ShriKapil Rathi , Indore V. ITO 5 (2), Indore

CO 35/Ind/2021

AI Insights

The case involves an appeal by the Revenue against the decision of the CIT(A) which had deleted the addition made by the AO on the grounds of various incriminating documents seized from the premises of M/s Keti Construction Ltd. The AO had made an addition of Rs.1,87,67,235/- in the hands of the assessee, Shri Kapil Rathi, on account of accommodation entry commission. The CIT(A) found that the reassessment was not valid as the necessary statutory notice under section 143(2) was not issued. The Tribunal agreed with the CIT(A)'s decision, citing the Supreme Court's judgment in ACIT vs. Hotel Blue Moon, which emphasized the necessity of issuing notice under section 143(2) for valid reassessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 301052 (ITAT-INDORE)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-11-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2023
• Other Referred Cases: ACIT vs. Hotel Blue Moon, 321 ITR 362 (SC)
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Accommodation entries; Documents seized; Set aside
• Section: 147; 148; 143(3); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI C.M. GARG, JUDICIAL MEMEBR AND SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No. 43/Ind/2021 (िनधा रणवष / Assessment Year : 2011-12) The Income-tax Officer- 5(1), AayakarBhawan, White Church Road, Indore. बनाम/ Vs. ShriKapilRathi, 168, Jaora Compound, Indore. CO No.35/Ind/2021 (आयकरअपीलसं./I.T.A. No. 43/Ind/2021) (िनधा रणवष / Assessment Year : 2011-12) ShriKapilRathi, 168, Jaora Compound, Indore. बनाम/ Vs. The Income-tax Officer-5(1), AayakarBhawan, White Church Road, Indore. थायीलेखासं./जीआइआरसं./PAN/GIR No. : ABIPR5389L (Appellant/Cross Objector) ( थ / Respondent) Assessee by : ShriAnil Garg & ShriArpit Gaur, CAs Department by: Shri Ashish Porwal, Sr. D.R. सुनवाईकीतारीख/Date of Hearing 11.11.2022 घोषणाकीतारीख /Date of Pronouncement 27/12/2022 ORDER PERC.M. GARG, JM: The instant appeal filed by the Revenue and the CO filed by the assesseeare directed against the order dated 22.09.2020 passed by the CIT(A)- II, Indore for A.Y. 2011-12. ITA No. 43/Ind/2021 & CO No.35/Ind./20212 2 2. The grounds of appeal read as under:- “1. The Ld. CIT(A) was not justified in allowing assessee's appeal without considering the facts that the addition was made on the basis of various incrimination documents which were seized from the premises of M/s Keti Construction Ltd. 2. The Ld. CIT(A) was not justified in not considering the facts that the assessee has provided accommodation entries to M/s Keti Construction Ltd. in the garb of share capital and also in form of bogus bills of material supply such as JK Cement bills. 3. The Ld. CIT(A) was not justified in not considering the ledger of M/s KKR(Codename of Kapil Rathi) in the books of Keti Construction Ltd. and findings of the AO that the assessee had provided accommodation entries to M/s Keti Construction Ltd. and commission was also paid to Shri Kapil Rathi. 4. The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal.” 3. The grounds of the Cross Objection read as under:- “1a). That, the ld. CIT(A) grossly erred, in law, in confirming the action of the AO for issuing notice under s. 148 of the Income-Tax Act, 1961 and framing the reassessment in pursuance thereof, which are quite unjustified, unwarranted,without jurisdiction and bad-in-law. 1 b). That, the ld. CIT(A) grossly erred, in law, in confirming the action of the AO for assuming jurisdiction to issue the notice under s. 148 of the Act, merely on suspicion, without forming any objective satisfaction and without having tenable reasons to believe that any income of the appellant had escaped assessment within the meaning of section 147 of the Act. 2. That, without prejudice to the above, the ld. CIT(A) grossly erred, in law, in upholding the action of the AO in framing the assessment under s. 143(3) of the Income-Tax Act, 1961 without first issuing statutory notice under s. 143(2) of the Act which is a sine-qua-non for framing the assessment under s. 143(3). 