INCOME TAX OFFICER, WARD-1, SILCHAR vs. ROHIT KUMAR GULGULIA, SILCHAR

O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Appeal filed by the assessee is against the order of Ld. CIT(A), Shillong dated 18.03.2020 against the assessment order of ITO, ward-3, Silchar u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 24.12.2018 for AY 2011-12.

“• Whether on facts and in the circumstances of the case the Ld. CIT(A) was justified in holding that the assessment order passed by AO was bad in law only because the AO had based his formation of belief on the findings recorded in the report of survey under section 133A of the I.T Act, 1961?

• Whether on facts and in the circumstances of the case the Ld. CIT(A) was justified in holding that the assessment order passed by AO was bad in law only because the AO did not conduct any further

Roit Kumar Gulgulia., AY: 2011-12 enquiry of his own and relied on the conclusive findings of the officer(s) of the investigation Wing of the Income Tax Department to record the reasons for reopening the assessment?

• Whether on facts and in the circumstances of the case the Ld.CIT(A) was justified in deciding that the assessment order passed by AO was bad in law because the objections raised by the assessee against initiation of proceedings u/s 147 were not disposed of by the AO by any speaking order in writing as required under the law without proper consideration of the AO's view expressed in his letter dated 24.04.2019 and without giving any further opportunity to the AO of being heard before disposal of the appeal as prayed for in the said letter?

• Whether on facts and in the circumstances of the case the Ld.CIT(A) was justified in deciding that the assessment order passed by AO was bad in law because the objections raised by the assessee against initiation of proceedings u/s 147 were not disposed of by the AO by any speaking order in writing as required under the law, without taking into consideration the decision of the Hon'ble courts cited by the AO in his reply dated 24.04.2019, according to which a time span of four weeks was to be given to the assessee after the objections are disposed of by way of speaking order, which was not possible in the case because the assessee has filed the objections only three weeks prior to the time barring date?

• Whether on facts and in the circumstances of the case the Ld. CIT(A) was justified in deleting he addition made by the AO on the ground that the material relied upon by the 40 for completion of assessment were not confronted to the assessee, since the material available with the AO for disclosure to the assessee was only the confessional statement recorded on oath under section 131 if the LT. Act, 1961 in course of survey operation under section 133A of the said act and such confession was made by the assessee's father and therefore, already known to the assessee?

• Whether on facts and in the circumstances of the case the Ld.CIT(A) was justified in holding that the assessment order passed by AO was bad in law because the additions made by the AO were based merely on the confessional statements, since such statement under section 131 of the Income tax Act, 1961 was given separately by three Directors of the shell company through which the concealed income of the assessee as routed, it was given suo moto and there was on inducement, threat or coercion when the statements were recorded?

• Whether on facts and in the circumstances of the case the Ld. ClT (A) was justified in deleting the addition made by the AO on the ground that the retraction made by the assessee was not considered in assessment because even though the retraction was filed at the Roit Kumar Gulgulia., AY: 2011-12 last moment, it was duly considered by the AO before rejecting it being not bonafide in assessment?

• Whether on facts and in the circumstances of the case the Ld. CIT(A) was justified in deleting the addition made by AO on the ground that the addition of opening balance in the creditor's account made by the AO is not permissible under section 68, since the loan itself was admitted to be bogus in statements under section 131 of the Income-tax Act, 1901 given separately by three directors of the shell company through which the concealed income of the assessee was routed and it was merely a book entry which the assessee had made in an attempt to project a sham transaction as genuine?

• Whether on facts and in the circumstances of the case the Ld. CIT(A) was justified in deleting the addition made by AO on the ground that the addition of opening balance in the creditor's account made by the AO is not permissible under section 68, since an amount appearing as opening balance is also a credit and the explanation offered by the assessee regarding the nature and source of which was not satisfactory in the opinion of the AO?”

5.1. A survey u/s. 133A of the Act was conducted on 06.07.2017 in the office premises of Gulgulia Trade Pvt. Ltd., Silchar. In the post survey report issued by Dy. Director of Income-tax, Unit-II(2), Guwahati [DDIT(Inv.)], it was stated that Shri Ram Lal Gulgulia group has purchased a paper/shell company Thirdwave Suppliers Pvt. Ltd. (TSPL) which is a ‘Jamakharchi/paper company’ as per the Department database prepared by the Directorate of Investigation, Kolkata. The said company was controlled by an entry operator of Kolkata, Shri Akash Agarwal who has raised bogus share capital with premium and subsequently utilised by Ram Lal Gulgulia group in the form of unsecured loans in their concerns. Based on this, Ld. AO observed that assessee belongs to the Gulgulia Group, more particularly, Ram Lal Gulgulia group and that assessee is a son of Shri Ram Lal Gulgulia.

5.2. In respect of TSPL, Ld. AO observed that a survey action was conducted in the case of this company in Kolkata on 10.02.2015 which is prior to more than two years of the survey conducted in the case of Gulgulia Trade Pvt. Ltd., Silchar. Ld. AO observed that during the time of raising of capital by TSPL, Shri Akash Agarwal was a Director who then sold this company and the new Directors of the said company took it over. Shri Ram Lal Gulgulia is one of the Directors of TSPL. Shri Bijoy Singh Lodha is another Director in TSPL and who is also an Accountant of the Ram Lal Gulgulia Group.

Roit Kumar Gulgulia., AY: 2011-12 5.3. In the course of survey conducted at the premise of Gulgulia Trade Pvt. Ltd., statement of Shri Bijoy Singh Lodha and Shri Ram Lal Gulgulia were recorded u/s. 131 on 06.07.2017. From their statements, it was observed that TSPL had given unsecured loans to various concerns of the Ram Lal Gulgulia group, details of which are tabulated as under:

5.4. From the statements of both Shri Ram Lal Gulgulia and Shri Bijoy Singh Lodha, Ld. AO inferred and held that they have confessed in unambiguous terms that the loan transaction was sham. He thus, treated the loan transaction of the assessee with TSPL of Rs.2,63,13,383/- as bogus loan along with payment of interest of Rs.10,96,241/- thereon. In this respect submissions made by the assessee that there is an opening balance of Rs.1,75,00,000/- and that the statements made by the two persons had been retracted was negated by the Ld. AO while completing the assessment. Aggrieved, assessee went in appeal before the Ld. CIT(A). Ld. CIT(A) has elaborately dealt with jurisdictional and legal issue of reopening of the assessment and quashed the same by holding it to be invalid as there was non-application of mind on the part of the Ld. AO. Aggrieved, revenue is in appeal before the Tribunal.

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6. Before us, Ld. Sr. DR put-forth the multi-fold contentions which have been raised in the grounds on the jurisdictional and legal aspect of the relief granted by the Ld. CIT(A). Per contra, Ld. Counsel for the assessee placed on record detailed written submission along with corroborative evidences in the form of a paper book containing 68 pages. Ld. Counsel for the assessee has dealt with each of the aspect of jurisdictional and legal issue of reopening of the assessment. The submissions made by the Ld. Counsel are multi-fold, each of them are dealt hereunder:

6.1. Primarily, reasons to believe recorded by the Ld. AO are based on reproduction of the survey report submitted by DDIT (Inv.), Guwahati and the statements recorded of Shri Ram Lal Gulgulia and Bijoy Singh Lodha in the case of survey of Gulgulia Trade Pvt. Ltd., Silchar. Satisfaction arrived at by the Ld. AO on escapement of income is not out of any independent enquiry or independent application of mind but, is borrowed from the report of Investigation Wing and the statements recorded. It is important to note at this juncture that Ld. CIT(A) has adjudicated on the appeals of various appellants of the Ram Lal Gulgulia group, together. Thus, Ld. CIT(A) was placed in a position to take a holistic view of the inter se transactions which had been undertaken to arrive at justifiable conclusion.

6.1.1. In this respect, Ld. CIT(A) has categorically observed that for each of the appellants in the group, reasons to believe finds its genesis in the purported survey report only. He further noted that reasons to believe of all the seven appellants

Roit Kumar Gulgulia., AY: 2011-12 which the Ld. CIT(A) adjudicated upon together of the Ram Lal Gulgulia group are reproduced verbatim in the survey report. In all these reasons to believe, no reference has been made to any purported independent enquiry for verification or examination of any evidence or the assessee. He observed that no enquiry was conducted by the respective AOs of the constituent particulars of the group.

6.1.2. He thus, observed by analysing the reason to believe by way of putting up a common table in respect of all the seven appellants of the Gulgulia group that unequivocally, it has proven that no enquiry or whatsoever was conducted by the Ld. AO and that the reasons to believe recorded are based solely on the information supplied to Ld. AO by the Inv. Wing. From the perusal of the reasons to believe in the case of the assessee, Ld. CIT(A) has observed the expression of Ld. AO that “in view of the above findings and circumstances detailed in the survey report and also admission in the reasons recorded, I have reason to believe.” According to Ld. CIT(A), AO has formed his belief on the basis of the averments and the survey report of Inv. Wing. No other materials or evidence was given by the AO to form a belief that income of the assessee had escaped assessment. Ld. CIT(A) accordingly, concluded that satisfaction arrived at by the AO on the escapement of income from assessment is a borrowed satisfaction which is fatal to the impugned proceeding. Reliance was placed on the decision of Hon’ble Supreme Court in the case of Calcutta Discount Co. ltd. [1961] 41 ITR 191 (SC) who had analysed the phrase “reasons to believe” and observed that –

Roit Kumar Gulgulia., AY: 2011-12

“It is for him to decide that inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else to tell the assessing authority what inferences, whether of facts or law, should be drawn.” 6.2. Ld. Counsel has raised the contention that Ld. AO has not disposed of the objection filed during the course of reassessment proceedings by passing a speaking order as mandated by Hon’ble Supreme Court in the case of G K N Driveshaft (India) Ltd. Vs. ITO [2013] 259 ITR 19 (SC). According to the Ld. Counsel, non-disposal of the objection of assessee by the Ld. AO by way of a speaking order renders the assessment order bad in law. Assessee had filed the objections on 10.12.2018 placed in the paper book. Ld. CIT(A) had called for clarification from the Ld. AO in respect of disposal of objections to the reopening, raised by the assessee. To this effect, Ld. AO had replied vide letter dated 24.04.2019, scanned copy of which is reproduced in the order of Ld. CIT(A). From its perusal it is noted that Ld. AO has admitted that objections to the reopening of the assessment as raised by the assessee were not disposed of by him by way of any written/speaking order.

6.2.1. The mandate of Hon’ble Supreme Court in the case of GKN Driveshaft (India) Ltd. (supra) is reproduced as under:

“We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections,

Roit Kumar Gulgulia., AY: 2011-12 if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years. [emphasis supplied by us by underline] 6.2.2. In the case of Fomento Resorts & Hotels Ltd. vs. ACIT [2019 (9) TMI 1284 - Bombay High Court], it was held/averred, as follows, by the Hon’ble Bombay High Court:

"Reopening of assessment - ultra vires to Section 11 of Expenditure Tax Act, 1987 - non disposal of the objections to the reasons in the assessment order - whether it was necessary for the Assessing Officer to have first disposed of the Appellant's objections by passing a speaking order and only upon communication of the same to the Appellants, proceeded to reopen the assessment? - HELD THAT:- Since, in the present case, the Assessing Officer has purported to assume the jurisdiction for reopening of the assessment, without having first disposed of the Assessee's abjections to the reasons by passing a speaking order, following the law laid down in GKN Driveshafts (India) Ltd [2002 (11) TMI 7 - SUPREME COURT] , Bayer Material Science (P) Ltd. [2016 (3) TMI179 BOMBAY HIGH COURT] and KSS Petron Private Ltd. [2016 (10) TMI 1112 - BOMBAY HIGH COURT] we are constrained to hold that such assumption of jurisdiction by the Assessing Officer was ultra vires Section 11 of the said Act. The first substantial question of law will, accordingly, have to be answered in favour of the Appellant and against the Respondent-Revenue." 6.3. In view of the above, non-disposal of the objections of the assessee by the Ld. AO without passing a written/speaking order renders the assessment order and the consequential additions as bad in law.

7. Another contention raised by the Ld. Counsel is that Ld. AO has not provided the copy of statements of all the three persons which formed the basis of arriving at the reasons to believe. Further, no opportunity has been given to the assessee to cross examine these three persons though specific request had been made in the course of assessment proceeding. Ld. Counsel contended that on one hand Ld. AO

Roit Kumar Gulgulia., AY: 2011-12 had taken recourse to the reassessment solely on the basis of the purported statement and on the other hand, Ld. AO did not deem it proper or reasonable to confront such purported statement to the assessee.

7.1. To buttress the contention, Ld. Counsel placed reliance on the decision of Hon’ble Supreme Court in the case of Andaman Timber Industries Ltd. Vs. Commissioner of Central Excise [2015] 281 CTR 241 (SC) wherein it is held as under: “5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue.

Roit Kumar Gulgulia., AY: 2011-12 examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

7.2. Further, Ld. Counsel placed reliance on the decision of Hon’ble Delhi High court in the case of CIT Vs. Ashwani Gupta 322 ITR 396 (Del.) wherein it was held as under: "The Tribunal confirmed the Order passed by the Commissioner (Appeals) which held the entire addition made by the Assessing Officer to be invalid and had deleted it on the ground that the Assessing Officer had passed the assessment Order in violation of the principles of natural justice inasmuch as he had neither provided copies of the seized material to the assessee nor had he allowed the assessee to cross-examine the person on the basis of whose statement the addition was made. On appeal: Held, dismissing the appeal, that the Revenue had accepted the findings of the Tribunal on facts as also the position that there had been a violation of the principles of natural justice. However, its plea was that the violation of the principles of natural justice was not fatal so as to jeopardize the entire proceedings. The Tribunal correctly held that once there was a violation of the principles of natural justice inasmuch as seized material was not provided to an assessee nor was cross-examination of the person on whose statement the Assessing Officer relied upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. No substantial question of law arose."

