TaxTMI 
TaxTMI 
2022 (7) TMI 253
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.... 1. Background The assessee company ANM Fincap Pvt. Ltd. was incorporated on 02.06.1997. The business of the assessee is not mentioned in the Return of Income. The directors of the Assessee company are Sh. Manoj Kumar and Sh Ankit Bhageria. The company filed its Return of income for A.Y. 2011-12 on 23.08.2011 declaring loss of Rs.10,22,294/-. Thereafter the return was processed u/s 143(1) of I.T. Act. The case was not picked up for scrutiny, so assessment u/s 143(3) was not made. 2. Information received from the Investigation Wing 2.1 the DIT (Investigation) II, New Delhi vide letter F.No. DIT (Inv)-II/U/s148/2012-13/198 dated 12.03.2013 also intimated that Sh. Surinder Kumar Jain had been providing accommodation entries through a large number of dummy companies floated by him or his associates. The Investigation Wing has complied a report & data of the beneficiaries of such entries. The name of the assessee company i.e. ANM Fincap Pvt. Ltd. figures in the list of beneficiaries of bogus share application money/General Reserve/Long term unsecured loans. The information is based on the Search & seized Surender Kumar Jain conducted on 14.09.2010, wh....
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....vestigation Wing 4.1 Analysis of ITR: - 2.1. Accordingly, notice under section 148 of the I.T. Act, 1961 was issued to the assessee on 31.03.2018. 2.2. In response to the same, the assessee vide letter dated 12.04.2018 requested the A.O. to provide the reasons. The A.O. vide letter dated 22.06.2018 provided the reasons. The assessee thereafter vide letter dated 25.06.2018 objected to the notice issued under section 148 of the I.T. Act, 1961. However, the A.O. vide order dated 03.07.2018 disposed of such objections by passing a speaking order and rejected the objections of the assessee and asked the assessee to comply to the notice issued under section 148 of the Act. In response to notice under section 148 of the Act, the assessee filed the return. During the course of assessment proceedings, the A.O. asked the assessee to file the details regarding nature of business and source of income, computation of income, copy of all bank statements and details of directors etc., The assessee filed the requisite details from time to time as called for. The assessee also filed a detailed chart of loans taken during the year under consideration with the name, PAN, address, amoun....
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....arly, the A.O. has alleged in the reasons that assessee has taken unsecured loans from M/s. Attractive Axis Private Limited, whereas, in the assessment order the A.O. has made addition on account of share application money received from an entity namely M/s. Attractive Finlease Limited. In view of the above, he submitted that when there is non-application of mind by the A.O. and the sanction granted by the Ld. PCIT under section 151 was in a mechanical manner, therefore, due to all these inherent defects in the reasons recorded, such re-opening is bad in law. 3.2. So far as the merits of the case is concerned, Learned Counsel for the Assessee argued before the Ld. CIT(A) that assessee has discharged its onus cast on it by filing the requisite details and, therefore, no addition under section 68 of the of the I.T. Act, 1961 can be made. 3.3. However the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee and dismissed the appeal on both the counts i.e., challenging the validity of reassessment proceedings and the addition on merit by observing as under : "5.3. Decision : 5.3.1. I have carefully considered the assessment order and written ....
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....tions of his superiors. In the information there are specific details of the amount and cheque number in respect of entities controlled and operated by Sh. S. K. Jain from whom the appellant has taken accommodation entries. At the stage of forming belief, it was necessary for the A.O. to see the existence of the reasons and not the sufficiency of the reasons. The cases laws relied upon by the appellant in his submission have been gone through and it is found that the facts of the present case are different from the case laws relied upon by the appellant. The Investigation Wing, Delhi has prepared a list of the beneficiaries after carrying out investigations from the material gathered as a result of search action. On the basis of such investigation, the listof entities controlled and managed by Shi S. K. Jain along with the beneficiaries has been prepared by the Investigation Wing, Delhi and has been made available to the A.O. for necessary action. Out of these entities, one specific entity has been found through which the appellant has taken accommodation entries. Therefore, the reasons recorded by the A.O. are based upon specific information, based upon investigation conducted by ....
