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Income Tax Appellate Tribunal, DELHI BENCH, ‘C’: NEW DELHI
Before: SHRI R.K. PANDA & SHRI N. K. CHOUDHRY
ORDER PER R.K. PANDA, AM,
This appeal filed by the assessee is directed against the order dated 01.02.2019 of the learned CIT(A)-35, New Delhi, relating to Assessment Year 2008-09.
Although a number of grounds have been raised by the assessee, however, these relate to the order of the Ld. CIT(A) in upholding the validity of reassessment proceedings and sustaining the addition of Rs.50 lakhs made by the AO u/s 68 of the I.T. Act, 1961 treating the same as accommodation entry.
Facts of the case, in brief, are that the assessee is a private limited company and filed its return of income on 08.07.2008 declaring total income of Rs.4,480/-. The return was processed u/s 143(1) of the Act. Subsequently, the AO reopened the assessment under the provisions of section 147 of the Act by recording the following reasons:-
Reasons for the belief that income has escaped assessment in the case of M/s. GBS Marketing Pvt. Ltd for A. Y. 2008-09. Assessee filed its return of income declaring income of Rs.4,480/- on 08.07.2008. An information received in this case from the Addl. DIT (Inv.), Unit-IV, new Delhi vide F. No. Addl, DIT (Inv.)/Unit-IV/ beneficiaries/2008-09/392 dated 31- 03-2009 furnishing a list of beneficiaries of accommodation entries provided by Shri Tarun Goyal, CA, 13/34, WEA Karol Bagh, New Delhi in which M/s. SBS Marketing Pvt. Ltd is one of the beneficiary of the accommodation entry for the A Y 2008-09. A search u/s 132 of the I T Act, 161 was conducted at the office premises of Shri Tarun Goyal , Chartered Accountant at 13/34 WEA, Arya Samaj Road, Karol Bagh, New Delhi by the Investigation Wing on 15-09- 2008. During the course of search it was established that Shri Tarun Goyal has floated about 90 companies for the purpose of providing accommodation entries. All the companies floated by Shri Tarun Goyal are not carrying out any genuine activity and are merely being used to provide accommodation entries to various beneficiaries, hence these companies are bogus. All the companies are operating from the office of Shri Tarun Goyal's address at 13/34. WEA Karol Bagh, New Delhi, The directors of the companies are none but former and present employees of Shri Tarun Goyal. At the time of search on 15-09-2008. the statement of Shri Tarun Goyal was recorded on oath wherein he has accepted that he provided accommodation entries and his various companies are used for this purpose. The statements of the employees present at the premises of Shri Tarun Goyal were also recorded e.g. Parmod Kumar, peon Harpreet Singh, Accountant, wherein they have stated that they were mere employees of Shri Tarun Goyal and they were signing various documents related to many companies at his behest, as and when asked by Shri Tarun Goyal. further Ms. Usha & Ms. Ritu Saxena have also stated in his statement recorded on oath that various bank accounts were opened in their names by Shri Tarun Goyal, who himself operated these accounts and deposited cash in them and they could not refuse the same as they were mere employees. All the bank pass-books, cheque books and various important documents were in the total control of Shri Tarun Goyal, The statement of the auditors of various companies of Shri Tarun Goyal were also recorded on oath and they have stated that in most cases, share certificates, shares allotment advises and/or other related documents were not available for auditor’s verification and it could not be verified/ascertained whether the shares were actually allotted to the company and whether they were held in the name of the company. In view of the above facts and circumstances of the case, necessary action u/s 148 is proposed to be taken in the case of M/s. GBS Marketing Pvt. Ltd, for the A. Y, 2008-09 who is one of the beneficiaries of accommodation entries as per information received as under from the Addl. DIT( Inv.) Unit-IV, New Delhi. Amount (In Beneficiaries Name of entry provider Total 2500000 Rs.) M/s. GBS Marketing Pvt. M/s. Bhavani Portfolio 2500000 M/s. GBS Marketing Pvt. M/s. Bhavani Portfolio 50,00,000 Total /- On the basis of the facts as stated above, I have reasons to believe that income chargeable to tax exceeding Rs. 1 Lac. has escaped assessment, as the assessee has not disclosed fully and truly all material facts necessary for his assessment for the relevant assessment year. Hence, a notice u/s 148 read with section 147 for reopening of assessment is required to be issued in this case. Submitted for kind perusal and approval of the Jt. CIT, Range-10, New Delhi. Prescribed format is also enclosed herewith.
Accordingly, notice u/s 148 of the Act was issued on 20.03.2015. The assessee requested to provide the reasons for reopening of assessment u/s 147/148, which were provided to the assessee. Subsequently, the AO issued notice 143(2) and 142(1) of the Act, in response to which the Ld. AR of the assessee appeared before the AO from time to time and furnished necessary information.
4.1. During the course of assessment proceedings, the AO observed that the case of the assessee was reopened on the ground that the assessee during the financial year, relevant to AY 2008-09 has received accommodation entries to the tune of Rs.50 lakhs from Bhavani Portfolio Pvt. Ltd., a company floated by Shri Tarun Goel. He observed that residential and business premises of Mr. Tarun Goel were searched u/s 132 of the Act and it was established that they are in the business of providing accommodation entries through a number of paper and dummy companies in lieu of cash. These dummy companies were found to be totally managed and controlled by Mr. Tarun Goel, hence the approval for issue of notice u/s 148 was taken for the accommodation entry taken of Rs.50 lakhs from Bhavani Portfolio. The AO, from the various details furnished by the assessee, observed that the assessee has taken Rs.25 lakhs from Bhavani Portfolio and another Rs.25 Lakhs from companies floated by Mr. S.K. Jain and Mr. V.K.
Jain, the details of which are as under:-
Name of the party Amount Date Bank Shalini Holdings Ltd. 9,00,000 14.07.2007 UTI VIP Leasing & Finance P Ltd. 9,00,000 14.07.2007 Kotak Singhal Securities P. Ltd. 7,00,000 14.07.2007 UTI 4.2. He observed that the residential and business premises of Mr. S.K. Jain and Mr. V.K. Jain, were also searched u/s 132 of the Act, during which it was found that they are engaged in the business of providing accommodation entries through a number of paper and dummy companies in lieu of cash. These dummy companies were found to be totally managed and controlled by Mr. S.K. Jain and Mr. V.K. Jain.
4.3. The AO, thereafter asked the assessee to file confirmation letters, bank statements and acknowledgment of ITR, balance sheet, etc to support the transactions. From the various documents filed by the assessee, he noted that the documents do not prove the capacity of these parties to give share application money to the assessee company. They are appearing to be not doing any kind of business activity and do not have any business income to justify these investments. He noted that the bank account of the subscriber companies reveal that the moneys came to their respective accounts through other concerns of Mr. S.K. Jain and Mr. Tarun Goyal by way of transfer/clearing seldom rest for a day or two, it immediately finds its destination and one such destination is the assessee itself.
4.4. In view of the dubious nature of the transactions of the parties from whom the assessee has received share application money and the surrounding circumstances, the AO issued summon u/s 131 of the Act to the various parties from whom the assessee has received share application money requesting for their personal deposition on 17.03.2016 with following documents:- i. Personal deposition along with bank statement for FY 2007-08 and bank book for FY 2007-08. ii. Please furnish original audited annual accounts along with audited balance sheet, P & L Account and audit report. iii. List of directors as on 31.03.2008 and as on date. iv. Please furnish copy of ITR of the directors and produce them for personal deposition. 4.5. Although the summons were issued to the above parties at the addresses given by the assessee, however, none of the share applicant companies complied with the summons issued. On the fixed date of hearing, neither anybody attended nor was any reply filed. In view of the above and relying on various decisions, the AO held that the assessee failed to substantiate with evidence to his satisfaction regarding the identity and creditworthiness of the share applicants and genuineness of the transaction of Rs.50 lakh i.e. Rs.25 lakhs from Bhavani Portfolio and another Rs.25 Lakhs from company floated by Mr. S.K. Jain and Mr. V.K.
Jain received as share application money. He, therefore, made addition of the same to the total income of the assessee u/s 68 of the Act.
Before the Ld.CIT(A), the assessee apart from challenging the addition on merit challenged the validity of reassessment proceedings. However, the ld. CIT(A) was also not satisfied with the arguments advanced by the assessee and upheld the validity of reassessment proceedings as well as the addition merit.
Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. Counsel for the assessee referring to copy of reasons recorded submitted that the AO in the reasons has stated that the search in the case of Mr. Tarun Goel took place on 15.09.2008 and his statement was recorded and it was established that he is involved in giving accommodation entries and the assessee has taken accommodation entry of Rs.25,00,000/- each on two occasions both totalling to Rs.50,00,000/- from one M/s Bhavani Portfolio. However, in the assessment order, the AO made addition of Rs.50 lakhs on the ground that the assessee has taken Rs.25 lakhs from Bhavani Portfolio and another Rs.25 Lakhs from three companies floated by Mr. S.K. Jain and Mr. V.K. Jain and all totalling Rs.50 lakhs. Referring to the assessment order, the ld. Counsel for the assessee submitted that the AO himself has observed that the assessee has received Rs.25 Lakh from Bhavani Portfolio and another Rs.25 Lakh from companies floated and controlled by the Mr. S.K. Jain and Mr. V.K. Jain, the details of which are as under:-
Name of the party Amount Date Bank Shalini Holdings Ltd. 9,00,000 14.07.2007 UTI VIP Leasing & Finance P Ltd. 9,00,000 14.07.2007 Kotak Singhal Securities P. Ltd. 7,00,000 14.07.2007 UTI
He submitted that a perusal of the above shows that the reasons were recorded on incorrect and wrong appreciation of facts and was on the basis of report of Investigation Wing. He submitted that the reopening was merely based on borrowed satisfaction and without independent application of mind. Further, no date of transaction is mentioned so far as the amount received from Bhavani Portfolio is concerned and therefore it is not known as to which Assessment Year the so called amount pertains to.
He submitted that there is no live nexus of the information with the assessee’s case. The reasons at best can be treated as reasons to suspect and not reason to believe. Further, the approval has been given by Joint Commissioner of Income Tax u/s 151 of the Act in a mechanical manner without going through the actual facts of the case especially when the reasons recorded are based on incorrect and wrong facts. The onus of the Joint Commissioner of Income Tax increases at this juncture since the reason was recorded on wrong appreciation of facts.
8.1. The ld. Counsel for the assessee in his another plank of argument submitted that although the reopening was made on the basis of statement of Mr. Tarun Goel recorded on 15.09.2008, however such statement was never supplied to the assessee despite request. The ld. Counsel for the assessee relying on various decisions submitted that when the reopening is based on incorrect and wrong facts, such reopening is invalid. Further, relying on various decisions, he submitted that where the AO has reopened the assessment in a mechanical manner on the basis of report of the Investigation Wing and without application of independent mind, such reopening is invalid. Further, when the approving authority has also given his approval in a mechanical manner, such reopening is invalid. For the above proposition, he relied on various decisions which are placed in the paper book.
So far as the merit of the case is concerned, the ld. Counsel for the assessee submitted that the assessee has substantiated with evidence to discharge the onus cast upon it for proving the three ingredients of section 68 of the Act i.e. the identity and creditworthiness of the share applicants and the genuineness of the transactions. He submitted that the assessee has filed the copy of the confirmation letters, bank statements, acknowledgment of ITR and balance sheet, etc. of the share applicants in support of the transactions. Therefore, once the assessee has discharged the initial burden cast on it, the onus lies on the AO to disprove the various evidences filed before him. Relying on various decisions, he submitted that even on merit also, the addition made by the AO and sustained by the ld. CIT(A) is not in accordance with law. He accordingly submitted that the grounds raised by the assessee should be allowed.
The Ld. DR, on the other hand, heavily relied upon the order of the AO and the Ld. CIT(A). So far as the validity of reopening of the assessment on account of incorrect and wrong facts are concerned, he submitted that although there is error in the reasons so far as the name of some of the parties are concerned, but the fact remains that the assessee has received an amount of Rs.50 lakhs as share application money/share capital and therefore, the reasons recorded are partially correct and therefore, such reopening should be held to be in accordance with law.
So far as the non-application of mind by the AO or the Joint Commissioner of Income Tax is concerned, he submitted that the same is in accordance with law. So far as the merit of the case is concerned, he submitted that once the AO has brought on record regarding the modus operandi adopted by the entry operators for giving accommodation entries for commission, various documents filed by the assessee are merely very good paper work and therefore should be rejected outright. He accordingly submitted that the grounds raised by the assessee should be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case reopened the assessment on the basis of report of the Investigation Wing that the assessee during the year has received accommodation entry to the tune of Rs.50 lakhs from Bhavani Portfolio, a company floated and controlled by Mr. Tarun Goyal. However, a perusal of page-2 of the assessment order shows that the AO on going through the evidences filed by the assessee observed that the assessee has taken Rs.25 lakhs only from Bhavani portfolio and the balance Rs.25 lakhs was received from three companies managed and controlled by Mr. S.K. Jain and Mr. V.K. Jain, the details of which are as under:-
Name of the party Amount Date Bank Shalini Holdings Ltd. 9,00,000 14.07.2007 UTI VIP Leasing & Finance P Ltd. 9,00,000 14.07.2007 Kotak Singhal Securities P. Ltd. 7,00,000 14.07.2007 UTI
From the above, it is clear that the AO at the time of recording reasons has not verified the facts properly and has reopened the assessment on the basis of incorrect and wrong facts and on the basis of report of the Investigation Wing without independent application of mind.
It has been held in various decisions that when the AO reopens the assessment on incorrect or wrong facts, such reopening is not valid and has to be quashed. The Hon’ble Delhi High Court in the case of PCIT vs. RMG Polyvinyl (I) Ltd., 396 ITR 5 has quashed the reassessment proceedings, where such reopening was based on wrong sets of facts and was initiated on the basis of report of the Investigation Wing without application of mind by the AO. The relevant observation of the Hon’ble Delhi High Court reads as under:-
“11. There can be no manner of doubt that in the instant case there was a failure of application of mind by the AO to the facts. In fact he proceeded on two wrong premises - one regarding alleged non-filing of the return and the other regarding the extent of the so-called accommodation entries.
12. Recently, in its decision dated 26th May, 2017 in (Principal Commissioner of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd.), this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions “one after the other" and that the satisfaction arrived at by the AO was a “borrowed satisfaction” and at best “a reproduction of the conclusion in the investigation report. ”
We find the Hon’ble Bombay High Court in the case of Ankita A. Choksey vs ITO reported in (2019) 411 ITR 207 has held as under:-
6. It is a settled position in law that the Assessing Officer acquires jurisdiction to issue a re-opening notice only when he has reason to believe that income chargeable to tax has escaped Assessment. This basic condition precedent is applicable whether the return of income was processed under Section 143(1) of the Act by intimation or assessed by scrutiny under Section 143(3) of the Act. [See Asst. Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd., (SC) 291 ITR 500 and PCIT v/s. M/s. Shodimen Investments (Bombay) 2018 (93) Taxman.Com 153]. Further, the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the Assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the Revenue.
We find the Hon’ble Delhi High Court in the case of CIT vs Suren International Pvt. Ltd. [2013] 357 ITR 24 (Del) has observed as under:-
"In the first instance, we do not find the reasons as recorded by the Assessing Officer to be reasons in law, at all. A bare perusal of the table of alleged accommodation entries included in the reasons as recorded, discloses that the same entries have been repeated six times. This is clearly indicative of the callous manner in which the reasons for initiating reassessment proceedings are recorded and we are unable to countenance that any belief based on such statements can ever be arrived at. The reasons have been recorded without any application of mind and thus no belief that income has escaped assessment can be stated to have been formed based on such reasons as recorded."
We further find the Joint Commissioner, who has given his approval under the provisions of section 151 of the Act, has also given his approval in a mechanical manner without verifying the facts properly. Had he gone through the reasons recorded for initiation of reassessment proceedings as well as the facts on record, at least he also could not have arrived at the conclusion that the assessee has in fact not taken accommodation entries of Rs.50 Lakhs from Bhavani Portfolio Pvt. Ltd. but has taken only Rs.25 lakhs and the remaining Rs.25 lakhs from other companies namely Shalini Holdings Ltd. Rs.9 lakhs, VIP Leasing & Finance Pvt. Ltd. Rs.9 lakhs and Singhal Securities Pvt. Ltd. Rs.7 lakhs .
The Hon’ble Delhi High Court in the case of Yum! Restaurants Asia Pvt. Ltd. Vs DDIT, reported in (2008) 99 taxmann.com 457 has held as under:-
Section 151 of the Income Tax Act 1961 - Income escaping assessment -sanction for issue of notice - Assessment Year 2006-07 - Where both Additional Director of Income Tax and Director of Income Tax appeared to have concurred with reasons for reopening assessment but without applying their minds to fact that return originally filed was only processed under section 143(1) and not u/s 143(3), impugned notice for reassessment was liable to be quashed [in favour of assessee]
The various other decisions relied upon by the ld.
Counsel for the assessee in his paper book also supports his case to the proposition that when the reopening of the assessment has been made on incorrect and wrong facts and there is non- application of independent mind by the AO to the report of the Investigation Wing and when the Joint Commissioner/Addl. Commissioner/PCIT had given his approval in a mechanical manner without verifying the facts on record, such reopening has to be held as a nullity and has to be quashed. We, therefore, hold that since the AO in the instant case has reopened the assessment by recording reasons on incorrect and wrong facts and without independent application of mind and on borrowed satisfaction and the Joint Commissioner also has given his approval in a mechanical manner without ascertaining the correct facts, therefore, such reassessment proceedings in our opinion is not in accordance with law and has to be quashed. We, therefore, quash the reassessment proceedings. Since, the assessee succeeds on the legal ground challenging the validity of reassessment proceedings, the other grounds challenging the addition on merit becomes academic in nature and therefore are not being adjudicated. The appeal filed by the assessee is accordingly allowed.
In the result, the appeal filed by the assessee is allowed.
Oder pronounced in the open court on 07th March, 2022.