TMI Blog2021 (8) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the AO has commented that the identity of a company has to be seen in a holistic sense and mere existence of paper concern with Directors just for namesake, is not establishment of identity. The identity comprises of actual business of the investor and in the case on hand, Shri Narayan Patodia was unable to establish that he had carried out any actual business - a perusal of the record reveals that the investor companies are found to be shell/paper companies. In this regard, the report of the Commission under section 131 of the Act sent to Kolkata as well as physical entry done by the Inspector of this Range established that at the registered address of the company, no business was being carried out and in fact, the address of the company was a residential premises. Thus we are of the considered view that it cannot be said that there is no reason to believe that the income chargeable to tax has escaped assessment because such exercise of reopening has been made only after due inquiries and recording of statements of concerned persons, as referred to herein above, and on having found prima facie material, impugned notice is issued to the petitioner. AO has reason to believ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner are that the petitioner is a Company incorporated under the Companies Act, 1956. During the Financial Year 2011-12, relevant to Assessment Year 2012-13 (i.e. the year under consideration), the petitioner received share application money to the tune of ₹ 3,25,00,000/- from six different companies. The share application money pending allotment, was duly reflected in the Audited Annual Accounts. In the subsequent Assessment Year i.e. 2015-16, the said share application money was returned to the concerned parties. Thereafter, the petitioner filed its Return of Income (RoI) for the year under consideration on 04.09.2014, declaring total income of ₹ 3,98,69,380/-. The case of the petitioner for the year under consideration was selected for scrutiny assessment and various details were called by the then Assessing Officer including the details as to the share application money received during the year under consideration, which were furnished by the petitioner. The petitioner furnished the documentary evidence such as Confirmation, Income Tax Return, Computation of Income, Audit Report and Bank Statements pertaining to the share applicants at the original assessment stage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration has been reopened. Against the reasons accorded, the petitioner, vide letter dated 14.10.2019, raised objections against reopening on factual as well as the legal grounds, however, the respondent authority disposed of the said objections raised by the petitioner vide order dated 12.12.2019 inter alia holding that the reopening is justified and valid in the eyes of law. Being aggrieved, the petitioner is before this Court by way of this petition. 3. We have heard, learned senior advocate Mr. Tushar Hemani for learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Nikunt Raval for learned advocate Mrs. Kalpana Raval for the respondent. 3.1 The learned senior advocate for the petitioner has vehemently submitted that the basis for reopening the assessment by the Assessing Officer is receipt of share application money by the petitioner company from six parties concerned, however, in fact, the said money was returned to the said companies in the subsequent Assessment Year i.e. 2015-16 and the said fact, was also brought to the notice of the respondent authority while raising objections against reopening and the same was not disputed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18, the fact as to production of Director of these companies is stated. Further, the documentary evidence with respect to the concerned companies were furnished by the petitioner; that Shri Narayan Patodia had appeared before the Assessing Officer and his statement was recorded; relevant extract of statement of Shri Narayan Patodia wherein, he had explained the adverse report of the Inspector; the petitioner produced the current Director of the investor company - Shri Narayan Patodia on 25.12.2018 and his statement was recorded and relevant extract of statement of Shri Narayan Patodia, wherein, he has explained the source of income. Thus, the crux of his submission is that the respondent has very conveniently picked up certain facts and ignored other and proceeded as if, with preconceived notion. 3.4 The learned senior advocate for the petitioner submitted that various incorrect facts were stated in the reasons for reopening the assessment and on the basis of such incorrect facts, the respondent was not justified in reopening the case of the petitioner. He submitted that the assessment order for the Assessment Year 2016-17 itself is a subject matter of challenge before the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, and such a sanction should not be mechanical in nature and the Commissioner concerned must record his satisfaction in detail. However, in the present case, there appears no proper application of mind by the Commissioner concerned while sanctioning the issuance of notice under section 148 of the Act. 3.8 Making above submissions, it is urged by the learned senior advocate for the petitioner to allow the present petition and to quash and set aside the impugned notice. 4. Per contra, learned advocate Mr. Nikunt Raval for the respondent authority, while opposing the present petition, drew our attention to the reasons recorded for reopening of assessment dated 06.05.2019, and submitted that substantial receipt of share application money, to the tune of ₹ 3,25,00,000/-, by the assessee company was found during the year under consideration. That, from the submissions made by the petitioner assessee during scrutiny proceedings under section 143(3) of the Act for the Assessment Year 2014-15, it is revealed that the assessee has received share application money from si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oo, were proven to be the shell companies. Further, another investor company namely M/s. Jineshwar Multitrade Pvt. Ltd., which had paid ₹ 2,00,00,000/- towards share application in the assessee company during the year under consideration has been struck off by the Registrar of Companies (RoC). Thus, he submitted that the petitioner has used shell/paper companies to channelize his unaccounted income in the garb of share application money. From the material and investigation, it is amply clear that all the companies from whom share application money totalling to ₹ 3,25,00,000/- was received are bogus concerns. 4.2 So far as the contention of the learned senior advocate for the petitioner with regard to return of share application money to the respective companies in the subsequent year is concerned, the learned advocate for the respondent submitted that section 68 of the Act, makes it manifestly clear that a cash credit in assessee s books of account is not automatically explained if the amount is returned subsequently. It is submitted that Reversal of cash credit has no bearing on the onus of the petitioner assessee under section 68 of the Act. 4.3 It is further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion money was returned and in the circumstance, no addition can be made under section 68 of the Act and the respondent has failed to appreciate the scheme of the Act in proper perspective. He further submitted that in absence of any income chargeable to tax, the very vital prerequisite for reopening is not satisfied and hence, reopening in the case of the petitioner is not justified. 6. No other and further submissions have been made by the either party. 7. Having regard to the submissions advanced by the learned advocates for the respective parties and having perused the material placed on record, it appears to us that the learned senior advocate for the petitioner has challenged the impugned notice mainly on the ground that when jurisdictional facts are not established, the department cannot assume the jurisdiction and reopen the assessment. The basis for such submission is that, according to the learned senior advocate for the petitioner, the share application money in question was returned to the concerned parties in the subsequent year itself, which is evidence from the record. Further, he has submitted that the case of the petitioner was selected for scrutiny assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, specific in nature and reliable in character, relating to the concluded assessment, which went to expose the falsity of the statement made by the assessee at the time of original assessment was different from drawing fresh inference from the same facts and material which was available with the Income-Tax Officer at the time of the original assessment proceedings. Where the transaction itself on the basis of the subsequent information was found to be a bogus transaction, the mere disclosure of that transaction at the time of original proceedings could not be said to be disclosure of the true and full facts, and the Officer would have the jurisdiction to reopen the concluded assessment in such a case. The precise observation made by the Supreme Court in the said case may be reproduced as under : - In the present case as already noticed, the Income- Tax Officer, Azamgarh, subsequent to the completion of the original assessment proceedings, on making an enquiry from the jurisdictional Income-Tax Officer at Calcutta, learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of ₹ 50,000/- in cash had not really lent any money but only its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings in respect of income escaping assessment is open to challenge in a Court of law. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment . 8. In the aforesaid backdrop, if the facts of the case are adverted to, as referred to herein above, it is the case of the petitioner that the petitioner has returned the share application money in question in the subsequent year and that, there is no t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y received during the year, ₹ 2,00,00,000/- is received from M/s. Jineshwar Multitrade Pvt. Ltd. and the said company is struck off by the RoC and the said investor was not subjected to inquiry during the Assessment Year 2016-17. Therefore, the Principal Officer of M/s. Jineshwar Multitrade Pvt. Ltd. has been produce before the Assessing Officer for examination in the assessee s case. It has also come on record that during the scrutiny proceedings for Assessment Year 2016-17, it was established that the investor companies themselves acted as mere conduits. These investors, in turn, received the money for investment from the other companies and those companies were also proven to be the shell companies during scrutiny proceedings. 8.2 The learned senior advocate for the petitioner has submitted that the share application money stood verified and accepted in the scrutiny assessment proceeding carried out under section 143(3) of the Act and the petitioner had submitted all the details relevant for the assessment and thus, discharged the onus under section 68 of the Act, however, it appears that the Assessing Officer has found that the petitioner company has not fully and trul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: 9. On the basis of aforesaid proposition laid by series of decisions, we are of the opinion that when the Authority is armed with the tangible material in the form of specific information received by the Investigation Wing, Ahmedabad is throughly justified in issuing a notice for reassessment. It is revealed from the said additional material available on hand a reasonable belief is formed by the Assessing Authority that income of the petitioner has escaped assessment and therefore, once the reasonable belief is formulated by the Authority on the basis of cogent tangible material, the Authority is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion, we are of the opinion that function of the assessing authority at this stage is to administer the statute and what is required at this stage is a reason to believe and not establish fact of escapement of income and therefore, looking to the scope of Section 147 as also Sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be interfered with. 8.6 Thus, the function of the assessing authority at this stage is to administer the statute and what is required is a reason to believe and not to establish fact of escapement of income and therefore, looking to the scope of Section 147 as also sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen the assessment. 8.7 Further, in the decision in Aaspas Multimedia Ltd. v. Deputy Commissioner of Income Tax, Circle 1(1), [2017] 83 Taxmann.com 82 (Gujarat), it is observed as under: In the present case the reassessment proceedings have been initiated by the Assessing Officer on the basis of material provided by the Principal Director (Investigation). It is also required to be noted that the genuineness of the various companies who made share applications are doubted. The assessee is alleged to have been engaged in bogus share applications from various bogus concerns operated by PKJ. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in the Tax Appeal in which, the Court did not find any substantial question of law for the reason that department had accepted the repayment of loan in the immediate next financial year by the assessee without probing into it, whereas, in the instant case, firstly, the department has observed that a cash flow cited by the assessee is with regard to unsecured loan, not with regard to share application money. On unsecured loan, the borrower has to pay the interest and the lender receives substantial income from the loan advanced, however, in the case of the assessee, the investor receives no return on his investment and the money given by the investor is justlying unproductively with the assessee. Further, during subsequent investigation, the investor companies found to be the shell/paper companies. Accordingly, in the said facts and circumstances of the case on hand, the decision relied upon by the learned senior advocate for the petitioner would be of no help to petitioner. 9. In the backdrop as aforesaid, present petition fails and is dismissed accordingly. Notice is discharged. Ad-interim relief is vacated forthwith. No order as to costs. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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