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TMI Blog2018 (4) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome which was believed to have escaped assessment was explainable but some other additions were made under the assessment order" Appeal No.221/2017 admitted on 12.9.2017 "i) Whether in the facts and in the circumstances of the case, the ld. Tribunal was justified in holding that the proceedings for reassessment under Section 148/147 of the Income Tax Act, 1961 were initiated by the ld. Assessing Officer on non-existing facts because ultimately the Assessee has been able to explain that the income which was beliefed to have escaped assessment was explainable but some other additions were made under the assessment order? ii) Whether the ld. Tribunal was correct in law in not following the precedent of Hon'ble jurisdictional High Court in case of Shri Ram Singh reported at 306 ITR 343 (Raj.) whereby the self same issue was been decided in favour of the assessee? iii) Whether under the facts and circumstances of the case and in law, the ld. ITAT was correct in relying upon the judgment of Hon'ble Bombay High Court in the case of Jet Airways (2010) 195 Taxmann 117 (Bom) when the Assessment Year involved in present case is that of 1999-2000 and 2000-01? iv) Whether the ld. ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction in respect of subscription to the share capital has not been discharged and in support, he relied upon the decision of Hon'ble Supreme Court in case of Navodaya Castles 230 Taxmann 268 (SC). Further, he relied on the order of the Assessing officer. Per contra, the ld AR took us through the findings of the ld CIT(A) and relied on the same. 7. We now refer to the decision of the Hon'ble Rajasthan High Court in case of Sri Ram Singh (306 ITR 343) which has been relied upon by the ld AR and followed by the ld CIT(A). In that case, the issue for consideration before the Hon'ble High Court was "whether in the facts and in the circumstances of the case, the Tribunal was justified in holding that the proceedings for reassessment under section 148/147 of the IT Act were initiated by the AO on non-existing facts because ultimately, the assessee has been able to explain that the income which was believed to have escaped assessment was explainable but some other additions were made under the assessment order?" In that case, the ld Counsel for the assessee submitted that if while exercising powers under section 147, the AO comes to a conclusion, that the income, with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 to 153 referred to as the relevant assessment year). " 26. But then if it were to be so read, the word "also" becomes redundant, and to make sense of the sentence, the section would be required to be read by ignoring the words "also", as well, in which event, the section would read as under: "147. If the AO 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 or 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 re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). " 27. It is established principle of interpretation of statutes, that the Parliament is presumed to be not extravagant, in using the words, and therefore, every word used in the section, is required to be given its due meaning. 28. If considered on that principle, leaving apart for the moment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income, and if he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. [Para 16] Section 147(1), as it stands, postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income 'and also' any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment . The words 'and also' are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by the Parliament. This view has been supported by the background which led to the insertion of the Explanation 3 to section 147. The Parliament must be regarded as being aware of the interpretation placed on the words 'and also', by the Rajasthan High Court in CIT v. Shri Ram Singh [2008] 306 ITR 343. The Parlia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company. The identity of the subscriber companies and genuineness of the transaction cannot be established even if one were to accept so called confirmations on face value. The assessee company has to submit some thing more tangible to demonstrate the existence, operations and conduct of these investee companies. No documents have been submitted by the assessee company in this regard. Thus, the identity and genuineness of the whole transaction has not been established in the instant case. Further, as we have stated in case of Bright Metals case, it would be incorrect to state that the onus on the assessee stands discharged in all cases merely on account of the fact that payment is made through banking channels. Whether investee companies have their own profit making apparatus and were involved in any tangible business activity or were they merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. These are the facts which the assessee has to submit for examination by the AO but not done in the instant case. The creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the information received from DDIT (Inv.), Varanasi, some bogus entries of demand drafts/bank accounts were found during course of a search conducted by DDIT (Inv.) Varanasi. On perusal of list of such bogus entries/D.Ds reveals that the above named assessee has obtained D.D. of Rs. 10.00 Lakhs dated 29.05.1999 in its favour from Subh in Fin Caps Ltd. & M/s Vatsa Health Care Ltd. Further, on the basis of above information, assessee was requested to furnish evidence u/s 133(6) regarding this entry vide this office letter dated 17.03.2005. However, the assessee was unable to provide the same thereafter, on the basis of the above information received from DDI (Inv.), Varanasi proceedings U/s 148 of the I.T. Act were initiated after recording reasons by the AO notices u/s 148 dated. 16.3.20025 were sent through Registered post on the address of business premises as well as on the address of Sh. Ashok Goyal, Director, but both the Registered letter came back undelivered. Then fresh notice u/s 148 dt. 29.3.2005 was served through affixture on 30.3.2005 at the business premises (123, MIA, Alwar). In response to the notice u/s 148, the assessee filed written reply on 8.4.2005 statin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively proved the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v Selected Dalurband Coal Co. P. Ltd [1996] 217 ITR 597 (SC)); Raymond Woollen Mills Ltd. V. ITO [1999] 236 ITR 34 (SC). In another case Hon'ble SC in case ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd (2007) 291 ITR 500 has held that at the stage issue of notice, the only question is whether there was relevant material on which a reason able person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer". The first ground of appeal is dismissed. 5.2 During the course of appellate proceeding the ld. AR submitted that assessee has received 10.00 Lac during the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained by the Subh in Fin Caps Ltd. With Vijya Bank, 12 Khambha Road, New Delhi account No. 05943 which shows that out of Rs. 10,01,000/- was withdrawn on 29.05.1999 and DD got prepared but on verification of the copy of account it was copy of bank account of M/s Vesta Healthcare Ltd. The name of the bank is not clear. It revealed that on 29.05.1999 there is a debit entry of Rs. 1,01,000/- vide cheques No.199794217 whereas the DDIT, Allahabad had informed the AO DD No. 3637 dated 29.05.1999 from current account 5943 maintained with Vijya Bank 17, Barkhabha Road New Delhi and Vijya Bank Karol Bag Branch New Delhi for Rs. 10 lac in the name of Subh In Fin Caps Ltd (Vesta Healthcare Ltd.). The appellant had submitted an affidavit during the course of assessment proceedings that 10 lac rupees against the share capital were received by the appellant in FY 1996-97 from M/s Subh In Fin Caps Ltd (Vesta Healthcare Ltd.) through Dds. The ld. AO had not commented in assessment order on the affidavit filed and also at the time of the remand report. The present AO has not given any findings on it. The affidavit filed by the assessee had shifted the onus on the revenue to rebut the fact of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment as well as at the time of remand report. Therefore, addition of Rs. 31.5 lacs on account of unexplained investment in subscribed and paid up capital u/s. 69 is deleted. This ground of appeal is allowed. The assessee gets relied accordingly. 9. He further contended that CIT(A) after taking into consideration the facts on record has followed the decision of Bombay High Court and jurisdiction court and relied upon the following decisions:- 9.1 In Commissioner of Income Tax-II vs. Mohmed Juned Dadani (2013) 355 ITR 172 (Guj.), it has been held as under:- 24. Sans explanation (3), Section 147 of the Act, however, by no stretch of imagination, can be construed as to provide that if the reason on which the assessment is reopened fails, the Assessing Officer still can proceed to assess some other income which according to him had escaped assessment and which came to his light during the course of the assessment. For assuming jurisdiction to frame an assessment under Section 147 of the Act what is essential is a valid reopening of a previously closed assessment. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 147 of the Act, ruled in favour of the assessee. 33. Punjab and Haryana High Court in case of Majinder Singh Kang Vs. Commissioner of Income-Tax and anr (supra) ofcourse has sounded a different note. We may, however, notice that the explanatory memorandum to Explanation 3 to Section 147 of the Act was not brought to the notice of the High Court in the said decision. The High Court gave considerable importance on such Explanation 3 to Section 147 of the Act and the language used therein. In the result, we answer the question in the affirmative i.e. in favour of the assessee and against the revenue. All tax appeals are dismissed. 9.2 In Assistant Commissioner of Income Tax vs. Major Deepak Mehta (2012) 344 ITR 641, it has been held as under:- 35. In the case on hand, the main object and purpose of Section 147 read with Section 148 is that if there is any escaped assessment and the AO has reason to form the opinion a notice must be given to the assessee to file returns or to show that there was no escaped income and under Section 152(2) the proceedings may be dropped. In that context, explanation provides that along with the proceedings for the escaped income which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under Section 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under Section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under Section 147. 20. Parliament, when it enacted the Explanation (3) to Section 147 by the Finance (No. 2). Act, 2009 clearly had before it both the lines of precedent on the subject. The precedent dealt with two separate questions. When it effected the amendment by bringing in Explanation 3 to Section 147, Parliament stepped in to correct what it regarded as an inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act (No 2) of 2009 However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set our in the substantive part of Section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assessee or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings However, if after issuing a notice under Section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under Section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee. 9.4 In CIT vs. Adhunik Niryat Ispat Ltd. (2011) 63 DTR 212, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r recompute escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per explanation (3) if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as believed to have been escaped assessment, was explainable. It is further held, that the Assessing Officer was justified in initiating the proceedings under Section 147/148, but then, once he came to the conclusion, that the income, with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained, his jurisdiction came to a stop at that, and he did not continue to possess jurisdiction, to put to tax, any other income, which subsequently came to his notice, in the course of the proceedings, which were found by him, to have escaped assessment. 9.8 In Additional Commissioner of Income Tax vs. Jay Engineering Works Ltd. (1978) 113 ITR 389, it has been held as under:- Point No. 2 8. The Tribunal has stated that, though, ordinarily, the adjustments relating to expenses should have been made by the assessees in the accounts of the year to which the adjustments relate and not in a subsequent year, it is often inevitable that such adjustments relating to earlier years have to be made in subsequent years. This is specially so, when the business, as of the assessees, is of giant proportions and the branches are farflung. The Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been amended with retroactive operation, it would be the duty of the High Court to apply the law so amended if it applies. By taking notice of the law which has been substituted for the original provision, the High Court is giving effect to legislative intent and does no more than what must be deemed to be necessarily implicit in the question referred by the Tribunal, provided the question is couched in terms of sufficient amplitude to cover an enquiry into the question in the light of the amended law, and the enquiry does not necessitate investigation of fresh facts. If the question is not so couched as to invite the High Court to decide the question in the light of the law as amended or if it necessitates investigation of facts which have not been investigated, the High Court may refuse to answer to question. Application of the relevant law to a problem raised by the reference before the High Court is not normally excluded merely because at the date when the Tribunal decided the question the relevant law was not or could not be brought to its notice. There is nothing so peculiar in the nature of a reference under the Indian Income-tax Act or the Sales Tax Acts that in deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners, and Shri Harish N. Salve, learned senior counsel appearing for the respondents. We have also perused the original assessment order dated March 19, 1983, as well as the subsequent assessment order that was passed on July 16, 1987, after the reopening of the assessment under Section 147. On a consideration of the order dated July 16, 1987, we are satisfied that the said assessment order makes a fresh assessment of the entire income of the respondent-assessee and the High Court was, in our opinion, right in proceeding on the basis that the earlier assessment order had been effaced by the subsequent order. In these circumstances, we do not consider it necessary to go into the question that is raised and the same is left open. The special leave petitions are accordingly dismissed. 10. He further contended that even the tribunal in identical matters in case of Dharam Chand Sohan Lal & Co. vs. ITO, Ward-2 (3), Alwar ITA No.207/JP/16 and other connected appeal decided on 1.9.2017 considered the aforesaid judgments and taken a contrary view holding as under:- 10. We have heard the rival submissions and purused the material available on record. The issue is no more res integr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thus has escaped assessment in the original assessment proceedings completed u/s 143(3) of the Act. On perusal of the reassessment order passed under 147 read with section 143(3) of the Act, it is noted that in AY 2008-09, no disallowance has been made u/s section 40A(3) which form the basis for reopening of the assessment. The AO has however, brought to tax unexplained cash creditors amounting to Rs. 10 lacs which has apparently come to his notice during the course of reassessment proceedings. In AY 2009-10, again similar position exist wherein no disallowance has been made u/s section 40A(3) which form the basis for reopening of the assessment. The AO has however, brought to tax unexplained cash creditors amounting to Rs. 10 lacs and expenses worth Rs. 1.05 lacs have been disallowed towards various expenses which apparently come to his notice during the course of reassessment proceedings. 12. In the light of above discussions, the very foundation of the proceedings u/s 147 are vitiated and accordingly, we are setting aside the order passed by the AO u/s 147 for both the years under consideration. In the result, the additional ground of appeal is allowed for both the years. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the identity of investors ii) There creditworthiness and iii) the genuineness of the transaction. Only when these three ingredients are established prima- facie, it is only then the department is required to undertake further exercise. Hence, the contention of the assessee that issue of notice is bad in law merely on the basis of saying that the company allotted shares to those parties, is not acceptable and the ground of appeal taken by the assessee in this regard deserves to be rejected." "I have considered the contention of the assessee. It is submitted that in absence of the books of accounts for the year produce even copies of the accounts of such companies maintained with the assessee company, no justification seems in the assessee's contention in writing to the companies at the addresses supplied their bank returned back with the remarks of the postal authorities that "no such firm exists/left". The addresses supplied by the A.R. of the assessee are incomplete and different to the address given by their banks. Therefore, the ground of appeal taken by the assessee in this regard deserves to be rejected." "Further, in compliance to your kind directions given to make further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allotment made during the year has been prepared which is annexed for your kind perusal. Going through this chart reveals that the share application money were received by the company on various date from Dec, 98 to March 99 of the year from above parties, but the allotment of the shares made to them has only been shown at the end of the relevant accounting year i.e. 31.03.99. Against the most of the entries shown in the company of ledger of share application A/c furnished, no cheque/DD numbers have been shown. As obtained by the AO during the assessment proceedings, the copies of bank statements of two banks (i) PNB,MIA,Alwar for period.............. ( not legible) and (ii) Federal Bank Ltd., Fathapuri, Chandni Chowk, Delhi for the period 16.12.98 to 16.04.2001 are only available on record. The dates of the bank statement obtained from PNB, MIA, Alwar are not legible. Moreover, no credit entries of the statement are matching with any entry of share application money received. However, in the forwarding letter dated 26.10.2005, the bank authority has mentioned that he has successfully traced the entry dated 17.12.98 for Rs. 13,60,000/- collected by draft. In the copy of bank stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this stage passes this muster that the initial onus placed on it would shift leaving it to the Assessing Officer. Further, personal attendance of the Directors of the investee companies were called for by the Assessing officer during the remand proceedings, however they couldn't appear before the Assessing officer for reasons best known to the assessee company. The identity of the subscriber companies and genuineness of the transaction cannot be established even if one were to accept so called confirmations on face value. The assessee company has to submit some thing more tangible to demonstrate the existence, operations and conduct of these investee companies. No documents have been submitted by the assessee company in this regard. Thus, the identity and genuineness of the whole transaction has not been established in the instant case. Further, as we have stated in case of Bright Metals case, it would be incorrect to state that the onus on the assessee stands discharged in all cases merely on account of the fact that payment is made through banking channels. Whether investee companies have their own profit making apparatus and were involved in any tangible business activity or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention in the reasons for issuance of notice under section 148. However, in terms of explanation 3 to section 147, the AO continues to vest jurisdiction in respect of these matters as we have discussed in detail earlier. 26. In respect of the first issue, it was noticed by the AO that the assessee has shown an increase in subscribed & paid up capital by Rs. 1.75 Crore (including the above amount of Rs. 16.6 lakhs which formed the basis for issuance of notice under section 148) during the year. Inspite of repeated query letters and notices, it was noted by the AO that the assessee was unable to produce share application register of allotment of shares or duplicate copies of shares allotted during the year. The A/R only produce copy of share application account in this books and distinctive Nos. of shares allotted to Moon Holding & Credit Ltd and M/s Subh in Fin Caps Ltd. However, the assessee could not produce share allotment register, duplicate copies of shares allotted of shares is declared by assessee. Since increase in subscribed and paid up capital of Rs. 1.75 Crore is not verifiable. The said sum was treated as assessee's own undisclosed money invested in the shape of paid u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income of the assessee company. 30. Regarding the fifth issue, the facts as appearing from the assessment records are that as per schedule D of the audited balance sheet, there was an increase of Rs. 4,02,646/- in unsecured loans from others, during the year. Since the assessee has not furnished books of account and confirmation of cash creditors, the increase in unsecured loans remained unverifiable. Therefore, the AO disallowed a sum of Rs. 4,02,646/- u/s 68 treating the same as unexplained cash credits and the said amount of Rs. 4,02,646/- was added in assessee's total income. 31. We now refer to the findings of the ld CIT(A) in respect of all these issues (2-5) as referred above which have been dealt with by the ld CIT(A) at para 6.3 of its order which reads as under: "6.3 I have considered the facts of the case and remand report given by ld. ACIT and submission made by the ld AR and cases relied upon, I find that assessee could not produce the bills and vouchers and complete books of accounts at the time of assessment because the loan recovery proceedings against the appellant from the various banks who had sealed the premises of the appellant. The addition made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Finance (No.2) Act, 2009, clause (g) has been inserted in the Explanation contained in Section 115JA (2). By virtue of the said amendment, the amount or amounts set aside as provision for diminution in the value of any asset, is specifically mentioned. The Supreme Court in the case of CIT v. HCL Comnet Systems & Services: 305 ITR 409 held that provision for doubtful debts and doubtful advances did not fall within clause (c) of the said Explanation inasmuch as they amounted to provision in respect of diminution in the value of asset. 5. Now, with the introduction of the said amendment with retrospective effect from 01.04.1998, the provision for doubtful debts and the provision for doubtful advances, which are nothing but provision for diminution in the value of asset, are specifically covered under clause (g) of the said Explanation. Consequently, the question insofar as it relates to provision for doubtful debts and provision for doubtful advances, requires to be answered in favour of the revenue and against the assessee. It is so answered." 13. She also relied upon the decision of tribunal where the tribunal has already upheld the order of AO and reversed the finding record ..... X X X X Extracts X X X X X X X X Extracts X X X X
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