ACIT, Central Circle- 30, New Delhi V. Lokpriya Trading (P) Ltd., Kolkata

ITA 4060/DEL/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6476 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 18-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSHMA SINGH
• Keywords: Unexplained expenditure; Search and seizure; Source of fund; Block assessment; Reason to believe; Reassessment proceedings
• Section: 147; 68; 148; 132; 143(1); 158BD

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘F’ : NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA No.4060/Del./2017 (ASSESSMENT YEAR : 2008-09) ACIT, Central Circle 30, vs. Lokpriya Trading (P) Ltd., New Delhi. 303, Himland House, Karampura Commercial Complex, New Delhi – 110 015. (PAN : AQIPS3222L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ajay Wadhwa, Advocate Ms. Vanshika Taneja, Advocate REVENUE BY : Smt. Sushma Singh, CIT DR Date of Hearing : 06.10.2021 Date of Order : 14.12.2021 O R D E R PER AMIT SHUKLA, JM : Aforesaid appeal has been filed by the assessee against the impugned order dated 31.03.2017 passed by the ld. CIT (Appeals)-30, New Delhi for the quantum of assessment passed under section 147/143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment year 2008-09. 2. In the grounds of appeal, the following grounds are raised by the Revenue :- ITA No.5397/Del./2016 2 “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the AO to delete the addition made u/s 68 of the I.T. Act on account of unexplained cash credits amounting to Rs.7,50,00,000/- on protective basis and Rs.74,52,000/- on substantive basis. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the AO to delete the addition of Rs.4,12,260/- as unexplained expenditure on account of brokerage. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that the initiation of action u/s 147 of the Act is invalid and void ab initio. 4. That the grounds of appeal are without prejudice to each other.” 3. Facts in brief are that the assessee had filed its return of income on 31.03.2009 which was duly processed under section 143 (1) of the Act. Later on, the AO reopened the case u/s 147 and notice u/s 148 was issued on 18.02.2015. The reasons recorded by the AO read as under :- “In this case, the return declaring income of Rs. 890/- was e-filed on 31/03/2009 vide Acknowledgement No. 66969691310309. It was processed u/s 143(1) of the I.T. Act on 01/01/2010 at return Income. A Search and seizure action in Surya Prakash group of cases was carried out on 30/10/2012. During search in his statement recorded u/s 132(4) of the I.T. Act on 31-10-2012, chairman of M/s Prakash Industries Ltd., Sh. Ved Prakash Aggarwal admitted that accommodation entries from Paper Companies were received in various group companies including M/s ITA No.5397/Del./2016 3 Lokpriya Trading Pvt Ltd. in F.Y. 2007-08 amounting to Rs. 8.25 crore. Sh. Ved Prakash Aggarwal, the chairman of M/s Prakash Industries Ltd. admitted that unaccounted cash was introduced in the books of accounts as share capital arranged through Sh. Ashok Aggarwal. Sh. Ashok Aggarwal through affidavit dated 24 Jan 2013 confirmed that he introduced Sh. PL Gupta employee/Director of M/s Prakash Industries Ltd with entry operator SII. Shiv Shankar Banka. The statement of Sh. Ved Prakash Aggarwal, the chairman of M/S Prakash Industries Ltd is made part of reasons as annexure - (i) During the search in statement taken on 30/10/2012 Sh Shiv Shankar Banka, an entry operator admitted that he provided the accommodation entry to M/s Prakash Industries Ltd group companies through Sh. Ashok Aggarwal. The statement of Sh. Shiv Shankar Banka, an entry operator is made part of reasons as annexure - (ii) Sh. Kailash Patwari, old director of M/s Lokpriya Trading Pvt Ltd from 2003 to 2009 stated during his statement recorded on 22/01/2013 that he does not know the address of the company, the nature of activities of the company, share holders of the company, name of internal auditor & the person who maintained the internal control system of the company, the place where & how the books of accounts are maintained, the date of incorporation of the company and the share holding of the company. He further stated that he signed the documents whatever given to him with regard to M/s Lokpriya Trading Pvt Ltd and he was director in the company for name sake. The statement of Sh. Kailash Patwari, old director of Mis Lokpriya Trading Pvt is rJ'13::1e cart of reasons as annexure -- (iii) Statement of Sh Pawan Guleria, the new director of M/s. Lokpriya Trading Pvt. Ltd. was recorded on 31.10.2012 in which he stated that he is Commercial Manager in M/s. Prakash Industries Ltd. with salary of Rs. 30,000/- per month and did not know any business activities, address of H.O. / registered address / corporate office, Shareholders details, Investments, name of statutory auditor of the company etc about the company. He further stated that he is director in the company just for name sake. The statement of Sh. Pawan Guleria, new director of M/s Lokpriya Trading Pvt is made part of reasons as annexure - (iv) ITA No.5397/Del./2016 4 The other new director of M/s Lokpriya Trading Pvt Ltd, Sh. Sudhir Kumar Bali in his statement dated 30/10/2012 recorded during search proceedings stated that he is AGM(IT) in M?s Prakash Industries Ltd. and drawing salary of Rs. 28,000/- per month. He knew nothing about activities, shareholders, auditors, investments of the company & he is director just for name sake. The statement of Sh. Sudhir Kumar Ball, the other new director of M/s Lokpriya Trading Pvt is made part of reasons as annexure - (v) M/s Lokpriya Trading Pvt Ltd was a paper company without having any tangible assets and its investments were also in paper companies. As such the share capital & share premium introduced in its books was bogus. The investments were made in paper companies which did not have any substantive business activities and some of them were found nonexistent at the addresses given. From the examination of accounts of the company, it is found that the amount of Rs. 8.25 crore has been invested in Prakash Industries Ltd group. The funds by way of share capital & premium are shown to have been received from companies which are paper companies & run by entry operators. Hence the source of funds is non genuine. The said amount is liable to be taxed under I.T. Act. Therefore I have reason to believe that income of Rs. 8.25 crore has escaped assessment for the Asst. Year 2008-09 by reason of failure on part of assessee to disclose fully and truly all material facts necessary for its assessment. Therefore in my opinion it is a fit case for Issue of notice u/s 148. Sd/- (Ram Niwas) Asstt. Commissioner of Income Tax, Central Circie-30, New Delhi.” 4. Thereafter, the AO had proceeded to make the assessment on an income of Rs.8,28,65,150/- after making following additions :- (a) Unexplained cash credit u/s 68 of Rs.7,50,00,000/- on protective basis; ITA No.5397/Del./2016 5 (b) Unexplained cash credit u/s 68 of Rs.74,52,000/-; and (c) Unexplained expenditure on account of brokerage @ 0.5% i.e. Rs.4,12,260/- on presumptive basis. 5. Before the ld. CIT (A), one of the main arguments challenging the validity of notice u/s 148 was that the AO has reopened the assessment without applying his mind and the reasons recorded in the realm of suspicion and there was no reason to believe. Apart from that, it was stated that the reasons were recorded on the basis of statement recorded u/s 132(4) of Ved Prakash Aggarwal and Shiv Shankar Banka which has no relevance to the case of the assessee because it was allegedly to introduce undisclosed profits of Prakash Industries Ltd. Thus, AO has simply relied upon statements without application of mind. Another important objection which was raised was that the AO has resorted to make protective addition in his assessment order, which clearly shows that that he was not clear as to whether the income escaping assessment belongs to the assessee or to Prakash Industries Ltd. Another very important fact which was brought on record that the alleged share application money of Rs.7,50,00,000/- was not received in this year, therefore, there was no occasion to make the addition u/s 68 of the Act in this year. On this ground also reasons recorded are based on erroneous presumption of facts and there is no application of mind. ITA No.5397/Del./2016 6 6. After considering the relevant facts on record it is seen that, Assessee company had applied for 25 lakhs equity shares @ Rs.30 per share of Prakash Industries Ltd. amounting to Rs.7,50,00,000/- and during the FY 2006-07 i.e. AY 2007-08, the share application money of Rs.3,75,00,000/- was paid and balance amount of Rs.3,75,00,000/- was paid during the relevant FY 2007-08 i.e. AY 2008-09. Thus, it was submitted before the authorities below that there was non-application of mind and non-perusal of the material already available on file. Ld. CIT (A), after considering the aforesaid facts, held that enunciation of proceedings u/s 147 is invalid and bad in law and accordingly, he quashed the assessment. 7. Before us, the ld. CIT DR submitted that there was definite information from the Investigation Wing on the basis of which reasons have been recorded which was sufficient to entertain reason to believe that income chargeable to tax has escaped assessment. There is no prohibition in the law that protective assessment cannot be made and the reassessment proceedings which have been reopened u/s 147 and strongly relied upon the judgment of Hon’ble Delhi High Court in the case of CIT vs. Mahindra Finlease (P.) Ltd. (2012) 343 ITR 464 (Delhi) wherein Hon’ble Court held that AO has power to make protective assessment in the block assessment proceedings. ITA No.5397/Del./2016 7 8. On the other hand, ld. counsel on behalf of the assessee submitted that first of all, the reasons of believe the facts are legally incorrect and contained certain errors and, therefore, assumption of jurisdiction u/s 147 on the basis of erroneous assumption of facts cannot be sustained. It is evident from the fact that AO in the last two paras of reasons has recorded that, “ From the examination of accounts of the company, it is found that the amount of Rs. 8.25 crore has been invested in Prakash Industries Ltd group. The funds by way of share capital & premium are shown to have been received from companies which are paper companies & run by entry operators. Hence the source of funds is non genuine. The said amount is liable to be taxed under I.T. Act. Therefore I have reason to believe that income of Rs. 8.25 crore has escaped assessment for the Asst. Year 2008-09 by reason of failure on part of assessee to disclose fully and truly all material facts necessary for its assessment.” 9. Ld. counsel thus submitted that firstly, there was no reference of records already filed in the income-tax return by the assessee so there cannot be any reason that the assessee has failed to disclose any material fact and it is merely a bald statement; secondly, the ld. AO has recorded the reasons that amount of Rs.8.25 crores was invested in Prakash Industries Ltd. after examining all books of account, however in the books of account/audited balance sheet, the total amount invested is Rs.7,50,00,000/- that means there is no application of mind. Lastly, another important fact that out of Rs.7,50,00,000/-, a sum of Rs.3.75 crores was invested in AY 2007-08, therefore, the ITA No.5397/Del./2016 8 AO could not have added the entire amount in the relevant assessment year and accordingly section 68 is not applicable. Thus, the entire reasons recorded as bad in law because it is based on non-application of mind. 10. He further submitted that it is a well-settled law that reopening u/s 147 cannot be resorted to for making protective addition, that means there was no reason to believe that income chargeable to tax has escaped in the hands of assessee. In support, he relied upon various judgments and synopsis filed before us. 11. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material placed on record. The main issue before us is the validity of reopening u/s 147 which the ld. CIT (A) had quashed the assessment proceedings u/s 147 on the grounds stated above. From the perusal of the reasons recorded, we find that ld. AO has mentioned certain facts during the course of search and seizure, action of seizure was carried out on 30.10.2012 and the statements of Ved Prakash Aggarwal, Chairman of M/s. Prakash Industries Ltd. and also of alleged entry provider Shiv Shankar Banka, an alleged entry operator were recorded. Insofar as the said information and material is concerned, there is nothing which can be pertaining to the assessee’s case. What the AO has drawn presumption that, since assessee has invested in shares in the Prakash Industries Ltd., therefore, the source of investment by the assessee is also non-genuine. ITA No.5397/Del./2016 9 12. Be that as it may be, if we see the actual reasons recorded specifically in last two paras, it is seen that AO has mentioned that he has examined the accounts of the assessee company from where he has found that an amount of Rs.8.25 crores was invested in Prakash Industries Ltd. and therefore, income of Rs.8.25 crores has escaped assessment for the AY 2008-09 on the reasons of failure on part of the assessee on fully and truly facts. First of all, there was no such amount of Rs.8.25 crores invested by the assessee company in the FY 2007-08 relevant to AY 2008- 09 which is a matter of record. From the perusal of the balance sheet which was already part of the record filed along with return of income, originally there is no fresh share application in this year and assessee had subscribed to share application amounting to Rs.7,50,00,000/- in the FY 2006-07 and had made payment of Rs.3.75 crores in the FY 2006-07. Thus, there was no other share application which was made during the year. There is no such amount of Rs.8.25 crores invested in shares or subscribed for any share application as recorded in the reasons by the Assessing Officer. This is evident from the copy of balance sheet filed in the paper book and also in the submissions made before the AO/CIT(A). Thus, the very premise of the reasons to believe that the assessee had invested Rs.8.25 crores is de hors of facts and material on record is incorrect. There is no such amount invested by the assessee company. On this ground alone, the reason to believe turns out to be ITA No.5397/Del./2016 10 in the realm of conjectures without any application of mind by the AO on the material already on record. 13. Not only that, while framing the assessment, AO himself was not very sure whether the addition should be made in the hands of assessee company because he had made protective assessment of Rs7.50 crores in the hands of the assessee company and held that the amount would be added in the hands of beneficiary company i.e. Prakash Industries Ltd. This also goes to show that the reopening was purely mechanical and without application of mind when the alleged income chargeable to tax was not found to be added in the hands of assessee. The reopening of assessment merely to make protective assessment cannot be sustained. This has been held so by Hon’ble Bombay High Court in the case of DHFL Venture Capital Fund vs. ITO 34 taxman 300 wherein the Hon’ble High Court has held that recourse can be taken to the provisions of section 148 where the AO has a reason in present, meaning thereby, a reason which is present to his mind when he forms his reason to believe, that income has escaped assessment. Recourse of section 148 cannot be founded in law on the hypothesis of what could be the position in future should an appeal before the appellate authority. Here in this case also, the reopening was done to make addition on protective basis which was held to be invalid. 14. Before us, ld. CIT DR had placed heavy reliance on the decision of Hon’ble jurisdictional High Court in the case of ITA No.5397/Del./2016 11 CIT vs. Mahindra Finlease (P.) Ltd. (supra) wherein the issue is whether the protective assessment can be framed in the proceedings u/s 115BC & 158BD. First of all, the principles of said judgment is not applicable here in this case because, it was reopened u/s 147 which is to be decided on the basis of reasons to believe by the AO based on certain tangible material on record. In that case, a search and seizure operation u/s 132 was carried out in the case of one P.K. Sood who was a Director in the assessee companies and during the course of search operation, certain incriminating documents were found from its possession indicating that he was indulged in giving accommodation entries to various parties on commission basis and accordingly in his block assessment, addition was made on substantive basis on undisclosed income. The said assessee company had also been benefitted by the accommodation entry in the form of introduction of share capital. Since addition was made u/s 68 in the block assessment in the case of P.K. Sood u/s 115BC, therefore, proceedings u/s 158BD were taken in the case of assessee company as the assessee company was the beneficiary of such accommodation entries. In that case, substantive addition was deleted by the ld. CIT(A) in the case of P.K. Sood and the said order was upheld by the Tribunal and accordingly, the protective addition in the case of assessee was confirmed. It was in this background, the Hon’ble High Court held that AO has power to make protective assessment while carrying out the normal assessment ITA No.5397/Del./2016 12 proceedings in the absence of specific provisions. Here, the case is entirely different because even before making any substantive assessment in the case of Prakash Industries Ltd., the AO has proceeded to record the reasons to believe purely on hypothetical presumption that there was non- genuine transaction of share application and then held that addition should be made on protective basis. Thus, it cannot be held that AO has reason to believe which is the basis substratum and foundation for acquiring jurisdiction u/s 148. Here the basic assumption of jurisdiction itself was based on wrong presumption of facts, therefore, such reasons cannot be sustained. Accordingly, we hold that the ld.CIT (A) was justified in holding that reopening u/s 147 on the aforesaid reasons was bad in law, consequently entire proceedings ensued thereafter is null and void. Consequently, we also upheld the quashing of the impugned assessment order. 15. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in open court on this 14 th day of December, 2021. Sd/- sd/- (DR. B.R.R. KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 14 th day of December, 2021 TS Copy forwarded to: 1.Appellant 2.Respondent ITA No.5397/Del./2016 13 3.CIT 4.CIT(A)-30, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.