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2020 (1) TMI 257
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....ite Industries Private Limited (SIPL). The petitioner was provided with the reasons for re-opening the assessment. The crux of the reasons is that SIPL had received an amount of Rs. 90.32 crores in the FY 2011-12 from Moral Alloys Private Limited (hereinafter referred to as Moral), and investigation had shown that Moral was heavily engaged in the activity of providing accommodation entries, thus giving rise to the belief that SIPL's income chargeable to tax had escaped assessment. The reasons, inter alia, state that the Assessing Officer had received information on 28.03.2019 from the Office of ADIT (Inv.) (HQ-2) in respect of the, prima facie, beneficiaries in the case of Moral. The notice extracts the summary of the said investigation report, wherein it is stated that Moral in an effective period of four years (FY 2011-12 to 2014-15) had shown turnover of Rs. 856 Crores in its bank accounts, details whereof were disclosed in the report. After its incorporation in September 2010, Moral had declared its activity as trading in metals at its address at Darya Ganj, New Delhi. Moral had opened an account on 23.08.2011 with Axis Bank, Sadar Bazar Branch, New Delhi. Cash deposits and cas....
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....2 to 2015-16 and to explain the very low income offered by it for taxation despite very large turnover/ gross sales during the said period, along with supporting documents and other relevant details. The investigation report states that the Inspector, OCM Cell-2 was deputed to serve the summons on the registered address of Moral as per its latest ITR; "however, though the address was there, no entity in the name of Moral Alloys Pvt. Ltd. ever existed at the said address. Subsequently, summonses were issued to Sh. Deepak Bansal and Nitin Kumar, directors of the company at their residential address (as per their latest ITRs) on 13.03.2019 and Inspector, OCM Cell-2 was deputed to serve the said summonses, but they also could not be traced out at the said addresses and no one in the vicinity had ever heard about them. Further, MCA data of Moral Alloys Private Limited and KYC documents submitted to the bank were analysed but address provided in those were the same addresses as provided in its latest ITR". (emphasis supplied) 9. The extract of the investigation report contained in the notice further states that inquiries were made from those entities, whose gross taxable income for th....
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....nbsp;..... ..... ..... > Total sales/gross receipt of business and purchases shown by Moral Alloy Pvt. Ltd for FY 2011-12 were Rs. 608.95 Cr and 608.21 Cr respectively. > Balance sheet of Moral Alloys Pvt Ltd for AY 2012-13 does not support any significant loan advanced by Moral Alloy (loan advanced worth Rs. 2.03 Cr only) or received by it (Rs zero) as on the year end date. Therefore, transactions done by Moral Alloys Pvt Ltd with above mentioned entities vide para 5 appear to be mainly in the nature of sale and purchase. > Moral Alloys Pvt Ltd claimed very less operational expenses for FY 2011-12 against huge revenue from sales of Rs. 608.95 Cr. It claimed Employee benefit expenses- Rs. 5.39 lac, depreciation expense- Rs. 1.37 lac, Rent- Rs. 1.63 lac, Commission paid-Rs. 11.87 lac, and cost freight- Rs. 20.73 lac only. Its total paid up capital is only Rs. 1.0 Lac and fixed assets are only Rs. 2.22 Lac for A Y 2012- 13. These facts further corroborate that it has/had no genuine business. > It is also evident from ITRs of both the directors of Moral Aloys Pvt Ltd for A Y 2012-13 that no salary income was shown by them. 8. In view of the....
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....at it is appearing as bogus company. I have perused the above detailed information received from the Investigation Wing and after analysing the above information I am satisfied that the assessee has received accommodation entries from Moral Alloys Pvt. Ltd. This receipt of accommodation entries from the above Company was not known to the AO at the time of completion of original assessment, hence, no inquiry was conducted on this issue. 4. Enquiries made by AO as sequel to information collected/received: 4.1 The above report was received on 29.03.2019 and it has been perused thoroughly. It is evident that the assessee has received accommodation entries and as a result of which income of Rs. 90,32,00,000/- has escaped assessment within the meaning of Section 147. 5. Findings of AO: 5.1 In view of the facts discussed above, I have reasons to believe that the income of Rs. 90,32,00,000/-, chargeable to tax, has escaped assessment and re-assessment proceeding u/s 147 for the AY 2012-13 is required to be initiated u/s 147. 6. Reasons for formation of belief: 6.1 The reasons for the formation of belief that the income chargeab....
