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2016 (6) TMI 899 - GUJARAT HIGH COURT

2016 (6) TMI 899 - GUJARAT HIGH COURT - TMI - Reopening of assessment - failure to produce share application form details of shares allotted to the so called share holders and proof of attendance of Annual General Board Meeting of the said so called share holders. - Held that:- The Assessing Officer has recorded detailed reasons recording that during the survey proceedings, the company failed to produce share application forms, details of shares allotted to the share holders, proof of attendance .....

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s recorded the reasons to believe that income chargeable to tax has escaped assessment. We do not find such reasons lacked validity or a live link with the material on record enabling the Assessing Officer to form such a belief. As held by the Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd. (2007 (5) TMI 197 - SUPREME Court ) at this stage, it is not necessary for the Assessing Officer to conclusively establish that income would be invariabl .....

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the company, in whose shares such investments are made, cannot be held responsible for unaccounted investments of such investors even if so found to have been made since it would be unaccounted investment of the investors not of the company. Nevertheless, if it is found that the entire transaction of the so called investment is wholly bogus, routing unaccounted income of the company itself through large scale allotment of shares to bogus entities and so-called investors, the question of taxing t .....

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. The petitioner has challenged the notice dated 23.02.2014 under which, the respondent-Assessing Officer desires to re-open the assessment of the petitioner for the assessment year 2009-10. 3. Brief facts are as under: The petitioner is a company registered under the Companies Act. For the assessment year 2009-10, the petitioner had filed return of income on 30.09.2009 declaring income of ₹ 2.51 lacs and showing book profit under Section 115JB of the Act of ₹ 3.19 lacs. Such assessm .....

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dings u/s. 143(3) of the Act for A.Y. 2012-13, it is noticed that the assessee company has received following share capital and share premium during the F Y 2008-09 relevant to A Y 200-10. Sr. No Name of the Party Share Capital Rs. Share premium Rs. 1 Hiren Trivedi 1,50,000/- 28,50,000/- 2 Ness Nusil Wadia 11,60,000/- 2,78,40,000/- 3 Kajal Agro Farm Pvt. Ltd. 5,40,000/- 1,29,60,000/- 4 Pearl Plantation Pvt. Ltd. 3,88,000/- 93,12,000/- 5 Samrajya Agro Farm Pvt. Ltd. 5,16,000/- 1,23,84,000/- Total .....

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re not existing at the addresses available with the company. 2.1 The assessee company has forfeited the above share capital and share premium during the F Y 2011-12 relevant to A Y 2012-13, however, during the Survey proceedings, the assessee company has failed to produce any details which prove the action taken by the assessee company regarding forfeited of the share capital and share premium. Considering the above facts, the undersigned has reason to believe that, the assessee company has intr .....

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he petitioner objected to the process of re-opening under communication dated 13.04.2015. Such objections were, however, rejected by the Assessing Officer by order dated 08.07.2015. Hence, this petition. 5. Learned counsel for the petitioner submitted that the Assessing Officer has recorded reasons which do not disclose any information to enable him to form a belief that income chargeable to tax has escaped assessment. He submitted that no incriminating material was found during the course of su .....

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Tax vs. Lovely Exports (P) Ltd. was followed by this Court in case of Hindustan Inks and Resing Ltd. vs. Deputy Commissioner of Income Tax. reported in 60 DTR 18 (Guj.). 6. On the other hand, learned counsel for the Revenue opposed the petition contending that the original assessment was not framed after scrutiny. There is no question of change of opinion on part of the Assessing Officer. He has recorded proper reasons on the basis of which, he formed a belief that the income chargeable to tax .....

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opinion during the original assessment. This was held by the Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd. reported in 291 ITR 500, in which, it was held and observed as under: 13. ... ... ... ... ...In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Un .....

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on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J) in Apogee International Limited v. Union of India [(1996) 220 ITR 248]. It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due t .....

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more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. 8. In case of Inductotherm (India) P. Ltd. vs. M. Gopalan, Deputy Commissioner of Income Tax reported in 356 ITR 481, the Division Bench of this Court, in the context of notice for re-opening when the return was accepted without scrutiny, observed that even in such a case, the requirement that the Assessing Officer has re .....

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e may notice that the expression reason to believe came up for consideration before the Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) in which, it was held that such expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The term reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose t .....

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me had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR .....

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have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]. 10. With this background, we may revert to the facts of the case. The Assessing Officer has recorded detailed reasons .....

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mium but failed to produce any details to show the action taken by the company regarding forfeiture. It was on the basis of such reasons the Assessing Officer has recorded the reasons to believe that income chargeable to tax has escaped assessment. We do not find such reasons lacked validity or a live link with the material on record enabling the Assessing Officer to form such a belief. As held by the Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers .....

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assertion the reopening proceedings cannot be terminated. Undoubtedly, when share investment is made by the large number of persons, the company, in whose shares such investments are made, cannot be held responsible for unaccounted investments of such investors even if so found to have been made since it would be unaccounted investment of the investors not of the company. Nevertheless, if it is found that the entire transaction of the so called investment is wholly bogus, routing unaccounted inc .....

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ction 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee s reliance upon the CIT (Appeals) order to contend that the sources of the funds were in essence as Directors, is in this context of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amo .....

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ast two individuals indicated that the money had not been given by them. In view of the fact that concurrently the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. The appeal is accordingly dismissed. 12. In case of Commissioner of Income Tax vs. Youth Construction Pvt. Ltd. reported in 357 ITR 197, Delhi High Court observed that: 8. ... ... ...These affidavits are from the directors of the three companies. .....

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three companies which had applied for the shares. We have already referred to the inferences drawn by the AO. The Assessing Officer had examined the bank accounts and had deduced a pattern by which the bank accounts were used only as a conduit to receive the monies and pay them out on the same day. This pattern, coupled with the general admission made by Pradeep Kumar Jindal and the failure of the share applicants to produce the directors before the Assessing Officer, all taken cumulatively, sho .....

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to share application monies received by an assessee and, therefore, the burden is on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. It involves three ingredients, namely, the proof regarding identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. The Tribunal failed to keep in mind these aspects of the matter and has chosen to dispose of the appeal on the limited questio .....

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f the share application monies. There is precious little which has been done by the assessee in discharging its burden under the section. The Tribunal has failed to keep in view the broader picture and has taken a rather simplistic view of the matter, ignoring the factual aspects and surrounding circumstances present in the case. It should have dealt with the case in a wholesome manner dealing with the entire evidence relied upon and having regard to the report of the investigation wing, the man .....

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documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income .....

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epth having regard to the human probabilities and normal course of human conduct. 18. Lovely Exports Pvt. Ltd. (supra) was also considered and distinguished in N.R. Portfolio Pvt. Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT Vs. Nipun Builders and Developers, [2013] 350 ITR 407 (Delhi), wherein it has been held that a reasonable approach has to be adopted and whether initial onus stands discharged would depend upon facts a .....

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