TaxTMI 
TaxTMI 
2021 (9) TMI 1124
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....ke this. The assessee before us is a private limited company stated to be engaged in the business as 'investment company' in column 10, page 1, of the impugned assessment order. Its assessment under section 143(3) was completed on 27th February 2014 at Rs. 4,64,80,490. On 28th March 2018, however, the assessment was reopened on the basis of certain information flowing in from the investigation wing. The information so received indicated that the assessee has received monies, in the form of share application money, from an entity by the name of Rohini Vyapar Pvt Ltd but that money, though subjected to routing through several layers, ultimately has its source in of huge cash deposits in one of the branches of ICICI Bank. It was found that high value cash deposits, just below Rs. 10,00,000, were regularly deposited in 19 different bank accounts maintained with ICICI Bank. This is what was referred to as 'Layer 1' accounts, and the amount so deposited in cash, in ICIC Bank alone, aggregated to Rs. 241.50 crores. There were certain addition bank accounts also where cash was deposited regularly, and those amounts also ultimately found their way to these accounts. These ac....
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.... said ICICI Bank branch, ultimately found its way, though through at least four layering covering its tracks, to the assessee company. It was in this backdrop that the assessment was reopened and the assessee was asked to "prove identity, capacity and genuineness (of its share application money) even if confirmations are filed and the persons are assessed to tax". The Assessing Officer also issued notice under section 133(6) to Rohini Vyapar Pvt Ltd. The assessee was then asked as to why the amounts so received from Rohini Vyapar Pvt Ltd not be brought to tax, in his hands, under section 68 of the Act. In reply, the assessee made elaborate submissions, and submitted, inter alia, as follows: 1. As per the show cause notice dated 14.12.2018, your goodselves had stated share application money from Rohini Vyapar Private Limited to the tune of Rs. 3,78,29,600/- by issuing 378296 share at Rs. 100 per share (Pace Value Rs. 10 and Rs. 90 as Securities Premium) During the search action conducted at the investigation wing Kolkata it is found that several beneficiaries brought back unaccounted money in their books of accounts through bank account of inexistence entity and Shell Company. Whe....
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....goodselves has provided the details of cash deposited into various layers i.e. Layer- 1 account, Layer - II Account, Layer A 1 account, Layer A2 account, Layer A3 account, Layer B3 account and Layer B4 account containing details of 66 entitles/ companies i.e Name of Company, Bank Account No., Nane of bank, Cash Deposited and remarks. After providing the said details your goodselves has made general statement that all the intermediate companies are shell companies and concluded that money received by them is nothing but unexplained cash credit. Our good selves not demonstrated that how cash deposited by Layer-1 are related to the assessee company. 4. Further we would like to inform your goodselves that there was no failure on the part of the assessee to disclose fully and truly all material facts during the assessment proceedings. The assessee had candidly disclosed the name of all two companies, the share amount received from them and also the share premium amount received. The fact that the assessee was specifically served with a questionnaire seeking these details and that the same were submitted to the AO clearly points to the satisfaction of the AO during the course of assess....
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....second subscribing company i.e. Manbhawan Commercial Private Limited, not mentioned it in ether in the reason for reopening nor in the show cause notice from whom Rs. 435,00,000/ is received as share capital and share premium. In the show cause notice you have stated that your goodselves have analyze the data of shell companies, but even does not know from whom such money is received by the assessee company, which shows there is no credible material to have live linkage and directly making addition, which is not accordance with the provisions Income Tax Act. 8. Further we would like to inform your goodselves that notice u/s. 133(6) Was issued to Rohini Vyapar Private Limited to verify the creditworthiness and genuineness is received by it on 18/ 12/2018 and reply n response to the same have been submitted to your goodselves on 19/12/2018. The copy of the same is enclosed herewith vide "ANNEXURE 1". 9. ROHINI VYAPAR PRIVATE LIMITED 9.1. The subscriber company Rohini Vyapar Private Limited is a private Limited company having business of trading in shares. The pan card of the company is provided which proves the identity of the company. The company during the year under consider....
