D.C.I.T. - 15(3)(2), MUMBAI V. SADGURU MANAGEMENT CONSULTANCY P. LTD., MUMBAI

ITA 6323/MUM/2017

AI Insights

The case involves Sadguru Management Consultancy Pvt. Ltd, which was accused of receiving unexplained cash credits in the form of share application money from various companies linked to Shri Pravin Kumar Jain, who was involved in providing accommodation entries. The Assessing Officer treated these credits as unexplained and added them to the income of the assessee under section 68 of the Income Tax Act. The CIT(A) reversed this decision, finding that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. However, the Dy. Commissioner of Income Tax appealed against this decision. The Tribunal, while dismissing the appeal, also addressed the procedural validity of the reassessment notice, ultimately setting it aside due to lack of proper approval as required under section 151(2) of the Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299298 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 11-07-2023
• Assessment Year: 2009-2010
• Appeal Filed On: 22-10-2017
• Other Referred Cases: Ghanshyam K. Khabrani vs ACIT, Peter V vs CIT, Central Circle Bangalore, ITO vs Watermark Systems Pvt Ltd, Anant Shelters P Ltd vs CIT, Lovely Exports Pvt Ltd vs CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SURESH D. GAIKWAD
• Keywords: Reopening of assessment; Accommodation entries; Set aside
• Section: 68; 148; 132; 143(1); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE ABY T VAKERY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.6323/MUM/2017 (A.Y. 2009-10) Dy. Commissioner of Income Tax- 15(3)(2) Room No. 451, 4 th Floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai- 400020 Vs. Sadguru Management Consultancy Pvt. Ltd 7, Gagangiri, Plot No. 47, Sector 17, Vashi, Navi Mumbai- 400703 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAMCS1626F Appellant .. Respondent Appellant by : Shri Dharan Gandhi, AR, Respondent by : Shri Suresh D. Gaikwad, DR Date of Hearing 12.07.2023 Date of Pronouncement 27.09.2023 आदेश / O R D E R PER AMARJIT SINGH :- 1. The present appeal filed by the assessee is directed against the order passed u/s 250 of the Income Tax Act, 1961 ([hereinafter “the Act”] by the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [hereinafter „the CIT(A)‟/NFAC] dated 20.04.2016 for A.Ys. 2009-10 and 2010-11. 2. The assessee has raised the following grounds of appeal :- ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 2 1. "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in directing the AO to delete the addition on account of cash credit u/s.68 of the I.T.Act when it was evident that neither the identity nor creditworthiness of the thirteen parties, which are the benami concerns of Shri Praveen Kumar Jain was proved nor the genuineness of the transaction in the form of share application money raised by the assessee company from these thirteen company was proved and also whose nature and source is not explained." 2. "The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored." 3. "The appellant craves leave to amend or alter any grounds or add new ground which may be necessary." 3. Facts in brief is that return of income declaring total income of Rs. 1,02,392/- was filed on 11.08.2009 and the return of income was duly processed u/s 143(1) of the Act. The assessee company is engaged in the business of consultancy and brokerage. The case of the assessee was re-opened by the issuing of notice u/s 148 of the Act on 27.07.2015 on the basis of information received from the investigation wing of the Income Tax department on the search action u/s 132 of the Act conducted in the case of Mr. Pravin Kumar Jain and Group concerns on 03.10.2013. From the statement recorded of Shri. Pravin Kumar Jain and Group Concern it was found that he was engaged in the business of giving accommodation ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 3 entries through his group companies. The assessee was one of the beneficiaries who had obtained accommodation entries in the form of share application money from the group concern of Shri Pravin Kumar Jain. The assessing officer stated that the assessee company had obtained the share application money to the amount of Rs. 1,75,00,000/- from the following company/concerns controlled by the Shri. Pravin Kumar Jain. Sr. No. Name of the Party (Bogus Concern Operated by Praveen Kumar Jain) PAN Share application money received Amount (in. Rs) 1. Alka Diamond Ind. Ltd AAACA5236D 15,00,000 2. Anchal Properties Pvt. Ltd AAGCA0681A 15,00,000 3. Ansh Merchandise P. Ltd (Newplanet Trading Co. P. Ltd) AABCN8176E 15,00,000 4. Atharv Business Pvt. Ltd (Faststone Trad (i) P. Ltd AAACF9430A 15,00,000 5. Casper Enterprises P. Ltd (Ostwal Trading (I) P. Ltd AAACO7955M 15,00,000 6. Duke Business P. Ltd (JPK Trading (I) P. Ltd) AABCJ6245N 15,00,000 ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 4 7. Kush Hindustan Ent. Ltd AACCK3597M 15,00,000 8. Nakshatra Business P. Ltd (Hema Trading Co. P. Ltd) AABCH4279G 15,00,000 9. Olive Overseas P. Ltd (Realgold Trading Co. P. Ltd) AACCR4512K 15,00,000 10. Sumukh Commercial P. Ltd (Capetwon Mer. P Ltd) AACCC7400M 10,00,000 11. Sumukh Commercial P. Ltd (Capetwon Mer. P Ltd) AACCC7400M 5,00,000 12. Triangular Infocom Ltd. (Lexus Infotech Ltd) AAACL4646G 10,00,000 13. Vanguard Jewels Ltd. AAACV3480A 15,00,000 Total 1,75,00,000 4. The assessing officer stated that during the course of re-assessment proceeding information furnished by the assessee pertaining the credit worthiness and genuiness of the transaction was not satisfactory. The AO has discussed in the assessment order the outcome of the proceedings of search action carried out in the case of Shri Pravin Kumar Jain. The AO stated that genuiness of source of share application obtained from the concerns of Shri. Pravin Kumar Jain was not established. The assessee officer treated the share application money of Rs. 1,70,00,000/- obtained by the assessee ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 5 from the concerns of Shri. Pravin Kumar Jain as unexplained cash credit u/s 68 of the Act and the amount of Rs. 1,70,00,000/- added to the total income of assessee. 5. The assessee filed appeal before us by the Ld. CIT(A). The Ld. CIT(A) has allowed appeal of the assessee, holding that the assessee has furnished all the documents and details for proving identity, credit worthiness of the share applicant and genuiness of the transaction. The Ld. CIT(A) also held that amounts were paid by investors from their running bank accounts which were duly accounted in the looks of the assessee as well as the investors as evident from the audited financial statements filed. The relevant part of the decision of Ld. CIT(A) is reproduced as under:- 2.4.7 In the present case before me, as seen from the details filed before the AO, as evident from the paper book, I do not find any inconsistency or incoherence in respect of the receipt of the share application money from the said four companies. Primarily, as regards the transaction, the same has routed through the banking channels and the source cannot be doubted. It was held in several cases that whatever may be the strength of presumption it cannot substitute the evidence. Even though the transaction is from a tainted group, the AO has not made any efforts to show that the transaction with the appellant company was sham, fictitious or artificial except believing the statements given by the accommodation entry providers. He has failed to gather any evidence to show that the unaccounted cash of the appellant has changed hands ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 6 consequently replacing the cheque payments. Further he has not provided the corroborative evidence or document which he relied on to the appellant and also failed to prove how the details like PAN, IT returns, audited financials, incorporation certificates, bank statements etc cannot be taken note of in this regard. The Hon’ble Mumbai ITAT in the case of Anant shelters P ltd 20 Taxmann.com 153(2012) has laid down certain principles with regard to section 68 which the AO is bound to follow. It has observed as under: "(i) section 68 can be invoked when following three conditions are satisfied - (a) when there is credit of amounts in the books maintained by the assessee (b) such credit has to be a sum of money during the previous year (c) either the assessee offers no explanation about the nature and source of such credits found in the books or 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 assessee of that previous year. (ii) The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory 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 reference to the material on record file. Once the explanation of the assessee is found unbelievable or false the Assessing Officer is not required to bring positive evidence on record to treat amount in question as income of the assessee. While considering the explanation of the assessee, the Assessing Officer has to act reasonably-application of mind is the sine qua non for forming the opinion. ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 7 (iii) Phrase appearing in the section - nature and sources of such credits - should be understood in right perspective, so that genuineness of the transaction can be decided on merits and not on prejudices. Courts are of the firm view that the evidence produced by the assessee cannot be brushed aside in a casual manner. Assessee cannot be asked to prove impossible. Explanation about 'source of source" or origins of the origin' cannot and should not be called for while making inquiry under section. (iv) In the matters related to section 68 burden of proof cannot be discharged to the hilt-such matters are decided on the particular facts of the case as well as on the basis of preponderance of probabilities. Credibility of the explanation, not the materiality of evidences, is the basis for deciding the cases falling under section 68. (v) Though confirmatory letters or account payee cheques do not prove that the amount in question is properly explained for the purpose of section 68 and assessee has to establish identity and creditworthiness of the creditor as well as the genuineness of the transaction, it is also true that money received through foreign remittance with RBI approval is a strong indicator of bona fide of the cash credit that has to be disapproved only with positive evidence. (vi) In matters regarding cash credits, the onus of proof is not a static one. As per the provisions of the section the initial burden of proof lies on the assessee Amount appearing in the books of account of the assessee is considered a proof against him. He can prove the identity of the creditors by either furnishing their PANS or assessment orders. Similarly, genuineness of the transaction can be proved by showing that the money was received by an account payee cheque or by draft. Creditworthiness of the lender can be established by attending circumstances. Once the assessee ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 8 produces evidences about identity, genuineness and creditworthiness of the lender onus of proof shifts to the revenue." 2.4.8 The Honble Apex Court in the case of Lovely Exports Pvt Ltd. 216 CTR 195(SC) 2008 held that the AO is at liberty to bring to tax the amounts in their respective hands of the investors if their identity, genuineness and creditworthiness is not proved. The AO should have made efforts to assess the amounts in the hands of the investors at least on protective basis. Even in case, the creditworthiness of the investors is not proved it will not automatically give license to the assessing authority to make additions in the hands of the recipient u/s 68 unless it is proved that it is the unexplained and unaccounted money of the appellant which has been introduced in its books of account in the name of bogus/non-existent entities. As it is observed that, in the instant case, the AO has not made any dent on these lines. On the other hand the appellant has filed all the details and supporting documentary evidence to prove the identity, genuineness and creditworthiness of all the four share applicants. 2.4.9 As seen from the above, the appellant has furnished all the documents and details proving conclusively the three ingredients of identity, creditworthiness of the share-applicants and the genuineness of the transaction. The amounts were paid by investors from their running bank accounts which were duly accounted in the books of the appellant as well as the investors as evident from the audited financial statements filed. All the four share-applicant companies have confirmed the transaction. In view of the above discussion, I hold that the share application money invested by all the four companies cannot be doubted and addition made by the AO u/s 68 of the Act cannot survive the test of appeal. I therefore direct the AO to withdraw the addition. The appellant succeeds and these grounds are allowed. ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 9 6. During the course of appellant proceeding before the Ld. CIT(A), the assessee also raised the ground that re-opening of the assessment was not valid, however, the Ld. CIT(A) has dismissed this grounds of appeal of the assessee regarding the validity of notice issuing u/s 148 of the Act. Under Rule 27 the respondent is entitled to defend such an order before Appellate forum on all grounds including ground which has been held against him by lower authority, though final order is in its favour. 7. During the course of appellant proceedings before us. At the outset the assessee has raised ground under rule 27 of ITAT rule 1963 as under:- “Whether, the reassessment proceedings were validity initiated by issuing notice u/s 148 of the Act dated 30.03.2015, after complying with all the jurisdictional requirements in law?” 8. In respect of this grounds of appeal raised under rule 27 of ITAT rule the assessee submitted that in the notice u/s 148 of the Act issued on 30.03.2015, it is mentioned that approval of the Principal Commissioner of Income Tax was obtained. However, in the case of the assessee approval of the Join Commissioner of Income Tax or Additional Commissioner of Income Tax is required to the obtained u/s 151(2) of the Act. The Ld. Counsel further submitted that even ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 10 report was called from the assessing officer to substantiate if any approval was obtained as provided u/s 151(2) of the Act however, the report filed by the AO did not show that any such approval was taken before issuing notice u/s 148 of the Act. 9. The Ld. Counsel submitted that the re-opening of assessment in the case of assessee is not valid as per law. The Ld. Counsel has placed reliance on the judicial pronouncement of the Hon‟ble High Court of Bombay in the case of Ghanshyam K. Khabrani vs ACIT (2012) 346 ITR 443 (Bombay), Peter V and CIT, Central Circle Bangalore (2021) 436 ITR 616 (Bombay) also ITAT Mumbai in the case of ITO vs Watermark Systems Pvt Ltd. ITA No. 4836/M/2016 dated 27.02.2023. On the other hand the Ld. DR could not brought any material contrary to the report of the AO dated 23.03.2023 stating that approval taken u/s 151 of the Act was not available on record. 10. Heard both the side and perused the material on record. Regarding validity of reassessment proceedings challenged by the assessee under rule 27 of ITAT rule, 1963, we have perused the copy of 148 notice placed in the paper book. Since the impugned notice is issued within four years from the end of relevant assessment year on ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 11 30.03.2015, therefore it is required to issued after obtaining the approval the Joint Commissioner of Income Tax or Additional Commissioner of Income Tax, however in the notice it is stated that same was issued after obtaining necessary satisfaction of the Commissioner of Income Tax. After providing several opportunities the Ld. DR has filed copies of correspondence made with the assessing officer, Principal Commissioner of Income Tax and Additional Commissioner of Income Tax. On the basis of correspondence received the Ld. DR submitted that as per final report received from the assessing officer vide letter dated 23.03.2013 it is submitted that copy of approval u/s 151 of the Act was not available on record. In the case of the assessee the return of income was filed on 27.07.2015 and notice u/s 148 of the Act was issued on 30.03.2015. We have perused the decision of Hon‟ble Bombay High Court in the case of Ghanshyam K. Khabrani dated 12.03.2012 346 ITR 443 (Bombay) wherein held that when section 151(2) mandates satisfaction of joint Commissioner of Income Tax for issuance of notice u/s 148 in certain cases, re-opening of assessment with approval of Commissioner is unsustainable. In view of the above facts and findings we consider that impugned notice u/s 148 of the Act issued without mandatory sanction of Joint ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 12 Commissioner of Income Tax/Additional Commissioner of Income Tax is legally invalid and is liable to the set side. Therefore, we find merit in the objection filed by the assessee under Rule 27 of the ITAT Rule 1963 and consequently, we set aside the impugned notice and subsequently, assessment order passed on the basis of the impugned notice. Since, we have set aside the order therefore the ground of appeal of the revenue become infructuous. In the result ground of appeal filed by the assessee under rule 27 of ITAT Rule is allowed and appeal of the revenue is dismissed. 11. In the result, appeal of the revenue is dismissed and ground of appeal filed by the assessee under Rule 27 of ITAT is allowed. Order Pronounced in Open Court on 27.09.2023 Sd/- Sd/- (ABY T VARKEY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Mumbai Date 27.09.2023 Shubham P. Lohar आदेश की प्रतितलति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai ITA No. 6323/M/2017 Sadguru Management Consultancy P. Ltd 13 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीलीय अतधकरण/ ITAT, Bench, Mumbai