ITO, New Delhi V. M/s. APJ Construction Pvt. Ltd., New Delhi

ITA 722/DEL/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0184 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 05-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJOG KAPOOR
• Keywords: Source of fund; Accommodation entries; Onus to prove; Set aside
• Section: 143(3); 48; 13; 68; 69; 148; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 722/DEL/2015 ASSESSMENT YEAR: 2005-06 INCOME-TAX OFFICER, WARD 3(1), NEW DELHI VS APJ CONSTRUCTION PVT. LTD., 39F/8, STREET NO. 5, AMRITPURI B, GARHI, EAST OF KAILASH, NEW DELHI AAECA 7573M APPELLANT RESPONDENT ASSESSEE BY NONE REVENUE BY SH. SANJOG KAPOOR, SR. DR ORDER PER K. NARASIMHA CHARY, JM FELT AGGRIEVED BY THE ORDER DATED 14/11/2014 IN AP PEAL NO. 51/13- 14 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, NEW DELHI (LD. CIT(A)), FOR THE ASSESSMENT YEAR 2005- 06, M/S APJ CONSTRUCTIONS PVT. LTD (THE ASSESSEE) FILED THIS APPEAL CHALLENGING THE DELETION OF RS. 4.6 CRORES UNDER SECTION 68 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AND A SUM OF RS. 8,05,000/- U NDER SECTION 69 OF THE ACT MADE BY THE ASSESSING OFFICER. DATE OF HEARING 12.12.2019 DATE OF PRONOUNCEMENT 31.12.2019 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY. FOR THE ASSESSMENT YEAR 2005-06 IT HAD FIL ED ITS RETURN OF INCOME ON 27/3/2006 DECLARING NIL INCOME. ASSESSMEN T UNDER SECTION 143(3) OF THE ACT WAS COMPLETED BY ORDER DATED 2/4/ 2007. SUBSEQUENTLY BASING ON THE REPORT OF THE INVESTIGATION WING OF T HE DEPARTMENT TO THE EFFECT THAT THE ASSESSEE WAS INDULGING IN TAKING AC COMMODATION ENTRIES, LEARNED ASSESSING OFFICER REOPENED THE ASSESSMENT B Y ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT. 3. IT COULD BE SEEN FROM THE ASSESSMENT ORDER THAT IN THE SEARCH AND SURVEY ACTION THAT WAS CARRIED OUT ON 14/9/2010 AT THE RESIDENTIAL AND BUSINESS PREMISES OF SH. SK JAIN AND SH. VIRENDRA J AIN, A NUMBER OF COMPANIES WERE FOUND TO HAVE BEEN RUNNING FROM THE RESIDENTIAL AS WELL AS BUSINESS ADDRESSES RELATING TO THOSE TWO PEOPLE WHEREAS ALL THE BOOKS OF ACCOUNTS AND OTHER RELEVANT PAPERS OF SUCH COMPA NIES WERE FOUND FROM THE RESIDENCE OF SK JAIN AND VK JAIN AND NOTHI NG WAS FOUND AT THE ADDRESSES MENTIONED IN THE STATUTORY RECORDS OF SUC H COMPANIES. IT WAS INFERRED FROM SUCH FACT THAT THOSE COMPANIES WERE R UN BY THESE TWO PERSONS WHO ARE CONTROLLING SUCH COMPANIES THROUGH DUBIOUS DIRECTORS/PRINCIPAL OFFICERS OF SUCH COMPANIES AND A CAREFUL EXAMINATION OF SEIZED MATERIAL INCLUDING THE COMPUTER HARD DISC S AND TALLY DATA, WHICH CONTAIN THE BOOKS OF ACCOUNTS OF SUCH COMPANIES ALO NG WITH OTHER IMPORTANT AND CONFIDENTIAL DOCUMENTS OF SUCH COMPAN IES ARE ESTABLISHED THAT THESE TWO PERSONS WERE IN ACTUAL CONTROL OF SU CH COMPANIES. IT WAS FURTHER FOUND THAT THESE TWO PERSONS USING SUCH COM PANIES TO PROVIDE ACCOMMODATION ENTRIES TO VARIOUS PERSONS/COMPANIES IN LIEU OF CASH RECEIVED FROM THE RECIPIENT THE CLIENTS THROUGH RTG S/CHEQUE TRANSACTIONS 3 MADE IN THE NAME OF SUCH COMPANIES. AS A MATTER OF FACT, IT WAS FOUND THAT NO PROPER OFFICES OF SUCH COMPANIES WERE IN EX ISTENCE AND NEITHER THE BOOKS OF ACCOUNTS WERE MAINTAINED NOR WERE FOUN D AT SUCH ADDRESSES. 4. IMPUGNED ASSESSMENT ORDER FURTHER REVEALS THAT T HE TOTAL ACCOMMODATION ENTRIES, AMOUNTING TO RS. 4.6 CRORES RELEVANT FOR THE YEAR UNDER CONSIDERATION, WERE TAKEN BY THE ASSESSEE AS INDICATED IN THE REPORT RECEIVED FROM THE INVESTIGATION WING. THE DE TAILS OF SUCH TRANSACTIONS WERE INCORPORATED IN THE ASSESSMENT OR DER. LEARNED ASSESSING OFFICER RECORDED THAT IN THE WAKE OF INVE STIGATIONS DONE BY THE INVESTIGATION WING, WHICH IS AN INTEGRAL PART OF TH E DEPARTMENT, AND NON- COMPLIANCE ON THE PART OF THE ASSESSEE ESTABLISHED THAT THE ASSESSEE COMPANY HAD TAKEN AN AMOUNT OF RS. 4.6 CRORES FROM AN ENTRY OPERATOR WHICH REMAINS UNEXPLAINED AND ESCAPED ASSESSMENT IN THE ASSESSMENT YEAR 2005-06. LEARNED ASSESSING OFFICER FURTHER REC ORDED THAT THE SAID ACCOMMODATION ENTRIES WERE TAKEN BY THE ASSESSEE BY GIVING EQUIVALENT AMOUNT IN CASH WITH COMMISSION AT THE RATE OF 1.75% TO THE ENTRY OPERATOR. LEARNED ASSESSING OFFICER, THEREFORE, ON THAT SCORE THOUGHT IT FIT TO ADD A SUM OF RS. 4.6 CRORES UNDER SECTION 68 OF THE ACT AND RS. 8.05 LACS UNDER SECTION 69 OF THE ACT. 5. ASSESSMENT UNDER SECTION 147/143(3) OF THE ACT W AS ACCORDINGLY COMPLETE WITH AN ADDITION OF RS. 4.6 CRORES UNDER S ECTION 68 OF THE ACT AND A SUM OF RS. 8.05 LACS UNDER SECTION 69 OF THE ACT BY ORDER DATED 13/3/2013. 4 6. CHALLENGING THE SAID ADDITION, ASSESSEE PREFERRE D AN APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) REFERRED TO THE CONTENTS OF THE ASSESSMENT ORDER. LD. CIT(A), AT THE OUTSET, UPHELD THE ACTION OF THE ASSESSING OFFICER IN COMPETING THE ASSESSMENT UNDER SECTION 147/143(3 ) OF THE ACT HOLDING THAT THE PROPER NOTICE WAS SERVED ON THE DIRECTORS OF THE COMPANY. INSOFAR AS THE ADDITION RELATING TO THE SHARE CAPIT AL, ACCORDING TO THE LD. CIT(A) THE LEARNED ASSESSING OFFICER MADE THE ADDIT ION OF RS. 4.6 CRORES IN SECTION 68 OF THE ACT AND ADDING THE AMOUNT OF RS. 8.05 LACS AS COMMISSION PAID TO THE ENTRY OPERATOR WITHOUT MAKIN G ANY EFFORT TO CONDUCT ANY ENQUIRY FROM ANY PARTY AS TO WHETHER TH E SAID PARTY HAD MADE INVESTMENTS IN THE SHARES OF THE COMPANY ARE N OT AND, THEREFORE, THE ASSESSING OFFICER HAD REOPENED THE COMPLETED PR OCEEDINGS ON THE BASIS OF INFORMATION RECEIVED FROM THE INVESTIGATIO N WING. 7. CIT(A) FURTHER RECORDED THAT THE ASSESSEE HAD FU RNISHED TO THE DETAILED INFORMATION LIKE COPIES OF SHARE APPLICATI ON FORMS, COPIES OF INCOME TAX RETURNS OF THE SHARE APPLICANTS, THEIR B ANK STATEMENTS REFLECTING THE PAYMENTS FOR PURCHASE OF SHARES, COP IES OF RESOLUTION FOR PURCHASE OF SHARES, COPIES OF THEIR FINANCIAL STATE MENTS ALONG WITH AUDIT REPORTS ETC IN DISCHARGE OF ITS BURDEN AS ENVISAGED UNDER SECTION 68 OF THE ACT AND ON A PERUSAL OF SUCH MATERIAL CIT(A) CO NCLUDED THAT THE INCOME TAX PARTICULARS AND BANK STATEMENTS OF THE S HARE APPLICANTS ESTABLISHED THE IDENTITY, THE BALANCE SHEET OF THES E APPLICANTS PROVE THE CREDITWORTHINESS AND DOCUMENTS FILED BY WAY OF COPI ES OF BANK STATEMENTS ETC ESTABLISH THE GENUINENESS OF THE TRA NSACTION. LD. CIT(A) THEREFORE, REACHED A CONCLUSION THAT THE ASSESSEE H AD DISCHARGED THE BURDENOF ESTABLISHING THE IDENTITY AND THE CREDITWO RTHINESS OF THE SHARE 5 APPLICANTS, AND THE GENUINENESS OF THE TRANSACTION. HE THEREFORE DELETED THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER . 8. AGGRIEVED BY SUCH DELETION IN THE IMPUGNED ORDER , REVENUE FILED THIS APPEAL. HOWEVER, WHEN THE MATTER IS CALLED, NE ITHER THE ASSESSEE NOR ANY AUTHORISED REPRESENTATIVE ENTERED APPEARANCE. L D. DR FILED THE COPY OF LETTER FROM THE LEARNED ASSESSING OFFICER STATIN G THAT THE NOTICE TO THE ASSESSEE WAS SERVED BY INSPECTOR OF THE OFFICE ON 1 4/11/2019 AND THE ENCLOSED THE COPY OF THE AFFIXTURE REPORT. IF THE A SSESSEE IS AVAILABLE IN SUCH ADDRESS, NON-SERVICE OF NOTICE DOES NOT ARISE. IF FOR ANY REASON, THE ASSESSEE IS NOT AVAILABLE THERE, IT IS FOR THE ASSE SSEE TO INFORM THE INCOME TAX DEPARTMENT HIS NEW ADDRESS TO MAKE ARRANGEMENTS FOR SERVICE OF SUCH NOTICE IN THE NEW ADDRESS WHERE THE ASSESSEE W OULD BE AVAILABLE, OR TO DELIVER IT TO SOME AUTHORISED PERSON, ETC. ASSES SEE DOES NOT SEEM TO HAVE LEFT ITS NEW ADDRESS WITH THE DEPARTMENT FOR S ERVICE OF NOTICE IN THE APPEAL. WHEN THE ASSESSEE IS NOT TO BE FOUND IN THE ADDRESS AVAILABLE WITH THE DEPARTMENT, AND DOES NOT RESPOND TO THE NO TICE AFFIXED AT THE LAST KNOWN ADDRESS, IT IS NOT KNOWN HOW TO SERVE A NOTICE ON THE ASSESSEE. THERE IS NO POINT IN ORDERING SERVICE OF THE NOTICE TO THE VERY SAME ADDRESS, WITHOUT ANY PROSPECT OF SUCH SERVICE. ASSESSEE HAD CREATED THIS SITUATION. IN THE CIRCUMSTANCES,BASING ON THE RECORD WE PROCEED TO HEAR THE COUNSEL FOR REVENUE AND DECIDE THE MATTER ON MERITS. 9. IT IS THE SUBMISSION OF THE LD. DR THAT, NO DOUB T THE ASSESSEE HAD METICULOUSLY COMPLETED THE PAPERWORK AND FILED THE DOCUMENTS AS ENUMERATED BY THE LD. CIT(A), BUT THE FACT REMAINS THAT THE ENTIRE TRANSACTION IS CLOUDED WITH DOUBT AND DURING THE AS SESSMENT PROCEEDINGS 6 UNDER SECTION 147/143(3) OF THE ACT THERE WAS NO CO OPERATION FROM THE ASSESSEE. MERELY BECAUSE CERTAIN DOCUMENTS ARE FILE D BY THE ASSESSEE, IT CANNOT BE PRESUMED THAT THE ASSESSEE HAD ESTABLISHE D THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICANTS OR THE GEN UINENESS OF THE TRANSACTION. HE FURTHER SUBMITTED THAT IN VIEW OF T HE DECISIONS IN THE CASE OF PCIT VS. NRA IRON AND STEEL (P) LTD (2019) 13 TA XMANN.COM 48 (SC) AND CIT VS. NR PORTFOLIO PRIVATE LIMITED (2014) 42 TAXM ANN.COM 338 (DELHI) IT IS INCUMBENT ON THE REVENUE AUTHORITIES TO LOOK AT MANY FACTORS WHICH ARE BEYOND THE METICULOUS PAPERWORK, TO REACH THE S ATISFACTION AS TO THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICAN T AND THE GENUINENESS OF TRANSACTION. HE THEREFORE PRAYED TO DISMISS THE APPEAL. 10. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON BEHALF OF REVENUE. IMPUGNED ORDER IS VERY C LEAR IN ITS IMPORT THAT BY LOOKING AT THE DOCUMENTS THE LD. CIT(A) FEL T SATISFACTION AS TO THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICAN TS AND THE GENUINENESS OF THE TRANSACTION. LD. CIT(A) PLACED R ELIANCE ON CERTAIN DECISIONS OF THE HONBLE JURISDICTIONAL AND OTHER H IGH COURTS. LD. CIT(A) DID NOT LOOK AT THE CORROBORATIVE EVIDENCE AS TO WH ETHER THE PARTICULARS AVAILABLE ON RECORD, IN FACT, REFLECT THE CORRECT S TATE OF AFFAIRS OR NOT. GENERALLY, IN CASES WHERE THE ASSESSEE OBTAIN ACCOM MODATION ENTRY, THEY ARE PRONE TO DO IT IN SUCH A WAY THAT IT SHOUL D APPEAR LEGAL AND GENUINE ALSO. THAT IS THE REASON WHY LEARNED ASSESS ING OFFICER WAS ATTEMPTING TO LOCATE THE REALITY BEYOND THE PAPERS. 11. IN VIEW OF THE DECISIONS IN PCIT VS. NRA IRON A ND STEEL (P) LTD (SUPRA) AND NR PORTFOLIO PRIVATE LIMITED (SUPRA) IT IS LEGITIMATE FOR THE LEARNED ASSESSING OFFICER TO MAKE INVESTIGATION INT O THE ISSUES LIKE - 7 WHETHER THE TWO PARTIES ARE RELATED OR KNOWN TO EAC H OTHER, OR MODE BY WHICH PARTIES APPROACHED EACH OTHER? WHETHE R THE TRANSACTION IS ENTERED INTO THROUGH WRITTEN DOCUMEN TATION TO PROTECT INVESTMENT? WHETHER THE INVESTOR WAS AN ANG EL INVESTOR? WHAT IS THE QUANTUM OF MONEY INVESTED? HOW THE PART Y BELIEVED THE CREDIT-WORTHINESS OF THE RECIPIENT? WHAT IS THE OBJECT AND PURPOSE OF PAYMENT/INVESTMENT? WHETHER THE SHARE A PPLICANT IS IN EXISTENCE AND AN INDEPENDENT ENTITY? HOW THE FINANC IAL CAPACITY OF THE SHARE APPLICANT TO INVEST FUNDS IS PROVED? HOW THE SOURCE OF FUNDS FROM WHICH THE HIGH SHARE PREMIUM WAS INVESTE D IS DEALT WITH BY THE ASSESSEE? WHY THE INVESTOR COMPANIES HAD APP LIED FOR SHARES OF THE ASSESSEE COMPANY AT A HIGH PREMIUM? IN CASE THE FIELD ENQUIRY CONDUCTED BY THE AO REVEALED THAT THE INVES TOR COMPANIES WERE FOUND TO BE NON-EXISTENT, AND THE ONUS TO ESTA BLISH THE IDENTITY OF THE INVESTOR COMPANIES, WAS NOT DISCHAR GED BY THE ASSESSEE?WHETHER THE ASSESSEE DISCHARGED THEIR LEGA L OBLIGATION TO PROVE THE RECEIPT OF SHARE CAPITAL/PREMIUM TO THE S ATISFACTION OF THE AO? WHETHER THE ASSESSEE DISCHARGED THE ONUS TO EST ABLISH THE CREDIT WORTHINESS OF THE INVESTOR COMPANIES? DID T HE ASSESSEE DO ANYTHING MORE THAN MERE MENTION OF THE INCOME TAX F ILE NUMBER OF AN INVESTOR TO DISCHARGE THE ONUS UNDER SECTION 68 OF THE ACT? DID THE ASSESSEE DO ANYTHING MORE THAN MERE FILING ALL THE PRIMARY EVIDENCE IN DISCHARGE OF THEIR ONUS TO PROVE THE ID ENTITY OF THE INVESTEE? ETC. 8 12. RECORD DOES NOT REVEAL THAT ANY OF THE ABOVE QU ESTIONS STOOD ANSWERED TO CLARIFY THE DOUBTS IN THE MIND OF THE L EARNED ASSESSING OFFICER AS TO THE GENUINENESS OF THE IDENTITY AND C REDITWORTHINESS OF THE SHARE APPLICANTS OR GENUINENESS OF THE TRANSACTION. UNLESS AND UNTIL SATISFACTORY ANSWERS ARE OBTAINED TO THESE QUESTION S, IT WOULD BE DIFFICULT TO REACH A POSITIVE CONCLUSION AS TO THE IDENTITY A ND CREDITWORTHINESS OF THE SHARE APPLICANTS AND THE GENUINENESS OF THE TRA NSACTION. MERELY BECAUSE THE ASSESSEE WAS SUCCESSFUL IN COMPLETING T HE PAPERWORK VERY METICULOUSLY OR BRINGING INTO EXISTENCE CERTAIN DOC UMENTS, THE STATUTORY OBLIGATION OF THE AUTHORITIES DOES NOT GET ABSOLVED MERELY BECAUSE THE ASSESSEE PRODUCED CERTAIN DOCUMENTS. IT IS INCUMBEN T ON THE AUTHORITIES TO VERIFY THE GENUINENESS OF SUCH DOCUMENTS ALSO IN THE LIGHT OF THE ATTENDING CIRCUMSTANCES. 13. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE NOT SATISFIED IN THIS CASE THAT THE LD. CIT(A) APPR ECIATED THE FACTS AND CIRCUMSTANCES IN THEIR PROPER PERSPECTIVE BEFORE RE ACHING THE IMPUGNED CONCLUSIONS BASING ON THE DOCUMENT AS PRODUCED BY T HE ASSESSEE. WE ACCORDINGLY FIND IT DIFFICULT TO SUSTAIN THE FINDIN GS OF THE LD. CIT(A). CONSEQUENTLY, THE IMPUGNED ORDER IS SET ASIDE AND T HE ORDER OF THE LEARNED ASSESSING OFFICER IS RESTORED. 15. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER, 2019 SD/- SD/- (R.K. PANDA) (K. NARASIMHA CHAR Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31/12/2019 AKS