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2017 (12) TMI 611

Reopening of assessment - non compliance with section 151 - reasons to believe - Held that:- The reopening in this case lacks jurisdiction on twin counts. Firstly, the assessee has not been properly intimated about any such satisfaction/approval despite request in the objection to reopening filed before the Assessing Officer repeatedly. Secondly, in the remand proceedings before the ld. Commissioner of Income Tax (Appeals), a sanction/approval letter dated 30.03.2015 which is of the same date as .....

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A, ACCOUNTANT MEMBER For The Revenue : Shri N. Hemalatha For The Assessee : Dr. P. Daniel ORDER Per Shamim Yahya, A. M.: This appeal by the Revenue and the cross objection by the assessee arise out of the order of ld. Commissioner of Income Tax (Appeals) dated 30.03.2016 and pertain to the assessment year 2008-09. 2. The grounds of appeal in Revenue s appeal read as under: 1 On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition made u/s.68 of th .....

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f ₹ 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 .....

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0 Accordingly the Assessing Officer recorded his reasons to believe and issued notice u/s 148. Notice u/s 143(2) and 142(1) of the Act was issued and duly served on the assessee. 5. During the course of assessment proceedings, assessee company was asked to establish the identity, and creditworthiness of the said parties and genuineness of the transactions. To substantiate its claim, the assessee company furnished bank statement of the said parties highlighting the relevant entry. Also, ledger ac .....

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red 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 wh .....

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proprietors of different concerns were non-existent at the given addresses. However, in certain cases, the directors' addresses were located and they were covered in the action u/s.132 of the Act. In the statements recorded u/s. 132(4)/131 of the Act, these directors/proprietors admitted that they were merely dummy directors and used to sign different papers for nominal consideration given by Shri Praveen Kumar Jain. They were unaware of the place of operations, books of accounts and the bus .....

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ss of the transaction; and (d) Payment by account payee cheque is not sacrosanct. In view of the above discussion, it is evident that the identity and creditworthiness of M/s. Kush Hindustan Entertainment Ltd & Olive Overseas Private Limited, which is one of the benami concerns of Shri Praveen Kumar Jain, are not proved nor the genuineness of the transaction in the form of unsecured loan raised by the assessee company. The entire gamut of transactions shows that the funds of ₹ 45,00,00 .....

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observing as under: Having held in the preceding paragraphs as to bogus / sham transaction of unsecured loans amounting to ₹ 45,00,000/- claimed to have been obtained from M/s. Kush Hindustan Entertainment Ltd & Olive Overseas Private Limited [formerly known as Realgold Trading Co. Private Limited], which is one of the bogus entities of Shri Praveen Kumar Jain, who is admittedly an accommodation entry provider, the interest expenditure of ₹ 90,617/- claimed to have been paid to .....

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o the parties against the payment & receipts made through banking channel. Thus, in the instant case, the purported expenditure claimed under the garb of interest & commission must have been received back by the assessee from the bogus entity of Shri Praveen Kumar Jain & as such the said expenditure cannot be allowed to the assessee. Accordingly, interest expenditure of ₹ 90.617/- and commission expenditure of ₹ 67,500/- are hereby disallowed and added back to income of t .....

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d 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, 19 .....

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04.1989 financial year 1989-90 only condition before issue of notice u/s 148 is that AO should have reason to believe that income chargeable to tax has escaped assessment, irrespective of any failure of the part of assessee. It does not require that the very outset there should be an established factum of escapement. 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 .....

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ve1 that income has escaped assessment. The appellant in such cases, cannot assail the re-opening on the ground that the facts were already placed on record and the AO ought to have considered the facts. Secondly, the Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 510) observed 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 assessme .....

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assessment within the meaning of section 147 of the Act. Thus, there was a cause or justification for the AO to invoke provisions of section 147 and issued notice u/s.148. As already mentioned, at the initiation stage, what is required to be seen is whether there are prima facie reasons to believe not the established fact of escapement of income. The AO also recorded proper reasons of formation of belief that income had escaped assessment. It is also important to note that the statement of vari .....

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e has been considered and rejected by the ITAT in the case of Sukh Ram v. ACIT (2007) 99 ITD 417(Del) and by the Delhi High Court in 285 ITR 256 (Del) in the sane case. In the Sukh Ram case the appellant had belonged to a political party. The AO recorded a statement of the party treasurer of the political party who refuted this claim. Before the ITAT and the High Court the assessee claimed that no addition can be made in his case unless he gets to cross-examine the party treasurer. This argument .....

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ve 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 ₹ 45,00,000 in AY 2008-09 from the following two parties - Kush Hindustan Entertainment Ltd. ₹ 30,00,000 and Rea .....

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On a perusal of the bank statements of the parties, it is seen that both the companies have sufficient balances to advance the loans. With the above documents, the identity, genuineness of the transaction and credit worthiness of the parties have been proved by the assessee by filing the necessary documents. The important aspect to be noted here is that the loans were borrowed by the assessee in FY 2007-08 and repaid in financial year 2008-09 and 2009-10 whereas the search and survey action on P .....

