DCIT, CIRCLE - 8, KOLKATA, KOLKATA vs. M/S. PREMIER ROAD CARRIERS LTD., KOLKATA

ITA No.960/Kol/2011-M/s. Premier Road Carriers Ltd. A.Y.2000-01 1

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Shri P.M.Jagtap, AM & Sri N.V.Vasudevan, JM ] I.T.A No. 960/Kol/2011 Assessment Year : 2000-01 D.C.I.T., Circle-8, -vs.- M/s. Premier Road Carriers Ltd. Kolkata Kolkata [PAN : AABCR8968E] (Appellant) (Respondent) For the Appellant : Shri S.S.Alam, Addl. CIT For the Respondent : Shri Sallong Yaden, Addl.CIT Date of Hearing : 23.11.2016. Date of Pronouncement : 2.12.2016. ORDER Per N.V.Vasudevan, JM

This is an appeal by the Revenue against the order dated 25.3.2011 of CIT(A)- VIII, Kolkata relating to AY 2000-01.

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Date Amount Name of the Company from which received 6.3.2000 20 Lakhs M/S.Medhawi Traders Ltd. 6.3.2000 10 Lakhs -- do— 7.3.2000 25 Lakhs M/S.Suryamukhi Merchants Pvt.Ltd. 7.3.2000 25 Lakhs -- do-- 7.3.2000 20 Lakhs M/S.Medhawi Traders Ltd. 8.3.2000 25 Lakhs M/S.Poly Products Pvt.Ltd. 10.3.2000 50 Lakhs M/S.Esskay Telecom Ltd. 23.3.2000 11 Lakhs M/S.Poly Products Pvt.Ltd. 27.3.2000 14 Lakhs --do--

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However, since the receipt of Rs. 2 crores by way of private placement of shares are found not to be genuine transactions and the ultimate beneficiary is this assessee company, the amount of Rs.2 crores is treated as unexplained credits in the books of the assessee company of the block period.”

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Sri Raj Deo Roy, Director, clinches the issue in favour of revenue. Hence I am of the considered the view that the credits of Rs. 50 lakhs each in the name of M/s. Poly Products (P) Ltd. & M/s. Suryamukhi Merchants (P) Ltd. represented the undisclosed income of the appellant company for the block period. Hence the AO is directed to tax the same on substantive basis. “

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Gupta. The CIT(A) in such appeal deleted the addition of Rs.2 crores made on a substantive basis in the hands of Sri Bhanaram Gupta, since addition of Rs.1 crores wad confirmed on a substantive basis in the hands of the Assessee and another sum of Rs.1 crores was held to be duly and satisfactorily explained by the Assessee. Against the said order of CIT(A) dated 28.1.2005, the revenue preferred appeal before the Tribunal in IT(SS)A.No. 76/Kol.2005. 10. The Assessee and Revenue filed appeals against the order of the CIT(A) whereby addition of Rs.1 crores was made substantively in the hands of the Assessee and addition of Rs.1 crores was deleted by the CIT(A) in appeal being IT(SS) A.No.75/Kol/2005 and IT(SS)A.No.66/Kol/2005 respectively. These appeals and the appeal filed by the Revenue against the order of CIT(A) dated 28.1.2005 were heard together by the Tribunal and a common order dated 24.3.2006 was passed by the Tribunal. 11. The Tribunal upheld the order of the CIT(A) deleting addition of Rs.1 crores being Rs.50 lakhs each received as share capital from M/S.Esskay telecom Ltd. And M/S.Medhawi Traders Ltd., and endorsed the CIT(A)’s finding that the Assessee had satisfactorily explained the receipt of share capital from the aforesaid two parties. With regard to the receipt of a sum of Rs.50 Lakhs each received from M/S.Poly Products (P) Ltd., and M/S.Suryamukhi Merchants (P) Ltd., and credited in the books of the Assessee as share subscription which was treated by the CIT(A) as unexplained, the Tribunal held that the same cannot be sustained. The Tribunal firstly held that the said addition was made on the basis of statement of Shri.Raj Deo Roy and that statement could not have been used by the AO for the reason that the statement was recorded by an Officer who did not have authority to record such statement. The following were the conclusions of the Tribunal in this regard: “31.4 In this case the search was started on 11 14.09.2000 and continued till 01.11. 2000 as per above provisions of section 132(9A) as it stood at the material time, Investigation Wing is supposed to hand ·over the entire seized material or evidence collected in the course of search or after search within a period of 15 days from the date of search. It implies that the 'Investigation Wing' looses its jurisdiction over the case after the end of the period of days. In the present case, the statement was recorded by the Dy.DIT (lnv) on 12.12.2000. Therefore, legally, the statement recorded by DyDIT (lnv) on 12.12.2000 has got no leg sanctity. Further, we find that neither the Assessing Officer

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nor the Ld. CIT(A) has examined Sri Raj Deo Roy before coming to the adverse conclusion On this ground itself order of the Assessing Officer is not sustainable under the law. After all, the Assessing Officer is a quasi judicial authority and he has to decide the issue himself. He cannot abrogate his power and authority in favour or anybody else whatsoever superior position may be in the hierarchy of Income Tax Act authorities. Thus, the decision taken merely on the basis of statement recorded by the DDIT (Jnv.) alone without having jurisdiction over the case, is not legally sustainable.”

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provisions. Chapter XIV-B is an independent Code. Object of the said Chapter is to bring to tax undisclosed Income which the assessee has earned during a block year. As to how this income is to be computed, the method has been given under section 158BB. Thus. every Income which can be regarded to be undisclosed income within the definition given under section 158BB can be brought to tax under that Chapter by computing such undisclosed income on the basis of evidence, material or record found at the time of search. Thus, the income which is not based on the evidence or material found at the time of search, i.e. based merely on hypothesis, surmises, conjectures or estimate, cannot be brought to tax under that Chapter. The income which is not undisclosed, i.e income has been duly disclosed in the assessee' s books maintained in the regular course of business, can also not be brought to tax under that Chapter. Even an asset or transaction, which is duly entered in the books maintained by the assessee regularly and disclosed to the department, can also not be regarded to be undisclosed income. The assessment under that Chapter shall be in addition to regular assessment and income assessed will not be included in regular assessment. " 32. Keeping in view the ratio of the above decision and our discussions above, we are of the view that even if the assessee has not been able to explain the source of share application money, appearing in the names or M/s Poly Products (P) Ltd. and M/s. Suryam Merchants (P) Ltd, the same may be escaped income but it cannot be treated as "undisclosed income” of the assessee which is akin to concealed income. Therefore, we are unable to endorse the decision of ld. CIT(A). The same is reversed and the assessee’s appeal is allowed.”

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those entities had confirmed to have subscribed to the shares of the assessee company of that amount. All the four subscribers were regularly assessed to Income tax and the amount of share subscription had been duly disclosed both by the recipient as well as the subscribers in their respective books of account and in their final accounts filed with their respective Returns of income for the relevant assessment year. The amount of share subscription was received by the assessee through banking channel. The sources amount of subscription of Rs.2 crores to the share capital of the assessee were neither disputed nor doubted by the A.O. Thus, the assessee had fulfilled all the three conditions, viz., (a) identity .of the creditors; (b) genuinenesss of the transactions and ( c) creditworthiness of the creditors. Therefore, the A.D. was not justified in applying the provisions of section 68 to the instant case arid adding the amount of share subscription as unexplained cash credit. In the light of the above discussion, the addition of Rs.2 crores made by the A.O. is deleted.”

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substantive assessment being pending on the date of issuing notice u/s 148 and as such the reassessment order is bad in law & liable to be quashed. v. That on the facts and circumstances of the case, the Ld. AO erred in reopening assessment on the issue which has already been assessed as 'undisclosed income' in block assessment and cannot be treated as escaped income for making reassessment u/s 147 and thus the reopening is liable to be quashed. vi. That the assessment order passed u/s 147 r.w.s 143(3) is time barred and is liable to be quashed. vii. The appellant craves leave to add to, alter, to delete from or substantiate the above- ground of appeal.”

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in the hands of the Assessee as unsustainable. The observations of the Tribunal in paragraph 32 of its order was only a passing observation which cannot be construed as any direction by the Tribunal to reopen the assessment of the Assessee for AY 2001- 02. His submission was that since the additions already stood deleted in the block assessment proceedings, the additions made in the present reassessment proceedings were rightly held by the CIT(A) to be bad in law. His further submission was that the very initiation of reassessment proceedings u/s.147 of the Act was not valid in law. In this regard he submitted that the assessment of the Assessee was originally completed u/s.143(3) of the Act for the relevant AY 2001-02. This was over and above the assessment for the block period u/s.158BC of the Act. The initiation of reassessment proceedings for AY 2001-02 was admittedly beyond the period of 4 years from the end of the relevant Assessment year. As required under the proviso to Sec.147 of the Act, reassessment in such cases can be only for the reason that there was escapement of income due to failure of the Assessee to fully and truly all material facts necessary for the assessment of total income of the Assessee for that year. It was pointed out by him that neither in the reasons recorded by the AO for initiating reassessment proceedings nor in the order of reassessment the AO has held that there was escapement of income due to the failure of the Assessee to fully and truly disclose material facts necessary for the assessment of total income of the Assesse for that year. In this regard he placed reliance on several decisions. We will make a reference to only one such decision which is identical to the facts of the present case viz., Vishwanath Prasad Ashok Kumar Sarraf Vs. CIT 327 ITR 190 (All). 20. His next submission was that in an assessment u/s.147 of the Act there cannot be a protective assessment and such protective assessment by itself will be sufficient to hold that the proceedings u/s.147 of the Act are not validly initiated. In this regard he drew our attention to several decisions the main decision in this regard being the decision of the Hon’ble Bombay high Court in the case of DHFL Venture Capital Fund Vs. ITO 358 ITR 471 (Bom). Apart from the above he relied on the findings of the Tribunal in the appeal against block assessment u/s.158BC of the Act and that of

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the CIT(A) in so far as the addition on account of unexplained share capital is concerned. 21. We have given a very careful consideration to the rival submissions. The justification for initiation of proceedings u/s.147 of the Act is only on the basis of the observations of the Tribunal contained in paragraph 32 of its order, which we have extracted in the earlier part of this order. As we have already seen the case of the Revenue is that a sum of Rs.2 crores received by the Assessee towards subscription to its share capital from 4 different companies @ Rs.50 lakhs each was in fact the money of Sri Bhanaram Gupta and therefore a protective assessment of Rs.2 crores was made in the hands of the Assessee and substantive addition of the said sum was made in the hands of Sri Bhanaram Gupta. The CIT(A) held that a sum of Rs.50 Lakhs each received from M/S.Poly Products (P) Ltd., and M/S.Suryamukhi Merchants (P) Ltd., and credited in the books of the Assessee as share subscription remained unexplained. The CIT(A) also held that the sum of Rs.50 lakhs each received from M/S.Poly Products (P) Ltd., and M/S.Suryamukhi Merchants (P) Ltd., and credited in the books of the Assessee as share subscription should be added in the hands of the Assessee and not in the hands of Sri.Bhanaram Gupta. With regard to the remaining sum of Rs.50 lakhs each received as share capital from M/S.Esskay telecom Ltd. And M/S.Medhawi Traders Ltd., the CIT(A) held that the Assessee had satisfactorily explained the receipt of share capital. In the assessment of Sri Bhanaram Gupta an addition of Rs.2 crores was made on a substantive basis. Against the said assessment an appeal was filed by Sri Bhanaram Gupta. The CIT(A) in such appeal deleted the addition of Rs.2 crores made on a substantive basis in the hands of Sri Bhanaram Gupta, since addition of Rs.1 crores wad confirmed on a substantive basis in the hands of the Assessee and another sum of Rs.1 crores was held to be duly and satisfactorily explained by the Assessee. The Tribunal upheld the order of the CIT(A) deleting addition of Rs.1 crores being Rs.50 lakhs each received as share capital from M/S.Esskay telecom Ltd. And M/S.Medhawi Traders Ltd., and endorsed the CIT(A)’s finding that the Assessee had satisfactorily explained the receipt of share capital from the aforesaid two parties. With regard to the receipt of a sum of Rs.50 Lakhs each received from M/S.Poly

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Products (P) Ltd., and M/S.Suryamukhi Merchants (P) Ltd., and credited in the books of the Assessee as share subscription which was treated by the CIT(A) as unexplained, the Tribunal held that the same cannot be sustained. The Tribunal firstly held that the said addition was made on the basis of statement of Shri.Raj Deo Roy and that statement could not have been used by the AO for the reason that the statement was recorded by an Officer who did not have authority to record such statement. Thereafter the tribunal held in paragraph 32 of its order that the addition in any event cannot be made in proceedings u/s.158BC of the Act where only undisclosed income detected as a result can be brought to tax and since the receipt of share capital by the Assessee is already disclosed in the regular books of accounts of the Assessee, the same cannot be subject matter of addition in proceedings u/s.158BC of the Act. The observations of the Tribunal in paragraph-32 of its order in our view cannot be construed as a direction to make a reassessment u/s.147 of the Act in respect of the sum of Rs.1 crore comprising of receipt of share capital of Rs.50 lakhs each from M/S.Poly products (P) Ltd. And M/s.Suryamukhi Merchants (P) Ltd. The findings of the Tribunal in paragraph 31.4 is that the addition of Rs.1 crore as above is based purely on the statement of Sri Raj Deo Roy which was recorded by an officer not having authority in law to record such statement and therefore there can be no evidentiary value attached to such statement. Since the reasons for initiating reassessment proceedings u/s.147 of the Act is only on the basis of the observations of the Tribunal in paragraph-32 of its order, which cannot by any stretch of imagination be treated as a direction to initiate reassessment proceedings u/s.147 of the Act and since those observations cannot also give any reason to believe that income of the Assessee chargeable to tax has escaped assessment because of the observations of the Tribunal in paragraph 31.4 of its order, the initiation of reassessment proceedings u/s.147 of the Act, in our view cannot be sustained. The same is therefore bad in law and is hereby quashed and annulled. 22. We also find substance in ground (iv) raised by the Assessee in its application under Rule 27 of the ITAT Rules. The question raised therein is as to whether the order of reassessment is bad in law for the reason that a protective assessment has

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been made in proceedings u/s.147 of the Act. We find that identical issue had come up for consideration before the Hon’ble Bombay High Court in the case of DHFL Venture Capital Fund (supra). The facts of the case before the Hon’ble Bombay High Court was that the Assessee, registered with SEBI as a Venture Capital Fund filed a return of income claiming the status of an AOP. For AY 2008-09, the assessee claimed that the contributions by its investors in terms of the trust deed and contribution agreements constituted revocable transfers under the provisions of the Act and hence, the income accruing to the fund was not liable to tax in the hands of the assessee, but in the hands of the investors / contributors in proportion to their respective contributions. A similar note was appended in the notes to the accounts. The AO held that the contributors to the scheme have practically no control over it and hence, the provisions of Sections 61 and 63 were not applicable. In the circumstances, the total income was held to be exigible to tax. In appeal, the Commissioner (Appeals) came to the conclusion that there was a revocable transfer within the meaning of Sections 61 to 63 and the income which arose to the trust was taxable in the hands of the contributors and not in the hands of the Assessee. Consequently, it was held that when the share of income received by the contributors from the fund had been included in the total income of the contributors and was offered to tax by the contributors, it was not open to the department to proceed to tax the same income again in the hands of the fund. Against the order of the CIT (A), the Revenue was in appeal before the Tribunal. At that point of time, a notice had been issued by the AO u/s 148 to “the AOP of the contributors of M/s. DHFL Venture Capital Fund” at the address of the Assessee for reopening the assessment. The notice u/s.148 of the Act was challenged as one issued without belief that Contributor’s income has escaped assessment because the Trust Assessent was still being pursued by the Revenue in an appeal before the Tribunal. The Hon’ble Bombay High Court held that the entire exercise was only contingent on a future event and a consequence that may ensure upon the decision of the Tribunal, that again if the Tribunal were to hold against the Revenue. A reopening of an assessment u/s 148 cannot be justified on such a basis. There has to be a reason to believe that income has escaped

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assessment. 'Has escaped assessment' indicates an event which has taken place. Tax legislation cannot be rewritten by the Revenue or the Court by substituting the words 'may escape assessment' in future. Writing legislation is a constitutional function entrusted to the legislature. The reassessment proceedings were held not properly initiated on the ground that the jurisdictional requirement for reopening an assessment u/s 147 for AY 2008-09 has not been fulfilled. In the course of its decision Hon’ble Court also held that there cannot be a protective assessment in a reassessment. The following were the relevant observations, in this regard:

“17. Undoubtedly as counsel appearing on behalf of the Revenue submits the concept of a protective assessment is well known to the law of income tax in India. The basis on which a protective assessment is carried out is summed up succinctly in Sampath Ayengar's Law of Income Tax (11th edition, Vol. VI, page 9724) : “Protective assessment – The Assessing Officer may often have to assess the same income in more than one place. Sometimes they may be made by different officers as, for example, where an officer assessing A thinks that certain income belongs to him but another officer assessing B is of the opinion that the income is his. Sometimes the same officer may find that an assessee before him is returning a particular income but is of the opinion that it should be assessed in the hands of a firm or a family and not in the hands of the person who returned it. It has been held that the officer may, when in doubt, CIT v. Shri Ramchandraji Maharaj Ka Bada Mandir (1988) 73 CTR (MP) 79 to safeguard the interests of the Revenue assess it in more than one hand., Lalji Haridas v. ITO (1961) 43 ITR 387 (SC) But this procedure can be permitted only at the stage of the assessment as, at higher levels, it is possible for the appellate or revisional authority to give a clear finding as to the assessee who is liable to be so assessed leaving the one who is aggrieved to get redress by appropriate proceedings., See Dayabai v. CIT (1985) 154 ITR 248 (MP). In any event, if , at the stage of the Tribunal or High Court it is found that the same income is assessed in both places, the Department should provide relief suo motu to one of them, ITO v. Bachu Lal Kapoor (1966) 60 ITR 74 (SC). There can be precautionary assessments but not protective recovery, CIT v. Cochin Co Pvt Ltd (1976) 104 ITR 655 (Ker.). But where an assessment is intended to be protective, it should be so expressed, CIT v. Khalid Mehdi (1987) 165 ITR 685 (AP).” 18. A protective assessment as the learned author indicates5 is regarded as being protective because it is an assessment which is made ex abundanti

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cautela where the department has a “doubt as to the person who is or will be deemed to be in receipt of the income”. A departmental practice, which has gained judicial recognition, has emerged where it appears to the Assessing Officer that income has been received during the relevant Assessment Year, but where it is not clear or unambiguous as to who has received the income. Such a protective assessment is carried out in order to ensure that income may not escape taxation altogether particularly in cases where the Revenue has to be protected against the bar of limitation. But equally while a protective assessment is permissible a protective recovery is not allowed. However, such an exercise which is permissible in the case of a regular assessment must necessarily yield to the discipline of the statute where recourse is sought to be taken to the provisions of Section 148. Protective assessments have emerged as a matter of departmental practice which has found judicial recognition. Any practice has to necessarily yield to the rigour of a statutory provision. Hence, when recourse is sought to be taken to the provisions of Section 148, there has necessarily to be the fulfillment of the jurisdictional requirement that the Assessing Officer must have reason to believe that income has escaped assessment. To accept the contention of the Revenue in the present case would be to allow a reopening of an assessment under Section 148 on the ground that the Assessing Officer is of the opinion that a contingency may arise in future resulting an escapement of income. That would, in our view, be wholly impermissible and would amount to a rewriting of the statutory provision. Moreover, the reliance which is sought to be placed on the provisions of Explanation 2(a) to Section 147 is misconceived. Explanation 2 provides a deeming definition of cases where income chargeable to tax has escaped assessment and clause (a) includes a case where no return of income has been furnished by the assessee although his income or the income of any other person in respect of which he is assessable exceeds the maximum amount which is not chargeable to tax. As the reasons which have been disclosed to the assessee would indicate, this is not a case where an assessee has not filed a return of income simplicitor. The whole basis of the reopening is on the hypothesis that if the provisions of Sections 61 to 63 are attracted as has been claimed by the assessee, and the income of Rs.32.83 Crores which has been claimed by the assessee to be exempt is treated as exempt, in that event an alternate basis for taxing the income in the hands of the AOP of the contributories is sought to be set up. For the reasons already indicated, the entire exercise is only contingent on a future event and a consequence that may enure upon the decision of the Tribunal, that again if the Tribunal were to hold against the Revenue. A reopening of an assessment under Section 148 cannot be justified on such a basis. There has to be a reason to believe that income has escaped assessment. 'Has escaped assessment' indicates an event which has taken place. Tax legislation cannot be rewritten by the Revenue or the Court by substituting the words 'may escape assessment' in future. Writing legislation is a constitutional function entrusted to the legislature.”

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(emphasis supplied) 23. In the light of the above discussion, we hold that the proceedings u/s.147 of the Act were not validity initiated in the present case as the condition precedent for such initiation is absent in the present case. We therefore annul the order of assessment u/s.147 of the Act. In view of the above conclusion, we do not deem it necessary to deal with the ground of appeal raised by the revenue in its appeal. Suffice it to say that the issue raised by the revenue has already been decided by the Tribunal in the appeal u/s.158BC of the Act and decided in favour of the Assessee on merits. With these observations, we dismiss the appeal of the Revenue. 24. In the result appeal by the Revenue is dismissed. Order Pronounced in the Open Court on 2.12.2016 Order pronounced in the Court on 2.12.2016. Sd/- Sd/- [P.M.Jagtap] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 2.12.2016. [RG PS] Copy of the order forwarded to: 1.M/s. Premier Road Carriers Ltd., 32, J.L.Nehru Road, Kolkata-700071. 2. D.C.I.T., Circle-8, Kolkata. 3. CIT(A)-VIII, Kolkata 4. C.I.T.-III, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.