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TMI Blog2019 (8) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... see u/s 154 observing that the mistake pointed out by the assessee was not apparent from records. According to the AO, the non consideration of service charges of Rs. 52,730/- by the assessee had resulted in escapement of income to that extent from the assessment from the assessment and accordingly a notice u/s 148 was issued by him on 22.11.2010 after recoding the reasons. In reply, a letter dated 29.11.2010 was filed by the assessee stating therein that the return originally filed on 27.09.2009 be treated as the return filed in compliance of notice u/s 148. Thereafter, assessment was completed by the AO u/s 143(3)/147 of the Act vide an order dated 30.12.2010 determining the total income of the assessee at Rs. 55,426/- after making addition on account of income from service charges amounting to Rs. 52,730/- and disallowance of preliminary expenses amounting to Rs. 2400/-. 3. The records of the assessment made by the AO u/s 143(3)/147 came to be examined by the concerned Ld. CIT and on such examination, he found that proper enquiry was not made by the AO in respect of the share capital of Rs. 12.42 lacs raised by the assessee during the year under consideration with a premium of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of such cases in Kolkata as well as other parts of the country. The share capital is introduced by rotating the money to dummy companies which have been created solely for this purpose. The Directors of such companies are more often than not low paid employees such as peons, darbans, drivers or other persons of humble means. The modus operandi for introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this, the money is transferred by way of cheques to other companies and this is done 3 to 4 times using different companies and thus rotating the money into 3 to 4 layers. After 3 to 4 layers, the money reaches its intended destination and this company is then sold off to the group or person who will ultimately use the money. He in turn, returns the amount of share capital and premium in cash to the person from whom the company is purchased. Thus, when share capital is introduced of huge premium in new formed companies with no business, it should raise the suspicion of the A.O. In fact, such high premium is not commanded even by blue chip quoted companies. Under these circumstances, the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of CIT vs Precision Finance Pvt. Ltd. (208 ITR 465). In that case, the Hon'ble Judges observed that- It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established consequently the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to be presumed that the transactions were genuine. It was not for the ITO to find out by making investigation from the bank accounts unless the assessee proved the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's case on this issue raised in the additional ground, the learned counsel for the assessee relied on the order of the coordinate bench of this Tribunal dated 05.04.2017 passed in the case of M/s. Classic Flour & Food Processing (P) Ltd. vs CIT, Kolkata - 4 (ITA No. 764 to 766/Kol/2014) wherein a similar issue raised by the assessee by way of additional ground was entertained by the Tribunal by observing that the law is well settled that the validity of the preliminary proceedings for want of proper jurisdiction can be challenged even in the appellate proceedings arising out of collateral proceedings. The Tribunal in the said case found that initiation of reassessment proceedings was not valid as the mandatory requirement of section 147 had not been satisfied. Consequently it was held by the Tribunal that the reassessment order passed by the AO as well as the consequential order passed u/s 263 was liable to be quashed being invalid. Keeping in view the decision of the coordinate bench of this Tribunal in the case of M/s. Classic Flour & Food Processing (P) Ltd. (supra), the additional ground raised by the assessee is admitted by us and the issue raised therein is being de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO u/s 143(3)/147 thus was in accordance with law. He also contended that the learned counsel for the assessee has not raised any arguments, other than the arguments raised challenging the validity of assessment made by the AO u/s 143(3)/147 to challenge the impugned order passed by the Ld. CIT u/s 263. He contended that similar order passed u/s 263 involving identical circumstances setting aside the order passed by the AO for lack of enquiry on the issue of increase of share capital including premium has been upheld by the Hon'ble Calcutta High Court in the case of Rajmandir Estates Pvt. Ltd. (386 ITR 162) and even the SLP filed by the assessee in the said case has already been dismissed by the Hon'ble Supreme Court. 7. In the rejoinder, the learned counsel for the assessee submitted that the facts involved in the present case are different from the case of Rajmandir Estates Pvt. Ltd. (supra) decided by the Hon'ble Calcutta High Court and the reliance of the learned DR on the said decision of the jurisdictional High Court is clearly misplaced. 8. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A perusal of the reasons recorded by the AO clearly shows that a letter dated 11.10.2010 was submitted by the assessee along with copy of audited accounts pointing out that the service charges of Rs. 52,730/- received in cash during the year under consideration were not taken into account while computing its total income. The assessee also sought that such income should be accounted for by the AO by way of rectification u/s 154. Although the request of the assessee for rectification u/s 154 was not accepted by the ASSESSING OFFICER as the mistake pointed out was not apparent from records, we are of the view that the self declaration made by the assessee vide letter dated 11.10.2010 regarding non-consideration of the service charges of Rs. 52,730/- received in cash while computing the total income as declared in the return of income filed originally was sufficient to establish that there was escapement of income of the assessee to that extent. As rightly contended by the learned DR, the letter dated 11.10.2010 submitted by the AO on 11.10.2010 was a tangible material that had come to the possession of the AO and since the same was sufficient to form a belief about the escapement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the assessee. As rightly submitted by the learned DR, a similar order passed by the Ld. CIT u/s 263 in the case of Rajmandir Estates Pvt. Ltd. (supra) involving identical facts and circumstances was upheld by the Hon'ble Calcutta High Court. He has also filed a copy of judgement passed by the Hon'ble jurisdictional High Court in the said case, the head note of which is reproduced hereunder: "Section 68, read with section 263 of the Income-tax Act, 1961 - Cash credit (Share application money) - Assessment year 2009-10 - During relevant year, assessee-company had increased its share capital by issuing 7.93 lakh shares of Rs. 10 each at a premium of Rs. 390 - Assessee originally filed a return showing a gross total income of Rs. 24,658 however, thereafter wrote to Assessing Officer that due to inadvertence it had not disclosed receipt of a sum of Rs. 61,000 on account of consultancy fees - Assessing Officer completed assessment without holding requisite investigation except for calling for records - Commissioner passed order under section 263 and opined that this was or could be a case of money laundering which went undetected due to lack of requisite enquiry into increase ..... 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