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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 22.07.2021, passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“CIT(A)”], which in turn arises out of assessment-order dated 26.12.2019 passed by learned Dy. CIT, Central-II, Bhopal u/s 147 read with section 144 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2012-13, the assessee has filed this appeal on following grounds:
(i) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action Page 1 of 18 M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 of ld. AO in framing the impugned reassessment order u/s 144/147 and that too without assuming jurisdiction as per law and without complying with the statutory and mandatory conditions as envisaged u/s 147 to 151 of Income-tax Act, 1961, and following the principles laid down by Hon'ble Supreme Court in the case of GKN Driveshaft (I) Ltd. (2003) 259 ITR 19( S.C.).
(ii) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of ld. AO in passing the impugned reassessment order u/s 144/147, is beyond jurisdiction, bad in law, illegal, unjustified, against the principles of natural justice, void ab initio and barred by limitation also.
(iii) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in making aggregate addition of Rs. 124,39,76,000/- on account of share capital/share application money/share premium by treating it as alleged unexplained cash credit u/s 68 and that too by recording incorrect facts and finding and in violation of principles of natural justice and without appreciating/considering the submissions of the assessee company.
(iv) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of ld. AO in making aggregate addition of Rs. 124,39,76,000/- on account of share capital/share application money/share premium by treating it as alleged unexplained cash credit u/s 68, is beyond jurisdiction, bad in law, illegal, unjustified, against the principles of natural justice, void ab initio and barred by limitation also.
(v) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in making aggregate addition of Rs. 4,57,21,842/- on account of sundry creditors by treating it as alleged unexplained income of assessee u/s 68 and that too by recording incorrect facts and findings and in violation of principles of natural justice and without appreciating/considering the submissions of the assessee company. (vi) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of ld. AO in making aggregate addition of Rs. 4,57,21,842/- on account of sundry creditors by treating it as alleged unexplained income of assessee u/s 68, is beyond jurisdiction, bad in law, illegal, unjustified, against the principles of natural justice, void ab initio and barred by limitation also.
(vii) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 of ld. AO in making aggregate disallowance of Rs. 4,33,05,189/- on account of various expenses claimed by the assessee company u/s 37 of the Act and that too by recording incorrect facts and findings and in violation of principles of natural justice and without appreciating/considering the submissions of the assessee company. (viii) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of ld. AO in making aggregate disallowance of Rs. 4,33,05,189/- on account of various expenses claimed by the assessee company u/s 37, is beyond jurisdiction, bad in law, illegal, unjustified, against the principles of natural justice, void ab initio and barred by limitation also. (ix) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in making aggregate additions/disallowances and framing the impugned reassessment order is contrary to law and facts and without providing adequate opportunity of being heard and without confronting the entire adverse material to the assessee and by recording incorrect facts and findings and the same is not sustainable on various legal and factual grounds. (x) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of ld. AO in charging the interest u/s 234A, 234B and 234C of the Income-tax Act, 1961.”
Heard the learned Representatives of both sides at length and case- records perused.
The registry has informed that that the present appeal is filed after a delay of 116 days and therefore time-barred. The Ld. AR prayed that the delay has occurred due to Covid-19 Pandemic. The Ld. AR further placed reliance on the order of Hon’ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020 read with Misc. Applications, by which suo motu extension of the limitation-period for filing of appeals w.e.f. 15.03.2020 under all laws has been granted and hence there is no delay in fact. We M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 confronted the Ld. DR who agreed to the submission of Ld. AR. In view of this, the appeal is proceeded with for hearing, there being no delay.
Original assessment – matter pending before ITAT, Kolkata Bench:
Brief facts, as submitted by Ld. AR for assessee in his Written- Submission, are such that the assessee filed its return of AY 2012-13 u/s 139 of the Act on 28.09.2012 declaring a loss of Rs. 41,56,953/-. This return was assessed under scrutiny-assessment by DCIT-4(3)(1), Mumbai u/s 143(3) whereby an addition of Rs. 116,49,75,000/- was made on account of bogus share capital/share premium. Against such order, the assessee filed first-appeal to CIT(A)-5, Kolkata but could not succeed. The assessee filed next appeal to ITAT, Kolkata. Presently, the appeal before ITAT, Kolkata is pending with registration No. ITA/964/Kol/2019 and the issue involved therein the addition of Rs. 116,49,75,000/- made by AO on account of bogus share capital/share premium.
Re-opened assessment – Present appeal before us:
Subsequently, the Dy. CIT, Central-II, Bhopal [“AO”] re-opened assessment through notice dated 28.03.2019 u/s 148 after recording reasons. The said reasons were supplied by AO to assessee against which the assessee filed objection. The AO, however, rejected assessee’s objection and continued proceedings. Ultimately, the AO completed re-assessment u/s 147 read with section 144, vide order dated 26.12.2019, assessing total income at Rs. 133,30,03,030/- as under:
M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13
Income shown in return filed u/s 148 Nil Add: Addition on account of bogus share capital, share premium 124,39,76,000/- Add: Addition on account of sundry creditors 4,57,21,842/- Add: Addition on account of disallowance of expenses 4,33,05,189/- Total income assessed as per 144 133,30,03,031/-
Total income assessed as per 144 (rounded off) 133,30,03,030/- Aggrieved by order of re-assessment, the assessee went in appeal to Ld. CIT(A) but did not get any relief. Now, the assessee has come in next appeal before us.
Submission by parties:
Ld. AR for assessee straightaway carried us to the reasons recorded by AO before issuing notice u/s 148. The said reasons read as under:
M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 7. Referring to para 1 of reasons, Ld. AR submitted that the AO has acted u/s 147 on the basis of information received from DDIT (Inv.)-Unit 2(2), Kolkata which showed that the assessee had entered into sham transactions with shell company named M/s Bhagya Laxmi Electronics [“M/s Bhagya”] during the financial year 2011-12. Thereafter, in next Para 2 of reasons, the AO has noted that from the analysis of bank statement of M/s Bhagya prepared by DDIT, it was found that the assessee was one of the beneficiaries of the amount of Rs. 5,11,00,000/-. Then, in next Para 3 of reasons, the AO has noted that the assessee has not shown the transactions relating to M/s Bhagya. Thus, referring to all these paras of reasons, Ld. AR submitted that the sole basis of re-opening assessee’s case adopted by AO is that the assessee had entered into sham transactions of Rs. 5,11,00,000/- with M/s Bhagya whereas the correct position is such that the assessee did not enter into any transaction with M/s Bhagya whatsoever. Therefore, the reasons recorded by AO are altogether strange and irrelevant to assessee.
Hence, the assessee objected to AO’s notice u/s 148 vide letter dated 17.04.2019. But the AO rejected assessee’s objection vide letter dated 23.09.2019 by taking a side route and relying upon 3rd Proviso to section 147 so as to contend that the AO is empowered to look into issues other than one mentioned in the reasons recorded. The said letter dated 23.09.2019 of AO is re-produced below for an immediate reference:
M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 8. Thereafter, the assessee again filed one more letter dated 22.11.2019 to AO and vide Point No. 2 thereof, categorically informed the AO that there was no transaction undertaken by assessee with M/s Bhagya. The assessee also filed all financial details with the support of bank statements to prove that there was in fact no transaction as alleged by AO. Thus, the assessee completely denied having made any transaction with M/s Bhagya. The said letter of assessee is re-produced below for an immediate reference:
M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 9. Thus, Ld. AR demonstrated that the AO has acted on an invalid reason and despite categorical objection of assessee, the AO continued the proceeding of section 147. Having shown this, Ld. AR carried us to various pages of assessment-order and demonstrated that the AO has ultimately made three types of additions while framing assessment. The first addition of Rs. 124,39,76,000/- on account of bogus share capital/share premium has been made on the basis of statement of Shri Sharad Darak (who was also a director of assessee-company) recorded during a search conduced upon one ‘Asnani Group’ on 16.05.2018 and corroborating the same with the statement of another person named Shri Krishan Kumar recorded u/s 131 and the observations made from survey-action in the cases of certain companies alleged to have been controlled by Shri Sharad Darak. The AO noted that Shri Sharad Darak was involved in providing/arranging accommodation entries by way of share capital or loans. Therefore, the share capital/share premium of Rs. 124,39,76,000/- shown in assessee’s books was also bogus. Other two additions, namely (i) the addition of Rs. 4,57,21,842/- on account of sundry creditors, and (ii) the disallowance of expenses of Rs. 4,33,05,189/- have been made on the premise that the assessee was not having any business activity. Ld. AR submitted that in the reasons recorded, the AO alleged that the assessee had entered into sham transactions of Rs. 5,11,00,000/- with M/s Bhagya but there is no addition of Rs. 5,11,00,000/- in the hands of assessee qua M/s Bhagya; all three additions made by AO while completing assessment are newer additions M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 which did not form part of the recorded reasons. Ld. AR submitted that in such a situation when there is no addition made in the final order qua the original reasons recorded by AO and only newer additions being made, the department’s approach has been rejected in following decisions:
(i) Jet Airways Ltd. (2011) 331 ITR 236 (Bom)
(ii) Ranbaxy Laboratories Ltd. Vs. CIT (2011) 336 ITR (Del)
(iii) Power Pack Conductors Vs. ITO in & 7901/Mum/2010 (iv) Saif Alikhan Mansurali Vs. ACIT in ITA No. 1093/Mum/2009
Therefore, Ld. AR contended, the order passed by AO u/s 147 is not sustainable and the same must be quashed.
Per contra, Ld. DR for revenue strongly supported the orders of lower- authorities and submitted that the AO has extracted statements of Shri Sharad Darak who also happens to be a director of assessee-company although those statements were recorded in a search in the case of “Asnani Group’. Ld. DR submitted that in his statements, Shri Sharad Darak has clearly accepted having been engaged in providing/arranging accommodation entries. Further, the statements of Shri Sharad Darak are also corroborated by AO from other material as mentioned in assessment- order. Since Shrad Darak is also a director of assessee-company, the AO is very much justified in concluding that the share capital/share premium shown by assessee was also bogus. Ld. DR further emphasized AO’s stand M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 that even in the worst case that the additions made in assessment-order are found to be newer additions not emanating from reasons recorded by AO, then also the AO is right in contending that he is empowered to make additions on newer issues while completing assessment. With these submissions, Ld. DR prayed to uphold the assessment-order passed by AO as well as the additions made therein by AO.
: Our analysis and decision
We have considered rival submissions of both sides and perused the orders of lower authorities as also the documents/papers to which our attention has been drawn. Admittedly, we find that the AO recorded in the reasons that the assessee has entered into sham transactions of Rs. 5,11,00,000/- with M/s Bhagya. At the same time, we also find that it is a consistent submission of assessee right from beginning that it has not entered into any transaction with M/s Bhagya. The revenue is also not able to show any such transaction having been entered by assessee with M/s Bhagya. Therefore, we safely presume that the assessee has in fact not entered into any transaction with M/s Bhagya as alleged in the reasons.
That means, the re-assessment proceeding has been done on the basis of an invalid reason. Once it is so, the entire proceeding becomes invalid on this very premise itself. But we would also like to deal the contention being taken by revenue/AO that it has authority to make newer additions even if they did not form part of original reasons and such authority comes from 3rd M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 Proviso to section 147. Therefore, at first, we re-produce section 147 alongwith the said 3rd proviso, which reads as under:
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 153 referred to as the relevant assessment year) Provided that … Provided further that … Provided also that the Assessing officer may assessee 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.
In Jet Airways Ltd. (2011) 331 ITR 236 (Bom), following question came up before Hon’ble Bombay High Court:
"Where upon the issuance of a notice under section 148 of the Income-tax Act, 1961 read with section 147, the Assessing Officer does not assess or, as the case may be reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice under section 148, is it open to the Assessing Officer to assess or reassess independently any other income, which does not form the subject-matter of the notice?" While deciding, the Hon’ble High Court interpreted the main body of section 147, more particularly the words “and also” appearing therein, as well as the Explanation to section 147 and came to following conclusions:
“16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, 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 accepted 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 fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.
We have approached the issue of interpretation that has arisen for decision in these appeals, both as a.matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147(1) as they stood after the amendment of 1-4-1989 continue to hold the field.
In that view of the matter and for the reasons that we have indicated, we do not regard the decision of the Tribunal in the present case as being in error. The question of law shall, accordingly, stand answered against the revenue and in favour of the assessee. The appeal is, accordingly, dismissed. There shall be no order as to costs.”
Thus, the Hon’ble High Court held that if the AO does not assess or reassess the income which he has reason to believe had escaped assessment and which formed the basis of a notice u/s 148, it is not open to AO to M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 assess or reassess independently any other income which does not form the subject-matter of the notice. As far as 3rd Proviso to section 147 is concerned, in our considered interpretation, it does not give any authority to AO to assessee independent incomes, rather it places one more restriction upon AO that under the provisions of section 147, he can only assessee or reassess those matters which are not subject-matters of any appeal, reference or revision. The AO’s understanding that it gives authority to him to assess only independent or newer items, even if the original items forming part of reasons do not survive, is not correct. Therefore, respectfully following the decision of Jet Airways which is very much applicable to the facts of present case, we are inclined to quash the order of re-assessment passed by AO. The assessee succeeds in this appeal.
Before parting we would like to make a specific mention for the sake of clarity. As noted in the beginning, the assessee’s appeal of same assessment-year against original assessment is pending before Kolkata Bench of ITAT wherein the issue involved is the addition of Rs. 116,49,75,000/- on account of share capital/share premium. It emerged during the course of hearing, as per submission of Ld. AR, that the addition of Rs. 124,39,76,000/- made by AO in re-assessment order with which we are concerned, is inclusive of the addition of Rs. 116,49,75,000/- made in original assessment pending before Kolkata Bench. Therefore, we make it clear that the present order passed by us quashing the order of re- M/s. Jayganga Exim India (P) Ltd., Kolkata vs. DCIT, Central II, Bhopal Assessment year 2012-13 assessment on technical ground following the decision of Jet Airways, shall not in any way impinge the appeal/issue pending before Kolkata Bench.
Resultantly, this appeal of assessee is allowed.
Order pronounced in the open court on 02.01.2024.