COLORADO CHATTELS PVT. LTD.,NEW DELHI V. ITO,WARD-6(2), DELHI

ITA 3169/DEL/2024

AI Insights

The case involves Colorado Chattels Pvt. Ltd., which appealed against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, for the Assessment Year 2012-13. The appeal was primarily against the validity of the proceedings under section 148 and the addition of Rs.28,16,111 concerning shares purchased by two companies. The Assessing Officer (AO) had reopened the assessment based on information that the companies involved were non-compliant and possibly non-existent, leading to the conclusion that they were accommodation entry providers. However, the Tribunal found that the AO did not adequately verify the status of these companies or provide substantial evidence to support the claims of them being bogus entities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396977 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Other Referred Cases: ACIT vis O.P Chawla, Shri Saibaba Sansthan Trust v/s UOI, 472 ITR 1 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR
• Assessee Lawyers: K. R. MANJANI
• Keywords: Accommodation entries; Competent authority; Bogus
• Section: 148; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’: NEW DELHI BEFORE SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3169/DEL/2024 (Assessment Year: 2012-13) Colorado Chattels Pvt. Ltd., vs. ITO, Ward 6 (2), Nulon House, Tribhuvan Complex, Delhi. 10th Milestone, Ishwar Nagar, Delhi – 110 065. (PAN : AAACC0265G) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K.R. Manjani, Advocate Shir Tarun Aswani, Advocate REVENUE BY : Shri Sanjay Kumar, Sr. DR Date of Hearing : 12.03.2025 Date of Order : 28.05.2025 O R D E R PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 17.06.2024 for the Assessment Year 2012-13. 2. Brief facts of the case are, the AO received information from the Office of the ITO (Inv.), Unit 2(3), New Delhi relating to the assessee. Accordingly, the case was reopened after obtaining approval for issuance of notice u/s 148 of the Income-tax Act, 1961 (for short ‘the Act’). Accordingly, approval was obtained u/s 151(1) of the Act. The AO has reproduced the reasons of reopening in his assessment order. The reasons recorded by the AO are that the companies, namely, M/s. First Hi Fin Limited and M/s. U P Electricals Ltd. 2 ITA No.3169/DEL/2024 have done large transactions of cash transactions and have been transferred during the year and the abovesaid information was received from ITO (Inv.). As per the information available at MCA site, Assessing Officer observed that the abovesaid companies have not filed their annual return and Balance Sheet from FY 2006-07. Summons were issued to the abovesaid companies which remained undelivered. Various summons were issued to the companies and due to non-compliance, an Inspector was also deputed to trace the abovesaid companies. As per the Inspector’s report, these companies are not found working or have existed at the given addresses. Due to non-compliance, both under Income-tax Act as well as Companies Act, the AO observed that the profits declared by those companies are negligible and observed that the two companies are mainly accommodation entry providers. Therefore, he observed that in absence of any identity and absence of Directors, no response to summons and financials of the abovesaid assessee companies proved that companies are merely paper companies. He observed that during the impugned assessment year, the assessee has received funds from M/s. U P Electricals Limited of Rs.21,35,055/- and accordingly, he formed an opinion that funds received by the assessee is only its own funds. Accordingly, he reopened the assessment and issued notice u/s 148 and analysed the same information in the assessment proceedings which was utilized to form an opinion that income has escaped assessment. In response, assessee submitted relevant information. Based on the information submitted by the assessee, AO found that the abovesaid companies have purchased the shares of the assessee company. AO 3 ITA No.3169/DEL/2024 analysed the Balance Sheet of the assessee company and observed that assessee has authorized share capital of Rs.5 lakh. issued and paid up capital of Rs.3,40,000/- and received share application money of Rs.2,25,000/-. The company, M/s. First Hi Fin Limited is having a shareholding of 12.95% of the assessee company. Further he observed that assessee has a gross receipt of Rs.16,20,000/- and declared returned income of Rs.4,29,301/-. Considering the fact that none of these companies are complied with various notices and also not traceable, he came to the conclusion that these companies are bogus and accordingly, proceeded to make the addition to the extent of money received from those companies. After considering the submissions of the assessee and not satisfied with the submissions of the assessee, he proceeded to make additions u/s 68 of the Act. 3. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT(A) and filed detailed submissions. After considering the detailed submissions, ld. CIT(A) sustained the addition made by the AO with the observation that assessee has made submissions challenging reopening proceedings but it failed to file any documentary evidences to prove the genuineness of transaction and creditworthiness of these two companies and also observed that the assessee had not explained nature of receipt as well. 4. Aggrieved with the above order, assessee filed appeal raising following grounds of appeal :- “1. Ld. AO as well as Ld. CIT (A) have erred on facts as well as in law in not declaring the proceedings u/s 148 as invalid. 4 ITA No.3169/DEL/2024 2. Ld. AO as well as Ld. CIT (A) have erred on facts as well as in law in sustaining the addition of Rs.28,16,111/- in respect of shares purchased by two companies through banking channel when identity, capacity and genuineness of share purchases have been proved. Prayer : It is prayed that u/s 148 proceedings may be held invalid or in the alternative addition of Rs.28,16,111/- may kindly be deleted. 5. At the time of hearing, ld. AR of the assessee submitted as under :- “ In this case notice u/s 148 was issued on the plea that M/s U P Electricals Limited & M/s First Hi-Fin Limited who had purchased shares of the Colorado Chattels Pvt. Ltd. in Financial Year 2011-12 are non-existing companies and had given accommodation. On this account, the AO was requested to give the copy of information received from Investigation Unit and also reasons for starting sec. 148 alongwith details of showing accommodation. The Ld. AO only supplied reasons for reopening that too after 2-3 reminders and did not give information received from investigation and material in support of accommodation was not supplied inspite of many letters which are in paper book appearing a~ pages 5, 8, & 12. However, the AO was informed that these companies have filed suit against Directors of Colorado Chattels Pvt. Ltd. in National Company Law Tribunal. Consequently it cannot be said that these companies are non- existing. The Ld. AO was also supplied copies of Petitions, and address of the advocates of these companies were also given as per pages 18 to 23 & 26 and the AO was requested to contact the advocates and take the address of these companies from them. No action on this is taken. The AO did not supply material of Investigation Unit nor the report of Inspector and the material in support of accommodation. Ld. AO was also informed that when two companies had purchased the shares they had filed the balance sheet, Audit Reports and payment was through cheque, acknowledgment of return of these companies. In balance sheet, M/s First Hi-Fin Limited had share capital of Rs.6.,00,00,000/- apart from reserve of Rs.17,47,78,696/- and M/s U P Electricals Limited had capital of Rs.1,25,00,000/- apart from reserve of Rs.3,09,43,948/-. Since the AO was not providing details, he was informed that we will file writ and he may not take action for one week so that we could 5 ITA No.3169/DEL/2024 get stay from the Hon'ble Delhi High Court. On this, the Ld. AO instead of waiting, sent the assessment order. Sec. 148 proceedings are ab-initio; incorrect because it is started on the same material on which the assessee has issued the shares. There is no new material in support of starting sec. 148 proceedings as held by Hon'ble Delhi Tribunal in ACIT vis O.P Chawla reported at 306 ITR 328(Trib.) copy attached. It is settled law that on same material sec. 148 proceedings could not be started as per 342 CTR 465 (Born) in case of Shri Saibaba Sansthan Trust v/s UOI. Similarly in respect to accommodation reliance was placed on Hon'ble Supreme Court judgment reported at 472 ITR 1 (SC) copy attached laying down that entity with which sale of share was entered was not shell entity if no enquiry or any material in support of this was filed. On above account the proceedings 148 are void, bad in law and without any tangible new material. Consequently the proceedings and assessment are void, and need to be cancelled.” 6. On the other hand, ld. DR of the Revenue relied on the findings of the ld. CIT (A) and he brought to our notice page 7 of the appellate order and submitted that AO has admitted to verify the creditworthiness of these two paper companies, they do not have proper financial health and further submitted that even the Directors of the company are untraceable. He supported findings of the ld. CIT (A) that these companies are paper companies and assessee has not proved the genuineness of the transactions. 7. Considered the rival submissions and material placed on record. I observed that the AO received certain information from the investigation wing and based on the abovesaid information, he issued several notices to the companies, namely, UP Electricals Ltd. and M/s. First Hi Fin Limited. AO himself made 6 ITA No.3169/DEL/2024 detailed investigation and deputed an Inspector to locate these companies and based on the information from the Inspector, both these companies are not traceable, he formed an opinion that these are paper companies. It was also brought to my notice that they have not complied by filing annual returns with ROC. Accordingly, AO recorded the reasons for reopening and proceeded to reopen the assessment by taking approval from competent authority and accordingly formed an opinion of income escapement. After considering the submissions of the assessee, AO observed that both these companies have invested in the assessee company by way of share capital and share application money. It is fact on record that assessee has declared gross receipts and also declared profit during the year under consideration. The AO himself observed that the assessee has received share capital from the abovesaid two companies and merely because these companies are untraceable. the investment made by these companies are treated as accommodation entries and made addition in the hands of the assessee. At the time of hearing, it is brought to my notice that both these companies having huge share capital and also huge reserves in the Balance Sheet. Assessee also filed copy of Balance Sheet before the tax authorities. The AO has issued notice u/s 148 of the Act by recording the reasons that assessee has received funds from these companies and also it was found that assessee has issued shares to these companies. I observed that the Assessing Officer himself recorded the findings that these companies are in existence in the ROC portal. Non-compliance by these companies itself cannot be the reason to treat the receipt of share capital money as bogus. It is 7 ITA No.3169/DEL/2024 submitted before me that these companies are in existence and they have huge share capital and reserves. It is also brought to my notice that these two companies filed suit against the assessee company. The details were already filed before Assessing Officer. The Assessing Officer has completed the assessment without bringing on record how the shares subscribed by these companies are accommodation as bogus. If there is any failure on the part of two companies under investigation, the assessee has to bring on record the relevant proceedings initiated against these companies by the respective erstwhile Assessing Officers. No such findings were brought on record and only the assessee was asked to prove the genuineness of the share capital. Making assessment and framing opinion without proper verification is bad in law. In my view, the initiation of proceedings without there being proper material in the hands of AO is bad in law. Therefore, the reassessment is bad in law and accordingly quashed. 8. In my view, in case Assessing Officer has any material received from the respective Assessing Officers of the companies, namely, UP Electricals Ltd. and M/s. First Hi Fin Limited, he has liberty to proceed the proceedings not otherwise. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 28TH day of May, 2025. SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER Dated: 28.05.2025/TS 8 ITA No.3169/DEL/2024 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "