M/S. BALDEV ARYA HUF,NEW DELHI vs. ITO, NEW DELHI

सुनवाई क� तार�ख/Date of Hearing : 24/04/2017 घोषणा क� तार�ख /Date of Pronouncement: 26/04/2017 ORDER This appeal of the assessee arises from the order of learned CIT(A)- XIX, New Delhi vide order dated 22.01.2013 for the assessment year 2003- 04. The assessee has raised the following grounds of appeal as under: “1) That on the facts and in circumstances of the case the impugned order passed by the ld. C.LT. (A) is arbitrary, illegal, violative of natural justice and against the facts of the case and hence liable to be set aside. 2) That on the facts and in circumstances of the case and in law the ld. A.O. has erred in framing impugned assessment without assuming jurisdiction in law and without complying with the mandatory conditions as per section 147 to 153 of the Income Tax Act,1961. 3)That on the facts and in circumstances of the case and in law the ld. A.O. has erred in framing the impugned assessment without granting adequate opportunity of hearing to the assessee and without confronting the entire adverse material used against the assessee. 4)That on the facts and in circumstances of the case and in law the ld. A.O. has erred in making an unwarranted addition of Rs. 4,01,000/- u/s.68 of the income Tax Act,1961 inspite of the fact that source of receipt was properly explained before him. 5)That on the facts and circumstances of the case and in law the ld. CIT(A) has erred in denying sufficient opportunity to the assessee to produce the parties/creditors before the A.O. which were subject to addition u/s 68 of the Income Tax Act. 6)That the appellant reserves the right to add, alter, amend or delete any of the grounds of appeal.”

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3. Learned counsel for the assessee at the outset argued about the legal ground. The assessee received following amount which were made subject matter of addition as under: “a) CLS Constructions Pvt. Ltd. Rs.1,50,000/- b) Cijsons Polycoats Pvt. ltd. Rs.1,50,000/- c) PIC India Pvt. Ltd. Rs.1,00,000/- d) Cash deposit Rs.1,000/- Total Rs.4,01,000/-

1. 1. To plough back unaccounted black money for the purpose of business or for personal needs such as purchase of assets etc. In the form of gifts, share application money, loans etc.

2. To inflate expenses in the trading and profit and loss account so as to reduce the real profits and thereby pay less taxes. 2.2 The assesses who had unaccounted money (called as entry takers or beneficiaries) and wanted to introduce the same in the books of accounts without paying tax, approached another person (called as entry operator) and handed over the cash (plus commission) and had taken cheque/DDs/Pos. The cash was being deposited by the entry operator in a bank account either in his own name or in the ITAs No.1955/Del/2014 3 name of relatives/friends or other persons hired by him, for the purpose of opening bank account. In most of these bank accounts, the introducer was the main entry operator and the cash deposit slips and other instruments were filled by him. The other persons (in whose name the A/c is opened) only used to sign the blank cheque book and hand over the same to the main entry operator. The entry operator then used to issue cheques/DDs/Pos in the name of the beneficiary from the same account (in which the cash is deposited) or another account in which funds were transferred through clearing in two or more stages. The beneficiary in turn deposited these instruments in his bank accounts and the money came to his regular books of account in the form of gift, share application money, loan etc through banking channels. 2.3 The operators gave the account holders amounts ranging from Rs. 1000 to 2000 per month. These account holders were masons, plumbers, electricians, peons, drivers etc, whose earnings are not sufficient for a living. They earned normally 3 to 5 thousands per month from their normal work and by working for the entry operators earned extra income of 2 to 4 thousands per month. Their signatures were taken on blank gift deeds, cheque books, share application money etc. In fact, these persons signed all types of papers they were asked to sign. They were made directors of companies, partners of firms and proprietors of different concerns solely for operation of these accounts. Actually, many of them were not even aware of the tax implications etc. Their only concern was with the few thousand rupees given to them by the entry operators.

Credit entry coming Bank of the Branch Instrument Amount Date From the account of assessee of the No. Bank Federal Bank Karol 717702 50,000 14/11/2002 CLS constructions Bagh Pvt. Ltd.

Federal Bank Karol 717705 1,00,000 14/12/2002 CLS Constructions Bagh Pvt. Ltd.

4.1 In view of the findings of the investigation report, the lenders in these cases have been proved to be men/parties of no creditworthiness. The statement the letters of admission clearly show that these transactions are non genuine. Therefore the aforesaid Credit entries are squarely hit by section 68 of the I.T. Act. I therefore have reasons to believe that this amount of Rs. 1,50,000/- represents income of the assessee chargeable to ITAs No.1955/Del/2014 4 tax which has escaped assessment for A.Y. 2003-04.

The necessary approval uls 151(2) may kindly be accorded for issue of notice uls 148 of the Income Tax Act, 1961 for A.Y. 03-04.” Sd/- ITO. Ward 33(2). New Delhi 5. It was argued by the learned counsel for the assessee that the Assessing Officer reopened the case only on the basis of the investigation record and no independent application of mind was made. It was mentioned that there was statement on oath and letters of admission that these transactions are non genuine. It was argued that there was no statement on oath on record and no letter of admission has been placed on record. Therefore, the learned counsel for the assessee argued that the assessment /re-assessment made is bad in law and needs to be quashed.

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“Held, allowing the petition, that the reassessment proceedings were initiated on the basis of information received from the Director of Income Tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during financial year 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid up capital of Rs.90 lakhs and was incorporated in September, 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to be quashed.” 7.1 Reliance is also placed upon the decision of Hon’ble Delhi High Court in the case of Sarthak Securities Co. P. Ltd. Vs. ITO, reported in (2010) 329 ITR 110 (Del).

Order pronounced in the open court on this day 26th April, 2017