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TMI Blog2022 (7) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings on account of wrong set of facts and mechanical approval under section 151 by the PCIT, the grounds challenging the validity of the assessment on account of jurisdiction by the A.O. and other plank of arguments challenging the validity of reassessment proceedings and the addition on merit are not being adjudicated being academic in nature. The grounds raised by the assessee are accordingly allowed. - ITA.No.8757/DDN/2019 - - - Dated:- 8-4-2022 - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER For Assessee : Shri Suresh Kr. Gupta, CA For Revenue : Shri Rajat Kureen, Sr. DR ORDER PER R.K. PANDA, A.M. This appeal filed by the assessee is directed against the order dated 28.10.2019 of the Ld. CIT(A), New Delhi relating to A.Y. 2011-12. 2. Brief facts of the case are that assessee is a company and filed its return of income on 23.08.2011 declaring total income of Rs.30,040/-. The return was processed under section 143(1) of the I.T. Act, 1961. Subsequently the A.O. reopened the assessment under section 147 of the I.T. Act, 1961 by recording the following reasons : ANNEXURE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank accounts through which the amounts are routed do not have any underlying or actual business transaction. 3.2. I have examined the information which contains comprehensive details comprising, inter alia the Beneficiary's Name, amount of Entry Taken, Name of Account Holder of Entry giving Account, Bank details of the accounts from which entries are given, the dates of the entries etc. (i) Back page 35 of Annexure A-11, seized during the search operation gives comprehensive details of cheque No., Bank, Entry Providing Companies, name to one of the beneficiary i.e. M/s ANM Fincap Pvt. Ltd., jurisdiction of which lies with this ward. The scanned copies of these seized records are reproduced as under:- As per information received, the entry of assessee found in the seized documents of Jain brothers corroborates with the Banking channel and during the year the following entries have been taken by the assessee from the entry operators: Cheque Book Date From Company Name To Company/person Name Name of the Issuing Bank Cheque /RTGS/ PO No./Cheque Date Amount (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment proceedings. It was submitted that the assessee company has filed its return of income for the A.Y. 2011-12 under section 139(1) of the Act on 23.08.2011 declaring income of Rs.30,039/-. It was submitted that the assessment for A.Y. 2010-11 was completed under section 143(3)/147 of the Act on 01.12.2017 by the ITO, Ward-2(4), New Delhi. Similarly the order was passed under section 143(3) vide order dated 19.12.2016 by the ITO, Ward-2(4) for the A.Y. 2014-15. The assessment for the A.Y. 2007-08 was completed by ITO, Ward-2(4) under section 143(3)/147 of the I.T. Act, 1961 vide order dated 27.03.2015. However, for the impugned assessment year, the reassessment proceedings were initiated by the A.O. i.e., ITO, Ward-1(1), New Delhi by issuing notice dated 31.03.2018 who completed the assessment under section 143(3)/147 of the of the I.T. Act, 1961 vide order dated 13.11.2018 and he had no jurisdiction over the assessee. Accordingly, it was argued that the reassessment proceedings initiated by the A.O. not having jurisdiction over the assessee is bad in law and, therefore, it has to be quashed. 3.1. The assessee in another plank of his argument argued before the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s framed the reasons to believe without application of mind and on the basis of borrowed satisfaction. 5.3.2 Detailed submissions of the appellant on these grounds of appeal along with the facts of the case have been gone through. It was found that Sh. S. K. Jain had been working as an entry operator and has provided accommodation entries to various beneficiaries through various concerns managed by him. It has been found that he has been providing accommodation entries to various beneficiaries through various conduits controlled by him. 5.3.3 The A.O. after receipt of the letter has perused the above information along with other evidence. The AO has considered the modus operandi adopted by Sh. S. K. Jain. Thereafter the AO has framed the reasons to believe that the appellant has received accommodation entries of Rs.40 lacs from the entities operated and controlled by Sh. S. K. Jain during the year under consideration. The A.O. has mentioned in the reasons to believe that after considering details/ information available as above, he has formed the belief that the identity, creditworthiness and genuineness of transactions in respect of Rs.40 lacs has not been established and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portant. This aspect has to be examined subsequently in the re-assessment proceedings. It is noted that the A.O. has applied his mind to the information independently to arrive at the belief on the basis of material which was available with him. 5.3.5 In view of the above facts and discussion, it is held that the A.O. has validly assumed jurisdiction 148 of the Act by recording me reasons to believe in accordance with the provisions of the Act u/s 147 of the Act and, therefore, the same is hereby held to be valid. 5.3.6 Other grounds of appeal are directed against addition of Rs.49,00,055/- on account of accommodation entry and addition of Rs 98,000/- as commission expenses for the accommodation entry. I have carefully considered the assessment order passed by the AO and the submissions furnished by the Ld. AR. Reassessment proceedings were initiated, as the AO had received information from the Investigation Wing, New Delhi that the appellant was in receipt of accommodation entry Rs.40,00,000/- introduced as share application money from M/s Attractive Finlease Ltd, a company managed and controlled by Shri S. K. Jain group. The AO recorded exhaustive reasons bringing out clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his brother Shri Virednra Kumar Jain and also of Shri. Anand Kumar Jain and Shri Naresh Kumar Jain to introduce its own unaccounted funds in the form of share application money and share capital. The AO has held that the appellants was indulged in taking accommodation entries from the S.K. Jain group of companies and the credits of Rs.49,00,055/- are directly hit by section 68 of the IT Act. The onus is on the appellant to prove the genuineness of the transaction and credit worthiness of the person who has given credit to the appellant. The appellant has failed to discharge its onus. Accordingly, the amount Rs.49,00,055/- (Rs.40,00,000/- plus Rs.9,00,055/-) has been added by the AO to the income of the appellant as unexplained credits under section 68 of the Act. The AO has further added Rs. 98,000/- being 2% of the unexplained credit of Rs.49,00,055/- as commission expenses incurred by the appellant to procure the accommodation entry. 5.3.7 Shri S. K. Jain and Shri V. K. Jain whose group company has provided accommodation entry to the appellant, in appeals against their individual assessments before the Hon'ble ITAT. Delhi in ITA Nos.6991 to 6997/Del/2014 for A.y.s 2005- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail the accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts. Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as well as of Additional CIT under Section 144A, we have no hesitation to hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore, we delete the addition made under Section 68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta. 12. The Hon'ble Delhi High Court in the case of Vijay Conductors India Pvt. Ltd. in ITA No.683/2015 vide judgment dated 29.9.2015 upheld this order in the case of M/s Vijay Conductors India Pvt. Ltd. and others in the following words:- The common issue in all the appeals issues concerns the additions made under Section 58 or the Income Tax Act ( Act ) which was directed to be deleted by the ITAT. The 'TAT referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld Counsel for the Revenue, and examined the material on record. 8.1. The issue which arises for determination is whether the Respondent / Assessee had discharged the primary onus to establish the genuineness of the transaction required under Section 68 of the said Act. Section 68 of the I.T. Act (prior to the Finance Act, 2012) read as follows: 68. Cash credits- Where any sum is found credited in the book of an Assessee maintained for any previous year, and the Assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the Assessee of that previous year (emphasis supplied) The use of the words any sum found credited in the books in Section 68 of the Act indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium. 8.2. As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise if going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the case deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 9. The Judgments cited hold that the Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the present case, the Assessing Officer made an independent and detailed enquiry, including survey of the so- called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the share-holders were either non-existent, or lacked credit-worthiness. 10. On the issue of unexplained credit entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee. v. The Guwahati High Court in Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gau.) held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction. : It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-a-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself (emphasis supplied) vi. In a recent judgment the Delhi High Court CIT v. N.R. Portfolio (P.) Ltd.[2014] 42 taxmann.com 339/222 Taxman 157 (Mag.) (Delhi) held that the credit-worthiness or genuinene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson. b. The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. c. The two companies at Guwahati viz. Ispat Sheet Ltd. and Novelty Traders Ltd., were found to be non- existent at the address provided. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between ₹ 90,00,000 to ₹ 95,00,000 in the Assessment Year 2009-10, for purchase of shares at such a high premium. For example: Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income of ₹ 9,744/- for A.Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. Kolkatta filed a NIL return, but had purchased Shares worth ₹ 95,00,000 in the Assessee Company Respondent. Another example is of Ganga Builders Ltd. Kolkatta which had filed a return for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in adding back the amounts to the Assessee s income. 16. The Appeal filed by the Appellant Revenue is allowed. In the aforesaid facts and circumstances, and the law laid down above, the judgment of the High Court, the ITAT, and the CIT are hereby set-aside. The Order passed by the AO is restored. 5.3.9 The decision of Hon'ble Supreme Court of India in the case of PCIT v. NRA Iron Steel (P.) Ltd is squarely applicable to the facts of the case. In view of the facts of the case and the judicial pronouncements referred above, it is evident that the appellant has taken accommodation entry of Rs.40,00,000/- introduced as share application money from M/s Attractive Finlease Ltd, a company managed and controlled by Shri S. K. Jain group and also accommodation entry of Rs.9,00,055/- from the companies run and controlled by Sh. ANAND Kumar Jain and Sh. Naresh Kumar Jain during the financial year 2010-11, relevant to assessment year, 2011-12. Neither genuineness of transaction nor the creditworthiness of the subscribing company, the onus of which rested on the appellant has been discharged. The explanation offered regarding the amounts credited in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame before the authorities below. (Tax Effect: Rs.15,44,399/-) 5. The Ld CIT(A) has erred both in law and in facts of the case in not appreciating the contention of appellant that when the addition is not made by the AO on the issues on which jurisdiction to make reassessment was assumed, the AO was not entitled to make addition on the other issues coming across in the course of assessment. Reliance is placed on the decision of Ranbaxy Laboratories Ltd. vs. CIT 336 ITR 136(Del) (Tax Effect: Rs.15,44,399/-) 6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding the addition of Rs.40,00,000/- u/s 68 of the IT Act holding the share capital as unexplained cash credit ignoring the fact that the assessee has discharged its initial onus u/s 68 of the IT Act explaining nature and source of the credits by filing requisite documents proving identity and creditworthiness of the lenders and also to establish genuineness of the transaction during assessment proceedings. (Tax Effect: Rs.12,36,000/-) 7. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the AO, in making addition u/s 68 of the IT Act of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as share capital. However, in the reasons recorded, it showed that assessee has taken unsecured loan of Rs.40 lakhs from M/s. Attractive Axis Private Limited. Therefore, there is also a contradiction between the reasons recorded and the assessment made. Not only this, the Approving Authority i.e., PCIT in the instant case has given his approval in a mechanical manner without perusing the record which also makes such reassessment proceedings invalid because such sanction by the Approving Authority does not demonstrate due application of mind. Relying on various decisions, he submitted that on all these counts i.e., the reassessment proceedings initiated by the A.O. and upheld by the Ld. CIT(A) are invalid. 5.1. Learned Counsel for the Assessee in his another plank of arguments submitted that when the reassessment proceedings were made on account of entries taken from entry operator M/s. attractive Axis Private Limited in the shape of unsecured loan of Rs.40 lakhs, however, no addition has been made on account of any amount received from M/s. Attractive Axis Private Limited, but, addition has been made on account of M/s. Attractive Finlease Private Limited being share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. The Assessee Company filed its return of income for the assessment year 2011- 12 on 23.08.2011 declaring income of Rs.30,040/-. Thereafter, the return was processed under 143(1) of the I.T. Act. The case for the year under assessment, however was not selected for scrutiny under section 143(2) of the Income-tax Act, 1961. 7.1. However a perusal of the reasons recorded shows that the A.O. in the reasons recorded has mentioned that assessee has filed the return of income for the A.Y. 2011-12 on 23.08.2011 declaring loss of Rs.10,22,294/-. Thus, there is a factual inaccuracy in the figure of income declared in the return and the income declared in the reasons recorded. Similarly, we find the A.O. in the reasons recorded has mentioned that assessee-company has taken accommodation entries of Rs.40 lakhs from M/s. Attractive Axis Private Limited, whereas in the assessment order the name of the company is M/s. Attractive Finlease Private Limited which is evident from para-9 of the assessment order. Further as per para-6 of the reasons recorded, the A.O. has mentioned that assessee has taken accommodation entries in the form of unsecured loans from the entry providing co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SB 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 report. 13. As in the above case, even in the present case, the Court is unable to discern the link between the tangible material and the formation of the reasons to believe that income had escaped assessment. In the present case too, the information received from the Investigation Wing cannot be said to be tangible material per se without a further inquiry being undertaken by the AO. In the present case the AO deprived himself of that opportunity by proceeding on the erroneous premise that Assessee had not filed a return when in fact it had. 14. To compound matters further the in the assessment order the AO has, instead of adding a sum of Rs.78 lakh, even going by the reasons for reopening of the assessment, added a sum of Rs.1.13 crore. On what basis such an addition was made has not been explained. 15. For the aforementioned reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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