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Facts
The assessee is a sub-broker who allegedly availed accommodation entries to the tune of Rs. 2,02,15,000/- from entities controlled by Jignesh Shah and Sanjay Shah. The Assessing Officer (AO) invoked Section 147 for reassessment based on information from a search conducted in the case of Jignesh Shah and Sanjay Shah. The AO made an addition of Rs. 2,02,15,000/- under Section 69A.
Held
The Tribunal held that the revenue authorities failed to bring primary evidence on record to substantiate the addition. The findings of the search could not be rightly processed, leading to a loose superstructure without any basement. There was no evidence regarding companies involved in synchronized trading, stocks, dates of operation, purchase, or sale.
Key Issues
Whether the addition made by the Assessing Officer on account of alleged accommodation entries is substantiated with cogent evidence and whether the reassessment proceedings were validly initiated.
Sections Cited
147, 153C, 143(3), 144B, 148, 139(9), 143(2), 69A, 69, 132, 133A
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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-Ms. SUCHITRA KAMBLE
O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
The present appeal has been filed by the assessee against the order dated 30.03.2024 passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, relating to the Assessment Year 2017-18. 2. The assessee has raised the following grounds of appeals:
1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the order passed by the Assessing Officer assuming jurisdiction u/s. 147 on the basis of borrowed satisfaction. The reassessment proceedings were triggered on the basis of material alleged to have been seized during the course of search carried out u/s. 132 in the case of Jignesh Shah and Sanjay Shah and therefore, the AO ought to have initiated the proceedings u/s. 153C of the Act.
2. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the order passed by the Assessing Officer u/s. 143(3) r.w.s.147 r.w.s.144B of the Act which is illegal and bad in law.
3. The Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the action of the Assessing Officer in treating the return of income filed by the assessee on 03.08.2021 in response to notice u/s. 148 of the Act as non-est without serving upon the assessee any show Vertool Consultancy LLP Vs. DCIT Asst. Years : 2017-18 - 2– cause notice in that regard and without pointing out any defect whatsoever within the meaning and scope of section 139(9) of the Act.
4. The Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the assessment order passed by the Assessing officer u/s. 143(3) r.w.s. 147 r.w.s. 144B of the Act without serving upon the appellant assessee, a notice u/s. 143(2) of the Act even though the appellant assessee has furnished a return of income on 03.08.2021 in response to the notice issued u/s.148 dated 30.03.2021. The assessment order passed without serving upon the appellant assessee a notice u/s. 143(2) is bad in law and is liable to be quashed.
5. The Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the addition of Rs.2,02,15,000/- made by the Assessing Officer by invoking the provisions of section 69A of the Act in utter disregard to the fact that the appellant was not found by the AO in physical possession of money to the extent of Rs.2,02,15,000/-.
6. The Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in confirming the addition made by the Assessing Officer on the unsubstantiated allegation that the assessee had availed accommodation entries to the tune of Rs. 2,02,15,000/- under various heads from various concerns which are allegedly controlled and managed by Jignesh Shah and Sanjay Shah without mentioning the name of the person or the concern from whom the appellant had availed such accommodation entry. In point of fact, the appellant assessee has not availed any accommodation entry in any form whatsoever from any person.
7. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the addition made by the Assessing Officer on the basis of material gathered behind the back of the assessee without providing a copy thereof to the appellant and without giving the appellant proper opportunity of being heard which is in clear violation of the principles of natural justice.
8. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming action of the A.O. in issuing a show cause notice proposing the variation in the income was issued on 29.03.2022 just two days before the assessment was getting time bared and the appellant was asked to comply on 30.03.2022 which cannot be termed as a valid show cause notice in the eyes of law and the impugned addition that has been made in clear violation of principle of natural justice may therefore please be deleted.
9. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming the impugned addition made by the Assessing Officer without providing the assessee an opportunity of personal hearing through video conference which is in clear violation of the provisions of 144B of the I.T. Act.
10. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in confirming action of the Assessing Officer in Vertool Consultancy LLP Vs. DCIT Asst. Years : 2017-18 - 3– determining the total income of the assessee in adopting the returned income at Rs. Nil whereas as per return of income filed on 03.08.2021, the assessee has disclosed loss of Rs.1,122/-,
The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi has erred in not adjudicating the legal issue raised challenging the validity of the assessment proceedings while deciding the appeal.
The appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal.
3. Heard the arguments of both the parties and perused the material available on record.
4. The entire reasons recorded for re-opening the case of the assessee, as per the letter of the Assessing Officer dated 08.02.2022, read as under:
… on perusal of information so received from Investigation Wing, Ahmedabad, it is noticed that the assessee Vertool Consultancy LLP (AANFV1223F) is one of the beneficiaries who has availed/obtained accommodation entries to the tune of Rs.2,02,15,000/- under various head from various concerns who has controlled and managed by Jignesh Shah and Sanjay Shah. Failure on the part of the assessee to disclose fully and truly all the materials facts necessary for the assessment, the income of the assessee has escaped assessment to the tune of Rs.2,02,15,000/- for the AY 2017-18 within the meaning of Section 147 of the Income-tax Act 1961, I have therefore reason to believe that this is a fit case of reason for reopening the assessment u/s.147 of the Act and for issue of notice u/s.148 of the Income-tax Act, 1961…
5. In response to this letter, the assessee has requested to provide the details of accommodation entries received. The same is reproduced as under:
…With reference to the above we would like to inform your goodself that in your reason you have mentioned that the assessee has taken accommodation of entries of Rs.2,02,15,000/- from Jignesh Shah & Sanjay Shah, but we hereby inform your goodself that we have not received any accommodation of entry during the year consideration. So, we hereby request to your goodself that kindly provide following details in regards of your notice, before starting Assessment proceedings for complied early in time barring assessment…
As per our bank Statement there is no any loan taken from the above person, so kindly provide bifurcation of Rs.20215000/- with party's name. Vertool Consultancy LLP Vs. DCIT Asst. Years : 2017-18 - 4–
Kindly provide Jignesh Shah / Sanjay shah Statement in which they have mentioned that they have provided accommodation of entries to us.
Kindly provide the seize material copy from their premises in which it will prove that we have taken accommodation entries from them .
Kindly allowed cross confirmation of both the above person.
In absence of the above details, there is chance of wrong assessment done, so we hereby request to your goodself that provide details, otherwise drop down the further assessment proceeding in our case.
If any further clarification is required please let us know.”
The Assessing Officer failed to provide any information as sought by the assessee and continued with the assessment proceedings culminating with the addition of Rs.2,02,15,000/- u/s 69 of the Act.
6. The relevant part of the Assessment Order on this issue reads as under:
“4. Based on the information from reliable sources; "search u/s 132 was launched on 11.09.2018 in the case of Jignesh Shah and Sanjay Shah of Ahmedabad. The search resulted into seizure of unaccounted cash of 19.37 Crores (related to accommodation entries and commission earned thereon) along with incriminating digital as well as documentary evidences. Clandestine record of unaccounted cash, synchronized trading, proving bogus LTCG in various BSE listed scrips and transport of such cash through angadiyas was found to be maintained in secret Tally Data file with company name "123", which was impounded during survey proceedings u/s 133A from business premises of Sanjay Shah. In this secret and coded file, delivery (recd) and movement (through angadiya etc.) of cash was recorded against transactions of shares on BSE platform Furthermore, the receipt of commission in form of cash is also recorded under the head "LTCG COMMISSION". The evidences manifest that this was the record of accommodation entries of LTCG against receipt of cash. The evidences demonstrate that accommodation entry provider duo has resorted to synchronized trading in shares of various listed companies, because it was only through synchronized trading that the sellers were ensured accommodation entry of bogus LTCG against cash and the buyers were ensured delivery of cash against such pre-determined purchase of shares. The buy and sell parties were well planned in this transaction, as only in such scenario, the cash was assured to the buyer and sale proceeds of shares were assured in the bank account linked with the demat account of seller. This was conclusive evidence of bogus LTCG and synchronized trading.
4.1 It was found during investigation that both (Jignesh S Shah and Sanjay Shah) were managing and controlling multiple companies and concerns, which were not carrying out any genuine business activity. These concerns were involved Vertool Consultancy LLP Vs. DCIT Asst. Years : 2017-18 - 5– into activity of providing accommodation entries of various kinds such as unsecured loans, share premium, bogus gains, contrived losses etc. Various concerns were found to be non-existent at their addresses as per inspector report. The directors of companies/persons in whose names the said concerns were registered admitted by way of filling affidavits that the companies/ concerns were not carrying out genuine business activities and were engaged into providing accommodation entries through Jignesh S Shah.
4.2 Furthermore, other kind of Digital Data including incriminating MS Excel files, incriminating Word files, Whatsapp Chats/Images and documents including Khata-Bahis were also found and duly analyzed. Stamps and bank accounts of various persons/entities were also found in possession of accommodation entry provider duo during recording of their statements and by filling affidavits, various dummy directors admitted that they were merely signing documents on directions of accommodation entry provider duo. They admitted of being involved in providing accommodation entries of LTCG, loss, unsecured loans etc. Data analysis coupled with circumstantial evidences led to discovery that 15 BSE listed scrips have been used for generating bogus LTCG and contrived losses. During investigation, sample trail of funds was also established wherein the infrastructure of shroffs and angadiyas was used by the duo for routing unaccounted funds of beneficiaries. The duo also admitted being involved in providing accommodation entries including bogus LTCG and contrived losses.
The assessee is s sub broker of Vijeta Broking Limited, and during the year under consideration, the assessee has received brokerage Income. The assessee is also engaged in the business of medicines. It is a known fact that sub-brokers help their clients to buy and sell securities in the stock market. They offer information to them on various securities. They also pass on the clients trading orders to the trading member or brokerage firm, with which they are associated. Every sub-broker has to maintain books and documents specified in regulation 17 as per SEBI guideline However, the assessee has not furnished any of the books/ documents to prove that no business transaction were dealt with the Jignesh shah and Sanjay Shah or their concern. The assessee, in reply dated: 24.02.2020, had stated that "In regards of your information of Rs. 2,02,15,000/- we have made payment to group concern..." The details of the payment made to the group concerns have not been furnished by the assessee.
During the year, the assessee has availed/obtained accommodation entries to the tune of Rs. 2,02,15,000/- under various heads from various concerns who had controlled and managed by Jignesh Shah and Sanjay Shah. The modus operandi adopted has been discussed in the para 4 above. As the details of the payments made to group concern are not clear, it is inferred that these are falsified documentations purportedly created to cover up a sham transaction, in order to give colour and launder the unaccounted income of the assessee. These accommodation entries are only a colourable device used to evade taxes. It is concluded that the transactions are sham transactions and aimed only to bring unaccounted money and paper work has got done merely to give a colour of authenticity and creating a facade of legitimate transactions. The transaction done by the assessee with these individuals are non-genuine. Vertool Consultancy LLP Vs. DCIT Asst. Years : 2017-18 - 6– 6.1. It was observed that the assessee is involved in providing Bogus accommodation entries to various beneficiaries. It became clear that there was organised systematic business of tax evasion involving beneficiaries and passing through entities for Bogus accommodation entry.
In the case of Roshan Di Hatti [1977] 107 ITR 938 (SC) it was held that "the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it a taxable income. Where the nature and source of a receipt whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that income is from any particular source…"
7. Aggrieved by the order of the Assessing Officer, the Assessee filed appeal before the Ld. CIT(A) who upheld the order of the Assessing Officer.
The observation of the Ld. CIT(A) in this regard is reproduced as under:
5.3. During the appellate proceedings, the appellant contended same as during the assessment proceedings. Every sub-broker has to maintain books and documents specified in regulation 17 as per SEBI guidelines. However, the assessee did not furnish any of the books/documents during the assessment as well as appellate proceedings in order to prove that no business transactions were dealt with the Jignesh Shah and Sanjay Shah or their concern. Thus the appellant is only concocting the made up story in order to cover up the unexplained money deposited during the demonetization period. Therefore there is no need to take a divergent view from the view taken by the AO during the assessment proceedings…
Thus, on going through the reasons recorded, the Assessment Order and the Ld. CIT(A) order, we find no nowhere as to, i. What are the accommodation entries received by the assessee? ii. What is the information available with the Assessing Officer? iii. Whether it is payment or receipt by the assessee? iv. What are the entities through which the assessee received the amount or the accommodation entries? v. What is the bank statement from which the amounts/entries have been issued to the assessee? Vertool Consultancy LLP Vs. DCIT Asst. Years : 2017-18 - 7– vi. What is the bank statement to which the amounts/entries have been received/deposited by the assessee? vii. Did the Revenue prove primarily the custody of the amount in the accounted or unaccounted books or disclosed or undisclosed bank accounts of the assessee?
When we go through the entire gamut of the information received by the Assessing Officer, analysis of such information, order of the Assessing Officer and adjudication of the Ld. CIT(A), we find that the Revenue Authorities miserably failed to bring even the primary evidences on record. The findings of the search conducted at the premises of Mr. Jignesh Shah and Mr. Sanjay Shah could not be rightly processed by the Assessment Division, which led to make loose superstructure devoid of any basement by the Assessing Officer. The Assessing Officer held that the evidences demonstrate that accommodation entry providers have resorted to synchronized trading in shares of various listed companies and ensured to provide accommodation entry of bogus LTCG against cash. Against these allegations, there was no evidence as to what are the companies which were involved in synchronized trading in shares, what are the stocks, date of operation or manipulation of stocks, date of purchase & date of sale of stocks. In the absence of any iota of tangible, perceptible evidence, the lower authorities went on creating a facade to make an addition which cannot be sustained.
In the result, the appeal of the assessee is allowed.