CHETAN RAJNIKANT SHAH,MUMBAI vs. INCOME TAX OFFICER-24(1)(4), MUMBAI

ITA No. 1948/Mum/2018 A.Y. 2007-08 1 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

IN THE INCOME TAX APPELLATE TRIBUNAL “C” Bench, Mumbai Before Shri Shamim Yahya, Accountant Member and Shri Ravish Sood, Judicial Member

ITA No.1948/Mum/2018 (Assessment Years: 2007-08) Chetan Rajnikant Shah Income Tax Officer-24(1)-4, 703, Jamuna Vihar, Piramal Chambers, Parel, Vs. Juhu Lane, Andheri West, Mumbai – 400 012 Mumbai – 400058 PAN – AMQPS6037D (Appellant) (Respondent)

Appellant by: Shri Mehul Shah, A.R Respondent by: Ms. Shreekala Pardeshi, D.R Date of Hearing: 14.01.2021 Date of Pronouncement: 22.02.2021 O R D E R PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-3, Mumbai, dated 30.01.2018 which in turn arises from the order passed by the A.O under Sec. 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟) dated 29.03.2015. The assessee has assailed the impugned order on the following grounds of appeal before us:

“Being aggrieved by the orders of the Assessing Officer, 23(1), Mumbai, and learned Commissioner of Income-tax (Appeal)-36, Mumbai this appeal petition is filed on the following amongst other grounds of appeal, which it is prayed may be considered without prejudice to one another: 1. On the facts, and in circumstances of the case, and in law, learned Commissioner of Income-tax (Appeal) erred in upholding action of the Assessing Officer in reopening the assessment under section 147 without making independent inquiry and without forming a proper reason to believe that the income has escaped assessment.

ITA No. 1948/Mum/2018 A.Y. 2007-08 2 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

ITA No. 1948/Mum/2018 A.Y. 2007-08 3 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

A.O treating the explanation of the assessee as an afterthought and a cooked- up story, rejected the same. The A.O drawing support from certain excerpts of the statements of Shri Praveen Kumar Jain, Shri Uttam G. Hinger (brother in law of Shri Praveen Kumar Jain) that were recorded u/s 132(4) on 13.10.2013 in the course of the search proceedings, and that of Shri. Nilesh Parmar, proprietor of M/s Mohit International recoded under Sec. 131 of the Act, dated 02.10.2013, treated the unsecured loans aggregating to Rs.1 crore that was received by the assessee from the aforementioned concerns, viz. M/s Natasha Enterprises and M/s Mohit International as unexplained cash credits under Sec. 68 of the Act. On the basis of his aforesaid deliberations the income of the assessee was assessed by the A.O vide his order passed u/s 143(3) r.w.s 147, dated 29.03.2015 at Rs.1,01,30,230/-. 5. Aggrieved, the assessee assailed the assessment framed by the A.O under Sec. 143(3) r.w.s 147, dated 29.03.2015 before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee sustained the view taken by the A.O and dismissed the appeal. 6. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal assailed the validity of the reopening of the assessee‟s case under Sec. 147 of the Act. It was submitted by the ld. A.R that the A.O without any independent application of mind and formation of belief on his part had erred in mechanically reopening the case of the assessee by merely acting upon the information received from the office of the DGIT(Inv.), Mumbai. In order to buttress his aforesaid claim the ld. A.R took us through the „reasons to believe‟ on the basis of which the case of the assessee was reopened. It was stated by the ld. A.R that the A.O had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai, vide his letter dated 07.03.2014 and dispensing with the statutory obligation of arriving at an independent bonafide belief that the income of the assessee chargeable to tax

ITA No. 1948/Mum/2018 A.Y. 2007-08 4 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

had escaped assessment, had reopened the case of the assessee. It was the claim of the ld. A.R that as the A.O had not applied his mind to the information that was received by him from the DGIT(Inv.), Mumbai and had mechanically reopened the case, the same, thus, being a case of reopening on the basis of a borrowed satisfaction of the aforesaid investigating agency could not be sustained and was liable to be struck down on the said count itself. In order to support his aforesaid contention reliance was placed by the ld. A.R on certain judicial pronouncements. It was further averred by the ld. A.R that as the A.O had failed to incorporate his satisfaction for reopening the assessment thus, the issuance of notice under Sec. 148 was not valid. Adverting to the merits of the case, it was submitted by the ld. A.R that both the lower authorities were in error in treating the loans received by the assessee from the aforementioned concerns, viz. M/s Natasha Enterprises and M/s Mohit International as unexplained credits in the hands of the assessee. It was submitted by the ld. A.R that the assessee in the course of the proceedings before the lower authorities had substantiated the genuineness and veracity of the respective loan transactions by placing on record supporting documents, viz. confirmations of both the lender‟s; PAN Numbers; and the copy of the bank account substantiating the factum of having received the loans in question through account payee cheques. It was further submitted by the ld. A.R that the fact that loan amount of Rs.72 lacs (out of Rs.1 crore) was repaid by the assessee way back during the period 14.06.2007 to 08.08.2007 therein clearly evidenced the factum of genuineness of the aforesaid loan transaction. It was further submitted by the ld. A.R that in case the A.O had any doubts as regards the genuineness of the aforesaid loan transactions then, it was open to him to have either called for the requisite information from the aforementioned parties under Sec. 133(6) or sought their appearance under Sec.131 of the Act, which however was dispensed with by him. Apart from that, it was submitted by the ld. A.R that on no occasion in the course of the assessment proceedings the A.O had directed the assessee to produce either of the aforementioned lenders for verifying the authenticity of the loan

ITA No. 1948/Mum/2018 A.Y. 2007-08 5 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

transactions. It was the claim of the ld. A.R that adverse inferences as regards the genuineness of the aforesaid loan transactions was drawn by the A.O only on the basis of the general statements of Shri Praveen Kumar Jain, Shri Uttam G. Hinger and Shri. Nilesh Parmar, without placing on record any independent material which could prove that no genuine loans were raised by the assessee from the said respective parties. It was further averred by the ld. A.R that the aforementioned parties whose statements were relied upon by the A.O for dubbing the loans in question as unexplained cash credits under Sec. 68 of the Act were neither produced for cross-examination nor were the copies of their statements at any stage were made available to the assessee. It was submitted by the ld. A.R that the impugned statement of Shri. Praveen Kumar Jain recorded under Sec. 132(4) of the Act having been retracted by the latter thus, could not have thereafter been acted upon on a standalone basis for drawing of adverse inferences in the case of the assessee. On the basis of his aforesaid contentions it was the claim of the ld. A.R that except for the unsubstantiated statement of the aforementioned persons that too recorded at the back of the assessee, no material had been placed on record by the A.O which could irrefutably dislodge and disprove the authenticity of the loan transactions in question. 7. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had failed to substantiate the genuineness of the loan transactions in question, the A.O, thus, had rightly treated the same as unexplained cash credits within the meaning of Sec.68 of the Act. It was submitted by the ld. D.R that as no infirmity emerged from the orders of the lower authorities thus, the appeal of the assessee being devoid of any force did not merit acceptance. 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been

ITA No. 1948/Mum/2018 A.Y. 2007-08 6 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

pressed into service by them to drive home their respective contentions. As the assessee has assailed the validity of the jurisdiction assumed by the A.O for reopening his case under Sec. 147 of the Act thus, we shall first deal with the same. On a perusal of the „reasons to believe‟ stated to have been recorded on 19th March, 2014 on the basis of which the case of the assessee was reopened u/s 147 of the Act, the same, as conveyed to the assessee by the A.O vide his letter dated 21st January, 2015 read as under:

“Information was received vide letter No. DGIT(Inv.)/Information/P/2012-13 dated 07th March, 2014 in respect of beneficiaries of Accomodation Entries in the nature of Sales, Unsecured Loans and Share Application Money issued by the Group of Companies controlled and managed by Praveen Kumar Jain. The information contains specific details of the Transactions and the Name & Address and PAN of the beneficiaries along with the names of the Companies controlled and managed by Praveen Kumar Jain giving the Accomodation entries. As per the said information, it is seen the Assessee, Chetan Rajnikanth Shah, Prop. Chat Impex is a beneficiary of the said Accomodation Entries given by M/s Natasha Enterprises for Rs. 50 Lacs on 15.03.2007 and by M/s Mohit International for Rs. 50 Lacs on 15.03.2007. Therefore, I have reasons to believe that income in respect of the said Accomodation Entries had escaped assessment for A.Y 2007-08, within the meaning of section 147 of the IT Act and as the same needs to be brought to tax the Assessment for A.Y 2007-08 needs to be reopened by issue of Notice u/s 148. Accordingly Notice u/s 148 issued. Yours faithfully Sd/- (Rita G. Tolani) Income-tax Officer-24(1)(4), Mumbai” On a perusal of the aforesaid reasons to believe we find that though the A.O had referred to the material/information on the basis of which the case of the assessee was sought to be reopened under Sec. 147 of the Act i.e the information received from the DGIT(Inv.), Mumbai, but then there is nothing discernible therefrom on the basis of which it could be gathered that there was any independent formation of a bonafide belief by the A.O that the income of the assessee chargeable to tax had escaped assessment. All that can be gathered from the aforesaid „reasons to believe‟ is that the A.O by merely

ITA No. 1948/Mum/2018 A.Y. 2007-08 7 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

referring to the information received from the DGIT(Inv.), Mumbai, wherein it was conveyed that the assessee was a beneficiary of the accommodation entries given by two concerns, had observed, that he had a reason to believe that the income of the assessee in respect of such accomodation entries had escaped assessment. Although, the A.O had at the outset of his reasons observed that information was received from the DGIT(Inv.), Mumbai in respect of accommodation entries in the nature of sales, unsecured loans and share application money issued by the group companies controlled and managed by Shri Praveen Kumar Jain, however, he had not even done the bare minimum by pointing out the nature of the impugned accommodation entries that were allegedly stated to have been received by the assessee as a beneficiary. On a careful perusal of the „reasons to believe‟, it can safely be gathered that the A.O had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai and had dispensed with the statutory obligation that was cast upon him as regards formation of an independent and a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. As observed by us hereinabove, the A.O by not even referring to the nature of the accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, which as per the impugned information shared by the DGIT(Inv.), Mumbai were stated to have been received by the assessee as a beneficiary from Shri. Praveen Kumar Jain thus, clearly reveals that he had failed to apply his mind to the material on record to arrive a bonafide reason to believe that the income of the assessee chargeable to tax had escaped assessment. In sum and substance, a perusal of the aforesaid „reasons to believe‟ though reveals a reference of the material/information received by the A.O from the DGIT(Inv.), Mumbai on the basis of which the case of the assessee was sought to be reopened, but at the same time it is witnessed by a non-application of mind and failure to arrive at an independent and bonafide belief on the part of the A.O that the income of the assessee chargeable to tax had escaped assessment. Although, we are not oblivious of

ITA No. 1948/Mum/2018 A.Y. 2007-08 8 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

the fact that an A.O at the stage of recording the reasons to believe is not required to conclusively establish that the income of the assessee chargeable to tax had escaped assessment, but then, in the case before us we find that the A.O has not even recorded a satisfaction that as per him a case has been made out for issuing a notice under Sec. 148 of the Act. In our considered view, when the basic requirement that A.O must apply his mind to the material on record in order to have reasons to believe that the income of the assessee chargeable to tax had escaped assessment is found amiss, the reopening of the assessment cannot be held to be justified. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of PCIT Vs. Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677 (Delhi). In the aforesaid case, the Hon‟ble High Court observed that the A.O had proceeded to send a notice u/s 147/148 of the Act solely on the basis of information received from the DIT(Inv.). It was noticed by the High Court that after writing about the nature of the impugned accommodation entry and without mentioning the nature of transaction which was effected for alleged accommodation entry as well as dispensing with the date of recording of the reasons, the A.O, without any further verification, examination or any other exercise had jumped to the conclusion that the assessee had received accommodation entries. The Hon‟ble High Court in the backdrop of the facts involved in the case before them observed that as the crucial link between the information made available by the DIT (Investigation) to the A.O and the formation of belief was absent, the reassessment proceeding initiated against the assessee was rightly quashed by the Tribunal. The High Court while concluding as hereinabove observed that while the report of the Investigation Wing might constitute the material on the basis of which the A.O forms the reasons to believe, but the process of arriving at such satisfaction/belief cannot be a mere repetition of the report of the Investigation wing. As observed by the Hon‟ble High Court, the reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that the income of the assessee chargeable to tax had escaped assessment. Also, a similar view

ITA No. 1948/Mum/2018 A.Y. 2007-08 9 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

was earlier taken by the Hon’ble High Court of Delhi in the case of PCIT Vs. G & G Pharma India Ltd. (2016) 384 ITR 147 (Del). In the case before the Hon‟ble High Court, it was observed that the A.O in his reasons to believe after setting out four entries which were stated to have been received by the assessee on a single date i.e 10th February, 2003 from four entities which were termed as accommodation entries, which information was received from the Directorate of Investigation, had therein stated : “I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries.” In the backdrop of the aforesaid facts, it was observed by the Hon‟ble High Court that it could not be gathered that as to whether the A.O had applied his mind to the material that he talks about since he did not describe what those material was. Observing, that without forming a prima facie opinion, on the basis of the aforesaid material, it was not possible for the A.O to have simply concluded that it was evident that the assessee company had introduced its own unaccounted money in its bank by way of accommodation entries. Accordingly, the High Court was of the view that as the basic requirement that the A.O must apply his mind to the material in order to have reasons to believe that the income of the assessee had escaped assessment was missing, the reopening of the assessment was not justified. Further, we find that the Hon’ble High Court of Delhi in the case of PCIT Vs. RMG Polyvinyl (I) Ltd. (2017) 396 ITR 5 (Del), relying on its aforesaid order in the case of Meenakshi Overseas Pvt. Ltd. (supra) had observed, that as the A.O in the case before them had merely acted upon the information received from the Investigation Wing without undertaking any further enquiry on his part thus, the link between the tangible material and the formation of the reasons to believe that the income of the assessee had escaped assessment was not discernible therefrom and accordingly the reopening of the assessment u/s 147 was to be held as bad in law. Further, in the case of CIT Vs. SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), it was inter alia observed by the

ITA No. 1948/Mum/2018 A.Y. 2007-08 10 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

Hon‟ble High Court that in the case before them the A.O had received information from the Dy. Director of IT (Inv.), Gurgaon that the assessee had raised a bogus claim of having earned long-term capital gains on account of sale/purchase of shares by obtaining entries. After deliberating on the facts, it was inter alia observed by the Hon‟ble High Court that a mere reference to the information received from the Dy. Director of IT (Inv.) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that the A.O had independently applied his mind to arrive at a belief that income has escaped assessment. Also in the case of CIT Vs. Kamdhenu Steel & Alloys Ltd. & Ors. (2014) 361 ITR 220 (Del), it was observed by the High Court that where the A.O had acted mechanically on the information supplied by the Directorate of IT(Inv.) about the alleged bogus/ accommodation entries provided by certain individuals/companies without applying his own mind, he was not justified in invoking jurisdiction under Sec. 147. 9. As observed by us at length hereinabove, the A.O in his „reasons to believe‟ in the case of the assessee before us had merely referred to the information that was received by him from the DGIT(Inv.), Mumbai that the assessee as a beneficiary had received accommodation entries from two concerns, and dispensing with even the bare minimum requirement of pointing out the nature of the impugned accommodation entries i.e as to whether they were accommodation entries in the nature of sales or unsecured loans or share application money, on the basis of vague and scanty information and without any further verification, examination or any other exercise had jumped to the conclusion that the income of the assessee in respect of the accommodation entries had escaped assessment for the year in question. Accordingly, in the backdrop of the aforesaid factual matrix it can safely be held that the A.O had blatantly failed to apply his mind to the material available on record for forming a belief that the income of the assessee had escaped assessment. We, thus, are of the considered view that as the A.O had acted mechanically on the information supplied by the Directorate of

ITA No. 1948/Mum/2018 A.Y. 2007-08 11 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

Income-tax(Inv.) that the assessee was a beneficiary of the alleged bogus/accommodation entries provided by the aforesaid entry provider, viz. Shri Praveen Kumar Jain, and had failed to apply his mind to the material available on his record, the reopening of the assessment by him u/s 147 of the Act could not be held to be justified.

Order pronounced in the open court on 22.02.2021

Sd/- Sd/- Shamim Yahya Ravish Sood (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai, Date: 22.02.2021 PS: Rohit

ITA No. 1948/Mum/2018 A.Y. 2007-08 12 Chetan Rajnikant Shah Vs. Income Tax Officer-24(1)-4

Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “C” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai