ACIT, NEW DELHI vs. M/S. BBN TRANSPORTATION PVT. LTD., NEW DELHI

per the settled law, renders the entire reassessment proceedings to

be a nullity. The established case laws of Calcutta Discount 1961 41

ITR 191(SC) and ITO v. Lakmani Mewal Das, 1976 103 ITR 437 (SC)

were cited in support, amongst others.

6.1 Per the Ld. A.R., the ‘reasons recorded’ in the present

cases cannot be the basis on which any such ‘reason to believe’ could

be arrived at which would even prima facie show that the share

capital or share premium received by the assessees for the AYs under

appeal was not genuine. Per the Ld. A.R., the A.O. must have in his

possession specific information or material to show that the

particular transactions of the assessees were not genuine or

fictitious. It was submitted that this specific information was,

however, absent in the cases at hand, thereby rendering the entire

reassessment/s to be in the nature of fishing and roving enquiries,

based solely on ‘borrowed satisfaction’ drawn from the statement of

Shri B.S. Bisht recorded by the Investigation Wing. The Ld. AR

32 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

submitted that the same is impermissible in law in light of the

several cited decisions of the Hon’ble jurisdictional Delhi High Court.

6.2 On the violation of the Principle(s) of Natural Justice, the

Ld. A.R. submitted that while making the impugned additions, the

A.O. has primarily relied upon the Reports of Inspectors who had

been deputed to conduct field enquiries in order to verify the

genuineness of the investor companies. These reports formed the

basis of the Assessment Orders. It was submitted that these reports

were, however, based on an investigation conducted behind the back

of the assesses and were never put to the assessees for rebuttal, as is

the assessees’ right u/s 142(3) of the Act. Furthermore, going by the

‘Reasons Recorded’, neither had the statement of Shri B.S. Bisht

been provided to the assessees nor was any opportunity to cross

examine him been given as is mandated by law by the decision of the

Hon’ble Apex Court in Andaman Timber Industries v. CCE [2015] 62 taxmann.com. Per the Ld. A.R., the said violation of Natural Justice,

therefore, renders the Assessment Orders void ab initio.

6.3 On merits, the Ld. A.R. defended the impugned orders of

the Ld. CIT (A) by submitting that the assessees had furnished

33 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

detailed documentary evidences being the party names, PAN and ITR

acknowledgements, bank statements and confirmations of the

investors in order to duly discharge the onus cast upon them u/s 68

since as per the law laid down in Lovely Exports (supra), which is the

applicable law for the AYs in question, the assessees are not required

to prove the source of source of the share subscribers. The Ld. AR

drew our attention go the voluminous evidences filed which forms

part of Paper Book Part 2A, 2B and 2C filed by each of the assessees.

6.4 Per the Ld. A.R., the Ld. CIT D.R. has not pointed out to

any portion of the Assessment Orders wherein the A.O. has disproved

these evidences brought on record since all that the A.O. has done is

to rely on the Inspectors’ Report– which as per law is insufficient in

itself to make/sustain an addition u/s 68 of the Act. In support,

reliance was placed on the decisions of Pr. CIT Vs. Rakam Money

Matters (P) Ltd. (2018) 94 CCH 333 (Del HC), CIT v M/s Orchid

Industries Pvt. Ltd. in ITA No. 1433 of 2014 (Bom HC), amongst others.

6.5 With respect to the Inspectors’ Report cited in the

Assessment Orders, the Ld. A.R. submitted that the Ld. CIT (A) was

correct in not relying on the same since these Reports are riddled

34 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

with inconsistencies. For example, the A.O. in the assessment orders,

stated that summons were sent to 41 investor companies (in case of

the three assessees) and postal replies were submitted by 39 investor

companies. This is erroneous, since the total investors of all the three

assessees put together are only 39 and, therefore, the figure of 41 is

fictitious. Further, if postal replies had been submitted by 39 investor

companies, which is, in fact, the total number of investors in all,

then how has the A.O. made an addition u/s 68 by holding that 19

Companies that were based in Mumbai and Guwahati were either not

served the summons or they never responded? Thus, per the Ld. A.R.

the Reports clearly cannot be relied upon to make any adverse

inference against the assessees.

6.6 The Ld. A.R. also submitted that the mere fact that the

investor companies did not have their own profit-making apparatus

or had reported meagre income did not ipso facto mean that the

investors had no creditworthiness. As per the decision of PCIT-1 Vs.

Ami Industries Ltd. [2020] 116 taxmann.com 34 (Bom),the investments

may be made from own funds available in share capital/reserves

account or out of borrowed funds and not necessarily out of taxable

35 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

income only, further the bank statements also evidence the sufficient

availability of funds of the creditors.

6.7 Our attention was next drawn to the decisions of the

Hon’ble Jurisdictional Delhi High Court in the cases of CIT-II v.

Kamdhenu Steel & Alloys Ltd. (2012) 19 taxmann.com 26 (Del),

Dwarkadhish Capital P. Ltd. 330 ITR 298 (Del HC) and CIT v. Winstral

Petrochemicals P. Ltd. 330 ITR 603 (Del) that have uniformly held that

the mere fact that the Inspector’s Report alleges the parties to be

non-existent at the given address would not give the Revenue a right

to invoke section 68 without additional material in support, which as

per the Ld. A.R. does not exist in these cases, since the impugned

additions have been made solely on surmises and conjectures,

without the Assessing Officer having brought on record any such

material to discharge the shifted burden of proof to refute the

evidences provided by the assessees.

6.8 Lastly, the Ld. A.R. drew our attention to the decisions

rendered by the Hon’ble Supreme Court, the Hon’ble jurisdictional

Delhi High Court and even the coordinate Bench of this Tribunal in

the case of group companies wherein similar additions u/s 68 on

36 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

strikingly similar facts & circumstances were deleted. These cases

are: - ACIT, CC-13 Vs. Supreme Placement Services (P) Ltd., ITA No. 5259/Del/2013 MANU/ID/0205/2021, - PCIT (Central)-1 Vs. Adamine Construction Pvt. Ltd., MANU/DE/1566/2018for A.Y. 2008-09 – SLP filed by the Revenue dismissed by the Hon’ble SC in PCIT (Central)-1Vs. Adamine Construction Pvt. Ltd., MANU/SCOR/42973/2018, - PCIT (Central)-1 vs. Adamine Constructions P. Ltd., [2018] 99 taxmann.com 44 (Delhi)for A.Y. 2009-10 – SLP filed by the Revenue was dismissed by the Hon’ble SC in PCIT (Central)-1 vs. Adamine Constructions P. Ltd., [2018] 99 taxmann.com 45 (SC).

6.9 Hence, per the Ld. A.R., for the aforesaid reasons, no

addition u/s 68 was called for in the case of the assessees.

7.0 Having heard both the parties and after duly considering

the submissions made by both sides, we are of the opinion that the

Cross Objections filed by the assessees should be adjudicated upon

first since the same challenge the very jurisdiction of the A.O. to

invoke 147/148 as well as his alleged violation of the Principle(s) of

Natural Justice. These issues thus strike at the very root of the

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matter and must be disposed of at the inception itself, even though

the appeals are of the Revenue.

7.1 With respect to the grounds/additional grounds taken in

the Cross Objections, we have carefully considered the same along

with the orders of the authorities below as well as the material and

the relevant provisions of the Income Tax Act. We also have gone

through the case laws relied upon by the Ld. A.R. Before deciding on

the issue as to whether the invocation of jurisdiction u/s 147/148

was valid or not, it is expedient to discuss the relevant provisions involved. The relevant portion of Sec. 147 of the Act reads as follows:

“147. 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 153referred to as the relevant assessment year):

38 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

…………….”

