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TMI Blog2021 (8) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... ns recorded itself, and therefore, we uphold the order of ld. CIT (A) in quashing the order passed by the Assessing Officer u/s.147. - Appeal of the Revenue is dismissed. - I.T.As. No.4049/DEL/2017 - - - Dated:- 9-7-2021 - Shri Amit Shukla, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Assessee : Shri Ajay Wadhwa, Adv. For the Department : Shri Sushma Singh, CIT-D.R. ORDER PER AMIT SHUKLA, JM: The aforesaid appeal been filed by the Revenue against the order of Commissioner of Income Tax (Appeals) XXX, New Delhi for the A.Y.2008-09, wherein the assessment has been quashed by the Commissioner of Income Tax (Appeals). 2. The grounds of appeal taken by the Department before us are reproduced under: ITA No.4049/Del/2017 1 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O to delete the addition made u/s 68 of the I.T. Act on account of unexplained cash credits amounting to ₹ 8,73,24,240/- on protective basis. 2 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of IT Act on 22.01.2013. He stated that he was director of Rajnil Sales Pvt. Ltd. from 2005 to 2009 and does not know about the nature of activities of the company. He also did not know about the share holding of the company. He was also asked about the manner in which the share capital of the company was raised. In response to thtat eh stated that he did not know anything about this matter. He further stated that he simply signs whatever documents were given to him. He never visited the company office. He knew nothgin about incorporation of company, auditor of company. He never involved in activities of company. He got ₹ 2 to 3000 per month from company for being signatory of documents. Statement of Shri Ashok Kumar Aggarwal, erstwhile director fo M/s. Prakash Industries Ltd. as made part of reasons as annexure-III. M/s. Rajnil Sales Pvt. Ltd. was a paper company without having any tangible assets and as investments were also in paper companies. As such the share capital and share premium introduced in its books was bogus. The investments were made in paper companies which did not have any substantive business activities and some of them were found non existent at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. Further, it is also clear, that the A.O. has resorted to Protective assessment only, which is against the spirit of section 147 of the Act since, having reason to believe that certain income has escaped assessment for to said A.Y., is sine qua non for assumption of jurisdiction to open the case u/s. 147 of the Act, is found missing in the case of appellant. Therefore, opening of assessment in the case of appellant u/s. 147 of the Act, is not correct. The facts of the appellant, are squarley covered by the above 2 decision of High Court Delhi (Supra). In view of to above, I am of to considered opinion that to issue of notice u/s. 148 of to Act, is not done by following proper procedure of law and without application of mind, for recording reason u/s 147. In view of these facts and circumstances, 1 agree with the arguments of the appellant and therefore, the initiation of action u/s 147, is held to be invalid and void ab-inltio. Accordingly, ground No. 1 to 3 are hereby allowed. 6. Before us, ld. counsel for the assessee submitted that reopening has been done merely on the basis of statement given by Shri Ved Prakash Agarwal, Chairman of Prakash Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is non genuine. The said amount is liable to be taxed under I. Tax Act. Therefore I have reasons to believe that income of ₹ 8.32 crores has been escaped assessment for the Asst. Year 2008-09 by reason of failure on part of assessee to disclose fully and truly all material facts necessary for its assessment. Refer page no. 19 of the paper book. 3. First of all we wish to state that in the entire reasons to believe there is no reference of ITR filed by the assessee from where the Ld. AO found that the assessee had failed to disclose any material fact which led to reopening of assessment. 4. The statement of Ld. AO that assessee had failed to disclose all the fully and truly all material facts is not supported by any evidence on record. It is just a bald statement. 5. Factual error: - Amount of ₹ 8.32 crores invested in M/s Prakash Industries. Which in fact is 8.73 crores. If the Ld. AO had recorded reasons after examining the books of account of the assessee and applying his mind, then he would have known that the total amount invested in M/s Prakash Industries during the year was ₹ 4.36 crores. This fact can be verified from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of M/s Prakash Industries become in-genuine merely because of the retracted statements of some persons without any corroborating material. 12. All the above shows the lack of application of mind by the Ld. AO and incorrect belief while recording reasons. 13. It is settled law in the case of CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) where Hon ble Apex court has held that Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment; reasons must have a live link with formation of belief. Assessee also relies on the following judgements of the jurisdictional court: 14. CIT vs. Ashian Needles (P.) Ltd.[2016] 384 ITR 144 (Delhi): Hon ble Delhi High court has held that 6. The decision of the ITAT appears to have turned entirely on facts. It is observed by the ITAT that there was nothing on record before the AO even in the form of any specific information that the Assessee had converted black money into white through an entry provider. Further, while in the notice issued to the Assessee for four years, the AO had observed that ₹ 27 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this light, what has been recorded by the Assessing Officer as his reasons to believe is nothing more than a report given by him to the Commissioner of Income-tax. As held by the Supreme Court in ChhugamalRajpal s case (supra) the submission of a report is not the same as recording of reasons to believe for issuing a notice. The Assessing Officer has clearly substituted form for substance and, therefore, the action of the respondent falls foul of the law laid down by the Supreme Court in ChhugamalRajpal s case (supra) which is clearly applicable to the facts of these appeals. 17. Oriental Insurance Company Vs CIT (Delhi High Court) [2015] 378 ITR 421 (Delhi) It is not disputed that the reasons that led the Assessing Officer to reopen the assessment were factually incorrect. It is not disputed that the assessee was carrying on only one business - General Insurance Business, which is regulated under the Insurance Act, 1938. Indisputably, the insurers cannot carry on any business other than the insurance business or any prescribed business. The business of General Insurance is regulated and there is no allegation that the regulatory authority has found the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that income chargeable has escaped assessment. The reasons must be germane and genuine. For grounds elucidated in paragraph 4 above, this requirement falters. The reasons recorded by the Assessing Officer do not meet and satisfy the said basic and limited pre-jurisdictional requirement. There is no rational connection between the reason recorded and the formation of belief that income had escaped assessment. I. Reasons to suspect cannot be equated with reasons to believe which is a necessary precondition for any action u/s 147 No action of reassessment u/s 147 of the Act is permissible for framing protective assessment in the absence of substantive assessment till the date of assumption of jurisdiction u/s 147 of the Act. 1. The Assessing Officer can assume jurisdiction for reassessment proceedings if he has reasons to believe, but the same cannot be taken recourse to on the basis of reasons to suspect. 2. The Ld. AO recorded reasons that amount of ₹ 8.32 crores escaped assessment.However he made protective addition of ₹ 8.73 crores in the assessment order passed under section 147 of the Act. 3. Theabove itself sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of taxing the AOP of the contributors of the Petitioner has arisen from the submission of the Petitioner before the appellate authorities where the Petitioner has contended that the transactions amount to a revocable transfer and that the income which would arise should be taxed in the hands of the individual contributors. The reopening of an assessment under Section 148 on the basis of a submission which is raised before the appellate authority by the assessee is clearly impermissible because what Section 147 requires is a formation of a reason to believe by the Assessing Officer. In the present case, there is clearly a want of compliance with the jurisdictional condition. The Assessing Officer has not formed a reason to believe that income has escaped assessment since the reopening is based purely on a contingency that may arise upon a particular outcome before the appellate tribunal. 7. Assessee also relies on the following decisions: a. Hon ble ITAT Delhi in the case of G.K. Consultants Ltd. Vs. Income Tax Officer (1502/DEL/2013) has held that: On the basis of foregoing discussion, we reach to a conclusion that the AO assumed jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure that the person in whose hands he had made the substantive addition rightly, he should embark upon the protective assessment. Thus, the protective assessment is basically based on the doubt of the Assessing Officer as distinct from his belief which is there in the substantive assessment. Obviously, there is no place for doubt in the scheme of reassessment, as it has to be a belief of the Assessing Officer about the escapement of income, which is the foundation for assessment or reassessment under section 147.Even if for a moment, the departmental view is accepted that the protective addition is different from substantive addition and, hence, the reassessment proceedings be upheld, ultimately the same conclusion will follow if the substantive addition is struck down at a place where it was made. In such a scenario, the protective addition will get converted into substantive addition in the reassessment. That will also run contrary to the format of reassessment, being to tax an income which has escaped assessment. In that case again, it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid only ₹ 4.36 crores for investment in shares of M/s Prakash Industries in the relevant assessment year. The sources of funds are the sale of shares. 4. To establish the sources of funds invested in M/s Prakash Industries the assessee had submitted the details of shares sold during the year under consideration which is attached at page no. 61-62 of the paper book.The list contain name, address, PAN, of the party to whom shares have been sold and the name of script and no. of shares sold. 5. The assessee has also furnished before the Ld. AO all the sale invoices raised by it on sale of shares which are attached at page no. 63 to 77 of the paper book. To establish the identity of the sellers the assessee has also submitted the ROC master data of each of the seller attached at page no. 80-86 of the paper book. 6. All the transaction of sale of shares were undertaken through the banking channel and the bank statement of the assessee reflecting credit in the bank account on sale of shares is attached at page no. 78-79 of the paper book. 7. The assessee has also furnished before the Ld. AO the details of opening and closing stock of shares for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs (after taken over of the investor company by Prakash Group) of this Jamakharchi Company has been recorded and they have admitted that they have no knowledge of the affairs of these companies and they are acting on the instructions of Prakash Group management. 1. The statement recorded by the Ld. AO was not provided during the course of assessment proceedings in spite of specific request and was only provided with the assessment order. This is in gross violation of principle of natural justice. 2. Without prejudice to the above, On perusal of the statement of directors it is quite evident that none of the director stated that the assessee company is a paper company. Mere because the directors are unware of the working of the company it does not necessarily means that the company is a bogus company. 3. Further, cheque books of the assessee company as well as investor companies were seized from the office premises of Prakash Group which clearly indicate that the company was controlled by Prakash Group. 1. At the very outset it is submitted that the seized che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as share capital contributing companies. 1. During the year no share capital was issued. 2. Name, address, PAN of purchaser companies were given and request was made to issue summons to them. Refer page no. 4850 of the paper book. 7. No register of minutes of meeting of board of directors have been produced of the assessee company so far. Only the single page having signature of one person cannot suffice. No register of allotment of shares of assessee company has been produced. 1. During the year no share capital was issued 8. The investments of the assessee company before taken over by assessee group was in bogus paper company. The shareholders of assessee company before taken over by assessee group were in paper companies. 1. On perusal of enquiry report, it is no-where mentioned that the enquiries in respect of investments/loans/advances were also made. Refer page no. 366-368 of the paper book. 2. The allegation made by the Ld. AO is only on the basis of his assumptions. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee only at the time of proceedings before the CIT(A). 2. On perusal of inspector report we found that the name and designation of the inspector is nowhere mentioned in the inspector report neither it is mentioned that when the enquiries were conducted . 3. The allegation made by the Ld. AO is completely baseless. In the enquiry report name of the Vanshi Farms in not mentioned anywhere. No enquiry was made in respect of the investor company. 13. It is seen that most of the companies in which investment has been made by the Jama kharchi companies have bank accounts in the same bank and in the bank they are shown to be having common address. 1. Ld. AO never provided the copies of such enquiry report for rebuttal of the assessee. Hence the evidence gathered behind the back of the assessee cannot be used against the assessee. 14. Shares of these Jamakharchi companies were allotted at a premium to the other jamakharchi companies, although the said jamakharchi companies had no net worth comparables to the price of its share. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /investments and solely based on the statement of Shri. V.P. Agarwal. Refer page no. 47-48 of the assessment order. Since the addition of share capital made by the Ld. AO is baseless and Shri. VP Agarwal retracted his statement which was given under threat and coercion on the very next day. The consequential addition of brokerage deserves to be deleted. 7. Ld. CIT DR on the other hand relied upon the order of the Assessing Officer. 8. After considering the submissions and on perusal of the impugned order as well as material referred to before us at the time of hearing. From a bare perusal of the assessment order, it is seen that ld. Assessing Officer has sought to reopen the case u/s.147 by issuance of notice dated 22.02.2015 for making protective addition of ₹ 8,73,24,240/- and unexplained expenditure on account of brokerage at ₹ 4,36,621/-. Apart from that, another glaring point is that the amount mentioned in the income escaping assessment is incorrect, because only ₹ 4.63 crore was invested in Prakash Industries Ltd. during the relevant assessment year, and therefore, entire addition ₹ 8,73,24,240/- could not have been made u/s. 68 in this yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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