers under amended

provision are wide enough where there is a reasonable belief

with the Assessing Officer, that income has escaped

assessment, because the powers with effect from 01/04/1989

are contextually different and the cumulative conditions spelt

out in clauses (a) and (b) of section 147, prior to its

amendment are not present in the amended provision. The

only condition for action is that the Assessing Officer “should

have reason to believe” that income chargeable to tax has

escaped assessment. Such belief can be reached in any

manner and is not qualified by a pre-condition of faith and

true disclosure of material facts by an assessee as

contemplated in pre-amended section 147. Viewed in that

angle, power to reopen assessment is much wider under the

amended provision. Our view is fortified by the decision from

Hon’ble Delhi High Court in Bawa Abhai Singh vs DCIT (2001)

40 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 117 taxman 12 and Rakesh Agarwal vs ACIT (1996) 87

taxman 306 (Del.). The Hon’ble Apex Court in CIT vs Sun

Engineering works Pvt. Ltd. 198 ITR 297 (SC) clearly held that

proceedings u/s 147 are for the benefit for the Revenue, which

are aimed at gathering the ‘escaped income’. At the same

time, we are aware that powers u/s 147 and 148 of the Act are

not unbridled one as it is hedged with several safeguards

conceived in the interest of eliminating room for abuse of this

power by the AO. However, the material available on record,

clearly indicates that income chargeable to tax had escaped

assessment, therefore, the ld. Assessing Officer was within

his jurisdiction to reopen the assessment. The Hon’ble Apex

Court in Ess Ess Kay Engineering Co. Pvt. Ltd. (2001) 247

ITR 818 (SC) held that merely because the case of the assessee

was correct in original assessment for the relevant assessment

year, it does not preclude the ITO to reopen the assessment of

an earlier year on the basis of finding of his fact that fresh

material came to his knowledge.

41 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.6 Under section 147, as substituted with effect from

01/04/1989, the scope of reassessment has been widened.

After such substitution, the only restriction, put in that

section is that “reason to believe”. That reason has to be a

reason of a prudent person which should be fair and not

necessarily due to failure of the assessee to disclose fully and

partially some material facts relevant for assessment (Dr.

Amin’s Pathology Laboratory vs JCIT (2001) 252 ITR 673, 682

(Bom.) Identical ratio was laid down by Hon’ble Delhi High

court in United Electrical Company Pvt. Ltd. vs CIT (2002) 258

ITR 317, 322 (Del.) and Prafull Chunnilal Patel vs ACIT 236

ITR 832, 838 (Guj.). The essential requirement for initiating

reassessment proceeding u/s 147 r.w.s 148 of the Act is that

the ld. Assessing Officer must have reason to believe that any

income chargeable to tax has escaped assessment for any

assessment year. The Hon’ble Gujara High Court in Prafull

Chunnilal Patel vs ACIT (supra) even went to the extent that at

the initiation stage formation of reasonable belief is needed

and not a conclusive finding of facts. Identical ratio was laid

down in Brijmohan Agrawal vs ACIT (2004) 268 ITR 400, 405

42 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 (All.) and Ratnachudamani S. Utnal vs ITO (2004) 269 ITR

272, 277 (Karnataka) applying Sowdagar Ahmed Khan vs ITO

(1968) 70 ITR 79(SC).

7.7. So far as, the meaning of expression, “reason to

believe” is concerned, it refers to belief which prompts the

Assessing Officer to apply section 147 to a particular case. It

depend upon the facts of each case. The belief must be of an

honest and reasonable person based on reasonable grounds.

The Assessing Officer is required to act, not on mere

suspicion, but on direct or circumstantial evidence. Our view

find support from the ratio laid down in following cases:-

i. Epica Laboratories Ltd. vs DCIT 251 ITR 420, 425-426 (Bom.), ii. Vishnu Borewell vs ITO (2002) 257 ITR 512 (Orissa), iii. Central India Electric Supply Company Ltd. vs ITO (2011) 333 ITR 237 (Del.), iv. V.J. Services Company Middle East ltd. vs DCIT (2011) 339 ITR 169 (Uttrakhand), v. CIT vs Abhyudaya Builders (P. ) Ltd. (2012) 340 ITR 310 (All.), vi. CIT vs Dr. Devendra Gupta (2011) 336 ITR 59 (Raj.), vii. Emirates Shipping Line FZE vs Asst. DIT (2012) 349 ITR 493 (Del.). viii. Reference may also made to following judicial decisions:-

43 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 ix. Safetag international India P. Ltd. (2011) 332 ITR 622 (Del.), x. CIT vs Orient Craft Ltd. (2013) 354 ITR 536 (Del.) xi. Acorus Unitech Wirelss Pvt. Ltd. vs ACIT (2014) 362 ITR 417 (Del.). xii. Praful Chunilal Patel: Vasant Chunilal Patel vs Asst. CIT (1999) 832, 843-44, 844-45 (Guj.), xiii. Venus Industrial Corporation vs Asst. CIT (1999) 236 ITR 742, 746 (Punj.), xiv. Srichand Lalchand Talreja vs Asst. CIT (1998) 98 taxman 14, 19 (Bom.), xv. Usha Beltron Ltd. vs JCIT (1999) 240 ITR 728, 736-37, 739 (Pat.) xvi. Kapoor Brothers vs Union of India (2001) 247 ITR 324, 331, 332-33 xvii. Vippy Processors Pvt. Ltd. vs CIT (2001) 249 ITR 7, 8 (MP)

7.8 In Dilip S. Dahanukar vs Asst. CIT (2001) 248 ITR 147,

150-51 (Bom.). The Hon’ble jurisdictional High Court held as

under:-

“Held, that there was material on record on the basis of survey and statement of person to show that the assessee had wrongfully claim deduction u/s 80IA. Therefore, the Assessing Officer had reason to believe that income had escaped assessment for assessment year 1994-95.”

Identically in the case of Srichand Lalchand Talreja v.

Asst. CIT, (1998) 98 Taxman 14, 19 (Bom), where the

44 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 information regarding acquisition of the asset was not

available with the Assessing Officer during the relevant

assessment year 1992-93 and such information was

disclosed in the return for the assessment year 1995-96,

the Hon’ble jurisdictional High Court held that the

Assessing Officer can form a bona fide belief that there

was escapement of income in relation to assessment year

1992-93.

7.9 The Hon’ble jurisdictional High Court in Export

Credit Guarantee Corporation of India Ltd. v. Addl. CIT, (2013)

350 ITR 651 (Bom), where there had been no application of

mind to the relevant facts during the course of the assessment

proceedings by the Assessing Officer, the reopening of the

assessment was held to be valid.

7.10. The Hon’ble jurisdictional High Court in Girilal &

Co. v. S.L. Meena, ITO, (2008) 300 ITR 432 (Bom), held

that in order to invoke the extraordinary jurisdiction of

the court the petitioner must also make out a case that no

part of the relevant material had been kept out from the

45 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Assessing Officer). The information was in the annexures

and consequently Explanation 2(c)(iv) of section 147 would

apply. The reassessment proceedings after four years were

valid.

7.11 In the case of Deputy CIT v. Gopal Ramnarayan

Kasat, (2010) 328 ITR 556 (Bom), it was not the case of the

assessee that the notice issued was after the expiry of the time

limit provided in section 153(2). The reassessment proceedings

were held to be valid. In Indian Hume Pipe Co. Ltd. v. Asst.

CIT, (2012) 348 ITR 439 (Bom), both in the computation of

taxable long-term capital gains in the original return of income

and in the computation that was submitted in response to the

query of the Assessing Officer there was a complete silence in

regard to the dates on which the amounts were invested, as

such there being a failure to disclose fully and truly material

facts necessary for assessment. The reassessment proceedings

were held to be valid. This view was also confirmed in following

cases:-

a. Dalmia P. Ltd. v. CIT, (2012) 348 ITR 469 (Del);

46 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 b. CIT v. K. Mohan & Co. (Exports), (2012) 349 ITR 653 (Bom); c. Remfry & Sagar v. CIT, (2013) 351 ITR 75 (Del); d. OPG Metals & Finsec Ltd. v. CIT, (2013) 358 ITR 144 (Del).

7.12. In the case of Venus Industrial Corporation v. Asst.

CIT, (1999) 236 ITR 742, 746 (P & H) [Where initiation was

started within four years for re-examining the deduction under

section 80HHC, was held to be wrongly allowed in the original

assessment. Identically, in the case of Happy Forging Ltd. v.

CIT, (2002) 253 ITR 413,416-17 (P & H), where excise duty

paid in advance was shown as an asset in the balance sheet

and was allowed as a deduction, reassessment notice on the

ground that excise duty was shown as an asset in the balance

sheet and was not routed through the profit and loss account.

The reopening at this stage was held to be valid. In the

case of Vipan Khanna v. CIT, (2002) 255 ITR 220, 230 (P & H),

where from the facts it was clear that the assessee had

claimed depreciation in the return at the rate of 50 per cent

and he had nowhere disputed the fact that the admissible rate

of depreciation to him was 40 per cent., such fact alone was

47 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 sufficient to initiate reassessment proceedings under section

147 and, therefore, such initiation was sustained. The Hon’ble

Punjab & Haryana High Court in Mrs. Rama Sinha v. CIT,

(2002) 256 ITR 481, 483, 486, where the reassessment notice

has been issued on the basis of definite information from CBI

regarding investments by the assessee which had not been

disclosed during the original assessment proceedings, such

initiation has been upheld.

7.13. In the case of Pal Jain v. ITO, (2004) 267 ITR 540,

544-45, 548, 549 (P & H), applying Phool Chand Bajrang Lal v.

ITO, (1993) 203 ITR 456 (SC), although the transaction of sale

of shares was disclosed and accepted in the original

assessment, but the subsequent discovery by the DDI

(Investigation) revealed that the transaction was not genuine, a

reassessment notice after four years has been held to be valid

because there was no true disclosure of the material facts. In

this regard, the petitioner-assessee cannot draw any support

from the statement for challenging the validity of the notice for

reassessment. It goes without saying that for the purpose of

48 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 making the assessment, the Assessing Officer shall have to

confront the petitioner with the entire material in his

possession on the basis of which he proposes to make the

additions. In Punjab Leasing Pvt. Ltd. v. Asst. CIT, (2004) 267

ITR 779, 781-82 (P & H), where depreciation was allowed to

the assessee, who was engaged in the business of financing of

vehicles and consumer durables on 'hire-purchase basis' as

well as on 'lease/rent basis', a reassessment notice issued

after four years has been held not to suffer from any illegality

as the same was based on the bona fide action of the

competent authority to determine whether or not the vehicles

in respect of which the petitioner had been claiming

depreciation, were actually owned by it.

7.14. In Jawand Sons v. CIT(A), (2010) 326 ITR 39 (P &

H), in the initial assessment, the benefit of deduction of the

duty drawback and DEPB under section 80-IB was wrongly

granted to the assessee, for which it was not entitled.

Therefore, reassessment proceedings to withdraw the

deduction were held to be valid. Likewise, in CIT v. Hindustan

49 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Tools & Forgings P. Ltd., (2008) 306 ITR 209 (P & H), where,

the assessee in the regular assessment had been allowed

deduction more than actually allowable under section 80HHC.

Therefore, the action initiated by the AO for reassessment

under section 147(b) could not be held to be invalid.

7.15. In the case of Markanda Vanaspati Mills Ltd. v. CIT,

(2006) 280 ITR 503 (P & H), wherein, the information

furnished by the assessee gave no clue to the payment of

liability in regard of the sales tax collected in excess. The

Assessing Officer was held to be validly initiated the

reassessment proceedings under section 147 for both the

years under consideration. In the case of Sat Narain v. CIT,

(2010) 320 ITR 448 (P & H), the document did not form the

sole basis for the Assessing Officer to initiate reassessment

proceeding but he also took into consideration the letter

written by the Assistant Commissioner as well as the fact that

no return had been filed by the assessee for assessment year

1995-96. Thus, it was held that the Assessing Officer had

rightly invoked the jurisdiction to initiate the reassessment

50 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 proceedings under section 147. In the case of CIT v.

Hukam Singh, (2005) 276 ITR 347 (P & H), it was held that the

respondents did not have the locus standi to question the

orders of reassessment on the ground of lack of notice. Non-

issuance of notice to some of the legal heirs of the late P was

merely an irregularity and the same did not affect the validity

of the reassessment orders. Likewise, in Tilak Raj Bedi v.

Joint CIT, (2009) 319 ITR 385 (P & H), wherein, facts coming

to light in a subsequent assessment year could validly form

the basis for initiating reassessment proceedings, in view of

Explanation 2 to section 147. The action of the income tax

authorities in reopening the assessment of the assessee and

restricting the deduction under section 80-IB was held to be

valid.

7.16. In the case of Smt. Usha Rani v. CIT, (2008) 301 ITR

121 (P & H), there was nothing on record to show the

relationship between the donor and the donee, capacity of the

donor to make gifts and the occasion therefore. The assessee

had failed to discharge the onus to prove the gifts. The

51 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 reassessment proceedings were held to be valid. In the case of

Usha Beltron Ltd. v. Joint CIT, (1999) 240 ITR 728, 736-37,

739 (Pat), where the investigation report indicated that the

Officer had reason to believe that on account of failure on the

part of the petitioner-assessee to disclose true and full facts,

income had been grossly under assessed, reassessment

proceedings were held validly initiated.

7.17. In the case of Kapoor Brothers v. Union of India,

(2001) 247 ITR 324, 331, 332-33 (Pat), where the material

evidence for the purpose of reopening of the assessment

already completed has been brought to the notice of the

authority during the course of enquiry. The notice was held to

be valid by the Hon’ble High Court. In the case of Vippy

Processors Pvt. Ltd. v. CIT, (2001) 249 ITR 7, 8 (MP), where the

need to issue notice arose due to noticing of vast difference in

value of properties disclosed by the assessee and that of the

report of the Valuation Officer and the reasons that led to the

issue of the notice were duly recorded and the same were also

adequate and based on relevant facts and material, initiation

52 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 was upheld. In Triple A Trading & Investment Pvt. Ltd. v.

Asst. CIT, (2001) 249 ITR 109, 110-11 (MP), where the notice

was issued after recording reasons in that regard, initiation

was upheld.

7.18. Likewise, Hon’ble Gujarat High Court in Garden

Finance Ltd. v. Add/. CIT, (2002) 257 ITR 481, 489, 494-95,

special leave petition dismissed by the Supreme Court: (2002)

255 ITR (St.) 7-8 (SC), where the assessee was holding shares

in an amalgamating company and he was allotted shares in

the amalgamated company and such shares were sold by him

and he has disclosed the market price of such shares as on

the date of amalgamation as the cost of acquisition of such

shares and has not disclosed the cost of acquisition of shares

in the amalgamating company in accordance with section

49(2) read with section 47(vii), initiation of reassessment

proceedings after four years has been sustained because there

was failure on the part of the assessee to disclose material

facts necessary for assessment. Likewise, in Suman Steels

v. Union of India, (2004) 269 ITR 412,418-19 (Raj), where the

53 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 return of the assessee for assessment year 1995-96 was

processed under section 143(1)(a) accepting the net profit rate

declared by the assessee, who carried on con- tract business,

initiation of reassessment proceedings by issuing a notice

dated 15-5-2001 proposing to reassess petitioner-assessee at

higher rate in view of the presumptive rate prescribed under

section 44AD has been sustained. In the case of Dr. Sahib

Ram Giri v. ITO, (2008) 301 ITR 294 (Raj), the reassessment

proceedings were initiated after recording reasons in writing by

the AO. The non-availability of a few documents demanded by

the assessee would not make the reassessment proceedings

initiated for the reasons recorded in detail illegal.

7.19. In the case of Desh Raj Udyog : Chaman Udyog v.

ITO, (2009) 318 ITR 6 (All), in the assessment years in

question, the matter was still to be decided finally by the

assessing authority whether the income should be treated

under the head 'Business income' or 'property income'. The

assessee would get opportunity to show sufficient cause to the

assessing authority during the course of assessment. Thus, it

54 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 could not be said that there was no relevant material to

initiate proceedings under section 147. In the case of

Kartikeya International v. CIT, (2010) 329 ITR 539 (All), in view

of the matter, the petitioner was not entitled for the deduction

on the duty drawback amount under section 80-IB and since

it had been allowed in the assessment order passed under

section 143(1), it had escaped assessment. On these facts the

initiation of the proceedings under section 147 read with

section 148 for assessment years 2005-06 and 2006-07 was

legal and in accordance with law.

7.20. Likewise, in the case of Sunil Kumar lain: Suresh

Chandra lain v. ITO, (2006) 284 ITR 626 (All), notwithstanding

the fact that the amount had been assessed to tax in the

hands of P, he had taken a stand that the amount did not

belong to him and instead belonged to S. Thus, it was not

clear as to in whose hands the amount in question had to be

assessed. The ITO was justified in taking proceedings under

section 147 for assessing the amounts in the hands of the

petitioners according to the claim made by the petitioners.

55 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Likewise, Hon’ble Kerala High Court in CIT v. Dr. Sadique

Ummer, (2010) 322 ITR 602 (Ker), where, the Assessing Officer

collected further information to complete the reassessments

which was also permissible under the Act. The finding of the

first appellate authority as well as the Tribunal, that the

Assessing Officer had no material to believe that the income

had escaped assessment was wrong and contrary to facts. The

assessee had not maintained any books of account. Therefore,

the reopening of assessments was held to be valid and within

time. In the case of CIT v. Uttam Chand Nahar, (2007) 295

ITR 403 (Raj), the notice requiring the assessee to file the

return within 30 days was in accordance with section 148 as it

must be deemed to be in force with effect from 1-4-1989, and

in force as on the date notice was issued. There was no

violation of section 148 in respect of the specified period within

which the return is to be submitted. The reassessment

proceedings were held to be valid.

7.21. In the case of CIT v. C. V. layachandran, (2010) 322

ITR 520 (Ker), where, the assessee did not concede the income

56 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 on capital gain either under the un-amended provision or

un-der the amended provision, the recourse open to the

Department was to bring to tax income escaping assessment

under section 147 which was not time barred or otherwise

invalid. Likewise, in Atul Traders v. ITO, (2006) 282 ITR 536

(All), the account books or record and other material were all

common which were being considered by the CIT(A) in the

proceedings relating to three appeals. The petitioner had

notice and opportunity of being heard. The reassessment

proceedings were held to be validly initiated. In the case of

Inductotherm (India) P. Ltd. v. lames Kurian, Asst. CIT, (2007)

294 ITR 341 (Guj), the Assessing Officer had found that there

were errors in the computation of allowances. The

reassessment proceedings were held to be valid. In the case of

Papaya Farms Pvt. Ltd. vs. DCIT, (2010) 323 ITR 60 (Mad),

where the assessee had furnished incorrect particulars and

therefore, the reopening of the assessment was held to be

justified.

57 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.22 In the case of CIT v. Kerala State Cashew

Development Corporation Ltd., (2006) 286 ITR 553 (Ker),

wherein, the assessee was following the mercantile system of

accounting should not have claimed deduction of penal

interest which had accrued not in the previous year relevant to

the assessment year but in earlier years. This the assessee

had not disclosed. The reassessment was held to be valid.

Likewise, in Kusum Industries P. Ltd. v. CIT, (2008) 296 ITR

242 (All), as the award had become final it would be taken that

the directors of the assessee had accepted the factum of

earning of secret profit not reflected in the books of account,

which was also binding on the company. The non-appearance

of one of the arbitrators and one of the directors in respect of

the summon issued under section 131 would not make the

reassessment invalid. The Hon’ble Kerala High Court in CIT v.

Indo Marine Agencies (Kerala) P. Ltd., (2005) 279 ITR 372

(Ker), held that the entry would amount to an order under

section 144. The mere fact that it was not communicated to

the assessee would not make such an assessment recorded in

the order sheet illegal and that would not bar further

58 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 proceedings under section 147. Thus, the assessment was

held to be validly reopened under Explanation 2(c) to section

(Ker), where, the assessee could not, after having persuaded

the assessing authority to withdraw the notice dated 1-10-

1993, pointing out that it was not in conformity with law, be

allowed to contend that the notice was valid due to the

omission of the time-limit by the Finance (No.2) Act, 1996,

with effect from 1-4-1989. In the absence of specific provision

in the Finance (No. 2) Act, 1996, invalidating proceedings

initiated by the Income-tax Officer, the action taken by him

applying the then existing law could not be said to be invalid.

7.23 Likewise, in CIT v. S.R. Talwar, (2008) 305 ITR 286

(All), the factum of taking advances or loan from T and K, in

which the assessee was one of the directors had not been

disclosed nor a copy of the ledger account of the assessee

maintained by the company filed. In view of the absence of

these details, the Assessing Officer could not examine the

taxability of advances or loan raised by the assessee. There

59 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 was failure to disclose material facts necessary for assessment.

The reassessment proceedings were held to be valid. In

another case, the Hon’ble Allahabad High Court in Chandra

Prakash Agrawal v. Asst. CIT, (2006) 287 ITR 172 (All),

wherein, the Income-tax Department had sent a requisition on

27-3-2002, under section 132A requisitioning the books of

account and other documents seized by the Central Excise

Department. The record of the proceeding dated 18-4-2002,

showed that the requisition was not fully executed as all the

books of account and other documents had not been delivered

to the requisitioning authority. The proceedings initiated

under section 147 was held to be valid.

7.24 In Ramilaben Ratilal Shah v. CIT, (2006) 282 ITR

176 (Guj), held that the noting in the diary constituted

sufficient information for the escapement of income by

either non-declaration of correct sale consideration or

furnishing of inaccurate particulars as regards sale

consideration. Thus, the Tribunal was justified in holding

that the assessee had failed to disclose fully and truly all

60 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 material facts necessary for the assessment of the relevant

assessment year. The reassessment proceedings had been

validly initiated.

7.25 Likewise, in CIT v. Abdul Khader Ahamed, (2006)

285 ITR 57 (Ker), it was clear from the reasons recorded by the

Deputy CIT that he prima facie had reason to believe that the

assessee had omitted to disclose fully and truly the material

facts and that as a consequence income had escaped

assessment. The reassessment was held to be valid. In the

case of U.P. State Brassware Corporation Ltd. v. CIT, (2005)

277 ITR 40 (All), the principles laid down by the Calcutta High

Court in CIT v. New Central Jute Mills Co. Ltd. : (1979) 118

ITR 1005 (Cal) did constitute information on a point of law

which should be taken into consideration by the ITO in

forming his belief that the income to that extent had escaped

assessment to tax and, the reassessment was held to be valid.

In Sunder Carpet Industries v. ITO, (2010) 324 ITR 417 (All),

held that the Departmental Valuer's Report constituted

material for entertaining a belief of escaped income in the

61 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 years under consideration. The reassessment proceeding was

held to be valid.

7.26 In Aurobindo Sanitary Stores v. CIT, (2005) 276 ITR

549 (Ori), there being a substantial difference between the

figures of liabilities towards sundry creditors in the party

ledgers of the assessee-firm and the figures of liabilities

towards sundry creditors in the balance-sheet of the assessee-

firm for the previous year relevant to the assessment year

1989-90. These materials had a direct link and nexus for

formation of a belief by the Assessing Officer that income of

the assessee-firm had escaped assessment because of failure

of the assessee to disclose fully and truly all material facts

necessary for the assessment. In the case of CIT v. Best Wood

Industries & Saw Mills, (2011) 331 ITR 63 (Ker), the assessee

challenged the validity of the reassessment on the ground that

the AO had exceeded his jurisdiction under section 147 and

both the first appellate authority as well as the Tribunal

accepted the contention of the assessee holding that so far as

the reassessments related to assessment of unexplained trade

62 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 credits, they were invalid. On appeal, it has been held that the

reassessments were to be valid. In Honda Siel Power Products

Ltd. v. Deputy CIT, (2012) 340 ITR 53 (Del), there being

omission and failure on the part of the assessee to disclose

fully and truly material facts Thus reassessment proceedings

were held to be valid.

In Atma Ram Properties Private Ltd. v. Deputy CIT,

(2012) 343 ITR 141 (Del), as the books of account and other

material were not produced and no letter was filed, the order

passed by the Commissioner (Appeals) in the assessment year

2001-02 would constitute 'information' or material from any

external source and, as such, the reassessment proceedings

for the assessment year 2000-01 were held to be valid.

Likewise, in the case of CIT v. Smt. R. Sunanda Bai, (2012)

344 ITR 271 (Ker), the reassessment in question were held to

be valid on the fact that the assessee claimed and was given

relief under section 80HHA for the three preceding year which

disentitled her for deduction under section 80HH for the

assessment years 1992-93 and 1993-94.

63 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018

7.27 In the case of Aquagel Chemicals P. Ltd. v. Asst.

CIT, (2013) 353 ITR 131 (Guj), since there being sufficient

material on record for the Assessing Officer to form a belief as

regards the escapement of income in relation to the claim of

depreciation in respect of the building of coal fire boiler, the

reassessment was held to be valid. In the case of Convergys

Customer Management v. Asst. DIT, (2013) 357 ITR 177 (Del),

where there being prima facie material in the possession of the

Assessing Officer to form a tentative belief that section 9(1)(i)

held attracted, said reason by itself constituted a relevant

ground to reopen the assessment of the assessee.

Reference may also be made to i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)]; ii. Ashok Arora v. CIT [(2010) 321 ITR 171 (Del)]; iii. CIT v. Chandrasekhar BaLagopaL [(2010) 328 ITR 619 (Ker)]; iv. Jayaram Paper Mills Ltd. v. CIT [(2010) 321 ITR 56 (Mad)]; v. Kerala Financial Corporation v. Joint CIT [(2009) 308 ITR 434 (Ker)]; vi. Mavis Satcom Ltd. v. Deputy CIT [(2010) 325 ITR 428 (Mad)]; vii. CIT v. Madhya Bharat Energy Corporation Ltd. [(2011) 337 ITR 389 (Del)]; viii. Kone Elevator India P. Ltd. v. ITO [(2012) 340 ITR 454 (Mad)]; ix. Vijay Kumar Saboo v. Asst. CIT [(2012) 340 ITR 382 (Karn)];

64 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 x. Siemens Information Systems Ltd. v. Asst. CIT [(2012) 343 ITR 188 (Bom)]; xi. I.P. Patel & Co. v. Deputy CIT [(2012) 346 ITR 207 (Guj)]; xii. Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy CIT [(2012) 346 ITR 228 (Guj)]; xiii. Video Electronics Ltd. v. Joint CIT [(2013) 353 ITR 73 (Del)]; xiv. A G Group Corporation v. Harsh Prakash [(2013) 353 ITR 158 (Guj)]; xv. Inductotherm (India) P. Ltd. v. M. GopaLan, Deputy CIT [(2013) 356 ITR 481 (Guj)]; CIT v. Dhanalekshmi Bank Ltd. [(2013) 357 ITR 448 (Ker)]; xvi. Sitara Diamond Pvt. Ltd. v. ITO [(2013) 358 ITR 424 (Bom)]; xvii. Rayala Corporation P. Ltd. v. Asst. CIT [(2014) 363 ITR 630 (Mad)].