7.2 The crucial element that emanates from the reading of the

aforesaid provision is that the Assessing Officer should have ‘reason

to believe that any income chargeable to tax has escaped

assessment. The words ‘reason to believe’ and ‘escapement of income’

have been judicially interpreted by various courts to mean that the

reason for the formation of belief must have a rational connection

with the information received. Rational connection postulates that

there must be some direct nexus or live link between the material

coming to the notice of the income tax officer and the formation of

the belief that there has been escapement of income of the assessee

from assessment in the particular year. This proposition of law is well

encapsulated by the Hon’ble Supreme Court in the following

decisions:

- Calcutta Discount vs. ITO, 1961 41 ITR 191(SC): “37: The notices issued by the Income Tax Officer in the case before us undoubtedly fulfill conditions (2) and (3). Notices of reassessment were served before the expiry of eight years of the end of the relevant years of assessment. The Income Tax Officer

39 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

also recorded his reasons in the reports submitted by him to the Commissioner and the Commissioner was satisfied that they were fit cases for the issue of such notices. The dispute in the appeal relates merely to the fulfillment of the two branches of the first condition and that immediately raises the question about the true import of the expression "has reason to believe" in s. 34(1)(a). The expression “reason to believe” postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer: the forum of decision as to the existence of reasons and the belief is not in the mind of the Income Tax Officer. If it be asserted that the Income Tax Officer had reason to believe that income had been under assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. The expression, therefore, predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information.”

40 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

- ITO v. Lakmani Mewal Das, 1976 103 ITR 437 (SC): “As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time, we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”

- Sheo Nath Singh v. AACIT, 972 SCR (1) 175 (SC): “10:There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that

41 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

the conditions are satisfied does not exist or is not material or relevant to the belief required by the Section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.”

- S. Narayanappa and Ors. vs. Commissioner of Income Tax, Bangalore, AIR 1967 SC 523 : “3.......It is true that two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under s. 34 in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year. The first condition is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income-tax had been under-assessed. The second condition is that he must have reason to believe that such "under-assessment" had occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. 4. The belief must be held in good faith: it cannot be merely a pretence. To put it differently it is open to the Court to examine the question whether the reasons for the belief have a rational

42 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under s. 34 of the Act is open to challenge in a court of law.”

- Ganga Saran & Sons (P.) Ltd. v. ITO, [1981] 130 ITR 1 (SC): “6. ......... The important words under section 147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a ). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all

43 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

material facts and the notice issued by him would be liable to be struck down as invalid.”

- CIT vs. Lucas TVS Ltd., (2001) 249 ITR 306 (SC):

“If there is no failure on part of assessee to disclose fully and truly material facts, wrong interpretation of accounts by AO leading to relief cannot be a ground for reopening and, thus, cannot confer jurisdiction on AO. The reason for the formation of the belief must have a rational connection with the information received. Rational connection postulates that there must be direct nexus or live link between the material coming to the notice of the Income -tax Officer and the formation of the belief that there has been escapement of income of the assessee from assessment in the particular year because of his failure to disclose fully and truly material facts. It is to be borne in mind that it is not any and every material, howsoever vague and indefinite or distant remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.”

- CIT vs. Kelvinator India Ltd., [2010] 320 ITR 561 (SC):

“……..Hence after April 1, 1989, the Assessing Officer has the power to reopen an assessment, provided there is “tangible material” to come to the conclusion that there was escapement of

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income from assessment. Reason must have a link with the formation of the belief.”

7.3 Thus, we agree with the contentions raised by the Ld. A.R.

that the ‘reason to believe’ that income chargeable to tax has escaped

for the purposes of reopening assessment u/s 147 r/w 148 of the Act

cannot be based on suspicion, surmises, conjectures but must be

based on cogent and tangible material that establishes a causal

nexus between the information available and inference drawn by the

A.O.

7.4.0 A perusal of the ‘Reasons Recorded’, reproduced elsewhere

in this order, in the case at hand makes it evident that the broad

grounds which were relied upon by the A.O. for reopening of the

assessment proceedings are:

(i) That a survey was conducted on 03.03.2010 at the corporate office of the Assessee-Company by the officers of the Investigation Wing of the Income Tax Department. (ii) That statement of one Shri B.S. Bisht, Assistant Secretarial Officer with M/s. BSL was recorded wherein he purportedly stated as under: - that several companies were being run from the said premises

45 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

- that the main companies of the group were M/s. Bhushan Steel Ltd. & M/s. Bhushan Energy Ltd. and the remaining companies were allegedly paper companies not doing any actual business. - that the directors of the companies run from the said premises were generally employees of the group companies.

7.4.1 Based on the same, the A.O. concluded that the share

capital and share premium received by the assessees were

‘questionable’ in nature and he concluded that he had ‘reasons to

believe that the assessees were just paper companies established for

introducing money from unexplained sources.

