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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue against the order dated
23.03.2016 of Commissioner of Income Tax (Appeals)-11, Chennai, in ITA
No.132/2014-15/CIT(A)-11 for the Assessment Year 2008-09 passed
u/s.143(3) of the IT Act, 1961. All the grounds of appeals are related to
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the addition made under Section 68 of the Income Tax Act 1961 (in short
‘the Act’) on account of share application money received in excess of the
authorized capital. The Revenue has challenged the order of the CIT(A)
on the following grounds:
The order of the Ld.CIT(A) is erroneous in law and facts and opposed to the facts and circumstances of the case. 2.1 The Ld.CIT(A) erred in erred in deleting the addition u/s 68 on share application money received in excess of authorized share capital. 2.5 The Ld.CIT(A) ought to have seen that the investing companies are KolKatta based shell companies and hence the investment is only cash credit which could not be explained and taxable u/s 68 of the IT Act and the assessment was re-opened by issue of notice u/s 148 of the IT Act on 30.03.2016. 2.6 It is submitted that information were received from the Investigation Wing of Kolkata along with a list of bogus/paper companies. Some of the assessee's Investors are also listed in that list. Based on the information, case has been re- opened. Hence, it is requested that the issue may be remitted back to the Assessing Officer for fresh consideration. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld.CIT (A) may be set aside and that of the Assessing Officer restored.
2.0 The assessee filed Cross Objections and raised the following
grounds:
The CIT (A) has erred in upholding the reopening of the assessment u/s. 147. 2. CIT (A) has failed to appreciate the fact that the Assessing Officer (AO) has not dealt with the objection raised by the respondent during the course of reassessment proceedings with a speaking order, though the same was raised before him. 3. The CIT(A) has failed to adjudicate on this. 4. The CIT (A) ought to have followed the decision of the Hon’ble Supreme Court in GKN Drive Shaft 259 ITR 19. 5. The CIT (A) has failed to appreciate that the reason recorded by the AO has no tangible material to form reason to believe that income has escaped the assessment though the same was raised before him. 6. The CIT(A) has failed to adjudicate on this. 7. The CIT (A) ought to have followed the Hon’ble Supreme Court in M/s.Kelvinator of India Ltd., 328 ITR 561 (SC). 8. The decisions relied on by the CIT (A), Praful Chunilal Patel vs M.J. 9. Makwana/Assistant Commissioner of Income tax 236 ITR 832 (GUJ) and Venus Industrial Corporation VS Assistant Commissioner of Income tax 236 ITR 742.(P&H) are not applicable to the facts of the case. 10. Ground No. 2.5 and 2.6 of the grounds of appeal filed by the appellant ought to be dismissed in limine.
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For these and other grounds that may be adduced at the time of hearing it is prayed that the reopening of the assessment u/s 147 may be rendered as void abinitio. 3.0 The assessee company filed its return of income for the A.Y 2008-09
on 26.09.2008 admitting total loss of Rs.18,27,l37/-. The case was
selected for scrutiny and the assessment was completed u/s.143(3) by an
Order dated 29.12.2010 determining total income of Rs.13,30,748/- after
making certain additions. Subsequently, the assessment was reopened
u/s.147 by issue of notice u/s.148 dated 30.03.2013 and the assessment
was completed by making addition of Rs.4,95,00,000/- u/s.68 of Income
tax Act. The assessee went on appeal before the CIT(A). The Ld.CIT(A)
upheld the notice issued u/s 148 and deleted the addition made by the
AO, hence the Department is in appeal before us. The assessee also filed
cross objections as discussed in para-2 above.
4.0 The Ld.DR, Shri Shiva Srinivas appearing for the Revenue, argued
that the assessee company received the share application money from
suit the case companies of Kolkata. The Investigation Wing of Kolkata
has made detailed enquiries regarding the bogus share capital entries
accommodated by the suit case companies in Kolkata and sent the
information to the assessing officers for taking further action. The
assessee also has received the share application money from some of the
bogus companies listed in the Investigation Wing of the Kolkata. The Ld.
D.R. further argued that now it is well known fact that Kolkata is
operating as a hub of entry operators for pumping bogus share capital
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throughout out the nook and corner of the country. Such companies
operate from suitcase without having any capital base or net worth of
their own by routing the unaccounted money through many layers to
reach the beneficiary. This fact has been established by Investigation
Wing and the SEBI also. The Ld.DR argued that the assessee has not
furnished any credible evidence in respect of transactions showing that
the share capital received by the company was genuine. Since, the
assessing officer has received tangible information regarding the bogus
share capital, the assessment has been reopened under Section 148 to
examine whether the share capital received was genuine or not and the
assessing officer is not barred from examining the genuineness and
credit-worthiness of share capital received by the assessee company by
re-opening the assessment. There was no evidence having furnished the
confirmations of share capital subscribed as per the assessment order.
The Ld.CIT(A) has deleted the addition made by the AO holding that all
the Investors are credit worthy which was not born out of the facts from
the Assessment Order. The Ld.CIT(A) is incorrect in stating that the
assessee has furnished the complete details regarding the genuineness,
credit worthiness and identity of the share applicants. According to the
Ld.DR the addition made u/s.68 relating to the share application money
should have been confirmed by the Ld.CIT(A).
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5.0 On the other hand, the Authorized Representative of the assessee
argued that the assessee has submitted all the details regarding share
application money received by the company in the original assessment.
The assessing officer has examined the share application money with
respect to genuineness, creditworthiness and identification of the
subscribers of share application money and passed the original
assessment order on 29.12.2010. Since the assessing office has passed
the original assessment after verification of the share capital, reopening
of completed assessment on the same fact is mere a change of opinion
and cannot be held to be a valid reason for re-opening of the assessment.
Further, it was submitted by the Authorized Representative that in
response to the notice issued under Section 148, the assessee has
submitted a letter raising the objections for reopening the assessment
and requesting to drop the proceedings under Section 148. The assessing
officer has not passed any speaking order disposing the objections as per
the law laid down by the Hon’ble Apex Court in the case of GKN Drive
Shaft reported 259 ITR 19.
6.0. In the rejoinder Ld.DR submitted with regard to not passing the
speaking order disposing the objections on receipt of the letter from the
assessee, the assessing officer allowed Authorized Representative of the
assessee to examine the assessment records and did not raise any
objection. Further the assessee has participated in the subsequent
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assessment proceedings and submitted the necessary information.
Therefore non-issue of speaking order by the assessing officer should not
make the assessment invalid.
7.0 We heard the rival submissions, perused the material available on
record. In this case the assessing officer reopened the assessment since
he has received the information from investigation wing of Kolkata
regarding the receipt of bogus share application money from penny stock
companies / suitcase companies which did not have any capital base. Lot
of investigation has been carried out by the Income Tax Department and
SEBI on such suitcase companies and found that the share capital is being
pumped into the domestic companies by entry operators giving scope for
introduction of bogus share capital. The assessee company also received
share capital from some of the companies listed in the Investigation Wing
accommodating through entry operators for bogus share capital. By
introducing bogus share capital through entry operators, the beneficiary
company is converting their own black money without payment of taxes.
Domestic black money is one of the concerns of country which has to be
arrested by taking all necessary measures and actions by the Tax
Department. In the case of the assessee, the assessment is reopened
within 4 years from the end of the relevant assessment year to verify the
introduction of share capital through suit case companies listed in
Investigation wing of Income Tax Department. The Ld.AR of the assessee
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had not placed any material on record to show that the assessing officer
has verified the genuineness, creditworthiness of the share application
money in the original assessment. The A.R. also did not place any
material to show that the companies contributed to share application
money are really having net worth, in the form of confirmations of share
capital, P&L A/c, Balance Sheet, etc., during the appeal proceedings.
Therefore, we hold that there is no error in the reopening of the
assessment within 4 years from the end of the relevant AY and we uphold
the order of Ld.CIT(A) on re-opening.
7.1 The A.R of the assessee argued that the assessing officer has not
passed a speaking order disposing the objections in response to the
notice issued u/s 148. Hon’ble Apex Court in the case of GKN Drive Shaft
(supra) has held that on receipt of objections from the assessee company,
the assessing officer is required to pass speaking order disposing the
objections raised by the assessee for the notice issued under Section 148
of the Act. In this case, the assessing officer has not passed the speaking
order. However, the assessee has participated in the assessment
proceedings and submitted the information required for the assessment
and no objection was raised during the assessment proceedings. The Ld.
Departmental Representative argued that non-issue of speaking order by
the assessing officer cannot make the assessment invalid. At best, it can
be considered as curable error of procedure. Similar issue has come
before Hon’ble HIGH COURT OF GUJARAT in Principal Commissioner of
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Income-tax-2, Vadodara v.Sagar Developers*[2016] 72 taxmann.com 321 (Gujarat)
and Hon’ ble held as under:
It can thus be seen that whenever an administrative action is found to be tainted with defect in the nature of breach of natural justice or the like, the Court would set aside the order, place back the proceedings at the stage where the defect is detected and leave the liberty to the competent authority to proceed further from such stage after having the defect rectified. In other words, the breach of principle of natural justice would ordinarily not result in terminating the proceedings permanently. 25. As noted, the requirement of supplying the reasons recorded by the Assessing Officer issuing notice for reopening and permitting the assessee to raise objections and to decide the same by a speaking order are not part of the statutory provisions contained in the Act. Such requirements have been created under a judgement of the Supreme Court in case of GKN D riveshafts (India) Ltd. (supra). It is true that when the Assessing Officer proceeds to pass the final order of assessment without disposing of the objections raised by the assessee, he effectively deprives the assessee of an opportunity to question the notice for reopening itself. However, the assessee is not left without the remedy when the Assessing Officer proceeds further with the assessment without disposing of the objections. Even before the final order of assessment is passed it would always be open for the assessee to make a grievance before the High Court and to prevent the Assessing Officer from finalizing the assessment without disposing of the objections. 26. The issue can be looked from slightly different angle. Validity of the notice for reopening would depend on the reasons recorded by the Assessing Officer for doing so. Similarly, the order of reassessment would stand failed on the merits of the order that the Assessing Officer has passed. Neither the action of the Assessing Officer of supplying reasons to the assessee nor his order disposing of the objections if raised by the assessee would per se have a direct relation to the legality of the notice of reopening or of the order of assessment. To declare the order of assessment illegal and to permanently prevent the Assessing Officer from passing any fresh order of assessment, merely on the ground that the Assessing Officer did not dispose of the objections before passing the order of assessment, in our opinion would be not the correct reading of the judgement of Supreme Court in case of GKN Driveshafts (India) Ltd. (supra). In such judgement, it is neither so provided nor we think the Supreme Court envisaged such an eventuality.
7.2 In the Appellant case, the assessee has not made any objections
during the assessment proceedings for non disposal of objections. The
assessee has cooperated with the Department and participated in the
assessment proceedings. For the first time, the assessee has raised
objections during the pendency of appeal proceedings. Merely because
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8.0 In the result, the appeal the revenue and cross objections filed by the assessee are allowed for statistical purpose. Order pronounced in the Open Court on 27th December, 2016 at Chennai. (एन.आर.एस. गणेशन) (�ड.एस. सु�दर �संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
चे�नई/Chennai �दनांक/Dated: 27th December, 2016 tln
आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�त/CIT 2. ��यथ�/Respondent 5. �वभागीय ��त�न�ध/DR 3. आयकर आयु�त (अपील)/CIT(A) 6. गाड� फाईल/GF