NKS HOLDINGS P.LTD,NEW DELHI V. ACIT, CENTRAL CIRCLE-32, NEW DELHI

ITA 6690/DEL/2018

AI Insights

The case involves NKS Holdings Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals)-30, New Delhi, which upheld the addition of Rs. 1000 crores under Section 68 of the Income Tax Act, 1961, based on the allegations of circular movement of funds among group companies. The primary legal contention was the validity of the reopening of the assessment under sections 147 and 148 of the Act, which the assessee argued was based solely on the investigation report from the Serious Fraud Investigation Office (SFIO) without independent verification by the Assessing Officer. The Tribunal found inconsistencies in how similar cases were treated and directed a reassessment limited to the commission income derived from the alleged transactions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 773083 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 18-10-2018
• Other Referred Cases: Principal Commissioner of Income-tax-14 v. Alag Securities (P.) Ltd [2020] 117 taxmann.com 292 (Bombay), Dy. Commissioner Of Income Tax Versus M/S Bhawani Portfolio Pvt. Ltd. ITA 158/2020 (Delhi High Court)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJINDER KAUR
• Assessee Lawyers: AMOL SINHA; ANKIT KUMAR
• Keywords: Reassessment proceedings; Accommodation entries; Reason to believe; Borrowed satisfaction
• Section: 147; 148; 144; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER ITA No.6690/Del/2018 Assessment Year: 2011-12 NKS Holdings Pvt. Ltd., 3198/15, 4th Floor, Gali No.1, Sangatrashan, Paharganj, New Delhi – 110 055. PAN: AAKCS7827C Vs ACIT, Central Circle-32, New Delhi. (Appellant) (Respondent) Assessee by : Shri Amol Sinha, Advocate & Shri Ankit Kumar, Advocate Revenue by : Ms Rajinder Kaur, CIT-DR Date of Hearing : 28.07.2025 Date of Pronouncement : 24.09.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the assessee against the order dated 10.08.2018 of the Commissioner of Income-tax (Appeals)-30, New Delhi (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeal No.317/17-18/2980 arising out of the appeal before it against the order dated 28.12.2017 passed u/s 144/147 of the Income Tax Act, 1961 Printed from counselvise.com ITA No.6690/Del/2018 2 (hereinafter referred as ‘the Act’) by the ACIT, Central Circle-32, New Delhi (hereinafter referred to as the Ld. AO). 2. The assessee filed return of income on 23.09.2011 declaring a loss of Rs.47,507/- and the return of the assessee was processed u/s 143(1) of the Act. The case of the assessee was selected for scrutiny and mandatory notices were issued. The case of the AO is that on the basis of the information received from the Serious Fraud Investigation Office, Ministry of Corporate Affairs, Government of India, regarding investigation into the affairs of the assessee company and ten other group companies, it was found that Rs.1,000 crores was created as credits in the bank accounts through rotational transfer of funds amongst other group of eight companies which was used for inflation of balance sheets of these companies. On the basis of this information, recording reasons and after taking approval, notice u/s 148 of the Act was issued and the assessment was completed making an addition which has been upheld by the ld.CIT(A) for which the assessee is in appeal raising the following grounds:- “1. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that \"the assessment order is passed U/s 144 of the Income Tax Act, 1961 as such there is no necessity for issue of the notice U/s 143(2) of the Income Tax Act, 1961.” 2. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in ignoring the admitted fact that the assessee has filed the Return of Income in response to notice U/s 148 of the Income Tax Act, 1961 vide letter dated 03.08.2017, and notice U/s 143(2) of the Income Tax Act, 1961 is mandatorily required to be issued and served on assessee. Printed from counselvise.com ITA No.6690/Del/2018 3 3. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that reopening of the assessment is valid in law which is otherwise invalid and bad in law. 4. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in confirming the addition of Rs.1000 crores U/s 68 of the Income Tax Act, 1961. 5. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in alleging that:- a) The appellant failed to establish conclusively the identity, genuineness and creditworthiness of the share applicants. b) That the investing entities were only paper/shell/without Substance Company. 6. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in holding that the appellant failed to discharged the onus casted U/s 68 of the Income Tax Act, 1961. 7. The appellant crave leave to add/delete/alter or modify any or all grounds of appeal. These action of Ld. Commissioner of Income Tax (Appeals) -XXX, New Delhi., and Ld. Assessing officer being Arbitrary, unjust, Illegal and invalid in law are liable to quashed and it is prayed to Your Honor that they please be quashed and/or any other relief just deem fit and proper please be directed. Appellant Pray accordingly.” 3. The ld. counsel for the assessee has primarily argued on the fact that there was non-application of mind at the time of reopening of the assessment and the so-called information which was made the basis for reopening was merely the investigation report of the SFIO and without recording his own satisfaction on the basis of independent material on record the jurisdiction was assumed. In Printed from counselvise.com ITA No.6690/Del/2018 4 this context, we find that the assessee had raised specific additional grounds before the ld.CIT(A) as follows:- “1. That the learned Assessing Officer has erred in opening the case of the appellant for the A.Y. 2011-12 by invoking the provisions of section 147 read with section 148 of the Income Tax Act, 1961. 2. That the reopening of the proceeding within the ambit of section 147 read with section 148 of the Act is bad in law since the proceedings have been re-opened only on the basis of the information received from Serious Fraud Investigation Officer (SFIO), Ministry of Corporate Affairs, New Delhi and without recording of his own satisfaction and without there being any other independent material on records with him. 3. That the reopening of the proceedings made in a mechanical manner and there was no independent satisfaction/ verification by the Assessing Officer for framing a reason to believe about escapement. ” 3.1 Further, vide petition dated 07.09.2018, the appellant sought to raise further additional grounds as follows:- “1. On the. facts, and in the circumstances of the case as well as in law, the. impugned assessment order is without jurisdiction, and invalid in law due to non issue and service of valid notice u/s 143(2) of the Income Tax Act, 1961. 2. On the facts and in the circumstances of the case, as well as in law the reopening of the assessment is invalid and untenable in law, which results the whole reassessment proceedings ab initio void.” 4. We find that this issue was taken up by the ld.CIT(A) by reproducing on pages 24 to 26 of the impugned order the reasons as recorded before issue of notice u/s 148 of the Act and, then, at page 26, the following conclusions were drawn:- “It is clear that the case was reopened on the basis of detailed investigation by SFIO. There has been due application of mind thereupon by the AO as is clear from the reasons as aforesaid. Further, the ld. Pr. CIT has also applied his mind before granting approval, In this connection, there is plethora of jurisprudence to the fact that report of Investigation Authorities Printed from counselvise.com ITA No.6690/Del/2018 5 or other Government Investigation Agencies is sufficient material for reopening the case u/s 147/148.” 5. Though ld. AR has raised substantial contentions challenging the reasons recorded u/s 148 of the Act to be vitiated for reasons that same are not based on any live link and mere borrowed satisfaction from information received from investigation of SFIO but as to bring home this contention ld. AR has relied the findings and conclusions in case of similarly situated assesse who were also subjected to similar investigation and allegedly found to be providing accommodation entry, we consider the same to be of vital consequences and intend to deal with same first as that just not makes the reopening questionable but impacts the merits of case as well. 6. After going through the nature of allegations as narrated in assessment order merely based on investigation reports with no independent evidences, we find that the impugned addition arise out of share capital and share premium received by assesse from three companies namely Avail Financial Services [Rs. 300 Cr.], Carewell Exim Pvt. Ltd. [Rs. 350 Cr.] and Solomon Holdings Pvt. Ltd. [Rs. 350 Cr.]. AO has just drawn charts to show circular movement of funds between certain companies. The same is also outcome of investigation of SFIO. No discussion is there of any evidences and on assumptions the findings are arrived. What is relevant is that the SFIO report concerns only 9 and not 11 companies and in each of the other eight companies, the status of reassessment Printed from counselvise.com ITA No.6690/Del/2018 6 proceedings post the SFIO report has been cited before us during hearing in the form of a chart. As for convenience same is reproduced below:- Printed from counselvise.com ITA No.6690/Del/2018 7 7. It was thus established by ld. AR that the department has been taking an inconsistent and incongruent stand vis- a-vis, the assessee company and the other eight companies. In one company i.e. Carewell Exim Pvt. Ltd. From whom the assessee had received share capital and share premium no reassessment proceedings have been initiated. In the other two of the remaining seven companies i.e. KDG Properties & Construction Pvt. Ltd. and Utsav Securities Pvt. Ltd. proceedings initiated under S. 148 have been dropped and not culminated in any addition of these companies. In four companies i.e. Avail Financial Services post 148 proceedings only commission income was added in the hands of this company which too has been deleted by the CIT (A). In Solomon Holdings only commission income @ 0.5% was added, as was the case of Legend Infoways and Quality Cybertech Pvt. Ltd (now known as Sital Leasing). 8. The assessing officer has considered these companies to be pass through entities used for layering and rotating of funds and the SFIO report has also clearly identified, not only the ultimate beneficiaries but also the mediators who were used to facilitate such transactions. Ld. CIT(A) also accepts the case of assessing officer that there were only ‘fictitious credit and debit balances’ but still in the case of the appellant assessee the AO has added the entire capital, which is not justified if not to be called arbitrary. We find substance in the Printed from counselvise.com ITA No.6690/Del/2018 8 contention of ld. AR that it is trite law, that similarly, placed entities be treated similarly, especially when the transaction is exactly identical and part of the alleged same modus operandi which establish that this impugned amount of share capital and share capital and share premium in hands of assesse too were nothing but a circular transaction as the same amount money has been rotated multiple times over in these nine companies. 9. Thus we appreciate the contention of ld. AR that, which was though in the alternate, that at best, the addition that could have been made in the hands of the assessee could have been the percentage of commission income as has been determined in the other cases part of same modus operandi. Thus the assessee can be considered to be involved in the business of facilitating and providing accommodation entries to the beneficiaries, details of which were examined by SFIO. Thus for such services rendered, assessee may be charging commission Thus for impugned credit entries Section 68 of the Act would not be because the cash credits did not belong to or formed part of the income of the assessee. Attributing commission income only to such sort of credit entries has been upheld by Hon’ble Bombay High Court in the case of Principal Commissioner of Income-tax-14 v. Alag Securities (P.) Ltd [2020] 117 taxmann.com 292 (Bombay) and the jurisdictional Hon’ble Delhi High Court in Dy. Commissioner Of Income Tax Versus M/S Bhawani Portfolio Pvt. Ltd. ITA Printed from counselvise.com ITA No.6690/Del/2018 9 158/2020 (Delhi High Court) wherein it was held that the percentage of commission taken between 0.15% to 0.50% is correct view. 10. Thus the matter deserves to be remitted back to the files of the assessing officer with direction to consider a fresh as to the percentage of commission income only, which is to be added in the hands of the assessee as has been done in other cases after considering the multiple routing. Thus leaving other grounds as academic, the ground no. 4 is allowed partly in favour of assesse and with aforesaid directions the matter is remitted back to the files of assessing officer. 11. The appeal is thus allowed for statistical purposes. Order pronounced in the open court on 24.09.2025. Sd/- Sd/- (AMITABH SHUKLA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24th September, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Printed from counselvise.com "