TMI Blog2020 (8) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 143(1) of the Act. Further, when original assessment has been completed u/s 143(1) of the Act, then the assessment can be reopened within a period of six years from the end of the relevant assessment year, if escapement of income is within specified limit. In this case, there is no doubt with regard to escapement of income as per reasons recorded by the Ld. AO, which is beyond the prescribed limit provided under the Act. Once, original assessment was completed u/s 143(1) of the Act, then reopening of assessment can be made on the basis of reasons to believe that prima-facie there is escapement of income. This principle is supported by the decision of Hon ble Supreme Court, in the case of ACIT vs Rajesh Jhaveri Stock Brokers Pvt.Ltd [ 2007 (5) TMI 197 - SUPREME COURT] where it was clearly held that reasons to believe does not mean that the reasons for reopening should have been factually ascertained by legal evidence or conclusion before the reopening of assessment. Report of the investigation wing might constitute tangible material. The decision to reopen a case on the basis of report of the investigation wing cannot always be condemned or dubbed as fishing and roving inquir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. to kindly furnish reasons for reopening assessment. Letter of A.O. under the title reasons contained only allegation against the assessee but no material or documents before the A.O. for formation of his belief that income had escaped assessment. However, the A.O. had absolutely no information or material before him for issuing the said notice. Therefore, the notice is bad in law. Detailed grounds attached. 2. Provisions of section 144A violated - Looking at the manner in which assessment proceedings were conducted, appellant perceived that the A.O. was proceeding with premeditated view prejudicial to her. She moved application before JCIT u/s. 144A. Ld. JCIT instead of giving directions to A.O., left the decision to A.O., defeating the purpose of section 144A. Appellant made further submissions and applications to JCIT on 26/12/2018. JCIT under the name direction evaded his responsibility under the law and transferred authority to make decisions to A.O. Provisions of section 144A stand violated rendering order bad in law. Detailed grounds attached. 3. Botched up investigation by ADIT and A.O. - Transactions between the appellant and Avron and Sarvottam took place in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for reopening of assessment. Simultaneously, the assessee submitted that return already filed for AY 2011-12 shall be treated as return filed in response to notice issued u/s 148 of the I.T.Act, 1961. Thereafter, reasons recorded for reopening of assessment was provided to the assessee on 06/07/2018. The assessee had filed her objections for initiation proceedings u/s 148 of the I.T.Act, 1961, vide letter dated 19/09/2018 and 22/10/2018. The Ld. AO has disposed of objections filed by the assessee on 12/11/2018 and rejected the contentions of the assessee. 4. Thereafter, the case has been taken-up for scrutiny and notice u/s 142(1) was issued and called upon the assessee to file necessary evidences, including details of income earned from its proprietary business and expenses incurred against said income. In response to notices, the assessee has filed various details, including payments made to M/s Avrons Consultancy Services Pvt. Ltd. and M/s Sarvottam Advisory Pvt.Ltd. along with details of bills issued by the parties. During the course of assessment proceedings, the Ld. AO after considering relevant submissions of the assessee and also taken note of various facts brought out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the locality could tell about Kavita Patel. Residential address of another Director Sameer Patel at B-106,Jiydani Road, Vasai Virar (E) Thane was found to be vague and could not be located. As per ITD Systems also, Sameer Patel is a non filer. The Investigation wing has also recorded statement of Mr. Vishwas V. Joshi , Principal Officer of M/s. Finwiz Consultants on 01/02/2018 who stated that since the proposals were introduced by the Shri Dipan Patel M/s. Avron's Consultancy Services Pvt Ltd. and M/s. Sarvottam Advisory Pvt. Ltd., business counseling fees for introducing Altius Fin serve Pvt. Ltd, and for ensuring receipt of brokerage from M/s. Altius Finserve Pvt. Ltd. was paid. The Investigation Wing finally concluded that the payments have been made to entities who are not in existence and are shell entities, to reduce the tax liabilities of During the assessment proceedings, the assessee filed details relating to payments made to Avron Consultancy Services Pvt. Ltd. Sarvottam Advisory Pvt. Ltd. by Banks and other details like invoice received from the parties, TDS details etc. However, no details were provided to the A.O, as to what services have been provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned statement of the assessee, it was held that the assessee is not aware of anything about the two companies to whom payments have been made. She is not able to prove as to what services has been provided by the two entities for making such huge payments. No documentary evidence such as any correspondence between assessee and two entities, any correspondence with banks regarding progress of proposal etc. has been submitted by the assessee. During the course of assessment proceedings, letters were filed on alleged letter heads of these two entities signed by some unknown person who does not seem to be authorised persons of the company, requesting that notice issued u/s. 133(6) could not be served because office was locked and it was requested to send notices again. During the course of assessment proceedings, the JCIT Range 21(1), Mumbai issued direction u/s. 144A to carry out further investigation by conducting field verification in all the known addresses of Avron Consultancy Services Pvt. Ltd. Sarvottam Advisory Pvt. Ltd., located at Mumbai and also attempt to gather information from Kolkata whose address is mentioned in the file especially in view of the data s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. be not treated as her income since it was made to shell company. The assessee however, failed to submit any satisfactory explanation. To verify the contents of the affidavit of Shri Dipan Patel, his statement was recorded on 21/12/2018 which is reproduced in the assessment order from page 13 to 16. Shri Dipan Patel stated that as a business consultant he had finalized two three business deals for Avron Consultancy Services Pvt. Ltd. Sarvottam Advisory Pvt. Ltd. which were in nature of brokerage or commission or referral fees. He further stated that he was not carrying any evidence for the same and could provide later on e-mail or by post. He stated that Shri Arun Kedia is Director in Avron Consultancy Services Pvt. Ltd. and Shri Tapan Doshi is a Director in Sarvottam Advisory Pvt. Ltd. but he was not having any current contact details of the two companies. He was not aware of the residential addresses of the Directors of the two companies. Shri Dipan Patel was C.A. and had declared the address of 704, Sairath CHS Kesar Kunj Building, Telly Gully Cross Lanes, Andheri (E) as his residential address which was also the billing address of the two concerns. He further st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any information before the Ld. AO in support of the allegations for formation of his belief that income chargeable to tax had escaped assessment. The assesee had also challenged additions made by the Ld. AO towards disallowances of business counseling charges paid to M/s Sarvottam Advisory Consultancy Services Pvt.Ltd. and M/s Avrons Consultancy Services Pvt.Ltd along with affidavit of Shri Dipen Patel, who was the then Director of two companies and argued that business counseling charges has been paid to those two companies for referring assesee to M/s Altius Finserve Pvt.Ltd. and also, for doing necessary work in connection with services rendered to M/s Altius Finserve Pvt.Ltd. 6. The Ld.CIT(A) after considering relevant submissions of the assessee and also by relied upon various judicial precedents rejected legal arguments taken by the assessee challenging validity of reopening of assessment by observing that the Ld. AO had correctly arrived at reasons to believe that expenses of ₹ 2.33 cores were prima-facie not genuine after applying his mind with reference to records of the assessee and on examining the information of the ADIT, which was based on survey/spot veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Investigation Wing cannot always be condemned or dubbed as a fishing and roving inquiry. The expression reasons to believe appearing in Section 147 suggests that if the AO acts as a reasonable and prudent man on the basis of information secured by him that there is a case for reopening, then Section 147 can well be pressed into service and assessment can be reopened. h) It is not necessary that the AO should hold a quasi-judicial enquiry before acting u/s 147. It is enough if he on the information received believed in good faith that income has escaped assessment. 30. Now, it is to be adjudicated as to whether the AO has complied with basic jurisdictional requirement under the law before issuing notice u/s 148 to the appellant. In this regard, the appellant has stated that the AO was not having any information/ tangible material before him warranting issuance of the notice. The AO had received a report from the ADIT (Inv.), Unit 3(1) on 26/02/2018 and the notice u/s 148 given by the AO on 31/03/2018 was only on the basis of that report. The report was mainly and almost wholly about M/s. Altius Finserve Pvt. Ltd. and contained only few lines about the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ius Finserve Pvt. Ltd. However, it is received brokerage from them for which it paid fees to Shri Dipan Patel of M/s Avron Consultancy Services Pvt. Ltd. and M/s Sarvottam Advisory Pvt. Ltd. This is colourable device to book bogus expenses by Altius Finserve Pvt. Ltd. in which the assessee 30.3 The aforesaid facts communicated by the Investigation Wing has been reproduced by the AO in the reasons for reopening and thereafter the AO has clearly applied his mind on the said information and concluded as under :- 5. From the above it is crystal clear that the sub-broking fees paid by the assessee for getting income from M/s. Altius Finserve Pvt. Ltd. amounting to ₹ 2.33 Crores is not genuine as apart from the income from M/s. Altius Finserve Pvt. Ltd., no other income is shown by the assessee during the year under consideration. 6. In view of above narrated facts, I have reasons to believe that income chargeable to tax for A.Y. 2011-12 being ₹ 2.33 Crores has escaped from assessment. Since the income has escaped from assessment, notice u/s. 148 of the I. T. Act, 1961 is required to be issued for the above year and the time limit to issue such notice is 31/03/2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res to one Mr. Dipan Patel of M/s Avron Consultancy Services Pvt. Ltd. and M/s.Sarvottam Advisory Pvt. Ltd. has also been clearly mentioned in the said information. Thus it is not a case that the AO has reopened the assessment based on absolutely vague and unspecified information. Therefore, it is held that the A.O. had correctly arrived at reasons to believe that expenses of ₹ 2.33 Crores were prima facie not genuine after applying his mind after examining the record of the appellant and on examining the information of the ADIT which was based on survey/spot verification of M/s. Altius Finserve Pvt. Ltd. and statement of Shri Vishwas V. Joshi. In view of above, the re-opening is held as legally valid and the ground challenging its validity is dismissed. 7. Insofar as, merits is concerned, the Ld.CIT(A) observed that the facts gathered during the course of assessment proceedings coupled with information collected during survey proceedings u/s 133A in the case of M/s Altius Finserve Pvt.Ltd. and statement of assessee and other persons clearly indicates that the so called business counseling charges has been paid to two non existing entities to avoid or reduce tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Patel, wife of Shri Dipan Patel ceased to be Director of the Companies w.e.f. 16.12.2012 and Shri Dipen Patel also ceased to be the Principal Officer of the Companies at the same time. 31.1 The aforesaid contention of the appellant is without any merits. In any arrangement even in the case of accommodation entries, all the paper formalities are completed. The tax is deducted and payments are made through bank. But it is settled that merely paper formalities are not sufficient proof particularly in the facts of the present case where the two companies to whom huge payments were made were not found traceable and their existence, their presence, their infrastructure, the services rendered by them are not proved at all. 31.2 The role of Dipan Patel in the entire transactions is obvious. Shri Dipan Patel is a C.A. and had declared the address of 704, Sairath CHS Kesar Kunj Building, Telly Gully Cross Lanes, Andheri (E) as his residential address which was also the billing address of the two concerns. His wife Smt. Kavita Patel has been claimed to be one of the directors in the two companies who ceased to be director w.e.f. 16.12.2012, As per assessee, Shri Dipen Patel also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year 2018 why not the ADIT or AO could contact the said company in the same period. In fact the field enquiries revealed that the two companies were never operational from any of the addresses. Further, the field enquiries on the address mentioned in ROC data in case of Sarvottam Advisory Pvt. Ltd. was also conducted and it was found that the said company never operated from the said address. 33. So far statement of the appellant is concerned, it has been contended that she gave correct answers to questions put to her and she was conducting her proprietary business through Mr. Vishwas Joshi, Principal Officer of M/s. Finwiz Consultants. The AO should have recorded statement of Mr. Vishwas Joshi which the assessee had requested the AO to do. Affidavit of Mr. Vishwas Joshi dated 17,12.2018 has been filed. 33.1 On the aforesaid claim of the appellant, it is found that Mrs. Jaee Vishwas Joshi in her statement u/s 131 dated 26.11.2018 made an effort to answer various questions. She claimed that Mr. Dipan Patel represented M/s. Sarvottam Advisory Pvt. Ltd and Avron's Consultancy Services Pvt. Ltd. and introduced Finwiz Consultants to Altius Finserve Pvt. Ltd. She als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sory Pvt. Ltd and Avron's Consultancy Services Pvt. Ltd. and authorized to transact business on behalf of these companies. But when his statement was recorded by the AO on 21/12/2018, Shri Dipan Patel stated that he was not having now the contact details of M/s. Sarvottam Advisory Pvt. Ltd and Avron's Consultancy Services Pvt. Ltd. He further stated that currently he was not exactly aware of the address of the companies or residential addresses of the Directors of the said two companies. He also stated that there was no formal agreement but there were several emails and other communication with both the parties. But he did not file any such emails or communications even till date of passing the assessment order. Further, there was no basis or evidence filed by him to prove that he was authorized to transact business on behalf of the two companies in AY 2010-11 and AY 2011-12. Further, it is found strange that in his affidavit dated 27/07/2018, how Shri Dipan Patel remembers and confirms the receipts by M/s, Sarvottam Advisory Pvt. Ltd and Avron's Consulatancy Services Pvt. Ltd. along with the cheque date and amount like cheque on 30th June 2010 ₹ 99,27,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consultancy Services Pvt. Ltd could not be served and the Inspector on field verification gave a report that he could not find any such company in the stated address. 41. Summons u/s. 131 was issued to M/s. Sarvottam Advisory Pvt. Ltd, at their known address 704, Sairath CHS, Kesar Kunj Building, Telly Gully, Cross Lane, Andheri (E), Mumbai-69. This time the summon was received by a person sitting in the premises claiming his name as Chintan Shah but Sarvottam Advisory Pvt. Ltd. did not respond the summons even till date of passing the assessment order. 42. Notice u/s. 133(6) dated 18/12/2018 were again issued to the Pr. Officer of M/s. Client Bright Consultants Pvt. Ltd. (Formerly known as M/s, Avron Consultancy Services Pvt. Ltd.) at their address 4A, Council House Estate, Kolkata -1. This notice has also been received back as unserved. 43. In view of aforesaid discussions, it is held that the appellant has booked bogus expenses of ₹ 2,33,35,000/- in the name of two bogus concerns namely M/s Avron's Consultancy Services Pvt. Ltd. and M/s Sarvottam Advisory Pvt. Ltd. who had no real existence and who did not render any service to the assessee. This was do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71) 79 ITR 603 viii) ACITvs Dhariya Construction Co. (2010) 328 ITR 515 ix) German Remedies vs Dy.CIT, dated 10/10/2015 (Bombay High Court) 9. As regards, additions made towards disallowances of business counseling charges, the Ld. AR for the assessee submitted that the assessee has filed complete details of expenditure, including proof of services rendered by the parties to prove that expenditure is genuine, which is incurred wholly and exclusively for the purpose of business of the assessee. The Ld. AR, further submitted that transactions of the assessee with M/s Altius Finserve Pvt.Ltd and M/s. Sarvottam Advisory Pvt.Ltd. were accepted as genuine in the immediately preceding assessment years without any adverse inference, however during the year without any changes in facts, the Ld. AO has made a allegations that expenditure incurred in the name of above two companies is a bogus expenditure created to reduce profit of the year, ignoring fact that the assessee has filed complete details, including bills issued by the parties for having rendered services, payment against bills by cheque after deducting necessary TDS applicable as per law. The Ld. AO has also summarily rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards, reopening of assessment, we find no merits in the arguments advanced by the Ld. AR for the assesee, because the Ld. AO has reopened the assessment on sound footing, which is based on fresh tangible material come to his possession in the form of information of investigation wing, which suggest escapement of income within the meaning of section 147 of the I.T.Act, 1961. We, further noted that there is a nexus between reasons recorded for reopening of assessment and escapement of income, which is clearly evident from reasons recorded for reopening of assessment, where the Ld. AO has brought out clear facts with reference to information received from investigation wing, the escapement of income on account of booking expenditure in the name of two non existing entities. Further, the assessment in this case was reopened beyond four years, but within six years from the end of the relevant assessment year. The original assessment has been completed u/s 143(1) of the Act. Further, when original assessment has been completed u/s 143(1) of the Act, then the assessment can be reopened within a period of six years from the end of the relevant assessment year, if escapement of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idity of reopening of assessment is very well taken by the courts in the given facts of those case and held that although, the AO has power to reopen the assessment, but reopening should be on the basis of tangible material and information to come to the conclusion that there is a escapement of income. Further, the Ld. AO cannot mechanically and also, on erroneous information reopen assessment. But, if reasons to believe is supported by tangible materials and the AO has formed reasonable basis of escapement of income as a prudent persons, then merely for the reason that reasons recorded for reopening is on the basis of information received from investigation wing, it cannot be concluded that the AO has not applied his mind and formed opinion of the basis of information. Therefore, from the case laws cited by the assessee, what we understood is that the reopening of assessment should be on the basis of fresh tangible material which suggest escapement of income, but not on the basis of reasons recorded without any nexus between reasons and escapement of income. In this case, on perusal of reasons recorded by the Ld. AO, it is abundantly clear that the Ld. AO has formed reasonable bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tancy Services Pvt. Ltd. (Kolkata) Sarvottam Advisory Pvt. Ltd. (Mumbai) which returned unserved in respect of Avron Consultancy Services Pvt. Ltd. with a comment insufficient address. In case of Sarvottam Advisory Pvt. Ltd., the Inspector reported that no office/business was carried out from the said address which is a residential flat and Shri Dipan Patel generally visits the flat which remains Jock otherwise. Further, commissions u/s. 131(1)(d) of the IT. Act was issued to the ACIT Cir. 6(2), Kolkata but his summons in case of Avron Consultancy Services Pvt. Ltd could not be served and the Inspector on field verification gave a report that he could not find any such company in the stated address. Later, summons u/s. 131 was issued to M/s. Sarvottam Advisory Pvt. Ltd, at their known address 704, Sairath CHS, Kesar Kunj Building, Telly Gully, Cross Lane, Andheri (E), Mumbai -69. This time the summon was received by a person sitting in the premises claiming his name as Chintan Shah but Sarvottam Advisory Pvt. Ltd. did not respond to the summons even till date of passing the assessment order. Further notice u/s. 133(6) dated 18/12/2018 were again issued to the Pr. Officer of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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