SHRI RAJESH KUMAR NARANG,MEERUT vs. ITO, MEERUT

That the action taken u/s 148 of Income Tax Act, 1961 is illegal, arbitrary and uncalled for.

That the Learned Lower Authorities erred in adding and confirming the addition of a sum of Rs.5 lacs in the income of the assessee treating the Gift of Rs.5 lacs received from Sanjay Mohan Agarwal as bogus Gift.

That the assessment completed u/s 148/143(3) on 15.09.2006 is barred by limitation and kindly be annulled.”

Facts of the case in brief are that the assessee filed the return of income on 29.10.2001 declaring an income of Rs.85,010/- which was assessed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 23.02.2004 at the returned income of Rs.85,010/-. Later on, on the basis of the information received from Addl. DIT(Inv.), Meerut dated 31.03.2005 that the assessee had received a bogus Gift of Rs.5 lacs during the year under consideration a notice u/s 148 was issued to the assessee. The AO also noted that a summon was issued to Sh. Sanjay Mohan Aggarwal, New Delhi in the context of Rs.5 lacs Rajesh Kumar Narang Gift received by the assessee from him but the said person did not attend the proceedings but informed through his Counsel that on an inquiry of the CIT, Meerut, the transaction had been confirmed by him. He also furnished copies of his Income Tax Return, capital account, balance sheet and account with Vijaya Bank, Ansari Road, New Delhi. It was also informed that he had appeared before the ACIT, Circle-2, Meerut in the case of Mrs. Priya Agrawal another parties to whom Gift had been made. The AO noted that the communication had been received from the Addl. DIT(Inv.), Meerut by the ld. CIT, Meerut dated 31.05.2005 that the analysis of bank account of Shri Sanjay Agrawal revealed total transactions aggregating to Rs.34.78 crores had been made for the period from November 1999 to September 2001 and that the cash to the tune of Rs.127.61 crores had been deposited in several bank accounts and these were routed through different bank accounts of companies managed/controlled by Shri Sanjay Agarwal to finally reach six individual Current Account/OD accounts of Shri Sanjay Agarwal in Vijaya Bank, Ansari Road, New Delhi for giving accommodations which were in the nature of gifts/loans. The AO framed the assessment at an income of Rs.5,85,010/- vide order dated 15.09.2006.

Being aggrieved the assessee is in appeal. During the course of hearing the ld. Counsel for the assessee at the very outset stated that the issue under consideration is squarely covered in favour of the assessee vide order dated 31.08.2007 of the ITAT Delhi Bench ‘SMC’, New Delhi in for the assessment year 2001-02 in the case of Shri Vinod Bahl Vs ITO, Ward-25(3), New Delhi. It was submitted that in the said case also gift was received from Shri Sanjay Agarwal and the case was reopened u/s 147 of the Act (copy of the said order was furnished which is placed on record).

We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that an identical issue having similar facts was involved in the case of Shri Vinod Bahl Vs ITO Rajesh Kumar Narang (supra) wherein a similar gift of Rs.3 lacs was received by the said assessee and the case was reopened u/s 148 of the Act on the basis of report of Deputy Director(Inv.). In the said case the addition made by the AO and sustained by the ld. CIT(A) was deleted and the relevant findings have been given in paras 12 to 16 which read as under: “12. I have given careful thought to the submission of the parties. In large number of cases through investigations and inquiry, the department has found that many companies and individuals indulge in hawala transactions. On the basis of admission/statement or other information, cases of the assessees having credit entries from name lenders or hawala dealers are reopened to add back hawala entries. These cases broadly fall in the two categories: 1) where statement or admission of name lenders/hawala dealers are ‘general’ that they carried only bogus transactions. Such information is sent to different officers to take action/proceedings u/s 147/148 of the Income- tax Act on the basis of such statements and confession. For illustration, may refer to case of Chhugamal Rajpal Vs S.P. Chaliha & Others 79 ITR 603 (S.C.) where action was initiated on the basis of Circular issued from the Office of Commissioner of Income Tax, Bihar and Orissa which stated that three persons named in that Circular were merely name lenders and therefore, transactions carried by them were Rajesh Kumar Narang bogus and proper investigation regarding loan from such persons was necessary. When, on the basis of above Circular, reassessment proceedings u/s 147/148 of the Income-tax Act were initiated which were subsequently challenged up to Supreme Court. Their Lordships of Supreme Court held that the Circular by itself, without any other material and investigation, could not afford any basis to the I.T.O. for having a reasonable belief that income chargeable to tax had escaped assessment. Likewise, in the case of ITO Vs Lakhmani Mewal Das 103 ITR 437(S.C.) where again the creditor allegedly had confessed that he had lent his name only and there has nothing to show that the confession related to any advance to the assessee or even the period during which name and not loan was sent and where it was not shown through any material that confession pertained to the specific period, the subject matter of assessment which was sought to be reopened. Their Lordships characterized such information as "wholly vague and indefinite, far-fetched and removed" which could not afford any basis for entertaining reasonable belief to initiate reassessment proceedings u/s 147/148. 2) In the second category are cases like Phool Chand Bajrang Lal & Another Vs ITO 203 ITR 456 (S.C.), where Income Tax Officer, subsequent to the completion of original assessment and on making an inquiry from the Income Tax Officer of the creditor, found that loan of Rs.50,000 shown in account of the Rajesh Kumar Narang creditor with the assessee was really not loan paid in cash but only hawala to cover up a bogus transaction. The provisions of Section 147 were correctly held to be applied. It was held by their Lordships of Supreme Court that information received was specific in nature and reliable in character which goes to expose the falsity of claim or statement made by the assessee at the time of original assessment. Their Lordships of Supreme Court, after taking into account decision of Chhagamal Rajpal and Lakhnami Mewal (supra) held that two situations were distinct and different. Whereas on the basis of general information, reopening of assessment is not valid. However, it was valid where reopening was based on specific information passed to the assessing officer.

The aforesaid decisions given in relation to reopening of assessment under sections 147/148 of I.T. Act are good guidance for deciding case in hand on merit. Legal effect of quality of information cannot work to the advantage of the revenue where information is the basis of assessment rather than reopening of assessment proceedings. In fact, stronger evidence is needed to justify addition on merit against evidence for action u/s 147/148. The reopening of proceeding u/s 147/148 in this case has not been challenged as it was done after amendment of Section 147 w.e.f. 1.4.89. Therefore, I proceed to consider the case on merit of the addition.

The Assessing Officer had quoted letter from DDI who advised him to take proper action u/s 148 Rajesh Kumar Narang of the I.T.Act. The contents of letter of DDI were not challenged before me and therefore I cannot doubt that the said Shri Sanjay Mohan Agarwal might have indulged in hawala transaction as held by the Assessing Officer and other revenue authorities. However, it is not shown that said Shri Sanjay Mohan made any statement regarding the Cheque given to the assessee for Rs.3 lakh. There is no material on record to show that the cheque was bogus and only a hawala entry. It is an admitted position that said Cheque was realized and credited to the bank account of the assessee. Therefore, prima facie, the genuineness of the entry is clearly established on record. Assessee has further placed on record copy of return of Shri Sanjay Mohan at page 30 of the paper book to show that Shri Sanjay had submitted return for AY 2000-01 showing gross income of Rs.1,39,228 and was an income tax assessee. The balance sheet of the relevant period of Shri Sanjay Mohan shows debts and assets worth crores and, therefore, his capacity to advance Rs.3 lakh to the assessee cannot be doubted on the material on record. The credit entry of loan and repayment of the same has also been accepted by Shri Sanjay Mohan Agarwal as per copy of confirmation placed on record. The ld. Commissioner of Income-tax (Appeals) has held the said copy to be inadmissible evidence but I do not know on what basis such a finding has been recorded. It is settled law that strict rules of Evidence Act are not applicable to the income tax proceedings. Copy of a document is admissible in I.T. proceedings. It is not shown that when such copy was produced before the Assessing Officer, any objection was raised. Assessing Officer had Rajesh Kumar Narang demanded production of the original which could not be produced. It is further not shown that Commissioner of Income-tax (Appeals) during appellate proceedings at any stage demanded original confirmation and assessee had failed to produce the same. As noted earlier, assessee had the original in possession and had shown the same to me. As objection to the production of the copy was not raised by the Assessing Officer at the first instance, it could not be raised at appellate stage by Id. Commissioner of Income-tax (Appeals) and, that too, without insisting on production of the original. In the above circumstances, I hold that Shri Sanjay Mohan Agarwal confirmed the transaction in question as a loan transaction which was received back by him as pleaded by the assessee.

It is therefore to be seen that as against above evidence which clearly establish and prove genuineness of credit of Rs. 3 lacs, what has revenue done to hold the credit as bogus and hawala? They collected information that Shri Sanjay Mohan was giving large scale hawala, entries. The information is general in character and fall in the first category mentioned above. Other evidence that several donees/loanees surrendered several gifts/loans from Shri Sanjay Mohan is no evidence to materially affect the case of the assessee. Therefore, the case of assessee cannot be taken as disproved.

There is another controversy between the parties whether the amount given was a gift or a loan. The assessee claimed it to be interest free Rajesh Kumar Narang loan which was returned to Shri Sanjay Mohan Agarwal. The revenue, on the other hand, has contended that it was a fictitious gift made to the assessee in return for receipt of equal amount plus commission in cash. In my opinion, if credit entry is proved as genuine, the controversy loses its significance. Moreover, the revenue has not established that the assessee paid cash to obtain gift. Even the assessee is not shown to have been examined. The Assessing Officer further refused to give basis for action against the assessee as the same was belatedly sought from him. As regards entry in the books of account, it has been found that the credit is neither recorded as loan nor gift in the books of account of the assessee. The books of account are also not made in the regular course of business. In fact, assessee carries on no business and in the relevant period had income from salary, interest etc. In such circumstances, no adverse inference can be drawn against the assessee. On the other hand, the case of the assessee is fully supported by confirmation from Shri Sanjay Mohan Agarwal available at page 6 of the paper book. In the books of Sanjay Mohan, copies, of which have been placed on record, out of total loans and advances of Rs.41 crore, more than Rs.38 crore do not bear any name and are shown under the head "others". From above entry, it is difficult to hold that in the books of account of Shri Sanjay Mohan, loan of the assessee was not reflected. It might be true that several persons to whom gifts were given by Sanjay Mohan surrendered those gifts and accepted gifted amount as their income. But that, in my view, cannot be taken as good material to establish that credit Rajesh Kumar Narang entry in account of the assessee was bogus or hawala entry and that the same was obtained by making payment in cash to late Shri Sanjay Mohan. The ld. DDI, while informing the Assessing Officer about hawala transactions carried by Shri Sanjay Mohan, had advised the Assessing Officer to take action u/s 148 of the Income-tax Act. Further inquiries and investigation in accordance with law were required to be carried by the Assessing Officer of the assessee. But the same, unfortunately, were not carried as noted above. "General" information was taken as good enough to make addition. The other material which their Lordships of Supreme Court called "specific" material was required to be collected. As noted earlier, general material collected about a creditor to be hawala is not sufficient even to validly initiate a reassessment proceeding. It cannot be good material to sustain an assessment. Therefore, on facts and circumstances of the case, it is not possible to hold that genuineness of entry, creditworthiness of the creditor etc. has not been established on record. In the light of above facts and circumstances, I do not see any good ground to sustain addition of cash credit or commission of Rs. 15000 allegedly paid by the assessee to obtain fictitious entry. These are directed to be deleted.”

Since the facts of the present case are identical to the facts involved in the case of Shri Vinod Bahl Vs ITO (supra), so, respectfully following the aforesaid referred to order dated 31.08.2007 in for the Rajesh Kumar Narang assessment year 2001-02, we delete the addition made by the AO and sustained by the ld. CIT(A).

In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 09/02/2016)