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TMI Blog2023 (10) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... d material of Shirish C Shah. The reconciliation statement as it is does not establish the fact that the source for the capital contribution is from material seized without further enquiry or verification of details. Therefore we are inclined to agree with the finding of the PCIT that there is lack of enquiry on the part of the AO as far as one leg of the transaction is concerned where assessee is claimed to be the conduit. It is the duty of the AO to ascertain the truth of the facts stated / submitted by the assessee especially when the circumstances of the case are such as to provoke an inquiry and the word erroneous in section 263 includes the failure to make such an inquiry. The decisions relied on by the AR cannot be directly applied to assessee's case since the findings are based on facts specific to each case. PCIT while invoking the explanation has given a clear finding with regard to the lack of enquiry on the part of the AO and has accordingly held the order to erroneous and prejudicial to the interest of the revenue. We therefore see no infirmity in the action of the PCIT. We hold that the PCIT was justified in assuming the jurisdiction by invoking explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the entire share capital subscribed for Rs. 13,26,25,000/- as unexplained cash credit. Without prejudice, the Assessing Officer held that even otherwise, the share premium which is not substantiated by the assessee should be brought to tax under section 56(1) of the Act. 4. Aggrieved, the assessee filed appeal before the CIT(A). Before the CIT(A), the assessee submitted that assessee is merely a conduit in the hands of entry provider Shrirish C Shah and that its accounts along with another 212 companies are used by Shirish C Shah for providing accommodation entries. The assessee also submitted that the amount received towards share premium is subsequently transferred to M/s Empower India Limited which again is controlled by Shirish C Shah and therefore, the assessee is only a conduit company. Accordingly, the assessee prayed that no addition could be made in the hands of assessee. The CIT(A) did not accept the submissions of the assessee and upheld the addition on the ground that the assessee has not discharged the onus of providing proper explanation and substantiation of the claim made. 5. The assessee preferred further appeal before the Tribunal. The assessee prayed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey and routed through you to the beneficiaries, please provide the name of the ultimate beneficiaries. c) Without prejudice, if your contention is that you have been used as a conduit, please explain as to why a commission of 1% of the entry provided by you should not be added to the total income. 7. In response, the assessee filed the details by submitting that (i) The assessee is being used for routing of funds to M/s Empower India Ltd by Mr. Shirish Shah; (ii) Out of the share capital received Rs. 6,45,03,125/- is advanced as loan to M/s Empower India Ltd at the instruction of Shirish Shah; (iii) The assessee and M/s Empower India Ltd operated out o the same premises and have same directors. (iv) Copies of letters issued by DDIT(Inv) Unit IV(4), Mumbai to various banks to prohibit transactions in a particular group of companies; (v) The CIT(A)-48, Mumbai, in the case of M/s Empower India Ltd has given a finding that the share capital premium are part of layering process of entries through bank account of different companies; (vi) The CIT in M/s Empower India Ltd has held that the amount received as part of accommodation entries cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shirish C Shah. Also, it is widely known that in this stated practice of providing accommodation entries, the commission ranges between 1% to 2% and since several stakeholders/layerings are involved, I therefore, estimate the commission income at Rs. 13,26,255/-, being 1% of the money routed through the assessee company s account and add the same to the assessee s total income. Penalty proceedings under section 271(1)(c) r.w. Explanation 1 thereto of the Income tax Act, 1961 are hereby initiated on this issue of concealing the particulars of the income. 9. Subsequently the PCIT has observed that the Assessing Officer has computed the assessment without proper verification of facts without correct appreciation of law and accordingly invoked the revisionary provisions by issuing a show cause notice under section 263. The assessee submitted before the PCIT that the assessee has furnished all the relevant details before the Assessing Officer to substantiate that the assessee was only a conduit company and that the Assessing Officer has after considering the submissions has applied his mind while deciding to tax 1% towards commission on the accommodation entries. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure on the part of the enquiries is erroneous and prejudicial to the interests of Revenue. 8. Without prejudice to the above, it is observed that in the Assessment Order, the Assessing Officer has taxed the receipts in the hands of the assessee at the rate of 1%. The Assessing Officer in his order dated 24-10-3019, has stated that generally the commission ranges between 1% to 2% for pass-through entities as his rationale for estimating the Total Income of the assessee. However, the Assessing Officer should have conducted enquiry to verify the commission income received by the assessee instead of estimating the same without any enquiry. The failure on the part of the Assessing Officer to carry out the necessary enquiries is erroneous and prejudicial to the interests of Revenue. 9. As per the amended law, Explanation 2 clause (a) below section 263(1) of the Act, any assessment made without conducting requisite enquiry and verification by the AO is erroneous in so far as it is prejudicial to the interests of Revenue. Even under pre-amended law, the Honourable Supreme Court in the case of Smt. Tara Devi Agarwal [88 ITR 0323] and also Rampyari Devi Saraogi [67 ITR 0084] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. We heard the parties and perused the material on record. In the remand proceedings, the Assessing Officer called on the assessee to furnish relevant details to prove that the assessee is being used as a conduit and the real beneficiary of the income from the transaction is Shri Shirish C Shah and also the name of the ultimate beneficiary. The Assessing Officer based on the details submitted, accepted the contention of the assessee that it is a conduit for layering of funds and accordingly added 1% of impugned accommodation entry as income of the assessee. From the perusal of the details submitted by the assessee it is noticed that the assessee has submitted a reconciliation linking the amount received as share capital to an excel sheet (of party .xls) seized during the search of Shri Shirish C Shah. The extract of the reconciliation is given below:- Dat Bank Amount received File Sheet Row 27/11/2010 ING Vysya Bank 561011013909 50,00,000 otparty.xls Satish Saraf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same reconciles to the excel sheet seized. It is relevant here to mention that the Assessing Officer in the original proceedings under section 143(3) had issued notices under section 133(6) to check the source of the capital contribution and had received a reply from the parties that they had not made any capital contribution [para 4.3.1, page 2 of AO s order under section 143(3)]. Given this, in our considered view, the Assessing Officer in the remanded proceedings ought to have looked into further details based on the reconciliation to verify how each line in the bank statement relates to the seized material of Shirish C Shah. The reconciliation statement as it is does not establish the fact that the source for the capital contribution is from material seized without further enquiry or verification of details. Therefore we are inclined to agree with the finding of the PCIT that there is lack of enquiry on the part of the Assessing Officer as far as one leg of the transaction is concerned where assessee is claimed to be the conduit. 15. Now coming to the other leg of the transaction i.e. the share capital received transferred to M/s Empower India Ltd from where it is transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 17. The phrase should have been done as provided in the newly inserted Explanation means the verification/ enquiry which ought to have been done. In other words, as per clause (a) to Explanation to section 263, the order passed without making enquiries or verification which should have been made is erroneous insofar as it is prejudicial to the interests of the revenue. It may be said that the Income Tax Act nowhere provides the exact modalities to be followed to verify a specific claim made by the assessee and it is the prerogative of the Assessing Officer to decide the extent of verification. However, it is necessary for the Assessing Officer to record the extent of verification carried out by him and to record that he has taken a considered view on the matter by proper application of mind while allowing the claim of the assessee in the matter. The ld AR argued that it is not necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry before concluding that the assessee is only a conduit entity, we are of the view that the Assessing Officer has not followed the directions of the Tribunal correctly. From the perusal of records, it is noticed that the Assessing Officer has issued only one notice under section 142(1) calling for details and based on the details submitted (which is elaborately discussed herein above) concluded the assessment accepting that the assessee is only a conduit without calling for any other documents or evidences. The Assessing Officer has not carried out any enquiry with regard to in whose hands the income is to be assessed and no finding recorded as per the directions of the Tribunal to hold in whose hands the income is to be assessed. The Assessing Officer has recorded that the estimated commission is already taxed as income in the hands of Shirish Shah based on the submissions of the assessee whereas the direction was to decide in whose hands the entire income is to be assessed not just commission. Even in the decision relied on by the Tribunal i.e. M/s. Nishottam Traders Pvt Ltd (supra) while remitting the case, the issue was sent back to the Assessing Officer to decide in whose ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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