Gold Coin Investment Co. Ltd., New Delhi vs Department Of Income Tax

The present appeal has been filed by the Revenue assailing the correctness of the order dated 25/3/2013 of CIT(A), XV, New Delhi pertaining to 2004-05 assessment year on the following grounds:

"1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the re-assessment order as bad in law despite the fact that the reassessment proceedings were initiated on the basis of credible and tangible information received from the investigation wing of the Department. In similar circumstance, the Hon'ble Delhi High Court in various recent judicial pronouncements has upheld the validity of initiation of reassessment proceedings on the basis of information received from Investigation Wing regarding accommodation entry providers.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the re-assessment order as bad in law on the basis that the AO has issued the notice u/s 148 at old address, but ignored fact that the notice was served validly.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the re-assessment order as bad in law despite the fact that the AO has passed the speaking assessment order.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.32,00,000/- u/s 68 of the Act despite the settled position of law that the onus is on the assessee to 2 ITA No. 3548/Del/13

establish the identity, creditworthiness and genuineness of the transaction, ignoring the fact that the assessee could not be able to furnish even one basic document i.e original copy of confirmation of creditors.

5. The appellant craves to add, alter, amend, modify add or forego any ground of appeal at any time before or during the hearing of this appeal."

2. The relevant facts of the case as emanating from the assessment order dated 30th December 2011 u/s 143(3)/147 of the Income Tax Act 1961 are that the assessee declared an income of Rs. 14,140/- by way of its return on 1/11/2004. The said return was processed u/s 143(1). The assessee's case was reopened u/s 147/148 based on the information received from the office of the Directorate of Income Tax (Investigation), Delhi, New Delhi about the companies who were involved in taking /dealing accommodation entries for unaccounted money. As per the report sent by the Investigation Wing the assessee company was one of the companies which had taken accommodation entry for its unaccounted money in the year under consideration.

2.1 In view thereof the case was reopened and notice was sent to the assessee u/s 148 dated 18/3/2011 at the address mentioned in the ITR (Income Tax Return). Since in response to the same no reply was received therefore, notice u/s 142(1) etc was sent dated 08/08/2011 to the assessee requiring the assessee to attend the assessing officer office on 18/8/2011.

2.2 On the said date the assessee was represented through its counsel and requested for copy of notice u/s 148. The said oral request recorded in the assessment order was followed up by letter dated 29/8/2011 received by speed post requesting the Assessing Officer again to provide certain documents including certified copy of reasons recorded for initiation of proceedings u/s 148. As a result notice u/s 142(1) dated 28/11/2011 along with copy of reasons recorded was issued to the assessee at the address 1004-A Chirinjiv Tower, Nehru Place, New Delhi requiring the assessee to explain why addition of Rs.32 lacs should not be made in the hands of the assesses. The following details of 32 lacs as per the information received from the DIT (Investigation, New Delhi) were communicated to the assessee:-

3 ITA No. 3548/Del/13 Value of Entry taken Date of entry From whom taken Instrument No.

Rs. 4,00,000 27/9/2003 M/s Saurabh Petrochem (P) Ltd. (A/c NO. 268111 3381, Jailaxmi Coop. Bank, Fatehpuri, Delhi)

3,00,000 27/9/2003 M/s Profan Finance & Investments (A/c 376237 No. 3355, Jailaxmi Coop. Bank, Fatehpuri, Delhi)

5,00,000 6/11/2003 M/s Great Master Voice (India ) Pvt. 402559 Ltd.(A/c No. 3547, Jailaxmi Coop, Bank, Fatehpuri, Delhi)

5,00,000 6/11/2003 M/s Ganesh Cycle Stores (P) Ltd. (A/c No. 517790 3451, Jailaxmi Coop, Bank, Fatehpuri, Delhi)

5,00,000 13/11/2003 M/s Suraj Cycle Mart Pvt. Ltd. (A/c No. 403563 3450, Jailaxmi Coop, Bank, Fatehpuri, Delhi)

5,00,000 11/9/2003 Shri Ramesh Chand (A/c No. 16083, 173914 Jailaxmi Coop, Bank, Fatehpuri, Delhi)

5,00,000 24/9/2003 M/s Acoot India Pvt. Ltd. (A/c No. 3365, 267960 Jailaxmi Coop, Bank, Fatehpuri, Delhi)

2.3 The said notice along with enclosure as per the assessment order returned undelivered with the remark "no such firm". However, letter dated 1/12/2011 was received from the assessee on 5/12/2011 again raising these objections. Accordingly, notice u/s 142(1) dated 7/12/2011 was again forwarded to the assessee along with enclosures. In responses thereto, the assessee attended the proceedings on 14/12/2011 and objected to the reopening on the grounds that the notice u/s 148 was not issued/served upon the assessee within the statutory period of limitation.

The assessee further on subsequent dates filed supporting evidences in regard to the issue on merit.

2.4 The objection of the assessee was dismissed by the assessing officer holding as under:-

4 ITA No. 3548/Del/13 " Regarding the service of notice u/s 148, it is clarified that the said notice was issued at the address mentioned in its relevant ITR i.e A. Y 2004-05. The assessee cannot deny the address though it was its old address. The notice never received back undelivered, hence validly served. The assessee is regular in denying the notice as the notice u/s 142 (1), dated 28/11/2011 issued at its Nehru Place address received back undelivered with remark ' No such firm'."

3. On merits the assessing officer was the view that nothing has been placed on record to show why a person is investing its money in assessee company having meager amount of income. It was also noticed that it could not be said whether in subsequent years any dividends were earned or not. Thus where no dividends are earned it was questioned why would anyone invest money. The following details of the private limited company were brought on record to question why a genuine investors would invest its hard earned money in such a closely held private limited company:

"S. No. A.Y. Income Returned. 1. 2004-05 RS. 14,143/- 2. 2005-06 Rs. 29,510/- 3. 2006-07 Rs. 25,775/- 4. 2007-08 Rs.21,688/- 5. 2008-09 Rs. 23,770/- 6. 2009-10 Rs.56,640/- 7. 2010-11 Nil."

3.1 Further the undated affidavits relied upon by the assessee in support of its claim alongwith the fact that the alleged investors were found to be declaring meager income in their tax returns were considered questionable. Accordingly in view of these facts addition of the said amount was made.

4. The said action was assailed in appeal before the CIT(A) on various grounds on merit as well as on the jurisdiction issue including the following three grounds :-

1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the re-assessment order as bad in law despite the fact that the reassessment proceedings were initiated on the basis of credible and tangible information received from the investigation wing of the Department. In similar circumstances, the Hon'ble Delhi High Court in various recent judicial pronouncements has upheld the validity of initiation of reassessment proceedings on the basis of information received from Investigation Wing regarding accommodation entry providers.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the re-assessment order as bad in law on the basis that the AO has 5 ITA No. 3548/Del/13

issued the notice u/s 148 at old address, but ignored the fact that the notice was served validly.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in quashing the re-assessment order as bad in law despite the fact that the AO has passed the speaking assessment order."

5. The facts of the case are found summed up by the CIT(A) in Para 4 of his order and are reproduced hereunder:-

"4. Brief facts of the case are as under:

The appellant company is a Non Banking Finance Company (NBFC) engaged in the business consists of giving of loans and advances, trading in shares etc. The appellant filed the Return of income on 1st November 2004 declaring n income of Rs. 14,140/-. The return was processed u/s 143(1). Later, notice u/s 148 was issued/sent by AO, which the appellant claimed was not served on the Appellant as it was addressed at a wrong address. Thereafter, a notice u/s 142(1) dated 8/8/2011 was issued at 1004A, Chiranjiv Tower, Nehru Place, New Delhi-19, the returned address of the appellant which was acknowledged by the appellant. The appellant objected to Assumption of jurisdiction u/s 148 and requested for dropping of proceedings u/s 148 yet furnished required documents/information, though under protest. The Ld. AO passed the Re-assessment order u/s 143 (3)/147 on 30/12/2011, wherein addition of Rs.32,00,000/- was made on account of unexplained cash credit u/s

48."

6. A perusal of the impugned order shows that the reopening was assailed on the ground that the AO acted on the basis of vague information from investigation wing without any application of mind. Glaring mistakes were alleged in regard to the mentioning of the dates of cheque etc. and the name of the bank etc. Apart from that following arguments on fact were made before the CIT(A):

" Regarding the Ground No. 2 of the appeal, the appellant also informed that the Notice u/s 148 dated 18/3/2011 itself was issued at wrong address "

110 D Kamla Nagar, Delhi", and hence was claimed to be invalid. It was also pointed out that the notice was void ab initio on the ground that no Assessment Year has been mentioned thereon. "

6.1 On the basis of the same it was pleaded that notice was never served upon the assessee within the prescribed period. It was submitted that the address at Kamla Nagar was changed by the assessee company way back in 2005 i.e. more than 6 years prior to the issuance of notice u/s 148. The change of address of the assessee was in the knowledge of the assessing officer Ward 12 (2) who also knew the current address 6 ITA No. 3548/Del/13

of the assessee. The assumption of jurisdiction on the basis of notice issued to the wrong address on these facts it was submitted is wrong as the notice was never served on the assessee within the time limit of 6 years prescribed u/s 149 of the Income Tax Act. Consequently it was pleaded that the reassessment is void ab initio. Reliance was placed upon the Chapter 6 of the manual of office procedure Volume II, issued by the Central Board of Direct Taxes which explain the importance of issuance and service of notices which pointed out the following requirements to be met.

"'1.2 "Any order passed by an income tax authority can be declared null and void if there was no valid service of the relevant statutory notice. Hence it is imperative to ensure the following:

(i) Timely issue of the correct notice in the prescribed format

(ii) Timely and valid service of such notice

(iii) Maintaining proper record of both issue and service

2. Issue of Notice (only relevant portion reproduced here for brevity) 2.1 The checklist given below may be used while issuing any notice:

(i) Is it the proper notice to be issued?

(ii) Is it in the prescribed format?

(iii) Are inapplicable words or clauses struck off?

(iv) Is it addressed to the correct person?

(v)Is the address correct?

(vi)Are the name and status of the appellant correctly mentioned?

(vii)Is the assessment year correctly mentioned?

(viii)Is the person addressed given a reasonable time to respond?

(ix)Are the date, time and venue of hearing given?

(x)Is the notice signed and seal affixed?

3. Service of notice 3.1 As per the provisions of section 282 a notice may be served either by post or as if it were a court summons under the Civil Procedure Code.

4. Service by post 4.1 The procedure for service by post is given in section 27 of the General Clauses Act. Requirements for valid service by post are

(i) Proper addressing

(ii) Prepaying

(iii) Sending by registered post with acknowledgement due. In view of the above CBDT Guidelines, it was pleaded that if the notice is issued and sent at wrong address, it cannot be said to have been validly issued. Further it was also submitted that in case of sending notice at a wrong address, presumption of valid service by post cannot be drawn in view of section 27 of the General Clauses Act as enumerated above."

6.2 In the light of the above guidelines and pleadings it was submitted that the assessee had informed that the correct address of the assessee is 1004A , Chiranjiv 7 ITA No. 3548/Del/13

Tower, Nehru Place, New Delhi the said address had been updated in the PAN Date Base and by the following documents change of address was demonstrated., it was submitted by the following documents:-

S. No Particulars.

1 Copy of Form 18 and Challan of ROC dt 21/6/2005

2 Copy of ITR (Form 1) AY 2005-06

3 Copy of Form 18 and Challan of ROC dt 16/8/2007

4 Copy of PAN application filed with NSDL on 18/8/2007 ( for Address change)

5 Copy of Covering letter recd. From Income Tax Pan Services depicting the changed address of Nehru Place.

6 Copy of Letter dated 20/10/2007 filed with ITO Ward 12 (2) intimating the Nehru Place address

7 Copy of Intimation u/s 143 (1) for A.Y 2007-08 issued by the AO at the new address at Nehru Place office/.

8 Copy of order u/s 143 (3) dated 18/12/2008 for A.Y 2006-07 issued at Nehru Place address.

6.3 In the said facts it was submitted that where the fact that the notice had been

sent to the wrong address is even coming out from the assessment order itself as the assessing officer himself conceded that notice u/s 148 had been issued at the address mentioned in the Income Tax Return for 2004-05 assessment year. Thus, the observation of the AO that no reply was received in response thereto again affirms that notice was never served upon the assessee as having been sent admittedly to a wrong address the occasion to respond does not arise. It was submitted that only subsequently when notice u/s 142 (1) dated 8/8/2011 was issued to the assessee at the correct address that the assessee appeared. It was submitted that a duty is cast upon assessing officer to check the jurisdiction and the information; check the particulars of name, address etc. and ensure that latest particulars of the Appellant ie. Latest name, latest/correct address, correct assessment year is incorporated before issuing a notice u/s 148. Thus, referring to the requirements of Section 148, which need to be met before making the reassessment it was submitted the AO as per the 8 ITA No. 3548/Del/13

following decisions is required to serve upon the appellant the notice in the prescribed form and manner which evidently was not the reassessment was claimed to be bad in law: -

CIT VS. Eshan Holding Pvt. Ltd. (ITA No. 1171/2008) R. K. Upadhyaya Vs. Shanabhai P. Patel 1987 AIR 1378 S(SC) CIT VS. Rajesh Kumar Sharma ITA 1547/2006 (Delhi) (13 Aug 2007) ACIT and Anr Vs. Hotel Blue Moon [2010] 321 I.T.R. 362 (SC) CIT Vs. Rajeev Sharma [2010]40 DTR (ALL) 129 Alpine Electronics Asia Pvt. Ltd Vs. Director General of I. Tax & Anr. & Motilal Bimalchand Jain (HUF) Vs. CIT (285 ITR 224 (M.P)

7. On the merits of the additions it was submitted that share application money was received from six corporate assesses and one individual. In support of the said claims it was submitted that before the AO the following documents have been filed (the relevant extract from para 5.8 is reproduced hereunder for ready reference): -

(a) Share application form received from the Share Applicants containing the Complete details of applicants which includes, Name of the applicants, Address, PAN, No. of Shares applied, Mode of Payment of Share Application Money, details of Bank of Share Holders, Branch, Cheque No, Date and Occupation of Applicants.

(b) Confirmation/Affidavit from the Share Applicants containing the complete details of amount invested, Cheque number, date, Bank particulars, PAN and Income Tax particulars.

(c) Copy of PAN Card/PAN Allotment letters of the Share holders and Applicants.

(d) Copy of acknowledgement of Income Tax Return of Share holders & applicants.

(e) Copy of Bank Statement of Share Holders and Applicants reflecting the transaction.

(f) Copy of Audited Balance Sheet of Share Holders and Applicants.

(g) Copy of Board Resolution of Share Holders and Applicants.

(h) Copy of Form No. 2 filed with ROC showing that shares were allotted.

(i) Copy of Bank Statement of Appellant for A.Y 2005-06 during which 3 Share Applicants were refunded their Share Application money of Rs.

15,00,000/-.

9 ITA No. 3548/Del/13 (j) Copy of Confirmation of 3 Share Applicants to whom shares were not allotted and who were refunded their Share Application money during the A.Y 2005-06."

8. These documents it was stated were again filed before the CIT(A). Attention was invited to the observations made by the Assessing Officer at Para 3 page 4 which it was stated demonstrates that the documents were filed even before the AO. In the above background, it was submitted that the action of the AO in rejecting the evidences filed relying on some vague information from investigation wing even carelessly holding the company as a private limited closely held Pvt. Ltd. Company ignoring fact that the assessee is a public limited company. The following glaring mistakes of the AO were highlighted:

" 1. That the company is a public limited company and not a closely held private limited company as has been written about above by the AO.

2. Out of Rs. 32,00,000/-of share application received shares of Rs.17,00,000/- have been allotted to four applicants and Rs.15,00,000/- were returned to three applicants in the very next assessment year 2005- 06 by account payee cheques. The fact though already on record was completely ignored by the AO for making such illegal addition.

3. Even the income returned by the company after A.Y 2003-04 have been quoted for alleging that shareholders cannot be inclined to make investment in a Company have meager profits. Any Share holder/Applicant is not a fortune teller and cannot predict the Income/Loss of the Company for the subsequent period. "

9. In the abovementioned facts and evidences addressing the share holders filed before the AO it was submitted that it proved beyond doubt that all the transactions entered through banking channel; the share holders were assessed to tax the identity and creditworthiness and genuineness stood established. In view thereof relying upon various decisions it was pleaded that even on merit, the addition has been wrongly made.

10. Considering these facts the CIT(A) quashed the proceedings vide paras 6 to 6.4 and thereafter proceedings to consider the issue on merit and taking the evidences into consideration even deleted the additions on merit.

11. Aggrieved by this, the Revenue is in appeal before the Tribunal.

10 ITA No. 3548/Del/13 12. The ld. Sr. DR referring to the record stated that the notice was sent to the address mentioned in the Income Tax Return and the fact was accepted by the assessee also. Thus in the background where notice as per record has been sent the relief granted by the CIT(A) it was claimed is contrary to record. Addressing the change of address in the database of PAN and other documents it was submitted that the fact was not required to be looked into by the AO at the time of issuance of notice based on the report of the Investigation Wing and the fact that notice was sent to the return indicated in the ITR of the assessee is sufficient compliance. On merit also it was submitted that the nature of evidence relied is not sufficient proof as mere movements of funds through banking channels cannot make the transactions legitimate.

13. The ld. AR on the other hand carried us through the documents filed in the Paper Book running into 156 pages connecting these with the detailed arguments advanced before the CIT(A) and recorded in the said order reiterated the same. The findings arrived at therein it was submitted considering the facts on record do not demonstrate that the findings are perverse. The argument that notice was sent to the erstwhile address of the assessee it was submitted does not absolve the AO from the irresponsibility of acting on vague information without caring to apply mind which would presuppose at least that he will make effort to issue notice at the correct address available to the department. It was questioned that what is the need for updating the database of the department if the tax officials themselves do not consider it necessary to consult it. Had the assessee not updated the address it was submitted that the assessee may have been faulted for not keeping the department informed and as the last known address on record the tax authorities may have had a case. In the facts of the present case the impugned order was justified on facts. Even on merits it was argued no infirmity has been pointed out by the Sr. DR the general argument that money through banking channels does not grant legitmacy it was submitted is a vague argument and does not help the Revenue in any manner.

14. We have heard the rival submissions and perused the material available on record. On a consideration thereof we are of the view that before we deliberate on the issues further it would be appropriate to first address the relevant finding under challenge. The same is reproduced hereunder for ready reference: -

11 ITA No. 3548/Del/13 "6. I have carefully considered the facts of the case in the light of the submission made by the appellant in the light of the applicable law. Accordingly, my decision on various grounds of appeal is as under:

6.2 Vide Grounds no. 1 to 9 of the appeal, the appellant has challenged the reassessment proceedings on legal grounds. I find that for the purpose of initiating the proceedings for reassessment the notice u/s 148 was to be issued on or before 31.3.2011. On careful consideration of the facts in the light of submission of the appellant, it is evident that the ld. AO had sent the notice u/s 148 dated 18.3.2011 at the previous address of the appellant, which was changed 6 years ago by the appellant. Necessary information was specifically given to the AO in this regard and even the address was changed in the PAN data base. It is very likely that the AO, simply attached the information received from the Investigation wing with the return for the AY 2004-05 and issued the notice u/s 148, without bothering to find out whether the appellant continues to be at the same address at which it had filed the return 5 years ago. Neither did he check the address from the current return nor from PAN data base. It is thus evident that the notice sent at wrong address was to return back. Strangely the AO has also acknowledged these facts in the impugned order. I fail to understand if the notice dated 18.3.2011 had returned before 31.3.2011, why the AO not applied mind in the matter to find out the correct address, by looking at data base of his assesses. The argument that it was the appellant, who had at some point of time given this address, is of no relevance, as the AO was in possession of the new address, which was duly informed by the appellant, and from which later returns were filed and which was also available in the PAN data base. In view of this, I hold the reassessment proceedings in pursuance of the notice u/s 148, which was not served upon the appellant (within the prescribed time) as bad in law.

6.3 Further, on perusal of the copy of the notice I find that the same shows that the notice u/s 148 is silent about the assessment year for which the proceedings were to be reopened. In view of the above, I hold the notice u/s 148 as invalid.

6.4 In view of the above the impugned order resulting from the proceedings which have been held by me as bad in law, is being quashed.

6.5 Regarding the merit of addition u/s 68 raised by Ground No. 10 and 11, I find that the appellant had furnished all relevant information to substantiate the identity, genuineness and creditworthiness of the share applicants by filing conformation, their PAN/ITR Details, copy of bank statements, ROC documents for allotment of shares. Details of cheque number by which share application money of Rs. 15 lakh was refunded where shares were not allotted, were also furnished. It appears that having received this, the ld. AO placed the same in the file and made no enquiries, whatsoever to verify the credibility of the evidences furnished by the Appellant in support of the genuineness, credit worthiness of the cash credits.

It appears that the AO had decided that by repeating the template of assessment orders in similar cases in which a few pages are devoted to academic discussion about what constitutes an accommodation entry, etc. 12 ITA No. 3548/Del/13

and by making certain general remarks such as how can someone invest in a company whose returned income is low, etc. his statutory duty as the AO was over and, therefore, he just placed the evidences furnished by the appellant in file and ignored the same.

6.6 In view of the same, I hold that the Appellant had duly discharged the onus and it was the responsibility of the AO to have made necessary verification in respect of the evidences furnished by the Appellant. Since the ld. AO made no efforts at any stage, be at the stage of recording of the reason for reopening of the case or at the assessment stage, I hold that the Appellant had duly substantiated the necessary requirements for holding cash credit as explained. Factually also, there were no specific adverse observations nor any contradiction observed by the AO in respect of such evidences and hence the action of the AO in holding the same as unexplained cash credit was without any basis, cogent grounds and was therefore unjustified.

6.7 The fact that the ld. AO did not make any efforts in making enquiries by issue of summons or otherwise, distinguishes the case from the case of CIT vs. Nova Promoters and Finlease P. Ltd. (2012) 18 Taxmann.com 217 (Del.) and therefore, the decision of the Hon'ble Supreme Court in the case of CIT vs. Lovely Exports P. Ltd. 2008-TIOL-238-SC-IT, squarely applies to the case of the applicant. In view of the above, the addition made by the ld. AO by holding share application money of Rs. 32,00,000/- as unexplained cash credit was unjustified and, therefore, the same is accordingly deleted."

15. On a consideration of the same we find that the reasoning and finding of the CIT(A) in para 6 to 6.4 reproduced hereinabove cannot be faulted with. We ourselves find that the question posed by the ld. CIT(A) in para 6.2 as to why the AO did not address the defect in jurisdiction before 31.3.2011 as the facts and time was available to him has evidently remained unanswered by the ld. Sr. DR. In view of the fact that the assumption of jurisdiction is held to be bad in law on the facts as they stand we need not thereafter deliberate on the merits of the deleting of the addition. Accordingly being satisfied on facts by the reasoning and conclusion arrived at by the CIT(A) we uphold his action in quashing the proceedings. Accordingly for the reasons given hereinabove the departmental grounds are dismissed.

16. In the result, the appeal of the Revenue is dismissed.

The order is pronounced in the open court on 31st of July 2015

Sd/- Sd/-

(N. K. SAINI) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 31/07/2015 13 ITA No. 3548/Del/13

*R. Naheed/*Kavita

Copy forwarded to:

1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR

ITAT NEW DELHI 14 ITA No. 3548/Del/13

Date

1. Draft dictated on 10.07.2015 PS

2. Draft placed before author 13.07.2015, PS 30.7.15, 31.7.15

3. Draft proposed & placed before the 31/07/2015 JM/AM second member

4. Draft discussed/approved by 31/07/2015 JM/AM Second Member.

5. Approved Draft comes to the 31/07/2015 PS/PS Sr.PS/PS

6. Kept for pronouncement on 31/07/2015 PS

7. File sent to the Bench Clerk 31/07/2015 PS

8. Date on which file goes to the AR

9. Date on which file goes to the Head Clerk.

10. Date of dispatch of Order. 15 ITA No. 3548/Del/13