7.5 The aforementioned ‘Reasons Recorded’ neither discuss

nor bring on record any specific information showing that any

particular transactions made between the assessees and the

concerned investors were not genuine/fictitious. Thus, it is apparent

from the ‘Reasons Recorded’ itself that there is no specific

information/material in the possession of the A.O. to back his claim

that the share capital or share premium received by the assessees for

the Assessment Years under appeal was not genuine/ bogus. As

46 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

encapsulated in the preceding decisions of the Hon’ble Apex Court,

for the proceedings u/s 147/148 to be held to be jurisdictionally

valid, the A.O. must have in his possession specific information or

material to show that the transactions of the assessees were not

genuine/fictitious to establish a live link/causal nexus between the

material/evidence available on record and the assessee’s escaped

income. However, in the present case, the ‘Reasons Recorded’ do not

in any manner whatsoever state that the information received from

the Investigation Wing or that the recorded statement of Shri B.S.

Bisht points towards the share capital and/or share premium

received by the assessee companies to be non genuine/bogus.

7.6 However, the A.O in the case of all the three assessees,

has sought to draw conclusion based on the statement of Shri B.S.

Bisht (recorded by the Investigation Wing) even when no specific

allegations were made by him vis-à-vis the non genuineness of the

share capital or share premium received by the assessee companies

from the share applicants. It is also a matter of record that this

witness was never confronted to the assessees for the purposes of

47 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

cross-examination. Further, as observed by the Ld. CIT (A) in the

impugned orders, there is nothing in law to prohibit several

companies from having their registered offices at the same addresses

or for companies to share common infrastructure to economize costs

and such facts should not be interpreted in an adverse manner to

erroneously assume jurisdiction u/s 147 of the Act, without first

meeting the ingredients set out in the section itself.

7.7 In view of the above, we are of the considered opinion that

the A.O. had no specific information and/or material in his

possession to even arrive at ‘reason to believe’ that the share capital

or share premium received by the assessees from any of the

shareholders for the Assessment Years in question were not genuine

and/or bogus and/or represented assessees’ own unaccounted

funds. The A.O.’s assumption of jurisdiction u/s 147/148 of the Act

is therefore held to be illegal, erroneous and impermissible in law,

rendering all subsequent proceedings to be non est.

7.8 Thus, on identical facts and identical reasoning, all the

three Cross Objections challenging the jurisdiction of the A.O. to

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initiate the Sec.147/148 proceedings are allowed in favour of the

Assessees.

7.9 We shall now proceed to adjudicate the next Cross

Objection taken by the assessees, which is in respect to the violation

of Principles of Natural Justice since the enquiries made by the

Department and the subsequent Inspector Reports which formulated

the foundation of the impugned addition(s) were never confronted to

either of the assessees at any stage of the reassessment proceedings.

On a perusal of the Assessment Orders, it is amply clear that the

A.O., primarily, had relied upon the Inspectors Reports that was

based on the field enquiries conducted to ascertain the genuineness

of the investor companies. As is made evident from the Assessment

Orders itself, the Inspectors, vide their respective Reports, have

stipulated that upon enquiry, either the concerned parties were not

found to be existing at the given address, or the addresses were not

found, or the premises was found locked. The results of such field

enquiries were not brought to the knowledge of the assessees prior to

the passing of the Assessment Orders. This fact, when pointed out by

49 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

the Ld. A.R. has not been disputed by the Ld. CIT D.R. also during

the course of hearing before us. The enquiries were, thus, conducted

by the A.O. behind the back of the assessees. These enquiries were

then utilized for the purpose of making the additions without

confronting the same to the assessees, which as per Section 142 of

the Income Tax Act, is impermissible in law.

7.10 To elaborate, Section142 of the Act provides for the

procedure to be followed by the A.O. while making the requisite

enquiries before concluding an assessment. Section 142(1) of the Act

empowers the A.O. to call for information/material from the

assessee. Section142 (2) empowers the A.O. to make such enquiry as

may be necessary for the purpose of such assessment. Section 142

(3) mandates that the information/evidence collected pursuant to the

enquiry conducted u/s 142(2), which is proposed to be utilized

during the assessment, shall first be put to the assessee to provide

him/her with an opportunity of being heard before the same is even

utilized to make an addition/disallowance u/s 143(3). There is, thus,

a specific procedure that must be followed by the A.O. while making

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an assessment under the Income Tax Act. Section 142 (3) uses the

word ‘shall’, thus, rendering the same to be by no means

discretionary upon the whims and fancies of the A.O.

7.11 Applying the law to the case at hand, it is evident that the

Inspector Reports, that had been relied upon by the A.O., have been

reproduced in length for the first time in the Assessment Orders only.

The A.O.,by failing to confront the assessees with the evidence he

had gathered u/s 142(2) Act, has, therefore, erroneously skipped the

mandatory intermediary step prescribed u/s 142(3) of the Act. Thus,

when the A.O. has directly gone on to pass the Assessment Orders

u/s 147/143(3) of the Act to make the impugned additions u/s 68,

the same is in direct violation of the procedure of enquiry prescribed

in the Statute that inherently encompasses the Principle(s) of Natural

Justice. We derive support to our line of reasoning from the decision

of the coordinate Bench of the Hon’ble Kolkata Tribunal in M/s.

SPML Infra Ltd. vs. DCIT, ITA No. 1228/Kol/2018 wherein it has been

held as under:

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“14. To conclude: We note that none of the statements were recorded by the assessing officer of the assessee company, and no opportunity for cross examination has been provided to the assessee company. The mandate of law to conduct enquiry by the Assessing Officer on due information coming to him to verify authenticity of information was not done as per section 142 of the Act.Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. This is because section 142(2) mandates any such material adverse to the facts of assessee collected by AO u/s 142(1) has to be necessarily put to the assessee u/s 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through the process of assessment u/s 143(3) of the Act.”

7.12 We also draw support from the judgment of the Hon’ble

Apex Court in Swadeshi Cotton Mills v. Union of India, AIR 1981 SC

818, where the Hon’ble Supreme Court has clearly held that “Where

authority functions under a statute and the statute provides for the

observance of the principles of natural justice in a particular manner,

natural justice will have to be observed in that manner and no other.

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No wider right than that provided by the statute can be claimed nor

can the right be narrowed."

7.13 We further observe that the statement of Shri B.S. Bisht as

stated in the ‘Reasons Recorded’ has not been utilized by the A.O. as

the basis for passing the Assessment Orders. Therefore, we are of the

view that the question of whether this statement had been provided

to the assessees for cross examination or not, is not required to be

gone into. However, it would not be out of place to hold that for the

reasons specified above, even the statement of Shri B.S. Bisht

recorded behind the back of the assessees could not unilaterally be

used by the A.O. without testing the same on the anvil of cross

examination as is now the settled law per the judgment in Andaman

Timber Industries v. CCE [2015] 62 taxmann.com 3.

7.14 Since the results of the enquiries conducted by the A.O.

u/s 142(2) of the Act have not been confronted to the assessees, we

are inclined to agree with the Ld. A.R. that there has been a violation

of the Principle(s) of Natural Justice implied within Section142 (2) of

the Act and such statutory non-compliance vitiates the entire

assessment proceedings, therefore, rendering it to be null and void.

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Thus, the Cross Objection taken on the violation of the Principle(s) of

Natural Justice is also allowed in favour of the assessees.

8.0 Considering the totality of the aforesaid factual and legal

position, we have already quashed the proceedings under Section148

of the Act in the case of all three assessees for being bereft of

jurisdiction. As a consequence, the issues on merits, thus, no longer

survive. However, for purely academic reasons, we seek to dispose of

the Departmental Appeals.

9.0 Coming to the Grounds of Appeal filed by the Department,

in the said Grounds, the Department has on merits, sought to

challenge the impugned orders of the Ld. CIT (A), who, as per the

Department, has erred in deleting the impugned additions made by

the A.O. u/s 68 of the Act. Before us, the Ld. CIT D.R. has submitted

that the Ld. CIT (A) has erred in summarily deleting the impugned

additions made by the A.O., without appreciating the true facts of the

case, which is that the identity, genuineness of the transactions and

the creditworthiness of the investors had not been established by the

assessees to the satisfaction of the A.O., who had in turn brought

sufficient material on record that casts doubt on the genuineness of

54 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

the transactions. Thus, as per the Ld. CIT D.R., the assessees, by

merely submitting routine documents, have not discharged the initial

burden of proof that vested on them u/s 68 of the Act. The Ld. CIT

DR has further submitted that when any such doubt on the

genuineness of the investor companies exists in the mind of the A.O., then the law laid down in Lovely Exports (supra) will not apply since

the said decision of the Hon’ble Supreme Court has been

distinguished in favour of the Revenue by several decisions of the

Hon’ble jurisdictional Delhi High Court such as CIT vs. Navodya

Castles, [2014] 50 taxmann.com 110, CIT vs. Sophia Finance Ltd., 205

ITR 98 (Del.) (F.B.), N.R. Portfoilio Pvt. Ltd., 87 DTR 0162 (Del) and 96

DTR 0281 (Del), MAF Academy Pvt. Ltd., 361 ITR 02858 (Delhi), etc. –

which, therefore, means that in the instant cases, the assessees

ought to have also proven the source of source of the investor

companies to establish their genuineness.

9.1 The Ld. A.R., on the other hand, has submitted that all the

documents establishing the identity, genuineness and

creditworthiness of the transactions had been submitted before the

A.O. who has failed to refute them in any manner. It was submitted

55 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

that is now settled law that pre-01.04.2013, the assessees are

required to only prove the identity, genuineness and creditworthiness

of the transactions to discharge their initial burden on proof under

Section 68. It has also been argued that there is no requirement in

law for the assessees to prove the source of source of the investors.

In support, the decisions of the Hon’ble Bombay High Court in Ami

Industries (supra), the Hon’ble Delhi High Court in CIT vs.

Dwarakadhish Investment P. Ltd., [2011] 330 ITR 298, the decision of

the Hon’ble Guwahati High Court in Nemi Chand Kothari vs. CIT,

[2004] 136 Taxman 213 (Gau), and the decision of the Hon’ble

Gujarat High Court in DCIT vs. Rohini Builders, 256 ITR 360 (Gujarat)

were relied upon. It has been contended that when such evidences

have remained un-refuted by the A.O., the question of making an

addition u/s 68 of the Act does not arise. Further, per the Ld. A.R.,

reliance on the Reports of the Inspectors without first putting the

same to the assesseea for rebuttal u/s 142(3) of the Act is

impermissible in law. Even otherwise, the said Reports are riddled

with inconsistencies that question their very legitimacy. Therefore,

when no such adverse statement and/or evidence exists on record

56 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

that show that the transactions undertaken by the investors

companies were bogus, then the additions u/s 68 do not survive for

the simple reason that the A.O. has failed to discharge the burden of

proof that has been shifted unto the Department.

10.0 We have duly considered the submissions made by both

sides, along with the orders of the tax authorities below as well as the

material and the relevant provisions of the Income Tax Act. We also

have gone through the case laws relied upon by the Ld. CIT D.R and

the Ld. A.R. in support of their contentions. It has not been disputed

that the assessees have filed their original returns of income wherein

all the particulars of the investments made by investor companies of

Kolkata, Mumbai, Guwahati and Delhi have been disclosed before

the Department. Further the assessees had also produced the copies

of the Confirmations, Bank Statements and the Income Tax Returns

of all the investor companies before the A.O. during the course of the

reassessment proceedings. These documents form part of the Paper

Book 1B, 2B and 3B filed in each of the Appeals by the assessees. It

is also not in dispute that the A.O., while passing the Assessment

Orders, did not raise any doubts with respect to the documentary

57 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

evidences submitted before him by the assessees. It is again not in

dispute that all the investments (in the form of share capital and

share premium) have been duly made via banking channels where

the investor companies have shown sufficient balances in their bank

accounts to make such an investment in the assessee companies.

