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TMI Blog2022 (9) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences in support of contention is made available to the assessee to its reserve its right of cross examination of Shri Rupang Shah. AO passed the said assessment order on 22.12.2011 and investments have been made through banking channel and addresses were supplied to the AO. But, learned AO did not inquire from the return of income of the person whom shares were transferred. It is pertinent to note that copy of PAN Card was supplied to the AO alongwith computation of income. Bank statements from where investment had been made but learned AO did not examine abovesaid documents rather learned AO made addition solely on the basis of the Investigation Wing Report. AO has made addition on the basis of the borrowed satisfaction. He has not applied his mind and in our opinion, he ought to have done independent home work but in the present case no such exercise was done by the learned AO for the reason best known to him. Therefore, in our considered opinion, in such case, addition cannot be made. Appeal of assessee allowed. Depreciation claimed on two wheeler vehicles and motor car - Real owner - AO had not granted the depreciation in the name of the Directors of assessee company for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has not disclosed fully and truly all material facts related to this issue. Therefore, after recording the reasons on 28.3.2011, a notice u/s.148 of the I.T. Act dtd. 29.3.2011 was issued and served upon the assessee company. In response to the said notice, the assessee company vide its letter dtd. 1.4.2011 has submitted that the return filed on 19.12.2006 may be treated as return filed in response to notice issued u/s.148 of the Act. A notice u/s.143(2) of the Act dtd.27.07.2011 was issued and served to the assessee company. The assessee vide its letter dtd, 09.08.2011 has filed objection to re-opening of assessment. A detailed reply rejecting the objection of the assessee was given to the assessee company on 30.08.2011. 6. Thereafter, assessee filed its reply by stating that first ground of appeal challenges the legality of the reassessment proceedings u/s 148 of the Act. The copy of the reasons for reopening of the assessment u/s 147 of the Act dated 18.03.2011 were enclosed. It has been stared that during the course of survey operation carried out on 29.03.2010, it was found that there was capital introduction from alleged fictitious entities during the year under appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which has been recorded, the copies thereof have not been furnished to the appellant company. Since the copies of the statement not having been furnished and made available to the appellant company the entire exercise of reopening of the assessment is hi violation of the principles of natural justice and equity. This is on account of the fact that the appellant company has not been confronted with the evidences collected behind his back and relied upon by DDIT/AO. The above discussion would therefore, clearly reveal that the reopening of the assessment was undertaken on the basis of reason to believe on the part of Investigation wing and not the AO. Furthermore, complete information and other material facts has not been provided to the appellant company with regards the basis for under taking reassessment proceedings. Reliance is placed on the following judicial pronouncement in support of its contention. i. CIT v Smt. Paramjit Kaur (2009) 311ITR 38 (P&H) Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he has reasons to believe that the income for any assessment year has escaped assessment. The power conferred under this section is v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(3) - Investigation wing carried out investigation against assessee on basis of an anonymous petition - On basis of report of investigation wing, Assessing Officer reopened assessment of assessee by issuing notice under section 148 after period of four years from end of relevant assessment year - Whether since there was no material before Assessing Officer for formation of belief that there was escapement of income by assessee and there was no failure on part of assessee to disclose fully and truly all material particulars in respect of his income, reassessment proceedings initiated under section 147 were without due authority of law and were liable to be cancelled -Held, yes - Whether since sanction under section 151 was given by Commissioner without recording reasons for his satisfaction, issue of notice under section 148 by Assessing Officer was without due authority of law as it suffered from serious legal infirmities - Held, yes - Whether therefore, reassessment framed by Assessing Officer was to be cancelled - Held, yes Assessee contended in the above referred cases that the reopening of the assessment has been undertaken on the basis of the report of the Investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- 1. It has been stated that the summons u/s 131 issued on the directors of Sheetal Securities Pvt. Ltd. come back unserved. We have also been requested to present the managing Directors of the aforesaid company. As regard enforcing the attendance of the company the same is not possible and you may directly issue the summons for his attendance. I have not authority whatsoever so as to compel him to attend your office, we are furnishing the latest address of the company as per the information downloaded from the company law site. With respect to the share application we have already furnished the following evidences vide letter dated 24.10.2011. Name of the share applicant Evidences submitted Shital Securities Pvt. Ltd. Share application form, acknowledgement of the return of income, xerox copy of the PAN & resolution passed authorizing the Subscription of shares. 7.2 But as per learned AO, the assessee failed to produce Managing Director of M/s. Sheetal Securities Finance Ltd. from where it had received amount for share allotment and accordingly allotted shares to them. The new address of person is not furnished by the assessee even though requested hi response to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n admitted that they had made investment in shares in the assessee company were made after receipt of the cash from the assessee company through one of their Directors, namely; Shri Mahendra Shah. Therefore, assessee has not disclosed truly and fully all the material facts in the return of income which lead to the reopening of the assessment by issue of notice under S.148 of the Act. So far as the case laws relied upon by the learned AR concerned, learned CIT(A) held that so far case laws relied upon by the assessee are not relevant on the facts of the case, thus, CIT(A) dismissed the ground of the assessee. 9. Now before us, assessee has challenged the reopening by the AO. Learned AR's contention was that in this case, whole cases evolving on the statement made by Shri Rupang Shah before the Investigation Wing of the Department. In the said statement, Shri Rupang Shah had admitted the business of share investment and trading. The statement indicates that Shri Mahendra Shah one of the Director in the company had made cash payment who introduced unaccounted income in the garb of share capital and share premium in M/s. Goldfinch Jewellery Ltd. But the statement of Shri Rupang Shah w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had formed a belief that income chargeable to tax has escaped assessment, the Court would have readily allow him to reassess the income. In the present case however, he recorded that the information required deep verification. In plain terms therefore, the notice was being issued for such verification. His later recitation of the mandatory words that he believed that income chargeable to tax has escaped assessment, would not cure this fundamental defect." ii. Ravindra Kumar (HUF) @ Rabindra Kumar (HUF) vs. CIT [2019] 110 taxmann.com 58 (Patna), wherein Hon'ble High Court observed as under: "27. The Supreme Court taking note of the transitory change in Section 147 has in paragraph 7 concluded that a power to reopen would vest in the Assessing Officer only if, there is tangible material in his possession for coming to a conclusion that there was an escapement of income chargeable to tax, from assessment and the reasons with the Assessing Officer must have a live link with the formation of belief. Testing the case in hand in the backdrop of the position so settled in the judgments relied upon by Mr. Pathy as well as on the transitory change as clarified in the judgment of Kelvin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act'. Secondly such enabling powers is only to be exercised only where there is tangible material available at the hands of the Assessing Officer and not in absence thereof. The judgments relied upon by Mr. Pathy has been contested by Mr. Sinha on grounds that they relate to the preamended provisions of Section 147 but in our considered opinion, in view of the position settled by the Supreme Court in the case of Kelvinator of India Ltd. (supra) after taking note of the transitory change in Section 147, the legal position as to the prerequisites for such exercise, has not undergone a change and which is that, there had to be tangible material at the disposal of the Assessing Officer for reopening of such proceedings and which power cannot be exercised for initiating a roving enquiry. 30. Even if the judgments rendered by the Supreme Court in the case of Calcutta Discount Co. Ltd. and Lakhmani Mewal Das (supra) is relatable to preamended provisions of Section 147, in view of the legal position settled by the Supreme Court in the judgment rendered in the case of Kelvinator of India Ltd. (supra), whatsoever doubts that may be present are in the mind of the department is set at r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id, rather it was case of zero investigation - High Court by impugned order held that there was no perversity in order of Tribunal allowing appeal filed by assessee - Whether Special Leave Petition against said impugned order was to be dismissed -Held, yes [Para 2] [In favour of assessee]" iv. PCIT vs. Andaleeb Sehgal [2021] 124 taxmann.com 246 (Delhi) wherein Hon'ble Delhi High Court held that: "13. The Court finds that in none of the above grounds is there any reference to any inquiry conducted by the AO of the CIT (A) on examining the above documents, which were available with the AO. The crucial element of explaining how, on the basis of such record, the AO formed the reason to believe that income had escaped assessment is missing. As pointed out by the ITAT in para 17 "the entire case is based upon borrowed investigation stated to have been conducted by Enforcement Directorate and no evidence has been brought on record to connect assessee with the amount of US $ 62,000, rather it is a case of zero investigation." 14. It is one thing to state that the above documents were available but an entirely different thing to state that on examining those documents the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings. However, upon receipt of the information/material received from other source, the Assessing Officer is required to consider the material on record in case of the assessee by applying his mind and thereafter is required to form an independent opinion on the basis of the material on record that the information has bearing on the income of the assessee and such income has escaped assessment. Without forming such an opinion, solely and mechanically relying upon the information received from other source, there cannot be any reassessment. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be 'independent' and not 'borrowed' or 'dictated' satisfaction. Law in this regard is now well-settled. …………………………. ……………………………. 39. The entire basis for reopening the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to reopen the assessment? 7.1 In the case of Dhariya Construction Co. (supra), the opinion of DVO per se is not an information for the purpose of reopening of the assessment under section 147 of the Act. The Assessing Officer has to apply his mind as to the information; if any, collected and thereby form a belief thereon. 7.2 A similar view has been expressed by the Division Bench of this Court in case of Pr. CIT v. J. Upendra Construction (P) Ltd. (supra) (Gujarat) as well as in the case of Aavkar Infrastructure Co. (supra), in which, the Division Bench of this court has followed the decision of Supreme Court in the case of Dhariya Construction Co. (supra) and held that solely on the basis of DVO's report and without there being any further inquiry by the Assessing Officer to form an opinion that income chargeable to tax has escaped assessment and/or without applying mind to the information in the form of DVO's report, the Assessing Officer is not justified in reopening the assessment. From the material available on the record; except the report of DVO, there was no tangible material available with the Assessing Officer to form a believe that the income charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be, the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. No costs." x. ACIT vs. EI Dorado Biotech (P.) Ltd. [2021] 123 taxmann.com 265 (Ahmedabad - Trib.), wherein co-ordinate bench held as under: "35. Yet, the another controversy arises whether not affording opportunity to cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t these assets were used only and exclusively for the business. Therefore, no adverse inference can be drawn against the assessee merely on the ground that these fixed assets were not registered in the name of the company. 5. However, the AO found that some of the two-wheelers were purchased in the assessment year 2005-06 in respect of which the depreciation was disallowed in the assessment order framed u/s 143(3)/147 of the Act vide dated 28/12/2010. 5.1 The assessee could not substantiate its claim that these vehicles were used for the business. Therefore the AO disallowed the depreciation of Rs. 1,61,739/- and added to the total income of the assessee. 5.2 Aggrieved assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT (A) submitted that the ld. CIT-A decided the issue pertaining to the assessment year 2005-06 in favour of the assessee. Therefore, the AO erred in rejecting the claim of the assessee after having a reliance on the order of his predecessor pertaining to the assessment year 2005-06. 6. However, the ld. CIT (A) rejected the claim of the assessee by observing that there was no evidence available to demonstrate that the vehicle used for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d need to replace the same by having lost its value fully over a period of time." 10.2 The 2nd dispute relates whether the assets were used for the business. Indeed it is one of the pre-condition to claim the depreciation on the assets that it should be used for the business. The allegation of the authorities below is that the assessee failed to substantiate its case by filing the documentary evidence suggesting that these assets were used for the business. In this regard, we note that the assessee has claimed other expenses in connection with the vehicle as discussed above. These expenses are like interest on a car loan, petrol expenses, repair and maintenance expenses etc. The necessary details of such expenses are available in the financial statements placed on page 97 in the paper book. It is undisputed fact that these expenses have not been disallowed. Thus, it can be transpired that the Revenue has admitted these expenses incurred by the assessee for the business. Thus in our considered view, we find that the authorities below have made the addition on account of depreciation without the application of mind. Accordingly, we hold that the disallowance on account of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the subsequent assessment order for A.Y. 2008-09 deleted the addition made by the AO and even in the A.Y. 2005- 06. Similar addition was dismissed by the then CIT(A). But, learned CIT(A) did not agree with the predecessor and confirmed the action of the AO. On the other hand, learned AR cited an order of co-ordinate bench in assesse's case wherein similar facts and circumstances and on the basis of similar documents, labour expenses were deleted by the co-ordinate bench in assessee's own case in ITA No. 1075 & 1076/Ahd/2016 for A.Y. 2009- 10 & 2012-13 decided on 01.03.2019 with following observations: "11. The next issue raised by the assessee is that Ld. CIT (A) erred in confirming the disallowance of Rs. 13,45,356/- on account of labour charges. 12. The assessee in the year under consideration has claimed labour expenses of Rs. 19,29,390/- only. The assessee in support of labour expenses filed the copies of the bills issued by the labourer. However, the AO found that some of the bills filed by the assessee amounting to Rs. 13,45,356/- pertains to the Assessment Year 2006-07. Therefore, the same was disallowed and added to the total income of the assessee. 13. Aggrieved as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y notice u/s. 133/133(6) of the Act. 15.3 There was no disallowance made by the Revenue on account of labour expenses pertaining to the assessment year 2008-09 and 2011-12. 16. On the other hand the Ld. DR submitted that the Ld. CIT (A) has coterminus power; therefore, he can decide the issue in the absence of remand report from the AO. 16.1 The Ld. DR further submitted that the assessee failed to furnish the necessary evidence to demonstrate whether any job work was carried out on the jewelry. 16.2 The Ld. DR vehemently supported the order of the authorities below. 16.3 We have heard the rival contentions and perused the materials available on record. The assessee in the year under consideration has claimed Labour expenses amounting to Rs. 19,20,390/-. However, the AO found that the bills filed by the assessee in support of Labour expenses for Rs. 13,45,356/- pertain to the financial year 2006-07. Therefore, the same was disallowed and added to the total income of the assessee. 16.4 Subsequently, the learned CIT (A) also confirmed the action of the AO by observing that the assessee failed to furnish sufficient documentary evidence to demonstrate that there was an actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed." 16. Thus, in parity with the aforesaid co-ordinate bench order and on the basis of principle of consistency as claimed by the assessee was accepted by the CIT(A) for A.Y. 2009-10, we allow this claim of the assessee. 17. In the result, the appeal filed by the Assessee is allowed. 18. Now, we come to ITA No.273/Ahd/2017 for A.Y. 2010-11. 19. The grounds of appeal raised by assessee for A.Y. 2010-11 read as under: "1. The Learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs.5,50,00,000/- made by the Assessing Officer u/s.68 of the Income Tax Act, 1961 being an amounts received as share Capital of Rs. 1,10,00,000/- & Share Premium of Rs.4,40,00,000/-. 2. The Learned Commissioner of Income Tax (Appeals) has erred in confirming addition of Rs. 1,58,073/- out of disallowance of labour expenses of Rs.3,95,184/- made by the Assessing Officer holding the same as not being utilized fully for the business purpose of the assessee." 19. The facts of the case are that the assessee company had filed the return of income for A.Y.2010-11 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders and attempts could have been made for their production before the AO. Delay in intimating the non service of the summons to the share holders precluded the appellant company from furnishing the details at the time of the assessment proceedings. 19.2 The above facts would clearly indicate that the assessee company was prevented by sufficient cause from producing the evidences from which he was called upon to produce by the A.O. and which was relevant to the ground of appeal. Though the latest address of the share applicants have been furnished to the AO at the assessment stage itself the appellant company desires to furnish following evidences in support of the genuineness of the cash credit: Sr. No. Name of depositors Amount Additional evidences furnished 1 Terry Towel Industry Pvt. Ltd. 50,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. 2 Parekh Estate & Properties Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of accounts on 15.03.2013 and failure to produce them or to furnish corroborative evidences would lead to the conclusion that the amount so received be treated as deemed income u/s 68 of the Act. 2.3 The A.O. in para.3.3 has referred the letter furnished by the appellant dated 14.03.2013. It was brought to the A.O. that there might be a possibility of change of address and therefore the latest addresses of the depositors/share holders were furnished. It was also requested to the A.O. that since they have no capacity or legal authority to produce those parties direct verification may be undertaken at their end at the latest addresses so made available. 2.4 The A.O. in para 3.4 has reached the conclusion that identity of the person who are investors in the share capital has not been proved by the appellant company. The addresses furnished have also been found to be incorrect. As per the AO it was only on account of incorrect addresses that request was made to produce the persons for examination. Instead of producing the parties for examination the appellant has furnished their latest addresses and claimed that the primary onus cast upon him has been discharged. It is also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Sec.68 of the Act. Accordingly addition of Rs.5,50,00,000/- has came to be made by the A.O. 3. At the outset it is clarified that the entire basis for making the additions is supposedly non service of the summons to the various share applicants at the addresses furnished by the appellant company. It is contended by the A.O. that though the addresses were provided by the appellant company the summons/notices remain un-served. At this juncture it may be brought to your Honors attention that the detailed addresses of the share applicants were furnished vide letter dated 03.10.2012 and filed on the same date. The A.O. informed the appellant company of the non service only vide letter dated 12.03.2013. Therefore, it is pertinent to note that the A.O. only after 5 months of the receipt of information regarding the detailed addresses provided intimated the appellant company of the non service of the summons to the share applicants. Only at the fag of the end of the year when the assessment was becoming time barred did the A.O. intimate the appellant company of the non service of the summons/letters to the share applicants. It may not be out of place to mention that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. 6 Seatrans Dan Shipping Pvt. Ltd. 1,00,00,000/- Share application form, Board resolution authorizing investment in the appellant company, bank statement, acknowledgement of return of income & audited Balance Sheet as downloaded from MCA website. It would be observed that since the identity, genuineness and creditworthiness of the cash creditors stands established the addition deserves to be deleted." 20. Thereafter, the assessee preferred first statutory appeal before the learned CIT(A) who partly allowed the appeal of the assessee on the ground that the learned AO served notice to the companies to whom shares were transferred but returned back as unserved and held that these were old paper companies. 21. Now, assessee has come before us by way of second statutory appeal. 22. We have gone through the relevant record and impugned order. During the course of assessment proceedings, it is noticed that assessee company has received share capital amounting to Rs.1,10,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of shares is decided on mutual understanding of parties concerned; thus, once genuineness, creditworthiness and identity of investors are established, L revenue should not justifiably put itself in armchair of a businessman or in position of Board of Directors and assume role of ascertaining how much is a reasonable premium having regard to circumstances of case - Held, yes - Whether, thus, once genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on ground that shares were issued at excess premium - Held, yes [Paras 51 and 53] [In favour of assessee]" 22.1 The co-ordinate Bench in case of ACIT vs. EI Dorado Biotech (P.) Ltd. [2021] 123 taxmann.com 265(Ahmedabad-Trib.), wherein it is held that: "Section 68 of the Income-tax Act, 1961 - Cash credits (Share Capital) - Assessment year 2009-10 -Assessee company issued equity shares at premium to several companies and received consideration of certain amount - An information was received from Director (Investigation) that a search was conducted upon one PRS who was controlling and managing said companies which had subscribed shares of assessee - During search, PRS record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be verified and who did not respond to notices issued by Assessing Officer - Held, yes [Paras 7 and 8] [Partly in favour of assessee]" 22.4 It is pertinent to mention here that as per Ministry of Corporate Affairs Website still shares are held in the name of respective companies to whom shares were allotted. As learned AO provided merely three days' time to produce the investor companies' Directors same is like justice hurried, justice buried and learned CIT(A) did not admit additional evidences and to our mind assessee company has discharged its onus by providing share application form, Bank details, PAN Numbers, return of income and audited balance sheet and other relevant details but lower authorities failed to appreciate evidences submitted by the assessee. In view of the aforesaid observation and after going through the aforesaid judgments, therefore, in such case, the addition cannot be made in the hands of the assessee company. Thus, we delete the addition made by lower authorities and allow this ground of appeal. 23. Now, we come to next ground of appeal relating to confirmation of addition of Rs.1,58,073/- out of disallowance of labour expenses of Rs.3,95,184/-. As in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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