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TMI Blog2024 (7) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings? 2. Whether on the facts and circumstances of the case, the CIT(A) erred in holding that the AO re-opened the case on the basis of incorrect information to the extent of escapement of Rs. 1.47 crores and assessed the escapement at Rs. 5.60 crores ignoring the settled law that the reasons for re-opening could be a starting point for completing assessment but the assessment need not be restricted to the said amount when fresh facts were brought to light before the AO in the course of reassessment proceedings? 3. Whether on the facts and circumstances of the case, the CIT(A) was right to hold that the assessee successfully established the identity, creditworthiness and genuineness of the investors ignoring the fact the assessee did not discharge its onus of producing the said investors despite the AO giving ample time to do so? 4. Whether on the facts and circumstances of the case, the CIT(A) was right to hold that the assessee's contention of not being given the opportunity of cross examination of witness was correct despite the fact that the assessee itself submitted alleged affidavit of the same witness dated 27.12.2017 and submitted before the AO on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Priyank Myultitrade P. Ltd, iii) Akshaj Multitrade PLtd, iv) Adhik Multitrade P. Ltd and u) KCA Allied services P. Ltd. Mr. Vimlesh Kumar Singh, Director of the following companies i) Priyank MultitradePvt. Ltd. ii) Adhik Multitrade P. Ltd, Mr. Ranjit kumar Das Director of i) M/s Aadita Construction P. Ltd and ii) Aarjav Commodities P. Ltd Mr. Jay PrakashKandoi, Director of Aarjav Commodities Pvt. Ltd. and ii) Akshaj Multitrade Pvt. Lt. And Mr. Shyam Singh director of i) KCA Allied Services Pvt. Ltd. All the entities maintained current account with the Union Bank of India as under:- Sr. No. Name of Company Account no. 1. Aarajav Commodities Pvt. Ltd. 607701010050043 2. Akshaj Multitrade Pvt. Ltd. 607701010050044 3. Akul Multitrade Pvt. Ltd. 607701010050045 4. Anantika Infrastructure Pvt. Ltd. 607701010050046 5. Czaee Infrastructure Pvt. Ltd. 607701010050047 6. Hitee Infrastructure Pvt. Ltd. 607701010050051 There have been round amount enter account transfers amongst the above entities Summons dated 10.02.2011 were issued by speed post to all the entities including the directors Le. Shri Arun Behera and Shri Ranjit Kumar Das at their given. address and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross-examination of Shri Rajesh Kumar Bhutoria, and has added Rs. 5.60 lakh to the return of income. However, he did not mention any charging provisions for making the addition. The assessee being not satisfied, preferred appeal before the first appellate authority. 7. Before the learned CIT(A), the assessee submitted as under:- "5.0 During the appellate proceedings, the following submissions were made: With reference to the above appeal and under instructions from our above named client, we submit herewith their following submissions with a request that the same may please be accepted on record and sympathetically considered for allowing the relief as prayed for in the grounds of appeal: The brief facts of their case, are as under. They had filed their original return for the abovementioned Asst. Year on 28/09/2011, declaring Total Income of Rs. Nil. The said assessment has been re-opened by issuing notice u/s. 148 on 31/03/2017, on the basis of the information received from the Dy. Director, Unit -2(3), Investigation Wing, Kolkata, who had obtained the statement of one Mr. Rajesh Bhutoria on 14/11/2014. Mr. Bhutoria, in his said statement, had stated that he used to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances - Sirpur paper mills Ltd. v. ITO[1978] 114 ITR 404 (AP). Further, the Hon. Kolkata High Court has held "A mere confessional statement by a third party (who is a lender of the assessee) that he was a mere name-lender and that all his transactions of Loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment" S.P. Agarwalla alias Sukhdeo Prasad Agarwalla. ΤΟ [1983] 140ITR 1010(Cal.). Also in a recent decision of Hon. Bombay High Court in case of Paradise Inland Shipping Pvt. Ltd., 400 ITR 439, on appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under- The notice of reassessment had been issued on the ground that the shareholders of the assessee company were fictitious persons. The shareholders were other companies. The documents which had been produced were basically from public offices, which maintain records of companies. The documents also included the assessment orders of such companies for the three preceding years. Besides the documents also included the registration of the companies which disclosed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. 53,00,000 Total: 5,60,00,000 Further, during the assessment proceedings the assessee company had filed the following details of all the above-mentioned companies before the Ld. A.O. as can be appreciated from the paper book submitted and which is on Your Honour's record: - The copy of their PAN card issued to them by the Income Tax Department. - Income Tax Return alongwith their computation of total income for the relevant year. - Copy of memorandum of association and articles of association alongwith the copy of certificate of incorporation. - Complete set of audited financial statements of all the companies for the relevant year. - The bank statements, establishing that the above transactions were by cheque payment only. The above details established the following facts: 1. The identity of all the companies, were proved beyond doubt by the evidence of their pan card copies, copies of their income tax returns and copies of form 18 filed by them with ROC. 2. The genuineness of the transaction was established from the bank statements of all the companies that were filed. This established the fact that the share application money was received by Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Pvt. Ltd. 6,44,25,464 6,29,25,464 15,00,000 Czaee Infrastructure Pvt. Ltd. 2,77,00,307 2,67,00,307 10,00,000 Hitee Infrastructure Pvt. Ltd. 4,43,00,447 4,28,00,447 15,00,000 Jasum Real Estate Pvt. Ltd. 4,47,50,486 4,34,50,486 15,00,000 Powered Multitrade Pvt. Ltd. 6,76,00,440 6,56,00,440 20,00,000 Sanobar Infrastructure Pvt. Ltd. 4,60,47,775 4,45,47,775 15,00,000 Spectacular Infrastructure Pvt. Ltd. 4,50,30,562 4,25,30,562 25,00,000 Taurus Viniyog Pvt. Ltd. 4,39,59,941 3,14,56,941 1,25,00,000 Vidya Buildcon Pvt. Ltd. 6,22,50,422 6,12,50,422 10,00,000 Adhik Multitrade Pvt. Ltd. 4,46,00,660 3,93,00,660 53,00,000 TOTAL 5,60,00,000 The clear evidence of the above Concise Investment Portfolio prepared from the Balance sheets of those Companies submitted to the Ld. A.O., establishes the fact that all the said Companies were having more than Sufficient Funds of their own to Invest in the Shares of the Assessee Company and that their Current or Past Year's Profits were not at all required to be considered as a parameter of any sort for considering the Creditworthiness of the said Companies. As regards the assumption of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity. Therefore the Ld. A.O. is not justified in contending that these companies do not have any business activities. In view of the above details and evidences, which proved the bonafide of the receipt of Share Application Money and that too by Cheque/RTGS, the Ld. A.O.'s Adamant Attitude of not Applying his mind to any of the Details, which were required to be Examined and Verified by him as per his duties, before coming to a Judicious Conclusion in the matter, is nothing but Suspicious Prejudice leading to Injustice to the Assessee. We would also like to draw Your Honour's attention to the Delhi High Court's Decision in the case of CIT Vs. Gangeshwari Metal Pvt. Ltd. 361 ITR 10, Wherein it is held that "where amounts are shown as share application money it is a simple question of whether the assessee has discharged the burden placed upon it under Section 68 of the Income Tax Act, 1961, to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in its possession and then merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not proved merely on the basis of the Statement of Shri Rajesh Bhutoria recorded in 2014, without even verifying the Affidavit of Mr. Rajesh Bhutoria, dated 27/12/2017, before the Metropolitan Magistrate, Kolkata, submitted to him, in which he had clearly and unambiguously affirmed that the transactions with Greenedge Constructions Pvt. Ltd. were genuine and were supported by necessary documents. Further, the Ld. A.O. has also not cared to enforce the attendance of Mr. Arun Behra and Mr. Bhutoria, on whose statement of 2014, he is heavily relying on, even though the summons were served on them as the primary burden of producing Mr. Bhutoria is on the Ld. A.O. It is also to be noted that the Ld. A.O. has done grave injustice to the Appellant by not allowing the cross-examination of Mr. Bhutoria even though he was specifically requested for the same, merely by contending that "it is humanly not possible for the brokers to be present for oral cross-examination in all cases where the magnitude of the case is not less than a scam". In this regard we would like to draw Your Honour's attention to the fact that except the said statement of Mr. Bhutoria, the Ld. A.O. has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court's Judgment in the case of M/s. Ashish International wherein it has been held that "That A.O. should have given an Opportunity to the assessee to cross examine the witness. That veracity of the information can be determined only when assessee is offered an opportunity to cross examines the person providing information to the A.O. That if cross examination is not provided, then it will clearly amount to breach of principle of natural justice." It is also to be noted that the Hon. Bombay High Court in the case of Paradise Inland Shipping Pvt. Ltd., 400 ITR 439, has even struck down the notice u/s. 148, when the Ld. A.O. had not allowed the cross examination. Therefore, the said action of the Ld. A.O. in not allowing the Cross-examination and adding the Share Application Money without bringing on record any cogent or clinching evidence or pointing out any anomaly in the evidences placed before him, is totally against the principle laid down by the Hon. Supreme Court and Jurisdictional High Court. Hence, we request Your Honour to kindly delete the said Addition made u/s. 68 as Our Client has not only proved the entity of the Shareholders, the Genuineness of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing the fact that the said companies were paper companies. It is to be noted that even though the Ld. A.O., time and again has been harping on the theory that the assessee was having unaccounted money and that has been brought back, he has not established the said fact, with any cogent or clinching evidence. He has also failed to appreciate the fact that all the companies, whose all the documents including certificate of incorporation, audited financial statements, bank statements, copies of income tax returns that were submitted to him during assessment proceedings, could not be considered as "Bogus Companies", without thoroughly examining all the said documents and cross verifying the said details from the concerned income tax officers of the said companies. The Ld. A.O. has also miserably failed to appreciate that merely because the companies do not have profits or do not have sufficient capital as per his assumption, presumption, suspicion and surmises, it cannot be said that they do not have creditworthiness, or they are bogus. If that was the case, no businessman would ever be able to do business with bank's or outsider's funds. It is also to be noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies) itself to advance loan to assessee", without even enquiring with the said companies about the nature of transactions the said companies had with the group companies. In view of the above, we humbly reiterate that the share application money received by Our Client should be accepted as genuine as Our Client has proved the identity, capacity and credit worthiness of all the parties and the Ld. A.O. has merely rejected all the evidences by blindly relying on the earlier statement of Mr. Bhutoria, which has not been supported with any corroborative evidence worth its name. We would like to once again draw Your Honour's attention to the fact that the notice u/s. 148 is void ab initio and Bad in Law as mentioned in our earlier submissions and as the said notice has been issued without affording the cross examination of the concerned person as held by the Bombay High Court. Under the circumstances, we humbly request Your Honour, to kindly quash the reassessment proceedings in the interest of justice and equity." 9. The learned CIT(A), after considering the remand report of the Assessing Officer, reply of the learned A.R. and other documents available before him, delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was served on him. 7.2 Against this, the appellant has submitted all the details and evidences including the Affidavit of Mr. Bhutoria, before the Metropolitan Magistrate, clearly stating that the transactions entered into by his company with the appellant company are genuine. Therefore, there were two sets of statements by the same person before the AO. The logical and responsible action of any Assessing Officer would be rule out the anomalous statement or prove with certainty which of these two statements was related directly to the appellant and had evidentiary value against the appellant. I find that the AO, other than issuing summons u/s. 131, did not think it important to pursue the matter and enforce the summons- as it was convenient to proceed on the basis of the first statement which was beneficial for his cause. Be that as it may, the AO's action in outright rejection of the sworn statement before the Metropolitan Magistrate is found to be irregular as this statement / evidence has not been controverted by him through any 'adverse evidences'. 7.3 On the issue of the statement recorded by the officer of the Investigation wing, Mr. Bhutoria did not provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the later sworn statement, in case the AO disbelieved such affidavit. I find that no further attempt other than brushing aside this statement, was made by the AO. I find that the A.O. has failed to show as to how the appellant, even after submitting all the details that are required, has not satisfactorily explained the transaction, even when he has not examined or verified the same by enforcing the attendance of the person on whose statements, he is relying on. 7.6 The A.O. has also failed in his judicial duties by denying the opportunity to the appellant, even though he was specifically requested for the same. The contention of the AO that providing such opportunity is not necessary for the Assessing authority reflects a dismal ignorance of due processes of law. It is noted that Mr. Bhutoria's statement which was given before the Investigation Wing was not backed by any evidences, and Mr. Bhutoria has also not mentioned the name of the appellant company in his said statement on which the AO has heavily relied on, as being a beneficiary of the alleged accommodation entries. Therefore, the statement of Mr. Bhutoria given in matters NOT pertaining to the appellant has no leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investment made in other companies. The said evidences prove the availability of funds with the said company and its creditworthiness. The appellant has also submitted their bank statements. The bank statements of the appellant company as well as of the said companies were also furnished which clearly establish the fact that share application money has been received by the appellant through RTGS from the bank account of the said companies and thus the genuineness of the transaction is also established. In the face of such overwhelming evidence there was no basis what so ever for the AO to come the conclusion that the share application money received by the appellant from the said companies was unexplained. To 7.10 It is necessary to go through the balance sheets of these companies to understand if the said companies are paper companies as concluded by the AO. The investment schedule annexed to the balance sheet of all the above companies showed that these two companies had made investment in many other companies and that these companies were having their own sufficient funds for investment in the shares of the appellant company also. Thus it can be seen that each of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the said share allotment transactions, it is found that the appellant has discharged its onus of establishing the identity of the purchaser/investor and genuineness of the transaction. Taking into consideration of all the above, I find merit in the argument of the counsel for the appellant that the primary burden cast on the appellant was duly discharged. The issue of primary onus is to be weighed on the scale of evidence available on the record and the discharge of burden by the appellant is also to be decided on the basis of documents filed by the appellant and facts and circumstances of the case and on that basis a reasonable view is to be taken as to whether the appellant has discharged the primary onus of establishing the identity of share applicant, its creditworthiness and genuineness of the transaction. In this regard, the Hon'ble Delhi High Court in Commissioner of Income Tax Vs. Divine Leasing & Finance Ltd. 2008 (299) ITR 268 (Del.) had held as under:- 13. There cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bscriber the genuineness of the transaction and the veracity of the repudiation" 7.13 The preceding enumeration of the circumstances of the case shows that the appellant had furnished all relevant data before the AO, which, however, were not inquired into by the AO. Instead he obdurately adhered to his initial understanding that the entire transaction was neither creditworthy nor genuine. The appellant has relied upon the documents to prove that the monies had been received through banking channels from all the investor related companies; it had produced copy of bank statement, copy of Form 2 filed before ROC etc. for the years 2011-12 and the confirmation given by the remitters towards remittance of share capital etc. This was all that the appellant could have furnished in the circumstances. It could not be expected to prove the negative that the monies received by it were suspicious or not genuine infusion of capital etc. The appellant had discharged its burden of proof in terms of the settled dicta in Divine Leasing (supra). It is only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect belief that Aadita Construction P. Ltd., Aarjav Commodities P. Ltd., Priyank Multitrade P. Ltd., Adshaj Multitrade P. Ltd., had given accommodation entry to the appellant of Rs. 1.47 crs. The assessment was completed by making an addition of Rs. 5. 60 crs. This indicates that the AO was himself not sure of the authenticity of the statement of the third party on which the reopening was made. Therefore, the action of the AO in reopening the case based on incorrect information is clearly unjustified, as the material facts and evidences proved otherwise. In this regard, the Hon. Andhra Pradesh High Court has held that "Income Tax Department cannot be permitted to bring fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances" - Sirpur Paper mills Ltd. v. ITO[1978] 114 ITR 404 (AP). 9.1 Further the Hon. Kolkata High Court in the case of S. P. Agarwalla alias Sukhdeo Prasad Agarwalla. ITO [1983] 140ITR 1010(Cal.) has held that "A mere confessional statement by a third party (who is a lender of the assessee) that he was a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5,60,00,000/- is hereby deleted. The grounds of appeal are therefore allowed. The Revenue being aggrieved filed appeal before the Tribunal. 10. Before us, the learned Departmental Representative vehemently argued that the matter is a part of nation-vide scam and the assessee is one of the beneficiaries ploughing back its own unaccounted money in the form of share capital and premium. Thus, he submitted that the learned CIT(A) has erred in both law and facts````````` in grating relief. 11. On the other hand, the learned A.R. requested that the order of the learned CIT(A) is watertight and cogent and no interference is required at this stage. He relied upon the judgment of the Hon'ble Madhya Pradesh High Court in PCIT v/s Chain House International Pvt. Ltd., [2018] 408 ITR 561 (M.P) to buttress his submissions (SLP dismissed on 18/12/2019). The relevant part of the judgment is reproduced below:- "Held, there was no dispute about receipt of funds through banking channel nor there was any dispute about identity, creditworthiness and genuineness of investors and, therefore, same had been established beyond any doubt and there should not had been any question or dispute about prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is was a mutual decision between both the companies. In day to day market, unless and until, the rates is fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. Once the genuineness, creditworthiness and identity of investors are established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case. There is no dispute about the receipt of funds through banking channel nor there is any dispute about the identity, creditworthiness and genuineness of the investors and, therefore, the same has been established beyond any doubt and there should not have been any question or dispute about premium paid by the investors; therefore, unless there is a limitation put by the law on the amount of premium, the transaction should not be questioned merely because the assessing authority thinks that the investor could have managed by paying a lesser amount as Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistrate. Even in the remand report, the Assessing Officer has not done any verification to contradict the humongous evidences adduced by the assessee and to challenge its authenticity. Accordingly, the entire addition made by the Assessing Officer is based on mere surmises and conjectures and has no legal legs to stand upon. Accordingly, we find no merit in the grounds of appeal raised by the Revenue. The re-opening was initiated on the basis of barrowed satisfaction and the Assessing Officer could not bring out the live nexus of information leading to re-assessment. There are lots of infirmities in the reasons recorded. At this juncture, let us once again draw attention to the reasons recorded in the order of assessment. "As per the information received in this office from O/o Deputy Director of Income Tax (Inv.), Unit-2(3), Kolkata, that in F.Y. 2010-11 credits in assessee's account from following companies are under mentioned. Sr. No. Name of Company Beneficiary Amount (Rs. ) 1. Aadita Construction Pvt. Ltd. M/s. Greenedge Construction 22,00,000 2. Aarjav Commodities Pvt. Ltd. M/s. Greenedge Construction 79,00,000 3. Priyank Multitrade Pvt. Ltd. M/s. Greene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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