Further, upon a perusal of the bank statements brought on record by

the assessees, it is also evident that no cash was found to have been

deposited in the bank accounts of the investor companies. All the

investor companies (in the case of all the three Assessees) are

registered companies and are assessed to tax also, as is evident from

the bank statements and/or the ITR Acknowledgments. Therefore,

the identity, genuineness of the transaction and the creditworthiness

of the investor companies have been proved by the assessees and

they have successfully discharged the initial burden of proof that

vested on them u/s 68 of the Act. The A.O. has nowhere, in the

Assessment Orders, disputed this information/material submitted by

the assessees and has merely sought to rely on the Reports prepared

by the Inspectors.

58 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

10.1.0 We shall first deal with the contents of these field

enquiries/ Reports conducted by the A.O. through Inspectors. A

perusal of the Reports quoted in the Assessment Orders brings to

light that in the case of M/s BBN Transportation Pvt. Ltd, there

existed 10 Mumbai based parties and 1 Kolkata based party. In the

case of M/s Goldstar Cement Pvt. Ltd, there existed 4 Mumbai based

parties, 5 Kolkata based parties and 1 Delhi based party. In the case

of M/s Sur Buildcon Pvt. Ltd., there existed 4 Mumbai based parties,

12 Kolkata based parties and 2 Guwahati based parties. The total

number of investors across all three assesseess for the respective

Assessment Years is therefore 39, with respect to which, as observed

above, the assessees have submitted the requisite evidences

establishing the Identity, Genuineness and Creditworthiness of the

transactions. Now, the A.O., without questioning the material

submitted by the assesseess, has placed primary reliance on these

Reports to put forth the argument that the parties are not genuine.

The question that requires answer first is whether these Reports can

even be relied upon before the contents of the same are gone into. We

have earlier held that the since the said Reports had not been

59 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

confronted to the assessees u/s 142(3) of the Act, they could not

have been utilized by the A.O. behind their back to pass the

Assessment Orders under Sec. 147/143(3) of the Act. The reliance on

the same by the A.O. is, therefore, rendered nugatory for the purpose

of making a 147/143(3) assessment. However, even if we are to

assume that these Reports could have been utilized, then:

10.1.1 A perusal of the Kolkata based Reports show a

glaring inconsistency emanating there from, i.e., they all identically

state that “in all the above 41 cases where summon was issued

nobody appeared on behalf of any of the company, only submission

were received through dak in the 39 cases which create a doubt on the

identity of the assessee.” How and in what context has this figure

even been arrived at has not been reconciled/explained by the Ld.

CIT D.R. during the hearing. As rightly pointed out by the Ld. A.R.,

there are, in fact, a total of 39 parties across all three assessees and

15 Kolkata based parties in total, meaning that the figures specified

in the Kolkata based Reports is erroneous and has gone unexplained.

Any reliance on the same, is, therefore, questionable. In fact, had the

said Kolkata based Reports been confronted to the assessees u/s 142

60 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

(3) of the Act, such inconsistencies would have been pointed out and

rebutted by the assessees during the course of the assessment

proceedings itself. However, since the same had not been done by the

A.O., the assessees while in appeal, had to explain that all evidences

establishing the 3 ingredients of Section 68 had been furnished,

where all the Kolkata based parties had responded via post, citing

their confirmations with documentary evidences in support – none of

which had been refuted by the A.O.

10.1.2 Furthermore, a perusal of the Kolkata based Reports,

shows that the same accepts that the bank statements evidencing

the receipt of payment via cheque had been produced by the

assesses. However, the Reports have also stated that “the assessee

has not enclosed the bank statement showing the source of fund for

share application money” meaning that per the Department, the

source of source was also required to be proved. However, as already

opined, since the bank statements of all the investor companies

evidence a sufficiency of funds to make the respective investments in

the assessee companies, the creditworthiness already stands proved

in light of the decision of Ami Industries (supra). Further, since the

61 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

Assessmment Years involved are all pre-AY 2013-2014, we are

inclined to hold in support of the submissions and case laws cited by

the Ld. A.R. which is that in order to discharge the initial onus of

proof u/s 68 prior to 01.04.2013, the assessees need not be required

to prove the source of source of such investors.

10.1.3 In respect of the one investor party from Delhi in the

case of M/s Goldstar Cement Pvt. Ltd., the A.O. has not conducted

any such enquiry u/s 142 (2) of the Act. Therefore, without

conducting further enquires in order to rebut the evidences

submitted by the assessees, we hold that the A.O. could not have

added back the said investments received from the said Delhi party.

