TMI Blog2016 (4) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... res/investments. AO did not record anywhere in the assessment order if these statements recorded by DDIT (Investigation) of the brokers have been supplied to the assessee for the comments of the assessee and whether assessee has been given any opportunity to cross-examine these brokers. In the absence of any evidence or material on record, it is difficult to believe that assessee has been given any opportunity to cross-examine the statements of these three brokers on behalf of the assessee. Therefore, when these brokers have confirmed selling the shares on behalf of the assessee company and giving sale consideration through banking channel to the assessee company and their statements are not adverse in nature against assessee, but in the absence of giving right of cross-examination of their statement, their statements cannot be read in evidence against the assessee on certain points which have been considered by AO to be adverse in nature. AO himself has mentioned in the assessment order that sale consideration and source of giving advance to M/s Taranjit Singh & Co., Chandigarh is the amount received through three brokers through banking channel, therefore, Assessing Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148. 2. the Ld. CIT( Appeals) was further not justified to hold that the addition made by the Ld. Assessing Officer at ₹ 40,00,000/- on protective basis was to be assessed in the hands of appellant on substantive basis. Credits in the accounts of the appellant company represented the sale proceeds of the shares made through them. The entire amount deserved to be deleted. 3. That order passed by the Ld. CIT (Appeals) is against law and facts on the file in as much as no reasonable opportunity was provided to the appellant to defend its case and lot of irrelevant data has been marshaled against the appellant without confronting the same. 4. We have heard ld. Representatives of both the parties, perused the findings of authorities below and considered the material available on record. Representatives of both the parties mainly argued in assessment year 1999-2000 and stated that issue is same in assessment year 2000-01 as well, therefore, for the purpose of disposal of both the appeals, the facts are considered from assessment year 1999-2000. (A.Y. 1999-2000) 5. The facts of the case are that the Additional Director of Income Tax (Investigation) Chandigarh at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the account of M/s Taranjit Singh Co., Chandigarh, reproduced the statement of Shri Bharat Bhushan Goyal, Director of the assessee company recorded by the DDIT (Investigation) Chandigarh on 03.09.2002 in the assessment order at pages 3 to 7. The Assessing Officer, considering the statement of Shri Bharat Bhushan Goyal noted that he did not know how Shri Tarajnit Singh could manage to encash the investment of the company for more than 2 Crores. The value of the investment was not worth the liability of the company. It shows that the amount was introduced in the bank account of the company by the Directors from the sources best known to them out of which, amount was advanced to M/s Taranjit Singh Co., Chandigarh. 8. A perusal of the bank account with Bank of Baroda, Ludhiana maintained by assessee was also examined by Assessing Officer in detail and it was fund that during the relevant year, amounts were credited through clearing from different parties. On further verification, it was noticed that assessee company has received amount through cheques from three share brokers namely M/s Ess Arr Co., Ludhiana, M/s S.K. Sharma Co., Ludhiana and M/s Usha Garg and Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange was recorded on 11.03.2005 by the Assessing Officer and relevant portion is reproduced in the assessment order at page 13. The Assessing Officer from this statement noted that M/s S.K. Sharma and Co. on 21.03.2005 furnished copies of account of assessee in their books but failed to furnish name and address of the company whose shares were sold by him, hence it was held in assessment year for assessment year 2000-01 that Directors of the assessee company has introduced their unexplained money in guise of sale of shares from which the amount was further transferred to M/s Taranjit Singh Co., Chandigarh. 8(iii) The Assessing Officer further noted that assessee has failed to supply complete address of the companies, share of which were sold by the Stock Brokers above. Before DDIT (Investigation) the assessee could not file details of shareholdings of various companies in which total investment of the assessee amounted to ₹ 1,02,08,000/-. The Assessing Officer, therefore, observed that there is no sale of shares and only accommodation entries have been given by the brokers to assessee and assessee by issuing the cheques amounting to ₹ 2.10 Cr advanced money to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Circle in the case of M/s Taranjit Singh Co., Chandigarh, therefore, it would amount to double addition. The Assessing Officer, however, noted that in assessment year 2000-01, addition of ₹ 40 lacs was made on protective basis in respect of the entries pertaining to that year. In the assessment year under appeal, the entries pertain to ₹ 2.10 Cr, therefore, protective assessment would not amount to double addition as claimed by assessee. The Assessing Officer, accordingly, made addition of ₹ 2.10 Cr in the hands of the assessee company on protective basis and completed the assessment vide order dated 16.03.2006. 