7.28 So far as, the decision in the case of CIT vs

Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) is concerned,

the Hon’ble Apex Court, while coming to a particular

conclusion, only in a situation, when not a single piece of

paper or document was recovered, therefore, the Hon’ble

Court held that since there was no tangible material found

and the addition was merely on the basis of statement only

then reopening of assessment u/s 147 of the Act was not

permissible. Likewise, in the case of CIT vs S. Khader Khan

Son (2012) 254 CTR 228 (SC), affirming the decision of Madras

65 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 High Court in (2008) 300 ITR 157 (Mad.), the whole addition

was made solely on the basis of statement u/s 133A and no

other material was found, in that situation, it was held that

the such statement has no evidentiary value.

7.29. It is noted that Hon'ble jurisdictional High Court in

the case of Yuvraj vs UOI (2009) 315 ITR 84 (Bom.) held as

under:-

“that from the perusal of the order one found no application of mind on the part of the Asstt. Commissioner to the facts of the case, the issue to be dealt with and the reasons for passing the order. The value of the land was not determined by the revenue. The issue relating to capital gain or casual income was also not addressed by the revenue. In the light of the same, in the facts of the case, the Assessing Officer was justified in issuing the notice under section 148. The Asstt. Commissioner did not apply his mind and failed to record good and proper reasons for passing the order. In the facts of the case, one did not find mere change of opinion in recording reasons for issuing notice under section 148 by the Assessing Officer. Likewise, Hon'ble Apex Court in the case of Raymond

Woollen Mills Ltd. vs Income Tax Officer (1999) 236 ITR 34

(Supreme Court) held that the Supreme Court had only to see

whether there was prima facie some material on the basis of

which the Department could reopen the case. The sufficiency

66 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 or correctness of the material was not a thing to be considered

at this stage. The Supreme Court could not strike down the

reopening of the case in the facts of the instant case. It would

be open to the assessee to prove that the assumption of facts

made in the notice was erroneous. The assessee might also

prove that no new facts came to the knowledge of the ITO after

completion of the assessment proceeding. The Supreme Court

was not expressing any opinion on the merits of the case. The

questions of fact and law were left open to be investigated and

decided by the assessing authority. The assessee would be

entitled to take all the points before the assessing authority.

The appeals were dismissed.

7.30. The Hon'ble Jurisdictional High Court in the case of Jet

Airways (I) Ltd .331 ITR 236(Bom) held as under:

“Explanation 3 to section 147 of the Income-tax Act, 1961, was inserted by the Finance (No. 2) Act of 2009, with effect from April 1, 1989. The effect of the Explanation is that even though the notice that has been 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, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of

67 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 the proceedings. 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 those words as being conjunctive and cumulative. It is of some significance that 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. Evi-dently, what Parliament intends by use of 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. 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 render the substance and core nugatory. Section 147 has this 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 which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a notice under section 148 would be necessary in the event of challenge by the assessee. 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

68 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 or recomputation, the Assessing Officer has to serve on the assessee a notice 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, 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, he may none the less, 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.” The Hon'ble High Court while coming to the aforesaid

conclusion relied upon the decision from Hon'ble Rajasthan

High Court in the case of CIT v. SHRI RAM SINGH [2008] 306

ITR 343 (Raj) and also considered following decisions:

• CIT v. Atlas Cycle Industries [1989] 180 ITR 319 (P&H) • CIT v. Shri Ram Singh [2008] 306 ITR 343 (Raj) • CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 • (SC) Jaganmohan Rao (V.) v. CIT/EPT [1970] 75 ITR 373 • (SC) Travancore Cements Ltd. v. Asst. CIT [2008] 305 ITR 170 (Ker) • Vipan Khanna v. CIT [2002] 255 ITR 220 (P&H)

69 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 7.31 Hon'ble Apex Court in the case of ACIT vs. RAJESH

JHAVERI STOCK BROKERS P. LTD. 291 ITR 500 (Supreme

Court) held as under:

“Under the scheme of section 143(1) of the Income-tax Act, 1961, as substituted with effect from April 1, 1989, and prior to its substitution with effect from June 1, 1999, what were permissible to be adjusted under the first proviso to section 143(1)(a) were : (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly (iii) those claims which were, on the basis of the information available in the return, prima facie inadmissible, and were to be rectified/allowed/dis-allowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts and documents, either in allowing or in disallowing deductions, allowance or relief. Though technically the intimation issued was deemed to be a demand notice under section 156, that did not preclude the right of the Assessing Officer to proceed under section 143(2) : that right is preserved and not taken away. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted. During the period between April 1, 1998, and May 31, 1999, sending of an intimation was mandatory. The legislative intent is very clear from the use of the word “intimation” as substituted for “assessment” that two different concepts emerge. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a) no addition which is impermissible by the information given in the return could be made by the

70 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Assessing Officer. The intimation under section 143(1)(a) cannot be treated to be an order of assessment. Under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. It cannot therefore be said that an “assessment” is done by them. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156 for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. Nothing more can be inferred from the deeming provisions. Therefore, there being no assessment under section 143(1) (a), the question of change of opinion does not arise. The expression “reason to believe” in section 147 would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is “reason to believe” but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. ITO v. SELECTED DALURBAND COAL CO. P. LTD. [1996] 217 ITR 597 (SC) and RAYMOND WOOLLEN MILLS LTD. v. ITO [1999] 236 ITR 34 (SC) followed.

71 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 Taxing income escaping assessment in the case of an intimation under section 143(1)(a) is covered by the main provision of section 147 as substituted with effect from April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by the main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143(1) has been issued.

7.32. If the material available on record and the judicial

pronouncements discussed hereinabove are kept in

juxtaposition with the facts of the present appeal, we find that

the Ld. Assessing Officer was genuinely of the view that

income chargeable to tax has escaped assessment as the

assessee could not prove the genuineness of the transactions

for purchasing fish and even the assessee did not appear

before the Ld. Assessing Officer and even respond to the

notices served upon the assessee and were issued u/s 147,

143(2) and 142(1) of the Act. While coming to a particular

conclusion, the Hon'ble Apex Court in the case of Rajesh

Jhaveri Stock Brokers ((supra)), distinguished the decision

from Hon'ble Gujarat High Court taken in ADANI EXPORTS v.

DEPUTY CIT (ASSESSMENT) [1999] 240 ITR 224 (Guj) by

72 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 holding that the Assessing Officer had jurisdiction to issue

notice under section 148 for bringing to tax income escaping

assessment in an intimation under section 143(1)(a) on the

ground that the claim for bad debts by the assessee was not

acceptable as the conditions for allowance specified in section

36(1)(vii) and (2) were not fulfilled. The Hon'ble Apex Court

reversed the decision of Hon'ble Gujarat High Court in

RAJESH JHAVERI STOCK BROKERS P. LTD. v. ASST. CIT

[2006] 284 ITR 593 and also considered the decisions in

Adani Exports v. Deputy CIT (Assessment) [1999] 240 ITR 224

(Guj), Apogee International Ltd. v. Union of India [1996] 220

ITR 248 (SC), Central Provinces Manganese Ore Co. Ltd. v. ITO

[1991] 191 ITR 662 (SC), (ITO v. Selected Dalurband Coal Co.

P. Ltd. [1996] 217 ITR 597 (SC), Raymond Woollen Mills Ltd. v.

ITO [1999] 236 ITR 34 (SC). In the present appeal, the return

filed by the assessee was processed under section. 143(1) of

the Act and on the basis of information received from

Investigation Wing and consequent search carried out in the

cases of Bhawarlal Group, re-opened the assessment under

section. 147/148 of the Act having reasonable belief that

73 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018 income chargeable to tax has escaped assessment, therefore,

totality of facts available on record, clearly indicates that there

was reasonable belief with the Assessing Officer that income

chargeable to tax had escaped assessment. Consequently, so

far as reopening is concerned, in the light of foregoing

discussion, we do not find any infirmity in the conclusion of

the Ld. Commissioner of Income Tax (Appeal), thus, this

ground of the assessee is devoid of any merit, therefore,

dismissed in both the cross-objections.

Finally, the appeals of the Revenue and cross-objections

of the assessee are dismissed.

This Order was pronounced in the open court in the

presence of ld. representatives from both sides at the

conclusion of the hearing on 12/06/2018.

Sd/- Sd/- (G. Manjunatha) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 20/06/2018 SA-PS

74 Meridian Chem Bond P Ltd. & Meenakshi N Shah ITA No.7385 & 7082/Mum/2016 & C.O. No.86 & 85/Mum/2018

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai,