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TMI Blog2019 (7) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... terial coming to the possession of the AO and formation of belief regarding escapement of income and is squarely covered by the ratio laid down by the jurisdictional High Court in the case of Pr. CIT vs. Shodiman Investment Pvt. Ltd. [ 2018 (4) TMI 1287 - BOMBAY HIGH COURT] . As perused the decision relied upon by the Revenue and found that they have been rendered on the different facts and are not applicable to the present case. We, therefore, in view of the aforesaid facts and ratio laid down by the various judicial forums hold that reopening as made by the AO is not proper and without valid jurisdiction and accordingly we set aside the order of Ld. CIT(A) on this issue. Accordingly we hold that the re-assessment proceedings u/s 147 are without any valid jurisdiction invalid and is quashed. Ground No.1 is allowed. Addition u/s 68 - proviso to section 68 as amended by Faiance Act 2012 w.e.f. 1.4.2013 is effective from assessment year 2013-14 - HELD THAT:- The assessee has proved the source of investments by the investors to be out of share capital and reserves and source of source is not to be proved. As in Aditya Birla Telephone Ltd. [ 2019 (4) TMI 63 - BOMBAY HIGH COURT] held so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2017, hence on that count itself, in absence of natural justice the order is bad in law. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the addition of ₹ 18,00,00,000 as unexplained cash credit u/s 68 of the Act made during the re-assessment proceedings. The amount was received by account payee cheque(s) on account of the share capital; the Ld. CIT(A) erred in ignoring the judgment of the Hon'ble Apex Court in Lovely Exports Pvt Ltd [216 CTR 195] and host of other judgments including Jurisdictional High Court judgment in the case of Creative World Telefilms Ltd.[333 ITR 100| and Paradise Inland Shipping Pvt Ltd. (unreported) 3. On the facts and circumstances of the case, the Ld. CIT(A) legally erred in confirming the addition of ₹ 18,00,000 being 1% of the share capital money raised (not share application) u/s 69C of the Act made by the AO during the re-assessment proceedings. 4. On the facts and circumstances of the case, the Ld CIT(A) legally erred in confirming the charging interest u/s 234B of the Act. 5. On the facts and circumstances of the case the Ld. CIT(A) legally erred in dismissing the penalty initiated under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of ₹ 3,00,00,000/- in shares of M/s. BLA Power Holding Pvt. Ltd. as on 31.03.20W (3,00,000 shares ₹ 100 each). It had also advanced loans, on which it is earned interest income of ₹ 1,95,740/- during the F.Y. 2009-10. Apart from this interest income, M/s. Lifetime Financial Services Ltd. has no other business income. Hence, the huge investment in shares made by M/s. Lifetime Financial Services Ltd. is not justifiable. Also, M/s. Lifetime Financial Services Ltd. had not filed any details with regard to shareholders or other relevant information to substantiate the source of funds in its hand. 5. In view of above, it is clear that M/s. Lifetime Financial Services Ltd. is paper/fake company set up for the purpose of routing funds to M/s. BLA Power Holdigns Pvt. Ltd. Under these circumstances, J have reasons to believe that the transaction to the tune of ₹ 3,00,00,0007- made by M/s. BLA Power Holdings P. Ltd. with M/s. Lifetime Financial Services Ltd. or any other income chargeable to tax. which comes to my notice subsequently in the course of proceedings for reassessment has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect that M/s. Lifetime Financial Services Pvt. Ltd. was a paper company/fake company and was only set up for the purpose of routing funds to the assessee which has resulted into escapement of income. Whereas in contrast the facts of the case of the assessee are totally different, the assessee has allotted 6% non cumulative, non comfortable redeemable preference shares during the year as per details below: Sr. No. Party Name No. of Preference Shares Amount (Rs.) Face Value {₹ 10 each) Premium Amount (Rs.} {Ra.90 each} Total Amount (Rs.) 1 Masantoshi International Limited 4,00,000 40,00,000 3,60,00,000 4,OO,00,000 2 Sharadraj Tradefin Limited 3,00,000 30,00,000 2,70,00,000 3,00,00,OOO 3 Blueprint Securities Limited 2,00,000 20,00,000 1,80,00,000 2,00,00,000 4 Konark Commerce & Industries Limited 4,00,000 40,00,000 3,60,00,000 4,00,00,000 5 Impex Services Limited 2,00,000 20,00,000 1,80,00,000 2,00(00,000 6 Lifetime Financial Services Limited 3,00,000 30,00,000 2,70,00,000 3,00,00,000 18,00,000 1,80,00,000 16,00,00,000 18,00,00,000 The said shares were issued at face value of ₹ 10/-at prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished beyond doubt, where is the question of conducting any assessment proceedings at all ! The whole assessment or re-assessment exercise shall be superfluous. This cannot obviously be the intention of Legislature. There cannot be of course any arbitrary issuance of re-assessment notices. But, that doesnot mean that the AO shallbe a mute spectator with his hands tied behind looking at a tax-evasion waiting for the strong evidence to fall in his possession somehow. It is like stopping a policeman from acting on a complaint of murder or theft by a person on the ground that the complainant has not given any solid evidence beyond doubt against the suspected murderer or the suspected thief and it is better that instead of going after the suspected murderer or thief forthwith , the policeman should first confront this and that with this person and that person and spend time in leisurely theorizing sitting in his cabin in Police station, lest some conduct rules get violated in the process. 3.2.24 Not only this, it is also worth-mentioning here that in this case, no assessment was ever made by the department. The return filed was only processed u/s 143(1) of the Act. No scrutiny assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act do not give any belief that income of the assessee has escaped the assessment in any way whatsoever. The reasons recorded by the AO after receiving information from the ADIT(Inv) wing refer to two facts namely; (a) opening of bank account by M/s. Lifetime Financial Services Pvt. Ltd. and (b) subscription in the shares of assessee company by M/s. Lifetime Financial Services Pvt. Ltd. The Ld. A.R. submitted that the conclusion of the AO that M/s. Lifetime Financial Services Pvt. Ltd. is a paper company/fake company is totally fallacious and without any basis as there was no material to justify or indicate that the said investor was a fake company. The Ld. A.R. submitted that the opening of the bank account is a routine transaction and similarly the share subscription in the assessee company can not be construed that M/s. Lifetime Financial Services Pvt. Ltd. is a paper company or a fake company. The Ld. A.R. also submitted that the information received by the AO from the investigation wing has not been provided to the assessee either along with the reasons as recorded or at the time of assessment proceedings and the said action of the AO is contrary to the decision of Hon'ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the returned income filed by the said company while framing assessment under section 143(3) read with section 147 of the Act vide order dated 30.11.2017 a copy of which is filed at page No.251 to 252 of the paper book 2. The Ld. A.R. therefore submitted that in the assessment order of said company there was no such allegation to the effect that the said company was a paper company or fake company or not a bonafide company. The status of the said company was accepted as company which was following mercantile system of accounting as resident in India. The Ld. A.R. therefore contended that the AO was not having any basis for formation of belief with respect to investment by M/s. Lifetime Financial Services Pvt. Ltd. as being a fake company or paper company and thus the reasons recorded are completely unsustainable in law. The Ld. A.R. also submitted that AO of the investor company has accepted the investments made by the said company out of its share capital and premium in the assessee company and not out of unexplained deposit as no additions have been made in the assessment order of M/s. Lifetime Financial Services Pvt. Ltd. in A.Y. 2010-11. The Ld. A.R. further argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he beneficiaries. The Ld. D.R. submitted that the assessee has entered into these transactions with M/s. Lifetime Financial Services Pvt. Ltd. in order to route the undisclosed income. The Ld. D.R. submitted that in the said investing company there was hardly an income and income was only of ₹ 8,185/- during the year. The AO has ex facie formed opinion by due application of mind that income of the assessee company has escaped by reason of these transactions made by M/s. Lifetime Financial Services Pvt. Ltd. with the assessee company. In defence of his argument the Ld. D.R. relied on a series of decisions as under: 1. Avirat Star Homes Ventures Pvt. Ltd. vs. ITO (2019) 102 taxman.com 60 (Bom.) 2. Rajat Import Export Pvt. Ltd. vs. ITO 341 ITR 135 3. Aradhana Estate Pvt. Ltd. vs. DCIT 254 Taxman 1 (Guj.) 4. Khatu Shyam Processor Pvt. Ltd. vs. DCIT 94 taxman.com 429 Besides the Ld. D.R. submitted before the Bench that the decisions as relied upon by the Ld. A.R. are distinguishable on facts and not applicable to the case of the assessee. The Ld. D.R. submitted that in the case of Pr. CIT vs. Shodiman Investment Pvt. Ltd. (supra), there was no material before the AO where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding the decisions cited by the rival parties in their respective defense. We observe from the facts before us that the AO received information from the investigation wing that a bank account has been opened by M/s. Lifetime Financial Services Pvt. Ltd. with a deposit of ₹ 1,00,000/- followed by heavy transactions in the said bank account out of which a transaction of ₹ 3 crore was made by the said company with the assessee company in the form of purchase of 6% non cumulative, non comfortable, redeemable preference shares of face value of ₹ 10/- each at a premium of ₹ 90/-. The AO recorded the reasons on the basis of information received that income has escaped in the hands of the assessee referring to the opening of the bank account by M/s. Lifetime Financial Services Pvt. Ltd. and subscription to the shares of assessee company by investing ₹ 3 crores as the said company being a fake/paper company, the income of the assessee has escaped assessment. We observe that the investing company M/s. Lifetime Financial Services Pvt. Ltd. is a registered NBFC as the Reserve Bank of India has granted certificate of registration in 2001 to the said company wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of Pr. CIT vs. Shodiman Investment Pvt. Ltd. (supra). We have perused the decision relied upon by the Revenue and found that they have been rendered on the different facts and are not applicable to the present case. We, therefore, in view of the aforesaid facts and ratio laid down by the various judicial forums hold that reopening as made by the AO is not proper and without valid jurisdiction and accordingly we set aside the order of Ld. CIT(A) on this issue. Accordingly we hold that the re-assessment proceedings u/s 147 of the Act are without any valid jurisdiction invalid and is quashed. Ground No.1 is allowed. 12. In ground No.2 assessee has challenged the upholding the addition of ₹ 18.00 Cr by Ld. CIT(A) as made by the AO under section 68 of the Act as unexplained cash credit. 13. The facts in brief are that assessee during the year raised share capital and share premium from six parties by issuing 6% non cumulative, non comfortable redeemable preference shares. According to the AO the assessee has failed to prove and justify the identity, creditworthiness of the investors and genuineness of the transactions and accordingly held that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed per se doesnot help the appellant. 3.3.26 In view of the above detailed discussion, I have no hesitation in confirming the action of the AO in adding the alleged share application money of ₹ 4,00,00,0007- from Masantoshi International Ltd., ₹ 3,00,00,0007- from Sharadraj Trade fin Ltd., ₹ 2,00,00,000/- from Blue Print Securities Ltd., ₹ 4,00,00,000/- from Konark Commerce Industries Ltd., ₹ 2,00,00,000/-from Impex Services Ltd and ₹ 3,00,00,000/- from Lifetime Financial Services Ltd., totally aggregating to ₹ 18,00,00,000/-. 3.3.26 The AO has also made an addition of ₹ 18,00,0007- being the estimated unaccounted payment made by the assessee for availing of accommodation entries. This amount has been estimated @ 1% for the total accommodation entries availed of ₹ 18,00,00,000/- for the relevant year. As discussed in the preceding paragraphs, there is no doubt that the assessee has availed of accommodation entries in the form of share application money from the paper concerns. Therefore, the action of the AO of estimating the unaccounted expenses incurred by the assessee to avail accommodation entries @1% is on a reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the sufficient time was given to the investors by the AO to reply the same. The Ld. A.R. submitted that in absence of any such information and refusal to give copies of the notices, adverse inference may be drawn against the Revenue. The Ld. A.R. submitted that AO has relied on the statements of certain persons alleged to be entry providers, copies whereof were never given to the assessee and no cross examination was ever provided either by the AO or by the Ld. CIT(A) and therefore the addition as made by the AO needs to be struck down on this score also. In defence of his arguments, the Ld. A.R. relied on the decision of the Hon'ble Bombay High Court in the case of HR Mehta vs. ACIT 387 ITR 561 wherein the Court has held that AO is duty bound to provide material used against the assessee and an opportunity to cross examine the deponent whose statement was relied upon to justify the addition and in absence of the same, such material can not be relied. Moreover, the Ld. A.R. also referred to the decision of Hon'ble Supreme Court in the case of CIT vs. Kishan Chand Challa Ram 125 ITR 713 (SC) wherein it has been held that unless those materials which are relied by the AO for mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments of funds in the assessee by various multiple corporate entities itself would not be sufficient to brand the impugned transactions as sham. However, the assessee has sufficiently proved the source of investments for all these companies to be out of share capital and reserves and therefore no addition is justified under section 68 of the Act. The Ld. A.R. also submitted that the decisions referred to by the Revenue in the case of PCIT vs. NRI Iron and Steel Pvt. Ltd. 103 taxman.com 48 is distinguishable on facts. In the said case the AO has issued summons to those parties who did not attend before the AO and the AO, after carrying out field enquiry with respect to identity and creditworthiness of the parties, came to the conclusion that none of the investor companies could justify making investment at high premium and some of the investors were found to be non existent. None of these companies could produce bank accounts to establish the source of funds for making these investments and only on these facts Hon'ble Supreme Court held that provisions of section 68 are applicable. In the present case, genuineness of the transactions was proved by submitting detailed project r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by following various judicial decisions and is a very reasoned and speaking order. 17. We have heard the rival submissions of both the parties and perused the material on record. We observe that in this case the assessee has filed the necessary evidences in the form of share application forms, bank statements of the investors, their PAN cards, ITRs, assessment orders, list of directors, ROC master data, audited financial statements and also the details of registration with stock exchanges in case of some of the investors. We further note that the funds were raised by the assessee in order to finance the power project being set up by the subsidiary company i.e. BLA Power Pvt. Ltd. and for the purpose of setting up the said project, the banks have even lent ₹ 300 crores to the said company. We further note that fact of notices sent under section 133(6) to these parties having been returned unserved was never confronted to the assessee during the assessment proceedings. Even the repeated requests by the assessee to inspect the assessment records have not been denied to the assessee which was sought to verify the truth of existence of such notices issued under section 133( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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