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Advocates
  • Susan Linhares
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  • F.M. REISNutan D. Sardessai
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citation codes
Case Number
Advocates
  • Susan Linhares
Judges
  • F.M. REISNutan D. Sardessai
Acts
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Smart Summary

Structured Summary of the Opinion — F.M. Reis, J. (Order)

Factual and Procedural Background

This appeal challenges orders of the Commissioner of Income Tax (Appeals) which were confirmed by the Income Tax Appellate Tribunal (ITAT). Those authorities set aside an assessment order passed under Section 147 of the Income Tax Act on the ground of escaped assessment. The Assessing Officer had re-opened assessment on the basis that certain shares acquired by the Respondents were alleged to have been purchased through fictitious companies which did not exist. To support that contention the Revenue recorded statements of two persons (one from Calcutta and another from Delhi) suggesting the non-existence of those companies. The Respondents produced voluminous documentary material (including incorporation documents, Memorandum and Articles of Association, earlier assessment orders and bank records) to establish the companies' existence. The Revenue contended that the lower authorities erred in preferring the respondents' documentary evidence over the recorded statements and sought remand for cross-examination of the two declarants; it also contended that substantial questions of law arise under Section 260A of the Income Tax Act. The High Court heard counsel for both sides and disposed of the appeal by rejecting it.

Legal Issues Presented

  1. Whether the re-opening of assessment under Section 147 of the Income Tax Act was valid in light of the allegation that shareholders were fictitious companies.
  2. Whether the documentary evidence produced by the Respondents sufficed to discharge the initial burden of proving the existence of those companies, thereby shifting the onus to the Revenue.
  3. Whether the matter should be remanded to the Assessing Officer to permit cross-examination of the two persons whose statements the Revenue had recorded.
  4. Whether substantial questions of law arise in this appeal for consideration under Section 260A of the Income Tax Act.

Arguments of the Parties

Appellant's Arguments (Revenue)

  • The Assessing Officer validly re-opened assessment under Section 147 on the ground that shares were purchased through fictitious companies that did not exist.
  • The Revenue recorded statements of two persons (from Calcutta and Delhi) establishing that the companies did not exist and that the addresses disclosed no existence of the companies.
  • The CIT(A) and ITAT erroneously relied upon documents produced by the Respondents while overlooking the statements of the two persons which, according to the Revenue, clearly proved non-existence.
  • The Assessing Officer was willing to produce those two persons for cross-examination; accordingly, the matter should be remanded to permit such cross-examination and for the Assessing Officer to take a fresh decision.
  • There are substantial questions of law arising in the appeal under Section 260A of the Income Tax Act.

Respondents' Arguments

  • The CIT(A) correctly observed that proceedings under Section 147 are for assessing escaped assessment and not for mere re-verification; that aspect was not challenged before the ITAT, which undermines the Revenue's reliance on the Assessing Officer's jurisdiction to re-open for verification purposes.
  • The initial onus of proving the genuineness/existence of the investing companies lies on the assessee; the Respondents discharged that burden by producing voluminous documentary evidence including incorporation certificates, Memorandum and Articles of Association, audit reports, bank statements and earlier assessment orders.
  • The Revenue failed to bring any material on record to rebut those public documents; merely recording statements of two persons (who were not subjected to cross-examination) does not justify discarding the documentary evidence.
  • An order passed without giving the assessee an opportunity to cross-examine the declarants would be a nullity; the Assessing Officer should have allowed cross-examination at the relevant stage if the Revenue intended to rely on those statements.
  • Both CIT(A) and ITAT concurrently appreciated the documentary materials and arrived at factual findings based on public records; the Revenue has not established perversity in those findings, and therefore no substantial question of law arises.
  • Counsel relied on several judicial authorities to support the proposition that the matters are questions of fact and that documentary evidence shifts the burden to the Revenue.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Creative World Telefilms Ltd. [2011] 333 ITR 100 / 15 taxmann.com 183 / 203 Taxman 36 (Bombay) The opinion cites this judgment as relied upon by Respondents; the provided text does not specify the exact principle from the case beyond its use in support of the general proposition that documentary evidence shifts burden. The Court treated this judgment as part of the body of authority supporting the view that once the assessee produces documentary evidence to establish existence of companies, the burden shifts to the Revenue to rebut it; accordingly, it contributed to the conclusion that no substantial question of law arises.
CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272 / 247 Taxman 245 / 394 ITR 680 The opinion cites this judgment as relied upon by Respondents; the provided text does not set out a specific excerpt or rule beyond its citation in support of the documentary-evidence/burden-shifting proposition. The Court treated this judgment (together with other cited decisions) as authority for the proposition that documentary evidence from public records displaces the initial burden and that the Revenue must produce material to rebut it; this contributed to refusing interference in the present appeal.
CIT v. Goa Sponge and Power Ltd. (Tax Appeal No.16/2012, judgment dated 13.02.2012) The opinion cites this judgment as relied upon by Respondents; the text does not provide the specific rule or paragraph cited from this decision. The Court regarded this decision as part of the cited precedential support showing that documentary production by the assessee can satisfy the initial burden and that subsequent challenges by the Revenue amount to questions of fact, not substantial questions of law.
Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd. [1986] 159 ITR 78 / 25 Taxman 80F (Apex Court) The Court specifically emphasized Paragraph 13 of the judgment: if a tribunal's conclusion is based on some evidence and is not unreasonable or perverse, no question of law arises; the assessee who produced names/addresses of creditors could not be expected to do more where Revenue did not pursue inquiries. The High Court quoted Para 13 and applied its reasoning directly: since Respondents produced documentary evidence from public records and the Revenue did not establish that those findings were perverse, the matter presented questions of fact rather than substantial questions of law—supporting rejection of the appeal.

Court's Reasoning and Analysis

The Court proceeded by addressing the rival contentions, and by examining the record and documentary material produced by the Respondents. Its analysis unfolded along the following lines:

  • The central factual dispute concerned whether the shareholders who invested in the Respondents' company were fictitious companies or genuine entities.
  • The Respondents produced substantial documentary material (described as a 550-page dossier) consisting largely of public records: certificates of incorporation, Memorandum and Articles of Association, certificates of commencement, acknowledgements of return of income, affidavits of directors confirming investment, share allotment documents and certificates, audited accounts, bank statements showing receipt by RTGS and bank certifications of receipt through banking channels, and assessment orders for preceding years.
  • On review of those documents, the Court observed they emanated from public offices that maintain company records and that they included registration documents disclosing registered addresses and assessment orders for prior years.
  • The Revenue failed to produce any material to rebut those public documents or to explain how such companies could have been assessed in earlier years if they were fictitious. In particular, the two statements relied upon by the Revenue were not supported by cross-examination, and the Assessing Officer (if he intended to rely on them) should have allowed the Assessee an opportunity to cross-examine those deponents.
  • The Court emphasized that, in an appeal under Section 260A, it is not permissible to re-appreciate the evidence afresh; where the lower authorities have rendered findings of fact based on undisputed documentary evidence, those findings cannot be disturbed unless shown to be perverse or based on a misreading or suppression of material evidence.
  • The Court relied on the apex court authority (Orissa Corporation) to reinforce that if a conclusion is based on some evidence and is not unreasonable or perverse, no substantial question of law arises warranting interference.
  • Furthermore, the Court noted that CIT(A) had observed proceedings under Section 147 are for assessing escaped assessment and not for re-verification; that observation was not challenged before the ITAT and therefore further undermined the Revenue's contentions regarding the scope of re-opening.
  • Consequently, the Court found no infirmity in the concurrent findings of the ITAT and CIT(A) and concluded there were no substantial questions of law for consideration under Section 260A.

Holding and Implications

Holding: APPEAL REJECTED

Implications:

  • The impugned orders passed by the CIT(A) and confirmed by the ITAT stand; the assessment order under Section 147 (which had been set aside by those authorities) will not be revived by this Court.
  • The Court concluded that the Respondents' documentary production (drawn from public records) sufficiently discharged the initial onus of proving the existence of the investing companies, and the Revenue did not produce material sufficient to rebut those documents.
  • The Court held that the Revenue's reliance on statements of two un-cross-examined persons did not justify remand or re-opening in the face of undisputed public documents, and therefore there were no substantial questions of law to entertain under Section 260A. No new legal precedent was propounded; the decision is confined to the direct effect that the High Court will not interfere with the factual findings of the lower authorities in this case.

This summary is based exclusively on the content of the provided opinion and does not add or infer information beyond what the opinion contains.

Show full summary ...

    Principal Commissioner of Income-tax, Panji v. Paradise Inland Shipping (P.) Ltd.

    ORDER

    F.M. Reis, J. - Heard Ms. Susan Linhares, learned Counsel appearing for the Appellant and Mr. Jain, learned Counsel appearing for the Respondents.

    2. The challenge in the above Appeal is to Orders passed by the Commissioner of Income Tax (Appeals) and confirmed by the Income Tax Appellate Tribunal, whereby an Order passed under Section 147 of the Income Tax Act on the ground of escaped assessment, came to be set aside.

    3. Learned Counsel appearing for the Appellant has pointed out that the main ground on which the Assessing Officer has made the assessment under Section 147 of the Income Tax Act, is that shares which were purchased are by fictitious Companies which are not existing. It is further pointed out that the Appellants-Revenue had recorded statements of two persons one from Calcutta and the other from Delhi to show that such Companies were not existing nor the addresses mentioned disclosed any existence of the Company. Learned Counsel further pointed out that the CIT Appeals has erroneously relied upon the documents produced by the Respondents overlooking the statement of the said two persons which clearly proved otherwise. It is further pointed out that the Assessing Officer is willing to subject the said two persons for cross examination and, as such, the matter be remanded to the Assessing Officer to take a fresh decision after giving the Respondents an opportunity to cross examine the said two persons. Learned Counsel has further pointed out that such findings of the Appellate Authorities are erroneous and contrary to the record, without examining that the Respondents have failed to discharge the burden to establish the existence of such Companies who had invested the shares in the Company of the Respondent. Learned Counsel as such pointed out that there are substantial questions of law which arise in the present Appeal for consideration under Section 260-A of the Income Tax Act.

    4. On the other hand, Mr. Jain, learned Counsel appearing for the Respondents, initially brings to our notice the findings of the CIT Appeals at page 44 wherein it has been clearly observed that a case can be re-opened under Section 147 of the Income Tax Act for assessing escaped assessment and not for making verification. Learned Counsel further pointed out that these observations of the CIT Appeals have not been challenged before the Income Tax Appellate Tribunal which itself would show that the very jurisdiction of the Assessing Officer to proceed to examine escaped assessment under Section 147 of the Income Tax Act itself stands vitiated and cannot be sustained. Learned Counsel further submits that it is well settled that the initial burden with regard to the existence of the investments Company would lie on the assessee which has been clearly discharged by producing voluminous documents which included the incorporation of such Companies, the Memorandum of Association, the assessment Orders for three preceding years and other materials to establish the existence of the Companies. Learned Counsel further submits that the alleged contentions of the Appellants that the Companies itself were not in existence has not been established by the Appellants by any material on record and having failed to discharge such burden, the Appellants are not entitled to now contend that the Assessing Officer was willing to present the persons for cross examination. Learned Counsel further submits that the Order is passed without giving any opportunity to the Assessee for cross examination is a nullity in law and, as such, the question of reviving such Order on the basis of such contention by the learned Counsel appearing for the Appellants, would not at all be justified. Learned Counsel further pointed out that both the authorities be it CIT Appeals as well as ITAT on the basis of the appreciation of evidence on record, concurrently came to the conclusion that the existence of the Companies was based on documents produced from the public records. Learned Counsel further pointed out that the Appellants have not shown any perversity in such findings and, as such, according to him, there are no substantial questions of law which arise in the present Appeal for consideration. Learned Counsel in support of his submission ha relied upon the Judgment of this Court in Bombay in the case of CIT v. Creative World Telefilms Ltd. [2011] 333 ITR 100/15 taxmann.com 183/203 Taxman 36 (Mag.) , the Judgment passed in the case of CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 and a Judgment dated 13.02.12 passed in Tax Appeal No. 16/2012 in the case of CIT v. Goa Sponge and Power Ltd. Learned Counsel has also relied upon the Judgment of the Apex Court reported in 1986(1) Scale 446 in the case of Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd.. [1986] 159 ITR 78/25 Taxman 80F giving emphasis to Para 13 thereof to point out that the contention of the Appellants are basically questions of facts and not substantial questions of law.

    5. We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the shareholders who have invested in the shares of the Respondents are fictitious or not. In this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies has produced voluminous documents which, inter alia, have been noted at Para 3 of the Judgment of the CIT Appeals which reads thus :

    "The assessment is completed without rebutting the 550 page documents which are unflinching records of the companies. The list of documents submitted on 09.03.2015 are as follows :

    1. Sony Financial Services Ltd. - CIN U74899DL1995PLC068362-

    Date of Registration 09/05/1995

  • (a) Memorandum of Association and Article of Association
  • (b) Certificate of Incorporation
  • (c) Certificate of Commencement of Business
  • (d) Acknowledgment of the Return of Income AY 08-09
  • (e) Affidavit of the Director confirming the investment
  • (f) Application for allotment of shares
  • (g) Photocopy of the share certificate
  • (h) Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2009.
  • (i) Audited account and Directors report thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010
  • (j) The Bank Statement highlighting receipt of the amount by way of RTGS.
  • (k) Banks certificate certifying the receipt of the amount through Banking channels."

    • 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies.

    7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or failure to examine any material documents whilst coming to such conclusions. Under the guise of the substantial question of law, this Court in an Appeal under Section 260A of the Income Tax Act cannot re-appreciate the evidence to come to any contrary evidence. Considering that the authorities have rendered the findings of facts based on documents which have not been disputed, we find that there are no substantial question of law which arises in the present Appeal for consideration.

    8. The Apex Court in the case of Orissa Corpn. (P.) Ltd. (supra), has observed at Para 13 thus :

    "13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income- tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under S. 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises."

    9. This Court in the Judgments relied upon by the learned Counsel appearing for the Respondents, have come to the conclusion that once the Assessee has produced documentary evidence to establish the existence of such Companies, the burden would shift on the Revenue-Appellants herein to establish their case. In the present case, the Appellants are seeking to rely upon the statements recorded of two persons who have admittedly not been subjected to cross examination. In such circumstances, the question of remanding the matter for re-examination of such persons, would not at all be justified. The Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents.

    10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. Apart from that, as rightly pointed out by the learned Counsel appearing for the Respondents, the CIT Appeals had also noted that proceedings under Section 147 of the Income Tax Act cannot lead to re- verification of the records. These findings of the CIT Appeals have not been assailed before the Income Tax Appellate Court.

    11. In such circumstances, we find that there is no case made out by the Appellants-Revenue for any interference in the impugned Orders passed by the Courts below.

    12. Hence, the Appeal stands rejected.

    POOJA

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    Comments

    Principal Commissioner of Income-tax, Panji v. Paradise Inland Shipping (P.) Ltd.
    (Apr 10, 2017)