RAJAT ALLOYS (P) LTD.,GHAZIABAD vs. ITO WARD-21(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘SMC’ NEW DELHI

SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA No.9087/Del/2019 Assessment Year: 2011-12 Vs. ITO, Ward-21(1), Rajat Alloys (P) Ltd., New Delhi A-15-25, UPSIDC Industrial Area, South Side, GT Road, Ghaziabad (UP) PIN: 201001

PAN :AADCR6415J (Appellant) (Respondent)

Appellant by Smt. Rano Jain, Adv. & Ms. Mansi, CA Respondent by Shri Om Parkash, Sr. DR

Date of hearing 08.06.2022 Date of pronouncement 31.08.2022

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.

of reopening of assessment under Section 147 of the Income-Tax Act,

1961, as well as on the merits of the addition made.

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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.

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

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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

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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.

appeal before learned Commissioner (Appeals), inter alia, on the

ground that reopening of assessment under Section 147 of the Act is

invalid.

any of the grounds raised by assessee. Accordingly, he dismissed the

appeal.

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,

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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.

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

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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.

on merits as well.

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,

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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.

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:

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observations of the Assessing Officer and learned Commissioner

(Appeals).

relied upon and perused the material available on record.

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

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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/-.

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(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.

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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”

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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

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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. 16. 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;

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• 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.”

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

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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.

Order pronounced in the open court on August, 2022.

(SAKTIJIT DEY) JUDICIAL MEMBER Dated: August, 2022. Mohan Lal

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