2018 (9) TMI 143 - AT - Income Tax

Tribunal upholds assessment additions based on accommodation entries, emphasizes transaction genuineness.

Pee Aar Securities Ltd. Versus Deputy Commissioner of Income Tax, Circle 14 (1), New Delhi

The Tribunal upheld the validity of the assessment reopening and additions made by the Assessing Officer (AO). The reasons for reopening were based on ... Reopening of assessment - Sanction for issue of notice - Section 68 addition for alleged accommodation entries - share capital / subscription - Held that:- It is not the case of the assessee that the investigation wing report was available to the assessee at the point of time when the original assessment was framed. Learned counsel does not, therefore, get any support from this judicial precedent either. Satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner”. Given the simplicity of the factual matrix of this case, and clearly correct inference drawn from the same, learned CIT clearly showed application of mind when he observed that “based on the reasons recorded above, I am satisfied that this is a fit case for issue of notice under section 148 of the Income Tax Act”. It has not been shown to us as to how this observation reflects non application of mind so far as concealment of income is concerned. We donot see as to how this decision supports the case of the assessee In the light of these discussions, as also bearing in mind, learned CIT(A) was indeed justified in upholding the validity of reassessment. We uphold his action and decline to interfere in the matter. For the merits of addition in the case of CIT v. Precision Finance (P.) Ltd [1993 (6) TMI 17 - CALCUTTA HIGH COURT] it was observed that “it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions”. There is thus no escape from proving genuineness of a transaction. The assessee has failed to do so. We, therefore, confirm the addition in respect of alleged share subscriptions received from these two companies- namely Mahanivesh and Geefcee. As regards the addition in respect of commission, we have seen that there is a categorical finding that these entities were arranging the accommodation entries on the basis of 2.5% commission. We, therefore, confirm this addition as well. Issues Involved:1. Validity of reopening the assessment under Section 148.2. Addition of Rs. 80,00,000 as unexplained credit under Section 68.3. Addition of Rs. 2,00,000 as commission for arranging accommodation entries.4. Procedural lapses and principles of natural justice.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment under Section 148:The assessee challenged the reopening of the assessment on several grounds, including the adequacy of the reasons recorded for reopening and the procedural lapses in obtaining approval. The Tribunal noted that the reasons for reopening were based on information from the Directorate of Income Tax (Investigation) indicating that the assessee received accommodation entries from entities controlled by Tarun Goyal, which were found to be paper entities providing accommodation entries. The Tribunal upheld the validity of the reopening, stating that the Assessing Officer (AO) had a reasonable belief that income had escaped assessment based on the information received. The Tribunal also found that the approval from the Commissioner of Income Tax (CIT) was valid, as it was in addition to the approval from the Additional Commissioner of Income Tax.2. Addition of Rs. 80,00,000 as Unexplained Credit under Section 68:The AO made an addition of Rs. 80,00,000 as unexplained credit, stating that the assessee failed to prove the genuineness of the share application money received from M/s Geefcee Finance Limited and M/s Mahanivesh India Limited. The Tribunal noted that the assessee provided documents such as PAN cards, board resolutions, and bank statements but failed to produce the principal officers of the investing companies or provide satisfactory details about the source of funds. The Tribunal upheld the addition, emphasizing that the assessee did not discharge the onus of proving the genuineness of the transactions, especially given the background of the investing entities being involved in providing accommodation entries.3. Addition of Rs. 2,00,000 as Commission for Arranging Accommodation Entries:The AO assumed that the assessee must have paid at least 2.5% commission to arrange the accommodation entries and made an addition of Rs. 2,00,000 on this account. The Tribunal upheld this addition, citing the finding that the entities were arranging accommodation entries on a commission basis.4. Procedural Lapses and Principles of Natural Justice:The assessee argued that the material used against it was not confronted, and the inspector's report was not shown to it. The Tribunal found that the assessee had taken inspection of the file and was aware of the reasons for reopening the assessment. The Tribunal held that the AO was not required to share the basis of forming the reasons for reopening the assessment, only the reasons themselves. The Tribunal also dismissed the argument that the assessment order was predetermined, finding no merit in the technicalities raised by the assessee.Conclusion:The Tribunal dismissed the appeal, upholding the validity of the reopening of the assessment and the additions made by the AO. The Tribunal emphasized the need to consider the surrounding circumstances, preponderance of probabilities, and ground realities in determining the genuineness of transactions, especially in cases involving shell entities providing accommodation entries.