Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI N.K.SAINI & SHRI VIJAY PAL RAO
PER VIJAY PAL RAO, JM
1. This appeal of the revenue is against the order dated 30.08.2011 of ld. CIT(A)- XII, New Delhi for the Assessment Year 2003-04. The Revenue has raised the following grounds:- “
1. The ld CIT(A) erred in law and on the facts and circumstances of the case in quashing the proceedings initiated u/s 147 of the Act.
2. The ld CIT(A) erred in law and on the facts and circumstances of the case in deleting the addition of Rs.78,00,000/- made by the OA u/s 68 of the Act.”
2. The assessee filed its return of income on 28.11.2003 declared total income of Rs.1850/-. Subsequently, the AO proposed to reopen the assessment on the basis of the information received from Investigation Wing of the department that the assessee company received an amount of Rs.73 lacs during the previous assessment years 2002-03 in the form of cheques/ DD as accommodation entries from various persons/ concerns. Accordingly, the AO reopened the assessment by issuing a notice u/s 148 on 29.03.2010. By recording the reasons as under:-
Page No. 2 “It is observed from the details provided by the Investigation Wing that M/s SOFT LIME CREATIONS PVT LTD, had received the amount of Rs.73,00,000/- during FY 2002-03; relevant to the AY 2003-04 from the concerns shown, hereunder, which were found by the Investigation Wing to be the companies which were non genuine entities and were giving only accommodation entries. The companies from which entries were received belong to Mahesh Garg group. This group has operated accounts in various banks arid branches. The above entries have been received from the State Bank of Patiala, Darya Ganj, New Delhi and State Bank, of Bikaner & Jaipur, New Rohtak Road, New Delhi. S. Amount (Rs. Cheque No. Date Concern from which received No. 1 1000000 3 -Dec -02 RAHUL FINLEASE P. LTD. 2 400000 17- Dec-02 SEKHAWATI FINANCE P. LTD. 3 500000 23-Dec-02 GARG FINVEST P. LTD 4 600000 24-Dec-02 SHREE GUPTESHWAR MKT. P.LTD. 5 700000 27-DEC-02 TOUCHWOOD AGENCIES P. LTD. 6. 800000 l-Jan-03 RIGHT CHOICE CONST. P. LTD. 7. 1000000 12-Dec-02 NISHANT FINVEST 8. 400000 2-3an-03 DIVISION TRADING PVT LTD 9. 1000000 3-Dec-02 PERFORMANCE TRADING & INVESTMENT 10. 900000 17-Dec-02 TECNNO COM ASSOCATES P LTD Tot 73,00,000 al The companies from which entries were received belong to Mahesh Garg group. The Statement of Shri Mahesh Garg was recorded on 22-09-2003 by the Investigation Wing in which he has admitted that “I told you that I open this firm/company for providing entry". It is further noted here that Mahesh Garg had opened about 70 bank accounts in the name of various companies/firms and Individuals. In the answer to the question regarding business activity of these companies, he has replied that these companies did not carry out any activity in reality. In these companies cash used to be deposited and then the cheque, DDs or local Day order were issued. He further replied in the next question that other directors in these companies used to sign the blank cheque book only. He further admitted that “I made some people as directors to so many companies, they are directors for namesake, they used to put the signature on the blank cheque book" He admitted that he was only a matriculate and used to issue cheques in lieu of cheques to various parties after charging 0.5% commission. In view of the above l have reasons to believe that a sum of Rs.73,00,000/- represents income of M/S SOFT LINE CREATIONS PVT LTD, for the AY 2003-04 which has escaped assessment within the meaning of provisions of section 147 of the I.T Act 1961, therefore a notice u/s 148 of the Income tax Act 1961 is required to be Issued to the assesses company (M/s SOFT LINE Page No. 3 CREATIONS. PVT LTD) to assess the Income escaped assessment as stated, hereinabove.
3. The assessee submitted before the AO, that it has not received the notice u/s 148 and made a request vide letter dated 08.11.2010. In response to the notice the AO supplied the copies of the statement of Mahesh Garg dated 10.09.2003, 22.09.2003 along with declaration as well as the copies of the notice issued u/s 148 along with the reasons recorded by the AO for reopening of the assessment. The AO while passing the reassessment order dated 31st December 2010 made an addition of Rs.78,39,000/- on account of accommodation entries being unexplained cash credit u/s 68 to the tune of Rs.78,00,000/- along with commission at the rate of 0.5% amounting to Rs.39,000/-. The assessee challenged the action of the AO before learned Commissioner of Income-tax (Appeals) and also challenged the validity of reopening. The learned Commissioner of Income-tax (Appeals) allowed the appeal of the assessee by holding that the reopening is not valid as well as deleted the addition made by the AO in respect of the accommodation entries.
