KALINDEE ESTATES PRIVATE LIMITED,JAIPUR vs. INCOME TAX OFFICER , JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 770/JP/2024 fu/kZkj.k o"kZ@Assessment Years : 2010-11 cuke Kalindee Estates Private Ltd., Income Tax Officer, Vs. C4 Silver Oak, SJS Highway Jaipur Banipark, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCA 3399 J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Tarun Mittal, CA jktLo dh vksj ls@ Revenue by : Sh. Anup Singh, Addl. CIT lquokbZ dh rkjh[k@ Date of Hearing : 24/09/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 21/10/2024 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM

The present appeal is because the assessee was aggrieved from the finding so recorded in the order of National Faceless Appeal Centre, Delhi dated 16/04/2024 [here in after ‘CIT(A)/NFAC’] for assessment year 2010- 11. The said order of the ld. NFAC / CIT(A) arise as against the order dated 28.12.2017 passed under section 143(3) r.w.s. 147 of the Income Tax Act, [for short Act] by ITO, Ward-3(2), Jaipur [ for short AO].

“1. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in passing appellate order without even considering the detailed submission and all the supporting documents furnished by assessee and solely relying upon the order passed by ld.AO. Appellant prays that order so passed is against the principle of natural justice and deserves to be set aside and consequent addition deserve to be deleted

1.1 On the facts and in the circumstances of the case and in law, ld. CIT(A) has erred in making observations in money routed back which is not at all backed/supported by any evidence brought on recorded by ld. AO and ld. CIT(A).

2. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the action of ld. AO in re-opening the assessment of the assessee u/s 147 of the Act arbitrarily.

2.1 That, ld. CIT(A) has further erred in confirming the reopening of assessment solely on the basis of statements of Shri Suresh Kumar Jain ( a third party, not related to assessee in any manner) recorded during the course of survey conducted at M/s Satyatej Vyapaar Pvt. Ltd. by the Investigation Wing of Income – Tax, Kolkata. Appellant prays that the case has been reopened by ld.AO on borrowed satisfaction and without independent application of mind, which is not in accordance with law and order so passed deserves to be quashed.

3. On the facts and in the circumstances of the case and in law, ld. CIT(A) has erred in not giving clear findings, i.e., neither deleting the addition nor, at worst to the assessee, confirming the addition. Thus ld. CIT(A) has passed the order in very casual manner and thereby addition deserves to be deleted on this ground also.

3.1. On the facts and in the circumstances of the case and in law, ld.CIT(A) has grossly erred in confirming addition of Rs.1,50,00,000/- made by ld.AO u/s 68 of the Income Tax Act, by alleging the Share Application money received by assessee as bogus. Appellant prays that first proviso to Section 68, whereby addition on account of Share Application Money/ Share Capital can be made, stood inserted to the statue book, by Finance Act 2012, w.e.f.1.4.2013 and therefore that addition made by ld.AO on account of Share Application Money u/s 68 for the year under consideration, is not in accordance with law and deserves to be deleted.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) grossly erred in confirming the action of ld. AO, in treating the share application money of Kalindee Estates Pvt. Ltd vs. ITO Rs, 1,50,00,000/- received by assessee company from M/s Satyatej Vyapaar Pvt. Ltd. as undisclosed income of the assessee company arbitrarily. 4.1 That the ld. CIT(A) has erred in confirming the addition made by ld. AO, by heavily relying upon the statements of third party, recorded in other case, behind the back of assessee and without providing opportunity of cross examination to assessee, which is against the principles of natural justice and therefore addition deserves to be deleted. 4.2 That the ld. CIT(A) has erred in confirming the addition made by ld. AO, by heavily relying upon the statements of third party, which stood retracted subsequently. Appellant prays that copy of Retraction affidavit was furnished before both Ld. AO and Ld. CIT(A)., which stood uncontroverted, therefore addition so made deserves to be deleted. 4.3 That, the Ld. CIT(A) further erred in confirming the addition made by ld. AO by brushing aside the complete details and supporting evidences in the shape of Bank Statement, Confirmation etc furnished by assessee, which duly established that Share Application Money received by assessee is genuine. Appellant prays that addition of Rs. 1,50,00,000/- made by ld. AO without rebutting submission and evidences furnished by assessee and further without bringing any cogent material on record in support of addition made, deserves to be deleted.

5. On the facts and in the circumstances of the case and in law, ld. CIT(A) further erred in confirming the action of Ld. AO in making addition of Rs.7,50,000/- by presuming that assessee company might have made payment for obtaining alleged accommodation entry of Rs. 1,50,00,000/- in the form of Share Application money. Thus addition made purely on presumptions and surmises, deserves to be deleted.

6. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.”

3. Succinctly, the fact as culled out from the records is that during the course of verification conducted by the Investigation Wing of Income-tax, Kolkata in respect of Bank account No. 4342000100075001 in the name of M/s Satyatej Vyapaar Pvt Ltd. for the period 01.04.2009 to 31.03.2010, it has been unearthed that the RTGS/transfer credit in the bank account of number of accounts. It has been gathered that the Shri Chandan Chakrborty was a dummy Director of Satyatej Vyappaar Pvt Ltd. The alleged bank account has been used for the purposes of providing accommodation entries of bogus purchases as well in the guise of loan to various other companies. It has also been gathered that during F.Y. 2009- 10 LMJ Group of Companies had transferred fund to the tune of Rs.

108,67,95,000/- to the account of Satyatej Vyappar Pvt Ltd., a paper company, in the form of Bogus Expenses through bogus billing. Such bogus expenses debited by LMG Group are transferred to the account of group company M/s Avon Vanijya Pvt Ltd. for layering of fund and further accommodation entry to other beneficiary company and subsequently cash received from such other beneficiaries were returned back to LMJ Group. It has been found that the assessee viz. M/s Kalindee Esates Pvt Ltd. is one of such beneficiaries who has received accommodation entries of Rs. 75,00,000/- from M/s Satyatej Vyapaar Pvt Ltd. on 02.03.2010; Rs. 25,00,000/- on 04.03.2010 and Rs. 50,00,000/-on 05.03.2010, totaling to Rs. 1,50,00,000/- The said fact is evident from the Bank statement of M/s Satyatej Vyappar Pvt Ltd., since these being accommodation entries and assessee-company's own unaccounted funds have been routed back in its these facts, proceedings under section 147 of the Act were initiated by issue of a Notice under sec. 148 of the Act dated 30.03.2017. In response to the above Notice, the assessee has filed return of income declaring total income at Rs. NIL on dated 08.08.2017. The assessee vide letter dated 09.08.2017 raised objection against initiation of proceedings under section

The assessee has placed the facts on record in such a manner to favour him. However, on going through the aforesaid contention it has been found by the ld. AO that the assessee was in touch with M/s Satyatej Vyapar indicates that (i) how the assessee came into touch with the assessee.

Moreover, it is not clear from the contention of the assessee as whether the assessee was having any business relations with M/s Satyatej Vyapar Private Limited, (ii) The assessee states that M/s Satyatej Vyapar Private Limited were allotted shares against the Share application of M/s Satyatej Vyapar Private Limited. However, no such Share application was brought on the records. (iii) The assessee has also not brought any fact on record as what process was adopted for inviting applications for proposed allotment of shares. (iv) Even the assessee failed to state the Date of such Share Application and the Date of allotment of shares so allotted. (v) The creditworthiness of the investor in the instant case has remained unproven.

It is pertinent to mentioned that the present proceedings have been initiated in view of unproven creditworthiness of the assessee. Investigation Wing of Income-tax Department at Kolkata has already made necessary enquiries in the case of assessee and passed the said information to ITO, Ward 3(2), Jaipur where the assessee is being assessed. The case law as cited by the assessee of M/s Lovely Exports (P) Ltd 317 ITR 218 over which the assessee has relied upon is of no help to the assessee. Since it is a distinguishable in the case of the assessee and the ratio thereof cannot be its action mainly be taking following pleas:- i. The identity, genuineness and capacity of the investor. ii. Assessment of M/s Satyatej Vyapar Pvt. Ltd. has been completed by ITO, Ward 5(1), Kolkata under sec. 147/143(3) wherein bank entries of M/s Satyatej Vyapar Pvt. Ltd. has been considered and no adverse inference has been drawn by the ld. AO. From the investigations made by the Investigation Wing of Income-tax Department, Kolkata it is evident that M/s Satyatej Vyapar Pvt. Ltd. is merely a paper company with Dummy directors engaged in providing accommodating entries. There are no business relations of the assessee with M/s Satyatej Vyapar Pvt. Ltd. except of passing accommodation entries to the assessee. The ld. AO also noted that considering that aspect provision of section 68 is applicable even to share application money. Use of the words "any sum found credited in the books" indicates that the section is widely worded and AO is not precluded from making enquiry as to the true nature and source thereof even if the sum is credited as share application money. In this regard reliance is placed over the following judgments:-

CIT Vs Sophia Finance Limited (Del-FB) 205 ITR 98 CIT Vs Nivedan Vanijyya Niyojan Ltd. (Cal) 263 ITR 623 has been completed by ITO, Ward 5(1), Kolkata under section 147/143(3) wherein bank entries of M/s Satyatej Vyapar Pvt. Ltd. has been considered and no adverse inference has been drawn by the Ld. AO. However, on going through the said assessment order it has been noticed that the proceedings under section 147 were initiated under the belief that the assessee set-off loss on account of Client Code Modification (CCM) of Rs.36,48,517/. Thus, it is evident that the Assessing Officer has examined the case to the extent to the scope of reason to believe' only.

In view of the investigation made by the Investigation of Income-tax Department as well as the admission made by Shri Suresh Kumar Jain, it has become crystal clear that the assessee has obtained share application money amounting to Rs. 1,50,00,000/- during A.Y. 2010-11, in the shape of share capital from M/s Satyatej Vyapar Pvt. Ltd., Kolkata was treated as accommodating entry and accordingly, the said amount of Rs.

1,50,00,000/- added to its total income.

4. Aggrieved from the order of Assessing Officer, assessee preferred an appeal before NFAC/ CIT(A). Apropos to the grounds so raised the relevant finding of the NFAC / CIT(A) is reiterated here in below:

Kalindee Estates Pvt. Ltd vs. ITO “1. In Ground no. 1 & 2, the assessee objects to reopening the case u/s 147. As per the information received from Investigation Wing, Kolkatha, the assessee is one of the beneficiaries of who received accommodation entries totalling to Rs. 15000000. The said fact is evident from the bank statement of M/s Satyatej Vyappaar Pvt.Ltd. As these are accommodation entries, company's own unaccounted funds have been routed back in its books of account on which assessee has not paid due taxes. Thus the case was reopened on the basis of a valid reason. The assessee's grounds against reopening of the case are dismissed.

2. Ground no.3 objects to adding Rs.15000000 by treating the share application money as unexplained cash credit u/s 68. Almost all the transactions in the alleged bank account are related to bogus purchases entries given to LMJ group M/s Satyatej Vyappaar Pvt.Ltd. Kolkatha is a bogus company & it director is a Dummy. Therefore, the assessee company is considered to be a beneficiary of receiving accommodation entries in the shape of share capital.

3. Further, a sum of Rs. 750000 being 5% of total bogus entry of Rs.15000000 is added to the total income as commission paid for obtaining accommodation entries. The action of the AO is fully justified. The addition of Rs.750000 is confirmed.

4. Ground no. 6 is general in nature and does not require any separate adjudication.

5. The appeal filed by the assessee is dismissed.”

5. As the assessee did not find any favour, from the appeal so filed before the ld. CIT(A)/NFAC, the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. To support the various grounds so raised by the assessee, ld. AR of the assessee has filed the written submissions and the same is reproduced herein below:

“Briefly stated facts of the case are that the assessee is a private limited company incorporated under the provisions of the Companies Act, 1956 and has filed its return of income for the year under appeal on 29.09.2010 declaring total income at Rs. Nil/-. Subsequently, case of assessee was reopened on the basis of information received by ld.AO from the office of DGIT (Inv.) Kolkata, wherein Investigation Wing reported that one Shri Suresh Kumar Jain was indulged in Kalindee Estates Pvt. Ltd vs. ITO Kalindee Estates Pvt. Ltd vs. ITO providing accommodation entries in the form of bogus share appl providing accommodation entries in the form of bogus share appl providing accommodation entries in the form of bogus share application money through M/s Satyatej Vyapaar Pvt. Ltd. which is controlled and managed by him. through M/s Satyatej Vyapaar Pvt. Ltd. which is controlled and managed by him. through M/s Satyatej Vyapaar Pvt. Ltd. which is controlled and managed by him. On the basis of said information from office of ld. DGIT (Inv), it was presumed by On the basis of said information from office of ld. DGIT (Inv), it was presumed by On the basis of said information from office of ld. DGIT (Inv), it was presumed by ld. AO that share application money worth Rs. 1,50,00,000/ ld. AO that share application money worth Rs. 1,50,00,000/- received by assessee received by assessee from aforesaid company is also the accommodation entry obtained to reroute from aforesaid company is also the accommodation entry obtained to reroute from aforesaid company is also the accommodation entry obtained to reroute unaccounted money. In response to notice issued u/s 148, assessee filed return unaccounted money. In response to notice issued u/s 148, assessee filed return unaccounted money. In response to notice issued u/s 148, assessee filed return of income on 08.08.2017 declaring total Income of Rs. Nil. Various details as of income on 08.08.2017 declaring total Income of Rs. Nil. Various details as of income on 08.08.2017 declaring total Income of Rs. Nil. Various details as sought by ld.AO were sought by ld.AO were furnished and assessment was completed u/s 147 r.w.s. furnished and assessment was completed u/s 147 r.w.s. 143(3) of the Act after making addition to the tune of Rs. 1,50,00,000/ 143(3) of the Act after making addition to the tune of Rs. 1,50,00,000/ 143(3) of the Act after making addition to the tune of Rs. 1,50,00,000/- viz. entire amount of share application money from M/s Satyatej Vyapaar Pvt. Ltd. by treating amount of share application money from M/s Satyatej Vyapaar Pvt. Ltd. by treating amount of share application money from M/s Satyatej Vyapaar Pvt. Ltd. by treating the same as Unexplained cash credit the same as Unexplained cash credit u/s 68 and addition of Rs. 7,50,000/ u/s 68 and addition of Rs. 7,50,000/- by alleging that assesse had paid commission @ 5% rate for arranging such alleging that assesse had paid commission @ 5% rate for arranging such alleging that assesse had paid commission @ 5% rate for arranging such accommodation entry. accommodation entry.

Aggrieved of the addition so made by ld.AO, assessee has preferred appeal Aggrieved of the addition so made by ld.AO, assessee has preferred appeal Aggrieved of the addition so made by ld.AO, assessee has preferred appeal before ld. CIT(A), wherein ld. CIT(A) dismisse before ld. CIT(A), wherein ld. CIT(A) dismissed the appeal of assessee in casual d the appeal of assessee in casual manner without considering the submission made, evidence adduced before him manner without considering the submission made, evidence adduced before him manner without considering the submission made, evidence adduced before him and not even providing the clear findings. and not even providing the clear findings.

Aggrieved by the order of ld. CIT(A), assessee company has preferred a present Aggrieved by the order of ld. CIT(A), assessee company has preferred a present Aggrieved by the order of ld. CIT(A), assessee company has preferred a present appeal before the Hon’ appeal before the Hon’ble Bench.

Grounds of Appeal Nos. 1 to 1.1: Grounds of Appeal Nos. 1 to 1.1: In these grounds of appeal assessee has challenged the action of ld. CIT(A) in In these grounds of appeal assessee has challenged the action of ld. CIT(A) in In these grounds of appeal assessee has challenged the action of ld. CIT(A) in passing the 3 page order without considering the submission of assessee, and by passing the 3 page order without considering the submission of assessee, and by passing the 3 page order without considering the submission of assessee, and by solely relying upon the order passed by the ld. AO. solely relying upon the order passed by the ld. AO.

At this juncture screenshots of Income Tax Portal is reproduced which clearly At this juncture screenshots of Income Tax Portal is reproduced which clearly At this juncture screenshots of Income Tax Portal is reproduced which clearly reflects that assessee has uploaded the written submission along with 8 reflects that assessee has uploaded the written submission along with 8 reflects that assessee has uploaded the written submission along with 8 Annexures totalling to 135 pages in support of grounds of appeal taken by it Annexures totalling to 135 pages in support of grounds of appeal taken by it Annexures totalling to 135 pages in support of grounds of appeal taken by it—

On perusal of it is clearly evident that assessee has filed a detailed written On perusal of it is clearly evident that assessee has filed a detailed written On perusal of it is clearly evident that assessee has filed a detailed written submission along with 8 Annexures vide response dated 24.02.2024 in support of submission along with 8 Annexures vide response dated 24.02.2024 in support of submission along with 8 Annexures vide response dated 24.02.2024 in support of grounds of appeal taken by assessee However ld. CIT(A) without taking into grounds of appeal taken by assessee However ld. CIT(A) without taking into grounds of appeal taken by assessee However ld. CIT(A) without taking into cognizance of the same cognizance of the same concluded the appellate proceedings by passing an order concluded the appellate proceedings by passing an order on 16.04.2024 wherein very generalised remarks have been made that too without on 16.04.2024 wherein very generalised remarks have been made that too without on 16.04.2024 wherein very generalised remarks have been made that too without any basis and moreover no clear findings is given as to that how the assessee any basis and moreover no clear findings is given as to that how the assessee any basis and moreover no clear findings is given as to that how the assessee contentions are wrong. It is submitted that contentions are wrong. It is submitted that ld. CIT(A) has more than 2 months of ld. CIT(A) has more than 2 months of time available with it to consider the submission of 24 pages and 8. Annexures filed time available with it to consider the submission of 24 pages and 8. Annexures filed time available with it to consider the submission of 24 pages and 8. Annexures filed by assessee vide response dated 24.02.2024 before passing the order on by assessee vide response dated 24.02.2024 before passing the order on by assessee vide response dated 24.02.2024 before passing the order on 16.04.2024, which ld. CIT(A) failed to consider and passed the 16.04.2024, which ld. CIT(A) failed to consider and passed the 16.04.2024, which ld. CIT(A) failed to consider and passed the order in mechanical Kalindee Estates Pvt. Ltd vs. ITO manner. Therefore order passed by ld. CIT (A) confirming the action of ld. AO is against the law and addition confirmed on the basis of such order deserves to be deleted.

Grounds of Appeal Nos. 2 to 2.1: In these grounds of appeal, assessee has challenged the reopening of assessment u/s 147 of the Income tax Act, solely on the basis of information received from the DDIT (Inv.) Kolkata.

Facts pertaining to the grounds of appeal are that the case of assessee was reopened on the basis of following information:

“REASONS FOR INITIATING PROCEEDINGS UNDER SECTION 148:

As per verification conducted by the Directorate of Income Tax (Inv.), Kolkata in respect of bank account No. 4342000100075001 in the name of M/s Satyatej Vyapaar Pvt. Ltd. for the period 1.4.2009 to 31.03.2010,

It has been unearthed that the RTGS/transfer credits in the bank account of Satyatej Vyapaar Pvt. Ltd. were followed by transfers of funds to number of accounts. It has been gathered that the Chandan Chakraborty was a dummy director of Satyatej Vyapaar Pvt. Ltd. who opened the alleged bank account for the purpose of providing accommodation entries of bogus purchases as well in the guise of loan to various other companies. It has also been gathered that during F.Y. 2009-10 one LMJ group of companies had transferred fund to the tune of Rs. 108,67,95,000/- to the account of Satyatej Vyapaar Pvt. Ltd., a paper company, in the form of Bogus Expenses through bogus billing. Such bogus expenses debited by LMG Group are transferred to the account of his group company M/s Avon Vanijya Pvt. Ltd. for layering of fund and further accommodation entry to other beneficiary company and subsequently cash received from such other beneficiaries were returned back to LMJ group.

One of such beneficiaries is M/s Kalindee Estates Pvt. Ltd. who received accommodation entry of Rs. 75,00,000/- from M/s Satyatej Vyapaar Pvt. Ltd. on 02.03.2010, Rs. 25,00,000/- on 4.3.2010 and Rs. 50,00,000/-on 5.3.2010, totalling to Rs. 1,50,00,000/- as is evident from the bank statement of M/s Satyatej Vyapaar Pvt. Ltd. This being an accommodation entry and assessee-company's own unaccounted funds have been routed back in its books of account, on which assessee has not paid due taxes. Accordingly, it is evident that the assessee-company has failed to make true and full disclosure of its income. Thus, I have reason to believe that income of Rs.1, 50, 00,000/- has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. Therefore, it is a fit case for issuance of notice u/s148 of the LT. Act, 1961 for A.Y. 2010-11. In view of the above reasons, it is requested that necessary approval as laid down under sub section (2) of section 151 of the I.T.Act, 1961 may kindly be accorded.”

Thereafter, in Assessment Order dated 28.12.2017, Ld. AO has referred the statement of the Shri Suresh Kumar Jain and discussed general modus operandi and thereafter alleged that assessee had also routed undisclosed income through aforesaid entities which are controlled/ managed by Shri Suresh Kumar Jain without establishing any nexus of assessee with the said Suresh Kumar Jain. Ld.AO has alleged that assessee has routed unaccounted money by taking accommodation entry in the form of Share application money from the dummy companies controlled and managed by Shri Suresh Kumar Jain. Thus, basically ld.AO has not conducted any independent enquiries specific to the facts of assessee’s case as to how assessee has routed undisclosed income nor any evidence has been brought on record by Ld. AO, which proves that share application money received by assessee from M/s Satyatej Vyapaar Pv.t Ltd. were accommodation entry through entry provider Suresh Kumar Jain.

From perusal of above, it is also evident that assessment was reopened by ld. AO solely on the basis of information received from the Investigation Directorate. In fact, ld.AO has not even formed a belief as to how transaction of assesse is not genuine and how it amounts to accommodation entry. He has simply reproduced the contents as mentioned in the information supplied to him, based on which he initiated the reassessment proceedings. On receiving reasons recorded, the assesse raised objections against reopening vide letter dated 09.08.2017 primarily objecting to recording of reasons done in a mechanical manner, i.e. on discussion of general information and modus operandi of entry providers and not specifically mentioning as to how transaction of assessee was also accommodation entry & how funds have been routed for such alleged accommodation entry. Also, neither statements recorded nor any such document, wherein name of assessee was appearing, was supplied to the assessee.

It is further relevant to state that ld. AO disposed-off the objection raised by assessee vide notice dated 09.08.2017 in mechanical manner, wherein ld.AO straightaway solely relied upon the information received from Investigation wing and repeated the same. It simply shows that Ld.AO himself was not sure while forming his belief for re-opening, as to whether there was actually escapement of Income or not. On perusal of aforesaid para, it is relevant that ld. AO formed belief regarding escapement of income solely on the basis of information supplied by investigation wing and without cross verifying the same/making enquiries as to how transaction of assessee was also accommodation entry/how funds have been routed for such alleged accommodation entry.

It is thus clear that case was solely reopened on the basis of generalized information and there was no specific information, which could prove that transactions of assesse were accommodation entries. It is submitted that the Ld. AO ought to have considered the issue objectively and not on the so called information received from some other official, therefore, the action of the ld. AO in The Hon’ble Gujrat High Court in the case of Seth Brothers Vs. CIT reported in 169 CTR 519 has laid down following principles for the re-opening of the assessment u/s 148 of the Income Tax Act, 1961: (Reproduced in 28 TW 57,79) “11(a) There must be material for belief (b) Circumstances must exist and cannot be deemed to exist for arriving at an opinion. (c) Reason to believe must be honest and not based on suspicion, gossip, rumour or conjuncture. (d) Reasons referred must disclose the process of reasoning by which he holds ‘reasons to believe’ and change of opinion does not confer jurisdiction to reassess. (e) There must be nexus between material and belief. (f) The reasons referred must show application of mind by the assessing officer. The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the officer at the point of time of issue of notice u/s 148 and cannot be sought to be substantiated by reference to material that may have come to light subsequently in the course of reassessment proceedings. In the light of what is stated above, we hold that there was no material with the AO for having reasons to believe that the income as chargeable to tax, has escaped assessment. We are unable to hold that the jurisdiction assumed u/s 147/148 was legal and valid.”

It is further submitted that the validity of initiation of reassessment proceedings has to be judged with regard to the material available with the assessing officer and that too by framing the opinion strictly based on the documents and information in his possession, that certain income has escaped assessment and not in a mechanical manner as has been done in the case in hand. The re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction deserves to be held illegal. In this regard reliance is placed on the decision of Hon’ble Delhi High court in case of Sarthak Securities Co. Pvt. Ltd. Vs. ITO reported in 329 ITR 110 wherein it has been held as under: Reassessment – Notice – Condition precedent – Formation of belief that income escaped assessment – Assessing Officer treating share application money as bogus accommodation entries – Payments through banking channel and companies investing money genuine – No independent application of mind by Assessing Officer but acting under information from investigation wing – Notice to be quashed – Income Tax Act, 1961, ss. 147, 148.

Uma Strips Ltd. vs DCIT 3284/Del/2019 decision dated 11.05.2022 (Delhi ITAT) (decision para reproduced):

Kalindee Estates Pvt. Ltd vs. ITO 9. From the above, we find that there is no live link presented by the AO between the material available with him i.e. the report of the investigation and to reason to belief that the assessee has tried to evade the assessment for the particular year in question. Simply stating and doubting that the assessee is involved in obtaining accommodation entries without providing proof, reason, information to back-up the claim cannot be considered as a valid reason to issue notice u/s 148 of the I.T. Act. There is no independent application of mind that could be deciphered from the reasons recorded. There is no reference to examination of the returns filed and whether the entries taken or on account of bogus application, a balance sheet item or on account of bogus sales or purchases on account of revenue account. As per the record and the reasons recorded, no enquiries have been conducted by the Assessing Officer to come to a conclusion or reasons to belief with regard to evasion of tax which has escaped assessment.

11. Hence, we hold that the proceedings u/s 148 of the I.T. Act are void ab initio and are liable to be quashed.”

In case of PCIT vs. RMG Polyvinyl (I) Ltd [2017] 83 taxmann.com 348 (Delhi) it was held by the Hon’ble Delhi High court that where information was received from investigation wing that assessee was beneficiary of accommodation entries but no further inquiry was undertaken by Assessing Officer, said information could not be said to be tangible material per se and, thus, reassessment on said basis was not justified

In case of PCIT vs. Meenakshi Overseas (P.) Ltd. [2017] 82 taxmann.com 300 (Delhi) it was held by the Hon‘ble Delhi High court that where reassessment was resorted to on basis of information from DIT(Investigation) that assessee had received accommodation entry but and there was no independent application of mind by Assessing Officer to tangible material and reasons failed to demonstrate link between tangible material and formation of reason to believe that income had escaped assessment, reassessment was not justified } In case of Haryana Acrylic Manufacturing Co. v. CIT [2008] 175 Taxman 262 (Delhi) it was held by the Hon‘ble Delhi High Court that notice under section 148, giving reason that it had come to his notice that assessee had taken accommodation entries from 'H' during relevant year when assessee, in course of original assessment proceedings, had supplied all relevant details; in assessment order which were verified and moreover, in reasons supplied to assessee there was no allegation that it had failed to disclose fully and truly all material facts necessary for assessment and because of its failure there had been an escapement of income chargeable to tax, reopening of assessment after expiry of four years from end of relevant assessment year was without jurisdiction.

It is further relevant to state that ld. CIT(A) during the course of appellate proceedings without adjudicating on the legal ground and solely on the basis of information of third party, treated re-assessment proceedings as valid and consequently confirmed the additions made by ld. AO. Thus in the circumstances it is submitted that there was no independent application of mind neither by Ld. AO while issuing notice u/s 148 nor by ld. CIT(A) while passing the order. They simply proceeded on borrowed satisfaction formed by some other officials on the basis of survey conducted and statements recorded in the case of third party, the same has no evidentiary value, therefore, the entire proceedings initiated u/s 148 deserves to be held bad in law and thus order deserves to be quashed.

Grounds of Appeal No. 3 to 3.1 & 4 to 4.3: In these grounds of appeal assessee has collectively challenged the action of ld. CIT(A) in confirming the action of ld. AO in making the addition of Rs. 1,50,00,000/- on account of treating the share application money received from M/s Satyatej Vyapaar Pvt. Ltd. as undisclosed income of assessee and thus same are canvassed together.

Brief facts pertaining to this ground of appeal is that the case of the assessee company was reopened u/s 148 of the Income Tax Act, 1961, based on alleged information supplied by the investigation wing of the department wherein it was informed to the Ld. AO that during the year under consideration assessee company has received alleged accommodation entries in the form of share application money of Rs. 1,50,00,000/- from M/s Satyatej Vyapaar Pvt. Ltd. which is allegedly controlled/managed by the Shri Suresh Kumar Jain. It is again reiterated that assessee’s case was reopened solely on the basis of statement of unrelated party and there was no specific information, which could prove that transactions of assessee were accommodation entries. Thus re-opening of the case based on the borrowed satisfaction on the information provided by some other official without in any manner recording his own independent satisfaction is against the law and order passed u/s 148 deserves to be quashed and consequent additions deserve to be deleted. It is further submitted that during the course of assessment proceedings as well as appellate proceedings assessee submitted necessary evidences regarding receipts of share application money from the above parties before the Ld. AO as well as Ld. CIT(A) details of which are summarized as under—

1. Copy of documentary evidences to prove identity, creditworthiness and genuineness of M/s Satyatej Vyapaar Pvt. Ltd. a. Copy of Form 2 filed by Assessee Company before Ministry of Corporate Affairs 48a – 48e b. Copy of List of Allottees along with Board Resolution passed by Assessee Company 48f – 48g c. Copy of Bank Statement reflecting payment made to Assessee Company 48h – 48i d. Copy of Confirmations from M/s Satyatej Vyapaar Pvt. Ltd. 48j – 48k e. Copy of NBFC Registration Certificate of M/s Satyatej Vyapaar Pvt. Ltd. 59 Copy of Director Report, Independent Auditor Report & Audited Financial Statement of f. 60 - 65 M/s Satyatej Vyapaar Pvt. Ltd. Copy of Assessment Order passed in the case of M/s Satyatej Vyapaar Pvt. Ltd. for g. 66 - 68 A.Y. 2010 - 11

At this juncture, provisions of section 68 are reproduced for the sake of convenience: “68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share application, share premium or any such amount by whatever name called, any explanation offered by such assessee- company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory”

It is further relevant to state that First Proviso to Section 68 wherein addition on account of Share Application Money/ Share Application can be made, stood inserted to the statue book, by Finance Act 2012, w.e.f. 01.04.2013 and therefore considering the explanations about the nature and source of share application money so furnished by assessee by the way of various documents as above addition made by ld. AO on account of Share Application Money u/s 68 for the year under consideration is not in accordance with law and deserves to be deleted as the assesse is not required to prove the source of source because such provision was subsequently inserted by Finance Act 2012 w.e.f. 01.04.2013.

In this regard reliance is being place on the decision of Hon’ble Bombay High Court in the case of Commissioner of Income Tax – 1 vs. M/s Gagandeep Infrastructure Pvt. Ltd. reported in 394 ITR 680, wherein it is held as under— “(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Kalindee Estates Pvt. Ltd vs. ITO Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.”

Further reliance is being place on the decision of Hon’ble Bombay High Court (Nagpur Bench) in the case of Principal Commissioner of Income Tax vs. M/s Apeak Infotech and Ors. reported in 397 ITR 148, wherein it is held as under— “8. Regarding Question B: (a) We find ……………………………………………………………… ……. (b) It is further pertinent to note that the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the respondent-assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT v. Gagandeep Infrastructure Pvt. Ltd. (Income Tax Appeal No. 1613 of 2014, dated March 20, 2017) MANU/MH/1274/2017 : [2017] 394 ITR 680 (Bom) has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and would be effective only from the assessment year 2013-14.”

Further from the perusal of section 68, it is evident that assessing officer can make addition u/s 68 only under two circumstances, i.e.: (i) Appellant does not offer any explanation about nature and source of such credit or (ii) Explanation offered by Appellant is not upto the satisfaction of Ld. AO.

Kalindee Estates Pvt. Ltd vs. ITO In other words, whenever Appellant provides explanation, before rejecting the same ld. AO has to record dissatisfaction as to why the explanation furnished by Appellant is not acceptable.

In the instant case, Appellant has not only offered explanation regarding nature and source of credits but also substantiated the same with documentary evidences in the shape of PAN, Confirmations, Return of Allotment Form (Form 2), Board Resolution, Bank Statement, Audited Financial Statement and NBFC Registration from RBI of the investor company which were not at all doubted by ld. AO but all such vital evidences have been ignored solely on the basis of statements of third party recorded by some other officials during the course of search & survey operation conducted in his case. These were recorded behind the back of assessee and moreover opportunity of cross examination was not provided.

It is submitted that ld. AO further erred in ignoring the fact the Assessee has already discharged his initial onus laid down u/s 68 of Income Tax Act. By proving the 3 main ingredients of loans as under:-

(i) Identity:- The identity of investors stood proven as details of PAN card along with Audited Financial Statement, NBFC Registration Certificate and copies of bank statement and other documentary evidences already shared. Hon’ble Rajasthan High Court in the case of Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199 has held that once the existence of the creditors is proved and such persons own the credits, the Assessee’s onus stands discharged and the assessee is not required to prove the source from which the creditors could have acquired the money deposited with him. Hon’ble jurisdictional High Court has held that merely because the depositors’ explanation about the sources of money was not acceptable to the AO, it cannot be presumed that the deposit made by the creditors is money belonging to the assessee itself.

(ii) Genuineness of Transaction:- The assessee has filed confirmation letter from the investor. The assessee also filed copy of account statement of investor company wherein the amount of payment is reflected in bank statement.

(iii) Capacity proved:- The assessee has also filed copy of bank statement of the investors which shows huge number of transaction of high value. There is no onus on the assessee to prove source of source. Once the assessee is able to establish that he has in fact received money from third party, it can’t be burdened with further onus of establishing the source from which such third party had been able to obtain the money.

Reliance is placed on the following decisions: - a. 24 Tax World146 Sideways Investment Pvt. Ltd. Vs DCIT (JP ITAT)

It is further relevant to state that on perusal of the assessment order it is evident fact that the Ld. AO has summarily rejected the evidence submitted by the assessee and made no effort to bring on record some material to support his conclusion that during the year under appeal assessee has received share application money from bogus party and the transaction entered was not genuine. The Ld. AO just on the basis of the information supplied by the Directorate of Investigation, Wing Kolkata and the on the basis of statement of Shri Suresh Kumar Jain has concluded as under— “14. In view of the investigation made by the Investigation of Income-tax Department as well as the admission made by Shri Suresh Kumar Jain, it has become crystal clear that the assesse has obtained share application money amounting to Rs.1, 50, 00,000/- during A.Y. 2010-11 through the designed modus operandi as discussed above.

In this regard it is submitted that the Ld. AO has made the addition by solely relying upon the material stated to have been supplied by some other income tax authority which were stated to have been gathered during the course of search/survey proceedings conducted in the case of third party which includes the statements of the third party however, neither the material available with the Ld. AO was confronted nor the opportunity to cross examination of the witness of the department was provided to the assessee nor any such statements were ever supplied. Further from the perusal of the assessment order it appears that at no stage of the proceedings, the alleged information relied upon by the Ld. AO contained any admission by said Shri Suresh Kumar Jain of providing any accommodation entry in the shape of share application to the appellant specifically. Therefore, the entire addition was made solely on the basis of conjectures and surmises and theory of probability.

It is again reiterated that during the course of the appellate proceeding, all these facts were brought to the notice of the Ld. CIT(A) who has summarily rejected the claim of the assessee by passing the order in 3 pages without giving any clear findings and by solely relying upon the order of the ld. AO and on the basis of statement of third party which were recorded by some other officials behind the back of assessee.

It is also submitted that investor company is NBFC who has received registration from the Reserve Bank of India and whose operation are duly monitored by the Reserve Bank of India. Thus questioning the functioning of Investor Company without bringing any corroborative evidence and solely on the basis of statement of Shri. Suresh Kumar Jain is against the law. Further also the amounts were received through banking channel for which copy of bank statement were submitted before Ld. AO. The Ld. AO has failed to bring on record any cogent material from which it could be held that assessee has received accommodation entry in the guise of Share Application. Merely on the basis of so called alleged generalized information in the form of statement of Shri Suresh Kumar Jain the Ld. AO has reached the conclusion that the share application money was unexplained money of the assessee.

Further Ld. AO has not doubted the identity of the investor company and also not doubted the amount given by the it but he doubted the source from which these company have given the share application money. In the matter it is submitted that assessee cannot be burdened to prove the source of the source in the period under consideration i.e. from where the company has got the amount for investment in shares of the appellant. Ld. AO has not even discussed the details submitted by the assessee during the course of assessment proceedings and has simply brushed aside these evidences without bringing any material to the contrary. It is submitted that the, assessee neither has any relation nor has any control on the business activity of those company.

The Ld. CIT(A) has ignored the binding decision of the Hon’ble Supreme Court in the case of M/s Lovely Exports Pvt. Ltd. reported in 216 CTR 195 and has not even discussed the same in his order which is squarely applicable in the present case as the assessee has filed the necessary confirmation and other particulars of share holders and incidentally all the subscribers are Private Limited Companies and the appellant had received the application money through banking channel.

It was further held that the Hon’ble Chhattisgarh High Court in the case of ACIT Vs. Venkateshwar Ispat (P) Ltd. Reported in 319 ITR 393 had held as under:- “In the matters of CIT V/s. Lovely Exports (supra), the question before the Hon’ble Supreme Court was whether the amount of share money can be regarded as undisclosed income u/s 68 of the Act? Answering the above question, the Hon’ble Supreme Court has held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of the assessee company.” In case of the assessee, the assessee has not only given the names and addresses of the shareholder but has also given their PAN. Further assessee to Kalindee Estates Pvt. Ltd vs. ITO prove genuineness of the transaction assessee also submitted the Share Application form, Board Resolution, Audited Financial Statement, Confirmation and NBFC Registration from investors. On the above facts, the decision of the Hon’ble Apex Court in the case of CIT V/s. Lovely Exports (P) Ltd. (supra) reported in 216 CTR 195 as well as the decision of the Hon’ble Chhattisgarh High Court in the case of Venkateshwar Ispat (P) Ltd. (supra) are squarely applicable as the assessee has filed the necessary confirmation and other particulars of shareholders and incidentally all the subscribers are Private Limited Companies and the appellant had received the application money through banking channel.

In view of above facts it is therefore submitted that the Ld. AO has ignored the vital evidences submitted in the shape of affidavits, bank statement of the investors, copy of their Audited Financial Statement, return of allotment of etc and the Ld. CIT(A) has upheld the addition without properly considering the legal position in respect to the credits on account of share application being received from private limited company and has further ignored the effective compliance made by the assessee under the Companies Act, 1956. The assessee has duly explained share application money with all the plausible evidence, thus the addition of Rs. 1,50,00,000/- made by the Ld. AO deserves to be deleted.

Further reliance is also placed on the judgement of Hon’ble Income Tax Appellate Tribunal, Mumbai Bench in the case of Inter Publicity Pvt. Ltd. vs. Dy. Commissioner of Income Tax, in dated 17.10.2023 wherein, in the similar circumstances case is decided in the favour of assessee by relying upon the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Orchid Industries Pvt. Ltd. (ITA No. 1433 of 2014 dated 05.07.2017) and coordinate bench decision in the case of M/s. Moraj Realty Pvt. Ltd. (ITA No.708 & 709/Mum/2019 dated 08-12-2020)

Case Laws relied upon:

3. 205 ITR 98 (Delhi ) CIT Vs. Sophia Finance Ltd. If the shares holders are identified and it established that they have invested money in the purchases of shares, then the amount received by the company would be regarded as a application receipt.

4. 397 ITR 136 CIT Vs. Orchid Industries Pvt. Ltd. (Bom) – [DOD:05.07.2017] Cash Credits – Company – Share application money – Issuance of shares – Genuineness and creditworthiness of persons allotted shares proved by assessee – Non-appearance of such parties before Assessing Officer irrelevant – Deletion of addition proper – Income Tax Act, 1961, s. 68.

5. 159 ITR 78 (SC) Orissa Corpn. (P) Ltd When the assessee furnishes names and addresses of the alleged creditors, the burden shifts to the department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the inquiry and to establish the lack of creditworthiness and the mere issue of notice u/s 131 is not sufficient. Thus, the Appellant has discharged the primary burden of establishing the identity and genuineness of the creditor.

6. 187 Taxman 53 CIT Vs. K.C. Fibres Ltd. (Delhi) Cash Credit – One ‘D’ Ltd. subscribed to share application of assessee company – For said purpose, share application money on three different dates totaling a sum of Rs. 39 lakhs was given by ‘D; Ltd. to assessee company – Assessing Officer after making enquiries from assessee company concluded that a sum of Rs. 25 lakhs subscribed by ‘D’ Ltd. remained unexplained under section 68 and added it to income of assessee – On appeal, Commissioner (Appeals) deleted addition – On revenue’s appeal to Tribunal, assessee showed that 111 deposits of Rs. 19,000/- each in cash were made in bank account of ‘D’ Ltd. which were converted into drafts and in this manner ‘D’ Ltd. subscribed to share application of assessee company – Whether, on facts, it was not for assessee- company to prove as to source from where ‘D’ Ltd. collected aforesaid money – Held, yes – Whether it was Kalindee Estates Pvt. Ltd vs. ITO for Assessing Officer to inquire into affairs of ‘D’ Ltd. which was an independent company inasmuch as no finding was arrived at by Assessing Officer that two companies were umbrella companies or had any relationship with each other – Held, yes – Whether in view of aforesaid, impugned order passed by Tribunal deleting addition was to be upheld – Held, yes.

In light of the contentions raised above, supported with the relevant case-laws, it is most humbly submitted that the addition of Rs. 1,50,00,000/- by treating the share capital received from M/s Satyatej Vyapaar Pvt. Ltd. as undisclosed income of assessee, despite of fact that assessee company duly substantiated its claim with necessary documentary evidence is unjust . Thus the addition so made by ld. AO and confirmed by ld. CIT(A) solely on the basis of generalised information received from other wing of department which remained uncorroborated is against the law and deserves to be deleted.

Ground of Appeal No. 5: Under this ground of appeal, Appellant is challenging the action of ld. AO of making addition of Rs. 7,50,000/- in total income by considering 5% as Commission paid to intermediaries for providing alleged accommodating entries.

In the instant case ld. AO has stated that as per prevailing market trend, assessee company has also paid commission @ 5% on acquiring accommodation entries, though no such evidences or supporting documents were ever brought on record or confronted to the assessee. Appellant would like to bring into notice that ld. AO before passing such erroneous order failed to bring on record any evidences suggesting payment of commissions or arrangement of accommodation entry during the Assessment proceeding.

It is thus submitted that firstly, the Share Application Money received by assessee company from M/s Satyatej Vyapaar Pvt. Ltd is completely genuine transaction as has been submitted above in detail in grounds of appeal above. Thus, in view of the same there arises no question of any commission payment.

Secondly, this addition also is solely based upon the statement of third party absolutely uncorroborated in much as there is no material available on record to show any such payment. No such material has been referred by the Ld. AO and merely on the basis of assumptions and presumptions; the impugned addition has been made.

Therefore, when the transaction of Share Application Money received by assessee company has been established as genuine which was treated as bogus by Ld. AO solely on the basis of uncorroborated statements of a third party, no further addition could have been made solely on the basis of such statements on assumptions and presumptions. Hence, it is prayed that the addition of Rs. 7,50,000/- deserves to be deleted.”

6. To support the contention so raised in the written submission reliance was placed on the following evidence / records / decisions:

S. PAGE PARTICULARS No. NOS.

1. Copy of acknowledgement of income tax return filed u/s 139(1) of the Act. 01

Copy of the audited financial statement of the assesse company for the assessment 02-08 2. year 2010-11.

5. Copy of reply dated 24.08.2017 to the show cause notice dated 01.11.2017. 11

Copy of reply dated 08.11.2017 submitted during the course of assessment 12 6. proceedings u/s 142(1) along with the following annexures:

Copy of the bank statement for the period 01.03.2010 to 31.03.2010 reflecting a) 13-14 the name, address and payments made to the assesse company

Copy of the Return of allotment of the shares allotted by the company to of b) 15-19 Satyatej Vyapaar Private Limited. c) Statement showing the list of allottees to whom the shares have been issued. 20

Copy of resolution passed in the board meeting of the assessee company held d) 21 on 31.03.2010.

Copy of confirmation by the Satyatej Vyapaar Private Limited regarding allotment e) 22-23 and receipts of the equity shares issued by the assesse company. f) Copy of NBFC registration certificate of Satyatej Vyapaar Private Limited. 24

Copy of director report, audit report and audited financial statement of Satyatej g) 25-36 Vyapaar Private Limited for the assessment year 2010-11.

Copy of assessment order of Satyatej Vyapaar Private Limited for the h) 37-38 assessment year 2010-11.

7. Copy of Written submission dated 24.02.2024 filed before Ld. CIT(A). 39-67 submission so filed vehemently argued that the assessee is a private limited company in the year under consideration. The assessee has received a sum of Rs. 1,50,00,000/- as share application money and ultimately, the assessee has issued the shares to the said company M/s Satyatej Vyapaar Pvt. Ltd. The said investors company is Non Banking Financial Company (NBFC) as approved by the Reserve Bank of India and registration certificate was placed on record (P.B-24). Thus, the said investors cannot be considered as Shell Company. In support of the investments made by that investors company, assessee submitted the bank statement, copy of ITR, copy of resolution of the investors company, copy of confirmation, copy of audit report of the said company, copy of assessment order for the year under consideration of the investor company.

All these details were placed on record, which will prove the identity genuineness and capacities of the investors company. The revenue merely relying on the statement of Shri Suresh Kumar Jain made the addition. The statement so made by Shri Suresh Kumar Jain has been retracted. The ld. AR of the assessee also stated that the additions were made u/s 68 of the Act and that provision was not applicable to the fact of the case. To drive home to this contention, he relied upon the decision of Hon’ble Bombay reported in 394 ITR 680. The investor company cannot be Sheel Company because RBI has issued NBFC license and operating since 2007. The assessment in the case of the investors company has also been done. The investor is share holder and to these effects, the assessee filed various documents to prove identity creditworthiness of the transactions. The ld. CIT(A) has passed summary order without taking into consideration, the detailed submission as referred in the written submission filed hereinabove.

Even the same has not been considered in the order of ld. CIT(A), thus the same is passed without considering the merits of the case and it is a cryptic order against the principal of natural justice and cannot be a speaking order. Considering the written submission and case laws cited, ld. AR of the assessee submitted that the addition made by lower authorities is not in accordance with provisions of the Act and therefore, required to be deleted.

8. Per contra, ld. DR relied upon the following case laws in support of the reopening of the assessment made in the case of the assessee.

1 [2022] 139 taxmann.com 352 (Calcutta) HIGH COURT OF CALCUTTA Principal Commissioner of Income-tax v. Swati Bajaj 2 [1995] 80 Taxman 89 (SC) SUPREME COURT OF INDIA Sumati Dayal v. Commissioner of Income-tax 3 [1979] 2 Taxman 197 (SC) SUPREME COURT OF INDIA Indian & Eastern Newspaper Society v. Commissioner of Income-tax 4 [1958] 34 ITR 807 (SC) SUPREME COURT OF INDIA A. GovindarajuluMudaliar v. Commissioner of Income-tax

5 [1971] 82 ITR 540 (SC) SUPREME COURT OF INDIA Commissioner of Income-tax v. Durga Prasad More 6 [2007] 161 Taxman 169 (SC) SUPREME COURT OF INDIA Commissioner of Income-tax v. P. Mohanakala 7 [1963] 50 ITR 1 (SC) SUPREME COURT OF INDIA Kale Khan Mohammad Hanif v. Commissioner of Income-tax 8 [1977] 107 ITR 938 (SC) SUPREME COURT OF INDIA Roshan Di Hatti v. Commissioner of Income-tax 9 [2016] 66 taxmann.com 288 (SC) SUPREME COURT OF INDIA Securities and Exchange Board of India v. Kishore R. Ajmera 10 HIGH COURT OF JUDICATURE AT MADRAS DATED: 11.02.2019 Tax Case Appeal No, 128 of 2019 And C.M.P.No. 3353 of 2019 Smt. Tharakumari Appellant Vs. The Income Tax Officer 11 [1995] 82 TAXMAN 31 (CAL.) HIGH COURT OF CALCUTTA Commissioner of Income-tax v. Precision Finance (P.) Ltd. 12 [1991] 56 TAXMAN 304 (CAL) HIGH COURT OF CALCUTTA Commissioner of Income-tax v. United Commercial & Industrial Co. (P.) Ltd. 13 [2012] 18 taxmann.com 217 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax v. Nova Promoters &Finlease (P) Ltd. 14 [2013] 29 taxmann.com 291 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax, Delhi-V N.R. Portfolio (P.) Ltd 15 [2011] 43 SOT 544 (Delhi) IN THE ITAT DELHI BENCH 'B' Hersh W. Chadha v. Deputy Director of Income-tax, Circle-1(1), International Taxation

Name of the case Sr. No. 1. [1999] 236 ITR 34 (SC) SUPREME COURT OF INDIA Raymond Woollen Mills Ltd. v. Income-tax Officer 2. [2023] 148 taxmann.com 446 (Delhi) HIGH COURT OF DELHI Saif II Mauritius Company Ltd. v. Assistant Commissioner of Income-tax 3. [1999] 103 TAXMAN 562 (PAT.) HIGH COURT OF PATNA P.K. Haldar & Co. v. Commissioner of Income-tax 4. [2002] 123 Taxman 756 (Calcutta) HIGH COURT OF CALCUTTA Ispat Industries Ltd. v. Deputy Commissioner of Income-tax 5. [2023] 153 taxmann.com 25 (Gujarat) HIGH COURT OF GUJARAT Akshat Pramodkumar Chaudhary v. Deputy Commissioner of Income-tax 6. [2022] 139 taxmann.com 198 (Gujarat) HIGH COURT OF GUJARAT Amar Jewellers Ltd. v.Assistant Commissioner of Income-tax (Gujarat) HIGH COURT OF GUJARAT Amit Polyprints (P.) 7. [2018] 94 taxmann.com 393 Ltd.v.Deputy Commissioner of Income-tax 8. [2018] 91 taxmann.com 119 (Gujarat) HIGH COURT OF GUJARAT Aradhna Estate (P.) Ltd.v.Deputy Commissioner of Income-tax, Circle-1(1)

9. [2023] 152 taxmann.com 573 (SC) SUPREME COURT OF INDIA Ajay Gupta v. Income-tax Officer 10 [2019] 101 taxmann.com 231 (Madhya Pradesh) HIGH COURT OF MADHYA PRADESH Etiam Emedia Ltd.v. Income-tax Officer-2(2) 11 [2020] 115 taxmann.com 338 (Delhi) HIGH COURT OF DELHI Experion Developers (P.) Ltd. ' v.Assistant Commissioner of Income-tax 12 [2018] 91 taxmann.com 181 (Gujarat) HIGH COURT OF GUJARAT Jayant Security & Finance Ltd.v.Assistant Commissioner of Income-tax, officer Circle 1(1) 13 [2012] 18 taxmann.com 83 (Delhi) IN THE ITAT DELHI BENCH Ms. Rainee Singh v.Income-tax Officer 14 [1995] 83 TAXMAN 194 (MAD.)HIGH COURT OF MADRAS Panchugurumurthy v. Commissioner of Income-tax 15 [2016] 72 taxmann.com 302 (Gujarat) HIGH COURT OF GUJARAT Peass Industrial Engineers (P.) Ltd. v. Deputy Commissioner of Income-tax 16 [2020] 114 taxmann.com 718 (Gujarat) HIGH COURT OF GUJARAT Purnima Komalkant Sharma v. Deputy Commissioner of Income-tax, Circle 1 17 [2022] 139 taxmann.com 409 (Gujarat) HIGH COURT OF GUJARAT Pushpa Uttamchand Mehta v. Income-tax Officer 18 Tarasafe [2023] 153 taxmann.com 282 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A' International (P.) Ltd. v.Deputy Commissioner of Income-tax 19 Bhanuben Mansukhlal [2021] 128 taxmann.com 229 (Gujarat) HIGH COURT OF GUJARAT Khimashia v.Income Tax Officer Ward 3(1) 20 [2021] 129 taxmann.com 48 (Gujarat) HIGH COURT OF GUJARAT Kaushaliya Sampatlal Dudani v.Income-tax Officer, Ward 1(3) 21 [2021] 129 taxmann.com 119 (Gujarat) HIGH COURT OF GUJARAT Nishant Vilaskumar Parekh v.Income-tax Officer, Ward 1(3) 22 [2022] 138 taxmann.com 50 (Gujarat) HIGH COURT OF GUJARAT Nishant Vilaskumar Parekh v.Income-tax Officer 23 [2021] 131 taxmann.com 42 (Gujarat) HIGH COURT OF GUJARAT Sameer Gulabchand Shah HUF v. Income-tax Officer, Ward 1(3) 24 HIGH COURT OF GUJARAT Silverdale Inn (P.) Ltd. v. [2021] 127 taxmann.com 679 (Gujarat) Income Tax Officer 25 Vilas Vrajlal Parekh HUF [2021] 129 taxmann.com 68 (Gujarat) HIGH COURT OF GUJARAT v.Income-tax Officer, Ward(1)3 26 [2021] 133 taxmann.com 397 (Gujarat) HIGH COURT OF GUJARAT Zaveri & Company (P.) Ltd.v.Deputy Commissioner of Income-tax 27 [1980] 4 Taxman 83 (Delhi) HIGH COURT OF DELHI Commissioner of Income-tax v. H.P. Sharma S. RANGANATHAN AND D.R. KHANNA, JJ 28. [2006] 151 Taxman 41 (Delhi) HIGH COURT OF DELHI Consolidated Photo & Finvest Ltd. v. Assistant Commissioner of Income-tax 29. [2009] 315 ITR 84 (Bombay) HIGH COURT OF BOMBAY Yuvraj v. Union of India 30. [2011] 197 Taxman 415 (Delhi) HIGH COURT OF DELHI Honda Siel Power Products Ltd. v. Deputy Commissioner of Income-tax.

Even the credit worthiness of the investors company remained unproved in this case. It has been categorically found that company is managed for bogus billing and bogus accommodative transactions. Based on the detailed statement recorded by the search team of Shri Suresh Kumar Jain him by way of dummying Director. The ld. CIT(A) has given very cripsy and concise order confirming the addition made. As regards the amendment in section 68 of the Act, ld. DR argued that this being clarificatory in nature does not come at rescue of the assessee. The addition has been made based on the detailed cogent material unearth by the revenue wherein Shri Suresh Kumar Jain has confessed modus operandi the share application money accepted by the assessee is nothing but accommodative transaction received from entry provider. As regards contention of the assessment order of the investor company relied upon by the ld. AR, that order was for specific purpose and there was no scope to verify investments made by that investors company in the case of the assessee. Based on these arguments and decisions relied upon ld. DR supported the orders of lower authorities.

9. We have heard the rival contentions and perused the material placed on record. Ground no. 1, 1.1, 3, 3.1, 4, 4.1 4.2 and 4.3 raised by the assessee collectively challenges the addition of Rs. 1,50,00,000/- made by the ld. AO and sustained by the ld. CIT(A). Since all the ground relates to the only one addition and all these ground being interconnected and relates to that addition only we considered it decided the same together. conducted by the Investigation Wing of Income-tax, Kolkata in respect of Bank account No. 4342000100075001 in the name of M/s Satyatej Vyapaar Pvt Ltd. for the period 01.04.2009 to 31.03.2010, it has been revealed that the RTGS / transfer credit in the bank account of M/s Satyatej Vyapaar Pvt. Ltd., were followed by transfer of funds to number of accounts. The alleged bank account has been used for the purposes of providing accommodation entries of bogus purchases as well in the guise of loan to various other companies. It has also been gathered that during F.Y. 2009-10, LMJ Group of Companies had transferred fund to the tune of Rs. 108,67,95,000/- to the account of Satyatej Vyappar Pvt Ltd., a paper company, in the form of Bogus Expenses through bogus billing. Such bogus expenses debited by LMG Group are transferred to the account of group company M/s Avon Vanijya Pvt Ltd. for layering of fund and further accommodation entry to other beneficiary company and subsequently cash received from such other beneficiaries were returned back to LMJ Group.

It has been found that the assessee viz. M/s Kalindee Esates Pvt. Ltd. is one of such beneficiaries who has received accommodation entries of Rs. 75,00,000/- from M/s Satyatej Vyapaar Pvt Ltd. on 02.03.2010; Rs.

25,00,000/- on 04.03.2010 and Rs. 50,00,000/-on 05.03.2010, totaling to Satyatej Vyappar Pvt Ltd., since these being accommodation entries and assessee-company's own unaccounted funds have been routed back in its books of account, on which assessee has not paid due taxes.

Considering these facts, proceedings under section 147 of the Act were initiated by issue of a Notice under section 148 of the Act dated 30.03.2017. The assessee vide letter dated 09.08.2017 raised objection against initiation of proceedings under section 148. The said objections of the assessee were duly addressed and disposed off on 09.08.2017. After that a Show Cause issued to the assessee vide Order Sheet entry dated 01.11.2017 asking the assessee to furnish explanation on 08.11.2017.

Failing to which it was proposed that the whole scheme would be treated as an attempt to introduce undisclosed income in the shape of accommodating entries through share application money amounting to Rs.1,50,00,000/- and accordingly proposed to add as unexplained income.

The assessee filed reply dated 24/08/2017 and 08/11/2017. On going through the contention ld. AO found that the assessee was in touch with M/s Satyatej Vyapar Private Limited. Ld. AO also contended that, how the assessee came into touch with the assessee, whether any business relation was thereor not, no process of related details were placed on record, credit investigation team report. The ld. AO contended that case law cited by the assessee of M/s Lovely Exports (P) Ltd 317 ITR 218 over which the assessee has relied upon is of no help to the assessee, as it is a distinguishable. Whereas the assessee has justified that based on the evidence placed on record identity, genuineness and capacity of the investor is proved. Moreover, the investor company’s assessment order wherein the company is already under scrutiny and there is not whisper of discussion of investigation done by the revenue and no adverse inference has been drawn by the ld. AO even the proceeding were subjected to section 147 of the Act wherein the revenue can check this aspect also.

Thus, the contention of revenue that M/s Satyatej Vyapar Pvt. Ltd. is merely a paper company with Dummy directors engaged in providing accommodating entries has no basis and except the statement of the director nothing contrary placed on record. The ld. AO contended that considering that aspect provision of section 68 is applicable even to share application money has also no basis as the Bombay High Court in the case of Gagandeep Infrastructure Private Limited (supra). When the matter carried to ld. CIT(A), the appeal of the assessee was dismissed. We note from that order of the ld. CIT(A) that order is non speaking order even the document nothing has been discussed. As regards the contention that the assessee filed the submission before the ld. CIT(A) they have filed the acknowledgment of the online response submitted by the assessee and the revenue could not controvert this fact.

Before us in support of the grounds so raised we note that the addition is made purely based on the statement of Shri Suresh Kumar Jain.

The assessment was re-opened based on the third party statement and there was no specific information, which could prove that transactions of the assessee were accommodation entries. As regards the proving the proving of Indentity, genuineness and capacity of the investor company the assessee has placed on record copy of Form no. 2 being the return of allotment, list of allottes along with the board resolution, copy of bank statement reflecting the receipt of the money from that investor, confirmation of the investor company confirming the investment made, Copy of the certificate of NBFC registration of the investor company, copy of complete audit report, director report and audited financial statement of M/s. Satyatej Vyapaar Private Limited and copy of the assessment order of the investor for the year under consideration. All these evidence evidently clearly proves the identity, capacity and genuineness of the transactions decision cited by the ld. AO does not match with the facts of the case. We also note that proviso to section 68 wherein addition on account of Share Application Money / Share application can be made, stood inserted to the statue book, by Finance Act 2012 w.e.f. 01.04.2013 and therefore considering the explanation about the nature and source of share application money so furnished by assessee by way of various documents as above are in accordance with the provision of law. Considering that aspect of the matter once the credential of the investor is proved about the identity, genuineness and creditworthiness of the investor there is no reason to sustained the addition. We get strength to our view from the decision of the apex court in the case Lovely Exports wherein it has been held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. Even otherwise the amendment made in the law cannot apply retrospective as held by Hon’ble Bombay High Court in the Pvt. Ltd. reported in 394 ITR 680, wherein it has been held that :

“(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.”

Thus, it is very much clear from the provision of section 68 as prevailing for year under consideration the ld. AO can make addition u/s 68 only under two circumstances, (i) the assessee does not offer any explanation about nature and source of such credit or (ii) Explanation offered by Appellant is not up to the satisfaction of Ld. AO. Therefore, here we note that the assessee provided so as prove the identity, credit worthiness and Confirmations, Return of Allotment Form (Form 2), Board Resolution, Bank Statement, Audited Financial Statement and NBFC Registration from RBI of the investor company which were not at all doubted by ld. AO. But all such vital evidences have been ignored solely on the basis of statements of third party recorded by some other officials during the course of search & survey operation conducted in his case. These were recorded behind the back of assessee and moreover opportunity of cross examination was not provided.

We also note that ld. CIT(A) has confirmed the addition made by ld.

AO, by heavily relying upon the statements of third party, which stood retracted subsequently. Appellant placed on record that copy of Retraction affidavit was furnished before both Ld. AO and Ld. CIT(A). Thus, even on the retracted statement no addition can be made in the hands of the assessee we also get support this view from the decision of our Rajasthan High Court in the case of PCIT Vs. M/s. Esspal International P. Ltd. DB dated 03/09/2024 stating that the merely based on the retracted statement no addition can be made. The relevant finding of binding judicial precedent is reproduced herein below: 6. In the background of the aforementioned facts, Mr. K.K. Bissa, the learned standing counsel submits that the findings recorded by the Tribunal are ex-facie Kalindee Estates Pvt. Ltd vs. ITO erroneous and contrary to the materials on record. The learned counsel for the appellant submits that on examination of the soft data seized and impounded in course of the search proceeding, it was detected that Shirish Chandrakant Shah had provided one-time entry of Rs.3,00,00,000/- to the assessee-company through a broker named Hiren Shah and such transaction was not genuine.

12. From the record, it is evident that the appellant has furnished each and every document required for proving the identity, creditworthiness of the share applicants and genuineness of the transactions whereas the AO or the DR has not been able to brought on record any evidence to show that cash was paid by the appellant company to Shri Shirish Chandrakant Shah or any other person for obtaining accommodation entries from M/s Ganesh Spinners Ltd., M/s Emplis Projects Ltd., M/s Speciality papers Ltd., M/s Dhanus Technologies Ltd. And M/s Sanguine Media Ltd. in the form of share application money of Rs. 3,00,00,000/- either in the assessment proceeding or remand furnished before the CIT(A) or before us. On similar facts, the Ld. CIT (A) has rightly relied on the decision delivered by the ITAT Jodhpur vide its order dated 08.02.2018 in the case of M/s PSM Realmart Pvt. Ltd. (ITA No.321/Jodh/2017) on and the Coordinate bench of ITAT Delhi in the case of CIT v. Nishit Fincop. P.Ltd. (ITA No.15/Del./2010) where the addition made u/s 68 has been deleted. The ld. CIT(A) further relied upon the decision of Jurisdictional ITAT in the case of PSL Relmart and decision of Supreme Court in the case of Andman Taubar Industries (Civil Appeal No.4228 order dated 02.09.2015) while deleting the addition of Rs.3,00,00,000/- made by the AO u/s 68 is hereby deleted. ................................................................................................

10. The Assessing Officer held as under: ''......................................................................................................

Respectfully following the finding of apex court in the case of Lovely Export and our High Court decision in the case of PCIT Vs. M/s. Esspal International P. Ltd. DB as referred herein above we direct discussion so recorded herein ground no. 1, 1.1, 3, 3.1, 4, 4.1 4.2 and 4.3 raised by the assessee stands allowed.

10. Ground no. 2 and 2.1 raised by the assessee is a technical ground challenging the re-opening done in the case of the assessee. Since we have allowed the appeal of the assessee on merits of the case, the technical ground raised by the assessee becomes educative in nature.

11. Ground no. 5 raised by the assessee deals with the addition of Rs. 7,50,000/- by presuming that the assessee might have made payment for obtaining the alleged accommodation entry of Rs. 1,50,00,000/- in the form of share application money. Since, we have directed to delete the addition on merits of the case there is no basis to sustain the addition of Rs. 7,50,000/- as alleged expenses for obtaining the investment in the form of share capital. Therefore, ground no. 5 raised by the assessee stands allowed.

In the result, the appeal of the assessee stands allowed.

Order pronounced in the open court on 21/10/2024. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Kalindee Estates Pvt. Ltd vs. ITO Tk;iqj@Jaipur fnukad@Dated:- 21/10/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Sh. Kalindee Estates Private Limited, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Jaipur 3. vk;dj vk;qDr@ The ld CIT vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 770/JP/2024) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत