INCOME-TAX OFFICER, WARD-1(3)(1), AHMEDABAD, AHMEDABAD vs. PARTHIV JAWAHARBHAI SHAH, AHMEDABAD

Aggrieved by this order of the Ld. CIT(A), both the assessee and the Revenue have come up in appeal before us.

We shall first deal with the assessee’s appeal on ITA No.1030/Ahd/2024.

Taking up first the legal ground raised in ground nos. 1 to 6 of the assesses appeal, the arguments made by the Ld.Counsel for the assesee challenged the reopening in the present case on account of following: i. the reopening was based on borrowed satisfaction ii. the objections of the assessee to the reopening were not disposed of by the AO.

Several case laws were referred for the proposition that the assessment framed would be invalid where reopening was based on borrowed satisfaction /objections to the reopening were not disposed of by the AO. The same shall be dealt with in the later part of our order.

Both the parties were heard on the legal challenge raised by the assessee and the orders of the authorities below perused.

For dealing with the legal contention of the assessee, it is necessary to reproduce the reasons for reopening the case of the assessee, the copy of which was filed before us at paper book page nos.28 and 29, and which reads as under:

Basis of forming reasons to believe and details of escapement of income: On perusal of the details furnished and the information uploaded by the DDIT (Inv.), Unit-1(3), Ahmedabad, a is very clear that the as per the bank details of Orange Tradex Pvt. Ltd., transactions of Rs.80,23,00,000/- in the name of the above named assessee have been carried out. In view of the above facts, I have reason to believe that the income of Rs.80.23.60.000/- has escaped assessment within the meaning of Section 147 of the Act therefore, it is a fit case for reopening of the assessment by invoking the provision of sec. 147 of the IT. Act. Accordingly, it is a fit case for issuing notice u/s 148 of the LT. Ad 4. Applicability of the provisions of section 147/151 to the facts of the case: After analyzing the above information provided by Investigation Wing the data made available in the ITS details of the assessee prima facie, I have reason to conclude that the assessen had failed to disclose fully and truly all the particulars of his income. While & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 7 – forwarding the above information, Investigation Wing had also provided the relevant portion of Investigation in this case and banking transactions made by the assessee during the year under consideration as per the bank details/account ascertained in the case of Orange Tradex Pvt. Ltd. In view of the above. I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the I.T. Act for A.Y. 2013-14 by an amount of more than Rs. 1 lakh and I am satisfied that this is a fit case for re- opening the assessment for A.Y. 2013-14 In this case, more than four years have lapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 of the Act is being obtained from Pr. Commissioner of Income Tax-1, Ahmedabad as per the provisions of Section 151 of the Act.”

As is evident from the above, the AO formed belief of escapement of income of the assessee on the basis of details and information furnished by the DDIT (Inv.), Unit-1(3), Ahmedabad to the effect that the bank accounts of Orange Tradex had been used for circulation of funds and no actual business activity had been carried out in this concern and there was transactions to the tune of Rs.89,23,60,000/- in the name of the assessee from this entity i.e. Orange Tradex. In the reasons, the AO also notes that while forwarding the information regarding Orange Tradex, the Investigation Wing had provided the relevant portion of investigation in this case and the banking transactions made by the assessee during the year under consideration as per bank account details/account ascertained in the case of the Orange Tradex. In sum and substance, the reasons for escapement of income of the assessee were recorded by the AO on the basis of information provided by the Investigation Wing to the AO that the assessee had entered into bogus transactions with Orange Tradex to the tune of Rs.89.23 Crores. The orders of the & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 8 – authorities below reveal that the copy of reasons as aforesaid was supplied to the assessee and all information forwarded by the Investigation Wing to the AO based on which reasons were recorded by the AO was also provided to the assessee during the re-assessment proceedings. This fact is noted at para 4 of the assessment order as under:

Therefore, the entire information available with the AO which was received from the Investigation Wing of the Department, leading to the formation of his belief of the transaction entered into by the assessee with Orange Tradex being accommodation entries and not real transactions, were all made available to the assessee during assessment proceedings itself.

In the backdrop of the above facts, we shall proceed to deal with the legal contentions raised by the Ld. Counsel for the assessee before us. The first contention is that the satisfaction of the AO was a borrowed satisfaction and the AO had not applied his mind to the information provided to him. To support his contention, he has pointed out from the reasons that there is no description of the nature of transaction therein. Also he contended that the quantum of transaction of Rs.89.23 Crores mentioned in the reasons was incorrect being only to the tune of Rs.46.95 crs. which fact was demonstrated to the AO and the Ld.CIT(A) by filing copies of ledger account of M/s Orange Tradex and also bank account of the assessee reflecting transactions with the said entity. He contended that based on these facts, it is evident that the AO had merely relied on the & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 10 – report of investigation made available to him and had not verified the facts in relation to the assessee, which would have revealed both the nature of the transaction as also the correct quantum of transaction entered into by the assessee with M/s Orange Tradex.

We are not in agreement with the contention of the Ld. Counsel for the assessee as above. The reason being that the assessee had been provided all information relating to its alleged transaction with Orange Tradex gathered by the Investigation Wing of the Department, but despite so the allegation of borrowed satisfaction of the AO or for that matter non application of mind by the AO, is only a general allegation levelled by the assessee without any specific reference to the material and information made available to him. The assessee had all material with him regarding its transaction with Orange Tradex dug out by the Investigation Wing of the Department. The assessee therefore was aware of the specifics of the information relating to its transaction with Orange Tradex and why it was considered to be not real by the Revenue authorities, i.e both the Investigation Wing and the AO. That being so the assessee ought to have referred to the information made available to it while alleging that the AO had no knowledge of the nature of transaction or for that matter the quantum of transaction of the assessee with Orange Tradex, so as to attribute non application of mind/borrowed satisfaction of the AO of escapement of income of the assessee. The assesses case merely rests on the contents of the reason recorded and no reference has been made of the material found by the Investigation wing, which admittedly, was & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 11 – made available to the assessee. We, therefore, find no merit in the contention of the Ld.Counsel for the assessee that the reasons recorded for reopening the case of the assessee were based on borrowed satisfaction and were without any application of mind by the AO, and accordingly reject the same.

The other contention raised by the Ld. Counsel for the assessee before us was that the AO had not disposed of the objections raised by the assesee to the reopening of the case. In this regard, he pointed out that the assessee had objected to the reopening vide letter dated 25.02.2022 and the AO had not disposed of the assessee’s objection to the same. Ld. DR, however, has contended that this contention was raised by the assessee before the AO who had categorically pointed out that the assessee’s objections had been dismissed by him by passing a speaking order. He drew our attention to para 8 of the assessment order as under:

Referring to the same, he pointed out that the AO had categorically noted the assessee’s objection being disposed off vide letter of the AO dated 11th February, 2022 and 11th March, 2022.

To this, the Ld. Counsel for the assessee pointed out that the assessee had received copy of reasons only on 31st January, 2022 to which the assessee had responded by stating that it had been given only four days’ time to comply with the notice issued & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 14 – u/s.142(1) of the Act, which was contrary to the directions of the Hon’ble High Court stating that 60 days’ time be given to the assessee to respond to the reasons recorded. He further contended that thereafter in response to the notices issued u/s.142(1) of the Act, the assessee sought further time to file its objection to the reasons, which were finally submitted vide letter dated 25th February, 2022 and the AO had not dealt with the objections raised by the assessee therein.

Having heard both the parties, the facts on record reveal that the reasons for reopening the case of the assessee, as also all material with the AO passed on to it by the Investigation Wing of the Department and based on which reasons for reopening were recorded, were handed over to the assessee on 11-03-2022 and thereafter the assessee filed objections to the reopening vide its letter dated 25th February, 2022 which were not disposed off by the AO by way of speaking order. However, we have gone through the objections raised by the assessee, copy of which was placed before us at paper book page nos. 115 to 135. To summarise the objections of the assessee, the same were to the effect that: i. The reasons lack validity since they did not specify the nature of transaction nor quantify correctly amount of transactions entered into by the assessee with Orange Tradex. ii. There was no reason to believe that income had escaped assessment and the AO had merely relied on the information received from the DDIT (Inv.). iii. Reopening was based on borrowed satisfaction.

As noted above the assessee was not only provided copy of the reasons recorded, but also, the information collected by the Investigation Wing of the department revealing the transaction of the assessee with Orange Tradex to be bogus. The assesses objections to the reopening, therefore, ought to have been specific, referring to all information available when objecting to the reopening. Merely referring to the reasons recorded for reopening stating them to be vague for not mentioning the nature or quantum of transaction of the assessee with orange Tradex, would not suffice, until this fact was pointed out from the information supplied to the assessee alongwith the reasons. All objections of the assessee, are clearly with reference to only the reason recorded and there is no reference to the material available alongwith the reasons. These general objections of the assessee, typically do not qualify as objections at all. And therefore the act of the AO in not disposing off the same, we hold, does not effect the validity of the assessment framed u/s 147 of the Act in the present case. The argument of the Ld.Counsel regarding non disposal by AO of the objection of the assessee to the reopening & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 16 – of the case, invalidating the assessment framed, is therefore rejected.

All the case laws relied upon by the Ld. Counsel for the assessee are also of no assistance to the assessee, since, they have not been demonstrated to have been rendered in identical facts and circumstances as in the case of the assessee before us and hence are all distinguishable on facts.

The legal grounds raised by the assessee in Ground Nos. 1 to 6 are therefore dismissed as above.

We shall now take up the grounds raised on the merits of the addition made. While dealing with the merits of the addition, we are dealing both with the Revenue’s appeal and the assessee’s appeal together, since, the issue is common and interrelated. As noted in the facts of the case, the AO had held the assessee to have received bogus credits from Orange Tradex amounting to Rs.89.23 Crores and taxed the same as unexplained credits u/s.68 of the Act, and the Ld. CIT(A), though had found the said transactions to be bogus however finding all the amounts received by the assessee from M/s Orange Tradex to have been transferred on the same date itself to another entity i.e. M/s Matrix International he held the assessee to be only a conduit in providing accommodation entries and, therefore liable to be taxed only to the extent of commission earned on providing alleged accommodation entries. Accordingly, he directed the AO to treat 2% of the transactions with Orange Tradex of Rs.89.23 Crores to & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 17 – be the quantum of commission earned by the assessee and be taxed as such in the hands of the assessee.

The grievance of the assessee is that all its transactions were genuine and, therefore, the Ld. CIT(A) had erred in treating the assessee as an accommodation entry provider. The Revenue, on the other hand, has contended that the Ld. CIT(A) erred in treating the assessee as a mere conduit in providing accommodation entry and on the contrary the entire receipts from Orange Tradex ought to have been taxed in the hands of the assessee as unexplained credits u/s.68 of the Act ,as done by the AO.

Having heard both the parties, the issue before us is whether the amounts received by the assessee from Orange Tradex ought to be treated as its unexplained credits u/s.68 of the Act, as done by the AO or be deleted in entirety for having proved the genuineness of the transaction, as contended by the Ld.Counsel for the assessee or the assessee be treated as only an accommodation entry provider in relation to the amounts received from Orange Tradex and commission income earned thereon only be taxed, as held by the Ld.CIT(A). The findings of the Ld.CIT(A) therefore, which have been assailed before us are:  That the transaction of the assessee with M/s Orange Tradex during the year is bogus. (assailed by the assessee)  That the quantum of the transaction is Rs.89.23 Crs. (assailed by the assessee)

First, dealing with the findings of the Ld. CIT(A) that the transactions entered into by the assessee with Orange Tradex was a bogus transaction, we find that in discharge of its onus to prove the genuineness of the transaction, the assessee had merely filed documentary evidence i.e. its own bank account or the financials of Orange Tradex etc. The adverse information available with the AO from the Investigation Wing of the Department pertaining to transactions undertaken by the Orange Tradex and Orange Tradex being only a shell entity, have not at any point of time been controverted by the assessee either before the AO, CIT(A) or even before us despite the fact that the incriminating information relating to Orange Tradex was supplied by the AO to the assessee and was therefore very much available with the assessee. In fact, we find, the assessee has made no attempt to bring out the said information available with the Department. It is clear, therefore, that the assessee has made no attempt to controvert whatever adverse information was available regarding the transaction with Orange Tradex being bogus. Without controverting the adverse information against it, the assesee, we hold, cannot claim to have discharged its onus of proving the genuineness of the transactions by filing basic documentary evidences of confirmation, etc. In the light of the same, we hold that the assessee has no case for canvassing and contending before us that the assessee’s transactions with Orange Tradex were shown to be genuine.

Coming to the third aspect relating to this issue, the assessee contended that the quantum of transactions carried out & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 20 – by the assessee with Orange Tradex was not to the tune of Rs.89.23 Crores but only to the tune of Rs.46.95 Crores. That, therefore, even if any addition on account of commission income earned needed to be made it should be restricted to this quantum of transaction only. This fact has been, we have noted, pleaded by the asessee both before the AO and before the Ld. CIT(A). Ledger account of Orange Tradex in its books of account reflecting the fact of the assessee having received amount of only Rs.46.95 Crores and not Rs.89.23 Crores, as noted by the AO were filed. Even bank statement of Orange Tradex was filed by the assessee to the authorities below. However, we note that none of the authorities below have made any attempt to verify this fact. At the same time, we have also noted from the reasons recorded by the AO that the copy of the bank statement of Orange Tradex revealed the assessee to have entered into the transactions to the tune of Rs.89.23 Crores with Orange Tradex. Copy of this bank account was in the possession of the AO and he had forwarded this copy to the assesse also. The assessee, we find, has made no attempt to point out that even as per the copy of bank statement of Orange Tradex in the possession of AO, the transaction of Orange Tradex with the assessee was only to the tune of Rs.46.95 Crores and not Rs.89.23 Crores as noted by the AO. In the light of the same, the fact relating to the quantum of transaction of the assessee with Orange Tradex has remained unverified and for this limited purpose, we consider it fit to restore the issue to the AO with the direction to verify the quantum of transaction of the assessee with Orange Tradex during the year and, thereafter, compute commission income earned by the assessee by applying & 1038/Ahd/2024 [Parthiv Jawaharbhai Shah] A.Y. 2013-14 - 21 – the rate of 2% on the quantum of the said transaction, as directed by the Ld. CIT(A).

In view of the above, the grounds raised by the assessee with respect to the findings of the Ld. CIT(A) holding the assessee to have earned commission income are rejected whereas the grounds raised with respect to the computation of commission income is allowed for statistical purposes. The ground raised by the Revenue in its appeal challenging the order of the Ld. CIT(A) deleting the addition made by the AO u/s.68 of the Act of Rs.89,23,60,000/- is dismissed.

In the combined result, the appeal of the asessee is partly allowed for statistical purposes while Revenue’s appeal is dismissed.