AI Structured Summary
Not yet generated for this judgment
Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)]dated 10.09.2025 for the Assessment Year 2010-11 raising following grounds of appeal :-
“1.On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section147/148/151 of the Income Tax Act therefore such assessment is void ab initio and liable to be quashed.
2.On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that reassessment proceedings initiated u/s 147 of the IT Act ignoring the contention of appellant that the proceedings have been initiated by the AO without application of independent mind on the material, if any, provided by the Inv. Wing of the department. Therefore, such reassessment is void ab initio and liable to be quashed.
3.On facts and circumstances of the case, the authorities below have erred in upholding the reassessment proceedings ignoring the fact that sanction u/s 151 of IT Act as provided with the copy of the reason recorded shows mechanical satisfaction by the approving authority.
4.The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.8,15,05,000/- u/s 68 of the IT Act holding the share application money of Rs.8,15,05,000/- as unexplained cash credit ignoring the fact that the assessee has discharged its initial onus u/s 68 of the IT Act explaining nature and source of the credits by filing requisite documents during assessment proceedings.”
Brief facts of the case are, the assessee filed return of income on 26.09.2010 and declared income of Rs.17,120/-. The case was reopened as per information from Investigation Wing.As per the report, Shri. Surinder Kumar Jain provided accommodation entries through large dummy companies floated by him or his associates. Hence, the case was reopened under section 148 of the Income-tax Act, 1961 (for short ‘the Act’). The case was scrutinized u/s. 143(3) r.w.s 147 of the Act on 13.11.2017 and the income was assessed at Rs.8,15,00,000/-. wherein addition was made u/s. 68 as assessee was unable to prove identity, genuineness and creditworthiness of the entities, who have allegedly made investment.
Aggrieved by the assessment order, the assessee filed appeal before Ld. CIT(A)-7, Delhi who dismissed the appeal of the assessee. Aggrieved assessee filed an appeal before the ITAT and ITAT vide order dated 09.08.2019 set aside the case to AO with the remarks that, “Thus for these appeals, we are of the opinion that the entire issue is receiving of share application money should be remanded back to the file of the AO to examine the issue afresh, after seeking all the details from the assessee regarding the addresses and whereabouts of these companies and their credit worthiness so that AO can directly inquire from these parties. Assessee shall cooperate with the AO in providing all the details and evidences in support of the facts of the transactions and also the creditworthiness of the parties. AO shall provide due and effective opportunity of hearing to the assessee and shall decide the issue afresh and in accordance with law”.
Based on ITAT order, the notices u/s. 142(1) were issued to the assessee and was asked to furnish justification along with supporting documentary evidence to substantiatethe claim, if any and along with certain other details. In reply, the assessee filed the list of total 13 companies from whom share application money was received and the details are as under: -
Based on the above details, the notices u/s. 133(6) were issued to all the 13 parties and some of the parties responded to the above notice. AO recorded the details of the replies of the parties in the chart at pages 5 to 7 of his order and further a chart giving details of assessee’s submissions to the notice are given at page 8 of the order. The AO observed in chart at page 8 of the order that the assessee has not replied as required to and notresponded to any of the notices. However, assessee was given opportunity to submit the details of Share application money received by company and the assessee replied vide letter dated 22/9/2021, with regard to identity, creditworthiness and genuineness of the transactions. However, the AO was not satisfied with the reply of the assessee and had discussed the credentials of all the parties at pages 9 to 16 of the assessment order. Further, he observed that the claim of the assessee on the credit worthiness of the investors to invest in shares with premium is found to be bogus, observed, if they are so sound to invest with Reserves and Surplus, they will never opt to borrow from M/s. Dhanguru Finance, hence observed, it is only assessee's own money which is routed through different channels as Share Premium in order to bring back to Books of Accounts. Therefore, he observed that the basic condition for proving the share application money received by company is the Identity of investor, the creditworthiness of investor and the genuineness of transaction, therefore the above conditions are not satisfied by assessee. Further, for this proposition, he relied on various decisions of various courts to reach the conclusion that the explanation offered towards the amounts credited in the books of account by the assessee was found to be unexplained cash credit of Rs.8,15,05,000/- and the same are treated as income of the assessee as unexplained cash credits u/s 68 off the Act.
Aggrieved with the aforesaid order, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) after reducing only Rs.5,000/-,sustained the addition of Rs.8,15,00,000/-.
Aggrievedwith the order of ld. CIT (A), assessee is in appeal before us.
At the time of hearing, ld. AR of the assessee brought to our attention the relevant facts on record and heavily relied on the legal grounds. He also submitted his submissions which are reproduced below :-
Ground Nos.1 to 3 Invalid Assumption of Jurisdiction u/s 147/148/151 of IT Act
From the perusal of the Hon’ble ITAT order dated 09.08.2019 (PB 32-55), it is evident that in the first round of litigation before the Hon’ble ITAT, the legal grounds have not been adjudicated implying that those grounds are open for adjudication in present appeal proceedings in second round. Kindly refer para 41-45 at pages 50-55.
I. Invocation of non-existing provision of sec 147 of IT Act
Non application of mind is discernible from the above performa filed for approval u/s 151 of the Act. InitemNo.7(PB 104) which says “Whether the provisions of sec. 147(a), 147(b) are applicable or all the sections are applicable”, the AO in the reply mentions applicable provision being section 147(b). Here it may be appreciated that the sections 147(a)/147(b) have ceased to be in the statute book from 01.04.1989. The mentioning of these incorrect and non-existing sections is a clear case of non-application of mind by the AO and also by the authorities providing satisfaction u/s
Reliance is placed in the decisions of Smt Kalpana Shantilal Haria Vs ACIT W.P.(L) No.3063/2017 dated 22.12.2017 (Bom), Best Cybercity India P Ltd vs ITO(2019) 414 ITR 0385 (Del), Yum! Restaurants Asia Pte Ltd VS DDIT in WP(C) No. 614/2014 dated 31.08.2017 (Del). The identical errors in the following decisions have been found by the coordinate benches of the ITAT to ground for quashing resultant reassessment proceedings and the reassessment order framed thereafter:
Shree Balkishan Agarwal Glass Industries Ltd vs ACIT ITA No.5798/Del/2016 dt: 21.09.2020;
Sh Omvir Singh vs ITO ITA No.7437/Del/2018 dt: 11.06.2020;
Omkam Developers Ltd vs ITO ITA No.6862/Del/2018 dt;11.05.2021;
M/s VRC Township P Ltdvs ITO ITA No.1503/Del/2017 dt: 14.10.2020;
M/s Maheshwari Roller Flour Mills P Ltd vs ITOITA No.4257/Del/2019 dt: 17.12.2020;
Madhu Apartments P Ltd vs ITOITA Nos.3869-3870/Del/2018 dt: 01.02.2021; Shyam Products P Ltd in ITA No.1932/Del/2019 dated 11.10.2022;
Sh Amit Khatri ITA No.2430/Del/2023 Naveen Kumar Gupta vs ITO ITA No.592/Del/2020 dated 18.06.2025
II. Post search assessment of so-called dummy entities before action u/s 147 and No enquiry by the Ld AO before such action
The action u/s 147/148 had been initiated by the Ld AO to the notice u/s 148 dated 29.03.2017 (PB 104-123) and the Ld AO was under obligation to verify the status of investment of those entities which has been considered by the Ld AO to be dummy entities, more particularly taking into account the fact that when the reason for action is search there should have been post search assessment also in such cases. Out of twelve entities (Para 3.3 entities)(PB 116-117) from whom share capital has been accepted, nine entities had been assessed u/s 153C/153A of IT Act vide order dated 28.03.2013 where the AO of the entity in question, in the course of assessment u/s 153C/153A after examining all the material incriminating or otherwise, has passed the order whereby no adverse observation made regarding the activities of the company in question and the material gathered in search which was used for reaching satisfaction of escapement of income. The details of entities who have been assessed u/s 153C/153A of IT Act is as under:
| S.No. | Name of Shareholder | Share Capital/Share Premium Accepted | Remarks |
| 1 | Victory Software P Ltd | Rs.25,00,000/- | Copy of assessment order u/s 153C/153A is at page 164-165 and also dealt in ITAT order in case of Pashupati Textiles and Prints P Ltd vs ACIT ITA No.5797/Del/2016 dated 20.04.2017 in para 5 therein and also in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 12.4 therein. |
| 2 | Sunny Cast & Forge Ltd | Rs.1,20,00,000/- | Copy of assessment order u/s 153C/153A is at page 166-167 and also in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 12.4 therein. |
| 3 | Attractive Finlease P Ltd | Rs.85,00,000/- | Copy of assessment order u/s 153C/153A is at page 168-169 and also in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 12.4 therein. |
| 4 | Aasheesh Capital Services P Ltd | Rs.75,00,000/- | Copy of assessment order u/s 153C/153A is at page 175-176 and also in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 12.4 therein. |
| 5 | Apoorva Leasing Finance & Investment P Ltd | Rs.50,00,000/- | Copy of assessment order u/s 153C/153A is at page 170-171 and also in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 12.4 therein. |
| 6 | Hum Tum Marketing P Ltd | Rs.65,00,000/- | Copy of assessment order u/s 153C/153A is at page 172-173 and also dealt in ITAT order in case of Pashupati Textiles and Prints P Ltd vs ACIT ITA No.5797/Del/2016 dated 20.04.2017 in para 5 therein. |
| 7 | Alstone Textiles (India) Limited (formerly known as M/s Shalini Holdings Ltd) | Rs.1,00,00,000/- | Copy of assessment order u/s 153C/153A is at page 174 and also dealt in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 12.3 therein. |
| 8 | Mega Top Promoters P Ltd | Rs.75,00,000/- | The fact of assessment order passed u/s 153C/153A has been dealt in ITAT order in case of ITO vs Jai Gajanan Enterprises P Ltd in ITA No.4861/Del/2015 in para 7 therein and also in ITAT order in case of More Credit Securities P Ltd vs ITO ITA No.5318/Del/2016 dated 24.12.2021 in para 3.1 & 10 therein. |
| 9 | Ad-Fin Capital Services P Ltd | Rs.45,00,000/- | The fact of assessment order passed u/s 153C/153A has been dealt in ITAT order in case of Sri Balaji Forgings P Ltd in ITA No.3216/Del/2017 in para 6.1 therein. |
The AO of the above entities in their assessment vide order dated 28.03.2013 had also verified the source of investment made by the respective assesses during the year under consideration. It may kindly be appreciated that the action u/s 147 has been taken after nearly four years from the date of assessment of those entities. Once the assessment is completed in the hands of shareholders by their jurisdictional AO, there remains no reason to reopen the appellant’s case as held in the decisions of More Credit Securities P ltd vs ITO ITA No.5318/Del/2016, ITO Vs M/s Jai Gajanan Enterprises P Ltd) ITA No.4861/Del/2015 dt: 15.03.2019, M/s Nishit Fincap P Ltd ITA 2323/Del/2017 dt: 16.09.2020, M/s Gaurang Products P Ltd ITA No.5196/Del/2019 dt: 01.02.2021 and M/s Haryana Distillery Ltd vs DCIT ITA No.1452/Del/2018 dt: 20.11.2018.
From the above reason, there remains no dispute about the fact that based on information of the investigation wing considered the above entities being dummy entities and not entering into any genuine transaction of subscribing to share capital of appellant company. The above finding which is pivotal to the initiation of reassessment proceedings has been given by the Ld AO without himself applying his mind as required by him in view of the decision of Well Trans Logistics India Pvt. Ltd. Versus Addl. Commissioner of Income Tax &Ors 474 ITR 131 (Del) which places emphasis on the duty of the AO to take further steps, make further enquiries and garner further material and if such material indicate that the income of the assessee has escaped assessment and then form a belief that the income of the assessee has escaped assessment. Reliance is also placed in Sh Rajiv Agarwal vs ACIT395 ITR 0255 (Del) held that “even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. There is non-application of mind by the AO could not be said to have reason to believe as to justify reopening of assessment.” The co-ordinate Bench of Hon’ble ITAT in decision of appellant’s own case in ITA No.7244/Del/2019 dt: 12.08.2021in para 32 at page 51 therein on identical facts has quashed the reassessment proceedings on ground of Non-verification of unverified information received from investigation relying on decision of Sh Rajiv Aggarwal vs ACIT (supra).
III. Initiation of action u/s 147 of IT Act based on borrowed satisfaction:
The AO does not discuss how the prima facie belief of accommodation entry is reached when no evidence/ material regarding the payment of cash in lieu of cheques to the searched group is discussed. The role of middle man is not discussed and nor is there any indication that he is examined by the Investigation Wing or by the AO. The conclusion that the companies involved are paper companies is another conclusion, which is not supported by any material cited in the reason recorded. The Hon’ble Delhi Bench of ITAT in the case of ITO vs Jai Gajanan Enterprises P Ltd (supra) in para 7 & 8 held that where the reasons recorded don’t refer evidence or any confessional statement of entry provider, cash payment by the assessment/payment of commission etc so as to support his belief that assessee was beneficiary of entry operating racket, such reasons were held to be solely based on information of the investigation wing.
IV. Assumption of jurisdiction to proceed with assessment by issue of notice u/s 143(2)/142(1) of IT Act without providing reasonable time for remedial action against rejection of objection.
In the present case, the then Ld AO i.e. ITO, Ward 20(3), Delhi has disposed off objections to assumption to jurisdiction u/s 147 of IT Act vide order dated 20.09.2017 (PB 126-131) and simultaneously assumed jurisdiction to make assessment by issue of notice dated 20.09.2017 u/s 143(2) (PB 124) and notice dated 20.09.2017 u/s 142(1) (PB 125) on the same date on the date when objections were disposed off without waiting for four weeks to allow the appellant to take suitable remedial measure. Such violation leads to quashing of reassessment proceedings in view of decision of Mastech Technologies Pvt Ltd vs Dy CIT WP© 2858/2016 dt: 13.07.2017 (Del), Shri Pradyot K. Misravs ACIT 2023 (10) TMI 1199 (Del), Samsung India Electronics Pvt. Ltd. Vs Dy CIT 362 ITR 460 (Del), Asian Paints Ltd. 296 ITR 90(Bom), Aroni Commercials Ltd. 362 ITR 403 (Bom) and Bharat JayantiLal Patel vs UOI 378 ITR 596 (Bom). The co-ordinate Bench of Hon’ble ITAT in decision of appellant’s own case in ITA No.7244/Del/2019 dt: 12.08.2021in para 34 therein on similar facts has quashed the reassessment proceedings.
V. Borrowed Satisfaction The reason, therefore, are vague, opaque and non-communicative leaving the noticee clueless of the background of satisfaction in the reason that the transactions in question are being accommodation entries. In the case of Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. 395 ITR 677 (Del), it was held that reproduction of information without showing how the material referred in therein does not show application of mind by the AO in absence of any specific discussion on the material on the basis of which independent prima facie belief is reached that income has escaped assessment. To support the above proposition of law regarding non-application of mind by the AO on the reasons recorded, the reliance is placed on following decisions:
Pr. CIT vs. RMG Polyvinyl (I) Ltd., (2017) 396 ITR 5 (Del;
Pr. CIT v. G & G Pharma India Ltd 384 ITR 147 (Del.);
CIT vs Independent Media Pvt Ltd in ITA 108/2015 (Del);
Signature Hotels P. Ltd. Vs. ITO – [2011] 338 ITR 0051 (Del);
CIT Vs. SFIL Stock Broking Ltd. 325 ITR 285 (Del);
Sarthak Securities Co. P. Ltd. Vs. ITO 329 ITR 110 (Del);
CIT Vs. Supreme Polypropolene (P) Ltd.ITA No.266/2011 (Del);
CIT vs. Multiplex Trading & Industrial Co. Ltd 378 ITR 351 (Del.);
Hindustan Lever Ltd. Reported in [2004] 137 TAXMAN 479 (BOM.);
CIT vs. Greenworld Corporation 314 ITR 81 (SC);
M/s SynfoniaTradelinks P Ltd vs ITO W.P.(C) No.12544/2018 dt: 26.03.2021 (Del)
VI. Mechanical Approval u/s 151 of IT Act The remarks of the LdPr CIT “Yes I am Satisfied” while granting sanction u/s 151 (PB 123) shows the granting sanction was mechanical and ritualistic. The exercise by the LdPr CIT appears to have been ritualistic and formal rather than meaningful, which goes against the rationale of the safeguard of approval by a higher-ranking officer provided in the Act. Inconsistencies and omissions pointed out in support of ground on non-application of mind are the glaring mistakes committed by the AO and non-pointing out such omissions by the approving authority and resulting non-correction of the same, before the approval was accorded, shows that the said authority have acted mechanically in granting sanction u/s 151 of the Act. Such mechanical approval was found to be fatal for validity of the reassessment proceedings in view of decisions of Capital Broadways P Ltd vs ITO2024(10) TMI (Del), PCIT vs Pioneer Town Planners (P) Ltd 465 ITR 356 (Del), Pr. CIT vs. N. C. Cables Ltd ITA 335/2015 dated11.01.2017 (Del), Chhugamal Rajpalv. S P Chaliha 5 (1971) 1 SCC 453 approved in UOI vs Rajiv Bansal 469 ITR 46 (SC) in para 31 therein, Sanjay Kumar Versus ACIT &Anr 458 ITR 548 (Del), Pr CIT vs MDLR Hotels P Ltd ITA Nos.593/2023 dated 30.07.2024 (Del), SBC Minerals vs ACIT 475 ITR 360 (Del) and Naveen Kumar Gupta vs ITO (supra). It is pertinent to note that on similar facts, the co-ordinate Bench in appellant’s own case in ITA No.6016/Del/2018 dated 14.01.2026 in para 11 therein has quashed the reassessment proceedings.
VII. Unsigned/Undated reasons recorded
From the reasons recorded (PB 104-123, relevant page 123), it can be found that neither the assessing officer nor the Additional Commissioner, Range-20, Delhi has put the date of actions on their part and also the signature suggesting actual action undertaken by the above respective authorities, supposed to be taken in compliance of the provision of sec 148 of IT Act. The unsigned and undated reasons which were considered for granting approval u/s 151 of IT Act partakes character of the process under which approval is taken without recording any reasons for recording and without any recommendation by the Addl CIT as projected in the above portion of reason recorded at page 123. Your kind attention is invited to the decision of co-ordinate Bench in the case of Shri Prahalad Singh vs ITO ITA No.3375/Del/2017 dated 11.05.2018 approved by Hon’ble Punjab and Haryana High Court in ITA No.91 of 2019 dated 27.02.2020 wherein it was held that mere presence of reasons on file does not validate the reassessment process if those reasons are unsigned and undated. The action under Section 147 is quasi judicial and, to meet statutory and procedural accountability, the reasons must bear the signature of the officer recording them; absent a signature the document is an anonymous paper to which no credence can be given. Further, because the reasons were undated, they failed to establish that they were recorded prior to the issuance of the notice under Section 148. Allowing reassessment to proceed on unsigned or undated reasons would permit initiation of quasi-judicial action without attributable responsibility and could lead to misuse or substitution of documents, defeating procedural safeguards. Further, reliance is placed in on following decisions:
Sudhir Kumar vs ITOITA No.5436/Del/2019 dated 29.09.2022;
Sri Pinnamaraju Venkatapathi Rajuvs JCITI.T.A. No.132/Vizag/2016, Date 28.02.2018;
CharanjivLal Aggarwal v. Income-tax Officer [2017] 88 taxmann.com 845 (Amritsar - Trib.);
Shri Dinesh Prabhudas Hingoovs ACITITA No.667/Mum/2024 dated 11.10.2024
Ground No.4Merits of Addition of Rs.8,15,05,000/- u/s 68 rws 115BBE of IT Act
The impugned proceedings are follow up action of the order of Hon’ble ITAT in the first round dated 09.08.2019 (PB 32-55) as per which (PB 2), the assessee was directed to provide addressed and whereabouts of investor companies and their creditworthiness and to enable the assessing officer to directly enquire from those entities. In compliance of above directions, the appellant filed complete details of the addresses and also the details proving creditworthiness of those entities which fact can be proved from the submissions with their acknowledgments dated 22.03.2021 (PB 149-150), 26.07.2021 (PB 151-153), 07.08.2021 (PB 154-156) and 22.09.2021 (PB 157-163) and the evidences of each of the share applicants are placed in paper book at pages 177-506.
It may kindly be noted that order of Hon’ble ITAT dated 09.08.2019 (PB 32-55, relevant pages 53-55) was a combined order along with the group company namely M/s RMP Holding P Ltd (“RMP”) where the shareholders companies were common to the companies involved in present appellant case. The above fact is evident from order of RMP in the original proceedings (PB 76-85) and the details of the companies are involved is on page 77 and 77 back are same companies. The Hon’ble ITAT set aside the proceedings in the case of RMP also with similar direction in the combined order as were given in the appellant case which fact is evident from para 41 of Hon’ble ITAT order (PB 53). The Ld AO is the consequential order passed on 07.09.2021 (PB 87) accepted the credits from the same share applicant as of appellant accepting the identity and creditworthiness of those entities. There was no reason to have a contrary view taken in regard to credits from same companies in case of the appellant company. It is therefore a case where diverse view is taken of the same fact which is contrary to the principles of natural justice. For sake of completeness of facts and verification of above submission, the complete chart of companies involved in appellant case and the case of RMP are detailed hereunder:
| Name of share applicant | Amount accepted by Appellant | Amount accepted by RMP |
|---|---|---|
| Karishma Industries P Ltd (Earlier known as Karishma Industries Ltd) | Rs.75,00,000/- | Rs.45,00,000/- (2 entries) |
Zenith Automotive P Ltd Rs.25,00,000/- Rs.25,00,000/-Victory Software P Ltd Rs.25,00,000/- Rs.25,00,000/-Sunny Cast & Forge Ltd Rs.1,20,00,000/- Rs.15,00,000/-
| Attractive Finlease P Ltd | Rs.85,00,000/- | Rs.50,00,000/- (2 entries) |
| Aasheesh Capital Services P Ltd | Rs.75,00,000/- | Rs.50,00,000/-(2 entries) |
Apoorva Leasing Finance & Investment P Rs.50,00,000/- Rs.1,25,00,000/- (4 Ltd entries) Ad-Fin Capital Services P Ltd Rs.45,00,000/- Rs.25,00,000/-Euro Asia Mercantile P Ltd Rs.75,00,000/- Rs.50,00,000/- (2 entries) Hum Tum Marketing P Ltd Rs.65,00,000/- Rs.25,00,000/-Alstone Textiles (India) Limited (formerly Rs.1,00,00,000/- Rs.25,00,000/-known as M/s Shalini Holdings Ltd) Mega Top Promoters P Ltd Rs.75,00,000/- Rs.25,00,000/-Finage Lease & Finance India Ltd Nil Rs.25,00,000/-
| Total | Rs.8,10,00,000/- | Rs.5,10,00,000/- |
The Ld AO on pages 5-7 of AO order (PB 3-4) mention of notices issued u/s 133(6) to all the 13 parties which have provided share capital during the year under consideration but it appears that the some of the parties have not responded to the notices. The notices issued u/s 133(6) were served to each of the share applicants which is proved from para 3.1.3(d) at page 16 of AO order (PB 8 back). The appellant vide letter dated 22.09.2021 (PB 157-163) objects that identification of parties have not been mentioned in show cause notice dated 18.09.2021 (PB 143-148) who have not replied to such notices and in view of this fact, no adverse inference is proposed to be taken for such non-compliances. The Ld AO in para 3.1.1 at page 9 of AO order(PB 5) mentions that reply has been received from M/s Euro Asia Mercantile P Ltd. But the above fact was never communicated to the appellant during reassessment proceedings. If the compliance of the same is critical for Ld AA no penalty for such non-compliance was imposed to those entities and no effort has been made the Ld AA to enforce compliance of such notices by those entities. It is settled law that the AO may be justified in certain circumstances when notice is not served or when an adverse reply is received in response to notice issued by him under Section 133(6), but merely non-receipt of reply can be a justification for drawing adverse inference in view of decision of Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation 159 ITR 78. The Hon’ble Delhi High Court in the case of PCIT vs WelIntertrade P Ltd 152 taxmann.com 663 (Del) held that mere non-response to notices under Section 133(6) of the Act could not have been used as a reason by the AO to make an addition.
Coming to allegation of creditworthiness of the shareholder/investor is not proved as in most of the cases, the regular income as per the returns of income available is meager and in some cases for assessment year under consideration is not filed. In this connection, it was submitted that audited balance sheet which is submitted with Ministry of Corporate Affairs is available and duly submitted by appellant in replies dated 26.07.2021, 07.08.2021 and 22.09.2021 (PB 151-163) and same are placed in paper book at pages177-506. The fact that regular income of the investor companies is not matching with the investment made and that is the reason for doubting the creditworthiness of share applicant. Our most humble submission is that there is no logic that it is the current year income which can be utilized for making investment by any entity. This is faulty presumption. The investor can invest its surplus funds which are available to him as part of past accumulations and such accumulation are legitimate source of an investor for making investment in any enterprise. On the issue of current year income being the only criteria based on current year income, reliance is placed on the decision of jurisdictional Delhi High Court in the case of Pr. CIT vs. Goodview Trading Pvt. Ltd. 97 CCH 0381 (Del) approved by supreme court in 103 CCH 0304 (SC), ITO vs. Computer Home Information Plus Pvt. Ltd. ITA No.5680/Del/2016 dated 24.05.2019, Addl. CIT vsPrayagPolytechPvt Ltd ITA No.5970/Del/2017 dt: 18.06.2019 and M/s WelIntertrade P Ltd vs ACIT ITA No.7166/Del/2018 dt: 03.06.2019.
To prove the creditworthiness of the investors, the following compilation will show that each investor companies had more than sufficient resources in the form of shareholder funds consisting of paid-up share capital and reserves and surplus.
| Name of Shareholder | Share Capital/Share Premium Accepted | Shareholder Funds (Share Capital plus Reserves and Surplus) | Investment in Balance Sheet (Page Number) |
| Karishma Industries P Ltd (Earlier known as Karishma Industries Ltd) | Rs.75,00,000/- | Rs.133.74 Crore | 340 |
| Zenith Automotive P Ltd | Rs.25,00,000/- | Rs.169.747 Crore | 471 back |
| Victory Software P Ltd | Rs.25,00,000/- | Rs.191.428 Crore | 491 |
| Sunny Cast & Forge Ltd | Rs.1,20,00,000/- | Rs.125.48 Crore | 424 |
| Attractive Finlease P Ltd | Rs.85,00,000/- | Rs.105.05 Crore | 280 |
| Aasheesh Capital Services P Ltd | Rs.75,00,000/- | Rs.123.36 Crore | 446 |
| Apoorva Leasing Finance & Investment P Ltd | Rs.50,00,000/- | Rs.120.85 Crore | 396 |
| Ad-Fin Capital Services P Ltd | Rs.45,00,000/- | Rs.94.29 Crore | 254 back |
| Euro Asia Mercantile P Ltd | Rs.75,00,000/- | Rs.481.142 Crore | 304 back |
| Hum Tum Marketing P Ltd | Rs.65,00,000/- | Rs.193.737 Crore | 201 |
| Alstone Textiles (India) Limited (formerly known as M/s Shalini Holdings Ltd) | Rs.1,00,00,000/- | Rs.124.87 Crore | 223 |
| Mega Top Promoters P Ltd | Rs.75,00,000/- | Rs.164.138 Crore | 374 back |
Further, as discussed hereinbefore in preceding Grounds, in view of the fact that the returns of the shareholder companies in nine cases out of twelve cases have been accepted by their jurisdictional AO in the assessment proceedings initiated in consequence of same search on Sh S.K. Jain which is the basis for taking adverse view on those shareholder companies. The AO of investor companies in the assessment order passed u/s 153A/153C dt: 28.03.2013 has not given any adverse finding on the activities of the companies assessed ruling out their role as a dummy company of searched group. Once the assessment has been framed by the jurisdictional AO, their remains no doubt either on their identity, creditworthiness and genuineness of the transactions and their remains no reason for making addition in hands of appellant. Reliance is already placed on decisions cited in preceding ground.
The Hon’ble Calcutta High Court in the case of CIT vs Dataware P Ltd ITA No.263 of 2011 dt: 21.09.2011 (Para 4 & 5) wherein it is held that creditworthiness of the shareholder can only be verified by the AO of the shareholder and not by the AO making addition u/s 68 in the hands of the investee assessee. The Court went to extent that in case return of income of the shareholder is not rejected by his AO, the assessing officer of the investee assessee is bound to accept the same as genuine where identity of shareholder and genuineness of the transaction stands established. It is submitted that since the share application money has been remitted through banking channel and no adverse findings is given by their AO’s in their assessment order then in the absence of any adverse material on record the genuineness of the share application money cannot be questioned. Reliance is placed in the decision of PCIT v. Adamine Construction (P.) Ltd. (2018) 264 taxman 280 (Del) SLP of revenue is dismissed by Apex Court in. (2018) 264 Taxman 279 wherein it was held that “No addition can be made u/s 68 of the IT Act when AO went by only the report received and did not make the necessary further enquiries such as into the bank accounts or other particulars available with him but rather received the entire findings on the report, which cannot be considered as primary material. The assessee had discharged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO.”
In the case of Nova Promoters &Finlease (P) Ltd 342 ITR 169 (Del.) which is often used to buttress the point that in the cases where funds are received from the parties who are labelled as entry operators, applies in its favour. In the above the following observations made in the relevant para:
“These quoted observations clearly distinguish the present case from CIT v Oasis Hospitalities P Ltd. (supra). Except for discussing the modus operandi of the entry operators generally, the Assessing Officer in that case had not shown whether any link between them and the assessee existed. No enquiry had been made in this regard. Further, the assessee had not been confronted with the material collected by the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing.”
It is incumbent on the assessing authority to verify and made enquiry from AO of those shareholders, banks, ROC etc on the material placed before AO before rejection of explanation, the appellant seeks to place reliance on the judgment of CIT vs. Goel Sons Golden Estate Pvt Ltd. Delhi High Court ITA 212/2012, Pr. CIT VsLaxman Industrial Resources Ltd in 397 ITR 106 (Del) dated 14.03.2017, Pr. CIT vs. Green Valley Plywood Limited (ITA No. 358/2016 dated 1.6.2016) (Del) Pr. CIT vs Rakam Money Matters Pvt Ltd ITA 778/2015 Dated 13.10.2015 (Del) and CIT vs M/s Russian technology Centre (P) Ltd (2018) 300 CTR 0501 (Del).
There is objection by the Ld AO at pages 9-15 of AO’s order (PB 5-8) that in some cases, confirmations from the investor are not provided. It is submitted that the appellant has provided confirmation of account, ITRV, relevant period bank statement, affidavits, audited financials, share application form, Board Resolution, PAN Card, annual return, latest master data etc of each of the share applicants which are placed in paper book at pages 177-506 and same were submitted during assessment proceedings vide letters dt: 23.03.2021, 26.07.2021, 07.08.2021 and 22.09.2021 (PB 149-163). However, in respect of the investment of Rs.5000/- by Sh Kunal Chanana at Item No. k in para 3.1.2 at page 16 of AAO order (PB 8 back) was not covered by the mandate of the Hon’ble ITAT as no addition was made and therefore not contested before Hon’ble ITAT. Therefore, the above addition needs to be deleted as same has been made without authority.
Regarding doubting of genuineness of transaction and verification of share premium as per para 3.1.3(g) of the AO order at page 17 therein (PB 9), it is submitted that the both are outside the scope as per direction of the Hon’ble ITAT which has been explained in preceding para. There is no objection raised by Ld AO in respect of the identity of the investors, however each of the investors has done the investment through banking channels and from there bank accounts which shows that the investing entity is existing entity and in nine cases are assessed by the department in post search assessment as discussed hereinbefore. Furthermore, each of the investor entities being corporate body is compliant of the ROC submissions as required under companies Act as evident from master data downloaded.
No reason is given that the evidences furnished are not implausible and in that case the evidences furnished are deemed to be accepted. To support the above view, reliance is placed in the decision of Bombay Hardware Syndicate vs. CIT 92 ITR 160 (Mad),CIT vs. Fair Finvest Ltd., ITA No. 232/2012 (Del) and CIT vs . Winstral Petrochemicals Pvt. Ltd. 2010 330 ITR 603 (Del). Your Honour's attention is invited to the decision in the case of CIT vsKamdhenu Steel & Alloys Limited and Others [(2012)206 Taxman 254(Delhi)] upheld by the Hon’ble Supreme Court wherein it was held that once the appellant discharges its initial onus u/s 68, the AO is required to consider the evidences furnished and such evidences cannot be brushed aside by him before it could nail the assessee and fasten with a liability u/s 68. Reliance is placed in the decisions of CIT v. Gangeshwari Metal (P) Ltd 30 taxmann.com 328(Del), CIT v Jay Dee Securities & Finance Ltd 32taxmann.com 91 (All); CIT v. Apex Therm Packaging Pvt Ltd 42 taxmann.com 473 (Guj)and CIT vs Victor Electrodes Ltd 329 ITR271 (DEL).
There is unanimity amongst the courts that the assessee is only required to prove the identity of the shareholder. The following judgments are relied upon:
CIT vs. Lovely Exports Pvt. Ltd. 216 CTR 195 (SC)
CIT Vs. Gujarat Heavy Chemicals Ltd. (2002) 256 ITR 795 (SC)
Sofia Finance Ltd (205 ITR 98) (Del) (FB)
CIT vsSteller Investment Ltd 192 ITR 287 (Del) upheld in 251 ITR 263 (SC)
CIT VS Vrindavan Farms (P) Ltd (supra) (Del)
Pr. CIT vs. Goodview Trading Pvt. Ltd. (supra)
CIT vs Divine Leasing & Finance Ltd. 299 ITR 268 (Del)
CIT vs Gangaur Investment Ltd. (335 ITR 359) (Del)
CIT vsDwarkadhish Investment (P)Ltd. 330 ITR 298(Del)
CIT v. Winstral Petrochemicals Pvt Ltd 330 ITR 603 (Del);
On the other hand, ld. DR of the Revenue objected to the submissions of the ld. AR and submitted on the issue of section 147(b) and 151 approval, as clerical errors and on the other issues, he heavily relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. Before us, ld. AR of the assessee made detailed submissions on other jurisdictional issues raised by the assessee. At the time of hearing, assessee has raised jurisdictional issues vide ground nos.1 to 3 before us which relates to obtaining/initiating proceedings u/s 148 and for obtaining the approval u/s 151 of the Act. The proforma for sanction/ approval u/s 151 of the Act is placed on record by the assessee. Since both the parties had made detailed submissions only on the technical issues raised in the grounds 1 to 3, we are restricting ourselves to adjudicate only this issue. Rests are not adjudicated at this stage and kept them open.
At the time of hearing, it is specifically brought to our notice point no.7 of proforma for sanction/approval u/s 151 of the Act, wherein the provisions of section 147(b) were referred which was omitted and which is no longer applicable. It was submitted that this provision was mechanically applied by the Revenue. Non application of mind is discernible from the above performa filed for approval u/s 151 of the Act. In item No.7(PB 104) which says “Whether the provisions of sec. 147(a), 147(b) are applicable or all the sections are applicable”, the AO in the reply mentions applicable provision being section 147(b). We observed that sections 147(a)/147(b) have ceased to be in the statute book from 01.04.1989. The mentioning of these incorrect and non-existing sections is a clear case of non-application of mind by the AO and also by the authorities providing satisfaction u/s 151.
With regard to other issue raised by the assessee that approval was granted u/s 151 with the standard proforma, we observed that the remarks of the Ld. Pr. CIT “Yes I am Satisfied” while granting sanction u/s 151 shows the granting sanction was mechanical and ritualistic and the exercise by the Ld. Pr CIT appears to have been ritualistic and formal rather than meaningful, which goes against the rationale of the safeguard of approval by a higher-ranking officer provided in the Act. We further observed that inconsistencies and omissions pointed out in support of ground on non-application of mind are the glaring mistakes committed by the AO and non-pointing out such omissions by the approving authority and resulting non-correction of the same, before the approval was accorded, shows that the said authority have acted mechanically in granting sanction u/s 151 of the Act.
With regard to above two jurisdictional issues vide para 10 to 12 above, in this regard, ld. AR relied on various decisions. We observed that in the case of Naveen Kumar Gupta vs ITO in ITA No.592/Del/2020 dated 18.06.2025(wherein the Accountant Memberis the author of that order), the ITAT has dealt with this issue as under :-
“13.It is specifically brought to our notice point no.7 wherein the provisions of section 147(b) was referred which was omitted and which is no longer applicable. It was submitted that this provision was mechanically applied by the Revenue. Further it is brought to our notice that the above sanction was granted without recording the date of sanction. We observed that no doubt, Pr.CIT has granted the approval and not mentioned any date. We observed that on the similar facts on record, the ITAT, Mumbai has considered the similar issue in ITA No.3309/Mum/2024 (supra) and ITAT, Mumbai has considered the issue of undated sanction of approval and also the issue of reference to section 147(b) and held as under :-
7.1.As mentioned above, the notice was issued on 20/02/2015 and the approval was sought on 11/02/2015 but it can be seen that no date is mentioned for granting approval, therefore, we do not know whether it was before issuing the notice u/s 148 of the Act or after.
8.The ld. Counsel vehemently argued that the approval is not only mechanical but cryptic and full of errors inasmuch as, at point no. 7., the question is “Whether the provisions of Sec. 147(a) or 147(b) are applicable or both the sections are applicable” and the answer is “Only 147(b)”. We find that the provisions of Section 147(b) have been deleted long bank.
9.On identical set of facts, the Co-ordinate Bench in ITA Nos. 92-94/Mum/2019, dated 28/10/2020, had the occasion to consider an identical approval and held as under:-
“5.3.We find that the reopening in the instant case has been made beyond four years from the end of the relevant assessment year which requires sanction of approval from the ld. PCIT u/s.151(1) of the Act. We find from page 1 of the Case Law Paper book filed by the assessee before us containing proforma in the prescribed format seeking sanction of approval u/s.151(1) of the Act, that the said proforma was sent by the ld. AO to the ld. PCIT through proper channel i.e. Additional CIT on 08/01/2016. For the sake of convenience, the entire proforma is reproduced herein:-………..
5.4.From the aforesaid proforma, it could be seen that question No.7 specifically mandate the ld. AO to mention whether the provisions of Section 147(a) or 147 (b) or both the sections are applicable. In response thereto, the ld. AO had mentioned only 147(b). We find that the provisions of Section 147(b) has been omitted from the statute book long back and was certainly not in force for A.Y.2010-11. We find that the ld. CIT(A) without looking into these facts had accorded a mechanical approval without due application of mind. We find that reliance placed by the ld. AR on the decision of Hon’ble Jurisdictional High Court squarely clinches the issue before us in this regard in the case of Smt. KalpanaShantilalHaria vs. ACIT referred to supra, wherein it was held that:-
“6.The grievance of the petitioner is that there is no proper sanction in view of non application of mind by the Joint Commissioner of Income Tax. The Assessing Officer has invoked a provision of law to sustain the impugned notice which is admittedly not in the statute and the Joint Commissioner has yet approved it.
7.Mr. Chanderpal, learned Counsel appearing for the Revenue tendered a copy of the letter dated 19th December, 2017 issued to the petitioner wherein the Assessing Officer has stated that the words “147(b)” were inadvertently filled in the prescribed form, instead of Section 147 of the Act while obtaining the sanction from the Joint Commissioner of Income Tax. It is further submitted on behalf of the Revenue that the same is a curable defect under section 292B of the Act. Therefore, the impugned notice cannot be held to be bad for mere incorrect mentioning of section on account of the mistake.
(emphasis supplied by us)
…………..
5.12.Since the entire reopening of assessment had been quashed on the aforesaid aspect, we need not go into other grounds raised by the assessee both on law as well as on merits and they are hereby left open.
9.1.In this common order, ITA No. 94/Mum/2019 is of the assessee for AY 2010-11. On finding parity of facts, respectfully following the decision of the Co-ordinate Bench, we have no hesitation in quashing the impugned assessment order.”
14.Further it was submitted before us that approval was granted u/s 151 with the standard proforma wherein it was mentioned at Sl.No.13 or Point No.13 “on the basis of reasons recorded, I am satisfied that it is a fit case for the issue of notice u/s 148 of the Act.” Below that ld. Pr.CIT merely signed it without recording the date of sanction. In this regard, it was argued before us that ld. Pr.CIT has sanctioned the same without application of mind and it is only a mechanical approval. In the case of ACIT vs. Vikas Strips Pvt. Ltd. in ITA No.2811/Del/2024 dated 17.04.2025, the coordinate Bench has held as under:-
“5.The assessee is engaged in the business of manufacturing and trading of iron and steel i.e. C.R. sheet and H.R strips. The assessee filed a letter dated 24-04-2015 stating that the return originally filed by it on 7-8-2008 may be treated as a return in response to notice under section 148 of the Act. Thereafter, the assessee sought the copy of reasons recorded for reopening the assessment, which were duly furnished to the assessee on 9-11-2015. During the course of hearing, the approval papers under section 151 of the Act granted by the Learned JCIT, Range- 26, New Delhi was placed on record. On perusal of the proforma seeking approval u/s 151 of the Act, we find that the learned JCIT had merely stated that ‘Yes, it’s a fit case for issue of notice u/s 148’ for reopening. This sort of approval granted u/s 151 of the Act was held to be approval granted without application of mind and construed as mechanical by the Hon’ble Madhya Pradesh High Court in the case of CIT Vs. S. Goenka Lime and Chemicals Ltd reported in 56 taxmann.com 390 (MP HC). The Special Leave Petition (SLP) filed by the revenue against this decision was dismissed by the Hon'ble Supreme Court reported in 64 taxmann.com 313. Further, we find that the Hon’ble Jurisdictional High court in the case of PCIT Vs. NC Cables Ltd reported in 391 ITR 11 (Del) had also held the same, wherein, the approving authority had merely stated “approved” in the proforma while granting approval in terms of section 151 of the Act. This approval was held by the Hon’ble Jurisdictional High court to be a mechanical approval. The relevant observation of the Hon’ble Jurisdictional High Court in this regard are reproduced herein:-
“11.Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed.
12.The substantial questions of law framed are answered in favour of the assessee and against the Revenue. The appeal is dismissed.”
6.Respectfully following the aforesaid decisions, we hold that the reopening has been made in the instant case by not taking approval u/s 151 of the Act from the competent authority in the manner known to law. Accordingly, the entire reassessment proceedings are hereby quashed. Hence, one of the legal grounds in the Rule 27 Petition challenging the validity of assumption of jurisdiction u/s 147 of the Act is allowed in the above mentioned terms. Since the reassessment is quashed, the other legal grounds raised by the assessee in the Rule 27 Petition as well as the grounds raised by the revenue on merits need not be adjudicated and they are left open.”
15.In the above case, the ld. Pr.CIT has stated in the sanction letter “Yes, it is fit case for issue of notice u/s 148 for reopening”. However, in the given case, there is a standard format and ld. Pr.CIT has not even mentioned anything on the face of the proforma, and simply recorded his signature without any date on top of the standard format written as, “13. On the basis of reasons recorded, I am satisfied that it is a fit case for the issue of a notice under section 148 of the I.T. Act, 1961”. It clearly indicates that it is only mechanical approval and following the aforesaid decision, we are inclined to quash the reassessment proceedings which are against the provisions of section 151 of the Act.”
In view of our above findings and respectfully following the aforesaid decisions, we quash the reassessment proceedings and accordingly allow legal issues raised vide grounds no.1 to 3.
Since we have quashed the reassessment proceedings, other grounds on merit are not argued before us and the same is not adjudicated and they are left open.
In the result, the appeal of the assessee is allowed as indicated above.