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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the assessee is directed against the order dated 01/10/2015 of Commissioner of Income Tax (Appeals)-12, Mumbai (Hereinafter called as the CIT(A) ) for assessment year 2006-07.The assessee has raised following grounds of appeal:
The learned Assessing Officer erred on facts and in law in making the impugned addition of Rs.75,00,000/- being share capital and Rs. 25,39,180/- being unsecured loans of the appellant company.
2. The Learned Assessing Officer failed to appreciate the fact that the original assessment of the company is completed u/s. 143(3) of Income Tax Act, 1961 by his predecessor and the impugned additions are already examined by the Ld. Predecessor AO.
The reopening is invalid in law and in facts as no new and no tangible material has come on record.
4. The learned Assessing Officer and LD. CIT (A) failed to appreciate that there is no documentary evidence against the appellant company to support such impugned additions. The learned Assessing Officer failed to appreciate that the statements of any person recorded U/s. 131 or otherwise do not trigger any adverse order against the appellant and in such case, the burden of proving what is alleged in the assessment order is on the learned Assessing Officer.
5. The learned Assessing Officer and LD. CIT (A) ought to have appreciated that in the original assessment U/s. 143(3) and in this assessment U/s. 143(3) read with U/s. 148, the appellant company has fully discharged burden of proof, onus of proof and explained the source of share capital and advances received by establishing the identity, credit worthiness and genuineness of transaction by banking instruments with documentary evidences.
6. The learned Assessing Officer and LD. CIT (A) failed to appreciate that the appellant company substantiated the details with the documentary evidences as extracted from the website of Ministry of corporate affairs, Government of India. In this assessment order, the learned Assessing Officer could not rebut
any of the facts and documentary evidences submitted by the appellant company.
7. The Ld. AO has erred in reopening the assessment of the -appellant company u/s. 147/148 of Income Tax Act, 1961.
8. The Ld. Commissioner of Income Tax (Appeals) has erred in upholding the contentions of the Ld. AO and disposing the appeal of the appellant company filed before the CIT (A) against the appellant without giving proper opportunity of hearing and without following the principles of natural justice, fairness and equity.
The Ld. Commissioner of Income Tax (Appeals) has erred in upholding the reopening of assessment u/s. 148 of Income Tax Act, 1961 as valid.
The Ld. Commissioner of Income Tax (Appeals) has erred in upholding the impugned addition of 75,00,000/- being share capital and 25,39,180/- being unsecured loans of the appellant company u/s. 68 of Income Tax Act, 1961.
The brief facts regarding the re-opening of the case u/s 147 r.w.s 148 of the Act are that the assessee filed his return of income u/s 139(1) on 28.10.2006 which was processed u/s 143(1) of the Act on 17.01.2008. Later on case of the assessee was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessment u/s 143(3) of the Act was framed vide order dated 23.12.2008 at Rs. Nil by the AO by rejecting the entire expenses claimed of Rs. 1,34,350/- in the profit and loss account by the assessee on the ground that no business activity was carried on during the year by the assessee.
Thereafter the assessment concluded u/s 143(3) of the Act was reopened u/s 147 of the Act and notice u/s 148 of the Act dated 18.3.2013 was issued and served on the assesee on 19.3.2013 after expiry of four years from the end of the assessment year 2006-07. The reason recorded for reopening the assessment are as under:
“The assessee filed its return of income on 28.10.2006 declaring loss of Rs.1,34,350/-. The assessment was completed under section 143(3) on 23.12.2008 disallowing the expenses claimed and thereby the income was assessed at rupees nil.
In search and seizure action under section 132 of the IT act 1961 was carried out in the case of MahaSagar securities Pvt. Ltd., During the course of search, it was discovered that Shri. Mukesh M Chokshi, the chartered accountant by profession has floated some 36 companies from his office at Sri Sadashiv cooperatior housing society, Santacruz East, Mumbai. There was no genuine business being carried out by any of the concerns and they were all engaged in the business of issuing bogus bills for providing long term capital gain/loss, speculation profit or loss. Further some of the companies were engaged in providing bogus share application money to other companies.
In the case of Chamatkar properties and investments Pvt Ltd., it is seen that the assesee has allotted shares amounting to Rs.7500000/- during the financial year 2005-06 relevant to assessment year 2006-07 as under:
Sr. Name of the share applicant Amount NO (Rs.) 1 Alembric Securities Pvt. Ltd. 5,00,000 2 Alpha Chemie Trade Agencies Pvt. Ltd. 25,00,000 3 Gabriel Investments Pvt. Ltd. 5,00,000 4 Sonal Silchem Ltd. 10,00,000 5 Dynachem Phar.(Export) Ltd. 5,00,000 6 Mihir Agencies Pvt. Ltd. 15,00,000 7 Alliance Intermediateries & Network Pvt. 10,00,000 Ltd. Total 75,00,000
The names of the above mentioned companies are out of the companies floated by Mukesh Chokshi which are engaged in the business of providing accommodation entries. As the information was not available at the time of assessment, the genuineness of the above-mentioned share applicants or the transactions could not be challenged. Considering the above new facts which the assesee has failed to disclose fully and truly all the material facts, I have reason to believe that income amounting to Rs.75,00,000/- chargeable to tax has escaped assessment for such assessment year.”
3. Thereafter the AO completed the assessment u/s 143(3) r.w.s. 147 of the Act vide order dated 13.3.2014 at Rs.1,00,39,180/- by making addition of Rs.75,00,000/- for increase in share capital and Rs.25,39,180/- as un-proved loans during the year under the provisions of sections 68 of the Act. The ld. CIT(A) held the reopening u/s 148 of the Act to be valid on the ground that tangible material was available before the AO for issue notice u/s 148 of the Act and the assessment was reopened after recording the reasons to effect that the assessee failed to disclose fully and truly all material facts in respect of income during the year and consequently upheld the addition of Rs.75,00,000/- made towards share capital and Rs. 25,39,180/- for the unproved loans u/s 68 of the Act on the ground that appellant could not prove the genuineness, identity and creditworthiness of the persons/ entities from whom these amounts were received and it was established that the assessee was involved in taking the accommodation entries from Shri.
Mukesh M Chokshi, Mahasagar Securities Pvt. Ltd and other associated companies.
Before us the ld. Counsel for the assessee Shri. Dr. P. Daniel submitted that the assessee filed its return of income u/s 139(1) of the act on 28.10.2006 and during the course of scrutiny proceedings furnished all the details/records comprising computation of income, annual accounts, audit report, confirmations and books of accounts before the AO etc. It was argued before us that the AO issued notices u/s 148 to reopen the assessment u/s 147 of the Act after a period of four years from the end of the relevant assessment year to assume jurisdiction in violation of the first proviso to section 147 of the Act and therefore the reopening of the assessment was not as per the scheme of the Act as the assessee had duly filed its return of income disclosing full particulars as to increase in share capital and raising of loans during the year which were duly examined by the AO during the course of scrutiny proceedings and the issues which were sought to be raised and raked up in the reopening proceeding such as unsecured loans of Rs. 25,39,180/- and share capital of Rs.75,00,000/- were examined in detail while framing the original assessment u/s 143(3) which was completed vide order dated 23.12.2008. The ld. Counsel also drew our attention to the office note appended to the assessment order dated 23.12.2008 by advancing the arguments that the confirmations in respect of loans raised and share applicants were filed before the AO and ld. AO drew no adverse inference therefrom which was recorded in the assessment order. Therefore the proviso to section 147 of the Act was wrongly invoked to re-open a completed assessment after four years without satisfying the conditions provided therein by placing strong reliance on the decision of the coordinate bench of Mumbai Tribunal in ITA No. : 3904/Mum/2012 (AY: 2004- 05).
The ld. Counsel submitted before us that the reopening the already concluded assessment on the basis of the information’s which were available before the AO at the time of original assessment and were duly verified /examined by the AO while framing the assessment was nothing but patent change of opinion which was not permissible under the Act and that the statute did not permit the already concluded assessment to be disturbed on the basis of same materials which were before the AO. The ld. Counsel placed strong reliance on some decisions in case of CIT vs. Kelvinator of India Ltd. (SC) (2010) 320 ITR 561 (SC) and A.P. Refinery Pvt. Ltd. vs. A.C.I.T. (2015) 174 TTJ (Chd.) (UO) 41 in support of case of the assessee. The ld. Counsel further submitted that the assessment was re-opened by the AO on the basis of information passed by the investigation wing of the Dept which stated that the assessee was involved in taking accommodation entries from Mr Mukesh M Chokshi and associated companies whereas as a matter of fact there was no mention of assessee name in the statement of Mukesh M Chokshi and the reasons recorded were merely on suspicion and no new materials had come in the possession of the AO as the issue raised while recording reasons stood verified and confirmed during the original assessment proceedings with specific findings which were duly recorded by the AO in the assessment order by way of office note. The ld. Counsel also submitted that merely re-opening the assessment on the basis of information from the investigation wing was also bad in law as has been held in the following decisions namely :-
(i) Sarthak Securities Co. Pvt. Ltd. (2010) 329 ITR 110 (Delhi) (ii) CIT VS.SFIL Stock Broking Ltd. 325 ITR 285 (Delhi)
(iii) Shri. Hirachand Kanuga vs. the DCIT The assessment was reopened u/s 147 of the Act on the basis of disclosures made by Shri. Mukesh M Chokshi, during the course of search and seizure action u/s 132 of the Act in the case of Mahasagar securities Pvt Ltd that his companies were providing accommodation entries and AO recorded reasons that the shares were allotted amounting to Rs.75,00,000/- to the associates companies and corporate deposits of Rs.25,39,180/- were taken from associated companies which were floated by Mr. Chokshi and therefore all the transactions were nothing but a colourable device to evade the income and were bogus. After obtaining the copies of the reasons recorded for issuing notice u/s 148 of the Act, the assessee filed its objections to the initiation of re-assessment proceedings vide letter dated 14.01.2014 and 21.01.2014. The objections filed the assesee were rejected and disposed off vide letter of the AO vide letter no. ITO -6 (2) -148 –CP& TPL/2013. dated 10.03.2014 whereas the assessment was framed vide order dated 13.03.2014 just 3 days after which was in violation of the decision of the jurisdictional High Court in the case of Asian Paints Ltd V DCIT (2008)296 ITR 90(Bom). The ld. Counsel also pointed out that there was no failure on the part of the asesessee to disclose all material facts relating to the share applicants and conversion thereof into share capital and also qua corporate loans which were duly shown in the balance sheet of the assessee and all the confirmations were filed before the AO and the AO after verification of the same appended a office note to the assessment order passed u/s 143(3) in the original scrutiny proceeding stating therein that no adverse inference was drawn. The ld. Counsel ultimately submitted that the order passed u/s 143(3) r.w.s. 147 of the Act was suffering from several incurable infirmities and defects and therefore prayed for quashing and annulling the assessment u/s 143(3) r.w.s. 147 of the Act on the ground that reopening beyond four years without having any jurisdiction under the first proviso of the section 147 of the Act and secondly on the ground of change of opinion and thirdly the order of re-assessment was passed within 3 days from the date of disposal of objections.
5. Per contra, the Departmental Representative vehemently argued that the assessment was re-opened on cogent grounds that the assessee was involved in taking accommodation entries from Mukesh Chokshi and associated companies and failed to prove the creditworthiness, genuinity and identity of the share applicants and loan creditors and prayed for upholding the orders of authorities below.
We have heard the rival submissions and perused the materials on records.
We find that the assessee filed the return of income on the AY 2006-07 on 28.10.2006 declaring a loss of Rs. 1,34,350/-. The said return was processed u/s 143(1) of the Act on 17.01.2008. The case of the assessee was selected for scrutiny and the assessment u/s 143(3) of the Act was completed at Nil vide order dated 23.12.2008 by rejecting the claim of the assessee of Rs. 1,34,350/- for various expenses charged to the profit and loss account on the ground that the assessee was not carrying on any business activity during the year. Thereafter the assessment completed u/s 143(3) was re-opened u/s 147 of the Act by issuing notice u/s 148 of the Act dated 18.03.2013 which was served upon the assessee on 23.12.2008 after a period of four years from the end of the assessment year 2006-07. It was argued before us that the assessment can only be re-opened u/s 147 of the Act after four years from the end of assessment year under 1st proviso to section 147 of the Act if the income had escaped assessment by reasons of failure of the assessee to make a return of income u/s 139(1) or u/s 142(1) or u/s 148 or to disclose fully and truly all material facts necessary for the assessment of income .The first proviso to section 147 is reproduced below:-
“ Provided that where an assessment under sub-section(3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assesee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:”
Now in order to decide the issue we have to examine the disclosures made by the assessee in his return filed u/s 139(1) and during the course of scrutiny proceedings and the manner in which the assessment was completed u/s 143(3) of the Act. The return of income was filed u/s 139(1) and during the course of scrutiny the AO examined the profit and loss account , balance sheet , audit report and books of accounts comprising cash book, ledger, bills, vouchers, sales and purchase registers, confirmations in respect of share applicants and loans and the AO completed the assessment u/s 143(3 ) vide order dated 23.12.2008 by disallowing the expenses claimed Rs. 1,34,350/- We also find from the assessment order that a office note was appended on page no 2 stating that confirmations in respect of share applicants and loans and books of accounts were examined and verified and no adverse inference was drawn. The extracts of the said office note is reproduced as under:-
“OFFICE NOTE: The return was selected for scrutiny on 1st October 2007 under CASS as per CBDT’s Central Action Plan for the F.Y. 2007-08: This is no AIR information in this case The following issues were examined. They are discussed as follows: (i) Unsecured Loans Loan Confirmations have been filed and no adverse inference can be drawn therefrom. (ii) Introduction of Capital Details of the share capital issued have been filed. Confirmation of the share applicants are filed and no adverse inference can be drawn therefrom. (iii) General examination of Books
The assessee maintains Cash/Bank Book, Ledger, Purchase/ Sales Register and Journal. The same are produced before me along with the supporting bills/vouchers and are test checked. No adverse inference can be drawn from them.”
7.1 From the above facts it is clear that the assessee had duly filed its return of income u/s 139(1) and also filed all the necessary records/details/confirmations before the AO who completed the assessment after examining the records and recorded his satisfaction in assessment order itself by way of office note and thus it is a case where the income had definitely not escaped because of the assessee having failed to make full and true disclosure as envisaged in the 1st proviso to section 147 of the Act and the AO had wrongly assumed jurisdiction to re-open the assessment. It is also clear from the reasons recorded that assessment was re- opened on the basis that the assessee had allotted shares to and borrowed money from the companies which were associated with Mr Mukesh M Chokshi and his company M/S Mahasagar Securities Pvt. Ltd which were operating a scandal of accommodation entries and since the said information was not available with the AO at the time of original assessment and thus assessee had failed to disclose all material facts fully and truly. However in our opinion the assessee had fully disclosed all the facts qua allotment of shares and receiving loans and even filed confirmations from all these companies. In the case of Hasmukh J Shah Vs ITO in assessee by quashing the assessment under same facts. We, respectfully, following the ratio laid down in the said decision of the coordinate bench, hold that the action of the AO of re-opening the assessment without satisfying the conditions provided in the proviso to section 147 of the Act is bad in law and cannot be sustained and consequently the re-opening of the assessment u/s 147 r.w.s. 148 of the Act is hereby quashed. The AO is directed accordingly.
Even on merit we find that no new materials had come before the AO and reasons to believe as recorded u/s 148 of the Act to re-open the completed assessment were on the basis of materials which were duly examined by the AO while framing the assessment u/s 143(3) and even left a office note recording his satisfaction on the confirmations of share applicants to whom the shares were allotted and also with respect to loan creditors. The law does not permit or empower the AO to re-open an already concluded assessment on the basis of same information/materials which were before the AO at the time of original assessment.
The Hon’ble apex court in the case of CIT Vs Kelvinator India Ltd (supra) held that re-assessment based on the same materials which were before the AO at the time of original assessment is bad in law and has to quashed as the same is based on the change of opinion. We therefore respectfully following the decision of the apex court, quash the re-opening u/s 147 r.w.s. 148 of the Act as being based on change of opinion by allowing the appeal of the assessee. In result appeal of the assessee is allowed.
Order pronounced in the open court on 29th January, 2016
Sd/- Sd/- (Amit Shukla) (Rajesh Kumar) �या�यक सद�य / Judicial Member लेखा सद�य / Accountant Member मुंबई Mumbai; �दनांक Dated :29.01.2016 Ps. Ashwini Gajakosh आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT – concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,