B.K. JAIN vs. COMMI. OF IT, LUDHIANA

ITA No.365 of 2011 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.365 of 2011 (O&M) Date of decision:21.5.2014 B.K.Jain, 94-D, Bhai Randhir Singh Nagar, Ludhiana (Punjab) ……Appellant Vs. Commissioner of Income Tax, Ludhiana (Punjab) …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE JASPAL SINGH Present: Mr. Sachin Bhardwaj, Advocate for the appellant. Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.364 and 365 of 2011 as according to the learned counsel for the appellant, common question of law is involved in both the appeals. However, the facts are being extracted from ITA No.365 of 2011. 2. ITA No.365 of 2011 has been preferred by the appellant- assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 29.4.2010, Annexure 14, passed by the Income Tax Appellate Tribunal, Chandigarh Bench in ITA No.1094/DEL/2008, for the assessment year 2002-03, proposing to raise following substantial questions of law:- Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 2 “i) Whether the proceedings concluded under Section 147 read with section 143(3) is sustainable in law without disposing of the objections raised in pursuance to the Hon'ble Apex Court's judgment in the case of GKN Driveshafts (India) Limited v. Income Tax Officer and others, (2003) 259 ITR 19 (SC)? ii)Whether the order of the Tribunal is perverse overlooking the ground raised for not disposing of the objections filed to the reopening of assessment under section 148? iii)Whether the proceedings concluded under Section 147 read with section 143(3) is sustainable in law since the addition was made by relying upon the statements of some share brokers, taken at the back of the assessee qua which no opportunity of cross examination was granted to the assessee hence against the principles of natural justice? iv)Whether the order of the Tribunal is sustainable since overlooking the report of the Income Tax department officials and comparable case while confirming the GP rate of 0.5% of the turnover? v) Whether the Tribunal is justified in calculating the turnover on the basis of bank accounts maintained by the parties which does not belong to the assessee? vi)Whether the order of the Tribunal is sustainable in concurring with the order of the CIT(A) for transactions in bank account of R.Kohli & Co. for ` 64,49,024/- as unexplained investment and ` 7,91,615/- on account of profit of trading of shares of assessee by overlooking the modus operandi of the business, submissions and evidences rendered without referring any adverse finding on the record?” 3. A few facts relevant for the decision of the controversy involved, as narrated in ITA No.365 of 2011, may be noticed. The appellant- assessee is a Chartered Accountant by profession and operating from his office-cum-residence at 94-D, Bhai Randhir Singh Nagar, Ludhiana. He is Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 3 engaged in the job of giving accommodation/book entries to various persons making investments in long/short term capital gain/gifts/loans and in consideration charges commission from them. The cash received from different beneficiaries was deposited in various bank accounts of the assessee, his family members and other share brokers from where cheques were issued in favour of the clients for bogus capital gains/share profits/gifts etc. Survey operations were carried out under Section 133A of the Act at the office of the assessee on 15.6.2004. Surrender of ` 27,00,000/- (`15,00,000/- and ` 12,00,000/- for the assessment years 2004- 05 and 2005-06 respectively) was made by the assessee vide letter dated 1.3.2005, Annexure A.3. Notice dated 6.7.2004 under Section 148 of the Act was issued to the assessee in response to which return of income for an amount of ` 45,000/- was filed on 30.3.2005. Vide letter dated 27.3.2006, Annexure A.4, objections against the initiation of proceedings under section 148 of the Act were raised. Written submissions dated 29.3.2006 were placed on record and thereafter assessment under Section 147 read with section 143(3) of the Act was completed on 30.3.2006 at an amount of ` 1,16,94,211/- without disposing of the objections raised. The Assessing Officer while making the assessment took into consideration the statements of Shri Manoj Kumar recorded under section 131 of the Act dated 29.6.2004, of share broker Shri Pardeep Khanna, Prop. P.K.Khanna and company dated 2.8.2004. Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 29.9.2008, the CIT(A) partly allowed the appeal. Feeling aggrieved, both the assessee and the revenue filed appeals before the Tribunal. Vide Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 4 order dated 29.4.2010, the Tribunal partly allowed the assessee's appeal and dismissed the appeal of the revenue. Hence the present appeals by the appellant-assessee. 4. We have heard learned counsel for the appellant and perused the record. Re: (i) & (ii) 5. The question Nos. (i) and (ii) relate to assumption of jurisdiction under Sections 147/148 of the Act by the Assessing Officer. In this regard, the plea of the assessee was that the reasons recorded did not contain the figures and basis of calculation and that only opinion had been given by the Assessing Officer. In such circumstances, the reopening was based on conjectures and without any definite material with the Assessing Officer which was legally unsustainable. 6. The Assessing Officer had recorded the following identical reasons relating to assessment years 2002-03 and 2003-04:- “Survey under section 133A was carried on 15.6.2004. During the course of survey it was found that the assessee is indulging into the business of arranging bogus long term capital gain/gifts/accommodation entries on commission basis. Evidence of cash deposits into various banks was also found. As no return has been filed for assessment year 2002-03, the income generated from above business has escaped assessment within the meaning of Section 147. Accordingly I am of the opinion that it is a fit case for issuance of notice under Section 148 of the Income Tax Act, 1961. sd/- (H.S.Sidhu) Income Tax Officer VI-I, Dated 6.7.2004 Ludhiana” Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 5 It was noted that the appellant had not furnished the return of income for the assessment years 2002-03 and 2003-04 within the time allowed under Section 139 of the Act. During survey operation carried out on the premises of the assessee, it was discovered that the assessee was giving accommodation/book entries to various persons and this business was being carried out during the previous years relevant to assessment years 2002-03 and 2003-04. For reopening under section 147 of the Act, the appellant was found to be indulging in the business of arranging bogus long/short term gain/gifts/accommodation entries on commission basis. Evidence of cash deposits into various banks was also found. As no return had been filed for the assessment year 2002-03, the income generated from above business had escaped assessment within the meaning of Section 147 of the Act. The Tribunal held that the assessee had not furnished any returns of income for both the assessment years i.e. 2002-03 and 2003-04 and in the absence of the returns of income and because of availability of the information of escapement of income with the Assessing officer, the formation of belief under Section 147 of the Act and issue of notice under Section 148 of the Act was valid. In the light of the above, there is no justification in the submission made by learned counsel for the appellant that reopening was invalid. Re: Q. (iii) & (v) 7. With regard to Question Nos.(iii) & (v), it may be noticed that a survey under Section 133A of the Act was conducted at the office premises of the assessee on 15.6.2004 at Bhai Randhir Nagar, Ludhiana and it was discovered that the assessee was engaged in the job of giving Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 6 accommodation/book entries to the aspirants of long/short term capital gain/gifts/loan by charging commission. The statement of the assessee was recorded during the survey operation wherein he had disclosed the names of different concerns under which he was carrying on his business and also the bank accounts from where cheques/drafts for bogus entries were issued. The details of the same are as under:- i) B Finlease India Pvt. Limited, New Delhi with branch office at 94- D, BRS Nagar, Ludhiana. ii)Bank of Punjab, Pakhowal Road, Ludhiana A/C No.99040. iii)Usha Garg & Company c/o Ludhiana Stock Exchange, Ludhiana. iv)Garg Investment services (Sub brokership firm of Usha Garg & Co.) v) Fairdeal Investments (Sub brokership firm of B.Finlease India Pvt. Limited). vi)Bank of Punjab, Pakhowal Road, Ludhiana A/C No.1881. vii)Ganesh Investments, concern of Shri B.K.Jain. viii)M/s P.K.Khanna & Co. The grievance of the assessee was that no turnover could be included on the basis of bank statement maintained by M/s Usha Garg & Company and M/s Garg Investment Services. The assessee in his statement recorded during the survey on 15.6.2004, admitted to have worked for these concerns. Further, the blank signed cheque books were found in the possession of the assessee. The Assessing Officer in his assessment order while making addition had noticed that the assessee was also carrying on the business of issuing of cheques etc. for bogus profits which was in association with other persons namely Subhash Bhardwaj & Co., Ludhiana, P.K.Khanna and Co., Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 7 Ludhiana and Usha Garg and Co., Ludhiana. The modus operandi of the assessee was that he had obtained blank signed cheque books from the owners of the bank accounts and was operating the same in such a manner as to leave no evidence whatsoever to show that the said accounts were operated by him. Still further, the operation of said bank accounts was not allowed to continue for long i.e. beyond a period of year or so and the assessee had admitted the aforesaid modus operandi in his letter dated 27.3.2006 wherein he had not disputed that the old accounts had already been closed. 8. The Assessing Officer on the basis of the transactions in the various bank accounts computed the turnover of ` 44,08,57,148/- relating to assessment year 2002-03, ` 1,71,34, 90,455/- relating to assessment year 2003-04 and ` 40,49,82,000/- for the assessment year 2004-05. On appeal before the CIT(A), the assessee pointed out that while computing the aforesaid turnover, the Assessing Officer had included all the bank accounts of the different brokers in the hands of the assessee though the said persons had admitted to one or two bank accounts only. The CIT(A) on verification recomputed the turnover for different years, the detail of which is as under:- “Assessment Year

Turnover

2002-03 Rs.37,82,02,425/- 2003-04 Rs.1,01,39,94,467/- 2004-05 Rs.1,09,29,54,158/-” The revenue did not challenge the reworking of the turnover by the CIT(A). After taking into consideration the totality of facts and circumstances where the assessee himself had admitted to have been carrying on the business of Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 8 providing accommodation entries through several accounts belonging to him, his family members, brokers and also the admission of different stock brokers etc., the addition had been rightly made in his income. 9. The narration of aforesaid factual matrix points out that the department had discharged the initial onus to prove the undisclosed income of the assessee and it was upon the assessee to have produced relevant material to rebut the same. No illegality or perversity could be shown in the aforesaid findings. In such circumstances, the findings recorded by the authorities below cannot be faulted. Re: Q.(iv) 10. The Tribunal had applied G.P. rate of 0.5% of the turnover which was challenged by the revenue in ITA No.36 of 2011. Question No. (iv) stands concluded by the order dated 14.11.2011 passed by this Court in ITA No.36 of 2011 titled 'The Commissioner of income tax III, Ludhiana v. B.K.Jain’, wherein rate of 0.5% of the turnover has been upheld. Re:Q.(vi) 11. The Assessing Officer during the course of assessment proceedings had called for information from stock broker M/s R.Kohli & Company on 27.3.2006 regarding the transaction of purchase and sale of shares that took place during the period 1.4.2001 to 31.3.2002 with Shri Bipan Kumar Jain.. The copy of the account of the assessee in the books of account of R.Kohli & Company was furnished before the Assessing Officer which reflected the transactions of purchase and sale of shares during the accounting period relevant to assessment years 2002-03 to 2004-05. The assessee was found to have made investment in the purchase of various shares as listed in the Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 9 respective assessment years and some of the shares purchased by the assessee in different years were sold and the profits on the said transactions were determined by the Assessing Officer. The assessee had failed to file any information regarding the source of purchases of aforesaid shares in various companies before the Assessing officer and consequently, addition was made in the hands of the assessee on account of investment in the said shares. Another addition was made on account of profit on sale of shares. Before the CIT(A), the plea of the assessee that the investment in the shares of various companies was made out of funds received from different persons was rejected in the absence of any evidence. The CIT(A) though observed that the shares were purchased either in the name of assessee, his mother or son but in the absence of the assessee filing the necessary evidence, the said investments were included in the hands of the assessee. The Tribunal upheld the order of the CIT(A) in the absence of any evidence that the said shares being actually purchased either in the name of the assessee or in the names of his family members was the unaccounted investment of the assessee and the same was to be included in the hands of the assessee. As regards the amount for the purchase of shares paid out of the bank accounts of the assessee, his mother and his son, the Tribunal restored the issue back to the Assessing officer to verify the source of payments made by the assessee to Mr. R.K.Kohli & Co. vis a vis the details of shares acquired. It was observed that if it was found that the transactions in the relevant source bank account had been considered while estimating the income in the hands of the assessee for accommodation basis, necessary credit shall be allowed while computing unexplained investments. The Tribunal further observed that in Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh

ITA No.365 of 2011 (O&M) 10 the assessment years 2003-04 and 2004-05, the benefit of telescoping is to be allowed in respect of income assesseed in the earlier years. The revenue had challenged the observations of the Tribunal with regard to the telescoping whereby the assessee was entitled to allowance of investment in shares relating to this period. The revenue had filed ITA Nos.37 and 38 of 2011, wherein vide order dated 19.5.2014, it was observed as under:- “It is, however, clarified that telescoping can only be done to the extent there is direct nexus of receipt of amount on account of sale of shares which has been invested in the purchase of shares during the period from 1.4.2002 to 31.3.2003 and 1.4.2003 to 31.3.2004. Therefore, for the assessment years 2003-04 and 2004-05, benefit of telescoping shall only be allowed by the Assessing Officer after recording a finding that there is direct nexus resulting from sale of shares and investment in shares made by the assessee.” The issue has been remitted to the Assessing Officer requiring re- examination for determining the quantum of unaccounted income in the hands of the assessee. In view of the above, no interference is called for. 12. Learned counsel for the appellant has not been able to show that the findings recorded are illegal or perverse in any manner. No substantial question of law arises and consequently finding no merit in these appeals, the same are hereby dismissed. (Ajay Kumar Mittal) Judge May 21, 2014

(Jaspal Singh) 'gs' Judge Singh Gurbax 2014.06.13 10:55 I attest to the accuracy and integrity of this document High Court Chandigarh