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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI SANJAY GARG & SHRI ASHWANI TANEJA
O R D E R Per ASHWANI TANEJA, AM:
This appeal by Revenue and the cross objection by the assessee have been filed against the order of Commissioner of Income-tax (Appeals) [hereinafter called CIT(A)] passed against the assessment order u/s 143(3) r.w.s. 147 of the Act dated 30-12-2010 for A.Y. 2006-07. 2. The Revenue has filed the appeal on the following grounds: “
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of unexplained investment of Rs. 3.50 Crores made u/s 69 of the I. T Act without considering the contradictions in the assessee’s contentions raised during the course of assessment as also the apparent inconsistencies in the assessee’s bank statement with Kotak Mahindra Bank. 0n the facts and in the circumstances of the case and in law, the Ld.
2. CJT(A) has erred in deleting the addition of unexplained investment of Rs. 3.50 Crores made u/s. 69 of the I. T Act by admitting the fresh evidences submitted by assessee during the appellate proceedings, without affording an opportunity to the Assessing Officer u/r 46A of I. T Rules, 1962 to examine its veracity. " The appellant prays that the order of the CIT(A) on the above 3. grounds be reversed and that the Assessing Officer be restored.”
On the other hand, the assessee has filed cross objection challenging the jurisdictional issues of order passed u/s 147 of the Act on the following grounds:- “1. That there is not reference of such reasons recorded in the order of assessment even for the sake of showing that proceeding was validly initiated and hence, credibility of the reasons recorded before the issue of notice uls.148(2) and the authority recording it may be verified. (2)That the proceeding initiated uls.147 is without authority of the law for want of jurisdiction and hence, may be held as bad in law for the reasons that the reasons recorded u/s. 148(2) as evident there from that; (a) The ld.AO had recorded the reasons without application of mind; as AO himself was not sure as for which of the assessment year he wanted to re-open, it is evident that he had verified the ROl for A.Y.2006-07, but stated to have issued the notice for A.Y.2005-06 which seems to have later on tempered to make it 2006-07.
(b)It is not evident from the reasons recorded that AO himself was under an honest belief of escapement of income as it reveals that the re-opening was to verify whether certain disclosure was made, thus, the precondition to invoke s. 147 was certainty of escapement of income was lacking which makes the case of review which is not permissible under the law. (c) That there is no reference in the reasons recorded that the belief of reasons recorded was followed by the tangible material available on record to apply his mind thereon. (d) That the AO is erred to invoke s.147 to do the fishing inquiry following the AIR information to look for the source of the investment made and supporting thereof which is outside the purview of s. 147 as this reveals that s. 147 invoked was not under belief of the fact of escapement of income. In the absence of the aforesaid, it is evident that the order passed was u/s. 143(2) though stated to have passed uls.143(3) r.w.s.147 just to extend the limitation period makes the order bad in law as being void ab initio. (2) That the notice issued u/s. 143(2) is without authority of the law.”
During the course of hearing it was stated by the Ld. Counsel of the assessee that the case of the assessee is covered in its favour on the merits of the issue involved as well as on the jurisdictional aspects.
5. Per contra, the Ld. DR fairly stated that though Ld. CIT(A) has recorded well reasoned finding while allowing relief to the assessee, but the limited objection of the Ld. DR was with regard to examination of additional evidences by the Ld.CIT(A) while deleting the addition made by the AO. But it was fairly stated by him that with the help of evidence brought on record the assessee has tried to properly explain the source of the impugned investment made by him during the year under consideration for purchase of shares of M/s Bombay Rayon Fashions Ltd. 6. In reply, the Ld. Counsel of the assessee submitted that complete evidences were available before the AO. In fact, on the basis of the AO, the reopening was done. There is no additional evidence which has been considered by the Ld. CIT(A) and the ground taken by the department is factually incorrect. The source of purchase of shares has been duly explained by the assessee, and therefore, addition made by the AO was factually and legally incorrect and, therefore, rightly deleted by the Ld.CIT(A) and, therefore, the order of the Ld.CIT(A) should be upheld on merits as well as on the jurisdictional aspects of reopening of the impugned assessment. 7. We gave another opportunity to the Ld. DR to show us as to what additional evidences have been considered by the Ld. CIT(A) and for this purpose another date of hearing was fixed. But on the next date also, the Ld. DR was not able to point out and identify the so-called additional evidences which have been considered by the Ld. CIT(A). 8. We have gone through the orders passed by the lower authorities as well as submissions made by both the sides before us. The sole issue to be decided by us is whether the assessee has been able to explain the sources of investment made by the assessee for purchase of shares of M/s Bombay Rayon Fashions Ltd amounting to Rs.3.5 crores for which the case of the assessee had been reopened. 9. It is noted that the AO had passed assessment order relying upon information received as part of AIR wherein the AO of the assessee was required to examine the source of the impugned investment. During the course of assessment proceedings, the assessee explained the source and also submitted documentary evidences but the AO was not satisfied and, therefore, he made the addition. Being aggrieved, the assessee filed appeal before the Ld. CIT(A) and made detailed submissions along with requisite evidences. Relevant part of the submissions made by the assessee before the CIT(A) is reproduced below: “Your Appellant has received a letter from Bombay Rayon Fashions Limited dated 2210212012 stating the details of shares applied and shares allotted in the I. P. 0. of BRFL. The copy of letter is enclosed as Annexure I.
Your Appellant has also received statement of accounts of Rakesh N. Shah regarding funding facility - BRFL stating the details of funding made and repayment thereof by L & T Finance Limited as per Annexure II.
3. Your Appellant has also received Bank Statement of Kotak Mahindra Bank of L & T Finance Ltd. (POA) stating the refund received from BRFL for non allotted shares of Rs. 3,38,27,4301- and amount paid back to L & T Finance Ltd. of Rs. 3,38,27,430/- as per Annexure - lII. The above submission infers as under: (a) The application of 5,00,000 Shares @ Rs. 701- per share was made by Rakesh N. Shah in BRFL l.P.O. in November, 2005 as per Annexure I. (b) A sum of Rs. 3,15,00,000/- was funded by L & T Finance Ltd. as per Annexure II and a margin amount of Rs. 35,00,000/- is also arranged as per Annexure II. On this L & T Finance Ltd. Charged an interest and other charges of Rs.2,14,100/- as per Annexure II. (c) Out of Rs. 5,00,000 shares applied, 16,571 shares allotted by BRFL I.P.O. as per Annexure I with a total allotment value of Rs.11,72,5270/- as per Annexure I & II. (d)The Balance amount of Rs.3,50,00,000/- minus Rs.11,72,570/- equals to Rs.3,38,27,430/- was refunded by BRFL and the cheque was deposited in Kotak Mahindra Bank operated by L&T Finance Ltd power of attorney holder of Rakesh N. Shah as per Annexure III. (e) Rs.3,38,27,430/- was paid back to L&T Finance Ltd from Kotak Mahindra Bank as per Annexure III. (f) The balance amount of Rs.23,27,430/- being excess received was adjusted against margin money funding. The working of margin money can be summarised as under:
Margin Money given to L Finance Ltd 35,00,000/- (as per Annexure II) Interest paid to L&T Finance Ltd 2,14,100/- (as per annexure II) ---------------- 37,14,100/- Less: Amount received from L&T 23,27,430/- Finance Ltd (as per Annexure II) Less: Sale proceeds received for sale of 16,751 shares @Rs.82.78/- 13,86,670/- ---------------- BALANCE NIL g) The profit on sale of shares is worked out as under: Sale proceeds of 16,751 shares @82.78/- 13,86,670/- Less: Costs of shares 11,72,570/- ---------------- Net profit 2,14,100/- Less: Interest paid to L&T Finance Ltd 2,14,100/- ---------------- BALANCE NIL 4. Your Appellant respectfully submits that the Annexure I & II were obtained by A.O. during the course of Assessment Proceedings and are on the record with the A.O.
Your Appellant has also made a written application on 13/02/2012 for obtaining the copy of the same to A.O. so as to produce before your kind honour. The copy of letter is enclosed as Annexure IV. However, so far it is not received by your Appellant from the A.O.
We refer to Annexure I of our letter dated 20/01/2012. The discrepancy in the interest credited to L&T Finance Ltd and sale proceeds of 16,571 shares as per this Annexure and as per Annexure II of this letter is due to other charges over and above interest levied by L&T Finance Ltd. As per Annexure I As per Annexure II 13,73,582/- 13,86,670/- Less: 2,01,012/- 2,14,100/- Net 11,72,570/- 11,72,570/- 7. Having regard to the aforesaid facts it is respectfully submitted that the order of the A.O. is wrong & erroneous as – The assessment has been framed without affording applicant with sufficient opportunity of being heard & is contrary to the principles of natural justice & equity; b) The additions made as unexplained investment is without considering the records, evidences, documents available on the records. c) The basis adopted for determining the unexplained investment is erroneous & wrong.
Having regard to the aforesaid it is prayed that : a) Proper scrutiny & verification of all details & documents be made. b) The addition made be deleted.”
After considering the submissions of the assessee and the evidences filed along with the written submissions, the Ld. CIT(A) was satisfied that the source of investment has been duly explained and, therefore, the addition made by the AO was deleted by him with the following observations: “5 I have carefully considered the facts of the case, arguments of the Assessing Officer and the written submissions of the Authorised Representative of the appellant. During assessment proceedings the Assessing Officer wanted confirmation of loan from Bombay Rayon Fashions Ltd. for the amount of Rs.3.50 crore. Since appellant could not produce confirmation on the date of hearing the amount was added. During appeal proceedings appellant has submitted a copy of the letter from BRFL. He has also filed copy of letter from L&T Finance Ltd. who have financed the entire transaction. Appellant has pleaded that he could not produce some of the details as the assessment was completed at the fag end of time barring period. It is also mentioned by the appellant that bank statement from Kotak Mahindra Bank and details of shares applied, amount paid and shares allotted by BRFL was also obtained by the Assessing Officer from respective authorities during the course of assessment proceedings. On perusal of bank statement of Kotak Mahindra Bank it appears that L&T Finance Ltd. was power of attorney holder of bank account of appellant in Kotak Mahindra Bank. This office has Assessing Officer to submit the documents obtained by him from third parties. The Assessing Officer has submitted a letter dated 30.3.2012 alongwith copy of letter from BRFL, mentioning the details of application money and details of shares applied and shares allotted. He has also submitted copy of bank statement obtained from Kotak Mahindra Bank, wherein it is found that out of application money of Rs.3,50,00,000I-, Rs.3,38,27,4301- was refundod by BRFL to the applicant. The cheque was deposited in Kotak Mahindra Bank where L&T Finance was the power of attorney holder of that bank account on behalf of the applicant and Rs.3,38,27,430/- was paid back from Kotak Mahindra Bank to L&T Finance Ltd. In other words, L&T Finance, made a finance of Rs.3,15,00,000 and received back Rs.3,38,27,430/-.
The above facts are verified from BRFL statement and L&T Finance statement and appellant's submission and Kotak Mahindra Bank statement. The appellant has stated that no money was paid by him for application of shares and entire transaction was financed by L&T Finance Ltd and margin money financier. This is also evident from the L&T Finance Ltd. statement. The appellant has also submitted that there is no evidence of payment made or payment received in his bank account. It is also submitted that, the shares were sold by the power of attorney holder and the sale proceeds were paid to margin money financier against its finance and interest and other charges. 5.1 From the perusal of the available documents I find that an amount of Rs.3,15,00,000/- was financed by L&T Finance Ltd. and balance amount was financed by margin money financier. The funding was Rs.3,15,00,000/- towards loan and Rs.35,00,000/- towards margin money. Along with interest the payable amount was Rs.3,52,14,100/- as per L&T Finance Ltd. statement. Out of application money of Rs.3,50,00,000/- only Rs.11,72,570/- was adjusted towards the value of shares allotted and balance amount was refunded by BRFL amounting to Rs.3,38,27,4301-. L&T Finance has received Rs.3,38,27,4301- from BRFL through Kotak Mahindra Bank. L&T Finance Limited refunded balance amount of Rs.23,27,430/- (3,38,27,430 - 3,15,00,000) to margin money financier. This is evident from L&T Finance Ltd. statement. Now margin money financier had financed Rs.35,00,000/-. So margin money financier had to receive Rs.35,00,000I-. Out of which L&T Finance Ltd. paid Rs.23,27,4301- to margin money financier. The allotted shares were sold in the market for Rs.13,86,6701- and the same amount was received by margin money financier. Thus margin money finance received Rs.37,14,100/- [23,,27,430+13,86,670] which is evident from L&T Finance Ltd. statement. Thus excess amount received by margin money financier was Rs.2,14,100/- which was treated as interest and other charges as it appears in L&T Finance Ltd. statement. The facts and figures of L&T Finance Ltd exactly match with the submission made by the appellant. The appellant has neither invested any money nor has received any refund in his bank account. He has also not received any shares allotted by BRFL and shares which were sold by power of attorney holder. Since the source is fully explained addition of Rs.3,50,00,000I- cannot be sustained. The additional evidence is admitted as appellant was prevented by reasonable cause of not being able to obtain confirmation from the financier during the assessment proceedings, although the same were received by the Assessing Officer during assessment proceedings from BRFL and Kotak Mahindra Bank. Accordingly the addition of Rs.3,50,00,000I- as unexplained investment is deleted.”
We have gone through the detailed findings recorded by the Ld. CIT(A). It is noted from the facts narrated by Ld. CIT(A) that the transaction of investment into share application money of M/s Bombay Rayon Fashions Ltd (BRFL) was financed by M/s L&T Finance Ltd. A sum of Rs.3.15 crores was financed by M/s L&T Finance Ltd and the balance sum of Rs.35 lacs was financed by the Margin Money Financier. The entire transaction of payment flowing from L&T Finance Ltd and Margin Money Financier through Kotak Mahindra Bank to BRFL as well as the entire repayment of refund of part amount of share application money from BRFL to assessee and then in turn to L&T Finance Ltd as well as Margin Money Financier towards their respective dues, has been duly established Ld. CIT(A). All the transactions are supported by proper documentary evidences. Since all of the transactions have been routed through proper banking channels, no part of the same can be said to be not properly substantiated. It is further noted that out of investment into share application money of Rs.3.5 crores, a sum of Rs.3,38,27,430 was refunded by BRFL to the assessee, who in turn, returned the amount to M/s L&T Finance Ltd. Further, none of the documentary evidences could be said to have been created as an after-thought. We have nothing before us to doubt the genuineness of the transaction. Thus, the transaction is duly confirmed and its genuineness is also established. The entire source of the investment made in share application money of BEFL stands duly explained by the assessee. Further, nothing has been brought before us by the Ld. DR to negate or controvert any part of the detailed and well reasoned findings recorded by the Ld. CIT(A). Under these circumstances, we have no other option but to uphold the order of the Ld. CIT(A).
As a result, appeal of the Revenue is dismissed.
Since, accepting the request of the parties, the relief has been allowed on merits, we do not find it necessary to decide various jurisdictional issues raised by the assessee with regard to reopening of the impugned assessment and framing of the re-assessment order u/s 147 of the Act. Thus, the cross objection of the assessee is treated as infructuous at this stage.
In the result, the appeal of the Revenue as well as the cross objection of the assessee are dismissed.
Order pronounced in the open court at the conclusion of the hearing.