Income Tax Appellate Tribunal - Jaipur
Ito, Jaipur vs Alook Finetrade P Ltd, Jaipur on 14 May, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 180/JP/2015
fu/kZkj.k o"kZ@Assessment Year : 2005-06
Income Tax Officer, cuke M/s Alok Fintrade (P) Ltd.,
Ward-2(2), Vs. 411, 3rd Floor, Shalimar Complex,
Jaipur. Church Road, M.I. Road, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECA 6776 G
vihykFkhZ@Appellant izR;FkhZ@Respondent
izR;k{[email protected]. No. 20/JP/2015
(Arising out of vk;dj vihy la-@ITA No. 180/JP/2015)
fu/kZkj.k o"kZ@Assessment Year 2005-06
M/s Alok Fintrade (P) Ltd., cuke Income Tax Officer,
411, 3rd Floor, Shalimar Complex, Vs. Ward-2(2),
Church Road, M.I. Road, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAECA 6776 G
izR;k{ksid@Objector izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Smt. Seema Meena (JCIT)
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s Assessee by : Shri P.C. Parwal (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 17/04/2018
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 14/05/2018
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M.:
This is the appeal filed by the Revenue and the cross objection filed by the assessee against the order of the ld. CIT(A)-I, Jaipur dated 30/12/2014 pertaining to the A.Y. 2005-06.
2 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
2. Firstly, we will take up the cross objection filed by the assessee wherein it has challenged the action of the ld. CIT(A) in upholding the validity of the order passed U/s 147 of the Income Tax Act, 1961 (in short the Act).
3. Briefly stated, the facts of the case are that the assessee filed NIL return of income on 30/10/2005, which was processed U/s 143(1) of the Act on 21/1/2006. Thereafter the Assessing Officer issued notice U/s 148 of the Act dated 26/2/2012 after recording the reasons and seeking necessary approval from the appropriate authority. The reasons so recorded are reproduced as under:
"The assessee company is assessed to tax with this ward. Enquiries of investigation Wing, Delhi have unearthed huge accommodation entry racket being operated by various groups of operators. The report clearly indicates that accommodation entries have been taken to plough back unaccounted income in shape of gifts, share application money, loans etc. The investigation Wing's list of beneficiaries (of such accommodation entries), gives comprehensive details of Beneficiary's Name, Beneficiary Bank Name, Beneficiary's Bank Branch, Account No of Beneficiary in which entry is taken, date on which entry taken, Name of Account Holder of Entry giving Account, Bank from which Entry given, Branch of entry giving Bank and entry giving account.
The list contains the name of M/S ALOK FINTRADE PVT. LTD which has taken entries amounting to Rs. 15,00,000/- during April, 2004 to March, 2005 which are as under:-
Beneficiary's Value Instrument, Date on Financial Assessment Name of, Entry No. By which year year Taken Which entry taken entry taken Alok 500000 198959 16/06/2004 2004-05 2005-06 Fintrade 3 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
Pvt. Ltd.
Alok 1000000 389937 26/05/2004 2004-05 2005-06
Fintrade
Pvt. Ltd.
Total 1500000
Name of Account Bank from Branch of A/c No. entry
holder of entry which entry entry giving giving account
giving account given bank
Fine Finance & Corpn Kb 3834
leasing Pvt. Ltd.
Creative Capital Nainital bank 109
Services Ltd.
On the basis of such information and other relevant facts & circumstances I have reason to believe that assessee's income to the tune of Rs. 15,00,000/- has escaped assessment for the A.Y. 2005-06 within the meaning of section 147 of the I.T. Act, 1961."
4. The assessee has challenged the reopening before the ld. CIT(A). However, following the decision of Hon'ble Supreme Court in the case of Raymond's Woolen Ltd. Vs. ITO 236 ITR 34, the ld. CIT(A) has upheld the reopening of the assessment by the Assessing Officer U/s 147 of the Act.
5. During the course of hearing, the ld AR of the assessee submitted that from the plain reading of the reasons so recorded before issuance of notice u/s 148, it can be noted that notice u/s 148 is issued solely on the basis of information available with the department where it referred to the investigations carried out by the department. Even the name of the person in whose case such investigation is carried out is not referred in the notice u/s 148. The primarily condition for initiating action u/s 147 is that AO must have reason to believe that any income chargeable to tax has escaped assessment. This satisfaction must be of AO himself and not a borrowed satisfaction. Reason to belief cannot be at the instance of audit party or investigation conducted by others or third party 4 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
statement etc. In the present case, the reasons simply says that assessee has received Rs.15 lacs from Fine Finance & Leasing Pvt. Ltd. and Creative Capital Services Ltd. The AO has not examined this information with reference to the return and the financial statements to verify whether any such amount is reflected in the accounts of the assessee or not and if reflected in which account i.e. as loan or share capital or otherwise. He has simply relied on the investigation carried out by the department without specifying who carried out such investigation and without applying his own mind to information received to arrive at the believe that income of the assessee has escaped assessment. Hence, the reopening of assessment is not justified as the same is reopened only at the instance of investigation carried out by the department.
6. Further, the ld AR has relied on the decision of the Hon'ble Delhi High Court in the case of Sarthak Securities Co. (P) Ltd. Vs. ITO reported in 329 ITR 0110 (Del) and the another decision in the case of CIT Vs. SFIL Stock Broking Ltd. reported in 325 ITR 285 (Del). Regarding the decision of Hon'ble Supreme Court in the case of Raymond's Woolen Ltd. Vs. ITO (supra), it was submitted by the ld AR that the said decision has laid down the principle that sufficiency or correctness of the matter is not a thing to be considered at the stage of issuance of notice U/s 148 of the Act. However, in the present case, the issue is not about sufficiency or correctness of material rather it is a case of no material or irrelevant material inasmuch as nothing is mentioned in the reasons recorded as to who carried out the investigation and in whose case the investigation is carried out. Therefore, such vague information as mentioned in the reasons cannot be equated with the sufficiency or correctness or relevancy of the material. It was further submitted that the notice issued U/s 148 of the Act is illegal and bad in law and the same may be quashed.
7. On the contrary, the ld DR has vehemently argued the matter and relied on the orders of the lower authorities and submitted that it is a case where no 5 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
assessment was framed earlier under section 143(3) and basis specific information which has been received by the Assessing Officer and thereafter, on due application of mind, the AO has come to a prima facie belief that income has escaped assessment. The AO has thereafter recorded the reasons that the income has escaped assessment and after seeking necessary approval, notice has been issued to the assessee under section 148. The ld DR accordingly submitted that the reasons recorded are specific identifying the transactions relating to the assessee company which has escaped assessment and there is nexus between the material and the formation of belief that income has escaped assessment and there is thus, no infirmity in action of the AO in taking action under section 147 of the Act.
8. We have heard the rival contentions of both the parties and perused the material available on the record.
9. An identical issue has come up recently before this Bench in case of M/s Choice Buildestate Private Limited (ITA No. 431/JP/2016 and 432/JP/2016 dated 28.03.2018) wherein we have held as under:
"9. We have heard the rival contentions and perused the material available on record including the legal authorities relied upon by both the parties. On perusal of the reasons recorded before issuance of notice under section 148, it is stated therein that on the basis of information brought on record, the assessee company has taken accommodation entries of Rs 35 lacs in the nature of bogus investments/share application from seven companies whose complete details in terms of name, address, date of payment, amount of investment, bank account and the branch through which the payment has been made were stated therein the reasons. It was further stated in the reasons that these companies are indulged in providing accommodation entries in lieu of 6 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
