Case Law Details
Gold Finch Jewellery Ltd Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that addition solely on the basis of investigation wing report unsustainable as onus was discharged by the assessee as PAN card and bank statements were duly submitted
Facts- During the Course of survey proceedings, it was found that during the year under consideration the assessee has introduced share capital on fictitious name and in the name of companies and entities who was not having financial capabilities for such investment. During post survey inquiry, these entities had accepted the fact that they were only involved in providing accommodation entries. It was also noticed that they had made investment in shares on receipt of money from the assessee company.
These facts were recorded on oath u/s. 131 of the Act, 1961 and the persons categorically accepted in the statements recorded that they had received cash from Shri Mahendra Shah, Director of the assessee company for making investments in the assessee company i.e. M/s. Goldfinch Jewellery Ltd.
From the above, it is clear that the names of these entities were utilized by Shri Mahendra Shah, Director of the assessee company for introducing unaccounted income in the garb of share capital and share premium in M/s. Goldfinch Jewellery Ltd.
Therefore, after recording the reasons on 28.3.2011, a notice u/s.148 of the I.T. Act dtd. 29.3.2011 was issued and served upon the assessee company. CIT(A) confirmed the same. Being aggrieved, the assessee company has preferred the present appeal challenging reopening by AO.
Conclusion- Learned AO did not inquire from the return of income of the person whom shares were transferred. It is pertinent to note that copy of PAN Card was supplied to the AO alongwith computation of income. Bank statements from where investment had been made but learned AO did not examine abovesaid documents rather learned AO made addition solely on the basis of the Investigation Wing Report.
Held that we are of the considered view that learned AO has made addition on the basis of the borrowed satisfaction. He has not applied his mind and in our opinion, he ought to have done independent home work but in the present case no such exercise was done by the learned AO for the reason best known to him. Therefore, in our considered opinion, in such case, addition cannot be made.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
Both appeals have been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals)-2, Ahmedabad (‘CIT(A)’ in short) vide Appeal No. CIT(A)-VIII/ACIT Cir. 4/342/2011-12 and now CIT(A)-2/13/AC.Cir.4/2011-12, dated 24.02.2016 arising in the assessment order dated 22.12.2011 passed by the Assessing Officer (AO) under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) concerning AY. 2006-07 & CIT(A)-4 vide Appeal No. CIT(A)-4/101/DCIT/Cir-4/16-17 (Old Appeal No. CIT(A)-2/37/DCIT/Cir-4/13-14) dated 07th October, 2016 arising in the assessment order dated 22.03.2013 passed by the AO under s.143(3) of the Act.
2. Since facts and issues involved in both appeals are similar and identical, therefore, both appeals were heard together and are disposed of by this common order for the sake of convenience.
3. First we take ITA No.1074/Ahd/2016 for A.Y. 2006-07.
4. The grounds of appeal raised by assessee read as under:
1. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing officer in issuing notice u/s.148 of the I. T. Act, 1961 which is illegal and bad in law.
2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in passing an order u/s.143(3) r.w.s.147 of the I.T.Act,1961 by issuing notice u/s. 148 of the Act, which is illegal and bad in law hence the same should be cancelled.
3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made by the Assessing Officer of Rs.50,00,000/-on account of Share allottment to Shital Securities Pvt. Ltd. of Rs.25,00,000/- and to Dhanvidhya Impex Pvt. Ltd. of Rs.25,00,000/-
4. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs. 1,61,379/- made by the Assessing Officer out of depreciation claimed on two wheeler vehicles and Motor Car.
5. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs.10,38,591/- made by the Assessing Officer @ 25% of labour charges claimed by the Appellant.
5. In this case, a survey operation u/s. 133 A of the Act was carried out by the Investigation wing i.e. DDIT(Inv), Unit-II(l), Ahmedabad on 29.03.2010. During the Course of survey proceedings, it was found that during the year under consideration the assessee has introduced share capital on fictitious name and in the name of companies and entities who was not having financial capabilities for such investment. During post survey inquiry, these entities had accepted the fact that they were only involved in providing accommodation entries. It was also noticed that they had made investment in shares on receipt of money from the assessee company. These facts were recorded on oath u/s. 131 of the Act, 1961 and the persons categorically accepted in the statements recorded that they had received cash from Shri Mahendra Shah, Director of the assessee company for making investments in the assessee company i.e. M/s. Goldfinch Jewellery Ltd. From the above, it is clear that the names of these entities were utilized by Shri Mahendra Shah, Director of the assessee company for introducing unaccounted income in the garb of share capital and share premium in M/s. Goldfinch Jewellery Ltd. In view of the above facts and circumstances of the case, it is clear that the assessee has not disclosed fully and truly all material facts related to this issue. Therefore, after recording the reasons on 28.3.2011, a notice u/s.148 of the I.T. Act dtd. 29.3.2011 was issued and served upon the assessee company. In response to the said notice, the assessee company vide its letter dtd. 1.4.2011 has submitted that the return filed on 19.12.2006 may be treated as return filed in response to notice issued u/s.148 of the Act. A notice u/s.143(2) of the Act dtd.27.07.2011 was issued and served to the assessee company. The assessee vide its letter dtd, 09.08.2011 has filed objection to re-opening of assessment. A detailed reply rejecting the objection of the assessee was given to the assessee company on 30.08.2011.
6. Thereafter, assessee filed its reply by stating that first ground of appeal challenges the legality of the reassessment proceedings u/s 148 of the Act. The copy of the reasons for reopening of the assessment u/s 147 of the Act dated 18.03.2011 were enclosed. It has been stared that during the course of survey operation carried out on 29.03.2010, it was found that there was capital introduction from alleged fictitious entities during the year under appeal. The financial capability have been questioned and it has also been stated that the inquiry conducted by the Investigation Wing led to the conclusion that the so called share applicants had admitted to the fact that they were providing accommodation entries only and the investments made by them in the shares of the appellant company was out of the cash received from Shri Mahendrabhai K. Shah, Director of the assessee company. Presuming that the assessee company was introducing unaccounted income in the garb of share capital and share premium it was concluded that assessee company had not disclosed fully and truly all material facts related to the issue and therefore, it was necessary to enquire about genuineness of the share capital which necessitated the re-opening of the assessment. Furthermore reference to the same alleged evasion of capital gains on the sale of assets has been made while proposing to reopen the assessment.
6.1 The assessee had filed the objections to the reopening of the assessment vide letter dated 09.08.2011. The same were filed on 19.08.2011. It was pointed out that the return was duly filed accompanied by the audited financial statements. The return was also processed and the order was passed u/s 143(1) of the Act. Therefore, the assessee company has disclosed complete particulars and other material facts and therefore cannot be held guilty of withholding information which could lead to the reopening of the assessment. It was also brought to the attention to the AO that the perusal of the reasons did not indicate anything whatsoever by which a conclusion could be reached that there was escapement of income chargeable to tax u/s 147 of the Act.
6.2 The reasons recorded for the reopening of the assessment clearly revealed that it was only on the basis of the survey operation u/s 133 A that reopening of the assessment have been made. It is only doubt and suspicions of the Investigation Wing that the capital introduced in the appellant company is fictitious. In fact, it has been stated in the reasons that statement u/s 131 of the Act were recorded by the DDIT (Inv.) Unit-II(I), Ahmedabad wherein it was deposed of having received cash from the director of the appellant company in lieu of share investments made. However, the reasons do not reveal the name of any such person whose statement is recorded. Furthermore, the statement if any, which has been recorded, the copies thereof have not been furnished to the appellant company. Since the copies of the statement not having been furnished and made available to the appellant company the entire exercise of reopening of the assessment is hi violation of the principles of natural justice and equity. This is on account of the fact that the appellant company has not been confronted with the evidences collected behind his back and relied upon by DDIT/AO. The above discussion would therefore, clearly reveal that the reopening of the assessment was undertaken on the basis of reason to believe on the part of Investigation wing and not the AO. Furthermore, complete information and other material facts has not been provided to the appellant company with regards the basis for under taking reassessment proceedings. Reliance is placed on the following judicial pronouncement in support of its contention.
i. CIT v Smt. Paramjit Kaur (2009) 311ITR 38 (P&H)
Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time, it cannot be stated to be a plenary power. The Assessing Officer can assume jurisdiction under the said provision, provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The Assessing Officer must record reasons showing due application of mind before taking recourse to reassessment proceedings. The Assessing Officer can assume jurisdiction for reassessment proceedings, provided he has reasons to believe, but the same cannot be taken recourse to on the basis: of reasons to suspect. [Para 4] In the instant case, it was undisputed that the Assessing Officer had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft which was not accounted for in the books of account of the assessee. But the Assessing Officer had not examined and corroborated the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The Assessing Officer had, thus, acted only on the basis of suspicion and it could not be said that the same was based on belief that the income chargeable to tax had escaped assessment. The Assessing Officer has to act on the basis of ‘reasons to believe’ and not on ‘reasons to suspect’. The Tribunal had, thus, rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and, therefore, the issuance of notice under section 148 for reassessment proceedings was not valid. [Para 6]
ii. Jose Kuruvinakkunnel v ITO (2007) 14 SOT 462 (Coch.)
Section 147, read with sections 148 and 151, of the Income-tax Act, 1961 – Income escaping assessment – Non-disclosure of primary facts – Assessment years 1996-97 and 1997-98 – Whether reasonable belief contemplated under section 147 must be that of an honest and reasonable person based upon a reasonable ground but it should not be based on some suspicious and vague reasons – Held, yes – Whether section 147 does not contemplate making of roving and fishing enquiry in hope of searching escaped income – Held, yes – Assessing Officer completed original assessment of assessee under section 143(3) – Investigation wing carried out investigation against assessee on basis of an anonymous petition – On basis of report of investigation wing, Assessing Officer reopened assessment of assessee by issuing notice under section 148 after period of four years from end of relevant assessment year – Whether since there was no material before Assessing Officer for formation of belief that there was escapement of income by assessee and there was no failure on part of assessee to disclose fully and truly all material particulars in respect of his income, reassessment proceedings initiated under section 147 were without due authority of law and were liable to be cancelled -Held, yes – Whether since sanction under section 151 was given by Commissioner without recording reasons for his satisfaction, issue of notice under section 148 by Assessing Officer was without due authority of law as it suffered from serious legal infirmities – Held, yes – Whether therefore, reassessment framed by Assessing Officer was to be cancelled – Held, yes
Assessee contended in the above referred cases that the reopening of the assessment has been undertaken on the basis of the report of the Investigation wing. There is no independent satisfaction of the AO that there is escapement of income. Under such circumstances the reopening of the assessment is not justified. But learned AO did not agree with the contention of the assessee and made addition on the basis of aforesaid facts.
7. During the course of assessment proceedings, it is noticed that share capital of the assessee company is increased by amount of Rs.50,00,000/-. On verification, it is noticed that the shares were allotted to following persons:-
1. Shital Securities Pvt. Ltd. 25,00,000/-
2. Dhanvidhya Impex Pvt. Ltd. Rs. 25,00,000/-
Summons u/s.131 of the Act were issued to the above parties. Inspector of this office was deputed to serve the summons. In the case of M/s. Sheetal Security Finance Ltd., the Inspector vide his report dtd. 03.11.2011 had reported that on the address mentioned in summons, no such party was available. The assessee vide order sheet entry dtd. 03.11.2011 was asked to produce Executive Director of Sheetal Security Finance Ltd. on 16.11.2011 along with confirmation etc. In response to said, the assessee has not produced any person but vide letter dtd. 15.11.2011 has furnished the following.
1) Copy of PAN card of Sheetal Securities Finance Ltd.
2) Xerox copy of return of income of Sheetal Securities Finance Ltd. for A Y 2004-05.
3) Copy of application form for 50000 equity shares received from Sheetal Securities Finance Ltd.
4) Copy of application form for 100000 equity shares received from Sheetal Securities Finance Ltd.
5) Copy of application form for 100000 equity shares received from Sheetal Securities Finance Ltd.
6) Copy of the resolution passed by the Board of Directors of Sheetal Securities Finance Ltd.
7.1 In view of above facts, the assessee vide letter dtd. 8.12.2011 was again asked to produce Managing Director of Sheetal Securities Finance Ltd. along with identity proof, coy of acknowledgement of return of income along with computation of income and final accounts and evidences of payment made for shares. The assessee was also asked to show cause as to why amount of Rs.25,00,000/- should not be added to its income in case, if he failed to produce the Managing Director of Sheetal Securities Finance Ltd. In response to said show cause notice, the assessee vide its letter dtd. 10.12.2011 has furnished its reply, which is reproduced as under:-
1. It has been stated that the summons u/s 131 issued on the directors of Sheetal Securities Pvt. Ltd. come back unserved. We have also been requested to present the managing Directors of the aforesaid company. As regard enforcing the attendance of the company the same is not possible and you may directly issue the summons for his attendance. I have not authority whatsoever so as to compel him to attend your office, we are furnishing the latest address of the company as per the information downloaded from the company law site. With respect to the share application we have already furnished the following evidences vide letter dated 24.10.2011.
| Name of the share applicant | Evidences submitted |
| Shital Securities Pvt. Ltd. | Share application form, acknowledgement of the return of income, xerox copy of the PAN & resolution passed authorizing the Subscription of shares. |
7.2 But as per learned AO, the assessee failed to produce Managing Director of M/s. Sheetal Securities Finance Ltd. from where it had received amount for share allotment and accordingly allotted shares to them. The new address of person is not furnished by the assessee even though requested hi response to return of un-served summons. It is the duty of the assessee to prove identity, genuineness of transaction and credit worthiness of the person who had made investment with them. The assessee failed to present the person and also failed to give the address of the person from where he can be enforced to attend the office. Therefore, the identity of the person cannot be established. Further, from copy of acknowledgement of return filed of Sheetal Securities Finance Ltd. the credit worthiness and genuineness cannot be established. However, on verification of acknowledgement, it is noticed that the party was having loss of Rs.3,75,915/-. It is very much clear that if the person is having loss in its business he will not proceed for investment in other companies. Also Shri Rupang R. Shah, Director of Dhanvidhya Impex Pvt. Ltd. and other persons to whom these shares are allotted (Detailed discussed was made in order passed for A.Y.2008-09). had accepted that they had provided only accommodation entries to the assessee company on receipt of cash from directors of assessee company. In view of all these facts, the transactions made by the assessee is not proved as genuine. Accordingly, an amount of Rs.25,00,000/- is added to the income of the assessee company. Penalty proceedings u/s. 271(1)(c) of the I.T. Act is initiated for concealing the particulars of income.
7.3 In response to summons issued in respect of M/s. Dhanvidhya Impex Pvt. Ltd., Shri Rupang R. Shah, Director attended on 9.12.2011. Shri Rupang Shah had stated that the statement given before Investigation Wing in the case of M/s. Goldfinch Jewellery Ltd. is correct. He had received amount of Rs.25,00,000/- in cash from Shri Mahendrabhai shah and given accommodation entry for allotment of shares capital of M/s. Goldfinch Jewellery Ltd. This amount of Rs.25,00,000/-were received by him in cash. No physical share certificate was issued to them.
8. After considering the assessment order and detailed reply filed by the assessee, learned CIT(A) confirmed the action of the AO on the ground that assessee has introduced share capital on fictitious names and in the names of companies and entities who were not having financial capabilities over such investment. Further, during course of survey inquiries, these entities have accepted the fact that they were only involved in providing accommodation entries. It has been admitted that they had made investment in shares in the assessee company were made after receipt of the cash from the assessee company through one of their Directors, namely; Shri Mahendra Shah. Therefore, assessee has not disclosed truly and fully all the material facts in the return of income which lead to the reopening of the assessment by issue of notice under S.148 of the Act. So far as the case laws relied upon by the learned AR concerned, learned CIT(A) held that so far case laws relied upon by the assessee are not relevant on the facts of the case, thus, CIT(A) dismissed the ground of the assessee.
9. Now before us, assessee has challenged the reopening by the AO. Learned AR’s contention was that in this case, whole cases evolving on the statement made by Shri Rupang Shah before the Investigation Wing of the Department. In the said statement, Shri Rupang Shah had admitted the business of share investment and trading. The statement indicates that Shri Mahendra Shah one of the Director in the company had made cash payment who introduced unaccounted income in the garb of share capital and share premium in M/s. Goldfinch Jewellery Ltd. But the statement of Shri Rupang Shah was never supplied to the assessee, for which, assessee wrote a letter to AO on 16.12.2011 requesting him to supply a copy of Investigation Wing . He also stated that unless and until some cogent evidences in support of contention is made available to the assessee to its reserve its right of cross examination of Shri Rupang Shah. Learned AO passed the said assessment order on 22.12.2011 and investments have been made through banking channel and addresses were supplied to the AO. But, learned AO did not inquire from the return of income of the person whom shares were transferred. It is pertinent to note that copy of PAN Card was supplied to the AO alongwith computation of income. Bank statements from where investment had been made but learned AO did not examine abovesaid documents rather learned AO made addition solely on the basis of the Investigation Wing Report. In support of its contention learned AR cited following decisions:
i. PCIT vs. Manzil Dineshkumar Shah [2018] 95 taxmann.com 46 (Gujarat) wherein Hon’ble Gujarat High Court observed as under:
“7. It is equally well settled that the notice of reopening can be supported on the basis of reasons recorded by the Assessing Officer. He cannot supplement such reasons. The third principle of law which is equally well settled and which would apply in the present case is that reopening of the assessment would not be permitted for a fishing or a roving inquiry. This can as well be seen as part of the first requirement of the Assessing Officer having reason to believe that income chargeable to tax has escaped assessment. In other words, notice of reopening which is issued barely for making fishing inquiry, would not satisfy this requirement.
8. With this background, we may revert to the reasons recorded by the Assessing Officer. Information from the Value Added Tax Department of Mumbai was placed for his consideration. This information contained list of allegedly bogus purchases made by various beneficiaries from Hawala dealers. Assessee was one of them. As per this information, he had made purchases worth Rs. 3.21 crores (rounded off) from such Hawala dealers during the financial year 2010-11. According to the Assessing Officer, this information ‘needed deep verification’.
9. If on the basis of information made available to him and upon applying his mind to such information, the Assessing Officer had formed a belief that income chargeable to tax has escaped assessment, the Court would have readily allow him to reassess the income. In the present case however, he recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed that income chargeable to tax has escaped assessment, would not cure this fundamental defect.”
ii. Ravindra Kumar (HUF) @ Rabindra Kumar (HUF) vs. CIT [2019] 110 taxmann.com 58 (Patna), wherein Hon’ble High Court observed as under:
“27. The Supreme Court taking note of the transitory change in Section 147 has in paragraph 7 concluded that a power to reopen would vest in the Assessing Officer only if, there is tangible material in his possession for coming to a conclusion that there was an escapement of income chargeable to tax, from assessment and the reasons with the Assessing Officer must have a live link with the formation of belief. Testing the case in hand in the backdrop of the position so settled in the judgments relied upon by Mr. Pathy as well as on the transitory change as clarified in the judgment of Kelvinator of India Ltd. (supra), it is to be seen whether the case in hand would pass the test.
28. The reasons in possession of the Assessing Officer finds mention in the enclosure to Annexure -B to the counter affidavit and runs under.
“The assessee has not produced concrete evidence like land adanga register, nature of crop cultivated expenses incurred to whom the agricultural produce was sold, who cultivated the land and how the income was derived. In the absence of any material produced to substantiate the receipt an agricultural income therefore, I have reason to believe that the quantum of agriculture income as claimed in ITR for the A.Y.2011-12 is not his agricultural income. Accordingly, the same is treated as the income from undisclosed source which escaped for assessment.
Hence income chargeable to tax to the extent of Rs. 4,85,905/- has escaped assessment within the meaning of Sec. 147 of the Act, 1961. Proposal for issuing notice u/s 148 of the Act may be approved accordingly.”
A plain look at the reasons so assigned would confirm that no tangible material was in possession of the Assessing Officer which could constitute any reasons which led to a belief that any part of income chargeable to tax had escaped assessment rather it is in search of such tangible material that the proceedings had been reopened.
29. The Income Tax Officer fairly mentions in the ‘reasons’ so supplied that the assessee had not produced certain evidences in support of agricultural income and in absence of which the claim towards agricultural income could not be substantiated. We completely fail to appreciate as to how such admission by the Assessing Officer regarding absence of material, could lead to a formation of belief that the disclosure was incorrect and chargeable to tax under Section 147 of’the Act’. The reason is two fold. Firstly such opportunity was much available to the Assessing Officer at the stage of filing of the returns when in exercise of powers under Section 142/143, such directions could have been issued for production of records and a failure of the petitioner to satisfy the Assessing Officer on such count could have led to a best judgment assessment under Section 144 at the stage of original assessment but having not done so, such recourse cannot be adopted by relying upon the statutory provisions of Section 147 of ‘the Act’. Secondly such enabling powers is only to be exercised only where there is tangible material available at the hands of the Assessing Officer and not in absence thereof. The judgments relied upon by Mr. Pathy has been contested by Mr. Sinha on grounds that they relate to the preamended provisions of Section 147 but in our considered opinion, in view of the position settled by the Supreme Court in the case of Kelvinator of India Ltd. (supra) after taking note of the transitory change in Section 147, the legal position as to the prerequisites for such exercise, has not undergone a change and which is that, there had to be tangible material at the disposal of the Assessing Officer for reopening of such proceedings and which power cannot be exercised for initiating a roving enquiry.
30. Even if the judgments rendered by the Supreme Court in the case of Calcutta Discount Co. Ltd. and Lakhmani Mewal Das (supra) is relatable to preamended provisions of Section 147, in view of the legal position settled by the Supreme Court in the judgment rendered in the case of Kelvinator of India Ltd. (supra), whatsoever doubts that may be present are in the mind of the department is set at rest. In this contest we are persuaded to reproduce the opinion of the Division Bench of this Court recorded in the case of Rina Sen (supra) relied upon by Mr. Pathy, which not only relates to the period after amendment to Section 147 but also discusses the extent of power exercised by an Assessing Officer under Section 147 when it records at page 226 as under:
“…………………… It is well settled that the object of Section 147 of ‘the Act’ is not to make a roving or fishing enquiry. While it is open to the authority in an appropriate case to make an enquiry confidentially or otherwise -in order to obtain information or verify facts disclosed to him by the assessee or coming to his notice, before reaching the stage of reasonable believe, he cannot compel the assessee to associate himself in such roving or fact finding enquiry. The assessee can be required to appear only after the Assessing Officer has come to the conclusion as to the reasonable believe within the meaning of Section 147 of ‘the Act’………………………. “
31. The discussions above would answer the issues relating to the power in the Assessing officer to compel production of records in the negative. A corollary to such conclusion is that there was no tangible material in possession of the Assessing officer for formation of belief of escaped income chargeable to tax.”
iii. PCIT v. Andaleeb Sehgal [2021] 124 com 247 (SC), wherein Hon’ble Supreme Court held as under:
“Assessing Officer sought to reopen assessment in case of assessee on ground that assessee had paid bribe to Iraqi officials and therefore same was required to be added to income of assessee – However, it was found that Assessing Officer had simply borrowed conclusions drawn by Enforcement Directorate without making any independent inquiry himself into matter – Even before Tribunal, revenue was unable to show precise documents or material on basis of which Assessing Officer formed reason to believe that bribe had been paid to Iraqi officials and therefore was required to be added to income of assessee – Tribunal allowed appeal filed by assessee, holding that reopening of assessment was not justified as entire case was based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence had been brought on record to connect assessee with bribe paid, rather it was case of zero investigation – High Court by impugned order held that there was no perversity in order of Tribunal allowing appeal filed by assessee – Whether Special Leave Petition against said impugned order was to be dismissed -Held, yes [Para 2] [In favour of assessee]”
iv. PCIT vs. Andaleeb Sehgal [2021] 124 com 246 (Delhi) wherein Hon’ble Delhi High Court held that:
“13. The Court finds that in none of the above grounds is there any reference to any inquiry conducted by the AO of the CIT (A) on examining the above documents, which were available with the AO. The crucial element of explaining how, on the basis of such record, the AO formed the reason to believe that income had escaped assessment is missing. As pointed out by the ITAT in para 17 “the entire case is based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence has been brought on record to connect assessee with the amount of US $ 62,000, rather it is a case of zero investigation.”
14. It is one thing to state that the above documents were available but an entirely different thing to state that on examining those documents the AO found the live link for forming the reason to believe that the sum added had escaped assessment. It must be recalled that these were re-assessment proceedings and not at the stage where it was enough to form a prima facie view for re-opening the assessment. In the re-assessment proceedings the AO was expected to undertake a full-fledged inquiry into the documents produced before him to come to the conclusion that the addition sought to be made was justified. As pointed out by the ITAT or that the AO seems to have done is to simply borrow the conclusions drawn by the ED without making any independent inquiry himself into the matter. Even before the ITAT, the Revenue was unable to show the precise documents or material on the basis of which the AO formed the reason to believe that 60,000 US$ had been paid as bribe to the Iraqi officials and therefore was required to be added to the income of the Assessee.”
v. Kantibhai Dharamshibhai vs. ACIT [2021] 125 taxmann.com 348 (Gujarat), wherein Hon’ble Gujarat High Court held as under:
“33. It appears from the materials on record, more particularly, the objections filed by the writ-applicant, that from day one he has been telling the respondent that the land was not sold to M/s. K.Star Corporation. The land was sold to two individuals named above. Later, if those two individuals sell the land and join M/s. K.Star Corporation, then the same has nothing to do with the transaction of sale between the writ-applicant and the two individuals, namely Ankitkumar Koshiya and Swintubhai Mavani. Even, while disposing of the objections, the Assessing Officer has kept a conspicuous silence in this regard. This aspect of the matter has not been dealt with while considering the objections.
……………………….
…………………..
35. The power to reopen a completed assessment under section 147 of the Act 1961 has been bestowed on the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. However, this belief that income has escaped assessment has to be the reasonable belief of the Assessing Officer himself and cannot be an opinion and/or belief of some other authority. On the basis of the information by itself received from another agency, there cannot be any reassessment proceedings. However, upon receipt of the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee by applying his mind and thereafter is required to form an independent opinion on the basis of the material on record that the information has bearing on the income of the assessee and such income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be ‘independent’ and not ‘borrowed’ or ‘dictated’ satisfaction. Law in this regard is now well-settled.
39. The entire basis for reopening the assessment is on the premise that there was a cash transaction of a huge amount, and having regard to the same, there was no true and full disclosure. We have already explained that this issue of cash transaction is nothing but a mere guess, and at the cost of repetition, the transaction of sale was not with K. Star Corporation. M/s. K. Star Corporation, in the present case, is the second buyer.
40. In our opinion, there is no escapement of income chargeable to tax. The conditions precedent for resorting to reopening of the assessment under section 147 of the Act 1961 are not satisfied in the present case.
41. In the overall view of the matter, we are not convinced with the satisfaction arrived at by the respondent for the purpose of reopening of the assessment for the relevant Assessment Year 2011-12.”
vi. Munir Ismail Voraji vs. ITO [2017] 82 taxmann.com 92 (Gujarat), wherein Hon’ble Gujarat High Court held as under:
“7. At the outset, it is required to be noted that in the present case, the impugned notices under Section 148 of the Act and the assessment for A.Y 20112012 are sought to be reopened solely on the basis of DVO’s report. Nothing is on the record that thereafter, any further inquiry is held/conducted by the Assessing Officer to form an opinion that the income chargeable to tax has escaped assessment with respect to the Capital gain. No further inquiry has been held/conducted to find out the fair market value as on 1st April 1981. It is required to be noted that at the time of filing of original return, the assessee concerned has relied upon the report of the approved Valuer, considering the fair market value of the land in question as on 1st April 1981 at Rs. 4007-per sqm. It appears that thereafter, on the basis of information given by another officer ie., Income Tax Officer [I&CI] Surat, the Assessing Officer made a reference to the Departmental Valuation Officer and thereafter, solely relying upon DVO’s report, assessed the fair market value of the land at Rs. 657- per sqm., the Assessing Officer has sought to reopen the assessment for A.Y.2011-2012. Therefore, the question posed before this Court for consideration is whether solely relying upon and based upon DVO’s report and without holding any further inquiry thereafter with respect to the fair market value of the land as on 1st April, 1981, is it open for the Assessing Officer to reopen the assessment?
7.1 In the case of Dhariya Construction Co. (supra), the opinion of DVO per se is not an information for the purpose of reopening of the assessment under section 147 of the Act. The Assessing Officer has to apply his mind as to the information; if any, collected and thereby form a belief thereon.
7.2 A similar view has been expressed by the Division Bench of this Court in case of Pr. CIT v. J. Upendra Construction (P) Ltd. (supra) (Gujarat) as well as in the case of Aavkar Infrastructure Co. (supra), in which, the Division Bench of this court has followed the decision of Supreme Court in the case of Dhariya Construction Co. (supra) and held that solely on the basis of DVO’s report and without there being any further inquiry by the Assessing Officer to form an opinion that income chargeable to tax has escaped assessment and/or without applying mind to the information in the form of DVO’s report, the Assessing Officer is not justified in reopening the assessment. From the material available on the record; except the report of DVO, there was no tangible material available with the Assessing Officer to form a believe that the income chargeable to tax has escaped the assessment.”
vii. PCIT vs. RMG Polyvinyl (I) Ltd. [2017] 83 com 348 (Delhi), wherein Hon’ble Delhi High Court observed that:
“13. As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had.”
viii. PCIT vs. Meenakshi Overseas (P.) Ltd. [2017] 82 com 300 (Delhi), wherein Hon’ble Delhi High Court held as under:
“36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a ‘borrowed satisfaction’. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.
37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law.”
ix. M/s. Andaman Timber Industries v. Commissioner of Central Excise in Civil Appeal No. 4228 of 2006, wherein Hon’ble Supreme Court held as under:
“As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be, the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause.
We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.
No costs.”
x. ACIT vs. EI Dorado Biotech (P.) Ltd. [2021] 123 taxmann.com 265 (Ahmedabad – Trib.), wherein co-ordinate bench held as under:
“35. Yet, the another controversy arises whether not affording opportunity to cross-examine a witness upon whose statement AO sought to rely for making addition is illegality leading to vitiating the assessment or is irregularity leading to setting aside of the assessment for providing opportunity for cross-examination of the witness by the assessee. This controversy has been resolved by the judgment of the Hon’ble Apex Court in the case of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC). wherein the Hon’ble Apex Court observed as under-
After considering facts and circumstances of the case and going through the above said judgments, we are of the considered view that learned AO has made addition on the basis of the borrowed satisfaction. He has not applied his mind and in our opinion, he ought to have done independent home work but in the present case no such exercise was done by the learned AO for the reason best known to him. Therefore, in our considered opinion, in such case, addition cannot be made.
10. Therefore, this ground of appeal of the assessee is allowed.
11. Since, we have allowed this ground of the assessee on technical basis, therefore, we refrain ourselves to making comment on the merits of the case.
12. Now, we come to ground relating to disallowance of Rs.1,61,379/-made by the AO and confirmed by the learned CIT(A) ought to depreciation claimed on two wheeler vehicles and motor car. In this case, AO had not granted the depreciation on two wheeler vehicles and motor car in the name of the Directors of assessee company for the reason that no proof for evidences have been submitted to substantiate claim that the two wheeler vehicles and car under question was actually used for the business purpose of the company. In the absence of these necessary details, the claim of the assessee for disallowance of depreciation was not accepted.
13. We have gone through the relevant records and impugned order. In similar facts and circumstances, Co-ordinate Bench allowed the claim of the assessee for A.Ys. 2009-10 & 2012-13 as follows:
“5. Briefly stated facts are that assessee is a limited company and engaged in the business of trading and manufacturing of gold and diamonds ornaments. The assessee has claimed depreciation in respect of certain vehicles which were registered in the name of Directors. The assessee claimed that it is the beneficial owner of the asset. The assessee further claimed that these assets were used only and exclusively for the business. Therefore, no adverse inference can be drawn against the assessee merely on the ground that these fixed assets were not registered in the name of the company.
However, the AO found that some of the two-wheelers were purchased in the assessment year 2005-06 in respect of which the depreciation was disallowed in the assessment order framed u/s 143(3)/147 of the Act vide dated 28/12/2010.
5.1 The assessee could not substantiate its claim that these vehicles were used for the business. Therefore the AO disallowed the depreciation of Rs. 1,61,739/-and added to the total income of the assessee.
5.2 Aggrieved assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT (A) submitted that the ld. CIT-A decided the issue pertaining to the assessment year 2005-06 in favour of the assessee. Therefore, the AO erred in rejecting the claim of the assessee after having a reliance on the order of his predecessor pertaining to the assessment year 2005-06.
6. However, the ld. CIT (A) rejected the claim of the assessee by observing that there was no evidence available to demonstrate that the vehicle used for the business.
7. Being aggrieved by the order of ld. CIT (A) assessee is in appeal before us.
8. The ld. AR before us filed a paper book running from pages 1 to 136 and submitted that the assessee was the beneficial owner of the asset as the assessee made the payment for the acquision of such assets. Thus the benefit of depreciation cannot be denied merely on the ground that the ownership is in the name of Director/employee of the Company.
8.1 The ld. AR further submitted that the assessee had claimed interest on the car loan, insurance premium of the car, petrol expenses on the scooter and car and vehicle expenses which were not doubted by the Revenue.
8.2 The ld. AR further submitted that the Revenue had taken the contrary stand by allowing the expenses incurred in connection with the vehicle in full. Therefore, the depreciation in respect of such vehicle was disallowed on the basis of mere conjecture and surmises.
9. On the other hand ld. DR relied on the order of the authorities below.
10. We have heard the rival contentions and perused the materials available on record. In the instant case, the depreciation claimed on the vehicles, i.e. cars and two-wheelers was disallowed by the AO on account of two reasons. Firstly, the assessee was not the owner of the assets, and secondly, the assessee failed to establish that the assets were used for the business. The learned CIT (A) subsequently confirmed the action of the AO.
10.1 Regarding the ownership of the assets, we note that the beneficial ownership vest with the assessee. It is because the payment was made for the purchase of the assets by the assessee though the assets were registered in the name of the directors of the company. Since this fact has not been doubted by any of the authorities below, therefore, we can safely presume that the assessee is the beneficial owner of the assets. In holding so we find support and guidance from the judgment of Hon’ble Supreme Court in the case of Mysore minerals Ltd. vs CIT reported in 239 ITR 775 wherein it was held as under:
“13. An overall view of the abovesaid authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.”
10.2 The 2nd dispute relates whether the assets were used for the business. Indeed it is one of the pre-condition to claim the depreciation on the assets that it should be used for the business. The allegation of the authorities below is that the assessee failed to substantiate its case by filing the documentary evidence suggesting that these assets were used for the business. In this regard, we note that the assessee has claimed other expenses in connection with the vehicle as discussed above. These expenses are like interest on a car loan, petrol expenses, repair and maintenance expenses etc. The necessary details of such expenses are available in the financial statements placed on page 97 in the paper book. It is undisputed fact that these expenses have not been disallowed. Thus, it can be transpired that the Revenue has admitted these expenses incurred by the assessee for the business. Thus in our considered view, we find that the authorities below have made the addition on account of depreciation without the application of mind. Accordingly, we hold that the disallowance on account of depreciation made by the Revenue is not sustainable.
10.3 It is also important to note that the AO also made similar disallowance in the earlier assessment year 2005-06, but the learned CIT (A) deleted the addition made by the AO. The learned DR has also not brought anything on record to demonstrate whether an appeal was preferred by the Revenue against the order of learned CIT-A. Thus in the absence of requisite information from the side of the learned DR, we hold that the Revenue did not challenge the order of the learned CIT-A for the assessment year 2005-06.
10.4 After considering the facts in totality as discussed above, we are not inclined to uphold the finding of the authorities below. Accordingly, we set aside the order of learned CIT-A, and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.”
Thus, in parity with the aforesaid co-ordinate bench decision, we allow this ground of appeal of the assessee and direct the AO to allow the claim of the depreciation.
14. Now, we come to next ground of appeal relating to disallowance of Rs.10,38,591/- made by the AO @ 25% of labour charges claimed by the assessee. The AO observed as under:
“8. During the course of assessment proceedings, it is noticed that the assessee has claimed an expenditure of Rs.41,54,362/- under the head “Labour Charges”. On detailed scrutiny of the accounts, it is seen that except some of the amount of Rs. 2,75,500/- .paid to Shri Akhibau Parui through cheque, the remaining amount is claimed to have been incurred in cash. The details of cheque payment and cash payment to Shri Akhibau Parui is not furnished. The assessee vide order sheet entry dated 12.12.2011 was asked to furnish the vouchers and bills in respect of the expenses incurred in cash for verification. The assessee had not furnished the copy of vouchers for payment of labour expenses. Therefore, it is clear that the assessee failed to discharge onus cast upon them to prove genuineness and fairness of cash payment on account of labour expenditure. Accordingly, the 25% of labour expenditure amounting to Rs. 10,38,591/- is disallowed and added to the income of the assessee company.”
15. Thereafter, assessee filed first appeal before the learned CIT(A) wherein assessee filed some additional evidences. On the basis of similar documents, learned CIT(A) in the subsequent assessment order for A.Y. 2008-09 deleted the addition made by the AO and even in the A.Y. 200506. Similar addition was dismissed by the then CIT(A). But, learned CIT(A) did not agree with the predecessor and confirmed the action of the AO. On the other hand, learned AR cited an order of co-ordinate bench in assesse’s case wherein similar facts and circumstances and on the basis of similar documents, labour expenses were deleted by the co-ordinate bench in assessee’s own case in ITA No. 1075 & 1076/Ahd/2016 for A.Y. 200910 & 2012-13 decided on 01.03.2019 with following observations:
“11. The next issue raised by the assessee is that Ld. CIT (A) erred in confirming the disallowance of Rs. 13,45,356/- on account of labour charges.
12. The assessee in the year under consideration has claimed labour expenses of Rs. 19,29,390/- only. The assessee in support of labour expenses filed the copies of the bills issued by the labourer. However, the AO found that some of the bills filed by the assessee amounting to Rs. 13,45,356/- pertains to the Assessment Year 2006-07. Therefore, the same was disallowed and added to the total income of the assessee.
13. Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that it had received labour charges amounting to Rs. 42,00,303/- only against labour expenses of Rs. 19,20,390/- only.
13.1 The assessee before the ld. CIT (A) submitted that it is making the payment to labourers periodically against the work carried out by them. However, at the end of the year all the payment made to the labors are clubbed and against such payment, a single bill is issued by the labors. The assessee also submitted that the payment to the labourers had been made after deducting TDS and through account payee cheques.
13.2 All the details of the labourers were available with the AO during the assessment proceeding. Thus in case of any doubt the AO was empowered to verify the same by issuing notice u/s 131/133(6) of the Act.
13.3 There was an inadvertent error in mentioning the date on the bill issued by the labourers but these expenses were never claimed in the previous year 2006-
Therefore the question of double deduction for labour expenses does not arise.
13.4 The assessee in support of his contentions has filed the fresh labour bills, the copy of account and confirmation from the laborers.
13.5 The Ld. CIT (A) called for the remand report on the additional evidence filed by the assessee, but there was no reply from the side of the AO. However, the ld. CIT (A) disregarded the contentions of the assessee by observing that the assessee failed to furnish the details for the movement of jewelry to the labourers for carrying out the necessary job work.
13.6 All the fresh bills issued by the labors were containing date as 31/03/2009.
13.7 The assessee has not deducted TDS in the manner as prescribed under the provision of law.
In view of the above the Ld. CIT (A) confirmed the order of the AO.
14. Being aggrieved by the order of Ld. CIT (A) assessee is in appeal before us.
15. The Ld. AR before us submitted that the AO made the disallowance without issuing a show cause notice to the assessee.
15.1 All the necessary details in the response to the labour expenses were duly furnished before the Ld. CIT (A). But the AO failed to find any defect on the documents filed during the assessment proceedings despite several reminders.
15.2 All the details of the labourers were available with the authorities below but none of them has issued any notice u/s. 133/133(6) of the Act.
15.3 There was no disallowance made by the Revenue on account of labour expenses pertaining to the assessment year 2008-09 and 2011-12.
16. On the other hand the Ld. DR submitted that the Ld. CIT (A) has co-terminus power; therefore, he can decide the issue in the absence of remand report from the AO.
16.1 The Ld. DR further submitted that the assessee failed to furnish the necessary evidence to demonstrate whether any job work was carried out on the jewelry.
16.2 The Ld. DR vehemently supported the order of the authorities below.
16.3 We have heard the rival contentions and perused the materials available on record. The assessee in the year under consideration has claimed Labour expenses amounting to Rs. 19,20,390/-. However, the AO found that the bills filed by the assessee in support of Labour expenses for Rs. 13,45,356/- pertain to the financial year 2006-07. Therefore, the same was disallowed and added to the total income of the assessee.
16.4 Subsequently, the learned CIT (A) also confirmed the action of the AO by observing that the assessee failed to furnish sufficient documentary evidence to demonstrate that there was an actual transfer of jewelry from the assessee to the laborers for carrying out the necessary work on such jewelry.
16.5 The assessee has filed revised bills of the current year which were raised by the laborers on the last day of the previous year.
16.6 The assessee has not deducted the TDS on the bills raised by the labors in the manner as provided under the provisions of law. Thus the ld. CIT (A) was of the view that the Labour expenses should also be disallowed on account of non-deduction of TDS under section 194C of the Act r.w.s. 40(a)(ia) of the Act.
16.7 From the preceding discussion we note that all the details of the laborers including the addresses and PAN were available with the authorities below. In case there is any doubt about the labour expenses claimed by the assessee, then the authorities below should have taken the confirmation from the respective parties. The authorities below were empowered to verify whether these labors have disclosed the receipt from the assessee in their respective income tax return or not. But we find that the authorities below have not exercised their power provided under the statute.
16.8 We also note that the assessee has deducted the TDS from the payment of the Labour charges to the laborers. In case the TDS has not been deducted in the manner as provided under the statute, then the Revenue is empowered to initiate the proceedings under chapter XVII of the TDS. However, the noncompliance on account of late deduction of the TDS provisions cannot be the basis of making the disallowance under the assessment framed under section 143(3) of the Act.
16.9 On perusal of the ledgers of the laborers we note that the payment was made by the assessee periodically after the deduction of TDS. Thus, the assessee cannot be penalized if the laborers have raised the bills at the end of the accounting year.
16.10 We also note that the assessee has shown huge turnover from the sale of jewelry amounting to Rs 98.89 crores and against such sale the assessee has claimed Labour expenses only for Rs. 19,20,390/- only which is constituting less than 1% of the turnover. As such the genuineness of the Labour expenses cannot be doubted considering the huge turnover of the assessee as discussed above.
In view of the above, we are not inclined to uphold the finding of the authorities below. Accordingly, we set aside the order of learned CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.”
16. Thus, in parity with the aforesaid co-ordinate bench order and on the basis of principle of consistency as claimed by the assessee was accepted by the CIT(A) for A.Y. 2009-10, we allow this claim of the assessee.
17. In the result, the appeal filed by the Assessee is allowed.
18. Now, we come to ITA No.273/Ahd/2017 for A.Y. 2010-11.
19. The grounds of appeal raised by assessee for A.Y. 2010-11 read as under:
“1. The Learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs.5,50,00,000/- made by the Assessing Officer u/s.68 of the Income Tax Act, 1961 being an amounts received as share Capital of Rs. 1,10,00,000/- & Share Premium of Rs.4,40,00,000/-.
2. The Learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs. 1,58,073/- out of disallowance of labour expenses of Rs.3,95,184/- made by the Assessing Officer holding the same as not being utilized fully for the business purpose of the assessee.”
19. The facts of the case are that the assessee company had filed the return of income for A.Y.2010-11 on 15.10.2010 declaring total income of Rs.94,75,790/-. The assessment was completed u/s 143(3) of the Act on 22.03.2013 determining the total income at Rs.6,48,99,762/-. While completing the assessment an addition of Rs.5,50,00,000/- was made on account of the alleged unexplained cash credit u/s 68 of the Act. The A.O. in para 3.1 & pg.2 of the assessment order has stated that the assessee company was requested to furnish the list of share holders with name, address, PAN No. etc. The asswssww company vide letter dated 03.10.2013 furnished the details called for. The A.O. in para 3.2 has stated that to verify the details furnished by the appellant company summons u/s 131 of the Act was duly issued on the share applicants/holders. The summons could not be served at the addresses provided by the assessee. Accordingly vide letter dated 12.03.2013 the assessee company was requested to produce the parties for examination for the confirmation of the investments. The assessee company was furnished 3 days time i.e. upto 15.03.2013 to produce the parties with relevant documents in support of the cash credit received. The assessee company had vide letter dated 14.03.2013 express its inability to produce those parties for verification as they had no authority to compel them their attendance. It was also intimated to the AO that the addresses then furnished were as available with assessee company at that relevant point of time. If there was any change therein no intimation by the shareholders had been given to the assessee company. Immediately, latest addresses of the share applicants were furnished to the AO vide letter dated 14.03.2013. However, the A.O. did not take into cognizance the latest addresses as furnished by the assessee company for the verification of the cash credits.
19.1 The above facts and circumstances therefore would reveal that the information called for by the A.O. was furnished as early as in October, 2012. The A.O. did not intimate the non service of the loans/summons to those depositors till the fag end of the assessment proceedings i.e.12.03.2013. After nearly 5 months of providing the details the AO just prior to 15 days of the assessment getting time barred intimated of the non service of the summons/letters. Had this fact been intimated earlier the assessee company would have taken immediate steps for obtaining latest addresses of the share holders and attempts could have been made for their production before the AO. Delay in intimating the non service of the summons to the share holders precluded the appellant company from furnishing the details at the time of the assessment proceedings.
19.2 The above facts would clearly indicate that the assessee company was prevented by sufficient cause from producing the evidences from which he was called upon to produce by the A.O. and which was relevant to the ground of appeal. Though the latest address of the share applicants have been furnished to the AO at the assessment stage itself the appellant company desires to furnish following evidences in support of the genuineness of the cash credit:
| Sr. No. | Name of depositors | Amount | Additional evidences furnished |
| 1 | Terry Towel Industry Pvt. Ltd. | 50,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
| 2 | Parekh Estate & Properties Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income |
| 3 | Arjit Securities Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
| King Merchants Pvt Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
|
| South East Asia Packaging Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
|
| Seatrans Dan Shipping Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA web site. |
19.3 Thereafter, assessee replied as under:
“2. As regards the addition of Rs.5,50,00,000/- on account of the share capital of Rs.1,10,00,000/- and share premium amounting to Rs.4,40,00,000/- the relevant discussion has been made in para 3 & pg 2 of the assessment order.
2.1 The A.O. has stated that the appellant company had received share capital and share premium amounting to Rs.5,50,00,000/- from outsiders during the year under appeal. The appellant was directed to furnish the list of shareholders with name and address, PAN No.etc. It has also been admitted by the A.O. that the appellant has furnished relevant details vide letter dated 03.10.2012.
2.2 In para 3.2 of the order the A.O. has stated that for verifying the creditworthiness and genuineness of the investments, summons u/s 131 of the Act were duly issued to all the outside parties at the addresses furnished by the appellant firm. It has also been stated that in all these cases the summons could not be served on the address provided by the appellant. Subsequently, vide letter dated 12.03.2013 the appellant company was directed to produce the parties for examination for confirmation of the investments made. The relevant excerpts of the letter have been reproduced in para.3.2 of the assessment order. The A.O. had stated that the parties should be produced with the documentary evidences and books of accounts on 15.03.2013 and failure to produce them or to furnish corroborative evidences would lead to the conclusion that the amount so received be treated as deemed income u/s 68 of the Act.
2.3 The A.O. in para.3.3 has referred the letter furnished by the appellant dated 14.03.2013. It was brought to the A.O. that there might be a possibility of change of address and therefore the latest addresses of the depositors/share holders were furnished. It was also requested to the A.O. that since they have no capacity or legal authority to produce those parties direct verification may be undertaken at their end at the latest addresses so made available.
2.4 The A.O. in para 3.4 has reached the conclusion that identity of the person who are investors in the share capital has not been proved by the appellant company. The addresses furnished have also been found to be incorrect. As per the AO it was only on account of incorrect addresses that request was made to produce the persons for examination. Instead of producing the parties for examination the appellant has furnished their latest addresses and claimed that the primary onus cast upon him has been discharged. It is also been alleged that the arguments made by the appellant are not acceptable since the addresses were wrong and notice/summons could not be served upon them. Even the new addresses furnished were just prior to the assessment getting time barred and therefore, the verification process could not take place. It has been alleged that the appellant is trying to deviate from the main issue by furnishing fresh addresses and not establishing the genuineness of the cash credit by producing them.
2.5 The A.O. in para 3.4.1 & pg.4 of the assessment order has stated that the appellant company is Pvt. Ltd. Company and where the Directors are the same family members. As per the AO the allotment of shares has taken by way of private placement and, therefore, appellant should be in a position to furnish all details in respect of the allottees to the Department. The AO has also alleged that the appellant had failed to furnish the correct address of the allottees initially and also failed to produce the parties in person. As per the A.O. the addresses provided by the appellant company were wrong and summons was returned by the postal authorities. It has therefore been inferred that the appellant company had failed to identify the subscribers and prove their creditworthiness and genuineness of the transactions.
2.6 The A.O. in para 3.5 & pg.5 of the assessment order has relied upon the case of CIT v. Precision Financier Ltd. (1994) 121 CTR 20 wherein it has been held that payment by account payee cheques is not sacrosanct and the identity, creditworthiness and genuineness of the transaction has to be established by the appellant.
2.7 The A.O. in para.3.6 has relied upon various judicial pronouncements which are as under:
i. CIT v. N.R. Portfolio Pvt. Ltd. (Delhi High Court) [2012]
ii. CIT v. Frostair Pvt. Ltd. (210 Taxmann 221) (Delhi High Court) [2012]
iii. Vaibhav Cotton Pvt. Ltd v. ITO (139 ITD 264) (ITAT- Indore) [ 2012]
iv. Suman Gupta v. ITO (138 ITD 153) (ITAT-Agra) [2012]
v. Agarwal Coal Corporation Pvt. Ltd. v. CIT (135 ITD 270) (ITAT-Indore) [2011]
vi. Prakash Chandra Singhvi [HUF] v. (134 ITD 283) (ITAT-Ahmedabad) [2011]
2.8 On the basis of the above the A.O. reached the conclusion that the identity of the parties were not verifiable and the existence of the investors is not proved and therefore has proceeded to treat the same as income as per the provisions of Sec.68 of the Act. Accordingly addition of Rs.5,50,00,000/- has came to be made by the A.O.
3. At the outset it is clarified that the entire basis for making the additions is supposedly non service of the summons to the various share applicants at the addresses furnished by the appellant company. It is contended by the A.O. that though the addresses were provided by the appellant company the summons/notices remain un-served. At this juncture it may be brought to your Honors attention that the detailed addresses of the share applicants were furnished vide letter dated 03.10.2012 and filed on the same date. The A.O. informed the appellant company of the non service only vide letter dated 12.03.2013. Therefore, it is pertinent to note that the A.O. only after 5 months of the receipt of information regarding the detailed addresses provided intimated the appellant company of the non service of the summons to the share applicants. Only at the fag of the end of the year when the assessment was becoming time barred did the A.O. intimate the appellant company of the non service of the summons/letters to the share applicants. It may not be out of place to mention that all the share applicants are located outside Ahmedabad. The A.O., thereafter provided only 3 days to produce those share applicants for examination with all the relevant records knowing fully well that the appellant company has no power or other authority to compel such attendance. In fact, the detailed addresses had been furnished to the AO as early as October, 2012. The inaction of the AO in the intervening period and only intimating that the summons were unserved in the month of March, 2013 just prior to the assessment getting time barred displays the arbitrary approach of the AO. Had the A.O. intimated the fact of the non service of summons/notices earlier, necessary remedial measures for timely compliance could have been made by the appellant. We have now been able to obtain evidences establishing the identity, genuineness and creditworthiness of the share applicant. A separate application for admissions of additional evidences u/r 46A is also being made. If the same is admitted and taken into cognizance the additions would not survive. This application was only being made because the appellant company was deprived of reasonable opportunity to furnish evidences at the time of hearing. In support of the creditworthiness, genuineness and identity of share application money received the following documents are enclosed:
| Sr. No. |
Name of depositors | Amount | Additional evidences furnished |
| 1 | Terry Towel Industry Pvt. Ltd. | 50,00,000/- | Share application form,Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
| 2 | Parekh Estate & Properties Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income |
| 3 | Arjit Securities Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
| 4 | King Merchants Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
| 5 | South East Asia Packaging Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
| 6 | Seatrans Dan Shipping Pvt. Ltd. | 1,00,00,000/- | Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. |
It would be observed that since the identity, genuineness and creditworthiness of the cash creditors stands established the addition deserves to be deleted.”
20. Thereafter, the assessee preferred first statutory appeal before the learned CIT(A) who partly allowed the appeal of the assessee on the ground that the learned AO served notice to the companies to whom shares were transferred but returned back as unserved and held that these were old paper companies.
21. Now, assessee has come before us by way of second statutory appeal.
22. We have gone through the relevant record and impugned order. During the course of assessment proceedings, it is noticed that assessee company has received share capital amounting to Rs.1,10,00,000/- and Rs.4,40,00,000/- as share premium from the outsiders during the year under assessment and accordingly assessee furnished list of shareholders with names and addresses, PAN Numbers and bank statements etc. In order to verify the creditworthiness and genuineness of the investor, summons were sent to this company under S.131 of the Act. But, summons could not be served on the addresses provided by the assessee. On the basis of unserved notice, lower authorities came to the conclusion that above said companies were paper companies. In this case, assessee was given three days’ time to produce the parties for examination for the confirmation of the investment to produce with relevant documents in support of cash received. On the other hand, assessee requested that it had no authority to compel them for their attendance within such a short span of time. Therefore, additions are solely made on the basis of non-service of summons to the various share applicants at the addresses furnished by the assessee company. The learned AO ought to have made inquiry from the assessee of the investor as he was having PAN number and other relevant details with him. Before learned CIT(A), assessee moved an application under Rule 46A for submission of additional evidence as assessee company was deprived to reasonable opportunity and lesser time to produce the relevant explanation in support of its contention. The assessee company filed share application form, Board resolution passed by the investor companies, bank statement and balance sheet as downloaded from the Ministry of Corporate……… with regard to all investors. Hon’ble Madhya Pradesh High Court in the matter of PCIT vs. Chain House International (P.) Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh), wherein it is held that:
“Section 68 of the Income-tax Act, 1961 – Cash credits (Shares) – Assessment years 2012-13 to 2013-14 – Whether issuing share at a premium is a commercial decision and it is prerogative of Board of Directors of a company to decide premium amount and it is wisdom of shareholder whether they want to subscribe shares at such a premium or not and, ultimately, this is a mutual decision between both companies – Held, yes – Whether in day to day market, unless and until rate is fixed by any Government Authority or unless there is any restriction on amount of share premium under any law, price of shares is decided on mutual understanding of parties concerned; thus, once genuineness, creditworthiness and identity of investors are established, L revenue should not justifiably put itself in armchair of a businessman or in position of Board of Directors and assume role of ascertaining how much is a reasonable premium having regard to circumstances of case – Held, yes – Whether, thus, once genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on ground that shares were issued at excess premium – Held, yes [Paras 51 and 53] [In favour of assessee]”
22.1 The co-ordinate Bench in case of ACIT vs. EI Dorado Biotech (P.) Ltd. [2021] 123 taxmann.com 265(Ahmedabad-Trib.), wherein it is held that:
“Section 68 of the Income-tax Act, 1961 – Cash credits (Share Capital) – Assessment year 2009-10 -Assessee company issued equity shares at premium to several companies and received consideration of certain amount – An information was received from Director (Investigation) that a search was conducted upon one PRS who was controlling and managing said companies which had subscribed shares of assessee – During search, PRS recorded statement that he was engaged in providing bogus accommodation entries in form of share capital to several companies including assessee – On basis of same, Assessing Officer treated entire amount of share capital received by assessee as unexplained cash credit under section 68 – It was noted that no opportunity for cross examination of PRS was provided to assessee despite request made by assessee which was sine qua non before making an addition – Thus, such statement of PRS was not tested by cross examination – Further, admittedly, assessee had discharged its onus by furnishing necessary details such as copy of PAN and CIN, MOA/AOA, confirmation of parties, bank extracts etc. so as to prove genuineness of its transactions – There was also no dispute to fact that all transactions were carried out through proper banking channel – Whether, on facts, impugned addition under section 68 made to assessee’s income was unjustified and same was to be set aside – Held, yes [Paras 34 to 43] [In favour of assessee]”
22.2 Hon’ble Apex Court in case of CIT vs. Lovely Exports (P.) Ltd. [2008] (2010) 14 SCC 761 (SC), wherein Hon’ble Apex Court has held that if the share application money is received by the assessee from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments, in accordance with law, but this allotment of share money cannot be recorded as undisclosed income of the assessee.
22.3 Hon’ble Delhi High Court in case of CIT vs. Empire Buildtech (P.) Ltd. [2014] 43 taxmann.com 269 (Delhi), wherein it is held that:
“Section 68 of the Income-tax Act, 1961 – Cash credits (Share capital) – Assessment year 2006-07 -Assessee company issued share capital at 1000 per cent premium and received Rs. 1.1 crore on that count just after few months of its incorporation – Assessing Officer during course of assessment issued notice under section 133(6) to investors – Some investors did neither respond to notice nor submit confirmation – On basis of same, Assessing Officer added entire amount under section 68 – However, Commissioner and Tribunal deleted entire addition holding that some investors had responded and furnished particulars elicited and assessee disclosed identity of all investors – Whether addition could be made only in respect of subscribers/investors whose particulars could not be verified and who did not respond to notices issued by Assessing Officer – Held, yes [Paras 7 and 8] [Partly in favour of assessee]”
22.4 It is pertinent to mention here that as per Ministry of Corporate Affairs Website still shares are held in the name of respective companies to whom shares were allotted. As learned AO provided merely three days’ time to produce the investor companies’ Directors same is like justice hurried, justice buried and learned CIT(A) did not admit additional evidences and to our mind assessee company has discharged its onus by providing share application form, Bank details, PAN Numbers, return of income and audited balance sheet and other relevant details but lower authorities failed to appreciate evidences submitted by the assessee. In view of the aforesaid observation and after going through the aforesaid judgments, therefore, in such case, the addition cannot be made in the hands of the assessee company. Thus, we delete the addition made by lower authorities and allow this ground of appeal.
23. Now, we come to next ground of appeal relating to confirmation of addition of Rs.1,58,073/- out of disallowance of labour expenses of Rs.3,95,184/-. As in the connected appeal ITA No. 1074/Ahd/2016 for A.Y. 2006-07, in similar facts and circumstances, we allowed the ground of appeal, the same shall apply mutatis mutandis in ITA No.273/Ahd/2017 for A.Y. 2010-11.
24. In the result, the appeal filed by the Assessee is allowed.
25. In the combined result, both appeals filed by the assessee are allowed.
This Order pronounced in Open Court on 23/08/2022
Author Bio
