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TMI Blog2022 (9) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, both appeals were heard together and are disposed of by this common order for the sake of convenience. 3. First we take ITA No.1074/Ahd/2016 for A.Y. 2006-07. 4. The grounds of appeal raised by assessee read as under: 1. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing officer in issuing notice u/s.148 of the I. T. Act, 1961 which is illegal and bad in law. 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in passing an order u/s.143(3) r.w.s.147 of the I.T.Act,1961 by issuing notice u/s. 148 of the Act, which is illegal and bad in law hence the same should be cancelled. 3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made by the Assessing Officer of Rs.50,00,000/- on account of Share allottment to Shital Securities Pvt. Ltd. of Rs.25,00,000/- and to Dhanvidhya Impex Pvt. Ltd. of Rs.25,00,000/- 4. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs. 1,61,379/- made by the Assessing Officer out of depreciation claimed on two wheeler vehicles and Motor Car. 5. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt u/s 147 of the Act dated 18.03.2011 were enclosed. It has been stared that during the course of survey operation carried out on 29.03.2010, it was found that there was capital introduction from alleged fictitious entities during the year under appeal. The financial capability have been questioned and it has also been stated that the inquiry conducted by the Investigation Wing led to the conclusion that the so called share applicants had admitted to the fact that they were providing accommodation entries only and the investments made by them in the shares of the appellant company was out of the cash received from Shri Mahendrabhai K. Shah, Director of the assessee company. Presuming that the assessee company was introducing unaccounted income in the garb of share capital and share premium it was concluded that assessee company had not disclosed fully and truly all material facts related to the issue and therefore, it was necessary to enquire about genuineness of the share capital which necessitated the re-opening of the assessment. Furthermore reference to the same alleged evasion of capital gains on the sale of assets has been made while proposing to reopen the assessment. 6.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur (2009) 311ITR 38 (P&H) Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is very wide, but at the same time, it cannot be stated to be a plenary power. The Assessing Officer can assume jurisdiction under the said provision, provided there is sufficient material before him. He cannot act on the basis of his whim and fancy, and the existence of material must be real. Further, there must be nexus between the material and escapement of income. The Assessing Officer must record reasons showing due application of mind before taking recourse to reassessment proceedings. The Assessing Officer can assume jurisdiction for reassessment proceedings, provided he has reasons to believe, but the same cannot be taken recourse to on the basis: of reasons to suspect. [Para 4] In the instant case, it was undisputed that the Assessing Officer had initiated reassessment proceedings on the basis of information received from the survey circle that the assessee had got prepared a demand draft which was not accounted for in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Held, yes - Whether therefore, reassessment framed by Assessing Officer was to be cancelled - Held, yes Assessee contended in the above referred cases that the reopening of the assessment has been undertaken on the basis of the report of the Investigation wing. There is no independent satisfaction of the AO that there is escapement of income. Under such circumstances the reopening of the assessment is not justified. But learned AO did not agree with the contention of the assessee and made addition on the basis of aforesaid facts. 7. During the course of assessment proceedings, it is noticed that share capital of the assessee company is increased by amount of Rs.50,00,000/-. On verification, it is noticed that the shares were allotted to following persons:- 1. Shital Securities Pvt. Ltd. Rs. 25,00,000/- 2. Dhanvidhya Impex Pvt. Ltd. Rs. 25,00,000/- Summons u/s.131 of the Act were issued to the above parties. Inspector of this office was deputed to serve the summons. In the case of M/s. Sheetal Security Finance Ltd., the Inspector vide his report dtd. 03.11.2011 had reported that on the address mentioned in summons, no such party was available. The assessee vide order sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Managing Director of M/s. Sheetal Securities Finance Ltd. from where it had received amount for share allotment and accordingly allotted shares to them. The new address of person is not furnished by the assessee even though requested hi response to return of un-served summons. It is the duty of the assessee to prove identity, genuineness of transaction and credit worthiness of the person who had made investment with them. The assessee failed to present the person and also failed to give the address of the person from where he can be enforced to attend the office. Therefore, the identity of the person cannot be established. Further, from copy of acknowledgement of return filed of Sheetal Securities Finance Ltd. the credit worthiness and genuineness cannot be established. However, on verification of acknowledgement, it is noticed that the party was having loss of Rs.3,75,915/-. It is very much clear that if the person is having loss in its business he will not proceed for investment in other companies. Also Shri Rupang R. Shah, Director of Dhanvidhya Impex Pvt. Ltd. and other persons to whom these shares are allotted (Detailed discussed was made in order passed for A.Y.2008-09). h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement indicates that Shri Mahendra Shah one of the Director in the company had made cash payment who introduced unaccounted income in the garb of share capital and share premium in M/s. Goldfinch Jewellery Ltd. But the statement of Shri Rupang Shah was never supplied to the assessee, for which, assessee wrote a letter to AO on 16.12.2011 requesting him to supply a copy of Investigation Wing . He also stated that unless and until some cogent evidences in support of contention is made available to the assessee to its reserve its right of cross examination of Shri Rupang Shah. Learned AO passed the said assessment order on 22.12.2011 and investments have been made through banking channel and addresses were supplied to the AO. But, learned AO did not inquire from the return of income of the person whom shares were transferred. It is pertinent to note that copy of PAN Card was supplied to the AO alongwith computation of income. Bank statements from where investment had been made but learned AO did not examine abovesaid documents rather learned AO made addition solely on the basis of the Investigation Wing Report. In support of its contention learned AR cited following decisions: i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer must have a live link with the formation of belief. Testing the case in hand in the backdrop of the position so settled in the judgments relied upon by Mr. Pathy as well as on the transitory change as clarified in the judgment of Kelvinator of India Ltd. (supra), it is to be seen whether the case in hand would pass the test. 28. The reasons in possession of the Assessing Officer finds mention in the enclosure to Annexure -B to the counter affidavit and runs under. "The assessee has not produced concrete evidence like land adanga register, nature of crop cultivated expenses incurred to whom the agricultural produce was sold, who cultivated the land and how the income was derived. In the absence of any material produced to substantiate the receipt an agricultural income therefore, I have reason to believe that the quantum of agriculture income as claimed in ITR for the A.Y.2011-12 is not his agricultural income. Accordingly, the same is treated as the income from undisclosed source which escaped for assessment. Hence income chargeable to tax to the extent of Rs. 4,85,905/- has escaped assessment within the meaning of Sec. 147 of the Act, 1961. Proposal for issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 147, in view of the legal position settled by the Supreme Court in the judgment rendered in the case of Kelvinator of India Ltd. (supra), whatsoever doubts that may be present are in the mind of the department is set at rest. In this contest we are persuaded to reproduce the opinion of the Division Bench of this Court recorded in the case of Rina Sen (supra) relied upon by Mr. Pathy, which not only relates to the period after amendment to Section 147 but also discusses the extent of power exercised by an Assessing Officer under Section 147 when it records at page 226 as under: "...................... ..It is well settled that the object of Section 147 of 'the Act' is not to make a roving or fishing enquiry. While it is open to the authority in an appropriate case to make an enquiry confidentially or otherwise -in order to obtain information or verify facts disclosed to him by the assessee or coming to his notice, before reaching the stage of reasonable believe, he cannot compel the assessee to associate himself in such roving or fact finding enquiry. The assessee can be required to appear only after the Assessing Officer has come to the conclusion as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of US $ 62,000, rather it is a case of zero investigation." 14. It is one thing to state that the above documents were available but an entirely different thing to state that on examining those documents the AO found the live link for forming the reason to believe that the sum added had escaped assessment. It must be recalled that these were re-assessment proceedings and not at the stage where it was enough to form a prima facie view for re-opening the assessment. In the re-assessment proceedings the AO was expected to undertake a full-fledged inquiry into the documents produced before him to come to the conclusion that the addition sought to be made was justified. As pointed out by the ITAT or that the AO seems to have done is to simply borrow the conclusions drawn by the ED without making any independent inquiry himself into the matter. Even before the ITAT, the Revenue was unable to show the precise documents or material on the basis of which the AO formed the reason to believe that 60,000 US$ had been paid as bribe to the Iraqi officials and therefore was required to be added to the income of the Assessee." v. Kantibhai Dharamshibhai vs. ACIT [2021] 125 taxmann.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. 39. The entire basis for reopening the assessment is on the premise that there was a cash transaction of a huge amount, and having regard to the same, there was no true and full disclosure. We have already explained that this issue of cash transaction is nothing but a mere guess, and at the cost of repetition, the transaction of sale was not with K. Star Corporation. M/s. K. Star Corporation, in the present case, is the second buyer. 40. In our opinion, there is no escapement of income chargeable to tax. The conditions precedent for resorting to reopening of the assessment under section 147 of the Act 1961 are not satisfied in the present case. 41. In the overall view of the matter, we are not convinced with the satisfaction arrived at by the respondent for the purpose of reopening of the assessment for the relevant Assessment Year 2011-12." vi. Munir Ismail Voraji vs. ITO [2017] 82 taxmann.com 92 (Gujarat), wherein Hon'ble Gujarat High Court held as under: "7. At the outset, it is required to be noted that in the present case, the impugned notices under Section 148 of the Act and the assessment for A.Y 2011- 2012 are sought to be reopened solely on the basis of DVO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to form a believe that the income chargeable to tax has escaped the assessment." vii. PCIT vs. RMG Polyvinyl (I) Ltd. [2017] 83 taxmann.com 348 (Delhi), wherein Hon'ble Delhi High Court observed that: "13. As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had." viii. PCIT vs. Meenakshi Overseas (P.) Ltd. [2017] 82 taxmann.com 300 (Delhi), wherein Hon'ble Delhi High Court held as under: "36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises whether not affording opportunity to cross-examine a witness upon whose statement AO sought to rely for making addition is illegality leading to vitiating the assessment or is irregularity leading to setting aside of the assessment for providing opportunity for cross-examination of the witness by the assessee. This controversy has been resolved by the judgment of the Hon'ble Apex Court in the case of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC). wherein the Hon'ble Apex Court observed as under- After considering facts and circumstances of the case and going through the above said judgments, we are of the considered view that learned AO has made addition on the basis of the borrowed satisfaction. He has not applied his mind and in our opinion, he ought to have done independent home work but in the present case no such exercise was done by the learned AO for the reason best known to him. Therefore, in our considered opinion, in such case, addition cannot be made. 10. Therefore, this ground of appeal of the assessee is allowed. 11. Since, we have allowed this ground of the assessee on technical basis, therefore, we refrain ourselves to maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to demonstrate that the vehicle used for the business. 7. Being aggrieved by the order of ld. CIT (A) assessee is in appeal before us. 8. The ld. AR before us filed a paper book running from pages 1 to 136 and submitted that the assessee was the beneficial owner of the asset as the assessee made the payment for the acquision of such assets. Thus the benefit of depreciation cannot be denied merely on the ground that the ownership is in the name of Director/employee of the Company. 8.1 The ld. AR further submitted that the assessee had claimed interest on the car loan, insurance premium of the car, petrol expenses on the scooter and car and vehicle expenses which were not doubted by the Revenue. 8.2 The ld. AR further submitted that the Revenue had taken the contrary stand by allowing the expenses incurred in connection with the vehicle in full. Therefore, the depreciation in respect of such vehicle was disallowed on the basis of mere conjecture and surmises. 9. On the other hand ld. DR relied on the order of the authorities below. 10. We have heard the rival contentions and perused the materials available on record. In the instant case, the depreciation claimed on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the disallowance on account of depreciation made by the Revenue is not sustainable. 10.3 It is also important to note that the AO also made similar disallowance in the earlier assessment year 2005-06, but the learned CIT (A) deleted the addition made by the AO. The learned DR has also not brought anything on record to demonstrate whether an appeal was preferred by the Revenue against the order of learned CIT-A. Thus in the absence of requisite information from the side of the learned DR, we hold that the Revenue did not challenge the order of the learned CIT-A for the assessment year 2005-06. 10.4 After considering the facts in totality as discussed above, we are not inclined to uphold the finding of the authorities below. Accordingly, we set aside the order of learned CIT-A, and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed." Thus, in parity with the aforesaid co-ordinate bench decision, we allow this ground of appeal of the assessee and direct the AO to allow the claim of the depreciation. 14. Now, we come to next ground of appeal relating to disallowance of Rs.10,38,591/- made by the AO @ 25% of labour charges cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Aggrieved assessee preferred an appeal to Ld. CIT (A). The assessee before the Ld. CIT (A) submitted that it had received labour charges amounting to Rs. 42,00,303/- only against labour expenses of Rs. 19,20,390/- only. 13.1 The assessee before the ld. CIT (A) submitted that it is making the payment to labourers periodically against the work carried out by them. However, at the end of the year all the payment made to the labors are clubbed and against such payment, a single bill is issued by the labors. The assessee also submitted that the payment to the labourers had been made after deducting TDS and through account payee cheques. 13.2 All the details of the labourers were available with the AO during the assessment proceeding. Thus in case of any doubt the AO was empowered to verify the same by issuing notice u/s 131/133(6) of the Act. 13.3 There was an inadvertent error in mentioning the date on the bill issued by the labourers but these expenses were never claimed in the previous year 2006- 07. Therefore the question of double deduction for labour expenses does not arise. 13.4 The assessee in support of his contentions has filed the fresh labour bills, the copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was an actual transfer of jewelry from the assessee to the laborers for carrying out the necessary work on such jewelry. 16.5 The assessee has filed revised bills of the current year which were raised by the laborers on the last day of the previous year. 16.6 The assessee has not deducted the TDS on the bills raised by the labors in the manner as provided under the provisions of law. Thus the ld. CIT (A) was of the view that the Labour expenses should also be disallowed on account of non-deduction of TDS under section 194C of the Act r.w.s. 40(a)(ia) of the Act. 16.7 From the preceding discussion we note that all the details of the laborers including the addresses and PAN were available with the authorities below. In case there is any doubt about the labour expenses claimed by the assessee, then the authorities below should have taken the confirmation from the respective parties. The authorities below were empowered to verify whether these labors have disclosed the receipt from the assessee in their respective income tax return or not. But we find that the authorities below have not exercised their power provided under the statute. 16.8 We also note that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y.2010-11 on 15.10.2010 declaring total income of Rs.94,75,790/-. The assessment was completed u/s 143(3) of the Act on 22.03.2013 determining the total income at Rs.6,48,99,762/-. While completing the assessment an addition of Rs.5,50,00,000/- was made on account of the alleged unexplained cash credit u/s 68 of the Act. The A.O. in para 3.1 & pg.2 of the assessment order has stated that the assessee company was requested to furnish the list of share holders with name, address, PAN No. etc. The asswssww company vide letter dated 03.10.2013 furnished the details called for. The A.O. in para 3.2 has stated that to verify the details furnished by the appellant company summons u/s 131 of the Act was duly issued on the share applicants/holders. The summons could not be served at the addresses provided by the assessee. Accordingly vide letter dated 12.03.2013 the assessee company was requested to produce the parties for examination for the confirmation of the investments. The assessee company was furnished 3 days time i.e. upto 15.03.2013 to produce the parties with relevant documents in support of the cash credit received. The assessee company had vide letter dated 14.03.2013 expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement, acknowledgement of return of income 3 Arjit Securities Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. King Merchants Pvt Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. South East Asia Packaging Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. Seatrans Dan Shipping Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA web site. 19.3 Thereafter, assessee replied as under: "2. As regards the addition of Rs.5,50,00,000/- on account of the share capital of Rs.1,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon him has been discharged. It is also been alleged that the arguments made by the appellant are not acceptable since the addresses were wrong and notice/summons could not be served upon them. Even the new addresses furnished were just prior to the assessment getting time barred and therefore, the verification process could not take place. It has been alleged that the appellant is trying to deviate from the main issue by furnishing fresh addresses and not establishing the genuineness of the cash credit by producing them. 2.5 The A.O. in para 3.4.1 & pg.4 of the assessment order has stated that the appellant company is Pvt. Ltd. Company and where the Directors are the same family members. As per the AO the allotment of shares has taken by way of private placement and, therefore, appellant should be in a position to furnish all details in respect of the allottees to the Department. The AO has also alleged that the appellant had failed to furnish the correct address of the allottees initially and also failed to produce the parties in person. As per the A.O. the addresses provided by the appellant company were wrong and summons was returned by the postal authorities. It has therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be out of place to mention that all the share applicants are located outside Ahmedabad. The A.O., thereafter provided only 3 days to produce those share applicants for examination with all the relevant records knowing fully well that the appellant company has no power or other authority to compel such attendance. In fact, the detailed addresses had been furnished to the AO as early as October, 2012. The inaction of the AO in the intervening period and only intimating that the summons were unserved in the month of March, 2013 just prior to the assessment getting time barred displays the arbitrary approach of the AO. Had the A.O. intimated the fact of the non service of summons/notices earlier, necessary remedial measures for timely compliance could have been made by the appellant. We have now been able to obtain evidences establishing the identity, genuineness and creditworthiness of the share applicant. A separate application for admissions of additional evidences u/r 46A is also being made. If the same is admitted and taken into cognizance the additions would not survive. This application was only being made because the appellant company was deprived of reasonable opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved share capital amounting to Rs.1,10,00,000/- and Rs.4,40,00,000/- as share premium from the outsiders during the year under assessment and accordingly assessee furnished list of shareholders with names and addresses, PAN Numbers and bank statements etc. In order to verify the creditworthiness and genuineness of the investor, summons were sent to this company under S.131 of the Act. But, summons could not be served on the addresses provided by the assessee. On the basis of unserved notice, lower authorities came to the conclusion that above said companies were paper companies. In this case, assessee was given three days' time to produce the parties for examination for the confirmation of the investment to produce with relevant documents in support of cash received. On the other hand, assessee requested that it had no authority to compel them for their attendance within such a short span of time. Therefore, additions are solely made on the basis of non-service of summons to the various share applicants at the addresses furnished by the assessee company. The learned AO ought to have made inquiry from the assessee of the investor as he was having PAN number and other relevant detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee - During search, PRS recorded statement that he was engaged in providing bogus accommodation entries in form of share capital to several companies including assessee - On basis of same, Assessing Officer treated entire amount of share capital received by assessee as unexplained cash credit under section 68 - It was noted that no opportunity for cross examination of PRS was provided to assessee despite request made by assessee which was sine qua non before making an addition - Thus, such statement of PRS was not tested by cross examination - Further, admittedly, assessee had discharged its onus by furnishing necessary details such as copy of PAN and CIN, MOA/AOA, confirmation of parties, bank extracts etc. so as to prove genuineness of its transactions - There was also no dispute to fact that all transactions were carried out through proper banking channel - Whether, on facts, impugned addition under section 68 made to assessee's income was unjustified and same was to be set aside - Held, yes [Paras 34 to 43] [In favour of assessee]" 22.2 Hon'ble Apex Court in case of CIT vs. Lovely Exports (P.) Ltd. [2008] (2010) 14 SCC 761 (SC), wherein Hon'ble Apex Court has held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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