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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI ANUBHAV SHARMA
PER ANUBHAV SHARMA, JM: The assessee has come in appeal against the order dated 25.03.2019 passed by the Commissioner of Income Tax (Appeals)-38, New Delhi (hereinafter referred as “learned First Appellate Authority” or in short “FAA”) in appeal no. CIT(A), Delhi-38/10247/2018-19 for the assessment year 2010-11, arising out of assessment order dated 29.12.2017 u/s 147 of the Income-tax Act, 1961
(hereinafter referred as the “Act”), passed by the Income-tax Officer Ward-63(5), New Delhi (hereinafter referred in short as “Ld. AO”).
The assessee derives income from business of trading of computer hardware and components. It is also engaged in the accounting work, book writing etc. The return was filed declaring taxable income at Rs. 2,92,763/- and the same was processed u/s 143(1) of the Act. However, subsequently, the learned AO had information regarding accommodation entry being taken by the assessee from Anand Kumar Jain and Naresh Kumar Jain. The reasons were recorded in the case for reopening of the assessment and notice u/s 148 of the Act was issued. The assessee responded to the same. However, learned AO was unsatisfied and concluded that the assessee has failed to prove that he is engaged in trading of computer hardware and components. Learned AO considered that financial of the assessee revealed that there is no real business transaction apart from debit and credit entries in the books, as there is no freight expenses and staff salary etc., to substantiate that trading was actually carried out. Learned AO observed that all the parties to whom sales and purchases were made were not responding to the notices issued by the learned AO and when given opportunity assessee could not produce the respective parties. Learned AO concluded that Jain Brothers have introduced unaccounted money of the entities into the respective accounts as accepted by them under oath. Learned AO found that the goods purchased from M/s Danodia Impex
Pvt. Ltd., which entity is controlled by Jain Brothers and the same was considered to be an accommodation entry. Accordingly, the addition to the extent of Rs. 3,44,19,731/- was made u/s 68 of the Act, which was sustained by the learned CIT(Appeals).
Accordingly, the assessee is in appeal raising following grounds:
“1. That having regard to the facts and circumstances of the case, Ld. A.O. has erred in law and on facts in framing the impugned time bar reassessment order and that too without assuming jurisdiction as per law and without complying with mandatory conditions U/s 147 to 151 as envisaged under the Income Tax Act, 1961.
2. The Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O. in framing the impugned assessment order and that too by recording incorrect facts and finding and without considering the submission of the assessee and without observing the principles of Natural Justice.
3. That the learned CIT(A) wrongly confirmed the action of assessing officer that amount received against sale is unaccounted money while all the purchases and sales duly vouched, supported with audited books of account and VAT returns.
That the authority below erred in law in making the addition of Rs. 3,44,19,731/- being received by the assessee against sale of goods U/s 68 without rejecting the books of accounts and without following the principles of natural justice.
5. That the Learned CIT(A) wrongly reject the assessee grounds that the learned assessing officer never asked to file confirmations of the parties from whom sales and purchases were made and never asked to produce the said parties the learned ITO not used the power to call the party by issue summon U/s 131 of I. Tax Act in case verification required from them.
6. That the appellant was not aware of the fact that M/s Jain Brother were owners of the above said company M/s Danodia Impex Pvt Ltd and also not about the malfunctioning activities done by M/s Jain Brother.
7. That both authority below wrongly treated that the appellant received the amount in bank as unaccounted money while the assessee received the amount in bank against sales invoices after getting letter of credit (LC) discounted from bank.
8. That both the authority below wrongly treated amount of Rs. 21624000.00 from M/s Danodia Impex. (P) Ltd. as payment received while the appellant make payment to above company against the goods purchased.
That the appellant reserves the right to alter, add or deleted any ground of appeal during the course of appeal proceedings.”
4. Assessee has also raised additional ground vide application dated 7.6.2022, which is as follows:
“That while framing the assessment u/s 148 r.w.s 143 (3) the AO has not issued and served the mandatory notice U/s 143(2) in view of assessee file the e-return on 28.09.2010 and confirmed such return U/s 148 vide letter dt. 14.08.2017 which is mentioned in the assessment order. Hence assessment order is wrong , illegal and deserves to be quashed.”
Heard and perused the record.
At the outset it is mentioned that at the time of final arguments nothing specific was submitted on behalf of the assessee in regard to additional grounds.
Further, ground no. 2 was also not pressed.
6.1 As with regard to remaining grounds, Learned counsel appearing for the assessee submitted that the assessee had brought before the lower authorities the trading account as made available at page no. 29 of the PB which shows that various expenses were incurred in the course of business. It was submitted that the tax audit report was also filed. The assessee is also registered under D-VAT and copy of annual return of D-VAT had been placed on record at page nos. 61-64 of the PB.
6.1 The thrust of arguments was to the effect that the learned AO has failed to mention in the reasons as to what was the source of alleged entry, as there is no mention of the firm M/s Danodia Impex Pvt. Ltd. in the reasons. It was submitted that no show cause was issued to the assessee to explain the transaction with M/s Danodia Impex Pvt. Ltd. Learned AO on the basis of the books of accounts before him has drawn inference and passed the impugned order. It was submitted that there was complete non-application of mind by the learned AO as there was no mention of the name of entity or the nature of transaction in the reasons and the addition was made on account of reasons recorded.
6.2 Learned counsel also brought before the Bench certain discrepancies in the order of learned CIT(A), which show that irrelevant and extraneous facts have been reproduced in the impugned order by referring the assessee as a company and that having received share application money.
6.3 To support the contentions learned counsel relied on following judgments:
(i) Principal Commissioner of Income Tax-6 Versus Meenakshi Overseas Pvt. Ltd., [2017] 395 ITR 677.
(ii) PR. Commissioner of Income Tax-4 Versus G & G Pharma India Ltd., [2016] 384 ITR 147
(iii) Pr. Commissioner of Income Tax Versus RMG Polyvinyl (I) Ltd., [2017] 396 ITR 5 (iv) Anirudh Kumar vs ITO,ITA No. 1167/Del/2019, dt. 21.07.2022
(v) Ranbaxy Laboratories Ltd. Vs. CIT, (2011) 336 ITR 136 (Del) (vi) CIT vs. Jet Airways Other Citation: (2011) 331 ITR 236 (Bom) (vii) Rajesh Kumar Vs. ITO, dt. 03.08.2022
On the other hand learned DR supported the orders of learned tax authorities below.
Appreciating the material on record it can be observed from the copy of reasons recorded, as made available at page no. 79 to 81 of the PB, that after prefacing the reasons on the basis of search and seizure operation conducted on 17.12.2015 in the case of A.K. Jain and Naresh Kumar Jain (the Jain Brothers),
AO considered the report of Investigation Division and concluded that on examining the list of accommodation entries Investigation Wing pertaining to AY 2010-11, the assessee has taken following accommodation entries. The relevant extract from the reasons as recorded same is reproduced below:
Accommodation entry Name of a party to whom Amount of provided by accommodation entry is accommodation provided entry
Sh. Anand Kumar Jain and M/s Meteor Comp. & Rs. 2,16,24,000/- Sh. Naresh Kumar Jain (the I.T. Solutions Jain Brothers)
Total Rs. 2,16,24,000/-
Also the details of Income Tax return filed by M/s Meteor Comp. & I.T. Solutions for A.Y. 2010-11 : processing done u/s 143(1) of Income Tax Act thereof were taken out from ITD System. On mining the same, it is noticed that the assessee had filed his Income Tax Return for the A.Y. 110-11 relating to the F.Y. 2009-10. Further, no scrutiny assessment was done u/s 143(3)/147 in - Y. 2010-11. Therefore, I have reasons to believe that income chargeable to tax amounting to Rs.2,16,24,000/- for the F.Y. 2009-10 relevant to A.Y. 2010-11 has escaped assessment and it is z fit case for initiation of proceedings u/s 147 of the Act.
Proposal in the prescribed form for the A.Y. 2010-11 (F.Y. 2009-10) is submitted herewith for kind consideration and necessary approval u/s 151(1) of the Income Tax Act as the same is getting barred by limitation on 31.03.2017.”
9. Now when the aforesaid grounds are considered in the light of the assessment order it becomes apparent that apart from mentioning the name of the two Jain Brothers, to have given the accommodation, entry no specific query was raised from the assessee to explain any particular entry in the books of a/c from the firm M/s Danodia Impex Pvt. Ltd. The Bench is of the considered view that when an addition has to be made u/s 68 read with section 147/148 of the Act expecting the assessee to discharge the burden then in the notice u/s 148 or the reassessment proceedings there should be specific show cause to the assessee calling upon the assessee to explain the genuineness of transaction. The matter of fact in the present case is that in the reasons as recorded there is mere mention of the names of Jain Brothers and the fact about search & seizure and evidence that they were providing accommodation entries. However, as regard to the assessee there was no material to indicate as to in what form or means and from which entity specifically the entries were derived. The reasons may not be encyclopedic but should be categorical. Thus there is force in the contention of Ld. Counsel of assessee that the reasons as recorded were without application of mind and satisfaction was nothing less than borrowed satisfaction for which it is now settled proposition of law that same are not sustainable for concluding re-assessment. Reliance can be place on the judgements of Hon’ble Delhi High Court in Principal Commissioner of Income Tax-6 Versus Meenakshi Overseas Pvt. Ltd. ( Supra); PR.
Commissioner of Income Tax-4 Versus G & G Pharma India Ltd., ( Supra); Pr. Commissioner of Income Tax Versus RMG Polyvinyl (I) Ltd., ( Supra) and of Co-ordinate Bench at Delhi in Anirudh Kumar vs ITO ( Supra), as relied by Ld. Counsel of assessee.
Further, the impugned order shows that the assessee was show caused as to why the amount received from sale/purchase be not added to its income to which the reply was given by the assessee through AR on 28.12.2017 as following:
“1. Assessee was business in trading and computer hardware and components and gets order from customers and supplies the same after procuring from market. It purchase goods from Danodia Impex Private Limited and copy of purchase and sales invoice have been submitted. The sale has been reflected on VAT returns amount was received in the banks after getting letter of credit (LC) discounted from bank and payment was made to Danodia Impex Private Limited through RTGS. No amount was received from Jain Brothers and assessee was not beneficiary. It was further submitted that the assessee was not aware of the fact that Jain Brothers were owners aid company (Danodia Impex Private Limited).”
Thus it appears that name of the firm M/s Danodia Impex Pvt. Ltd appeared not from the reasons but reply of assessee but assessee was then not show caused to explain how the transaction with firm M/s Danodia Impex Pvt. Ltd. was related to Jain Brothers. The AO, unilaterally being dissatisfied with the explanation of assessee had passed the impugned order considering the purchases made from M/s Danodia Impex Pvt. Ltd. to be accommodation entries. Such action of Ld. AO is not sustainable in law. Hon’ble Delhi High Court in Ranbaxy Laboratories Ltd.
Vs. CIT, ( Supra) and of Hon’ble Bombay High Court in CIT vs. Jet Airways Other ( Supra), where it is held that Ld. AO has jurisdiction to re-assesss issues other than the issues in respect of which proceedings are initiated but AO has to show cause the assessee for the same.
Further, the learned AO has failed to take into consideration the fact that the assessee was engaged in the business of Trading of computer parts and component.
Purchases were not made from M/s Danodia Impex Pvt. Ltd. only but purchases were also made from other parties as reflected in the purchase account made available at page 46 of the PB. Further, the sales account made available at page 47 of the PB, reveals that sales were made to various parties and it included sales made to the Office of Labour Commissioner of Rs. 1,67,310/-. The trading account as made available at page no. 29 of the PB, also reflects various expenditure inconsonance with nature of business of assessee. Thus Ld. AO was not justified to discredit whole of the business activity of assessee for want of certain expenditure and that too without specifically rejecting the books of assessee, to discredit the purchases and make addition.
The order of Ld. CIT(A) is in itself in a state of disorientation as extraneous facts have been reproduced, discussed and relied to sustain the order of Ld AO.
Same is not sustainable in any context to the grounds raised before her.
Consequently ground no 1 and 3 to 8 of appeal of assessee are sustained and the appeal of assessee is allowed. The impugned addition stands deleted.
Order pronounced in open court on 14/06/2023.