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TMI Blog2018 (2) TMI 2074X X X X Extracts X X X X X X X X Extracts X X X X ..... e later would be a situation where the very genuineness of the transaction is in doubt. We therefore, do not accept the legal contention in this respect canvased by the counsel for the petitioner. As held by the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd. [ 2007 (5) TMI 197 - SUPREME COURT] the sufficiency of reasons cannot be gone into at this stage. Nevertheless, the Assessing Officer must have tangible materials at his command to form a belief that the income chargeable to tax had escaped assessment. In this context, we may recall the Assessing Officer referred to the materials available with him which prima facie suggested that the assessee company had received share capital and share premium from various companies which were proved to be bogus companies engaged in providing mere accommodation entries. After analysing such materials, he came to the conclusion that share capital/share premium amounting to Rs. 1.55 crores received by the assessee during the financial year 2009-2010 relevant to the present assessment year was bogus. It cannot be stated that the Assessing Officer did not have tangible materials at his command to form such a belief. His reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings in the case of Nandini Dyeing and Printing Pvt. Ltd for AY 2008-09, it was noticed that the company had received share capital and share premium from the following company, which was proved to be bogus company, engaged in providing accommodation entries. Sr. No. Name of the Investor 1 Nakshatra Electricals & Engg. (P) Ltd. 105, Nancy Muncy, No.2 Chandivali, Sakinaka, Mumbai Besides above, an intimation was received from the ITO Ward 1(1)(2), Surat that during the during the course of assessment proceedings in the case of Envro Infratech Pvt. Ltd for AY 2012-13, it was noticed that the company had received share capital and share premium from the following companies, which were proved to be bogus company engaged in providing accommodation entries. Sr. No. Name of the Investor 1 Nova Corporate Services (P) Ltd. office no, 3, Tara Apartment, Saki Vihar Road, Saki Naka, Andheri (E) Mumbai 2 Nupur Management Consultant Pvt. Ltd Office no.3, Tara Apartment, Saki Vihar Road, Saki Naka, Andheri (E) Mumbai 3 Tiscon Sales Agency Pvt. Ltd, Room No.7, Laxman Nagar Road, Kurar Village, Malad (E) Mumbai 4 Tissot Management consultancy Pvt. Ltd Office No.3, Tara Apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record, counsel for the petitioner raised the following contentions in support of the challenge : 1) The sole ground mentioned in the reasons recorded by the Assessing Officer is with respect to the share application money received by the assessee company. Under no circumstances, even if the investors and share applicants are found to be non genuine, any additions can be made in the hands of the assessee company with the aid of section 68 of the Act. This being the only ground, the reasons lack validity. Counsel submitted that in view of judgment of Supreme Court in case of CIT v. Lovely Exports (P) Ltd. reported in 319 ITR (ST) 5 addition, if at all, can be made in the hands of investors or Directors but not in the hands of the company. Counsel submitted that this proposition has been followed by this Court in series of judgments namely, i) Commissioner of Income Tax Gandhinagar v. Bhavana Property Developers Ltd. (Tax Appeal No.1039/2009, order dated 11.1.2011) ii) Hindustan Inks & Resins Ltd v. Dy. CIT. Spl. Range1 & 1 (Tax Appeal No.523/2004, judgment dated 17.6.2011) iii) Commissioner of Income TaxIV v. Satyendra Traders Pvt. Ltd (Tax Appeal no.692/2010, order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the company under section 68 of the Act, is not a correct position and does not flow from the judgment of the Supreme Court in case of Lovely Exports (P) Ltd. (supra). Counsel submitted that there is a clear line of distinction where the source of investment made by the shareholder in a company is not established as against the situation where the entire transaction of the share applications and payment of share application money is found to be bogus or fictitious. In this context counsel relied on several judgments to which reference would be made at an appropriate stage. Counsel submitted that the materials on record would not necessary include only returns and the documents produced by the assessee along with the said return. Counsel contended that the Assessing Officer has applied his independent mind and formed a belief that income chargeable to tax had escaped assessment. Counsel relied on the affidavit in reply filed by the respondent to contend that proper sanction in the present case was also accorded by the higher authority. 6. At the outset, we may recall that the return filed by the assessee was accepted under section 143(1) without scrutiny. In such a situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established 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 prove 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. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]." 9. Despite t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company can never be made under section 68 of the Act. Heavy reliance was placed on the decision of Supreme Court in case of Lovely Exports (P) Ltd. (supra) and certain judgments of this Court following such judgment. 