PLB INFRASTRUCTURE PVT. LTD.,NEW DELHI vs. ACIT, CENTRAL CIRCLE- 25, NEW DELHI

The promoters of SRM group of companies, namely Sh. Ashok Goel, Sh. Pradeep Goel and Sh. Praveen Gupta failed to prove genuineness of the above investment. Further, the Investigation Wing Kolkata has also recorded statement Shri Rajesh Kumar Aggarwal who has specifically admitted that 22 companies out of 40 such companies controlled and managed by him have made investments in the form of share capital & share premium in group companies of SRM and these are mere paper companies which have been formed and subsequently used to provide accommodation entries to various clients. He stated that he provided accommodation entries to various companies like Ginni Gold Ltd, Goel Exim India Pvt. Ltd, PLB Infrastuctre Pvt. Ltd, SRM Diamonds Pvt. Ltd, Goel Impex Pvt. Ltd, SRM Securities Pvt. Ltd and Bhavya Gold Pvt. Ltd of SRM group through entries of bogus share capital and premium through companies controlled by him. He further stated that these share capital and premium are just an accommodation entry provided to SRM Group of Delhi to route into the business their unaccounted money. Some of other entry operators also admitted to have provided entries to SRM group of companies.

5. In view of the above discussions, it can be concluded that these investing companies are mere paper/shell companies who have no business activities and are engaged in providing accommodation entries to different companies including the assessee company and accordingly, an amount of Rs.2,65,00,000/- received under the head share application/share premium is not genuine and hence, liable to be added u/s 68 of the IT Act, 1961 in AY 2009-10. 6. In view of the above, as income chargeable to tax has escaped assessment by way of failure to disclose all the material facts truly and fully, I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. Date : 26.08.2015 Sd/- (Gautam Deb) DCIT, Central Circle- 25, New Delhi”

3. In response to the notice u/s 148 on 28.08.2015, the assessee submitted that the original return filed u/s 139(1) may be treated as return filed in response to notice u/s 148 of the I.T. Act.

4. During the course of assessment proceedings, the Assessing Officer issued notice u/s 133(6) to the following 12 companies calling for information about shares purchased at huge premium as shown against each of them :-

S.No. Name of Indiv./Comp. (Sh./Smt./M/s) Share capital and premium 1 Virgin Capital Services Pvt. Ltd. 2000000 2 VIP Leasing & Finance Pvt. Ltd. 2000000 3 Vemuri Finvest Pvt. Ltd. 2500000 4 Ultimate IT Solutions Pvt. Ltd. 2000000 5 Pitamber Infrastructure Pvt. Ltd. 1000000 6 Bhola Motor Finance Pvt. Ltd. 2500000 7 Advent Trading Pvt. Ltd. 2000000 8 Toor Finance Company Limited 2500000 9 P L Finlease Pvt. Ltd. 2500000 10 Nipun Tradex Pvt. Ltd. 15000000 11 Mani Mala Delhi Properties Pvt. Ltd. 2500000 12 AD-FIN Capital Services India Pvt. Ltd. 2500000 Total 24500000/-

5. He noted that the notice was served only on 5 companies as per Sl.No.8 to 12 above. However, there was no reply received from the above companies.

He noted that the notices issued upon the remaining 7 companies at the provided address were returned unserved by the postal department with the remarks “No such firm” or “Left”. He, therefore, asked the assessee to explain as to why the share capital and share premium received to the tune of Rs.2,45,00,000/- be not treated as unexplained cash credit within the meaning of section 68 of the I.T.

Act.

5.1 The assessee, in response to the same, submitted that the assessee company namely M/s PLB Infrastructure Pvt. Ltd. belongs to Shree Raj Mahal Jewellers Group (SRM Group). The assessee has filed an application dated 11.07.2016 before the Income Tax Settlement Commission (ITSC) which has been duly admitted u/s 245D(2) of the I.T. Act. In the statement of facts (SoF) attached to ITSC it has been clearly stated that stock found short at the time of search in various group entities was utilized for making sales outside books of accounts and the cash so generated was utilized for making investment in properties and introducing the money in the books of the group concerns through share capital. The amount of Rs.2,65,00,000/- allegedly received as share capital by the assessee company is also part of the same procedure as explained above. It was pointed out that the utilization of cash is mentioned in details in Annexure-F forming part of the settlement application. Although, the assessee company is not an applicant before ITSC, however, being a group concern cash utilized for introduction of share capital is duly stated in Annexure-F (Utilization Chart) at Sl. No.9. Moreover, an amount of Rs.9.94 Lakhs is separately stated on account of capital entry expenses. It was accordingly submitted that no separate addition is warranted on account of alleged unexplained share capital since the amount of Rs.2,65,00,000/- has already been included in the settlement application of the SRM Group companies.

5.2 However, the Assessing Officer was not satisfied with the explanation given by the assessee. According to him, the SOF submitted by the assessee before ITSC shows that the total utilization of cash generated outside books of accounts as per Annexure- F is Rs.1,18,65,70,487/- as against total additional income of Rs.8,60,87,803/- offered by the entire group in the settlement application. Rejecting the explanation given by the assessee, the Assessing Officer made addition of Rs.2,65,00,000/- u/s 68 of the I.T. Act.

Act. However, ld. CIT(A) was not satisfied with the explanation given by the assessee and dismissed the appeal on both the issues. So far as validity of re- assessment proceedings is concerned, he decided the issue against the assessee by observing as under :-

“5.2 I have considered the facts and circumstances of the case, submission of the appellant as well as the case laws relied upon and perused the assessment order. From the perusal of the details/document filed by the appellant, it is clear that the share applicants were not having any business activity. They were having meager income from which it is clear that those were paper/shell companies engaged in giving accommodation entries to the beneficiaries in the garb of share capital/premium. Reliance is placed on the following judgements:- (i) Hon'ble Supreme Court in the case of Raymond Woolen Mills Ltd. vs. ITO & others has held:- "In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.” (ii) Hon'ble Supreme Court in the case of Yogendr Kumar Gupta vs. ITO has held:- "Whether subsequent to completion of original assessment, AO, on basis of search carried out in case of another person, came to know that loan transaction of assessee with a finance company were bogus as said company was engaged in providing accommodation entries, it being a fresh information, he was justified in initiating reassessment proceeding in case of assessee" (iii) Hon'ble Delhi High Court in the case of Acorus Unitech Wireless P. Lid. Vs. ACIT has held:- “In terms of section 148, law only requires that information or material on which AO record his or her satisfaction has to be communicated to assessee, without mandating disclosure of any specific document. (iv) Hon'ble Delhi High court in the case of PCIT vs. Paramount Communication P. Ltd. has held : "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.” (iv) Hon'ble Supreme Court in the case of Paramount Communication P. Ltd. vs. PCIT has held:- " .... SLP of assessee dismissed. Information regarding bogus purchase by assessee received by DRI from CCE which was passed onto revenue authorities was tangible material outside record to initiate valid reassessment proceedings." (v) Hon'ble Gujarat High Court in the case of Ankit Financial Services Ltd. vs. DCIT has held :-

".......... Where material recovered in search of another person indicated that assessee had received bogus share applications through accommodation entries, since assessee was beneficiary, initiation of reopening was justified." (vi) Hon'ble Gujarat High Court in the case of Aaspas Multimedia Ltd. vs. DCIT has held:- " ..... where reassessment was made on basis of information received from Pr. DIT (Investigation) that assessee was beneficiary of accommodation entries by way of share application provided by third party, same was justified." 5.3 In view of above discussion and the case laws, I find that there was no infirmity in the AO's order. The appellant was asked to prove the genuineness of the share applicant/share application money by filing the relevant documents/details but they failed to do so. Therefore, the case was not reopened in mechanical manner but the same was reopened after proper application of mind. So far as the other case laws relied upon by the appellant are concerned neither the present case was reopened based on mere information received from the investigation wing, nor the reasons recorded were vague. Before reopening the case proper exercise was carried out by the AO to investigate the matter and when he satisfied himself on proper application of his mind to the material then only he concluded that he had reason to believe that the income of the appellant has escaped assessment. In view of the above discussion, the ground raised by the appellant are dismissed.”

“1. That on the facts and circumstances of the case and in law, the order passed by CIT (A)-29, New Delhi (hereinafter referred to as CIT (A)), is bad in law.

2. That on the facts and circumstances of the case and in law the CIT (A) was not justified in upholding the action of AO in initiating reassessment proceedings which are invalid and illegal being void-ab-initio as the AO has not applied his mind and not came to an independent conclusion that he has reasons to believe that the income of the assessee has escaped assessment which was a jurisdictional requirement for reopening of the assessment u/s 147/148 of the I.T. Act.

3. That on the facts and circumstances of the case and in law the CIT (A) was not justified in upholding the action of AO in initiating reassessment proceedings which are invalid and illegal being void-ab-initio as there was no mention about existence of any tangible material in the reasons to believe formed by the A.O. hence the reassessment proceedings were not validly initiated.

4. That on the facts and circumstances of the case and in law the CIT (A) was not justified in upholding the action of AO in making an addition of Rs. 2,65,00,000/- by treating the share capital and share premium received during the assessment year under consideration as unexplained cash credit u/s 68 of the Income Tax Act.

6. That on the facts and circumstances of the case and in law, the impugned addition made by CIT(A) is not sustainable as proper and reasonable opportunity was not proved to the assessee during the course of assessment proceedings. 7. That the appellant craves leaved to add, alter, modify any of the grounds at the time of hearing or before the hearing.”

Referring to the same, he submitted that the assessee has not received any share application money from any of the 22 companies controlled by Shri Rajesh Kumar Aggarwal. Therefore, the reasons recorded by the Assessing Officer are very vague, scanty, sketchy and, therefore, the re-assessment proceedings should be quashed. He submitted that the following information which is essential for formation of belief is completely missing in the reasons :-

(a) Names of the investing companies, (b) Amount invested by each company, (c) Accommodation entry provider’s bank details, (d) Alleged instrument number, date, amount by which accommodation entry was received, (e) Name of the bank and branch and account number from which the alleged entry originated.

10. In absence of the above, the reasons being not specific but vague and general and would not lead to arriving at a satisfaction regarding escapement of income.

He submitted that ld. CIT(A) after carefully going through the reasons recorded by the Assessing Officer had upheld such re-assessment proceedings. He submitted that it is very clear from the details/documents filed by the assessee that the share applicants were not having business activities and were having meager income which clearly proves that those paper/shell companies were engaged in giving accommodation entries. Since the case was not reopened in a mechanical manner but was reopened after proper application of mind, therefore, the various decisions relied on by the ld. counsel for the assessee are distinguishable and are not applicable to the facts of the present case. He also relied on the decisions which were relied on by the ld. CIT(A) while deciding the issue.

We find from the statement of Shri Rajesh Kumar Aggarwal recorded by the DDIT (Investigation) u/s 131 of the I.T. Act on 22.01.2014 wherein Shri Rajesh Kumar Aggarwal in reply to Question No.9 had given the list of 22 companies which are controlled by him. The relevant question and answer reads as under :-

“Q.9 Please state the names of the companies/proprietorship concerns managed/controlled by you and also state who are the directors in these companies/proprietorship concerns? Ans. As far as my memory goes, as per the list provided by you related to SRM Group of cases of Delhi around 22 (approximately) shell/paper companies are being controlled by me. The books of accounts of those companies are maintained in the computers in my office. The directors of those companies are as under :- Sl.No. Name of the company Directors 1. Festino Agro Pvt. Ltd. Palat Mandal Ajay Sharma 2. Immortal Vinimay Pvt. Ltd. Mritnunjay Pal Saheb Ghosal 3. Active Suppliers Pvt. Ltd. Mritnunjay Pal Saheb Ghosal 4. Kushal Infotech Pvt. Ltd. Palat Mandal Saheb Ghoshal 5. Mahadhan Vyapar Pvt. Ltd. Saheb Ghosh Ajay Sharma 6. Gajanand Agrotech Ltd. Palat Mandal Saheb Ghoshal 7. Titanic Chemical Pvt. Ltd. Palat Mandal Saheb Ghoshal 8. Parijat Commodeal Pvt. Ltd. Mrituyanjay Pal Saheb Ghoshal 9. Goodfaith Pharmaceutical Pvt. Mrituyanjay Pal Saheb Ghosal Ltd.

Sir, apart from the above companies I am controlling and managing a few more companies. Here I would like to mentioned that the above directors in all of these companies are dummy directors who are mostly my employees who lend their names for directorship in lieu of some compensations. The above companies also do not have any business activity at all and are created by my only for the sole purpose of providing accommodation entries.”

20. The Hon’ble Delhi High Court in the case of Meenakshi Overseas (P.)

Ltd. (supra) has held that where reassessment was resorted to on the basis of information from DIT (Investigation) that assessee had received accommodation entry but there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified. The relevant observation of the Hon'ble High Court reads as under :-

“19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material.

have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the abovesaid instruments are in the nature of accommodation entry which the Assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing".

21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004- 05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... "

23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.

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22. Since in the instant case none of the companies from whom the assessee company has received share capital/share premium are mentioned in the statement of Shri Rajesh Kumar Aggarwal, therefore, it is a clear case of no independent application of mind by the Assessing Officer to the tangible material and the reasons failed to demonstrate live link between tangible material and formation of reasons to believe that income has escaped assessment. The satisfaction recorded by the Assessing Officer is at best a reproduction of the conclusion of the investigation wing report and is a borrowed satisfaction. Since the reasons do not demonstrate the live link between the tangible material and formation of reasons to believe that income has escaped assessment, therefore, we hold that the initiation of re-assessment proceedings by the Assessing Officer merely on the basis of information received from the Investigation Wing and without any independent application of mind is void ab-initio. We, therefore, set-aside the order of the ld. CIT(A) and the grounds challenging the validity of the re-assessment proceedings are allowed. Since the assessee succeeds on the legal ground, the other grounds are not being adjudicated being academic in nature.