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TMI Blog2019 (11) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... This live-link is actionable as it was found and acted upon within the period of limitation under the proviso to Section 147 of the Act. A serious and well founded doubt about the genuineness of the transaction would justify formation of the reasonable belief that taxable income has escaped assessment in the light of the scheme of Section 68 of the Act, which provides that cash credits which, in the opinion of the AO are not satisfactorily explained, would be charged to income tax as the income of the assessee. The subsequent acquisition of knowledge that the monetary transaction (including of the kind discussed above) undertaken by the assessee was with a bogus entity/ person such as an accommodation entry provider which knowledge was not available to the Assessing Officer at the time of completion of the scrutiny assessment, would be a material change of circumstances, and the formation of belief that taxable income has escaped assessment would not suffer from the taint of simplicitor change of opinion. One cannot lose sight of the fact that once the proceedings are reopened, the assessee would have full opportunity to meet the material/ evidence that the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the documents provided by the respondent today in Court within seven days from today. No further time shall be granted for that purpose. The Assessing Officer shall decide the objections that may be raised within two weeks from today. - W.P.(C) 10953/2019 and C.M. No. 45242/2019 - - - Dated:- 31-10-2019 - MR. VIPIN SANGHI AND MR. SANJEEV NARULA JJ. Petitioner Through: Ms. Suruchi Aggarwal, Adv. Respondents Through: Ms. Vibhooti Malhotra, Adv. VIPIN SANGHI, J. (ORAL) 1. The petitioner has preferred this writ petition to assail the notice dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961 (the Act) by respondent No. 2 alleging escapement of income chargeable to tax in respect of assessment year 2012-13, and the order dated 30.08.2019, passed by respondent No. 2 disposing of the petitioner s objection to re-opening of the case under Section 147/148 of the Act. The writ petition was initially taken up for hearing on 16.10.2019 when the following order was passed: W.P.(C) 10953/2019 and C.M. No. 45242/2019 One of the reasons given by the Assessing Officer for issuing notice under Section 147 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhar Venture India Ltd is not the sole basis/ reason for re-opening of the Assessment Proceedings. The reasons are multiple and independent of each other. The reasons recorded by the Assessing Officer read as follows: In this case information has been received from DCIT, Central Circle-2 (2), Mumbai. It is informed that a search u/s 132 of the Income Tax Act, 1961 was carried out at the residence and various premises of the Shri Shirish C Shah who happened to be main persons engaged in providing bogus accommodation entries like long term capital gain, share capital with huge share premium, turnover, loan etc. The assesse directly and indirectly controlled more than 200 companies which include some of the public limited companies also. The details of these companies are available in the assessment order Shri Shirish C Shah. 2. It is seen from the impounded material from the computer of the Shri Shirish C Shah that M/s Prraneta Industries Ltd. Has made investment in the form of share capital of ₹ 300,00,000/- vide cheque No. RTGS dated 25.11.2011, 02.11.2011, 03.11.2011, 05.11.2011, 08.11.2011, 25.11.2011, 30.11.2011 and 01.12.2011. 3. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Having perused and considered the information received from the Wing, I have reason to believe that income of the assessee to the extent of ₹ 306,00,000/- has escaped assessment. The escapement of income has been clearly on account of failure on the part of the assessee company to truly and fully disclose all material facts necessary for assessment. Thus, it is fit case for initiation of proceedings u/s 147 of the Income Tax Act, 1961. 5. On the basis of the facts as stated above, I have reasons to believe that income chargeable to tax exceeding ₹ 1 Lac. Has escaped assessment, as the assessee has not disclosed fully and truly all material facts necessary for his assessment for the relevant assessment year. Hence, a notice u/s 148 read with section 147 for reopening of assessment is required to be issued in this case. Submitted for kind perusal and approval as per provision of section 151 (1) of the Income Tax Act, 1961. 4. From the above, it would be seen that the primary reason for reopening of the Assessment Proceedings in respect of the petitioner for the assessment year 2012-13 is that M/s Prraneta Industries Ltd. (which is now k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital with premium in the assessee company. In the independent inquiry, the AO found that the investor companies despite service of notice did not appear; that in respect of some of them, their office was found closed; some other entities were found not existing at the given address; in some cases, the premises was found to be owned by some other person. Consequently, notices could not be served in these cases. Even when they responded, the investor companies did not provide justification for applying in equity shares in the assessee company at a premium of ₹ 190 per share. 7. The reply submitted by the investor companies were found to be incomplete and unsatisfactory. In regard to the said 19 investor companies, the finding recorded by the AO has been paraphrased by the Supreme Court in the following words: The AO recorded that the enquiries at Mumbai revealed that out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. With respect to the Kolkata companies, the response came through dak only. However, nobody appeared, nor did they produce their bank statements to substantiate the source of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal before this court i.e. ITA No.244/2018 under section 260A of the Act was dismissed on 26.02.2018 on the ground that the issues raised before the High Court were factual, and that the lower appellate authorities had taken sufficient time to consider the relevant circumstances. This court held that no substantial question of law arose for its consideration. 11. In this background, the department appealed before the Supreme Court. The respondent assessee did not appear before the Supreme Court despite service. The Supreme Court heard the appeal on merits and considered the issue whether the respondent assessee had discharged the primary onus to establish the genuineness of the transaction required under section 68 of the Act. The Supreme Court held that the use of the words any sum found credited in the books in section 68 of the Act indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium. The Supreme Court relied on CIT v. Precision Finance Pvt. Ltd., (1994) 208 ITR 465 (Cal), wherein the Court held that the assessee was expected to establish to the satisfaction of the AO: Proof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed income. 14. The Supreme Court also placed reliance on CIT v. Kamdhenu Steel Alloys Ltd., (2012) 206 Taxman 254 (Delhi), wherein the Court had observed: 38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise if going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the case deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 15. It was held that the AO ought to have conducted an independent inquiry to verify the genuineness of the credit entries. 16. The Supreme Court also noticed several other decisions relating to the issue of unexplained credit entries/ share capital subscriptions. We may quote the relevant extract from the decision of the Supreme Court in this regard: i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee. v. The Guwahati High Court in Nemi Chand Kothari v. CIT, (2003) 264 ITR 254 (Gau.) held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction.: It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-a-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself (emphasis supplied) vi. In a recent judgment the Delhi High Court in CIT v. N.R. Portfolio (P.) Ltd. [2014] 42 taxmann.com 339/222 Taxman 157 (Mag.) (Delhi), held that the credit-worthin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and there was no explanation as to why the investor companies had subscribed to the shares of the assessee company at high premium of ₹ 190 per share, when the face value was only ₹ 10 per share. Moreover, the investor companies had not established the source of funds from which the high share premium was invested. Mere mention of the income tax file number of the investor was not sufficient to discharge the onus under section 68 of the Act. The Supreme Court held that the lower authorities, namely, the CIT (Appeals) and the ITAT had ignored the detailed findings of the AO and that they had erroneously held that merely because the assessee had filed all the primary evidence, the onus on the assessee under section 68 of the Act stood discharged. The Supreme Court held: 13 ..The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had produced evidence before the Assessing Officer during the scrutiny assessment proceeding that the said amount had been received as share application money from M/s Prraneta Industries Ltd., and the fact that M/s Prraneta Industries Ltd. had confirmed having invested ₹ 3 crores in the assessee company for allotment of shares, is neither here, nor there. This is for the reason that one part of any such transaction would invariably be conducted through banking channels and would be duly recorded whether the same is genuine or not. That is how money would be laundered. Thus, the fact that the monetary transaction has been conducted through a banking channel, and is acknowledged, does not render the opinion of the Assessing Officer regarding the escapement of taxable income illegal or unreasonable since, at the time of the conduct of scrutiny assessment proceedings, the assessee did not disclose the material fact that the so called investor in this case M/s Prraneta Industries Ltd., is engaged in the business of providing accommodation entries, and the Assessing Officer had no basis to so assume. In fact, the assessment order passed by him is completely silent on the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the person/ entity indulging in the activity of providing accommodation entries and such third party/ Assessee. The person who has undertaken such financial transaction(s) with such a person/ entity (the bogus entry provider) cannot avoid further scrutiny of such a transaction by laying a challenge to the re-opening of the assessment under Section 147/148 of the Act when the re-opening is, otherwise, within the period of limitation. 26. In the present case, the live-link between the said material information, and the formation of the belief that taxable income has escaped assessment is the fact that the petitioner, admittedly, received ₹ 3 crores from M/s Prraneta Industries Ltd., now known as M/s Adhar Venture India Ltd. This live-link is actionable as it was found and acted upon within the period of limitation under the proviso to Section 147 of the Act. 27. No doubt, on the one hand, sanctity of concluded assessment proceedings needs to be protected, and an assessee should be protected against undue harassment by the taxation authorities by resort to re-opening of the concluded assessment. However, when subsequently, it comes to light that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court observed that there was no new material which had been found or mentioned in the reasons to believe, which is not the position in the present case. In fact, the present case is squarely covered by the decision of this Court in Chetan Sabharwal v. Assistant Commissioner of Income Tax, Circle 28 (1), W.P.(C.) No. 10897/2015 along with other connected petitions, decided on 06.08.2019. In the said decision, the Court, inter alia, held as follows: 41. As far as the case of Mr. Chetan Sabharwal is concerned, the original assessment orders for both AYs under Section 143(3) of the Act do not give any indication on the AO having formed any opinion whatsoever on the basis of which the reopening has been ordered. In this context the following observations in Income Tax Officer Ward No. 16 (2) v. Techspan India Pvt. Ltd. are relevant. 18. Before interfering with the proposed reopening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint inspection. It gives a reasonably specific estimate of the excessive coal mining said to have been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may well be that the assessee may be able to establish that the fact stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief. Since, we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have now to go on we do not and we ought not to express any opinion on merits. (emphasis supplied) 30. As noticed herein above, the AO while making the regular assessment did not undertake the scrutiny that he should have undertaken in respect of the investment into the share capita ..... 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