11.Lovely Exports (P) Ltd. (supra) was a case where the Supreme Court while rejecting the SLP filed by the Revenue observed that if share application money is received by the company from alleged bogus shareholders whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Firstly, this judgment does not lay down the proposition that irrespective of the nature of transaction of share application money, addition in the hands of the company cannot be made without the aid of section 68 of the Act. In fact, pointed reference was made in the said judgment to the details of share applications which were given by the company and the Supreme Court was of the opinion that if there is anything wrong found with such investment, department would be free to reopen their individual assessments. Along this line, this Court has, as correctly pointed out by the counsel for the assessee, dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen for the assessee company to contend before the assessing authority that there has not been over valuation of the allotted shares or that for any legal reasons, in any case, addition cannot be made in the hands of the assessee, despite such glaring facts. These are the issues in the realm of assessment, once it is allowed to be reopened. We are not inclined to terminate the assessment proceedings at this stage on the grounds pressed in service by the petitioners." 13. In an unreported judgment in case of Sagun Construction Pvt ltd. v. Income Tax Officer (Special Civil Application No.13514/2015 and connected matter, order dated 14.6.2016), once again this Court considered the case where the assessment was sought to be reopened on the basis of bogus share application money. Counsel for the assessee in the said case also relied on judgment in case of Lovely Exports (P) Ltd. (supra). This Court referred to three decisions of Delhi High Court in cases of Riddhi Promoters P. Ltd. vs. Commissioner of Income Tax reported in 377 ITR 641, Commissioner of Income Tax vs. Youth Construction Pvt. Ltd. reported in 357 ITR 197, Commissioner of Income Tax vs. Navodaya Castles Pvt. Ltd. reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 Page 45 of 46 modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (2011) 333 ITR 119 (Delhi). 44. In the light of the above discussion, we are unable to uphold the order of the Tribunal confirming the deletion of the addition of Rs.1,18,50,000 made under section 68 of the Act as well as the consequential addition of Rs.2,96,250. We accordingly answer the substantial questions of law in the negative and in favour of the department. The assessee shall pay costs which we assess at Rs.30,000/." 17. In case of Commissioner of Incometax v. Youth Construction P. Ltd. reported in (2013) 357 ITR 197 (Delhi), Delhi High Court once again considered the question of addition under section 68 of the Act in the hands of the company concerning the share application money. The Court was conscious of the decision in case of Lovely Exports (P) Ltd. (supra). It was observed that the onus is on assessee to prove the identify of the share applicants, their creditworthiness and genuineness of the transactions. Holding that these requirements were not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the Tribunal deleting addition under section 68 of the Act in the hands of the company. Relying on the judgment of Lovely Exports (P) Ltd. (supra), Division Bench made following observations : "8. Having regard to the circumstances, particularly, the fact that these investors not only did not submit any confirmation and had concededly reported far less income than the amounts invested, this Court is of the opinion that the assessee could not under the circumstances be said to have discharged the burden which was upon it in the first instance in view of the law declared in Lovely Exports (supra) matter. It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the AO to afford any reasonable explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the Revenue having discharged the onus if at all which fell upon it. This Court also notices that the assessee in this case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assesseecompany shall be deemed to be not satisfactory, unless (a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory;..... 23. This proviso basically aims to ease the burden of proof on the Revenue while making addition in the hands of the company of share capital with the aid of section 68 of the Act by creating additional requirement in cases of companies of specified category. This proviso nowhere makes a substantive provision enabling the Revenue to make such addition under section 68, something which hitherto was not permissible. The deeming fiction is not in relation to the substantive addition of the cash credit in the accounts of the assessee but is with respect to the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a belief. 26. His reference to "materials on record" must be understood in the context of facts on record. The Assessing Officer was not writing a statute. His expression therefore, cannot be seen with such rigidity. If therefore, he referred to the returns filed by the assessee and the accompanying documents as also materials received by him post acceptance of return, ofcourse without scrutiny as "materials on record", he did not commit any legal error. He was ofcourse, referring to the materials placed for his consideration which enabled him to form such a belief. 27. The contention that this is a case of borrowed satisfaction also cannot be accepted. The Assessing Officer had perused the materials and analysed the same so as to come to the conclusion that prima facie it suggested that the assessee had received large number of share applications/share premiums from the companies which were bogus companies and which engaged in providing accommodation entries. 28. The respondent has filed affidavit stating that before issuing notice, sanction was granted by the competent authority. A statement on oath, in absence of any contrary material on record need not be disbelieved. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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