Rapid Diagnostic Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 137/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6402 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 14-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR CHOPRA
• Assessee Lawyers: SURESH K GUPTA
• Keywords: Unexplained cash credit; Bogus Share capital; Gift; Business income; Earning of tax free income; Question of law; Accommodation entries; Reassessment proceedings
• Section: 14A; 147; 131; 68; 27; 148; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F , NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.137 & 138 /DEL/2013 ASSESSMENT YEAR : 2009-10 & 2004-05 RESPECTIVELY RAPID DIAGNOSTIC PVT. LTD., VS. ITO, WARD 15(2), B-159, GUJRANWALA TOWN, NEW DELHI DELHI GIR / PAN:AAACR4366H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURESH K GUPTA, CA RESPONDENT BY : SHRI MANOJ KUMAR CHOPRA, SR. DR ORDER PER T.S. KAPOOR, AM: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINS T SEPARATE ORDERS OF LD. CIT(A) BOTH DATED 08.10.2012. THESE APPEALS WERE HEARD TOGETHER AND THEREFORE, ARE BEING DISPOSED OFF THROUGH A CONSOLI DATED ORDER. IN I.T.A.NO. 137/DEL/2013, THE ONLY GROUND RAISED BY THE ASSESSE E IS THE GRIEVANCE WITH THE ACTION OF CIT(A) BY WHICH HE HAD CONFIRMED THE DISALLOWANCE U/S 14A AMOUNTING TO RS.7,53,689/-. IN I.T.A.NO. 138/DEL/2 013, THE ASSESSEE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) BY WHICH HE HAD CONFIRMED THE ADDITION OF RS.12 LACS MADE BY THE ASSESSING OFFICE R AS UNEXPLAINED CASH CREDIT UNDER THE PROVISIONS OF SECTION 68 OF THE AC T. 2. LD. A.R. ADVANCED HIS ARGUMENTS FIRST IN RESPECT OF I.T.A.NO. 137/DEL/2013. IT WAS SUBMITTED THAT LD. CIT(A) HAS WRONGLY UPHELD THE ITA NO.137 & 138/DEL/2013 2 ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWA NCE U/S 14A AS NO EXPENDITURE WAS INCURRED BY THE ASSESSEE AND ASSESS ING OFFICER WITHOUT RECORDING ANY FINDING WITH RESPECT TO INCURRING OF ANY EXPENDITURE, HAS MADE THE ADDITION IN ACCORDANCE WITH THE PROVISIONS OF R ULE 8D. IT WAS SUBMITTED THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF MA XOPP INVESTMENT LTD. AND OTHERS VS CIT REPORTED AT 347 ITR 272 HAS HELD THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE W ITH RESPECT TO ACTUAL EXPENDITURE INCURRED AND IF THE CLAIM OF THE ASSESS EE THAT NO EXPENDITURE WAS INCURRED IS REJECTED THE ASSESSING OFFICER HAS TO G IVE COGENT REASONS FOR REJECTING SUCH CLAIM. HE FURTHER RELIED UPON THE C ASE LAW OF HERO CYCLES LTD. AS DECIDED BY HON'BLE HIGH COURT OF PUNJAB & H ARYANA REPORTED AT 323 ITR 518 WHEREIN THE HON'BLE COURT HAS REJECTED THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY, SOME EXPENDITU RE IS ALWAYS INCURRED AND HE INVITED OUR ATTENTION TO LD. CIT(A)S ORDER WHIC H HAD UPHELD THE DISALLOWANCE U/S 14A ON THE SAME PRETEXT. CONTINUI NG HIS ARGUMENTS HE SUBMITTED THAT THE ASSESSEE HAD NOT MADE ANY INVEST MENT DURING THE YEAR AND IN SUPPORT OF HIS ARGUMENT, HE INVITED OUR ATTENTIO N TO PAPER BOOK PAGE 4 WHERE THE SAME AMOUNT OF INVESTMENT WAS REFLECTED I N THE FINANCIAL YEAR ENDED 31.03.2008 AND 31.03.2009. IT WAS SUBMITTED THAT INVESTMENTS WERE MADE IN EARLIER YEARS AND, THEREFORE, NO DISALLOWAN CE WAS TO BE MADE IN THE YEAR UNDER CONSIDERATION. RELIANCE IN THIS RESPECT WAS PLACED ON THE CASE LAW OF G D MATSTEEL P. LTD. VS CIT 47 SOT 62 (MUM.) WHEREIN, IT WAS HELD THAT WHEN AN INVESTMENT IS MADE IN THE EARLIER YEAR AND THERE IS NO DISALLOWANCE U/S 14A, IN THAT YEAR IN WHICH INVESTM ENT WAS MADE, NO DISALLOWANCE CAN BE MADE IN SUCCEEDING YEAR. FURTH ER, IT WAS SUBMITTED THAT THE ASSESSEE HAD SURPLUS FUNDS AND IT HAD PLACED SU RPLUS FUNDS IN FIXED ITA NO.137 & 138/DEL/2013 3 DEPOSITS AND AGAINST FIXED DEPOSITS, IT HAS BEEN AV AILING O/D LIMIT FIRM THE BANK ON WHICH INTEREST WAS PAID. HOWEVER, THE NET INTEREST AFTER REDUCING INTEREST PAID FROM INTEREST RECEIVED WAS POSITIVE. TO SUPPORT HIS ARGUMENTS, OUR ATTENTION WAS INVITED TO PAPER BOOK PAGE 14 WHE REIN THE ASSESSEE HAD REFLECTED AN AMOUNT OF RS.26.42 LACS AS BANK INTERE ST INCOME. HE FURTHER TOOK US TO PAGE 5 OF THE PAPER BOOK TO HIGHLIGHT TH AT AGAINST THIS BANK INTEREST INCOME, THE ASSESSEE HAD BOOKED EXPENDITUR E AT RS.10.03 LACS ONLY AND, THEREFORE, RELYING UPON THE CASE LAW OF DCIT V S TRADE APARTAMENT LTD. 1277/KOL./2011, IT WAS SUBMITTED THAT WHEN THERE IS SURPLUS IN THE INTEREST INCOME, NO DISALLOWANCE U/S 14 READ WITH RULE 8D IS WARRANTED. FURTHER, RELIANCE WAS PLACED ON THE DECISION IN I.T.A.NO. 22 28/AHD/2012 IN THE CASE OF ITO VS KARNAVATI PETROCHEM P. LTD. WHEREIN, IT W AS HELD THAT WHEN THE INTEREST INCOME IS MORE THAN THE INTEREST EXPENDITU RE AND THERE IS NET INTEREST INCOME AND DEBIT OF INTEREST CANNOT BE CONSIDERED F OR DISALLOWANCE U/S 14A. FURTHER RELYING ON THE CASE LAW OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340, LD. A.R. ARGUED THAT WHERE THE ASSESSE ES OWN FUNDS ARE IN EXCESS AMOUNT OF INVESTMENT IN INVESTMENTS EARNING EXEMPT INCOME, IT HAS TO BE PRESUMED THAT INVESTMENTS WERE MADE OUT OF IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. LD. A.R. FURTHER SUBM ITTED THAT DURING THE YEAR THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME AND, THEREFORE, DISALLOWANCE COULD NOT HAVE BEEN MADE. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE DISALLOWANCE U/S 14A IN THE PRESENT SET OF FACTS AN D CIRCUMSTANCES, WAS NOT WARRANTED. 3. AS REGARD I.T.A.NO. 138/DEL/2013, IN RESPECT OF ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT, THE LD. A.R. SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED ALL RELEVANT DOCUMENTS LIKE ITA NO.137 & 138/DEL/2013 4 CONFIRMATION COPY OF THE BANK ACCOUNT, COPY OF ACKN OWLEDGEMENT OF INCOME TAX RETURN AND, THEREFORE THE ACTION OF THE ASSESSI NG OFFICER AND FURTHER CONFIRMATION OF IT BY LD. CIT(A) WAS JOT JUSTIFIED WHICH WAS ONLY ON ACCOUNT OF NON PRODUCTION OF SHARE APPLICANTS. HE FURTHER SUBMITTED THAT THE ASSESSMENT IN THIS CASE WAS COMPLETED AFTER REOPENI NG UNDER THE PROVISIONS OF SECTION 147/148 BUT THE REASONS RECORDED WERE NO T MADE AVAILABLE TO THE ASSESSEE. HE SUBMITTED THAT AS PER PAPER BOOK PAGE 1, THERE IS A COPY OF NOTICE U/S 148 OF THE ACT WHEREIN, IT HAS BEEN MENT IONED THAT THE REASONS RECORDED U/S 148 ARE ENCLOSED HOWEVER, THESE WERE N EVER PROVIDED TO THE ASSESSEE. INVITING OUR ATTENTION TO PAGE 8 OF THE PAPER BOOK, LD. A.R. SUBMITTED THAT IN RESPECT OF ALL SHARE APPLICANTS, ALL DOCUMENTS INCLUDING PAN, BANK STATEMENT, BALANCE SHEET, COPY OF RETURN, IDENTITY PROOF ETC. WERE ENCLOSED BUT THE ASSESSING OFFICER WITHOUT CON SIDERING THE ABOVE DOCUMENTARY EVIDENCE, PROCEEDED TO DISALLOW THE CLA IM ON THE BASIS OF ASSUMPTIONS THAT THESE WERE BOGUS SHARE CAPITAL ARR ANGED FROM ENTRY OPERATORS. HE FURTHER SUBMITTED THAT LD. CIT(A) HA S ALSO NOT CONSIDERED HIS SUBMISSIONS AND, THEREFORE, IT WAS PRAYED THAT APPE AL OF THE ASSESSEE BE ALLOWED. 4. LD. D.R. ON THE OTHER HAND HEAVILY RELIED UPON T HE FINDINGS OF THE ASSESSING OFFICER AND LD. CIT(A) IN RESPECT OF BOTH APPEALS. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. FIRST, WE TAKE UP I.T.A.NO. 137/DEL/201 3 (ASSESSMENT YEAR 2009- 10). LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AS SESSING OFFICER FOR MAKING DISALLOWANCE U/S 14A AS PER THE PROVISIONS O F RULE 8D FOR AN AMOUNT OF RS.7,53,689/- CONSISTING OF TWO AMOUNTS O F RS.4,93,689/- RELATING TO INTEREST AND RS.2.60 LACS RELATING TO ADMINISTRA TIVE EXPENSES. FROM THE ITA NO.137 & 138/DEL/2013 5 FACTS OF THE CASE, WE FIND THAT THE ASSESSEE IS HAV ING NET INTEREST INCOME AS IS APPARENT FROM THE FIGURES OF THE P & L ACCOUNT AS P LACED IN PAPER BOOK PAGE 41-55. THE ASSESSEE HAD RECEIVED A NET INTEREST IN COME OF RS.26.42 LACS AGAINST WHICH HE HAS INCURRED AN EXPENDITURE OF RS. 10.03 LACS AND, THEREFORE, THE ASSESSEE HAD A NET POSITIVE INCOME OF BANK INTE REST. THESE FIGURES ARE VERIFIABLE FROM THE PAPER BOOK PAGES 14 AND 5 RESPE CTIVELY. MOREOVER, WE FIND THAT THE ASSESSEE HAD NOT MADE ANY INVESTMENT DURING THE YEAR UNDER CONSIDERATION AS IS APPARENT FROM THE PAPER BOOK PA GE 4 WHERE THE SAME AMOUNT OF INVESTMENT IS APPEARING FOR THE FINANCIAL YEAR ENDING 31.03.2008 AND 31.03.2009. FURTHER, WE FIND FROM THE ORDER OF LD. CIT(A) AT PAGE 3 THAT THE INVESTMENT MADE BY THE ASSESSEE AMOUNTING TO RS.2 CRORES WAS FOR THE SHARES IN THE ASSOCIATED COMPANIES AND REGARDIN G THE INVESTMENT OF BALANCE AMOUNT OF RS.3.2 CRORES, IT WAS IN MUTUAL F UNDS RUN BY VARIOUS ASSET MANAGEMENT COMPANIES. IT IS AN ESTABLISHED FACT TH AT THE INVESTMENT IN ASSOCIATED COMPANIES IS NEVER MADE WITH THE PURPOSE OF EARNING DIVIDEND BUT THESE INVESTMENTS ARE MADE FOR STRATEGIC PURPOS E AND SIMILARLY, INVESTMENTS IN MUTUAL FUNDS ALSO DO NOT INVOLVE MUC H COST AS COMPARED TO MAKING INVESTMENT IN DIRECT EQUITY SHARES. MOREOVE R, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC EXPENDITURE WHICH THE ASSESSEE HAD INCURRED FOR EARNING THE EXEMPT INCOME. THEREFORE, IF CONSI DERED FROM ALL ANGLES, THE DISALLOWANCE U/S 14A IN THIS CASE WAS NOT WARRANTED AS HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY ASSESSEE. T HE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF HERO CYCLES 323 ITR 518 HAS HELD AS UNDER: CONTENTION THAT EVEN WHERE THE ASSESSEE CLAIMED TH AT NO EXPENDITURE HAD BEEN INCURRED, THE CORRECTNESS OF SUCH CLAIM CO ULD BE GONE INTO ITA NO.137 & 138/DEL/2013 6 BY THE ASSESSING OFFICER AND IN THE PRESENT CASE, T HE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED WAS FOUND TO BE NOT ACCEPTABLE BY THE ASSESSING OFFICER AND THUS DISALL OWANCE WAS JUSTIFIED IS NOT SUSTAINABLE. IN VIEW OF FINDING O F THE TRIBUNAL, IT IS CLEAR THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND THE INVESTMENTS IN THE SHARE AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF F ACT, DISALLOWANCE UNDER S.14A WAS NOT SUSTAINABLE. WHETHER, IN A GIV EN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED , IS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALL OWED UNDER S.14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY T HE MANDATE OF S.14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER S.14 A REQUIRES FINDING OF INCURRING OF EXPENDITURE; WHERE IT IS FO UND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, D ISALLOWANCE UNDER S.14A CANNOT STAND. IN THE PRESENT CASE FIND ING ON THIS ASPECT, AGAIN THE REVENUE, IS NOT SHOWN TO BE PERVERSE. CO NSEQUENTLY, DISALLOWANCE IS NOT PERMISSIBLE CIT VS WINSOME TE XTILE INDUSTRIES LTD. (IT APPEAL NO.504 OF 2008, DT. 25 TH AUG., 2009) FOLLOWED. 6. WE FIND THAT BOTH, THE ASSESSING OFFICER AND LD. CIT(A) HAVE HELD THAT SOME AMOUNT MUST HAVE BEEN INCURRED FOR EARNIN G EXEMPT INCOME, IGNORING THE IMPORTANT FACT THAT NO NEW INVESTMENT WAS MADE IN THE YEAR UNDER CONSIDERATION AND SIGNIFICANT PART OF INVESTM ENT WAS IN ASSOCIATE COMPANIES AND MOREOVER THERE IS NO NEXUS BETWEEN TH E BORROWED FUNDS AND INVESTMENTS. ABOVE ALL, WE FIND THAT THE ASSESSEE HAS EARNED NET INTEREST INCOME MEANING THEREBY THAT NO NET INTEREST EXPENDI TURE WAS INCURRED. IN VIEW OF THE ABOVE, IN THE FACTS AND CIRCUMSTANCES O F THE PRESENT CASE, FOLLOWING THE VARIOUS JUDGEMENTS RELIED UPON BY LD. A.R., THE DISALLOWANCE U/S 14A IS NOT SUSTAINABLE AND HENCE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. NOW, COMING TO I.T.A.NO. 138/DEL/2013, WE FIND T HAT THE ONLY ISSUE IN THIS CASE IS REGARDING ADDITION U/S 68 OF THE AC T AND THE ASSESSING OFFICER ITA NO.137 & 138/DEL/2013 7 ON THE BASIS OF AN INVESTIGATION REPORT, HAD REOPEN ED THE ASSESSMENT U/S 147 AND HAD OBSERVED THAT THE ASSESSEE HAD RECEIVED AN AMOUNT OF RS.12 LACS FROM SIX SHARE APPLICANTS AMOUNTING TO RS.2 LACS EA CH. THE ASSESSING OFFICER AFTER DISCUSSING THE MODUS OPERANDI OF ENTR Y PROVIDERS FOR PROVIDING ACCOMMODATION ENTRIES REQUIRED THE ASSESSEE TO FILE CONFIRMATION AND TO PRODUCE SHARE HOLDERS FROM WHOM SHARE APPLICATION M ONEY WAS RECEIVED. THE ASSESSEE IN REPLY FILED VARIOUS DOCUMENTS CONSI STING OF BANK STATEMENT, CONFIRMATION, COPY OF INCOME TAX RETURN ETC BUT DID NOT PRODUCE THE SHARE HOLDERS. THE ASSESSING OFFICER ISSUED SUMMONS U/S 1 31 TO SHARE APPLICANTS AND IN THE CASE OF TWO APPLICANTS, THE SUMMONS WERE RECEIVED BACK AS UNSERVED AND REST OF SHARE APPLICANTS ALSO NOT RESP ONDED. THEREFORE, THE ASSESSING OFFICER MADE THE ADDITION U/S 68 OF THE A CT. BEFORE LD. CIT(A), THE LD. A.R. FILED VARIOUS SUBMISSIONS WHICH INCLUD ED THAT NECESSARY CONFIRMATIONS AND OTHER DOCUMENTS RELATING TO AMOUN TS RECEIVED AS WERE FURNISHED BEFORE THE ASSESSING OFFICER. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AFTER RELYING UPON A NUMBER OF CASE LAWS, UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER B Y HOLDING AS UNDER: 4 . 2 I HAVE CAREFU LL Y C O N S I DE RE D THE ASSESSME N T ORDE R A N D TH E SUB M I S S I O N S F I L E D B Y THE APPELLANT. I FIND THAT THE R E OPE NI N G U/S 147 /1 48 HAS BEE N D O N E B Y THE AO AF T ER RE COR D I N G O F REASONS A S PER LAW SHO W I N G ' RE A S O N TO BELIEVE ', BASED ON I NFORMA TI O N R ECE I VED F R O M THE INVESTIGATION WING , AND A F T E R A PP R OV A L O F CO MPE T ENT AUTHOR I TY . I N TH I S C O NNECTION R E F ER E NC E IS ALSO PLACED ON THE FOLLO W I NG J U D IC I AL PRONOUNCEMENTS . IN CIT VS. INDIA TERMINAL CON NE C T O R SYSTEMS LTD. DA TED 2 1 . 03 .2 0 1 2 , T H E HON ' B L E DE L HI H IGH COURT HAS HELD T H A T A S S ES S MENT CAN BE R EOP ENE D O N T H E BAS I S O F I N FOR MA T ION PROVIDED BY THE DIT ( INVE S TI GAT IO N ) WH I C H WAS NOT AVA IL AB L E W I TH THE AO DU RING T H E C O URS E O F ORIGINAL PROCEEDING . THE - ITA NO.137 & 138/DEL/2013 8 H ON B L E HI G H CO URT T HUS HELD AS U N D ER : ' IN THE PRE S E NT C A SE IT CAN N O T B E D I SP U T ED AT A / L TH A T TH E M A T ERIA L PRESE N T BEF ORE THE ASSESSING OFFI C ER A T T HE TI ME OF R E C O RDING RE A SO NS F O R R EO PENI N G THE ASSESSMENT DI D S H O W LIN K B ET W E EN M / S . S H I V AM SO F TECH L TD . , D ES C RIB ED AS AN ENTRY PRO V IDER , W I TH TH E PE T I T I O N ER H E R EI N . N O T ONLY W AS T H ERE A L IN K BET W EEN T H E T W O NAM ES , BUT THE ME T - RI E L A / S , ) D IS CL O S E D THE D A TE O N W HI C H THE ENTR Y W AS TA KE N T HE CHEQUE OR DD NUM BER , TH E N A M E O F THE BA N K AND BR A N C H A ND TH E ACCO U N T N UM BER W I TH S UC H P RE C ISE MATERIAL B E F ORE T HE ASSES SI N G OF FI C E R , THE E X I S T EN CE OF W HICH IS BEYOND CHALLENG E , CAN H A RDLY BE SAID THA T TH E ASSE SS ING OF FI CE R COU L D NOT HA V E HAD E V EN A PR IM A FACIE B E L I E F THA T I N CO M E CHAR G E AB L E TO T A X HAD E SCAPED ASSESSMENT IN TH E HAND S O F THE A S SESSEE FOR THE A S S ESS M EN T YE A R 2 0 0 4- 05. [2007] 291 ITR 0500 - A S S I S TA NT COM M I S SIONER O F INC O ME - TA X V. RAJES H J H AVER I STOCK BROKERS P. LTD. ( S UP RE M E COUR T OF IND I A ) THE E X PRESSIO N ' REASON TO B E L IEV E ' IN SE C TIO N 147 W O U L D M EAN CA USE OR J UST I F ICAT I ON . IF THE ASSESSING O FFI C ER H A S C A USE OR J U S TIF IC A TION TO K N OW OR S U PPOS E THAT I NCOME HAD ESCAPED ASS E S S M ENT , H E C A N BE SA ID T O HA V E R EAS ON TO B E L I E V E TH AT INCOME HAD ESCAPED A SSES SM EN T. TH E EXP R E S SI O N C A N N O T B E RE A D TO ME A N TH A T TH E AS SES S IN G OFFICER SHOULD HA VE FINAL L Y A SCERTAIN E D THE FACT BY L E G A L E VI DE N C E OR C O N C L USI O N . WHAT I S REQ U IRE D I S ' R E ASO N T O B E LI E VE ' B UT N O T THE EST ABLI SHED F A C T O F ES C APEM E NT O F I NCOME . AT T HE S TA G E OF IS S U E O F NOT ICE , THE ON LY QUE S T IO N IS W HETHER T H E R E W AS RELE VA N T M ATERIAL A' W HICH A R E ASO N A B L E PERSO N C O UL D H A VE FO R M E D THE REQU I SITE BELIE F . WHET HER MAT ER I EL WO U L D C O NCL USIV E LY P ROV E E S CAPEMENT O F I N COME IS N OT T H E CONCERN A T THAT STAGE. T H IS IS SO B E C AUS E THE FOR M ATION O F T H E B EL I E F I S W I T H IN THE REALM OF THE SUBJECTIVE SAT IS F A CTIO N OF TH E ASS ESS I N G OF F I CER. C O AL CO . P . LTD . [1996] 217 ITR 59 7 S C ) AND R A YMON D W OOLLEN MILLS LTD . VS. I T O [199 9 ] 236 I T R 34 (SG) FOLL OW ED . THE HON'BLE DELHI HI GH CO U R T IN THE C A SE OF MAYAWATI V . COMMISSIONER OF I N COME-TAX [2010] 321 ITR 034,9 H A S HE LD AS UNDER : ITA NO.137 & 138/DEL/2013 9 ' SECTION 148 OF T H E INCOM E - T A X A C T , 1961 E N JOIN S TH A T T H E ASSESSI N G OFFICER M U S T SERVE ON THE A SS E S SEE A NOTI C E REQU I RING HIM / H ER TO F URN IS H A RETURN OF HIS / H ER INCOME , I N RESPECT ~ ' WHI CH HE/SHE IS ASSESSABLE UND ER T HE ACT DURI N G THE PREVIOU S YEAR COR R ESPON D IN G TO THE R ELEVANT ASSESSM E NT Y E A R . I N S T A R K CO N TRAST , SECTION 14 9 OF THE ACT SPEAK S O NLY O F TH E I SSUANCE O F A NOTIC E UNDER THE PRECE D ING SEC T ION WITHIN A PRESCR I BED PERIOD SECT I O N 149 OF THE ACT DO E S N O T M A N DATE THAT S UCH A NOTIC E MUST ALSO BE SE RVE D ON THE AS SESS E E WIT HIN THE PRES CRI B ED PERIOD . WHEREVER SE RVI CE, A NOT I CE IS ESSENTIAL OR CRITICAL , SECT I O N 2 7 O F THE GE N E R AL ' CLAUSES ACT , 1897 C RE ATE S A S TATUTORY PRESUMPTION TO THE EFFEC T TH A T IF A L E TT ER IS PROPERLY ADDRESSED , I T MU ST B E DEEMED TO HAVE BEEN SER V ED . AN INSPECTOR OF THE R EV EN U E ENDEAVOURED TO SERVE A N O TICE ON T H E A S S ESS EE A T HER HUMAYUN ROAD , N E W D E LHI R ESIDENCE , IN THE COUR S E O F W HI CH HE WAS I N FORMED THA T SHE HAD SHIFTED HER RES IDE N CE TO 3 , NEHRU ROAD , CA NTONMENT , LU C KNO W, U T T A R P R AD E SH W HE RE TH E NOTICE SHOULD N OW BE DELIVERED . IT W AS IN THE SE C IRC UM S T A N CES THAT THE INSPECTO R D IS PA T CHE D THE NOTI CE D A TED M A R CH 2 5 , 2008 BY SPEE D PO ST ON MARCH 29 , 2008 TO T HE L U CKNOW ADDRESS FURNISHE D TO H E R . ON A W RI T P E TIT I ON O N TH E GROUND THAT THERE WAS NO PRO P ER SERVICE OF NOT I CE : HELD , _ DISM I SS ING , H E PETIT I ON , THAT IT WA S E VI DENT TH AT T H E ASSESSE E DEC L I N ED TO ACCEPT THE NOTICE , F I R S T L Y AT H UMA Y UN ROA D , N EW DE LHI , SECONDLY AT N EHR U R O AD , CANTONMEN T, LUC KNO W , UTTAR PR A DESH AND , THI R D LY, A T KA LID AS MARG , L U CKNOW , UTTAR PRADESH . ALL THE THRE E ADDRESSE S BELONG ED TO ' THE A S SE SSE E A T TH E R E LE VAN T TI ME . THE NOTICE M U ST BE PRES U ME D TO HAV E BE E N SE RVED ON T H E- A DDRESSEE BY V IRTUE O F TH E PROVI SI ONS OF S ECT ION : : ' 7 OF TH E GENER A L CL AU S ES ACT . ' FURTHER , T H E APPEL L AN T H A S NOT RAISED AN Y OB J ECTIO N DURI NG THE C O URSE OF ASSES SM E NT PROCEEDINGS REGARD I NG I S S U E OF NOTICE UNDER S E CTION 148 . GR OU NDS O F APPEAL D I R EC T ED AGAINST ASSUMPTION OF J U R I S DICTIO N UNDER SEC TI O N 148 ARE , T H E RE F ORE , REJ ECTED . I N REGARD TO TH E A CTI O N O F T HE ASS ES S IN G OF FICER IN T R E ATING RS. 12 , 00 , 000/- S H A R E APPL ICAT I ON MONEY AS INCOME OF THE AS S E S S EE UNDE R SECTION 68 , AS P ER TH E A SS E SSM ENT ORDE R, THE ITA NO.137 & 138/DEL/2013 10 SAME HAS BEEN DONE ON T H E BA SI S OF : INF O R MA T I O N RECEIVED F ROM T H E I NV E S TI GA T I O N WING OF THE DEPART M EN T IN THE CAS E OF M U KES H GUP T A G R OUP THAT TH E A P P E L L A N T COM PANY HAD T A K EN ACCOM MODAT I O N ENTR IE S F R O M TH E PE R S ON S : FR O M WHOM S H ARE AP P LIC AT I O N M O NEY HAD BEE N A LL E G ED L Y RECE IVED ; T H E APPE LL A N T F I L E D O R IGI N AL C O N F IRMATI O N S , CO PY OF ACKNOW L E D GE M EN T F O RM O F THE LT . D E P A RTM E N T , P HO T O CO P Y O F B ANK STATEMENTS A ND P HO TOCO P I ES O F THE SOURCES . H OWE V ER , T HE AP P E LL A N T D ID N O T PR O DUCE T H E SH A RE A P PLICAN T S ; TH E AVE R AG E DAILY BA L A N C E I N THE BANK A CCOUN T W AS V E RY L OW A ND AMOU NTS WE RE DEPOS I TED E I T HER B Y C H EQU E O R I N C ASH A DAY OR TWO BEFO R E I S S U E O F CHEQU E TO T HE APPE LL A NT ; I N S P I TE OF SUMMONS I SS U E D T O A LL THE SHA R E AP PL I CANT S F O R PERS O NA L AT T E N D AN C E , NO NE A T TEN D E D A ND I N C ASE OF S H RI D E EP C H A ND GUPTA , T HE S U M M O N S WAS R EC EIVED BAC K . B UT IN SP I TE OF THIS . SHA R E APP LI C AT IO N F ORM AND BAN K STAT E M EN T W AS R ECEIVED FRO M A LL T HE SHARE APP LI C ANTS I N C L U DI NG SH RI D E E PCHAN D GU P TA . T H E CONF IR M A T IO N . WERE U N DA TE D . DU RIN G AP PE LL A T E PROCEED I N G S . THE AP P ELLANT CLAIMED THA T TH E ASS E S SIN G O FFICER HAD NOT DO U BTED T H E I D E NT I T Y OF T H E S H AR E H O L DE R S A N D TH E F IN ANC IA L C AP A CITY A N D T H E GENU I NE NE SS OF TH E PER S ON S W AS P R O V E D B Y TH E DOCUMENTS AND EVIDEN C E S SUBMITTED DURING ASSE SS M E NT PROCEED IN GS . THE APPE L L A N T C O M PA NY HAD , TH ERE F O RE , D I SCHA R GED I TS ONUS . O N CA R EFU L EXA MIN A T I O N OF T H E MA T TE R , I F I N D THAT THE APPELLANT BY PRODUCIN G T HE C ON FI R M A T I ON , A FFID A V I T , OF . P Y OF S H A R E A PPL I CATI O N AND ITR A LONG WI T H PE R MA N E N T ACCO U NT NU MB ER C A RD , P E R S ONA L BALANCE SHEET , AND BANK STAT EMENT H AS C R E ATE D A P A PER TRA IL TO PRO V E THE GE NU I NENESS OF T H E TR A N S ACT I O N . H O WEVE R , T HE C L OSE EXAM INA T ION OF T HE DOCUMENTS SHOW TH A T THE I N CO ME T A X RE T U RN S A RE FO R T HE REC ED I NG P RE V I OUS YE A R , THE B ANK ACCOUNTS SHOW DEPOS IT OF EQUIVA L ENT A M O UN T S J U ST BEFO RE THE W IT H D RA WA L S A ND I T IS A P P A RENT T HAT THE PE R SONS DO NOT HAVE TH E C A PAC I TY TO INV ES T AN D NE I TH E R T HE Y AR E T H E TYPE OF PERS ON S WHO WOU L D MA K E INVEST M E N T I N A P RIV A TE L I MIT E D CO MPANY WITH U N-Q U O T ED S H A R ES A ND THA T TOO A T A H EAV Y PR E M I UM . T H E C L A I M O F TH E APP E LL A N T O F ADEQUATE C AP IT A L I N ITA NO.137 & 138/DEL/2013 11 T H E H A ND S O F TH E I N VES T O RS IS N O T BO R NE OUT BY E V ID EN C E ON R ECORD S I N C E THE CAP ITA L I S NOT A VA I LABLE IN LIQ U I D FOR M , B UT STA N DS A L R E ADY .I N V ES T E D. THE L IQUID FUNDS AVA ILA BL E IN T HE HANDS O F THE A L LEG E D INVESTORS ARE HARDLY ENO U GH T O E X P L A I N TH E SOURCE O F IN V E S TMENT BEING CARRIED OUT BY THEM DOES NOT GENERATE INCOME COMMENSURATE WITH THE AMOU NT OF INVESTMENT REFLECTED BY THEM. IT IS ALSO SURPRISING THAT IN RE SPONSE TO SUMMONS ISSUED BY THE ASSESSING OFFICER, THERE WAS NO COMPLIANCE B Y THE VARIOUS COMPANIES AND IN FACT, ONE OF THE SUMMONS I.E. OF D EEPCHAND GUPTA WAS RECEIVED BACK, BUT INSPITE OF THAT THE CONFIRMATION S WERE RECEIVED FROM ALL THE PARTIES INCLUDING SHRI DEEPCHAND GUPTA. THI S SHOWS A PRE- CONCEIVED PLAN ON PART OF THE APPELLANT TO FILE THE CONFIRMATIONS. THE ENTIRE TRANSACTION IS AGAINST HUMAN PROBABILITY. TH US THERE IS ENOUGH MATERIAL TO RAISE A VERY STRONG SUSPICION, TO QUEST ION THE AUTHENTICITY OF THE TRANSACTION AND REJECT THE PAPER TRAIL CREATED BY THE APPELLANT AND REQUIRE THE ASSESSEE TO SHOW THAT THE TRANSACTION I S REALLY ONE WHICH IS ABOVE BOARD WHICH THE APPELLANT HAS FAILED. HONBLE SUPREME COURT IN THE CASE OF SUMITI DAYAL 2 14 ITR 801 HAS HELD THAT THE GENUINENESS OF T. RE TRANSACTION IS T O BE CONSIDERED ON THE BASIS OF SURROUNDING CIRCUMSTANCES, HUMUN PROBABILI TIES AND THE CONDUCT OF THE CONNECTED PARTIES. A TRANSACTION DOE S NOR BECOME GENUINE MERELY BECAUSE A PAPER TRAIL HAS BEEN CREAT ED/FILED. THE AO WHILE EXERCISING HIS POWER AS AN INVESTIGATING OFFI CER HAS A RIGHT TO GO BEYOND WHAT IS APPARENT. THE MERE FILING OF AFFIDAV IT, GIFT DEED ETC SHALL NOT MAKE THE GIFT GENUINE. HON'BLE SUPREME CO URT IN THE CASE OF SUMITI DAYAL (SUPRA) SIGNIFIES THAT WHAT IS APPAREN T MUST BE EXAMINED ON THE TOUCHSTONE OF SURROUNDING CIRCUMSTANCES, HUM AN PROBABILITIES. MERELY BECAUSE AS PER TRAIL HAS BEEN FILED WILL NOT BY ITSELF MAKE THE TRANSACTION GENUINE. HONBLE DELHI COURT IN THE CAS E OF ASHOK MAHENDRU & SONS (HUF) V CIT (2008) 9 DTR (DELHI) 22 2: (2008)173 TAXMAN 178 HAS HELD THAT EVEN THOUGH THE DOCUMENTAT ION N LAY BE IN ORDER, IF THERE IS ENOUGH MATERIAL TO RAISE A VERY STRONG SUSPICION THAT THERE IS SOMETHING NOT QUITE RIGHT WITH NATURE OF T RANSACTION, THE AUTHORITY UNDER THE ACT MAY REJECT THE DOCUMENT AND REQUIRE THE ASSESSEE TO SHOW THAT THE TRANSACTIONS REALLY ONE W HICH IS ABOVE BOARD. ACCORDINGLY THE EXPLANATION SUBMITTED BY THE ASSESSEE WITH REGARDS TO GENUINENESS OF THE TRANSACTIONS IS REJEC TED. ITA NO.137 & 138/DEL/2013 12 THE MATERIAL FACT IS THUS THAT THE IDENTITY AND FIN ANCIAL STRENGTH OF THE PERSONS WHO HAVE ALLEGEDLY MADE THE IN' STATEMENT H AS NOT BEEN ESTABLISHED. THE APPELLANT HAS FAILED TO DISCHARGE THE PRIMARY ONUS OF PROVING THEIR CAPACITY TO PURCHASE THE SHARES AND T O PROVE THE GENUINENESS OF THE TRANSACTIONS. THE APPELLANT COMPANY HAS NOT DISCHARGED ITS ONUS AND IDENTITY AND THE CREDITWORTHINESS OF THE INVESTORS HAS NOT BEEN ESTABLISHED. THE FACTS OF THE CASE HAVE ALSO BEEN EXAMINED IN LI GHT OF THE JUDGEMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF - INDUS VAL LEY PROMOTERS LTD. V. COMMISSIONER OF INCOME-TAX [2008] 305 ITR. 0202 WHE REIN IT HAS HELD AS UNDER: ' THE ASSESSEE MUST DISCHARGE T H E B URD E N OF PRO V IN G T HE IDEN TIT Y O F THE CREDI T ORS AND A LSO G IV E THE SO URCE O F T HE DE P O S I T S I N ORDER TO AVOID AN ADDITION UNDER SECTION 68 O F T HE I N COME -T A X ACT , 196 1 . T HE C REDI T WORTHINESS OF THE DEP OS ITOR S M US T BE ES T ABL I SHE D T O T HE SATISFACTION O F THE ASSESSING OFFI C ER . WHE RE T H E R E IS AN UNE X P L A I NED CAS H CREDIT I S OP E N T O THE ASSESSIN G OFF IC ER TO HOLD THAT IT I S T H E IN CO M E OF T H E AS S ESS E E AN D NO FURTH E R BURDEN LIES ON THE ASSE S S I NG OFFICER TO SHO W T HAT THE I NCO M E I N QUE S T I ON COME S F R O M ANY PARTICULAR SOURCE . T H E E SS ES S E E - C OMP ANY FILED A R ETURN DE CL A R IN G A L OSS OF R S . 4 , 9 3 , 2 1 8 /- . DU R IN G T HE C OUR S E OF A S SE S SMENT P R OCEE D INGS , THE ASSESS I N G OF FI C E R NO T IC E D A N INC R E A S E I N T HE SHARE APPL IC ATI ON MO N EY ACC O UNT A S COMPARED TO THE P R ECE D ING ASS E SSMENT Y E A R AND TH A T A S U M OF R S . 1 1 . 82 L A KHS HAD BEEN DEPOSITED I N T H E A C COU NT O F T H E DI R EC T OR . HE FURTHE R NOT I CE D TH A T NO SH A RE S W E RE ALLOTT E D DURING TH E PRE V IOUS Y EAR A ND IN TH E Y EAR U N DER C ON S IDER: L I O N AN D THAT THE SHARE APPLICA T I ON MON EY RE TAINE D THE SA ME FORM AND C H A R ACTER E V E N IN T W O SUBSEQUENT YEARS . T HUS T HE AS S ES SING OFF I C ER . TREATED THIS A MOUNT AS U N S ECU R ED AMOUNT AND NOT A S S H A RE APP LICA T ION MO NE Y . AS THE ASSESSEE HAD R ) T P ROD UC ED AN Y E VI DENCE I N RE SP E C T O F THE S O URC E O F TH E DEPOSITS , THE ASSES S I N G OF FICER ADD E D T HE SUM OF RS . 11 . 82 A ND ALSO A DDED RS . 5 LA K HS AS SHO WN IN TH E COM PA NY ' S BOOKS AS D E P O SITS MADE AGAINST BOOKING S FOR FLATS I N THE SCHEME O F THE C OM P ANY BUT W HICH WERE CANCELLED BY THE PA RT IE S . T HE COMMISSION ER ( APPEALS ) A S W E LL A S TH E TRIBUNAL DI S MIS S ED T H E AP P E A L F I LE D BY THE ASSESSEE. ON FURTHER APPEAL: _HELD , _ D I SM ISS I NG THE A PP E A L , (I) T HA T AS NO SHARES W E RE A LLOTTE D TO ITA NO.137 & 138/DEL/2013 13 THE D IR EC T O R DURING T HE YEA R I N Q U E STIO N A ND F OR THE S U B S EQ UE NT T WO A S SESSM E NT Y EARS AN D TH E SHARES W ERE AL L O TTED A FTER ENQUIRY D O NE BY T H E ASSE S SING OFFIC ER , THE AMOUNT OF R S . 1 1 . 82 LAKHS C O ULD B E T REAT ED AS UNSECURED LOAN . T HE AMOUNT H A D BEEN DEPOSIT E D I N CASH A N D IN SP I TE C T EN QUIR Y ; THE SOURCE O F THE DEPOS I T W AS NOT E X PLAINED . THE C RED ITW O RTHINE S S O F T H E CR EDIT O RS TO MA K E T HE P AY ME N T W A S NO T C L EA R F R O M TH E IN C OM E SHO W N BY T HE M . THERE WAS NO INFIRMIT Y IN TH E R EAS O N I N G GI V EN BY T H E T RIB U N A L F OR UPH O LD IN G THE ACT I O N O F T H E T A X AUTHORITI E S I N BRINGIN G T O TA X TH E S U M O F R S . 1 1. 82 LAKHS . (II) TH A T TH E ASSES S E E H AD NOT BEEN ABLE TO PRO V E T HE CRE D IT W O RTH INESS O F THE CREDI T ORS WIT H RESPE C T TO TH E C ASH CRED I T OF RS . 5 L AKH S . A L L T H E P E R S ONS I NV OL V ED FAILED TO R E S P O ND TO THE S UM M ONS . T HE A S S ESSEE R E C EI VED A LL TH E PA Y M E N T S IN C AS H EVE N THOUGH MOST C T T HE PE R S ONS HAD BANK ACCOUNTS AN D TH E Y H A D NO T E NT E R ED THE TRANSA C T I O N S THROUGH THEIR BANK ACCOUNTS . NO SUBSTANTIAL QU E ST ION O F L AW A RO SE . THE DEC ISI O N O F H O N ' BL E SUP R E ME C OU R T IN T H E C ASE O F COMM I SSIONER O F INCOM E- T AX VS . P . MOH A NA K A LA 29 1 ITR 2 ; ' 8 I S A L SO RELEVANT T O THE CASE AS THE HON ' BLE CO U R T H A S H E LD A S U NDER : A BARE READING OF SUCTION 68 OF THE INCOME-TAX ACT, 1961, SUGGESTS (I) THAT THERE HAS TO BE CREDIT OF AMOUNTS IN THE BOOKS MAINTAINED BY THE ASSESSEE; (II) SUCH CREDIT HAS TO BE A SUM OF MONEY DURING THE PREVIOUS YEAR AND (III) EITHER (A) THE ASSESSEE OFFERS NO EX PLANATION ABOUT THE NATURE AND SOURCE OF SUCH CREDITS FOUND IN THE BOOK S OR (B) THE EXPLANATION OFFERED BY THE ASSESSEE, IN THE OPINION OF THE ASSESSING OFFICER, IS NOT SATISFACTORY. IT IS ONLY THEN THAT THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSES SEE OF THAT PREVIOUS YEAR. THE EXPRESSION 'THE ASSESSEE OFFERS NO EXPLAN ATION' MEANS THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABL E EXPLANATION AS REGARDS THE SUMS FOUND CREDITED IN THE BOOKS MAINTA INED BY THE ASSESSEE. THE OPINION OF THE ASSESSING OFFICER FOR NOT ACCEPTING THE EXPLANATION OFFERED BY THE ASSESSEE AS NOT SATISFAC TORY IS REQUIRED TO BE BASED ON PROPER APPRECIATION OF MATERIAL AND OTHER ATTENDING CIRCUMSTANCES AVAILABLE ON THE RECORD. THE OPINION OF THE ASSESSING OFFICER IS REQUIRED TO BE FORMED OBJECTIVELY WITH R EFERENCE TO THE MATERIAL ON RECORD. APPLICATION OF MIND IS THE SINE QUA NON FOR FORMING ITA NO.137 & 138/DEL/2013 14 THE OPINION. IN CASES WHERE THE EXPLANATION OFFERED BY THE ASSES SEE ABOUT THE NATURE AND SOURCE OF THE SUMS FOUND CREDITED IN THE BOOKS IS NOT SATISFACTORY THERE IS, PRIMA FACIE, EVIDENCE AGAINST THE ASSESSE E, VIZ., THE RECEIPT OF MONEY. THE BURDEN IS ON THE ASSESSEE TO REBUT THE S AME, AND, IF HE FAILS TO REBUT IT, IT CAN BE HELD AGAINST THE ASSESS1E TH AT IT WAS RECEIPT OF AN INCOME NATURE. THE BURDEN IS ON THE ASSESSEE TO TAKE THE PLEA THAT , EVEN IF THE EXPLANATION IS NOT ACCEPTABLE, THE MATERIAL AND ATT ENDING CIRCUMSTANCES AVAILABLE 6N RECORD DO NOT JUSTIFY TH E SUM FOUND CREDITED IN THE BOOKS BEING TREATED AS A RECEIPT OF INCOME N ATURE. THE ASSESSEES RECEIVED FOREIGN GIFTS FROM ONE COMMO N DONOR. THE PAYMENTS WERE MADE TO THEM BY INSTRUMENTS ISSUED BY FOREIGN BANKS AND CREDITED TO THE RESPECTIVE ACCOUNT OF THE ESSES SEES BY NEGOTIATION THROUGH A BANK IN INDIA. MOST OF THE CHEQUES SENT F ROM ABROAD WERE DRAWN ON THE CITIBANK, N. A. SINGAPORE. THE EVIDENC E INDICATED THAT THE DONOR WAS TO RECEIVE SUITABLE COMPENSATION FROM THE ASSESSEES. ON THIS MATERIAL THE ASSESSING OFFICER HELD THAT THE G IFTS THOUGH APPARENT WERE NOT REAL AND ACCORDINGLY TREATED ALL THOSE AMO UNTS WHICH WERE CREDITED IN THE ACCOUNT BOOKS OF THE ASSESSEES AS THEIR INCOME APPLYING SECTION 68 OF THE INCOME-TAX AD, 1961. THE ASSESSEE S DID NOT CONTEND THAT EVEN IF THEIR EXPLANATION WAS NOT SATISFACTORY THE AMOUNTS WERE NOT OF THE NATURE OF INCOME. THE COMMISSIONER (APPEALS) CONFIRMED THE ASSESSMENT. ON FURTHER APPEAL, THERE WAS A DIFFEREN CE OF OPINION BETWEEN THE TWO MEMBERS OF THE APPELLATE TRIBUNAL A ND THE MATTER WAS REFERRED TO THE VICE PRESIDENT WHO CONCURRED WITH T HE FINDINGS AND CONCLUSIONS OF THE ASSESSING OFFICER AND THE COMMIS SIONER (APPEALS). ON APPEAL THE HIGH COURT RE-APPRECIATED THE EVIDENC E AND SUBSTITUTED ITS OWN FINDINGS AND CAME TO THE CONCLUSION THAT TH E REASONS ASSIGNED BY THE TRIBUNAL WERE IN THE REALM OF SURMISES, CONJ ECTURE AND SUSPICION. ON APPEAL TO THE SUPREME COURT: H E LD , R E V E RS I NG TH E D EC ISI O N OF THE HIGH COURT , THAT T HE F INDING S O F T HE ASSESS ING OFF IC E R , THE CO MM I S SIONER ( A PPEA L S ) A N D TH E T RIBUNAL W ERE BASED O N T HE M A T ER IA L ON RECORD AND N OT O N M Y CO NJ E CT UR E S A ND ITA NO.137 & 138/DEL/2013 15 SU R MI S E S . T H A T THE M ON EY CAME B Y W A Y OF BANK CH E QUE S A N D W A S P A I D THROU GH TH E P R OCESS OF BANK I N G TRANSA C TION W A S N OT B Y IT SE LF OF ANY C O N SE Q UENCE . THE HIGH COURT MISDIRE C T ED I TS ELF AND ERRED IN DISTURBIN G T HE CO N C URR E NT FIN D I N G S OF F A CT . S UM A T I D AYA L V. C I T [1 99 5] 214 ITR 801 ( S C ) ; [1995] S U P P 2 SC C 4 53 R E LIED ON . K . S . KANNAN K U N T Y V . C I T [ 1 969] 72 ITR 7 5 7 ( KER ) CON S ID ER ED . DE C I S I ON OF THE MA D RAS H I G H COURT IN A . R A JENDRA N V . A SS T . CI T [200 7] 291 ITR 178 RE V ERSE D . ' THE HON ' B L E DEL H I H I G H C OU R T IN T HE CA S E OF COMMI S SIONER OF INCOM E-T AX V S N O V A P R OMOTERS A ND F I N L E AS E ( P ) L T D. [ 2 012] 34 2 ITR 0169- H AS D I S TI N GUI S HED T HE CASE O F CIT VS . OAS I S H OSP IT A L ITI ES P . L I D . [ 20 1 1 ] 3 33 ITR 1 19 (DELH I) A N D HAS H E LD AS U N D E R : ' E V E N WH E RE A REF E R ENCE O F A QUESTION OF LAW IS MADE TO THE H IGH CO UR T IN ITS A DV I S ORY JU R I SD I CT I O N AND NO T T HE A P PEL L ATE JU RI SD I CT ION , WHE R E NORMALLY THE FINDI N GS O F FA C T REC O RDED B Y ' THE T R I B U NAL ARE B INDIN G ON THE H IGH C OURT , THE FIN D ING S ARE NO T B I ND I NG O N TH E H IGH C OUR T ' T HE Y ARE PERV E RS E O R I F T HE F INDING S ARE SU C H THA T NO PE R SON ACT I NG JUDICIALLY AN D P R OPERL Y INSTRUCTE D AS TO THE RELE VA NT LA W C O UL D HA V E C O M E T O THE DETERMINATION U ND E R A PPEA L , T H E POSITION IN AN APPEAL UNDER SECTION 260 A OF THE INCOME TAX AC T ' 1 96 1 I S ' A F O R T I O RI' , F O R TH E ASSESSME N T Y E AR 2 0 00 - 0 1 , THE ASSES S EE - COMPAN Y FILED A RETU R N OF LOSS W HICH W AS PR O CESSE D U NDE R S E C T ION 143(1) A CCEPTING THE LOS S , SUBS E Q U ENTL Y , BAS E D ON A L E T TE R FROM TH E D I RE C T OR O F I NC OME - TA X ( INVESTIGATIO N ) R EGA RDI N G ENTR Y O P E R AT O RS A C C O MMODAT I ON PROVI D ER S , I N F ORM I N G TH E ASSESS I NG O FFICER THAT THERE WERE 16 ENTRY O PE R A T O RS W HO HAD GIVEN AC C OMMODATION ENTRIES TO SE VE R A L P ERSON S OF W HI C H TH E A S SE SSE E W AS ONE , O L AF THER E WERE STATEMEN T S RECORDE D FR OM PER S ON S CO N F IRMING TH E F A CTS , THAT T HE AS S E SSE E H A D OBTA IN ED ACCOMMODA TION E NT RI ES OF R S . 1 , 1 8 , 50 , 000 FR O M THES E P E RSONS IF ' THE GAR B OF SHARE APPL I CAT I ON MO NI E S DURING THE R ELE V AN T Y EAR , TH E ASSE S S I NG O FF I C E R I SS U ED N O TICE UNDER SECTION 1 4 8 OF THE AC T R EOPENING THE ASSESS M EN T OF THE A S S E S S E E . IN THE COURSE OF THE R E A S SES S MENT P RO C E EDINGS , THE A S SESS ING O FFIC E R I S S U ED A QU E S T I ONNA I RE T O THE ASSESSE E , T HE ASSES S E E ITA NO.137 & 138/DEL/2013 16 SO UGHT CO P I ES OF TH E DOC UM E N T S / MAT E R IAL IN THE POSSESS I ON O F THE ASS E SSING OF FI CE R AND O PPOR TUNITY TO C ROSS-E X AMINE T HE PERSON I N CHA R GE OF THE 16 CO M PA N I E S WITH REGARD T O THE C O NT E NT S OF T H E S TA T EMENTS RECO RD ED F R OM THEM , T HE AS S ES SING O F FICER I SSUED SUMMON S T O TW O INDIVIDUALS AND TO THE COMPANIES , SOME OF W HICH W ERE R EC EI V E D BACK U N - SER V E D AND THE OTH ER S U M MONS REMAINED UN - COMPLIED WITH . TH E ASS E SS I NG OFFICER SEN T AN INSPECTOR T O THE A DDRESSES T O W H IC H SUMMONS W ERE ISSUED , THE IN S PECTOR RE PO R TE D THA T NO SUC H PE R SO N OR C O M P A NY WAS A V AILABLE OR EXISTING AT T HE ADDRESSES T O WHICH S U MM ON S WERE ISSUED, ON THE BASIS OF THE REPORT OF THE INSPECTOR , THE ASSESS I NG OFF ICE R I S SUED NOTICE TO THE ASSESSEE T O PR ODU CE T HE PERSONS AND COMPA NI ES F R OM WHOM I T H AD R E CEIV E D S HARE APPLICATIONS MONIES . TH I S ALSO WAS NOT COMPLIED WITH B Y T HE ASSESSEE . THE ASSES SEE LATER F ILED AFFIDAVITS OF T HE T W O I ND IVI D U A L S , R A N D M , I N W H I CH BO T H S TATED THAT THE TRANSACTIONS WITH THE ASSESSEE W ERE GENUINE AND T H E E ARLIER STATEMENTS RECORDED F R OM THEM BY THE IN V ESTIGATION WING W ERE G IVEN U ND ER PR E SSU RE . THE AS SESSING OFFICER C AME T O THE CONCLUSION THAT T H E INDEPENDENT EN QUIRIE S CARR I ED OUT B Y HIM D I SCLOSED THAT TH E AS SESSEE WAS UNAB L E T O PR OVE THE G EN UIN ENESS OF THE TRANSACTIONS W ITH THE COMPANIES AND THAT I T AL S O P RO V E D T HAT THE A S SESSEE- COMPANY HAD INTRODUCED ITS O W N MONIES T HRO U G H NON - E XI S T I NG C O MP A NI ES U S ING THE BANKING CHANNEL I N THE SHAPE OF SHARE APPLICATION MO NI E S . HE AC C O RDING L Y INVOKED SECTION 6 8 OF THE ACT AND ADDED THE AMOUNT OF R S. 1 , 1 8 , 5 0 , 000 / - TO T H E I N C O ME O F THE ASSE S SEE AND A SUM OF RS . 2 , 96 , 250 REPRESE NTING C OMMISSI O N . ON APPEAL THE COMMISSIONER ' ( AP PE A L S) REJECTED THE ASSESSEE CON T E N T I O N AGAINS T THE VALIDITY OF THE REOP E NING O F T HE A SSESSMENT BU T , TAK I NG N OT E OF THE STATE MENT OF T H E A S S E SSEE THAT THE AFFIDA V ITS FRO M R AND M , W HO W ERE DIRE CTORS I N T H E T HREE COM P ANI E S AS W E L T AS THE AFF I DA V ITS OF THE DIRECTORS I N OTHER COM P A NI ES W H IC H P RO VIDED T HE S HARE CAPITAL , WERE NOT CO NSIDERED BY THE ASSESS I NG OF FIC E R , TH E C O MMIS S IONER ( A PPEALS ) DIRECTED THE ASSESSIN G OFF I CER TO EXAM IN E THE CO NT ENT S OF TH E AF F I D AVIT S AND V ER I F Y THE V ER A CIT Y A ND GENUINENESS THEREOF T HE A S S ESSING O F F ICER WAS AL S O DIRECTED TO E X AMINE TH E GENUINENESS OF THE T R A N SA CTIO NS. TH E A SSE SSI N G OF FIC E R SUB MI TTED A REMA ND R E PO RT TO THE EFFECT THAT T HE TRANSACTIONS HAD NOT B E EN P ROVED GEN U I NE AND W ERE O NL Y I NSTRUM E NTS USE D BY HE A S S ES SEE T O MISLEAD THE INCOME-TA X AUTHORITIES . TH E COMM I SS I O N ER ( APP E AL ) CO N C L U D ED TH A T THE ASSESSING OFFICER W AS N OT ITA NO.137 & 138/DEL/2013 17 JU STI F IED IN T AK I NG THE ADDIT I O N OF A S , 1 , 1 8, 5 0 , 0 00 /- UNDE R S E CTION 68 O F THE ACT . CON S EQUENTL Y , HE ALSO DELETED THE ADDITION O F RS. 2 , 96 , 2 5 0/ - M ADE FOR COMMISSION PAID TO THE ENT R Y PRO V IDERS FOR OBTA IN ING ; TH E EN T R I E S , WHICH HAD BEEN ADDED U NDER SECTION 68 . TH E TR I BUNAL CONFIRMED TH E : D E L E TI O N OF TH E ADDITI O NS MADE UNDER SECTION 68 OF THE ACT . ON APPEAL BY THE DEPARTMENT :- _HELD , _ THAT THE ASS E S S M E NT W AS REO P E N E D : ON TH E BASIS OF INFORMATION RECEIVED FROM THE I N V EST I GAT I ON WI N G OF THE DEPAR T ME NT ABOU T THE EXIS T E N CE OF ACCOMMODAT I O N EN T RY ; P RO VIDERS A ND THEIR M O DUS OPERA NDI IN W H I CH THE A SS E S SEE W AS ALSO FOUND TO B E I NV O LVED . THE T RI BUNA L H A D R ECORDED , W HILE D E ALING W IT H T H E ASSESEES CROSS OBJECTIONS C HALLENGIN G THE JU RI SD I CT I ON O F TH E ASS E SSING OF FICER TO REOPEN THE ASSESS ME N T , T HA T T HE IN FO RM A TI O N W AS S PECIFIC , NOT G E NERAL OR VAGUE , AND REFERRED TO TRANSACT I O NS E NTER ED I NTO BY THE AS SES S EE DURING THE YEAR UNDE R CONS I DERAT I ON , THAT AS P ER THE INFOR M A TI ON O F TH E I N V ES TIGATION W ING , THE NAMES O F THE PERSONS ISSU I NG THE CHEQUES , T HE C HE QUE A MOUNTS , DATES , ETC ., W E R E A L S O MENT IO NE D PROVIDING A LINK BETWEEN T HE E NTR Y P R OVID E R S AN D T HE ASSESSEE. IN THE ST A T E M E N T S RECORDED FROM R AN D M BY T H E INVE ST I G ATION WIN G , TH EY HAD IMPLICATED THE ASSE S SEE - COMPAN Y A L SO , I N TER ALI A . A PERUSAL OF THE N AM ES OF THE ENTIT I ES FROM W HOM T HE ASSESSEE HAD RECE IV E D S H ARE APPLI CATION MON I ES S HOWED T HAT 1 5 NAMES APPEARED IN T H E LIST OF 22 COM P ANIE S MENTIONED IN T HE LE T TER OF M AND R T O THE ADDITIONAL COMM I SSIONE R . T H I S E S T A B LISHED THE LINK BE T W E EN THE MATERIALS WHICH WAS PRESENT BEFORE THE ASSESSING OFF IC E R BOT H AT THE TIM 1 E WHEN REASONS FOR REOPENING THE ASSESSMEN T W E R E R E CORDED A ND WHEN THE REASSESSMENT PROCEEDINGS WERE MADE . IN F I ND IN G FAU L T WITH TH E ASSE S SI N G O FFICE R FOR NOT ACCEPTING THE IDENTICA L L Y W OR D ED AFF I DA V ITS OF R ' A ND M TO THE E F F EC T T HA T TH E T RA N SACTIONS OF GI V ING C HEQU E S TO TH E A S SESSEE - COMP ANY WERE G EN U INE AND TH AT THE CHEQUES W ERE IS S UE D TO TH E A SSESSEE- C O MP A NY FOR SHARE A PPL IC A T I ON M O N EY FO R ALL O TMEN T OF SH A RES AND SUBSEQUENTLY SHA R ES W E R E ALS O I SSUED , BOTH THE COMM I SS IONER (APPEALS ? AS WELL AS THE TR I BUNA L HA D C O MMI TT ED A SERIOUS ERROR I N APP R EC I ATING THE E VIDENC E . T HE ASSESS I NG OFF I CE R IN H I T R EMAN D REPORT S T A TED T HA T D E S PITE R E PEATED OPPORTUNITIES THE D E PONENTS OF T H E AFFIDAVITS WE R E NOT PR O DUCED BEFO R E H IM FOR EXAMINATION AND THA T SU M MONS I SS U E D TO AL L THE D EP ONEN T S OF THE ITA NO.137 & 138/DEL/2013 18 A FFIDA V IT S REM A INED UN -CO MPLIED WIT H A ND NO N E O F THE PERSO NS A TT EN D ED BEFORE H I M . THE ASSE S S EE HAD N O TH ING TO SA Y AS TO WHY THE DEP ONENTS ( IF THE A F F I D AVI TS , WHICH W E RE AL L IN ITS F A VOUR , C OULD NOT PRES EN T THEMSEL V ES BEFO R E THE . A SSES S I N G OFFICE R F O R B EI N G E X A MINED ON THE AFFIDA V ITS . IN THE LIGHT OF THE F AC T S , THE E V I DENT I A R Y VA L U E O F TH E A F FIDAVITS WAS OPEN TO SERIOUS D O UBT . THE AFF I DA VI TS RETRACTING THE IR E A R LIE R S T ATEM EN TS , FI L ED BY M AND R W ERE F I LED M O RE TH A N TH R EE Y E AR S AFTER T H E Y WRO T E LETTER S ADMITTING TO THEIR ROLE AS ENTR Y PRO VI DER S . NO REASON HAD BEE N AD VA N CED B Y T HE A SSESSEE F OR SUCH L O N G DEL AY IN R E TR A C TIN G T HE EARLIER LETTERS . T H E OBSERVATION O F TH E CO MM IS S I ON ER (APPE A LS ) THAT I F S UMMON S H AD BEEN SERVED I T WOULD M E AN T HAT T HE P A RT IES WE R E PR E S ENT AT THE ADDRESSES A ND E V EN IF T HEY W ERE N OT F OUND B Y THE I N S P E C TOR A T T H E AD DRES S ES FURNISHED BY THE ASSESSEE , I T W AS FOR T H E AS S E S S I NG OF F I CE R TO HAVE MADE ENQUIRIES F ROM THE POST OFF I CE REGARDING THE WH E REAB O UTS OF TH E A D DRE S SEE S WAS NOT PROPER . THERE WAS , IN TH IS C A SE , NO SUCH DUT Y CAST ON . A S SES S IN G OFFI C ER . THE ASS E SSEE HA D BE EN BL OCKIN G AN Y EN QUI R Y BY THE AS S ESS I N G O FF IC E R AT EV ER Y ST AG E O N S O M E PLEA O R T H E O T HE R , INCLUDING A F R IVOLOUS P L E A THAT N O CROSS - E X AMINA T ION WAS A LLOWED , OVERLOOKIN G T HAT ONCE THE Y F I LED TH E AFFIDAVITS RETRACTING FROM THEIR EARLIER STATEMENTS THE PLEA LOST FO R CE. THE F I ND IN GS O F THE T RI B UNAL WERE BAS E D O N IRRELEVANT MATERIAL OR HAD B E EN ENTERED I GNOR I N G RELEVANT M A T ERI AL. TH E FIN D I NG THAT THE SHARE APPLICATION M ON IES HAD COME T HROUGH ACCOUNT P A Y E E C HEQUE S WAS , A T BEST , ' NEUTRAL . THE QUESTION REQUIRED A THORO U GH E XAMINATION AN D N OT A SUPER F ICIAL E X AMIN A TI O N . TH E FA C T THAT TH E COMPANIES WHICH S U B S C R I BE D T O THE SH A R ES W ERE BORNE ON THE FIL E O F TH E REGISTRAR O F COMPANIES WAS A GAIN A N E U T RA L F A C T . T HAT THES E COMPANIES WERE COMP L YI N G W ITH SUCH FORMAL I T I E S D ID NOT AD D A NY CRE D IB I L ITY OR EVI DE N T IARY VALUE . IN ANY CASE , IT D I D NOT I PSO FACTO PROV E ' H AT TH E T R A NS ACTIONS WERE GENUINE . MATERIAL W AS GATHERED BY THE IN V ESTI G AT I O N WIN G AND M A D E A VAILAB LE TO TH E AS S ESSING O FFICER , W HO IN TU R N HAD MA D E IT A V A I LA BLE TO M E AS S E S S EE . T HE T R I B U NAL HAD IGNORED RELE V A N T M A TERI AL . TH E TR I B U NA L ALSO E RR E D I N L AW I N HOL D ING THA T TH E AS S ESS I NG OFF I CER OU G HT TO H AVE PROVED THAT THE MON I ES EMANATED F R OM T HE CO FFE RS O F THE A S SESSEE - COMPAN Y AND CA M E BACK AS SHARE CAPITAL SECT I O N 68 PERMIT S T H E ASSESSING OFFICER TO ADD THE CREDIT APPEA RI N G IN THE B OOKS OF AC C OU NT O F T H E AS S E S S 1 EE IF THE LATTER ITA NO.137 & 138/DEL/2013 19 OFFERS NO E X P L A NATION REG A R DI N G TH E NA T URE . A N D S O U R CE OF THE CREDIT OR THE E X PLANATION OFFERED I S N OT SATIS FA C TO R Y . IT PL AC E S N O DUT Y UPON HIM T O POINT TO THE S O U RCE F RO M W HICH T HE M ONE Y WA S RECEIVED B Y THE A S S E SS E E . E V EN IF ON E WE R E TO H O L D T H A T TH E AS S E SS IN G OFFICER WA S BOUND TO S H O W T H AT T HE SOURCE OF T H E UNA CC OUNT ED M O NI E S W AS THE COFFERS OF THE A SSE S SE E , I N TH E FAC TS O F THE PRESENT CASE SU C H PR O OF HAD BE EN BROUGHT IT BY TH E A SS ESSING OFFICER. . . THE S T ATEMENTS O F THE EN T RY PRO V I DE RS R E F E RRED T O THE PRA CTIC E OF TAK I NG CAS H A ND I S SUING C H EQUES IN TH E G UI S E OF SUBSCR I PTION T O SHARE CAPI TAL , F O R A CONS I DERATIO N I N THE FORM O F COMMISSION . THE NAM ES OF SEVERAL COMPANIES W HI C H FIG U RED IN THE S T A TEM E N T S GI V EN BY T H E ABOVE PERSONS TO THE I N VE STIG A T I ON WI N G AL S O F I GURED AS SH A R E -A P P LI C AN T S SUBSCRIBING TO THE SHAR E S O F THE AS S ES S E E- CO M PA N Y . THE SE C O N S T I TUTED M ATER I A L S UP O N W HICH O NE COU L D REASONAB L Y C OME T O TH E CONC LU S I O N THAT THE M ONIE S E MANATED FROM TH E C OFF ERS O F T H E ASS ESSEE - CO MP AN Y . ' THE APPELLANT HAS THU S B EE N U NAB L E TO EXP L A IN THE C REDITWOR T HINESS O F THE PERSO N S WHO HAVE ALLEGEDLY MADE TH IS IN VE ST M EN T . A S TH E E X P L A N A T I O N OF F E RED BY THE ASSE SSEE ABO U T TH E NATURE AND SOURCE OF TH E S UM S F O UND C R ED IT ED I N THE B O OK S WAS N OT S AT ISFACTO R Y THE R E WAS , PRIMA FACIE , EVIDENCE A G A I N S T T H E A S SESSE E , VIZ ., T HE REC E IPT OF MO N EY . THE B URDEN WAS O N THE ASSESSEE T O REB U T THE S A M E , AND , IT FA I L ED TO R EBUT IT , IT CAN T H E R E F O RE B E H EL D A G A I NS T T H E ASSESSEE THAT I T WAS A R E CE I P T O F AN IN CO ME N A TUR E . THE A P PELLANT HAS FAILED TO D I S C H A RGE IT S ONUS TO PRODUCE L EGA L AC CE P TABL E E V I DE N CE O F C RED I TW O RTHINESS OF THE P E R S ONS . T HE EXPRESSION ' THE ASSESS E E OF F E R S NO EXP LA NAT I ON ' M EA NS TH E ASSESSEE O F FERS N O P R O PE R, REASONABLE AND ACCEPT A BL E E XPLA N A T I O N A S REGARDS THE S UM S F O U N D C R E D I T ED I N TH E B OO KS MAINTAINED BY THE AS S E SS E E . I N TH I S CA S E T HE APPELLAN T HA S O F FERED NO C RE D IT A B LE EXPLANATION ABOU T T H E A MOU N T S C R E D I T ED IN HI S BOO K S , THE RECEIPT OF R S . 1 2 , 0 0 , 00 0/ - THEREFORE, CANNOT BE TR E A T E D A S E XPL A INED . CON S ID ER IN G TH E ABOVE F A CTS , TH E ADDITION OF RS . 12 , 00 , 000 /- MADE BY TH E A O U / S 68 I S CONFIRM E D . 8. WE FIND THAT LD. CIT(A) HAS ELABORATELY DEALT WI TH THE ISSUE AND ALSO RIGHTLY UPHELD THE ADDITION AND, THEREFORE, WE DO N OT SEE ANY INFIRMITY IN THE ITA NO.137 & 138/DEL/2013 20 SAME. AS REGARDS THE ARGUMENTS OF LD. A.R. THAT TH E ASSESSING OFFICER HAD NOT LAWFULLY REOPENED THE ASSESSMENT BY NOT SUPPLYI NG THE COPY OF REASONS RECORDED, WE FIND THAT NO SPECIFIC GROUND HAS BEEN TAKEN BY THE ASSESSEE IN THE GROUNDS OF APPEAL AND NEITHER THE ASSESSEE HAD FILED ANY APPLICATION FOR ADMISSION OF ADDITIONAL GROUND AND MOREOVER, WE FIN D THAT LD. CIT(A) HAS ADJUDICATED THE ISSUE OF REOPENING AND WE ARE IN AG REEMENT WITH HIS FINDING. 9. IN VIEW OF ABOVE, THE APPEAL FILED BY THE ASSESS EE IN I.T.A.NO. 138/.DEL/2013 IS DISMISSED. 10. IN NUTSHELL, I.T.A.NO. 137/DEL/2013 IS ALLOWED AND I.T.A.NO. 138/DEL/2013 IS DISMISSED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2014. SDF./- SD./- (I. C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 31 ST JULY, 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING DATE OF DICTATION DATE OF TYPING DATE OF ORDER SIGNED BY BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.