INCOME TAX APPELLATE TRIBUNAL, DELHI A BENCH,
NEW DELHI
NEW DELHI
PEE AAR SECURITIES LTD. VS DCIT DELHI ITA NO. 4978/DEL/2014 ON 23 AUGUST,
2018
ITA No.
4978/Del/2014
Assessment years 2005-06
Date : August 23 , 2018
Assessment years 2005-06
Date : August 23 , 2018
1. When the hearing in this case was concluded on 30th May 2018,
the following noting was made in the record of proceedings:
2. It is in this backdrop that the detailed order, setting out
reasons for our conclusions, is being pronounced today.
3. By way of this appeal, the assessee appellant has challenged
correctness of the order dated 24th June 2014 passed by the learned CIT(A) in
the matter of assessment under section 143(3) of the Income Tax Act, 1961, for
the assessment year 2005-06.
4. Grievances raised by the assessee appellant are as follows:
1. That having regard to the facts and circumstances of the case, the issue of notice under section 148 by the AO for reopening the assessment was not in accordance with the provisions of Section 151 of the Income Tax Act, 1961.
1. That having regard to the facts and circumstances of the case, the issue of notice under section 148 by the AO for reopening the assessment was not in accordance with the provisions of Section 151 of the Income Tax Act, 1961.
2. That having regard to the facts and circumstances of the case,
the learned CIT(A) erred in law and on facts while upholding the issue of
notice under section 148 by the AO for reopening the assessment.
3. That having regard to the facts and circumstances of the case,
the learned CIT(A) erred in law while upholding the reopening of the assessment
when the AO failed to comply with the procedure laid down by Hon’ble Supreme
Court in the case of GKN Driveshaft India Pvt Ltd Vs ITO [(2003) 179 CTR 11
(SC)].
4. That having regard to the facts and circumstances of the case,
the learned CIT(A) has erred in law and on facts in confirming the action of
the learned AO in making aggregate addition of Rs 80,00,000 on account of share
application money received from M/s Geefcee Finance Limited and M/s Mahanivesh
India Limited under section 68 of the Income Tax Act, 1961.
5. That having regard to the facts and circumstances of the case,
the learned CIT(A) has erred in law and on facts in confirming the action of
the learned AO in making aggregate addition of Rs 2,00,000 on account of
alleged commission paid in relation to the above share capital money received
from M/s Geefcee Finance Limited and M/s Mahanivesh India Limited.
6. That the action of the learned CIT(A) in dismissing the ground
nos. 1,2,3,4 and 5 was bad in law and facts keeping in view the fact that the
inspection of AO’s file was allowed in June 2013, i.e. about 4 months after
completion of the assessment.
7. That learned CIT(A) failed to appreciate that amended
provisions of Section 68 which are substantive in nature were applicable
prospectively and were not applicable for the AY 2005-06.
8. That the action of the CIT(A) in confirming the action of the
learned Assessing Officer in making the impugned addition and framing the
impugned assessment order is contrary to law and facts, void ab initio, beyond
jurisdiction and without giving adequate opportunity of hearing, by recording
incorrect facts and finding, and the same is not sustainable on legal and factual
grounds.
9. That the learned CIT(A) failed to appreciate that the AO had
failed to follow the principles of natural justice.
“5. In substance, thus, grievance of the assessee is that (a)
learned CIT(A) erred in upholding the reopening the impugned assessment
proceedings; and that (b) learned CIT(A) erred in upholding the addition of Rs
80,00,000 as unexplained credit in respect of share application money received
by the assessee from Geefcee Finance Investments Limited and Mahanivesh India
Limited, and the addition of Rs 2,00,000 as commission said to have been paid
for arranging this alleged accommodation entry.
6. Let us take up grievance against the validity of reopening the
assessment first.
7. Briefly stated, the relevant material facts are like this. It
is a case of reopened assessment. Even though the assessee had filed the income
tax return, disclosing an income of Rs 22,66,970, on 31st October 2007, the
reassessment notice was issued on 30th March 2012, on recording, inter alia,
the following reasons of reopening the assessment:
Subsequently, information has been received from Directorate of
Income Tax (Investigation) of the Income Tax Department that the above named
assessee is a beneficiary of accommodation entries received during the period
FY 2004-05, relevant to the assessment year 2005-06, received from established
entry operators identified by investigation wing on the basis of search/ survey
conducted on Shfri Tarun Goyal CA. A comprehensive investigation was carried
out by the investigation wing in this regard, and on the basis of investigation
carried out and evidences collected, examination made a reported has been
forwarded which showed that above named Tarun Goyal CA has floated a number of
concerns/private limited companies for providing accommodation entries to
various desirous persons. These concerns/ companies were found to be only paper
entities providing accommodation entries and not doing any other real business.
Shri Tarun Goyal CA was found controlling more than 90 such concerns/
companies. He has been doing the business of providing accommodation entries
through these concerns by giving cheques/PO/DD in lieu of cash with/without
help of some agents/ mediators. They have also been charging certain
commission, for providing these entries, which usually varied from 1.5% to
3.5%. A perusal/ examination of reported/related documents/ related records show
that M/s Pee Aar Securities Limited being assessed with the undersigned has
also received a sum of Rs 80,00,000 from Shri Tarun Goyal CA through his
concerns in the garb of share capital/ share application money/loan which does
not represent actual transaction but only accommodation entries.
Infact perusal/examination of report/document/records show that
the entire transaction lacks ingredients of genuineness and is totally fishy.
It can, therefore, be safely inferred that this amount is unaccounted money of
the assessee introduced in his books of accounts after routing the same through
these entry providers/groups to avoid taxing of such amounts.
In view of the above, I have reasons to believe that the assessee
company has taken bogus/ accommodation entries as discussed above to the tune
of Rs. 80,00,000 in the period relevant ton the assessment year 2005-06
resulting into an escapement of income to this extent plus the amount of
commission paid out of the books.
8. While there is not much discussions about the stand of the assessee against the initiation of these reassessment proceedings, the ground of appeal take before the CIT(A) show the following grievances raised by the assessee:
8. While there is not much discussions about the stand of the assessee against the initiation of these reassessment proceedings, the ground of appeal take before the CIT(A) show the following grievances raised by the assessee:
1. The learned Assessing Officer erred in issue of notice under section
148 for reopening the assessment without having adequate grounds to come to the
conclusion that there existed reasonable belief that due to failure of the
assessee to furnish full and true particulars, income had escaped assessment.
2. The learned Assessing Officer had no information whether the
notice was in respect of information collected by the investigation wing during
the search or the information was collected during a survey. This is important
as remedial action in search cases are covered under section 153A for
assessment/ reassessment purposes, while section 148 will apply in respect of
survey cases.
3. The learned Assessing Officer failed to furnish any material on
record based on which reasons under section 148 was claimed to have been recorded,
despite several requests by the appellant.
4. The learned Assessing Officer failed to confront any material
information relied upon by him to draw conclusions adverse to the appellant.
9. Learned CIT(A), while dealing with the above grievances, was of
the view that “there were sufficient reasons for the AO to believe that income
had escaped assessment and proceedings were initiated after recording the
reasons”. He was of the view that “ a reassessment is valid if there is prima
facie reason to believe that income has escaped assessment” and that
“information was received by the AO and reasons were recorded that there was
escapement”. He relied upon judicial precedents in the cases of R S Utnal Vs
ITO [(2004) 269 ITR 212 (Kar)] and ITO Vs Shri Bajrang Commercial Co Pvt Ltd
[(2004) 269 ITR 338 (Cal)]. Learned CIT(A) further observed that, post
amendment, all that Section 147 with effect from 1st April 1989, the only
requirement under this section is that the Assessing Officer must have prima
facie reasons to believe that any income has escaped assessment, and the AO “is
not required to conclusively prove escapement of income at the stage of
issuance of notice under section 148”. While on this aspect, learned CIT(A)
extensively referred to, and relied upon, the observations made by Hon’ble
Supreme Court in the case of Raymond Woollen Mills Ltd Vs Income Tax Officer
[(1999) 236 ITR 34 (SC)] and ACIT Vs Rajesh Jhaveri Brokers Pvt Ltd [(2007) 291
ITR 500 (SC)]. As regards plea of the assessee that section 148 comes into play
only in the cases of survey, learned CIT(A) observed that “the assertion of the
appellant is not correct” as “section 148 will apply in cases other than survey
cases also”. As regards the plea of the assessee that the material used against
the assessee was not confronted to him, learned CIT(A) observed that “it is
seen that the appellant was provided inspection of file by the AO and
photocopies of the relevant documents provided” and, thus, rejected this plea
as well. Coming to the plea that “material information” was not confronted to
the assessee, learned CIT(A) observed that “since the appellant has inspected
the file and taken photostat copies of the material, it is not known what other
material was required to be given to the appellant” and rejected this plea as
well. It was in this backdrop that the CIT(A) confirmed the reopening of
assessment. The assessee is not satisfied and is in further appeal before us.
10. Learned counsel for the assessee begins by pointing out that
the very notice under section 148 is vitiated in law for more reasons than one.
It is pointed out that the said notice states that “this notice is being issued
after obtaining the necessary satisfaction of the Commissioner of Income Tax/
Additional Commissioner of Income Tax” but it does not strike off any of these
two authorities. It is then pointed out that the said notice also states that
“the copy of reasons recorded for initiating proceedings under section 147/148
are enclosed herewith” but no such attachment was furnished alongwith the
notice. He submits that for these reasons, the initiation of reassessment
proceedings must be held to be unsustainable in law. Learned counsel then
submits that in this case the approval was required from the Additional Commissioner
of Income Tax, but then it is an admitted position that the approval was
obtained from the Commissioner of Income Tax. He submits that in a case in
which the approval is required to be given by the Additional Commissioner of
Income Tax, but approval is given by a higher authority i.e. Commissioner of
Income Tax, the approval granted for reopening the assessment is vitiated in
law. For this reason also, according to the learned counsel, the initiation of
reassessment proceedings must be held to legally invalid. It is then contended
that there is nothing to show that the Assessing Officer has even applied mind
of his own and, in a stereo typed manner, he has simply acted upon sweeping
generalizations based on the material gathered by someone else i.e. investigation
wing. Learned counsel submits that the scheme of the Act does not permit
reopening of completed assessments in such a situation. There has to be some
material on record which indicates involvement of the assessee and this
involvement cannot be assumed or inferred; it is something which material on
record must unambiguously indicate even if not establish. There was no material
whatsoever, according to the learned counsel, to even indicate that the
assessee had committed any error, evades any taxes or involved in any
malpractice. Just because the assessee dealt with certain companies which were
involved in some dubious transactions with someone else, the Assessing Officer
cannot reach a conclusion that there were some irregularities in transactions
entered into by the assessee with those entities. Learned counsel then takes us
through the material on record and submits that there are missing gaps in the
inferences drawn by the Assessing Officer, as also his supervising officers,
which shows that as a matter of fact, these authorities did not even see the
assessment records while granting permission to reopen the assessment. All this
indicates, according to the learned counsel, non application of mind by the
Assessing Officer and his supervising officers, and for this short reason
independently as well, the impugned reassessment deserves to be quashed.
Learned counsel then submits that the Assessing Officer did not furnish,
despite specific requisitions of the assessee, the material based on which the
Assessing Officer had formed his opinion that income had escaped the
assessment. It is only elementary that unless an assessee is confronted with
the material which is being used against him, such a material has no
evidentiary value. Accordingly, as per the stand taken by the learned counsel,
the material on the basis of which is impugned reassessment proceedings are
resorted to, does not have any legally sustainable foundation. When the
material does not have legally sustainable foundation, the reassessment, on the
basis of such material, is inherently bad in law. He then submits that since
the reasons for reopening the assessment were not given alongwith the basis of
reopening the assessment, for this reason also, the impugned reassessment
proceedings are vitiated in law. It is not submitted that it is not only the
reasons for reopening the assessment, but the material constituting basis for
coming to this conclusion, must also be shared with the assessee. He then
submits that even during inspection of record, no such basis was found by the
assessee. Learned counsel then referred to, and extensively read out from, a
large number of judicial precedents, including Pardesi Developers and
Infrastructure Pvt Ltd Vs CIT [(2013) 351 ITR 8 (Del)], PCIT Vs Best Infrastruture
Pvt Ltd [(2017) 397 ITR 82 (Del)], Dharmavir Singh Rao Vs ACIT [(2017) TIOL
2447 HC DEL IT], PCIT Vs N C Cables Limited [(2017) 88 taxmann.649 (Del)]. In
addition to these judicial precedents addressed to in the course of arguments,
learned counsel has also filed, and relied upon, certain other judicial
precedents in the cases of CIT Vs SPLS Siddartha Limited (ITA No 836 of 2011;
judgment dated 14th September 2011 from Hon’ble Delhi High Court) DSJ
Communications Ltd Vs DCIT (WP No 722 of 2011; Hon’ble Bombay High Court’s
judgment dated 13th September 2012), Smt Ghanshyam K Karbani Vs ACIT (WP No
1246 of 2012; Hon’ble Bombay High Court’s judgment dated 12th March 20120), Hi
Gain Investments Pvt Ltd Vs ITO (ITA No. 4250/Del/2014; order dated 15th May
2017 by a coordinate bench), Praful Chandaria Vs ADIT (ITA Nos. 4313 and
4717/Mum/2013; order dated 26th August 2016 by a coordinate bench) Roshanlal
Jain & Co Ltd Vs ITO (2017 TIOL 248 ITAT DEL by a SMC bench of this
Tribunal), Virendra Jain Vs ACIT (2016 TIOL 2555 ITAT DEL by a coordinate bench
of this Tribunal), ACIT Vs Ottoman Steel Tubes Pvt Ltd ( 2016 TIOL 1291 ITAT
DEL by a coordinate bench of this Tribunal), H R Mehta vs ACIT (ITA No. 58 of
2001; Hon’ble Bombay High Court’s judgment dated 30th June 2016), Signature
Hotels Pvt Ltd Vs ITO (WPC No. 8067/2010; judgment dated 21st July 2011 by
Hon’ble Delhi High Court), ITO Vs Vivsun Properties Pvt Ltd (2016 TIOL 749 ITAT
DEL by a coordinate bench of this Tribunal) and Tarun Goyal & Others Vs
ACIT (2013 TIOL 1314 ITAT DEL by a coordinate bench of this Tribunal). On the
strength of these submissions and these judicial precedents, we were urged to
quash the reassessment proceedings. Learned Departmental Representative, on the
other hand, vehemently opposed these submissions. He submitted that these
heroics are completely out of place and the judicial precedents relied upon
donot deal with the fact situation before us. It is pointed out that admittedly
the assessee had entered into transactions with the entities owned by Tarun
Goyal group and it is finding of this very Tribunal that Tarun Goyal as running
a racket of providing accommodation entries by floating various entities and
this modus operendi is not disputed even by Tarun Goyal himself. The painstaking
investigation by the investigation wing also brought on record these facts. It
is not even the case of the assessee, or, for that purpose, anyone, that these
group entities were involved in any genuine business activities. On these
facts, the inputs from investigation wing coupled with the fact of the assessee
having entered into transactions with these entities, which were solely
involved in the business of providing accommodation entries, was a reasonable
material for coming to the conclusion that the assessee has introduced own ill
gotten funds with the help of the accommodation entries provided by these
entities. The decision of the Assessing Officer was a well considered decision
and a right decision. It is not the requirement of law that at the stage of the
reopening the assessment, the Assessing Officer must have conclusive evidence
to establish escapement of income. A bonafide reasonable belief for holding the
belief that income has escaped assessment is good enough for reopening the assessment,
and the law is well settled on that aspect. Learned Departmental Representative
took us through, and relied upon, the findings of, and judicial precedents
relied upon by, learned CIT(A) on this aspect. Learned Departmental
Representative also pointed out that the assessee had inspected the records at
the assessment stage and even taken copies from the same. It cannot thus be
said that the assessee was not provided with the reasons for reopening the
assessment. As regards learned counsel’s submission that the basis on which the
reopening proceedings are initiated must also be shared with the assessee,
learned Departmental Representative points out that it is not at all the
requirement of law that all the inputs available to the Assessing Officer must also
be shared with the assessee also. All that is required to be given by the
Assessing Officer to the assessee is a copy of the reasons recorded for
reopening the reassessment, and that was undisputedly given to the assessee.
There is no judicial precedent for this claim of the assessee. Simply because
the reasons for reopening the assessment were not furnished alongwith the
notice under section 148, even if that is true- though there is nothing to
establish that, the reassessment itself cannot be said to be invalid,
particularly when these reasons have been subsequently furnished to the
assessee. As regards approval by the CIT, and invalidation of approval for that
count alone, learned Departmental Representative submits that when a statutory
authority is specifically conferred a power of approval, merely because an even
higher authority has granted approval the proceedings cannot be held to be
valid. However, the present fact situation is materially different inasmuch as
the approval has been obtained from the Additional CIT as also the CIT, and, as
such, the approval by CIT is not in substitution of approval by the Additional
CIT but in addition to approval by the CIT. Learned Departmental Representative
then submits that the allegation about non-application of mind by the Assessing
Officer, Additional CIT and the CIT, are based on surmises and conjectures. In
any case, the assumption on the basis of which such allegations are made are
not really relevant. The question of application of mind comes into play vis-à-vis
the question as to whether income has escaped assessment or not. As for this
aspect, as submitted earlier, there is no dispute that the Assessing Officer
had material to show that Tarun Goyal group entities were solely involved in
the business of providing accommodation entries and that the assessee had
received share subscriptions from such entities. Learned Departmental
Representative submits that, on these facts, any reasonable person would have
prima facie belief that income, to the extent of such alleged share capital
subscription as also to the extent of expenses incurred to obtain these
accommodation entries for share capital subscription, has escaped assessment.
That was the material before the AO, the Addl CIT and the CIT. This material, according
to learned counsel, was reasonable basis for coming to the conclusion that
income has escaped assessment. Learned Departmental Representative further
submits that the assessment was reopened on the basis of reasons recorded by
the Assessing Officer, which constituted reasonable basis for coming to the
conclusion that income has escaped assessment, and that it did not suffer from
any legal infirmity. We are thus urged to confirm the action of the CIT(A) in
this regard, and decline to interfere in the matter. In brief rejoinder,
learned counsel for the assessee reiterated and relied upon his submissions
recorded earlier.
11. We find that in the present case, the assessee appellant had
not only taken the inspection of the file and also taken copies of the
documents on the assessment file. It is not the case, therefore, of the
assessee that he had no occasion to know the reasons for which the reassessment
proceedings are initiated. As a matter of fact, as evident the letter dated
22nd February 2013, extracts from which have been extensively reproduced at
page 3 onwards of the assessment order, the assessee had not only received the
reasons for reopening the assessment but he was also aware of all the nuances
thereof. When he states that “the reason (for reopening the assessment)
recorded by predecessor is vague and without substance” and that “your assessee
is yet to receive the copy of information or the alleged statement of the
person on the basis of which the reasons have been recorded”. His grievance is
that while the notice under section 148 stated that the reasons for reopening
the assessment are attached therewith, no such reasons were actually attached
thereto, and that, in any event, what was shared with the assessee was only the
copy of reasons recorded and not the material on the basis of which such
reasons were formed. Even if we assume that the reasons for reopening the
assessment were not really attached to the notice, even though neither this
plea was taken before the CIT(A) nor there is any material in support of this
plea, this lapse, by itself, cannot invalidate the reassessment proceedings. As
a matter of fact not only this allegation of the assessee is unproved, it is
obvious from the submissions of the assessee that the assessee was fully aware
of the said reasons- something which raises serious doubts on this
unsubstantiated allegation. Its is not a statutory requirement that the reasons
for reopening the assessment must be attached with the notice issued under
section 148. Nothing, therefore, turns on the reasons for reopening the
assessment not being furnished with the notice under section 148. In any event,
as evident from the submissions made by the assessee at the assessment stage,
he was fully aware of the reasons and he raised specific issues with respect of
the same, but what he really wanted was the basis on which the Assessing
Officer had recorded the reasons. As regards sharing of the basis on which
conclusions were arrived at and the material on the basis of which the opinion was
formed, we donot find any support, either in law or even in judicial
precedents, for this proposition. All that the Assessing Officer is required to
share with the assessee are the reasons recorded for reopening the assessment.
Rather than objecting to the reasons recorded by the Assessing Officer, the
assessee kept on asking for the basis of forming such reasons. That requisition
by the assessee, in our humble understanding, was well beyond what was
permitted to the assessee. All that is required to be looked into at this stage
is whether the Assessing Offcier had a reasonable ground to reopen the
assessment. There was no occasion to examine fine points about the legality and
legal nuances about the material based on which such prima facie opinion is formed
by the Assessing Officer. In any case, despite our several specific questions,
learned counsel could not point out any legal support in response to this
requisition.
12. Coming to the approval by the Commissioner, in the place of
Additional Commissioner, we see merits in the plea of the learned Departmental
Representative to the effect that there is a subtle difference between the
situation in which the approval is granted by the Commissioner in the place of
approval by the Additional Commissioner, and in the situation in which approval
is granted by Commissioner in addition to the approval by the Additional
Commissioner. There cannot be, and there is no, dispute about the proposition
that in the former case, the reassessment proceedings will be legally
unsustainable for want of approval by the appropriate authority, but, as to
what happens in the later case, we find guidance from a coordinate bench
decision in the case of Mayurbahi Mangaldas Patel vs ITO [(2018) 168 ITD 317
(Ahd)] wherein, speaking through one of us, the coordinate bench observed as
follows:
Let us, in the light of this factual position, revert to the
provisions of section 151, which reads as follows: "151 - Sanction for
issue of notice.
(1) No notice shall be issued under section 148 by an Assessing
Officer, after the expiry of a period of four years from the end of the
relevant assessment year, unless the Principal Chief Commissioner or Chief
Commissioner or Principal Commissioner or Commissioner is satisfied, on the
reasons recorded by the Assessing Officer, that it is a fit case for the issue
of such notice.
(2) In a case other than a case falling under sub-section (1), no
notice shall be issued under section 148 by an Assessing Officer, who is below
the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on
the reasons recorded by such Assessing Officer, that it is a fit case for the
issue of such notice.
(3) For the purposes of sub-section (1) and sub-section (2), the
Principal Chief Commissioner or the Chief Commissioner or the Principal
Commissioner or the Commissioner or the Joint Commissioner, as the case may be,
being satisfied on the reasons recorded by the Assessing Officer about fitness
of a case for the issue of notice under section 148, need not issue such notice
himself.]"
6. As evident from the plain reading of the above statutory
provision, all that is necessary for the prescribed authority to satisfy
himself that "on the reasons recorded by the Assessing Officer, that it is
a fit case for the issue of such notice"; that is all that, for the
purpose of section 151, expression "sanction" or "approval"
refers to. The sanction consists of recording the satisfaction that, on the
reasons recorded by the Assessing Officer, it is a fit case for issue of such
notice for reopening the assessment. What is material is that such a satisfaction
is recorded by the prescribed authority, and it is this satisfaction, we may
clarify at the cost of repetition, which is statutorily treated as
"sanction" in the heading of section 151. The words
"approved" or "sanctioned" are not even required to be used
by the prescribed authority, because, under the scheme of section 151, it is
satisfaction of the authority, on the reasons recorded by the Assessing
Officer, that this is a fit case for reopening the assessment. The use of words
that the reassessment is being done with the "approval" of the
Commissioner is meaningless unless the actual satisfaction of the Commissioner
is actually seen, and we see that actual processing sheet for so called
approval of the Commissioner, it is plain on facts that the satisfaction
"on the reasons recorded by the Assessing Officer that it is a fit case
for issuance of notice under section 148" is not only of the Commissioner
but also of the Joint/Additional Commissioner concerned.
There is no doubt that in the present case the Joint/Additional
Commissioner of Income- tax has categorically expressed his satisfaction about
the fact that on the reasons recorded by the Assessing Officer, it is fit case
for issuance of notice under section 148. The requirements of approval under
section 151 are thus clearly satisfied. Merely because an even higher authority
has expressed similar satisfaction does not obliterate the satisfaction of
appropriate authorities. What we have seen in this particular case appears to
be a part of the standard operating procedure in the income tax department,
and, if that be so, there can hardly be a case in which the Commissioner has
granted the approval for reopening of assessment and the Joint/ Additional
Commissioner of the range concerned has not recorded his satisfaction to the
effect that on the reasons recorded by the Assessing Officer, it is a fit case
for reopening the assessment. Even if there is any defect in the proceedings,
as long as it is in substance and effect of the same is in conformity with the
scheme of the Act, section 292B prevents it's being rendered invalid on that
count. Section 292B, inter alia, categorically provides that "no …..
proceeding ………taken in pursuance of any of the provisions of this Act shall be
invalid or shall be deemed to be invalid merely by reason of any mistake,
defect or omission in such ……….. proceeding if such proceeding is in substance
and effect in conformity with or according to the intent and purpose of this
Act". Quite clearly, therefore, it is indeed an inherent part o the
approval being granted by the Commissioner that the Joint/Additional
Commissioner of Income-tax expresses his satisfaction about the reason of
reopening of assessment being sufficient to issue notice under section 148 and
thus initiate the reassessment process, and, in the case before us, this aspect
of the matter has come to the light. Ironically, however, this aspect of the
matter is not adequately highlighted and properly demonstrated, in most of the
cases before the judicial forums, and that obviously is the reason that there
are several judicial precedents quashing the reassessment proceedings on the
ground that the approval is of the Commissioner concerned, and not of the
Joint/ Additional Commissioner. All the judicial precedents filed before us
fall in the category in which there is nothing on the record to demonstrate, or
even suggest, that the Joint/ Additional Commissioner concerned has recorded
his satisfaction that, on the reasons recorded by the Assessing Officer, it is
a fit case for initiating the reassessment proceedings. We have carefully
perused these precedents but we do not find any reference to the finding that
in those cases satisfaction of the Joint/Addl. Commissioner of Income-tax, to
the effect that, on the reasons recorded by the Assessing Officer, it was a fit
case for initiating the reassessment proceedings, was also on record. A
decision rendered without taking note of this fact cannot be an authority for
the proposition that even when such a satisfaction by the appropriate authority
is on record, just because similar satisfaction is expressed by the higher
authority is also on record, requirements of section 151 cannot be taken as
having been complied with. The binding nature of judicial precedents is only
for what they actually decide and not what can be inferred from these judicial
precedents. Nothing, therefore, turns on these precedents in the present case.
On the contrary, being satisfied that sanction envisaged by the scheme of
section 151, i.e. by recording satisfaction on the reasons recorded by the
Assessing Officer that it is a fit case for initiating reassessment
proceedings, is given by the prescribed authority on the facts of this case,
these judicial precedents are not clearly relevant in the present context.
8. In view of the detailed reasons set out above, we are of the
considered view that the hyper technical grievances raised before us are devoid
of legally sustainable merits. We accordingly reject the same.
9. As we part with the matter, we must that we have taken note of
the fact that as reassessments after reassessments are being quashed by the
judicial authorities, on the ground as raised before us in this case, the
income tax authorities have not taken pains either to follows the standard operating
procedure or to demonstrate to us that this standard operating procedure was
followed, and there cannot, thus, be a case in which approval of the
Commissioner was obtained without the satisfaction of the Range Head (i.e.
concerned Joint/ Additional Commissioner of Income Tax) qua the reasons
recorded by the Assessing Officer for reopening the assessment, Commissioner
could have granted the approval for reopening. It is for the income tax
authorities to present to the judicial forums the actual facts, with supporting
evidences, to the judicial forums and thus properly assist these forums in
dispensing justice to the parties.
It is extremely painful to us to depart from the views that the
coordinate benches have taken in the earlier cases, or to distinguish the
judgments of Hon'ble Courts above, but then, as complete facts having come to
light, and duly evidenced, before us, we cannot knowingly perpetuate the errors
in the name of reverence to binding judicial precedents. In the case of Kamgar
Sabha v. Abdulbahi Faizullbhai AIR 1976 SC 1455 Their Lordships have, in their
inimitable and felicitous words observed thus, "It is trite, going by
anglophonic principles that a ruling of a superior Court is binding law. It is
not of scriptural sanctity but of ratio-wise luminosity within the edifice of
facts where the judicial lamp plays the legal flame. Beyond those walls and de
hors the milieu we cannot impart eternal vernal value to the decisions,
exalting the precedents into a prison house of bigotry, regardless of the
varying circumstances and myriad developments. Realism dictates that a judgment
has to be read, subject to the facts directly presented for consideration and
not affecting the matters which may lurk in the dark". Lest we may be
blamed for departing from, in the name of reverence to the judicial precedents,
a judicial forum's unflinching commitment for the cause of justice, once the
factual matrix has admittedly shown a different shade of truth, we must not
remain constrained by the judicial precedents which were given oblivious of the
facts now glaring at us.
13. The views so expressed by the coordinate bench were approved
by Hon’ble Gujarat High Court in the judgment reported as Mayurbahi Mangaldas
Patel Vs ITO [(2018) 93 taxmann.com 220 (Gujarat)]. While approving the
conclusions arrived at by the coordinate bench, Their Lordships have, inter
alia, observed as follows:
10. The legal proposition is that when the statute casts a duty on
a certain administrative officer, the same must be performed by him and the
satisfaction arrived at even by the higher authority would not be sufficient.
However, in the present case, there was no lack of satisfaction or exercise of
power by the Joint Commissioner. He in clear terms, expressed his satisfaction that
on the basis of the reasons recorded by the Assessing Officer, it was a fit
case for issuance of notice under section 148 of the Act. Merely because the
papers were thereafter for some erroneous reason also placed before the
Commissioner who also recorded his similar satisfaction would not take away
anything from the previous conclusion.
14. When the above position was pointed out to the learned
counsel, he was somewhat dismissive of this precedent and he submitted that the
decision of Hon’ble Gujarat High Court is not binding in this jurisdiction,
and, while in the jurisdiction of Hon’ble Delhi High Court, we must not feel
fettered by what views are held by a non jurisdictional High Court. Our careful
analysis of the material on record, as also additional research work, could not
help us lay hands on any judicial precedents which supports or approves the
proposition that even though there is an approval by the Additional CIT on
record, the initiation of reassessment proceedings will stand invalidated simply
because an additional approval, for whatever reasons, has been obtained by even
higher authority. The judicial precedents in support of the assessee proceed on
the basis that the approval was given by a higher authority apparently in
substitution of, rather than in addition to, approval by the authority in which
statute has vested the powers. As to what is the status of non jurisdictional
High Court decisions, particularly in a situation in which Hon’ble
jurisdictional High Court does not offer any guidance on that issue, we find
guidance from a coordinate bench decision in the case of ACIT Vs Aurangabad
Holiday Resorts Pvt Ltd [(2009) 118 ITD 1 (Pune)] as follows:
5. As observed by a Co-ordinate Bench of this Tribunal, in the
case of Tej International (P.) Ltd. v. DCIT (69 TTJ 650), in the hierarchical
judicial system that we have in India, the wisdom of the court below has to
yield to the higher wisdom of the court above and, therefore, once an authority
higher than this Tribunal has expressed its esteemed views on an issue,
normally the decision of the higher judicial authority is to be followed. The
Bench has further held that the fact that the judgment of the higher judicial
forum is from a non- jurisdictional High Court does not really alter this
position, as laid down by the Hon'ble Bombay High Court in the case of CIT v.
Godavari Devi Saraf ( 113 ITR 589). For slightly different reasons and
alongwith some other observations on the issue, which we shall set out a little
later, we are in agreement with the conclusions arrived in this case.
6. That takes us to the question whether this decision stands
overruled by the Hon'ble Bombay High Court's later judgment in the case of
Thana Electricity Co. Ltd. (supra), as submitted by the learned Departmental
Representative.
7. It is also important to bear in mind that the question
requiring adjudication by Their Lordship was whether or not decision of one of
the High Courts was binding on the other High Courts. This will be clear from
following observations made by Their Lordships in the beginning of the judgment
:
"On a careful consideration of the submissions of the learned
counsel for the assessee, we find that before taking up the issue involved in
the question of law referred to us in this case for consideration, it is
necessary to first decide.... whether this Court, while interpreting an all
India statute like Income-tax Act, is bound to follow the decisions of any
other High Court and to decide accordingly, even if its own view is contrary
thereto, because of the practice followed in this Court. Because, if we are to
accept this submission, it will be an exercise in futility to examine the real
controversy before us "
8. One of the propositions that Their Lordships took note of was
that 'the decisions of the High Court on the subordinate Courts and authorities
or Tribunals under its superintendence throughout the territories in relation
to which it exercises jurisdiction (but) it does not extend beyond its
territorial jurisdiction.' Their Lordships in the same paragraph also noted
that 'A Division Bench of the High Court should follow the decision of another
Division Bench of equal strength or a Full Bench of the same High Court', and
'if one Division Bench differs with another Division Bench of the same High
Court, it should refer the case to a larger Bench'. Having thus noted the
proposition, Their Lordships proceeded to 'analyse the decisions of this Court,
on which reliance has been placed by the learned counsel for the assessee, in
support of his contention that decision of any other High Court on all India
statute like Income-tax Act, is binding even on this Court and on the Tribunals
outside jurisdictions of that High Court'. On Godavari Devi Saraf's case
(supra), which was delivered by a Division Bench of equal strength of this very
Hon'ble High Court, Their Lordships took note of revenue's stand as follows :
"Referring to the observations of Godavari Devi (supra), that
an all India Tribunal acting anywhere should follow the decisions of any other
High Court on the point, it was submitted by the counsel of the revenue that
this observation itself would show that the High Court was aware of the fact
that different High Courts were not bound by the decisions of each other and,
as such, there may be contrary decisions of different High Courts on the same
point."
9. The issue of consideration was thus confined to the question
whether or not a High Court decision is binding on another High Court or not.
That admittedly was the core issue decided by Their Lordships. As for the
binding nature of non-jurisdictional High Court decisions on the Tribunal, the
observations made by Their Lordships were no more than obiter dictum and in
this very judgment, Their Lordships have held that even in the case of Hon'ble
Supreme Court judgments, which are binding on all Courts, except Supreme Court
itself, but 'what is binding, of course, is the ratio of the decision and not
every expression found therein'. Their Lordships have also referred to the oft
quoted judgment of the Hon'ble Supreme Court in the case of CIT v. Sun Engg.
Works (P.) Ltd. ( 198 ITR 297) wherein it is held that 'it is neither desirable
nor permissible to pick out a word or a sentence from the judgment of this
Court, divorced from the context of question under consideration, and treat it
to be complete law declared by this Court." [Emphasis supplied].
10. In this light, and bearing in mind the fact that limited
question before Their Lordships was whether or not decision of one of the High
Courts is binding on another High Court, it would appear to us that ratio
decidendi in Thana Electricity Co. Ltd. (supra), is on the non- binding nature
of a High Court's judgment on another High Court. In any case, this Division
Bench did not, and as stated in this judgment itself, could not have differed
with another Division Bench of the same strength in the case of Godavari Devi
Saraf (supra). Therefore, it cannot be open to a subordinate Tribunal like us
to disregard any of the judgments of the Hon'ble Bombay High Court, whether in
the case of Thana Electricity Co. Ltd. (supra) or in the case of Godavari Devi
Saraf. It is indeed our duty to loyally extend utmost respect and reverence to
the Hon'ble High Court, and to read these two judgments by the Division Benches
of equal strength of the Hon'ble jurisdictional High Court, i.e., in the cases
of Thana Electricity Co. Ltd. (supra) and Godavari Devi Saraf (supra), in a
harmonious manner.
11. Let us now take a look at the Hon'ble jurisdictional High
Court's judgment in the case of Godavari Devi Saraf (supra). In this case,
question before Their Lordships was as follows :
"Whether, on the facts and circumstances of the case, and in
view of decision in the case of A. M. Sali Maricar ( 90 ITR 116), the penalty
imposed on the assessee under section 140A(3) was legal?"
12. The specific question before Their Lordships was whether the
Tribunal, while sitting in Bombay, was justified in following the Madras High
Court decision holding the relevant section as unconstitutional. Hon'ble High
Court concluded as follows :
"It should not be overlooked that Income-tax Act is an all
India statute, and if a Tribunal in Madras has to proceed on the footing that
section 140A(3) was non-existent, the order of penalty under that section
cannot be imposed by any authority under the Act. Until a contrary decision is
given by any other competent High Court, which is binding on the Tribunal in
the State of Bombay (as it then was), it has to proceed on the footing that the
law declared by the High Court, though of another State, is the final law of
the land an authority like Tribunal has to respect the law laid down by the
High Court, though of a different State, so long as there is no contrary
decision on that issue by any other High Court ".
13. It is thus clear that while the issue before the Hon'ble High
Court in Thana Electricity Co. Ltd.'s case (supra) was whether or not a High
Court should follow another High Court, whereas in Godavari Devi Saraf's case
(supra), Their Lordships dealt with the issue whether or not a
non-jurisdictional High Court is to be followed by a Bench of the Income- tax
Appellate Tribunal. To that extent, and irrespective of some casual
observations on the applicability of non-jurisdictional High Court judgments on
subordinate courts and Tribunals, these two decisions deal in two different
areas. As we have noticed earlier also, in Thana Electricity Co. Ltd.'s case, a
note was taken of Godavari Devi Saraf's judgment and neither the said judgment
was dissented nor overruled. In any event, in Thana Electricity Co. Ltd.'s
case, Hon'ble Court was alive to the fact, which was acknowledged in so many
words, that a Co-ordinate Bench decision cannot be overruled. In this view of
the matter, it is difficult to hold, as has been strenuously argued before us
by the learned Departmental Representative, that the Hon'ble Bombay High
Court's judgment in the case of Godavari Devi Saraf's case stands overruled by
Their Lordship's judgment in the case of Thana Electricity Co. Ltd.'s case. The
only way in which we can harmoniously interpret these judgments is that these
decisions deal with two different issues and ratio decidendi of these decisions
must be construed accordingly.
14. Let us also see this issue from a different perspective. Even
if we are to assume that it is possible to interpret that Godavari Devi Saraf's
decision stands overruled by judgment in the case of Thana Electricity Co.
Ltd.'s case, one cannot be oblivious to the fact that an interpretation is
indeed possible to the effect that even non-jurisdictional High Court's
judgment, for the reasons set out above, is binding on the Tribunal. This
non-jurisdictional High Court's judgment is in favour of the assessee. Now, as
held by the Hon'ble Supreme Court's judgment in the case of CIT v. Vegetable
Products Ltd. ( 88 ITR 192), when two interpretations are possible, one in
favour of the assessee must be adopted. For this reason, in our humble
understanding, the plea of the assessee deserves to be accepted.
15. We may, however, add that the observations that we have made
are particularly with reference to the legal position in the jurisdiction in
Hon'ble Bombay High Court, as the view so taken in Godavari Devi Saraf's case
(supra) has not found favour with Hon'ble Karnataka High Court as well as
Hon'ble Punjab and Haryana High Court, in the case of Patil Vijay Kumar v.
Union of India (151 ITR 48) and CIT v. Ved Prakash ( 178 ITR 332). The
observations made in this order are subject to this rider and, therefore, while
we agree with the conclusions arrived at by a Co-ordinate Bench in Tej
International (P.) Ltd. (supra), our reasons are not exactly the same as
adopted by our distinguished colleagues.
16. There is one more issue raised by the learned Departmental
Representative. He submits that we must decide all the issues raised in this
appeal and urges us not to leave the matter by deciding only the preliminary
issue. We are unable to approve this contention of the learned Departmental
Representative either. The issue is covered by a Special Bench decision in the
case of Rajul Kumar Bajaj v. ITO (69 ITD SB 1) which holds that once the issue
is decided on the question of jurisdiction, it is not necessary to address the merits
of the matter as well. Respectfully following the Special Bench decision, we
reject the contention of the learned Departmental Representative. We are not
really concerned with as to what should be done in ideal situation, but, as at
present and given the fact that the assessment itself is quashed, we see no
need to address matters which are rendered academic in the present context.
17. In this view of the matter, we are inclined to uphold the
preliminary objection raised by the assessee. As rightly pointed by the learned
counsel, Hon'ble Gauhati High Court has held that when the Assessing Officer
does not issue notice under section 143(2) within one year from the end of the
month in which block return is filed, it cannot be open to him to start the
scrutiny assessment proceedings after the end of that period. A view indeed
seems possible that it is not necessary that each of the block assessment
return must be subjected to the scrutiny of the Assessing Officer. According to
this school of thought, in the scheme of things is they exist today, assessment
by scrutiny is an option available to the Assessing Officer and it is not
always required to be followed in all the block assessment cases. We, however,
see no need to go into all these issues. Suffice to say that respectfully
following the Hon'ble Gauhati High Court's judgment in the case of Bandana
Gogoi (supra) and having noted the position that notice under section 143(2)
was admittedly not issued within one year from the end of the month in which
block assessment return was filed, we quash the assessment proceedings.
15. Quite clearly, therefore, even the views expressed by a non-jurisdictional
High Court, unless such a view comes in conflict with a view favourable to the
assessee by any other non- jurisdictional High court and in the absence of
guidance by Hon’ble jurisdictional High Court, are binding on us. The plea of
the learned counsel does not merit acceptance.
16. Learned counsel has repeatedly stated that there is complete
non-application of mind while recording, and while approving, the reasons for
re-opening the assessment. As we deal with this aspect of the matter, it is
necessary to understand as to what constitutes "reason to believe" in
terms of provisions dealing with income escaping assessment, and what kind of
application of mind is required to believe that income has escaped assessment.
