TaxTMI 
TaxTMI 
2019 (2) TMI 279
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....ons recorded by the Ld. Assessing Officer are incomplete and the reopening was objected by the assessee. The crux of the argument is that the reasons so recorded cannot be improved upon by the Ld. Assessing Officer at the later stage. Our attention was invited to the statement of facts available at Page-3 of the paper book. It was pleaded that the assessment was reopened on 25/03/2013 whereas the search was carried out on 01/10/2013. Plea was also raised that the payment is through banking channel and even the Ld. Commissioner of Income Tax (Appeal) granted relief to the assessee amounting to Rs. 2.76 crores, which has been challenged by the Revenue by way of cross appeal. On the other hand, the Ld. DR, Shri Rajiv Gubgotra, defended the reopening of assessment by submitting that the Ld. Assessing Officer received information with respect to the transactions, therefore, the reasons recorded by the Ld. Assessing Officer are sufficient. The reopening of assessment was defended. 2.1. We have considered the rival submissions and perused the material available on record. So far as, reopening of assessment u/s 147/148 of the Act on the plea that the Ld. Assessing Officer ignored the fa....
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....s or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other....
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....Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012." 2.3. If the aforesaid provision of the Act is analyzed, we find that after insertion of Explanation -3 to section 147 of the Act by the Finance (No.2) Act of 2009 with effect from 01/04/1989 section 147 has an effect that Assessing officer has to assess or reassess income (such income) which has escaped assessment and which was basis of formation of belief and, if he does so, he can also assess or reassess any other income which has escaped assessment and which came to the notice during the course of proceedings. Identical ratio was laid down by Hon'ble jurisdictional High Court in CIT vs Jet Airways India Pvt. Ltd. (2010) 195 taxman 117 (Mum.) and the full Bench decision from Hon'ble Kerala High Court in CIT vs Best Wood Industries and Saw Mills (2011) 11 taxman.com 278 (Kerala)(FB). A plain reading of explanation-3 to section 147 clearly depicts that the Assessing Officer has power to make addition, where he arrived to a conclusion that income has escaped assessment which came to his notice during the course of proceedings of reassessment u/s 147/148 of the A....
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....eable to tax had escaped assessment, therefore, the ld. Assessing Officer was within his jurisdiction to reopen the assessment. The Hon'ble Apex Court in Ess Ess Kay Engineering Co. Pvt. Ltd. (2001) 247 ITR 818 (SC) held that merely because the case of the assessee was correct in original assessment for the relevant assessment year, it does not preclude the ITO to reopen the assessment of an earlier year on the basis of finding of facts that fresh material came to his knowledge. 2.5. Under section 147, as substituted with effect from 01/04/1989, the scope of reassessment has been widened. After such substitution, the only restriction, put in that section is that "reason to believe". That reason has to be a reason of a prudent person which should be fair and not necessarily due to failure of the assessee to disclose fully and partially some material facts relevant for assessment (Dr. Amin's Pathology Laboratory vs JCIT (2001) 252 ITR 673, 682 (Bom.) Identical ratio was laid down by Hon'ble Delhi High court in United Electrical Company Pvt. Ltd. vs CIT (2002) 258 ITR 317, 322 (Del.) and Prafull Chunnilal Patel vs ACIT 236 ITR 832, 838 (Guj.). The essential requirement for initiati....
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....vs CIT (2001) 249 ITR 7, 8 (MP) 2.8. In Dilip S. Dahanukar vs Asst. CIT (2001) 248 ITR 147, 150-51 (Bom.). The Hon'ble jurisdictional High Court held as under:- "Held, that there was material on record on the basis of survey and statement of person to show that the assessee had wrongfully claim deduction u/s 80IA. Therefore, the Assessing Officer had reason to believe that income had escaped assessment for assessment year 1994- 95." Identically in the case of Srichand Lalchand Talreja v. Asst. CIT, (1998) 98 Taxman 14, 19 (Bom), where the information regarding acquisition of the asset was not available with the Assessing Officer during the relevant assessment year 1992-93 and such information was disclosed in the return for the assessment year 1995- 96, the Hon'ble jurisdictional High Court held that the Assessing Officer can form a bona fide belief that there was escapement of income in relation to assessment year 1992-93. 2.9. The Hon'ble jurisdictional High Court in Export Credit Guarantee Corporation of India Ltd. v. Addl. CIT, (2013) 350 ITR 651 (Bom), where there had been no application of mind to the relevant facts during the course of the assessment ....
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....e assessee had claimed depreciation in the return at the rate of 50 per cent and he had nowhere disputed the fact that the admissible rate of depreciation to him was 40 per cent., such fact alone was sufficient to initiate reassessment proceedings under section 147 of the Act, therefore, such initiation was sustained. The Hon'ble Punjab & Haryana High Court in Mrs. Rama Sinha v. CIT, (2002) 256 ITR 481, 483, 486, where the reassessment notice has been issued on the basis of definite information from CBI regarding investments by the assessee which had not been disclosed during the original assessment proceedings, such initiation has been upheld. 2.13. In the case of Pal Jain v. ITO, (2004) 267 ITR 540, 544-45, 548, 549 (P & H), applying Phool Chand Bajrang Lal v. ITO, (1993) 203 ITR 456 (SC), although the transaction of sale of shares was disclosed and accepted in the original assessment, but the subsequent discovery by the DDI (Investigation) revealed that the transaction was not genuine, a reassessment notice after four years has been held to be valid because there was no true disclosure of the material facts. In this regard, the petitioner-assessee cannot draw any support from....
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....IT v. Hukam Singh, (2005) 276 ITR 347 (P & H), it was held that the respondents did not have the locus standi to question the orders of reassessment on the ground of lack of notice. Non-issuance of notice to some of the legal heirs of the late P was merely an irregularity and the same did not affect the validity of the reassessment orders. Likewise, in Tilak Raj Bedi v. Joint CIT, (2009) 319 ITR 385 (P & H), wherein, facts coming to light in a subsequent assessment year could validly form the basis for initiating reassessment proceedings, in view of Explanation 2 to section 147. The action of the income tax authorities in reopening the assessment of the assessee and restricting the deduction under section 80-IB was held to be valid. 2.16. In the case of Smt. Usha Rani v. CIT, (2008) 301 ITR 121 (P & H), there was nothing on record to show the relationship between the donor and the donee, capacity of the donor to make gifts and the occasion therefore. The assessee had failed to discharge the onus to prove the gifts. The reassessment proceedings were held to be valid. In the case of Usha Beltron Ltd. v. Joint CIT, (1999) 240 ITR 728, 736-37, 739 (Pat), where the investigation repo....
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....ve rate prescribed under section 44AD has been sustained. In the case of Dr. Sahib Ram Giri v. ITO, (2008) 301 ITR 294 (Raj), the reassessment proceedings were initiated after recording reasons in writing by the AO. The non-availability of a few documents demanded by the assessee would not make the reassessment proceedings initiated for the reasons recorded in detail illegal. 2.19 In the case of Desh Raj Udyog : Chaman Udyog v. ITO, (2009) 318 ITR 6 (All), in the assessment years in question, the matter was still to be decided finally by the assessing authority whether the income should be treated under the head 'Business income' or 'property income'. The assessee would get opportunity to show sufficient cause to the assessing authority during the course of assessment. Thus, it could not be said that there was no relevant material to initiate proceedings under section 147. In the case of Kartikeya International v. CIT, (2010) 329 ITR 539 (All), in view of the matter, the petitioner was not entitled for the deduction on the duty drawback amount under section 80-IB and since it had been allowed in the assessment order passed under section 143(1), it had escaped ass....
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.... In the case of Inductotherm (India) P. Ltd. v. lames Kurian, Asst. CIT, (2007) 294 ITR 341 (Guj), the Assessing Officer had found that there were errors in the computation of allowances. The reassessment proceedings were held to be valid. In the case of Papaya Farms Pvt. Ltd. vs. DCIT, (2010) 323 ITR 60 (Mad), where the assessee had furnished incorrect particulars and therefore, the reopening of the assessment was held to be justified. 2.22. In the case of CIT v. Kerala State Cashew Development Corporation Ltd., (2006) 286 ITR 553 (Ker), wherein, the assessee was following the mercantile system of accounting should not have claimed deduction of penal interest which had accrued not in the previous year relevant to the assessment year but in earlier years. This the assessee had not disclosed. The reassessment was held to be valid. Likewise, in Kusum Industries P. Ltd. v. CIT, (2008) 296 ITR 242 (All), as the award had become final it would be taken that the directors of the assessee had accepted the factum of earning of secret profit not reflected in the books of account, which was also binding on the company. The non-appearance of one of the arbitrators and one of the directors ....
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....or the escapement of income by either non-declaration of correct sale consideration or furnishing of inaccurate particulars as regards sale consideration. Thus, the Tribunal was justified in holding that the assessee had failed to disclose fully and truly all material facts necessary for the assessment of the relevant assessment year. The reassessment proceedings had been validly initiated. 2.25. Likewise, in CIT v. Abdul Khader Ahamed, (2006) 285 ITR 57 (Ker), it was clear from the reasons recorded by the Deputy CIT that he prima facie had reason to believe that the assessee had omitted to disclose fully and truly the material facts and that as a consequence income had escaped assessment. The reassessment was held to be valid. In the case of U.P. State Brassware Corporation Ltd. v. CIT, (2005) 277 ITR 40 (All), the principles laid down by the Calcutta High Court in CIT v. New Central Jute Mills Co. Ltd. : (1979) 118 ITR 1005 (Cal) did constitute information on a point of law which should be taken into consideration by the ITO in forming his belief that the income to that extent had escaped assessment to tax and, the reassessment was held to be valid. In Sunder Carpet Industries....
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.... Ltd. v. Asst. CIT, (2013) 353 ITR 131 (Guj), since there being sufficient material on record for the Assessing Officer to form a belief as regards the escapement of income in relation to the claim of depreciation in respect of the building of coal fire boiler, the reassessment was held to be valid. In the case of Convergys Customer Management v. Asst. DIT, (2013) 357 ITR 177 (Del), where there being prima facie material in the possession of the Assessing Officer to form a tentative belief that section 9(1)(i) held attracted, said reason by itself constituted a relevant ground to reopen the assessment of the assessee. Reference may also be made to i. Ajai Verma v. CIT [(2008) 304 ITR 30 (All)]; ii. Ashok Arora v. CIT [(2010) 321 ITR 171 (Del)]; iii. CIT v. Chandrasekhar BaLagopaL [(2010) 328 ITR 619 (Ker)]; iv. Jayaram Paper Mills Ltd. v. CIT [(2010) 321 ITR 56 (Mad)]; v. Kerala Financial Corporation v. Joint CIT [(2009) 308 ITR 434 (Ker)]; vi. Mavis Satcom Ltd. v. Deputy CIT [(2010) 325 ITR 428 (Mad)]; vii. CIT v. Madhya Bharat Energy Corporation Ltd. [(2011) 337 ITR 389 (Del)]; viii. Kone Elevator India P.....
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....pon proceeded to record that "On perusal of data so provided by the Deputy Director (Investigation), it is noticed that during the period under consideration, the assessee company has accepted share capital/share premium from the following entries/parties which have been proved to be shell companies based on the investigation conducted by the Deputy Director (Investigation). Underneath, he provided a list of 17 companies who had transacted with the assessee company during the year under consideration and were alloted equity shares by purported investment of sizeable share capital and share premium amounts. On verification of such materials, the Assessing Officer noted that the assessee had received share capital/share premium amount, since the investor companies were found to be shell companies indulging in providing accommodation entries, the Assessing Officer was of the opinion that the share capital/share premium claimed to have been received from the company by the assessee was not genuine. Amount is nothing but assessee's own money introduced in the garb of share capital/share premium from the shell companies and therefore, such amount is liable to be taxed under section 6....
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....d to be shell companies and indulging in giving accommodation entries. From this view point, since the Assessing Officer had sufficient material at his command to form such a belief. Such materials did not form part of the original assessment proceedings and was placed before the Assessing Officer only after the assessment was completed. Since on the basis of such materials, Assessing Officer, came to a reasonable belief that income chargeable to tax had escaped assessment, merely because these transactions were scrutinised by the Assessing Officer during the original assessment also would not preclude him from reopening the assessment. His scrutiny during the assessment will necessarily be on the basis of the disclosures made by the assessee. [Para 8] The contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted. The Assessing Officer, as noted, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies. [Para 10] Merely because the transactions in question were examined by....
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.... money of the companies. Even in absence of such proviso as was the case governing the periods with which we are concerned in the present case, if facts noted by the Assessing Officer and recorded in reasons are ultimately established, invocation of section 68 would be called for. [Para 15] The contention that the Assessing Officer had merely and mechanically acted on the report of the investigation wing also cannot be accepted. One has reproduced the reasons recorded by the Assessing Officer and noted the gist of his reasons for resorting to reopening of the assessment. The Assessing Officer had perused the materials placed for his consideration and thereupon, upon examination of such materials formed a belief that income chargeable to tax had escaped assessment. [Para 16] In the result, petition is dismissed. [Para 17]" 2.31. The Hon'ble Gujarat High Court while validating the reopening of assessment under section 147/148 of the Act in a later order (aforesaid) dated 20/02/2018 on the issue of cash credit (share application money) duly considered the arguments of both sides and followed the following the decisions I. Jayant Security and Finance L....
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....sing Officer by duly conveyed to the assessee on 09/05/2013, which were objected by the assessee. Notice under section 143(2) and thereafter 142(1) along with questionnaire were issued and served upon the assessee. In the present appeal, the details and information available on record clearly shows that there was search/survey action was carried out at the residential/business premises of Shri Surendra Kumar Jain and his brother Shri Birendra Jain on 14/09/2010 by the Investigation Wing, Delhi, wherein it was found that both these persons were providing accommodation entries to various beneficiaries in lieu of cash. A similar information was received from Investigation Wing at Mumbai, therefore, the Ld. Assessing Officer was under a reasonable belief that income chargeable to tax has escaped assessment as the Ld. Assessing Officer had not formed any opinion and this information was received at the later stage, which in our opinion was sufficient to initiate reassessment proceedings. Explanation-1 to section 147 of the Act supports our view. Referring to the said explanation in consolidated Photo & Finvest Ltd. (2006) 281 ITR 394 (Del.), Hon'ble High Court observed as under:- ....
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....as deleting the addition on merit is concerned, it was done at the first appellate stage, whereas, we are examining the validity of reopening at the assessment stage itself. Possibly, the assessee may or may not be having a good case on merit but so far as reopening is concerned, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal). Therefore, respectfully following the aforesaid decisions and the factual matrix narrated before us, we upheld the same, resulting in to, dismissal of the grounds (1 to 6) raised by the assessee with respect to reopening of assessment. 3. So far as, the addition of Rs. 4,02,20,000/- made under section 68 of the Act is concerned, we note that the assessee received share capital/premium from 12 parties, which are summarized hereunder:- Sr. No. Name of the Person Amount in Rs. 1 Eagle Infratech Pvt. Ltd. 22,10,000 2 Finage Leasing & Finance (I) Ltd. 22,10,000 3 Lotus Realcon Pvt. Ltd. 8,50.000 4 Mega Top Promoters Pvt. Ltd. 22,10,000 5 Manimala Delhi Properties Pvt.Ld. 22,10,000 6 Shalini Holding Ltd. 22,10,000 7 Singhal Securities Pvt. Ltd. ....
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....are bogus and/or there is no creditworthiness of the creditors. Since the amount of Rs. 42,10,000/- out of Rs. 2,76,70,000/- is not credited in the of the books of account of the appellant company, the appellant was not under any obligation to prove the identity of alleged creditors genuineness of the alleged transactions and creditworthiness of these two parties named at serial No.11 & 12 of the table mentioned by the Assessing Officer. Moreover, the stand of the AO appears to be contradictory with respect to these two parties as he has not made any distinction of these two parties with the rest of ten parties in the table. The AO was in possession of the copy of the Bank Statements for the period w.r.t. the impugned assessment year and he could not point out these entries in those Bank Statements. It is not the case of the AO that the appellant had not produced the requisite accounts for his examination before him during re-assessment proceedings. His stand that since assessee could not confirm from his books that he had not received such amounts, and therefore addition is called for u/s. 68, is highly unjustified. Nobody under Law is burdened to prove a negative fact. Rather, AO....
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....Central Circle 23, New Delhi on 28.03,2013 , that is exactly one year before the order of the Assessing Officer dated 27.03.2014. These companies are as under:- i.Finage Lease and Finance India Pvt. Ltd. ii.Lotus Realcon Pvt.ltd iii. Manimala Delhi PRO Pvt.Ltd. iv.Shalini Holdings Pvt. Ltd. v.Singhal Securities Pvt. Ltd. vi.VIP Leasing Finance Pvt. Ltd. 5,11 The copies of assessment orders of the above companies appear at Page No.69 to 80 of the paper book of the appellant. Since, Department has accepted the existence of the above companies and even after search on Surendra Kumar Jain and Virendra Kumar Jain on 14.09.2010, after three years, assessments have been made of above companies and no adverse inference has been drawn nor has been held that these are companies only on papers, there is no propriety on the part of the Assessing Officer to presume that these companies are paper floated companies, having no existence or source of income or there is no genuine transaction of such investment under reference. Such conclusive evidences filed by the appellant during the course of assessment proceedings has been ignored b....
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....fore the approach and finding of the Assessing Officer cannot be approved. 5.14 When by letter dated 23.12.2013, appellant had submitted the copies of following documents of the above companies, it was the responsibility of the Assessing Officer to prove otherwise if he wanted to make addition of such share capital, but, as evident from the assessment order that Ld. Assessing Officer has failed to do so, hence such addition is found to be baseless. The following documents, as referred to hereinabove, support the contention of the appellant- 1. Application Forms 2, Acknowledgement of return of income 3, Bank Statement 4. Confirmation of ledger accounts 5. Board Resolution 6. Memorandum of Association 7. Financial statement of the above companies including balance sheet and profit and loss account 8, Return of allotment of shares filed with Registrar of Companies 5.15 Assessing Officer has obviously not disproved the genuineness of the above documents nor has established otherwise, therefore, his finding for making addition cannot be subscribed. Further it is very important to point out that by ....
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....come of the investing companies, their bank accounts statements for the relevant period; then even the parties were not produced in spite of the specific directions of the Assessing Officer, the addition could not be sustained as the primary onus was discharged by the assessee by producing the PAN, balance sheet, copy of the acknowledgment copy of return of the applicants etc. 10 in the case in hand, there is no dispute about the identity of the applicant companies, who had paid the application money and the source of the application money was also found in the respective bank accounts f the investing companies and there was no trace of cash deposit in the bank accounts of the investing companies, then, the action of the Assessing Officer under influenced of the report of the investigation wing without giving opportunity to the assessee for cross examination of the persons, is not sustainable" 5.17 Further, appellant gets support from the following decisions- 1. I.T.O. vs. Provid Trade Impex Pvt.Ltd in IT appellant No. 2219/Mum/2009 2. I.T.O. vs. Alex Securities Pvt.Ltd. In ITappellant No. 4241/Mum/2009 3. CIT vs. Creative World Tele-films Ltd. [....
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.... Kumar Jain/ Virendra Jain has accepted in any of their statements recorded during the search and seizure operation reproduced by the AO in his assessment order, that they are in the business of providing alleged accommodation entries or named the appellant company or its directors as beneficiary to issue such alleged accommodation entries in favour of the appellant company. 5.20 Even there is no rebuttal by the AO in his assessment order as to how the share allotted to the companies mentioned in table pars in 6.1. of the impugned assessment order to the parties mentioned at serial no. 1. to 10 to the extent of Rs,2,44,60,000/- are an eye wash and these shares have not actually been allotted by the appellant company to the persons by following due process as required by the Companies Act 1956. Neither of these persons has denied the receipt of their respective shares worth Rs. 2,44,60,000/- collectively. 5.20 As far as the addition for the amounts totalling to Rs. 2,44,60,000/- u/s 68 corresponding to the 10 parties in the said table is concerned as discussed above. I find that there is no dispute that shares to these parties have been duly issued through their sh....
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....131. Even otherwise there are series of decisions on this point when the Identity and the capacity of the creditors has been proved by the assessee and source being the banking channel also established by producing relevant evidences then without finding any defect in the evidences produced by the assessee, the AO is not justified to make the addition solely on the ground that the assessee failed to produce the creditors in person. 5.23 Nevertheless, the fact that the parties in question are known to the AO which is evident from the fact that the Department had assessed them for AY 2008-09 u/s 143(3) r.w.s. 153A. The AO could have not ignored to mention in his assessment order and the other fact also that none of these parties are assessed for commission on account of alleged business of accommodation entries, The Assessment Order has been framed by the Assessing Officer only on the basis of the information received from the Investigation Wing of the Department without making any further investigation. Nothing adverse has been brought on record by the AO to establish that the Share Application Money received by the appellant represented its own undisclosed income. Hence, t....
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.... authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the Department-in itself an objectionable phrase-and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws. 5.24 Thus, in the light of the above factual analysis evidences on record, considering successful rebuttal by the appellant, unsubstantiated finding of the Assessing Officer, various judicial propositions and uncontroverted representation of the Ld. A.R., I find that Ld. Assessing Officer has made addition of Rs. 2,76,70,000/- without any "conclusive evidence" and without discharging onus shifted upon him on account of various evidences submitted by the appellant during the course of assessment proceedings. Thus, Assessing Officer is directed to delete the baseless addition of Rs. 2,76,70,000/- 5.25. In the result, Ground Nos. 6 to 10 are allowed." If the aforesaid conclusion of the First Appellate Authority is analyzed, it is noted that the Ld. Commi....
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.... 2 to 26 by submitting that the name of the assessee has nowhere mentioned by Mr. Jains in their statements. The Ld. counsel cited various decisions of this Tribunal, wherein on identical facts, the issue was decided in favour of the assessee. The decisions cited are Income Tax Officer vs M/s Chand Merchant Pvt. Ltd. (ITA No.4868/Mum/2015) order dated 05/12/2018, Income Tax Officer vs Ms/ Trishul Traders Pvt. Ltd.(ITA No.3060/Mum/2017), order dated 20/12/2018. On the other hand, the Ld. DR defended the order of the Ld. Commissioner of Income Tax (Appeal) by placing reliance upon the decision from Hon'ble Delhi High Court in Pr. CIT vs NDR Promoter Pvt. Ltd. (ITA No.49/2018) dated 17/01/2019. The ld. counsel for the assessee explained that the aforesaid decision from Hon'ble Delhi High Court is not applicable because the facts are entirely different. 4.1. In the light of the aforesaid arguments made from both sides, we deem it appropriate to reproduce the aforesaid decisions cited before us. The first such decision is order dated 05/12/2018 of this Tribunal in the case of Income Tax Officer vs Chand Merchant Pvt. Ltd. (ITA No.4868/Mum/2015):- "This appeal filed b....
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....y received from M/s Brite Indu Resources Ltd, Vogue Leasing & Finance Pvt. Ltd, Finage Lease & Finance India Ltd,Singhal Securities Pvt Ltd and Shalini Holdings Ltd are genuine transactions which were supported by necessary documents including share application form, PAN of subscribers, bank statements and other related documents. The AO, after considering relevant submissions of the assessee and also considering the information received from Investigation Wing which were further supported by the statement of Shri SIC Jain during search proceedings observed that the enquiries conducted during the course of assessmentproceedings clearly proved the fact that the assessee has obtained bogus / accommodation entry of share application money from companies controlled by Shri S.K. Jain. Therefore, he opined that identity, genuineness of transactions and creditworthiness of the partiesare not proved to the satisfaction in order to escape from the provisions of 68 of the Income-tax Act, 1961. Accordingly, he made addition of Rs. 1.10 crores u/s 68 of the Income- tax Act, 1961. The AO also made addition of Rs. 1,75,000 being 1.75% commission paid to Shri Satish Garg for arranging accommodati....
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.... reasons recorded & conveyed to the appellant & manner of information received by AO, it has been clarified by him in para 3 that it's DIT (Inv).)-II, New Delhi who conducted action u/s 132/133(A) of the IT Act, 1961 on business/residential premises of Shri Surendra Kumar Jain & his brother Shri Virendra Kumar Jain and sent intimation to the AO of the appellant suggesting that appellant had taken accommodation entries from the persons of the group of those persons. It's a well settled law that the "belief u/s 147 is a subjective matter of an individual AO and that cannot be a matter of judicial scrutiny. What can be scrutinized is, the very existence of "reason" supported by valid material to form belief and invoke jurisdiction u/s 147 before issuing noticing u//s 148. I find that the source of intimation being Investigation Wing of IT Dept., it is a justified reason to record & form belief that there is a case for escapement to be scrutinized by the AO. There is no adverse material available on record that can suggest that his belief is not "honest belief" as no officer of the IT Department would honestly disbelieve their report prima facie that alone is required at the ti....
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....roviding alleged accommodation entries or named the appellant company or its directors as beneficiary to issue such alleged accommodation entries in favour of the appellant company 4.7 As far as the addition for the amounts totaling to Rs. 1,00,00,000/- u/s 68 corresponding to the 5 parties in the said table is concerned as discussed above, I find that there is no dispute that the parties have confirmed the payment of share application money along with their return of Income. Balance Sheet. Copy of 1ank Statement of the appellant wherechecjues received on account of shares application money and cheque paid for return of share application money were appearing. Had the AO was in doubt he could have further investigated the source of money as well as the recipient of the return of money by the way of issuing notice u/s 133(6) at least as genuinely requested by the appellant during the assessment proceedings. Without taking that recourse the AO was not justified in presuming that the amount was credited from non-existing, and non- credit worthy creditors and returned the same to some bogus persons. No adverse material has been bought by the AO to support his action on record. ....
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.... I.Tax Authority devoid of such a credible evidence in his possession. The very important fact has also been ignored by the AO that all these parties have given back their due money during the year itself without entertaining their claim for allotment of shares as per their respective application. Hence the allegation, even if, iota of doubt could have been in the mind of the AO about these parties to have been engaged in business of providing entries only though this share application money, should have gone in view of the fact that return of money is never a part of business of entry providers. 4.10 Nevertheless, the fact that the parties in question arc known to the AO which is evident from the fact that the Department had assessed them for AY 2008-09 u/s 143(3) r.w.s. 153A. The AO could have not ignored to mention in his impugned assessment order, the other fact also that none of these parties are assessed for commission on account of alleged business of accommodation entries. The impugned Assessment Order has been framed by the Assessing Officer only on the basis of the information received from the Investigation Wing of the Department without making any further inves....
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....der the jurisdiction of the Tribunal Dealing with this very aspect of the matter, the Supreme Court in the case of Union of India v. Kamlakshi Finance Corporation Ltd., AIR 1992 SC 711; [1991] 55 ELT 433 (SC) emphasized: "It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasi-judicial issues before them revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the department-in itself an objectionable phrase-and is the subject-matter of an appeal can furnish no ground for not following it unless it operation has been suspended by a competent court. If this healthy rule is not followed. The result will only be undue ha....
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....furnishing bank statements and PAN would not prove the genuineness of transactions, more particularly, when the assessee has obtained accommodation entries through hawala operator. In this regard, he relied upon the decision of Hon'ble Delhi High Court in the case of C1T vs Jan Sampark Advertising & Marketing Pvt Ltd (2015) 375 ITR 373 (Del). 7. The Ld.AR for the assessee, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that the Ld.C1T(A) has rightly apprised the facts on the basis of evidence produced by the assessee during assessment proceedings and also appellate proceedings where the assessee has furnished complete details of identity, genuineness of transactions and creditworthiness of the parties. The Ld.AR further submitted that the AO has made addition on the basis of information received from Investigation Wing which was further supported by statement of Shri S.K. Jain where in his case, during search he stated that he was involved in providing accommodation entries. During assessment proceedings, the assessee has sought details of evidences relied upon by the AO to draw an adverse inference against the assessee including statement reco....
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....on or used against the assessee to draw an adverse inference, it is the duty of the AO to furnish such evidence and also to allow cross examination of witness before taking any adverse inference on the assessee. This legal proposition is supported by the decision of Hon'ble Supreme Court in the case of CIT vs SunitaDhadda (supra),wherein Their Lordships Adarsh Kumar Goel and Rohington Fali Narimancategorically held that unless it was established on record by the departmentthat as a matter of fact the consideration did pass to the seller from the purchaser in advance, especially, since none of the witnesses were examined by the AO and the assessee did not have any opportunity to cross examine them. This legal proposition is further supported by the decision of Hon'ble Supreme Court, in the cae of Andaman Timber Industries vs CCE (supra), wherein it was held that when statement of witnesses are made basis of admission, not allowing assessee to cross examine witness, is a serious flaw which makes order nullity as it amounts to violation of principles of natural justice. In this case, on perusal of details it is very clear that the assessee has sought for statement of witnesses and....
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....discharge its onus of establishing identity, genuineness and creditworthiness of the investors, ignoring the ratio of decision in the following cases: (i) CIT Vs N.R.Portfolio(P) Ltd. (ii) CIT Vs Ultra Modern Exports P. Ltd. (iii) Agrawal Coal Corporation P. Ltd Vs. Addl.CIT, Range 5 (iv) CIT Vs Youth Construction P. Ltd. (v) Nova Promoters & Finlease P. Ltd. 2. Whether on the facts and in the circumstances of the case, the ld.CIT(A) failed to appreciate the fact that the statement of witness recorded was not concluded due to non-cooperation of the deponent, and hence, no adverse inference could be drawn out of it. 3. Whether on the facts and in the circumstances of the case, the ld.CIT(A) erred in concluding that no opportunity has been provided to the assessee for cross examination of witness, while he has also concluded that opportunity for cross examination did not advance the case of the AO. 4. The appellant prays that the order of the ld.CIT(A) on the grounds be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to add, amend or alter all or any of the grounds ....
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.... companies. This has been viewed adversely by the assessing officer. The appellant has explained that this is on account amalgamation of three companies and shares were issued to the shareholders of the amalgamating companies at book value. Though this was explained in the assessment proceedings, the assessing officer has ignored the explanation. The assessing officer has not addressed the contention of the appellant that the investor companies are not Praveen Jain companies by bringing on record any evidence to link the investor companies to Shri Praveen Jain. 4.9. I do not find any merit in the contention of the appellant that the investment being a share capital is a capital receipt and therefore cannot be considered as income in the hands of the appellant. The credits fall within the scope of section 68 which is a deeming provision. Several case laws including those of the Apex Court and High Court have considered credits made to capital account of the assessee's to be covered under the provisions of section 68 and therefore deemed income. The rule for application of section 68 is that the identity and credit worthiness of the investor/lender /cre....
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....g officer and also in the appellate proceedings. 4.13. The investment and the corresponding source of funds of investor as seen from the copy of their audited accounts for FY 2006-07 is tabulated below. Sr. No. Name of the Shareholder Total amount invested Share Capital and reserves Profit as P & L account 1 M/s. Kavya Share 86 Securities Pvt. Ltd. 30,00,000 2,24,81,101 3,86,824 2 M/s.Dev Share Trading Pvt. Ltd. 30,00,000 2,46,10,675 5,00,568 3 M/s. Prajan Trading Pvt. Ltd. 30,00,000 3,03,55,461 5,20,299 4 M/s. Arawalli Stock Broking Pvt ltd 30,00,000 1,63,90,103 4,87,875 5 M/s. Colourunion International Pvt. Ltd. 50,00,000 2,30,51,700 3,43,358 6 M/s.Ramdev Shares & Securities Pvt. Ltd. Now known as Koina Trading P. Ltd 1,00,00,000 2,97,72,514 21,69,240 7 M/s. Jasol Maa Share Trading 1,00,00,000 4,11,30,413 5,32,200 8 Yashita Trading Pvt. Ltd. 95,00,000 41,58,066 Plus share application money 40,00,000 (-) 42177 9 Ashrita Trading Co. Pvt. Ltd. 85,00,000 50,83,061 Plus share application money (-) 40,851 ....
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....share application money is received by the assessee company from alleged bogus share holderswho's name are given to the Assessing Officer then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company". (ii) The Hon'ble Bombay High Court in the case of CIT v/s Creative World Teleflims Ltd 333 ITR 100 has held as under: "If the share application money is- received by the assessee company from alleged bogus share holders who's name are given to the Assessing Officer then the department can always proceed against them and if necessary reopen their individual assessments. Held, dismissing the appeal, that there was no dispute that the assessee had given the details of names and addresses of the shareholders, their PAN/ GIR numbers and had also given the cheque numbers, name of the bankers. The Assessing Officer ought to have found out their details through PAN cards, bank reholders. Thus, the view taken by the Tribunal could not be faulted. (iii) The Hon'ble Supreme Court of India in the case of CIT vs. Orissa Corporation reported....
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....8 of the Act does not arise." 4.15.Further, Hon'ble jurisdictional ITAT in the case of ITO- 10(2)(3) VS. M/S J.J. MultitradePvt.Ltd. ITA No.2158 & 2159/Mum/2014 order dated 11.03.2015 has deleted additions on similar facts. Further, tht: Ho'ble jurisdictional ITAT in the case of M/s S.D.B. Estate Pvt.L d. vs ITO-5(3)(2) ITA No.584/M/2015 has deleted similar addition made u/s 68 of the I.T. Act. The Hon'ble ITAT (Jaipur Bench)In the case of Bharti Syntex Ltd. vs. DCIT ITA Nos. 172 & 173/Jp/2010 has held in para 24.4 as under:- "24.4 In this case also no cross examination was allowed to the assessee. Therefore, adverse inference cannot be drawn only on the statement of Shri MukeshChoksi. We further noted that all other necessary details have been filed before AG. Amounts were received through account payee cheque. Both the companies are assessed to tax in Mumbai. Confirmation along with copies of share certificate, bank statement, memorandum of articles, copy of share application money, audited balance sheet and P&L a/c of these parties were filed. These are similar details as were filed in case of three other companies for asst. yr. 2005-06. We....
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.... 5. After having gone through the facts of the present case as well as orders passed by the revenue authorities, we find that Ld. CIT(A) after appreciating the facts of the present case had noticed from the records that assessee was an existing profit making company engaged in the business of trading in shares and securities. Since there was an increase in share capital, therefore the AO observed that shares were allotted to sister concerns, though at a premium, but at lower premium than that at which it was allotted to other third party companies. After seeking explanation from the assessee, made the additions u/s 68 of the Act. The Ld. CIT(A) during the appellate proceedings after appreciating the facts had sought remand report from the AO with a view to give free hand to the AO for bringing in any evidence that specifically linked the assessee company receiving share capital money in lieu of cash. Although, the AO had relied upon the statement of Shri Praveen Jain, but could not point out any portion of the statement of the said Praveen Jain to link the investor companies. Apart from this, even no evidence has been brought on record to link the assessee company with the sai....
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.... entries. However, the AO failed to link the assessee in obtaining any accommodation entries. We have seen no evidence on record from which it can be shown that any cash was deposited by the assessee in the accounts of the investors. Apart from above, no incriminating evidence linking the investor to the assessee. 7. The Ld. CIT(A) had also appreciated the fact that though opportunity of cross examination was provided to the assessee in the remand proceedings but Shri Praveen Jain did not confirm that any accommodation entries were provided. Even the basic premise that the investor companies belong to Praveen Jain was also not proved. It is also an admitted fact that the transactions in the present case were through banking channel and thus, in such circumstances, as per the settled proposition of law as mentioned in the orders of Ld. CIT(A) in para no. 4.14, no additions could be made without any contrary or cogent evidence. We have considered the judgment passed by Hon'ble Supreme Court in the case of CIT V/s Lovely Exports 6 DTR 308, wherein it was held as under: If the share application money is received by the assessee company from alleged bogus share holders....
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....t in the case of Commissioner of Income Tax v/s. Electro Polychem Ltd (2007)294 ITR 661 (Mad). iv. Hon'ble Rajasthan High Court in case of Commissioner of Income Tax v/s. AKJ Granites P.Lt4. (2008)301 ITR 298 (Raj.) V. Hon'ble Delhi High Court in case of Commissioner of Income Tax v/s. Oasis Hospitalities Pvt.) Ltd. (2011) 51 DTR 74 (Delhi). Sec. 69 places the burden of proof on the tax payer to explain the nature and source of any credit found in the books. But, when assessee proves or submit the basic information like identification, genuineness of transactions and creditworthiness of the creditors, onus is discharged by him and if Assessing Officer disbelieve the genuineness of the same, he has to prove otherwise, merely, doubting or pointing out some discrepancy is not the foundation for discarding the genuineness of the deposit or share money or substance of the matter, held by the Hon'ble Supreme Court in the case of CIT v. Gujarat-Heavy Chemicals Ltd. (2002)256 ITR 795 (SC). In view of the above the question of making any addition u/s. 68 of the Act does not arise." 11. Apart from above, the Ld. AR had also relied upon....
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....n‟ of and de facto operated by one Tarun Goyal, Chartered Accountant, who had set up about 90 companies/firms including the aforesaid 5 companies for providing accommodation entries. Paper work was perfect but there were chinks, which had revealed that the true nature of the transactions was to convert illegitimate money by providing bogus or accommodation entries. These evidences and details collected and ascertained during the course of search under Section 132 of the Act conducted by the Investigation Wing in the case of Tarun Goyal, had revealed that the registered office of 90 companies was located at 13/34, Main Arya Samaj Road, Karol Bagh and their former office was at 203, Dhaka Chambers, 2069/39, Naiwala, Karol Bagh, New Delhi. These companies were not carrying on any genuine business activities. Directors of these companies were employees of Tarun Goyal, who were working as peons, receptionists etc. Entries in the books were bogus. Modus operandi in such cases is well known, money is circulated by first depositing cash in the bank account of one such company, and thereupon it is transferred/circulated within the group companies before cheque is issued to the benefic....
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.... However, the respondent-assessee had filed:- (i) Copy of the ledger account of share application. (ii) Copy of the bank statement of the account in which money was received. (iii) Copy of the ledger account of share capital. (iv) Copy of balance sheet and profit & loss account reflecting receipt of share application money. (v) Share application form with complete list of shareholders, old and new. (vi) Annual return filed before the Registrar of Companies. (vii) Copy of Form No.2 i.e., return of allotment filed before the Registrar of Companies. (viii) Affidavits of Directors of the shareholder companies along with PAN details, copy of PAN cards, Board Resolutions, confirmations from the parties, share application forms, bank account statements of the shareholder companies, Memorandum and Articles of Association, confirmation of receipt of shares from M/s Bhawani Portfolio and CIN details of M/s Bhavani Portfolio. 8. The Assessing Officer made an addition of Rs. 1,51,50,000/- as unexplained cash after referring to the factual matrix including failure to produce Directors of the shareholder companies s....
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....details of which were furnished. The assessees had also furnished returns of income of the creditors accepted by the Department and thus, we are of the view that in absence of rebuttal of these facts there was no reason to doubt the genuineness of the transactions. The creditworthiness of the share applicants was also established by the assessee by filing the audited balance sheet of each of the share-holder company. On the contrary, no evidence has been brought on record by the Assessing Officer to prove that share application money emanated from the coffers of the assessees. It is also pertinent to note here that in response to the notices issued under section 133(6) of the Act by the Assessing Officer were responded by the share applicants. Merely because the assessee, as directed by the Assessing Officer, could not produce any of the share applicants, cannot be a reason for doubting the genuineness of the transactions. This view is well supported by the decisions of the Hon'ble jurisdictional High Court of Delhi in the cases of CIT Vs. Rakam Money Matters Pvt. Ltd. (supra) and CIT Vs. Victor Electrodes (supra), relevant extract thereof, are respectively reproduced hereunder....
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....es and thus, the onus to disprove those evidences were shifted upon the Assessing Officer the Assessing Officer has failed to discharge by not disproving those evidences. The assessees were thus, able to establish the identification as well as creditworthiness of the share applicants and the genuineness of the claimed receipt of share application moneys from those parties. The ld. CIT (Appeals) was thus justified in deleting the additions made under section 68 of the Act on account of the alleged unexplained share application money. The same is upheld. The grounds questioning the action of the Id. CIT (Appeals) in this regard are thus rejected." 11. Issue of bogus share capital in the form of accommodation entries has been subject matter of several decisions of this Court and we would like to refer to decision in Commissioner of Income Tax Vs. Navodaya Castles Pvt. Ltd. [2014] 367 ITR 306, wherein the earlier judgments were classified into two separate categories observing as under:- "11. We have heard the Senior Standing counsel for the Revenue, who has relied upon decisions of the Delhi High Court in Commissioner of Income Tax Vs. Nova Promoters and Finlease (P)....
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....but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN number etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. It is in this context, the Supreme Court in CIT Vs. Durga Prasad More [1971] 82 ITR 540 (SC) had observed:- "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show th....
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....fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs." (emphasis supplied) Section 68 recognizes the aforesaid legal position. The view taken by the Tribunal on the duty cast on the Assessing Officer by section 68 is contrary to the law laid down by the Supreme Court in the judgment cited above. Even if one were to hold, albeit erroneously and without being aware of the legal position adumbrated above, that the Assessing Officer is bound to show that the source of the unaccounted monies was the coffers of the assessee, we are inclined to think that in the facts of the present case such proof has been brought out by the Assessing Officer. The statements of Mukesh Gupta and Rajan Jassal, the entry providers, explaining their modus operandi to help assessee‟s having unaccounted mo....
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.... iii. The statement of employees of Sh. Tarun Goyal is ,on record, whereby they have clearly stated that they signed on the papers produced before them by Sh Tarun GoyaL They do not know about the basic details of the companies like shareholding patterns, nature of business of these companies etc. iv. The statement of auditors of Sh. Tarun Goyal is on record. They have stated to have never meet (sic) the directors of the companies and audited the accounts only on the directions of Sh Tarun Goyal. As per the statement of auditors, the employees of Sh Tarun Goyal were directors of the companies run by them, also they could not ascertain the so called share capital subscribed by Sh Tarun Goyal as documentary proof of the same was lacking. v. During the course of search, all the passbooks, cheque books, PAN Cards etc. were always in possession of Sh Tarun Goyal. On his directions all the employees signed all the documents. vi. All the bank account opening forms appear to be in the handwriting of Sh Tarun Goyal. vii. All the books of accounts of all the companies have been retrieved from the computers/laptop of Sh Tarun Goyal. viii. Sh....
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....of law framed above is accordingly answered in favour of the appellant-revenue and against the respondent- assessee. There would be no order as to costs". 4.4. If the aforesaid decisions are analyzed, we note that in the case of M/s Chand Merchant Pvt. Ltd., the issue relates to share application money and consequent addition made under section 68 of the Act. It is noted that this addition was made on the basis of statement of Shri SK Jain, recorded under section 132(4) of the Act and during search proceedings he tendered that he was involved in providing accommodation entries in the form of share application/unsecured loans. The First Appellate Authority decided the issue in favour of the assessee, which was affirmed by the Tribunal, dismissing the appeal of the Revenue. Identically, in the case of Income Tax Officer vs M/s Trishul Pvt. Ltd. ((supra)) the addition was made on the basis of search carried out in the case of Shri Pravin Kumar Jain Group. Identical is the situation in the case before us. The First Appellate Authority decided the issue in favour of the assessee. The Tribunal duly considered various decisions and ultimately by placing reliance upon various decisions ....
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....g contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10." 4.5. As per section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanic Products Exporting Company vs CIT 241 ITR 497 (Kerala.). The legislature had laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon'ble Apex Court in P. Mohankala (2007)(291 ITR 278)(SC). A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is well settled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, i....
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....e assessee is covered by the decision of the Tribunal in the case of M/s Trishul Trader Pvt. Ltd. ((supra)) and M/s Chand Merchant Pvt. Ltd. ((supra)) where the facts are identical and the issue was based upon the statement of S. K. Jain/Pravin Kumar Jain. The Tribunal reached to a particular conclusion by placing reliance upon the decision in CIT vs Value Capital Service Pvt. Ltd. (2008) 307 ITR 334 (Del.), CIT vs G.P. International Ltd. (2010) 325 ITR 25 (P & H), CIT vs Electro Polychem Ltd. (2007) 294 ITR 661 (Madras), CIT vs AKJ Granites Pvt. Ltd. (2008) 301 ITR 298 (Raj.), CIT vs Oasis Hospitalities Pvt. Ltd. (2011) 51 DTR 74 (Del.), CIT vs Gujarat Heavy Chemical Ltd. (2002) 256 ITR 795, CIT vs Sunita Dhadda 403 ITR 309 (Supreme Court), Andaman Timbers Industries vs Commissioner of Central Excise 52 GST 355 (Supreme Court) and various other decisions. Even otherwise, during hearing of these appeals, the Bench asked the Ld. DR is there any evidence of cash transaction, the Ld. DR fairly and judiciously agreed that there was no cash deposit before the issuance of cheque. Another question raised by the Bench, whether in the statement, the name of the assessee has been specificall....
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....ules. The crux of the argument on behalf of the Revenue is in support of the addition made by the ld. Assessing Officer, whereas, the ld. counsel for the assessee, defended the impugned order. 8.1. We have considered the rival submissions and perused the material available on record. The stand of the Revenue is that the assessee has paid interest of Rs. 3,14,431/-, therefore, it comes under section 14A of the Act and further such expenditure has been incurred and disallowance has been made as per Rule-8D. The stand of the assessee is that such disallowance has been made on notional basis without pointing out as to whether the assessee has incurred any expenditure or not. The Ld. Commissioner of Income Tax (Appeal) noted that the ld. Assessing Officer wrongly disallowed the expenditure without pointing out as to which expenditure relates to any exempt income. The interest expenditure of Rs. 3,14,431/- is the interest expenditure of the bank which was not utilized for any investment nor relates to exempt income. In view of this factual matrix, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal) decided in favour of the assessee. Finally, ....