TaxTMI 
TaxTMI 
2021 (8) TMI 1365
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....f the Pr. CIT-7, New Delhi. The notice was duly served on the assessee. In response to the same, the assessee filed a letter stating that the return already filed u/s 139 of the Act may be treated as return filed in response to notice u/s 148 of the Act. 2.1. Subsequently, the AO issued another letter to the assessee requesting him to file the return in response to notice u/s 148 of the Act. Ultimately, the assessee filed his return of income on 13.10.2018 declaring income of Rs.30,460/-. Thereafter, the AO issued notice u/s 143(2) and 142(1) of the Act and the copies of the reasons recorded were also handed over to the assessee. The assessee filed objections in response to notice u/s 142(1) of the Act vide letter dated 05.11.2018 and the AO vice order dated 09.11.2011 disposed off such objection by passing a speaking order. 3. During the course of assessment proceedings, the AO noted that the assessee has received accommodation entries to the tune of Rs.92,00,110/- from the companies controlled by Mr. Anand Kumar Jain and Mr. Naresh Kumar Jain which are as under:- 1 M/s VKS Properties Pvt. Ltd. Rs.20,00,000/- 2 M/s Shivij Garments Pvt. Ltd. Rs.5,00,000/- 3 M.s Danodia Im....
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.... request for adjournment was received. On being asked by the AO to produce the parties the assessee expressed its inability to produce them. In view of the above, the AO, invoking the provisions of section 68 of the Act and relying on various decisions including the decision of the Tribunal in the case of Sh. Surender Kumar Jain and Sh. Virendra Jain wherein they are treated as entry operators made addition of Rs.50 lakhs to the total income of the assessee u/s 68 of the Act. 6. The AO has also received information from ADIT(Inv.), Unit-5(4), New Delhi, dated 23.03.2018, that the assessee has availed accommodation entries of Rs.33 lakhs from M/s RKG Finvest Pvt. Ltd.. He, therefore, asked the assessee to prove the identity and creditworthiness of the said parties and the genuineness of the transactions. It was explained that the assessee company had already repaid the above loan amount in the subsequent year and also deducted TDS on interest paid on this loan. Copy of confirmation with ITR and audited balance sheet of the said party was filed before the AO. 6.1. However, the AO was not satisfied with the explanation given by the assessee. Since, the principal officer of M/s RKG F....
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....us decision, it was submitted that such approval given by the higher authority does not demonstrate the due application of mind and therefore, such reassessment proceedings are invalid. 8. So far as the, merits of the case is concerned, it was submitted that the assessee has filed the requisite details before the AO by filing confirmations, copy of ITR , bank statement of relevant period, audited financial statement, subsequent ledger account of repayment of loan along with bank interest, etc. It was argued that when the assessee has repaid the unsecured loan obtained from these companies in the subsequent assessment years which is prior to the notice issued u/s 148 of the Act and interest has been paid on such unsecured loan and TDS has been deducted, therefore, nonproduction of the directors of those companies before the AO for recording of their statement should not be held against the assessee for making the addition. Relying on various decisions, it was argued that the addition made by the AO should be deleted. 9. However, the learned CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the validity of reassessment proceedings as well as the additi....
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....Rs.50,00,000/- u/s 68 of the IT Act holding the unsecured loan and share capital respectively as unexplained cash credit ignoring the fact that the assessee has discharged its initial onus u/s 68 of the IT Act explaining nature and source of the credits by filing requisite documents proving identity and creditworthiness of the lenders and also to establish genuineness of the transaction during assessment proceedings. 6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the AO, in making additions u/s 68 of the IT Act of Rs.1,25,00,110/- and Rs.50,00,000/- are erroneous as the evidences filed by the appellant in support of above cash credits have been rejected by the AO without conducting any enquiry thereon in discharge of onus shifting on the revenue after the initial onus discharged by the appellant. 7. 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 Assessing Officer is in contravention of the principals of natural justice. 8. The appellant craves leave to add, delete, modify/amend the above ....
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....Infrastructure vs ACIT reported in 398 ITR 198 (Del.) , he submitted that it is settled position of law that the reason for reopening must be complete and self explanatory demonstrating the application of mind by the AO of the relevant material in his possession. He also relied on the following decisions:- i. Pr. CIT vs RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5(Del.) ii. Pr. CIT vs G & G Pharma India Ltd. 384 ITR 147 (Del.) iii. CIT vs Independent Media Pvt. Ltd. in ITA No.108/2015(Del.) iv. Signature Hotels P. Ltd. vs ITO [2011] 338 ITR 0051 (Del.) v. CIT vs SFIL Stock Broking ltd. 325 ITR 285 (Del.) vi. Sarthak Securities Co. P. Ltd. vs ITO 329 ITR 110 (Del.) vii. CIT vs Suprme Polypropolene (P) Ltd. ITA No.266/2011(Del.) viii. CIT vs Multiplex Trading & Industrial Co. Ltd. 378 ITR 351 (Del.) ix. Hindustan Lever Ltd. [2004] 137 Taxman 479 (Bom.) x. CIT vs Greenworld Corporation 314 ITR 81(SC) 15. The learned counsel for the assessee in his next plank of argument submitted that non-identification of nature of alleged accommodation entries, mode of payments and the parties acted as entry provider entities make such recording of reasons insufficient for initiating....
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....f which is placed at page 73 (PDF page 77) of the paper book directed the assessee to e-file the return of income which was done on 13.10.2018 copy of which is placed at page 1A (PDF PB 2) of the paper book. Referring to page 74 to 76 of the paper book, he submitted that the AO issued notice dated 16.10.2018 u/s 143(2)/142(1) and supplied reasons recorded on 22.10.2018 against which the assessee submitted objection to assumption of jurisdiction on 05.11.2018,. The same were disposed of by the AO on 09.11.2018 as per Pages 65 to 72 of the paper book. He accordingly submitted that the AO has assumed jurisdiction to make assessment by issuing notice u/s 143(2) of the Act on 16.10.2018 before supplying reason which means that the AO assumed jurisdiction before allowing assessee to file objections against assumption of jurisdiction. Referring to the decision of the Hon'ble Delhi High Court in the case of Mastech Technologies Ltd. vs DCIT in Writ Petition No.2858/2016, order dated 13.07.2017, he submitted that the Hon'ble Delhi High Court has held that issuance of notice u/s 142(1)/143(2) before supplying the reasons and considering petitioner's objection and passing reasoned order there....
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..../s 194A of the Act. Relying on various decisions as per case law compilation, he submitted that action of the AO and the learned CIT(A) are not in accordance with law. 21. So far as, the addition on account of unexplained share capital is concerned, he submitted that the assessee has filed the confirmations, share application forms, bank statements for the relevant period, copies of ITR filed and copies of audited financial statements of the share applicants, etc. The assessee has discharged the onus cast upon it. Nothing has been brought on record by the AO to substantiate his allegation that these credit entries by way of share capital are accommodation entries. Relying on various decisions, he submitted that merely because the directors were not produced before the AO, the addition cannot be made u/s 68 of the Act. He submitted that the assessee has proved all the three important ingredients of section 68 of the Act by proving the identity and creditworthiness of the investor/share applicants and the genuineness of the transactions. He further submitted that despite request made to the AO, the assessee was not provided the opportunity for cross examine of the persons whose stat....
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....ed CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO on the basis of information received from the Investigation Wing that the assessee is beneficiary of accommodation entries to the tune of Rs. Rs.92,00,110/- evidence of which was found during the course of search and seizure operation in the case of Mr. Anand Kumar Jain and Mr. Naresh Kumar Jain on 17.12.2015 who are known as entry providers, reopened the assessment u/s 147 of the Act after recording the reasons and issued notice 148 of the Act. 26. We find the AO completed the assessment u/s 147 r.w.s. 143(3) of the Act and determined the total income of the assessee at Rs.1,75,30,470/- by making addition of Rs.1,75,00,110/- to the returned income of Rs.30,460/-. We find the learned CIT(A) upheld the action of the AO both on merit as well as on the validity of reassessment proceedings. It is the submission of the learned counsel for the assessee that reopening of the assessment in the instant case is not in accordance with law on account of number of infirmities. 27. Before proceeding further, we deem it proper to reproduce the reasons recor....
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....me of the bank from which the accommodation entry was provided, the name of the bank in which the accommodation entry was credited and the date of the transaction is missing in the reason. The date of transaction in our opinion, is important to verify whether the transaction falls in the year under consideration which is extremely important piece of information to justify independent application of mind. 29. We find during the course of assessment proceedings, the assessee had raised specific objection before the AO regarding the non-mentioning of the entities as per reasons provided who had given accommodation entries. However, a perusal of the said annexure which is reproduced as under does not give such details giving the names of the entities giving the amount of accommodation entries during the year. 30. We find that Hon'ble Delhi High Court in the case of Pr. CIT vs Meenakshi Overseas Pvt. Ltd. reported in 395 ITR 677 (Del.) has quashed the reassessment proceedings on the ground that the reasons recorded by the AO failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment. The relevant observations of the Hon'b....
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....e crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 25. At this stage it requires to be noted that since the original assessment ....
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....k from which the cheque was issued, the account number and so on. 28.3 Analysing the above reasons together with the annexure, the Court observed: "14. The first sentence of the reasons states that information had been received from Director of IncomeTax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. 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 Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapem....
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....sessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of Rs. 27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148." 29.3 The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the i....
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.... (supra) there was a similar instance of reopening of assessment by the AO based on the information received from the DIT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee‟s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional precondition being met to reopen the assessment, the qu....
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....he case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs." 31. We find, following the above decision, the Co-ordinate Benches of the Tribunal are taking the consistent view that when there is non-application of mind by the AO to the report of the Investigation Wing, such reassessment proceedings are not in accordance with law and such reopening proceedings have been quashed. Since, in the instant case, the AO has not applied his mind as there is non-identification of the deponents, non-mentioning of middleman if any, absence of details in the form of instrument number through which the cheques/RTGS was accepted by the assessee company, name of the bank from which the accommodation entries were provided, the name of the bank in which the accommodation entries were credited and the date of transaction etc. therefore, ....