2017 (8) TMI 1659 - AT - Income Tax

Assessment made under section 153A/153C - Addition u/s 68 - HELD THAT - In this case, admittedly, a search and seizure operation was conducted on 18.12.2012. Further, a search and seizure action was also carried in the case of Shri Praven Kumar Jain group on 01.10.2013, who was stated to be one of the leading entry providers operating in Mumbai, indulging in providing accommodation entries like bogus purchases, sales, unsecured loans, share capital, etc. In his statement recorded on oath u/s 132(4) Shri Praveen Kumar Jain has admitted that he was indulged in providing accommodation entries and also explained the complete modus operandi of providing such entries. Upon notice u/s 133(6) of the Act issued to the eight companies, on the basis of replies, records available and data available in public domain, the AO has observed that all the companies involved are basically investment companies existing only in paper and have no activity as such and practically have no fixed asset. All the companies have filed their returns showing meagre income and therefore, the creditworthiness of the companies has not been proved. Further, most of the companies claimed to have received share application money at a huge premium to its face value. In others the sources of funds have been shown as sale of bogus investments of unquoted equity shares. As per Website information, the directors of above named companies are also directors in other companies - apparent strength of documentary proof of returns of income filed with RoC, Income Tax Department and opening of bogus bank accounts from bogus addresses and subsequent transactions through banking channels are emboldened the entry operators and the beneficiary entities to embark upon such a complex, fraudulent and fictitious process involving a huge number of companies and other entities. With regard to retraction by Shri Praveen Jain and his associates on the statement recorded on oath under section 132(4) of the Act, the subsequent observations made by the Assessing Officer and reproduced hereinabove, clearly indicates that the said retraction is nothing but an afterthought and more so, the entire process is fictitious and fraudulent process for evading taxation. It may be noted that the Hon'ble Gauhati High Court in the case of Greenview Restaurant 2002 (7) TMI 13 - GAUHATI HIGH COURT has expressed disapproval on retraction of a statement after a considerable time lag. In the case on hand, the retraction has been made after 7-8 months by way of mostly common affidavits containing various factual inaccuracies furnished by the associates working under the control of Shri Praveen Kumar Jain and the statements have been signed by them without correlating the contents with the facts of their own cases. Since the assessee could not proved the genuineness, creditworthiness and identity of the companies, as these companies might have been existing on papers or in real sense at the time of registration, but were specifically found to be non-existence, we are of the considered opinion that the Assessing Officer has validly made the assessment under section 143(3) r.w.s. 153A 153C of the Act for both the assessment years - We set aside the order of the ld. CIT(A) and direct him to adjudicate the grounds raised by the assessee on merits - Appeals filed by the Revenue are allowed for statistical purposes.

Summary

Issues:
Challenge to deletion of addition under section 68 of the Income Tax Act for assessment years 2007-08 and 2008-09 based on lack of incriminating materials post search and seizure operations.

Analysis:
1. Assumption of Jurisdiction: The Revenue argued that the Assessing Officer validly assumed jurisdiction under section 153A & 153C of the Income Tax Act after a search operation and provided documentary evidence showing the alleged share holders were paper companies without established credit worthiness. The Revenue contended that the ld. CIT(A) erred in deleting the addition under section 68 without deciding the issue on merits. The Revenue urged the Tribunal to set aside the CIT(A)'s order and adjudicate the issue on merits.

2. Search Operation Findings: The search operation revealed that certain companies, allegedly controlled by an entry provider, were engaged in providing accommodation entries without genuine business activities. The Assessing Officer observed that the assessee had taken money as share capital from these companies, which were linked to the entry provider. The entry provider admitted to providing accommodation entries and later retracted the statement, which the Assessing Officer found to be a planned move to obstruct the investigation process. The Assessing Officer concluded that the unproved receipt of share application money was a form of tax evasion through money laundering.

3. Creditworthiness and Identity of Companies: The Assessing Officer found that the companies investing in the assessee without apparent benefits lacked creditworthiness and genuine existence. The companies were identified as investment companies existing only on paper without significant assets or activities. The returns filed by these companies showed meager income, raising doubts about their creditworthiness. The Assessing Officer noted discrepancies in the sources of funds and the involvement of entry operators in complex, fraudulent transactions.

4. Retraction of Statements: The retraction of statements by the entry provider and associates was deemed an afterthought to evade taxation. The Tribunal referred to a High Court case disapproving retractions made after a considerable time lag. The retraction was considered part of a fictitious and fraudulent process to avoid tax liabilities.

5. Decision: The Tribunal set aside the CIT(A)'s order and directed a reevaluation of the grounds raised by the assessee on merits, providing sufficient opportunities for the assessee to present their case. The appeals filed by the Revenue were allowed for statistical purposes, indicating a favorable decision for the Revenue on procedural grounds.

This comprehensive analysis of the judgment highlights the key legal arguments, findings, and conclusions made by the Tribunal regarding the deletion of additions under section 68 of the Income Tax Act for the assessment years in question.