TaxTMI 
TaxTMI 
2013 (11) TMI 162
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....f Rs.2,18,79,871/-. The return was processed under section 143(1) of the Act. Subsequently, a search had been conducted under section 132 of the Act in case of Shri Sandeep Sitani. Shri Sitani in his statement recorded on oath under section 132(4), had admitted that he had indulged in giving accommodation bills from various companies floated by him which included M/s. Inorbit Advertising and Marketing Services Pvt. Ltd. (M/s. Inorbit) and M/s. Nupur Management Consultancy Pvt. Ltd. (M/s. Nupur). Thereafter, the investigation wing which had conducted the search had forwarded the information / material to the AO having jurisdiction over the assessee as the assessee had entered into transactions with M/s. Inorbit and M/s. Nupur. Based on such information/material, the AO re-opened the assessment in case of the assessee for assessment year 2007-08 after recording the following reasons. "The return of income for AY 2007-08 was filed on 31.10.2007 declaring total income at Rs.2,18,79,871/-. The same was processed u/s.143(1) of the Income tax Act, 1961. Thereafter an information was received from the office of the DDIT (Inv.) Unit VIII(1), Mumbai on 30.06.2009 that the ass....
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....d resulted into claiming of non-existing expenditure by the assessee and thereby deflating profits which should have been offered to tax. The assessment had been re-opened after recording reasons which had been conveyed to the assessee. The AO, therefore, rejected the objections raised by the assessee, vide letter dated 7.12.12 mentioning therein the various points made herein above and finalized the assessment under section 143(3)/147 in which additions have been made on account of accommodation entries. 2.2 The assessee challenged the order of re-opening of the assessment by AO before CIT(A) in which the points made earlier were reiterated. CIT(A) however rejected the contentions raised. It was observed by him that Shri Sandeep Sitani had admitted running the companies including M/s. Inorbit and M/s. Nupur for providing bogus accommodation entries to various business concerns. The assessee had made payments to the above two companies which did not have any facilities to render any services. CIT(A), therefore, held that re-opening of the assessment which was based on material gathered during the course of search and seizure action was legally valid and dismissed the ground rais....
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....nbsp; vi) 79 ITR 603 (SC) Chhugamal Rajpal vs. S. P. Chaliha and Others; vii) 216 ITR 811 (Bom.) I.B.M. World Trade Corporation vs. IAC viii) 18 ITR (Trib.) 363 in the case of Dr. J.Mohan and Another vs. ACIT 2.4 The ld. AR for the assessee further submitted that the assessee had furnished truly and fully all the material facts in the return of income in relation to the claim of expenditure. There was, thus, no failure on part of the assessee which had resulted into escapement of income. It was pointed out that the AO in the reasons recorded had also not mentioned any failure on the part of the assessee in disclosing truly and fully all material facts and, therefore, re-opening of the assessment was bad in law on this ground also. Reliance was placed on the judgment of Hon'ble High Court of Bombay in the case of Titanor Components Ltd. vs. ACIT (243 CTR 520). The ld. AR further submitted that the AO had passed the assessment order on 24.12.2010 soon after disposing off the objections raised by the assessee against re-opening of the assessment vide letter dated 7.12.2010 leaving little time for the assessee for contemplating any action against the ....
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.... of material for re-opening of the assessment was not required. What was required was relevant material for formation of belief which was available in this case. As regards the argument relating to no failure on part of the assessee in disclosing truly and fully all material facts, the ld. DR pointed out that assessment in this case had been reopened within four years from the end of the relevant assessment year and, therefore, this argument was not relevant. Moreover, in this case no assessment had been made under section 143(3) earlier and the case had only been processed under section 143(1). It was thus argued that the re-opening of the assessment being proper should be upheld. 2.7 We have perused the records and considered the matter carefully. The dispute raised in this ground is regarding legal validity of re-opening of the assessment under section 147 of the Act. Under the provisions of section 147 as amended w.e.f. assessment year 1989-90, an assessment can be re-opened by AO if he has reason to believe that any income chargeable to tax has escaped assessment. It is settled legal position that for re-opening of an assessment there should be a direct nexus between materi....
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.... of Asian Paints Ltd. (supra). Since in this case, the reassessment order had been passed on 24.12.2010 soon after rejection of the objections on 7.12.2010, it has been argued that re-assessment should be quashed. We have perused the said judgment of the Hon'ble High Court and considered the material on record. We do not find the plea of the ld. AR convincing. In case of Asian Paints Ltd. (supra), the Hon'ble High Court on writ petition filed by the assessee had directed that, in cases, the objections against re-opening have been rejected by AO, he should not take further action within a period of four weeks so that the assessee had time to challenge the rejection order. It was not held by the Hon'ble Court that in cases where assessment order had been passed without waiting for four weeks, the same will be quashed. In that case, there were several cases in which the AO had already passed the order without waiting for four weeks and these cases had not been quashed by the Hon'ble High Court. Moreover, we also note that the assessee in this case had not raised any specific ground before CIT(A) to challenge the re-assessment order on this ground. We are, therefore, unable to accept t....
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....Nupur in assessment year 2007-08 and based on such material, the AO had formed the belief that income chargeable to tax had escaped assessment. We have, therefore, to see whether on the basis of material contained in the letter dated 30.6.2009 of DDIT(Inv.) a reasonable belief could be formed regarding escapement of income. 2.12 A copy of the said letter has been placed on record. The letter clearly mentions that a search conducted in case of Shri Sandeep Sitani showed that he had floated several companies including M/s Inorbit and M/s. Nupur who had been providing accommodation entries by issuing bogus bills to various concerns without providing any services. There is no dispute that the assessee had claimed expenditure on the basis of bills issued by M/s. Inorbit and M/s. Nupur. Therefore, in our view, based on such material one can form a reasonable belief that income chargeable to tax has escaped assessment due to bogus claim of expenditure. It is not necessary that at the time of re-opening itself, the AO should be able to make a fool-proof case for making addition. As held by the Hon'ble High Court of Delhi in the case of Rajat Export Import India Pvt. Ltd. (supra), relied....
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....rded whether the AO applied mind for escapement of income and, therefore, re-opening was held not valid. In the present case, the AO re-opened the assessment on the basis of material received from Investigation Wing and not on the direction of DDIT (Inv.) and therefore the case is different. In case of Sarthak Securities (P) Ltd. (supra), the AO had received information from the Investigation Wing to the effect that share application money was bogus and was actually accommodation entry. The AO re-opened only on the basis of such information. The Hon'ble High Court noted that the AO was aware of the companies whose existence was not in dispute. The payment had been made by cheque. Therefore, it was held that the AO had reopened the assessment without application of mind. The present case is different in which there was material to show that the assessee had made payments without there being any evidence of services rendered and the persons managing the companies had stated that they were issuing only accommodation bills without rendering any services. The case is obviously different. In case of DCIT vs. Rainee Singh (supra), the AO had re-opened the assessment on the basis of inform....
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.... 1959-60 to 1973- 74 is also distinguishable as the same related to pre-amendment period prior to 1.4.1989 when the legal position was different. In that case, the court also noted that there was no failure on part of the assessee to file truly and fully all material facts and tax on income claimed to have escaped assessment had already been paid by the assessee under section 140A. The case is obviously not applicable to the facts of the present case. The ld. AR has also relied upon the decision of Chennai Bench of the Tribunal in the case of Dr. J.Mohan and Another vs. ACIT (supra), in which case the assessment had been reopened on the basis of statement taken in survey under section 133A of the Act. It was noted by the Tribunal that the statement under section 133A which is not on oath had no evidentiary value as held by the Hon'ble High Court of Kerala in the case of Paul Mathew & Sons (263 ITR 101). It was, therefore, held that there was no proper material for re-opening of the assessment. In the present case assessment had been re-opened on the basis of statement of parties u/s. 132(4) made at the time of search which was on oath. Therefore, it has evidentiary value. The case ....
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.... the companies and modus-opeandi was also given. The reply to Ques.No.16 given by Shri Sandeep Sitani had been reproduced by the AO in the assessment order which is as under :- "I am doing a hawala business to all those companies. I work through agents, do not know any party directly. Agents are : Sr.No. Name of agent Contact No. Address where normally meet him 1 Rajendra Bhimraj 9867375588 I will give you by Friday evening 2. Pawan Chotia 9323157676 3. Vinod Singh 9920697833 4. Vinod Diwedi 9867216527 The above 4 people are regular agents to whom I work regularly. There were agents to whom I work sometimed only. I shall give you their names and addresses and contact Nos. by Friday on 27.06.2008. The transactions are done in the following manner. After opening bank account in a particular bank a cheque book is for issued. This cheque book is signed by either one of my employees namely Mr. Pradeep Prajapati or Mr. Dina Nath Yadav and the entire bank cheque book is handed over to the agent. Many times few leaves from this cheque book are kept by the employee who ....
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....oncern party themselves suo moto in the name of companies controlled by me and if some parties desires a copy of bill then I issue either by cyber café or by printing bill or by typewriter bill. The rate of commission is also not fixed it varies from 5 pages to 20 pages per Rs.100/- if money is returned in cash and if the party wants an accommodation cheque from us by way of cheque then it contents 2 ps. Only." 3.3 Considering the material found during search and statements recorded of Shri Sandeep Sitani and Shri Dinanath Yadav and the fact that the assessee could not produce any evidence of actual rendering of survices the AO concluded that M/s. Inorbit and M/s. Nupur had provided only accommodation entries and not rendered any services. The AO observed that the argument of the assessee that in the statements recorded, the name of the assessee company was not mentioned, was of no relevance, as M/s. Inorbit and M/s. Nupur could not have provided any services. The AO, therefore, disallowed the claim of expenditure of Rs.1,15,41,044/- on account of bills issued by M/s. Inorbit and M/s. Nupur and added to the total income as per details given below:- Date of payment T....
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....isted only on paper. Considering the totality of circumstances and prepondence of probabilities, CIT(A) concluded that the assessee had failed to discharge the onus of establishing the genuineness of expenditure claimed to have been incurred on account of M/s. Inorbit and M/s. Nupur. CIT(A) accordingly confirmed the addition made by AO aggrieved by which the assessee is in appeal before the Tribunal. 3.6 Before us, the ld. AR reiterated the submissions made before the lower authorities that the assessee had made payments for services rendered by the parties. The assessee had co-related the expenditure incurred with the services rendered which was supported by bills and confirmations. The assessee had also filed an affidavits dated 1.10.2010 of Shri Pradeep Prajapati the M.D. of the two companies in which the genuineness of the transactions had been reaffirmed. These confirmations and affidavits were placed at pages 169-179 of the paper book. It was also submitted that the AO had made the additions without any examination or any further material to support the finding that the transactions were not genuine. The AO had acted only on the basis of DDIT(Inv.) and statements of third ....
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....ase of ITO vs. Vijay Kumar Kesar (327 ITR 497) and the decision of the Tribunal in the case of Dr. R.L. Narang (174 Taxman 196). It was accordingly urged that the addition made should be deleted. 3.8 The ld. DR appearing for the revenue on the other hand strongly supported the orders of authorities below. It was argued that the statement of parties who were managing the affairs of the companies stated that the bills issued were only accommodation entries which had been further corroborated by the finding that those companies did not have necessary infrastructure to render any services. There was no evidence produced by the assessee for actual rendering of services. Therefore, only on the basis of bills and confirmations, claim could not be allowed. It was pointed out that based on the same statements, 53 assessees had surrendered income. It was also submitted that the statements made at the time of search had evidentiary value based on which action taken by the department was justified. The ld. DR placed reliance on the judgment of Hon'ble High Court of Allahabad in the case of Dr. S.C. Gupta vs. CIT (248 ITR 782) and on the judgment of Hon'ble High Court of Kerala in the case o....
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....ty statements unless the assessee had been allowed opportunity to cross examine the parties. It is also not in dispute that no cross examination of the parties had taken place. It has therefore been argued that the statements should not be taken into account. Reliance has been placed on the judgment of Hon'ble Supreme Court in the case of Kishanchand Chellaram (supra),. We have carefully gone through the said judgment. The issue before the Hon'ble Supreme Court was not whether the material if not confronted can never be used against the assessee. The issue was whether there was any material evidence to justify the finding of the Tribunal that the remittances by employees at Madras Branch to employees of Mumbai Branch was income of the assessee from undisclosed sources and it was held that there no such material. It would be appropriate to point out here that the material based on which addition is made if not confronted to the assessee can not be taken into account by the Hon'ble High Court and Hon'ble Supreme Court as at that stage only the question of law is required to be answered on the basis of existing evidence. But the same will not apply to the Tribunal where the matter is ....
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....to show that the companies did not have necessary infrastructure to provide such services and the complete details of employees had not been given. The claim of rendering of services by the companies therefore can not be accepted only on the basis of an affidavit. The transaction can also not be taken as genuine only on the basis of bills or on the ground that service tax and sales tax had been paid when actual rending of the services has not been established. The AO has given a clear finding that no evidence had been produced regarding actual rendering of any services. The assessee had filed only bills which only gave the broad nature of promotional activities such as van campaign. There was no evidence produced with regard to actual carrying on of such activities. The AO had specifically asked for identification of personnel involved in rendering of services which has not been given. We find that at page 64 of the paper book the assessee has given names of 84 employees as van staff and others but not to speak of identification, even the addresses of these employees have not been given. The ld. AR has submitted that the assessee had co-related the details with the promotional acti....
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....uishable and not applicable to the facts of the present case. The judgment of Hon'ble High Court of Bombay in the case of CIT vs. U.M. Shah (supra) and the judgment of Hon'ble Supreme Court in case of CIT vs. Orissa Corporation Pvt. Ltd. (supra), related to cash credits, and, therefore not applicable to the facts of the present case which is regarding allowability of expenses for services rendered. In case of Ramanand Sagar Vs. DCIT (supra), the payments made by the assessee which was by cheque and supported by other evidences had been held as allowable. There was no issue in that case that there were no services rendered. Similarly, in the case of CIT vs. Girnar Construction Company (supra), in which expenses had been found allowable, there was no issue that payments had been made without any services rendered. Similar was the position in case of Free India Assurance Services Ltd. (supra), in which the assessee had given full details in which no error had been pointed out by the AO and accordingly claim was allowed. In case of Balaji Textile Industries Pvt. Ltd. (supra), the issue was different. In that case, the AO had treated purchases as nongenuine. The Tribunal noted that sale....