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Income Tax Appellate Tribunal, DELHI BENCH “SMC”, NEW DELHI
Before: SHRI R. K. PANDA
PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 20.09.2017 of the CIT(A)- 7, New Delhi relating to assessment year 2008-09.
Facts of the case, in brief, are that the assessee is a Private Limited Company and filed its return of income on 29.09.2008 declaring Nil income. In this case information was received from DIT (Inv.) that during the course of search operation on Surender Kumar Jain and Shri Virender Kumar Jain, it was found that they had given accommodation entries to the tune of Rs.10,00,000/- to the assessee company through the following companies floated by them :-
S.No. Name of the company Amount 1 Finage Leasing & Finance (India) Ltd. 5,00,000 2 Singhal Securities P. Ltd. 5,00,000
After recording the reasons and with the prior approval of the Addl.CIT, the Assessing Officer issued notice u/s 148 on 18.03.2015 which was duly served upon the assessee. The assessee filed a letter on 16.04.2015 for providing the reasons for reopening of the case which were provided to the assessee. The objection filed by the assessee challenging the reopening of the case was disposed off by the Assessing Officer vide order dated 09.02.2016.
Subsequently, the Assessing Officer asked the assessee to substantiate the claim of receipt of share capital money of Rs.10,00,000/-. The Assessing Officer issued notice u/s 133(6) to the parties from whom, share application money was received to furnish the details by 08.03.2016. However, no reply was received.
Therefore, the Assessing Officer again issued notice u/s 133(6) and the Inspector of the Ward was deputed to serve the notice at the addresses given by the AR of the assessee vide letter dated 25.02.2016. However, the Ward Inspector reported that address 106, Palco House, T-10, Main Road, Patel Nagar does not exist at all. In view of the above, a show-cause notice dated 16.03.2016 was issued to the assessee company through speed post which was returned by the postal authorities with the remark “Left without address”. In view of the above, the Assessing Officer held that the assessee failed to prove satisfactorily the receipt of share capital of Rs.10,00,000/- with share value of Rs.10 at a premium of Rs.40/-. Since the assessee failed to prove the identity and creditworthiness of the company and genuineness of the transactions, the Assessing Officer invoking the provisions of section 68 made addition of Rs.10,00,000/- to the total income of the assessee.
4. Before the ld. CIT(A), the assessee apart from challenging the addition of Rs.10,00,000/- challenged the validity of the reopening of the assessment. The ld. CIT(A) dismissed the legal ground challenging the validity of reassessment proceedings and also sustained the addition of Rs.10,00,000/- made by the Assessing Officer.
So far as the validity of reassessment is concerned, ld. CIT(A) upheld the action of the Assessing Officer on the ground that the only requirement to this section is that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment and the Assessing Officer is not required to conclusively prove the escapement of income at the stage of issue of notice u/s 148 of the I.T. Act.
So far as the addition on merit is concerned, he observed that although the assessee contended that all evidences such as IT return, financial statement, copy of board resolutions and bank statement of the share applicant were provided to the Assessing Officer during the assessment proceedings to prove the identity, genuineness and creditworthiness of the transactions, however, the identity of the company was proved only on paper. Since in the instant case the existence of the share applicant itself was not found to be true, the Assessing Officer cannot further enquire as the source of their investments. According to him, merely filing of confirmation letter/share application forms will not prove the identity of the share applicants, the genuineness of transactions and the creditworthiness of the party which is still a big question mark. Relying on various decisions and observing that the bank account reveals simultaneous deposit and withdrawals leading credence to the modus operandi employed by the company to provide accommodation entries, the ld. CIT(A) upheld the action of the Assessing Officer.
7. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-
“1. The assessment order passed u/s 143(3)/147 by the Assessing officer is illegal, bad in law and the learned Commissioner of Income Tax (Appeals) - VI has also erred in upholding the same.
2. The learned Commissioner of Income Tax (Appeals) - VI has erred in upholding that the AO has rightly initiated the proceedings under section 147 of the Act irrespective of the fact that "Reopening of case under income escapement assessment is bad in law and without merit. Further, the instant reopening suffers from basic defect of non-application of mind (reopening being made arbitrarily without looking case records) by the assessing officer."
3. The Commissioner of Income Tax (Appeals) - VI has erred in upholding that the Assessing Officer has rightly made addition of Rs.10,00,000/- on account of share application money under section 68 of the Income Tax Act "irrespective of the fact that conditions prescribed under the said section are duly fulfilled by the assessee and share application money received by the assessee is a genuine and bonafide transaction".
The learned Commissioner of Income-Tax (Appeals) - VI has further erred in law and on the facts of the case in confirming the levy of interest and initiation of penalty proceeding by Assessing Officer under section 271(1)(c) of the Income tax act 1961.
5. The learned Commissioner of Income-Tax (Appeals) - VI has further erred in law and on the facts of the case in confirming the levy of interest by Assessing Officer u/s 234B of the Act.
6. It is therefore prayed that the assessment framed u/s 143(3) r.w.s. 147 of the Income Tax Act may kindly be quashed or alternatively the additions made by the Assessing Officer and confirmed by the Commissioner of Income-Tax (Appeals) - VI may please be deleted.
The Above grounds are independent and without prejudice to each other.
The Appellant prays that it may be allowed to add, alter, or forego any of the ground at the time of hearing in the interest of principle of natural justice.”
The ld. counsel for the assessee at the outset referred to the reasons recorded for initiating proceedings u/s 148, copy of which is placed at page 14- 15 of the Paper Book. He submitted that the Assessing Officer has not applied his mind and the reasons have been recorded in a mechanical manner. He has simply mentioned that the assessee company has taken accommodation entries in lieu of cash. The nature of the information and the content of the same has not been clearly mentioned in the reasons itself. Even the exact nature of alleged entries in the shape of share capital has not been mentioned by the Assessing Officer. He submitted that there is no tangible material or statement or Annexure on the basis of which the Assessing Officer has formed the view that there is an escapement of income. Since there is no live link between the information and formation of belief by the Assessing Officer for escapement of income, therefore, the reassessment proceedings initiated by the Assessing Officer are invalid. It is not understood as to on which basis the Assessing Officer has said that the assessee company has taken accommodation entries.
He accordingly submitted that since the Assessing Officer has not applied his mind and the reasons recorded are on the basis of borrowed satisfaction, therefore, the reassessment proceedings should be held as invalid. For the above proposition, ld. counsel for the assessee relied on the following decisions :-
(i) Sabh Infrastructure Ltd. vs. ACIT, W.P. (C) 1357/2016. (ii) Meenakshi Overseas vs. PCIT, ITA No.692/2016. (iii) Signature Hotels (P) Ltd. vs. ITO, 338 ITR 340. (iv) CIT vs. Insecticides India Ltd., 357 ITR 330. (v) CIT vs. G&G Pharma India Ltd., ITA No.545/2015. (vi) Nancy Sales Pvt. Ltd. vs. ITO, ITA No.4129/Del/2017.
So far as merit of the case is concerned, he submitted that the assessee received share application money of Rs.5,00,000/- from M/s Finage Leasing & Finance Limited and Rs.5,00,000/- from M/s Singhal Securities (P) Ltd.. To prove the identity, creditworthiness and genuineness of the share transaction the assessee company filed the copy of the confirmation, bank statement and income tax return, audited balance sheet, board resolutions, directors reports, annexure of investment etc.. He submitted that a perusal of the balance sheet of the investor company would show that both the companies are having net worth of Rs.14.57 crores and 10.50 crores respectively and the investments in the shares of this company has duly been reflected in their respective balance sheets. He accordingly submitted that since the assessee company has fully discharged the onus cast on it with regard to the three ingredients as per the requirement of provisions of section 68 i.e. the identity, creditworthiness and genuineness of the transactions by way of filing all the requisite documents, therefore, there is no legal obligation on the part of the assessee to produce the directors of the investor company before the Assessing Officer. For the above proposition, he relied on the following decisions :-
(i) CIT vs. M/s Goodview Trading Pvt. Ltd., ITA 377/2016. (ii) CIT vs. Gangeshwari Metal (P) Ltd., 361 ITR 10. (iii) Parbhatam Investment Pvt. Ltd. vs. ACIT, ITA No.2523/Del/2015. (iv) Areceli Reality Ltd. vs. ITO, ITA No.6492/Mum/2016. (v) Moti Adhesives Pvt. Ltd. vs. ITO, ITA No.3133/Del/2018.
He accordingly submitted that the reassessment proceedings should be quashed and the additions made by the Assessing Officer and upheld by the ld. CIT(A) should be deleted.
The ld. DR on the other hand heavily relied on the order of the ld. CIT(A). He submitted that the Assessing Officer in the instant case has applied his mind before reopening of the case and reasons recorded in the instant case cannot be considered as borrowed satisfaction. He submitted that the various decisions relied by the ld. counsel for the assessee are not applicable to the facts of the present case.
So far as merit of the additions is concerned, he submitted that the assessee failed to produce the directors of the investor company and the notices issued to them were returned unserved. The Inspector who was deputed to serve the notice u/s 133(6) found that there is no such address as given by the assessee itself. Under these circumstances, the identity of the investor companies and genuineness of the transactions remained unverified. Therefore, merely because such investor companies are having huge capital, the same cannot be a ground to believe the existence of these paper companies. The assessee has failed to discharge the onus cast on it especially when there was simultaneous deposits and withdrawals of money in the bank account of the investor companies. He accordingly submitted that the order of the ld. CIT(A) on both the grounds should be upheld.
I find the Assessing Officer while reopening the assessment has recorded the following reasons, copy of which is placed at page 14-15 of the Paper Book :-
“Reasons recorded for initiating proceedings u/s 148 of the I.T.Act., 1961 in the Case of M/s Rakesh Footwears Pvt. Ltd A.Y.-2008-09 It has been reported by DIT, Investigation, Unit-VI (2), New Delhi that during the course of post search investigations and while examining the seized records in the case of Sh. Surendra Kumar Jain and Sh. Virendra Jain, it has been revealed that the following company have obtained accommodation entries in the form of share capital/premium/loan during the financial year 2007-08 totaling amounts as mentioned below:-
NAME OF THE BENEFICIARY PAN AMOUNT INVOLVED (Rs.) COMPANY M/s Rakesh Footwears Pvt. Ltd. AACCR5712M 10,00,000
In the appraisal report of prepared by the unit of Investigation wing, it has been evidently established that Sh. Surendra Kumar Jain and Sh. Virendra Jain are known entry providers and are the actual controllers of more than 100 companies/proprietary firms /partnership firms. They control these entities through various persons by appointing them as directors/partners/proprietors apart from nominating them as authorized signatories for maintaining the bank accounts of these entities but in fact all these persons act only as their stooges. In view of the above mentioned facts, it is evidently clear that the undisclosed income of this beneficiary company which has been introduced by them in the form of share capital/premium/loan has escaped taxation. Hence, I have a reason to believe that income of Rs. 10 lakh as per table in preceding paragraphs has escaped assessment in the case of assessee relevant to A.Y.2008-09. Perusal of the entire hand written cash books and cheque books seized from the residence of Sh. Surendra Kumar Jain Sh. Virendra Jain, investigation wing has found several cheques issued in the name of different companies/entities/ persons. Details of these companies/entities/persons and cheque/pay order issued in the name of these companies/entities/persons have been provided by the investigation wing in the detailed report with annexure(s). The information relevant to above assessee with the relevant pages(s) of seized annexure(s) is as under:- From To Bank Cheque Cheque Amount Through No. Date Finage Rakesh UTI 001410 29.06.2007 5,00,000 Satish Lease & Footwears Goyal Finance Pvt. Ltd. India Ltd. Singhal Rakesh UTI 001551 29.06.2007 5,00,000 Satish Securities Footwears Goyal Pvt. Ltd. Pvt. Ltd.
Extensive enquiries have been made to trace the name of the beneficiaries by obtaining details from the banks and verification of books of accounts of the accommodation provider company maintained in tally format in the seized computer hard discs. After verification, help of the ITDMS and ITD Programme of the Department as well as website of the Ministry of Corporate has been taken to identify the exact names, PANs and jurisdiction of companies/entities/persons pertaining to various CIT charges. In the appraisal report prepared by the unit of Investigation wing, it has been evidently established that Sh. Surendra Kumar Jain and Sh. Virendra Jain are known entry providers and are the actual controllers of more than 100 companies/proprietary firms /partnership firms. They control these entities through various persons by appointing them as directors/partners/proprietors apart from nominating them as authorized signatories for maintaining the bank accounts of these entities but in fact all these persons act only as their stooges. In view of the above mentioned facts, it is evidently clear that the undisclosed income of this beneficiary company which has been introduced by them in the form of share capital/premium/loan has escaped taxation. Hence, I have a reason to believe that income of Rs. 10 lakh as per table in preceding paragraphs has escaped assessment in the case of assessee relevant to AY. 2008-09. As per records of this ward, no security assessment was done in this case of the A.Y. 2008-09 hence if approved, in terms of provisions of sec. 151 (2), sanction may kindly be accorded for issue of notice under sec. 148 for AY. 2008-09 in the case of assessee company.”
A perusal of the reasons recorded shows that the Assessing Officer has applied his mind in the instant case and it is not a mere reproduction of the letter from the Investigation Wing. Therefore, the various decisions relied on by the ld. counsel for the assessee which relate to reopening of the case on the basis of report of the Investigation Wing and non-application of mind by the Assessing Officer are not applicable. In view of the above and in view of detailed reasoning given by the ld. CIT(A) while upholding such reopening, the ground raised by the assessee challenging the validity of the reassessment proceedings is dismissed.
So far as merit of the additions is concerned, it is an admitted fact that the notices issue by the Assessing Officer u/s 133(6) to the parties from whom share application money was received were returned unserved and no reply was received from them. For the purpose of accepting any loan/cash credit/share application money etc. as genuine, the assessee has to fulfill the three ingredients as per the terms of section 68 i.e. the identity and creditworthiness of the loan creditor/ share applicant/genuineness of the transaction. In the instant case, the very identity of the companies remained unverified in absence of production of the directors and non-service of the notice u/s 133(6). The report of the Inspector that there was no such address as per the address given by the assessee itself also raises doubt regarding the identity of the person and therein creditworthiness and genuineness of the transactions. Considering the totality of the facts of the case and in the interest of justice, I deem it proper to restore this issue to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate his case by proving the identity and capacity of the loan creditors and the genuineness of the transactions to the satisfaction of the Assessing Officer. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. I hold and direct accordingly. The ground raised by the assessee is accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on this 31st July, 2018.