cash obtained from the beneficiaries and not doing any genuine business activity as divulged during the course of search and seizure proceedings in case of Praveen Jain Group, Mumbai. It was further stated in the reasons so recorded that the assessee company is a beneficiary who has taken the accommodation entries in the nature of bogus investment/share application and the investor companies are not carrying on any genuine business activities and was providing accommodation entries in lieu of cash obtained from the beneficiaries. In view of the same, it was held by the AO that he has reasons to believe that income to the extent of Rs 35 lacs has escaped assessment within the meaning of section 147 of the Act. In our considered opinion, in the instant case where the return filed by the assessee was not subjected to scrutiny assessment and the entries are available in the case of the assessee from the companies which were named by Shri Praveen Jain to providing accommodation entries and the amounts recorded in the assessee's financial statements are also the same as disclosed by Shri Praveen Jain, the belief formed by the AO after due examination of the material on record that the income of the assessee chargeable to tax during the relevant assessment year has escaped assessment cannot be said to be arbitrary or irrational and it cannot be said that there exists no rational and intelligible nexus between the reasons and the belief. It is true that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the AO regarding the escapement of the income but then, while recording the reasons for belief formed, the AO is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the AO had cause or justification to know or suppose that income had escaped assessment. It is also well settled the sufficiency and adequacy of the reasons which have led to formation of a belief by the Assessing Officer that the income has escaped the assessment cannot 7 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
be examined for the purposes of determining the assumption of jurisdiction by the AO u/s 147 of the Act. The decision of the Hon'ble Delhi High Court in case of Singature Hotels (P) ltd (supra) is distinguishable on facts as in that case, the Court observed that the information and the reasons are extremely scanty and vague and there is no reference to any document or statement except certain annexure which cannot be regarded as a material or evidence that prima facie shows or establishes escapement of income. Similarly, other decisions quoted by the Id AR which are rendered by the Coordinate Benches in case of M/s TRN Energy Pvt ltd and M/s Superline Construction P Ltd were rendered in peculiar facts and circumstances in those cases and are thus distinguishable on facts. The decision of Hon'ble Delhi High Court in case of Rajat Exports India (supra) among others relied upon by the Id DR supports the case of the Revenue. In view of the same, we are of the considered view that there is no illegality in action of the AO in assuming jurisdiction under section 147 in the instant case. In the result, ground no. 1 of the assessee's appeal is hereby dismissed."
10. In the instant case, on perusal of the reasons so recorded before the issuance of notice under section 148, it is noted that the AO was in receipt of specific information from Investigation Wing, Delhi regarding accommodation entries taken by the assessee company amounting to Rs 15 lacs. The information so received by the Assessing officer contains the value of accommodation entry taken by the assessee, instrument number through which such accommodation entry has been taken, specific date of obtaining the accommodation entry, the financial year in which such entry has been taken, the name of the person who has provided the entry, the bank, the branch and the bank account number from whom the entry has been given. The said information is not general in nature but specific to the assessee company and therefore, we are unable to agree to the contention of the ld AR that there is no 8 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
material with the Assessing officer to form a view that the income has escaped assessment. Further, we donot agree with the contentions of the ld AR that the information so obtained is irrelevant material as it is not clear in whose case the investigation was carried out and who carried out such investigation. In our view, unlike the case of search cases where there is relevancy of determining the person searched and the person to whom the search material belongs, in the present case, what is relevant and found to be well in order is that there is possession of certain tangible material by the Assessing officer, the contents of such information in terms of value, instrument, date and bank details not being disputed and basis such material, formation of a prima facie view that income has escaped assessment. There thus exist a rational and intelligible nexus between the reasons and the formation of belief that income has escaped assessment. In our considered opinion, in the instant case where the return filed by the assessee was not subjected to scrutiny assessment and the entries are available in the case of the assessee from the companies which have provided the accommodation entries and the amounts recorded in the assessee's financial statements are also the same (not being disputed before us), the belief formed by the AO after due examination of the material on record that the income of the assessee chargeable to tax during the relevant assessment year has escaped assessment cannot be said to be arbitrary or irrational. Therefore, it is not a case of borrowed satisfaction as contended by the ld AR. There is no bar that the information received from the Investigation wing cannot be used as a basis for formation of belief and satisfaction by the AO that the income has escaped assessment. In view of the above discussions and in the entirety of facts and circumstances of the case, we are of the considered view that there is no illegality in action of the AO in assuming jurisdiction and passing the order under section 147 in the instant case. In the result, cross objection taken by the assessee is hereby dismissed.
11. Now coming to the grounds raised by the Revenue in its appeal wherein the Revenue has effectively challenged the action of the ld. CIT(A) in deleting 9 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
the addition of Rs. 66.00 lacs made U/s 68 of the Act on account of unexplained cash credit in the form of share capital issued by the assessee.
