SHYAM MAHIMA COLONISERS PRIVATE LIMITED,JAIPUR vs. INCOME TAX OFFICER 2(2), JAIPUR

The brief facts of the case are that the assessee company filed its return of income on 24.09.2012 at Rs. NIL. A search and seizure action was carried out by the Investigation Wing of the department at Kolkata in the case of Sh. Praveen Agarwal and his group companies on 13.09.2012. During the course of search and seizure proceedings Sh. Praveen Kumar Agarwal admitted that he is indulged into accommodation entry providing business. Some other brokers such as Sh. Pramod Ramdin Sharma and Sh. Neeraj Kedia were also examined and they have also admitted the same facts. On examination and verification of the documents it has been seen that the assessee under consideration has also obtained entry in the form of accommodation entry from various companies floated by Sh. Praveen Agarwal amounting to Rs. 65 Lacs.

In view of the above, a notice u/s. 148 of the Act was issued vide dated: 28.03.2019. The assessee has filed return in response to the notice issued u/s. 148 of the Act vide dated: 28.11.2019 declaring income at Rs. NIL and asked for the reasons for reopening of the matter. The same were supplied to the assessee. Ultimately, after a detailed deliberation between the assessee and the AO the case of the assessee was assessed after making an addition of Rs. 65 Lacs u/s. 68 of the Act plus Rs. 16,250/- as commission paid on the same u/s. 69A of the Act. The assessee being aggrieved with the same filed an appeal before the Ld. CIT (A), who in turn dismissed the appeal of the assessee and confirmed the order of the AO. The assessee being further aggrieved with the same preferred the present appeal before us.

We have gone through the order of the AO passed u/s. 147 r.w.s. 143(3) of the Act, order of the Ld. CIT (A) passed u/s. 250 of the Act and the submissions of the assessee alongwith the grounds taken before us. It is observed that the AO reproduced vide reply to question no. 8 and 9 to Sh. Praveen Agarwal mentioned the names of the companies/proprietorship firms managed and controlled by him on page no. 3 and 4 of the assessment order (Total entities 42). Throughout the assessment order the name of the entity from whom the assessee took the accommodation entry was not specified despite of a specific request and objection raised by the assessee. Again, in para 3.3 of the assessment order, the AO narrated that “the assessee had taken fictitious profit by misusing the Client Code Modification facility on NMCE platform through broker Mr. Ratan Lal Somani and the assessee has rotated unaccounted money of Rs. 1,02,08,250/- in its bank account through these entities. Therefore, the department had sufficient material to form necessary belief.”

It is observed that the assessee under consideration received Share capital (Face Value of Rs. 10/- each) with a premium of Rs. 240/- each from M/s. Lizard Trading Pvt. Ltd. amounting to Rs. 20 Lacs, M/s. Adirel Venture Pvt. Ltd. Amounting to Rs. 20 Lacs and M/s. Cyperus Multitrade Pvt. Ltd. Rs. 25 Lacs. None of these names are appearing in the list of companies as mentioned in the assessment order vide reply to question no. 8 and 9 to Sh. Praveen Agarwal mentioned the names of the companies/proprietorship firms managed and controlled by him on page no. 3 and 4 of the assessment order (Total entities 42).It is also observed that the assessee is entitled to know the nature of the entry in question, date of the transaction and the entities involved in providing alleged accommodation entry. On this issue the rights and obligations of the assessee has already been clearly defined by the Hon’ble Apex Court in the case of GKN Driveshaft (India) Ltd. [2003] 259 ITR (SC) as under:

In view of the above directions of the Hon’ble Apex Court, there is no room for any confusion for both the parties. In the instant case, neither proper reasons with relevant contents, i.e. nature of the entry in question, Date of the transaction and the entities involved in providing alleged accommodation entry were supplied to the assessee nor the objections raised by the assessee has been disposed of. It is further observed that the shareholder entities mentioned (supra), i.e. M/s. Lizard Trading Pvt. Ltd., M/s. Adirel Venture Pvt. Ltd. and M/s. Cyperus Multitrade Pvt. Ltd. are still the shareholders of the assessee as demonstrated through the audited Balance-Sheet. It is further observed that the shareholder entities are still active vide MCA master data furnished before us vide paper book page nos. 10-15.

In view of the above it is observed that the AO and Ld. CIT(A) erred in appreciating and following the law as pronounced by the Hon’ble Apex Court on the case of GKN Driveshaft (India) Ltd. (supra) and the conditions to be followed before proceeding u/s. 147 of the Act has been grossly violated. The impugned order is vitiated by errors apparent on the face of the record, warranting the same to be nullified. It is a cardinal tenet of the principle of natural justice that no party should suffer adverse consequences without being afforded an opportunity of being heard on the allegations against him. In the instant case, the assessee was not duly apprised of the facts and allegations against it. Such type of blind communication/reopening exercise effectively deprived the assessee of its right to submit a response, thereby constituting a violation to the principle of audi alteram partem. These material discrepancies constitute manifest errors on the face of the record, justifying the set-aside of the assessment order and appeal order passed by the Ld. CIT (A).

We further relied on the decision of the Full Bench of the Delhi High Court in the case of Commissioner of Income Tax v. Kelvinator of India Ltd 256 ITR 1, where it was held that one of the preconditions for reopening is that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment. Since, the Ld. DR. also admits that the objections were not settled before the completion of the assessment order then it is a clear-cut case of “reason to doubt” and not “reason to believe”. It is observed that till completion of the assessment the AO was not certain about the material facts/contents as required.

In view of the above discussion on the facts and law as pronounced by the superior courts time to time, we are of the firm view that the action of the AO is bad in law and the same is not sustainable. Resultantly, the orders of the authorities below are set-aside and additions of Rs. 65 Lacs plus expenses of Rs. 16,250/- are directed to be deleted and effective ground nos. 2 to 7 are allowed.

In the result, the appeal of the assessee is allowed.