DCIT Vs M/s Kanchan India Pvt. Ltd. (ITAT Jaipur)
Notice of reassessment under section 148 issued on the basis of approval of Competent Authority without application of mind is invalid.
Conclusion: Since the approval granted by Pr. CIT to AO for reopening of assessment was clearly without application of mind and was not as per the mandate of the provision of section 151, therefore, notice issued u/s 148 on the basis of such approval and consequent assessment made on the basis of such notice were bad in law and deserved to be quashed.
Held: AO of assessee without carrying out any further enquiry, verification or investigation etc., initiated the reassessment proceedings u/s 148 on the very next day by sending the proposal u/s 151(1) to the Pr. CIT, Ajmer in which he had clearly mentioned that assessee had received fund through suspicious transaction which required further analysis and investigation/ verification and to verify these transactions the case was required to be reopened u/s 147. Assessee was aggrieved on several counts, i.e., the approval under section 151 was issued, as per assessee, in mechanical manner and without application of mind. CIT(A) allowed assessee’s objection raised under section 151. It was held Pr. CIT, Ajmer had accorded approval for issuing notice u/s 148 in a very routine, mechanical manner & without application of mind by simply putting her signatures below the rubber stamped ‘Yes, satisfied’. Such mechanical approval did not fulfil the mandate of provisions of sec. 151(1). It is an established position of law that proceedings u/s 148 cannot be initiated for the purpose of verification or inquiry etc.. Thus, notice issued u/s 148 on the basis of such approval and consequent assessment made on the basis of such notice were bad in law and deserved to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
These are the appeals filed by the revenue and the cross objections by the assessee against the order of ld.CIT(A)-2, Udaipur dated 05/09/2018 for the A.Y. 2010-11 and 2011-12 in the matter of order passed U/s 147/143(3) of the Income Tax Act, 1961 (in short the Act).
Grounds taken by the revenue in its appeal and by the assessee in its C.O. for the A.Y. 2010-11 are as under:
Grounds of revenue’s appeal.
“ 1. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs.15,59,00,000/- made by the AO u/s 68 of the I.T. Act on account of unexplained share capital allegedly obtained by the assessee from M/s Pashupati Vinimay Pvt. Ltd.
2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by observing that the identity, creditworthiness and genuineness of the transaction was established by the assessee without even considering the financial statements of the alleged share subscriber.
3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the fact that the alleged share subscriber M/s Pashupati Vinimay Pvt. Ltd. was neither having any substantial business turnover nor having any funds of its own for making huge investment in the share capital of the assessee company.
4. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by concluding that the transactions have been done through Banking channels and there is no case of any cash deposition in the account of the immediate investors company.
5. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the undisputed findings of fact that cash was deposited in the account Bearing No.909020042572 with Axis Bank Ltd. Burrabazar Branch Kolkata of M/s Shiv Kali Trade and through a series of transactions the funds were immediately transferred to the account of alleged share subscriber, M/s Pashupati Vinimay Pvt. Ltd.
6. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in observing that it is usual business practice, while making loans/investment to party, funds are required to be arranged by the lenders, and therefore, reflection of such entries in bank statement does not lead to draw any adverse inference against the assessee, completely ignoring the fact that the multi layering of the funds through a web of transactions as stated in the assessment order is not a usual business practice and has been done with the sole intent of obfuscating the source.
The appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
(ii) On the facts and circumstances of the case, CIT(A) has erred in deleting the addition of Rs. 13,73,734/- made by the A.O. on account of difference in ITS data 26AS.
(iii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing.
Grounds of assessee’s C.O.
That the Id. CIT(A) was fully justified in deleting the addition on merit. However, the Id. CIT(A) has erred on facts and in law in dismissing the appeal of the appellant on the following legal grounds raised before him, treating them to be academic & infructuous.
1. (i) the Id. AO has grossly erred in law in completing the assessment u/s 148/143 (3) of the Act, without issuance and service of notice u/s 143(2) within the specified period as mentioned in proviso to sec. 143(2).
(ii) Notice u/s 143 (2) issued by the Id. AO on 14-11-2017 was beyond the specified period and thus barred by limitation. Assessment completed by the AO on the basis of such notice is bad in law and deserves to be quashed.
2. The Id. AO has issued notice u/s 148 on the basis of change of opinion which is not permitted in law. Therefore the same deserves to be quashed being bad in law.
3. Proceedings u/s 147/148 have been initiated after four years from the end of the relevant assessment year without fulfilling the mandate of proviso to sec. 147 of the Act. Therefore, the notice issued u/s 148 is bad in law, invalid, void ab initio and deserve to be quashed.
4. The Id. AO has issued notice u/s 148 on the basis of communication received from the DDIT(lnv.),Kolkata, purely for verification and for conducting enquiries etc. without there being any tangible material, on the basis of his suspicion and assumption. The notice issued on the basis of such communication without any independent enquiries having been conducted by the AO and without application of mind is bad in law and deserves to be quashed.
5. The Pr. CIT, Ajmer has accorded approval for issuing notice u/s 148 in a very routine, mechanical manner & without application of mind by simply putting her signatures below the rubber stamped ‘Yes, satisfied’. Such mechanical approval does not fulfill the mandate of provisions of sec. 151 (1) of the Act. Notice issued u/s 148 on the basis of such approval is bad in law and deserves to be quashed.”
2. The Id. CIT(A) was not justified in not upholding the ground of the appellant that interest under section 234B is chargeable on returned income and not on assessed income as held by the Hon’ble Jharkhand High Court in its decision dated 25.7.2012 in the case of Sh. Ajay Prakash Verma v. ITO in TA no.38 of 2010, reported in (2013)(1) TMI 140, being consistently followed by ITAT, Ranchi.”
2. For the A.Y. 2011-12, the revenue in its appeal as well as the assessee in its cross objection have taken following grounds of appeal:
Grounds of revenue’s appeal.
“ 1. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs.1,94,00,000/- made by the AO u/s 68 of the I.T. Act on account of unexplained share capital allegedly obtained by the assessee from M/s Pashupati Vinimay Pvt. Ltd.
2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by observing that the identity, creditworthiness and genuineness of the transaction was established by the assessee without even considering the financial statements of the alleged share subscriber.
3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the fact that the alleged share subscriber M/s Pashupati Vinimay Pvt. Ltd. was neither having any substantial business turnover nor having any funds of its own for making huge investment in the share capital of the assessee company.
4. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by concluding that the transactions have been done through Banking channels and there is no case of any cash deposition in the account of the immediate investors company.
5. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the undisputed findings of fact that cash was deposited in the account Bearing No.909020042572 with Axis Bank Ltd. Burrabazar Branch Kolkata of M/s Shiv Kali Trade and through a series of transactions the funds were immediately transferred to the account of alleged share subscriber, M/s Pashupati Vinimay Pvt. Ltd.
6. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in observing that it is usual business practice, while making loans/investment to party, funds are required to be arranged by the lenders, and therefore, reflection of such entries in bank statement does not lead to draw any adverse inference against the assessee, completely ignoring the fact that the multi layering of the funds through a web of transactions as stated in the assessment order is not a usual business practice and has been done with the sole intent of obfuscating the source.
The appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
(ii) On the facts and circumstances of the case, CIT(A) has erred in deleting the addition of Rs. 13,73,734/- made by the A.O. on account of difference in ITS data 26AS.
(iii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing.
Grounds of assessee’s C.O.
That the Id. CIT(A) was fully justified in deleting the addition on merit. However, the Id. CIT(A) has erred on facts and in law in dismissing the appeal of the appellant on the following legal grounds raised before him, treating them to be academic & infructuous.
1. (i) the Id. AO has grossly erred in law in completing the assessment u/s 148/143 (3) of the Act, without issuance and service of notice u/s 143(2) within the specified period as mentioned in proviso to sec. 143(2).
(ii) Notice u/s 143 (2) issued by the Id. AO on 14-11-2017 was beyond the specified period and thus barred by limitation. Assessment completed by the AO on the basis of such notice is bad in law and deserves to be quashed.
2. The Id. AO has issued notice u/s 148 on the basis of change of opinion which is not permitted in law. Therefore the same deserves to be quashed being bad in law.
3. Proceedings u/s 147/148 have been initiated after four years from the end of the relevant assessment year without fulfilling the mandate of proviso to sec. 147 of the Act. Therefore, the notice issued u/s 148 is bad in law, invalid, void ab initio and deserve to be quashed.
4. The Id. AO has issued notice u/s 148 on the basis of communication received from the DDIT(lnv.),Kolkata, purely for verification and for conducting enquiries etc. without there being any tangible material, on the basis of his suspicion and assumption. The notice issued on the basis of such communication without any independent enquiries having been conducted by the AO and without application of mind is bad in law and deserves to be quashed.
5. The Pr. CIT, Ajmer has accorded approval for issuing notice u/s 148 in a very routine, mechanical manner & without application of mind by simply putting her signatures below the rubber stamped ‘Yes, satisfied’. Such mechanical approval does not fulfill the mandate of provisions of sec. 151 (1) of the Act. Notice issued u/s 148 on the basis of such approval is bad in law and deserves to be quashed.”
6. The Id. CIT(A) was not justified in not upholding the ground of the appellant that interest under section 234B is chargeable on returned income and not on assessed income as held by the Hon’ble Jharkhand High Court in its decision dated 25.7.2012 in the case of Sh. Ajay Prakash Verma v. ITO in TA no.38 of 2010, reported in (2013)(1) TMI 140, being consistently followed by ITAT, Ranchi.”
3. Rival contentions have been heard and record perused. Facts in brief are that originally the assessments were made U/s 143(3) on 21/12/2012 for A.Y. 2010-11 and on 10/06/2013 for A.Y. 2011-12. Thereafter information were received by the Assessing Officer for both the assessment years and the same were reopened U/s 148 on 29/03/2017. After giving opportunities to the assessee including disposing off the objections to reopening the assessments by written orders, the reassessments were completed U/s 147 r.w.s. 143(3) on 18/12/2017 at Rs. 2,41,80,860/- and Rs. 7,50,91,190/- after making additions of Rs. 15.59 crores and Rs. 1.94 crores for the A.Y. 2010-11 and 2011-12 respectively on account of the share application money U/s 68 of the Act.
4. Before the ld. CIT(A) the assessee was aggrieved of on several counts such as, reopening of assessments on the basis of change of opinion, reopening of assessments without fulfilling the mandate of proviso to sec. 147, reopening of assessments with the approval for issuing notice u/s 148 in mechanical manner & without application of mind, completing the reopened assessments without issuance and service of notice u/s 143(2) within the specified period as mentioned in proviso to sec. 143(2),completing the reopened assessments without any independent enquiries and making additions Rs. 15.59 crores and Rs. 1.94 crores for the A.Y. 2010-11 & 2011-12 respectively on account of the share application money u/s 68 of the Act.
5. By the impugned order, the ld. CIT(A) has observed that facts in both the assessment years under consideration are same, accordingly all the grounds taken by the assessee in both the assessment years were decided by the impugned consolidated order of the ld. CIT(A) dated 05/09/2018.
6. The addition made on account of share capital was deleted by the ld. CIT(A) after observing as under:
“4.1 I have considered the content of assessment order, the written submissions along with the respective paper books for A.Y. 2010-11 & 2011-12.
4.1 It is found that the AO seems to have initiated re-assessment proceeding to verify the transactions of the appellant company as mentioned in the report of DDIT(Inv.), Unit-1(3), Kolkata on 21/03/2017. However, while conducting re-assessment proceeding the AO did not focus on the verification intended and did not undertake any process u/s 133(6)/131(1), did not concentrate to gather/collect concerned documents and record relevant statements so as to translate the suspicion of DDIT(Inv.), Unit-1(3), Kolkata \on 21/03/2017 into conviction. Rather, the AO prefer to rely the same report of DDIT (Inv.), Unit-1(3), Kolkata on 21/03/2017 and considered the same as sufficient to make addition u/s 68 on account of share capital/share premium raised by the appellant. The above points are evident from the proposal for reopening the assessment and conclusion at Para 5 & 6 of the assessment as under:-
In this regard, it is submitted that this office received an Information from DDIT (Inv.) Unit -(3), kolkata in the above mentioned case on 21.03.2017 where in It is reported that the assessee has received funds through suspecious transaction which required to be further analysis and investigation/ verification. To verify these transactions, the case is required to be re-opened u/s 147 of the Act.
It is therefore ,requested to kindly accorded approval for issuing notice u/s 148 of the Act in the A.Y. 2010-11. Proposal in prescribed proforma in duplicate in the above mentioned case is enclosed here with for kind persual and necessary approval. Assessment record for A.Y. 2010-11 in one volume is also sent here with.
Yours faithfully,
(Umesh Sinha)
Asstt. Commissioner of Income Tax,
Circle, Bhilwara
“5. The submissions of the assessee has been considered, but the same is found to be not acceptable. This is because as per information available with the department, it is clear that mostly cash has been deposited in the bank accounts of Shiv Kali Trade. That such credit has been immediately transferred to other accounts, mainly to S K Impex on the same day or the subsequent day. From S K Impex the money has been transferred to Accent Commerce and from Accent Commerce to M/s Cuckoo Merchandise Pvt. Ltd. Carnation Trade link Pvt. Ltd. and M/s Blackbird Tie-up Pvt. Ltd. From these entities fund has been transferred to RMB Finance and M/S. Pashupati Vinimay Pvt. Ltd.. From M/S. Pashupati Vinimay Pvt. Ltd. the fund has been transferred to the assessee M/s Kanchan India Limited. It is also seen that M/s Pashupati Vinimay Pvt. Ltd. is not having any business as such.
6. In view of the above facts, the transaction between M/s Pashupati Vinimay Pvt. Ltd. and M/s Kanchan India Limited cannot be held as genuine.”
4.2 It was the submission of the appellant before the AO during the re-assessment proceeding that the genuineness of the share capital/share premium was thoroughly examined by the then AO who completed the original assessment u/s 143(3) on 21.12.2012 and then recorded a categorical finding during the original assessment proceeding for his satisfaction regarding identity, creditworthiness and genuineness of transaction of the two companies to whom the shares were allotted.The appellant also referred the original assessment proceedings in which incompliance of AO’s directions, the assessee furnished all the details, confirmations, bank statements and other evidences etc. vide its replies dated 02/07/2012, 07/11/2012 and 29/11/2012 to prove the genuineness of the share capital /share premium subscriptions in the names of M/s. Gajanand Goods Pvt. Limited and M/s. Pasupati Vinimay Pvt. Limited (hereinafter referred as PVPL).The appellant referred all the submissions made by it during the original assessment and during the re-assessment proceeding in compliance of the direction of the AO the assessee again filed all the documentary evidences, confirmations etc. before the AO on 28.11.2017 and 08.12.2017.
4.3 It is the submission of the appellant before me that in spite of all such overwhelming documents such as: the Form-2 of the respective allotments, all the details as filed with the Registrar of Companies, Jaipur, the Copy of Balance Sheet, Acknowledgement of Income Tax return of Gajanand goods Pvt. Ltd. and M/s Pasupati Vinimay Pvt. Ltd., the complete master data of M/s GAJANAND GOODS PVT. LTD. Ltd. (PAN-AAECSO181P) and M/s PASUPATI VINIMAY PVT LTD. (PAN-AADCP5869J) etc. the AO, without conducting any inquiry just choose to rely on the very same report DDIT(Inv), Unit-1(3), Kolkata on 21/03/2017 to make addition u/s 68.
4.4 It is the submission of the appellant the AO did not bother even to read the report of DDIT (Inv.), Unit-1(3), Kolkata on 21/03/2017 which itself reads number of favorable facts about the appellant as under.
v) From the account statement of Pashupati. it has been found that the fund has ultimately been debited to the account of Kanchan India Ltd. Kanchan India Limited, formerly known as Kanchan Wool -Tex Private Limited was incorporated on 10th June 1996 under the Companies Act and was converted into a public Limited Company on 14th November 2008. Situated at 19/20. Bhilwara Textile Market, Pur Road, Bhilwara -311001, Rajasthan, the company is a supplier, exporter and manufacturer of demin suiting cotton yarn. polysters yarn carpet woolen.
The AO did not bother even to read the concluding remarks in the report of DDIT(Inv.), Unit-1(3), Kolkata on 21/03/2017 which is in no way adverse to the appellant as under.
From the ITD it has been found that both the entities Kanchan India limited and MSP Metallics are genuine companies having high turnover. The funds so received by the companies in the years 2009-10 and 2010-11 require further analysis, investigation and verification by the juridictional assessing officer Kanchan India Limited [PAN:AABCK0452C] and MSP Metallies [PAN : AACA5907D] of at their and.
Conclusion :
Therefore, the nature of business and exact purpose of transaction of the said assessee could not be determined. Therefore you are requested to examine the facts and take further necessary action under the Income Tax Act 1961. You are requested to acknowledge the receipt of the later.
(B. S. Anand)
DDIT (Inv.) . Unit-1 (3), Kolkata
4.5 It is pointed out by the appellant against the name of the assessee transactions of Rs 14.64 crores have been mentioned in the aforesaid in the report of DDIT(Inv.), Unit-1(3), Kolkata on 21/03/2017 but the AO has added the total amount of Rs. 15,59,00,000/- for which the shares were allotted by the assessee company to PVPL, without any basis or discussion what so ever. It is argued from the above facts one can clearly infer that the AO has made addition purely on the basis of his suspicion without any evidence or basis at all.
4.6 The Appellant in discharge of its onus u/s 68 of the Act had filed confirmation of accounts as well as bank statement reflecting the transactions with other substantiating documents along with assessment orders in case of lender companies, as mentioned in Para 4.2 above. From these documentary evidences placed on record, identity, creditworthiness and genuineness of transactions was established. There is no gain saying that the onus squarely lies on the appellant to prove the identity, creditworthiness and genuineness of the cash credits. In the case of Addl. CIT v. Bahri Bros. (P) Ltd. [1985] 154 ITR 244 (Pat), the Hon’ble Patna High Court has held “if the loans are given by an account paying cheque, it amounts to identification of the parties and discharge of burden by the borrower.” In view of the above, it is clear that Appellant discharged its burden u/s 68 of the Act. Therefore, in the absence of any independent inquiry and any adverse findings to rebut the evidences kept on record by the Appellant, I find that the addition in respect of Share application & share premium from company namely, M/s M/s Pasupati Vinimay Pvt. Ltd. totaling to Rs 14.64 crores (addition wrongly made by AO of Rs. 15.59crores) is unjustified; firstly, on the ground that no inquiries were made to rebut the evidences kept on record by the Appellant and secondly, on the ground that Appellant duly discharged its burden casted upon u/s 68 of the Act to explain nature and source of the transactions by proving the identity, creditworthiness of creditor and genuineness of the transaction. Notably, the transactions with the said three companies are duly verifiable from share application form & confirmation with supporting bank statements as mentioned in Para 4.2 above and transaction have been carried out through banking channels only and thus, appellant has duly proved the identity, creditworthiness and genuineness of the transactions.
4.7 The reliance of the AO on some observations raising some suspect in the report of DDIT (Inv.), Unit-1(3), Kolkata on 21/03/2017 for necessary verification and investigation is clearly asking the appellant to prove not only the source over source but asking the appellant to prove source over source for several times without sharing single piece of evidence or causing any inquiry to disprove the evidence submitted by the appellant. With the filing of several documents as said in Para 4.2 above to prove the genuineness of the share capital /share premium subscriptions in the names of M/s. Gajanand Goods Pvt. Limited and M/s. Pasupati Vinimay Pvt. Limited (hereinafter referred as PVPL), the appellant has discharged its burden of proof u/s 68 and it is the AO who has to dis-prove those evidence or find something adverse. The AO has done nothing of this sort.
4.8 Furthermore, from the perusal of documentary evidences kept on record by the Appellant, it is seen that transactions have been done through banking channels and on the date of making of loans, there is balance available in the accounts of the companies, which proves the creditworthiness and genuineness of the transactions. There is no case of any cash deposition in the account of the immediate investor company at the time of issuing cheques/RTGS in favour of the Assessee. Therefore, in view of the settled judicial precedent in case of CIT V/s VARINDER RAWLLEY [2014] 366 ITR 232 (PUNJAB & HARYANA), CIT V/s VIJAY KUMAR JAIN 221 TAXMAN 180. CIT v. Victor Electrodes Ltd. [2010] 329 ITR 271, Addl. CIT v. Bahri Bros. (P) Ltd. [1985] 154 ITR 244 (Pat) and others as referred by the Appellant, I am of the considered view that Appellant duly discharged its burden casted upon it u/s 68 of the Act.
4.9 In my considered view, mere not believing an explanation cannot lead to a conclusion that the share application & premium is the income of the assessee from some undisclosed sources while in the present case, no evidences of any generation of undisclosed income or their utilization in the form of share application & premium has been found and brought on record.
4.10 It is further seen that AO has not brought any specific defect/discrepancies in the direct evidence kept on record by the Appellant. Referring the report of DDIT (Inv.) Kolkata, the AO has observed to the effect that on the date of debit in the account statement of investor company, there is corresponding credit entry of equal amount, however, this observation of the AO is itself not sufficient to prove beyond doubt that Appellant routed its unaccounted income by these companies rather it proves the source in the hands of the Appellant. It is usual business practice, while making loans/investment to party, funds are required to be arranged by the lender, therefore, reflection of such entries in bank statement doesn’t lead to draw any adverse inference against the Appellant. Needless to say that Appellant is not required to prove source of the source u/s 68 of the Act in view of the settled judicial precedents.
4.11 It is settled judicial precedents that under the income tax law primary burden u/s 68 of the Act is on the Appellant and once this burden is discharged u/s 68 of the Act, no addition u/s 68 of the Act is justifiable in the hands of the Assessee in view of the judgments in case of Shree Barkha Synthetics Ltd. V/s Assistant Commissioner of Income-tax (2006) 155 TAXMAN 289 (RAJ.), COMMISSIONER OF INCOME-TAX, JAIPUR -II V. MORANI AUTOMOTIVES (P.) LTD. [2014] 264 CTR 86 (RAJASTHAN-HC), CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78/25 Taxman 80F (SC), Commissioner of Income-tax v/s Mark Hospitals (P.) Ltd. [2015] 373 ITR 115 (Madras)(MAG.), Commissioner of Income-tax, Ajmer v. Jai Kumar Bakliwal [2014] 366 ITR 217 (Rajasthan), CIT v/s. Creative World Telefilms Ltd (2011) 333 ITR 100 (Bom), Commissioner of Income-tax-I v. Patel Ramniklal Hirji [2014] 222 Taxman 15 (Gujarat)(MAG.), Principal Commissioner of Income-tax-4 v. G & G Pharma India Ltd. [2016] 384 ITR 147 (Delhi) referred above which have been also been followed recently by Hon’ble Delhi Tribunal in case of ITO vs. Softline Creations (P) Ltd. in ITA No. 744/Del/2012 vide its order dated 10.02.2016. Further, Hon’ble Apex Court as well as High Court has held that once the identity of creditor is established, the department is free to reopen the assessment of creditor and no addition can be made in the hand of borrower as rightly held in case of CIT v/s Lovely Exports Pvt. Ltd. [2008] 216 CTR 195 (SC), Commissioner of Income-tax v. Rock Fort Metal & Minerals Ltd. [2011] 198 TAXMAN 497 (Delhi), Divine Leasing & Finance Limited [2008] 299 ITR 268 (Delhi) CIT v. Orissa Corporation (P.) Ltd. [1986) 159 ITR 78/25 Taxman 80F (SC) and others on this question of law.
4.12 Under the above factual position the reliance is placed on the following landmark decisions on the issue.
i. Hon’ble Supreme Court in the case of CIT Vs Lovely Exports (P) Ltd. (2008) 216 CTR 295 (S.C.) has held as under:
“If share application money is received by the assessee company 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 it cannot be regarded as undisclosed income of assessee company.”
ii. The Hon’ble Rajasthan High Court in the case of M/S Barkha Synthetics Ltd v/s ACIT, 283 ITR 377 (Raj) has held as under:
“The principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channel, the assessee has to prove existence of person in whose name share application is received. Once the existence of shareholder is proved, it is no further burden of assessee to prove whether that person itself has invested said money or some other person had made investment in the name of that person. The burden then shifts on revenue to establish that such investment has come from Assessee Company itself.”
iii. CIT Vs. First Point Finance Ltd.[2006] 286 ITR 477,
iv. CIT Vs. Morani Automobiles Pvt. Ltd., [2014] 45 com473
v. CIT Vs. Super Tech. Diamond Tools Pvt. Ltd., [2014] 44 com460.
vi. CIT v/s Bhaval Synthetics (P) Ltd,(2013) 217 Taxman 23(Raj)
vii The ITAT, Jaipur in the case of Shalimar Buildcon Pvt. Ltd. Vs. ITO, [2011] 136 TTJ 701 decided similar issue as under:
“Shareholder companies having admitted to have subscribed to the share capital of the assessee company and accounted for the source of funds in their books of accounts which is not shown to be incorrect or false, no case is made out for making addition under s. 68 in the absence of any evidence to show that the share capital represented accommodation entries “.
4.13 In view of the above discussion of relevant facts and following the several ratios on the subject from Hon’ble Apex Court, High Courts including jurisdictional High Courts, Tribunals including jurisdictional Tribunals, and in particular, under the fact non-rebuttal of host of evidence in favour of the appellant cited above, the additions made by the AO of Rs. 15.59 crores and Rs. 1.94 crores for the A.Y. 2010-11 & 2011-12 respectively on account of the share application money u/s 68 of the Act is not sustainable and stand deleted. With this ground no. 6 of both the appeal stand allowed. Consequently, the ground no 1 to 5 of both appeal regarding omissions in re-opening and completions of the reopened assessments are reduced to academic & infructuous and hence the same stand as dismissed. It may be mentioned here that in this case reopening is approved by Pr. CIT, whose decision I am not competent to adjudicate. However, the assessment is made by AO and therefore addition is adjudicated on merit only as discussed above.”
7. The other grounds taken by the assessee before the ld. CIT(A) was disposed off by the ld. CIT(A) as under:
“5. The ground no. 7 in both these appeals is regarding charging o interest u/s 234B. The said ground reads as follows:-
7. The ld. AO has erred on facts and in law in charging interest of Rs. 57,52,050/- and Rs. 1,75,94,982/- u/s 234 B u/s 234 B of the Act, on the assessed income for the A.Y. 2010-11 & 2011-12.
5.1 The A/R of the Appellant attended proceedings and made submissions as follows:-
“11.1 Reliance is placed in this regard on decision of Hon’ble Jharkhand High Court in the case of Sh. Ajay Prakash Verma V/s 1TO vide its order dated 25-07-2012 in TA no. 38 of 2010, reported in (2013) (1) TMI 140.
11.2 The Hon’ble Ranchi ITAT has consistently followed this view in the following cases and several other cases-
(1) Girdhari Lal Sharma V. ITO, ITA No. 31/Ranchi/2013, AY 2009-10 DOJ 07-05-2013.
(2) Sunil Kumar Sawa V. ITO ITA No. 112-115/Ranchi/2017 AY 2007-08, 2008-09. 2011-12 & 2012-13 DOJ 30-05-2018.
(3) Durga Devi Gupta V. ITO ITA No. 156 Ranchi/2015 AY 2009-2010, DOJ 28-02-2018.
(4) ITO Vs. Anand Vihar Promoters & Developers ITA No. 159/Ranchi/2015 AY 2010-11, DOJ 28-02-2018
(5) M/s Cement supply agencies V. DCIT/1TA No. 304/Ranchi/2016 AY 2012-13 DOJ 28-02-2018
(6) ITO V. Shree Tirupati Minerals (P) Ltd. ITA No. 09/Ranchi /2016, AY 200–09 DOJ 05-12-2016
11.3 The Hon’ble Supreme Court in the cases of CIT V/s Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and CIT V. Vatika Township (P) Ltd. (2014) 367 1TR 466 (SC) has held that when two views are possible on any issue, the view which is favourable to the assessee should be adopted.
In view of the afore said judicial pronouncements the interest charged u/s 234 B on assessed income may kindly be directed to be reduced to nil, as the assessee has nil returned income.”
5.2 This ground being consequential in nature, therefore, AO is directed to give effect to findings of this appellate order in computation of total income and allow credit of taxes paid by the Appellant and set off or carry forward of losses which are allowable to assessee after verification of the same from record. As regards charging of interest u/s 234A, 234B & 234C of Income Tax Act it is stated that as held in case of Anjum MH Ghaswala (2001) 119 Taxman 352 (Supreme Court) and in case of Hari Narayan Soni (322 ITR 444) by Jurisdictional High Court) interest chargeable u/s 234A, 234B & 234C of Income Tax Act is compensatory and mandatory in nature. The same is of consequential nature and therefore the AO is directed to recompute the interest u/s 234A, 234B & 234C of Income Tax Act after giving effect to this appellate order. Thus, the ground no. 7 in both these appeals is allowed to the extent indicated above.
8. Against the above said order of the ld. CIT(A), the revenue is in further appeal before us with regard to merits of the addition deleted by the ld. CIT(A). However, the assessee is in cross objection had taken ground on account of legality of reopening by him but not decided by the ld. CIT(A).
9. The ld AR argued on behalf of the assessee and submitted that the original return filed by the assessee for both the years under consideration were selected for scrutiny and thereafter assessment order was framed U/s 143(3) of the Act wherein all the details with regard to share capital and share premium was called by the Assessing Officer. The Assessing Officer has required the assessee to prove the identity, creditworthiness and genuineness of the transaction relating to allotment of shares. Our attention was invited to the queries raised by the Assessing Officer vide letter dated 20/04/2013. In compliance to the same vide reply dated 06/5/2013, the assessee has filed all the evidences to prove the genuineness of the share capital/share premium, subscriptions in the names of M/s Gajanand Goods Pvt. Ltd. and M/s Pasupati Vinimay Pvt. Ltd.. As per the ld AR, being fully satisfied with the reply of the assessee, after examining the documents filed before the Assessing Officer, the assessment was completed U/s 143(3) of the Act. As per the ld AR, the Assessing Officer has received communication from DDIT (Inv.), Kolkata on 21/3/2017 regarding some verification carried out by him in connection with some bank deposit of M/s Shiv Kali trade in Axix bank limited. On the basis of this letter of Investigation, the Assessing Officer has send the proposal to Pr.CIT seeking approval U/s 151(1) of the Act for initiating proceeding U/s 148 of the Act. Our attention was also invited to the reasons recorded for reopening. After reopening, the Assessing Officer issued notice U/s 143(2) and 142(1) of the Act and specific query letter dated 14/11/2017. The assessee had filed a written reply and evidences proving genuineness of the share capital so received. However, the Assessing Officer has made addition in respect of share capital/premium. Our attention was also invited to the fact that the notice issued U/s 143(2) of the Act was beyond the statutory time limit provided under the Act. As per the ld AR, notice was issued after six months from the end of the relevant assessment years. For this purpose, reliance was placed on the decision of the Hon’ble Supreme Court in the case of ACIT & Anr. Vs Hotel Blue Mood 321 ITR 362 and the decision of the Hon’ble Bombay High Court in the case of Sanjiv Goel Vs DCIT 2018, TIOL 1594 (Bom). Reliance was also placed on the various decisions of the Hon’ble Supreme Court, Hon’ble High Courts as well as Special Bench of the Tribunal in the case of Raj Kumar Chawla Vs ITO (2005) 94 ITD 1 (Delhi ITAT (SB).
10. As per the ld AR, even the proceeding U/s 147/148 of the Act was initiated after four years from the end of the relevant assessment year without fulfilling the mandate of proviso to Section 147 of the Act. Accordingly, notice U/s 148 of the Act was bad in law.
11. As per the ld AR, it is clear from the facts of the case that during the original assessment proceedings, the Assessing Officer has specifically required the assessee to furnish various details to establish genuineness and creditworthiness of the share applicants and in compliance to the same, the assessee has filed details through letter dated 02/7/2012, 07/11/2012 and 29/11/2012. Being fully satisfied with the details so filed and after examining the same, the Assessing Officer has accepted the genuineness of the share capital/share premium in his scrutiny assessment framed U/s 143(3) of the Act. Under such facts and circumstances, it was contended that there was a change of opinion while reopening the assessment on the very same ground. In support of the proposition, reopening can be made for change of opinion.
12. The ld AR also argued that the reopening of the assessment which has been framed U/s 143(3) of the Act is also affected by proviso to Section 147 in so far as there was no failure on the part of the assessee to furnish details which is necessary for the assessment.
13. As per the ld AR, the Assessing Officer has reopened the assessment purely for verification and for conducting enquiries without there being any tangible material and only on the basis of suspicion and assumption after inviting our attention to the reasons recorded for reopening and the communication received from DDIT (Inv), Kolkata, it was contended that the Assessing Officer has disturbed the completed assessment U/s 143(3) of the Act without any independent application of mind. As per the ld AR, it is clear from the letter dated 10/3/2018 issued by the DDIT (Inv.), Kolkata that he has not made any allegation of escapement of income in the case of assessee. He has also not given any specific co-relation of deposit of any cash in the account of M/s Shiv Kali trade (India) with the share application money given by PVPL to the assessee company.
14. As per the ld AR, even approval given by the Pr. CIT for issuing notice U/s 148 of the Act was in a very routine and mechanical manner which was without application of mind by simply putting her signatures below the rubber stamped ‘Yes, satisfied’. As per the ld AR, such mechanical approval does not fulfill the mandate of provisions of Section 151(1) of the Act. Accordingly, notice issued U/s 148 of the Act on the basis of such approval is bad in law. For this purpose, reliance was placed on the proposition laid down by the Hon’ble Supreme Court in the case M/s Chuggamal Rajpal Vs SP Chaliha (1971), 79 ITR 603 (SC) and the decision of the Hon’ble Delhi High Court in the case of United Electrical Co. (P) Ltd. Vs. CIT 258 ITR 317.
15. With regard to the merit of the addition, it was contended by the ld AR that the addition was made merely on the suspicion and without bringing any incriminating material on record to substantiate that the share application money emanated from the coffers of the assessee and there being no evidence directly or indirectly with the Assessing Officer that the assessee has routed its undisclosed money in the guise of share capital. Relying on the decision of the Hon’ble Delhi High Court in the case of Value Capital Services (P) Ltd. 307 ITR 334 (Del) wherein it was held that there is additional burden on the department to show that even if share applicants did not have the means to make investment of the share applicants, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. Reliance was also placed on the decision of the NC Cables Limited (2017) 391 ITR 11 (Del) and the decision of the Hon’ble Madhya Pradesh High Court in the case of Pr.CIT Vs. Chain House International Pvt. Ltd. (2018) 408 ITR 561 (MP). The ld AR has further relied on the detailed findings recorded by the ld. CIT(A) so as to justify the identity, genuineness and creditworthiness of the share applicants.
16. On the other hand, the ld DR has argued that there was information with the Assessing Officer with regard to bogus share capital having been introduced by the assessee. He also invited our attention to the letter issued by the Investigation Wing, Kolkata. With regard to merit of the addition, the ld DR has contended that the assessee could not justify genuineness and creditworthiness of the share applicants, therefore, the ld. CIT(A) was not justified in deleting the addition so made by the Assessing Officer U/s 68 of the Act.
17. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. AR and ld. DR during the course of hearing before us in the context of factual matrix of the case. From the record we found that during the financial year 2009-10 relevant to the A.Y. 2010-11 the assessee company issued 17,84,000 shares of Rs. 10 each aggregating to Rs. 1,78,40,000/- at premium of Rs. 16,05,00,000/-, as reflected in Schedule: 1 & Schedule: 2 of the balance sheet filed before the ld. AO, on the basis of which the ld. AO required the assessee to furnish complete details to prove the identity, creditworthiness and genuineness of the transactions relating to allotment of shares. Relevant queries made by the ld. AO, vide his letter No. DCIT/Circle/BHL/2012-13 dated 04-09-2012 are reproduced as under:-
“4. Furnish complete details of Share capital, Share application money, Cash creditors and squared up credit account holders if any, i.e. name and full address, total loan/capital taken, date and mode of deposits, received, sources of deposits by the creditors their, PAN No. and indicate ward, where they assessed to tax etc.. In this regard, please prove their identity, credit worthiness and genuineness of transaction with the help of documentary evidence i.e. copies of accounts, bank statements, copies of cash books, copies of balance sheet and return of income in respect of new creditors introduced in your books of account in the year under consideration. Furnish name, complete address and PAN in respect of old creditors.
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13. In the assessment proceedings you have shown shares money/shares capital subscriptions in the name of M/s Gajanand Goods Pvt. Ltd., and M/s Pasupati Vinimay Pvt. Ltd., for verification the letters were issued to both concern the letters are returned by postal department with the remarks that Not Know (M/s Pasupati Vinimay Pvt. Ltd.), In sufficient address (M/s. Gajanand Goods Pvt. Ltd.,). Due to these reasons the genuineness of existence of both concern is doubtful,please furnish your explanation”
In compliance, the assessee furnished all the details, confirmations, bank statements and other evidences etc. vide its replies dated 02-07-2012, 07-11-2012 and 29-11-2012 to prove the genuineness of the share capital /share premium subscriptions in the names of M/S.Gajanand Goods Pvt.Limited and M/S.Pasupati Vinimay Pvt. Limited (hereinafter referred as PVPL). The relevant excerpts from the above replies are reproduced as under:
Reply Dated: – 02.07.2012
“Addition of Share Capital
During the year under review assessee Company has made an addition of capital amounting to Rs 178.40 Lacs by issuing 1784000 equity shares detail as to M/S GAJANAND GOODS PVT. LTD. Ltd. (PAN-AAECS0181P)-225000 Sahres and M/S PASUPATI VINIMAY PVT LTD.(PAN-AADCP5869J)-1559000 shares as below-
