VIJAYSHREE FOOD PRODUCTS P.LTD,NEW DELHI vs. ACIT, CENTRAL CIRCLE-30, NEW DELHI

Merchandise Pvt. Ltd. is one of the many paper/jamakharchi companies used in providing accommodation entries by Mr. Vikas Kumar Agarwal. In his statement, Shri Vikas Kumar Agarwal had stated that his main source of income is from commission for providing accommodation entries. He had further stated that the companies managed and controlled by him are basically paper companies without having any actual business and thereby don’t require any actual fund. The main motive of formation of these companies was to provide accommodation entries to various beneficiaries in lieu of commission income. Similarly in the case of M/s Kansabati Tradecom Pvt. Ltd., operated by Mr. Devesh Upadhyaya, the AO noted that Shri Devesh Upadhyaya had also given similar statement.

Since there was persistent non-compliance of the assessee to produce the directors of the assessee company or the directors of the investor companies, the AO, relying on various decisions held that the assessee failed to prove the identity and credit worthiness of the investor companies and the genuineness of the transaction. Invoking the provisions of section 68, the AO made addition of Rs.1,90,00,000/- to the total income of the assessee.

1. On the facts and in the circumstances of the case Ld. CIT (A) New Delhi New Delhi has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est. in law.

2. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment of the appellant at income of Rs.17,121,533/- as against the income of (Rs.1,878,467/-) declared by the appellant.

3. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment 7 that could not have been re-opened u/s 147/148 as no valid reasons have been recorded by the Assessing Officer to establish any satisfaction on his part that any income belonging to the appellant has escaped assessment.

4. On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law , in sustaining the action of AO as no incriminating material whatsoever was found/unearthed as a result of search.

5. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO in initiation of proceedings u/s 147, of the IT Act, solely on the basis Unverified/ unratified/unsubstantiated/unconfirmed statement of Shri Mul Chand Malu.

6. That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs. 19,00,000/- u/s 68 on account of share capital/share premium without appreciating the facts of the case.

7. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the additions of Rs. 1,90,00,000/- despite the fact that the assessee has discharged the onus cast upon it under section 68 of the Income-tax Act.

8. On the facts and circumstances of the case, Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the said addition arbitrarily rejecting the explanation and evidences brought on record by the appellant.

9. On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law, in sustaining the action of AO violating 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 proceedings as well as before CIT(A).

10. On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO. As the proceedings initiated u/s 147/148 are invalid, the proceedings should have been initiated u/s 153C. 11.That the provisions of sections 234A, 234B and 234C of the Act are not at all applicable. 12.That the impugned appeal order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence. 13.The appellant craves leave to add, amend or alter any of the grounds of appeal.” 8

31.03.2017 Notice u/s 148 was issued Admitted fact in Order of Asst 20.04.2017 Assessee filed objections for reassessment Page no-7 of PB 21.04.2017 Order disposing the objection of assessee See Page No-17 of PB 12.05.2017 Assessment order was passed See assessment order 8.1 He submitted that the AO while recording reasons has made very wrong observations and hence it can be inferred that there was no tangible material with the AO for having reasons vis-a-vis escapement of income. He submitted that the 9 information on the basis of which reasons were conceived was not gathered in search or post search enquiries which is evident from the date of events mentioned above. He submitted that search date was 09.10.2014 & commission u/s 131(1)(d) was issued on 10.11.2016 and statements of the person alleged to have control over the investor companies were much prior to the date of search and issuance of commission. The statements were recorded on 9-12-2013, 24.01.2014, 30.12.2014, 02.03.2015 & 01.05.2015 and commission was issued on 10.11.2016. Therefore, the averment of the AO that during search and post search proceedings ,information relating to entities providing accommodation entries of share application money, share premium, share capital and unsecured loans to Kuber Group entities came to light is factually incorrect.

8.2 The ld. Counsel for the assessee submitted that the AO has alleged that M/s Binapani Mercentile (one of the investor) was a jama kharchi company. However, this fact is contrary to the report of commission. Referring to page 48 of the paper book, he submitted that the Calcutta wing has mentioned the name of Jama Kharchi companies and the name of BINAPANI was not there in that list. Further perusal of Page No- 50 would show that name of BINAPANI was at serial number-7 and covered in the category of those companies whose address were not traceable. Therefore the observation of the AO that BINAPANI was Jamakharchi Company is factually incorrect and contrary to the report of investigation wing which shows that the AO has not applied his mind at all.

8.3 Ld. Counsel for the assessee referring to Q 14 at Paper Book page 54, submitted that Mr Vikash Aggarwal in his statement, which is part of the assessment order as Annexure B, has provided accommodation share capital to some other companies and that too in some other Assessment years and not in AY 2014-15. He submitted that the AO in the reasons recorded has admitted in last para at 1st page of the reasons recorded that statements of Vikash Kumar Aggarwal were recorded during previous enquires/ surveys/ searches and not in connection with the present commission issued in Kuber Group. Therefore it is legally impermissible to entrap the future transactions without there being any happening/ material.

8.4 Ld. Counsel for the assessee submitted that the AO has next alleged that BINAPANI was controlled by Vikash Aggarwal. However the statement of Vikash Aggarwal neither reveal the name of the investor company nor reveal the name of assessee company anywhere. In fact the statement provides name of other two companies who has taken bogus share capital which is evident from Q. No. 7 at para 51 of the paper book and Question No.10 at page 53 of the paper book.

8.5 So far as amount received from M/s Kansabati Tradecome Pvt Ltd is concerned, he submitted that the AO in the reasons recorded has alleged that M/s Kansabati Tradecome Pvt Ltd is one of the Paper Company of Devesh Upadhaya and has provided share application money to assessee. However, the same is not correct. Referring to page number 78-79 of PB, question number 7 & 8, he submitted that Kansabati has provided bogus LTCG in that period and not bogus share capital to any one. Therefore the AO’s observations for a future transaction is wrong and contrary to the records. He accordingly submitted that all above facts prove beyond doubt that AO has mentioned wrong facts in the reasons recorded and has also not examined the so called stale information independently before forming a belief that income of assessee has escaped assessment.

8.6 Referring to the following decisions, he submitted that if the AO mentioned wrong facts which are contrary to the records, then assumption of jurisdiction is bad in law:- i. CIT Vs. Atlas Cycle Industries 180 ITR 319( P&H) ii. Pr. CIT Vs. SNG Developers Ltd. 404 ITR 312(Del) iii. Shamshad Khan vs. ACIT 395 ITR 265;(Del) iv. Siemens Information System Ltd. Vs. ACIT 293 ITR 548.(Bom) v. CIT Vs Rainee Singh 330 ITR 417(Del) vi. VSR Enterprises- dated 17.02.2021. vii. Shri Natrajan Monie- ITA NO 1817/Del/2017- dated-07.12.2020. viii. SJM international in ITA No-3762/Del/2018 dated 09.08.2021 8.7 Referring to the following decisions, he submitted that the expression “reason” means cause or justification. It has to be based upon some material. Further the expression used in 147 is “has reason to believe” which does not mean “has reason to suspect”. For the above proposition, he relied on the following judgments:- (i) Ganga Prasad Maheswari Vs CIT, 139 ITR 1043(AII); and (ii) Indian Oil Corporation v. ITO (1986) 159 ITR 956 (SC).

(A) Central India Electric Supply Co. Ltd vs . ITO (2011) 333 ITR 237 (Del.): 51 DTR 51 (Del.); (B) German Remedies Ltd. v. DCIT (2006) 287 ITR 494 (Bom.); (C) United Electrical Co. P. Ltd. v. CIT (2002) 258 ITR 317 (Del.); (D) CIT Vs Goyanka Lime 237 Taxman 378(SC); (E). CIT Vs N.C. Cables, 98 CCH 18 (Del); and (F) Chuga Mai Rajpal, 79 ITR 603(SC) Larger Bench.

12. He submitted that the assessee further seeks to rely on the judgment of the coordinate bench in Kuber Group wherein the ITAT has quashed the assessment framed under section 147, observing that AO failed to provide the opportunity to cross examine Mr Vikash Kumar Aggarwal & Devesh Upadhay. Referring to the 14

Tribunal in the case of Kuber Khanpan & Kuber Products, vide ITA No-580 & 322, order dated 21.10.2019, he submitted that in these cases also the AO was same, date of recording of reasons was same, date of issuance of notice u/s 148 was same and the persons whose statements were relied were also same.

b. Share application forms c. Confirmations d. Bank Statements. e. MCA Data 14.1 He submitted that the AO discarded the above evidence without bringing on any material on record and without providing any opportunity to cross examine the so called entry providers and relying on the stale informations which was related to past events and made the additions in an arbitrary and capricious manner. Referring to the following decisions, he submitted that it has been held that no addition can be made on the basis of statements of third party if an opportunity to cross examination has not been granted. a) CIT Vs Sunrise Tools (Dei) 88 CCH 26 b) Brij Bhusan Singhal 54 CCH 45(Del)- Distinguishing M.Piara Chodi

15.1 Referring to the decisions of the coordinate Bench of the Tribunal in the case of Karuna Garg in dated 06.08.2019, he submitted that the Tribunal has held that the AO cannot frame an assessment solely on the basis of investigation wing information and he must carry out independent 16

142(1) of the Act before drawing any adverse inference against assessee. He submitted that this decision has been affirmed by the Hon’ble High Court of Delhi. The ld. Counsel for the assessee drew the attention of the Bench to the following observations of Hon’ble High Court:- "A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing, it is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings. Section 142 of the Act contains the provisions relating to enquiry before assessment. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and reaffirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above cleariy show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry”

15.2 He accordingly submitted that the grounds raised by the assessee be allowed.

the investor companies were much prior to the date of search and issuance of commission. Since the statements were recorded on 9.12.2013, 24.01.2014, 30.12.2014, 02.03.2015 and 01.05.2015, it is the submission of the ld. Counsel that the averment of the AO that during search and post-search enquiries information relating to the entities providing accommodation entries of share application money, share premium and share capital and unsecured loan to Kuber group entities came to light is factually incorrect. It is also his submission that M/s Binapani Merchandise Pvt. Ltd. is not a ‘jamakharchi’ company as alleged by the AO. However, it is only under the category of a company whose addresses were not traceable. Further, the statement of Shri Vikas Aggarwal were recorded during the previous enquiries/surveys/searches and not in connection with the present commission issued in Kuber Group. It is also his submission that Shri Vikas Aggarwal has never stated that he has given any accommodation entry to the assessee company which is evident from Question No.10 put to Shri Vikas Aggarwal and the name of the assessee company does not appear. So far as M/s Kansabati Tradecom Pvt. Ltd. is concerned, it is the submission of the ld. Counsel for the assessee that Shri Devesh Upadhyaya has never admitted that he has given any accommodation entry to the assessee. In his answer to questions No.7 and 8 Shri Devesh Upadhyaya has stated that accommodation entries of bogus long-term capital gain is provided to various entities and not share capital and premium. It is also his submission that during the assessment proceedings, the AO has relied on the statement of Shri Vikas 19

Aggarwal and Shri Devesh Upadhyaya without providing any opportunity to the assessee to cross examine them. Even during the remand proceedings the AO himself has admitted that the assessment was made on the basis of statement of Shri Mul Chand Malu, who is neither a director nor employee of the assessee company and, therefore, his statement cannot be relied upon. It is thus the submission of the ld. Counsel for the assessee that the reassessment proceedings initiated by the AO are not in accordance with the law. Further, the assessee has filed all the relevant documents to substantiate the identity and credit worthiness of the loan creditor and genuineness of the transaction and without allowing the cross-examination the AO could not have made the addition solely on the basis of third party statement. Thus, it is the argument of the ld. Counsel that the reopening was made by the AO on the basis of wrong facts and he has not examined the information received from the Investigation Wing independently and, therefore, such reopening is invalid.

companies who deposited the money is appearing. Further, in none of the statements recorded by the Investigation Wing of Kolkata, the name of any company who deposited money with the assessee company is appearing.

Kuber group of cases i.e., on 09.10.2014.

23.1 We find, the Tribunal, after considering the arguments advanced by both the sides, deleted the addition by observing as under:-

“11. Now we come to the other issues of the reopening of the assessment challenged by the assessee. The reopening has been challenged by the assessee stating that initiation of proceedings u/s 147 of the income tax act 24 is solely on the basis of the unverified, on rectified, unsubstantiated and unconfirmed statement of Mr Malu. It is further the claim of the assessee that the learned assessing officer has violated the principles of natural justice by not providing the opportunity for cross-examination of the persons whose statements have been relied upon by him in spite of specific request made by the appellant in the assessment proceedings as well as before the learned CIT - A. Admittedly in this case notice u/s 148 of the income tax act was issued on 31/3/20 17. The reasons recorded in the first paragraph clearly refer to the search and seizure operation carried out on the coupe group of cases on 9/10/2014. During post search investigation summons were issued u/s 131 of the income tax act to comic sales private limited, which has provided the share capital to the assessee company. The summons returned unserved. Further enquiries were made issuing commission u/s 131 (1A) of the act and information was gathered from investigation wing that the share deposit company is not physically existing at the given address 125/1, cotton Street, Kolkata - 700007 whereas the correct address of this company was 16 A, Shakespeare Sarani, New B K Market, 5th Floor, Kolkatta 71. Thus, the learned assessing officer made the inquiries at the incorrect address. Furthermore, the learned assessing officer has heavily relied upon the statement of Mr. Vikas Agarwal residing at BC - 75, Akanskha apartment, 4th floor Calcutta 101 that was recorded on 9/1/2014. He is an alleged entry operator. He admitted this in answer to question number 6 of his statement. He named in answer to question number 7 - 12 companies, however, the name of the company who deposited share capital with the assessee was not appearing in the statement. Further, in none of the other statements recorded by the investigation wing Kolkata, the name of the company who deposited money with the assessee was appearing. During the course of appellate proceedings before the learned CIT - A, assessee submitted a remand report dated 25/10/2018, which is at page number 22 of 38 of the appellate order. In para number 5 the learned AO stated that the assessment order are based on the statement of Shri Moolchand Malu, post search investigation and investigation during assessment proceedings. The assessee specifically asked the AO to provide cross-examination or the information to show that the amount of share capital taken by the assessee from the above stated company is an accommodation entry. None of the statements of the investigation wing, though referred to many of the companies, however the name of this company from whom the assessee has taken share capital is appearing. In para number 8 of the remand report, the learned assessing officer has categorically stated that during the assessment proceedings commission u/s 131 (1) (D) of the income tax act, 1961 was issued to the Calcutta investigation wing. A list of 27 companies was sent for necessary enquiry. As per report of Calcutta wing, 9 companies are such companies, which are used for routing, and providing accommodation entry to the beneficiaries as per the statement of the directors/to persons of respective companies admitted during both during the previous enquiry survey/searches. For balance 18 companies, as per inspector report, no such 25 companies existed at the addresses mentioned. The name of the company who deposited money with the assessee appears in the list of 18 companies where the inspector has gone to the incorrect address as held above. Further, at para number 10 of the remand report, request of the assessee for cross-examination is dealt with. The learned assessing officer and stated that in the commission report received from Calcutta office, statement of Mr VIkas Kumar AGarwal, Devesh Upadhyay, and Praveen Kumar was mentioned. However, in none of these entry operators' statement the name of the company, which deposited money with the assessee, is mentioned. Further assessee asked the cross-examination of these persons who have mentioned the name of the above-deposited company. Statement recorded of all these persons are prior to date of search on Kuber Group. Thus, statements are recorded by the investigation wing prior to search, naturally before the reasons were recorded. Before the learned CIT - A, on the specific request of the assessee that AO has not granted an opportunity of the cross-examination of those persons, even the learned CIT - A directed the AO to grant cross- examination of those person however AO expressed his inability to do so. With respect to the identity, creditworthiness and genuineness of the transactions the assessee submitted return of income of the share applicant, it is audited balance sheet, confirmation of the transactions and bank statement of the share applicants. Therefore, the claim of assessee is that it has discharged initial onus cast upon it under section 68 of the income tax act. The learned AO merely on the basis of the statement of the entry operators, who did not name the share deposit as 1 of the companies operated by them, the inspector report saying that share deposit and did not exist by inquiring at the incorrect address and failure to give cross- examination of those entry operators, which are the only statement against the assessee, the addition made by the learned assessing officer cannot be sustained. Honourable Supreme Court in CIVIL APPEAL NO. 4228 OF 2006 M/S ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE,KOLKATA-II has held that when except the statement of the 3rd party is the only evidence available with the revenue authorities, addition cannot be made on that solitary evidence without granting the cross-examination of such 3rd party to the assessee when asked for. In the present case the assessee asked for cross-examination before the assessing officer and as well as before the learned CIT - A, the assessee did not give the cross-examination of those accommodation entry providers. Further, the copies of the statement given by the assessing officer during the course of remand proceedings, none of the statement of the entry provider implicated the company, which deposited the share capital with the assessee. In view of the above facts, the addition made by the learned assessing officer and sustained by the learned CIT - A cannot be upheld. Therefore we direct the learned AO to delete the addition of INR 13,500,000 in ITA number 580/del/2019 and INR 21,500,000 in ITA number 322/del/2019.