SASTVIJAY INVESTMENT & CONSULTANCY SERVICES P.LTD,NEW DELHI vs. ITO, WARD-22(4), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA Nos.900 & 901/Del/2019 Assessment Years: 2009-10 & 2010-11 Satvijay Investment & Consultancy Vs. ITO, Services P. Ltd., Ward-22(4), 4697/3, 2nd Floor, Ansari Road, New Delhi. Daryaganj, New Delhi. PAN: AABCS3357G (Appellant) (Respondent) Assessee by : Shri Amol Sinha & Shri Ashwani Kumar, Advocates Revenue by : Shri Prakash Dubey, Sr. DR Date of Hearing : 23.09.2021 Date of Pronouncement : 10.11.2021 ORDER PER R.K. PANDA, AM: The above two appeals filed by the assessee are directed against the common order dated 19th December, 2018 of the CIT(A)-28, New Delhi, relating to Assessment Years 2009-10 & 2010-11 respectively. Since common issues are involved in both these appeals, therefore, these were heard together and are being disposed of by this common order.

ITA Nos.900 & 901/Del/2019 ITA No.900/Del/2019 (A.Y. 2009-10) 2. Facts of the case, in brief, are that the assessee is an NBFC company incorporated on 18th December, 2019 and deals in shares, loans and consultancy business since incorporation. The directors of the assessee company are Mr. Vijay Kumar Chopra and Mr. Ratan Lal Chopra. It filed its return of income declaring an income of Rs.19,890/- on 29.09.2009 for the A.Y. 2009-10. The return was processed u/s 143(1) of the IT Act, 1961. Subsequently, information was received from the Office of the Director General of Income-tax (Investigation), Mumbai vide letter No. DGIT(Inv.) / Infosharing /SatishSarafGroup /2014-15 dated 18.07.2014 mentioning therein that a search operation u/s 132 of the IT Act was carried out in the case of Satish Saraf Group of cases wherein after intensive and extensive enquiries and examination of document seized during course of search it has been established that the said group is involved in providing accommodation entries to the persons which were named in the report. The name of the assessee company also figures in the list as one of the beneficiaries of the accommodation entries. The AO, after recording reasons as per the provisions of section 147 of the Act, reopened the assessment of the case by issuing notice u/s 148 on 13th March, 2015. The assessee, vide letter dated 6th August, 2015, requested that the original return filed on 29th September, 2009 be treated as return filed in response to the notice u/s 148 of the Act. Subsequently, a copy of reasons recorded was supplied to the assessee on 25th January, 2016 and notice u/s 143(2) was also issued on 25.01.2016. A notice 2

ITA Nos.900 & 901/Del/2019 u/s 142(1) along with a questionnaire was also issued to the assessee. The assessee, vide letter dated 16th February, 2016, filed objections to the reasons recorded for reopening of the cases which were duly disposed of vide order dated 18th March, 2016.

ITA Nos.900 & 901/Del/2019 and credit worthiness of the creditors and the genuineness of the transaction. Since the assessee, according to the AO, failed to prove the identity and credit worthiness of the share applicants/loan creditors and the genuineness of the transaction, the AO made addition of Rs.32,50,000/- u/s 68 of the Act being the amount received from companies controlled by Satish Saraf group and another amount of Rs.19 lakhs being the share application money received from others and Rs.4,59,984/- under the head ‘Unsecured loans.’ The AO also made addition of Rs.16,250/- being unexplained commission paid in cash for organizing the above accommodation entry. Thus, the AO determined the income of the assessee at Rs.1,56,46,124/- as against the returned income of Rs.19,890/-.

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Investigation Wing can be a basis for reopening the assessment proceedings or not, has been answered by Hon'ble jurisdictional High Court in the case AGR Investment Ltd. vs. Addl. CIT & Anr. 333 ITR 146, wherein on the similar facts, it was held that the 'specific information received from the office of the Directorate of Investigation as regards the transactions entered into by the assessee with a number of concerns which had made accommodation entries and they were not genuine transactions, was neither a change of opinion nor did it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceedings u/s 147 of the Act, Rather the reason to believe was appropriately understood by the Assessing Officer and there was material on the basis of which the notice was issued'. Similarly, in other case, Rajat Export Import India Pvt. Ltd. vs. ITO, 341 ITR 135, Hon'ble jurisdictional High Court again substantiated the aforesaid stand by holding that information received by Assessing Officer from Investigation Wing regarding entry taken by assessee from entry provider with specific details was. a valid ground for reopening the assessment. It has been further held by Hon'ble Court that at the stage when reasons are recorded for reopening the assessment, the Assessing Officer is not required to build a fool-proof case for making addition to the assessee income; all that he is required to do at that stage is to form a prima-facie opinion or belief that income has escaped assessment. The relevancy of the material before the Assessing Officer is to be judged only from that perspective and not from the perspective as to whether the material is sufficient or adequate to sustain the addition ultimately. Similar view has been taken by Hon'ble Court in other case Contel Medicare Systems P. Ltd. vs. CIT, 349 ITR 649, wherein the reopening was initiated on the basis of information received by AO from the Directorate of Income Tax (Investigation) that assessee was beneficiary of accommodation entry taken from entry providers. In the cases, Aravali Infrapower Ltd Vs. DCIT 390 ITR 456 and PCIT Vs. Paramount Communication Pvt. Ltd 392 ITR 444, Hon'ble Court has opined that the information received from Directorate constitutes the tangible material and reopening of assessment on the basis of such tangible material is valid. This is supported by Hon'ble Gujarat High Court also in the case Pushpak Bullion P Ltd. Vs DCIT 394 ITR 65 wherein the return of income was processed u/s 143(1) of the Act and during the search operation in another companies it was discovered that the said group had provided entries to the assessee and amounts shown by assessee towards share applications were bogus. Hon'ble Court has held that notice for reopening having been issued in the case of assessment which was not framed after scrutiny, the AO would have considerable latitude in issuing notice for reopening if it was found that he had tangible material to form a belief that income chargeable tax have escaped assessment. However, in the recent cases, Meenakshi Overseas P Ltd Vs. PCIT 395 ITR 577 and PCIT Vs. RMG Polyvinyl (I) Ltd 395 ITR 5, Hon'ble Jurisdictional High Court has extended their opinion by holding that the reasons recorded by AO have to be based on some tangible material and that should be evident from 5

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reading of the reasons. It is also opined by the Court that the reasons to be believed must demonstrate the link between the tangible material and the formation of the belief and it should not be a 'borrowed satisfaction'. 6.1 The facts in the case of appellant are similar to aforesaid cases. Here also, information was received by AO from Investigation Wing of the Department that assessee is a beneficiary of taking accommodation entries of Rs. 32,50,000/- in the garb of share application money from entry provider group namely Shri Satish Saraf group in the names of aforesaid entities. In respect of these entries, incriminating material was also found during the search proceedings in the case of Shri Satish Saraf Group. After analyzing the entries of the said incriminating documents with the details of return of income of appellant, the AO formed an opinion that the appellant has escaped the assessment to the tune of Rs. 32,50,000/- of taxable income. However, in the reasons recorded, AO has discussed in details the information received from Investigation Wing regarding the escapement of income in the case of appellant and analyzed it with the details of return of income by mentioning that the return of income was filed by appellant disclosing the income of Rs. 19,890/- and that the return was processed u/s 143(1) of the Act and also that share capital amounting to Rs. 32,50,000/- was received by assessee during the year under consideration. It is further discussed by AO that the search proceedings in the Satish Saraf Group revealed about his modus operandi of providing entries to various beneficiaries companies and how the funds were circulated through different entities for the purpose and commission was charged for giving these accommodation entities. The AO has also demonstrated with facts and figures how this group has been engaged in providing accommodation entries in lieu of commission. All these information received from Investigation Wing, have been examined in details with the details of return of income and a belief was formed by him that there was escapement of income of Rs, 32,50,000/- on the part of appellant and consequently, he recorded the reasons before issuing notice u/s 148 of the Act and initiated the reassessment proceedings in the case of the appellant. It is also discussed by AO that how the appellant failed to disclose fully and truly all material facts/particulars of its income in respect of aforesaid transactions which are necessary for its assessment for the year under consideration. 6.2 It has been further argued by the appellant that the AO has not established any live link between the information sent by Investigation Wing with the reasons to believe of escapement of income of the assessee and no independent enquiry was conducted by him before recording reasons as the examination and verification of details of the share applicant were essential for having any reasonable belief of escapement, as mandatorily required by section 147 of the Act. However, in my opinion, the objections raised by appellant have no substance. The reasons recorded by AO clearly demonstrate that the AO has successfully established the link between information received from Investigation Wing with the reasons to believe of 6

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escapement of income of the appellant. He has analyzed all the relevant and specific details and documentary evidence found during the search proceedings in the case of Shri Satish Saraf Group (entry provider) related to appellant with the details of return of income filed and after examining and verification of such details, belief of escapement of income in the case of the appellant was formed. The contentions of the appellant that the AO should have made independent enquiry and examined the share applicants before recording reasons, are also misplaced. As per the provisions of the Act, AO could not have made any independent enquiry before recording the reasons and issuing notice u/s 148 of the Act in the case of the appellant. He could not have issued summons u/s 131(1) of the Act for making any independent enquiry from share applicant or any other person to examine the genuineness of transactions as there was no proceedings pending before him in the case of appellant. He could not have either issued notices u/s 142(1) or 143(2) of the Act as again these notices can be issued only when there are assessment proceedings pending in the case of the assessee. As per provisions of section 133(6) of IT Act also, AO can only ask any person to furnish the information in relation to such points of matters as specified by him, but cannot examine and verify the genuineness of such information. Thus, the AO has no option other than to examine the details and information received from Investigation Wing with the details of return of income filed by assessee to form the belief for recording the reasons before issuing notice u/s 148 of the Act The AO cannot go beyond this limitation as there are no proceedings pending before him for making independent enquiry by issuing statutory notices in the aforesaid sections. In such situation, the allegation of the appellant that the satisfaction recorded by AO was 'borrowed satisfaction' on the basis of borrowed information from Investigation Wing, therefore, reopening of assessment is not valid, is not acceptable. From the reasons recorded by appellant, it clearly reveals that the AO has analyzed the information received from the Investigation Wing at great length and after being satisfied that the appellant has escaped the assessment of Rs. 32,50,000/- in its case, formed the belief and recorded the reasons before issuing notice u/s 148 of the Act. Thus, there was valid ground with the AO to initiate the reassessment proceedings in the case of appellant. 6.3 The other objection has been raised by AO regarding the procedure laid down by Hon'ble Supreme Court in the case GKN Driveshafts India Ltd. vs. DCIT reported in 259 ITR 19 that the AO has not followed the due procedure while reopening of assessment proceedings. As per appellant, while disposing off the objections raised by him, AO has partially considered the facts of the case and objections raised by him. However, the ground taken by appellant is not sustainable. The AO has complied with the procedure laid down by Hon'ble Supreme Court in the case and dealt with the issues raised in the objections while passing the order and during the assessment proceedings also and thus has complied with all the required legal procedure. Moreover, in a recent case, i.e. Home Finders Housing Ltd. 7

ITA Nos.900 & 901/Del/2019 vs ITO, reported in 404 ITR 611, Hon'ble Madras High Court have opined that even the failure to comply with the procedure indicated in the case of GKN Driveshafts would not make the assessment order void or non-est. As per Hon'ble Court, such a violation in the matter of procedure is only an irregularity which could be cured by a- remitting the matter to the authority. In view of this, the ground taken by appellant fails. 6.4 In view of the above, I uphold the validity of reassessment proceedings and dismiss the grounds taken by appellant.”

4.1 Similarly, so far as the addition on merit is concerned, the ld.CIT(A), after obtaining a remand report from the AO and the rejoinder of the assessee to such remand report, upheld the addition by observing as under:- “8.1 I have considered the facts of the case, basis of additions made by AO, his remand report and submissions of the appellant. From the above, it is clear that specific information was received by AO from Investigation Wing of Department that the assessee has taken accommodation entries from the entities in the garb of share application money from entry providers Shri Satish Saraf Group, as identified by the Investigation Wing after thorough investigation and inquiries alongwith share application from other entities also. As mentioned above, to examine the identity, creditworthiness and genuineness of transactions as per provisions of section 68 of the I.T. Act of the share applicants and creditors, AO asked the appellant to discharge his onus by way of furnishing the documentary evidence and to produce the share applicants in order to verify the veracity of transactions as well as details available on records. However, taking into consideration the fact that the appellant had taken accommodation entries from the Satish Saraf Group and its creditors were not examined rather money had been rotated through dummy entities, the part details as given by appellant during the assessment proceedings, were not satisfactory as per AO to treat the aforesaid cash creditors as genuine. 8.2 It has to mention here that the appellant company, which has taken the entry of share application money from share applicants and unsecured loans of the aforesaid amounts, is a private limited company different from the public limited companies wherein public are substantially interested and where the share application money comes out with an initial public offers and wherein shares are listed on stock exchange and are widely traded. In such cases, it is very difficult for the company to know them closely and have no control/mechanism to verify the creditworthiness and the burden of proof in such case is difficult. But there is another class of companies which are closely held and in which public are not substantially interested and which are mostly family controlled closely held companies, and they raise 8

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their share capital and loans from their family members, relatives and friends and in these companies since share capital and loans are received from the close knit circles who are mostly known to the companies/promoters, the onus required u/s 68 of the Act is very heavy to prove the capacity of the share holders and lenders and genuineness of the transactions to satisfy cumulatively the-ingredients of section 68 of the Act to the satisfaction of the AO, otherwise he shall be free to proceed against the assessee company and make addition u/s 68 of the Act as unexplained cash credit. 8.3 Now, in the light of above, it has to be seen that to what extent, appellant has been able to satisfy all three conditions, i.e., identity of creditor, creditworthiness and genuineness of transactions in its case. So far as the word 'identity' is concerned, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd., [2014] 2 ITR-OL 68, has defined that 'the identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN or assessment particulars did not establish the identity of the person. The actual and the true identity of the person or a company was the business undertaken by them.' In the case of appellant, it has submitted the copies of ITRs, balance sheet and bank statement, etc, but when the notices u/s 133(6) were issued, initially no reply was received but subsequently some evidences were received through post. The request of AO to produce the share applicants to examine the details filed by the appellant was not met out by the appellant rather it expressed its inability to produce them. Thus, the appellant could not file any evidence in respect of share applicants that they actually exist. Similar view has been taken by Hon'ble jurisdictional High Court in the case CIT vs. Youth Construction Pvt. Ltd., 357 ITR 197 and CIT vs, Nipun Builders and Developers Pvt. Ltd., 350 ITR 407, wherein, it has been held that onus is on assessee to prove the identity of share applicants., failing which it has to be concluded that the assessee company has introduced its own money through non-existing companies using the banking channels in the shape of share application money. In view of above, it is clear that the appellant has failed to establish the identity of creditors in its case. Thus, the first condition as stipulated in section 68 of the Act is not satisfied. 8.4 As regards the other conditions, i.e., creditworthiness and genuineness, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt, Ltd. (supra) has held that 'The bank accounts do not reflect the creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent- assessee, did not give any share dividend or interest to the said entry operators/subscribers. The profit motive is normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are 9

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undoubtedly relevant and material facts for ascertaining the creditworthiness and the genuineness of the transactions,' It is further held by Hon’ble Court that 'mere production of incorporation details, PANs or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper or per work or documentation but genuineness, creditworthiness, are deeper and obtrusive. Companies no doubt are artificial or juristic person but they are soulless and are dependent upon the individuals behind them to run them and manage them, It is the persons behind the company who take the decision,, control and manage them.' In the case of appellant company, though the soulless juristic entity is existent on paper but the individuals, running and managing them are found non-existing as the appellant company could not give a single detail about the existence or location of the share applicants. Since the share applicants are non-existing, their credit worthiness is also not established. Non-compliance by the appellant company for the purpose of examining the share applicants by producing them, also proves that credit worthiness of share applicants are not established. Moreover, the report from investigation Wing that the creditor companies are merely a tool of providing accommodation entry to appellant also support the fact that the appellant company has taken accommodation entries and rotated its own unexplained money through these creditor entities, During the appellant proceedings also, appellant could not prove with the documentary evidence that the any of the share applicants are having sufficient balance for providing loan or investing in share application of the appellant company. In reply to the remand report for A.Y. 2010-11, the appellant even did not care the file any submissions in support of its claim. Thus, the creditworthiness of the share applicants has not been proved herein in the case of the appellant. Similarly, the genuineness of transactions in the case of creditors has also not been proved for the reason that these were accommodation entries as established during the inquiry made by Investigation Wing and subsequently during assessment proceedings as well as remand proceedings, the appellant failed to establish the genuineness of these transactions. Thus, the onus cast upon by the provisions of the 68 of the Act has not been discharged by appellant to treat the cash credits as genuine. 8.5 Incidentally, such types of companies who provide accommodation entries in lieu of commission have found place at the national level when Hon'ble Prime Minister of India, while speaking on Foundation Day of Institute of CA in India, revealed that more than 37,000 such shell companies have already been detected and registrations of more than 1 lakh others have been cancelled. In his speech, Hon'ble Prime Minister indicated about such 'suitcase companies' who exist only on paper and all the documentary evidence about their existence and creditworthiness are available but on ground they actually do not exist. These companies are used as a tool for giving accommodation entries and have no real business 10

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of any kind except executing the transactions related to accommodation entries only. Subsequently, the registrations of three Lakhs companies were cancelled also by ROC. it appears that the creditors of the appellant company are also one of such companies who exist only on paper, not in actual terms. 8.6 In view of above discussion, I hold that none of the conditions as per section 68 of the Act are satisfied in the case of creditors of appellant company, therefore, the additions of Rs. 32,50,000/- u/s 68 and Rs. 16,250/- as unexplained commission u/s 69C of the Act in respect of accommodation entries and Rs. 1,23,59,984/- on account of other cash credits as made by AO are upheld and grounds taken by appellant are dismissed”

ITA Nos.900 & 901/Del/2019 6. Grounds of appeal No.1 and 7 being general in nature are dismissed. 7. In ground of appeal No.2, the assessee has challenged the validity of the reassessment proceedings initiated by the AO and upheld by the CIT(A).The ld. Counsel for the assessee, referring to page 34 and 35 of the paper book, drew the attention of the Bench to the copy of the reasons recorded. He submitted that the AO has reproduced therein the information obtained from the Investigation Wing and has straightaway reached the stage of formation of belief of escapement of income. Referring to the reasons recorded for issue of notice u/s 148 of the Act, the ld. Counsel for the assessee submitted that the letter flagged as Annexure A-1 as per the reasons was never given to the assessee. Further, the reasons do not give the name of bank or its details, the instrument No., the date, etc., therefore, it is not possible to know as to which assessment year the amount relates to. He submitted that even the name of one of the issuing company is wrong i.e., while the AO in the reasons recorded has mentioned Northstar Pvt. Ltd., however, the assessee has taken money from Northstar Exim Pvt. Ltd. and not from Northstar Pvt. Ltd. He submitted that there exists another company in the list supplied by the Investigation Wing i.e., Northstar Impex Pvt. Ltd. Since all these companies are different entities, therefore, this shows that the AO has not applied his mind while recording reasons. Referring to para 7.3 at page 5 of the assessment order, the ld. Counsel submitted that there is no live link between the reasons recorded and the escapement of income. The entire reopening of the assessment was on account of borrowed satisfaction and there is no clear application of mind. 12

ITA Nos.900 & 901/Del/2019 8. Referring to the decision of the Hon’ble Delhi High Court in the case of Rajiv Aggarwal vs. ACIT, 395 ITR 255, he submitted that the Hon’ble High Court has held that even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an assessee has escaped assessment, form a belief that income of the assessee has escaped assessment. When there is no application of mind by the AO it cannot be said that he has reason to believe so as to justify the reopening of the assessment. He submitted that no statement of any middlemen was recorded to justify that the assessee has given his own money to get the share application money or unsecured loan from the persons.

ITA Nos.900 & 901/Del/2019 provided, the name of the bank in which the accommodation entries were credited and the date of transaction, etc.

ITA Nos.900 & 901/Del/2019 transactions and AO did not conduct appropriate enquiry to conclude that share infusion and advances received were from bogus entities, no addition could be made on that account by invoking section 68.

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accommodation entries they were not transactions, was neither a change of opinion nor did it convey a particular interpretation that a specific provision which was drawn in a particular manner in the original assessment and ought to be done in a different manner in the proceedings u/s 148. He also relied on the various decisions as per the synopsis.

“REASONS FOR ISSUE OF NOTICE U/ 148 OF THE INCOME TAX ACT, 1961 The return of income for the A.Y. 2009-10 has been filed by the assessee company on 29.09.2009 declaring a total income of Rs. 1,98,324/-. The same was processed u/s 143(1) on 08.03.2011. The case has not been assessed u/s 143(3) earlier. In this case information has been shared by O/o the DGIT (Investigation), Mumbai (letter flagged as Annexure A-l) on the basis of search conducted on 01.10.2013 in the case of Satish Saraf group of cases (entry operator) mainly operating from Mumbai and Kolkata. During the financial year 2008-09 the aforementioned assesses has introduced its own money by way of taking bogus accommodation entries provided by Satish Saraf group of cases(entry operator) the details of accommodation entry amount received as beneficiary is given as under as provided by investigation wing:

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S. Beneficiaries Name of Entry Provider Amount Total Amount No.

1 M/s Satvijay Sh. Satish Saraf Group 32,50,000/- 32,50,000/- Investment & Consultancy Services P. Ltd.

I have perused balance sheet of the assessee for year ending 31.03.2009 and 31.03.2008 it is revealed that share application money has increased by Rs. 1,51,50,000 /- and unsecured loans has increased by Rs. 14,59,984/-. In this way there is a total increase of Rs. 1,66,09,984/-. In this regard I have also tallied the above with information details of the amount, the issuing company, the recipient company etc. as tabulated/reproduced below which are found tally with fresh share capital received as detailed below to. FY S. From:-Name of Concern To:- Beneficiary (Investee) Amount No. (controlled and managed by Company name Satish Saraf Group.)

In view of the above information I have reason to believe that the income pertaining to….has escaped assessment on account of failure on……….of the assessee to truly and fully disclose all material facts necessary for assessment for the AY 2009-10. In order to verify the genuineness, identification and creditworthiness of the aforesaid transaction the case needs to be reopened u/s 147 of the I.T. Act 1961. Sd/- (R.O. Bhutia) Income Tax Officer Ward-22(4), New Delhi.”

Pvt. Ltd. and Northstar Pvt. Ltd. (Rs.20 lakhs), the companies controlled by

ITA Nos.900 & 901/Del/2019 Satish Saraf group of cases u/s 68 of the IT Act. Similarly, he also made addition of Rs.19,00,000/- being the increase in share application money received from Satish Saraf group. The AO also made addition of Rs.4,59,984/- under the head ‘Unsecured loans’ and Rs.16,250/- being unexplained commission paid in cash. We find, the assessee before the CIT(A) challenged the validity of reassessment proceedings and the addition on merit and the ld.CIT(A) upheld the action of the AO both on merit as well as on validity of reassessment proceedings and the reasons have already been produced in the preceding paragraphs. It is the submission of the ld. Counsel for the assessee that the reopening of the assessment in the instant case is not in accordance with the law on account of a number of infirmities.

ITA Nos.900 & 901/Del/2019 transaction falls in the year under consideration and is an extremely important piece of information to justify independent application of mind.

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Investigation Wing. We find force in the argument of the learned counsel for the assessee that non-identification of the deponents proves that the statements of these individuals were not available to the AO at the time of formation of belief while recording of reasons. Either these details were not available with him and even if available the same failed to find any subjective consideration by the AO. Further, although the AO in his reasons recorded has identified various possible modes of accommodation entries such as provision of cheques/RTGS etc for unaccounted cash either through fake purchase and sale, commodity profit/loss, fake commission, one time entry or other modes but failed to identify the particular mode(s) of accommodation entries adopted in the present case. In absence of identification of mode of accommodation entry, the reason recorded in our opinion is incomplete, vague and incoherent and leaves the reader clueless. Besides non-identification of the entities, the AO has also failed to identify middleman, if any, in the deal. The important details in the form of instrument number through which cheques/RTGS was accepted by the assessee company, name of the bank from which the accommodation entry was provided, the name of the bank in which the accommodation entry was credited and the date of the transaction is missing in the reason. The date of transaction in our opinion, is important to verify whether the transaction falls in the year under consideration which is extremely important piece of information to justify independent application of mind. 29. We find during the course of assessment proceedings, the assessee had raised specific objection before the AO regarding the non-mentioning of the entities as per reasons provided who had given accommodation entries. However, a perusal of the said annexure which is reproduced as under does not give such details giving the names of the entities giving the amount of accommodation entries during the year.

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of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says: "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing". 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... " 22. As rightly pointed out by the ITAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.

ITA Nos.900 & 901/Del/2019

ITA Nos.900 & 901/Del/2019

"11. Reasons for the belief that income has escaped assessment.- Information is received from the DIT (Inv.-1), New Delhi that the assessee has introduced money amounting to Rs. 5 lakh during the F.Y. 2002-03 relating to A.Y. 2003-04. Details are contained in Annexure. As per information amount received is nothing but accommodation entry and assessee is a beneficiary." 28.2 The Annexure to the said proforma gave the Name of the Beneficiary, the value of entry taken, the number of the instrument by which entry was taken, the date on which the entry was taken, Name of the account holder of the bank from which the cheque was issued, the account number and so on. 28.3 Analysing the above reasons together with the annexure, the Court observed: "14. The first sentence of the reasons states that information had been received from Director of Income-Tax (Investigation) that the petitioner had introduced money amounting to Rs. 5 lacs during financial year 2002-03 as per the details given in Annexure. The said Annexure, reproduced above, relates to a cheque received by the petitioner on 9th October, 2002 from Swetu Stone PV from the bank and the account number mentioned therein. The last sentence records that as per the information, the amount received was nothing but an accommodation entry and the assessee was the beneficiary. 15. The aforesaid reasons do not satisfy the requirements of Section 147 of the Act. The reasons and the information referred to is extremely scanty and vague. There is no reference to any document or statement, except Annexure, which has been quoted above. Annexure cannot be regarded as a material or evidence that prima facie shows or establishes nexus or link which discloses escapement of income. Annexure is not a pointer and does not indicate escapement of income. Further, it is apparent that the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. The Assessing Officer accepted the plea on the basis of vague information in a mechanical manner. The Commissioner also acted on the same basis by mechanically giving his approval. The reasons recorded reflect that the Assessing Officer did not independently apply his mind to the information received from the Director of Income-Tax (Investigation) and arrive at a belief whether or not any income had escaped assessment." 28.4 The Court in Signature Hotels Pvt. Ltd. v. Income Tax Officer (supra) quashed the proceedings under Section 148 of the 23

ITA Nos.900 & 901/Del/2019

Act. The facts in the present case are more or less similar. The present case is therefore covered against the Revenue by the aforementioned decision. 29.1 The above decision can be contrasted with the decision in AGR Investment v. Additional Commissioner of Income Tax (supra), where the 'reasons to believe' read as under: "Certain investigations were carried out by the Directorate of Investigation, Jhandewalan, New Delhi in respect of the bogus/accommodation entries provided by certain individuals/companies. The name of the assessee figures as one of the beneficiaries of these alleged bogus transactions given by the Directorate after making the necessary enquiries. In the said information, it has been inter-alia reported as under: "Entries are broadly taken for two purposes: 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc. 2. To inflate expense in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. It has been revealed that the following entries have been received by the assessee:...." 29.2 The details of six entries were then set out in the above 'reasons'. These included name of the beneficiary, the beneficiary's bank, value of the entry taken, instrument number, date, name of the account in which entry was taken and the account from where the entry was given the details of those banks. The reasons then recorded: "The transactions involving Rs. 27,00,000/-, mentioned in the manner above, constitutes fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represents the undisclosed income/income from other sources of the assessee company, which has not been offered to tax by the assessee till its return filed. On the basis of this new information, I have reason to believe that the income of Rs. 27,00,000/- has escaped assessment as defined by section 147 of the Income Tax Act. Therefore, this is a fit case for the issuance of the notice under section 148." 29.3 The Court was not inclined to interfere in the above circumstances in exercise of its writ jurisdiction to quash the proceedings. A careful perusal of the above reasons reveals that the AO does not merely reproduce the information but takes the effort of revealing what is contained in the investigation report specific to 24

ITA Nos.900 & 901/Del/2019

the Assessee. Importantly he notes that the information obtained was 'fresh' and had not been offered by the Assessee till its return pursuant to the notice issued to it was filed. This is a crucial factor that went into the formation of the belief. In the present case, however, the AO has made no effort to set out the portion of the investigation report which contains the information specific to the Assessee. He does not also examine the return already filed to ascertain if the entry has been disclosed therein. 30.1 In Commissioner of Income Tax, New Delhi v. Highgain Finvest (P) Limited (2007) 164 Taxman 142 (Del) relied upon by Mr. Chaudhary, the reasons to believe read as under: "It has been informed by the Additional Director of Income Tax (Investigation), Unit VII, New Delhi vide letter No. 138 dated 8 th April 2003 that this company was involved in the giving and taking bogus entries/ transactions during the financial year 1996-97, as per the deposition made before them by Shri Sanjay Rastogi, CA during a survey operation conducted at his office premises by the Investigation Wing. The particulars of some of the transaction of this nature are as under: Date Particulars of cheque Debit Amt. Credit Amt 18.11.96 305002 5,00,000 Through the Bank Account No. CA 4266 of M/s. Mehram Exports Pvt. Ltd. in the PNB, New Rohtak Road, New Delhi. Note: It is noted that there might be more such entries apart from the above. The return of income for the assessment year 1997-98 was filed by the Assessee on 4th March 1998 which was accepted under Section 143 (1) at the declared income of Rs. 4,200. In view of these facts, I have reason to believe that the amount of such transactions particularly that of Rs. 5,00,000 (as mentioned above) has escaped the assessment within the meaning of the proviso to Section 147 and clause (b) to the Explanation 2 of this section. Submitted to the Additional CIT, Range -12, New Delhi for approval to issue notice under Section 148 for the assessment year 1997-98, if approved." 30.2 The AO was not merely reproducing the information received from the investigation but took the effort of referring to the deposition made during the survey by the Chartered Accountant that the Assessee company was involved in the giving and taking of bogus entries. The AO thus indicated what the tangible material was which enabled him to form the reasons to believe that income has escaped assessment. It was in those circumstances that in the 25

ITA Nos.900 & 901/Del/2019

case, the Court came to the conclusion that there was prima facie material for the AO to come to the conclusion that the Assessee had not made a full and true disclosure of all the material facts relevant for the assessment. 31. In Commissioner of Income Tax v. G&G Pharma (supra) there was a similar instance of reopening of assessment by the AO based on the information received from the DIT (I). There again the details of the entry provided were set out in the 'reasons to believe'. However, the Court found that the AO had not made any effort to discuss the material on the basis of which he formed prima facie view that income had escaped assessment. The Court held that the basic requirement of Section 147 of the Act that the AO should apply his mind in order to form reasons to believe that income had escaped assessment had not been fulfilled. Likewise in CIT-4 v. Independent Media P. Limited (supra) the Court in similar circumstances invalidated the initiation of the proceedings to reopen the assessment under Section 147 of the Act. 32. In Oriental Insurance Company Limited v. Commissioner of Income Tax 378 ITR 421 (Del) it was held that "therefore, even if it is assumed that, in fact, the Assessee‟ s income has escaped assessment, the AO would have no jurisdiction to assess the same if his reasons to believe were not based on any cogent material. In absence of the jurisdictional pre-condition being met to reopen the assessment, the question of assessing or reassessing income under Section 147 of the Act would not arise." 33. In Rustagi Engineering Udyog (P) Limited (supra), it was held that "...the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years. Although the AO may have entertained a suspicion that the Assessee‟ s income has escaped assessment, such suspicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe - not reason to suspect - is the precondition for exercise of jurisdiction under Section 147 of the Act. " 34. Recently in Agya Ram v. CIT (supra), it was emphasized that the reasons to believe "should have a link with an objective fact in the form of information or materials on record..." It was further emphasized that "mere allegation in reasons cannot be treated equivalent to material in eyes of law. Mere receipt of information 26

ITA Nos.900 & 901/Del/2019

from any source would not by itself tantamount to reason to believe that income chargeable to tax has escaped assessments." 35. In the decision of this Court dated 16th March 2016 in W.P. (C) No. 9659 of 2015 (Rajiv Agarwal v. CIT) it was emphasized that "even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment." 36. In the present case, as already noticed, the reasons to believe contain not the reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment. 37. For the aforementioned reasons, the Court is satisfied that in the facts and circumstances of the case, no error has been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. 38. The question framed is answered in the negative, i.e., in favour of the Assessee and against the Revenue. The appeal is, accordingly, dismissed but with no orders as to costs.” 31. We find, following the above decision, the Co-ordinate Benches of the Tribunal are taking the consistent view that when there is non- application of mind by the AO to the report of the Investigation Wing, such reassessment proceedings are not in accordance with law and such reopening proceedings have been quashed. Since, in the instant case, the AO has not applied his mind as there is non-identification of the deponents, non-mentioning of middleman if any, absence of details in the form of instrument number through which the cheques/RTGS was accepted by the assessee company, name of the bank from which the accommodation entries were provided, the name of the bank in which the accommodation entries were credited and the date of transaction etc. therefore, we are of the considered opinion that there is complete non-application of mind by the AO to the information received from the Investigation Wing. Therefore, in 27

ITA Nos.900 & 901/Del/2019

view of the decision of the Hon’ble Delhi High court in the case of Pr. CIT vs Meenkashi Overseas Pvt. Ltd. (supra), the reassessment proceedings are not in accordance with law. 32. We further find the Hon’ble Delhi High Court in the case of Sh Rajiv Agarwal vs ACIT, reported in 395 ITR 0255 (Del) has held that even in cases where the AO comes across certain unverified information, it is necessary for him to take further steps, make inquiries and garner further material and if such material indicates that income of an Assessee has escaped assessment, form a belief that income of the Assessee has escaped assessment. There is non-application of mind by the AO could not be said to have reason to believe as to justify reopening of assessment. 33. We further find in the instant case, the assessee in response to notice u/s 148 of the Act vide letter dated 12.04.2018 (Paper book page 77) stated that return of income filed u/s 139 of the Act be treated as return of income filed in response to notice u/s 148 and also requested for supply of the copy of reasons. We find the AO after more than four months vide letter dated 07.08.2018 (Paper book 73), directed the assessee to e-file the return of income which was done on 13.10.2018. We find the AO thereafter issued notice dated 16.10.2018 u/s 143(2)/142(1) of the Act (Paper book 74-76) and supplied reasons recorded on 22.10.2018 (Paper book 45) against which the assessee submitted objection to assumption to jurisdiction on 05.11.2018 and same were disposed of by AO on 09.11.2018. From the above facts, it is evident that the AO assumed jurisdiction to make assessment by issuing notice u/s 143(2) of the Act on 16.10.2018 before supplying reason which means that the AO assumed jurisdiction before allowing assessee to file objection to assumption to jurisdiction. 34. We find the Hon’ble Delhi High Court in the case of Mastech Technologies Pvt Ltd. vs DCIT reported in 407 ITR 242(Del.) at para 30 of the order has observed as under:-

“30. As regards the non-communication of the reasons as contained in Annexure-A to the proforma on which the approval dated 19th March, 2015 was granted by the Additional CIT, there is again no satisfactory explanation. The fact remains that what was communicated to the Petitioner on 23rd February, 2016 was only one line without any supporting material. There appears to be also no clarity of how the case had to be proceeded with by the Revenue, On one date i.e. 16th February 2016, the AO was issuing notice both under Section 142(1) of the Act as well as notice under Section 143(2) of the Act when on that very date the Petitioner had asked for the reasons for reopening by notice dated 18th January, 2016. Again, it is not clear why the AO did not wait for the process of supplying reasons to the Petitioner, considering the Petitioner's objections thereto and passing a reasoned order thereon to be completed before issuing the notice under Section

ITA Nos.900 & 901/Del/2019 142(1) and 143(2) of the Act. There appears to be non-application of mind.” 35. In view of the above discussion, we are of the considered opinion that reassessment proceeding initiated by the AO in the instant case and upheld by the learned CIT(A) is not in accordance with law. Therefore, we quash the reassessment proceeding. Since, the assessee succeeds on this legal ground, therefore, the other plank of arguments challenging the validity of reassessment proceeding and the arguments challenging the validity on merit are not being adjudicated. 36. In the result, the appeal filed by the assessee is allowed.”

ITA Nos.900 & 901/Del/2019 reassessment proceedings initiated by the AO and upheld by the CIT(A). Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit is not being adjudicated being academic in nature.

ITA No.901/Del/2019 (A.Y. 2010-11) 20. The grounds raised by the assessee read as under:- “1. That the order of CIT (A) is bad in law, perverse and is passed without considering the submissions made by the assessee, without considering the facts on record and with a pre-conceived mind set. 2. That in the facts and circumstances of the case, the CIT (A) has erred in law in upholding the re-assessment proceedings initiated U/s 147/148 of the Income-Tax Act, 1961. 3. That in the facts and circumstances of the case, the CIT(A) has erred in law in confirming the addition of Rs. 10,00,000/- made U/s 68 of the Income- Tax Act. 4. That in the facts and circumstances of the case, the CIT(A) has erred in law in confirming the addition of Rs. 5,000/- on account of un-explained commission. 5. That in the facts and circumstances of the case, the CIT(A) has erred in law in confirming the addition of Rs. 53,50,000/- on account of other cash credits. 6. That the order of CIT(A) is also assailed on perversity as, in this case, the Ld. CIT has already passed an order dated 12.12.2018 i.e. even prior to the date of hearing of the Appellant case which was fixed on 19.12.2018, and when the same was realized by the CIT (A), he has chosen to again pass an order dated 19.12.2018 which is under appeal before this Hon'ble Tribunal.”

ITA Nos.900 & 901/Del/2019 have already decided the issue and the reassessment proceedings have been held to be not in accordance with the law. Following similar reasonings, we hold that the reassessment proceedings for the impugned assessment year are also not in accordance with the law and, therefore, the same is quashed. Since the assessee succeeds on this legal ground, the grounds challenging the addition on merit is not being adjudicated. The appeal filed by the assessee is accordingly allowed.