TMI Blog2020 (1) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... d by an accommodation entry provider, most certainly, there was reasonable cause for belief that the monies received by the petitioner from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may also be part of the bogus entries provided by them and, consequently, the taxable income of the petitioner had escaped the assessment. The submission of learned counsel that the impugned notice and reasons suffer from non-application of mind, merely because the respondents have failed to take into consideration the fact that the earlier assessment was a scrutiny assessment, is neither here nor there. This is for the reason that the reasons for re-opening are detailed, and clearly bring out the justification and cause for re-opening. Moreover, when we see the original assessment order dated 07.07.2014, we find that there is absolutely no examination or discussion with regard to the genuineness of the transactions undertaken by the petitioner assessee with M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. during the Financial Year 2011-12. Considering the circumstances and arguments raised, we find that the order of the Assessing Officer and notice iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year, relevant to the assessment year in question. Both these companies were amongst the 90 companies promoted by Sh. Tarun Goyal and registered at the same address at which the other companies engaged in providing accommodation entries were registered by Sh. Tarun Goyal. The assessment was reopened on the ground that the credit entries as received by the assessee remain unexplained, and that the assessee had not disclosed its true income in its ITR. (iii) The assessee preferred its objections to the said reopening, which were rejected vide order dated 04.09.2019. The said order has also been challenged in these proceedings. (iv) The relevant extract from the reasons recorded by the A.O. read as follows: 3. Analysis of Information Received 3.1 As per the information gathered by the investigation wing, it was found that M/s Shail Investments Private Limited was being operated by Sh. Tarun Goyal, an entry operator. A brief summary of the adjudications by the Hon'ble ITAT, New Delhi in the cases of Sh. Tarun Goyal and the shell companies operated by him are as below: I.T.A. Nos. Assessment Years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol Bagh Trading Ltd., 13/34, W.E.A. Karol Bagh. AAACK0511D 4612/Del/2012 2007-08 Mahanivesh Pratibhuti Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AADCM2286N 4583 to 4586/Del/2012 2004-05 to 2007-08 New Delhi Electronics Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AAACN0676L 4541, 4542 4611/Del/2012 2007-08 to 2009-10 Rishabh Shoes Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AAACR2358D 4629 to 4634/Del/2012 2003-04 to 2008-09 Sadguru Finman Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AABCS4800J 4643 4642/Del/2012 2007-08 2008-09 Sai Baba Finvest Pvt. Ltd, 13/34, W.E.A. Karol Bagh. AAHCD6789E 4641/Del/2012 2004-05 Tarus Iron Steel Co. Pvt. Ltd., 13/34, W.E.A. Karol Bagh. AABCT7170N 4645 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for AY 2004-05 dated 24/12/2010 for ready reference as this would give a glimpse of the Modus Operandi followed by the assessee. 4. At the outset, it would be pertinent to mention the modus operandi of the assessee and Sh. Tarun Goyal who was managing the company. a. Sh. Tarun Goyal created a number of Private Ltd. companies and firms for providing accommodation entries. More than 90 companies were registered from the office premises of Sh.Tarun Goyal i.e. 13/34, W.E.A., Arya Samaj Road, Karol Bagh, New Delhi. The directors of these companies were his employees, who worked in his office as peons, clerks, receptionists, etc. All the documents including blank cheques were got signed from these employees. A number of bank accounts were got opened in the names of these companies and his employees. b. The general modus operandi was to accept cash from the beneficiary. The cash was deposited in bank account and cheques were issued to the beneficiaries. The assessee in order to disguise his transactions as genuine has been following 'layering' of accounts where in cash was introduced in various bank accounts of the assessee and through multiple cheque transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its group of companies, that it collected cash from various companies and issued cheques in lieu thereof, known as accommodation entry . And that the undersigned and its companies earned a commission on the said accommodation entry. In order to have a peace of mind and to settle the matter for all times to come, the undersigned agreed to the commission income and accordingly, surrendered the commission income on accommodation entry of ₹ 40 crores, with a commission income of ₹ 10 lacs, which has been accounted for as income in the personal income tax return of the undersigned Mr.Tarun Goyal during the year of the search viz. A.Y. 2009-10. 2. That a detail of all the cash deposits in various accounts has already been submitted before your honor. 3. That the commission can be taxed either at the time of cash receipt and deposit in the Bank or at the time of issue of the cheques. The same income can not be taxed twice. 4. It is now requested that commission income be taxed only at the point of cash deposit because only the transactions originated with the cash deposits are the accommodation entry transactions. Other transactions are the genuine and bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned in the assessment order, which read as under:- 1. From the finding of search, it is evident and undeniable that all the companies including the alleged shareholders companies belong to Sh. Tarun Goyal. This is enforced even more from the following:- i. All the companies are operated from the office premises of Sh. Tarun Goyal. ii. All the directors are either his employees or close relatives. Sh. Tarun Goyal could never produce the directors nor furnish their residential address. iii. The statement of employees of Sh. Tarun Goyal is on record, whereby they have clearly stated that they signed on the papers produced before them by Sh Tarun Goyal. They do not know about the basic details of the companies like shareholding patterns, nature of business of these companies etc. iv. The statement of auditors of Sh. Tarun Goyal is on record. They have stated to have never met the directors of the companies and audited the accounts only on the directions of Sh.Tarun Goyal. As per the statement of auditors, the employees of Sh Tarun Goyal were directors of the companies run by them, also they could not ascertain the so called share capital subscribed by Sh Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. Accordingly, the order passed by the Tribunal is clearly superficial and adopts a perfunctory approach and ignores evidence and material referred to in the assessment order. The reasoning given is contrary to human probabilities, for in the normal course of conduct, no one will make investment of such huge amounts without being concerned about the return and safety of such investment. 14. Accordingly, the appeal is allowed. The substantial question of law framed above is accordingly answered in favour of the appellantrevenue and against the respondent-assessee. There would be no order as to costs 3.3 Thereby, from the above judgment, it is clearly seen that M/S Shail Investments Pvt. Ltd. is a shell entity operated by Sh. Tarun Goyal, working from the premises 13/34, W.E.A. Karol Bagh, New Delhi. It is also found from the examination of the bank account of M/S Shail Investments Pvt. Ltd. that the beneficiary of the transactions during FY 2011-12 in the case of the assessee is as below: Name PAN Debits Credits Jurisdiction RDS Project Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. Name PAN Debits Credits Jurisdiction RDS Project Ltd AAACR4761J 4,10,00,000 Circle 20(2), Delhi (emphasis supplied) 3. Learned counsel appearing on behalf of the petitioner submits that the reopening of assessment was done merely on the basis of the investigation report, and that there was no independent application of mind by AO while recording reasons, which is manifest by the fact that Ld. AO was not even aware that original assessment was made under section 143(3) and, that the reasons recorded by AO were based on borrowed satisfaction of some other authority. He submits that there is no cause and effect relationship between material found and formation of belief. Learned counsel for the petitioner also submitted that there is no nexus between the order of the ITAT and the High Court referred in the reason recorded, with the petitioner. M/s. Shail Investment Pvt. Ltd. and M/s. New Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information which was gathered by the revenue during the course of investigation of the Chartered Accountant, Tarun Goyal, who was found involved in the setting up of more than 90 bogus paper companies, through whom funds were routed to various beneficiaries, against deposits made in cash. The two companies viz. M/s. Shail Investments Private Ltd., and M/s. New Delhi Credits Private Ltd. are amongst the 90 odd companies floated by Tarun Goyal at the same address and they were used to provide accommodation entries to the petitioner. 9. The questions that arise for consideration are: whether there has been application of mind, or is it merely a case of change of opinion which forms the basis of the re-opening of assessment, and; whether, the objections of the petitioner have been properly dealt with, and; whether, the AO has acted on mere suspicion, or he had a good reason to believe that taxable income had escaped assessment. 10. In Assistant CIT Vs. Rajesh Jhaveri Stock Broker Pvt. Ltd., (2008) 14 SCC 208 , the Supreme Court has held that the expression reason in Section 147 of the Act means a cause or justification . The Assessing Officer can be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner/ assessee in the previous year, relevant to the Assessment Year 2012-13. The aforesaid reasons, in our view, are sufficient to justify the re-opening of the assessment. Merely because the petitioner s assessment for the Assessment Year 2012-13 may have been undertaken under Section 143(3), is no reason to interfere with the re-assessment proceedings at this stage. This is for the reason that there is nothing to show that while passing the assessment order, the Assessing Officer had examined the aspect of genuineness of the transaction undertaken by the petitioner with M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. A perusal of the original assessment order shows that the Assessing Officer had accepted the claim made by the petitioner/ assessee with regard to the genuineness of the transaction without any scrutiny and by accepting the statement of the petitioner as truthful. At that stage, the material information, which the petitioner withheld and did not disclose, was that it was dealing with companies promoted by Sh. Tarun Goyal, who was engaged in the business of providing accommodation entries. 15. We may take note of the recent dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the enquiries at Mumbai revealed that out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. With respect to the Kolkata companies, the response came through dak only. However, nobody appeared, nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. With respect to the Guwahati companies - Ispat Sheet Ltd. and Novelty Traders Ltd., enquiries revealed that they were nonexistent at the given address. 18. On the basis of the detailed inquiry, the AO found that: i. None of the investor-companies which had invested amounts ranging between ₹ 90,00,000 and ₹ 95,00,000 as share capital in the Respondent Company - Assessee during the A.Y. 2009-10, could justify making investment at such a high premium of ₹ 190 for each share, when the face value of the shares was only ₹ 10; ii. Some of the investor companies were found to be nonexistent; iii. Almost none of the companies produced the bank statements to establish the source of funds for making such a huge investment in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium. The Supreme Court relied on CIT v. Precision Finance Pvt. Ltd., (1994) 208 ITR 465 (Cal), wherein the Court held that the assessee was expected to establish to the satisfaction of the AO: Proof of Identity of the creditors; Capacity of creditors to advance money; and Genuineness of transaction 22. The Supreme Court also took note of its decision in Kale Khan Mohammad Harif v. CIT, (1963) 50 ITR 1 (SC), and Roshan Di Hatti v. CIT, (1977) 107 ITR (SC), wherein it had laid down the onus of proving the source of money found to have been received by the assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transactions and creditworthiness of the payee, then the AO must conduct an inquiry and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source of investment made, it is open to the revenue to hold that such investment is the income of the assessee, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to have conducted an independent inquiry to verify the genuineness of the credit entries. 26. The Supreme Court also noticed several other decisions relating to the issue of unexplained credit entries/ share capital subscriptions. We may quote the relevant extract from the decision of the Supreme Court in this regard: i. In Sumati Dayal v. CIT, (1995) 214 ITR 801(SC) this Court held that: if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, vis., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably ii. In CIT v. P. Mohankala, 291 ITR 278 , this Court held that: A bare reading of section 68 of the Income-tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself (emphasis supplied) vi. In a recent judgment the Delhi High Court in CIT v. N.R. Portfolio (P.) Ltd. [2014] 42 taxmann.com 339/222 Taxman 157 (Mag.) (Delhi), held that the credit-worthiness or genuineness of a transaction regarding share application money depends on whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, credit-worthiness of the recipient, object and purpose for which payment/investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. vii. Other cases where the issue of share application money received by an assessee was examined in the context of Section 68 are CIT v. Divine Leasing Financing Ltd. (2007) 158 Taxman 440, and CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 ..The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The mere fact that the petitioner had produced evidence before the Assessing Officer during the scrutiny assessment proceeding that the said amount had been received as share application money from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd., and the fact that M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may have invested monies in the assessee company for allotment of shares, is neither here, nor there. This is for the reason that one part of any such transaction would invariably be conducted through banking channels and would be duly recorded whether the same is genuine or not. That is how money would be laundered. Thus, the fact that the monetary transaction has been conducted through a banking channel, and is acknowledged, does not render the opinion of the Assessing Officer regarding the escapement of taxable income illegal or unreasonable since, at the time of the conduct of scrutiny assessment proceedings, the assessee did not disclose the material fact that the so called investor in this case M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd., are promoted by Sh. Tarun Goyal, who is engaged in the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ink, i.e. a link which is actionable between the person/ entity indulging in the activity of providing accommodation entries and such third party/ Assessee. The person who has undertaken such financial transaction(s) with such a person/ entity (the bogus entry provider), cannot avoid further scrutiny of such a transaction by laying a challenge to the re-opening of the assessment under Section 147/148 of the Act when the re-opening is, otherwise, within the period of limitation. 39. In the present case, the live-link between the said material information, and the formation of the belief that taxable income has escaped assessment is the fact that the petitioner, admittedly, received ₹ 4.10 crores from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. each. This live-link is actionable as it was found and acted upon within the period of limitation under the proviso to Section 147 of the Act. 40. No doubt, on the one hand, sanctity of concluded assessment proceedings needs to be protected, and an assessee should be protected against undue harassment by the taxation authorities by resort to re-opening of the concluded assessment. However, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of which the reopening has been ordered. In this context the following observations in Income Tax Officer Ward No. 16 (2) v. Techspan India Pvt. Ltd. are relevant. 18. Before interfering with the proposed reopening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address, itself to a given aspect sought to be examined in the reassessment proceedings. 42. Consequently, even in the cases of Mr. Chetan Sabharwal in view of the fact that the original assessment orders are totally silent on this aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have now to go on we do not and we ought not to express any opinion on merits. (emphasis supplied) 43. As noticed herein above, the AO while making the regular assessment did not undertake the scrutiny that he could have undertaken in respect of the investment into the share capital of the petitioner by M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. Though the identity of the investor M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may have been established, neither the financial capacity/ creditworthiness of the said investor companies, nor the genuineness of the transaction was examined. Since the two investor companies M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. have been found to be promoted by an accommodation entry provider, most certainly, there was reasonable cause for belief that the monies received by the petitioner from M/s Shail Investments Pvt. Ltd. and M/s New Delhi Credits Pvt. Ltd. may also be part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Limited have no nexus with Tarun Goyal, and that the said decision merely applies to M/S NDR Promoters and other bogus companies listed in the judgment. Merely because the two companies in question were not mentioned in the judgment, it does not mean that there can be no possible connection with Tarun Goyal. The list was not exhaustive, and fresh information was given to revenue that the two companies were controlled by Tarun Goyal from the same address of 13/34, W.E.A. Karol Bagh. 47. It would be beneficial at this juncture to refer to the judgment of this Court AGR INVESTMENT LTD. v. Additional Commissioner of Income Tax and Another, (2011) 333 ITR 146 (DELHI), where, similarly, specific information was received from office of the Directorate of Investigation that some transactions entered by assessee were accommodation entries and not genuine. The court while dismissing the petitioner s request to quash the reassessment proceedings held that it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of fact which would have to be determined in the course of the proceedings after the assessment is reopened. At this stage, the only issue before the Court is to whether there was reason to believe that any income chargeable to tax had escaped assessment. From the reply which was furnished by the assessee during the course of the assessment proceedings, it does not emerge that the assessee had discharged the onus of establishing the credit worthiness of the companies which had ostensibly invested the amount or in regard to the genuineness of the transaction. Hence, though the reopening of the assessment in the present case is beyond the period of four years but the Assessing Officer was satisfied that the condition stipulated in the first proviso to Section 147 was duly fulfilled 49. Considering the circumstances and arguments raised, we find that the order of the Assessing Officer and notice issued under Section 148 read with Section 147 is not illegal. 50. We, therefore, do not find any merit in this petition and dismiss the same, while making it clear that the Assessing Officer shall not be influenced by our aforesaid observations while framing the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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