Case Law Details

Case Name : Aayushi Stock Brokers (P.) Ltd. Vs Assistant Commissioner of Income-tax (Allahabad High Court)
Appeal Number : Civil Misc. Writ Petition Nos. 719
Date of Judgement/Order : 13/09/2012
Related Assessment Year :
Courts : All High Courts (3788) Allahabad High Court (208)

High Court of Allahabad

Aayushi Stock Brokers (P.) Ltd.

v/s.

Assistant Commissioner of Income-tax

Civil Misc. Writ Petition Nos. 719

& 1490 of 2005

September 13, 2012

JUDGMENT

1. The petitioner is a private limited company incorporated on 25.9.1995 in the State of U.P. under the Companies Act, 1956. The company was initially incorporated in the name of ‘Cosmos Financial Services Private Limited’. The name of the company was changed as ‘Aayushi Stock Brokers Pvt. Ltd.’ w.e.f. 15.11.2000. The company has two directors namely Shri Ravindra Kumar Agarwal and Shri Satish Chandra Agarwal. It is alleged that till mid June, 2000 the company’s principal place of business was at Agra. On 19.6.2000 the Board of Directors of the Company decided to set up a corporate office at Delhi as its principal place of its business operations. Accordingly in June, 2000 the corporate office was shifted to Delhi. It is alleged that by a special resolution dated 12.6.2002 passed by the shareholders of the company the registered office of the company was also shifted from U.P. to Delhi. The change was approved by the Company Law Board by its order dated 24.1.2003. It is alleged that upto the assessment year 2000-01, the income tax returns were filed at Agra, and the assessments were made at Agra. For the year 2002-03, the return was filed at Delhi.

2. By this writ petition the petitioner has prayed for writ of certiorari quashing the assessment order dated 28.3.2005 passed by the Asstt. Commissioner of Income Tax-4 (1), Agra and to quash the letter/order dated 19.9.2003 issued by the Asstt. Commissioner of Income Tax-4 (1), Agra. The petitioner has also prayed for directions to the respondents to restrain to proceed with penalty proceedings against the petitioner pursuant to the assessment order dated 28.3.2005, for assessment year 2002-03.

3. We have heard Shri R.P. Agarwal, learned counsel for the petitioners. Shri Ashok Kumar appears for the Income Tax Department.

4. It is admitted that an appeal lies against the assessment order dated 28.3.2005 whereby the income of the petitioner was assessed at Rs. 29,41,19,380/- on protective basis. The substantive assessment whereof was made in the hands of Shri Ravindra Kumar Agrawal and for which intimation was sent to the Assessing Officer at Delhi. The A.O. also directed interest to be calculated and challenged under Section 243A, 243B, 243C and 243D, as per law and directed issue of notice of demand and challan. He also directed initiation of penalty proceedings under Section 271(1)(c), of the Act for concealment of income and furnishing inadequate particulars, as well as proceedings under Section 271(1) for non-compliance of notice under Section 143(2) and 143(1).

5. It is submitted by Shri R.P. Agrawal that the writ petition for quashing the assessment order is maintainable in as much as entire proceedings of assessment by the Asstt. Commissioner, Income Tax-4 (1), Agra are without jurisdiction. The petitioner company has its registered office and the principal place of business at Delhi. The company was assessed at Delhi throughout, after the year 2002-03. The concerned income tax authority at Delhi alone has jurisdiction for making assessments. The petitioner raised objections regarding the jurisdiction, which was not decided and thereafter made request to transfer his case files to Delhi, on which no orders were passed. The respondent no.1 was under duty to decide the issue of jurisdiction under Section 124 of the Act. The petitioner had participated in the proceedings and objected to the jurisdiction. During the pendency of the proceedings the income tax return of the petitioner was transferred from Delhi to Agra in an illegal manner, without applying the mandatory provisions of Section 127 of the Act and following the principles of natural justice.

6. In the alternative Shri R.P. Agrawal submits that once the books of accounts were rejected, it was incumbent upon the Assessing Officer to make the best judgment assessment only in the manner provided under Section 144 of the Act. He made assessment under Section 143(3) of the Act, which is illegal and is liable to be quashed. Even if it is assumed that the assessment is under Section 144 read with Section 145(3) of the Act, then also the assessment order is liable to be quashed as the same has been passed without complying the mandatory provisions of law. The findings recorded by the respondent no.1, on the income of the assessee under Section 68 amounting to Rs. 28,58,13,972/- is self-contradictory and without any basis. The petitioner was not given any opportunity to controvert the computation.

7. Shri R.P. Agrawal submits that the respondent no.1 had summoned several persons under Section 131 of the Act and made enquiries from the banks, stock exchanges, SEBI, clients/parties with whom the petitioner was having business dealings, and made enquiries. He relied upon the material and evidence so collected and has drawn adverse inferences for the default of the parties, who did not respond to the summons. All the enquiries were made without any information to the petitioner. The petitioner was neither informed nor the statements of persons, who responded to the summons, were recorded in his presence. The evidence allegedly collected could not be relied upon as it was collected in violation of principle of natural justice. The identities of the persons were known and their PAN numbers were disclosed and thus no adverse inference could be drawn against the assessee under Section 68 of the Act. Shri R.P. Agrawal submits that the substantive assessment in the hands of Shri Ravindra Kumar Agrawal, who is assessed at Delhi, and is not within the jurisdiction of respondent no.1. The orders are thus grossly illegal and also suffers from malafides.

8. In the assessment order for the assessment year 2002-03 made under Section 143(3) of the Act, the A.O. has observed that the petitioner filed return of income declaring total income of Rs. 45,468/- in the office of Addl. Commissioner of Income Tax, Range-1, New Delhi. Since the principal place of business of the assessee was at Agra and the assessee was filing returns and was assessed to tax at Agra till assessment year 2001-02, the assessment was completed under Section 143(3), on 30.10.2003. The CIT (II), Agra did not make any orders under Section 127 transferring the case from Agra to Delhi. The return was transferred from Delhi to Agra.

9. In a survey under Section 133A conducted on 24.4.2001 it was found that Shri Ravindra Kumar Agrawal, the Director of the assessee company is the main person, looking after and having control over all the affairs of the company. A large number of pay-in-slips, in proof of deposits of cheques/cash in different accounts, draft purchase vouchers and large number of blank cheques and cheque books, signed by the issuers were found. A large number of concerns/companies were created and their accounts were opened with the active assistance of Shri Ravindra Kumar Agrawal, who is directly and closely associated with all these concerned, and he is having control over all the concerns and accounts. The notices under Section 143(2) and 142(1) along with questionires dated 27.11.2003 and 19.10.2004 were sent to the assessee calling for details. During the course of assessment proceedings information was called from Shri Ravindra Kumar Agrawal, the Director of the assessee company. He attended the proceedings and filed some details. He did not file complete details/information regarding the shares of various companies like GKCL and Suma Finance Grieves Hotels, Fairy Land and other persons such as M/s R.S. Traders, M/s Asshi Suppliers, M/s L.S. Investment, M/s Harshit Investment and others. Enquiries were made by A.O. from banks, stock exchange of Kanpur of which assessee is member, SEBI and from other clients or parties, whose addresses were given by him. After considering the material on record the A.O. found that the petitioner is engaged in the large scale transactions as stock broker. He found that cash books were not complete; and the final books were prepared on the basis of some rough raw notes and records. The clerks, who maintained the records were not produced. Since on test check basis the moneys were found to be deposited in the banks, opportunity was given again to the petitioner to produce the accounts. The Assessing Officer found that the assessee is absolutely unfair, wrong and unjustified in saying that he has furnished all the names, addresses of his client. The A.O. observed that by obtaining PAN numbers and filing the returns in the name of such persons does not prove identity of the person and genuineness of the transactions. The signed blank cheqeus and cheque books in the name of various clients caused enquiries to be made by A.O. by issuing summons under Section 131, and notices under Section 133(6) to about 36 clients. The A.O. after considering the record, and going through the transactions discovered the modus operandi of the petitioner assessee as follows:-

“Considering the facts and circumstances of the case and evidences and material available on record, it is clear beyond doubt-

(i)(a) The modus operandi is that any person who wants to take such entries goes to these persons with the equivalent cash (and commission in cash, which they must be charging) and takes the draft of the required amount in favour of the desired person or the company (beneficiary). The said draft could represent gift or loan/advance or long term capital gain or investment in share or share application money or such other accommodation entry.

(b) These operators deposit the cash in anyone of his various concerns as mentioned above concerns. Either the DD is given out from the same account or the funds are rotated through several bank account before being given out to the needy person from some other related account. On tracing back, it is found that such demand draft is linked to unaccounted cash deposits made in some other accounts by the same set of persons.

(c) Such circular transactions are done to make the transaction appear genuine and so as to make the enquiries, in normal course, an extremely complicated exercise.

(d) Such persons also provide the beneficiaries with supporting documents like gift affidavits, confirmations, bogus contract notes etc., to make the transaction appear genuine. Some of such concerns are also acting as share & stock brokers but in such disguise, they are basically carrying out the activities of Money laundering and all such evidences are fabricated and arranged and all such transactions are sham.

(ii) That though the assessee is claiming to be doing business of share broker, but in fact it was not doing business of share broker rather in the garb of share broker business, it was utilized as a tool of Shri RK Agarwal for providing entries of Long term capital gain and short term capital gains, loans & share application money to the needy persons and for the purpose of providing entries Shri RK Agarwal had created various concerns/companies and opened various account in the name of such concerns/companies, in the name of different persons and also in the name of his family members, servants etc. in different banks. But the control over all such accounts and concerns and bank accounts remained with Shri RK Agarwal. For all practical purposes and these concerns and accounts managed, controlled and utilized by Shri RK Agarwal for providing entries. Infact they are his benami concerns and accounts have been used as a via media account for routing funds through them and for providing entries to needy persons and to give such entries a colour of genuine banking transaction.”

10. On examination of the cash deposits/receipts from clients and credits on account of cheques/drafts the A.O. discovered the amount of deposit of the credits of Rs. 26,35,20,792. The assessee was required to furnish complete addresses of persons to prove their identity, creditworthiness and genuineness of receipt of cash and cheques/drafts with supporting evidence and to which a reply was given that some of these persons were coming to business office on their own, and hence the assessee does not have their complete address. The transaction details were unavailable. The A.O. found the reply to be evasive and deliberate to avoid to furnish the proof of identity of the creditors, their creditworthiness of the transactions. He found the amounts to be unexplained and added the entire amount to the assessee’s income. The assessee also found a number of discrepancies in the account books namely unrecorded entry charges receiving from Shri Ashok Gupta, liability shown in the name of customer/clients of Rs. 1,91,46,410/- in the balance sheet of which assessee only furnished list of creditors and did not provide their complete addresses. The total credits were found to be Rs. 2,03,39,485/- and this amount was also added under Section 68 of the Act. The Assessing Officer, thereafter, observed as follows:-

“As already held in the foregoing pages that since Shri Ravindra Kr. Agarwal was the only active director and the main person who was operating all the activities of the company for the purpose of providing accommodation entries and he was the real beneficiary and company was nothing but a tool created by him for providing entries, so it is held that there was no genuine company in the name and style of assessee company and therefore, the assessment in the hands of company is being made on protective basis.

Assessment in respect of additions on account of entry charges of Rs. 72,08,504/-, on account of entry charges receivable from Shri Ashok Gupta amounting to Rs. 10,96,901/-, on account of unexplained liability of Rs. 2,03,39,485/- shown in the name of customers and on account of unexplained cash deposits from customers amounting to Rs. 19,53,695/- will be made in the hands of Shri RK Agarwal on substantive basis and in the hands of assessee company on protective basis.

Besides, since it has also been held that the assessee has merely provided entries of LTCG/Short term capital gains, Investment in shares, loans etc. after receiving cash from the clients, so the assessment in respect of amount of Rs. 26,35,20,792/- being the amount of entries given to different persons will be made in the hands of Shri RK Agarwal on protective basis and in the hands of beneficiaries who had taken entries from the assessee, assessment will be made on substantive basis in respect of amount of entries taken by each such beneficiary.”

11. Shri R.P. Agrawal has relied upon Devi Das v. Union of India, 1993 (200) ITR 701 (Bom.) to submit that ITO, Agra exceeded jurisdiction to make reassessment under Section 147, which was not vested in him under Section 124; CIT v. Ganga Bani Mercantile, 2007 (293) ITR 441 (Gauhati) in submitting that question of lack of jurisdiction could not be decided by ITO. He should have referred the matter to CCIT or CIT under Section 124(4) of the Act; Raza Textiles Ltd. v. ITO, AIR 1973 SC 1362 to support the submission that the question of jurisdiction was erroneously decided by ITO; Mayuri Mittal v. Union of India, Writ Petition No.1439 of 2005 decided by this High Court that notice under Section 148 can only be issued by the Assessing Officer; Srinath Suresh Chand Ram Naresh v. CIT, 2006 (280) ITR 396 (All.); CIT v. Shital Prasad Kharad Prasad, 2006 (280) ITR 541 (All.); CIT v. Mascomptel India Ltd., 2012 (345) ITR 58 (Delhi); R.K. Upadhyaya v. Shanbhai P Patel, 1987 (166) ITR 163 (SC); Delhi Development Authority v. H.C. Khanna, AIR 1993 SC 1488 in submitting that notice under Section 148 issued after 6 years was barred by time under Section 149; it was also issued without any valid approval of JCIT/ACIT under Section 151(2) of the Act and CIT v. Rajeev Sharma, 2011 (336) ITR 678 (All) that since there was no return before the ITO, there was no question of issuing any notice under Section 143(3) dated 8.12.2006, nor any assessment under Section 143(2) could be made.

12. Shri Ashok Kumar appearing for the revenue submits that the petitioner company filed income tax returns at Agra upto the assessment year 2000-01, and without any intimation filed return at Delhi for the assessment year 2002-03. The respondent no.1 proceeded in accordance with law requiring the petitioner to furnish return/information. It was only at end of the assessment period, the petitioner company, on the asking of the A.O. intimated that his office has been shifted from Agra to Delhi, and that he has filed income tax return with ACIT, Range-1 Delhi. Earlier to this no information was sent regarding suo moto change of place and filing of return at Delhi. The petitioner is a share broker. A survey was conducted under Section 133A of the Act by DCIT, Circle-1 (2), Agra on 24.4.2001 in which large number of incriminating documents were found. Enquiries were made from banks, stock exchange of Kanpur of which the petitioner is member, as well as SEBI. Various opportunities were given to the petitioner in the course of investigation and enquiries. It was found that there were serious defects in the books of accounts. The Director Shri Ravindra Kumar Agrawal had created large number of fictitious concerns, which were not doing any business. Most of the concerns were in the name of dummy persons of which Shri Ravindra Kumar Agrawal, the Director is the main/real beneficiary. The assessing authority, thus, completed the assessment of the firms on protective basis.

13. Shri Ashok Kumar submits that the petitioner has alternative remedy of filing appeal under Section 246A of the Act before the Commissioner of Income Tax (Appeals), Agra. Since there are no transfer orders under Section 127 of the Act and the petitioner could not have unilaterally changed the place and jurisdiction of filing returns at Delhi. The company itself had applied by filing application for obtaining PAN number at Agra and was given PAN No.AADCA0925F issued by the Income Tax Department at Agra on 11.6.2001. In the bank accounts opened by the petitioner companies at Delhi the address was given that of Agra office. At the time of survey all the relevant books of accounts were found at Agra.

14. Shri Ashok Kumar submits that Shri Ravindra Kuamr Agrawal appeared and replied to the notice and clearly stated that his company is assessed to tax with company Circle-1 (2) at Agra. The petitioner acquiesed to the jurisdiction and allowed the Assessing Authority at Agra to complete the assessment proceedings for the assessment year 2001-02. The assessee had also paid the demand on 19.11.2001 through the Punjab National Bank, Sanjay Place, Agra.

15. We have considered the submissions and find that the petitioner could not have changed the place of his assessment and proceeded to file the return unilaterally at Delhi. He participated in the assessment proceedings and acquiesced to the jurisdiction of the Assessing Authority, Agra. It is only when the assessment order was made on protective basis against the companies and on substantive basis against Shri Ravindra Kumar Agrawal, who was found to have indulged in large scale of fictitious and bogus transaction, that the petitioner filed writ petitions in this Court.

16. The petitioner has also filed Writ Petition No.1490 of 2005 challenging the penalty notice dated 26.9.2005 issued by the Asstt. Commissioner of Income Tax, Circle-4 (1), Agra dated 26.9.2005 for levying penalty of Rs. 10,50,00,620/- under penalty order for the assessment year 2002-03. The operative portion of the order reads as follows:-

“The reply of the assessee has been considered but there is no merit in the reply of the assessee. Firstly, because the assessee has not filed any appeal against the assessment order, that means it is accepting concealment on its part, secondly there is no order of the Hon’ble High Court staying the proceedings in this case and the penalty proceedings are getting barred by limitation on 30.9.05.

In view of the above facts and circumstances of the case, it is clearly established that the assessee had deliberately concealed the particulars in respect of income of Rs. 29,41,19,380/- and has furnished inaccurate particulars in respect thereof. The default on the part of the assessee becomes more serious taking into account that it has been involved in providing bogus entries to various assessees and helping them in concealing income and tax and also in channelising their unaccounted money with the help of assessee. Therefore I am satisfied that the assessee had deliberately concealed the true particulars and furnished inaccurate particulars of income in respect of above amount of income without any reasonable cause and therefore, provision of section 271(1)(c) read with Explanation 1 are clearly attracted in this case. However, it is hereby clarified that since the assessment in the case of the assessee has been made on protective basis, the penalty u/s 271(1)(c) is also being imposed on protective basis with a view to safeguard the interest of revenue. Minimum and maximum penalty works out to Rs. 10,50,00,620/- and Rs. 31,50,01,860/- respectively. Taking a fair and reasonable view, a penalty of Rs. 10,50,00,620/- is hereby imposed on the assessee on protective basis. Notice of demand and challan are enclosed herewith.

This order is being passed with prior approval of the Addl. Commissioner of Income-tax, Range-4, Agra.

(Sampoornanand)

Asstt. Commissioner of Incometax-4 (1), Agra”

17. Section 124 provides for jurisdiction of Assessing Officer. Sub-section (1) applies where an AO has been directed to perform his functions in respect of specified areas under Section 120 (1) or (2) of the Act. When a question arise as to whether the Assessing Officer has jurisdiction to assess any person, the question is to be determined by the Director General or the Chief Commissioner or the Commissioner, or where it relates to the jurisdiction of different Director Generals or Chief Commissioners or Commissioners, by the Director General or Chief Commissioner or Commissioners concerned or if they are not in agreement by the Board of Such Director Generals or Chief Commissioners or Commissioners as the case may be notified in official gazette. Sub-section (3) places restrictions on the persons to call in question the jurisdiction of an Assessing Officer, where he has made a return under sub-section (1) of Section 139 after expiry of one month from the date on which he was served with the notice under sub-section (1) of Section 142, of sub-section (2) of Section 143 or after the completion of the assessment, whichever is earlier. under sub-section (3)(b) where he has made no such return after the expiry of time allowed by notice under Section 142(1) or under Section 148 for the making of the return or by notice under the first proviso to Section 144 or show cause as to why assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier. Sub-section (4) provides that where the assessee calls in question the jurisdiction of the Assessing Officer, then Assessing Officer shall, being not satisfied with the correctness of the claim, refer the matter for determination under sub-section (2).

18. Sub-section (5) of Section 124 provides that, notwithstanding anything contained in the Section or in any direction or order issued under Section 120 every Assessing Officer shall have all the powers conferred by or under this Act on an Assessing Officer in respect of income accruing or arising or received within the area, if any over which he has been vested with the jurisdiction by virtue of the directions or orders issued under sub-section (1) or sub-section (2) of Section 120.

19. Sub-section (5) of Section 124 thus provides for a concurrent jurisdiction to the AOs. In Burger Paint v. ACIT, 2006 ITR 133 it was held that the AO of the area in which the person carries on business or resides shall have all the powers conferred by or under the Act in respect of any income accruing, arising or received within his area. Though the assessment of the total income must be made at the assessee’s principal place of business, it would be open to the AO having jurisdiction over the branch office to assess income received by the branch office subject to the rule that two assessments cannot be made at different places upon the same person in respect of the same income.

20. The A.O. having jurisdiction at the assessee’s principle place of business, would have the power to call for return of the assessee’s total income, which includes income of all the branches of the business. He may call for the records pertaining to any branch office even if independent enquiries have been made and the accounts have been examined by the A.O. having jurisdiction at the branch office. It is open to the A.O. having jurisdiction at the branch office to frame an estimate of the profits of that branch and to send that estimate to the A.O. at the tax payer’s principal place of business. The effect of sub-section (1) and (5) of Section 124, read together is that where two or more A.O. have territorial jurisdiction in respect of same income, they exercise concurrent jurisdiction in the matter of issuing notice to the assessee and where notices have been issued by any one officer, it is unnecessary for the other office to issue the same notice again.

21. The petitioner did not file income tax return at Agra for the assessment year 2000-2001. Without any intimation or getting the jurisdiction transferred to Delhi the assessee had filed return at Delhi for the assessment year 2002-03. The Assistant Commissioner of Income Tax-IV (1) Agra proceeded in accordance with the law requiring the petitioner to furnish return/information. The petitioner participated in the proceedings. It was only at the end of the assessment period that the petitioner company intimated with AO at Agra that his office has shifted from Agra to Delhi and that he has filed income tax return with ACIT, Range-I, Delhi. Earlier no information was given of this suo-moto change of place of filing of return at Delhi.

22. The petitioner is a share broker. A survey was conducted under Section 133-A of the Act on 24.4.2001 in which a large number of incriminating documents were found. The AO proceeded to make enquiries in which it was found that there were serious defects in the books of accounts. Shri Ravindra Kumar Agrawal-the Director had created large number of fictitious concerns, which were not doing any business. In the circumstances the AO completed the assessment on protective basis.

23. Shri Ravindra Kumar Agarwal appeared and filed reply to the notice and clearly stated before the AO that his company was assessed to tax with Company Circle-1 (2) at Agra. The petitioner thus acquiesced to the jurisdiction which the AO at Agra already possessed and allowed him to complete the assessment proceedings for the assessment year 2001-02.

24. In the circumstances, we do not find any error in exercise of jurisdiction by the Asstt. Commissioner of Income Tax, Circle-IV (1) Agra. It is, however, made clear that we have not decided any question other than the question of jurisdiction of the Assessing Authority at Agra.

25. The writ petition is dismissed. The interim order is discharged.

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