9911796707
TMI Blog2023 (3) TMI 1348X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, the learned assessing officer had no reason to believe or had formed no belief regarding the escapement of income of the assessee and has issued notices u/s.147 merely on the basis of information supplied by allied officer and on the basis of suspicion, surmises and conjectures. 3. Ground 3: That on the facts and in the circumstances of the case the learned assessing officer erred in rejecting the objection to the assumption of the jurisdiction by the learned assessing officer. 4. Ground 4: That assessee Company is yet to start commercial operation, no Income, whether taxable or exempt, has been earned and no expenses have been incurred of revenue nature, there is no question of assessee earning undisclosed income. Thus, addition made is bad in law, against law of natural 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has erred in completing the assessment without reference to any seized document pursuant to search at the premises of the assessee. 16. Ground 16: That on the facts and in the circumstances of the case the learned assessing officer erred in completing the assessment based on suspicion, surmises and conjectures. 17. Ground 17: That on the facts and in the circumstances of the case appeal dismissed by the CIT(A) rejecting the plea of the assessee without considering the evidences filed before AO and additional evidences filed before Ld. CIT(A). Thus addition made by AO and sustained by CIT(A) is bad in law and may kindly be quashed. 18. The appellant craves leave to add, amend, alter and delete the ground(s) of appeal at time of hearing the appeal." 2. Succinctly 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000 Total 38,30,50,000 The A.O after deliberating at length on the modus operandi that was adopted by bogus/shell companies to provide accommodation entries was of the view that the assessee company in garb of receipt of share application money/share capital from the aforementioned paper/shell companies had in fact laundered 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulously followed the rules/procedure prescribed under law nor had maintained the statutory records at its registered office, viz. 35/75, Punjabi Colony, Katora Talab, Raipur in itself was a strong circumstantial evidence which proved the falsity of its claim of having received genuine share application money/share capital from the 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 Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 stated that he has no knowledge of these documents. (vii) Bank accounts of Kolkata based companies were opened in Punjab National Bank, Raipur and Dena Bank, Rajnandgaon. (viii) Statements of Dummy Directors shows that, it was an arrangement/sham Transaction to garb unaccounted income of Sona (Bhatia) Group to introduced 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 accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 No documents available 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All bank statements (copy enclosed) 2012-13 No documents available 2013-14 No documents available 2014-15 All bank statements (copy enclosed) 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. 4,38,00,000/- in M/s Sona Power Pvt. Ltd." 3. Puja Dealcom P Ltd. (i). that the investor company had no physical existence at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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. 12,16,00,000/- 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 investment in shares of Indian companies raised from Rs. 2,54,43,110/- to Rs. 1,40,28,110/- during the year." 4. Puja Tie-up 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 in the issue of investment made by M/s Puja Tie Up Pvt. Ltd. In the M/s Sona Power Pvt. Ltd. Please forward the assessment order of M/s Sona Power Pvt. Ltd. For A.Y. 2011-12 on which the fate of the M/s Puja Tie Up Pvt. Ltd. depends. 2012-13 Order u/s. 143(1) of the I T Act, 1961 passed 2013-14 Order u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings 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.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 Audited financial statement, Balance Sheet and Profit & Loss A/c (copy enclosed) 2013-14 No documents available 2014-15 No documents available 2015-16 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 01.04.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss was on account of acquisition of such jamakharchi companies by their beneficiaries. The A.O analyzed the authorized/subscribed capital of the aforesaid investor companies by way of a chart reproduced at Page 49-50 of his order. It was, inter alia, observed by the A.O that members of the assessee group were taken up as directors in some of the aforesaid paper/shell investor companies and they along with the old name sake directors remained on the board of directors. It was further observed by the A.O that the directors of the aforesaid companies were further directors in multiple Kolkata based companies which had an identical pattern of shell companies. It was observed by him that some of the companies in which the directors were further directors happened to be the investor companies. Considering the circuitous nature of setup of the aforementioned investor companies, it was further noticed by the A.O that some of the directors of the said companies were either entry operators or were being controlled by some operator. The A.O culled out the details as regards the directors of the investor companies a/w the details of the other paper/shell companies in which they were directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein, vide his 'Show Cause Notice' (SCN), dated 29.11.2018 a/w the requisite data in a CD (as an annexure) called upon the assessee company to put forth an explanation as to why the share application money/share capital received from the aforesaid 9 paper/shell companies may not be treated as its unaccounted income and brought to tax in its hands. Although the assessee company in its attempt to impress upon the A.O that it was in receipt of genuine share application money/share capital from the aforementioned share applicant companies placed on his record certain documentary evidence, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r relying on a host of judicial pronouncements was of the view that the assessee company had failed to establish the identity and creditworthiness of the investor companies as well as the genuineness of the respective transactions of receipt of share application money/share capital of Rs. 38.30 crores (approx.), and thus, held the same as unexplained cash credits under Sec. 68 of the Act. Accordingly, the A.O vide his order passed under section 143(3) r.w.s. 147 of the Act, dated 28.12.2018 assessed the income of the assessee company at Rs. 38.32 crores (approx.). 13. The assessee being 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not sufficient to discharge the onus cast on the appellant as contemplated u/s.68 of the Act just-giving addresses and PAN of the companies concerned when the AO has doubted the creditworthiness/capacity of the company having meager means and known sources of income to have invested huge amount in lending. The genuineness of the transaction were also doubted by the AO wherein the lenders did not have any business/project in hand and is merely a persons of meager means, as it is brought on record that these lenders are persons of meager means declaring nominal income and his Balance 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 rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established. The M.P. High Court held in the case of CIT v. Rathi Finlease Ltd wherein considering the judgment of Hon'ble Supreme Court in the case of CIT v Steller Investment and the judgment of Hon'ble Supreme Court in the case of Lovely Export Ltd., Hon'ble High Court has held that each and every transaction of share application money involving application of provisions of section 68 in matter of contribution of share application/share capital and whether this onus on the assessee has been discharged or n9t has to be appreciated on totality of evidences available 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 discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced that bank statement furnished during the original assessment proceedings was fabricated and misled the AO. The AO found that the Assessee had adopted unfair practice by adducing false evidence to get undue advantage of giving colour of genuineness to bogus entries through fabricated bank accounts - The AO held that the said companies had no creditworthiness, financial worth or regular resources to justify their subscription of share capital money - The assessee has not discharged the genuine of the transaction and therefore, the AO made additions - The Delhi High Court held 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. Indor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction - Assessee furnished various documents to prove the transaction - On inquiry, the companies were found to be non-existent - Noticed issued to them were returned unserved - HELD - Assessee is not able to establish identity of investors - Merely filing PAN, IT returns, Certification of incorporation, Balance Sheet etc. do not establish the identity of subscribers or produce them - Addition u/s. 68 shall be made. Agrawal Coal Corporation P. Ltd v. Addl. CIT (2011) 18 IV 717 (Trib. - Indore) : (2012) 135 ITD 270: (2011)142 TTJ 409: (2012) 13 ITR(7) 531. 8. Share Premium - 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which though was to be framed u/s.153A of the Act had wrongly been framed by the A.O vide his order passed u/s.143(3) r.w.s 147 of the Act, dated 28.12.2018; AND (ii) alternatively, as the impugned "reasons to believe" forming the very basis for reopening of the assessee's case u/s.147 of the Act were based on a borrowed satisfaction of the Investigating Wing, Raipur, therefore, the assumption of jurisdiction and framing of the consequential assessment by the A.O vide his order passed u/s.143(3) r.w.s. 147 dated 28.12.2018 was also on the said count not sustainable 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 requisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.12.2018 was liable to be quashed for want of valid assumption of jurisdiction on his part. Taking us through the "4th proviso" to Section 153A of the Act, it was submitted by the Ld. AR that the requisite conditions therein contemplated were fully satisfied in the case of the assessee company for A.Y.2011-12. Elaborating on his aforesaid contention, it was the claim of the Ld. AR that a perusal of the "reasons to believe" that were recorded by the A.O for initiating the impugned proceedings u/s.147 of the Act revealed that he, inter alia, was in possession of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration which was seized during the course of the search proceedings, viz. LPS-23-Page 26-27 therein revealed that the share application money/share capital received from the aforesaid share applicant companies was represented by corresponding assets, i.e., land, loan and advances, deposits, investments and bank account. Referring to the definition of the term "asset" as contemplated in the "Explanation 2" of the "4th Proviso" to Section 153A of the Act, it was submitted by the Ld. AR that as the A.O was in possession of the aforesaid evidences/documents which 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-ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder a statutory obligation to have framed the assessment u/s.153A of the Act for the relevant assessment year i.e. A.Y.2011-12. It was submitted by the Ld. AR that as the A.O had traversed beyond his powers and illegally assumed jurisdiction u/s.147 of the Act, therefore, the assessment framed by him u/s.143(3) r.w.s 147 dated 28.12.2018 could not be sustained and was liable to be struck down on the said count itself. The Ld. AR in support of his claim that now when as per mandate of law assessment in the case of the assessee company was mandatorily to be framed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication of mind on her part, therefore, the impugned order so passed de hors valid assumption of jurisdiction could even otherwise not be sustained and was liable to be struck down. The Ld. AR in order to fortify his contention that reopening of an assessment by the A.O merely on the basis of information received from the Investigating Wing i.e., in absence of any independent application of mind cannot be sustained had relied on the judgments of the Hon'ble High Court of Delhi in the cases of Signature Hotels (P) Ltd. Vs. ITO, (2011) 338 ITR 51 (Delhi); SABH 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R had tried to impress upon us that no adverse inferences as regards the authenticity of the assessee's claim of having received genuine share capital/premium from the aforementioned share subscriber companies were liable to be drawn, but after arguing for some time he did not carry his said contentions any further. 21. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the proceedings u/s.147 of the Act were initiated in the case of the assessee company 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 initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . its other group entities in the garb of share capital/premium had laundered their unaccounted income. Our attention was drawn by the Ld. AR to the fact that the copies of the statements of the aforementioned persons, viz., S/shri Khushpal Singh Bhatia and Sameer Das Gupta that were recorded u/s.132(4) of the Act in the course of the search proceedings conducted on the assessee company were thereafter made available by the ADIT (Inv.)-1, Raipur as an "annexure" to its aforesaid letter dated ../02/2018. Adverting to the statements of the S/shri Narendra 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dal that were recorded by the Investigating Wing, Kolkata for drawing adverse inferences in the hands of the assessee company without making available copies of their complete statements and allowing it an opportunity to cross-examine the said persons despite persistent requests? 24. As the assessee has assailed the validity of the assessment framed by the A.O u/s.147 r.w.s. 143(3) dated 28.12.2018, inter alia, on the ground that though the A.O had pressed into service the statements of the aforementioned persons, viz. S/sh. Narendra Jain and 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, the probability that the other part of the respective statements which were withheld by the A.O may contain some element which was contradictory to the portion/extract as was being referred to for drawing adverse inferences did exist and could not be ruled out. For the sake of clarity the request of the assessee company seeking copies of the complete statements of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal vide its letter dated 21.12.2018 is culled out as under (relevant extract): "2. Your honor has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess and providing the assessee an opportunity to cross examine the said witness sought to be relied upon by your honor." (emphasis supplied by us) 27. Although the assessee had vide its letter dated 21.12.2018 (supra) specifically came forth with its two fold requests, viz. (i) that complete copies of the statements of the aforementioned persons viz. S/Shri Narendra Jain (Entry operator) and Champak Mandal be made available; and (ii) that an opportunity to cross-examine the aforementioned persons who were in no way related/acquainted 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance in the claim of the assessee that proper inferences could not be drawn in the absence of complete details as there could be strong possibility that the remaining part of the statements that were withheld by the A.O might have contained some element which would be in contradiction of the extract/portion made available to the assessee. Be that as it may, we are of the considered view that a blind reliance on the statements of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal that were not even recorded by the A.O but by the Investigation Wing, Kolkata, and that too 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 mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, a cross-examination of the aforementioned persons was indispensably required. Although the assessee had specifically requested the A.O for allowing a cross-examination of the aforementioned persons, viz. S/Shri Narendra Jain and Champak Mandal, but we find that the same was declined by her for the reason that the same as per her was not deemed to be necessary. We are absolutely unable to comprehend as to how a cross-examination of the third party whose statements had been pressed into service for drawing of adverse inferences in the hands of the assessee company could have been declined 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 capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior counsel who appeared for the Revenue. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proceedings. The Hon'ble High Court while concluding as hereinabove had observed as under: "Once there is a violation of the principles of natural justice inasmuch as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. Following the approach adopted by us in SMC Share Brokers (supra), we see no reason to interfere with the impugned order. No substantial question of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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