12. In this regard, briefly stated, the facts of the case are that during the year under consideration, the assessee company has received share application money of Rs. 1,62,00,000/- from various parties. Information was called for by the Assessing Officer during the course of reassessment proceedings and the same was submitted. The Assessing Officer observed that the share application money of Rs. 66.00 lacs received from eight parties namely, M/s Fine Finance & Leasing Pvt. Ltd., M/s Creative Capital Services Ltd., M/s Lehra Investment Pvt. Ltd., M/s Sam Portfolio Pvt. Ltd., M/s Smartest Corporate Services Pvt. Ltd., M/s S.G. Portfolio Pvt. Ltd., M/s Chotti Leasing & Finance Pvt. Ltd. and M/s Ravnet Solution Pvt. Ltd. (as mentioned at Page 7 of the assessment order) are accommodation entries received from bogus companies of Sh. S.K Jain and Sh. Virendra Jain and the assessee has introduced its unaccounted cash in form of share capital through the said racket of entry providers and made addition for the same by making the following observations:-
(i) On the basis of information received from Investigation Wing, New Delhi it was found that the assessee was one of the beneficiaries of accommodation entry provided by Shri Suresh Kumar Jain group.
(ii) No. of companies were running from the residential as well as business address of Sh. S.K Jain and his brother Sh. V.K. Jain. These companies were found to be run and controlled by these two persons through dummy directors. Survey was carried out at the given addresses of these dummy companies and at many places no proper offices were found functioning.
(iii) From a single address a number of companies were shown to have registered and these addresses were mostly the residential address of directors of different dummy companies/ proprietors of various firms.
10 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
(iv) The survey u/s 133A was conducted by the department in the office premises of Sh. Assem Kumar Gupta in Delhi. In the statement he had stated that he was engaged in providing accommodation entries as per the requisition of the beneficiaries and the work of accommodation entry is brought to him by Sh. S.K. Jain.
(v) A search operation was carried out u/s 132 by the Investigation Wing at the residential and business premises of Sh. Rajesh Aggarwal. In the statement he admitted that he was in constant touch with Sh. S.K Jain and Sh. V.K Jain and he knew that they are known accommodation entry operator who provides cheques against payment of cash after deducting specific premium form the parties.
(vi) In case of four other companies of this group also, the assessment was reopened on the ground of receipt of accommodation entries from companies of Sh. S.K. Jain. On examination of records of these four group cases and on correlating the information/details obtained from the investigation wing, Delhi, it is revealed that apart from M/s Fine Finance & Leasing Pvt. Ltd. and M/s Creative Capital Services Ltd., the assessee has also taken entries from M/s Lehra Investment Pvt. Ltd., M/s Sam Portfolio Pvt. Ltd., M/s Smartest Corporate Services Pvt. Ltd.
(vii) All the group companies of the assessee are operating from the same address. All of them had taken entries in the same form of share application money and the accommodation provider companies also happened to be same. In all the cases, the money was routed through the same accounts numbers maintained with ABN-AMRO Bank, New Delhi.
13. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who has deleted the said addition made by the Assessing Officer by following the decisions of the Hon'ble Rajasthan High 11 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
Court in the case of Barkha Synthetics Ltd. Vs ACIT 197 CTR 432 (Raj) and CIT Vs AKJ Granites P Ltd. 301 ITR 298(Raj) and the relevant findings are contained at para 3.2.2.4, which is reproduced as under:
"3.2.2.4 In the present case share applications are received from eight (8) different concerns accompanied with share application money, no presumption can be drawn that same belong to assessee; these application moneys cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application money for augmenting investment in business has flown from assessee's own money which AO has failed to do so.
In the reason recorded for re-opening of assessment, AO has made general reference with regard to information received from Investigation Wing Delhi but he has not referred any of the eight (8) concerns.
On perusal of case record, it is noted that during re-assessment proceeding, no adverse evidence was found, whereas during original assessment, assessee had filed the confirmation and bank statement of these concerns. Without finding any adverse evidence in the documents filed, AO made addition on account of share application money received from all eight concerns, whereas in respect of all concerns, assessee has provided confirmation and bank statement confirming the no. of share applied/allotted, share capital raised etc. The immediate source in the bank account of shareholders is through transfer and not by cash.
Further, it is also noted that in the assessment order, AO has incorrectly noted that in all cases, money has been routed by these companies through the same bank whereas out of five companies for which addition is made by AO, only two concerns namely M/s Lehra
12 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
Investments Pvt. Ltd. & M/s Smartest Corporate Services Pvt. Ltd. have bank account with the given bank i.e. ABN AMRO Bank.
