MAJOR METALS LTD, NAVI MUMBAI V. ACIT CC 20, MUMBAI

ITA 6745/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3597 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 02-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-11-2012
• Court: TRIBUNAL
• Department Lawyers: SACHCHDANAND DUBE
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Reopening of assessment; Bogus Share capital; Gift; Income from undisclosed sources; Search and seizure; Share purchase agreement; Tangible material; Accommodation entries; Onus to prove; Revised return; Reason to believe; Reassessment proceedings
• Section: 143(3); 133(6); 147; 131; 68; 69; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & PAWAN SINGH (JM) I.T.A. NO. 674 4 /MUM/ 2012 (ASSESSMENT YEAR 200 5 - 0 6 ) I.T.A. NO. 6745 /MUM/2012 (ASSESSMENT YEAR 200 6 - 0 7 ) M/S. MAJOR METALS LTD. 607, JK CHAMBERS SECT OR 17 VASHI NAVI MUMBAI. VS. ACIT - CC - 20 MUMAI ( APPELLANT ) ( RESPONDENT ) PAN NO. AABCM5595J ASSESSEE BY SHRI HARI S. RAHEJA DEPARTMENT BY SHRI SACHCHDANAND DUBE DATE OF HEARING 3 .2 . 201 6 DATE OF PRONOUNCEMENT 17 . 5 . 201 6 O R D E R PER B .R. BASKARAN, A M : - BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 30 - 08 - 2012 PASSED BY LD CIT(A) - 39, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2005 - 06 AND 2006 - 07. SINCE THE ISSUE S URGED IN THESE APPEALS ARE IDENTICAL I N NATURE AND SINCE THEY ARISE OUT OF COMMON SET OF FACTS, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ADDI TION OF RS.5.00 CRORES AND RS.2.44 CRORES MADE BY THE AO RESPECTIVELY IN AY 2005 - 06 AND 2006 - 07 U/S 68 OF THE ACT. 3. THE ASSESSMENTS FOR THESE TWO YEARS WERE REOPENED BY THE AO BY ISSUING NOTICE U/S 148 OF THE ACT ON 30 - 03 - 2010. THE ORIGINAL ASSESSMEN TS OF BOTH THE MAJOR META LS LTD. 2 YEARS WERE COMPLETED U/S 143(3) OF THE ACT. THE PRESENT ASSESSMENTS HAVE BEEN COMPLETED BY REOPENING THE ASSESSMENTS BY ISSUING NOTICES U/S 148 OF THE ACT. THE FACTS THAT LED TO REOPENING OF THE ASSESSMENT OF THE TWO YEARS UNDER CONSIDERAT ION ARE DISCUSSED IN BRIEF. THE REVENUE CARRIED OUT SEARCH AND SEIZURE OPERATIONS IN THE HAN D S OF A PERSON NAMED SHRI GIRIRAJ VIJAYVARGIYA (HEREIN AFTER REFERRED TO AS G.V) ON 26.04.2007. IN THE STATEMENT TAKEN FROM HIM U/S 132(4) OF THE ACT, HE ADMITT ED THAT HE HAS GIVEN ACCOMMODATION ENTRIES IN THE FORM OF GIFTS, LOANS AND SHARE APPLICATION MONEY. THE MODUS OPERANDI WAS THAT HE USED TO ISSUE CHEQUE TO THE BENEFICIARIES BY GETTING CASH OF EQUIVALENT AMOUNT FROM THEM. HE SUBMITTED THAT HE SHALL DEPOSI T THE CASH INTO HIS BANK ACCOUNT AND THE CHEQUE ISSUED BY HIM SHALL BE ENCASHED BY THE BENEFICIARIES THERE AFTER. HE SUBMITTED THAT HE USED TO GET A COMMISSION OF 2 TO 3.5% FOR PROVIDING ACCOMMODATION ENTRIES AND ACCORDINGLY FILED RETURN OF INCOME U/S 153 A OF THE ACT BY DECLARING THE COMMISSION INCOME. HE ALSO SUBMITTED THAT HE HAD PROVIDED ACCOMMODATION ENTRIES TO THE TUNE OF RS.4.70 CRORES TO 45 PERSONS THROUGH 119 ENTRIES FROM THE FINANCIAL YEAR 1999 - 2000 TO 2005 - 06. 4. BASED ON THE STATEMENT GI VEN BY SHRI G.V U/S 132(4) OF THE ACT, THE ASSESSING OFFICER REOPENED THE ASSESSMENTS OF BOTH THE YEARS UNDER CONSIDERATION. THE REASONS RECORDED FOR REOPENING ARE EXTRACTED IN THE ASSESSMENT ORDER ITSELF, WHEREIN THE AO HAS REFERRED TO THE STATEMENT GIVE N BY SHRI G.V. THE MAIN GROUND ON WHICH THE STATEMENT OF SHRI G.V APPEARS TO HAVE BEEN BELIEVED IS STATED AS UNDER: - .BANK ACCOUNTS OF SHRI GIRIRAJ AND HIS FAMILY MEMBERS WERE VERIFIED AND IT WAS FOUND THAT BEFORE MAKING THESE ENTRIES CASH WAS DEPOSITED IN THEIR ACCOUNTS. IT IS ALSO SEEN THAT OTHER THAN THESE DEPOSITS THESE ACCOUNTS WERE HAVING ONLY NEGLIGIBLE AMOUNTS . MAJOR META LS LTD. 3 IT IS FURTHER STATED BY WAY OF GENERAL STATEMENT THAT MOST OF THE PERSONS APPEARED BEFORE THE INCOME TAX AUTHORITIES AND THEY HAVE AGR EED THAT THE GIFTS/LOANS RECEIVED BY THEM ARE BOGUS. 5. IT IS FURTHER STATED THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS CONDUCTED IN THE CASE OF SHRI G.V, A STATEMENT FROM THE DIRECTOR OF THE ASSESSEE COMPANY HEREIN, SHRI VIKAS BERLIA WAS RE C ORDED U/S 131 OF THE ACT. IT APPEARS THAT SHRI VIKAS BERLIA HAS STATED THAT THE ENTRIES WERE GENUINE ONE. WHEN THE STATEMENT GIVEN BY SHRI VIKAS BERLIA WAS CONFRONTED WITH SHRI G.V, HE STILL REITERATED THAT THEY WERE ACCOMMODATION ENTRIES. A STATEMENT F ROM SMT. PREMLATA VIJAYVARGIA (RELATIVE OF SHRI G.V) WAS RECORDED U/S . 131 AND SHE HAS STATED THAT MR. G.V USED HER BANK ACCOUNTS FOR GIVING ENTRIES. 6. FROM THE DETAILS FURNISHED BY SHRI G.V, IT WAS SEEN THAT THE ASSESSEE HEREIN HAS RECEIVED SHARE APP LICATION MONEY FROM THE GROUP OF SHRI G.V AS UNDER: - S. NO. NAME OF PERSON AMOUNT FINANCIAL YEAR 1. SHRI GIRIRAJ VIJAYVARGIYA 2,00,00,000 2005 - 06 2. JETHMAL VIJAYVARGIYA 5,00,000 2004 - 05 3. SANTOSH VIJAYV ARGIYA 5,00,000 2004 - 05 4. GIRIRAJ HUF 5,00,000 2004 - 05 5. REKHA VIJAYVARGIYA 5,00,000 2004 - 05 6. SURENDRA VIJAYVARGIYA 5,00,000 2004 - 05 7. PREMLATA VIJAYVARGIYA 5,00,000 2004 - 05 TOTAL 2,30,00,000 ON THE BASIS OF STATEMENT GIVEN BY SHRI G.V, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEE COMPANY AND SHRI VIKAR BERLIA HAVE AVAILED THE ACCOMMODATION ENTRIES. FURTHER, THE AO ALSO TOOK THE VIEW THAT ALL THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE, I.E., EVEN THE SHARE APPLICATION MAJOR META LS LTD. 4 MONEY RECEIVED FROM PARTIES WHO ARE NOT CONNECTED WITH SHRI G.V, ARE ALSO ACCOMMODATION ENTRIES, I.E., THE ASSESSEE HAS INTRODUCED HIS OWN MONEY BY WAY OF SHARE APPLICATION MONEY. ACCORDINGLY, THE AO REO PENED THE ASSESSMENTS OF BOTH THE YEARS UNDER CONSIDERATION BY ISSUING NOTICES U/S 148 OF THE ACT. 7. BEFORE THE AO, THE ASSESSEE OBJECTED TO THE REOPENING OF ASSESSMENTS. IT WAS POINTED OUT THAT THE AO WAS NOT CORRECT IN TREATING THE SHARE APPLICATION MONEY RECEIVED F ROM OTHER PERSONS ALSO AS BOGUS SIMPLY ON THE BASIS OF STATEMENT GIVEN BY SHRI G.V. HOWEVER, THE AO REJECTED THE SAME AND COMPLETED THE ASSESSMENT BY ASSESSING ENTIRE AMOUNT OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE DURING THE T WO YEARS UNDER CONSIDERATION. 8. BEFORE LD CIT(A), THE ASSESSEE CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENTS. THE ASSESSEE SUBMITTED THAT THE ORIGINAL ASSESSMENTS WERE COMPLETED FOR BOTH THE YEARS UNDER CONSIDERATION U/S 143(3) OF THE ACT. I T WAS SUBMITTED THAT THE ASSESSEE HAD FURNISH ED ALL THE DETAILS THAT WERE CALLED FOR BY THE ASSESSING OFFICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS , INCLUDING THE CONFIRMATION LETTERS RELATING TO THE SHARE APPLICATION MONEY RECEIVED BY THE A SSESSEE FROM G.V GROUP AND OTHERS. IT WAS CONTENDED THAT THE AO HAS ENTERTAINED BELIEF ABOUT ESCAPEMENT OF INCOME ONLY ON THE BASIS OF STATEMENT GIVEN BY SHRI G.V U/S 132(4) OF THE ACT, WHICH WAS A SELF SERVING STATEMENT. ON THE CONTRARY, T HE ASSESSEE SUB MITTED THAT SHRI G.V IS TRYING TO SHRUG OFF HIS OWN TAX LIABILITY IN RESPECT OF INVESTMENTS MADE BY HIM AND THUS TRYING TO REDUCE HIS LIABILITY BY DECLARING A SMALL AMOUNT BY WAY OF COMMISSION INCOME OF 2 TO 3.5%. THE ASSESSEE SUBMITTED THAT THE STATEMENT GIVEN BY SHRI G.V IS SELF SERVING STATEMENT AND SINCE SHRI G.V IS AN INTERESTED PARTY AND ALSO A TAINTED WITNESS, HIS STATEMENT CANNOT BE PLACED RELIANCE AND THE SAME CANNOT BE THE BASIS TO DISBELIEVE THE TRANSACTIONS OF THE ASSESSEE. IN SUPPORT MAJOR META LS LTD. 5 OF THIS CONTENTION, THE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF BHAGAVANDAS GOVARDHANDAS VS. DCIT (ITA NO.5021/MUM/96). 9 . FURTHER THE ASSESSEE, BY PLACING RELIANCE ON THE DECISION RENDERED BY HONBLE SU PREME COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD (320 ITR 561), SUBMITTED THE AO HAS POWER TO REOPEN AN ASSESSMENT ONLY IF THERE IS A TANGIBLE MATERIAL TO COME TO THE CONC L USION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. IT WAS SUBMITTE D THAT SUCH REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF BELIEF. ACCORDINGLY, THE ASSESSEE CONTENDED THAT THE AO DID NOT HAVE ANY TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF ITO VS. LAKHMANI MEWAL DAS (103 ITR 437) AND HOST OF OTHER CASE LAWS. 1 0 . HOWEVER, THE LD CIT(A) TOOK THE VIEW THAT THE REOPENING OF THE ASSESSMENT IS VALID SINCE (A) SHRI GIRIRAJ HAS AD MITTED THAT HE RECEIVED CASH FROM THE ASSESSEE AND IN LIEU OF THAT ISSUED CHEQUES. (B) T HERE IS NO BASIS OR JUSTIFICATION FOR ISSUING SHARES WITH A SHARE PREMIUM OF RS.990/ - PER SHARE. THE LD CIT(A) OBSERVED THAT THE HUGE PREMIUM COLLECTED BY THE ASSESS EE AND THE FACT THAT THE ASSESSEE HAS INTRODUCED UNACCOUNTED MONEY IN THE FORM OF SHARE CAPITAL HAVE MADE THE AO TO SATISFY HIM S ELF THAT THE ASSESSEE HAS INTRODUCED ITS UNACCOUNTED INCOME AS SHARE CAPITAL. ACCORDINGLY, THE LD CIT(A) HELD THAT THE AO HAD SUFFICIENT REASONS TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME AND ACCORDINGLY UPHELD THE REOPENING OF ASSESSMENTS OF BOTH THE YEARS UNDER CONSIDERATION. MAJOR META LS LTD. 6 1 1 . WE HEARD THE PARTIES ON THIS LEGAL ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT. THE LD A.R REITERATED THE CONTENTIONS MADE BEFORE THE LD CIT(A) AND THE LD D.R STRONGLY SUPPORTED THE ORDER OF LD CIT(A) ON THIS ISSUE. IN THE INSTANT CASES, THE ORIGINAL ASSESSMENTS OF BOTH THE YEARS UNDER CONSIDERATION HAVE BEEN COMPLETED U/S 143(3) OF THE ACT . DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED CONFIRMATION LETTERS FROM ALL THE SHARE APPLICANTS AND THE AO HAS ALSO ACCEPTED THEM. HENCE NO ADDITION WAS MADE WITH REGARD TO THE SHARE APPLICATION MONEY. THE ASSESSING OFF ICER HAS REOPENED THE ASSESSMENTS OF BOTH THE YEARS UNDER CONSIDERATION ON THE BASIS OF STATEMENT GIVEN BY SHRI G.V. U/S 132(4) OF THE ACT. AS NOTED EARLIER, SHRI G.V HAD STATED THAT HE AND HIS RELATIVES HAVE PROVIDED ONLY ACCOMMODATION ENTRIES TOWARDS GI FTS, LOANS AND SHARE APPLICATION. THE MODUS OPERANDI IS EXPLAINED TO BE THAT HE USED TO RECEIVE CASH AND IN LIEU OF THE SAME, HE ISSUED CHEQUES. THE CHEQUES SHALL BE ENCASHED AFTER THE DEPOSIT OF CASH INTO THE BANK ACCOUNT. BASED ON THIS, THE AO RECORDED FOLLOWING REASONS FOR REOPENING THE ASSESSMENTS: - SEARCH ACTION U/S. 132 OF THE ACT TOOK PLACE IN THE CASE OF SLIT GIRIRAJ VIJAYVARGIYA ON 26.04.2007. DURING THE COURSE OF SEARCH, IT WAS FOUND THAT SHRI GIRIRAJ HAS GIVEN ACCOMMODATION ENTRIES IN THE FORM OF GIFTS, LOANS AND SHARE APPLICATION MONEY. IN THE SWORN STATEMEN T U/S. 132(4), SHRI GIR IRA J HAS ADMITTED THAT HE IS NOT HAVING ANY SOURCE OF GIFTS, LOANS OR SHARE APPLICATION MONEY AND THE BENEFICIARIES PAID HIM CASH FOR THE EQUIVALENT AMOUNT IN CHEQUE AND A COMMISSION OF 2 - 3.5%. IN THE RETURN FILED U/S 153A. SHRI GIRIRAJ HAS DISCLOSED THE COMMISSION INCOME. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF SHRI GIRIRAJ, IT WAS FOUND THAT FROM F.Y. 1999 - 2000 TO 20905 - 06 HE HAD GIVEN ACCOMMOD ATION ENTRIES TOTALLING TO RS. 4,70,65,000/ - TO 45 PERSONS VIDE 119 ENTRIES. DURING THE SEARCH ITSELF SHRI GIRIRAJ HAS STATED THAT IN ALL THESE TRANSACTIONS THE ACTUAL AMOUNTS WERE PAID BY THE RECIPIENTS OF THESE ENTRIES IN CASH ALONG WITH 2 - 3.5% AS COMMIS SION. IT IS ALSO FOUND THAT SHRI GIRIRAJ IS NOT HAVING ANY MEANS OF GIFT/LOAN THESE AMOUNTS. DURING THE ASSESSMENT PROCEEDINGS, ALL THE RECIPIENTS OF THESE ENTRIES WERE SUMMONED U/S 131. BANK ACCOUNTS OF SHRI GIRIRAJ AND HIS FAMILY MAJOR META LS LTD. 7 MEMBERS WERE VERIFIED AN D IT WAS FOUND THAT BEFORE MAKING THESE ENTRIES CASH WAS DEPOSITED IN THEIR ACCOUNTS. IT IS ALSO SEEN THAT OTHER THAN THESE DEPOSITS, THESE ACCOUNTS WERE HAVING ONLY NEGLIGIBLE AMOUNTS. MOST OF THE PERSONS WHO APPEARED IN RESPONSE TO THE SUMMONS HAVE AGRE ED THAT THESE GIFTS/LOAN ENTRIES ARE BOGUS. IN VIEW OF THE SAME, 20 ASSESSEES WHO HAVE RECEIVED ENTRIES FOR RS. 1.06 CRORES IN 47 ENTRIES HAVE PAID ADDITIONAL TAXES/REVISED RETURNS FOR A.Y .S 2002 - 03 TO 2005 - 06. TWO ASSESSEE 1 S WHO ARE COMPANIES HAVE PAID ADDITIONAL TAXES DISCLOSING AN AMOUNT OF RS. 59 LAKHS WHICH THEY INTRODUCED AS BOGUS SHARE APPLICATION MONEY IN THE NAME OF SHRI.GIRIRAJ AND HIS FAMILY MEMBERS. IT IS SEEN THAT M/S MAJOR METALS LTD HAS INTRODUCED RS. 2,30,00,000/ - IN THE FORM OF SHARES A LLOTTED TO SHRI.GIRIRAJ AND HIS FAMILY MEMBERS. DETAILS OF ENTRY GIVEN BY SHRI.GIRIRAJ IN THE FORM OF SHARE CAPITAL IS AS UNDER: SL.NO. NAME OF PERSON TOTAL AMOUNT OF ENTRIES GIVEN FINANCIAL YEAR OF ENTRIES 1 SHRI GIRIRAJ VIJAYVARGIYA 2,00,00,000 2005 - 06 2 JETH MAL VIJAYVARGIYA 5,00,000 2004 - 05 3 SANTOSH VIJAYVARGIYA 5,00,000 2004 - 05 4 GIRIRAJ HUF 5,00,000 2004 - 05 5 REKHA VIJAYVARGIYA 5,00,000 2004 - 05 6 SURENDRA VIJAYVARGIYA 5,00,000 2004 - 05 7 PREMLATA VIJAYVARGIYA 5,00,000 2004 - 05 TOTAL 2,30,00 ,000 THESE AMOUNTS' WERE INITIALLY INTRODUCED AS SHARE APPLICATION MONEY. LATER, IT WAS SHOWN AS SHARE OF RS. 10/ - WAS ALLOTTED TO THESE PERSONS AT RS. 1000/ - (INCLUDING A PREMIUM OF RS. 990/ - PER SHARE). 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF SHRI GIRIRAJ, STATEMENT OF SHRI VIKAS BERLIA, DIRECTOR OF M/S MAJOR METALS LTD. WAS RECORDED U/S 131 OF THE ACT. THIS STATEMENT WAS CONFRONTED TO SHRI GIRIRAJ. SHRI GIRIRAJ IN HIS STATEMENT U/S 131 HAS REITERATED THAT THE ABOVE TRANSACTION OF INTRODUCTION OF SHARE CAPITAL BY M/S SWEET MARKETING (I) PVT LTD WAS NOT GENUINE AND IT WAS ONLY CHEQUE ISSUED TO HIM/ HIS FAMILY MEMBERS (ON HIS BEHALF) IN LIEU OF CASH AND COMMISSION OF 2 - 3.5%. THE SRATEMENT OF SMT. PREMLATA VIJAYVARGIYA WAS ALSO RECO RDED U/S 131 AND MAJOR META LS LTD. 8 SHE HAS STATED THAT MR.GIRIRAJ VIJAYVARGIYA HAS USED HER BANK ACCOUNTS FOR GIVING ENTRIES. SHE HAS ALSO STATED THAT SHE HAS SIGNED THE SHARE APPLICATION FORMS AND OTHER PAPER/DOCUMENTS AS TOLD TO HER BY SHRI GIRIRRAJ WITHOUT GOING THROUGH THE SAME IN VIEW OF HER RELATIONSHIP AND GOOD FAITH AND TRUST ON SHRI GIRIRAJ. 4. FROM THE STATEMENT OF SHRI VIKAS BERLIA AND SHRI.GIRIRAJ AND OTHER FACTS AND CIRCUMSTANCES OF THE CASE, IT WAS FOUND THAT MR VIKAS BERLIA WAS NOT ABLE TO GIVE ANY SATISFACT ORY REASON AS TO WHY SHRI GIRIRAJ AND HIS FAMILY WOULD SUBSCRIBE TO THE SHARES OF HIS COMPANY. HE HAS NOT BEEN ABLE TO GIVE ANY SATISFACTORY ANSWER AS TO WHY ANYBODY WOULD BUY SHARES OF A CLOSELY HELD A LIMITED COMPANY AT A PREMIUM OF RS. 990/ - ? IN THIS CA SE THE COMPANY ISSUED SHARES HAVING FACE VALUE OF RS. 10/ - FOR RS. 1000/ - . NO BASIS FOR VALUATION OF THE SHARES WAS GIVEN BY MR.VIKAS BERLIA. NO PROOF OF DELIVERY OF SHARE CERTIFICATES TO SHRI GIRIRAJ OR HIS FAMILY MEMBERS HAS BEEN GIVEN. THE COMPANY NEVER DECLARED ANY DIVIDENDS OVER THE PAST SEVERAL YEARS. THEN WHY WOULD ANY PRUDENT BUSINESSMAN WOULD INVEST IN ANY SUCH PRIVATE LIMITED COMPANY AND THAT TOO AT A HEFTY PREMIUM OF 100 TIMES THE FACE VALUE? ONE PROBABLE REASON A PERSON COULD INVEST IN A COMPANY FOR A HIGH PREMIUM IS WHEN HE HAS AN INTENTION TO JOIN THE BUSINESS ACTIVELY. BUT IN THE CASE OF SHRI GIRIRAJ HE NEVER ATTENDED ANY AGM ALSO. ALSO NO PROOF OF ANY INVITATION BEING SENT TO HIM FOR ATTENDING THE AGM COULD BE PRODUCED BY MR. VIKAS BERLIA. THE MINUTES OF THE HOARD MEETING AUTHORIZING THE ISSUE OF SHARES SHRI GIRIRAJ AND HIS FAMILY MEMBERS WAS NEVER PRODUCED. IF THE TRANSACTIONS WERE GENUINE THEN MR. VIKAS BERLIA WAS EXPECTED TO CO - OPERATE WITH THE DEPARTMENT AND EXPLAIN THE QUERIES RAISED. ON T HE CONTRARY, AFTER APPEARING ONCE, MR VIKAS BERLIA CHOSE NOT TO COMPLY WITH THE SUMMONS. IN HIS STATEMENT U/S 131 ON OATH, MR VIKAS BERLIA STATED THAT IN CONNECTION WITH THE INTRODUCTION OF THE SHARE CAPITAL, MR. GIRIRAJ WAS INTRODUCED TO HIM BY MR J.P. AG ARWAL WHICH WAS DENIED BY SHRI GIRIRAJ IN HIS STATEMENT U/S 131. ALSO HE STATED THAT MR. GIRIRAJ WAS WELL KNOWN TO HIS LATE FATHER. THIS WAS AGAIN DENIED BY SHRI.GIRIRAJ. 5. M/S. MAJOR METALS LTD IS NOT A LISTED COMPANY AND NEVER DECLARED ANY DIVIDENDS. IT WAS SHOWING ONLY NOMINAL PROFIT IN ITS PROFIT AND LOSS ACCOUNT BUT THEY WERE INTRODUCING HUGE AMOUNTS AS SHARE APPLICATION MONEY WHICH THE CLAIM TO HAVE RECEIVED FOR ISSUING SHARES AT A SUBSTANTIAL PREMIUMS. THE FOLLOWING CHART SHOWS YEAR - WISE CAPITAL, PROFIT, AMOUNT INTRODUCED IN THE FORM OF SHARE APPLICATION MONEY/SHARE PREMIUM, EARNING PER SHARE (EPS), AND PREMIUM FOR SHARES ALLOTTED DURING THE YEAR. MAJOR META LS LTD. 9 F.Y. CAPITAL PROFIT AMOUNT INTRODUCED AS SHARE APPLICATION MONEY/PREMIUM EPS (EARNING PER SHARE) PR EMI UM PER SHARE 2002 - 03 88,58,500 6,06,438 1,91,84,500 0.68 490 2003 - 04 90,96,500 16,74,566 6,62,000 1.84 490 2004 - 05 99,56,500 13,78,653 4,91,40,000 1.38 990 2005 - 06 99,56,500 25,12,765 2,44,00,000 2.52 990 2006 - 07 1,09,78,500 1,16,47,700 10,11,78,00 0 10.60 990 THIS SHOWS THAT NO REAL INVESTOR WILL INVEST MONEY IN THIS NON - DIVIDEND PAYING NON LISTED COMPANY AT SUCH A HIGH PREMIUM. 6. THE ABOVE FACTS COMBINED WITH THE STATEMENT OF SHRI GIRIRAJ THAT THE TRANSACTION OF INTRODUCTION OF SHARE CAPITAL BY HIM/HIS FAMILY MEMBERS ON HIS BEHALF IN THE ASSESSEE COMPANY WAS BOGUS AND IT WAS DONE ONLY FOR THE PURPOSE OF COMMISSION, CLEARLY ESTABLISH THAT THE SAID TRANSACTION IS ACTUALLY BOGUS. THE ACTION OF 20 PERSONS WHO PAID ADDITIONAL TAXES/FILED REVISED RETU RNS ALSO SHOWED THAT ALL THESE ENTRIES ARE NOT REAL GIFTS/LOANS AND ONLY ACCOMMODATION ENTRIES OR BOGUS SHARE APPLICATION AMOUNTS. 7. FROM THE PERUSAL OF THE BALANCE SHEET OF M/S MAJOR METALS LTD AS AT 31/03/2004 AND 31/03/2005, IT IS OBSERVED THAT THE SH ARE PREMIUM HAS INCREASED FROM RS. 4,51,03,000/ - AS ON 31/03/2004 TO RS. 8,72,43,000/ - AS ON 31/03/2005. ALSO IT IS OBSERVED THAT THE ISSUED AND PAID UP CAPITAL HAS INCREASED FROM RS. 90,96,500/ - AS ON 31/03/2004 TO RS.99,56,5001 - AS ON 31/03/2005. THE SHA RE APPLICATION MONEY AS ON 31/03/2004 IS RS.20,00,0001 - AND RS.90,00,000/ - AS ON 31/03/2005. THUS, THE SHARE APPLICATION MONEY HAS INCREASED BY RS. 70 LAKHS DURING THE YEAR. FROM THE ABOVE DISCUSSION THE MODUS OPERANDI OF THE ASSESSEE IS CLEAR. THE ASSESSE E HAS ADOPTED THE MODUS OPERANDI OF INTRODUCING THE UNACCOUNTED INCOME IN ITS BOOKS, IN THE FORM OF BOGUS SHARE APPLICATION MONEY/ SHARE CAPITAL. THEREFORE, I HAVE REASONS TO BELIEVE THAT THE INCREASE IN THE ISSUED AND PAID UP CAPITAL, SHARE PREMIUM AND SH ARE APPLICATION MONEY IN THE F. Y 2004 - 05 IS ALSO BOGUS. IN VIEW OF THIS I HAVE REASONS TO BELIEVE THAT INCOME OF RS. 5,00,000/ - BEING INCREASE IN PAID UP CAPITAL, SHARE PREMIUM AND SHARE APPLICATION MONEY HAS ESCAPED ASSESSMENT IN THE CASE OF MS. MAJOR ME TALS LTD FOR A. Y. 2005 - 06 AS PER THE PROVISIONS OF SECTION 147 OF THE ACT. MAJOR META LS LTD. 10 1 2 . THE QUESTION IS WHETHER THE SAID STATEMENT GIVEN BY SHRI G.V SHALL CONSTITUTE SUFFICIENT MATERIAL TO FORM THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. THE LD A.R CO NTENDED THAT THE STATEMENT GIVEN BY SHRI G.V IS A SELF SERVING STATEMENT AND IT HAS BEEN GIVEN TO SHRUG OF HIS LIABILITY OR RESPONSIBILITY TO PROVE THE INVESTMENTS MADE IN VARIOUS COMPANIES AND CONSEQUENTLY TO REDUCE THE TAX LIABILITY. ACCORDINGLY, IT WAS CONTENDED THAT THE SAME CANNOT BE RELIED UPON. WE NOTICE THAT THE ASSESSEE HAD PLACED RELIAN C E ON THE DECISION RENDERED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF SHRI BHAGVANDAS GRODHANDAS VS. DCIT (ITA NO.5021/MUM/96) AND THE RELEVANT OBSERVAT IONS MADE BY THE TRIBUNAL HAS BEEN EXTRACTED BY LD CIT(A) AS UNDER: - 'FIRSTLY, AND NO LESS EMPHATICALLY, IS THE FACT THAT DEPONENT OR DECLARANT IS HIMSELF TAINTED IN AS MUCH AS HE HIMSELF IS INVOLVED IN THE TRANSACTIONS AND HIS ABOVE STATEMENT PARTAKES OF THE NATURE OF A SELF - EXCUPATORY STATEMENT FOR THE REASON THAT THE ACCEPTANCE OF THE STATEMENT AS TRUE THE DECLARANT GETS RID OF THE HUGE TAX LIABILITY ON THE LARGE AMOUNT OF PROFIT OUT THESE NINE TRANSACTIONS, IN RESPECT OF WHICH HE ALLEGES TO HAVE PAID TH E MONEY BACK TO THE ASSESSEE AND THE SAME BEING NOT HIS EARNING, AND HIS EARNING BEING ONLY 1 TO 2% COMMISSION THEREON. IN CASE MR. VAKIL'S ABOVE STATEMENT IS NOT ACCEPTED AS TRUE, THE NINE TRANSACTIONS ASSUME GENUINENESS , WHICH IN TURN KEEP THE TAX LIABI LITY STUCK ON MR. VAKIL. IN THE CIRCUMSTANCES AN IMPORTANT CHARACTERISTIC, SO ESSENTIAL FOR RELIABLILITY OF STATEMENT OF THE DEPENDENT OF BEING UNINTERESTED OR NON - INTERESTED, WHICH, LENDS CREDENCE, BASED ON IMPARTIALLY, TO THE DEPOSITION, GETS LOST. AS A RESULT MERELY A BARE STATEMENT OF SUCH A TAINTED, DEPONENT, MAY NOT JUSTIFIABLY BE TREATED AS SUFFICIENT ENOUGH TO FASTEN THE LIABILITY ON ANOTHER PERSON SAY ASSESSEE, WHEN THE ANOTHER PERSON (ASSESSEE) IS DENYING THE FACTS CONTAINED IN THAT STATEMENT AND IS ALLEGING THE SAME TO BE INCORRECT. 1 3 . UNDER THE PROVISIONS OF SEC. 69 OF THE ACT, THE INITIAL ONUS TO PROVE THE SOURCE FOR MAKING INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT IS PLACED UPON THE PERSON WHO MADE THE INVESTMENTS. THE F A CTS AVAILABLE IN THIS CASE SHOW THAT SHRI G.V AND HIS RELATIVES HAVE MADE INVESTMENTS IN THE MAJOR META LS LTD. 11 ASSESSEE COMPANY. THE SEARCH HAS TAKEN PLACE IN THE HANDS OF SHRI G.V AND HENCE IT IS HIS PRIMARY RESPONSIBILITY TO PROVE THE SOURCE FOR MAKING INVESTMENT IN THE ASSESSEE COMPANY. HOWEVER, SHRI G.V HAS STATED IN THE SWORN STATEMENT TAKEN FROM HIM U/S 132(4) OF THE ACT THAT HE HAS PROVIDED ONLY ACCOMMODATION ENTRIES BY AVAILING COMMISSION INCOME OF 2 TO 3.5%. THE PROVISIONS OF SEC. 132(4) STATE THAT THE STATEMEN T GIVEN UNDER THAT SECTION MAY BE USED IN EVIDENCE IN ANY PROCEEDING UNDER THE ACT. THE USE OF THE EXPRESSION MAY ONLY SHOWS THAT IT IS NOT ALWAYS COMPULSORY THAT THE STATEMENT SO GIVEN SHALL BE USED COMPULSORILY. IT IS ALSO A SETTLED PROPOSITION OF LAW THAT THE STATEMENT GIVEN U/S 132(4) IS REBUTTABLE SUBSEQUENTLY BY THE PERSON MAKING IT BY ADDUCING EVIDENCES. THESE DISCUSSIONS SHOW THAT THE STA TEMENT GIVEN U/S 132(4) IS NOT CONCLUSIVE EVIDENCE AGAINST THE PERSON WHO MAKES IT OR FOR THAT MATTER AGAI NST ANYONE . 14 . IN THE STATEMENT , SHRI G.V HAS EXPLAINED THE MODALITIES ADOPTED FOR PROVIDING ACCOMMODATION ENTRIES, I.E., THE RECIPIENT OF THE ACCOMMODATION ENTRY SHALL PROVIDE CASH TO SHRI G.V, WHO SHALL DEPOSIT THE SAME INTO HIS BANK ACCOUNT. THE RE AFTER HE SHALL ISSUE CHEQUE FROM THAT ACCOUNT AND THE SAME SHALL BE ENCASHED BY THE BENEFICIARY . THERE SHOULD NOT BE ANY DISP UTE THAT THE INCOME TAX DEPARTMENT HAD ACCESS WITH ALL THE BANK ACCOUNTS OF SHRI G.V AND HIS RELATIVES. WE NOTICE THAT THE ASSE SSING OFFICER DID NOT EXAMINE THEIR BANK ACCOUNTS IN ORDER TO FIND OUT AS TO WHETHER THE CHEQUES ISSUED TO THE ASSESSEE COMPANY IS AFTER DEPOSIT OF CASH INTO THAT ACCOUNT , SO THAT A VIEW CAN BE TAKEN ON THE MATTER . ON THE CONTRARY, THE AO HAS CHOSEN TO RE LY ON THE SAID STATEMENT TO REOPEN THE ASSESSMENT OF THE ASSESSEE HEREIN WITHOUT CARRYING OUT REASONABLE ENQUIRIES TO FIND OUT THE APPLICABILITY OF THE SAID ADMISSION TO THE FACTS AVAILABLE IN THE INSTANT CASES. WE NOTICE THAT THE ASSES SEE HAS PROVED THAT THE FACTS AVAILABLE IN THE PRESENT CASES WITH REGARD TO RECEIPT OF MAJOR META LS LTD. 12 SHARE APPLICATION MONEY WERE DIFFERENT , I.E., THERE WAS NO CASH DEPOSIT PRIOR TO THE ISSUE OF CHEQUE TO THE ASSESSEE. DURING THE COURSE OF CROSS EXAMINATION OF SHRI G.V, IT HAS COME TO LI GHT THAT HE HAD SOLD THE SHARES HELD IN HIS NAME IN THE COMPANY M/S ANKUR DRUGS AND REALISED A SUM OF RS.2.25 CRORES, OUT OF WHICH A SUM OF RS.1.00 CRORE WAS GIVEN TO THE ASSESSEE. FURTHER, IT WAS ADMIT TED BY HIM THE BANK ACCOUNTS FROM WHICH THE CHEQUES W ERE ISSUED TO THE ASSESSEE WERE HAVING MINIMUM AMOUNT OF CASH DEPOSIT . THUS IT IS SEEN THAT THE VERY BASIS ON WHICH THE AO HAS CLAIMED TO HAVE ENTERTAINED THE BELIEF DID NOT MATCH WITH THE FACTS AVAILABLE IN THE INSTANT CASES. ACCORDINGLY WE ARE OF THE V IEW THAT THE AO HAS ENTERTAINED THE BELIEF ABOUT ESCAPEMENT OF INCOME ON THE BASIS OF SUSPICION AND SURMISES AND NOT BASED ON ANY TANGIBLE MATERIAL. THE OTHER OBSERVATION THAT THE VIEW TAKEN BY THE AO THAT THE HIGH SHARE PREMIUM OF RS.990/ - PER SHARE WAS NOT JUSTIFIED , WAS ONLY THE OPINION OF THE AO AT THAT STAGE AND THE SAID OPINION , IN OUR VIEW, CANNOT FORM THE BASIS TO ENTERTAIN THE BELIEF ABOUT ESCAPEMENT OF INCOME. 1 5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS BROUGHT OUT THAT SHRI G.V IS A CHARTERED ACCOUNTANT AND HE WAS ALSO DIRECTOR OF MANY COMPANIES. IT IS ALSO PERTINENT TO NOTE THAT HE WAS WHOLE TIME EXECUTIVE DIRECTOR OF M/S ANKUR DRUGS & PHARMA LTD, SINCE 2006 ONWARDS AND THE SAID COMPANY WAS HAVING A TURNOVER OF AB OUT 1000 CRORES IN THE FINANCIAL YEAR 2009 - 10. SHRI G.V WAS IN CHARGE OF FINANCE AND ACCOUNTS. DURING THE COURSE OF CROSS EXAMINATION, HE HAD STATED THAT HE SO L D SHARES OF M/S ANKUR DRUGS AND PHARMA LTD FOR A SUM OF RS.2.55 CRORES AND USED THE SAID PROCEE DS TO DEPOSIT A SUM OF RS.1.00 CRORE IN THE ASSESSEE COMPANY. THIS ADMISSION ALSO DISPROVES THE REASON ENTERTAINED BY THE AO, SINCE THIS ADMISSION PROVES THE SOURCE OF THE INVESTMENTS MADE BY HI M. HENCE, IN OUR VIEW, THERE MAY BE MERIT IN THE SUBMISSION OF THE ASSESSEE THAT SHRI G.V HAS GIVEN STATEMENT U/S MAJOR META LS LTD. 13 132(4) OF THE ACT TO SUIT HIS REQUIREMENTS AND THE SAME CANNOT BE PLACED RELIANCE UPON. 1 6 . WE HAVE NOTICED THAT THE CO - ORDINATE BENCH OF TRIBUNAL HAS OBSERVED IN THE CASE OF SHRI BHAGVANDAS GRODH ANDAS (SUPRA) THAT THE STATEMENT GIVEN BY A TAINTED PERSON CANNOT BE USED TO FASTEN LIABILITY UPON ANOTHER PERSON, WHEN ANOTHER PERSON IS DENYING THE FACTS CONTAINED IN THE STATEMENT. IN THE INSTANT CASE, NOT ONLY THE ASSESSEE HEREIN HAS DENIED THE FACTS MENTIONED IN THE STATEMENT, BUT THE ASSESSEE HAS ALSO PROVED THAT THE STATEMENT GIVEN BY SHRI G.V WITH REGARD TO THE MODALITIES OF OPERATION WAS NOT APPLICABLE TO THE ASSESSEE, I.E., THE SAID MODALITIES HAVE NOT BEEN FOLLOWED IN THE ASSESSEES CASE. THUS, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE STATEMENT GIVEN BY SHRI G.V CANNOT FORM THE BASIS FOR THE AO TO REOPEN THE ASSESSMENTS. 17 . BEFORE LD CIT(A), THE ASSESSEE HAS PLACED RELIANCE ON MANY CASE LAWS TO CONTEND THAT THE REOPENING OF ASSESSMENTS IS BAD IN LAW. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OBSERVATIONS MADE BY LD CIT(A) IN THIS REGARD: - 5.9 THE APPELLANT ALSO RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO V/S LAKHMANI MEWAL DAS 103 ITR 4 37 WHERE IN THE APEX COURT HELD AS UNDER: 'THE ORIGINAL ASSESSMENT FOR THE ASSESSMENT YEAR 1958 - 59 WAS MADE ON THE RESPONDENT AFTER ALLOWING DEDUCTION OF A SUM OF RS. 10,494 TOWARDS INTEREST TO CERTAIN CREDITORS. THEREAFTER, BY A NOTICE UNDER SECTION 148 O F THE INCOME - TAX ACT, 1961, DATED MARCH 8, 1967, SERVED ON THE RESPONDENT ON MARCH 14, 1967, THE INCOME - TAX OFFICER SOUGHT TO REOPEN THE ASSESSMENT. IN HIS REPORT MADE IN FEBRUARY, 1967, TO THE COMMISSIONER FOR REOPENING THE ASSESSMENT OF THE RESPONDENT FO R THE ASSESSMENT YEAR 1958 - 59 AFTER FOUR YEARS UNDER SECTION 147(A) OF THE INCOME - TAX ACT, 1961, TWO REASONS WERE MENTIONED: MAJOR META LS LTD. 14 (I) THAT M.K., WHO WAS SHOWN TO BE ONE OF THE CREDITORS OF THE RESPONDENT HAD SINCE CONFESSED THAT HE WAS DOING ONLY NAME - LENDING; AND (II) THAT N.M., D.K.N., B.S. AND OTHERS, WHOSE NAMES TOO WERE MENTIONED IN THE LIST OF THE CREDITORS OF THE RESPONDENT, WERE KNOWN NAME - LENDERS. THE RESPONDENT THEREUPON FILED A WRIT PETITION CLAIMING THAT THERE WAS NO MATERIAL BEFORE THE INCOME - TAX O FFICER ON WHICH HE COULD HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO ASSESSMENT FOR THE YEAR HAD ESCAPED ASSESSMENT BY REASON OF THE RESPONDENT'S FAILURE TO DISCLOSE MATERIAL FACTS, AND STATED THAT HE HAD PRODUCED ALL BOOKS OF ACCOUNT, BANK STATEMENTS AND OTHER NECESSARY DOCUMENTS IN CONNECTION WITH HIS RETURN. THE HIGH COURT, BY A MAJORITY, HELD THAT THE PRE - CONDITIONS FOR THE EXERCISE OF JURISDICTION UNDER SECTION 147 WERE NOT FULFILLED. ON APPEAL : - HELD, AFFIRMING THE DECISION OF THE HIGH COURT, O N THE FACTS, (I) THAT THE SECOND GROUND COULD NOT HAVE LED TO THE FORMATION OF THE BELIEF THAT THE INCOME OF THE RESPONDENT CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 1958 - 59 BECAUSE OF FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TR ULY ALL MATERIAL FACTS ; CHHUGAMAL RAJPAL V. S.P. CHALIHA ( 1971 ) 79 ITR 603 (SC) FOLLOWED (II) THAT SINCE 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, IN THE FIRST GROUND THE LIVE LINK OR CLOSE NEXUS WHICH SHOULD BE THERE BETWEEN THE MATERIAL BEFORE THE INCOME - TAX OFFICER AND THE BELIEF WHICH HE WAS TO FORM WAS MISSING OR IN ANY EVENT TOO TENUOUS TO PROVIDE LEGALLY SOUN D BASIS FOR REOPENING THE ASSESSMENT'. 5.10 THE APPELLANT FURTHER RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN DORR OLIVER LTD. V/ S P.K. KEDIA, DCIT AND OTHERS 305 1TR 282) WHERE IN IT WAS HELD AS UNDER: 'IT WAS THE CASE OF THE PETITIONERS THAT THEY WERE INVOLVED WITH THE WORK OF DESIGNING, ENGINEERING, SUPPLYING AND MAJOR META LS LTD. 15 INSTALLING PLANTS/STRUCTURES FOR VARIOUS INDUSTRIES. 70 PERCENT OF THEIR CUSTOMERS WERE PUBLIC SECTOR UNDERTAKINGS AND/OR G OVERNMENT/SEMI - GOVERNMENT BODI ES. IN THE CASE OF THESE CUSTOMERS, LARGE QUANTITIES OF STEEL WAS INVOLVED AND THESE CUSTOMERS USED TO PROVIDE ESSENTIALITY CERTIFICATES TO ENABLE THE PETITIONERS TO PROCURE STEEL FROM THE STEEL AUTHORITY OF INDIA LTD. THIS CERTIFICATE ENABLES THE PETITION ERS EASILY TO PROCURE THE REQUISITE QUANTITY OF STEEL AT LOWER OR CONCESSIONAL RATES. THEY HAD APPOINTED CERTAIN PARTIES AS THEIR AGENTS FOR THE PURPOSES OF PROCURING STEEL FROM SAIL AND STORING THE SAME TILL IT WAS NECESSARY FOR DISPATCH TO THE DESTINATIO N. A NOTICE OF REASSESSMENT WAS ISSUED TO THE PETITIONERS ON THE GROUND THAT THE RAW MATERIAL PROCURED FROM THE SAIL FOR ACTUAL USE WAS SOLD FOR CASH IN THE OPEN MARKET IN UNACCOUNTED TERMS. THIS WAS BASED ON THE STATEMENT OF ONE S THAT HE WAS INSTRUMENTAL IN HELPING ONE GJ AND HIS BROTHERS P AND J IN SETTING UP TWO BOGUS FIRMS FOR THE PURPOSE OF SELLING STEEL FROM VARIOUS PARTIES. ON A WRIT PETITION TO QUASH THE NOTICE: HELD, THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE PETITIONERS HAD ALLOWED THE TWO BOGUS FIRMS RUN BY THE JOSHIS TO SELL THE STEEL PROCURED BY THEM AND THEREBY EARNED ANY INCOME BASED ON WHICH THE NOTICE UNDER SECTION 147 OF THE INCOME - TAX ACT, 1961, COULD HAVE BEEN ISSUED. THERE WAS NO OTHER MATERIAL TO SHOW ON WHAT BASIS THE AUTHORITY HAD FORMED THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THE NOTICE WAS NOT VALID AND WAS LIABLE TO BE QUASHED'. 5.11 THE APPELLANT ALSO RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN C ASE OF SARTHAK SECURITIES CO. PV T LTD V/S ITO 329 ITR 110 WHEREIN IT WAS HELD AS UNDER: 'THE ASSESSEE DECIDED TO ISSUE SHARES IN ACCORDANCE WITH ITS MEMORANDUM AND ARTICLES OF ASSOCIATION DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003 - 04 AND FOR THAT PURPOSE APPROACHED A NUMBER OF PROSPECTIVE INVE STORS. FOUR PRIVATE LIMITED COMPANIES DECIDED TO INVEST IN THE SHARES OF THE ASSESSEE AND THE ASSESSEE ALLOTTED THE SHARES TO THESE FOUR COMPANIES. THE ASSESSEE FILED ITS RETURN MAJOR META LS LTD. 16 FOR THE ASSESSMENT YEAR 2003 - 04 DECLARING AN INCOME OF RS. 15,360. THE RETURN WAS PROCESSED AND INTIMATION UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 WAS ISSUED ACCEPTING THE RETURN. A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED BY THE ASSESSING OFFICER ALLEGING THAT HE HAD REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TA X FOR THE ASSESSMENT YEAR 2003 - 04 HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT AND, ACCORDINGLY, REQUIRED THE ASSESSEE TO FILE THE RETURN FOR THE ASSESSMENT YEAR IN CONSIDERATION. THE ASSESSEE SUBMITTED THAT THE RETURN OF INCOME, AS FILED EARLIER, SHOULD BE TREATED AS THE RETURN IN COMPLIANCE WITH THE NOTICE UNDER REFERENCE. THE ASSESSEE ALSO REQUESTED TO PROVIDE A COPY OF THE REASONS UNDER REFERENCE. THE ASSESSEE ALSO REQUESTED TO PROVIDE A COPY OF REASONS RECORDED UNDER SECTION 148( 2) AND THE APPROVAL FOR ISSUANCE OF NOTICE. WHILE FURNISHING THE REASONS, THE INCOME - TAX OFFICER ALSO INITIATED REASSESSMENT PROCEEDINGS BY ISSUING FORMAL NOTICES. ON A WRIT PETITION: HELD, ALLOWING THE PETITION, THAT THE FORMATION OF BELIEF WAS A CONDITI ON PRECEDENT AS REGARDS THE ESCAPEMENT OF THE TAX PERTAINING TO THE ASSESSMENT YEAR BY THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS REQUIRED TO FORM AN OPINION BEFORE HE PROCEEDED TO ISSUE A NOTICE. THE VALIDITY OF REASONS, WHICH WERE SUPPOSED TO SUSTA IN THE FORMATION OF AN OPINION, WAS CHALLENGEABLE. THE REASONS TO BELIEVE WERE REQUIRED TO BE RECORDED BY THE ASSESSING OFFICER. ONCE THE INGREDIENTS OF SECTION 147 WERE FULFILLED, THE ASSESSING OFFICER WAS COMPETENT IN LAW TO INITIATE THE PROCEEDINGS UNDE R SECTION 147. THE ASSESSING OFFICER WAS AWARE OF THE EXISTENCE OF THE FOUR COMPANIES WITH WHOM THE ASSESSEE HAD ENTERED INTO TRANSACTION. BOTH THE ORDERS SHOWED THAT THE ASSESSING OFFICER WAS MADE AWARE OF THE SITUATION BY THE INVESTIGATION WING AND THERE WAS NO MENTION THAT THESE COMPANIES WERE FICTITIOUS COMPANIES. NEITHER THE REASONS IN THE INITIAL NOTICE NOR THE COMMUNICATION PROVIDING REASONS REMOTELY INDICTED INDEPENDENT APPLICATION OF MIND. THOUGH CONCLUSIVE PROOF WAS NOT GERMANE AT THIS STAGE THE FORMATION OF BELIEF MUST BE ON THE BASE OR FOUNDATION OR PLATFORM OF PRUDENCE WHICH A REASONABLE PERSON WAS REQUIRED TO APPLY. FROM THE PERUSAL OF THE REASONS RECORDED AND THE ORDER OF REJECTION OF OBJECTIONS, THE NAMES OF THE COMPANIES WERE AVAILABLE MAJOR META LS LTD. 17 WITH THE AUTHORITY AND THEIR EXISTENCE WAS NOT DISPUTED. THE ASSESSEE IN ITS OBJECTIONS HAD STATED THAT THE COMPANIES HAD BANK ACCOUNTS AND PAYMENTS WERE MADE TO THE ASSESSEE THROUGH BANKING CHANNEL. THE IDENTITY OF THE COMPANIES WAS NOT DISPUTED. UNDER THESE CIRCUMSTANCES, THE INITIATION OF PROCEEDINGS UNDER SECTION 147 AND ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT WERE TO BE QUASHED'. 18. IN OUR VIEW, THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF SARTHAK SECURITIES CO. PVT LTD (SUP RA) SHALL APPLY TO THE FACTS PREVAILING IN THE INSTANT CASE. AS NOTICED EARLIER, THE ASSESSING OFFICER HAS REFERRED TO THE STATEMENT GIVEN BY SHRI G.V U/S 132(4) OF THE ACT FOR SUSPECTING THE GENUINENESS OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE . IN ADDITION TO THE SAME, THE AO HAS TAKEN THE VIEW THAT THE SHARE PREMIUM CHARGED BY THE ASSESSEE WAS NOT COMMENSURATE WITH THE FINANCIAL RESULTS OF THE COMPANY. WE HAVE NOTICED EARLIER THAT THE AO HAS NOT CHOSEN TO VERIFY THE FACTS PREVAILING IN THE I NSTANT CASE WITH THE STATEMENT GIVEN BY SHRI G.V U/S 132(4) OF THE ACT. EXCEPT THE STATEMENT OF SHRI G.V, THE ASSESSING OFFICER DID NOT HAVE ANY OTHER MATERIAL IN HIS HAND TO SUPPO RT THE REASONS FOR REOPENING. IN FACT, THE ASSESSING OFFICER HAS ACCEPTED THE SHARE APPLICATION MONEY DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS COMPLETED U/S 143(3) OF THE ACT. FURTHER, WE HAVE NOTICED THAT THE ASSESSING OFFICER HAS CHOSEN TO ASSESS THE ENTIRE AMOUNT OF SHARE APPLICATION MONEY AS UNEXPLAINED CASH CRE DIT U/S 68 OF THE ACT ON THE BASIS OF STATEMENT GIVEN BY SHRI G.V, EVEN THOUGH THE ASSESSEE HAS RECEIVED THEM FROM PERSONS UNCONNECTED WITH SHRI G.V AND THE AO DID NOT HAVE ANY MATERIAL TO SUPPORT THE ADDITION SO MADE. ALL THESE DISCUSSIONS SHOW THAT THER E IS NO INDEPENDENT APPLICATION OF MIND ON THE PART OF THE ASSESSING OFFICER. AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SARTHAK SECURITIES CO. PVT LTD (SUPRA), THE BASE OR FOUNDATION OR PLATFORM OF PRUDENCE WHICH A REASONABLE PERSON WAS REQUI RED TO APPLY IS LACKING IN THE MAJOR META LS LTD. 18 INSTANT CASES. 19. WE NOTICE FROM THE DETAILS OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE THAT THE ASSESSEE HAS RECEIVED THEM BOTH FROM SHRI G.V GROUP AND OTHERS. THE BIFURCATION OF THE SAME IS GIVEN BELOW: - PARTICULARS A.Y 2005 - 06 A.Y 2006 - 07 (RS. IN LAKHS) G.V. GROUP 30.00 200.00 OTHER PERSONS 470.00 144.00 WE HAVE NOTICED EARLIER THAT THERE IS NO MATERIAL WITH THE AO TO SUSPECT THE GENUINENESS OF THE SHARE APPLI CATION MONEY RECEIVED FROM OTHER PERSONS. EVEN THOUGH THE ASSESSEE HAS RECEIVED RS.344 LAKHS IN AY 2006 - 07, THE AO HAS CHOSEN TO MAKE AN ADDITION OF RS.244 LAKHS ONLY. WE ALSO NOTICE THAT THE ASSESSING OFFICER HAS ISSUED NOTICES U/S 133(6) OF THE ACT IN RESPECT OF ALL THE PERSONS AND IT IS STATED THAT ALL THE SHARE APPLICANTS, OTHER THAN THOSE FALLING IN G.V. GROUP, HAS COMPLIED WITH THE NOTICES BY FILING THE DETAILS THAT WERE CALLED FOR BY THE AO. WE NOTICE FROM THE ASSESSMENT ORDERS THAT THE AO HAS NOT EXPRESSED HIS DISSATISFACTION OVER THE DETAILS THAT WERE FILED BEFORE HIM, MEANING THEREBY, THOSE SHARE APPLICANTS HAVE DISCHARGED THE INITIAL BURDEN OF PROOF PLACED UPON THEM U/S 68 OF THE ACT. HENCE THE BURDEN OF PROOF HAS GOT SHIFTED TO THE SHOULDERS OF THE AO, BUT THE AO HAS FAILED TO REBUT THE SAME AND HENCE THE ADDITION MADE U/S 68 OF THE ACT CANNOT BE SUSTAINED. ALL THESE FACTORS SHOW THAT THE ASSESSING OFFICER HAS ACTED IN A MECHANICAL MANNER IN RESPECT OF REOPENING OF ASSESSMENTS OF THE TWO YEAR S UNDER CONSIDERATION. 20. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS NOT FOLLOWED THE MANDATE AND REQUIREMENT OF THE PROVISIONS OF SEC. 148 OF THE ACT FOR REOPENING THE ASSESSMENTS OF THE TWO YEA RS UNDER CONSIDERATION. WE HAVE ALSO NOTICED THAT THE LD CIT(A) HAS SIMPLY UPHELD THE VALIDITY, WITHOUT DISCUSSING ANYTHING ABOUT THE FACTS MAJOR META LS LTD. 19 PREVAILING IN THE INSTANT CASE AND THE CASE LAW RELIED UPON BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER O F LD CIT(A) ON THIS LEGAL ISSUE IN RESPECT OF BOTH THE YEARS UNDER CONSIDERATION AND HOLD THAT THE REOPENING OF ASSESSMENTS IN BOTH THE YEARS ARE NOT VALID. ACCORDINGLY WE SET ASIDE THE ASSESSMENT ORDERS PASSED FOR BOTH THE YEARS UNDER CONSIDERATION. 21. SINCE WE HAVE DECIDED THE VALIDITY OF REOPENING OF ASSESSMENTS IN FAVOUR OF THE ASSESSEE, WE DO NOT FEEL IT NECESSARY TO DEAL WITH THE MERITS OF THE ADDITION IN DETAIL. 22. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWE D. O RDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 17. 5 .2016 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 17 / 5 /20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS