Case Details:

M/s Sur Buildcon Private Limited & Ors.

Appeal No.:

ITA No. 6174/Del/2013

Order pronounced by:

ITAT Delhi

Date of order:

15-07-2021

• During the course of survey conducted by the Investigation Wing at the corporate office of the assessees, it was found that the said premises was run, occupied & controlled by the management of Bhushan Group, where all the staff members present at the premises of the assessees were, in fact, the staff members of M/s Bhushan Steel Limited. A statement of one such employee, Shri B.S. Bisht was recorded wherein he had accepted that several companies having the registered office address of M/s Bhushan Steel Limited were just paper companies with no actual business. The A.O. thus concluded that since the assessees were not found existing at the registered/ corporate office and as per the statement of Shri Bisht, the same were paper companies, it gave reason to believe that the share capital and the share premium introduced into the assessee companies were questionable.

• The assessees filed their objections against the issuance of notice u/s 148 of the Act by citing non-existence of any live link or casual nexus between the information on record and the reason to believe that the income of the assessees had escaped assessment.
• The objections of the assessee were, however, rejected by the A.O. During the reassessment, the assessee furnished documents before the A.O. evidencing the identity, genuineness and creditworthiness of the share capital and share premium received.

• To make further inquiries, the A.O. issued summons u/s 131 of the Act. However, the A.O. observed that the parties did not respond to the summons served upon them or were not found at the given address or the addresses were wrong or incomplete. Some parties based in Kolkata though responded by confirming the investments made in the assessee companies but none of them appeared in person. The A.O. got the detailed field enquiry of the share subscribers through inspector.
• The A.O. therefore proceeded to add the share capital and the share premium received as unexplained cash credits under section 68 of the Act.
• Aggrieved, the assessee preferred appeals before the Ld. CIT(A) against the order of A.O. who ruled in favour of the assessee.

• The Ld. CIT (A) reached the conclusion that the reasoning of the A.O. behind making additions u/s 68 on account of share capital and share premium was incorrect and legally unsustainable.
  (a) The assessee had discharged its onus to establish the identity of the shareholders and the source of the money by filing confirmations from the said parties along with copies of bank statements and ITRs.
  (b) Therefore, the questions of invoking the provisions of section 68 against the appellant did not arise.
  (c) There is no law that more than one company cannot have its registered office at one address. There is no law that companies cannot change their registered office.

• All the companies having registered office at that premises undisputedly belonged to Bhushan Group. The sources of capital introduced in these companies were established during the assessment proceedings, including the appellant company. No evidence was found during the search to indicate introduction of unaccounted cash in the form of share capital in these companies.

• In these circumstances, the conclusion based on the facts relied upon by the revenue that the share capital introduced in the companies belonging to the Bhushan Group, including the appellant company, are unexplained, is premature. The Ld. CIT(A) deleted the additions.

• However, in opinion of Ld. CIT(A) the ground raised by the appellant for not following natural justice does not survive as the reasons for reopening were communicated to the assessee and its objections were duly considered by the revenue. During the appeal, the appellant got the opportunity to challenge the reassessment order on facts and in law. The appellant has been allowed relief on merits.

• Aggrieved by the relief granted by the Ld. CIT(A) on merits, the Revenue preferred further appeal before Tribunal.

• The assessee had only submitted routing details which were nothing but a façade to cover the real picture. The Ld. D/R relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Courdin Herbals India Limited [ITA No. 665/2009] where it was held that the initial onus u/s 68 cannot merely be discharged by an assessee by submitting the routine documentation when there is sufficient evidence and material on record to show that the subscriber was a paper company and not a genuine investor.

• Submitted that it was visible from the assessment orders that an extensive investigation had been conducted by the A.O. in order to verify the genuineness of the transactions.

• The A.O. has erroneously invoked jurisdiction u/s 147/148 of the Act since the basis pre-condition of reassessment under the section namely ‘reason to believe’ on the part of the A.O. was not satisfied and as such, the consequent additions made u/s 68 of the Act were void ab initio because no live link/ casual nexus exists between the information, the assessee and the alleged escaped income. The established case laws of Calcutta Discount 1961 41 ITR 191 (SC) and ITO vs. Lakmani Mewal Das 1976 103 ITR 437 (SC) were cited in support.

• The A.O. must have in his possession specific information or material to show that the particular transactions of the assessee were not genuine or fictitious. It was submitted that this specific information was, however, absent in the cases at hand, thereby rendering the entire reassessment to be in the nature of fishing and roving enquiries, based solely on ‘borrowed satisfaction’ drawn from the statement of Shri B.S. Bisht recorded by the Investigation Wing.

• Submitted that while making additions, the A.O. has primarily relied upon the reports of inspectors who conducted field enquiries to verify the genuineness of the investor companies. These reports formed the basis of assessment orders. These reports were based on an investigation conducted behind the back of the assessee and never put to the assessees for rebuttal, as is the right of assessee u/s 142(3) of the Act.

• The statement of Shri B.S. Bisht had neither been provided the assessee nor an opportunity was given to cross examine him as is mandated by law by the decision of the Hon’ble Apex Court in Andaman Timber Industries v. CCE [2015] 62 taxmann.com. The said violation of natural justice, renders the assessment order as void ab initio.

• On merits, the Ld. A.R. defended the order of the Ld. CIT (A) by submitting that the assessee had furnished detailed documentary evidences being the party names, PAN and ITR, bank statements and confirmations to discharge the onus cast upon them u/s 68, since as per the law laid down in Lovely Exports (supra), the assessee is not required to prove the source of source of the share subscribers.

• The Ld. DR has not pointed out to any portion of the assessment orders wherein the A.O. has disapproved these evidences brought on record since all that the A.O. has done is to rely on the inspectors’ report- which as per law is insufficient to make addition u/s 68 of the Act. Reliance was placed on Pr. CIT. vs. Rakam Money Matters (P) Ltd. (2018) 94 CCH 333 (Del HC), CIT vs. M/s Orchid Industries Pvt. Ltd. in ITA No. 1433 of 2014 (Bom HC).

• The Ld. AR has submitted that the mere fact that the investor companies did not have their own profit-making apparatus or had reported meagre income did not ipso facto mean that the investors had no creditworthiness. As per the decision of PCIT-1 vs. Ami Industries Limited [2020] 116 taxmann.com 34 (Bom), the investments may be made from own funds available in share capital or reserves or out of borrowed funds and not necessarily out of taxable income only, further the bank statements also evidence the sufficient availability of funds of the creditors.

• Our attention has been drawn to the decisions of the Hon’ble Jurisdictional Delhi High Court in the cases of:

CIT-II vs. Kamdhenu Steel & Alloys Ltd. (2012) 19 taxmann.com 26 (Del)

Dwarkadhish Capital P. Ltd. 330 ITR 298 (Del HC)

CIT vs. Winstral Petrochemicals P. Ltd. 330 ITR 603 (Del)

That have held that mere fact that the Inspectors’ Report alleges the parties to be non-existent at the given address would not give the Revenue a right to invoke section 68 without additional material in support, which as per the Ld. AR does not exist since the impugned additions have been made solely on surmises and conjectures, without the A.O. having brought on record any such material to discharge the shifted burden of proof to refute the evidences provided by the assessees.

• We agree with the contentions raised by the Ld. AR that the ‘reason to believe’ that income chargeable to tax has escaped assessment cannot be based on suspicion, surmises, conjectures but must be based on cogent and tangible material that establishes a casual nexus between the information available and inference drawn by the A.O.
• Merely on the basis of survey conducted by Investigation Wing and statements of Shri B.S. Bisht, the A.O. concluded that the share capital and share premium received by the assessee was questionable in nature and he concluded that he had ‘reasons to believe’ that the assessees were just paper companies established for introducing money from unexplained sources.
•  The ‘Reasons recorded’ neither discuss nor bring on record any specific information showing that any particular transactions between the assessee and the concerned investors were not genuine. Thus, it is apparent from the ‘Reasons Recorded’ itself that there is no specific information/ material in the possession of the A.O. to back his claim that the share capital or share premium received by the assessee was not genuine. Even in the statements of Sh. B.S. Bisht there was no specific allegations made by him about non-genuineness of the share capital or share premium received by the assessee.

• We further observe that the statement of Shri B.S. Bisht as stated in the ‘Reasons Recorded’ has not been utilised by the A.O. as the basis for passing the assessment order. Therefore, we are of the view that the question of whether this statement had been provided to the assessee for cross examination or not, is not required to be gone into. However, it would not be out of place to hold that for the reasons specified above even the statement of Sh. B.S. Bisht recorded behind the back of the assessees could not unilaterally be used by the A.O. without testing the same on the anvil of cross examination as is now settled law as per the judgement in Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3.

• It is evident that the Inspector Reports, that has been relied upon by the A.O., have been reproduced in length for the first time in the assessment orders only. The A.O. by failing to confront the assessees with the evidence he had gathered u/s 142(2) of the Act, has, therefore erroneously skipped the mandatory intermediary step prescribed u/s 142(3) of the Act. The same is in direct violation of the principles of natural justice. We derive support from the decision of the Hon’ble Kolkata Tribunal in M/s SPML Infra Ltd. vs. DCIT, ITA No. 1228/Kol/2018.