9911796707
TMI Blog2019 (5) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... r, these were admitted. 3. Briefly stated facts of the case are that the assessee is a company, which was incorporated in the year 1994. In the FY 2009-10 the assessee issued 12,08,000 equity shares at a premium and thereby raised capital of Rs. 30.20 crores. For the relevant AY 2010-11 the assessee filed its return of income on 11.09.2010 declaring total income of Rs. 8,851/-. The case was originally assessed u/s 143(1) of the Act and thereafter reopened u/s 148 by the ITO, Ward 8(2), Kolkata. In the first round of reassessment proceedings the AO after conducting enquiries u/s 133(6) with regards to the genuineness of the share capital raised during the year, completed the assessment u/s 147/143(3) on 30.03.2012 assessing total income at Rs. 42,449/-. Thereafter on 09.02.2015 the AO issued another notice u/s 148, which was served on the assessee on 19.02.2015. On assessee's request, reasons recorded for reopening the assessment were furnished to the assessee vide AO's letter dated 03.06.2015. After examining the assessee's replies in response to notices u/s 142(1) of the Act, the AO issued a show cause dated 22.03.2016 requiring the assessee to explain as to why share capital alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded reasons therefore clearly indicated that the AO never reopened the assessment for examining the source of the amount credited in the assessee's books in the form of subscription to its share capital and share premium. In fact I find that the recorded reasons do not even whisper anything about AO's apprehension that the assessee had not established identity, creditworthiness and genuineness of the share capital introduced during the relevant year. The recorded reasons do not in any manner deal with the issue of the subscription amounts which the appellant had received from its shareholders and with regard to which enquiry was conducted in the course of first reassessment. Even from the information passed on by the Investigation Wing of the IT Department which was the sole basis for reopening of assessment, there was any information which in any manner adversely commented on the capital introduced in the assessee's books. The entire tone & tenor of the recorded reasons indicate that the AO had formed his reason to believe based on his hypothesis that the investment in shares of other bodies corporate reflected in the assessee's balance sheet were utilized to launder the unaccou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sheet but in the assessment framed, the addition was ultimately made by doubting the genuineness of the equity capital and share premium received which appeared on the "liability" side on the said balance sheet. These facts show that the reasons for which the AO initiated reassessment proceedings were completely abandoned by the AO while completing the assessment u/s 147/143(3)of the Act. The subject matter of addition in the impugned order was the subscription amounts received to the assessee's equity capital from 22 companies whereas the subject matter for AO's forming reason to believe that income had escaped assessment was the alleged bogus sale of the investments which the appellant held in other bodies corporate. In my considered opinion these two reasons had no commonality of any kind and both were independent and different reasons. In the circumstances if the reopening was made on one issue then the addition made with reference to altogether another issue was not permissible in the order u/s 147/143(3), unless the addition was also made on the ground for which the assessment was reopened in the first instance. 4.13 Applying the ratio emanating from the foregoing judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication monies was not proved by the assessee. In the entire assessment order the AO did not even whisper anything about the reasons for which the assessment was first reopened. No adverse inference is recorded nor any addition have been made in the impugned order with regard to the alleged sale of investments. In the circumstances I find full force in AR's submissions that the grounds for reopening of concluded assessments and the grounds on which the addition was ultimately made were totally different. The subject matter as well as quantum of income alleged to have escaped assessment specified in the reasons recorded was totally different from grounds on which the addition was finally made in the impugned order. The reasons recorded had no connection with the addition ultimately made in the impugned order. Moreover with regard to reasons recorded the AO did not make any addition while completing the assessment for AY 2010-11. For the reasons and the facts set out in the foregoing therefore, I have no hesitation in holding that the ratio laid down in the judicial decisions discussed herein before applies on all force. In terms of the said decisions, the only course open for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read as follows: "Information has been received from the Director of Income Tax (Investigation), Kolkata that a survey operation u/s 133A of the Income Tax Act, 1961 was conducted in the case of Dotex Merchandise Pvt Ltd, and Uday Shankar Mahawar on 22/08/2014 at 12, Ho Chi Minh Sarani, Kolkata-71. It has been gathered through statements and findings of the survey proceedings and post survey investigation that Shri U. S. Mahawar is a bogus entry operator, who provides entry accommodation in the form of bogus billing, bogus unsecured loan, bogus share capital in lieu of commission. He also used to form shell companies and used to sell them after raising huge bogus share capital in them. For doing all these activities he earns cash commission from clients. In his statement recorded during the course of survey, Shri U. S. Mahawar stated that the Dotex Merchandise Pvt. Ltd. Was registered in 1994 as paper/shell company by an entry operator named Shri Binod Kumar Jaiswal. Initial capital was only Rs. 5 Lakh with 4,95,200 shares of face value Rs. 1 issue at par. In 2005 this company was purchased by one Shri Uday Shankar Mahawar, another entry operator. In 2005, further 3,56,000 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale of investments was the cash provided by RPG Group, being the alleged purchaser of the assessee. The AO therefore entertained a specific belief that proceeds of Rs. 34 crores received on sale of investments was income of the assessee which had escaped assessment for the AY 2010-11. The Ld. AR therefore submitted that the assessment was reopened on the specific ground which was separate and distinct from the transaction of raising fresh capital during the relevant year. The Ld AR argued that even though in the recorded reasons the AO set out details of share capital raised by the assessee from time to time since 1995,he did not record his belief that the share capital of Rs. 30.20 crs raised during the relevant year represented assessee's income escaping assessment. The Ld AR thereafter took us through the requisition u/s 142(1), show cause notice and the impugned assessment order to show that after reasons were recorded on 09/02/2015,the AO abandoned the principal reason on which the assessment was reopened and at no point of time after 09/02/2015, did the AO enquire about the sale of investments. Instead, post issue of the notice u/s 148, entire line of enquiry and the ult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s 148 and therefore the proceedings conducted by the AO were bad in law. The Ld. AR drew our attention to proviso to Section 151as prevailing at the time when notice u/s 148 was issued which specified that where assessment was earlier completed u/s 143(3) or 147 then the AO below the rank of Additional/Joint Commissioner of Income-tax could not reopen any assessment within a period of four years from the end of the relevant assessment year unless he obtained prior approval of the Additional/Joint Commissioner of Income-tax. Inviting our attention to the facts of the present case, more particularly the order sheet entries and the notice issued u/s 148, the Ld. AR submitted that there was no mention regarding the prior approval being obtained by the AO from his Additional / Joint Commissioner of Incometax. In particular he drew our attention to the fact that the notice u/s 148 was dated 09.03.2015. He also brought to our attention that as per the order sheet entries the reasons to believe were recorded by the AO on the same date as of the issuance of the notice. He also pointed out that having recorded his reasons which led him to form belief that income chargeable to tax had es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the Ld. AR, the expression "reason to believe" postulates a foundation based on information and belief based on reasoning. According to Ld AR, a belief that income chargeable to tax has escaped assessment, which expression used by Parliament is stronger than the expression 'satisfied' and in the present case such requirement as contemplated by law has not been met in the 'reason recorded' by the AO before venturing to re-open the assessment which vitiates the re-opening itself. According to Ld. AR, the information received from Investigation Wing could have at best prompted the AO to conduct enquiry but the same could not have been formed as a sole foundation for forming his reason to belief that income had escaped assessment. On receipt of information, it was incumbent upon the AO to verify the correctness of such information with reference to information and material already available in his records at the time of framing of the original order u/s 147/143(3). In such a scenario on receipt of the information, the proper course for the AO was to make reasonable enquiry and collect material, which would make him believe that there is in fact an escapement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the sum so introduced totaling Rs. 34 crores represented Assessee Company's income escaping assessment for the AY 2011-12. On these given facts therefore we find force in the submissions of the Ld. AR that even though in the reasons recorded the AO had made reference to the capital contribution received from companies belonging to and/or managed by Shri Uday Mahawar as also to the proceeds received on sale of investments in companies belonging to Shri Uday Mahawar, yet the AO had recorded his satisfaction about income escaping assessment only with specific reference to the sale of investment made by the assessee and in respect of which sales realization of Rs. 34 Crores was made. We are of the considered view that merely because Mr. Uday Mahawar and companies controlled by him were a common thread in relation to assessee's transactions involving issue of fresh shares and the sale of shares by the appellant, yet the transactions with reference to which the AO recorded his satisfaction about income escaping assessment, pertained specifically to sale of investments and not the fresh issue of shares by the appellant. It is for this reason that in the recorded reasons t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that in respect of shares issued during the FY 2010-11, enquiries were conducted by the AO before the assessment order was passed on 30.03.2012 u/s 147/143(3) of the Act. Before completion of that assessment necessary enquires were made u/s 133(6) from the share subscribers and thereafter no adverse inference was drawn in respect of the fresh issue of share capital. In these circumstances we find force in the submissions of the Ld. AR that mere reference in the recorded reasons to the fact that during the relevant previous year the assessee had issued fresh equity capital totaling Rs. 30.20 crores, did not amount to recording of satisfaction as required u/s 147/148 of the Act, particularly when the satisfaction recorded was specific and it was with reference to alleged introduction of unaccounted cash totaling Rs. 34 crores in the guise of sale of investments by Mr. Mahawar. We are therefore unable to accept the Ld. DR's contention that the AO had recorded his satisfaction about income escaping assessment with reference to issue of fresh capital during the relevant year. On the contrary we find that in the penultimate & last paragraph, the AO had specifically recorded his sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order to be unsustainable in law on the ground that no addition was made in respect of the foundational issue for which the satisfaction was originally recorded u/s 147 of the Act. 14. The Ld. DR also urged us to set aside the order of the Ld. CIT(A) on the ground that the Ld. CIT(A) had powers which were co-terminus with that of the AO and therefore if there was any omission on the AO's part to make the addition in respect of the issue for which reasons were recorded u/s 147 then such omission could be overcome by the Ld CIT(A) by making addition at the appellate stage. We however are unable to accept the contention raised by the Ld. DR at this stage. It may be true that the Ld. CIT(A) has coterminus powers with that of the AO but it has been judicially held that such co-terminus powers are not so wide so as to include the power to consider a source of income which was not considered by the AO and which was not the subject matter of appeal before him. If there is a jurisdictional lacuna in the AO's order then such infirmity cannot be cured by the first appellate authority while exercising his appellate jurisdiction even though the law grants him co-terminus and plenary power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st April, 1989. Reference was made to the decision of the Bombay High Court in CIT v. Jet Airways (I) Ltd., [2011] 331 ITR 236/[2010] 195 Taxman 117 in which it has been held as under: "The effect of section 147 as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act." 16. Similar view was expressed by this Tribunal at Delhi in the case of Indu ArtsVs ACIT (supra). In this case in the order u/s 147, the AO had made the addition in respect of an issue for which reasons were recorded. On appeal the CIT(A) deleted the addition in respect of the issue for which the reasons were recorded but made enhancement in respect of some other issue. No appeal against the relief allowed by the CIT(A) was preferred by the Revenue but the assessee objected to the enhancement made by the CIT(A). In deciding the appeal of the assessee, this Tribunal observed as follows: "6. The Assessing Officer made a solitary addition of Rs. 22.57 lakh in the assessment under section 147 which was the only basis for initiating the reassessment and the same got finally deleted in the first appeal. At this juncture, it is relevant to note the mandate of the section, which provides that : 'If the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very reasons for initiation of those proceedings ceased to survive. The Hon'ble Bombay High Court in CIT v. Jet Airways (I) Ltd. [2010] 195 Taxman 117/[2011] 331 ITR 236, has also reiterated the same proposition by holding that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue was not included in the notice. However, if, after issuing a notice u/s. 148, the Assessing Officer accepts the contention of the assessee and holds that the income, of which he has initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to assess some other income. Similar view has been taken by the Hon'ble Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. 7. The position which follows from the above discussion is that the Assessing Officer can make 'other addition' in the reassessment proceedings, provided, the 'foundational addition' is made. When this proposition is taken to a next level, no different consequences will emerge, if the 'fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove judgment, it is vivid that if the 'foundational addition' is finally deleted in appeal, then 'other addition' also can't stand. 8. At this stage, it is pertinent to note the effect of insertion of Explanation 3 to Section 147 by the Finance (No.2) Act, 2009 w.r.e.f. 1.4.1989, which reads as under : - 'Explanation 3.- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.' 9. The Memorandum explaining the provisions of the Finance Bill, in this regard, reads as under : 'The existing provisions of section 147 provides, inter alia, that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income after recording reasons for reopening the assessment. Further, he may also assess or reassess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Assessing Officer initiated reassessment proceedings and made addition of Rs. 22.57 lakh. When the ld. CIT (A) held that the addition of Rs. 22.57 lakh was not sustainable, it meant that the jurisdiction of the Assessing Officer was lacking in initiating the reassessment proceedings. As a consequence of his deletion of the addition, not only the assessment order but all the proceedings flowing therefrom had the effect of becoming null and void. As such, he could not have gone ahead with any other issue and made enhancement of income. Making an enhancement in such circumstances would mean that though the jurisdiction of the Assessing Officer in initiating the reassessment was lacking, still, the assessment would be valid and ex consequenti, the addition would be sustainable. This, in my considered opinion, is a totally illogical and unsound proposition. I, therefore, order to delete the addition of Rs. 2.36 lakh and odd made by the ld. CIT (A)." 17. In both these decisions the concurrent view expressed was that unless in the order u/s 147 the AO makes addition on the 'foundational' issue for which the reason was recorded, the AO is not permitted to make addition in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escaped assessment must be based on some tangible material, which comes into AO's possession subsequent to passing of the assessment order. Once the AO forms such reasonable belief then such reason constitutes the key to open the lock which is placed on the assessment by the order passed earlier u/s 143(3) or 147 as a case may be. It is therefore necessary for the AO to show that the key used for opening the lock placed earlier by an order u/s 143(3) is the most appropriate key to unlock and thereby reopen the proceedings for bringing to charge all items of income which had escaped assessment earlier. Once it is established by the AO that the reason recorded by him is the correct key for reopening of assessment, only then the entire assessment gets opened and the AO is then permitted to bring to tax every item of income which had escaped assessment earlier even though in respect of such 'other items' the AO may not have recorded his satisfaction prior to issue of notice u/s 148. It is this essence, which has been captured by the Legislature by enacting Explanation (3) to Section 147 of the Act. However in a case where the assessee demonstrates that the key used by the AO for reopen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148. 19. In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under sections 80HH and 80-I and accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the judgments in Ranbaxy Laboratories Ltd. (supra) -vs- CIT and in CIT -vs- Jet Airways India Ltd. (supra) held as under : "We further find that similar view was taken by the Hon'ble Bombay High Court in the case of CIT -vs- Jet Airways India Ltd. (supra) and the Hon'ble Delhi High Court in the case of Ranbaxy Laboratories India Ltd (supra). The ratio laid down in these decisions is that reassessment must be in the first place, be in respect of income escaped assessment for which the reasons were recorded and only thereafter in respect of some other items of escaped income. If, however, the income, escapement of which was the foundation for recording of reasons to believe, is not assessed or reassessed inthe order under section 147, then it is not mere open to the AO to independently assess any other income, which comes to his notice subsequently." In our view, since the reassessment proceedings could not be carried on the original grounds, the Tribunal was justified in dismissing the appeal as it was not open for the Assessing Officer to expand the scope of reassessment by including some other issues. Therefore, no substantial question of law arises. Hence, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also", as well, in which event, the section would read as under: "147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 27. It is established principle of interpretation of statutes, that the Parliament is presumed to be not extravagant, in using the words, and therefore, every word used in the section, is required to be given its due meaning. 28. If considered on that principle, leaving apart for the moment, the aspect of interpretation of the word "and" as "or", the existence of the word "also" is of a great significance, being of conjunctive nature, and leaves no manner of doubt in our opinion, that it is only when, in proceedings und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pursued and the additions were made on account of bogus purchase, the assessment order u/s 147/143(3) were therefore held to be legally unsustainable. 22. Applying the ratio laid down in foregoing decisions to the assessee's case we find that the AO had recorded his satisfaction u/s 147 on the sole premise that the proceeds received by the assessee on sale of shares held as investments totaling Rs. 34 crores represented assessee's income escaping assessment. The said reason was based on the statement recorded in the course of survey, conducted against Mr. Uday Mahawar. The reasons which the AO recorded on 09/02/2015 and as set out in the foregoing, do not in any manner suggest that the AO was satisfied that the share subscription amounts received during the relevant year represented assessee's income escaping assessment. Undeniably in the reasons set out, the AO has made reference to two separate and distinct transactions; one involving the shares which the assessee issued to twenty two share subscribing companies and another involving sale of investments which the assessee held in other bodies corporate. It may be so that Shri Mahavar or companies managed by him were connected ..... X X X X Extracts X X X X X X X X Extracts X X X X
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