CIT v. Nova Promoters & Finlease (P) Ltd.

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The Tax Publishers2012 TaxPub(DT) 1558 (Del-HC) : (2012) 342 ITR 0169 : (2012) 252 CTR 0187 : (2012) 206 TAXMAN 0207 : (2012) 075 DTR 0065 INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 68Share application money vis-a-vis entry providers for consideration--The assessee was a private limited company. In respect of the assessment year 2000-2001, for the previous year ended on 31-3-2000, it filed a return of income declaring loss of Rs. 2,800. The return was processed under section 143(1) and the loss was accepted. Subsequently, the assessing officer received a letter dated 3-3-2006 from the Director of IT (Investigations), New Delhi which furnished detailed information regarding entry operators/accommodation providers. The letter informed the assessing officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was also one. There were also statements recorded from persons confirming the facts. According to the information contained in the letter, the assessee had obtained accommodation entries from these proceedings in the garb of share application monies. The total amount received from such persons as share application moniys was Rs. 1,18,50,000 during the relevant year, Based on the aforesaid letter, the assessing officer issued notice under section 148 on 22-9-2006 reopening the assessment of the assessee and called upon it to file return of income in response to the notice. The assessee stated that the return filed by it earlier may be treated as compliance with the notice. It also requested the assessing officer to furnish the reasons for reopening the assessment, which were provided under cover of letters dated 1-6-2007 and 14-6-2007. In the course of the reassessment proceedings pursuant to the notice issued under section 148, the assessing officer issued a questionnaire to the assessee. In order to comply with the same, the assessee sought for the documents/material in the possession of the assessing officer and also requested him to produce the person incharge of the 16 companies for cross-examination with regard to the contents of the statements recorded from them. In response to the assessee's request, the assessing officer provided the assessee with the following:- 1. Copy of statement of Rajan Jassal, S/o Surinder Kr. Jassal, R/o WZ, 134 Plot No. 170, Vishnu Gareden, New Delhi. 2. Copy of statement of Mukesh Gupta S/o R.D.Gupta R/o WZ-414, Naraina Village, New Delhi. 3. Printed contents of CD received from Investigation Wing showing transaction made with various parties. 4. Copy of letters written to Addl. Commissioner of Income Tax Unit-I. New Delhi, by Mukesh Gupta and Rajan Jassal claiming various Benami accounts maintained by them.Ã¢â‚¬ In order to examine the genuineness and the creditworthiness of the companies which gave the entries to the assessee, the assessing officer issued summons to M Gupta and R Jassal on 23-10-2007 and 26-11-2007 respectively. It appears that the assessing officer had also issued summons to the companies on 14-9-2007. He has recorded in the assessment order that some of the summons sent to the companies were received back unserved and the other summons remained uncomplied with. The summons issued to Mukesh Gupta and Rajan Jassal were served but remained uncomplied with. In the meantime, it would appear that the assessee had raised objections to the reopening to the assessment which were disposed of by the assessing officer vide letter dated 19-11-2007. The further objections raised on 26-11-2007 were also disposed of by the assessing officer vide order dated 28-11-2007. Since there was no response to the summons which were served and some of them had been returned unserved, the assessing officer sent an Inspector of Income Tax to the addresses to which summons were issued. The Inspector reported that no such person or company was available or existing at the addresses to which summons were issued. On the basis of the report of the Inspector, the assessing officer issued notice to the assessee on 23-10-2007 to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. On 5-12-2007, the assessee filed a letter with the assessing officer along with the affidavits of R Jassal and M Gupta in which both of them had stated that the transactions with the assessee were genuine and the earlier statements recorded from them by the investigation wing were given under pressure. On the aforesaid facts, the assessing officer came to the conclusion that the independent enquiries carried out by him disclosed that the assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee company had introduced its own monies through non-existing companies using the banking channel in the shape of share application monies. He accordingly invoked section 68 and added the amount of Rs. 1,18,50,000 to the income of the assessee. In addition, the assessing officer also made an addition of Rs.2,96,250 representing the commission paid to the parties who facilitated the transactions. He noted that normally the commission in such transactions varied from 2% to 3%. He, therefore, adopted the average of 2.5% which came to Rs.2,96,250 on the amount of Rs.1,18,50,000. This amount was also added to the income of the assessee, making the total addition to Rs.1,21,71,250. The Commissioner (Appeals) after considering the facts of the case, the statements of the assessee, the remand report of the assessing officer as well as the rejoinder of the assessee to the remand report, concluded that the assessing officer was not justified in making the addition of Rs.1,18,50,000 under section 68. Consequently, he also deleted the addition of Rs. 2,96,250 made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. In addition, the assessing officer also made an addition of Rs.2,96,250 representing the commission paid to the parties who facilitated the transactions. He noted that normally the commission in such transactions varied from 2% to 3%. He, therefore, adopted the average of 2.5% which came to Rs.2,96,250 on the amount of Rs.1,18,50,000. This amount was also added to the income of the assessee, making the total addition to Rs.1,21,71,250. The Commissioner (Appeals) after considering the facts of the case, the statements of the assessee, the remand report of the assessing officer as well as the rejoinder of the assessee to the remand report, concluded that the assessing officer was not justified in making the addition of Rs.1,18,50,000 under section 68 of the Act. Consequently, he also deleted the addition of Rs. 2,96,250 made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. The Tribunal passed a common order disposing of the appeal of the revenue and the cross-objections filed by the assessee passed on 14-5-2010. In paragraphs 28 to 30 of the said order, the Tribunal held, dismissing the cross-objections filed by the assessee, that the assessing officer had rightly assumed jurisdiction under section 147 of the Act to reopen the assessment. It was observed that the reason to believe that income chargeable to tax had escaped assessment had a rational nexus with the material placed before the assessing officer by the investigation wing of the income-tax department. As regards the appeal filed by the revenue challenging the relief granted by the Commissioner (Appeals) on merits, the Tribunal concluded as follows: In the instant case, the finding recorded by the Commissioner (Appeals) with regard to identity of the shareholder has not been controverted by the DR. The Revenue has also not taken any ground that Commissioner (Appeals) has relied on the additional evidence while deleting the addition. We therefore do not find any reason to interfere in the finding of the Commissioner (Appeals) who has deleted the addition after applying the proposition of law laid down by the Supreme Court in the case of Lovely Exports to the facts of instant case. Held: In the present appeal, the evidence and material on record, property considered in the light of the surrounding circumstances and without attaching weight to neural circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. The affidavits need not be accepted as reliable when there is enough material on record to doubt the veracity of the transaction. In such a case it cannot be said that the affidavits can be rejected only after cross examination. In the present case, there is enough material on record to negate the claim of genuineness of the transactions and in the light of over-whelming material, the plea that the assessing officer should not have rejected the affidavits without cross-examination of the deponents has no force. The said exercise has resulted in complete miscarriage of justice. The addition made by the assessing officer was, therefore, justified. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1558 (Del-HC) : (2012) 342 ITR 0169 : (2012) 252 CTR 0187 : (2012) 206 TAXMAN 0207 : (2012) 075 DTR 0065

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Share application money vis-a-vis entry providers for consideration--The assessee was a private limited company. In respect of the assessment year 2000-2001, for the previous year ended on 31-3-2000, it filed a return of income declaring loss of Rs. 2,800. The return was processed under section 143(1) and the loss was accepted. Subsequently, the assessing officer received a letter dated 3-3-2006 from the Director of IT (Investigations), New Delhi which furnished detailed information regarding entry operators/accommodation providers. The letter informed the assessing officer that there were 16 entry operators who had given accommodation entries to several persons of which the assessee was also one. There were also statements recorded from persons confirming the facts. According to the information contained in the letter, the assessee had obtained accommodation entries from these proceedings in the garb of share application monies. The total amount received from such persons as share application moniys was Rs. 1,18,50,000 during the relevant year, Based on the aforesaid letter, the assessing officer issued notice under section 148 on 22-9-2006 reopening the assessment of the assessee and called upon it to file return of income in response to the notice. The assessee stated that the return filed by it earlier may be treated as compliance with the notice. It also requested the assessing officer to furnish the reasons for reopening the assessment, which were provided under cover of letters dated 1-6-2007 and 14-6-2007. In the course of the reassessment proceedings pursuant to the notice issued under section 148, the assessing officer issued a questionnaire to the assessee. In order to comply with the same, the assessee sought for the documents/material in the possession of the assessing officer and also requested him to produce the person incharge of the 16 companies for cross-examination with regard to the contents of the statements recorded from them. In response to the assessee's request, the assessing officer provided the assessee with the following:- 1. Copy of statement of Rajan Jassal, S/o Surinder Kr. Jassal, R/o WZ, 134 Plot No. 170, Vishnu Gareden, New Delhi. 2. Copy of statement of Mukesh Gupta S/o R.D.Gupta R/o WZ-414, Naraina Village, New Delhi. 3. Printed contents of CD received from Investigation Wing showing transaction made with various parties. 4. Copy of letters written to Addl. Commissioner of Income Tax Unit-I. New Delhi, by Mukesh Gupta and Rajan Jassal claiming various Benami accounts maintained by them.Ã¢â‚¬ In order to examine the genuineness and the creditworthiness of the companies which gave the entries to the assessee, the assessing officer issued summons to M Gupta and R Jassal on 23-10-2007 and 26-11-2007 respectively. It appears that the assessing officer had also issued summons to the companies on 14-9-2007. He has recorded in the assessment order that some of the summons sent to the companies were received back unserved and the other summons remained uncomplied with. The summons issued to Mukesh Gupta and Rajan Jassal were served but remained uncomplied with. In the meantime, it would appear that the assessee had raised objections to the reopening to the assessment which were disposed of by the assessing officer vide letter dated 19-11-2007. The further objections raised on 26-11-2007 were also disposed of by the assessing officer vide order dated 28-11-2007. Since there was no response to the summons which were served and some of them had been returned unserved, the assessing officer sent an Inspector of Income Tax to the addresses to which summons were issued. The Inspector reported that no such person or company was available or existing at the addresses to which summons were issued. On the basis of the report of the Inspector, the assessing officer issued notice to the assessee on 23-10-2007 to produce the persons and companies from whom it had received share applications monies. This also was not complied with by the assessee. On 5-12-2007, the assessee filed a letter with the assessing officer along with the affidavits of R Jassal and M Gupta in which both of them had stated that the transactions with the assessee were genuine and the earlier statements recorded from them by the investigation wing were given under pressure. On the aforesaid facts, the assessing officer came to the conclusion that the independent enquiries carried out by him disclosed that the assessee was unable to prove the genuineness of the transactions with the companies and that it also proved that the assessee company had introduced its own monies through non-existing companies using the banking channel in the shape of share application monies. He accordingly invoked section 68 and added the amount of Rs. 1,18,50,000 to the income of the assessee. In addition, the assessing officer also made an addition of Rs.2,96,250 representing the commission paid to the parties who facilitated the transactions. He noted that normally the commission in such transactions varied from 2% to 3%. He, therefore, adopted the average of 2.5% which came to Rs.2,96,250 on the amount of Rs.1,18,50,000. This amount was also added to the income of the assessee, making the total addition to Rs.1,21,71,250. The Commissioner (Appeals) after considering the facts of the case, the statements of the assessee, the remand report of the assessing officer as well as the rejoinder of the assessee to the remand report, concluded that the assessing officer was not justified in making the addition of Rs.1,18,50,000 under section 68. Consequently, he also deleted the addition of Rs. 2,96,250 made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. In addition, the assessing officer also made an addition of Rs.2,96,250 representing the commission paid to the parties who facilitated the transactions. He noted that normally the commission in such transactions varied from 2% to 3%. He, therefore, adopted the average of 2.5% which came to Rs.2,96,250 on the amount of Rs.1,18,50,000. This amount was also added to the income of the assessee, making the total addition to Rs.1,21,71,250. The Commissioner (Appeals) after considering the facts of the case, the statements of the assessee, the remand report of the assessing officer as well as the rejoinder of the assessee to the remand report, concluded that the assessing officer was not justified in making the addition of Rs.1,18,50,000 under section 68 of the Act. Consequently, he also deleted the addition of Rs. 2,96,250 made for commission paid to the entry providers for obtaining the entries, which had been added under section 68. The Tribunal passed a common order disposing of the appeal of the revenue and the cross-objections filed by the assessee passed on 14-5-2010. In paragraphs 28 to 30 of the said order, the Tribunal held, dismissing the cross-objections filed by the assessee, that the assessing officer had rightly assumed jurisdiction under section 147 of the Act to reopen the assessment. It was observed that the reason to believe that income chargeable to tax had escaped assessment had a rational nexus with the material placed before the assessing officer by the investigation wing of the income-tax department. As regards the appeal filed by the revenue challenging the relief granted by the Commissioner (Appeals) on merits, the Tribunal concluded as follows: In the instant case, the finding recorded by the Commissioner (Appeals) with regard to identity of the shareholder has not been controverted by the DR. The Revenue has also not taken any ground that Commissioner (Appeals) has relied on the additional evidence while deleting the addition. We therefore do not find any reason to interfere in the finding of the Commissioner (Appeals) who has deleted the addition after applying the proposition of law laid down by the Supreme Court in the case of Lovely Exports to the facts of instant case. Held: In the present appeal, the evidence and material on record, property considered in the light of the surrounding circumstances and without attaching weight to neural circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. The affidavits need not be accepted as reliable when there is enough material on record to doubt the veracity of the transaction. In such a case it cannot be said that the affidavits can be rejected only after cross examination. In the present case, there is enough material on record to negate the claim of genuineness of the transactions and in the light of over-whelming material, the plea that the assessing officer should not have rejected the affidavits without cross-examination of the deponents has no force. The said exercise has resulted in complete miscarriage of justice. The addition made by the assessing officer was, therefore, justified.