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2018 (3) TMI 661 - AT - Income TaxReopening of assessment - Addition u/s 68 - as per revenue assessee has opened a bank account through its Director who has operated that particular account and carried out the business of giving accommodation entries to the various parties by charging the commission - Held that - Shri Pradeep Jindal is the director of the company. Therefore, the director of the assessee company himself has stated that he is an entry operator and from bank account of Precision Agencies Pvt. Ltd (assessee) he is providing accommodation entries. The bank account of the assessee with State Bank of India also corroborates above facts. AO has also verified the details of the return of income filed by the assessee for AY 2000-01 which is mentioned in the reasons recorded. It cannot be said that AO has not applied his mind to the information received from the Investigation Wing. Further, when the statement is given by the director of the assessee company itself, that he is engaged in providing accommodation entries, where the precise bank account of the assessee was found, where amount involved in the accommodation entries was also determined and the return of assessee was also collected by the assessee and recorded in the reasons, we are of the view that there is no infirmity committed by the AO in reopening the case of the assessee. On merits as referring to assessee s contention of cheating on the assessee by Sh. Pradeep Jindal and the bankers in view of the facts and circumstances of the case, all the appeals are set aside back to the file of the Ld. assessing officer with a direction to the assessee to first prove before the AO that there is a cheating on the assessee by Sh. Pradeep Jindal and the bankers. The assessee also is directed to produce the minutes book of the company to show the resolution of that particular date that it does not exist in the minutes book. Unless the assessee comes out with the clean hands before the Ld. assessing officer it cannot escape the taxation of the whole amount. Thereafter the Ld. assessing officer is directed to make complete examination of the bank accounts by obtaining necessary information from the bankers by issue of summons under section 131 of the Income Tax Act and identify the beneficiaries with proper documentation and evidences and they may be taxed on the above sum by application of the provisions of section 150 (1) of the Act, if possible. The assessing officer may also take into consideration the applicability of Prohibition of Benami Property Transaction Act, 1988 on such transactions and make necessary efforts to penalise the entry operator, the beneficiaries and the bankers, if found guilty. Set aside all these 5 appeals back to the file of the Ld. assessing officer to carry out necessary Inquiries as directed and then to decide about the taxability of the sum involved in the bank account of the assessee with state bank of India opened and operated by Sh. Pradeep Jindal in the name of the assessee company.
Issues Involved:
1. Deletion of addition by CIT(A) based on substantive addition in the hands of the recipient. 2. Validity of reopening of assessment under section 147. 3. Addition of unexplained cash credit under section 68. 4. Addition of commission income on accommodation entries. 5. Application of peak credit theory by CIT(A). 6. Responsibility of the company for transactions carried out by a former director. Detailed Analysis: 1. Deletion of Addition by CIT(A) Based on Substantive Addition in the Hands of the Recipient: The Revenue contended that the CIT(A) erred in deleting the addition of ?2,45,53,000 by merely observing that substantive additions had been made in the hands of the recipients of purported accommodation entries. The CIT(A) deleted the addition on the basis that the beneficiaries had been taxed for these amounts. However, the Revenue argued that there was no evidence to confirm that the substantive additions had reached finality in the hands of the recipients. 2. Validity of Reopening of Assessment under Section 147: The Assessee raised an additional ground challenging the reopening of the assessment under section 147, arguing that the reopening was based merely on the information received from the investigation wing without any independent application of mind by the AO. The Tribunal admitted this additional ground, noting that it was purely legal in nature and did not require further investigation of facts. Upon review, the Tribunal found that the AO had applied his mind to the information received, linking it with the bank account of the Assessee, the return filed, and the statement of the director, thus validating the reopening. 3. Addition of Unexplained Cash Credit under Section 68: For the assessment year 2000-01, the AO made an addition of ?2,54,93,000 on a protective basis, treating it as unexplained cash credit under section 68, as the bank account was used for providing accommodation entries. The CIT(A) deleted the addition, except for ?9,40,000, which was sustained on the grounds that it could not be traced whether the substantive additions were made in the hands of the beneficiaries. For the assessment year 2001-02, the CIT(A) restricted the addition to ?7,41,059, noting that the transactions were carried out by the former director, Pradeep Jindal, without the company's knowledge. 4. Addition of Commission Income on Accommodation Entries: The AO added commission income at the rate of 1% on the accommodation entries. The CIT(A) deleted this addition, holding that there was no evidence to conclude that the company received the commission. The commission was acknowledged by Pradeep Jindal in his individual capacity, and there was no indication that he passed on the commission to the company. 5. Application of Peak Credit Theory by CIT(A): For the assessment year 2001-02, the CIT(A) applied the peak credit theory, sustaining an addition of ?7,41,059 and deleting the remaining ?1,95,84,694. The CIT(A) reasoned that the company could only be held responsible for transactions up to the date when Pradeep Jindal was a director. This approach was challenged by the Revenue, which argued that the deletion was unjustified without identifying the parties in whose hands the addition was made substantively. 6. Responsibility of the Company for Transactions Carried Out by a Former Director: The Assessee argued that the transactions were carried out by Pradeep Jindal without the knowledge of the current directors and shareholders. The Tribunal noted that the Assessee failed to produce evidence to support this claim, such as the bank account opening form. The Tribunal found that the Assessee had not taken any steps against Pradeep Jindal or the bank, which weakened their claim of being unaware of the transactions. Conclusion: The Tribunal set aside all the appeals back to the AO, directing a thorough investigation to identify the real beneficiaries of the accommodation entries and to determine the taxability of the amounts involved. The AO was instructed to obtain necessary information from the bank, issue summons under section 131, and consider the applicability of the Prohibition of Benami Property Transaction Act, 1988. The Tribunal emphasized the need for the Assessee to come forward with concrete evidence to support their claims.
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