7.3. Ld. Counsel reiterated that additions have been made merely on the basis of statement of third parties without any corroborative evidence, copy of which were not supplied to the Roit Kumar Gulgulia., AY: 2011-12 assessee nor they were made available for cross examination and that these parties had retracted their statement. Reference was made to the decision of Coordinate Bench of ITAT Rajkot in the case of Smt. Ranjnaben Mansukhlal Shah Vs. ACOT [2004] 83 TTJ 369 (Raj. Kol), wherein it was held that additions made only on the basis of disclosure statement normally should not be confirmed in the absence of corroboration. In the eyes of law, the general rule of practice is that it is unsafe to rely upon a confession only without any corroboration.

7.4. In respect of retraction made by the persons giving statements, their affidavits are placed on record. This fact was brought to the knowledge of the Ld. AO in the course of assessment proceedings. Ld. Counsel submitted that in the case of retracted statements, it is not as if the retraction from a statement would put an end to the procedure which ensued on account of survey. The beneficiary value of a retracted statement becomes diluted and its looses its stand on its own. Once the statement is retracted, the AO is burdened to produce some corroborative material to the statement relied upon for the purpose of assessment. Ld. AO has to give support to his findings on the basis of the other material. If he does not have any other material, in a way it reflects upon the very perfunctory nature of the survey. In the present case, ld AO has not accepted the retraction made by the persons on whose statement the reasons to believe were , to initiate the reassessment proceeding. He has neither made any enquiry

Roit Kumar Gulgulia., AY: 2011-12 from the persons retracted their statements to support the additions made by him.

8. By taking into account the above multi-fold contentions discussed in respect of jurisdictional and legal issue, the conspectus of our findings find favour with the assessee, upholding the observations and findings given by the Ld. CIT(A). From the perusal of the impugned order and the reasons to believe, it is seen that Ld. AO has not applied his mind to the purported information received from the Investigation Wing. The approach adopted is a mechanical approach and falls in the category of borrowed satisfaction. It is important to note that survey was conducted in the case of GTPL wherein assessee is not a director. Statements of directors of TSPL i.e. Shri Ramlal Gulgulia and Shri Bijoy Singh Lodha were recorded in the course of survey of GTPL on 06.01.2017 which were relied upon by the Ld. AO. These had also been retracted. Another important fact which is borne in mind is that statement of Shri Akash Agrawal, erstwhile director of TSPL was recorded in the course of survey of TSPL on 10.02.2015 which is much prior to the conduct of survey in the case of GTPL (Ram Lal Gulgulia Group).

8.1. Further, the material on the basis of which reasons to believe were recorded have not been confronted to the assessee, thus, the impugned order suffers from non- compliance with the principles of natural justice and thus, deserves to be quashed. Accordingly, grounds taken by the revenue in this respect are dismissed.

Roit Kumar Gulgulia., AY: 2011-12

9. Ld. Counsel has also brought the attention of the Bench to point out that without prejudice to the legal issue, addition of opening balance of Rs.1.75 Cr. has been made u/s. 68, out of the total addition made in the assessment. According to him, the addition of opening balance in the creditors’ account is not permissible u/s. 68 since it does not represent a credit in the books of account during the year. To substantiate its claim, copy of loan confirmation, balance sheet, bank statement and affidavit of TSPL were placed on record. On perusal of the confirmation, statement and the other documents, it is evident that amount of Rs.1.75 Cr. was received by the assessee during the preceding years and not in the year under consideration. However, Ld. AO has disregarded the submissions made by the assessee by observing that amount appearing as opening balance is also a credit and the explanation offered by the assessee for its nature of sources is not satisfactory in the opinion of the AO 9.1. Ld. CIT(A) has dealt with this issue after corroborating the same with the documentary evidence placed on record. We do not find any reason to interfere with the finding given by the Ld. CIT(A) in this respect. It is trite law that in case the liabilities are old and no credit has been made in respect of those liabilities in the books of account in the year under consideration, no addition can be made u/s. 68 of the Act. Accordingly, ground taken by the revenue in this respect is also dismissed

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Order pronounced in the open Court on 16th August, 2023.