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TMI Blog2012 (8) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA 427/2012 - - - Dated:- 30-7-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant : Sh. Deepak Chopra, Sr. Standing Counsel with Sh. Harpreet Singh Ajmani, Advocate. For Respondent : Sh. Sampat Sukumaran, Advocate. MR. JUSTICE S. RAVINDRA BHAT 1. The Revenue is aggrieved by the order of the Income Tax Appellate Tribunal (ITAT) dated 24.11.2011 in ITA No. 4194/Del/2011. The impugned order had rejected the Revenue s appeal. 2. The following questions of law was framed for consideration at the time the matter was heard: XXXXXX XXXXXX XXXXXX 1. Whether the Tribunal was right in law in upholding the order of the CIT(A) deleting the addition of Rs.1,00,40,000/- made by the AO u/s 68 of the IT Act, 1961? 2. Whether the Tribunal was right in law in upholding the order of the CIT(A) deleting the addition of Rs.2,51,000/- made by the AO on account of commission paid to entry operators? XXXXXX XXXXXX XXXXXX 3. Briefly the facts necessary for deciding the case are that in the return of income for the Assessment Year 2006-07, the assessee declared a total income of Rs.72,741/-. The assessee had declared book profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they were accommodation entry providers. The assessee had argued that since it filed confirmations along with assessment particulars etc. it discharged its onus by disclosing whatever relevant material it could lay hands on. It also submitted that the statements of Mukesh Gupta and others were recorded prior to the relevant time when the share application money was received by the assessee. The assessee appears to have sought for opportunity to cross-examine the individuals whose statements were concluded; that was declined. 5. The AO noticed that the assessee was a private company and that in such cases there was a close and proximate relationship between the promoters and shareholders. It was further held that the assessee should not have had any difficulty to produce the investors had the whole transaction been genuine. After analyzing each bank account entry of all the share applicants, the AO concluded as follows: XXXXXX XXXXXX XXXXXX The above analysis of the bank statements comprehensively establishes how cash has been deposited in one account and then the same has been routed through two or more accounts before the amounts have returned back to the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the commission amount paid to the accommodation entry providers out of the undisclosed income of the company. 6. The Appellate Commissioner, to whom the assessee appealed, by order dated 13.01.2011, was of the opinion that in view of the ruling of the Supreme Court in CIT v. Lovely Exports Private Limited, 216 CTR (SC) 195 the onus of proving the questioned entries stood discharged the moment the assessee furnished the relevant particulars, such as the identity of the party, and certain other details, like the address and documents pertaining to its financial condition. It was held that the AO could not have, once these particulars had been furnished by the assessee, legitimately brought the amount to tax by invoking Section 68 of the Act. 7. The ITAT in the impugned order rejected the Revenue s appeal, reasoning as follows: XXXXXX XXXXXX XXXXXX 9. We have heard the parties and have perused the material on record. The assessee, it is seen, had furnished before the Assessing Officer, the confirmations of all the four persons from whom the money had been received. Copies of their I.T.R. were also filed. The amounts were admittedly received through account payee cheques. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December, 2003 to January, 2005. The year under consideration presently, however, is assessment year 2006-07. The CIT(A) has also taken note of the fact that the said statements do not find mention of the companies from which the assessee states to have taken the share application money. Reliance on the said statement by the Assessing Officer has also, therefore, rightly been rejected by the CIT(A). 11. Apropos the remaining share subscriber i.e., Virender Singh, he was found to be an existing person. The share application money in his name was received by the assessee by account payee cheque. Shri Virender Singh had applied for shares of the assessee company on behalf of Poorva Techno Impex Pvt. Ltd., which is also assessed to tax. The directors of that company had passed a resolution in that regard. The share application money had originated from the bank account of that company. The CIT(A) has duly taken into consideration all these facts before deleting the addition made. 12. Apropos CIT vs.Oasis Hospitalities P. Ltd. (supra), the same is not applicable to the facts of the present case. In that case, the assessee had not even furnished basic requirements of share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not been given the opportunity to cross examine the individuals who were alleged to have made statements to the income tax authorities in the course of investigation. This violation of a principle of natural justice vitiated the proceedings of the AO and the order had to be corrected by the higher, appellate authority. That apart, submitted the counsel, that the decision of the Supreme Court in Lovely Exports had expressly clarified that in proceedings arising out of proposed application of Section 68 if any assessee is to give the details and particulars of the individuals or concerns which had given the funds, he is deemed to discharge the initial burden cast on him. In this case, so long as the initial burden of giving an explanation as to the source of such amounts is satisfied, the assessee cannot be made to suffer addition of such amounts on the ground that further information is not forthcoming or that the information is unreliable. 10. In the decision reported as Commissioner Income Tax v Oasis Hospitality (P) Ltd (2011) 333 ITR 119 a Division Bench of this Court considered the previous decisions on the question of the appropriate procedure and approach which every Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court, the Court while reversing the decision of the High Court held that the findings of the AO, CIT (A) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process ITA Nos.2093, 2094, 2095 of 2010, 514 of 2007 539 of 2008 Page 12 of 27 of banking transaction as not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. While doing so, the legal position contained in Section 68 of the Act was explained by the Supreme Court by assessing that a bare reading of Section 68 of the Act suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the AO, is not satisfactor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39. The case of Orissa Corporation (1986) 159 ITR exemplifies the category of cases where no action is taken by the Assessing Officer to verify or conduct an enquiry into the particulars about the creditors furnished by the assessee, including their income-tax file numbers. In the same category fall cases decided by this court in Dolphin Canpack (2006) 283 ITR 190, CIT v Makhni and Tyagi P. Ltd. (2004) 267 ITR 433, CIT v Antartica Investment P. Ltd. (2003) 262 ITR 493 and CIT v Achal Investment Ltd. (2004) 268 ITR 211. To put it simply, in these cases the decision was based on the fundamental rule of law that evidence or material adduced by the assessee cannot be thrown out without any enquiry. The ratio does not extend beyond that. The boundaries of the ratio cannot be, and should not be, widened to include therein cases where there exists material to implicate the assessee in a collusive arrangement with persons who are self-confessed "accommodation entry providers". 40. Reference was also made on behalf of the assessee to the recent judgment of a Division Bench of this court in CIT v. Oasis Hospitalities Private Limited, (2011) 333 ITR 119. We have given utmost consideration t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the investigation wing or was given an opportunity to cross examine the persons whose statements were recorded by the investigation wing. 12. It would be clear that the nature of enquiry undertaken by the income tax authorities would vary from case to case, depending on the nature of the material furnished to them by the assessee, when called upon to do so. In this case, the material in the form of addresses and documents pertaining to the share applicants of the assessee were enquired into thoroughly by the AO. He found a pattern in the way funds were moved into the accounts of those investors. The pattern was common to each of them; the amounts were received within a few days or weeks before the shares were allotted; there was no material to show how they knew that shares could be purchased. Furthermore, the AO s efforts to get them involved, through summons were unsuccessful. The applicant made no attempt to assist the AO in these proceedings. While it is true that the AO did look into the investigation report and did not allow cross examination of the individuals who made the statement under Section 131 of the Act, that alone cannot be termed as a fatal infirmity in his or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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