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..... M/s Attractive Finlease Ltd and following documents/details/explanation were requisitioned by the AO:- 1. Confirmation/ copy of account ledger account of the above mentioned assessee in your books of accounts. 2. Nature and complete details of transactions alongwith documentary evidence, between you and the above mentioned assessee. 3. Copy of ITR, alongwith complete schedules, filed by you alongwith copy of Audited Balance Sheet and Profit& Loss account. 4. Copy of Bank statement for the above period. However, no reply was received by the AO in respect of above notice. As per other information in the possession of the department, the appellant has also received accommodation entry of Rs.9,00,055/- from the companies run and controlled by Sh. ANAND Kumar Jain and Sh. Naresh Kumar Jain during the financial year 2010- 11, relevant to assessment year, 2011-12. The AO has observed that the information u/s 133(6) was called for from the investee companies and the letter received unserved with 'the remarks 'No such company at this address'. Summon dated 10.09.2018 was also sent by the AO to examine the genuineness & creditworthiness ....
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....39;ble ITAT in the said appeals decided as under: "The AO is also directed to ITA No. 6991 to 7004/Del/2014 take into consideration the principles laid down by the jurisdictional High Court and the Tribunal in various cases and dispose off the case by applying these principles some which we extract in this order for ready reference. The Delhi Bench of ITAT in the case of Tarun Goyal (supra) at para 23 and 24 has held as follows:- "23. The AO Shall after examining the evidence Submitted by the assessee, consider all the cases together and; a) restrict the addition u/s 68 to only the peak unexplained credit in each case after elimination circular transaction. b) To eliminate taxation of the same amount multiple times, due to the chain transactions which resulted due to layering indulged by the assessee. c) Considere the material on record and the precedence available on the issue and determine the percentage of commission, which the assessees would have earned and bring the same to tax. 24. Before parting we make it clear that the burden of proof lay on the assessee. It is for the assessee to demonstrate the chain of transaction, ....
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..... S.K. Gupta without making any addition for unexplained cash credit. During the course of assessment Proceedings of the intermediary companies, including the Respondent Assessee, the AO sought directions from the Additional Commissioner of Income Tax under Section 144-A. The Additional CIT passed an order in which after discussing the facts he inter alia directed that it would be in the best interest or the Revenue to tax these transactions in the hands of beneficiaries and Mr. SK. Gupta "without making any additions on this account in the hands of conduit entities". The said orders of the Settlement Commission or of the Additional CIT were binding on the AO It is not in dispute that the Respondent Assessee are the conduit entities and not the beneficiaries. Consequently the order of the ITA T deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity." 13. The AO is directed to follow the propositions laid down in these case laws." It is therefore, evident that the Jain brothers admitted before the Hon'ble ITAT that they alongwith their group companies were engaged in the business of providing accommodation entr....
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....e of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR (SC) laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, 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 the investments made, it is open to the Revenue to hold that it is the income of the assesse, and there would be no further burden on the revenue to show that the income is from any particular source. 8.3. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. The Delhi High Court in CIT v. Oasis Hospitalities Pvt. Ltd. 333 ITR 119 (Delhi)(2011), held that : "The initial onus is upon the assessee to establish three things neces....
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....icer, 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 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 a....
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....itten documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, credit-worthiness 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. 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 creditors, and credit-worthiness 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 ....
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....he investor companies had applied for shares of the Assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act. 13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company - Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and ....
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....sidered view that the provisions of section 68 are attracted in the instant case. Accordingly. the addition made by the AO with regard to unexplained credit of Rs.49,00,055/- is upheld. The AO has also brought to tax commission payment of Rs.98,000/- to arrange for the said accommodation entry which is also part of elaborate modus operandi for obtaining accommodation entries. In view thereof, addition of Rs.98,000/- u/s 69C is in order and is confirmed. 4. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds : 1. ´The impugned assessment is invalid and without jurisdiction as the reassessment proceedings has been initiated and completed by the AO who had no jurisdiction over the appellant assessee and therefore such initiation and completion of assessment both are void ab initio and liable to be quashed. (Tax Effect: Rs.15,44,399/-) 2. The Ld. CIT(A) on the facts and circumstances of the case has erred in not accepting the contention of the appellant that impugned assessment order passed u/s 143(3)/147 of the Act is not sustainable in law on the ground that the AO was not entitled to t....
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.... by the AO without conducting any enquiry thereon in discharge of onus shifting on the revenue after the initial onus discharged by the appellant. (Tax Effect: Rs.12,36,000/-) 8. The Ld. CIT(A) has erred both in law and circumstances of the cases in reliance on the material to take view adverse to the appellant without confronting the same and therefore action of the AO is in contravention of the principals of natural justice. 9. The Ld. C1T(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.9,00,055/- u/s 68 of the IT Act holding the unsecured loan as unexplained cash credit ignoring the fact that the assessee has not received any unsecured loan during the year under consideration from the entities controlled and managed by Sh Anand Kumar Jain and Sh Naresh Kumar Jain. (Tax Effect: Rs.2,78,117/-) 10. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the assessing officer in making an addition of Rs.98,000/- being 2% of the alleged accommodation entries of Rs.49,00,055/- is arbitrary and without basis and therefore need be quashed. (Tax Effect: Rs.30,282/-)" 5. Learned Counse....
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....and the decision of Hon'ble Bombay High Court in the case of Jet Airways Ltd 331 ITR 236 (Bom.), he submitted that the A.O. has the jurisdiction to reassess the issues other than the issues in respect of which proceedings were initiated, but he is not justified in making the addition when the reasons for the initiation of those proceedings ceased to survive. He accordingly submitted that on all these counts the reassessment proceedings initiated by the A.O. and upheld by the Ld. CIT(A) are not in accordance with law and, therefore, has to be quashed. 5.2. So far as the merits of the case is concerned, the Learned Counsel for the Assessee submitted that assessee has filed all the requisite details to discharge the onus cast on it by proving the three ingredients of Section 68 of the of the I.T. Act, 1961 and, therefore, without controverting the various documentary evidences filed before the lower authorities, the addition made by the A.O. and sustained by the Ld. CIT(A) is also not justified. 6. The Ld. D.R. on the other hand, heavily relied on the order of the A.O. and the Ld. CIT(A). He submitted that the A.O. in the instant case is validly having jurisdiction over the asse....
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....All the above prove that there is a complete non-application of mind by the A.O. and the reopening has been made on wrong set of facts and the approval/sanction granted under section 151 of the of the I.T. Act, 1961 is in a very mechanical manner and without application of mind. 7.2. We find the Hon'ble Delhi High Court in the case of RMG Polyvinyl India Ltd [2017] 396 ITR 5 (Del.) while quashing the re-assessment proceedings on account of wrong facts has observed as under : "10. In this context the following observations of this Court in CIT v. Suren International [2013] 57 ITR 24/[2014] 225 Taxman 88/[2013] 35 taxmann.com 398 (Delhi) are relevant (page-33) : ". . . . . In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal of the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times. This is clearly indicative of the callous manner in which the reasons for initiating reassessment proceedings are recorded and we are unable to countenance that any belief based on such statements can ever be arrived at. T....
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.... was bad in law. 16. No substantial question of law arises from the impugned order of the ITAT. 17. The appeal is dismissed. CM No. 1009/2017 18. For the reasons stated in the application, the delay in re-filing is condoned and the application is allowed." 7.3. We further find the Pr.CIT while giving his approval to such reopening has not applied his mind and has given the approval in a mechanical manner. Had he seen the records, at least this glaring mistake would not have occur. We find the Hon'ble Delhi High Court in the case of PCIT vs., N.C Cables Ltd reported in [2017] 391 ITR 11 has observed as under : "11. Section 151 of the Act clearly stipulates that the Commissioner of Income-tax (Appeals), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression "approved" says nothing. It is not as if the Commissioner of Income-tax (Appeals) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the e....
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....ts. It can be fairly concluded from the above facts that the assessee company has given its own fund to Sh. S.K.Jain group to introduce it in the form of unsecured loans through the companies being controlled and managed by Sh. S.K.Jain 6. Income chargeable to tax escaping assessment regard 6.1 The above facts clearly establish that the assessee company M/s ANM Fincap Pvt. Ltd has taken accommodation entries in the form of unsecured loans from the entry providing companies being controlled by Sh. S.K. Jain group of companies.. As per information available on record i.e. ITR filed for A.Y. 2011-12, the full and true disclosure with regard to the above transactions have not been made by the assessee company as the fact that the unsecured loan is being introduced through these dummy companies is nowhere disclosed by the assessee company. In view of explanation 2 to clause b of proviso of section 147 of the Income Tax Act, 1961, where a return of income has been furnished by the assessee but no assessment has been made and it is noticed that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief....