DEEP ENERGY RESOURCES LTD. (FORMERLY DEEP INDUSTRIES LTD.),AHMEDABAD vs. THE ACIT, CIRCLE-1(1)(1), AHMEDABAD

1. The appeal filed by the Assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 19.02.2024 passed for Assessment Year 2016-17.

The brief facts of the case are that the assessee is a company and it filed it’s return of income for A.Y. 2016-17 declaring total income of Rs. 40,20,66,630/-. Later on, the case of the assessee was selected under CASS and assessment order was passed under Section 143(3) of the Act on 10.12.2018, after assessing income at Rs. 40,53,06,812/-. Subsequently, the case of the assessee was reopened on the basis of information that the assessee has taken accommodation entry in the guise of unsecured loan of Rs. 3,69,50,000/- from M/s. Rati Diamonds Pvt. Ltd., one of the paper concerns of Shri Shripal Vora.

During the course of 147 proceedings, the assessee raised objections against the reopening of the case. However, the Assessing Officer disposed of the objections by holding that based on tangible material available regarding the assessee, the Assessing Officer had a valid “reason to believe” that income chargeable to tax has escaped assessment. The Assessing Officer relied on the case of ITO vs. Selected Dalurband Cold Co. Pvt. Ltd. 217 ITR 597 (SC) and on the case of Raymond Woollen Mills Ltd. vs. ITO 236 ITR 34 (SC) which have held that at the stage of initiation of proceedings under Section 147 of the Act, all that is required is formation of “reasons to believe” that the income has escaped assessment but not the established fact of escapement of income. Further, the Assessing Officer placed reliance on the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC), wherein the Supreme Court has categorically stated that “reason to believe” does not mean that the reason for reopening should have been factually ascertained by legal evidence or conclusion before the reopening of an assessment. Accordingly, the Assessing Officer rejected the challenge to reopening of assessment by holding that given the facts before the Assessing Officer, he had valid reason to believe that income of the assessee had escaped assessment.

On merits of the case, the Assessing Officer observed that as per information available, it is found that the assessee had taken accommodation entries in the guise of unsecured loans of Rs. 3,69,50,000/- from M/s. Rati Diamonds Pvt. Ltd., one of the paper concerns of Shri Shripal Vora, a famous entry operator. During the search under Section 132 of the Act done by the Investigation Wing on Shripal Vora, the statement of Shripal Vora was recorded. In his statement, Shri Shripal Vora categorically deposed that he is an accommodation entry provider through various paper companies, wherein he also the Director of many companies. The assessee company was one of the beneficiaries who obtained accommodation entry of Rs. 3,69,50,000/- from bogus concerns of Shri Shripal Vora. During the course of assessment proceedings, the assessee was asked to furnish details to prove the genuineness and creditworthiness of M/s. Rati Diamonds Pvt. Ltd. and from where the assessee had received huge unsecured loan of Rs.3,69,50,000/-. On perusal of details submitted by the assessee, the Assessing Officer observed that M/s. Rati Diamonds Pvt. Ltd. has high turnover but it is paying minuscule taxes. On perusal of balance sheet of the said entity, the Assessing Officer observed that the entity was having almost NIL fixed assets. The entity has meagre accumulated profits and has shown only Rs. 6,54,912/- as their reserves and surplus. Accordingly, the Assessing Officer held that M/s. Rati Diamonds Pvt. Ltd. is nothing but a paper company and only entry provider. The said company was not found at it’s registered address during the enquiry conducted by the Investigation Wing. Accordingly, the Assessing Officer was of the view that Shri Shripal Vora is only the operator of these paper concerns and these company was a mere name lender and not doing any real business other than providing accommodation entries. The Assessing Officer was of the view that the assessee has not proved the creditworthiness of the party and genuineness of the nature of the above transaction. Therefore, the provisions of Section 68 of the Act are attracted this case. Accordingly, the Assessing Officer added a sum of Rs. 3,69,50,000/- in respect of loan received from M/s. Rati Diamonds Pvt. Ltd. In addition to the above, the Assessing Officer also added a sum of Rs. 10,16,125/- under Section 69C of the Act, amounting to Rs. 10,16,125/- being alleged amount of commission paid to obtain loan from M/s. Rati Diamonds Pvt. Ltd.

The provisions of Sec.250(6) provides that the appellate orders of CIT(A) are to state the points arising out of appellant's appeal. The order shall give out the reasons for such decisions. The underline rationale of the position is that such order is further appealed.

ESTATE OF LATE TUKOJIRAO HOLKAR vs. COMMISSIONER OF WEALTH TAX HIGH COURT OF MADHYA PRADESH, Misc. Civil Case No. 302 of 1991. 7. U-LIKE PROMOTERS (P) LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX,ITAT, DELHI 'H' BENCH, to 1572/De1/2009 and 1377 to 1379/De1/2012; Asst. yrs. 1998- 99 to 2004-05. In view of the above explained rationale, the appeal stands dismissed.” 11.

In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) on their respective orders.

On going through the facts of the instant case, and the contents of the order passed by Ld. CIT(A), we are of the considered view that in the interest of justice, the matter may be restored to the file of Ld. CIT(A) for de-novo consideration, after giving due opportunity of hearing to the assessee to prove it’s case on merits. At the time of hearing though a request was made before us that the matter may be restored back to the file of Assessing Officer, but we are of the considered view that the Assessing Officer has passed a detailed speaking order on the merits of the case and has also elaborated / discussed all the factual and legal contentions raised by the assessee and therefore, in our view we find that it is a fit case that the matter may restored to the file of Ld. CIT(A) for de-novo consideration after calling for necessary inputs from the concerned Assessing Officer.

In the result, the matter is restored to the file of Ld. CIT(A) for de- novo consideration, after giving due opportunity of hearing to the assessee to present it’s case on merits.

In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 29/08/2024