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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Date of hearing 23/12/2015 Date of pronouncement 18/03/2016 Appellant by: Sh. T. Vasanthan, Sr. DR Revenue by: Sh. Ajay Vohra, Sr. Adv Sh. Rohit Jain, Adv, Sh. Sahil Mehta, CA O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is preferred by the revenue against the order dated 23.01.2009 of learned Commissioner of Income-tax (Appeals)-XV, New Delhi for the Assessment Year 2000-01.
Brief facts of the case are that the assessee is a private limited company dealing in purchase and sales of shares. It filed its original return of income on 30th September 2000. Subsequently, notice u/s 148 was issued on 29th March 2007 and in response to that the assessee informed vide letter dated 2nd April 2007 that return filed on 30th September 2000 may be treated as return filed in response to notice u/s 148 of the act. In this case information was received from investigation wing that the assessee is involved in giving and taking accommodation entries from sales and purchase of fictitious shares. Therefore the assessee was asked to prove 3 entries dated 07.03.2000 and 09.03.2000 belonging to shares transactions. The assessee replied to those queries however the AO dissatisfied with them and based on the information received from Investigating Wing made an addition of Rs. 98 lacs u/s 68 of the act being sales value of shares sold during the year. However as the assessee has dealt in number of shares in 21 scripts, AO was of the view that sales of these shares are made at much lesser value than market rate as on the date of sale and therefore the sale is suppressed. Hence he made further addition of Rs. 4,09,38,927/-. The assessee carried the matter before the learned Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax (Appeals) regarding reopening of assessment has held that the recorded reasons for reopening contains sufficient contradiction and therefore the reopening of the assessment is invalid. Further regarding the addition u/s 68 he held that sale of shares of Rs. 98 lacs cannot be added u/s 68 of the Act. Regarding the addition on account of difference in the rate of share sold of Rs 40938927/- while deleting the additions he compared the market rate as per the respective stock exchange as well as the sale price shown by the assessee. In the nutshell ld. CIT (A) has deleted the additions Page 2 of 8 on merits and also reopening is held to be invalid. Against this order revenue is in appeal before us raising effectively five grounds of appeal:-
1. On the facts and circumstances of the case the CIT (A) has erred in law in holding that reopening u/s 147 was not proper. When clearly the reason recorded and material on record justified action u/s 147 of the I.T Act.
2. On the facts and circumstances of the case the CIT (A) erred in deleting the addition of Rs.98 lacs u/s 68 of IT Act, ignoring the fact the assessee had failed to discharge its onus u/s 68 of the IT Act.
3. On the facts and circumstances of the case the CIT (A) had erred in accepting and relying on fresh evidence in contravention to rule 46A of IT Rules as no opportunity was given to Assessing Officer.
4. On the facts and circumstances of the case the CIT (A) had erred in ignoring the full facts of the case and inherent contradiction between submission before AO and that in appellate proceeding in respect of discharge of onus u/s 68 of IT Act.
5. On the facts and circumstances of the case the CIT (A) had erred in deleting the addition of Rs 4,09,38,927/- on account of suppression of sale consideration ignoring the factual position brought on record by the Assessing Officer.”
The first ground of appeal
is against the reopening u/s 147 of the Act. Main reason for reopening was that information was received from the Investigation Wing that the assessee was involved in giving and taking accommodation entries through sale and purchase of fictitious and vague shares. Reasons recorded are at Page 4 of the Paper Book filed by the ld Authorized Representative which is also reproduced by ld. CIT (A) in his order. The assessee challenged the reopening before the ld CIT(A) and who in turn dealt with various aspect of reopening of the assessment and held that there is no nexus between the material received by the AO and belief of escapement of income, there is inherent contradiction in the reasons recorded and therefore he quashed reopening as invalid. Against this the revenue has challenged it as per ground No.1 of the appeal.
4. Before us the ld DR submitted that the AO has received some specific information and it was neither vague nor sanctity and therefore reopening is valid. Ld DR relied on the decision of honourable Delhi high court in AGR Investment Ltd.v. Additional Commissioner of Income-tax 197 Taxmann 177, CONTEL MEDICARE SYSTEMS P. LTD.v.COMMISSIONER OF INCOME-TAX 349 ITR 649 and of Honourable supreme court in RAYMOND WOOLLEN MILLS LTD. v. INCOME-TAX OFFICER AND OTHERS in 236 ITR 34.
5. Against this the ld AR of the appellant submitted that Para 1.2 Page 12 of the order of ld CIT(A) is elaborate on this issue and hence the reopening made by the AO merely on the basis of information received from Investigation Wing and without adding anything independently by application of mind, ld CIT(A) has rightly quashed reopening.
6. We have carefully considered the rival contentions. The ld CIT(A) has dealt with this issue in para 1.2 (b) to (e) of his order which is as under:- “1.2 (b) A further case has been made out that there is absence of linkage between the reasons recorded and the conclusions in the assessment order, and in that manner, the order is illegal with reference to statutory interpretation. Facts gathered on the case suggest that the case was primarily re opened in order to weigh in the findings of the Investigation Wing Page 2 of 8 Page 3 of 8 as to whether the appellant was a beneficiary of the accommodation entries managed through some accounts The Investigation Wing quantified the appellant's participation in the accommodation entries at Rs.17.02 lacs. The AO, on the basis of the Investigation Wing's finding came to 2 conclusions i.e one- the entries in the bank account of the appellant are in the nature of accommodation and two- the appellant has not disclosed those entries in its return for AY 00-01. These two limbs of the recorded reasons, if anything, stand contradictory to each other, since an accommodation entry, while being recorded in the regular books, is designed only to camouflage the nature and source of the originating transaction and even the nature of the receipt at the destination point. An accommodation entry in that sense remains recorded in the regular books. An entry which is not recorded cannot be an accommodation entry. The AO has not even made the two limbs of recorded reasons as alternate, but has made those as substantive grounds of re opening. In that view, the inherent contradiction in the reasons do not make for a legal basis for re opening. If at all the limbs are taken as alternate bases for re opening, the process of initiation of re assessment proceeding could not be other than a roving exploratory exercise, an area of quasi judicial activity not within the purview of the provisions of section 147. 1.2 (c) In the case of Indian Oil Corporation vs. 1TO reported in I59 ITR 956 (SC), it was held "that the reasons to believe is not the same thing as reasons to suspect'. In that ratio of law, the facts of the present case is one where the Assessing Officer's belief clearly falls within the realm of suspicion Had there been belief, the reasons could not have contained two contradictory lines for imputing understatement, one by way of parking accommodation entries, and two by way of non-reporting of entries themselves in the regular books. It is also settled law that the provisions contained in section 147 of the Act cannot be used as a. tool or as a provision to enable the Assessing Officer to conduct investigation In the case of Madhya Pradesh Indl. Corpn v. ITO reported in 57 ITR 637 (SC) it has been held that, proceedings cannot be initiated for the purpose of making fishing and roving enquiries. In similar set of facts, in the case of Lakhmam Mewal Das reported in 103 1TR 437(SC), it has been held as under;- "The reasons for the formation of the belief contemplated by section M7(u) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on formation of belief. Rational connection postulates that there must be direct nexus or live link between the material coming to the notice of the Income-tax Officer and thy formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated or re-opening the assessment. At the same time we have to bear in mind that it is not any and every material howsoever vague and indefinite or distant remote and farfetched which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment The fact that the words "definite information" which were there in section 34 of the Act of the Act 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening the assessment even if the information is wholly vague indefinite far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence." In the back drop of above ratio of law, I hold that the recorded reasons for re opening the case contain sufficient contradiction and thus could not have been a valid basis for reopening. 1.2(d) A further argument is that there is a disconnect between the reasons recorded and the conclusion in the re assessment order Facts indicate that the case was reopened on the basis that the entries from Shubiz Exports are either accommodation entries or the entries themselves were un reported in the regular books. The final conclusion on the specific items concerning and included in the reasons for re opening is that those entries, albeit recorded, represent income from undisclosed sources. For the detailed reasons given while adjudicating ground nos. and since facts unequivocally indicate that the receipt of Rs 12.02 lacs from Subiz Exports represent sale proceeds of shares held as stock-in trade by the appellant, and Page 3 of 8 Page 4 of 8 that the stock in trade account has depleted by the exact quantum of sale, and that the sale itself forms part of the appellant's declared turn over for the year under appeal, I hold that the entries from Shubiz Exports are neither un reported nor are those in the nature of accommodation, since returned as such as fully taxable as part of the appellant's turn over. The AO has relied on section 68 to enforce the addition. Now, the wordings of section 68 is clear. It has been laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In the case under appeal, the entries from Shubiz Exports have been returned as taxable turnover. Even if there were plausible ground to sustain a belief that the source of the entries is suspect and a case made out that those should be taxed as income from undisclosed sources, then also the quantum value of the entries equaling the disclosed turn over, there would be no case of under assessment of income, as made out by the AO. 1.2 (e ) For the reasons above. Grounds no 1 and 3 are allowed. Ground no 2 is dismissed. Ground no I. I has not been elaborated nor pressed, hence dismissed.”
The argument of the ld AR that information is specific and therefore reopening is rightly made is incorrect because it is stated in the reasons that amount of Rs.17.02 lacs have been received from one Pvt. Ltd Company on various dates the month of March 2000 said that these are the accommodation entries and are not recorded . This fact is incorrect as the sales consideration has been booked as sales in the profit and loss account of the assessee. However in the reasons recorded the AO has not applied his mind that how these entries are accommodation entries there is no evidences were lead for this belief showing any material. No infirmity pointed out by the ld DR also.
The Decision relied up on by the ld. DR are also analyzed as under a) [2012] 349 ITR 649 (Del) CONTEL MEDICARE SYSTEMS P. LTD. V . COMMISSIONER OF INCOME-TAX- In the facts of this case there was specific information that cash was received on account of accommodation entries. The facts are mentioned by honourable high court in para no 4 of the order as under :- “4. The Tribunal's reasoning in allowing the Revenue's appeal is in the following terms (page 710 of 20 ITR (Trib.)) : "From the perusal of the reasons recorded by the Assessing Officer it is seen that in paragraph 1 the Assessing Officer has mentioned about the receipt of report from the office of the Commissioner of Income-tax indicating that enquiries were initiated by the Directorate of Income-tax (Investigation) to probe into bank account which were used by entry operators for the purpose of issue of cheques to beneficiaries against cash paid by them. In paragraph 2, the Assessing Officer has mentioned the outcome of enquiries conducted by the Investigation Wing. In paragraph 3, the Assessing Officer has summed up the result of enquiries conducted by the Investigation Wing of the Department indicating the non-genuineness of the share capital or receipt of gifts or consideration for sale purchase. In paragraph 4, the Assessing Officer has given details of credit entries appearing in the bank account of the assessee coming from the account of three per sons. The Assessing Officer on the basis of the report given by the Investigation Wing has come to the conclusion that the entries were squarely hit by section 68 of the Act. There is no dispute about the fact that the Assessing Officer had not conducted independent enquiries after receipt of information. However, he has analyzed the report received from the Investigation Wing to come to a conclusion that the transactions were not genuine. The reasons recorded in the case of the present assessee are exhaustive as against the scanty reasons recorded in the case of Signature Hotels P. Ltd. v. ITO [2011] 338 ITR 51 (Delhi). This is not the case in the present appeal. Therefore, in our considered opinion, the Assessing Officer had applied his mind while recording Page 4 of 8 Page 5 of 8 the reasons for reopening of the assessment under section 147 of the Act. Moreover, the information is specific giving the details of the branch, the name of the account holder and the date of cheque and cheque number.” [underline supplied by us ] In this case there was a specific information that cash was paid by the accommodation entry receivers which gives prima facie belief that entries are accommodation entries. Here three is no such allegation in the reasons recorded by the assessing officer that assessee has received or paid cash for these transactions. Hence reliance on this decision is misplaced. b) Honourable SUPREME COURT in RAYMOND WOOLLEN MILLS LTD. v. INCOME-TAX OFFICER AND OTHERS in 236 ITR 34 has held that In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. In this case we could not find anything mentioned in the reason recorded by AO about any material except the rep[ort of investigation wing and which itself is contradictory. Therefore this decision also cannot come to rescue of the revenue. c) AGR Investment Ltd.v. Additional Commissioner of Income-tax 197 Taxmann 177, this was writ petition for quashing the notice u/s 263 of the act where in it is held that “23. In the case at hand, as we find, the petitioner is desirous of an adjudication by the writ court with regard to the merits of the controversy. In fact, the petitioner requires this Court to adjudge the sufficiency of the material and to make a roving enquiry that the initiation of proceedings under sections 147 and 148 of the Act is not tenable. The same does not come within the ambit and sweep of exercise of power under Article 226 of the Constitution of India. It is open to the assessee to participate in the reassessment proceedings and put forth its stand and stance in detail to satisfy the Assessing Officer that there was no escapement of taxable income. We may hasten to clarify that any observation made in this order shall not work to the detriment of the plea put forth by the assessee during the reassessment proceedings.” Therefore honorable high court was approached to quash the notice and consequent communication issued by the AO in that case and there was no finding given by the honorable high court on issue of reopening. Therefore the facts of that case are quite different than issue in impugned appeal.
In view of our above finding and after considering the various decisions cited before us by Ld DR, we find no infirmity in the order of ld CIT(A) in quashing 148/147of the Income Tax Act. Hence ground no 1 of the appeal is dismissed.
Ground no 2 of the appeal is against the deletion of addition of Rs 98 lakhs which was made by AO applying the provisions of section 68 of the Act. Brief fact of the case is that the assessee has sold share of Rs.98 lacs during the year to various parties. The ld AO has treated this amount as income u/s 68 of the Act. The ld CIT(A) deleted the addition for the reason that the shares sold were part of closing stock in trade for earlier assessment years and if the allegation of the AO is that share sold were fictitious then reopening should have been done in the year in which shares were purchased. Furthermore such shares were not out of books of the company but in the books of account. Against this the ld DR relied on the order of the AO and decision of Hon’ble Delhi High Court in case of CIT Vs. CIT v Navodaya Castles P Ltd. 367 ITR 306. Ld AR relied on the order of CIT (A) and also submitted that sales of shares is already shown as income in the books of accounts of the assessee. Further ld AO has not shown anything how these sales shown by the assessee is unexplained cash credit. Page 5 of 8 Page 6 of 8 11. We have carefully considered the rival contention. The ld CIT(A) has dealt with this issue at Para 2.2 at Page 18 as under:- “2.2(a) I have considered the submissions of the appellant, the findings of the AO and the facts on record. Certain aspects of the accounts of previous years have been relied on by the appellant in order to contend that the source of credit of Rs.98 lacs in its P& L account for the year under appeal could not have been other than the appellant's stock in trade, which it was carrying since AY 97-98 and AY 98-99. If at all the source of the credit in the P&L account is anything other than the appellant's stock in trade, the accounts of the appellant for AY 01-02 could not have carried the impact of depletion of stock in trade on account of sales thereof during the year under appeal. As per records, (he appellant purchased a total of Rs 1.31 crores of shares by way of stock in trade and upon some sales, its closing stock for Assessment Year 97-98 was Rs 99.54 lacs. The further purchase and closing stock for AY 98- 99 and 99-00 are respectively Rs.2.56 lac and Rs.99.89 lac (for AY98-99), and Rs.2.80 lacs and Rs.99.89 lacs and Rs.99.89 lac( for AY 99-00. The fact that sales have been made out of the closing stock of shares as on 31-03-99 is evident from the appellant's trading account itself for AY 00-01, when sales have been shown at Rs 99 lacs, purchases at nil and closing stock at Rs.2.50 lacs. 2.2 (b) The appellant's assessment for AY 97-98 was completed under section 143(3) and no reservations expressed either on The purchases or the closing stock. I agree that since all purchases barring Rs 5 lacs pertain to AY 97-98, and since this case for AY 97-98 has been subjected to an assessment under section 143(3), there is no merit, either technical or evidentiary, to adopt a view that the sales made during AY 00-01 could be from any source other than the appellant's closing stock, and more so, when the stock in trade account for AY 00-01 records the fact of such sales. Technically too, the AO has worked out the assessed income on the basis of returned net loss of Rs 4612 (which inter alia took in to account sales of Rs 98 lacs ) and therefore to enforce a further addition of Rs 98 lacs would be doubly assessing the sale proceeds. 2.2 (C) The AO principally made the appellant's inability to produce the Principal Officer of Shubiz Reports to explain a credit of Rs 12 lacs the major fulcrum to enforce an addition of Rs 98 lacs, which encompassed parties oilier than Shubiz Exports On its part the appellant confirmed the fact of incorporation of Shubiz Exports, its PAN, the last known address, and the fact of receipt of sale proceeds from Shubiz Exports and all other parties involved in transacting with the appellant as having been made through banking channels. The fact that sales have been made against bills, and arose out of the closing stock of the previous years was also brought on record. According to the AO, the evidences brought on record by the appellant mean nothing as long as the Principal Officer of Shubiz Exports was not made available. This issue as to what length an appellant can traverse to justify its credits in the books of account came up in Commissioner of Income Tax vs Divine Leasing and Finance Ltd (2008) 299 ITR 268 Delhi}. The ITAT in that case had recorded a finding that the AO had not bought any positive material or evidence which would indicate that the shareholders wore (a) benamidars (b) fictitious persons, or (c) that any part of the share capital represented the company’s own income from undisclosed source and hence held that the assessee had discharged its onus of proving the identity of the share subscribers. The Delhi High Court in the facts of that case held that based on the factual matrix, the question of unexplained credit as envisaged in Section 68 will not apply and the identity of the share subscribers were duly proved. According to the High Court there cannot be two opinions on the aspect that the pernicious practice of conversion of unaccounted money through the masquerade or channel of investment in the share capital of a company must be firmly excoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity of the assessee should not be harassed by the Revenue's insistence that it should prove the negative, hi the case of a public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The company must, however maintain and make available to the Assessing Officer for his perusal of the information contained in the statutory share application documents "In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 60 of the Income-tax Act The bunion of proof can seldom he discharged to the hill by (lie assessee, if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, Page 6 of 8 Page 7 of 8 nay duly-bound, to carry out thorough investigations. "But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. It is settled law that while Section 68 places the burden of proof on the taxpayer to explain the nature and source of the credit found in the books, this at best can be the initial burden Where the explanation is prima facie credible, the burden shifts to the other party. In Hindustan Tea Trading Co vs CIT (2003 263 ITR 289), subscriptions for share application money were received from the public and the assessee had disclosed all the particulars, including the addresses of the subscribers, the question of treating the same as unexplained credit does not arise. Similarly, in the CIT vs Shree Barkha Synthetics Ltd (2004-270 ITR 477) case, the Rajasthan High Court held that in the case of the company receiving contribution as share capital, in cases where the details of 01/PAN of the contributors were available, (lie identity of the subscribers were established but where details were not available the same has to be treated as unexplained credit. Although rendered in the context of share capital and loans, the ratio of the case laws equally applies to the facts of this case. The appellant has brought on record the identity and last known address of the counter party, the evidence of its transaction 7 years back in time, the evidence that Shubiz Exports is a company incorporated under the Company's Act and holds a PAN, In the facts of this case and in the light of judicial interpretation on the rigors of section 68, 1 hold (lint (he evidences tendered in this case coupled with the entries recorded m the books of account concerning sales of the appellant to Shubiz Exports , do not lead to any justifiable conclusion that the receipts from Shubiz Exports are appellant's own money or that those are unexplained, more so, when the receipts have been parked as taxable sale proceeds in the appellant's books. 2.2 (e) The AO has brought on record no evidence in respect of the additions made pertaining to parties other than Shubiz Exports. All the sales made during the year are against bills of specific scrips, made to identifiable parties, and the proceeds thereof have been parked in the P&L account and the Balance Sheet. For the reasons recorded in paragraph 2.2 (d) I hold that the AO was in error in making addition of appellant's sale proceeds under the head of income other sources, without leading any evidence towards that end.”
We have perused the order of LD CIT (A). The assessee has furnished during the course of assessment proceedings the requisite details of the party to whom the goods have been sold which is asked by ld. AO i.e. M/s Shubiz Exports (p) Limited . In case of Shubiz export as assessee has sold shares only of Rs 12 lakhs. For which assessee has submitted evidence about existence of the shares in the books of the appellant company, existence of the buyer, the description of shares sold, and permanent account number of the buyer i.e. Shubiz exports (p) ltd, details of the bank account from which the cheques for sales consideration has been received and copy of sale invoice. According to the details supplied it has sold 22850 shares of India cements Limited @ Rs 51/- each amounting to Rs 1165350/- on 8/7/1999 and R 2665 shares of Vikas LSG Ltd @ 13/- each amounting to Rs. 34650/-. For these sales the consideration has been received on 7/3/2000 and 8/3/2000 partly by chqeue and partly by pay order. For the majors sale of India cement shares they are also at comparative rates quoted in stock exchange. All these facts are on record and are undisputed by the revenue. Further reliance by revenue on the case of CIT V Navodaya castles Limited ( Supra) is also unfounded as in that case the summons were issued to the shareholders and they did not remain present. In this case there is no such inquiry being made by the ld AO despite having PAN of the persons to whom t shares have been sold. Further in this case sales have been credited by the assessee in the profit and loss account as income. Hence we confirm the findings of CIT (A) in deleting the addition of Rs 98 lakhs u/s 68 of the act.