TMI Blog2021 (9) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in. There is not even whisper of an idea about who are the persons behind RVPL and other associated companies constituting this complex web of companies, in different tiers, and transferring monies from one company to another manner in almost a mechanical manner. There is complete opacity so far as the individuals behind this funding and the complex web of companies are concerned. The entities involved in the transactions only provide different layers to the transaction and de facto hide the true investor. Lets not forget that the investments are in private companies, these investments are substantial vis- -vis the size of the companies, are at huge premiums and without any management participation in the entities in which investments are made. These features are, by any standard, most unusual in real life business situations- and more so, as we will see a little later, when justifications for share premium are absolutely untenable. Buying shares at a huge premium (900% of the face value) in as much as over 10% of the equity capital in nondescript small private limited companies, without a share in management and control, is something extremely unusual unless the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 demonstrate that the facts and circumstances of the transaction as whole must point towards the impugned transaction being a regular transaction in the normal course of business- something which is clearly missing. Quite to the contrary, the assessee has proceeded on the basis as if the onus is on the Assessing Officer to demonstrate that the share subscriptions in question are malafide and cooked up and that the assessee has introduced his own unaccounted money by way of these share subscriptions; that is certainly incorrect. The burden is thus on the assessee to prove the nature and source of credits in his books of accounts, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee. - Decided against assessee. - ITA No. 1313/Mum/20 - - - Dated:- 21-9-2021 - Pramod Kumar (Vice President), And Vikas Awasthy (Judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka Bank) , Zedco Corporation, Jagdamba Enterprises and Janki Trading Co (Central Bank of India) Srijan Vyapaar Pvt Ltd and Scope Vyapar Pvt Ltd (Axis Bank), Mani Shankar Tradecom Ltd (Union Bank of India), and Scope Vyapar Pvt Ltd (ICICI Bank). It was then found that the amounts deposited in Central Bank of India, in three different accounts named above, were then transferred to, in Central Bank of India itself, nine other entities (namely Smart Investments, Dreamline Investments, Rupa Stock Dealers, Arihant Stocks, Goodluck Holdings, Bahirav Securities, Saha Traders, BMG Securities, and Topline Securities). These accounts are treated as Layer A1 accounts. On a perusal of bank statements of Layer A1 companies it was found that part of the monies received were rotated in the Layer A1 accounts itself, and rest amounts were transferred to ten other bank accounts, all the accounts once again in the Central Bank of India itself, in the name of 10 different entities- namely Campus Impex Pvt Ltd, Zed Dealcomm Pvt Ltd, Manorath Commercial Pvt Ltd, Force Agency Pvt Ltd, Goodluck Holdings, Rupa Stock, Unicorn Management Pvt Ltd, Nexcare Agency, Amco Agents and Advent Dealcom Pvt Ltd coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash has been introduced in the books of beneficiaries account as share application money or unsecured loan. 2. First of all we would like to inform your goodselves that assessee is engaged in the business of electrification projects, undertaking development of power supply infrastructure with various government entities. The assessee has filed its return of income for AY 2011-12 on 29/09/2011 declaring total income of ₹ 4,64, 18,810/-. A questionnaire dated 30/09/ 2O13 was issued the assessee by the AO seeking details and documents as a part of the assessment proceedings. One such detail sought was with respect to 4) Please furnish details of Share premium received during the year a ₹ 7.58 Crores, please name and address of subscribers, premium charged and justify the premium charged vis-a-vis the book value of the company. 5) Please furnish details of increase in paid up capital, their sources and subscribers source may also be furnished with complete evidence. The assessee replied to the questionnaire on 20/11/2013 and submitted the details of subscribers of the share capital and share premium alongwith bank statement. Further on 28/01/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmation. Further details were requisition by issuing notice u/s 133(6), which were duly complied with both the Subscriber companies are assessed to tax and hence, t was quiet easy for your goodselves to cross verify if the need was felt. 5. The order under section 143(3) of the act having been passed in the assessee's case for the relevant AY and the notice under section 147 having been issued after the expiry of four years from the end the relevant AY, the first proviso to Section 147 is squarely attracted. The power under section 147 have to be exercised after a period of four years only if there was failure to disclose fully and truly all material facts and formation by the assessee. Your goodselves has merely related upon the information received from an investigation carried out by DDIT (Inv) Unit, Kolkata. The reasons to believe per se do not refer to any investigation report of DDIT (Inv) and even such a report existed, a copy thereof was not furnished to the assessee 6. The assessment proceedings, especially those under Section 143 (3) of the Act, have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company as on 31.03.2010 was ₹ 10,00,18,763/- and as on 31.03.2011 was ₹ 10,00,04,092/ which is sufficient to subscribe the shares of assessee company o ₹ 3,52,29,678/-. Further the source of the said share application money was from sale of investments held by the company which proves the creditworthiness of the Company. 9.2. The entire Share application money received of ₹ 3,52,29,678/- from Rohini Vyapar Private Limited has being received through banking channel and no material was found during the course of assessment proceedings to prove that money came from the coffers of the appellant company. The financial statements of RVPL shows that Share have been subscribed of Assessee Company, which proves the genuineness of the transaction. There was no basis to make any suspicion against the assessee company. 9.3. Further we would like to inform your goodselves that in the case of Rohini Vyapar Private Limited, scrutiny assessment proceedings u/s 143(3) for AY 2007-08 were also carried out by the income tax Officer - Ward 4(1), Kolkata and order was passed 143(3), vide its order dated 05/03/2009, which proves the identity, creditworthiness a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, provide the statements of the persons recorded by the DDIT-Kolkata and also provide the opportunity to Cross verification and physical hearing of the persons which has alleged that the cash deposited by Layer-I companies belong to the assessee company. 12. Further the appellant company place reliance on the following Judgments which are similar to the case of the appellant as follows:- 12.1. The Honorable Delhi High Court in the case of Sabh Infrastructure Ltd Vs. ACIT W.P. (C) No. 1357/2016 order dated 25/09/2017 has provided the detailed guidelines for reopening of assessment u/s. 147 and the department is required to follow the same, however the same is done in our case. The relevant extract of the order is reproduced below: 13. Before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the Revenue under Sections 147 and 148 of the Act and despite numerous Judgments on this issue, the same errors are repeated by the concerned Revenue authorities. In this background, the Court would like the revenue to adhere to the following guidelines in ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll disclosure . As regards lack of proper investigation for 66 companies, as pointed out by the assessee, the Assessing Officer noted that the undersigned has only nine months, after the case is reopened, to verify all details and the assessee has not cooperated fully in assessment also . It was then pointed out that the assessee has submitted his objections to reopening only after the show cause notice was noticed. Nothing, therefore, according to the Assessing Officer, turned on the layering of money not having been proved to the hilt. It was then submitted that just because money is received through banks does not prove its legitimacy. A reference was then made to the structuring of layering operation, as set out in the reasons for reopening the assessment, and judicial precedents in support of the proposition that if identity and creditworthiness of the subscriber companies and genuineness of transactions is not acceptable, the addition under section 68 in respect of share subscriptions can be upheld. A reference was made to the decisions in the cases of CIT Vs Independent Media Pvt Ltd [(2012) 210 Taxman 14] , Suman Gupta Vs ITO [(2012) 25 txamnn.com 220 (Agra)], CIT Vs Ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr.No Name of Company Equity Capital (in Rs.) Reserves (in Rs.) Share Application money (in Rs.) 1. Ronini Vyapar Pvt. Ltd. 26,0000 9,75,00,000 4,35,00,000 2. Manbhawan Commercial Pvt. Ltd. 14,00,000 5,07,00,000 3,78,29,678 Total 8,13,29,678 5.3.4 The above facts demonstrate that the subscribing companies had the capacity to lend funds to the appellant. No discrepancy has been pointed out in the assessment order of the instant appellant by the AO in respect of above documents submitted by the appellant during the assessment proceedings. As the Ld. AR argued, the financial statements of the above share subscribing companies are available on the public domain of Ministry of Corporate Affairs. The appellant has received the share application money from the aforesaid share subscribing companies through banking channels as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Impex Pvt. Ltd. Nexcare Agency Pvt. Ltd. and Unicorn Management Pvt. Ltd., none of these companies have deposited cash. It is fact on record that they have submitted the Acknowledgment of Return of Income, Annual Audited Balance sheet, ledger confirmation, bank statement and filing status on Ministry of Corporate Affairs. Therefore, in view of above facts, it cannot be concluded that the s amounting to ₹ 81329600/- are non-genuine. Therefore the contention of the AO is not sustainable. 5.9 Further in support of its contention, the appellant has relied upon the following case laws: (i) PCIT Vs. Aditya Birla Telecom Pvt. Ltd. (Bom) (ITA. No. 102 or 2010 (Order date 26.03.2019) (ii) DCIT Vs. M/s. Gladioulus Property Inv. Pvt. Ltd. (ITA No.2924/Mum/2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mann.