10.1.4 Moving on to the Reports obtained from Mumbai and

Guwahati, a reading of the same makes it evident that it is not the

case of the A.O. that all the parties were not existing at the specified

addresses. The Reports provide a mixed bag of conclusions. There

were only in 5 cases of the Mumbai parties and 2 cases of the

Guwahati parties where the addresses not found / not existing. In all

other cases, either the addresses of the investors were found to be

incomplete, or the offices of the investors were locked, or the

62 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

summons had been served and responded to, or the summons

though served had not been responded to. Based on the above, we

opine that the A.O. has erred in utilizing the Mumbai and Guwahati

Reports in a blanket fashion to add back the entire share capital and

share application money received from all these investors as bogus

credits u/s 68 of the Act.

10.1.5 The Inspector Reports of Guwahati and Mumbai

could have been utilized by the A.O. against the assessees vis-à-vis

those investor parties that had been found to be non-existent at the

given address contingent to the A.O. having confronted the assessees

with the said Inspector Reports. Had the said Reports been

confronted to the assessees, the discrepancies could have been

reconciled. However, as already held above, these Reports had been

recorded and relied upon by the A.O. behind the back of the

assessees, an act that is in direct violation of Sec.142 (3) of the Act.

10.2 Moving on to the submissions of the Ld. CIT - D.R. who

has stated that the assesses must prove the ingredients of identity,

genuineness and creditworthiness of the credit entries to the

satisfaction of the A.O. and, where, if any doubt on the genuineness

63 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

of the investor companies exits in the mind of the A.O., then even the

source of source must be established, we observe that the critical

difference here is that these Inspector Reports have remained un-

confronted to the assessees. Had the same been confronted u/s 142

(3) of the Act and to which had the assesssess not offered any

explanation, the burden of proof would had shifted back unto the

assessees after the A.O. would have brought on record that the initial

onus could not have been said to be discharged by the assessees. It

is in that context, that the various decisions cited by the Ld. CIT -

D.R. would have found relevance, requiring their contextualized

application to the facts of this present case.

10.3 We further observe that in the list of cases cited by the Ld.

CIT - D.R., the cases pertaining toSec.147/143(3) assessments have

no applicability to the present facts since in those cases, the Reasons

Recorded clearly specify that the information available on record

(received from the Investigation Wing) shows that the assessees

therein had received bogus accommodation entries from the

respective parties. However, as already observed in the present

Appeals, no such information/statement has been cited in the

64 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

Reasons Recorded that establish any such material even existing

with the A.O. that allege the share capital and share premium

received by the three assessees to be bogus.

10.4 We also observe that the cases of the Hon’ble jurisdictional

High Court, as cited by the Ld. CIT - D.R., have all propounded the

general and settled position of law vis-à-vis the shifting burden of

proof u/s 68 of the Act and based on the specific sets of facts and

circumstances in each case therein, the Hon’ble Delhi High Court

has held the case to be in favour of a particular party (the Revenue)

or has in some cases remanded the matter for the want of further

investigation.

10.5 In the captioned appeals before us, on merits, we have

already observed that the assessees have discharged the initial

burden of proof, wherein the documents submitted by the assessees

have remained un-refuted by the A.O. The Ld. CIT - D.R. has

submitted that the documents were a façade since the Inspector

Reports draw a very different picture and cast a shadow on the

genuineness of the investors. Our views on the veracity of these

Reports and why the same could have not been utilized by the A.O.

65 ITA Nos. 6174, 6176 & 6177/Del/2013 C.O. Nos.258,260 &261/Del/2015 Sur Buildcon Pvt. Ltd. & Ors vs. ITO

behind the back of the assessees have already been expressed. Thus,

in light of the aforesaid findings, the grounds taken by the

Department in the aforesaid Appeals are dismissed in favour of the

assessees.

11.0 In the final result, all the three Cross Objections filed by

the captioned assesses are allowed whereas all the three appeals by

the Department are dismissed.

Order pronounced on 15th July, 2021 [ Sd/- Sd/- (PRASHANT MAHARISHI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 15/07/2021 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI