TaxTMI 
TaxTMI 
2020 (1) TMI 257
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....er 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 cash withdrawals in the said account were to the tune ....
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....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 the Financial Year 2011-12 was miniscule despite having substantial turnover and dealings with Moral. Summon....
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.... 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 above, ITR profile done vide para 6 & 12 and comparative chart tabulated vide para 11 & 12 it becomes clear that Moral Aloys Pvt Ltd and other entiti....
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....t 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 chargeable to tax amounting to Rs,90,32,00,000/- has escaped assessment have been discussed in details in the above paragraphs 3.4 and 5. This office was in possession of credible information that Moral Alloys Pvt. Ltd., in an effective pe....
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....r 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, summons was issued to Moral Alloys Pvt Ltd. on 13.03.2019 to furnish a detailed note on its business activity carried out during 2011-12 to 2015-16, explanation for offering very low income for taxation despite very high turnover/ gross sales during the said period with supporting documents along with other relevant details. The Inspector, OCM Cell-2 was deputed to serve the summons at its registered address as per latest ITR; however, thoug....
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....roprietorship 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 Alloys Pvt. Ltd. (Dr.) (In Rs) Purchase from Moral Alloys Pvt. Ltd. (Cr.) (In Rs) Brilliant Metals Pvt. Ltd. 20,00,000 Progressive Alloys (India) Pvt. Ltd. 1,75,00,000 JBN Impex Private Limited 20,00,000 Unnati Alloys Pvt. Ltd. 8,70,50,000 1,18,54,08,494 9. From the ITR profile, as mentioned in Table A at para 6, it is observed that the income shown by majority of these entities in their ITRs of AY 2012-13 are miniscule as compared to the volume of their banking transactio....
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....eipt 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 Put Ltd for AY 2012-13 that no salary income was shown by them. 13. In view of the above, ITR profile done vide para 6 & 12 and comparative chart tabulated vide para....
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....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 Income-tax-VI, New Delhi v. Usha International Ltd. [2012] 25 taxmann.com 200 (Delhi) (FB) has held in respect of principle of "change of opinion" that when specific query is raised by the AO and it is answered by the assessee then it will be termed as 'change of opinion'. The relevant extract of the above judgment is reproduced below:- 13. It is, therefore, clear from the aforesaid position that: (1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion; (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and i....
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....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 which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." In case of Sri Krishna (P) Ltd. v. ITO [1996] 221 ITR 538/87 Taxman 315 (SC) it has been held by the Hon'ble Apex Court, in the context of "full and true disclosure" that:- "Every disclosure is not and cannot be treated to be a full and true disclosure. A disclosure may be a false one or true one. It may be a full disclosure or it may not be. A partial disclosure may often be a misleading one. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. This calls for examination of the decisions of the court analyzing and elucidating section 147 and 148. The obligation on the assessee to disclose ....
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....ase 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 the failure on the part of the assessee to disclose fully and truly all material facts. Therefore it is a fit case for the issuance of notice u/s 148 of the Act for the financial year 2011- 12 relevant to assessment 2012*13. 7. Applicability of the provisions of section 147/151: 7.1 In this case return of income was filed for the year under i.e. A.Y.2012-13 at an income of Rs. 519,60,75,070/- on 30.11.2012and the only requirement to initiate proceedings u/s 1417 is reason to believe which have been recorded above. In this case, return was filed and regular assessment u/s 143(3) was made on 03.05.2016. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration thereby necessitating reopening u/s 147 of the Act. It is true that the assessee has filed a copy of annual report and audit P....
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.... 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 state that the transactions undertaken between Moral and SIPL were found to be genuine, unlike the other transactions undertaken by Moral with other entities named in the Investigation Report. On the contrary, the said Investigation Report highlights SIPL as one of the entities in whose account, large amounts have been transferred by Moral during the financial year 2011-12. Paragraph 5 of the said Investigation Report contains the said tabulation, enlisting the entities to whom funds were transferred by Moral. We find that SIPL is the recipient of the highest amount from Moral, as found in the said tabulation, of Rs. 90.32 crores. A perusal of the Investigation Report extracts whereof are contained in the reasons for re-opening, belies the submission of learned counsel for the petitioner that the transactions undertaken by Moral were found to be partly genuine, if not completely genuine. 15. The submission of learned counsel for the pe....
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.....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 promoted by one Tarun Goyal. We rejected the challenge to the re-opening while observing as follows: "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 is actionable between the person/ entity indulging in the activity of providing accommodation entries and such third party/ Assessee. The person who has undertaken such financial transaction(s) with such a person/ entity (the bogus entry provider), cannot avoid furt....
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....f 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 on 05.03.2019. The respondent assessee had shown receipt of share capital/ premium during the financial year 2009-10 aggregating to Rs. 17.60 crore from 19 companies - some of which were based in Mumbai, some in Kolkata and some in Gauhati. Shares having face value of Rs. 10 were subscribed by the said 19 investor companies in the assessee company at a premium of Rs. 190 per share. It appears that the original assessment was completed and the investment made by the said 19 companies in the share capital/ premium of the respondent assessee company was accepted by the AO. Subsequently, a notice under section of the Act was issued on 13.04.2012 to reopen the assessment, for reasons recorded therein. The assessee filed its objections, which were rejected. 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 ....
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....ng 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 AO held that the Assessee had failed to discharge the onus by cogent evidence either of the credit worthiness of the socalled investor-companies, or genuineness of the transaction." 23. Consequently, the AO added back the amount of Rs. 17.60 crores to the total income of the assessee for the assessment year in question. 24. The CIT (Appeals) allowed the assessee's appeal by observing, inter alia, that if the relevant details of the address of PAN identity of the creditor/ subscriber along with copies of the shareholders register, share application form, share transfer register etc. are available, the same would constitute acceptable proof or acceptable explanation by the assessee and that the department would not be justified in drawing an inference, 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 Revenu....
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....bserved that with respect to the genuineness of the transaction, it is for the assessee to prove the same by cogent and credible evidence, since the investment was claimed to have been made in the share capital of the assessee company, it was for the assessee to establish that it was a genuine investment, since the facts are exclusively within the assessees knowledge. The Supreme Court also noticed the decision of this Court in CIT v. Oasis Hospitalities Pvt. Ltd., (2011) 333 ITR 119 (Delhi), wherein this Court observed: "The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise." 27. 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 ....
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....he sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature." (emphasis supplied) iii. The Delhi High Court in a recent judgment delivered in PR.CIT-6, New Delhi v. NDR Promoters Pvt. Ltd., 410 ITR 379 upheld the additions made by the Assessing Officer on account of 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, (199....
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....orthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 32. 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 s....
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....ealing with a Civil Appeal arising from a decision of this Court dismissing the appeal under section 260A of the Act, the findings returned by the Supreme Court, as extracted herein above, are extremely pertinent and relevant in the present context as well. 35. The petitioner does not deny the fact that it, indeed, had financial transactions with Moral, whereunder it received substantial amounts of Rs. 90.32 crores in FY 2011-12. Moral has been found to be indulging in provision of accommodation entries, and it appears that it carried out only that business and nothing else. There is nothing to show that while passing the assessment order, the Assessing Officer had examined the aspect of genuineness of the transaction undertaken by the petitioner with Moral. A perusal of the original assessment order shows that the Assessing Officer had accepted the claim made by the petitioner/ assessee with regard to the genuineness of the transaction without any scrutiny, and by accepting the statement of the petitioner as truthful. At that stage, the material information, which the petitioner withheld, and did not disclose, was that it was dealing with an entity who was engaged in the business....
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....fficer, that taxable income of the petitioner has escaped assessment cannot, but, be described as reasonable. 34. The mere fact that the petitioner had produced evidence before the Assessing Officer during the scrutiny assessment proceeding that the said amount had been received as share application money from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd., and the fact that M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may have invested monies in the assessee company for allotment of shares, is neither here, nor there. This is for the reason that one part of any such transaction would invariably be conducted through banking channels and would be duly recorded - whether the same is genuine or not. That is how money would be laundered. Thus, the fact that the monetary transaction has been conducted through a banking channel, and is acknowledged, does not render the opinion of the Assessing Officer regarding the escapement of taxable income illegal or unreasonable since, at the time of the conduct of scrutiny assessment proceedings, the assessee did not disclose the material fact that the so called investor - in this case M/s Shail Investm....
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....ders are totally silent on this aspect of the matter, it cannot be said that the reason to believe constitutes a "change of opinion'. 43. At this juncture it must be stated that on a perusal of the report of the investigation which was produced before this Court, it appears prima facie that there was sufficient material to justify the reopening of the assessment in both sets of cases. Further, upon reading the reasons to believe as a whole the "live link"between the material in the form of the investigation report and the formation of belief that income that has escaped assessment is prima facie discernable. The Court hastens to add that this is a prima facie view which is all that is necessary at this stage. 44. The Court in this context would like to refer to the following observations of the Supreme Court in ITO v. Selected Dalurband Coal Limited (supra) where it was considering the effect of a letter of the Chief Mining Officer which emerged after the conclusion of the assessments: "After hearing the learned Counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the....
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.... meaning of section 147 of the Income-tax Act, 1961." 40. After discussing on the legal position with regard to the obligation of the Assessing Officer to record reasons for the formation of his belief that income liable to tax has escaped assessment, the Division Bench observed in respect of the reasons extracted hereinabove as follows: "The aforesaid reasons do not satisfy the requirements of section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except the annexure, which has been quoted above. The annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. The annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Asses....
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....y giving account Shubham Electronic & Electric Bank from which entry given SBH Branch of entry given bank KB A/c No. Entry giving account 50038 Information so received has been gone through. The above said instruments are in the nature of accommodation entry, which the Assessee has taken after paying unaccounted cash to the accommodation entry given, who is a known entry operator as per the report of the Investigation Wing. In view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment so far as this amount is concerned. Therefore, this case is fit for issuing notice under Section 148 of the Income Tax Act, 1961. In this case the assessment was made under Section 143 (1) not under Section 143 (3) of the IT Act, 1961. I am therefore, satisfied that the said income, on account of accommodation entry worth Rs. 5,00,000 received by the Assessee has escaped assessment and accordingly after recording the above said reasons as laid down ....