M/S. BLOSSOM ADVERTISERS PVT. LTD.,DELHI vs. ITO, NEW DELHI

Per L.P. Sahu, Accountant Member:

“1. That the order of Ld Authorities is bad in law and against facts of the case.

2. That the ld. Authorities erred in invoking the provision of section 148.

3. That the Ld. Authorities erred in invoking the provisions of section 69A and making additions thereunder.

4. That the ld. Authorities erred in making addition of Rs.21,35,625/-

5. That the ld. Authorities below erred in not following various decision of jurisdictional High Court and ITAT.

The Assessing Officer issued notice u/s. 148 on 26.03.2010 at the address 1/5179, Balbir Nagar, Gali No. 7, Shahdara, Delhi, as mentioned on the return for the assessment year 2009-10 filed on 09.12.2009. The notice returned back with the remark of postal authorities “left without address”. Later on, the notice was served by affixture by the notice server in the present of Income-tax Inspector on 29.04.2010 at the above address. The appellant has filed his return of income for the year under consideration at the address, C- 107, ABC Complex, 20 Veer Savarkar Block, Shakarpur Delhi 110092. The Assessing Officer reopened the case on the basis of information received from investigation wing of the Income-tax Department. The Investigation wing during investigation found that the assessee has received an amount of Rs.21,25,000/- towards accommodation entries, the details of which are as under :

S. no. Amount Instrument No. Date Concern from which received ------- ----------- -------------------- ------ --------------------------------------- 1. 2,50,000 944722 04/04/2002 Raghubir Singh 2. 2,50,000 837796 11/04/2002 Rajan Jassal 3. 1,25,000 854728 11/04/2002 Parminder Singh 4. 2,50,000 946032 11/04/2002 Parminder Singh 5. 2,50,000 952887 11/04/2002 Sarbjeet Singh 6. 5,00,000 6459 28/08/2002 Jagat Enterprises 7. 5,00,000 6809 05/09/2002 Shyam Fabrics Total 21,25,000 The Investigation Wing also recorded statements of above Shri Rajan Jassal, Perminder Singh and Raghubir Singh on 04.02.2004, 22.03.2005 and 22.03.2005 respectively. In their statements, they have admitted that they floated these entities only to provide accommodation entries in the form of cheques in lieu of unaccounted cash for providing accommodation entries for bogus expenditure. The Assessing Officer issued notice u/s. 142(1) on 16.08.2010. In this notice, the AO required the details of the transaction, confirmations, name and address of the persons from whom the above amounts were received etc. The assessee was given opportunities, but no explanation was offered. The Assessing Officer completed the assessment by adding Rs.21,25,000/- u/s. 69A as accommodation entries and 0.5% commission paid thereon, i.e., Rs.10,625/-. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the first appellate authority by challenging the assessment proceedings u/s. 147/148 of the Act saying that no notice has been served on the assessee till date as well as on merits also. He also submitted a detailed written submission before the ld. CIT(A).

The ld. CIT(A), however, did not accept the plea taken by the assessee and confirmed the order of the Assessing Officer. Aggrieved by the order of the first appellate authority, the assessee is in appeal before the Tribunal.

3. The ld. AR of the assessee submitted that no notice has been served on the assessee. Even the AO has also mentioned in his order that the notice was returned back. Therefore, the entire assessment is void ab initio. He also submitted that the assessee company has not taken any accommodation entry. It was only the sale of investment at cost. Therefore, no any capital gain has been received. The Assessing Officer has not applied his mind before reopening the case. He has simply reopened the case only on the basis of information received from Investigation Wing. He relied on the detailed written submissions dated 28.11.2011 made before the first appellate authority. For the sake of convenience, we are reproducing the same hereunder :

“1. That the appellant is a Private Limited Company incorporated under the provisions of the Companies Act, 1956. For the year under appeal, Income Tax Return was filed on 02.12.2003 declaring a loss of Rs. 535/- 2. That on the basis of some vague information received from Investigation Wing of the Department, the ld. A.O. issued notice u/s 148 to the appellant. However the same was never served upon the assessee at any time.

3. That the ld. A.O. completed assessment u/s 148 read with 344 on 30.11.2010 making an addition of Rs. 2135625/-.

2. The notice must have been issued and served. The appellant filed his return from the address - C- 107, ABC Complex, 20 Veer Savarkar Block, shakarpur, Delhi 110092. Copy of the ITR Acknowledgement is enclosed to substantiate the same.

3. Even the controversial entries which the ld. AO stated in his reasons for reopening mentioned the bank a/c in which the said amounts were received i.e. Standard Chartered Bank had the same address. Copy of bank statement is enclosed which also states that the address of the appellant is C- 107, ABC Complex, 20 Veer Savarkar Block, Shakarpur, Delhi 110092.

4. However, the ld. AO sent the notice at 1/5179, Balbir Nagar, Gali No. 7, Shahdra Delhi, which was not the address of the appellant. Hence the notice was never served at all.

5. Further, the ld. AO was aware of the correct address and he sent notice u/s 142(1) at the correct address only.

6. An affidavit that no notice u/s 148 was received by the appellant ever is enclosed.

7. The notice must have been issued and served, however in the appellant's case notice was never served. Hence, the issue of notice u/s 148 itself is void and the order u/s 147 should be quashed impromptu. b. Notice u/s 148 is without the jurisdiction

1. In the appellant's case the exception carved out by proviso to section 147 comes into play, hence the case is outside the ambit of section 147.

2. As per proviso to section 147, no action under this section can be taken after expiry of four years from the end of the assessment year, unless inter alia, income chargeable to tax had escaped assessment by reason of failure of the assessee to make full and true disclosure of all material facts necessary for assessment.

3. The appellant's case is similar to the case of Delhi High Court in Haryana Acrylic. In Haryana Acrylic Manufacturing Co. vs. CIT (2009) 308 ITR 38 (Del) it was held that -

"There being no whisper in the reasons supplied to the assessee that income escaped assessment by reason of assess’s failure to make a full and true disclosure of all material facts necessary for assessment, notice under s. 148 issued beyond four years from the end of relevant assessment year was barred by limitation under proviso to s, 147, hence without jurisdiction"

4. In the appellant's case as it is covered by exception carved out by proviso to section 147, hence the order is without jurisdiction; is void and should be quashed. c. Non- Supply of reasons in time

1. For the AY 2003-04, the reasons for re-opening was communicated by the Id. AO to the appellant on 15.11.2010 as per the assessment order, which is quite beyond the statutory time limit prescribed u/s 149. U/s 149(1)(b) a notice u/s 148 cannot be issued after the issue of 6 years from the end of the AY.

2. As the issuance of the s. 148 notice and the communication and furnishing of reasons go hand in hand, the reasons have to be supplied to the assessee before the expiry of period of 6 years. If this is not done, the validity of the s. 148 notice cannot be upheld. In any proceeding, whether civil or criminal, a summons issued without a copy of the plaint or complaint has to be construed as if no valid service of notice has been effected upon the defendant or respondents.

4. The Delhi ITAT bench in Gomti Textiles Pvt. Ltd. vs. ITO pronounced on 8th July 2011 has also held that if reasons are not supplied within the time limits u/s 149, then re-opening u/s 147 is invalid.

5. Hence, assessment u/s 147 is void and should be quashed. d. Non-application of mind of the AO

1. The Id. AO in his reasons for re-opening has stated as under:

"....the DIT (Inv), New Delhi has established (he non-genuiness of transactions, whether shown by beneficiaries as inflow of Share Capital or receipts of Gifts or consideration for sale-purchase.... "

2. The Ld. was not even aware of the nature of receipt while issuing notice u/s 148.

3. The Id. A.O. just mentioned that due to findings of the investigation report he has reason to believe that income has escaped assessment. The Id. never applied his mind in forming his opinion.

4. The Id. AO has re-opened the case on sum vague information and not on his application of mind, hence the re-opening is void and the assessment should be quashed. The same was held in:

e. Taking all the above submissions together the issue of notice u/s 148 is void and without jurisdiction, hence the order u/s 147 should be quashed impromptu.

5. Addition of Rs. 2125000/- u/s 69A a. The appellant received a communication from the ld. A.O. that he had received certain information from Investigation Wing of the Department, that the appellant had received certain accommodation entries amounting to Rs. 2125000/-. b. The appellant did not receive notice u/s 148. It received notice u/s 142(1) which was complied on 15.11.2010. On the same date the Id AO handed over the reasons, etc to the AR of the appellant. c. It is pertinent to note that the Id. AO did not give any opportunity to the AR inspite of repeated requests. The case of the appellant for AY 2008-09 was being heard by the same Id. AO, wherein all submissions were duly made from time to time. Whenever the AR went to submit the documents for the AY in question, the Id. AO was casual and said that he would hear the same later. d. Further please note that order for AY 2008-09 was passed u/s 143(3) with NIL demand on 30.12.2010 (copy of order enclosed), whereas order for AY 2003-04 (order under appeal) was passed on 30.11.2010, without providing any opportunity. Also he did not hand over the assessment order to the appellant, like he did for AY 2008-09 and the appellant had to collect it on 12.01.2010 after stating that it did not receive the order. e. The ld AO never ever whispered about the assessment u/s 144 for AY 2003-04 though appellant was present before him several times for assessment for AY 2008- 09 for the same assessee and passed the order u/s 144 much before the case was time bar. f. As, the conduct of the Id. AO raises doubts beyond question in not providing ample opportunity in the instant case, it is humbly requested that documents now submitted be allowed as additional evidence u/r 46A. g. The detail of the payments received by the appellant along with appellant's remarks are as under:

Amount Date Instrument Name of Remarks No Person 250000/- 04.04.2002 944722 Raghubir The said amount was received against Singh sale of 2500 shares of Aerens Buildwell Ltd vide Bill dated 4.4.2002. 250000/- 11.04.2002 837796 Raj an Jassal The said amount was received against sale of 2500 shares of Aerens Buildwell Ltd vide Bill dated 11.4.2002 125000/- 11.04.2002 854728 Parminder The said amount was received against Singh sale of 1250 shares of Aerens Buildwell Ltd vide Bill dated 11.4.2002. 250000/- 11.04.2002 946032 Parminder The said amount was received against Singh sale of 2500 shares of Aglow Finance Ltd vide Bill dated 11.04.2002. 250000/- 11.04.2002 952887 Sarabjit The said amount was received against Singh sale of 2500 shares of Aglow Finance Ltd vide Bill dated 11.04.2002 500000/- 28.08.2002 6459 Jagat Mr. Jagat is proprietor of M/s Jagat Enterprises Enterprises. The said amounts were received against sale of 10000 shares of Rana Papers P. Ltd vide Bill dated 28.08.2002. 500000/- 05.09.2002 6809 Shy am Mr. Jagat is proprietor of M/s Shyam Fabrics Fabrics. The said amounts were received against sale of 6000 shares of Rana Papers P. Ltd and 2000 shares of Aerens Buildwell Ltd. vide Bill dated 28.08.2002. h. The following documents are enclosed to substantiate the above transactions: i. Copy of sale bill of investment ii. Confirmation of the payer regarding payment made for sale of investment. iii. Affidavit of payer regarding payment being made for sale of investment. i. The following documents are enclosed to establish the identity of the above persons: i. Copy of PAN ii. Copy of ITR acknowledgement iii. Copy of Ration card / Passport / election card j. Detail of investment held as on 31.3.2002 is enclosed to substantiate that the investments sold, were held in hand by the appellant. The investments were sold at cost, hence there was no capital gain on realization of the sale proceeds of the investments. k. It is pertinent to note that monies have been received as sale proceeds, the result of which is that an asset held by the appellant has been converted into money, hence there cannot be any accommodation entry. l. The Ld. A.O. forgot that the assessee is an artificial judicial person (Company) and it cannot of its own have any unaccounted cash. m. The Id. AO failed to note that all the payments were received through a/c payee crossed cheques through proper banking channels and are duly accounted for in the books, records and documents of the assessee, which is evident from the records. n. Sir, when purchased investments are sold and the payments realized for the same, how can there be any accommodation entry. o. When the purchase are genuine, how its sale can be held in doubt, when all documents prove the same. The basic requirement of s. 68 as held in CIT vs. Oasis Hospitalities P. Ltd. [201MTRV-HC-DEL-031] of 2010 with ITA No. 2094 of 2010 were proved by the assessee: i. Identity: PAN, Ration Card, ITR, Ration card, etc. ii. Genuineness: The money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Copies of sale bills, confirmations, affidavit, etc. are all submitted. iii. Creditworthiness: The purchasers of investments had sufficient balance in their accounts to enable them to purchase the investments as the payments for purchase were made by proper banking channel. p. The Ld. A.O. did not bring any material to prove that the payments received by the appellant for sale of investments actually emanated from the coffers of the appellant-company so as to enable it to be treated as undisclosed income of the appellant-company. The Hon’ble High Court of Delhi in the case of CIT vs. Value Capital Services Pvt. Ltd. (2008) 307 ITR 334(Del) has held that:

"There was an additional burden cast on the revenue to prove that the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it (o be treated as undisclosed income ". q. Further the Delhi High Court in CIT vs. Medshave Health Care Ltd. [2010-ITRV-HC- DEL-13] pronounced on 9.2.2010 has held that where assessee company had been holding the shares which were sold by it during the year there was no reason to hold these transactions to be sham. r. In ITO vs. Tulip Engineering P. Ltd. ITA No. 4629 (Del) / 2010 dated 21.01.2011 it was held that where monies have been received as sale proceeds, the result of which is that an asset held by the appellant has been converted into money. This amount does not represent unexplained cash credit u/s 68. (Copy of the order enclosed). s. Hence, the addition of Rs. 2125000/- may please be deleted.

"Where in any financial year the assessee is found to be the owner of any money, bullion, jewellary or other valuable article and such money, bullion, jewellary or other valuable article is not recorded in the books of account, if any maintained by him for any source of income...." b. The Id. AO has himself stated that the assessee has received the stated amounts in its bank a/c and the amounts are duly accounted for in the books of the assessee, hence the addition made u/s 69A is without any basis and needs to be quashed.

7. Addition of Rs.21250/- The Ld. A.O. has also wrongly made the addition on account of estimating that a commission @ of 1% would have been paid on above transactions and charging Rs 21250/- to tax'. This addition is based on the Ld. A.O. estimates, which is without any basis. This addition has been made purely on surmises and conjectures, hence should be deleted.

From the foregoing submissions, it is concluded that: i. That the appellant is an artificial judicial person it cannot have unaccounted money of its own. ii. That the assessment u/s 147 is bad in law as the appellant never received any notice u/s 148. iii. That the Id. AO wrongly made addition u/s 69A, though all monies received were duly accounted in the books of accounts of the appellant. iv. That Rs. 2125000/- was received for sale of investments and is supported by sale bills, copy of a/c duly confirmed, confirmation for the purchaser, affidavit from the purchasers. v. All persons from whom payment was received against sale of investments are established. vi. PAN proof of subscribers, Copy of ITRs acknowledgement / Intimation u/s 143(1) of the subscriber, Confirmation of share application received from subscribers, affidavits of the subscribers are all furnished. vii. All the payments were received by the appellant by account payee cheque through proper banking channel. viii. The Ld. A.O. did not bring any material to prove that the payments made by the purchasers actually emanated from the coffers of the appellant-company so as to enable it to be treated as undisclosed income of the appellant- company. ix. The Ld. A.O. did not adhere to the established law in judicial decision of the jurisdictions courts and arrived at conclusion without applying his mind in judicious way.

In view of above facts and judicial decisions it is be contended that notice u/s 148 is void and needs to be quashed impromptu and the addition made by Ld. Assessing Officer is totally baseless and is without application of his mind and is not based on the facts of the case and without giving opportunity to the appellant but are based on surmises and conjectures.”

4. On the other hand, the learned DR relied on the order of lower authorities. He tried to justify that the notice was duly served upon the assessee. The appellant has not informed to the department that the address has been changed. He had filed return for the assessment year 2003-04 at the address, C-107, ABC Complex, 20 Veer Savarkar Block, Shakarpur Delhi 110092 and for the assessment year 2009-10, he has filed return at another address, therefore, the AO was justified to send the notice at the address lastly noted on the record. Hence, the notice shall be deemed to be served on the assessee.

6. The ld. AR of the assessee submitted before us that the impugned amounts were received by him as a result of sale proceeds of investments in shares of different companies made before 31.03.2002. The ld. AR of the assessee had filed the details of investments held as on 31.03.2002 with the submission that money in question was received as a result of sale proceeds of investment, which results that an asset held by the appellant has been converted into money at cost and hence, there will be no effect in the balance sheet and there cannot be any accommodation entry regarding sale of an asset which was already held by the assessee. It was also the contention of the assessee that once the prior investments are sold and payments realized by cheques, how such sale could be doubted without doubting the purchase of assets already held by the assessee. The ld. Authorities below have failed to examine this aspect of the case nor have given any finding on the same, particularly when the assessee had submitted the details of prior investments held by it and documentary evidences relating to their sale before the authorities below. In presence of these facts, we deem it expedient in the interest of justice to restore the matter to the file of Assessing Officer for passing the assessment de novo after verifying the alleged sale of shares with reference to their purchase. The AO shall examine the holding of investments (shares), date and cost of purchase, mode of acquisition alongwith their distinctive numbers, position of balance sheet after their sale etc. In case the impugned amount is found to have been received by assessee as a result of sale of shares as alleged, with reference to and in consonance with their purchase, the version of the assessee may be relied upon, otherwise, the AO shall be free to pass the order afresh in accordance with law. Needless to say, the assessee shall be given reasonable opportunity of being heard.

Accordingly, the appeal of the assessee deserves to be allowed for statistical purposes.

Order pronounced in the open court on 16.11.2016