TaxTMI 
TaxTMI 
2024 (9) TMI 1312
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....of statements of sh. Pravin Kumar Jain (a third party, not related to assessee in any manner) recorded during the course of search conducted at his premises. Appellant prays that reopening is thus made by Id.AO on borrowed satisfaction and without independent application of mind, which is not in accordance with law and order so passed deserves to be quashed. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in confirming the actions of Id. AO, in treating the share application money of Rs. 60,00,000/- received by assessee from various companies as undisclosed income of the assessee company arbitrarily. 2.1 That Id. CIT(A) further erred in confirming the action of Id. AO in making addition of Rs. 60,00,000/- without considering the submission made and evidence adduced. Thus the additions made solely on the basis of statement of third party, which stood retracted subsequently and without even bringing any corroborative evidence is not in accordance with law and deserves to be deleted. 2.2 That the Id. CIT(A) has grossly erred in confirming the additions, which were made by Id. AO without even providing complete statements of....
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....in this case, a notice u/s 148 of the Act dated 13.02.2015 was issued to the assessee, which was served upon the assessee. Vide letter dated 09-03-2015 assessee submitted that the original return of income filed u/s 139(1) may be considered as return filed in response to notice u/s 148 of the IT. Act. 3.3 During the assessment proceeding ld. AR of the assessee raised objections on the re-opening of the case and also requested to provide the statement of Shri Praveen Jain, which was provided to the assessee and the rest of the objections raised was disposed by the ld. AO. 3.4 Considering the reasons so recorded the ld. AO asked the assessee to furnish various details about the share application money. The assessee vide letter dated 21.03.2016 replies to the queries raised by the ld. AO. Thereafter, the assessee was asked to show cause as to why the accommodation entries of Rs. 60,00,000/- received in the form of share application money should not be added to its income. In response the assessee filed a written response. The reply / submission of the assessee was considered by the ld. AO carefully but he considered it not found tenable and acceptable on the following grounds : ....
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....d in the accommodation entries and also controls the affairs of the various companies. Thus, based on these aspect of the matter as discussed in the order of the assessment the ld. AO held that Shri Praveen Kumar Jain has provided accommodation entry of Rs. 60,00,000/- to the assessee company though the dummy company M/s Alka Diamond Industries Ltd., Ms Anchal Properties P. Ltd., M/s Atharv Business P. Ltd. (Faststone Tred (I) Ltd, M/s Casper Enterprises P. Ltd. (Oswal Trading (I) P. Ltd.), M/s Nakshatra Business P. Lid. (Hema Trading Co. P. Ltd.), M/s Olive Overseas P. Ltd. (Realgold Trading Co. P. Ltd.) & M/s Vanguard Jewels Ltd., managed by Shri Praveen Kumar Jain. Based on these ld. AO noted that the transaction made by the assessee with the concerns owned or operated by Shri Praveen Kumar Jain are non-genuine and there are only paper transactions that took place instead of actual transaction. Therefore, the share application money of Rs. 60,00,000/- shown by the assessee is treated as diversion of profit to evade the tax liabilities. 4. Aggrieved from the order of the assessing officer, the assessee preferred an appeal before the ld. CIT(A)/NFAC. Apropos to the grounds so r....
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....f the compliance of the assessee in appeal proceedings, have already been described above in this appeal order. It has been contended that assessee has proved the credit by furnishing his own bank account showing the credit entries, by furnishing certificate (from a private practicing company secretary) reflecting active status of the 7 companies as on 31.07.2017 and the share application money was converted into allotted shares to the 7 investors and by pointing out that the 7 companies continued to be shareholders till 31.07.2017. However, the fact remains that the 7 investor companies were in the business of providing accommodation entries of various types and Shri. Pravin Kumar Jain had provided accommodation entries to various beneficiaries from the said companies as well as many other companies controlled by him and many beneficiaries had admitted the fact when confronted by the Income Tax Department. Moreover, the financials of the assessee do not have anything to invite/attract an independent person to invest in the assessee company. In view of these facts, I find that AO was justified in treating the amount of Rs. 60,00,000/- as undisclosed income of the assessee. Accordin....
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....n Wing and statement of Shri Praveen Kumar Jain through the same was retracted by him on 15.05.2014 (APB 17-21). Aggrieved by the order of ld. CIT(A), assessee company has preferred a present appeal before the Hon'ble Bench. Grounds of Appeal Nos. 1: In these grounds of appeal, assessee has challenged the reopening of assessment u/s 147 of the Income tax Act, solely on the basis of information received from the DGIT (Inv.) Mumbai. Facts pertaining to the grounds of appeal are that the case of assessee was reopened on the basis of following information: "Reasons for the belief that income has escaped assessment The assessee M/s Padmawati Agrico (India) Pvt. Ltd. filed its Return of income for AY 2010-11 on 25.09.2010 declaring total income as Nil. The return was processed u/s 143(1) on 28.04.2011. As per the information available on record, it is found that the assessee has received accommodation entries from Sh. Praveen Kumar Jain, in whose case search was conducted at Mumbai by investigation wing. Shri Praveen Kumar Jain admitted in his statement recorded u/s 132(4) of the I.T. Act, 1961 that he provided accommodation entrie....
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.... genuine and how it amounts to accommodation entry. He has simply reproduced the contents as mentioned in the information supplied to him, based on which he initiated the reassessment proceedings. On receiving reasons recorded, the assessee raised objections to against reopening vide letter dated 07.12.2015 (APB 22-23) primarily objecting to recording of reasons done in a mechanical manner, i.e. on discussion of general information and modus operandi of entry providers and not specifically mentioning as to how transaction of assessee was also accommodation entry & how funds have been routed for such alleged accommodation entry. Also, neither statements recorded nor any such information wherein name of assessee was appearing was supplied to the assessee. It is further relevant to state that ld. AO disposed-off the objection raised by assessee vide notice dated 22.02.2016 (APB 24-26) in mechanical manner, wherein ld.AO straightaway solely relied upon the information received from Investigation wing and repeated the same. It simply shows that Ld.AO himself was not sure while forming his belief for re-opening, as to whether there was actually escapement of Income or not. ....
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....aterial available with the assessing officer and that too by framing the opinion strictly based on the documents and information in possession, that certain income has escaped assessment and not in a mechanical manner as has been done in the case in hand. The re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction deserves to be held illegal. In this regard reliance is placed on the decision of Hon'ble Delhi High court in case of Sarthak Securities Co. Pvt. Ltd. Vs. ITO reported in 329 ITR 110 wherein it has been held as under: Reassessment - Notice - Condition precedent - Formation of belief that income escaped assessment - Assessing Officer treating share application money as bogus accommodation entries - Payments through banking channel and companies investing money genuine - No independent application of mind by Assessing Officer but acting under information from investigation wing - Notice to be quashed - Income Tax Act, 1961, ss. 147, 148. Uma Strips Ltd. vs DCIT 3284/Del/2019 decision dated 11.05.2022 (Delhi ITAT) (decision para reproduced):....
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....independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified} In case of Haryana Acrylic Manufacturing Co. v. CIT [2008] 175 Taxman 262 (Delhi) it was held by the Hon'ble Delhi High Court that notice under section 148, giving reason that it had come to his notice that assessee had taken accommodation entries from 'H' during relevant year when assessee, in course of original assessment proceedings, had supplied all relevant details; in assessment order which were verified and moreover, in reasons supplied to assessee there was no allegation that it had failed to disclose fully and truly all material facts necessary for assessment and because of its failure there had been an escapement of income chargeable to tax, reopening of assessment after expiry of four years from end of relevant assessment year was without jurisdiction. It is further relevant to state that ld. CIT(A) during the course of appellate proceedings without adjudicating on the legal ground and solely on the basis of informat....
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....statement of unrelated party which was also later on reiterated and there was no specific information, which could prove that transactions of assessee were accommodation entries. Thus re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction is against the law and deserves to be deleted. It is further submitted that during the course of assessment proceedings as well as appellate proceedings assessee submitted necessary evidences regarding receipts of share application money from the above parties before the Ld. AO as well as Ld. CIT(A) details of which are summarized as under- 1. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Alka Diamond Ind. Ltd. a. Copy of Share application form 60-61 b. Copy of Board Resolution 62-63 c. Copy of PAN Card 64 d. Copy of Bank Statement 65 e. Copy of ITR for A.Y. 2009-10 & 2010-11 66-67 f. Copy of company master data as on 31.03.2009 & 31..03.2015 68-69 ....
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....M/s Olive Overseas Pvt. Ltd. a. Copy of Share application form 133-134 b. Copy of Board Resolution 135-136 c. Copy of PAN Card 137 d. Copy of Bank Statement 138 e. Copy of ITR for A.Y. 2009-10 & 2010-11 139-140 f. Copy of company master data as on 31.03.2009 & 31..03.2015 141-142 g. Copy of Confirmations & Affidavit 143-146 7. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Vanguard Jewels Pvt. Ltd. a. Copy of Share application form 147-148 b. Copy of Board Resolution 149-150 c. Copy of PAN Card 151 d. Copy of Bank Statement 152 e. Copy of ITR for A.Y. 2009-10 & 2010-11 153-154 f. Copy of company master data as on 31.03.2009 & 31..03.2015 155-156 g. Copy of Confirmations & Affidavit 158-160 At this juncture, provisions of section 68 are reproduced for the sake of convenience: "68. Where any sum is found credited in the books of an assess....
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....ive effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash ....
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.... been ignored solely on the basis of recorded statements of third party recorded by some other officials during the course of search & survey operation conducted in his case. These were recorded behind the back of assessee and moreover opportunity of cross examination was not provided moreover the said Shri Praveen Kumar Jain has himself retracted the statement earlier given by him by filing affidavit. It is submitted that ld. AO further erred in ignoring the fact the Assessee has already discharged his initial onus laid down u/s 68 of Income Tax Act. By proving the 3 main ingredients of loans as under:- (i) Identity:- The identity of investors stood proven as details of PAN card along with ITR's and copies of bank statement and other documentary evidences already shared. Hon'ble Rajasthan High Court in the case of Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199 has held that once the existence of the creditors is proved and such persons own the credits, the Assessee's onus stands discharged and the assessee is not required to prove the source from which the creditors could have acquired the money deposited with him. Hon'ble jurisdictional....
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....on took place instead of actual transactions. Although the transactions are completed through banking channel after getting commission in cash. Therefore, share application money of Rs. 60,00,000/- shown by the assessee is treated as diversion of profit to evade the tax liabilities. Therefore, the amount of Rs. 60,00,000/- is added to the total income of the assessee." In this regard it is submitted that the Ld. AO has made the addition by solely relying upon the material stated to have been supplied by some other income tax authority which were stated to have been gathered during the course of search/survey proceedings conducted in the case of third party which includes the statements of the third party however, neither the material available with the Ld. AO was confronted nor the opportunity to cross examination of the witness of the department was provided to the assessee nor any such statements were ever supplied. Further from the perusal of the assessment order it appears that at no stage of the proceedings, the alleged information relied upon by the Ld. AO contained any admission of providing any accommodation entry in the shape of share capital to the appellant spec....
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....t assessee has received accommodation entry in the guise of Share Capital. Merely on the basis of so called alleged generalized information in the form of statement of Shri Praveen Kumar Jain the Ld. AO has reached the conclusion that the share application money was unexplained money of the assessee whereas it is evident that statement has been retracted. Further Ld. AO has not doubted the identity of the parties and also not doubted the amount given by the parties but he doubted the source from which these companies have given the share application money. In the matter it is submitted that assessee has not burden to prove the source of the source in the periodb under consideration i.e. from where these companies has got the amount for investment in shares of the appellant. Ld. AO has not even discussed the details submitted by the assessee during the course of assessment proceedings and has simply brushed aside these evidences without bringing any material to the contrary. It is submitted that the, assessee neither has any relation nor has any control on the business activity of those companies. The Ld. CIT(A) has ignored the binding decision of the Hon'ble Supre....
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....anies and has further ignored the effective compliance made by the assessee under the Companies Act, 1956 thus the assessee has duly explained share application money with all the plausible evidence, thus the addition of Rs. 60,00,000/- made by the Ld. AO deserves to be deleted. Further reliance is also placed on the judgement of Hon'ble Income Tax Appellate Tribunal, Mumbai Bench in the case of Inter Publicity Pvt. Ltd. vs. Dy. Commissioner of Income Tax, in ITA No. 662/Mum/2021 dated 17.10.2023 wherein, in the similar circumstances case is decided in the favour of assessee by relying upon the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Orchid Industries Pvt. Ltd. (ITA No. 1433 of 2014 dated 05.07.2017) and coordinate bench decision in the case of M/s. Moraj Realty Pvt. Ltd. (ITA No.708 & 709/Mum/2019 dated 08-12-2020) (APB - ) Case Laws relied upon: 1. 283 ITR 377 (Raj.) Barkha Synthetics Ltd. Vs. ACIT Held: The principle relating to burden of proof concerning the assessee is that where the matter concerns the money receipts by way of share application from investors through banking channel, the assessee has to prove existence ....
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.... the purchases of shares, then the amount received by the company would be regarded as a capital receipt. 6. 397 ITR 136 CIT Vs. Orchid Industries Pvt. Ltd. (Bom) - [DOD:05.07.2017] Cash Credits - Company - Share application money - Issuance of shares - Genuineness and creditworthiness of persons allotted shares proved by assessee - Non-appearance of such parties before Assessing Officer irrelevant - Deletion of addition proper - Income Tax Act, 1961, s. 68. 7. 159 ITR 78 (SC) Orissa Corpn. (P) Ltd When the assessee furnishes names and addresses of the alleged creditors, the burden shifts to the department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the inquiry and to establish the lack of creditworthiness and the mere issue of notice u/s 131 is not sufficient. Thus, the Appellant has discharged the primary burden of establishing the identity and genuineness of the creditor. 8. 187 Taxman 53 CIT Vs. K.C. Fibres Ltd. (Delhi) Cash Credit - One 'D' Ltd. subscribed to share capital of assessee company - For said purpose, share application money on three different dates totaling a su....
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....ng of assessment vide letter dated 07.12.2015. 22-23 7 Copy of notice dated 22/02/2016 issued by ld.AO 24-26 8. Copy of reply dated 26/02/2016 made before ld. AO against the notice dated 22/02/2016 27-28 9. Copy of reply dated 21/03/2016 made before ld. AO against the notice dated 22/02/2016. Segregated letters 29-42 a. Copy of bank statements of assessee showing receipt share application money 43-51 b. Copy of Form-2 for allotment of Equity Share Capital dated 31.10.2009. 52-55 10. Copy of notice dated 23/03/2016 issued by ld.AO 56-57 11. Copy of reply dated 23/03/2016 made before ld. Assessing Officer 58-59 12. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Alka Diamond Ind. Ltd. a. Copy of Share application form 60-61 b. Copy of Board Resolution 62-63 c. Copy of PAN Card 64 d. Copy of Bank Statement 65 e. Copy of ITR for A.Y. 2009-10 & 2010-11 66-67 f. Copy of company master data as on 31.03.2009 & 31..03.2015 68-69 g. Copy of Confirmat....
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.... Copy of Board Resolution 135-136 c. Copy of PAN Card 137 d. Copy of Bank Statement 138 e. Copy of ITR for A.Y. 2009-10 & 2010-11 139-140 f. Copy of company master data as on 31.03.2009 & 31..03.2015 141-142 g. Copy of Confirmations & Affidavit 143-146 18. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Vanguard Jewels Pvt. Ltd. a. Copy of Share application form 147-148 b. Copy of Board Resolution 149-150 c. Copy of PAN Card 151 d. Copy of Bank Statement 152 e. Copy of ITR for A.Y. 2009-10 & 2010-11 153-154 f. Copy of company master data as on 31.03.2009 & 31..03.2015 155-156 g. Copy of Confirmations & Affidavit 158-160 18. Copy of Written Submission filed on 25/07/2017 before ld. CIT(A), NFAC 161-178 19. Copy of Written Submission filed on 03/08/2017 before ld. CIT(A), NFAC 179-180 a. Copy of certificate from practicing Company Secretary certifying master data of seven companies along with Form no. 2 & ....
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....details related to the identity, genuineness and credit worthiness of all those companies who have made investment in the assessee company. All the details to prove the identity, genuineness of the transaction, capacity for making investment were placed on record and the ld. AO has not controverted the factual aspect of the matter. 8. Per contra, the ld. DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A). The ld. DR stated that the case of the assessee was validly re-opened based on the investigation wing report and based on the detailed search conducted and the material collected by the revenue. Thus, based on that tangible material the case of the assessee has rightly been re-opened and in support of this contention he relied upon the decision of the apex court in the case of Raymond Woollen Mills Ltd. Vs. ITO [ 236 ITR 24(SC) ] As regards the merits of the case Shri Praveen Kumar Jain he based on the information unearthed by the revenue has categorically confirmed that he is engaged in managing the affairs of the various companies including the 7 companies from whom....
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....ted to the grounds so raised are that the assessee filed the return of income declaring loss of Rs. 23,590/-. The case of assessee was reopened on the basis of information received by ld. AO from the office of DGIT (Inv.) Mumbai, wherein Investigation Wing reported that Shri Praveen Kumar Jain was indulged in providing accommodation entries in the form of bogus share application from various entities including from M/s Alka Diamond Industries Ltd., M/s Anchal Properties P. Ltd., M/s Atharv Business Pvt. Ltd., M/s Casper Enterprises Pvt. Ltd., M/s Nakashatra Business Pvt. Ltd., M/s Olive Overseas Pvt. Ltd. & M/s Vanguard Jewels Pvt. Ltd. Based on said information from ld. DGIT (Inv), it was presumed by ld.AO that share application money worth Rs. 60,00,000/- received by assessee from aforesaid companies is also the accommodation entry obtained to reroute unaccounted money and therefore, proceeding u/s. 147 r.w.s. 148 was initiated after recording the reasons and notice u/s. 148 date 13.02.2015 was issued to the assessee. Vide letter dated 09.03.2015 assessee requested ld. AO to consider original return filed u/s 139(1) of the Act as return of income filed in response to notice u/....
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.... that during the course of assessment proceedings as well as appellate proceedings assessee submitted necessary evidence regarding receipts of share application money from the above parties before the Ld. AO as well as Ld. CIT(A). The documents so submitted for all these investor companies consists of Copy of Share Application form, Copy of Board Resolution, Copy of investor company's PAN Card, Copy of Bank statement showing the payment by an account payee cheque, Income Tax return of the investor company for the year under consideration and of the previous year, copy of companies master data dated 31.03.2009 and 31.03.2015 as to show that the company are active and copy of confirmation and affidavit of the director of the investor company at the time of reassessment proceeding so as to confirm the investment made by the investor company. All this evidence so filed before the ld. AO has not been controverted including the affidavit of the director of the investor company. These evidences so filed proves the identity, credit worthiness and genuineness of the transaction. The provision of section 68 as it stood for the year under consideration reads as under : "68. Where any....
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....es the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such sh....
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....ch such third party had been able to obtain the money. All this evidence was neither dealt with in the assessment order nor commented upon about the veracity of the same. Ld. AO has summarily rejected the evidence submitted by the assessee and made no effort to bring on record some material to support his conclusion that during the year under appeal assessee has received share application money from bogus parties and the transaction entered was not genuine. He merely based on the information supplied by the Directorate of Investigation, Mumbai and the on the basis of statement pf Shri Praveen Kumar Jain (which was later on retracted vide affidavit dated 15.05.2014) made the additions. When the matter carried to the ld. CIT(A) by the assessee the Ld. CIT(A) who has summarily rejected the claim of the assessee and evidences brought on record by the assessee by holding that; "....... However, the fact remains that the 7 investor companies were in the business of providing accommodation entries of various types and shri. Pravin Kumar Jain had provided accommodation entries to various beneficiaries from the said companies as well as many other companies controlled by him ....