TMI Blog2018 (6) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition in dispute is deleted - Decided in favour of assessee. - I.T.A. No. 4930/DEL/2017 - - - Dated:- 9-5-2018 - Shri H.S. Sidhu, Judicial Member Department by :Ms. Ashima Neb, Assessee by :Sh. Gautam Jain, Adv. Sh. Piyush Kumar Kamal, Adv. ORDER Revenue has filed this Appeal against the impugned Order dated 22.5.2017 passed by the Ld. CIT(A)-27, New Delhi relevant to assessment year 2009-10 on the following grounds:- 1) The Ld. CIT(A) has erred in law and on the facts in deleting the addition of ₹ 40,00,000/- made by AO on account of unexplained cash credit u/s 68 of the I.T. Act,1961. 2 The ld. CIT(A) has erred in law and on the facts by considering assessment order passed u/s 147 r.w.s 143(3) as void ab-initio. 3 That the ld. CIT(A) has erred in ignoring the facts as the assessee company failed to discharge the onus u/s 68 of the I.T. Act, 1961 to prove the identity, creditworthiness and genuineness of the transactions made by the investors. 4(a) The order of the CIT(Appeals) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend an/all of the grounds of appeal before or durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 and Chhugamal Rajpal v. SP Chaliha and Others 79 ITR 603 are clearly distinguishable and not applicable to the facts of the case here. Reliance was placed on the following judgments: - Raymond Woolen Mills Ltd. v. ITO and others 236 ITR 34 (SC) - Pratibha Finvest (P) Ltd. v. ITO ITA No. 263 CTR 206 (Del) - M/s Paramount Communications Ltd. v. Pr. CIT 7 2017- TIOL-253 (SC) 6. Further on merits, it was submitted that the ld. CIT(A) has grossly erred in holding that the assessee has discharged its onus in establishing the identity, creditworthiness of the purported shareholders and genuineness of the transaction. It was further submitted that Ld. CIT(A) has grossly erred in wrongly noting that the bank account statement of the purported shareholders were filed before the Assessing Officer. It was also submitted that no bank accounts statement of the purported shareholders were filed before the AO and the documents relied upon by assessee only establish that the purported shareholders are mere paper entities having no creditworthiness. It was further submitted that Ld. CIT(A) has grossly erred in ignoring the ratio laid down by the Delhi High Court in the following ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar of Companies as well as assessed to income tax. It was also pointed that both have independently confirmed the investment. It was further pointed out that statements of Praveen Kumar Aggarwal was not recorded at assessment stage and in absence of cross examination cannot be used against the assessee. As regards the bank statement, it was submitted that bank statement of Joyprit Plastic Dealers is admitted by the Assessing Officer to be on record. Further, bank statement of assessee company was on record and the fact that transaction was through banking channel is not in dispute. Apart from the above, documentary evidences filed included confirmation, financial statements, acknowledgement of returns, PAN Card and therefore, in absence of any enquiry, no adverse inference could be drawn. It was submitted that share capital subscribed was ₹ 30,00,000/- by M/s. Tobu Toys Ltd. and the net worth of the said company was of ₹ 17,86,52,864/-. Likewise, in the case of Joyprit Plastic Dealers, share capital subscribed was of ₹ 10,00,000/- and net worth was of ₹ 4,96,07,903/- and hence, no adverse inference could be validly drawn merely in absence of bank stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of issue of notice, In view of the same, as no assessment has been made in this case for AY 2009-10 u/s 143(3) or u/s 147, the first proviso to section 147 (as reproduced below) is not applicable to the case. Provided that where an assessment under sub section (3) of section 143 of this section has been made for the relevant assessment year, no action shall be taken this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 11. In other words, that assessing officer is not bound by the restriction impounded by the proviso that no action can be taken unless any income chargeable to tax has escaped income by reason of failure as the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on a Investigation wing report has not been judicially accepted as a foundation for assuming jurisdiction u/s 147 of the Act. 7.4 Also mere information does not constitute to be a tangible material to re-assess the assessee company without any independent enquiry or application of mind. The Hon'ble Delhi High Court in the case of Pr. CIT Vs. G G Pharma India Ltd. 384 ITR 147 has held as under: 9. The Court at the outset proposes to recapitulate the jurisdictional requirement for reopening of the assessment under Section ] 47/ 148 of the Act by referring to two decisions of the Supreme Court. In Chhugamal Rajpal v. SP Chatiho (1971) 79 ITR 603, the Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were name-lenders and the transactions are bogus. The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come oj the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity. 7.5 In the case of Sarthak Securities Co. (P) Ltd. v. ITO 329 ITR 110 (Del), it has been held as under:- 23. The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence oj Jour companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement oj income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief To elaborate, the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, held that there was nothing to show that the confession of M.K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent and the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or was, in any event, too tenuous to provide a legally sound basis for reopening the assessment. ... The position in the present case falls within the same category. At the time of the original assessment all the facts relating to the cash credits in question were fully disclosed. This has been found by the learned Judge at page 960 (of 118 ITR) and indeed this is the accepted position on the basis o] which even the proposal of the ITO to the Commissioner (set out at page 964) proceeded. Thereafter, the only material received by the ITO appears to be that the revenue authorities had carried out certain investigations, that they had discovered the existence of bogus hundi brokers who were allegedly lending their names to assessee and that a list had been circulated to various ITOs of the hundi brokers who were allegedly indulging in malpracti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the information and examine the basis and material of the information. Assessing Officer accepted the plea on the basis of vague information mechanical manner. The Commissioner also acted on the same bas mechanically giving his approval. The reasons recorded reflect that the AO did not independently apply his mind to the information received Director of Income-Tax (Investigation) and arrive at a belief whether income had escaped assessment. 7.7 Similarly, in the case of CIT v. Suren International (P) Ltd. (Del), it was held as under: 14. The learned counsel for the appellant contended that even though there is no specific allegation that the assessee had failed to disclose all the material facts but the same can be gleaned from the reasons itself We are unable to accept this contention. In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal' o] the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times. This is clearly indicative of the callous manner in which the reasons [or initiating reassessment proceedings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 148. In other words he must have some prima facie grounds before him for taking action under section 148. Further his report mentions : Hence proper investigation regarding these loans is necessary . ln other words his conclusion is that there is a case [or investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to Issue notice under section 148. Before issuing a notice under section 148, the Income tax Officer must have either reasons to believe that by reason oj the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the appellant or gathered during the assessment proceedings to allege, observe or assume that the same has taken bogus share capital. The reference to inquiries is vitiated for being vague and general and non specific, apart from the fact they have not been confronted to the appellant during the assessment proceedings. 7.11 In nutshell, the AO did not apply his own mind to the information and examine the foundation/ accuracy of such material of the information. The AO accepted the plea on the basis of vague information in a mechanical manner. The reasons recorded ref1ect that the AO did not independently apply his mind to the information received from the Investigation Wing to arrive at a belief that income of the assessee company had escaped assessment. 7.12 Considering the above analysis of facts and circumstances of the case and the case law supported by the AR of the appellant on the issue, I am of the considered view that AO has wrongly assumed the jurisdiction u/s 147 of the I.T. Act. The reason for reopening was not properly recorded. The AO has not applied his mind, approval for issue of notice u/s. 148 of the Act is not in accordance with law. In view of above, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief that income of assessee had escaped assessment. However, in the instant case as stated above, there are no enquiries which have been confronted to the appellant despite specific request and as such, there is no material which could enable the learned Assessing Officer to form an opinion that income of assessee has escaped assessment so as to allege that share capital represented accommodation entries. Infact in the case of Pratibha Finvest (P) Ltd. v. ITO, appellant has not even requested for reasons recorded during the course of assessment proceedings; and therefore, the facts of the case of assessee are totally distinguishable. Lastly, so far as the judgment in the case of Raymond Woolen Mills Ltd. vs. ITO is concerned, Hon'ble Court held that correctness of material is not a thing which can be considered at the stage of assumption of jurisdiction under section 147 of the Act. There is no dispute to the aforesaid proposition and however on the facts of the case, there is no tangible material and therefore, action under section 148 of the Act is invalid. 14. Having regard to the factual position and following the order of the Hon'ble Tribunal in the case of group co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or companies are existing and genuine companies registered with Registrar of Companies as well as assessed to income tax. M/s Joyprit Plastic Dealers (P) Ltd. has independently confirmed the investment. No material is produced on record that during the course of search in the case of the assessee any material was found to prove that assessee company received any accommodation entries from shareholders. The AO without rebutting the above evidence relied upon statements of Shri Praveen Kumar Aggarwal, recorded by Investigation Wing Kolkatta and, report from Investigation Wing, Kolkatta to draw adverse inference against the appellant company. None of the above evidences have been confronted by the aassessee. Statements of Praveen Kumar Aggarwal was not recorded at assessment stage and in absence of cross-examination cannot be used against the assessee. The Hon'ble Supreme Court in the case of Andarnan Timber Industries v. CCE 62 taxmann.com 3 while deciding an issue regarding no allowing the cross examination has held that not allowing the assessee to cross examine the witness by the adjudicating authority through statements of those witnesses were made a basis of the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. It was noted that no material has been led by the Assessing Officer to even allege that such investment was made from the coffers of the assessee company. The material on record shows that investors have net worth to make the aforesaid investment in the assessee company. The investors are corporate entities duly assessed to tax and, have made investment made through banking channels, which fact has neither been denied and, nor rebutted in the order of assessment. Infact, one of the subscriber i.e. M/s Joyprit Plastic dealers Pvt Ltd has independently confirmed the investment in the assessee company. The assessee has furnished complete details and evidences to discharge the burden in respect of investment by the assessee company. Further the balance sheet which clearly shows that investor companies are engaged in the business of investment and, disinvestment of shares. The investor companies have been furnishing returns of income. The companies are existing much prior to the investment in the assessee company. Once shareholders do exist, have their own independent identity, source of income, maintain books of accounts, carry on their business and, earn income from investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital as net worth of M/s. Tobu Toys Ltd. was ₹ 17.86 crores and M/s. Joyprit Plastic Dealers was ₹ 4.96 crores as against share capital subscribed of ₹ 30,00,000/- and ₹ 10,00,000/- respectively and therefore, having regard to the facts of the case and the aspect that no enquiries have been made by the Assessing Officer to doubt any of the evidences furnished by the assessee, the claim of subscription of share capital is upheld. The judgments as cited by the Ld. DR are inapplicable. In the case of Nipun Builders (supra), summons were issued under section 131 of the Act to the companies at the addressed furnished which returned unserved. Further, even the learned Assessing Officer deputed inspector who confirmed that no such company existed at the addresses furnished. Also, the assessee was called upon to produce Principal officers of the assessee company yet no compliance was made. In such circumstances, the Hon'ble Court held that the burden of the assessee remained un-discharged. In the instant case, no enquiries whatsoever have been made by the Assessing Officer by deputing inspector or directing the assessee to produce shareholders. All what has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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