CALANCE SOFTWARE PRIVATE LIMITED ,NEW DELHI vs. ACIT, CIRCLE-5(2), NEW DELHI
Income Tax Appellate Tribunal, DELHI “B” BENCH: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL[Assessment Year : 2012-13] Calance Software Pvt. Ltd., 14/34 & 36, DDA Shopping Complex, Nangalraya, New Delhi-110046. PAN-AACCC5176A vs ACIT, Circle-5(2), Delhi
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 08.03.2024 passed by Ld. Commissioner of Income Tax (A),
National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No.CIT (A), Delhi- 2/10263/2019-20 u/s 250 of the Income
Tax Act, 1961 [“the Act”] arising out of assessment order dated
29.11.2019 passed u/s 143(3) r.w.s. 147 of the Act pertaining to Assessment Year 2012-13. 2. Briefly stated the facts are that the assessee is a private limited company engaged in the business of software development for export, services export, Execution of e-Governance Projects of the Central Government as well as of the State Governments'
projects like setting-up "Citizen Service Centers" (CSC), issue of RSBY cards, supply of Manpower Placement Services. In this case, reassessment proceedings u/s 147 were initiated for the reason that the assessee has received some accommodation entries from M/s Vanquish Investment & Leasing Pvt. Ltd. (hereinafter referred as 'Vanquish') to the extent of INR 2.9 crore, which was controlled by one Shri Jitendra Salecha. The source of the said information was an email dated 26.03.2019 received by the Assessing Officer from the office of DDIT (Inv.), Unit-7(2), Mumbai against the assessee. This triggered the reassessment proceedings in the case of the assessee.
The reassessment proceedings were completed by making addition of INR 2.90 crores wherein INR 1.00 crores were added u/s 68 of the Act by alleging the same as explained credit from Vanquish and further addition was made of INR 1.9 crores as unexplained expenditure u/s 69C of the Act being the amount paid to Vanquish.
Against the said re-assessment order, the assessee preferred an appeal before Ld.CIT(A) who dismissed the appeal of the assessee.
Aggrieved the order of Ld. CIT(A), assessee preferred an appeal before the Tribunal by taking following grounds of appeal.
That on the facts and circumstances of the case and provisions of law, the order passed by the Ld. CIT(A) under section 250 of the Act is bad both in the eyes of law and on facts. 2. That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT(A) has failed to appreciate that the assessment order passed u/s 147 is illegal, bad in law and without recording proper satisfaction regarding escapement of income.
That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT(A) has failed appreciate that the reason recorded are based upon borrowed satisfaction, bad in law and without application of mind and consequently the assessment order passed requires to be quashed.
That on the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the assessment order being passed in violation of the principle of natural justice by not providing opportunity for cross examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the appellant in assessment proceeding as well as before CIT(A) and without giving adequate time and opportunity to the assessee to represent its case.
That on the facts and circumstances of the case, the Ld. CIT(A) has failed to appreciate that the assessment order being passed in violation of the principle of natural justice by not providing opportunity of hearing through video conferencing in spite of specific request made by the appellant.
That the Learned CIT(A) has erred on facts and in law by considering the advances given to the tune of Rs. 1,00,00,000/- to M/s. Vanquish Investment and Leasing Pvt. Ltd. as unexplained transactions.
7,
That the Learned CIT(A) has erred on facts and in law in making an addition of Rs. 1,90,00,000/-u/s.69C of the Income Tax Act without any reason.
That the impugned appeal order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.
That the Appellant craves leaves to add/ alter any/all grounds of appeal before or at the time of hearing of the Appeal.
Ground of appeal Nos. 1, 2 & 3 raised by the assessee are with respect to the re-opening of assessment. 7. Heard both the parties. After considering the submissions advanced by both the parties, we find that in the instant case, assessment was originally completed u/s 143(3) of the Act and thereafter, the AO had received the information that the assessee has received certain amounts in the shape of loans from the party whose creditworthiness is doubtful. Further certain payment was made to such party thus the same is unexplained expenditure, therefore, the AO had re-opened the assessment. The ld. CIT(A) has made following observation:-
“I have carefully considered the submission made by the appellant, the facts of the case as well as gone through the observation and findings of the AO 's assessment order. I find from the case history that information was received from the investigation Directorate of the Department regarding the manipulation in trading in goods &
commodities the shell companies generate entries of bogus loss to facilitate accommodation bogus loss/profit to the beneficiaries and appellant was one of the said beneficiaries who traded in goods &
commodities of such shell companies to generate bogus trade transaction. Furthermore it is also observed that the appellant was provided information of its involvement in utilising M/s Vanquished &
Leasing Pvt. Ltd. And its Bank Account and was asked by the AO to provide the bills/receipts raised for transaction with the said concerns which the appellant was unable to furnish during the course of assessment proceedings. Considering the entire conspectus I find all the preconditions before initiation of proceeding u/s 147 of the I.T
Act has been fulfilled by the AO. Therefore I am of the opinion that the AO 's initiation of proceedings u/s 147 of the I.T Act was as per Law applying necessary jurisprudence.
In Ideal Associates v. Assistant Commissioner of Income tax* K.R.
SHRIRAM AND N.R. BORKAR, JJ. WRIT PETITION NO. 879 OF 2022
APRIL 7, 2022 of HIGH COURT OF BOMBAY, [2023] 146
taxmann.com 225 (Bombay) it is observed and decision delivered by Hon'ble Judges - Whether at stage when Assessing Officer reopens assessment, it is not necessary that material before Court should conclusively prove or establish that income has escaped assessment -
Held, yes
- Whether at this stage, test to be applied is only whether there was reason to believe that income had escaped assessment and whether
Assessing Officer had tangible material before him for formation of that belief - Held, yes
- Whether since in instant, case, there had been application of mind while granting approval under section 151, reopening of assessment was justified -Held, yes [Paras 2 and 3]
In the case Export Credit Guarantee Corporation of India Ltd. v
Additional Commissioner of Income-tax* DR. D.Y. CHANDRACHUD
AND A.A. SAYED, JJ. WRIT PETITION NO. 502 OF 2012
JANUARY 10/11, 2013, HIGH COURT OF BOMBAY, [2013] 30
taxmann.com 211 (Bombay), it is observed and decision delivered by Hon'ble Judges- Section 147 of the Income-tax Act, 1961-Income escaping assessment - Non-disclosure of primary facts - Change of opinion - Assessment year 2006-07-Whether, even in absence of assessee's, failure to disclose material facts, where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment - Held, yes
From the facts on record, it is evident that the Assessing Officer had specific information with regard to fictitious transaction made by the appellant. The information was specific, relevant and reliable. There is nothing ambiguous about the information. The AO further applied his mind and verified the records, collected information from M/s Jet
Air Agencies Pvt. Ltd.. Thus the AO had prima-facie reason to believe that income in the case of appellant had escaped assessment. For acquiring juri iction u/s 147 of the Act, the A.O. is required to have in his possession certain material or information on the basis of which he could prima-facie have reason to believe that income escaped assessment. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage.
This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction. The Hon'ble Supreme Court in the case of ITO v. Selected Dalurband Coal Co. (P.) Ltd., [1996] 217
ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34
(SC) has held by that if the Assessing Officer, for whatever reason, has reason to believe that income has escaped assessment, it confers juri iction to reopen the assessment, so long as the conditions of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147. The Hon'ble Supreme Court has held in the case of ACIT v. Rajesh
Jhaveri Stock Brokers P. Ltd., [2007] 161 ΤΑΧΜAN 316 (SC) and 291
ITR 500 (SC) as under:-
"Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word
"reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces
Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal
Co. P. Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v.
ITO [1999] 236 ITR 34 (SC).
After initiation of proceedings, the A.O. could conclude on the basis of other information and explanation of the appellant that no income had escaped assessment, yet for acquiring the juri iction, the A.O. could still have valid basis on the basis of information available at the time of initiating action u/s 147/148 of the Act to have prima-facie reason to believe that such income escaped assessment. The information received by the A.O., as mentioned above, could very well make him prima-facie have such reason to believe that income escaped assessment. Further, as the AO has initiated the proceedings on the basis of above mentioned specific information it could not be said that the action of the A.O. was on the basis of certain surmises or conjectures only. It could also not be said that the material in possession of the A.O. could just make him have reason to suspect and not reason to believe that income escaped assessment.
Accordingly, keeping in view of aforesaid facts I hold the proceedings initiated invoking provision of section 147 of the I.T Act is in order and hence stand confirmed. This grounds of appeal are dismissed.”
Before us also, assessee has reiterated the same arguments and failed to controvert the finding given by Ld.CIT(A). After perusing the facts of the case and the observation of ld. CIT(A), we find that in the reasons recorded, it is clearly spelt out that prima- facie there is a case of escapement of income and the material which was relied upon by the AO is fresh material not available when order u/s 143(3) was passed and therefore, we do not find any error in the order of Ld. CIT(A) who dismissed these grounds of appeal. Thuss, Ground of appeal Nos. 1, 2 & 3 raised by the assessee are dismissed.
Ground of appeal Nos. 4 to 6 raised by the assessee are in respect to the addition of INR 1.00 crore made u/s 68 of the Act by alleging that assessee has received this amount from a company M/s Vanquish Investment & Leasing Pvt. Ltd.
Before is, it is submitted by Ld.AR that the assessee has given advance to M/s Vanquish Investment & Leasing Pvt. Ltd. of INR 1.00 crore on 06.01.2012 which was received back by the assessee on 14.3.2012 of Rs. 60.00 lacs and on 15.3.2012 of Rs. 30.00 lacs In support of this argument, assessee filed a ledger account of M/s Vanquish Investment & Leasing Pvt. Ltd. as appearing in its books of accounts alongwith the copy of bank statement wherein the entries of the advance given and received back of the same are duly appearing. Ld. AR thus, submits that assessee has received back the advance given earlier to the said company and not the loan received as has been wrongly considered by the AO. He, therefore, prayed for the deletion of the addition as there is no receipt of loan for which the provision of section 68 of the Act could be invoked for making addition.
On the other hand, Ld. CIT DR for the Revenue vehemently supports the order of lower authorities and requested for the confirmation of the same.
Heard both the parties and perused the material available on record. From the perusal of the ledger account of the company, M/s Vanquish Investment & Leasing Pvt. Ltd. in the books of accounts of assessee and bank statement of the assessee as available in the paper book filed by assessee, it is seen that assessee first made advance on 06.01.2012 to M/s Vanquish Investment & Leasing Pvt. Ltd. of INR 1.00 crore through five cheques which were cleared from its bank account maintained with RBC Bank on the same day. The said amount was received back by the assessee on two days wherein INR 60 Lakhs were received on 14.03.2012 and INR 40 Lakhs were received on 15.03.2012. The relevant copy of the statement as bearing books of accounts alongwith bank statement are reproduced as under:-
From the perusal of the above, it is established that the assessee has received back advance given to M/s Vanquish Investment & Leasing Pvt. Ltd. earlier thus, it is not the amount of loan taken by the assessee which could be held as unexplained credit u/s 68 of the Act. Therefore, there is no reason to invoke the provision of section 68 on the amount received back against the advance given earlier. Accordingly, we direct the AO to delete the addition of INR 1.00 crore made u/s 68 of the Act.
Ground of appeal Nos. 7 & 8 are with respect to the addition of INR 1.9 crores made u/s 69C of the Act.
Before us, Ld.AR of the assessee vehemently argued that in para 7 of the assessment order, AO simply observed that amount of INR 1.90 crores as debited in the bank account of the assessee and since the recipient M/s Vanquish Investment & Leasing Pvt. Ltd. is a bogus entity and engaged in providing accommodation entry, therefore, the same is treated as unexplained expenditure u/s 69C of the Act. As per Ld.AR for the assessee, since beginning of the reassessment proceedings, it was claimed before ethe AO that it had not paid any amount of INR 1.90 crores to M/s Vanquish Investment & Leasing Pvt. Ltd. and only INR 1.00 crore was given as advance to M/s Vanquish Investment & Leasing Pvt. Ltd. which was received back in the year itself i.e. in the previous year relevant to year under appeal. The AO however, rejected the claim of the assessee without bringing on record any contrary material to support the allegation made. Ld. AR submits that assessee has submitted the bank statement and produced books of accounts before the AO for examination however, the AO was failed to even identify the entry of INR 1.00 crores alleged as paid to M/s Vanquish Investment & Leasing Pvt. Ltd. Ld. AR, therefore, requested for the deletion of the addition made on this account.
On the other hand, Ld. CIT DR supports the orders of lower authorities and submits that AO was having information that assessee has paid INR 1.90 crores to M/s Vanquish Investment & Leasing Pvt. Ltd. and therefore, burden is on the assessee to explain the nature of payment which he failed to do. Therefore, Ld. CIT DR requested for confirmation of the addition made.
Heard the contentions of both the parties and perused the material available on record. From the perusal of the assessment order and reasons recorded before initiating the proceedings u/s 148 of the Act, we find that except alleging that assessee had made payment of INR 1.9o crores to M/s Vanquish Investment & Leasing Pvt. Ltd., there was no evidence/material brought on record by the AO in support of the allegation. As is evident from the copy of the statement of M/s Vanquish Investment & Leasing Pvt. Ltd. as appearing in books of accounts of the assessee, as reproduced above, during FY 2011-12 relevant to assessment year under appeal, assessee paid INR 1.00 crore as advance on 06.01.2012 which were received back on 14.03.2012 & 15.03.2012 and no such transaction of Rs. 1.90 crores was carried out between the parties as alleged by revenue. Neither the AO had brought on record any material to establish that this amount of INR 1.90 crores was paid by the assessee nor any invoice of any expenses which is unexplained in nature supporting indicating the payment of Rs. 1.90 crores to M/s Vanquish Investment & Leasing Pvt. Ltd. was brought on record.
From the perusal of the assessment order, it is seen that AO has not referred to any bank entry or any other material from which the allegation of any expenditure incurred in the nature of undisclosed or unexplained payment is established. Merely stating that the assessee has paid a sum of INR 1.90 crores could not be made basis for making the addition of this amount. It is further seen that in the reasons recorded which are available at page 27 to 29 of the Paper Book, AO simply stated that there is debit entry in the name of the assessee which was diverted by the AO to evade tax however, neither this amount was ever paid by the assessee nor any expenses were claimed by the assessee to this extent. Further no any material was brought on record by the AO therefore, in our considered view, no addition could be made for this amount in the hands of the company. Accordingly, the addition of INR 1.90 crores is hereby deleted.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 02.06.2025. (SATBEER SINGH GODARA)
JUDICIAL MEMBER
Date:-27.08.2025
*Amit Kumar, Sr.P.S*