TMI Blog2019 (4) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... outine, mechanical manner & without application of mind by simply putting her signatures below the rubber stamped ‘Yes, satisfied’. The approval has been accorded by the ld. Pr. CIT, Ajmer simply for verifying the transactions mentioned in the letter of DDIT (Inv.), Kolkata received by the ACIT, Bhilwara on 21.03.2017. In his proposal the AO has not mentioned the fact that the reopening was being made after 4 years from the end of the relevant assessment year and in the original assessment proceedings this issue had been examined by the then AO. The reopening in the case of the assessee has been made after four years from the end of the relevant assessment year. Proviso to section 147 is clearly applicable in this case. There is no whisper of applicability of such proviso in the reasons recorded by the AO and approved by the ld. Pr. CIT, Ajmer. If she had read over the reasons and applied her mind she must not have accorded the permission under such circumstances in absence of any cogent material at all. The approval granted by her is clearly without application of mind and is not as per the mandate of the provision of section 151 of the I.T. Act, 1961. The notice issued u/s 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained share capital allegedly obtained by the assessee from M/s Pashupati Vinimay Pvt. Ltd. 2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by observing that the identity, creditworthiness and genuineness of the transaction was established by the assessee without even considering the financial statements of the alleged share subscriber. 3. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the fact that the alleged share subscriber M/s Pashupati Vinimay Pvt. Ltd. was neither having any substantial business turnover nor having any funds of its own for making huge investment in the share capital of the assessee company. 4. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition by concluding that the transactions have been done through Banking channels and there is no case of any cash deposition in the account of the immediate investors company. 5. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in ignoring the undisputed findings of fact that cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout fulfilling the mandate of proviso to sec. 147 of the Act. Therefore, the notice issued u/s 148 is bad in law, invalid, void ab initio and deserve to be quashed. 4. The Id. AO has issued notice u/s 148 on the basis of communication received from the DDIT (lnv.), Kolkata, purely for verification and for conducting enquiries etc. without there being any tangible material, on the basis of his suspicion and assumption. The notice issued on the basis of such communication without any independent enquiries having been conducted by the AO and without application of mind is bad in law and deserves to be quashed. 5. The Pr. CIT, Ajmer has accorded approval for issuing notice u/s 148 in a very routine, mechanical manner without application of mind by simply putting her signatures below the rubber stamped 'Yes, satisfied . Such mechanical approval does not fulfill the mandate of provisions of sec. 151 (1) of the Act. Notice issued u/s 148 on the basis of such approval is bad in law and deserves to be quashed. 2. The Id. CIT(A) was not justified in not upholding the ground of the appellant that interest under section 234B is chargeable on returned income and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lead to draw any adverse inference against the assessee, completely ignoring the fact that the multi layering of the funds through a web of transactions as stated in the assessment order is not a usual business practice and has been done with the sole intent of obfuscating the source. The appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. (ii) On the facts and circumstances of the case, CIT(A) has erred in deleting the addition of ₹ 13,73,734/- made by the A.O. on account of difference in ITS data 26AS. (iii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing. Grounds of assessee s C.O. That the Id. CIT(A) was fully justified in deleting the addition on merit. However, the Id. CIT(A) has erred on facts and in law in dismissing the appeal of the appellant on the following legal grounds raised before him, treating them to be academic infructuous. 1. (i) the Id. AO has grossly erred in law in completing the assessment u/s 148/143 (3) of the Act, without issuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter giving opportunities to the assessee including disposing off the objections to reopening the assessments by written orders, the reassessments were completed U/s 147 r.w.s. 143(3) on 18/12/2017 at ₹ 2,41,80,860/- and ₹ 7,50,91,190/- after making additions of ₹ 15.59 crores and ₹ 1.94 crores for the A.Y. 2010-11 and 2011-12 respectively on account of the share application money U/s 68 of the Act. 4. Before the ld. CIT(A) the assessee was aggrieved of on several counts such as, reopening of assessments on the basis of change of opinion, reopening of assessments without fulfilling the mandate of proviso to sec. 147, reopening of assessments with the approval for issuing notice u/s 148 in mechanical manner without application of mind, completing the reopened assessments without issuance and service of notice u/s 143(2) within the specified period as mentioned in proviso to sec. 143(2),completing the reopened assessments without any independent enquiries and making additions ₹ 15.59 crores and ₹ 1.94 crores for the A.Y. 2010-11 2011-12 respectively on account of the share application money u/s 68 of the Act. 5. By the impugned order, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and M/s Kanchan India Limited cannot be held as genuine. 4.2 It was the submission of the appellant before the AO during the reassessment proceeding that the genuineness of the share capital/share premium was thoroughly examined by the then AO who completed the original assessment u/s 143(3) on 21.12.2012 and then recorded a categorical finding during the original assessment proceeding for his satisfaction regarding identity, creditworthiness and genuineness of transaction of the two companies to whom the shares were allotted. The appellant also referred the original assessment proceedings in which incompliance of AO s directions, the assessee furnished all the details, confirmations, bank statements and other evidences etc. vide its replies dated 02/07/2012, 07/11/2012 and 29/11/2012 to prove the genuineness of the share capital /share premium subscriptions in the names of M/s. Gajanand Goods Pvt. Limited and M/s. Pasupati Vinimay Pvt. Limited (hereinafter referred as PVPL).The appellant referred all the submissions made by it during the original assessment and during the re-assessment proceeding in compliance of the direction of the AO the assessee again filed all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng cheque, it amounts to identification of the parties and discharge of burden by the borrower. In view of the above, it is clear that Appellant discharged its burden u/s 68 of the Act. Therefore, in the absence of any independent inquiry and any adverse findings to rebut the evidences kept on record by the Appellant, I find that the addition in respect of Share application share premium from company namely, M/s M/s Pasupati Vinimay Pvt. Ltd. totaling to ₹ 14.64 crores (addition wrongly made by AO of ₹ 15.59crores) is unjustified; firstly, on the ground that no inquiries were made to rebut the evidences kept on record by the Appellant and secondly, on the ground that Appellant duly discharged its burden casted upon u/s 68 of the Act to explain nature and source of the transactions by proving the identity, creditworthiness of creditor and genuineness of the transaction. Notably, the transactions with the said three companies are duly verifiable from share application form confirmation with supporting bank statements as mentioned in Para 4.2 above and transaction have been carried out through banking channels only and thus, appellant has duly proved the identity, cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has observed to the effect that on the date of debit in the account statement of investor company, there is corresponding credit entry of equal amount, however, this observation of the AO is itself not sufficient to prove beyond doubt that Appellant routed its unaccounted income by these companies rather it proves the source in the hands of the Appellant. It is usual business practice, while making loans/investment to party, funds are required to be arranged by the lender, therefore, reflection of such entries in bank statement doesn t lead to draw any adverse inference against the Appellant. Needless to say that Appellant is not required to prove source of the source u/s 68 of the Act in view of the settled judicial precedents. 4.11 It is settled judicial precedents that under the income tax law primary burden u/s 68 of the Act is on the Appellant and once this burden is discharged u/s 68 of the Act, no addition u/s 68 of the Act is justifiable in the hands of the Assessee in view of the judgments in case of Shree Barkha Synthetics Ltd. V/s Assistant Commissioner of Income-tax (2006) 155 TAXMAN 289 (RAJ.), COMMISSIONER OF INCOME-TAX, JAIPUR -II V. MORANI AUTOMOTIVES ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money or some other person had made investment in the name of that person. The burden then shifts on revenue to establish that such investment has come from Assessee Company itself. iii. CIT Vs. First Point Finance Ltd.[2006] 286 ITR 477, iv. CIT Vs. Morani Automobiles Pvt. Ltd., [2014] 45 Taxmann.com 473 v. CIT Vs. Super Tech. Diamond Tools Pvt. Ltd., [2014] 44 Taxmann.com 460. vi. CIT v/s Bhaval Synthetics (P) Ltd,(2013) 217 Taxman 23(Raj) vii The ITAT, Jaipur in the case of Shalimar Buildcon Pvt. Ltd. Vs. ITO, [2011] 136 TTJ 701 decided similar issue as under: Shareholder companies having admitted to have subscribed to the share capital of the assessee company and accounted for the source of funds in their books of accounts which is not shown to be incorrect or false, no case is made out for making addition under s. 68 in the absence of any evidence to show that the share capital represented accommodation entries . 4.13 In view of the above discussion of relevant facts and following the several ratios on the subject from Hon ble Apex Court, High Courts including jurisdictional High Courts, Tribunals including jurisdictional Tribunals, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 192 (SC) and CIT V. Vatika Township (P) Ltd. (2014) 367 1TR 466 (SC) has held that when two views are possible on any issue, the view which is favourable to the assessee should be adopted. In view of the afore said judicial pronouncements the interest charged u/s 234 B on assessed income may kindly be directed to be reduced to nil, as the assessee has nil returned income. 5.2 This ground being consequential in nature, therefore, AO is directed to give effect to findings of this appellate order in computation of total income and allow credit of taxes paid by the Appellant and set off or carry forward of losses which are allowable to assessee after verification of the same from record. As regards charging of interest u/s 234A, 234B 234C of Income Tax Act it is stated that as held in case of Anjum MH Ghaswala (2001) 119 Taxman 352 (Supreme Court) and in case of Hari Narayan Soni (322 ITR 444) by Jurisdictional High Court) interest chargeable u/s 234A, 234B 234C of Income Tax Act is compensatory and mandatory in nature. The same is of consequential nature and therefore the AO is directed to recompute the interest u/s 234A, 234B 234C of Income Tax Act after givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime limit provided under the Act. As per the ld AR, notice was issued after six months from the end of the relevant assessment years. For this purpose, reliance was placed on the decision of the Hon'ble Supreme Court in the case of ACIT Anr. Vs Hotel Blue Mood 321 ITR 362 and the decision of the Hon ble Bombay High Court in the case of Sanjiv Goel Vs DCIT 2018, TIOL 1594 (Bom). Reliance was also placed on the various decisions of the Hon'ble Supreme Court, Hon'ble High Courts as well as Special Bench of the Tribunal in the case of Raj Kumar Chawla Vs ITO (2005) 94 ITD 1 (Delhi ITAT (SB). 10. As per the ld AR, even the proceeding U/s 147/148 of the Act was initiated after four years from the end of the relevant assessment year without fulfilling the mandate of proviso to Section 147 of the Act. Accordingly, notice U/s 148 of the Act was bad in law. 11. As per the ld AR, it is clear from the facts of the case that during the original assessment proceedings, the Assessing Officer has specifically required the assessee to furnish various details to establish genuineness and creditworthiness of the share applicants and in compliance to the same, the assessee has file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. With regard to the merit of the addition, it was contended by the ld AR that the addition was made merely on the suspicion and without bringing any incriminating material on record to substantiate that the share application money emanated from the coffers of the assessee and there being no evidence directly or indirectly with the Assessing Officer that the assessee has routed its undisclosed money in the guise of share capital. Relying on the decision of the Hon ble Delhi High Court in the case of Value Capital Services (P) Ltd. 307 ITR 334 (Del) wherein it was held that there is additional burden on the department to show that even if share applicants did not have the means to make investment of the share applicants, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. Reliance was also placed on the decision of the NC Cables Limited (2017) 391 ITR 11 (Del) and the decision of the Hon ble Madhya Pradesh High Court in the case of Pr.CIT Vs. Chain House International Pvt. Ltd. (2018) 408 ITR 561 (MP). The ld AR has further relied on the detailed findings recorded by the ld. CIT(A) s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - - - - - - - - - - - - - - - 13. In the assessment proceedings you have shown shares money/shares capital subscriptions in the name of M/s Gajanand Goods Pvt. Ltd., and M/s Pasupati Vinimay Pvt. Ltd., for verification the letters were issued to both concern the letters are returned by postal department with the remarks that Not Know (M/s Pasupati Vinimay Pvt. Ltd.), In sufficient address (M/s. Gajanand Goods Pvt. Ltd.,). Due to these reasons the genuineness of existence of both concern is doubtful,please furnish your explanation In compliance, the assessee furnished all the details, confirmations, bank statements and other evidences etc. vide its replies dated 02-07-2012, 07-11-2012 and 29-11-2012 to prove the genuineness of the share capital /share premium subscriptions in the names of M/S.Gajanand Goods Pvt.Limited and M/S.Pasupati Vinimay Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detail as to M/S GAJANAND GOODS PVT. LTD. Ltd. (PAN-AAECS0181P)-225000 Sahres and M/S PASUPATI VINIMAY PVT LTD.(PAN-AADCP5869J)-1559000 shares as below- S. No Date of allotment Allotte s Name Amount of Shares allotted 1. 20.07.2009 M/s Pasupati Vinimay Pvt Ltd M/s Gajanand Goods Pvt Ltd 253000 225000 2. 13.08.2009 M/s Pasupati Vinimay Pvt Ltd. 315000 3. 31.08.2009 M/s Pasupati Vinimay Pvt Ltd. 220000 4. 03.10.2009 M/s Pasupati Vinimay Pvt Ltd. 55000 5. 16.11.2009 M/s Pasupati Vinimay Pvt Ltd. 370000 6. 26.12.2009 M/s Pasupati Vinimay Pvt Ltd. 170000 7. 09.03.2010 M/s Pasupati Vinimay Pvt Ltd. 82000 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of resolution permitting the company for investment in the share of Kanchan India Limited and copy Memorandum Article of Association of company. The same has been enclosed herewith for kind reference, which reveals the sources creditworthiness marked as Annexure-C for both the companies. 18. Being fully satisfied with the replies of the assessee, the ld. AO completed the assessment u/s 143(3) on 21.12.2012 accepting the share capital/shares premium as genuine, without making any addition on this point. The ld. AO discussed this issue in Para 4. of his assessment order, as under- 4. It is also informed that during the year under consideration assessee company has made an addition of capital amounting to ₹ 178.40 Lacs by issuing 1784000 equity shares to M/s Gajanand goods Pvt. Ltd. (PAN AAECS0181P)-225000 Shares and M/s Pasupati Vinimay Pvt. Ltd. (PAN-AADCP5869J)-1559000 shares. The assessee company has submitted all required papers, ROC forms and records to reveals the sources, creditworthiness and justifies the transaction. Complete set of documents containing Confirmation with all detail of cheque no., date amount, copy of Bank Statement, Copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of share application money. I therefore, have reason to believe that the income to the extent of ₹ 15,59,00,000/- has escaped assessment within the meaning of section 147 of the Act and this is a fit case for re-opening of assessment and issuing notice u/s 148 of the Act. 21. From the record we found that the AO issued notice u/s 148 of the Act to the assessee company on 29-03-2017 requiring it to furnish return of income for the A.Y. 2010-11 within 30 days of receipt of the said notice. In compliance, the assessee filed return u/s 148 on 30-03-2017 electronically showing the same income which was shown in the original return dated 11-10-2010. After filing the return the assessee requested the AO, to furnish the reasons for issuing notice u/s 148 which were furnished by the AO on 30-05-2017. The assessee vide its letter dated 14.07.2017 raised the following objections against the reasons recorded by the AO for reopening of the assessment completed u/s 143(3),which were disposed of by the AO on 26.10.2017 as under:- (1). Assessee : That nowhere in the reasons recorded there has been any whisper of any failure on the part of the assessee company to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 502 (SC). (4). Assessee : That proper sanction from the Higher Authorities has not been obtained before issue of notice u/s 148 as required under section 151 of the Act, since the notice has been issue beyond four years from the end of the relevant assessment year. Assessing Officer : Notice u/s 148 of the Act has been issued as per due procedure of law after obtaining the sanction from competent authority Pr. CIT, Ajmer. 22. We also found that after disposal of objections of the assessee, the AO issued notice u/s 143(2), 142(1) of the Act and specific query letter on 14.11.2017. The assessee filed written replies and evidences proving genuineness of the share capital received. However, the AO ignoring the submissions of the assessee completed the assessment u/s 148/143(3) on 18-12-2017 making addition of ₹ 15,59,00,000/-, observing as under: 5. The submissions of the assessee has been considered, but the same is found to be not acceptable. This is because as per information available with the department, it is clear that mostly cash has been deposited in the bank accounts of Shiv Kali Trade. That such credit has been immediately transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be served within 6 months from the end of the year in which the return was filed i.e. by 30-09-2017. No Notice u/s 143(2) was issued served by ld. AO by the specified date i.e. 30-09- 2017. Therefore assessment completed by him u/s 148/143 (3) on 18-02- 2017 is invalid, bad in law and deserves to be quashed. Notice issued by the AO u/s 143(2) on 14-11-2017 was beyond the specified date and hence barred by limitation. An assessment made on the basis of such notice is also without jurisdiction, invalid and bad in law and deserves to be quashed. In this regard reliance is placed on the following judicial pronouncements- (i) Raj Kumar Chawla V. ITO, (2005) 94 ITD 1, Delhi-ITAT (SB) (ii) ACIT V. Greater Noida Industrial Corporation, ITA No. 142 of 2015. DOJ 04-08-2015 (Allahabad H.C.) (iii) Ashed Properties Investments (P) Ltd. V. ACIT (2015) 62 taxmann. Com 340 (Bangalore ITAT.) (iv) Chandra R. Gandhi V. ITO, (2009) 120 TTJ 786 (Mumbai- ITAT) (v) Alpine Electronics Asia Pte. Ltd. V. DGIT (2012) 341 ITR 247 (Delhi HC) (vi) Zakia Begum V. ITO, ITA No. 3002/Delhi/2016, DOJ-09-01- 2017 (vii) CIT V. M. Chellappan, 281 ITR 444, (Madras H C) (viii) C. Ramaiah Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails furnished by the assessee and independent, investigation carried out by him, the ld. AO accepted the genuineness of the aforesaid share capital/share premium in his assessment order u/s 143(3) dated 21-12-2011 stating as under: 4. It is also informed that during the year under consideration assessee company has made an addition of capital amounting to ₹ 178.40 Lacs by issuing 1784000 equity shares to M/s Gajanand goods Pvt. Ltd. (PAN AAECS0181P)-225000 Shares and M/s Pasupati Vinimay Pvt. Ltd. (PAN-AADCP5869J)-1559000 shares. The assessee company has submitted all required papers, ROC forms and records to reveals the sources, creditworthiness and justifies the transaction. Complete set of documents containing Confirmation with all detail of cheque no., date amount, copy of Bank Statement, Copy of PAN Card, Copy of acknowledgement of Income Tax Return for the A.Y. 2010-11, Copy of Balance Sheet year ended 31.03.2010, Copies of Shares allotment letters, Copy of minutes books of extract of resolution permitting the company for investment in the share of Kanchan India Limited and copy of Memorandum Article of Association of both the companies are receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not the power to review. 10) To check whether it is a case of change of opinion or not one has to see its meaning in literal as well as legal terms. The word change of opinion implies formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 11) It is well settled and held by this court in a catena of judgments and it would be sufficient to refer Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd. (2010) 320 ITR 561(SC) wherein this Court has held as under:- 5 .where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe .. Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re-assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details filed do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself. Hence, initiation of the re-assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is fully covered by the decisions of Hon ble Delhi High Court in the case(s) of : 1. Shri Parasram Industries Pvt. Ltd. Vs. ITO, W.P. (C.) 9094/2014, DOJ 11.12.2015 and 2. Allied Strips Limited Vs. ACIT, WP (C) 2526/2015, DOJ 12.05.2016. With regard to applicability of proviso to Section 147 of the Act, the case of the assessee is also covered by the following decisions:- 1. Kutch Textiles Pvt. Ltd. Vs. ITO, [2017] 77 taxmann.com 319 (Gujarat High Court). 2. Babu Lal Jug Raj And Co. Vs. ITO, (2007) 289 ITR 115 (Rajasthan High Court). 3. Haryana Acrylic Manufacturing Company Vs CIT, WP (C) 4074/2007, DOJ 03.11.2008 4. DCIT Vs. DSM Sinochem Pharmaceuticals Pvt. Ltd., ITA No. 1466/Chd. /2017 DOJ 28.05.2018 In view of the above discussion and judicial pronouncements it is abundantly clear that it is a case of change of opinion and the ld. AO has not fulfilled the mandatory requirement of proviso to section 147. Therefore, the notice issued by him is liable to be quashed being void ab initio. 30. We also found that the AO has issued notice u/s 148 on the basis of communication received from the DDIT (Inv.), Kolkata, purely for verification and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the facts and take further necessary action. He has also commented that M/s Kanchan India Ltd. (the assessee) and M/s MSP Metallics Ltd. are genuine companies having high turnover. The funds so received by the companies in the year 2009-10 2010-11 require further analysis, investigation and verification by the jurisdictional assessing officers of M/s Kanchan India Ltd and M/s MSP Metallics. The AO of M/s Kanchan India Ltd i.e. the assessee without carrying out any further enquiry, verification or investigation etc., initiated the reassessment proceedings u/s 148 on the very next day by sending the proposal u/s 151(1) to the Pr. CIT, Ajmer, vide letter No. ACIT /Circle /BHL/2016-17/3336 dated 22.03.2017 (reproduced earlier ) in which he has clearly mentioned that the assessee has received fund through suspicious transaction which require further analysis and investigation/ verification and to verify these transactions the case is required to be reopened u/s 147 of the Act, 1961. It is an established position of law that proceedings u/s 147/148 cannot be initiated without any tangible material or credible information simply for the sake of carrying out any verification/ enquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the reasons and belief, the reopening of the assessment would be without jurisdiction and bad in law. 1.2 The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the AO and the material and information referred to by the AO in the reasons for initiating such action. It is settled law that AO cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making verification. The AO cannot support the reopening of the assessment by collecting the material or by making enquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the AO initiated action under Section 147. (Emphasis supplied) (iii) Sheo Nath Singh Vs. AAC, (1971) 82 ITR 147 (SC) The belief must be of an honest and reasonable person based upon reasonable grounds. The officer may act on direct or circumstantial evidence; but his belief must not be based on mere suspicion, gossip or rumour. The Assessing Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer, (2011) 56 DTR (Gujarat) 212 Reading the reasons recorded in their entirety, there is nothing whatsoever to indicate as to which is the income that has not been disclosed by the petitioner or that any income chargeable to tax has in fact escaped assessment. The entire tenor of the reasons recorded indicates that on the basis of some unsubstantiated and vague information, the AO has reopened the assessment for the purpose of making a roving and fishing inquiry to verify as to whether any income has in fact escaped assessment which fact is borne out from the reasons recorded, wherein the AO has categorically recorded thus : In view of the above facts and circumstances of the case, detailed investigation/ verification is required and it is also required to bring the assessee in tax net. Insofar as bringing the assessee in the tax net is concerned, the petitioner admittedly has filed return of income and has been assessed in respect thereof, the petitioner is, therefore, already within the tax net. Since the reasons recorded do not reflect the requisite belief that income chargeable to tax has escaped assessment, the basic requirements of s. 147 of the Act have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f per se that is a pre-condition for invoking s. 147 of the Act but a belief founded on reasons. The expression used in s. 147 is If the AO has reason to believe and not If the AO believes . There must be some basis upon which the belief can be built. It does not matter whether the belief is ultimately proved right or wrong, but, there must be some material upon which such a belief can be founded. In the case of Sheo Nath Singh vs. AAC (supra), the Supreme Court held that there can be no manner of doubt that the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the Court. In the case of Sarthak Securities Co. (P) Ltd. vs. ITO (supra), the Delhi High Court held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded off) from such Hawala dealers during the financial year 2010-11. According to the Assessing Officer, this information 'needed deep verification'. 9. If on the basis of information made available to him and upon applying his mind to such information, he Assessing Officer had formed a belief that income chargeable to tax has escaped assessment, the Court would have readily allow him to reassess the income. In the present case however, he recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed that income chargeable to tax has escaped assessment, would not cure this fundamental defect. 10. Learned counsel for the Revenue however urged us to read the reasons as a whole and come to the conclusion that the Assessing Officer had independently formed a belief on the basis of information available on record that income in case of the assessee had escaped assessment. Accepting such a request would in plain terms require us to ignore an important sentence from the reasons recorded viz. 'it needs deep verification'. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer had no tangible material. 9. Referring to the following decisions, he submitted that no proceedings u/s 147 can be initiated merely on the basis of the report of the Investigation Wing :- I. CIT vs. M/S. Indo Arab Air Services [2016] 283 CTR 92 (Delhi) II. Signature Hotels P. Ltd. Vs. Income Tax Officer reported in [2011] 338 ITR 51, III. Commissioner of Income Tax versus SFIL Stock Broking Limited, reported in [2010] 325 ITR 285 (Delhi) IV. Sarthak Securities Company Private Limited versus Income Tax Officer, reported in 329 ITR 110 (Delhi), ITA Nos.3400 3401/Del/2013 V. PCIT vs. ShriGovindKripa Builders P. Ltd (ITA 486/2015 dated 04.08.2015) VI. CIT vs. Ashian needles pvt.LtD. (ITA 226/2015 dated 24.08.2015) HC (Delhi) VII. CIT Vs. Insecticides (India) Ltd. 357 ITR 330 (Delhi) VIII. 299 ITR 383 (Del) CIT vs Atul Jain dated 23.5.2007 IX. 311 ITR 38 (P H) CIT vs. PramjitKaur X. ITA No. 1395/2008 (Del) Smt. MeeraKapoor vs. CIT Xl. 357 ITR 24 (Del) CIT vs. Suren International (P) Ltd. XII. Commissioner of Income-tax v. Multiplex Trading Industrial Co. Ltd. [2015] 378 ITR 351 (Delhi) XIII. M/s Laureate Educational Vs. Income Tax Officer (ITA No.1945 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the view taken by the Hon'ble Supreme Court. All these legal principles are undisputed. They go to show, as Mr. Gupta emphasizes, that there should be a reason to believe that in the relevant assessment year income chargeable to tax has escaped assessment. We are of the view that in the present case, the reasons recorded fall short of this test. 12. He accordingly submitted the order of the CIT(A) sustaining the validity of the reassessment proceedings should be upheld. 13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer on the basis of information received from the Directorate of Income-tax (Investigation), New Delhi reopened the assessment u/s 147 to investigate the source of investment made by the assessee in assets leased to it. We find the ld. CIT(A) while deciding the appeal dismissed the ground raised by the assessee challenging the validity of the reassessment proceedings. Ld. counsel for the assessee made two-fold submissions. The first plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment could not be exercised. It is further observed that the Assessing Officer under 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. 12.1 Similar view has been expressed by the Division Bench in case of Deep Recycling Industries v. Deputy Commissioner of Income Tax - Circle 2 [Supra] wherein it has been held and observed that for mere scrutiny, reopening of the assessment would not be permissible. It is further observed that the reopening of the assessment could be made if the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. The Court has further observed that in order to do so, the Assessing Officer must have some tangible material having live link with the escapement of the income on the basis of which he can form a bona fide belief of escapement of income chargeable to tax. It has also been observed that reopening cannot be resorted to for fishing or roving inquiry on mere suspicion that income chargeable to tax may have escaped assessment. 13. Applying the aforesaid two decisions to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the precondition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. (ii) PCIT Vs. RMG Polyvinyl (I) Ltd., 396 ITR 5 (Delhi High Court) (iii) DCIT Vs. Zeco Aircon Ltd. ITA No. 5231/Delhi/2014, DOJ 31.07.2018 (iv) Pioneer Town Planners Pvt. Ltd. Vs. DCIT, ITA No. 132/Delhi/2018 DOJ 06.08.2018 In the case of the appellant also notice u/s 148 was issued for the purpose of verification, on the basis of information from Investigation Wing without any further enquiry and independent application of mind by the AO. Therefore, notice u/s 148 issued u/s 148 may kindly be quashed being bad in law. 31. The ld. AR has also alleged the approval given by the Pr. CIT for reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his signature without recording satisfaction. In the aforementioned case, assessment was originally completed for the asst. yr. 1960-61 after thorough scrutiny. Thereafter, AO issued notice under s. 148 of the Act. Assessee challenged validity of that notice, by filing a writ petition in the High Court. It was contended that the requirements of s. 151(2) of the Act were not complied with. Case of the AO was that certain communication was received from the CIT stating that the creditors in the instant case were name lenders and the loan transactions were bogus and that proper investigation regarding the loans taken by the assessee is necessary. He, however, did not mention in the report the material he had before him and his reason for coming to the conclusion that this was a fit case for issuing a notice under s. 148. The Court observed that the ITO had not even come to a prima facie conclusion that the loan transactions to which he referred were not genuine; ITO appears to have only a vague feeling that they might be bogus transactions. The CIT had mechanically accorded permission under s. 151(2) of the Act without noticing that the AO had not made any prima facie investigation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the challenge of the assessee as to the legality and validity of the reopening is concerned, assessee is placing reliance on the decisions reported in G G Pharma India Ltd. (Del. High Court) (supra), N.C. Cables Ltd. (supra) and Meenakshi Overseas Pvt. Ltd. (supra). He also placed reliance on the decisions reported in Signature Hotels Pvt. Ltd. vs. ITO 338 ITR 51 (Del), Sarthak Securities Co. Pvt. Ltd. vs. ITO (2010) 195 Taxman 262 (Del), CIT vs. Kamdhenu Steels Alloys Ltd. (2012) 119 Taxmann.com 26 (Del.). As could be seen from these decisions, it is consistently held that the reopening based on the information furnished by the Directorate of Investigation and the AO without making any further Investigation on his own, recording the reasons to believe that income escaped assessment are bad. 