TMI Blog2018 (4) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... not commenting on any of the judgments relied by the assessee. The tribunal will reconsider the judgments keeping in mind, the judgment of Supreme Court, High Court as well as judgment of the tribunal itself. We are not answering the issue and the matter is remitted back as stated above. It will be open for the tribunal to decide the issue in accordance with law. - D. B. Income Tax Appeal No. 220, 221/2017 - - - Dated:- 17-4-2018 - K. S. Jhaveri And Inderjeet Singh, JJ. For the Appellant : Mr. Gunjan Pathak with Ms. Ishita Rawat For the Respondent : Ms. Parinitoo Jain with Ms. Shiva Goyal JUDGMENT 1. In both these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby tribunal has partly allowed the appeal of the department. 3. This court while admitting the appeals framed following substantial question of law:- Appeal No.220/2017 admitted on 10.10.2017 Whether in the facts in the circumstances of the case, the ld. Tribunal was justified in holding that the proceedings for reassessment under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs were reopened u/s 148 of the Act and notice was issued to the assessee on 19.3.2005. The reasons for reopening the assessment proceedings where shared with the assessee and after disposing off the assessee s objections, the reassessment order was passed u/s 143(3) read with section 148 of the Act wherein certain additions were made to the returned income. 5. The Assessing Officer has decided against the present appellant and on appeal, the CIT(A) has reversed the finding of Assessing Officer and decided in favour of the assessee which has been reversed by the tribunal. 6. Counsel for the appellant Mr. Gunjan Pathak has taken us to the order of the tribunal wherein it has been held as under:- 3. The ld DR submitted two broad contentions before us. Firstly, he contended that the ld CIT(A) has clearly erred in holding that the Assessing officer has no jurisdiction on any other issues which come to his notice subsequently in the course of proceedings u/s 147 of IT Act other than the issues mentioned in the reasons recorded u/s 148 and in support, he relied upon the express provisions of section 147 read with Explanation 3 of the Act. Per contra, the ld AR relied upon the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, and had escaped assessment for any assessment year, according to his reason to believe , and while so assessing or reassessing, he can also, in addition, assess or reassess any other income chargeable to tax which has escaped assessment and which may come to his notice subsequently in the course of proceedings under section 147 . 25. The precise question, thus requiring to be considered is, as to whether, the conjunctive word used, being and , used between the expression such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147 is required to be given its due, or is required to be ignored, or is required to be interpreted as or . Obviously because, if it is to be interpreted as or , then the language would read as under: 147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147. 8. It is noted that the above judgment in case of Shri Ram Singh's case (supra) has been rendered by the Hon ble Rajasthan High Court prior to the insertion of Explanation 3 to section 147 of the Act by the Finance (No. 2) Act, 2009, with effect from April 1, 1989. However, the Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or to render the substance and core nugatory. Section 147 has the effect that the Assessing Officer has to assess or reassess the income ('such income') which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount towards the share subscription again from two other private limited companies has failed to discharge the initial onus placed on it. Mere fact that the money has been received through banking channel is not sufficient enough to discharge the burden. The confirmations, on the letterheads of the assessee company without specifying any date of confirmation, identification by way name and designation of the person signing those confirmations on behalf of the investee companies, have been filed during the appellate proceedings, however the letters issued by the Assessing officer to these two investee companies have been returned undelivered and even the new addresses submitted are incomplete which raises a serious question mark on the confirmations so filed as the same is not wholesome, credible and verifiable. As we have stated in case of Bright Metals (supra), the AO has to examine the evidence so produced not superficially but in depth having regard to the human probabilities and normal course of human conduct. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on it would shift leaving it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer. In the entirety of facts and circumstances of the case and in light of legal proposition discussed above, the explanation about the nature and source of such sum found credited in its books of accounts has not been found satisfactory and the initial burden on the assessee cannot be said to be have been discharged in the instant case. We accordingly set aside the order passed by the ld CIT(A) and confirmed the order passed by the Assessing officer. 32. The ld CIT(A) has given a finding that the assessee company has produced the books of accounts during the course of remand proceedings but the ld. AO has not verified the contents of the books of account and no specific defects had been pointed out by the AO in his remand report on all the additions. It is also noted that adhoc additions have been made by the Assessing officer (except for an amount of ₹ 4,02,646/- in respect of unsecured loans) which cannot be sustained in the eye of law. In light of the same, we hereby direct the deletion of all these additions made by the AO in respect of additional issues no. 2 to 4 as discussed above. In respect of addition of ₹ 4,02,646 which represent increase in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also taken us to the order of CIT(A) which reads as under:- 4.3 I have considered the facts of the case, submission made by AR and cases relied upon, it is found that first notice u/s. 148 was issued on 16.03.2005 after recording the reasons by the AO which was sent through registered AD but the same was came back undelivered. Then again notice u/s. 148 dated 29.03.2005 was issued and served through affixure on 30.03.2005 at the business premises of the appellant after recording reasons. The AO had information that the assessee got DD from M/S Subh In Fin Caps Ltd during the year. Therefore, she had reason to believe that the appellant has conccaled the income and furnished inaccurate particulars. Whatever case laws mentioned by the ld. AR are not for rreopening the assessment but are for whether any addition can be made on account of bogus share capital. Therefore, reopening the case is justified as there was no scrutiny assessment in this case and also no information of the share capital received through DD were available on record. The Hon'ble SC in case of Central Provinces Managanese Ore Co. Ltd vs. ITO [1991] 191 ITR 662 has held as under: For initiation of acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld in case of CIT v/s Shree Ram Singh 306 ITR 343 held: the tribunal was justified in holding, that the proceedings for reassessment under sec. 148/147 were initiated by the AO, on non- existing facts, because ultimately the assessee has been able to explain the income, which was believed to have been escaped assessment was explainable. It is further held, that the AO was justified initiating the proceeding u/s 147/148, but then, once he came to the conclusion that the income with respect to which he had entertained reason to believe to have escaped assessment was found to have been explained, his jurisdiction came to a stop at that and he did not continued to possess. Jurisdiction to put to tax, any other income, which subsequently came to his notice, in the course of proceedings, which were found by him to have escaped assessment. 5.3 I have considered the facts of case and submission made by ld. AR and I found that assessee has produced books of account on 07.03.2011 at the time of remand report not at the time of original assessment. The appellant replied vide letter dated 23.02.2006 to the AO that the premises of the company is locked/sealed by PNB/RFC/RIICO and IDBI d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ganesh Benzo Plast Ltd. The both the parties are not figuring in the list given by the DDIT (Inv.), Varanashi. The ld. AO also referred the case on CIT Vs. Ram Kishan Leela 295 ITR 525 (2006) (Raj.) and argued that once the reassessment are pending, the entire assessment is open and is not confined the scope of reasons recorded by the AO before assuming the jurisdiction whereas the appellant relied upon CIT vs. Sri Ram Singh 306 ITR 343 (2008) (Raj.) where Hon'ble Raj. HC has held that when the proceedings for re- assessment u/s. 147 were initiated by the AO and found non existing facts in hearing because ultimately the assessee has been able to explain the income, which was believed to have been escaped assessment was explainable, is jurisdiction comes to stop at the point of explanation of reason to believe. The jurisdiction of the AO did not continue to possess to tax any other income which subsequently comes to the notice of the AO. The case law referred by the AO are for two notices u/s. 148 were issued and Hon'ble court has held that second notice u/s 148 is invalid. The issue in case referred by the AO are totally diferent. Therefore, the addition made by the AO is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision is- (a) to explain the meaning and intendment of the Act itself, (b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve. (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful. (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. 31. As already noted, except for the Punjab and Haryana High Court in case of Majinder Singh Kang Vs. Commissioner of Income-Tax and anr (supra) all courts have uniformly taken a view that Explanation 3 to Section 147 of the Act does not change the situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecomputation, the Assessing Officer has to serve on the assessee a notice under Sub-section (1) of Section 148, (iii) The Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) Though the notice under Section 148(2) docs not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course, of the proceedings under the section. 19. The second line of precedent is reflected in a judgment of the Rajasthan High Court in Commissioner of Income Tax v. Shri Ram Singh (2008) 306 ITR 343 (Raj). The Rajasthan High Court construed the words used by Parliament in Section 147 particularly the words that the Assessing Officer 'may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, insofar as the second line of authority is concerned, which is reflected in the judgment of the Rajasthan High Court in Shri Ram Singh (supra), Explanation 3 as inserted by Parliament would not take away the basis of that decision. The view which was taken by the Rajasthan High Court was also taken in another judgment of the Punjab Haryana High Court in Commissioner of Income Tax v. Atlas cycle Industries MANU/PH/0278/1989 : (1989) 180 ITR 319. The decision in Atlas Cycle Industries held that the Assessing Officer did not have jurisdiction to proceed with the reassessment, once he found that the two grounds mentioned in the notice under Section 148 were incorrect or non existent. The decisions of the Punjab Haryana High Court in Atlas Cycle Industries (supra) and of the Rajasthan High Court in Shri Ram Singh (supra) would not be affected by the amendment brought in by the insertion of Explanation 3 to Section 147.- 21. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment of reassessment on grounds other than those on the basis of Which a notice was issued under Section 148 setting out the reasons for the bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income Tax (2014) 109 DTR 1 (Del), it has been held as under:- As regards the deduction claimed under Section 36(1)(viia) of the said Act to the tune of ₹ 126,81,944/-, the learned counsel for the petitioner has correctly pointed out that the same has been accepted by the Assessing Officer insofar as the assessment year 2005-06 is concerned. This would be evident from paragraph 3.3.2 of the reassessment order which has been extracted in paragraph 4 above. The disallowance of ₹ 453,96,44,854/- in the reassessment order does not pertain to assessment year 2005-06 but to an earlier year which was not the subject-matter of reassessment. This is clearly impermissible in law. This is apart from the fact that reassessment for an earlier year was in any event time-barred and would also amount to a 'change of opinion which is also not permitted in law as is evident from the decision of the Supreme Court in Kelvinator of India Ltd. (supra). 9.6 In Ranbaxy Laboratories Ltd. vs. CIT (2011) 336 ITR 136, it has been held as under:- 18. We are in complete agreement with the reasoning of the Division Bench of Bombay High Court in the case of Jaganmohan Rao (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under Section 147. 29. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under Section 147, the Assessing Officer were to come to conclusion, that any income chargeable to tax, which, according to his reason to believe , had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under Section 147. 30. It is a different story that for such other income, the Assessing Officer may have recourse to such other remedies, as may be available to him under law, but then, once it is found, that the income, regarding which he had reason to believe to have escaped assessment, is not found to have escaped assessment, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. But in that case, in the view of the High Court the amendment made by amending statue of 1962 which came into force after the reference was made by the Income-tax Tribunal had no retrospective operation, and the question referred by the Tribunal had to be answered by the High Court in the light of the relevant law applicable at the date of the transaction. The observation relied upon has to be read in the context of the finding of the High Court as to the character of the amending legislation. The observation therefore does not assist the contention that even in cases where the relevant statue has been amended with retroactive operation, so as to apply to the transaction which forms the subject-matter of the reference, and the High Court or this Court is bound in recording its opinion on the question referred to ignore the amended law. If what counsel contends is true, the answer given by the High Court or by this Court would have no value whatever in cases where by retroactive amendment of the law, the old law has been superseded and is substituted by a new statutory provision. Undoubtedly the Tribunal called upon to decide a taxing dispute must apply the relevant law applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1889. However, it will not be out of place to mention here that the notice was issued on 11.3.2003. This explanation was not there at that time. In that view of the matter, we are not giving any comment whether the impugned jurisdictional judgment will apply or not and when the notice was issued, this explanation was not there. 9.11 In M/s. Oblum Electrical Industries Pvt. Ltd., Hyderabad vs. Collector of Customs, Bombay, it has been held as under:- 12. It is true that in Clause (viii) of the Explanation to the Notification expression 'materials' has been defined to mean goods which are raw materials, components, intermediate products or consumables used in the manufacture of resultant products and their packings or mandatory spares to be exported in the resultant products. But the said definition in the Explanation has to be read in consonance with the main part of the notification. It is a well settled principle of statutory construction that the Explanation must be read so as to harmonise with and clear up any ambiguity in the main provision. (See : Bihta Cooperative Development Cane Marketing Union Ltd. v. Bank of Bihar MANU/SC/0260/1966 : [1967]1SCR848 . The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words and also cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words assess or reassess such income and also any other income chargeable to tax which has escaped assessment , the words and also cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word or . The Legislature did not rest content by merely using the word and . The words and , as well as also have been used together and in conjunction. The Shorter Oxford Dictionary defines the expression also to mean 'further, in addition, besides, too'. The word has been tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings' under section 147. The Rajasthan High Court held as follows : . . . if is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had reason to believe to be so, then, only in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his reason to believe , had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries to the beneficiaries can be provided. This fact also proved from the letters sent by the AO to those companies received back from the postal authorities with the remarks no such firm exists/ left . The assessee company had also failed produce the copies of account of those companies and the confirmations obtained from those companies. The assessee company has also failed to produce books of account to prove that no cash entries were provided or cash payment was made by the assessee company to those companies against the DDs received. The facts of this case are different to the cases referred in which it was held if it is assessee that subscribed to increase capital wee not genuine under no circulation covered the amount of Share Capital be regarded as undisclosed income of the assessee company. In its recent decision Hon ble Delhi High Court in the case of M/s Vijay Power Generator Ltd. Vs. Director of Income-tax and Another 333 ITR 119 have held that where identity and creditworthiness of share applicants is not proved, addition u/s 68 of the Income-tax Act is justified. While delivering this judgment, the Hon ble High Court have considered the decisions rendered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of the company for F.Y. 98-99 in support of share application money received of ₹ 3,00,000/- on 01.10.1998 vide DD/Ch No. 066344 from .... and ₹ 13,60,000/- on 16.12.1998 vide DD/Ch No. 197968 from M/s Moon Holding Ltd, Delhi. 2. Details of members in respect of shares application money received and shares allotted/transferred in F.Y. 98-99 in support of share capital of ₹ 1.75 crore introduced during the year from:- Moon Holding ₹ 13,60,000/- Ganesh Benzo Plast ₹ 1,20,00,000/- Thaper Ispat ₹ 5,00,000/- Jindal Oil ₹ 30,00,000/- Swift Finvest ₹ 1,40,000/- Shambuka Agro ₹ 2,00,000/- Sub Fin Cap ₹ 3,00,000/- Total ₹ 1,75,00,000/- (A chart prepared on that basis is enclosed for kind perusal) 3. Confirmation of members obtained in respect of shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm Amount Match with the share Money 22-01-99 By H.V.CLG Industries dt. 22-1.99 TR ₹ 20,00,000/- M/s. Ganesh Benji Plast 08-02-99 By TR AGT. Clearing dt. 06-2-99 ₹ 10,00,000/- ----------- do--------- 10-03-99 By Tr BDP 10-03-99 ₹ 2,99,655- M/s. Shubh In Fin Caps Ltd. In absence of the details of all bank account maintained by the assessee the genuineness of entire transactions in respect of share application money received is not ascertainable. Therefore, this ground of appeal taken by the assessee company is also liable to be rejected. All in all by not producing the alleged share applicants for verification in person, by not providing their correct present addresses, their copies of books of account bank statements of all the alleged share applicants, the assessee has virtually closed the doors of meaningful further investigation in this case . 23. We have given a careful c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e involved in any tangible business activity or were they merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. These are the facts which the assessee has to submit for examination by the AO but not done in the instant case. The creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of demand drafts when circumstances requires that there should be some more evidence of positive nature to show that the subscribers have made genuine investment. In the present case, the Assessing Officer clearly harbours doubts about the legitimacy of share subscription in the books of the assessee company and has gone about issuing letters seeking confirmation and calling for the personal attendance of the directors of the investee companies. Whilst it does appear that at the time of assessment proceedings, the assessee s premises were locked due to some Court proceedings and the assessee couldn t submit appropriate documentation, however the assessee was given sufficient opportunity during the appellate proceedings by the ld CIT(A) and by the AO during the remand proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as assessee s own undisclosed money invested in the shape of paid up capital and an addition of ₹ 1.75 Crore u/s 69 (treating the said amount as unexplained investment) was made and added to the total income of the assessee company. The ld CIT(A) following the same reasoning and finding as adopted in case of share subscription of ₹ 16.6 lakhs has allowed the relief to the assessee company, the same have been discussed in detail in para 19 above and not reproduced again for sake of brevity. Given the similarity of fact pattern, our findings and directions as referred to in detail in para 23 will apply mutatis-mutandi to this addition made by the Assessing officer as well. We accordingly confirm the finding of the Assessing officer as the assessee failed to discharge the initial onus placed on it and the addition made in this regard is confirmed. 27. Regarding the second issue, the facts as noted from the assessment records are that the assessee Company was engaged in manufacturing of Vanaspati Ghee. During the year, the assessee has shown sales of ₹ 44,99,14,114/- against immediate proceeding years sales of ₹ 21,42,56,780/-. Though the sales of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan recovery proceedings against the appellant from the various banks who had sealed the premises of the appellant. The addition made by the ld. AO on the ground of none production of books which has been produced at the time of remand report but the ld. AO has not verified the contents of the books of account and no specific defects had been pointed out by the AO in his remand report on all the additions. As discussed above the Ld. AO does not have any jurisdiction on such issues comes to her notice subsequently in the course of proceedings u/s 147 when reasons to believe explained by the assessee. The appellant had submitted audit report duly certified by CA which is also admissible evidence for claiming of deduction has held by the Hon ble Delhi High Court in case of Additional Commissioner Vs Jai Engg. Works Ltd. 113 ITR 389 ( 1978). Therefore, addition made by the ld. AO for ₹ 10 lac, ₹ 4,02,646 and ₹ 29,99,610/- and ₹ 1,35,046/- is deleted. The assessee get relief accordingly . 34. In ITA No. 10/JP/12, both parties agreed that the facts are parimateria and similar grounds of appeal have been raised by the Revenue as in ITA No. 9/JP/12 decided su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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