TaxTMI 
TaxTMI 
2020 (1) TMI 89
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....6,68,78,9601. The case was selected for scrutiny. An order of assessment was passed under Section 143(3) on 07.07.2014, where disallowance u/s 14A and 43B of the Income Tax Act were made. (ii) A notice was issued to the petitioner/ assessee on 31st March 2019 under Section 148 to reopen the assessment for the Assessment Year 201213. The reasons recorded by the A.O. for formation of his belief that income chargeable to tax had escaped assessment, in brief, were that M/s Shail Investment Pvt. Ltd. and M/S New Delhi Credits Private Limited are companies controlled by one Sh. Tarun Goyal, who is an accommodation entry provider. This fact had been established in proceeding relating to the said Sh. Tarun Goyal before the ITAT and the High Court. On perusal of bank statements, and investigation report, it was found that the assessee company received Rs. 4,10,00.000 - from M/s. Shail Investment Pvt. Ltd. and Rs. 4,10,00,000 - from M/s. New Delhi Credits Private Limited during the previous year, relevant to the assessment year in question. Both these companies were amongst the 90 companies promoted by Sh. Tarun Goyal and registered at the same address at which the other companies e....
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....AABCD6381P 4533 to 4537, 4639-4640/Del/2012 2004-05 to 200708 & 2009-10 & 2003-04 & 2008-09 Karol Bagh Trading Ltd., 13/34, W.E.A. Karol Bagh. AAACK0511D 4612/Del/2012 2007-08 Mahanivesh Pratibhuti Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AADCM2286N 4583 to 4586/Del/2012 2004-05 to 2007-08 New Delhi Electronics Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AAACN0676L 4541, 4542 & 4611/Del/2012 2007-08 to 2009-10 Rishabh Shoes Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AAACR2358D 4629 to 4634/Del/2012 2003-04 to 2008-09 Sadguru Finman Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AABCS4800J 4643 & 4642/Del/2012 2007-08 & 2008-09 Sai Baba Finvest Pvt. Ltd, 13/34, W.E.A. Karol Bagh. AAHCD6789E 4641/Del/2012 2004-05 Tarus Iron & Steel Co. Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AABCT7170N 4645 & 4644/Del/2012 2003-04 & 2004-05 Thar Steel Pvt. Ltd, 13/34, W.E.A. Karol Bagh. AABCT5923D 4635/Del/2012 2009-10 Vertex Drugs Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AAACKO511D 2522 & 2523/Del/2012 2008-09 & 2009-10 Campari Fiscal Services Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AACCC1903B 2521/D....
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....he beneficiaries. The assessee in order to disguise his transactions as genuine has been following 'layering' of accounts where in cash was introduced in various bank accounts of the assessee and through multiple cheque transactions passed from his various companies, cheques and were issued to the beneficiaries from one of his companies. c. The cheques issued were usually shown for the following purposes:- (a) Share capital introduction: (b) Introduction of capital as advance through booking of flats etc. These were later cancelled / transferred on account of payment of default, thereby reversing the entry. This is clear from the papers seized during the search. One of them, page 120 of Annexure-6 is attached with the order for ready reference (Annexure A-1 of this assessment order). All companies of Tarun Goyal are having common address i.e. 13/34, WEA, Arya Samaj Road, Karol Bagh, New Delhi or 203, Dhaka Chamber, 2069/39, Naiwala, Karol Bagh, New Delhi. The office space at 13/34, WEA, Arya Samaj Road, 4th Floor, Karol Bagh, New Delhi is approx. 440 sqft. and many group companies are registered at this address. The employees who are also....
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.... income can not be taxed twice. 4. It is now requested that commission income be taxed only at the point of cash deposit because only the transactions originated with the cash deposits are the "accommodation entry" transactions. Other transactions are the genuine and bona fide business transactions on which income has accrued and accounted for in the books of account of each individual company and duly explained in each cash accordingly. 5. That since the commission has already been surrendered and offered for tax at the entry point, it should not be taxed twice (against at the exit point). 6. That the undersigned agreed and offered to revenue in the voluntary disclosure, an addition income by treating a commission @ Rs. 2.50 per thousand on Rs. 40 crores of accommodation entry, whereby a total additional income of Rs. 10 lacs was offered for tax in the voluntary disclosure. Any addition beyond this will put an undue hardship on the undersigned and its group of companies, and will lead unnecessary litigation, waste of precious time, money and entry." 7. Notices were issued u/s 153A to each of the above companies in the group. In response the asse....
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.... have stated to have never met 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. All the books of accounts of all the companies have been retrieved from the computers/laptop of Sh Tarun Goyal. vii. Sh Tarun Goyal has given letters for the release of bank accounts of companies put under restraints after search. No such application was received from so called directors of the companies. viii. Sh Tarun Goyal appears in all the scrutiny assessments as well as appeals of his companies himself before various income tax authorities. From verification carried out in respective wards/circles wher....
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....n of the bank account of M/S Shail Investments Pvt. Ltd. that the beneficiary of the transactions during FY 2011-12 in the case of the assessee is as below: Name PAN Debits Credits Jurisdiction RDS Project Ltd. AAACR4761J 4,10,00,000 Circle 20(2), Delhi 3.4 On perusal of the bank account maintain by M/s Shail Investments Pvt. Ltd. in Axis Bank reflects that amount of Rs. 4,10,00,000/- was transferred to the account of the assessee company i.e M/s RDS Projects Ltd which is shown in. bank statement on the following dates: Tran Date Value Date Transaction particulars Chq. No. Amount DR / CR Balance Branch Name 27-04-2011 27-04-2011 UTIBH111170 53730-RDS PROJECT LTD 35809 10000000.00 DR 38801944.85 SADAR BAZAR, DELHI (DL) 28-04-2011 28-04-2011 UTIBH11118074021-RDS PROJECT LTD 35812 150000000.00 DR 1944.85 SADAR BAZAR, DELHI (DL) 29-04-2011 29-04-2011 UTIBH11119092976-RDS PROJECT LTD 35815 150000000.00 ....
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....lure on the part of the assessee. Merely putting in a line as aforesaid would not satisfy the requirements of the proviso to Section 147 of the Act" 6. The counsel also relies upon the Bombay High Court decision in Bombay Stock Exchange Ltd. Vs. Deputy Director of Income Tax (EXEMPTION) and ORS., (2014) 361 ITR 160(BOM), where reassessment proceedings and 148 were quashed due to the reason that AO had only made a simple averment in the reasons, that assessee had failed to disclose material facts, and did not indicate as to what material facts were not disclosed. 7. The petitioner also relied upon a Division Bench Judgment of this Court in Haryana Acrylic Manufacturing Co. vs. Commissioner of Income Tax and INR., (2009) 308 ITR 38 (DEL), where reopening of assessment after expiry of four years was held to be invalid on the ground that escapement of income from assessment must be occasioned by the failure on the part of assessee to disclose material facts. In that case reasons supplied to the petitioner did not contain any such allegation. 8. On the other hand, the petition is opposed by the revenue, contending that at the present stage, the test is not as to whether there h....
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....and the decisions relied upon by them. 13. We had made it clear to learned counsel for the petitioner during the hearing, that looking to the facts and circumstances of the case - particularly the reasons recorded for re-opening, that we see no merit in the petitioner's challenge to the notice for re-opening of the assessment proceedings. However, learned counsel continued to persist - even at the cost of consuming valuable judicial time. Accordingly, we have taken note of the detailed submissions and dealt with them in extenso. 14. What clearly emerges from a perusal of the reasons recorded by the respondent under Section 147 of the Act, is that the petitioner has received contribution from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. towards share application money, at a premium, during the assessment year in question. Both these investor companies are promoted by Sh. Tarun Goyal, who has been found to have promoted about 90 such companies, many of which had the same address i.e. 13/34, W.E.A. Karol Bagh. Judicial findings have been returned against the said Tarun Goyal, and several of the companies floated by him to the effect that they are engaged i....
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....d. Summons/ notices were also issued to the representatives of the investor companies. However, none appeared on behalf of either of them. The stand of the assessee company was that the amounts had been received through normal banking channels through account payeee cheques/ demand drafts and, therefore, there was no cause to take recourse to section 68 of the Act. The assessee claimed that it had discharged the onus upon it to establish the genuineness of the transactions under section 68 of the Act. 16. The AO made inquiries with regard to the genuineness of the transactions of investment in share capital with premium in the assessee company. In the independent inquiry, the AO found that the investor companies despite service of notice did not appear; that in respect of some of them, their office was found closed; some other entities were found not existing at the given address; in some cases, the premises was found to be owned by some other person. Consequently, notices could not be served in these cases. Even when they responded, the investor companies did not provide justification for applying in equity shares in the assessee company at a premium of Rs. 190 per share. 17....
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....nference, only because the creditor/ subscriber fails or neglects to respond to the notice issued by the AO. In support of this conclusion, the CIT (Appeals) relied upon a decision of this Court in CIT v. Lovely Exports Pvt. Ltd., (2008) 299 ITR 268 (Delhi). The ITAT dismissed the Revenue's appeal on 16.10.2017 on the ground that the assessee had discharged their primary onus to establish the identity and creditworthiness of the investors, especially when the investor companies had filed their return and were being assessed. The Revenue's appeal before this court i.e. ITA No.244/2018 under section 260A of the Act was dismissed on 26.02.2018 on the ground that the issues raised before the High Court were factual, and that the lower appellate authorities had taken sufficient time to consider the relevant circumstances. This court held that no substantial question of law arose for its consideration. 21. In this background, the department appealed before the Supreme Court. The respondent assessee did not appear before the Supreme Court despite service. The Supreme Court heard the appeal on merits and considered the issue whether the respondent assessee had discharged the primary onu....
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....ed to undertake further exercise." 23. Merely providing the identity of the investors does not discharge the onus of the assessee, if the capacity or creditworthiness has not been established. The Supreme Court also took note of the decision of the Calcutta High Court in Shankar Ghosh v. ITO, (1985) 23 ITJ (Cal), where the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The said loan amount was rightly held to be the assessee's own undisclosed income. 24. The Supreme Court also placed reliance on CIT v. Kamdhenu Steel & Alloys Ltd., (2012) 206 Taxman 254 (Delhi), wherein the Court had observed: "38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise if going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the case deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with ....
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....introducing bogus share capital into the assessee company on the facts of the case. iv. The Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions. The initial onus of proof lies on the assessee. This Court in Roshan Di Hatti v. CIT, (1992) 2 SCC 378, held that if the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee. v. The Guwahati High Court in Nemi Chand Kothari v. CIT, (2003) 264 ITR 254 (Gau.) held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction.: "It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his....
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....us contemplated by Section 68 of the Act." 28. The Supreme Court found that the AO had made inquiries, which revealed that there was no material on record to prove that the share application money had been received from independent entities, some of which were found to be non-existent and had no office at the address mentioned by the assessee. Some of the investor companies were found to lack the financial capacity to make such investments, and there was no explanation as to why the investor companies had subscribed to the shares of the assessee company at high premium of Rs. 190 per share, when the face value was only Rs. 10 per share. Moreover, the investor companies had not established the source of funds from which the high share premium was invested. Mere mention of the income tax file number of the investor was not sufficient to discharge the onus under section 68 of the Act. The Supreme Court held that the lower authorities, namely, the CIT (Appeals) and the ITAT had ignored the detailed findings of the AO and that they had erroneously held that merely because the assessee had filed all the primary evidence, the onus on the assessee under section 68 of the Act stood disch....
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....er/ assessee company during the previous year relevant to the assessment year in question as share application money. The aforesaid background raises serious doubts about the character of M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd., as being mere vehicles for providing accommodation entries. These two companies appear to have dubious character and, thus, the genuineness of the transactions that these two companies have undertaken with the petitioner has come under a serious cloud, giving rise to a reasonable belief in the mind of the Assessing Officer that the petitioner may have indulged in a dubious transaction with the said M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. to launder its undisclosed income. 32. Pertinently, the petitioner does not dispute having received monies from these two dubious companies. 33. In our view, since the petitioner does not dispute the receipt of monies from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. towards alleged capital infusion, the belief formed by the Assessing Officer, that taxable income of the petitioner has escaped assessment cannot, but, be described as reasonab....
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....ledge that M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. are promoted by Tarun Goyal, who has been established to be an accommodation entry provider, by adopting the modus operandi of promoting different companies; layering the transactions and; providing the accommodation entries dawned upon the Assessing Officer only upon receipt of information from the Investigation Wing. Pertinently, Tarun Goyal has admitted his role in the illegalities, his modus operandi, and; surrendered undisclosed commission income. He has been judicially recognized as an accommodation entry provider. 38. We are not suggesting that all monetary transactions of a person/ entity indulging in the activity of providing accommodation entries, would justify the entertainment of a belief, that the taxable income of the third parties - with whom such monetary transactions are undertaken, has escaped assessment. This is because, the person/ entity found to be indulging in the activity of providing accommodation entries, may have entered into some genuine transactions as well. It would be essential for the Assessing Officer of such third party/ parties to find a live-link, i.e. a link which ....
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....was not available to the Assessing Officer at the time of completion of the scrutiny assessment, would be a material change of circumstances, and the formation of belief that taxable income has escaped assessment would not suffer from the taint of simplicitor change of opinion. 41. One cannot lose sight of the fact that once the proceedings are reopened, the assessee would have full opportunity to meet the material/ evidence that the Assessing Officer may seek to rely upon to re-compute the taxable income in accordance with law. Moreover, an assessment order passed by the Assessing Officer would be open to challenge in appeal under the Act. 42. We may also refer to the decision in Chetan Sabharwal v. Assistant Commissioner of Income Tax, Circle 28 (1), W.P.(C.) No. 10897/2015 along with other connected petitions, decided on 06.08.2019. In the said decision, the Court, inter alia, held as follows: 41. As far as the case of Mr. Chetan Sabharwal is concerned, the original assessment orders for both AYs under Section 143(3) of the Act do not give any indication on the AO having formed any opinion whatsoever on the basis of which the reopening has been ordered. In this context ....
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....int inspection was conducted in the colliery of the respondent on January 9, 1967 by the officers of the Mining Department in the presence of the representatives of the assessee and according to the opinion of officers of the Mining Department; there was under reporting of the raising figure to the extend indicated in the said letter. The report is made by Government Department and that too after conducting a Joint inspection. It gives a reasonably specific estimate of the excessive coal mining said to have been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may well be that the assessee may be able to establish that the fact stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief. Since, we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said tha....
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.... and fully disclosed all material fact necessary". 45. Reliance placed on Haryana Acrylic Manufacturing Co. (supra) is also misplaced, for the reason that the petitioner/ assessee did not disclose that M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. are two companies promoted by Sh. Tarun Goyal, who has been established to be engaged in the business of providing accommodation entries through his 90 odd companies incorporated by him at the same set of addresses. 46. The revenue relied on Commissioner Of Income Tax, New Delhi vs. NDR Promoters Pvt. Ltd, (2019) 410 ITR 379 (Delhi), which is a judgment of this Court dated 17th January 2019 to come to the conclusion that M/S Shail Investments Pvt. Ltd. is a shell entity operated by Sh. Tarun Goyal, working from the premises 13/34, W.E.A. Karol Bagh, New Delhi, an address which is shared by numerous other bogus companies belonging to Sh. Tarun Goyal. Considering the above, this Court finds no merit in petitioner's contention that M/S Shail Investment Pvt. Ltd. and M/S New Delhi Credits Private Limited have no nexus with Tarun Goyal, and that the said decision merely applies to M/S NDR Promoters and other bogus c....
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....nsaction. Ex-facie, the order of assessment which was passed by the Assessing Officer under Section 143(3) on 2 December 2008 does not indicate that the Assessing Officer had brought his mind to bear on either of these aspects. In fact there is nothing in the reply filed by the assessee to the notice under Section 142(1) that would indicate a full disclosure of facts in regard to either the credit worthiness of the companies which made the investments or the genuineness of the transaction. A cloud was cast on the genuineness of the transaction once a search took place at the premises of the Chartered Accountant who, according to the Department, has stated that he had set up 90 bogus companies, all within his control and in which the Directors were his own employees only for the purpose of providing accommodation entries in favour of various beneficiaries. Among the beneficiaries is the petitioner to whom a payment of Rs. 2.21 crores was made through the four companies which created a conduit. Whether it is actually so, is a matter of fact which would have to be determined in the course of the proceedings after the assessment is reopened. At this stage, the only issue befor....