POWAI VIHAR DEVELOPERS P. LTD,MUMBAI vs. ACIT 10(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य राजे�� के अनुसार PER RAJENDRA, AM- लेखा सद�य राजे�� के अनुसार लेखा सद�य राजे�� के अनुसार लेखा सद�य राजे�� के अनुसार Challenging the order dt. 5.7.2011 of CIT(A)-22,Mumbai the assessee has filed the present appeal.Assessee-company,engaged in the business of labour contract and developers,filed its return of income on 30.10.2005 declaring the income at Rs.34.71 lakhs.Initially,the return was processed u/s.143(1)of the Act.Later on,proceedings u/s. 147 of the Act were initiated for re-opening the assessment after recording the reason.The Assessing Officer (AO)completed the assessment u/s.143(3) r.w.s.147 of the Act,on 10.12.2010,determining the income of the assessee at Rs.89.71 lakhs. Brief facts: 2.During the course of appellate proceedings before the CIT(A)-37,Mumbai, one Narendra R. Shah (NRS) submitted a paper book containing a comprehensive list of names and addresses of 1314 persons who had allegedly laundered their black money and had availed financial accommodation entries.Some of the entities who had provided accommodation entries of loans/share application money through Narendra R. Shah included Kailash Ficom Ltd. (KFL).In the names of various companies,appearing in the paper book (PB) submitted by NRS,the name of the assessee also appeared.It was found that the assessee had taken two entries of Rs.12.00 lakhs and Rs.25 lakhs in the month of March 2005 from Universal Credit and Securities Ltd.(UCSL)through the Centurion Bank.In response to the notice issued,the assessee claimed that it had not taken any entry from UCSL, that it had taken loan amounting to Rs.55 lakhs from KFL in the month of March 2005.In order to examine the genuineness and correctness of the transactions summons u/s.131 of the Act were issued to the Principal Officer of the assessee-company and of KFL.The AO recorded the statement of the Principal Officer of the assessee company on 25.11.2010.He had submitted the confirmation of KFL. However,summons issued to KFL was returned unserved. The AO held that assessee was not able to produce KFL,that it had failed to prove that loan was taken from KFL, that no agreement/details of securities offered for the loan taken was submitted by the assessee, that the director of the assessee-company was not aware of the transaction.Finally,he held that the loans of Rs.65 lacs claimed by the assessee company to have been taken from KFL remained unproved, that same had to be treated as unexplained cash credit, that the assessee had failed

3.Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it was argued that the assessee had filed loan confirma -tion,bank statement of the assessee,the address of the loanee and P.A.No., that the request made by the assessee to cross examine NRS was denied by the AO, that AO had nowhere proved that there was a nexus between the assessee and the loanee.After considering the submission of the assessee and the assessment order,the FAA referred to the order of the Hon’ble Delhi High Court delivered in the case of Oasis Hospitalities Pvt. Ltd.(ITA No.2093 of 2010, dated 30th Jan. 2010) and held that there was no proof that cross examination was asked for and denied,that the assessee had failed to prove the genuineness of the creditors, that the AO was justified in making the addition of Rs.55.00 lakhs.

4.Before us,the Authorised Representative (AR) stated that the addition made by the assessee were not based on the reasons recorded by the AO for re-opening the assessment, that the order passed u/s. 148 was ab initio void. He referred to the case of Jet Airways (I) Ltd.(331 ITR236)of the Hon'ble Bombay High Court.The Departmental Representative(DR)supported the order of the FAA.

5.We have heard the rival submissions and perused the material before us. We find that while re-opening the assessment, the AO had recorded following reasons : "The Assessee Company has filed its return of income on 30.10.2005, declaring total income at Rs.34,71,815/-. The assessment was completed u/s.143(3) of the Act on 31.07.2007, accepting the returned income of Rs. 34,71,815/ -. Shri Narendra R Shah a hawala operator was involved mainly in giving of hawala of share application money to many beneficiaries. Shri Shah has not only admitted his role as a hawala operator before the CIT(A)-37, Mumbai but also furnished to him particulars of the beneficiaries. During the course of appellate proceedings before the CIT(A)-37, Mumbai Shri Narendra R· Shah has submitted a paper book containing a comprehensive list of names and addresses of 1314(one thousand three hundred fourteen only) persons who laundered their black money and became the beneficiaries of the impugned penny stock, share application money, etc. The paper book submitted before the CIT(A)-37, Mumbai shows list of beneficiaries under various heads. Under the head 'share application money given at Sr. No. 143 and 144 “Powai Vihar Developers P. Ltd” is in receipt of amount of Rs.12,00,000/-and Rs.25,00,000/- respectively from the party M/s. Universal Credit and Securities Ltd. on 15.03.2005 and 19.03.2005. The amount of Rs.37,00,000/- routed from M/s. Universal Credit and Securities Ltd is nothing but accommodation entries. The amount of Rs.37,00,000/- is therefore unexplained cash credits appearing in the books of assessee. I have therefore, reason to believe that income to the tune of Rs.37,00,000/- has escaped assessment for not making true and full disclosures of all material facts necessary for the assessment, within the meaning of the provisions of sec.147 along with explanations 1 and 2(b). This is therefore, a fit case for issue of notice u/s.148 of the I.T. Act 1961.”” We find that AO had specifically mentioned that income to the tune of Rs.37 lakhs had escaped assessment,that the assessee was in receipt of Rs.12 lakhs and Rs.25 lakhs respectively from UCSL on 15.3.2005 and 19.3.2005 respectively, that the amount of Rs.37 lakhs received from UCSL was nothing but accommodation entry.But,the assessee had taken loan from KLF and finally the AO had made an addition of Rs.55 lakhs.From the above it is clear that the AO had re-opened the assessment for taxing the amount received from UCSL but finally he made an addition on account of loan taken from KLF.We find that the final additions made by the AO had no relation with the reasons recorded for reopening the 6412/M/11-Powai Vihar assessment.The established rules of taxation provide that there should be live nexus between the reasons recorded and final additions made.The reason behind it is to control the AO.s.,so, that they cannot re-open the assessments without valid basis.Without such restriction they would issue 148 notices for one reason and complete the assessments on other issues. Invoking the provisions of section 147 is a serious issue and unbridled powers of re-opening cannot be given to the AO.s.The Hon’ble jurisdictional High Court in the case of Jet Airways (supra)has discussed the issue as under:

“The effect of s. 147 as it now stands after the amendment of 2009 can be summarised as follows : (i) The AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) Upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the AO has to serve on the assessee a notice under sub-s. (1) of s. 148; (iii) The AO may assess or reassess such income, which he has reason to believe, has escaped assessment 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 the section; and (iv) Though the notice under s. 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. ………….Upon the formation of a reason to believe under s. 147 and following the issuance of a notice under s. 148, the AO has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the AO has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the AO to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under s. 148(2), the AO accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of s. 147 w.e.f. 1st April, 1989 clearly stipulated that the AO has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter. ……….Parliament, when it enacted the Expln. 3 to s. 147 by the Finance (No. 2) Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Expln. 3 to s. 147, Parliament stepped in to correct what it regarded as an interpretational error in the view which was taken by certain Courts that the AO has to restrict the assessment or reassessment proceedings only to the issues in respect of which reasons were recorded for reopening the assessment. The corrective exercise embarked

6412/M/11-Powai Vihar upon by Parliament in the form of Expln. 3 consequently provides that the AO may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice under s. 148(2). 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 s. 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 AO could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Expln. 3 by the Finance Act (No. 2) of 2009. However, Expln. 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of s.