RAHUL JABARMAL JAIN,MUMBAI vs. ASSISTANT. COMMISSIONER OF INCOME TAX -19(3), MUMBAI, MUMBAI

1. That on fact and circumstances of the case and in law the ld. C.I.T. (Appeals), NFAC, Delhi has erred in upholding the validity of reassessment proceeding initiated under section 147 of the Income Tax Act, 1961 by the ld. Assessing Officer to reopen the already concluded assessment earlier u/s.143(3) of the Act merely on change of opinion and borrowed satisfaction. In view of the same appellant prays that reassessment proceeding initiated to reopen the concluded assessment u/s.143(3) by issue of impugned notice u/s.148 dated 16-03-2015 and consequent reassessment order passed u/s.143(3) r.w.s.147 on 28-03-2016 being bad in law and without jurisdiction therefore, may be quashed and set aside.

2. That on facts of the case and in law the ld. C.I.T. (Appeal), NFAC, Delhi has erred in sustaining the wrong disallowance made by the ld. Assessing Officer of interest paid at Rs.22,50,000/- after deduction & deposit of due applicable TDS on old unsecured loans taken in earlier assessment years without bringing any contrary evidence on record and also, without appreciating that said old unsecured loans and interest paid thereon were accepted in scrutiny assessment after due verification in the assessment order passed u/s.143(3) for that earlier assessment years. Being the disallowance of legitimate interest claim which stands duly assessed as income and claim of TDS deducted and paid thereon stands allowed by Department in the hands of respective cash creditors, legally and factually unsustainable, hence may kindly be deleted.

3. That both the above appeal ground raised hereinabove are independent ground and without prejudice to each other.

4. That appellant craves the leave to amend, alter, substitute any of the above appeal ground and or to raise new or additional grounds of appeal at the time of hearing.

Ground no. 1 8. It is argued on behalf of the assessee that AO has reopened the already concluded assessment u/s 143(3) of the Act merely on change of opinion and on borrowed satisfaction. It is therefore submitted that issuance of impugned notice u/s 148 of the Act dated 16.03.15 and the consequent reassessment order passed u/s 143(3) r.w.s. 147 of the Act dated 28.03.16 is bad in law and without jurisdiction and liable to be set aside. The appellant has assailed the notice u/s 148 of the Act on the following grounds:- i) There is not even a whisper in the reasons recorded, of any failure or omission on the part of the assessee to disclose all the facts and material necessary for computation of the income and assessment. ii) The assessment can be reopened only on the basis of tangible material having live-link with the reasons for reopening for showing primary satisfaction of the AO and the said fact is missing in the present case. iii) The reopening of the assessment is allegedly based on some information received from DGIT(Inv.) stating that certain benami concern of Mr. Bhanwarlal Jain group were providing accommodation loan entries, but nowhere in the information received there is any mention about the name of assessee which shows that the AO has not applied his mind independently and merely acted on borrowed information. Page | 6 iv) The appellant has referred the case of Mrs. Mira Kapoor vs. CIT (ITA No. 1395/2008) dated 31.08.12. The appellant has further relied the decision of Hon’ble Patna High Court v) Despite repeated request made by the assessee, proof of mandatory sanction u/s 151 of the Act and information and document relied to reopen the assessment has not been provided to the assessee.

9. The Ld. DR on the other hand supported the judgment of lower authorities and stated that the reassessment has been done legally on the basis of sufficient material on record available before the lower authorities.

10. We have considered the submissions and examined the impugned order. The reopening of assessment and the objection raised by the assessee has been dealt by the Ld. CIT(A) in para no. 5 to 5.4 of the impugned order and extracted as under:

5.0. First ground of appeal relates to reopening of assessment. The appellant contends that the notice issued u/s 148 of the Act is bad in law as it is issued after four years from the end of the assessment year and there is no failure attributed to the assessee to disclose fully and truly any material fact relevant for assessment of income. 5.1. In this regard, the submission of the appellant is duly considered. n this case the assessment u/s 143(3) of the Act was completed on 29.12.2010 determining total income at Rs 35,00,003/-. A search and survey action were conducted in the case of Shri Bhanwarlal Jain and others on 03.10.2013 by DGIT(InV.), Mumbai. The Investigation Wing, Mumbai, covered certain name sake/ dummy directors/partners/proprietors of various concerns that were being managed, controlled and operated by Bhanwarlal Jain & Family, under section 132 and 131 of the Income Tax Act, 1961. During search, it was found that all name sake/ dummy directors/partners/proprietors of various concerns belong to the native place of Bhanwarlal Jain & Family in Rajasthan and have either known Bhanwarlal Jain personally or through their families. In the respective statements recorded, they have admitted that they were made directors, partners and proprietors of various concerns at the direction Bhanwarlal Jain & Family which were eventually being managed and controlled by the later. All the name sake/ dummy directors/partners/proprietors of various concerns revealed that they are merely employees of Bhanwarlal Jain & Family and are looking after miscellaneous office work like depositing cheques in banks, handing over parcels to clients, making data entry etc. Post search, information was received from DGIT(lnv.), Mumbai that the see had taken accommodation entries from the following party for A.Y. 2008-09. Sr. No. Name of the hawala Bill amount Parties

1. Rahul Exports 81,05,475 2. Navkar Diamonds 26,99,507 3. Rajan Diamonds 1,13,47,665 4. Prime Star 26,99,507

5. Parvati Exports 55,97,675 Total 30,449,829 The evidence available with Ld AO clearly showed that the appellant had taken accommodation entries from the above parties and was never disclosed to the department. In view of this, the case was reopened by issuance of notice u/s 148 of the Act dtd. 16.03.2015 after recording reasons for reopening the assessment u/s 147 of the IT Act 1961. Subsequently, notices u/s. 143(2) & 142(l) dtd.

13.10.2015 were issued and served on the appellant. The appellant has also cooperated in the reassessment proceedings.

5.2. I find that the investigation report received shows that the appellant is part of an organized racket of providing accommodation entries. After examining the evidence provided by the investigation wing and return of income filed by the appellant, the Ld AO had come to the prima facie belief that this is a fit case for reopening of the assessment. Thus, there is a clear application of mind by the Ld AO. There is a live link or close nexus between the material obtained and formation of belief. It is not a case where the reasons recorded by the Ld. A.O. are not germane and the Ld. A.O. wanted to simply verify and make fishing enquiries with respect to bogus purchase bills. The Ld. A.O. has applied his own mind. After the receipt of the information, AO verified the record. Subsequently, reasons were recorded for reopening the assessment u/s 147 Of the Act and approval was sought from the appropriate authority. Thereafter, the notice U/s 148 was issued. Thereafter notices u/s 143(2) and 142(1) were issued on various dates. In response to these notices, the A/R of the appellant filed submission. The appellant has also cooperated in the assessment proceedings by filing various submissions from time to time. Similar view has been held in the case of Yogendrakumar Gupta, [2014] 46 taxmann.com 56 (Gujarat), in which the Hon’ble court has decided that the AO acquires jurisdiction u/s 147 r.w.s. 148 of the Act when specific and reliable information is received from investigating agencies. It was held in this case that where subsequent to the completion of original assessment, Assessing Officer, on basis of search carried out in case of another person, came to know that loan transactions of assessee with a finance company were bogus as said company was engaged in providing accommodation entries, it being a fresh information, he was justified in initiating reassessment proceeding in case of assessee. Reopening on the basis of the report of the Investigation Wing about receipt of loans / LTCG / bogus bills from Entry Providers held to be justified by the hon’ble courts in the cases of Bright Star Syntex (P.) Ltd, 71 taxmann.com 64 (Bombay) [2016], Peass Industrial Engineers Pvt.Ltd. 2016 (72 Taxman.com 302 (Guj), Rajat Export Import India (P.) Ltd. 18 taxmann.com 311 (Delhi) [2012], Money Growth Investment & Consultants (P.) Ltd. [2012] 21 taxmann.com 438 (Delhi), Jayant Security & Finance Ltd. Vs. ACIT 91 taxmann.com 181 (Guj.), Ankit Agrochem Pvt. Ltd. Vs. JCIT 89 taxmann.com 45 (Raj.), Pushpak Bullion Pvt. Ltd. Vs. DCIT 85 taxmann.com 84 (Guj.), Aradhana Estates Pvt. Ltd. Vs. DCIT 91 taxmann.com 119 (Guj). In this case also, the AO has received specific information from the investigation wing and the AO has applied his mind on such information and formed a reason to believe that income has escaped assessment, thus reopening of the assessment is a valid reopening. Accordingly, I find no merit in the argument of the appellant and this ground of the appellant is dismissed.

5.3. Another argument of the appellant is that the reopening of the case after more than 4 years. In this regard, it is pertinent to examine section 149 and 151 of the Act, which is reproduced as under-

“Time limit for notice.

( a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b ) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.]

Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.

(2) --------------------------------------------------------------------------- (3)--------------------------------------------------------------------------- Sanction for issue of notice.

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of [Joint] Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.]

[Explanation.—For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.] Page | 11 5.4. From the plain reading of section 149 of the Act, it is seen that a notice under section 148 can be issued for the relevant Assessment year after four years, but before six years from the end of the relevant assessment if the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. In the instant case notice under section 148 was issued on 16.03.2015 which is within six years from the end of the AY 20108-09. It is also clear from the reason recorded that the income chargeable to tax which has escaped assessment amounts is more than one lakh rupees. Thus, the conditions enumerated in section 149 are clearly satisfied in the instant case. Accordingly, this plea of the appellant is also dismissed.

11. We have examined the reasons for reopening of assessment recorded u/s 147 of the Act for AY 2008-09 placed at page 19 of the paper book and the same is extracted below:-

Sub: Reason for reopening recorded U/s. 147 of the I.T. Act FOR A.Y. 2008-09 The reason recorded by the A.O is as under:

A search and survey action was carried out by the DGIT (Investigation) Mumbai, in the case of Shri Bhanwarlal Jain group on 03/10/2013. The search action resulted into collection of evidence and other findings which conclusively proved that the said assessees, through a web of benami concerns run and operated by him, is engaged in providing accommodation entries of bogus unsecured loans and advances to various beneficiaries. The records of the assessee for the year under consideration reveal that the assessee has adopted this modus operandi during the year under consideration.

Details of the parties who have issued accommodation bills to the assessee are as under:- Page | 12

Sr. No. Name of the hawala Bill amount Parties 1. Rahul Exports 81,05,475 2. Navkar Diamonds 26,99,507 3. Rajan Diamonds 1,13,47,665 4. Prime Star 26,99,507 5. Parvati Exports 55,97,675 Total 30,449,829 On the basis of the aforesaid information available with the undersigned, I have reason to believe that income chargeable to tax, as indicated above, to the tune of Rs. 30449829/-, or any other income chargeable to tax which comes to my notice subsequently in the course of proceedings for re-assessment, has escaped assessment for A.Υ. 2008-09 within the meaning of section 147 of the IT Act 1961.

12. From the above observation as well as the facts and circumstances of the case, we find that what is important at the time of formation of belief by the AO regarding the escapement or under assessment of income is sufficiency of the reasons for reopening of the assessment and not its accuracy that cannot be questioned at that time. Our above view gets strength from the judgment of Hon'ble Supreme Court in the case of S. T Narayappa Vrs. CIT (1967) 63 ITR 219 (SC). Hence in our view, the order of reopening is valid and needs no interference. Hence this ground raised

by the assessee is dismissed. Ground no. 2

13. It is evident from the record that in response to the notice issued u/s 148 of the Act dated 16.03.2015, the assessee has filed his reply before the Page | 13 AO which are enumerated in para no. 5 of the order of AO stating that the authorized representative of the assessee attended from time to time and furnished the requisite details called for which are placed on record and the case is discussed with him. We have noticed that AO in para no. 6 to 8.3 of the assessment order has discussed the modus operandi of Bhanwarlal Jain and sons and nothing discussed pertains in respect of the assessee. The relevant para of the order of AO is in para no. 8.4 to 12 is extracted below:-

8.4 Admission of facts by Shri Bhanwarlal Jain.

Shri. Bhanwarlal Jain too in his statement recorded under section 132 (4) of the Income Tax Act, 1961 at 16, Mohan Building, JSS Road, Khandhawadi Police Station, Girgaum, Mumbai on 11/102013 has admitted the modus operandi of providing accommodation entries of bogus transaction through various benami concerns operated and managed by him.

(i) The DGIT (Inv.), Mumbai, has conducted search & seizure action in the case of Shri Bhanwarlal Jain & his group concerns and conclusively proved that these parties are engaged in the business of providing accommodation entries for unsecured loans and purchases. The parties are issuing bills without delivering any goods and services.

(ii) Thus, in the books of accounts of the assessee, the unsecured loans to the extent taken from the above said party remained unverifiable and hence, I arrive at a conclusion that the assessee has taken unsecured loan entries from certain parties to introduce unaccounted cash in its books of account and that the creditworthiness of the loan creditors was not established and corroborated by relevant supporting documents.

(iii) Assessee could not provide any documents to substantiate the creditworthiness of the above loan creditors and hence these loans remained unexplained. Even though the assessee had provided the details of the unsecured loans but it had failed to establish the creditworthiness& genuineness of the lender.

(iv) The onus was upon the assessee to establish the genuineness of the loan taken by the assessee.

(v) Mere filing of evidences such as copies of bank statement showing payment through account payee cheque cannot be conclusive in a case where genuineness of transaction is in doubt. Payment by account payee cheques are not sacrosanct.

“6.2 I have considered the assessment order and the reply of the appellant. I find that the appellant failed to substantiate the identity, creditworthiness and genuineness of the transaction before the Ld AO. Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[1963] 50 ITR 1 (SC), Roshan Di Hatti v CIT [1977] 107 ITR (SC) it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Where the nature and source thereof cannot be explained satisfactorily, it is open to the revenue to hold that it is the income of the assessee and no further burden is on the revenue to show that the income is from any particular source. An assessee can discharge his onus of proof by proving three things: Identity of the creditor, capacity of the creditor and the genuineness of the transaction In question. Once the assessee proves all three things his onus is discharged. It is also to be noted that there are many case laws wherein it has been held that the assessee only needs to prove the source of an entry he need not prove the source of the source or the creditor's creditor.

6.3. The Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 at pages 545-547 made a reference to the test of human probabilities in the following fact situation :-

It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals. Otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favor then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while locking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents..

6.4. It is a well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs.CIT" (214 ITR 801)(SC) that the true nature of transaction have to be ascertained in the light of surrounding circumstances. It needs to be emphasized that a standard of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. In the present case, it is clear that apparent is not the real as evidenced from the observation made by the Ld AO. Further, the Hon'ble Supreme Court, in the case of Chuhar Mal V CIT (1988) 172 ITR 250, highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the AO is not fettered, by technical rules of evidence, as held by the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills v CIT (1954) 261 TR 775. The Hon'ble Supreme Court, in the case of Chuhar Mal V CIT (supra) heid that what was meant by saying that evidence Act did not apply to the proceedings under Income-tax Act, 1961, was that the rigors of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings before them, they were prevented from doing so. It was further held by the Hon'ble Apex Court that all that Section 110 of the Evidence Act, 1872 did, was to embody a salutary principle of common law, jurisprudence viz, where a person was found in possessing of anything, the onus of proving that he was not its owner, was on that person. Thus, this principle could be attracted to set of circumstances that satisfies its conditions and was applicable to taxing proceedings.

6.5. Therefore, the Ld. AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In view of the above discussion, I find no infirmity in the order of the Ld. AO, and I confirm the same. All factors considered these grounds of appeal stand dismissed.”

16. It is thus evident from the observation of Ld. CIT(A) that he has simply confirmed the assessment order and has not dealt with the arguments made by the assessee with respect to the documents and material submitted to prove the identity, creditworthiness and genuineness of the parties and transactions. It is observed by Ld. CIT(A) in para no. 6.5 that “the AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In view of the above discussion, I find no infirmity in the order of the Ld. AO, and I confirm the same.” These observations of Ld. CIT(A) are not correct and as the AO has not considered the above mentioned materials placed at page no. 39 to 43 of the paper book. The AO has not meticulously or carefully examined the facts and material of the case and merely narrated in para no. 9 of its order that assessee is also one of the beneficiaries of these transactions as was documented with Mr. Bhanwarlal Jain. It is to be noticed that what has been documented with Mr. Bhanwarlal Jain and what documentation has been analyzed by AO are not mentioned in the assessment order or in the impugned order passed by Ld. CIT(A). No statement recorded u/s 133(4) of the Act or nothing on record brought to our notice during the course of hearing of this appeal so as to question the creditworthiness of the lenders and genuineness of the transactions.

17. For these reasons, we are of the considered opinion that the AO as well as Ld. CIT(A) has not passed the reasoned order as both the authorities have failed to examine the material submitted by the assessee and also failed to give sufficient and justified reasons to disbelieve the submissions of the assessee. For these reason, we find that the impugned order as well as assessment order are not legally sustainable in the eyes of law and therefore the matter is restored back to the file of AO with direction to examine the material /evidence as already submitted by the assessee and also to give opportunity to the assessee for submitting the material and submissions in support of its case so as to escape from the rigorous of Page | 20 section 68 of the Act. Accordingly, the impugned order is set aside and matter is restored to the file of AO for fresh adjudication with above directions. Resultantly, ground no. 2 is allowed for statistical purposes.

Order pronounced in the open court on 05.03.2025.