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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI C.M.GARG & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This is an appeal filed by the assessee against the order of the ld CIT(A)-VI, New Delhi dated 24.01.2014 for the Assessment Year 2003-04. “1. That the assessment order dated 27.12.2010 passed U/s 143(3)/147 of the Act and sustained by the learned C1T(A) is bad in law and against facts of the case.
That no valid issuance/ service of notice U/s 148/ 149. Therefore assumption of jurisdiction to pass an order U/s 147/148 is void and invalid. 3) That, satisfaction of the assessing officer for formation of belief that income has escaped assessment to tax is a condition precedent before assuming jurisdiction. Assessing officer assumed jurisdiction without such satisfaction. Hence, the notice issued U/s 148 is invalid and void ab initio. 4) That, the assumption of jurisdiction by issuance of the notice of reassessment U/s 148 is based on some vague deposition of third party without bringing any material on record to confirm the existence of nexus between statement and receipt of money. 5) That no opportunity was given to the assessee to cross examine the material based on which assessing officer arrived at the conclusion that assessee is beneficiary of alleged accommodation entries. 6] That the assessing officer made addition of Us. 3550000/- and confirmed by the learned C1T(A] on account of sale of investment merely on the basis of suspicion without bringing any adverse material on records. 7) That genuine sale of investments held in shares of other company has wrongly been added to the income of appellant merely on the basis of evidence procured from third party without putting the evidence (bank statements etc.] for cross examination of the assessee.
Page 2 of 6 8) That 20% expense of Rs. 2780187 have been disallowed on the basis of guess work and sustained by the learned CIT(A), when the accounts are audited by the chartered accountant and have been prepared by following various guidelines and accounting standards prescribed under the statute. 9) That once books of accounts have been rejected, any addition based on same set of accounts cannot be sustained.”
2. Assessee is a private limited company engaged in the business of construction and investment. For the year, It filed its return of income on 19/ 11/ 2003 declaring a loss of Rs. 373570/– . No assessment was framed under section 143 (3) of the income tax act. However, later on information was received from the investigation wing, New Delhi indicating that the assessee is amongst one of the beneficiaries of accommodation entries. Therefore, the proceedings under section 147 of the act were initiated and notice under section 148 of the act was issued on 26th of March 2010. In response to the above notice the assessee submitted a letter that the original return filed under section 139(1) may be treated as a return filed in response to the above notice under section 148 of the income tax act. And thereafter the assessment was framed under section 143 (3) read with section 147 of the income tax act. Against the returned income of the assessee of a loss of Rs. 373574. The assessment was framed at Rs. 6072466/–. In the assessment order to disallowances were made (1) is out of expenses of Rs. 2896040/– and (2) on account of income from undisclosed sources of Rs. 3550000/–. Against the above assessment order, the assessee preferred appeal before the Ld. Commissioner of income tax appeal who vide order dated 24th of January 2014 dismissed the appeal of the assessee. Therefore, assessee is in appeal before us.
In the beginning, Ld. authorized representative submitted that he would be pressing only ground No. 6, 7 and 8 of the appeal and specifically does not want to press any other ground of the appeal. In view of this the ground No. 1 to ground No. 5 and ground No. 9 and 10 of the appeal are dismissed as not pressed.
With respect to the ground No. 6 and 7 of the appeal of the assessee which is against the confirmation of addition of Rs. 3 550000/– made by the Ld. assessing officer confirmed by the 1st appellate authority on account of sale of investment on the basis of suspicion without bringing any adverse material on record. The brief facts of this addition is that ld. assessing officer received information from investigation wing that the assessee has received bogus accommodation entries worth Rs. 19.50 lakhs from 2 parties to whom the assessee has sold certain investments held in M/s futuristic sales private limited. The assessee submitted before the assessing officer the confirmation letter. However, those conformation letters were disbelieved and the Ld. assessing officer in order to verify the correctness of the claim of the assessee, he issued enquiry letter under section 133 (6) of the income tax act through his inspector. However, the report was Page 3 of 6 received from the inspector that these parties are not found in existence at the given address and therefore assessee was required to produce them in order to discharge its onus to prove their identity, creditworthiness and genuineness of the above transaction of the sale of the shares. In view of this, the assessing officer held that the above transaction is bogus and his view was further supported from the information called from the bankers of those parties wherein the bank statement received revealed that the cash has been deposited in the respective accounts, before the clearance of cheque to the assessee company. The Ld. assessing officer was also privy to the information from investigation wing that the these parties are among the group companies controlled by Sh. Ram Garg, who has carried out the business of providing bogus accommodation entries. Further during the course of assessment proceedings, the Ld. assessing officer further, came to know that the assessee has further sold sales of Rs. 16 lakhs and for those sales the assessee was asked to prove the identity , creditworthiness and genuineness of those parties to whom the shares of these companies have been sold. The appellant could not submit these details to the satisfaction of the assessing officer and therefore the further addition of Rs. 16 lakhs was made to the total income of the assessee. The assessee aggrieved by the addition carried further matter to the 1st appellate authority who confirmed the addition made by the assessing officer and therefore assessee is in appeal before us.
The Ld. authorized representative of the appellant submitted that the assessee has submitted the complete details of the parties to whom the shares of futuristic sales private limited have been sold stating the number of shares sold the name and address of those parties and permanent account number of these parties. He further submitted that the shares are held by the assessee as investment in past years, and for this he referred to page No. 5.11 of the paper book where shares held for 22 lakhs have been sold during the year by the assessee. He therefore submitted that the assessee has explained the complete transaction, the payments have been received by the cheque by the appellant from those parties and therefore there cannot be any addition on account of the shares sold to these parties. Further with respect to the other shares sold by the assessee to the other parties name being Smt. Vasudha sanghai, Usha devi Sanghai and Smt.Kamla Agarwal, it was submitted that the these parties have confirmed the transaction to the Ld. assessing officer by separate letters in the remand proceedings. He further submitted that in rejoinder to the remand report the appellant submitted that ld assessing officer did not to accept the statement made by these person and however also not given any opportunity to the assessee to explain the transaction and also the time sought by the assessee was not given. It was further submitted Page 4 of 6 that despite the request made by the appellant to the assessing officer no information was given about the information received by the assessing officer with respect to the beneficiary being appellant of the accommodation entries for which the addition has been made. He therefore submitted that the assessment made by the Ld. assessing officer and confirmed by the the 1st appellate authority is without giving proper opportunity of hearing to the assessee and to rebut the evidences collected by the Ld. assessing officer.
In response to this Ld. departmental representative submitted that the assessee has been given enough opportunity of hearing before the 1st appellate authority as well as before the assessing officer. However, it failed to comply with the condition of producing the parties before the Ld. assessing officer and hence the addition has been rightly made by the Ld. assessing officer and confirmed by the 1st appellate authority.
We have carefully considered the rival contentions and perused the material available before us. Undoubtedly, the assessee has sold the investment of shares in one company held by it as an investment in the past year. However, the investment have been sold to the 2 parties whose name, address, permanent account number was furnished by the assessee to the assessing officer, but the Ld. assessing officer on issue of notice under section 133 (6) of the income tax act through the inspector could not find the existence of those parties. The assessee says that these parties are in existence. However it could not produce them because of the shortage of time before the Ld. assessing officer. We are of the opinion that mere furnishing of the confirmation of the parties, such as name, address and permanent account number does not prove the identity, creditworthiness, genuineness of the transaction where the assessing officer has got the information from the investigation wing and further the same were also corroborated by the bank statement obtained by the Ld. assessing officer from the bankers of the buyer companies where the cash was deposited of the identical amount on the same day and the cheques were issued to the assessee towards the purchase of those shares. Despite the opportunity given by the Ld. assessing officer to the assessee to produce the parties same could not be produced by the assessee because of the paucity of time as the assessee was asked to produce the parties on 13/12/2010 and merely within 14 days the assessment was framed on 27th /12 /2010. The assessment was framed by the the Ld. assessing officer because of the time barring limitation arriving for passing of the above said assessment order. In view of this we set aside the addition of Rs. 19.50 lakhs back to the file of the Ld. assessing officer and direct the assessee within 3 months of this order to produce the directors of the above company along with the requisite details such as the sources Page 5 of 6 of funds deposited by those companies into the bank account in cash before issue of the cheques and the transaction price of purchase of shares of the companies to the satisfaction of the assessing officer to prove the identity, creditworthiness, and genuineness of the transaction of the sale of shares of futuristic Ltd by the assessee. The Ld. assessing officer may also inquire from the assessing officer of those companies about the assessment proceedings pending in those companies or whether merely the permanent account number has been obtained to verify about the creditworthiness of those companies. With respect to the sale of further 3 women we also further direct the Ld. assessing officer accordingly, as we have held with respect to other buyers of those shares held by the assessee as investment. In the result ground No. 6 and 7 of the appeal of the assessee are allowed with above direction.
The ground No. 8 of the appeal of the assessee was against the disallowance of Rs. 2896040/– being 20% of the expenses claimed by the assessee of Rs. 14480187/- the above disallowance has been made by the Ld. assessing officer as the assessee has failed to produce the books of accounts with supporting bills and vouchers before the Ld. assessing officer. Therefore, the correctness of the claim made by the assessee remained unverified. And, therefore, the Ld. assessing officer rejected the books of accounts applying the provisions of section 145 (3) of the income tax act and disallowed 20% of those expenses amounting to Rs. 2896040/–. On appeal before the 1st appellate authority, he has granted relief to the assessee to recompute the addition based on 20% of disallowance out of purchases and other disallowances excluding opening stock of the current year, or closing stock of the previous year. Before the 1st appellate authority the appellant submitted that the books of accounts could not be produced before the Ld. assessing officer because of death of one of its key director and therefore it causes genuine hardship to the assessee, as it could not locate the books of accounts.
The Ld. authorized representative once again reiterated the facts stated at Para No. 4.22 of the order of the 1st appellate authority wherein it has been mentioned that due to the death of one of the key directors the repressive reassessment proceedings would not be attended by production of the books of accounts of the assessee and it was almost after 7 years of the close of financial year the assessee could not locate the books of accounts. He further submitted that all enquiries conducted by the assessing officer were duly confirmed and ld AO has accepted trading results after such enquiries.
Ld. departmental representative submitted that the assessee has not produced the books of account before the Ld. assessing officer and therefore, the Ld. assessing officer did not have any other option but to disallow the estimated percentage of