Income Tax Appellate Tribunal - Delhi
M/S. Panchkula Finvest Pvt. Ltd., New ... vs Dcit, New Delhi on 12 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F", NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
SMT. BEENA A. PILLAI, JUDICIAL MEMBER
ITA No.2482/Del/2014
Assessment Year : 2005-06
Panchkula Finvest Pvt. Ltd., DCIT, Circle- 14(1),
1626/33, 4th Floor, Naiwala, New Delhi.
Vs.
Karol Bagh, New Delhi.
PAN : AAACP7031P
(Appellant) (Respondent)
Assessee by : Shri P. C. Yadav, Adv.
Department by : Shri Atiq Ahmad, Sr.DR
Date of hearing : 12-02-2018
Date of pronouncement : 12-04-2018
ORDER
PER R. K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 13.01.2014 of CIT(A)- XVII, New Delhi relating to assessment year 2005-06.
2. Facts of the case, in brief, are that the assessee is a company engaged in the business of giving loans and advances. It filed its return of income on 31.10.2005 declaring total income of Rs.7,53,686/-. The Assessing Officer completed the assessment u/s 143(3) on 20.12.2007 determining the total income at Rs.7,82,013/-. Subsequently, the Assessing Officer issued notice u/s 148 on 29.03.2012 after recording the following reasons :-
"Subsequently information has been received from the Directorate of Income Tax (Investigation) of the Income Tax department that the above named assessee is a 2 ITA No.2482/Del/2014 beneficiary of accommodation entries received during the period F.Y. 2004-05 relevant to A.Y. 2005-06 received from established entry-operators identified by the Investigation Wing on the basis of Search/Survey conducted by it on Shri Tarun Goyal CA and Shri S. K. Jain and Shri Virender Jain. A comprehensive investigation was carried out by the Investigation Wing in this regard and on the basis of investigation carried out and evidences collected, examination made a report has been forwarded which shows that the above named Shri Tarun goyal CA and Shri S. K. Jain and Shri Virender Jain have floated a number of concerns/Pvt. Ltd. companies for providing accommodation entries to various desirous persons. These concerns/companies were found to be only paper entities providing accommodation entries and not doing any other real business. All these three persons were controlling more than 190 such concerns/companies. They have been doing the business of providing accommodation entries through these concerns by giving cheques/PO/DD in lieu of cash with/without the help of some agents/mediators. They have also being charging certain commission for providing these entries which usually varies from 1.5% to 3.5%. A perusal/examination of report/related documents/related records show that M/s Panchkula Finvest Pvt. Ltd. being assessed with the undersigned has also received a sum of Rs.3,25,00,000/- from Tarun Goyal Group (Adonis Financial Services Pvt. Ltd, Sadguru Finmin Pvt. Ltd. and others) and Rs.65,00,000/- from S.K. Jain Virender Jain Group through their concerns in the garb of share capital/share application money/loan etc. which does not represent actual transactions but are only accommodation entries. In fact perusal/examination of report/documents/records show that the entire transaction lacks ingredients of genuineness and seems totally fishy, it can therefore be safely inferred that this amount is unaccounted money of my assessee introduced in its accounts after routing through these groups/entry providers to avoid taxing of such amounts.
In view of the above, I have reason to believe that the assessee company has taken bogus/accommodation entries only as discussed above to the tune of Rs.3,90,00,000/- in the period relevant to A.Y. 2005-06 resulting into escapement of income to this extent plus the amount of commission paid there on out of books. Considering these facts I have reasons to believe that income to the above extent (Rs.39000000/-) has escaped assessment by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for this year. Accordingly, action u/s 147 is proposed to be taken and notice u/s 148 is to be issued to bring this escaped income and also any other income chargeable to tax which has escaped assessment and which comes to notice subsequently in the course of proceedings."
3. The assessee filed its reply dated 10.10.2012 and submitted that there was no failure on the part of the assessee to disclose fully and truly all material facts and the notice issued u/s 148 was stated to be unwarranted being mere change of opinion on the part of the Assessing Officer. It was further submitted that 3 ITA No.2482/Del/2014 there is no material in the possession of the Assessing Officer on the basis of which there is reason to believe that income chargeable to tax has escaped assessment. The assessee accordingly requested to drop the proceedings. The Assessing Officer subsequently provided reasons recorded u/s 148 of the I.T. Act and issued a notice u/s 142(1) calling for certain information regarding the share capital raised by the company during the relevant previous year as per questionnaire. The assessee replied to the same. The assessee also asked to provide that part of the Investigation Wing's report which connected the assessee indicating the accommodation entry providers used their entities to convert unaccounted cash and helped the beneficiaries to plough back unaccounted black money for the purpose of business in the form of loans/share application money. The assessee also furnished various details and requested the Assessing Officer to summon the persons who have invested in the share capital of the assessee company. The Assessing Officer issued summons u/s 131 of the I.T. Act. However, there was non-compliance. The Inspector deputed by the Assessing Officer reported that either these companies were not found or they have left. Only in one case the reply was received. However, none attended before the Assessing Officer. The Assessing Officer, thereafter, considered the creditworthiness of each and every company on the basis of the report of the Inspector. Rejecting the various explanations given by the assessee and relying on various decisions, he held that all these companies are only paper 4 ITA No.2482/Del/2014 entities and they have no funds of their own. The bank accounts of these entities could not be traced to find out the capital contribution by them. The assessee did not furnish the information regarding the bank accounts in support of verification of the funds received on account share application money. The summons issued to a number of offices of the entities who had contributed share application money with the assessee company were received back unserved and the Ward Inspector could not locate any such entity at the given address. In view of the above, the Assessing Officer invoking the provisions of section 68 of the I.T. Act made addition of Rs.5,24,00,000/- to the total income of the assessee on account of share capital and share premium as unaccounted income of the assessee company. The Assessing Officer also made addition of Rs.13,10,000/- being commission paid for such accommodations entries at the rate of 2.5% of Rs.5,24,00,000/-. Thus, the Assessing Officer made total addition of Rs.5,37,10,000/- to the total income of the assessee u/s 68 of the I.T. Act.
4. In appeal, the ld. CIT(A) in a very detailed order upheld the action of the Assessing Officer. The relevant observations of the ld. CIT(A) from para 6.21 to 6.25 which is the summary of his decision read as under :-
"6.21. To sum up it is seen that the AO had received information from the Investigation Wing that during the year the appellant had received share application money from various entities.
6.22. Inquiries conducted by the AO established the fact that the identity and creditworthiness of all the persons had not been proved and the genuineness of the transaction also not been established. No person attended before the AO. Therefore, 5 ITA No.2482/Del/2014 the identity of the persons was not proved. It was not proved that the money came from the corpus of the shareholder. Most companies had shown NIL income or meager and invested lakhs. For example Sadguru Finance shows Nil income, Shri Niwas Leasing & Finance shows Rs.22,100/- as income. Information about income and source of income of most parties was not given. It could not proved that money come from the corpus of share applicants. Therefore, the creditworthiness of all the persons was not proved.
6.23. Further, no evidence was given to prove the genuineness of the transaction. No bank accounts were submitted of the appellant or the creditors or cheque numbers given to show that the transaction was through banking channels. 6.24. Reports had been received from the office of Addl. Director of Income Tax (Investigation)-IV, Jhandewalan Extn., New Delhi that Sh. Tarun Goyal, Chartered Accountant, was an entry operator giving accommodation entries residing at 13/34, WEA, Arya Samaj Road, Karol Bagh, New Delhi. It was informed that a search operation u/s 132 of the Income Tax Act had been conducted at the office premises at Sh. Tarun Goyal, CA by the Investigation Wing on 15.09.2008. Sh. Tarun Goyal had created a number of Private Limited Companies and Firms for the purpose of providing accommodation entries to Individuals, firms, Companies etc. The Directors of these Companies were his employees who worked in his office and all the documents were got signed from these employees. During the course of search, it was established that Sh. Tarun Goyal had floated about 90 companies for the purpose of providing accommodation entries. Hence, all the companies of Sh. Tarun Goyal were in effect "Bogus". At the time of search on 15.9.2008, the statement of Sh. Tarun Goyal was recorded on oath. As per his statement, he had accepted that he was providing accommodation entries and his various companies were used for this purpose. Sh. Tarun Goyal had also described the modus operandi for providing accommodation entries. In this case a lot of companies shows their address which is of Shri Tarun Goyal.
6.25. The appellant has not been able to prove the identity or creditworthiness of the creditor and the genuineness of the transaction. A sum of Rs.5,24,00,000/- crores was found credited in the books of the appellant as share application money and no explanation was given by the appellant about the nature and source thereof. In view thereof, the amount credited is considered to be unexplained. I therefore confirm the addition of Rs.5,24,00,000/- made by the AO u/s 68. These grounds are ruled against the appellant."
5. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :-
"1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts.
2(i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in not admitting the additional evidences submitted by the assessee under Rule 46A of the Act.6 ITA No.2482/Del/2014
(ii) That the additional evidences submitted by the appellant has been rejected arbitrarily despite there being reasonable cause for not filing the same during the assessment proceedings.
3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that proceedings initiated under Section 147, read with Section 148 are bad as the condition and procedure prescribed under the statute have not been complied with.
4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned A.O. are bad in law as the same are based on reasons which are vague.
5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the notice issued under Section 147 read with Section 148 of the Act is bad in law and barred by limitation in view of the proviso to Section 147, as the same has been issued after a period of four years from the end of the relevant assessment year despite the fact that the original assessment proceedings were completed under Section 143(3) of the Act.
6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the reopening of the assessment by the A.O. under Section 147/143(3) despite the fact that the assessee has disclosed all material facts fully and truly during the course of original assessment proceedings under Section 143(3).
7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts & in law in confirming the addition of Rs.5,37,10,000/- as income from undisclosed sources under section 68 of the act on account of share capital.
8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment order is bad as the same has been made on the basis of material collected at the back of the assessee without giving assessee an opportunity to rebut the same and in clear violation of statutory provisions of section 142(3) of the Act.
9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.5,37,10,000/- on the basis of statement of a person without giving assessee an opportunity to cross-examine the same and in gross violation of principles of natural justice.
10. The appellant craves leave to add, amend or alter any of the grounds of appeal."
6. Ld. counsel for the assessee strongly objected to the order of the ld. CIT(A) challenging the validity of the re-assessment proceedings. The ld. counsel for the assessee submitted that the original assessment u/s 143(3) was completed on 22.10.2007 wherein the issue relating to share application money 7 ITA No.2482/Del/2014 and share premium was considered. Referring to the questionnaire issued by the Assessing Officer in the original assessment proceedings, copy of which is placed at pages 62 to 64 of the Paper Book, ld. counsel for the assessee drew the attention of the Bench to the questionnaire and invited the attention of the Bench to Question No.6 wherein the Assessing Officer had asked the assessee to substantiate the increase in the share capital. Referring to the reply given by the assessee, copy of which is placed at pages 65 to 284 of the Paper Book, he drew the attention of the Bench to the reply given substantiating increase in the share capital and share premium. He submitted that the Assessing Officer had issued notice u/s 133(6) to all the share-holders and after considering the reply given by the assessee, the Assessing Officer did not make any addition. He submitted that the notice in the instant case has been issued u/s 148 on 29.03.2012 which is after the expiry of a period of four years from the end of the relevant assessment year. Therefore, in view of the proviso to section 147, the notice issued u/s 148 is void since there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment.
7. In his alternate argument, ld. counsel for the assessee submitted that the notice issued u/s 148 has been issued on the basis of report of the Investigation Wing and, there is no independent application of mind by the Assessing Officer. Relying on various decisions, he submitted that the issue of notice u/s 148 on 8 ITA No.2482/Del/2014 the basis of the report of the Investigation Wing is not valid. In his yet another alternate argument, he submitted that the Assessing Officer in the reasons recorded has mentioned that the assessee has taken bogus/accommodation entries to the tune of Rs.3,90,00,000/- which has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. However, such reasons are completely vague since there is no mention of any instrument number or bank details or clarity about the modes of taking the alleged entries.
8. Referring to the decision of the Hon'ble Supreme Court in the case of Lakmani Dass Mewalal reported in 103 ITR 437, he submitted that the Hon'ble Supreme Court in the said decision has held that for assuming jurisdiction u/s 147, the information which triggers the action of recording reasons should be definite and should not be vague. It has been categorically held by the Apex Court that it is not any and every material, howsoever, vague and indefinite or distant, remote or farfetched, which would warrant formation of the belief relating to escapement of income.
9. Referring to para 11.3 of the assessment order (page 42), he submitted that the Assessing Officer himself mentioned that the report of the Investigation Wing on which assessment is reopened was only a starting point for the enquiry and it was not the sole basis for making the addition. Based on the material contained in the report of the Investigation Wing the Assessing Officer has 9 ITA No.2482/Del/2014 initiated enquiry into the genuineness of the share subscription. Referring to the above, he submitted that what the Assessing Officer is doing now is only a review of his own order and there is no tangible material in the hands of the Assessing Officer to assessee jurisdiction u/s 147 of the I.T. Act.
10. Referring to the decision of the Hon'ble Delhi High Court in the case of Signature Hotels reported in 338 ITR 51, ld. counsel for the assessee drew the attention of the Bench to the following observations :-
"The aforesaid section is wide but it is not plenary. We have to consider and examine the crucial expression "reason to believe" used in the said section. The AO must have "reason to believe" that an income chargeable to tax has escaped assessment. This is mandatory and the "reasons to believe" are required to be recorded in writing by the AO. Sufficiency of reasons is not a matter, which is to be decided by the writ Court, but existence of belief is the subject-matter of this scrutiny. A notice under s. 148 can be quashed if the "belief" is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the AO, when he recorded the reason. There should be a link between the reasons and the evidence/material available with the AO. However, as we are dealing with initiation of proceedings, it is not necessary that the material should conclusively prove the escapement."
11. The ld. counsel for the assessee submitted that from the very beginning the assessee was asking for the copy of information and other material such as statement of the entry providers and opportunity to cross-examine the entry providers. However, such material/information was never provided to the assessee. Coming to the merit of the case, he submitted that the assessee has filed full details giving name and address of the share subscribers and their PAN numbers. The Assessing Officer has not done anything except deputing the Inspector to the addresses without verifying from the data base of the 10 ITA No.2482/Del/2014 Department regarding their identity and creditworthiness. He submitted that the assessee has discharged the onus cast on it. Therefore, the addition made by the Assessing Officer and sustained by the ld. CIT(A) is not justified. He also relied on various other decisions enclosed in the Paper Book.
12. Ld. DR on the other hand heavily relied on the order of the ld. CIT(A). He submitted that for accepting the share application and share premium, the onus is always on the assessee to substantiate with evidence to the satisfaction of the Assessing Officer regarding the identity and creditworthiness of the share applicants and genuineness of the transactions. The assessee in the instant case has miserably failed to discharge the onus cast on it. Therefore, the order of the ld. CIT(A) sustaining the addition made by the Assessing Officer is fully justified.
13. So far as the legal arguments of the ld. counsel for the assessee are concerned, ld. DR submitted that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. The Assessing Officer has reopened the assessment after recording reasons. Therefore, under the facts and circumstances of the case, the reassessment is fully justified. He accordingly submitted that the ground raised by the assessee should be dismissed.
14. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and the Paper Book filed 11 ITA No.2482/Del/2014 on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessment in the instant case was completed u/s 143(3) on 20.12.2007, copy of which is placed at page 61 and 62 of the Paper Book. We find the Assessing Officer vide notice dated 19.06.2007 issued a questionnaire wherein he had specifically asked regarding the increase in the share capital as per Question No.6. Similarly, as per Question No.7 he had asked the assessee regarding the details of share premium of Rs.5,40,00,000/- shown under the head reserve and surplus amount. We find the assessee vide letter dated 22.08.2007, copy of which is placed at pages 65 to 284 of the Paper Book, had submitted all the details of the share subscribers who have given the share application money and share premium. In the said submissions, the assessee had given the list of share subscribers, resolution passed by the company and the documents related to all the share applicants. We find the Assessing Officer after considering the submission field by the assessee passed the order accepting the share capital and share premium. Under these circumstances, it is to be seen as to whether the Assessing Officer can reopen the assessment u/s 147 after completion of four years from the end of the relevant assessment year.
15. The provisions of section 147 reads as under :-
"Income escaping assessment.
147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions 12 ITA No.2482/Del/2014 of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:--
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
[(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document 13 ITA No.2482/Del/2014 received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;]
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.--For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012."
[Emphasis supplied by us]
16. In the instant case, the assessee during the course of original assessment proceedings has furnished requisite details which were perused by the Assessing Officer and no addition was made on account of increase in the share capital and share premium. The various documents filed by the assessee during original proceedings have not been proved to be false or untrue. There is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Therefore, in view of the proviso to section 147 the notice dated 29.03.2012 issued u/s 148 being beyond four years from the end of the relevant assessment year is invalid since the original assessment has been completed u/s 143(3) of the I.T. Act. Since the assessee succeeds on this preliminary legal issue, we refrain ourselves from deciding the 14 ITA No.2482/Del/2014 issue on merit and on other alternate argument and legal grounds. The appeal filed by the assessee is accordingly allowed.
17. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on this 12th April, 2018.
Sd/- Sd/-
(BEENA A. PILLAI) (R. K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 12-04-2018.
Sujeet
Copy of order to: -
1) The Appellant
2) The Respondent
3) The CIT
4) The CIT(A)
5) The DR, I.T.A.T., New Delhi
By Order
//True Copy//
Assistant Registrar
ITAT, New Delhi