RAMESH CHAND INVESTMENT & LEASING PVT. LTD.,NEW DELHI vs. ACIT, CIRCLE- 21(2), NEW DELHI

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER Assessment Year: 2004-05 Ramesh Chand Investment & Vs. ACIT, Leasing Pvt. Ltd., Circle-21(2), 69/2A, Najafgarh Road Industrial New Delhi. Area, New Delhi. PAN:AACCR3585Q (Appellant) (Respondent) Assessee by : None Revenue by : Shri AnilGandhi, Sr. DR Date of Hearing : 06.12.2021 Date of Pronouncement : 07.12.2021 ORDER

PER R.K. PANDA, AM:

Although notices have been sent by the Registry through RPAD, every time the same was returned by the Postal Authorities with the remark ‘no such person in the address.’ The assessee has also not taken any step to intimate the change of address, if any. Under these circumstances, we deem it proper to decide the appeal on the basis of the material available on record and after hearing the ld. DR. In this case, a notice u/s 148 was issued on 30th March, 2011 on the basis 3. of information received that the assessee is a beneficiary of bogus accommodation entries who had received an amount of Rs.7,90,58,960/-. Subsequently, in the course of hearing, the assessee apprised the AO of the mistake in the issue of notice. Subsequently, the assessee filed the return of income in response to notice u/s 148 of the Act on 02.05.2011 declaring a loss of Rs.11,500/-. The AO subsequently issued notice u/s 143(2) and 142(1) of the Act. However, during the course of assessment proceedings, despite number of opportunities granted, the assessee did not appear before the AO. The questionnaire issued by the AO to explain the conversion of stock-in-trade of shares amounting to Rs.4,18,82,309/- into investment by passing a Board Resolution remained unanswered by giving requisite details of the transfer of stock to investment and whether it had been done at cost or market price. Since the assessee company had not given any details of the shares sold by it and no broker note was filed and the assessee company did not produce any documentary evidence to the satisfaction of the AO, the AO, in the order passed 2 144/147 of the Act, determined the total income of the assessee at Rs.4,18,82,310/-.

An inspector of the Revenue endeavoured to serve a notice on the assessee at her Humayun Road, New Delhi residence, in the course of which he was informed that she had shifted her residence to 3, Nehru Road, Cantonment, Lucknow, Uttar Pradesh where the notice should now be delivered. It was in these circumstances that the inspector dispatched the notice dated March 25,2008 by speed post oh March 29, 2008 to the Lucknow address furnished to her. On a writ petition on the ground that there was no proper service of notice : _Held,_ dismissing the petition, that it was evident that the assessee declined to accept the notice, firstly at Humayun Road, New Delhi, secondly at Nehru Road, Cantonment, Lucknow, Uttar Pradesh and, thirdly, at Kalidas Marg, Lucknow, Uttar Pradesh. All the three addresses belonged to the assessee at the relevant time. The notice must be presumed to have been served on the- addressee by virtue of the provisions of section 27 of the General Clauses Act ” Considering the above, the proceedings under section 144 cannot be said to be invalid. Since the notice was received back, there was no need for the Assessing Officer to wait till 05.12.2011 to pass the final order and the issue of order under section 144 on 02.12.2011 is valid and is upheld.”

• As per the Balance Sheet, there was no stock lying with the assessee as on 31.03.2003. • The assessee Company had not given any details of the shares sold by it and no broker note has been filed. • The assessee Company did not produce any documentary evidence to show that the transactions have taken place through S.J. Capital Ltd. Further, the Assessing Officer has treated the remaining share transactions of Rs. 23,52,829/- as bogus receipts of the assessee on the basis that no documentary evidence has been furnished in regard to the above transactions. The Assessing Officer has thus made addition of Rs. 4,18,82,309/- after disallowing expenses of Rs. 11,495/-. During appellate proceedings, the appellant reiterated its submissions made before the Assessing Officer and also produced copy of board resolution showing conversion of stock to investment. The copy of ledger accounts produced by the Appellant Company were not confirmed by the other party and were not even signed by the appellant. On careful examination of the matter, I find that the appellant by producing few documents has created a paper trail to prove the genuineness of the transaction. However, the close examination of the documents shows that the appellant has not filed the income tax return, or given the PAN or produced the Balance Sheets or broker notes or other documents of the M/s. S.J. Capital to prove the genuineness of the transaction. The appellant has been unable to produce the Director of M/s. S.J. Capital. Thus, the entire transaction is against human probability. There is enough material to raise a very strong suspicion, to question the authenticity of the transaction and reject the paper trail created by the appellant and require the assessee to show that the transaction is really one which is above board which the appellant has failed. “Hon’ble Supreme Court in the case of Sumiti Dayal 214 ITR 801 has held that the genuineness of the transaction is to be considered on the basis of surrounding circumstances, human probabilities and the conduct of the connected parties. A transaction does not become genuine merely because a paper trail has been created/filed. The AO while exercising his power as an investigating officer has a right to go beyond what is apparent The mere filing of affidavit, gift deed etc shall not make the gift genuine. Hon’ble Supreme Court in the case of Sumiti Dayal (Supra) signifies that what is apparent must be examined on the touchstone of surrounding circumstances, human probabilities. Merely because a paper trail has been filed will not by itself make the transaction genuine. Hon’ble Delhi Court in the case of Ashok Mahendru & 7 Sons (HUF) v CIT (2008) 9 DTR (Delhi) 222: (2008)173 TAXMAN 178 has held that even though the documentation may be in order, if there is enough material to raise a very strong suspicion that there is something not quite right with nature of transaction, the authority under the act may reject the document and require the assessee to show that the transaction is really one which is above board. Accordingly the explanation submitted by the assessee with regards to genuineness of the transactions is rejected.” The material fact is thus that the financial strength of the person who has allegedly made the investment has not been established. The appellant has failed to discharge the primary onus of proving their capacity to purchase the shares and to prove the genuineness of the transactions. The appellant Company has not discharged its onus and identity and the creditworthiness of the investors has not been established. The facts of the case have also been examined in light of the judgement of Hon’ble Delhi High Court in the case of - Indus Valley Promoters Ltd. v. Commissioner of Income-tax [2008] 305 ITR 0202- wherein it has held as under: "The assessee must discharge the burden of proving the identity of the creditors and also give the source of the deposits in order to avoid an addition under section 68 of the Income-tax Act, 1961. The creditworthiness of the depositors must be established to the satisfaction of the Assessing Officer, Where there is an unexplained cash credit it is open to the Assessing Officer to hold that it is the income of the assessee and no further burden lies on the Assessing Officer to show that the income in question comes from any particular source. The assessee-company filed a return declaring a loss of Rs. 4,93,218/-. During the course of assessment proceedings, the Assessing Officer noticed an increase in the share application money account as compared to the preceding assessment year and that a sum of Rs. 11.82 lakhs had been deposited in the account of the director. He further noticed that no shares were allotted during the previous year and in the year under consideration and that the share application money retained the same form and character even in two subsequent years. Thus the Assessing Officer treated this amount as unsecured amount and not as share application money. As the assessee had not produced any evidence in respect of the source of the deposits, the Assessing Officer added the sum of Rs.11.82 and also added Rs. 5 lakhs as shown in the company's books as deposits made against bookings for flats in the scheme of the company but which were cancelled by the parties. The Commissioner (Appeals) as well as the Tribunal dismissed the appeal filed by the assessee. On further appeal: _Held,_ dismissing the appeal, (i) that as no shares were allotted to the director during the year in question and for the subsequent two assessment years and the shares were allotted after enquiry done by the Assessing Officer, the amount of Rs. 11.82 lacs could be treated as unsecured loan. 8 The amount had been deposited in cash and in spite of enquiry; the source of the deposit was not explained. The creditworthiness of the creditors to make the payment was not clear from the income shown by them. There was no infirmity in the reasoning given by the Tribunal for upholding the action of the tax authorities in bringing to tax the sum of Rs. 11.82 lacs. (ii) That the assessee had not been able to prove the creditworthiness of the creditors with respect to the cash credit of Rs. 5 lakhs. All the persons involved failed to respond to the summons. The assessee received all the payments in cash even though most of the persons had bank accounts and they had not entered the transactions through their bank accounts. No substantial question of law arose." The decision of Hon’ble Supreme Court in the case of Commissioner of Income-tax v. P. Mohanakala 291 ITR 278 is also relevant to the case as the Hon’ble court has held as under: “A bare reading of section 68 of the Income-tax Act, 1961, suggests that (I) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year; and (Hi) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression “the assessee offers no explanation” means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. The assessees received foreign gifts from one common donor. The payments were made to them by instruments issued by foreign banks and 9 credited to the respective account of the assessees by negotiation through a bank in India. Most of the cheques sent from abroad were drawn on the Citibank, N. A. Singapore. The evidence indicated that the donor was to receive suitable compensation from the assessees. On this material the Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the account books of the assessees as their income applying section 68 of the Income- tax Act, 1961. The assessees did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner (Appeals). On appeal the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tiibunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that the findings of the Assessing Officer, the Commissioner (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. Sumati Dayal v. CIT [1995] 214 ITR 801 (SC); [1995] Supp 2 SCC 453 relied on. K. S. Kannan Kunhi v. CIT [1969] 72 ITR 757 (Ker) considered. Decision of the Madras High Court in A. Rajendran v. Asst. CIT [2007] 291 ITR 178 reversed.” The Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. NovaPromoters and Finlease (P) Ltd. [2012] 342 ITR 0169- has distinguished the case of CIT v. Oasis Hospitalities P. Ltd. [2011] 333 ITR 119 (Delhi) and has held as under: “Even where a reference of a question of law is made to the High Court in its advisory jurisdiction, and not the appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under section 260A of the Income-tax Act, 1961 is "a fortiori".

For the assessment year 2000-01, the assessee-company filed a return of loss which was processed under section 143(1) accepting the loss. Subsequently, based on a letter from the Director of Income-tax (Investigation) regarding entry operators/ accommodation providers, informing the Assessing Officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was one, that there were statements recorded from persons confirming the facts, that the assessee had obtained, accommodation entries of Rs. 1,18,50,000 from these persons in the garb of share application monies during the relevant year, the Assessing Officer issued notice under section 148 of the Act reopening the assessment of the assessee. In the course of the reassessment proceedings, the Assessing Officer issued a questionnaire to the assessee. The assessee sought copies of the documents/material in the possession of the Assessing Officer and opportunity to cross-examine the person in charge of the 16 companies with regard to the contents of the statements recorded from them. The Assessing Officer issued summons to two individuals and to the companies, some of which were received back un-served and the other summons remained un-complied with. The Assessing Officer sent an Inspector to the addresses to which summons were issued. The Inspector reported that no such person or company v/as available or existing at the addresses to which summons were issued. On the basis of the report of the Inspector, the Assessing Officer issued notice to the assessee to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. The assessee later filed affidavits of the two individuals, R and M, in which both stated that the transactions with the assessee were genuine and the earlier statements recorded from them by the investigation wing were given under pressure. The Assessing Officer came to the conclusion that the independent enquiries carried out by him disclosed that the assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee-company had introduced its own monies through non-existing companies using the banking channel in the shape of share application monies. He accordingly invoked section 68 of the Act and added the amount of Rs. 1,18,50,000/- to the income of the assessee and a sum of Rs. 2,96,250 representing commission. On appeal the Commissioner (Appeals) rejected the assessee's contention against the validity of the reopening of the assessment but, taking note of the statement of the assessee that the affidavits from R and M, who were directors in the three companies as well as the affidavits of the directors in other companies which provided the share capital, were not considered by the Assessing Officer, the Commissioner (Appeals) directed the Assessing Officer to examine the contents of the affidavits and verify the veracity and genuineness thereof. The Assessing Officer was also directed to examine the genuineness of the transactions. The Assessing Officer submitted a remand report to the effect that the transactions had not been proved genuine and were only 11 instruments used by the assessee to mislead the income-tax authorities. The Commissioner (Appeals) concluded that the Assessing Officer was not justified in making the addition of Rs. 1,18,50,000/- under section 68 of the Act. Consequently, he also deleted the addition of Rs. 2,96,250/- made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. The Tribunal confirmed the deletion of the additions made under section 68 of the Act. On appeal by the Department: _Held,_ that the assessment was reopened on the basis of information received from the investigation wing of the Department about the existence of accommodation entry providers and their modus operandi in which the assessee was also found to be involved. The Tribunal had recorded, while dealing with the assessee's cross-objections challenging the jurisdiction of the Assessing Officer to reopen the assessment, that the information was specific, not general or vague, and referred to transactions entered into by the assessee during the year under consideration, that as per the information of the investigation wing, the names of the persons issuing the cheques, the cheque amounts, dates, etc., were also mentioned providing a link between the entry providers and the assessee. In the statements recorded from R and M by the investigation wing, they had implicated the assessee-company also, inter alia. A perusal of the names of the entities from whom the assessee had received share application monies showed that 15 names appeared in the list of 22 companies mentioned in the letter of M and R to the Additional Commissioner. This established the link between the materials which was present before the Assessing Officer both at the time when reasons for reopening the assessment were recorded and when the reassessment proceedings were made. In finding fault with the Assessing Officer for not accepting the identically worded affidavits of R and M to the effect that the transactions of giving cheques to the assessee-company were genuine and that the cheques were issued to the assessee-company for share application money for allotment of shares and subsequently shares were also issued, both the Commissioner (Appeals) as well as the Tribunal had committed a serious error in appreciating the evidence. The Assessing Officer in his remand report stated that despite repeated opportunities the deponents of the affidavits were not produced before him for examination and that summons issued to all the deponents of the affidavits remained un- complied with and none of the persons attended before him. The assessee had nothing to say as to why the deponents of the affidavits, which were all in its favour, could not present themselves before the Assessing Officer for being examined on the affidavits. In the light of the facts, the evidentiary value of the affidavits was open to serious doubt. The affidavits retracting their earlier statements, filed by M and R were filed more than three years after they wrote letters admitting to their role as entry providers. No reason had been advanced by the assessee for such long delay in retracting the earlier letters. The observation of the Commissioner (Appeals) that if summons had been served it would mean that the parties were present at the addresses and even if they were not found by the Inspector at the addresses 12 furnished by the assessee, it was for the Assessing Officer to have made enquiries from the post office regarding the whereabouts of the addressees was not proper. There was, in this case, no such duty cast on the Assessing Officer. The assessee had been blocking any enquiry by the Assessing Officer at every stage on some plea or the other, including a frivolous plea that no cross-examination was allowed, overlooking that once they Wed the affidavits retracting from their earlier statements the plea lost force. The findings of the Tribunal were based on irrelevant material or had been entered ignoring relevant material. The finding that the share application monies had come through account payee cheques was, at best, neutral. The question required a thorough examination and not a superficial examination. The fact that the companies which subscribed to the shares were borne on the file of the Registrar of Companies was again a neutral fact. That these companies were complying with such formalities did not add any credibility or evidentiary value. In any case, it did not ipso facto prove that the transactions were genuine. Material was gathered by the investigation wing and made available to the Assessing Officer, who in turn had made it available to the assessee. The Tribunal had ignored relevant material. The Tribunal also erred in law in holding that the Assessing Officer ought to have proved that the monies emanated from the coffers of the assessee-company and came back as share capital. Section 68 permits the Assessing Officer to add the credit appearing in the books of account of the assessee if the latter offers no explanation regarding the nature and source of the credit or the explanation offered is not satisfactory. It places no duty upon him to point to the source from which the money was received by the assessee. Even if one were to hold that the Assessing Officer was bound to show that the source of the unaccounted monies was the coffers of the assessee, in the facts of the present case such proof had been brought out by the Assessing Officer. The statements of the entry providers referred to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a consideration in the form of commission. The names of several companies which figured in the statements given by the above persons to the investigation wing also figured as share-applicants subscribing to the shares of the assessee-company. These constituted materials upon which one could reasonably come to the conclusion that the monies emanated from the coffers of the assessee- company," The appellant has been unable to explain the source from which the appellant has allegedly received the amounts in its bank account. As the explanation offered by the assessee about the nature and source of the sums found credited in the books was not satisfactory there was, prima facie, evidence against the assessee, viz., the receipt of money. The burden was on the assessee to rebut the same, and, it failed to rebut it, it can therefore be held against the assessee that it was a receipt of an income nature. The appellant has failed to discharge its onus to produce legally acceptable evidence of genuineness of the transactions. The expression “the assessee 13 offers no explanation’’ means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. In this case the appellant has offered no creditable explanation about the amounts credited in his books, the entire receipts of Rs. 4,18,82,310/- (i.e. Rs. 3,95,29,480/- and Rs. 23,52,829/-) therefore cannot be treated as explained. The disallowance of Rs. 11,495/- of expenses claimed by the assessee is also confirmed. Considering the above facts, the entire addition of Rs. 4,18,82,310/- made by the AO u/s 68 is confirmed.”

1. The learned CIT(A)-18, New Delhi has erred on facts and in law in upholding the impugned order of the learned assessing officer which is: a. devoid of acquiring jurisdiction u/s.148 and making the impugned order u/s.147 as without jurisdiction. b. contrary to law, equity and justice and facts and material on record, c. arbitrary, based on conjectures and surmises, d. passed without application of mind, without granting proper opportunity to defend; e. bad in law, as no notice u/s 143(2) was issued after the filing of return till the assessment was made u/s 144. f. The acquisition of jurisdiction and passing the order u/s 144 is without the authority of law, as such null and void, in the absence of issue of statutory notice u/s. 144.

2. The appellant denies his liability to tax as upheld by the learned CIT(A) and determined and computed by the learned assessing officer and the manner in which it has been so determined or computed.

3. The learned CIT(Appeals) has erred in law and on facts in sustaining the impugned addition of: a. Rs.3,95,29,480/- by dismissing the transactions of sale of shares and treating the receipts therefrom as bogus accommodation entries as income from undisclosed sources u/s.68. b. Rs.23,52,829/- by dismissing the transactions of sale of shares and treating the receipts therefrom as bogus accommodation entries as income from undisclosed sources u/s.68. c. Rs.11,495/- disallowing the expenses of business as per profit & loss account on the ground that no business activities conducted by the assessee.”

by the assessee are dismissed.