Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-1’, NEW DELHI
Before: Sh. N. K. Saini
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC-1’, NEW DELHI Before Sh. N. K. Saini, Accountant Member Asstt. Year : 2008-09 M/s Layak Fabrics Pvt. Ltd., Vs Income Tax Officer, (Presently known as Indev Ward-4(3), Develoeprs Pvt. Ltd.), AM-87, New Delhi Shalimar Bagh, Delhi-110088 (APPELLANT) (RESPONDENT) PAN No. AABCL4694D Assessee by : Sh. Gautam Jain, CA Revenue by : Sh. V. R. Sonbhadra, Sr. DR Date of Hearing : 24.05.2016 Date of Pronouncement : 15.07.2016 ORDER
This is an appeal by the assessee against the order dated 27.11.2015 of ld. CIT(A)-V, Delhi.
Following grounds have been raised in this appeal:
“1. That the learned Commissioner of Income Tax (Appeals) 5, New Delhi has grossly erred both in law and on facts in upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that, statutory pre-conditions for neither the initiation of proceedings and, nor the completion of assessment under the Act had been 2 Layak Fabrics Pvt. Ltd. fulfilled and, therefore, the same were without jurisdiction and hence deserve to be quashed as such. 1.1. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that, there was no material on record on the basis of which, it could be held that, there was any reason to believe with the learned Income Tax Officer that, income of the appellant company had escaped assessment and, in view thereof, the proceedings initiated were illegal, untenable and therefore, unsustainable.
2. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an aggregate addition made by learned Assistant Commissioner of Income of Rs. 14,00,000/- representing the amount received from the following shareholders as share capital and has erroneously held credits as unexplained cash credit under section 68 of the Act: Sr. No. Name of the Shareholder Amount (In Rs.) 1. M/s Singhal Securities (P) 9,00,000/- Ltd.
M/s Singhal Securities (P) 5,00,000/- Ltd. Total 14,00,000/- 2.1 That while sustaining the aforesaid addition the learned Commissioner of Income Tax (Appeals) has completely overlooked that there was no adverse material brought on record by the learned Assessing Officer to assume that credits by way of share capital represents unexplained cash credit and, burden which lay upon the assessee in terms of section 68 of the Act had not been discharged.
3 Layak Fabrics Pvt. Ltd. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that both the shareholders were corporate entities, duly assessed to tax and, had subscribed to share-capital by account payee cheques and supported by necessary documents and therefore, once all such shareholders were identifiable companies, share capital received could not in law or on fact be brought to tax u/s 68 of the Act. 2.3 That further more the learned Commissioner of Income Tax (Appeals) has proceeded to confirm the addition on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law. 2.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that statement recorded on oath of one Sh. S. K. Jain even otherwise recorded behind the back of the assessee and, even not by the learned Assessing officer could not have been made in law as a basis to make the addition in view of the judgment of the Apex Court in the case of Kishni Chand Chella Ram vs. CIT reported in 125 ITR 713 and CIT vs. SMC Sharebrokers Ltd. reported in 288 ITR 345. 2.5 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in recording various adverse inferences which are contrary to the facts on record, material placed on record and, are otherwise unsustainable in law and therefore, addition so sustained is absolutely unwarranted.
4 Layak Fabrics Pvt. Ltd.
3. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts is not admitting the additional evidence filed by the appellant company in the shape of "audited balance sheet and profit and loss account of Singhal Securities Pvt. Ltd., the certificate of incorporation and PAN the matter date details from MCA website and an affidavit of the director of M/s Singhal Securities Pvt. Ltd., namely Sh. Anil Kumar Bansal and therefore the order so made and addition sustained of disregarding the crucial evidence is a vitiated order and not in accordance with law.
4. That both the authorities below have framed the impugned order without granting sufficient proper opportunity to the appellant company and therefore the same are contrary to principle of natural justice and hence vitiated.
5. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding an addition of Rs. 28,000/- on account of alleged commission paid to the entry provider in cash for obtaining accommodation entry and held as unexplained expenditure u/s 69C of the Act.
6. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest of Rs. 35,007/- under section 234AB of the Act and interest of Rs. 21,441/- u/s 234B of the Act which are not leviable on the facts and circumstances of the case of the appellant company. It is therefore, prayed that, it be held that assessment made by the learned Income Tax Officer and sustained 5 Layak Fabrics Pvt. Ltd. by the learned Commissioner of Income Tax (Appeals) be quashed and, further addition so upheld by the learned Commissioner of Income Tax (Appeals) alongwith interest levied be deleted and appeal of the appellant company be allowed.”
The main grievance of the assessee vide Ground Nos. 1 to 1.1 relates to the confirmation of the initiation of the proceedings u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act).
The facts related to this issue in brief are that the assessee originally filed its return of income on 03.02.2009 declaring loss of Rs.11,848/- which was processed u/s 143(1) of the Act. Subsequently, the AO received information from the Investigation Wing of the Income Tax Department, New Delhi that the assessee had received following accommodation entries:
Cheque From Company Bank Cheque Cheque Date Amount Date No. 28.02.2008 Singhal Securities Axis 102599 28.02.2008 9,00,000/- (P) Ltd. 31.03.2008 Singhal Securities Axis 102600 31.03.2008 5,00,000/- (P) Ltd.
On the basis of the aforesaid information, the AO reopened the assessment u/s 147 of the Act after recording the reason to believe that an income chargeable to tax amounting to Rs.14,28,000/- had escaped assessment and issued the notice u/s 148 of the Act on 28.03.2013. In response to the said notice the assessee vide its reply dated 22.11.2013 stated that the return originally filed may be treated to have been filed in 6 Layak Fabrics Pvt. Ltd. response to the notice u/s 148 of the Act. The assessee vide its letter dated 31.01.2014 filed objection to opening of the assessment u/s 148/147 of the Act, which were disposed off by the AO and he asked the assessee to file original confirmation and produce the directors of the company M/s Singhal Securities (P) Ltd. for personal deposition. The AO observed that the assessee failed to produce the director of the said company and even there was no compliance of notices u/s 133(6) of the Act issued on 09.01.2014 and summon u/s 131 of the Act issued on 24.01.2014 to the party M/s Singhal Securities Pvt. Ltd. Therefore, the identity and creditworthiness of the said party were unverifiable. The AO accordingly made the addition of Rs.14,00,000/- which was the share capital subscribed by M/s Singhal Securities Pvt. Ltd. He also made the addition of Rs.28,000/- considering the same as a commission @ 2% of the amount of entry i.e. Rs.14,00,000/-. Accordingly, assessment was framed at an income of Rs.14,16,152/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and challenged the reopening u/s 147 r.w.s. 148 of the Act by stating that there was no material on record with the AO to believe that the income had escaped assessment. It was also stated that the mandatory conditions of Sections 147 to 153 of the Act had not been followed and therefore, the basis of initiation of reassessment proceedings was bad-in- law. It was further submitted that the assessee filed the objection against the initiation of the assessment proceedings. However, the AO had not 7 Layak Fabrics Pvt. Ltd. disposed off all the objections raised by the assessee and even the part of the disposal of objection was not in accordance with law. It was also submitted that the AO while recording the reasons for reopening the assessment had not described the date and contents of the report received from Investigation Wing and that the reasons recorded were vague as it had nowhere stated the clear form and nature of transactions of accommodation entries whether in the form of loan or gift or sale or purchase or share capital etc. It was further stated that the reasons recorded by the AO were totally silent with regard to the exact income of the bogus entry and transactions and that the AO did not mention that what were the facts mentioned in the communication which he had received from the Investigation Wing, Delhi except that from the information gathered by the Information Wing, Delhi, the assessee was involved in giving and taking accommodation entries only and represented unsecured money of the assessee company which was actually unexplained income of the assessee or that it had been informed by the Investigation Wing, that the assessee company was involved giving and taking bogus entries/transactions . However, the AO did not mention the details of transaction which represented unexplained income of the assessee company and the information on the basis of which the AO had initiated proceedings u/s 147 of the Act were undoubtedly vague and uncertain. Therefore, it could not be construed to be sufficient and relevant material on the basis of which a reasonable person would have 8 Layak Fabrics Pvt. Ltd. formed and belief that income had escaped assessment. The reliance was placed on the following case laws: � CIT Vs Insecticides (India) Ltd. 357 ITR 330 (Del) � Signature Hotels Pvt. Ltd. Vs ITO 338 ITR 51 (Del) � Hindustan Lever Ltd. Vs R.B. Wadkar 268 ITR 332 (Bom) � ITO Vs Maya Gupta in order dated 13.12.2013 � ITO Vs M/s Comero Leasing & Financial Pvt. Ltd. in ITA No.4281/Del/2010 order dated 14.08.2014 � ITO Vs M/s Shri Devesh Kumar in ITA No.2068/Del/2010 order dated 31.10.2014 � ITO Vs Neelkanth Finbuild Ltd. in ITA No.2821/Del/2009 order dated 01.04.2015 8. It was further submitted that Sh. Surender Kumar Jain in whose case search took place was neither Director nor share subscriber in the alleged dummy company namely M/s Singhal Securities Pvt. Ltd. Therefore, those entities could not be termed as group entities of Sh. Surender Kumar Jain and that in the assessment proceeding u/s 153C of the Act in the case of M/s Singhal Securities Pvt. Ltd. for the assessment year 2008-09, assessment order dated 28.03.2013 was passed subsequent to the issuance of notice u/s 148 of the Act to the assessee and those companies were not held as in the business of providing accommodation entries but dealing in shares and securities. Therefore, the reasons as recorded by the AO were against the material on record. The reliance was placed on the following case laws:
9 Layak Fabrics Pvt. Ltd. � Ranbaxy Laboratories Ltd. Vs CIT 336 ITR 136 (Del) � CIT Vs Jet Airways India Ltd. 331 ITR 236J (Bom) � CIT Vs Software Consultants 341 ITR 240J (Del) 9. The ld. CIT(A) after considering the submissions of the assessee observed that the AO was required to record his reasons in writing u/s 148 of the Act before initiation of any proceeding u/s 147 of the Act and in the present case the AO received the information from Investigation Wing regarding the modus operandi adopted by certain companies including the assessee company who had circulated their own unaccounted income in the garb of share application money through fake companies and bank accounts operated by Sh. Surendra Kumar Jain Group. The ld. CIT(A) further observed that the AO while recording the reasons, mentioned that he had received comprehensive and specific details comprising inter alia the identity of the beneficiary, identity of the entry provider, date, amount taken, bank account and cheque numbers etc. and after recording of the reasons, a notice u/s 148 of the Act dated 28.03.2013 was issued by the AO. Therefore, there was neither any legal infirmity nor any deficiency in resorting to the procedure and provisions of Section 147 of the Act or in the disposal of the objections raised by the AO. The ld. CIT(A) further observed that in the present case, since no assessment was previously done and the correctness or otherwise facts and figures disclosed by the assessee in the return of income had not ever been subjected to scrutiny, the argument of the assessee that there was no new material to form the 10 Layak Fabrics Pvt. Ltd. belief of escapement of income or rather it was a mere change of opinion, had no merit. The reliance was placed on the judgment of the Hon’ble Apex Court in the case of ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd. reported at 291 ITR 500.
10. The ld. CIT(A) also observed that the assessee had raised objection and letter dated 04.02.2014 disposing off its objections to the reopening was neither complete nor in accordance with law. The ld. CIT(A) further observed that the assessee had not specified as to how the disposal of objections was illegal even otherwise the AO had recorded specific finding in his response to the objections filed, that following the search on Sh. S.K. Jain, the seizure of documents and the statement of the searched person revealed that M/s Singhal Securities Pvt. Ltd. was one of the front companies which were used by Sh. Jain in order to route the accommodation entries. He, therefore, held that all the conditions necessary for reopening of the assessment under the main provisions of Section 147 of the Act and for issue of notice u/s 148 of the Act were satisfied in the case of the assessee for the year under consideration. Accordingly, the ld. CIT(A) opined that there was no infirmity or illegality in the reassessment proceedings u/s 147 of the Act.
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the AO simply acted on the advice of the Investigation 11 Layak Fabrics Pvt. Ltd. Wing and did not apply his own mind. Therefore, reopening was not valid. It was further submitted that the AO on the basis of this information of Investigation Wing that M/s Singhal Securities Pvt. Ltd. was an entry operator and provided the accommodation entry to the assessee, reopened the assessment. However, in the assessment of the said company, the AO never said the same thing rather the assessment was framed u/s 143(3) of the Act vide order dated 28.03.2013 at the disclosed loss. A reference was made to page nos. 25 & 26 of the assessee’s paper book. The reliance was placed on the following decision of the ITAT Delhi: � Unique Metal Industries Vs ITO in order dated 28.10.2015 � Punjab Metal Store Vs ITO in ITA No. 1512/Del/2015, order dated 02.12.2015 � G & G Pharma India Ltd. Vs ITO No. 3149/Del/2013, order dated 09.01.2015 � Jiten Gurnani Vs ITO in ITA No. 4908/Del/2012, order dated 31.03.2015 12. The reliance was also placed on the following orders of the Hon’ble Delhi High Court:
� Pr. CIT Vs G & G Pharma India Ltd. in order dated 08.10.2015 � Pr. CIT Vs Rakam Money Matters (P) Ltd. in ITA No. 7785/2015, order dated 13.10.2015 12 Layak Fabrics Pvt. Ltd.
In his rival submissions the ld. DR supported the order of the authorities below and further submitted that the AO on the basis of some material recorded the reasons and had reasons to believe that the income of the assessee escaped the assessment. Therefore, there was a prima facie belief and notice u/s 148 of the Act was issued after proper application of mind. Therefore, reopening u/s 147 of the Act was rightly held to be valid by the ld. CIT(A). The reliance was placed on the following case laws:
� Raymond Woollen Mills Ltd. Vs ITO & Ors. (1999) 236 ITR 34 (SC) � ACIT Vs Rajesh Jhaveri Stock Brokers (P.) Ltd. 291 ITR 500 (SC) � ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) � Shyam Bansal Vs ACIT-1, Agra (2006) 153 Taxman 526 (All.) 14. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the AO reopened the assessment on the basis of information received from the Investigation Wing that during the course of search & seizure operation of various premises of Sh. S.K. Jain Group of cases, money, books of accounts and documents belonging to M/s Singhal Securities Pvt. Ltd. were found and seized and the AO on this basis that the assessee received an accommodation entry from M/s Singhal Securities Pvt. Ltd. issued the notice u/s 148 of the Act while recording the reasons on 28.03.2013 that the assessee received 13 Layak Fabrics Pvt. Ltd. accommodation entry from M/s Singhal Securities Pvt. Ltd. (copy of the said reasons recorded is placed at page no. 8 of the assessee’s paper book). It is also noticed that on same date i.e. 28.03.2013, the AO of M/s Singhal Securities Pvt. Ltd., framed the assessment u/s 153C/153A of the Act at the same figure of the loss amounting to Rs.51,528/- which was declared by the said assessee in its return of income. It is also noticed that Sh. S.K. Jain in whose premises search took place was not a shareholder of M/s Singhal Securities Pvt. Ltd. and was also not connected with the assessee. In the present case, when the assessment of M/s Singhal Securities Pvt. Ltd. from whom the assessee received share application money was assessed at the same figure of the loss which was declared by the said assessee, on the same date when the AO recorded the reasons that the income of the assessee escaped assessment for a sum of Rs.14,00,000/- i.e. the amount received as share application money from M/s Singhal Securities Pvt. Ltd. In the present case, it cannot be said that the AO was having any material in his possession except the information received from the Investigation Wing. Therefore, the reopening was done by the AO only on the basis of the information received from Investigation Wing.
An identical issue was a subject matter of the assessee’s appeal in the case of M/s Dhanuka Agritech Ltd. Vs ACIT in for the assessment year 2003-04 wherein vide order dated 11.05.2016 this bench of the Tribunal has held as under:
14 Layak Fabrics Pvt. Ltd. “9. On a similar issue, their lordships of the Hon’ble Jurisdictional High Court in the case of Principal Commissioner of Income-tax vs. G. & G. Pharma India Ltd. (supra) observed in para 12 & 13 of the order dated 8th October, 2015 as under : “12. In the present case, after setting off four entries, stated to have been received by the Assessee on a single date i.e. 10th February, 2003 from four entities which were termed as accommodation entries, which information was given to him by the Directorate of Investigation, the AO stated: “ I have also perused various materials and report from Investigation Wing and on that basis it is evident that the assessee company has introduced its own unaccounted money in its bank account by way of above accommodation entries.”The above conclusion is unhelpful in understanding whether the AO applied his mind to the materials that he talks about particularly since he did not describe what those materials were. Once the date on which the so called accommodation entries were provided is known, it would not have been difficult for the AO, if he had in fact undertaken the exercise, to make a reference to the manner in which those very entries were provided in the accounts of the Assessee, which must have been tendered along with the return, which was filed on 14th November, 2004 and was processed under Section 143(3) of the Act. Without forming a prima facie opinion, on the basis of such material, it was not possible for the AO to have simply concluded: “it is evident that the assessee company has introduced its own unaccounted money in its bank by way of accommodation entries”. In the considered view of the Court, in light of the law explained with sufficient clarity by the Supreme Court in the decisions discussed hereinbefore, the basic requirement that the AO must apply his mind to the materials in order to have reasons to believe that the 15 Layak Fabrics Pvt. Ltd. income of the Assessee escaped assessment is missing in the present case.”
13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT(A) discussed the materials produced during the hearing of the appeal. The Court would like to observe that this is in the nature of a post mortem exercise after the event of reopening of the assessment has taken place. While the CIT may have proceeded on the basis that the reopening of the assessment was valid, this does not satisfy the requirement of law that prior to the reopening of the assessment, the AO has to, applying his mind to the materials, conclude that he has reason to believe that income of the Assessee has escaped assessment. Unless that basic jurisdictional requirement is satisfied a post mortem exercise of analyzing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity.”
In the present case also the AO in the reasons recorded mentioned that it had come to his knowledge that the persons from whom amount was received were entry operator and provided the entries to the assessee after receiving the amount in cash, however, nothing was brought on record that how and in what manner the persons from whom the assessee received the loans were entry operator and that as to how the cash was paid by the assessee. In fact the aforesaid conclusion of the A.O. is unhelpful in understanding as to whether the AO applied his mind to the material, particularly when he did not describe how and what manner it came to his knowledge that the assessee receive the accommodation entries. We, therefore, by keeping in view the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to case of Principal Commissioner of Income-tax vs. G & G Pharma India Ltd., are of the view that the reopening done by the AO u/s 147 of the Act was not valid and accordingly the 16 Layak Fabrics Pvt. Ltd. subsequent assessment framed by the AO was void-ab-initio and therefore the same is quashed. Since, we have quashed the reassessment order of the A.O., therefore no findings are given on the Ground no. 4 raised by the assessee.”
In the present case also the AO in the reasons recorded mentioned that it has come to his knowledge that the person from whom assessee received share application money was entry operator. However, in the assessment of the said company i.e. M/s Singhal Securities Pvt. Ltd., no such findings has given neither any addition was made while framing the assessment u/s 153C/153A of the Act on 28.03.2013 i.e. the same date on which the reasons were recorded for reopening the assessment u/s 147 of the Act in assessee’s case.
So, respectfully following the aforesaid referred to order dated 11.05.2016, the impugned order passed by the ld. CIT(A) is set aside and it is held that the reopening done by the AO u/s 147 of the Act was not valid and accordingly, the subsequent assessment framed was void ab-inito. Therefore, the same is quashed.