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TMI Blog2017 (8) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... the validity of initiation of reopening proceedings. - Decided against assessee. Addition u/s 68 - Held that:- There is no dispute that in case of all the 7 investor companies, the assessee had filed primary documents and had accordingly discharged its initial onus to establish identity and creditworthiness of the investor companies and genuineness of the transaction as there is no dispute that all the transactions have been done through banking channels i.e. through account payee cheques and demand drafts. We thus find that the Assessing Officer has failed to discharge its onus to prove that the documents filed by the assessee, as discussed above, were false or fabricated as the Assessing Officer has not made any efforts to verify those documents especially when there is no dispute that all the investor companies were filing their returns of income and were being assessed by the Department. Under these circumstances, we are of the view that the ld. CIT (Appeals) was justified in deleting the addition of ₹ 5,50,00,000./- made under section 68 of the Act on account of unexplained share capital and share premium. - Decided in favour of assessee. - I.T. Appeal No. 6171/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural justice and prevent its miscarriage have been derailed and sabotaged. As such a conclusion having a deep impact on the Appellant and conflicting with his consistent stand has been drawn without giving him at least a reasonable opportunity to examine the said evidences and to cross examine the underlying witnesses and is accordingly in violation of the principles of natural justice. As such the entire exercise made in gross violation of the principles of natural justice is void ab-initio and the corresponding conclusions drawn need to be negated to prevent further miscarriage of justice. The North Wales Police v. Evans [(1982) 1 WLR 1155] judicial review is concerned not with the decision, but with the decision-making process. The assessment proceeding is a part of judicial process. When a statutory process is exercised by the assessing authority in exercise of its judicial functions which is detrimental to the appellant, it is not and cannot be administrative in nature. Principles of natural justice are based on two principles: (i) nobody shall be condemned unheard (audi alteram partem); (ii) nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer and because of it not being noticed by him for any reason, it escaped assessment. Accordingly there should be a complete and direct conclusion as to income escaping assessment so as to resort to the re-assessment provisions. 5.3 Section 148 to 151 set out the frame work, procedure and the conditions governing the reassessment provisions incorporated a section 147. The said sections successively deal with :- (a) Form of notice and recording of reasons for issue (S. 148); (b) Time limit for issue (S. 149); (c) Enlargement of time limit in certain cases and restriction thereon(Section 150); (d) Sanction to be obtained for issue of notice (S. 151); 5.4 For resorting to reassessment the most noted requirement is that the Assessing Officer should have reason to believe that income chargeable for the relevant assessment year has escaped assessment. The language of the section makes it clear that although the powers of an Assessing Officer in initiating re-assessment proceedings are very wide at the same time they are not plenary in nature. These powers are vitally controlled by the words reason to believe employed by the section. The reasons for formation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease operational matters. Such facts do not merely themselves lead to any evidence or suggestion, what to talk of conclusion, as to the Company being just a paper company established for introducing money from unexplained sources. 5.6 The above facts make it clear that the basis for formation of the belief and recording of the reasons to escapement of income so as to resort to reassessment proceedings is based on mere suspicion and conjectural inferences not backed by any tangible evidence. The basis for the issue of notice is an alleged statement of Shri B.S Bisht, Assistant Secretarial Officer of M/s Bhushan Steel Ltd. While on a deeper analysis the contents of the said statement by itself do not lead to any damaging / adverse inference. Even otherwise, as discussed supra, there is no tangible evidence of escapement of income to warrant a revisit of the assessment and resorting to reassessment proceedings and accordingly the basis of recording of reason to believe as to escapement of income does not exist in the instant case. 6. The ld. AR contended that the reasons to believe recorded in the present case are only suspicion and not belief. There is no tangible material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that taxable income has escaped assessment. Sufficiency of such belief cannot be questioned before the court of law. We thus do not find reason to interfere with the first appellate order in this regard, as in our view, the ld. CIT (Appeals) under the facts and circumstances of the case as discussed above has rightly upheld the validity of initiation of reopening proceedings and the assessment framed in furtherance thereto. The first appellate order in this regard is thus upheld. The cross objection is accordingly rejected. I.T. Appeal No. 6171/Del/2013 : 10. The Revenue has questioned first appellate order on the following grounds :- 1. The order of Ld. CIT (Appeals) is not correct in law and facts; 2. On the facts and circumstances of the case the ld. CIT (Appeals) has erred in deleting the addition of ₹ 5,50,00,000/- made by Assessing Officer without appreciating the fact that the identity and the creditworthiness of the investors were not established as all the investors were showing a nominal income and neither the investor company and nor the assessee company had produced any proof to substantiate the creditworthiness of the investors (for examp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or companies as well as genuineness of the transaction. Some of the parties were not found on the given address and some of them did not respond to the notices issued by the Assessing Officer to them nor the assessee has been able to produce them for verification before the Assessing Officer. In absence of compliance of these requirements the Assessing Officer was very much justified in making the addition of ₹ 5,50,00,000/- under section 68 of the Act on account of unexplained share capital and share premium received by the assessee company from various companies. Ignoring these material aspects the ld. CIT (Appeals) has erred in deleting the addition. 16. The ld. AR, on the other hand, tried to justify the first appellate order on the issue with following submissions :- (1) By way of brief introduction it is submitted that the appellant company had raised money amounting to ₹ 5,50,00,000/- through share capital during the financial year 2006-07 from various parties situated at Mumbai and Kolkata. The details of the parties from whom share capital and share premium had been received, are as under :- S No. Name of the Invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k account through which payment has been received and the Income-Tax particulars which go on to establish the identity and creditworthiness of the respective share applicants authoritatively and conclusively. (3) On the basis of the documents/details submitted, the Learned Assessing Officer, has summarized as follows :- S.No. Name of the Share Holder Returned Income Assessment Year 1 BNR Consultancy P Ltd ₹ 1,013/- 2007-08 2. Anikesh Trading Co P Ltd ₹ 5,56,065/- 2007-08 3. Divya Infotech P Ltd ₹ 2,09,367/- 2007-08 4. Ganpati Vincon P Ltd ₹ 30,680/- 2007-08 5. Key Impex (I) P Ltd ₹ 1,35,530/- 2007-08 6. Devrat Engg Private Ltd No ITR submitted 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shan Steel Mumbai Branch on 30.11.2011 2. Anikesh Trading Co P Ltd Notice served on 29.11.2011 at the given address but no reply received till date. Copy of notice served enclosed(annexure-2) 3. Divya Infotech P Ltd Notice could not be served as assessee not available at the address given The premises are owned by Shri Deepak Jhaveri as per report of Inspector Shri Anshu Gotwal enclosed(annexure-3) 4. Key Impex (I) P Ltd Notice could not be served as assessee not available at the address given. The premises are owned by Shri Mahendra B. Makhwana the owner of New India Marine works as per report of Inspector Shri Anshu Gotwal enclosed(annexure-4) 5. Devrat Engg Private Ltd Notice could not be served as assessee not available at the address given. The premises are owned by Shri Deepak Jhaveri as per report of Inspector Shri anshu gotwal enclosed(annexure-3) 6. Lalit Kunj Metal P Ltd Notice could not be served as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transaction of all the parties situated at Mumbai and Kolkata from whom the share capital and share premium had been received. In response, the Appellant Company filed copies of confirmations, Income Tax Return acknowledgements and bank accounts from all the parties establishing the identity, genuineness and sources of transaction regarding share capital and share premium with the Assessing Officer. The entire share application money had been received by the Appellant Company through normal banking channels by account payee cheques/demand drafts. Furthermore, the said confirmations also clearly reveal the source of funds, particulars of the bank account through which payment has been received and the Income-Tax particulars which go on to establish the identity and creditworthiness of the various parties authoritatively and conclusively. (8) As a result of the above documents being filed before the Learned Assessing Officer in respect of all the parties in respect of which no cause exists as to recourse to the provisions of Section 68 of the Income-tax Act, 1961 in as much as the onus cast on the Appellant Company vis- vis the genuineness of the transaction and credit worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the onus u/s 68 has to be discharged is to be looked at with different perspectives and varying parameters in each different circumstance and no standards/guidelines can be lead out in this regard. (13) In the instant case there is no material on record to prove or even remotely suggest that the share application money received actually emanated for the Appellant Company. In fact it may be reiterated that the share application money was received from independent legally incorporated companies through normal and regular banking channels which fact stands duly corroborated and confirmed by the confirmations bank statements and Income Tax Returns of the share applicants duly placed on record. In fact, no evidence, direct or indirect, conclusive, or even circumstantial, exists to doubt in any manner the identity and credit worthiness of the parties and genuineness of the transactions entered into. (14) The ld. AR submitted that the appellant company has discharged its onus by satisfactorily dealing with all the issues in respect of which onus has been cast on it u/s 68 of the Income-tax Act, 1961 as would be clear from the following discussion :- (i) With respect to the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere with the order of the High Court in the case of CIT vs Steller Investment Ltd [(2001) 251 ITR 263 (SC)]. As such the observations of the Hon ble Delhi High Court have obtained the approval of their Lordship of the Supreme Court and accordingly attained judicial finality and stamp of approval. (17) The ld. AR also invited our attention to the following judgement of the Delhi High Court in the case of Commissioner of Income Tax v Lovely Exports Pvt Ltd [(2008) 299 ITR 268 (Delhi)] holding as follows :- In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/ subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor / subscriber; (4) if relevant details of the address or PAN identity of the creditor / subscriber are furnished to the Department alongwith copies of the shareholders register, share application forms, share transfer register, etc, it would constitute acceptable proof or acceptable explanation by the assessee; (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20) In particular, with regard to the issue of establishing the creditworthiness of the parties, Your Honour s attention is invited to the following recent judgements wherein it has been conclusively held, relying on the decisions in the case of M/s Lovely Exports Pvt Ltd. cited above, that as long as the identity of the share applicant was proved, the burden of proving the creditworthiness was not on the Assessee :- Commissioner of Income-tax, Udaipur v. Bhaval Synthetics [(2013) 35 Taxmann.com 83 (Rajasthan)]; Shree Barkha Synthetics Ltd v. Assistant Commissioner of Incometax [(2006) 155 Taxman 289 (Raj)]; Commissioner of Income-tax, Bhopal (M.P) v. Peoples General Hospital Ltd [(2013) 35 taxmann.com 444(Madhya Pradesh); Commissioner of Income-tax, Meerut v. Kamna Medical Centre (P) Ltd [(2013) 35 taxmann.com 470(Allahabad)]; Commissioner of Income-tax, Faridabad v. GP International Ltd [(2010) 186 Taxman 229 (Pun Har)]; CIT v Dwarkadhish Investment Pvt Ltd and Dwarkadhish Capital Pvt Ltd [(2011) 330 ITR 298 (Delhi)]; CIT v. Winstral Petrochemicals Pvt Ltd [(2011) 330 ITR 603 (Delhi)]; Commissioner of Income Tax v. Gangour Investment Ltd [(2011) 335 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases coming before the Court, the Court has to presume that the assessee in questions as indulged in that practice. To make the assessee responsible, there has to be proper evidence. It is equally important that an innocent person cannot be fastened with liability without cogent evidence. One has to see the matter from the point of view of such companies (like the assessee herein) who invite the share application money from different sources or even public at large. It would be asking for a moon if such companies are asked to find out from each and every share applicant/subscribers to first satisfy the assessee companies about the source of their funds before investing. It is for this reason the balance is struck by catena of judgements in laying down that the Department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. That was precisely the observation of the Supreme Court in Lovely Export (supra) which holds the fields and is binding. 40. In conclusion, we are of the opinion that once adequate evidence/material is given, as stated by us above, which would prima facie discharge the bur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. ITA. No. 597/2012 [judgement dated 21.01.2013 (Delhi High Court); (ii) Pr. CIT Vs. N. C. Cables Ltd. (2017) 391 ITR 11 (Del.); (iii) Pr. CIT Vs. Softline Creations P. Ltd. (2016) 387 ITR 636 (Del.); (iv) CIT Vs. Real Time Marketing P. Ltd. (2008) 306 ITR 35 (Del.); (v) CIT Vs. Value Capital Sergvices P. Ltd. (2008) 307 ITR 334 (Del.); (vi) CIT Vs. Orbital Communication (P) Ltd. (2010) 327 ITR 560 (Del.); (vii) CIT Vs. Winstral Petrochemicals P. Ltd. (2011) 330 ITR 603 (Del.); (viii) CIT Vs. Kamdhenu Steel and Alloys Ltd. (2014) 361 ITR 220 (Del.). 17. Having gone through the above cited decisions, we find that the ratio laid down therein is that the primary onus lies upon the assessee to establish identity and creditworthiness of the creditors / investors as well as genuineness of the transaction and after discharging of the same, onus shifts upon the Revenue to prove the documents filed by the assessee while discharging its primary onus, as false to attract addition under section 68 of the Act. In its recent decision dated 11.01.2017 in the case of Pr. CIT Vs. N. C. Cables Ltd. (supra) the Hon ble jurisdictional High Court of Delhi has been pleas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies were duly incorporated, were issued PAN Cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications, had changed their addresses or had stop functioning, held the Hon ble High Court. 18. When we examine the facts of the present case in view of the above cited ratio laid down by the Hon ble jurisdictional High Court of Delhi, we find that facts are almost similar. In the present case there were 7 investor companies claimed to have invested ₹ 5,50,00,000/- in total in the assessee company. In support of their identity and creditworthiness as well as genuineness of the transactions, as discussed above, the assessee had filed before the Assessing Officer, their (investor companies) confirmations, Income Tax return acknowledgements, bank accounts with this submission that entire amount had been received by the assessee company through normal banking channels by account payee cheques / demand drafts. The confirmations filed revealed the source of funds, particulars of the bank account through which payments were received and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of share capital. It is also pertinent to mention over here that out of total 7 investor companies, notices could not be served in case of 3 companies as they were not available on the given addresses and in case of 1 company notice could not be served as the premises was found locked on various days. The remaining 3 companies had responded and had filed their submissions. However, there is no dispute that in case of all the 7 investor companies, the assessee had filed primary documents and had accordingly discharged its initial onus to establish identity and creditworthiness of the investor companies and genuineness of the transaction as there is no dispute that all the transactions have been done through banking channels i.e. through account payee cheques and demand drafts. We thus find that the Assessing Officer has failed to discharge its onus to prove that the documents filed by the assessee, as discussed above, were false or fabricated as the Assessing Officer has not made any efforts to verify those documents especially when there is no dispute that all the investor companies were filing their returns of income and were being assessed by the Department. The Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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