9. Now coming to the second limb of challenge made by the assessee to the effect that the reassessment proceedings initiated are bad in as much as the approval/sanction by Addl. CIT is without recording satisfaction and the same is not in accordance with the requirements of Section 151 of the Act, Ld. AR brought it to our notice that vide sl. no. 11 the Addl. CIT, Range 6, New Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. (supra) are directly applicable to the facts of the case to hold that the reasons recorded by the AO in this matter solely basing on the information received from the Directorate of Investigation without any independent exercise of mental process cannot be construed as reasons to believe and the consequent proceedings of reopening are bad under law. Further, the approval/sanction of the Addl. CIT, Range 6, New Delhi is also not in accordance with the requirements of Section 151 of the Act, as is held in M/s S. Goyanka Lime and Chemicals Ltd. (supra) and this also vitiates the proceedings. For these reasons, we hold that the reopening proceedings are bad under law and are liable to be quashed. Since, we are quashed the proceedings on the questions of law, we do not deem it necessary to adjudicate the merits of additions made in this matter. For these reasons, we hold that the orders of the authorities below cannot be sustained and consequently, they are liable to be quashed. We do so. 32. With regard to the merit of the addition, we found that the detailed finding has been given by the ld. CIT(A) with regard to identity, genuineness and creditworthiness of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held as under:- If share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.'' Following the aforesaid judgement of the Hon ble Apex Court, the Hon ble Rajasthan High Court in the case of M/S Barkha Synthetics Ltd v/s ACIT, 283 ITR 377 (Raj) has held as under: The principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channel, the assessee has to prove existence of person in whose name share application is received. Once the existence of shareholder is proved, it is no further burden of ITO, Ward-7(3), Jaipur vs. M/s Dhanlaxmi Equipment Pvt. Ltd., Jaipur assessee to prove whether that person itself has invested said money or some other person had made investment in the name of that person. The burden then shifts on revenue to establish that such investment has come from Assessee Company itself. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails. After considering the submissions of the assessee, the ld. AO completed the assessment u/s 143(3) on 10.06.2013, after making some disallowances etc. at loss of ₹ 8,55,87,742/-. During the financial year 2010-11 relevant to the A.Y. 2011-12 the assessee company issued 9,29,000 shares of ₹ 10 each aggregating to ₹ 92,90,000/- at premium of ₹ 8,36,09,999/-, as reflected in Schedule: 1 Schedule: 2 of the balance-sheet filed before the ld. AO, on the basis of which the ld. AO required the assessee to furnish complete details to prove the identity, creditworthiness and genuineness of the transactions relating to allotment of shares. Relevant queries made by the ld. AO, vide his letter No. DCIT/Circle/BHL/2013-14 dated 22.04.2013 are reproduced as under:- 4. Furnish complete details of Share capital, Share application money, Cash creditors and squared up credit account holders if any, i.e. name and full address, total loan/capital taken, date and mode of deposits, received, sources of deposits by the creditors their, PAN No. and indicate ward, where they assessed to tax etc.. In this regard, please prove their identity, credit worthiness and genuinenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet, acknowledgement of Income Tax return of M/s Sunflower Merchants Pvt. Ltd. as well as M/s Pasupati Vinimay Pvt. Ltd., which reveals the sources creditworthiness marked as Annexure-C Being fully satisfied with the reply of the assessee, the ld. AO completed the assessment u/s 143(3) on 10.06.2013 accepting the share capital/share premium as genuine, without making any addition on this point. Subsequently, the successor AO received communication from DDIT(Inv.), Unit-1(3), Kolkata on 21-03-2017 regarding some verification carried out by him in connection with some bank deposits in A/c No. 9090200425725 of some party M/s Shiv Kali Trade (India), in Axis Bank Ltd., Burrabazar. This report sent by the DDIT vide his letter dated 10-03- 2017 received by the ACIT, Bhilwara on 21-03-2017. 36. On the basis of the aforesaid letter received from DDIT (Inv.), Unit- 1(3), Kolkata on 21.03.2017, the ld. AO i.e. ACIT, Bhilwara on the very next day i.e. 22.03.2017 sent the proposal to the Pr. CIT, Ajmer seeking approval u/s 151(1) for initiating proceedings u/s 148 in the case of the appellant company, for the A.Y. 2010-11, through his letter No. ACIT/Circle/BHL/2016-17/3337, date ..... X X X X Extracts X X X X X X X X Extracts X X X X
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