M/S LAVITRA TECHNOLOGIES PVT. LTD.,,NEW DELHI vs. ITO, NEW DELHI

ASSESSEE BY : Shri Deepak Ostwal, CA and Shri Rishabh Ostwal, Advocate REVENUE BY : Shri Shravan Gotru, Senior DR Date of Hearing : 12.07.2016 Date of Order : 14.07.2016

O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Lavitra Technologies Pvt. Ltd. (hereinafter referred to as ‘the assessee’), by filing the present appeal sought to set aside the impugned order dated 14.03.2013 passed by the Commissioner of Income-tax (Appeals)-XVIII, New Delhi qua the assessment year 2004-05 on the grounds inter alia that :-

“1. On the facts and in the circumstances of the case, the CIT (A)-XVIII, New Delhi has erred both on facts and in law, in upholding the illegal order passed by the Respondent without jurisdiction, violative of natural justice, without application of fair and , objective mind to facts of the case and the law applicable and without guided by the binding decisions of the courts and tribunals and hence liable to be set aside and quashed and declared non-est in law.

2. On the facts and in the circumstances of the case, the CIT (A)-XVIII, New Delhi has erred both on facts and n law, in upholding the illegal action of re- assessment and assumption of jurisdiction illegally by the Respondent that too without issue/ served notice u/s 148 and the entire proceedings of reassessment is void ab initio, illeg.al and unauthorized by law.

3. On the facts and in the circumstances of the case, the CIT (A)-XVIII, New Delhi has erred both on facts and In !aw, in upholding assumption of jurisdiction in spite of the fact that the case is of after four year and the AO not recorded any satisfaction that there was escapement of any income by reason of failure on the part of the assessee that too without issue/ served notice u/s 148 is void-ab-initio, illegal and unauthorised by low.

4. The respondent has erred in law as the statutory requirement of section 147 to 153 of the Income Tax Act and the impugned order ought to have been set aside by the CIT(A) and failure to do so has vitiated the impugned order.

5. The order of Re-assessment having been passed in violation of natural justice and hastily by obtaining behind the back of the appellant on the basis of some alleged statements/information none of which had been made available to the appellant nor any opportunity provided to rebut the same and without providing opportunity of cross-examination of different persons specifically asked by the appellant and there was not even a show cause notice specifically proposing to make the additions nor any effective opportunity of personal

hearing was giving hence, the impugned order ought to have been set aside by the CIT (A) and failure to do so have vitiated the impugned order.

6. That under the facts and circumstances of the case and in law, the respondent has not discharged its onus of proof in any manner and has chosen to make illegal addition perversely and all the additions therefore ought to be set aside by Ld. CIT(A) and failure to do so has vitiated the impugned order.

7. The Respondent has not replied to the objection specifically raised by the assessee during the course of proceeding by passing the speaking order in terms of law therefore impugned order passed ought to have been set aside by Ld. CIT (A) and failure to do so have vitiated the impugned order.

8. Ld. CIT (A) erred in making the illegal additions of Rs.30,00,000/- in place of deleting the additions of Rs.22,00,000/- made by Respondent without any basis and legs u/s. 68 by treating the sale proceed of stock/shares as unexplained income ignoring the records and documents already filed before the ITO which were properly verified and accepted by him. Hence the order may be vacated and demand may be deleted.

9. The authorities below have erred in not following the binding decisions of Courts and Tribunals relied upon by the appellant for the fact that nothing was added out of reasons recorded and impugned orders cannot, therefore, be sustained both on facts and in law.

10. Ld. CIT (A) has also erred in upholding the illegal additions and disallowances and consequent demands of Income Tax, Interest and penalties illegally raised by the Respondent and hence the impugned order sustaining the additions and demand would require be setting aside and quashing to that extent.

11. The appellant craves leave to raise further/additional grounds and documents and file paper

book before the hearing of the appeal and prays for the appeal to be allowed after hearing both side.”

Statement of one Shri Deepak Gupta, entry operator from whom the assessee has received bogus accommodation entries, was recorded by Addl. Director of Income Tax (investigation), Unit-I, New Delhi. Assessee filed copy of ITR, PAN, balance sheet and confirmation but failed to furnish any bank statement but the same was called u/s 133(6) of the Act. AO from the bank statement noticed that there are credit entries of approximately equivalent amount in cash or transferred prior to clearance of cheques issued to the assessee company and in none of the accounts, there was sufficient balance on any day but the cheques have been honoured by way of cash deposit or transfer entry. There were regular cash deposits or transfer entries of equivalent amount before the clearance of cheques issued by them which is not possible in a natural course of business to have debit or credit transactions in lakhs of rupees on daily basis. These transactions are carried out by the entry operator only. The onus lies on the Director of the private limited companies from where funds were arranged to prove the identity, genuineness and creditworthiness of the funds of such provider u/s 68 of the Act. Assessee has failed to produce such persons for cross-examination nor furnished any document. It is established by Investigation Wing that the parties with whom the assessee had transactions operate through paper companies and have no real identity. So, the amount of Rs.22,00,000/- received by the assessee from the entry operators is treated as assessee’s income from undisclosed sources and consequently, AO made an addition of Rs.22,00,000/- to the total income of the assessee.

i. M/s. RSG Marketing P. Ltd. Rs.10,00,000 ii. M/s. Maple Sales Pvt.Ltd. Rs. 5,00,000 iii. M/s. Milansaar Impex & Traders Rs. 5,00,000 Pvt. Ltd. iv. M/s. Acoot India P.Ltd. Rs. 5,00,000

“as to whether the AO can initiate proceedings u/s 147/148 of the Act on the basis of certain communication received from his superior revenue authorities, namely, Addl. Director of Income-tax (Inv.), Unit-1, New Delhi showing that the assessee has been provided with accommodation entry to the tune of Rs.75,00,000/- (actual amount if Rs.22,00,000/-), a shell company/concern floated by Deepak Gupta?.

“The Supreme Court was dealing with a case where the AO had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were “name-lenders and the transactions are bogus.” The AO came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the AO “had not even come to a prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague felling that they may be “bogus transactions.” It was further explained by the Supreme Court that : “Before issuing a notice under S. 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under S. 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of cl. (a) or cl. (b) of S. 147 are satisfied, the ITO has no jurisdiction to issue a notice under S. 148.” The Supreme Court concluded that it was not satisfied that the ITO had any material before him which could satisfy the requirements under Section 147 and therefore could not have issued notice under Section 148.”

“12. In the present case, after setting out 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 income of the Assessee escaped assessment is missing in the present case.”

(i) AO has merely acted in mechanical manner on receipt of information from Addl. Director of Income-tax

(Inv.), Unit-1, New Delhi that he has reason to believe that income of Rs.22,00,000/- has escaped assessment for the year 2004-05 due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment; (ii) forming an opinion merely on the basis of information supplied to the AO by Addl. Director of Income-tax

(Inv.), Unit-1, New Delhi that Deepak Gupta has provided accommodation entries to the assessee to the tune of Rs.22,00,000/- does not amount to satisfaction of the AO to reopen the case u/s 147 of the Act; (iii) before initiating the proceedings u/s 147/148, the AO has not preferred to examine Deepak Gupta even on whose alleged statement, Addl. Director Income-tax

(Inv.) sent intimation rather taken his statement as gospel truth. (iv) AO has candidly incorporated in assessment order that, “it is established by Investigation Wing that the parties with whom the assessee had transactions operate through paper companies and have no real identity.” and this fact goes to prove that he has not preferred to investigate the matter himself to reopen the case. (v) in view of the law laid down by the Hon’ble Supreme Court and Hon’ble jurisdictional High Court in the judgment cited as Chhugamal Rajpal vs. S.P. Chaliha and G & G Pharma India Ltd.(supra) respectively, the initiation of proceedings u/s 147 of the Act is itself bad in law and consequent assessment framed u/s 143(3)/147 of the Act is not sustainable, hence hereby quashed.