TMI Blog2019 (8) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings was initiated by the A.O. on suspicion which cannot be a ground for reopening of the assessment. See KROWN AGRO FOODS PVT. LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 5 (1) NEW DELHI [ 2015 (3) TMI 1030 - DELHI HIGH COURT] Addition by invoking the provisions of Section 56(2)(viia) - Nothing is brought on record to substantiate that the shares were transferred in the month of November 2010 on the contrary the annual return filed by the Seller of the shares M/s Bharatnet Technology Limited clearly established that the transfer of the shares took place on 10/05/2010 and even the certificate issued by the practicing company secretary also confirmed that the shares were transferred on 10/05/2010 and not in the month of November 2010 as presumed by the A.O. therefore on merits also the addition made by the A.O, on the basis of presumption and by invoking the provisions of Section 56(2)(viia) of the Act which were applicable w.e.f 01/06/2010, was not justified. In view of the aforesaid discussion, we are of the view that on merits also the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. Therefore, by considering the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1,43,93,620/- may be deleted. 5. That the Ld. CIT(Appeals) has erred in confirming the addition of ₹ 1,43,93,620/- u/s 56(2)(viia) on presumptions by assuming the transaction of share transfer as non genuine on the basis of human probabilities without appreciating the explanation and evidence placed on record. Therefore the addition of ₹ 1,43,93,620/- may be deleted. 3. Vide Ground Nos. 1 to 3 the assessee has challenged the validity of the jurisdiction of the A.O. in issuing the notice under section 148 of of the Income Tax Act, 1961 (hereinafter referred to as Act ). 4. Facts of the case in brief are that a search and seizure operation under section 132 of the Act was carried out on 04/10/2012 at the business and residential premises of M/s Steel Strips Group of cases alongwith survey under section 133A of the Act, in the case of the assessee. Earlier the return of income was filed by the assessee under section 139(1) of the Act on 26/09/2011 at an income of ₹ 8030/-, the said return was processed under section 143(1) of the Act at the returned income on 13/01/2012. Thereafter the A.O. issued the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of notice under section 148 of the Act which the A.O. disposed off vide letter dt. 17.11.2015. The A.O. mentioned that the assessee further raised the objections vide letter dt. 07/12/2015 which were also disposed off vide letter dt. 08/12/2015. (However nothing is mentioned as to how and in what manner the objections of the assessee were disposed off). 5. During the course of assessment proceedings the A.O. noticed that the assessee had made an investment in this year for 719681 unquoted shares of M/s Bharatnet Technology Ltd. purchased at a price of Re. 1 each from the following parties: Sl.No. Name of Transferor No. of Shares 1 Achates E-Services (P) Ltd. 24800 2. Alpee Entp. (P) Ltd. 115281 3. Golden Merchantiles 154600 4. Ten equity Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by a member. As per the aforesaid provisions of section 159, all the transfers taken place during the year has to be intimated while filing the Annual Return with Registrar of Companies, which has been done by Bharatnet and duly accepted by the Registrar of Companies. The certified copy of the duly filed and approved annual return by the Registrar of Companies for the period under consideration is enclosed wherein date of transfer of shares is mentioned as on 10.05.2010. The assessee is still holding the shares of Bharatnet Technology Ltd. and the same is also appearing in all the subsequent annual returns filed by the Bharatnet Technology Ltd. Copies of the subsequent annual returns filed with ROC are also filed. Issue of Share certificates Under Section 113 of the Companies Act, Every company unless prohibited by any provisions of law or of any order of any court, tribunal or other authority, shall within three months after the allotment of any of its shares, debentures or debenture stock and within two months after the application for the registration of transfer of any such shares, debenture or debenture stock, deliver in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue is not whether the intimation of transfer having taken place during the year has been communicated to the registrar of companies or not or whether the assessee is holding the shares of M/s Bharatnet Technology or not. The issue is whether or not the shares were purchased on 10.05.2010. In this regard, the payment for the shares was made on 02.11.2010 through HDFC bank account no. 01072000011422 to all the parties. It is highly improbable that all the parties from whom shares were purchased on 10.05.2010 would have waited for 6 months to received the payments that to when the sale of share of face value ₹ 10 and FMV of ₹ 21 was being made at a very nominal rate of ₹ 1 per share. c) As far as the certificate from the company secretary is concerned, it does not hold good because the return of M/s. Bharatnet Technology Ltd. based upon which the list of transfers has been submitted to the ROC claiming it to have been done on 10.05.2010 has been filed by the authorized signatory in November, 2010. Since, the due date for filing of return was in September, 2010, so had the transaction happened in May, the same would have been immediately intima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 5.3.2015 vide which Ld. AO directed us to file the return again. We objected to the notice vide our letter dated 1.4.2015, however filed the return to comply with the notice. Vide letter dated 16.6.2015 of Ld. AO, we received copy of the reasons recorded on 5.3.2015 to reopen the assessment proceedings. Thereafter we again received letter dated 18.6.2015 from Ld. AO wherein we were asked to file complete balance sheet alongwith profit loss account including the comments of the Auditors. The assessee again filed the objections on 15.10.2015 to Notice u/s 148 and received the reply of the same vide letter dated 17.11.2015 wherein new reasons have been added to reopen the assessment. It is settled principle that new reasons cannot be added to the reasons already recorded. In the reasons recorded on 5.3.2015 there was no mention of appraisal report of steel strips group. The only mention was the reply of Bharatnet In the reply of Bharatnet there was no mention that Priya Tools Pvt Ltd. has purchased shares at Re.1/-. Reply of Bharatnet nowhere indicates or suggests that income of Priya Tools have escaped assessment Copy of the reply is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 is bad in law. The notice has been issued by the Ld. AO in a mechanical manner without application of own mind. The reliance has been placed on the judgment of High Court of Bombay in the case of M/s Mavany Brothers vs CIT IT A no.8/2007 decided on 17th April 2015. Copy of the judgment is enclosed. There was no new information or incriminating document or material against the assessee on the basis of which any opinion can be formed for the reassessment of the case of the assessee. The assessee has disclosed fully and truly all material facts necessary for his assessment for the concerned assessment year. The Ld. Assessing Officer must disclose in reasons as to which fact or material was not disclosed by assessee fully and truly necessary for assessment of that assessment year so as to establish the vital link between the reasons and evidence. All the primary facts had been disclosed and the ground on which the notice has been issued was a mere inference which was not justified. Therefore the notice for reassessment has been issued merely on suspicion without any concluded opinion in this regard. 7.1 The Ld. CIT(A) however did not find merit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and also other income chargeable to tax which comes into notice subsequently, your kind attention is invited to explanation 3 of section 147 of the IT Act, 1961, which is reproduced as under:- 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 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. As such, the notice has been conformity with the law. I agree with the contention of the AO in this regard and it is held that notice u/s 148 of the Act in this case was issued as per provisions of law and thereafter reassessment order u/s 143(3) r.w.s. 147 is also in order. 8. Now the assessee is in appeal. 9. The Ld. Counsel for the assessee submitted that the return of income was filed on 26/09/2011 by the assessee which was processed under section 143(1) of the Act on 13/01/2012 thereafter the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only suspect and no reasons to believe could be made as neither there was any evidence / document/statement available against the assessee on 05/03/2015 i.e; date on which the A.O recorded the reasons to belief for reopening the case of the assessee nor any such material had been mentioned which was available with the A.O. It was further submitted that the wording of the notice under section 148 clearly shows that the case had been reopened even for the other income which may came to notice subsequently in the course of proceedings under section 147 of the Act which goes to show that the A.O. just wanted to reopen the case whether the reasons to belief were there or not. It was stated that the case cannot be reopened in such a manner or for any other income of which the A.O. was not even aware. It was contended that the A.O. while giving the reply to the objections raised by the assessee for reopening the assessment clearly stated in the letter dt. 16 17/11/2015 that the notice under section 148 of the Act was issued on the basis of reply submitted by M/s Bharatnet Technology Limited a reference was made to page no. 22 23 of the assessee s paper book which is copy of the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Section 56(2)(viia) of the Act, on the similar basis as has been done in assessee s case and when the said addition was deleted by the Ld. CIT(A), the matter was taken up in appeal in ITA No. 982/Chd/2017 by the Department in the case of said assessee M/s SCM Fintrade Pvt. Ltd. before the ITAT, then the appeal of the Revenue was dismissed vide order dated 05/01/2018 and view taken by the Ld. CIT(A) was affirmed. It was stated that the ITAT also mentioned in the order dated 05/01/2018 that even the Ld. DR admitted that no incriminating material was found during the search action and that the original assessment proceedings stood completed on the date of search, a reference was made to para 4 of the aforesaid referred to order copy of the same was furnished which is placed on record. It was accordingly submitted that the notice under section 148 of the Act was issued by the A.O. only on the basis of suspicion so it was bad in law. The Ld. Counsel for the assessee placed reliance on the following judicial pronouncements : i) Krown Agro Goods Pvt. Ltd. Vs. Assistant Commissioner of Income Tax [2015] 375 ITR 460 (Del) ii) CIT Vs. Gupta Abhush ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that even if the payment had been made on a subsequent date which may follow the date of transfer of shares, it can not be presumed that the transactions was not genuine. He further submitted that even during the course of survey or search no incriminating material was found, therefore the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. 11. In her rival submissions the Ld. Sr. DR strongly supported the impugned order passed by the Ld. CIT(A) and further submitted that the objections raised by the assessee were considered by the A.O. and that no new objection was raised by the Ld. Counsel for the Assessee, during the course of hearing. It was further submitted that the A.O. at the time of recording the reasons for reopening the assessment had sufficient material with him to form an opinion that the income of the assessee escaped assessment, therefore the reopening was valid. It was further submitted that in reply to the objections raised by the Assessee, the A.O. reproduced the appraisal report in the case of M/s Bharatnet Technology Limited and on that basis, he formed the view that the income escaped assessment. It was further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per information on record and the reply submitted in this office by M/s.Bharatnet Technology Ltd., it is seen that M/s Priya Tools Pvt. Ltd. has made an investment in this year in 719681 unquoted shares of M/s Bharatnet Technology Ltd. by purchasing them at a price of ₹ 1 each. However, the fair market value of such hare is much more as calculated from the net assets value of M/s Bharatnet Technology Ltd as per procedure prescribed under Rule 11UA and it comes to around ₹ 21 per share. In the given scenario, as per the provisions of Sec. 56(2)(viia), the difference of fair market value (as computed in accordance with Rule 11A) and the actual consideration paid; is taxable in the hands of purchaser i.e. M/s. Priya Tools Pvt. Ltd. I have therefore reasons to believe that approximately ₹ 2.10 crores has escaped assessment in light of provisions u/s Sec. 56(2)(viia) in the hands of M/s Priya Tools Pvt. Ltd. and assessment u/s 148 needs to be resorted for AY 11-12. Accordingly, notice u/s 148 needs to be issued to assess or reassess such income and also any other income chargeable to tax which comes to notice subsequently in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of the reasons would obviate the possibility of a belief and would bring the case in the realm of mere suspicion, which cannot be a ground for reopening of assessment. In the present case also the reassessment proceedings was initiated by the A.O. on suspicion which cannot be a ground for reopening of the assessment. 16. Similarly the Hon'ble Delhi High Court in the case of CIT Vs. Gupta Abhushan P. Ltd. (supra) held that the A.O. had mere suspicion that there was a likelihood of there being a discrepancy in the stock when the survey was conducted. It was merely a reason to suspect and could not be the same as reason to believe which was a necessary pre-condition for any action under 147 of the Act. The fact that the renovation expenses had not been booked in that year, i.e., the financial year ending on March 31,2002, did not by itself indicate that renovation work had been carried out in the earlier three years. The conclusion of the A.O. based on what was noticed in the course of survey could not be extrapolated to other years. The purported belief of the A.O. was not a belief but was merely a suspicion and such suspicion could not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 148 of the Act for reassessment proceedings was not valid. In the present case also as we have pointed out earlier that nothing incriminating was found during the course of survey and the A.O. invoked the provisions of Section 56(2)(viia) of the Act, which were not applicable to the fact of the present case, and the A.O. acted on the basis of reasons to suspect, therefore the reassessment proceedings were not valid. 19. Similarly the Hon'ble Delhi High Court in the case of Pr. CIT Vs. Meenakshi Overseas Pvt. Ltd. (supra) held that while the report of the Investigation Wing might have constituted material on the basis of which the A.O. formed the reasons to believe, the process of arriving at such satisfaction could not be a mere repetition of the report of investigation. In the assessee s case the crucial link between the information made available to the A.O. and the formation of belief was absent. The reasons to believe recorded were not reasons but only conclusions and a reproduction of the conclusion in the investigation report received from the Director (Investigation). It was a borrowed satisfaction . The expression ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed dt. 10/05/2010 was downloaded from the Ministry of Corporate Affairs Portal, copy of the said list of share transfer is placed at page no. 58 of the assessee s compilation which clearly shows that the share were transferred on 10/05/2010. Therefore the provisions of Section 56(2)(viia) were not applicable as the transaction took place on 10/05/2010 while the said provisions were inserted by the Finance Act 2010 with effect from 01/06/2010 and as such were not applicable to the facts of the assessee s case. In the present case the A.O. on this basis that the annual return was filed by the Company M/s Bharatnet Technology Limited on 10/11/2010 and that the payment had been made by the assessee on 02/11/2010 presumed that in most probability shares would have been transferred in November 2010. However nothing is brought on record to substantiate that the shares were transferred in the month of November 2010 on the contrary the annual return filed by the Seller of the shares M/s Bharatnet Technology Limited clearly established that the transfer of the shares took place on 10/05/2010 and even the certificate issued by the practicing company secretary also confirmed that the shares w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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