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TMI Blog2019 (1) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms. Mohinder Kaur was quashed on the technical ground that addition of ₹ 2.5 crores could not have been made in the block assessment proceedings, re-opening under Section 147 read with Section 148 would not be justified, for the entire money of Taranjit Singh was routed through the respondent-assessee or the Revenue could not take a ‘somersault’ for the purpose of reopening assessment or make addition on substantive basis later on. This reasoning is wrong and fallacious being contrary to law, for appellate orders in the case of Ms. Mohinder Kaur had not been passed when the ‘reason to believe’ in the case of respondent-assessee were recorded. The ‘reason to believe’ recorded cannot be set aside on the basis of the appellate order in the case respondent-assessee making substantive addition instead of protective additions made in the assessment order. Question of ‘somersault’ does not arise when protective addition made into substantive addition. - Decided against assessee Addition u/s 68 - addition on protective basis on the ground that three brokers have given accommodation entries to the appellant Company - Held that:- The assessee had not raised a specific ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantial questions of law framed vide order dated 10th February 2017. First issue relates to validity of proceedings initiated by the Assessing Officer vide notice under Section 148 read with Section 147 of the Act. The second issue relates to merits i.e. deletion of additions of ₹ 2.10 crores and ₹ 40 lacs made by the Assessing Officer on protective basis for the Assessment Years 1999-2000 and 2000-01 respectively, which additions were affirmed by the Commissioner of Income Tax (Appeals) on substantive basis. 5. To avoid prolixity, repetition and for convenience, we have with consent of the parties, treated the appeal preferred by the Revenue for the Assessment Year 1999-2000 as the lead case. Tribunal and the Commissioner of Income Tax (Appeals) had also treated the appeal for the Assessment Year 1999-2000 as the lead case and followed and applied their findings to the appeal for the Assessment Year 2000-01. Wherever necessary, we would refer to the facts relevant for the Assessment Year 2000-01. 6. Respondent-assessee is a public limited company, that had made a public issue for ₹ 95 Lakhs in December, 1996 which was fully subscribed. The issue was to fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th October, 2003 and notice for the Assessment Year 1999-2000 was issued on 30th July, 2004 and served on the respondent-assessee on 2nd August, 2004. 10. Pursuant to the said notices, the respondent-assessee had stated that the earlier returns filed under Section 139 of the Act should be treated as returns filed in response to the notices. 11. By Assessment Order dated 16th March, 2006 for the Assessment Year 1999-2000, addition of ₹ 2.10 crores on protective basis on account of unexplained deposit in bank account was made, for the following reasons:- 10. To summarise, the facts of the case are that search was conducted in the case of M/s Lada Liquor whereby it was noticed that M/s Taranjit Singh Co. took entries of ₹ 2,50,00,000/- (Rs. 2,10,00,000/- pertaining to the year under consideration) in the name of the assessee M/sShubh International Ltd. (now Nis Getanjali Capital Credit Ltd.) through demand drafts. Perusal of bank account of the assessee shows that these demand drafts were issued by the assessee after receiving various cheques (as discussed in Para 3 above). These cheques were received by the assessee from three stock brokers namely M/s EssArr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of lulls Taranjit Singh Co. in respect of credits received from the assesse company. 12. The replies of the assesse company have been considered. He has accepted that the facts are similar for the Assessment Year 2000-01 in which addition of ₹ 40,00,000/- was made on protective basis in respect of entries pertaining to that year. Total of entries pertaining to this year comes to ₹ 2,10,00,000/-. Protective assessment does not tantamount to double addition as claimed by the assesse. 13. In view of above, an addition of ₹ 2,10,00,000/- is made in the hands of the assessee company on protective basis without prejudice to any action in the hands of M/s Taranjit Singh Company, Chandigarh. 12. By the Assessment Order dated 30th March, 2005 for the Assessment Year 2000-01, the Assessing Officer made an addition of ₹ 40 lacs on protective basis on account of unexplained deposit in the bank account and investment for the following reasons: - 7.1. On 21.03.2005 a copy of a/c of M/s. Shubh International Ltd. as appearing in the books of account of M/s Sharma Co. was furnished. Shri S.K. Sharma failed to furnish the names addresses of compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from these transactions, it clearly shows that no sale of shares have been taken place. Only the accommodation entries have been given by the above mentioned stock brokers to M/s Shubh International Ltd. by issuing the cheques amounting to ₹ 40,00,000/- which was further advanced to M/s Taranjit Singh Company, Chandigarh during the year 1999-2000 relevant to the A.Y 2000-01. 9. The statement of Shri Bharat Bhushan Goyal, Director, shows that investments held by the company were not worth the liability of the company. Since the amount was paid out of the bank account No. 60140 of the company maintained with Bank of Baroda Civil Lines, Ludhiana, addition of ₹ 40,00,000/- is made on protective basis without prejudice to any action in the hands of M/s Taranjit Singh Company, Chandigarh. 13. Two Assessment Orders had reproduced details of deposits/credit and payments/debit entries in the account of the respondent-assessee with Bank of Baroda, Civil Lines, Ludhiana. In this manner deposits made were collated with issue of bank drafts/cheques in favour of the M/s Taranjit Singh Co. Assessment Orders had reproduced statement on oath made by Bharat Bhushan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make double addition as M/s Taranjit Singh Co. had been taxed on substantive basis. Rejecting the submission, the Commissioner of Income Tax (Appeals) observed that the block assessment in the case of M/s Taranjit Singh Co. had been quashed in the first appeal on the technical ground that no material found in the course of search or enquiries conducted and the addition would not fall within the scope of Chapter XIV-B of the Act. He reproduced the relevant order passed by the first Appellate authority in the case of M/s Taranjit Singh Co., which reads-: I have considered the submission of the appellant and, perused the orders of assessment and considered the material placed on record. In the case of the appellants, the undisputed facts are that deposit from M/s Shubh International Ltd., which has been added as undisclosed income, has been duly disclosed. No material has been detected as a result of search or gathered as a result of enquiries conducted on the basis of material detected during the course of search to establish that such deposit represent undisclosed income of the assessee. In these facts the addition is outside the scope of Chapter XIV-B of the Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment and it should not read to mean that the Assessing Officer had finally ascertained and concluded that income had escaped assessment. 22. The Commissioner of Income Tax (Appeals), however, did not specifically refer to reason to believe and facts in the appeal preferred by the respondent-assessee for Assessment Year 2000-2001, noting that the grounds taken were similar to those taken in the appeal preferred for Assessment Year 1999-2000 and had been dealt with. 23. Appeal for Assessment Year 2000-2001 was accordingly dismissed with substantive addition of ₹ 40 lakhs in the hands of the respondent-assessee. Discussion on Question No. 1, ITA No. 74/2007 relating to Assessment Year 1999-2000. 24. The reasons to believe recorded by the Assessing Officer as quoted in the order passed by the Tribunal reads as under:- M/s Shubh International Ltd. SCO 1104-05, Sector 22-B, Chandigarh Assessment Year 1999-2000 Reasons for issue of Notice under Section 148 The company M/s Shubh International Ltd., SCO 1104-05, Sector 22-B, Chandigarh filed its return of income on 31.12.1999 declaring income at ₹ 6,899/-. The same was processed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiries conducted by Investigation Wing. It is also noted in the reasons for reopening of the assessment that assessee had given only entry and actually no deposits/investments were made with M/s Taranjit Singh Co., Chandigarh. This information supplied by the Investigation Wing would reveal that actually no investments have been made by assessee company with M/s Taranjit Singh Co., Chandigarh. 22. The Assessing Officer, in the block assessment under Section 158BC of the Act in the case of Smt. Mohinder Kaur, wife of late Shri Taranjit Singh dated 22.08.2005 observed that after detailed enquiries and analysis of the statements of Directors on record, it emerged that transactions of sale of shares are sham transactions and sale transaction by assessee through the broker was not genuine. The amount was deposited in the bank account of the broker in cash, thereafter transferred to bank account of the assessee company from where drafts in favour of M/s Taranjit Singh Co., Chandigarh were issued belong to Shri Taranjit Singh. It is also observed that Shri Taranjit Singh routed his undisclosed funds in the name of assessee company in the business of M/s Taranjit Singh Co., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company passed a resolution for selling the investments. The investments were to be sold through Shri Taranjit Singh. He has conformed in his statement that investment of ₹ 2.10 Cr was initially made in March, 1999 and ₹ 40 lacs was invested in April, 1999. The Assessing Officer, however, took it adversely against the assessee company. The source of the deposits in the bank account of the assessee were from the three brokers through the banking channel and all the brokers have confirmed selling investments of the assessee company through them and payments made by them through banking channel. The Assessing Officer did not believe their statement because the brokers have not mentioned the Ledger Folio Number/distinct number and name of the purchaser etc in the record. It may be noted that in ledger, generally no details of shares are mentioned. 23(i) The Assessing Officer also noted that assessee has failed to supply complete address of the companies, the shares of which were sold through three brokers. the Assessing Officer also noted that the assessee received cheques from these three brokers in lieu of sale of investments by the Directors of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve that any income chargeable to tax has escaped assessment. There should be tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. It was also noted, (ii) that in two out of the four reasons recorded by the Assessing Officer for reopening the assessment, he stated that he needed to verify the claims to bad debts and the admissibility of the bad debts written off. For mere verification of the claim, power for reopening of the assessment could not be exercised. The Assessing Officer in the guise of power to reopen an assessment, cannot seek to undertake a fishing or roving inquiry and seek to verify the claims as if it were a scrutiny assessment. 24((i) Hon ble Delhi High Court in the case of Signature Hotels P. Ltd. Vs ITO Another 338 ITR 51 held as under: Held, allowing the petition that the reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation that the petitioner had introduced money amounting to ₹ 5 lakhs during financial year 2002-03 as stated in the annexure. According to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stand of the Revenue Department that the entire undisclosed money belong to Shri Taranjit Singh as per block assessment order passed in the case of Smt. Mohinder Kaur, legal heir of Shri Taranjit Singh which was routed through the bank account of the assessee, therefore, there is no reason to believe that income chargeable to tax has escaped assessment in the case of the assessee company. There is, thus, change in the stand of the Department for the purpose of making the addition in the hands of the assessee. 25(i) As per information, all brokers exist. Assessing Officer was aware of transaction of sale and purchase of shares/investments through brokers prior to recording of reasons for re-opening of assessment. Source of deposit in bank account of the assessee was sale of Shares/investments, within knowledge of Assessing Officer. The brokers prior to recording of reasons under Section 148 of the Income Tax Act in their statements to DDIT (Investigation) confirmed selling of shares/investments of assessee company. It is also interesting to note that A.O. in assessment order observed, Directors have introduced the money in bank account of assessee company from the source bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) on 30.02.2005 for assessment year 2000-01 and no block assessment order was passed by that date in the case of late Shri Taranjit Singh, therefore, passing of the protective assessment in the case of assessee company would also support our finding that the Assessing Officer was having no reason to believe that income chargeable to tax has escaped assessment in the case of assessee company, otherwise, Assessing Officer would not have made the protective assessment in the case of the present assessee company. The decisions relied upon by ld. counsel for the assessee, as reproduced above, clearly support the case of the assessee that it is not a fit case of re-opening of the assessment on the facts and circumstances of the case for merely making protective assessment in the hands of the assessee. Re-opening of assessment would be bad in law. The decision cited by ld. DR would not support case of revenue. 27. Considering the totality of the facts and circumstances of the case, noted above in the light of the material on record, we are of the view that Assessing Officer has not applied his mind to the information received from ADIT (Investigation) and he was having no tangibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r after the reasons to believe were recorded. In these circumstances, the findings in the block assessment order; or that substantive addition was made in the case of Taranjit Singh Co. and protective addition was made in the case of the respondent-assessee vide Assessment Order dated 16th March, 2006, were completely irrelevant and not germane for deciding the validity of issue of notice, which has to be determined and decided on the basis of the facts as they existed when the notice under Section 148 read with Section 147 of the Act was issued. Validity of the reason to believe cannot be examined on basis of findings on merits in the assessment order, appellate orders in the case of respondent-assessee or the block assessment order or appellate orders in the case of M/s Taranjit Singh Co. Furthermore, income must be taxed and assessed in the hands of the right person, notwithstanding another person had been wrongly subjected to tax or had declared and paid tax on the income. 28. Legal principle applicable where return of income is processed and not subjected to regular/scrutiny assessment was examined and settled by the Supreme Court in Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such cases. 30. In Rajesh Jhaveri Stock Brokers Private Limited (supra), the Supreme Court emphasis that the word reason in the phrase reason to believe would mean cause or justification. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the question of escapement by legal evidence or conclusion. Escapement is a matter to be finally decided when the Assessment Order under Section 147 read with Section 143(3) of the Act is passed. Reliance was placed on earlier decision of the Supreme Court in Central Provinces Manganese Ore. Company Limited versus I.T.O., Nagpur, (1991) 191 ITR 662 (SC) wherein it has been observed that at the stage of initiation, the final outcome of the proceeding is not relevant. The requirement at the initiation stage is reason to believe and not the established fact of escapement of income. Further, at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief as was recorded by the Assessing Officer. Whether or not the material would conclusively prove escapement was not the concern at that stage. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contributed towards equity of the company. List of the shares held by the promoters at the time of public issue is produced/filed. This issue was fully subscribed. The list of share holders as on today is also produced and filed. Myself, Sh. Kewal Krishan and Sh. Sunil Gupta C.A. are the present directors of the Company. Sunil Gupta, was taken as Director in 1996 at the time of public issue of the company. Sh. Sunil Gupta is not holding any share in this company. Since, the project of manufacturing of egg tray did not materialized, the company started making inter-corporate investments. List of main investments produced/filed. In the inter-cooperate investments company was not having any income Sh. Taranjit Singh, who was my friend offered me to have control of this company. He promised me to pay for my investments in this shares of this company. Legally this formality was not completed but he started controlling the affairs of the company. He sold/liquidated the investments of this company. Myself, Kewal Krishan Goel handed over the original share certificates along with signed transfer deeds to Taranjit Singh for disposing of the same. For this, a bank accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Shubh International Ltd. I have no other knowledge about his other business. Q. You have stated that you are not pulling on well in your business but the investment held by M/s Shubh International Ltd. are reported to have been sold for more than 2 crores. If Sh. Taranjit Singh could sell these investments you could have also encashed it and there would not have any financial constraints on you. What you have to say about this? A. As stated earlier, the value of investments of the company was reducing day by day. I do not know how Sh. Taranjit Singh could manage to encash these investments for more than two crores. Since the value of investments was not worth the liabilities of the company. I being the promoter director was worried about my responsibility towards share holder. Handing over the control of this company to Sh. Taranjit Singh have proved worst as the company has almost lost everything as nothing has been paid by Sh. Taranjit Singh or hislegal heirs. Q. What were the investments made by M/s Shubh International? A. List of main investment is produced/filed. Q. Presently what are the activities of the company of M/s Shubh International? A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh, Ravinder Kumar and Manoj Kumar were the partners of M/s Taranjit Singh Co.. M/s International was not shown as partners of the company. What do you have to say about this ? A. The company was made a partner and a partnership deed was executed. Sh. Taranjit Singh was dealing with the Excise Department. I cannot explain why Sh. Taranjit Singh did not declare the company as a partner with the Excise Authorities. Q. You have stated that a partnership deed was executed, who were the partners and what was the profit ratio of each partner? A. Presently, I do not know. I knew Sh. Taranjit Singh and acted as per his directions and signed documents on behalf of the company as desired by him. Sh. Kewal Krishnan also used to sign on behalf of the company at my directions, which used to be dictated by Sh. Taranjit Singh. 32. Shagun Garg, authorized signatory of M/s Usha Garg and Company, Ludhiana in his statement had stated as under:- Q. Please give the details of shares-purchased and sold for Shubh International Ltd., by you i.e. M/s Usha Garg Co. Ludhiana? A. The detail of shares and purchased and sold have been recorded our ledger account. A copy of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho had reconfirmed the factual position stating that he did not know the name of the persons representing the respondent-assessee. In spite of the undertaking and promise to furnish and supply distinct number of shares, name of companies from whom the shares were purchased etc, these were not furnished.) 33. Hari Krishan Punni, authorized signatory of M/s Ess Arr and Company, Ludhiana in his statement recorded on 20th August, 2002 had stated:- Q. Please give the detail of size of the deal you had made with Shubh International Ltd. during last 3-4 years? A. We had sold and purchased shares for M/s Shubh International Ltd. for about 90 lacs during the last four years. We have already furnished you the account of above company. Giving all the details of size of above transactions. Q. How did you buy/sell shares for concern M/s Shubh International ltd. Who use to visit you for delivery of shares and get payments on behalf of the company when shares are sold to you. What was the mode of payment i.e. cash or cheques? A The representative of the company i.e. M/s Shubh International Ltd, use to come and give order frequently in the year 1998 for the sale/purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by M/s Shubh International Ltd. to some other parties. Please state the number of such shares, the names of the companies and Distinct No. of these shares? A. At present, this information is not readily available with me. I will consult my records and send the same within 3-4 days positively. Q. Please state the name of the person who approached you to sell the shares held by M/s Shubh International Ltd. during the year 1998-99 and 1999-2000? A. Some representative of the company contacted me at my office. I do not remember his name as the matter is about three years old. Q. Please state how you have received the payments of these shares on behalf of M/s Shubh International Ltd.? A. At present, I cannot tell anything about these transactions. I will consult my records and send the reply accordingly. 35. In addition to the statements, the Assessing Officer had details of the credit entries i.e. investment made by the respondent-assessee of ₹ 2.10 crores with M/s Taranjit Singh Co. The aforesaid evidence and material was available with the Assessing Officer when he had recorded the reasons to believe . 36. The impugned order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been sold by the assessee company through three brokers. The brokers in their statements have confirmed selling the shares/investments on behalf of the assessee company. They have also confirmed giving of sale consideration through banking channel to the assessee company in their statements. The existence of brokers not disputed. The assessee proved identity of brokers and their creditworthiness and genuineness of transaction. The assessee proved source of money deposited in their bank account on account of sale of shares/investments. It is not a case of A.O. that despite sale of shares/investments, assessee still possessed and controlled the same shares/investments. The Assessing Officer did not record anywhere in the assessment order if these statements recorded by DDIT (Investigation) of the brokers have been supplied to the assessee for the comments of the assessee and whether assessee has been given any opportunity to cross-examine these brokers. In the absence of any evidence or material on record, it is difficult to believe that assessee has been given any opportunity to cross-examine the statements of these three brokers on behalf of the assessee. Therefore, when thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. 39. There is a contradiction in the findings recorded in paragraphs 23 to 27 in the impugned order and what has been recorded in paragraphs 28 to 30. In paragraphs 23 to 27 the Tribunal accepts and holds that Taranjit Singh was responsible and the addition was assessable in his hands as undisclosed income. In paragraphs 28 to 30, the Tribunal, in fact, upholds and accepts that the investment was genuine and valid. We shall deal with the findings in Para 27 to 30 while examining question no. 2. Question No. 1 is accordingly answered in favour of the appellant/Revenue and against the respondent/assessee. Question No.1, ITA No. 75/2017 (AY 2000-01). 40. Order passed by the Tribunal does not record and exact the reason to believe and without reproducing and examining the same, holds that following the reasons given for the Assessment Year 1999-2000, they would quash the reopening of the assessment under Sections 147 and 148 of the Act and also delete the addition of ₹ 40 lacs made by the Commissioner of Income Tax (Appeals) on substantive basis. We have already commented upon the reasoning given by the Tribunal on the question of reopening for the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mself recorded the statement of Shagun Garg on 11th March, 2005. The Commissioner of Income Tax (Appeals) had similarly recorded the statement of Hari Krishan Punni on 27th February, 2008 during the pendency of the appeal. Relevant facts noticed in the assessment order, statement an oath etc. have been passed over and overlooked. 44. In view of the aforesaid discussion, we would answer the substantial question of law No. (2) framed in ITA No.74/2017, relating to Assessment Year 1999-2000 in favour of the appellant-Revenue and against the respondent-assessee, albeit, with an order of remand to the Tribunal to decide the issues raised on merits after duly taking into account all facts and circumstances recorded by the Assessing Officer and the first Appellate Authority. The decision would be taken afresh without being influenced by the impugned order or present judgment. We have passed an order of remand on question No.(2) in the present ITA relating to Assessment Year 1999-2000 in view of the remand order in ITA No.75/2017 passed in respect of question No.(1). Question No.(2) in respect of ITA No.75/2017 is also accordingly answered in the manner indicated above with a direction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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