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 loss accounts of those persons disclosed that they had sufficient funds in their accounts for investing in the shares of the assessee. In view of these voluminous documentary those persons had not appeared before the Assessing Officer would not negate the case of the assessee. Therefore, the addition was liable to be deleted. iv) CIT vs. Creative World Telefilms Ltd 333 ITR 100 (Bombay HC): In the case in hand, it was not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. it was expected on the part of the Assessing to make proper investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned 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 itself, does not prove that transaction is bonafide. He submits that the financial statements of the companies subscribing to the shares, as also the bank statements of these entities, hardy inspire any confidence about genuineness. It is pointed out that there are hardly any overnight balances in the bank accounts of the companies subscribing these shares of the assessee company, and all this indicates that these companies, subscribing in the shares of the company, are merely conduit companies. Learned Departmental Representatives then points out that there is hardly any substantive business activities pursued by the company whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafide. 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 is a conduit company or not, the company will have a PAN number, a bank account and banking transactions. These factors, by itself, would not clothe the transaction with genuineness. We are thus urged to look at the larger picture in entirety rather than being swayed by a narrow and hyper-technical view of the matter, and vacate the impugned relief granted by the CIT(A). Learned counsel for the assessee, on the other hand, submits that while the Assessing Officer has repeatedly referred to the investigations having been carried out in this case, it is not clear as to who has conduced investigation, and the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the paper book, which shows that a specific question was raised, in the course of the original scrutiny assessment proceedings, about the increase in paid-up capital, justification of premium and the related issues, and the assessee had submitted specific satisfactory replies to the same. Learned counsel submits that it was with full satisfaction of the Assessing Officer that the matter was not pursued any further, and that, without any reason for the deviation, this satisfaction cannot simply be discarded at the reassessment stage. There is no change, according to the learned counsel, in the circumstances, and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst 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 not made proper and complete disclosure. Reliance is placed on the observations in the assessment order in this regard. Learned Departmental Representative once again draws parity of the facts of this case with the case of Pawankumar M Sanghvi (supra). It is submitted that within the limited time available to the Assessing Officer it is not really possible to prove the money laundering racket to the hilt but there are clear uncontroverted facts on record which show clear lack of bonafides. It is pointed out that the replies submitted by the companies which have invested in the assessee company are not even signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;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 by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. The genuineness of the transaction as a whole is thus a very important and critical factor in the examination of explanation of the assessee, as required under section 68, with respect to the share application monies received by an assessee. 8. It would thus appear that the learned counsel for the assessee is not really right in approaching on the basis as if the onus is on the Assessing Officer to prove the alleged mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)] , to the effect that Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities . Similarly, in a later decision in the case of Sumati Dayal v. CIT [(1995) 214 ITR 801 (SC)] , Hon'ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed that, This, in our opinion, is a superficial approach to the problem. The matter has to be considered in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, in our considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, the preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on. 10. We may also add that the phenomenon of shell entities being subjected to deep scrutiny by tax and enforcement officials is rather recent, and that, till recently, little was known, outside the underbelly of the financial wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 law on a standalone basis. Undoubtedly, that is a subjective exercise, but that cannot be excuse enough to fight shy of this call of duty and not to probe the matter properly for taking a wellconsidered call on whether the impugned share application monies received, in this case, a genuine transaction or not. We cannot, as we have noted earlier as well, afford to be rather superficial in this respect. Being superficial in approach is not only against the ethos of the judiciary, but certainly an antithesis for justification of the specialized Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ₹ 26 lakhs, and this amount, along with ₹ 975 lakhs received on account of share premium, is invested, almost entirely into the share capital of other companies (₹ 614 lakhs) and share application monies in other companies (₹ 378.30 lakhs). The only other entries in the balance sheet are small amounts of ₹ 3,03,666 as cash in hand, ₹ 58,898 as bank balance, TDS ₹ 17,850, advance given ₹ 4,00,000 and sundry creditors for expenses at ₹ 4,000. Effectively, thus, ₹ 992.30 lakhs of the total funds of ₹ 1001.00 lakhs received by the assessee has been passed to the other companies, which works out to more than 99% of the total funds received. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, 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 participation. 