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....itin Kumar (BCTPK0498J) AY 2012-13 2013-14 2014-15 2015-16 2016-17 Gross Total Income (in Rs.) 383190 314600 261570 244900 281449 Total Tax Payable (in Rs.) 20929 11804 4282 0 1179 9. To investigate the matter, the bank accounts statement of Moral Alloys Pvt. Ltd. was requisitioned; 10. It is found from these accounts that major funds were further transferred to the following entities during FY 2011-12. Name of Entities Total Amount in INR PAN Sterlite Industries Private Limited 90,32,00,000 AABCS4955Q 5. The ITR profiling of the aforementioned entities that have major credit and debit entries in the bank accounts of Moral Alloys Pvt Ltd., as mentioned above, are as follows: STRELITE INDUSTRIES PVT. LTD. (AABCS4955Q) AY 2012-13 2013-14 2014-15 2015-16 2016-17 Gross Sales/Turnover 1,80,92,06,00,000 E-filing record not found in the name of the company (this company was amalgamated with Sesa Goa and became Sesa Sterlite (Vedanta) Gross Total Income 5,24,60,75,074 Total Tax Payable 2,76,65,03,940 5. In furtherance of the investigation, su....
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....im. 8. From further enquiry, it has been found that both the directors of Moral Alloys Private Limited are also directors in the below mentioned companies: Name of entity PAN Forward Minerals and Metals Private Limited AABCF4318A Unnati Alloys Private Limited AABCUI531E It is pertinent to note that Moral Alloys Private Limited also had banking transactions with the aforementioned companies. Further, Sh. Nitin Kumar, Director of assessee company has a proprietorship concern, namely Durga Enterprises, which also had banking transactions with Moral Alloys Private Limited. Summonses were issued to all these entities but could not be delivered as the entities were found to be non-existent at those addresses. It is found form the Balance sheet of Moral Alloys Private Limited for A Y 2012- 13 that Moral Alloys Pvt. Ltd had shareholdings in Brilliant Metals Pvt Ltd, Progressive Alloys Pvt Ltd, JBN Impex Pvt. Ltd and Unnati Alloys Pvt Ltd. The transactions done by Moral Alloys Pvt Ltd with these entities are tabulated below for FY 2011-12- Transactions done by Moral Alloys Pvt Ltd with these entities Sales to Moral A....
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.... (A/c No. 911020021179216) for FY 2011*12 Total Credit (INK) 3,47,33,18,549.58 Total Debit (INR) 3,46,65,40,176.46 Misawa Impex Pvt Ltd. (A/c No. 911020025200169 for FY 2011-12 Total Credit (INR) 2,43,76,40,456.85 Total Debit (INR) 2,42,87,26,207.60 It is seen from both the above bank statements that almost all fund credited in the bank account is transferred further to other entities on the same day and accounts are left with minimal balance. 12. In furtherance of the investigation, ITR of Moral Alloys for AY 2012-13 has been analysed and found following facts- > Total sales/ gross receipt of business and purchases shown by Moral Alloy Pvt Ltd for FY 2011-12 were Rs. 608.95 Cr and 608.21 Cr respectively. > Balance sheet of Moral Alloys Pvt Ltd for AY 2012-13 does not support any significant loan advanced by Moral Alloy (loan advanced worth Rs. 2.03 Cr only) or received by it (Rs zero) as on the year end date. Therefore, transactions done by Moral Alloys Pvt Ltd with above mentioned entities vide para 5 appear to be mainly in the nature of sale and purchase. > Moral Alloys Pvt Ltd claimed very less operational ....
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....m the above Company was not known to the AO at the time of completion of original assessment, hence, no inquiry was conducted on this issue. The above report was received on 29.03.2019 and it has been perused thoroughly. It is evident that the assessee has received accommodation entries and as a result of which income of Rs. 90,32,00,000/- has escaped assessment within the meaning of Section 147. In view of the facts discussed above, I have reasons to believe that the income of Rs: 90,32,00,000/-, chargeable to tax, has escaped assessment and re-assessment proceeding u/s 147 for the AY 2012-13 is required to be initiated u/s 147. Discussion on "change of opinion" It is pertinent to mention that though assessment has been completed u/s 143(3) in the above case but there was no formation of opinion by the AO on the above issues as no specific questionnaire on the above issues were raised by the AO nor there was any submission on the above issues by the assessee. Thus, it is not a case of change of opinion as for the change of opinion there has to be an opinion first. The Hon'ble Delhi High Court has held in case of Commissioner of Inco....
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....stigation Wing as discussed above. The Hon'ble Madras High Court in case of M/s. SUN Direct TV Pvt. Ltd. v ACIT (W.P. No.44311 of 2016, 10.10.2018) has held that - "if the assessment is finalised, the reopening in respect of the escaped assessments can be made if any new materials or suppression of materials are identified." The Hon'ble Apex Court has held in case of M/s Larsen & Toubro Ltd. v. State of Jharkhand & Others CIVIL APPEAL NO. 5390 OF 2007 that Audit Objection is an "information". The Hon'ble jurisdictional Delhi High Court in case of M/s. GLOBAL BUSINESS SOLUTIONS INDIA PVT. LTD. v. Pr. CIT-3 W.P.(C) 12277/2018, C.M. APPL.47539/2018 has also held that Audit Objection is "information" for the purpose of Section 147. No "full and true disclosure" in the original assessment proceeding There was no full and true disclosure by the assessee as the assessee failed to disclose that it has received accommodation entries from the above Company. Explanation to Section 147 of the Income Tax Act is reproduced below:- "Production before the Assessing officer of account books or other evidence from wh....
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.... had been full disclosure of the material facts necessary for the purposes of assessment. The terms of the Explanation, declared the court, were too plain to permit an argument that the duty of the assessee to disclose fully and truly all material facts would stand discharged when he produces the books of account or evidence which has a material bearing on the assessment. The Hon'ble Court has observed that:- "It is the duty of the assessee to bring to the notice of the Income tax Officer particular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the Income- tax Officer, if he had been circumspect, could have found out the truth, the Income tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessment." Thus, neither this is a case of "change of opinion." nor there was a "full and true disclosure" by the assessee. Therefore, I have reason to believe that Rs. 90,32,00,000/- has escaped assessment and its unexplained. It is evident that income chargeable to tax has escaped assessment for this year by the reasons of th....
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....stigation Report itself found the sales undertaken by it to Moral to be genuine. It was argued that merely because Moral may have had transactions with others, which may raise doubts about their genuineness, is no reason to suspect all transactions undertaken by Moral, including those with SIPL, and that SIPL is only concerned with its transactions with Moral, and nothing more. 13. In the light of the aforesaid submission, we directed the Revenue, who was represented on advance notice, to produce the Investigation Report before this Court in a sealed cover on the next date of hearing. The matter was adjourned to 19.12.2019 for the said purpose. On 19.12.2019, it was further adjourned to 20.12.2019, when it was heard. 14. Ms. Malhotra, learned senior standing counsel produced the Investigation Report, which is referred to, and forms the basis of the impugned notice, in a sealed cover. The same was opened and report perused by us. A perusal of the said Investigation Report reveals that there is no such distinction sought to be made with regard to SIPL, or any other entity, in the said report. The said Investigation Report does not carve out SIPL as an exception, and does not st....
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....y at the stage of finding out whether the reassessment notice is valid, is only to see whether there are reasonable grounds for the Income Tax Officer to believe - and not that the omission and escapement of income is established. 18. We have dealt with similar submissions - as advanced by learned counsel for the petitioner, in several other decisions recently. It is obvious that whenever an assessee takes or provides accommodation entries, one part of the transaction would appear to be completely transparent; through banking channels, and the recipient of the funds would disclose the same in his returns and offer the same to tax - if such receipts constitute income liable to tax. The mere disclosure of a part of the transaction in its records by the assessee is not sufficient to establish the genuineness of the transaction. In RDS Project Limited Vs. Asst. Commissioner of Income Tax New Delhi & Anr., W.P.(C.) No. 11274/19 decided on 23.10.2019, the petitioner's assessment was sought to be re-opened under Section 148 of the Act on the premise that it had received funds from two entities viz. M/s Shail Investment Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. - two companies promo....
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....riod, and the same is not merely a case of change of opinion on the same set of facts. A serious and well founded doubt about the genuineness of the transaction would justify formation of the reasonable belief that taxable income has escaped assessment in the light of the scheme of Section 68 of the Act, which provides that cash credits which, in the opinion of the Assessing Officer are not satisfactorily explained, would be charged to income tax as the income of the assessee. The subsequent acquisition of knowledge that the monetary transaction (including of the kind discussed above) undertaken by the assessee was with a bogus entity/ person-such as an accommodation entry provider - which knowledge 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." (emphasis supplied) 19. In this decision, we also noticed the decision of the Supreme Court in Principal Commissioner of Income Tax (Central)- I v. NRA Iron & Steel Pvt. Ltd., (2019) 412 ITR 161 (SC) decided ....
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....he Kolkata companies, the response came through dak only. However, nobody appeared, nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. With respect to the Guwahati companies - Ispat Sheet Ltd. and Novelty Traders Ltd., enquiries revealed that they were nonexistent at the given address." 22. On the basis of the detailed inquiry, the AO found that: "i. None of the investor-companies which had invested amounts ranging between Rs. 90,00,000 and Rs. 95,00,000 as share capital in the Respondent Company - Assessee during the A.Y. 2009-10, could justify making investment at such a high premium of Rs. 190 for each share, when the face value of the shares was only Rs. 10; ii. Some of the investor companies were found to be nonexistent; iii. Almost none of the companies produced the bank statements to establish the source of funds for making such a huge investment in the shares, even though they were declaring a very meagre income in their returns; iv. None of the investor-companies appeared before the A.O., but merely sent a written response through dak. The ....
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....urt held that the assessee was expected to establish to the satisfaction of the AO: "* Proof of Identity of the creditors; * Capacity of creditors to advance money; and * Genuineness of transaction" 26. The Supreme Court also took note of its decision in Kale Khan Mohammad Harif v. CIT, (1963) 50 ITR 1 (SC), and Roshan Di Hatti v. CIT, (1977) 107 ITR (SC), wherein it had laid down the onus of proving the source of money found to have been received by the assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transactions and creditworthiness of the payee, then the AO must conduct an inquiry and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source of investment made, it is open to the revenue to hold that such investment is the income of the assessee, and that there would be no further burden on the revenue to show that the income is from any particular source. The Supreme Court also observed that with respect to the genuineness of the transaction, it is for the assessee to prove the same by cogent and cre....
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....f the Supreme Court in this regard: "i. In Sumati Dayal v. CIT, (1995) 214 ITR 801 (SC) this Court held that: "if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, vis., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably" ii. In CIT v. P. Mohankala, 291 ITR 278, this Court held that: "A bare reading of section 68 of the Income-tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax....
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....iness or genuineness of a transaction regarding share application money depends on whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, creditworthiness of the recipient, object and purpose for which payment/investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. vii. Other cases where the issue of share application money received by an assessee was examined in the context of Section 68 are CIT v. Divine Leasing & Financing Ltd. (2007) 158 Taxman 440, and CIT v. Value Capital Service (P.) Ltd. [2008] 307 ITR 334." 31. The principles culled out by the Supreme Court are contained in para 11 of its judgment, which read as follows: "11. The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the c....
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....urt/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 15. On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income." (emphasis supplied) 33. Consequently, the appeal preferred by the Revenue was allowed by the Supreme Court. ....
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....dresses as aforesaid. Amongst the companies promoted by him are M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. These two companies have made investments in the petitioner/ 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. an....
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..... 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 the following observations in Income Tax Officer Ward No. 16 (2) v. Techspan India Pvt. Ltd. are relevant. "18. Before interfering with the proposed reopening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address, itself to a given aspect sought to be examined in the....
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.... 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 that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have now to go on we do not and we ought not to express any opinion on merits." (emphasis supplied) 39. Learned counsel for the petitioner has sought to place reliance on Signature Hotels (P) Ltd. V. Income Tax Officer - WARD 8(4) & Anr., 2011 338 ITR 51 (Delhi) to submit that in this case, the Court held that the reasons do not satisfy the requirements of Section 147 of the Act, since they were found to be extremely scanty and vague. In Signature Hotels (supra), the reasons recorded by the Assessing Officer for initiation of proceedings under Section 148 read as follows: "Information received from the office of the DIT (Inv.)-VI, New Delhi, revealed that M/s. Signature Hotels (P) Ltd. has introduced unaccounted money in its books of account during the financial year 2002-03 through accommodation entr....
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....hrough whom the process of layering was undertaken were not found. The petitioner, admittedly, had received Rs. 90.32 crores from Moral in FY 2011-12. Thus, the decision in Signature Hotels (supra) is not attracted in the facts of the present case. 43. Reliance has also been placed by learned counsel for the petitioner on Principal Commissioner of Income Tax -6 v. Meenakshi Overseas Pvt. Ltd., 395 ITR 677. Firstly, we may observe that the said decision was rendered in an appeal preferred under Section 260 A of the Income Tax Act by the Revenue against the decision of the ITAT. The ITAT had quashed the assessment proceedings under Section 147/148 of the Act. This Court had upheld the said decision. Even in this case, the reasons recorded by the Assessing Officer for formulation of belief that income had escaped assessment were sketchy. The same read as follows: "Reasons for the belief that income has escaped assessment: In this case, information has been received from the Director of Income Tax, (Investigation) New Delhi that the Assessee has received amount of Rs. 5,00,000/- as follows: Beneficiary's Name Meenakshi Overseas P. Ltd. Beneficiary Bank....
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....ment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in relation to the assessment year 2012-13. This submission too has no merit in the light of the above discussion, and in the light of the decisions cited hereinabove in the case of RDS Project Limited (supra). Mere production before the Assessing Officer of the Account Books, or other evidence, from which material evidence could, with due diligence, have been discovered by the Assessing Officer, would not necessarily amount to disclosure within the meaning of the First Proviso to Section 147. The Assessing Officer, while framing the assessment for the assessment year 2012-13 took the assessee SIPL for its word - when it claimed that the transactions undertaken by it with Moral were genuine sale transactions. However, that fundamental premise is now shaken, since Moral has been found to be a completely tainted entity embroiled in very large scale dubious transactions of providing accommodation entries. If the transactions undertaken by SIPL with Moral are indeed not genuine, as now reasonably believed by the Assessing Officer, it would not be correct ....