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TMI Blog2016 (4) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000/- u/s 68 of the Act on account of share application and share premium money. 3. It is therefore prayed that assessment framed u/s 143(3) r.w.s. 147 of the Act may kindly be quashed or alternatively the additions made by assessing officer and confirmed by learned Commissioner of Income-tax (Appeals) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 2. Briefly stated facts as culled out from the assessment records are that assessee is a private limited company which filed its return of income at Rs.NIL on 20.09.2005. The case was selected for scrutiny assessment and order u/s 143(3) of the Act was framed on 28.12.2007 after making an addition of Rs. 1,58,771/- and after giving credit to carry forward losses income was assessed at Rs.NIL. Thereafter notice u/s 148 of the Act was issued on 29/3/2011 and served upon the assessee on 31/03/2011 and in response to the notice u/s 148 of the Act assessee vide its letter dated 27.4.2011 submitted that the original return filed by the assessee company for Asst. Year 2005-06 may be treated as return filed in response of this notice. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of M/s Mihir Agency Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. are under the signature of Shri Mukesh M. Choksi c/o M/s Mahasagar Securities Private Limited, onus to prove nature and source of cash credit in form of share application money is not discharged by the assessee satisfactorily and he went ahead to make addition of Rs. 26 lacs to the income of assessee under the provisions of section 68 of the Act for unexplained source of share application and share premium money. 4. Aggrieved, assessee went in appeal before ld. CIT(A) who dismissed the appeal of assessee by observing as under :- DECISION. 8.1 . During the course of appellant proceedings, the appellant relied on the decision of Hon'ble Supreme Court in the case of Lovely Exports (F) Ltd. Before proceeding further, it is necessary to discuss the interpretation of the above judgement by the Hon'ble Mumbai High Court in the case of M/s .Major Metals Limited reported in 19 taxman. Com 176 ( Bom ). The Hon'ble Bombay High Court in judgment dated 22. 02. 2012 has analyzed the decision of M/s Lovely Exports Pvt Ltd in detail and distinguished the same in the above case of addition related to 'Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner that an addition within .the meaning of Section 68 would not be justified in law in its hands even if the share application money was received from bogus share holders. Counsel appearing on behalf of the petitioner submitted that in the present case the report submitted by the Commissioner U/s 245D(3) showed that the two. companies were duly identified being income tax assessees whose PANs were also furnished. Consequently, relying on the decision of the Delhi High Court in the case of CIT Vs Lovely Exports (p) Ltd, ( 2008) 299ITR 268 ( 2007) 158 Taxman 440 (Delhi) and the order rendered by the Supreme Court in a Special Leave Petition arising therefrom, it was urged that recourse to the provisions of Section 68 was not in order. Now, in order to appreciate the submission it would be .necessary to consider the Judgment of Delhi High Court in Lovely Exports (P) Ltd ( supra). The Division Bench of the Delhi High Court dealt with a batch of appeals relating to three assessees. In the case of Lovely Exports (P) Ltd( supra), the Assessing Officer had proceeded to make an addition on the, ground that the share applicants in question did not exist. The assessee had furnished necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uspicions and treat the subscribed capital as the undisclosed income of the Company ( Emphasis supplied). 25, Now, it is this decision of the Delhi Court against which a Special Leave Petition before the Supreme Court came to be dismissed on 11 January 2008. In CIT Vs Lovely Exports (P) Ltd ( 2008) 6 DTR 308( SC) white dismissing the Special Leave Petition the Supreme Court observed that if the share application money was received by the assessee from allegedly bogus share holders whose names were given to the AO, the department was free to proceed, to re - open their individual assessments in accordance with law. On this ground, the Supreme Court while dismissing the Special Leave Petition found no infirmity in the judgment of the Delhi High Court, The principle which was emphasized by the Delhi High Court i/i the case of Lovely Exports was followed by another Division Bench in CIT Vs Value Capital Services (P) Ltd ( 2008) 307 ITR 334 (Delhi). In CIT Vs Oasis Hospitalities (P) Ltd(2011) 331 ITR 119. _/_19S Taxman 247/9 Taxman.com 179 ( Delhi), a Division Bench of the Delhi High Court observed that the initial burden must be upon the assesses to explain the nature and source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the Commission has proceeded contrary to law or on the basis of no evidence. There is no per'ersity in the findings of Settlement Commission. 27. Before leaving this aspect of the matter, it would be necessary to advert to two decisions of the Supreme Court, the first being in C!T Vs P. Mohanakala (2007) 161Taxman 169 / 291 ITR 278 ( SC). While considering the scope of section 68, the Supreme Court observed as follows:- "15. ..... When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section Q8 suggests that there has to be credit of amounts in the books .maintained by an assesses; such credit has to be of a sum during the previous year; and the assessee offer no explanation abut the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the AO is not satisfactory. It is only (hen the sum so credited may be charged to income - tax as the income of the assessee of that previous year. The expression ' the assesses offer no explanation * means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we may examine the judgement of Hon. Supreme Court in the case of M/s Lovely Exports (P) Ltd. which is reproduced herein below "1 ....... Delay condoned. 2. Can the amount of share money be regarded as undisclosed income under section 68 of the IT Act,1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to re - open their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 3. Subject to the above, Special Leave Petition is dismissed........................... ...." Since this decision was given in respect of the decision of the Hon "ble Delhi Court against which, the SLP was filed, the findings of the Honble Supreme Court are to be inferred in the background of the facts of the said case. It is pertinent to mention here that in the case of M/s Lovely Exports Pvt Ltd, the Assessing Officer had made an addition only on the ground that some Summons 'were returned 'un-served' and some parties did not comply with the Sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se two-companies. Since the decision of Hon *ble Supreme Court in the case of M/s Lovely Export (P) Ltd. was in respect of earlier decision of Hon. Delhi High Court it is worthwhile to reproduce the observations of the Hon. Delhi High Court's recent judgment dt.15.02.2012. In the case of Nova Promoters & Finlease (P) Ltd. reported in (2012) 206 taxman 207 (Delhi). The facts of the case are similar to the facts in the case of the appellant. In that case also, the issue involved was of an entry provider and evidence was gathered by the investigation Wing. The relevant portion of the said judgment is reproduced hereinunder :- "38. The ration of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ED. 5. Aggrieved, assessee is now in appeal before the Tribunal. 6. First we take up ground no.2 raised against the action of ld. CIT(A) confirming the addition of Rs. 26 lacs u/s 68 of the Act on account of share application and share premium money received by the assessee. 7. At the outset ld. AR submitted that the issue raised in this ground is squarely covered in favour of assessee by the decision of the co-ordinate bench in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT in ITA No.816/Ahd/2013 for Asst. Year 2005-06 vide order dated 15.4.2015. 8. On the other hand ld. DR supported the orders of lower authorities. 9. We have heard the rival contentions and perused the material on record. The issue before us is in regard to action of ld. CIT(A) in confirming the addition of Rs. 26 lacs made u/s 68 of the Act for share application and share premium money received by assessee during the year and addition was made in the proceedings u/s 143(3) r.w.s.147 of the Act pursuant to notice u/s 148 of the Act. We observe that ld. AR has placed reliance on the decision of co-ordinate bench in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT (supra). The facts in the appeal before us are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147 of the Act The approval of the CIT-I, Surat is therefore sought for issue of notice under the provisions of section 151(2) of the Act. 10. We further find that similar reasons were recorded in the notice raised u/s 147 of the Act in the case of M/s Pankaj Enka Pvt. Ltd. which is reproduced below :- Reg: M/s. Pankaj Enka Pvt. Ltd., The return of income was filed on 17.10.2005 declaring the income of Rs. 96,552/-The same is processed u/s. 143(1) of the Act. On 20.03.2006. accepting the returned income. No order u/s 143(3) passed in this case. A search and seizure action u/s. 132 of the Income tax act was conducted in the case of m/s. Mahasagar Securities Pvt. Ltd., by Dy. DIT (Inv.)-Unit -(4), Mumbai, on 25.11.2009. The search was conducted on-the basis of information received in an FIU alert from New Delhi regarding suspicious transactions taking place in the bank accounts of this company and its related companies. The directors of theses companies were one Mukesh M. Chokshi and Jayesh K. Sampat. During the course of the search it was revealed that the Mahasagar Securities Pvt. Ltd., and its related group of 34 odd companies ( the prominent ones being Alliance In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and relevant portion of bank statement along with duly signed share application form in relation to both the parties namely M/s Mihir Agency Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. and further no specific defects have been brought on record by the lower authorities in respect of genuineness of the documents submitted by the assessee in regard to identity, genuineness and creditworthiness of M/s Mihir Agency Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. We further find that co-ordinate bench in the case of M/s Pankaj Enka P. Ltd. vs. DCIT in ITA No.816/Ahd/2013 for Asst. Year 2005-06 has duly considered and decided similar issue in favour of assessee, in regard to addition of Rs. 85 lacs from 12 parties in regard to share application and share premium money, by observing as under :- 6.13 Regarding addition of Rs. 85,00,000/- on account of share, application money and share premium money, we find that assessee has received Rs. 85,00,000/- towards share application money and share premium. List of the said parties is as under:- Sr. No. Name of the Party Share Application Money 1, M/s Hiteshwari Marketing PvtA.td., Kolkata 5,00,000/- 2. M/s JMD Mercantile Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form, Assessing Officer observed that share application forms were not bearing date. 6.16 Further, during remand proceedings, assessee again filed all details in regard to 8 parties who filed replies before Assessing Officer in response to notice u/s. 133(6) of the Act. Assessee filed acknowledgement of return of their income and audited financial statements and copy of relevant portion of bank statements of the parties. Assessee also produced original share application forms during the remand proceedings. 6.17 We find that all the transactions were duly supported by the Share application form, acknowledgement of return of income, audited financial statements 85 bank statements, Memorandum of Association (hereinafter referred as "MOA") and Articles of Association (hereinafter referred as "AOA") of the share applicant. All the share application monies have been received through proper banking channel and there is no evidence that assessee has paid any money in cash to the share applicant in consideration of cheque received from share. No inquiry is made by the Assessing Gmcer once the assessee has discharged his primary onus to prove the identity, genuineness and creditworthine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 68 of the Act. The assessing officer failed to carry his suspicion to logical conclusion by further investigation and therefore addition u/s 68 was not sustainable. The above judgment is squarely applicable to the facts of the case of assessee. The Assessing Officer and CIT (A) has relied upon the decision of Delhi High Court in the case of Nova Promoters Finlease Pvt. Ltd. which has been distinguished and differed by the same Delhi High Court in the case of CIT vs. Gangeshwari Metal (P.) Ltd. 30 taxmann.com 328 wherein it was held that when an assessee brings various documentary evidences in support of its claim that share application money is genuine, no addition can be made u/s 68 of Act. In the ratio of Nova Promoters Finlease Pvt. Ltd, two types of cases have been indicated. One in which the assessing officer carries out the exercise which is required in law and the other in which the assessing officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The facts of Nova Promoters and Finlease (P) Ltd, fall in the former category as the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and framing the assessment u/s 143(3) r.w.s. 147 of the Act. 14.1 From perusal of the order of ld. CIT(A) we observe that in form no.35 filed by assessee at the time of filing of appeal before ld. CIT(A) following three grounds have been raised :- 1. The learned Income Tax Officer has grossly erred in making addition of Rs. 26, 00,000/- in the total income of the appellant company u/s 68 of the IT Act. 2. The action of the learned AO is not justified to consider the share application money received by the company as bogus and unreliable just based on the statement provided by a third party. 3 The appellant craves leave to change, amend, alter, add or delete any of the grounds of appeal. From going through the above grounds of appeal raised by the assessee before ld. CIT(A), we find that assessee has not raised the ground against the action of Assessing Officer for issuing notice u/s 148 of the Act and further framing assessment u/s 143(3) r.w.s. 147. Normally grounds of appeal which are raised before the Tribunal ought to have been raised before ld. CIT(A) which in this case has not been so. However, looking to the facts of the case discussed by us while adjudicating g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and seizure action u/s. 132 of the Income tax act was conducted in the case of M/s Mahasagar Securities Pvt. Ltd., by Dy. DIT (Inv.)-Unit - (4), Mumbai, on 25.11.2009. The search was conducted on the basis of information received in an FIU alert from New Delhi regarding suspicious transactions taking place in the bank accounts of this company and its related companies. The directors of these companies were one Mukesh M. Chokshi and Jayesh K. Sampat. During the course of the search it was revealed that the Mahasagar Securities Pvt. Ltd., and its related group of 34 odd companies (the prominent ones being Alliance Intermediaries 85 Network Private Limited, M/s Mihir Agencies Private Limited, M/s Gold Star Finest Private Limited etc. all run by Mukesh Chokshi) were engaged in fraudulent billing activities and in the business of providing Bogus speculation profit/loss, short term/long term capital gain/loss, share application money, commodities profit/loss on commodity trading (through MCX) and had been continuing this business for many years. In the list of clients who have taken accommodation entries from these companies, the name of this assessee i.e. Pankaj Enka Pvt. Ltd., is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other person. In the present case, Assessing Officer acted on information supplied by the Directorate of Income Tax (Inv.), Mumbai but he has not applied his independent mind and reassessment proceedings were initiated only on the basis of information received from above investigation wing Mumbai. Hon'ble Delhi High Court in case of CIT v. Kamdhenu Steel & Alloys Ltd, (2012) 361 ITR 220 (Delhi) observed that where Assessing Officer acted mechanically on information supplied by the Directorate of IT (Inv.) about the alleged bogus/accommodation entries provided by certain individuals/companies, without applying his own mind, he was not justified in invoking jurisdiction u/s. 147. Hon'ble Apex Court in case of Calcutta Discount Co. Ltd. (1961) 41 ITR 191 (SC) analysed the Phrase "reason to believe" and observed that "It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn." 5.3 The case of assessee is squarely covered by the decision of ITAT, Jodhpur Bench in case of M/s Surbhi Mmchem Pvt. Ltd. (ITA Nos. 102 & 103/Jodh/2014). In said case, case was reopened u/s. 148 on the basis of same statement of Mukesh Choks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said case, case was reopened u/s 148 by Assessing Officer merely on the basis of information received from Investigation wing, Murnbai, and therefore, from reason recorded, it was not at all discernable as to whether Assessing Officer had applied his mind to the information and independently arrived at belief on the basis of material which he had before him that if any income had escaped assessment and therefore, assessment framed u/s. 143(3) r.w.s. 147 was requested to be quashed. Nothing contrary was brought to our knowledge with regards to decision taken in similar facts and circumstances in case of M/s. Surbhi Minchem Pvt. Ltd. (supra) wherein reopening was quashed on the ground reopening u/s. 148 of the Act by Assessing Officer was done merely on the basis of information from Investigation Wing, Mumbai. Even in case before us, it cannot be inferred that concern Assessing Officer has applied his mind information and independently arrived at certain belief on the basis of material before him that any income had escaped assessment. In view of above legal discussion, assessment framed u/s. 143(3) r.w.s. 147 of Act is quashed. 17. Further on going through the decision of Hon. J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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