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Facts
The assessee, engaged in real estate business, filed its original return of income. The AO initiated reassessment proceedings u/s 148 based on information suggesting the assessee received accommodation entries from shell companies. The additions were confirmed by the CIT(A) on account of alleged accommodation entries, interest, and commission.
Held
The Tribunal held that the reassessment proceedings initiated u/s 148 were illegal and bad in law. The additions made by the AO were not sustainable as the AO did not apply his own mind and relied on vague reasons. Furthermore, the additions were also not sustainable on merits.
Key Issues
Whether the reassessment proceedings initiated u/s 148 were valid, and if the additions made on account of alleged accommodation entries, interest, and commission were sustainable on facts and in law.
Sections Cited
147, 148, 132, 68, 69C, 143(1), 132(4)
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Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: SHRI GAGAN GOYAL & SHRI NARINDER KUMARShri Salasar Balaji Developers Private Limited,
This appeal by the assessee is directed against the order of NFAC, Delhi dated 22.07.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’).The assessee has raised the following grounds of appeal:-
1. That on the facts and in the circumstances of the case and in law, the Ld. Assessing Officer grossly erred in initiating reassessment proceedings u/s. 148 of the Income Tax Act, 1961 against the assessee appellant.
2. That on the facts and in the circumstances of the case and in law, the Ld. Assessing Officer grossly erred in not providing the relevant material & evidence and statement recorded u/s. 132 of the Act of Shri Mukesh Banka during the course of search proceeding to the assessee appellant.
3. That on the facts and in the circumstances of the case and in law, the Ld. Lower Authorities have grossly erred in not providing the opportunity of cross- examination to the assessee appellant and have also grossly erred in ignoring the retraction filed by Shri Mukesh Banka before the Investigation Wing.
4. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming addition of Rs. 13, 25, 35,000/- u/s. 68 of the Act on account of alleged accommodation entries received by the assessee appellant. 4.1. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in ignoring the submission of the assessee appellant that the said amount was received on account of sale of land/plots and the same was duly recorded in the books of account. 4.2. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in ignoring that the addition made against the assessee appellant tantamount to double addition, i.e., duly disclosed by the assessee appellant as sales of land/plots and also added by the ld. Assessing Officer as accommodation entries.
5. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming addition of Rs. 13, 25,350/- u/s. 69C of the Act on account of interest paid on the alleged accommodation entry by the assessee appellant.
6. That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming addition of Rs. 33, 13,375/- u/s. 69C of the Act on account of commission paid on the alleged accommodation by the assessee appellant. 7. the appellant craves leave to add, alter, modifies or amends any ground on or before the date of hearing.
This appeal by the assessee is directed against the order of NFAC dt.22.07.2024 passed u/s 250 of the I.T. Act, 1961.
The assessee has raised six grounds in the appeal. Ground No.1 challenges the validity of initiation of reassessment proceedings under section 148 of the Act. Ground No. 2-4 challenges the addition of Rs. 13, 25, 35,000/- confirmed by NFAC under section 68 of the Act on account of alleged accommodation entries received by the assessee. Ground No. 5 challenges addition of Rs. 13, 25,350/- under section 69C of the Act on account of Interest paid on the alleged accommodation entry and Ground No. 6 challenges addition of Rs. 33, 13,375/- under section 69C of the Act on account of commission paid on alleged accommodation entry.
We first take the ground of the assessee challenging validity of reassessment proceedings u/s. 148 of the Act. The ground taken by the assessee is reproduced as under - That on the facts and in the circumstances of the case and in law, the Ld. AO grossly erred in initiating reassessment proceedings u/s. 148 of the Income Tax Act, 1961 against the assessee appellant.
The brief facts of the case is that assessee engaged in real estate business filed its original return of income on 13.09.2016 declaring total income of Rs. 10,82,720/-. The AO on the basis of information received from DDIT (Inv.), Unit-1(3), Kolkata that various paper/shell companies controlled and managed by Sh. Mukesh Banka were identified as engaged in providing accommodation entries in the nature of bogus unsecured loans or in other forms and assessee is one of the beneficiary company who has taken accommodation entry of Rs. 14, 19, 53,079/- from these paper/ shell companies, issued notice u/s. 148 of the Act dt. 29.03.2019. The reasons recorded for issuance of notice u/s. 148 of the Act as mentioned at para 4.1, Pg 3 of the assessment order is reproduced as under:-
Brief details of the Assessee: The assessee has filed return of income on 13.09.2016 declaring total income at Rs.10, 82,720/-. The same was processed u/s. 143(1) of the Act on 4.10.2016.
Brief details of information collected/ received by the AO: The information was received from DDIT (Inv), Unit-1(3) vide letter no. DDIT (Inv)/Unit- 1(3)/Kol/Banka/Information/2018-19/8077 dated 26.2.2019. As per information various paper/ shell companies controlled and managed by Sh. Mukesh Banka were identified as engaged in providing accommodation entries in the nature of bogus unsecured loans or in other forms. Various beneficiaries have been identified who have obtained accommodation entry in the nature of bogus unsecured loan or in other forms from the paper/ shell companies of Bank group. M/s. Shri Salasar Balaji Developers Pvt. Ltd. is one of the beneficiary companies who have taken accommodation entry from paper/ shell companies of Banka Group. The assessee has received Rs. 14, 19, 53,079/- during F.Y. 2015-16 relevant to A.Y. 2016-17 through accommodation entry.
Analysis of information collected/ received: The assessee has taken bogus accommodation entries from the entities/ companies M/s. Babylon Trading & Investment Pvt. Ltd. and M/s. Alves Securities Pvt. Ltd., the paper/shell companies which are managed, controlled and operated by Sh. Mukesh Banka. These accommodation entries are unexplained credit entries in the case of the assessee.
Enquiries made by the AO as sequel to information collected/ received: On the basis of information received from the office of the DDIT (Inv), Unit-1(3) vide letter no. DDIT(Inv)/Unit-1(3)/Kol/Banka/Information/2018-19/8077 dated 26.2.2019, the assessee is in receipt of Rs. 14,19,53,079/- through accommodation entry from the companies controlled and managed Sh. Mukesh Banka whereas the assessee filed return for A.Y. 2016-17 declaring income at Rs. 0/-. Hence the entry of Rs. 14, 19, 53,079/- is not verifiable.
Findings of the AO: The assessee has taken accommodation entries of Rs. 14, 19, 53,079/- from paper/shell companies/entities M/s. Babylon Trading & Investment Pvt. Ltd. and M/s. Alves Securities Pvt. Ltd. managed and controlled by Sh. Mukesh Banka. These companies are used to for providing accommodation entries. The assessee is a beneficiary of accommodation entry.
Basis of forming reason to believe and details of escapement of income: The assessee has taken credit entry in the form of accommodation entry from the paper/shell companies managed/controlled by Mukesh Banka for providing accommodation entries. The assessee has rotated unaccounted money of Rs. 14, 19, 53,079/- in its bank account through these companies. In view of above reason to believe that income of Rs. 14, 19, 53,079/- has escaped assessment.
The assessee filed the objection vide letter dt. 18.11.2019 stating that Assessee Company has not taken any accommodation entry but the same was rejected by the AO vide order dt.20.11.2019. The AO accordingly made addition of Rs. 14, 19, 53,079/- by holding that assessee has received accommodation entries in the form of bogus unsecured loans from various shell companies as per chart given at Para No.5.1 of the order.
Before Ld. CIT (A), NFAC assessee filed detailed submission challenging the validity of notice issued u/s. 148 of the Act and consequent assessment framed u/s. 147 of the Act. The Ld. CIT (A), NFAC, however, upheld the validity of notice issued u/s. 148 of the Act as per discussion made in Para 6 to 6.2, page 87-90 of the order where it relied on various case laws and held that in the present case there is independent application of mind by the AO in arriving at the conclusion that income has escaped assessment and therefore the contentions raised by the assessee are devoid of merits.
We have heard the arguments of both the parties and gone through the material available on record. We are inclined to accept the contention of the assessee that notice issued u/s. 148 is illegal and bad in law on two counts as discussed herein after as under:
(a) We note that the AO at Para 5.1, of the order has listed various shell company of Banka Group. However in this list name of the companies mentioned in the reasons, i.e. M/s Babylon Trading & Investment Pvt. Ltd. and M/s Alves Securities Pvt. Ltd. are not appearing. Thus when AO initiated the proceedings u/s. 148 of the Act on the ground that assessee has received accommodation entries from M/s Babylon Trading & Investment Pvt. Ltd. and M/s Alves Securities Pvt. Ltd. but made addition in respect of 38 other companies which do not include the name of two companies mentioned in the reasons recorded u/s. 148, in our view, explanation 3 to section 147 which empowers the AO to assess or reassess the income in respect of any issue, which has escaped assessment, which comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included u/s. 148(2) of the Act would not come to the rescue of the revenue. This is for the reason that explanation 3 have to be read in conjunction of section 147 of the Act which empowers the AO to assess any income chargeable to tax which has escaped assessment “and also” any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of the proceedings under this section. The word “and also” cannot be ignored and has to be read in conjunction with the earlier words. Therefore if an income is assessed on the basis of the reason recorded, any other income escaping assessment can also be assessed u/s. 147 of the Act but where income on the basis of reason recorded is not assessed, any other income escaping the assessment cannot be assessed u/s 147. This interpretation is supported by the following decisions of various courts including Hon’ble Supreme Court and Jurisdictional High Court -
PCIT vs. Lark Chemicals (P) Ltd. (2018) 259 Taxman 365 (SC) Anand Cine Services (P) Ltd. vs. ACIT & Ors. (2024) 243 DTR 485 (Mad.) CIT vs. Sh. Ram Singh (2008) 306 ITR 343 (Raj) CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.)
In the present case no addition is made w.r.t. M/s. Babylon Trading & Investment Pvt. Ltd. and M/s. Alves Securities Pvt. Ltd. whose name are mentioned in the reasons and therefore addition made w.r.t. 38 other companies is not sustainable.
