M/S KUNAL CALCIUM LIMITED,YAMUNANAGAR vs. DCIT, YAMUNANAGAR

आदेश/ORDER Per Annapurna Gupta, Accountant Member The present appeal has been filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-2, Gurgaon (in short ‘CIT(A)’ dated 19.2.2016 passed u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).

2 . B r i e f f a c t s r e l a t i n g t o t h e c a s e a r e t h a t t h e a s s e s s e e , f o r t h e i m p u g n e d y e a r , h a d f i l e d r e t u r n d e c l a r i n g i n c o m e o f R s . 6 7 , 8 4 , 7 2 0 / - . T h e A s s e s s i n g O f f i c e r , ( i n s h o r t r e f e r r e d t o a s “ A . O ” ) , o n r e c e i v i n g i n f o r m a t i o n f r o m t h e I n v e s t i g a t i o n W i n g o f t h e D e p a r t m e n t t h a t t h e a s s e s s e e h a d r e c e i v e d a c c o m m o d a t i o n e n t r y o f R s . 1 0 l a c s d u r i n g t h e y e a r f r o m o n e S h r i S . K . J a i n / S h r i V i r e n d e r J a i n t h r o u g h a

2 ITA No.412/Chd/2016 A.Y.2009-10

c o m p a n y c o n t r o l l e d b y t h e m , r e c o r d e d r e a s o n s a n d

i s s u e d n o t i c e u / s 1 4 8 o f t h e A c t f o r r e o p e n i n g t h e c a s e

o f t h e a s s e s s e e . T h e r e a f t e r a f t e r i s s u i n g a d e t a i l e d

q u e s t i o n n a i r e t o t h e a s s e s s e e a n d c o n s i d e r i n g t h e

r e p l y f i l e d b y h i m , t h e A . O . h e l d t h a t t h e a m o u n t o f

R s . 1 0 l a c s r e c e i v e d b y t h e a s s e s s e e f r o m o n e M / s V I P

L e a s i n g & F i n a n c e P v t . L t d . w a s n o t a g e n u i n e

t r a n s a c t i o n b u t a n a c c o m m o d a t i o n e n t r y a n d

a c c o r d i n g l y , a d d e d t h e s a m e t o t h e i n c o m e o f t h e

a s s e s s e e . T h e a s s e s s e e w e n t i n a p p e a l t o t h e C I T ( A )

w h o u p h e l d t h e o r d e r o f t h e A . O . A g g r i e v e d b y t h e s a m e

t h e a s s e s s e e h a s f i l e d t h e p r e s e n t a p p e a l b e f o r e u s .

3 . G r o u n d N o s . 1 a n d 2 r a i s e d b y t h e a s s e s s e e a r e

l e g a l g r o u n d s c h a l l e n g i n g t h e v a l i d i t y o f t h e

a s s e s s m e n t f r a m e d u / s 1 4 7 o f t h e A c t a n d r e a d a s

u n d e r :

“ 1 . The learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the action of learned AO in reopening of assessment u/s 148. 2. That learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the action of AO of completing the assessment without disposing the objections of assessee against reopening of assessment before completion of assessment.” 4 . V i s - à - v i s t h e a b o v e g r o u n d s r a i s e d b e f o r e u s , t h e

L d . c o u n s e l f o r a s s e s s e e c o n t e n d e d t h a t t h e r e a s o n s

r e c o r d e d f o r r e o p e n i n g t h e c a s e w e r e n o t s u f f i c i e n t t o

f o r m t h e b e l i e f o f e s c a p e m e n t o f i n c o m e a n d ,

t h e r e f o r e , t h e j u r i s d i c t i o n a s s u m e d b y t h e A . O . u / s

1 4 7 / 1 4 8 o f t h e A c t t o a s s e s s t h e i n c o m e o f t h e

3 ITA No.412/Chd/2016 A.Y.2009-10

a s s e s s e e w a s t h u s i n v a l i d a n d t h e o r d e r , a s a

c o n s e q u e n c e , p a s s e d b y t h e A . O . o u g h t t o b e q u a s h e d .

O u r a t t e n t i o n w a s d r a w n t o t h e r e a s o n s r e c o r d e d f o r

r e o p e n i n g t h e c a s e r e p r o d u c e d a t P a p e r B o o k p a g e

N o s . 2 a n d 3 a s u n d e r :

“As per information received from the O/o the Dy. Director of Income (Inv.) Unit-VI(2), New Delhi vide letter No. DDIT(Inv.)/U-VI(2)/lnformation Sharing/2012- 13/223 dated 15.03.2013 (copy on record) received in this office through the O/o Joint Commissioner of Income Tax, Yamuna Nagar Range, Yamuna Nagar vide letter dated 20.03.2013, M/s Kunal Calcium Ltd. (PAN: AABCK4507G) has received an accommodation entry of Rs.10,00,000/- during the F.Y. 2008-09 relevant to A.Y. 2009-10 from Sh. S.K. Jain and his brother. The detail of information received is as under:- "A search/survey action u/s 132/133A of the Income Tax Act, was conducted at the residential and business premises of Sh. Surendra Kumar Jain and his brother Virendra Jain. During the course of post search investigation it has been evidently established that Sh. S.K. Jain and his brother Sh. Virendra Jain are in the business of providing accommodation entries to various beneficiary companies/entitles/persons through cheques through a number of paper & dummy companies in lieu of case. These dummy companies are totally managed and controlled by Sh. Surendra Kumar Jain and his brother Sh. Virendra Jain. During the course of search action vast number of incriminating documents were found and seized. These documents include date wise hand written cheque books and cash books maintained by Sh. S.K. Jain and his brother over a long period of time (around 6 years). In these cheque books and cash books detail of cheque provided to the beneficiary companies/entries/persons and receipt of cash by Sh. Surendra Kumar Jain from these beneficiary companies/entries/persons were recorded. From the verification of the documents seized it clearly appears that the following companies had obtained accommodation entries from various paper companies of S.KJain Group in lieu of cash during the financial year 2005-06 to 2010-1 5 for total amount mentioned against their names. These bogus share capital/premium/loan has clearly escaped taxation in these assessment year before these amounts are required to be taxed in the hands of these companies by initiating action under section 148 of the Income-tax Act. 1961.

4 ITA No.412/Chd/2016 A.Y.2009-10

Sr. No. Name of Company PAN F.Y. 2008-09 (Amount Rs.) 1 M/s Kunal Calcium Ltd. AABCK4507G 10,00,000/-

As the jurisdiction over the above mentioned companies lie with CIT, Panchkula charge. It is requested that the report in the matter (enclosed herewith) may be forwarded for necessary action including immediate initiation of action u/s148oftheI.T.Act,1961for the A.Y. 2005-06 in the case of above mentioned company." Therefore, in view of the above discussion, I have reason to believe that the income amounting to Rs.10,00,000/- has escaped assessment for A.Y. 2009-10 and notice u/s 148 is required to be issued to reassess the income for A.Y. 2009-10.” 5 . R e f e r r i n g t o t h e s a m e t h e L d . c o u n s e l f o r a s s e s s e e

s t a t e d t h a t e v i d e n t l y , t h e A . O . ’ s b e l i e f o f e s c a p e m e n t

o f i n c o m e o f t h e a s s e s s e e r e s t e d e n t i r e l y o n

i n f o r m a t i o n r e c e i v e d f r o m t h e I n v e s t i g a t i o n W i n g o f

t h e D e p a r t m e n t a n d t h e A . O . h a d w i t h o u t a p p l y i n g h i s

m i n d t o t h e i n f o r m a t i o n s u p p l i e d b y t h e I n v e s t i g a t i o n

W i n g p r o c e e d e d t o a s s u m e j u r i s d i c t i o n t o f r a m e

a s s e s s m e n t o n t h e a s s e s s e e u / s 1 4 7 o f t h e A c t . I t w a s

c o n t e n d e d , t h e r e f o r e , t h a t t h e b e l i e f o f e s c a p e m e n t o f

i n c o m e w a s n o t t h a t o f t h e A . O . b u t i n f a c t , i t w a s a

b o r r o w e d b e l i e f . T h e L d . c o u n s e l f o r a s s e s s e e s t a t e d

t h a t i t i s s e t t l e d l a w t h a t i t i s t h e A . O . w h o s h o u l d b e

o f t h e b e l i e f t h a t t h e i n c o m e h a d e s c a p e d a s s e s s m e n t

w h i c h s h o u l d b e b a s e d o n o b j e c t i v e r e a s o n s . O u r

a t t e n t i o n w a s d r a w n t o t h e f o l l o w i n g c a s e l a w s i n

s u p p o r t o f t h e a b o v e c o n t e n t i o n :

1 ) S i g n a t u r e H o t e l s P v t L t d . v s I n c o m e T a x O f f i c e r 3 3 8 I T R 5 1 ( D e l h i ) 2 ) P C I T v s M e e n a k s h i O v e r s e a s 3 9 5 I T R 6 7 7 ( D e l h i )

5 ITA No.412/Chd/2016 A.Y.2009-10

3 ) M R Y A u t o C o m p o n e n t s L t d . v s I T O W a r d N o . 6 ( 1 ) 2 0 1 7 ( 9 ) T M I 9 6 6 ( D e l h i B e n c h ) 4 ) C I T v s M / s S N G D e v e l o p e r s L i m i t e d 2 0 1 7 ( 7 ) T M I 5 7 5 ( D e l h i ) 5 . T h e L d . c o u n s e l f o r a s s e s s e e p o i n t e d o u t t h a t i n

t h e r e a s o n s r e c o r d e d t h e A . O . h a d o n l y r e p r o d u c e d t h e

i n f o r m a t i o n r e c e i v e d f r o m t h e D D I T ( I n v ) a n d t h e r e a f t e r

r e c o r d e d h i s b e l i e f o f i n c o m e e s c a p i n g a s s e s s m e n t

w i t h o u t a n y a p p l i c a t i o n o f h i s o w n m i n d t o t h e

i n f o r m a t i o n .

6 . T h e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e

o r d e r o f t h e L d . C I T ( A ) s t a t i n g t h a t t h e i n f o r m a t i o n

r e c e i v e d f r o m t h e D I T ( I n v e s t i g a t i o n ) w a s s u f f i c i e n t

m a t e r i a l o n t h e b a s i s o f w h i c h h e c o u l d h a v e p r i m a

f a c i e r e a s o n t o b e l i e v e t h a t t h e i n c o m e h a d e s c a p e d

a s s e s s m e n t . T h e L d . D R r e l i e d u p o n t h e f i n d i n g s o f t h e

L d . C I T ( A ) a t p a r a 3 . 4 o f h i s o r d e r a s u n d e r :

“3.4. I have carefully considered the appellant's submissions. The AO while reopening the case had recorded detailed reasons. Perusal of the reasons shows that AO had applied his mind to the information received from the O/o the Director of Income Tax (Inv.), New Delhi. In these circumstances the contention of the appellant that the notice was served without application of mind is not correct. The assessment proceedings were reopened on the basis of information received from DIT(Inv.), New Delhi. For acquiring jurisdiction u/s 147 of the Act the A.O. is required to have in his possession certain material or information on the basis of which he could prima-facie have reason to believe that income escaped assessment. Communication received by an Assessing Officer for discharge of his official duties is valid information for issue of notice u/s 148. Reliance in this regard is placed on the case of Money Growth Investment & Consultants (P) Ltd. v. ITO (2012) 71 DTR 317 (Delhi)(High Court) wherein it was held that material and information provided by Investigation Wing to the AO, on the basis of which he recorded reasons and reopened the assessment, throw considerable doubt on the veracity, correctness, completeness and truth of particulars furnished by the assessee at the time of the original

6 ITA No.412/Chd/2016 A.Y.2009-10

assessment and therefore notice issued by AO under Section 148 was valid. Reliance in this regard is also placed on the following case laws:- i) Srinivasa Khandasari Udyog Vs. ITO (ITAT, Bang) 56 ITD 146. ii ITO Vs. Purushotam Das Bangur & Anr. (SC) 224 ITR 362 iii) Elphinstone Picture Palace Vs. Union of India & Anr (Pat) 74 ITR 115 iv) H.A. Nanji & Co.Vs. ITO (Cai) 120 ITR 593 v) Sohan Singh Vs. CIT (Del) 158 ITR 174 vi) Rattan Gupta Vs. CIT (P&H) 234 ITR 220” 7 . W e h a v e h e a r d t h e r i v a l c o n t e n t i o n s c a r e f u l l y a n d

p e r u s e d t h e o r d e r s o f t h e a u t h o r i t i e s b e l o w . I n t h e

p r e s e n t c a s e a s i s c l e a r l y e v i d e n t f r o m t h e c o p y o f

r e a s o n s r e c o r d e d , p l a c e d b e f o r e u s , t h e A . O . h a s

m e r e l y r e p r o d u c e d i n f o r m a t i o n r e c e i v e d f r o m t h e

D D I T ( I n v e s t i g a t i o n ) t h a t t h e a s s e s s e e h a d r e c e i v e d

s o m e a c c o m m o d a t i o n e n t r y o f R s . 1 0 l a c s f r o m a

c o m p a n y c o n t r o l l e d b y S h r i S . K . J a i n a n d S h r i

V i r e n d e r J a i n . T h e i n f o r m a t i o n a s r e p r o d u c e d i n t h e

r e a s o n s d o e s n o t e v e n s t a t e f r o m w h i c h e n t i t y t h e s a i d

e n t r y w a s r e c e i v e d b y t h e a s s e s s e e , o r t h e m o d e i n

w h i c h i t w a s r e c e i v e d w h e t h e r a s l o a n o r s h a r e c a p i t a l

, t h e i n f o r m a t i o n m e n t i o n i n g b o t h . E v e n t h e m a n n e r i n

w h i c h i t w a s r e c e i v e d f i n d s n o m e n t i o n a n d o n l y s t a t e s

t h a t t h e a s s e s s e e h a d r e c e i v e d a c c o m m o d a t i o n e n t r y o f

R s . 1 0 l a c s d u r i n g t h e y e a r . T h e i n f o r m a t i o n i s m e r e l y

a c o n c l u s i o n o f t h e D D I T ( I n v ) w i t h o u t b r i n g i n g o u t t h e

f a c t s o n w h i c h i t i s b a s e d . T h e r e c o u l d n o t h a v e

p o s s i b l y b e e n a n y f o r m a t i o n o f b e l i e f o f e s c a p e m e n t o f

i n c o m e o n t h e b a s i s o f t h i s i n f o r m a t i o n r e c e i v e d b y t h e

A . O . F u r t h e r , t h e A . O . i n t h e r e a s o n s h a s n o t

7 ITA No.412/Chd/2016 A.Y.2009-10

d i s c l o s e d a s t o h o w t h i s i n f o r m a t i o n , w h i c h w a s

c l e a r l y v a g u e c o u l d b e c o r r e l a t e d t o a n y s u c h e n t r y i n

t h e b o o k s o f a c c o u n t o f t h e a s s e s s e e . T h e r e i s n o

m e n t i o n o f t h e f a c t i n t h e r e a s o n s t h a t t h e A . O . h a d

v e r i f i e d t h i s v a g u e i n f o r m a t i o n r e c e i v e d f r o m t h e

D D I T ( I n v e s t i g a t i o n ) , w i t h t h e i n f o r m a t i o n o f t h e

a s s e s s e e a v a i l a b l e o n r e c o r d w i t h h i m a n d f o u n d t o b e

t r u e . T h e A . O . c l e a r l y h a s n o t a p p l i e d h i s m i n d t o t h e

i n f o r m a t i o n a t a l l . T h e b e l i e f i s n o t h i s b e l i e f b u t t h e

b e l i e f o f t h e D D I T ( I n v ) . W e t h e r e f o r e f i n d m e r i t i n t h e

c o n t e n t i o n o f t h e L d . c o u n s e l f o r a s s e s s e e t h a t t h e

b e l i e f i n t h e p r e s e n t c a s e o f e s c a p e m e n t o f i n c o m e o f

t h e a s s e s s e e w a s n o t t h a t o f t h e A . O . b u t w a s a

b o r r o w e d b e l i e f w i t h n o a p p l i c a t i o n o f m i n d b y t h e

A . O . o n t h e i n f o r m a t i o n r e c e i v e d b y h i m f r o m t h e

D I T ( I n v e s t i g a t i o n ) . A s r i g h t l y p o i n t e d o u t b y t h e L d .

c o u n s e l f o r a s s e s s e e , C o u r t s i n v a r i o u s d e c i s i o n s h a v e

i n t e r p r e t e d t h e p r o v i s i o n s o f s e c t i o n 1 4 8 a n d h a v e

h e l d t h a t f o r a v a l i d r e o p e n i n g a n e s s e n t i a l

p r e r e q u i s i t e i s t h e r e a s o n a b l e b e l i e f o f t h e A s s e s s i n g

O f f i c e r t h a t i n c o m e h a s e s c a p e d a s s e s s m e n t . I t h a s

b e e n c a t e g o r i c a l l y h e l d b y c o u r t s i n v a r i o u s d e c i s i o n s

t h a t t h e b e l i e f s h o u l d b e t h a t o f t h e A s s e s s i n g O f f i c e r

a n d s h o u l d n o t b e a b o r r o w e d b e l i e f a n d t h e e x i s t e n c e

o f t h i s f a c t c a n b e e x a m i n e d f r o m t h e r e a s o n s r e c o r d e d

b y t h e A s s e s s i n g O f f i c e r f o r r e o p e n i n g o f t h e c a s e .

8 ITA No.412/Chd/2016 A.Y.2009-10

8 . I n t h e c a s e o f M e e n a k s h i O v e r s e a s ( s u p r a ) t h e

H o n ’ b l e D e l h i H i g h C o u r t , q u a s h e d r e a s s e s s m e n t

p r o c e e d i n g s i n i t i a t e d o n t h e b a s i s o f v a g u e

i n f o r m a t i o n t o w h i c h n o m i n d h a d b e e n a p p l i e d b y t h e

A O w h o h a d m e r e l y b o r r o w e d t h e b e l i e f o f t h e

I n v e s t i g a t i o n W i n g o f t h e D e p a r t m e n t . T h e H o n ’ b l e

h e l d a s u n d e r :

“A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing 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

9 ITA No.412/Chd/2016 A.Y.2009-10

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. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. 9 . I n v i e w o f t h e a b o v e w e h o l d t h a t t h e r e w a s n o

b e l i e f a t a l l o f t h e A . O o f e s c a p e m e n t o f i n c o m e a n d

j u r i s d i c t i o n , t h e r e f o r e , a s s u m e d t o f r a m e a s s e s s m e n t

u / s 1 4 7 w a s i n v a l i d . W e m a y a d d t h a t t h o u g h i t i s n o t

d e n i e d t h a t c o m m u n i c a t i o n r e c e i v e d b y a n A s s e s s i n g

O f f i c e r f o r d i s c h a r g e o f h i s o f f i c i a l d u t i e s i s v a l i d

i n f o r m a t i o n f o r i s s u e o f n o t i c e u / s 1 4 8 o f t h e A c t , a s

s t a t e d b y t h e L d . C I T ( A ) , B u t a t t h e s a m e t i m e i t i s o n l y

i n f o r m a t i o n b r i n g i n g o u t t h e f a c t o f i n c o m e e s c a p i n g

a s s e s s m e n t , w h i c h c a n b e t r e a t e d a s i n f o r m a t i o n

s u f f i c i e n t f o r r e o p e n i n g a n d n o t a n y v a g u e i n f o r m a t i o n

g i v i n g n o t e v e n t h e b a s i c d e t a i l s o f t h e t r a n s a c t i o n a s

i n t h e p r e s e n t c a s e . T h e r e f o r e w e d o n o t a g r e e w i t h t h e

L d . C I T ( A ) t h a t t h e r e o p e n i n g b a s e d o n i n f o r m a t i o n

r e c e i v e d f r o m t h e i n v e s t i g a t i o n w i n g i n t h e p r e s e n t

c a s e w a s a v a l i d r e o p e n i n g . Th e c a s e l a w s r e f e r r e d t o

10 ITA No.412/Chd/2016 A.Y.2009-10

b y t h e L d . C I T ( A ) a l s o a r e o f n o a s s i s t a n c e s i n c e i n

t h o s e c a s e s t h e r e w a s s p e c i f i c i n f o r m a t i o n r e c e i v e d b y

t h e A . O t o w h i c h t h e A . O w a s a l s o f o u n d t o h a v e

a p p l i e d h i s m i n d w h i l e a s s u m i n g j u r i s d i c t i o n t o f r a m e

a s s e s s m e n t u / s 1 4 7 o f t h e A c t .

1 0 . W e t h e r e f o r e h o l d t h a t t h e j u r i s d i c t i o n a s s u m e d

i n t h e p r e s e n t c a s e b y t h e A . O t o r e o p e n t h e c a s e o f

t h e a s s e s s e e u / s 1 4 7 o f t h e A c t , w a s n o t a s p e r l a w .

T h e o r d e r p a s s e d , t h e r e f o r e , i n t h e p r e s e n t c a s e i s s e t

a s i d e . G r o u n d N o s . 1 i s t h e r e f o r e a l l o w e d .

1 1 . S i n c e w e h a v e h e l d t h e j u r i s d i c t i o n a s s u m e d u / s

1 4 7 o f t h e A c t t o b e i n v a l i d f o r t h e a b o v e r e a s o n , t h e

G r o u n d N o . 2 r a i s e d b y t h e a s s e s s e e c h a l l e n g i n g t h e

f r a m i n g o f a s s e s s m e n t w i t h o u t d i s p o s i n g o f f t h e

o b j e c t i o n s r a i s e d b y t h e a s s e s s e e b e c o m e s a c a d e m i c i n

n a t u r e a n d i s t h e r e f o r e n o t b e i n g d e a l t w i t h b y u s .

1 2 . G r o u n d o f a p p e a l N o s . 3 , 4 a n d 5 r a i s e d b y t h e

a s s e s s e e a r e r e l a t i n g t o t h e m e r i t s o f t h e c a s e a n d

c h a l l e n g e t h e a c t i o n o f t h e C I T ( A ) i n c o n f i r m i n g t h e

a d d i t i o n o f R s . 1 0 l a c s r e c e i v e d b y t h e a s s e s s e e f r o m

o n e M / s V I P L e a s i n g & F i n a n c e P v t . L t d . , a s

u n d i s c l o s e d i n c o m e o f t h e a s s e s s e e . T h e s a i d g r o u n d s

a r e a s u n d e r :

“3. That learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the action of AO of not providing the documents relied and cross examination of witness whose statement was relied while completing the assessment proceedings.

11 ITA No.412/Chd/2016 A.Y.2009-10

t h e f i n d i n g s o f t h e L d . C I T( A ) i n c o n f i r m i n g t h e

a d d i t i o n a t p a r a s 4 . 3 t o 4 . 5 o f t h e o r d e r a s u n d e r :

“4.3. I have carefully considered the appellant's submissions. It is evident from the facts recorded in the assessment order that a search was conducted at the premises of Sh.S.K. Jain and Sh. Virender Jain by the Investigation Wing Delhi. During the course of search it was found that Sh. S.K. Jain and Sh. Virender Jain were engaged in the business of providing accommodation entries. This business was carried out through number of companies which were managed and controlled by Sh. S.K. Jain and Sh. Virender Jain, although on paper these companies had other directors. The documents regarding these companies were found during the course of search. Specific documents pertaining to M/s VIP Leasing and Finance Pvt. Ltd. were also found during the search showing the linkage of this concern with Sh. S.K. Jain and Sh. Virender Jain. Further, as pointed out by the AO in the assessment order, Sh. S.K. Jain and Sh. Virender Jain admitted in their statements that M/s VIP Leasing and Finance Pvt. Ltd. was one of the companies used for providing accommodation entries. In relation to the above, the AO has also referred to a specific document i.e. page 40 of the Annexure A-27 in which following facts had been recorded:- i. Name of the appellant. ii Name of the bank through which draft was given. iii. Demand draft number. iv. Date of issuance of demand draft. v. Amount of demand draft. 4.4. All these facts and evidences referred to by the AO, a copy of which was duly provided to the appellant clearly establishes beyond any doubt that the demand draft of Rs. 10,00,000/- received by the appellant company on account of share capital and share premium from M/s VIP Leasing and Finance Pvt. LTd. was not a genuine transaction but only an accommodation entry. 4.5. The appellant's contention that no opportunity of cross examination of Sh. S.K. Jain and Sh. Virender Jain was provided to the appellant and therefore the addition made is

12 ITA No.412/Chd/2016 A.Y.2009-10

not justified is also not legally tenable. As seen from the facts recorded in the assessment order the evidences found during the course of search including the copy of 1 4 . T h e r e a f t e r t h e L d . c o u n s e l f o r a s s e s s e e p o i n t e d

o u t t h a t t h e L d . C I T ( A ) h a s c o n f i r m e d t h e a d d i t i o n

s o l e l y o n t h e b a s i s o f i n f o r m a t i o n r e c e i v e d f r o m t h e

p r e m i s e s o f o n e S h r i S . K . J a i n a n d S h r i V i r e n d e r J a i n

d u r i n g s e a r c h c o n d u c t e d o n t h e m a n d o n t h e

s t a t e m e n t s o f t h o s e p e r s o n s r e c o r d e d d u r i n g t h e

s e a r c h . T h e L d . c o u n s e l f o r a s s e s s e e p o i n t e d o u t t h a t

i t h a d r e q u e s t e d f o r a n o p p o r t u n i t y b e a f f o r d e d t o

c r o s s e x a m i n e S h . S . K J a i n a n d h i s a s s o c i a t e s o n

w h o s e s t a t e m e n t s t h e R e v e n u e h a d r e l i e d u p o n a n d

h a d a l s o r e q u e s t e d f o r c o p i e s o f t h e a s s e s s m e n t o r d e r s

i n t h e i r c a s e s v i d e l e t t e r f i l e d t o t h e A O r a i s i n g

o b j e c t i o n s t o t h e r e o p e n i n g , c o p y o f w h i c h w a s p l a c e d

b e f o r e u s a t P . B 4 - 5 , b u t h a d b e e n d e n i e d t h e s a m e

a g a i n s t t h e p r i n c i p l e s o f n a t u r a l j u s t i c e . T h e L d .

c o u n s e l f o r a s s e s s e e , t h e r e f o r e , c o n t e n d e d t h a t t h e

a d d i t i o n c o n f i r m e d , b e i n g i n g r o s s v i o l a t i o n o f

p r i n c i p l e s o f n a t u r a l j u s t i c e , o u g h t t o b e d e l e t e d .

R e l i a n c e w a s p l a c e d o n t h e d e c i s i o n o f t h e H o n ' b l e

A p e x C o u r t i n t h e c a s e o f A n d a m a n T i m b e r I n d u s t r i e s

v s . C o m m i s s i o n e r o f C e n t r a l E x c i s e , K o l k a t a - I I ( S C ) i n C i v i l A p p e a l N o . 4 2 2 8 o f 2 0 0 6 d t . 2 n d S e p t e m b e r 2 0 1 5 .

T h e L d . c o u n s e l f o r a s s e s s e e f u r t h e r p o i n t e d o u t t h a t

t h e i n f o r m a t i o n i n t h e p o s s e s s i o n o f t h e D e p a r t m e n t

c o u l d n o t h a v e f o r m e d t h e b a s i s o f h o l d i n g t h e a m o u n t

r e c e i v e d f r o m M / s V I P L e a s i n g & F i n a n c e P v t . L t d . a s

13 ITA No.412/Chd/2016 A.Y.2009-10

a n a c c o m m o d a t i o n e n t r y f o r t h e r e a s o n a l s o t h a t t h i s

c o m p a n y w a s n o t l i s t e d i n t h e p e r s o n s a g a i n s t w h o m a

p r i m a f a c i e c a s e w a s m a d e o u t b y t h e S F I O i n

p r o c e e d i n g s c o n d u c t e d c o n s e q u e n t t o s e a r c h

c o n d u c t e d o n S h r i S . K . J a i n a n d o t h e r s a n d t h e i r

s t a t e m e n t s r e c o r d e d t h e r e i n . A c o p y o f t h e o r d e r o f

A C M M C ( S p e c i a l A c t s ) C e n t r a l D i s t r i c t , D e l h i d a t e d

9 . 6 . 2 0 1 7 l i s t i n g - a c c u s e d p e r s o n s t o b e s u m m o n e d f o r

o f f e n c e s i n t h e c a s e o f S F I O V s . S u r e n d e r K u m a r J a i n

& O t h e r s i n C C N o . 5 4 3 4 / 2 0 1 6 w a s p l a c e d b e f o r e u s

a n d i t w a s p o i n t e d o u t t h e r e f r o m t h a t t h e n a m e o f M / s

V I P L e a s i n g & F i n a n c e P v t . L t d . d i d n o t f i g u r e i n t h e

s a m e o u t o f t h e 3 1 p e r s o n s / e n t i t i e s l i s t e d t h e r e i n . T h e

L d . c o u n s e l f o r a s s e s s e e , t h e r e f o r e , s t a t e d t h a t f o r t h e

a b o v e r e a s o n s a l s o , i t c o u l d n o t b e s a i d t h a t t h e

a m o u n t r e c e i v e d b y t h e a s s e s s e e f r o m M / s V I P L e a s i n g

& F i n a n c e P v t . L t d . w a s i n r e l a t i o n t o t h e b o g u s

c o m p a n i e s f l o a t e d b y S h r i S . K . J a i n & O t h e r s f o r

p r o v i d i n g a c c o m m o d a t i o n e n t r i e s t o p e r s o n s a n d s i n c e

t h i s w a s t h e s o l e b a s i s f o r c o n f i r m i n g t h e a d d i t i o n , t h e

s a m e n o l o n g e r r e m a i n i n g t h e s a m e o u g h t t o b e

d e l e t e d .

1 5 . T h e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e

f i n d i n g s o f t h e C I T ( A ) .

1 6 . W e h a v e c a r e f u l l y c o n s i d e r e d t h e s u b m i s s i o n s o f

b o t h t h e p a r t i e s . W e f i n d m e r i t i n t h e c o n t e n t i o n o f

t h e L d . c o u n s e l f o r a s s e s s e e . A s i s e v i d e n t f r o m t h e

14 ITA No.412/Chd/2016 A.Y.2009-10

f i n d i n g s o f t h e L d . C I T ( A ) t h e e n t i r e b a s i s o f c o n f i r m i n g

t h e a d d i t i o n w a s t h e i n f o r m a t i o n r e c e i v e d f r o m

D I T ( I n v e s t i g a t i o n ) t h a t t h e a s s e s s e e h a d r e c e i v e d

a c c o m m o d a t i o n e n t r y f r o m b o g u s c o m p a n i e s f l o a t e d b y

S h r i S . K . J a i n & O t h e r s , w h i c h i n f o r m a t i o n w a s

c o l l e c t e d d u r i n g t h e c o u r s e o f s e a r c h c o n d u c t e d o n

t h e m a n d s u b m i s s i o n s m a d e b y t h e m i n t h e

p r o c e e d i n g s . A s p o i n t e d o u t b y t h e L d . c o u n s e l f o r

a s s e s s e e t h a t t h e f a c t o f t h e m a t t e r i s t h a t t h e

i m p u g n e d s u m o f R s . 1 0 l a c s w a s r e c e i v e d f r o m M / s V I P

L e a s i n g & F i n a n c e P v t . L t d . T h i s c o m p a n y , a s p o i n t e d

o u t b y t h e L d . c o u n s e l f o r a s s e s s e e , d o e s n o t f i n d

m e n t i o n i n t h e l i s t o f t h e c o m p a n i e s a n d p e r s o n s

a g a i n s t w h o m a p r i m a f a c i e c a s e w a s m a d e o u t b y t h e

S F I O a f t e r c o m p l e t i n g i n v e s t i g a t i o n o n S h r i S . K . J a i n

& O t h e r s . T h e L d . D R w a s u n a b l e t o c o n t r o v e r t t h i s f a c t

p o i n t e d o u t b y t h e L d . C o u n s e l f o r t h e a s s e s s e e .

T h e r e f o r e , t h e v e r y b a s i s f o r t r e a t i n g t h e i m p u g n e d

t r a n s a c t i o n a s a c c o m m o d a t i o n e n t r y i n t h e c a s e o f t h e

a s s e s s e e d o e s n o t s u r v i v e . M o r e o v e r w e a g r e e w i t h t h e

L d . c o u n s e l f o r a s s e s s e e t h a t t h e a d d i t i o n w a s m a d e

a n d c o n f i r m e d w i t h o u t a f f o r d i n g a d e q u a t e o p p o r t u n i t y

t o t h e a s s e s s e e t o d e f e n d h i m s e l f a n d r e b u t t h e

a d v e r s e i n f o r m a t i o n c o l l e c t e d a g a i n s t h i m , b y

a f f o r d i n g d u e o p p o r t u n i t y o f c r o s s e x a m i n i n g t h e

s e a r c h e d p e r s o n s a s r e q u e s t e d b y t h e a s s e s s e e . I t i s

w e l l a c c e p t e d p r i n c i p l e o f n a t u r a l j u s t i c e t h a t nobody

should be condemned unheard as per the maxim “audi

15 ITA No.412/Chd/2016 A.Y.2009-10

alteram partem”. The Revenue cannot justify its action by

saying that the information in their possession was

sufficient to nail the assessee and there was no need to

provide any opportunity for cross examination or to defend

itself. It goes against the very spirit/ grain of natural

justice, as held by the Hon'ble Apex Court in the case of

Andaman Timber (supra). Any assessment made without

following the principle of natural justice cannot be upheld.

Relevant findings of the Hon'ble Apex Court in the said case

are as under:

“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

16 ITA No.412/Chd/2016 A.Y.2009-10

cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice.

1 7 . I n v i e w o f t h e a b o v e , c o n s i d e r i n g t h e e n t i r e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e w e h o l d t h a t t h e

a d d i t i o n m a d e o f R s . 1 0 l a c s , b e i n g t h e a m o u n t

r e c e i v e d f r o m M / s V I P L e a s i n g & F i n a n c e P v t . L t d . h o l d i n g t h e s a m e t o b e a n a c c o m m o d a t i o n e n t r y , i s

w i t h o u t a n y c o g e n t b a s i s a n d h a s b e e n m a d e i n g r o s s

v i o l a t i o n o f p r i n c i p l e s o f n a t u r a l j u s t i c e . T h e s a m e i s ,

t h e r e f o r e , d i r e c t e d t o b e d e l e t e d . G r o u n d N o s . 3 , 4 a n d

5 r a i s e d b y t h e a s s e s s e e a r e a c c o r d i n g l y d i s p o s e d o f f .

Order pronounced in the Open Court.

Sd/- Sd/- संजय गग� अ�नपूणा� गु�ता (ANNAPURNA GUPTA) (SANJAY GARG) �याय�क सद�य/Judicial Member लेखा सद�य/Accountant Member �दनांक /Dated: 11th February, 2019 *रती*

17 ITA No.412/Chd/2016 A.Y.2009-10

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar