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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’ NEW DELHI
ORDER This is an appeal by the assessee against order dated 07.10.2019 of learned Commissioner of Income-Tax (Appeals)-7, New Delhi pertaining to assessment year 2011-12.
The assessee has raised various grounds challenging the validity of reopening of assessment under Section 147 of the Income-Tax Act, 1961, as well as on the merits of the addition made.
3. Briefly, the facts are, assessee, a resident corporate entity, is stated to be engaged in the business of iron and steel. For the assessment year under dispute, assessee filed its return of income on 24.09.2011 declaring income of Rs.7,86,635.
Assessee’s case was selected for scrutiny and the Assessing Officer completed the assessment under Section 143(3) of the Act vide order dated 21.03.2014 accepting the income returned by assessee. Subsequently, the Assessing Officer received information, indicating that assessee is a beneficiary of bogus accommodation entries provided by certain entities controlled by Shri Anand Sharma and Shri Janardan Chokhani. Based on such information, the Assessing Officer formed a belief that by entering into bogus purchase transaction with the aforesaid entities, the assessee has not disclosed income to the tune of Rs.40,00,000 for the year under consideration.
Accordingly, he reopened the assessment under Section 147 of the Act. In response to the notice issued under Section 148 of the Act, assessee participated in the assessment proceedings and raised objections against reopening of assessment. As observed by the Assessing Officer, the objection filed by assessee were disposed of vide a separate order dated 29.11.2018. In course of assessment proceedings, the Assessing Officer, on 11.12.2018, called upon assessee to explain the genuineness of loan of Rs.40,00,000 availed from a company viz., New Wave Commercial Pvt. Ltd. and also to explain why the amount should not be added back to the income of the assessee. Further, the Assessing Officer called upon the assessee to furnish supporting documents, such as, balance sheet, bank statement and various other details relating to the lender company. In reply to the show-cause-notice, the assessee furnished the details called for by the Assessing Officer and also explained that there cannot be any doubt regarding the loan transaction as the lender is identifiable, it’s creditworthiness is established and the transaction having been conducted through banking channel is genuine. The Assessing Officer, however, did not accept the submission of the assessee. He observed, just before granting loan of Rs.40,00,000 to the assessee, an amount of Rs.75,00,000 was received in the bank account of the lender company.
Further, he observed that mere fact that loan transaction was carried out through banking channel, will not prove the loan to be genuine.
Further, he observed, the lender company received the amount of Rs.75,00,000 from another entity, which is controlled and managed by an entry operator. Thus, the Assessing Officer concluded that the loan availed of Rs.40,00,000 is nothing but unexplained cash credit and added back to the income of the assessee. Further, he made an addition of Rs.80,000, being commission paid to avail the accommodation entry of Rs.40,00,000.
Against the assessment order so passed, assessee preferred an appeal before learned Commissioner (Appeals), inter alia, on the ground that reopening of assessment under Section 147 of the Act is invalid.
Learned Commissioner (Appeals), however, did not find merit in any of the grounds raised by assessee. Accordingly, he dismissed the appeal.
Learned counsel appearing for the assessee submitted that in assessee’s case, the original assessment was completed under Section 143(3) of the Act. She submitted, the reopening of assessment under Section 147 of the Act was after expiry of four years from the end of assessment year under dispute. Thus, she submitted, assessee’s case falls under the proviso to section 147 of the Act. She submitted, since, there was no failure on the part of the assessee to fully and truly disclosed all material facts relating to the assessment, the reopening is bad in law. Further, she submitted, after receiving the notice under section 148 of the Act, assessee raised objection before the Assessing Officer challenging the validity of the reopening of assessment. She submitted, the objections raised by assessee was not disposed of by the Assessing Officer through a speaking order, which is contrary to ratio laid down by the Hon'ble Supreme Court in case of GKN Driveshaft [259 ITR 19 (S.C)]. Further, she submitted, from the reasons recorded, it is evident, the Assessing Officer has acted mechanically without application of mind. Elaborating further, she submitted, in the reasons recorded neither the name of the lender company appears nor the nature of transaction has been correctly mentioned.
Drawing our attention to the reasons recorded, she submitted, the Assessing Officer has reopened the assessment on the basis that the assessee has taken accommodation entry in the form of bogus purchases. Whereas, she submitted, in the assessment order the Assessing Officer has dealt with loan taken by assessee. Thus, she submitted, the issue discussed by the Assessing Officer which ultimately formed the basis of addition in the assessment order is completely different from the issue of escaped income which forms the basis of reopening of assessment, as per reasons recorded. Thus, she submitted, there being inconsistency between the facts, forming the basis of reasons recorded and as mentioned in the assessment order, the reopening of assessment is invalid. She submitted, since, the ultimate addition made by the Assessing Officer is not the income for the escapement of which the Assessing Officer reopened the assessment under Section 147 of the Act, the addition made has to be deleted.
Without prejudice, she submitted, the assessee has a strong case on merits as well.
Drawing our attention to the material placed on record, she submitted, in course of assessment proceedings, assessee has furnished various documentary evidences to satisfy the three ingredients of section 68 of the Act viz. the identity of the lender, creditworthiness and genuineness of transaction. She submitted, to prove the identity of the creditor, the assessee furnished PAN details, copy of ITR filed by the lender, copy of ROC master data on the portal of MCA showing the status of the lender as active company and the confirmation of the lender. As regards, the creditworthiness, learned counsel submitted, the assessee furnished the audited financials and bank statement of the lender. She submitted, the genuineness of transaction cannot be doubted, since, the entire transaction was through banking channel.
Further, she submitted, the loan taken by assessee was shown as inter corporate deposit in the balance sheet of the assessee and the assessee had paid interest to the lender after deducting tax at source under Section 194A of the Act. She submitted, the entire loan was repaid to the lender through banking channel in financial year 2013- 14, much prior to the assessment was reopened under Section 147 of the Act. Therefore, the bona fide of the transaction cannot be doubted.
She submitted, since, assessee has established the identity and creditworthiness of the lender and has proved the genuineness of the transaction, the loan taken cannot be added to the income of the assessee. In support, she relied upon a number of judicial precedents as under:
ACIT vs. Nokoda Fashions (P) Ltd. 1716/Ahd/2012 (Ahm.); 2. ITA 6991-6997/Del/2014 ITA 6998-7004/Del/2014; 3. Dhingra Global Credence (P) Ltd. 1 ITR (T) 529; 4. CIT vs. Focus Exports Pvt. Ltd. (228 Taxmann 88); 5. Nipun Builders & Dev. (P)Ltd. (350 ITR 407); 6. CIT vs. N.R. Portfolio (P) Ltd. [2014] 42 Taxmann.com 339 (Delhi); 7. CIT vs. MAF Academy (P)Ltd. [2104] 42 taxmann.com 377 (Delhi); 8. Orient Trading Co. Ltd. vs. CIT [49 ITR 723] (Bombay H.C.); 9. Nemichand Kothari vs. CIT (264 ITR 254) (Gauhati H.C); 10. CIT vs. Metachem Industries [245 ITR 160] (Madhya Pradesh H.C.); 11. S. Hastimal vs. CIT [49 ITR 273] (Madras).
Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
I have considered rival submissions in the light of the decisions relied upon and perused the material available on record.
At the outset, I intend to adjudicate the legal issue raised by assessee concerning the validity of reopening of assessment.
Undisputedly, in case of assessee, assessment was originally completed under Section 143(3) of the Act. Therefore, the proviso to section 147 of the Act is attracted. The reasons recorded by the Assessing Officer for reopening of assessment, a copy of which is placed at pages 36-37 of the paper book, reads as under:
“The assessee company was incorporated on 18.06.2007 under the Company Act, 1956. The company filed its return of income on 24.09.2011 for the assessment year 2011-12 declaring income of Rs.7,86,635/-. The case was processed under section 143(1) of the Act and selected for scrutiny, Assessment proceedings u/s 143(3) of the IT Act, 1961, was completed on 21.03.2014 at income of Rs.7,86,635/-.
Subsequently vide letter dated 06.03.2018 information was received from the ITO(Inv.), Unit-1 & AIU, Kolkata that the assessee is a beneficiary of bogus accommodation entries received from entitles controlled by Shri Anand Sharma and Shri Janardan Chokhani.
2.1 Information was forwarded to this office that cash deposits were observed such as M/s. Kusum Fashion, Tigerhill Power Product and Joshi Cloth Shop (Proprietor of all these concerns is Shri Raj Kumar Bhotika). Similar cash deposit in the bank account of CD Equipment, Zed Black, Pioneer Supplier and Pragyan Enterprises (Proprietor of all these concern is Shri Radhey Shyam Sharma).
2.2 ITD database analysis of these persons was done and it is found that (a) Amita Joshi (PAN:AEYPJ5051J ) files her return of income showing income of Rs.175660/- only from other sources in the F.Y. 2010-11(A.Y 2011-12).
(b) Shri Raj Kumar Bhotika (PAN:AURPS7511D) files his return of income with income from other sources of Rs.1,62,080/-.
(c) Shri Ashok Kumar Sharma (PAN:AURPS7511D) file his return of income with income from other sources of Rs.1,62,080/-.
(d) Shri Radhey Shyam Sharma (PAN:ANTPS9857) is non filer.
Profile of the all Proprietors shows that they were not creditworthy enough to give any fund to sell companies in which they were also the directors. Agricultural land are dummy directors in various companies of the entry operators Shri Anand Sharma and Shri Janardan Chokhani.
2.3 The cash deposit in the above proprietorship concerns were transferred to the account of many intermediaries Shell companies controlled by Shri Anand Sharma and Shri Janardan Chokhani. The fund were routed in another set of Shell Companies of Shri Anand Sharma and Shri Janardan Chokhani.
2.4 As per database of the shell companies all these intermediary companies are jama-kharchi and their director and authorized signatories are also dummy directors of many other shell companies.\
2.5 M/s. Rajat Alloys Pvt. Ltd. also one of the companies who had made transactions of Rs.40,00,000/- during the F.Y. 2010-11 relevant AY 2011-12 with these shall companies. Hence, it is clear that M/s. Rajat Alloys Pvt. Ltd. has introduced its unaccounted cash through accommodation entry.
The above facts clearly establish that the assessee company M/s. Rajat Alloys Pvt. Ltd. has taken accommodation entry in the form of bogus purchase from the entry providing companies being controlled by Shri
Anand Sharma and Shri Janardan Chokhani. 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 made by the assessee company as the fact that the unaccounted cash is being introduced in the books through in the form of bogus sale/purchase from these dummy companies is nowhere disclosed by the assessee company. In view of explanation 2 to clause (c) of proviso of section 147 of the Income-Tax Act, 1961, where a return of income has been furnished by the assessee and it is noticed that case of the assessee has under assessed. Keeping in view all the above, I have reason to believe that income of Rs.40,00,000 has escaped in case of M/s. Rajat Alloys Pvt. Ltd. for the A.Y. 2011-12 within the meaning of Section 147/148 of Income-Tax Act, 1961.
4.1 It is pertinent to mention here that in this case an assessment was made as as stipulated u/s 2(40) of the Act. However, as discussed to reason to believe in this case income chargeable to tax has been under assessed by an amount of Rs.40,00,000/-.
4.2 Moreover, as the case pertains to a period beyond four years from the end of relevant assessment years at the time of issue of notice, necessary sanction has to be obtained from Pr. Chief Commissioner of Income Tax or Pr. Commissioner or Income Tax or Commissioner of Income Tax, in view of the amended provisions of section 151 w.e.f. 01.06.2015. In view of the above necessary sanction in this regard may kindly be accorded separatgely for issue notice u/s 148 of the IT Act, 1961. Sd/- (Ramesh Meena) Income Tax Officer, Ward 21(1), New Delhi”
On a careful reading of the reasons recorded, it is evident, the Assessing Officer has formed a belief that assessee has entered into transactions with certain entry provider for availing accommodation entries by way of bogus purchases to the tune of Rs.40,00,000.
Nowhere in the reasons recorded, the Assessing Officer has either referred to any loan availed by assessee or mentioned the name of the lender company. Whereas, in the assessment order, the Assessing Officer has given a complete go bye to the facts and issues forming part of the reason to believe and proceeded on a completely different direction of examining the genuineness of loan availed of Rs.40,00,000 from M/s. New Wave Commercial Pvt. Ltd. Thus, it is clearly evident, the facts based on which the Assessing Officer reopened the assessment, as recorded in the reasons to believe, is inconsistent with the subject matter of assessment as per the assessment order. Thus, it is prima facie established that the reopening of assessment was made under complete factual misconception and pure non-application of mind. It is further evident, the income for the escapement of which the Assessing Officer reopened the assessment under Section 147 of the Act is not the subject matter of addition in the assessment order, as, the Assessing Officer has added a completely different item of income i.e. loan availed of Rs.40,00,000. For this reason also, the addition made is unsustainable. Even otherwise also, I am satisfied that the assessee has a strong case on merits.
A careful reading of the assessment order would reveal that in course of assessment proceedings, the Assessing Officer called upon the assessee to establish the identity, creditworthiness of the creditor and genuineness of the loan transaction. In response to the query raised by the Assessing Officer, the assessee furnished the following documentary evidences to prove the identity and creditworthiness of the creditors and genuineness of the transaction: • Confirmation of lenders with full addresses, PAN Nos. and complete details of cheques; • Photo copy of ITR-V of the lender M/s. New Wave Commercial Pvt. Ltd.; • Audited Financial Statements of the lender for the A.Y 2011-12 and AY 2012-13; • Details of interest paid on said loan and TDS deducted thereon; • Photo copy of bank statement showing the loans/borrowed fund; • Copy of relevant pages of ledger showing the creditors account; • Copy of Bank book of the lender M/s. New Wave Commercial Pvt. Ltd. for the relevant period;
• Copy of Master Data from the site of Ministry of Corporate Affairs of M/s. New Wave Commercial Pvt. Ltd.;& • Copy of ledger account of M/s. New Wave Commercial Pvt. Ltd. for subsequent years showing interest paid on year to year basis and showing the repayment of loan.”
From the aforesaid facts, it is clear that the assessee did whatever it could do to comply with the query raised by the Assessing Officer.
However, the Assessing Officer has simply brushed aside all the evidences filed by the assessee by stating that the entities from whom the assessee availed the loan is an accommodation entry provider. The Assessing Officer has not made any independent inquiry or brought any contrary material on record to disprove the evidences brought on record by assessee. Even, the assessment order does not reveal that the Assessing Officer made any preliminary inquiry under Section 133(6) of the Act either with the lender or with the concerned bank to ascertain the genuineness of the loan transaction or to unearth the money trail. In my view, without making any inquiry the Assessing Officer cannot treat the loan transaction as non-genuine on mere conjuncture and surmises. More so, when the lender is an income-tax assessee. The least the Assessing Officer could have done is to obtain necessary information from the Assessing Officer having jurisdiction over the lender. In any case of the matter, when the lender is an income-tax assessee, he can be hauled up in case he is unable to explain the source of fund from which he advanced the loan to assessee. The bona fide of the assessee is further proved from the fact that not only the assessee paid interest on the loan availed and deducted tax at source, but, the entire loan amount was repaid to the lender in the financial year 2013-14, even, prior to the completion of the original assessment and much before initiation of proceedings under Section 147 of the Act. Thus, in my considered opinion, the addition made of Rs.40,80,000 in the given facts and circumstances of the present case is unsustainable. Accordingly, I delete the addition.
In the result, the appeal is allowed.
Order pronounced in the open court on August, 2022.