M/s. C.L. Aggarwal Yarn Industries Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2408/DEL/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1801 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 09-11-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 21-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Keywords: Gift; Accommodation entries; Reason to believe
• Section: 143(3); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC - I , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 2 408 /DEL/201 4 AY: 20 0 4 - 05 C.L.AGGARWAL YARN INDUSTRIES P.LTD. VS. ITO, WARD 3(2) C/O M/S RRA TAX INDIA, D 28 NEW DELHI SOUTH EX. PART I NEW DELHI 110 049 PAN: AACCC 2956 J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOMIL AGARWAL, ADV. RESPONDENT BY : SH. T.VASANTHAN, SR. D.R. ORDER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS) - VI DATED 10.2.2014 PERTAINING TO THE ASSESSMENT YEAR (A.Y.) 200 4 - 05 . 2. THE ASSESSEE HAS CHALLENGED THE REOPENING OF THE ASSESSMENT ON THE GROUND THAT THE REASONS RECORDED DEMONSTRATE THAT THE ASSESSING OFFICER (AO) HAS NOT APPLIED HIS MIND INDEPENDENTLY TO THE MATERIAL REFERRED TO BY HIM WHILE RECORDING REASONS FOR REOPENING. IT WAS SUBMITTED THAT WITHOUT FORMING A PRIMA FACIE PINION, ON T HE BASIS OF SUCH MATERIAL, IT IS NOT CORRECT ON THE PART OF THE A.O. TO RECORD REASONS AND REOPEN THE ASSESSMENTS. 3. AFTER HEARING RIVAL CONTENTIONS I HOLD AS FOLLOWS. 4. THE REASONS FOR REOPENING RECORDED BY THE A.O. ARE AS FOLLOWS. 2 A REPORT ON ENQUIRIES MADE BY THE DIRECTORATE OF INCOME TAX (INVESTIGATION), NEW DELHI INTO ACCOMMODATION ENTRIES GIVEN BY ENTRY OPERATORS HAS BEEN RECEIVED. THIS REPORT WAS RECEIVED IN THE OFFICE OF COMMISSIONER OF INCOME TAX, DELHI - I, NEW DELHI AND WAS S UBSEQUENTLY FORWARDED VIDE F. NO. C1T - 1/2005 - 06/2132 DATED 13.03.2006. THESE ENQUIRIES WERE INITIATED TO PROBE INTO SOME BANK ACCOUNT WHICH WERE USED TO I SSUE CHEQUES TO ENTRY SEEKERS OR BENEFICIARIES AGAINST CASH PAID BY THEM TO THE ENTRY OPERATORS. SUCH A CAMOUFLAGED TRANSACTION CAME TO LIGHT DURING THE COURSE OF SURVEY IN THE CASE OF M/S. GURCHARAN JEWELLERS WHOSE PROPRIETOR ASHOK KUMAR CHAUHAN HAD ADMITTED TO HAVE TAKEN CHEQUES UNDER THE GARB OF GIFTS AFTER GIVING CASH TO THE ENTRY OPERATOR. PROBE WAS I NITIATED INTO ACCOUNTS WHICH WERE USED TO PROVIDE THESE ENTRIES. THESE INVESTIGATIONS REVEALING OF MANY MORE BANK ACCOUNTS WHICH WERE BEING USED BY THE ENTRY OPE RATORS FOR THE PURPOSE OF GIVING ACCOMMODATION ENTRIES. 2. EXTENSIVE ENQUIRIES WERE MADE INTO NUMEROUS SUCH BANK ACCOUNTS, THE ACCOUNT HOLDERS, THE PERSONS OPERATING THESE ACCOUNTS AND THE PERSONS FOR WHOM SUCH ACCOUNT HOLDERS S WERE WORKING. THESE ENQUIRIES REVEALED INTER ALIA THE FOLLOWING. 2.1. ENTRIES WERE BEING BROADLY TAKEN FOR TWO PURPOSES: A. TO PLOUGH BACK UNACCOUNTED BLACK MONEY FOR THE PURPOSE OF BUSINESS OR FOR PERSONAL NEEDS SUCH AS PURCHASE OF ASSETS ETC.. IN THE FORM OF GIFTS, , SHARE APPLICATION MONEY, LOANS ETC. B. TO INFLATE EXPENSES IN THE TRADING AND PROFIT AND LOSS ACCOUNT SO AS TO REDUCE THE REAL PROFITS AND THEREBY PAY LESS TAXES. 2.2. THE ASSESSEE WHO HAD UNACCOUNTED MONEY (CALLED AS ENTRY TAKERS OR BENEFICIARIES) AND WANTED TO INTRODUCE THE SAME IN THE BOOKS OF ACCOUNTS WITHOUT PAYING TAX, APPROACHED ANOTHER PER SON (CALLED ENTRY OPERATOR) AND HANDED OVER THE CASH (PLUS COMMISSION) AND HAD TAKEN CHEQUES/DDS/POS. THE CASH WAS BEING DEPOSITED BY THE ENTRY OPERATOR IN A BANK ACCOUNT EITHER 3 IN HIS OWN NAME OR IN THE NAME OF RELATIVE/FRIENDS OR OTHER PERSON HIRED B Y HIM, FOR THE PURPOSE OF OPENING BANK ACCOUNT. IN MOST OF THESE BANK ACCOUNTS THE INTRODUCER WAS THE MAIN ENTRY OPERATOR AND THE CASH DEPOSIT SLIPS AND OTHER INSTRUMENTS WERE FILLED BY HIM. THE OTHER PERSONS (IN WHOSE NAME THE A/C IS OPENED) ONLY USED TO SIGN THE BLANK CHEQUE BOOK AND HAND OVER THE SAME TO THE MAIN ENTRY OPERATOR. THE ENTRY OPERATOR THEN USED TO ISSUE CHEQUES/DDS/POS IN THE NAME OF THE BENEFICIARY FROM THE SAME ACCOUNT (IN WHICH THE CASH IS DEPOSITED) OR ANOTHER ACCOUNT IN WHICH FUNDS WERE TRANSFERRED THROUGH CLEARING IN TWO OR MORE STAGES. THE BENEFICIARY IN TURN DEPOSITED THESE INSTRUMENTS IN HIS BANK ACCOUNTS AND THE MONEY CAME TO HIS REGULAR BOOKS OF ACCOUNT IN THE FORM OF GIFT, SHARE APPLICATION MONEY, LOAN ETC THROUGH BANKING CHA NNELS. 2.3. THE OPERATORS GAVE THE ACCOUNT HOLDERS AMOUNTS RANGING FROM RS .1000 TO 2000 PER MONTH. THESE ACCOUNT HOLDERS WERE MASONS, PLUMBERS, ELECTRICIANS, PEONS, DRIVERS ETC, WHOSE EARNINGS ARE NOT SUFFICIENT FOR A LIVING. THEY EARNED NORMALLY RS 3 TO 5 THOUSAND PER MONTH IN THEIR NORMAL WORK AND BY WORKING FOR THE ENTRY OPERATORS EARNED EXTRA INCOME OF RS 2 TO 4 THOUSAND PER MONTH. THEIR SIGNATURES WERE TAKEN ON BLANK GIF: DEEDS, CHEQUE BOOKS, SHARE APPLICATION MONEY ETC. IN FACT THESE PERSONS SIG NED ALL TYPES OF PAPERS THEY WERE ASKED TO SIGN. THEY WERE MADE DIRECTORS OF COMPANIES, PARTNERS OF FIRMS AND PROPRIETOR OF DIFFERENT CONCERNS SOLELY FOR OPERATION OF THESE ACCOUNTS. ACTUALLY, MANY OF THEM WERE NOT EVEN AWARE OF THE TAX IMPLICATIONS ETC. T HEIR ONLY CONCERN WAS WITH THE FEW THOUSAND RUPEES GIVEN TO THEM BY THE ENTRY OPERATORS. 3. SUMMING UP, THE REPORT AS A RESULT OF THESE EXTENSIVE ENQUIRIES CARRIED OUT BY THE DIT (INV.), NEW DELHI HAS ASSAILED GENUINENESS OF TRANSACTIONS, WHETHER SHOW N BY BENEFICIARIES AS INFLOW OF SHARE CAPITAL OR RECEIPT OF GIFTS OR CONSIDERATION FOR SALE - PURCHASE. IT HAS ALSO DEALT A BODY BLOW TO THE CREDITWORTHINESS OF THE PERSONS/PERSONS CONTROLLING THE CONCERNS WHO HAVE GIVEN THESE CREDIT ENTRIES! SHARE CAPITAL/GIFTS/ SALE CONSIDERATION AS THEY HAVE BEEN SEEN TO BE MAN OF NO MEANS. 4 4. IN THE INSTANT CASE OF THE ASSESSEE, M/S CL AGGARWAL YARN INDUSTRIES P.LTD., THE FOLLOWING CREDITS HAVE BEEN SHOWN IN THE BANK ACCOUNT OF THE ASSESSEE. 4.1 ENQUIRIES REVEALED THAT ONE SHRI HARI OM BANSAL, S/O SHRI K.C. HARIJKA, R/O M - 1/L, MODEL TOWN - III, NEW DELHI WAS CONTROLLING A NUMBER OF BANK ACCOUNTS OF VARIOUS COMPANIES THROUGH VARIOUS ASSOCIATES. IN THIS REGARD, STATEMENTS ON OATH U/S 131 OF THE I. T. ACT, 1961 OF SHRI HARI OM BANSAL ON 12 - 4 - 2005 BY THE ADDL D.L.T. (INV.), UNIT - 1, NEW DELHI. IN HIS STATEMENT SHRI HARI OM BANSAL HAS STATED THAT HE IS IN THE BUSI NESS OF PROVIDING ACCOMMODATION ENTRIES THROUGH HIS COMPANIES AS WELL AS HIS ASSOCIATES. HE IS JUST PROVIDING ACCOMMODATION ENTRIES TO VARIOUS OTHER BENEFICIARIES BY USING VARIOUS CONCERNS . 4.2 IN VIEW O F THE FINDINGS OF THE INVESTIGATION REPORT, THE ENTITIES FROM WHERE ASSESSEE HAS RECEIVED FUNDS HAD BEEN PROVED TO BE MEN/PARTIES OF NO CREDITWORTHINESS. ON THE BASIS OF THE STATEMENTS RECORDED ON OATH AND THE LETTERS OF ADMISSION CLEARLY SHOW THAT THESE TR ANSACTION DO NOT APPEARS TO BE GENUINE. THEREFORE, IT APPEARS THAT THE AFORESAID CREDIT ENTRIES ARE COVERED UNDER THE PROVISIONS OF SECTION 68 OF THE I. T. ACT. I THEREFORE HAVE REASONS TO BELIEVE THAT THIS AMOUNT OF RS. 7,00,000 / - REPRESENTS INCOME OF TH E ASSESSEE CHARGEABLE TO TAX BENIFICIAR Y BANK NAME VALUE OF ENTRY TAKEN INSTRUMENT NO. BY WHICH ENTRY TAKEN DATE ON WHICH ENTRY TAKEN NAME OF ACCOUNT HOLDER OF ENTRY GIVING ACCOUNT BANK FROM WHICH ENTRY GIVEN BRANCH OF ENTRY GIVING BANK HDFCBANK 50000 0 270912 24 - SEP - 03 PARIVARTAN CAPITAL & FINANCIAL SERVICES PVT LTD CORPN BANK KAMLA NAGAR HDFCBANK 20000 0 270916 8 - JAN - 04 PARIVARTAN CAPITAL & FINANCIAL SERVICES PVT LTD CORPN BANK KAMLA NAGAR 5 WHICH HAS ESCAPED ASSESSMENT FOR A. 2004 - 05. 4.1. THE 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 OF 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 AB OVE 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 ACCOM MODATION ENTRIES WERE 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 ACCOUNTS OF THE ASSESSEE, WHICH MUST HAVE BE EN 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 ASS ESSEE ESCAPED ASSESSMENT IS MISSING IN THE PRESENT CASE. MR. SAWHNEY TOOK THE COURT THROUGH THE ORDER OF THE CIT(A) TO SHOW HOW THE CIT (A) DISCUSSED THE MATERIALS PRODUCED DURING THE HEARING OF THE APPEAL. THE COURT WOULD LIKE TO OBSERVE THAT THIS IS IN T HE NATURE OF A POST MORTEM 6 EXERCISE AFTER THE EVENT OF REOPENING OF THE ASSESSMENT HAS TAKEN PLACE. WHILE THE CIT MAY HAVE 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 THAT 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 INVALIDITY . 4.2. APPLYING THE PROPOSITIONS LAID DOWN IN THIS CASE, TO THE FACTS OF THE CASE ON HAND, I HOLD THAT THE REOPENING IS BAD I N LAW AS IN THIS CASE THE A.O. HAS NOT INDEPENDENTLY APPLIED HIS MIND TO THE INFORMATION RECEIVED SO AS TO FORM AN OPINION THAT INCOME CHARGEABL E TO TAX HAS ESCAPED ASSESSMENT IN THE CASE OF THE ASSESSEE. HE HAS NOT STATED AS TO HOW THE MATERIAL GATHERED BY THE INVESTIGATION WING HAS NEXUS WITH THE ASSESSEE. THE REPORT AND THE FINDING OF THE INVESTIGATIONS WING HAVE TO BE RELIED UPON BY THE A.O. WITHOUT ANY INDEPENDENT VERIFICATION. MERELY DISCUSSING THE MODUS OPERANDI WILL NOT LEAD THE A.O. TO FORM A RE ASONABLE BELIEF THAT INCOME CHARGEABLE TO TAX OF THE ASSESSEE HAS ESCAPED ASSESSMENT. HENCE IN MY VIEW THE REOPENING OF THE ASSESSMENT IS BAD IN LAW. 5. IN THE RESULT ASSESSEE S APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER ,20 15. SD/ - (J.SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED: THE 30 TH NOV. , 2015 *MANGA 7 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR