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2016 (7) TMI 1182 - ITAT DELHI

2016 (7) TMI 1182 - ITAT DELHI - TMI - Reopening of assessment - undisclosed cash credit - Held that:- The information available with Assessing Officer was sufficient to form a primary belief that income had escaped assessment and, therefore, we donít find any infirmity in the finding of the learned Commissioner of Income-tax (Appeals) in dismissing the ground challenging the jurisdiction in reopening the assessment. - From the finding of the learned Commissioner of Income-tax(Appeals), it .....

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that the assessee has initially provided details in respect of the share applicants to the Assessing Officer, however, when the summons sent to the share applicants written unserved with the postal remarks that no such firms/companies existed on that address and the Assessing Officer asked to produce those parties before him, it was the onus of the assessee to either produce those parties before him or provide their new addresses as in the case of private limited companies, the shares are allott .....

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sued at higher premium were subsequently bought back by the directors of the assessee company at very low value. In view of all the evidences, the learned Commissioner of Income-tax (Appeals) also upheld the finding of the Assessing Officer. Thus the assessee has failed to discharge its onus in respect of the credit received in the form of share capital by the assessee of ₹ 11 lakh from the parties and, therefore, there is no infirmity in the findings of ld. Commissioner of Income- tax (Ap .....

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yment, thus, we uphold the unexplained commission expenses paid by the assessee. However, the Assessing Officer has not given any justification for the rate of 2% on the amount of accommodation entry. We therefore in the interest of Justice restore the matter back to the file of the Assessing Officer to apply the rate of commission on the basis of any comparable case. Accordingly, this ground of appeal is allowed partly for statistical purposes. - ITA No. 6161/Del/2014 - Dated:- 10-6-2016 - Sh. .....

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8.12.2010 passed by Ld. Income Tax Officer, ward 6(1), New Delhi ( Assessing Officer ) under section 147 read with section 143(3) of the Income Tax Act, 1961 ( Act ) is erroneous and bad in law. 2. That in law and under the facts of the case, the Ld. Commissioner of Income Tax (Appeals) - X ( Commissioner ) erred by not appreciating the fact that jurisdiction assumed by the Ld.AO to open the assessment under section 147 of the Act itself was not warranted by the law as the reasons of reopening w .....

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erred in upholding the addition of ₹ 11,00,000/- as unexplained credit in the bank accounts despite of the fact that appellant had discharged its initial onus as required under section 68 of the Act during the assessment proceedings itself. 5. That in law and under the facts of the case Ld. Commissioner has erred in upholding the addition of ₹ 22,000/- on account of notional commission charge at the rate of 2%, when the addition under section 68 of the Act was not warranted itself. .....

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ax Act, 1961 (for short the Act ). Thereafter, on receipt of information from Investigation Wing of the Income Tax Department that the assessee was beneficiary of an accommodation entry racket being run by some persons, initiated the re-assessment proceedings and issued notice under Section 148 of the Act on 19th March, 2010, after recording reasons as required under the provisions of the Act. Subsequently, notice under Section 142(1) of the Act was issued and information in respect of share cap .....

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t. Ltd. 5,00,000/- 100 100/- 400/- 3. M/s. DKC India Pvt. Ltd. 4,00,000/- 800 100/- 400/- 3. The assessee filed photocopy of the confirmation of those parties, copy of share application form and part of bank statements of the particular date on which the transaction was made. Further, in view of the information and the detailed documents gathered by the Investigation Wing of the Income Tax Department that the money was routed by the assessee through the entry operators in the garb of share capit .....

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l Officer of the said entities along with books of account for verification of the share capital applied by them, however, the assessee failed to produce those parties. The Assessing Officer also observed that the shares were subsequently transferred in the name of Directors of the assessee company, i.e.,Sh. Sukhdeo Singh and Mrs. Manjit Kaur as early as on 25th November, 2004. The Assessing Officer also recorded the statement of Sh. Sukhdeo Singh who claimed to be the Managing Director and look .....

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itted by the assessee. The findings of the Assessing Officer in respect of bank accounts of the share applicant entity are reproduced as under: 1. Immediately before the withdrawal of funds in favour of the assessee company i.e. on 13.05.2002, there is cash deposit of equivalent amount in the accounts of M/s. Shree Gupteshwar Marketing Pvt. Ltd. 2. Immediately before the withdrawal of funds in favour of the assessee company, an amount of ₹ 5,00,000/- is found to be credited (by clearing) i .....

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ransfer and debit of equivalent amounts, leaving very little balance {just above the amount of minimum deposit required) 5. In the case of M/s Shree Gupteshwar Marketing Pvt Ltd, there is evidence of manipulation on the part of the said entity with or without the collusion of the assessee. While the original statement called for from the bank, shows deposit of cash of ₹ 2,00,000/- on 13.05.2002 ( immediately before withdrawal of the amount of ₹ 2,00,000/- in favour of the assessee vi .....

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16003.40 As against this, the relevant portion of the original bank statement (obtained from the bank) is as under: Date Ref No. Debits Credits Balance Narration 08-05-02 S 003065 3.00,000/- 3,05,005/- By cash 08-05-02 S 003067 - 2,00,000/- 5,05,005/- By cash 08-05-02 961559 5,00,000/- 5,005/- To CLG 13-05-02 S 003027 2,00,000 2,05,005/- By cash 13-05-02 961559 2,00,000/- 5,005/- To CLG 4. The Assessing Officer also distinguished the judgment of M/s. Lovely Export Pvt. Ltd. (2008) 216 CTR 195 (S .....

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ure from the assessee while the money remained at the letter's disposal. iii) Repeated opportunities were given to the assessee to produce such persons or to furnish material evidence of their identity or even actual existence on the ground. The assesses has furnished only photocopies of confirmations which cannot be taken cognizance of for the simple reasons that these are only copies and they are und-dated iv) Despite repeated opportunities, the persons have neither appeared nor could be p .....

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from the bank. vii) The nature of transactions in the bank statements further shows that they cannot be said to represent any actual business transactions. Immediately before withdrawals/debits of funds, there is invariably deposit of equivalent amount. The debits/credits are in round figures and at the end of each transaction cycle; the amount left in the account is very small. Such transaction pattern is not witnessed in the normal bank accounts. 5. The Assessing Officer also made addition of .....

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of Income Tax(Appeals) decided the issue in favour of the Revenue dismissing the legal grounds as well as merit of the addition. Aggrieved with the findings of the learned Commissioner of Income Tax(Appeals), the assessee is in appeal before the Tribunal. 6. In grounds no. 1 & 2, the assessee has challenged the jurisdiction assumed by the Assessing Officer to reopen the assessment proceedings under Section 147 of the Act. 6.1 The learned Authorized Representative of the assessee addressing .....

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nt of the Hon ble High Court of Delhi in the case of M/s. Sarthak Securities Company Pvt. Ltd. Vs. Income Tax Officer, reported in 329 ITR 110; CIT Vs. Indo Arab Air Services, [2016] 283 CTR 92 (Delhi) and the order of Tribunal in the case of Varun Tibrewal Vs. ITO, in ITA No. 2301 & 2302/Del/2012 (dated 31st October, 2013). 6.2 On the other hand, learned Sr. Departmental Representative, referring to the reasons recorded, submitted that the Investigation Wing of the Department had conducted .....

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f the statement a prima facie reason to believe was required and as the information was from a credible source, the Assessing Officer recorded the reasons and reopened the assessment. She further submitted that in this case only the processing was done and no other information in respect of introduction of the share capital was available on the record, the Assessing Officer was justified in reopening the reassessment. 6.3 Learned Authorized Representative of the assessee has relied on the judgme .....

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e aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income, but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the .....

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Exports (P.) Ltd.'scase (supra) gets squarely attracted. The same has not been referred to while passing the order of rejection. The assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee- company through banking channel. The identity of the companies was not disputed. Under these circumstances, it would not be appropriate to require the assessee to go through the entire gamut of proceedings. It is totally unwarranted. 6.4 T .....

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dation entry from M/s. Gupteshwar Marketing Private Limited. The information contained all the details of amount received, instrument number, bank branch and account number through which it was received. In the case of the assessee, the return of income was only processed under section 143(1) of the Act and as such no detail of share applicants/share holders of the assessee company was available in the return of income and the information was received from credible source, the Assessing Officer .....

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object to the reasons recorded and, therefore, there was no order rejecting the objection of the assessee. Thus, the facts and circumstances of the case in hand are different from the case cited by the assessee above. 6.5 The learned AR also relied on the judgment of the Hon ble Delhi High Court in the case of CIT (Central)-1 Vs. Indo Arab Air Services (2016) 283 CTR 92 Delhi. In this case, the assessee was a general sales agent for Saudi Arabia Airlines and return of income filed was processed .....

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2013) 354 ITR 536, held as under: 20.Keeping the above legal position in view when the cases on hand are examined, it is seen that as far as Indo Arab is concerned while the AO set out the information received from the ED, he failed to examine if that information provided the vital link to form the 'reason to believe' that income of the Assessee had escaped assessment for the AY in question. While the AO has referred to the fact that the ED gave information regarding cash deposits being .....

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ot; Further the AO refers to the ED's information that Mr. Chetan Gupta, partner of the Assessee, failed to explain the sources of the cash deposits as shown in the books of account. However, that by itself could not have led the AO to even prima facie conclude that income of the Assessee had escaped assessment. The explanation or the lack of it of the entries in the books of account may have certain relevance as far as ED is concerned but that by itself does not provide the vital link for c .....

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tangible material which provides the nexus or the link to having reason to believe that income has escaped assessment. 21. It is in this context that the Court finds that the decision in Mitsui & Co. India (P.) Ltd. v. ITO [2012] 26 taxmann.com 1/[2013] 213 Taxman 32 (Delhi), on which considerable reliance was placed by Mr. Kamal Sawhney, is distinguishable on facts. The nature of the information provided by the governmental agency in that case did not itself refer to any amounts or entries .....

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aped assessment. However, no effort appears to have been made by the AO to examine the returns filed by the Assessee in either of these cases. 6.6 Thus the Hon ble Court proceeded on the basis that there had to be some tangible material on the basis of which the A.O. could form a prima facie reason to believe that income had escaped assessment. However, in recent decision dated 18th of May 2016 in the case of Indu Lata Ragwala, in Writ Petition (C) No. 1393/2002, the Hon ble Delhi High Court in .....

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ned by the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and reiterated by it in Zuari Estate Development and Investment Co. Ltd. (supra) and intimation under Section 143(1)(a) cannot be treated to be an order of assessment. There being no assessment under Section 143(1)(a), the question of change of opinion does not arise. 35.6 Whereas in a case where the initial assessment order is under Section 143(3), and it is sought to be reopened within four years from the expiry of the re .....

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ire any fresh tangible material. 35.7 In other words, where reopening is sought of an assessment in a situation where the initial return is processed under Section 143(1) of the Act, the Assessing Officer can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is no necessary in such a case for the Assessing Officer to come across some fresh tangible material to form reasons to believe that income has escaped as .....

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ment order. Thus in the case in hand some material or evidence was available with the Assessing Officer while reopening the assessment. 6.9 In view of the above background, we hold that the information available with Assessing Officer was sufficient to form a primary belief that income had escaped assessment and, therefore, we don t find any infirmity in the finding of the learned Commissioner of Income-tax (Appeals) in dismissing the ground challenging the jurisdiction in reopening the assessme .....

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ite providing number of opportunities by the learned Commissioner of Income-tax (Appeals), the assessee did not avail any of the opportunity. 7.3 We have heard the rival submissions and perused the material on record including the impugned order wherein the learned Commissioner of Income-tax (Appeals) has given details of reasons to decide the appeal in absence of any reply from the assessee. The relevant para of the impugned order is as under: 2. Several notices u/s 250 of the Act were issued t .....

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07-2013 on appellant's request. Notice dt. 26-07-2013 was issued fixing the appeal for 01-08-2013. On request from A.R. of the appellant, appeal was again fixed for 19-08-2013, 10-09-2013, 07-10-2013, 04-12- 2013, 10-02-2014, 03-03-2014, 10-03-2014, 09-04-2014, 10-07-2014, 28-07-2014 and 13-08-2014. On 13-08-2014, again an adjournment alter was submitted by Id. A.R. requesting for further adjournment and submitting therein that "the captioned proceedings for the AY 2003-04 in respect of .....

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eafter on one pretext or other, the adjournments are sought by them. After being engaged in the case since more than 15 months, taking such a ground that previous records are not available with them is nothing but an excuse for seeking adjournment. In such circumstances it was made known to the appellant that no further adjournment shall be granted to the appellant. However, if written submissions are received by 19-08-2014, the same shall be entertained or else the appeal shall be decided on me .....

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ommissioner of Income-tax(Appeals). In view of non-submission, the learned Commissioner of Income-tax(Appeals) decided the issues on merit and we don t find any infirmity in the findings of the learned Commissioner of Income-tax(Appeals) on the issue in dispute, accordingly, the ground of the appeal is dismissed. 8. In ground no. 4, the assessee has challenged the addition of ₹ 11 lakh as unexplained credit held under section 68 of the Act. 8.1 Before us the learned Authorized Representati .....

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of the Act were written unserved with the postal remarks that no such firms/companies existed on those addresses and the assessee also failed to either produce or provide their current addresses. Further, referring to the page no. 18 of the assessee s paper book, the Sr. DR submitted that creditworthiness of Shree Gupteshwar Marketing Private Limited was doubtful as it has shown a loss of ₹ 3,563/- in the return of income filed. Further, he referred to page no. 27 of the assessee s paper b .....

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ted the onus of proof and it was the duty of the assessee to discharge the onus which was shifted upon it by the Assessing Officer and as the assessee miserably failed in discharging its onus, the addition was rightly made by the Assessing Officer under section 68 of the Act. 8.3 We have heard the rival submission and perused the material on record including the orders of the lower authorities. We find that the assessee has initially provided details in respect of the share applicants to the Ass .....

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e bank account of the share applicant just before issue of cheques to the assessee. The Assessing Officer gathered copy of bank statements of the share applicants directly from the banks through notice under section 133(6) of the Act and pointed out discrepancy in the copy of the bank statement of one of the share applicant supplied by the assessee. The Assessing Officer also observed that the shares issued at higher premium were subsequently bought back by the directors of the assessee company .....

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ppeal was fixed on 27-02-2013 vide notice u/s 250 of the Act dt. 31-01-2013. Thereafter, the appellant through its Authorized Representative only sought adjournments and did not mention a single word regarding the merits of the case. Despite the fact that the appellant was made well known that no more adjournments shall be given by the undersigned and he was free to give written submissions by 19-08-2014. The appellant opted not to submit any written submissions for the reasons best known to it. .....

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ly on paper. Not only that the A.O. examined the director of the appellant company and confronted the director with the whereabouts of the entities from accommodation entries were received by the appellant company, observed that the director of the appellant company miserably failed to explain satisfactorily the transactions and he was completely unable to furnish any evidence in support of the identities of the parties, the genuineness of the transactions and the creditworthiness of the parties .....

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ssing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. I .....

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bers were functioning or available at the addresses, but it would be incorrect to state that the assessing officer should get the addresses from Registrar of Companies website or search for the addresses of shareholders and communicate with them. Similarly, creditworthiness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a gen .....

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assessee as the facts are within the assessee s knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income rax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they .....

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r in tracing that the shares allotted to these three entities were ultimately bought back by the directors of the appellant company namely Sh. Sukhdev Singh and Mrs. Manjit Kaur. It clearly shows the full circle of rotation of money which establishes the modus operandi unearthed by the Investigation Wing of the Department. The A.O.'s action of making addition of ₹ 11,00,000/- in appellant's income u/s 68 Of the Act is, therefore, fully justified and the same is hereby upheld. As a .....

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,000/- made by the A.O. in appellant's income treating the same as unexplained expenditure made by the appellant in arranging the accommodation entry is justified and upheld. In view of the above both additions of ₹ 11,00,000/- and ₹ 22,000/- are upheld. Ground he.2 of appeal is dismissed. 8.4 In the background of the above discussion, we are of the opinion that the assessee has failed to discharge its onus in respect of the credit received in the form of share capital by the ass .....

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