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TMI Blog2019 (3) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... officer can rely on the report of DIT, Investigation Wing but at the same time, where he is assuming jurisdiction u/s 147, he is required to carry out further examination and analysis in order to establish the nexus between the material and formation of belief that income has escaped assessment and in absence thereof, the assumption of jurisdiction u/s 147 has no legal basis and resultant reassessment proceedings deserve to be set-aside. The fact that the assessee has filed its return of income u/s 139(1) was very much in the knowledge of the Assessing officer and the latter could have verified the transactions with the reported transactions in the financial statements and could have asked for more information to establish the necessary nexus, however nothing of that sort has been done by the Assessing officer and he has merely gone by the report of DIT, Investigation Wing. On merits of the addition as find assessee has discharged the initial onus cast on it in terms of identity, creditworthiness and genuineness of the transaction. The assessment proceedings u/s 143(3) have been completed in case of the investor company M/s Pelicon Finance & lease for A.Y 2006-07 wherein inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- : The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of ₹ 25,00,000/- made by the ld. AO on account of alleged accommodation entries received for share application money and also erred in ignoring the various evidence submitted without rebutting and AO also erred in not providing the cross examinations. Hence the addition so made by the AO and confirmed by the ld. CIT(A) is being totally contrary to the provisions of law and fact on the record and hence the addition may kindly be deleted in full. 3. The ld. AO has grossly erred in law as well as on the facts of the case in charging interest U/s 234A, 234B 234C,. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, may kindly be deleted in full. 3. Briefly the facts of the care are that the assessee engaged in the business of Real Estate and construction of flats filed its return of income on 30.11.2006 admitting the total income at Nil. Subsequently, the AO received information from Investigation Wing, New Delhi that a search and seizure operation was carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening has been done by directly jumping on to the information received from the Investigation Wing by considering it to be sacrosanct. It was accordingly submitted that the AO recorded the reasons in the most arbitrary manner without application of any mind and, thus, this is nothing but a case of borrowed satisfaction which renders the entire proceedings of reopening to be illegal and void-ab-inito. In support, reliance was placed on the decision of Hon ble Delhi High Court in case of RMG Polyvinyl (I) B Ltd [2017] 83 taxmann.com 348, Meenakshi Overseas Pvt. Ltd. [2017] 395 ITR 677 and N.C. Cables Ltd. [2017] 88 taxmann.com 649 wherein it was held that where reassessment was resorted on the basis of information from DIT (Investigation) stating that the assessee had received accommodation entry and AO fails to independently apply his mind demonstrating link between tangible material and formation of reason to believe, reassessment was not justified. 5. It was further submitted that the reopening was based on the report sent by the Investigation Wing, Delhi, no underlying records were available with AO at the time of recording of reasons and this factum is proved by the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxmann.com 313 (SC) and decision of Hon ble Delhi High Court in case of PCIT vs. N.C. Cables Ltd. 88 taxmann.com 649 besides various other High Courts and Coordinate Bench decisions. 6. On merits, it was submitted that the AO by placing sole reliance on the report of the Investigation Wing, New Delhi and documents seized by Investigation Wing, considered the share application money of ₹ 25,00,000/- received by the assessee company as bogus. It was submitted that the assessee company issued 10,000 shares of ₹ 10 each at a premium of ₹ 240 per share to M/s Pelicon Finance lease Ltd. It was submitted that the assessee company duly discharged its onus as required U/s 68 of the IT Act by submitting the following evidences as under:- Particulars Paper book Pages Share application Form 5-7 Board Resolution of M/s Pelicon Finance Leasing Ltd. 8 Bank Statement evidencing payment through Banking Channel 9,188-190 Income Tax return duly containing PAN 10,172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities have erred in inferring that an entity which provides accommodation entry to one person, provides accommodation entry to all. 9. It was further submitted that the AO at page 4 of assessment order discussed the contents of seized documents in which the name of the assessee Company was appearing and alleged that the assessee Company arranged an accommodation entry, through mediator being a person called P.C. Agarwal, from M/s Pelicon Finance Lease Ltd. It is submitted that P.C. Agarwal was the prime witness and main evidence and his statements would have decided the fate of the allegations of ld. AO. However, his statements were not recorded during search, postsearch, before reopening the assessment and not even during the course of reassessment proceedings as they are not available in the record of ld. AO. The non-recording of statements, at various stages, of above key persons, cannot be accidental or a mere lapse. The very fact that these persons (P.C. Agarwal, Rajesh Agarwal and Ravindra Goel) ever existed is highly doubted. 10. It was further submitted that the AO issued notice u/s 133(6) to M/s Pelicon Leasing Finance Ltd which was duly served and duly resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the premium was logical or not. It is only and only the investor who has to analyze and negotiate on the amount of premium. It is further submitted that ld. AO just made bald statements and did not also give any working to support his contention that the premium charged was too high. It is pertinent to note that it is not the case where assessee Company issued shares at premium for the very first time. Assessee Company, in previous assessment years as well as in subsequent assessment years issued shares on premium and the premium is supported by the valuation report. 13. It was further submitted that ld. CIT(A) erred in not appreciating the facts of the present case of the assessee Company in correct perspective and assessee s rebuttal of the findings of ld. CIT(A) are as under: i) Ld. CIT(A) held that creditworthiness and genuineness was not proved as the fact of that M/s Pelicon Finance and Leasing Ltd. was carrying out any business activity was not established. It is submitted that the assessee Company during the assessment proceedings submitted the financial statements of shareholder for AY 2005-06 from which the business activities were evident. Thereafter, in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare, itself is indicative of the fact that the transaction was not genuine and the assessee company has introduced its own income by routing the same through dummy company by way of share application/share premium money. It is submitted that the assessee Company, in order to justify its premium, furnished a certificate of Chartered Accountant, Yogesh Gautam (M. No.072676) dated 27.06.2016 before CIT(A). As per the certificate, for the year under consideration, fair value of the share of the assessee Company was ₹ 281.48. It is further not the case of ld. CIT(A) that any defect was found in the said certificate. 14. It was further submitted that the ld. CIT(A) has not at all appropriately evaluated and considered the specific and peculiar facts of the case. Before ld. CIT(A), following binding judicial precedents of Hon ble Rajasthan High Court and Hon ble ITAT Jaipur Bench were cited: CIT vs. First Point Finance Ltd. 286 ITR 477 (Raj), CIT vs. Barkha Synthetics 182 CTR 175 (Raj), Labhchand Bohra vs. ITO (2008) 8 DTR 44 (Raj), Kanhialal Jangid vs. ACIT (2008) 8 DTR 38 (Raj), Premlata Kedia vs. DCIT 22 TW 481 (JPR), Nirmal Kumar Dugar 31 TW-112 (JP),Narayan Singh vs.ITO 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of the exercise undertaken by the DIT (Investigation), Delhi. It was accordingly submitted that there is nothing which prevent the Assessing Officer to rely on the exercise undertaken by other Wings of the Departments, if the material so collected through inquiry or investigation provides prima facie information, which enables the Assessing Officer to form a belief that income has escaped assessment. It was further submitted that it would undoubtedly require application of mind on the part of the Assessing Officer when certain materials collected by other wings of the department is placed before him, however, there cannot be any straight jacket formula of the manner in which mind can be applied or shown to have been applied and the same may be gathered from the reasons recorded and other contemporaneous material on record. It was accordingly submitted that there is no infirmity in the action of the Assessing Officer in initiating the proceedings U/s 147 of the Act on the basis of information received from DIT (Investigation), Delhi. It was further submitted that the notice u/s 147 has been issued after seeking approval from the appropriate authority and in support, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done on behalf of the company which is a legal entity as stated by the assessee. ( iii) The 3rd and 4th ground taken by the assessee is that the assessee company has not paid any cash to obtain the accommodation entry to Shri P.C. Agarwal and it may be that some Mr. P.C. Agarwal who had given money to M/s Pelicon Ltd, New Delhi to invest that amount in assessee company from his pocket as Real-estate sector is sun-shining sector in these days. In this regard it is pointed out that seized papers (pageNo.43 of Annexure A-52 , page 25 of Annexure A-53, page 6 of Annexure A-54) which is daily cash book seized from the residence of Sh. S.K. Jain shows receipt of cash of ₹ 5,00,000/- through mediator Sh. P.C. Agarwal on 25.02.2006 and on the same date an entry of ₹ 5,00,000/- vide cheuqe No. 048736 has been provided to the assessee company of Kotak Bank, through a dummy company named as Pelicon Finance Lease Ltd., receipt of cash of ₹ 10,00,000/- through mediator Sh. P.C Agarwal on 17.03.2006 and on the same date an entry of ₹ 10,00,000/- vide cheque No. 005134/- has been provided to the assessee company of UTI Bank through a dummy company named as Pelico ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar no shares were allotted by the assessee company except 10,000 shares allotted to the aforesaid dummy company named Pelicon finance Lease Ltd, New Delhi. The assessee company is engaged in the business of Real estate. Looking to the business activity of the company, and reputation of the company the allotment of shares at a premium of ₹ 240/- per share does not appear logical, particularly when no such shares at a higher premium was allotted to anyone. This itself is an indicative of the fact that the transaction of the assessee company with the dummy company named Pelicon Finance Lease Ltd New Delhi is not genuine and the assessee has introduced its own income from undisclosed sources by routing the same through the dummy company by way of share application/share premium money. 17. We have heard the rival contentions and perused the material available on record. For assumption of jurisdiction u/s 147, the Assessing officer has to satisfy the following cardinal tests so laid down by the Courts and only on satisfaction of such tests, he can assume jurisdiction under section 147: (i) The Assessing Officer must form a tentative or prima facie opinion on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a amount of ₹ 25,00,000/- with the help of the aforesaid accommodation entry providers, the details of which are reproduced as under:- Date From To Bank Cheque /RTGS/ PO No Cheque date Amount Name of Middle Man/Mediator Annex ure No. Pag e No. 25.02.20 06 PELICON FINANCE LEASE LTD. Balaji Healthc are Pvt. Ltd. Kotak P/o No. 048736 25.02.2006 ₹ 5,00,000/- P. C. Agarwal A-52 43 17.03.20 06 PELICON FINANCE LEASE LTD. Balaji Healthc are Pvt. Ltd. UTI P/o No. 005134 17.03.2006 ₹ 10,00,000/- P. C. Agarwal A-53 25 22.03.20 06 PELICON FINANCE LEASE LTD. Balaji Healthc a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been recorded that income in the hands of the assessee has escaped assessment relates to search and seizure operation in case of Surendra Kumar Jain and Virendra Kumar Jain conducted on 14.09.2010 and the report of the Director of Income tax (Inv)-II, New Delhi. The reasons states that during the course of search and post search investigation, it has been established that these two persons are engaged in the business of providing accommodation entries of share capita and share premium to various beneficiaries through cheques through a number of paper and dummy companies in lieu cash. The reasons further states that the assessee company has also obtained accommodation entries in the form of share capital/premium/loan during the financial year 2005-06 for an amount of ₹ 25,00,000/- with the help of the aforesaid accommodation entry providers. Thereafter, the Assessing officer gives details of the transactions and states that he had perused and gone through the contents of the report of the Investigation Wing, New Delhi and am satisfied that the amount is undisclosed income which has been routed back to the books of accounts of the assessee company in the form of share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income being routed back in form of share capital. This shows that the Assessing officer has merely gone by the report of the DIT, Investigation Wing and the said report even didn t have the statements of these persons which either find mention in the report or as enclosures when the same was forwarded to the Assessing officer. Therefore, it transpires that there is no further examination which has been carried out by the Assessing officer. The fact that the assessee has filed its return of income u/s 139(1) was very much in the knowledge of the Assessing officer and the latter could have verified the transactions with the reported transactions in the financial statements and could have asked for more information to establish the necessary nexus, however nothing of that sort has been done by the Assessing officer and he has merely gone by the report of DIT, Investigation Wing. It is true that the Assessing officer can rely on the report of DIT, Investigation Wing but at the same time, where he is assuming jurisdiction u/s 147, he is required to carry out further examination and analysis in order to establish the nexus between the material and formation of belief that inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow he can be said to be a known entry operator is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been committed by the ITAT in the impugned order in concluding that the initiation of the proceedings under Section 147/148 of the Act to reopen the assessments for the AYs in question does not satisfy the requirement of law. Subsequently, the Hon ble Delhi High Court in case of RMG Polyvinyl ltd (supra) has held as under: 12. Recently, in its decision dated 26th May, 2017 in ITA No. 692/2016 Pr. CIT v. Meenakshi Overseas, this Court discussed the legal position regarding reopening of assessments where the return filed at the initial stage was processed under Section 143(1) of the Act and not under Section 143(3) of the Act. The reasons for the reopening of the assessment in that case were more or less similar to the reasons in the present case, viz., information was received from the Investigation Wing regarding accommodation entries provided by a 'known' accommodation entry provider. There, on facts, the Court came to the conclusion that the reasons were, in fact, in the form of conclusions one after the other and that the satisfaction arrived at by the AO was a borrowed satisfaction and at best a reproduction of the conclusion in the investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare capital. In light of the same, merely relying on the report of the Investigation Wing without any further examination or investigation or disputing the documentation submitted by the assessee company, the addition cannot be sustained in the hands of the assessee company and is hereby directed to be deleted. In the result, ground no. 2 of the assessee s appeal is allowed. 22. In the result, the appeal of the assessee is allowed. 23. In ITA No. 567/JP/2018 for A.Y. 2007-08, the assessee has taken following grounds of appeal:- 1.1 The impugned order u/s 147/143(3) dated 14.03.2014 is bad in law and on facts of the case, for want of jurisdiction, barred by limitation and various other reasons and hence the same may kindly be quashed. 1.2 The action taken u/s 147 by the ld. AO confirmed by the ld. CIT(A) is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same may kindly be quashed. 2. ₹ 30,00,000/- : The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of ₹ 30,00,000/- made by the ld. AO on account of alleged accommodation entries received for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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