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TMI Blog2010 (8) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... D is to be charged from the period 1-6-2003 till the completion of regular assessment - Decided in the favour of the revenue - In the result, the appeals of the assessee in both the assessment years are treated as partly allowed - 955 AND 956 (JP.) OF 2009 - - - Dated:- 20-8-2010 - R.K. GUPTA, JUDICIAL MEMBER J, AND N.L. KALRA, ACCOUNTANT MEMBER J, Mahendra Gargieya for the Appellant . Smt. Irina Garg for the Respondent . Order Per N.L. Kalra, Accountant Member. The assessee has filed the appeals against the respective orders of the ld. CIT(A)-I, Jaipur dated9-11-2009for the assessment years 2004-05 and 2005-06. 2. The issue raised in both the appeals are same and therefore, the order of the ld. CIT(A) is similar for both the assessment years. First of all, we will take up the appeal for the assessment year 2003-04. 3. The first grievance of the assessee is that the ld. CIT(A) has upheld the validity of reopening of the assessment. 4. The assessee-company is engaged in the trading of Mutual Funds units and is also having rental income. The return filed for the assessment year 2003-04 was processed under section 143(1) of the Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3rd Floor, Kolkata 10,000 1,00,000 9,00,000 10,00,000 10. Warner Multimedia (P.) Ltd. 75-C,Park Street, Kolkata 5,000 50,000 4,50,000 5,00,000 11. Chartered Finlease Ltd. B-43, Mahesh Nagar, Jaipur 20,000 2,00,000 18,00,000 20,00,000 Total 15,50,000 15,50,000 1,39,50,000 1,55,00,000 All the above companies are belonging to M/s. B.C. Purohit Co. entry operator who are engaged in the business of providing accommodation entries by way of receiving cash from beneficiaries parties and issuing cheques in favour of beneficiary parties against receiving of commission. The assessee-company has not provided specific date of receipt of above mentioned share capital and share premium but on the basis of returns of income filed for assessment years 2003-04 and 2004-05, it is noticed that the increase in share capital and share premium in both the years are on account of accommodation entries is as under : Assessment year 2003-04 Opening balance as on 1-4-2002 Closing balance31-3-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at M/s. B.C. Purohit Co. used to get 2 per cent to 2.5 per cent commission on the gross amount for giving legal shape to such sham transaction. 6. The assessee in his objection against reopening of the assessment submitted that the reassessment proceedings have been initiated on suspicion. The Assessing Officer while disposing off such objection, vide order dated 21-1-2008 copy of which available at pages 25 to 33 of the Departmental paper book, mentioned that the reassessment had been initiated on the basis of the materials gathered during the search and seizure operation under section 132 of the Act in the case of M/s. B.C. Purohit Co. The Assessing Officer has reasons to believe that share capital and share premium received by the assessee from the bogus concerns floated by M/s. B.C. Purohit Co. were bogus entries. The income in the form of bogus entries has escaped assessment and therefore, notice under section 148 has been issued. 7. The second objection of the assessee was that it has not been established that all the 11 shareholders companies belonged to M/s. B.C. Purohit Co. in terms of any relationship. The Assessing Officer while disposing off such objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the Act and not under the proviso to section 147 of the Act. 11. The assessee also raised the following five objections : 1. The assessee has disclosed all facts and materials fully and truly along with the return of income and during the assessment proceedings. The assessee-company also produced the names of the shareholders. It is unlawful on the part of the Assessing Officer to issue notice for reassessment proceedings without making any enquiry from all share- holders. 2. The assessee-company has received share capital from the companies through account payee cheque and all such cheques have been deposited in the bank account of the company. The shareholders of the company are identifiable. 3. The assessee-company has proved all the three ingredients of section 68 of the Income-tax Act, 1961. To support that shareholders were genuine and creditworthiness is proved, the assessee enclosed necessary details in respect of incorporation of such companies and details of cheques vide which amounts were received. 4. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention of the AR is considered. The reopening proceedings were initiated by the Assessing Officer after recording the reasons and providing copy of reasons recorded, to the appellant. For issue of notice under section 148 only prima facie belief is necessary. From the information received and reasons recorded, the Assessing Officer had prima facie belief that companies from whom share capital/share premium were obtained by the appellant belong to M/s. B.C. Purohit Co. and M/s. B.C. Purohit Co. and its companies were only entry operators engaged in the business of providing accommodation entries. Thus, legal requirements were fulfilled by the Assessing Officer and notice issued under section 148 by the Assessing Officer was valid. Both the grounds of appeal are decided against the appellant. 15. During the course of proceeding before us, the ld. AR has filed the paper book in two parts containing 635 pages. The ld. AR also filed another paper book of 79 pages containing copies of the decisions on which he has placed reliance. The ld. AR has also filed the written submission containing 5 pages. The ld. AR submitted that the belief of the Assessing Officer must of an h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312. The ld. AR drew our attention to the following paragraphs from the above judgment : 4. On going through the changes, quoted above, made to section 147 of the Act we find that prior to Direct Tax Laws (Amendment) Act 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at pages 5 to 9 of the paper book containing decision. The ld. AR also referred to the decision of Hon ble Delhi High Court in the case of Jay Bharat Maruti Ltd. v. CIT [2009] 180 Taxman 192. From this decision, the ld. AR submitted that reason to believe for purpose of section 147 must be of a reasonable person. If the reasons mentioned for the reopening of the assessment does not make a reasonable person to believe then the reopening of the assessment is bad in law. The ld. AR referred to the decision of this Tribunal in the case of Motilal Ankit Kumar v. ITO 37 TW 93. Our attention was drawn towards para 1.7 in which it held that reassessment notice was invalid because limitation under section 153 for completion of regular assessment was still available. 18. On the other hand, the ld. DR filed two paper books for the assessment years 2003-04 and 2004-05 containing 296 pages and 185 pages. The ld. DR drew our attention towards statement of Shri Sushil Kumar Purohit and Shri Pawan Purohit recorded during the course of search proceedings. The ld. DR submitted that the return filed by the assessee was processed under section 143(1) of the Act and no assessment was made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon ble Apex Court is that intimation under section 143(1) is not an assessment. Once it is not an assessment then there was no occasion with the Assessing Officer to form an opinion on the basis of the document attached with the return of income. Hence, in a case where the return is processed, there cannot be a case of change of opinion. 19.1 Explanation 2(b) to section 147 mentions a deeming provision for treating the income chargeable to tax has escaped. If a return of income has been furnished but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income then such understatement of income is deemed to be an income escaping assessment. Hence, in the instant case, one will have to consider the applicability of Explanation 2( b ) to section 147 of the Act. In the instant case, the Explanation 2( b ) is squarely applicable because the assessee has filed the return but no assessment has been made. If the reasons has been recorded by the Assessing Officer to show that income has been understated then the Assessing Officer was having power to issue notice under section 148 of the Act. The Hon ble Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the Assessing Officer may not have the jurisdiction to reopen the assessment. The decision to initiate the proceedings is not to be proceeded by judicial or quasi-judicial enquiry. The Hon ble Apex Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 has held that when reopening of assessment is challenged then one has to consider whether there was prima facie some material on the basis of which revenue could reopen the cases. Sufficiency or correctness of the material is not considered at that stage. 19.2 Before considering the submissions of the ld. AR, it will be useful to peruse the reasons recorded by the Assessing Officer. The reasons so recorded have already been reproduced in para 4. The Assessing Officer while completing the assessment for the assessment year 2005-06 noticed that the assessee has received the share capital and share premium from 11 companies. The Assessing Officer mentioned that all the companies are belonging to M/s. B.C. Purohit Co. The Assessing Officer mentioned that M/s. B.C. Purohit Co. is an entry operator who provides accommodation entries by way of receiving cash from beneficiary parties and issuing cheques in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19.3 The ld. AR has relied upon the decision of the Hon ble Apex Court in the case of Ajit Jain ( supra ). In that case, the Hon ble Apex Court affirmed the decision of Hon ble Delhi High Court and held that mere possession of money is not the information for the purpose of issuing search warrant. 19.4 We have perused the decision of Hon ble Delhi High Court in the case of Ajit Jain v. Union of India [2000] 242 ITR 302, CBI intimated to the Department that cash was found in the possession of the assessee and the same was undisclosed. Only on that basis, the search authorisaton was issued. The requirement of issuing search warrant is that the amount in the possession of an assessee represents the undisclosed income which had not been or would not be disclosed by the assessee for the purpose of the Act. Mere fact that the assessee was in possession of the amount could not lead to any inference that it was undisclosed income. Hence, the decision relied upon by the ld. AR is not applicable to in the instant case because the issue before us is not in respect of issuing of search warrant. We have to see whether the reasons recorded were sufficient to hold that the prudent pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. AR has filed the copy of the decision of ITAT Jaipur Bench in the case of Hotel Gaudavan (P.) Ltd. [IT Appeal Nos. 1137 and 1162 (Jp.) of 2008, dated 22-5-2009]. In that case, the reopening had been made because Shri Gajendra Porwal was held as an entry operator and there was share application money in the name of the companies belonging to him. In that case, the reopening of the assessment was confirmed by the Tribunal vide order dated 22-5-2009 in ITA No. 1162/JP./2008. The ld. AR has also placed reliance on the following decisions : 1. ITO v. Umrao Construction (P.) Ltd. [2004] 2 SOT 837 (Jp.). 2. K.G. Hotel (P.) Ltd. v. Asstt. CIT [2008] 116 TTJ (Agra) 455 (TM). 19.8 In the abovereferred cases, the assessment was reopened on the ground that the deposits of the shareholders were non-genuine. The reassessment on the basis of observation in third party group assessment could not have been made. The above-referred two cases are of no help to the assessee. The ld. AR has filed the copy of the Tribunal in the case of A.L. Lalpuria [IT Appeal No. 905 (Jp.) of 2008, dated 31-3-2010]. Though the ld. AR has filed the copy of this order to support his case that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and information contained in the said letter, the Income-tax Officer, without any further investigation, could have formed the opinion that there was reason to believe that income of the respondent chargeable to tax had escaped assessment. The notice under section 147( b ) was valid. 19.10 The Hon ble Allahabad High Court in the case of Brij Mohan Agarwal v. Asstt. CIT [2004] 268 ITR 400 has held that reopening of assessment is valid in case the notice is based on report of Investigation Wing of IT Department. In the case before Hon ble High Court, the Investigation Wing noticed from the search operations in the case of share brokers that petitioner was indulging in bogus transactions and name of the petitioner was mentioned in the report of Investigation Wing. The Assessing Officer therefore, had honest and reasonable reason to believe that income has escaped assessment. The Hon ble Kerala High Court in the case of G. Sukesh v. Dy. CIT [2001] 252 ITR 230 has held that information at the time of issuing notice need not be complete and accurate. The ITO need not be possessed of definite figures at the time of issuance of notice. The Hon ble Patna High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in view of Explanation 2. 19.12 The Hon ble Madras High Court referred to the decision of Hon ble Delhi High Court in the case of KLM Royal Dutch Airlines v. Asstt. DIT [2007] 292 ITR 49 and observed that the decision of no help to the assessee because in the case before Hon ble Delhi High Court, the issue was in respect of initiation of proceedings for reassessment. It was also observed that the decision of Hon ble Madras High Court in the case of Sterlite Industries (India) Ltd. v. Asstt. CIT [2008] 305 ITR 339 is distinguishable because Explanation 2 was not the issue in Sterlite Industries (India) Ltd. s case ( supra ). Hence, considering the ratio of law laid down by the Hon ble Madras High Court, after considering the Explanation 2, it is clear that reopening of the assessment in the instant case is valid. We are also aware of the decision of Hon ble Bombay High Court in the case of Prashant S. Joshi v. ITO [2010] 189 Taxman 1 in which the Hon ble Bombay High Court held that reassessment proceedings can be initiated after issuance of intimation under section 143(1) of the Act provided the Assessing Officer has reason to believe that income has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 900000 1000000 0 1000000 11. Chartered Finlease Ltd. 20000 200000 1800000 2000000 0 2000000 Total 155000 1550000 13950000 15500000 11000000 4500000 The Assessing Officer issued notice under section 133(6) of the Act to the above 10 companies for furnishing the following details : 1. Copy of account of the assessee s company in their books of account. 2. Copy of return of income, audited final accounts and audit report along with all enclosures. 3. All documents related to investments made in the assessee-company. 4. In case the investments have been transferred, details and documents related to the same. 22. All the abovereferred companies filed the reply in response to notice under section 133(6). The replies given by all the companies have been reproduced by the Assessing Officer in his assessment order from pages 12 to 20. For ready reference, we will be reproducing the reply given by one of the companies so as to make it clear as to what the details were furnished by each company. The reply filed by M/s. Vijaypath Commodities (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al clear that the shareholder company is having good creditworthiness and net worth to invest for purchase of shares of Rs. 19 lakhs in the assessee-company hence creditworthiness is well proved. 23. Before the Assessing Officer, it was submitted by the ld. AR that documents filed by the companies show that the share application received by the assessee was genuine. This is also clear from the report of Investigation Wing, Income-tax Department, Kolkata. It was further submitted that Shri Sushil Kumar Purohit in his statement mentioned that he is Director in following five companies from which assessee accepted the share capital : 1. M/s. Sirpur Marketing (P.) Ltd. 2. M/s. Marubhumi Consultants (P.) Ltd. 3. M/s. Godavari Commerce (P.) Ltd. 4. M/s. Rocky Marketing (P.) Ltd. 5. M/s. Vijaypath Commodities (P.) Ltd. It was further submitted before the Assessing Officer that Shri Sushil Kumar Purohit in his statement has not accepted that he was involved in bogus entry transaction. The assessee-company has accepted share capital from 11 companies while Shri Sushil Kumar was the director in five of the companies which subscribed the share capital of the assessee-company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging to M/s. B.C. Purohit Group was built-up in the name of large number of bogus individuals. The income-tax files of such individuals were being maintained by the entry operators. From the register seized during the search in the case of M/s. B.C. Purohit Co., names of about 14-15 such middlemen were obtained. The companies belonging to M/s. B.C. Purohit Group have issued cheques after receipt of credit from other group company. The ld. CIT(A) was of the opinion that one will have to consider the principle of preponderance of probabilities while evaluating the evidences collected during the course of search in the case of M/s. B.C. Purohit Group. Reliance was placed on the decision of Hon ble Apex Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 to show that a conclusion can be drawn on the basis of preponderance of probability. One cannot brush aside the fact that the shares are still held in the name of the original subscribers i.e., in the name of M/s. B.C. Purohit Group while that group companies have transferred those shares. The person who has made available money to M/s. B.C. Purohit Group, will definitely be interested in having control over such shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent years and it cannot be said that investment in this company was a right business decision. The circumstantial evidence do not go against the assessee. 26.3 The ld. AR has relied on the following decisions : 1. Lovely Exports (P.) Ltd. s case ( supra ). 2. Divine Leasing Finance Ltd. s case ( supra ). 3. CIT v. First Point Finance Ltd. [2006] 286 ITR 477 (Raj.). 4. Shree Barkha Synthetics Ltd. [2003] 131 Taxman 114 (Raj.). 5. Shree Barkha Syntheties Ltd. s case ( supra ). 6. CIT v. Winstral Petrochemicals (P.) Ltd. [IT Appeal No. 592 of 2010, dated 12-5-2010]. 7. Bhav Shakti Steel Mines (P.) Ltd. v. CIT [2009] 179 Taxman 25 (Delhi). 8. CIT v. Samir Bio-tech (P.) Ltd. [2010] 325 ITR 294 (Delhi). 9. Anu Industries v. Asstt. CIT 19 DTR 465 (Delhi). 10. Auatech International Ltd. v. ITO [2009] 27 SOT 69 (Delhi) (URO). 11. Smart Capital Services Ltd. v. Jt. CIT 10 DTR 593 (Delhi). 12. Meera Engineering Commercial Industries Co. (P.) Ltd. v. Asstt. CIT [1997] 58 TTJ (Jab.) 527. 13. Gorawara Plastic General Industries (P.) Ltd. v. Dy. CIT [1999] 105 Taxman 31 (Delhi) (Mag.). 14. Allen Bradley Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not know such persons. 28.2 The perusal of the statements of both the persons does not provide any evidence to be used against the assessee. It is not the case of the revenue that the persons in whose names bank account were found were not existing or such persons have made deposits in the companies which provided share capital to the assessee-company. Hence such statements are not helpful to the revenue unless further corroborative evidences were collected to conclude that share capital subscribed by the company was not genuine. 28.3 The ld. AR has filed the copy of Panchnama in the case of Shri B.C. Purohit family. Copy of such panchnamas are at pages 156 to 199 of the paper book. We have perused these panchnamas. These panchnamaas do not show that the companies which subscribed to the share capital of the assessee-company were providing bogus entries or some documents were found relating to such companies to indicate that such companies were providing accommodation entries. The ld. AR has also filed the copies of the assessment orders of Shri Balchand Purohit, Jagdish Prasad Purohit and Pawan Kumar Purohit for the assessment year 2006-07. In none of the cases, the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 432 and also the decision of ITAT Jodhpur Bench in the case of Uma Polymers Pvt. v. DCIT (dated 27-2-2006) where it has been held that the assessee has to prove the existence of the shareholders which in the present case is not under dispute. Therefore, the assessee has discharged the burden and therefore, the Assessing Officer was not justified in making any addition under section 68 of the Act. The ld. Counsel for the assessee has referred to the decision of Hon ble Supreme Court of India in the case of Divine Leasing Finance Ltd. dated 21-1-2008, the copy of which is placed on record where it has been observed by the Supreme Court as under : Can the amount of share money be regarded as undisclosed income under section 68 of Income-tax Act, 1961 ? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to re-open their individual assessments in accordance with law. Hence, we find no Therefore, we find no infirmity in the order of the ld. CIT(A), with the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed - Tribunal has further found that the Assessing Officer has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company s own income from undisclosed sources. 28.7 The Hon ble Apex Court in the case of Lovely Exports (P.) Ltd. ( supra ) held that if the share capital money is received by the assessee-company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessment of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee-company. 28.8 The Hon ble High Court in the case of First Point Finance Ltd. ( supra ) held that burden of proof on the assessee-company lies to the extent of making out a case that investor exist and thereafter it is not for the assessee to further prove where they have brought money from to invest with it. 28.9 The Hon ble Delhi High Court in the case of CIT v. United Biotech (P.) Ltd. [IT Appeal No. 771 of 2010, dated 5-7-2010] held that in case the identity of the share applicants has been esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35,15,480 In the current liability, this company has received a sum of around Rs. 3.30 crores against shares. Shares of this company were quoted in Calcutta Stock Exchange. During the financial year 2002-03, the share prices varied from Rs. 4.55 to Rs. 55. Such details are available at pages 500 of the paper book filed by the ld. AR. Since this company is a public limited company and therefore, the advance against shares is to be considered as genuine in case the person who have given the advance for share are identifiable. The Assessing Officer has not obtained any information to show that advances received by this company were non-genuine. Thus, in respect of share application from Universal Multimedia Ltd., the Assessing Officer has not given any material for making the addition. Toplight Trademark (P.) Ltd. - 368 Share Capital 65,12,180 65,12,180 Reserve Surplus 10,99,92,828 11,00,30,899 Current Liability 5,12,800 69,79,200 Sale of Shares 3,55,98,000 Purchase of shares 2,20,00,000 Loan Advance 2,61,02,926 1,80,98,469 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The third grievance of the assessee is in respect of charging of interest. 30. The charging of interest is mandatory and the Assessing Officer will give consequential relief. However, in respect of interest under section 234D, we rely on the decision of Kerala High Court in the case of Kerala Chemicals Proteins Ltd. [2010] 323 ITR 584 in which it has been held that interest under section 234D is to be charged from the period 1-6-2003 till the completion of regular assessment. Hence, interest under section 234D will be charged from1-6-2003 till the regular assessment. ITA No. 956/JP./2009 - Assessment year 2004-05 31. The first grievance of the assessee is against reopening of the assessment. 32. The facts are similar to the facts discussed in assessment year 2003-04, following our decision for the assessment year 2003-04, we hold that reopening of the assessment is valid. 33. The second grievance of the assessee is that the ld. CIT(A) has erred in confirming the addition of Rs. 4 lakhs. 34. The Assessing Officer noticed that the assessee is having dividend income of Rs. 1,51,52,838 and therefore, the expenses relatable to such dividend income is to ..... 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