TMI Blog2017 (3) TMI 1859X X X X Extracts X X X X X X X X Extracts X X X X ..... credible and verifiable. 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. AO 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, genuine doubts as to the identity, creditworthiness and genuineness of transaction continue to persist in the minds of the Assessing officer. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued loan and advances. 4. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the disallowance out of expenses of ₹ 1,35,046/-. 5. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the unexplained cash credit u/s 68 of the I.T. Act of ₹ 4,02,646/- . 2. Brief facts of the case are that the assessee filed its return of income declaring loss of ₹ 56,82,440/- and the same was processed u/s 143(1) of the I.T. Act, 1961. Subsequently, the A.O received information from DIT Investigation, Varanasi that the assessee s company has received bogus entries of ₹ 13,60,000/- on 16.12.1998 from M/s Moon Holding Credit Ltd., and ₹ 3,00,000/- on 15.03.1999 from Subh in Fin Caps Ltd., New Delhi respectively. On the basis of said information, the assessment proceedings were reopened u/s 148 of the Act and notice was issued to the assessee on 19.03.2005. The reasons for reopening the assessment proceedings were shared with the assessee and after disposing off the assessee s objections, the reassessment order was passed u/s 143(3) read with section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 3.- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. 6. The Memorandum explaining the Finance Bill (No. 2) 2009 explaining the legislative intent of above explanation provides as under: The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for re-opening the assessment. Further, he may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., the AO having entertained a reason to believe , obviously on valid grounds, he acquires the jurisdiction to assess or reassess such income , which obviously means, the income, which was chargeable to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147, the AO 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 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. 9. We now refer to the decision of the Hon ble Bombay High Court in case of CIT vs Jet Airways (2010) 195 Taxman 117 (Bombay) which has considered both the decision of Hon ble Rajasthan High Court in case of Shri Ram Singh's case (Supra) and also the effect of insertion of explanation 3 to section 147 and whether the said decision of Hon ble Rajasthan High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently in the course of the proceedings under section 147. [Para 5] The effect of the Explanation 3 which was inserted by the Finance (No. 2) Act, 2009 is that, even though the notice issued under section 148 containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, yet the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. The reasons for the insertion of the Explanation 3 are to be found in the memorandum explaining the provisions of the Finance (No. 2) Bill, 2009. [Para 6] The memorandum states that some of the Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which reasons have been recorded for reopening the assessment, and that it is not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by the Parliament as being contrary to the legislative intent. Hence, the Explanation 3 came to be inserted to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cance that the 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. Evidently, therefore, what the Parliament intends by use of the words 'and also' is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2), must assess or reassess: (i) 'such income'; and also (ii) 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. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language used by the Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepts the contention of the assessee and holds that the income for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and if he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. [Para 16] Section 147(1), as it stands, postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income 'and also' any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment . The words 'and also' are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by the Parliament. This view has been supported by the background which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 of the Act. 13. In the present case, the notice u/s 148 was issued to the assessee in respect of two bogus entries of ₹ 13,60,000/- received on 16.12.1998 from M/s Moon Holding Credit Ltd., and ₹ 3,00,000/- received on 15.03.1999 from Subh in Fin Caps Ltd., New Delhi respectively as per information received from DDI, Varanasi. Thereafter, the reassessment proceedings were completed wherein the AO besides ₹ 16.60 lacs in respect of which the reasons were issued under 148, also brought to tax unexplained subscription to share capital amounting to ₹ 158.40 lacs, thus adding the whole of subscribed though unexplained share capital of ₹ 175 lacs, trading addition of ₹ 10 lacs, unexplained cash credit of ₹ 402,646, accrued interest on loans and advances of ₹ 29,99,610, disallowance of expenses of ₹ 1,35,046 and disallowance of depreciation of ₹ 141,950. 14. It would therefore be relevant to firstly examine the issue in respect of two bogus entries of ₹ 13,60,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act by the AO cannot be viewed as a breach of the AO s jurisdiction to assess such income and the assessee s right to contest such addition. In any case, the assessee has not taken the said ground or the plea either before the ld CIT(A) or before us. We accordingly proceed with examining the subject matter accepting the AO s jurisdiction to assess such income under the provisions of section 68 of the Act. 16. The assessee company carried the matter in appeal before the ld CIT(A) who allowed the relief to the assessee company and against such findings, the Revenue is in appeal before us. We now refer to the relevant finding of the Ld. CIT(A) appeal which are contained in para 5.3 of his order which are reproduced as under:- 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 23.002.2006 to the AO that the premises of the company is locked/sealed by PNB/RFC/RIICO and IDBI due to be company proceedings. It also clear from the service of notice u/s 148 for AY 2000-01 that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 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 to the scope of reasons recorded by the AO before assuming the jurisdiction. Whereas the ld. AR for the appellant relied upon CIT Vs. Sri Ram Singh 306 ITR 343 (2008) (Raj.). The AOs case laws referred was in case of two 148 notices were issued for same assessment year by the AO and the issue was that second 148 notices is invalid but in case of referred by the AR issue was when grounds of reopening was not in existence by explaining the reasons by the appellant, the AO has no jurisdiction on any such issue come to the notice subsequently in the course of proceedings u/s 147 of IT Act. Therefore, addition of ₹ 1.75 Crore made by the ld. AR is deleted. The assessee gets relief accordingly. 17. Recently, this Bench in case of M/s Bright Metals Pvt. Ltd. (ITA No. 702/JP/14) vide our dated 24.02.2017 has extensively examined the legal proposition in the context of section 68 of the Act taking into consideration the decision of Hon ble Supreme Court in case of Navodaya Castle (P) Ltd (Supra) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go to the order of the tribunal in the present case, we notice that the tribunal has merely reproduced the order of the Commissioner of Income Tax (Appeals) and upheld the deletion of the addition. In fact, they substantially relied upon and quoted the decision of its coordinate bench in the case of MAF Academy (P.) Ltd., (supra) a decision which has been overturned by the Delhi High Court vide its judgment in MAF Academy (P.) Ltd (supra). In the impugned order it is accepted that the assessee was unable to produce directors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 21. In view of the aforesaid discussion, we feel that the matter requires an order of remit to the tribunal for fresh adjudication keeping in view the aforesaid case law. The question of law is, therefore, answered in favour of the Revenue and against the respondent-assessee, but with an order of remit to the tribunal to decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors or shareholders, directly or indirectly, burden of proof is on higher pedestal as compared to public limited companies where the large scale subscription are offered through public issue and shares are subscribed by general public. In case of private limited companies, the Courts have laid down a strict approach in terms of satisfying such burden of proof. 4.6 In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties are related or known to each other; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation and due diligence to protect the investment and the pay back on such investment, whether the investor professes and was an angel investor, the object and purpose (profit motive) behind the investment and whether any dividend declared and distributed in the past or not. Whether share subscribers have their own profit making apparatus and were 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. Creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of a cheque or by furnishing a copy of statement of bank account of share subscriber, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment. 4.10 The entire evidence available on record has to be considered and a reasonable approach has to be adopted. The final conclusion must be pragmatic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raft received from them and distinct no. of shares allotted were submitted before the Assessing officer. The Assessing officer noted that inspite of repeated opportunities provided to the assessee company, the latter has failed to submit books of accounts, share application register, share allotment register, counterfoils of the share certificates and confirmation from these companies. Further, the AO noted that the letter issued by his office to these companies to verify the subject transactions were returned by postal authorities stating in one case that the no such firm exists and in the another case left . The AO accordingly came to a conclusion that the assessee has failed to establish the fact that the share were allotted to these companies at first place. 19. During the course of appellate proceedings before the ld CIT(A), the latter has stated that the appellant has submitted the books of accounts on 7.3.2011 at the time of remand report and not at the time of original assessment as the premises of the appellant were locked/sealed by PNB/RFC/RIICO and IDBI due to some proceedings. Further, the ld CIT(A) has stated that the appellant has submitted the details of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 Lacs on 15.03.99 from M/s Subh in Fin Caps Ltd. ( M/s Vatsa Healthcare Ltd)., please explain the nature of transaction with said concerns with documentary evidences. (vi) Present address of M/s Moon Holding Creditors Ltd and M/s Subhin Fin Caps Ltd (M/s Vatsa Healthcare Ltd.) vii) Any other documents/papers in respect of issues raised in appeal before the CIT(A) . 21. The reply of the assessee dated 07.03.2011 in response to the AO s letter dated 23.02.2011 enclosing the following documents: 1. Copy of Bank Account maintain by the company are enclosed 2. Share allotment register confirmation of parties are enclosed 3. Cash book bank book ledger are produced for your verification 4. Confirmation of Moon Holiday Assets limited Subh In fin caps limited are enclosed share application money a/c is enclosed in which both companies amount has been shown 5. D.D. of ₹ 13.60 Lacs 3 Lacs has been received due to share application money from both companies 6. As per record of our company the address given by the company are enclosed (a) Moon Holiday Asset Limited, Rui Mandi Sardar Bazar Delhi (b) Subhin fine Cap Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and iii) the genuineness of the transaction. Only when these three ingredients are established prima-facie, it is only then the department is required to undertake further exercise. Hence, the contention of the assessee that issue of notice is bad in law merely on the basis of saying that the company allotted shares to those parties, is not acceptable and the ground of appeal taken by the assessee in this regard deserves to be rejected. I have considered the contention of the assessee. It is submitted that in absence of the books of accounts for the year produce even copies of the accounts of such companies maintained with the assessee company, no justification seems in the assessee s contention in writing to the companies at the addresses supplied their bank returned back with the remarks of the postal authorities that no such firm exists/left . The addresses supplied by the A.R. of the assessee are incomplete and different to the address given by their banks. Therefore, the ground of appeal taken by the assessee in this regard deserves to be rejected. Further, in compliance to your kind directions given to make further enquiries with regard to increase in share c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -----------------------------------), Swift Finvest (------------------------------------------------------------------- do ------------------------------------------------------), Sub Fin Cap (------------------------------------------------------------------- do ------------------------------------------------------), But, they have shown their inability to furnish/produce following documents, books, namely as :- (i) Duplicate copy/counterfoils of share allotted, (ii) Copies of bank statement, (iii) Bank book maintained by the company. Therefore, in want of these vital information/documents furnished/produced in the matter, the genuineness/ correctness of the transactions of share application money received to introduce the share capital is not verifiable. However, on the basis of part information/documents furnished with the return submission dated 07-03-2011, a chart of the share allotment made during the year has been prepared which is annexed for your kind perusal. Going through this chart reveals that the share application money were received by the company on various date from Dec, 98 to March 99 of the year from above parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. We have given a careful consideration to the above factual matrix and are of the view that the assessee company, being a private limited company which has received the 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 condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the remand proceedings, however, genuine doubts as to the identity, creditworthiness and genuineness of transaction continue to persist in the minds of the Assessing 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. 24. In the result, addition of ₹ 16.6 lacs which forms the subject matter of issuance of notice u/s 148 of the Act is hereby confirmed. This will accordingly vest the Assessing officer with the jurisdiction, to subject to tax, any other income chargeable to tax, which the AO has found to have escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147 of the Act. 25. Each of these issues which AO has noticed subsequently during the course of reassessment proceedings and brought to tax is discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the sales of assessee were better than last year, in the absence of books of account, purchases/sales vouchers, bills/vouchers of expenses debited to trading profit loss account, the books results shown by assessee was not accepted and a lump-sum addition of ₹ 10.00 Lac was made and the same was added to assessee s total income. 28. Regarding the third issue, the facts as appearing from the assessment records are that as per schedule I of audited accounts, the assessee was provided loans and advances of ₹ 1,99,97,407/- during the year. Further, as per schedule H, there is an addition of ₹ 20,89,676/- in fixed deposit account during the year. The assessee has shown other income of ₹ 2,54,849/- which accrued/earned on FDR loans. In the absence of copy of interest account, the other income was not held verifiable. An addition of ₹ 29,99,610/- which was arrived at 15% of ₹ 1,99,97,407/- was made and added back to the total income of the assessee company. 29. Regarding the fourth issue, the facts as appearing from the assessment records are that the bills/vouchers of expenses have not been produced for verification before the AO. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amount of unsecured loans, the initial onus cast on the assessee has not been discharged and in light of the detailed discussions (supra) in context of share subscription, the same is hereby confirmed. 33. In light of above, ground no. 1 and 5 taken by Revenue are confirmed and ground no. 2, 3 4 are dismissed. ITA No. 10/JP/2012 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 supra. In view of the same, our observations and decision in ITA No. 9/JP/12 shall apply mutatismutandis to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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