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TMI Blog2021 (8) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... brokerage 3 On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in holding that the initiation of action u/s 147 of the Act, is invalid and void ab-initio 4 That the grounds of appeal are without prejudice to each other 5. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal." 3. The brief facts are that the assessee is engaged in the business of investment, sales and purchase of shares and has filed its return of income on 31.03.2009. The assessee's case was reopened u/s.148 by issuance of notice on 18.08.2015 on the following reasons recorded:- M/s. Rajni Sales Pvt. Ltd. A.Y. 2008-09 In this case, the return declaring income of Rs. 3,469/- was e-filed on 31.03.2009 vide acknowledgment No.66842781310309. It was processed u/s.143(1) of the IT Act at returned income. A search and seizure action in Surya Prakash Group of cases was carried out on 30.10.2012. During search, in his statement recorded u/s.. 132(4) of the IT Act on 11.10.2012, chairman of M/s. Prakash Industries Ltd., Shri Ved Prakash Agarwal admitted that accommodation entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount of Rs. 8.32 crore has been invested in M/s. Prakash Industries Ltd. grou. The funds raised by assessee by way of share application and investments are shown to have been received from companies which are paper companies and run by entry operators. Hence the source of funds is non genuine. The said amount is liable to be taxed. Therefore I have reason to believe that income of Rs. 8.32 crore has escaped assessment for the Assessment Year 2008-09 by reason fo failure on part of assessee to disclose fully and truly all material facts necessary for its assessment. Therefore in my opinion it is a fit case for issue of notice u/s..148." 4. Thereafter, assessee has filed detailed objection against initiation of proceedings which have been disposed of by the ld. Assessing Officer. In the assessment order, the Assessing Officer has made following additions. a. Unexplained cash credit under section 68 of the Act Rs. 8,73,24,240/- on protective basis. b. Unexplained expenditure on account of brokerage @ 0.5% i.e, Rs. 4,36,621/- 5. Ld. CIT (A) has quashed the assessment on the ground that the Assessing Officer has entertained reason to believe only for making protectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not received during the impugned assessment year, therefore, entire reasons to believe stands at a wrong footing and there is no escapement of income for this assessment year. He further submitted that the amount of Rs. 8.32 crore is factually incorrect and is Rs. 8.73 crore out of which Rs. 4.36 crore was invested in Prakash Industries Ltd. during the relevant assessment year only. Even otherwise detail retraction was made by Shri Ved Prakash Agarwal in November, 2012 only and the reason to believe have been recorded on 18.02.2015 and there was no such confession by Shri Ved Prakash Agarwal as to the share capital being an accommodation entry. Most importantly Assessing Officer has sought to reopen only to make protective addition in the hands of the assessee which means that Assessing Officer was not sure in his reason to believe that in whose hand income sought to be assessed. Already substantive addition has been done in the hands of Prakash Industries Ltd. on 31.03.2016 in the assessment order passed in that case and before that only Assessing Officer has tried to reopen the case for making protective addition in his reason recorded on 31.03.2015. In the written submissions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessment for the assessment year 2008-09.If the Ld. AO had recorded the reasons after examining the books of the assessee and applying his mind, then he would have known that the assessee did not receive any share capital during the relevant assessment year.In fact during the year under consideration the assessee did not receive credit of Rs. 8.73 crores. The provisions of section 68 specifically states that the if any sum is found credited in the books for any previous year,....the sum so credited may be charged to the income tax as the income of assessee of that previous year." 7. Reasons are vague: i. The Ld. AO in the entire reasons to believe did notmention any material to corroborate his conclusion except for the retracted statements. ii. In the reasons the Ld. AO mentioned that from examination of books it is found that Rs. 8.32 crores has been invested but the relevant page of from where he found such information is not provided. iii. It is mentioned in the reasons that assessee had not disclosed truly and materially not disclosed material fact but did not mention which material fact is not disclosed in the ITR. 8. The statements on the basis of which reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied his mind before issuing notice under Section 148 of the Act." 15. Dr.Ajit Gupta v. ACIT (2016) 383 ITR 361 (Delhi) (HC): It has been held by Hon'ble Delhi High Court that There as on for the reopening of the assessment was a mistaken factual premise that the assessee had changed the system of accounting from mercantile to the cash system. It was more than adequately explained by the assessee that this was an inadvertent error. The assessee has convincingly shown that he has consistently been following the mercantile system of accounting not only for assessment years in question but for the earlier and later assessment years as well. Hence, reassessment notice was to be quashed. 