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es 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 Bo .....

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d controvert the statements contained in it by asking for an opportunity to cross-examine. The Jurisdictional Mumbai ITAT in the case of Smt Jyoti D. Shah (ITA No. 1843/M/2012) has held that Shri Mukesh Choksi had issued a general statement, and therefore a general statement given by Mukesh Choksi cannot by applied to each and every case. The additions made were deleted as there was no direct evidence against the assessee. Neither the statement of Mukesh Choksi was provided to the assessee nor a .....

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as well as genuineness of the transaction, the onus now shifts on the AO. It is noted that the AO has not taken any steps to identify the creditworthiness of the lender companies as well as genuineness of the loan given. The AO has merely relied on the statements of Shri Praveen Kumar Jain ignoring the fact that the statement was later retracted by him. There is no investigation whatsoever made by the AO. No effort was made to obtain the evidence collected by the DGIT (Inv) and the conclusions .....

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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 to even remotely record that the money originally belonged to the assessee and it was an adjustment entry. The assessee in facts has gone to establish that the lender companies had enough bank balances before granti .....

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any facts of the matter. The facts in the case of M/s. KomalAgrotech Pvt. Ltd. Vs ITO Ward 2(1), ITA No. 37/HYD/2016, (Hyd) were as under - As per the Assessing Officer the entire sum was received from certain companies managed by one Mr. Praveen Kumar Jain who has admitted that this money was routed through bogus share applications. According to the Assessing Officer, the said sum of ₹ 75,00,000 represented the amounts received from shell Companies.' Therefore, the Assessing Officer h .....

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) 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 .....

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ot refer the name of the appellant company as beneficiary and the loan was borrowed during financial year 2007-08 and repaid during 2008-09 and 2009-10 when Shri Praveen Jain was not associated with the investor company and also much before the search and seizure in case of Praveen Jain has taken place. The AO also failed to make any further inquiries with the lender companies to establish the genuineness of the transaction and also failed to consider the various evidences filed by the assessee .....

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the Assessing Officer in this case. The ld. Counsel of the assessee further submitted that there is also no proper sanction/approval as per the provision of section 151(2) of the Act by the higher authority permitting the reopening. Despite assessee s objection in this 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 a .....

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as not been provided with opportunity to cross examine the person whose statement is the basis of addition, the addition is not sustainable. For this proposition, he placed reliance upon the Hon ble Apex Court decision in the case of Andaman Timber Industries v. CCE [2015] 281 CTR 241 (SC). 14. Per contra, the ld. Departmental Representative relied upon the orders of the respective authority for supporting Revenue s stand. 15. She further submitted that if there is some lacunae Assessing Officer .....

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etter which is now placed before the Hon'ble Bench, the letter explains the non application of mind by the Jt. C.I.T. also in recording his satisfaction. In the instant case neither in the notice nor on the Reasons recorded the action of the Higher authority is mentioned. Even though a specific objection was raised. (Para 2 of Objection at page 55) and copy of sanction was requested to be given to the assessee vide letter dt. 09.04.2015 & 27.04.2015, he only makes a passing reference at .....

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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 .....

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Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. Explanation.-For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself. 19. I may also gainfully refer to the notice f .....

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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; .....

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d of the relevant assessment year, unless the joint commissioner is satisfied, on the reasons recorded by such g Officer, that it is a fit case for the issue of such notice . We may mention that our assessment involved for re-opening is Assessment Year 2008-09 which is being re-opened by your notice dated 30.03.2015, the provisions of Section 151(2) are clearly attracted as it is a case of re-opening of the assessment after the expiry of the 4 years from the end of the relevant assessment year. .....

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itting the objections to reopening, the assessee has inter alia mentioned as under: In this respect we humbly have to submit that as submitted by us vide our letters dated 09.04.2015 and 27.04.2015 (copies enclosed) we have requested your good self to give us the copy of the sanction obtained by you as provided u/s. 151(2) of the Act. however, we have not received the copy of such sanction obtained by you for the issuance of the notice u/s. 148 and hence it appears that necessary provisions of t .....

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gthy 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 getting prior sanction u/s. 151(2) of the I. T. Act, 1961 from the Jt. CIT, Rg. 10(1), Mumbai. Thus, the assessee company has taken erroneous ground of appeal for reopening without obtaining prior sanction from the CIT as required u/s. 151(2). The ground of appeal taken is applicable w.e.f. 1.6.2016. 24. The satisfaction/app .....

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ric Company P. Ltd. (supra), which read as under: 12. Hon'ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 258 ITR 317 has held that the proviso to sub-section (1) of section!51of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, t .....

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id 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 Comm .....

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f the above discussion, the reopening in this case lacks jurisdiction on twin counts. Firstly, the assessee has not been properly intimated about any such satisfaction/approval despite request in the objection to reopening filed before the Assessing Officer repeatedly. Secondly, in the remand proceedings before the ld. Commissioner of Income Tax (Appeals), a sanction/approval letter dated 30.03.2015 which is of the same date as the date of notice for reopening has been submitted. This satisfacti .....

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