SWEET MARKETING (I) P.LTD ( NOW KNOWN AS GLB FINVEST P. LTD),MUMBAI vs. DCIT CEN CIR 20, MUMBAI

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ITA 4569/MUM/2013Status: DisposedITAT Mumbai07 June 2017AY 2004-057 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that while the original return was processed under Section 143(1), requiring only the AO to have reasons to believe that income escaped assessment, it is a settled principle that the AO must possess tangible material to justify reopening. This material must have a live link with the formation of the belief. In this case, the Tribunal found this link to be missing. The assessee had received share application money from B.P. Choudhary and Saroj Choudhary, and the revenue failed to establish any connection between these individuals and G.V.'s group. The sole basis for reopening was G.V.'s statement, but no nexus was found between G.V.'s statement and the assessee's share applicants. Therefore, the primary condition for initiating reassessment proceedings was not fulfilled. The Tribunal relied on its co-ordinate bench's decision in the assessee's own case for AY 2003-04, which quashed reopening due to a lack of nexus between the application money received by the assessee and the alleged accommodation entries provided by G.V. Consequently, the assessment order was set aside for want of valid jurisdiction. Other grounds raised by the assessee were rendered infructuous.

What were the facts?

The assessee, GLB Finvest Private Limited (formerly Sweet Marketing (India) Private Ltd.), is appealing an order from the Commissioner of Income Tax (Appeals)-39, Mumbai, for Assessment Year 2004-05. The Assessing Officer (AO) had reopened the assessment under Section 147 read with Section 143(3) of the Income Tax Act, 1961, issuing a notice on 31/03/2011. The AO disallowed Rs. 23,00,000 on account of share application money under Section 68, leading to a total assessed income of Rs. 38,50,730, against a returned income of Rs. 15,50,732. The reopening was based on a search operation on Giriraj Vijayvargiya (G.V.), who admitted to providing accommodation entries. The AO believed that the assessee, as part of Vikas Berlia's group, had introduced unaccounted money through bogus share capital. The assessee contended that no share application money was received from G.V.'s group during the impugned AY, and the Rs. 23,00,000 was received from B.P. Choudhary and Saroj Choudhary.

What were the issues?

1. Whether the reopening of assessment under Section 147/148 of the Income Tax Act, 1961, is valid, considering the material available with the Assessing Officer at the time of forming the belief that income has escaped assessment? Assessee's Contention: The reopening is legally flawed because it is based solely on the statement of a third party (G.V.) who admitted to providing accommodation entries, whereas the assessee denies receiving any share application money from G.V. or his group during the assessment year. The assessee relies on a co-ordinate bench decision in its own case for AY 2003-04, which quashed reopening on similar facts. Revenue's Contention: The original return was processed under Section 143(1), thus requiring only the fulfillment of the condition of having reasons to believe that income has escaped assessment for valid reopening. The admission of G.V. regarding providing accommodation entries in the form of share application money was sufficient basis for the AO to initiate reassessment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 147,Section 148,Section 68,Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI SAKTWIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM

For Respondent: DR TR / 24/05/2017

Per Manoj Kumar Aggarwal (Accountant Member) 1 The captioned appeal by assessee for Assessment Year [AY] 2004- 05 assails the order of Ld. Commissioner of Income Tax (Appeals)-39 [CIT(A)], Mumbai dated 30/01/2013 on legal grounds as well as on merits. 2. The name of the assessee company has changed from Sweet Marketing (India) Private Limited to GLB Finvest Private Limited vide fresh certificate of incorporation consequent upon change of name dated 16/07/2009 issued by Deputy Registrar of Companies, Maharashtra as placed by Ld. Counsel for assessee before us. The same is taken on record. Now, we deal with the issues raised in the appeal in succeeding paragraphs. 3. Briefly stated the assessee, being resident corporate assessee, was subjected to an assessment u/s 143(3) read with Section 147 of the Income Tax Act, 1961 vide Assessing Officer [AO] order dated 30/12/2011 at Rs.38,50,730/- after disallowance of Rs.23.00 Lacs u/s 68 on account of Share Application money as against returned income of Rs.15,50,732/- filed by assessee on 28/10/2004. The assessment was reopened by issuance of notice u/s 148 dated 31/03/2011 which was duly served on the assessee. As per the reasons recorded, the reopening was triggered pursuant to search operation conducted u/s 132 on 26/04/2007 on a person namely Giriraj Vijayvargiya [G.V.] who admitted to having provided accommodation entries in the form of gifts, Sweet Marketing (India) Private Limited Assessment Year-2004-05 loans and share application money from financial Year 1999-2000 to 2005-06 in exchange of cash against commission of 2-3.5%. It was seen that various concerns controlled by Vikas Berlia introduced unaccounted money in the form of shares allotted to Giriraj Vijayvargiya and his family members. Accordingly, AO had formed a belief that the share application money received by group concerns of Vikas Berlia were involved in introducing unaccounted money in the form of bogus share capital and consequently income assessable to tax has escaped assessment. The assessee, being part of group companies of Vikas Berlia, was also subjected to reassessment as upon perusal of its Balance Sheet as on 31/03/2003 and 31/03/2004, it was observed that the paid up capital and reserves increased by Rs.39,15,048/- which led the AO to believe that the assessee introduced unaccounted income in the books in the form of bogus Share Application money / Share Capital. The assessee objected to reopening on the ground that no application money was ever received from the said persons / group during impugned AY. Further, the assessee explained that Share Application money of Rs.23.00 Lacs was received from two applicants namely B.P.Choudhary and Saroj Choudhary and to confirm the same, notices u/s 133(6) were issued to the two applicants and certain details were called from the assessee also. After perusing the replies / submissions and factual matrix, the Ld. AO came to the conclusion that the said amount of Rs.23.00 Lacs was bogus transaction and therefore, added to the income of the assessee u/s 68.

1.

Sweet Marketing (India) Private Limited Assessment Year-2004-05 4. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 30/01/2013 where the assessee could not substantiate its claim. Aggrieved, the assessee is in appeal before us.

5.

At the outset, the Ld. Counsel for assessee [AR] has assailed the reopening on legal ground by stating that the reopening has been done merely on the basis of the statement of a third party where the said party admitted to have entered into accommodation entries by way of share application money with the assessee in sharp contrast to the fact that the assessee never received any share application money from the said party / group in the impugned AY and therefore, the very basis of reopening stood vitiated and reflects non-application of mind on the part of the AO. Our attention is also drawn to the fact that on similar facts and circumstances, reopening has been quashed by the Tribunal in assessee’s own case for AY 2003-04, the copy of which have been placed before us.

6.

Per contra, the Ld. Departmental representative placed reliance on the stand of lower authorities and contended that the original return was processed u/s 143(1) and therefore, only one condition viz. reasons to believe that the income has escaped assessment was required to be fulfilled by the AO to initiate reassessment which apparently has been fulfilled and therefore, the reopening was perfectly valid. Our attention has been drawn to the fact that the third party categorically admitted to having provided accommodation entries in the form of Share Application Sweet Marketing (India) Private Limited Assessment Year-2004-05 money in exchange of cash, which in itself, was sufficient to reopen the assessment at that stage.

7.

We have heard the rival contentions and perused relevant material on record. So far as the condition of reopening is concerned, we are in agreement with the Ld. DR that since original return was processed u/s 143(1), only one conditions viz. reasons to believe that the income has escaped assessment was required to be fulfilled by the AO and nothing more. However, it is also well settled principle that the AO must be in possession of some tangible material so as to justify the reopening and that material should lead to formation of belief on the part of the AO that certain income has escaped assessment and also the material should have live link with the formation of the belief, which in our opinion is missing in the instant case. From the material on record, it is clear that the assessee has not received any share application money from the said group rather it has received share application money from two persons namely B.P.Choudhary and Saroj Choudhary. The revenue could not bring on record any linkage of these two persons with G.V. and his group. The only basis of initiating reassessment proceedings seems to be the statement made by G.V. who admitted to having advanced accommodation entries to the assessee in exchange for cash against commission. But, we find no nexus between the statements of the G.V. vis-à-vis assessee’s share applicants. Therefore, prima facie the primary condition of initiating reassessment proceedings in the instant case is not fulfilled. Our view is further fortified by the decision of co-ordinate bench of this Tribunal in assessee’s own case for AY 2003-04 Sweet Marketing (India) Private Limited Assessment Year-2004-05 vide order dated 31/12/2014 where the Tribunal, in similar circumstances, at Page No. 11 has made the following observations:-

Thus it is clear that though the sufficiency of evidence or material for forming the belief is not open to scrutiny but the existence of belief is must for a valid exercise of power. If it impossible for any prudent person to form a belief on the basis of material or evidence that the income chargeable to tax has escaped assessment and reason which has been recorded would not lead to a prudent person to form an opinion that the income has escaped assessment within the meaning of section 147 then the action of the Assessing officer in reopening the assessment u/s 147/148 is contrary to the powers permitted under the said provisions of the Act. In the case in hand, the reasons recorded by the Assessing Officer do not indicate even a remote nexus between the application money received by the assessee with the alleged accommodation entries provided by Shri Giriraj Vijayvargiya or the alleged beneficiary of the accommodation entries. Accordingly, in the facts and circumstances of the case, we hold that the reopening in these cases are notvalid and consequently the same is quashed.”

Therefore, following judicial precedent and even on factual matrix, we set aside the assessment order, being devoid of valid jurisdiction.

8.

Since we have quashed reassessment proceedings, the other grounds raised in the appeal become infructuous.

9.

Resultantly, the assessee’s appeal stand allowed in terms of our above order. Order pronounced in the open court on 07th June, 2017.

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