DHANLAXMI TIE UP PRIVATE LIMITED,NARIMAN POINT, MUMBAI V. DCIT, CENTRAL CIRCLE 4.2 , KOLKATA, AAYAKAR BHAWAN POORVA, KOLKATA

CO 34/KOL/2024

AI Insights

The case involves an appeal by the revenue against the order of the Commissioner of Income Tax (Appeals), which had deleted an addition made by the Assessing Officer. The addition pertained to Rs.3,84,00,000, which was treated as unaccounted income from the sale of shares/investments by Dhanlaxmi Tie-up Pvt. Ltd. The assessee, in its cross objections, challenged the validity of the reopening of the assessment under section 147 of the Income Tax Act. The Tribunal found that the reopening was based on general and vague allegations without specific transactions or entities being mentioned, and that the source of the investments had been previously accepted in earlier assessments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298775 (ITAT-KOLKATA)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Other Referred Cases: Income Tax Officer v Lakhmani Mewaldas, CIT vs Paramjit Kaur, PCIT Vs. Meenakshi Overseas ltd., Hindusthan Lever Ltd. Vs. R. B. Wadkar, Asst. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Corroborative evidences; Unexplained cash credit; Income from undisclosed sources; Document seized; Documents seized; Reopening of assessment; Search and seizure; Assessment record; Reason to believe; Liquidation; Borrowed satisfaction; Bogus
• Section: 147; 148; 250; 132; 68; 139

Judgement Text

"आयकर अपीलीय अिधकरण कोलकाता 'B' पीठ, कोलकाता मŐ IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘B’ BENCH, KOLKATA ŵी संजय गगŊ, Ɋाियक सद˟ एवं ŵी संजय अव̾थी, लेखा सद˟ क े समƗ Before SRI SANJAY GARG, JUDICIAL MEMBER & SRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No.: 1072/KOL/2024 Assessment Year: 2013-14 DCIT, Central Circle-4(2), Kolkata ………. Appellant Vs. Dhanlaxmi Tie-up Pvt. Ltd. ......... Respondent 21 & 22, 2nd floor, Plot 230, Sakhar Bhawan, Ramnath Goenka Marg Nariman Point, Mumbai-400021. (PAN: AACCD7769E) & Cross Objection No. 34/Kol/2024 In I.T.A. No.: 1072/KOL/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Kolkata (Cross Objector) (Respondent) Appearances: Assessee represented by : Shri Akkal Dudhwewala, CA&Shri Vidhi Ladia, CA Respondent represented by : Shri Chandan Das, Addl. CIT, Sr. DR Date of concluding the hearing : 16.01.2025 Date of pronouncing the order : 21.02.2025 I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 2 of 9 ORDER Per Sanjay Garg, Judicial Member: The present appeal by the revenue and the corresponding Cross Objection by the assessee have been directed against the order dated 03.02.2024 of the Commissioner of Income Tax (Appeals), Kolkata-27 [hereinafter referred to as Ld. “CIT(A)”] passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for Assessment Year 2013-14. 2. Revenue’s appeal is time barred by 30 days. A separate condonation of delay petition in filing the appeal has been placed in file. Considering the averments made in the said condonation petition and shortness of the delay, we condone the delay in filing the appeal by the revenue and accept the appeal for hearing on merits. 3. The revenue in this appeal is aggrieved by the action of the Ld. CIT(A) in deleting the addition made by the Assessing Officer of Rs.3,84,00,000/- treating the proceeds from sale of shares/investments as unaccounted income of the assessee. Whereas, the assessee in its Cross Objection has challenged the validty of the reopening of the assessment u/s. 147 of the Act. First, we take up revenue’s appeal. 4. Brief facts of the case are that earlier the assessee filed its return of income u/s 139 of the Act on 15.09.2013 declaring total income of Rs.16,25,290/-. Later, a search and seizure operation u/s 132 of the Act was conducted in the case of 'Rika Group' on 11.02.2020. During examination of the seized documents, certain facts came up that the assessee had raised bogus share capital/premium to the tune of Rs.7,83,00,000/- during the Financial Year (FY) 2007-08 and the same was utilized for investing in unlisted equities which were liquidated later on in a sole motive to routing back its unaccounted money in its regular books of account. Based on the facts, it was opined since the generation of the fund was bogus, which was I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 3 of 9 raised through various paper / shell entities, hence liquidating the same and giving as share capital/premium loans and advances to various entities was nothing but the routing of the unaccounted income of the Rika Group through layering to bring back the same to their regular books. The Assessing Officer, therefore, was of the view that income of the assessee for the year under consideration has escaped assessment. Reasons for of reopening of assessment were recorded and the assessee was issued a notice u/s. 148 dated 31.03.2021 after obtaining due approval from the respective higher authority. In response to notice u/s 148, the assessee filed return of income for the instant year on 29.05.2021 at the same income as earlier i.e. Rs.16,25,290/-. 5. During the assessment proceedings, the assessee explained to the Assessing Officer that the observation of the Assessing Officer that the assessee had sold the investments in shares to shell companies was factually wrong. That all the purchaser companies were active compliant companies with the Registrar of Companies. It was further explained that the source of the investments was already accepted by the department. Moreover, the assessee had received share application money and premium in the year 2008-09 and not in the assessment year under consideration. That even the assessment for AY 2008-09 was reopened u/s. 147 of the Act and the source of the share application money/share premium was examined by the Assessing Officer and accepted. The assessee invested the share application money in purchase of shares of other companies in the AY 2008-09 itself. Further, the assessee also furnished the reconciliation statement stating that the allegation of the Assessing Officer that the assessee had received an amount of Rs.18,52,05,750/- from sale of shares was factually wrong, in fact, the assessee had sold shares of Rs.3,76,00,000/- during the AY 2012-13 and of Rs.3,84,00,000/- during AY 2013-14. The assessee further submitted that the assessment for assessment year 2012-13 was reopened u/s. 147 of the Act and the said issue stood examined by the Assessing Officer and the sale of investments for AY 2012-13 has been found to be genuine and accepted by I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 4 of 9 the Assessing Officer. Though the Ld. Assessing Officer could not point out any rebuttal to the reply and explanation furnished by the assessee and also observed that the reconciliation provided by the assessee was found in order, however, he observed that since the department was of the belief that the sale of investment was bogus and the allegations were strong, therefore, he made the addition of Rs.3,84,00,000/- for the year under consideration. 6. Being aggrieved, the assessee preferred appeal before the Ld. CIT(A). The ld. CIT(A) considered the submissions of the assessee and evidence on the file and observed that the assessee had duly proved the source of investments as the assessee had received the amount from issue of share capital and share premium amounting to Rs.7,83,00,000/- in the FY 2007- 08 relevant to AY 2008-09. Further, the assessment for AY 2008-09 was also reopened u/s. 147 of the Act and the said issue relating to receipt of share application/share premium was also examined and accepted, therefore, the source of investments in the hands of the assessee right from the FY 2007-08 was accepted. He further observed that the assessee had made the investments in shares out of the said amount. He further observed that even the assessee had furnished all the details and evidences. That, even, the replies received from the shareholders of the assessee company were found to be inconformity with the records. The assessee had liquidated the said investments in AY 2012-13 and 2013-14. The issue also stood examined in AY 2012-13 by way of reopening of the assessment and no additions were made by the Assessing Officer. He also observed that the allegation of the Assessing Officer that the investment was sold to the shell companies was factually wrong. The Ld. CIT(A) observed that the companies to whom the investments were sold have been registered with the Registrar of Companies under the Companies Act and the transactions have been made through banking channel. That even the issues stood examined by the Assessing Officer for AY 2012-13. The Ld. CIT(A) considering the over all facts and circumstances of the case held that the proceeds from sale of investments received by the assessee company in AY 2013-14 could not be treated as I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 5 of 9 undisclosed income of the assessee u/s. 68 of the Act. He, therefore, deleted the addition so made by the Assessing Officer. The relevant part of the findings of the Ld. CIT(A), for the sake of ready reference, is reproduced as under: “5.2. Discussion and decision: 5.2.1. I have perused the assessment record as well as the submission of the assessee. It is observed that the AO had made addition amounting to Rs. 3,84,00,000/- to the income of the assessee as Undisclosed income u/s 68 of the Act. 5.2.2. The appellant company has furnished the details of the transaction, proceeds being received from issue of Share Capital including premium amounting Rs.7,83,00,000/-. The same was alleged by the AO in his order stating the companies were non-existent at the time of application and allotment of shares. However, it may be noted that the Income Tax Department completed the scrutiny assessment u/s. 147 of the Act for the Assessment Year 2007-08, the year in which the assessee raised the shar capital, made investments and liquidated them. The Assessing Officer confirmed that the replies received from the shareholders of the Appellant Company were found to be in conformity with the records. Hence, the source of investments which has been liquidated during A.Y. 2013-14 has been verified and assessed by the preceding Assessing Officer. 5.2.3. The appellant company has submitted details of amount of Rs.3,84,00,000/- which was received against sale of investments, investments in which were made out of the share capital raised in FY 2007-08. The AO alleged that the concerns to whom the investments were sold don't hold genuineness, Identity and creditworthiness as these are enlisted in the departmental database of shell companies and without giving any benefit of deduction of cost of investments added the proceeds from sale of investments to the total income of the assessee as unexplained credit u/s 68 of the Act. However, it is observed that the companies to whom the investments were sold have been registered under the provisions of the Companies Act, 2013 and transactions have been made through banking channels. It may also be noted that the source of investments which has been liquidated during the A.Y. 2013- 14 has been verified by the preceding Assessing Officer. 5.2.4. It may be noted that as per Section 68 of the Act, any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The Appellant company has explained both the nature and source of the money received through sale of investments. The Appellant further proved the identity, creditworthiness and genuineness of I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 6 of 9 the companies to whom the investments were sold and duly explained the flow of funds leading to the sale of investments along with supporting evidences. 5.2.5. After considering all the documents, evidences, paper book and information submitted by the Appellant, it may be noted that the proceeds from sale of investments received by the appellant Company in A.Y. 2013-14 cannot be treated as Undisclosed income u/s 68 of the Income Tax Act, 1961. Further, the Appellant company has submitted all the requisite documents. However, the Assessing Officer did not consider that the raising of share capital, making of investments and liquidation of funds were subject to scrutiny assessment earlier and no negative inference were drawn by the then Assessing Officer. 5.2.6. In view of the above discussions and keeping the judgments of various courts, the assessee company's investment in various unlisted equity shares related to the A Y 2008-09. The source was not questioned by the AO for the A Y 2008-09 and completed the assessment. It is logical to think if the source is assessed without any addition the sale cannot be said unexplained credit. Further, the AO has not brought any corroborative evidence to disprove the assessee's claim of genuineness of the sale receipts of the shares. Therefore, the addition u/s 68 of the Act is need to be deleted. Hence, this ground of appeal raised by the assessee is allowed.” 7. We have heard the rival contentions and gone through the records. The Ld. DR could not point out any defect or infirmity in the order of the Ld. CIT(A) warranting our interference. The assessee had received the funds in FY 2007- 08 and not in the year under consideration. Even, the source of such funds stood examined in the assessment proceedings carried out for AY 2008-09 and also stood accepted by the Assessing Officer. The Ld. Counsel for the assessee in this respect has referred to the assessment order dated 21.03.2011 passed u/s. 147/143(3) of the Act for AY 2008-09. The said funds were invested in the AY 2008-09 itself. In the year under consideration as well as in the immediately preceding year i.e. AY 2012-13, the assessee sold some of the investments. The assessment for both the assessment years were reopened i.e. for AY 2012-13 and 2013-14. The issue of sale of investments already stood examined and accepted for AY 2012-13 by the Assessing Officer. Moreover, it is not the case of any bogus profit earned on the sale of investments. The investments have been sold at par. There is not any income introduced by the assessee from the said sale of shares in the year under consideration. In view of this, we do not find any infirmity in the order of the I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 7 of 9 Ld. CIT(A) and the same is accordingly upheld. The appeal of the revenue is hereby dismissed. 8. Now, coming to the Cross Objections of the assessee. The assessee in its Cross Objections has agitated about the validity of the reopening of the assessment. He, at the outset, has invited our attention to the reasons recorded for reopening of the assessment, copy of which has been placed at page 79 of the paper book. A perusal of the reasons recorded would reveal that the allegation in the said reasons are general and vague. Even, in the said reasons, it has been mentioned that the assessee had raised bogus share capital/share premium of Rs.7,83,00,000/- on 31.03.2008. However, the assessment year under consideration is AY 2013-14. The issue of bogus receipt of share capital and share premium was duly examined in the year of its receipt i.e. AY 2008-09 and the said share capital and share premium having been accepted as genuine in the assessment order passed u/s. 147 of the Act vide order dated 21.03.2011. Since, the said source of investments have already been verified and accepted there was no reason for the Assessing Officer to doubt the genuineness of the same and reopen the assessment for the year under consideration. Moreover, the Assessing Officer in the reasons recorded has mentioned that the said amounts were invested in shares of the other companies which were liquidated from time to time and the unaccounted funds of the assessee have been brought back into the books. This type of allegations are general, vague and there is no mention of any concern or company which was bogus or shell entity. Moreover, there is no mention of any specific transaction. Moreover, once the source of investment having been accepted for AY 2008-09, there was no reasons to reopen the assessment on the same issue in the AY 2013-14. Neither there is any mention of any transaction nor there is any mention of any entity with whom the assessee allegedly done bogus transaction. Even, the amount of escapement of income in the reasons recorded has been mentioned at Rs.8,31,00,000/-, whereas, the total investment sold by the assessee during the assessment year under consideration were of Rs.3,84,00,000/-. Even the I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 8 of 9 assessment for preceding assessment year was reopened on the same issue and the issue stood examined and decided in favour of the assessee. Therefore, the Assessing Officer did not have valid reasons to believe that the income of the assessee has escaped assessment. 9. It has been held time and again that reopening of the assessment can be made on the basis of ‘reason to believe’ and not on the basis of ‘reasons to suspect’. Such belief of the escapement of income should be based on some cogent material and it must not be mere pretence of the AO. Reopening is not permissible on the basis of borrowed satisfaction of the Assessing Officer. Such reason should be held in good faith and cannot merely be a pretence. The reasons to believe 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 Assessing Officer and the formation of belief regarding escapement of income. The powers of Assessing Officer to reopen an assessment, though wide, are not plenary. The words of the statute are \"reason to believe\" and not \"reason to suspect\". The entire law as to what would constitute \"reason to believe\" has been summed up by the hon’ble Supreme Court in the case of “Income Tax Officer v Lakhmani Mewaldas” (1976) 103 ITR 437. Reliance in this respect can also be placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of 'CIT vs Paramjit Kaur' (2008) 311 ITR 38 (P&H), wherein, making identical observations, the Hon'ble High Court has held that in the absence of sufficient material to form satisfaction of the Assessing Officer that income of the assessee had escaped assessment, the issuance of notice u/s 148 of the Act was not valid. Reliance in this respect can also be placed on the decision of the Hon’ble Delhi High Court in the case of PCIT Vs. Meenakshi Overseas ltd. 395 ITR 677 (Del.) and of the Hon’ble Bombay High Court in the case of Hindusthan Lever Ltd. Vs. R. B. Wadkar, Asst. CIT reported in 268 ITR 332. In view of the above discussion, the reasons pointed out by the Assessing Officer cannot be said to be the reasons \"to form the belief\" that income of the assessee had escaped I.T.A. No.: 1072/KOL/2024 & CO No. 34/Kol/2024 Assessment Year: 2013-14 Dhanlaxmi Tie-up Pvt. Ltd. Page 9 of 9 assessment. Therefore, the reopening of assessment in this case is bad in law and consequential assessment order is not sustainable and the same is accordingly quashed. The assessee, therefore, succeeds on legal ground also. 10. In the result, the appeal of the revenue stands dismissed and the Cross Objections of the assessee stands allowed. Order pronounced in the open Court on 21st February, 2025. Sd/- Sd/- [Sanjay Awasthi] ` [Sanjay Garg] Accountant Member Judicial Member Dated: 21.02.2025 Jd., Sr.P.S) Copy of the order forwarded to: 1. Appellant – DCIT, Central Circle-4(2), Kolkata 2. Respondent – M/s. Dhanlaxmi Tie-up Pvt. Ltd. 3. CIT(A), Kolkata-27. 4. Pr. CIT 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard file. //True copy // By order Assistant Registrar ITAT, Kolkata Benches "