M/s. Key Components (P) Ltd. Vs ITO (ITAT Delhi)
it is clear that there is a total non-application of mind on the part of the A.O. while recording the reasons for reopening of the assessment. He has recorded incorrect amount which escaped assessment. His conclusion was merely based on observations and information received from DIT (Inv.), New Delhi, which is not brought on record and his conclusion is merely based on doubts because he was not sure whether transaction in question is genuine or not. Therefore, the decisions relied upon by the Learned Counsel for the Assessee squarely apply to the facts and circumstances of the case. The decisions relied upon by the Ld. D.R. would not support the case of the Revenue. Since, there is a total lack of mind while recording the reasons for reopening of the assessment, therefore, assumption of jurisdiction under section 147/148 of the I.T. Act, 1961, is bad and illegal. The A.O. was not justified in assuming jurisdiction under section 147/148 of the I.T. Act, 1961. We, therefore, hold that reopening of the assessment in the matter is bad in law and illegal, as such, same cannot be sustained in law.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by assessee has been directed against the Order of the Ld. CIT(A)-17, New Delhi, Dated 02.12.2015, for the A.Y. 2005-2006.
2. Briefly the facts of the case are that information has been received from the Investigation Wing that the assessee-company has indulged in accommodation entries.
The Investigation Wing reported that a report of inquiries made by DIT (Inv.), New Delhi, into the accommodation entries given by entry operators has been received. The said report of the Investigation Wing of the Department with information of entry operators and beneficiaries contained in the CD was forwarded by the then DIT (Inv.)-1, New Delhi, and the said report along with relevant information was forwarded to the O/o. A.O. through proper channel. As per the information the assessee company in assessment year under appeal has taken accommodation entries to the value of Rs.5,00,545/- from M/s. V.R. Traders Pvt. Ltd., on three occasions. The A.O. also noted that it has been revealed that many persons were using service of accommodation entries operators to channelize their own unaccounted money in their regular books of account by routing the same through the accounts of accommodation entry providers. The modus operandi of the entry providers have been highlighted in the re-assessment order. The A.O. after getting approval of Addl. CIT, issued notice under section 148 on 28.03.2012. The assessee filed letter stating
that return filed originally may be treated as having been filed in response to notice under section 148 of the I.T. Act. The A.O. after examining the records before him rejected the objection of the assessee regarding reopening of the assessment and noted that in assessment year under appeal assessee has raised share capital of Rs.1.90 crores from 32 parties including M/s. V.R. Traders Pvt. Ltd., (Rs. 5 lakhs). The A.O. issued letters under section 133(6) to the parties but the same were returned un-served, but the parties have confirmed the transactions. The A.O. after considering the material on record, made the addition of Rs.1.90 crores on account of undisclosed income of assessee under section 68 of the I.T. Act, 1961.
3. The assessee challenged the reopening of the assessment as well as addition on merits before the Ld. CIT(A). It was submitted that A.O. recorded reasons for reopening of the assessment without independent application of mind. A.O. did not verify or examine the report or material produced before him. The A.O. merely adopted vague information provided by the Investigation Wing. Therefore, reasons are invalid and bad in law. Several decisions in support of the contention was relied upon. The assessee also submitted that assessee received genuine share capital which is supported by share application forms, confirmations, bank statements and copy of the Board resolutions. The burden upon the assessee has been thus to prove the genuine credits of the matter, was discharged. The Ld. CIT(A), however, dismissed the appeal of assessee on both the grounds.
4. The assessee in the present appeal has challenged the reopening of the assessment under section 147/148 of the I.T. Act, 1961 and addition of Rs.1.90 crores under section 68 of the I.T. Act, 1961. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and filed copy of the reasons recorded under section 148 of the I.T. Act for reopening of the assessment at pages 16 and 17 of the paper book. The same reads as under :
“M/s. Key Components (Pvt.) Ltd.,
Asstt. Year 2005-06
A Report on enquiries made by the Directorate of Income Tax (Investigation), New Delhi into accommodation entries given by entry operators has been received. The said report of Investigation Wing of the department with information on entry operators and beneficiaries contained in the C.D, was forwarded by the then DIT(Inv.)-I, and the said report along with relevant information was forwarded to this office through proper channel.
As per the information received from the DIT (Inv.), New Delhi revealed that during the F.Yr. 2004 – 05 relevant to A.Yr.2005 – 06, M/S Key Components (Pvt.) Ltd, has taken the following accommodation entries. It has been revealed that many persons were using services of accommodation entry operators to channelise their own unaccounted money in their regular books of accounts by routing the same through the accounts of Accommodation entry providers.
2. The modus operandi of these entry providers and beneficiaries of their services, was detected to be as under :
2.1. Entries were being broadly taken for two purposes :
0.1. To plough back unaccounted black money for the purpose of business for personal needs such as purchase of assets etc., in the form of gifts, share application money, loans etc.
0.2. 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 person (called as 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 in his own name or in the name or relative/ friends or other person hired by 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 channels.
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 blank gift deeds, cheque books, share application money etc. In fact these persons signed 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. Their only concern was with the 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 D.I. T. (Inv.), New Delhi has established the non-genuineness of transactions, whether shown by beneficiaries as inflow of Share Capital or receipt of Gifts or consideration for sale-purchase. The creditworthiness of the persons/persons controlling the concerns who have given these credit entries/share capital/gifts /sale consideration has also not been established.
4. In the instant case of the assessee, M/S Key Components Pvt. Ltd. has taken the accommodation entries noted below :-
