INCOME TAX APPELLATE
TRIBUNAL, JAIPUR
M/S BALAJI HEALTH CARE
PVT. LTD., VS ITO
30-01-2019
ITA No. 566 &
567/JP/2018
These are two appeals
filed by the assessee against the respective orders of ld. CIT(A), Jodhpur
(Camp at Jaipur) dated 16.03.2018 for the Assessment Year 2006-07 and dated
19.03.2018 for the assessment year 2007-08 respectively.
2. In ITA No.
566/JP/2018, the assessee has taken the following grounds of appeal:-
“1.1 The impugned order
u/s 147/143(3) dated 18.02.2014 is bad in law and on facts of the case, for
want of jurisdiction, barred by limitation and various other reasons and hence
the same may kindly be quashed.
1.2 The action taken
u/s 147 by the ld. AO confirmed by the ld. CIT(A) is bad in law and on facts of
the case, for want of jurisdiction and various other reasons and hence the same
may kindly be quashed.
2. Rs. 25,00,000/- :
The ld. CIT(A) has grossly erred in law as well as on the facts of the case in
confirming the addition of Rs. 25,00,000/- made by the ld. AO on account of
alleged accommodation entries received for share application money and also
erred in ignoring the various evidence submitted without rebutting and AO also
erred in not providing the cross examinations. Hence the addition so made by
the AO and confirmed by the ld. CIT(A) is being totally contrary to the
provisions of law and fact on the record and hence the addition may kindly be
deleted in full.
3. The ld. AO has
grossly erred in law as well as on the facts of the case in charging interest
U/s 234A, 234B & 234C,. The appellant totally denies it liability of
charging of any such interest. The interest, so charged, being contrary to the
provisions of law and facts, may kindly be deleted in full.”
Briefly the facts of
the care are that the assessee engaged in the business of Real Estate and
construction of flats filed its return of income on 30.11.2006 admitting the
total income at Nil. Subsequently, the AO received information from
Investigation Wing, New Delhi that a search and seizure operation was carried
out in the case Shri Surendra Kumar Jain and Shri Virendra Kumar Jain, Delhi
and in their statement recorded, they had categorically stated that there were
engaged in the business of providing accommodation entries of share
capital/share premium to various beneficiaries and the assessee company was
also one of the beneficiaries in respect of share capital/share premium of Rs.
25,00,000/-. Accordingly, the AO initiated the proceedings U/s 147 of the Act
by issuing notice U/s 148 dated 23.03.2013. In response, the assessee stated
that return filed originally on 30.11.2006 may be treated as return filed in
response to notice U/s 148 of the Act. After hearing the assessee, the
assessment was completed U/s 143(3) r.w.s. 147 of the Act on 18.02.2014 determining
the total income by making addition of Rs. 25,00,000/- to the total income of
the assessee. Being aggrieved, the assessee carried the matter in appeal before
the ld. CIT(A) who has confirmed the said addition and now the assessee in
before us.
4. In ground No. 1, the
assessee has challenged the order passed by the Assessing Officer U/s 147 of
the IT Act. In this regard, the ld. AR submitted that it is a settled legal
proposition that the AO is duty bound to carry out formation of belief with due
diligence after due application of mind and not in a casual and mechanical
manner. In the present case, from perusal of reasons recorded, it is evident
that AO received a letter from the office of CIT, Jaipur-II on 21.03.2013 by
which a report of Investigation Wing was forwarded to him. Thereafter, the
Assessing Officer on the very next day, recorded the reasons to believe that income
to the tune of Rs. 25,00,000/- has escaped assessment. It was submitted that
from the reasons so recorded by the AO and subsequent letter written by the AO
to ACIT, Delhi on 30.08.2013, it is manifest that formation of belief of
escapement was not based on anything other than report of Investigation Wing
and without any independent enquiry conducted by the AO. It was submitted that
as per the settled principles of reopening, what is expected from AO is
corroboration, checking and cross checking of the Information, received from
the Investigation Wing, with independent evidences and establishing a clear
trail suggesting, even if prima facie, flow of unaccounted money from the
assessee. However, in the present case, reopening has been done by directly jumping
on to the information received from the Investigation Wing by considering it to
be sacrosanct. It was accordingly submitted that the AO recorded the reasons in
the most arbitrary manner without application of any mind and, thus, this is
nothing but a case of borrowed satisfaction which renders the entire
proceedings of reopening to be illegal and void-ab-inito. In support, reliance
was placed on the decision of Hon’ble Delhi High Court in case of RMG Polyvinyl
(I) B Ltd [2017] 83 taxmann.com 348, Meenakshi Overseas Pvt. Ltd. [2017] 395
ITR 677 and N.C. Cables Ltd. [2017] 88 taxmann.com 649 wherein it was held that
where reassessment was resorted on the basis of information from DIT
(Investigation) stating that the assessee had received accommodation entry and
AO fails to independently apply his mind demonstrating link between tangible
material and formation of reason to believe, reassessment was not justified.
5. It was further
submitted that the reopening was based on the report sent by the Investigation
Wing, Delhi, no underlying records were available with AO at the time of
recording of reasons and this factum is proved by the order of the Coordinate
Bench in case of Basesar Properties (P) Ltd. vs. ITO [2017] 88 taxmann.com 634
where reopening was quashed which was initiated on the basis of same report of
Investigation Wing in the case of Shri Surendra Kumar Jain and Shri Virendra
Kumar Jain. It was further submitted that the Assessing Officer vide his letter
dated 30.08.2013 has requested to ACIT, New Delhi to provide copies of all
relevant documents such as statements of Surendra Kumar Jain, Virendra Kumar
Jain and mediator PC Agarwal which strengthens the aforesaid fact that the AO
has arrived at the satisfaction of escapement without analyzing any documents.
It was further submitted that the statement of key persons i.e. P.C. Agarwal,
Rajesh Agarwal and Ravindra Goel does not exist. Therefore, in the absence of
such statements, how could the AO formed the belief that income has escaped
assessment. It was further submitted that the AO has violated the principles of
natural justice by not providing the assessee company copy of report of
Investigation Wing which was the basis of entire reopening the assessment.
Without prejudice, it was further submitted that the AO was duty bound to
obtain necessary sanction from ld. JCIT/Add.CIT containing his satisfaction
that the case is fit for reopening, however, on perusal of proforma for
obtaining approval, it can be seen that the AO obtained sanction from ld. Add.CIT,
however, the name of ld. Add.CIT is not mentioned and therefore, the validity
of sanction is in doubt. It was further submitted that even where it is
considered that the sanction was received from a competent authority, the same
was not in accordance with the provisions of law. The ld. Add.CIT has just
affixed his signature and has not written even a single word which could lead
to a conclusion that any mind application was made and he was satisfied that it
was a fit case for reopening. It was submitted that the reasons were recorded
on 22.03.2013 and thereafter, the notice U/s 148 of the Act was also issued on
22.03.2013, thus within a single day reasons were recorded, sanction was
granted and notice was issued which further speaks of the quality of so called
sanction which was granted by the ld. Add.CIT. In support, reliance was placed
on the decision of Hon’ble Supreme Court in case of Chhugamal Rajpal Vs S.P.
Chaliha (1971) 79 ITR 603, CIT vs. S. Goyanka Lime & Chemical Ltd. 64
Taxmann.com 313 (SC) and decision of Hon’ble Delhi High Court in case of PCIT
vs. N.C. Cables Ltd. 88 taxmann.com 649 besides various other High Courts and
Coordinate Bench decisions.
6. On merits, it was
submitted that the AO by placing sole reliance on the report of the Investigation
Wing, New Delhi and documents seized by Investigation Wing, considered the
share application money of Rs. 25,00,000/- received by the assessee company as
bogus. It was submitted that the assessee company issued 10,000 shares of Rs 10
each at a premium of Rs 240 per share to M/s Pelicon Finance & lease Ltd.
It was submitted that the assessee company duly discharged its onus as required
U/s 68 of the IT Act by submitting the following evidences as under:-
7. In support of its
aforesaid contention that where the assessee has discharged the initial onus,
no addition can be made in its hands, reliance was placed on the decisions of
Hon’ble Rajasthan High Court in case of CIT vs. ARL Infratech Ltd. 394 ITR 383,
Barkha Synthetics Ltd. vs ACIT 283 ITR 377, CIT vs. Bhaval Synthetics 217
taxman 23 and CIT vs. Morani Authomotives (P) Ltd. 264 CTR 86 besides various
other decisions.
8. It was further
submitted that during the course of assessment proceedings, the assessee
Company was provided with the copies of statements of Mr. Surendra Kumar Jain
and Mr. Virendra Kumar Jain. In the statements both the brothers have
categorically denied to have provided any accommodation entry to any person.
Ld. AO has not rebutted the statements of Jain duo. Further, in the statements
there was no whisper of M/s Pelicon Finance & Lease Ltd as well as the
assessee Company and, therefore, no adverse inference can be drawn. It was
further submitted that the AO also placed reliance on the statements of Mr.
Rajesh Agarwal who allegedly admitted that he was engaged in arranging the
accommodation entries for Ravindra Goel through companies managed by Mr.
Surendra Kumar Jain and Mr. Virendra Kumar Jain. However, such statements were
not provided to the assessee Company and no opportunity of cross examination
was provided in spite of repeated requests. The only reasonable inference which
could be drawn is that no such statements existed and, therefore, there is no
basis for the department to allege that Mr. Surendra Kumar Jain and Mr. Virendra
Kumar Jain were engaged in the business of providing accommodation entries.
Even otherwise there is no claim of ld. AO that Rajesh Agarwal or Ravindra Goel
had admitted having arranged any entry for the assessee Company. It was further
submitted that even if it is assumed that the Jain duo were engaged in the
business of providing accommodation entries then also such fact may be relevant
for suspicion but it ipso facto does not lead to conclusion that all of the
transaction entered into would be bogus. Lower authorities have erred in
inferring that an entity which provides accommodation entry to one person,
provides accommodation entry to all.
9. It was further
submitted that the AO at page 4 of assessment order discussed the contents of
seized documents in which the name of the assessee Company was appearing and
alleged that the assessee Company arranged an accommodation entry, through
mediator being a person called P.C. Agarwal, from M/s Pelicon Finance &
Lease Ltd. It is submitted that P.C. Agarwal was the prime witness and main
evidence and his statements would have decided the fate of the allegations of
ld. AO. However, his statements were not recorded during search, post- search,
before reopening the assessment and not even during the course of reassessment
proceedings as they are not available in the record of ld. AO. The
non-recording of statements, at various stages, of above key persons, cannot be
accidental or a mere lapse. The very fact that these persons (P.C. Agarwal,
Rajesh Agarwal and Ravindra Goel) ever existed is highly doubted.
10. It was further
submitted that the AO issued notice u/s 133(6) to M/s Pelicon Leasing Finance
Ltd which was duly served and duly responded. M/s Pelicon Leasing Finance Ltd
has confirmed that it had given share application money to the assessee
Company. Reliance is placed on the decision of Hon’ble ITAT Delhi in the case
of Prinku landfin (P.) Ltd. vs. Income Tax Officer, Ward-14(4), New Delhi
[2018] 91 taxmann.com 120 (Delhi - Trib.). Where the AO not being satisfied
with the outcome of 133(6) enquiries (which were substantiating the case of the
assessee Company) should have conducted further enquiry. Without such enquiry,
under the law, he had no authority to disbelieve the outcome of the enquiry. It
was submitted that the AO had information/ evidence from two sources i.e. one
from M/s Pelicon Finance & Lease Ltd in response to notice u/s 133(6) and
another in the form of report of Investigation Wing. Both the information, from
different sources, were contradictory. Ld. AO has disregarded one and relied on
the other to suit his own requirement. Otherwise also information from
Investigation Wing per se without further enquiry cannot be used against the
assessee Company. Reliance was placed on the various decisions wherein the
Courts have categorically held that wherever any information is received from
Investigation Wing, ld. AO is duty bound to carry out intensive investigation
himself.
11. It was further
submitted that section 68 of the IT Act, 1961 has been amended w.e.f.
01.04.2013. Prior to amendment the only onus contained in section 68 was
proving the identity, genuineness and creditworthiness. The present case of the
assessee Company falls in the pre amendment period and, therefore, placing on
record the evidences as mentioned above and proving that the money was received
through banking channel will lead to sufficient compliance with regard to
section 68. Thus, the addition made and confirmed is bad in law. Reliance is
placed on the decision of Hon’ble High Court of Bombay in the case of CIT-1 v.
M/s Gagandeep Infrastructure Pvt. Ltd. [2017] 80 taxmann.com 272 (Bombay)
wherein it was held that the amendment in section 68 is prospective and not
retrospective.
12. It was further
submitted that the AO, while rejecting the claim of the assessee Company, also
held that the premium that was charged was too high and does not appear logical
keeping in view the business activities and reputation of the company. It was
submitted that ld. AO over-stepped his authority by analyzing whether the
premium was logical or not. It is only and only the investor who has to analyze
and negotiate on the amount of premium. It is further submitted that ld. AO
just made bald statements and did not also give any working to support his contention
that the premium charged was too high. It is pertinent to note that it is not
the case where assessee Company issued shares at premium for the very first
time. Assessee Company, in previous assessment years as well as in subsequent
assessment years issued shares on premium and the premium is supported by the
valuation report.
13. It was further
submitted that ld. CIT(A) erred in not appreciating the facts of the present
case of the assessee Company in correct perspective and assessee’s rebuttal of
the findings of ld. CIT(A) are as under:
i) Ld. CIT(A) held that
creditworthiness and genuineness was not proved as the fact of that M/s Pelicon
Finance and Leasing Ltd. was carrying out any business activity was not
established. It is submitted that the assessee Company during the assessment
proceedings submitted the financial statements of shareholder for AY 2005-06
from which the business activities were evident. Thereafter, in response to
notice u/s 133(6) M/s Pelicon Finance and Leasing Ltd. submitted its financial
statements for AY 2006- 07 from which again it was evident that it was engaged
in regular business of investing and financing. It is further submitted that
lower authorities have also not proved that it was a paper company.
ii) Ld. CIT(A) at page
23 held that the assessee company failed to file confirmation of the
shareholder. It is submitted that M/s Pelicon Finance and Leasing Ltd. itself
in response to notice u/s 133(6) submitted confirmation of accounts. Thus, the
confirmation was already on record.
iii) Ld. CIT(A) at page
23 held that Mr. Surendra Kumar Jain and Mr. Virendra Kumar Jain stated that
M/s Pelicon Finance and Leasing Ltd. was a dummy company managed by them. It is
submitted that the Jain duo categorically many times in their statements denied
that they maintain or run any dummy company.
iv) Ld. CIT(A) doubted
the genuineness of transaction by holding that M/s Pelicon Finance and Leasing
Ltd. transferred the amount immediately after the receipt. It is submitted that
from perusal of bank account of M/s Pelicon Finance and Leasing Ltd. it is
clear that there were no cash deposits. It is further submitted that ld. AO has
also not pointed out any infusion of cash in the bank account of M/s Pelicon
Finance and Leasing Ltd. Reliance is placed on the latest decision Hon’ble
Delhi High Court in case of PCIT vs. Oriental International Co. Pvt. Ltd. ITA
9/2018 pronounced on 08.01.2018 wherein it was held as under:
“Furthermore, its bank
details too were furnished to the AO. If the AO were to conduct his task
diligently, he ought to have at least sought the material by way of bank
statements etc. to discern whether in fact the amounts were infused into the
share holder’s account in cash at any point of time or that amount of Rs. 1.3
crores- in the case of M/s Creative Financial Services Pvt. Ltd. and Rs. 3.7
crores in the case of other share applicants were such as to be beyond their
means. In the absence of any such enquiry, the Court is of the opinion that the
findings holding that the assessee had not discharged the onus placed upon it
by law cannot be considered unreasonable. No question of law arises.
10. The appeal is
accordingly dismissed.”
v) Ld. CIT(A) held that
the allotment of shares at a premium of Rs. 240 per share, itself is indicative
of the fact that the transaction was not genuine and the assessee company has
introduced its own income by routing the same through dummy company by way of
share application/share premium money. It is submitted that the assessee
Company, in order to justify its premium, furnished a certificate of Chartered
Accountant, Yogesh Gautam (M. No.072676) dated 27.06.2016 before CIT(A). As per
the certificate, for the year under consideration, fair value of the share of
the assessee Company was Rs. 281.48. It is further not the case of ld. CIT(A)
that any defect was found in the said certificate.
14. It was further
submitted that the ld. CIT(A) has not at all appropriately evaluated and
considered the specific and peculiar facts of the case. Before ld. CIT(A), following
binding judicial precedents of Hon’ble Rajasthan High Court and Hon’ble ITAT
Jaipur Bench were cited: CIT vs. First Point Finance Ltd. 286 ITR 477 (Raj),
CIT vs. Barkha Synthetics 182 CTR 175 (Raj), Labhchand Bohra vs. ITO (2008) 8
DTR 44 (Raj), Kanhialal Jangid vs. ACIT (2008) 8 DTR 38 (Raj), Premlata Kedia
vs. DCIT 22 TW 481 (JPR), Nirmal Kumar Dugar 31 TW-112 (JP),Narayan Singh
vs.ITO 31 TW 191 (JP) and Mohan Sukhani vs. ITO 31 TW 61 (JP). The ld CIT(A)
has neither followed the above judgements nor has distinguished the same and
the decisions relied upon by the ld CIT(A) are distinguishable. It was finally
submitted the assessee Company has discharged its initial onus laid down u/s
68, the summary of which is as under:
Identity Shareholder is
a Company and is having a valid PAN. Ld. CIT (A) also at page 23 admits that
identity stood established.
Creditworthiness Bank
Account Statements of shareholder and AO Order u/s 143(3) wherein no additions
were made on account of unexplained investment are on record Genuineness Premium amount
is justified by Certificate of Valuation which was not controverted by ld.
CIT(A).
In view of above the
addition made by ld. AO and confirmed by ld. CIT(A) is unjustified and deserves
to be deleted.
15. Per Contra, the ld.
DR submitted that the information received by the Assessing Officer from the
DIT (Investigation), Delhi contains factual information and on the basis of
this information, the AO prima facie formed a belief that the income has escaped
assessment. It was further submitted that it is a case where there was no
scrutiny assessment in respect of original return filed and therefore, there
cannot be a question of change of opinion. It was submitted that the from the
reasons recorded by the Assessing Officer, it is amply clear that the AO formed
his belief on the basis of specific information arisen out of search
proceedings in the case of persons who were bogus entry providers and for the
purpose of reassessment proceedings, what has to be seen is whether there is
any prima facie some material on the basis of which the AO could reopen the
case. The sufficiency or the correctness of the material is not to be
considered at this stage of recording of the reasons. It was further submitted
that once the AO has received specific information from DIT (Investigation),
Delhi regarding bogus entries of share capital/ premium received on the basis
of such information, the AO has recorded reasons for reopening, it cannot be
held that the reasons were not those of the Assessing Officer and merely
amounted to mechanical reproduction of the exercise undertaken by the DIT
(Investigation), Delhi. It was accordingly submitted that there is nothing
which prevent the Assessing Officer to rely on the exercise undertaken by other
Wings of the Departments, if the material so collected through inquiry or
investigation provides prima facie information, which enables the Assessing
Officer to form a belief that income has escaped assessment. It was further
submitted that it would undoubtedly require application of mind on the part of
the Assessing Officer when certain materials collected by other wings of the
department is placed before him, however, there cannot be any straight jacket
formula of the manner in which mind can be applied or shown to have been
applied and the same may be gathered from the reasons recorded and other
contemporaneous material on record. It was accordingly submitted that there is
no infirmity in the action of the Assessing Officer in initiating the
proceedings U/s 147 of the Act on the basis of information received from DIT
(Investigation), Delhi. It was further submitted that the notice u/s 147 has
been issued after seeking approval from the appropriate authority and in
support, the assessment records were produced which clearly show application of
mind before granting approval on the part of the appropriate authority.
16. On merits, the ld.
DR has drawn our reference to the findings of the Assessing Officer which are
contained as under:-
“I have considered the
submissions made by the assessee and have also perused the material available
on record. The contentions raised by the assessee are dealt with as under:-
(i) Since the assessee
company had not issued any shares during the year under consideration except
share allotted to the company M/s Pelicon Finance and Lease Ltd., New Delhi,
managed by Sh. S.K. Jain N.K. Jain that too at much high premium of Rs 240/-
per share. The genuineness of the transaction is not established. Further the
seized documents i.e. (page No. 43 of Annexure A-52 , page 25 of Annexure A-53,
page 6 of Annexure A-54) which is daily cash book seized from the residence of
Sh. S.K. Jain shows receipt of cash of Rs. 5,00,000/- through mediator Sh. P.C.
Agarwal on 25.02.2006 and on the same date an entry of Rs 5,00,000/- vide chque
no. 048736 has been provided to the assessee company of Kotak Bank , through a
dummy company named as Pelicon finance & Lease Ltd , receipt of cash of Rs.
10,00,000/- through mediator Sh. P.C. Agarwal on 17.03.2006 and on the same
date an entry of Rs. 10,00,000/- vide cheque No. 005134 has been provided to
the assessee company of UTI Bank through a dummy company named as Pelicon
finance & Lease Ltd., and receipt of cash of Rs 10,00,000/- on 22.03.2006
and on the same date an entry of Rs 10,00,000/- vide cheque No. 051886 has been
provided to the assessee company of Kotak Bank through a dummy company named as
Pelicon finance & Lease Ltd, managed by Sh. S.K. Jain/V.K. Jain. These
entries clearly established that the amount of Rs 25,00,000/- routed through
Sh. P.C. Agarwal then company M/s Pelicon Ltd, New Delhi the assessee for
obtaining accommodation entry therefore the contention of the assessee cannot
be accepted.
(ii) The contention of
the assessee that assessee company is a un-natural personal and a legal entity
and is not capable of earning unaccounted money is not tenable because the day
to day affairs of the company are being looked after by the Directors as well
as employees of the company and they are responsible for their action done on
behalf of the company which is a legal entity as stated by the assessee.
(iii) The 3rd and 4th
ground taken by the assessee is that the assessee company has not paid any cash
to obtain the accommodation entry to Shri P. C. Agarwal and it may be that some
Mr. P. C. Agarwal who had given money to M/s Pelicon Ltd, New Delhi to invest
that amount in assessee company from his pocket as Real-estate sector is
sun-shining sector in these days. In this regard it is pointed out that seized
papers (pageNo.43 of Annexure A-52 , page 25 of Annexure A-53, page 6 of
Annexure A-54) which is daily cash book seized from the residence of Sh. S. K.
Jain shows receipt of cash of Rs. 5,00,000/- through mediator Sh. P. C. Agarwal
on 25.02.2006 and on the same date an entry of Rs. 5,00,000/- vide cheuqe No.
048736 has been provided to the assessee company of Kotak Bank, through a dummy
company named as Pelicon Finance & Lease Ltd., receipt of cash of Rs.
10,00,000/- through mediator Sh. P.C Agarwal on 17.03.2006 and on the same date
an entry of Rs. 10,00,000/- vide cheque No. 005134/- has been provided to the
assessee company of UTI Bank through a dummy company named as Pelicon Finance
& Lease Ltd., and receipt of cash of Rs 10,00,000/- on 22.03.2006 and on
the same date an entry of Rs 10,00,000/- vide cheque No. 051886 has been
provided to the assessee company of Kotak Bank through a dummy company named as
Pelicon finance & Lease Ltd, managed by Sh. S.K. Jain /V. K. Jain. These
entries clearly established that the amount of Rs 25,00,000/- routed through
Sh. P. C. Agarwal then company -M/s Pelicon Ltd, New Delhi the assessee for
obtaining accommodation entry therefore the contention of the assessee cannot
be accepted.
(iv) The contention of
the assessee that issue of notice u/s 148 is against the law is not tenable as
the seized papers (page No.43 of Annexure A-52 , page 25 of Annexure A-53, page
6 of Annexure A-54) which is daily cash book seized from the residence of Sh.
S. K. Jain shows receipt of cash of Rs. 5,00,000/- through mediator Sh. P.C.
Agarwal on 25.02.2006 and on the same date an entry of Rs 5,00,000/- vide chque
no. 048736 has been provided to the assessee company of Kotak Bank , through a
dummy company named as Pelicon finance & Lease Ltd, receipt of cash of Rs.
10,00,000/- through mediator Sh. P. C. Agarwal on 17.03.2006 and on the same
date an entry of Rs. 10,00,000/- vide cheque No. 005134 has been provided to
the assessee company of UTI Bank through a dummy company named as Pelicon finance
& Lease Ltd. , and receipt of cash of Rs 10,00,000/- on 22.03.2006 and on
the same date an entry of Rs 10,00,000/- vide cheque No. 051886 has been
provided to the assessee company of Kotak Bank through a dummy company named as
Pelicon finance & Lease Ltd, managed by Sh. S. K. Jain, N. K. Jain. These
entries clearly established that the amount of Rs 25,00,000/-routed through Sh.
P. C. Agarwal then company M/s Pelicon Ltd, New Delhi the assessee for obtaining
accommodation entry therefore the contention of the assessee cannot be
accepted.
(v) The 6th ground
taken by the assessee is regarding issue of shares at high premium at Rs. 240/-
per share, the contention of the assessee is that it was entering into new
venture of real estate and also got allotment from JDA which gave extra benefit
to the Investors and therefore allotment of shares at the face value of Rs.
10/-and on high premium of Rs. 240/- is justified. In this regard it is
submitted that during the year no shares were allotted by the assessee company except
10,000 shares allotted to the aforesaid dummy company named Pelicon finance
& Lease Ltd, New Delhi. The assessee company is engaged in the business of
Real estate. Looking to the business activity of the company, and reputation of
the company the allotment of shares at a premium of Rs. 240/- per share does
not appear logical, particularly when no such shares at a higher premium was
allotted to anyone. This itself is an indicative of the fact that the
transaction of the assessee company with the dummy company named Pelicon
Finance & Lease Ltd New Delhi is not genuine and the assessee has
introduced its own income from undisclosed sources by routing the same through
the dummy company by way of share application/share premium money.”
17. We have heard the
rival contentions and perused the material available on record. For assumption
of jurisdiction u/s 147, the Assessing officer has to satisfy the following
cardinal tests so laid down by the Courts and only on satisfaction of such
tests, he can assume jurisdiction under section 147:
(i) The Assessing
Officer must form a tentative or prima facie opinion on the basis of material
that there is under-assessment or escapement of income;
(ii) He must record the
prima facie opinion into writing;
(iv) Reasons recorded
and/or the documents available on record must show a nexus or that in fact they
are germane and relevant to the subjective opinion formed by the Assessing
Officer regarding escapement of income.
(v) The reasons are
required to be read as they were recorded by the Assessing officer. No
substitution or deletion is permissible. No additions can be made to those
reasons. No inference can be allowed to be drawn on the basis of reasons not
recorded. It is for the Assessing officer to disclose and open his mind through
the reasons recorded by him and he has to speak through the reasons.
(vi) In cases where the
first proviso applies, there is an additional requirement that there should be
failure or omission on the part of the assessee in disclosing full and true
material facts. Explanation to the Section stipulates that mere production of
books of accounts or other documents from which the Assessing Officer could
have, with due diligence, inferred material facts, does not amount to
"full and true disclosure of material facts".
18. In the present
case, the reasons recorded by the Assessing officer before issuance of notice
u/s 148 reads as under:
“Reasons for the belief
that income has escaped assessment:-
The Commissioner of
Income-tax, Jaipur – II vide office letter No. 3022 dated 21.03.2013 has
forwarded a letter No. 293 dated 15.03.2015 along with its enclosures of the
Director of Income-tax (Inv.)-III, New Delhi. As informed, a search and seizure
action was conducted on 14.09.2010 in the case of Sh. Surendra Kumar Jain and
his brother Sh. Virendra Kumar Jain in Delhi. During the course of search and
post search investigation it has been established that they are engaged in the
business of providing accommodation entries of share capita and share premium
to various beneficiaries through cheques through a number of paper and dummy
companies in lieu cash. The assessee company M/s Balaji Healthcare Pvt. Ltd.
Jaipur has also obtained accommodation entries in the form of share
capital/premium/loan during the financial year 2005-06 for a amount of Rs.
25,00,000/- with the help of the aforesaid accommodation entry providers, the
details of which are reproduced as under:-
I have perused and gone
through the contents of the report of the Investigation Wing, New Delhi and am
satisfied that the amount is undisclosed income which has been routed back to
the books of accounts of the assessee company in the form of share capital.
Thus, in view of the above, I have reason to believe that income to the tune of
Rs. 25,00,000/- for the AY 2006-07 has escaped assessment within the meaning of
section 147 of the I.T. Act, 1961 on account of failure on the part of assessee
to disclosure fully and truly all material facts in respect of the share
capital/premium for which a notice u/s 148 of the Act is required to be issued.
In view of the above reason, it is requested that necessary approval as laid
down under sub-section (2) of section 151 of the I.T. Act, 1961 may kindly be
accorded.”
19. The assessee has
originally filed its return of income on 30.11.2006, thereafter notice u/s 148
was issued on 23.03.2013 after recording the reasons and seeking the necessary
approval from the Add.CIT. Given that the original return was not assessed and
no order u/s 143(3) was issued, the proviso to section 147 doesn’t apply even
though the notice u/s 148 has been issued after the expiry of four years from
the end of the relevant assessment year. The additional condition so specified
in proviso to section 147 in terms of failure on the part of the assessee to
disclose fully and truly all material facts necessary for its assessment for
the assumption of jurisdiction u/s 147 doesn’t apply in the instant case.
Therefore, the Assessing officer assumption of jurisdiction for the reasoning
that income has escaped assessment on account of failure on the part of the
assessee to disclose fully and truly all material facts in respect of share
capital/premium is not correct and cannot be accepted where there is no such
requirement at first place.
20. Further, the
material and information on the basis of which reasons have been recorded that
income in the hands of the assessee has escaped assessment relates to search
and seizure operation in case of Surendra Kumar Jain and Virendra Kumar Jain
conducted on 14.09.2010 and the report of the Director of Income tax (Inv)-II,
New Delhi. The reasons states that during the course of search and post search
investigation, it has been established that these two persons are engaged in
the business of providing accommodation entries of share capita and share
premium to various beneficiaries through cheques through a number of paper and
dummy companies in lieu cash. The reasons further states that the assessee
company has also obtained accommodation entries in the form of share
capital/premium/loan during the financial year 2005-06 for an amount of Rs.
25,00,000/- with the help of the aforesaid accommodation entry providers.
Thereafter, the Assessing officer gives details of the transactions and states
that he had perused and gone through the contents of the report of the
Investigation Wing, New Delhi and am satisfied that the amount is undisclosed
income which has been routed back to the books of accounts of the assessee
company in the form of share capital. We therefore find that based on perusal
of the report of the DIT, Investigation Wing, New Delhi, the Assessing officer
has formed not merely a prima facie belief but has reached a conclusion that
the assessee has routed back his undisclosed income in the form of share
capital. For reaching such a decisive finding that it is assessee’s undisclosed
income which has reached the investor company M/s Pelicon Finance & lease
Ltd and thereafter, the latter has invested the amount so received in the
assessee’s company by way of share capital, there is nothing which has been
stated in the reasons so recorded. As we have noted above, the satisfaction of
the Assessing officer should be discernable from the reasons so recorded only
and nothing can be added or supplemented to the reasons. In the instant case,
the particulars of the transactions have been given in terms of name of the
investor company, date of investment, mode and amount of investment. A reading
of such particulars doesn’t give any prima facie impression that these are
transactions where the assessee’ own money has been routed back in form of
share capital. Therefore, without establishing the nexus, the Assessing officer
has not just formed a prima facie view but has concluded that the amount
invested is undisclosed income which has escaped assessment cannot be accepted.
Further, it is noted that after recording of the reasons, the Assessing officer
has subsequently written a letter on 30.08.2013 to ACIT New Delhi requesting
for copy of statements of Surendra Kumar Jain, Virendra Kumar Jain at whose
premises the search was conducted and P C Agarwal, so called mediator in these
transactions. Given that search proceedings in respect of these two persons
have formed the basis for the present reassessment proceedings in the hands of
the assesssee, it was essential to atleast examine the statements of these
three persons and seized material if any found during the course of search
which in any ways indicate that these two persons have carried out certain
transactions with the assessee and prima facie these transactions are suspected
to be accommodation entries and not actual transactions. However, there is
nothing in the reasons so recorded that the Assessing officer has gone through
the statements so recorded during the course of search and the seized material
to show prima facie linkage of assessee’s undisclosed income being routed back
in form of share capital. This shows that the Assessing officer has merely gone
by the report of the DIT, Investigation Wing and the said report even didn’t
have the statements of these persons which either find mention in the report or
as enclosures when the same was forwarded to the Assessing officer. Therefore,
it transpires that there is no further examination which has been carried out
by the Assessing officer. The fact that the assessee has filed its return of
income u/s 139(1) was very much in the knowledge of the Assessing officer and
the latter could have verified the transactions with the reported transactions
in the financial statements and could have asked for more information to
establish the necessary nexus, however nothing of that sort has been done by
the Assessing officer and he has merely gone by the report of DIT,
Investigation Wing. It is true that the Assessing officer can rely on the
report of DIT, Investigation Wing but at the same time, where he is assuming
jurisdiction u/s 147, he is required to carry out further examination and
analysis in order to establish the nexus between the material and formation of
belief that income has escaped assessment and in absence thereof, the
assumption of jurisdiction u/s 147 has no legal basis and resultant
reassessment proceedings deserve to be set-aside. Our view is fortified by the
decision of the Hon’ble Delhi High Court in case of Meenakshi Overseas Pvt Ltd
(supra) wherein it was held as under:
“19. A perusal of the
reasons as recorded by the AO reveals that there are three parts to it. In the
first part, the AO has reproduced the precise information he has received from
the Investigation Wing of the Revenue. This information is in the form of
details of the amount of credit received, the payer, the payee, their
respective banks, and the cheque number. This information by itself cannot be
said to be tangible material.
20. Coming to the
second part, this tells us what the AO did with the information so received. He
says: "The information so received has been gone through." One would
have expected him to point out what he found when he went through the
information. In other words, what in such information led him to form the
belief that income escaped assessment. But this is absent. He straightaway records
the conclusion that "the abovesaid instruments are in the nature of
accommodation entry which the Assessee had taken after paying unaccounted cash
to the accommodation entry given (sic giver)". The AO adds that the said
accommodation was "a known entry operator" the source being "the
report of the Investigation Wing".
21. The third and last
part contains the conclusion drawn by the AO that in view of these facts,
"the alleged transaction is not the bonafide one. Therefore, I have reason
to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY
2004- 05 due to the failure on the part of the Assessee to disclose fully and
truly all material facts necessary for its assessment... "
22. As rightly pointed
out by the ITAT, the 'reasons to believe' are not in fact reasons but only
conclusions, one after the other. The expression 'accommodation entry' is used
to describe the information set out without explaining the basis for arriving
at such a conclusion. The statement that the said entry was given to the
Assessee on his paying "unaccounted cash" is another conclusion the
basis for which is not disclosed. Who is the accommodation entry giver is not
mentioned. How he can be said to be "a known entry operator" is even
more mysterious. Clearly the source for all these conclusions, one after the
other, is the Investigation report of the DIT. Nothing from that report is set
out to enable the reader to appreciate how the conclusions flow therefrom.
23. Thus, the crucial
link between the information made available to the AO and the formation of
belief is absent. The reasons must be self evident, they must speak for
themselves. The tangible material which forms the basis for the belief that
income has escaped assessment must be evident from a reading of the reasons.
The entire material need not be set out. However, something therein which is
critical to the formation of the belief must be referred to. Otherwise the link
goes missing.
24. The reopening of
assessment under Section 147 is a potent power not to be lightly exercised. It
certainly cannot be invoked casually or mechanically. The heart of the
provision is the formation of belief by the AO that income has escaped
assessment. The reasons so recorded have to be based on some tangible material
and that should be evident from reading the reasons. It cannot be supplied
subsequently either during the proceedings when objections to the reopening are
considered or even during the assessment proceedings that follow. This is the
bare minimum mandatory requirement of the first part of Section 147 (1) of the
Act.
25. At this stage it
requires to be noted that since the original assessment was processed under
Section 143 (1) of the Act, and not Section 143 (3) of the Act, the proviso to
Section 147 will not apply. In other words, even though the reopening in the
present case was after the expiry of four years from the end of the relevant
AY, it was not necessary for the AO to show that there was any failure to
disclose fully or truly all material facts necessary for the assessment.
26. The first part of
Section 147 (1) of the Act requires the AO to have "reasons to
believe" that any income chargeable to tax has escaped assessment. It is
thus formation of reason to believe that is subject matter of examination. The
AO being a quasi judicial authority is expected to arrive at a subjective
satisfaction independently on an objective criteria. While the report of the
Investigation Wing might constitute the material on the basis of which he forms
the reasons to believe the process of arriving at such satisfaction cannot be a
mere repetition of the report of investigation. The recording of reasons to
believe and not reasons to suspect is the pre- condition to the assumption of
jurisdiction under Section 147 of the Act. The reasons to believe must
demonstrate link between the tangible material and the formation of the belief
or the reason to believe that income has escaped assessment.”
“36. In the present
case, as already noticed, the reasons to believe contain not the reasons but
the conclusions of the AO one after the other. There is no independent
application of mind by the AO to the tangible material which forms the basis of
the reasons to believe that income has escaped assessment. The conclusions of
the AO are at best a reproduction of the conclusion in the investigation
report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate
the link between the tangible material and the formation of the reason to
believe that income has escaped assessment.
37. For the
aforementioned reasons, the Court is satisfied that in the facts and
circumstances of the case, no error has been committed by the ITAT in the
impugned order in concluding that the initiation of the proceedings under
Section 147/148 of the Act to reopen the assessments for the AYs in question
does not satisfy the requirement of law.”
Subsequently, the
Hon’ble Delhi High Court in case of RMG Polyvinyl ltd (supra) has held as
under:
“12. Recently, in its
decision dated 26th May, 2017 in ITA No. 692/2016 Pr. CIT v. Meenakshi
Overseas, this Court discussed the legal position regarding reopening of
assessments where the return filed at the initial stage was processed under
Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons
for the reopening of the assessment in that case were more or less similar to
the reasons in the present case, viz., information was received from the
Investigation Wing regarding accommodation entries provided by a 'known'
accommodation entry provider. There, on facts, the Court came to the conclusion
that the reasons were, in fact, in the form of conclusions "one after the
other" and that the satisfaction arrived at by the AO was a "borrowed
satisfaction" and at best "a reproduction of the conclusion in the
investigation report."
13. As in the above
case, even in the present case, the Court is unable to discern the link between
the tangible material and the formation of the reasons to believe that income
had escaped assessment. In the present case too, the information received from
the Investigation Wing cannot be said to be tangible material per se without a
further inquiry being undertaken by the AO. In the present case the AO deprived
himself of that opportunity by proceeding on the erroneous premise that
Assessee had not filed a return when in fact it had.” In light of above
discussions and in the entirety of facts and circumstances of the case, the
assumption of jurisdiction and initiation of the proceedings under Section 147
of the Act to reopen the assessment proceedings does not satisfy the
requirement of law and is hereby set-aside. In the result, ground no. 1 of the
assessee’s appeal is allowed.
21. Now, coming to the
merits of the addition made by the Assessing officer, we find that the assessee
has discharged the initial onus cast on it in terms of identity,
creditworthiness and genuineness of the transaction. Notably, the assessment
proceedings u/s 143(3) have been completed in case of the investor company M/s
Pelicon Finance & lease for A.Y 2006-07 wherein investment in the
assessee’s company has been accepted by the Revenue. There cannot be a
situation where the same transaction is held to be genuine in hands of Investor
Company and disputed in the hands of the Investee company. Further, M/s Pelicon
Finance & lease has responded to notice u/s 133(6) and has confirmed the
amount invested by way of share capital in the assessee company. Besides,
necessary documentation in terms of Board resolution, share application form,
bank statements of the investor company, annual financial statements, etc has
been submitted by the assessee company before the Assessing officer. Further,
we find that there is no mention of either the assessee company or the investor
company in the statements so recorded of Surendra Kumar Jain and Virendra Kumar
Jain. The statement of the so called mediator P C Agarwal is also not on record
who is claimed by the Revenue to have facilitated the transaction. Therefore,
we donot find any linkage which can be said to have been established by the
Revenue between the assessee’s undisclosed income which is routed back in form
of share capital. In light of the same, merely relying on the report of the
Investigation Wing without any further examination or investigation or
disputing the documentation submitted by the assessee company, the addition
cannot be sustained in the hands of the assessee company and is hereby directed
to be deleted. In the result, ground no. 2 of the assessee’s appeal is allowed.
22. In the result, the
appeal of the assessee is allowed.
23. In ITA No.
567/JP/2018 for A.Y. 2007-08, the assessee has taken following grounds of
appeal:-
“1.1 The impugned order
u/s 147/143(3) dated 14.03.2014 is bad in law and on facts of the case, for
want of jurisdiction, barred by limitation and various other reasons and hence
the same may kindly be quashed.
1.2 The action taken
u/s 147 by the ld. AO confirmed by the ld. CIT(A) is bad in law and on facts of
the case, for want of jurisdiction and various other reasons and hence the same
may kindly be quashed.
2. Rs. 30,00,000/- :
The ld. CIT(A) has grossly erred in law as well as on the facts of the case in
confirming the addition of Rs. 30,00,000/- made by the ld. AO on account of
alleged accommodation entries received for share application money and also
erred in ignoring the various evidence submitted without rebutting and AO also
erred in not providing the cross examinations. Hence the addition so made by
the AO and confirmed by the ld. CIT(A) is being totally contrary to the
provisions of law and fact on the record and hence the addition may kindly be
deleted in full.
3. The ld. AO has
grossly erred in law as well as on the facts of the case in charging interest
U/s 234A, 234B & 234C,. The appellant totally denies it liability of
charging of any such interest. The interest, so charged, being contrary to the
provisions of law and facts, may kindly be deleted in full.”
24. Both the parties
fairly submitted that the facts and circumstances of the case are exactly
identical to facts and circumstances of appeal in ITA No. 566/JP/2018 and
therefore, our finding and directions contained in ITA No. 566/JP/2018 shall
equally mutatis mutandis to this appeal as well. In the result, the appeal of
the assessee is allowed.
In the result, both the appeals filed by the
assessee are allowed.
Order pronounced in the
open Court on 30/01/2019.
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