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TMI Blog2021 (7) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. A.R. that the reason to believe that income chargeable to tax has escaped for the purposes of reopening assessment u/s 147 r/w 148 of the Act cannot be based on suspicion, surmises, conjectures but must be based on cogent and tangible material that establishes a causal nexus between the information available and inference drawn by the A.O. We are of the considered opinion that the A.O. had no specific information and/or material in his possession to even arrive at reason to believe that the share capital or share premium received by the assessees from any of the shareholders for the Assessment Years in question were not genuine and/or bogus and/or represented assessees own unaccounted funds. The A.O. s assumption of jurisdiction u/s 147/148 of the Act is therefore held to be illegal, erroneous and impermissible in law, rendering all subsequent proceedings to be non est . A.O.,by failing to confront the assessees with the evidence he had gathered u/s 142(2) Act, has, therefore, erroneously skipped the mandatory intermediary step prescribed u/s 142(3) of the Act. Thus, when the A.O. has directly gone on to pass the Assessment Orders u/s 147/143(3) of the Act to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Ld. CIT (A) has upheld the assumption of jurisdiction of reopening the assessments u/s 147/148 of the Act and to the extent the Assessment Orders passed by the Assessing Officer (AO) have been passed in violation of Principles of Natural Justice. The appeals and the cross objections were heard together and are being disposed of through this common order for the sake of convenience. 2.0 The common facts relating to the three assessees are that the A.O. had, in all the three cases, issued Notices u/s 148 of the Act, after recording identical reasons for reopening the assessments. 2.1 The reasons recorded in the case of Sur Buildcon Pvt. Ltd. are being reproduced herein under for the sake of completeness: Reasons recorded for re-opening the case of M/s Sur Buildcon Pvt. Ltd. for the A.Y. 2009-10 u/s 147 of the Income Tax Act, 1961: 19.09.2011: A survey operation was conducted on 3 March 2010 by the officers of the Investigation wing of the Income Tax Department on the corporate office address of M/s Sur Buildcon Pvt. Ltd. i.e. 315, E-Block, 3rd Floor, International Trade Tower, Nehru Place, New Delhi. In the survey, it was found that it was a premise run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd securities premium of ₹ 17,10,000/-. There is debit balance of ₹ 7,39,005/- in the P L Account of the company. Company has shown gross total income in its ITR of ₹ 970 during the F.Y. 2008-09 (relevant to A.Y.2009-10). After careful examination of the aforesaid facts the following issues arises. (i) That a company which has been found not existing at the address of its registered/corporate office and as per the statement of Sh. B. S. Bisht which is a paper company, the genuineness with respect to introduction of ₹ 2,30,00,000/- approximately in the shape of share capital and ₹ 17,10.00.000 in the shape of securities premium is! questionable. 2.1. It gives reasons to believe that this company is just a paper company established for introducing money from unexplained sources. 2.2 Financial Statistics about the company Share Capital ₹ 1,00,000/- ₹ 2,31,00,000/- ₹ 2,31,00,000/- Share Capital ₹ 1,00,000/- ₹ 2,31,00,000/- ₹ 2,31,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons against the issuance of notice u/s 148 of the Act by citing non-existence of any live link or casual nexus between the information on record and the reason to believe that the income of the assessees had escaped assessment. The objections of the assessees were, however, rejected by the A.O. During the course of re-assessment proceedings, certain documents evidencing the identity, genuineness and creditworthiness of the share capital and share premium received were furnished before the A.O. by the assessees in response to the notice(s) issued u/s 142(1) of the Act. These documents were in the nature of confirmations, bank accounts, and ITR Acknowledgments of the investors concerned. 2.4 The A.O. issued summons u/s 131 of the Act and also directed that spot enquiry reports be obtained in Mumbai and Kolkata (in the case of all three assessees) and additionally in Guwahati (in the case of M/s Sur Buildcon Pvt. Ltd./Globus Real Infra Pvt. Ltd.). Thereafter, the A.O. observed that the parties in Mumbai either did not respond to the summons served on them or were not found at the given address or the addresses were either incomplete or incorrect or the premises were fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), in the impugned orders, reached the conclusion that the reasoning of the A.O. behind making the additions u/s 68 on account of share capital and share premium was incorrect and legally unsustainable. The finding of the Ld. CIT (A) vis- -vis M/s BBN Transportation Pvt. Ltd is being reproduced here in under {which is identical in the cases of the other two assessees (apart from the variation in figures)}: 3.2 The case of the revenue is that some of the investor companies could not be found at the given address and also that some of the investor companies responded to the summons by post but did not cause appearance before the tax authorities It is also stated that the income of many of the investor companies was too low or meagre to enable them to make such large investments in the share capital of appellant company. It is further submitted that there appears no justification for large component of share premium paid to the appellant along with the share capital. Based on these observations, the revenue has held that the subscription to share capital, including the share premium. Amounting to ₹ 9,40,00,000/- as unexplained credits of the appellants and held to be un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective assessment proceedings, including this appellant company. No evidence was found during the search to indicate introduction of unaccounted cash / funds in the form of share capital in these companies. In these circumstances, the conclusion based on the facts relied upon by the revenue that the share capital introduced in the companies belonging to Bhushan Group, including the appellant company, are unexplained, is premature. 3.5 In the above facts and circumstances of the matter, and in view of the case laws relied upon by the Ld. AR, the addition made cannot be legally sustained and is deleted. This ground of appeal is allowed. 2.6.2 On the ground of jurisdiction, the Ld. CIT (A) identically opined the following in the impugned orders across all the three assessees: 4.2 I have considered the assessment order and the submissions made. It is not the case that the appellant was not supplied with the reasons recorded. It raised objections to the reasons recorded, which were duly replied to by the revenue. To this extent, its claim that the reasons or results of enquiry were not supplied during the assessment is incorrect. However, do not I find from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished as all the investors were showing a nominal income and neither the investor company and nor the assessee company had produced any proof to substantiate the creditworthiness of the investors (for example balance sheet of the investor company). 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal. Grounds of appeal in Cross Objection No.258/Del/2015: That the order dated 19.09.2013 passed u/s 250 of the Income-tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-I, New Delhi, is against law and facts on the file and bad in law in as much as he was not justified to uphold the action of the Ld. Assessing Officer in resorting to the provisions of Section 148 of the Income-tax Act, 1961. Grounds of appeal in ITA No.6176/Del/2013: 1 . The order of Ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld. CIT (A) has erred in deleting the addition of ₹ 9,40,00,000/- made by AO without appreciating the fact that the identity and the creditworthiness of the investors were not established as all the investors were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us rendering the entire assessment proceedings as non-est, bad-in-law and void ab initio. 3.0 At the outset, the Ld. A.R submitted that there was a delay in filling of Cross Objection in the case of ACIT CC-3 vs. M/s Goldstar Cement Pvt. Ltd. in ITA No. 6177/Del/2013 for AY 2008-09. It was submitted that the said assessee had filed an application for condonation of delay which was also accompanied by an affidavit. The issue with respect to the condonation of delay was addressed by the Ld. Counsel. He reiterated the facts narrated in the application, which may be summarized as under: 3.1 It was submitted that the Department had initially preferred an Appeal before this Tribunal on 12.11.2013 after the Ld. CIT (A) had deleted the addition made by the A.O. vide Order dated 19.09.2013. It was submitted that the said appeal was numbered as ITA No. 6177/DEL/2013. It was further submitted that the assessee had, thereafter, filed the necessary Cross Objection (No. 261/DEL/2013) to the said Appeal on 09.05.2015 which was delayed by 579 days. 3.2 The Ld. AR further submitted that the said Appeal and the Cross Objection were listed for hearing before the Tribunal on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further the cause of substantive Justice, especially since in this case, the delay was not attributable to the fault of the assessee. 3.5 The Ld. CIT DR opposed the assessee s prayer for condonation of delay. 3.6 After considering the series of events and the submission of the Ld. A.R, we are of the considered opinion that in the interest of Justice and fair play, the delay needs to be condoned. The bona fide of the reasons have not been assailed by the other side and, therefore, we condone the delay caused in the filing of the Cross Objections before the Tribunal in case of ACIT CC-3 vs M/s Goldstar Cement Pvt. Ltd. ITA No. 6177/Del/2013 for AY 2008-09. 4.0 Now we take up the application for the admission of an additional ground which is identical in the cases of ACIT, Central Circle-13, New Delhi Vs.BBN Transportation Pvt. Ltd., ITA No. 6176/Del/2013 CO 260/Del/2013 for A.Y. 2008-09 ACIT, Central Circle-13, New Delhi Vs. Sur Buildcon Pvt. Ltd. (now known as Globus Real Infra Pvt. Ltd.), ITA No. 6174/Del/2013 CO 258/Del/2013 for A.Y. 2009-10. The said additional ground reads as under: That the Ld. CIT (A) vide order dt. 19.09.2013 passed u/s 250 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. 2009-10. 5.0 Now coming to the contentions raised by the Ld. CIT D.R. and the Ld. A.R. on the respective grounds raised by them in their Appeal and Cross objections, the submissions of both the parties may be summarized as under: 5.1 The Ld. CIT D.R., on behalf of the Revenue, defended the Assessment Orders by submitting that the A.O. had conducted necessary investigations and enquiries to hold that the genuineness of the transactions have not been proved and neither have the same been explained by the assessees. The Ld CIT D.R. submitted that the Ld. CIT (A) had erred in overturning the findings of the A.O. in a summary manner without establishing how the assessees had effectively rebutted the detailed and adverse findings emanating from the enquiries conducted by the A.O. The Ld. CIT D.R. submitted that the assessees had only submitted routine details which were nothing but a fa ade to cover the real picture. Per the Ld. CIT D.R., the investors, who have put in substantial money in the assessee companies, cannot simply disappear or become untraceable over time, and, if, the said investors were genuine, the onus was on the assessees to satisfy all the queries raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed law, renders the entire reassessment proceedings to be a nullity. The established case laws of Calcutta Discount 1961 41 ITR 191(SC) and ITO v. Lakmani Mewal Das, 1976 103 ITR 437 (SC) were cited in support, amongst others. 6.1 Per the Ld. A.R., the reasons recorded in the present cases cannot be the basis on which any such reason to believe could be arrived at which would even prima facie show that the share capital or share premium received by the assessees for the AYs under appeal was not genuine. Per the Ld. A.R., the A.O. must have in his possession specific information or material to show that the particular transactions of the assessees were not genuine or fictitious. It was submitted that this specific information was, however, absent in the cases at hand, thereby rendering the entire reassessment/s to be in the nature of fishing and roving enquiries, based solely on borrowed satisfaction drawn from the statement of Shri B.S. Bisht recorded by the Investigation Wing. The Ld. AR submitted that the same is impermissible in law in light of the several cited decisions of the Hon ble jurisdictional Delhi High Court. 6.2 On the violation of the Principle( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. in the assessment orders, stated that summons were sent to 41 investor companies (in case of the three assessees) and postal replies were submitted by 39 investor companies. This is erroneous, since the total investors of all the three assessees put together are only 39 and, therefore, the figure of 41 is fictitious. Further, if postal replies had been submitted by 39 investor companies, which is, in fact, the total number of investors in all, then how has the A.O. made an addition u/s 68 by holding that 19 Companies that were based in Mumbai and Guwahati were either not served the summons or they never responded? Thus, per the Ld. A.R. the Reports clearly cannot be relied upon to make any adverse inference against the assessees. 6.6 The Ld. A.R. also submitted that the mere fact that the investor companies did not have their own profit-making apparatus or had reported meagre income did not ipso facto mean that the investors had no creditworthiness. As per the decision of PCIT-1 Vs. Ami Industries Ltd. [2020] 116 taxmann.com 34 (Bom), th e investments may be made from own funds available in share capital/reserves account or out of borrowed funds and not necessarily ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot of the matter and must be disposed of at the inception itself, even though the appeals are of the Revenue. 7.1 With respect to the grounds/additional grounds taken in the Cross Objections, we have carefully considered the same along with the orders of the authorities below as well as the material and the relevant provisions of the Income Tax Act. We also have gone through the case laws relied upon by the Ld. A.R. Before deciding on the issue as to whether the invocation of jurisdiction u/s 147/148 was valid or not, it is expedient to discuss the relevant provisions involved. The relevant portion of Sec. 147 of the Act reads as follows: 147. If the Assessing Officer 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 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 this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information. - ITO v. Lakmani Mewal Das, 1976 103 ITR 437 (SC): As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under s. 34 of the Act is open to challenge in a court of law. - Ganga Saran Sons (P.) Ltd. v. ITO, [1981] 130 ITR 1 (SC): 6. ......... The important words under section 147(a) are has reason to believe and these words are stronger than the words is satisfied . The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material. The Court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the Court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under section 147(a ). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the officers of the Investigation Wing of the Income Tax Department. (ii) That statement of one Shri B.S. Bisht, Assistant Secretarial Officer with M/s. BSL was recorded wherein he purportedly stated as under: - that several companies were being run from the said premises - that the main companies of the group were M/s. Bhushan Steel Ltd. M/s. Bhushan Energy Ltd. and the remaining companies were allegedly paper companies not doing any actual business. - that the directors of the companies run from the said premises were generally employees of the group companies. 7.4.1 Based on the same, the A.O. concluded that the share capital and share premium received by the assessees were questionable in nature and he concluded that he had reasons to believe that the assessees were just paper companies established for introducing money from unexplained sources. 7.5 The aforementioned Reasons Recorded neither discuss nor bring on record any specific information showing that any particular transactions made between the assessees and the concerned investors were not genuine/fictitious. Thus, it is apparent from the Reasons Recorded itself that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings to be non est . 7.8 Thus, on identical facts and identical reasoning, all the three Cross Objections challenging the jurisdiction of the A.O. to initiate the Sec.147/148 proceedings are allowed in favour of the Assessees. 7.9 We shall now proceed to adjudicate the next Cross Objection taken by the assessees, which is in respect to the violation of Principles of Natural Justice since the enquiries made by the Department and the subsequent Inspector Reports which formulated the foundation of the impugned addition(s) were never confronted to either of the assessees at any stage of the reassessment proceedings. On a perusal of the Assessment Orders, it is amply clear that the A.O., primarily, had relied upon the Inspectors Reports that was based on the field enquiries conducted to ascertain the genuineness of the investor companies. As is made evident from the Assessment Orders itself, the Inspectors, vide their respective Reports, have stipulated that upon enquiry, either the concerned parties were not found to be existing at the given address, or the addresses were not found, or the premises was found locked. The results of such field enquiries were not brought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that none of the statements were recorded by the assessing officer of the assessee company, and no opportunity for cross examination has been provided to the assessee company. The mandate of law to conduct enquiry by the Assessing Officer on due information coming to him to verify authenticity of information was not done as per section 142 of the Act.Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. This is because section 142(2) mandates any such material adverse to the facts of assessee collected by AO u/s 142(1) has to be necessarily put to the assessee u/s 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through the process of assessment u/s 143(3) of the Act. 7.12 We also draw support from the judgment of the Hon ble Apex Court in Swadeshi Cotton Mills v. Union of India, AIR 1981 SC 818, where the Hon ble Supreme Court has clearly held that Where authority functions under a statute and the statute provides for the observance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions and the creditworthiness of the investors had not been established by the assessees to the satisfaction of the A.O., who had in turn brought sufficient material on record that casts doubt on the genuineness of the transactions. Thus, as per the Ld. CIT D.R., the assessees, by merely submitting routine documents, have not discharged the initial burden of proof that vested on them u/s 68 of the Act. The Ld. CIT DR has further submitted that when any such doubt on the genuineness of the investor companies exists in the mind of the A.O., then the law laid down in Lovely Exports (supra) will not apply since the said decision of the Hon ble Supreme Court has been distinguished in favour of the Revenue by several decisions of the Hon ble jurisdictional Delhi High Court such as CIT vs. Navodya Castles, [2014] 50 taxmann.com 110, CIT vs. Sophia Finance Ltd., 205 ITR 98 (Del.) (F.B.), N.R. Portfoilio Pvt. Ltd., 87 DTR 0162 (Del) and 96 DTR 0281 (Del), MAF Academy Pvt. Ltd., 361 ITR 02858 (Delhi), etc. which, therefore, means that in the instant cases, the assessees ought to have also proven the source of source of the investor companies to establish their genuineness. 9.1 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statements and the Income Tax Returns of all the investor companies before the A.O. during the course of the reassessment proceedings. These documents form part of the Paper Book 1B, 2B and 3B filed in each of the Appeals by the assessees. It is also not in dispute that the A.O., while passing the Assessment Orders, did not raise any doubts with respect to the documentary evidences submitted before him by the assessees. It is again not in dispute that all the investments (in the form of share capital and share premium) have been duly made via banking channels where the investor companies have shown sufficient balances in their bank accounts to make such an investment in the assessee companies. Further, upon a perusal of the bank statements brought on record by the assessees, it is also evident that no cash was found to have been deposited in the bank accounts of the investor companies. All the investor companies (in the case of all the three Assessees) are registered companies and are assessed to tax also, as is evident from the bank statements and/or the ITR Acknowledgments. Therefore, the identity, genuineness of the transaction and the creditworthiness of the investor compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n reconciled/explained by the Ld. CIT D.R. during the hearing. As rightly pointed out by the Ld. A.R., there are, in fact, a total of 39 parties across all three assessees and 15 Kolkata based parties in total, meaning that the figures specified in the Kolkata based Reports is erroneous and has gone unexplained. Any reliance on the same, is, therefore, questionable. In fact, had the said Kolkata based Reports been confronted to the assessees u/s 142 (3) of the Act, such inconsistencies would have been pointed out and rebutted by the assessees during the course of the assessment proceedings itself. However, since the same had not been done by the A.O., the assessees while in appeal, had to explain that all evidences establishing the 3 ingredients of Section 68 had been furnished, where all the Kolkata based parties had responded via post, citing their confirmations with documentary evidences in support none of which had been refuted by the A.O. 10.1.2 Furthermore, a perusal of the Kolkata based Reports, shows that the same accepts that the bank statements evidencing the receipt of payment via cheque had been produced by the assesses. However, the Reports have also stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts been confronted to the assessees, the discrepancies could have been reconciled. However, as already held above, these Reports had been recorded and relied upon by the A.O. behind the back of the assessees, an act that is in direct violation of Sec.142 (3) of the Act. 10.2 Moving on to the submissions of the Ld. CIT - D.R. who has stated that the assesses must prove the ingredients of identity, genuineness and creditworthiness of the credit entries to the satisfaction of the A.O. and, where, if any doubt on the genuineness of the investor companies exits in the mind of the A.O., then even the source of source must be established, we observe that the critical difference here is that these Inspector Reports have remained unconfronted to the assessees. Had the same been confronted u/s 142 (3) of the Act and to which had the assesssess not offered any explanation, the burden of proof would had shifted back unto the assessees after the A.O. would have brought on record that the initial onus could not have been said to be discharged by the assessees. It is in that context, that the various decisions cited by the Ld. CIT - D.R. would have found relevance, requiring their contextual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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