16. CIT vs. Atul Jain [2007] 212 CTR 42 (Delhi): Hon'ble Delhi High Court has held that "17. Looked at in the light of the decisions placed before us and the law laid down therein, it is necessary to appreciate the information available with the Assessing Officer in the present case. The only information is that the assessees had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque of that amount. The information does not indicate the source of the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escaped assessment. This contention is without merit as reasons to believe that income had escaped assessment is a necessary pre-condition which enables the Assessing Officer to assume jurisdiction to proceed further. In the event such reasons are found to be erroneous, the Assessing Officer would not have the jurisdiction to make an assessment and any proceedings initiated on the basis of palpably erroneous reasons would be without authority of law. Therefore, even if it is assumed that, infact, the assessee's income has escaped assessment, the Assessing Officer would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional precondition being met to reopen the assessment, the question of assessing or reassessing income under section 147 would not arise. Thus, the proceedings under section 147 are liable to be quashed as being without jurisdiction. [Paras 13 and 14] 18. CIT vs. ChintooTomar [2015] 229 Taxman 260 (Delhi) "5....The reasons so recorded should have some basis or support and not a mere gossip. The reasons cannot be a mere pretence and should be held in good faith. The expression "r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumption of jurisdiction u/s 147 of the Act. 6. Hon'ble High Court of Bombay in the case of DHFL Venture Capital Fund Vs. ITO (34 taxmann.com 300) has explained that: "15. The jurisdictional requirement for reopening an assessment under Section 148 is the formation of a reason to believe by the Assessing Officer that income has escaped assessment. The formation of the reason to believe and the existence of that reason must be in the present. Recourse can be taken to the provisions of Section 148 where the Assessing Officer has a reason in present, meaning thereby, a reason which is present to his mind when he forms his reason to believe, that income has escaped assessment. Recourse to Section 148 cannot be founded in law on a hypothesis of what would be the position in future should an appeal before the appellate authority, being the Tribunal or the High Court, result in a particular outcome.The statute does not contemplate the reopening of an assessment under Section 148 on such a hypothesis or a contingency which may emerge in the future. 16. The basis on which the Assessing Officer has purported to reopen the assessment is placed beyond any doubt by the affidavit which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified, cogent and legal reason. We, therefore, further hold that there existed no good or sufficient ground or reason for reopening of the case and issuance of notices u/s 148 of the Act against the assessee company. We also hold that the condition precedent for valid initiation of reassessment is not being satisfied as the belief that income chargeable to tax has escaped assessment does not exist on the date of assuming jurisdiction u/s 147 of the Act. Therefore, all subsequent proceedings including issuance of notice u/s 148 of the Act were illegal and bad in law. Accordingly, ground no. 2, 3 and 4 of the assessee are allowed and we hold that the CIT(A) has erred in confirming the action of the AO for assuming jurisdiction u/s 147 of the Act and issuing notice u/s 148 of the Act to the assessee for reopening of assessment and, thus, all proceedings u/s 147 and 148 of the Act to the assessee including notices are hereby quashed. b. Hon'ble ITAT Mumbai in the case of M.P. Ramachandran Vs. DCIT (32 SOT 592) has held that: "Thus, protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any protective assessment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee by way of share application and investments are shown to have been received from companies which are paper companies and run by entry operators. Hence the total source of funds is non genuine. All the shareholders changed during the year...." At para 18 he stated that the" amount of Rs. 8.73 shown in the books is treated as unexplained under section 68 of the Act" 3. He added the entire net worth of the company under section 68 without considering that the assessee did not raise any share capital during the year under consideration. 4. The Ld. AO did not even consider that during the year under consideration the assessee invested only Rs. 4.36 crores in M/s Prakash Industries. 5. The entire addition made is without appreciating the provisions of the law and without applying mind to the facts of the case. III. The assessee had discharged its onus by furnishing all the documentary evidences to establish the identity, genuineness and creditworthiness of the share applicants 1. During the year under consideration the assessee did not issue any share capital or received any share application money from any person. 2. The assessee company has made investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of summoning the parties himself but forced the assessee to produce the persons. 11. The Ld. AO did never point out any defect or controvert the evidences submitted by the assessee but rejected them and only emphasised on production of controlling persons the opportunity of which was also not provided in spite of the request of the assessee to directly summon such persons. 12. Further it is a trite law that the Ld. AO cannot reject the contemporary evidences submitted by the assessee without pointing any defects and non-production of parties cannot be a ground for making disallowance. IV. All the allegations made by the Ld. AO are without any basis;the assessee had duly rebutted all the allegations of the Ld. AO- Refer page no. 37-39 of the assessment order S. No. Allegations of Ld. AO Rebuttal of assessee 1. Statement of entry operator Shiv Shankar Banka was recorded u/s 132(4) in which he has admitted to have provided accommodation entries to Prakash Group 1. The department has no corroborative evidence to support the content of the statement. 2. Mr. Shiv Shankar Banka has retracted this statement on 05.11.2012 i.e, within a weak by stating that the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such enquiry report backed by evidences which shows that the Prakash Group has purchased such companies on commission is never confronted to the assessee. 2. All the Statements recorded by the department were retracted. 5. The investor companies have meagre profits and only balance sheet based companies. The investor companiesare situated at a table place not with any infrastructures which are required to conduct proper business operations. 1.Theinvestor companiesweredealing in shares and securities. It does not require infrastructure as in case of manufacturing company. 2.It is also submitted that the earning are not the criteria to decide whether the company is bogus company. 6. The directors who have said to be conducting the affairs of the companies are not traceable. The shareholder companies who have contributed to the assessee for share capital are also not traceable and bogus and only paper entities. The assessee has also failed to produce the people involved in running of the operations of Assessee Company as well as share capital contributing companies. 1. During the year no share capital was issued. 2. Name, address, PAN of purchaser companies were given and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company the allegation made by the Ld. AO is baseless. 12. From investment list of this jamakharchi company it is evident that the Kolkata based companies in which investments were made are also jamakharchi companies as seen from their addresses and verification made at some of those companies. Application form proved that same controlling persons are for most of share applicant companies. 1. The inspector report referred by the Ld. AO was never provided to the assessee company for the rebuttal. This is in gross violation of principle of natural justice. The inspector report was provided to the assessee only at the time of proceedings before the CIT(A). 2. On perusal of inspector report we found that the name and designation of the inspector is nowhere mentioned in the inspector report neither it is mentioned that when the enquiries were conducted. 3.The allegation made by the Ld. AO is completely baseless. In the enquiry report name of the Vanshi Farms in not mentioned anywhere. No enquiry was made in respect of the investor company. 13. It is seen that most of the companies in which investment has been made by the Jama kharchi companies have bank accounts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rage: The addition of brokerage is consequential to the main addition of share capital/investments and solely based on the statement of Shri. V.P. Agarwal.Refer page no. 47-48 of the assessment order.Since the addition of share capital made by the Ld. AO is baseless and Shri. VP Agarwal retracted his statement which was given under threat and coercion on the very next day. The consequential addition of brokerage deserves to be deleted. 7. Ld. CIT DR on the other hand relied upon the order of the Assessing Officer. 8. After considering the submissions and on perusal of the impugned order as well as material referred to before us at the time of hearing. From a bare perusal of the assessment order, it is seen that ld. Assessing Officer has sought to reopen the case u/s.147 by issuance of notice dated 22.02.2015 for making protective addition of Rs. 8,73,24,240/- and unexplained expenditure on account of brokerage at Rs. 4,36,621/-. Apart from that, another glaring point is that the amount mentioned in the income escaping assessment is incorrect, because only Rs. 4.63 crore was invested in Prakash Industries Ltd. during the relevant assessment year, and therefore, entire addition R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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