GOEL WAX (P) LTD.,NEW DELHI vs. ITO, WARD-11(4), NEW DELHI

This appeal filed by the assessee is directed against the order passed by the Ld. CIT(A)-35, New Delhi on 01.12.2017 in relation to the assessment year 2008-09 on the following grounds:-

1. That under the facts and circumstances, initiation of proceedings u/s. 147 r.w.s. 148 is without jurisdiction, mechanical, without application of mind, illegal and unsustainable in law as well as on merits.

2. That in the absence of disposing of all the objection against reassessment proceedings and as per law, the impugned assessment is unsustainable. 3. That under the facts and circumstances, the AO grossly erred in law as well as on merits in making the following addition

u/s. 68 as alleged accommodation entries from following parties:-

S.No. Party Name Amount (Rs.)

1. Countrywide Credit and 18,00,000/- Securities P. Ltd.

2. Taurus Iron & Steel Co. P. Ltd. 20,00,000/-

Total 38,00,000/-

3.1 That without prejudice, in the absence of providing the adverse material for rebuttal as well as in the absence of providing for cross – examining the persons whose statements have been taken on the back of the assessee which have been adversely used, no adverse view of such material and statements etc. can be taken and all such material needs to be ignored for taking a view for framing the assessment.

4. That under the facts and circumstances and in the absence of any material whatsoever on records, the AO committed grave error of law and facts in imaging 2% as commission element on alleged accommodation entry of Rs. 38 lacs, consequently he erred in making an addition of Rs. 76,000/- u/s. 68.

2. The facts in brief are that assessee filed its return of income on 2.11.2008 declaring income of Rs. 2,98,810/-. Later on, Information was received from the Directorate of Income Tax (Inv.) to the effect that during the FY 2007-08 the assessee company M/s Goel Wax Pvt. Ltd. had taken accommodation entries for a sum of Rs. 38,00,000/- from the companies controlled by Sh. Tarun Goyal as under:

S.No. Party Name Amount (Rs.) 1. Countrywide Credit and 18,00,000/- Securities P. Ltd.

2. Taurus Iron & Steel Co. P. Ltd. 20,00,000/- Total 38,00,000/- 2.1 A search u/s. 132 of the Income Tax Act, 1961 (in short “Act”) was conducted at the office premises of Sh. Tarun Goyal, CA at 13/34, WEA Arya Samaj Road, Karol Bagh, New Delhi by the Investigation Wing on 15.09.2008. It was revealed that Sh. Tarun Goyal had created a number of private limited companies and firms for providing accommodation entries. The Directors of these companies were his employees who worked in his offices as peons, receptionists etc. All the documents were got signed from these employees. A number of bank accounts in various banks were opened in the names of these companies and his employees, in which huge cash deposits were made. Later cheqeus were issued to various beneficiaries, disguising the whole transaction as genuine. During the search, it was established that Sh. Tarun Goyal has floated about 90 companies for the purpose of providing accommodation entries. All the companies floated by Sh. Tarun Goyal were not carrying out any genuine activity and are merely being used to provide the accommodation entries. Hence, all the companies of Sh. Tarun Goyal are ‘bogus’. AO observed that as per the information received it was indicated that the assessee company is amongst the beneficiaries of the said bogus accommodation entries and had during the financial year 2007-08 relevant to assessment year 2008-09 received various amounts. In view of the reports received from the Investigation Wing, AO observed that the assesse company has not disclosed fully and truly all material facts necessary for its assessment for the assessment year under consideration. Accordingly, AO after satisfying himself recorded the reasons and initiated the proceedings u/s. 147 of the Act after taking approval from the JCIT, Range-10, New Delhi by issuing the notice u/s. 148 of the Act. In response to the same, the AR of the assessee furnished letter dated 17.8.2015 and 20.11.2015 stating that return filed u/s. 139(1) of the Act dated 12.11.2008 at income of Rs. 2,98,810/- may be treated as return filed u/s. 147/148 of the Act. Vide letter dated 4.12.2015 the AR of the assessee raised the objections in respect of initiation of proceedings u/s. 147 of the Act. The reply of the same was filed vide letter dated 16.12.2015 and thereafter notice u/s. 143(2) of the Act was issued and served upon the assessee on 6.1.2016. In response to the same, the AR of the assessee attended the proceedings from time to time and furnished copy of Annual Report of the above mentioned two companies, from whom the assessee had taken share capital for a sum of Rs. 38 lacs. Assessee also filed the reply dated 22.2.2016 stating therein that assessee company had issued 19000 equity shares of face value of Rs. 100 each of premium of Rs. 100/-. After considering the reply of the assessee, a show cause notice letter dated 11.3.2016 was issued, but no reply was received and proceedings were closed on 18.3.2016. As the assessee company has failed to fully reply to the questionnaire / note sheet entry requirements, hence, AO passed the re- assessment order dated 18.3.2016 u/s. 147/144 of the Act after adding Rs. 38,00,000/- on account of accommodation entry and Rs. 76,000/- on account of commission thereon and completed the assessment at Rs. 41,74,810/-.

5. On the contrary, Ld. DR relied upon the orders of the authorities below and the case laws referred therein and stated that Assessing Officer issued the notice u/s. 148 after due application of mind. He further stated that the AO has followed due procedure before issuing the notice u/s 148 of the I.T. Act, 1961. The Assessing Officer had tangible material in the form of information received from the Investigation Wing. The Assessing Officer did not proceed to any hearsay, conjecture or surmises. He stated that apart from relying on the order of the Ld. CIT(A), the following cases laws may kindly be considered with regard to reopening of cases u/s. 147 of the I.T. Act:-

6. Paramount Communication (P.) Ltd. Vs PCIT Supreme Court 2017-TIQL-253- SC-IT SLP of assessee dismissed. Information regarding bogus purchase by assessee received by DRI from CCE which was passed on to revenue authorities was ’tangible material outside record’ to initiate valid reassessment proceedings.

7. Amit Polyprints (P.) Ltd. Vs PCIT Gujarat High Court [2018] 94 taxmann.com 393 (Gujarat) Where reassessment proceedings were initiated on basis of information received from Investigation wing that assessee had received certain amount from shell companies working as an accommodation entry provider, reassessment could not be held unjustified.

(Investigation) that assessee was beneficiary of accommodation entries by way of share application provided by a third party, same was justified.

12. Home Finders Housing Ltd. Vs. ITO (2018) 94 taxmann.com 84 (SC).

SLP dismissed against High Court’s order that non-compliance of direction of Supreme Court in GKN Driveshafts (India) Ltd. Vs. ITO (2002) 125 Taxman 963 that on receipt of objection given by assessee to notice under section 148, Assessing Officer is bound to dispose objections by passing a speaking order, would not make reassessment order void ab initio.

13. Baldevbahi Bhikhabhai Patel vs. DCIT (Gujarat High Court) (2018) 94 Taxmann.co, 428(Gujarat) Where revenue produced bunch of documents to suggest that entire proposal of reopening of assessment alongwith reasons recorded by the Assessing Officer for same were placed before Additional Commissioner who, upon perusal of same, recorded his satisfaction that it was a fit case for issuance of notice for reopening assessment, reassessment notice issued against assessee was justified.”

6.1 After perusing the aforesaid reasons recorded, I find that it is a case where action has been taken mechanically on the basis of information received from investigation wing, and, not on an independent application of mind and therefore on this ground, the proceedings are without jurisdiction. It is apparent from the fact that according to the AO, Investigation Wing has informed that assessee company has received accommodation entry of Rs. 38 lacs in the garb of share application money which is said to be as per inquiry made by the Directorate of Investigation (DI) on the persons said to be involved providing accommodation entries/ bogus share application. Based on inquiries made, DI is said to have provided details of persons who are beneficiaries of such accommodation entries and one such beneficiary is said to be the assessee. In this case notice u/s. 148 of the Act was issued merely on the basis of information from D.I. that the assessee has received accommodation entry of Rs. 38 laks. There is no mention of any application of mind or any independent inquiry or any link between any tangible material and formation of reasons to believe that income chargeable to tax has escaped assessment. The AO was not having even the material before him, at the time of initiation of proceedings, on the basis of which the Investigation Wing sent his report. The AO assumed and worked only on the satisfaction of only Investigation Wing. It is also noted that even the copies of statements recorded by the Investigation Wing in the case of Tarn Goyal on the basis of which impugned proceedings have been initiated were not available with the AO as admitted by the AO himself in his letter dated 10.12.2015 placed at page no. 7-8 of the Paper Book. The AO has not even specified as to what is the amount of alleged income escaping assessment, which shows that AO has merely recorded certain unsubstantiated allegations on the basis of some information received, which is against the principle laid down by the Hon’ble Delhi High Court in the case of CIT vs SFIL Stock Broking Ltd. (2010) 325 ITR 285 (Del), wherein it was observed that reassessment proceedings were initiated on the basis of information received from investigation wing regarding alleged accommodation entries and it has been held by jurisdictional Delhi High Court that mere information received from DDIT(Inv) cannot constitute valid reasons for initiating reassessment proceedings in the absence of anything to show that A.O. had independently applied his mind to arrive at a belief that the income had escaped assessment. Thus, the AO has acted mechanically and without any independent application of mind. The reasons recorded are therefore vague, highly non specific and reflect complete non-application of mind. It is also noted that there is no live link or direct nexus between alleged material and, inference. It is further noted that initiation of proceedings is also based on non application of mind much less independent application of mind but is a case of borrowed satisfaction. Nothing is independently examined or considered by the AO which can demonstrate application of mind by him. There is nothing to show that the cash is paid from coffers of the assessee. Reasons do no indicate as to who AO reached to the conclusion that the assessee received accommodation entry and escaped assessment. To support my aforesaid view, I draw support from the following decisions:- i)ACIT vs. Dhariya Construction Co. (2011) 198 taxman 202 (SC) wherein the Hon’ble Court has held that :

“Section 147 of the Income Tax Act, 1961 – Income escaping assessment – Non-disclosure of primary facts – Whether opinion of District Valuation Officer (DVO) per se is not an information for purposes of reopening of an assessment under section 147; Assessing Officer has to apply his mind to information, if any, collected and must form a belief thereon – Held, yes.” ii) Pr CIT v. RMG Plyvinyl (I) Ltd. (2017) 83 taxmann.com 348 (Hon’ble Delhi High Court has observed as under:- 11. There can be no manner of doubt that in the instant there was a failure of application of mind by the AO to the facts. In fact he proceeded on two wrong premises - one regarding alleged non-filing of the return and the other regarding the extent of the so-called accommodation entries.

iii) 395 ITR 677 (Del) Pr. CIT v. Meenakshi Overseas (P) Ltd. “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.

6.2 Keeping in view of the facts and circumstances of the case as explained above and respectfully following the precedents, as aforesaid, the proceedings initiated by invoking the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A) are nonest in law and without jurisdiction, hence, the re-assessment is quashed and legal ground no. 1 is allowed. The judicial decisions relied upon by the Ld. Sr. DR, have been duly considered. In my considered view, I do not find any parity in the facts of the decisions relied upon with the peculiar facts of the case in hand. Since no other grounds were raised by the Assessee’s counsel, the same are dismissed as such. Accordingly, the assessee’s appeal is partly allowed.