SNR ELECTRONICS LTD,NEW DELHI vs. ITO WARD - 24(1), NEW DELHI

6. That the assessment proceedings having been concluded without any independent investigation and collection of evidences are bad in law and no addition can be made.

SNR Electronics Ltd.

“As it is clear from the assessment order itself that the reassessment proceedings were undertaken by AO after recording reasons on the basis of information received from the Investigation Wing of the Department. The information was specific that the assessee is a beneficiary of taking accommodation entries of Rs. 80,00,000/- in the garb of share application money from entry providers namely Shri Surendra Kumar Jain group identified by Investigation Wing of the Department after thorough investigation and inquiries. The details of such entries have been given by AO on page no. 03 of SNR Electronics Ltd. assessment order. Thus, the specific information received by AO from Investigation Unit was the basis for forming the belief that the income of Rs. 80,00,000/- has escaped the assessment in the case of appellant. Whether information received from Investigation Wing can be a basis for reopening the assessment proceedings or not, has been answered by Hon'ble jurisdictional High Court in the case AGR Investment Ltd. vs. Addl. CIT & Anr. 333 ITR 146, wherein on the similar facts, it was held that the specific information received from the office of the Directorate of Investigation as regards the transactions entered into by the assessee with a number of concerns which had made accommodation entries and they were not genuine transactions, was neither a change of opinion nor did it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceedings u/s 147 of the Act. Rather the reason to believe was appropriately understood by the Assessing Officer and there was material on the basis of which the notice was issued'. Similarly, in other case, Rajat Export Import India Pvt. Ltd. vs. ITO, 341 ITR 135, Hon'ble jurisdictional High Court again substantiated the aforesaid stand by holding that information received by Assessing Officer from Investigation Wing regarding entry taken by assessee from entry, provider with specific details was a valid ground for reopening the assessment. It has been further held by Hon'ble Court that at the stage when reasons are recorded for reopening the assessment, the Assessing Officer is not required to build a foolproof case for making addition to the assessee income; all that he is required to do at that stage is to form a prima-facie opinion or belief that income has escaped assessment. The relevancy of the material before the Assessing Officer is to be judged only from that perspective and not from the perspective as to whether die material is sufficient or adequate to sustain the addition ultimately. Similar view has been taken by Hon'ble Court in other case Contel Medicare

SNR Electronics Ltd. Systems P. Ltd. vs. CIT, 349 ITR 649, wherein the reopening was initiated on the basis of information received by AO from the Directorate of Income Tax (Investigation) that assessee was beneficiary of accommodation entry taken from entry providers. In the cases, Aravali Infrapower Ltd. Vs. DCIT 390 ITR 456 and PCIT Vs. Paramount Communication Pvt. Ltd. 392 UR 444, Hon'ble Court has opined that the information received from Directorate constitutes the tangible material and reopening of assessment on the basis of such tangible material is valid. This is supported by Hon'ble Gujarat High Court also in the case Pushpak Bullion P. Ltd. Vs DCIT 394 ITR 65 wherein the return of income was processed u/s 143(1) of the Act and during the search operation in another companies it was discovered that the said group had provided entries to the assessee and amounts shown by assessee towards share applications were bogus. Hon'ble Court has held that notice for reopening having been issued in the case of assessment which was not framed after scrutiny, the AO would have considerable latitude in issuing notice for reopening if it was found that he had tangible material to form a belief that income chargeable tax have escaped assessment. However, in the recent cases, Meenakshi Overseas P. Ltd. Vs. PCIT, 395 ITR 677 and PCIT Vs. RMG Polyvinyl (I) Ltd., 396 ITR 5, Hon'ble Jurisdictional High Court has extended their opinion by holding that the reasons recorded by AO have to be based on some tangible material and that should be evident from reading of the reasons. It is also opined by the Court that the reasons to be believed must demonstrate the link between the tangible material and the formation of the belief and it should not be a 'borrowed satisfaction'.

5.1 The facts in the case of appellant are similar to aforesaid cases. Here also, information was received by the AO from Investigation Wing of the Department that assessee is a beneficiary of taking accommodation entries of Rs. 80,00,000/- in the garb of share application money from entry provider group

SNR Electronics Ltd. namely Shri Surendra Kumar Jain in the names of aforesaid entities. In respect of these entries, incriminating material was also found during the search proceedings in the case of Shri Surendra Kumar Jain Group. After analyzing the entries of the said incriminating documents with the details of return of income of appellant, the AO formed an opinion that the appellant has escaped the assessment to the tune of Rs.80,00,000/- of taxable income. However, in the reasons recorded, the AO has discussed in details the information received from Investigation Wing regarding the escapement of income in the case of appellant and analyzed it with the details of return of income by mentioning that the return of income was filed by appellant disclosing the income of Rs. 8,49,140/- and that the return was processed u/s 143(1) of the Act and also that share capital amounting to Rs. 80,00,000/- was received by assessee during the year under consideration. It is also discussed by AO that how search proceedings in the S. K. Jain Group revealed about his modus operandi of providing entries, to various beneficiary companies and how the funds were circulated through different entities for the purpose and commission was charged for giving these accommodation entities. The AO has also demonstrated with facts and figures how this group has been engaged in providing accommodation entries in lieu of commission. All these information received from Investigation Wing, have been examined in details with the details of return of income and a belief was formed by him that there was escapement of income of Rs. 80,00,000/- on the part of appellant and consequently, he recorded the reasons before issuing notice u/s 148 of the Act and initiated the reassessment proceedings in the case of the appellant.

5.2 It has been further argued by the appellant that the AO has not established any live link between the information sent by Investigation Wing with the reasons to believe of escapement of income of the assessee and no independent enquiry was SNR Electronics Ltd. conducted by him before recording reasons as the examination and verification of details of the share applicant were essential for having any reasonable belief of escapement, as mandatorily required by section 147 of the Act. However, in my opinion, the objections raised by appellant have no substance. The reasons recorded by the AO clearly demonstrate that the AO has successfully established the link between information received from Investigation Wing with the reasons to believe of escapement of income of the appellant. He has analyzed all the relevant and specific details and documentary evidence found during the search proceedings in the case of Shri S. K. Jain group (entry provider) related to appellant with the details of return of income filed and after examining and verification of such details, belief of escapement of income in the case of the appellant was formed. The contentions of the appellant that the AO should have made independent enquiry and examined the share applicants before recording reasons, are also misplaced. As per the provisions of the Act, the AO could not have made any independent enquiry before recording the reasons and issuing notice u/s 148 of the Act in the case of the appellant. He could not have Issued summons u/s 131(1) of the Act for making any independent enquiry from share applicant or any other person to examine the genuineness of transactions as there was no proceedings pending before him in the case of appellant. He could not have either issued notices u/s 142(1) or 143(2) of the Act as again these notices can be issued only when there are assessment proceedings pending in the case of the assessee. As per provisions of section 133(6) of IT Act also, AO can only ask any person to furnish the information in relation to such points of matters as specified by him, but cannot examine and verify the genuineness of such information. Thus, the AO has ho option other than to examine the details and- information received from Investigation Wing with the details of return of income filed by assessee to form the belief for recording the reasons before

SNR Electronics Ltd. issuing notice u/s 148 of the Act. The AO cannot go beyond this limitation as there are no proceedings pending before him for making independent enquiry by issuing statutory notices in the aforesaid sections. In such situation, the allegation of the appellant that the satisfaction recorded by AO was 'borrowed satisfaction' on the basis of borrowed information from Investigation Wing, therefore, reopening of assessment is not valid, is not acceptable. From the reasons recorded by appellant, it clearly reveals that the AO has analyzed the information received from the Investigation Wing at great length and after being satisfied that the appellant has escaped the assessment of Rs.80,00,000/- in its case, formed the belief and recorded the reasons before issuing notice u/s 148 of the Act. Thus, there was valid ground with the AO to initiate the reassessment proceedings in the case of appellant. I, therefore, uphold the validity of reassessment proceedings and dismiss the grounds taken by appellant.

5.3 Further, during the appellate proceedings, appellate has stressed upon the fact that the AO did not afford the opportunity of cross examination of the witness that had made the statements against the assessee which could possibly be used against the assessee. In my opinion, the stand taken by appellant has no substance as in its case, the AO has used the information received as per the material seized during the search proceedings in the case of Shri S. K. Jain (entry provider) for forming belief and recording the reasons for the purpose of initiation of reassessment. During the reassessment also, said information have been used but, as discussed above, onus was on appellant to prove the genuineness of the transactions appearing in its books of account. The cross examination or no cross examination of entry provider could have made no difference on this account. It is only a plea, taken by appellant, to show that the AO has defaulted in the proceedings, but the conduct of appellant itself by not giving basic information about the genuineness of SNR Electronics Ltd. transactions has weakened its case. In such situation, taking the basis of not affording the opportunity of cross examination of witness is not relevant here as it could not have made any difference on the merit of the case. Moreover, during the assessment proceedings, appellant did not care even to file the details as asked by AO in respect of share applicants and continuously defaulted the assessment proceedings by making non-compliance, leave alone asking any cross examination of any person. Since no such request was made by AO during the assessment proceedings, no prejudice was caused to it by not providing cross examination of Shri S. K. Jain and any other person. Thus, this issue raised by appellant in regards to reopening of assessment proceedings as well as on merit, also fails.

6. The Grounds No. 03 to 06 pertain to the additions of Rs.80,00,000/- and Rs. 1,44,000/- made by AO u/s 68 and 69 of IT Act on account of unexplained cash credit and unexplained commission expenses. In support of aforesaid grounds, appellant has made the submissions that it had discharged its onus by proving the existence of share applicants and non-production of directors cannot justify adverse inference u/s 68 of IT Act.

6.1 I have considered the facts of the case, basis of addition made by AO and submissions of the appellant. As it is clear from the assessment order itself that reassessment proceedings were undertaken by AO after recording reasons on the basis of information received from the Investigation Wing of the Department. During the assessment proceeding, it was observed by AO that assessee has received share capital of Rs.80,00,000/- from the entities mentioned in Para-5 (Annexure-B) of Assessment Order. As discussed further, after analyzing the seized material related to appellant, found during the search proceedings in the case of Sh. S.K. Jain group and modus operandi of Jain brothers in regards to providing accommodation

SNR Electronics Ltd. entries, vide order sheet entry dated 27.10.2016 asked the appellant to discharge his onus u/s 68 of the Act with regards to identity of creditors, genuineness of transactions and their credit worthiness in respect of share application money of Rs. 80,00,000/- received from entry providers. In response to that, assessee filed only the names of two creditors and did not furnish any confirmations from them and their bank statements. As per AO, the assessee did not furnish even the addresses of two companies. As further mentioned by AO despite of giving several other opportunities and asking specifically by appellant, it did not furnish any further details in respect of share applicant companies, nor did it produce the directors of share applicants companies or its own director namely Shri Sunil Gupta. In view of these facts, the Ad rejected the evidence furnished by assessee and concluded as under:-

"12. Conclusion:-

12.1 It is a settled position of law that a conspiracy is hatched and executed in darkness. To overcome these issues law states that it is for the alleged to come out clean. The assessee company made no serious efforts to come clean on the allegation so raised. In the civil law, a mere pre-ordnance of probability is enough to fix the responsibility section 68 is enacted in these terms only. It is clearly indicated from the wordings of the section that where the assessee offers no explanation or the explanation offered by the assessee is unsatisfactory, the provisions of section 68 are attracted.

12.2 To sum up, a sum of Rs. 80,00,000/- has been found credited in the books of account of the assessee. The immediate source of this amount has been found to name of such accommodation entries out of the entities controlled by Jain brothers as discussed above.

SNR Electronics Ltd. 12.2 It is indeed surprising that the assessee has been attempting to pass off these transactions as genuine. It is quite possible that the assessee could have succeeded in its design but for the search in the case of Jain brothers where complete evidence of colorable mechanism used by the assessee has been seized. The documents are self-speaking and giving graphic picture of the modus operandi adopted by the parties involved. It is quite disturbing to note the ease with which the assessee has been conducting its affair transforming its unaccounted money into regular transactions. The law allows the AO to lift the corporate veil to unmask the real from the apparent and also to go behind the transaction to understand their true import. The law also allows the AO to lift the corporate veil to unmask the real from the apparent also to go behind the transaction to understand their true import.

The law also allows the authorities to test the transactions on a touches tone of human probability to arrive at a conclusion which the rationale mine would arrive at. After going behind the transactions on paper and after lifting the corporate veil, as discussed in earlier paragraphs, it has been proved that the apparent was not real.

12.3 In view of above factual and legal matrix along with human probabilities and surroundings circumstances and incriminating evidences on record. I conclude that a sum of Rs.80,00,000/- credited in the books of account of the assessee fails to pass the test of genuineness within the meaning of section 68 of the Act and is held to be the income of the assessee u/s 68 of the IT Act, 1961 and this amount of Rs.80,00,000/- is hereby treated as unexplained credit and added to the income of the assessee.

12.4 From perusal of the documents seized from the premises of Shri Surender Jain during the course of search & seizure operations, it is evident that he used to charge 1.8% commission

SNR Electronics Ltd. for providing accommodation entries. The assessee was specifically asked to show cause why an amount of Rs.1,44,000/- (being 1.8% of Rs. 80,00,000/-) should not be treated as unexplained expenditure for procuring accommodation entries. However, the assessee did not furnish any reply to the same. Accordingly, an amount of Rs.1,44,000/- re-presenting commission paid in cash to procure these accommodation entries at the rate of 1.8% on Rs. 80,00,000/-as discussed above is being treated as unexplained expenditure u/s 69C."

6.2 From the above, it is clear that the appellant failed to discharge his onus by way of furnishing the documentary evidence and producing the directors of applicant companies in order to verify the veracity of transactions as well as details available on records. However, taking into consideration the fact that the appellant had taken accommodation entries from S. K. Jain Group and its creditors were not examined rather money had been rotated through dummy entities, the part details as given by appellant during the assessment proceedings, were not satisfactory as per AO to treat the aforesaid cash creditors as genuine.

6.3 It has to mention here that the appellant company, which has taken the entry of share application money from share applicants and unsecured loans of the aforesaid amounts, .is a private limited company different from the public limited companies wherein public are substantially interested and where the share application money comes out with an initial public offers and wherein shares are listed on stock exchange and are widely traded. In such cases, it is very difficult for the company to know them closely and have no control/mechanism to verify the creditworthiness and the burden of proof in such case is difficult. But there is another class of companies which are closely held and in which public are not substantially interested and which are mostly family controlled closely held companies,

SNR Electronics Ltd. and they raise their share capital and loans from their family members, relatives and friends and in these companies since share capital and loans are received from the close knit circles who are mostly known to the companies/promoters, the onus required u/s 68 of the Act is very heavy to prove the capacity of the share holders and lenders and genuineness of the transactions to satisfy cumulatively the Ingredients of section 68 of the Act to the satisfaction of the AO, otherwise he shall be free to proceed against the assessee company and make addition u/s 68 of the Act as unexplained cash credit.

6.4 Now, in the light of above, it has to be seen that to what extent, appellant has been able to satisfy all three conditions, i.e., identity of creditor, creditworthiness and genuineness of transactions in its case. So far as the word 'identity' is concerned, Hon’ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd., [2014] 2 ITR-OL 68, has defined that 'the identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN or assessment particulars did not establish the identity of the person. The actual and the true identity of the person or a company was the business undertaken by them.' In the case of appellant, appellant has failed to establish the identity of creditor companies as despite of several opportunities given by AO, the appellant could not file any such evidence in respect of creditor companies that they actually exist. Despite of specific request made by AO on different occasions, appellant failed to produce any of the directors of any of the aforesaid creditor companies to prove their physical existence. Similar view has been taken by Hon’ble jurisdictional High Court in the case CIT vs. Youth Construction Pvt. Ltd., 357 ITR 197 and CIT vs. Nipun Builders and Developers Pvt. Ltd., 350 ITR 407, wherein, it has been held that onus is on assessee to prove the identity of share applicants, failing which it has to be concluded that the SNR Electronics Ltd. assessee company has introduced its own money through non- existing companies using the banking channels in the shape of share application money. In view of above, it is clear that the appellant has failed to establish the identity of creditors in its case. Thus, the first condition as stipulated in Section 68 of the Act is not satisfied.

6.5 As regards the other conditions, i.e., creditworthiness and genuineness, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd. (supra) has held that 'The bank accounts do not reflect the creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessed, did not give any share dividend or interest to the said entry operators/subscribers. The profit motive is normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or given loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining the creditworthiness and the genuineness of the transactions/ It is further held by Hon'ble Court that mere production of incorporation details, PANs or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, are deeper and obtrusive. Companies no doubt are artificial or juristic person but they are soulless and are dependent upon the individuals behind them to run them and manage them. It is the persons behind the company who take the decision, control and manage them/ In the case of appellant company, though the soulless juristic entity is existent on paper but the individuals, running and managing them are found non-existing as the appellant company could not give a single detail about the existence or location of the share applicant

SNR Electronics Ltd. companies. Since the creditors are non-existing, their creditworthiness is also not established. Moreover, the report from Investigation Wing that the creditor companies are merely a tool of providing accommodation entry to appellant also support the fact that the appellant company has taken accommodation entries and rotated its own unexplained money through these creditor entities. During the assessment proceedings also, appellant could not prove with the documentary evidence that the creditor companies are having sufficient balance for providing loan or investing in share application of the appellant company. The failure on the part of appellant to produce the directors or any authorized representative from the creditor companies in order to examine their creditworthiness, also proved that their creditworthiness is doubtful. No details could be submitted by appellant so that the creditworthiness of the companies could be established. Thus, the creditworthiness of the creditors has not been proved herein In the case of creditors of the appellant. Similarly, the genuineness of transactions in the case of creditors has also not been proved for the reason that these were accommodation entries as established during the inquiry made by Investigation Wing and subsequently during assessment proceedings also, the appellant failed to provide the copies of bank statements to establish the genuine of these transactions. Thus, the onus cast upon by the provisions of the 68 of the Act has not been discharged by appellant to treat the cash credits as genuine.

6.6 Incidentally, such types of companies who provide accommodation entries in lieu of commission have found place at the national level when Hon'ble Prime Minister of India, while speaking on Foundation Day of Institute of CA in India, revealed that more than 37,000 such shell companies have already been detected and registrations of more than 1 lakh others have been cancelled. In his speech, Hon'ble Prime Minister indicated about such 'suitcase companies' who exist only on paper and all the SNR Electronics Ltd. documentary evidence about their existence and creditworthiness are available but on ground they actually do not exist. These companies are used as a tool for giving accommodation entries and have no real business of any kind except executing the transactions related to accommodation entries only. Subsequently, the registrations of three Lakhs companies were cancelled also by ROC. It appears that the creditors of the appellant company are also one of such companies who exist only on paper, not in actual terms.

6.7 During the appellate proceedings, appellant has taken the ground that the assessment proceedings in the case of Shri S. K. Jain and group, which has been made for making addition in the case of the appellant, has been quashed by Hon'ble Delhi High Court vide their order dated 01.10.2018, therefore, the additions made by AO in its case are totally unwarranted and unsustainable in law and on facts. However, the ground taken by appellant is baseless. The perusal of the judgment of Hon’ble High Court reveals that the Hon’ble Court has quashed the assessment proceedings in the case of Shri S. K. Jain Group on limitation ground not on merit. Contrary to that, in the case of the appellant, additions have been made on the ground that the appellant has not fulfilled the conditions as stipulated u/s 68 of the IT Act. Thus, the judgment of Hon'ble Court has no bearing on the case of the appellant.

6.8 In view of above discussion, I hold that none of the conditions as per section 68 of the Act are satisfied in the case of creditors of appellant company, therefore, the additions of Rs. 80,00,000/- u/s 68 and Rs. 1,44,000/- as unexplained commission u/s 69C of the Act made by AO are upheld and grounds taken by appellant are dismissed.”

SNR Electronics Ltd. 5. In the absence of any material contra, we decline to interfere with the order of the ld. CIT(A).