KASHISH EXPORTS PVT. LTD.,NOIDA vs. ACIT, NEW DELHI

आदेश / O R D E R PER C. N. PRASAD, J. M. :

“1. That within the facts and circumstances of the case and the law on the point the learned Commissioner of Income tax (Appeals) - 5, New Delhi (learned CIT(A)) has erred in sustaining the addition of 5,00.000.00 made by the learned Assistant 1 Commissioner of Income tax (learned ACIT) as unexplained credits under section 68 of the Income tax Act, 1961(Act), ignoring the facts that the Appellant had received cheque of Rs. 5,00,000.00 from Moderate Credit Corporation Ltd. during the year ended March 31, 2006 as unsecured loan and the Appellant had paid interest on the said loan, deducted TDS thereon and further the Appellant had repaid the said loan during the year ended March 31, 2006. The aforesaid loan amount had been squared up during the year, and thus, the impugned Order is bad in law and deserves to be set aside.

2. That within the facts and circumstances of the case and law on the point the learned CIT(A) has erred by sustaining addition of Rs. 5,00,000.00 made by the leaned ACIT disregarding the fact that the Appellant has discharged its onus of proving necessary ingredients of section 68 of the Act, 1961 i.e. the identity, genuineness and creditworthiness of Moderate Credit Corporation Ltd., and therefore, the impugned Order is bad in law.

submitted hereinabove be read without prejudice to one another in cases and circumstances wherever the context so requires.

4. That the Appellant reserves his right to advance such other grounds before or at the hearing, which it may consider fit and appropriate, for which he craves leave to amend, alter or otherwise modify the ground(s) appearing hereinbefore.

3 The Ld. Counsel for the assessee Shri Rakesh Jain through mail sent on 28.12.2021 stated that on the basis of written submission filed earlier appeal may be disposed of on merit basis. The written submissions filed by the assessee are as under:-

“ A. BRIEF BACKGROUND:

1. The Appellant is a Private Limited Company (Appellant) engaged in the business of manufacturing and export of made ups home furnishing items.

2. The Appellant had received cheque of Rs. 5,00,000.00 from Moderate Credit Corporation Ltd. during the year ended March 31, 2006 as unsecured loan and the Appellant had paid interest on the said loan, deducted TDS thereon and further the Appellant had repaid the said loan during the year ended March 31, 2006. The aforesaid squared up loan transaction had been reflected by the Appellant in its Tax Audit Report in Annexure 9 , titled " Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year. " 3. The Appellant filed its return of income for the previous year ended March 31, 2006 relevant to assessment year 2006- 2007 under section 139(1) of the Income Tax Act, 1961 (Act) declaring total loss at Rs. 90,50,514.00 on December 12, 2006 before Assistant Commissioner of Income Tax, Circle 5(1), New Delhi (learned ACIT). The return of income was processed by the learned ACIT under section 143(l)(a) of the Act (referred as First Assessment). 4. The First Assessment in the case of the Appellant having been framed by the learned ACIT after examination of all relevant facts and circumstances and after due application of mind, and also after examining all relevant legal provisions applicable to the facts and circumstances of the case of the Appellant assessed the total loss at Rs. 90,50,514.00, 5. The Appellant was later served a notice under section 148 of the Act by the learned ACIT, Circle 5(1), New Delhi (referred as learned ACIT), for the subject assessment year stating that the income of the Appellant has escaped assessment and requiring, inter-alia, that the Appellant should file a return of its income to enable the learned ACIT to reassess the same. The Appellant was not communicated any reason(s) for which the income could be considered to have escaped assessment. The Appellant filed a return of income on October 29, 2013 in response to the aforesaid notice. 6. Notice under section 143(2) of the Act was served on the Appellant and the reassessment proceedings were conducted by the learned ACIT from time to time thereafter. The Appellant filed all necessary and requisite details before the learned ACIT during the reassessment proceedings and also produced its books of account for inspection and examination of the learned ACIT.

"on the basis of survey operations in the case of Aseem Kumar Gupta Group of cases (entry operator) and further enquiries conducted by the investigation eing of the department, it had been informed that the assessee company is one of the company who had taken following accommodation entry:

S. No. Bank Cheque Value of Entry Entry Entry date Name taken taken by Instrument from No. by which entry taken 01. 5,00,000.00 743434 01.09.2005 ABN Moderate M/s AMRO Credit Corp. Kashish Bank Ltd. Export CP, India Pvt. New Ltd. Delhi As per the information Shri Aseem Kuamr Gupta has given statement on oath that he has provided accommodation entries to various entities through had associated companies, Name of the assessee company is appearing in the list of cases who had taken accommodation entries from the company associated to shri Asseem Kumar Gupta. Summing up, the report as result of the search/survey operation and extensive enquires carried out by the Investigation Wing of the department, assailed genuineness of transaction, whether shown by the beneficiaries as inflow of share capital/loan or receipt of Gift or consideration of sale purchase etc. The name of the assessee company is appearing in the list of the beneficiary companies taken the accommodation entry from Sh. Aseem Kumar Gupta through the associated group of companies. From the report, it is revealed that all beneficiary companies introduced its own unaccounted money through the said accommodation entry providers. On the basis of information, it is evident that the assessee 4 company has introduced its own unaccounted money by way of accommodation entry taken from the companies mentioned above in the chart. Therefore, I have reason to believe that the income amounting to at least Rs. 5,00,000.00 has escaped assessment for A. Y. 2006-2007. The income has been escaped due to failure on the part of assessee to dislose true and full particulars of its income". (Italics provided) The Appellant had submitted its reply on reason for issue of notice under section 148 of the Act during the course of proceedings The issuance of reasons for issuing notice under section 148 of the Act during the reassessment hearings is bad and goes to vitiate and thus invalidate the entire reassessment proceedings.

9. Copy of Audited Balance Sheet and Profit and Loss Account as at March 31, 2006 relevant to the assessment year 2006-2007 is attached as Annexure -1. Copy of Tax Audit Report for the year ended March 31, 2006 is attached as Annexure - 2, 10. During the course of assessment proceedings the Appellant had filed following documents to substantiate that the transaction with Moderate Credit Corporation Ltd. are genuine and every such transaction is explainable : (i) Copy of confirmation from M/s Moderate Credit Corporation Ltd: (ii) Copy of its bank statement wherein cheque of Rs. 5,00,000.00 was issued to the Appellant and deposited :

(iii) Copy of acknowledgement of M/s Modrate Credit Corporation Ltd. for the assessment year 2006-2007; (iv) Copy of ledger account of M/s Moderate Credit Corporation Ltd. in the books of the Appellant for the year ended March 31, 2006. The aforesaid documents are attached as Annexure - 3.

While disposing the Order the learned ACIT has stated in her disposal order that, " It is to be stated that mere filing of details of increase in share capital was not sufficient to claim that there was no failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment. It has to be seen that the Assessing Officer has not taken permissible view at the time of original proceedings on the issue. Further through the details which were furnished during the course of assessment proceedings, the assessee has introduced its unaccounted money in its books without paying tax". (Italics Provided); Whereas, the aforesaid transaction was not relevant to the Appellant. The Appellant had received the unsecured loan from Ms/ Moderate Credit Corporation Ltd and repaid the same during the year ended March 31, 2006 relevant to impugned assessment year. Therefore, the impugned Order does not sustain and 6 deserves to be quashed. (ii) Addition of Rs. 5.00.000.00 by invoking provisions of Section 69C of the Act : (a) Reasons to believe was served after six years. Thus notice barred by limitation: The last date when limitation period for reopening assessment was expiring was March 31, 2013. The notice under section 148 of the act is dated March 25, 2013. The reasons for reopening was not attached with the notice under section 148 of the Act, but was subsequently provided after March 31, 2013. Your kind attention is drawn to the decision of Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. v. Commissioner of Income-tax, (2009) 308 ITR 38 in which it was held that any proceeding pursuemt to the act that reasons of belief was served on assessee after six years will be hit by the bar of limitation. The relevant extract is as under: A notice under section 148 without the communication of the reasons therefore is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. In a case where the notice has been issued within the said period of six years but the reasons have not been furnished within that period, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go HAND-IN-HAND. The expression 'within a reasonable period of time' as used by the Supreme Court in the case ofGKN Driveshafts (India) Ltd. (supra) cannot be stretched to such an extent that it extends even beyond the six years stipulated in section 149. Then, the validity of the notice under section 148 and any proceedings pursuant thereto could not be upheld.

The above decision of Delhi High Courtwas further followed by ITAT Delhi bench in the case of Shri Balwant Rai Wadhwa Vs. ITO Ward 18 (2), in ITA No. l.T.A No. 4806/De!/10. The ITAT bench held that if reasons were not supplied to the assessee within the period of 6 years then it would be construed that assessment has not been validly reopened. Your honour's in the Appellant case , this exactly what happened and therefore, reassessment proceeding is clearly bad in law. (b) Proceeding under sectjon l47 of the Act continued overruling Supreme Court direction : The procedure to be followed in case of a reassessment proceeding was settled by the Supreme Courtthe case of GKN DRIVESHAFTS (INDIA) LTD Vs INCOME-TAX OFFICER AND OTHER, 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 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, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years. In the instant case, the Appellant filed written objection to the learned ACIT against the issue of notice under section 148 of the Act. As per the Supreme Court judgment, only after the AO disposes off such an objection by a speaking order, can she proceed further to complete the assessment proceeding. Delhi High Court in case of Keshav Shares & Stocks Ltd vs ITO [2008] 326 ITR 553set aside the assessment order on the ground that the A.O did not pass speaking order on objection filed by the assessee. Here is the excerpt of the Delhi High Court.

8. In the present case, what has happened is that the purported reasons have been supplied by the Assessing Officer to the assessee, but the Assessing Officer has not responded to the assessee's request for further information. As such, the letter dated 17-9-2007 can only be regarded as a part objection and part request for further information. Thp proper course for the Assessing Officer, in view of the Supreme Court decision, would have been to have responded to the letter dated 17-9-2007. Unfortunately, the Assessing Officer did not do so. Nor was there any separate speaking order passed in respect of the objections taken by the assessee in its letter dated 17-9-2007. As a result, it is apparent that the directives of the Supreme Court in GKN Driveshafts (India) Ltd.'s case (supra) have not been followed by the Assessing Officer. The assessment order has been made without first passing a speaking order on the objections raised by the petitioner. In fact the Delhi High Court relied its own judgment on the same issue of non disposal of objection to notice u/s 148 by the A.O in case of Smt. Kamlesh Sharma v. B.L Meena, ITO [2006] 287 ITR 337. Thus, your honour's kind attention is drawn to the fact that the reassessment order is clearly arbitrary , against the well settled principle by the Supreme Court and as such bad in law. (c) Reassessment merely on the basis of investigation wing held to ber not valid : In the instant case , the learned ACIT has issued notice under section 148 of the Act merely on the basis of a report received from investigation wing . Your honour's kind attention is drawn to the reason recorded by the learned ACIT is not her reasons to believe, but was the report of investigation wing . This is clear from following words of learned ACIT in the recorded reasons. Summing up, the report as result of the search /survey operation and extensive enquiries carried out by the investigation Wing of the department assailed genuineness of transaction, whether shown by the beneficiaries as inflow of share capital /loan or receipt of Gift or consideration of sale purchase etc. The name of assessee company is appearing in the list of the beneficiary companies taken the accommodation entry from Sh. Aseem Kumar Gupta through the associated group of companies . From the report, it is revealed that the beneficiary companies introduced its own unaccounted money through the said accommodation entry providers. It is clear that the learned ACIT had simply issued notice under section 148 of the Act on the basis of report prepared by the Investigation Wing which places name of the Appellant as a suspect, without even providing 9 i. What were the material /document in respect of Rs. 5,00,000.00 received from Sh. Asseem Kumar Gupta which support that the receipt was accommodation entry ? ii. Was there any specific statement by Sri Asseem Gupta against the Appellant ? Delhi High Court in a number of cases, has quashed the reassessment notice issued by the A.O merely on the basis of the report of investigation wing as the Court held that the reasons recorded were bereft of "application of mind " by the A.O. Some of such cases are as under: In CIT v. Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR 33 (Delhi) (High Court) notice for reassessment was issued after the expiry off our years from the end of the relevant assessment year by the assessing officer who merely acting mechanically on the information supplied by the Investigation wing aout the accommodation entries provided by the assessee to certain entities without applying his own mind was led to be not justified. Then Delhi High Court set aside such a notice under Section 147/148 of the Act in the case Sarthak Securities Co. (P.) Ltd. v. ITO [2010] 329 ITR 110/ 195 Taxman 262 (Delhi), after taking note of various judgments delineating the scope of Section 148 of the Act as well as law regarding undisclosed income under Section 68 of the Act, the Court held that:

The obtaining factual matrix has to be tested on the anvil of the aforesaid pronouncement of law. In the case at hand, as is evincible, the assessing officer was aware of the existence of four companies with whom the assessee had entered into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief...

Similar view was taken by another Division Bench of Delhi High Court in CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 . In that case also, the AO had recorded the reasons to believe on receipt of information received from the Deputy Director of Income Tax (Investigation) and the Court took the view that these were no reasons within the meaning of Section 148 of the Act. Following discussion in this behalf needs to be noted: There is another recent judgment dated 21.7.2011 of this Court in Signature Hotels (P) Ltd. v. ITO[2011] 338 ITR 51 (Delhi) where in the facts of the case was very similar /identical to the case of assessee . In that case the notice was issued on the basis of information received from Directorate, Income Tax (Investigation) that Rs 5 Lakh was introduced by the petitioner. The Court quashed the notice u/s 148 as it found that A.O mechanically recorded the reasons of belief. "48. On examination, the Court set aside the notice under Section 148 of the Act and in the process, discussion therein is as under:

"14. The first sentence of the reasons states that information had been received from Director of Income-Tax (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.

2. The Appellant did not debit or claimed any expenditure. 3. The Investigation department did not find any thing to suggest any expenditure by the Appellant. 4. The learned ACIT did not find on her own any evidence of any expenditure. If that be the case, how can learned ACIT add Rs.5,00,000.00 as Unexplained expenditure under section 69C of the Act. It clearly shows that learned ACIT has arbitrarily and without application of mind added the receipt of Rs. 5,00,000.00 as if the said amount was spent by the Appellant and source could not be explained! Therefore, the addition of Rs.5,00,000.00 deserves to be deleted on merits.”

7. We observed from the assessment order that the assessing officer issued notice U/s 133(6) to Moderate Credit Corporation Ltd. to provide bank statement for F.Y 2005-06, cash book, ledger account and books of account for F.Y 2005-06. Since no reply has been received from the creditor the assessing officer came to the conclusion that the submissions of the assessee are not tenable. The assessing officer treated this loan transaction as expense not allowable and disallowed the same as unexplained expenditure u/s 69C of the Act and added the same to the loss of Rs.90,50,514/- reported by the assessee in its return and finally assessed the loss as Rs.85,50,510/-.

8. Before the Ld. CIT (Appeals) the assessee said to have furnished all the documents listed above in para 4 and submitted that the loan transaction is genuine. It was contended by the assessee that the loan transaction was through banking channels, loan was repaid after deducting TDS on interest and this was also reflected in the audit report that the transaction was squared up during the financial year 2005-06 relevant to the assessment year 2006-07. However, the Ld. CIT (A) concluded that the loan taken by the assessee is not genuine and is only an accommodation entry merely based on the report of the DIT (Investigation Wing), New Delhi which is also the basis for reopening the assessment of the assessee.

Order pronounced in the open court on : 29/04/2022.