M/S. NEELKANTH ORGANICS PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

Appellant by Sh. Rajesh Jain, CA Respondent by Sh. P. DAM Kanunjna, Sr.DR Date of hearing 25.02.2016 Date of pronouncement 30.03.2016 ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed against order dated 15/12/2014 of Ld. Commissioner of Income-tax(Appeals) for assessment year 2004-05, raising following grounds of appeal:

1. On the facts and circumstances of the case, the Order passed by the learned Commissioner of Income Tax(Appeals) upholding the additions in the returned income of the appellant, made by the Assessing Officer, is totally illegal on the facts of the case and as per law.

2. That the learned Commissioner of Income Tax(Appeals) erred in dismissing all the grounds of appeal raised by the appellant without appreciating the appellant submissions judicially.

3. That the learned Commissioner of Income Tax(Appeals) erred in upholding the contentions of the Assessing Officer for initiating and sustaining the reassessment proceedings under Section 147 of the Act, without appreciating that the proceedings were initiated mechanically on information received by investigation wing by the Assessing Officer who did not apply his own mind on the facts of the case at all with reference to the income tax return and audited final accounts filed therewith. That the learned Assessing Officer also violated the principles of natural justice as the copy of the statement of the witness was not given to the appellant.

4. The learned Commissioner of Income Tax(Appeals) erred in upholding the addition of Rs. 8,83,850/- made by the Assessing Officer, on account alleged unexplained deposits in the bank account under section 68 of the Act without considering the facts & submissions of the appellant filed during the appellant proceedings. The appellant duly explained that these transactions are business transactions of sale/purchase of shares and the amounts are not in the nature of the Share Capital, Gifts etc. as alleged in the reasons for initiating the re-assessment proceedings.

6. That the appellant craves leave to add, amend or alter any of the grounds of the appeal.

discussed the material produced during the hearing of the appeal. In background of the above facts the Hon’ble Court held as under: “13. Mr. Sawhney took the Court through the order of the CIT(A) to show how the CIT(A) discussed the material produced during the hearing of the appeal. The Court would like to observe that this is 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 material, conclude that he has reason to believe that income of the assessee has escaped assessment. Unless exercise of analyzing materials produced subsequent to the reopening will not rescue an inherently defective reopening order from invalidity.” 4.3 Thus the Hon’ble Court in the above case has held that the AO must apply mind to the material in order to have reasons to believe that income of the assessee has escaped assessment and which was missing in that case. In the case in hand, no such issue of existence of material on the basis of which notice under section 148 of the Act has been issued, is raised. The reasons recorded by the Assessing Officer for reopening of the assessment are reproduced as under to have clarity of the issue:

“PUC is the proposal for reopening the case u/s 147 of the IT Act for the AY 2004-05 in the prescribed Performa. The information has been received from the Investigation Wing that the name of the above assessee appears in the list of beneficiaries, who have routed their unaccounted moneys through the bank accounts of the entry operators in the garb of share application money, loan, gifts, bogus sales/purchases or some other ostensible business transactions. The accommodation entries have been taken in lieu of certain percentage of commission paid to the entry operators, against out of the undisclosed sources. During the FY 2003-04, the assessee has received an amount of Rs. 8,83,850/- by way of accommodation entries from the notified entry operators as per tables below:- Name of Name of Amount Date Name of Account the Bank & Bank & of Entry the Entry No./Cheque Branch of Branch of Taken Operator No. the the entry (Rs.)

Beneficiary operator Standard Nainital 3,84,850/- 04.08.2003 Shridhar 179/171037 Chartered Bank, Financial Bank, New Delhi Services Parliament Ltd. Street, New Delhi Standard Nainital 4,99,000/- 04.09.2003 Shridhar 179/171039 Chartered Bank, Financial Bank, New Delhi Services Parliament Ltd. Street, New Delhi I have perused the information received from the Wing. The Wing has sent comprehensive details comprising, inter-alia the Beneficiary’s Name, Beneficiary’s Bank Name, Beneficiary’s Bank Branch, Account No. of Beneficiary in which entry is received, value of entry taken, date on which entry taken, name of account holder of entry given account. In view of the above, I have reasons to believe that income to the extent of Rs. 883850/- has escaped assessment. Therefore, proceedings u/s 147 of the Act is proposed to be initiated for AY 2004-05. Since, four years have elapsed from the end of the relevant AY i.e. 2004-05 approval of the Addl. CIT, Range-13, New Delhi is solicited u/s 151(2) of the Act.” 4.4 From perusal of above, we find that, in the case in hand, no scrutiny assessment was completed and therefore no information in respect of whether the transactions were declared by the assessee in its books of accounts, was available with the Assessing Officer for verification of the information received from the Investigation Wing. The Assessing Officer received information specific to the assessee having details of bank and branch of the assessee as beneficiary, cheque number and amount used in the transaction alongwith bank and branch of entry operators from the investigation wing of the income tax Department, which collects this information after carrying out enquiries as per the provisions of income tax Act and on the basis of this information the Assessing Officer formed his belief that income escaped assessment in the case of the assessee in respect of year under consideration. Thus, we cannot say that Assessing Officer has not applied his mind and mechanically issued the notice under section 148 of the Act. In the case of ACIT vs. Sh. Devesh Kumar (supra), the Tribunal observed that there was no mentioning of the date on which the reasons were recorded for issuance of notice under section 148 of the Act, whereas in the present case there is no such omission and therefore finding of the said case cannot be applied on the facts of the case of the assessee. The Ld. Commissioner of Income Tax (Appeals) has decided the issue of jurisdiction under section 147 as under: “From the above it is clear that the Assessing Officer considered the information from Investment Wing and made a reasonable believe that due to these bogus accommodation entries, the income has escaped assessment within the meaning of section 147 of the Act. Notice u/s 148 was issued after recording the proper reasons as per requirement of law. Therefore, reopening was based on a reasonable belief. There was information in respect of the assessee as a beneficiary of bogus accommodation entries which represented undisclosed income of the assessee. The information was specific to the extent that it contained the bank & branch of the assessee as beneficiary, specific information any reasonable person shall make a belief that income has escaped assessment. Therefore, there was sufficient material which is sufficient to make reason to believe for initiating the provisions U/S 147. There was a rational connection between the information received and escapement of the income. There is a live link between the material that came to the notice of the Assessing Officer and the formation of believe that income has escaped from assessment. For the purpose of initiation of proceedings U/S 147, mere existence of prima facie belief that income chargeable to tax had escaped assessment, is sufficient. 4.1.2 In response to notice U/S 148 the assessee vide its letter 25.04.2011 had submitted that the assessee company had duly filed tax return for the AY 2004-05 on 31.10.2004 declaring taxable income of Rs. (- 11,858)/-. The IT Return filed by the company U/S 139 may be treated as filed U/S 148 of the IT Act. Thereafter, statutory notices U/S 143(2) were issued by the AO and in response AR of the assessee attended the proceedings from time to time and filed the requisite details. Reasons recorded by the AO for initiating the proceedings u/s 147 was also provided to the assessee. The objection raised by the assessee by letter dt. 11.10.2011 was duly disposed off by the AO by a speaking order dt. 14.10.2011. At the time of initiation of proceedings u/s 147 documentary evidence or materials relating to escapement of income need not be supplied to the assessee. Even the sufficiency of reasons for forming the belief is not a requirement. Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. reported in 291 ITK 500 has held when the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, the law does not require that Assessing Officer should have finally ascertained the fact of legal evidence or conclusion. The material required for conclusively proving the escapement of income is not concerned at the stage of reopening. Hon'ble Delhi High Court in the case of A.G. Holdings (P) Ltd. vs. ITO in W.P. (C) 8031/2011 and in the case of CIT vs. Nova Promoters & Finlease (P) Ltd (2012) 18 Taxmann.com 217 (Delhi) has held that at the time of issuing the notice to reopen the assessment, the Assessing Officer is only expected to form a prima facie or tentative belief that income chargeable to tax had escaped assessment. Whether the addition has to be made or not is a matter to be decided on merits in the course of the reassessment proceeding. The information received from the investigation wing was specific. The information was sufficient for making a belief that income amounting to Rs. 8,83,8501- chargeable to tax has escaped assessment within the meaning of section 147 of the Act and the Assessing Officer was justified in initiating the proceedings for reassessment by issuing notice u/s 148 after recording the reasons as required by law. In view of the above, the submission of the appellant is not sustainable. As the proceedings u/s 147 have been initiated and assessment was made U/S 1471143(3) as per the provision of the LT. Act, therefore, no infirmity have been caused by the A.O. Therefore, appeal fails in ground nos. 2 & 3 of appeal. 4.5 In view of the above findings of Ld. Commissioner of Income-tax (Appeals) and our discussion above, we are of the considered opinion that the Commissioner of Income Tax(Appeals) has passed a well reasoned order on the issue in dispute and no interference on our part is required. Accordingly, we uphold the findings of the Ld. Commissioner of Income-tax (Appeals) on the issue in dispute and the grounds of the appeal of the assessee are accordingly dismissed.

5. In ground Nos. 4 and 5 the assessee has challenged addition of Rs. 8,83,850/- made by the Assessing Officer and upheld by the Ld. Commissioner of Income-tax (Appeals).

5.1 The Ld. AR reiterating grounds of appeal submitted that the assessee had duly explained these transactions as business transaction of purchase and sale of shares and in case of first transaction, the sale was even made in the earlier assessment year. He further submitted that purchases corresponding to the sales have not been doubted by the Assessing Officer and the addition made under section 68 of the Act in respect of the sale transactions is amounting to double addition for the same transaction, which is not allowed as per law. The Ld. AR further relied on the decision of the Tribunal, Delhi Bench in the case of Income Tax Officer versus Srishti Fincap Pvt Ltd in ITA No. 2264/Del/2013. The Ld. senior DR, on the other hand relied on the findings of the authorities below. 5.2 We have heard the rival submissions and perused the material on record. In the case of the assessee, the Ld. Commissioner of Income-tax( Appeals), has noted that contrary to the statement of the assessee that confirmations were filed before the AO, on verification of the assessment record, he found that no confirmation from M/s Shridhar financial services Ltd that the impugned transactions were in respect of sales of shares, were filed. This was primary requirements of the assessee for discharging its onus under section 68 of the Act and assessee has failed in discharging its onus not only before the Assessing Officer even before the Ld. Commissioner of Income-tax (Appeals). The relevant findings of the Commissioner of Income-tax (Appeals) on the issue in dispute are as under: “4.2.2 In this regard the submission f the appellant that transactions are duly recorded in the Books of account of the company and reflected in the Balance sheet and Profit & Loss Account of the relevant period are without any merit. It is an established legal position that mere entries in the books of account of the assessee is not enough to justify cash credit. The bank account statement filed by the assessee in respect of its account with Standard Chartered Bank shows simply credit of Rs. 3,84,850/- on 7th April, 2003 and Rs. 4,99,000/- on 8th April, 2003 by cheque no. 171037 and 171039 respectively. The bank statement do not show that the above amounts were received from M/s. Shridhar Financial Services Ltd. In this regard, the submission that statement of account as confirmation issued by M/s. Shri Dhar Financial Services Ltd. proves that it has paid money towards purchase of shares is without any merit as no confirmation from M/s. Shridhar Financial Services Ltd. was furnished by the assessee as recorded by the Assessing Officer. In this context the assessment record was called from the Assessing Officer and I have verified the assessment record in the presence of the Authorized Representative of the assessee on the last day of hearing of this appeal on 12.12.2014 and it is found that no confirmation was field by the assessee from M/s. Shridhar Financial Services Ltd. that the said sums were paid by M/s. Shridhar Financial Services Ltd. against purchase of shares from the appellant company. In this regard, assessee submitted before the Assessing Officer that “as regard confirmation from the party, the documents placed are self explanatory and may be counter verified by your good self directly from the said party.” The above reply of the assessee is clearly contrary to the initial onus placed on the assessee. The assessee cannot take such an unreasonable attitude towards his onus u/s 68. The onus of filing the confirmation is on the assessee and it was not open to the assessee to direct the assessing officer to obtain the confirmation from the party. That is the onus of the assessee, not of the assessing officer. Further, no evidence of sale of shares could be filed by the assessee except self signed sale bill in the letter head of the assessee company which is a self serving document and does not have any evidentiary value. Thus, it is clear that the transaction of sale of shares is not proved.

5.3 We find from the above that though the assessee has claimed that the transactions with M/s Shridhar financial services Ltd were in the nature of sale of shares, but no confirmation in this respect has been filed before the lower authorities discharging its onus. Simultaneously, it is submitted by the assessee that the assessee requested before the AO for copy of statements and other documentary evidence suggesting the said sale transactions as accommodation entry were not provided to the assessee. In view of the above facts and circumstances, we are of the opinion that the issue need to be restored back to the file of the AO with the direction to provide the assessee all the necessary material, which is used against the assessee and to provide sufficient opportunity of hearing to the assessee. The assessee is also directed to provide all the necessary documents in support of its contentions. Accordingly, the ground of the assessee is allowed for statistical purpose.

The decision is pronounced in the open court on 30th March, 2016.