NEW TRACK EXIM PRIVATE LIMITED,DELHI vs. INCOME TAX OFFICER, WARD 18(3), DELHI

Aggrieved by the said order of Ld. CIT(A), the assessee preferred present appeal before the Tribunal by taking following grounds of appeal: 1.0 That on the facts and in the circumstances of the case, the disallowance, imposition of tax and interest with reference thereto, the quantification of taxable income and the tax liability, has been grossly unjustified, erroneous and unsustainable and necessary direction be given to the AO to give appropriate relief in accordance with law. 2.0 That on the facts and circumstances of the case, the Ld. CIT-(A) has erred in confirming the order of Ld. AO without considering the fact that proper procedure in law has not been followed while passing the order u/s 147. 2.1 That on the facts and circumstances of the case, the Ld. CIT-(A) has erred in holding that the Ld. AO has correctly disposed the objections raised by the appellant during the assessment proceedings.

New Track Exim Pvt. Ltd. vs. ITO 2.2 That on the facts and circumstances of the case, the Ld. AO has erred in disposing the objections raised by the appellant on the same day of passing the assessment order. 3.0 That on the facts and circumstances of the case. the Ld. CIT-(A) has erred in holding that the appellant has not discharged the onus laid upon it to prove the identity, credit worthiness and genuineness of the unsecured loan raised by the appellant during the year. 4.0 That on the facts and circumstances of the case, the Ld. CIT-(A) has erred in not appreciating the fact that the loan raised by the appellant was duly repaid to the lender along with interest (after deducting TDS thereon). 5.0 That on the facts and circumstances of the case, the CIT(A) has erred in dismissing the appeal without considering the fact that the Ld. AO has not provided the opportunity to cross-examine the alleged entry provider i.e. Subhash Chandra Bhartia on whose statement adverse inference has been drawn against the appellant. 6.0 That the appellant craves leave, to add, to amend, modify, rescind, supplement, or alter any of the grounds stated here-in-above, either before or at the time of hearing of this appeal.”

Namah Shivaya Trading Private Limited vs. ITO (ITA No. 4739/Del/2019) Argument no. 3: Disposing of Objections raised by the appellant on the same day of passing the assessment order and that too by way of non-speaking order. The appellant vide letter dated 12-11-2019 raised certain objections in relation to the reopening of the case. In the aforesaid letter, the appellant raised two objections which are stated as under: a) Case has been reopened without giving us a copy of statement of Sh. Subhash Chandra Bhartia (who is alleged to be entry provider). b) Case has been reopened without giving us an opportunity to cross examine said Sh. Subhash Chandra Bhartia. The appellant vide letter dated 23-11-2019 has also asked the Ld. AO to provide the copy of the recorded statement of Sh. Subhash Chandra Bhartia, on the basis of which the case has been re-opened. However, the Ld. AO has failed to provide the copy of the statement to the appellant. Thereafter, the appellant vide letter dated 23-12-2019 has again requested the Ld. AO to provide the copy of statement recorded and to cross- examine the person, on the basis of which such addition is sought to be made. (Kindly refer page no. 95 to 120 and 151 to 167 of PB). Despite of persistent request by the appellant to provide the statement of Sh. Subhash Chandra Bhartia and to provide an opportunity to cross examine the person on the basis of whom the re-opening is done, the Ld. AO neither provide the copy of statement recorded nor produce the person on the basis of which re-opening was done. Subsequently, the Ld. AO vide order dated 24-12-2019 (the same day of passing the reassessment order) disposed the objections raised by the appellant. The Ld. AO in the aforesaid order disposing off the objections at Para no. 2 clearly stating that the assessee objected to reopening of assessment u/s 147 of the Act primarily stating that the re-opening was made u/s 147 on the basis of report received from investigation wing. The appellant has never raised any such contention in the objection letter. In the aforesaid order, the Ld. AO has not mentioned anything about the objection (b) raised by the appellant thereby not dealing with each objection separately. While disposing the objection (a), the Ld. AO relied upon the order of Hon'ble Supreme Court in the case of Sri Krishna Pvt. Ltd. vs. ITO (221 ITR 538) which is not applicable on the present case of the appellant. In the aforesaid case, the 2G spectrum report was not supplied in the grounds of confidentiality. However, in the present case of the appellant, the statement of Sh. Subhash Chandra Bhartia lacks ground of confidentiality and therefore the case relied upon is not applicable on the facts of the appellant.

New Track Exim Pvt. Ltd. vs. ITO GKN Driveshafts (India) Limited vs. ITO (125 taxmann.com 963). (Kindly refer page no. 168 to 169 of PB). SABH Infrastructure Limited vs. ACIT (99 taxmann.com 409). (Kindly refer page no. 170 to 175 of PB), Bharat Jayantilal Patel vs. Union of India (5 taxmann.com 333). (Kindly refer page no. 176 to 183 of PB). Asian Paints Ltd. vs. DCIT (296 ITR 90). (Kindly refer page no. 184 to 185 of PB). M/s Meta Plast Engineering P. Ltd. vs. ITO (ITA No. 5780/Del/2014). (Kindly refer page no. 186 to 192 of PB). FGR Logistics Pvt. Ltd. vs. ACIT (ITA No. 4560/Del/2019). (Kindly refer page no. 193 to 207 of PB). Prayer In the light of aforesaid facts and judicial pronouncement the order passed in legally not sustainable and hence need to be quashed.”

7. Having heard the rival submissions and perused the materials available on record. In the instant case, the AO has initiated the reassessment proceedings on the basis of the materials available/credible information received from the Investigation Wing wherein the assessee was referred as one of the beneficiary of the accommodation entries provided for in the shape of unsecured loans. Similar objections were raised by the assessee before the AO challenging the initiation of reassessment proceedings, however, such objections were disposed New Track Exim Pvt. Ltd. vs. ITO of by the AO vide order dated 24.12.2019 wherein all such arguments were considered and find no error in the action of the AO in reopening the assessment which is based on the examination of the materials available on record. Therefore, in our considered opinion there is no error in reopening the assessment and accordingly, grounds of appeal No.2 to 2.2 of the assessee are dismissed.

13. The Co-ordinate Bench of the Tribunal in the case of Rishipal Investments and Finance (P) Ltd. in under identical circumstances has held as under: “12. We have, considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, reopened the assessment on the basis of the report of the Investigation New Track Exim Pvt. Ltd. vs. ITO Wing that the assessee has received accommodation entry of Rs.23,50,000/- from four companies, the details of which are given in the reasons recorded. We find, the AO after going through the various statements filed by the assessee from time to time, made addition of Rs.55,85,000/-being the share application money/share capital received by the assessee by invoking the provisions of section 68 of the Act and made further addition of Rs.83,775/ being 1.5% of the above amount which the assessee incurred as commission for arranging the accommodation entries. We find, the ld. CIT(A) dismissed the ground challenging the validity of the reassessment proceedings as well as the addition on merit. It is the submission of the ld. Counsel that the assessee during the assessment proceedings had categorically asked for the cross-examination of Shri S.K. Gupta, whose statement was the basis for making the addition of Rs.55,85,000/- to the total income of the assessee. However, we find from the assessment order that the AO rejected the request for cross-examination by observing as under:- 4.1 On 11.3.2014, another Counsel, Sh. V.K. Tulsian, CA attended on behalf of the assessee company but filed no details. He was informed that the name of the assessee company is very much visible at page 5 of the statement given by SK Gupta mentioned above. On the next date of hearing on 18.3.2014, the Counsel of the assessee again reiterated his objection to the reopening of the case which was not warranted as the same was already disposed off through a speaking order as mentioned earlier. He also objected to the name of the assessee and amount appearing in the statement of SK Gupta. It is an accepted fact that recording of reason is only the preliminary stage of initiating the assessment or re-assessment. What is relevant and to be taken here is the income and also any other income chargeable to tax which has escaped assessment and which comes to the notice of the AO subsequently in the course of the proceedings u/s 147. The assessee's request for cross-examination is also not acceptable and there is no need for it because there is no other statement of Sh. S.K. "Gupta which retracts from his earlier statement given on 20.11.2007. The original sworn statement of Sh. S.K. Gupta holds good till today which itself stands as the corroborating evidence of the escapement of income of this assessee. In reply to Q.No. 16, Sh. S.K. Gupta acknowledged that he himself maintained the bank accounts of the companies mentioned in the question out of which Dhamaka Trading & Construction (P) Ltd, ChanderPrabhu Financial Services Ltd, Central Gum & Chemicals Ltd, AGM Holdings Ltd were some of them. These paper companies were also functioning at the office premises of Sh.S.K. Gupta. In reply to Q.No. 7, Sh.S.K. Gupta also acknowledged that around 40 companies, registered at his office address, having no infrastructure, resources, employees and having no real business activities are created only for providing accommodation entries. The assessee's denial that it has no transaction with Sh.S K. Gupta has not absolved him from its onus u/s 68. It is reiterated here that Sh.S.K. Gupta is the entry operator, who through several dummy companies floated by him and controlled by him directly or indirectly, has given the accommodation entries to this assessee through the companies mentioned earlier. Till the last stage of New Track Exim Pvt. Ltd. vs. ITO proceedings, the assessee's counsel vide dtd 27.3.2014 again challenged assumption of jurisdiction u/s 147/148 stating that the name of entry provider was mentioned in the reason as 'Sh. Kapur. It may be clarified here that Sh. Kapoor mentioned in the form for recording reason is the middleman engaged by Sh. S.K. Gupta and he is a team of the entry provider, Sh.S.K. Gupta. To say that the name of Kapoor has not appeared except in the reason is factually wrong because this name has appeared as one of the intermediaries at page 8 of the sworn statement of S.K. Gupta, This trifle objection does not effect the nature of transactions, done by the assessee using the mode of accommodation entries to bring back its unaccounted income to its books. The assessee's has not discharged its onus cast u/s 68 as required. To say that the assessee has no control over the share applicants with whom it had many dealings is nothing but an admission of the fact that the entries taken by it are its own money shown in the garb of share application money and has no concern for those paper companies because his purpose has been served. Moreover, this office has already issued summons u/s 131 to the alleged share applicants on 15.10.2013 but some were returned back unserved and others did not comply with these summons. It is surprising to note that some confirmations were sent by post from the same address even in cases which were received back unserved from postal authorities. The fact is that in the course of assessment proceedings, the assessee's counsel was aware about non-service of notices/summons to alleged share subscribers. It appears that the so-called confirmations were got arranged and sent by the assessee himself. The papers arranged by the assessee and filed by its Counsel are nothing but paper trails which have no evidentiary value."

14. We find, identical issue had come up before the coordinate Bench of the Tribunal in the case of TRN Impex Pvt. Ltd. (supra) where the Tribunal deleted the addition on the ground that the AO did not grant the opportunity of cross-examination despite being asked for by the assessee. The relevant observation of the Tribunal from para 6 onwards reads as under:- 6. We have considered the rival submissions and perused the material on record. It is not in dispute that reopening of the assessment was made on the basis of the search conducted in the cases of Shri Deepak Agarwal and Shri Mukesh Kumar. Their statements were also recorded which were adverse in nature against the interests of the assessee. Certain documents were also found during the course of search from their premises to reveal that they have been providing accommodation entries. However, the details of the same have not been mentioned in the assessment order. Thus, the basis for reopening of the assessment and making addition against the assessee was on the basis of statement recorded by Investigation Wing of Shri Deepak Agarwal and Shri New Track Exim Pvt. Ltd. vs. ITO Mukesh Kumar implicating the assessee company of providing accommodation entries to the assessee company. The assessee made a specific request before A.O, to provide an opportunity to cross examine the statements of Shri Deepak Agarwal and Shri Mukesh Kumar, but, it were denied by the A.O. vide his letter Dated 05.11.2018 PB-75-76. The A.O. in his letter has mentioned that primary onus is upon assessee to prove its case and under such circumstances by asking for cross examination, the assessee is trying to shift the burden of proof on the Department. Therefore, request of assessee was declined. The Ld. CIT(A) instead of deciding the issue in proper perspective as per Law has also held that right of cross-examination to the statements of witnesses used against the assessee is not an absolute in nature. However, it is well settled Law that any material collected at the back of assessee or statement recorded at the back of assessee cannot be used in evidence against the assessee, unless the same is confronted to the assessee at assessment proceedings and right of cross-examination have been granted to assessee to such statements. We rely upon the Judgments of Hon'ble Supreme Court in the cases of Kishan Chand Chellaram (supra) and Andaman Timber Industries 281 CTR 214 (SC) and Judgment of Hon'ble Delhi High Court in the case of CIT us., SMC Share Broker Ltd., (supra). In view of the above, it is clear that right of assessee have been denied by the authorities below in not allowing the assessee to cross-examine the statements of Shri Deepak Agarwal and Shri Mukesh Kumar. Thus, these statements recorded at the back of the assessee which were adverse in nature to the interest of assessee cannot be relied upon against the assessee and no addition could be made on that basis. The decisions relied upon by the Learned Counsel for the Assessee above also apply to the facts and circumstances of the case. Thus, there is no material left on record with the Department to justify the addition of Rs. 10 lakhs against the assessee. It may also be noted here that assessee has produced the above documentary evidences noted above which clearly shows that the Investor company has made investment in assessee company which is confirmed by the Investor in their confirmation and affidavit of the Director. The balance-sheet of the Investor shows that they have made investment in assessee company and they have sufficient balance to make the investment in assessee company which was made through banking channel. No cash was found to have been deposited in the account of the Investor before making investment in assessee company and actual shares were also allotted to the Investor by the assessee company. Thus, documentary evidences on record have not been rebutted by the A.O. through any evidence or material on record. No independent enquiry has been made against these documentary evidences. Therefore, such documentary evidences clearly supports the explanation of assessee that genuine investment have been made in the assessee company. We rely upon Judgments of Hon'ble Delhi High Court in the cases of CIT us. Fair Investment Ltd., 357 ITR 146 (Del.); CIT vs. Kamdhenu Steel and Alloys Ltd., & Ors. 361 ITR 220 (Del.); CIT us. (i) Dwarakadhish Investment P. Ltd., (2011) 330 ITR 298 (Del.); CIT us. Winstral Petrochemicals P. Ltd., 330 ITR 603 (Del.); CIT vs. Value Capital New Track Exim Pvt. Ltd. vs. ITO Services Pvt. Ltd., (2008) 307 ITR 334 (Del.) and CIT vs., Kureli Papers Mills P. Ltd., 380 ITR 571 (Del.). 6.1. Considering the totality of the facts and circumstances of the case and that there is no adverse material available on record against the assessee so as to make the impugned addition of Rs.10 lakhs and that no investigation have been made by the A.O. on the documentary evidences submitted by assessee, we are of the view that addition of Rs. 10 lakhs is wholly unjustified. We, accordingly, set aside the Orders of the authorities below and delete the addition of Rs.10 lakhs. In view of the above, there is no need to decide the issue of reopening of the assessment which is left with academic discussion only. Accordingly, appeal of the Assessee is allowed.

15. Similar view has been taken by the coordinate Bench of the Tribunal in the case of Vijayshree Food Products Pvt. Ltd. (supra) where the Tribunal, following the decision of the Tribunal in the case of Kuber Khan Paan Udyog (P) Ltd. and Kuber Food Products India Pvt. Ltd. vide and 322/Del/2019, order dated 22nd October, 2019 for AY 2011-12 has deleted the addition on account of non- granting of opportunity of cross-examination to the assessee of the person whose statement was the basis for making the addition and which has been recorded behind the back of the assessee. Since, in the instant case also the reopening was made on the basis of the report of the Investigation Wing in the case of Mukesh Gupta group along with its close confidants Sh. Rajan Jassal and Sh. Surinder Pal Singh, but the addition was made on the basis of the statement of Shri S.K. Gupta recorded during the course of survey on 20.11.2007 in the case of M/s Sino Credits & Liasing Limited, M/s Rapid Packaging Limited, Girisho Company (P.) Limited, M/s Mitsu Securities Management (Pvt.) Ltd., M/s Sino Securities and M/s Anila Industries and since even after repeated requests of the assessee, the AO has not provided the opportunity of cross-examination of Shri S.K. Gupta to the assessee, therefore, respectfully following the decisions cited supra, we hold that the addition made by the AO and sustained by the CIT(A) is not in accordance with the law. We, therefore, delete the addition.”

14. Further in the case of Veena Gupta (supra), the Co-ordinate Bench by placing reliance on the judgements of the Hon’ble Supreme Court in the case of Andman Timber Industries (supra) has held that not providing the opportunities of cross examining the prime witness of the Revenue, no addition could be made. The relevant observations as contained in para 11 to 15 are as under:

New Track Exim Pvt. Ltd. vs. ITO “11. We have perused submissions advanced by both sides in light of records placed before. We also refer to all judicial precedents relied upon by both sides.

12. It is observed that both Assessing Officer as well as Ld. CIT(A) is relying upon statement recorded by Investigation Department of Sh. Amit Dalmia and Sh. Narendra Kumar Jain. It is based upon their statements, that test of human probabilities has been applied to facts of present case by authorities below. Further, it cannot be ignored that assessee was not granted opportunity to cross examine Sh. Amit Dalmia and Sh. Narendra Kumar Jain. Even after assessee asking for opportunity to crossexamine these persons, before First Appellate Authority, same was not granted. Assessee has contested truthfulness of statements given by Sh. Amit Dalmia and Sh. Narendra Kumar Jain before us. 12.1 It is pertinent to note that assessee, vide letter dated 21/12/16 had asked Ld. AO to provide material based upon which various allegations have been levied by Ld. AO. These factors from para 20 of assessment order, wherein assessee raised objections, one of which is opportunity to cross examine, in case of any evidence used against assessee. 12.3 To our surprise, Ld. AO without providing any material evidence, report on which he was relying and not granting an opportunity to cross examine the persons on whose statement he arrived at certain presuppositions, made addition in the hands of assessee. This is evident from para 22 of assessment order.

13. Before Ld. CIT (A) assessee once again raised plea of cross-examination granted to assessee and materials not based upon which the submissions have been made has not been provided for examination. Even then opportunity was not granted to assessee, though Ld. CIT (A) had coterminous powers as that of Ld. AO.

15. We, accordingly, respectfully following decision of Hon'ble Supreme Court in the case of Andaman Timber Industries versus CCE (supra) allow appeal of assessee on legal ground raised in Ground 2(c), and quash and set-aside the assessment order so passed.”

15.1 It was further observed by the hon’ble court as under: 14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the ASSESSING OFFICER that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala Ride. In our view the ITAT ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A.O. If the A.0. had any doubt about the material placed on record, which was largely bank statements or the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of New Track Exim Pvt. Ltd. vs. ITO was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors.

The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. lt was observed by the ITAT that the Assessing Officer had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon’ble High court.