The Commissioner of Income Tax -III vs. Sri T.C. Reddy

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 577 / 2011 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus M/s Prestige City Developers P. Ltd., ISF, Kamal Complex, M.I. Road, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 04/09/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby Tribunal has dismissed the appeal of the department and cross objection of the assessee was partly allowed for statistical purposes. 2. This court while admitting the appeal on 19.10.2011 framed following substantial question of law:- “i. Whether the tribunal was justified in deleting

the

addition

of Rs.7,59,67,000/- which was made by the Assessing Officer on account of bogus payment shown by the assessee to M/s. Mrigiya Electronics Industries Private Limited for purchasing land of Rs.4,35,60,000/-

for Rs.11,95,27,000/-

without

any justification for the same. ii. Whether the tribunal was justified in deleting the addition of Rs.15,19,340/-

being commission paid by it to M/s. Mrigiya Electronics Industries Private Limited for giving accommodation entries, when it was deposed by it’s Director that the company was involved in providing accommodation entries after charging commission for the same?” 3. The facts of the case are that the appellant is engaged in real estate business and has launched residential scheme at Jodhpur. During the year the land was purchased from various persons for its real estate projects. As per the AO value of land purchased as per registered sale deed comes to Rs.43560000/- but the appellant has claimed cost of land in its books of accounts at Rs.119527000/-. It was stated that difference of these two amounts was paid to one M/s. Mrigiya Electronics Inds. Pvt. Ltd. as cost of consolidation. Copies of agreements between M/s. Mrigiya Electronics Pvt. Ltd. and the land owner as well as between the appellant and M/s. Mrigiya Electronics Inds. Pvt. Ltd. were produced. The inference drawn from agreement is that M/s. Mirgya first entered into agreement for purchase of land from 12 owners and then immediately selling the same to the appellant for Rs.119527000/-. The payments were made to the land owners by M/s. Mrigiya Electronics Inds. Pvt. Ltd. in cash at the time of agreement. Total such cash payments of Rs.61 lacs were made as an advance against total consideration of Rs.43560000/-. 4. Counsel for the appellant Mr. Singhi has taken us to the order of the AO wherein the AO observed as under:- S.N o. Khasra No. Area (in bigha) Names of recorded owners of land Dt. of agreement Price payable by Earnest money Total price payable by

between first party (M/s. Mrigiya Eelectornic s Industries P. Ltd.) and recorded owners first party (M/s. Mrigiya Electronics Industries P. Ltd.) to recorded owners paid by First party, (M/s. Mrigiya Electronics Industries P. Ltd) to recorded owners second party (M/s. Prestige City Developers P. Ltd) to first party (M/s. Mrigiya Electronics Industries P Ltd.) @ Rs.8.90 lacs per bigha 1 2 3 4 5 6 7 8 1 141 15.45 Smt. Rita Goyal 5.4.06 5425000 500000 13750500 2 141/1 21.35 Smt. Sangeeta Agarwal 6.4.06 7475000 700000 19001500 3 141/2 21.35 Smt. Narmada Modi 7.4.06 7475000 700000 19001500 4 141/3 15.20 Smt. Shobha Modi 7.4.06 5325000 700000 13528000 5 178 8 Smt. Manju Vyas 7.4.06 2000000 500000 7120000 6 178 8.20 Smt. Dhiraj Kanwar 5.4.06 2050000 500000 7298000 7 178 8 Smt. Ashu Chaudhary 6.4.06 2000000 500000 7120000 8 179/1 9.80 Smt. Anita Gupta 5.4.06 2450000 500000 8722000 9 179/2 9.80 Smt. Kavita Goyal 5.4.06 2450000 300000 8722000 1 184 8.85 Smt. 7.4.06 2225000 500000 7876500 “8. On preliminary study of the audit report of M/s. Mrigiya Electronics Industries P Ltd. it was noticed that the audit report does not show any activity of land purchased or sale. Neither any profit on account of this activity was reflected in the final accounts. M/s. Mrigiya Electronics Industries P Ltd. showing the business of only sale and purchase of shares. Only Nil income has been shown and a loss of Rs.12,218.73 is reflected in the P& L a/c. Audit report & ITR-V of M/s. Mrigiya Electronics Industries P Ltd. is annexed with this order as Annexure-A.” 4.1. Taking into consideration the above factual position the AO held as under:-

