Hindustan Commerce Pvt. Ltd.,, New ... vs Department Of Income Tax

Department by : Sh. Satpal Singh, Sr. DR Assessee by : Sh. R.S. Singhvi, CA

Date of Hearing 01.01.2015 Date of pronouncement 25.03.2015

ORDER

PER A. T. VARKEY, JUDICIAL MEMBER

The Revenue has filed the present appeal and the Assessee has filed the Cross Objection against the impugned order dated 24/11/2011 passed by the Ld. Commissioner of Income Tax (Appeals)-XXVIII, New Delhi for the assessment year 2002-03 on the following grounds:-

2. The Revenue has raised the following grounds in its Appeal:-

"1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs. 75,00,000/-

Page 2 of 8 made by the AO u/s. 68 of the Act treating the share application money as unexplained cash credit.

2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing."

3. The Assessee has raised the following grounds in its Cross Objection:-

"1(i) That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining reopening u/s. 148 of the I.T. Act, 1961.

(ii) That there is no factual or legal basis for assuming jurisdiction u/s. 148 and order passed by the lower authorities are not sustainable on facts and under the law.

2. That the issue of reopening is fully covered as per order of the ITAT in assessee's own case for assessment year 2001-02."

4. First we take up the Cross Objection filed by the assessee. The facts in brief are that the return of income in this case was filed on 28.10.2002 declaring income of Rs. 1,28,908/-. This return was processed under section 143(1) of the Act. Later on AO had issued a notice u/s. 148 of the Act on 27.3.2009 for reopening of assessment on the basis of the report from the Investigation Wing of the Department regarding allegation about accommodation entries to the extent of Rs. 1,93,73,050/-. The AO provided photocopy of the reasons in which it was observed that the Assessee has obtained accommodation entries to the extent of Rs. 1,93,73,050/-. In this case vide letter dated 21.4.2009 of the assessee company, the assessee company has stated that the return of income already furnished u/s. 139 may be treated as having been furnished in pursuance of notice u/s. 148 dated 27.3.2009. In response to the statutory notices, A.R. of the Assessee attended the proceedings from time to time. As required by the assessee a copy of the reasons recorded for reopening of the case has been provided to the assessee. Thereafter, after considering the details, AO has completed the assessment vide his assessment order dated 21.12.2009 u/s. 147/143(3) of the I.T. Act, 1961 made additions. Being aggrieved with the aforesaid assessment order, assessee appealed before the Ld. CIT(A), who vide impugned order dated 03.1.2012 has deleted the addition and the appeal of the Assessee was partly allowed, but sustained the legal ground of assuming the jurisdiction under section 148 of the Act by the AO.

Page 3 of 8 5. Now the Assessee has filed the Cross Objection regarding the assumption of jurisdiction by AO u/s. 148 of the I.T. Act.

6. During the hearing, Ld. Counsel of the assessee has stated that the similar issue has been dealt by this Tribunal in favour of the assessee in assessee's own case for the asstt. Year 2001-02 regarding assumption of jurisdiction u/s. 148 and also stated that the facts and circumstances of the case in the present asstt. Year i.e. 2002-03 are identical and same, hence, the order dated 31.1.2011 of the Tribunal for the asstt. Year 2001-02 may be followed in this year regarding assumption of jurisdiction u/s. 148 of the Act. In this behalf, Ld. Counsel of the assessee has filed the copy of order dated 31.1.2011 of the Tribunal. Therefore, he requested that Cross Objection of the Assessee may be allowed by following the order dated 31.1.2011 passed by the Tribunal in assessee's own case for the asstt. Year 2001-02 on this legal ground.

7. On the other hand, Ld. DR relied upon the order of the AO.

8. We have heard the both parties and perused and considered the relevant record available with us specially the impugned orders passed by the Revenue Authorities and the copy of the Tribunal's order dated 31.1.2011 of this Bench passed in assessee's own case for the asstt. Year 2001-02, wherein the Tribunal has adjudicated the issue as under:-

"Relevant extract from the order of ITAT, Delhi in appellants own case for A.Y. 2001-02 in ITA No. 600/Del/2010, dt. 31/01/2011.

6. We have duly considered the rival contentions and gone through the record carefully. Section 147 of the Act provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sec. 148 to 153, assess or reassess such income and also any other such income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of assessment proceedings under this section. Thus, a bare perusal of section 147 would make it clear that if the Assessing Officer has reasons to believe that any income chargeable to tax as escaped assessment for any assessment year, he may, issue the notice under sec. 148 for reopening of the assessment. The interdiction available in the proviso appended to this section put an embargo upon the powers of the Assessing Officer for issuing such notice. The proviso prohibits the Page 4 of 8

issuance of such notice, if an assessment under sec. 143(3) was framed and four years have expired. In such cases, Assessing Officer will be able to issue notice only in the circumstance, if he established that an assessee failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. It means that Assessing Officer has to demonstrate on the record that assessee failed to disclose all material facts fully and truly m respect of assessment of income in the assessment year. Let us see in the present case how the Assessing Officer is able to demonstrate this aspect in the reasons recorded or otherwise in the reassessment order. The reasons are available at page No.31 of the paper book. These have been reproduced also by the Assessing Officer in the assessment order. Assessee has filed objections to these- reasons and Assessing Officer has disposed of those objections vide letter dated 19th September 2008. This order of the Assessing Officer is also available on page Nos. 27 to 29 of the paper book. We have considered the objections of the assessee available at page 30, reasons recorded by the Assessing Officer as well as the order vide which objections have been disposed of.

We have also considered two letters written by M/s. Performance trading & Inv. Co. Pvt. Ltd. dated 27.01.2003 and M/s. Star garments dated 5.2.2003 which has been placed on page nos. 1 to 11 of the supplementary paper book. On due consideration of all the material, we find that application of mind with the live nexus between the information and vis & vis formation of belief at the end of the Assessing Officer is totally missing. The assessment has been reopened in a Casual manner. In the reasons, Assessing Officer has made a reference to 14 entries, out of these 8 alleged not to have been received by the assessee as held by the Learned CIT(Appeals). The share application money according to the assessee has been received in respect of two entities, instead of 5 referred by the Assessing Officer in the reasons. In respect of these two entities, assessee has submitted the details in the original assessment proceedings. Assessing Officer had issued letters under sec. 133(6) of the Act and required these two concerns to supply necessary information. They have responded to the letter of Assessing Officer and submitted their ITRs, confirmation and PAN etc. Assessing Officer has not made any addition thereafter.

It suggests that he must have considered this aspect, though it is not discernible in the assessment order passed under sec. 143(3) of the Act. In the order vide which objections have been disposed of by the Assessing Officer, he did not bother to examine this aspect. It clearly suggests that Assessing Officer has not applied his mind to the information alleged to have been received from the Investigation Wing viz-viz the material available on record. He took the information as a gospel truth and proceed to reopen the assessment. Hon'ble Delhi High Court has considered this aspect in the case of Sarthak Enterprises in ITA No. /Del/ declared on , wherein the Hon'ble High Court has quashed the reopening of the assessment. In view of the above discussion, we find merit in the cross- objection filed by the assessee and accordingly the cross-objection is allowed and reopening of the assessment is quashed."

Page 5 of 8 9. In view of the above, we find considerable cogency in the submission of assessee's counsel on the issue in hand and find that the present legal issue involved is squarely covered by the aforesaid Tribunal's decision dated 3.1.2011, as aforesaid, decided in assessee's own case for the asstt. Year 2001-02, therefore, respectfully following the precedent, we allow the cross objection filed by the assessee and reopening of the assessment is quashed.

Revenue's Appeal

10. On merit, the grievance of the Revenue is that the Ld. CIT(A) has erred in deleting the addition of Rs. 75,00,000/- made by the AO u/s. 68 of the Act treating the share application money as unexplained cash credit. On this issue, as per the Report of the Investigation Wing bogus entries to the extent of Rs. 75,00,000/- were accepted by the assessee. The AO issued notice u/s. 142(1) dated 3.12.2009, inter alia was called upon to furnish the following details / documents in respect of issuance of share capital/ share application money.

a) Confirmations of the entries

(b) Copy of ITR of the share applicants / lenders for the AY 200-03.

c) The copy of bank statement of the share applicants/ lenders.

d) A complete set of audited accounts for the year ending

31.3.2002 in respect of the share applicants / lenders

e) Copy of account of share applicants/ lenders in your book.

f) Photocopy of share application forms.

11. On perusal of the documents filed in respect of alleged share applicants following observations / findings were noted:-

a) Photocopies of undated confirmations have been filed.

b) No ITR for AY 2002-03 filed as required. The same is filed for AY 2000-01 only.

Page 6 of 8 c) The acknowledgement of return for AY 2000-01, either loss or meager income is shown, which not at all proves the creditworthiness of the alleged share applicants.

d) Even audited accounts for FY 2001-02 not filed the same have been filed for FY 2000-01 only.

Accordingly, in view of the facts and circumstance of the case and evidences coupled with the preponderance of probabilities (as held in the case of Sumati Dayal vs. CIT) and the finding of the Investigation Wing, the AO observed that the genuineness of transaction and creditworthiness of the alleged share applicants remained to be proved and thus the said addition of Rs. 75,00,000/- was being treated as unexplained entry and added back to the income of the assessee u/s. 68 as income from undisclosed sources under the head "income from other sources".

12. Aggrieved with the aforesaid order of the AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 24.11.2011 by following the tribunal's order dated 31.1.2011 in assessee's own case for the asstt. Year 2001-02 has deleted the addition of Rs. 75,00,000/-.

13. Against the above order the Revenue is in appeal before the Tribunal.

14. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.

15. On the other hand, Ld counsel for the assessee has stated that Ld. CIT(A) has rightly followed the order of the Tribunal dated 31.1.2011 passed in assessee's own case for the asstt. Year 2001-02 wherein the Tribunal has adjudicated the issue on merit as under:-

On merit, the grievance of revenue is that Learned CIT(Appeals) has erred in deleting the addition made by the Assessing Officer. With the assistance of learned representative, we have gone through the record carefully. In the assessment order, the Assessing Officer has nowhere discussed the details of applicants from whom the assessee has received the share application money. He made a reference to Page 7 of 8

the parties M/ s. Performance Trading & Inv. Pvt. Ltd. and M/ s. Star Garments. He has not discussed how many other share applicants are? The contentions of the assessee before the Learned CIT(Appeals) was that Assessing Officer has made a reference of Rs. 46,05,500/- in the reasons recorded for reopening. In fact, the relevant amount was of only Rs.15 lacs which relate to the two concerns, namely, M/ s. Performance Trading & Inv. Pvt. Ltd. and M/ s. Star Garments. A sum of Rs. 10,00,000/- was alleged to have been received from M/ s. Performance Trading & Inv. Pvt. Ltd. and Rs.5,00,000/- from M/ s. Star Garments. Assessing Officer has made the addition of Rs.1 crore. The assessee contended that it has filed confirmation from all the share applicants in the original proceedings and that has been accepted by the Assessing Officer. The assessee has placed on record details of such share applicants on page nos. 61 to 65 of the paper book. Learned CIT(Appeals) after taking into consideration the evidence produced by the assessee has deleted the addition. Learned DR relied upon the order of the Assessing Officer. He was unable to controvert the findings of fact recorded by the Learned CIT(Appeals). On the other hand, learned counsel for the assessee relied upon Learned CIT(Appeals)'s order as well as made a reference to the details available on page 61 to 65 of the paper book.

8. We have duly considered the rival contentions and gone through the record carefully. The assessee has received share application money from 21 parties which includes M/ s. Star Garments and M/ s. Performance Trading & Inv. Pvt. Ltd. The details of all other applicants are available on page Nos. 61 to 65 where the assessee has disclosed the names and address, PAN and the mode through which it has received the money. Assessing Officer did not make any reference to any of the share applicants how their identity was not proved. He has not made any inquiry about the genuineness of the transaction or otherwise. The reference to the information supplied by the Investigation Wing is related to Rs. 15 lacs only. That information was only an information at the most for have initiation of some inquiry, it cannot be such an evidence to disbelieve all other details submitted by the assessee without making any reference to those details. In view of these facts coupled with the detailed finding of the Learned CIT(Appeals) on the strength of authoritative pronouncement of Hon'ble High Court as well as of Hon'ble Supreme Court, referred by the Learned CIT(Appeals), we do not see any reason to interfere in his order. The appeal of the revenue is dismissed."

16. In view of the above finding of the Tribunal, Ld. CIT(A) has observed that in the instant case the AO has not given a finding that documents in support of the identity of the share holders have not been placed on record and they were forged documents. In view of the discussions made above the addition of Rs. 75,00,000/- is uncalled for. However, the AO is free to take Page 8 of 8

appropriate action as may be permissible under the law in the case of various share holders alleged to be entry providers.

17. Accordingly, Ld. CIT(A) has rightly held that in view of the facts and circumstances of the case which are similar to Asstt. Year 2001-02 and the finding of the CIT(A) and ITAT, Delhi Bench, he was of the considered opinion that the action of the AO by making an addition of Rs. 75,00,000/- u/s. 68 of the I.T. Act in respect of share market is unjustified and therefore, deleted. In view of the above, we do not see any reason to interfere in the order of the Ld. CIT(A) on this issue, hence, we uphold the same by upholding the order of the Ld. CIT(A) on this issue. In the result, the appeal of the Revenue is dismissed.

18. In the result, the Cross Objection filed by the assessee stands allowed and Appeal filed by the Revenue stands dismissed.

Order pronounced in the open court on 25.03.2015.

-Sd/- -Sd/- (J.S.REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:25/03/2015

A K Keot

Copy forwarded to

1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi