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TMI Blog2017 (12) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in Law, the Ld.CITA) has erred in not considering the several case laws wherein the higher courts have held that mere payment by cheque does not prove the genuineness of the transaction." 3 "On the facts and circumstances of the case and in Law, the Ld.CIT(A) erred in deleting interest of Rs. 90,617/- ignoring the fact that the loans being non genuine were added u/s.68 of the Act, accordingly, the interest also needs to be added back to the total income". 4 "On the facts and circumstances of the case and in Law, the Ld.CIT(A) erred in deleting the notional commission of Rs. 67,500/- computed by the Assessing Officer ignoring the fact that the same needs to be paid for obtaining the accommodation entries." 3. The grounds of appeal raised in the cross objection read as under: 1. The learned CIT(A) erred in dismissing the Ground of appeal regarding reopening of the assessment u/s. 147 by issue of notice u/s. 148 without any valid reason. 2. The learned A.O. passed an order u/s. 147 r.w.s. 143(3) which is illegal and bad in law. 4. Brief facts of the case are as under: The assessee company is a Public Limited Company and is engaged in the business of agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature like bogus unsecured loans, bogus share application money and bogus sales (purchases for the beneficiaries) etc. Based on the findings of the search action and the statements of various persons covered under the search action, a report was forwarded by the DDIT(lnv.), which inter alia included a list of the entities controlled by Shri Praveen Kumar Jain and involved in providing bogus entries for loans, share application money and purchases, various statements stating the modus operand], list of beneficiaries who were involved in such transactions etc. * It is seen from the information so received that the present assessee's name appears in the list of beneficiaries who have taken accommodation entries. Further, the details furnished by the assessee also revealed that the assessee has taken unsecured loan of Rs. 45,00,000/- from M/s. Kush Hindustan Entertainment Ltd. & Olive industries Private Limited, which is one of the entities controlled by Shri Praveen Kumar Jain and is involved in providing accommodation entries. * During the search at various premises, which were shown by the assessee group, to be the place of operation and registered office addresses as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of M/s. Kush Hindustan Entertainment Ltd & Olive Overseas Private Limited, whose very existence could not be established by the assessee company nor the source of these funds. Therefore, the purported unsecured loan of Rs. 45.00.000/- is hereby treated as a 'cash credit' in the books of the assessee company, whose nature and source is not explained and, therefore, deemed to be the assessee's income as envisaged in Section 68 of the Income Tax Act, 1961 and accordingly the same is added to income of the assessee company under the head "Income from other sources" and the same is hereby held to be not eligible for any deduction there against. Penalty proceedings u/s.271(1)(c) of the Act are hereby initiated for furnishing inaccurate particulars of income / concealment of income, separately. 8. Further, the Assessing Officer disallowed the interest expenditure and commission expenses in this regard by observing as under: Having held in the preceding paragraphs as to bogus / sham transaction of unsecured loans amounting to Rs. 45,00,000/- claimed to have been obtained from M/s. Kush Hindustan Entertainment Ltd & Olive Overseas Private Limited [formerly known as Realgold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment that a search and survey action was carried out in the case of Shri Praveen kumar Jain and his group on 01.10.13. The Search action resulted into collection of evidence and other findings which conclusively proved that the Pravin Jain through a web of concerns run and operated by him, is engaged in providing accommodation entries of various nature like bogus unsecured loans, bogus share application and bogus sales(purchases for beneficiaries) etc. Even during the post search enquiries, several beneficiaries have confirmed the fact that they have taken accommodation entries through concerns run by Shri Praveen Jain. Also, enquires made in this regard have revealed that the statement of Shri Praveen Kumar Jain recorded on 01.10.13 u/s 132(4) of the IT Act, 1961 is not the only statement wheie he has divulged the details of the true nature of providing accommodation entries. Rather, at least three more statement u/s 131 of the IT Act, 1961 have been recorded by different officers, on different dates and different cases, where they have admitted that he through the various concerns run and operated by him is indulged in providing accommodation entries. From all these facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the word "reason", in the "reason to believe" will mean cause or justification. If the AO has cause or justification to know or suppose that income-had escaped assessment, it can be said to have "reason to believe" that the income had escaped assessment, It is further observed by the Honorable Court that the word 'expression1 cannot be read to mean that the AO should have finally ascertained the facts by legal evidence or conclusion. At this stage, what is required is reason to believe, but not the established facts of escapement of income. At the stage of issuance of notice, the only question is where there was a relevant material on which a reasonable person could have formed a requisite belief that income had escaped assessment. In the present case, it is evident from the reasons recorded that the AO received a specific and credible information from Investigation Wing, Mumbai and according to the information, the appellant has taken accommodation entries from the Pravin Jain and Group. Based on this precise information, the AO issued notice u/s.148 of the IT. Act, as he had prima facie reasons to believe that income chargeable to tax had escaped assessment within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o received prove that an approval has been obtained from the CIT for reopening of the assessment u/s 151(2) of the Act. Hence this contention of the assessee is not acceptable. The AO has very elaborately recorded the reasons before issue of notice u/s 148 and clearly narrated the facts and material on which the belief that income has escaped assessment is based. The belief is based on the relevant material and reasons were formed. Accordingly at the stage of issue of notice only question is whether the material prima facie shows escapement. Whether the material would conclusively prove the escapement is not the concern at the stage of issuance of the notice. I therefore hold that the AO was justified in reopening of the assessment u/s 147 of the Act. Therefore this ground of appeal is dismissed. 11. As regards the merits of the case, the ld. Commissioner of Income Tax (Appeals) deleted the addition by observing as under: The assessee had taken loan of Rs. 45,00,000 in AY 2008-09 from the following two parties - Kush Hindustan Entertainment Ltd. Rs. 30,00,000 and Real Gold Trading Company Pvt Ltd (now known as Olive Overseas Pvt. Ltd) Rs. 15,00,000. The asseseee company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiries with the lender companies to establish the genuineness of the transaction. It is settled law that when there are two contradictory statement of a person, the retracting statement is to be accepted unless it is provided otherwise by bringing in corroborative evidences. The assessee has also contended that an opportunity of cross examination was not granted to the assessee. In case of CIT v. Ashish International, High Court of Bombay (ITA NO. 4299 of 2009), the Jurisdictional the Hon'ble Bombay High Court has held that the Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the statement of the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. and admittedly the assessee was not given any opportunity to cross examine the concerned Director whose statement was relied upon by the Director. In case of Heirs And LRs of Late Laxmanbhai S. Pate! v. CIT 22 CTR 0138 (Guj) the legal effect of the statement recorded behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross-examination, if the addition is made, the same is required to be deleted on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded from Shri Pravin Kumar Jain or the other evidence collected by the DGIT (Inv) Mumbai were given to the assessee or any opportunity of cross examination was granted. In CIT vs Lovely Exports (P) Ltd. [ITA No. 953/2006], Delhi ITAT held that when the AO has failed to react to the shifting of the burden to investigate into the creditworthiness of the share applicants, the addition cannot be sustained. In CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC), the Hon'ble Supreme Court held that once the primary onus of establishing the genuineness of the transaction is done by the assessee by furnishing the details like name, address, PAN. confirmation, copy of tax return, etc, it was the duty of the AO to verify the genuineness of these transactions by strictly enforcing the provisions of section 131 of the Act if at all those creditors were required to be produced before him. The entire transaction has been through the banking channels only and therefore, the AO should have verified the transaction with relevant banks and should have made further inquiries in this regard, which he failed to do so. The AO has not established the case or bought any material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, credit worthiness and genuineness of the transaction. The addition is made merely on surmises end conjectures. In view of the above discussion, The Tribunal held that the addition made under section 68 of the Act is in bad in law. Recently the Hon'ble Bombay High Court in the case of Gagandeep Infrastructure (P) Ltd (2017) 80 taxmann.com272 (Bombay)- The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1.4.2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-4-2013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to section 68 is immaterial and does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, the same was not properly responded by the Assessing Officer. He submitted that the sanction/satisfaction of higher authority was reached on 30.3.2015 only after remand report was called from the Assessing Officer during appellate proceedings before the ld. Commissioner of Income Tax (Appeals). The ld. Counsel of the assessee further submitted that all the necessary documentary evidences were furnished by the assessee. The ld. Counsel of the assessee referred to the several case laws including one from ITAT Hyderabad Bench in the case of M/s. Komal Agrotech Pvt. Ltd. vs. ITO (in ITA No. 437/Hyd/2016 dated 25.11.2016), wherein case of loan from the same lender companies as in the present assessee's case and in which the same search and statements were involved, the ITAT Hyderabad Bench has decided the issue in favour of the assessee both with regard to the reopening as well as merits of the addition. The ld. Counsel of the assessee referred to the decision of ITAT Mumbai Bench in the case of Shri Hiranchand Kanuga vs. DCIT (in ITA Nos.4261 & 4262/Mum/2012 dated 27.02.2015), that the satisfaction granted after that commencement of assessment is not valid. He further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction/ approval is also dt. 30.03.2015. Hence it is presumed that no required sanction/ satisfaction is obtained from the Higher authorities and hence the assessment is vitiated. Reliance is placed: 1. C.I.T. v. Sunian Waman Choudhary (2010) 321ITR 495 (Bom) 2. Hirachand Kanuga v. D.C.I.T. 17. From the above, it transpires that it is the submission of the ld. Counsel of the assessee that there is no mention of approval/satisfaction of higher authority obtained u/s. 151(2) in the notice for reopening. That the assessee has raised objection to this effect vide letter dated 09.04.2015 and 27.4.2015, however, while disposing off the objection of the assessee, the Assessing Officer did not properly address this aspect. Further, the assessee has contended that when the ld. Commissioner of Income Tax (Appeals) called for remand report, a letter dated 30.12.2015 has been produced. From the contents of the said letter, it has been contended that the required sanction as per the law is not obtained. 18. Before proceeding further I may gainfully refer to the provision of section 151 which reads as under: Sanction for issue of notice. 151. (1) In a case where an assessment under sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes. Sd/- Signature of Officer Name: _____________ Seal. Designation: Note: 1. If you feel any difficulty in the matter of filing in the return, form or desire clarification on any other matter pertaining to your Income Tax liability, you may contact the : Public Relation Officer Income-Tax Officer, Ward - 10(1)(2) 2. The prescribed form in the case of companies is Form No. 1. In the case of assessee other than companies the prescribed form is ordinarily form No. 2. However, if the assessee has no income to declare other than what is chargeable under one or more of the heads; Salaries" and "Income from Other Sources", confined shares from Firms, Association of Persons, or Bodies of Individual or is chargeable under the head 'Income from house property', or/and 'Capital Gains', he may furnish return in form No. 3 A blank form No.______ is enclosed herewith. If this is not suitable to your case you may exchange it for the appropriate form from the Income-Tax Officer. 20. In letter dated 09.04.2015, which was received at the Income Tax office on 13.04.2015, the assessee has while making the objection to the notice inter alia submitted as under: We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary provisions of the law requiring prior sanction for the issue of notice as provided u/s. 151(2) of the Income Tax Act, 1961 has not been complied with, and therefore, in our humble submission the notice issued by your good self for the re-opening of the assessment is not a valid notice and therefore we object the reopening of our assessment u/s. 148. 22. While disposing off the assessee's objections, the Assessing Officer has not provided the assessee with sanction/approval letter u/s. 151(2) or the details thereof. He has only addressed the issue by observing as under: The notice u/s. 148 was issue after considering the time limit and sanction of issue of notice u/s. 149/151 of the I. T. Act, 1961. The reason for reopening had already been provided vide this office letter dtd. 1.7.2005. 23. Thereafter, when the assessee raised this issue before the ld. Commissioner of Income Tax (Appeals), the ld. Commissioner of Income Tax (Appeals) asked for a report in this regard. The Assessing Officer gave a lengthy remand report detailing the provisions of law and concluded as under: 7. In view of the above, in this case the notice u/s. 148 was correctly issued on 30.03.2015 after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval". 26. From the above, it transpires that no notice or reopening has to be issued, under these provisions, unless the Commissioner is satisfied on the reasons recorded by the Assessing Officer, i.e., it is a fit case for the issue of notice which mentions that satisfaction of the Commissioner is paramount for which it is expected from the Commissioner to apply his mind and exercise due diligence before according sanction to the reasons recorded by the Assessing Officer. 27. In the present case, I note that despite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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