M/s Janani Infrastructure Pvt Ltd , Bangalore V. Assistant Commissioner of Income Tax Central Circle-1(1), Bangalore

ITA 698/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6576 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-04-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 06-03-2018
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH : BANGALORE BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.698 & 699/BANG/2018 ASSESSMENT YEARS :2007-08 & 2008-09 M/S JANANI INFRASTRUCTURE PVT. LTD., NO.24, 1 ST MAIN ROAD, NEAR BHASHYAM CIRCLE, VYALIKAVAL, BENGALURU-560 003. PAN AABCJ 7371 H VS. THEASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(1), BENGALURU. APPELLANT RESPONDENT AN D ITA NOS.700 & 701/BANG/2018 ASSESSMENT YEARS : 2007-08 & 2008-09 M/S CARMEL ASIA HOLDINGS PVT. LTD., NO.56B/34, 1 ST MAIN, VYALIKAVAL, BENGALURU-560 003. PAN AACCC 7133 R VS. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-1(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI PERCY PARDIWALA, SR. ADVOCATE & SHRI C.P RAMASWAMY, ADVOCATE RESPONDENT BY : SHRI K.V ARVIND, SR. COUNSEL FOR DEPT. DATE OF HEARING : 08.05.2019 DATE OF PRONOUNCEMENT : 02.08.2019 O R D E R PERB.R BASKARAN,ACCOUNTANT MEMBER ALL THESE APPEALS PREFERRED BY THE RESPECTIVE ASSES SEES ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-11, BANGALORE AND ITA NOS.698 TO 701/BANG/2018 PAGE 2 OF 48 THEY RELATE TO THE ASSESSMENT YEARS MENTIONED IN TH E CAUSE TITLE AGAINST THE NAME OF EACH OF THE ASSESSEES. ALL THE SE APPEALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THESE ASSESSEES HAVE FILED AN ADDITIONAL GR OUND IN ALL THE YEARS, WHEREIN THEY HAVE QUESTIONED THE VALIDITY OF APPROV AL GRANTED U/S 151 OF THE ACT FOR REOPENING OF ASSESSMENTS. AT THE TI ME OF HEARING, THE LD A.R DID NOT PRESS THE SAID ADDITIONAL GROUND IN ALL THE APPEALS. ACCORDINGLY, THE ADDITIONAL GROUND URGED IN ALL THE SE APPEALS IS DISMISSED AS NOT PRESSED. THE REMAINING GROUNDS RE LATE TO THE FOLLOWING ISSUES:- (A) VALIDITY OF REOPENING OF ASSESSMENT. (B) MERITS OF ADDITION RELATING TO SHARE APPLICATIO N MONEY/ SHARE CAPITAL AND SHARE PREMIUM RECEIPTS. OTHER GROUND RELATING TO CHARGING OF INTEREST U/S 2 34B OF THE ACT IS CONSEQUENTIAL IN NATURE AND HENCE IT DOES NOT REQUI RE ADJUDICATION. 3. SINCE THE UNDERLYING FACTS OF ALL THESE CASE S ARE IDENTICAL, THE APPEAL FILED BY M/S CARMEL ASIA HOLDINGS P LTD FOR ASSESSMENT YEAR 2007-08 WAS TAKEN UP AS LEAD CASE. BOTH PARTIES AG REED THAT THE DECISION TAKEN IN THE ABOVE SAID CASE CAN BE CONVEN IENTLY APPLIED TO OTHER APPEALS ALSO. THE FACTS RELATING TO THE CASE , AS ASSIMILATED FROM THE ORDERS OF TAX AUTHORITIES, ARE DISCUSSED IN BRI EF. BOTH THE ASSESSEES HEREIN BELONG TO SHRI Y.S. JAGAN MOHAN RE DDY GROUP. SHRI Y.S. JAGAN MOHAN REDDY IS SON OF SHRI RAJASEKARA RE DDY, FORMER CHIEF MINISTER OF STATE OF ANDHRA PRADESH. A SEARCH WAS CONDUCTED BY THE CENTRAL BUREAU OF INVESTIGATION (CBI) IN THE HA NDS OF SHRI JAGAN MOHAN REDDY AND HIS GROUP OF COMPANIES ON 18.08.201 1. THE INFORMATION COLLECTED BY CBI DURING THE COURSE OF S EARCH WAS PASSED ON TO THE INCOME TAX DEPARTMENT. THESE COMPANIES H AD RECEIVED SHARE APPLICATION MONEY AND HAD ALSO ALLOTTED SHARE S TO CERTAIN ITA NOS.698 TO 701/BANG/2018 PAGE 3 OF 48 COMPANIES AT A PREMIUM DURING THE YEARS UNDER CONSI DERATION. THE ALLEGATION OF THE CBI WAS THAT THE SHARE APPLICANT COMPANIES HAVE BEEN SELECTED BY SHRI Y.S. JAGANMOHAN REDDY AND THE Y HAVE RECEIVED BENEFITS FROM STATE GOVERNMENT OF ANDHRA PRADESH DU RING THE TENURE OF SHRI RAJASEKAR REDDY IN THE FORM OF LICENCES/PRO JECTS, PUBLIC PROPERTIES, SEZS, MINING LEASES, PORTS, REAL ESTATE PERMISSIONS AND OTHER BENEFITS. THE CASE OF CBI WAS THAT THESE SHA RE APPLICANTS, IN TURN, HAVE GIVEN BRIBES TO SHRI Y.S. JAGANMOHAN RED DY UNDER THE GUISE OF PURCHASING SHARES IN COMPANIES CONTROLLED BY HIM AT HIGH PREMIUM. 4. BASED ON THE INFORMATION SO RECEIVED, THE ASS ESSING OFFICER REOPENED THE ASSESSMENTS OF THESE TWO COMPANIES FOR THE YEARS UNDER CONSIDERATION BY ISSUING NOTICES U/S 148 OF THE ACT ON 29-03-2014. IT IS PERTINENT TO NOTE THAT THE ORIGINAL RETURNS OF I NCOME FILED BY THESE ASSESSEES FOR THE YEARS UNDER CONSIDERATION WERE AC CEPTED U/S 143(1) OF THE ACT. IN THE REOPENED THE ASSESSMENT, THE AO ASSESSED THE SHARE APPLICATION MONEY AND SHARE PREMIUM RECEIVED FROM THESE SHARE APPLICANTS AS INCOME OF THE ASSESSEES HEREIN. IN RESPECT OF ONE SUBSCRIBER OF SHARE NAMED SHRI SRINIVASA REDDY, EVE N THE PAR VALUE OF SHARES WAS ALSO ASSESSED AS INCOME IN AY 2008-09 IN THE CASE OF CARMEL ASIA HOLDIGS P LTD. THE ASSESSING OFFICER W AS OF THE VIEW THAT THE METHOD OF ALLOTMENT OF SHARES WAS UNUSUAL, I.E. , IT WAS SEEN THAT THE SHARE APPLICANTS HAVE VOLUNTARILY APPLIED FOR S HARES AT HUGE SHARE PREMIUM AND THE SHARE PREMIUM SO COLLECTED WAS NOT COMMENSURATE WITH THE INCOME EARNED BY THE ASSESSEES HEREIN AND ALSO WITH THEIR FINANCIAL STRENGTH. FURTHER THERE WAS NO CLARITY ON THE BASIS OF VALUATION OF SHARES AND DETERMINATION OF SHARE PREM IUM. THE ASSESSEE DID NOT SUBSTANTIATE THE QUANTUM OF SHARE PREMIUM. THE AO ALSO NOTICED CERTAIN DEFICIENCIES IN RECEIPT OF MONEY, APPLICATION FORMS, DATE OF ALLOTMENT OF SHARES ETC. ACCORDINGL Y, THE AO HELD THAT ITA NOS.698 TO 701/BANG/2018 PAGE 4 OF 48 THE TRANSACTIONS ENTERED BY THESE ASSESSEE ON ISSUE OF SHARES ARE UNUSUAL AND UNREASONABLE. ACCORDINGLY, THE AO HELD THAT THE ENTIRE SHARE PREMIUM REMAINS UNSUBSTANTIATED AND ALSO THE SHARE APPLICATION MONEY RECEIVED ALSO REMAIN UNSUBSTANTIA TED. ACCORDINGLY, THE AO ASSESSED THE SHARE APPLICATION MONEY AND SHARE PREMIUM RECEIVED BY THESE COMPANIES AS INCOME OF TH E ASSESSEES IN THE YEAR OF RECEIPT. IN THE HANDS OF CARMEL ASIA H OLDINGS P LTD, THE PAR VALUE OF SHARES RECEIVED FROM SHRI SRINIVASA RE DDY WAS ALSO ADDED. THE DETAILS OF ADDITIONS MADE BY THE AO ARE GIVEN BELOW: - (A) CARMEL ASIA HOLDINGS: - ASSESSMENT YEAR 2007-08 6059.79 LAK HS ASSESSMENT YEAR 2008-09 1878.58 LAK HS** (B) JANANI INFRASTRUCTURE P LTD: - ASSESSMENT YEAR 2007-08 1210.17 LAKHS ASSESSMENT YEAR 2008-09 769.55 LAKHS (** IN THIS YEAR, ENTIRE SHARE CAPITAL RECEIVED FR OM SHRI SRINIVASA NAIDU HAS BEEN ADDED). 5. BEFORE LD CIT(A), THESE ASSESSEES CHALLENGED TH E VALIDITY OF REOPENING OF ASSESSMENT. IT WAS CONTENDED THAT THE OBSERVATIONS MADE BY THE ASSESSING OFFICER WITH REGARD TO FLAWS IN ALLOTMENT OF SHARES ARE IMAGINARY AND DIVORCED FROM FACTS, SINCE THE ASSESSEE HAD ALREADY GIVEN APPROPRIATE REPLIES TO THE REGISTRAR OF COMPANIES ON THE QUERIES RAISED BY HIM IN THIS REGARD. IT WAS CONTE NDED THAT OTHER OBSERVATIONS MADE BY THE AO RELATING TO COLLECTION OF SHARE CAPITAL AND SHARE PREMIUM ARE BASED ON SUSPICIONS, SURMISES AND CONJECTURES. ACCORDINGLY, IT WAS CONTENDED THAT THE REOPENING OF ASSESSMENTS WAS NOT VALID. IT WAS ALSO SUBMITTED THAT THE AO HAS R EOPENED THE ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FRO M CBI, BUT THE AO DID NOT CONFRONT THE SAME WITH THE ASSESSEE, EVEN T HOUGH IT WAS ASKED FROM HIM. ACCORDINGLY, IT WAS CONTENDED THAT THERE WAS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND HENCE THE ADDITIO N WAS NOT JUSTIFIED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS FURN ISHED ALL THE DETAILS OF SHARE APPLICANTS AND HENCE ADDITION IS N OT WARRANTED. ITA NOS.698 TO 701/BANG/2018 PAGE 5 OF 48 6. IN VIEW OF THE ABOVE SAID SUBMISSIONS, THE LD CIT(A) CALLED FOR A REMAND REPORT FROM THE AO. IN THE REMAND REPORT, T HE AO REITERATED THE OBSERVATIONS MADE BY HIM IN THE ASSESSMENT ORDE R AND ALSO FURNISHED CONFIDENTIAL FACTS RELATING TO PROCEEDING S BEFORE CBI, WHEREIN IT WAS ALLEGED THAT THE ILLEGAL PAYMENTS BY WAY OF BRIBE HAVE BEEN GIVEN TO THESE ASSESSEES UNDER THE COVER OF FI NANCIAL TRANSACTIONS, I.E, BY WAY OF EQUITY PARTICIPATION I N COMPANIES BELONGING TO SHRI JAGAN MOHAN REDDY. IN REPLY THE RETO, THE ASSESSEE REITERATED ITS CONTENTIONS THAT THE MATERIALS RECEI VED FROM CBI WERE NOT CONFRONTED WITH THE ASSESSEE. IT WAS SUBMITTED THAT THE AO HAS REFUSED TO FURNISH THE MATERIALS BY OBSERVING THAT THE ASSESSEES MAY GET THE COPIES OF THOSE DOCUMENTS FROM THE RESPECTI VE AGENCIES. IT WAS SUBMITTED THAT THE ASSESSEE WAS NOT AWARE OF THE DE TAILS OF DOCUMENTS FURNISHED TO THE ASSESSING OFFICER BY CBI. 7. THE LD CIT(A), HOWEVER, UPHELD THE VALIDITY OF REOPENING OF ASSESSMENT AND HIS OBSERVATIONS MADE IN THIS REGARD ARE EXTRACTED BELOW:- IT IS CLEAR FROM THE REASONS RECORDED, REPRODUCED ABOVE, THAT THE AO HAS NOT RELIED UPON THE INFORMATION ABO UT BENEFITS RECEIVED BY VARIOUS PERSONS FROM THE STATE GOVERNMENT OF ANDHRA PRADESH TO COME TO BELIEVE THA T INCOME HAS ESCAPED ASSESSMENT. THE AO ON RECEIPT O F INFORMATION HAS LOOKED INTO THE RETURNS FILED BY TH E APPELLANT AND NOTICED THAT IT HAS RECEIVED HUGE AMO UNTS OF SHARE PREMIUM WHICH IS NOT JUSTIFIABLE IN THE BACK GROUND OF ITS ACTUAL ACTIVITIES AND FINANCIAL AFFAIRS AND CAME TO A BELIEF THAT THE AMOUNT RECEIVED AND LABELLED AS SHA RE PREMIUM BUT INCOME IN THE HANDS OF THE APPELLANT WH ICH HAS ESCAPED TAXATION. THE AO IS WELL JUSTIFIED IN ASSUMING JURISDICTION U/S 147 AND THE REOPENING IS IN ORDER. FURTHER THE FACT THAT THE REPORT FROM CBI AND THE C OPY OF FIR NOT BEING PROVIDED TO THE APPELLANT IS ALSO NOT OPPOSED TO PRINCIPLES OF NATURAL JUSTICE AS NO ADDITION IS BASED ON ITA NOS.698 TO 701/BANG/2018 PAGE 6 OF 48 THESE DOCUMENTS. THE ADDITIONS ARE MADE ONLY LOOKI NG INTO THE ACTIVITIES OF THE APPELLANT, ITS BACK GROUND, I TS FINANCIAL STANDING ETC AND NOT BASED ON THE REPORTS FROM CBI. NO INFORMATION IS USED FROM THE SAID REPORTS TO MAKE T HE ADDITION AND THEREFORE THE AO IS JUSTIFIED IN NOT G IVING COPIES OF THE SAME. 8. ON MERITS, THE LD CIT(A) OBSERVED THAT THE ASS ESSEE HAS MISERABLY FAILED TO JUSTIFY THE PREMIUM RECEIVED AND ALSO NOT FILED CONFIRMATIONS FROM THE INVESTORS ON THE SAID ISSUE. ACCORDINGLY, THE LD CIT(A) HELD THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS CAST ON IT TO JUSTIFY ITS STAND THAT THE AMOUNT RECEIVED IS ACTUALLY SHARE PR EMIUM, NOT ONLY IN FORM BUT ALSO IN PITH AND SUBSTANCE. HE ALSO HELD THAT THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT V S. SUMATIDAYAL (82 ITR 540) SQUARELY APPLIES TO THE FACTS OF THIS CASE AND OBSERVED AS UNDER: - THE APEX COURT HAS HELD THAT IT IS TRITE LAW THAT AN APPARENT MUST BE CONSIDERED AS REAL UNTIL IT IS SHO WN THAT THERE ARE REASONS TO BELIEVE THAT APPARENT IS NOT R EAL. THE TAXING AUTHORITIES ARE NOT EXPECTED TO PUT ON BLINK ERS WHILE LOOKING AT WHAT IS APPARENT BUT MUST LOOK INTO SURROUNDING CIRCUMSTANCES TO FIND OUT REALITY. IN THE PRESENT CASE AMOUNT RECEIVED AS SHARE PREMIUM IS APPARENT, BUT THE SAME IS NOT SHARE PREMIUM IS REAL . THE SURROUNDING CIRCUMSTANCES DEFINITELY SHOW THAT THE SAME CANNOT BE SHARE PREMIUM. ACCORDINGLY, THE LD CIT(A) CONFIRMED THE ADDITION M ADE BY THE AO IN ALL THE CASES UNDER CONSIDERATION. 9. THE LD A.R SHRI C.P. RAMASWAMY, ADVOCATEADVAN CED HIS ARGUMENTS ON VALIDITY OF REOPENING OF ASSESSMENT. HE CONTENDED THAT THE RE-OPENING OF ASSESSMENT IS BAD IN LAW. HE SUB MITTED THAT THE ASSESSEE HAS SOUGHT FOR THE REASONS FOR REOPENING A FTER COMPLYING WITH THE NOTICE ISSUED U/S 148 OF THE ACT AND THE A O HAS ALSO SUPPLIED THE SAME, WHICH IS IN THE PAPER BOOK. HE SUBMITTED THAT THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE AO OBJECTI NG TO REOPENING OF ASSESSMENT AND THE SAME HAS BEEN REJECTED BY THE AO . ITA NOS.698 TO 701/BANG/2018 PAGE 7 OF 48 10. THE LD A.R SUBMITTED THAT THE REASONS RECOR DED BY THE AO WOULD CLEARLY SHOW THAT IT DOES NOT LEAD TO THE ANY BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. HE SUBMITTED THAT THE AS SESSEE HAS RECEIVED SHARE APPLICATION MONEY, SHARE CAPITAL AND SHARE PREMIUM FROM REPUTED COMPANIES AND THE SAID FACT IS ALREADY AVAILABLE IN THE RETURN OF INCOME FILED BY THE ASSESSEE. NO OTHER M ATERIAL IS AVAILABLE WITH THE AO TO FORM THE BELIEF THAT THERE WAS ESCAP EMENT OF INCOME EXCEPT THE INFORMATION RECEIVED FROM CBI. HOWEVER, THE LD CIT(A) HAS TAKEN THE STAND THAT THE AO HAS NOT RELIED UPON THE SAID INFORMATION. IF THAT BE THE CASE, THEN THE AO SHOULD HAVE SPELT OUT THE DETAILS OF OTHER TANGIBLE MATERIALS, WHICH LED HIM TO FORM THE BELIEF THAT THE SHARE APPLICATION MONEY/SHARE PREMIUM CONSTITUTED I NCOME IN THE HANDS OF THE ASSESSEE. WITHOUT TANGIBLE MATERIAL, T HE AO COULD NOT HAVE ENTERTAINED BELIEF ABOUT ESCAPEMENT OF INCOME AND HENCE THE REOPENING OF ASSESSMENT IS NOT VALID. IN SUPPORT O F THIS PROPOSITION, THE LD A.R PLACED HIS RELIANCE ON THE DECISION REND ERED BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT CRAF T LTD (354 ITR 536)(DELHI). THE LD A.R SUBMITTED THAT EVEN IF ANY MATERIAL WAS AVAILABLE WITH THE AO, IT IS MANDATORY TO SHOW THAT THERE WAS NEXUS BETWEEN THE SAID MATERIAL AND ALLEGED ESCAPEMENT OF INCOME. RELYING ON THE DECISION RENDERED BY HONBLE SUPREME COURT I N THE CASE OF PR. CIT VS. NOKIA INDIA P LTD (2019)(413 ITR 146), THE LD A.R SUBMITTED THAT THE REASONS FOR REOPENING SHOULD SATISFY THE R EQUIREMENT OF SEC.148, VIZ., (A) IT SHOULD CONTAIN THE FACTS CONS TITUTING REASONS TO BELIEVE AND (B) IT SHOULD FURNISH NECESSARY DETAIL S FOR ASSESSING ESCAPED INCOME OF THE ASSESSEE. 11. THE LD A.R FURTHER SUBMITTED THAT THE SHARE PREMIUM AND SHARE APPLICATION MONEY ARE CAPITAL RECEIPTS IN THE HANDS OF THE ASSESSEE AND HENCE THERE IS NO SCOPE TO ENTERTAIN THE BELIEF THAT THERE WAS ITA NOS.698 TO 701/BANG/2018 PAGE 8 OF 48 ESCAPEMENT OF INCOME. IN THIS REGARD, THE LD A.R PL ACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT I N THE CASE OF G.S. HOMES & HOTELS P LTD (2016)(387 ITR 126), WHEREIN I T WAS HELD THAT THE SHARE CAPITAL RECEIVED BY A HOUSING COMPANY FOR ALLOTMENT OF SITES CANNOT BE CONSIDERED AS BUSINESS INCOME OF THE ASSE SSEE. HE FURTHER SUBMITTED THAT THE AO DID NOT CONSIDER THE SAID REC EIPTS AS UNEXPLAINED CASH CREDITS IN TERMS OF SEC.68 OF THE ACT. HE HAS ONLY DOUBTED THE MOTIVE OF THE SHARE APPLICANT IN MAKING INVESTMENTS IN THE ASSESSEE COMPANIES. HE WAS ALSO OF THE VIEW TH AT THE SHARE PREMIUM COLLECTED BY THE ASSESSEE IS HIGH. THESE R EASONS CANNOT BE A GROUND TO TREAT SHARE APPLICATION MONEY/SHARE PREMI UM ETC AS INCOME OF THE ASSESSEE. HENCE THE AO WAS NOT RIGHT IN LAW IN FORMING THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME IN T HE HANDS OF THE ASSESSEE COMPANIES. 12. THE LD A.R REITERATED HIS CONTENTION THAT THE BASIS OF REOPENING OF ASSESSMENT WAS ONLY THE INFORMATION RECEIVED FRO M CBI. HE SUBMITTED THAT THE AO, HOWEVER, DID NOT SUPPLY THOS E MATERIALS TO THE ASSESSEE, EVEN THOUGH IT WAS REQUESTED TO HIM TO SU PPLY COPIES OF THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HE SUBMITTED THAT THIS SAID ACTION OF THE AO HAS VIOLATED THE PR INCIPLES OF NATURAL JUSTICE. HENCE THE AO COULD NOT HAVE MADE THE IMPU GNED ADDITIONS AND ACCORDINGLY, THE ADDITIONS SO MADE ARE LIABLE T O BE DELETED ON THIS GROUND. IN THIS REGARD, THE LD A.R PLACED HIS RELIA NCE ON THE FOLLOWING DECISIONS:- (A) SURAJMALLMOHTA AND CO. VS. A.V. VISVANATHA SAST RI (1954 LAW SUIT(SC) 113) (B) SMT. SUNITA DHADDA VS. THE DCIT (ITA NO.751/JP/2011) (C) CIT VS. SMT. SUNITA DHADDA (SLP (CIVIL) DIARY NO. 9432/2018) ITA NOS.698 TO 701/BANG/2018 PAGE 9 OF 48 THE LD A.R SUBMITTED THAT THE JAIPUR BENCH OF ITAT HAD DELETED THE ADDITION MADE IN THE CASE OF SMT. SUNITA DHADDA, SI NCE THERE WAS VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IN NOT S UPPLYING THE SWORN STATEMENT GIVEN BY A PERSON, WHICH WAS RELIED UPON BY THE AO FOR MAKING ADDITION AND ALSO IN NOT PROVIDING OPPORTUNI TY OF CROSS EXAMINATION TO THE ASSESSEE. THE LD A.R SUBMITTED THAT THE DECISION SO RENDERED BY THE TRIBUNAL HAS SINCE BEEN UPHELD B Y THE HONBLE SUPREME COURT. 13. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSI NG OFFICER HAS ACCEPTED THE GENUINENESS OF SHARE CAPITAL RECEIVED BY THE ASSESSEE TO THE EXTENT OF ITS PAR VALUE. HE HAS DISBELIEVED TH E QUANTUM OF SHARE PREMIUM ON THE REASONING THAT THE ASSESSEE COMPANIE S ARE HAVING LESSER INCOME AND THEIR FINANCIAL STRENGTH DOES NOT JUSTIFY THE QUANTUM OF SHARE PREMIUM. HE SUBMITTED THAT THE AB OVE SAID OBSERVATION OF THE AO WOULD NOT LEAD TO THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. HE FURTHER SUBMITTED THAT TH E AO HAS ALSO MENTIONED THAT THE SHARE APPLICANT COMPANIES HAVE B ENEFITTED FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. THE INCOME , IF ANY, ARISING OUT OF SUCH BENEFITS WOULD ACCRUE TO THE SHARE APPL ICANT COMPANIES ONLY AND NOT TO THE ASSESSEES HEREIN. HE SUBMITTED THAT THE AO HAS ALSO MENTIONED THAT THE SHARE CAPITAL RECEIVED BY T HE ASSESSEE IS GRATUITOUS IN NATURE. HE SUBMITTED THAT ANY RECEIP T, WHICH MAY BE GRATUITOUS IN NATURE WOULD NOT GIVE RISE TO ANY TAX ABLE INCOME AS PER THE PROVISIONS OF INCOME TAX ACT. HE SUBMITTED THA T THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF PARIMISETTY S EETHARAMAMMA (57 ITR 532) THAT THE PRIMARY LIABILITY AND ONUS IS ON THE DEPARTMENT TO PROVE THAT A CERTAIN RECEIPT IS LIABLE TO BE TAX ED. HE SUBMITTED THAT THE AO HAS, NOWHERE, MENTIONED IN THE REASONS FOR R EOPENING THAT SHARE PREMIUM CONSTITUTES INCOME OF THE ASSESSEE. HE HAS ONLY QUESTIONED THE QUANTUM OF SHARE PREMIUM. ACCORDINGL Y, HE SUBMITTED ITA NOS.698 TO 701/BANG/2018 PAGE 10 OF 48 THAT THERE IS NO CONNECTION BETWEEN THE REASONS REC ORDED AND THE ALLEGED ESCAPEMENT OF INCOME. ACCORDINGLY, HE CONT ENDED THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. 14. THE LD A.R REITERATED THAT THE AO HAS REOPEN ED THE ASSESSMENT ON THE BASIS OF INFORMATION RECEIVED FROM CBI THAT THERE WAS QUID PRO QUO, I.E., THE SHARE APPLICANTS HAVE SUBSCRIBED TO THE SHARES OF ASSESSEE COMPANIES ONLY BECAUSE THEY RECEIVED BENEF ITS FROM GOVERNMENT OF ANDHRA PRADESH. HOWEVER, THE CBI, VI DE ITS MEMO FILED IN RC 19(A)/2011-CBI-HYD BEFORE THE HONBLE C OURT OF PRINCIPAL SPECIAL JUDGE FOR CBI, HAS SUBMITTED THAT IT COULD NOT ESTABLISH QUID PRO QUO. ACCORDINGLY, HE SUBMITTED THAT THE VERY B ASIS ON WHICH THE REOPENING WAS DONE BY THE AO WOULD FAIL. THE LD A. R SUBMITTED THAT THE MEMO SUBMITTED BEFORE THE HONBLE PRINCIPAL SPE CIAL JUDGE FOR CBI WAS COLLECTED BY THE ASSESSEE ONLY RECENTLY AND ACCORDINGLY, THE ASSESSEE HAS MOVED AN APPLICATION TO ADMIT THE SAME AS ADDITIONAL EVIDENCE. ACCORDINGLY, THE LD A.R CONTENDED THAT T HE REOPENING OF ASSESSMENT IS BAD IN LAW AND HENCE LIABLE TO BE QUA SHED. 15. THE LD SPECIAL COUNSEL SHRI K.V. ARAVIND (LD . DR), APPEARING ON BEHALF OF THE REVENUE, SUBMITTED THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENTS BY RECORDING PROPER REASON S. HE SUBMITTED THAT THE REASONS SO RECORDED SHOULD BE READ IN ITS ENTIRETY IN ORDER TO FIND OUT AS TO WHETHER THE AO HAD REASON TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME. HE SUBMITTED THAT THE MEANIN G OF THE WORD REASON MENTIONED IN SEC.147 OF THE ACT HAS BEEN E XPLAINED BY HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P LTD (291 ITR 500) AS UNDER: - 16. THE WORD REASON IN THE PHRASE REASON TO B ELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSIN G OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT, IT CAN BE SAID TO HAVE REAS ON TO BELIEVE THAT AN INCOME HAS ESCAPED ASSESSMENT. THE ITA NOS.698 TO 701/BANG/2018 PAGE 11 OF 48 EXPRESSION CANNOT BE READ TO MEAN THAT THE ASSESSIN G OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE FUNCTION OF THE ASSESS ING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUD E FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS T O TAXPAYERS. AS OBSERVED BY DELHI HIGH COURT IN CENT RAL PROVINCES MANGANESE ORE CO LTD V ITO (1991)(191 ITR 662), FOR INITIATION OF ACTION UNDER SECTION 147(A) (AS THE PROVISION STOOD AT THE RELEVANT TIME) FULFILMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STAGE, THE FINAL OUTCOME OF THE PROCEEDING IS NOT R ELEVANT. IN OTHER WORDS, AT THE INITIATION STAGE, WHAT IS RE QUIRED IS REASON TO BELIEVE, BUT NOT THE ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCER N AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BE LIEF BY THE ASSESSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION (SEE ITO V. SELECTED DALUBAND COAL CO. PVT LTD (1996)(217 ITR 597)(SC); RAYMOND WOOLLEN MILLS LTD V ITO (1999)(236 ITR 34)(SC). 17.. 18. SO LONG AS THE INGREDIENTS OF SECTION 147 ARE FULFILLED, THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDIN G UNDER SECTION 147 AND FAILURE TO TAKE STEPS UNDER SECTION 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMATION U/S 143(1) HAD BEEN ISSUED. 16. THE LD D.R SUBMITTED THAT THE FINAL OUTCOME OF THE REOPENING OF ASSESSMENT IS NOT RELEVANT AT THE TIME OF REOPENING OF ASSESSMENT. HE SUBMITTED THAT THE REASONS RECORDED BY THE AO SHOUL D BE READ AS A WHOLE AND IF IT IS READ SO, IT WOULD SHOW THAT THE ASSESSING OFFICER DID NOT RELY UPON THE INFORMATION RECEIVED FROM CBI FOR REOPENING OF ASSESSMENTS. IT HAS ONLY TRIGGERED THE AO TO LOOK INTO THE RETURN OF INCOME. ACCORDINGLY, THE AO HAS LOOKED INTO THE RE TURN OF INCOME AND FOUND THAT THE SHARE PREMIUM COLLECTED BY THE A SSESSEES IS VERY HIGH AND DOES NOT COMMENSURATE WITH THE INCOME AND FINANCIAL ITA NOS.698 TO 701/BANG/2018 PAGE 12 OF 48 STRENGTH OF THE ASSESSEE COMPANIES. ACCORDINGLY, T HE ASSESSING OFFICER HAS FORMED THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME AND ACCORDINGLY HE HAS REOPENED THE ASSESSMENTS. THE L D D.R FURTHER SUBMITTED THAT THERE WAS NO NECESSITY FOR THE AO TO FURNISH COPIES OF INFORMATION RECEIVED FROM CBI, SINCE HE HAS NOT REL IED UPON THEM TO FORM THE BELIEF. HE SUBMITTED THAT THE ASSESSING OF FICER HAS PASSED ORDERS ON 30-03-2015 AND THE LD CIT(A) HAS PASSED O RDERS ON 12-02- 2018 IN THE INSTANT CASES. HOWEVER, THE ASSESSEE HA S SOUGHT FOR COPIES OF INFORMATION RECEIVED FROM CBI ON 18-07-20 18, I.E., AFTER COMPLETION OF PRESENT ASSESSMENTS AND PASSING OF OR DERS BY LD CIT(A). ACCORDINGLY, HE SUBMITTED THAT THERE WAS NO VIOLATI ON OF PRINCIPLE OF NATURAL JUSTICE, AS ALLEGED BY THE ASSESSEE. 17. THE LD D.R SUBMITTED THAT THE HIGH SHARE PRE MIUM COLLECTED BY THE ASSESSEE WAS NOT COMMENSURATE WITH THE INCOME A ND FINANCIAL STRENGTH OF THESE ASSESSEES. HENCE THE AO WAS OF TH E VIEW THAT THE AMOUNT SO COLLECTED BY THE ASSESSEE WAS NOT IN THE NATURE OF SHARE PREMIUM. ACCORDINGLY, THE AO COULD ENTERTAIN BELIE F THAT THE THAT THERE WAS ESCAPEMENT OF INCOME. HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS UPHELD THE ASSESSMENT OF AMOUNT R AISED BY ISSUING SHARES AT A PREMIUM U/S 68 OF THE ACT IN TH E CASE OF NRA IRON & STEEL P LTD (412 ITR 161). IT WAS HELD BY HONBL E APEX COURT THAT IT IS FOR THE ASSESSEE TO PROVE BY COGENT AND CREDIBLE EVIDENCE THAT THE INVESTMENTS MADE IN SHARE CAPITAL ARE GENUINE BORRO WINGS, SINCE FACTS ARE EXCLUSIVELY WITHIN THE ASSESSEES KNOWLEDGE. T HE HONBLE SUPREME COURT HAS ALSO OBSERVED THAT THE PRACTICE OF CONVER SION OF UN- ACCOUNTED MONEY THROUGH THE CLOAK OF SHARE CAPITAL/ PREMIUM MUST BE SUBJECTED TO CAREFUL SCRUTINY AND THIS WOULD BE PARTICULARLY SO IN THE CASE OF PRIVATE PLACEMENT OF SHARES, WHERE A HI GHER ONUS IS PLACED ON THE ASSESSEE SINCE THE INFORMATION IS WITHIN THE PERSONAL KNOWLEDGE OF THE ASSESSEE. IT WAS FURTHER HELD THA T THE ASSESSEE IS ITA NOS.698 TO 701/BANG/2018 PAGE 13 OF 48 UNDER LEGAL OBLIGATION TO PROVE THE RECEIPT OF SHAR E CAPITAL/PREMIUM TO THE SATISFACTION OF THE AO, FAILURE OF WHICH, WOULD JUSTIFY ADDITION OF THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. THE LD D.R SUBMITTED THAT THE ASSESSEES HEREIN HAVE COLLECTED HEFTY SHAR E PREMIUMS WHICH WERE NOT COMMENSURATE WITH THE FINANCIAL STRENGTH A ND INCOME OF THE ASSESSEES. FURTHER THE INFORMATION RECEIVED FROM CBI ABOUT QUID PRO QUO HAS TRIGGERED THE ASSESSING OFFICER TO FORM THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. ACCORDINGLY, THE LD D.R CONTENDED THAT THE REOPENING OF ASSESSMENTS HAS BEEN DONE ON SOUND REASONS AND HENCE VALID. 18. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ON THE BASIS OF INFORMA TION RECEIVED FROM CBI ONLY. THE ASSESSEES HAVE MADE THIS SUBMIS SION BEFORE THE AO IN THE OBJECTIONS FILED BY THEM FOR REOPENING OF ASSESSMENT, VIDE THEIR LETTER DATED 09-02-2015. IN THE SAID LETTER, IT WAS SUBMITTED BEFORE THE AO THAT THE PRINCIPLES OF NATURAL JUSTIC E WOULD BE SATISFIED IF THE REQUIRED MATERIAL WHICH WAS USED AGAINST THE ASSESSEE (REPORT OF INVESTIGATION WING) IS PUT TO ASSESSEE AND HIS C OMMENTS ARE TAKEN THEREON AND CONSIDERED. ACCORDINGLY, THE LD A.R SU BMITTED THAT THE ASSESSEE HAD SOUGHT FOR COPIES OF INFORMATION RECEI VED FROM THE CBI AND INVESTIGATION WING DURING THE COURSE OF ASSESSM ENT PROCEEDINGS ITSELF. HE FURTHER SUBMITTED THAT THE ASSESSING OF FICER SHOULD HAVE INDEPENDENTLY APPLIED HIS MIND ON THE INFORMATION R ECEIVED FROM THE CBI, SINCE THE REASSESSMENT SHOULD BE BASED UPON HI S INDEPENDENT REASONING ONLY. HOWEVER, THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENTS ON THE BASIS OF INFORMATION PASSED ON B Y THE CBI TO THE INCOME TAX DEPARTMENT, WITHOUT FORMING OPINION INDE PENDENTLY. ITA NOS.698 TO 701/BANG/2018 PAGE 14 OF 48 19. THE LD A.R SUBMITTED THAT THE ASSESSING OFF ICER HAS DISPOSED OF THE OBJECTIONS RAISED BY THE ASSESSEES BY HIS LETTE R DATED 10-02-2015, WHEREIN HE HAS OBSERVED AS UNDER:- THE ASSESSEE COMPANY HAS QUOTED VARIOUS CASE LAWS IN RESPECT OF DISCLOSURE OF REASONS RECORDED. THE REASONS RECORDED FOR REOPENING THE CASES HAVE ALREADY BEEN COMMUNICATED TO THE ASSESSEE VIDE THIS OFFICE LETTE R DATED 09-10-2014. AS PER THE SAID LETTER IT IS CLEARLY S TATED IN PARA 2 THAT CBI HAS PASSED ON THE INFORMATION. THI S OFFICE ONLY RECEIVED THE INFORMATION BUT NOT ANY SEIZED MA TERIAL. THE ASSESSEE HAS ALSO QUOTED VARIOUS CASE LAWS RELATING TO REOPENING OF THE ASSESSMENT. THE INVESTIGATIONS BY THE CBI HAS REVEALED THE NEXUS BE TWEEN THE BENEFITS CONFERRED BY THE GOVERNMENT OF AP AND PREMIUM RECEIPTS. AFTER PERUSING THE RETURNS, THE ASSESSING OFFICE CAME TO KNOW THAT THE COMPANY HAS NOT CARRIED OUT ANY ACTIVITY DURING THE SAID YEARS AND OPINED THAT THERE IS NO JUSTIFICATION FOR ALLOTTING SHARES AT A HUGE PREMIUM ESPECIALLY WHEN THE SHAREHOLDER HAVE NOT RECEIVED ANY STAKE COMMENSURATE WITH THE AMOUNT INVESTED BY THEM. SO THE ASSESSING OFFICER HAS THE REASON TO BELIEVE THAT THE AMOUNT INVESTED BY THE COMPANIE S IS GRATUITOUS IN NATURE AND SINCE THE SAME HAS NOT BEE N OFFERED FOR TAXATION THE ASSESSMENTS WERE REOPENED. 20. THE LD A.R, ACCORDINGLY, CONTENDED THAT THE ASSESSING OFFICER HAS FORMED THE BELIEF ONLY ON THE BASIS OF INFORMAT ION RECEIVED FROM CBI, BUT THE SAID INFORMATION WAS NOT SUPPLIED TO T HE ASSESSEE. THE LD A.R INVITED OUR ATTENTION TO THE FOLLOWING OBSER VATIONS MADE BY HONBLE SUPREME COURT IN THE CASE OF SURAJ MALL MOH TA AND CO. VS. A.V. VISWANADHA SASTRY (SUPRA): - 19. WHEN AN ASSESSMENT ON ESCAPED OR EVADED INCOM E IS MADE UNDER THE PROVISIONS OF S.34 OF THE INDIAN INC OME TAX ACT, ALL THE PROVISIONS FOR ARRIVING AT THE ASSESSM ENT PROVIDED UNDER S. 23(3) COME INTO OPERATION AND THE ASSESSMENT HAS TO BE MADE ON ALL RELEVANT MATERIALS AND ON EVIDENCE AND THE ASSESSEE ORDINARILY HAS THE FUL LEST RIGHT TO INSPECT THE RECORD AND ALL DOCUMENTS AND M ATERIALS THAT ARE TO BE USED AGAINST HIM. UNDER THE PROVISI ONS OF ITA NOS.698 TO 701/BANG/2018 PAGE 15 OF 48 SECTION 37 OF THE INDIAN INCOME TAX ACT THE PROCEED INGS BEFORE THE INCOME TAX OFFICER ARE JUDICIAL PROCEEDI NGS AND ALL THE INCIDENTS OF SUCH JUDICIAL PROCEEDINGS HAVE TO BE OBSERVED BEFORE THE RESULT IS ARRIVED AT. IN OTHER WORDS, THE ASSESSEE WOULD HAVE A RIGHT TO INSPECT THE RECORD AND ALL RELEVANT DOCUMENTS BEFORE HE IS CALLED UPON TO LEAD EVIDENCE IN REBUTTAL. HE SUBMITTED THAT THE PRINCIPLES OF NATURAL JUSTICE HAS BEEN VIOLATED BY THE AO IN NOT PROVIDING COPIES OF INFORMATION RE CEIVED FROM THE CBI, WHICH FORMED THE BASIS FOR RE-OPENING OF ASSES SMENT. IF THE AO HAD NOT RELIED UPON THE INFORMATION RECEIVED FROM C BI, THEN THERE WAS NO TANGIBLE MATERIAL AVAILABLE WITH THE AO TO FORM THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. 21. THE LD A.R FURTHER SUBMITTED THAT THE REASON S RECORDED SHOULD PROVIDE LINK BETWEEN THE EVIDENCE AND CONCLUSION RE ACHED. IN THIS REGARD, HE PLACED HIS RELIANCE ON THE DECISION REND ERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LT D VS. R.B. WADKAR, ACIT (2004)(268 ITR 332) AND SUBMITTED THAT THE AO COULD NOT HAVE ENTERTAINED ANY BELIEF ON ESCAPEMENT OF IN COME, SINCE THE DETAILS OF SHARE CAPITAL AND SHARE PREMIUM RECEIVED BY THE ASSESSEE WERE ALREADY AVAILABLE IN THE RETURN OF INCOME FILE D BY THE ASSESSEE. HENCE THE INFORMATION RECEIVED FROM THE CBI ALONE C OULD BE THE BASIS FOR REOPENING OF ASSESSMENT. HE FURTHER SUBMITTED THAT THE AO HAS ONLY QUESTIONED THE VALUATION OF SHARES AND ACCORDI NGLY TOOK THE VIEW THAT THE AMOUNT INVESTED BY THE APPLICANTS IS GRATU ITOUS IN NATURE. HE HAS NOT STATED IN THE REASONS THAT THE SAME CONS TITUTES INCOME IN THE HANDS OF THE ASSESSEES THELD A.R SUBMITTED THA T THERE IS NO QUARREL WITH THE PRINCIPLES ENUNCIATED BY HONBLE S UPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P LTD (SUP RA). HOWEVER, THE REVENUE CANNOT TAKE SUPPORT OF THE DECISION RENDERE D BY HONBLE SUPREME COURT IN THE CASE OF NRA IRON & STEEL P LTD (SUPRA), SINCE THE ITA NOS.698 TO 701/BANG/2018 PAGE 16 OF 48 SAID DECISION HAS BEEN RENDERED ON THE BASIS OF FAC TS PREVAILING IN THAT CASE. 22. WE HEARD RIVAL CONTENTIONS ON THE LEGAL ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT AND PERUSED THE RECORD. SI NCE THE DISPUTE REVOLVES AROUND THE PROVISIONS OF SEC.147 OF THE AC T, WE EXTRACT THE SAME BELOW: - INCOME ESCAPING ASSESSMENT 147. IF THE ASSESSING OFFICER 3 HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISI ONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, O R RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE, FOR THE ASSESS MENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SE CTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR) 23. IT CAN BE NOTICED THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS E SCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR BEFORE HE PROCEEDS TO INVO KE THE PROVISIONS OF SEC.147 FOR MAKING ASSESSMENT OF ESCAPED INCOME. THE ASSESSING OFFICER SHALL ISSUE A NOTICE U/S 148 OF THE ACT, WH EN HE FORMS THE BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT AND DECIDES TO REOPEN THE ASSESSMENT. AS PER SECTION 148(2) OF THE ACT, THE A SSESSING OFFICER SHALL RECORD HIS REASONS FOR DOING SO BEFORE ISSUIN G ANY NOTICE U/S 148 OF THE ACT. IN THE INSTANT CASES, THE ASSESSING OF FICER HAS RECORDED THE REASONS FOR REOPENING. FOR THE SAKE OF CONVENIENCE , WE EXTRACT BELOW THE REASONS RECORDED BY THE ASSESSEE FOR REOPENING OF ASSESSMENT, AS COMMUNICATED TO THE ASSESSEES BY THE AO IN THE CASE OF CARMEL ASIA HOLDINGS P LTD: - ITA NOS.698 TO 701/BANG/2018 PAGE 17 OF 48 'A SEARCH WAS CONDUCTED BY THE CBI IN THE CASE OF S RI JAGAN MOHAN REDDY AND HIS GROUP COMPANIES ON 18.8.2011. DURING THE COURSE OF SEARCH, CERTAIN DOC UMENTS WERE SEIZED BY THE CBI AND SUBSEQUENTLY, THE INFORM ATION WAS PASSED ON TO THE INCOME TAX DEPARTMENT. M/S CARMEL ASIA HOLDINGS PVT. LTD., FILED ITS RETUR N OF INCOME FOR A.Y.2007-08 ON 06.11.2007 WHICH WAS PROCESSED ON 13.10.2008. THE COMPANY IS ENGAGED IN INVESTING IN LONG TERM INVESTMENTS IN EQUITY SHARES AND OTHER SECURITIES OF ITS GROUP COMPANIES AND SUBSIDI ARIES. AS PER THE INFORMATION AVAILABLE, THE ASSESSEE COMP ANY RECEIVED CAPITAL AND ALLOTTED SHARES TO THE FOLLOWI NG COMPANIES AND INVESTED IT AT A PREMIUM DURING THE F.Y.2006-07, THE DETAILS OF WHICH ARE ENCAPSULATED IN THE TABLE 1 BELOW: TABLE I SN NAME OF INVESTOR NO. OF SHARES ALLOTTED NOMINAL VALUE PREMIUM COLLECTED YEAR OF INVESTMENT (FY) 1 SILVER OAK TECHNOLOGIES PVT. LTD., 95,418 9,54,180 2,40,45,336 2006-07 2 GR INTRA CHEM LTD. 95,417 9,54,170 2,40,45,084 2006-07 3 BETA AVENUES P LTD. 763,358 76,33,580 19,23,66,216 2006-07 4 PIONEER INFRASTRUCTURE HOLDINGS LTD. 8,77,862 87,78,620 22,12,21,224 2006-07 5 JUBILEE MEDIA COMMUNICATIONS P LTD. 3,81,676 38,16,760 9,61,82,352 2006 - 07 6 INDIA CEMENTS LTD. 1,90,839 19,08,390 4,80,91,428 2006-07 AMONG THE ABOVE COMPANIES,. M/S. PIONEER INFRASTRUC TURE HOLDINGS LTD, M/ S INDIA CEMENTS LTD., M/ S. JUBILE E MEDIA COMMUNICATIONS PVT. LTD AND M/ S. GILCHRIST INVESTM ENTS PVT. LTD ( SISTER CONCERN OF M/S BETA AVENUES P LTD) HAVE A LSO INVESTED IN SHARES OF M/S.. JAGATI PUBLICATIONS PVT LTD. AND M/ S BHARATHI CEMENT CORPORATION LTD (SISTER CONCERNS OF M/ S. CA RMEL ASIA HOLDINGS PVT LTD) AT PREMIUM BUT NONE OF THEM RECEI VED ANY STAKE COMMENSURATE TO THEIR INVESTMENT. SOME OF THE COMPA NIES NAMELY, M/S. PIONEER INFRASTRUCTURE HOLDINGS LTD. A ND M/S. INDIA ITA NOS.698 TO 701/BANG/2018 PAGE 18 OF 48 CEMENTS LTD; RECEIVED BENEFITS FROM THE STATE GOVER NMENT OF ANDHRA PRADESH. THE INVESTMENT MADE BY THE ABOVE MENTIONEDENTITIES WAS TREATED AS INCOME IN THE HAND S OF M/S. JAGATI PUBLICATIONS PVT. LTD. AND M/S BHARATHI CEME NT CORPORATION LTD. FROM A PERUSAL OF THE RETURN OF INCOME FOR A.Y.2007 -08 IN THE CASE OF M/S CARMEL ASIA HOLDINGS PVT. LTD, IT IS SE EN THAT THE ASSESSEE COMPANY HAS REFLECTED INCOME BY WAY OF 'IN TEREST RECEIVED ON FIXED DEPOSITS' AMOUNTING TO RS.4,88,76 3/- AND TOTAL INCOME OF RS 2,27,230/-. THE COMPANY HAS NOT SHOWN INCOME UNDER ANY OTHER HEAD. THE PREMIUM OF RS.60,59,51,64 0/COLLECTED FROM THE INVESTORS MENTIONED IN TABLE 1 ABOVE IS N OT COMMENSURATE WITH THE INCOME REFLECTED BY M/S CARME L ASIA HOLDINGS. PVT. LTD, IN ITS RETURN OF INCOME. FURTHE R, THE COMPANY HAS SHOWN INCOME ONLY UNDER THE HEAD 'INTEREST INCO ME' FOR A.Y.2007-08. THERE IS NO REASON FOR THE COMPANIES L ISTED IN TABLE 1 ABOVE TO PAY SUCH A HUGE PREMIUM AMOUNTING TO RS.60,59,51,640/- EXCEPT FOR THE FACT THAT THE COMP ANY BELONGS TO SRI JAGAN MOHAN REDDY GROUP OF COMPANIES. IT IS RELIABLY LEARNT ON THE BASIS OF THE INVESTIGA TIONS CARRIED OUT BY THE CBI THAT THE COMPANIES HAVE RECEIVED BENEFIT S FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. IT IS CLEAR THAT THE COMPANY HAS NOT CARRIED OUT AN Y ACTIVITY DURING THE YEAR. THEREFORE, THERE IS NO JUSTIFICATI ON FOR ALLOTTING SHARES TO THE COMPANIES MENTIONED IN TABLE--1 ABOVE , AT A HUGE PREMIUM OF RS.60,59,51,640/- ESPECIALLY WHEN THE CO MPANIES HAVE NOT RECEIVED ANY STAKE COMMENSURATE WITH THE A MOUNT INVESTED BY THEM. ITA NOS.698 TO 701/BANG/2018 PAGE 19 OF 48 I HAVE REASON TO BELIEVE THAT THE AMOUNT INVESTED B Y COMPANIES MENTIONED IN TABLE 1 IS GRATUITOUS IN NATURE, M/S C ARMEL ASIA HOLDINGS PVT. LTD HAS NOT OFFERED THE AMOUNTS INVES TED BY THE COMPANIES MENTIONED IN THE TABLE 1 ABOVE AS INCOME FOR THE YEAR. THUS, INCOME OF RS.60,59,51,640/- HAS ESCAPED ASSES SMENT AND THE SAME NEEDS TO BE TAXED IN THE HANDS OF M/S CARM EL ASIA HOLDINGS PVT LTD. FOR AY 2007-08 24. IT IS THE CASE OF THE ASSESSEES THAT THE ABOV E SAID REASONS RECORDED BY THE ASSESSING OFFICER DO NOT LEAD TO TH E BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. IN ORDER TO BETTER APPREC IATE THE CONTENTIONS OF THE PARTIES, WE MAY DISSECT THE REAS ONS RECORDED BY THE AO AS UNDER:- (A) A SEARCH WAS CONDUCTED BY CBI IN THE CASE OF SR I JAGAN MOHAN REDDY AND HIS GROUP COMPANIES ON 18.089.2011. DURING THE COURSE OF SEARCH, CERTAIN DOCUMENTS WERE SEIZED BY THE CBI AND SUBSEQUENTLY, THE INFORMATION WAS PASSE D ON TO THE INCOME TAX DEPARTMENT. (B) AS PER INFORMATION AVAILABLE, THE ASSESSEE COM PANY RECEIVED CAPITAL AND ALLOTTED SHARES AT A PREMIUM. (C) THE INVESTOR COMPANIES DID NOT RECEIVE ANY STA KE COMMENSURATE TO THEIR INVESTMENT. (D) SOME OF THE COMPANIES NAMELY, M/S PIONEER INFR ASTRUCTURE HOLDINGS LTD AND M/S INDIA CEMENTS LTD RECEIVED BEN EFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. (E) THE INVESTMENT MADE BY THE ABOVE MENTIONED ENT ITIES WERE TREATED AS INCOME IN THE HANDS OF M/S JAGATI PUBLIC ATIONS P LTD AND M/S BHARATHI CEMENT CORPORATION LTD. ITA NOS.698 TO 701/BANG/2018 PAGE 20 OF 48 (F) THE PREMIUM OF RS.6059.51 LAKHS COLLECTED FROM THE INVESTORS IS NOT COMMENSURATE WITH THE INCOME REFLE CTED BY M/S CARMEL ASIA HOLDINGS P LTD IN ITS RETURN OF INCOME. THERE IS NO REASON FOR THE INVESTOR COMPANIES TO PAY SUCH A HUG E PREMIUM AMOUNTING TO RS.6059.15 LAKHS EXCEPT FOR THE FACT T HAT THE COMPANY BELONGS TO SRI JAGAN MOHAN REDDY GROUP OF COMPANIES. (G) IT IS RELIABLY LEARNT ON THE BASIS OF INVESTIG ATIONS CARRIED OUT BY THE CBI THAT THE COMPANIES HAVE RECEIVED BENEFIT S FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. (H) THERE IS NO JUSTIFICATION FOR ALLOTTING SHARES AT A HUGE PREMIUM. (I) THE AO HAS REASON TO BELIEVE THAT THE AMOUNT I NVESTED BY THE COMPANIES MENTIONED IN TABLE 1 IS GRATUITOUS IN NATURE. M/S CARMEL ASIA HOLDINGS P LTD HAS NOT OFFERED THE AMOUNTS INVESTED BY THE COMPANIES MENTIONED IN TABLE 1 ABOV E AS INCOME FOR THE YEAR. (J) THUS, INCOME OF 6059.15 LAKHS HAS ESCAPED ASSE SSMENT AND THE SAME NEEDS TO BE TAXED IN THE HANDS OF M/S CARM EL ASIA HOLDINGS P LTD FOR AY 2007-08. 25. BEFORE EXAMINING THE ABOVE SAID REASONS IN T HE CONTEXT OF SEC.147 OF THE ACT, WE MAY DISCUSS SOME OF THE DECI SIONS RENDERED BY HONBLE COURTS ON THE PROVISIONS OF SEC.147 OF THE ACT. THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF RAJESH JHAVER I STOCK BROKERS P LTD (SUPRA) THAT, AT THE STAGE OF ISSUE OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REAS ONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF. HENCE IT NEE DS TO BE EXAMINED AS TO WHETHER A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BELIEF ON THE BASIS OF MATERIAL AVAILABLE WITH THE ASSESSI NG OFFICER. ITA NOS.698 TO 701/BANG/2018 PAGE 21 OF 48 26. THE MEANING OF THE EXPRESSION REASON TO BELIE VE HAS BEEN EXPLAINED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD (SUPRA) AS UNDER:- 21. .. IT IS NEEDLESS TO MENTION THAT THE REASONS ARE REQUIRED TO BE READ AS THEY WERE RECORDED BY THE ASSESSING OFFICER. NO SUBSTITUTION OR DELETION IS PERMISSIBLE. NO ADDITIONS CAN BE MADE TO THOSE REAS ONS. NO INFERENCE CAN BE ALLOWED TO BE DRAWN BASED ON REASONS NOT RECORDED. IT IS FOR THE ASSESSING OFFIC ER TO DISCLOSE AND OPEN HIS MIND THROUGH REASONS RECORDED BY HIM. HE HAS TO SPEAK THROUGH HIS REASONS. IT IS FOR THE ASSESSING OFFICER TO REACH THE CONCLUSION AS TO WHE THER THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HI S ASSESSMENT FOR THE CONCERNED ASSESSMENT YEAR. IT IS FOR THE ASSESSING OFFICER TO FORM HIS OPINION. IT IS FOR HIM TO PUT HIS OPINION ON RECORD IN BLACK AND WHITE. THE REASONS RECORDED SHOULD BE CLEAR AND UNAMBIGUOUS AND SHOULD NOT SUFFER FROM ANY VAGUENESS. THE REASONS RECORDED MUST DISCLOSE HIS MIND. THE REASONS ARE THE MANIFESTATION OF THE MIND OF THE ASSESSING OFFICER. THE REASONS RECORDED SHOULD BE SELF-EXPLANATORY AND SHOULD NOT KEEP THE ASSESSEE GUESSING FOR THE REASO NS. REASONS PROVIDE THE LINK BETWEEN CONCLUSION AND EVIDENCE. THE REASONS RECORDED MUST BE BASED ON EVIDENCE. THE ASSESSING OFFICER, IN THE EVENT OF CHALLENGE TO THE REASONS, MUST BE ABLE TO JUSTIFY T HE SAME BASED ON MATERIAL AVAILABLE ON RECORD. HE MUST DISCLOSE IN THE REASONS AS TO WHICH FACT OR MATERIA L WAS NOT DISCLOSED BY THE ASSESSEE FULLY AND TRULY NECES SARY FOR ASSESSMENT OF THAT ASSESSMENT YEAR, SO AS TO ESTABL ISH THE VITAL LINK BETWEEN THE REASONS AND EVIDENCE. TH AT VITAL LINK IS THE SAFEGUARD AGAINST ARBITRARY REOPENING O F THE CONCLUDED ASSESSMENT. THE REASONS RECORDED BY THE ASSESSING OFFICER CANNOT BE SUPPLEMENTED BY FILING AN AFFIDAVIT OR MAKING AN ORAL SUBMISSION , OTHERWISE, THE REASONS WHICH WERE LACKING IN THE MATERIAL PART ICULARS WOULD GET SUPPLEMENTED, BY THE TIME THE MATTER REAC HES THE COURT, ON THE STRENGTH OF THE AFFIDAVIT OR ORAL SUBMISSIONS ADVANCED. THUS, THE REASONS RECORDED BY THE ASSESSING OFFICER SHOULD BE THAT OF HIS OWN AND FURTHER THEY SHOULD BE CLEAR AND UNAMBI GUOUS. THE REASONS SHOULD PROVIDE LINK BETWEEN CONCLUSION AND EVIDENCE. IT IS FOR ITA NOS.698 TO 701/BANG/2018 PAGE 22 OF 48 THE ASSESSING OFFICER TO FORM THE OPINION AND TO DI SCLOSE HIS MIND THROUGH THE REASONS RECORDED, I.E., THE ASSESSING O FFICER SHOULD FORM THE OPINION INDEPENDENTLY BY DULY APPLYING HIS MIND ON THE MATERIAL AVAILABLE WITH HIM, I.E., THE AO CANNOT BORROW REAS ONS FROM ANY OTHER AUTHORITY. 27. IN THE CASE OF ORIENT CRAFT LTD (SUPRA), THE HONBLE DELHI HIGH COURT HAS ALSO DISCUSSED THE MEANING OF EXPRESSION REASON TO BELIEVE. IT WAS HELD THAT EVEN IN THE CASES, WHERE THE RETURN OF INCOME WAS ACCEPTED U/S 143(1) OF THE ACT, IT CAN BE DISTU RBED ONLY WHEN THE INGREDIENTS OF SEC.147 ARE FULFILLED AND WITH REFER ENCE TO SECTION 143(1) VIS--VIS SECTION 147, THE ONLY INGREDIENT IS THAT THERE SHOULD BE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN THE ABOVE SAID CASE, THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT, WHEREIN THE ASSESS EE HAD CLAIMED DEDUCTION U/S 80HHC AND SEC.10B OF THE ACT. THE AS SESSEE HAD DECLARED DUTY DRAWBACKS, DEPB, PREMIUM ON DEPB AND ON SALE OF QUOTA ETC. IN ITS PROFIT AND LOSS ACCOUNT. THE AO REOPENED THE ASSESSMENT ON FORMING OPINION THAT THE ASSESSEE WAS WRONG IN TREATING THE PROCEEDS OF SALE OF QUOTA AS PART OF E XPORT TURNOVER FOR CLAIMING DEDUCTION U/S 80HHC OF THE ACT. ACCORDING LY, HE FORMED THE VIEW THAT THE ASSESSEE HAS BEEN ALLOWED DEDUCTION I N EXCESS AND CONSEQUENTLY INCOME HAS ESCAPED ASSESSMENT. THE HON BLE DELHI HIGH COURT, AFTER DISCUSSING CATENA OF DECISIONS ON REA SON TO BELIEVE, HELD AS UNDER:- 18. IN THE PRESENT CASE, THE REASONS DISCLOSE THA T THE ASSESSING OFFICER REACHED THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME ON GOING THROUGH THE RETURN O F INCOME FILED BY THE ASSESSEE AFTER HE ACCEPTED THE RETURN UNDER SECTION 143(1) WITHOUT SCRUTINY, AND NOTHING MORE. THIS IS NOTHING BUT A REVIEW OF THE EARLIER PROCEED INGS AND AN ABUSE OF POWER BY THE ASSESSING OFFICER, BOTH ST RONGLY DEPRECATED BY THE SUPREME COURT IN CIT V. KELVINATO R (SUPRA). THE REASONS RECORDED BY THE ASSESSING OFF ICER IN ITA NOS.698 TO 701/BANG/2018 PAGE 23 OF 48 THE PRESENT CASE DO CONFIRM OUR APPREHENSION ABOUT THE HARM THAT A LESS STRICT INTERPRETATION OF THE WORDS REASON TO BELIEVE VIS--VIS AN INTIMATION ISSUED UNDER SE CTION 143(1) CAN CAUSE TO THE TAX REGIME. THERE IS NO WH ISPER IN THE REASONS RECORDED, OF ANY TANGIBLE MATERIAL WHIC H CAME TO THE POSSESSION OF THE ASSESSING OFFICER SUBSEQUE NT TO THE ISSUE OF THE INTIMATION. IT REFLECTS ARBITRARY EXERCISE OF POWER CONFERRED UNDER SECTION 147. 28. THE HONBLE DELHI HIGH COURT, IN THE ABOVE S AID CASE, HAS EXTRACTED THE LAW DISCUSSED BY HONBLE SUPREME COUR T IN THE CASE OF LAKHMANIMEWAL DAS (1976)(103 ITR 437)(SC), WHEREIN THE PRINCIPLES AS TO WHAT CONSTITUTE REASON TO BELIEVE HAS BEEN DISCUSSED AS UNDER:- 14. THE ENTIRE LAW AS TO WHAT WOULD CONSTITUTE R EASON TO BELIEVE WAS SUMMED UP BY H.R. KHANNA J., SPEAKI NG FOR THE SUPREME COURT IN ITO V. LAKHMANIMEWAL DAS (1976)(103 ITR 437)(SC). THE FOLLOWING PRINCIPLES WERE LAID DOWN:- (A) THE POWERS OF THE ASSESSING OFFICER TO REOPEN AN AS SESSMENT THOUGH WIDE, ARE NOT PLENARY. (B) THE WORDS OF THE STATUTE ARE REASON TO BELIEVE AN D NOT REASON TO SUSPECT. (C) THE REOPENING OF AN ASSESSMENT AFTER THE LAPSE OF M ANY YEARS IS A SERIOUS MATTER. SINCE THE FINALITY OF A JUDICIAL OR QUASI-JUDICIAL PROCEEDINGS ARE SOUGHT TO BE DISTURB ED, IT IS ESSENTIAL THAT BEFORE TAKING ACTION TO REOPEN THE A SSESSMENT, THE REQUIREMENTS OF LAW SHOULD BE SATISFIED. (D) THE REASONS TO BELIEVE MUST HAVE A MATERIAL BEARING ON THE QUESTION ON ESCAPEMENT OF INCOME. IT DOES NOT MEAN A PURELY SUBJECTIVE SATISFACTION OF THE ASSESSING AUT HORITY; THE REASON TO BE HELD IN GOOD FAITH AND CANNOT MERELY B E A PRETENCE. (E) THE REASONS TO BELIEVE MUST HAVE A RATIONAL CONNECT ION WITH OR RELEVANT BEARING ON THE FORMATION OF THE BELIEF. RATIONAL CONNECTION POSTULATES THAT THERE MUST BE A DIRECT N EXUS OR LIVE LINK BETWEEN THE MATERIAL COMING TO THE NOTICE OF THE ITA NOS.698 TO 701/BANG/2018 PAGE 24 OF 48 ASSESSING OFFICER AND THE FORMATION OF BELIEF REGAR DING ESCAPEMENT OF INCOME. (F) THE FACT THAT THE WORDS DEFINITE INFORMATION WHIC H WERE THERE IN SECTION 34 OF THE ACT OF 1922 BEFORE 1948 ARE NOT THERE IN SECTION 147 OF THE 1961 ACT WOULD NOT LEAD TO THE CONCLUSION THAT ACTION CAN NOW BE TAKEN FOR REOPENI NG AN ASSESSMENT EVEN IF THE INFORMATION IS WHOLLY VAGUE, INDEFINITE, FAR-FETCHED OR REMOTE. 29. WE SHALL NOW EXAMINE THE FACTS AVAILABLE IN THIS CASE ON THE BASIS OF LEGAL PRINCIPLES EXPLAINED BY THE COURTS. IT IS THE CASE OF THE REVENUE THAT THE ASSESSING OFFICER HAS NOT FORMED H IS BELIEF ON THE BASIS OF INFORMATION FURNISHED BY CBI. HOWEVER, FR OM THE PERUSAL OF THE REASONS RECORDED BY THE ASSESSING OFFICER, IT C AN BE NOTICED THAT THE ASSESSING OFFICER HAS REFERRED TO THE SEARCH CO NDUCTED BY CBI IN THE INITIAL PARAGRAPH AND AGAIN REFERS TO THE INVES TIGATIONS CONDUCTED BY CBI IN THE LAST 4 TH PARAGRAPH. THE INFORMATION REFERRED IN THE LAST 4 TH PARAGRAPH IS EXTRACTED BELOW, AT THE COST OF REPET ITION: - IT IS RELIABLY LEARNT ON THE BASIS OF THE INVESTIG ATIONS CARRIED OUT BY THE CBI THAT THE COMPANIES HAVE RECE IVED BENEFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADES H. IN THE PARAGRAPH RECORDED BELOW THE TABLE ALSO, THE ASSESSING OFFICER HAS MENTIONED THAT SOME OF THE COMPANIES NAMELY, M /S PIONEER INFRASTRUCTURE HOLDINGS LTD AND M/S INDIA CEMENTS L TD RECEIVED BENEFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADES H. 30. WE HAVE NOTICED EARLIER THAT THE LD CIT(A) HA S CALLED FOR A REMAND REPORT FROM THE AO AND THE ASSESSING OFFICER HAS FURNISHED CERTAIN CONFIDENTIAL FACTS IN THE REMAND REPORT. F OR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT PORTION OF THE REMAND REPORT FURNISHED BY THE AO:- ITA NOS.698 TO 701/BANG/2018 PAGE 25 OF 48 4(III) CONFIDENTIAL FACTS : THE FIR NO. RC19(A)/2011 DATED 17-8.2011 REGISTERED BY THE CBI ALLEGES THAT VARIOUS PUBLIC PROPERTIES, LICENSES/PROJECTS, SEZS, MINING LEASES, PORTS, REA L ESTATE PERMISSIONS AND OTHER BENEFITS WERE ALLOTTED TO PER SONS PICKED BY SHRI V.S. JAGANMOHAN REDDY VIOLATING ESTABLISHED NORMS AND PROCEDURES IN THE GOVERNMENT OF ANDHRA PRADESH FOR QUID PRO QUO . THESE BENEFICIERIES HAVE IN TURN GIVEN BRIBES TO SHRI V.S. JAGANMOHAN REDDY UNDER THE GUISE OF PURCHASING SHARES IN COMPANIES CONTROLLED BY HIM, AT INFLATED SHARE VALU E WHICH IS DONE BY ARTIFICIALLY INCREASING THE CREDIT WORTHINESS OF M/S CARMEL ASIA HOLDINGS P LTD (SHICH IS HOLDING M/S JANANI INFRASTRUCTURE P LTD) BY FIXING HIGH PREMIUMS TO RECEIVE THESE AMOUNTS, AS ILLEGAL GRATI FICATION AT THE COST OF THE PUBLIC EXCHEQUER. IT IS ALLEGED THAT THESE PAYMENTS WERE MADE UNDER T HE COVER OF FINANCIAL TRANSACTIONS BY WAY OF EQUITY PARTICIPATION IN M/S BHARAT CEMENT CORPORATION P LT D, M/S JAGATI PUBLICATION P LTD AND M/S JANANI INFRASTRUCTURES P LTD (WHICH IS HOLDING M/S JONANI INFRASTRUCTURE P LTD). THE ILLEGAL PAYMENTS MADE T HROUGH THIS ROUTE ARE, TO SHOW THE PAYMENTS, AS IF THEY AR E BONAFIDE FINANCIAL TRANSACTIONS MADE UNDER EQUITY PARTICIPATION AND TO PROJECT THE ILLEGAL CONSIDERAT ION AS GENUINE AND BONAFIDE INVESTMENT. PART OF THE ILLEG AL PAYMENTS RECEIVED BY M/S JANANI INFRASTRUCTURES P L TD WAS UTILIZED AS INVESTMENT IN M/S JANANI INFRASTRUC TURE P LTD. SHRI V S JAGANMOHAN REDDY, HAS NOT RECEIVED A NY INVESTMENTS IN THE GROUP COMPANIES CONTROLLED BY HI M PRIOR TO HIS FATHER SHRI V RAJSEKHAR REDDY BECOMING THE CHIEF MINISTER OF ANDHRA PRADESH. THE MONEY SO PUMPED INTO THESE COMPANIES CONTROLLED BY SHRI JAGANMOHAN REDDY HAS BEEN INVESTED IN PURCHASE OF IMMOVABLE PROPERTY BY ALL THESE COMPANIES AND INVESTMENTS IN OTHER GROUP COMPANIES. THE JOINT DIR ECTOR OF ENFORCEMENT DIRECTORATE HAS ALSO GIVEN A FINDING THAT THESE INVESTMENTS BY WAY OF SHAREHOLDING/HUGE PREMIUMS ARE PROCEEDS OF CRIME INVOLVING MONEY LAUNDERING AND HAVE BEEN UTILIZED TO PURCHASE IMMOV ABLE PROPERTY. ITA NOS.698 TO 701/BANG/2018 PAGE 26 OF 48 31. IT CAN BE NOTICED THAT THE AO HAS REFERRED T O THE CASE REGISTERED BY CBI ON 17-08-2011, WHILE THE PRESENT ASSESSMENTS HAVE BEEN REOPENED BY ISSUING NOTICE U/S 148 OF THE ACT ON 29 -03-2014. IT WAS CONTENDED BY LD D.R THAT THE INFORMATION RECEIVED F ROM CBI HAS ONLY TRIGGERED THE ASSESSING OFFICER TO FORM BELIEF THAT THERE WAS ESCAPEMENT OF INCOME, BUT HE HAS NOT PLACED HIS REL IANCE ON THOSE INFORMATION FOR MAKING IMPUGNED ADDITIONS. HOWEVER , THE LD A.R CONTENDED THAT THE DETAILS RELATING TO SHARE CAPITA L/SHARE PREMIUM COLLECTED BY THE ASSESSEE ARE ALREADY AVAILABLE IN THE RETURN OF INCOME FILED BY THE ASSESSEES. THE DETAILS OF ALLEGED BENE FITS RECEIVED BY THE SHARE APPLICANTS FROM GOVERNMENT OF ANDHRA PRADESH ARE NOT AVAILABLE IN THE RETURN OF INCOME. WE HAVE NOTICED THAT THE AO HAS REFERRED TO THE SEARCH CONDUCTED BY CBI IN THE CASE OF SRI JAGAN MOHAN REDDY AND HIS GROUP COMPANIES IN THE REASONS AND FURTHER REFERRED TO THE FACT THAT THE SHARE APPLICANT COMPA NIES HAVE RECEIVED BENEFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADES H. IN THE REMAND REPORT ALSO, THE ASSESSING OFFICER HAS REFERRED TO CONFIDENTIAL FACTS, WHEREIN HE HAS STATED THAT THE CBI HAS ALLEGED THAT THE BENEFITS WERE GIVEN TO SHARE SUBSCRIBER COMPANIES FOR QUID-PRO-QU O. ACCORDINGLY, WE ARE OF THE VIEW THAT THE SOURCE OF INFORMATION ABOU T THE ALLEGED CONNECTION BETWEEN THE INVESTMENTS MADE BY THE SHAR E APPLICANTS IN THESE TWO ASSESSEE COMPANIES AND THE BENEFITS RECEI VED BY THEM FROM GOVERNMENT OF ANDHRA PRADESH IS CBI ONLY. THE NEXT QUESTION THAT WOULD NATURALLY ARISE IS THAT WHETHER THE SAID IN FORMATION COULD TRIGGER THE AO TO FORM THE BELIEF THAT THERE WAS ES CAPEMENT OF INCOME? IN THE REASONS RECORDED BY THE AO FOR REOPENING OF ASSESSMENT, THE AO HAS REFERRED TO THE INFORMATION RECEIVED FROM CB I ON BENEFITS RECEIVED BY THE SHARE APPLICANT COMPANIES AND FURTH ER QUESTIONING THE HIGH SHARE PREMIUM COLLECTED BY THE ASSESSEE COMPAN Y. THE AO, IN OUR VIEW, HAS RAISED QUERY ON THE ALLEGED HIGH SHAR E PREMIUM ONLY ON THE BASIS OF ALLEGATION OF THE CBI THAT THERE WAS Q UID-PRO-QUO. HENCE, ITA NOS.698 TO 701/BANG/2018 PAGE 27 OF 48 ON A CUMULATIVE CONSIDERATION OF FACTS, ONE CAN EAS ILY UNDERSTAND THAT THE AO HAS ALSO ENTERTAINED THE VIEW, LIKE THAT OF CBI, THAT THE HIGH SHARE PREMIUM COULD BE QUID-PRO-QUO FOR THE BENEFIT S RECEIVED. WITHOUT SO FORMING THE VIEW, THE AO COULD NOT HAVE COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME. HEN CE, WE ARE NOT ABLE TO AGREE WITH THE CONTENTIONS OF LD D.R THAT T HE ASSESSING OFFICER HAS NOT RELIED UPON THE INFORMATION RECEIVED FROM T HE CBI FOR FORMING BELIEF OF ESCAPEMENT OF INCOME. 32. IF THE CONTENTION OF THE REVENUE THAT THE AS SESSING OFFICER DID NOT RELY UPON THE INFORMATION RECEIVED FROM CBI FOR FOR MING BELIEF OF ESCAPEMENT OF INCOME IS ACCEPTED AS CORRECT FOR A M OMENT, THEN IT IS NECESSARY FOR THE ASSESSING OFFICER TO SHOW THERE W AS SOME TANGIBLE MATERIAL, WHICH FORMED THE BASIS TO FORM THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. WE SHALL NOW EXAMINE THE REA SONS RECORDED BY THE AO IN ORDER TO FIND OUT AS TO WHETHER THE AS SESSING OFFICER HAS REFERRED TO ANY TANGIBLE MATERIAL AND FURTHER, WHET HER THE AO HAS SHOWN THAT THERE WAS DIRECT NEXUS OR LIVE LINK BETW EEN THE MATERIAL COMING TO THE NOTICE OF THE ASSESSING OFFICER AND T HE FORMATION OF BELIEF REGARDING ESCAPEMENT OF INCOME. 33. FOR THAT PURPOSE, WE SHALL EXAMINE VARIOUS P OINTS MENTIONED BY THE AO IN THE REASONS RECORDED BY HIM. AS OBSERVED BY HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK B ROKERS P LTD (SUPRA), THE QUESTION TO BE EXAMINED IS WHETHER THE RE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FO RMED A REQUISITE BELIEF. AFTER DISCUSSING ABOUT THE CBI RAIDS ON SR I JAGAN MOHAN REDDY AND THE DETAILS OF SHARE CAPITAL/SHARE PREMIU M COLLECTED BY THE ASSESSEE IN THE REASONS, THE AO HAS ALSO MADE FOLLO WING OBSERVATIONS, I.E., IF THE INFORMATION RECEIVED FROM CBI WAS NOT THE BASIS FOR REOPENING, THEN THE FOLLOWING OBSERVATIONS WOULD CO NSTITUTE THE ITA NOS.698 TO 701/BANG/2018 PAGE 28 OF 48 REASONS FOR REOPENING. WE HAVE TO EXAMINE AS TO WH ETHER THESE REASONS WOULD GIVE RISE TO THE BELIEF THAT THERE WA S ESCAPEMENT OF INCOME. (A) THE INVESTOR COMPANIES HAVE NOT RECEIVED ANY ST AKE COM MENSURATE TO THEIR INVESTMENTS. THOUGH THE MEANING OF THIS SENTENCE IS NOT CLEAR, Y ET THE SAID OBSERVATION SHALL NOT LEAD TO THE BELIEF T HAT THERE WAS ESCAPEMENT OF INCOME. (B) SOME OF THE COMPANIES NAMELY M/S PIONEER INFRA STRUCTURE HOLDINGS LTD AND M/S INDIA CEMENTS LTD RECEIVED BEN EFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. THIS OBSERVATION OF THE AO ONLY GIVES INFORMATION THAT THESE TWO INVESTOR COMPANIES HAVE RECEIVED BENEFITS FROM STATE GOVERNMENT. THE DETAILS OF NATURE OF BENEFITS, HOW THE INVESTMENTS MADE BY THEM ARE RELATED TO IT AND HOW IT WOULD RESULT IN ESCAPEMENT OF INCOME IN THE HANDS OF THE ASSESSEE WERE NOT SPELT OUT BY THE AO. THIS OBSERVATION, IN OUR VIEW, DOES NOT LEAD TO THE BELIEF THAT THERE WA S ESCAPEMENT OF INCOME. (C) THE ABOVEMENTIONED INVESTMENT MADE BY THE ABOVEMENTIONED ENTITIES WAS TREATED AS INCOME IN TH E HANDS OF M/S JAGATI PUBLICATIONS P LTD AND M/S BHARATHI CEME NT CORPORATION LTD. THIS OBSERVATION OF THE AO GIVES INFORMATION ABOUT THE ACTION TAKEN IN THE HANDS OF OTHER ASSESSEES. IT IS NOT CELAR AS TO WHETHER THE AO WISHED TO FOLLOW THE ACTION TAKEN IN THE HANDS OF OTHER ASSESSEES. IF IT IS TO BE SO, THEN THE REOPENING IS NOT VALID, BECAUSE IT IS NOT THE BELIEF OF THE AO, BUT BORROWED BELIEF WHICH IS NOT PERMITTED U/S 147 OF THE ACT AS PER THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN LEVER LTD (SUPRA). ITA NOS.698 TO 701/BANG/2018 PAGE 29 OF 48 (D) THE PREMIUM OF RS.60,59,51,640/- COLLECTED F ROM THE INVESTORS IS NOT COMMENSURATE WITH THE INCOME REFLE CTED BY M/S CARMEL ASIA HOLDINGS P LTD IN ITS RETURN OF INCOME ..THERE IS NO REASON FOR THE COMPANIES LISTED IN TABLE 1 ABOVE TO PAY SUCH A HUGE PREMIUM AMOUNTING TO RS.60,59,51,640/- EXCEP T FOR THE FACT THAT THE COMPANY BELONGS TO SRI JAGAN MOHAN RE DDY GROUP OF COMPANIES. THIS OBSERVATION ONLY NARRATES THE QUERY RAISED BY THE AO TO HIMSELF SEARCHING FOR REASONS FOR THE HIGH SHARE PREMIUM PAID BY THE INVESTOR COMPANIES. THE AO HAS CONCLUD ED THAT HIGH SHARE PREMIUM WAS PAID ONLY FOR THE REASO N THAT THESE ASSESSEE COMPANIES BELONG TO SRI JAGAN MOHAN REDDY. IT REFLECTS THINKING OF THE ASSESSING OFFICE R AND IT DOES NOT LEAD TO THE BELIEF THAT THERE WAS ESCAPEME NT OF INCOME. (E) IT IS RELIABLY LEARNT ON THE BASIS OF INVESTIG ATIONS CARRIED OUT BY THE CBI THAT THE COMPANIES HAVE RECEIVED BENEFIT S FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. THIS OBSERVATION CLEARLY SHOW THAT THE AO IS PLACIN G HIS RELIANCE ON THE INFORMATION RECEIVED FROM CBI. THOUGH THE AO STATES THAT THE INVESTOR COMPANIES HAVE RECEIVED BENEFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADESH, HE HAS NOT SPELT OUT AS TO HOW IT COULD LEAD HIM TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCOME IN THE HANDS OF THE ASSESSEE. (F) IT IS CLEAR THAT THE COMPANY HAS NOT CARRIED O UT ANY ACTIVITY DURING THE YEAR. THEREFORE, THERE IS NO JUSTIFICAT ION FOR ALLOTTING SHARES TO THE COMPANIES MENTIONED IN TABLE 1 ABOVE, AT A HUGE PREMIUM OF RS.60,59,51,640/- ESPECIALLY WHEN THE CO MPANIES HAVE NOT RECEIVED ANY STAKE COMMENSURATE WITH THE A MOUNT INVESTED BY THEM. ITA NOS.698 TO 701/BANG/2018 PAGE 30 OF 48 THIS OBSERVATION OF THE AO ONLY REVEALS THE VIEW TA KEN BY THE AO ON THE TRANSACTIONS OF RECEIPT OF SHARE PREM IUM. IT IS WELL SETTLED PRINCIPLE THAT THE TAXMAN IS NOT EN TITLED TO SIT IN THE ARM CHAIR OF A BUSINESSMAN AND REGULATE THE BUSINESS ACTIVITIES. HENCE THE QUESTION WHETHER TH ERE WAS JUSTIFICATION FOR COLLECTING HUGE SHARE PREMIUM OR NOT CANNOT BE A GROUND FOR FORMING BELIEF THAT THERE WAS ESCAP EMENT OF INCOME LEADING TO REOPENING OF ASSESSMENT. (G) I HAVE REASON TO BELIEVE THAT THE AMOUNT INVES TED BY COMPANIES MENTIONED IN TABLE 1 IS GRATUITOUS IN NAT URE. WE NOTICE THAT THE MEANING OF THE WORD GRATUITOUS IS GIVEN WITHOUT RECEIVING ANY RETURN VALUE. WHEN A PERSON MAKES INVESTMENT IN SHARES OF ANY COMPANY, HE WOULD GET SHARE CERTIFICATE FOR THE SAME AND FURTHER THE SAID SHARE CERTIFICATE IS TRANSFERRABLE TO OTHER PERSON FOR CO NSIDERATION. THIS IS THE MECHANISM PRESCRIBED UNDER THE COMPANIE S ACT WITH RESPECT TO SUBSCRIPTION OF SHARES. HENCE, IT IS NOT LEGALLY CORRECT TO CATEGORISE THE SHARE SUBSCRIPTIO N AS GRATUITOUS IN NATURE. EVEN, IF IT IS CONSIDERED AS GRATUITOUS PAYMENT, THE AO HAS NOT SHOWN AS TO HOW IT CAN BE CONSIDERED AS INCOME IN THE HANDS OF THE ASSES SEES HEREIN, AS PER THE PROVISIONS OF INCOME TAX ACT. 34. THE ABOVE SAID ANALYSIS OF THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE REASONS RECORDED FOR REOPE NING OF ASSESSMENT WOULD SHOW THAT THERE WAS NO OTHER MATERIAL AVAILAB LE WITH THE ASSESSING OFFICER TO FORM THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME EXCEPT THE INFORMATION RECEIVED FROM CBI ON ALLEGED QUID PRO QUO. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ASSE SSING OFFICER HAS REOPENED THE ASSESSMENTS ONLY ON THE BASIS OF INFOR MATION RECEIVED FROM CBI. ITA NOS.698 TO 701/BANG/2018 PAGE 31 OF 48 35. WE HAVE NOTICED THAT THE HONBLE DELHI HIG H COURT HAS HELD IN THE CASE OF ORIENT CRAFT LTD (SUPRA) THAT THERE SHO ULD BE SOME TANGIBLE MATERIAL TO SUPPORT THE RE-OPENING OF ASSESSMENT, E VEN IF THE RETURN OF INCOME HAD BEEN PROCESSED U/S 143(1) OF THE ACT. WE HAVE NOTICED THAT, EXCEPT THE INFORMATION RECEIVED FROM CBI, THE RE IS NO OTHER TANGIBLE MATERIAL AVAILABLE WITH THE AO. 36. THE HONBLE SUPREME COURT HAS HELD IN THE CAS E OF LAKHMANIMEWAL DAS (SUPRA) THAT THE REASONS TO BELIE VE 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 T HE NOTICE OF THE ASSESSING OFFICER AND THE FORMATION IS BELIEF REGAR DING ESCAPEMENT OF INCOME. IN OUR VIEW, EXCEPT THE INFORMATION RECEIV ED FROM CBI, THE MATERIAL THAT COULD BE CONSIDERED AS AVAILABLE WITH THE AO ARE: - (A) THE INFORMATION THAT THE ASSESSEE HAS COLLECTED SHARE CAPITAL AND SHARE PREMIUM. (AS NOTICED EARLIER, IT IS NOT C LEAR AS TO WHETHER THE ABOVE SAID INFORMATION WAS RECOGNIZED B Y THE AO FROM THE REPORT OF CBI OR FROM THE RETURN OF INCOME ) (B) THE INFORMATION THAT THE SHARE APPLICANT COMPA NIES HAVE GOT BENEFITS FROM THE STATE GOVERNMENT OF ANDHRA PRADES H. (THIS INFORMATION COULD HAVE BEEN RECEIVED FROM CBI ONLY) . THE INFORMATION RELATING TO COLLECTION OF SHARE CAP ITAL/SHARE PREMIUM IS ALREADY AVAILABLE ON RECORD. HENCE THERE WAS NO OTHER FRESH MATERIAL AVAILABLE WITH THE AO TO FORM THE BELIEF T HAT THERE WAS ESCAPEMENT OF INCOME. THE NEXT MATERIAL IS THE INF ORMATION ABOUT THE BENEFITS RECEIVED BY THE SHARE APPLICANT COMPANIES. HOWEVER, THE AO HAS NOT SHOWN THAT THERE WAS A DIRECT NEXUS OR LIVE LINK BETWEEN THE SAID INFORMATION AND THE FORMATION OF BELIEF REGARD ING ESCAPEMENT OF INCOME. ITA NOS.698 TO 701/BANG/2018 PAGE 32 OF 48 37. THE INFORMATION RECEIVED FROM THE CBI ONLY ALLEGES THAT THERE WAS QUID-PRO-QUO IN RECEIVING SHARE CAPITAL. THER E SHOULD NOT BE ANY DOUBT THAT IT WAS ONLY ALLEGATION AT THAT POINT OF TIME. WHETHER THE SAID ALLEGATION COULD BE THE BASIS FOR FORMING BELI EF THAT THERE WAS ESCAPEMENT OF INCOME IS THE MOOT QUESTION. IN OUR VIEW, THE SAID ALLEGATION COULD TRIGGER THE INVESTIGATION, BUT IT ALONE CANNOT BE THE BASIS FOR ARRIVING AT THE BELIEF THAT THERE WAS ESC APEMENT OF INCOME. THE AO SHOULD BRING SOME OTHER MATERIAL TO SHOW THA T THE APPARENT WAS NOT REAL OR IT DOES NOT SATISFY THE CONDITIONS OF SEC.68 OF THE ACT. NOTHING OF THAT SORT WAS BROUGHT ON RECORD BY THE A O WHILE RECORDING THE REASONS FOR REOPENING. HENCE, WE ARE OF THE VI EW THAT THE ASSESSING OFFICER WAS NOT RIGHT IN LAW IN REOPENING THE ASSESSMENT, AS HE COULD NOT HAVE ENTERTAINED THE BELIEF ABOUT ESCA PEMENT OF INCOME ON THE BASIS OF REASONS RECORDED BY HIM. 38. WE HAVE NOTICED THAT THE INFORMATION RECEIV ED FROM THE CBI, AS SPELT OUT BY THE AO IN THE REASONS RECORDED AND IN THE REMAND REPORT, WOULD SHOW THAT THE CBI HAS ALLEGED THAT THE INVEST MENTS HAVE BEEN MADE BY THE APPLICANTS AS QUID PRO QUO TO THE BENEF ITS RECEIVED BY THEM. THIS INFORMATION CANNOT BE THE BASIS FOR REOP ENING OF ASSESSMENT, SINCE IT IS THE ASSESSING OFFICER WHO H AS TO APPLY HIS MIND ON THE ISSUE AND TAKE AN INDEPENDENT VIEW. IT IS NOT VISIBLE FROM THE REASONS RECORDED BY THE AO THAT HE HAS TAKEN ANY IN DEPENDENT VIEW ON THE MATTER. THE QUESTION THAT WOULD ARISE IS WH ETHER THIS INFORMATION ALONE IS SUFFICIENT TO FORM THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME?. IN OUR VIEW, IT WILL NOT L EAD TO THE BELIEF THAT THE INCOME OF THE ASSESSEE HAS ESCAPED THE ASSESSME NT. WHAT WAS RECEIVED BY THE ASSESSEE WAS SHARE CAPITAL/SHARE AP PLICATION MONEY/SHARE PREMIUM. THEY ARE ADMITTEDLY CAPITAL R ECEIPTS. THE ONLY SECTION AVAILABLE AT THAT POINT OF TIME TO ASS ESS THEM AS INCOME OF ITA NOS.698 TO 701/BANG/2018 PAGE 33 OF 48 THE ASSESSEE WAS SEC.68 OF THE ACT. DURING THE COUR SE OF HEARING, THE LD D.R ACCEPTED THAT THE ADDITION HAS BEEN MADE U/S 68 OF THE ACT. HOWEVER, THERE WAS NO MATERIAL AVAILABLE WITH THE A SSESSING OFFICER IN ORDER TO TAX THEM U/S 68 OF THE ACT. HE HAS ONLY O BSERVED ABOUT HIGH SHARE PREMIUM, BUT IT CANNOT BE THE BASIS FOR FORMI NG BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. THE AO HAS FURTHER OBSER VED THAT THE SHARE PREMIUM/APPLICATION MONEY COLLECTED BY THE AS SESSEE IS GRATUITOUS IN NATURE. FIRST OF ALL, THE SHARE CAPI TAL COLLECTED BY THE ASSESSEE AGAINST ISSUE OF SHARE CERTIFICATES CANNOT BE TERMED AS GRATUITOUS PAYMENTS. SECONDLY, AS RIGHTLY CONTENDE D BY LD A.R, THE GRATUITOUS PAYMENTS ARE NOT INCOME TAXABLE UNDER TH E ACT FOR THE YEARS UNDER CONSIDERATION. FURTHER, WE HAVE NOTIC ED THAT THE INFORMATION RECEIVED FROM THE CBI WAS NOT CONFRONTE D WITH THE ASSESSEE BY THE ASSESSING OFFICER. THIS IS IN CONT RAVENTION OF THE LAW EXPLAINED BY HONBLE SUPREME COURT IN THE CASE OF S URAJ MALL MOHTA AND CO. (SUPRA). HENCE THERE IS VIOLATION OF PRINC IPLES OF NATURAL JUSTICE, AS IT WAS OBLIGATORY ON THE PART OF THE AO TO PROVIDE ALL THE MATERIALS WHICH WERE USED AGAINST THE ASSESSEE. TH E JAIPUR BENCH OF ITAT HAS DELETED THE ADDITION MADE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IN THE CASE OF SMT. SUNITA DHADDA (SUPRA), WHICH DECISION HAS SINCE BEEN UPHELD BY HONBLE SUPREME COURT IN THE V ERY SAME CASE, REFERRED SUPRA. 39. THE LD D.R PLACED HIS RELIANCE ON THE DECISI ON RENDERED BY HONBLE SUPREME COURT IN THE CASE OF NRA IRON & STE EL (P) LTD. THE SAID DECISION HAS BEEN RENDERED IN THE CONTEXT OF S EC.68 OF THE ACT, WHEREAS, WE ARE DEALING HEREWITH WITH THE ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT U/S 147 OF THE ACT. FURTHE R, THE SAID DECISION HAS BEEN RENDERED ON THE BASIS OF FACTS PR EVAILING IN THAT CASE, SINCE THE ADDITION U/S 68 IS MADE ON FACTUAL BASIS. THE OTHER DECISION RELIED ON BY LD D.R IS THE DECISION RENDER ED BY HONBLE ITA NOS.698 TO 701/BANG/2018 PAGE 34 OF 48 SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK B ROKERS P LTD AND THE SAID DECISION LAYS DOWN LEGAL PROPOSITIONS ON W HICH THERE CANNOT BE ANY QUARREL. 40. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. ACCORDINGLY WE ALLOW THE LEGAL GROUND URGED BY THE ASSESSEES AND QUASH THE ORDERS PASSED BY THE TAX AUTHORITIES. 41. SINCE THE PARTIES HAVE AGREED THAT THE ABOV E SAID DECISION CAN BE APPLIED ON THREE OTHER APPEALS UNDER CONSIDERATI ON, WE HOLD THAT THE REOPENING OF ASSESSMENT IN THE CASE OF THREE OT HER APPEALS IS ALSO BAD IN LAW AND ACCORDINGLY QUASH THE ORDERS PASSED BY THE TAX AUTHORITIES. 42. THE LD. SENIOR ADVOCATE, SHRI PERCY PARDIWALA ADVANCED HIS ARGUMENTS ON MERITS OF THE ADDITIONS. THE CASE OF CARMEL ASIA HOLDINGS P LTD FOR ASSESSMENT YEAR 2007-08 WAS TAKE N UP FIRST. THE LD AR SUBMITTED THAT THE AO HAS ASSESSED THE SHARE APPLICATION MONEY AND SHARE PREMIUM ONLY AS INCOME OF THE ASSES SEE IN THIS YEAR. HE FURTHER SUBMITTED THAT THE AO HAS NOT REFERRED T O ANY OF THE SECTIONS OF THE INCOME-TAX ACT FOR ASSESSING THE S HARE APPLICATION MONEY AND SHARE PREMIUM AMOUNT AS INCOME OF THE AS SESSEE. AT THIS POINT OF TIME, THE LD D.R WAS ASKED TO CLARIFY THIS POINT, TO WHICH THE LD D.R SUBMITTED THAT THE ASSESSING OFFICER HAS STA TED IN PAGE 7 OF THE ASSESSMENT ORDER THAT THE SUM OF RS.6059.52 LAKHS I S BROUGHT TO TAX AS UNEXPLAINED CREDITS. ACCORDINGLY HE SUBMITTED THAT THE AO HAS INVOKED THE PROVISIONS OF SEC.68 ONLY FOR MAKING TH E ABOVE SAID ADDITION. HENCE, BOTH THE PARTIES AGREED TO PROCEE D ON THE BASIS THAT THE ADDITION WAS MADE BY THE AO U/S 68 OF THE ACT A S UNEXPLAINED CREDITS. THE LD A.R SUBMITTED THAT THE AO HAS ACC EPTED THE GENUINENESS OF SHARE CAPITAL TO THE EXTENT OF ITS P AR VALUE AND HENCE IT ITA NOS.698 TO 701/BANG/2018 PAGE 35 OF 48 CAN BE CONCLUDED THAT THE AO WAS SATISFIED WITH THE THREE MAIN INGREDIENTS REQUIRED TO BE PROVED U/S 68 OF THE ACT VIZ. IDENTITY OF THE SHAREHOLDER, CREDIT WORTHINESS OF THE SHAREHOLDER A ND GENUINENESS OF THE TRANSACTIONS. ACCORDINGLY, THE LD A.R SUBMITTED THAT THERE IS NO SCOPE FOR MAKING ADDITION U/S 68 OF THE ACT. 43. THE LD AR FURTHER SUBMITTED THAT THE ASSESSEE, VIDE ITS LETTER DATED 14/3/2015, HAS FURNISHED ALL THE DETAILS AND DOCUMENTS THAT WERE CALLED FOR BY THE AO. FURTHER DETAILS WERE GI VEN TO THE AO VIDE LETTER DATED 26/3/2015 FURNISHED BEFORE HIM. HE SU BMITTED THAT THE ASSESSEE HAS ALLOTTED SHARES BY PASSING PROPER RESO LUTIONS IN THE BOARD MEETING. IN SUPPORT OF THE SAME, THE LD AR I NVITED OUR ATTENTION TO THE COPIES OF THE MINUTES OF BOARD MEE TING PLACED IN THE PAPER BOOK. THE DETAILS SO FURNISHED BY THE ASSESSE E CONTAINED NAME, ADDRESS AND PAN NUMBER OF THE SHARE APPLICANTS. HE SUBMITTED THAT THE AO HAS NOT STATED THAT THE ASSESSEE HAS NOT FUR NISHED ANY OF THE DETAILS CALLED FOR BY HIM. ON THE CONTRARY, THE AS SESSING OFFICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT ALL DETAILS CALLED FOR WERE FURNISHED BY THE ASSESSEE. HE SUBMITTED THAT THE A O HAS NOT MADE ANY FURTHER ENQUIRY WITH ANY OF THE SHARE APPLICANT S, IN WHICH CASE, IT SHOULD BE CONSTRUED THAT THE AO WAS SATISFIED WITH THE DETAILS FURNISHED BY THE ASSESSEE. ACCORDINGLY, HE SUBMITTE D THAT THE ASSESSEE HAS DISCHARGED THE ONUS PLACED UPON ITS SH OULDERS U/S 68 OF THE ACT AND HENCE THE SHARE APPLICATION MONEY AND S HARE PREMIUM CANNOT BE CONSIDERED AS UNEXPLAINED CREDITS WITHIN THE MEANING OF SEC. 68 OF THE ACT. 44. THE LD A.R SUBMITTED THAT THE AO HAS REFERRED T O THE CERTAIN DEFICIENCIES IN THE SHARE APPLICATION FORMS FURNISH ED BY THE SHARE APPLICANTS. THE AO HAS ALSO REFERRED TO NON-COMPLIA NCE OF ARTICLES OF ASSOCIATION. THE LD AR SUBMITTED THAT THESE DEFICI ENCIES, AT THE MOST, ITA NOS.698 TO 701/BANG/2018 PAGE 36 OF 48 MAY RESULT IN VIOLATION OF PROVISIONS OF COMPANIES ACT, IN WHICH CASE THE TRANSACTIONS MAY BE VOIDABLE AT THE INSTANCE OF SHAREHOLDERS. THE SAME WOULD NOT LEAD TO THE CONCLUSION THAT THE SHAR E APPLICATION AND SHARE PREMIUM RECEIVED BY THE ASSESSEE ARE UNEXPLAI NED CREDITS. 45. THE LD AR SUBMITTED THAT THE AO WAS NOT RIGHT I N OBSERVING THAT THERE WAS NO BASIS FOR CHARGING SUCH HIGH PREMIUM. INVITING OUR ATTENTION TO COPY OF VALUATION REPORT PLACED IN PAG E 125 TO 134 OF THE PAPER BOOK, THE LD AR SUBMITTED THAT THE ASSESSEE H AS OBTAINED A VALUATION REPORT FROM A FIRM OF CHARTERED ACCOUNTAN TS, WHICH WOULD SUPPORT THE SHARE PREMIUM COLLECTED BY THE ASSESSEE . THE LD AR SUBMITTED THAT THE ABOVE SAID VALUATION REPORT WAS FURNISHED TO THE AO ALONG WITH THE LETTER DATED 26-03-2015. ACCORDI NGLY HE SUBMITTED THAT THERE WAS NO SCOPE FOR MAKING ANY ADDITION U/S 68 OF THE ACT ON THE GROUND OF HIGH SHARE PREMIUM. 46. THE LD AR INVITED OUR ATTENTION TO THE LETTER D ATED 25.2.2015 PLACED AT PAGE NO.50-53 OF THE PAPER BOOK ADDRESSED TO THE AO DURING THE COURSE OF ASST. PROCEEDINGS. THE LD AR SUBMITT ED THAT THE ASSESSEE HAS GIVEN DETAILED EXPLANATION AS TO WHY S HARE PREMIUM CANNOT BE ASSESSED AS INCOME OF THE ASSESSEE. IT W AS SUBMITTED THAT SHARE CAPITAL AND SHARE PREMIUM RECEIPTS ARE CAPITA L ACCOUNT TRANSACTIONS. IN THIS REGARD, THE ASSESSEE TOOK SU PPORT OF THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE O F VODAFONE SERVICES PVT. LTD. (368 ITR 1), WHEREIN IT HAS BEEN HELD THAT SHARE PREMIUM RECEIVED IS A CAPITAL RECEIPT. THE HONBLE COURT HAS SPECIFICALLY OBSERVED THAT THE SHARE PREMIUM WAS MA DE TAXABLE BY A LEGAL FICTION INSERTED IN U/S 56(2)(VII) W.E.F 1/4/ 2013. ACCORDINGLY THE LD A.R SUBMITTED THAT THE SHARE PREMIUM RECEIVED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION SHALL CONSTITUTE CAPIT AL RECEIPT AND IT CANNOT BE BROUGHT TO TAXATION. ITA NOS.698 TO 701/BANG/2018 PAGE 37 OF 48 47. THE LD. A.R SUBMITTED THAT THE AO HAS REOPENED THE ASSESSMENTS ON THE BASIS OF INFORMATION RECEIVED FR OM CBI THAT THE SHARE CAPITAL SUBSCRIBED BY THE SHARE APPLICANTS WA S ON ACCOUNT OF BENEFITS RECEIVED BY THEM FROM THE STATE GOVERNMENT OF ANDHRA PRADESH. THE AO HAD FORMED THE VIEW THAT THE AMOUNT COLLECTED BY THE ASSESSEE IN THE FORM OF SHARE PREMIUM IS IN SUB STANCE REPRESENTS INCOME OF THE ASSESSEE. ACCORDINGLY, HE HAS ASSESSE D THE SHARE APPLICATION MONEY AND SHARE PREMIUM AS INCOME OF TH E ASSESSEE.HE FURTHER SUBMITTED THAT THE CBI HAS ALREADY SUBMITTE D A MEMO BEFORE THE HONBLE COURT OF PRINCIPAL SPECIAL JUDGE FOR CB I THAT THEY COULD NOT ESTABLISH QUID PRO QUO. ACCORDINGLY HE SUBMITTE D THAT THE VERY BASIS ON WHICH THE AO HAD THE IMPUGNED ADDITION HAS FAILED AND HENCE THERE IS NO JUSTIFICATION FOR SUSTAINING THIS ADDITION. 48. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS FURN ISHED ALL THE DETAILS THAT WERE CALLED FOR BY THE AO, WHICH FACT HAS ALSO BEEN ACKNOWLEDGED BY THE ASSESSING OFFICER IN THE ASSESS MENT ORDER. SINCE THE ASSESSING OFFICER DID NOT CALL FOR CONFIRMATION OR FINANCIAL STATEMENTS OF THE SHARE SUBSCRIBERS, THERE WAS NO O CCASION FOR THE ASSESSEE TO FURNISH THEM TO THE AO. HE SUBMITTED TH AT THE SUBSCRIBERS TO THE SHARE CAPITAL ARE LEADING COMPANIES AND THE ASSESSEE HAS DOWNLOADED THEIR FINANCIAL STATEMENTS FROM THE REGI STRAR OF COMPANIES WEB SITE, VIZ., WWW.MCA.GOV.IN . THOSE FINANCIAL STATEMENTS ARE IN PUBLIC DOMAIN AND THEY HAVE BEEN FURNISHED BEFORE THE TRIBUNAL IN THE PAPER BOOK. HE SUBMITTED THAT ALL THESE COMPANIES HAVE DULY DISCLOSED THE INVESTMENT MADE B Y THEM IN THE ASSESSEE COMPANIES. 49. THE LD A.R SUBMITTED THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF NRA IRON & STEEL (P) L TD (SUPRA) WILL NOT ITA NOS.698 TO 701/BANG/2018 PAGE 38 OF 48 APPLY TO THE FACTS OF THE PRESENT CASE. INVITING O UR ATTENTION TO THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE A BOVE SAID CASE, THE LD A.R SUBMITTED THAT THE ASSESSEE THEREIN WAS CALLED UPON BY THE AO TO FURNISH DETAILS OF THE AMOUNT RECEIVED AND PR OVIDE EVIDENCE TO ESTABLISH IDENTITY OF THE INVESTOR COMPANIES, CREDI T WORTHINESS OF THE CREDITORS AND GENUINENESS OF TRANSACTIONS. THE ASS ESSEE FURNISHED COPIES OF INCOME TAX RETURNS OF THE INVESTOR COMPAN IES AND SUBMITTED THAT THE MONEY WAS RECEIVED FROM BANKING CHANNELS. ACCORDINGLY THE ASSESSEE CONTENDED THAT THE ONUS PLACED UPON IT U/S 68 OF THE ACT STANDS DISCHARGED. THEREAFTER, THE AO ISSUED SUMM ONS TO INVESTOR COMPANIES. NOBODY APPEARED BEFORE THE AO, BUT REPL IES WERE RECEIVED BY POST. HENCE THE AO GOT FIELD ENQUIRIES CONDUCTE D INDEPENDENTLY AND THE RESULT OF ENQUIRY WAS SUMMARISED BY THE AO IN THE ASSESSMENT ORDER, WHICH SHOWED THAT MANY COMPANIES DID NOT EXIST AT THE GIVEN ADDRESS OR THEY LACKED CREDIT WORTHINE SS. ACCORDINGLY, UNDER THESE SET OF FACTS, THE HONBLE SUPREME COURT HAS UPHELD THE ADDITION MADE U/S 68 OF THE ACT. HE SUBMITTED THAT THE AO, IN THE INSTANT CASE, HAS NOT CONDUCTED ANY ENQUIRY INDEPEN DENTLY NOR DID HE POINT OUT ANY OTHER DEFICIENCY. ACCORDINGLY HE SUB MITTED THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE A BOVE SAID CASE WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE. 50. THE LD A.R INVITED OUR ATTENTION TO THE DECISIO N RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT VS . M/S ADITYA BIRLA TELECOM LTD (ITA NO.1502 OF 2016 DATED 26-03-2019). HE SUBMITTED THAT THE ABOVE SAID ASSESSEE HAD ISSUED PREFERENCE SHARES HAVING FACE VALUE OF RS.10/- EACH AT A PREMIUM OF RS.10,890/- P ER SHARE TO A MAURITIUS BASED COMPANY. THE AO TOOK THE VIEW THAT THE PREMIUM CHARGED TO THE SUBSCRIBER IS SO ADVERSE THAT NO PRU DENT BUSINESSMAN WOULD EVER AGREE TO SUBSCRIBE TO IT. THE ASSESSEE FURNISHED ALL THE DOCUMENTS CALLED FOR BY THE AO. HOWEVER THE AO MAD E THE ADDITION ITA NOS.698 TO 701/BANG/2018 PAGE 39 OF 48 BY HOLDING THAT THE ASSESSEE HAS FAILED TO PROVE GE NUINENESS OF TRANSACTIONS. BEFORE HONBLE BOMBAY HIGH COURT, TH E REVENUE CONTENDED THAT THE ENTIRE TRANSACTIONS ARE COLOURAB LE DEVICE AND NOT GENUINE. IT ALSO PLACED RELIANCE ON THE DECISION R ENDERED BY HONBLE SUPREME COURT IN THE CASE OF NRA IRON & STEEL P LTD (SUPRA). HOWEVER, THE HIGH COURT DID NOT AGREE WITH THE CONT ENTIONS OF THE REVENUE. IT HELD THAT THE DIVIDEND INCOME ALONE IS NOT THE SOLE CRITERIA FOR THE INVESTOR AND THAT THE INVESTOR COULD EXPECT A FAIR RETURN ON THE INVESTMENT, OF COURSE, SUBJECT TO VAGARIES OF ANY B USINESS DECISION. ACCORDINGLY THE HIGH COURT HAS OBSERVED THAT THE AO HAD TO ADVERT TO ALL SUCH MATERIALS ON RECORD IN PROPER PERSPECTIVE. THE LD A.R SUBMITTED THAT THE ABOVE SAID OBSERVATION OF THE HI GH COURT SHALL APPLY TO THE FACTS OF THE PRESENT CASE ALSO. 51. THE LD A.R FURTHER SUBMITTED THAT THE HONBLE B OMBAY HIGH COURT HAS HELD THAT SHARE PREMIUM RECEIVED BY AN AS SESSEE IS CAPITAL RECEIPT IN THE CASE OF VODAFONE INDIA SERVICES P LT D (368 ITR 1) AND THE SAME RATIO HAS BEEN REITERATED IN THE CASE OF A PEAK INFOTECH (397 ITR 148) BY HONBLE BOMBAY HIGH COURT. ACCORDINGLY , THE LD A.R CONTENDED THAT THE ADDITION MADE BY THE AO IS NOT J USTIFIED AND IS LIABLE TO BE DELETED. 52. THE LD A.R SUBMITTED THAT THE AO HAS MADE SIMIL AR ADDITIONS IN THE CASE OF CARMEL ASIA HOLDINGS P LTD IN AY 2008-0 9 AND JANANI INFRASTRUCTURE P LTD IN AY 2007-08 AND 2008-09, SUB JECT TO FOLLOWING MODIFICATIONS:- (A) IN THE CASE OF CARMEL ASIA HOLDINGS P LTD, THE AO HAS ADDED SHARE CAPITAL AMOUNT ALSO IN AY 2008-09 IN RESPECT OF AMOUNT RECEIVED FROM SHRI SRINIVASA NAIDU. (B) IN THE CASE OF JANANI INFRASTRUCTURE P LTD, THE SAI D ASSESSEE HAS RECEIVED SHARE CAPITAL IN AY 2008-09 FROM CARME L ASIA ITA NOS.698 TO 701/BANG/2018 PAGE 40 OF 48 HOLDINGS P LTD TO THE TUNE OF RS.273.21 LAKHS. THE AO HAS ASSESSED THE SAME ON PROTECTIVE BASIS. THE LD A.R SUBMITTED THAT THE ARGUMENTS MADE BY HIM SHALL APPLY TO THE ABOVE SAID APPEALS ALSO. 53. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSING OFFICER HAS CALLED THE ASSESSEE TO SUBSTANTIATE THE GENUINE NESS OF SHARE PREMIUM COLLECTED BY THE ASSESSEE. HOWEVER, THE ASS ESSEE HAS FAILED TO SUBSTANTIATE THE SAME. THE LD D.R SUBMITTED THA T THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF NRA IRON & ST EEL P LTD (SUPRA) THAT THE ASSESSEE IS REQUIRED TO PROVE THE GENUINEN ESS OF THE TRANSACTIONS RELATING TO COLLECTION OF SHARE PREMIU M. HE SUBMITTED THAT THE HONBLE SUPREME COURT HAS SUSTAINED THE AD DITION OF SHARE PREMIUM IN THE ABOVE SAID CASE, SINCE THE ASSESSEE DID NOT OFFER ANY EXPLANATION AS TO WHY THE INVESTOR COMPANIES HAD AP PLIED FOR SHARES OF THE ASSESSEE COMPANY AT A HIGH PREMIUM. HE SUBM ITTED THAT THE ASSESSEE, IN THE INSTANT CASE ALSO, DID NOT SUBSTAN TIATE THE SHARE PREMIUM RECEIVED BY IT. 54. THE LD D.R SUBMITTED THAT THE VALUATION REPO RT FURNISHED BY THE ASSESSEE HAS BEEN REJECTED BY THE AO ON NOTICING TH AT IT DID NOT PROVIDE THE BASIS OR THE BASIC DATA FOR THE VALUATI ON OF SHARES OF CERTAIN COMPANIES HELD BY THE ASSESSEE COMPANY. AC CORDINGLY, THE LD D.R SUBMITTED THAT THE AO HAS PROPERLY ANALYSED THE DETAILS FURNISHED BY THE ASSESSEE AND ACCORDINGLY HELD THAT THE SHARE PREMIUM AMOUNT HAS NOT BEEN SUBSTANTIATED BY THE AS SESSEE. 55. THE LD D.R DREW OUR ATTENTION TO THE DECISION RENDERED BY THE CO- ORDINATE BENCH IN THE CASE OF M/S CORNERSTONE PROPE RTY INVESTMENTS P LTD VS. ITO (ITA NO.665/BANG/2017 DATED 09-2-2018). HE SUBMITTED THAT THE ISSUE BEFORE THE TRIBUNAL WAS RELATED TO T HE ADDITION OF SHARE ITA NOS.698 TO 701/BANG/2018 PAGE 41 OF 48 PREMIUM AMOUNT OF RS.49.50 CRORES. HE SUBMITTED TH AT THE ADDITION WAS CONFIRMED BY THE CO-ORDINATE BENCH. 56. THE LD D.R FURTHER SUBMITTED THAT DEFICIENCI ES IN THE APPLICATION FORMS AND VIOLATION OF COMPANIES ACT WOULD SHOW THA T THE SHARE TRANSACTIONS ARE NOT GENUINE. 57. WITH REGARD TO THE RELIANCE PLACED BY LD D.R ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE O F M/S ADITYA BIRLA TELECOM LTD (SUPRA), THE LD D.R SUBMITTED THE ASSESSING OFFICER HAD ACCEPTED THE GENUINENESS OF TRANSACTIONS AND ON LY QUESTIONED THE RATIONALITY OF HIGH SHARE PREMIUM. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE SHARE PREMI UM. 58. IN THE REJOINDER, THE LD A.R SUBMITTED THAT T HE HYDERABAD BENCH OF TRIBUNAL HAS CONSIDERED THE ISSUE OF ASSESSMENT OF SHARE PREMIUM IN THE CASE OF BHARATHI CEMENT CORPORATION VS. ACIT (ITA NOS. 696 & 697/HYD/2014 DATED 10-08-2018). HE SUBMITTED THAT T HE TRIBUNAL, HAS RESTORED THE ISSUE TO THE FILE OF AO FOR EXAMIN ING IT AFRESH ON THE BASIS OF FACTS PREVAILING IN THAT CASE AND ARGUMENT S MADE. HE SUBMITTED THATTHOUGH THE SAID DECISION CANNOT BE AP PLIED IN THE INSTANT CASES, YET THEFOLLOWING OBSERVATIONS MADE B Y THE TRIBUNAL IN THE ABOVE SAID CASE WOULD SUPPORT THE CASES OF THE ASSESSEES HEREIN:- 9.. THESE SHARES WERE ISSUED WITH HUGE SHARE PREM IUM AND SHARE PREMIUMS WERE DETERMINED WITHOUT ANY BASIS. BUT ALL THE ISSUE AND ALLOTMENT OF SHARES ARE WITHIN THE FOUR C ORNERS OF LAW. THE AO/CIT(A) HAS NOT BROUGHT ON RECORD ANY ISSUES WITH THE ISSUE AND ALLOTMENT OF SHARES SINCE THEY ARE ISSUED AND ALLOTTED AS PER THE COMPANIES ACT AND RULES THAT EXISTED AT THE TIME OF ISSUE AND ALLOTMENT OF SHARES. THE DETERMINATION OF SHARE PREMIUM MAY NOT BE AS PER INDUSTRIES NORM OR INVEST OR ITA NOS.698 TO 701/BANG/2018 PAGE 42 OF 48 NORMS BUT THESE WERE FIXED AND ACCEPTED BY THE INVE STING PARTIES. 9.1 .THE ARRANGEMENT AND CIRCUMSTANCES LEADING T O ISSUE AND ALLOTMENT OF SHARES MAY DRAW SOME DOUBTS THAT C ERTAIN BENEFITS MAY HAVE PASSED ON TO THE DIRECTORS. BUT THE QUESTION IS WHETHER THE DIRECTORS/SHAREHOLDERS HAVE REALLY BENE FITTED WITH THIS ARRANGEMENT AND THE ASSESSEE COMPANY WAS USED AS ARRANGEMENT TO PASS ON THE BENEFIT. THE REVENUE HAS TO PROVE THAT THE INVESTORS HAVE PASSED ON THE BENEFIT TO TH E SHAREHOLDERS/DIRECTORS THROUGH THIS ARRANGEMENT BY BRINGING COGENT MATERIAL. BUT THE AO/CIT(A) HAS BROUGHT ON RECORD SO MANY INCIDENCES AND ALLEGED BENEFITS WHIC H WERE ENJOYED BY THE INVESTORS FROM THE GOVT. OF AP. BUT , WHAT IS IMPORTANT IS THAT THE FUNDS WERE INVESTED IN THE CO MPANY AND THE COMPANY HAS DEMONSTRATED THAT IT HAS TREATED THE IN VESTMENT AS PART OF SHARE CAPITAL FUND AND ALSO THE SHARE PREMI UM AS PART OF CAPITAL RESERVE WITHIN THE COMPANY AS PER THE PROVI SIONS OF COMPANIES ACT. SINCE THE ASSESSEE IS ARTIFICIAL PE RSON CREATED BY THE STATUTE, WE CANNOT TRESPASS THE LEGAL ENTITY. IT CANNOT BE TRESPASSED PROVIDED THE AUTHORITY HAS EVIDENCE TO P ROVE THAT THIS LEGAL PERSON WAS USED TO PASS ON THE BENEFIT TO INT ERESTED SHAREHOLDERS BY LIFTING THE CORPORATE VEIL. IN THI S CASE, NO SUCH EVIDENCE WAS BROUGHT ON RECORD RATHER CIRCUMSTANTIA L EVIDENCE AND TEST OF HUMAN PROBABILITIES WERE APPLIED TO CON VERT THE CAPITAL TRANSACTION AS PER COMPANIES ACT INTO REVEN UE TRANSACTION UNDER THE INCOME TAX ACT.. 9.3 AGAIN, WE ALSO CANNOT PRESUME OR APPLY TEST OF HUMAN PROBABILITIES, WE ARE DEALING WITH THE BUSINESS TRANSACTION, IT HAS TO BE BASED ON COGENT MATERIAL . ITA NOS.698 TO 701/BANG/2018 PAGE 43 OF 48 ACCORDINGLY, THE LD A.R SUBMITTED THAT THE LD CIT(A ) WAS NOT RIGHT IN APPLYING TEST OF HUMAN PROBABILITIES TO THE INSTANT CASE. THE TRIBUNAL HAS ALSO OBSERVED THAT THE SHARE PREMIUM WAS FIXED AND ACCEPTED BY THE INVESTING PARTIES. HE SUBMITTED THAT THE ABOVE SAID OBSERVATIONS MADE BY THE TRIBUNAL SUPPORT THE CASE OF THE ASSESS EE HERE. 59. WE HAVE HEARD RIVAL CONTENTIONS ON MERITS OF THE ADDITIONS. WE HAVE EARLIER QUASHED THE ORDERS OF TAX AUTHORITIES ON THE GROUND THAT THE REOPENING OF ASSESSMENT IS NOT VALID. HENCE TH ERE IS REALLY NO NECESSITY TO ADJUDICATE THE GROUNDS URGED ON MERITS . SINCE THE PARTIES HAVE MADE DETAILED ARGUMENTS ON MERITS ALSO , IN THE INTEREST OF JUSTICE, WE HAVE DULY RECORDED THOSE ARGUMENTS I N THE PRECEDING PARAGRAPHS. 60. WE HAVE HELD THAT THE SOLE BASIS OF REOPENI NG OF THE ASSESSMENT IS THE INFORMATION RECEIVED FROM THE CBI. IT IS AN UNDISPUTED FACT THAT AO DID NOT SUPPLY THOSE MATERIALS TO THE ASSESSEE A ND ALSO DID NOT CONFRONT THEM WITH THE ASSESSEE. HENCE, WE ARE OF THE VIEW THAT THERE IS CLEAR VIOLATION OF PRINCIPLES OF NATURAL JUSTICE . IT IS WELL SETTLED PROPOSITION OF LAW THAT THE ASSESSING OFFICER IS NO T ENTITLED TO RELY UPON THE MATERIALS, WHICH WERE NOT CONFRONTED WITH THE A SSESSEE. THE DECISION RENDERED BY JAIPUR BENCH OF TRIBUNAL IN TH E CASE OF SMT. SUNITA DHADDA (SUPRA) SUPPORTS THE CASE OF THE ASSE SSEE ON THE ABOVE SAID GROUND. WE HAVE ALREADY NOTICED THAT THE ABOV E SAID DECISION OF THE TRIBUNAL HAS SINCE BEEN UPHELD BY THE HONBLE S UPREME COURT IN THE VERY SAME CASE. HENCE, ON THIS GROUND ALONE, T HE ADDITIONS MADE BY THE ASSESSING OFFICER IN THE HANDS OF BOTH THE A SSESSEES IN THE YEARS UNDER CONSIDERATION ARE LIABLE TO BE DELETED. 61. WE NOTICED THAT THE LD CIT(A) HAS APPLIED TH E THEORY OF HUMAN PROBABILITIES. WE ALSO NOTICED THAT THE HYDERABAD BENCH OF TRIBUNAL HAS OBSERVED IN THE CASE OF BHARATI CEMENT CORPORAT ION (SUPRA) THAT ITA NOS.698 TO 701/BANG/2018 PAGE 44 OF 48 THE TEST OF HUMAN PROBABILITIES CANNOT BE APPLIED T O BUSINESS TRANSACTIONS, AS THEY ARE BASED ON COGENT MATERIALS . IN ANY CASE, THE LD D.R HAS AGREED THAT THE RECEIPT OF SHARE PREMIUM HAS TO BE TESTED U/S 68 OF THE ACT. HENCE THE THEORY OF HUMAN PROBA BILITIES CANNOT BE APPLIED IN THIS CASE. 62. WE HAVE NOTICED THAT THE LD D.R HAS CLARIFIE D THAT THE ADDITIONS HAVE BEEN MADE U/S 68 OF THE ACT. FROM THE ASSESSM ENT ORDER AS WELL AS FROM THE PAPER BOOK FURNISHED BY THE ASSESSEE, I T CAN BE NOTICED THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS THA T WERE CALLED FOR BY THE AO. WE NOTICE THAT THE AO HAS TREATED THE SHAR E PREMIUM HAS UNEXPLAINED CASH CREDIT ONLY FOR THE REASON THAT TH E SAME WAS COMMENSURATE WITH THE SIZE OF THE INCOME AND FINANC IAL STRENGTH OF THE ASSESSEE. WE HAVE NOTICED THAT THE AO HAS REAC HED TO THIS CONCLUSION WITHOUT CARRYING OUT ANY FURTHER INVESTI GATION AND WITHOUT BRINGING ANY MATERIAL ON RECORD. THE AO HAS NOT SH OWN THAT THE SHARE PREMIUM SO COLLECTED BY THE ASSESSEE REPRESEN TS ASSESSEES OWN MONEY WARRANTING AN ADDITION U/S 68 OF THE ACT. 63. HOWEVER, THE FACT REMAINS THAT THE SHARE PREM IUM HAS BEEN COLLECTED AS PER THE UNDERSTANDING REACHED BETWEEN BOTH THE PARTIES. WE NOTICE THAT THE AO HAS NOT MENTIONED IN THE ASSE SSMENT ORDER THAT THE ASSESSEE HAS FAILED TO SATISFY THE THREE MAIN I NGREDIENTS IN THE CONTEXT OF SEC.68 OF THE ACT. HIS ONLY CASE WAS TH AT THE ASSESSEE DID NOT SUBSTANTIATE THE QUANTUM OF SHARE PREMIUM COLLE CTED. WE HAVE NOTICED THAT THE ASSESSEE HAS FURNISHED A VALUATION REPORT IN ORDER TO JUSTIFY THE SHARE PREMIUM, EVEN THOUGH THE SAME HAS BEEN REJECTED BY THE AO. HOWEVER, THE IMPORTANT POINT IS THAT THE D OUBT OF THE ASSESSING OFFICER ON THE QUANTUM OF SHARE PREMIUM C ANNOT BE A GROUND FOR MAKING ADDITION U/S 68 OF THE ACT. THIS VIEW IS SUPPORTED ITA NOS.698 TO 701/BANG/2018 PAGE 45 OF 48 BY THE DECISION RENDERED BY HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS. GREEN INFRA LTD (392 ITR 7). 64. THE LD D.R SUBMITTED THAT THE VIOLATION OF P ROVISIONS OF COMPANIES ACT WOULD SHOW THAT THE SHARE PREMIUM WAS NOT GENUINE. WE HAVE NOTICED THAT THE AO HAS ONLY POINTED OUT PR OCEDURAL LAPSES AND FURTHER THE INFORMATION ABOUT ALLOTMENT OF SHAR ES HAS ALREADY BEEN FURNISHED TO REGISTRAR OF COMPANIES AND THE SA ME HAS BEEN ACCEPTED. HENCE WE ARE NOT ABLE TO AGREE WITH THE CONTENTIONS OF LD D.R ON THIS ASPECT. 65. THE LD D.R HAS PLACED HIS RELIANCE ON THE D ECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF NRA IRON AND S TEEL P LTD (SUPRA) IN ORDER TO CONTEND THAT THE ASSESSEE IS UNDER OBLI GATION TO SUBSTANTIATE THE SHARE PREMIUM. WE ARE OF THE VIEW THAT THERE IS NO QUARREL ON THE ABOVE SAID PROPOSITION. HOWEVER, WE AGREE WITH THE CONTENTIONS OF LD A.R THAT THE ABOVE SAID DECISION WAS RENDERED BY HONBLE SUPREME COURT ON THE BASIS OF FACTS PREVAIL ING IN THAT CASE, WHICH WERE HIGHLIGHTED BY LD A.R DURING THE COURSE OF HIS ARGUMENTS, WHICH HAVE BEEN RECORDED BY US IN THE PRECEDING PAR AGRAPH. 66. THE LD D.R ALSO PLACED HIS RELIANCE ON THE D ECISION RENDERED BY CO-ORDINATE BENCH IN THE CASE OF CORNERSTONE PROPER TY INVESTMENTS P LTD (SUPRA). WE HAVE GONE THROUGH THE SAID DECISIO N AND WE NOTICE THAT IT WAS A CASE OF RECEIPT OF SHARE CAPITAL THRO UGH LAYERING PROCESS THROUGH A CHAIN OF COMPANIES. THE TRIBUNAL HAS NOT ICED THAT THE REVENUE HAS GIVEN A FINDING THAT THE THERE HAS BEEN ROUTING OF MONEY FOR ILLEGAL PURPOSES THROUGH A CHAIN OF COMPANIES I N WHICH THE ASSESSEE IS A CONDUIT IN THE LAYERING PROCESS. THE AO HAS CARRIED OUT INVESTIGATIONS AND HAS GIVEN SEVERAL ADVERSE FINDIN GS. UNDER THOSE SET OF FACTS, THE CO-ORDINATE BENCH HAS HELD THAT THE A SSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE SHARE PREMIUM AND ACCO RDINGLY ITA NOS.698 TO 701/BANG/2018 PAGE 46 OF 48 CONFIRMED THE ADDITION. IN OUR VIEW, THE FACTS OF THE PRESENT CASE ARE DIFFERENT AND HENCE THE REVENUE CANNOT TAKE SUPPORT OF THE ABOVE SAID DECISION RENDERED BY THE TRIBUNAL. 67. IN THE INSTANT CASE, AS NOTICED EARLIER, IT I S NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT FURNISH ANY OF THE DETAILS CALLED FOR BY HIM. FURTHER, THE ASSESSING OFFICER DID NOT FIND ANY FAULT WITH THE DOCUMENTS FURNISHED BY THE ASSESSEE EXCEPT SOME DEFICIENCIES IN THE APPLICATION FORMS FILED BY THE ASSESSEE, WHICH ARE PROCEDURAL MISTAKES. THE AO ALSO DID NOT MAKE ANY INDEPENDENT ENQUIRY WITH THE SHARE APPLICANTS IN ORDER TO FIND OUT THE VERACITY OF THE SUBMISSIONS MADE BY THE ASSESSEE. UNDER THESE SET OF FACTS, IT HAS TO BE PRESUMED THAT THE AO WAS SATISFIED WITH T HE DETAILS FURNISHED BY THE ASSESSEE. HENCE, WE ARE OF THE VI EW THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF NR A IRON AND STEEL P LTD SHALL NOT APPLY TO THE FACTS OF THE PRESENT C ASE. 68. ACCORDINGLY WE ARE OF THE VIEW THAT THERE I S NO MERIT IN THE IMPUGNED ADDITIONS MADE BY THE AO IN THE HANDS OF B OTH THE ASSESSEES DURING THE YEARS UNDER CONSIDERATION. W E HAVE ALREADY HELD THAT REOPENING OF ASSESSMENT IS BAD IN LAW IN PARAGRAPHS 40 & 41 AND QUASHED THE ORDERS. 69. IN THE RESULT, BOTH THE APPEALS OF BOTH THE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND AUGUST, 2019. SD/ - (PAVAN KUMAR GADALE) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE DATED, 2ND AUGUST, 2019 /VMS/ ITA NOS.698 TO 701/BANG/2018 PAGE 47 OF 48 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. ITA NOS.698 TO 701/BANG/2018 PAGE 48 OF 48 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO SR.P.S .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER .. 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE.. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO .. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DICTATION NOTE ENCLOSED DATE ON WHICH ORDER GOES FOR XEROX & ENDORSEMENT 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER . 12. THE DATE ON WHICH THE FILE GOES TO DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER . 13. DATE OF DESPATCH OF ORDER. .. 14. DICTATION NOTE ENCLOSED