TMI Blog2023 (3) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal is a serious flaw and is in fact a flagrant violation of basic tenements of the principles of natural justice, but the same in our considered view would not on such standalone basis render the assessment framed by the A.O as nullity. As the failure on the part of the A.O to facilitate a cross-examination of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal; and also make available complete copies of their statements would have undeniably made it impractical for the assessee company to defend its case and rebut the adverse inferences which the A.O would have drawn by pressing into service the statements of the aforementioned persons, therefore, in our considered view the matter in all fairness would require to be revisited by the A.O. We, thus, in all fairness by adopting a balanced approach restore the matter to the file of the A.O for re-adjudication after making available complete copies of the statements of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal and facilitating their cross-examination to the assessee company. Matter restored the matter f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural justice, uncalled for and may kindly be deleted. 5. Ground 5: That on the facts and in the circumstances of the case the learned assessing officer erred in holding that the shareholder of the appellant company had no credit worthiness. 6. Ground 6: That on the facts and in the circumstances of the case the learned assessing officer erred in holding that the investor of M/s Sona Power were shell companies or non existent companies. 7. Ground 7: That on the facts and in the circumstances of the case addition made in the hands of assessee for Share Application Money received is contradictory to the contention taken by the department in the cases of Share Applicants. Thus addition made by AO and sustained by CIT(A) is bad in law and may kindly be quashed. 8. Ground 8: That on the facts and in the circumstances of the case the learned assessing officer erred in relying on statement of third parties, without supplying the said statements to the assessee and without providing the assessee with the opportunity to cross examine such witness. 9. Ground 9: That on the facts and in the circumstances of the case the learned assessing officer erred in holding that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inctly stated, the assessee company which had yet not started its business operations during the year under consideration had filed its return of income for A.Y. 2011-12 on 31.03.2012, declaring an income of Rs. Nil. Search and seizure operations under Sec. 132 of the Act were conducted at the various premises of Sona (Bhatia) Group, Raipur on 24.05.2017 and the business premises of the assessee company were also covered in the said proceedings. 3. Information was received by the A.O from the Assistant Director of Income Tax (Inv.)-1, Raipur, wherein referring to the statements of S/shri Khuspal Singh Bhatia and Sameer Das Gupta (dummy directors of Kolkata based companies) recorded u/s.132(4) of the Act; and those of S/sh. Narendra Jain (entry operator) and his staff member Shri. Champak Mandal recorded by the Investigation Wing, Kolkata, it was, inter alia, intimated that the assessee company, viz. M/s. Sona Power Private Limited during the Financial Year 2010-11 was in receipt of share capital/premium of Rs.38,30,50,000/- from certain Kolkata based paper/shell companies. On the basis of the aforesaid information the A.O initiated proceedings u/s 147 of the Act in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its unaccounted income. It was observed by the A.O that as per the discreet inquiries carried out in the course of the pre-search investigations the aforementioned share applicant companies were neither found available at the addresses that were provided by them in their respective returns filed with the registrar of companies (ROC) nor were they carrying out any actual business. It was further observed by the A.O that though during the course of the aforesaid search and seizure proceedings survey proceedings under Sec. 133A of the Act were initiated in the hands of the aforesaid shareholder companies but as the said companies were not found available at their respective addresses, therefore, the authorization of survey in their cases could not be executed by the authorized officers. It was observed by the A.O that the current and past directors of the shareholder companies in their respective statements that were recorded on oath under Sec. 132(4) of the Act, both during search and post search investigations, had failed to come forth with any explanation about the unavailability of the aforesaid companies at their respective registered office addresses. The A.O after culling out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforementioned companies. It was observed by the A.O that the fact that neither the share allotter nor the share allottee had bothered to follow the basic statutory requirements involved in allotment of shares through private placements in itself fortified the fact that the funds received in the form of share capital/premium were artificially arranged. The A.O in order to support her aforesaid conviction also referred at length to the modus-operandi that was adopted by the Kolkata based shareholder companies for sale/issue/transfer of their shares. The A.O further in her attempt to unfold the artificial arrangement of funds by the Kolkata based share applicant companies for making investments in the assessee company had on an exemplary basis referred to an instance of purchase of shares of one such share subscriber company, viz. Nawab Vyapaar Private Limited by a group entity of the assessee company, viz. Sona Beverages Private Limited. It was observed by the A.O that on the one hand Sona Beverages Private Limited (supra) had in F.Y.2010-11 purchased at par the shares of one of the shareholder company, viz. Nawab Vyapaar Private Limited (supra), while for at the same time the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroduced in the books of account of companies through colorable device i.e. Share Capital/Share Premium. 6. It was further observed by the A.O that some of the directors of the share subscriber companies were found to be under the control of certain accommodation entry providers, viz. (i) S/ssh. Kali Kant Chowdhury, Arihant Jain and Chandresh Kumar Jain, directors were under the control of an infamous entry operator, viz. Sh. Narender Kumar Jain; and (ii) Sh. Sandeep Sharma, director was under the control of infamous entry providers, viz. S/sh. Anant Sharma and Janardan Chokhani. It was also observed by the A.O that the names of all the 9 share subscriber companies from whom the assessee company had claimed to have received share capital/premium during the year under consideration figured in the list of paper/shell companies which were involved in providing accommodation entries. 7. The A.O in order to verify the identity, creditworthiness and the genuineness of the transactions pertaining to receipt of share application money by the assessee company from the aforesaid 9 tainted companies issued notices under Sec. 133(6) of the Act, dated 15.10.2018 to all of them which, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 Order u/s. 143(1) of the I T Act, 1961 passed 2013-14 Order u/s. 143(1) of the I T Act, 1961 passed 2014-15 Order u/s. 143(1) of the I T Act, 1961 passed 2015-16 Order u/s. 143(3) of the I T Act, 1961 passed (copy of order enclosed) 2016-17 Order u/s. 143(1) of the I T Act, 1961 passed 2017-18 Order u/s. 143(1) of the I T Act, 1961 passed 2018-19 The return filed. (iv)that the details of audited financial statements of the aforesaid company for the F.Y. 2010-11 to F.Y. 2017-18 were furnished/provided as under : Assessment Year Available records/documents 2011-12 Audited financial statement, Balance Sheet and Profit Loss A/c (copy enclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing through the schedule of Investment. It is seen hat investment in shares of Indian companies raised from Rs.5,57,13,000/- to Rs. 25,80,50,000/- during the year. 2. Muskan Dealers P Ltd. (i). that the investor company had no physical existence at the address provided. (ii) that as per records the aforesaid company was engaged in the business of trading in shares securities and granting of loans (iii) that scrutiny assessments/processing of the returns of income of the said company during A.Y. 2011-12 to A.Y. 2018-19 was as under : Assessment Year Order passed 2011-12 The proceedings of re-assessment u/s.148 of the I T Act, 1961 are going on which will be barred on 31.12.2018. 2012-13 Order u/s. 143(1) of the I T Act, 1961 passed 2013-14 Order u/s. 143(1) of the I T Act, 1961 passed 2014-15 Order u/s. 143(3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015-16 All bank statements (copy enclosed) 2016-17 No documents available 2017-18 No documents available 2018-19 No documents available (vi) that as regards the source of investment out of which investment had been made by the aforesaid company for acquiring the shares of the assessee company it was stated in the report so filed by the A.O as under : No Original scrutiny assessment in this case was made in A.Y. 2011-12 and the same year has been re-opened with information that the assessee company receipt money out of sale of un-quoted shares which were kept in stock-intrade. In balance sheet of A.y. 2011-12 it is shown that the assessee company had paid share application money of Rs. 4,55,50,000/- during the year. For A.Y. 2014-15 was in scrutiny through CASS and on going through the schedule of Investment. It is seen that the assessee company has shown in opening balance as investment of Rs. 4,38,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Audited financial statement, Balance Sheet and Profit Loss A/c (copy enclosed) 2016-17 No documents available 2017-18 No documents available 2018-19 No documents available (v) that the details of all bank accounts/statements of the aforesaid company for the period 01.04.2010 to 31.03.2018 were furnished/provided as under Assessment Year Available records/documents 2011-12 All bank statements (copy enclosed) 2012-13 No documents available 2013-14 No documents available 2014-15 All bank statements (copy enclosed) 2015-16 No documents available 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order u/s. 143(1) of the I T Act, 1961 passed 2016-17 Order u/s. 143(1) of the I T Act, 1961 passed 2017-18 Order u/s. 143(1) of the I T Act, 1961 passed 2018-19 The return filed. (iv) that the details of audited financial statements of the aforesaid company for the F.Y. 2010-11 to F.Y. 2017-18 were furnished/provided as under : Assessment Year Available records/documents 2011-12 Audited financial statement, Balance Sheet and Profit Loss A/c (copy enclosed) 2012-13 No documents available 2013-14 No documents available 2014-15 No documents available 2015-16 No documents available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 The proceedings of re-assessment u/s.148 of the I T Act, 1961 are going on which will be barred on 31.12.2018. 2012-13 The proceedings of re-assessment u/s.148 of the I T Act, 1961 are going on which will be barred on 31.12.2018. 2013-14 Order u/s. 143(1) of the I T Act, 1961 passed 2014-15 Order u/s. 143(3) of the I T Act, 1961 passed (copy of order enclosed) 2015-16 Order u/s. 144) of the I T Act, 1961 passed (copy of order enclosed) 2016-17 Order u/s. 143(1) of the I T Act, 1961 passed 2017-18 Order u/s. 143(1) of the I T Act, 1961 passed 2018-19 The return filed. (iv) that the details of audited financial statements of the aforesaid company for the F.Y. 2010-11 to F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal scrutiny assessment in his case was made in A.Y. 2011-12 A.Y. 2012-13 and the same years have been re-opened with information that the assessee company receipt money out of sale of un-quoted shares which were kept in stock-in-trade. In the balance sheet of A.Y. 2011-12 A.Y. 2012-13, it appears that the assessee company has not shown any investment during the years. For A.Y. 2015-16 was in scrutiny through CASS and on going through the schedule of investment. It is seen that investment in shares of Indian companies raised from Rs. 17,72,18,750/- to Rs.17,76,33,750/- during the year. 9. That as the assessee company had in the course of assessment proceedings failed to comply with the notice issued under Sec. 142(1), dated 02.05.2018, therefore, the A.O issued summons under Sec. 131 of the Act calling upon it to produce certain specific documents in order to substantiate its claim of having raised genuine share application money/share capital from the aforesaid tainted share subscriber companies. As the assessee company failed to comply with the summons issued under Sec. 131 of the Act, therefore, on a reference made by the A.O to the JCIT(Central), Raipur pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further observed by him that the nature of expenditure booked by the aforesaid investor companies in neither of the case revealed any going concern. It was observed by the A.O that the bank statements of the investor companies only revealed transactions of receipt of funds which was followed by immediate transfer of the said funds either on the same day or the next day. The A.O considering the aforesaid factual matrix was of the view that the only purpose of the investor companies was to transfer funds in order to facilitate routing of the unaccounted money of the beneficiaries. The A.O culled out the peculiar extracts of the financial statements of the aforesaid investor companies, as under : S.No Investor FY Share capital Reserve Surplus Investment Income/turnover Profit (PBT) 1 Accurate Ashray P Ltd. 2010-11 5,218,000 256,003,931 76,305,721 102,634,000 1,960 2 Consistent Vinimay P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, viz. (i). copy of share application forms; (ii) allotment advices; (iii) financial statements of the investor companies a/w copies of their returns of income for the year under consideration i.e. A.Y. 2011-12; (iv) copies of PAN cards; (v) bank statements of the investor companies highlighting the transactions under consideration; (vi) certificate of incorporation of the investor companies; (vii) articles of association, memorandum of association of the investor companies; (viii) copies of share certificates; (ix) copies of the directors reports; (x) copies of the assessment orders of the investor companies; (xi) affidavits from the directors of the investor companies; and (xii) certificates of the bankers of the investor companies, but the A.O neither found favour with the explanation of the assessee company that it was in receipt of genuine share application money/share capital from the aforesaid 9 tainted Kolkata based share subscribers companies nor was inspired by the aforesaid documentary evidence which it had pressed into service in order to buttress its said claim. The A.O observing that the assessee company had failed to substantiate on the basis of documentary evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing aggrieved with the assessment order carried the matter in appeal before the CIT(Appeals), who not finding favor with the multi-facet contentions advanced by the assessee company, both as regards the validity of the assessment order passed under Sec. 147 r.w.s. 143(3) of the Act, dated 28.12.2018 as well as the merits of the case thus, upheld the assessment order. Apropos the validity of the assessment order passed by the A.O u/s.143(3) r.w.s. 147 of the Act the CIT(Appeals) was not inclined to subscribe to the contentions of the assessee and observed as under: 4.1 Ground No.1, 2, 3, 4, 9, 10, 11 14:- Through these grounds of appeal, appellant has challenged the legality of assessment order passed u/s 147 r.w.s. 143(3) of the Act. The AO during the course of search assessment proceedings observed that the assessee has bogus transactions/investment with the dummy/bogus concerns. Therefore, notice u/s 148 of the Act was issued on 27.03.2018 after recorded reasons for re-opening of the case. In reply various objections were raised by the Ld AR of the appellant, however, the AO has disposed off all the objections raised by the appellant. Thus, the AO has followed due procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Sheet/statement of affairs revealed that he have otherwise insignificant assets other than investment in the appellant. Section 68 of the Act cast onus on the appellant to satisfy the ingredients of Section 68 to establish the identity and creditworthiness of the creditors and to establish, the genuineness of the transactions. Once appellant filed the basic details such as name and address of creditor, PAN, income tax return, confirmation and bank statement, the initial onus gets discharged but since, the AO has doubted the creditworthiness of the lender and genuineness of the transaction as per the reasons cited and set out above, the onus shifts back to the appellant company to offer an explanation to the satisfaction of the AO as contemplated u/s 68 of the Act which could have been discharged by producing the lenders before the AO so that truth behind the smokescreen could have been unraveled by the AO by interrogating them. The burden/onus is cast on the appellant and the appellant is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction. All the constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record and surrounding facts and circumstances of the case. The creditworthiness or genuineness of transactions depends on whether the parties are related or known to each manner or mode by which parties approached each other, whether transaction was entered into through written documentation to protect investment whether investor professes and was an angel investor, quantum of money, creditworthiness of recipient, object and purpose for which payment/investment was made, etc. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. The lenders are not having creditworthiness to invest to the tune of Rs.38,30,50,000/-. The lender companies are hardly earning any income to invest such an amount as share capital including share premium to the appellant. Therefore, it is held that transaction is not genuine. These companies have no creditworthiness, financial worth or regular resources to justify, short term borrowings. The appellant has not discharged the genuineness of the transaction. The appellant has not established the ingredients of section 68 of the I.T. Act. Therefore, the credit is not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Assessee has not discharged the onus satisfactorily and therefore, the additions made by AO was justified Against the decision of Delhi High Court, SLV has been dismissed by the Supreme Court. N. Tarika Property Invest. (P.) Ltd. v. CIT (2016) 27 ITJ 149 (SC) : (2015) 12 STD 17 : (2014) 227 Taxman 373. 4. Share Application Money Identity and creditworthiness not proved Share application Assessee received share application money from MPFPL Identity of said company was not proved HELD Addition u/s. 68 shall be made. Sag Plastic Industries Pvt. Ltd v. ITO (2012) 20 ITJ 103 (Trib. Indore). 5. Share Application Money In case of Pvt. Ltd. Company, even transaction through cheque some more evidence required to prove genuine investment Share Application Money It was held by the Delhi High Court that in case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assesee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium Rs.10 share subscribed at a premium of Rs.90 per share In first year it is doubtful Established that transaction is not genuine Credits in form of share premium are not acceptable Share Premium First year of business Assessee issued shares having face value of Rs.10 per share at a premium of Rs.90 per share Assessee contended that the premium was received based on the vast experience of promoter of 30 years; and also that the investors were known to him Letter sent by AO to these parties were returned unserved AO himself visited Kolkotta, from where the money was received, but the parties were not traceable at the address AO also visited bank and verified that the amounts had been deposited immediately before issue of cheques for investment in shares Shares were brought back at a low price in next year HELD It is pertinent to note that in the first year, how could the assessee manage such share application on a premium of Rs.90 without doing any business or without creating goodwill AO has conducted detailed inquiry, which establish that the transaction is not genuine Credits in form of share premium are not acceptable. Vaibhav Cotton Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainable in the eyes of law. The Ld. AR in order to buttress his claim that the assessment in the case of the assessee company ought to have been framed u/s.153A of the Act took us through the said statutory provision. It was submitted by the Ld. AR that vide the Finance Act, 2017, w.e.f. 01.04.2017 the scope of an assessment u/s.153A of the Act subject to satisfaction of certain pre-conditions was extended to a period up to ten assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted u/s 132 of the Act or books of account, other documents or any assets were requisitioned u/s.132A of the Act after the 31st day of May, 2003 (but on or before the 31st day of March, 2021). The Ld. AR took us through the 4th proviso to section 153A of the Act. It was averred by the Ld. AR that where the A.O, inter alia, pursuant to a search initiated u/s.132 of the Act was in possession of books of account or other documents or evidence which revealed that the income of the assessee, represented in the form of asset, which had escaped assessment amounts to or is likely to amount to fifty lac rupees or more in an assessment year falling beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statements recorded u/s.132(4) of the Act of the directors of two share subscriber companies from whom share application money/share capital was claimed to have been received by the assessee company, viz. (i) Shri Khushpal Singh Bhatia, director of M/s. Muskan Dealers Pvt. Ltd. (from whom share application money/share capital received : Rs.4.41 crore); and (ii) Shri Sameer Das Gupta, director of M/s. Puja Dealcom Pvt. Ltd.( from whom share application money/share capital received : Rs.11,98,50,000/-). It was further submitted by the Ld. AR that the trial balance of the assessee company for the year under consideration i.e. 01.04.2010 to 31.03.2011 was found and seized during the course of the search proceedings and the same was marked as a seized document, viz. LPS-23-Page 26-27. Our attention was drawn by the Ld. AR to the aforesaid seized document, LPS-23-Page 26-27. The Ld. AR took us through a letter issued by the ADIT (Inv.)-1, Raipur, dated ..02.2018 addressed to the DCIT/ACIT-Circle-2, Raipur, vide which the copies of the statements of the aforementioned persons, viz. S/shri Khushpal Singh Bhatia and Sameer Das Gupta were made available to the A.O. Our attention was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revealed that the unaccounted income of the assessee company that was substantially more than the threshold amount of Rs. 50 lakh (as provided in the 4th proviso ) had escaped assessment; and the said unaccounted income was represented by underlying assets, viz. deposits in bank account (PNB A/c), land (leasehold), deposits, and loans and advances (asset) (as was revealed from the trial balance of the assessee company for the period 01.04.2010 to 31.03.2011 that was seized in the course of search proceedings and was marked as LPS-23-Page 26-27), therefore, the assessee had cumulatively satisfied the pre-conditions set-out in the 4th proviso of Section 153A of the Act. To sum up, it was the claim of the Ld. AR that going by the inferences which were drawn by the A.O (as could be gathered from the copy of the reasons to believe ) a/w. the facts discernible from the seized trial balance LPS-23-Page-26-27, it was proved beyond doubt that as per the evidences/documents in his possession the unaccounted income of the assessee company that was substantially more than Rs. 50 lakh (supra), which during the relevant assessment year was represented in the form of underlying assets, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med u/s.153A of the Act, then, the same by no means could have been made by the A.O u/s.147 r.w.s. 143(3) of the Act had pressed into service the judgment of the Hon ble High Court of Madhya Pradesh in the case of Ramballabh Gupta Vs. Assistant Commissioner of Income Tax, (2007) 288 ITR 347 (MP). Also reliance was placed by the Ld. AR on the order of the ITAT, Mumbai in the case of State Bank of India Vs. Deputy Commissioner of Income Tax, Circle-2(2), Mumbai, ITA Nos. 5420 5421/Mum/2011 and those of the ITAT, Vishakhapatnam in the case of Smt. Samanthapudi Lavanya Vs. ACIT, Central Circle, Vijayawada (2021) 127 taxmann.com 188 (Vishakhapatnam-Trib) and G. Koteswara Rao Vs. DCIT, Central Circle-1, Vishakhapatnam (2015) 64 taxmann.com 159 (Vishakhapatnam-Trib) and that of ITAT, Amritsar in the case of ITO Vs. Arun Kumar Kapoor (2011) 16 taxmann.com 373 (Amritsar). 18. Alternatively, it was submitted by the Ld. AR that the impugned assessment framed by the A.O u/s.143(3) r.w.s. 147 dated 28.12.2018 could even otherwise not be sustained. Elaborating on his aforesaid contention, it was the claim of the Ld. AR that as the A.O had initiated proceedings u/s.147 of the Act on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H Infrastructure Ltd. Vs. ACIT, (2017) 398 ITR 198 (Delhi); Pr. CIT-6 Vs. Meenakshi Overseas (P) Ltd. (2017) 395 ITR 677 (Delhi); and Pr. CIT-4 Vs. G G Pharma India Ltd. (2016) 384 ITR 147 (Delhi). Also support was drawn from the judgments of the Hon ble High Court of Bombay in the case of Pr. CIT Vs. Shodiman Investments Pvt. Ltd (2020) 422 ITR 337 (Bom); and Gateway Leasing (P) Ltd. Vs. ACIT, (2020) 426 ITR 228 (Bom) and that of the Hon ble High Court of Gujarat in the case of Kantibhai Dharamshibhai Narola v. DCIT (2021) 436 ITR 302 (Guj). 19. The Ld. A.R further submitted that the A.O had grossly erred in referring to the statements of S/sh. Narendra Jain and Champak Mandal, which as discernible from record were recorded in the course of some survey proceedings conducted by the department in the case of Shri. Narendra Jain (supra) way back on 11.04.2014. It was averred by the ld. A.R that a perusal of the statements (extracts) of the aforementioned persons did not in any way make any reference to the assessee or the share subscriber companies from whom share application money/share capital was received during the year. It was submitted by the ld. A.R that the A.O despite s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the basis of post search investigation and information gathered in the course of survey proceedings conducted on the share subscriber companies, therefore, the A.O remaining well within his jurisdiction had validly framed the assessment vide his order passed u/s.147 r.w.s. 143(3) of the Act dated 28.12.2018. In sum and substance, it was the claim of the Ld. DR that as the A.O on the basis of post search investigation/survey action had arrived at a bonafide belief that the income of the assessee company chargeable to tax had escaped assessment, therefore, no infirmity did emerge from the assumption of jurisdiction by her for initiating proceedings u/s.147 of the Act in the hands of the assessee company. Rebutting the claim of the Ld. AR that the proceedings u/s.147 of the Act were initiated on the basis of a borrowed satisfaction, it was the claim of the Ld. DR that a bare perusal of the reasons to believe revealed beyond any doubt that the A.O on the basis of information which was received from the Investigating Wing a/w. independent investigations conducted by her had after due application of mind arrived at a bonafide belief that the income of the assessee company chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Jain and Champak Mandal referred by the ADIT(Inv.)-1, Raipur in its letter dated ../02/2018, a mention of which was made by the A.O in her reasons to believe , it was submitted by the Ld. AR that a perusal of the said respective statements revealed that the same were recorded way back on 11.04.2014. Our attention was drawn by the Ld. AR to the statements (extracts) of both the aforesaid persons that were recorded on 11.04.2014 in the course of some survey proceedings conducted u/s.133A of the Act at the premises of Shri. Narendra Jain (supra). It was submitted by the Ld. AR that in the statements of neither of the aforesaid persons there was any reference of the assessee company or the share applicant companies from whom it was in receipt of share application money/share capital. Taking us through the letter dated ../02/2018 of the ADIT (Inv.)-1, Raipur, it was submitted by the Ld. AR that he had therein, inter alia, categorically observed that the quantification of the amount of Rs.38.30 crore (approx.) received as share capital/premium by the assesee company from the paper/shell companies was done on the basis of documents seized and other records. It was submitted by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Champak Mandal, both for initiating proceedings u/s 147 of the Act; as well as for drawing adverse inferences as regards the authenticity of the transactions of raising of share application money/share capital by the assessee company, but had despite specific requests by the latter neither made available the complete copies of their statements nor allowed their cross-examination, therefore, we shall first deal with the said material aspect. 25. As observed by us hereinabove the Ld. AR had drawn our attention to the copy of the reasons to believe , Page 288-289 of APB, which therein revealed that the statements of the aforementioned persons, viz. Shri Narendra Jain (entry operator) and his staff member Shri Champak Mandal that were recorded by the Investigation Wing, Kolkata was referred to and acted upon by the A.O for arriving at a belief that the assessee company in the garb of receipt of share capital/premium had laundered its unaccounted money. After obtaining a copy of the reasons to believe on 02.03.2018, the assessee had vide its letter dated 31.05.2018 raised its objections to the validity of the jurisdiction that was assumed by the A.O for reopening of its case u/s.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as merely provided extract of Statement of said Shri Narendra Kr. Jain and Shri Champak Mondal on 18.12.2018. Disclosure of part of the testimony is not justified. Full statement has not been provided to us. Proper inference cannot be drawn with the extract provided by your honor. There is very strong possibility that other part of the statement may contain some element which are contradictory to the portion/extract shared by your honor. 4. Your honor has given extract of Question No.18 w.r.t. statement of Shri Narendra Kr. Jain. The said question refers to reply given in response to Question 17. Without having access to details of Question 17 and balance portion of the statement it is impractical to comment on details mentioned in Question 18. (emphasis supplied by us) 26. Apart from that the assessee vide its aforesaid letter dated 21.12.2018 (supra) had specifically submitted before the A.O that as it was in no way related/acquainted with Shri Narendra Jain, therefore, no adverse inferences be drawn without facilitating a cross-examination of the said person. We find from a bare perusal of the aforesaid letter dated 21.12.2018 (supra) that the assessee had specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quainted with it be made available; before drawing of any adverse inferences on the basis of their statements which were recorded by the Investigation Wing, Kolkata, the A.O, however, did not yield to the same. We find from a perusal of the assessment order that the A.O had dispensed with the requirement of making available copies of the complete statements of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal. Also, as is discernible from the record, the A.O had declined the assessee s request for allowing a cross-examination of the aforesaid persons, viz. S/Shri Narendra Jain and Champak Mandal for the reason that the same as per her was not deemed to be necessary. The relevant extracts of the assessment order revealing the aforesaid factual position are culled out as under: 15.2 The assessee company was provided the relevant extract of the statements of Narendra Jain and Champak Mondal . 15.3 . 15.4 The assessee company was supplied the statements of Narendra Jain and Champak Mandal. As far as cross examination is concerned the same was deemed being not necessary On the basis of the aforesaid facts it trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o without making available to the assessee the complete copies of the statements of the said persons would by no stretch of imagination be held to be justified. We would at this stage not hesitate to observe that making available extract/portion of the statements of the aforementioned persons would be nothing better than eyewash. As the statements of the aforementioned persons had, inter alia, been pressed into service by the A.O not only the stage of initiating proceedings u/s 147 of the Act, but was also carried further for drawing of adverse inferences as regards the share application money/share capital received by the assessee company, therefore, in our considered view it was obligatory on the part of the A.O to have made available complete copies of the same specifically when the assessee had vide its letter dated 21.12.2018 (supra) requested for it. Our aforesaid view is all the more fortified by the fact that the assessee in the absence of the balance portion of the statements of the aforementioned persons that were withheld by the A.O had in a clear and unequivocal terms expressed its inability to comment on the details mentioned in the extracts made available to it. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the A.O. In our considered view the refusal to allow a cross-examination of the aforementioned persons is beyond doubt a flagrant violation of the basic tenements of the principles of natural justice. 30. Our aforesaid view that the A.O was obligated to have facilitated to the assessee a cross-examination of the aforementioned persons whose statements were, inter alia, pressed into service by her both for initiating proceedings u/s 147 of the Act; as well as for drawing adverse inferences as regards the authenticity of the transactions of receipt of share application money/share capital by the assessee company is supported by the judgment of the Hon ble Supreme Court in the case of M/s. Andaman Timber Industries Vs. Commissioner of Central Excise, Kolkata-II, C.A No.4228 of 2006 (SC) dated 02.09.2015. In the aforesaid case the Tribunal had upheld the rejection by the lower authorities of the assessee/appellant s request for allowing a cross-examination of the dealers whose statements were relied upon by the adjudicating authority while passing its order by observing as under: 6. The plea of no cross examination granted to the various dealers would not help the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law arises for our consideration. (emphasis supplied by us) 32. Also a similar view had been taken by the Hon ble High Court of Delhi in the case of Commissioner of Income Tax Vs. SMC Share Brokers Ltd. (2007) 288 ITR 345 (Delhi). It was observed by the Hon ble High Court that in the absence of cross-examination of a person on the basis of whose statement proceedings had been launched in the hands of the assessee, no adverse inferences could have validly been drawn. 33. On the basis of the facts involved in the case before us read a/w. the aforesaid settled position of law, we are clear in our mind that the A.O had grossly erred in law and facts of the case, both in withholding the copies of the complete statements of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal; and also by refusing to allow their cross-examination to the assessee despite its persistent requests for the same. Although the Ld. AR by drawing support from the aforesaid judicial pronouncements had tried to impress upon us that the failure on the part of the A.O to facilitate cross-examination of the aforementioned persons; and also making available complete copies of their statem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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