TMI Blog2017 (10) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Act, neither assumption of jurisdiction can be upheld nor the addition made on the basis of suspicions, surmises and conjectures. The statement of the Director by itself recorded u/s 133A having no evidentiary value in the face of the documentary evidence on record in the peculiar facts of the present case cannot be brushed aside by the tax authorities on the basis of suspicions and surmises. Accordingly, we allow relief to the assessee both on the jurisdictional issue addressed in Ground No. 1 and 2 and on merits addressed in Ground Nos. 3 to 5 - Decided in favour of assessee. - ITA Nos. 349 And 350/CHD/2017 - - - Dated:- 7-9-2017 - MS. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.R.R.KUMAR, ACCOUNTANT MEMBER For The Appellant : Shri Sudhir Sehgal For The Respondent : Smt. Chandra Kanta, Sr.DR ORDER PER DIVA SINGH, JM The present appeals have been filed by the assessee assailing the correctness of the separate orders dated 30.012017 of ld. CIT(Appeals) 3 Ludhiana pertaining to 2007-08 and 2008-09 assessment years. It was the common stand of the parties before the Bench that the issues raised in the present appeals are identical in both the years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory in regard to the share application money received from M/s Ludhiana Scrips P.Ltd. and also share application of Shri Malkiat Singh as one of the Directors. The AO, however, took exception to the explanation offered on behalf of M/s Genesis Fashions P.Ltd from whom ₹ 50 lacs had been received. The AO required the assessee to prove the identity, genuineness and credit worthiness of the said party and was also required to produce the documents in support of its claim. 2.3 The explanation offered was not accepted by the AO on account of the following reasons : M/s Genesis Fashions P. Ltd. has filed return of income of almost NIL There is never sufficient credit in the bank account of the assessee. Money is credited almost immediately before being debited. All the amounts being transferred are in round figures of lacs. Usually in the bank account of an investment company there are credits of interest which are seldom round figures. This means there is simply movement of huge funds through the bank accounts. As per the return, the address of Genesis Fashions P. Ltd. is same as that of the assessee M/s D.D.Agro Industries P. Ltd. 2.4 The AO was of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded, it was submitted that no tangible material has been referred to by the AO who has blindly proceeded to suspect and not cared to form any belief. It was his submission that firstly the information received was a general information. Secondly, even if the information is considered, it would show that by itself, there was no allegation that Share Application money itself was bogus. In the circumstances, it was his submission that the AO proceeded blindly to accept the fact for reasons best known to him that the claim was bogus. It was argued that the AO has carelessly acted on pure suspicions. The information at best, it was submitted, could be said to perhaps arouse suspicion and in a bonafide action, the AO then as per law was required to look into the facts. No reference to any fact, it was submitted, has admittedly been made. 4.3. The mere use of the words that the facts have been analyzed by the AO, it was submitted, are merely self serving statement and by itself do not demonstrate that facts actually have been seen. To elaborate this argument, it was submitted that the notice refers to Share Application money of ₹ 1.50 Crores whereas the amount actually was & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Dayal s case casually roping in the principles of human probability. It was his submission that the said decision had no applicability to the facts of the present assessee. In the facts of the present case, it was argued, the company is not a bogus company nor has it been held to be a bogus company by any authority or order of any Court. There was no tangible or cogent material for the action taken. The AO in the facts of the present case, it was submitted, did not apply his independent mind. He has merely used terms like analyzed all facts and figures , in the last para at page 5 of the assessment order without referring to either any fact or any figure. It was submitted, the use of such words does not by itself support the self serving statement that facts have been considered or analyzed as stated by him. 4.6 Reason to believe it was submitted, is the sine qua non for the purposes of initiating proceedings u/s 148. It was also his submission that since the action of re-opening impacts the vested right of the assessee, where on facts there is a concluded assessment in his favour, the Revenue, it was argued, cannot be allowed to upset the same except by following the due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another 338 ITR 51 (Delhi), CIT Vs Atul Kumar Swami 362 ITR 693 (Delhi), CIT Vs Orient Craft Ltd. 354 ITR 536 (Delhi) and CIT Vs Atlas Cycle Industries 180 ITR 319 (P H) of the said decision were also heavily relied upon. Similarly, the proposition of law as addressed by the Chandigarh Bench in the order dated 14.09.2016 in the case of Prem Sagar Jain Ors. ITA 71/CHD/2015 others (copy placed at pages 16 to 32 of the Paper Book) wherein reference had been made to fraudulent billing activities and accommodation entries on the basis of which re-opening was directed which proceedings had been quashed. Specific findings of the said decisions highlighted at pages 25 to 31 of the Paper Book, it was submitted, fully supported the case of the assessee as lack of tangible material for re-opening was clearly made in the facts of the present case justifying quashing of the order. It was his submission that in-fact, the assessee in the facts of the present case has a much better case as there is no allegation of any accommodation entry. 4.9 Reliance was also placed upon decision of the jurisdictional High Court in the case of Paramjit Kaur 311 ITR 381 (P H) (copy placed at pages 33 to 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 The proposition of law as considered by the CIT(A) holding the re opening to be valid supported by decisions of Supreme Court namely Rajesh Jhaveri Stock Brokers P.Ltd., A.L.A.Firm V CIT, Raymond Woollen Mills Ltd., Phool Chand Bajrang Lal another V ITO it was submitted, have been incorrectly considered to support the conclusion as they operate on different set of facts and circumstances and were not applicable to the facts of the present case as the facts were distinguishable. Consequently, the ratio of the said decisions, it was submitted, was not attracted. The following chart highlighting the distinction was heavily relied upon : Judgement relied by the CIT(A) Rajesh Jhaveri Stock Brokers P.Ltd 291 ITR 500 (S.C) Our submissions This judgment rather support the case of the assessee because, it has been stated at page 26 that the Officer must have reason to believe that the income has escaped assessment and in the present case, there was no reason to believe and rather on the same facts, there is judgment of Chandigarh Bench of the ITAT, in the case of M/s Shiva Exports, wherein, the notice u/s 148 was quashed, though, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that sufficient evidence has been led and in-fact it was submitted, the said company is still a shareholder as on date and there has been no re-purchase of shares by the Directors. Unless the documents on record are upset the genuineness, it was submitted, stands established. Reliance was placed upon the order of the ITAT in the case of M/s Kisco Castings 152 TTJ 69 (CHD) (Tribunal) and M/s Mandi Alloys ITA 222/2015 dated 27.11.2015 for the proposition that since assessee had established identity of the shareholder and their sources have been proved, no adverse view could be taken. Decision of the jurisdictional High Court in the case of Shree Dadu Auto ITA 704/2009 dated 30.03.2010 was also relied upon. Addressing the statement of the Director during the course of survey relied upon by the Revenue, it was submitted that in terms of the decision of the Apex Court in the case of Khadar Khan Sons 300 ITR 0157 (Mad) approved by the Apex Court in 352 ITR 480 (S.C) (copy placed at page 63-65 and 66 of the Paper Book respectively) it has been well settled that survey u/s 133 does not empowers any IT authority to examine any person on oath, hence any such statement has no evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thless company. Emphasizing this fact vehemently, it was submitted that despite filing a Paper Book, assessee has not cared to file a copy of its balance sheet in the Paper Book. The ld. AR seeking permission to intervene, submitted that he has available with him copy of the balance sheet in 2007-08 assessment year, however, it has not been included in the Paper Book. However, in the Paper Book for 2008-09 assessment year, copy of the balance sheet is included and available at pages 6-17 of the said Paper Book. It was his submission that in case the ld. Sr.DR would want to go through the balance sheet for 2007-08 assessment year, it is available. Ld. Sr.DR accepted the balance sheet and on going through the same, invited specific attention to the Profit Loss Account. The profits were negligible. Referring to Schedule-2 of the balance sheet, it was submitted, they were also negligible. Any person wanting to invest in a company, it was submitted, would first look at the profits. Thus, what was the reason for a person wanting to invest ten times the value at a premium in a worthless company. Inviting attention to the reasons recorded which have been reproduced in the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the time of initiation of re-assessment proceedings only reason to believe that income chargeable to tax has escaped assessment is sufficient to invoke jurisdiction of AO to initiate re-assessment proceedings. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income 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 662. for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. A.L.A. Firm v. CIT [19911189 ITR 285 (SO The jurisdiction of the Income-tax Officer to reassess income arises if he has, in consequence of specific and relevant information coming into his possession subsequent to the previous concluded assessment, reason to believe that income chargeable to tax had escaped assessment It was held that even if the information be such that it could have been obtained by the Income-tax Officer during the previous assessment proceedings by conducting an investigation or an enquiry but was not in fact so obtained, it would not affect the jurisdiction of the Income-tax Officer to initiate reassessment proceedings, if the twin conditions prescribed under section 147 of the Act are satisfied. Raymond Woollen Mills Limited. Vs ITO 236 ITR 34 SC In this case, we dp not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid page following conclusion of the AO was heavily relied upon : Survey u/s 133A was conducted on the premises of the assessee on 02.09.2014 and during the survey proceedings it was found that there is no physical existence of the company M/s Genesis Fashions P. Ltd in that address - there were no assets, no business, no staff pertaining to M/s Genesis Fashions P. Ltd. It is merely a company floated to provide entries and exists only on paper in ROC documents, ITRs, bank account, etc. but has no physical existence. 6.4 Referring to the record, it was submitted that the address of M/s Genesis Fashions P.Ltd. was same as the assessee. Attention was invited to page 17 of the assessment order so as to submit that despite three specific opportunities, the assessee failed to produce the specific Director before the AO. It was submitted that the primary onus was upon the assessee to substantiate his facts and in the circumstances, the findings of the CIT(A) from para 3.7 to para 3.12 and the following discussion on law evidently leads to the conclusion that the assessee had failed miserably to make out his case: 3.7. I have gone through the assessment record and the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Assessing Officer in making the addition of ₹ 50 lacs. 3.9 Based on these facts the assessing officer rightly held that there is no identity of the company and genuineness and creditworthiness cannot be proven at all by the appellant company. The assessing officer has also relied upon the statement of the Director of the company wherein the Director has admitted clearly that these concern is only a paper company and no real work is being done the assessing officer has reproduced the statement of the Director in her assessment order wherein the director's as admitted that M/s Genesis Fashions Private Limited is merely a paper company and has been used to give accommodation entries to the appellant and others. 3.10 In the written submission filed by the appellant has filed the ITR is, bank account and other documents pertaining to its registration in ROC, however, in view of the admittance on the part of the Director at the time of survey and after considering the relevant facts there is no doubt that M/s Genesis Fashions Private Limited is paper company which was used to give the commission entry and has been a used to bring back the appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also upheld this view of Id. AO that there are three limb of section 68 and it is the primary onus of assessee only to prove the identity, genuineness and creditworthiness. The initial catchphrase of the section is: Where any sum is found credited in the books of account of the assessee meaning thereby that Section 68 is attracted where an entry relating to a sum is found to have been credited in the books of the assessee, which thus implies, existence of books and recording of a sum which the Assessing Officer considers as doubtful. i) Smt.Shanta Devi v. CIT [1988] 171 ITR 532 (Punj. Har.). ii) Decision by Hon. Indore Bench of ITAT in case of Agrawal Coal Corpn. (P.) Ltd. v. Asstt CIT63DTR201. iii) CIT vs. Frostair (P.) Ltd. [2012] 26 taxmann.com 11 (Delhi) iii) CIT Vs Prescision Finance P.Ltd. (Cal) 208 ITR 465 iv) K.C.N. Chandrasekhar Vs ACIT (ITAT Bang.) 66 TTJ 355 v) CIT V United Commercial Industrial Co. (P)Ltd. (Cal) 187 ITR vi) CIT Vs Nova Promoters 7 Finlease (P) Ltd. (2012) 18 Taxmann.com 217 (Del) vii) CIT Vs Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 viii) CIT Vs N R Portfolios P.Ltd. ITA Nos. 134/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly rely on the reasons recorded to show that the exercise of authority is in terms of the statutory provisions and there is some material on record to show that there was reason to believe that income has escaped assessment. It was his submission that before addressing the departmental arguments, he would respond first to the repeated insulting arguments advanced by the ld. Sr.DR namely that the assessee is a worthless company. It was submitted that he has strong objections to the use of such insulting words. The company, it was submitted, as the assessment order itself would show, is engaged in manufacturing zinc, sulphate, zinc metal, zinc oxide and pet perform. The assessee continues to exist and has done business as per law. The AO, in the facts of the present case, admittedly has not applied his mind at all and has acted on a routine information blindly on mere suspicions. The assessee company, it was submitted, has done a business of ₹ 20 Crores in the earlier assessment year and ₹ 23 Crores in the year under consideration. Its Balance Sheet, it was submitted, is available and the profits earned may be ₹ 75 lakh and ₹ 54 lakh respectively and Reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the decision in the case of Durga Prasad More and Sumati Dayal without referring to the facts of the assessee's case. Had the AO cared to address the facts of assessee's case, it was submitted, he would not have wrongly referred to receipt of share application amounting to ₹ 1.50 Crores and would have noticed that it was infact ₹ 1.49 Crores. 7.1 It was submitted that the entire case of the tax authorities rests on this statement of the Director of the assessee company who, it is noted has stated that it was a paper company. The arguments that there is no independent application of mind by the AO; routine general information has been blindly accepted as a gospel truth; it is a case of borrowed satisfaction by the AO which has been frowned upon by the Courts; no independent formation of belief of any such exercise has been embarked upon by the AO are all arguments based on facts which have been consistently ignored by the tax authorities based on suspicions. Accordingly the prayer has been that assessment may be quashed. The decision of the Apex Court that statement recorded u/s 133 have no evidentiary value, was relied upon which had not been unsettled. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- 8.1. The AO, admittedly considering the explanation, only questioned the receipt of share application money from M/s Genesis Fashions Pvt. Ltd. The receipt of share application money from Shri Malkiat Singh and M/s Ludhiana Scrips Pvt. Ltd. was not questioned. Explanation offered on their behalf has not been brought out in the order and only the following finding has been recorded : Sh. Malkiat Singh is one of the Directors of the company and satisfactory documents have been submitted. The amount received from M/s Ludhiana Scrips P. Ltd. was returned back ie. during FY. 2007-08. Hence the main focus of our investigation and analysis would be on the money received from M/s Genesis Fashions P.Ltd. from which a major sum of ₹ 50 lacs has been received . 8.2 Admittedly, the assessee was required to prove the identity, genuineness and creditworthiness of the M/s Genesis Fashions Pvt.Ltd. only and consequently was asked to produce various documents pertaining to the introduction of Share Capital. 8.3 Admittedly, again the following information vide letter dated 09.02.2015 u/s 142(1) was sought from the assessee as per page 8 of the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the assessee. Further, the exercise is stated to be selective and arbitrary on the grounds that if the fact of allotment of shares of the assessee company on premium to Shri Malkiat Singh and M/s Ludhiana Scrips P.Ltd. can be accepted then the very same logic and rationale would apply to reasons for allotment of share application money on a premium to M/s Genesis Fashion P.Ltd. also. Thus, the jurisdiction issue, it has been canvassed, fails even on this fact emanating from the record. In fact, the ld. AR has strongly objected to the repeated stance of the Departmental Representative describing the assessee company as a worthless company. He has invited attention to the copies of the balance sheet available on record for 2008-09 assessment year and for 2007-08 assessment year made available to the ld. DR to rebut the statements. He has submitted that he is pained to note the level of representation and has objected to the ld. DR to use provocative and derogatory terms like worthless company . He has submitted that the shares allotted to M/s Genesis Fashion Pvt. Ltd. still continue to remain in the hands of the said company. It was submitted that the decision to invest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 18. The details of the specific cheques co-relating with the date and the specific cheque number and amount are at Paper Book page 15, copy of Form No. 2 filed with Registrar of Companies for 2008-09 is available at pages 19 to 31 wherein the name of the specified parties is mentioned at Paper Book page No. 31. We note that in the peculiar facts and circumstances of the case, considering the rival stand of the parties, the fact that the assessee was engaged in manufacturing of zinc, sulphate, zinc metal, zinc oxide and pet perform is not in dispute as noted by the AO himself. In our considered view, considering the facts of the present case, we hold that the AO has assumed jurisdiction relying upon non specific routine information blindly without caring to first independently consider the specific facts of the assessee's case. The AO in his wisdom, instead of caring to refer to the facts of the case at hand which he ought to have first considered, has instead considering the facts as considered by the ITAT in the case of Som Nath Maini and that too without first caring to establish that the facts are identical which we note infact are entirely distinguishable has further co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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