Aggrieved by the impugned order of the learned Commissioner of Income- tax (Appeals) the revenue has preferred this appeal.
First I will take up the issue on merits regarding the addition of Rs.78 lacs made by the AO. The ld DR has submitted that the assessee has received an amount of Rs.78 lacs from 11 persons/ entity which are only paper entities/ companies belonging to Shri Mahesh Garg. These entities have no creditworthiness whatsoever coupled with no evidence to carry out any genuine business transaction. They do not carry any real business and are simply engaged in providing accommodation entries. These facts were duly acknowledged and accepted by Shri Mahesh Garg in his statement dated 22.09. 2003 made before the Investigation Wing. The ld DR has submitted that the AO granted a number of opportunities to the assessee to get the signature of the directors of these entities certified by the Branch Manager of the Bank where Directors have their own personal as well as company accounts. Thus, the assessee failed to establish the authenticity of the signature on the affidavit filed by the assessee in support of the claim of genuineness of the transactions. The transactions in this case are receipts in the nature of share investment on private placement which has to be proved by stringent test as the Page No. 4 reason being a public issue cannot made by a Private Limited Company. In case of share capital received through private placement is normally to known persons/ companies. Therefore once the alleged share holders have admitted the transaction being accommodation entries in the statement recorded u/s 131, the onus is shifted on the assessee to prove that the transaction is genuine. Despite enough opportunities granted by the AO to the assessee, the assessee failed to prove the genuineness of the transaction and genuineness of the signature of the Directors of these entities in the affidavit filed by the assessee. The ld DR relied upon the judgement of the Hon’ble Supreme Court in the case of Navodaya Caste Pvt. Ltd. Vs. CIT 230 Taxman 268 (SC), and submitted that the Hon’ble Supreme Court has confirmed the judgment of Hon’ble High Court by holding that Certificate of Incorporation, PAN, etc were not sufficient for the purpose of identification of subscriber company when there was material to show that the subscriber is a paper company and not a genuine investor. She has relied upon the order of the AO.
On the other hand the ld AR of the assessee submitted that the AO has not made any enquiry to ascertain weather alleged transaction entered by the assessee are genuine or not. During the course of assessment proceedings the assessee duly discharge the onus cast on it by submitting various documentary evidence which proved the identity, creditworthiness of the creditors and genuineness of the transactions. However, the AO relied upon the statement of Shri Mahesh Garg which was recorded by the DIT(Investigation) and did not examine the said person himself. Even the AO has not given the assessee an opportunity to cross examine the said party despite the fact that specific request in this regard was made by the assessee during the course of assessment proceedings. Thus the ld AR has submitted this is well settled law that any adverse inference on the basis of material collected on the back of the assessee without affording an opportunity to cross examine is not valid and such invalid evidence cannot be the basis for making any addition. In support of his contention he has relied upon the judgment of the Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. CCE dated 22nd September 2015 in Civil Appeal No.4288/2006. He has also relied upon the following judgement:- 1. Prakash Chand Nahata Vs.Union of India 163 CTR 310 (SC)
Page No. 5 2. Kishan Chand Chellaram Vs. CIT 125 ITR 713 (SC), 3. CIT Vs. SMC Share Brokers Ltd. 288 ITR 345 (Del) 4. Alok Aggarwal Vs. DCIT (2000) 67 TTJ 109 (Del)
7. Alternatively the ld AR has submitted the alleged bogus share holders are all incorporated and active companies as per record of the ROC and the master data detail along with PAN was also submitted before the AO by the assessee. All these entities are having their bank account, payment were made by them to the assessee company through banking channels, therefore, entities of share holders stand dully accepted even by the DIT(Investigation) at whose information the AO has initiated the reopening proceedings. The assessee produced all the relevant documents to establish the identity of the subscriber and also all transactions are through banking channels. The AO has not controverted the documents produced by the assessee in support of the claim as well as the transactions took place through banking channel. Therefore creditworthiness of the parties was also established by the assessee which was not disapproved by the AO. The assessee discharged its primary onus to prove the identity and creditworthiness of the subscriber as well as genuineness of the transactions. During the course of assessment proceedings the assessee filed copies of confirmation, bank statement, copy of ITR, copy of financial statement of the parties, copy of boards resolution, share application form, affidavit of the Directors of the subscribers companies, copies of share transfer register and also record from ROC in respect of all share applicants. However the AO has not point out any defect or any error in the said evidence filed by the assessee. The AO raised only objection with the signatures of Shri Trilok Chand Bansal , Bharat Bhusan Bansal and Ajay Mittal, Narender Kumar Gupta, Anil Kumar Sharma and Vinod Garg on their affidavits filed by the assessee do not match with their signature on statement recorded by the investigating wing. The ld AR has pointed out that the assessee vide its letter dated 27.12.2010 explain that the signature are identical and there can be some difference in the signature after a gap of 7 years. When the assessee filed all the relevant material/evidence it was the duty of the AO to make proper enquiry, which has not been done in the case of the assessee. The AO did not choose to summon or issue notice to the parties for examination and verification of the genuineness of the signature which was doubted by the AO. The ld AR has relied upon the judgment of the Hon’ble Page No. 6 jurisdictional High Court in the case of CIT Vs. M/s. Rakam Money Matters Pvt. Dated 13.10.2015 in and submitted that the Hon’ble High Court while confirming the finding of the learned Commissioner of Income-tax (Appeals) and Tribunal has observed that the AO failed to come up with the material to disapprove what has been produced by the assessee. The ld AR has further contended that the assessee expressed its inability to produce the director of the share applicants company and if the AO wanted to examine the Directors it was up the AO to summon these parties. In support of his contention he has relied upon the judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Victor Electrodes 329 ITR 271 and submitted that the Hon’ble High Court has observed that there is no legal obligation on the assessee to produce some Directors and other representative of the applicants company before the AO. A similar view has been taken by the co-ordinate bench of this Tribunal in the case of DCIT Vs. GS Control, ITA No.1560/Del/2010 vide order dated 13.03.2015. Thus, the ld AR has submitted that the AO has made the addition merely on the basis of statements of Shi Mahesh Garg recorded by the investigation wing without conducting any enquiry or examination and even without giving any opportunity to the assessee to cross examine. The ld AR has relied upon the following judgment:
1.
Gee Cee Cycle Balls Pvt. Ltd. Vs ITO, ITA No.867/Del/2013 dated 30.10.2015 2. CIT Vs. Fair Invest Ltd. 357 ITR 146 3. CIT Vs. Goel Songs Golden Estate Pvt. Ltd., ITA No.212/2012 dated 11.04.2012 4. CIT Vs. Gangeshwari Metal Pvt. Ltd. 361 ITR 10 (Del) 5. CIT Vs. Vrindavan Farms (P) Ltd. ITA No.71,72,85/Del/2015 dated 12.08.2015 8. Thus the ld AR has argued that in the case of the assessee the evidence and material adduced has been thrown by the AO without any enquiry. There is no material on the basis on which the AO can hold the assessee in the collusive arrangement, therefore the addition made by the AO was rightly deleted by the learned Commissioner of Income-tax (Appeals).
9. We have considered the rival submission as well as relevant material on record. AO has reopened the assessment of the assessee on the basis of the information received from the Investigation Wing wherein it was pointed out that Page No. 7 the assessee has received accommodation entries of Rs.78 lac from various persons/ entities which are mentioned in the reasons recorded and reproduced in the foregoing paras. In this connection the Investigation Wing recorded the statement of Shri Mahesh Garg who was considered as the main person and all these entities were belonging to the said person. It is pertinent to note that in the entire assessment order the AO has repeatedly reproduced the report received from the investigation wing alleging that the above entities have no creditworthiness whatsoever and no genuine business transaction were carried by these entities. Therefore, the AO has framed the assessment on the basis that these entities do not carry any real business and are simply engaged in the business of providing accommodation entries as indicated by the Investigation Wing in its report. The assessee has produced confirmations, bank statement, copy of ITRs, copies of financial statement of the parties, copies of board’s resolution, share applications form, affidavit of the Directors of the subscriber companies, copies of share transfer deed and also information from the ROC in respect of these share applicants. The AO raised objections about the genuineness of the signature on the affidavits of the Directors of these companies and asked the assessee to produce these directors for examination. The assessee expressed its inability to produce these directors and requested the AO to summon these parties by issuing the notice u/s 133(6) or seek the information by issuing notice u/s 131 of the Act. The assessee has also demanded the cross examination of Shri Mahesh Garg whose statement was relied upon by the AO against the assessee. The AO instead of taking any step to verify the genuineness of the signature on the affidavits has kept on asking the assessee to produce these parties and referring that the assessee could have done the signatures of the directors certified by the Branch Manager of the Bank. Thus it is manifest from the assessment order and the proceedings that the AO instead of taking any step u/s 133(6)/ 131 of the Act was asking the assessee to produce the parties or getting the signature on the affidavits certified through banks. The entire assessment has been framed by the AO without conducting any enquiry from relevant parties or independent source or evidence but has merely relied upon the statement of Mr. Mahesh Garg recorded by Investigation wing of the department as well as information received from Investigation Wing. Thus it is apparent from the assessment order that the AO has not conducted any independent and separate Page No. 8 enquiry in this case of the assessee. Even the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings. The AO ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and reasserted/reaffirmed during the assessment proceedings by examining the concerned persons who can affirm the statement already recorded by other authority of the department. There is no dispute that the statement which was relied upon by the AO was not recorded by the AO in the assessment proceeding but it was pre-existing statement recorded by the Investigating Wing and the same cannot be a sole basis of assessment without conducting a proper enquiry and examination during the assessment proceeding itself. Further despite the specific demand of the assessee for cross examination of Shri Mahesh Garg, the ld. AO has not given any heed to the request of the assessee for affording any opportunity of cross examination and used the statement of Shri Mahesh Garg against the assessee which is not permissible under the law. As it is a case of clear violation of the rule of principal of natural justice and statement which is recorded at the back of the assessee cannot be used against the assessee without giving any opportunity of cross examination. Thus the addition on account of accommodation entries of Rs.78 lac made by the AO solely on the basis of the statement of Shri Mahesh Garg which are recorded in the absence of the assessee by the Investigation Wing, is not permitted without the examination of the said witness during the assessment proceeding and after giving an opportunity of cross examine to the assessee. Even otherwise the AO has not conducted any enquiry whatsoever either in support of the information received from the Investigation Wing or to disapprove the evidence produced by the assessee. The AO could have verified the signature of the Directors of these entities from the bank by issuing the necessary summons/niotices instead of insisting the assessee to furnish the bank certificate. Therefore it is a case of complete lack of enquiry on the part of the AO which ought to have been conducted while framing the assessment. In the case of CIT Vs. Rakam Money Pvt. Ltd. (supra) the Hon’ble Jurisdictional High Court by dealing with an identical question as observed in Para 13 as under:- “13. It is not in dispute that extensive material was produced by the assessee in the present case is to prove the identity, genuineness and creditworthiness of the companies who had subscribed to its shares. Among Page No. 9 the material produced were the Income Tax Returns and the PAN card details of the eight companies. Even if the Directors of these companies did not respond to the summons issued by the AO, it was not impossible for the AO to make proper enquiries to ascertain the genuineness of these entities and satisfy himself of their creditworthiness. As pointed out by the CIT(A), the AO failed to make any effort in that director. He did not take to the logical and the half-hearted attempt at getting the Directors to appear before him. He did not even seek the assistance of the AOs of the concerned companies whose ITRs and PAN card copies had been produced.”
Thus it is clear that even in the case the Directors of the companies did not respond to the summons issued by the AO the Hon’ble High Court has agreed with the view of the learned Commissioner of Income-tax (Appeals) that AO failed to make any effort in that direction and to take the matter to logical end. In the case of CIT Vs. Victors Electricals Limited (supra) the Hon’ble jurisdictional High Court an identical issue has held in para 9 as under:- “9. There was no legal obligation on the assessee to produce some director or other representative of the applicant-companies before the Assessing Officer. Therefore, failure of the assessee to produce them could not, by itself, have justified the additions made by the Assessing Officer, when the assessee had furnished documents, on the basis of which, the Assessing Officer, if he so wanted, could have summoned them for verification. No attempt was made by the Assessing Officer to summon the directors of the applicant-companies. The addresses of these companies must be available on the share applications, memorandum and articles of association and their income-tax returns. If the Assessing Officer had any doubt about identity of the share applicants, he could have summoned the directors of the applicant- companies. No such attempt was, however, made by him. Therefore, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, in our view, were justified in holding that the identity of the share applicants and the genuineness of the transactions had been established by the assessee. For the reasons given in the preceding paragraphs, no substantial question of law arises for our consideration.”
It was found by the Hon’ble Jurisdictional High Court that there is no legal obligation on the assessee to produce some directors and other representative of the applicant company before the AO. The coordinate bench of this Tribunal DCIT Vs. GS Control Pvt. Ltd. (supra) while dealing with an identical issue has held in para 14 as under:- “14. We have considered the rival submission and perused the entire material available on record. The AO had made addition of Rs. 80 lacs out of the total share application money amounting to Rs. 2,40,00,000/-. Thus, rest of the amount had been accepted by AO. From the assessment order it is evident that AO has merely relied on general information regarding the impugned 4 Page No. 10 companies in respect of which addition was made as they were known entry providers. The AO has pointed out that details were provided by these companies but since the directors of these companies were not produced, he made the addition. No inquiries were conducted by AO to find out the genuineness of the transactions and creditworthiness of the companies who had applied for the share application money in the assessee company. We find considerable merit in the argument of ld. counsel for the assessee that merely because the directors were not produced the addition could not be made in view of the decision of Hon’ble Delhi High Court in the case of Victor Electrodes Ltd. (supra) and also in the case of Nova Promoters (supra) also Hon’ble Delhi High Court had clearly distinguished between the cases where AO had carried out detailed inquiry and then arrived at a finding regarding accommodation entries and those cases where AO did not carry out any inquiry and merely made addition on general basis. The inquiry for arriving at a proper conclusion is a sine qua non and that cannot be dispensed with by making general observations. We find that the decision in the case of Goel Sons Golden Estate P. Ltd. is squarely applicable to the facts of the present case, wherein in paras 2 & 3 it has been observed as under: “2. Learned counsel for the appellant submits that the order passed by the Tribunal is perverse and in fact one S.H. Mallick had given a statement, which is re-produced in the assessment order saying that he had provided accommodation entries and the said statement conclusively proves that share money of 30,00,000/- allegedly received by the respondent-assessee from 5 companies are sham and bogus transactions .
We have examined the said contention and find that the assessee during the course of assessment proceedings has filed confirmation letters from the companies, their PAN number, copy of bank statements, affidavits and balance sheet. Thereafter the Assessing Officer had asked the assessee to produce the said Directors/ parties. Assessee expressed its inability to produce them. The Assessing Officer did not consequent thereto conduct any inquiry and closed the proceedings. This is a case where the Assessing Officer has failed to conduct necessary inquiry, verification and deal with the matter in depth specially after the affidavit/ confirmation along with the bank statements etc. were filed. In case the Assessing Officer had conducted the said enquiries and investigation probably the challenge made by the Revenue would be justified. In the absence of these inquiries and non verification of the details at the time of assessment proceedings, the factual findings recorded by the Assessing Officer were incomplete and sparse. The impugned order passed cannot be treated and regarded as perverse. The appeal is dismissed as no substantial question of law arises.”
The Hon’ble jurisdictional high court in the case of CIT Vs. Fair Finvest Ltd. (supra) has taken a similar view while dealing with an identical issue in para 6 and 7 as under:-
Page No. 11 “6. This Court has considered the submissions of the parties. In this case the discussion by the CIT (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.
Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (P.) Ltd. (supra).”
In the case in hand it was not mere transfer of money by these share applicants to the assessee but the assessee has produced on record the board’s resolution, share applicants form, copy of share transfer deeds and information from ROC in respect of share applicants. It established the existence of real transaction of transfer of shares and therefore it rebuts the case of the revenue of alleged accommodation entries. Once the assessee has established the existence of the transaction of transfer of shares against the received of share application money then the burden is shifted on the AO to conduct the necessary enquiry and investigation to disapprove the evidence produced on record by the assessee. The AO did not choose to conduct any enquiry or investigation during the assessment proceeding but relied upon the statement of Shi Mahesh Garg and report of the Investigation Wing, therefore the addition made by the AO merely on the basis of a statement recorded by the investigation Wing without any corroborative evidence and examination and cross examination of the assessee, is not sustainable. Therefore in view of the facts and circumstances as well as the decision discussed above we do not find any error or illegality in the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition in question. The decision relied upon by the ld DR will not held the case of the revenue as the evidence adduced by the assessee has been thrown out without any enquiry by the AO.
Page No. 12 14. The revenue has also challenged the finding of the learned Commissioner of Income-tax (Appeals) on the issue of validity of reopening. In view of our finding on the merits of the case the issue of validity of reopening becomes academic in nature and therefore we do not propose to adjudicate the same. 15. In the result the appeal of the revenue is dismissed.
Order pronounced in the open court on 10.02.2016.