2017 (3) TMI 186 - AT - Income Tax

Reopening of assessment - accommodation entries - Held that - A fresh and tangible incriminating material was stated to have come into possession of the AO from the investigation wing wherein Mr Rajendra Bhimrajka stated to be controller of M/s Akon Management Consultancy Pvt. Ltd. had deposed that M/s Akon Management Consultancy Pvt. Ltd. is a paper entity engaged in providing accommodation entries and it did not do any business but was a merely engaged in providing accommodation entries. The assessee had transaction of ₹ 58,62,940/- with said Akon Management Consultancy Private Limited which was admitted by Sh. Rajendra Bhimrajka to be an accommodation entry. However , the statement of Sh. Rajendra Bhimrajka was not furnished by the AO to the assessee nor cross examination was allowed. It is the averment of the assessee that reasons were supplied to the assessee at the fag end of the assessment when the assessment was getting time barred and also objections raised by the assessee were not disposed of by the AO. The assessee has filed cross objections before tribunal challenging re-opening of the concluded assessment u/s 147 of the Act and the said objections were stated by the assessee to be not disposed off by the Revenue. The ld. DR could not controvert that the AO did not dispose of the objections filed by the assessee. Hence, keeping in view facts and circumstances of the case , we are inclined to set aside and restore the issue of challenge to reopening of the concluded assessment by the assessee to the file of the AO for de-novo determination of the issue on merits in accordance with law.

Issues Involved:

1. Legality of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Deletion of the addition of ?58,62,940/- made to the income of the assessee for transactions with Akon Management Consultancy Private Limited.

Issue-wise Detailed Analysis:

1. Legality of the Reassessment Proceedings Initiated Under Section 147 of the Income Tax Act, 1961:

The assessee company challenged the reassessment proceedings initiated by the Assistant Commissioner of Income-tax under Section 147 of the Income Tax Act, 1961. The primary contention was that the necessary preconditions for initiating reassessment proceedings were not complied with. The assessee argued that the reassessment was bad in law due to the lack of communication of the reasons for reopening the assessment and the reliance on statements not confronted to the assessee.

The learned Commissioner of Income Tax (Appeals) [CIT(A)] observed that new information had come to the knowledge of the Assessing Officer (AO) from the Investigation Wing of the Income Tax Department, indicating that some expenditure claimed by the assessee was not genuine. The CIT(A) relied on the decision of the Hon’ble Supreme Court in ITO v. Selected Dalurbandh Coal Company Pvt. Ltd., which held that at the stage of issuing a notice under Section 148, the only question was whether there was relevant material on which a reasonable person could have formed the requisite belief that income had escaped assessment. The CIT(A) upheld the initiation of the reassessment proceedings as valid.

However, the tribunal noted that the AO did not dispose of the objections raised by the assessee regarding the reopening of the assessment. The tribunal set aside the issue of the challenge to the reopening of the concluded assessment and restored it to the file of the AO for de-novo determination. The AO was directed to dispose of the objections raised by the assessee and provide sufficient opportunity to the assessee to be heard in accordance with the principles of natural justice.

2. Deletion of the Addition of ?58,62,940/- Made to the Income of the Assessee for Transactions with Akon Management Consultancy Private Limited:

The AO had disallowed the expenditure of ?58,62,940/- claimed by the assessee towards consultancy services from Akon Management Consultancy Private Limited, treating it as unexplained expenditure. This disallowance was based on information received from the Investigation Wing that Akon Management Consultancy Private Limited was a paper entity providing accommodation entries. The AO relied on the statement of Shri Rajendra Bhimrajka, who controlled Akon Management Consultancy Private Limited, and the statement of the assessee's director, Shri Sharat Chandra Satpathy, who admitted his inability to substantiate the transactions.

The assessee contended that the transactions were genuine and supported by documentary evidence, including contracts, invoices, and payments made through account payee cheques. The CIT(A) observed that the assessee had co-related the rendering of services by Akon Management Consultancy Private Limited with various consultancies given by the assessee to its clients. The CIT(A) noted that the AO did not have contrary evidence to disprove the assessee's contention and that the statement of Shri Rajendra Bhimrajka was not provided to the assessee, nor was cross-examination allowed. The CIT(A) held that there was a gross breach of principles of natural justice and deleted the disallowance of ?58,62,940/-.

The tribunal, however, noted that the genuineness of the transactions could not be adequately demonstrated by the assessee. The tribunal set aside the matter of the additions made on merits by the AO and restored it to the file of the AO for de-novo determination. The AO was directed to provide the statement of Shri Rajendra Bhimrajka to the assessee and allow cross-examination if the statement was to be used against the assessee. The assessee was directed to submit cogent evidence and explanations to prove the actual rendering of services by Akon Management Consultancy Private Limited.

Conclusion:

The tribunal allowed the appeal filed by the Revenue for statistical purposes and the cross-objection filed by the assessee for statistical purposes. The matters were set aside and restored to the file of the AO for de-novo determination in accordance with the principles of natural justice.

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