ITO, New Delhi V. M/s. A.P.S. Foods (P) Ltd., New Delhi

ITA 1787/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98308 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-12-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 17-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Assessee Lawyers: SATYAM SETHI
• Keywords: Reopening of assessment; Unexplained cash credit; Share purchase agreement; Accommodation entries; Reason to believe
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO. 1787 /DEL/201 2 A.Y. 200 3 - 04 ITO, WARD 1(1) VS. APS FOODS (P) LTD. ROOM NO.398 B 16, N.W.A. MARKET C.R. BLDG. 1 ST FLOOR, PUNJABI BAGH NEW DELHI NEW DELHI 110 026 PAN: AAACP 3308 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KK JAISWAL, D.R. RESPONDENT BY : SHRI SATYAM SETHI, ADV. ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER DATED 17.2.2012 OF LD.CIT(A) - IV, NEW DELHI PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 200 3 - 04 . 2. FACTS IN BRIEF: - THE ASSESSEE IN THIS CASE IS A COMPANY AND THE ADDITION IS MADE U/S 68 OF THE INCOME TAX ACT 1961 (THE ACT ) . THE ASSESSEE MOVED AN APPLICATION UNDER RULE 27 OF THE ITAT RULES CHALLENGING THE REOPENING OF THE ASSESSMENT. 2.1. THE REASONS RECORDED FOR REOPENING ARE AS FOLLOWS . ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 2 INFORMATION HAS BEEN RECEIVED FROM THE DIRECTORATE OF INCOME TAX (I NVESTIGATION), NEW DELHI, VIDE LETTER NO. DIT (INV. - L)/2006 - 07/ AE/1533 DATED 31.1.2007/5.2.2007 AND LETTER NO. DIT (INV. - L)/2006 - 07/ AE/250 DATED 16.06.06 THROUGH ADDL. CIT, RANGE 1, NEW DELHI, THAT THE ABOVE NAMED ASSESSEE COMPANY IS THE BENEFICIARY OF ACCOMMODATION ENTR IES AS PER DETAILS GIVEN HEREUNDER: - NAME OF THE ASSESSEE AMOUNT OF DATE OF NAME OF ENTRY ENTRY ENTRY PROVIDER APS FOODS PVT LTD. 6,00,000 14.09.2002 POLO LEASING&FINANCE P.LTD. 9,00,900 12.09.2002 M.V. MARKETING PVT.LTD. IN THE ABOVE CONTEXT; STATEMENTS HAVE BEEN RECORDED BY THE DIRECTORATE OF INCOME TAX INVESTIGATION (WING), NC'N DELHI OF THE ENTRY PROVIDERS WHO HAVE CONFESSED IN THEIR STATEMENTS GIVEN BEFORE THE WING, THAT THEY ARE ENGAGED IN THE B USINESS OF PROVIDING ACCOMMODATION ENTRIES TO THE NEEDY PERSONS AGAINST COMMISSION RECEIVED FROM THEM. THESE ENTRY PROVIDERS HAVE CONFESSED THAT : I) THEIR MAIN WORK IS OF PROVIDING ACCOMMODATION ENTRIES. II) THEY PROVIDES ENTRY TO ANY PERSON / FIRM/ COMPANY AGAINST CASH RECEIVED FROM THE CONCERNED PERSON/ FIRM/ COMPANY WHICH IS DEPOSITED BY HIM IN THE VARIOUS BANK ACCOUNTS OPERATED BY HIM THROUGH VARIOUS PE R SONS, IN VARIOU S NAMES, AND AGAINST THE CASH SO RECEIVED, CHEQUE/DFR/O R PAY ORDER IS ISSUED FROM THE SAID ACCOUNTS IN THE NAME OF THE PARTY AGAINST COMMISSION . III) DURING THE INVES TIGATION PROCESS THE ADDL. DIT (INV.) HAD OBTAINED THE BANK ACCOUNT EX TRACTS OF VARIOUS BANK A/ C - OPERATED BY THE ENTRY PROVIDERS OR THRO UGH THEIR AGENTS AND LISTED OUT THE ENTRIES GIVEN BY THEM TO VARIOUS PARTIES. IV) IN VIEW OF THE ABOVE FACTS, THE SURROUNDING CIRCUMSTANCES PROVE ITSELF THE NA TURE OF ENTRIES AND ARE SUFFICIENT REASONS TO MAKE BELIEF OF THE UN DERSIGNED THAT THE INCOME TO AT LEAST ABOVE EXTENT HAS ESCAPED ASSESSMENT FOR A.Y. 2003 - 0 4. ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 3 IN VIEW OF THE ABOVE FACT IT HAS STRONG REASONS FOR ME TO BELIEVE THAT THE IN COME AS STATED ABOVE HAS ESCAPED ASSESSMENT IN YOUR CAS E. 3. WE HAVE HEARD SHRI K.K.JAISWAL, LD.D.R. ON BEHALF OF THE REVENUE AND SHRI SATYAM SETHI, T HE LD.COUNSEL FOR THE ASSESSEE. 4. LD.COUNSEL FOR THE ASSESSE SUBMITTED THAT THE LD.CIT(A) HAD WRONGLY DISMISSED THE GROUND OF THE ASSESSEE AGAINST THE REOPENING OF ASSESSMENTS. HE RELIED ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SFIL STOCK BRO K ERS REPORTED IN 325 ITR 285 (DEL.). ON MERITS HE RELIED ON THE ORDER OF THE LD.CIT(A). 5. LD.D.R. ON THE OTHER HAND OPPOSED THE CONTENTIONS OF THE ASSESSEE. ON MERITS HE RELIED ON THE JU DGEMENT OF THE HON BLE DELHI HIGH COURT IN THE CASE OF NOVA PROMOTERS & FINANCE (P) LTD. REPORTED IN 342 ITR 169 AND THE DECISION OF THE CASE OF NAVODAYA CASTLES (P) LTD. REPORTED IN 367 ITR 226 (DEL.). ON REOPENING HE RELIED ON THE ORDER OF THE LD.CIT(A) . 6 . ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ORDERS OF AUTHORITIES BELOW, MATERIAL PLACED ON RECORD AND CASE LAWS CITED, WE HOLD AS FOLLOWS. 6 .1. THE LD.CIT(A) AT PARA 5 OF HIS ORDER HELD AS FOLLOWS. 5.1 I HAVE CAR EFULLY CONSIDERED THE REASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE ID. AR ON THE ABOVE ISSUE. IT IS ARGUED BY THE ID. AR THAT THE IMPUGNED SHARE CAPITAL MONEY OF RS.15,00,000/ - WAS RECEIVED FROM TWO COMPANIES, NAMELY M/S POLO LEASING & FINANCE PVT. L TD. (RS.6,00,000/ - ) AND M/S MV MARKETING PVT. LTD. (RS.9,00,000) BY ACCOUNT BANK PAY ORDERS. THE APPELLANT HAD FILED COPIES OF CONFIRMATION 1 AFFIDAVIT FROM THE SAID COMPANIES CONFIRMING THE PAYMENT OF THE ABOVE AMOUNT AS SHARE APPLICATION ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 4 MONEY, COPIES OF INCOME - TAX RETURNS, COPY OF PAN DETAILS, BALANCE SHEET AND PROFIT & LOSS ACCOUNT, COPY OF BANK STATEMENT, COPY OF SHARE APPLICATION FORMS, COPY OF FORM NO. 2 FILED WITH ROC, MASTER DATA FROM THE ROC SHOWING THE STATUS OF THE COMPANY AS 'ACTIVE' ETC. IN RE SPECT OF THE INVESTORS IN SUPPORT OF ITS CLAIM. IT IS FURTHER ARGUED THAT THE ABOVE SHARES WERE ISSUED AT PAR AT THE FACE VALUE OF RS.100/ - EACH. THE SAID SHARES WERE ALLOTTED TO THE APPLICANT COMPANIES AND SHARE CERTIFICATE NOS. AND DISTINCTIVE NUMBERS WE RE PROVIDED TO THE AO. IT IS ARGUED BY THE ID. AR THAT THE APPELLANT HAS DISCHARGED ITS INITIAL ONUS WITH REGARD TO THE ABOVE TRANSACTIONS. IT IS ARGUED THAT THE ADDITION HAS BEEN MADE BY THE AO MERELY ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIG ATION WING WHICH WAS AT THE BACK OF THE APPELLANT AND WITHOUT ANY ENQUIRY WHATSOEVER DONE BY THE AO. FURTHER, IT IS ARGUED THAT OPPORTUNITY OF CROSS - EXAMINATION WAS NOT PROVIDED TO THE APPELLANT. IT IS ALSO ARGUED THAT EVEN IN THE EVENT OF THE INVESTOR COM PANIES BEING BOGUS, AS ALLEGED, NO ADDITION CAN BE MADE U/S 68 IN THE HANDS OF THE APPELLANT COMPANY. THE ID. AR HAS ACCORDINGLY ARGUED THAT THE SAID ADDITION OF RS.15,01,500/ - U/S 68 MADE BY THE AO IN THE HANDS OF THE APPELLANT COMPANY IS ILLEGAL. THE ID. AR HAS RELIED UPON ON A PLETHORA OF CASE LAWS IN SUPPORT OF HIS CLAIM. ON CAREFUL CONSIDERATION OF THE MATTER, I FIND THAT THE ABOVE CONTENTION OF THE ID. AR CANNOT BE REJECTED ON MERIT. THE AO HAS ALSO NOT BEEN ABLE TO BRING ON RECORD ANY VALID MATERIAL EVIDENCE EITHER IN THE ASSESSMENT ORDER OR IN THE REMAND REPORT TO DISPROVE THE CLAIM OF THE APPELLANT IN THIS REGARD. 6 . 2 . ON THIS FACTUAL RECORDING, WE EXAMINE THE CASE LAWS ON THIS ISSUE. IN THE CASE OF CIT VS. GANGESHWARI METAL P.LTD. IN ITA NO.597/2012 JUDGEMENT DT. 21.1.2013 REPORTED IN 361 ITR 10(DEL) , THE HON'BLE HIGH COURT AFTER CONSIDERING THE DECISIONS IN THE CASE OF NOVA PROMOTERS AND FINLEASE PVT.LTD. 342 ITR 169 AND JDUGEMENT IN THE CASE OF CIT VS. LOVELY EXPORTS 319 ITR (SAT.5)(S.C. ) HELD AS FOLLOWS. 'AS CAN BE SEEN FROM THE ABOVE EXTRACT, TWO TYPES OF CASES HAVE BEEN INDICATED. ONE IN WHICH THE ASSESSING OFFICER CARRIES OUT THE EXERCISE WHICH IS ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 5 REQUIRED IN LAW AND THE OTHER IN WHICH THE ASSESSING OFFICER (SITS BACK WITH FOLDED HAN DS' TILL THE ASSESSEE EXHAUSTS ALL THE EVIDENCE OR MATERIAL IN HIS POSSESSION AND THEN COMES FORWARD TO MERELY REJECT THE SAME ON THE PRESUMPTIONS. THE PRESENT CASE FALLS IN THE LATTER CATEGORY. HERE THE ASSESSING OFFICER AFTER NOTING THE FACTS, MERELY REJ ECTED THE SAME. THIS WOULD BE APPARENT FROM THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER TO THE FOLLOWING EFFECT - 'INVESTIGATION MADE BY THE INVESTIGATION WING OF THE DEPARTMENT CLEARLY SHOWED THAT THIS WAS NOTHING BUT A SHAM TRANSACT ION OF ACCOMMODATION ENTRY. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT OF RS.L,11,50,000/ - MAY NOT BE ADDED TO ITS INCOME. IN RESPONSE, THE ASSESSEE HAS SUBMITTED THAT THERE IS NO SUCH CREDIT IN THE BOOKS OF THE ASSESSEE. RATHER, THE ASSES SEE COMPANY HAS RECEIVED THE SHARE APPLICATION MONEY FOR ALLOTMENT OF ITS SHARE. IT WAS STATED THAT THE ACTUAL AMOUNT RECEIVED WAS RS. 55, 50, 000/ - AND NOT RS.L,11,50,000/ - AS MENTIONED IN THE NOTICE. THE ASSESSEE HAS FURNISHED DETAILS OF SUCH RECEIPTS AN D THE CONTENTION OF THE ASSESSEE IN RESPECT OF THE AMOUNT IS FOUND CORRECT. AS SUCH THE UNEXPLAINED AMOUNT IS TO BE TAKEN AT RS.55,50,000/ - . THE ASSESSEE HAS FURTHER TRIES TO EXPLAIN THE SOURCE OF THIS AMOUNT OF RS.55,50,000/ - BY FURNISHING COPIES OF SHARE APPLICATION MONEY, BALANCE4 SHEET, ETC. OF THE PARTIES MENTIONED ABOVE AND ASSERTED THAT THE QUESTION OF ADDITION IN THE INCOME OF THE ASSESSEE DOES NOT ARISE. THIS EXPLANATION OF THE ASSESSEE HAS BEEN DULY CONSIDERED AND FOUND NOT ACCEPTABLE. THIS ENTRY REMAINS UNEXPLAINED IN THE HANDS OF THE ASSESSEE AS HAS BEEN ARRIVED BY THE INVESTIGATION WING OF THE DEPARTMENT. AS SUCH ENTRIES OF RS. 55, 50, 000/ - RECEIVED BY THE ASSESSEE ARE TREATED AS AN UNEXPLAINED CASH CREDIT IN THE HANDS OF THE ASSESSEE AND ADDED TO ITS INCOME. SINCE I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C ) ARE BEING INITIATED SEPARATELY. ' THE FACTS OF NOVA PROMOTERS AND FINLEASE (P) LTD. (SUPRA) FALL IN THE FORMER CATEGORY AND THAT IS WHY THIS COURT DECIDED IN FAVOUR OF THE REVENUE IN THAT ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 6 CASE. HOWEVER, THE FACTS OF THE PRESENT CASE ARE CLEARLY DISTINGUISHABLE AND FALL IN THE SECOND CATEGORY AND ARE MORE IN LINE WITH FACTS OF LOVELY EXPORTS (P) LTD. (SUPRA) . THERE WAS A CLEAR LACK OF INQUIRY ON THE PART OF THE ASSESSING OFFICER ONCE THE ASSESSEE HAD FURNISHED ALL THE MATERIAL WHICH WE HAVE ALREADY REFERRED TO ABOVE. IN SUCH AN EVENTUALITY NO ADDITION CAN BE MADE UNDER SECTION 68 OF THE INCOME TAX ACT, 1961. CONSEQUENTLY, THE QUESTION IS ANSWERED IN THE NEGATIVE. THE DECISION OF THE TRIBUNAL IS CORRECT IN LAW. ' THE CASE ON HAND CLEARLY FALLS IN THE CATEGORY WHERE THERE IS LACK OF ENQUIRY ON THE PART OF THE A.O. AS IN THE CASE OF GANGESHWARI METALS (SUPRA). APPLYING THE PROPOSITIONS LAID DOWN IN THIS CASE LAW TO THE FACTS OF THIS CASE WE UPHOLD THE ORDER OF THE LD.CIT(A). 6 .3. ON THE ISSUE OF REOPENING WE FIND THAT T HE HON BLE DELHI HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. G & G PHARMA INDIA LTD. IN ITA NO. 545/2015 VIDE ORDER DT. 8.10.2015 AT PARA 12 AND 13 HELD AS FOLLOWS. 12. IN THE PRESENT CASE, AFTER SETTING OUT FOUR ENTRIES, STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE ON A SINGLE DATE I.E. 10 FEBRUARY 2003, FROM FOUR ENTITIES WHICH WERE TERMED AS ACCOMMODATION ENTRIES, WHICH INFORMATION WAS GIVEN TO HIM BY THE DIRECTORATE O F INVESTIGATION, THE AO STATED: I HAVE ALSO PERUSED VARIOUS MATERIALS AND REPORT FROM INVESTIGATION WING AND ON THAT BASIS IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS, INTRODUCED ITS OWN UNACCOUNTED MONEY IN ITS BANK ACCOUNT BY WAY OF ABOVE ACCOMMODATION ENTRIES. THE ABOVE CONCLUSION IS UNHELPFUL IN UNDERSTANDING WHETHER THE AO APPLIED HIS MIND TO THE MATERIALS THAT HE TALKS ABOUT PARTICULARLY SINCE HE DID NOT DESCRIBE WHAT THOSE MATERIALS WERE. ONCE THE DATE ON WHICH THE SO CALLED ACCOMMODATION ENTRIES W ERE PROVIDED IS KNOWN, IT WOULD NOT HAVE BEEN DIFFICULT FOR THE AO, IF HE HAD IN FACT UNDERTAKEN THE EXERCISE, TO MAKE A REFERENCE TO THE MANNER IN WHICH THOSE VERY ENTRIES WERE PROVIDED IN THE ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 7 ACCOUNTS OF THE ASSESSEE, WHICH MUST HAVE BEEN TENDERED ALONG WITH THE RETURN, WHICH WAS FILED ON 14TH NOVEMBER 2004 AND WAS PROCESSED UNDER SECTION 143(3) OF THE ACT. WITHOUT FORMING A PRIMA FACIE OPINION, ON THE BASIS OF SUCH MATERIAL, IT WAS NOT POSSIBLE FOR THE AO TO HAVE SIMPLY CONCLUDED: IT IS EVIDENT THAT THE ASSESSEE COMPANY HAS INTRODUCED ITS OWN UNACCOUNTED MONEY IN ITS BANK BY WAY OF ACCOMMODATION ENTRIES . IN THE CONSIDERED VIEW OF THE COURT, IN LIGHT OF THE LAW EXPLAINED WITH SUFFICIENT CLARITY BY THE SUPREME COURT IN THE DECISIONS DISCUSSED HEREINBEFORE , THE BASIC REQUIREMENT THAT THE AO MUST APPLY HIS MIND TO THE MATERIALS IN ORDER TO HAVE REASONS TO BELIEVE THAT THE INCOME OF THE ASSESSEE ESCAPED ASSESSMENT IS MISSING IN THE PRESENT CASE. MR. SAWHNEY TOOK THE COURT THROUGH THE ORDER OF THE CIT(A) TO SH OW HOW THE CIT (A) DISCUSSED THE MATERIALS PRODUCED DURING THE HEARING OF THE APPEAL. THE COURT WOULD LIKE TO OBSERVE THAT THIS IS IN THE NATURE OF A POST MORTEM EXERCISE AFTER THE EVENT OF REOPENING OF THE ASSESSMENT HAS TAKEN PLACE. WHILE THE CIT MAY HAV E PROCEEDED ON THE BASIS THAT THE REOPENING OF THE ASSESSMENT WAS VALID, THIS DOES NOT SATISFY THE REQUIREMENT OF LAW THAT PRIOR TO THE REOPENING OF THE ASSESSMENT, THE AO HAS TO, APPLYING HIS MIND TO THE MATERIALS, CONCLUDE THAT HE HAS REASON TO BELIEVE T HAT INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. UNLESS THAT BASIC JURISDICTIONAL REQUIREMENT IS SATISFIED A POST MORTEM EXERCISE OF ANALYSING MATERIALS PRODUCED SUBSEQUENT TO THE REOPENING WILL NOT RESCUE AN INHERENTLY DEFECTIVE REOPENING ORDER FROM INV ALIDITY . 7 . A PLAIN READING OF THE REASONS RECORDED DEMONSTRATE THAT THE A.O. HAS NOT APPLIED HIS MIND TO THE MATERIAL/INFORMATION RECEIVED FROM THE DIRECTOR (INVESTIGATIONS). WITHOUT SUCH INDEPENDENT APPLICATION OF MIND, IT IS NOT POSSIBLE FOR THE A.O. TO COME TO A CONCLUSION THAT HE HAS REASON TO BELIEVE THAT INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. THUS, RESPECTFULLY FOLLOWING THE PROPOSITIONS OF LAW LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF PR.CIT VS. G & G PHARMA INDIA LTD. (SUPRA) , WE HOLD THAT THE REOPENING IS BAD IN LAW. ITA 1787/DEL/2012 A.Y. 2003 - 04 APS FOODS P.LTD. 8 8 . IN THE RESULT REVENUE S APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DECEMBER ,2015. SD/ - S D/ - (A.T. VARKEY) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 17 TH DECEMBER, 2015 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR