TaxTMI 
TaxTMI 
2016 (12) TMI 1816
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.... objection to the initiation of reassessment proceedings after recording of the reasons to form the belief that income has escaped assessment. ii) That the assessee did not file return of income under section 139(1) of the Act coupled with the fact that specific information was received with details from the investigation wing. 3. That on the fact and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in holding that the requirement of 'application of mind by the Income Tax Officer' for valid initiation of reassessment proceedings can be substituted by nonfilling of return under section 139(1) and the existence of details received from the Investigation Wing of the Department. 4. That on the fact and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in upholding the addition of Rs. 25,00,000/- added under section 68 of the Act as unexplained cash credit as she has completely ignored the fact that the addition has been made against well established principles of law relating to violation of natural justice. The addition is made without providing the opportunity of cross examination of the material on the....
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.... believe that the income of the assessee to the extent of Rs. 25,00,000/- had escaped assessment and the case was fit for issuing notice u/s 148 of the Act. Accordingly, the AO issued the notice u/s 148 of the Act. In response to the said notice, the assessee filed its return of income on 13.05.2014 declaring income at Nil. During the course of assessment proceedings, the AO observed that the assessee had raised/taken total share capital of Rs. 5,32,000/- alongwith share premium of Rs. 1,27,68,000/- from the various companies including the share capital of Rs. 1,00,000/- alongwith share premium of Rs. 24,00,000/- as per following detail: S.No. Name of the company Share capital Share premium Total Amount (Rs.) 1. MARRASS Industries Pvt. Ltd. 60,000 14,40,000 15,00,000 2. BSA Fincap Private Ltd. 40,000 9,60,00 10,00,000 Total 25,00,000 6. The assessee during the course of assessment proceedings submitted names and addresses of the persons/company with confirmation, from whom share capital have been received. The AO issued the notices u/s 133(6) of the Act to prove the genuineness and creditworthiness ....
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....see had filed return on 13.05.2014. Further after duly recording the reasons that Income had escaped Assessment and approval from Addl. CIT Range -5 Notice under Section 143(2) was issued to assessee on 23.05.2014. After receiving the relevant recordings and replies The Learned Assessing Officer has passed the order U/s 143 (3) dated 31.07.2014 by making Addition of Rs. 25,00,000 u/s 68 as income from undisclosed sources. We submit herewith our Submissions on Ground No -1 to 4 attached herewith. ASSESSING OFFICER'S CASE- BRIEF FACTS The Learned AO has contended that "An information has been received from Office of the commissioner of Income Tax -1 New Delhi that the survey operation was conducted on 23.08.2008 at the Premises of the Following Persons: a) Nirbhaya Shankar Gupta b) Shyam Shankar Gupta c) Rajiv Kumar Gupta d) Sh Madan Gupta" "The perusal of documents impounded during Survey operations reveals that the following persons have given/received accommodation entries through the above persons during the period relevant to Assessment year 2007- 08 The name of Assessee M/s Khatri Projects Priv....
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....g part of case records available before him nor has pointed any deficiency in the same to assume valid jurisdiction u/s 147. c) No material allegedly reed, from CIT Central New Delhi is confronted to assessee despite specific requests which again brings the reasons in the realm of suspicion only. So existing of alleged report & statement is seriously doubted and disputed. Present reopening is not only on ground of change of opinion but also hit by proviso to section 147. In the case of Anirudhsinhii Jadega v. State of Guiarat (1995) 5 SCC 302, "the Hon'ble Supreme Court held that once a discretion is vested with a certain authority, he alone should exercise that discretion vested under the statute and if he acts in accordance with "the direction or any compliance with some higher authorities instruction" it would be a case of failure to exercise discretion altogether. This ground is covered by series of decisions of jurisdictional high court and This Hon'ble Tribunal enlisted next: i) CIT vs. SFIL Stock Braking Ltd. (2010) 325 ITR 285 (DHC). ii) Sarthak Securities Co. Pvt. Ltd. Vs. ITO., (2010) 329 ITR 110 (DHC). ....
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....te on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case. "The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have ....
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....15.9.2010. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO had mechanically issued notices u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Investigation, Jhandewalan, New Delhi. Keeping in view of the facts and circumstances of the present case and the law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. year in dispute is bad in law and deserves to be quashed. We draw our support from the judgments of the Hon'ble High Court of Delhi in the following cases:- (i) Signature Hotels (P) Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:- A notice uls.148 can be quashed if the/belief is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the As....
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....I G.D. AGRAWAL SHRI SUDHANSHU SRIVASTAVA 4. Hitashi Estates Ltd. ITA No. 622/Del/2014 AY: 2005-06 30th November, 2015 SHRI J. SUDHAKAR REDDY 5. C.L. Aggarwal Yarn Industries (P) Ltd. ITA No. 2408/Del/2014 AY: 2004-05 30th November, 2015 SHRI J. SUDHAKAR REDDY 6. SH. HARISH KUMAR CHHABRA I.T.A. No.2490/Del/201 04.01.2016 SHRI H.S. SIDHU SHRI O. P. KANT IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD "D" BENCH AHMEDABAD ITA. No.8161 Ahd/2013 (Assessment Year:2005-06) M/s. Pankaj Enka Pvt. Ltd. The plain reading of reasons recorded by assessee makes it dear that notice u/s. 148 was issued as per information received from Investigation wing from Mumbai. The reasons recorded by Assessing Officer only indicate that as per information of Investigation wing from Mumbai, certain companies of Mukesh Chokshi group were operating and allegedly providing accommodation entries and assessee has also received share application money from such company. Assessing Officer just made general observation about information supplied by Investigation Wing and sought to reopen the assessment without pointing out how informat....
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.... Pvt. Ltd. -333 ITR 119. It was incumbent for the Revenue to establish, based on Corroborative evidence that Cash actually moved out of/emanated from the office of the Assessee which subsequently found its way back to Assessee in the Form of accommodation entries. The Assessing Officer has failed to prove that the Accommodation entries have been taken/ Provided in lieu of certain percentage of Commission paid, Mostly in cash by the beneficiaries of such entries. During the Course of Assessment proceedings the assessee has submitted Names and addresses of the persons/Company with confirmation from Whom Share Capital have been received and the fact has been accepted by the learned A.O in his order vide Para 3 of Page 4 The assessee had filed various documentary evidence s during the assessment proceedings in order to establish the identity and genuineness of the Transactions like PAN, Return of Income computation of Income Bank statements and confirmation of the parties from whom entire Share Capital and Share Premium was received. Hence it is argued that the contention of the Learned A.O that the assessee failed to prove the Identity, Credit worth....
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....n on oath, hence, any such statement has no evidentiary value and any admission made during such statement cannot, by itself, be made the basis for addition" and the decision of the Hon'ble High Court of Jharkhand delivered in the case of CIT, Ranchi vs. Ravindra Kumar Jain reported in (2009) 33 SOT 25(Delhi) wherein, it has been held that "addition made by the lower authorities merely on the basis of statement: recorded curing survey and thereafter, without bringing ITA NO. 1787/Del/2013 any corroborative material on record is devoid any merits." For the sake of clarity we are reproducing the contents of the CBDT's letter dated 10.3.2003 as under:- "F.No. 286/2/2003-IT (Inv) Government of India, Ministry of Finance & Company Affairs, Department of Revenue Central Board of Direct Taxes, Room No. 254, North Block, New Delhi, the 10th march, 2003 To All Chief Commissioners of Income tax (Cadre Contra) & All Directors General of Income Tax Inv. Sir, Sub:- Confession of additional Income during the course of search & seizure and survey operation - regarding Instances have come to the notice of the Board where assessees have claimed that they have been....
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....or cross examination of Shri Mahesh Garg, the Id. AO has not given any heed to the request of the assessee for affording any opportunity of cross examination and used the statement of Shri Mahesh Garg against the assessee which is not permissible under the law. As it is a case of clear violation of the rule of principal of natural justice and statement which is recorded at the back of the assessee cannot be used against the assessee without giving any opportunity of cross examination. Thus the addition on account of accommodation entries of Rs. 78 lac made by the AO solely on the basis of the statement of Shri Mahesh Garg which are recorded in the absence of the assessee by the Investigation Wing, is not permitted without the examination of the said witness during the assessment proceeding and after giving an opportunity of cross examine to the assessee. Even otherwise the AO has not conducted any enquiry whatsoever either in support of the information received from the Investigation Wing or to disapprove the evidence produced by the assessee. The AO could have verified the signature of the Directors of these entities from the bank by issuing the necessary summons/notices instead o....
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....account and bank accounts maintained by the assessee. Thus, in our considered opinion, in views of facts as narrated above and the judicial pronouncements, the share capital to the extent of Rs. 76.00 lacs stands explained. Hence, the order of the ld. CIT(A) does not call for any interference. The grounds of appeal are dismissed. Lastly .on production of share holder, we quote from recent Delhi ITAT decision in case of M/s Suncity Projects Pvt. Ltd., BENCH 'G', 21.03.2016 order, relevant extract are reproduced for sake of facility: On these facts, the decision of Hon'ble Apex Court as well as Hon'ble Jurisdictional High Court relied upon by the learned counsel would be squarely applicable. Similar to the assessee's case, in the case of Rakam Money Matters Pvt. Ltd, also, the director of the shareholder companies did not respond to the summon issued by the Assessing Officer. However, Hon'ble Jurisdictional High Court held that if the Assessing Officer did not make proper enquiries on the basis of income tax returns and PAN details of share applicant companies, the addition for unexplained credit cannot be sustained. In the case of the assess....
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....in resorting to the procedure of provisions of Section 147 of the Act by the AO who clearly recorded a finding and no objections to the reopening had been requested by the assessee. The ld. CIT(A) also observed that when the AO was in possession of information that share capital of Rs. 25,00,000/-, inclusive of share premium of Rs. 24,00,000/- had been received which as per the report of the Investigation Wing, had been received from entry providers. He was of the prima facie view that by willfully omitting to fully and truly disclose all material facts, the impugned income of Rs. 25,00,000/- had escaped assessment. The ld. CIT(A) held that the cases relied by the assessee were distinguishable on facts, therefore, the AO was perfectly justified in reopening the assessment. As regards to the merit of the case, the ld. CIT(A) observed that under the deeming provisions of Section 68 of the Act, any sum, representing receipt or credit in the books of the assessee was itself an evidence against the assessee, unless the assessee explained the nature and source of such credits and if it fails to rebut the evidence available in the form of credit entry in its books, it can be added as inco....
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.... front to utilize the assessee's own funds. She further observed that what had been filed before the AO was only the confirmation of accounts without any proof of the creditworthiness of those shareholders in the form of bank statements, ITRs etc. and when the AO tried to make inquiries from the shareholders as per the addresses furnished in the confirmations, it was found that even the addresses were not genuine. Therefore, the onus that lay on the assessee was found to have not been discharged and there was a clear nexus between the adverse material found by the Investigation Wing in the form of admission of Sh. Rajvir Singh, which clearly indicated the involvement of the assessee company in the entire modus operandi of arranging bogus accommodation entries in exchange of commission, which was established from the investigation carried out by the Investigation Wing. The ld. CIT(A) observed that the surrounding facts and circumstances have to be taken into account irrespective of the paper work in determining whether the transactions in question were genuine or not. The reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of Global Securities and Finance....
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....as contended that for the purpose of reassessment proceedings, the first requirement was that the AO must have reason to believe that any income chargeable to tax had escaped assessment for a particular year before he proceeds to issue the notice u/s 147 of the Act and that the reasons as recorded for the reopening were to be examined on standalone basis, nothing can be added to the reasons nor anything be deleted from the reasons so recorded. It was stated that the reason for formation of belief must have rational connection with or relevant bearing on the formation of the belief because the reasons provide link between conclusion and the evidences. It was stated that in the present case, the AO only acted on the information provided by the Investigation Wing and did not apply his own mind while recording the reasons for reopening the assessment, therefore, the reopening itself was bad-in-law. The reliance was placed on the following case laws: • Prashant S Joshi Vs ITO 230 CTR 232 • Hindustan Lever Ltd. Vs R.B Wadkar 268 ITR 332 (Bom.) • ITO Vs Laxmi Mewal Das 103 ITR 437 (SC) • Bhageria Finance and Investment Ltd. Vs DCIT 43 CC....
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....ame of the assessee appeared in the list of beneficiaries who had taken accommodation entries in garb of share application money through the bank account existing in the names of paper/dummy concerns controlled by Sh. Shyam Shankar Gupta, the entry operator and those dummy entities were not carrying out any actual business. The AO considered the information received and only on that basis issued the notice u/s 148 of the Act. He did not apply his own mind leading to belief that the income had escaped assessment. 15. On a similar issue the Hon'ble Jurisdictional High Court in the case of Signature Hotels Pvt. Ltd. Vs ITO and Anr. (2011) 338 ITR 51 (supra) held as under: "Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have "reason to believe" that an income chargeable to tax has escaped assessment. This is mandatory and the "reasons to believe" are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court, but existence on belief is the subject-matter of the scrutiny. A notice under section 148 can be quashed if the "belief" is not bonafide, or....
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....er of Income Tax-4 Vs G & G Pharma Ltd. (2016) 384 ITR 147 held as under: "The basic requirement of law for reopening an assessment is application of mind by the Assessing Officer, to the materials produced prior to reopening the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not make an inherently defective reassessment order valid." It has further been held as under: "Without forming a prima facie opinion, on the basis of such material, it was not possible for him to have simply concluded that it was evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. The basic jurisdictional requirement was application of mind by the Assessing Officer to the material produced before issuing the notice for reassessment. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped as....