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2019 (5) TMI 429

egarding share capital raised - CIT-A quashed reopening notice - HELD THAT:- Unless in the order u/s 147 the AO makes addition on the ‘foundational’ issue for which the reason was recorded, the AO is not permitted to make addition in respect of ‘any other issue’ for which reason was not recorded prior to issue of the notice. See SOFTWARE CONSULTANTS [2012 (2) TMI 18 - DELHI HIGH COURT] and INDU ARTS VERSUS ACIT, CIRCLE 19 (1) , NEW DELHI. [2017 (6) TMI 449 - ITAT DELHI] The reasons which the AO recorded on 09/02/2015 and as set out in the foregoing, do not in any manner suggest that the AO was satisfied that the share subscription amounts received during the relevant year represented assessee’s income escaping assessment. Undeniably in the reasons set out, the AO has made reference to two separate and distinct transactions; one involving the shares which the assessee issued to twenty two share subscribing companies and another involving sale of investments which the assessee held in other bodies corporate. It may be so that Shri Mahavar or companies managed by him were connected with both the set of transactions. However both the sets of transact .....

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reafter reopened u/s 148 by the ITO, Ward 8(2), Kolkata. In the first round of reassessment proceedings the AO after conducting enquiries u/s 133(6) with regards to the genuineness of the share capital raised during the year, completed the assessment u/s 147/143(3) on 30.03.2012 assessing total income at ₹ 42,449/-. Thereafter on 09.02.2015 the AO issued another notice u/s 148, which was served on the assessee on 19.02.2015. On assessee s request, reasons recorded for reopening the assessment were furnished to the assessee vide AO s letter dated 03.06.2015. After examining the assessee s replies in response to notices u/s 142(1) of the Act, the AO issued a show cause dated 22.03.2016 requiring the assessee to explain as to why share capital along with share premium of ₹ 34 crores raised during FY 2009-10 should not be assessed as it s income u/s 68 of the Act for the AY 2010-11. In response the assessee furnished its rebuttal, which is placed at Pages 17 to 22 of the paper book. The AO ultimately completed the assessment u/s 147/143(3) on 30.03.2016 assesssing ₹ 30.20 crores as unexplained cash credit u/s 68 being the amount received as share subscription for shar .....

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uring the relevant year. The recorded reasons do not in any manner deal with the issue of the subscription amounts which the appellant had received from its shareholders and with regard to which enquiry was conducted in the course of first reassessment. Even from the information passed on by the Investigation Wing of the IT Department which was the sole basis for reopening of assessment, there was any information which in any manner adversely commented on the capital introduced in the assessee s books. The entire tone & tenor of the recorded reasons indicate that the AO had formed his reason to believe based on his hypothesis that the investment in shares of other bodies corporate reflected in the assessee s balance sheet were utilized to launder the unaccounted cash by Shri Mahawar. In AO s opinion such deposit of money in the assessee s bank account in the form of proceeds of sale of shares represented assessee s income which had escaped assessment in AY 2010-11. 4.6 On scrutiny of the impugned order u/s 143(3)/147, I however find that in the course of reassessment proceedings the AO conducted enquiry only with regard to shares which the assessee issued at premium during FY 2 .....

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of addition in the impugned order was the subscription amounts received to the assessee s equity capital from 22 companies whereas the subject matter for AO s forming reason to believe that income had escaped assessment was the alleged bogus sale of the investments which the appellant held in other bodies corporate. In my considered opinion these two reasons had no commonality of any kind and both were independent and different reasons. In the circumstances if the reopening was made on one issue then the addition made with reference to altogether another issue was not permissible in the order u/s 147/143(3), unless the addition was also made on the ground for which the assessment was reopened in the first instance. 4.13 Applying the ratio emanating from the foregoing judgments of different judicial authorities to the facts of the appellant s case I find that it has been unanimously held that an AO can proceed to make additions in the order u/s 147 to the earlier assessed income if and only if the addition is first made by the AO with reference to the grounds or issue for which reason is recorded u/s 148(2) of the Act. Where however no addition is made in the order u/s 147 with ref .....

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ening of concluded assessments and the grounds on which the addition was ultimately made were totally different. The subject matter as well as quantum of income alleged to have escaped assessment specified in the reasons recorded was totally different from grounds on which the addition was finally made in the impugned order. The reasons recorded had no connection with the addition ultimately made in the impugned order. Moreover with regard to reasons recorded the AO did not make any addition while completing the assessment for AY 2010-11. For the reasons and the facts set out in the foregoing therefore, I have no hesitation in holding that the ratio laid down in the judicial decisions discussed herein before applies on all force. In terms of the said decisions, the only course open for the appellate authority in such circumstances is to quash the reassessment. I order accordingly. Ground Nos. 1 & 2 are therefore allowed. 4. Since the Ld. CIT(A) upheld the assessee s preliminary challenge to the validity of the order passed u/s 147/143(3), he did not adjudicate the assessee s grounds involving merits of the addition made by the AO. Being aggrieved by the order of the Ld. CIT(A), .....

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gation that Shri U. S. Mahawar is a bogus entry operator, who provides entry accommodation in the form of bogus billing, bogus unsecured loan, bogus share capital in lieu of commission. He also used to form shell companies and used to sell them after raising huge bogus share capital in them. For doing all these activities he earns cash commission from clients. In his statement recorded during the course of survey, Shri U. S. Mahawar stated that the Dotex Merchandise Pvt. Ltd. Was registered in 1994 as paper/shell company by an entry operator named Shri Binod Kumar Jaiswal. Initial capital was only ₹ 5 Lakh with 4,95,200 shares of face value ₹ 1 issue at par. In 2005 this company was purchased by one Shri Uday Shankar Mahawar, another entry operator. In 2005, further 3,56,000 shares of face value ₹ 10/- were issued at a premium of ₹ 90/- per share and on paper ₹ 3.56 crore was raised. This was again only on paper as the subscribers were only other paper companies of Shri Mahawar and the subscription was through circular transactions. In March, 2010 again 12,08,000 shares of FV ₹ 10 were issued at a premium of ₹ 240/- per share and nearly  .....

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e specific ground which was separate and distinct from the transaction of raising fresh capital during the relevant year. The Ld AR argued that even though in the recorded reasons the AO set out details of share capital raised by the assessee from time to time since 1995,he did not record his belief that the share capital of ₹ 30.20 crs raised during the relevant year represented assessee s income escaping assessment. The Ld AR thereafter took us through the requisition u/s 142(1), show cause notice and the impugned assessment order to show that after reasons were recorded on 09/02/2015,the AO abandoned the principal reason on which the assessment was reopened and at no point of time after 09/02/2015, did the AO enquire about the sale of investments. Instead, post issue of the notice u/s 148, entire line of enquiry and the ultimate addition was only in respect of the share subscription amount of ₹ 30.20 crores received during the year. The Ld. AR therefore submitted that the reason for which the assessment was reopened was completely divorced from the findings ultimately recorded by the AO. He submitted that mere reference in the recorded reasons about the historical fa .....

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y assessment within a period of four years from the end of the relevant assessment year unless he obtained prior approval of the Additional/Joint Commissioner of Income-tax. Inviting our attention to the facts of the present case, more particularly the order sheet entries and the notice issued u/s 148, the Ld. AR submitted that there was no mention regarding the prior approval being obtained by the AO from his Additional / Joint Commissioner of Incometax. In particular he drew our attention to the fact that the notice u/s 148 was dated 09.03.2015. He also brought to our attention that as per the order sheet entries the reasons to believe were recorded by the AO on the same date as of the issuance of the notice. He also pointed out that having recorded his reasons which led him to form belief that income chargeable to tax had escaped assessment; he had categorically recorded as follows: Thus there is reason to believe that the income of the assessee company amounting to ₹ 34 crores has escaped assessment for the assessment year 2010-11. Proceeding u/s 147 is initiated, issue notice u/s 148 for the assessment year 2010-11. 9. The Ld. AR therefore submitted that if the notice u/ .....

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mplated by law has not been met in the 'reason recorded' by the AO before venturing to re-open the assessment which vitiates the re-opening itself. According to Ld. AR, the information received from Investigation Wing could have at best prompted the AO to conduct enquiry but the same could not have been formed as a sole foundation for forming his reason to belief that income had escaped assessment. On receipt of information, it was incumbent upon the AO to verify the correctness of such information with reference to information and material already available in his records at the time of framing of the original order u/s 147/143(3). In such a scenario on receipt of the information, the proper course for the AO was to make reasonable enquiry and collect material, which would make him believe that there is in fact an escapement of income. Without doing so, the jurisdictional fact necessary to usurp jurisdiction to reopen the regular assessment cannot be made by the AO. For the said proposition, the Ld. AR drew our attention to following case laws : - PCIT Vs. Meenakshi Overseas Ltd., 395 ITR 677(Del.) - PCIT Vs. Tupperware India Pvt. Ltd., 236 Taxman 494 (Del) - PCIT Vs. Shod .....

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/or managed by Shri Uday Mahawar as also to the proceeds received on sale of investments in companies belonging to Shri Uday Mahawar, yet the AO had recorded his satisfaction about income escaping assessment only with specific reference to the sale of investment made by the assessee and in respect of which sales realization of ₹ 34 Crores was made. We are of the considered view that merely because Mr. Uday Mahawar and companies controlled by him were a common thread in relation to assessee s transactions involving issue of fresh shares and the sale of shares by the appellant, yet the transactions with reference to which the AO recorded his satisfaction about income escaping assessment, pertained specifically to sale of investments and not the fresh issue of shares by the appellant. It is for this reason that in the recorded reasons the AO recorded his satisfaction about income escaping assessment to the extent of ₹ 34 crores and not ₹ 30.20 crores being the amount received during the relevant year on issue of fresh shares. We therefore have no hesitation in holding that the reason for which the AO recorded his satisfaction about income escaping assessment had no c .....

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respect of the fresh issue of share capital. In these circumstances we find force in the submissions of the Ld. AR that mere reference in the recorded reasons to the fact that during the relevant previous year the assessee had issued fresh equity capital totaling ₹ 30.20 crores, did not amount to recording of satisfaction as required u/s 147/148 of the Act, particularly when the satisfaction recorded was specific and it was with reference to alleged introduction of unaccounted cash totaling ₹ 34 crores in the guise of sale of investments by Mr. Mahawar. We are therefore unable to accept the Ld. DR s contention that the AO had recorded his satisfaction about income escaping assessment with reference to issue of fresh capital during the relevant year. On the contrary we find that in the penultimate & last paragraph, the AO had specifically recorded his satisfaction as follows: …As expected after the purchase by Sanjeev RPG group, the investment worth ₹ 34 Crores in paper companies shown in the balance sheet of M/s. Dotex Merchandise Pvt Ltd, were sold on paper to the paper companies of Shri Mahawar and sale proceeds was credited in the bank account of Dot .....

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h were co-terminus with that of the AO and therefore if there was any omission on the AO s part to make the addition in respect of the issue for which reasons were recorded u/s 147 then such omission could be overcome by the Ld CIT(A) by making addition at the appellate stage. We however are unable to accept the contention raised by the Ld. DR at this stage. It may be true that the Ld. CIT(A) has coterminus powers with that of the AO but it has been judicially held that such co-terminus powers are not so wide so as to include the power to consider a source of income which was not considered by the AO and which was not the subject matter of appeal before him. If there is a jurisdictional lacuna in the AO s order then such infirmity cannot be cured by the first appellate authority while exercising his appellate jurisdiction even though the law grants him co-terminus and plenary powers to the extent of issues and sources considered by the AO. 15. In this regard we rely on the judgment of the Hon ble Delhi High Court in the case of CIT Vs Software Consultants (supra). In this case, in the course of search conducted against the promoter, the AO had found fixed deposits with bank and the .....

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(i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section." 11. Thereafter, the High Court referred to the decision of the Rajasthan High Court in the case of CIT v.Shri Ram Singh, [2008] 306 ITR 343 in which it has been observed as under: "It is only when, in proceedings .....

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ngs the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proc .....

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lar view was expressed by this Tribunal at Delhi in the case of Indu ArtsVs ACIT (supra). In this case in the order u/s 147, the AO had made the addition in respect of an issue for which reasons were recorded. On appeal the CIT(A) deleted the addition in respect of the issue for which the reasons were recorded but made enhancement in respect of some other issue. No appeal against the relief allowed by the CIT(A) was preferred by the Revenue but the assessee objected to the enhancement made by the CIT(A). In deciding the appeal of the assessee, this Tribunal observed as follows: 6. The Assessing Officer made a solitary addition of ₹ 22.57 lakh in the assessment under section 147 which was the only basis for initiating the reassessment and the same got finally deleted in the first appeal. At this juncture, it is relevant to note the mandate of the section, which provides that : 'If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which .....

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income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue was not included in the notice. However, if, after issuing a notice u/s. 148, the Assessing Officer accepts the contention of the assessee and holds that the income, of which he has initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to assess some other income. Similar view has been taken by the Hon'ble Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. 7. The position which follows from the above discussion is that the Assessing Officer can make 'other addition' in the reassessment proceedings, provided, the 'foundational addition' is made. When this proposition is taken to a next level, no different consequences will emerge, if the 'foundational addition' is itself finally deleted in an appeal. In such a scenario, the 'other addition' made by the Assessing Officer would automatically cease to stand in isolation. This view has been affirmed by the Hon'ble jurisdictional High Court in CIT v. AdhunikNiryat .....

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ance (No.2) Act, 2009 w.r.e.f. 1.4.1989, which reads as under : - 'Explanation 3.- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.' 9. The Memorandum explaining the provisions of the Finance Bill, in this regard, reads as under : 'The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for reopening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which .....

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eassessment proceedings. As a consequence of his deletion of the addition, not only the assessment order but all the proceedings flowing therefrom had the effect of becoming null and void. As such, he could not have gone ahead with any other issue and made enhancement of income. Making an enhancement in such circumstances would mean that though the jurisdiction of the Assessing Officer in initiating the reassessment was lacking, still, the assessment would be valid and ex consequenti, the addition would be sustainable. This, in my considered opinion, is a totally illogical and unsound proposition. I, therefore, order to delete the addition of ₹ 2.36 lakh and odd made by the ld. CIT (A). 17. In both these decisions the concurrent view expressed was that unless in the order u/s 147 the AO makes addition on the foundational issue for which the reason was recorded, the AO is not permitted to make addition in respect of any other issue for which reason was not recorded prior to issue of the notice. The reason for arriving at such conclusion is not far to seek. It is a cardinal principle of any fiscal statute that any proceeding under the fiscal law must attain finality and it cann .....

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by the order passed earlier u/s 143(3) or 147 as a case may be. It is therefore necessary for the AO to show that the key used for opening the lock placed earlier by an order u/s 143(3) is the most appropriate key to unlock and thereby reopen the proceedings for bringing to charge all items of income which had escaped assessment earlier. Once it is established by the AO that the reason recorded by him is the correct key for reopening of assessment, only then the entire assessment gets opened and the AO is then permitted to bring to tax every item of income which had escaped assessment earlier even though in respect of such other items the AO may not have recorded his satisfaction prior to issue of notice u/s 148. It is this essence, which has been captured by the Legislature by enacting Explanation (3) to Section 147 of the Act. However in a case where the assessee demonstrates that the key used by the AO for reopening of assessment is either incorrect or where reason recoded is abandoned in the course of reassessment proceedings, then as a corollary it has to be held that the key used by the AO for opening the lock was inappropriate or incorrect and thereby the lock placed earlie .....

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essing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under sections 80HH and 80-I and accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80-I which as per our discussion was not permissible. Had the Assessing Officer proceeded to make disallowance .....

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and the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories India Ltd (supra). The ratio laid down in these decisions is that reassessment must be in the first place, be in respect of income escaped assessment for which the reasons were recorded and only thereafter in respect of some other items of escaped income. If, however, the income, escapement of which was the foundation for recording of reasons to believe, is not assessed or reassessed inthe order under section 147, then it is not mere open to the AO to independently assess any other income, which comes to his notice subsequently. In our view, since the reassessment proceedings could not be carried on the original grounds, the Tribunal was justified in dismissing the appeal as it was not open for the Assessing Officer to expand the scope of reassessment by including some other issues. Therefore, no substantial question of law arises. Hence, the application and the appeal are dismissed. 20. We also rely on the judgment of the Hon ble Rajasthan High Court in the case of CIT Vs Ram Singh (supra) wherein it was held as follows: 24. Reverting back to language of section 147, this much is clear, that the sine qua non .....

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has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 27. It is established principle of interpretation of statutes, that the Parliament is presumed to be not extravagant, in using the words, and therefore, every word used in the section, is required to be given its due meaning. 28. If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings under section 147 the AO, assesses or reassesses any income chargeable to tax, which has escaped assessment fo .....

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order u/s 147/143(3) were therefore held to be legally unsustainable. 22. Applying the ratio laid down in foregoing decisions to the assessee s case we find that the AO had recorded his satisfaction u/s 147 on the sole premise that the proceeds received by the assessee on sale of shares held as investments totaling ₹ 34 crores represented assessee s income escaping assessment. The said reason was based on the statement recorded in the course of survey, conducted against Mr. Uday Mahawar. The reasons which the AO recorded on 09/02/2015 and as set out in the foregoing, do not in any manner suggest that the AO was satisfied that the share subscription amounts received during the relevant year represented assessee s income escaping assessment. Undeniably in the reasons set out, the AO has made reference to two separate and distinct transactions; one involving the shares which the assessee issued to twenty two share subscribing companies and another involving sale of investments which the assessee held in other bodies corporate. It may be so that Shri Mahavar or companies managed by him were connected with both the set of transactions. However both the sets of transactions were se .....

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