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....ation money was from sale of investments held by the company which proves the Creditworthiness of the Company, 10.2. The entire Share application money received of Rs. 4,35,00,000/- from Manbhawan commercial Private Limited has being received through banking channel and no maternal was found during the course of assessments proceedings to prove that money came from the coffers of the MCPL appellant company. The financial statements of RVPE shows that Share have been subscribed of assessee company, which proves that genuineness of the transaction. There was no basis to make any suspicion against the assessee company 10.3. Further we would like to inform your goodselves that in the case of Manbhawan Commercial Private Limited, scrutiny assessment proceedings u/s 143(3) for AY 2007-08 were also carried out by the Income tax Officer-Ward 4(2), Kolkata and order was passed 143(3) vide its order dated 26/03/2009, which proves the identity, creditworthiness and genuineness of the company. 11. Further we would like to inform your goodselves that earlier n our objection against reopening and row again we are requesting to provide all the incriminating documents /information on which y....
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....he effect that everything was examined in the original scrutiny assessment proceedings and details of investigations conducted by the investigation wing are not furnished to the assessee. It was noted that the money was routed through a large number of intermediate shell companies but given the limited time and resources available to the Assessing Officer for completing these reassessment proceedings, it is not possible to prove the same but then "the assessee has failed to disclose all true and fair transaction before the AO and it was his primary duty to disclose all transactions truly and fairly". The Assessing Officer further observed that "the assessee has not made true and full disclosure before the AO at the time of original assessment as the assessee itself states that it has disclosed only the primary facts". The Assessing Officer further observed that "Hon'ble Bombay High Court, dismissing the writ petition in the case of Om Vinyl Pvt Ltd dated 24.12.2014 has held that 'A disclosure, even if full, may not be true, i.e. all information may be furnished as are necessary for assessment, yet if this disclosure is not true, it would not satisfy the test of true and ful....
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....rnment entities. During the year under consideration, the appellant received share application money from Rohini Vyapar Pvt. Ltd. And Manbhawan Commercial Pvt. Ltd. amounting to Rs. 8,13,29,600/-. In the original assessment proceedings u/s.143(3), AO proceeded to make enquiries in order to verify the genuineness of the said share application money received during the year. 5.3.3 Documentary evidences were furnished by the appellant that the identity of the share subscribers are proved as seen from copy of ITR-V, audited financial statements, Pan Card. It is also seen that in the case of both the subscribers viz, Rohini Vyapar Private Limited and Manbhawan Commercial Pvt. Ltd. the assessment has been made u/s 143(3) for assessment year 2007-08. Further in the case of Ronini Vyapar Pvt. Ltd. scrutiny assessment u/s 143(3) has been made for assessment year 2014-15 and AY 2015-16 and no disallowance or addition has been made on account of equity share capital in the assessment orders. The balance sheet for the year ended on 31.03.2012 shows that the following share subscribing companies had sufficient funds as detailed below: Sr.No Name of Company Equity Capital (in Rs.) Reser....
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....he Ld. AO has observed that on perusal of the list of shell company declared by the government it is seen that most of the above intermediate companies whose bank accounts are used for the purpose of rotating the funds has been declared as Shell company and thus the amount received by the above appellant is nothing but unexplained cash credit u/s. 68 of the I.T Act. However the AO has not carried out any investigation or inquiry to verify the said facts and directly relied upon the information received from Investigation wing. The AO has not established the connection between the investigation report and the appellant company. The crucial link between the information available with AO and formation of belief was totally misplaced. The AO has observed in the assessment order itself that to crack the nexus between cash deposit and appellant company is not possible due to limited resources and time barring scrutiny. 5.3.8 Further the appellant has submitted that neither the subscribing companies i.e. Rohini Vyapar Pvt. Ltd. and Manbhawan Commercial Pvt. Ltd. nor the companies from whom proceeds of investments received by subscribing companies i.e. Bliss Dealcomm Pvt. Ltd., Campus Im....
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....ng Officer, then the department is free to proceed to reopen their individual assessments in according with law but this amount of Share money cannot be regarded as undisclosed income under section 68 or the assessee company. ii) PCIT vs. Paradise Inland shipping Pvt. Ltd. 84 Taxmann.com 58 (Bombay HC): "where reassessment resorted to on ground that companies which had purchased shares or assessee-company were not in existence, once assessee had produced documentary evidence to establish existence of companies, burden would shift on to revenue to establish initiation of reassessment and, thus, reassessment be set aside." iii) CIT vs. Orchid Industries Pvt. Ltd. 88 Taxmann.com 502 (Bombay HC): "Held that the assessee had produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of snare application money. The assessee had also produced the entire record regarding issuance or shares, i.e, allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profits and ....
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....afides of the share application money received by the assessee. In essence, his arguments can be summed up as follows. His basic submission is that it is not a bonafide transaction, and the surrounding circumstances clearly demonstrate that. He submits that the reasons of reopening the assessment eloquently demonstrate that the assessee was beneficiary of a sophisticated money-laundering racket wherein the monies deposited in cash in certain bank accounts of dummy entities, which are feeder accounts, through multiple layering of the accounts, to the accounts of the entities subscribing share capital of the assessee company. Learned Departmental Representative takes us through the assessment order, as also the reasons for reopening the assessment, and vehemently submits that the assessee was clearly a beneficiary of this money laundering racket. He submits that given this factual backdrop, the assessee had an even greater responsibility for showing genuineness of the share application monies received by the assessee. The fact that the share applicants have a PAN number, that they have filed the income tax returns and that they have produced the financial statements, does not, by its....
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.... failed to discharge the same. Learned Departmental Representative then takes us through the assessment order and relies upon each and every observation made therein. It is then contended that the relief granted by the CIT(A) proceeds on sweeping generalisations and the presumption as if it is the responsibility of the Assessing Officer that the receipts by the assessee are bogus, whereas the correct legal position is that the onus is on the assessee to demonstrate the genuineness of transactions. It is then submitted that none can be expected to prove the negative, i.e to prove that the receipts by the assessee are not bonafide. The Assessing Officer, according to the learned Departmental Representative, has been blamed for not proving a negative which is inherently impossible. It was then submitted that the relief granted by the CIT(A) is on the basis of a superficial approach to the whole issue. He submits that the bank accounts of the companies subscribing to the capital of the assessee company, and their financial statements, hardly inspire any confidence about their genuineness. We are urged to examine the papers so filed by the assessee. It is then submitted that whether it ....
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....oncerned, the proviso to Section 68 requires that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory. However, this proviso has been inserted with effect from 1st April 2013. It is submitted that this amendment cannot have the retrospective operation as has been held by Hon'ble jurisdictional High Court in the case of CIT Vs Gagandeep Infrastructure Pvt Ltd [(2017) 80 taxmann.com 172 (Bom)]. It is thus contended that even if entries in the books of accounts of the companies subscribing to the shares of the assessee company cannot be brought to tax in the hands of the assessee. Our attention is invited to page 30 of ....
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....see, and the reassessment being after the end of four years from the end of the relevant assessment year, and the proviso to Section 147 coming into play, the reassessment could not have been validly initiated. Our attention is then invited to rule 27 of the Appellate Tribunal Rules, 1963, and Hon'ble Delhi High Court's judgment in the case of Sanjay Sawhney Vs PCIT [(2020) 116 taxmann.701 (Del)] in support of the proposition that even when the assessee is not in appeal against the order passed by the CIT(A), the assessee can still challenge, and challenge orally- without any petition, the issues decided against him by the CIT(A). We are thus urged to adjudicate on the validity of reassessment proceedings as well. A reference was also made to a rather recent judgment of Hon'ble Supreme Court in the case of Saurav Jain Vs ABP Design & Another (Civil Appeal No. 4448 of 2021). Learned Departmental Representative, in his brief rejoinder, points out that the assessee is not in appeal and he can not so raise the issue as to take him completely by surprise and wholly unprepared. In any case, he submits that the reasons recorded for reopening clearly show that the assessee has ....
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....hat is the kind of explanation that the assessee is expected to give. As noted by Hon'ble Delhi High Court, in the context of issuance of share capital and in the case of PCIT Vs Youth Construction Pvt Ltd [(2013) 357 ITR 197 (Del)], "it involves three ingredients, namely, the proof regarding the identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole". That is the approach adopted by Hon'ble Courts above all along. In the case of CIT v. United Commercial and Industrial Co (P.) Ltd [1991] 187 ITR 596 (Cal)], Hon'ble Calcutta High Court has held that under the scheme of Section 68 "it was necessary for the assessee to prove prima facie the identity of creditors, the capacity of such creditors and lastly the genuineness of transactions". Similarly, in the case of CIT v. Precision Finance (P.) Ltd [1994] 208 ITR 465 (Cal)], it was observed that "it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions". It is thus also a settled legal position that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely b....
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....ine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even laymen, much less Members of this specialized Tribunal, responsible public servants like IRS officers and very well educated and very well informed people like the learned counsel, cannot be oblivious of these ground realities. 9. It is also important that when we examine the genuineness of the transactions entered into by the assessee, we must also bear in mind Hon'ble Supreme Court's observation, in the case of CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)], ....
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....le looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents". As a final fact finding authority, this Tribunal cannot be superficial in its assessment of the genuineness of a transaction, and this call is to be taken not only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, the preponderance of human probabilities and ground realities. There may be a difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact-finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidence. Hon'ble Supreme Court has, in the case of Durga Prasad More (supra), observed that "human minds may differ as to the reliability of a piece of evidence but in that sphere the decision of the final fact finding authority is made conclusive by law". This faith in the Tribunal by Hon'ble Courts above makes the job of the Tribunal even more onerous and demanding and,....
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....018) 90 taxmann.com 386 (Guj)] approved the said approach and declined to interfere in the matter by observing that "the Tribunal has minutely examined the position of the lenders, the circumstances under which, the amounts were allegedly loaned to come to the conclusion that the transactions were not genuine". The genuineness of the transactions and examination of circumstances in which money was received was thus approved to be the determinative factor. The matter did not end there. The assessee brought the matter before Hon'ble Supreme Court in a special leave petition, and Their Lordships of Hon'ble Supreme Court, in the judgment reported as Pawankumar M Sanghvi Vs ITO [(2018) 97 taxmann.com 398 (SC)], dismissed the special leave petition and declined to interfere as well. What essentially follows is that genuineness of a transaction is one of the most important, foundational and critical factors in determining whether explanation given by the assessee is acceptable or not is its genuineness and this genuineness is to be examined in the light of ground realities, rather than random extracts from judicial precedents isolated from their true context as an exposition of la....
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....as received share application monies from Rohan Vyapar Private Limited (RVPL) and Manbhawan Commercial Pvt Ltd (MCPL). These equity shares are issued at 900% premium on the face value of Rs. 10 each, i.e. at Rs. 90 per share. The assessee has issued 3,78,290 equity shares to RVPL, and the amounts received from the RVPL thus are Rs. 37,82,960 for the face value of shares and Rs. 3,40,46,640 for the share premium, aggregating to Rs. 3,78,29,600. 13. Undoubtedly, the legal existence of the share applicant is not in doubt. The assessee has produced sufficient evidences about its existence. 14. The next question is whether this entity had the means to enter into this transaction and whether 'the transaction as a whole', to borrow the words of Hon'ble Delhi High Court in Youth Construction's case (supra), could be said to be genuine. When we look at the financial statements of RVPL, which are placed before us in the paper-book, we find that the entire share capital of the company is Rs. 26 lakhs, and this amount, along with Rs. 975 lakhs received on account of share premium, is invested, almost entirely into the share capital of other companies (Rs. 614 lakhs) and share application mon....
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....ers for three different assessment years but it shows fluctuating stand of the assessee even with respect to the business the assessee was engaged in. 16. Very interestingly, even when RVPL does not have any revenues, except for a bank interest of Rs. 1,13,356, its annual report states, under the head 'operations' of the company, "(t)he performance of the company during the current year was satisfactory" and "(h)owever, your directors are hopeful that performance of the company in the coming years will be more satisfactory". What did the directors derive satisfaction from? There were no business operations during the year, unless, of course, routing the monies to other companies, or being a conduit company facilitating financial manoeuvrings, per se is treated as main operations of the company. In any case, it is difficult to understand what business can assessee carry on when it passes on 99% of its capital base in subscribing to shares in the other companies- and all these investments are in private limited companies, the investments are with huge premium as much as 900% of the face value, and in none of the companies the investing company has acquired any management participati....
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.... the share subscriber had such a faith in the assessee company that it subscribed to the shares at 900% premium. That is something quite unusual. 19. The assessee has sought to justify the same on the basis of discounted cash flow method on the basis of assumption that sale will grow @ 10% p.a., the net profit after tax will be constant at 4.25% and that discounting rate is taken at 15%. A copy of this valuation report is placed before us at pages 37 and 38 of the paper-book. The DCF valuation, at page 38, shows the figure of Rs. 1,67,46,057 for the financial year ended 31st March 2010. This figure is arrived at by adding depreciation (Rs. 16,96,610) to net profit after tax (Rs. 15,04,94,427). Similarly, the net cash flow is computed for the subsequent years. Barring for the immediately succeeding financial period, wherein cash inflow is reduced by Rs. 8 crores towards capital investments, no other adjustments are envisaged. That proceeds on the assumption that entire profit and depreciation will result in net positive cash flow, but this overlooks the increase in net current assets from Rs. 5.36 crore (as on 31.3.2010) to Rs. 22.48 crores (as on 31.3.2011) whereas the cash and ba....
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....m valuation. 21. A plain look at the financial statements and the valuation computations will raise many red flags and must trigger investigations for any reasonable person. While the increase of debtors from Rs. 7,01,26,264 (as on 31.3.2010) to Rs. 61,45,13,889 (as on 31.3.2011), by almost 900%, should raise red flags, even the increase in creditors from Rs. 6,00,34,819 (as on 31.3.2010) to Rs. 40,69,01,328 (as on 31.3.2011), by almost 800%, is unusual. The turnover figure has gone up in this year from Rs. 35.56 crores (as on 31.3.2010) to Rs. 90.11 crores (as on 31.3.2011), i.e. by more than 250% which shows unusual spurt in the activity levels in this year. This increase in the activity level is to be taken with a pinch of salt. Any alarming increase in debtors and creditors prima facie point towards circular transactions which are purely on paper, and any unusual level of increase in turnover is to be examined whether is it from isolated transactions or whether this constitutes a lasting increase in the times of come as well. Such figures can only be taken as reliable after proper investigations, and not at the face value without further probe. Yet, in the valuation under DCF ....
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....Ltd, we find that this company had paid amounts of Rs. 30,60,203 and Rs. 1,06,69,475 on 27th October 2010 but within a week prior thereto, the clearing cheques from different companies on 21st October (Rs. 115 lakhs), 23rd October (Rs. 50.67 lakhs) and 26th October (Rs. 25 lakhs). Similarly, when payments were made to the assessee company on 7th February 2011 (Rs. 100 lakhs), 15th February (Rs. 100 lakhs) and 26th February (Rs. 15 lakhs), immediately preceding transaction entries (on 7th January though) are for repayment credits. That leaves the net balance of Rs. 45,755.07 and that is where it remains for a few weeks before another cycles of circular transactions begin. Similarly, before beginning of these circular transactions, as on 28th August 2010, the bank balance was Rs. 2,573.40. These factors donot inspire any confidence about genuineness of the investing company in its own right, and, quite contrary thereto, it looks like a shell company acting as a conduit, in fact one of the several layers of conduit entities, acting for unknown beneficial owners. The explanation of the assessee for genuineness of transaction cannot be accepted for this reason also. 26. All these facto....
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....mediately thereafter, on 30 July 2010, pays Rs. 50 lakhs to the assessee company. On 12th August, Manhawan receives Rs. 40 lakhs from Campus Impex and Rs. 60 lakhs from Nexcare Agencies, and, on the very next day, i.e. 13 August 2010, pays over Rs. 100 lakhs to the assessee company. The same is the position with respect to receipts of Rs. 50 lakhs each from Nexcare Agencies and Campus Impex on 17th August, and subsequent payment of Rs. 100 lakhs to the assessee company. 31. Clearly, all these transactions are circular transactions with opacity about the ultimate owners as evident from the fact that even the financial statements and bank statements of Nexcare Agencies and Campus Impex show similar features- negligible revenues, shares issued at high premium and almost entire fund available passed on to other entities, and predominantly circular transactions, with low independent balances. It is a complex web of companies through which the investments in question are made, issued at unrealistic premium justified by academic and patently incorrect calculations far divorced from the realities of commercial world, and the transactions are deceptive inasmuch as each layer of companies h....
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....t of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. The two companies investing in the share capital of the assessee clearly fit this description. Given these facts, and given the ground realities of shell companies facilitating such manoeuvrings, the plea of the assessee cannot be accepted. We reject the same. 34. Let us now turn to the judicial precedents cited at the bar, and relied upon by the learned CIT(A). 35. Learned counsel has relied upon insertion of proviso to Section 68 being prospective in effect, and the decision of Hon'ble jurisdictional High Court in the case of Gagandeep Infrastructure (supra). 36. It is important to bear in mind that in the case of Gagandeep Infrastructure (supra), the issue was not respect to genuineness of the transaction as Their Lordships had categorically noted that "In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts ....
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....y. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the Assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the assessee". It cannot, therefore, be said that just because the assessee has received the share subscription monies from identified shareholders, the same cannot be taxed in the hands of the company itself- particularly when the placement of shares is private and the share premium is not justified. Nothing, therefore, turns on the reliance of Hon'ble Supreme Court's judgment in the case of Lovely Exports (supra). 39. So far as Hon'ble Bombay High Court's judgment in the case of Creative World Telefilms (supra) is concerned, that was a case in which the appeal was dismissed as no question of law arose for Their Lordship's consideration and genuineness of the transaction was not even an issue before Their Lordships. The reliance on this decision is thus clearly misplaced. 40. In th....
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....us no reasons to deviate from the same. In any case, in none of these decisions, the related facts have not been analyzed in much detail and these decisions cannot be support to the proposition that such an analysis is uncalled for. Quite to the contrary thereto, Hon'ble Supreme Court, in the case of NRA Iron and Steel Ltd (supra), have emphasized that the practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny, and that it would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. Nothing, therefore, turns on the decisions of the coordinate benches which traverse a different path than the path so shown to us by Hon'ble Supreme Court. In any case, just because the coordinate benches, on inherently distinct facts that we were dealing with in respective cases, did not see the necessity to go deep into the genuineness aspect and have taken certain things at face value, it does not mean that we have the liberty to decline to go into examining the genuineness aspect, when patte....
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....the Assessing Officer. As such, it is not a fit case for reassessment under section 147, the same may be quashed". 46. Under rule 27, "(t)he respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him". Quite clearly, therefore, the scope of rule 27 is confined to a ground raised in the first appeal on any of the grounds which is decided against the assessee. There is a subtle distinction in the scope of rule 27 vis-s-vis scope of cross-objections inasmuch as while assessee can raise any ground, including ground decided against him and a new or additional ground, in the cross-objections, the assessee can only take up the ground decided against him, by the CIT(A), under rule 27. The ground which is decided against the assessee is the ground as is noted above, and this ground is squarely covered, against the assessee, by Hon'ble Supreme Court's judgment in the case of Phool Chand Bajrang Lal Vs ITO [(1993) 203 ITR 456 (SC)], wherein Their Lordships have, inter alia, observed as follows: Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure ....
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....944 and that the said amount had not been included in the compromise decree. On enquiry by the ITO, Trichy, the assessee denied having received any such amount secretly. The assessment proceedings were then concluded accepting the statement of the assessee. The Assessing Officer, Trichy, however, made further enquiries into the matter and examined the party in the mortgage case, and came to the prima facie conclusion that a sum of Rs. 1,50,000 (secretly received) had escaped assessment by reason of the omission of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 1944-45 during the original assessment proceedings. He, accordingly, issued a notice under section 34(1)(a) of the 1922 Act [corresponding to section 147] to the assessee. In reply to that notice, the assessee filed a return similar to the one filed earlier and denied having received Rs. 1,50,000 secretly from the mortgagor. That plea was not accepted by the ITO who included the additional sum of Rs. 1,50,000 in the income of the assessee, earlier determined for the assessment year 1944-45, and taxed him accordingly. On an appeal, the AAC set aside the order of....
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....action under section 34(1)(a) two conditions must be satisfied, viz., (1) he has reason to believe that there was underassessment, and (2) that he must have reason to believe that the under-assessment has resulted from non-disclosure of material facts. On the facts found, underassessment is established and it is also established that the under-assessment was due to non-disclosure of material facts. There can be no doubt that at the time he issued notice under section 34(1)(a) on the basis of the material before him, the Income-tax Officer could have formed the necessary belief. In the notice issued the says that he had formed that belief. In our opinion, the requirements of section 34(1)(a) are fully satisfied. The fact that there was some vague information before the Income-tax Officer that the assessee's father had secretly received a sum of Rs. 1,50,000 from the mortgagor was by itself not sufficient to bring to tax that amount particularly in view of the fact that the assessee had stoutly denied that fact and the Court records did not support that information. It is true that the Income-tax Officer could have made further enquiry into the matter but the fact that he did not....
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....but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the ITO at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent Information, the ITO arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) , that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlap Dealers Ltd. 's case (supra)as laying down law to the contrary fell in error and did not appreciate the im....
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....r years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year" but then when a transaction, on the basis of subsequent information is found to be a bogus transaction, as is judicially settled position, the mere fact that it was examined in the course of the original assessment proceedings would not come in the way of initiation of reassessment proceedings. A true and full disclosure is sine qua non for seeking the protection of proviso to Section 147 but every disclosure is not and cannot be treated to be a true and full disclosure. A disclosure may be a false one or true one. It may be a full disclosure or it may not be. A partial disclosure may very often be a misleading one. In Shri Krishna (P.) Ltd. vs. ITO [(1996) 221 ITR 538 (SC)], Their Lordships have observed that "Now, what needs to be emphasised is that the obligation on th....
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....ctly apply to the facts of this case. The conclusions arrived at by the learned CIT(A), in rejecting the ground of appeal raised by the assessee with respect to validity of reassessment proceedings, was. therefore, correct and we approve the same. 48. Learned counsel, nevertheless, raises some more grounds with respect to reopening of the assessment. Such issues are beyond the scope of rule 27 and need not, therefore, be entertained. What rule 27 envisages is supporting the order even "on any of the ground decided against him", but that does not allow the respondent to raise the new grounds which were not raised earlier. As the law stands, the new grounds of appeal can be raised only by the appellant or by the cross-objector. The assessee is neither in appeal nor in cross-objections. We are therefore not inclined to admit any additional or new grounds in the inherently limited scope of rule 27. Be that as it may, even on merits or these arguments raised before us, the assessee has no case. We have noticed that the assessment is reopened specifically for the reason that the assessee company was found to be, based on the basis of 'information from credible sources' that Rohini Vyapa....
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....hare premium from the shell companies and therefore, such amount is liable to be taxed under section 68 of the Act. He therefore, recorded his satisfaction that the income to the tune of Rs. 14.76 crores had escaped assessment and that this was due to the assessee having failed to disclose truly and fully all facts. 8. Section 147 of the Act provides inter-alia that if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may subject to the provisions of section 148 to 153 of the Act, assess or reassess such income. Proviso to section 147 of-course requires that where the assessment under sub-section (3) of section 143 of the Act has been made for the relevant assessment year, no action shall be taken under this section after the expiry of the four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on part of the assessee to make return under section 139 or in response to a notice issued under sub-section (1) of section 142 or 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this ....
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....d, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies. 11. Merely because the transactions in question were examined by the Assessing Officer during the original assessment would not make any difference. The scrutiny was on the basis of disclosures made and materials supplied by the assessee. Such material is found to be prima facie untrue and disclosures not truthful. Earlier scrutiny or examination on the basis of such disclosures or materials would not debar a fresh assessment. Each individual case of this nature is bound to have slight difference in facts. Judgement of Delhi High Court in case of Allied Strips Ltd. (supra) does not suggest that merely because a particular issue was examined during the original assessment proceeding, the Assessing Officer would be debarred from resorting to reopening of the assessment, even if he had sufficient fresh materials at his command, to form a reasonable belief that the assessee had made incorrect disclosures or had not made full disclosures which would have a vital bearing on the assessment of his in....
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....te belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr. Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy companies of Mr. Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also. From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well, this information has been provided to Director General of Income-tax, Kolkata, who in turn, communicated to the Chief Commissioner of Income-tax, Ahmedabad. Further revelation of investigation as could be noticed from the record exami....
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....ably additions would be made in the income of the assessee. What is required is the reason to believe that income chargeable to tax as escaped assessment. Sufficiency of the materials in the hand of the Assessing Officer which enabled him to form such a belief would not be examined. A reference in this respect is made to a decision of the Supreme Court in the case of Asstt. Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers P. Limited, reported in [2007] 291 ITR 500." 13. The next contention that the Assessing Officer did not demonstrate any material enabling him to form a belief that income chargeable to tax has escaped assessment is fallacious. The Assessing Officer recorded detailed reasons pointing out the material available which had a live link with formation of belief that the income chargeable to tax had escaped assessment. At this stage, as is often repeated, we would not go into sufficiency of such reasons. In this context, reference can be made to decision of Supreme Court in case of Raymond Woolen Mills Ltd. (supra). In case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC), it was observed as under : "The express....
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....here the assessee is a company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, explanation offered by the assessee company shall be deemed to be not satisfactory, unless the person in whose name such credit is recorded in the books of the company also offers an explanation about the nature and source of sum so credited and such explanation in the opinion of the Assessing Officer has been found to be satisfactory. Essentially, this proviso eases the burden of proof on the Revenue while making addition under section 168 with respect to non genuine share application money of the companies. Even in absence of such proviso as was the case governing the periods with which we are concerned in the present case, if facts noted by the Assessing Officer and recorded in reasons are ultimately established, invocation of section 68 of the Act would be called for. 16. The contention that the Assessing Officer had merely and mechanically acted on the report of the investigation wing also cannot be accepted. We have reproduced the reasons recorded by the Assessing Officer and noted the gist of his reasons for re....
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....on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found by the Customs Authorities that the assessee had under-voiced goods during export. Under such circumstances, upholding the validity of the notice for reopening, the Supreme Court held and observed as under: "So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities but it can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee's income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied." 49. Learned ....
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....closures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. That is the settled legal position as was also held in case of Phool Chand Bajrang Lal (supra) and which has been elaborated upon earlier in this order. However, as we have held earlier, all this is entirely academic inasmuch as limited scope of rule 27 does not permit a new ground being raised before us, and, as for the ground decided against the assessee by the CIT(A)- which is what can be called into question by invoking rule 27, it is covered against the assessee by binding judicial precedents discussed earlier. 50. In view of the above discussions, as also bearing in mind entirety of the case, we vacate the relief granted by the learned CIT(A) and restore the impugned additions made by the Assessing Officer. As we do so, however, we once again reiterate that the onus is on the assessee to prove genuineness of the transaction to the satisfaction of a fact finding authority-something which he has miserably failed in, to justify the huge share premium received by the assessee- something which the material on record does not justify, and to demonst....