M/s Balaji Health Care Pvt. Ltd. Vs ITO (ITAT Jaipur)
Conclusion: Reopening of assessment by AO on basis of report of Investigation Wing that assessee was beneficiary of accommodation entries in the form of share capital/premium/loan during the financial year was not justified as AO had not carried out any further examination and analysis in order to establish the nexus between the material and formation of belief that income had escaped assessment and there was no linkage which could be said to have been established by AO between assessee’s undisclosed income which was routed back in form of share capital.
Held: AO found from the report of the Investigation Wing that assessee had obtained accommodation entries in the form of share capital/premium/loan during the financial year, therefore, he had reason to believe that income to the tune o f Rs. 25,00,000/- for the AY 2006-07 had escaped assessment within the meaning of section 147 on account of failure on the part of assessee to disclosure fully and truly all material facts in respect of the share capital/premium. He added the amount as undisclosed income of assessee. It was held AO could rely on the report of DIT, Investigation Wing but at the same time, where he was assuming jurisdiction u/s 147, he was required to carry out further examination and analysis in order to establish the nexus between the material and formation of belief that income had escaped assessment and in absence thereof, the assumption of jurisdiction u/s 147 had no legal basis and resultant reassessment proceedings deserved to be set-aside. In the present case, there was no independent application of mind by AO to tangible material which formed the basis of the reasons to believe that income had escaped assessment indeed it was a ‘borrowed satisfaction’. Coming to the merits of the addition made by AO, assessee had discharged the initial onus cast on it in terms of identity, creditworthiness and genuineness of the transaction. There could not be a situation where the same transaction was held to be genuine in hands of Investor Company and disputed in the hands of the Investee company. Further, there was no mention of either the assessee company or the investor company in the statements so recorded of Surendra Jain and Virendra Jain. Therefore, there was no linkage which could be said to have been established by Revenue between assessee’s undisclosed income which was routed back in form of share capital. Merely relying on the report of the Investigation Wing without any further examination or investigation or disputing the documentation submitted by assessee company, addition could not be sustained in the hands of assessee company and was hereby directed to be deleted.
FULL TEXT OF THE ITAT JUDGMENT
These are two appeals filed by the assessee against the respective orders of ld. CIT(A), Jodhpur (Camp at Jaipur) dated 16.03.2018 for the Assessment Year 2006-07 and dated 19.03.2018 for the assessment year 2007-08 respectively.
2. In ITA No. 566/JP/2018, the assessee has taken the following grounds of appeal:-
“1.1 The impugned order u/s 147/143(3) dated 18.02.2014 is bad in law and on facts of the case, for want of jurisdiction, barred by limitation and various other reasons and hence the same may kindly be quashed.
1.2 The action taken u/s 147 by the ld. AO confirmed by the ld. CIT(A) is bad in law and on facts of the case, for want o f jurisdiction and various other reasons and hence the same may kindly be quashed.
2. Rs. 25,00,000/- : The ld. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of Rs. 25,00,000/- made by the ld. AO on account of alleged accommodation entries received for share application money and also erred in ignoring the various evidence submitted without rebutting and AO also erred in not providing the cross examinations. Hence the addition so made by the AO and confirmed by the ld. CIT(A) is being totally contrary to the provisions of law and fact on the record and hence the addition may kindly be deleted in full.
3. The ld. AO has grossly erred in law as well as on the facts o f the case in charging interest U/s 234A, 234B & 234C,. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, may kindly be deleted in full. ”
3. Briefly the facts of the care are that the assessee engaged in the business of Real Estate and construction of flats filed its return of income on 30.11.2006 admitting the total income at Nil. Subsequently, the AO received information from Investigation Wing, New Delhi that a search and seizure operation was carried out in the case Shri Surendra Kumar Jain and Shri Virendra Kumar Jain, Delhi and in their statement recorded, they had categorically stated that there were engaged in the business of providing accommodation entries of share capital/share premium to various beneficiaries and the assessee company was also one of the beneficiaries in respect of share capital/share premium of Rs. 25,00,000/-. Accordingly, the AO initiated the proceedings U/s 147 of the Act by issuing notice U/s 148 dated 23.03.2013. In response, the assessee stated that return filed originally on 30.11.2006 may be treated as return filed in response to notice U/s 148 of the Act. After hearing the assessee, the assessment was completed U/s 143(3) r.w.s. 147 of the Act on 18.02.2014 determining the total income by making addition of Rs. 25,00,000/- to the total income of the assessee. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the said addition and now the assessee in before us.
4. In ground No. 1, the assessee has challenged the order passed by the Assessing Officer U/s 147 of the IT Act. In this regard, the ld. AR submitted that it is a settled legal proposition that the AO is duty bound to carry out formation of belief with due diligence after due application of mind and not in a casual and mechanical manner. In the present case, from perusal of reasons recorded, it is evident that AO received a letter from the office of CIT, Jaipur-II on 21.03.2013 by which a report of Investigation Wing was forwarded to him. Thereafter, the Assessing Officer on the very next day, recorded the reasons to believe that income to the tune of Rs. 25,00,000/- has escaped assessment. It was submitted that from the reasons so recorded by the AO and subsequent letter written by the AO to ACIT, Delhi on 30.08.2013, it is manifest that formation of belief of escapement was not based on anything other than report of Investigation Wing and without any independent enquiry conducted by the AO. It was submitted that as per the settled principles of reopening, what is expected from AO is corroboration, checking and cross checking of the Information, received from the Investigation Wing, with independent evidences and establishing a clear trail suggesting, even if prima facie, flow of unaccounted money from the assessee. However, in the present case, reopening has been done by directly jumping on to the information received from the Investigation Wing by considering it to be sacrosanct. It was accordingly submitted that the AO recorded the reasons in the most arbitrary manner without application of any mind and, thus, this is nothing but a case of borrowed satisfaction which renders the entire proceedings of reopening to be illegal and void-ab-inito. In support, reliance was placed on the decision of Hon’ble Delhi High Court in case of RMG Polyvinyl (I) B Ltd [2017] 83 taxmann.com 348, Meenakshi Overseas Pvt. Ltd. [2017] 395 ITR 677 and N.C. Cables Ltd. [2017] 88 taxmann.com 649 wherein it was held that where reassessment was resorted on the basis of information from DIT (Investigation) stating that the assessee had received accommodation entry and AO fails to independently apply his mind demonstrating link between tangible material and formation of reason to believe, reassessment was not justified.
5. It was further submitted that the reopening was based on the report sent by the Investigation Wing, Delhi, no underlying records were available with AO at the time of recording of reasons and this factum is proved by the order of the Coordinate Bench in case of Basesar Properties (P) Ltd. vs. ITO [2017] 88 taxmann.com 634 where reopening was quashed which was initiated on the basis of same report of Investigation Wing in the case of Shri Surendra Kumar Jain and Shri Virendra Kumar Jain. It was further submitted that the Assessing Officer vide his letter dated 30.08.2013 has requested to ACIT, New Delhi to provide copies of all relevant documents such as statements of Surendra Kumar Jain, Virendra Kumar Jain and mediator PC Agarwal which strengthens the aforesaid fact that the AO has arrived at the satisfaction of escapement without analyzing any documents. It was further submitted that the statement of key persons i.e. P.C. Agarwal, Rajesh Agarwal and Ravindra Goel does not exist. Therefore, in the absence of such statements, how could the AO formed the belief that income has escaped assessment. It was further submitted that the AO has violated the principles of natural justice by not providing the assessee company copy of report of Investigation Wing which was the basis of entire reopening the assessment. Without prejudice, it was further submitted that the AO was duty bound to obtain necessary sanction from ld. JCIT/Add.CIT containing his satisfaction that the case is fit for reopening, however, on perusal of proforma for obtaining approval, it can be seen that the AO obtained sanction from ld. Add.CIT, however, the name of ld. Add.CIT is not mentioned and therefore, the validity of sanction is in doubt. It was further submitted that even where it is considered that the sanction was received from a competent authority, the same was not in accordance with the provisions of law. The ld. Add.CIT has just affixed his signature and has not written even a single word which could lead to a conclusion that any mind application was made and he was satisfied that it was a fit case for reopening. It was submitted that the reasons were recorded on 22.03.2013 and thereafter, the notice U/s 148 of the Act was also issued on 22.03.2013, thus within a single day reasons were recorded, sanction was granted and notice was issued which further speaks of the quality of so called sanction which was granted by the ld. Add.CIT. In support, reliance was placed on the decision of Hon’ble Supreme Court in case of Chhugamal Rajpal Vs S.P. Chaliha (1971) 79 ITR 603, CIT vs. S. Goyanka Lime & Chemical Ltd. 64 Taxmann.com 313 (SC) and decision of Hon’ble Delhi High Court in case of PCIT vs. N.C. Cables Ltd. 88 taxmann.com 649 besides various other High Courts and Coordinate Bench decisions.
6. On merits, it was submitted that the AO by placing sole reliance on the report of the Investigation Wing, New Delhi and documents seized by Investigation Wing, considered the share application money of Rs. 25,00,000/- received by the assessee company as bogus. It was submitted that the assessee company issued 10,000 shares of Rs 10 each at a premium of Rs 240 per share to M/s Pelicon Finance & lease Ltd. It was submitted that the assessee company duly discharged its onus as required U/s 68 of the IT Act by submitting the following evidences as under:-
