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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI H.S. SIDHU & SHRI ANADI N MISHRA
against the order of Ld.CIT (Appeals) New Delhi dt. 26.2.2010 for the Assessment Fit for Publication (AM) Sd/- (JM) Sd/- AND CO No. 76/Del/2011 Year 2005-06 on the following grounds :-
“The order of the Learned CIT (APPEALS) is erroneous and contrary to facts and law.
On the facts and in the circumstances of the case and in law, the learned CIT(APPEALS) has erred in deleting the addition of Rs. 99,00,000/- made by the AO u/s 68 of the I.T. Act being the bogus/unexplained share capital routed through entry operators. 2.1The Ld. CIT(A) ignored the fact that the assessee did not discharge the onus of proving the creditworthiness of the creditors and genuineness of the transactions.
2.2The Ld. CIT(A) erred in not appreciating the fact that the assessee is involved in the racket of obtaining accommodation entries and the ratio of Hon’ble Apex Court’s judgement in the case of M/s. Divine Leasing & Finance and in the case of M/s. Lovely Export Pvt. Ltd. is not applicable to the case of the assessee.
The appellant craves leave to add, to alter, or amend any grounds of appeal raised above at the time of the hearing.”
2. The only issue involved in appeal filed by Revenue and the cross objection filed by the assessee is the addition of Rs. 99,00,000/- made by the Ld. AO u/s 68 of the I.T. Act, which was deleted by the Ld. CIT(A) vide order dated 26.2.2010.
For the sake of convenience the grounds of appeal in the appeal filed by Revenue and the grounds of appeal filed by the assessee in cross objection are taken up together.
3. The investigation wing of Income Tax Department intimated the Ld. AO that certain persons were engaged in providing accommodation entries to various persons. The investigation wing recorded the statements of such persons allegedly providing accommodation entries on various dates and copies of such statements were forwarded to the Ld. AO. The persons allegedly engaged in providing Fit for Publication (AM) Sd/- (JM) Sd/- AND CO No. 76/Del/2011 accommodation entries included ABO Investments Pvt. Ltd., Aggregate Fin. & Inves. Pvt. Ltd. Shubham Electricals Pvt. Ltd., Finwiz Capital Services P. Ltd. Fussy Finn. Services Pvt. Ltd., Hare Rama Restaurants Pvt. Ltd. Statement of these persons who admitted on oath before investigation wing of Income Tax Department that they had provided the accommodation entries were forwarded to the Ld. AO in which they had categorically admitted that they were instrumental in providing accommodation entries. The assessee received an amount of Rs. 99,00,000/-from the aforesaid persons (hereinafter referred to as alleged entry providers) which included Rs. 4,95,000/- as share capital and Rs. 94,05,000/- as share premium.
During assessment proceedings the assessee in support of its claim of genuineness of the aforesaid amounts received towards share capital and share premium, provided certain documents which have been listed in paragraph No. 5.0 of order dated 26.2.2010 of Ld. CIT(A). During assessment proceedings, the Ld. AO vide order sheet entry dated 10.12.2007 asked the assessee to produce the Directors of the aforesaid alleged entry operators. However the assessee failed to produce them before the Ld. AO. Also, during assessment proceedings the assessee company also filed letter dated NIL before the AO requesting to make available the material / statement so that the true state of affairs could be brought to notice of AO. But the Ld. AO did not provide such materials / statement to the assessee company. The Ld. AO made an addition of the aforesaid amount of Rs. 99,00,000/- taking adverse view of the fact that the assesee company failed to produce the directors of alleged entry operators. The assessee filed an appeal before Ld. CIT(A) in which, interalia, the following grounds were also raised :-
Fit for Publication (AM) Sd/- (JM) Sd/- AND CO No. 76/Del/2011 “4.(i) The Assessing Officer had erred in relying on the statements of alleged entry operators which had been recorded at the back of the appellant without providing an opportunity of explanation to him to bring out the true state of affairs. (ii) The Assessing Officer had erred in not making available the said entry operators for his cross examination. (iii) The Assessing Officer had erred in overlooking the statutory provisions of Section 143(2) of the Income Tax Act according to which the adverse material collected by the Assessing Officer at the back of the assessee had to be confronted to the appellant for his explanation.” 3.1. On perusal of the appellate order dated 26.2.2010 passed by Ld. CIT(A) we find that the aforesaid grounds taken by the assessee company in appeal before Ld. CIT(A) have not been adjudicated by her. Revenue as well as assessee company are aggrieved by the order of Ld. CIT(A). On one hand Revenue has filed appeal against the direction of the Ld. CIT(A) to delete the addition of Rs. 99,00,000/- ; on the other hand the assessee company has filed cross objection against failure of the Ld. CIT(A) in giving a decision on the grounds mentioned above.
In the course of hearing before us we have heard both sides and have also perused the material available on record. Ld. DR vehemently contended that the appellant company should have produced Directors of alleged entry operators before the Ld. AO and the Ld. AO was justified in taking an adverse view since the assessee company failed to produce them before the Ld. AO. He further contended that the Ld. CIT(A) should have upheld the addition or should have atleast directed the assessee company to produce the directors of the alleged entry operators before the Ld. AO. Ld. DR also cited case laws on merits of the addition. In reply, Ld. AR of the Fit for Publication (AM) Sd/- (JM) Sd/- AND CO No. 76/Del/2011 assessee supported the order of the Ld. CIT(A) and also cited numerous decisions to support the order of Ld. CIT(A).
The central issue is whether the amount of Rs. 99,00,000/- received by the assessee was genuine subscription of share capital and share premium of the assesee company or these were only accommodation entries. Whether it was genuine or not will depend on facts specific to this case. However, we find that both the lower authorities, the Ld. AO and the Ld. CIT(A) have taken a view without allowing full facts to emerge. The assessee company failed to produce the Directors of the entry operators before the Ld. AO. It is obvious that the Ld. AO wanted to examine the Directors of alleged entry operators and wished to carry the investigation further in order to bring more facts on record. The failure of the assessee company to produce the Directors before the Ld. AO resulted in denial of opportunity to the Ld. AO to make further facts emerge. On the other hand the Ld. AO also failed to provide the material in his possession which have been used against the assessee in making the addition. Such materials included relevant portions of the statements of alleged entry operators recorded on oath by investigation wing which was forwarded to the Ld. AO. Moreover, there are also conflicting evidences which have not been reconciled by the lower authorities. On one hand the alleged entry operators have stated an oath before investigation wing of Income Tax Department that they have provided accommodation entries. On the other hand during assessment proceedings they have given confirmation in favour of the assessee and have also responded in support of the assessee in response to letter of the Ld. AO seeking information u/s 133(6) of I.T. Act. When somebody provides contradictory Fit for Publication (AM) Sd/- (JM) Sd/- AND CO No. 76/Del/2011 evidences at two different times or before two different authorities, as the alleged entry operators have done , it was appropriate to subject the alleged entry operators to further examination / cross-examination if either side (whether Revenue or assessee) wished to examine / cross-examine. While Ld. AO has relied on the evidence against the assessee and while the Ld. CIT(A) has relied on the evidence in favour of the assessee neither of the two lower authorities has explained why the evidence on the other side was overlooked. As the ITAT is a final fact finding authority we feel that all relevant facts should be allowed to emerge before the issue is decided on merits. We also feel that both sides, Revenue as well as assessee should have got adequate opportunity to bring relevant facts on record. If either of the two sides has not got reasonable opportunity for this purpose it will be appropriate to cause such opportunities to be provided. As we have already noticed neither Revenue nor the assessee has received full opportunity to make relevant facts emerge. Perusal of ground 2.2 of appeal filed by Revenue shows that assesee is one among many persons who may have attempted to benefit from the alleged racketeering. When Investigation Wing of Income Tax Department has busted the racket of bogus accommodation entries ; and when the alleged entry operators have admitted on oath that they ran this racket ; and when name of the assesee is discovered as one of the beneficiaries of the alleged racket ; and when amounts are actually found in the books of assessee to be credited in the name of alleged entry operators ; burden was on the assessee to prove that it was not a beneficiary of the racket. We also have considered with reverence the following observations of Hon’ble Jurisdictional High Court, in the case of CIT vs. N.R. Portfolio (P) Ltd. (Delhi) (2013)
214 Taxmann.com 291 (Delhi) :- 6 Fit for Publication (AM) Sd/- (JM) Sd/- AND CO No. 76/Del/2011
“8. This court is conscious of a view taken in some of the previous decisions that the assessee cannot be faulted if the share applicants do not respond to summons, and that the state or revenue authorities have the wherewithal to compel anyone to attend legal proceedings. However, that is merely one aspect. An assessee’s duty to establish that the amounts which the AO proposes to add back, under section 68 are properly sourced, does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in a Registrar of Companies website. One must remember that in all such cases, more often than not, the company is a private one, and share applicants are known to it, since they are issued on private placement, or even request basis . If the assessee has access to the share applicant’s PAN particulars, or bank account statement, surely its relationship is closer than arm’s length. Its request to such concerns to participate in income tax proceedings, would, viewed from a pragmatic perspective, be quite strong, because the next possible step of the tax administrators could well be re- opening of such investor’s proceedings.”
In view of the foregoing we set aside the order of the Ld. CIT(A) and restore the matter to the file of the Ld. Assessing Officer to complete the assessment de novo with the direction to the Ld. Assessing Officer to provide copies of whatever adverse material the Ld. AO has in his possession, which were used or are proposed to be used against the assessee. The Ld. Assessing Officer will be free to carry out further inquiries as per law ; and the assesee will be free to submit / produce further materials / evidences before the Assessing Officer.
6.1. We wish to clarify that we are not expressing any opinion on the merits of the addition at present. Both sides, the Ld. DR as well as the Ld. AR of the assessee had cited numerous case laws on merits of the addition in support of their respective contentions. However in absence of all relevant facts which are yet to emerge we refrain from expressing an opinion on the merits of the addition.