11. The assessee challenged the re-opening of the assessment as well as addition on merit before ld. CIT(Appeals). 12. The ld. CIT(Appeals) noted in the impugned order that assessments were framed on protective basis in the case of assessee and it was intimated during the course of assessment proceedings that in the case of M/s Taranjit Singh Co., Chandigarh, substantive addition is made, the assessments were quashed by the ld. CIT(Appeals) vide order dated 30.03.2006 on the technical issue that there is no material found during the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the assessee for assessment year 2000-01. 14. The ld. counsel for the assessee reiterated the submissions made before authorities below. The ld. counsel for the assessee referred to reasons recorded for re-opening of the assessment under section 148 of the Income Tax Act, copy of which is filed at PB-40 dated 30.03.2004 and submitted that the Assessing Officer was of the view that assessee had only given entry to M/s Taranjit Singh Co., Chandigarh, therefore, there is no question of Assessing Officer having any reason to believe that income chargeable to tax has escaped assessment. He has submitted that in assessment year 2000-01, the re-assessment order was passed on 30.03.2005 under section 143(3) therefore, it is wrongly mentioned in the impugned orders that substantive addition is made in the case of M/s Taranjit Singh Co., Chandigarh because block assessment order in the case of Shri Taranjit Singh through legal heir Smt. Mohinder Kaur was passed under section 158BC on 22.08.2005. The ld. counsel for the assessee submitted that in both the assessment years under appeal, additions have been made merely on protective basis. He has also referred to the findings of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . counsel for the assessee referred to pages 2 to 5 of the assessment order to show that the Assessing Officer has mentioned that assessee company is investment company and during assessment year under consideration, assessee company has advanced ₹ 2.10 Cr through demand drafts to M/s Taranjit Singh Co., Chandigarh. The source of the deposits are on account of credit entries appearing in the bank account of the assessee on various dates in which amounts have been received through cheques through clearing through various bank accounts. He has, therefore, submitted that in the bank account of the assessee, the sale consideration of the shares/investments have been received through banking channel and the source of the deposit was on account of sale of shares through three brokers of Ludhiana Stock Exchange. All the brokers in their statements before DDIT, Investigation Wing and Assessing Officer have confirmed the transactions with the assessee and paying the sale consideration of the shares through banking channel and also proved the genuineness of the transactions. He has submitted that the statements of the brokers recorded by DDIT (Investigation) and Assessing Officer hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , having been placed on record, the Assessing Officer could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the Assessing Officer. Therefore, the Assessing Officer could not have added the income, which was rightly deleted by the Commissioner (Appeals) as welI as the Tribunal . 2. Decision of Hon'ble Punjab Haryana High Court in the case of CIT Vs Paramjit Kaur 311 ITR 38, in which it was held as under Held, that the Assessing Officer had not examined the information received from the survey circle before recording his own satisfaction of escaped income and initiating reassessment proceedings. The Assessing Officer had thus acted only on the basis of suspicion and it could not be said that it was based on belief that the income chargeable to tax had escaped income. The Assessing Officer had to act on the basis of reasons to believe and not on reasons to suspect . The Tribunal rightly concluded that the Assessing Officer had failed to incorporate the material and his satisfaction for reopening the assessment and therefore the issuance of notice under section 148 of the Act for reassessment proceedings was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons in the initial notice nor the communication providing reasons remotely indicated independent application of mind. Though conclusive proof was not germane at this stage the formation of belief must be on the base or foundation or platform of prudence which a reasonable person was required to apply. From the perusal of the reasons recorded and the order of rejection of objections, the names of the companies were available with the authority and their existence was not disputed. The assesses in its objections had stated that the companies had bank accounts and payments were made to the assessee through banking channel. The identity of the companies was not disputed. Under these circumstances, the initiation of proceedings under section 147 and issuance of notice under section 148 of the Act were to be quashed. 15. The ld. counsel for the assessee further submitted that ITAT Chandigarh Bench in the case of Smt. Mohinder Kaur, legal heir of Shri Tranjit Singh vide order dated 26.04.2012 quashed and set aside the block assessment order, copy of the order is placed on record. He has submitted that the information received from DDIT (Investigation) was, therefore, not correct a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le belief that some income of the assessee had escaped assessment. The Income-tax Officer cannot blow had and cold in the same breath. The notice under section 34 on the assessee and the assessment based on that notice were, therefore, illegal. 4. Decision of Hon'ble Gujrat High Court in the case of Sagar Enterprises Vs Asstt. Commissioner 257 ITR 335 (Guj) in which it was held as under : Held, that It was apparent that the fact of non-filing of the return for the assessment year 1991-92 had weighed with the respondent for arriving at the satisfaction about the failure on the part of the assessee and escapement of assessment of income. However, the material on record showed that the return had been filed. In such circumstances, It could not be said with certainty as to which fact would have weighed with the officer concerned and once it was shown that an irrelevant fact had been taken into consideration, to what extent the decision was vitiated would be difficult to say. Moreover the Income-tax Officer had stated that the payment which was stated to be undisclosed income relevant for the assessment year 1991 92 could have been made during the financial year 1990-91 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reopen the assessment in the case of the assessee under section 148 of the Act and also there was no justification to make the addition on merits. 16(i) On the other hand, ld. DR relied upon orders of the authorities below. Ld. DR submitted that assessee entered into sham transaction on account of receipt of money from three brokers, therefore, Section 68 of the Act will apply in the case of the assessee. The Assessing Officer has not recorded anywhere about investments made in the case of M/s Taranjit Singh Co., Chandigarh. The ITAT in one of the case has decided the issue against one of the party Shri S.K.Sharma. In the reasons, the Assessing Officer wanted to verify source of the deposit of ₹ 2.10 Cr in the bank account of the assessee. He has submitted that Assessing Officer has reopened assessment after considering relevant information received from ADIT (Investigation), statement of Shri Bharat Bhushan Goyal recorded by DDIT (Investigation) and statements of Shri Shagun Garg and Shri Harikishan Punni, brokers recorded by the DDIT (Investigation). The Assessing Officer, thus, formed his belief based upon the examination/analysis of the above information present be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon following decisions in support of the above contention :- i) Order of ITAT Chandigarh Bench in the case of Ishwar Dass Garg Vs ACIT ITA 977/2012 dated 06.07.2015. ii) Judgement of Hon'ble Punjab Haryana High Court in the case of M/s Piyush Infrastructure Ltd. Vs CIT, CWP No. 5926/2014 dated 28.03.2014. iii) Judgement of Delhi High Court in the case of Rattan Gupta Vs UOI 234 ITR 220. iv) Judgement of Hon'ble Supreme Court in the case of ITO Vs Purushottam Das Bangur 90 Taxman 541. v) Judgement of Delhi High Court in the case of Rajat Export Import India Pvt. Vs ITO 18 Taxman.com 311. vi) Judgement of Delhi High Court in the case of CIT Vs Multiplex Trading Industrial Co. Ltd. 63 Taxman.com 170. 19. We have considered rival submissions. The validity of the re-assessment proceedings shall have to be determined with reference to the reasons recorded for re-opening of the assessment. The Assessing Officer recorded reasons for re-opening of the assessment on 30.03.2004 in assessment year 1999-2000, copy of the same is filed at page 40 of the Paper Book which reads as under : M/s Shubh Internationa Ltd. SCO 1104-05, Sector 22-B,Chandigarh Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Cr with M/s Taranjit Singh Co., Chandigarh, liquor Contractor in assessment year under appeal and till date, this amount has not been repaid as per enquiries conducted by Investigation Wing. It is also noted in the reasons for re-opening of the assessment that assessee had given only entry and actually no deposits/investments were made with M/s Taranjit Singh Co., Chandigarh. This information supplied by the Investigation Wing would reveal that actually no investments have been made by assessee company with M/s Taranjit Singh Co., Chandigarh. 22 The Assessing Officer, in the block assessment under section 158BC of the Act in the case of Smt. Mohinder Kaur, wife of late Shri Taranjit Singh dated 22.08.2005 observed that after detailed enquiries and analysis of the statements of Directors on record, it emerged that transactions of sale of shares are sham transactions and sale transaction by assessee through the broker was not genuine. The amount was deposited in the bank account of the broker in cash, thereafter transferred to bank account of the assessee company from where drafts in favour of M/s Taranjit Singh Co., Chandigarh were issued belong to Shri Taranjit Singh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares of the assessee company and for that purpose, he wanted to make him as a partner in his liquor business. The Board of Directors of the assessee company passed a resolution for selling the investments. The investments were to be sold through Shri Taranjit Singh. He has conformed in his statement that investment of ₹ 2.10 Cr was initially made in March, 1999 and ₹ 40 lacs was invested in April, 1999. The Assessing Officer, however, took it adversely against the assessee company. The source of the deposits in the bank account of the assessee were from the three brokers through the banking channel and all the brokers have confirmed selling investments of the assessee company through them and payments made by them through banking channel. The Assessing Officer did not believe their statement because the brokers have not mentioned the Ledger Folio Number/distinct number and name of the purchaser etc. in the record. It may be noted that in ledger, generally no details of shares are mentioned. 23(i) The Assessing Officer also noted that assessee has failed to supply complete address of the companies, the shares of which were sold through three brokers. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment has been framed under section 143(3) of the Act. A common requirement in both cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. There should be tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. It was also noted, (ii) that in two out of the four reasons recorded by the Assessing Officer for re-opening the assessment, he stated that he needed to verify the claims to bad debts and the admissibility of the bad debts written off. For mere verification of the claim, power for re-opening of the assessment could not be exercised. The Assessing Officer in the guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims as if it were a scrutiny assessment. 24(i) Hon'ble Delhi High Court in the case of Signature Hotels P. Ltd. Vs ITO Another 338 ITR 51 held as under : Held, allowing the petition that the re-assessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reason to believe that income chargeable to tax has escaped assessment. This alleged belief was also not tenable in law because once it is a stand of the Revenue Department that the entire undisclosed money belong to Shri Taranjit Singh as per block assessment order passed in the case of Smt. Mohinder Kaur, legal heir of Shri Taranjit Singh which was routed through the bank account of the assessee, therefore, there is no reason to believe that income chargeable to tax has escaped assessment in the case of the assessee company. There is, thus, change in the stand of the Department for the purpose of making the addition in the hands of the assessee. 25(i) As per information, all brokers exist. Assessing Officer was aware of transaction of sale and purchase of shares/investments through brokers prior to recording of reasons for re-opening of assessment. Source of deposit in bank account of the assessee was sale of Shares/investments, within knowledge of Assessing Officer. The brokers prior to recording of reasons under section 148 of Income Tax Act in their statements to DDIT (Investigation) confirmed selling of shares/investments of assessee company. It is also interesting to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te here again that the Assessing Officer in the case of the present assessee, first passed the assessment order under section 148/143(3) on 30.03.2005 for assessment year 2000-01 and no block assessment order was passed by that date in the case of late Shri Taranjit Singh, therefore, passing of the protective assessment in the case of assessee company would also support our finding that the Assessing Officer was having no reason to believe that income chargeable to tax has escaped assessment in the case of assessee company, otherwise, Assessing Officer would not have made the protective assessment in the case of the present assessee company. The decisions relied upon by ld. counsel for the assessee, as reproduced above, clearly support the case of the assessee that it is not a fit case of re-opening of the assessment on the facts and circumstances of the case for merely making protective assessment in the hands of the assessee. Re opening of assessment would be bad in law. The decision cited by ld. DR would not support case of revenue. 27. Considering the totality of the facts and circumstances of the case, noted above in the light of the material on record, we are of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on certain points which have been considered by Assessing Officer to be adverse in nature. We rely upon decision of Hon'ble Supreme Court in the case of Kishan Chand Chela Ram (supra). 29. It may also be noted here that Assessing Officer has recorded two statements in both assessment year as per assessment order but Assessing Officer has not recorded any fact if assessee has been allowed to cross examine these brokers at assessment stage. Therefore, on the same analogy, even if their statements are not adverse in nature against assessee but same cannot be read in evidence against the assessee for the purpose of making addition. It may also be noted here that Assessing Officer himself has mentioned in the assessment order that sale consideration and source of giving advance to M/s Taranjit Singh Co., Chandigarh is the amount received through three brokers through banking channel, therefore, Assessing Officer cannot ask the assessee to prove source of the source. The Assessing Officer has also not brought any evidence on record that despite selling the investments through the brokers, assessee company was still having ownership and possession over the same invest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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