(b) We further note that the reasons state that the assessee is in receipt of Rs. 14,19,53,079/- through accommodation entry from the companies controlled and managed by Shri Mukesh Banka, whereas the assessee filed return for A.Y. 2016-17 declaring income at Rs. 0/-, whereas the correct fact is that assessee has filed the return declaring income of Rs. 10,82,720/-. Further amount of Rs. 14,19,53,079/- taken as accommodation entries is also incorrect in as much as AO in the remand report has accepted that the accommodation entry is only Rs. 13,25,35,000/-. This shows that AO has not examined the information received by him to verify the quantum of alleged accommodation entry rather, he mechanically and blindly acted upon the information received from the Investigation Wing, Kolkata without applying his own mind to arrive at believe that income of the assessee has escaped assessment.
Hence, the reopening of assessment only, at the instance of Investigation Wing, Kolkata and that too on vague reasons, is not valid in the eyes of law as held in the following cases:-
Bhaijee Commodities (P.) Ltd. vs. ACIT (2023) 202 ITD 757 (Delhi) Nishant Kantilal Patel vs. ITO (2022) 214 DTR 209 (Surat) Supertech Forgings (India) (P) Ltd. Vs. DCIT (2022) 214 DTR 33 (Asr.) Reynolds Shirting Ltd. vs. ACIT (2022) 285 Taxman 554 (Bom.) Smt. Sudesh Rani vs. ACIT (2023) 225 DTR 1 (Chd.)
Thus we are of the considered view that the reopening in the present case is not valid in the eyes of law and therefore ground No.1 of the assessee is allowed.
After our decision w.r.t ground No.1 of the assessee, it would be academic for us to decide ground No. 2-6 raised by the assessee. However, for the sake of completeness and the fact that the amount of addition made by AO is already considered by the assessee as sale in the books of account, we proceed to decide the following grounds raised by the assessee –
Ground No.2 That on the facts and in the circumstances of the case and in law, the Ld. AO grossly erred in not providing the relevant material & evidence and statement recorded u/s. 132 of the Act of Shri Mukesh Banka during the course of search proceeding to the assessee appellant.
Ground No.3 That on the facts and in the circumstances of the case and in law, the Ld. lower authorities have grossly erred in not providing the opportunity of cross examination to the assessee appellant and have grossly erred in ignoring the retraction filed by Shri Mukesh Banka before the Investigation Wing.
Ground No.4 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming addition of Rs. 13,25,35,000/- u/s. 68 of the Act on account of alleged accommodation entries received by the assessee appellant.
Ground No.4.1 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in ignoring the submission of the assessee appellant that the said amount was received on account of sale of land/plots and the same was duly recorded in the books of account.
Ground No.4.2 That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) grossly erred in ignoring that the addition made against the assessee appellant tantamount to double addition, i.e. duly disclosed by the assessee appellant as sale of land/ plots and also added by the Ld. AO as accommodation entries.
Ground No.5 That on the facts and in the circumstances of the case and in law, the Ld. CIT (A) grossly erred in confirming addition of Rs. 13,25,350/- u/s 69C of the Act on account of interest paid on the alleged accommodation entry by the assessee appellant.
Ground No.6 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming addition of Rs. 33,13,375/- u/s 69C of the Act on account of commission paid on the alleged accommodation entry by the assessee appellant.
We have heard the argument and perused the material available on record. We note that at para 10 pages 40 of the assessment order, AO observed that assessee has received accommodation entries in form of bogus unsecured loans from various shell companies. However, we find that the balance sheet does not reflect such unsecured loan nor any evidence is brought on record that assessee raised accommodation entry in form of unsecured loans. Both the lower authorities have placed reliance on the statement of Shri Mukesh Banka recorded on 30.05.2018 u/s. 132(4) of the Act, but, we find that such statement was not provided to the assessee and in the statement reproduced in the assessment order, the name of assessee is not mentioned. Shri Mukesh Banka has also retracted from his statement vide affidavit dt.01.06.2018 (PB 146-148). This apart, the coordinate bench in case of Kedia Builders and Colonizers Private Limited in and 901/JP/2024 for AY 2012-13 to 2016-17 vide order dt.11.03.2025 where addition was made w.r.t. Banka Group Companies has deleted the addition made by the AO.
We also note that assessee has included the amount of Rs. 13, 25, 35,000/- received from various parties for which addition has been made in its sales. The sales have been accepted by the AO. In support of the sales, assessee has filed the possession letter before CIT (A) and on our inquiry, sale agreement was also furnished. We agree with the contention of the assessee, relying on various decisions where it is held, that when a credit entry is recorded as sale, the same cannot be added u/s. 68 of the Act. Thus, even on merit the addition confirmed by CIT (A) u/s 68 of the Act cannot be sustained. Further addition on account of notional interest of Rs. 13, 25,350/- and commission of Rs. 33, 13,375/- is also not sustainable as the addition of Rs. 13, 25, 35,000/- is deleted by us. Thus, on merit also the ground of the assessee is allowed. In the result, relevant grounds mentioned above are also allowed in toto.
The Order is pronounced in the open court on the 24th day of July 2025.