TMI Blog2019 (5) TMI 1903X X X X Extracts X X X X X X X X Extracts X X X X ..... tangible material in the said reasons recorded. The basis of belief is self explanatory from the reasons recorded, where the AO has mentioned that in view of the additional information/documents received from the office of Addl. Commissioner of Income Tax Range-5, Firozabad, have reason to belief that the assessee has willfully and knowing concealed its particulars of income to avoid tax and that income chargeable to tax has escaped assessment . This itself goes to show that the AO was mechanically persuaded by the report of Addl. CIT, Range-5, Firozabad and hence, such a reassessment, in our considered opinion, cannot be sustained being void in law In the instant case, the reassessment proceedings were initiated by the Assessing Officer for making fishing enquiries, which is not permissible at all by resorting to the proceedings u/s. 147 of the Act. In Bir Bahadur Singh Sijwali [ 2015 (2) TMI 60 - ITAT DELHI] it was held that Reassessment proceedings cannot be resorted only to examine facts of the case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that income has escaped assessment. In rendered in the cases cited above, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity, to reopen the case of the assessee. The reasons recorded for reopening the case read as under : Information/documents along with relevant details has been received from the office of Addl. Commissioner of Income Tax, Range- 5, Firozabad vide letter F.No. AIR-2008-09/Addl. CIT-R-5-Firozabad/2014-15 dated 18.11.2014 states that the above assessee, M/s Seven Heaven Construction Pvt Ltd has made an investment of ₹ 3,19,00,000/-in buying a Property at Aligarh. As per information received Sh. Digvendra Pratap Singh of Distt. Firozabad in the capacity of power of attorney holder on behalf of M/S Tiger Hardware Tools Limited, Marris Road, Aligarh and M./s Ansal Properties Industries Ltd, 115, Ansal Bhawan-16, Kasturba Gandhi Marg, New Delhi transferred a property to M/s Seven Heaven Construction PVT. Ltd., New Delhi. The ITO, Ward-5(1), Firozabad had made extensive enquiries which reveals that a property measuring 9551 Sq. Yards situated at Centre Point, Aligarh was transferred on 14.07.2008, 24.07.2008 26.07.2008 in three parts each covering an area of 3779 Sq. Yards, 3309 Sq. Yards 2463 Sq. Yards for consideration of ₹ 1,00,00,000/-; 50,00,000/- and 1,69,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements of the investor companies, the Assessing Officer observed that the cash deposit preceded the issuance of cheques and that since the authorized capital of the assessee company was only ₹ 10 Lakhs, the receipt of share application money worth ₹ 3.40 crores becomes doubtful without increasing the authorized capital. On being asked for explanation, the assessee explained that the payments were received through banking channel, some of the share applicants were income-tax assessee and some of them were capable agriculturists, the evidences of which were filed before the authorities below. However, the Assessing Officer after discarding the reply of the assessee and after relying upon various case laws, considered the impugned share transactions as sham and treating the sum of ₹ 3,39,38,525/- as unexplained credits u/s. 68 of the Act, made addition thereof to the total income of the assessee. 4. The assessee carried the matter in appeal before the ld. CIT(A), where he filed detailed written submissions and relied on various judicial pronouncements. The impugned assessment order was challenged both on legal ground regarding validity of reopening proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash in their respective bank accounts. Requisite investigation under the law is required because the company was incorporated on 23.06.2006 and in the very next year it purchase a land measuring 9551 Sq. Yards at prime location in Aligarh and managed funds of ₹ 3,78,93,361/-. It is also worthwhile to mention that the case seems to belong to F.Y. 2008-09 relevant A.Y. 2009-10 however, the physical possession of the property under consideration and also the consideration thereof passed on during the F.Y. 2007-08 relevant to A. Y. 2008- 09. The assessing officer has received information from Addl. Commissioner of Income Tax, Range - 5, Firozabad and makes belief that the amount paid as share application money is the undisclosed income of the appellant when the appellant has received from 34 application to whom shares are subsequently allotted. Therefore the assessing officer has created this belief that too a false by relying on the advise of Addl. Commissioner of Income Tax, Range - 5, Firozabad and not applying his own mind to the issue involved. The non application of mind of the assessing officer is also apparent from the fact that a total of 3,19,00,000/- is the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of notice. Then the amount escaped as alleged would have been less by 74,00,000/= and obviously this could not be the reason at all. This clearly indicates that there is no application of mind from the Id. Assessing officer to the reasons recorded when at this stage further investigation was required. Further If as a result of investigation or enquiry the reasons gets changed or focus gets shifted to some other person as was obvious in the present case, had proper enquiries been conducted before recording of the reasons then how the reason recorded for reopening of assessment of the assessee is justified when after proper investigation and enquiries the assessing officer would get compelled to issue notices in favour of the share applicants and not in favour of the assessee. The reason therefore is nothing but a reason recorded in hurry without enquires before recording reasons and that too when the matter was getting time bared so the Id. Assessing officer had no alternative but to issue notice under section 148 of the Income Tax Act 1961 in favour of the assessee in haste which is bad in law as the reason recoded without proper enquiries and application of mind and in a time bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of assessment. So the satisfaction accorded to the reasons recorded which are bad is also bad in law and not within the meaning of section 151 of the Income Tax Act 1961. Further if as per reasons of further investigation was required how the case is fit for issuance of provisions of section 147/148 of the Income Tax Act 1961. The Ld. Jt.CIT should have to ask the A.O to see the matter investigated properly then submit for approval. Had the matter been properly investigated then he would not recorded reason like this at least the total amount could have been less by 74,00,000/- secondly matter could have got shifted to the applicants instead of the appellant. The reason recorded is bad and agreeing to the bad reasons and according approval to the bad reasons is also bad in law and not within section 151 of the Income Tax Act 1961. The order passed by the Ld. A.O and confirmed by Ld. CIT(A) deserved to be quashed. I may rely upon following judicial pronouncements relevant extracts are stated as under:- In Chugamal Rajpal Vs. S.P Challia Ors (SC), the Honorable Supreme Court has held. Under section 148 and 151(2) the Income Tax Officer must record his reasons f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings cannot be resorted to only to examine facts of a case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that income has escaped assessment. The reason recorded is therefore bad and agreeing to the bad reasons and according approval to the bad reasons is also bad in law and not within section 151 of the Income Tax Act 1961. Therefore the order passed by the Ld. A.O and confirmed by Ld. CIT(A) deserved to be quashed. Ground No 2 During the course of assessment the assessee has submitted all the information against queries dated 11/03/2016 and 18/03/2016 which are placed on page No 13 to Page No 25 of the paper book. All the requisite information has been submitted:- 1. Identity details of the applicants 2. PAN card 3. Adgar Cards 4. Bank statements 5. Confirmations 6. Khatunies 7. Proof of sale of agricultural produce etc. 8. Loan Account Statements and placed on page No 36 to 193 of the Paper book. The appellant has discharged his duty by providing all the information required and even has requested the A.O for issuance of notices 131 or 133(6) of the Income Tax Act, given on reply p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. has been specifically requested to issue 131 or 133(6) of the Income Tax Act 1961 and even the appellant could bear their cost of travel and food. 5. The companies Hema Trading and Eternity Multi Trade Pvt. Ltd. at Mumbai were found to be non existent at the address given and the premises was owned by some other person. No such instance is found in the present case. 6. The companies of Kolkata did not appear before A.O. nor did they produce their bank statements to substantiate their source. The A.O has been specifically requested for any other information, explanation etc. and has been requested to issue 131 or 133(6). The appellant will bear the costs. 7. The Two companies at Gowhati, Ispat Sheet Ltd and Novelty Traders Ltd were found Non existent. No such issue is reported here. The assessee has requested A.O for any further information needed And requested for issuance of 133(6) or 131 and the assessee will bear the costs. 8. Further none of the so called investor companies established source of funds from which the high share premium wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n required as per provisions of section 68 of the Income Tax and further requested the A.O for issuance of Notices U\S 133(6) of the Income Tax Act 1961 or 131 of the Income Tax Act 1961 and without rebutting anything which goes against the appellant still the A.O treated the amount as unexplained and taxed U\s 68 Of the Income Tax Act 1961. There is no any such specific finding which could state that any of the applicant is non existent or any specific reason where the appellant has not discharged its responsibility under law to prove credit worthiness of the creditors still the transaction has been treated under provisions of section 68 of the Income Tax Act 1961. However passing of orders by both Ld. CIT(A) and the Ld. A.O in a mechanical and hypothetical manner as nothing has been rebut further amount of ₹ 74,00,000/= invested by Mr. Sudesh Kumar has also been taxed when his loan account statements are submitted and placed at page No 38,39,40 and 41 of the paperbook. In both the orders below there is nothing mention of this transaction . This clearly proves that in spite of the requesting the A.O for issuance of 131 and 133(6), and after submission of all the information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of depositors only before their withdrawal through cheques in favour of assessee, addition was justified. 4. The authorized capital of assessee is only ₹ 10 lakhs where as assessee has accepted share application money of ₹ 3.40 or without increasing its authorized capital, which shows that assessee never intended to issue any shares against this share application money. Hence, genuineness of the transactions is not proved. 5. Many of the share applicants were agriculturist and not filing Income Tax Returns 6. The Ld CIT(A) has given remarks on pages 16 to 22 of his order with regard to each share applicant as to how their credit worthiness was not proved. 7. As held by Hon ble Supreme Court in the case of PCIT Vs NRA Iron Steel (P.) Ltd. 412 ITR 161 (SC), there was failure of assessee to establish credit worthiness of investor companies In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to addition made u/s 68 of I.T.Act: 1. PCIT Vs NRA Iron Steel (P.) Ltd. T20191 103 taxmann.com 48 (SC)/r20191 262 Taxman 74 (SC)/r20191 412 ITR 161 (SCI (Copy Enclosed) where Hon ble Supreme Court reverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above, we are of the view that the Assessee has not discharged the onus satisfactorily and the additions made by the Assessing Officer were justified and sustainable. 5. CIT Vs Navodava Castle Pvt Ltd T20141 367 ITR 306 (Del) (Copy Enclosed) where Hon ble Delhi High Court accepted that since the assessee was unable to produce the directors and the principal officers of the six shareholder companies and also that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer had observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 20. Now, when we 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 Incometax (Appeals) and upheld the deletion of the addition. In fact, they substantially relied upon and quoted the decision of its co-ordinate Bench in the case of MAF Academy P. Ltd., a decision which has been overturned by the Delhi High Court, vide its judgment in CIT v. MAF Academy P. Ltd. [2014] 206 DLT 277 ; [2014] 361 ITR 258 (Delhi)). In the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under Section 68. With respect, it appears to us that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case. 13. We, therefore, answer the substantial question of law framed by us in the negative, in favour of the revenue and against the assessee. The appeal of the revenue is allowed with no order as to costs. 9 CIT Vs Nova Promoters Finlease (P) Ltd (18 taxmann.com 217, 206 Taxman 207. 342 ITR 169. 252 CTR 187) (Copy Enclosed) where Hon ble Delhi High Court held that amount received by assessee from accommodation entry providers in garb of share application money, was to be added to its taxable income under section 68. It Was held as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. It is the persons behind the company who take the decisions, controls and manage them. 11 CIT Vs Empire Builtech (P.) Ltd (366 ITR 110) (Copy Enclosed) where Hon ble Delhi High Court held that u/s 68 it is not sufficient for assessee to merely disclose address and identities of shareholders; it has to show genuineness of such individuals or entities. 12.CIT Vs Focus Exports (P.) Ltd (51 taxmann.com 46 (Delhi)/r2015l 228 Taxman 88) (Copy Enclosed) where Hon ble Delhi High Court held that where in respect of share application money, assessee failed to provide complete address and PAN of certain share applicants whereas in case of some of share applicants, there were transactions of deposits and immediate withdrawals of money from bank, impugned addition made under section 68 was to be confirmed 10 PCIT Vs Bikram Singh r20171 85 taxmann.com 104 (Delhi)/r20171 250 Taxman 273 (Delhi)/r2017l 399 ITR 407 (Delhi) (Copy Enclosed) where Hon ble Delhi High Court held that even if a transaction of loan is made through cheque, it cannot be presumed to be genuine in the absence of any agreement, security and interest payment. Mere submission of PAN Card of creditor does not establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee while making addition of the entire amount of share application money received, whereas the information was received with respect to investment in properties. This fact itself goes to substantiate the non-application of mind for reopening the case. 10. We have also gone through the reasons recorded, which eloquently speak that the formation of belief has been made only and only on the basis of information received without making any enquiry or pointing out any tangible material in the said reasons recorded. The basis of belief is self explanatory from the reasons recorded, where the Assessing Officer has mentioned that in view of the additional information/documents received from the office of Addl. Commissioner of Income Tax Range-5, Firozabad, have reason to belief that the assessee has willfully and knowing concealed its particulars of income to avoid tax and that income of ₹ 3,78,93,361/- chargeable to tax has escaped assessment . This itself goes to show that the AO was mechanically persuaded by the report of Addl. CIT, Range-5, Firozabad and hence, such a reassessment, in our considered opinion, cannot be sustained being void in law, as also held in various o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: The information so received has been gone through. One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver) . The AO adds that the said accommodation was a known entry operator the source being the report of the Investigation Wing . 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Four years from the end of the relevant AY, it was not necessary For the AO to show that there was any Failure to disclose fully or truly all material facts necessary for the assessment. 26. The first part of Section 147(1) of the Act requires the AO to have reasons to believe that any income chargeable to tax has escaped assessment It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. 27. Each case obviously turns on its own facts and no two cases are identical. However, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment. 13. It also appears that in the instant case, the reassessment proceedings were initiated by the Assessing Officer for making fishing enquiries, which is not permissible at all by resorting to the proceedings u/s. 147 of the Act. In Bir Bahadur Singh Sijwali vs. ITO (2015) 68 SOT 197 (Delhi), it was held that Reassessment proceedings cannot be resorted only to examine facts of the case, no matter how desirable that be, unless there is a reason to believe, rather than suspect, that income has escaped assessment. 14. Thus, in view of various decisions, rendered in the cases cited above, in the light of reasons recorded in the instant case, we are of the considered opinion that the ld. Authorities below were not justified to sustain the validity of reassessment proceedings being invalid. The decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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