(i) Commission has been paid to Smt. Nirmala Kedia at Rs. 2,35,000/-, to Smt. Shashi Kedia at Rs.2,65,000/- and Sh. Surendra Kedia at Rs.1,45,000/-. The assessee was asked to file the justification of these expenses as these are payments to related parties u/s 40(a)(2)(b). vide reply dated 30.12.2009, the assessee has filed bills of these persons. These bills show that sales commission against sales of plot have been paid by the assessee to these persons for attracting investment. The commission has been paid @ 2.35% to Nirmala Kedia, @ 2.65% to Shashi Kedia and @ 2.90% to Surendra Kedia. The interesting feature of this expenditure is that the investment has been shown in the name of M/s Vaishnavi Home Entertainemtn P Ltd, Tuticorin Traxim P Ltd and Alishan Estate, & Wrack Electronics P Ltd, New Delhi. The names of these companies do not appear in the list of persons from whom advance have been received for booking of plot. Rather these companies have introduced share application money/share capital/unsecured lions as per the details filed by the assessee. The claim of this expenditure is therefore disallowed being bogus and without any justification. This works out to Rs.6,45,000/-. Penalty proceedings u/s 271(1)(c) r.w 274 of the Income-tax Act for concealment and furnishing of inaccurate particulars are initiated separately.

(ii) The assessee has also claimed capital expenditure of Rs. 168600/- as a revenue expenditure. The capital expenditure pertains to fees paid to Registrar of Companies for increasing the authorized capital of the company. This fact was brought to the notice of the assessee vide order sheet entry dated 29.12.2009. No satisfactory reply has been filed. It is therefore, disallowed from the revenue expenses claimed by the assessee. Penalty proceedings u/s271(1)(c) r.w 274 of the Income-tax Act for concealment and furnishing of inaccurate particulars are initiated separately.

(iii) The assessee was asked to file justification of expenses of Rs.1,25,000/- claimed in the name of one Smt. Sangeeta Thakur. No reply has been

filed in response to the specific query dated 29.12.2009. this expenses is disallowed on both counts of allowability as well as u/s 40(a)(ia). Penalty proceedings u/s 271(1)(c) r.w 274 of the Income-tax Act for concealment and furnishing of inaccurate particulars are initiated separately. (iv) The assessee has booked various expenses of contractual nature, vide order sheet entry dated 29.12.2009, the assessee was asked to show cause why the same should not disallowed u/s40a(ia). In response thereto the assessee has only filed copy of bills of these expenses rather than giving any reason for non deduction of TDS. These expenses are hereby disallowed u/s40a(ia). Surveying & consultation exp B L G Construction 89809 Office renovation Ghanshyam Jangid 180335 Advertisement Kalarthi 134549 Site office Kaluram Sonel 55230 Advertisement Kushal Global Ltd 24750 Supervision over contractors @ 2% Sudesh Purohit 69317 Advertisement Vikalp Events & Promotion 77000 Advertisement Vyas Enterprises 22448 CD Presentation Sandeep Yadav 75000 Total 728438 Subject to the remarks above, the value of project work in progress as on 31.3.2007 declared by the assessee is re-calculated under: Description Value shoen by the assessee Disallowance as per discussion Value calculated as per

above assessment order Land 122689030 75967000 46722030 Site development expenses 16068778 953438 15115340 Preliminary & preoperative expenses 7355345 813600 6541745 Total 68379115 Subject to the remarks above, the total income of the assessee is computed is as under: Income shown Nil Unrecorded expenditure as per para 14 1519340 Unrecorded expenditure as per para 15 6100000 Total Income 7619340 4.2 He further contended that CIT(A) while considering the matter has not considered the facts in true spirit and has wrongly partly allowed the appeal of the assessee and the tribunal has committed serious error in dismissing the appeal of the department. 4.3 He has relied upon the decision of Calcutta High Court in CIT vs. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 wherein it has been held as under:- “In the course of assessment proceedings for the assessment years 1978-79 and 1979-80, the AO

found various cash credits in the books of the assessee. Enquiries were conducted through the inspector on different dates and it was found that either the files did not exist as per details given by the assessee or the records did not tally with the facts mentioned by the assessee. Apart from having enquiries made by the inspectors several letters also issued to the assessee between January 16, 1982, and February 24, 1986 bringing to its notice that the loans could not be verified and adequate proof was required. The assessee had not responded. Hence, the tribunal was not justified in law in deleting the addition of Rs.5,64,631/- and Rs.4,84,205 as unexplained credits and interest thereon for the assessment years 1978-79 and 1979-80, respectively.” 4.4 He also relied upon the decision of Supreme Court in Vijay Kumar Talwar vs. CIT (2011) 330 ITR 1 (SC) wherein Supreme Court held as under:- “21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been (2006)

SCC

545 taken

into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See: Madan Lal Vs. Mst. Gopi & Anr.4; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi5;

Commissioner

Customs (Preventive) Vs. Vijay Dasharath Patel6; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta7; West Bengal Electricity Regulatory Commission Vs. CESC Ltd.8) (2002) 8 SCC 715.” 4.5 He has also relied upon the decision of Bombay High Court in CIT vs Shah Construction Co. Ltd. (1998) 230 ITR 51 (Bom) wherein it has been held as under:-

“ So far as the assessee was concerned, the amount of Rs.2,81,331/- was receivable a service charges from Builders International (India) Ltd. in the previous year relevant to the assessment year 1980-81. There was no reason to hold that it was not includible in the assessee’s income. The service charges amounting to Rs.2,81,331/- had accrued to the assessee and was assessable in its hands.” 6. As against this, Mr. Jhanwar, counsel for the respondent has taken us to the order of CIT(A) wherein it has been held as under:- “Regarding AO's finding that M/s Mrigiya Electronics Inds. Pvt. Ltd. Was not a genuine entity, statemtns ofthe director of M/s Mrigiya Electronics Inds. Pvt. Ltd. Were recorded in December, 2006 wherein he has admitted that he was involved in providing accommodation entries in respect of shares. The statement was subsequently retracted by Shri Pramod Sharma, director of M/s Mrigiya Electronics Inds. Pvt. Ltd.. The AO in the case of M/s Mrigiya Electronics Inds. Pvt. Ltd. Has made addition of Rs.75967000/- as he obtained this information from M/s Mrigiya Electronics Inds. Pvt. Ltd.'s bank account. Thus the payments made by the appellant to M/s Mrigiya Electronics Inds Pvt. Ltd. Through banking channel are supported by bank account. There is no finding of the AO that this amount was withdrawn in cash by M/s Mrigiya Electronics Inds. Pvt. Ltd. And money has come back to the appellant. Copy of bank account of M/s Mrigiya Electronics Inds. Pvt. Ltd. Was filed by the appellant before AO. M/s Mrigiya Electronics Inds. Pvt. Ltd.'s confirmation was filed by the appellant. The addition is not base on any admission given by Shri Pramod sharma regarding transactions with the appellant company and, therefore, a general confession cannot be made basis for making any addition in the case of the assessee. As the transaction between appellant and M/s Mrigiya Electronics Inds. Pvt. Ltd. Is supproted by bank statement, agreement and the price paid found to be reasonable, taking an adverse view on the genuineness of M/s Mrigiya Electronics Inds.

Pvt. Ltd. On the basis of some enquiry against it in some other case that too for different assessment year will not be justified. The AO in Show Cause Notice informed the appellant that Sri Pramod Kumar Sharma, Director M/s Mrigya in his statement on oath on 16.12.2006 before DDIT (Inv.) Kolkata has stated that he got cash equivalent amount ffrom the companies and out specific transaction related tothe appellant's business. Nor there is any finding that cash of equivalent amount was returned to the appellant. To prove accommodation entry it is required to prove that cash has come back toparty against the cheque issued by him. Further there should be direct nexus between the conclusions of fact arrived at by the AO and primary facts upon which the conclusion is based. Conclusion should be reached on appreciation of number of facts and by assessing the cumulative effect of all the facts as a whole.” 6.1 He has also taken us to the observation made by the tribunal in para no.18, 21 to 25 which reads as under:- “18. The AO analyzed the transaction of purchase of land by M/s Mrigiya Electronics Inds. Pvt. Ltd. From the 12 recorded owners and its subsequent sale to M/s Prestige City Developers Pvt. Ltd. i.e. the assessee. The AO made an addition off Rs. 75967000/- in the hands of M/s Mrigiya Electronics Inds. Pvt. Ltd. Being profit on sale of land. Once the department has taxed at Rs.7,59,67,000/- in the hands of M/s Mrigiya Electronics Inds. Pvt. Ltd. Further, disallowance of said sum in the hands of the assessee is not justified. 21. "The total consideration paid by the assessee company to acquire 134.3 bighas of land as per the submission of AR is Rs. 119527000/- which includes Rs.75967000/- paid to M/s Mrigiya Electronics Inds. Pvt. Ltd. And balance to the land owners direclty. The AO has considered direct such payment of Rs. 43560000/- only and the transactions between assessee and M/s Mrigiya Electronics Inds. Pvt. Ltd. Were considered sham. The AO has come to this conclusion mainly on account of M/s Mrigiya Electronics Inds. Pvt. Ltd. Found to be involved in issuing accommodation entries

without actual dealing in shares in earlier year. Also that the Director of M/s Mrigiya Electronics Inds. Pvt. Ltd. Could not be produced before the AO for examination and no books of accounts M/s Mrigiya Electronics Inds. Pvt. Ltd. Were produced. The AO also doubted the genuineness of transactions wherein on investment of Rs.61 lacs within a month no one can earn profit of Rs. 75967000/-. The AR has tried to explain that AO's observation while doubting this transaction is not correct. M/s Mrigiya Electronics Inds. Pvt. Ltd. Paid advance of Rs. 61 lacs to 12 land owners but the amount was only an advance and the total consideration paid to the land owners was Rs.43560000/-. The AR by giving a chart has tried to explain that the land owners have earned profit of 100% to 200% within span of 8 months. While selling land at Rs. 43560000/- including payment of Rsm. 75967000/- made to M/s Mrigiya Electronics Inds. Pvt. Ltd., the rate per bigha land comes to Rs.8,90,000/-. When this is compared with the rate given by M/s Mrigiya Electronics Inds. Pvt. Ltd. To M/s Nikhar Builders for 1.85 bighas of land. (Rs. 16.54 lacs per bigha) the rate given to M/s Mrigiya Electronics Inds. Pvt. Ltd. Does not appear to be abnormal. Both the transactions took place almost at the same time and the transactions are also related to the same area. However, the rate paid by M/s Mrigiya Electronics Inds. Pvt. Ltd. To M/s Nikar Builders was on higher side because the land under consideration is a strip of land which connects the project with National Highway. As understandably this strip of land was very crucial for the project. The assessee was more than ready to acquire it and, therefore, the rate paid by Ms Mrigiya Electronics Inds. Pvt. Ltd. For the acquired strip of land was higher. The explanation offered by the AR appears to be acceptable that the viability of project got boost by acquiring strip of land. The map submitted by the AR shows that large number of other real estate projects came up during that period in that area and, therefore, the available land was scaree. Due to competition and limited availability of land, the prices of land at that time may be higher. In any case, the AO has also not given any comparable case which shows that the rates given by the assessee were on higher side. The payments made by the assessee to acquire land under consideration are supported by valid

agreement, sale deed and copies of bank accounts. Under the facts and circumstances and in absence of any evidence contraty. It cannot be said that the payments made by assessee through bank to M/s Mrigiya Electronics Inds. Pvt. Ltd. And the land owners were more than the actual payment or more than the market price. Because of the value added by M/s Mrigya by consolidating land of 12 different owners to make it worth developing a township and also by adding strip of land to the said chunk of land M/s Mrigya was entitled to earn profit. This argument of the AR appears to be convincing. 22. As evident from a chart prepared by the AR, Mrigya paid the rates to recorded owners almost one and half time more than DLC rates. Anybody can charge a rate more than the DLC rates and can get the property registered at value much more than the DLC value. Within a short span of time profit may be earned many fold as profit depends on several factors. Unless it is established that the rate claimed was abnormally higher as compared to similar deals registered during almost same time, the value shown by the assessee which is supported by Bank a/c cannot be denied. As the value shown in sale deed registered is more than DLC rates, registering authority is under obligation to register the deed. In such cases value at which property has been registered may not necessarily be the correct value paid by the purchaser and the real consideration may be more than what is appearing in sale deed. When payment is supported by bank account and other agreements, evidences cannot to ignored simply for the reason that actual consideration cannot be more than what is appearing in the deed. 23. Regarding AO's finding that M/s Mrigiya Electronics Inds. Pvt. Ltd. Was not a genuine entity, statements of the director of M/s Mrigiya Electronics Inds. Pvt. Ltd. Were recorded in December, 2006 wherein he has admitted that he was involved in providing accommodation entries in respect of shares. The statements were subsequently retracted by Shri Pramod Sharma, director of M/s Mrigiya Electronics Inds. Pvt. Ltd has made addition of Rs. 75967000/- as he obtained this information form M/s Mrigiya Electronics Inds. Pvt. Ltd.'s bank account. Thus the payments made by the

assessee to M/s Mrigiya Electronics Inds. Pvt. Ltd. Through banking channel are supported by bank account. There is no finding of the AO that this amount was withdrawn in cash by M/s Mrigiya Electronics Inds. Pvt. Ltd. And money has come back to the assessee. Copy of bank amount of M/s Mrigiya Electronics Inds. Pvt. Ltd. Was filed by the assessee before AO. M/s Mrigiya

Electronics

Inds.

Pvt.

Ltd.'s confirmation was filled by the assessee. The addition is not based on any admission given by Shri Pramod Sharma regarding transactions with the assessee company and, therefore, a general confession cannot be made basis of making any addition in the case of the assessee. As the transaction between assessee and M/s Mrigiya Electronics Inds. Pvt. Ltd. Is supported by bank statement, agreement and the price paid found to be reasonable, taking an adverse view on the genuineness of M/s Mrigiya Electronics Inds. Pvt. Ltd. On the basis of some enquiry against it in some other case that too for different assessment year will not justified. The AO in Show Cause Notice informed the appellant that Sri Pramod Kumar Sharma, Director M/s Mrigya in his statement on oath on 16/12/2006 before DDIT (Inv.) Kolkata has stated that he got cash equivalent amount from the companies and agaisnt the same – cheque has been issued. However the AO failed to point out specific transaction related to the assessee's business. Nor there is any finding that cash of equivalent amount was returned to the assessee. To prove accommodation entry it is required to prove that cash has come back to party against the cheque issued by him. Further there should be direct nexus between the conclusions of fact arrived at by the AO and primary facts upon which the conclusion is based. Conclusion should be reached on appreciation of number of facts and by assessing the cumulative effect of all the facts as a whole. 24. In the present case except statement of Shri Sharma (Which was subsequently retracted) there is no evidence which can conclusively prove that amount given by the assessee to M/s Mrigya was not a real payment but an accommodation entry. The consideration paid by the assessee for purchase of land is comparable and appears to be reasonable and, therefore, reduction made by the AO in the consideration shown by the appellant is not justified. The AO is therefore, directed to

accept the consideration as declared by the assessee. The grounds of appeal are decided in favour of the assessee" 25. The above finding of ld. CIT(A) neither could be controverted nor any material was brought on record to hold otherwise. The ld. CIT(A) has taken each and every objection of the AO and then concluded that explanation of the assessee was acceptable. The contention of the AO that by merely investing Rs.61,00,000/- no one can earn such a huge profit of Rs.7 crores or so has been considered by the ld. CIT(A) and found that the investment of Rs.61,00,000/- was given as advance and not the full consideration. Therefore, on investment of Rs.61,00,000/-, earning of Rs.7 crores or so is not correct. In fact the real amount was invested in land was Rs.4,35,60,000/- and purchaser M/s MEIPL was going to develop th land relating to 12 partners. Therefore, the land in pieces was brought by assessee company. It is not a case of the department that in lieu of cheques any cash was withdrawn from the bank and the same has been returned to the assessee. The general statement recorded of the Director that he is dealing in accommodation entry on account of shares cannot make a company in-genuine or bogus. Thereafter the statement given was retracted also. Even otherwise this is a land transaction and not share transaction. Therefore also ld. CIT(A) was justified in holding that M/s. MEIPL was a genuine firm and not an accommodation entry provider. The fact that the rate on which registry was made was 11/2 time more than DLC rate. Therefore, this is also not a case of the department that registry has been made on understated value. All these facts were examined by ld. CIT(A) and thereafter ld. CIT(A) has concluded that the AO was not justified in not accepting the explanation of the assessee. Detailed reasons given by ld. CIT(A) have been reproduced somewhere above in the order which remained uncontroverted. In view of the above facts and circumstances, we confirm the finding of ld. CIT(A) in this respect.” 6.2 He contended that in view of the decision of the Supreme Court in Jiyajeerao Cotton Mills Ltd. vs. CIT and Excess Profits, Tax

Bombay (1958) 341 ITR 888 (SC) wherein Supreme Court held as under:- “4. At the very outset, the question calls for an answer, does any question of law arise on the order of the Tirbunal ? It is only if it does, that the decision of the Tribunal will be open to consideration by the court under section 66 of the Act. Stating the same proposition in a different form, if that decision is one of fact turning on the appreciation of evidence, this court would not interfere with it in appeal under article 136 of the Constitution. Now, the point in dispute in these proceedings is whether the sum of Rs. 27,30,094 received by the appellant as profits in 1942-1943 is taxable under the Act, and that, in turn, depends on whether the forward contracts which resulted in these profits were made at Gwalior as contended by the appellant or at Bombay as held by the Tribunal. That would clearly be a question of fact, and the decision of the Tribunal thereon would not be liable to be challenged in these proceedings. Counsel for the appellant does not dispute this position, but he contents that a finding of the Tribunal even on a question of fact would be erroneous in law, if there is no evidence whatsoever to support it or if it is perverse. This question was quite recently considered by this court in Meenakshi Mills v. Commissioner of Income- tax, and the law was thus stated : "The position that emerges on the authorities may thus be summed up : (1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under section 66(1). (2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final in decision as to the legal effect of that finding is a question of law which can be reviewed by the court. (3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support or if it is perverse.

(4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of facts." 16. We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a court of appeal on facts. We have examined the record only with a view to see whether there is any misdirection or non-direction, such as is likely to have affected the result, and we have come to the conclusion that there is none, and that the finding of the Tribunal is not therefore open to attack.” 6.3 He has also relied upon the decision of this court in ITA No.476/2009 (CIT vs. M/s. Riverside Farma (P) Ltd.) decided on 1.8.2017 wherein it has been held as under:- “3. On 25.04.2017, when the matter was argued, we were of the opinion that the issue is covered by the decision of Supreme Court in the case of Jiyajeerao Cotton Mills. Ltd. vs. Commissioner of Income tax and Excess Profits Tax Bombay (1958) 34 ITR 888 (SC) wherein it has been held as under:- 10. It was next contended that if there had been transfer of profits by Jwaladutt Kishanprasad from Cotton Agents Ltd., to J. R. Pillani, Gwalior, that must appear in the accounts of the latter, that those accounts were with the Income-tax Commissioner and under the control of the Department and had been withheld, and that the Tribunal did not advert to this circumstance. This argument lacks substance. Let us presume that the entries in those accounts would show that the dealings took place as contended for by the appellant. But if the arrangement of the appellant with Jwaladutt Kishanprasad was as deposed to by J. R. Pillani, the accounts of the Gwalior firm would have been maintained conformably to that arrangement. By itself, therefore, it would mean little. In this connection, it should be stated according to Pillani the branch at Gwalior was really run by the employees of the Birlas, a statement which was accepted by the Appellate Assistant Commissioner.

not to do any business in British India. Mr. Kolah argues that there is nothing wrong in business being done in such a way as to escape taxation. No exception can be taken to that statement. Every person is entitled so to arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or makebelieve, and the question now under consideration is whether the contracts with the brokers were genuine. 12. Turning next to the accounts produced by the appellant, it is seen that the transactions of the three brokers were entered in Kherij Khata, which is said to have been maintained for parties for whom there are small dealings and whose accounts are cleared up in short time. But then, these transactions are not small transactions, nor were they close in a short time. Though the dealings went on for several months and there were several settlements, it was not until the 15th March, 1943, that payments are alleged to have been made to them. In the absence of regular ledgers in the names of these parties and having regards to the fact that the entries in the Kherij Khatas were journal entries, the Income-tax authorities were not prepared to attach any value to them. 13. Mr. Kolah argued that the contracts between the appellant and the three brokers expressly recite that they are as between principals and principals, that there were clauses therein providing for delivery and payment at Gwalior and that there was no reason for not accepting them as correct. But it is pointed out by the Income-tax authorities that the contracts provide for the business being done in accordance with the rules and bye-laws of the East India Cotton Association, Bombay, that according to bye-law No. 44-A of that Association "every contract made subject to these bye-laws shall take effect as contract wholly made in Bombay", and that further under the rules, the delivery of the goods must take place in Bombay. In view of this, the Income-tax Officer was of the opinion that the contracts in question had been got up for the purpose of supporting the present version of the appellant. 14. Mr. Kolah also contended that the evidence of Birlas would have been material in deciding whether they settled the contracts at Bombay

as contended for by the Department and that though the order of remand stated that their evidence should be taken, that had not been done and that was a serious irregularity. The portion of the order of remand relevant for the present purpose is as follows : "The managing director of the assessee company or rather the person responsible for ordering these transactions on behalf of the assessee company should also be similarly examined." 15. Now, the obvious intention behind this order, read as a whole, was that persons connected with the several links in the chain of contracts and series of payments concerned in these transaction should be examined with a view to elucidate the true position, and the managing director was mentioned as the person who was likely to have entered into these transactions. Durgaprasad Mandalia was the manager of the appellant company, and he gave evidence that he put the present transactions through the brokers, and that has been considered. If Birlas wanted themselves to give evidence, there was nothing to prevent them from doing so, and indeed, no complaint was made in the court below that their evidence had not been taken. There is no substance in this contention. 5. However, counsel for the appellant has relied on the judgment rendered by the Delhi High Court in the case of Commissioner of Income Tax Vs. Vipin Batra reported in (2007)293ITR 389 (Delhi) wherein the High Court has observed as under:- 10. In Raymond Woollen Mills Ltd. v. Income- tax Officer and Ors. , the Supreme Court held that what is required to be seen in a case such as this is whether prima facie there was some material before the Assessing Officer on the basis of which he could reopen the case of the assessed. The sufficiency or correctness of the material is not to be considered because it is open to the assessed to prove that the facts assumed by the Assessing Officer in the notice were erroneous. 11. Much earlier, in Phool Chand Bajrang Lal and Anr. v. Income-tax Officer and Anr. , the Supreme Court reviewed the entire case law and concluded that: (a)There must be some specific, reliable and relevant information available with the Assessing Officer. (b) The Assessing Officer must have reasons, which he

must record, that income has escaped assessment. (c) The case should not be one of a mere change of opinion by the Assessing Officer or the drawing of a different inference from the same facts but that those reasons must be based on facts which have subsequently come into possession of the Assessing Officer. (d) The sufficiency of reasons for forming the belief is not for the Court to judge although the assessed can contend that the belief was not bona fide or was based on vague, irrelevant and non-specific information or that the material did not have any rational connection or a live link for the formation of the requisite belief. This is what the Supreme Court said: From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under Section 147(a) read with Section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessed to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessed to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extend, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income- tax Officer and further whether that material

had any rational connection or a live link for the formation of the requisite belief. 12. This Court also had occasion to deal with the issue of reopening a completed assessment in United Electrical Co. P. Ltd. v. Commissioner of Income-tax and Ors. (2002) 258 ITR 317. This decision has been relied upon by the Tribunal but we find that it is clearly distinguishable because in that case the Division Bench came to the conclusion that the statement on the basis of which reopening was sought was too general and it did not mention any name, much less the name of the assessed. It was, therefore, held that there was no information on record which could provide a foundation for the Assessing Officer's belief that the assessed's transaction was not genuine and that this income had escaped assessment on that account.” 6. Counsel for the respondent has relied upon the decision of Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Anupam Kapoor reported in (2008) 299ITR 0179 as well as the judgment of the Supreme Court confirming the decision rendered by the Allahabad High Court in the case of Commissioner of Income Tax (Central) Kanpur Vs. Dilbagh Rai Arora arising out of judgment and order dated 15.09.2010 in ITA No.125/2009.” 6.4 The decision of Allahabad High Court in CIT vs. Smt. Nirmal Arora which has been confirmed by the Supreme Court and contended that view taken by the tribunal is required to be approved. 7. We have heard counsel for the parties. 8. The question which has been posed for our consideration is whether the tribunal is justified in deleting the additions which was made by AO as well as CIT(A) being commission paid by it to M/s. Mrigiya Electronics Industries Pvt. Ltd. for giving accommodation entries was justified when the company was

involved in providing accommodation entries after charging commission for the same. 9. In view of the observations that the price of the land was paid with other entry in the bank and there is nothing to show that cash receipt was shown by the assessee. 10. In that view of the matter, we are in complete agreement with the view taken by the CIT(A) and Tribunal. No case is made out for interference. The issues are answered in favour of the assessee and against the department. 11. The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 32.