TMI Blog2013 (11) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... corded by him in the file except the last line which related to formation of belief which had not been given. The assessee had asked for reasons for re-opening of the assessment and the AO had given reasons as recorded by him without any change and, therefore, it can not be said that the AO had given the gist of reasons recorded - Thus re-opening of the assessment under section 147 of the Act was legally in order - Decided against assessee. Disallowance of expenditure - Onus of proving transaction - Held that:- The claim of rendering of services by the companies therefore can not be accepted only on the basis of an affidavit. The transaction can also not be taken as genuine only on the basis of bills or on the ground that service tax and sales tax had been paid when actual rending of the services has not been established. The AO has given a clear finding that no evidence had been produced regarding actual rendering of any services. The assessee had filed only bills which only gave the broad nature of promotional activities such as van campaign. There was no evidence produced with regard to actual carrying on of such activities. The AO had specifically asked for identification of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment in case of the assessee for assessment year 2007-08 after recording the following reasons. The return of income for AY 2007-08 was filed on 31.10.2007 declaring total income at Rs.2,18,79,871/-. The same was processed u/s.143(1) of the Income tax Act, 1961. Thereafter an information was received from the office of the DDIT (Inv.) Unit VIII(1), Mumbai on 30.06.2009 that the assessee company has taken hawala entry of at least Rs.1,15,41,044/- from M/s. Inorbit Advertising and Marketing Services P. Ltd. and M/s. Nupur Management Consultancy Pvt. Ltd. during financial year 2006-07 relevant to AY 2007-08. The above information is based on the evidence gathered during the course of search and seizure action u/s. 132 of the Income tax Act, 1961 in the case of Mr. Sandeep Sitani. Therefore, I have reason to believe that income of Rs.1,15,41,044/- has escaped assessment. 2.1 Thereafter, the assessee vide letter dated 22.11.2010 submitted before the AO on 1.12.2010, raised objections against re-opening of the assessment. The assessee submitted that the statement of Shri Sandeep Sitani /Shri Dinanath Yadav / Shri Pradeep Prajapati had not mentioned any specific instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nupur for providing bogus accommodation entries to various business concerns. The assessee had made payments to the above two companies which did not have any facilities to render any services. CIT(A), therefore, held that re-opening of the assessment which was based on material gathered during the course of search and seizure action was legally valid and dismissed the ground raised by the assessee aggrieved by which the assessee is in appeal before the Tribunal. 2.3 Before us, the ld. AR for the assessee argued that re-opening of the assessment was bad in law on various counts. It was submitted that the AO was required to convey to the assessee the reasons actually recorded by him which had not been done. The AO had only conveyed the gist of reasons recorded and, therefore, on this ground alone, the re-assessment proceedings were required to be quashed. Reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of Tata International Ltd. in ITA No.3359-3361/Mum/09. It was also argued that there was no sufficient material in the reasons recorded for formation of belief for escapement of income. The AO had re-opened the assessment simply on the basis of inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. AR further submitted that the AO had passed the assessment order on 24.12.2010 soon after disposing off the objections raised by the assessee against re-opening of the assessment vide letter dated 7.12.2010 leaving little time for the assessee for contemplating any action against the rejection order. The ld. AR referred to the judgment of Hon'ble High Court of Bombay in the case of Asian Paints (296 ITR 90) in which it has been held that the AO should wait for at least four weeks after passing rejection order against the objections raised by the assessee before passing the assessment order which had not been followed by the AO. Based on the above argument, it was urged by the ld. AR that re-opening of assessment being bad in law should be quashed. 2.5 The ld. DR appearing for the revenue on the other hand strongly defended the order of AO re-opening the assessment. It was argued that under the amended provisions, the assessment could be re-opened on the basis of any tangible material showing escapement of income. In this case, the material collected by the Investigation Wing had showed that the assessee had shown expenditure on account of bogus bills and thus had reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 147 as amended w.e.f. assessment year 1989-90, an assessment can be re-opened by AO if he has reason to believe that any income chargeable to tax has escaped assessment. It is settled legal position that for re-opening of an assessment there should be a direct nexus between material available before AO and formation of reasonable belief for escapement of income. The material available should be relevant to the formation of belief for escapement of income and it is not necessary that the material should be sufficient for making the addition in the re-assessment. The assessee in this case has challenged the re-opening of the assessment on technical grounds as well as on the merit of formation of belief. 2.8 The first technical objection is that the AO had not conveyed to the assessee the reasons as recorded by him for re-opening of the assessment. It has been submitted that only the gist of reasons had been given which does not meet the requirement of law and, therefore, the re-assessment is required to be quashed. We have carefully considered the material on record. The reasons as recorded by AO before re-opening of the assessment have been reproduced in para-2 earlier. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without waiting for four weeks and these cases had not been quashed by the Hon'ble High Court. Moreover, we also note that the assessee in this case had not raised any specific ground before CIT(A) to challenge the re-assessment order on this ground. We are, therefore, unable to accept the arguments advanced and the same are rejected. 2.10 The ld. AR for the assessee also challenged the re-opening of the assessment on the ground that the same had been re-opened without there being any failure on part of the assessee to file truly and fully all material facts necessary for the assessment. Reliance has been placed on the judgment of Hon'ble High Court of Bombay in case of Titanor Components Ltd. (supra). It has been pointed out that the reasons recorded by the AO for re-opening also did not mention any failure on part of the assessee to disclose truly and fully all material facts. We find that this argument is also devoid of any merit. In this case, the return filed by the assessee had only been processed under section 143(1) and no assessment under section 143(3) had been made. Thereafter, the AO had issued notice under section 148 re-opening the assessment which was within four y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment due to bogus claim of expenditure. It is not necessary that at the time of re-opening itself, the AO should be able to make a fool-proof case for making addition. As held by the Hon'ble High Court of Delhi in the case of Rajat Export Import India Pvt. Ltd. (supra), relied upon by the ld. Departmental Representative, the AO at the stage of recording reasons for reopening of the assessment, is not required to build a fool-proof or a fort like case for making addition to the assessee s income. The only requirement is that there should be some tangible material based on which a reasonable belief can be formed regarding escapement of income. The ld. AR also pointed out that the AO in the reasons recorded incorrectly mentioned the amount of Rs.1,15,41,044/- when the actual payment to the two parties was only Rs.63,91,122/- which shows non-application of mind by the AO and on this ground also re-assessment should be quashed. We are unable to accept the arguments advanced. Merely because there was an error in the mentioning of quantum of escapement, re-opening could not be quashed particularly when the AO applied mind to the material which was payment based on accommodation en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services rendered and the persons managing the companies had stated that they were issuing only accommodation bills without rendering any services. The case is obviously different. In case of DCIT vs. Rainee Singh (supra), the AO had re-opened the assessment on the basis of information received from Investigation Wing about bogus payments. In the reasons recorded, the AO mentioned that presumably the sum might have been received back in cash. It was, therefore, held that re-opening was based only on the basis of suspicion and, accordingly it was quashed as the assessment could not be re-opened only on the basis of suspicion. In the present case as pointed out earlier, reopening has been made on the basis of material showing that payments were based on accommodation entries without rendering any services. Similarly, in case of CIT vs. Atul Jain (supra), assessment had been re-opened on the basis of information received from Investigation Wing stating that the assessee had taken bogus entry of capital gain. No details of capital gain had been given. It was, therefore, held by Hon'ble High Court of Delhi that re-opening was based only on the basis of vague information in a mechanic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was, therefore, held that there was no proper material for re-opening of the assessment. In the present case assessment had been re-opened on the basis of statement of parties u/s. 132(4) made at the time of search which was on oath. Therefore, it has evidentiary value. The case cited is, therefore, not applicable to the present case. 2.15 In view of the foregoing discussion and for the reasons given earlier we are of the considered view that re-opening of the assessment under section 147 of the Act was legally in order and is accordingly upheld. 3. The second dispute raised by the assessee is regarding merit of disallowance of expenses on account of payments made to M/s. Inorbit and M/s. Nupur. In view of the material gathered during the course of search in case of Shri Sandeep Sitani in which Shri Sandeep Sitani had admitted that M/s. Inorbit and M/s. Nupur were merely engaged in business of providing accommodation entries, the AO asked the assessee to explain the claim of expenditure. The AO vide order sheet noting dated 1.12.2010 asked the assessee to produce copies of agreements entered with M/s. Inorbit and M/s. Nupur, documents in support of services provided by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing manner. After opening bank account in a particular bank a cheque book is for issued. This cheque book is signed by either one of my employees namely Mr. Pradeep Prajapati or Mr. Dina Nath Yadav and the entire bank cheque book is handed over to the agent. Many times few leaves from this cheque book are kept by the employee who signs the said cheque book with him. This is done to facilitate the agent under whose directions a particular cheque is filled up and deposited in a particular bank account. This is done to save time for the agent. Obviously such deposits are made in the banks which are more conveniently acceessable to my people rather than employees, assistants of the agents. Whenever any cash is required to be deposited in any bank account it is sent by the agent to my man or is deposited by the agent directly sometimes I also deposit it without receiving it from him if such amount is readily available with me. This is then received back from the agent. The chances of such amount being with me are not regular but on certain occasions I may be asked by the agent to keep certain amount with me from the amounts withdrawn in cash from certain accounts. This is normally done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Inorbit and M/s. Nupur could not have provided any services. The AO, therefore, disallowed the claim of expenditure of Rs.1,15,41,044/- on account of bills issued by M/s. Inorbit and M/s. Nupur and added to the total income as per details given below:- Date of payment TDS amount Amount paid Type of services Hawala giver party 31-Mar-07 69,003 61,49,922 Sub-contractor Inorbit Advertising marketing Services P. Ltd. 20-Feb-07 13,531 2,41,200 Professional or technical services Nupur Management Consultancy Pvt. Ltd. 31-mar-07 69,003 51,49,922 Sub Contractor Inorbit Advertising Marketing Services P. Ltd. Total 1,15,41,044 3.4 The assessee disputed the decision of AO and submitted before CIT(A) that the assessee had made payments for services rendered. The expenditure incurred was supported by invoices, levy of service tax and tax had been deducted at source from payments so made which was by account payee cheque. The AO had not placed on record any evidence other than statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineness of the transactions had been reaffirmed. These confirmations and affidavits were placed at pages 169-179 of the paper book. It was also submitted that the AO had made the additions without any examination or any further material to support the finding that the transactions were not genuine. The AO had acted only on the basis of DDIT(Inv.) and statements of third parties in respect of which the assessee had not been allowed opportunity for cross examination for which a specific request had been made by the assessee to AO vide letter dated 14.12.2010 a copy of which was placed at page-63 of the paper book. Therefore, such statements could not be used against the assessee. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (125 ITR 713) and the judgment of Hon'ble High Court of Calcutta in the case of CIT vs. Eastern Commercial Enterprises (210 ITR 103). The ld. AR argued that in the statements of third parties stating that the bills issued were bogus, name of the assessee was not mentioned and, therefore, the transactions in case of assessee which were supported by bills and confirmations could not be treated as non-genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of search had evidentiary value based on which action taken by the department was justified. The ld. DR placed reliance on the judgment of Hon'ble High Court of Allahabad in the case of Dr. S.C. Gupta vs. CIT (248 ITR 782) and on the judgment of Hon'ble High Court of Kerala in the case of V. Kunhambu and Sons (219 ITR 235). It was, therefore, pleaded that the order of CIT(A) confirming the disallowance be upheld. 3.9 We have perused the records and considered the rival contentions carefully. The dispute raised is regarding disallowance of expenses claimed to have been incurred by the assessee on account of payments made to M/s. Inorbit and M/s. Nupur. The assessee has claimed to have made payments to the above concerns for services rendered. A search had been conducted in the case of Shri Sandeep Sitani during the course of which Shri Sandeep Sitani admitted that he had floated several companies which included M/s. Inorbit and M/s. Nupur for doing hawala business and these companies were issuing only accommodation bills without rendering any services. Shri Dina Nath Yadav who was director of these companies also made the statement that all these companies were issuing bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made if not confronted to the assessee can not be taken into account by the Hon'ble High Court and Hon'ble Supreme Court as at that stage only the question of law is required to be answered on the basis of existing evidence. But the same will not apply to the Tribunal where the matter is still at fact finding stage and therefore for arriving at finding of fact, the Tribunal if it considered necessary can direct authorities below to confront material or to allow opportunity of cross examination if not allowed earlier and take fresh decision. However, in the present case, we do not find it necessary because it is not a case where disallowance of expenses were made only on the basis of statements of third parties. The AO had not made the additions only on the basis of statements of the parties. During the course of assessment proceedings, the AO had specifically asked the assessee to produce copy of agreements with M/s. Inorbit and M/s. Nupur, documents in support of services provided by above concerns, identification of personnel involved in rendering of services and confirmations from parties. It is a settled legal position that the burden is on the assessee to establish that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at at page 64 of the paper book the assessee has given names of 84 employees as van staff and others but not to speak of identification, even the addresses of these employees have not been given. The ld. AR has submitted that the assessee had co-related the details with the promotional activities and had also provided photographs of such activities. But only these details are not enough. The burden is on the assessee to prove the actual rendering of the services for which payments have been made which has not been discharged by producing any relevant material. The photographs do not establish as to who had actually conducted activities and, therefore photographs can not be considered as reliable and proper evidence. Full details of employees had not been given. 3.12 We also note that based on the material found at the time of search both the AO and CIT(A) have given a categorical finding that the address at which M/s. Inorbit and M/s. Nupur were said to be located admeasured only about 100 sq.ft. in a residential area on which 19 other companies were also claimed to be operating. Further, on that address, the MD of the company i.e. Pradeep Prajapati was found to be residing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the assessee had given full details in which no error had been pointed out by the AO and accordingly claim was allowed. In case of Balaji Textile Industries Pvt. Ltd. (supra), the issue was different. In that case, the AO had treated purchases as nongenuine. The Tribunal noted that sales had been made which could not be without purchases and accordingly claim had been allowed. The case is obviously different. The judgment of Hon'ble High Court of Chattisgarh in the case of Vijay Kumar Kesar (supra), and the decision of the Tribunal in the case of Dr. R.L. Narang (supra), relied upon by the ld. AR are also not applicable to the facts of the present case. In these cases, it had been held that addition could not be made only on the basis of statements which could not be considered as conclusive and it was open to the assessee to establish by cogent material that the statements were not true and transactions were genuine. In this case, as pointed out earlier the additions had not been made only on the basis of statements. The additions have been made on the ground that the assessee could not establish with proper evidence that payments had been made for any services rendered. In fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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