TMI Blog2017 (2) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned reopening that the assessee-company bought back the share capital in question from the ten investor companies by paying them a sum of ₹ 75.20 lakhs no more survives in view of the Assessing Officer's remand report as well as the Commissioner of Income-tax (Appeals)'s lower appellate findings that it is the relatives of the assessee's directors who have been found to be the purchasers of the share capital in question. We put up a specific query to Shri Patel to point out that the above four share capital purchasers are in any way related to the assessee's directors. His case is that the assessee is a closely held company and it is not possible for the Department to prove this relationship. This plea does not impress upon us. Our view is that neither there is any material on record to point out specified relationship under section 40A(2)(b) of the Act nor are their assessment records placed in the case file to prove this crucial relationship. We are also of the opinion that this negative burden that these purchasers are not its relatives cannot be put to the assessee. Nor the Department in instant case made any effort to find about finding of the assessment in cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounded material coupled with details of the ten investor companies. The Revenue at this stage seeks to involve estoppel principle. Its case is that the above correspondence binds the assessee since filed during survey or under section 131 of the Act as the case may be. We do not agree with this plea either way. We quote the Board's circular hereinabove to hold that the same hardly carries any significance in absence of corroborative evidence. The Revenue's latter limb of argument is also devoid of merits because if this admission is not even admissible in special provisions of search or survey, it can be safely held that the very analogy covers section 131 proceedings for general provisions as well. We adopt the very reasoning to observe that the Revenue's approach in seeking to assess the assessee's amount declared of ₹ 9 crores and at the same time questioning genuineness thereof by adopting pick and choose method is accordingly rejected. The assessee therefore succeeds in its fourth argument as well. Decided in favour of assessee - I. T. A. No. 109/Ahd/2016 - - - Dated:- 13-10-2016 - S. S. Godara (Judicial Member) And Manish Borad (Accountant Member) For the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of incorrect facts and irrelevant material. (d) The Assessing Officer has initiated the reassessment proceedings without any fresh tangible material in his possession to show that the income of the appellant had escaped assessment. (e) The legality and validity of the reopening of the assessment has to be adjudged on the basis of reasons recorded and it cannot be supplemented by further reasons. These pleadings draw support from the Hon ble apex court decision in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) holding that this Tribunal does have a discretion as to whether or not a new ground is to be allowed to be raised. Their Lordships clarify that there is no reason in not allowing such an additional ground in the nature of a question of law when the relevant facts are already on record and it is necessary to consider the same in order to determine the correct tax liability of an asses see. Next judicial precedent quoted is All Cargo Global Logistics Ltd. v. Deputy CIT [2012] 18 ITR (Trib) 106 (Mum) [SB] ; [2012] 137 ITD 287 (Mum) (SB) relying on the Hon ble apex court view here-in-above to conclude that a pure question of law is to be allowed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect of reopening as well as on merits. 6. We advert to the relevant facts now. The assessee-company trades in ferrous and non-ferrous metals. It filed return on September 13, 2009 stating income of ₹ 78, 46,640. The same was processed on March 22, 2011. The Department carried out a survey thereafter at its premises. Case record reveals that the Assistant Commissioner of Income-tax, Circle-1(2), Vadodara passed section 133A(3)(ia) order impounding assessee's books of accounts/documents BF-1 to BF-15 found in the course of survey. One of the assessee's director Shri Parasmal Jain got recorded his statement during survey on August 30, 2012. This forms part of case records before us at pages 624 to 629 of the paper book. We deem it appropriate to reiterate that the instant lis pertains to share application money aspect only. Shri Jain was put total 21 questions. This statement terminated at 6.30 p.m. due to his ill health. None of these 21 queries touched upon the issue of share application money. Shri Jain's statement resumed thereafter on September 3, 2012 at the Income-tax office, Vadodara. Pages 630 to 644 comprise a copy thereof involving 71 questions rang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all its energies and attention in the preservation and maintenance of the company's business without diverting its attention to protracted litigation with the Income-tax Department and also to avoid undesired confrontation and involvement of time and energy. With the above intention and also with a desire to buy peace, avoid litigation and also any penalty, the company is voluntarily disclosing an amount of ₹ 9 crores, as income disclosed during the said proceedings, represented by the following : Asstt. year Particulars Amount 2009-10 Share capital + reserves 7,52,00,000 2013-14 Estimated profit for the year 1,48,00,000 The company may submit that during the assessment year 2009-10, after complying all the provisions and laws, the company had issued and allotted shares of ₹ 75.20 lakhs numbering 7,52,000 shares with a premium of ₹ 676.80 lakhs to various companies as under, 1. Shrikant Broking Pvt. Ltd. 2. Bhandari Glasses Pvt. Ltd. 3. Facse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributors Pvt. Ltd. Director. 8. We find that the matter did not rest up to this stage. The Assessing Officer issued section 148 notice dated February 13, 2013 after forming reasons to believe that the assessee's taxable income liable to be assessed had escaped assessment. The instant case record contains copy of these reasons at pages 622 to 623 reading as under : A survey under section 133A was carried out in the case of Laxmiraj Distributors Private Limited, Baroda on August 30, 2012. During survey proceedings some incriminating documents were found, which are inventoried and impounded as annexure BF-1 to BF-15. On scrutinising the annexure BF-1, it was noticed that the assessee had introduced unaccounted capital through share capital and share premium. The assessee-company raised an amount of ₹ 7,52,00,000 by allotting its shares to 10 different companies, located at Surat, Ahmedabad and Kolkata. The assessee-company had allotted total 7,52,000 shares with face value of ₹ 10 at a premium of ₹ 90 in financial year 2008-09. Later in financial year 2009-10, the assessee purchased back these shares from these 10 companies at a rate of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri Parasmal Jain, director of the company was also recorded. But the statement left unconcluded, due to his health reasons. Accordingly, the assessee was summoned under section 131 of Income-tax Act on August 31, 2012 to attend the office of the Assistant Commissioner of Income- tax, Circle-1(2), Baroda on September 3, 2012. In compliance to summon issued, the assessee attended the office of the undersigned, where his statement under section 131 was recorded. While recording statement, the director of the company was asked vide question Nos. 57 to 70 of the statement recorded under section 131 of the Act on September 3, 2012 about details of investors of the company and the investments made by them. But the director Shri Parasmal Jain who is the only beneficiary to enjoy the profits of the company and who take care all the matters of the company, was unable to give any detail in respect of investors. Even he was not able to name any one of investors who made such huge investments in the company. Later, on the same day the director of the company Shri Parasmal Jain, vide his hand written letter admitted ₹ 9 crores as his unaccounted income. He also stated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t these investor company did not reside at the given addresses. One of the investor company M/s. Winter Fresh Foods Pvt. Ltd. replied to have purchased the assessee's shares in the financial year 2008-09 relevant to the impugned assessment year 2009-10. It furnished the relevant copy of bank statement and balance-sheet as on March 31, 2009. The latter document allegedly did not reflect its investment in the assessee's share capital. This company had paid ₹ 10 lakhs, 25 lakhs, 8 lakhs and 2 lakhs on May 10, 2008, May 15, 2008, June 17, 2008 and June 24, 2008 respectively through banking channel. It filed its bank statement reflecting the above stated payments. The Assessing Officer would notice that this entity had introduced similar sums in bank accounts within a day or two before the payments in question. He sought to know the source thereof. This query seems to have been never responded. The Assessing Officer observed that this company's balance- sheet inter alia indicated debtors at a negate figure of 1,11,80,888, loans and advances of ₹ 3,19,45,522 increasing from ₹ 1,54,68,468 in the immediate previous year. Its return stated gross total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital. The assessing authority was further of the view that the impugned share investment have been made in the assessee's share capital on private placement meaning thereby that it had access to share applicants' details since enjoying close relationship therewith. It opined that the assessee's delaying tactics were a well calculated move to guard itself against any finding holding the impugned share capital as sham transaction. The Assessing Officer came to a conclusion that the assessee had not discharged its onus of proving that its investor companies had made the impugned share transactions out of their own capital since it was beyond common prudence as to why would anyone invest in an unknown company shares and buy them back at a heavy loss as done in the instant case. He recorded a finding of fact the assessee had purchased back the very share capital from the ten investor companies in question at ₹ 10 per share. He prepared a chart thereof as extracted hereinabove in his reassessment order. The Assessing Officer then quoted Shri Jain's written statement dated September 4, 2012, his survey statement and deliberations in the entire reassessment exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is deposited during the financial year 2008-09 and amounts have been debited to buy back the same shares during the financial year 2009-10 marking/highlighting the relevant entries. 3. As per the Inspector's report the company M/s. Shrikant Broking Pvt. Ltd. was not located at the given address of Trupti Society, Surat, please explain. 4. As per the letter of the Income-tax Officer, Ward-4(3), Ahmedabad the director of M/s. Flacsel Contech Pvt. Ltd. Sh. Pravinbhai Modi, had denied any link/transaction ever with M/s. Laxmiraj Distributors Pvt. Ltd., please explain. 5. Produce the managing director or main director of all the companies for examination along with the proof of their identity, copies of bank accounts, return filing proof, computation of income, Audit reports, balance-sheets, profit and loss account and shareholding pattern of the companies for the financial years 2008-09 and 2009-10.' You are requested to comply with the above on June 2, 2015 at 11.30 a.m. Please note, if you remain fail to comply with the above, on the given date and time, it will be presumed that you have nothing to say in this regard and the report will be submitted to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts, bank statement and Income-tax acknowledgment of Angelica Commo Trade Pvt. Ltd., Anti Clock Vyapar Pvt. Ltd., Medler Delcom Pvt. Ltd., Muse Dealers Pvt. Ltd., Veronica Commerce Pvt. Ltd. and Winter Fresh Food Pvt. Ltd. is enclosed herewith for your kind perusal. 2. Further, in respect of bank statement and Income-tax acknowledgement of Shrikant Broking Pvt. Ltd., Bhandari Glasses Pvt. Ltd., Flacsel Contech Pvt. Ltd. and Chirag Call Shops Pvt. Ltd., the assessee-company was not able to collect that data as the directors of those companies are not co-operating. 3. The assessee has made communication with regards to the documents of the managing directors of all ten companies but they have denied to give any personal data to the assessee-company. They have denied to produce before your kind honour along with the required documents as the investment was made by the companies and hence, giving their personal data is not justifiable. 4. The assessee has filed confirmations, copies of return filing proof, and copies of bank statements in respect of the following 6 companies to whom the shares are sold on premium : i. M/s. Angelica Commotrade Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urat and Kolkata. Sixthly, as given finding by the Assessing Officer in the assessment order on the ground vividly narrated in the assessment order that the assessee itself introduced its own money through sham transactions in the garb of sale of shares on huge premium. In view of the above, to sum up, the assessee has failed to satisfy the three main parameters i.e. identity, creditworthiness and genuineness of the transaction in respect of alleged sale of shares on heavy premium. Therefore, the addition made by the Assessing Officer deserves to be sustained in respect of above 6 companies. 5. The assessee has filed copies of confirmations in respect of the following companies- i. M/s. Shrikant Broking Pvt. Ltd. ii. Bhandari Glasses Pvt. Ltd. iii. M/s. Flacsel Contech Pvt. Ltd. iv. Chirag Call Shops Pvt. Ltd. Except the copies of confirmations, the assessee could not file any other evidences like copies of return filing proof, and copies of bank statements etc. Secondly, the assessee could not produce the main directors or managing directors of the above 4 companies for examination. Thirdly, the same 1,52,000 shares have been purchased by the related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latter developments indicate that the said share capital was purchased by Smt. Priyanka Sanghvi, Ravi Sanghvi, Santaben P. Jain and Vimala P. Sanghvi. The Assessing Officer's remand report as fortified in the lower appellate order holds that all these four share capital purchasers are related persons of the assessee's directors. This leaves the assessee aggrieved. 13. The learned authorised representative opens up the assessee's arguments. He comes to legal ground first challenging validity of the impugned reopening. Our attention is invited to reopening reasons extracted hereinabove. Learned counsel states that the Assessing Officer has exercised section 148 jurisdiction on four counts i.e., scrutiny of the impounded documents BF-01 indicated the assessee to have introduced its unaccounted capital through share capital and premium, it thereafter repurchased the very share from investor companies, Shri Jain's statements did not disclose investors' entities' names and that he himself had admitted unaccounted income on assessee's behalf respectively. 14. The assessee comes to first reason of reopening. It invites our attention to the impounded docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gotiators of the investor companies and their names in the survey statement. It refers to Shri Jain's survey statement that he had replied to all queries and a mere lapse of memory at some point of time ; even if taken as admission, is not sufficient for making the impugned addition in absence of any corroborative evidence as per Central Board of Direct Taxes Circular dated March 10, 2003. Case law of Kailashben Manharlal Chokshi v. CIT [2010] 328 ITR 411 (Guj) ; [2008] 174 Taxman 466 (Guj) is quoted in support. 17. The assessee's last argument qua fourth facet of the impugned reopening comes to both the lower authorities findings relying on Shri Jain's statement to have introduced unaccounted share capital. It invites our attention to written correspondence dated September 3, 4, 2012 hereinabove that the same had in fact claimed the share capital purchase instances to be genuine. We put a specific query as to whether the survey authorities ever made a suggestion that these were sham share capital transfers. The assessee in reply takes us to all of the survey queries not demonstrating any such suggestion even. It thereafter reiterates the fact that it had only offere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir accounts since it is an instance of cash being credited only. The assessee takes us to page 31 of its written submissions qua four remaining entities to state that all the share application money has come through banking channel only. It relies upon the Hon ble Gauhati High Court decision in Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gauhati) observing that only onus of an assessee in such a case is to the extent of proving source of the amount received. It is reiterated that all cheque payments in question are followed by confirmations not involving any identity dispute of the share applicant companies. A co-ordinate Bench decision of the Tribunal ITO v. Neelkanth Finbuild Ltd. [2015] 40 ITR (Trib) 665 (Delhi) is further relied upon. 21. The assessee comes to one of the share applicant entity M/s. Shrikant Brokerage. The Assessing Officer holds this company to be not available (supra). The same is stated to be contradicted in his own remand report extracted hereinabove that this time the said company has been found to be available. 22. The assessee takes us to statement of Shri Pravin Modi. It pleads that all the overwhelming documents available in the case file provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 291 (Guj) ; [2016] 66 taxmann.com 8 (Guj). (2) Yogendrakumar Gupta v. ITO [2014] 51 taxmann.com 383 (SC). (3) Yogendrakumar Gupta v. ITO [2014] 366 ITR 186 (Guj) ; [2014] 46 taxmann.com 56 (Guj). (4) Deputy CIT v. Zuari Estate Development and Investment Co. Ltd. [2015] 373 ITR 661 (SC) ; [2015] 63 taxmann.com 177 (SC). (5) Sun Pharmaceutical Industries Ltd. v. Deputy CIT (No. 1) [2013] 353 ITR 450 (Guj) ; [2013] 29 taxmann.com 262 (Guj). (6) Sun Pharmaceutical Industries Ltd. v. Deputy CIT (No. 2) [2013] 353 ITR 474 (Guj) ; [2012] 25 taxmann.com 509 (Guj). (7) Lalita Ashwin Jain v. ITO [2014] 363 ITR 343 (Guj) ; [2014] 45 taxmann.com 404 (Guj). (8) Naren Sadashiv Burade v. ITO [2015] 5 ITR-OL 76 (Guj) ; [2015] 61 taxmann.com 182 (Guj). (9) Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) ; [2007] 161 Taxman 316 (SC). (a) Case law under section 68 (1) Navodaya Castle (P.) Ltd. v. CIT [2015] 56 taxmann.com 18 (SC). (2) CIT v. Navodaya Castles P. Ltd. [2014] 367 ITR 306 (Delhi) ; [2014] 50 taxmann.com 110 (Delhi). (3) N. Tarika Property Invest. (P.) Ltd. v. CIT [2015] 371 ITR (St.) 369 (SC) ; [2014] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04] 268 ITR 332 (Bom) holds that . . . It is needless to mention that reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No addition could be made to those reasons. No inference is allowed to be drawn on the basis of reasons not recorded. It is for the Assessing Officer to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons . Their Lordships further emphasise that the reasons should be self explanatory and should not keep on assessee guessing for the reasons. And that reasons provide link between conclusions and evidence. The very Hon ble court in Prashant S. Joshi v. ITO [2010] 324 ITR 154 (Bom) is of the view that Assessing Officer must have reasons to believe of any taxable income having escaped assessment before he proceeds to issue reopening notice and the relevant reasons recorded are the only reasons which can be considered unless formation of this belief is impugned. 29. The Hon ble apex court similarly in case law of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) holds that reasons for the formation of belief must have rational connection with or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to have reasons to believe even if it is a case of section 143(1) intimation and such a course cannot be taken recourse in order to conduct a finishing or roving inquiry seeking to verify the claims as if it were a regular assessment. The Hon ble jurisdictional High Court in a very recent judgment post facto hearing of the instant case i.e., Sheth Multilink Pvt. Ltd. v. ITO SCA No. 14353/2016 decided on August 29, 2016 has declined to interfere in a challenge to reopening of a section 143(1) processing in case wherein the Assessing Officer had collected sufficient material before forming reasons to believe that the assessee's income had liable to be assessed had escaped assessment. 31. We keep in mind the above legal principles inter alia that an Assessing Officer's reopening reasons cannot be improved upon, they have to have cause and effect relationship between reopening reasons and escapement of taxable income, an Assessing Officer cannot resort to reopening in absence of material leading to formation of reasons to believe as per reasonable prudence that any taxable income has escaped assessment and that the same is not in the nature of a fishing or roving inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her directors. The same were sufficiently replied. There is no evidence in the case file linking the said persons with those investors found in the remand report. Our view is that neither there is any material on record to point out specified relationship under section 40A(2)(b) of the Act nor are their assessment records placed in the case file to prove this crucial relationship. We are also of the opinion that this negative burden that these purchasers are not its relatives cannot be put to the assessee. Nor the Department in instant case made any effort to find about finding of the assessment in cases of investor companies as well as the four individual assessee who have repurchased the share capital despite that the fact it itself is the assessing authority of all of them. We rely on the case law in preceding paragraphs that the basic tenet of cause-effect relation between the reopening reasons and taxable income having escaped assessment is accordingly not made out. The assessee succeeds in the instant argument as well. 34. We now come to the assessee's third limb of argument that the mere fact of Shri Jain's statement not being able to furnish names of the investor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even up to section 148 notice on February 13, 2013 despite the fact that he was having at his disposal all the impounded material coupled with details of the ten investor companies. The Revenue at this stage seeks to involve estoppel principle. Its case is that the above correspondence binds the assessee since filed during survey or under section 131 of the Act as the case may be. We do not agree with this plea either way. We quote the Board's circular hereinabove to hold that the same hardly carries any significance in absence of corroborative evidence. The Revenue's latter limb of argument is also devoid of merits because if this admission is not even admissible in special provisions of search or survey, it can be safely held that the very analogy covers section 131 proceedings for general provisions as well. We have already indicated many a times that there is no corroborative evidence casting doubts on the assessee's share capital transfer up to the date of reopening notice. We further quote a co-ordinate Bench decision of this Tribunal in ITO v. Ghanshyambhai R. Thakkar [1996] 56 TTJ (Ahd) 460 rejecting a similar argument that a statement made during survey cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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