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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-II’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 30.05.2016 of ld. CIT(A)-36, New Delhi.
2. The following grounds have been raised in this appeal: “1. That on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in law in upholding the validity of reassessment proceedings in as much as she has failed to appreciate the various grounds raised in this regard. She has also failed to appreciate the applicable judicial pronouncements relied upon before her on the issue. The validity of reassessment proceedings has been upheld on ipse- dixit of CIT(A).
2. That on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in law as much as in fact in upholding the validity of reassessment proceedings inter-alia on the following grounds:
2 Khatri Projects Pvt. Ltd. i) That the assessee did not file objection to the initiation of reassessment proceedings after recording of the reasons to form the belief that income has escaped assessment. ii) That the assessee did not file return of income under section 139(1) of the Act coupled with the fact that specific information was received with details from the investigation wing.
That on the fact and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in holding that the requirement of 'application of mind by the Income Tax Officer' for valid initiation of reassessment proceedings can be substituted by non- filling of return under section 139(1) and the existence of details received from the Investigation Wing of the Department.
4. That on the fact and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in upholding the addition of Rs. 25,00,000/- added under section 68 of the Act as unexplained cash credit as she has completely ignored the fact that the addition has been made against well established principles of law relating to violation of natural justice. The addition is made without providing the opportunity of cross examination of the material on the basis of which reassessment proceedings are initiated and addition is made.
That on the fact and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in upholding the addition inter-alia on the ground that the assessee did not seek for an opportunity to cross 3 Khatri Projects Pvt. Ltd. examine (para 6.5). Such conclusion is contrary to the fact recorded by her in para 6.3 where she has found that such contention was raised during assessment proceedings. Thus the order passed by the CIT(A) is perverse.
6. That Ld. CIT(A) while upholding the addition has relied upon her own decision which is not applicable to the facts of the present case, therefore, also the decision of CIT(A) is perverse.
That on the facts and circumstances of the case and in law, the AO has erred in charging interest under sections 234B and 234A of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal
preferred by the Appellant. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal.”
3. Vide Ground Nos. 1 to 6, the grievance of the assessee relates to the validity of the reassessment proceedings and the sustenance of addition of Rs.25,00,000/- made by the AO u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act).
Facts of the case in brief are that the AO received an information from office of the CIT(Central)-I, New Delhi that the survey operation was conducted on 23.08.2008 at the premises of the following persons:
4 Khatri Projects Pvt. Ltd. “a) Sh. Nirbhay Shankar Gupta b) Sh. Shyam Shankar Gupta c) Sh. Rajiv Kumar Gupta d) Sh. Madan Gupta 5. During the course of survey, statements of above persons were recorded in which they had admitted to have been involved in providing accommodation entries to various persons/entities and that the name of the assessee was appearing in the list of the beneficiaries who had taken accommodation entries in the garb of share application money, gifts, bogus/purchase or some other ostensible business transaction through the bank accounts existing in the names of the paper/dummy concerns/entities operated/controlled by Sh. Shyam Shankar Gupta, entry operator. On the basis of the said information, the AO had reason to believe that the income of the assessee to the extent of Rs.25,00,000/- had escaped assessment and the case was fit for issuing notice u/s 148 of the Act. Accordingly, the AO issued the notice u/s 148 of the Act. In response to the said notice, the assessee filed its return of income on 13.05.2014 declaring income at Nil. During the course of assessment proceedings, the AO observed that the assessee had raised/taken total share capital of Rs.5,32,000/- alongwith share premium of Rs.1,27,68,000/- from the various companies including the share capital of Rs.1,00,000/- alongwith share premium of Rs.24,00,000/- as per following detail:
5 Khatri Projects Pvt. Ltd. S.No. Name of the company Share capital Share Total Amount premium (Rs.)
MARRASS Industries Pvt. 60,000 14,40,000 15,00,000 Ltd.
BSA Fincap Private Ltd. 40,000 9,60,00 10,00,000 Total 25,00,000
The assessee during the course of assessment proceedings submitted names and addresses of the persons/company with confirmation, from whom share capital have been received. The AO issued the notices u/s 133(6) of the Act to prove the genuineness and creditworthiness of the share capital introducers, the said notices were received back unserved. He, therefore, was of the view that in the absence of confirmations, the creditworthiness and genuineness of the share capital providers were not proved. He asked the assessee to produce the principal officer/director of M/s MARRASS Industries Pvt. Ltd. and M/s BSA Fincap Pvt. Ltd. for their deposition who had introduced total share capital of Rs.25,00,000/-. The assessee submitted that the said companies were not shareholders as on the date and they had already sold their shares to other parties. The AO observed that the share capital had been received through banking channel and from the corporate entities who was duly assessed to tax was not enough to accept the claim of the assessee when the revenue had the adverse information. He further observed that merely producing confirmation with PAN number or assessment particulars did not establish the identity of the 6 Khatri Projects Pvt. Ltd. person and as regards question of creditworthiness and genuineness. The AO also observed that although money was received through banking channel but did not reflect actual business activities. The AO further observed that in the present case no benefit was provided to the investor and that any person who give share capital would certainly seek return or income or consideration. Accordingly, the addition of Rs.25,00,000/- was made treating the same as unexplained income within the provision of Section 68 of the Act. A reference was made to the following case laws: � A. Govindarajulu Mudaliar Vs CIT (1958) 34 ITR 807 (SC) � CIT Vs M. Ganapathi Mudaliar (1964) 53 ITR 623 (SC) � CIT Vs Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) � Yadu Hari Dalmia Vs CIT (1980) 126 ITR 48 (Del) 7. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission which has been incorporated in para 4 of the impugned order at page nos. 9 to 20 and is reproduced verbatim as under: “The Assesses derives Income from Business & Profession and is engaged in Business of Real Estate Builders and Contractors and filed her return of Income for Asstt. Year 2007-08 in response to Notice U/s 148 on 13.05.2014 declaring Total income as Rs NIL. The Notice under Section 148 was issued on Assessee on 27.03.2013 in response to which the Assessee had filed return on 13.05.2014. Further after duly recording the reasons that Income had escaped Assessment and approval from Addl. CIT 7 Khatri Projects Pvt. Ltd. Range -5 Notice under Section 143(2) was issued to assessee on 23.05.2014. After receiving the relevant recordings and replies The Learned Assessing Officer has passed the order U/s 143 (3) dated 31.07.2014 by making Addition of Rs. 25,00,000 u/s 68 as income from undisclosed sources. We submit herewith our Submissions on Ground No -1 to 4 attached herewith. ASSESSING OFFICER'S CASE- BRIEF FACTS The Learned AO has contended that "An information has been received from Office of the commissioner of Income Tax -1 New Delhi that the survey operation was conducted on 23.08.2008 at the Premises of the Following Persons: a) Nirbhaya Shankar Gupta b) Shyam Shankar Gupta c) Rajiv Kumar Gupta d) Sh Madan Gupta" "The perusal of documents impounded during Survey operations reveals that the following persons have given/received accommodation entries through the above persons during the period relevant to Assessment year 2007- 08 The name of Assessee M/s Khatri Projects Private Limited New Delhi appears in the List of Beneficiaries who have taken accommodation entries in the garb of Share Application Money through the Bank Accounts existing in the names of Paper/ Dummy concerns/entities operated/Controlled by Shri Shyam Shankar Gupta, Entry Operator. The accommodation entries have been taken/provided in lieu of certain percentage of commission paid mostly in cash by the beneficiaries of Such entries.
8 Khatri Projects Pvt. Ltd. "As per the details received during the year the Following entries have been taken by the assessee from following entry operators- From Company Cheque No. Cheque Date Amount Ks. By Whom S. Name of No. Company 1. 714175 29.11.06 15,00,000 Marrass (P) Ltd. Gutka Khatri Projects (P) Ltd. 2. 714172 29.11.06 10,00,000 BSA Gutka Khatri Projects (P) Ltd. 25,00,000
The Learned A. O further on Page 3 of his order states that "Having Perused and considered the information received as discussed above and in the circumstances of the case I have reason to believe that Income of the Assessee to the extent of Rs. 25,00,000 has escaped assessment and the case is fit for issue of Notice under Section 148 of the Income Tax Act 1961." The case of Assessee is covered under the provisions laid down u/s 148(1)(b) of the Act, 1961. Accordingly notice U/s 148 of the income Tax act was issued to Assessee on 27.03.13 after duly recording the reasons leading to the belief that income had escaped assessment". The assessee wishes to submit that: i) Reasons recorded being vague are product of non application of independent mind hence notice U/s 148 is not legal. a) On basis of reasons recorded, which are vague and are not based on application of his mind or tangible material on record ; AO has mechanically issued notices u/s. 148 of the 9 Khatri Projects Pvt. Ltd. Act, on the basis of information allegedly received by him from Investigation wing. b)That Learned AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year, He has issued notice and reopened the case on the basis of borrowed findings without proving income escapement charge. In reasons recorded in extant case, no where Id AD has discredited said evidence forming part of case records available before him nor has pointed any deficiency in the same to assume valid jurisdiction u/s 147. c) No material allegedly reed, from CIT Central New Delhi is confronted to assessee despite specific requests which again brings the reasons in the realm of suspicion only. So existing of alleged report & statement is seriously doubted and disputed. Present reopening is not only on ground of change of opinion but also hit by proviso to section 147. In the case of Anirudhsinhii Jadega v. State of Guiarat (1995) 5 SCC 302, "the Hon'ble Supreme Court held that once a discretion is vested with a certain authority, he alone should exercise that discretion vested under the statute and if he acts in accordance with "the direction or any compliance with some higher authorities instruction" it would be a case of failure to exercise discretion altogether. This ground is covered by series of decisions of jurisdictional high court and This Hon'ble Tribunal enlisted next: i) CIT vs. SFIL Stock Braking Ltd. (2010) 325 ITR 285 (DHC). ii) Sarthak Securities Co. Pvt. Ltd. Vs. ITO., (2010) 329 ITR 110 (DHC).
10 Khatri Projects Pvt. Ltd. Hi) Signature Hotels Pvt. Ltd, Vs. ITO & Anr., (2011) 338 ITR 51 (DHC). iv) Recent decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Insecticides (India) Ltd. (2013) 357 ITR 330 v) Decision of ITAT Delhi Bench in the case of ITO vs On Exim Pvt. Ltd. (2013) 157 TTJ 633 (ITAT Delhi) vi) Recent Jurisdictional Delhi high court decision in case of G&G Pharma Ltd 8/10/2015 followed by Delhi benches of ITAT in next mentioned decisions. Hon'ble Jurisdictional Delhi high court in very recent decision in case of G&G Pharma Ltd (order dated 08/10/2015) after survey of all previous decisions it is pithily held that: "The issue sought to be projected by the Revenue is whether the ITAT was correct in holding that the Assessing Officer ("AO) has not applied his mind and not come to an independent conclusion that he has reason to believe that the income of the Assessee has escaped assessment which was the jurisdictional requirement for reopening of the assessment under Section 1471148 of the Act. The Assessee (8 further appeal was allowed by the ITAT by the impugned order dated 9th January 2015. The ITAT set out in the impugned order the reasons recorded by the AO for the reopening of the assessment by the AO by the letter dated 15th September 2010, and came to the conclusion that, apart from making a mere reference to information received from the investigation wing, the AO mechanically issued notice under Section 148 of the Act, without coming to an independent conclusion that he has reason to believe that the income has escaped assessment during the AY in question.
11 Khatri Projects Pvt. Ltd. In the present case, after setting out four entries, stated to have been received by the Assessee on a single date i.e. 10th February 2003, from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: "I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries." The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: "it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries". In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the income of the Assessee escaped assessment is missing in the present case. "The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have 12 Khatri Projects Pvt. Ltd. proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AD has to. applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials- produced subsequent to the reopening will not rescue an- inherently defective reopening order from invalidity.
In the circumstances, the conclusion reached by the ITAT cannot be said to be erroneous. No substantial Question of law arises." Reference is made in this decision to Hon'ble Supreme Court decision in case of Chhugmal Rajpal 79 ITR 603; the Supreme Court was dealing with a case "Before issuing a notice under S.148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of d. (a) or cl. (b) of S. 147 are satisfied, the ITO has no jurisdiction to issue a notice under S. 148." The Supreme Court concluded that it was not satisfied that the ITO had any material before him which could satisfy the requirements under Section 147 and therefore could not have issued notice under Section 148.
13 Khatri Projects Pvt. Ltd. Underlying ITAT decision of G&G Pharma case which is approved in aforesaid decision of Hon'ble Jurisdictional High court: We have perused the aforesaid reasons recorded by the AO for reopening the assessment in dispute and we are of the considered view that the AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. A mere reference is made to certain information received from the Investigation Wing which was supplied to the assessee vide AO's letter dated 15.9.2010. In our view the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law. The AO had mechanically issued notices u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Investigation, Jhandewalan, New Delhi. Keeping in view of the facts and circumstances of the present case and the law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. year in dispute is bad in law and deserves to be quashed. We draw our support from the judgments of the Hon'ble High Court of Delhi in the following cases:- (i) Signature Hotels (P) Ltd. vs. ITO and another reported in 338 ITR 51 (Del) has under similar circumstances as follows:- A notice uls.148 can be quashed if the/belief is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the Assessing Officer.
14 Khatri Projects Pvt. Ltd. (ii). In the case of CIT vs. Atul Jain reported in 299 ITR 383 it has been held as under:- "Held, dismissing the appeals, that the only information was that the assessee had taken a bogus entry of capital gains by paying cash along with some premium for taking a cheque for that amount. The information did not indicate the source of the capital gains which in this case were shares. There was no information which shares had been transferred and with whom the transaction had taken place. The AO did not verify the correctness of information received by him but merely accepted the truth of the vague information in a mechanical manner. The AO had not even recorded his satisfaction about the correctness or otherwise of the information for issuing a notice u/s 148. What had been recorded by the AO as his "reasons to believe" was nothing more than a report given by him to the Commissioner. The submission of the report was not the same as recording of reasons to believe for issuing a notice. The AO had clearly substituted form for substance and therefore the action-of the AO was not sustainable." IN THE HIGH COURT OF DELHI AT NEW DELHI 5. + W.P.(C) 9299/2014 & CM 21069/2014 VIP GROWTH FUND PVT LTD 17.03.2016 "when a challenge is laid to the reopening of an assessment under Section 148 of the Act, the Court is to be guided only by the reasons recorded for reopening the assessment and not by the reasons and explanations given by the AD at a later stage. Consequently, even if the records are now to be produced before the Court and perused by it, it is not open for the Court to gather from the records the material/information which 15 Khatri Projects Pvt. Ltd. would support the reasons as communicated to the Petitioner by the DC/T".
List of cases where Delhi high court decision in G&G Pharma India Ltd followed by Delhi benches of ITAT in last month:
Name of the Case/Title Date of order Remarks S. Coram No. 1. 27.11.2015 SHRI G.D. M/s. Roopali Marketing Ltd. ITA AGRAWAL No:2813/Del/2011 & CO. No. SHRI SUDHANSHU 142/ Del/20 13 SRIVASTAVA 2. 27.11.2015 Rajat Export Import (P) Ltd. ITA SHRI G.D. Rule 27 No: 2820/De!/2011 AGRAWAL application SHRI SUDHANSHU filed & allowed SRIVASTAVA 3. 27.11.2015 Rasalika Trading & Investment SHRI G.D. AGRAWAL Co. (P) Ltd. ITA No: SHRI SUDHANSHU 3103/Del/2013 SRIVASTAVA 4. 30th November, Hitashi Estates Ltd. J. SUDHAKAR REDDY 622/Del/2014 AY: 2005-06 2015 5, 30th November, C.L. Aggarwal Yarn Industries SHRI J. SUDHAKAR REDDY 2015 (P) Ltd. ITA No. 2408/Del/2014 AY: 2004-05 6. 04.01.2016 SH. HARISH KUMAR SHRI H.S. SIDHU SHRI O. P. KANT CHHABRA I.T.A. No.2490/Del/2013 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD "D" BENCH AHMEDABAD ITA. No.8161 Ahd/2013 (Assessment Year:2005-06) M/s. Pankaj Enka Pvt. Ltd. The plain reading of reasons recorded by assessee makes it dear that notice u/s. 148 was issued as per information received from Investigation wing from Mumbai. The reasons recorded by Assessing Officer only indicate that as per information of Investigation wing from Mumbai, certain companies of Mukesh Chokshi group were operating and allegedly providing accommodation entries and assessee has also received share application money from such company. Assessing Officer just made general observation about 16 Khatri Projects Pvt. Ltd. information supplied by Investigation Wing and sought to reopen the assessment without pointing out how information coming in his possession has nexus with escapement of income. The primary condition of Section 148 of the Act is that Assessing Officer must have reason to believe that income has escaped assessment and this satisfaction should be of Assessing Officer himself and not a borrowed satisfaction. Therefore, notice so issued to assessee was illegal and bad in law on fact of it. In this background, we find that language used in above reasons recorded is exactly same as in case of assessee. ii) Without cross examination of back party statements etc whole reopening is nullity At no stage statement/back material is confronted to assessee for rebuttal at any stage till final assessment, no cross examination of any person is provided (despite specific request), assessment order laying content with findings of survey without providing any tangible material and effective opportunity for rebuttal and finally passing impugned order on sole basis of borrowed findings without proving income escaping assessment charge, hence said reasons are bad in law. Apex Court in case of Andaman timber Industries Vis CCE: (2015) 127 DTR (Supreme Court) Page 241/281 CTR 241 "According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of 17 Khatri Projects Pvt. Ltd. natural justice because of which the assessee was adversely affected. " Same decision by Delhi high court in Pardeep Gupta case 303 ITR 95 In present case, no confrontation of any statement of any party is there to support reopening which vitiates the entire process. i) In present case besides allegations there is nothing in the name of material forming part of records. Allegations vs Material crucial difference Based on the report received from the Office of the commissioner of Income Tax -1 New Delhi that the survey operation was conducted on 23.08.2008 at the Premises of the some Persons, The Learned A.O has made baseless allegation that the amounts received by the Appellant from Two Companies aggregating to Rs 25 lacs were in the nature of Accommodation entries In this case reliance is placed on the Decision of Delhi High Court in CIT Vs OASIS Hospitalities Pvt. Ltd. -333 ITR 119. It was incumbent for the Revenue to establish, based on Corroborative evidence that Cash actually moved out of/emanated from the office of the Assessee which subsequently found its way back to Assessee in the Form of accommodation entries. The Assessing Officer has failed to prove that the Accommodation entries have been taken/ Provided in lieu of certain percentage of Commission paid, Mostly in cash by the beneficiaries of such entries. During the Course of Assessment proceedings the assessee has submitted Names and addresses of the persons/Company with confirmation from Whom Share Capital have been received and the fact has been accepted by the learned A.O in his order 18 Khatri Projects Pvt. Ltd. vide Para 3 of Page 4 The assessee had filed various documentary evidence s during the assessment proceedings in order to establish the identity and genuineness of the Transactions like PAN, Return of Income computation of Income Bank statements and confirmation of the parties from whom entire Share Capital and Share Premium was received. Hence it is argued that the contention of the Learned A.O that the assessee failed to prove the Identity, Credit worthiness of Persons/Companies genuineness of the Transactions is wrong as Reliance is placed on the recent Judgement of Delhi High Court in case of CIT Vs Ganoeshwari Metal Pvt. Ltd. 264 CTR 277 Wherein the high court has observed that ': Once the Assessee had furnished all the relevant material in order to establish the identity, Genuineness and creditworthiness of Share applicants the Assessing Officer was duty bound to carry out an exercise in order to conduct an enquiry" High court in this case indicted Two Types of cases - "One in which the Assessing Officer carries out the exercise which-is- required in law and the other in which assessing Officer sits back till the assessee exhausts all the evidence or material in his Possession and then comes to merely reject the same on the presumptions" It is submitted that the present case also falls under the second category since the Assessee had placed on record substantial evidence to establish all the relevant/ fundamental ingredients of Section 68 of the Act. There was no legally admissible evidence/ material against the appellant to even doubt, leave aside substantiating / establishing the allegation of the Learned A.O that the amounts received were merely in the nature of accommodation entries.
19 Khatri Projects Pvt. Ltd. iii.) It is now well settled that survey statement recorded u/s 133A has no evidentiary value which is entire basis of reopening proceedings Delhi ITAT IibsInfonet (P) Ltd., New Delhi vs Assessee on 8 March, 2016 "the decision of the Hon'ble High Court of Jharkhand delivered in the case of CIT, Ranchi vs. Ravindra Kumar Jain reported in (2009) ITA NO.6509/Del/2014 33 SOT 251 (Delhi) wherein, it has been held that "addition made by the lower authorities merely on the basis of statement recorded during survey and thereafter, without bringing any corroborative material on record is devoid any merits." in view of the various judicial decisions wherein, it has been held that such statement does not have any evidentiary value, especially the decision of the Hon'ble Madras High Court in the case CIT vs. S.Khakder Khan son reported in {2008) 300 ITR 157 (Madras) wherein, it has been held that "Addition on the basis of statement recorded during survey under section 133A-Sect. 133A does not empower any IT Authority to examine any person on oath, hence, any such statement has no evidentiary value and any admission made during such statement cannot, by itself, be made the basis for addition" and the decision of the Hon'ble High Court of Jharkhand delivered in the case of CIT, Ranchi vs. Ravindra Kumar Jain reported in (2009) 33 SOT 25(Delhi) wherein, it has been held that "addition made by the lower authorities merely on the basis of statement: recorded curing survey and thereafter, without bringing ITA NO. 1787/Del/2013 any corroborative material on record is devoid any merits." For the sake of clarity we are reproducing the contents of the CBDT's letter dated 10.3.2003 as under:-
20 Khatri Projects Pvt. Ltd. "F.No. 286/2/2003-IT (Inv) Government of India, Ministry of Finance & Company Affairs, Department of Revenue Central Board of Direct Taxes, Room No. 254, North Block, New Delhi, the 10th march, 2003 To All Chief Commissioners of Income tax (Cadre Contra) & All Directors General of Income Tax Inv. Sir, Sub:- Confession of additional Income during the course of search & seizure and survey operation - regarding Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on' collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders. Yours faithfully, Sd/- 21 Khatri Projects Pvt. Ltd. (S. R. Mahapatra, Under Secretary (Inv. II)
Apropos, issue of statements and enquiry by investigation wing, we cite with certitude following precedents:
Case Law Gist INCOME TAX APPELLATE .. Even the statement recorded by the Investigation TRIBUNAL DELHI BENCH "G": Wing has not been got confirmed or corroborated by the NEW DELHI person during the assessment proceedings. The A O ought to have conducted a separate and independent 2012 enquiry and any information received from the (Assessment Year: 2003-04) Investigation Wing is required to be corroborated and reasserted/reaffirmed during the assessment proceedings by examining the concerned persons who can affirm the statement already recorded by other authority of the department. There is no dispute that the statement which was relied upon by the AO was not recorded by the AO in the assessment proceeding but it was pre-existing statement recorded M/s. Softfine Creations (P) Ltd., by the Investigation Wing and the same cannot be a 10.02.2016 sole basis of assessment without conducting a PER VIJAY PALRAO, JM proper enquiry and examination during the assessment proceeding itself. Further despite the specific demand of the assessee for cross examination of Shri Mahesh Garg, the Id. AO has not given any heed to the request of the assessee for affording any opportunity of cross examination and used the statement of Shri Mahesh Garg against the assessee which is not permissible under the law. As it is a case of clear violation of the rule of principal of natural justice and statement which is recorded at the back of the assessee cannot be used against the assessee without giving any opportunity of cross examination. Thus the addition on account of accommodation entries of Rs. 78 lac made by the AO solely on the basis of the statement of Shri Mahesh Garg which are recorded in the absence of the assessee by the Investigation Wing, is not permitted without the examination of the said witness during the assessment proceeding and after giving an opportunity of cross examine to the assessee. Even otherwise the AO has not conducted any enquiry whatsoever either in support of the information received from the Investigation Wing or to disapprove the evidence produced by the assessee. The AO could have verified the signature of the Directors of these entities from the bank by issuing the necessary summons/notices instead of insisting the assessee 22 Khatri Projects Pvt. Ltd. to furnish the bank certificate. Therefore it is a case of complete lack of enquiry on the part of the AO which ought to have been conducted while framing the assessment. In the case of CIT Vs. Rakam Money Pvt. Ltd. (supra) the Hon'ble Jurisdictional High Court by dealing with an identical question as observed in Para 13 as under ....... therefore the addition made by the AD merely on the basis of a statement recorded by the investigation Wing without any corroborative evidence and examination and cross examination of the assessee, is not sustainable... IN THE INCOME TAX ...... It is seen that in the present case, the identities of APPELLATE TRIBUNAL DELHI the share applicants are not in dispute. The Hon'ble BENCH 'E' NEW DELHI Supreme Court in case of Divine Leasing & Finance Ltd. (supra) has held that if the share application money is BEFORE SHRI J. SUDHAKAR received by the assessee company even from the REDDY, ACCOUNTANT MEMBER bogus shareholders whose names are given to the AO AND SHRI SUDHANSHU then the Department is free to proceed to reopen their SRIVASTAVA, JUDICIAL individual assessments in accordance with law. The MEMBER addition in regard to the share capital cannot be treated AY: 2006- as the undisclosed income of the assessee if the share 07 application money is received by the assessee M/s NishitFincap (P) Ltd., Date of pronouncement: 31.03.2016 company from alleged bogus shareholders whose names are given to the AO. Further the Hon'ble Supreme Court has categorically held that the Revenue is free to proceed to reopen the individual assessments of such alleged bogus shareholders. In these circumstances, respectfully following the decision of the Hon'ble Jurisdictional High Court as also Hon'ble Supreme Court referred to supra, the addition made by the AO and deleted by the learned CIT (A) represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. We have no hesitation to conclude that the assessee has provided necessary details including the ward/circle where the share applicants were assessed to income tax and discharged the onus cast on it The AO has not brought anything on record to dispute the facts/details furnished by the assessee. The AO has not found any discrepancy in the books of account and bank accounts maintained by the assessee. Thus, in our considered opinion, in views of facts as narrated above and the judicial pronouncements, the share capital to the extent of Rs.76.00 lacs stands explained. Hence, the order of the ld. CIT(A) does not call for any interference. The grounds of appeal are dismissed.
23 Khatri Projects Pvt. Ltd. Lastly .on production of share holder, we quote from recent Delhi ITAT decision in case of M/s Suncity Projects Pvt. Ltd., BENCH 'G', 21.03.2016 order, relevant extract are reproduced for sake of facility: On these facts, the decision of Hon'ble Apex Court as well as Hon'ble Jurisdictional High Court relied upon by the learned counsel would be squarely applicable. Similar to the assessee's case, in the case of Rakam Money Matters Pvt. Ltd, also, the director of the shareholder companies did not respond to the summon issued by the Assessing Officer. However, Hon'ble Jurisdictional High Court held that if the Assessing Officer did not make proper enquiries on the basis of income tax returns and PAN details of share applicant companies, the addition for unexplained credit cannot be sustained. In the case of the assessee, the facts are identical. The assessee produced confirmation, income tax return, balance sheet and bank statement of share applicant companies. The Assessing Officer did not make any effort to examine those evidences produced by the assessee. Therefore, the above decision of Hon'ble Delhi High Court would be squarely applicable. Similar views are expressed by their Lordships in the case of Vrindavan Farms (P) Ltd. (supra). Further it is argued that the Share application money so received should not be regarded as undisclosed income of the Assessee Company reliance is also placed on the Judgement of Supreme court of India ( Copy enclosed) in the matter of CIT Vs Lovely Exports Pvt. Ltd. 216 CTR 195 wherein while dismissing the Special Leave Petition the Apex court observed as under "If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to 24 Khatri Projects Pvt. Ltd. Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company" As regards Ground No. 2, 3 & 4 submissions have already been given as above. "In view of above overwhelming jurisprudence present addition may please be deleted."
The ld. CIT(A) after considering the submissions of the assessee observed that the assessee did not file return of the income within the period specified u/s 139(1) of the Act and the AO received information from Investigation Wing regarding the modus operandi adopted by certain companies including the assessee who had circulated their own unaccounted income in the garb of share application money through certain fake companies and bank accounts operated by Sh. Shyam Sunder Gupta Group. She further observed that the AO while recording the reasons mentioned that he had received comprehensive and specific details, comprising inter alia, the identity of the beneficiary, identity of the entry provider, date, amount of entry taken, bank account numbers etc. and the necessary sanction for reopening assessment was taken on 27.03.2014, thereafter notice u/s 148 of the Act dated 27.03.2014 was issued by AO, in response to which the assessee filed a return on 13.05.2014. Therefore, there was neither any legal infirmity nor any deficiency in resorting to the procedure of provisions of Section 147 of the Act by the AO who clearly recorded a finding and no objections to 25 Khatri Projects Pvt. Ltd. the reopening had been requested by the assessee. The ld. CIT(A) also observed that when the AO was in possession of information that share capital of Rs.25,00,000/-, inclusive of share premium of Rs.24,00,000/- had been received which as per the report of the Investigation Wing, had been received from entry providers. He was of the prima facie view that by willfully omitting to fully and truly disclose all material facts, the impugned income of Rs.25,00,000/- had escaped assessment. The ld. CIT(A) held that the cases relied by the assessee were distinguishable on facts, therefore, the AO was perfectly justified in reopening the assessment. As regards to the merit of the case, the ld. CIT(A) observed that under the deeming provisions of Section 68 of the Act, any sum, representing receipt or credit in the books of the assessee was itself an evidence against the assessee, unless the assessee explained the nature and source of such credits and if it fails to rebut the evidence available in the form of credit entry in its books, it can be added as income. A reference was made to the following decisions of the Hon’ble Supreme Court: � Govindaraju Mudaliyar 34 ITR 807 � Kale Khan Mohd. Hanif 50 ITR 1 � Devi Prasad Biswanath Prasad 72 ITR 194 � Sumati Dayal 214 ITR 801 � P. Mohana Kala 291 ITR 278 9. The ld. CIT(A) also referred to the judgment of the Hon’ble Jurisdictional High Court in the case of CIT Vs Focus Exports Pvt. Ltd. reported at 228 Taxman 88 wherein it has been held that where the 26 Khatri Projects Pvt. Ltd. assessee failed to offer a lucid, reasonable and acceptable explanation regarding the source and nature of credit, the AO is entitled to draw inference that the receipts were of an assessable nature. The ld. CIT(A) observed that where the courts have held that the onus is cast on the assessee to prove to the satisfaction of the AO, regarding the source of the cash credit then it is the one holding duty of the appellate authorities to examine all the facts surrounding the impugned transaction and the explanation rendered by the assessee. The Reliance was placed on the following judgment of the Hon’ble Jurisdictional High Court: � Nipun Builders & Developers (P) Ltd. 350 ITR 407 � Jansampark Advertising & Marketing (P) Ltd. 375 ITR 373 10. The ld. CIT(A) also referred to her decision in the case of Lam Holdings Pvt. Ltd. in Appeal No. Del/CIT(A)-5/0133/2013-14 and observed that the assessee had never sought an opportunity to cross examine the persons on whom the survey had been conducted and who had admitted to carry out operation of bank accounts in the name of fictitious companies. She was of the view that mere production of PAN number or assessment particulars does not establish the identity of a person and in the present case, the AO had taken concrete steps to examine veracity of the capital by issuing notices u/s 133(6) of the Act on 08.07.2014 but could not make any headway as notices in respect of both the parties came back unserved. She also observed that the assessee failed to produce the Principal Officers of those companies, therefore, the impugned transactions were not genuine, particularly when no 27 Khatri Projects Pvt. Ltd. reasonable investor would invest in shares at a premium which is equal to the face value of the shares and thereafter, disinvest shares at par, which shows that the shareholders were not genuine but had been used as a front to utilize the assessee’s own funds. She further observed that what had been filed before the AO was only the confirmation of accounts without any proof of the creditworthiness of those shareholders in the form of bank statements, ITRs etc. and when the AO tried to make inquiries from the shareholders as per the addresses furnished in the confirmations, it was found that even the addresses were not genuine. Therefore, the onus that lay on the assessee was found to have not been discharged and there was a clear nexus between the adverse material found by the Investigation Wing in the form of admission of Sh. Rajvir Singh, which clearly indicated the involvement of the assessee company in the entire modus operandi of arranging bogus accommodation entries in exchange of commission, which was established from the investigation carried out by the Investigation Wing. The ld. CIT(A) observed that the surrounding facts and circumstances have to be taken into account irrespective of the paper work in determining whether the transactions in question were genuine or not. The reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of Global Securities and Finance Pvt. Ltd. reported at 264 ITR 481. The ld. CIT(A) confirmed the addition made by the AO on account of unexplained cash credit of Rs.25,00,000/- u/s 68 of the Act by observing that neither the genuineness nor the creditworthiness of the companies 28 Khatri Projects Pvt. Ltd. had been proved and the explanation offered regarding the amounts credit in the books of the assessee had correctly been found to be unsatisfactory by the AO and that it was beyond human probability that the shares of the company could comment a premium of Rs.96 per share leading to an infusion of share capital to the tune of Rs.25,00,000/-.
Now the assessed is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the notice u/s 148 of the Act was issued on 27.03.2013 on the basis of information received from Commissioner of Income Tax, Central-1, New Delhi which is evident from the notings of the AO in the assessment order at page nos. 1 to 3. It was further submitted that the survey operation was conducted on the premises relating to Gupta’s on 23.08.2008 and the statements were recorded wherein it was admitted that they were providing accommodation entries. The AO on the basis of the said statements observed that the assessee willfully omitted to fully and truly disclosed all material facts and thus, he had reasons to belief that income of Rs.25,00,000/- had escaped assessment. It was contended that the AO himself admitted at page no. 14 of the assessment order that during the course of assessment proceedings, the details regarding the name and addresses of the persons and companies with confirmation from whom share capitals were received had been furnished and the AO also issued notice u/s 133(6) of the Act to the share applicants in respect of M/s MARRASS and M/s BSA Ltd. and required the assessee to 29 Khatri Projects Pvt. Ltd. produce Principal Officer/Director of those companies. In response to such requirement, the assessee stated that as on the said date those companies were no more shareholders as they had already sold their shares to other parties. It was submitted that the assessee received share capital through banking channels from corporate entities duly assessed to tax and in the absence of any adverse information about the corporate entities from whom the assessee had received share capitals, the addition made by the AO was arbitrary. It was contended that for the purpose of reassessment proceedings, the first requirement was that the AO must have reason to believe that any income chargeable to tax had escaped assessment for a particular year before he proceeds to issue the notice u/s 147 of the Act and that the reasons as recorded for the reopening were to be examined on standalone basis, nothing can be added to the reasons nor anything be deleted from the reasons so recorded. It was stated that the reason for formation of belief must have rational connection with or relevant bearing on the formation of the belief because the reasons provide link between conclusion and the evidences. It was stated that in the present case, the AO only acted on the information provided by the Investigation Wing and did not apply his own mind while recording the reasons for reopening the assessment, therefore, the reopening itself was bad-in-law. The reliance was placed on the following case laws: � Prashant S Joshi Vs ITO 230 CTR 232 � Hindustan Lever Ltd. Vs R.B Wadkar 268 ITR 332 (Bom.)
30 Khatri Projects Pvt. Ltd. � ITO Vs Laxmi Mewal Das 103 ITR 437 (SC) � Bhageria Finance and Investment Ltd. Vs DCIT 43 CCH 40 (Del.) � Signature Hotels Pvt. Ltd. Vs ITO 338 ITR 51 (Del.) � G & G Pharma India Ltd. Vs ITO 43 CCH 18 (Del. Trib.) � CIT Vs Atul Jain 299 ITR 383 (Del.) � ACIT Vs Dhariya Construction Company 328 ITR 515 (SC) 12. On merits the ld. Counsel for the assessee submitted that it was not denied by the AO nor by the ld. CIT(A) that the assessee had furnished all the requisite details regarding the identity and the transaction. The amount in question was received through banking channels, the details of which were made available to the AO. The addition had been simply made on the information on the ground that the notices sent to the parties had been received back and the assessee was unable to produce Principal Officer/Director of the investor companies. However, this contention of the assessee was not considered that as on the date of inquiry those companies were not the shareholders of the assessee as they had disposed off their shares to other parties and the request of the assessee for providing the opportunity of cross-examination of Sh. Rajvir, the Director of the investor company was not given. Therefore, in the absence of any material controverting the documentary evidences furnished by the assessee to prove the receipt of the share application money, the addition made by the AO and sustained by the ld. CIT(A) was not justified. The reliance was placed on the following case laws: � Andaman Timber Industries Vs CCE 281 CTR 241 (SC) � CIT Vs Pradeep Kumar Gupta 303 ITR 95 (Del.)
31 Khatri Projects Pvt. Ltd.
In his rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observation made by the AO as well as the ld. CIT(A). The reliance was placed on the following case laws: � ITO Vs Purushottam Das Bangur (1997) 224 ITR 362 � Midland Fruit & Vegetable Products (India) (P.) Ltd. Vs CIT (1994) 208 ITR 266 (Delhi) 14. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the AO issued the notice u/s 148 of the Act on the information received from the office of the Commissioner of Income Tax, Circle-1, New Delhi. The AO himself admitted at page no. 2 of the assessment order that the information received revealed that the name of the assessee appeared in the list of beneficiaries who had taken accommodation entries in garb of share application money through the bank account existing in the names of paper/dummy concerns controlled by Sh. Shyam Shankar Gupta, the entry operator and those dummy entities were not carrying out any actual business. The AO considered the information received and only on that basis issued the notice u/s 148 of the Act. He did not apply his own mind leading to belief that the income had escaped assessment.
32 Khatri Projects Pvt. Ltd.
On a similar issue the Hon’ble Jurisdictional High Court in the case of Signature Hotels Pvt. Ltd. Vs ITO and Anr. (2011) 338 ITR 51 (supra) held as under: “Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have "reason to believe" that an income chargeable to tax has escaped assessment. This is mandatory and the "reasons to believe" are required to be recorded in writing by the Assessing Officer. Sufficiency of reasons is not a matter, which is to be decided by the writ court, but existence on belief is the subject-matter of the scrutiny. A notice under section 148 can be quashed if the "belief" is not bonafide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reason. There should be a link between the reasons and the evidence/material available with the Assessing Officer. The "reasons to believe” would mean cause or justification of the Assessing Officer to believe that the income has escaped assessment and not that the Assessing Officer should have finally ascertained the fact by legal evidence or reached a conclusion, as is determined and decided in the assessment order, which is the final stage before the Assessing Officer. It has further been held 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 33 Khatri Projects Pvt. Ltd. income. The annexure was not a pointer and did not indicate escapement of income. Further, the Assessing Officer 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 on January 4, 1989, and was also allotted a permanent account number 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.”
In the present case also the AO acted only on the basis of the information received from Investigation Wing and thereafter issued the notice u/s 148 of the Act. He did not apply his own mind while recording the reasons for reopening the assessment. Therefore, the notice issued on the basis of the information of Investigation Wing was not valid.
Similarly, the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income Tax-4 Vs G & G Pharma Ltd. (2016) 384 ITR 147 held as under: “The basic requirement of law for reopening an assessment is application of mind by the Assessing Officer, to the materials produced prior to reopening the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analysing materials produced subsequent to the reopening will not make an inherently defective reassessment order valid.”
34 Khatri Projects Pvt. Ltd. It has further been held as under: “Without forming a prima facie opinion, on the basis of such material, it was not possible for him to have simply concluded that it was evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries. The basic jurisdictional requirement was application of mind by the Assessing Officer to the material produced before issuing the notice for reassessment. Without analysing and forming a prima facie opinion on the basis of material produced, it was not possible for the Assessing Officer to conclude that he had reason to believe that income had escaped assessment.”
In the present case also the AO had issued notice u/s 148 of the Act only on the basis of information received from CIT, Central-1, New Delhi and not on the basis of reasons recorded by him by applying his own mind.
Therefore by following the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid cases, the notice issued u/s 148 of the Act was not valid and the reassessment framed deserves to be quashed. As regards to the merit of the case is concerned, it is not in dispute that the assessee furnished the confirmation from the share applicants to whom shares were allotted, the amount was received by the assessee through banking channels. The addition was made simply on this basis that the notice issued u/s 133(6) of the Act were received back and the assessee was unable to produce principal officer/director of the investor companies. However, the explanation of the assessee that the 35 Khatri Projects Pvt. Ltd. shares earlier allotted to the companies M/s MARRASS Industries Pvt. Ltd. and M/s BSA Fincap Pvt. Ltd. were already sold to other parties and those companies were not the shareholders of the assessee at the time of date of inquiry, was brushed aside. In the instant case, the assessee furnished documentary evidences in support of the receipt of the share application money which was through banking channels from the companies and also stated that those corporate entities were duly assessed to tax. But the AO held that even when the share capital had been received through banking channels and from corporate entities who were duly assessed to tax was not enough to accept the claim of the assessee. However, it was not brought on record to substantiate that the share application money was in fact the money of the assessee which rotated through banking channels. Therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted.
In the result, the appeal filed by the assessee is allowed. (Order Pronounced in the Court on 16/12/2016)