Even from the assessment order, it is also not discernible that any of these person had stated that investment made by these companies in the share capital of appellant company is bogus/ accommodation entries.
AO has merely collected details/ documents by which it cannot be demonstrated that these companies are not in existence. As against this, assessee company has provided all the best possible evidences. The observations made by the AO are very casual and it clearly shows that he has completed re-assessment with a preconceived notion by indulging into surmises and conjectures.
Further, In view of the decisions of the Jurisdictional Rajasthan High Court in Barkha Synthetics Ltd. v. Asstt. CIT [2005] 197 CTR (Raj.) 432 & CIT Vs. AKJ Granites P Ltd 301 ITR 298, where the share applications are received from different places accompanied with share application money, no presumption can be drawn that the same belong to the assessee; and the application moneys cannot be assessed in assessee's hands as its undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown from the assessee's own money.
In view of facts and circumstances as discussed and also ratio of the above decisions in favour of appellant as discussed in above para 3.2.2.2, the addition of Rs. 66,00,000/- made u/s 68 of the Act cannot, be justified, hence deleted. Assessee gets a relief of Rs.66,00,000/-."
14. During the course of hearing, at the outset, the ld AR of the assessee has submitted that as per notice u/s 148, assessee has received amount of Rs.15 13 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
lacs from two companies which according to the information received from the investigations carried out by the department are only providing accommodation entries. However, in the course of assessment proceedings, the AO has not provided/confronted to the assessee with any such information. This is also evident from the query letter issued with notice u/s 148 where the AO only refers to the information available with the department but has not provided/confronted to the assessee with such information nor provided any opportunity to the assessee to cross examine any of the person namely Sh. S.K Jain or Sh. V.K. Jain or Sh. Assem Kumar Gupta or Sh. Rajesh Agarwal whose statements has been referred/ relied in the assessment order. In fact, the AO without providing any opportunity to the assessee to rebut the so called information available with the department or providing any opportunity to cross examine these persons has made the addition which is against the principle of natural justice and illegal & bad in law. Even from the assessment order it is not discernible that any of these persons had stated that investment made by these companies in the share capital of the assessee is bogus/accommodation entries. Therefore, the addition made by the AO at the threshold is liable to be quashed. Apart from the decisions already submitted before the CIT(A), reliance is further placed on Supreme Court decision dated 02.09.2015 in case of Andaman Timber Industries Vs. CCE 127 DTR 0241 wherein it was held that denial of opportunity to the assessee to cross-examine the witnesses whose statements were made the sole basis of the assessment is a serious flaw rendering the order a nullity in as much as it amounted to violation of principles of natural justice.
15. It was further submitted that the AO has made addition of Rs. 66 lacs in respect of share capital received from eight companies namely M/s Fine Finance & Leasing Pvt. Ltd., M/s Creative Capital Services Ltd., M/s Lehra Investment Pvt. Ltd., M/s Sam Portfolio Pvt. Ltd., M/s Smartest Corporate Services Pvt. Ltd., M/s S.G. Portfolio Pvt. Ltd., M/s Chotti Leasing & Finance Pvt. Ltd. and M/s Ravnet Solution Pvt. Ltd. Out of these eight companies, the AO in the course of reassessment proceedings required the assessee to file information only in 14 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
respect of five companies namely M/s Fine Finance & Leasing Pvt. Ltd., M/s Creative Capital Services Ltd., M/s Lehra Investment Pvt. Ltd., M/s Sam Portfolio Pvt. Ltd. and M/s Smartest Corporate Services Pvt. Ltd.. In respect of other three companies namely M/s S.G. Portfolio Pvt. Ltd., M/s Chotti Leasing & Finance Pvt. Ltd. and M/s Ravnet Solution Pvt. Ltd., no information whatsoever was called for in the course of reassessment proceedings. The confirmation, share application form and bank statement of these three companies is at PB 54-63. Therefore, the addition made in respect of these three companies from whom share capital of Rs.20 lacs is raised is illegal and bad in law.
16. It was further submitted that in respect of five companies from whom the share capital money of Rs. 46 lacs was raised, the following table establishes that assessee company had received genuine share capital:-
Evidences Name and produced Address Share before the Shares Capital Assessing applied/allotted Officer M/s Lehra 16,000 Rs. Confirmation, Investments Pvt. 16,00,000/- Share Ltd. 401, application XV/3198, 4th form, bank Floor, Gali No.1, statement Sangatrashan, Pahar Ganj, New Delhi-55 M/s Sam Portfolio 5,000 Rs.5,00,000/-
Pvt. Ltd. WP-501, Confirmation,
lllrd Floor, Shiv Share
Market Wazirpur, application
Ashok Vihar, form, bank
Delhi-110052 statement
M/s Smartest 10,000 Rs. Confirmation,
Corporate 10,00,000/- Share
Services Pvt. Ltd. application
T-235, A-14/1, form, bank
Baljeet Nagar, hill statement
Marg, New Delhi
15 ITA 180/JP/2015 & C.O. 20/JP/2015_
ITO Vs Alok Fintrade P Ltd.
Creative Capital 10,000 Rs, Confirmation,
Services Ltd. 312, 10,00,000/- Share
S-524, Vikas application
Marg, Shakarpur, form, bank
Delhi-110092 statement
Fine Finance & 5,000 Rs.5,00,000/- Confirmation,
Leasing Pvt. Ltd. Share
301, Dhaka application
Chamber, form, bank
2068/39, statement
Nalwala, Karol
Bagh, New Delhi-
110005
17. It was submitted that all above companies are assessed to tax, their PAN No. is provided, the transaction is through banking channel and the shares has been allotted to them as is evident from Form 2 being Return of Allotment filed with ROC. The AO has incorrectly noted that in all the cases money has been routed by these companies through ABN Amro Bank, Bara Khamba Road, New Delhi whereas out of these five companies, only two companies i.e. M/s Lehra Investments Pvt. Ltd. and M/s Smartest Corporate Services Pvt. Ltd. has bank account with ABN Amro Bank. Therefore, solely on the basis of the information received from Investigation Wing, Delhi, the share capital received by the assessee from these companies cannot be presumed to be accommodation entries.
18. In support of his contentions, the ld. AR has relied on the decisions of the Hon'ble Rajasthan High Court in the case of Barkha Synthetics Ltd. Vs ACIT 197 CTR 432 (Raj) and CIT Vs AKJ Granites P Ltd. 301 ITR 298(Raj). Besides the same, he has relied upon the following decisions:
(i) CIT Vs. Vacmet Packaging (India) Pvt. Ltd. 367 ITR 0217 (ALL) (HC) decision dated 11/02/2014, wherein the survey was carried at Sh.
Assem Gupta and additions were made which the Hon'ble High Court has deleted. It was submitted that in assessee's case also, the addition is made 16 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
with reference to the survey/search carried out in case of Sh. Assem Kumar Gupta and others. Therefore, in view of the above decision, which is directly applicable in the assessee's case, the ld. CIT(A) has rightly deleted the addition."
(ii) CIT Vs Supertech Diamond Tools Pvt. Ltd. 229 Taxman 62 (Raj)(HC)
(iii) Jadau Jewellers & Manufacturing (P) Ltd. Vs. ACIT 45 CCH 0442 (Jpr.) (Trib) decision dt. 14/12/2015.
(iv) Ganga projects (P) Ltd. and B.S. Traders (P) Ltd. in ITA NO. 175 & 176/JP/2015 and 179/JP/2015 and CO No. 15&16/JP/2015 and 19/JP/2015 order dated 22/06/2016 where the Coordinate Bench in the similar facts of the case involving the same companies have deleted the addition.
(v) M/s Choice Buildestate Private Limited (ITA No. 431/JP/2016 and 432/JP/2016 dated 28.03.2018)
19. On the contrary, the ld DR has supported the findings of the Assessing Officer, which we have already noted above and submitted that the said findings have not been appreciated in right perspective by the ld. CIT(A). Hence, the findings of the ld. CIT(A) needs to be reversed and the order of the Assessing Officer should be confirmed.
20. We have heard the rival contentions of both the parties and perused the material available on the record. We find that a similar issue has come up before this Bench in the case of M/s Choice Buildstate Pvt. Ltd. Vs ITO (supra) wherein we have held as under:
"10. Now, coming to the merits of addition of Rs 35 lacs made by the AO under section 68 of the Act. On careful examination of material available on record, we find that it is a case where the AO has relied blindly on information supplied by the Investigation Wing Mumbai without carrying out any further examination of documents submitted 17 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
during the course of assessment proceedings and independent investigation of these investor companies. As we have noted above, the information so received from the Investigation Wing, Mumbai and after due examination thereof, the AO has formed a prima facie view and a reason to believe that the income has escaped assessment and has thus assumed jurisdiction u/s 147 of the Act. At the same time, such a prima facie view has to be finalized and a firm view has to be taken on basis of examination of documents so brought on record and further investigation to be carried out before any tax liability is fastened on the assessee. In the instant case, we find that the assessee company has submitted detail documentation in regard to these companies from whom a total amount of Rs.35 lakhs was received namely (i) share application form (ii) copy of Board Resolution
(iii) Copy of Bank Statements reflecting payment through cheque (iv) Audited Statement of Accounts and Acknowledgement of ITR (v) Copy of certificate of Incorporation and Certificate of Commencement of Business (vi) Copy of PAN Card. Where the assessee furnishes the documentation and necessary explanation, the AO should examine whether the documents so submitted and explanation so offered establishes the three ingredients i.e. identity of the investor company, creditworthiness of investor company and genuineness of the transaction. Whether explanation of the assessee is reliable or acceptable? If yes, no further action is required and the sum so credited may not be charged to income tax. If the explanation so offered by the assessee is not acceptable or reliable, the AO should give a detailed reasoning in the assessment order for not accepting the same. The order passed by the AO should be speaking one bringing on record all the facts, explanation furnished by the assessee in respect of nature and source of the credit in its books of accounts and reasons for not accepting the explanation of the assessee. In the instant case, we 18 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
find that the AO has not taken any efforts to examine these documents so submitted by the assessee company during the course of assessment proceedings and has simply gone by his prima facie view formed at the time of assumption of jurisdiction u/s 147 and such a prima facie view without further examination/investigation cannot be a basis for forming a final view of making the addition in the hands of the assessee company. It is a case where the AO was in receipt of material information from the Investigation Wing, Mumbai that the assessee company has received accommodation entries in form of share application/investment from seven companies who are not doing genuine business activities as divulged during the course of search and seizure operations in case of Praveen Jain group. In these situations, the Courts have held that the Assessing Officer cannot sit back with folded hands and then come forward to merely reject the explanation so made, without carrying out any verification or enquiry into the material placed before him by the assessee. If the Assessing Officer harbours any doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. We therefore agree with the contentions of the Id AR that in absence of any falsity which have been found in the documents so submitted by the assessee company to prove the identity, creditworthiness and genuineness of the share transaction, these documents cannot be summarily rejected as has been done by the AO in the instant case. Further, we find that there is no action taken by the AO in terms of calling information from these companies under section 133(6) and/or issuing summons to directors of these companies under section 131 of the Act. Further, where the AO relies upon the statement of third parties (Praveen Jain 19 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
and others)recorded u/s 132(4), without getting into controversy whether the said statement was retracted subsequently, the fact remains that the assessee deserves an opportunity to cross examine such persons as held by the Hon'ble Supreme Court in case of Andaman Timber Industries (supra). During the course of assessment proceedings, the assessee company has made specific request to the AO to allow cross examination of these persons which has however not being provided to the assessee company. In light of above discussions, we don't find any basis for making addition under section 68 of the Act. In the result, ground no.2 taken by the assessee company is allowed."
21. In the instant case, we find that the Assessing officer has relied solely on the information received from the Investigation Wing Delhi without carrying out any further examination of documents submitted during the course of reassessment proceedings and without carrying any independent investigation of these companies. The information so received from the Investigation Wing Delhi is sufficient to form a prima facie view and acquiring jurisdiction under section 147 of the Act. However, such a prima facie view has to be finalized and a firm view has to be taken on basis of examination of documents so brought on record and further investigation to be carried out before any tax liability is fastened on the assessee. In the instant case, we find that the assessee company has submitted documentation in respect of these companies from whom a total amount of Rs. 46 lakhs was received namely share application form, return of allotment filed with Registrar of Companies evidencing allotment of shares, copy of bank statements reflecting payment through cheque, confirmation of these companies of having invested in the assessee company and of the fact that there are assessed to tax and have been allotted PAN number. We find that the AO has not taken any efforts to examine these documents so submitted by the assessee company during the course of assessment proceedings and has simply gone by his prima facie view formed at 20 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
the time of assumption of jurisdiction u/s 147 and such a prima facie view without further examination/investigation cannot be a basis for forming a final view for making the addition in the hands of the assessee company. Further, we note that in respect of three companies from whom Rs 20 lacs has been received as share capital, the addition has been made by the AO without even asking the assessee to submit the desired information during the reassessment proceedings which cannot be accepted at first place. It is thus a case where the AO was in receipt of material information from the Investigation Wing, Delhi that the assessee company has received accommodation entries in form of share application/investment from two companies as divulged during the course of search and seizure operations in case of S K Jain group. In these situations, the Courts have held that the Assessing Officer cannot sit back with folded hands and then come forward to merely reject the explanation so made, without carrying out any verification or enquiry into the material placed before him by the assessee. If the Assessing Officer harbours any doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. We are therefore of the view that there is no infirmity in the findings of the ld CIT(A) that in absence of any falsity which have been found in the documents so submitted by the assessee company to prove the identity, creditworthiness and genuineness of the share transaction and any satisfaction to that effect recorded by the AO, these documents cannot be summarily rejected as has been done by the AO in the instant case. Further, we find that there is no action taken by the AO in terms of calling information from these companies under section 133(6) and/or issuing summons to directors of these companies under section 131 of the Act.
22. Further, being the reassessment proceedings, where the AO is ceased of certain information and documents, it is incumbent upon him to confront the 21 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
same to the assessee and allow the latter to file its objections and rebuttal. The additions made, merely relying on these information and documentation, without confronting the assessee cannot be accepted. Besides furnishing the reasons for reopening the assessment to the assessee company, there is nothing on record that such information/documentation was confronted to the assessee. Further, the AO has relied upon the statement of third parties namely, shri S.K. Jain, shri V.K. Jain, shri Assem Kumar Gupta and shri Rajesh Agarwal, the assessee again deserves an opportunity to cross examine such persons as held by the Hon'ble Supreme Court in case of Andaman Timber Industries (supra).
23. Further, Hon'ble Rajasthan High Court in case of AKJ Granites (P) (ltd) (supra), in context of addition of share application money under section 68, has held as under:
"So far as question No. 1 is concerned, it is stated by learned counsel for the appellant that the issue embedded in the said question has already been decided by this court and governed by the ratio laid down in Shree Barkha Synthetics Ltd. v. Asst. CIT [2005] 197 CTR 432 ; [2006] 283 ITR 377. It has been pointed out that share applications are made by a number of persons, may be in their own names or benami, but the fact that share applications received from different places accompanied by share application money, no presumption can be drawn that the same belongs to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that the share application money for augmenting the investment in business has flowed from the assessee's own money. In coming to this conclusion, the court relied on CTT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) which has since been affirmed by the Supreme Court in CIT v. Steller Investment Ltd. [2001] 251 ITR 263 . In view thereof, this question need not be decided again."
22 ITA 180/JP/2015 & C.O. 20/JP/2015_ ITO Vs Alok Fintrade P Ltd.
24. In the instant case, no such nexus has been established by the Revenue and the suspicion however strong cannot be basis for making the addition. Therefore, no presumption can be drawn without establishing the necessary nexus that share application money received is assessee's own undisclosed money.
25. In light of above discussions and in the entirety of facts and circumstances of the case, we don't find any basis for making addition under section 68 of the Act and the findings of the ld CIT(A) are hereby confirmed. In the result, grounds taken by the Revenue are hereby dismissed.
In the result, the appeal of the Revenue and the cross objection of the assessee are both dismissed.
Order pronounced in the open Court on 14/05/2018.
Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 14th May, 2018 *Ranjan
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ITO, Ward-2(2), Jaipur.
2. izR;FkhZ@The Respondent- M/s Alok Fintrade (P) Ltd., Jaipur
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 180/JP/2015 & CO 20/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar