CIT v. Youth Consruction Pvt. Ltd.

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The Tax Publishers2013 TaxPub(DT) 2043 (Del-HC) : (2013) 357 ITR 0197 : (2013) 089 DTR 0320 Income Tax Act, 1961 --Income from undisclosed sources--Addition under section 68 Genuineness of share transactions--During reassessment proceedings, on basis of information from investigating wing, it came to observance by assessing officer that share application money was not genuine but it was an accommodation entries received by assessee. During course of reassessment proceedings, assessing officer directed assessee to produce direction of all three share subscribers companies but failed to do so by assessee on two occasion. Assessing officer also came to know regarding accommodation entry through bank account as taxation was intra-day. Assessing officer made addition under section 68. Before, Commissioner (Appeals) assessee filed affidavit of all share subscribers directors as additional evidence and deleted additions. Tribunal upheld order of Commissioner (Appeals). Held: ,/i>Not justified. Tribunal has failed to give reasons and ignored factual aspects. It should have dealt with case in a wholesome manner dealing with entire evidence relied upon and having regard to report of investigation the manner in which entries were made in bank account of three companies, statement of director of one of companies and denial by one K as also the other surrounding circumstances. As Tribunal filed to deal the aspects in greater detailed manner, issue is, therefore, remanded back to Tribunal. The present case is one of reassessment on the basis of a report of the investigation wing of the IT Department. According to the assessing officer there was information from the investigation wing that the assessee had taken accommodation entries from the three companies, viz., SF I Ltd., PA Pvt. Ltd. and S.N. Pvt. Ltd. during the year under consideration. He has referred to the information received from the assessing officer having jurisdiction over PA Pvt. Ltd. that the Director of that company, i.e., P, has admitted to providing accommodation entries to the assessee. In an attempt to verify the identity and creditworthiness of the three share applicants, as also the genuineness of the transactions, the assessing officer called upon the assessee to produce the directors of the three companies. This was done on 24-12-2007. The Directors were required to produce on 26-12-2007. On 27-12-2007, the authorized representative of the assessee attended the proceedings but did not produce the directors or any other responsible person of those companies, but took the stand that the assessing officer may issue summons to enforce the personal attendance of the directors. However, before the Commissioner (Appeals) affidavits were sought to be introduced as additional evidence under Rule 46A. These affidavits are from the directors of the three companies. It was claimed before the Commissioner (Appeals) that by the time the affidavits were taken to the assessing officer (on 28-12-2007), the assessment proceedings had been closed. If affidavits from the companies could be obtained, it is not known why the directors could not be produced before the assessing officer as directed by him. These facts do not find any mention in the order of the Tribunal. The Tribunal did not refer to the observation of the assessing officer from a perusal of the bank accounts of the three companies which had applied for the shares. The assessing officer had examined the bank accounts and had deduced a pattern by which the bank accounts were used only as a conduit to receive the monies and pay them out on the same day. This pattern, coupled with the general admission made by P and the failure of the share applicants to produce the directors before the assessing officer, all taken cumulatively, should have excited suspicion in the mind of the Tribunal necessitating a deeper probe into the matter. Tribunal, however, has chosen to rest its decision on the sole fact that the share applicants had established there identity by filing confirmation letters and copies of their income tax returns. This is hardly sufficient for the purpose of discharging the creditworthiness of the share applicants and the genuineness of the transactions. There can be no dispute that section 68 applies equally to share application monies received by an assessee and, therefore, the burden is on the assessee to prove the nature and source thereof, to the satisfaction of the assessing officer. It involves three ingredients, namely, the proof regarding identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. Tribunal failed to keep in mind these aspects of the matter and has chosen to dispose of the appeal on the limited question of the identity of the share holders. [Para 8] The present case is one where there is enough material in the possession of the assessing officer which warrants explanation from the assessee regarding the nature and source of the share application monies. There is precious little which has been done by the assessee in discharging its burden under the section. The Tribunal has failed to keep in view the broader picture and has taken a rather simplistic view of the matter, ignoring the factual aspects and surrounding circumstances present in the case. It should have dealt with the case in a whole some manner dealing with the entire evidence relied upon and having regard to the report of the investigation wing, the manner in which entries were made in the bank accounts of the three companies, the statement of P and denial thereof by A.K., as also the other surrounding circumstances of the case. Court finds that the appeal before the Tribunal has not been disposed of in all its aspects. Court accordingly answers the substantial questions of law against the assessee, but in the circumstances, the appeal is remitted to the file of the Tribunal for being disposed of afresh and in accordance with law. [Para 8] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2043 (Del-HC) : (2013) 357 ITR 0197 : (2013) 089 DTR 0320

Income Tax Act, 1961

--Income from undisclosed sources--Addition under section 68 Genuineness of share transactions--During reassessment proceedings, on basis of information from investigating wing, it came to observance by assessing officer that share application money was not genuine but it was an accommodation entries received by assessee. During course of reassessment proceedings, assessing officer directed assessee to produce direction of all three share subscribers companies but failed to do so by assessee on two occasion. Assessing officer also came to know regarding accommodation entry through bank account as taxation was intra-day. Assessing officer made addition under section 68. Before, Commissioner (Appeals) assessee filed affidavit of all share subscribers directors as additional evidence and deleted additions. Tribunal upheld order of Commissioner (Appeals). Held: ,/i>Not justified. Tribunal has failed to give reasons and ignored factual aspects. It should have dealt with case in a wholesome manner dealing with entire evidence relied upon and having regard to report of investigation the manner in which entries were made in bank account of three companies, statement of director of one of companies and denial by one K as also the other surrounding circumstances. As Tribunal filed to deal the aspects in greater detailed manner, issue is, therefore, remanded back to Tribunal.

The present case is one of reassessment on the basis of a report of the investigation wing of the IT Department. According to the assessing officer there was information from the investigation wing that the assessee had taken accommodation entries from the three companies, viz., SF I Ltd., PA Pvt. Ltd. and S.N. Pvt. Ltd. during the year under consideration. He has referred to the information received from the assessing officer having jurisdiction over PA Pvt. Ltd. that the Director of that company, i.e., P, has admitted to providing accommodation entries to the assessee. In an attempt to verify the identity and creditworthiness of the three share applicants, as also the genuineness of the transactions, the assessing officer called upon the assessee to produce the directors of the three companies. This was done on 24-12-2007. The Directors were required to produce on 26-12-2007. On 27-12-2007, the authorized representative of the assessee attended the proceedings but did not produce the directors or any other responsible person of those companies, but took the stand that the assessing officer may issue summons to enforce the personal attendance of the directors. However, before the Commissioner (Appeals) affidavits were sought to be introduced as additional evidence under Rule 46A. These affidavits are from the directors of the three companies. It was claimed before the Commissioner (Appeals) that by the time the affidavits were taken to the assessing officer (on 28-12-2007), the assessment proceedings had been closed. If affidavits from the companies could be obtained, it is not known why the directors could not be produced before the assessing officer as directed by him. These facts do not find any mention in the order of the Tribunal. The Tribunal did not refer to the observation of the assessing officer from a perusal of the bank accounts of the three companies which had applied for the shares. The assessing officer had examined the bank accounts and had deduced a pattern by which the bank accounts were used only as a conduit to receive the monies and pay them out on the same day. This pattern, coupled with the general admission made by P and the failure of the share applicants to produce the directors before the assessing officer, all taken cumulatively, should have excited suspicion in the mind of the Tribunal necessitating a deeper probe into the matter. Tribunal, however, has chosen to rest its decision on the sole fact that the share applicants had established there identity by filing confirmation letters and copies of their income tax returns. This is hardly sufficient for the purpose of discharging the creditworthiness of the share applicants and the genuineness of the transactions. There can be no dispute that section 68 applies equally to share application monies received by an assessee and, therefore, the burden is on the assessee to prove the nature and source thereof, to the satisfaction of the assessing officer. It involves three ingredients, namely, the proof regarding identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. Tribunal failed to keep in mind these aspects of the matter and has chosen to dispose of the appeal on the limited question of the identity of the share holders. [Para 8] The present case is one where there is enough material in the possession of the assessing officer which warrants explanation from the assessee regarding the nature and source of the share application monies. There is precious little which has been done by the assessee in discharging its burden under the section. The Tribunal has failed to keep in view the broader picture and has taken a rather simplistic view of the matter, ignoring the factual aspects and surrounding circumstances present in the case. It should have dealt with the case in a whole some manner dealing with the entire evidence relied upon and having regard to the report of the investigation wing, the manner in which entries were made in the bank accounts of the three companies, the statement of P and denial thereof by A.K., as also the other surrounding circumstances of the case. Court finds that the appeal before the Tribunal has not been disposed of in all its aspects. Court accordingly answers the substantial questions of law against the assessee, but in the circumstances, the appeal is remitted to the file of the Tribunal for being disposed of afresh and in accordance with law. [Para 8]