TaxTMI 
TaxTMI 
2019 (4) TMI 270
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....allegedly paid by the assessee for getting the share capital. 3. The facts in brief are that assessee has filed its return of income on 29.3.2007 which was duly processed u/s 143(1). Thereafter a notice u/s 148 was issued on 16.3.2013. Before issuing of notice, AO has recorded following reasons: - 1. Name and address of the assessee:_ M/s Randeep Investments P. Ltd. 202, Mohan Place, LSCC Block, Saraswati Vihar, Delhi-110014 2. PAN AACCR0988D 3 Status Company 4. Ward/Circle : Ward-15(2) 5. Asstt. Year in respect of which it is proposed to issue notice u/s 148 : 2006-07 6. The quantum of income which has escaped assessment Rs.1,72,75,483/- 7. Whether the assessment is proposed to be made for the first time : Yes 8. If answer to item 7 is negative state (a) Income originally assessed NA (b) Whether it is a case of under assessment, at lower rate, assessment which has been made the subject of excessive relief or allowing excess loss/depreciation NO 9. Whether the provision of Sec. 150(1) are....
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....controlled by him were recorded in the computer impounded by the department on 20- 11-2007 during survey at his premises. In view of the above statements it is also clear that Sh. S. K. Gupta worked as an entry operator and provided accommodation entries to various beneficiaries through a large number of entities controlled and managed by him. Cash was received from the beneficiaries through mediators and was deposited in the bank accounts of these entities and thereafter it was transferred to the bank accounts of the ultimate beneficiaries through conduit / intermediary companies floated by Sh. Gupta. Subsequently, Sh. S.K Gupta also filed petition before the Income tax Settlement commission, Delhi for the assessment year 2008-09 wherein he admitted an additional income Rs. 68,76,755/- on account of commission/premium earned for providing accommodation entries to various beneficiaries. In the Statement of Facts (SOF) filed by Sh. S.K Gupta before Hon'ble Settlement Commission, he admitted that he used to provide accommodation entries through 32 companies and two individuals which were used as conduits/ routes from where cheques used to be given to be benefici....
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....NO 766199 DTD 28.03.05 CHAMP FINVEST SIB 1000000 Randeep Investment P. Ltd 23.04.05 CH NO 771507 DTD 28.03.05 CHAMP FINVEST SIB 250000 Randeep Investment P. Ltd 23.04.05 CH NO 771506 DTD 28.03.05 CHAMP FINVEST SIB 250000 Randeep Investment P. Ltd 23.04.05 CH NO 772488 DTD 29.03.05 OMNI FARMS SIB 25(^000 Randeep Investment P. Ltd 23.04.05 CH NO 772489 DTD 29.03.05 OMNI FARMS SIB 250000 Randeep Investment P. Ltd 27.04.05 CH NO 000031 DTD 22.04.05 ADVANTAGE KOTAK 1000000 Randeep Investment P. Ltd 27.04.05 CH NO 000032 DTD 23.04.05 ADVANTAGE KOTAK 500000 Randeep Investment P. Ltd 27.04.05 CH NO 000033 DTD 25.04.05 ADVANTAGE KOTAK 400000 Randeep Investment P. Ltd 11.05.05 CH NO 754665 DTD 07.05.05 CENTRAL GUMS REGAL SIB 850000 Randeep Investment P. Ltd 06.06.05 CH NO 219271 DTD 01.06.05 GIRASHO COMPANY OBC 500000 Randeep Investment P. Ltd 06.06.05 CH NO 219272 DTD 01.06.05 GIRASHO COMPANY OBC 300000 Randeep Investment P. Ltd 06.06.05 CH NO 219299 DTD 02.06.05 VISHRUT MARKETING OBC 50....
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....3186 DTD 27.03.06 CHANDERPRABHU OBC 300000 In view of the reports received from the ACIT Central Cir-22 and the above facts and findings, it is clear that the assessee company has not disclosed fully and truly all material facts necessary for its assessment for the assessment year under consideration. I am in possession of material that discredits and impeaches the particulars furnished by the assessee company and also establishes the link with the self-confessed "accommodation entry providers", whose business is to help assesses bring into their books of account their unaccounted money. I have therefore, reasons to believe that income to the extent of Rs. 1,72,75,483/- has escaped assessment. Thus, the same is to be brought to tax under section 147/148 of the I.T. Act 1961. Notice u/s 148 may be issued, if approved." 4. AO on the basis of the aforesaid reasons observed that assessee company had obtained alleged accommodation entries from various companies for sums aggregating to Rs. 1,72,75,483/-. Before the Ld. AO, assessee raised objections challenging the validity of reopening on various counts, however, AO rejected most the objections, except for ....
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....e as under :- a) Copy of the report as received from ACIT, Central Circle 22, New Delhi as per the survey conducted by Investigation Wing of the Income Tax Department New Delhi on the basis of which reasons have been recorded and notice U/S 148 has been issued. b) Copy of statement recorded of Sh. SK. Gupta by AD, Central Circle 22, New Delhi and also the Investigation Wing of Income Tax Dept. on the basis of which reasons have been recorded and notice U/S 148 has been issued. c) It is further requested that the Assessee may be allowed to cross examine Sh. SK. Gupta. d) Notice u/s 148 has been issued after obtaining the necessary satisfaction of the Addl. CIT, Range 15, New Delhi as mentioned in the said notice. Copy of such sanction may please be issued. It was stated that the rest of the details would be filed after the abovementioned documents have been received by the Assessee so as to enable the Assessee to file further objections to proceedings-initiated u/s 147/148 of IT Act. However, the AO without even making available all the documents asked has disposed off the objections, except for the statement of Shri S.K. Gupta recorded on 20.1....
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....takes and errors in the list of companies contained in the reasons recorded. It was clarified that, some of the share application monies were received in the preceding assessment year i.e., A.Y. 2005-06, which were duly accounted for in the books of accounts and shares were also allotted on 31.3.2005. It was also brought to the notice that the share application monies received from M/s. Champ Finvest Pvt. Ltd., have been duly accepted by the AO, vide his assessment order dated 28.3.2013, passed u/s 143(3)/147 for the A.Y. 2005-06. Thus, addition on account these amounts cannot be made in this assessment year u/s 68. The details of these cheques received in the earlier assessment year i.e., 2005-06 were as under: - S. No. Ch.No./PO/DD and Date Conduit Companies through which cheques issued Bank A/c of such conduit company issuing bank Amount (Rs.) 1 Ch. No. 765760 DTD 28.03.05 Champ Finvest SIB 1000000 2 Ch. No. 771505 DTD 28.03.05 Champ Finvest SIB 1000000 3 Ch. No. 766199 DTD 28.03.05 Champ Finvest SIB 1000000 4 Ch. No. 771507 DTD 28.03.05 Champ Finvest SIB....
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....r. Such reasoning though itself is unsustainable as there is no finding that amount of Rs. 5,00,000/- was received in this year. iii) M/s. Chander Prabhu Financial Services Pvt. Ltd. - Rs. 23,00,000/- Ld. CIT(A) following the earlier year order in the assessment year 2005-06 has confirmed the said addition. iv) Regarding balance amount of Rs. 85,50,000/- on account of share application money received from following parties the addition has been deleted by Ld. CIT(A): - a) Advantage Software Pvt. Ltd. Rs. 1900000 b) Central Gum & Chemical Ltd Rs. 850000 c) Girihaso Company Pvt. Ltd. Rs. 4100000 d) Vishrut Marketing Pvt. Ltd. Rs. 700000 e) Zenith Estates Ltd. Rs. 500000 f) AGM Holdings Pvt. Ltd. Rs. 500000 Rs.85,50,000 The relevant observation and finding of the Ld. CIT(A) are as under: - "4.3 The addition on account of share application money has been made by the AO on the basis of statements of Sh. S.K. Gupta recorded on 20/11/2007 and 26/12/2008 by the Investigation Wing of the Income-tax Dept. in which he has admitted of providing bogus accommodation entries to various entities....
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....s A/c for Fy 2005- 06 Yes Yes Yes Yes Yes Yes Yes Memorandum of Association. Yes Yes Yes Yes Yes Yes Yes Company Master Data from ROC Yes Yes Yes Yes Yes Yes Yes Form No. 18 Yes Yes Yes Yes Yes Yes Yes List of Current Directors with addresses Yes Yes Yes 1. ... Yes Yes Yes Yes Thus, on the basis of material and evidences placed by the assessee which was not controverted by the AO, he has deleted the addition. Accordingly, he has reduced the addition made u/s 69 on account of commission/premium paid. 13. Before us, Ld. Counsel for the assessee Shri Sandeep Sapra has pointed out that, there were so much inherent mistakes and infirmities in the 'reasons recorded' itself that such a 'reasons' could not be sustained for reopening the assessment. Here in this case, firstly, cheques aggregating to Rs. 35,00,000/- were not received in the relevant assessment year as the same were received during the assessment year 2005-06 and shares were also allotted on 31.5.2005. This he pointed out that has been accepted by the AO in his remand report also. Secondly, in so far as c....
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.... alleged to have been received by the assessee company vide Ch. NO.775239 dated 1-8-2005 of Oriental Bank of Commerce from M/s Sino Credit O/D a/c has actually been received by it from M/s Omni Farms Pvt. Ltd as is evident from the copy of the bank statement of "The South India Bank Ltd" of M/s Omni Farms Pvt. Ltd, copy of bank statement is enclosed at page 174 of the paper book. Therefore, the Reasons as Recorded with regard to such amount is erroneous." 14. Ld. Counsel thus submitted that, when there are numerous discrepancies in the 'reasons recorded', then it cannot be held that there is any independent application of mind by the AO or there is any live link nexus between the material coming on record and income escaping assessment. Such 'reasons recorded' at the outset, cannot clothe the AO with the jurisdiction to reopen the case u/s 147. In support of his various contentions, he has relied upon judgment of Hon'ble Delhi High Court in the case of i) CIT vs. RMG Polyvinyl (I) Ltd. reported in 396 ITR 5; and ii) Principal CIT vs. SNG Developers Ltd. 404 ITR 312. 14. On merits, Ld. Counsel submitted that the assessee has raised fresh share capital of Rs. 3,67,03,000/-, out....
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....trongly relied upon the judgment of Hon'ble Delhi high Court in the case of Pee Aar Securities Ltd. vs DCIT (2018) 96 taxmann.com 602. On merits also, he submitted that AO has already accepted some of the contentions and except for the credit appearing in the earlier assessment year can be deleted, but balance needs to be confirmed. DECISION 17. We have heard the rival submissions and also perused the relevant finding given in the impugned order as well as material referred to before us. It is a trite law that to acquire jurisdiction for reopening the assessment u/s 147, AO must have 'reason to believe' that income chargeable to tax has escaped assessment and such a 'reason to believe' should be based on tangible material having live link nexus with the income escaping assessment. Information or material received from Investigation Wing or any other wing of the department can constitute relevant material, however, based on such material AO has to first apply his mind on the facts and assessment records of the assessee and prima facie reach to a conclusion that there is some kind of link or nexus which such material/information, then he can clothe himself with the jurisdiction....
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....ar; or whether assessee has received any such amount from the entities mentioned in the information. Before the Ld. CIT (A) and also before us, it has been brought on record that there were various defects and discrepancies in the information mentioned in the 'reasons recorded' and the facts of the assessee's case. This implies that there has been absolutely no application of mind by the AO establishing any nexus with the information received and the facts and material pertaining to the assessee. 18. Coming to various mistakes/discrepancies in the 'reasons recorded' vis-à-vis the facts of the case, we find that assessee before the authorities below has demonstrated following defects: - * Firstly, assessee pointed out that it has received Rs. 35,00,000/- from Champ Finvest in the earlier year, the details given were as under: - S. No. Ch.No./PO/DD and Date Companies through which cheques issued Amount (Rs.) 1 Ch. No.765760 DTD 28.03.05 Champ Finvest 1000000 2 Ch. No.771505 DTD 28.03.05 Champ Finvest 1000000 3 Ch. No.766199 DTD 28.03.05 Champ Finvest 1000000 4 Ch. No.771507 DTD 28.03.05 Champ Finvest 250000 ....
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....rd to 15 entries, which indicates that AO has not applied his mind while recording the reasons. 19. Once AO receives any information or material from investigation wing or from elsewhere, then instead of recording the reasons from borrowed satisfaction, he has to independently apply his mind and verify the record of the assessee before forming his 'reason to believe' for reopening the case u/s 147. Formation of 'reason to believe' is a jurisdictional fact, which AO must spell while recording his 'reasons' and should be germane to the facts of the assessee and material or information coming on record. If jurisdictional fact has been recorded on wrong premise or on incorrect assumption of facts, whether fully or partially, then jurisdiction cannot be acquired to reopen the assessment. Thus, when any information dehors any live link nexus with the income escaping assessment, then it cannot be held to be valid information for reopening the assessment u/s 147. 20. Such kind of glaring errors in the 'reasons recorded' has been judicial frowned by the Jurisdictional High Court in many cases. In the case of, CIT vs RMG Polyvinyl (I) Ltd., (reported in 396 ITR 5) in the following mann....
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....nown' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions "one after the other" and that the satisfaction arrived at by the AO was a "borrowed satisfaction" and at best "a reproduction of the conclusion in the investigation report. " 13. As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had. 14. To compound matters further the in the assessment order the AO has, instead of adding a sum of Rs. 78 lakh, even going by the reasons for reopening of the assessment, added a sum of Rs. 1.13 crore. On what basis such an addition was made has not been explained. 15. For the aforementioned reasons, the C....
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....able the reader to appreciate how the conclusions flow therefrom. " 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need "not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 14....
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....rom which it is evident that reasons have been recorded on the basis of information received from the Investigation Wing of the Income Tax Department, New Delhi that the Assessee has taken accommodation entries from the following persons: Date of Entry in the Books From To Bank Cheque/RTGS Cheque Date Amount Through 21.02.2005 Giriasho Co. P. Ltd. Randeep Investment P Ltd. OBC 210788 16 FEB,05 5,00,000 Deepak Jain 21.02.2005 Giriasho Co. P. Ltd. Randeep Investment P Ltd. OBC 210789 17 FEB,05 5,50,000 Deepak Jain 22.02.2005 Giriasho Co. P Ltd. Randeep Investment P Ltd. OBC 21079Wrap 1 19 FEB,05 5,00,000 Deepak Jain 25.02.2005 S.J. Scurity Pvt. Ltd. Randeep Investment P Ltd. HDFC 271376 23FEB.05 5,00,000 Deepak Jain 12.03.2005 Vashudeva Farms Pvt. Ltd Randeep Investment P Ltd. SIB 766990 10 Mar,05 5,00,000 Deepak Jain 12.03.2005 S.J. Scurity Pvt. Ltd. Randeep Investment P Ltd. HDFC 271395 10 Mar,05 5,00,000 Deepak Jain 12.03.2005 S.J. Scurity Pvt. Ltd. Randeep Investment P Ltd. HDFC ....
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....de as per the assessment order (Rs.) Difference (Rs.) Omni Farms P. Ltd. 6,50,000 11,50,000 5,00,000 Vasudeva Farms P Ltd. 15,00,000 16,50,000 1,50,000 S.J. Security P Ltd. 20,00,000 15,00,000 (5,00,000) In view of the above, it is clear that AO did not apply his mind and recorded the reasons purely on borrowed satisfaction without making any enquiries on his own and therefore the reasons as recorded are bad in law as held by ITAT Delhi Bench vide its order dated 14/08/2014 (ITA No. 4281/Delj2010) in the case of ITO vs. Comero Leasing & Financial Pvt. Ltd. which was rendered after relying on Jurisdictional High Court judgment in the case of CIT vs. Suren International Pvt. Ltd. reported in 357 ITR 24, relevant portion of such ITAT judgment is reproduced below: "From the above, we find that at paragraph Nos.l, 2 & 3, the Assessing Officer has discussed the facts in general i.e., the investigation carried on by the Director of Income Tax (Investigation) and the finding of such investigation the modus operandi, how the entry operator worked. The facts relating to assessee's case begin in ITA-4281 & 4949/D/2010 from paragraph....
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....ssment order passed u/s 147/143(3) of I.T. Act dated 28/03/2013 as the initiation of proceedings u/s 147/148 is bad in law. Accordingly, ground No.1 of the Assessee's appeal deserves thereby quashing the re-assessment made u/s. 147/148." 23. Thus, the aforesaid finding of the Tribunal will apply in the current year also and respectfully following the same and in view of our reasoning given above we quash the reassessment proceedings. 24. Further on merits also, as pointed out by the Ld. Counsel, in the case of two additions sustained by the Ld. CIT(A) i.e., amount of Rs. 5,00,000/- received from M/s. Omni Farms Pvt. Ltd. and amount of Rs. 23 lacs from M/s. Chandra Prabhu Financial Services Pvt. Ltd., the Ld. CIT(A) has followed the earlier year appellate order. The order of the Ld. CIT(A) has been reversed by the Tribunal and now these additions stand deleted by the Tribunal in the assessment year 2005- 06. Whence, these additions are directly covered by the decision of the Tribunal, then respectfully following the same, we also delete the additions aggregating to Rs. 28,00,000/- 25. Apart from that, we find that assessee has submitted catena of documents before the AO....
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.... - Copies of Confirmation - Copies of Bank Statement of Oriental Bank of Commerce - Print out of PAN from Income Tax Site. - Copy of the Balance Sheet, Profit & Loss A/c along-with schedules of the applicant company for the FY 2005-06. Copy of Memorandum of Association. - Company Master Data from ROC site evidencing current registered office of the company and the status of annual filing. In the case of this share subscriber returns are updated up to 31-3-2013. - Form No. 18 filed on 15-06-2010 evidencing the current registered office of the company - List of Current Directors with addresses as per MCA records enclosed. - Annual Return as per Form 23AC for the FY 2010-11 as filed with ROC, Delhi & Haryana. h) M/s Advantage Software Pvt. Ltd. Rs. 19,00,000- The following documents were filed to prove the identity, genuineness and creditworthiness of such party: Copies of Share Application Money received. Copy of Board Resolutions authorizing Investment in the assessee company Copy of Confirmation Copy of Bank Statement of Kotak Mahindra Bank Ltd, of the share applicant Copies ....
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....ies of Bank Statement of Oriental Bank of Commerce, of the share applicant Copies of Income Tax Returns & PAN. Copy of the Balance Sheet, Profit & Loss A/c alongwith schedules of the applicant company for the FY 2005-06. Copy of Memorandum of Association. Company Master Data from ROC site evidencinq current registered office of the company and the status of annual filing. In the case of this share subscriber returns are updated up to 31-3-2010. Form No. 18 evidencing the current registered office of the company List of Current Directors with addresses as per MCA records enclosed .. Annual Return as per Form 23AC for the FY 2008-09 as filed with ROC, Delhi & Haryana Compliance Certificate from Qualified Company Secretary alongwith its filing with ROC. Income Tax particulars of Current Directors of the company as per Income Tax Site. k) M/s Vishrut Marketing Pvt. Ltd. Rs. 7,00,000- The following documents were filed to prove the identity, genuineness and. creditworthiness of such party: Copies of Share Application Money received Copy of Board Resolution authorizing Inv....
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....iness of such party: Copies of Share Application Money received Copy of Board Resolution authorizing Investment in the assessee company Copies of Confirmation Copies of Bank Statement of Indraprastha Sehkari Bank Ltd, of the share applicant Copies of Income Tax Returns Copy of the Balance Sheet, Profit & Loss A/c alongwith schedules of the applicant company for the FY 2005-06. Copy of Memorandum of Association. Company Master Data from ROC site evidencing current registered office of the company and the status of annual filing. In the case of this share subscriber returns are updated up to 31-3-2012. Form No. 18 evidencing the current registered office of the company List of Current Directors with addresses as per MCA records enclosed. Annual Return as per Form 23AC for the FY 2009-10 as filed with ROC, Delhi & Haryana. Compliance Certificate from Qualified Company Secretary alongwith its filing with ROC. Income Tax particulars of Current Directors of the company as per Income Tax Site. n) M/s AGM Holding Pvt. Ltd. Rs. 5,00,000- The following documents were filed to prove the....