17. There is not even whisper of an idea about who are the persons behind RVPL and other associated companies constituting this complex web of companies, in different tiers, and transferring monies from one company to another manner in almost a mechanical manner. There is complete opacity so far as the individuals behind this funding and the complex web of companies are concerned. The entities involved in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 1,67,46,057 for the financial year ended 31st March 2010. This figure is arrived at by adding depreciation (₹ 16,96,610) to net profit after tax (₹ 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 ₹ 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 ₹ 5.36 crore (as on 31.3.2010) to ₹ 22.48 crores (as on 31.3.2011) whereas the cash and bank balances have remained almost the sameat ₹ 9.82 lakhs as on 31.3.2011 as against ₹ 8.52 lakhs as on 31.3.2010. As against a net profit of ₹ 3.11 crore and depreciation of ₹ 16.96 lakhs, the net cash inflow is only ₹ 1.30 lakhs which is less than 0.4% of the profit plus depreciation. Yet, in the computations of DCF value at page 38 of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven the increase in creditors from ₹ 6,00,34,819 (as on 31.3.2010) to ₹ 40,69,01,328 (as on 31.3.2011), by almost 800%, is unusual. The turnover figure has gone up in this year from ₹ 35.56 crores (as on 31.3.2010) to ₹ 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 method, not only this turnover figure is taken as a base figure, but the valuation also assumes that this figure will further keep on growing by 10% each year, and that despite such an increase, the profit after tax will continue to be at 4.25% on the turnover which is exactly the same as in the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober (₹ 25 lakhs). Similarly, when payments were made to the assessee company on 7th February 2011 (₹ 100 lakhs), 15th February (₹ 100 lakhs) and 26th February (₹ 15 lakhs), immediately preceding transaction entries (on 7th January though) are for repayment credits. That leaves the net balance of ₹ 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 ₹ 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 factors regarding analysis of financial statements, analysis of bank account transactions and analysis of the nature and price of investment, Rohini Vyapar's investments in the shares of the assessee company, at 900% of face value an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 60 lakhs from Nexcare Agencies, and, on the very next day, i.e. 13 August 2010, pays over ₹ 100 lakhs to the assessee company. The same is the position with respect to receipts of ₹ 50 lakhs each from Nexcare Agencies and Campus Impex on 17th August, and subsequent payment of ₹ 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 has the source of funds in some other layer of companies operating at another level. As we have noted earlier, the premium justification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, 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 namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case of Paradise Inland Shipping (supra), Hon ble jurisdictional High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pattern of transactions, in our considered view, actually calls fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of that transaction at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending 9-4-1944 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 ₹ 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 ₹ 1,50,000 secretly from the mortgagor. That plea was not accepted by the ITO who included the additional sum of ₹ 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 AA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 191, ruled that to confer jurisdiction on the Income-tax Officer to take 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 ₹ 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 Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at of the ITO, the sufficiency of reasons for forming the belief, is not for the Court to judge 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. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made for the relevant assessment year, no action shall be taken under this section after the expiry of four 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inapplicability of these observation of Hon ble jurisdictional High Court, which, in our considered view, directly 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany by the assessee was not genuine. Amount is nothing but assessee's own money introduced in the garb of share capital/share 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 ₹ 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted. The Assessing Officer, as noted, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite 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 Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ham transaction. At this stage, where the Court is examining the validity of notice of reopening, it is not necessary that the Assessing Officer must have conclusive evidence to hold that invariably 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 Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny also offers an explanation about the nature and source of sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory; .. 15. As per this proviso, where 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 conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under-voicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such transaction during the original assessment and raising certain queries in this respect would not prevent him from reopening the assessment on the principle of change of opinion. As noted, the opinion would be formed on the basis of disclosures. When disclosures 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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