TMI Blog2019 (2) TMI 1846X X X X Extracts X X X X X X X X Extracts X X X X ..... miserably failed to bring during entire reopening proceedings any specific tangible material which established assessee is beneficiary of accommodation entries, which all are sufficient to nullify the extant reopening action. Even there is no annexure/enclosure to reasons to corroborate the same. No reference and details of investigation wing information is available. There is no live nexus / rational connection between Investigation Wing information and belief that assessee's certain income has escaped assessment. The date of recording reason is also not mention and also the date of sanction u/s 151 and these material facts indicate that the sanction provided by the authorities is mechanical as recording of reason. approval granted by the competent authority is a mechanical approval and action has been taken mechanically because on perusing the reasons recorded, it demonstrates that Pr. CIT has written Yes, it is a fit case for the issue of notice u/s. 148. which establishes that the competent authority has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion on the issue already adjudicated in the original proceedings u/s. 143(3) of the Act. 1.3 On the facts and circumstances of the case, the Ld. CIT(A) has not appreciated the contention of the assessee that the reassessment proceedings have been initiated after approval by the Pr. CIT, Delhi-7, New Delhi and the said approval was mechanical and without application of mind by the above authority in as much as there is no date of satisfaction by the either of the authorities mentioned in the performa of obtaining sanction. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in confirming the action of the AO in not admitting the evidences during appeal proceeding ignoring the fact that those evidences were vitally important for adjudicating the issue of unexplained cash credit u/s. 68 of the Act. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and has acted against the principles of natural justice in not allowing the opportunity of cross examination of the person whose testimony is relied on the AO to draw adverse inference and also ignoring the fact that the AO has himself recorded the fact in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Enforcement, New Delhi. The Joint Director, Directorate of Enforcement, New Delhi vide his letter intimated that during the course of investigation in coal scam matter in which the assessee was accused of being involved they have found certain information regarding issue of shares by the assessee company. It was informed that the assessee had issued shares of its group companies and family members at different rates. On 28.2.2008 shares were issued at a premium of ₹ 40/- however, shares were issued at premium of ₹ 490/- on 31.3.2008 and 24.12.2009. The investigation was stated to be monitored by the Hon'ble Supreme Court of India. The case of the assessee was reopened u/s. 147 of the Act and the notice u/s. 148 of the was issued to the assessee on 29.3.2015. Order u/s. 143(3)/147 of the Act was passed on 31.3.2016, reassessing the income at ₹ 12,54,84,600/- after disallowance of ₹ 12,45,00,000/- u/s. 68 of the Act on account of unexplained cash credit. Against the assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 12.09.2018 has dismissed the appeal of the assessee and against which the Assessee is in appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contention of the ld. counsel for the assessee that lower authorities erred in not admitting additional ground under which the legality of the order of assessment under appeal was challenged on the ground of the order being passed beyond the period of limitation prescribed u/s. 153(1) of the I.T. Act. On merit of the case, the Ld. Counsel for the assessee submitted that Ld. CIT(A) has upheld the rejection of explanation in respect of cash credit of ₹ 12,45,00,000/- by the AO, simply drawing adverse inference against the assessee for non-production of director of the investing company without considering the fact that there is no adverse material emerging against the investor companies specifically with regard to their actual existence particularly when the department did not blinker during the process of merger of the companies before the Hon'ble High Court of Calcutta. It was further submitted that the addition was made ignoring the fact that the same has been made on the basis of the material collected at the back of the assessee without providing copy of the same and providing opportunity to rebut the same. On merits of the case, he submitted that the AO has simply d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application money with share premium was something was not disclosed to the department by the assessee in the original proceedings completed u/s 143(3) of the Act. On the issue of non-application of mind u/s 151, she relied on sec 292B of the Act as per which any mistake or defect or omission in the ROI, assessment, notice, summon or other proceedings will not be valid will not invalidate the assessment and the proceedings. On the nature of approval, the Ld. CIT(DR) has relied on the judgment of Mrs Sonia Gandhi to support the nature of satisfaction arrived at by the Pr. CIT u/s 151 and on the issue of application of mind by the AO at the time of initiation of proceedings u/s 147, the Ld. CITDR emphasised that at the point of recording reason, prima facie belief is required to be formed relying on Rajesh Jhaveri Judgment. On the issue of limitation matter, the Ld. CIT DR submitted that u/s 153B, the limitation is regarding completion of assessment and not service of the order before the prescribed date. It was also submitted that since, the post office is open till normal working hours, the AO was in no position to get the order/slash demand notice dispatched on or before 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opers P ltd. 30 taxmann.com 292 (Delhi) - CIT vs. MAF Academy P Ltd. 42 taxmann.com 377 (Delhi) - CIT vs. Titan Securities Ltd. 32 taxmann.com 306 (Delhi) - CIT vs. Nova Promoters Finlease (P) Ltd. - CIT vs. Youth Construction (P) Ltd. 44 taxmann.com 364 (Delhi) - CIT vs. Ultra Moderns Exports P Ltd. 40 taxmann.com 458 (Delhi) - CIT vs. NR Portfolio P Ltd. 29 taxmann.com 291 (Delhi) - CIT vs. Frostair P Ltd. 26 taxmann.com 11 (Delhi) - Beutex India (P) Ltd. vs. CIT 18 taxmann.com 9 (Delhi) - CIT vs. P. Mohankala dated 15.5.2007 (SC) - Pr. CIT vs. Bikram Singh 85 taxmann.com 104 - CIT vs. Precision Finance P Ltd. 208 ITR 465. - CIT vs. Durga Prasad More, (1971) 82 ITR 540 (SC) - Sumati Dayal 214 ITR 801 (SC), - Somnath Maini 306 ITR 414 (P H) - Mc Dowell Co. Ltd. 154 ITR 147 (SC) - Ashok Mahendru Sons (HUF) vs. CIT 173 taxmann.com 178 - Hersh Win Chadha vs. DCIT (ITA Nos. 3088 to 2098 3107/Del/2005) - Dhakeshwari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) - SS Gadgil v. Lal Co. (1964) 53 ITR 231 (SC). - CIT vs. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Delhi HC) - Nokida India P Ltd. vs. DDIT 59 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind by the authority granting sanction u/s 151. Therefore, the protection u/s 151 is not available. Regarding the reliance placed on Sonia Gandhi Judgment, the assessee's counsel submitted that the Hon'ble Supreme Court judgment on the issue need be followed in preference to the judgment of jurisdiction of High Court. He further submitted that the Sonia Gandhi judgment follows the Meeankshi overseas judgment passed in 11.01.2016 and the Hon'ble Delhi High Court in the subsequent decision in N.C. Cable P Ltd dated 11.01.2017 supports the case of the assessee. On the contention of Ld. CIT(DR) on the issue of Application of Mind by the AO at the time of initiation of proceedings u/s 147, the Ld. counsel for the assessee submitted that the Assessee has relied on number of authorities which says in para 23 and 16 of the synopsis which requires that the AO should applied his independent mind and there should be live nexus slash rational connection between the information available and the belief of escapement of income formed. It was further submitted that the Rajesh Jhaveri's case applies to the reassessment proceedings initiated in the case where no assessment is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over to speed post authority till 12.0 clock at night. However, on the contention of the Ld. CIT(DR) that the issue of shares at different premium is not in accordance with the companies Act and also the Income Tax Act, Ld. counsel for the assessee submitted that the issue of the shares to the existence shareholders were at the lower rate of premium and this fact has been discussed by the Ld. CIT(A) on page 14 in para 8.29 and 8.30 and as per the decision of Mumbai Bench in SudhirMenon HUF 148 ITD 260, the issue of shares to existing shareholders at lower premium cannot be compared with those issued to new shareholders at higher premium. There is no violation of Income Tax Law as applicable to AY 2008-09 (prior to introduction of sec 56(2)(vii)(b) w.e.f from 01.04.2013) as well as the companies Act as there is no bar under the companies Act to issue shares at different premium. The Ld. CITDR did not pint to any particular section of Companies Act and Income Tax Act for violation of share premium. The issue of share at ₹ 490 premium to outside entities is based on DCF valuation report dated 16.06.2006 as per which value of share is estimated at ₹ 436 per share. The AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case laws and the relevant documents available on record, especially the impugned order, Written Submissions and the rejoinder of the assessee's counsel and the case laws cited by both the parties. From the assessment order, we find that assessee filed its return of income on 30.9.2008 for the assessment year 2008-09 declaring income of ₹ 3,32,390/-. The Assessing Officer passed the order u/s. 143(3) of the Income Tax Act, 1961 (in Short Act ) on 31.3.2016, by assessing the income at ₹ 4,12,390/-. The order was rectified u/s. 154 of the Act and determining the assessed income at ₹ 8,84,600/-. Subsequently, information was received from the Joint Director, Directorate of Enforcement, New Delhi. The Joint Director, Directorate of Enforcement, New Delhi vide his letter intimated that during the course of investigation in coal scam matter in which the assessee was accused of being involved they have found certain information regarding issue of shares by the assessee company. It was informed that the assessee had issued shares of its group companies and family members at different rates. On 28.2.2008 shares were issued at a premium of ₹ 40/- however, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority. This information was neither a fresh material nor did it indicate the escapement of income by the assessee in one way or the other. There is no material forwarded with the above information which could help the AO to reach such a prima facie belief. We note that the AO communicated with the Director of Income Tax (Investigation) Kolkatta requiring the later to investigate into the affairs of these companies. The para 3 of the letter read as under :- 3. You are requested to kindly investigate into affairs of these companies and inform any adverse information regarding the identity, creditworthiness and source of funding of these companies, which may enable this office to take appropriate remedial measures in the case of my assessee at the earliest. Kindly appreciate that the time limit for taking remedial action u/s 148 of the Act is 31.03.2015. 6.2 It is noted that the communications by the AO to two different authorities clearly indicates that the AO was not in a position to form a belief of escapement of income till the last communication on 02.03.2015 made with DI (Inv). Further in the reason recorded the AO does not discuss any feedback received by him as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 10A, 147, 148. 6.3 The Hon'ble Supreme Court of India in the case of CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) [affirming CIT vs. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) (FB)] J. Kapadia held that the concept of 'change of opinion' must be treated as an in-built test to check abuse of power by Assessing Officer and that the reasons must have a live link with formation of belief. 6.4 Coming to the other observation which is so called material in support of formation of belief under section 147, the AO has relied on the general perception aided by his personal belief unsupported by any material on record terming the companies in Kolkatta to be entities engaged in the accommodation entry providing activity. The above perception dehors the specific material is a witch hunt which is not permitted in law when in original proceedings after conducting necessary enquiry, the AO has accepted the share capital contribution by the three companies as explained credit. The A.O. has erred in law and on facts in initiating the proceedings u/s. 147 of the I T Act, 1961 for the reasons based on mere suspicion and the notice issued u/s. 148 is illegal as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment for such assessment year by reason of the failure on the part of the assessee to either make a return u/s 139 or in response to notice u/s 142(1) or 148 of the IT Act or to disclose fully and truly material facts necessary for assessment for the assessment year under reference. The assessee had objected to reassessment proceedings on the ground that under proviso to section 147 on page 16 to 17 that the assessee had faltered in disclosing fully or truly any specific material facts necessary for assessment. The perusal of the reasons will reveal that there is just a whisper in the reasons of the failure of the assessee to disclose fully and truly or material facts. The objections of the assessee before the AO vide letter dated 02.11.2015 are on pages 40-44 and the reference may be made to para 2.1 on page 40 of the paper book where the assessee had objected to the assumption or jurisdiction by the AO based on proviso to section 147. The AO vide letter dated 07.12.2015 paper book pages 45- 53 has considered the above objections of the assessee in on page 47where the AO has given a finding that there was a failure on the part of the assessee to disclose fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of WelIntertrade (P) Ltd. Anr. vs. ITO (2009) 308 ITR 22 (Del) that where assessee having fully and truly disclosed all the material facts necessary for the assessment as required by the AO the precondition for invoking the proviso to S. 147 was not satisfied and therefore AO acted wholly without jurisdiction in issuing notice u/s. 148 beyond four years period mentioned in S. 147. The judgment of the Hon'ble Chennai High Court in the case of Fenner India Ltd v DCIT 241 ITR 672(Mad) also subscribed to the above judicial proposition propounded by the Hon'ble Delhi High Court in Haryana Acrylic Manufacturing case (supra). The judgment of the Mumbai High Court in the case of Hindustan Lever Ltd. v/s R.B. Wadkar, Assistant Commissioner of Income Tax and others, reported in [2004] 268 ITR 332 is categorical on the obligation of the AO to identify the material facts which were not disclosed by the assessee and also to prove that those facts were relevant for computation of income. The observations of the Hon'ble Court on the above issue are reproduced as under: ---------He must disclose in the reasons as to which fact or material was not disclosed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there with him at the time of original proceedings. In the reasons recorded in instant case the AO has not referred to any specific adversarial material (statement etc.) and also has not described exact nature of transaction in the reasons and has used share application / share capital / unsecured loans etc. In the reasons and has miserably failed to bring during entire reopening proceedings any specific tangible material which established assessee is beneficiary of accommodation entries, which all are sufficient to nullify the extant reopening action. Even there is no annexure/enclosure to reasons to corroborate the same. No reference and details of investigation wing information is available. There is no live nexus / rational connection between Investigation Wing information and belief that assessee's certain income has escaped assessment. The non-application of mind is evident in the contradiction contained in the form filed for recording the reason and for obtaining approval u/s 151 (PB 37). In the Performa, the item No.7 there is mention of applicable section 147 r.w. Explanation 2(c)(i) implying that the case is of income being under assessed but in item No.9(b), the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s called out, Mr. Sawhney produced before the Court the very same letter of the AO dated 15th September 2010 which has been reproduced in its entirely in the impugned order of the ITAT. He submitted that the AO was himself present in the Court and further efforts would be made to locate the materials on the basis of which the AO formed his opinion regarding reopening of the assessment. The Court was not prepared to grant further time for this purpose since it was not clear that the materials were, in fact, available with the Department. 12. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries. The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer, For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed. (B). Hon'ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime Chemicals Ltd. reported in (2015) 56 taxmann.com 390 (MP) has held as under:- 7. We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so Yes, I am Satisfied . In the case of ARjun Singh vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:- The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format Yes, I am satisfied ..... 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