In the case of ACIT Vs Rajesh Jhaveri Stock Brokers Pvt Ltd [(2007) 291 ITR 500
(SC)], Hon’ble Supreme Court has, inter alia, observed as follows:
If the Assessing Officer has cause or justification to know or
suppose that income had escaped assessment, it can be said to have reason to
believe that an income had escaped assessment. The expression cannot be read to
mean that the Assessing Officer should have finally ascertained the fact by
legal evidence or conclusion. The function of the Assessing Officer is to
administer the statute with solicitude for the public exchequer with an inbuilt
idea of fairness to taxpayers. As observed by the Supreme Court in Central
Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of
action under section 147(a) (as the provision stood at the relevant time)
fulfilment of the two requisite conditions in that regard is essential. At that
stage, the final outcome of the proceeding is not relevant. In other words, at
the initiation stage, what is required is "reason to believe", but
not the established fact of escapement of income. At the stage of issue of
notice, the only question is whether there was relevant material on which a
reasonable person could have formed a requisite belief. Whether the materials
would conclusively prove the escapement is not the concern at that stage. This
is so because the formation of belief by the Assessing Officer is within the
realm of subjective satisfaction ITO v. Selected Dalurband Coal Co. (P.) Ltd.
[1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34
(SC).
17. What essentially follows is that the Assessing Officer has a
reasonable cause or justification to “know or suppose” that income has escaped
assessment. As long as the Assessing Officer has that justification, he is legally
permitted to reopen the assessment. It is this limited justification that is
required to be examined while starting the process of reopening the assessment
or to approve such an initiation of process of reopening the assessment.
Hon’ble Supreme Court in the case of Calcutta Discount Co. Ltd. [(1961) 41 ITR
191 (SC)] has observed that "It is for him (i.e. the Assessing Officer) to
decide what inferences of facts can be reasonably drawn and what legal
inferences have ultimately to be drawn.” It is not for somebody else to tell
the assessing authority what inferences, whether of facts or law, should be
drawn. The question, therefore, that is required to be examined whether on the
basis of material available at the time of forming, or approving, the opinion
that income has escaped assessment, a reasonable person would come to that
conclusion. Here is a case in which certain companies subscribing to the share
capital of the assessee company, based on the inputs available to the Assessing
Officer at the point of time when such an opinion is formed, are entities
engaged wholly in the business of providing accommodation entries, without any
involvement in the bonafide business activities. These companies, as the
Assessing Officer categorically notes in the reasons recorded while reopening
the assessment, are “found to be only paper entities providing accommodation
entries and not doing any other real business” and are controlled by one Tarun
Goyal who “was found controlling more than 90 such concerns/ companies
(including these companies)”. It has also been noted in the reasons recorded
for reopening the assessment that this Tarun Goyal “has been doing the business
of providing accommodation entries through these concerns by giving
cheques/PO/DD in lieu of cash with/without help of some agents/ mediators”.
There is no, and there cannot be, any dispute about bonafides of these inputs.
As a matter of fact, a coordinate bench of this Tribunal has in the case of
Tarun Goyal & Ors Vs ITO (supra), has noted that the undisputed fact
accepted by the assessee (i.e. Tarun Goyal) is that he “was running a racket of
providing accommodation entries by floating numerous companies”. This finding
of the coordinate bench is being referred to for the limited purposes of demonstrating
bonafides of inputs available to the Assessing Officer. With all these facts
about the actual business alleged share subscriber companies were involved in
and the facts about the assessee having received entries as alleged share
capital subscription from these companies, it is only reasonable, fair and
logical to hold prima facie belief that the income to the extent of alleged
share subscription and commission to obtain the entries for share subscription
has escaped assessment. None of the facts available to have been challenged to
be incorrect, even though the assessee has shown his curiosity to find out the
material based on which such facts have been available to the assessee. There
is no question of non- application of mind to come to this conclusion on the
facts of this case. The Assessing Officer clearly applied as much of mind as
much he was required to come to this belief about income escaping the
assessment, and his supervising officials also clearly applied their mind as
much as it was required to come to the conclusion that there is reason to
believe that income, to the above extent, has escaped assessment in this case.
As a matter of fact, the facts available with the assessee and the belief held
by the assessee are in perfect harmony with each other, and it is not a case
that the reassessment has been initiated without any application of mind,
though, given the simplicity of factual matrix, not much application of mind
was needed anyway at the stage of recording reasons for holding this belief. It
does not need rocket science to understand as to what is natural corollary of
these entities adfmittedly being engaged “wholly” in the business of “providing
accommodation entries” and the assessee admittedly having received alleged
share subscription money from these entities. While coming to the firm
conclusion about the income having escaped assessment, and brining it to tax
will certainly need much more of an exercise than holding this prima facie
belief, there can be little doubt that at the stage of reopening the assessment
all that is needed is existence of a prima facie belief that income has escaped
assessment. That condition is satisfied, and, by no stretch of logic, it can be
said that the Assessing Officer had held this belief without application of
mind. It is not clear to us as to what kind of detailed application of mind was
needed, according to the learned counsel for the assessee, to come to hold this
belief. In our humble understanding, the Assessing Officer, as indeed his
supervising officials, had duly applied his mind on the core question about
income escaping the assessment, and, if at all, there were certain things they
overlooked, though no such lapse is established even though repeatedly alleged,
those aspects were not really relevant in the context of adjudicating the core
issue regarding validity of reassessment.
18. As regards learned counsel’s reliance on Hon’ble Delhi High
Court’s judgment in the case of Pardesi Developers (supra), that was a case in
which the Assessing Officer already had the information, based on which
reassessment was initiated, and even notice under section 133(6) was issued to
the assessee seeking comments on the same. Clearly, such facts are materially
different from the facts on the records of this case. Learned counsel for the
assessee has failed to demonstrate parity of the facts of the case before us
with the case of Pardesi Developers (supra). As regards Best Infrastructure
decision (supra), in response to our questions, learned counsel has fairly
accepted that the facts of the said case are not in pari materia with the facts
of the case before us, and he left at that. Coming to Hon’ble Delhi High
Court’s judgment in the case of Dharmvir Singh Rao (supra), against which SLP
is said to have been dismissed by Hon’ble Supreme Court, that was a case in
which the Assessing Officer received an STR (Suspicious Transaction Report)
indicating huge cash deposits, the assessee was confronted with these inputs
but the Assessing Officer proceeded to reopen the assessment on the ground
that, inter alia, “cash book, presented to explain the transactions, is
unreliable”. On these facts, Hon’ble Delhi High Court quashed the reassessment
proceeding, and, while doing so, observed as follows:
It is contended that the reassessment notice is unsustainable
since the rationale is vague and does not measure up to the standards required
of such a notice in terms of Section 147/148. To say this, the petitioner first
argues that the notice was not preceded by valid approval based upon proper
application of mind by the concerned Commissioner; secondly, that it was not
served in the proper manner and was rather served allegedly through affixation.
Last and most importantly, it is urged that the “reasons to believe” furnished
are not premised upon any tangible material, instead it vaguely refers to the
report of the Investigation Wing.
Counsel for the respondent/Revenue urged that the petition should
not be entertained. It was pointed out that unlike the other cases (which the
petitioner had relied upon in the first instance for AY 2008-09 and 2010-11,
W.P.(C) 10664 and 11692/2015 - both of which were decided on 18.10.2016) in the
present assessment year, the proviso to Section 147 is inapplicable. For that,
it is contended that the assessment was not completed after scrutiny, but was
more of an acceptance of intimation of the return. It is next urged that so far
as the question of approval is concerned, CIT (A) had clearly considered the
“reasons to believe” that was put up to him and approved the notice. Lastly, it
was urged that affixation is a known and accepted mode of service; counsel
relied upon the decision cited as Commissioner of Income Tax v.Thayaballi Mulla
Jeevaji Kapasi (1967) 66 ITR 147 (SC) = 2002-TIOL-1598- SC-IT-LB.
At this stage, this Court notices that for the two assessment
years 2008-09 and 2010-11, the judgment rendered on 18.10.2016 clearly found
that identical notices under Section 147/148 of the Income Tax Act, 1961 did
not measure up to the standards of a valid opinion based upon tangible
material, as clarified by the Supreme Court ruling in Commissioner of Income
Tax, Delhi vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) =
2010-TIOL-06-SC-IT-LB. The same logic in our opinion is applicable in the present
case. Furthermore, the reference by the Revenue to the third paragraph of the
“reasons to believe” in this case is of no consequence. The basic or necessary
facts which led the AO to form the opinion are contained in the second
paragraph of the impugned notice, i.e., the Investigation Wing’s report. The
wording and rationale in the impugned notice is identical to that in the
previous years’ case as well as for the AY 2010-11. The basic premise upon
which the Revenue can issue a valid notice is if tangible material is unearthed
after the completion of assessment - or intimation is made under Section 143
(1) in the given facts of the case. This is because of the non-obstante clause.
In other words whether there is a completed assessment under Section 143 (3) or
intimation under Section 143 (1), the essential pre- requisite for existence of
tangible material has to be fulfilled. In the present case, clearly this
pre-requisite was not fulfilled. Consequently, the impugned order cannot stand;
it is hereby quashed. The writ petition is allowed in the above terms.
(Emphasis, by underlining, supplied by us)
19. Clearly, the reassessment was held to be invalid on the ground
that “no tangible material is unearthed after the completion of assessment” and
that “in the present case, clearly this prerequisite is not fulfilled”. That is
not the situation before us. It is not the case of the assessee that the
investigation wing report was available to the assessee at the point of time
when the original assessment was framed. Learned counsel does not, therefore,
get any support from this judicial precedent either.
20. As regards learned counsel’s reliance on Hon’ble
jurisdictional High Court’s judgment in the case of N C Cables (supra), we find
that in this case. Hon’ble Delhi High Court has also observed that “It is not
as if the CIT has to record elaborate reasons for agreeing with the noting put
up. At the same time, satisfaction has to be recorded of the given case which
can be reflected in the briefest possible manner”. Given the simplicity of the
factual matrix of this case, and clearly correct inference drawn from the same,
learned CIT clearly showed application of mind when he observed that “based on
the reasons recorded above, I am satisfied that this is a fit case for issue of
notice under section 148 of the Income Tax Act”. It has not been shown to us as
to how this observation reflects non application of mind so far as concealment
of income is concerned. We do not see as to how this decision supports the case
of the assessee.
21. In the light of these discussions, as also bearing in mind,
learned CIT(A) was indeed justified in upholding the validity of reassessment.
We uphold his action and decline to interfere in the matter.
22. Lets now turn to the impugned additions of Rs 80,00,000, in
respect of alleged bogus share capital subscription, and Rs 2,00,000 in respect
of Rs 2,00,000 as commission said to have been paid for arranging this alleged
accommodation entry. These additions were made by the Assessing Officer in the
course of reassessment proceedings and confirmed by the CIT(A) in first
appellate proceedings, aggrieved by which the assessee is in further appeal
before us.
23. The relevant material facts are like this. In the course of
the reassessment proceedings, the Assessing Officer noted that the assessee has
received Rs 80,00,000 as share capital subscription from two entities – namely
Geefcee Finance Investments Limited and Mahanivesh India Limited. As the
Assessing Officer had good reasons to believe that these were merely
accommodation entries and as, in the original assessment proceedings, the “the
assessee company had simply submitted the names and address of the entities,
who contributed to share capital, but did not furnish any details of source of
funds received” and as “no documentary evidence in support of verification of
genuineness of transaction, identity and credit worthiness of such entities/
shareholders are submitted or produced”, the Assessing Officer required the
assessee to “bring on record material ingredients of genuineness of capital and
share premium, as provided and required under section 68 of the Act, in respect
of sums credited to the books of accounts of the assessee company”. The
Assessing Officer also required the assessee to produce principal officers of
these two companies. The assessee, however, did not yield to the stand so taken
by the assessee. It was submitted that “section 68 does not cast any onus to
prove the credit worthiness of investor so long as investor exists and there is
no denial from the investor about their investment in Pee Aar Securities”, and
that “it is true that the amended provisions of Section 68, which comes into force
from 1st April 2013 (i.e. assessment year 2013-14), the burden of ensuring that
a satisfactory explanation is available for the source of funds of investor
received by the recipient private limited company has been made part of this
section and the amount is to be considered for addition in the hands of the
recipient company only if the investing company fails to prove its source
satisfactorily, but this provision cannot be applied retrospectively to your
assessee’s case”. The assessee also submitted that “as the law was in force in
the assessment year 2005- 06, it is for the (income tax) department to satisfy
itself to ascertain the credit worthiness of the investors failing which it
undertakes suitable remedial measures in the hands of the investor(s) and not
in the hands of the recipient company”. The assessee also pointed out that the
evidences submitted included PAN cards of these entities, board resolutions
passed by these entities, related bank accounts of both the entities from which
the payments for share capital subscriptions were made, copies of distinctive
share certificates, copies of letter from these two entities confirming the
fact of share subscriptions and extracts from the minutes of meeting of the
directors of the assessee company authorising issuance of share capital to
these entities. The submissions so made by the assessee did not satisfy the
Assessing Officer. He was of the view that genuineness of these two companies
subscribing to the share capital was not proved nor there were satisfactory
details about the source of funds in the hands of these two companies. The
Assessing Officer sent an inspector at the given address but he could not
locate these companies or their shareholders. In this factual backdrop, and
after a very elaborate discussion on the legal position with respect to scope
of Section 68 and onus cast on the assessee- which we are not reproducing for
the sake of brevity, the Assessing Officer noted that that the assessee has
failed to discharge the onus of establishing genuineness of transaction, the
Assessing Officer treated the entire amount of Rs 80,00,000 as unexplained
credit in the hands of the assessee. The Assessing Officer further assumed that
the assessee must have paid at least 2.5% commission to organize this
accommodation entry. Accordingly, he made an addition of Rs 2,00,000 in respect
of this unaccounted expenditure as well. Aggrieved by the additions of Rs
82,00,000 so made by the Assessing Officer, assessee carried the matter in
appeal before the CIT(A) but without any success. The assessee is not satisfied
and is in further appeal before us.
24. Learned counsel for the assessee begins by pointing out that
all the documents establishing existence and genuineness of the investing
companies were duly furnished by the assessee and yet the Assessing Officer has
disregarded all these evidences on pure surmises and conjectures. He submits
that the material on the basis of which the Assessing Officer has drawn the
adverse inference was never shared with the assessee, and it is only elementary
that the Assessing Officer cannot rely upon any material, gathered behind the
back of the assessee, not confronted to the assessee. He submits that the
inspector’s report was not at all shown to the assessee, and merely because an
inspector reports that he could not locate certain companies, such companies
donot cease to exist. Learned counsel points out that even bank statements from
which the payments have been made by the assessee have been furnished to the
Assessing Officer, and yet the transactions have been held to be bogus. He
submits that he has submitted all the information in his possession that he
could furnish and if the Assessing Officer is not satisfied with the same,
nothing prevents the Assessing Officer to ask the investor companies all these
questions. The assessee had discharged initial onus by giving all the evidences
and the onus now shifts on the Assessing Officer to show that the information
furnished by the assessee is incorrect or lacks bonafides. He then turned to
certain technicalities. It was submitted that while entire assessment order was
wordprocessed, only the dates were left out in all the crucial documents. This
fact, according to the learned counsel, showed that the assessment order was
ready much before the assessment proceedings were concluded and that the
Assessing Officer was proceeding with a pre- determined mind. Learned counsel
then again referred to a large number of judicial precedents on the basis of
sweeping generalizations. He submitted that the additions under section 68
cannot be made only because investigation wing believes that the entries are
accommodation entries, and that there is nothing more, to support the case of
the revenue, in the present case. We were thus urged to delete the impugned
additions. Learned Departmental Representative, on the other hand, submits that
in any unexplained credit addition, the most crucial element is genuineness and
the assessee has not at all proved genuineness of the transaction. It is submitted
that genuineness cannot be proved simply by giving evidences of existence of
the assessee and procedural compliance, because even if the assessee is
involving in not so genuine an activity, there will be a person dealing with
the assessee nevertheless and the paper requirements will have to be complied
with anyway. He goes on to say that in accommodation entries the entire
emphasis is on the paper work and, therefore, there is paper work to support
the transaction does not mean that it is a genuine commercial transaction. What
is to be seen, according to the learned Departmental Representative, is whether
the transaction was in the course of the normal business of the person alleged
to be giving accommodation entries, and, unless that is proved, the assessee
cannot be said to have discharged his onus. Our attention is then invited to a
decision of Ahmedabad bench, in the case of Pavankumar M Sanghvi Vs ITO [(2017)
165 ITD 260 (Ahd)] which is now approved by Hon’ble Gujarat High Court in the
case of Pavakumar M Sanghvi Vs ITO [(2018) 404 ITR 601 (Guj)]. Learned
Departmental Representative takes us through these judgments and submits that
in the absence of any decision to the contrary by Hon’ble jurisdictional High
Court, these decisions are binding precedents for this bench as well. Coming to
the bank statement filed by the assessee, learned Departmental Representative
submits that, if anything, these bank statements show lack of bonafides
inasmuch as there are deposits shortly before each major payment which is
typical of not so genuine transactions. We are taken through these statements
in detail. It is then submitted that here is a case in which there is every
indication, right from adjudication by a coordinate bench of the Tribunal in
assessee’s own case, that the companies subscribing to the share capital of the
assessee company were wholly engaged in the business of providing accommodation
entries, and yet the assessee claims these transactions to be genuine
transactions without any cogent material to support the same. It is also
pointed out that the assessee has been evasive about the actual facts, and has,
all along, taken hyper technical legal objections to avoid inconvenient
questions. In the light of these facts, and in the light of categorical findings
about the conduct of Tarun Goyal group- as evident from the documents filed by
the assessee himself, the alleged share subscription by these two companies was
not genuine, and the learned CIT(A) was quite justified in confirming the
impugned additions. We are thus urged to confirm the findings of the CIT(A) and
decline to interfere in the matter. In rejoinder, learned counsel for the
assessee once again reiterates his submissions and urged us to delete the
impugned additions as there is no material to justify the same.
25. We have heard the rival contentions, perused the material on
record and duly considered facts of the case in the light of the applicable
legal position.
26. While dealing with the scope of Section 68 so far as alleged
accommodation entries are concerned, we consider it appropriate to refer to the
following observations made by Ahmedabad SMC bench of the Tribunal in the case
of Pavankumar M Sanghvi (supra):
7. In my considered view, so far as the legal foundation of the
impugned additions is concerned, it consists of assessee's inability to satisfy
the Assessing Officer about all the three essential ingredients of a credit
entry in the books of accounts- existence of the lender, ability of the lender
to advance funds in question, and, above all, genuineness of the transaction.
There is no dispute about the basic legal position about section 68 which
provides that where any sum is found credited in the books of accounts of an
assessee maintained for any previous year, and the assessee offers no
explanation about the nature and sources thereof, or the explanation offered by
him is not, in the opinion of the Assessing Officer, satisfactory, the sum so
credited may be charged to income tax as income of the assessee of that
previous year. The expression 'nature and source' appearing in section 68 has
to be understood as a requirement of identification of source and its
genuineness. It is also a settled legal positon that the onus of the assessee,
of explaining nature and source of credit, does not get discharged merely by
filing confirmatory letters, or demonstrating that the transactions are done
through the banking channels or even by filing the income tax assessment
particulars. In the case of CIT v. United Commercial and Industrial Co. (P.)
Ltd [1991] 187 ITR 596/56 Taxman 304 (Cal) , Hon'ble Calcutta High Court has
held that "it was necessary for the assessee to prove prima facie the
identity of creditors, the capacity of such creditors and lastly the
genuineness of transactions". Similarly, in the case of CIT v. Precision
Finance (P.) Ltd [1994] 208 ITR 465/[1995] 82 Taxman 31 (Cal), it was observed
that "it is for the assessee to prove the identity of creditors, their
creditworthiness and genuineness of transactions". There is thus no escape
from proving genuineness of a transaction. As regards learned counsel's
contention that nothing can be added to the objections specifically taken by
the Assessing Officer, I am unable to approve this plea for the simple reason
that as long as subject matter of the disallowance or addition is the same,
there is no bar on examination of any related aspect by the Tribunal, as has
been specifically held by a full bench of Hon'ble Bombay High Court in the case
of Ahmedabad Electricity Co Ltd v. CIT [1993] 199 ITR 351/66 Taxman 27 and
reiterated by a Special Bench of this Tribunal in the case of Tata
Communications Ltd v. Jt. CIT [2009] 121 ITD 384 (Mum). That is, of course,
besides the fact that there is no attempt, direct or indirect, to enlarge the
subject matter of appeal. The legal plea of the learned counsel proceeds on
clearly fallacious assumptions.
8. As I proceed to deal with genuineness aspect, it is important
to bear in mind the fact that what is genuine and what is not genuine is a
matter of perception based on facts of the case vis-à-vis the ground realities.
The facts of the case cannot be considered in isolation with the ground
realties. It will, therefore, be useful to understand as to how the shell
entities, which the loan creditors are alleged to be, typically function, and
then compare these characteristics with the facts of the case and in the light
of well settled legal principles. A shell entity is generally an entity without
any significant trading, manufacturing or service activity, or with high volume
low margin transactions- to give it colour of a normal business entity, used as
a vehicle for various financial manoeuvres. A shell entity, by itself, is not
an illegal entity but it is their act of abatement of, and being part of,
financial manoeuvring to legitimise illicit monies and evade taxes, that takes
it actions beyond what is legally permissible. These entities have every
semblance of a genuine business- its legal ownership by persons in existence,
statutory documentation as necessary for a legitimate business and a
documentation trail as a legitimate transaction would normally follow. The only
thing which sets it apart from a genuine business entity is lack of genuineness
in its actual operations. The operations carried out by these entities, are
only to facilitate financial manoeuvring for the benefit of its clients, or,
with that predominant underlying objective, to give the colour of genuineness
to these entities. These shell entities, which are routinely used to launder
unaccounted monies, are a fact of life, and as much a part of the underbelly of
the financial world, as many other evils. Even a layman, much less a Member of
this specialized Tribunal, cannot be oblivious of these ground realities.
9. I have noted that the assessee has received an amount of Rs
10,00,000 from Natasha Enterprises on 12th August 2006, and, as a plain look at
the Canara Bank statement of the lender, which is placed at pages 40 onwards of
the paper book, would show, there is a credit of Rs 10,00,000 just before this
cheque is paid. The bank balance before these two transactions, and after these
two transactions, was only Rs 13,717. Quite interestingly, again on 14th August
2006 in the same bank account, there are debit and credit transactions of
around Rs 15 lakhs each and the balance as on the end of that date is Rs 8,737.
On 18th and 19th August 2006, again there are quite a few transactions
aggregating to Rs 10 lakhs on debit as also credit side, and yet again closing
balance is Rs 7,578. On 22nd August 2006, there are transactions of debits and
credits of around Rs 32.50 lakhs each, and the closing balance at the end of
the day is again Rs 7,578. As can be seen from this statement, on 29th August
2006, there are debit and credit transactions of Rs 15 lakhs each and once
again the closing balance of the day is Rs 7,578. This kind of the state of bank
account does not inspire any faith in the proposition that the entity in
question is a genuine business concern. A look at the financial statements
filed by the assessee does not lead to this conclusion either. The lender has
shown a turnover of Rs 122.92 crores but there is no closing stock, and a
profit of almost 0.09% on the turnover leading to a tax payment of Rs 1,96,138.
The lender makes purchases of Rs 123.04 crores in such diversified areas as cut
and polished diamonds (Rs 73.15 crores ), plywood and aluminium (Rs 11.72
crore), rough diamonds (Rs 4.36 crores), software (Rs 25.01 crores ) and other
items (Rs 8.79 crores), and sells these products too but all that the lender
has spent on salaries is Rs 2,26,000, on office expenses is Rs 8,560, on office
rent is Rs 27,600 and on printing and stationery is Rs 8,560. All this is
simply not representative of what a genuine business would typically be. As
regards Mohit International also, the story is no different. The bank
statement, which is placed at pages 75 onwards, has the same theme of high
transactions during the day and a consistently minimal balance at the end of
the working day. On 28th April 2006, i.e. the day the assessee is given Rs
10,00,000, there are credit entries of almost similar amounts, and he balance
after these transactions is a small amount of Rs 13,020. Similar is the pattern
of transactions on all the days in respect of which this statement is placed
before me. On 23rd March 2007, for example, the opening balance is Rs 1,36,611
and there are huge debits and credit entries on 23rd and 24th March,
aggregating to almost Rs 4 crores on debit as also credit, and the closing
balance at the end of 24th March is Rs 85,991. On a turnover of Rs 127.87
crores, the profit is less than 0.09% resulting in tax outgo of Rs 2,96,218. To
effect this scale of operations, the lender incurs no travelling or telephone
expense, and entire expenses of the business, except on brokerage and
assortment of diamonds, are less than Rs 5 lakhs in the year. Interestingly, in
today's world where an average human being, much less a business organization,
can live without telephones, this business entity has prospered without a rupee
spent of telephones. The level of turnover and the expenditure incurred on
achieving such high turnover do not match at all. The numbers do not add up and
the details filed in respect of these lenders donot convince me that the
lenders are routine businesses. Given this background the assessee s inability
to produce the related persons or even give their current whereabouts makes the
story of genuine transactions even more unbelievable. It is also important to
bear in mind the fact that lending for an interest @12% p.a. without any
security is not something which people do for rank outsiders. There has to be
some close association to get such a kind of unsecured credit at such low
rates. When I consider this situation, coupled with the fact that (i) the
assessee has not been able to produce these lenders for verification and
reasonably explain the complete circumstances in which these lenders, who were
not even routinely engaged in the business of giving loans and advances, gave
him unsecured loans on 12% p.a interest- which essentially is possible in
situations of close relationships and trust; and (ii) the assessee has
maintained stoic silence on being told about these lenders being alleged to be
shell entities, I am not inclined to believe that these are genuine business
transactions. As I do so, I am reminded of Hon'ble Supreme Court's observation,
in the case of CIT v. Durga Prasad More [1971] 82 ITR 540, to the effect that
"Science has not yet invented any instrument to test the reliability of
the evidence placed before a court or tribunal. Therefore, the courts and
Tribunals have to judge the evidence before them by applying the test of human
probabilities". Similarly, in a later decision in the case of Sumati Dayal
v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC), Hon'ble Supreme Court rejected the
theory that it is for alleger to prove that the apparent and not real, and
observed that, This, in our opinion, is a superficial approach to the problem.
The matter has to be considered in the light of human probabilities. Similarly
the observation that if it is alleged that these tickets were obtained through
fraudulent means, it is upon the alleger to prove that it is so, ignores the
reality. The transaction about purchase of winning ticket takes place in secret
and direct evidence about such purchase would be rarely available
...............In our opinion, the majority opinion after considering
surrounding circumstances and applying the test of human probabilities has
rightly concluded that the appellant's claim about the amount being her winning
from races is not genuine. It cannot be said that the explanation offered by
the appellant in respect of the said amounts has been rejected
unreasonably". I will be superficial in my approach in case I donot
examine the claim of the assessee on the basis of documents and affidavits
filed by the assessee and overlook clear the unusual pattern in the documents
filed by the assessee and pretend to be oblivious of the ground realities. As
Hon'ble Supreme Court has observed, in the case of Durga Prasad More(supra), it
is true that an apparent must be considered real until it is shown that there
are reasons to believe that the apparent is not the real party who relies on a
recital in a deed has to establish the truth of those recitals, otherwise it
will be very easy to make self- serving statements in documents either executed
or taken by a party and rely on those recitals. If all that an assessee who
wants to evade tax is to have some recitals made in a document either executed
by him or executed in his favour then the door will be left wide open to evade
tax. A little probing was sufficient in the present case to show that the
apparent was not the real. The taxing authorities were not required to put on
blinkers while looking at the documents produced before them. They were
entitled to look into the surrounding circumstances to find out the reality of
the recitals made in those documents".
As a final fact finding authority, this Tribunal cannot be
superficial in its assessment of genuineness of a transaction, and this call is
to be taken not only in the light of the face value of the documents sighted
before the Tribunal but also in the light of all the surrounding circumstances,
preponderance of human probabilities and ground realties. Genuineness is a
matter of perception but essentially a call on genuineness of a transaction is
to be taken in the light of well settled legal principles. There may be
difference in subjective perception on such issues, on the same set of facts,
but that cannot be a reason enough for the fact finding authorities to avoid
taking subjective calls on these aspects, and remain confined to the findings
on the basis of irrefutable evidences. Hon'ble Supreme Court has, in the case
of Durga Prasad More (supra), observed that "human minds may differ as to
the reliability of a piece of evidence but in that sphere the decision of the
final fact finding authority is made conclusive by law". This faith in the
Tribunal by Hon'ble Courts above makes the job of the Tribunal even more
onerous and demanding and, in my considered view, it does require the Tribunal
to take a holistic view of the matter, in the light of surrounding
circumstances, preponderance of probabilities and ground realities, rather than
being swayed by the not so convincing, but apparently in order, documents and
examining them, in a pedantic manner, with the blinkers on. I may also add that
the phenomenon of shell entities being subjected to deep scrutiny by tax and
enforcement officials is rather recent, and that, till recently, little was
known, outside the underbelly of financial world, about modus operendi of shell
entities. There were, therefore, not many questions raised about genuineness of
transactions in respect of shell entities.
That is not the case any longer. Just because these issues were
not raised in the past does not mean that these issues cannot be raised now as
well, and, to that extent, the earlier judicial precedents cannot have blanket
application in the current situation as well. As Hon'ble Supreme Court has
observed in the case in Mumbai Kamgar Sabha v. Abdulbahi Faizullabhai AIR 1976
SC 1455 "It is trite, going by Anglophonic principles that a ruling of a
superior court is binding law. It is not of scriptural sanctity but of
ratio-wise luminosity within the edifice of facts where the judicial lamp plays
the legal flame. Beyond those walls and de hors the milieu we cannot impart
eternal vernal value to the decisions, exalting the precedents into a prison
house of bigotry, regardless of the varying circumstances and myriad
developments. Realism dictates that a judgment has to be read, subject to the
facts directly presented for consideration and not affecting the matters which
may lurk in the dark". Genuineness of transactions thus cannot be decided
on the basis of inferences drawn from the judicial precedents in the cases in
which genuineness did come up for examination in a very limited perspective and
in the times when shell entities were virtually non-existent. As the things
stand now, genuineness of transactions is to be examined in the light of the
prevailing ground realities, and that is precisely what I have done. In my
considered view, and for the detailed analysis set out earlier in this order,
the alleged loan transactions of the assessee cannot be held to be genuine on
the peculiar facts and circumstances of this case. As the genuineness of
transactions stands rejected, it is not really necessary to deal with other
aspects of the matter.
27. These views were duly approved by Hon’ble Gujarat High Court,
and, while approving these views, Their Lordships, inter alia, observed as
follows:
3. Perusal of the orders on record and in particular, the above
quoted portion of the order of the Tribunal would make it clear that the entire
issue is based on appreciation of evidence on record and thus factual in nature.
The Tribunal has given elaborate reasons to come to the conclusion that the
entire transaction was not genuine. In absence of any perversity, we do not see
any reason to interfere.
4. Learned counsel for the assessee however vehemently contended
that the assessee had received loans through cheques from lenders who had
confirmed the same. Their accounts are audited and filed before the Revenue
authorities. Thus, the genuineness of the transactions, the capacity of the
lender and the factum of lending all have been established. Addition under
section 68 of the Act there could not have been made. However, as noted, the
Tribunal has minutely examined the position of the lenders, the circumstances
under which, the amounts were allegedly loaned to come to the conclusion that
the transactions were not genuine.
5. Under the circumstances, Tax Appeal is dismissed.
28. We are unable to lay hands on any of the decisions of Hon’ble
jurisdictional High Court which is contrary to the approach so adopted in this
judicial precedent. Let us, in this light, revert to the facts of the case
before us. The assessee before us is a private limited company which is, by
law, prohibited from offering its securities for subscription by general
public. It cannot, therefore, be really open to the assessee to say that we
have no clue about who the subscribers to the share capital are; these cannot
be rank outsiders or walk in subscribers- as perhaps in the cases of public
limited companies. Yet, all that the company has to offer, to establish
genuineness of transactions of subscribing to the shares, are the bank
statements. The assessee is not able to produce the brains behind these
companies and the documents with respect to the their financials either. As for
the other documents, these documents have to be there for issuance of share
capital anyway- genuine subscription or not so genuine subscription.
Genuineness of a transaction cannot be demonstrated on the basis of these
documents. The assessee has not been able to produce the principal officers of
these entities, but then, given the way the facts about these entities have
unfolded, the reasons for the limitations of the assessee are not difficult to
seek. As per decisions of this Tribunal filed by the assessee on his own, these
entities, as indeed other entities in Tarun Goyal group, were never involved in
any genuine business anyway and were only in the business of providing
accommodation entries. The shell entities, like these two entities before us,
have every semblance of a genuine business- its legal ownership by persons in
existence, statutory documentation as necessary for a legitimate business and a
documentation trail as a legitimate transaction would normally follow. The only
thing which sets it apart from a genuine business entity is lack of genuineness
in its actual operations. The operations carried out by these entities, are
only to facilitate financial manoeuvring for the benefit of its clients, or,
with that predominant underlying objective, to give the colour of genuineness
to these entities. These shell entities, which are routinely used to launder
unaccounted monies, are a fact of life, and as much a part of the underbelly of
the financial world, as many other evils. Even a layman, much a Member of this
specialized Tribunal, cannot be oblivious of these ground realities. It would,
therefore, not really be appropriate for us to be swayed by the documents like
PAN cards, board resolutions passed by these entities, copies of distinctive
share certificates, copies of letter from these two entities confirming the
fact of share subscriptions and extracts from the minutes of meeting of the
directors. As for the bank statements of these companies, as rightly pointed
out by the learned Departmental Representative, these statements show the lack
of genuineness. So far as Mahanivesh’s bank statement with IDBI Bank is
concerned, what is filed before us is the page containing entries from 1st June
2004 to 30th June 2004. On 1st June, this bank statement shows a credit balance
of Rs 46,681. On 1st June, there is a credit of Rs 60,000 and the immediately
following day, there is a withdrwal of Rs 50,000. On 8th June, there is a
credit of Rs 10,00,000, and on the same day a debit of the same amount is also
made. On 11th June, there are credits of Rs 20,00,000 and on the same day a
debit of Rs 20,00,000 is given showing payment to the assessee. On 22nd June,
there are credits of Rs 19,97,995 and, on the same day, another debit of Rs
20,00,000 is made showing payment to some other company. On 25th June and 28th
June, it is the same story again though the amounts or debits and credits are
Rs 15,00,0000 and Rs 10,00,000 respectively. As regards the other bank account
of Geefcee in ABN Amro Bank is concerned, the situation is no better. On 3rd June,
i.e. opening day of this bank statement, there is a credit balance of Rs
5,742.32. On June 9, there are deposits of Rs 20,10,000 and, on the same day, a
payment of Rs 20,15,000 is made leaving a balance of less than Rs 1,000. On
11th June, there are deposits of Rs 10,00,000 and on the same day, there is a
payment of Rs 10,00,000. On 16th June again, it is the same story but the
amount is now Rs 20,00,000. On other dates in the ABN Amro Bank statement, as
given to us, is the same story. What do we conclude from these statements? The
overnight balance in the bank accounts are of small amounts and the payments
made from these accounts are almost at the time of making payment are
transferred from other sources, for which no explanation is available. This is
typical of a situation in which the bank accounts are used as a conduit to
launder the ill gotten money. It is impossible for even a layman, leave aside
Members of this specialized Tribunal, to come to the conclusion that these
transactions represent bonafide investment transactions. It is also important
to note that there is nothing else about the genuine business activities, even
if any, of the investor companies, about the backdrop of the promotors about
the relationship these people had with the companies, and we are to take the
call on genuineness only on the basis of these two bank statements for a
limited period. We are unable to come to a positive conclusion about the
bonafides of the investors on the basis of these bank statement, and quite to the
contrary to the claim made by the assessee, these statements show lack of
bonafides. Hon'ble Supreme Court has, in the case of Durga Prasad More (supra),
observed that "human minds may differ as to the reliability of a piece of
evidence but in that sphere the decision of the final fact finding authority is
made conclusive by law". This faith in the Tribunal by Hon'ble Courts
above makes the job of the Tribunal even more onerous and demanding and, in our
considered view, it does require the Tribunal to take a holistic view of the
matter, in the light of surrounding circumstances, preponderance of
probabilities and ground realities, rather than being swayed by the not so
convincing, but apparently in order, documents and examining them, in a
pedantic manner, with the blinkers on. We may also add that the phenomenon of
shell entities being subjected to deep scrutiny by tax and enforcement
officials is rather recent, and that, till recently, little was known, outside
the underbelly of financial world, about modus operendi of shell entities.
There were, therefore, not many questions raised about genuineness of
transactions in respect of shell entities. That is not the case any longer.
Just because these issues were not raised in the past does not mean that these
issues cannot be raised now as well, and, to that extent, the earlier judicial
precedents cannot have blanket application in the current situation as well. As
Hon'ble Supreme Court has observed in the case in Mumbai Kamgar Sabha v.
Abdulbahi Faizullabhai AIR 1976 SC 1455 "It is trite, going by Anglophonic
principles that a ruling of a superior court is binding law. It is not of
scriptural sanctity but of ratio-wise luminosity within the edifice of facts
where the judicial lamp plays the legal flame. Beyond those walls and de hors
the milieu we cannot impart eternal vernal value to the decisions, exalting the
precedents into a prison house of bigotry, regardless of the varying
circumstances and myriad developments. Realism dictates that a judgment has to
be read, subject to the facts directly presented for consideration and not
affecting the matters which may lurk in the dark". Genuineness of
transactions thus cannot be decided on the basis of inferences drawn from the
judicial precedents in the cases in which genuineness did come up for
examination in a very limited perspective and in the times when shell entities
were virtually non-existent. As the things stand now, genuineness of
transactions is to be examined in the light of the prevailing ground realities,
and that is precisely what we have done. We are of the considered view that
there is nothing to establish genuineness of the share subscription
transactions on the facts of this case. The assessee does not know anything
about these companies or these persons. The assessee has no documents about
their financial activities or their balance sheets. The assessee is a private
limited company and these entities could not have therefore been rank outsiders
like walk in investors and yet the assessee does not throw enough light on
these entities. A lot of emphasis is placed on bank transactions, on PAN cards
and on board resolutions but all these factors have to be present in the cases
of shell companies involved in money laundering as well. Nothing, therefore, turned
on these documents so far as genuineness aspect is concerned. It is also a
settled legal positon that the onus of the assessee, of explaining nature and
source of credit, does not get discharged merely by filing confirmatory
letters, or demonstrating that the transactions are done through the banking
channels or even by filing the income tax assessment particulars. In the case
of CIT v. United Commercial and Industrial Co (P.) Ltd [1991] 187 ITR 596/56
Taxman 304 (Cal) , Hon'ble Calcutta High Court has held that "it was
necessary for the assessee to prove prima facie the identity of creditors, the
capacity of such creditors and lastly the genuineness of transactions".
Similarly, in the case of CIT v. Precision Finance (P.) Ltd [1994] 208 ITR 465/[1995]
82 Taxman 31 (Cal), it was observed that "it is for the assessee to prove
the identity of creditors, their creditworthiness and genuineness of
transactions". There is thus no escape from proving genuineness of a
transaction. The assessee has failed to do so. We, therefore, confirm the
addition in respect of alleged share subscriptions received from these two
companies- namely Mahanivesh and Geefcee. As regards the addition in respect of
commission, we have seen that there is a categorical finding that these entities
were arranging the accommodation entries on the basis of 2.5% commission. We,
therefore, confirm this addition as well.
29. Before parting with the matter, we may briefly deal with the
contention of the assessee that since amendment in Section 68, with respect to
addition for unverified share capital subscription, was effective from 1st
April 2012, it can only be prospective and it will not apply for this
assessment year. On a conceptual note, every specific amendment to the law,
particularly when it is disadvantageous to the taxpayers and is enacted ex
abundanti cautela (as a measure of abundant caution) is generally, fraught
with, what tax academicians and policymakers term as, the risk of its ‘kill
effect’. The risk is that when a specific provision, to make the things clear
and beyond any doubt, is enacted with respect to a particular point of time and
a particular consequence is envisaged by the provision, interpretation of the
law or treaty will invariably be inclined to draw to the inference that no such
consequence was envisaged by the legislature or the treaty prior to the
amendment coming into force. That is a common and fairly well accepted
approach. There is, however, a rider. The rider is that even on the first
principles and in a situation in which a binding judicial precedent or judicial
analysis of the pre-amendment legal has already come to the same conclusions,
as indicated by the specific amendment as a measure of abundant caution, such a
“kill effect” is ruled out. That precisely is the situation before us. In such
cases, the impact of amendment remains confined to the areas on which either
(i) on the areas on which, with the help of pre- amendment provisions, the
judicial conclusions are at variance with the conclusions arrived at with the
help of amendment; or (ii) such areas have remained intact from the judicial
precedent. Viewed thus, merely because there is a specific amendment to Section
68 with effect from 1st April 2012, it does not affect the interpretation of
Section 68 on the basis of the binding judicial precedents, de horse this
amendment, and the first principles.
30. In view of these discussions, as also bearing in mind entirety
of the case, we are unable to see any merits in the grievances raised by the
assessee. The conclusions arrived at by the learned CIT(A) are correct and
donot call for any interference. While we have carefully perused all the
judicial precedents cited at the bar, it is not possible to specifically deal
all of these precedents as all of them are not really relevant in the
perspective of our approach or are somewhat repetitive in effect.
31. In the result the appeal is dismissed. Pronounced in the open
court today on the 23rd day of August, 2018.
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