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Facts
The AO reopened the assessment based on information that the assessee received an accommodation entry of Rs. 71,16,133/- from M/s. Harsha Enterprise. The AO invoked Section 68 of the Income Tax Act, treating the sales as non-genuine accommodation entries.
Held
The Tribunal held that the reopening of the assessment was valid as the AO had reason to believe based on prima facie evidence. However, the matter was set aside to the CIT(A) for verification of the genuineness of sales due to non-submission of documentary evidence by the assessee.
Key Issues
1. Whether the reopening of assessment under Section 148 was valid. 2. Whether the addition under Section 68 for alleged accommodation entries is sustainable without proper verification of sales.
Sections Cited
68, 148, 142(1), 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Mumbai “C” Bench, Mumbai.
Before: Smt. Beena Pillai (JM) & Shri Omkareshwar Chidara (AM)
The Ld. AO received an information from DDIT(Inv.), Bhavnagar stating that the appellant company has received an accommodation entry of Rs. 71,16,133/- from M/s. Harsha Enterprise. From the assessment order, it is observed that the assessment was reopened after obtaining the above said information and necessary approval from PCIT-3, Mumbai vide letter dated 29.3.2019. It was also mentioned in the assessment order that after recording the reasons for reopening, notice under section 148 of the Act was issued and duly served on 30.3.2019 through ITBA. The reasons for reopening were provided to the appellant through e-mail dated 3.5.2019 and notice under section 142(1) was issued to appellant to furnish required details mentioned therein. The Ld. AO at para 7 has observed that the appellant company has availed accommodation entries from M/s. Harsha
2 Inducto Steel Limited Enterprises. From the assessment order, para 7.5, it is observed that the appellant company was given a show-cause notice about their transaction with M/s. Harsha Enterprises for which the appellant company replied that the sale transactions with this entity are properly reflected in their books and form part of their profit and loss account. The appellant company has also mentioned that there is a sale transaction with M/s. Harsha Enterprise to the tune of Rs. 71,16,133/- and the same was reflected in their books of account. After receiving this reply, the Ld. AO sent another letter to the appellant company as to why these sales from M/s. Harsha Enterprise should not be treated as non-genuine, because M/s. Harsha Enterprise did not appear with their books of account, bill/vouchers, in pursuance of summons issued under section 131 of the Act. Then, the Ld. AO invoked section 68 of the Act and concluded that as the transaction with M/s. Harsha Enterprise is an accommodation entry. The sale transaction with M/s. Harsha Enterprise was added under section 68 of the Act.
Aggrieved by the order of Ld. AO, an appeal was filed before Ld. CIT(A) strongly opposing the reopening of assessment as well addition made. Various grounds of appeal
like the action of Ld. AO is a time-barred under Income Tax provisions, section 68 of the Act is not applicable to appellant, as the amount was already reflected in their books of account etc. Several cases-law were also quoted in their submissions before Ld. CIT(A) for the proposition that the reopening is bad in law. After reproducing all these submissions and cases-law furnished by the appellant company, the Ld. CIT(A) came to the conclusion that there is prima facie evidence available with the Ld. AO that M/s. Harsha Enterprise was indulging in providing accommodation entries because huge cash of Rs. 9.72 crore was deposited in various shell entities and then immediately cheques were issued to M/s. Harsha Enterprise. It was concluded by Ld. CIT(A) that for reopening the case, only prima facie evidence is required, but not conclusive evidence and hence the reopening was confirmed. As far as the merits are concerned, the Ld. CIT(A) has mentioned in para 6.10 of the appellate order that the 3. Inducto Steel Limited appellant has not filed any documentary evidences such as stock register, VAT returns, copies of invoices, ledger extracts goods transported details, confirmation from M/s. Harsha Enterprise etc. to prove that it has received amount from them on account of scrap. Hence, the addition made by Ld. AO under section 68 of the Act was upheld by Ld. CIT(A).
4. Aggrieved by the order of Ld. CIT(A), an appeal was filed before ITAT with various grounds challenging the reopening the assessment and also about making addition under section 68 of the Act.
5. There is a delay in filing of appeal before the ITAT by 92 days and the reason mentioned for delay is that the appeal order of Ld. CIT(A) was sent to the e-mail of an employee of the company, who left the organisation and hence requested for condonation of delay in filing of appeal, as there were no malafides also in filing the appeal with delay. The Ld. DR opposed the delay.
After hearing both sides, the Bench is convinced that the reasons for filing the appeal with delay is worth condoning and hence the delay is condoned and hence the appeal is heard on merits.
The Ld. AR of the appellant’s main arguments before the Bench are summed up as follows (synopsis filed by appellant ) :-
a) The reopening of assessment is invalid as no statement was recorded from Mr. Divyang Shah, proprietor of M/s. Harsha Enterprise to show that he is providing accommodation entries to the appellant company. b) The appellant company has shown sales made to M/s. Harsha Enterprise and hence no income escaped. Moreover, the Ld. AO has not mentioned how sales transaction with the above entity is bogus. Hence, the reopening is bad in law. c) As far as merits are concerned, it was mentioned that the addition under section 68 of the Act may be deleted because during the 4 Inducto Steel Limited reassessment proceedings, appellant filed all ledger accounts of M/s. Harsha Enterprise, copies of invoices etc. were filed, excise duty and other taxes were paid on these sales, details of amounts received from M/s. Harsha Enterprise towards sale proceeds were provided to the Ld. AO. As the total sales with this entity are only 0.66%, the same cannot be presumed as bogus, section 68 of the Act cannot be applied for sales made to a party, and there cannot be double addition when already the sale proceeds were recorded in their books and hence it was pleaded that the addition may be deleted.
Ld DR relied on the orders of lower authorities.
Heard both sides. The first issue to be adjudicated is whether the reopening of the case under section 148 of the Act is correct in law. The law laid down in the case of GKN Driveshaft Ltd. 259 ITR 9 (SC) by Hon'ble Supreme Court, is that the reasons for reopening should be communicated within reasonable time. In this case, from the assessment order, para 3 to 5, it is observed that reasons for reopening were recorded duly and notice under section 148 of the Act was issued on 30.3.2019 and served on appellant through ITBA. In pursuance of this notice under section 148 of the Act, the appellant company filed e-return on 16.4.2019. The appellant was issued a notice under section 142(1) of the Act on 2.5.2019. Immediately thereafter, the appellant was provided reasons for opening on 3.5.2019. From the assessment order, it is not known whether appellant objected for the reasons sent to them or the Ld. AO passed another order rejecting the same. From the assessment order, it is seen that the appellant filed a Return of Income on 16.4.2019 and reasons were communicated to them on 3.5.2019, which this Bench feels the reasons were communicated to the appellant company within the reasonable time. The Ld. AR of the appellant company relied on some cases-law for the proposition that notice issued under section 148 of the Act is time-barred. But, the facts and 5 Inducto Steel Limited circumstances relied on by them are different and distinguishable because in the impugned case, the Ld. AO forwarded reasons for reopening within a reasonable time (17 days) as held by Hon'ble Apex Court in GKN Driveshaft Ltd. (supra) case. Hence, Ld. AO followed the procedure laid down by Hon'ble Supreme Court. Now, let us examine the reasons for reopening on the touchstone of “Reasons to believe”. From para 2, page 1&2 of the assessment order, it is observed that the Ld. AO received information from DDIT(Inv) that M/s. Shoryaraj Enterprises, M/s. Shree Enterprises and M/s. Harsha Enterprise are not doing any genuine business and they are entering into transactions with different entities without any business rationale. As per this information, the appellant company M/s. Inducto Steel Ltd. has availed an accommodation entry from M/s. Harsha Enterprise. In the assessment order, it was also mentioned that huge cash of Rs. 9.72 crore was deposited into several entities and then the same was transferred to the bank account of M/s. Harsha Enterprise. Apart from this, the proprietor of M/s. Harsha Enterprise did not respond to the summons issued under section 131 of the I.T. Act to produce his books of account, as mentioned in para 6.3 of Ld. CIT(A)’s order while dealing with reopening of the case. After observing all these issues, the Ld. AO reopened the assessment in this case. The Bench observes that for reopening the case, what is required is a “prima facie” belief and not the conclusive evidence that there is an escapement of income as the law laid down by Hon'ble Supreme Court in the case of Raymond Woolen Mills Ltd. (236 ITR 34)(SC). Here, the Ld. AO got the information about the appellant received accommodation entry from M/s. Harsha Enterprise and also the statements recorded from Mr. Satyajit Singh Gohil on oath that he was engaged in providing accommodation entry through M/s. Shoryaraj Enterprises. As per the information received, all of them are working as syndicate, the Ld. AO had “reason to believe” that the appellant company received an accommodation entry and hence escapement notice was issued. Since this information constitutes “prima facie belief”, the notice issued by Ld. AO is decided as valid.
6 Inducto Steel Limited
As far as merits are concerned, Ld. AR of appellant has argued before the Bench that the addition under section 68 of the Act cannot be made because of the following reasons :- a) The sale proceeds made to M/s. Harsha Enterprise are reflected in their books and the amount received from them was credited to the profit and loss account. Hence, making the same addition again under section 68 of the Act is incorrect as it amounts to double addition of same transaction. b) Certain cases-law were relied upon for the proposition that section 68 of the Act cannot be invoked for a sale transaction as section 68 of the Act deals with cash credit. c) No statement was recorded from the proprietor of M/s. Harsha Enterprise to come to conclusion that they are providing accommodation entries. d) On the sales made to M/s. Harsha Enterprise, the related GST etc. were already paid. Documentary evidence relating to transactions were filed before Ld. AO.
11.1 The Ld. DR relied on the orders of the Ld. AO and Ld. CIT(A) and pleaded that addition may be sustained.
11.2 After hearing both sides and perusing the orders of Ld. AO and Ld. CIT(A), the Bench decided to set aside the matter to the file of Ld. CIT(A) in view of his observations made in para 6.7 to 6.11 at pages 24 and 25 of his order. In other words, at para 6.10, it was mentioned that the appellant did not file the documentary evidence such as stock register, VAT returns, copies of invoice, ledger extracts, goods transported details, confirmation from M/s. Harsha Enterprise etc., to prove that it has received the amount on account of sale scrap. Since the claim of sale proceeds received from M/s. Harsha Enterprise was not proved with the above documentary evidences, it was mentioned that the claim of appellant could not be verified and the addition
7 Inducto Steel Limited under section 68 of the Act made by the Ld. AO was confirmed. Before the Bench, the Ld. AR of the appellant filed information relating to sales made to M/s. Harsha Enterprise with break up of excise, sales tax paid, sale invoices issued to M/s. Harsha Enterprise, transport bills and copy of bank ledger, in the paper book vide page No. 64 to 167 and copy of submissions made before Ld. CIT(A) vide pages 168 to 190 (Sl.No. 8 to 9). At the end of the index of this paper book, it was mentioned that they were filed before the Ld. AO. The appellant company is silent about the issue whether they were filed before Ld. CIT(A) for his examination and adjudication. Hence, it is presumed these vital details were not filed for his verification before Ld. CIT(A) as observed by him at para 6.10 & 6.11 of his order. It is also seen that these vital details were not filed before the Inv. Wing in pursuance of summons issued to M/s. Harsha Enterprise under section 131 of the Act. The entire issue revolves around only one issue, i.e., whether the amounts credited by appellant company are really from the sale proceeds made to M/s. Harsha Enterprise. In view of the specific finding received by the Ld. AO from Inv. Wing that three entities inlcluding M/s. Harsha Enterprise are indulging in providing accommodation entries and huge cash of Rs. 9.72 crore was introduced in those shell entities and then amount was forwarded to the bank account of M/s. Harsha Enterprise from which appellant company received this cheque and admitted as sale proceeds of scrap and M/s. Harsha Enterprise and other entities are not filing Return of Income despite huge turnover and this entity was not responding to summons under section 131 of the Act coupled with the fact that the confirmation letter from M/s. Harsha Enterprise that sales were made to the appellant company was not filed before Ld. CIT(A) alongwith other details required to adjudicate the issue.
11.3 As mentioned in para 6.10 and 6.11 of Ld. CIT(A) order, the required details were not filed before him and hence he could not adjudicate the issue of genuineness of sales and whether the amount credited by appellant is 8 Inducto Steel Limited really the sale proceeds of M/s Harsha Enterprise. Hence, the issue remitted to the file of Ld. CIT(A) for verification and adjudication.
The appeal of the appellant is allowed for statistical purposes.
Order pronounced in the open Court on 26/06/2025.