3.That, the cross-objector further craves leave to add, alter and/or amend Ground of Cross-objections, as and when considered necessary.” ITA No. 43/Ind/2021 & CO No.35/Ind./20213 3 4. The brief facts of the case, as emerging out from the assessment order, are that the assessee filed his return of income for the relevant assessment year on 28/03/2012 declaring total income at Rs.3,73,8601-. The AO noted that the DCIT-Central, Indore forwarded the information in the case of Shri Kapil Rathi, Indore stating therein that during the course of the search proceedings in Keti Group of Indore, various entries were found recorded in the name of Shri Kapil Rathi (KKR) in the books of account of M/s Keti Construction Ltd. It has been further noted by the AO that Shri Kapil Rathi has not only provided accommodation entries in the form of share capital but also of bogus material supply bills. The AO also stated that commission was also paid to Shri Kapil Rathi on this count and accordingly addition was proposed by the Investigation Wing in the Appraisal Report. Thus, as per the AO, after recording the reasons, he issued a notice u/s. 148 on 16/03/2016 requiring the assessee to furnish his return of income for the relevant assessment year. The AO further stated that the assessee, vide his letter dated 28/11/2016 filed a copy of the acknowledgment of ITR filed on 28/03/2012 and computation of income along with copy of his bank statement with ICICI Bank and Axis Bank Ltd. The AO also stated that the assessee denied to have made any transaction with M/s. Keti Construction Ltd., during the relevant financial year and also denied to have issued any bills of JK Cement to M/s. Keti Construction Ltd. and further denied to have received any amount on account of commission from M/s. Keti Construction. The AO, by discarding the explanation of the assessee madehis findings that during the search proceedings, the documentary evidences were found in the ledger of ‘KR’ which was code name for Kapil Rathi. The relevant part of the Appraisal Report has been annexed by the AO to his order as Annexure-A. The AO finally stated that since the assessee had flatly denied to have any dealing with Keti Group and was reluctant to furnish any details and documents, there was no alternative except to assess the income of the assessee on account of share capital entry commission at Rs.1 ,87,67,235/- as found and determined in the Appraisal Report and proposed to be added in the hands of the assessee. Accordingly, the AO, after taking the returned income of Rs.3,73,860/- shown by the assessee in his return of income for the relevant ITA No. 43/Ind/2021 & CO No.35/Ind./20214 4 assessment year, made an addition of Rs.1,87,67,235/- in the hands of the assessee on account of accommodation entry commission and determined the total income of the assesse for the relevant assessment year at Rs.1,91,41,095/- by passingan Order u/s. 147/143(3) of the Act on 07.12.2016. As against the same, the assesse preferred an appeal before the CIT(A)-II, Indore. 5. The ld.CIT(A) deleted the addition made by the AO on the basis of various incriminating documents seized from the premises of M/s Keti Group. Now, the Revenue has filed this appeal challenging the deletion of addition by the ld.CIT(A) and the assessee has also filed cross objection challenging the validity of initiation of reassessment proceedings u/s 147 of the Act and issuance of notice u/s 148 of the Act. Appeal of the Revenue 6. Apropos the above noted grounds of the Revenue, the ld. Sr. DR submitted that the ld.CIT(A) has granted relief to the assessee without considering the fact that the addition was made on the basis of various incriminating documents which were seized and found from the premises of M/s Keti Construction Ltd. The ld. Sr. DR also submitted that the ld. First appellate authority was not justified in not considering the fact that the assessee has provided accommodation entry to M/s Keti Construction Ltd., in the garb of share capital and also in the form of bogus bills of material supply such as JK Cement bills. The ld. Sr. DR, supporting the assessment order, submitted that the assessee flatly denied to have any dealing with Keti Group and did not furnish any details or documents substantiating the explanation. Therefore, the AO was right in making addition in the hands of the assessee. The ld. Sr. DR finally submitted that the impugned first appellate order may kindly be set aside and the order of the AO may be restored. ITA No. 43/Ind/2021 & CO No.35/Ind./20215 5 7. Replying to the above, the ld. Counsel of the assessee took us through the relevant operative paras of the first appellate order and submitted that the ld.CIT(A) has granted relief to the assessee on legal grounds as well as on merits. He further submitted that there was a failure on the part of the AO in issuing any notice u/s 143(2) of the Act subsequent to the furnishing of return of income in response to notice u/s 148 of the Act. Accordingly, as per the judgement of the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon, 321 ITR 362 (SC), the ld.CIT(A) was right in holding that the reassessment framed by the AO without issuing notice u/s 143(2) deserves to be quashed. 8. The ld. AR further drawing our attention to the conclusion drawn by the ld.CIT(A) on ground No.3 of the first appeal submitted that the AO has made the impugned addition without confronting the same with the assessee in violation of principles of natural justice. Therefore, the impugned assessment order was rightly quashed by the ld.CIT(A). The ld. AR also drew our attention to para 7-7.6 of the first appellate order and submitted that the AO made the addition in the hands of the assessee on the sole presumption of providing accommodation entry by the assessee and receipt of commission therefrom without bringing out any corroborative material on record to dispute the claim of the assessee. The ld. AR vehemently pointed out that the AO could not find any defect or discrepancy in the documentary evidence filed by the assessee in support of his claim. Therefore, the ld.CIT(A) was right in deleting the addition on merit also. On careful consideration of rival submissions, we may point out that on being asked by the Bench, the ld. Sr. DR could not controvert that there has been a violation on the part of the AO for not issuing any notice u/s 143(2) of the Act after receipt of return of income in response to notice u/s 148 of the Act. Except relying on the order of the AO, the ld. Sr. DR could not point out that any notice u/s 143(2) of the Act was issued and served on the assessee by the AO before making reassessment order u/s 147 r.w.s. 143(3) of the Act. Therefore, the ld.CIT(A) was right in quashing the reassessment order by following the proposition laid down by the Hon’ble Supreme Court in the case ITA No. 43/Ind/2021 & CO No.35/Ind./20216 6 ACIT vs. Hotel Blue Moon (supra). Therefore, we are in agreement with the conclusion drawn by the ld.CIT(A) in quashing the reassessment order dated 07.12.2016 for AY 2011-12. 9. Since, by the earlier part of this order we have confirmed the findings of the ld.CIT(A) in quashing the reassessment order on account of the failure of the AO to issue notice u/s 143(2) of the Act, therefore, other grounds of the Revenue on merits are not being adjudicated upon as having become academic. 10. In the result, the appeal of the Revenue is dismissed. Cross Objection of the Assessee. 11. The ld. Assessee’s Representative submitted that the assessee does not want to press his Cross Objections as the same were filed to support the first appellate order. Accordingly, the cross objections filed by the assessee are dismissed. 12. In the result, the appeal of the Revenue and the Cross Objections of the assessee are dismissed. Order pronounced u/r 34(4) of the Income-tax (Appellate Tribunal) Rules, 1963 on 27 .12.2022. Sd/- Sd/- (BHAGIRATH MAL BIYANI) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore: Dated, 27 /12/2022 dk ITA No. 43/Ind/2021 & CO No.35/Ind./20217 7 आदेशकी ितिलिपअ ेिषत / Copy of Order Forwarded to:- 1. राज / Revenue 2. आवेदक / Assessee 3. संबंिधतआयकरआयु#/ Concerned CIT 4.आयकरआयु#- अपील / CIT (A) 5. िवभागीय ितिनिध,आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad 6. गाड)फाइल / Guard file. By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore Date 1. Draft dictated on 19.12.2022 2. Draft placed before the author 20.12.2022 3. Draft placed before the other Member 4. Approved Draft comes to the Sr.PS/PS 5. Order uploaded on 6. File sent to the Bench Clerk 7. Date on which file goes to the Head Clerk. 8. Date on which file goes to the AR 9. Date of dispatch of Order.