ACIT, Central Circle-19, New Delhi V. Kapis Impex P. Ltd, Delhi

ITA 4929/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3099 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 01-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K JIWANI
• Keywords: Reopening of assessment; Unexplained cash credit; Income from undisclosed sources; Share purchase agreement; Audit objection; Principle of natural justice; Tangible material; Accommodation entries; Competent authority; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 68; 148; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 4929/DEL/2017 A.Y. : 2009-10 ACIT, CENTRAL CIRCLE -19, ROOM NO. 104, ARA CENTRE, E-2, JHANDEWALAN, NEW DELHI VS. M/S KAPIS IMPEX PVT. LTD., 301, ROOTS TOWER, DISTRICT CENTRE, LAXMI NAGAR, DELHI 110 092 (PAN: AACCK9497J) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. V.K. JIWANI, SR. DR ASSESSEE BY : SH. GAUTAM JAIN, ADV. & SH. LALIT MOHAN, CA ORDER REVENUE HAS FILED THIS APPEAL AGAINST THE IMPUGNE D ORDER DATED 31.3.2009 PASSED BY THE LD. CIT(A)-V, NEW DELHI REL EVANT TO ASSESSMENT YEAR 2001-02 ON THE FOLLOWING GROUNDS:- 1) THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE AS SUMPTION OF JURISDICTION U/S. 147 IS NOT PROPER AS REASON FOR R EOPENING WAS NOT PROPERLY RECORDED WHEN THE SAME WERE RECORDED I N ORDER AND DULY APPROVED BY THE COMPETENT AUTHORITY. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S IN DELETING THE ADDITION OF RS. 40 LACS MADE BY AO ON ACCOUNT O F UNEXPLAINED CASH CREDIT U/S. 68 OF THE I.T. ACT, 19 61 WHEN THE ASSESSEE FAILS TO PROVE CREDITWORTHINESS AND GENUI NENESS OF PARTIES. 2 3. THAT THE LD. CIT(A) HAS ERRED IN IGNORING THE F ACTS AS THE ASSESSEE COMPANY FAILED TO DISCHARGE THE ONUS U/S. 68 OF THE I.T. ACT, 1961 TO PROVE THE IDENTITY, CREDITWORTHIN ESS AND GENUINENESS OF THE TRANSACTIONS MADE BY THE INVEST ORS. 4(A) THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT T ENABLE IN LAW AND ON FACTS. (B) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY / ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F THE HEARING OF THE APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN, DECLARING NIL INCOME ON 18.9.2009. THEREAFTER, TH E CASE WAS REOPENED U/S. 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER R EFERRED AS THE ACT) AND NOTICE U/S. 148 OF THE ACT DATED 29.3.2016 WAS ISSUED AFTER RECORDING REASONS. ACCORDINGLY, THE ASSESSEE VIDE ITS LETTE R DATED 31.3.2016, SUBMITTED THAT THE ORIGINAL INCOME TAX RETURN FILED FOR THE AY 2009-10 DATED 18.9.2009 MAY BE CONSIDERED AS RETURN FILED I N RESPONSE TO THE NOTICE U/S. 148 OF THE ACT. THEREAFTER, THE AO VID E ORDER DATED 31.12.2016 COMPLETED THE ASSESSMENT U/S. 143(3) O F THE ACT AND MADE THE ADDITION OF RS. 40 LACS U/S. 68 OF THE ACT AND ASSESSED THE INCOME ON THE SAME AMOUNT. 3. AGAINST THE SAID ORDER OF THE LD. AO, ASSESSEE APPEALED BEFORE THE LD. CIT(A) ON THE ISSUE OF REOPENING OF ASSESSMENT AS WELL AS ON MERITS OF THE CASE, WHO VIDE HIS IMPUGNED ORDER DATED 22.5.2 007 HAS ALLOWED THE APPEAL OF THE ASSESSEE THEREBY DELETING THE ADDITIO N IN DISPUTE AND HOLDING THE REOPENING AS INVALID. 4. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD . CIT(A), REVENUE IS IN APPEAL BEFORE US THE TRIBUNAL. 5. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. LD. DR RELIED UPON THE 3 ORDER OF AO AND STATED THAT AO HAS RIGHTLY REOPENED THE ASSESSMENT PROCEEDINGS ON THE BASIS OF REASONS RECORDED WHIC H WERE IN ORDER AND DULY APPROVED BY THE COMPETENT AUTHORITY. AS REGARD S THE ADDITION OF RS. 40 LACS IS CONCERNED, HE STATED THAT ASSESSEE HAS F AILED TO PROVE THE CREDITWORTHINESS AND GENUINENESS OF PARTIES AND A LSO FAILED TO DISCHARGE THE ONUS U/S. 68 OF THE ACT TO PROVE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS MADE BY THE INVESTO RS. HENCE, AO MADE THE ADDITION OF RS. 40 LACS. IN VIEW OF ABOVE, HE R EQUESTED THAT THE ORDER OF THE LD. CIT(A) BE CANCELLED AND THE ORDER OF THE AO MAY BE RESTORED. 6. ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE REL IED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT THE REOPENING IN THE PRESENT CASE IS ILLEGAL, HENCE, THE SAME WAS RIGHTLY QUASHED BY THE LD. CIT(A), WHICH DOES NOT NEED ANY INTERFERENCE. ON THIS LEGAL ISSU E, HE FURTHER STATED THAT THE REASONS RECORDED ARE VAGUE, HIGHLY NON-SPECIFIC AND, REFLECT COMPLETE NON-APPLICATION OF MIND MUCH LESS INDEPENDENT APPL ICATION OF MIND. THE ACTION HAS BEEN MECHANICALLY ON THE BASIS OF AL LEGED REPORT OF INVESTIGATION WING, AND, NOT ON INDEPENDENT APPLICA TION OF MIND AND THEREFORE ON THIS GROUND, THE PROCEEDINGS ARE WITHO UT JURISDICTION. IT WAS FURTHER STATED THAT NO VALID APPROVAL HAD BEEN OBTA INED IN TERMS OF SECTION 151 OF THE ACT. IN VIEW OF ABOVE, HE SUBM ITTED THAT REOPENING OF ASSESSMENT IS BAD IN LAW IN THIS CASE. IN ORDER T O SUPPORT HIS CONTENTION, HE SUBMITTED THAT THE PRESENT CASE IS SQUARELY C OVERED BY THE VARIOUS DECISIONS INCLUDING THE HONBLE HIGH COURT DECISIO N DATED 8.10.2015 PASSED IN ITA NO. 545/2015 IN THE CASE OF PR. CIT-4 VS. G&G PHARMA INDIA LTD AND THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF PR. CIT VS. MEENAKSHI OVERSEAS PVT. LTD., 395 ITR 677. AS REGARDS, MERIT OF THE CASE IS CONCERNED, I.E. ADDITION OF RS. 40 LACS MADE U/S. 68 OF THE ACT IS CONCERNED, IT WAS STATED THAT ASSESSEE HAS DULY DISCHARGED THE BURDEN PLACED U/S. 68 OF THE ACT VIS--VIS FOLLOWING INGRE DIENTS: I) IDENTITY OF THE SHARE HOLDERS. 4 II) CREDITWORTHINESS OF THE SHARE HOLDERS. III) GENUINENESS OF THE TRANSACTIONS. 6.1 LD. COUNSEL OF THE ASSESSEE FURTHER STATED THA T ASSESSEE HAS FILED COMPLETE DOCUMENTARY EVIDENCE IN RESPECT OF SHARE HOLDERS FROM WHO IT HAD RECEIVED SHARE CAPITAL AND FURNISHED VARIOUS EV IDENCE OF EACH SHARE HOLDER, AS PER THE DETAILS GIVEN BELOW:- I) NAME, ADDRESS AND COMPLETE PARTICULARS OF THE SHARE HOLDER, II) CONFIRMATION FROM SHAREHOLDERS. III) COPY OF SHARE APPLICATION FORM. IV) COPY OF BANK STATEMENT OF ASSESSEE. V) COPY OF BANK STATEMENT OF SHAREHOLDER. VI) COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOM E OF THE SHAREHOLDER. VII) COPY OF PAN OF SHAREHOLDER. VIII) AUDITED FINANCIAL STATEMENTS OF SHAREHOLDE RS X) CERTIFICATE OF INCORPORATION OF SHAREHOLDER XI) COPY OF SHARE ALLOTMENT LETTER RECEIVED BY SHAREHOLDERS. XII) COPY OF SHARE CERTIFICATES AS ISSUED BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT, PERUSAL OF THE EVID ENCE FURNISHED WOULD SHOW THAT, SHARE CAPITAL RECEIVED BY THE ASSE SSEE COMPANY HAS BEEN FULLY SUBSTANTIATED NOT ONLY BY DOCUMENTARY EV IDENCE INCLUDING PERMANENT ACCOUNT NUMBER, CONFIRMATION, ADDRESSE, B ANK STATEMENTS ETC. AND, THEREFORE SUCH SUM COULD NOT IN LAW OR ON FACT BE HELD TO BE UNEXPLAINED CASH CREDIT ULS 68 OF THE ACT. IT WAS F URTHER STATED THAT NO MATERIAL HAS BEEN LED BY THE LEARNED ASSESSING OFFI CER TO EVEN ALLEGE THAT 5 SUCH INVESTMENT WAS MADE FROM THE COFFERS OF THE AS SESSEE COMPANY. THE MATERIAL ON RECORD SHOWS THAT INVESTORS HAVE NE T WORTH TO MAKE THE AFORESAID INVESTMENT IN THE ASSESSEE COMPANY. IT WA S FURTHER STATED THAT INVESTORS ARE CORPORATE ENTITIES DULY ASSESSED TO T AX AND, HAVE MADE INVESTMENT MADE THROUGH BANKING CHANNELS, WHICH FAC T HAS NEITHER BEEN DENIED AND, NOR REBUTTED IN THE ORDER OF ASSESSMENT . INFACT, ONE OF THE SUBSCRIBER I.E. MIS JOYPRIT PLASTIC DEALERS PVT LTD HAS INDEPENDENTLY CONFIRMED THE INVESTMENT IN THE ASSESSEE COMPANY. I T WAS THEREFORE SUBMITTED THAT THE ASSESSEE HAS FURNISHED COMPLETE DETAILS AND EVIDENCES TO DISCHARGE THE BURDEN IN RESPECT OF INVESTMENT BY THE ASSESSEE COMPANY. TO SUPPORT HIS CONTENTION, HE RELIED UPON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V LOVELY E XPORTS (P) LTD REPORTED IN 319 ITR 5 (ST.) HAS OBSERVED THAT, EVEN IF THE SHARE CAPITAL MONEY IS RECEIVED BY THE ASSESSEE FROM ALLEGED BOGU S SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMEN T IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDAN CE WITH LAW, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASS ESSEE COMPANY. IN VIEW OF ABOVE, HE REQUESTED TO UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS OF THE REV ENUE AUTHORITIES AND THE CASE LAWS CITED BY THE ASSESSEES COUNSEL OF THE AS SESEE AS WELL AS THE LD. CIT(A) IN HIS IMPUGNED ORDER. IN THIS CASE THE ASS ESSEE IS A PRIVATE LIMITED COMPANY. THE ASSESSEE RECEIVED SHARE APPLIC ATION MONEY OF 6 RS. 40,00,000/- (INCLUDING PREMIUM OF RS.36,00,000/ -) FROM 2 SHAREHOLDERS WHO ARE CORPORATE ENTITIES AND ARE ALS O DULY ASSESSED TO TAX. IN THE REASONS AS RECORDED BY THE AO, IT HAS BEEN S TATED AS UNDER: DURING PRE AND POST SEARCH PROCEEDINGS IT WAS FOUN D THAT THE GROUP COMPANIES HAD RECEIVED SHARE CAPITAL WITH EXO RBITANT PREMIUM FROM LARGE NUMBER OF NON DESCRIPT COMPANIES MAINLY BASED IN KOLKATA AND DELHI FROM THE PERIOD BETWEEN 1.4.2008 TO 31.03.2009; THAT ENQUIRIES WERE ALSO CONDUCTED B Y THE INSPECTORS OF THE INVESTIGATION WING AT DELHI AND K OLKATA. MOST OF THE ENTRY PROVIDING COMPANIES WERE NOT FOU ND EXISTING AT THE GIVEN OFFICES IN KOLKATA; THAT ALL ENTRY PROVIDING COMPANIES WERE COVERED UNDER VARIOUS SEA RCH CONDUCTED BY KOLKATA INVESTIGATION WING AND ALL THE COMPANIES WERE FOUND BOGUS AND NON- EXISTENT; THAT IN THE STATEMENT OF DIRECTORS MANAGING THE ALLEGED BOGUS COMPANIES, THEY ADMITTED THAT THEY WERE IN THE BUSI NESS OF PROVIDING ACCOMMODATION ENTRIES; THAT ON THE BASIS OF ENQUIRIES CONDUCTED AND STATEMENTS RECORDED, IT HAS BEEN ESTABLISHED THAT THE COMPANIES WERE BOGUS AND NON-E XISTENT. THAT THE SHARE CAPITAL RECEIVED BY THE ASSESSEE COM PANY AMOUNTING TO RS. 40,00,000/ - IN THE F.Y. 2008-09 F ROM THESE LARGE NUMBER OF NON-DESCRIPT COMPANIES IS NOTHING B UT ASSESSEE OWN UNACCOUNTED INCOME THROUGH THESE COMPA NIES. THE AO HAS OBSERVED THAT KEEPING IN VIEW ALL ABOVE, HAVE REASON TO BELIEVE THAT AN AMOUNT AT LEAST OF RS. 4 0,00,000/ - HAS ESCAPED ASSESSMENT IN THE CASE OF M/S KAPIS LMP EX (P) LTD. FOR THE A.Y. 2009-10 WITHIN THE MEARUNQ OF SEC TION 147/148 OF INCOME TAX ACT, 1961. THE RE- ASSESSMENT PROCEEDINGS IN THIS CASE FOR A. Y. 2009-10 PERTAIN TO PERIOD BEYOND FOUR YEARS BUT BEFORE THE EXPIRY OF SIX YEAR S FROM THE 7 DATE OF ISSUE OF NOTICE, IN VIEW OF THE SAME, AS NO ASSESSMENT HAS BEEN MADE IN THIS CASE FOR A Y 2009-10 U/ S 143 (3) OR U/ S 147, THE FIRST PROVISO TO SECTION 147 (AS REPRODU CED BELOW) IS NOT APPLICABLE TO THE CASE. 'PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB SECTIO N (3) OF SECTION 143 OF THIS SECTION HAS BEEN MADE FO R THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OJ THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PAR T OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) O F SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FO R THAT ASSESSMENT YEAR. 7.1 IN OTHER WORDS, THAT ASSESSING OFFICER IS NOT B OUND BY THE RESTRICTION IMPOUNDED BY THE PROVISO THAT NO ACTION CAN BE TAKE N UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED INCOME BY REASON OF F AILURE AS THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIALS FACTS NECESS ARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR. THEREFORE, THE AO HAS RE ASON TO BELIEVE THAT THIS AMOUNT OF RS. 40,00,000/- REPRESENTS INCOME OF M/ S KAPIS IMPEX (P) LTD. CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESS MENT FOR A. Y. 2009- 10. AS THE CASE PERTAINS TO A PERIOD BEYOND FOUR YE ARS FROM THE END OF RELEVANT ASSESSMENT YEAR AT THE TIME ISSUE OF NOTIC E, NECESSARY SANCTION HAS TO BE OBTAINED FROM PR. COMMISSIONER OF INCOME TAX, IN VIEW OF THE AMENDED PROVISION OF SECTION 151 W.E.F. 01.06.2015. 8 7.2 THE ASSUMPTION OF JURISDICTION U/S 147 OF THE ACT IS STATED TO BE BASED ON THE ENQUIRIES CONDUCTED BY INSPECTORS OF T HE INVESTIGATION WING -AT DELHI AND KOLKATA TO FORM AN OPINION ALBEIT PRI MA-FACIE THAT APPELLANT COMPANY HAS RECEIVED SHARE CAPITAL WITH EXORBITANT PREMIUM FROM LARGE NUMBER OF NON DESCRIPT COMPANIES MAINLY BASED IN KO LKATTA AND DELHI FROM THE PERIOD BETWEEN 1.4.2008 TO 31.3.2009. IT I S A MATTER OF RECORD THAT SUCH ENQUIRIES HAD NOT BEEN CONFRONTED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS THROUGH SPECIFICAL LY REQUESTED VIDE REPLIES DATED 10.11.2016 AND 29.12.2016 BY THE ASS ESSEE COMPANY. IN SUCH CIRCUMSTANCES ALL SUCH ENQUIRIES CANNOT MECHAN ICALLY BE MADE A BASIS TO ASSUME JURISDICTION. 7.3 IT IS APPARENT THAT REASONS CONTAIN SCANTY, GE NERAL, VAGUE OBSERVATIONS AND NOT REFER TO ANY OBJECTIVE, TANGIB LE RELEVANT MATERIAL. NO SPECIFIC EVIDENCE HAS BEEN HIGHLIGHTED TO ARRIVE AT AN OPINION THAT EITHER THE COMPANIES ARE BOGUS AND NONEXISTENT OR THE MONE Y RECEIVED REPRESENTED UNACCOUNTED INCOME. THOUGH THE REASONS REFER TO THE SEARCH BUT DO NOT REFER TO ANY INCRIMINATING MATERIAL DETE CTED AS A RESULT OF SEARCH SO AS TO FORM AN PRIMA FACIE OPINION CONTRAR Y TO THE CLAIM MADE IN THE ORIGINAL RETURN AND ACCEPTED AS SUCH. DRAWING O F LIST OF SHAREHOLDERS BASED ON A INVESTIGATION WING REPORT HAS NOT BEEN J UDICIALLY ACCEPTED AS A FOUNDATION FOR ASSUMING JURISDICTION U/S 147 OF THE ACT. 7.4 ALSO MERE INFORMATION DOES NOT CONSTITUTE TO BE A TANGIBLE MATERIAL TO RE-ASSESS THE ASSESSEE COMPANY WITHOUT ANY INDEPEND ENT ENQUIRY OR 9 APPLICATION OF MIND. THE HON'BLE DELHI HIGH COURT I N THE CASE OF PR. CIT VS. G&G PHARMA INDIA LTD. 384 ITR 147 HAS HELD AS U NDER: '9. THE COURT AT THE OUTSET PROPOSES TO RECAPITULAT E THE JURISDICTIONAL REQUIREMENT FOR REOPENING OF THE ASS ESSMENT UNDER SECTION ] 47/ 148 OF THE ACT BY REFERRING TO TWO DECISIONS OF THE SUPREME COURT. IN CHHUGAMAL RAJPA L V. SP CHATIHO (1971) 79 ITR 603, THE SUPREME COURT WAS DE ALING WITH A CASE WHERE THE AO HAD RECEIVED CERTAIN COMMUNICATIONS FROM THE COMMISSIONER OF INCOME TAX SHOWING THAT THE ALLEGED CREDITORS OF THE ASSESSEE WERE 'NAME-LENDERS AND THE TRANSACTIONS ARE BOGUS.' THE AO CAME TO THE CONCLUSION THAT THERE WERE REASONS TO BELIEV E THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. THE SUPREME COURT DISAGREED AND OBSERVED THAT THE AO 'H AD NOT EVEN COME TO A PRIMA FACIE CONCLUSION THAT THE TRAN SACTIONS TO WHICH HE REFERRED WERE NOT GENUINE TRANSACTIONS. HE APPEARED TO HAVE HAD ONLY A VAGUE FELLING THAT THEY MAY BE ' BOGUS TRANSACTIONS'.' 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR ENT RIES, STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A SINGLE D ATE I.E. 10TH FEBRUARY 2003, FROM FOUR ENTITIES WHICH WERE T ERMED AS ACCOMMODATION ENTRIES, WHICH INFORMATION WAS GIVEN TO HIM BY THE DIRECTORATE OJ INVESTIGATION, THE AO STATED: 'I HAVE A/SO PERUSED VARIOUS MATERIALS AND REPORT FROM INVE STIGATION WING AND ON THAT BASIS IT IS EVIDENT THAT THE ASSES SEE COMPANY HAS INTRODUCED ITS OWN UNACCOUNTED MONEY IN ITS BANK ACCOUNT BY WAY OF ABOVE ACCOMMODATION ENTRIES. ' THE ABOVE CONCLUSION IS UNHELPFUL IN UNDERSTANDING WHET HER THE AO APPLIED HIS MIND TO THE MATERIALS THAT HE TALKS ABOUT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT THOSE M ATERIALS 10 WERE. ONCE THE DATE ON WHICH THE SO CALLED ACCOMMOD ATION ENTRIES WERE PROVIDED IS KNOWN, IT WOULD NOT HAVE B EEN DIFFICULT FOR THE AO, IF HE HAD IN FACT UNDERTAKEN THE EXERCISE, TO MAKE A REFERENCE TO THE MANNER WHICH THOSE VERY ENTRIES WERE PROVIDED IN THE ACCOUNTS OF THE ASSESSEE, WHIC H MUST HAVE BEEN TENDERED ALONG WITH THE RETURN, WHICH WAS FILED ON 14TH NOVEMBER 2004 AND WAS PROCESSED UNDER SECTION L43(3) OF THE ACT. WITHOUT FORMING A PRIMA FACIE OPINION, ON THE BASIS OF SUCH MATERIAL, IT WAS NOT POSSIBLE FOR THE AO TO HAVE SIMPLY CONCLUDED: 'IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS INTRODUCED ITS OWN UNACCOUNTED MONEY IN ITS BANK BY WAY OJ ACCOMMODATION ENTRIES'. IN THE CONSIDERED VIEW OF T HE COURT, IN LIGHT OF THE LAW EXPLAINED WITH SUFFICIENT CLARI TY BY THE SUPREME COURT IN THE DECISIONS DISCUSSED HEREINBEFO RE, THE BASIC REQUIREMENT THAT THE AO MUST APPLY HIS MIND T O THE MATERIALS IN ORDER TO HAVE REASONS TO BELIEVE THAT THE INCOME OF THE ASSESSEE ESCAPED ASSESSMENT IS MISSING IN TH E PRESENT CASE. 13. MR. SAWHNEY TOOK THE COURT THROUGH THE ORDER OF THE CIT(A) TO SHOW HOW THE CIT (A) DISCUSSED THE MATERI ALS PRODUCED DURING THE HEARING OF THE APPEAL. THE COUR T WOULD LIKE TO OBSERVE THAT THIS IS IN THE NATURE OF A POS T MORTEM EXERCISE AFTER THE EVENT OF REOPENING OF THE ASSESS MENT HAS TAKEN PLACE. WHILE THE CIT MAY HAVE PROCEEDED ON TH E BASIS THAT THE REOPENING OF THE ASSESSMENT WAS VALID, THI S DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO THE RE OPENING THE ASSESSMENT, THE AO HAS TO, APPLYING HIS MIND TO THE MATERIALS, CONCLUDE THAT HE HAS REASON TO BELIEVE T HAT INCOME OJ THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLESS THAT BASIC JURISDICTIONAL REQUIREMENT IS SATISFIED A POST MORT EM EXERCISE OF ANALYSING MATERIALS PRODUCED SUBSEQUENT TO THE R EOPENING 11 WILL NOT RESCUE AN INHERENTLY DEFECTIVE REOPENING O RDER FROM INVALIDITY.' 7.5 IN THE CASE OF SARTHAK SECURITIES CO. (P) LTD. V. ITO 329 ITR 110 (DEL), IT HAS BEEN HELD AS UNDER:- '23. THE OBTAINING FACTUAL MATRIX HAS TO BE TESTED ON THE ANVIL OF THE AFORESAID PRONOUNCEMENT OF LAW. IN THE CASE AT HAND, AS IS EVINCIBLE, THE ASSESSING OFFICER WAS AWARE OF THE EXISTENCE OJ JOUR COMPANIES WITH WHOM THE ASSESSEE HAD ENTERED INTO TRANSACTION. BOTH THE ORDERS CLEARLY E XPOSIT THAT THE ASSESSING OFFICER WAS MADE AWARE OF THE SITUATI ON BY THE INVESTIGATION WING AND THERE IS NO MENTION THAT THE SE COMPANIES ARE FICTITIOUS COMPANIES. NEITHER THE REA SONS IN THE INITIAL NOTICE NOR THE COMMUNICATION PROVIDING REAS ONS REMOTELY INDICATE INDEPENDENT APPLICATION OF MIND. TRUE IT IS, AT THAT STAGE, IT IS NOT NECESSARY TO HAVE THE ESTA BLISHED FACT OF ESCAPEMENT OJ INCOME BUT WHAT IS NECESSARY IS TH AT THERE IS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COUL D HAVE FORMED THE REQUISITE BELIEF TO ELABORATE, THE CONCL USIVE PROOF IS NOT GERMANE AT THIS STAGE BUT THE FORMATION OF B ELIEF MUST BE ON THE BASE OR FOUNDATION OR PLATFORM OF PRUDENC E WHICH A REASONABLE PERSON IS REQUIRED TO APPLY. AS IS MANIF EST FROM THE PERUSAL OF THE SUPPLY OF REASONS AND THE ORDER OF REJECTION OJ OBJECTIONS, THE NAMES OF THE COMPANIES WERE AVAI LABLE WITH THE AUTHORITY. THEIR EXISTENCE IS NOT DISPUTED. WHA T IS MENTIONED IS THAT THESE COMPANIES WERE USED AS COND UITS. IN THAT VIEW OF THE MATTER, THE PRINCIPLE LAID DOWN IN LOVELY EXPORTS (P) LTD. (SUPRA) GETS SQUARELY ATTRACTED. T HE SAME HAS NOT BEEN REFERRED TO WHILE PASSING THE ORDER OF REJECTION. THE ASSESSEE IN HIS OBJECTIONS HAD CLEARLY STATED T HAT THE COMPANIES HAD HANK ACCOUNTS AND PAYMENTS WERE MADE TO THE ASSESSEE COMPANY THROUGH BANKING CHANNEL. THE I DENTITY 12 OF THE COMPANIES WAS NOT DISPUTED. UNDER THESE CIRCUMSTANCES, IT WOULD NOT BE APPROPRIATE TO REQUI RE THE ASSESSEE TO GO THROUGH THE ENTIRE GAMUT OF PROCEEDI NGS. IT IS TOTALLY UNWARRANTED. 24. RESULTANTLY, THE INITIATION OF PROCEEDINGS UNDE R SECTION 147 AND ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT ARE HEREBY QUASHED. IN THE [ACTS AND CIRCUMSTANCES OF T HE CASE, THERE SHALL BE NO ORDER AS TO COSTS.' 7.6 FURTHER IN THE CASE OF SIGNATURE HOTELS (.P) L TD. V. ITO 338 ITR 51 (DEL) IT WAS HELD AS UNDER:- '5 BEFORE DEALING WITH THE FACTS OJ THE CASE, WE MA Y NOTICE SOME JUDGMENTS OF THE SUPREME COURT WHEN PROCEEDINGS UNDER SECTION 147/ 148 OF THE ACT CAN B E INITIATED ON STATEMENTS MADE BY THIRD PERSON ON THE ACCOUNT OF 'ACCOMMODATION ENTRY'. IN ITO VERSUS LAKHMANI MEWAL DAS, [1976/ 103 ITR 437 (SQ, THE SUPREME COURT AFFIRMED THE DECISION OF THE HIGH COU RT AND HELD THAT THERE WAS NOTHING TO SHOW IN THE CONFESSION MADE BY A THIRD PARTY RELATED TO THE LOA N TAKEN BY THE ASSESSEE MUCH LESS A LOAN WHICH WAS SHOWN TO HAVE ADVANCED BY THAT PERSON TO THE ASSESS EE AND, THEREFORE, LIVE LINK OR CLOSE NEXUS, WHICH SHO ULD BE THERE BETWEEN THE MATERIAL AND THE BELIEF FORMED BY THE ASSESSING OFFICER WAS MISSING OR WAS TOO TENUOUS TO PROVIDE LEGAL SOUND BASIS FOR INITIATION OF ASSESSM ENT PROCEEDINGS UNDER SECTION 147. AFTER REFERRING TO T HIS JUDGMENT, A DIVISION BENCH OF DELHI HIGH COURT, IN INCOME-TAX OFFICER, SPECIAL CIVIL NO. VII, NEW DELH I, AND ANOTHER VERSUS DWARKA DASS AND BROTHERS, 1981/ 131 ITR 571 (DEL) HAS HELD AS UNDER: 13 ' .... THE SUPREME COURT, AFFIRMING THE DECISION OF THE HIGH COURT, HELD THAT THERE WAS NOTHING TO SHOW THAT THE CONFESSION OF M.K. RELATED TO A LOAN TO THE ASSESSEE, MUCH LESS TO THE LOAN WHICH WAS SHOWN TO HAVE BEEN ADVANCED BY THAT PERSON TO THE RESPONDENT AND THE LIVE LINK OR CLOSE NEXUS WHICH SHOULD BE THERE BETWEEN THE MATERIAL BEFORE THE ITO AND THE BELIEF WHICH HE WAS TO FORM WAS MISSING OR WAS, IN ANY EVENT, TOO TENUOUS TO PROVIDE A LEGALLY SOUND BASIS FOR REOPENING THE ASSESSMENT. ... THE POSITION IN THE PRESENT CASE FALLS WITHIN THE SAME CATEGORY. AT THE TIME OF THE ORIGINAL ASSESSMENT ALL THE FACTS RELATING TO THE CASH CREDITS IN QUESTION WERE FULLY DISCLOSED. THIS HAS BEEN FOUND BY THE LEARNED JUDGE AT PAGE 960 (OF 118 ITR) AND INDEED THIS IS THE ACCEPTED POSITION ON THE BASIS O] WHICH EVEN THE PROPOSAL OF THE ITO TO THE COMMISSIONER (SET OUT AT PAGE 964) PROCEEDED. THEREAFTER, THE ONLY MATERIAL RECEIVED BY THE ITO APPEARS TO BE THAT THE REVENUE AUTHORITIES HAD CARRIED OUT CERTAIN INVESTIGATIONS, THAT THEY HAD DISCOVERED THE EXISTENCE OF BOGUS HUNDI BROKERS WHO WERE ALLEGEDLY LENDING THEIR NAMES TO ASSESSEE AND THAT A LIST HAD BEEN CIRCULATED TO VARIOUS ITOS OF THE HUNDI BROKERS WHO WERE ALLEGEDLY INDULGING IN MALPRACTICES. THE INTERNAL AUDIT PARTY APPEARS TO HAVE DISCOVERED THAT SOME OF THE CREDITORS WHOSE CREDITS HAD BEEN ACCEPTED IN THE ASSESSEE'S CASE FELL WITHIN THIS CATEGORY AND RAISED AN AUDIT OBJECTION WHICH WAS 14 THE IMMEDIATE PROVOCATION [OR THE REOPENING OF THE ASSESSMENT. IN THIS CASE ALSO, AS IN THE CASE BEFORE THE SUPREME COURT, THERE IS NO LIVE CONNECTION OR LINK ESTABLISHED BETWEEN THE INFORMATION OR THE FACTS, IN THE POSSESSION OF THE ITO, AND THE GENUINENESS OF THE PARTICULAR LOANS RECORDED IN THE ASSESSEE'S BOOKS. THE MERE FACT THAT THE NAMES OF THE SOME OF THE CREDITORS FIGURED IN A LIST MADE OUT BY THE DEPARTMENT WOULD BE TOO GENERAL AND VAGUE TO LEAD TO AN INFERENCE REGARDING THE TRUTH OR OTHERWISE O] THE LOANS RECORDED BY THE ASSESSEE. WE ARE WHOLLY UNABLE TO FIND ANY MATERIAL POINT OF DISTINCTION BETWEEN THE ACTS OF THE PRESENT CASE AND THOSE CONSIDERED BY THE SUPREME COURT IN THE CASE OF LAKHMANI MEWAL DAS 1976 103 ITR 437.' 6. THE VIEW TAKEN BY THE SUPREME COURT IN LAKHMANI MEWAL DAS [SUPRA] WAS FOLLOWED IN GANGA SARAN AND SONS PRIVATE LIMITED VERSUS INCOME-TAX OFFICER, (1981 J 130 ITR 1 (SC). THE MATTER WAS AGAIN EXAMINED BY THE SUPREME COURT IN PHOOL CHAND BAJRANG LAL AND ANOTHER VERSUS INCOME-TAX OFFICER AND ANOTHER, (1993J (203) ITR 456 (SC). IN THE SAID CASE, INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER THAT THE THIRD COMPANY HAD NEVER ACTUALLY ADVANCED LOANS TO ANY PERSON AND THE SAID THIRD COMPANY WAS IN THE BUSINESS CONSISTING ENTIRELY OF NAME LENDING. NOTICING THE JUDGMENT IN LAKHMANI MEWAL DAS (SUPRA) IT WAS HELD THAT THE NATURE OF INFORMATION WHICH WAS AVAILABLE WAS VASTLY DIFFERENT. IN THE 15 CASE OF LAKHMANI MEWAL DAS (SUPRA), THE INFORMATION WAS EXTREMELY VAGUE AND SCANTY WHEREAS IN THE CASE OF PHOOL CHAND BAJRANG LAL (SUPRA), THE INFORMATION WAS SPECIFIC, UNAMBIGUOUS AND CLEAR. 15. THE AFORESAID REASONS DO NOT SATISFY THE REQUIREMENTS OF SECTION 147 OF THE ACT. THE REASONS AND THE INFORMATION REFERRED TO IS EXTREMELY SCANTY AND VAGUE. THERE IS NO REFERENCE TO ANY DOCUMENT OR STATEMENT, EXCEPT ANNEXURE, WHICH HAS BEEN QUOTED ABOVE. ANNEXURE CANNOT BE REGARDED AS A MATERIAL OR EVIDENCE THAT PRIMA FACIE SHOWS OR ESTABLISHES NEXUS OR LINK WHICH DISCLOSES ESCAPEMENT OF INCOME. ANNEXURE IS NOT A POINTER AND DOES NOT INDICATE ESCAPEMENT OF INCOME. FURTHER, IT IS APPARENT THAT THE ASSESSING OFFICER DID NOT APPLY HIS OWN MIND TO THE INFORMATION AND EXAMINE THE BASIS AND MATERIAL OF THE INFORMATION. ASSESSING OFFICER ACCEPTED THE PLEA ON THE BASIS OF VAGUE INFORMATION MECHANICAL MANNER. THE COMMISSIONER ALSO ACTED ON THE SAME BAS MECHANICALLY GIVING HIS APPROVAL. THE REASONS RECORDED REFLECT THAT THE AO DID NOT INDEPENDENTLY APPLY HIS MIND TO THE INFORMATION RECEIVED DIRECTOR OF INCOME-TAX (INVESTIGATION) AND ARRIVE AT A BELIEF WHETHER INCOME HAD ESCAPED ASSESSMENT.' 7.7 SIMILARLY, IN THE CASE OF CIT V. SUREN INTERNAT IONAL (P) LTD. (DEL), IT WAS HELD AS UNDER: 16 14. THE LEARNED COUNSEL FOR THE APPELLANT CONTENDED THAT EVEN THOUGH THERE IS NO SPECIFIC ALLEGATION THAT THE ASSESSEE HAD FAILED TO DISCLOSE ALL THE MATERIAL FACTS BUT THE SAME CAN BE GLEANED FROM THE REASONS ITSELF WE ARE UNABLE TO ACCEPT THIS CONTENTION. IN THE FIRST INSTANCE, WE DO NOT FIND THE REASONS AS RECORDED BY THE ASSESSING OFFICER TO BE REASONS IN LAW, AT ALL. A BARE PERUSA L' O] THE TABLE OF ALLEGED ACCOMMODATION ENTRIES INCLUDED IN THE REASONS AS RECORDED, DISCLOSES THAT THE SAME ENTRIES HAVE BEEN REPEATED SIX TIMES. THIS IS CLEARLY INDICATIVE OF THE CALLOUS MANNER IN WHICH THE REASONS [OR INITIATING REASSESSMENT PROCEEDINGS ARE RECORDED AND WE ARE UNABLE TO COUNTENANCE THAT ANY BELIEF BASED ON SUCH STATEMENTS CAN EVER BE ARRIVED AT. THE REASONS HAVE BEEN RECORDED WITHOUT ANY APPLICATION OF MIND AND THUS NO BELIEF THAT INCOME HAS ESCAPED ASSESSMENT CAN BE STATED TO HAVE BEEN FORMED BASED ON SUCH REASONS AS RECORDED.' 7.8 ALSO IN THE PRESENT CASE APPROVAL AS OBTAINED D OES NOT MEET THE TEST LAID BY THE JUDGMENT OF HON'BLE DELHI HIGH COU RT IN THE CASE OF PR. CIT V. NC CABLES ITA NO. 335/2015 DATED 11.1.2017 W HEREIN IT HAS BEEN HELD UNDER:- '11. SECTION 151 OF THE ACT CLEARLY STIPULATES THAT THE CIT (A), WHO IS THE COMPETENT AUTHORITY TO AUTHORIZ E THE REASSESSMENT NOTICE, HAS TO APPLY HIS MIND AND FORM AN OPINION. THE MERE APPENDING OF THE EXPRESSION 'APPROVED' SAYS NOTHING. IT IS NOT AS IF THE CIT (A ) HAS TO 17 RECORD ELABORATE REASONS FOR AGREEING WITH THE NOTI NG PUT UP. AT THE SAME TIME, SATISFACTION HAS TO BE RECORDED OF THE GIVEN CASE WHICH CAN BE REFLECTED IN THE BRIEFEST POSSIBLE MANNER. IN THE PRESENT CASE, THE EXERCISE APPEARS TO HAVE BEEN RITUALISTIC AND FORMA L RATHER THAN MEANINGFUL, WHICH IS THE RATIONALE FOR THE SAFEGUARD OF AN APPROVAL BY A HIGHER RANKING OFFICE R. FOR THESE REASONS, THE COURT IS SATISFIED THAT THE FIND INGS BY THE ITAT CANNOT BE DISTURBED' 7.9 SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN THE CAS E OF CHHUGAMAL RAJPAL P. CHALIHA AND OTHERS 79 ITR 603 (SC). IT HA S HELD THEREIN AS UNDER: 'IN HIS REPORT THE INCOME-TAX OFFICER DOES NOT SET OUT ANY REASON FOR COMING TO THE CONCLUSION THAT THIS I S A FIT CASE TO ISSUE NOTICE UNDER SECTION 148. THE MATERIA L THAT HE HAD BEFORE HIM FOR ISSUING NOTICE UNDER SEC TION 148 IS NOT MENTIONED IN THE REPORT. IN HIS REPORT H E VAGUELY REFERS TO CERTAIN COMMUNICATIONS RECEIVED B Y HIM FROM THE COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA. HE DOES NOT MENTION THE FACTS CONTAINED IN THOSE COMMUNICATIONS. ALL THAT HE SAYS IS THAT FROM THOSE COMMUNICATIONS 'IT APPEARS THAT THESE PERSONS (ALLEGED CREDITORS) ARE NAME LENDERS AND THE TRANSACTIONS ARE BOGUS'. HE HAS NOT EVEN COME TO A PRIMA FACIE CONCLUSION THAT THE TRANSACTIONS TO WHI CH HE REFERRED ARE NOT GENUINE TRANSACTIONS. HE APPEARS T O HAVE HAD ONLY A VAGUE FEELING THAT THEY MAY BE BOGU S TRANSACTIONS. SUCH A CONCLUSION DOES NOT FULFILL TH E REQUIREMENTS OF SECTION 151 (2). WHAT THAT PROVISIO N REQUIRES IS THAT HE MUST GIVE REASONS FOR ISSUING A 18 NOTICE UNDER SECTION 148. IN OTHER WORDS HE MUST HA VE SOME PRIMA FACIE GROUNDS BEFORE HIM FOR TAKING ACTI ON UNDER SECTION 148. FURTHER HIS REPORT MENTIONS : 'HENCE PROPER INVESTIGATION REGARDING THESE LOANS IS NECESSARY'. LN OTHER WORDS HIS CONCLUSION IS THA T THERE IS A CASE [OR INVESTIGATING AS TO THE TRUTH O F THE ALLEGED TRANSACTIONS. THAT IS NOT THE SAME THING AS SAYING THAT THERE ARE REASONS TO ISSUE NOTICE UNDER SECTION 148. BEFORE ISSUING A NOTICE UNDER SECTION 148, THE INCOME TAX OFFICER MUST HAVE EITHER REASONS TO BELIEVE THAT BY REASON OJ THE OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 FOR ANY ASSESSMENT YEAR TO THE INCOME-TAX OFFICER OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT FOR THAT YEAR, INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THAT YEAR OR ALTERNATIVELY NOTWITHSTANDING THAT THERE HAS BEEN NO OMISSION OR FAILURE AS MENTIONED ABOVE ON THE PART OF THE ASSESSEE, THE INCOME-TAX OFFICER HAS IN CONSEQUENCE OF INFORMATION POSSESSION REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR. UNLESS THE REQUIREMENTS OF CLAUSE (A) OR CLAUSE (B) OF SECTION 147 ARE SATISFIED, THE INCOME-TAX R OFFICER HAS NO JURISDICTION TO ISSUE A NOTICE UNDER SECTION 148. FROM THE REPORT SUBMITTED BY THE INCOME-TAX OFFICER TO THE COMMISSIONER, IT IS CLEAR THAT HE COULD NOT HAVE HAD REASONS TO BELIEVE THAT BY REASON OF THE ASSESSEE'S OMISSION TO DISCLOSE FULLY 19 AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THE ACCOUNTING YEAR IN QUESTION, INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THAT YEAR; NOR COULD IT BE SAID THAT HE, AS A CONSEQUENCE OF INFORMATION IN HIS POSSESSION, HAD REASONS TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THAT YEAR. WE ARE NOT SATISFIED THAT THE INCOME-TAX OFFICER HAD ANY MATERIAL BEFORE HIM WHICH COULD SATISFY THE REQUIREMENTS OF EITHER CLAUSE (A) OR CLAUSE (B) OF SECTION 147. THEREFORE, HE COULD NOT HAVE ISSUED A NOTICE UNDER SECTION 148. FURTHER, THE REPORT SUBMITTED BY HIM UNDER SECTION 151(2) DOES NOT MENTION ANY REASON FOR COMING TO THE CONCLUSION THAT IT IS A FIT CASE JAR THE ISSUE OF A NOTICE UND ER SECTION 148. WE ARE ALSO OF THE OPINION THAT THE COMMISSIONER HAS MECHANICALLY ACCORDED PERMISSION. HE DID NOT HIMSELF RECORD THAT HE WAS SATISFIED THAT THIS WAS A FIT CASE FOR THE ISSUE OF A NOTICE UNDER SECTION 148. TO QUESTION NO. 8 IN THE REPORT WHICH READS 'WHETHER THE COMMISSIONER IS SATISFIED THAT IT IS A FIT CASE FOR THE ISSUE OF NO TICE UNDER SECTION 148', HE JUST NOTED THE WORD 'YES' AND AFFIXED HIS SIGNATURE THEREUNDER. WE ARE OF THE OPINION THAT IF ONLY HE HAD READ THE REPORT CAREFULLY, HE COULD NEVER HAVE COME TO THE CONCLUSION ON THE MATERIAL BEFORE HIM THAT THIS IS A FIT CASE TO ISSUE NOTICE UNDER SECTION 148. THE IMPORTANT SAFEGUARDS PROVIDED IN SECTIONS 147 AND 151 WERE LIGHTLY TREATED BY THE INCOME-TAX OFFICER AS WELL AS BY THE COMMISSIONER. BOTH OF THEM APPEAR TO HAVE TAKEN THE DUTY IMPOSED ON 20 THEM UNDER THESE PROVISIONS AS OF LITTLE IMPORTANCE. THEY HAVE SUBSTITUTED THE FORM FOR THE SUBSTANCE. IN THE RESULT THIS APPEAL IS ALLOWED , THE ORDER OF THE HIGH COURT IS SET ASIDE AND THE IMPUGNED NOTICE QUASHED. THE RESPONDENT NO. 2 SHALL PAY THE COSTS OF THE APPELLANT BOTH IN THIS COURT AND IN THE HIGH COURT. 7.10 THE AO IN HIS ORDER WHILE DISPOSING OF OBJECT ION DATED 29.8.2016 HAS SUPPORTED THE ACTION U/S 147 OF THE ACT. HOWEVE R FROM THE REASONS RECORDED IT IS APPARENT THAT NO MATERIAL MUCH LESS INCRIMINATING MATERIAL WAS DETECTED AS RESULT OF SEARCH ON THE APPELLANT O R GATHERED DURING THE ASSESSMENT PROCEEDINGS TO ALLEGE, OBSERVE OR ASSUME THAT THE SAME HAS TAKEN BOGUS SHARE CAPITAL. THE REFERENCE TO INQUIRI ES IS VITIATED FOR BEING VAGUE AND GENERAL AND NON SPECIFIC, APART FROM THE FACT THEY HAVE NOT BEEN CONFRONTED TO THE APPELLANT DURING THE ASSESSM ENT PROCEEDINGS. 7.11 IN NUTSHELL, THE AO DID NOT APPLY HIS OWN MIND TO THE INFORMATION AND EXAMINE THE FOUNDATION/ ACCURACY OF SUCH MATERI AL OF THE INFORMATION. THE AO ACCEPTED THE PLEA ON THE BASIS OF VAGUE INF ORMATION IN A MECHANICAL MANNER. THE REASONS RECORDED REF1ECT T HAT THE AO DID NOT INDEPENDENTLY APPLY HIS MIND TO THE INFORMATION REC EIVED FROM THE INVESTIGATION WING TO ARRIVE AT A BELIEF THAT INCOM E OF THE ASSESSEE COMPANY HAD ESCAPED ASSESSMENT. 7.12 CONSIDERING THE ABOVE ANALYSIS OF FACTS AND CI RCUMSTANCES OF THE CASE AND THE CASE LAW SUPPORTED BY THE AR OF THE AP PELLANT ON THE ISSUE, I AM OF THE CONSIDERED VIEW THAT AO HAS WRONGLY ASSUM ED THE JURISDICTION U/S 147 OF THE I.T. ACT. THE REASON FOR REOPENING W AS NOT PROPERLY RECORDED. THE AO HAS NOT APPLIED HIS MIND, APPROVAL FOR ISSUE OF NOTICE U/S. 148 OF THE ACT IS NOT IN ACCORDANCE WITH LAW. IN VIEW OF ABOVE, 21 ASSESSMENT ORDER PASSED U/S. 147 OF THE ACT R.W. SE CTION 143(3) OF THE ACT WAS RIGHTLY TREATED AB INITIO VOID BY THE LD. C IT(A), WHICH DOES NOT NEED ANY INTERFERENCE ON MY PART, HENCE, I UPHOLD T HIS ACTION OF LD. CIT(A) AND REJECT THE GROUND NO. 1 RAISED BY THE RE VENUE. 8. AS REGARDS MERIT OF THE CASE IS CONCERNED, I.E. ADDITION OF RS. 40 LACS MADE U/S. 68 OF THE ACT WHICH REPRESENTS SUMS RECEIVED FROM THE SHAREHOLDERS AS SHARE CAPITAL / SHARE PREMIUM AND E RRONEOUSLY HELD AS UNEXPLAINED CASH CREDITS U/S. 68 OF THE ACT. DURING THE YEAR THE ASSESSEE COMPANY HAD RECEIVED SHARE CAPITAL AND SHARE PREMIU M TO THE TUNE OF RS.40,00,000/- FROM TWO SHAREHOLDERS NAMELY AHILIYA TRADING & FINANCE (P) LTD. AND M / S JOYPRIT PLASTIC DEALERS (P) LTD. THE AO ASKED THE ASSESSEE TO DETAILS OF SHARE CAPITAL PENDING ALLOTM ENTS, DETAIL OF SHARE CAPITAL PREMIUM RECEIVED DURING YEAR INCLUDING COMP LETE DETAIL OF PARTY I.E. NAME, ADDRESS, PAN, NUMBER OF SHARE ALLOTTED, TOTAL AMOUNT, ALLOTMENT LETTER AND TRANSACTION MODE. HE HAS ALSO DIRECTED TO DETAIL OF SHARE CAPITAL/PREMIUM RECEIVED DURING FY 2008-09 AL ONGWITH THE HIGHLIGHT ENTRY IN BANK STATEMENT IN WHICH AMOUNT RECEIVED IN ORDER TO PROVE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE T RANSACTION. THE ASSESSEE ADMITTEDLY PRODUCED SEVERAL DOCUMENTARY EV IDENCE BEFORE THE AO IN ORDER TO PROVE THE ABOVE INGREDIENTS OF SECTI ON 68 OF THE ACT I.E. THE ASSESSEE FURNISHED THE ADDRESS OF THE SHARE APPLICA NTS, CIN NO., INCORPORATION DATE OF COM PAN , PAN, AUTHORIZED CAP ITAL, PAID UP CAPITAL, NAMES OF DIRECTORS, CERTIFICATE ISSUED BY REGISTRAR OF COMPANIES AND RETURN FILED BEFORE ROC, NET WORTH OF ALL THE COMPA NIES, CONFIRMATION, COPY OF BANK STATEMENT, COPY OF ACKNOWLEDGEMENT OF FILING OF INCOME TAX RETURN WITH AUDITED ACCOUNTS, COPY OF COMPANY MASTE R DATA, SHARE CERTIFICATES, SHARE APPLICATION FORM FOR ALL THE IN VESTOR COMPANIES. THE AO DID NOT DOUBT THE GENUINENESS OF THE AFORESAID DOCU MENTARY EVIDENCE. THE AO HAS NOT MADE ANY INQUIRY ON THESE DOCUMENTAR Y EVIDENCES EITHER FROM RESPECTIVE AO, ROC AND BANKERS OF SHAREHOLDER COMPANIES. THESE 22 EVIDENCES CLEARLY PROVED THAT BOTH THE INVESTOR COM PANIES ARE EXISTING AND GENUINE COMPANIES REGISTERED WITH REGISTRAR OF COMPANIES AS WELL AS ASSESSED TO INCOME TAX. M/S JOYPRIT PLASTIC DEALERS (P) LTD. HAS INDEPENDENTLY CONFIRMED THE INVESTMENT. NO MATERIAL IS PRODUCED ON RECORD THAT DURING THE COURSE OF SEARCH IN THE CASE OF THE ASSESSEE ANY MATERIAL WAS FOUND TO PROVE THAT ASSESSEE COMPANY R ECEIVED ANY ACCOMMODATION ENTRIES FROM SHAREHOLDERS. THE AO WIT HOUT REBUTTING THE ABOVE EVIDENCE RELIED UPON STATEMENTS OF SHRI PRAVE EN KUMAR AGGARWAL, RECORDED BY INVESTIGATION WING KOLKATTA AND, REPORT FROM INVESTIGATION WING, KOLKATTA TO DRAW ADVERSE INFERENCE AGAINST TH E APPELLANT COMPANY. NONE OF THE ABOVE EVIDENCES HAVE BEEN CONFRONTED BY THE AASSESSEE. STATEMENTS OF PRAVEEN KUMAR AGGARWAL WAS NOT RECORD ED AT ASSESSMENT STAGE AND IN ABSENCE OF CROSS-EXAMINATION CANNOT BE USED AGAINST THE ASSESSEE. THE HON'BLE SUPREME COURT IN THE CASE OF ANDARNAN TIMBER INDUSTRIES V. CCE 62 TAXMANN.COM 3 WHILE DECIDING A N ISSUE REGARDING NO ALLOWING THE CROSS EXAMINATION HAS HELD THAT NOT AL LOWING THE ASSESSEE TO CROSS EXAMINE THE WITNESS BY THE ADJUDICATING AUTHO RITY THROUGH STATEMENTS OF THOSE WITNESSES WERE MADE A BASIS OF THE IMPUGNED ORDER AMOUNTED TO A SERIOUS WHICH MAKES THE ORDER A NULLI TY AS IT AMOUNTED TO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. ALSO IN THE CASE OF KISHANICHAND CHELLARAM V. CIT 125 ITR 713 (SC) IN WHICH IT WAS H ELD THAT ANY MATERIAL COLLECTED AT THE BACK OF THE ASSESSEE AND NOT CONFR ONTED AND NO OPPORTUNITY GIVEN TO CROSS-EXAMINE, SUCH MATERIAL C ANNOT BE RELIED UPON AGAINST THE ASSESSEE, IN VIEW OF THE FOLLOWING JUDG EMENTS:- - CIT V. SHRI SUNIL AGARWAL 379 ITR 367 (DEL) - CIT VS. RAKAM MONEY MATTERS (P) LTD. IN ITA NO. 778/2015 DATED 13.10.2015 (DELHI HIGH COURT) 8.1 ALSO ON THE ANVIL OF THE JUDGMENT IN THE CASE O F CIT VS. KAMDHENU STEEL AND ALLOYS LTD. 361 ITR 220 THE INITIAL BURDE N IS UPON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE SHARE APPLI CATION MONEY RECEIVED 23 BY THE ASSESSEE AND HELD THAT IN ORDER TO DISCHARG E THIS BURDEN, THE ASSESEE IS REQUIRED TO PROVE THE IDENTITY OF SHAREH OLDER; THE GENUINENESS OF TRANSACTION AND THE CREDITWORTHINESS OF SHAREHOL DERS. AND MERE NONCOMPLIANCE BY M/S AHILYA TRADING AND FINANCE (P) LTD. OF SUMMONS CANNOT BE A GROUND TO SHIFT THE BURDEN ON THE ASSES SEE. IN ANY CASE, ONCE THE EVIDENCE FURNISHED REMAINS UNREBUTTED IN ABSEN CE OF ANY ENQUIRIES FROM ROC, INCOME TAX AND BANKERS, NO ADVERSE INFERE NCE CAN BE DRAWN. THE ASSESSSEE HAS COMPLETE DOCUMENTARY EVIDENCE IN RESPECT OF SHARE HOLDERS FROM WHO IT HAD RECEIVED SHARE CAPITAL AND FURNISHED VARIOUS EVIDENCE OF EACH SHARE HOLDER, AS PER THE DETAILS GIVEN BELOW:- I) NAME, ADDRESS AND COMPLETE PARTICULARS OF THE SHARE HOLDER, II) CONFIRMATION FROM SHAREHOLDERS. III) COPY OF SHARE APPLICATION FORM. IV) COPY OF BANK STATEMENT OF ASSESSEE. V) COPY OF BANK STATEMENT OF SHAREHOLDER. VI) COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOM E OF THE SHAREHOLDER. VII) COPY OF PAN OF SHAREHOLDER. VIII) AUDITED FINANCIAL STATEMENTS OF SHAREHOLDE RS X) CERTIFICATE OF INCORPORATION OF SHAREHOLDER XI) COPY OF SHARE ALLOTMENT LETTER RECEIVED BY SHAREHOLDERS. XII) COPY OF SHARE CERTIFICATES AS ISSUED BY THE ASSESSEE. 8.2 AFTER PERUSING THE ABOVE, IT IS ESTABLISHED THA T THE SHARE CAPITAL RECEIVED BY THE ASSESSEE COMPANY HAS BEEN FULLY SUB STANTIATED NOT ONLY BY DOCUMENTARY EVIDENCE INCLUDING PERMANENT ACCOUNT NUMBER, CONFIRMATION, ADDRESSE, BANK STATEMENTS ETC. AND, T HEREFORE SUCH SUM 24 COULD NOT IN LAW OR ON FACT BE HELD TO BE UNEXPLAIN ED CASH CREDIT ULS 68 OF THE ACT. IT WAS NOTED THAT NO MATERIAL HAS BEEN LED BY THE ASSESSING OFFICER TO EVEN ALLEGE THAT SUCH INVESTMENT WAS MAD E FROM THE COFFERS OF THE ASSESSEE COMPANY. THE MATERIAL ON RECORD SHOWS THAT INVESTORS HAVE NET WORTH TO MAKE THE AFORESAID INVESTMENT IN THE A SSESSEE COMPANY. THE INVESTORS ARE CORPORATE ENTITIES DULY ASSESSED TO TAX AND, HAVE MADE INVESTMENT MADE THROUGH BANKING CHANNELS, WHICH FAC T HAS NEITHER BEEN DENIED AND, NOR REBUTTED IN THE ORDER OF ASSESSMENT . INFACT, ONE OF THE SUBSCRIBER I.E. MIS JOYPRIT PLASTIC DEALERS PVT LTD HAS INDEPENDENTLY CONFIRMED THE INVESTMENT IN THE ASSESSEE COMPANY. T HE ASSESSEE HAS FURNISHED COMPLETE DETAILS AND EVIDENCES TO DISCHAR GE THE BURDEN IN RESPECT OF INVESTMENT BY THE ASSESSEE COMPANY. FURT HER THE BALANCE SHEET WHICH CLEARLY SHOWS THAT INVESTOR COMPANIES A RE ENGAGED IN THE BUSINESS OF INVESTMENT AND, DISINVESTMENT OF SHARES . THE INVESTOR COMPANIES HAVE BEEN FURNISHING RETURNS OF INCOME. T HE COMPANIES ARE EXISTING MUCH PRIOR TO THE INVESTMENT IN THE ASSESS EE COMPANY. ONCE SHAREHOLDERS DO EXIST, HAVE THEIR OWN INDEPENDENT IDENTITY, SOURCE OF INCOME, MAINTAIN BOOKS OF ACCOUNTS, CARRY ON THEIR BUSINESS AND, EARN INCOME FROM INVESTMENTS NOT ONLY IN ASSESSEE BUT AL SO SHARES OF OTHER COMPANIES, THEN THE INEVITABLE CONCLUSION IS THAT T HEY ARE NOT PAPER COMPANIES. MY AFORESAID VIEW IS FORTIFIED BY THE J UDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V LOVELY EXPORTS ( P) LTD REPORTED IN 319 ITR 5 (ST.) WHEREIN IT HAS BEEN HELD THAT EVEN IF THE SHARE CAPITAL MONEY IS RECEIVED BY THE ASSESSEE FROM ALLEGED BOGUS SHAR EHOLDERS, WHOSE 25 NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS F REE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE C OMPANY. I FURTHER FIND THAT THE HONBLE SUPREME COURT OF INDIA FURTHE R OBSERVED IN THE CASE OF CIT VS. STELLAR INVESTMENT LTD. REPORTED IN 251 ITR 263 BY UPHOLDING THE VIEW TAKEN BY THE HONBLE DELHI HIGH COURT REPO RTED IN 192 ITR 287 THAT IN CASE OF A COMPANY, EVEN IF THE SUBSCRIBER T O THE SHARE CAPITAL ARE NOT GENUINE THEN TOO, IT WOULD NOT BE REGARDED AS U NDISCLOSED INCOME FO THE ASSESSEE COMPANY. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS EXPLAINED ABOVE AND RESPECTFULLY FOLLOW ING THE AFORESAID PRECEDENTS, THE ACTION OF THE LD. CIT(A) OF DELETIO N OF ADDITION OF RS. 40 LACS IS UPHELD AND ACCORDINGLY, THE GROUND 2 & 3 R AISED BY THE REVENUE ARE ALSO REJECTED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TAND DISMISSED. ORDER PRONOUNCED ON 15/03/2018. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE 15/03/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES